AirIQ Inc.
TSX : IQ

AirIQ Inc.

May 13, 2005 07:00 ET

AirIQ Reports Record First Quarter Results

TORONTO, ONTARIO--(CCNMatthews - May 13, 2005) -

Consolidated operations lead to record revenue and unit shipments

AirIQ Inc. (TSX:IQ), a leader in the Telematics industry, reports results for the first quarter ended March 31, 2005.

Highlights for the quarter:

- Net cumulative subscribers increased 413% to 170,220 year over year

- Revenue increased 325% to $9.7 million year over year

- Gross profit of $4.0 million, up 300% year over year

- Reduced expense to revenue ratio to 55%, from 111%

- Record shipments of 24,834 units in the first quarter

- New active subscriber growth of 18,007 during the quarter

As a recurring revenue business, the key measures of the Company's progress relate to various trajectories or trends. Since the Company's strategy is to aggressively acquire new subscribers and service revenues from a relatively fixed and scalable infrastructure, the recognition of the trajectories in AirIQ's business model is the key to understanding its opportunity for the future.

"Our acquisitions in 2004 expedited our year over year top-line growth substantially in the first quarter of 2005," says Donald Simmonds, President and CEO of AirIQ. "While our subscriber count of 170,220 shows our industry leadership position, yet another drop in our expense to revenue ratio displays the strength of our business model."

Revenues Increased as Operations Integrated

AirIQ reports revenue for the first quarter of $9.7 million, an increase of 324.7% compared to $2.3 million for the period ended March 31, 2004. The acquisitions of the Aircept and Boatracs businesses contributed approximately $7.4 million to this increase. Revenue for the period was 7.8% higher than the previous three months ended December 31, 2004.

Gross Profit Continued to Improve

Gross profit for the first quarter of 2005 was $4.0 million, an increase of 301.1% compared to gross profit of $1.0 million in the same period in 2004. As a percentage of revenues, gross profit was 41.6% in the quarter and management expects improvements in gross profit will be achieved as the Company's integration strategy progresses.

"We are confident that gross profit as a percentage of revenues will trend upwards as technology improves to add new services, reduce wireless costs and take advantage of lower equipment costs," says Mark Kohler, Chief Financial Officer of AirIQ.

Expense to Revenue Ratio Further Decreased

Expenses for the first quarter were $5.4 million compared to $2.6 million for the same period in 2004. The increase in year over year expenses is due primarily to the addition of the Aircept and Boatracs businesses. Compared to the previous quarter ended December 31, 2004, expenses declined by more than $475,000.

Expenses as a percentage of revenues were 55.1% in the first quarter, compared to 111.4% in the same quarter in 2005 and 64.6% for the quarter ended December 31, 2004. This decrease reflects improvements in operating efficiencies and execution of the Company's integration strategies.

Lowest Loss per Share Since Inception

The net loss for the three months ended March 31, 2005, was $2.9 million, or $0.02 per share. This compares to a net loss of $2.3 million or $0.03 per share in the same period in 2004. The increase in total net loss was due primarily to the provision for income taxes of $267,000 and amortization of intangible assets, resulting from the businesses acquired in 2004, of $582,166.

"We believe our losses represent the investment required to create the recurring revenue engine that will grow steadily as we provide services to a burgeoning subscriber base," says Mr. Simmonds. "The Company expects to continue to incur operating losses at steadily reducing levels in the near future as its growing revenue base expands."

Post Quarter Financing Activities Strengthen Position

As at March 31, 2005, the Company had cash and cash equivalents of $3.6 million and working capital of $3.9 million.

On April 25, 2005, the Company entered into a $10 million non-revolving credit facility with the Royal Bank of Canada pursuant to a credit agreement dated April 25, 2005. The funds will be used for corporate purposes and a portion, as described below, was used to repay all remaining amounts owing under the Company's secured term loan debts.

On May 2, 2005, the Company issued 5,580,100 common shares from treasury in a private placement for aggregate proceeds of $2,982,508. Simultaneously with the private placement subscription, the Company drew approximately $2 million from the credit facility. The funds from the credit facility, together with the common share subscription proceeds, were used to repay all amounts owing under the Company's secured term loan debts (bearing interest at 12% per annum), totalling approximately $4,980,000.

"These financing activities provide us with additional flexibility and strength on a number of fronts," says Mr. Kohler. "The Company's interest costs are significantly reduced by the acquisition of additional equity by our former term lenders, and the financings strengthen our capital position and balance sheet."

Consolidated Financial Statements

The following unaudited interim consolidated financial statements are presented for the three months ended March 31, 2005 and March 31, 2004, and include the operating results of AirIQ Inc. and its US subsidiaries.



Consolidated Balance Sheets
(As at March 31, 2005 Unaudited)

As at March 31, 2005 December 31, 2004
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Assets
Current assets
Cash and cash equivalents $ 3,647,814 $ 4,902,089
Accounts receivable 5,597,908 5,072,938
Inventory 4,518,615 3,808,331
Future tax asset 150,000 100,000
Prepaid expenses 574,895 494,301
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Total current assets 14,489,232 14,377,659

Capital assets, net 5,337,925 5,749,246
Intangibles, net 8,877,872 9,468,691
Goodwill 9,411,817 9,646,817
Deferred financing costs, net 92,980 102,778
Deferred service contract
costs, net 10,500,534 9,911,855
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$ 48,710,360 $ 49,257,046
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued
liabilities $ 8,203,585 $ 6,854,983
Income taxes payable 247,822 165,000
Term loan 1,993,631 1,932,980
Deferred revenue 10,399,779 9,255,940
Obligations for service contracts 1,009,800 1,086,801
Obligations under capital lease 144,586 136,566
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Total current liabilities 21,999,203 19,432,270

Term loan 2,568,142 3,027,978
Obligations under capital lease 114,026 69,098
National Research Council loan 179,500 201,081
Deferred revenue 1,968,871 1,696,016
Obligations for service contracts 1,231,823 1,451,792
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Total liabilities 28,061,565 25,878,235
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Shareholders' equity
Share capital 78,132,562 78,121,413
Other paid-in capital 3,610,254 3,610,254
Contributed surplus 687,080 567,080
Deficit (61,781,101) (58,919,936)
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Total shareholders' equity 20,648,795 23,378,811
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$ 48,710,360 $ 49,257,046
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Consolidated Statements of Loss and Deficit
(Unaudited)

Three months ended March 31, 2005 March 31, 2004
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Revenues $ 9,743,061 $ 2,294,276
Direct cost of sales 5,685,425 1,282,524
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Gross profit 4,057,636 1,011,752
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Expenses
Sales and marketing 1,580,818 699,477
Engineering and research 1,259,491 628,061
General and administration 2,333,317 1,153,431
Stock-based compensation 120,000 101,375
Loss (gain) on foreign exchange 72,435 (25,720)
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5,366,061 2,556,624
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Loss before the following (1,308,425) (1,544,872)
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Other expenses
Net interest expense 278,720 342,359
Other charges 196,092 -
Amortization 810,928 394,212
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1,285,740 736,571
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Loss before income taxes (2,594,165) (2,281,443)

Provision for income taxes
Current income tax 82,000 -
Future income tax 185,000 -
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267,000 -
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Net loss for the period (2,861,165) (2,281,443)

Deficit, beginning of period (58,919,936) (47,614,843)
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Deficit, end of period $ (61,781,101) $ (49,896,286)
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Loss per share - basic and diluted $ (0.02) $ (0.03)
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Weighted average number of common
shares used in computing loss per
share, basic and diluted 115,388,253 69,979,129
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Consolidated Statements of Cash Flows
(Unaudited)

Three months ended March 31, 2005 March 31, 2004
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Cash provided by (used in)

Operating activities
Net loss for the period $ (2,861,165) $ (2,281,443)
Add items not involving cash
Future tax recovery 235,000 -
Stock-based compensation 120,000 101,375
Interest accreted on term loan 61,901 67,497
Amortization of capital assets 657,656 400,488
Amortization of deferred service
contract costs 3,517,394 364,390
Amortization of intangibles 590,819 8,652
Amortization of deferred development
Costs - 184,497
Amortization of deferred financing
Costs 9,798 9,798
Changes in non-cash working capital
related to operations
Accounts receivable (524,970) (165,434)
Future tax asset (50,000) -
Inventory (710,284) (519,890)
Prepaid expenses (80,594) (53,719)
Accounts payable and accrued
Liabilities 1,348,602 (49,418)
Income taxes payable 82,822 -
Deferred revenue 1,416,694 715,940
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3,813,673 (1,217,267)
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Investing activities
(Additions)/reductions to capital
assets (149,621) 392,662
Deferred service contract costs (4,106,073) (699,264)
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(4,255,694) (306,602)
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Financing activities
Repayment of obligations under
capital lease (43,766) (62,901)
Repayment of National Research
Council loan (21,581) (21,238)
Proceeds (repayment) of term loan (461,086) -
Proceeds from obligations for service
Contracts 14,850 16,027
Repayment of obligations for service
contracts (311,820) (420,791)
Issuance of common shares and equity
Instruments 11,149 7,750
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(812,254) (481,153)
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Net decrease in cash and cash
equivalents (1,254,275) (2,005,022)

Cash and cash equivalents, beginning
of period 4,902,089 15,421,700
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Cash and cash equivalents, end
of period $ 3,647,814 $ 13,416,678
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Supplementary disclosure
Cash paid for
Interest $ 172,748 $ 199,493
Non-cash transactions
Capital assets purchased under
capital leases 96,714 173,297
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The Company's quarterly report, including financial statements, accompanying notes and Management's Discussion and Analysis will be available on the Company's website (www.airiq.com) on Friday, May 13th, 2005 and on the System for Electronic Document Analysis and Retrieval ("SEDAR") website (www.sedar.com) after Friday, May 13th, 2005.

AirIQ will hold its first quarter conference call on Friday, May 13th, 2005, at 10 a.m. EST. To access the call please dial 416-640-4127 or 1-800-814-4862. A replay of the conference call will be available at noon on May 13th until midnight May 20th, 2005. To access the replay, dial 416-640-1917 or 1-877-289-8525 followed by the passcode 21123952#. The call will also be webcast live on the Company's web site at http://www.airiq.com.

About AirIQ

AirIQ trades on the Toronto Stock Exchange under the symbol IQ. A leader in the Telematics marketplace, AirIQ is headquartered in Pickering, near Toronto, Canada. The Company operates as a wireless Internet applications service provider specializing in Telematics. Telematics is the name given to information and control messages sent wirelessly to and from vehicles and vessels. AirIQ's services are offered to five primary markets: Commercial Fleets; Consumer; Vehicle Finance; Indirect Distribution; and Marine Fleets. AirIQ gives vehicle and vessel owners the abilities to manage and protect their mobile assets. AirIQ's services include: vehicle locating, boundary notification, automated inventory, maintenance reminders, security alerts, vehicle disabling, unauthorized movement alerts and many more features. For additional information on AirIQ, its products and services, please visit the Company's website at http://www.airiq.com.

Forward-looking Statements

This news release contains forward-looking information based on management's best estimates and the current operating environment. These forward-looking statements are related to, but not limited to, AirIQ's operations, anticipated financial performance, business prospects and strategies. Forward-looking information typically contains words such as "anticipate", "believe", "expect", "plan" or similar words suggesting future outcomes. Such forward-looking statements are as of the date which such statement is made and are subject to a number of known and unknown risks, uncertainties and other factors which could cause actual results or events to differ materially from future results expressed, anticipated or implied by such forward-looking statements. Such factors include, but are not limited to, changes in market and competition, technological and competitive developments and potential downturns in economic conditions generally. Therefore, actual outcomes and results may differ materially from those expressed in such forward-looking statements. AirIQ disclaims any intention or obligation to update or revise any such forward-looking statements, whether as a result of new information, future events or otherwise.

Contact Information

  • AirIQ Finance:
    Mark Kohler
    Chief Financial Officer
    (905) 831-6444, Ext. 4250
    mkohler@airiq.com
    or
    AirIQ Corporate:
    Mary-Catherine Telemaque
    Manager, Corporate Communications
    (905) 831-6444, Ext. 4326
    mctelemaque@airiq.com