LCC International Solidifies New Strategy; Company Reports Fourth Quarter and Year End 2005 Results
MCLEAN, Va.--March 13, 2006--LCC International, Inc., a global leader in wireless voice and data turnkey technical consulting services, today announced a shift in strategy to focus the company's domestic sales and business development efforts on its high-end technical consulting, engineering, and its new network optimization, QoS and performance management tools business. Commenting on the company's strategy shift, Dean Douglas, president and CEO said, "For years, one of LCC's core strengths has been its technical consulting, network design and optimization business. In addition to emphasizing this core strength, we have recently introduced a suite of asset-based services utilizing proprietary tools developed by LCC's Research and Development group. These services target wireless networks challenged by high-bandwidth and high capacity applications, such as 3G, WiMAX and other broadband technologies."The move comes as wireless carriers begin to increase the pace at which they are deploying new technologies, new applications and rich media services that place significant quality and capacity pressures on their networks. By integrating its tools and services capabilities, LCC can provide unique strategic insight to its customers on how to best address these pressures in a cost effective manner. The suite includes tools that are particularly useful for customers developing their strategy for the Advanced Wireless Services auctions scheduled for this summer as well as other broadband network technologies including WiMAX.
"By equipping our highly skilled engineers with powerful tools, we can provide clients a unique view of their broadband networks," continued Douglas. "This entree into the tools business will provide LCC with the opportunity to derive profitable revenues today, while establishing a market presence that can be leveraged over time. As we continue to leverage LCC's intellectual capital, we intend to expand our asset-based services and create complementary host-based services. These new growth areas will provide natural synergies with the core engineering business as they bring practical field experience into proprietary software applications for the engineering and operations community. Host based services will also provide a cost effective way to extend LCC's reach to new customers - those smaller carriers and those in emerging markets who do not necessarily have the ability to afford outside consultants."
"Turning to our results," commented Douglas, "during the last part of 2005, we were able to put a lot behind us. Issues that had encumbered the company from being able to break out of the niche in which it had landed after the capex pullback in the 2000-2002 period have been addressed. As we enter 2006, we have some near-term goals that will strengthen the core business as well as fund our growth objectives. We anticipate that within 6 months we will begin showing progress on our plan."
Fourth Quarter Results
Fourth quarter revenues were $56.4 million, a $10.9 million increase from the $45.5 million (restated) posted in the fourth quarter of 2004 and a $6.9 million increase from the $49.5 million posted in the third quarter of 2005. The quarter-over-quarter increase in 2005 was primarily due to increased deployment revenues in the Americas associated with long-term contracts that still allow for the pass through of construction costs. Under LCC's two largest deployment contracts construction costs will be borne by the customer for sites started on or after October 1, 2005. However, sites that commenced prior to October 1, 2005 still have a construction component. Many of these sites were completed or were substantially completed in the fourth quarter of 2005. Sites starting on or after October 1, 2005, had no construction costs. Revenues for these contracts are based on the percentage of completion computed using the cost-to-cost method. The percentage of completion for these contracts is calculated by comparing costs incurred to date to the estimated total costs for the project. As a result, the percentage of completion for the fourth quarter of 2005 was heavily weighted with construction costs, which resulted in higher costs and higher revenues.
The Company reported a net loss for the quarter of $(1.9) million, compared to a net loss of $(6.7) million (restated) for the fourth quarter of 2004 and net income of $1.2 million for the third quarter of 2005. Net loss per share for the fourth quarter of 2005 was $(0.08) per basic and fully diluted share on 24.4 million shares, compared to a net loss per share of $(0.27) for the fourth quarter of 2004 (restated) and income per share of $0.05 for the third quarter of 2005. In the fourth quarter of 2005 construction costs continued to increase due to increased international demand for building materials and rising labor costs for construction in the United States associated with reconstruction along the Gulf coast. As a result, the booking margins for the two largest deployment contracts in the Americas had to be reduced. This caused earnings to be $0.6 million lower in the fourth quarter than they would have been if the margin adjustments had not been made. In the fourth quarter of 2005, we had $0.6 million of bad debt expense and incurred $0.5 million to bring on board our new CEO. We incurred a $0.5 million foreign currency transaction loss in the fourth quarter of 2005. Fourth quarter earnings for 2005 were increased by a $0.6 million tax benefit in the United States attributable to an expected refund of income tax paid in prior years.
Year Ended December 31, 2005 Results
Revenues for the year ended December 31, 2005 were $194.0 million, an increase of $0.8 million from the $193.2 million (restated) for 2004. Net loss for the year ended December 31, 2005 was $(12.5) million compared to the net loss of $(6.3) million (restated) reported for 2004.
In 2005, total revenues for the Americas were $84.8 million, a decline of $25.2 million from 2004. Deployment revenues were $45.0 million, down $27.4 million from 2004. The decline is primarily due to the completion of the US Cellular project. RF/wireless design revenues were $39.8 million, up $2.2 million from 2004. Gross margin for the deployment business in 2005 was 1.4%, which compares to 11.4% for 2004. Gross margin for RF/wireless design was 14.4% in 2005, which compares to 18.9% for 2004. Overall gross margins for the Americas declined in the year to 7.5% from the 13.9% in 2004, due primarily to increases in construction costs which significantly depressed margins for deployment contracts in the Americas.
In 2005, revenues for EMEA (Europe, Middle East and Africa) grew to $107.8 million, an increase of $29.7 million over the previous year. The growth in revenue was attributable to Saudi Arabia and Algeria. Saudi revenue growth for 2005 was $15.6 million with Algerian revenue growth of $16.8 million. Overall gross margins for EMEA improved in the year to 24.5% from the 22.6% in 2004, largely due to the higher margins produced in Saudi Arabia and Algeria.
Sales expenses for 2005 increased $0.1 million over 2004. General and administrative expenses increased $2.7 million. Increased costs of employee benefits in the Americas and Corporate was responsible for $1.6 million of this increase. Other causes for the increase were $0.7 million in bad debt expenses, $0.5 million costs associated with bringing on board a new CEO, and $0.4 million in costs associated with the restatement of financial statements for 2004 and first quarter 2005.
During 2005, a restructuring charge of $0.6 million was recorded due primarily to the restructuring that occurred in the second quarter of the year which resulted in a reduction of 48 positions in the sales and general and administrative functions in the Americas and Corporate. This compares to a $1.2 million increase to earnings in 2004 that resulted from the reversal of restructuring costs accrued in prior years due to reoccupied office space in our McLean, Virginia headquarters and a decrease in the estimated time period expected to sublease space in our McLean and London offices.
In 2005, the Company suffered foreign currency transaction losses of $1.7 million. This compares to foreign currency transaction gains of $1.0 million recorded in 2004. In 2005 the provision for income taxes was $2.2 million lower than in 2004 due primarily to the additional valuation allowance of $6.4 million recorded against deferred tax assets in the fourth quarter 2004 and due to the accrual in 2005 of a $0.6 million tax benefit in the United States attributable to an expected refund of income taxes paid in prior years.
Loss per share for 2005 was $(0.51) per basic and fully diluted share (on 24.5 million shares), compared to a loss per share of $(0.26) per share (on 24.4 million shares) for the prior year.
At December 31, 2005, the Company had a firm backlog of $79.1 million and an implied backlog of $7.9 million. This compares to a firm backlog of $59.8 million at December 31, 2004 (restated) and an implied backlog of $7.5 million. At September 30, 2005, the Company had a firm backlog $109.1 million and an implied backlog of $8.4 million.
We ended the year 2005 with $14.2 million in cash, which compares to $21.9 million at year-end 2004 and to $7.4 million at September 30, 2005. We ended the year with $37.8 million in net working capital, which compares to $38.8 million at the end of the third quarter of 2005.
The Company has, after rigorous testing, completed its assessment of internal controls for 2005. During the preparation of the fourth quarter and year-end financial statements for 2005, a member of management did not follow the prescribed methodology used in the calculations of the percentage of completion for the Company's largest fixed price contract circumventing the Company's established controls over financial reporting. The methodology utilized in the calculations for the year end financial statements of 2005 was inconsistent with the methodology utilized in the calculations prepared for the restatements of 2004 and the first quarter of 2005; and the second and third quarters of 2005. The methodology used in the calculations of the percentage of completion for this contract have been corrected in the financial statements contained in this press release and in the Annual Report of Form 10-K that will be filed this week. Had they not been corrected, it could have resulted in an overstatement of revenues of $1.6 million and an overstatement of net income of $0.1 million for the fourth quarter and year end financial statements of 2005. The action of the member of management described above constituted a management override of internal controls. The Company has terminated the employment of the person who did not follow the prescribed methodology as described above. The management override described above is deemed to be a material weakness in internal control over financial reporting. There is no indication that fraud was involved.
Outlook
Concluding, Douglas said, "Some of the fundamental building blocks of our vision are already in place. We will be moving some of our parts around and adding where needed but expect to be able to offer wireless carriers truly impactful network enhancement solutions. Most important to note is that as we enter 2006, we are a company with a new vision and a new plan in a strong market."
Conference Call
A conference call to discuss the 2005 results will be held Tuesday, March 14, at 8:45AM. Details for all interested parties wishing to participate in the conference call are as follows:
-- Via Live Conference Call: U.S. and International callers please dial 888-396-2369 or 617-847-8710. Participants will need to enter passcode 13799407 in order to be connected to the call. There will be a question and answer period during the call.
-- Via Live Web Cast: To listen to a live broadcast of the conference call via the Internet, please visit the Investor Relations section of the Company's web site located at www.lcc.com. In order to participate in the call via the Internet, participants will need a computer with speakers and the Windows(R) Media Player plug-in.
-- Via Digital Replay: A replay of the call will begin at approximately 11:00 a.m. Eastern on Tuesday, March 14 and will continue until 12 midnight Eastern on Wednesday, March 15. To access the replay, please dial 888-286-8010 or 617-801-6888 and enter passcode 44420390 to be connected to a recording of the LCC International earnings call.
-- Via Internet Archive: Beginning Thursday, March 15, LCC's fourth quarter and year end 2005 conference call will be available for review on the Company's web site. This function sorts the call by section that enables parties to save time by only listening to the segments in which they are most interested (i.e. opening remarks, financial overview, questions and answers). To access the March 14th call, go to the Audio Archives page that can be found in the Investor Relations section of the Company's web site.
About LCC
LCC International, Inc. is a global leader in voice and data design, deployment and management services to the wireless telecommunications industry. Since 1983, LCC has performed technical services for the largest wireless operators in North and South America, Europe, The Middle East, Africa and Asia. The Company has worked with all major access technologies and has participated in the success of some of the largest and most sophisticated wireless systems in the world. Through an integrated set of technical business consulting, training, design, deployment, operations and maintenance services, LCC is unique in its ability to provide comprehensive turnkey services to wireless operators around the world. News and additional information are available at www.lcc.com.
Forward Looking Statements
Statements included in this news release which are not historical in nature are "forward-looking statements" within the meaning of Section 21E of the U.S. Securities Exchange Act of 1934 and the U.S. Private Securities Litigation Reform Act of 1995. Forward looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These include, without limitation, statements regarding increased demand for the Company's services, forecasts of revenues, earnings estimates, statements regarding contracts, work or revenue opportunities the Company may secure in the future, and related information, all of which are based on current factual information and certain assumptions about future events which management believes to be reasonable at this time. There are many risks, uncertainties and other factors that can prevent the Company from achieving its goals or cause the Company's results to differ materially from those expressed or implied by these forward-looking statements including, without limitation, changes in demand for the Company's services from external factors including general economic conditions or changes in wireless demand or technology affecting network expansion strategies at and financing opportunities for the Company's clients, delays in the award of new work, the termination or reduction of existing projects due to changes in the financial condition or business strategies of the Company's clients, the Company's dependence on hiring and retaining professional staff and key personnel, fluctuations in quarterly results from a variety of internal and external factors including changes in the Company's estimates with respect to the completion of fixed-price contracts, lengthy sales cycles especially with respect to larger projects that may account for a significant portion of the Company's anticipated revenues, intense competition in the marketplace especially from competitors with greater financial resources and financing capabilities, and those risk factors described in LCC International, Inc.'s filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q. The Company generally provides performance and earnings projections at each quarterly earnings conference call and in specific regulatory filings. These forecasts are as of the date of the call or filing and will include estimates based on factual information and assumptions which management believes to be reasonable at that time. In providing projections and other forward-looking statements, the Company does not make, and specifically disclaims, any undertaking or obligation to update them at any time in the future or at all to reflect new information, future events or otherwise.
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Twelve Months Ended
December 31, December 31,
--------------------- ---------------------
2004 2005 2004 2005
---------- ---------- ---------- ----------
(Restated) (Restated)
REVENUES $ 45,485 $ 56,351 $ 193,158 $ 193,973
COST OF REVENUES 37,506 46,894 158,847 160,878
---------- ---------- ---------- ----------
GROSS PROFIT 7,979 9,457 34,311 33,095
---------- ---------- ---------- ----------
OPERATING (INCOME)
EXPENSE:
Sales and marketing 2,262 1,991 7,986 8,128
General and
administrative 8,684 8,386 27,446 30,141
Restructuring charge
(recovery) (242) (161) (1,166) 598
Depreciation and
amortization 618 799 2,715 2,996
---------- ---------- ---------- ----------
11,322 11,015 36,981 41,863
---------- ---------- ---------- ----------
OPERATING LOSS (3,343) (1,558) (2,670) (8,768)
---------- ---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest income 40 52 174 166
Interest expense (101) (157) (253) (318)
Other 791 (237) 1,395 (890)
---------- ---------- ---------- ----------
730 (342) 1,316 (1,042)
---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES (2,613) (1,900) (1,354) (9,810)
PROVISION (BENEFIT) FOR
INCOME TAXES 4,097 (9) 4,957 2,717
---------- ---------- ---------- ----------
NET LOSS $ (6,710) $ (1,891) $ (6,311) $ (12,527)
========== ========== ========== ==========
NET LOSS PER SHARE:
Basic $ (0.27) $ (0.08) $ (0.26) $ (0.51)
========== ========== ========== ==========
Diluted $ (0.27) $ (0.08) $ (0.26) $ (0.51)
========== ========== ========== ==========
WEIGHTED AVERAGE SHARES
USED IN CALCULATION OF
NET LOSS PER SHARE:
Basic 24,469 24,426 24,381 24,524
========== ========== ========== ==========
Diluted 24,469 24,426 24,381 24,524
========== ========== ========== ==========
LCC INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
December 31,
-----------------------
2004 2005
----------- -----------
(Restated)
(Audited) (Unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $ 21,930 $ 14,196
Restricted cash 1,162 1,141
Receivables, net of allowance for
doubtful accounts of $620 and $317 at
December 31, 2004 and 2005,
respectively
Trade accounts receivable 46,214 47,448
Unbilled receivables 28,696 35,791
Due from related parties and affiliates 80 15
Deferred income taxes, net 290 --
Prepaid expenses and other current assets 1,586 1,998
Prepaid tax receivable and prepaid taxes 683 1,195
----------- -----------
Total current assets 100,641 101,784
Property and equipment, net 4,218 3,642
Investments in affiliates 677 --
Deferred income taxes, net 858 1,171
Goodwill 12,246 11,014
Other intangibles 602 312
Other assets 1,565 1,030
----------- -----------
$ 120,807 $ 118,953
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Line of credit $ 147 $ 2,975
Accounts payable 19,790 27,876
Accrued expenses 21,840 22,480
Accrued employee compensation and benefits 4,850 5,390
Deferred revenue 985 1,142
Income taxes payable 1,570 2,891
Accrued restructuring current 1,562 1,072
Other current liabilities 239 188
----------- -----------
Total current liabilities 50,983 64,014
Accrued restructuring noncurrent 1,339 492
Other liabilities 780 696
----------- -----------
Total liabilities 53,102 65,202
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock:
10,000 shares authorized; -0- shares
issued and outstanding -- --
Class A common stock; $.01 par value:
70,000 shares authorized; 20,209 shares
and 20,485 shares issued and
outstanding at December 31, 2004 and
2005, respectively 202 205
Class B common stock; $.01 par value:
20,000 shares authorized; 4,638 shares
and 4,428 shares issued and outstanding
at December 31, 2003 and 2004,
respectively 44 44
Paid-in capital 107,773 108,902
Accumulated deficit (42,913) (55,440)
----------- -----------
Subtotal 65,106 53,711
Accumulated other comprehensive income --
foreign currency translation adjustments 3,481 922
Treasury stock (159,209 shares) (882) (882)
----------- -----------
Total shareholders' equity 67,705 53,751
----------- -----------
$ 120,807 $ 118,953
=========== ===========