DDS Wireless International Inc.
TSX : DD

DDS Wireless International Inc.

March 08, 2012 08:00 ET

DDS Wireless Reports 11% Revenue Growth & $6.7 Million EBITDAS(1) and Declares Cash Dividend

RICHMOND, BRITISH COLUMBIA--(Marketwire - March 8, 2012) - DDS Wireless International Inc. (TSX:DD) -

Fourth Quarter 2011 Full Year 2011
Revenue of $12.5 million Revenue of $45.7 million
Net income of $0.7 million, or $0.05 per share Net income of $2.5 million, or $0.18 per share
EBITDAS(1) of $1.8 million, or $0.13 per share EBITDAS(1) of $6.7 million, or $0.49 per share

DDS Wireless International Inc., a world leader in providing wireless data solutions for fleet management for more than 20 years, today reported financial results for the fourth quarter and fiscal year ended December 31, 2011 and announced that the Company's Board of Directors has approved a cash dividend on the Company's common shares ("Shares"). All financial information is expressed in Canadian ("CDN") dollars and has been prepared in accordance with International Financial Reporting Standards ("IFRS"), except as otherwise noted.

"2011 was a record year for DDS Wireless in terms of annual revenue, EBITDAS and EBITDAS margin % and I am very pleased with what we have accomplished as a company," stated Vari Ghai, CEO of DDS Wireless. "As we enter our 25th year in business with strong growth, profitability and stability, I am very pleased to introduce an initial dividend for our shareholders. I view this dividend as representing confidence in our ability to continue to deliver profitable long term growth and provide a regular return to our shareholders. We have set the dividend at a more modest level to ensure we are still in a position to execute incremental acquisitions as they become available."

Full Year 2011 Financial Results

DDS Wireless reported another successful year with a revenue increase of 11% to $45.7 million compared to $41.3 million for the year ended December 31, 2010. The latest wave of upgrades by our largest European taxi customers has been driven by one of our most successful products, the Vector 9000™ mobile data terminal, resulting in the increase in revenue and support of the increase in the gross margin percentage to 47% in 2011 from 45% in 2010.

Revenue in the Taxi business unit increased by 16% or $4.6 million and the Transit business unit showed a revenue increase of 5% or $0.5 million. These increases were offset by declines from DWI and eFleet (now collectively the New Markets unit) of $0.8 million.

Operating expenses were $17.2 million, an increase of $1.2 million over 2010, driven mainly by the increase in average annual headcount of 77% as significant investment in Sales and Marketing headcount, particularly in the Taxi business unit, were made at the beginning of the 2011 year.

The Company posted a strong earnings performance with EBITDAS(1) of $6.7 million or 15% of revenue and net income of $2.5 million or $0.18 per share. This represents a $1.1 million increase in net income over 2010 as the higher revenues and an improved gross margin percentage offset the increase in operating expenses and taxes.

Fourth Quarter 2011 Financial Results

Revenue for the fourth quarter of 2011 was $12.5 million, a decline of 7% or $0.9 million compared to the fourth quarter of 2010 and flat with the immediately preceding third quarter of 2011. This is not unexpected as the Company experienced record quarters in the third quarter of 2011 and fourth quarter of 2010. The year-over-year decline in revenue is attributable to the decrease in Taxi revenue by $1.5 million to $8.0 million, as delivery of enterprise solutions decreased by $1.9 million. This was offset in part by higher small hardware orders associated with TaxiBook™ sales in Finland (an increase of $0.5 million). The revenue in the Transit business unit increased significantly by $1.3 million compared to the fourth quarter of 2010 as it commenced delivery on the MTA New York City Transit project signed in the quarter.

Gross margin decreased modestly by $0.3 million or 5% to $6.0 million from the fourth quarter of 2010 due to lower revenue. The yield was slightly higher at 48% of revenue compared to 47% in the prior year due to higher gross margins in the Transit business unit.

The decrease in the gross margin of $0.3 million and the slight increase in operating expenses of $0.1 million led to a decrease in income from operations of $0.4 million or 18% compared to same period in the prior year. EBITDAS(1) were $1.8 million or 14% of revenue and net income was $0.7 million or $0.05 per share.

Outlook

Looking forward, we are executing well to our strategy in our target markets. We are a global leader in Taxi and a North American leader in Transit with opportunities to extend to the world stage. We continue to incubate new market segments in fleet management, leveraging off our core technology. Our customers rely on us to provide industry-leading products, technology, quality and service. In addition we expect to increasingly benefit from leverage between our Taxi and Transit lines of business in global operators.

We had a very strong year in 2011 and in our Transit market we built a strong backlog for 2012 revenue. Taxi experienced extraordinary growth in Europe, but there is now a degree of opaqueness in that market given the general economic conditions. North America tends to lag behind Europe in terms of adoption and we foresee limited growth in the first half of the year due to the vagaries of deal flow and foreign exchange trends. Given these circumstances we are issuing an outlook for 2012 revenue roughly in line with 2011. We expect to further refine this outlook in our first quarter report in May 2012.

We remain excited about the growth prospects for DDS Wireless and believe the Company has the foundation necessary to continue to drive profitable, sustainable growth over the long term.

Dividend

The cash dividend, in the amount of $0.02 per Share, will be paid on or about April 16, 2012 to holders of record of Shares as of the close of business on March 30, 2012. The Company expects to declare dividends on its Shares quarterly; however, the declaration of any future dividends, as well as the distribution date and amount of any future dividends, will be determined by the Board of Directors of the Company immediately prior to each such declaration. Unless the Company indicates otherwise, the Company's dividends are designated as eligible dividends for the purposes of the Income Tax Act (Canada).

Conference Call

The Company will host a conference call at 4:30 pm Eastern Time today to discuss the financial results. Please call 416-340-2216 / 866-226-1792 to participate in the call. A replay of this conference call will be available through March 18, 2012 by dialing 905-694-9451 / 800-408-3053 and entering access code 5784837.

(1)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. Please refer to the table attached to this press release for a reconciliation of non-GAAP measures to reported financial results.

(1) Non-GAAP measure. Defined as earnings before interest, taxes, depreciation, amortization and share-based compensation. Please refer to the reconciliation of reported financial results to Non-GAAP measures attached to this press release.

Restatement of Prior Year Financial Statements

The Company has commenced reporting under International Financial Reporting Standards ("IFRS") with application beginning January 1, 2010. The comparative figures for the year ended December 31, 2010 and the IFRS opening balance sheet as at January 1, 2010 have been restated to comply with the adoption of these standards. In addition the Company has restated certain comparative figures for an error in its previously reported Canadian GAAP figures related to taxation which were updated upon the application of IFRS. The opening IFRS balance sheet was adjusted to record $1.3 million of deferred tax liabilities and $0.4 million of deferred tax assets. Further information is available in the consolidated financial statements and in the Management Discussion and Analysis.

Cautionary Note Regarding 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 to transit, taxi, limousines and work truck, and wireless devices and communication infrastructure. The Company supports its customers worldwide through its offices in Canada, Finland, India, Singapore, Sweden, U.K. and U.S.A.

SEE ATTACHED SUMMARY FINANCIAL STATEMENTS AND THE RECONCILIATION OF NON-GAAP MEASURES

DDS WIRELESS INTERNATIONAL INC.
Consolidated Statements of Operations (Unaudited)
(In thousands of Canadian dollars, except per share amounts)

Three months ended December 31 Year ended December 31
2011 2010(1)(2) 2011 2010(1)(2)
Revenue $ 12,455 $ 13,326 $ 45,691 $ 41,347
Cost of sales 6,450 7,027 24,032 22,790
Gross margin 6,005 6,299 21,659 18,557
Operating expenses:
Research and development 1,429 1,688 5,943 6,477
Sales and marketing 1,449 1,120 5,450 3,880
General and administrative 1,415 1,449 5,750 5,659
Other expenses 1 (40) 28 (35)
4,294 4,217 17,171 15,981
Income from operating activities 1,711 2,082 4,488 2,576
Net finance expense 571 713 435 1,312
Income (loss) before income taxes 1,140 1,369 4,053 1,264
Income tax expense (recovery)
Current tax expense (recovery) 204 709 1,937 1,283
Deferred tax expense (recovery) 241 (782) (354) (1,371)
445 (73) 1,583 (88)
Net income (loss) $ 695 $ 1,442 $ 2,470 $ 1,352
Net income per common share - basic and diluted $ 0.05 $ 0.10 $ 0.18 $ 0.10
Weighted average number of common shares outstanding 13,792 13,790 13,791 13,790

(1) The Company has restated its tax expense for comparative periods relating to the calculation of investment tax credits receivable and certain deferred tax liabilities relating to intangible assets acquired on acquisition of its MobiSoft OY and StrataGen Systems Inc. subsidiaries in 2007. Further information is available in the consolidated financial statements and in the Management Discussion and Analysis.
(2)
Restated to reflect the adoption of International Financial Reporting Standards as required for all Canadian publicly held companies.

DDS WIRELESS INTERNATIONAL INC.
Consolidated Balance Sheets (Unaudited)
(In thousands of Canadian dollars)

December 31, 2011 December 31, 2010(1)(2)
Assets
Current assets:
Cash and cash equivalents $ 6,778 $ 4,178
Trade and other receivables 7,145 6,056
Contract work-in-progress 5,468 5,699
Income taxes receivable 59 31
Inventory 2,718 1,626
Prepaid expenses 494 421
Investments 1,053 -
23,715 18,011
Plant and equipment 1,022 1,379
Long-term receivables 740 1,094
Investment tax credit receivable 3,276 3,975
Deferred tax assets 2,326 2,564
Intangible assets 3,341 4,835
Goodwill 2,992 3,007
Investment 103 103
$ 37,515 $ 34,968
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of debt $ - $ 80
Trade payables and accrued liabilities 6,392 5,684
Income taxes payable 79 -
Deferred revenue 2,103 2,365
Provisions 135 148
8,709 8,277
Deferred tax liabilities 1,722 2,224
10,431 10,501
Shareholders' equity:
Share capital 24,611 24,608
Share-based payments reserve 1,816 1,465
Retained earnings 1,455 (1,015)
Accumulated other comprehensive loss (798) (591)
27,084 24,467
$ 37,515 $ 34,968

(1) The Company has restated its tax expense for comparative periods relating to the calculation of investment tax credits receivable and certain deferred tax liabilities relating to intangible assets acquired on acquisition of its MobiSoft OY and StrataGen Systems Inc. subsidiaries in 2007. Further information is available in the consolidated financial statements and in the Management Discussion and Analysis.
(2) Restated to reflect the adoption of International Financial Reporting Standards as required for all Canadian publicly held companies.

DDS WIRELESS INTERNATIONAL INC.
Reconciliation of Non-GAAP Measures
(In thousands of Canadian dollars)


For the three months ended

2011

2010
For the
year ended
(CAD in thousands except %) Dec Sep Jun Mar Dec Sep Jun Mar 2011 2010
EBITDAS (1)
EBITDAS 1,759 3,036 1,464 490 2,312 1,034 1,594 (82) 6,749 4,858
As % of revenue 14% 24% 13% 5% 17% 11% 17% (1%) 15% 12%
Amortization of plant & equipment (106) (95) (84) (89) (94) (111) (130) (101) (374) (435)
Amortization of intangibles (427) (437) (438) (432) (459) (461) (433) (473) (1,734) (1,825)
Amortization of sales related assets (45) (51) (81) (100) (295) (244) (191) (192) (276) (922)
Share-based compensation (87) (59) (111) (97) (82) (113) (72) (102) (354) (369)
Interest 45 (1) - (1) (14) (6) (13) (9) 43 (42)
Income (loss) before income taxes 1,139 2,393 750 (229) 1,369 99 755 (959) 4,053 1,264
Adjusted Gross Margin (2)
Revenues 12,455 12,508 11,144 9,584 13,326 9,723 9,383 8,915 45,691 41,347
Adjusted gross margin 6,437 6,605 5,716 4,902 7,062 5,321 4,817 4,161 23,660 21,361
Less:
Amortization of plant & equipment 39 - - - - - - - 39 -
Share-based compensation (66) 22 36 31 28 35 20 32 23 115
Amortization of sales related assets 45 51 81 101 295 244 191 192 276 922
Amortization of intangibles 416 417 418 412 439 441 433 453 1,663 1,766
Gross margin per financial statements 6,005 6,115 5,181 4,358 6,299 4,601 4,173 3,484 21,659 18,557

(1) Non-GAAP measure. Defined as earnings before interest, taxes, depreciation, amortization and share-based compensation.
(2) Non-GAAP measure. Defined as gross margin before amortization and share-based compensation.

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