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WELLPOINT SYSTEMS REPORTS RESULTS FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 2010

^{Published on 2010-11-18 17:20:38 - Market Wire}
 

CALGARY, Nov. 18 /CNW/ - WellPoint Systems Inc., (TSX-V:WPS), a leading provider of software and related solutions that transform complex data into Business Insight, today announced its financial results for the quarter and nine months ended September 30, 2010. All monetary values are in Canadian dollars unless otherwise indicated.

"Although WellPoint continues to feel the lingering effects of the general economic downturn in 2009, we are seeing positive signs that market conditions are beginning to improve,"  said Mr. Richard Slack, President and CEO of WellPoint Systems. "License sales continue to grow as we execute on our vision of developing and delivering the strategic business platform for energy companies worldwide. Excluding unusual items in 2009, license sales for the third quarter grew by 60% year over year, and total revenues improved 9% over the same period in 2009. Service revenues, which typically lag software sales by 6 or more months, have shown steady growth in 2010, growing on average 10% per quarter. While the markets are still relatively volatile, we believe that these positive trends will continue through the remainder of 2010 and into 2011."

Financial Summary for the third quarter and nine months ended September 30, 2010

Unusual items in 2009 included a single large US$2.0 million license sale to a Middle Eastern partner recognized in Q1 and Q2 of 2009, and the realization of a US$3.3 million insurance claim against a license sale to a large South American customer, recognized in Q3 2009. While the Company does not expect to realize any additional sales through the Middle Eastern channel in 2010, management hopes the relationship will relate to further opportunities in this important region in 2011 and beyond. The partnership contract was a response to the Company's growth initiatives around expanding into international arenas in 2009 and beyond. These initiatives are continuing to push forward today with a new partnership in Northern Europe and with the addition of new staff dedicated to selling the Company's products and solutions in international regions.

"In listening to our customers, we found that many companies today are faced with a deluge of data, resulting in inefficient decision-making processes," said Mr. Slack. "Our customers succeed by quickly transforming ideas into action. They need a strategic business platform to accomplish this and WellPoint's solutions are designed from the ground up for energy companies, helping them move from chaos to confidence. WellPoint's strategy is to develop a strategic business platform for energy companies to support action, to manage key processes, and enable senior management to drive the business."

The key elements of a strategic business platform for energy companies include a scalable architecture that enables connectivity across the enterprise, key industry-specific solutions to address the complex needs of energy companies, and streamlined information delivery that provides "information at your fingertips… knowledge on demand". 

The Company has undertaken several key initiatives to drive significant growth in the near term. Chief among these are the Company's focus on expanding its global reach through new partnerships and the addition of new direct sales staff in key regions, and the development of new solutions that build out the strategic business platform for energy companies, globally.

Third Quarter 2010 Operational Highlights

• Excluding unusual items from previous quarter results, Q3 2010 revenues increased by 9% compared to Q3 2009 while license sales improved 60% compared to the same period in 2009;
  
  
• Demand for follow-on services continued to grow in the third quarter, in response to increased license sales in early 2010. Service revenues grew on average 10% per quarter in 2010;
  
  
• Added 12 new customers including the Company's first ever SAAS (software as a service) model sale;
  
  
• Announced the Mobile Intelligent Dashboard for the iPhone / iPad as the first truly mobile Business Intelligence solution for the upstream oil and gas industry, delivering "information to your fingertips… knowledge on demand";
  
  
• Closed strategic license sale with the Company's new Norwegian partner for WellPoint's Microsoft Dynamics AX Energy Financial Management solution, expanding the opportunity for the Company's AX products into the lucrative North Sea market;
  
  
• Hired Director of International Sales to expand markets and drive sales into Latin America and Northern Europe;
  
  
• Added new customers and sites for oil and gas operations in Egypt, China, Iraq, Nigeria, Turkey, Colombia, Canada, Argentina and Australia, including significant implementation projects in Colombia, Ecuador and Turkey;
  
  
• Introduced Expert Series of podcasts focused on bringing valuable information to oil and gas companies and to raise awareness of the WellPoint brand within target markets;
  
  
• Increased average deal size over Q2 2010 by 12%.

"Even though results continue to reflect the relatively slow pace of the global economic recovery, we are optimistic that our strategies are beginning to gain traction," said Mr. Hervé Séguin, Chief Financial Officer of WellPoint Systems. "Although license sales were slightly down in Q3 2010 compared to prior quarter results, the Company continues to see modest improvement in demand for its software solutions and, as a result, follow-on service revenues are showing positive trends growing nearly 10% on average quarter to quarter in 2010.  We also continue to work actively with our lenders, who remain supportive of WellPoint, to evaluate options with respect to our maturing debt."

Mr. Slack concluded, "We believe the changes we have made over the past year in strengthening our management team, progressing our product portfolio, and extending our global reach are beginning to show results and we anticipate that these actions will continue to drive improving performance through 2011."

Third Quarter Financial Review

Revenue for the three months ended September 30, 2010 decreased by $3.0 million to $6.9 million compared with the same period in 2009. Net loss for the third quarter ended September 30, 2010 was $1.2 million (basic and fully diluted loss of ($0.02) per share) compared to net income of $2.7 million for the same period in 2009 (basic and fully diluted earnings per share $0.05).

License revenues were $1.9 million for the three months ended September 30, 2010, compared with $4.8 million during the same period in 2009, which included a US$3.3 million (CDN$3.6 million) indemnity payment from Export Development Canada ("EDC"). Excluding this non recurring revenue in 2009, the current quarter's license revenue was $0.7 million higher than the same quarter in 2009. Maintenance revenue increased in the third quarter to $2.7 million from $2.6 million in 2009. Professional services revenue decreased in the third quarter of 2010 to $2.4 million from $2.6 million in 2009. While revenues are down from 2009, management has seen modest increases in recent quarters and expects to see the trend to continue in future quarters. The strengthening Canadian dollar adversely impacted revenue by $0.28 million in the third quarter of 2010.    

Gross profit decreased by nearly $3.7 million in the third quarter of 2010 compared with the third quarter of 2009, due to the Company's lower revenue with reductions in both higher margin license fees and lower margin professional services revenues. 

WellPoint decreased its selling, general and administrative ("SG&A") expenses by $0.8 million in the third quarter of 2010 compared with the third quarter of 2009, in line with the Company's continued focus on cost optimization. Foreign exchange had a favourable impact of $0.04 million on SG&A in the third quarter of 2010. Research and development ("R&D") expenses for the third quarter of 2010 decreased by $0.4 million compared with the same period in 2009. The Company is continuing to invest in research and development projects with the same vigor as in 2009, while focusing on cost optimizations. Foreign exchange variations had a favourable impact of $0.02 million on expenses in the third quarter of 2010. 

Adjusted EBITDA decreased by approximately $2.3 million in the third quarter to $0.6 million, primarily due to the lower revenues and gross profit, partly offset by decreased spending.

Interest expense remained flat at $1.6 million in the third quarter of 2010, compared with the same period of the prior year, reflecting costs accrued primarily on the notes payable and convertible debt during the quarter.

Nine Month Financial Review

Revenues decreased to $20.1 million from $29.0 million in the first nine months of 2010. Net loss for the first nine months of the fiscal year was $5.7 million (basic and fully diluted loss of ($0.09)) compared to net income of $3.7 million for the same period in 2009 (basic and fully diluted earnings per share of $0.08).

License revenues were $5.8 million for the nine months ended September 30, 2010, compared with $11.3 million during the same period in 2009, which included revenues associated with the sale of a non recurring $2.4 million license in 2009 and a US$3.3 million (CDN$3.6 million) indemnity payment from EDC, both of which did not recur this year. Excluding these unusual non recurring items, licence revenues were 9.5% ahead of the same period in 2009. Maintenance revenue decreased in the first nine months of 2010 to $7.7 million from $8.4 million in 2009, mostly as a result of a significant payment of $0.9 million from a large South American customer that was not renewed in 2010. Professional services revenue decreased in the first nine months of 2010 to $6.5 million from $9.4 million in 2009. The decrease is primarily due to lower than normal services engagements in 2009 resulting from the economic downturn and a reduction in exploration and production spending. Management expects to see the trend starting to reverse in future quarters. The strengthening Canadian dollar adversely impacted revenue by $2.7 million in the first nine months of 2010.    

Gross profit decreased by $9.9 million to $10.5 million during the nine months ended September 30, 2010 compared with $20.6 million in the same period of 2009, due to the Company's lower revenue with reductions in both higher margin license fees and lower margin professional services revenues.

For the nine months ended September 30, 2010, SG&A expenses were $5.9 million, a $2.0 million reduction from expenses of $7.9 million incurred in the same period of 2009. Foreign exchange had a favourable impact of $0.39 million on SG&A in the first nine months of 2010. R&D expenses were likewise lower at $3.1 million compared with $4.2 million in 2009. The reduction in the Company's spending level is consistent with the continued focus on cost reduction wherever possible. During the first nine months of 2010, the Company continued and is continuing to invest in R&D projects with the same vigor as in 2009, while focusing on cost optimization. Foreign exchange variations had a favourable impact of $0.20 million on expenses in the first nine months of 2010.

Adjusted EBITDA decreased by approximately $6.9 million during the first nine months of 2010 to $0.7 million, primarily due to the lower revenues and gross profit, partly offset by decreased spending.

Interest expense increased to $4.7 million during the nine months ended September 30, 2010, compared with $4.5 million in the same period of the prior year, reflecting costs accrued primarily on the notes payable, capital leases and convertible debt during the period.

During the quarter just ended, the Corporation's Board of Directors established a Special Committee, comprised of independent members of the Board, and retained TD Securities Inc. as strategic financial advisors to assist management and the board in determining the most effective alternative to refinance its matured debt with its main lenders and/or inject new capital, and to reduce its overburdened debt structure.

During the quarter just ended, the Company entered into an amending agreement with its bank (the "Bank") in respect of its working capital credit facility (the "Credit Facility"). The Credit Facility was reduced to US$1.5 million from US$2.5 million, maturing on September 30, 2010 and extended as set forth below.

During August 2010, the holders (the "Debenture Holders") of the Company's outstanding secured convertible debentures (the "Debentures") agreed to defer the repayment of all debt maturing under the Debentures (totaling approximately $15 million) to November 30, 2010, while the Company works with the Bank and the Debenture Holders to renegotiate the maturing debt and/or inject new capital; however, there can be no assurance that new capital will be available to the Company. Additional information respecting the Credit Facility and the Debentures is contained in the Company's Management's Discussion and Analysis for the Three and Nine Month Periods Ended September 30, 2010, which is available on the SEDAR website at [ www.sedar.com ].

Subsequent to Quarter-End

Subsequent to quarter end, the Company extended the Credit Facility for an amount of $1.0 million to November 30, 2010. The Company is not required to make any payments to the Debenture Holders until November 30, 2010.

The Company continues to work with the Bank and the Debenture Holders to renegotiate the maturing debt and seek solutions to meet overdue and future debt servicing obligations, and to promote long term growth of WellPoint. There can be no assurance that the Credit Facility and the Debentures will be renegotiated on terms acceptable to the Company, and there can be no assurance that the obligations owing under the Debentures will be extended past November 30, 2010. If such obligations are not extended or renegotiated, secured lenders would be able to demand repayment of the outstanding amounts (approximately $31 million, in aggregate) and/or enforce their security against the Company. 

Outlook

During this fiscal year, the company continued to develop the infrastructure to drive organic revenue growth, and invested in sales and marketing to promote awareness of the Company's solutions and brand in local North American markets and increasingly in international markets including, the North Sea, Latin America and Asia Pacific Regions. These investments have resulted in an increase in the distribution channel and pipeline from a broader marketplace that management expects should fuel revenue growth in the last quarter of the year and into next year. 

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 EBITDA¹, 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.

⁽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 Systems delivers software solutions and services that transform complex data into Business Insight for over 450 companies in 60 countries worldwide. WellPoint Systems is recognized as a leader in providing Financial, Energy Marketing and Trading solutions to the Oil and Gas industry with its award winning BOLO, IDEAS, Energy Financial Management and Energy Broker products. The company also serves asset intensive industries including aerospace/aviation, process manufacturing, mining, the public sector and fleets with its DAXEAM Asset Maintenance solutions.

Founded in 1997, Calgary-based WellPoint Systems 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, the ability to raise new capital, the ability for the Company to successfully renegotiate the Credit Facility and the Debentures, 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.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release

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WELLPOINT SYSTEMS INC.
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