Yak Communications Inc.
NASDAQ : YAKC

Yak Communications Inc.

May 16, 2006 08:30 ET

Yak Communications Inc. Announces Third Quarter Financial Results

TORONTO, ONTARIO and MIAMI, FLORIDA--(CCNMatthews - May 16, 2006) -

Core business remains strong while investments in new business results in Net Loss for the Quarter

Yak Communications Inc. (NASDAQ:YAKC), a provider of telecommunication services to residential and business customers, today announced financial results for its third fiscal quarter ended March, 31, 2006.

Net loss for the third quarter of fiscal 2006 was $0.4 million, or ($0.03) per diluted share, compared with net earnings of $1.9 million, or $0.15 per diluted share, for the third quarter of fiscal 2005. Net earnings for the nine-months ended March 31, 2006 were $1.1 million, or $0.09 per diluted share, compared with net earnings of $5.0 million, or $0.39 per diluted share, for the nine-months ended March 31, 2005.

Net revenues were $22.7 million for the third quarter of fiscal 2006, as compared to net revenues of $23.9 million for the third quarter of fiscal 2005. Net revenues for the nine-months ended March 31, 2006 were $70.2 million, up from $69.2 million for the comparable period in the prior year.

The net loss for the three months ended March 31, 2006, was principally caused by an increase in the provision for income taxes and lower dial-around revenues in Canada. These losses were largely offset by network efficiencies gained by bringing a greater portion of traffic onto our network. Operating costs for the period increased due to the cost associated with the restatement of our financial statements and increased advertising costs.

"Our results for the quarter were mixed. While we are disappointed with the decline in revenues for the third quarter of fiscal 2006 due to increased dial-around competition in Canada, the net loss incurred this quarter was principally due to our continued investment and launch of our VoIP products and our ongoing national advertising campaign for these products which we believe will benefit the Company in the longer term," said Charles Zwebner, President and Chief Executive Officer. "In Canada, we are beginning to see the positive effects of our Canadian advertising campaigns which has resulted in our signing up more than 30,000 yakLongDistance™ customers since the campaign began in the late second quarter. We have also added more than 14,000 yakCell® customers and 18,000 yakCallingCard™ customers during that same time period. We continue to generate cash from our consolidated operations and have noticed an improvement in our United States business."

"We continue to see an increase in usage of our YakforFree™ service which had more than 40,000 registered users as of March 31, 2006, and currently, there are approximately 60,000 downloads for this service. At the end of the quarter, we had over 900 consumers upgrading to the yakToAnyone service and 1,200 yakUnlimited customers using our system. We continue to see consumer acceptance of our new VoIP products and a positive response to our marketing strategies. We look forward to substantially increasing our marketing efforts during the next year in order to maximize growth and shareholder value," concluded Zwebner.

The table below includes extracts from the Company's interim condensed financial statements for the three and nine months ended March 31, 2006 (all amounts in thousands except per share amounts). Readers are encouraged to review the Company's Form 10-Q filed with the Securities and Exchange Commission on Monday, May 15, 2006.



YAK COMMUNICATIONS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

(in $thousands)
March 31, June 30,
2006 2005
--------------------------------------------------------------
$ $
ASSETS

Current
Cash and cash equivalents 12,892 16,751
Accounts receivable 15,143 16,709
Less: Allowance for doubtful accounts (505) (489)
Prepaid expenses and other assets 701 1,413
--------------------------------------------------------------
Total current assets 28,231 34,384

Property and equipment, net 15,598 13,559
Deferred income taxes 2,018 2,787
Intangibles, net 1,564 2,005
Goodwill 529 503
--------------------------------------------------------------
47,940 53,238
--------------------------------------------------------------
--------------------------------------------------------------

LIABILITIES

Current

Accounts payable and accrued liabilities 7,505 11,891
Unearned revenue 783 1,096
Income taxes payable 1,424 3,547
Advances from TELUS Communications Inc. - 382
Current portion of obligations under
capital leases 521 511
Obligations under warrants 855 1,093
--------------------------------------------------------------
11,088 18,520
Non-current liabilities
Deferred income taxes 2,620 1,990
Obligations under capital leases 632 977
--------------------------------------------------------------
14,340 21,487
--------------------------------------------------------------

STOCKHOLDERS' EQUITY

Common stock 225 225
Additional paid-in capital 17,170 16,952
Accumulated other comprehensive income 1,872 1,343
Retained earnings 14,333 13,231
--------------------------------------------------------------
33,600 31,751
--------------------------------------------------------------
47,940 53,238
--------------------------------------------------------------
--------------------------------------------------------------



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

Three months ended Nine months ended
March 31, March 31,
--------------------------------------------------------------------
(in $ thousands, except share 2005 2005
and per share amounts) 2006 (Restated) 2006 (Restated)
--------------------------------------------------------------------
$ $ $ $
Net revenue 22,656 23,850 70,193 69,200

Cost of revenue(1) 13,854 14,798 42,676 43,177
--------------------------------------------------------------------
Contribution margin 8,802 9,052 27,517 26,023
--------------------------------------------------------------------

Operating expenses

General and administration(2) 5,848 5,183 16,695 13,868
Sales and marketing 1,978 1,941 5,500 4,631
Writedown of assets 63 - 174 -
Depreciation and amortization 811 736 2,396 1,992
--------------------------------------------------------------------
Total operating expenses 8,700 7,860 24,765 20,491
--------------------------------------------------------------------
Income from operations 102 1,192 2,752 5,532
--------------------------------------------------------------------
Other expenses (income)

Interest expense 30 286 98 763
Interest income (87) (117) (325) (300)
Change in fair value of
obligation under warrants 90 (470) (238) (887)
Income from joint marketing
agreement - (135) - (416)
Long-term debt discount
amortization - 130 - 391
Gain on settlement of
notes payable - (1,242) - (1,242)
--------------------------------------------------------------------
33 (1,548) (465) (1,691)
--------------------------------------------------------------------

Earnings before income taxes 69 2,740 3,217 7,223

Provision for income taxes 476 822 2,115 2,245
--------------------------------------------------------------------
Net earnings (407) 1,918 1,102 4,978

Other comprehensive income (204) (87) 529 900
--------------------------------------------------------------------
Comprehensive income (611) 1,831 1,631 5,878
--------------------------------------------------------------------
--------------------------------------------------------------------

Basic earnings per share ($0.03) $0.15 $0.09 $0.39
--------------------------------------------------------------------
--------------------------------------------------------------------

Diluted earnings per share ($0.03) $0.15 $0.09 $0.39
--------------------------------------------------------------------
--------------------------------------------------------------------

Weighted average number
of common shares outstanding 12,905 12,897 12,900 12,896
--------------------------------------------------------------------
--------------------------------------------------------------------

Weighted average number
of common shares -
fully diluted 12,905 12,902 12,900 12,921
--------------------------------------------------------------------
--------------------------------------------------------------------


(1) Excludes depreciation and amortization of $666 and $583 for the three months ended March 31, 2006 and 2005, respectively, and $1,968 and $1,560 for the nine months ended March 31, 2006 and 2005, respectively.

(2) Includes stock-based compensation expense of $65 and $189 for the three and nine months ended March 31, 2006, respectively, and $15 and $42 for the three and nine months ended March 31, 2005, respectively.



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

Three months ended Nine months ended
March 31, March 31,
---------------------------------------------------------------------
2005 2005
2006 (Restated) 2006 (Restated)
---------------------------------------------------------------------
$ $ $ $
CASH FLOWS FROM (USED IN)
OPERATING ACTIVITIES
Net earnings (407) 1,918 1,102 4,978
Adjustments for:
Amortization of discount on note
payable - 130 - 391
Depreciation and amortization 811 736 2,396 1,992
Foreign exchange loss 161 - 264 -
Deferred income taxes 289 (546) 378 (642)
Stock issued for services
rendered - 5 29 29
Stock-based compensation
expense 65 15 189 42
Write-down of property
and equipment 63 - 174 -
Impairment on
Loan Receivable - 290 - 493
Change in fair value
of warrants 90 (470) (238) (887)
Gain on settlement
of notes payable - (1,242) - (1,242)
Increase in non-cash
working capital 2,165 2,062 (3,770) (1,071)
---------------------------------------------------------------------

Cash flows from (used in)
operating activities 3,237 2,898 524 4,083

CASH FLOWS USED IN INVESTING
ACTIVITIES
Purchase of property
and equipment (1,613) (1,435) (3,791) (4,303)
Refund on (Acquisition of)
customer lists - (735) 107 (735)
Proceeds from sale of
property and equipment,
and software - - - 14
Loan receivable - (89) - (47)
---------------------------------------------------------------------

Cash flows used in investing
activities (1,613) (2,259) (3,684) (5,071)

CASH FLOWS FROM (USED IN)
FINANCING ACTIVITIES
Repayments on obligations
under capital leases (137) (128) (408) (367)
Repayments on advances
from TELUS
Communications Inc. - (339) (395) (998)
Repayments on notes payable - (402) - (402)
Receipt of principal
portion of joint
venture receivable - 73 - 215
---------------------------------------------------------------------

Cash flows used in financing
activities (137) (796) (803) (1,552)
---------------------------------------------------------------------

EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH
EQUIVALENTS (147) 233 104 257
---------------------------------------------------------------------

INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,340 76 (3,859) (2,283)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 11,552 19,790 16,751 22,149
---------------------------------------------------------------------

CASH AND CASH EQUIVALENTS,
END OF PERIOD 12,892 19,866 12,892 19,866
---------------------------------------------------------------------
---------------------------------------------------------------------

Supplemental disclosure of
cash flow information:
Interest paid 29 133 96 516
Income taxes paid 278 187 39 49

Supplemental disclosure of
non-cash investing and
financing activities:
Capital leases for acquisition
of furniture and equipment - - - -


The following table provides a reconciliation between Yak Communications Inc.'s unaudited results of operations by segment to the financial statements for the three months ended March 31, 2006.



Three months ended March 31, 2006
---------------------------------------------------------------------
Eli-
mina-
World- Total tions
Yak Yak for Yak City Seg- and
Canada Business Contour America VoIP ments other Total
$ $ $ $ $ $ $ $

Revenues 16,557 3,187 1,229 1,438 245 22,656 - 22,656
Cost of
Revenues
(1) 9,047 2,222 942 1,312 331 13,854 - 13,854
---------------------------------------------------------------------
Contri-
bution
Margin 7,510 965 287 126 (86) 8,802 - 8,802
General and
adminis-
tration 2,706 843 201 284 1,090 5,124 724 5,848
Sales and
marketing 1,147 - - 499 332 1,978 - 1,978
Other
Expenses
(Income) (18) (1) (7) 56 (5) 25 71 96

Depreciation
and
Amortization 532 152 10 27 90 811 - 811

---------------------------------------------------------------------
Segment
Earnings
(Loss)
Before
Income Tax 3,143 (29) 83 (740)(1,593) 864 (795) 69
---------------------------------------------------------------------
---------------------------------------------------------------------

Segment
Assets 39,379 5,880 2,980 4,237 1,935 54,411(6,471)47,940
Long-Lived
Assets 12,801 2,434 201 541 1,714 17,691 - 17,691

(1) Excludes depreciation and amortization of $666


About Yak Communications Inc.

Yak Communications Inc. (the "Company") (NASDAQ: YAKC) is an Integrated Communications Provider (ICP) offering residential long distance (1+, dial-around, calling cards and cellular long distance) and VoIP services to residential customers in Canada and the United States and a full array of telecommunications services to small and medium-sized businesses in Canada, including local lines, toll services and data services. Yak currently serves approximately 850,000 customers for its traditional telecom services. For more information, visit http://www.yak.com. To review the Company's complete Form 10-Q filing please visit the SEC Edgar database at http://www.sec.gov/edgar/searchedgar/webusers.htm.

Forward-Looking Statements

This release contains certain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and, Section 21E of the Exchange Act, as amended that are based on management's exercise of business judgment as well as assumptions made by and information currently available to management. You should not place undue reliance on these forward-looking statements. These statements reflect our current view of future events and are subject to certain risks and uncertainties as noted in our securities and other regulatory filings. These factors, risks and uncertainties include, without limitation, material weaknesses in certain internal controls which may not be promptly corrected, our success in integrating the operations of any newly-acquired businesses, and associated reduction in costs, the successful implementation of our business plans including growth of existing product offerings, strategic acquisitions and development of broadband telephony products, the successful integration of new management team members, continued and increased demand for our services, the successful deployment of new equipment and realization of material savings there from, competition from larger and/or more experienced telecommunications providers, our ability to continue to develop our markets, general economic conditions, changes in governmental regulation, and other factors that may be more fully described in our literature and periodic filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, our actual results could differ materially from those anticipated in these forward-looking statements. We undertake no obligation and do not intend to update, revise or otherwise publicly release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of any unanticipated events. Although we believe that our expectations are based on reasonable assumptions, we can give no assurance that our expectations will materialize. Many factors could cause actual results to differ materially from our forward-looking statements.

For more information on the above and other risks affecting our business, please read the "Risk Factors" section included in our quarterly report for the third quarter ended March 31, 2006 as filed with the SEC, and other quarterly or annual securities filings of ours in Forms 10-Q and 10-K.

Contact Information

  • Yak Communications Inc.
    Paul Broude
    Principal Financial Officer
    1 (647) 722-7091
    pbroude@yak.ca