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CSI Wireless grows revenues 47% and income 82% in Q17 May 2005
CSI Wireless Inc., a designer and manufacturer of advanced wireless and GPS products used in more than 50 countries, today announced significant year-over-year increases in revenues and earnings in the Company's first quarter financial results, achieving a $1.3 million profit on $22.2 million in revenue. The Company anticipates another year of record revenues and income for 2005. (All figures in this news release are in
Canadian dollars unless otherwise noted.)
Revenue growth is being driven by increased sales in CSI's Hemisphere GPS business, and accelerating demand for CSI's new GSM desktop cellular telephones. While CSI's TDMA phones have been driving desktop cellular phone revenues to date, the Company expects that in 2005 GSM phones will become a major revenue driver.
"This begins our eighth straight year of revenue growth," stated Stephen Verhoeff, CSI Wireless' President and CEO. "We begin 2005 as the number one supplier of TDMA-based desktop cellular telephones in Latin America, and with a significant increase in shipments and backlog for our new GSM versions of this phone. With the recent acquisition of the Outback business from former customer RHS Inc., we also kick off 2005 as the world's leading after-market supplier of GPS guidance products to the precision agriculture market."
For the first quarter ended March 31, 2005, consolidated revenues rose 47% to $22.2 million - a significant increase from revenues of $15.2 million in the first quarter of 2004. Gross margin of $7.3 million for the quarter was an increase of 31% over $5.6 million in the first quarter of 2004.
Year-over-year gross margins were 33% for the first quarter as compared to 37% in the same quarter of 2004. The reduction was largely due to the impact on the revenue mix of high-volume sales of CSI's lower-margin wireless products. The Company continually focuses on margin improvement through manufacturing, design and component cost reductions. Increases in GPS and wireless product margins in the first quarter of 2005 resulted in an improvement in overall margin from 27% in the fourth quarter of 2004.
Net earnings increased 82%, to $1.3 million for the quarter, or $0.04 per share basic and diluted, as compared to net earnings of $726,000, or $0.03 per share basic, and $0.02 per share diluted in the same period of 2004.
The Company reported a foreign exchange gain of $33,000 in the first quarter. The impact of foreign exchange fluctuations during the quarter were mitigated as a result of the implementation of a foreign exchange hedging
program during the quarter. Foreign exchange gains and losses result primarily from the impact of changes in the translated Canadian dollar value of US dollar working capital carried with respect to US-based operations.
CSI's GPS revenues reached $9.8 million, an increase of 18% compared with the first quarter of 2004. This increase is primarily a result of the continuing strength of the Outback(R) and Satloc product lines for the
agricultural precision guidance markets and growth in product sales to the marine market. GPS gross margins in the quarter were 52.3%, compared to 53.6% and 49.2% in the first and fourth quarters of 2004 respectively.
The Company's Wireless Business Unit produced significant year-over-year revenue growth, with an increase of 81% to $12.4 million from $6.9 million in the first quarter of 2004. Sales of CSI's desktop cellular phones increased 160% year-over-year with increases in sales of TDMA and GSM products. Gross margins in the Wireless business for the first quarter were 17.4%, compared to 16.5% in the first quarter of 2004, and 16.7% in the fourth quarter of 2004. Margin improvements are primarily a result of manufacturing and design-related
cost reductions achieved on both the TDMA and GSM based phones.
First-quarter operating expenses increased 31% to $6.0 million from $4.6 million in 2004. The increase supported CSI's growth, particularly in the wireless business. Research and development expenses increased 28% over the first quarter of 2004 as a result of continued product development work in the GPS and wireless businesses. Total capital spending, including assets acquired under capital lease, in the first quarter was approximately $1.2 million. A significant component of capital spending relates to the purchase of production equipment for the wireless business, and represents the completion of the installation of test equipment supporting high-volume manufacturing of the GSM desktop cellular phones at the third-party production facility in
China.
"We have invested in equipment that reduces the cost of producing our wireless products," said Mr. Verhoeff. "We expect to realize returns on this investment in 2005 through improved margins and increased sales. These returns will continue for several years as a result of the substantial markets these products address. Already in 2005, we have experienced a healthy escalation in sales growth and order backlog of our new GSM desktop cellular phones."
For the first quarter, CSI recorded current income tax expense of $45 thousand. This amount represents US alternative minimum tax (AMT) that is payable in spite of the availability of tax losses which fully shelter our US
taxable income. These taxes will be creditable against future US corporate income taxes.
During the first quarter, CSI negotiated the acquisition of the Outback business from RHS Inc. The Outback GPS product line, designed and manufactured by CSI, was distributed exclusively through RHS Inc., and commands a leading market share in the precision farming market. Initially sold only in North America, the Outback line is now being sold in several international markets including South America, Europe and Australia, as the Outback brand continues to become known and respected worldwide.
"We believe this acquisition of the Outback business was a critical step in our strategy to strengthen our dominance of the GPS precision agriculture market," explained Mr. Verhoeff. "We expect this industry to continue
expanding rapidly as GPS is adopted as mainstream technology by farmers due to its significant cost-benefit, particularly in light of increasing fuel and fertilizer costs."
At March 31, 2005, CSI held cash of $9.6 million, compared to $10.3 million, at December 31, 2004. Cash was used during the quarter for working capital and capital investments required to support the Company's
current and future growth.
First Quarter 2005 Operational Highlights
- CSI introduced two new GSM desktop cellular phones. The new
Brightstar-distributed phones offer industry-leading feature sets with
globally recognized third-party branding. One product is an
entry-level desktop cellular phone for consumers wanting
superior-quality voice service at a very competitive price. The other
product features the same superior-quality voice service, plus the
added value and convenience of Internet, email and text-messaging
capability. The GSM wireless protocol represents over 70% of the
world's wireless networks, dramatically increasing the addressable
market for the Company's desktop cellular phones.
- The Company announced that its new GSM phones received full type
approval (FTA) and passed approval tests for use with numerous
carriers. The GSM phones have been approved by 20 cellular carriers in
15 countries. Another 33 carriers in 15 additional countries are in
the advanced stages of testing and further approvals are expected
soon.
- CSI Wireless reported increasing orders for GSM desktop cellular
phones.
- Increased volumes of Outback precision guidance products were sold
through exclusive distributor RHS Inc. The rapidly growing Outback
Business was acquired subsequent to the close of the first quarter on
April 11, creating the world's largest supplier of agricultural GPS
guidance products. The combined GPS entity, "Hemisphere GPS", owns the
Outback and Satloc brands. On a pro forma basis, for the year ended
December 2004, the combined revenue of CSI's GPS Business Unit and the
Outback Business would have been approximately $45 million. CSI
purchased the Outback Business assets for consideration of
approximately US$9.6 million in cash, 4.4 million common shares of CSI
and the assumption of debt from RHS of approximately US$1.2 million.
An additional 2.1 million common shares will be issued to RHS if the
Outback Business achieves certain revenue growth and profitability
targets in 2005, 2006 and 2007.
- CSI announced a financing during the quarter, which closed on
April 19, raising gross proceeds of $15,000,000, by issuing 4,000,000
common shares at a price of $3.75 per share.
Conference Call - Thursday May 5 at 11:00AM ET
A Web cast and conference call for shareholders, analysts and other
members of the investment community has been scheduled for Thursday May 5 at
11:00 a.m. Eastern Time to discuss the financial results and provide updates
on operations.
To participate, please dial 1-416-640-4127 or 1-800-814-4890
approximately 10 minutes before the conference call.
Please note that a live Web cast of the call will be available on the
CSI Wireless Web site at http://www.csi-
wireless.com/investors/conference_calls.shtml. The Web cast will be archived
there for later review.
A recording of the call will be available from noon Eastern Time on
Thursday, May 5 through Thursday, May 12. Please dial 1-877-289-8525 and enter
the reservation number 21123707 followed by the number sign to listen to the
rebroadcast.
About CSI Wireless
CSI Wireless designs and manufactures innovative, cost-effective,
wireless and GPS products for mobile and fixed applications in the
agriculture, marine, automotive and other industries. CSI is a leader in
several high-growth markets including Precision Guidance in Agriculture,
Telematics and Desktop Cellular Telephones. The Company, through its Wireless
and its Hemisphere GPS divisions, owns numerous patents and other intellectual
property. It has licensed its cellular technology to GPS, cellular handset,
and chipset manufacturers. CSI's common shares trade on The Toronto Stock
Exchange under the trading symbol "CSY", with approximately 42.4 million
shares outstanding. The company's head offices are in Calgary, Alberta, and it
has major product development, sales and marketing facilities in California's
Silicon Valley, Arizona and Kansas. For more information about CSI, go to
www.csi-wireless.com.
The above disclosure contains certain forward-looking statements that
involve substantial known and unknown risks and uncertainties. These forward-
looking statements are subject to numerous risks and uncertainties, certain of
which are beyond CSI Wireless' control, including: the impact of general
economic conditions, industry conditions, increased competition, the lack of
availability of qualified personnel or management, fluctuations in foreign
exchange or interest rates, stock market volatility and market valuations of
companies with respect to the announced transactions and the final valuations
thereof, and obtaining required approvals of regulatory authorities. CSI
Wireless' actual results, performance or achievement could differ materially
from those expressed in, or implied by these forward-looking statements and,
accordingly, no assurances can be given that any of the events anticipated by
the forward-looking statements will transpire or occur, or if any of them do
so, what benefits, including the amount of proceeds, CSI Wireless will derive
therefrom.
<<
CSI WIRELESS INC.
Consolidated Statements of Operations and Deficit
Three Month Periods Ended March 31
(unaudited)
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
Sales $ 22,198,243 $ 15,146,467
Cost of sales 14,918,989 9,571,090
-------------------------------------------------------------------------
7,279,254 5,575,377
Expenses:
Research and development 2,583,237 2,026,333
Selling 1,312,712 1,026,981
General and administrative 1,377,970 1,128,205
Stock based compensation 208,744 134,082
Depreciation and amortization 497,460 260,744
-----------------------------------------------------------------------
5,980,123 4,576,345
-------------------------------------------------------------------------
Earnings before undernoted 1,299,131 999,032
Redemption premium on preferred shares - 62,096
Foreign exchange (gain) loss (32,730) 108,420
Interest (income) expense (29,973) 102,999
-------------------------------------------------------------------------
Earnings, before income tax 1,361,834 725,517
Current tax expense 45,000 -
-------------------------------------------------------------------------
Net earnings 1,316,834 725,517
Deficit, beginning of period (18,942,658) (22,837,629)
Adjustment to reflect change in accounting
policy - (398,134)
-------------------------------------------------------------------------
Deficit, end of period $(17,625,824) $(22,510,246)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Earnings per common share
Basic $ 0.04 $ 0.03
Diluted 0.04 0.02
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average shares outstanding
Basic 33,626,415 28,832,978
Diluted 35,895,576 31,609,927
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CSI WIRELESS INC.
Consolidated Balance Sheets
-------------------------------------------------------------------------
March 31 December 31
2005 2004
-------------------------------------------------------------------------
(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 9,596,614 $ 10,253,440
Accounts receivable 19,221,236 18,218,500
Inventories 7,808,309 7,149,906
Prepaid expenses and deposits 536,332 629,930
-----------------------------------------------------------------------
37,162,491 36,251,776
Capital assets 8,434,438 7,737,275
Goodwill 18,818,176 18,818,176
-------------------------------------------------------------------------
$ 64,415,105 $ 62,807,227
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 10,724,847 $ 11,529,507
Current portion of capital lease
obligations 1,523,838 1,162,147
Corporate taxes 190,000 145,000
-----------------------------------------------------------------------
12,438,685 12,836,654
Capital lease obligations 333,673 462,537
Shareholders' equity:
Common shares 67,969,533 67,273,700
Contributed surplus 1,299,038 1,176,994
Deficit (17,625,824) (18,942,658)
-----------------------------------------------------------------------
51,642,747 49,508,036
-------------------------------------------------------------------------
$ 64,415,105 $ 62,807,227
-------------------------------------------------------------------------
-------------------------------------------------------------------------
CSI WIRELESS INC.
Consolidated Statements of Cash Flows
Three Month Periods Ended March 31
(unaudited)
-------------------------------------------------------------------------
2005 2004
-------------------------------------------------------------------------
Cash flows from (used in) operating activities:
Net income $ 1,316,834 $ 725,517
Items not involving cash:
Depreciation and amortization 497,460 260,744
Redemption premium on preferred shares - 62,096
Foreign exchange loss on preferred shares - 34,132
Stock based compensation 208,744 134,082
-----------------------------------------------------------------------
2,023,038 1,216,571
Change in non-cash operating working capital:
Accounts receivable (1,002,736) (1,077,442)
Inventories (658,403) 1,654,103
Prepaid expenses and deposits 93,598 (28,978)
Accounts payable and accrued liabilities (804,660) (1,752,435)
Corporate taxes 45,000 -
-----------------------------------------------------------------------
(304,163) 11,819
Cash flows from (used in) financing activities:
(Decrease) increase in bank indebtedness - (2,557,939)
Senior long-term debt - (761,672)
Capital leases (482,323) (7,840)
Issue of share capital, net of share issue
costs 609,215 16,166,447
-----------------------------------------------------------------------
126,892 12,838,996
Cash flows used in investing activities:
Purchase of capital assets (479,555) (330,492)
-------------------------------------------------------------------------
Increase (decrease) in cash position (656,826) 12,520,323
Cash and cash equivalents, beginning of period 10,253,440 -
-------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 9,596,614 $ 12,520,323
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Supplemental disclosure:
Interest paid $ 25,161 $ 112,462
Interest received 51,145 -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
>>
For further information: please contact: Stephen Verhoeff, President &
CEO, CSI Wireless Inc., (403) 259-3311; Cory Pala, Investor Relations,
E-vestor Communications Inc., (416) 657-2400, cpala@evestor.com;
Jeff Adams, Public Relations Manager, CSI Wireless Inc., (403) 259-3311,
(403) 615-8747 (cell), jadams@csi-wireless.com, www.csi-wireless.com
Source: Canada NewsWire
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