DRI Corporation Posts Second Quarter 2011 Results

DRI Corporation (NASDAQ: TBUS), a digital communications technology leader in the global surface transportation and transit security markets, announced today that it posted second quarter 2011 net sales of $20.3 million, up from first quarter’s $19.1 million. Absent a special goodwill impairment charge, the adjusted net profit to common shareholders would have been $268 thousand, or 2 cents per diluted share. Inclusive of that charge, the Company’s net loss recorded in accordance with generally accepted accounting principles in the U.S. (“GAAP”) actually was $9.6 million, or 81 cents per share. For further information and explanation regarding the charge, please refer to the “Goodwill Impairment Charge and Reconciliation of Non-GAAP Metric” section herein.

David L. Turney, Chairman of the Board of Directors and Chief Executive Officer, said: “The second quarter 2011 revenues improved over the first quarter; however, second quarter revenues were down from same period of a year ago. Our served market in India -- which is working through a slow period following a major, federally funded purchasing era launched in 2007 -- is transitioning to more normal market conditions, which we expect will emerge in the future. As a result, declining sales during India’s short-term market adjustment period was the most significant contributing factor in the decline of our quarter-over-quarter revenues. Other operations experienced some revenue reductions in the same period last year, but those operations were either generally near, at or above first quarter 2011 results. Our domestic and international gross margins improved for the quarter ended June 30, 2011; the increase was approximately 3.7 percentage points over second quarter 2010 for a consolidated gross margin of 34 percent, as compared to 32 percent for first quarter 2011 and 30 percent for second quarter 2010.”

Earlier today, the Company filed with the U.S. Securities and Exchange Commission a Quarterly Report on Form 10-Q for the period ended June 30, 2011.

THREE-MONTH PERIOD RESULTS

For the quarter ended June 30, 2011, the Company posted net sales of $20.3 million and a net loss to common shareholders of $9.6 million, or 81 cents per diluted share. This compares to net sales of $25.6 million and a net profit to common shareholders of $763 thousand, or 6 cents per share, for the same period last year. Basic weighted-average shares outstanding were 11.9 million, as compared to 11.8 million a year ago; these results should be viewed in context of the goodwill impairment charge. Diluted weighted-average shares outstanding were 11.9 million, as compared to 14.3 million a year ago.

SIX-MONTH PERIOD RESULTS

For the six-month period ended June 30, 2011, the Company posted net sales of $39.4 million and a net loss to common shareholders of $10.3 million, or 87 cents per diluted common share outstanding. This compares to net sales of $47.7 million and a net loss to common shareholders of $232 thousand, or 2 cents per diluted common share outstanding, for the same period last year; these results should be viewed in context of the goodwill impairment charge. Basic weighted-average shares outstanding were 11.9 million, as compared to 11.8 million each a year ago.

GOODWILL IMPAIRMENT CHARGE AND RECONCILIATION OF NON-GAAP METRIC

Mr. Turney said: “In second quarter 2011, we recorded a goodwill impairment charge related to our international reporting unit. The goodwill impairment charge is a non-cash adjustment and has no effect on cash flows, liquidity, or tangible assets. Further, management does not expect this non-cash charge to affect the Company’s ongoing business operations or lender covenants, or for it to result in future cash expenditures. While the goodwill impairment charge in second quarter 2011 was determined in accordance with GAAP to be $9.9 million, management believes neither the resulting consolidated equity or its market capitalization reflect the true value of the Company or its international reporting unit and operations, which are of prime value and importance to our global strategy and produce noteworthy cash flow and operating profit.”

In accordance with GAAP, the Company must assess the valuation of goodwill, an intangible asset, on an annual basis and more frequently if circumstances suggest that impairment may have occurred. Since recent NASDAQ Capital Market® closing prices for the Company’s common stock have been lower than its closing price on December 31, 2010, management concluded this fact, as well as the lower revenues driven by the Company’s 51 percent-owned joint venture in India and the moderate increase in the carrying value of our international reporting unit, to be the primary contributing factors leading to the goodwill impairment charge.

Management has presented the Company’s adjusted net profit to common shareholders for the three months ended June 30, 2011 -- a non-GAAP financial measure -- because management believes it is helpful to present the results of the previous quarter both inclusive and exclusive of this goodwill impairment charge. While the Company believes that presenting this non-GAAP measurement may be useful to investors, the information is not a substitute for the GAAP financial measure of “net income (loss) applicable to common shareholders of DRI Corporation” for the period. Therefore, the following table provides a reconciliation of the non-GAAP financial measure to the GAAP financial measure of “net income (loss) applicable to common shareholders of DRI Corporation.”

U.S. TRANSIT FUNDING

Mr. Turney said: “Although federal legislators have extended the now expired Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for Users (“SAFETEA-LU”) funding through the end of September 2011, DRI Corporation management continues to believe the lack of passage of a well-funded, six-year, multi-modal surface transportation authorization bill continues to depress the U.S. transit market. However, we believe that the impact of the stalled new funding legislation appears to have lessened in terms of our present domestic order flow. Congress is presently contemplating several specific legislative proposals, including some with potentially significant program cuts. However, it is too early to point to any one proposal as being the most likely front runner. We continue to believe that long-term federal funding legislation to replace SAFETEA-LU is not likely to occur until 2012 -- and possibly not until 2013.”

FISCAL YEAR 2011 OUTLOOK

Mr. Turney said: “We continue to expect to see market recovery as we proceed through fiscal year 2011 although the full impact, if any, of the recent legislative actions related to debt ceilings in the U.S. and sovereign debt issues abroad is not clear. However, unless that impact is more pronounced than presently anticipated, we expect revenues for the last half of fiscal year 2011 to improve over the revenues of the same period in 2010. We also project the balance of fiscal year 2011 gross margin ratios to compare favorably to those of the same period of 2010 as we continue with ongoing cost reduction initiatives, lower revenues in market sectors with low gross margins, and reduction of component pricing resulting from leveraging on volume purchasing.”

CONFERENCE CALL

Management will discuss second quarter 2011 results during an investors’ conference call tomorrow, Aug. 16, 2011, at 11 a.m. (Eastern).

• To participate in the live conference call, dial one of the following telephone numbers approximately five minutes prior to the start time: domestic, (800) 853-3895; or international, (334) 323-7224. The confirmation code is “DRI.”
• Telephone replay will be available through Nov. 14, 2011 via the following telephone numbers: domestic, (877) 870-5176; or international, (858) 384-5517. The replay code is 13034.
• To participate via webcast, go to http://viavid.net/dce.aspx?sid=00008BAD. The webcast will be archived until Nov. 14, 2011.

MARK YOUR CALENDAR

• On or about Nov. 14, 2011, the Company plans to file with the SEC a Form 10-Q for the period ending Sept. 30, 2011.
• On or about Nov. 15, 2011, management plans to discuss third quarter 2011 results during an investors’ conference call.

ABOUT THE COMPANY

DRI Corporation is a digital communications technology leader in the global surface transportation and transit security markets. We manufacture, sell and service Mobitec® and TwinVision® electronic information display systems and Digital Recorders® engineered systems. These proprietary systems and other related products and services help increase the mobility, flow, safety and security of public transportation agencies and their passengers. From our inception in 1983 through our fiscal year-end on Dec. 31, 2010, we’ve grown our product installations to include public transit fleets in more than 50 countries, our annual sales revenues to $87.3 million, and our global workforce to 275 people. We presently have operations and/or sales offices in Australia, Brazil, Germany, Singapore, Sweden and the United States, a joint venture in India, and corporate administrative offices in Dallas, Texas. We also are expanding into Russia. The next time you see a bus, think of us.SM For more information, visit www.digrec.com.

FORWARD-LOOKING STATEMENTS

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements concerning the Company’s and/or management’s expectations for: the timing or amount of future revenues; profitability; business and revenue growth trends; impact of cost reduction initiatives; impact of the global economic slowdown on served markets and operations; status of U.S. federal funding legislation for public transportation; fiscal year 2011 outlook; assessment of strategic alternatives; increasing shareholder value; plans regarding the Company’s Strategic Business Plan; as well as any statement, express or implied, concerning future events or expectations or which use words such as “suggest,” “expect,” “fully expect,” “expected,” “appears,” “believe,” “plan,” “anticipate,” “would,” “goal,” “potential,” “potentially,” “range,” “pursuit,” “run rate,” “stronger,” “preliminarily,” “guidance,” “may,” etc., is a forward-looking statement. These forward-looking statements are subject to risks and uncertainties, including risks and uncertainties that the Company’s and/or management’s expectations may not prove accurate over time for: the timing or amount of future revenues; profitability; business and revenue growth trends; impact of cost reduction initiatives; impact of the global economic slowdown on served markets and operations; status of U.S. federal funding legislation for public transportation; fiscal year 2011 outlook; assessment of strategic alternatives; increasing shareholder value; plans regarding the Company’s Strategic Business Plan; as well as other risks and uncertainties set forth in the Company’s Annual Report on Form 10-K as filed April 15, 2011 and Quarterly Report on Form 10-Q as filed May 16, 2011 and Aug. 15, 2011, particularly those identified in Risk Factors Affecting Our Business. There can be no assurance that any expectation, express or implied, in a forward-looking statement will prove correct or that the contemplated event or result will occur as anticipated.