Coastal Contacts Inc.
TSX : COA

Coastal Contacts Inc.

December 20, 2007 16:00 ET

Coastal Contacts Reports Fiscal Year 2007 Results

Exceeds $100 Million in Revenue and One Million Customer Orders Generates $9.4 million in cash from operations

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Dec. 20, 2007) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Coastal Contacts Inc. (TSX:COA) today announced its financial results for the fourth quarter and fiscal year ended October 31, 2007. Revenue for the fiscal year ended October 31, 2007 increased 26% to a record of $102 million compared with $81 million in 2006. EBITDA for fiscal 2007 increased to $4.2 million compared with $0.3 million for fiscal 2006. The Company generated $9.4 million in cash from operations over the year.

Revenue for the fourth quarter of 2007 increased 14% to $26.7 million versus $23.3 million in the fourth quarter of 2006. EBITDA during the quarter was $1.0 million compared to $1.1 million in the fourth quarter of 2006. Net income for the fourth quarter decreased to $0.3 million in 2007, or $0.00 per share, from $0.4 million in 2006 million, or $0.01 per share in the fourth quarter of 2006. The Company generated $5.7 million in cash from operations in the fourth quarter of 2007.

Mr. Roger Hardy, Coastal Contacts' President and CEO, commented, "We are very pleased with a number of significant, specific accomplishments and our general progress in fiscal 2007. Coastal exceeded two key milestones, as we recorded more than $100 million in revenue and shipped more than one million orders during the year. Equally important, we contained sales, general and administrative costs and generated significant cash flow from operations over the course of the year."

The Company noted the following significant highlights for 2007:

- Total order volume exceeded 1 million orders in fiscal 2007.

- Repeat orders accounted for approximately 60% to 65% of total orders.

- Cash, cash equivalents and short term securities increased by $4 million in the quarter to $27 million at year end from $23 million at the end of Q3, 2007. The Company has no asset backed security investments.

- $0.37 per fully diluted share of cash, cash equivalents and short-term investments at the end of fiscal 2007.

- Sales outside the United States accounted for 83% of sales.

- Acquired and retired 3.8 million of the Company's shares under a normal course issuer bid at an average price of $1.05 per share.

- Initiated a new normal course issuer bid allowing the Company to purchase up to 4.6 million additional shares in fiscal 2008.

- Coastal Contacts ranked No. 18 in the 2006 Profit 100 list of Canada's fastest growing companies, with five year revenue growth of 2,900%.

- Coastal's European business was nominated for the third consecutive year and awarded first place at the annual European Q-Survey awards for customer service.

Mr. Hardy continued, "In addition to a very compelling organic growth opportunity that will come from increasing our penetration into existing markets and from adding new product categories, there remain numerous potential acquisition opportunities for our business. Our balance sheet remains very strong, putting us in a greatly improved strategic position."

Mr. Hardy concluded, "We will utilize a balanced approach to creating business value by growing our existing business, continuing to search for accretive acquisitions, and by continuing our share buy-back program. We are excited for the year ahead and believe that we will continue to demonstrate a superior ability to execute our business model and deliver excellent value to our shareholders."

Coastal Contacts will host a conference call on December 20, 2007 at 2:00 pm (PST) to discuss the Company's financial results and operations. Participating in the call will be Roger Hardy, President and Chief Executive Officer and Glen Kayll, Chief Financial Officer.

To attend the conference call, participants in Toronto may dial 416-850-9140. Participants outside the greater Toronto area may dial the North American toll-free number at 1-866-400-3320.

A replay of the call will be available for 7 days. To access the replay in Toronto listeners may dial 416-915-1035. Elsewhere in North America call toll-free at 1-866-245-6755. The passcode to access the replay is 238343.



CONSOLIDATED STATEMENTS OF NET INCOME (LOSS)
Unaudited) ($000's)

Three months ended Year ended
----------------------- -----------------------
October 31, October 31, October 31, October 31,
2007 2006 2007 2006
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Sales 26,657 23,344 102,174 81,014
Cost of sales 19,443 16,576 74,497 60,709
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Gross profit 7,214 6,768 27,677 20,305
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Selling, general and
administration 5,616 5,650 23,484 20,837
Stock-based compensation 128 182 443 268
Amortization on property,
equipment and leasehold
improvements 218 30 802 553
Amortization on intangible
assets 316 399 1,230 758
Foreign exchange losses
(gains) 632 58 (37) (836)
Interest income (207) (247) (833) (890)
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Income (loss) before income
taxes 511 696 2,588 (385)
Income tax expense - current 88 142 901 580
Income tax expense - future 166 85 62 371
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Net income (loss) 257 469 1,625 (1,336)
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Basic earnings (loss)
per share 0.00 0.01 0.02 (0.02)
Diluted earnings (loss)
per share 0.00 0.01 0.02 (0.02)
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Weighted average number
of commons shares
outstanding - basic 72,015,500 71,250,003 72,948,602 68,018,799
Weighted average number
of common shares
outstanding - diluted 72,193,725 73,882,358 73,074,756 68,018,799
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Coastal Contacts Inc.

CONSOLIDATED BALANCE SHEETS
(Unaudited) ($000's)
As at October 31

2007 2006
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ASSETS
Current
Cash and cash equivalents 23,367 24,273
Short-term investments 3,976 -
Accounts receivable 6,649 7,127
Inventory 8,531 12,262
Prepaid expenses 1,270 702
Due from related parties 348 610
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44,141 44,974
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Property, equipment and leasehold improvements 2,700 2,773
Intangible assets 11,712 13,632
Goodwill 7,529 6,697
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66,082 68,076
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Accounts payable and accrued liabilities 13,881 11,793
Income taxes payable 711 212
Deferred revenue 23 205
Current portion of lease inducement 68 53
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14,683 12,263
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Long-term lease inducement 158 133
Future income tax liability 3,661 4,227
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18,502 16,623
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Shareholder's Equity
Share capital
Authorized:
Unlimited common shares without par value
Unlimited Class A preferred shares without
par value
Issued and outstanding:
71,426,512 common shares (2006 - 74,681,712) 50,857 53,515
Shares held in Treasury
78,500 common shares (2006 - 42,700) (89) (41)
Contributed surplus 973 530
Accumulated other comprehensive income (4,091) (2,135)
Deficit (70) (416)
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47,580 51,453
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66,082 68,076
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CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) ($000's)

Year ended
-----------------------
October 31, October 31,
2007 2006
-------------------------------------------------------------------------

OPERATING ACTIVITIES
Net income (loss) 1,625 (1,336)
Non-cash items:
Amortization 2,032 1,311
Amortization of deferred lease inducement (106) (26)
Accrued interest (137) (27)
Stock-based compensation 443 268
Future income taxes 62 371
Unrealized foreign exchange gains (281) (836)
Changes in non-cash working capital:
Accounts receivable 855 (1,556)
Inventory 3,502 (5,059)
Prepaid expenses (650) 275
Accounts payable and accrued liabilities 1,824 1,091
Income taxes payable 479 (138)
Deferred revenue (226) 128
Due from related parties - (288)
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Cash provided by (used in) operating activities 9,422 (5,822)
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INVESTING ACTIVITIES
Sale (purchase) of short-term investments (3,886) -
Repayments from related parties 251 -
Repayment of promissory notes 58 -
Business acquisition, net of cash acquired (14) (3,947)
Receipt of leasehold inducements 134 -
Property, equipment and leasehold improvements (789) (1,509)
Intangible assets (1,365) (1,383)
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Cash used in investing activities (5,611) (6,839)
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FINANCING ACTIVITIES
Issuance of common shares 69 3,417
Issuance of Special Warrants - 22,500
Purchase of common shares for cancellation (4,054) -
Bank indebtedness - (328)
Loan payments - (379)
Share issue costs - (1,581)
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Cash provided by (used in) financing activities (3,985) 23,629
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Effect of exchange rate changes on cash and
cash equivalents (732) (305)
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Increase (decrease) in cash and cash equivalents (906) 10,663
Cash and cash equivalents, beginning of year 24,273 13,610
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Cash and cash equivalents, end of year 23,367 24,273
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Additional commentary:

Revenues grew from $81.0 million in fiscal 2006 to $102.2 million in fiscal 2007, of which $13.8 million came from acquisitions completed at the end of 2006, $5.2 million from organic growth, $1.6 million from favourable foreign currency exchange rates and $0.6 million from an increase in bulk sales. In the fourth quarter of 2007, revenues increased to $26.7 million from $23.3 million in Q4 of 2006, $1.9 million as a result of an increase in organic sales and $2.2 million from a full quarter of revenue from the acquisitions we completed in the fourth quarter of 2006. This was partially offset by a decrease of $0.7 million as a result of unfavorable foreign currency exchange rates.

We shipped over one million orders in fiscal 2007 and approximately 279,000 orders in the fourth quarter of 2007. Reorders represented approximately 60% to 65% of these orders.

Gross margins improved to 27% in fiscal 2007 versus 25% in fiscal 2006 as a result of improved pricing and a greater relative proportion of sales from higher-margin businesses. Gross margins decreased to 27% in the quarter ended October 31, 2007 from 29% in 2006 due primarily to the inclusion of a full quarter of lower margin Asian sales and pricing and promotion decisions.

SG&A decreased to 21% of sales in the fourth fiscal quarter of 2007, as compared to 25% of sales in the fourth quarter of 2006. The Company contained professional, marketing and other costs and reduced bad debt expense through improved collection practices.

Cash from operations was $9.4 million in 2007, $3.6 million of which came from net income excluding non-cash items and $5.8 million from reductions in working capital. Cash from operations generated $5.7 million in the fourth quarter of 2007, $1.0 million of which was from income excluding non-cash items, and $4.7 million of which was from reductions in total working capital.

During the fourth quarter of 2007 the Company purchased 1.3 million of its common shares for $1.4 million under the Normal Course Issuer Bid that it established in late 2006.

The Company's audited consolidated financial statements and Management's Discussion and Analysis for the year ended October 31, 2007, including further discussion and analysis of fiscal year and fourth quarter events on items that affected results of operations, financial position and cash flows, will be available on or before January 29, 2008. Both documents will be available on SEDAR.

Supplemental Non-GAAP Measures

Coastal Contacts reports its results in accordance with Canadian GAAP; however, it presents EBITDA and the number of orders shipped and the reorder rate because the Company believes its investors use these figures, in addition to other metrics, to make investment decisions.

EBITDA is a non-GAAP measure that does not have any standardized meaning prescribed by Canadian GAAP and is therefore unlikely to be comparable to similar measures presented by other companies. EBITDA should be considered in addition to, and not as a substitute for, net income, cash flows and other measures of financial performance and liquidity reported in accordance with Canadian GAAP.

EBITDA differs from the most comparable GAAP measure, net income, primarily because it does not include interest, income taxes, amortization and share-based compensation expense.

The following table shows a reconciliation of net income to EBITDA:



Three months ended Years ended
October 31, October 31,
------------------- -------------------
($000's) 2007 2006 2007 2006

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Net income (loss) $ 257 $ 469 $ 1,625 $ (1,336)

Amortization 534 429 2,032 1,311

Interest income, net (207) (247) (833) (890)

Income tax expense - current 88 142 901 580

Income tax expense - future 166 85 62 371

Stock-based compensation 128 182 443 268

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EBITDA $ 966 $ 1,060 $ 4,230 $ 304
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About Coastal Contacts:

Coastal Contacts is one of the world's fastest-growing vision care suppliers. Leveraging its world class operations in Europe, North America and Asia, Coastal is building a predictable recurring revenue stream in the contact lens segment and is developing complementary branded vision care products. Already No. 1 in many of its markets, Coastal is rapidly advancing toward its goal of becoming the dominant global vision care supplier.

This news release contains certain forward-looking statements that reflect the current views and/or expectations of Coastal Contacts Inc. with respect to its performance, business and future events. Investors are cautioned that all forward-looking statements involve risks and uncertainties including, without limitation, those relating to changes in the market, potential downturns in economic conditions, consumer credit risk, limited suppliers, inventory risk, disruption in our distribution facilities, foreign exchange fluctuations, changes in business strategy, regulatory requirements, demand for contact lenses and other vision care products, competition and dependence on the internet. These risks, as well as others, could cause actual results and events to vary significantly. Coastal Contacts does not undertake any obligations to release publicly any revisions for updating any voluntary forward-looking statements.

Additional information about the Company, including the Annual Information Form, can be found at www.sedar.com.

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