WellPoint Cites Solid Financial Performance for '09

WellPoint Systems announced its financial results for the quarter and year ended December 31, 2009. All monetary values are in Canadian dollars unless otherwise indicated.

"2009 was a solid year for WellPoint as we made great progress toward our goals of strengthening our foundations and building for the future," said Mr. Richard Slack, President and CEO of WellPoint Systems. "Our strong results were driven by three key factors: commercialization and market launch of our new WellPoint Dynamics AX Energy Suite solutions; continued sales of our BOLO
and IDEAS products to U.S. and global customers; and the ongoing and dedicated support of our employees. We now look forward to continuing this momentum into 2010 and beyond."

2009 Business Highlights

  • Increased net income for the year ended December 31, 2009 by $30.8 million to $3.2 million, compared with a net loss of ($27.7) million for the same period in 2008;
  • Improved net income per share to $0.07 compared to a loss of ($0.60);
  • Increased Adjusted EBITDA(1) for 2009 by $13.5 million to $9.3 million, compared with an Adjusted EBITDA loss of ($4.1) million in 2008;
  • WellPoint's Energy Broker commodity trading and risk management solution was selected by a marquee customer;
  • Received a US$3.3 million (CDN$3.6 million) indemnity payment from Export Development Canada ("EDC");
  • Redeemed $1.3 million (net) of convertible debentures that came due;
  • Delivered US$2.0 million of license sale for WellPoint's Microsoft Dynamics AX solutions to a new Middle Eastern channel partner, QMENA.
  • Released WellPoint Integrated Suite (WIS) 5.2 which included enhancements to Energy Broker and Energy Financial Management. This release series blends the Enterprise Asset Management product line with the WIS products such that a customer can purchase a fully- integrated system on the AX 2009 platform;
  • 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 BOLO 9.0 which included enhancements to BOLO's Multicurrency, Asset Tracking, Revenue, Land, and Production Accounting features;
  • Released IDEAS 5.0 which updated the product to Visual Basic 6, added a Report Wizard and included an Advanced AFE module to provide project management controls; and
  • Released the WellPoint Intelligent Dashboard which gives users easy point and click access to critical industry and company data.

Fourth Quarter Financial Review


Revenues for the fourth quarter of 2009 remained flat compared with the fourth quarter of 2008. Net loss for the fourth quarter of 2009 was ($0.5) million compared to a net loss of ($14.0) million for the fourth quarter of 2008. Basic and diluted net loss per share was ($0.01) compared with a net loss per share of ($0.31) for the fourth quarter of 2008.

Adjusted EBITDA was $1.8 million compared to an Adjusted EBITDA loss of ($0.8) million for the fourth quarter of 2008. The $2.6 million increase in Adjusted EBITDA was the result of the reduced operating costs and increased gross profit. Basic and fully diluted Adjusted EBITDA per share was $0.03 compared with an Adjusted EBITDA loss per share of ($0.01) for the fourth quarter of 2008.

License revenue increased to $3.1 million during the fourth quarter ended December 31, 2009 from $1.7 million in 2008. The growth over 2008 is due to large sales of both Energy Broker and BOLO in the fourth quarter of 2009 and to stronger economic conditions compared to the fourth quarter of 2008. Maintenance revenue declined to $2.5 million in 2009 from $2.7 million in 2008. The decline is entirely attributed to changes in the US dollar exchange rate. Professional services revenue decreased by $1.2 million in the fourth quarter of 2009 compared with the same period of the prior year due to a number of factors, including the Company's decision to partner with various value added resellers (VARS) to provide professional services for the Company's AX products, declines in foreign exchange rates and a decrease in the demand for BOLO professional services as a result of smaller license deals in early 2009.

Gross profit was $5.3 million (69% of total revenue) compared with $4.3 million (56% of total revenue) for the fourth quarter of 2008. The $1.0 million increase in gross profit is attributed to the Company's changing revenue mix. During the fourth quarter of 2009 the Company increased its sales of higher margin license and maintenance revenue by $1.4 million and decreased its lower margin professional services revenue by a similar amount compared with the same period of the prior year.

Sales, General & Administrative expenses ("SG&A") decreased to $2.2 million (28% of revenue) compared with $2.7 million (36% of revenue) in the fourth quarter of 2008. The 2008 SG&A costs were negatively impacted by severance costs and high bad debt expenses. The decrease in 2009 costs compared with 2008 is also the result of various cost reduction efforts implemented during the latter half of 2008 and in 2009 in response to the negative general economic climate. Further impacting the comparison between the Company's 2008 and 2009 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.

In the fourth quarter of 2009, the Company incurred research and development expenses of $1.2 million (15% of revenue) compared with $1.5 million (20% of revenue) for the comparable period in 2008. The decrease in current research and development is related to cost reduction efforts implemented during the latter half of 2008 partly offset by a decision to stop capitalizing research and development expenses as they no longer meet the criteria for capitalization. The Company is committed to and continued to invest in research and development projects with the same vigor as in 2008.

"WellPoint Systems is committed to enhancing its position as a leading provider of software and related solutions within the energy and natural resources industries," said Mr. Slack. "The Company continues to increase its investment in the development of new and innovative products utilizing the Microsoft Dynamics AX architecture, as well as continued support and enhancement of the IDEAS and BOLO product lines. This investment in R&D is a fundamental requirement as WellPoint Systems continues to build products that meet the evolving needs of its customers."

Interest expenses increased to $1.5 million as compared with $1.0 million for the fourth quarter of 2008. The increase primarily stems from the new financings in 2008. As of December 31, 2009, the Company had notes payable, capital leases and convertible debt with a carrying value of approximately $32.1 million.

2009 Financial Review

Revenues increased by 4% to $36.8 million in 2009 compared with $35.3 million in the same period in 2008. The net income for the year ended December 31, 2009 was $3.2 million compared to a net loss of ($27.7) million for the same period in 2008. Basic and diluted net income per share was $0.07 compared to a loss per share of ($0.60) in 2008. The net income and increased earnings per share are attributed to the factors discussed above.

Adjusted EBITDA increased by $13.5 million to $9.3 million compared with an Adjusted EBITDA loss of ($4.1) million in 2008. Basic and fully diluted EBITDA per share was $0.20 compared to an Adjusted EBITDA loss per share of ($0.08). 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.

Revenue from outside of Canada increased by $5.8 million compared with the same period in the prior year. This was primarily due to the growth in international revenue from the QMENA license sale and the EDC insurance indemnity payment which, were partially offset by decreases in South American revenue due to the completion of a South American contract in Q3 of 2008.

License revenue increased to $14.4 million from $9.1 million in 2008, primarily the result of license revenues from the US$2.0 million QMENA sale in the first half of 2009 and the US$3.3 million EDC insurance indemnity payment. Maintenance revenue increased to $10.9 million in 2009 from $9.8 million in 2008, an increase of 11%, with a substantial portion of the increase attributed to a South American customer whose implementation was completed in the fourth quarter of 2008 and subscribed to our maintenance program in the current year. Revenue from professional services decreased to $11.5 million from $16.4 million in 2008, attributable primarily to the completion of a South American contract in Q3 of 2008. Further impact in professional services revenue is the continued instability in the general economic climate with customers choosing to preserve cash and defer implementations and software enhancements until conditions improve, along with the Company's decision to outsource certain AX implementations to VARS.

Gross profit was $25.9 million (71% of total revenue) compared with $19.7 million (56% of total revenue) for 2008. The $6.3 million (32%) increase in gross profit is attributable to the increase in higher margin license and maintenance revenue and a decrease in lower margin professional services revenue.

SG&A expenses decreased by $4.1 million (29%) to $10.0 million (27% of revenue) compared with $14.1 million (40% of revenue) in 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 met 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.

In 2009, the Company's research and development expenses of $5.4 million (15% of revenue) were virtually unchanged compared with $5.3 million (15% of revenue) for the comparable period in 2008. During the latter half of 2008, research and development expenses were reduced in response to the general economic conditions. In 2009, this was offset by a decision to stop capitalizing research and development expenses as they no longer meet the criteria for capitalization. The Company is committed to and continued to invest in research and development projects with the same vigor as in 2008.

Interest expenses increased to $6.0 million as compared with $3.8 million for 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 December 31, 2009, the Company had notes payable and convertible debt with a carrying value of approximately $32.1 million.

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