Communications revenues grow

CSI Wireless has announced significant year-over-year growth in third-quarter revenues and earnings.

CSI Wireless, a designer and manufacturer of advanced wireless and GPS products used in more than 50 countries, today announced significant year-over-year growth in third-quarter revenues and earnings.

For the three-month period ended September 30, 2004, consolidated revenues rose 53% to $23.2 million from $15.1 million in the third quarter of 2003.

Gross margins of $7.3 million were a record level for the Company, representing an increase of 51% over gross margins of $4.8 million in the third quarter of 2003.

Year-over-year gross margin percentages were consistent at 32%.

Net earnings were $1.1 million in the quarter, or $0.03 per share, compared to a $572,000 loss, or a ($0.02) per share loss, in the third-quarter of 2003.

"CSI achieved record margins for the third consecutive quarter, and did so in the seasonally slowest quarter of the year for CSI Wireless," stated Stephen Verhoeff, President and CEO.

"Strong consecutive quarterly growth in the sales of the Company's Motorola-branded desktop cellular telephones and very strong third quarter GPS product revenues were responsible for the record third quarter revenue." On a consecutive quarterly basis, third quarter consolidated revenues increased by 24% from revenues of $18.7 million in the second quarter of 2004 as a result of strong growth in sales of desktop cellular telephones (fixed wireless telephones).

Net income of $1.1 million was down from $1.6 million in the second quarter of 2004 as a result of a foreign exchange translation loss of $388 thousand realized in the quarter, whereas a foreign exchange translation gain of $294 thousand was realized in the second quarter.

CSI's GPS Business Unit achieved record third-quarter revenues of $7.5 million, an increase of 19% compared to sales of $6.3 million in the third quarter of 2003, primarily resulting from continuing strength in the agricultural guidance markets.

GPS gross margins in the quarter were 49%, compared to 50% in the third quarter of 2003 and 53% in the second quarter of 2004, with the differences largely related to product mix during the periods.

The Company's Wireless Business Unit produced significant year-over-year revenue growth, with an increase of 78% to $15.7 million from $8.8 million in the third quarter of 2003.

Sales of CSI's desktop cellular telephones in Latin America have been increasing steadily throughout 2004.

Volume shipments of the telephones achieved a record level during the third quarter, up significantly from the second quarter.

Gross margins realized in the Wireless Unit in the third quarter were 23%, up from 22% in the second quarter of 2004 and 20% in the third quarter of 2003.

Coinciding with the 53% increase in third-quarter revenues, third-quarter operating expenses increased 51% to $5.9 million in 2004, from $3.9 million in 2003.

Research and development expenses increased by 74% over the third quarter of 2003 as a result of the Company's accelerated development of two new GSM-based wireless products.

In addition, operating expenses increased due to the implementation of the newly issued accounting standard for stock-based compensation.

"The third quarter of 2004 represented a particularly intensive period of investment in new product development for CSI, especially in relation to the Company's new GSM-based wireless products," said Mr Verhoeff.

"We expect immediate returns on this investment through new product sales beginning in the fourth quarter, which we expect will be a new record quarter for the Company.

These returns will continue into 2005 and beyond, thanks to the significant market opportunities that we see for our new products." During the third quarter, the Company realized a foreign exchange loss of $388 thousand, bringing the year-to-date foreign exchange loss to $202 thousand.

This loss is primarily the result of the impact of the weakening US dollar on US dollar denominated working capital during the quarter.

For the nine months ended September 30, 2004, CSI reported net earnings of $3.4 million, or $0.11 per share basic and $0.10 per share diluted.

The nine-month performance is a record for the company and is a significant improvement from net income of $37 thousand, or $0.00 per share, for the same period in 2003.

CSI Wireless held cash of $10.9 million at the end of the third quarter compared to a balance of $16.8 million at the end of the second quarter.

The primary items impacting the cash balance in the third quarter were: - Accounts receivable increased by $3.0 million due to increased sales during the quarter; - Inventories increased by $1.6 million, primarily due to purchases required to support the ramp-up of new products expected to be released during the fourth quarter; and - During September 2004, CSI used cash of $2.7 million to redeem outstanding preferred shares in accordance with the terms of those preferred shares.

The preferred shares were issued in connection with the Company's acquisition of the assets of Satloc which took place in 1999.

This transaction is the final element of the Satloc purchase transaction.

Operational Highlights - CSI received a $5.7-million purchase order from Brightstar Corp.

for CSI's new 410 series GSM desktop cellular telephone that features GPRS for voice, Internet, email and text-messaging transmissions.

GSM is the wireless standard of more than 200 countries and one billion subscribers worldwide.

CSI's GSM phone generated significant interest during the quarter in GSM-intensive regions including Latin America, Asia, Eastern Europe and the Middle East.

- Subsequent to the third quarter, CSI commenced commercial shipments of the first model of its GSM desktop cellular telephone into Latin American markets.

- CSI received $15 million of purchase orders from RHS for the OutbackS, Outback360 and Outback eDrive branded GPS guidance products for agriculture that CSI manufactures exclusively for RHS.

- CSI began shipping its Fleet-Link asset-tracking product to application service providers and original equipment manufacturers (OEMs).

Fleet-Link is a self-powered asset-tracking product used to remotely monitor and manage tractor trailers, freight containers and other mobile assets from a central command centre.

- The Robertson Group, an application service provider and long-haul trucking company based in Nashville, Tenn., adopted CSI's Fleet-Link.

Robertson provides the "BOLT" Internet-based fleet management system for small- and mid-sized trucking firms with fewer than 500 trucks.

- CSI established a supply and product development relationship with DICKEY-john Corporation, one of the world's leading manufacturers of electronic equipment for the agriculture and public works sectors, with customers on six continents.

- Subsequent to the close of the third quarter, CSI received an $8.3-million purchase order from Brightstar Corp., for CSI's Motorola FX800t -- the TDMA-based product that is the largest-selling TDMA desktop cellular telephone in Latin America.

The purchase order will be fulfilled in the fourth quarter of 2004 and in early 2005.

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