Analysis: AirIQ weathers perfect storm

AirIQ Inc. blames a high Canadian dollar for its recent decision to restructure management and certain operations, but analysts tell Report on Wireless that's only part of the story. While the 23% reduction in staff will save the company $1.3 million annually, such drastic actions are also an aftershock from the sale of its vehicle finance division in March 2007. The Toronto-headquartered company, which provides a telematics solution for wireless, location-based fleet management services, is laying off some staff in Canada and migrating others to the US.The company is nonetheless in a decent market, and there's every reason to believe that its strategic review of operations will result in a more focused and leaner operation. The review will emphasize a reduction in expense levels, a consolidation of the workforce - including at the executive level - and a focus on more predictable and higher margin business.All noble goals, but the challenge, according the members of the financial analyst community speaking on condition of anonymity, is that AirIQ has not yet hit the sweet spot in terms of economies of scale."The margins are pretty good in this business," explains one analyst. "But it's hard to get visibility on the cost structure. We might have to wait until the end of next year before we see a steady state. Around then we'll start to see the numbers hit the bottom line."As well, tucked within the fine print of the year-end financial statement is a reference to the company's switch from an analog to a digital network, with full migration expected by February 2008. The transition has been slow. Driven initially by an assessment that GSM was the correct digital path, with much of the business tied to Cingular Wireless and its Business Alliance Channel, the follow-through has not been as smooth as expected. Nonetheless, the GSM digital network's promise of increased bandwidth capability and market footprint - particularly in the US - should begin to translate in 2008.But before the ship can be right-sized, the decks need to be cleared and that's a painful process. Given that 95% of the business comes from the US, it makes sense for AirIQ to move ahead with the 20% increase in staff there. What isn't clear is how well the company will adjust to staffing adjustments: Mark Kohler recently resigned as CFO, Michael Robb is the new VP for finance and administration, Brian Bowyer, VP of technology, is leading the land-based product division from Toronto and Irwin Rodrigues now oversees the marine division in San Diego. From a financial perspective, analysts would prefer to see the present difficulties as short term, which is surprising given the company's decision to highlight the difficulties surrounding the US dollar, something that could represent a long-term structural challenge. "A lot of the financial hit comes from paying off staff," says one analyst, noting that one-time payments of severance and "other post-March 16 business divestiture costs" came in at $910,000. "Almost half of that went to the former CEO, and then they had to lighten up on about eight staff."Also of concern to AirIQ are the working capital changes totalling approximately $2.5 million, much of which related to the timing of customer and supplier payments. This could be a reflection of a slowing US economy, or poor supply chain practices within AirIQ. Despite being one of Deloitte's Wireless Fast 50 for 2002-2006, with revenue growth of 586%, it seems AirIQ has its work cut out: just as the company clears the decks and pays off its employees, it may be hit with a perfect storm of a weakening US economy and a stronger Canadian dollar.AirIQ executives were unavailable for comment.

Analysis: AirIQ weathers perfect storm

News | 12/17/2007 1:13 pm EST

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