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WellPoint Systems reports record EBITDA and net income for first half of 2009

^{Published on 2009-08-24 05:11:31 - Market Wire}
 

 CALGARY, Aug. 24 /CNW/ - WellPoint Systems Inc., ("WellPoint" or the "Company") (TSX-V:WPS), a leading provider of software and related solutions to the energy industry, today announced its financial results for the quarter and six months ended June 30, 2009. All monetary values are in Canadian dollars unless otherwise indicated. Second Quarter and Six Month Financial Highlights ------------------------------------------------------------------------- Three Six Months Ended $ Change Months Ended $ Change June 30 2008 June 30 2008 In thousands (CDN$) 2009 2008 - 2009 2009 2008 - 2009 ------------------------------------------------------------------------- Revenue 8,734 10,269 (1,535) 19,117 19,789 (672) Gross Profit 6,187 6,053 134 13,246 11,446 1,800 Adjusted EBITDA 2,026 (612) 2,638 4,615 (1,048) 5,663 Net Income 1,559 (2,391) 3,950 1,030 (4,696) 5,726 Adjusted EBITDA per share 0.04 (0.01) 0.05 0.09 (0.02) 0.11 Net Income per share 0.03 (0.05) 0.08 0.02 (0.10) 0.12 ------------------------------------------------------------------------- "We have worked very hard over the last few quarters to position the Company to grow profitably over the long term and our results this quarter reflect the progress we continue to make on this front," said Mr. Richard Slack, President and CEO of WellPoint Systems. "Despite a small drop in revenue, gross profit was up and we generated a $2.6 million improvement in adjusted EBITDA. As economic conditions improve, we will undertake a variety of initiatives designed to drive growth, including further strengthening our management team and aggressively marketing our products in key regions globally." Second Quarter Business Highlights - Increased net income by $4.0 million to $1.6 million, compared with a net loss of ($2.4) million in 2008; - Increased Adjusted EBITDA by $2.6 million to $2.0 million, compared with an Adjusted EBITDA loss of ($0.6) million in 2008; - Delivered US$1.0 million of the previously announced license sale to WellPoint's new Middle Eastern channel partner, QMENA for WellPoint's Microsoft Dynamics AX solutions; - Grew customer base by 10 companies, including two sales of WellPoint's Dynamics AX EAM and EFM products; - Sold additional licenses to 18 current customers; - Held two regional WellPoint Users Conferences, in Denver, CO and Houston, TX; - Achieved the Independent Software Vendor (ISV)/Software Solutions Competency in the Microsoft Partner Program This certification demonstrates WellPoint's specific expertise with Microsoft technologies and a proven ability to meet customers' needs; - Released AX EAM 5.0 on AX 2009, setting the stage for asset intensive companies to take advantage of core AX capabilities such as role- based user experience, business intelligence, workflow and requisitions; - Released WellPoint Intelligent Dashboard for BOLO product line which uses SQL Reporting Services and cube technology to aggregate data and measurements from WellPoint software as well as other third party applications; and - Released IDEAS 5.0 which updated the product to Visual Basic 6, added a new Report Wizard and provided an Advanced AFE module to provide project management controls Second Quarter Financial Review Overall revenues for the second quarter of 2009 decreased by $1.5 million as compared with the second quarter of 2008. License revenue increased to $3.2 million from $3.0 million in 2008. License revenue for the second quarter of 2009 includes $1.2 million of revenue from the Company's previously announced license sale to QMENA. Maintenance revenue grew to $2.7 million in 2009 from $2.3 million in 2008, an increase of 14%, due to expansion of the Company's customer base. WellPoint now provides maintenance to 437 customers worldwide and continues to achieve maintenance and support customer retention rates of approximately 99%. Professional services revenue decreased by $2.0 million in the second quarter of 2009 as compared with the same period of the prior year. In 2008, the Company was working on a large implementation in South America. This implementation was predominately complete in the third quarter of 2008 which contributed to the drop in the 2009 second quarter professional services revenue. Further impacting the professional services revenue was the continued instability in general economic climate with customers choosing to preserve cash and defer implementations and software enhancements until conditions improve. Gross profit was $6.2 million (71% of total revenue) compared with $6.1 million (59% of total revenue) for the second quarter of 2008. The $0.1 million increase in gross profit is attributed primarily to the Company's changing revenue mix. During the second quarter of 2009 compared with the same period of the prior year, the Company increased its sales of higher margin license and maintenance revenue by $0.5 million and decreased its lower margin professional services revenue by $2.0 million. This shift in revenue mix resulted in an increase in both gross profit and gross margin. SG&A decreased to $2.4 million (28% of revenue) compared with $4.2 million (42% of revenue) in the second quarter of 2008. The 2008 SG&A costs were negatively impacted by severance costs and high bad debt expenses. The decrease in 2009 SG&A costs is a result of various cost reduction efforts implemented during the latter half of 2008. In addition, due to the negative general economic climate, the Company took additional steps in 2009 to reduce SG&A expenses by rolling back salaries at its North American operations by 10%. Further impacting the comparison between the Company's 2008 and 2009 SG&A costs is the decision by the Company to stop capitalizing research and development costs in 2009 as projects no longer meet the criteria for capitalization. In 2008 a portion of the Company's SG&A costs were allocated to research and development and capitalized. Had these costs not been capitalized in 2008, the comparative change in SG&A would have been even greater. Facilities expenses decreased to $0.4 million compared with $0.5 million in the second quarter of 2008. The decrease primarily relates to consolidation of the Company's offices in Calgary. In the second quarter of 2009, the Company incurred research and development expenses of $1.4 million (16% of revenue) compared with $1.1 million (11% of revenue) for the comparable period in 2008. The increase in current research and development is related to a decision to stop capitalizing research and development expenses as they no longer meet the criteria for capitalization. When compared with development expenditures capitalized in the 2008, the Company's investment in research and development appears to have decreased by $0.7 million. However, this decrease is primarily attributable to various cost reduction efforts implemented during the latter half of 2008. Further, due to the negative general economic climate, the Company took additional steps in 2009 to reduce research and development expenses by rolling back salaries at its North American operations by 10%. In 2008, a portion of the Company's SG&A costs were allocated to research and development and capitalized. Had these costs not been capitalized in 2008, the comparative change in research and development costs would have been significantly smaller. For greater clarity, the Company is continuing to invest in research and development projects with the same vigor as in 2008, however the reduction in the current year expenditure is related entirely to cost optimizations and a reallocation of costs between research and development expenditures and SG&A (please see SG&A section above). WellPoint Systems is committed to enhancing its position as a leading provider of software and related solutions within the energy and natural resources industries. The Company continues to increase its investment in the development of new and innovative products utilizing the Microsoft AX Dynamics architecture. This investment is a fundamental requirement as WellPoint Systems continues to build products that meet the evolving needs of its customers. Depreciation and amortization expenses decreased to $0.9 million compared with $1.1 million for the second quarter of 2008. The decrease primarily relates to the Company's decision to write-off a significant portion of its deferred development costs in the third quarter of 2008. Since these costs have been written off, there is no longer a requirement to amortize the expenses. Interest expenses include the cash and interest accretion on the Company's interest-bearing obligations. In addition, interest costs include the interest payable on convertible debentures. Interest accretion is a result of the allocation of proceeds received from the issuance of convertible debt to their component parts, measured at their respective fair values at the time of issue or renegotiation. The debt component has been calculated as the present value of the required interest and principal payments, discounted at a rate approximating the interest rate that would have been applicable to non-convertible debt at the time the debenture was issued or reduced, when the fair value of the conversion option increases following a change in the conversion price or conversion period. Interest expense is determined on the debt component. The difference between the debt component and the face value of the debenture is classified as shareholders' equity-convertible debentures, net of issue costs, and adjusted for income taxes. The debentures are accreted to their face value over their term with a charge to operations included in interest expense. Interest expenses increased to $1.5 million as compared with $0.9 million for the second quarter of 2008. The increase primarily stems from the new financings in 2008. As at June 30, 2009, the Company had notes payable, capital leases and convertible debt with a carrying value of approximately $34.4 million with an effective annual interest rate of approximately 16.0%. Most of the Company's businesses are organized geographically so that many expenses are incurred in the same currency as the revenue generated, which mitigates some exposure to currency fluctuations. Following the acquisition of BOLO in 2007, the Company significantly increased its net liabilities denominated in United States dollars in connection with notes payable issued in connection with the acquisition along with US convertible debentures needed to complete the acquisition. The Company has not entered into any forward hedging contracts and therefore experiences gains and losses relating to foreign exchange. The foreign exchange gain for the three months ended June 30, 2009 was $1.6 million (2008 - $0.2 million). For the Second quarter of 2009 the tax recovery was ($0.3) million compared with a tax expense of $0.7 million in the same period of the prior year. The tax recovery is primarily as a result of the Company's operations in the US. Due to the factors discussed above, the net income for the second quarter of 2009 was $1.6 million compared with a net loss of ($2.4) million for the second quarter of 2008. Basic and diluted net income per share was $0.03 compared with a net loss per share of ($0.05) for the second quarter of 2008. Adjusted EBITDA was $2.0 million compared to an Adjusted EBITDA loss of ($0.6) million for the second quarter of 2008. The $2.6 million increase in Adjusted EBITDA was the result of the reduced operating costs as discussed above. Basic and fully diluted Adjusted EBITDA per share was $0.04 compared with an Adjusted EBITDA loss per share of ($0.01) for the second quarter of 2008. First Half 2009 Financial Review Revenues decreased by 3% to $19.1 million in the first half of 2009 compared with $19.8 million in the same period in 2008. Revenue from outside of Canada stayed relatively flat compared with the same period in the prior year. This was primarily due to the growth in other international revenue from the QMENA license sale offset by decreases in South American revenue due to the completion of the South American contract in the Q3 of 2008. License revenue increased to $6.6 million from $6.0 million in 2008. The increase is the result of license revenues from the US$2.0 QMENA sale in the first half of 2009. Maintenance revenue increased to $5.8 million in 2009 from $4.7 million in 2008, an increase of 23% with a substantial portion of the increase attributed to the South American customer whose implementation was completed in the third quarter of 2008. Revenue from professional services decreased to $6.8 million from $9.1 million in 2008, a decrease of 26%. The substantial decrease in professional services revenue is attributed primarily to the completion of the 2007 South American contract in Q3 of 2008. Further impacting the professional services revenue is the continued instability in general economic climate with customers choosing to preserve cash and defer implementations and software enhancements until conditions improve. Gross profit was $13.2 million (69% of total revenue) compared with $11.4 million (58% of total revenue) for 2008. The $1.8 million (16%) increase in gross profit is attributable to the increase in higher margin license and maintenance revenue and a decrease in low margin professional services revenue. SG&A expenses decreased by $2.4 million (32%) to $5.1 million (27% of revenue) compared with $7.5 million (38% of revenue) in the first six months of 2008. The decrease primarily relates to the various cost optimizations implemented in the autumn of 2008 along with higher expenses relating to bad debts and restructuring charges in 2008. Further impacting the comparison between the Company's 2008 and 2009 SG&A costs is the decision by the Company to stop capitalizing research and development costs in 2009 as the projects no longer meet the criteria for capitalization. In 2008, a portion of the Company's SG&A costs were allocated to research and development and capitalized. Had these costs not been capitalized in 2008, the comparative change in SG&A would have been even greater. Facilities expenses decreased to $0.8 million compared with $0.9 million in 2008. The decrease primarily relates to consolidation of the Company's offices in Calgary. In the first half of 2009, the Company incurred research and development expenses of $2.9 million (15% of revenue) compared with $2.1 million (11% of revenue) for the comparable period in 2008. The increase in current research and development is related to a decision to stop capitalizing research and development expenses as they no longer meet the criteria for capitalization. When compared with development expenditures capitalized in the 2008, the Company's investment in research and development appears to have decreased by $1.3 million. However, this decrease is primarily attributable to various cost reduction efforts implemented during the latter half of 2008. Further, due to the negative general economic climate, the Company took additional steps in 2009 to reduce research and development expenses by rolling back salaries at its North American operations by 10%. In 2008, a portion of the Company's SG&A costs were allocated to research and development and capitalized. Had these costs not been capitalized in 2008, the comparative change in research and development costs would have been significantly smaller. For greater clarity, the Company is continuing to invest in research and development projects with the same vigor as in 2008, however the reduction in the current year expenditure is related entirely to cost optimizations and a reallocation of costs between research and development expenditures and SG&A (please see SG&A section above). Depreciation and amortization expenses decreased to $1.7 million compared with $2.3 million in 2008. The decrease primarily relates to the Company's decision to write-off a significant portion of its deferred development costs in the third quarter of 2008. Since these costs have been written off, there is no longer a requirement to amortize the expenses. Interest expenses increased to $2.9 million as compared with $1.9 million for the first half of 2008. The increase primarily stems from the new financings in 2008 and the refinancing of the Company's debentures at the end of 2008. As at June 30, 2009, the Company had notes payable and convertible debt with a carrying value of approximately $34.4 million with an effective annual interest rate of approximately 16.0%. Most of the Company's businesses are organized geographically so that many expenses are incurred in the same currency as the revenue generated, which mitigates some of our exposure to currency fluctuations. Following the acquisition of BOLO in 2007, the Company significantly increased its net liabilities denominated in United States dollars in connection with notes payable issued in connection with the acquisition. The Company has not entered into any forward hedging contracts and therefore may experience gains and losses relating to foreign exchange. The foreign exchange gain for the first six months of 2008 was $0.8 million (2008 - $0.3 million loss). For the six months ended June 30, 2009 the tax recovery was ($0.5) million compared with a tax expense of $0.4 million for the same period in 2008. The tax recovery is primarily as a result of the Company's operations in the US. The net income for the six months ended June 30, 2009 was $1.0 million compared with a net loss of $4.7 million for the same period in 2008. Basic and diluted net income per share was $0.02 compared with a loss per share of ($0.10) in 2008. The net income and increased earnings per share are attributed to the factors discussed above. Adjusted EBITDA increased by $5.6 million to $4.6 million compared with an Adjusted EBITDA loss of $1.0 million for the first six months of 2008. Basic and fully diluted EBITDA per share was $0.09 compared with an Adjusted EBITDA loss per share of ($0.02). The significant increase in 2009 Adjusted EBITDA and Adjusted EBITDA per share is a result of the increased gross profit and reduced operating expenses as discussed above. Outlook During 2008, the Company has invested significant capital and management resources to integrate the BOLO and iSoft acquisitions into WellPoint Systems. In 2009, with the acquisitions now in place, the Company has and will continue to focus on increasing its net income and Adjusted EBITDA and expects to advance on many fronts, through the following initiatives: - Establishing deeper partnerships across the globe, including expanded and new agent relationships in international markets. In 2009, the Company particularly intends to focus its activities on increasing market share and driving revenue from opportunities primarily in the North American and Middle Eastern markets; - Increasing sales and marketing of WellPoint Energy Broker in the North American and Middle Eastern markets and WellPoint EAM and WellPoint EFM solutions worldwide; - Continuing development and marketing of BOLO and IDEAS to increase market share; - Continuing development of the WellPoint Energy Suite (Enterprise Asset Management), WellPoint Energy Financial Management, and WellPoint Energy Broker solutions to expand functionality and better conform with best practices in the computer software industry; - Increased sales and marketing of WellPoint EAM solution to broad- based manufacturers through partner channels; and - Increasing operational efficiencies. In the first half of 2009, the Company recorded US$2.0 million in revenue from the agreement the Company signed on December 24, 2008 with Quorum MENA Limited ("QMENA"). The Company anticipates posting improved net income and Adjusted EBITDA in 2009 as a result of increasing license revenues, proceeds from the recently announced insurance claim, and lower operating costs. The information contained in this news release is in summary form and should be read in conjunction with the Company's audited consolidated financial statements and Management's Discussion and Analysis for the year ended December 31, 2008 and three and six months ended June 30, 2009. Those documents are available through the internet on the Canadian System for Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at [ www.sedar.com ]. Notes (1) "EBITDA" is a financial measure that does not have any standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP") and may not be comparable to similar measures presented by other companies. EBITDA is a measure of the Company's operating profitability. EBITDA provides an indication of the results generated by the Company's principal business activities prior to how these activities are financed, assets are amortized or how results are taxed in various jurisdictions. Adjusted EBITDA is Standardized EBITDA(1), excluding foreign exchange gains primarily related to the US dollar denominated debt of the Company and can vary significantly depending on exchange rate fluctuations, which are beyond the control of the Company, and write downs of deferred development and intangible costs, goodwill impairment, financing costs, stock based compensation, fees and expenses on settlement of debt and losses on extinguishment of debt and after deducting the annual amount invested in respect of deferred development costs, which, with the implementation of International Financial Reporting Standards in the year ended December 31, 2011, will generally be required to be expensed on an annual basis. (2) "Gross Profit" is a financial measure that does not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. Gross profit is provided to assist investors in determining WellPoint's ability to generate earnings from the sales of its products and services. Gross profit is calculated by subtracting direct expenses from revenue. About WellPoint Systems Inc. WellPoint provides premier software and related services for managing critical operations within the energy industry. As a Microsoft Gold Certified Partner since 2005, WellPoint is the only Independent Software Vendor (ISV) and Microsoft Dynamics partner dedicated to the energy sector. It is breaking new ground with the creation of a more comprehensive, integrated energy software suite based on existing Microsoft ERP technology that utilizes state-of-the-art Dynamics AX(R) and .NET architectures. WellPoint also provides software and services under the BOLO, IDEAS International and iSoft brands. Founded in 1997, Calgary-based WellPoint Systems also has major operations in Denver, CO, Houston, TX, Livingston, NJ, Tampa, FL, Tunis, Tunisia and Pretoria, South Africa. WellPoint is publicly traded on the TSX Venture Exchange under the symbol WPS. This document contains forward-looking statements. Some forward looking statements may be identified by words like "expects", "anticipates", "plans", "intends", "indicates" or similar expressions. The statements are not a guarantee of future performance and are inherently subject to risks and uncertainties. The Company's actual results could differ materially from those currently anticipated due to a number of factors, including, but not limited to, successful integration of structural changes, including restructuring plans, acquisitions, technical or manufacturing or distribution issues, the competitive environment for the Company's products, the degree of market penetration of the Company's products, and other factors set forth in reports and other documents filed by the Company with Canadian securities regulatory authorities from time to time. The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release. WELLPOINT SYSTEMS INC. Consolidated Balance Sheets (Unaudited) (in thousands of dollars) ------------------------------------------------------------------------- June 30 December 31 2009 2008 ------------------------------------------------------------------------- Assets Current assets: Cash $ 1,029 $ 406 Accounts receivable 2,851 3,532 Prepaid expenses 889 746 ----------------------------------------------------------------------- 4,769 4,684 Property and equipment 1,004 1,106 Deferred development costs 1,801 2,119 Intangible assets 13,415 15,384 Goodwill 23,338 24,442 Future income taxes 588 132 ------------------------------------------------------------------------- $ 44,915 $ 47,867 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 5,175 $ 5,718 Current income tax liability - 106 Deferred revenue 2,696 4,876 Other deferred credits 55 55 Note payable 55 - Current portion of long term notes payable 94 99 Current portion of capital lease obligations 46 46 Convertible debentures 2,765 1,358 ----------------------------------------------------------------------- 10,886 12,258 Long term notes payable 5,723 6,005 Capital lease obligations 32 58 Other deferred credits 50 77 Convertible debentures 25,665 26,476 ------------------------------------------------------------------------- 42,356 44,874 Shareholders' equity: Share capital 14,497 14,497 Contributed surplus 1,687 1,624 Convertible debentures 8,996 8,996 Accumulated other comprehensive income 2,218 3,744 Deficit (24,839) (25,868) ------------------------------------------------------------------------- (22,621) (22,124) ------------------------------------------------------------------------- Total shareholders' equity 2,559 2,993 ------------------------------------------------------------------------- $ 44,915 $ 47,867 ------------------------------------------------------------------------- ------------------------------------------------------------------------- WELLPOINT SYSTEMS INC. Consolidated Statements of Operations and Retained Earnings (deficit) (unaudited) (in thousands of dollars, except per share amounts) ------------------------------------------------------------------------- Three months ended Six months ended June 30 June 30 2009 2008 2009 2008 ------------------------------------------------------------------------- Revenue License $ 3,157 $ 3,012 $ 6,559 $ 5,972 Maintenance 2,661 2,335 5,781 4,698 Professional services 2,916 4,922 6,777 9,119 ------------------------------------------------------------------------- 8,734 10,269 19,117 19,789 Direct costs 2,547 4,216 5,871 8,343 ------------------------------------------------------------------------- Gross margin 6,187 6,053 13,246 11,446 Expenses: Sales, general and administrative 2,434 4,185 5,073 7,459 Interest 1,469 931 2,918 1,862 Research and development 1,381 1,081 2,857 2,106 Depreciation and amortization 859 1,144 1,744 2,294 Facilities 388 461 764 898 Financing and amortization of debt and note payable issue costs 63 161 144 254 Foreign exchange loss (gain) (1,635) (246) (828) 300 Fees and expenses on settlement of long term note payable - - - 614 ----------------------------------------------------------------------- 4,959 7,717 12,672 15,787 ------------------------------------------------------------------------- Net income (loss) before income taxes 1,228 (1,664) 574 (4,341) Income taxes Current expense - 134 - 134 Future expense (reduction) (331) 593 (456) 221 ------------------------------------------------------------------------- (331) 727 (456) 355 ------------------------------------------------------------------------- Net income (loss) 1,559 (2,391) 1,030 (4,696) Deficit, beginning of period (26,398) (6,172) (25,869) (3,867) ------------------------------------------------------------------------- Deficit, end of period $ (24,839) $ (8,563) $ (24,839) $ (8,563) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net income (loss) per share Basic and diluted $ 0.03 $ (0.05) $ 0.02 $ (0.10) ------------------------------------------------------------------------- ------------------------------------------------------------------------- 

For further information: Richard Slack, President and Chief Executive Officer, (303) 987-2238, [ rick.slack@wellpointsystems.com ]; Bharat Mahajan, CA, Chief Financial Officer, (403) 444-3916, [ bharat.mahajan@wellpointsystems.com ]