YAKC Yak Communications

Revenues Increase and Company Continues Investment in New Business Initiatives Yak Communications Inc. (NASDAQ:YAKC), a provider of telecommunication services to residential and business customers, today announced financial results for its first quarter ended September 30, 2005. Net revenues increased 10.8% to $23.5 million for the first quarter of fiscal 2006, as compared to net revenues of $21.2 million for the first quarter of fiscal 2005. The majority of the revenue growth was generated by dial-around telephony, which increased approximately 14.4% over the comparable quarter of fiscal year 2005. During the first quarter of fiscal 2006, Yak processed on its own network 282 million minutes of traffic, with 25.7 million calls serving approximately 900,000 monthly customers. Gross margin was particularly strong in the first quarter of fiscal 2006, increasing to 38.8% from 35.1% in the first quarter of fiscal 2005. The rate improvement was primarily due to increased traffic on Yak's internal, low-cost network. The margin gains in the first quarter of fiscal 2006 were offset in part by higher expenses when compared to the first quarter of fiscal 2005. Net earnings for the first quarter of fiscal 2006 was $0.2 million, or $0.02 per diluted share, compared with net earnings of $1.4 million, or $0.11 per diluted share for the first quarter of fiscal 2005. General and administrative expenses increased $2.8 million on a year-over-year comparison. Much of this increase is attributable to higher costs incurred in the first quarter of 2006 versus last year's comparable quarter for salaries, audit, legal, professional, consulting and other expenses related to the following: -0- *T - $0.4 million - Sarbanes-Oxley compliancy costs - $0.4 million - investments in the Company's new VoIP initiatives - $0.7 million - infrastructure to support and control the Company's growth - $0.2 million - due diligence costs for a potential acquisition (not consummated) - $0.2 million - costs incurred for the recent financial restatements - $0.5 million - tax and foreign-exchange issues *T Additionally, sales and marketing expenses increased by $0.9 million in the quarter, when compared to the first quarter of fiscal 2005. $0.3 million of the increased spending related to the new VoIP initiatives and $1.0 million was due to the continued marketing of Yak's dial-around products to Hispanic communities in the United States. These higher costs were offset by a $0.4 million reduction in marketing expenses in Canada. "We are pleased with our performance for the first quarter of fiscal 2006, as we executed according to our internal plan," said Charles Zwebner, Chairman and Chief Executive Officer. "We continued to see growth in our core business products and services and we generated earnings and cash that provided us with the means to make investments in new markets. Furthermore, the investments we made in the first quarter - for Sarbanes-Oxley compliance and for infrastructure to help support growth - are key to strengthening our position in the marketplace and are material elements of the Yak business strategy. "Our U.S. advertising campaign directed at Hispanic communities generated awareness for the YAK brand and created a foundation of business on which to drive future revenue growth for our products in U.S. ethnic markets. We also made significant progress in the development of our new VoIP related services, and as a result, now have a product that is technologically advanced," continued Mr. Zwebner. "We plan to launch this new product during the month of November. "We continue to be optimistic about our strategy to grow the core business and generate cash and fund these new business investment opportunities internally. We are executing on the business plan initiatives and remain excited about the prospects for maximizing long-term growth and shareholder value," concluded Mr. Zwebner. About Yak Communications Inc. Yak Communications Inc. (the "Company") (NASDAQ:YAKC) is an Integrated Communications Provider (ICP) offering a full array of long distance (1+, toll free and dial-around), local lines, travel cards, cellular long distance, data services, and voice services (VoIP) to residential and small businesses in North America over high speed internet access. Yak currently serves approximately 900,000 customers for its traditional telecom services. For more information, visit http://www.yak.com Forward Looking Statements Statements contained in this news release, which are not strictly historical are forward looking within the meaning of the safe harbor clause of the Private Securities Litigation Reform Act of 1995. The Company makes these statements based on information available to it as of the date of this news release and assumes no responsibility to update or revise such forward-looking statements. Editors and investors are cautioned that forward-looking statements invoke risk and uncertainties that may cause the Company's actual results to differ materially from such forward-looking statements. Words such as "projects", "believe", "anticipates", "estimate", "plans", "expect", "intends", and similar words and expressions are intended to identify forward-looking statements and are based on our current expectations, assumptions, and estimates about us and our industry. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. Although the Company believes that such forward-looking statements are reasonable, we cannot assure you that such expectations will prove to be correct. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of several factors, risks and uncertainties. These factors, risks and uncertainties include, without limitation, our ability to satisfactorily address any material weaknesses in our internal financial controls, 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. You are urged to carefully review and consider these disclosures, which describe certain factors that affect our business. -0- *T YAK COMMUNICATIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS As at September 30, 2005 (Unaudited) Three months ended September 30, -------------------- -------------------- (in $ thousands, except share and per share amounts) 2005 2004 --------------------------------------------------------------------- --------------------------------------------------------------------- $ $ NET REVENUE 23,508 21,197 COST OF REVENUE 14,375 13,758 -------------------- GROSS MARGIN 9,133 7,439 -------------------- OPERATING EXPENSES General and administration 5,928 3,088 Sales and marketing 1,895 991 Accounts receivable financing - 122 Amortization 844 562 Organizational and start-up costs - 522 -------------------- TOTAL OPERATING EXPENSES 8,667 5,285 -------------------- INCOME FROM OPERATIONS 466 2,154 -------------------- OTHER EXPENSES (INCOME) Interest expense 35 142 Interest income (116) (78) Income from joint marketing agreement - (141) Long-term debt discount amortization - 131 -------------------- (81) 54 -------------------- EARNINGS BEFORE INCOME TAXES 547 2,100 PROVISION FOR INCOME TAXES 333 734 -------------------- NET EARNINGS 214 1,366 OTHER COMPREHENSIVE INCOME (LOSS) 1,187 (364) -------------------- COMPREHENSIVE INCOME 1,401 1,002 -------------------- -------------------- BASIC EARNINGS PER SHARE 0.02 0.11 -------------------- -------------------- DILUTED EARNINGS PER SHARE 0.02 0.11 -------------------- -------------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING 12,897 12,893 -------------------- -------------------- WEIGHTED AVERAGE NUMBER OF COMMON SHARES - ASSUMING DILUTION 12,897 12,984 -------------------- -------------------- YAK COMMUNICATIONS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As at September 30, 2005 (Unaudited) September 30, June 30, (in $ thousands) 2005 2005 --------------------------------------------------------------------- --------------------------------------------------------------------- $ $ ASSETS CURRENT Cash and cash equivalents 15,890 16,751 Accounts receivable, net 16,943 16,220 Prepaid expenses and other assets 1,166 1,413 -------------------- TOTAL CURRENT ASSETS 33,999 34,384 PROPERTY AND EQUIPMENT, NET 14,510 13,559 INTANGIBLES, NET 1,947 2,005 GOODWILL 527 503 DEFERRED INCOME TAXES 3,870 2,787 -------------------- 54,853 53,238 -------------------- -------------------- LIABILITIES CURRENT Accounts payable and accrued liabilities 11,271 11,891 Income taxes payable 5,060 3,547 Advances from TELUS Communications Inc. 45 382 Current portion of obligations under capital leases 511 511 Unearned revenue 894 1,096 -------------------- 17,781 17,427 -------------------- NON-CURRENT LIABILITIES Deferred income taxes 1,853 1,990 Obligations under capital leases 912 977 -------------------- 2,765 2,967 -------------------- 20,546 20,394 -------------------- STOCKHOLDERS' EQUITY COMMON STOCK 225 225 ADDITIONAL PAID-IN CAPITAL 16,754 16,692 COMMON STOCK PURCHASE WARRANTS 2,433 2,433 ACCUMULATED OTHER COMPREHENSIVE INCOME 2,530 1,343 RETAINED EARNINGS 12,365 12,151 -------------------- 34,307 32,844 -------------------- 54,853 53,238 -------------------- -------------------- YAK COMMUNICATIONS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS As at September 30, 2005 (Unaudited) September 30, -------------------- -------------------- (in $ thousands) 2005 2004 --------------------------------------------------------------------- --------------------------------------------------------------------- $ $ CASH FLOWS FROM OPERATING ACTIVITIES Net earnings 214 1,366 Adjustments for Amortization of discount - 131 Amortization 844 562 Deferred income taxes (1,220) (84) Stock-based compensation expense 62 13 Changes in non-cash working capital 215 28 -------------------- Cash flows from operating activities 115 2,016 -------------------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES Purchase of property and equipment (1,046) (2,050) Proceeds from sale of property and equipment, and software - 10 Loan receivable - 31 -------------------- Cash flows used in investing activities (1,046) (2,009) -------------------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES Repayments on obligations under capital leases (65) (32) Repayments on advances from TELUS Communications Inc. (337) (234) Repayments on notes payable - (67) Receipt of principal portion of joint venture receivable - 70 -------------------- Cash flows used in financing activities (402) (263) -------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 472 192 -------------------- DECREASE IN CASH AND CASH EQUIVALENTS (861) (64) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,751 22,149 -------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD 15,890 22,086 -------------------- -------------------- *T Yak Communications Inc. (NASDAQ:YAKC)