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DDS Wireless Reports 2nd Quarter Financial Results & Declares $0.02 Quarterly Dividend

RICHMOND, BRITISH COLUMBIA — (Marketwired) — 08/09/13 — DDS Wireless International Inc. (TSX: DD) –

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 and six months ended June 30, 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.

“Clearly, I am disappointed that our revenue in the second quarter was lower than that of the first quarter,” stated Vari Ghai, CEO of DDS Wireless. “Though the Taxi business unit has had good momentum in contract signings in the second quarter and the market is showing a high level of interest in both our mobile booking application and backseat offering together with continued support of the Vector 9000 product, revenue in the quarter was lower as some of these deals will be deployed during the remainder of 2013.”

The Company reported deployment delays in its Transit business unit due to delivery issues around complex product enhancements. All projects will be delivered on time and to specifications, but the effort that is required is having an impact on the ability to execute current projects in backlog together with new projects. These execution delays affect both revenue and profitability, having an impact on the second quarter and the remainder of the year. The Company is reporting that with timing issues and the reduced visibility in the Transit unit, revenue will be lower than last year.

“This is not the outcome we are seeking”, continued Mr. Ghai. “It is clear that our core Taxi business, while growing and profitable, is not able to generate significant organic growth for the entire company. The Transit market is proving to have a much slower growth cycle than we had hoped and the New Markets business unit is primarily SaaS based and too small to effect a change to the overall company-s results. As such our attention has turned to accelerating our acquisition growth strategy and we have sufficient cash or equivalent reserves to execute this strategy.”

Second Quarter 2013 Financial Results

Revenue declined 28% or $2.9 million compared to the three months ended June 30, 2012 and decreased by 10% compared to the immediately preceding quarter.

The reduction in revenue compared to Q2 of 2012 arose in all business units, with the recent contract wins in the Taxi business unit largely scheduled for deployment during the remainder of 2013. This is particularly evident in projects revenue which accounted for $0.6 million of the total Taxi business unit decline of $0.9 million. In the Transit business unit, revenue declined by $1.8 million. Similar to the Taxi business unit, the revenue decline was a result of lower projects revenues ($1.2 million) in combination with lower recurring small hardware sales ($0.4 million). Delivery issues around complex product enhancements is a primary driver of the decline in projects revenue.

The adjusted gross margin yield(1) of 42% was lower compared to 44% in Q2 2012 and in combination with lower revenues, gave rise to a decrease in gross margin of 33% to $2.8 million. This is both reflective of the deployment delays in Taxi and the delivery issues in Transit, with the delivery issues in Transit having a significant impact on the gross margin yield.

With gross margin lower by $1.4 million and consistent operating expenses compared to the second quarter of 2012, there was a resultant decrease in earnings from operations of $1.3 million compared to the same period in the prior year. The operating loss of $1.3 million was offset by net finance income of $0.9 million, resulting in a loss before tax of $0.4 million. The positive net finance income in the second quarter arose largely from a gain on the revaluation of marketable securities held as an investment ($0.6 million) in combination with foreign exchange gains of $0.3 million.

EBITDAS(2) for the quarter was $0.2 million or 2% of revenues, compared to $0.7 million or 6% of revenues in the second quarter of 2012.

As at June 30, 2013, the Company held $10.1 million in cash and short-term investments and, as of today, has a balance of approximately $9.6 million in cash and short-term investments.

Year-to-Date 2013 Financial Results

Revenue declined 16% or $3.1 million compared to the six months ended June 30, 2012. The reduction in revenue compared to the first half of 2012 arose largely in the Taxi and Transit business units with declines driven by the deployment timing and delivery issues experienced in the second quarter. In the Taxi business unit, declines in project revenue and small hardware sales (combined $1.1 million) were offset by an increase in maintenance revenue ($0.4 million). Revenue in the Transit business unit declined by $2.3 million, largely arising from a decline in project revenues ($1.9 million) for the reasons noted above.

Gross margin decreased by $1.2 million or 16% to $6.2 million from the same period last year due lower revenues. Both the margin yield and the adjusted gross margin(1) yield were consistent with the first half of 2012 at 39% and 44%, respectively.

The lower gross margin was offset in part by a reduction in operating expenses compared to the first half 2012 of $0.3 million, leading to a decrease in earnings from operations of $0.9 million. This decrease was offset by a favourable variance in net finance income and taxes of $1.4 million, resulting in income after tax being $0.5 million higher. The favourable net finance income in the first half of 2013 arose largely from a gain on the revaluation of marketable securities held as an investment ($1.2 million) in combination with foreign exchange gains of $0.6 million.

EBITDAS(1) for the first half of 2013 was $1.0 million or 6% of revenues, compared to EBITDAS(1) of $0.3 million or 2% of revenues in the first half of 2012.

Outlook and Strategic Direction

We have experienced a dampening of pipeline development in our Transit business unit and that, together with the deployment delays noted above, has created a slowing of the build up of the backlog now at $32.7m. The Taxi business unit revenue is developing nicely, but with timing issues and the reduced visibility in the Transit unit, revenue will be lower than last year.

We continue to focus on SaaS offerings to provide long term strategic growth and stability. The issue is that such a revenue build is slow by its very nature.

As such, our attention has turned to accelerating our acquisition growth strategy. The Company has been reviewing several acquisition targets but has not managed to close a deal in the recent past for a variety of reasons. The timing of growth by acquisition is to a degree uncontrollable. Our approach is to review targets of quite a range in size. We are looking at tuck-ins in our existing businesses, geographical expansion in one of our existing businesses and acquisitions in new adjoining markets.

Dividend

The Company is pleased to announce its 7th consecutive quarterly dividend. The cash dividend, in the amount of $0.02 per Share, will be paid on or about October 15, 2013 to holders of record of the Company-s Common Shares as of the close of business on September 30, 2013. 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 August 8th, 2013, the Company has 13,751,330 Common Shares issued and outstanding.

Conference Call

The Company will host a conference call at 1:00 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 August 19, 2013 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 margin. 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

Contacts:
DDS Wireless International Inc.
Investor Relations
(604) 241-1441

DDS Wireless International Inc.
Caroline J. Dunn
Chief Financial Officer
(604) 214-7206

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