AirIQ Inc.
TSX : IQ

AirIQ Inc.

November 11, 2005 07:00 ET

AirIQ Announces Third Quarter Results, Gross Profit Increase of 61%

TORONTO, ONTARIO--(CCNMatthews - Nov. 11, 2005) -

Improvements in key metrics and fruition of GSM strategy, positions AirIQ for growth

AirIQ Inc. (TSX:IQ), a leader in Global Wireless Security specializing in Telematics services, reports results for the third quarter ended September 30, 2005.

Financial Highlights for the third quarter:

- Gross profit increased by 60.8% to approximately $4.4 million year over year

- Subscribers surpassed 194,000, an increase of 50% over the previous year

- Revenue increased 32.3% to $10.3 million year over year

- Expenses excluding accounting-related expenses for stock based compensation and the loss on foreign exchange decreased to $4.9 million from $5.0 million in
the second quarter of this year

- Expense to revenue ratio improved to 51.3% compared to 64.6% in the fourth quarter of 2004, and to 47% from 63% over the same period if we exclude accounting-related expenses for stock based compensation and the loss on foreign exchange

As a recurring revenue business, the key measures of AirIQ'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.

"We have made steady progress over the breadth of our business units that position the Company for the next phase of growth," says Donald Simmonds, President and CEO of AirIQ. "Notably, the increasing quality of our revenues resulted in a year over year increase in gross profit of 60.8%. Although revenue dampened somewhat by the foreign exchange effect, we continued with steady progress in our business trajectories."

Marine Business Growth

During the quarter the marine customer business, Boatracs, experienced the largest subscriber shipment month in its ten year history. New units shipped to these customers represented a 9% growth in that subscriber base. A number of vessels came under new fishing regulations and Boatracs is one of only two approved suppliers to this industry.

GSM Launch

AirIQ launched its GSM (Global System for Mobile Communications) technology with two significant announcements. During the quarter a GSM agreement with Telefonica Moviles Mexico was announced and subsequent to the quarter end, an agreement with Cingular Wireless, the largest wireless carrier in the United States. GSM offers higher messaging volume capabilities and improved power management for clients at low costs, and supports the Company's aggressive subscriber acquisition plans in the United States and Mexico.

Revenues Increased

AirIQ reported revenue for the third quarter of $10.3 million, an increase of 32.3% compared to $7.8 million for the period ended September 30, 2004. Revenue for the period was 1.9% higher than the previous three months ended June 30, 2005. For the first nine months of 2005, revenue of $30.1 million was a 136.2% 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.

Gross Profit Improved

Gross profit for the third quarter of 2005 was $4.4 million, an increase of 60.8% compared to gross profit of $2.7 million in the same period in 2004. As a percentage of revenues, gross profit improved to 42.6% from 35.1% for the third quarter of 2004 and management expects further improvements can be achieved as the Company's integration strategy progresses.

Expenses

Expenses for the third quarter were $5.3 million, compared to $4.7 million for the same period in 2004.

Expenses as a percentage of revenues were 51.3% in the third quarter, compared to 60.3% in the same quarter in 2004 and 50.4% for the quarter ended June 30, 2005. This decrease reflects improvements in operating efficiencies and execution of the Company's integration strategies for Aircept and Boatracs.

"Our expenses, excluding accounting-related expenses for stock based compensation and the loss on foreign exchange have continued to improve over the past four quarters, the period since we completed our most recent business acquisition," states Mark Kohler, Chief Financial Officer of AirIQ.

Expenses, excluding the accounting related expenses for stock-based compensation expenses, and losses or gains on foreign exchange, totalled $4,876,274 for the three months ended September 30, 2005, a further improvement compared to $5,007,224 for the three months ended June 30, 2005, and $5,173,626 for the three months ended March 31, 2005.

Net Interest

Net interest expense for the nine months and three months ended September 30, 2005, was $1,049,785 and $192,399 compared to $1,068,314 and $365,827 for the nine months and three months ended September 30, 2004. The improvement in quarter over quarter interest expense is primarily due to the Company's repayment of the term loan on May 2, 2005, and the more favourable interest rates charged on the new $10 million credit facility entered into by the Company on April 25, 2005.

Net Loss per Share

The net loss for the three months ended September 30, 2005, was $1.9 million, or $0.02 per share, and an improvement from the $2.9 million net loss in the same quarter last year. The net loss of $7.4 million for first nine-months of 2005 includes provision for income taxes of $471,000 and amortization of intangible assets of $1.7 million resulting from the businesses acquired in 2004.

Liquidity and Capital Resources

As at September 30, 2005, the Company had cash and cash equivalents of $3.4 million and working capital of approximately $2.0 million.

In accordance with Canadian GAAP, and as required in section 3070, Deferred Charges, of the CICA handbook, all deferred service contract costs have been classified as non-current in these interim consolidated financial statements regardless of their associated amortization period. Deferred service contract costs, as at September 30, 2005, of $7,533,431 (September 30, 2004 - $6,243,873) are to be amortized on a straight-line basis over the next twelve months. The related deferred revenue and obligations for service contracts, as at September 30, 2005, to be realized over the same twelve month period amounts to $10,607,735 ($9,775,291 and $832,444, respectively) compared with $12,481,576 ($9,529,389 and $2,952,187, respectively) as at September 30, 2004.

Consolidated Financial Statements

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



Consolidated Balance Sheets
September 30, December 31,
(As at September 30, 2005, Unaudited) 2005 2004
---------------------------------------------------------------------
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Assets
Current assets
Cash and cash equivalents $ 3,444,180 $ 4,902,089
Accounts receivable 4,969,207 5,072,938
Inventory 5,244,906 3,808,331
Future tax asset 215,000 100,000
Prepaid expenses 980,800 494,301
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Total current assets 14,854,093 14,377,659

Capital assets, net 5,017,476 5,749,246
Intangibles, net 7,696,235 9,468,691
Goodwill 9,196,817 9,646,817
Deferred financing costs, net - 102,778
Deferred service contract costs, net 9,452,991 9,911,855
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$ 46,217,612 $ 49,257,046
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Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 7,216,463 $ 6,854,983
Income taxes payable 296,749 165,000
Term loan - 1,932,980
Bank financing 5,110,968 -
Deferred revenue 9,775,291 9,255,940
Obligations for service contracts 832,444 1,086,801
Obligations under capital lease 219,261 136,566
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Total current liabilities 23,451,176 19,432,270

Term loan - 3,027,978
Obligations under capital lease 263,037 69,098
National Research Council loan 131,009 201,081
Deferred revenue 2,084,916 1,696,016
Obligations for service contracts 860,567 1,451,792
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Total liabilities 26,790,705 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 1,062,080 567,080
Deficit (66,341,082) (58,919,936)
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Total shareholders' equity 19,426,907 23,378,811
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$ 46,217,612 $ 49,257,046
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Consolidated Statements of Loss and Deficit
(Unaudited)

Three months ended Nine months ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
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Revenues $ 10,273,609 $ 7,763,034 $ 30,093,953 $ 12,738,570
Direct cost
of sales 5,898,134 5,041,850 17,411,821 7,962,371
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Gross profit 4,375,475 2,721,184 12,682,132 4,776,199
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Expenses
Sales and
marketing 1,332,238 1,392,883 4,388,572 3,017,525
Engineering
and research 1,262,140 1,109,686 3,797,573 2,413,178
General and
administration 2,281,896 2,053,416 6,870,979 4,352,236
Stock-based
compensation 200,000 123,185 495,000 326,560
Loss (gain) on
foreign exchange 198,724 1,368 220,177 (113,050)
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5,274,998 4,680,538 15,772,301 9,996,449
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Loss before
the following (899,523) (1,959,354) (3,090,169) (5,220,250)
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Other expenses
Net interest
expense 192,399 365,827 1,049,785 1,068,314
Other charges 89,000 - 337,759 -
Amortization 762,159 579,358 2,472,433 1,254,451
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1,043,558 945,185 3,859,977 2,322,765
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Loss before
income taxes (1,943,081) (2,904,539) (6,950,146) (7,543,015)

Provision for
income taxes
Current income tax - - 136,000 -
Future income tax - - 335,000 -
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- - 471,000 -
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Net loss for
the period (1,943,081) (2,904,539) (7,421,146) (7,543,015)

Deficit,
beginning of
period (64,398,001) (52,253,319) (58,919,936) (47,614,843)
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Deficit, end
of period $(66,341,082) $(55,157,858)$(66,341,082)$(55,157,858)
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Loss per share
- basic and
diluted $ (0.02) $ (0.03)$ (0.06)$ (0.10)
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Weighted average
number of
common
shares used
in computing
loss per share,
basic and
diluted 121,007,438 86,787,645 118,519,462 75,748,320
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Consolidated Statements of Cash Flows
(Unaudited)

Three months ended Nine months ended
September September September September
30, 2005 30, 2004 30, 2005 30, 2004
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Cash provided by
(used in)

Operating
activities
Net loss for
the year $(1,943,081) $(2,904,539) $(7,421,146) $(7,543,015)
Add items not
involving cash
Future tax
recovery - - 450,000 -
Stock-based
compensation 200,000 123,185 495,000 326,560
Interest
accreted on
term loan - 69,577 358,526 207,785
Amortization of
capital assets 616,463 603,633 1,928,758 1,510,670
Amortization of
deferred
service
contract costs 3,584,639 3,155,304 10,547,288 4,153,317
Amortization of
intangibles 590,822 382,860 1,772,456 400,164
Amortization of
deferred
development
costs - - - 300,518
Amortization of
deferred
financing
costs - 9,798 102,778 29,394
Changes in non-
cash working
capital related
to operations
Accounts
receivable 787,472 67,567 103,731 139,026
Future tax
asset - - (115,000) -
Inventory (727,336) (1,303,955) (1,436,575) (1,642,438)
Prepaid
expenses (116,209) (402,862) (486,499) (433,346)
Accounts
payable and
accrued
liabilities (338,319) 2,505,940 361,480 2,323,107
Income taxes
payable (6,782) - 131,749 -
Deferred
revenue (690,027) 9,013 908,251 1,815,509
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1,957,642 2,315,521 7,700,797 1,587,251
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Investing
activities
Purchase of
net assets - - - (13,388,500)
Cash acquired - - - 620,459
(Additions)/
reductions to
capital assets (462,612) (75,415) (745,589) 150,946
Deferred service
contract costs (2,545,865) (3,027,408) (10,088,424) (5,125,416)
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(3,008,477) (3,102,823) (10,834,013) (17,742,511)
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Financing
activities
Repayment of
obligations
under capital
lease (93,253) (51,654) (174,765) (175,927)
Repayment of
National
Research
Council loan (26,416) (23,302) (70,072) (69,305)
Repayment of
term loan - (433,458) (5,319,484) (433,458)
Proceeds from
bank financing 1,000,000 - 5,110,968 -
Proceeds from
obligations
for service
contracts - - - -
Repayment of
obligations for
service
contracts (250,677) (473,729) (845,582) (1,388,529)
Issuance of
common shares
and equity
instruments - - 2,974,242 6,643,750
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629,654 (982,143) 1,675,307 4,576,531
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Net decrease in
cash and cash
equivalents (421,181) (1,769,445) (1,457,909) (11,578,729)

Cash and cash
equivalents,
beginning of
period 3,865,361 5,612,416 4,902,089 15,421,700
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Cash and cash
equivalents,
end of period $ 3,444,180 $ 3,842,971 $ 3,444,180 $ 3,842,971
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---------------------------------------------------------------------

Supplementary
disclosure
Cash paid for
Interest $ 118,753 $ 200,072 $ 458,588 $ 601,121
Non-cash
transactions
Capital assets
purchased under
capital leases 20,917 - 451,399 281,657
Common shares
issued on
acquisition - - - 6,636,000
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Conference Call and Webcast

AirIQ will hold its third quarter conference call on Friday, November 11, 2005, at 10 a.m. EST. To access the call please dial 416-644-3415 or 1-800-814-4857. A replay of the conference call will be available at noon the same day until midnight November 18, 2005. To access the replay, dial 416-640-1917 or 1-877- 289-8525 followed by the passcode 21159855#. The call will also be webcast live on the Company's website at www.airiq.com.

The Company's quarterly report, including financial statements, accompanying notes and Management's Discussion and Analysis will be available at www.airiq.com and at www.sedar.com.

About AirIQ

AirIQ trades on the Toronto Stock Exchange under the symbol IQ. A leader in global wireless security, AirIQ is headquartered in Pickering, near Toronto, Canada, with offices in Lake Forest and San Diego, California, U.S.A. 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.

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