Virtek Vision International Inc.
TSX : VRK

Virtek Vision International Inc.

December 14, 2006 08:00 ET

Virtek Reports Third Quarter Results

WATERLOO, ONTARIO--(CCNMatthews - Dec. 14, 2006) - Virtek Vision International Inc. (TSX:VRK) ("Virtek" or the "Company"), a leading provider of high value industrial laser solutions, today announced its financial results for the three and nine-month periods, ended October 31, 2006.

Revenues in the third quarter of fiscal 2007 were $15.4 million, up 42 percent from $10.9 million for the comparable period last year. Revenues for the first nine months were $45.9 million, a 24 percent increase in revenues from the $37.0 million reported in the same period last year.

Loss from operations for the quarter was $42 thousand compared to a loss of $769 thousand in the third quarter of fiscal 2006. Contributing to this loss were higher than normal warranty costs in the Templating business, along with costs incurred to support the growth of the iLS product line. Net loss after interest costs and non-controlling interest, for the quarter was $0.4 million or $0.01 per share compared to a net loss of $0.8 million or $0.03 per share in the third quarter of fiscal 2006. On a year-to-date basis, income from operations was $1.5 million compared to $0.4 million for Fiscal 2006. Net income was $0.9 million or $0.03 per share compared to a net income of $0.1 million or $0.00 per share for the first nine months of fiscal 2006.

On a segmented basis, Marking & Engraving sales for the quarter were $9.0 million, a 97 percent increase from $4.6 million in the third quarter of fiscal 2006. For the first nine months, sales in the Marking & Engraving segment increased 23 percent or $3.7 million over the prior year period. Imaging & Templating sales for the quarter were $6.4 million, a 2 percent increase from the $6.3 million reported in the third quarter last year. For the first nine months, sales in the Imaging & Templating segment rose 25 percent or $5.2 million over the prior year period. At the end of the quarter, Virtek had a backlog of $10.3 million up from $9.2 million at July 31, 2006. During the period, Virtek's book-to-bill ratio was 1.08 compared to a rate of 1.01 in the second quarter of this year and 0.97 in third quarter of fiscal 2006.

"Our three year investment in the Marking & Engraving segment is now paying off with growing revenues and improving operating results," says Bob Sandness, president and CEO of Virtek. "With increased North American and Asia Pacific sales, this segment returned a net income of $0.3 million or $0.01 per share this quarter. We believe that long-term growth for the Company will primarily come from Marking & Engraving opportunities in North America and Asia Pacific and have invested in the North American infrastructure this quarter."

The Company's gross margin for the third quarter of fiscal 2007 was 45 percent compared to 47 percent in the third quarter of last year. On a year-to-date basis the gross margin has decreased by 1 percentage point to 48 percent from 49 percent in the comparable period last year. The Imaging & Templating segment gross margin has decreased on a year to date basis by 4 percentage points due to a change in product mix along with competitive pricing pressures and increased warranty costs isolated to two parts which have been remedied. Service bulletins have been provided to our customers outlining these issues and an accrual has been made in the reported results for future anticipated costs. The Marking & Engraving segment gross margin has increased by 3 percentage points due to a change in sales mix to higher value systems. The Company's long term strategy is to improve margins and profitability through product innovation and cost reduction.

For the three-month period, selling, general and administrative (SG&A) expenses have increased by $1.1 million to $4.9 million over the same period last year. For the nine-month period SG&A costs have increased by $3.0 million to $14.7 million. These increases are attributable to increased staffing levels in the North American operations of FOBA and iLS product line, increased sales related costs, as well as incremental costs incurred to develop the iLS product line and set up FOBA North America manufacturing operations.

Research and development (R&D) costs were $1.4 million or 9 percent of sales in the third quarter of fiscal 2007 compared to $1.2 million or 12 percent of sales in the prior year period. For the nine-month period, R&D costs were $4.5 million or 10 percent of sales compared to $4.0 million or 11 percent of sales for the same period last year. The company is committed to controlling R&D costs while continuing to invest in product development to meet market demands.

"In Q3 Virtek secured a $4.2 million contract from Boeing for our iLS product line. We will continue to develop new technology such as Intelligent Laser Systems to meet customer needs. In addition, we just launched a new low cost green laser projector to the prefabricated construction market and are currently working on software improvements and other hardware products for our Imaging & Templating customers," noted Mr. Sandness.

Virtek ended the quarter with working capital from continuing operations of $11.3 million versus $10.4 million at January 31, 2006, and a net cash position of $(0.2) million versus $3.2 million at January 31, 2006. Based on the Company's projected cash flows and credit facilities the Company has sufficient liquidity to cover ongoing operating and working capital requirements.



CONSOLIDATED BALANCE SHEETS

As at October 31, January 31,

Canadian dollars in thousands 2006 2006
UNAUDITED $ $
---------------------------------------------------------------------------
---------------------------------------------------------------------------

ASSETS
Current
Cash and cash equivalents 1,245 2,272
Restricted cash and investment 1,582 1,562
Accounts receivable 13,426 11,731
Inventory 10,252 6,420
Prepaid expenses 917 772
Future tax asset 600 600
---------------------------------------------------------------------------
28,023 23,357
---------------------------------------------------------------------------
Capital assets 3,790 3,471
Investment tax credits 84 84
Goodwill 1,346 1,346
Intangible assets 840 498
---------------------------------------------------------------------------
6,060 5,399
---------------------------------------------------------------------------
Total assets 34,083 28,756
---------------------------------------------------------------------------
---------------------------------------------------------------------------

LIABILITIES, NON-CONTROLLING INTEREST AND SHAREHOLDERS' EQUITY
Current
Bank indebtedness 2,985 616
Accounts payable and accrued liabilities 11,191 8,410
Deferred revenue 2,560 2,783
Note and bank loan payable 10 1,102
Current liabilities of discontinued operations 72 174
---------------------------------------------------------------------------
16,818 13,085
Lease inducement 209 262
---------------------------------------------------------------------------
17,027 13,347
---------------------------------------------------------------------------
---------------------------------------------------------------------------
Non-controlling interest 731 524
---------------------------------------------------------------------------


Shareholders' equity
Share capital 38,115 37,790
Contributed surplus 336 294
Deficit (21,838) (22,734)
Cumulative translation adjustment (288) (465)
---------------------------------------------------------------------------
16,325 14,885
---------------------------------------------------------------------------
Total liabilities, non-controlling interest and
shareholders' equity 34,083 28,756
---------------------------------------------------------------------------
---------------------------------------------------------------------------



CONSOLIDATED STATEMENTS OF OPERATIONS

Three months ended Nine months ended
October 31 October 31
Canadian dollars in
thousands, except per share
data 2006 2005 2006 2005
UNAUDITED $ $ $ $
---------------------------------------------------------------------------
---------------------------------------------------------------------------

Sales 15,404 10,853 45,909 37,019
Cost of goods sold 8,459 5,699 24,031 18,943
---------------------------------------------------------------------------
Gross margin 6,945 5,154 21,878 18,076
---------------------------------------------------------------------------
Expenses
Selling, general and
administrative 4,914 3,826 14,718 11,755
Research and development 1,445 1,253 4,475 3,980
Amortization 414 582 1,163 1,645
Foreign exchange loss 214 262 49 319
---------------------------------------------------------------------------
6,987 5,923 20,405 17,699
---------------------------------------------------------------------------
Income (loss) from
operations (42) (769) 1,473 37
---------------------------------------------------------------------------
Other income (expenses)
Interest income 17 14 78 49
Interest expense - short
term (121) (84) (333) (219)
Interest expense - long
term (7) (22) (32) (80)
---------------------------------------------------------------------------
(111) (92) (287) (250)
---------------------------------------------------------------------------
Income (loss) before
recovery of (provision
for) income taxes and
non-controlling
interest (153) (861) 1,186 127

Recovery of (provision for)
income taxes 5 22 (58) (74)
Non-controlling interest (205) 59 (232) 43
---------------------------------------------------------------------------
Net income (loss) (353) (780) 896 96
---------------------------------------------------------------------------
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Earnings (loss) per share
Basic (0.01) (0.03) 0.03 0.00
Diluted (0.01) (0.03) 0.03 0.00
---------------------------------------------------------------------------
---------------------------------------------------------------------------

---------------------------------------------------------------------------
Weighted average number of
shares outstanding
Basic 28,668,785 28,264,529 28,555,624 28,264,529
Diluted 28,668,785 28,264,529 28,867,356 28,264,525
---------------------------------------------------------------------------
---------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF DEFICIT

Three months ended Nine months ended
October 31 October 31
Canadian dollars in thousands 2006 2005 2006 2005
UNAUDITED $ $ $ $
---------------------------------------------------------------------------

Deficit, beginning of the
period (21,485) (22,752) (22,734) (23,628)
Net income (loss) (353) (780) 896 96
---------------------------------------------------------------------------
Deficit, end of the period (21,838) (23,532) (21,838) (23,532)
---------------------------------------------------------------------------
---------------------------------------------------------------------------


CONSOLIDATED STATEMENTS OF CASH FLOWS

Three months ended Nine months ended
October 31 October 31
Canadian dollars in thousands 2006 2005 2006 2005
UNAUDITED $ $ $ $
--------------------------------------------------------------------------
--------------------------------------------------------------------------

OPERATING ACTIVITIES
Net income (loss) from operations (353) (780) 896 96
Add (deduct) non-cash items:
Amortization 434 644 1,183 1,728
Interest accretion - 13 8 40
Non-controlling interest 205 (59) 232 (43)
Stock-based compensation 28 23 120 76
Lease inducements (18) (16) (53) (48)
Change in non-cash working capital
components from operations 924 (986) (3,277) (496)
--------------------------------------------------------------------------
Cash provided by (applied to)
operating activities 1,220 (1,161) (891) 1,353
--------------------------------------------------------------------------

INVESTING ACTIVITIES
Purchase of capital assets (705) (134) (1,167) (612)
Additions to intangible assets (157) (63) (419) (107)
Restricted cash and investment (2) 49 (20) 55
--------------------------------------------------------------------------
Cash applied to investing
activities (864) (148) (1,606) (664)
--------------------------------------------------------------------------

FINANCING ACTIVITIES
Increase (decrease) in bank
indebtedness (571) 537 2,350 36
Repayment of note and bank payable (9) (10) (1,121) (1,127)
Proceeds from issuing common
shares 6 - 316 -
--------------------------------------------------------------------------
Cash provided by (applied to)
financing activities (574) 527 1,545 (1,091)
--------------------------------------------------------------------------
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Net cash applied to discontinued
operations (70) (26) (102) (242)
--------------------------------------------------------------------------

--------------------------------------------------------------------------
Effect of foreign exchange on cash
flow (18) (6) 28 37
--------------------------------------------------------------------------
Net cash provided (applied) in the
period (306) (814) (1,026) (607)
Net cash and cash equivalents,
beginning of period 1,552 1,314 2,272 1,107
--------------------------------------------------------------------------
Net cash and cash equivalents, end
of period 1,246 500 1,245 500
--------------------------------------------------------------------------
--------------------------------------------------------------------------


Upcoming Investor Events

Virtek will hold an investor conference call to discuss the third quarter financial results on Thursday, December 14, 2006 at 2 pm EST. To participate in the conference call please dial, toll free in North America 1-877-888-4210, or 416-695-6622 within the Toronto area or internationally. Replays of the conference call will be available on our website at www.virtek.ca.

About Virtek Vision International Inc.

Virtek Vision International Inc. is a leading provider of precision laser-based templating, inspection, marking and engraving products and systems integration solutions. Virtek serves customers in the prefabricated construction, transportation, metalworking, tool and die and mold making industries worldwide. The Company's solutions enable customers to produce their products faster, better and at a lower cost. The majority of Virtek's sales are in the United States and Europe. Virtek maintains offices in Waterloo, Ontario, Canada; Boston, Massachusetts, USA; Ludenscheid and Nurnberg, Germany, Italy and Ebina City, Kanagawa, Japan. Please visit www.virtek.ca for more information.

Forward-looking Statements

Except for historical information provided herein, this press release may contain information and statements of a forward-looking nature concerning the future performance of the Company. These statements are based on suppositions and uncertainties as well as on management's best possible evaluation of future events. Such factors may include, without excluding other considerations, fluctuations in quarterly results, evolution in customer demand for the Company's products and services, the impact of price pressures exerted by competitors, and general market trends or economic changes. As a result, readers are advised that actual results may differ from expected results.

Contact Information

  • Virtek Vision International Inc.
    Peter Monsberger
    VP Finance and CFO
    (519) 746-7190
    (519) 746-3383 (FAX)
    Email: peter.monsberger@virtek.ca
    or
    Virtek Vision International Inc.
    Bob Sandness
    President and CEO
    (519) 746-7190
    (519) 746-3383 (FAX)
    Email: bob.sandness@virtek.ca
    Website: www.virtek.ca
    or
    Investor Relations Contact:
    Genoa Management Limited
    John Sadler
    1-866-430-6247
    Email: info@genoa.ca