NovAtel Inc.

NovAtel Inc.

March 10, 2005 07:30 ET

NovAtel Inc. Reports Record Financial Results for Fiscal 2004


NEWS RELEASE TRANSMITTED BY CCNMatthews

FOR: NOVATEL INC.

Nasdaq SYMBOL: NGPS

MARCH 10, 2005 - 07:30 ET

NovAtel Inc. Reports Record Financial Results for
Fiscal 2004

CALGARY, ALBERTA--(CCNMatthews - March 10, 2005) - NovAtel Inc.
(NASDAQ:NGPS), a global positioning systems manufacturer, today
announced its financial results for the fourth quarter and the year
ended December 31, 2004(1).

Revenues in the fourth quarter 2004 were CDN $14.4 million (US $11.8
million) compared to CDN $11.3 million (US $8.6 million) in the similar
period a year ago. The Company is reporting net income for the fourth
quarter 2004 of CDN $5.8 million (US $4.7 million) or CDN $0.71 (US
$0.58) per share - basic, compared to a net income of CDN $1.0 million
(US $0.8 million) or CDN $0.13 (US $0.10) per share - basic, in the
similar period a year ago.

Revenues in the twelve months ended December 31, 2004 were CDN $53.9
million (US $41.4 million) compared to CDN $38.7 million (US $27.3
million) in fiscal 2003. The Company is reporting net income for the
twelve months ended December 31, 2004 of CDN $12.8 million (US $9.8
million) or CDN $1.59 (US $1.22) per share - basic, compared to a net
income of CDN $3.5 million (US $2.4 million) or CDN $0.45 (US $0.32) per
share - basic, in the similar period a year ago.

The net income for the fourth quarter 2004 includes the benefit of
recognizing CDN $3.2 million (US $2.6 million) or CDN $0.39 (US $0.32)
per share - basic, of future income tax assets, related to the tax
benefit of existing tax shields that are available to offset earnings in
the foreseeable future. There was no similar benefit related to future
income tax assets recorded in the fourth quarter or full year of 2003.
(See further discussion in "Recognition of Future Income Tax Asset"
section, below.)

"This quarter's record results conclude the most successful year in
NovAtel's history," said Jon Ladd, President and CEO. "Our strong
revenue growth for the full year 2004 of 39% reflects the continued
success of our strategy to build market share with large OEMs and
emerging system integrators." The growth in revenue and net income in
2004 was driven by such factors as a ramp up of business with Leica
Geosystems, one of NovAtel's key customers; timing of engineering
service revenues and hardware deliveries pertaining to the US Wide Area
Augmentation System (WAAS) program; a substantial increase in product
shipments into China; and the contribution of a full year's revenue in
2004 from an L1 GPS product line acquired in May 2003.

NovAtel experienced growth in the fourth quarter in all of its customer
categories. Specifically:

In the Special Applications category, fourth quarter 2004 revenue grew
by 36% year-over-year. The majority of this year-over-year increase was
attributable to shipments to Leica Geosystems and increased product
shipments into China. "Demand for our precision positioning components
and subsystems continues to be strong, as evidenced by Leica's recently
introduced SmartStation. We continue to expect sales into the Special
Applications category to be the long-term growth engine for NovAtel,"
said Ladd.

In the Aerospace and Defence category, fourth quarter 2004 revenue grew
by 22% over the similar period a year ago, largely due to increased
revenues from Raytheon Company for three contracts related to the next
generation WAAS program. These contracts were substantially completed in
2004. "We intend to leverage our leadership in GPS-based ground
infrastructure in support of future air traffic control systems into
other geographies around the world. NovAtel is focused on identifying
and pursuing these opportunities," continued Ladd. "We are therefore
very pleased to have announced earlier this week that NovAtel received
an order for Satellite Based Augmentation System (SBAS) equipment from
Raytheon Company in support of the ground-based elements of the Indian
GPS and Geostationary Earth Orbit (GEO) Augmented Navigation (GAGAN)
program. This cooperative effort between Raytheon and the Indian Space
Research Organization is an initial test project, for which NovAtel will
supply GPS receiver elements."

In the Geomatics category, revenue in the fourth quarter of 2004
increased by 3% over the similar period a year ago, primarily due to
increased revenue attributable to Point, Inc., NovAtel's joint venture
with Sokkia Co., Ltd.

"The fourth quarter of 2004 was another strong quarter for NovAtel from
a financial performance perspective," commented Werner Gartner,
NovAtel's Executive Vice President and CFO. "A number of factors,
particularly the strong revenue growth and higher gross margin
percentages, contributed to our increased profitability in comparison to
last year and led to net income, excluding the tax benefit, of CDN $2.6
million for the fourth quarter of 2004."

"In addition, the strong operating results allowed us to continue to
strengthen our balance sheet. We generated positive operating cash flow
for the thirteenth consecutive quarter and increased our cash/short-term
investments balance to over CDN $23 million as of December 31, 2004, an
increase of CDN $10.4 million since the beginning of 2004," concluded
Gartner.

Recognition of Future Income Tax Asset

As noted above, NovAtel recorded a $3.2 million non-cash benefit related
to the recognition of future income tax assets in the fourth quarter of
2004. Historically, the Company has recorded a full valuation allowance
against the potential value of its extensive tax shields, which
previously reduced the accounting value of these tax shields to $ nil on
the Company's financial statements. Based on the Company's improved
profitability over the past four years, amongst other factors, the
Company has determined that the appropriate accounting treatment, under
both Canadian and US generally accepted accounting principles, is the
recognition of a future income tax asset for a portion of its tax
shields.

The impact of this tax benefit on net income and earnings per share for
the fourth quarter and full year 2004 is detailed below.



Three months ended Dec. 31, 2004
(Canadian $ thousands, except per share data)
-----------------------------------------------
Future Income Excluding Future
As Reported Tax Benefit Income Tax Benefit
-----------------------------------------------
Net Income $5,780 $3,189 $2,591
Net Income per Share
(Basic) $ 0.71 $ 0.39 $ 0.32
Net Income per Share
(Diluted) $ 0.67 $ 0.37 $ 0.30


Twelve months ended Dec. 31, 2004
(Canadian $ thousands, except per share data)
-----------------------------------------------
Future Income Excluding Future
As Reported Tax Benefit Income Tax Benefit
-----------------------------------------------
Net Income $12,815 $3,189 $9,626
Net Income per Share
(Basic) $ 1.59 $ 0.40 $ 1.19
Net Income per Share
(Diluted) $ 1.51 $ 0.38 $ 1.13


Future Guidance

Going forward, the Company is changing its policy on providing specific
future revenue and earnings guidance, and will no longer provide or
update specific revenue or net income guidance. "Over the past year,
NovAtel's board of directors has discussed the matter of providing
guidance, and has come to the conclusion that our shareholders are best
served if the Company's management focus their attention on continuing
to build the business for success over the long-run," stated David E.
Vaughn, Chairman of the board of directors. "The Company will continue
its timely and candid communication with investors by providing
information and insight into strategic initiatives, growth drivers,
revenue trends and industry trends critical to understanding the
Company's business and operating environment."

The Company recently provided general guidance on 2005 revenue trends in
a press release issued January 24, 2005. NovAtel currently continues to
expect to grow full year revenue in 2005 over the results of 2004,
although the growth rate in 2005 is not expected to be at the
exceptional rate of 2004. Looking forward, the Company expects that its
rate of revenue growth in 2005 will likely be affected by such factors
as the weaker US dollar relative to the Canadian dollar and lower
revenue from the Company's Aerospace and Defence business as a
consequence of the substantial completion of certain contracts
pertaining to the US WAAS program at the end of 2004.

Foreign Exchange

Although approximately 95% of the Company's revenues are earned in US
dollars, the Company's financial results are reported in Canadian
dollars and in accordance with Canadian generally accepted accounting
principles. The CDN/US dollar exchange rate has declined from an average
rate of approximately CDN $1.30 per US dollar in 2004 to a rate of CDN
$1.21 per US dollar as of March 9, 2005.

The US dollar financial information presented above is translated from
the Canadian dollar financial information at the average rates in effect
during the relevant reporting periods, as follows:



Three months ended Year ended
December 31, December 31,
------------------ -------------------
2004 2003 2004 2003
------------------ -------------------
Canadian dollar per US dollar $1.220 $1.322 $1.304 $1.418
---------------------------------------------------------------------

(1) The fourth quarter 2004 included 90 days of operating activities,
compared to 94 days in the fourth quarter of 2003.


During the conference call scheduled for this afternoon, the Company
will be providing updates and further information on the following:
revenues from the Special Applications, Aerospace & Defence and
Geomatics categories; the recent shipments to Raytheon Company; the
recent introduction of the Leica SmartStation; the recently announced
SBAS contract with Raytheon for the Indian GAGAN system; Point, Inc.;
2005 trends; and recognition of future income tax assets.

The Company will have a conference call today at 4:30 p.m. ET.
Participants may access the NovAtel Inc. conference call by dialing
877-323-2010 (North America) or 416-695-9715 (International). This call
is also being web cast and can be accessed at NovAtel's web site
www.novatel.com or at www.fulldisclosure.com.

A replay of the conference call will be available until March 16, 2005
by dialing 1-888-509-0082 (North America) or 416-695-5275
(International), or until April 15, 2005 at the web addresses noted
above.

The web cast is also being distributed over CCBN's Investor Distribution
Network to both institutional and individual investors. Individual
investors can listen to the call through CCBN's individual investor
centre at www.fulldisclosure.com or by visiting any of the investor
sites in CCBN's Individual Investor Network such as America Online's
Personal Finance Channel, Fidelity Investments® (Fidelity.com) and
others. Institutional investors can access the call via CCBN's
password-protected event management site, StreetEvents
(www.streetevents.com).

NovAtel designs, markets and sells high-precision GPS and other
positioning components and sub-systems used in a wide variety of
commercial applications principally in the aviation, geomatics
(surveying and mapping), mining, precision agriculture, marine and
defence industries. NovAtel's solutions combine hardware, such as
receivers and antennas, with software to enable its customers to fully
integrate the Company's high-precision GPS technology into their
respective products and systems. The Company is focused on supplying
core high-precision positioning technology to OEMs and system
integrators who build systems for various end market applications. For
more information, visit www.novatel.com.

Certain statements in this news release, including those about the
Company's future plans and intentions, financial guidance, long-term
growth prospects, levels of activity or other future events, are
forward-looking statements. These forward-looking statements are not
based on historical facts but rather on management's current
expectations regarding NovAtel's future growth, results of operations,
performance, future capital and other expenditures, competitive
advantages, business prospects and opportunities. Wherever possible,
words such as ''anticipate'', ''believe'', ''expect'', ''may'',
''could'', ''will'', ''potential'', ''intend'', ''estimate'',
''should'', ''plan'', ''predict'' or the negative or other variations of
these words, or similar words or phrases, have been used to identify
these forward-looking statements. Forward-looking statements involve
significant known and unknown risks, uncertainties and assumptions. Many
factors could cause actual results, performance or achievements to
differ materially from the results discussed or implied in the
forward-looking statements, including operating results of Point,
establishing and maintaining effective distribution channels,
certification and market acceptance of NovAtel's new products, impact
and timing of large orders, credit risks of customers and Point, pricing
pressures in the market and other competitive factors, maintaining
technological leadership, timing of revenue recognition in connection
with certain contracts, U.S. dollar to Canadian dollar exchange rate
fluctuations, actions by governmental authorities, and other factors
described in our Form 20-F and other SEC filings, many of which are
beyond the control of NovAtel. These factors should be considered
carefully and undue reliance should not be placed on the forward-looking
statements. These forward-looking statements are made as of the date of
this news release, and NovAtel assumes no obligation to update or revise
them to reflect new events or circumstances.



NOVATEL INC.

CONSOLIDATED BALANCE SHEETS
(in Canadian $ thousands)
(Unaudited)

December 31,
2004 2003
-------- --------
ASSETS

Current assets:
Cash and cash equivalents $ 8,949 $ 2,445
Short term investments 14,410 10,555
Accounts receivable 9,413 6,383
Related party receivables 1,591 1,081
Related party notes receivable 1,614 1,721
Inventories 5,191 4,782
Prepaid expenses and deposits 268 357
Future income tax asset - current portion 1,286 -
-------- --------
Total current assets 42,722 27,324

Capital assets 3,447 3,342
Intangible assets 2,515 2,349
Deferred development costs 2,359 2,557
Future income tax asset - long term portion 1,903 -
-------- --------
Total assets $ 52,946 $ 35,572
-------- --------
-------- --------

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
Accounts payable and accrued liabilities $ 9,148 $ 5,868
Related party payables 345 935
Notes payable 1,614 1,721
Deferred revenue 755 312
Provision for future warranty costs 538 410
Capital lease obligations - current portion - 100
-------- --------
Total current liabilities 12,400 9,346

Deferred gain on sale/leaseback of capital assets 453 567
Related party payables - long-term portion - 212
-------- --------
Total liabilities 12,853 10,125
-------- --------

Shareholders' equity:
Capital stock 38,870 37,012
Contributed surplus 442 13
Retained earnings (deficit) 781 (11,578)
-------- --------
Total shareholders' equity 40,093 25,447
-------- --------
Total liabilities and shareholders' equity $ 52,946 $ 35,572
-------- --------
-------- --------


NOVATEL INC.

CONSOLIDATED STATEMENTS OF OPERATIONS
(in Canadian $ thousands, except per share data)
(Unaudited)

Three months ended Year ended
December 31, December 31,
2004 2003 2004 2003
-------- ------- -------- --------
Revenues:
Product sales $ 13,705 $ 9,916 $ 48,802 $ 32,138
NRE fees 666 1,431 5,130 6,546
-------- ------- -------- --------
Total revenues 14,371 11,347 53,932 38,684
-------- ------- -------- --------
Cost of sales:
Cost of product sales 5,708 4,484 19,586 14,805
Cost of NRE fees 493 960 2,917 3,565
-------- ------- -------- --------
Total cost of sales 6,201 5,444 22,503 18,370
-------- ------- -------- --------

Gross profit 8,170 5,903 31,429 20,314
-------- ------- -------- --------


Operating expenses:
Research and development 2,758 1,938 9,588 7,123
Selling and marketing 1,218 1,479 5,751 5,269
General and administration 1,377 1,242 5,312 4,280
Share offering costs 12 - 754 -
-------- ------- -------- --------
Total operating expenses 5,365 4,659 21,405 16,672
-------- ------- -------- --------

Operating income 2,805 1,244 10,024 3,642

Interest income, net 118 28 313 174
Other expense (335) (230) (662) (664)
-------- ------- -------- --------

Income from continuing operations
before income taxes 2,588 1,042 9,675 3,152

Income taxes
Current provision 18 17 70 52
Future income tax (benefit) (3,189) - (3,189) -
-------- ------- -------- --------
Net income from continuing
operations 5,759 1,025 12,794 3,100

Income from discontinued
operations 21 16 21 360
-------- ------- -------- --------

Net income $ 5,780 $ 1,041 $ 12,815 $ 3,460
-------- ------- -------- --------
-------- ------- -------- --------


Net income per share (basic)
Continuing operations $ 0.71 $ 0.13 $ 1.59 $ 0.40
Discontinued operations 0.00 0.00 0.00 0.05
-------- ------- -------- --------
Net income per share (basic) $ 0.71 $ 0.13 $ 1.59 $ 0.45
-------- ------- -------- --------
-------- ------- -------- --------

Weighted average shares
outstanding (basic) 8,156 7,817 8,063 7,723
-------- ------- -------- --------
-------- ------- -------- --------

Net income per share (diluted)
Continuing operations $ 0.67 $ 0.13 $ 1.51 $ 0.39
Discontinued operations 0.00 0.00 0.00 0.04
-------- ------- -------- --------
Net income per share (diluted) $ 0.67 $ 0.13 $ 1.51 $ 0.43
-------- ------- -------- --------
-------- ------- -------- --------
Weighted average shares
outstanding (diluted) 8,639 8,178 8,500 7,983
-------- ------- -------- --------
-------- ------- -------- --------


-30-

Contact Information

  • FOR FURTHER INFORMATION PLEASE CONTACT:
    NovAtel Inc.
    Sonia Ross
    (403) 295-4532
    Website: www.novatel.com