MDSI shows significant growth at half-year mark

Richmond, B.C., Oct. 3, 2003 — For the second quarter of 2003, MDSI Mobile Data Solutions Inc., a provider of mobile workforce management solutions, recorded $12.2 million in revenue compared to $8 million in the same quarter a year ago.

The company lost $(0.06) per fully diluted share, which included $825,000 in strategic expenses associated with investigating a potential corporate transaction, compared to a $(0.18) loss per fully diluted share in Q2 2002.

On a non-GAAP basis, which for purposes of this release MDSI® defines as excluding from operating expenses the $825,000 in strategic expenses and excluding from revenue and direct costs offsetting amounts attributable to work done by third party integrators on a large project, the company earned $11.9 million in total revenue and $0.04 per fully diluted share, both consistent with MDSI’s forecast (which did not take into account such items) for the period.

Other significant news included further comments by MDSI on its forecast for the remainder of the year, a change in MDSI’s Board of Directors, and a major new contract.

According to Erik Dysthe, MDSI’s President, CEO and Chairman, “This was another good quarter for MDSI. I am pleased with our execution against the 2003 financial plan that we announced in October of last year. Our year-to-date results reflect significant growth compared to 2002, on both the top and bottom line, despite an environment where decision making continues to be slow.” Added Dysthe, “We spent a great deal of effort during the quarter investigating a transaction that could have helped us broaden our product footprint and accelerate growth. We were far down the path before deciding that it was not right for MDSI. While disappointed, I am confident that we made the right decision and we continue to very actively seek out other opportunities.”

Total revenue in Q2 2003 was $12.2 million. Software and services revenue of $8.3 million was consistent with forecast and up 71 percent from $4.9 million in Q2 2002 and up from $7.9 million in Q1 2003. Maintenance and support revenue of $3.3 million was up from $2.9 million in Q2 2002 and $2.6 million in Q1 2003. Third party products and services revenue grew to $611,000 from $279,000 in Q2 2002 and was down from $1.9 million in Q1 2003. The third party products and services revenue amount included approximately $285,000 ($0 in Q2 2002, $1.1 million in Q1 2003) that was attributable to subcontract work of third party integrators on a large project. In accordance with GAAP, a corresponding, offsetting amount was also included in direct costs, resulting in zero effect on net income. Excluding this amount, total revenue on a non-GAAP basis for Q2 2003 was $11.9 million, consistent with MDSI’s forecast of between $11 million and $12 million, 48.6 percent ahead of $8 million recorded in Q2 2002.

Total revenue for the six months ended June 30, 2003 was $24.5 million. Non-GAAP total revenue for the same period was $23.1 million, 39.1 percent greater than the $16.6 million recorded in the first half of 2002.

Non-GAAP gross margin during Q2 2003 was 55.2 percent, compared to 56.5 percent in Q2 2002. Calculated on the same basis, the gross margin for the half-year was 56 percent, compared to 57.2 percent in the first half of 2002. The declining gross margin is primarily attributable to weakening of the US dollar during the first half of 2003.

Total operating expenses were $6.7 million, compared to $6.9 million in Q2 2002, and up from $5.8 million in Q1 2003 due to $825,000 in expenses incurred in Q2 2003 associated with a potential strategic transaction that MDSI thoroughly investigated then abandoned. Non-GAAP operating expenses, were $5.9 million, virtually flat with last quarter and 14.8 percent below Q2 2002. For the six months ending June 30, 2003, operating expenses were $12.5 million, equivalent to the first half of prior year. Non-GAAP operating expenses for the six months ending June 30, 2003 fell to $11.7 million, a decrease of 66 percent from the first half of 2002.

MDSI incurred a net loss of $504,000, or $(0.06) cents per fully diluted share in Q2 2003, compared to a loss of $(0.18) per fully diluted share in Q2 2002. Non-GAAP net income in Q2 2003 was $321,000, or $0.04 per fully diluted share, which was consistent with the company’s forecast result. For the six months ending June 30, 2003, MDSI incurred a $281,000 loss, or $(0.03) per fully diluted share, compared to a $(0.21) loss per fully diluted share in the first half of 2002. Non-GAAP net income was $544,000, or $0.07 per fully diluted share, for the six months ending June 30, 2003, in line with the company’s forecast to date.

All of the company’s Canadian dollar denominated expenses in Q2 2003 increased as reported in U.S. dollars due to significant weakness in the U.S. dollar during the period. Similarly, foreign exchange loss resulting from translation of non-U.S. dollar denominated net monetary liabilities amounted to two cents per fully diluted share, included in other expense for the period.

MDSI maintained a strong balance sheet during the quarter. At June 30, 2003, the company’s cash balance grew to $13.7 million, up from $11.0 million at December 31, 2002 and up from $12.5 million at March 31, 2003. The company continues to have no long term debt other than capital lease obligations.

MDSI reiterated its third quarter forecast (announced previously and summarized here) and added detail to its forecast for the full year 2003:

· Q3 2003: total revenues of $11.5 million to $12.5 million, of which approximately $8.5 million to $9.5 million will come from software and services. Earnings per fully diluted share is expected to be between five and seven cents.

· Full Year 2003: the company still anticipates growing total revenues approximately 20 percent and software and services revenue approximately 30 percent over 2002 (from continuing operations). Due to weakness in the US dollar against the Canadian dollar, MDSI anticipates that earnings per share will come in at the low end of the $0.22 to $0.26 range previously provided, on a non-GAAP basis.

The forecasts are on a non-GAAP basis. They exclude any potential future strategic expenses, and revenues and offsetting expenses that MDSI must recognize on a gross basis in connection with work done by third parties.

Terry McGarty recently resigned from MDSI’s Board of Directors. Mr McGarty’s other responsibilities have placed demands on his time that preclude his continuing participation as an active board member. David Van Valkenburg, an outside director, has replaced Mr. McGarty as Chairman of the Audit Committee MDSI thanks Mr. McGarty for his seven years of contributions to MDSI’s success.

Since the last quarterly earnings news release MDSI was named among the “50 Key Information Technology Players in Energy” according to Houston-based energy consultancy, RaderEnergy. Today, in a separate news release, MDSI announced an Advantex® r7 contract with one of the largest electric and gas utilities in North America.

About MDSI
MDSI is a provider of mobile workforce management software in the world. MDSI’s software improves customer service and relationships and reduces operating costs by allowing companies to manage field resources more effectively. Headquartered in Richmond, BC, Canada, MDSI was founded in 1993 and has approximately 350 employees. The company has operations and support offices in the United States, Canada, Europe and Australia. MDSI services approximately 100 customers and has licensed more than 80,000 field service users around the world. MDSI is a public company traded on the Toronto Stock Exchange (MMD) and on NASDAQ (MDSI). www.mdsi-advantex.com

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