DDS Wireless Reports Fiscal 2013 Financial Results, Declares $0.02 Quarterly Dividend

RICHMOND, BRITISH COLUMBIA--(Marketwired - March 5, 2014) - DDS Wireless International Inc. (TSX:DD) -

Fourth Quarter 2013		Fiscal 2013
Revenue of $9.3 million		Revenue of $34.9 million
EBITDAS(1) of $677,000, or $0.05 per share		EBITDAS(1) of $1,747,000, or $0.13 per share

DDS Wireless International Inc., a world leader in providing wireless data solutions for fleet management for more than 26 years, today reported financial results for the three months and fiscal year ended December 31, 2013 and announced that the Company's Board of Directors has approved a cash dividend on the Company's common shares. All financial information is expressed in Canadian dollars and has been prepared in accordance with International Financial Reporting Standards ("IFRS"), except as otherwise noted.

"2013 was a year of transition and repositioning for the Transit business unit; this has had a material impact on the results of the Company," stated Vari Ghai, CEO of DDS Wireless. "Though our core Taxi business has developed consistent to last year and has seen progress in its strategic growth drivers, it has become clear that our core business has not been able to generate significant organic growth for the entire company. As we proceed into 2014, we will continue to focus on SaaS offerings to provide long term strategic growth and stability in our core business while continuing to reposition our Transit unit," continued Mr. Ghai.

Although the Transit business had significant negative impact on the Company's results for the year, the Company has made progress in a number of its strategic growth initiatives;

• The number of units in the backseats of taxicabs reached 1,885 for the year; 
• The number of TaxiBook™ subscriptions in North America has reached approximately 2,500 subscriptions as of December 31, 2013;
• The Company now enjoys a new customer base of approximately 75 small taxi companies using TaxiBook™ in North America;
• The Company continues to seek complimentary companies that can be a tuck-in to its existing business units. Of the two non-binding letters of intent that the Company signed in the third quarter of 2013, one has been terminated and the negotiation on the other is still ongoing. Any growth from this potential acquisition will impact 2015 and beyond; and
• As the Company has noted in previous quarters, DDS has made some important additions to its operations executive leadership during the year. Sarah Boden joined StrataGen in May as President of the Transit business unit and has led the restructuring of that unit. Gregory Wade joined DDS as President of the Taxi business unit in November. Greg is a proven global executive with a deep understanding of the wireless industry. Both of these individuals are, and will be, instrumental in implementing and achieving the Company's strategic growth initiatives as it moves forward.

"There is evidence of several positive developments as we look forward to 2014, including foreign exchange, continued demand for our products, reduced future amortization expense and additions to the executive team. In fiscal 2014 approximately $1.4 million of amortization of intangible assets will no longer affect our gross margin, thereby significantly improving our margins going forward. We look forward positively to 2014," further stated Mr. Ghai.

Dividend

The Company is pleased to announce its 9^th consecutive quarterly dividend. The cash dividend, in the amount of $0.02 per Share, will be paid on or about April 15, 2014 to holders of record of the Company's Common Shares as of the close of business on March 31, 2014. 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). As of March 3^rd, 2014, the Company has 13,574,674 Common Shares issued and outstanding.

The Company has continued to generate positive free cash flow during 2013. The Company will continue to look for opportunities throughout 2014 to balance retaining cash in the business to finance future growth while delivering a return to its shareholders.

Fiscal 2013 Financial Results

Revenue was 14% or $5.8 million lower than 2012. This variance primarily occurred in the first half of the year and arose primarily within the Transit business unit. Transit revenue decreased by $4.9 million as a result of a slowdown in the transit market, change in management, the project deployment and delivery issues experienced in the first half of the year, and the phasing of a key project throughout the year. Revenue in the Taxi unit decreased by $0.5 million compared to 2012. Slowing demand in Europe and North America in 2013 for hardware add-ons, upgrades and peripheral devices contributed to the lower revenue in the business unit, offset by an increase in maintenance revenue as customers exit warranty period and enter paid maintenance phase of their contracts.

Gross margin decreased by $2.7 million or 15% to $14.9 million and yielded 42% of revenue compared to 43% in the prior year. The adjusted gross margin yield⁽¹⁾ of 47% was consistent in both 2013 and 2012.

Total operating expenses have increased when compared to 2012 by 5% or $0.7 million. The increase primarily arose from a non-recurring bad debt expense (approximately $0.7 million) recorded in the third quarter of the year due to the rationalization of two outstanding projects within the Transit business unit. Additionally, research and development expense increased from higher diversion of labour to product enhancement delivery requirement as the Company continues to refine and expand its product base.

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

The decrease in gross margin of $2.7 million, in combination with an increase in operating expenses of $0.7 million, led directly to a decrease in earnings from operating activities of $3.4 million compared to 2012. The operating loss of $1.6 million, in combination with a net finance income of $1.5 million, resulted in a loss before tax of $0.1 million. The net finance gain in the year arose largely from a gain on the revaluation of marketable securities held as an investment ($0.8 million) in combination with foreign exchange gains of $0.6 million.

EBITDAS⁽¹⁾ was $1.7 million or 5% of revenues. Compared to EBITDAS⁽¹⁾ of $3.8 million or 9% of revenues in 2012, this represents a decrease of $2.1 million. Excluding the impact of the non-recurring $0.7 million bad debt expense booked in the third quarter, a pro-forma EBITDAS⁽¹⁾ results in EBITDAS⁽¹⁾ of $2.4 million or 7% of revenues.

As at December 31, 2013, the Company held $10.1 million in cash and short-term investments and, as of today, has a balance of approximately $6.9 million in cash and short-term investments.

Fourth Quarter 2013 Financial Results

Revenue declined 22% or $2.6 million compared to the three months ended December 31, 2012 and a slight decline of $0.1 million from the immediately preceding third quarter of 2013. Revenue in the Taxi unit decreased by $1.0 million compared to the three months ended December 31, 2012. The Company announced a number of contract wins in the last half of the year, but with deployment largely scheduled for 2014, the impact on revenue will not be felt until 2014. In the Transit business unit, revenue declined by $1.7 million compared to the fourth quarter of 2012. This unit has turned the corner on the deployment issues it experienced in the first half of the year; however, phasing of key projects and dampening of pipeline are some of the challenges now facing this unit. The fourth quarter of fiscal 2012 benefited from significant revenues relating to the unit's MTA New York City Transit substantive system integration projects. Though these projects continue, they near their completion and thus revenue earned from these projects in the fourth quarter of 2013 was lower by comparison.

Gross margin decreased by $1.7 million or 28% to $4.4 million from the same quarter last year due to a combination of both lower revenues and lower average margins earned on project revenues, specifically those in the Transit business unit. The fourth quarter of 2012 benefited from both higher margins and revenues earned on the MTA New York City Transit project in the Transit unit, as noted above. With 2013 not benefiting in this manner, this was a significant contributor to the decline in the Transit gross margin, and ultimately consolidated margin, in the quarter. The gross margin yield in the quarter was 47% compared to 51% in the same quarter last year and 45% in the immediately preceding quarter. 

Despite the significantly lower gross margin in the quarter and higher operating expenses, earnings from operating activities were positive, with earnings of $0.2 million. Earnings from operating activities, combined with net finance income of $0.2 million in the quarter, resulted in a net income of $0.4 million.

EBITDAS⁽¹⁾ was $0.7 million in the fourth quarter of 2013 or 7% of revenues. Compared to EBITDAS⁽¹⁾ of $3.2 million or 27% of revenues in the fourth quarter of 2012, this represents a decrease of $2.5 million.

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

Conference Call

The Company will host a conference call at 4:30 pm Eastern Time today to discuss the financial results. Please call 416-340-8527 / 877-440-9795 to participate in the call. A replay of this conference call will be available through March 17, 2014 by dialing 905-694-9451 / 800-408-3053 and entering access code 4947461.

Non-IFRS Measures

The following and preceding discussion of financial results includes reference to EBITDAS and Adjusted Gross Margin. EBITDAS is a non-IFRS financial measure which the Company defines as earnings before interest, taxes, amortization, and share-based compensation. 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 margins. Please refer to the table attached to this press release for a reconciliation of non-IFRS measures to reported financial results.

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 three businesses dedicated for Taxi, Transit and New Markets such as OEM partners, Limousines, Airport Shuttles and Buses. 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 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)

		December 31, 2013			December 31, 2012
Revenue		$	34,901		$	40,670
Cost of sales			20,037			23,127
Gross margin			14,864			17,543
Operating expenses:
	Research and development		6,770			6,023
	Sales and marketing		4,091			4,557
	General and administrative		5,654			5,206
Total operating expenses			16,515			15,786
Earnings (loss) from operating activities			(1,651	)		1,757
Net finance (income) expense			(1,562	)		237
Income (loss) before income taxes			(89	)		1,520
Income tax (recovery)
	Current tax expense		367			1,040
	Deferred tax (recovery)		(604	)		(1,099	)
			(237	)		(59	)
Net income		$	148		$	1,579
Net income per common share - basic and diluted		$	0.01		$	0.11
Weighted average number of common shares outstanding (thousands)			13,762			13,827

DDS WIRELESS INTERNATIONAL INC.

Consolidated Balance Sheets (Unaudited)

(In thousands of Canadian dollars)

		December 31, 2013			December 31, 2012
Assets
Current assets:
	Cash and cash equivalents	$	7,290		$	5,252
	Trade and other receivables		5,343			5,932
	Contract work-in-progress		5,618			7,597
	Income taxes receivable		153			357
	Inventory		2,053			2,404
	Prepaid expenses		608			426
	Investments		2,821			1,974
Total current assets			23,886			23,942
Plant and equipment			849			677
Long-term receivables			1,148			1,417
Investment tax credit receivable			5,584			4,792
Deferred tax assets			1,404			855
Intangible assets			321			1,715
Goodwill			3,298			2,970
Investments			103			103
Total assets		$	36,593		$	36,471
Liabilities and Shareholders' Equity
Current liabilities:
	Trade payables and accrued liabilities		5,661			5,576
	Income taxes payable		74			27
	Deferred revenue		3,024			1,806
	Provisions		56			52
Total current liabilities			8,815			7,461
Deferred tax liabilities			1,115			1,232
Total current and long-term liabilities			9,930			8,693
Shareholders' equity:
	Share capital		24,321			24,686
	Share-based payments reserve		1,859			1,890
	Retained earnings		909			1,928
	Accumulated other comprehensive loss		(426	)		(726	)
Total shareholders' equity			26,663			27,778
Total liabilities and shareholders' equity		$	36,593		$	36,471

DDS WIRELESS INTERNATIONAL INC.

Reconciliation of Non-IFRS Measures

(In thousands of Canadian dollars)

For the three months ended		2013												2012												For the  year ended
(CAD in thousands except %)		Dec			Sep			Jun			Mar			Dec			Sep			Jun			Mar			2013			2012
EBITDAS (1)
	EBITDAS	$	677		$	22		$	158		$	890		$	3,249		$	211		$	672		$	(354	)	$	1,747		$	3,779
	As % of revenue		7	%		0	%		2	%		10	%		27	%		2	%		6	%		-4	%		5	%		9	%
Less:
Amortization of plant & equipment, intangibles and sales related assets			346			545			524			528			546			546			586			550			1,943			2,227
	Share-based compensation		3			8			3			(28	)		25			2			11			46			(14	)		84
	Interest		(27	)		(27	)		(14	)		(25	)		(4	)		(10	)		(20	)		(20	)		(93	)		(52	)
Income (loss) before income taxes		$	355		$	(504	)	$	(355	)	$	415		$	2,682		$	(327	)	$	95		$	(930	)	$	(89	)	$	1,520
Adjusted Gross Margin (2)
	Revenues	$	9,329		$	9,385		$	7,648		$	8,539		$	11,931		$	9,484		$	10,562		$	8,693		$	34,901		$	40,670
	Adjusted gross margin		4,619			4,724			3,199			3,897			6,462			4,489			4,595			3,784			16,441			19,332
As % of revenue			50	%		50	%		42	%		46	%		54	%		47	%		44	%		44	%		47	%		48	%
	Less:
Amortization of plant & equipment			21			9			7			8			6			7			7			7			45			27
	Share-based compensation		-			1			-			(2	)		1			1			1			3			(1	)		6
	Amortization of sales related assets		47			43			32			33			34			40			46			49			157			169
	Amortization of intangibles		196			400			393			387			397			389			419			382			1,376			1,587
Gross margin per financial statements		$	4,355		$	4,271		$	2,767		$	3,471		$	6,024		$	4,052		$	4,122		$	3,343		$	14,864		$	17,543
As % of revenue			47	%		46	%		36	%		41	%		50	%		43	%		39	%		38	%		43	%		43	%

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