The wholesale telecommunications industry has undergone some significant changes in the last decade, including going from a somewhat dirty word in the industry to a thriving, competitive and valuable component to major players. Among other benefits, such as lower infrastructure expense, utilizing a wholesale telecom provides large carriers a second opportunity to once again generate revenue from a lost retail customer. Industry expert Ovum forecast last month that increased competition in telecom markets worldwide will support additional wholesale telecom growth, predicting that sales will reach $142 billion in 2019, or 6.6% of total telecom service revenue.
Alberta-based Virtutone Networks Inc. (TSX-Venture:VFX), a wholesale telecommunications company serving as an intermediary between large carriers and local telephone companies domestically and internationally, says it plans to capture its share of that market.
In business for a decade, Virtutone originally was selling mobility to carriers primarily in the North American energy sector. As the company grew, it expanded into wholesale long distance and opened retail locations in several countries, eventually divesting its retail operations last year and focusing exclusively on its wholesale business.
In 2013, the company acquired certain customers from its largest customer for $370,000 in stock, diversifying its customer base so that no one customer represents more than 25% of its total revenue. With the purchase, Virtutone added approximately $14.5 million annually to its top line at a gross margin of approximately 3%, or $432,000.
The company’s latest filings with Sedar show that the moves are paying off for Virtutone. In the three months ended October 31, 2013, revenue rose to $12.3 million, compared to only $1.1 million in the same quarter of 2012. In addition to the jump in revenue, the company swung to a profit during the quarter, notching net income of $208,536, or one cent per share, versus a net loss of $234,667, or one cent per share, in the year prior quarter.
Based upon news from the last two months, sales are still rising sharply. Virtutone said that January sales were in excess of $9.2 million. In February, sales slipped from the month early, tallying approximately $7.7 million. On Tuesday, the company reported that sales increased again month-over-month, with Virtutone saying revenue exceeded $9.12 million during March.
"As I said last month, we returned our focus to increasing revenues, while maintaining our increased margins," said Jason Allen, chief executive officer of Virtutone, in a prepared statement Tuesday. "This has been the best month we have ever had for margins and look
forward to continued growth in April," Allen added.
Investors should be on the lookout for the next quarterly report to show how Virtutone performed in the November-to-January period and to see if it remained profitable as it made a significant acquisition. This growth play has been on the climb since late in October, rising from around 20 cents per share to as high as 57 cents early in March. Shares slinked back from those levels, including trading down by 1% in Tuesday trading to close the day at 44 cents.
