Intrinsyc Provides Business Update and Announces Restructuring
Acquisition Integration Synergies and Efficiency Initiatives to Drive Operating Cost and Workforce Reduction of over 20 Percent
Vancouver, BC – September 22, 2008 – Intrinsyc Software International, Inc. (TSX: ICS), a global wireless software solutions provider, today announced the completion of the integration of development, sales and administration operations acquired from Destinator Technologies, Inc. (Destinator) and additional restructuring initiatives. The integration of Destinator will be completed ahead of schedule and within 90 days following the closing of the acquisition on July 9, 2008. Management also reported strength in the wireless services business, confirmed that the first Soleus™ units shipped in the third quarter of 2008, and announced the implementation of conservative spending measures. The cost-reduction initiatives have been implemented to preserve financial runway to offset a slower than expected ramp in Soleus and Destinator® royalty revenues due to delays in production release of licensee customer products as well as a slowing of design wins in 2008. Financial guidance provided by the Company on July 9, 2008 for its 2008 fiscal year has been maintained.
Streamlining and Restructuring for Growth
Since completing the acquisition of certain assets of Destinator on July 9, 2008, Intrinsyc has conducted a comprehensive business integration and planning effort to achieve synergies from the acquisition and strengthen Intrinsyc’s software development capabilities. An emphasis to drive increased product development cost efficiency has led to a reduction in development resources in North America and a redeployment of projects to the Beijing-based low-cost development center acquired from Destinator. Additionally, consolidation of the two sales functions has broadened market coverage while achieving acquisition synergies. Lastly, corporate operations have been streamlined and reduced. Overall, the Company is executing an approved workforce reduction of 20 percent. Upon completion of the reduction in workforce, Intrinsyc will have approximately 300 employees worldwide, which will include more than 100 billable employees in its engineering services business unit.
A further initiative to deliver operating efficiencies and reduce costs is a restructuring and rationalization of executive management. Effective immediately the Company’s operations will be run by the following three business leaders:
- Tracy Rees, newly appointed Chief Operating Officer, will be responsible for worldwide sales, marketing, business development, engineering services and the Company’s historic hardware and software businesses. In this newly created role, Rees will drive global sales for software and services and will manage the execution of engineering services. Rees, who joined Intrinsyc in 2007 as acting General Manager for APAC, was instrumental in closing most of Intrinsyc’s Soleus design wins over the past year. He has more recently taken on the services business and substantially strengthened the Company’s engagement pipeline and services revenue outlook. As Intrinsyc’s COO, Rees brings more than 25 years of experience in the high technology industry with deep expertise in mobility software and embedded technology. His experience includes positions as CEO of Annasoft Systems; Executive VP Sales, Marketing and International Operations at BSQUARE; and General Manager and VP of Sales at CalAmp, an embedded software and service provider.
- Souheil Gallouzi, Senior Vice President and General Manager, Mobile Products and Development who joined Intrinsyc in October 2007 from Qualcomm. Souheil leads all software development and is responsible for the Company’s Soleus and Destinator software businesses.
- George Reznik, Chief Financial Officer, will run the finance and corporate services operations. George joined Intrinsyc in April 2008 from DDS Wireless, and previously held senior financial positions with Pivotal Software, Infowave Software and Deloitte Corporate Finance.
The newly created COO position rationalizes two executive VP positions: Worldwide Sales, Marketing and Business Development and Global Engineering Operations. Mark Johnston, who ran Intrinsyc’s sales function for the past 18 months, has resigned from his executive role at Intrinsyc but will remain as an advisor to the Company to support Rees. Randy Kath, Chief Technology Officer, who originally launched the Soleus business for Intrinsyc, is leaving to pursue other interests. Future technology leadership will be assumed by Souheil Gallouzi. Mark Longo remains Intrinsyc’s General Counsel, Corporate Secretary and VP Corporate Development.
“I am pleased that our restructuring and integration of Destinator was completed quickly. Intrinsyc’s leaner and deeply experienced leadership team will drive operations, enabling me increased opportunity to engage with customers and the marketplace to drive growth in our software business,” said Glenda Dorchak, Chairman and Chief Executive Officer of Intrinsyc.
Wireless Software Business Update
The Company confirmed that the Soleus-based Mio Moov 380 is shipping today in Taiwan, with plans for expansion to Europe later this year. The development work with Quanta Computer continues on schedule, planned for release in the fourth quarter of 2008 by Quanta’s customer. Management indicated that the royalty revenue outlook is lower than originally expected in 2008 as a result of some product shipments commencing more slowly than anticipated due to OEM product development and release cycles not under Intrinsyc’s control, as well as an anticipated slowing of consumer spending, tied to the global economic environment. Engagements with silicon vendor licensees, including Samsung Semiconductor System LSI Division, are moving forward with their products, and Intrinsyc’s sales team is working with Samsung actively to market the solution to a variety of Asian customers. Management continues to expect these engagements to be a major revenue contributor for Soleus in 2009.
Recent reviews of the Soleus roadmap by existing and prospective customers, including Soleus 2.0 previews, confirm strong market interest in the Soleus product for consumer smart phones with advanced user interfaces. Furthermore, Intrinsyc’s newest product, Soleus Transit™, which includes support for the Destinator navigation application, is expected to release in the fourth quarter of 2008 as will the Soleus 2.0 pre-release program which will enable new customer platform engagements with an advanced user interface capability. General availability of Soleus 2.0 is expected in the first quarter of 2009. Intrinsyc continues to expect to close three additional Soleus design wins by the end of the year and has several engagements currently in commercial negotiation. The software development group has begun to leverage its new development center in China for both Soleus and Destinator product development and delivery, which it expects will improve product enabling with in region support, in addition to lowering costs.
Although the ramping of Destinator revenues has been affected by the seasonal slowdown of consumer Personal Navigation Device (PND) purchasing and the pre-acquisition financial condition of Destinator, Intrinsyc expects royalty revenue momentum from several customer products, including the Motorola A1600 MING which uses the Destinator navigation application. Officially launched in the People’s Republic of China in July 2008, the Motorola A1600 MING is already one of the country’s best-selling smart phones in its price class. For MING, Intrinsyc developed and localized the Destinator application software with Chinese language support, customized the user interface to operate with the A1600 touch screen seamlessly for pedestrian-oriented urban as well as vehicle navigation, integrated point-of-interest and country map data, and implemented the ability to activate GPS map purchases and upgrades with a one-time SMS message. Additionally, the team has won a new design win with Supa Technologies, a Taiwan-based Original Device Manufacturer, for Destinator 8 enabled PNDs to be sold through leading North American office supply retailers. Lastly, as announced on September 19, 2008, Intrinsyc has won a new design win for Destinator software for a series of PNDs with a leading handset and consumer device manufacturer, which is expected to begin shipping in 2008.
Overall software solutions revenues for fiscal 2008 are expected to account for approximately one third of total revenue.
Wireless Engineering Services Business Update
The majority of Intrinsyc’s revenues today are derived from providing wireless engineering services to customers ranging from silicon vendors, software providers and original equipment manufacturers primarily in North America and more recently in Asia based out of the Company’s Taiwan office. Under the leadership of Rees this summer, the services business has secured customer engagements that have resulted in a stronger customer engagement backlog carrying forward the momentum built in the first half of 2008.
In the third quarter of 2008, Intrinsyc has secured two significant engineering services customer engagements. The new customer engagements include a Windows Mobile®-based project for a global manufacturer. Intrinsyc will provide this leading device maker with hardware design and engineering, wireless software solutions, and end-to-end systems integration for a Windows Mobile device. The second wireless engineering services engagement involves a Symbian OS-based smartphone for the consumer market. This engagement is the Company’s first significant deal with a Symbian licensee since Intrinsyc was appointed as a Symbian Competence Center in June 2008. Financial terms of the customer engagements were not disclosed. These deals reflect both continued growth in the Company’s wireless services business and the benefits realized by OEM customers in terms of time-to-market acceleration and product differentiation and innovation.
The restructuring program, inclusive of other non-headcount related expense reductions, is expected to result in an annual cost savings ranging from approximately US$6.0 million to US$8.0 million. This includes a reduction in the Destinator integration costs, originally estimated to be between US$1.5 million and US$2.0 million, and now expected to be less than US$1.0 million. The restructuring and cost reduction initiative, which is planned for completion in November 2008, is expected to result in an annualized cost reduction of approximately 22 percent and is contingent upon completion of all actions as currently planned. The Company reiterates its revenue guidance for fiscal 2008 of a range between US$26 million and US$29 million, and expects its results to fall in the lower end of that range. Intrinsyc expects to record a charge related to severance costs resulting from the workforce reduction as well as other related asset write-offs in the third and fourth quarters of 2008.
“The actions announced today position Intrinsyc as a leaner, stronger company in order to drive improved financial and sales performance and accelerate our efforts towards profitability,” commented Dorchak. “In light of global economic conditions and a slower than expected ramp of royalty revenues from Soleus and Destinator products we have implemented these cost saving initiatives and workforce reductions to improve our operational efficiency while preserving cash. We believe our experienced and leaner executive staff will be more agile in responding to market dynamics and business opportunities. While we are disappointed with the slower than expected timing of closing Soleus design wins and royalty ramp, we continue to see significant opportunity for our software businesses, particularly with Soleus Transit and the advanced user interface technology to be launched in Soleus 2.0. We remain focused on becoming a leading global wireless software solutions provider through the growth of our Soleus and Destinator software businesses and supporting our current customers as they bring their Intrinsyc software products to market and are engaged in a broad set of design win activities with existing and new customer targets.”
Forward Looking Statements
This press release contains statements which, to the extent that they are not recitations of historical fact, may constitute forward-looking information under applicable Canadian securities legislation. Such forward-looking statements or information may include financial and other projections as well as statements regarding the Company's future plans, objectives, performance, revenues, growth, profits, operating expenses or the company's underlying assumptions. The words "may", "would", "could", "will", "likely", "expect," "anticipate," "intend", "plan", "forecast", "project", "estimate" and "believe" or other similar words and phrases may identify forward-looking statements or information. Persons reading this press release are cautioned that such statements or information are only predictions, and that the Company's actual future results or performance may be materially different. Factors that could cause actual events or results to differ materially from those suggested by these forward-looking statements include, but are not limited to: the Company’s ability to continue to earn the revenue from Destinator products after the acquisition, and to integrate the acquired business into its own operations; the need to develop, integrate and deploy software solutions to meet our customer's requirements; the possibility of development or deployment difficulties or delays; the dependence on our customer's satisfaction; the timing of entering into significant contracts; our customers’ continued commitment to the deployment of our solutions; the risks involved in developing integrated software solutions and integrating them with third-party products and services; the performance of the global economy and growth in software industry sales; market acceptance of the Company’s products and services; customer and industry analyst perception of the Company and its technology vision and future prospects; the success of certain business combinations engaged in by the Company or by its competitors; political unrest or acts of war; possible disruptive effects of organizational or personnel changes; technological change, new products and standards; risks related to acquisitions and international expansion; reliance on large customers; concentration of sales; international operations and sales; management of growth and expansion; dependence upon key personnel and hiring; reliance on a limited number of suppliers; industry growth; competition; intellectual property; product defects and product liability; currency exchange rate risk; and including but not limited to other factors described in the Company’s reports filed on SEDAR, including its Annual Information Form and financial report for the year ended December 31, 2007. In drawing a conclusion or making a forecast or projection set out in the forward-looking information, the Company takes into account the following material factors and assumptions in addition to the above factors: the Company’s ability to execute on its business plan; the acceptance of the Company’s products and services by its customers; the timing of execution of outstanding or potential customer contracts by the Company; the sales opportunities available to the Company; the Company's subjective assessment of the likelihood of success of a sales lead or opportunity; the Company's historic ability to generate sales leads or opportunities; and that sales will be completed at or above the Company's estimated margins. This list is not exhaustive of the factors that may affect our forward-looking information. These and other factors should be considered carefully and readers should not place undue reliance on such forward-looking information. All forward-looking statements made in this press release are qualified by this cautionary statement and there can be no assurance that actual results or developments anticipated by the Company will be realized. The Company disclaims any intention or obligation to update or revise forward-looking information, whether as a result of new information, future events or otherwise, except as required by law.
About Intrinsyc Software International, Inc.
Intrinsyc empowers device makers, mobile operators, and silicon vendors to deliver compelling, next generation mobile and devices with faster time-to-market, higher quality, and differentiating innovation. Our customers and partners rely on our award-winning device development solutions and our industry-leading navigation software and LBS solutions. Intrinsyc is a 2009 winner of the Microsoft Windows Embedded Excellence Award. Intrinsyc is publicly traded (TSX: ICS) and headquartered in Vancouver, Canada, with offices in China, Taiwan, U.K. and the United States.
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For more information, please contact:
Vice President, Corporate Development, General Counsel & Corporate Secretary
Intrinsyc Software International, Inc.
Shelton Group Investor Relations
Phone: +1-972-239-5119 ext.126