SR Telecom's Revenue Falls in Q1

SR Telecom reports first-quarter results

May 12, 2005

4 Min Read

MONTREAL -- SR Telecom Inc. (TSX: SRX, NASDAQ: SRXA) today reported its results for the first quarter of fiscal 2005 ended March 31, 2005.

"During our fourth quarter conference call in March we explained how the effect of reduced supplier credit would result in a significant decrease in overall sales volumes in the first quarter of the current fiscal year," said Pierre St-Arnaud, SR Telecom’s President and Chief Executive Officer. "However, we are encouraged by the support we have received from our customers and the current level of bookings. In fact, we have just delivered our first equipment order for the major rural project in Mexico. Once our recapitalization plan is finalized, we will be able to resume production at a more normal level and we expect our sales and deliveries to increase."

Consolidated First Quarter Results

Consolidated revenues for the first quarter of fiscal 2005 totalled $17.9 million, compared to $26.2 million in the first quarter of fiscal 2004. The consolidated operating loss for the first quarter of fiscal 2005 was reduced to $10.7 million, compared to an operating loss of $13.6 million in the same period in 2004. The consolidated net loss for the first quarter of 2005 was $13.8 million, compared to a consolidated net loss of $16.9 million in the corresponding period in 2004.

"Our gross margins were also negatively impacted by the decreased sales volumes and under-absorbed overhead costs related to lower manufacturing volumes," Mr. St-Arnaud said.

Wireless Telecommunications Products Segment

Revenues in SR Telecom’s core wireless business segment for the first quarter of fiscal 2005 were $12.8 million, compared to $21.6 million reported during the same period in 2004. The net loss for the first quarter of fiscal 2005 totalled $12.9 million, compared to a $15.1 million net loss in the corresponding period last year.

Selling, general and administrative expenses in the core wireless business segment decreased sharply to $9.8 million for the first quarter of 2005, compared to $13.2 million for the same period in 2004. This decrease was primarily due to the effects of the restructuring that was implemented in the second and third quarters of 2004.

Research and development expenses in the core wireless business segment also decreased significantly, from $7.3 million in the first quarter of 2004 to $3.5 million in the first quarter of 2005. This decrease is also attributable to the restructuring initiative that was implemented by the Corporation in 2004. At this time, the Corporation expects that R&D expenses will remain stable in comparison to the first quarter levels.

In January 2005, SR Telecom took additional steps to align its costs with current levels of business activity and temporarily laid-off 127 employees. The Corporation expects that employees will be recalled as production returns to customary levels.

Telecommunications Service Provider ("CTR") Segment

For the first quarter of fiscal 2005, CTR’s revenues increased to $5.1 million, compared to $4.6 million in the same period last year. In peso terms, net revenue in the first quarter of 2005 was 2,408 million pesos, compared to 2,075 million pesos in the prior period. The improvement is largely attributable to the increase in access tariffs approved by the Chilean regulator, Subtel, which took effect on March 1, 2004, and to the deployment of new lines in urban areas of Chile.

Operating earnings for CTR totalled $350,000 in the first quarter of fiscal 2005, compared to an operating loss of $259,000 in the same period last year. CTR’s net loss for the first quarter of 2005 was $879,000 compared to a net loss of $1.8 million in the corresponding period in 2004.

"As previously forecast, we are confident that CTR will be able to continue to realize positive EBITDA, and we expect it will generate approximately $7 million of EBITDA in fiscal 2005," said Mr. Adams, SR Telecom’s Senior Vice-President, Finance and Chief Financial Officer.

Financial Position

SR Telecom's consolidated cash and short-term investment position, including restricted cash, increased to $8.3 million at March 31, 2005, compared to $6.4 million at December 31, 2004.

Subsequent to quarter end, SR Telecom’s Debenture Holders agreed to provide a five-year secured Credit Facility of up to $50.0 million, subject to execution of final documentation and the fulfillment of certain conditions. An amount of up to $20.0 million will be available to the Corporation as certain approvals are received. The balance will be available over the next three quarters, subject to certain conditions. An initial drawdown of this Credit Facility is anticipated in May 2005.

Subject to final documentation and registration of the Credit Facility, the Convertible Debentures, and the CTR loan restructuring, SR Telecom will have sufficient cash and cash equivalents, short-term investments, and cash from operations going forward to satisfy its working capital requirements and continue operations as a going concern for the next twelve months.

SR Telecom Inc.

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