AirIQ Inc.
TSX : IQ

AirIQ Inc.

August 12, 2005 07:00 ET

AirIQ Announces Second Quarter Results, Surpasses 184,000 Subscribers

TORONTO, ONTARIO--(CCNMatthews - Aug. 12, 2005) -

276% Increase in Year over Year Revenue

AirIQ Inc. (TSX:IQ), a leader in the Telematics industry, reports results for the second quarter ended June 30, 2005.

Financial Highlights for the quarter:

- Expense to revenue ratio declined to 50.9% from 102.9% year over year

- Total subscribers grew to over 184,000, representing a year over year increase of 426%

- Revenue increased 276% to $10.1 million year over year

- Gross profit improved 307% year over year to $4.2 million

The improved results contributed to a significant improvement in the reduction of losses before other expenses and taxes (often described in terms of EBITDA).

As a recurring revenue business, the key measures of the Company's progress relate to various trajectories, or trends. The Company's strategy is to aggressively acquire new subscribers and service revenues from a relatively fixed and scalable infrastructure.

Technology Investment

AirIQ is well positioned to become one of the global leaders in the Telematics industry. To achieve this, the Company annually invests approximately $3 million in technology initiatives beyond what is required for current operations. This investment does not directly contribute to revenues during the period the expenses are incurred; rather it advances the abilities of the technology and resulting service offerings in the future.

"In order to take a strategic leadership position in the world, we are blessed with a highly specialized team that perhaps is the most capable in our field of expertise," explains Donald Simmonds, President and CEO of AirIQ.

The value of AirIQ's technology investment can be demonstrated by several noteworthy endeavours:

- The completion of the Company's consumer vehicle recovery and protection system.

- The previously announced agreement to supply Directed Electronics the end-to-end consumer Telematics system for four of their prominent brands including Viper®, Clifford®, Python® and Automate®.

- The creation of a GSM solution that will enable access to international markets.

- The development of a personal tracking device.


Revenues Increased

AirIQ reported revenue for the second quarter of $10.1 million, an increase of 276% compared to $2.7 million for the period ended June 30, 2004. Revenue for the period was 3.4% higher than the previous three months ended March 31, 2005. For the first six months of 2005, revenue of $19.8 million was a 298% increase from the same period in 2004. The increase in revenues resulted from continuing net additions to the Company's subscriber base and from the acquisition of the Aircept and Boatracs businesses, which occurred during June and October of 2004.

"In the second quarter of 2005 we continued to build revenue and subscriber growth in what is historically a slower period for our industry," says Donald Simmonds, President and CEO of AirIQ. "Additionally, two specific challenges affected subscriber additions; a service provider disruption in Mexico and financial difficulties with a large private brand client".

Gross Profit Improved

Gross profit for the second quarter of 2005 was $4.2 million, an increase of 307% compared to gross profit of $1.0 million in the same period in 2004. As a percentage of revenues, gross profit improved to 42.2% from 38.9% for the second quarter of 2004, and management expects further improvements can be achieved as the Company's cost reduction strategy progresses.

Expenses Decreased

Expenses for the second quarter were $5.1 million, compared to $5.3 million for the previous quarter ended March 31, 2005.

Expenses as a percentage of revenues were 50.9% in the second quarter, compared to 102.9% in the same quarter in 2005 and 55.1% for the quarter ended March 31, 2005. This decrease reflects improvements in operating efficiencies and execution of the Company's integration strategies related to the acquisition of the Aircept and Boatracs businesses.

"Our ability to manage expenses during the quarter while adding subscribers and building revenue further demonstrates the validity of our business model," says Mark Kohler, Chief Financial Officer of AirIQ.

Net Loss per Share

The net loss for the three months ended June 30, 2005, was $2.6 million, or $0.02 per share, an improvement from the $2.9 million net loss in the first quarter of 2005. This compares to a net loss of $2.4 million or $0.03 per share for the three months ended June 30, 2004. The year-over-year increase was due primarily to a non-cash provision for income taxes of $204,000, amortization of intangible assets of $590,000 resulting from the businesses acquired in 2004, and the remaining unamortized accreted notional interest expensed in the amount of approximately $250,000 related to the term loan paid back on May 2, 2005. Otherwise, the Company marked a significant year-over-year improvement in net loss. The Company expects to continue to incur operating losses at steadily reducing levels in the near future as its revenue base continues to grow.

Liquidity and Capital Resources

As at June 30, 2005, the Company had cash and cash equivalents of $3.9 million and working capital of approximately $3.0 million.

On April 25, 2005, the Company entered into a $10,000,000 364 day non-revolving credit facility with a Canadian chartered bank. The funds available under this facility 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. The subscription price for the common shares was $0.53449 per share, being the weighted average trading price per common share calculated in accordance with the rules of the Toronto Stock Exchange on April 19, 2005. The 5,580,100 common shares issued in the private placement are subject to a statutory four-month hold period. All of the term loan lenders, VenGrowth, Lenbrook and Aquilon (formerly MMI Group) participated in the subscription.

Consolidated Financial Statements

The following unaudited interim consolidated financial statements are presented for the three months and six months ended June 30, 2005 and June 30, 2004, and include the operating results of AirIQ Inc. and its US subsidiaries.



Consolidated Balance Sheets
June 30, December 31,
(As at June 30, 2005, Unaudited) 2005 2004
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Assets
Current assets
Cash and cash equivalents $ 3,865,361 $ 4,902,089
Accounts receivable 5,756,679 5,072,938
Inventory 4,517,570 3,808,331
Future tax asset 215,000 100,000
Prepaid expenses 864,591 494,301
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Total current assets 15,219,201 14,377,659

Property, plant and equipment, net 5,143,042 5,749,246
Intangibles, net 8,287,057 9,468,691
Goodwill 9,196,817 9,646,817
Deferred financing costs, net - 102,778
Deferred service contract costs, net 10,491,765 9,911,855
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$ 48,337,882 $ 49,257,046
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 7,554,782 $ 6,854,983
Income taxes payable 303,531 165,000
Term loan - 1,932,980
Bank financing 4,110,968 -
Deferred revenue 10,241,304 9,255,940
Obligations for service contracts 944,563 1,086,801
Obligations under capital lease 240,338 136,566
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Total current liabilities 23,395,486 19,432,270

Term loan - 3,027,978
Obligations under capital lease 306,928 69,098
National Research Council loan 157,425 201,081
Deferred revenue 2,308,930 1,696,016
Obligations for service contracts 999,125 1,451,792
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Total liabilities 27,167,894 25,878,235
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Shareholders' equity
Share capital 81,095,655 78,121,413
Other paid-in capital 3,610,254 3,610,254
Contributed surplus 862,080 567,080
Deficit (64,398,001) (58,919,936)
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Total shareholders' equity 21,169,988 23,378,811
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$ 48,337,882 $ 49,257,046
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Consolidated Statements of Loss and Deficit
(Unaudited)

Three months Six months
ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Revenues $ 10,077,283 $ 2,681,260 $ 19,820,344 $ 4,975,536
Direct cost
of sales 5,828,262 1,637,997 11,515,075 2,920,521
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Gross profit 4,249,021 1,043,263 8,305,269 2,055,015
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Expenses
Sales and
marketing 1,475,516 925,165 3,056,334 1,624,642
Engineering and
research 1,275,942 675,431 2,535,433 1,303,492
General and
administration 2,255,766 1,145,389 4,587,698 2,298,820
Stock-based
compensation 175,000 102,000 295,000 203,375
Loss (gain) on
foreign exchange (50,982) (88,698) 21,451 (114,418)
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5,131,242 2,759,287 10,495,916 5,315,911
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Loss before
other expenses
and taxes (882,221) (1,716,024) (2,190,647) (3,260,896)
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Other expenses
Net interest
expense 578,666 360,128 857,385 702,487
Other charges 52,667 - 248,759 -
Amortization 899,346 280,881 1,710,274 675,093
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1,530,679 641,009 2,816,418 1,377,580
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Loss before
income taxes (2,412,900) (2,357,033) (5,007,065) (4,638,476)

Provision for
income taxes
Current
income tax 54,000 - 136,000 -
Future
income tax 150,000 - 335,000 -
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204,000 - 471,000 -
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Net loss for
the period (2,616,900) (2,357,033) (5,478,065) (4,638,476)

Deficit, beginning
of period (61,781,101) (49,896,286) (58,919,936) (47,614,843)
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Deficit, end
of period $ (64,398,001)$(52,253,319) $(64,398,001)$(52,253,319)
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Loss per share
- basic and
diluted $ (0.02) $ (0.03) $ (0.05)$ (0.07)
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Weighted average
number of common
shares used in
computing loss
per share,
basic and
diluted 119,100,946 70,356,876 117,254,856 70,168,002
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Consolidated Statements of Cash Flows
(Unaudited)

Three months Six months
ended ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
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Cash provided by
(used in)

Operating activities
Net loss for
the period $ (2,616,900) $(2,357,033) $ (5,478,065) $(4,638,476)
Add items not
involving cash
Future tax
recovery 215,000 - 450,000 -
Stock-based
compensation 175,000 102,000 295,000 203,375
Interest accreted
on term loan 296,625 70,711 358,526 138,208
Amortization of
property, plant
and equipment 654,639 506,549 1,312,295 907,037
Amortization of
deferred service
contract costs 3,445,255 633,623 6,962,649 998,013
Amortization of
intangibles 590,815 8,652 1,181,634 17,304
Amortization of
deferred
development costs - 116,021 - 300,518
Amortization of
deferred financing
costs 92,980 9,798 102,778 19,596
Changes in non-cash
working capital
related to
operations
Accounts
receivable (158,771) 236,893 (683,741) 71,459
Future tax asset (65,000) - (115,000) -
Inventory 1,045 181,407 (709,239) (338,483)
Prepaid
expenses (289,696) (134,335) (370,290) (30,484)
Accounts payable
and accrued
liabilities (648,803) 24,155 699,799 (182,833)
Income taxes
payable 55,709 - 138,531 -
Deferred revenue 181,584 1,090,556 1,598,278 1,806,496
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1,929,482 488,997 5,743,155 (728,270)
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Investing
activities
Purchase of
net assets - (13,388,500) - (13,388,500)
Cash acquired - 620,459 - 620,459
(Additions)/
reductions to
property, plant
and equipment (133,356) (166,301) (282,977) 226,361
Deferred service
contract costs (3,436,486) (1,398,744) (7,542,559) (2,098,008)
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(3,569,842) (14,333,086) (7,825,536) (14,639,688)
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Financing
activities
Repayment of
obligations
under capital
lease (37,746) (61,372) (81,512) (124,273)
Repayment of
National Research
Council loan (22,075) (24,765) (43,656) (46,003)
Repayment of
term loan (4,858,398) - (5,319,484) -
Proceeds from
bank financing 4,110,968 - 4,110,968 -
Repayment of
obligations for
service
contracts (297,935) (510,036) (594,905) (914,800)
Issuance of common
shares and equity
instruments 2,963,093 6,636,000 2,974,242 6,643,750
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1,857,907 6,039,827 1,045,653 5,558,674
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Net increase/
(decrease) in
cash and cash
equivalents 217,547 (7,804,262) (1,036,728) (9,809,284)

Cash and cash
equivalents,
beginning of
period 3,647,814 13,416,678 4,902,089 15,421,700
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Cash and cash
equivalents,
end of period $ 3,865,361 $ 5,612,416 $ 3,865,361 $ 5,612,416
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Supplementary
disclosure
Cash paid for
Interest $ 167,087 $ 210,556 $ 339,835 $ 199,493
Non-cash
transactions
Capital assets
purchased under
capital leases 326,400 108,360 423,114 173,297
Common shares
issued on
acquisition - 6,636,000 - 6,636,000
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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, August 12th, 2005 and on the System for Electronic Document Analysis and Retrieval ("SEDAR") website (www.sedar.com) after Friday, August 12th, 2005.

AirIQ will hold its second quarter conference call on Friday, August 12th, 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 August 12th until midnight August 19th, 2005. To access the replay, dial 416-640-1917 or 1-877-289-8525 followed by the passcode 21131840#. The call will also be webcast live on the Company's website at 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 www.airiq.com.

Non-GAAP Disclosure

EBITDA is defined by the Company as operating income before interest expense, income taxes, other charges, depreciation and amortization. The Company has included information concerning EBITDA because it believes that it may be used by certain investors as one measure of the Company's financial performance. EBITDA is not a measure of financial performance under Canadian GAAP and is not necessarily comparable to similarly titled measures used by other companies. EBITDA should not be construed as an alternative to operating income or to cash flows from operating activities (as determined in accordance with Canadian GAAP) as a measure of liquidity.

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