SYS-CON MEDIA Authors: Liz McMillan, Sean Houghton, Glenn Rossman, Ignacio M. Llorente, Xenia von Wedel

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Webtech Wireless Announces Q2 2014 Results

VANCOUVER, BRITISH COLUMBIA -- (Marketwired) -- 08/18/14 -- Webtech Wireless Inc. (TSX: WEW) ("Webtech Wireless" or the "Company"), a leading provider of vehicle fleet location-based services and telematics technology, today announced its financial results for the three and six month periods ended June 30, 2014.

Unless otherwise noted, figures quoted in this press release relate to the Company's Telematics business, referred to as continuing operations.

Q2 2014 and YTD 2014 Financial and Operational Highlights


--  EBITDA was $Nil and a loss of $0.5 million for the three and six months
    ended June 30, 2014 compared to income of $0.6 million and $0.5 million
    in the prior comparable periods.
--  The Company is reporting a net loss of $1.6 million or $0.08 per share
    and net loss of $1.9 million or $0.09 per share for the three and six
    months ended June 30, 2014, which includes a non-operating expense
    charge for restructuring of the Company's R&D operations of $1.1
    million, compared to a net income of $1.0 million or $0.05 per share and
    a net income of $0.9 million or $0.04 per share in the prior comparable
    periods.
--  Revenue was $7.0 million in the quarter compared to $8.1 million in the
    prior comparable period, and $13.7 million year to date compared to
    $15.5 million year to date in 2013. The revenue decreases were largely
    the result of hardware sales to a Fortune 100 corporate fleet customer
    in Q2 2013, which were not repeated in the current year.
--  Recurring revenue decreased 5% from $4.6 million to $4.4 million, and 3%
    from $9.3 million to $9.0 million year over year for the quarter and six
    months respectively.
--  Notable new sales, implementations and expansions during the quarter
    included Port Metro Vancouver, continuing deployments with the State of
    Vermont, a 2G to 3G migration with CalVans, the addition of 800 Webtech
    Driver Center™ subscriptions with a variety of customers, and ongoing
    sales to long-time customer Sierra Pacific.
--  The Company's subscriber base at June 30, 2014 totalled approximately
    79,900 compared to 80,000 at December 31, 2013 and 78,600 at June 30,
    2013. The increase in total subscribers since June 30, 2013 is due to
    the net addition of enterprise and data pump subscribers. Total
    subscriber numbers are flat as the Company experienced the loss of two
    large customers which offset the additions from new sales made in the
    quarter.
--  Excluding enterprise and data pump subscribers, full service average
    revenue per unit ("ARPU") was flat at $24.37 per subscriber for the
    quarter and $25.13 per subscriber for the year to date period.
--  Gross margin reverted to historical average levels of 54% and 55% for
    the three and six months ended June 30, 2014 compared to 61% and 59% in
    the prior comparable periods, when the Company benefitted from large
    high margin hardware sales to a Fortune 100 fleet customer.
--  Cash operating expenses (sales and marketing, research and development,
    and general and administrative expenses) decreased 12% from $4.3 million
    to $3.8 million in Q2 2014 and 8% from $8.6 million to $7.9 million for
    the year to date as management continues to align expenses with revenue
    expectations.
--  The Company identified that certain payments made from the Company's
    former UK operations to a UK tax authority were diverted to unauthorized
    bank accounts. The discrepancies occurred over the period 2009 to 2012,
    when the UK operations were shut down. Management has determined the
    diversion of funds was an act of fraud. The Company has determined the
    liability owing to the UK tax authority was $0.8 million at June 30,
    2014, including estimated interest charges for late payment. As a result
    of the diverted payments over the period 2009 to 2012, the 2013
    comparative figures presented in the June 30, 2014 Condensed Interim
    Consolidated Financial Statements have been restated.
--  As at June 30, 2014, as part of its Normal Course Issuer Bid, the
    Company has repurchased 505,091 of its common shares for a total cost,
    including transaction fees, of $1.1 million. As at June 30, 2014, all of
    the re-purchased common shares have been cancelled.

"We are very focused on building a healthy and profitable business, and with these goals in mind we undertook a significant restructuring during the quarter to optimize our cost structure, such as the consolidation of technology development operations in Canada. While we are pleased that these efforts allowed us to improve our EBITDA by $400,000 quarter to quarter on flat revenues, we feel that the Company's sales are not reflecting their potential given the recent rollout of several new product offerings and technologies which offer class-leading solutions and compelling value for our customers, as well as new pricing bundles. With the reorganization of our sales group, which commenced earlier this year, now complete and our sales force complement at full strength we will continue with our efforts to grow revenues so that they better reflect what we believe to be our potential. As was disclosed at the end of Q1, the Company experienced delays on two transactions which impacted revenues, the first of these, Port Metro Vancouver, closed in Q2 and added 1,000 subscribers for us in the quarter. The second, which we announced on Friday, is a very strategic white label initiative with our US wireless carrier distribution partner. We believe this partnership will have a positive impact on revenues beginning in Q3", said Scott Edmonds, President and CEO, continuing, "As we look towards the rest of 2014, we see our new sales and marketing efforts resulting in growth in our funnel particularly for our new products, Webtech Fleet Center™ and Webtech Driver Center™, but now expect the higher growth we had planned for late 2014 being pushed out somewhat, mostly as a result of the delay in our white label launch."

Continuing, Mr. Edmonds said, "Given the timing of the procedures performed by both management and the third party forensic accountant, our external auditors were not able to complete a review of these financial statements in time for today's release. Management, the audit committee and the external forensic accountant, along with our legal advisors, have worked in consultation with our external auditors in the preparation of these financial statements."

Through an internal investigation, assisted by an independent forensic investigator, the Company is reporting it has quantified the liability associated with the fraudulent redirection of funds which occurred at the Company's now defunct UK operations over the period 2009 to 2012. Trevor Greene, the Company's Chief Financial Officer, said, "We are confirming that we have a liability of $0.8 million at June 30, 2014 related to the fraudulently diverted funds, including interest. While we intend to attempt to recover the diverted funds through our crime insurance policy or other avenues, no provision for recoveries of the fraudulently diverted funds are included in these financial statements, nor are the costs of the investigation into the fraud. Such charges, and any potential recovery will be recognized in future reports."

Financial Highlights


                        ----------------------------------------------------
                        ----------------------------------------------------
                               Three months ended          Six months ended
----------------------------------------------------------------------------
                            June 30,     June 30,     June 30,     June 30,
('000 of Cdn $)                 2014         2013         2014         2013
----------------------------------------------------------------------------
Recurring revenue          $   4,358    $   4,611    $   9,038    $   9,326
Hardware revenue               2,221        2,941        4,016        5,360
Services and other
 revenue                         379          571          638          855
----------------------------------------------------------------------------
                               6,958        8,123       13,692       15,541
----------------------------------------------------------------------------

Gross margin ($)               3,785        4,944        7,525        9,189
Gross margin (%)                  54%          61%          55%          59%

Total operating expenses       4,042        4,505        8,413        8,945

----------------------------------------------------------------------------
----------------------------------------------------------------------------
Net (loss) income          $  (1,577)   $     966    $  (1,940)   $     924

EBITDA (1)                 $     (49)   $     576    $    (482)   $     515
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(1) EBITDA is a non-GAAP measure and is therefore not universally defined.
EBITDA is defined as earnings before finance expense (income), taxes,
depreciation and amortization, foreign exchange loss (gain) and
restructuring expense.

Revenue

Recurring revenues for the three and six months ended June 30, 2014 decreased over the prior comparable periods. ARPU from full service subscribers were flat at $24.37 per subscriber and $25.13 per subscriber for the three and six months ended June 30, 2014 compared to the prior comparable periods. The revenue decrease was the result of churn as total full service subscribers decreased over the prior comparable periods due to the planned departure of low ARPU commercial customers outside of North America, as well as churn experienced within the government vertical. The Company's focus continues to be on the acquisition and retention of high margin recurring revenue and the development of a Software as a Service model.

Hardware revenues for the quarter and year to date decreased largely due to hardware sales to a Fortune 100 corporate fleet customer in Q2 2013, not repeated in the current period. This was offset by stronger deliveries to hardware-only OEM customers and for the US 2G-3G migration program.

Services and other revenues were down for the quarter and year to date compared to the prior comparable periods due to a deposit that was forfeited by an OEM customer in Q2 2013, not repeated in the current period.

Gross Margin

Gross margin and margin percentage for the quarter and year to date were down compared to the prior comparable periods largely due to the impact of sales of high margin hardware to a Fortune 100 corporate fleet customer delivered in Q2 2013, not repeated in the current year.

Operating Expenses

Cash operating expenses for the three and six months ended June 30, 2014 decreased 12% and 8% compared to the prior periods, respectively. The decrease for the quarter was largely due to headcount costs as a result of restructuring efforts, litigation and settlement expenditures, and strategic review costs in Q2 2013, which were not repeated in the current period. The Company has also redirected resources to sales and marketing activities to increase lead generation capacity following the launch of the Webtech Driver Center™ solution. Cash operating expenses have been maintained at a level below the Company's recurring revenue base, a key target for cost control.

Cash and Working Capital

As at June 30, 2014, the Company's unrestricted cash position amounted to $21.6 million compared with $22.8 million at March 31, 2014 and $23.2 million at December 31, 2013. In addition, the Company has $2.1 million USD in restricted cash related to the holdback from the sale of the NextBus business in January 2013. As at July 29, 2014, the holdback has been released and the Company has received the $2.1 million USD.

As at June 30, 2014, the Company had net working capital of $23.5 million, compared with $26.7 million at March 31, 2014 and $26.3 million at December 31, 2013. As at August 17, 2014, Webtech Wireless had 20,603,530 common shares outstanding.

Non-GAAP Financial Measures

In addition to the results reported in accordance with IFRS, the Company uses various non-GAAP financial measures, which are not recognized under IFRS, as supplemental indicators of the Company's operating performance and financial position. These non-GAAP financial measures are provided to enhance the user's understanding of the Company's historical and current financial performance and its prospects for the future. Management believes that these measures provide useful information in that they exclude amounts that are not indicative of the Company's core operating results and ongoing operations and provide a more consistent basis for comparison between quarters. Details of such non-GAAP financial measures and how they are derived are provided in conjunction with the discussion of the financial information reported.

Financial Statements and Management's Discussion & Analysis

The Condensed Interim Consolidated Financial Statements for the three and six months ended June 30, 2014 and the related Management's Discussion & Analysis for the period has been filed on SEDAR at www.sedar.com, and also on the Company's website at www.webtechwireless.com.

Notice of Conference Call

Webtech Wireless will hold a conference call today, August 18, 2014, at 11:00 am ET hosted by Mr. Scott Edmonds, President and Chief Executive Officer and Mr. Trevor Greene, Chief Financial Officer to discuss the Company's financial results and corporate developments. To access the conference call by telephone, dial +1.416.340.9432 or +1.800.952.4972. A taped replay of the conference call will be archived on the Company's corporate website at: www.webtechwireless.com.

About Webtech Wireless®

Webtech Wireless (TSX: WEW) is a leader in providing fleet management telematics, GPS and automatic vehicle location (AVL) solutions that improve efficiency, accountability and reduce costs. Our end-to-end solutions automate record keeping and regulatory compliance, reduce fuel burn and idling, mitigate risk, and keep drivers safe. Managers trust us to ensure people are accountable and vehicles are visible. Through the cloud, in the office, or straight to mobile devices, we deliver Fleet Intelligence Anywhere™. Our products, InterFleet®, Quadrant® and Webtech Fleet Center™ provide advanced fleet management solutions for winter maintenance, public works and waste management fleets; and, for commercial fleet operations and compliance (HOS, ELD). Please visit www.webtechwireless.com.

All amounts in Canadian dollars (CAD$) unless otherwise noted. The Toronto Stock Exchange does not accept responsibility for the adequacy or accuracy of this release. Trademarks are the property of their owners.

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