DDS Wireless International Inc.
TSX : DD

DDS Wireless International Inc.

March 03, 2011 10:28 ET

CORRECTION FROM SOURCE: DDS Wireless Reports 2010 Financial Results With 16% Growth in Revenue and EBITDAS of $5.2 Million ($0.38 Per Share)

RICHMOND, BRITISH COLUMBIA--(Marketwire - March 3, 2011) - A correction from source is issued for the press release disseminated today at 8:00 AM ET. The earnings per share amount was incorrectly listed as $0.23 per share in the second paragraph. The correct figure is $0.12 per share. The corrected release follows:

DDS Wireless International Inc. (TSX:DD), a world leader in providing wireless data solutions for fleet management for more than 20 years, today reported financial results for the three months and year ended December 31, 2010. All financial information is expressed in Canadian ("CDN") dollars and in accordance with Canadian generally accepted accounting principles ("GAAP"), except as otherwise noted.

  FY 2010 FY 2009 Q4 2010 Q4 2009
Revenue 41,285,137 35,626,545 13,285,806 11,082,459
Gross Margin 50% 46% 51% 53%
EBITDAS1 5,220,353 1,614,606 2,382,335 2,301,977
EBITDAS1 per share 0.38 0.12 0.17 0.17
Earnings (loss) per share 0.12 (0.16) 0.10 0.04
1 EBITDAS is a non-GAAP measure. Refer to definition below.    

"I am very pleased to report exceptional year ended 2010 results for DDS Wireless International Inc. We continued on our strong growth track delivering revenues for the year of $41.3 million, representing 16% growth over 2009," said Vari Ghai, CEO of DDS Wireless. "Our revenues were well ahead of our guidance of $40 to $41 million issued in March of last year, and we also achieved significant growth in earnings with $5.2 million in EBITDAS (refer to definition below) or $0.38 per share, compared to $1.6 million or $0.12 per share in 2009. Our earnings per share ("EPS"), which reflects non-cash amortization costs related to prior year acquisitions, increased to $0.12 per share, from $(0.16) per share in 2009."

"Since 2007 DDS has grown revenues by 100% from $20.6 million to the $41.3 million reported for 2010. This growth was achieved through both acquisitions completed late in 2007 and subsequent organic growth derived by leveraging the market and product synergies gained through the acquired companies. Going forward, we aim to continue our strong growth trend and complete additional strategic acquisitions which can further propel our growth."

"I am especially pleased with our performance given the challenges posed by continuing weakness in the global economy and adverse currency markets which saw the average Canadian to US dollar and Euro exchange rates for 2010 near record levels," stated Jim Zadra, CFO of DDS Wireless. "Despite that over 80% of our revenues are US dollar and Euro denominated, we delivered 16% revenue growth and significant growth in earnings against the considerable headwinds of a 14% and 10% appreciation in the average annual Canadian dollar exchange rate against the US dollar and Euro."

2010 Operational Highlights

  • Digital Dispatch, the Company's Taxi business unit, saw revenue growth of 19% in 2010, when compared to 2009. Digital Dispatch continued its successful strategy of upgrading its existing customers to the Company's latest generation technologies and continues to be bullish on this market opportunity for 2011 and beyond.
  • With a dominant market share amongst large taxi fleets, Digital Dispatch signed over $9 million in customer upgrades in 2010. These include several multi-million dollar deals including a $3.8 million deal with Taxi Stockholm, $1.7 million in orders from Taxi G7 of France, and a $2.0 million contract with one of Digital Dispatch's US based customers.
  • Patrick Nangle was appointed President of Digital Dispatch Systems in June 2010. Patrick brings an impressive track record of leading and driving growth on an international scale. Prior to joining DDS, he served as COO for North America and Japan at Neopost, a French company providing mail technology solutions with worldwide revenues in excess of $1 billion. Patrick complements an already strong senior management team with similarly impressive experience and the capabilities to develop and drive the strategies to continue the growth and development of the Company in the future.
  • StrataGen Systems, the Company's Transit business unit, was most affected by the appreciation in the Canadian dollar as its revenues are predominately US dollar denominated. Despite this challenge StrataGen managed to deliver 4% growth in revenues over the prior year.
  • StrataGen further solidified its leadership in routing and scheduling technologies for para-transit by signing over $5.0 million in contracts with MTA New York City Transit ("NYCT") to further enhance and add functionality to StrataGen's ADEPT™ routing and scheduling system which manages over 28,000 unique daily trips for NYCT. StrataGen's success with NYCT is a strong endorsement of the value proposition and return on investment offered by StrataGen's solutions in terms of optimizing efficiencies in routing, scheduling and dispatching of passenger fleets.
  • StrataGen also landed key contracts that extended its geographic and market footprints, and demonstrated the strategic advantage of being able to offer integrated Taxi and Transit solutions. One of these wins was with Irving Holdings, Inc. (Dallas Yellow Cab), an existing DDS Taxi customer and major provider of transportation services in Texas. Irving will deploy StrataGen's ADEPT™ product to schedule and dispatch non-emergency medical trips. StrataGen also announced its first customer win in Sweden and garnered orders in the fixed route transit market. All of these represent important steps in developing new markets for StrataGen.
  • The Company's eFleet unit grew revenues by 53% as it continued to add to its subscriber base. eFleet continued to add significant new subscribers with a focus on the waste management, limousine, ground transportation and work fleet markets. eFleet signed a record sized $800,000 contract in 2010, a further validation of its subscription based business model which serves as a go-to-market template for the bundled subscription solutions in the Company's other business units.

Non-GAAP Measures (EBITDAS)

The following and preceding discussion of financial results includes reference to EBITDAS. EBITDAS is a non-GAAP financial measure which the Company defines as Earnings before interest, taxes, depreciation, amortization and stock compensation expenses. The measure is provided as a proxy for the cash earnings of the business as net income for the Company includes a significant amount of non-cash amortization expense primarily related to acquisitions completed in prior years.

Financial Results for the Year Ended December 31, 2010

Total revenues for the year ended December 31, 2010 were $41.3 million compared to $35.6 million in the year ended December 31, 2009, an increase of $5.7 million or 16%. The increase in revenues is mainly attributable to increases in non-recurring enterprise solutions revenues across all businesses with the Taxi business unit, Digital Dispatch, being the largest contributor of growth. Growth in Digital Dispatch was driven primarily by a very successful strategy of pursuing contracts to upgrade customers to the Company's lasts generation technologies as reflected in a number of multi-million dollar deals signed in 2010 such those with Taxi G7, Taxi Stockholm and other large customers. StrataGen also saw growth in its enterprise solutions revenues as it delivered on a number of large contracts.

Recurring revenues, including maintenance, ASP or subscription based revenues and transaction revenues were $22.7 million for the year ended December 31, 2010, compared to $22.9 million for the prior year. Although recurring revenues grew in constant currency terms, this increase was offset by the impact of the decline in the US dollar and Euro against the Canadian dollar on maintenance and subscription contracts which are primarily denominated in US dollars and Euros. In addition, contractual warranty periods on many of the Company's newest deployments have the effect of deferring the commencement of maintenance contracts into future periods.

In the year ended December 31, 2010 the average Canadian dollar exchange rate over the comparable period in the prior year, was 10% higher against the Euro and 14% higher against the US dollar.

Recurring revenues were 55% of total revenue for the year ended December 31, 2010, compared to 64% in the prior year. The decline of recurring revenues in percentage terms was primarily the result of significant growth in non-recurring solutions revenue which took a larger share of the revenue mix.

Gross margins were $20.4 million for the year ended December 31, 2010, an increase of 24% from $16.5 million realized in the prior year. This increase in total gross margin is both a function of growth in revenue as well as an increase in percentage gross margins.

Gross margin percentage increased to 50% for the year ended December 31, 2010, from 46% in the prior year. The Taxi and Transit business units accounted for most of the improvement in percentage gross margins which is attributed to improved bidding and project management, sales of higher margin products and a reduction in inventory reserves and product trade in credits.

Total operating expenses for the year ended December 31, 2010 were $15.2 million, an increase of $0.2 million from the year ended December 31, 2009. This increase is a reflection of increased research and development expenses of $0.7 million and is attributable to growth in research and development staffing levels within both the Taxi and Transit business units to drive further enhancements in our existing products and the development of new products. The increase in research and development expenditures was partly offset by declines in sales and marketing and general and administrative expenses. The decreases are attributable to the impact of the decline in the US dollar and Euro on the costs of US and European operations expressed in Canadian dollars, staff vacancies, and a reduction in bad debt expense in general and administrative expense.

Other expense includes items such as amortization of plant and equipment, amortization of intangible assets, foreign exchange gains and losses, and stock-based compensation expense. Other expense for the year ended December 31, 2010 decreased to $3.4 million, from $4.0 million for the year ended December 31, 2009. The decrease is attributed to a reduction in the amortization expense for intangible assets.

Income before income taxes for the year ended December 31, 2010 was $1.8 million compared to a loss of $2.6 million for the year ended December 31, 2009. The improvement in profitability during 2010 is primarily attributable to an improvement in gross margin of $3.9 million over the prior year as a result of growth in revenues and higher percentage gross margins, and a reduction in amortization expense relating to intangible assets of $0.8 million.

DDS Wireless reported net income for the year ended December 31, 2010 of $1.7 million, or $0.12 per share, compared to a net loss of $2.3 million, or $(0.16) per share, for the year ended December 31, 2009.

EBITDAS (as defined above) was $5.2 million for 2010 compared to EBITDAS of $1.6 million for the year ended December 31, 2009. The improvement in both EBITDAS and net income for the year is primarily attributable to an increase in gross margins of $3.9 million as a result of growth in revenues and improvement in percentage gross margins.

DDS Wireless added to its cash position during the year. As at December 31, 2010, the Company had cash and short- term investments of $4.2 million compared to $1.6 million as at December 31, 2009. The Company maintains a line of credit facility of $4 million. As at December 31, 2010, the Company was not drawn on its line of credit compared to drawings of $0.2 million at December 31, 2009.

During the year, $3.6 million in cash was generated from operations. The Company used its cash resources during the year to repay long-term debt of $0.3 million and purchase capital assets totaling $1.0 million. In addition, the Company received payments from leases receivable net of new leases issued of $0.6 million. Total debt outstanding as at December 31, 2010, was $0.1 million, of which all debt is current in nature.

As at December 31, 2010, the Company had 13,789,746 shares outstanding which is unchanged from December 31, 2009.

Financial Results for the Three Months Ended December 31, 2010

Revenues for the three months ended December 31, 2010 were $13.3 million, an increase of $2.2 million, or 20% over the same period in the prior year. Overall revenue growth was primarily driven by growth in non-recurring enterprise solutions revenues which grew by $2.0 million or 36% on a year-over-year basis. The Taxi and eFleet business units were the primary drivers of growth in non-recurring enterprise solutions revenues.

Recurring revenues increased to $5.9 million in the three months ended December 31, 2010, an increase of $0.3 million over the prior year comparable quarter, and $0.2 million over the prior quarter. The increases over the prior quarters are primarily attributed to an increase in maintenance and transaction based revenues.

Gross margin increased to $6.8 million in the three months ended December 31, 2010 from $5.1 million in the previous quarter and $5.9 million in the same period in the prior year. The increase in gross margins over the comparable prior periods was due to an increase in revenues which offset a decrease in percentage gross margins earned during the three months ended December 31, 2010.

Gross margin percentage for the three months ended December 31, 2010 decreased to 50.9% compared to 53.3% for the three months ended December 31, 2009 and 52.4% in the third quarter of 2010. The decrease in gross margins over the same period is primarily attributable to lower margins from enterprise solutions revenues in the Taxi business unit and a lower mix of transit revenues which historically has had higher gross margins.

Operating expenses for the three months ended December 31, 2010 increased to $4.1 million from $3.8 million for the same period in 2009, and $3.7 million for the three months ended September 30, 2010. The increase in operating expenses over the same period in the prior year is attributable to an increase in research and development costs of $0.2 million and a combined increase in both sales and marketing and general and administrative expenses of $0.2 million. These reflect increases in research and development and sales and marketing staffing as well as a one-time charge in general and administrative expenses in Q4 2010 relating to anticipated costs in respect of a legal claim which was initially filed in 2009. Subsequent to December 31, 2010, the legal claim was settled. All costs incurred in respect of the claim have been recorded in 2010.

Other expense includes items such as amortization of plant and equipment, amortization of intangible assets, foreign exchange gains and losses, and stock-based compensation expense. Other expense was $1.1 million for the three months ended December 31, 2010, compared to $0.8 million in the three months ended December 31, 2009, and $0.7 million for the three months ended September 30, 2010. The $0.3 million increase in other expense over the same period in the prior year is attributable to a $0.4 million increase in foreign exchange losses experienced in the period, and offset by a decrease in intangible asset amortization. The $0.4 million increase in other expenses compared with the previous quarter is similarly a result of an increase in foreign exchange losses experienced in the period.

Income before income taxes for the three months ended December 31, 2010 was $1.6 million compared to net income before income taxes of $1.4 million for the three months ended December 31, 2009. The increase in net income before tax is attributed to an improvement in gross margin of $0.9 million as a result of higher revenue and improved percentage gross margins offset by an increase of $0.6 million in operating and other expenses primarily resulting from a reduction of foreign exchange losses and reduced amortization of intangible assets.

Net income after tax for the three months ended December 31, 2010 was $1.4 million, or $0.10 earnings per share, compared with net income of $0.6 million, or $0.04 per share, for the same period in the prior year and net income of $0.6 million, or $0.04 per share, in the previous quarter.

EBITDAS (as defined above) was $2.2 million for the three months ended December 31, 2010, compared to EBITDAS of $2.3 million for the same period in the prior year, and an EBITDAS of $1.6 million in the previous quarter of 2010.

Outlook & Guidance

"Looking forward, we are very excited about the prospect for continued growth in our business in 2011 and beyond," stated Mr. Ghai. "Many of our existing customers have yet to migrate to our latest generation technologies which offer significant competitive advantage, improved customer service and enhanced operational efficiencies. We continue to see our customer "upgrade cycle" as a very strong driver of growth over the next two years. We also see further opportunities in being able to leverage our position as both a provider of taxi dispatch systems and routing and scheduling systems for demand response transit as taxi companies are increasingly being contracted to provide para-transit services. In addition, we expect to see continued growth in the deployment of our bundled subscription solutions such as TaxiBook™ and eFleet™ in the small and mid size fleet markets."

Based on current backlog and outlook for 2011, the Company is providing guidance for growth in revenues to greater than $45 million for the year ending December 31, 2011. The Company is taking a conservative approach to its guidance for 2011 due to the continued volatility in the currency markets and continued economic uncertainties in its largest markets: the US and Europe. Actual revenues may vary significantly from guidance given prevailing economic conditions, foreign exchange and other factors.

Conference Call

The Company will also host a conference call at 12:00 PM Eastern time today to discuss the financial results. Please call 416-695-6617 / 800-396-7098 to participate in the call. A replay of this conference call will be available through March 12, 2011, by dialing 905-694-9451 / 800-408-3053 and entering access code 6014050.

Forward-Looking Statements

This press release may contain forward-looking statements that involve risks and uncertainties. These forward-looking statements relate to, among other things, operations, anticipated financial performance, business prospects and strategies, statements about future market conditions, supply and demand conditions, revenues, gross margins, operating expenses, profits, and other expectations, intentions, and plans contained in this press release that are not historical facts. Such forward-looking statements 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 those expressed or implied by such forward-looking statements. These risks and uncertainties include, among other things, business risks, changes in market and competition, technological and competitive developments and potential downturns in economic conditions generally. Given these risks and uncertainties DDS Wireless cannot guarantee that any forward looking statements will be realized.

About DDS Wireless International Inc.

DDS Wireless International Inc. is a global leader in providing application software for multiple vertical markets within the transportation industry. The Company specializes in transit routing and scheduling, real-time dispatching, vehicle location and tracking software applications, communications infrastructure as well as in-vehicle wireless devices. DDS Wireless operates four businesses dedicated for Transit, Taxi, Limousines and Work Truck, and Wireless Devices and Communication Infrastructure. The Company supports its customers worldwide through its offices in Canada, Finland, Singapore, Sweden, U.K. and U.S.A.

SEE ATTACHED SUMMARY FINANCIAL STATEMENTS

DDS WIRELESS INTERNATIONAL INC.      
Consolidated Balance Sheets        
  (unaudited)        
      2010   2009
 
  Assets        
  Current assets:        
    Cash and cash equivalents $ 4,178,196 $ 1,603,384
    Accounts receivable, net (note 3)   5,481,493   4,520,061
    Contract work-in-progress (note 3)   5,698,810   4,066,082
    Income taxes receivable   30,534   14,104
    Inventory (note 4)   1,626,162   1,966,090
    Prepaid and other assets   420,702   508,993
    Current portion of leases receivable (note 5)   574,850   541,044
    Future income taxes (note 15)   72,756   650,000
      18,083,503   13,869,758
 
  Plant and equipment (note 6)   1,643,063   2,315,939
  Investment (note 7)   102,565   102,565
  Long-term leases receivable (note 5)   1,094,353   1,592,701
  Investment tax credit receivable   3,348,681   4,482,536
  Future income taxes (note 15)   2,434,783   989,284
  Acquired intangibles (note 8)   4,558,532   6,612,217
  Goodwill (note 9)   3,005,453   3,333,973
 
    $ 34,270,933 $ 33,298,973
 
  Liabilities and Shareholders' Equity        
  Current liabilities:        
    Lines of credit (note 10) $ - $ 158,389
    Accounts payable and accrued liabilities   5,721,553   4,286,339
    Future income taxes (note 15)   144,492   478,844
    Deferred revenue   2,475,772   3,085,547
    Current portion of debt (note 11)   79,941   199,043
      8,421,758   8,208,162
 
  Debt (note 11)   -   71,549
  Future income taxes (note 15)   868,403   1,168,683
      9,290,161   9,448,394
 
  Shareholders' equity:        
    Share capital (note 13(b))   24,608,226   24,608,226
    Contributed surplus (note 13(d))   1,464,857   1,118,410
    Retained earnings (deficit)   36,909   (1,632,709)
    Accumulated other comprehensive loss   (1,129,220)   (243,348)
      24,980,772   23,850,579
 
    $ 34,270,933 $ 33,298,973
 
 
DDS WIRELESS INTERNATIONAL INC.
Consolidated Statements of Operations
(unaudited)
      Three months ended   Twelve months ended  
      Dec 31, 2010   Dec 31, 2009   Dec 31, 2010   Dec 31, 2009  
 
  Revenue (note16) $ 13,285,806 $ 11,082,459 $ 41,285,137 $ 35,626,545  
  Cost of sales                  
    Sales related expenses   6,349,953   4,992,467   20,050,284   18,226,287  
    Amortization of sales related assets   169,863   192,375   796,847   865,744  
      6,519,816   5,184,842   20,847,130   19,092,031  
 
      6,765,991   5,897,617   20,438,006   16,534,514  
 
  Operations expenses:                  
    Research and development   1,619,913   1,402,433   6,191,160   5,524,402  
    Sales and marketing   1,098,892   966,235   3,778,999   3,888,276  
    General and administrative   1,371,255   1,402,516   5,277,003   5,639,347  
      4,090,060   3,771,184   15,247,163   15,052,025  
 
  Income (loss) before under noted   2,675,931   2,126,433   5,190,843   1,482,489  
 
    Other (income) expense:                  
    Amortization of plant and equipment   113,906   126,345   496,050   477,289  
    Amortization of acquired intangibles (note 8)   433,460   569,474   1,726,743   2,479,996  
    Foreign exchange loss   476,361   92,540   802,870   800,004  
    Stock-based compensation (note 13(c))   86,568   30,996   346,447   303,951  
    Other   1,254   (58,532)   5,620   (18,249)  
      1,111,549   760,823   3,377,731   4,042,991  
 
  Income (loss) before income taxes   1,564,382   1,365,610   1,813,113   (2,560,502)  
 
  Income tax provision (recovery) (note 15)                  
    Current income taxes   43,144   (27,598)   73,021   95,507  
    Future income taxes   137,187   833,137   70,473   (394,364)  
      180,331   805,539   143,495   (298,857)  
 
  Net income (loss) $ 1,384,051 $ 560,071 $ 1,669,618 $ (2,261,645)  
 
    Net income (loss) per common share - basic and diluted $ 0.10 $ 0.04 $ 0.12 $ (0.16)  
 
    Weighted average number of common shares   13,789,746   13,789,746   13,789,746   13,789,746  

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