DDS Wireless International Inc.
TSX : DD

DDS Wireless International Inc.

May 05, 2011 08:00 ET

DDS Wireless Delivers 8% Revenue Growth and $0.5 Million in EBITDAS in Q1 2011

RICHMOND, BRITISH COLUMBIA--(Marketwire - May 5, 2011) - 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 ended March 31, 2011. All financial information is expressed in Canadian ("CDN") dollars and has been prepared in accordance with International Financial Reporting Standards ("IFRS"), applicable to the preparation of interim financial statements, except as otherwise noted.

"I am pleased to report year-over-year revenue growth of 8% in the first quarter of 2011," stated Vari Ghai, CEO of DDS Wireless. "Our reported revenues of $9.6 million represent a record level of Q1 revenues for DDS Wireless, a quarter which has traditionally been our seasonally slowest quarter. Despite the seasonal softness of the first quarter and significant investments in sales and marketing to sustain growth, we also delivered positive EBITDAS of $0.5 million for the quarter." Mr. Ghai added, "I am also pleased to note that Q1 2011 is our 12th consecutive quarter of year-over- year quarterly growth. This is a testament to the strong growth trend in our business."

Q1 2011Q1 2010Q4 2010
Revenue9,584,0558,915,26413,325,914
Gross Margin45%39%47%
Adjusted Gross Margin151%47%52%
EBITDAS1490,157(82,491)2,186,111
EBITDAS1 per share0.04(0.01)0.16
Earnings (loss) per share(0.04)(0.06)0.08
1 EBITDAS and Adjusted Gross Margin are non -GAAP measures . Refer to definitions below.

Q1 2011 Operational Highlights

  • $6 million in new contract wins in Q1 2011 which significantly contributed to the Company's backlog. Included in these contract announcements is a $3.8 million contract to upgrade Helsinki Taksi-Data Oy ("Helsinki Taxi") with the Company's industry leading Vector 9000™ mobile data terminals ("MDTs").
  • The Company's eFleet business unit won a $850,000 contract to supply a leading Fortune 50 company with the Company's Vector 9000™ MDTs and eFleet's web-based dispatch and fleet management software. The deal represents a strong endorsement of the Company's ability to take fleet management technology into significant new market verticals.
  • StrataGen Systems, the Company's business unit serving the transit market, won a contract to upgrade SCR Medical Transportation Inc. ("SCR") to the Vector 9000™. SCR is a large provider of transportation services under PACE Transit in Chicago. The contract further underscores the appeal of the Company's products across many verticals, and the ability to provide integrated, end-to-end solutions featuring industry leading MDTs and fleet management, and routing and scheduling applications.
  • StrataGen also made significant progress on the delivery of its Intermodal Trip Planning solution to MTA New York City Transit ("NYCT"). This novel solution will drive significant cost savings for NYCT by allowing the customer to leverage its fixed route transit system for para-transit trips.
  • $700,000 in new contracts for the Taxibook™ hosted subscription based service including a deployment for a 100 vehicle taxi fleet in the US. This represents one of the Company's largest TaxiBook™ deployments and is a testament to the scalability and value proposition offered by the solution.
  • Year-to-date, Taxibook™ subscriptions have increased by 60%.
  • eFleet garnered a number of new customers in the limousine, towing and roadside assistance markets and crossed the 1,000 threshold in terms of number of subscribers.
  • The eFleet™ and Taxibook™ contract wins are key to the Company's strategy of expanding into the market for small and mid size fleets.
  • Recurring revenues for the quarter were 58%.

Non-GAAP Measures

The following and preceding discussion of financial results includes reference to EBITDAS and Adjusted Gross Margin. EBITDAS is a non-GAAP financial measure which the Company defines as Earnings before interest, taxes, depreciation, amortization and share-based 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. Adjusted Gross Margin excludes amortization expense and share-based compensation expenses. The measure is provided as gross margin includes significant amortization expense related to acquired intangibles which management believes may affect the comparability of gross margin.

Financial Results for the Three Months Ended March 31, 2011

The financial results discussed in this press release have been prepared in accordance with IFRS standards applicable to the preparation of interim financial information as required for all publicly traded companies in Canada in 2011. Readers should note that comparative figures in this press release and the Company's financial statements and MD&A have been restated to reflect IFRS. Only in certain cases has discussion been provided in this press release about the changes resulting from changeover to IFRS. Please refer to the Company's consolidated interim financial statements for the 3 months ended March 31, 2011 for a detailed explanation of the changeover to IFRS.

Revenues for the three months ended March 31, 2011 were $9.6 million, an increase of $0.7 million or 8% over the same period in the prior year and a decrease of $3.7 million compared to Q4 of 2010. The increase over the same quarter in the prior year is primarily attributed to growth in non-recurring enterprise solutions revenues in the Taxi and Transit business units. The decrease from the prior quarter is due to seasonality. The Company's first quarter is the seasonally weakest quarter while its fourth quarter is its strongest.

Of the Company's $9.6 million in revenues for the quarter, 45% were denominated in US dollars (53% for the three months ended March 31, 2010) and 40% were denominated in Euros (32% for the three months ended March 31, 2010). In the three months ended March 31, 2011 the average Canadian dollar exchange rate over the comparable period in the prior year was 6% higher against the Euro and 5% higher against the US dollar.

Revenues from markets outside of Canada accounted for 91% of total revenues for the three months ended March 31, 2011 compared to 87% in the same period in the prior year, and 92% in the fourth quarter of 2010.

On transition to IFRS, amortization relating to certain intangible assets has been reclassified to cost of sales, resulting in a material decrease in gross margins from previously reported results. Gross margin percentage for the three months ended March 31, 2011 increased to 45% compared to 39% for the three months ended March 31, 2010 and decreased compared to a gross margin percentage of 47% for the three months ended December 31, 2010. The increase in gross margin percentage over the same quarter in the prior year is primarily attributable to increased margins earned on non- recurring enterprise solutions revenues, primarily in the Taxi and Transit businesses. The decrease compared to Q4 2010 is a reflection of the seasonality of the business, with activity levels being the highest in the last quarter of each year leading to higher rates of utilization for project related personnel.

Adjusted gross margin percentage (a non-GAAP measure as defined above) for the three months ended March 31, 2011 was 51% compared to 47% for the three months ended March 31, 2010 and 52% for the three months ended December 31, 2010.

On transition to IFRS, a portion of amortization of plant and equipment, amortization of intangibles and share-based compensation has been reclassified to operating expenses. Total operating expenses for the three months ended March 31, 2011 were $4.3 million, an increase of $0.4 million over the prior year comparable quarter and were relatively unchanged from the prior quarter. The increase over the prior year comparable quarter is primarily related to the addition of sales and marketing personnel.

Foreign exchange loss includes foreign exchange gains and losses arising from the translation of foreign denominated transactions and balances. During the three months ended March 31 2011, the Canadian dollar appreciated by 2% against the US dollar and depreciated by 3% against the Euro resulting in a net foreign exchange loss of $0.3 million compared to $0.6 in the same period in the prior year. Foreign exchange losses for the three months ended March 31, 2011 were less than the comparative period due to less adverse foreign exchange movements.

Income tax expense for the three months ended March 31, 2011 was $0.3 million compared to an expense of $0.2 million for the three months ended December 31, 2010 and a recovery of $0.1 million for the three months ended March 31, 2010. The increase in tax expense for the first quarter of 2011 is a result of increases in deferred tax expense arising from taxable income in Canada.

Net loss for the three months ended March 31, 2011 was ($0.6) million or ($0.04) per share (basic and diluted) compared to a loss of ($0.9) million or ($0.06) per share (basic and diluted) reported for the three months ended March 31, 2010 and net income of $1.1 million or $0.08 per share (basic and diluted) reported for the three months ended December 31, 2010.

EBITDAS (a non-GAAP measure as defined above) was $0.5 million for the three months ended March 31, 2011 compared to EBITDAS of negative ($0.1) million for the same period in the prior year. EBITDAS for the three months ended December 31, 2010 was $2.2 million.

The Company has line of credit facilities totaling $4.2 million. At March 31, 2011, the Company had no balance drawn on its credit facilities and $3.6 million in cash. This compares to $4.2 million in cash and no balance drawn on its lines of credit at December 31, 2010, and $1.6 million in cash and no balance drawn on its lines of credit at March 31, 2010. As at the date of this release, the Company was not drawn on its line of credit.

As at March 31, 2011 the Company had 13,789,746 shares outstanding which is unchanged from December 31, 2010.

Outlook

Based on the first quarter results, backlog, and sales pipeline, the Company remains positive on its growth objectives for the year and is maintaining the revenue guidance issued in March 2011 for growth in revenues to greater than $45 million for the year ending December 31, 2011.

Conference Call

The Company will 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 May 14, 2011, by dialing 905-694-9451 / 800-408-3053 and entering access code 6014050.

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.

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.

DDS WIRELESS INTERNATIONAL INC.
Consolidated Statements of Operations
(unaudited)
Three months ended
March 31, 2011March 31, 2010
Revenue$9,584,055$8,915,264
Cost of sales (note 1)5,225,4735,431,652
Gross margin4,358,5823,483,612
Operating expenses:
Research and development (note 1)1,557,4581,590,152
Sales and marketing (note 1)1,287,228837,928
General and administrative (note 1)1,425,5741,441,881
Other20,96813,042
4,291,2283,883,003
Profit (loss) from operating activities67,354(399,391)
Foreign exchange loss296,850560,561
Loss before income taxes(229,496)(959,952)
Income tax expense (recovery)
Current tax expense38,056(810)
Deferred tax expense286,638(85,307)
324,694(86,117)
Net loss$(554,190)$(873,835)
Net loss per common share - basic and diluted$(0.04)$(0.06)
Weighted average number of common shares13,789,74613,789,746
DDS WIRELESS INTERNATIONAL INC.
Consolidated Balance Sheets
(unaudited)
March 31, 2011December 31, 2010January 1, 2010
Assets
Current assets:
Cash and cash equivalents$3,630,788$4,178,196$1,603,384
Trade and other receivables5,621,1746,056,3435,061,105
Contract work-in-progress6,742,7855,698,8104,066,082
Income taxes receivable30,53430,53414,104
Inventory1,804,4091,626,1621,966,090
Prepaid expenses564,482420,702526,435
18,394,17318,010,74713,237,200
Plant and equipment1,262,5561,378,6562,190,312
Long-term receivables974,7451,094,3531,592,701
Investment tax credit receivable3,220,8243,348,6814,482,536
Deferred tax assets2,506,7672,563,9471,639,284
Intangible assets4,440,5474,835,6166,941,517
Goodwill3,088,7253,007,2873,357,645
Investment102,565102,565102,565
$33,990,902$34,341,852$33,543,760
Liabilities and Shareholders' Equity
Current liabilities:
Loans and borrowings--158,389
Current portion of debt86,96579,941199,043
Trade payables and accrued liabilities5,343,1015,684,0504,283,429
Deferred revenue2,661,9422,364,9713,036,519
Provisions124,088148,30449,028
8,216,0968,277,2667,726,408
Debt--71,549
Deferred tax liabilities950,0691,012,8951,546,728
9,166,1659,290,1619,344,685
Shareholders' equity:
Share capital24,608,22624,608,22624,608,226
Share-based payments reserve1,562,5261,464,9321,095,511
Retained earnings(984,302)(430,112)(1,504,662)
Accumulated other comprehensive loss(361,713)(591,355)-
24,824,73725,051,69124,199,075
$33,990,902$34,341,852$33,543,760
DDS WIRELESS INTERNATIONAL INC.
Notes to the Consolidated Statements of Operations
(unaudited)
1. Cost of sales and operating expenses:
For the three months ended March 31, 2011


Per statement of operations

Amortization of plant and equipment

Amortization of intangible assets


Share-based compensation
Excluding amortization and share-based compensation
Cost of sales $5,225,473$100,629 $411,970 $31,268 $4,681,606
Research and development 1,557,45830,9488,26734,8211,483,422
Sales and marketing 1,287,22816,6004,43412,5551,253,639
General and administration 1,425,57441,0797,36118,9501,358,184
Other 20,968---20,968
Total operating expenses 4,291,22888,62720,06266,3264,116,213
$9,516,701$189,256$432,032 $97,594$8,797,819
For the three months ended March 31, 2010


Per statement of operations

Amortization of plant and equipment

Amortization
of intangible assets


Share-based compensation
Excluding amortization and share-based compensation
Cost of sales $5,431,652$192,052$452,998 $32,195$4,754,407
Research and development 1,590,15222,9938,26743,0181,515,874
Sales and marketing 837,92812,3334,4348,083813,078
General and administration 1,441,88165,4397,36219,1801,349,900
Other 13,042---13,042
Total operating expenses 3,883,003100,76520,063 70,2813,691,894
$9,314,655$292,817$473,061 $102,476$8,446,301

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