20-20 Technologies Inc.
TSX : TWT

20-20 Technologies Inc.

June 11, 2008 08:20 ET

20-20 Technologies Reports Second Quarter Results

LAVAL, QUEBEC--(Marketwire - June 11, 2008) - 20-20 Technologies Inc. (TSX:TWT), the world leader in 3D interior design and furniture manufacturing software, today announced its results for the second quarter and six months ended April 30, 2008. All amounts are in U.S. dollars unless otherwise indicated.

Second Quarter Highlights

- Revenues up 24.8% to $21.9 million

- $4.3 million in revenues from Planit(i) Fusion and Icovia acquisitions

- EBITDA of $1.1 million

- Operating loss of $231,000 after adverse foreign exchange impact of $1.1 million

- Net earnings of $37,000

- Cost structure realignment underway

"Revenues were in line with management's expectations. However, economic conditions in the U.S. market severely affected high margin license sales in the residential point-of-sale and manufacturing portions of the Company's business in North America, thereby adversely affecting our revenue composition," said Jean Mignault, Co-Chairman of the Board and CEO. "Management considers our present profitability position to be unacceptable. Measures to restore profitability to acceptable levels include cost reductions as we have begun to execute on our commitment to align the Company's cost structure to the realities of current market conditions in North America and to benefit from cost synergies related to the integration of the Planit Fusion acquisition."

Jean-Francois Grou, President and COO, said that the expense reductions already implemented will result in net annual cost savings of approximately $2.9 million; these costs savings will have an impact of $1.1 million spread over Q3 and Q4 of fiscal 2008. "Moreover, the Company will continue to optimize its cost structure with further actions that will be taken during our third quarter. We expect to be able to further reduce our costs by approximately $3.2 million on an annualized basis, with effects commencing in the fourth quarter of the current year. Therefore, Management is committed to a total cost reduction program of $6.1 million on an annualized basis. The full impact of the program will be realized during the 2009 fiscal year."

"While we are acting aggressively in operational cost cutting, all expense reductions are selective and strategic," added Mr. Grou. "Furthermore, we have reallocated resources to accelerate the marketing of new products already introduced."

Revenues

Revenues for the second quarter ended April 30, 2008 grew to $21.9 million, representing a $4.3 million or 24.8% increase over last year. The increase is attributable to additional recurring support and maintenance services generated by a growing licensee base, and $4.5 million generated by Planit Fusion, Icovia, Shanghai 20-20 and Linkwood in fiscal 2008, compared to nil in fiscal 2007, offset by a decline in organic licenses sales in North America. For the first six months of fiscal 2008, revenues amounted to $38.7 million, representing a $5.5 million or 16.7% increase compared to a year ago. The increase is partly attributable to revenues of $4.7 million generated by recently-acquired businesses.

While revenues continued to be generated mainly in North America, representing 52.0% and 56.3% of total revenues for the second quarter and six months respectively, the contribution from Europe offset the lack of growth in North America resulting in organic overall revenues remaining stable.

Driven by the addition of Planit Fusion, European countries accounted for 45.7% of revenues or $10.0 million for the quarter, increasing by 82.9% (17.2% organically) over last year. Revenue in Europe grew by $4.5 million in the second quarter. For the six months, European revenues increased by $5.8 million or 55.8% (20.8% organically) compared to the same period in 2007. The growth was partially due to currency gains.

Revenues generated in the rest of the world increased by 20.9% to $494,000 and 30.4% to $840,000 for the quarter and the six months respectively, mainly due to sales generated by operations in China, formerly known as Shanghai Rena.

Revenues from maintenance and other recurring revenues increased by 37.8% or $2.6 million to $9.5 million for the second quarter, accounting for more than 43.4% of total revenues, and by 28.1% or $3.8 million for the six months.

Revenues from professional services increased by 19.8% or $772,000 to $4.7 million for the second quarter ended April 30, 2008. For the six months, revenues from professional services increased by 6.6% or $498,000 to $8.0 million.

Operating Income

During the second quarter the Company incurred an operating loss of $231,000 compared to operating income of $2.5 million for the same period last year. The decrease is mainly attributable to a negative impact of $1.1 million due to the weakening U.S. dollar against the Canadian dollar and selling and marketing expenses incurred at a major trade show, recognized in the third quarter last year. The operating loss for the six months was $831,000, compared to operating income of $3.1 million a year ago.

Net Earnings

The Company recorded a translation exchange gain of approximately $337,000 (2007 - loss of $541,000) relating principally to its net monetary asset holdings in each of the three currencies, particularly the U.S. dollar, which gained in value against the Canadian dollar at quarter end. In addition, the Company recorded a financial expense in the second quarter of $159,000 (2007 - income of $205,000), for net other income of $178,000 compared to a loss of $336,000 in fiscal 2007.

For the six months the Company recorded an exchange gain of approximately $817,000 (2007 - loss of $432,000) related to its foreign monetary asset position, and recorded financial income of $215,000 (2007 - $433,000) for net other income of $1,032,000 (2007 - $1,000).

As a result, second quarter net earnings stood at $37,000, compared to net earnings of $1.7 million for the same period in 2007. Earnings per share for the quarter amounted to nil on a fully diluted basis, compared to $0.09 the previous year. For the six month period, net earnings were $561,000 or $0.03 per share, compared to $2.5 million or $0.13 per share for the same period in 2007.

EBITDA decreased to $1.1 million for the second quarter from $2.7 million for the same period in 2007.

Outlook

Forecasts from industry organizations indicate that the bottoming out has begun in the North American residential market and that growth in the point-of-sale and furniture manufacturing segments is expected to resume in 2009.

Mr. Grou stated that 20-20's team members continue to successfully deploy their talent and creativity in North America, in Europe and in emerging markets such as China, enticing many existing and new customers to acquire the Company's web based Virtual Studio and manufacturing solutions, both showing increased traction in the Company's markets. "The sudden increase of the Canadian dollar and recent adverse market conditions, very much localized to our North American residential market, unfortunately overshadows the Company's performance in most other areas and its strong competitive position everywhere."

More specifically, Mr. Grou stated that the Company will focus on the following growth opportunities:

- Follow-on sales of add-on products to existing customers in the North American residential sector; also entering adjacent market segments, such as closet design systems and countertop solutions for dealers and fabricators.

- Electronic order processing, order entry and manufacturing execution solutions, along with Microsoft Axapta, in North America and Europe.

- Maximizing the Planit Fusion potential in Europe and leveraging its European distributors.

- Marketing 20-20's complete end-to-end solution in China to manufacturers of kitchen, closet and home furniture and for their points-of-sales outlets."

Mr. Mignault concluded, "Despite the headwinds we have recently experienced, 20-20 is continuing to execute upon its long term development plan, with a focus, in the first of four waves, on fully exploiting the revenue potential of its currently available products. We are on track to achieve the complete unification of our proprietary technologies. That in turn will enable every player in the interior design industry to perform their functions while accessing our industry platform, creating formidable efficiencies for our customers and further enhancing 20-20's competitive position."

Conference Call Information

20-20 will host a conference call to discuss these results today, June 11, 2008 at 2 p.m. (EST). The call will be available by telephone at 514-807-8791 and 1-800-732-9303. The call will be webcast at www.2020technologies.com on the Investors page, Events Calendar section. An audio replay of the conference call will be available until midnight on Wednesday, June 18, 2008. To access it, dial 416-640-1917 or 1-877-289-8525 and enter pass code: 21273571#.

Please note that 20-20 Technologies' full financials and MD&A are available on SEDAR as well as on the Company's web site, www.2020technologies.com.

About 20-20 Technologies Inc.

20-20 Technologies is the world's leading provider of computer-aided design, business and manufacturing software solutions tailored for the interior design and furniture industries. Dealers and retailers use its desktop and Web-based products and solutions for the residential and commercial markets. 20-20 offers a unique proprietary end-to-end solution, integrating the entire breadth of functions in interior design. It provides a bridge for data communication from the point-of-sale to manufacturing and world-leading enterprise resource planning (ERP) systems, including computer-aided engineering and plant floor automation software. Operating in thirteen countries with more than 600 employees, 20-20 is a publicly traded company (TWT) on the Toronto Stock Exchange (TSX). For more information, visit www.2020Technologies.com.

Non-GAAP Measures

References in this press release to the term "EBITDA" are related to cash earnings. EBITDA is defined for these purposes as Operating Income plus amortization and depreciation expenses, less capitalized development costs. EBITDA is not a recognized measure under GAAP in Canada and may not be comparable to similar measures used by other companies.

Forward-Looking Statements

Certain statements contained in this news release constitute forward-looking information within the meaning of securities laws.

Implicit in this information, particularly in respect of future operating results and economic performance of the Company are assumptions regarding projected revenue and expenses. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of the Company are subject to a number of risks and uncertainties, including general economic, market and business conditions and could differ materially from what is currently expected.

For more exhaustive information on these risks and uncertainties, please refer to our most recently filed annual information form, available at www.sedar.com. Forward-looking information contained in this report is based on management's current estimates, expectations and projections, which management believes are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to do so, we are under no obligation and do not undertake to update this information at any particular time unless required by applicable securities law.

(i) Planit is a trademark of Planit Holdings Limited (used with permission).



20-20 Technologies Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. dollars)

-------------------------------------------------------------------------
April 30, October 31,
-------------------------------------------------------------------------
2008 2007
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(Unaudited)
$ $
ASSETS
Current assets
Cash and cash equivalents 16,256 25,280
Short-term investments - 18,495
Accounts receivable 24,293 16,629
Income taxes recoverable 42 -
Contracts in progress 352 378
Prepaid expenses 1,796 1,949
Future income taxes 164 167
-------------------------------------------------------------------------
42,903 62,898
Property and equipment 3,981 3,941
Intangibles (Note 7) 14,251 5,665
Goodwill 61,410 29,407
Future income taxes 24 995
Other assets 496 1,157
-------------------------------------------------------------------------
123,065 104,063
-------------------------------------------------------------------------
-------------------------------------------------------------------------
LIABILITIES
Current liabilities
Accounts payable 12,291 9,885
Income taxes payable - 355
Purchase considerations payable 171 -
Deferred revenue 18,196 15,384
Long-term debt 159 54
Future income taxes 231 70
-------------------------------------------------------------------------
31,048 25,748
Long-term debt 15,615 463
Leasehold inducements 412 410
Non-controlling interest 37 -
Future income taxes 4,387 1,807
-------------------------------------------------------------------------
-------------------------------------------------------------------------
51,499 28,428
-------------------------------------------------------------------------

SHAREHOLDERS' EQUITY
Capital stock (Note 9) 58,257 58,183
Common stock options 1,507 1,600
Contributed surplus 963 963
Deficit (4,013) (4,474)
Accumulated other comprehensive income 14,852 19,363
-------------------------------------------------------------------------
71,566 75,635
-------------------------------------------------------------------------
123,065 104,063
-------------------------------------------------------------------------
-------------------------------------------------------------------------



20-20 Technologies Inc.
CONSOLIDATED EARNINGS
(Amounts in thousands of U.S. dollars, except earnings per share,
unaudited)


-------------------------------------------------------------------------
Three months ended Six months ended
April 30 April 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
$ $ $ $
Revenues
License sales 7,699 6,729 13,342 12,094
Maintenance and other
recurring revenues 9,498 6,895 17,272 13,482
Professional services 4,673 3,901 8,025 7,527
-------------------------------------------------------------------------
21,870 17,525 38,639 33,103
-------------------------------------------------------------------------
Cost of revenues
License sales 815 672 1,496 1,391
Maintenance and services 5,314 4,006 9,653 7,781
-------------------------------------------------------------------------
6,129 4,678 11,149 9,172
-------------------------------------------------------------------------
Gross margin 15,741 12,847 27,490 23,931
-------------------------------------------------------------------------
Operating expenses
Sales and marketing 7,611 4,898 13,062 9,629
Research and development (Note 4) 4,285 2,433 7,871 4,930
General and administrative 4,042 3,008 7,275 6,086
Stock-based compensation (Note 8) 34 51 113 165
-------------------------------------------------------------------------
15,972 10,390 28,321 20,810
-------------------------------------------------------------------------
Operating income (loss) (231) 2,457 (831) 3,121

Financial expenses (income) (178) 336 (1,032) (1)
-------------------------------------------------------------------------
Earnings (loss) before income taxes
and non-controlling interest (53) 2,121 201 3,122
-------------------------------------------------------------------------
Income taxes
Current (217) 298 (395) 555
Future 102 129 10 93
-------------------------------------------------------------------------
(115) 427 (385) 648
-------------------------------------------------------------------------
Earnings before non-controlling interest 62 1,694 586 2,474
Non-controlling interest (25) - (25) -
-------------------------------------------------------------------------
Net earnings 37 1,694 561 2,474
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Earnings per share (Note 5)
Basic 0.00 0.09 0.03 0.13
-------------------------------------------------------------------------
Diluted 0.00 0.09 0.03 0.13
-------------------------------------------------------------------------
-------------------------------------------------------------------------



20-20 Technologies Inc.
CONSOLIDATED CASH FLOWS
(Amounts in thousands of U.S. dollars, unaudited)


-------------------------------------------------------------------------
Three months ended Six months ended
April 30 April 30
-------------------------------------------------------------------------
2008 2007 2008 2007
-------------------------------------------------------------------------
$ $ $ $

OPERATING ACTIVITIES
Net earnings 37 1,694 561 2,474
Non-cash items
Amortization 1,364 1,826 2,230 3,541
Leasehold inducements 13 6 27 14
Stock-based compensation 12 51 31 165
Capitalized interest on long term debt 13 12 13 12
Future income taxes 102 129 10 93
Unrealized loss (gain) on
forward exchange contracts 72 (549) - (248)
Changes in working capital items (42,004) (1,104) (2,182) (1,383)
-------------------------------------------------------------------------
Cash flows from operating activities (40,391) 2,065 690 4,668
-------------------------------------------------------------------------

INVESTING ACTIVITIES
Business acquisitions (Note 6) (107) - (40,830) (800)
Short-term investments - 1,274 - 2,544
Short-term investments dispositions 6,694 (586) 17,597 -
Property and equipment (448) (344) (687) (586)
Intangible assets - (1,598) - (3,186)
Other assets (27) (147) 655 (319)
-------------------------------------------------------------------------
Cash flows from investing activities 6,112 (1,401) (23,265) (2,347)
-------------------------------------------------------------------------

FINANCING ACTIVITIES
Increased in long-term debt 15,000 - 15,000 -
Repayment of long-term debt (52) 8 (55) -
Common shares repurchased (126) (27) (203) (27)
Options exercised 53 17 53 17
-------------------------------------------------------------------------
Cash flows from financing activities 14,875 (2) 14,795 (10)
-------------------------------------------------------------------------
Effect of changes in exchange rate on
cash held in foreign currencies 418 425 (1,244) 172
-------------------------------------------------------------------------
Net increase in cash and
cash equivalents (18,986) 1,087 (9,024) 2,483
Cash and cash equivalents,
beginning of period 35,242 6,733 25,280 5,337
-------------------------------------------------------------------------
Cash and cash equivalents,
end of period 16,256 7,820 16,256 7,820
-------------------------------------------------------------------------
-------------------------------------------------------------------------

Contact Information

  • Media Relations:
    20-20 Technologies Inc.
    Jean Mignault
    Chief Executive Officer
    514-332-4110
    or
    20-20 Technologies Inc.
    Steve Perrone
    Chief Financial Officer
    514-332-4110