MONTREAL – Prestige Telecom Inc, which provides construction and operation services for wireline, wireless and cable television networks, reported a fourth-quarter net loss of $2.2 million, compared to a net loss of $1.4 million in the prior year quarter. Sales for the quarter increased 37% to $8.1 million from the prior year quarter.
For the 2008 fiscal year, the company reported a net loss of $2.07 million compared to a net loss of $1.55 million in the same period last year. Prestige blamed the fourth quarter decline on sharp reductions in telco capital expenditures in the quarter. It reports that wireline and wireless capital spending by the major Canadian telcos declined in the three months ended March 31, 2008 on a sequential basis by 33% and 45%, respectively, as investment decisions were delayed ahead of the government’s wireless services spectrum auction which was completed earlier this week.
The company also incurred significant business development expenses due to a surge in request for proposal activities. These included the opening of two new offices in the Maritimes, ramping up of staff in Western Canada and business development expenses related to other recently signed contracts. Selling, general and administrative (SG&A) expenses in the quarter also included consulting and other external costs related to the company’s growth and acquisition strategy and the $5.7 million private placement which was completed on March 28, 2008.
Looking to profit from increasing demand for wireless services in the U.S. and Canada, Prestige also made the bold move in June of purchasing two companies, WesTower LLC of Houston, Tex., and Radian Communication Services (Canada) Ltd. of Oakville, Ont., for nearly $100 million in cash and shares.
"While we were disappointed by the loss recorded in the fourth quarter, during the year we executed on our business plan, including integrating the acquisitions of Plantec and Keen, deepening our relationships with the major Canadian telcos, and leveraging our strategic partnership with RAMTeCH [an Indian-based supplier of off-shore computer assisted design services to Prestige] in order to provide scalable resource requirements to our customers. In the fourth quarter, we also expended significant time, effort and resources in pursuing selective acquisitions consistent with our strategy to be the outsource partner of choice to telecommunications customers across North America, including strengthening our balance sheet through a private placement. We look forward to concluding the planned acquisition of Radian Communication Services, which is an important step in expanding our wireless capabilities,” says Pierre Yves Methot, president and CEO of Prestige.
Prestige noted that the fourth quarter gross margin was 13.3%, higher than the 6.4% recorded in the year-ago quarter, but lower than the levels of the previous three quarters, where it exceeded 24%. The sequential decline reflected the absolute decline in quarterly sales as well as a shift in sales mix. Products revenues, which typically have higher gross margins than engineering and installation revenues, declined to 16% of total sales in the fourth quarter, compared to an average of 26% of sales in the first nine months of the year. SG&A expenses totalled $2.9 million in the quarter, an increase from $1.2 million last year and $1.9 million in the previous quarter. The increase was partly due to the acquisitions of Keen and Plantec, which closed in the third quarter and second quarter, respectively.
It says the pace of its revenue growth re-accelerated in its first quarter which ended June 30, reflecting new contract activities with telco, cable and OEM customers. Looking ahead, positive growth drivers for fiscal 2009 include the recent appointment of a new CEO of BCE Inc. and its re-focus on improving the customer experience as well as the conclusion of the wireless spectrum auction, which resulted in several new Canadian wireless players.
Prestige says it is positioning itself for the anticipated increase in network build-out and upgrade activity, and transitioning its business model to absorb the costs of this rapid sales growth. These expenses include hiring talented engineers and other technical staff, other contract start-up costs, as well as continuing higher initial costs of executing its organic growth and acquisition strategies.
