Return to profitability on-track
CALGARY, March 8 /CNW/ - (TSX:CSY): CSI Wireless Inc., a designer and manufacturer of advanced GPS products, today reported financial results for the fourth quarter and year ended December 31, 2006.
CSI's GPS business operates under the Hemisphere GPS brand which owns the Outback, Satloc and Del Norte product names. CSI will formally change its corporate name to "Hemisphere GPS" at the Company's Annual General Meeting, to be held in Calgary on May 9, 2007. CSI is currently carrying on business as Hemisphere GPS.
In 2006, CSI made the strategic decision to focus its resources exclusively on its GPS product lines, where it is a market leader with significant competitive advantages and intellectual property. Accordingly, the Company sold its wireless businesses. The wireless component of the business is thus accounted for as discontinued operations in the Company's financial statements.
For the year ended December 31, 2006, Hemisphere GPS reported record revenues reflecting a 40% increase to $45.9 million, up from $32.7 million in 2005. Gross margin for the year was 40%, unchanged from gross margins of 40% in 2005. Management is targeting gross margin to improve to at least 50% in 2007.
Before the impact of the discontinued wireless business, Hemisphere GPS reported an operating loss from continuing operations in 2006 of $5.1 million, or ($0.11) per share basic and diluted, compared to a loss of $5.1 million, or ($0.12) per share basic and diluted in 2005. Losses from the discontinued operations of the wireless business during the year and associated restructuring costs totaled $14.7 million. After the impact of discontinued operations, Hemisphere GPS reported a net loss of $19.9 million, or ($0.43) per common share basic and diluted, compared to a net loss of $12.0 million, or ($0.29) per share basic and diluted, in 2005. The Company will return to profitability in the first quarter of 2007.
"2006 was a transition year as we exited our wireless operations and restructured as a pure-play GPS company," said Steve Koles, President & CEO of Hemisphere GPS. "Though the impact to our bottom-line was significant, the distractions of the wireless business are now behind us as we committed to do before the end of 2006. We began 2007 with clean and efficient operations and a focused start as we entered the strongest selling season for agriculture where we are the dominant market leader. We are experiencing robust demand and generating record sales of our industry leading GPS products. Strengthening agriculture commodity prices, and increasing technology adoption in the agriculture sector have created an optimistic outlook for our business."
2006 Fourth Quarter Financial Results
For the three months ended December 31, 2006, total revenue for Hemisphere GPS increased 40% to a record $7.9 million, relative to revenues of $5.6 million for the fourth quarter of 2005 due to strong sales of ground agricultural guidance products.
The majority of Hemisphere's GPS revenues are derived from sales to the North American agriculture market. The significant seasonality of this market affects the Company's revenues as sales are directly to a seasonal end-user market. Based upon the needs of these markets, the latter half of the year is generally slower than the first half. In 2006, the agriculture revenue segment contributed over 75% of total GPS revenues, which highlights the seasonal effects.
Fourth quarter gross margin was 37%, as compared to gross margins of 35% for the fourth quarter of 2005. Third and fourth quarter margins are typically lower than the first and second quarters due to the allocation of fixed manufacturing overhead over seasonally low revenues and due to the product mix during that period. In 2007, the Company is targeting overall blended gross margins for the year to be at least 50%.
Total expenses for the fourth quarter were $6.2 million, compared to $5.0 million in the fourth quarter of 2005. Sales and marketing expenses experienced the largest increase, to $2.4 million, from $1.8 million in the fourth quarter of 2005. This is primarily due to the acquisition of the Del Norte business at the beginning of 2006, increased promotional expenses including advertising and tradeshow costs and from increased activity and commissions associated with higher revenue levels. Research and development expenses increased from $1.0 million to $1.2 million. General and administrative expenses increased to $1.7 million from $1.4 million in the fourth quarter of 2005 primarily as a result of the Del Norte acquisition, and increased legal and audit fees.
Hemisphere GPS reported a consolidated net loss of $2.8 million, or ($0.06) per share (basic and diluted), compared to a net loss of $6.5 million, or ($0.15) per share basic and diluted for the fourth quarter of 2005. The fourth quarter of 2005 included a $3.3 million loss from discontinued operations of the Company's former wireless business which was sold in May of 2006.
At December 31, 2006, Hemisphere GPS held cash of $11.2 million, and reported $21.5 million in working capital.
Conference Call - Thursday March 8 at 11:00AM EST
A Web cast and conference call for shareholders, analysts and other members of the investment community has been scheduled for today at 11:00 a.m. Eastern Time to discuss the financial results and provide updates on operations.
To participate, please dial 416-850-9143, or 1-866-400-2280 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 or directly via http://viavid.net/dce.aspx?sid(equal sign)00003C16.
The Web cast will be archived there for later review. A recording of the call will be available through March 18. Please dial 416-915-1035 or 1-866-400-2240 and enter the reservation number 883522 to listen to the rebroadcast.
About Hemisphere GPS and CSI Wireless
Hemisphere GPS, a division of CSI Wireless Inc., designs and manufactures innovative, cost-effective GPS products for positioning, guidance and machine control applications in agriculture, marine and other markets. The Company owns leading brand names, numerous patents and other intellectual property. The Company's head office is in Calgary, Alberta, and it has major product development and sales and marketing facilities in Arizona, Kansas and Texas. For more information about Hemisphere GPS and CSI Wireless, go to www.hemispheregps.com and 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's 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's 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 proceed, that CSI Wireless will derive therefrom.
CSI WIRELESS INC.
Consolidated Balance Sheets
(unaudited)
December 31, 2006 and 2005
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2006 2005
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Assets
Current assets:
Cash $ 11,160,405 $ 12,595,354
Accounts receivable 4,995,204 3,400,719
Deferred commissions 111,619 -
Inventories 11,479,139 11,030,410
Prepaid expenses and deposits 550,530 550,621
Current assets of discontinued operations 1,360,735 11,045,664
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29,657,632 38,622,768
Deferred commissions 246,414 24,472
Property and equipment 8,507,990 6,189,739
Intangible assets 4,332,591 4,727,733
Goodwill 22,961,432 22,394,799
Assets of discontinued operations 116,380 18,229,059
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$ 65,822,439 $ 90,188,570
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 5,785,501 $ 2,999,227
Deferred revenue 773,527 -
Current portion of long-term debt 300,517 483,134
Current portion of capital leases 291,057 284,922
Current liabilities of discontinued
operations 974,505 10,969,890
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8,125,107 14,737,173
Deferred revenue 1,672,116 222,413
Long-term debt - 300,672
Capital lease obligations 101,714 408,411
Shareholders' equity:
Share capital 104,013,743 103,463,383
Contributed surplus 2,776,468 2,036,664
Deficit (50,866,709) (30,980,146)
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55,923,502 74,519,901
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$ 65,822,439 $ 90,188,570
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CSI WIRELESS INC.
Consolidated Statements of Operations and Deficit
(unaudited)
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Three months ended Twelve months ended
December 31, December 31,
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2006 2005 2006 2005
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Sales $ 7,870,073 $ 5,624,755 $ 45,908,060 $ 32,676,705
Cost of sales 4,988,766 3,681,710 27,390,609 19,492,114
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2,881,307 1,943,045 18,517,451 13,184,591
Expenses:
Research and
development 1,209,408 989,807 4,741,323 3,949,497
Sales and
marketing 2,371,877 1,817,544 9,305,319 5,831,777
General and
administrative 1,721,522 1,387,385 5,929,584 5,268,163
Stock-based
compensation 212,857 210,748 757,142 768,871
Amortization 665,576 592,290 2,509,013 1,854,036
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6,181,240 4,997,774 23,242,381 17,672,344
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Loss before
undernoted items (3,299,933) (3,054,729) (4,724,930) (4,487,753)
Gain on sale of
marketable
securities (1,049,976) - (1,049,976) -
Foreign exchange
(gain) loss (52,520) 144,854 642,856 789,147
Interest income (27,203) (38,018) (220,984) (139,272)
Restructuring
costs - - 1,043,000 -
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Loss from
continuing
operations (2,170,234) (3,161,565) (5,139,826) (5,137,628)
Loss from
discontinued
operations (582,070) (3,302,187) (14,746,737) (6,899,860)
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Net loss (2,752,304) (6,463,752) (19,886,563) (12,037,488)
Deficit, beginning
of period (48,114,405) (24,516,394) (30,980,146) (18,942,658)
Deficit, end of
period $(50,866,709) $(30,980,146) $(50,866,709) $(30,980,146)
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Loss per common
share from
continuing
operations:
Basic and
diluted $ (0.05) $ (0.07) $ (0.11) $ (0.12)
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Net loss per
common share:
Basic and
diluted $ (0.06) $ (0.15) $ (0.43) $ (0.29)
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Weighted average
shares outstanding:
Basic and
diluted 46,115,873 43,344,291 46,023,887 41,510,451
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CSI WIRELESS INC.
Consolidated Statements of Cash Flows
(unaudited)
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Three months ended Twelve months ended
December 31, December 31,
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2006 2005 2006 2005
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Cash flows from
(used in)
operating
activities:
Loss from
continuing
operations $ (2,170,234) $ (3,161,565) $ (5,139,826) $ (5,137,628)
Items not
involving cash:
Amortization 665,576 592,290 2,509,013 1,854,036
Stock-based
compensation 212,857 210,748 757,142 768,871
Unrealized
foreign
exchange loss
(gain) 20,367 15,240 25,116 (142,459)
Gain on sale
of marketable
securities (1,049,976) - (1,049,976) -
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(2,321,410) (2,343,287) (2,898,531) (2,657,180)
Change in non-
cash operating
working capital:
Accounts
receivable (1,106,340) (366,571) (1,582,795) (750,555)
Inventories (625,555) 407,506 (321,448) 4,588,763
Prepaid
expenses and
deposits 47,881 20,353 91 (17,502)
Deferred
commissions (56,170) (24,472) (333,561) (24,472)
Accounts
payable and
accrued
liabilities 1,835,392 615,602 2,657,714 (1,079,170)
Deferred
revenue 376,554 222,413 2,223,230 222,413
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(1,849,648) (1,468,456) (255,300) 282,297
Cash from
(used in)
discontinued
operations 2,077,595 2,176,720 (5,263,760) (2,690,846)
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227,947 708,264 (5,519,060) (2,408,549)
Cash flows from
(used in)
financing
activities:
Long-term debt (126,633) (135,875) (508,406) (407,624)
Capital leases (88,441) (135,727) (300,562) (210,434)
Issue of share
capital 16,792 7,073 414,051 22,318,459
Cash used in
discontinued
operations (34,590) (254,962) (346,812) (1,513,344)
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(232,872) (519,491) (741,729) 20,187,057
Cash flows from
(used in)
investing
activities:
Purchase of
property and
equipment (2,613,361) (198,269) (4,059,272) (1,447,738)
Proceeds from
sale of
marketable
securities 7,209,670 - 7,209,670 -
Business
acquisition, net - - (959,303) -
Repayment of note
payable and
transaction
costs - - - (12,754,510)
Cash from (used in)
discontinued
operations - 108,147 2,634,745 (1,234,346)
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4,596,309 (90,122) 4,825,840 (15,436,594)
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Increase (decrease)
in cash position 4,591,384 98,651 (1,434,949) 2,341,914
Cash, beginning of
period 6,569,021 12,496,703 12,595,354 10,253,440
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Cash, end of
period $ 11,160,405 $ 12,595,354 $ 11,160,405 $ 12,595,354
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