20-20 Technologies Reports Second Quarter Results

LAVAL, QC, June 14 /CNW Telbec/ - 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, 2010. All amounts are in US dollars unless otherwise indicated.

Second Quarter Highlights

    
    - Revenues of $17.2 million, up 13.2% from $15.2 million last year

    - EBITDA increased to $2.7 million or 15.9% of revenues from $2.3 million
      or 15.3% of revenues in 2009

    - Net Income of $273,000 ($928,000 on a constant currency basis) compared
      to $621,000 in 2009

    - Healthy balance sheet with working capital of $13 million
    

"During the quarter we experienced gathering momentum in our business in general, with notable strength in the Home sector," said Jean-François Grou, Chief Executive Officer. "In an improving economic context, we were able to sign a large contract with a major retail chain. The transaction confirmed our prior assessment that a number of large customers are ready to resume making strategic investments. This agreement with a key reference customer also serves to emphasize our status as an industry leader."

Revenues

Second quarter revenues increased 13.2% to $17.2 million, compared with $15.2 million a year ago. The improvement was due to constant dollar growth (11.0%) mainly related to improving market conditions in the U.S., particularly in the Home sector, and to a lesser extent from favorable currency exchange rates (2.2%). Revenues for the six-month period increased to $33.8 million or 9.7%.

For the quarter, all geographic sectors reported higher revenues, led by North America and International markets with increases of 18.7% and 42.7%, respectively. The increase in European revenues of 3.7% was more modest considering the slow pace of the European recovery. In percentage of total revenues, North America, Europe and International markets represented 59.5%, 37.4% and 3.1%, respectively.

For the quarter, Home sector revenues reached $10.7 million accounting for 62.2% of total revenues, up 33.4% over the previous year, fuelled by improving economic conditions in the U.S. market, which was a key factor in helping secure the above-mentioned major contract with a leading retailer. As a result, license revenues in this sector increased by 79.2%.

20-20 recently participated at KBIS, the world's largest international trade show event dedicated to the kitchen and bath industry. The mood among customers and industry participants was markedly upbeat compared to last year. For the Company, the number of licenses sold, quotes and leads was higher than last year, and a large percentage of the activity was related to existing customers. 20-20's recent partnership with Cadsoft targeting home builders attracted attention.

For the quarter, Manufacturing sector revenues accounting for 22.7% of total revenue, declined by 8.3% to $3.9 million and were down 20.4% sequentially over good first quarter 2010 results. Customers in this sector generally remain cautious on long-term investments, which in turn impacts 20-20's business on a short term basis. It should be noted that the relatively large size of contracts in the Manufacturing sector currently creates some volatility from one quarter to another.

After announcing the implementation of the inSight manufacturing solution at Möbelwerk Svoboda, a leading Austrian office furniture manufacturer over one year ago, the client went live with the system recently. Over the past year, 20-20 has sold eight manufacturing solutions to European customers of which three were with existing clients. Our relative success with this solution follows our investments made in Europe to train our sales force and professional services group.

For the quarter, the Office sector remained soft reflecting continuing weak economic conditions with revenues reaching $2.6 million, down 10.9% over the previous year and essentially flat on a sequential basis. As previously disclosed, the Company believes that this sector will lag the others in terms of recovery.

As indicated above, perpetual licenses growth for the quarter of 42.6% to $5.7 million was largely attributable to the U.S. Home sector and the contribution of a large one-time contract from a major retailer.

During the quarter, revenues from recurring licenses increased by 39.7% to $1.3 million essentially due to our Virtual Planner and Virtual Showroom product sales in the Home sector.

Maintenance and other recurring services performed relatively well with revenues of $7.4 million, up 4.6% over the prior year. While revenues from the Office sector declined by 4.0% compared to last year, the Home and Manufacturing sectors were up by 5.0% and 11.2% respectively.

For the second quarter, professional services revenues declined by 11.9% to $2.8 million with declines of $0.3 million for both the Manufacturing and Office sectors while the Home sector was up by $0.2 million.

Operating Income

Operating income for the second quarter was $1.8 million, compared to $1.7 million last year. For the quarter, EBITDA increased to $2.7 million (15.9% of revenues) from $2.3 million (15.3% of revenues) a year ago. The negative impact of currency exchange rates on operating income was significant and totaled $0.9 million. In constant dollars, the EBITDA margin for the quarter would have exceeded 20%.

Net Earnings

The Company generated net earnings of $273,000 for the second quarter, or $0.01 per share, compared with net earnings of $621,000, or $0.03 per share, a year ago. Earnings were negatively impacted by exchange losses of $975,000 ($243,000 in 2009) essentially attributable to the translation of financial statements of our subsidiaries, which are denominated in European currencies. For the six-month period, net earnings were $0.7 million, or $0.04 per share, compared to $0.8 million, or $0.04 per share for the same period in 2009.

Balance Sheet

The Company maintained a solid balance sheet with cash and cash equivalents reaching $22.7 million at the end of the second quarter compared with $12.6 million for the previous year.

Outlook

"While solid second quarter licensing growth and many positive leading indicators are encouraging for our prospects in coming quarters, we remain cautiously optimistic in view of the current situation in Europe. Our caution is also informed by the fact that revenues are mainly being derived from large customers, with smaller clients largely remaining on the side lines," said Jean-François Grou, Chief Executive Officer.

"The Home sector should continue to benefit from improving market conditions in the U.S. and internationally, while the Manufacturing sector is showing some early signs of recovery - there has been a good revival of interest from large manufacturers to make selective investments. With regards to the office sector, we anticipate little change in current market conditions.

"Maintenance and other recurring revenues have continued to perform well, representing a large and stable portion of our revenue (45% of revenues after six months). While Professional Services was the only area with negative growth for the quarter, the pickup in manufacturing, improving market conditions and the anticipated update of some catalogs should stimulate this lagging portion of our business.

"Although we are gradually returning to more intense sales and marketing activities with our participation at a number of key industry events, we remain clearly focused on tight expense control. Our current expense levels can support higher sales leading to some margin expansion over time," concluded Mr. Grou.

Conference Call Information

20-20 will host a conference call to discuss the second quarter results June 14, 2010 at 2 p.m. (EDT). The call will be accessible by telephone at 514-807-9895 and 1-888-231-8191. An audio replay of the conference call will be available until midnight, June 21, 2010. To access it, dial 1-800-642-1687 and enter the pass code: 78144884.

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 software solutions tailored for the interior design and furniture industries. Dealers and retailers use its desktop and Web-based products and solutions for the home and office 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, including computer-aided engineering and plant floor automation software. Operating in eleven countries with more than 500 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 before restructuring charges plus amortization and depreciation expenses. 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.

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

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                                                      April 30,   October 31,
    -------------------------------------------------------------------------
                                                          2010          2009
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                    (Unaudited)     (Audited)
                                                             $             $
    ASSETS
    Current assets
      Cash and cash equivalents                         22,694        23,221
      Accounts receivable                               22,029        18,910
      Income taxes receivable                              355            24
      Contracts in progress                                103           253
      Prepaid expenses                                     907         1,243
      Future income taxes                                  226           421
    -------------------------------------------------------------------------
                                                        46,314        44,072
    Property and equipment                               2,385         2,322
    Intangibles                                          8,311         9,099
    Goodwill                                            61,843        58,161
    Future income taxes                                  1,659         3,131
    Other assets                                           744           451
    -------------------------------------------------------------------------
                                                       121,256       117,236
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    LIABILITIES
    Current liabilities
      Bank loan                                            148           149
      Accounts payable                                  10,373        11,040
      Income taxes payable                               1,200         1,674
      Deferred revenue                                  17,978        14,665
      Installment on long-term debt                      3,212         3,024
      Future income taxes                                  453           903
    -------------------------------------------------------------------------
                                                        33,364        31,455
    Long-term debt                                      12,861        14,645
    Leasehold inducements                                  323           343
    Non-controlling interest                                81            37
    Future income taxes                                  2,467         3,853
    -------------------------------------------------------------------------
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                                                        49,096        50,333
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
    SHAREHOLDERS' EQUITY
    Capital stock                                       58,582        58,582
    Common stock options and warrants                    1,405         1,279
    Contributed surplus                                  1,054         1,015

    Deficit                                             (3,533)       (4,268)
    Accumulated other comprehensive income              14,652        10,295
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
                                                        11,119         6,027
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                                                        72,160        66,903
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                                                       121,256       117,236
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    20-20 Technologies Inc.
    CONSOLIDATED EARNINGS
    (Amounts in thousands of U.S. dollars, except per share data)

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                                  Three months ended        Six months ended
                                            April 30                April 30
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    (Unaudited)                     2010        2009        2010        2009
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                                       $           $           $           $

    Revenues                      17,155      15,158      33,759      30,778

    Cost of revenues               4,242       3,815       8,509       7,892
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

    Gross margin                  12,913      11,343      25,250      22,886
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

    Operating expenses
      Sales and marketing          4,828       4,213       8,765       8,234
      Research and development     2,941       2,703       6,242       5,881
      General and
       administrative              3,158       2,623       6,655       5,434
      Stock-based compensation       208         113         292          10
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
                                  11,135       9,652      21,954      19,559

    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
    Operating income               1,778       1,691       3,296       3,327

    Financial expenses
      Bank charges and
       interest expense              348         307         699         601
      Exchange loss                  975         243       1,452       1,095
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
                                   1,323         550       2,151       1,696

    Non-controlling interest          29         (11)         39         (31)
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
    Earnings before income
     taxes                           426       1,152       1,106       1,662
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

    Income taxes
      Current                        100         675         800         999
      Future                          53        (144)       (429)       (138)
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
                                     153         531         371         861

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    Net earnings                     273         621         735         801

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    Earnings per share
      Basic                         0.01        0.03        0.04        0.04
      Diluted                       0.01        0.03        0.04        0.04

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

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                                  Three months ended        Six months ended
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                                            April 30                April 30
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    (Unaudited)                     2010        2009        2010        2009
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                                       $           $           $           $
    OPERATING ACTIVITIES
    Net earnings                     273         621         735         801
    Non-cash items
      Amortization                   952         909       1,976       1,838
      Leasehold inducements          (21)         11         (41)         22
      Stock-based compensation       187         107         270          (6)
      Capitalized interest on
       long term debt                 14           7          40          14
      Non-controlling interest        29         (11)         39         (31)
      Future income taxes             53        (144)       (429)       (138)
      Unrealized loss (gain)        (425)          7        (559)        232
       on long term debt
       exchange
      Unrealized loss (gain)         (74)          6         (17)         69
       on forward exchange
       contracts
      Changes in working
       capital items                 565         879      (1,545)       (757)
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    Cash flows from operating
     activities                    1,553       2,392         469       2,044
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

    INVESTING ACTIVITIES
    Business acquisitions             98           -          98           -
    Short-term investments             -           6           -      (1,625)
    Short-term investments
     dispositions                      -       1,619           -       3,235
    Property and equipment          (233)        (67)       (479)       (146)
    Product of disposition
     capital asset (net of
     gain)                             9           -          43           -
    Other assets                      14          14           3           -
    -------------------------------------------------------------------------
    Cash flows from (used in)
     investing activities           (112)      1,572        (335)      1,464
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

    FINANCING ACTIVITIES
    Long-term debt                   600           -       1,300           -
    Repayment of long-term
     debt                         (2,698)     (1,037)     (3,382)     (4,789)
    Common shares repurchased          -           -           -         (31)
    -------------------------------------------------------------------------
    Cash flows used in
     financing activities         (2,098)     (1,037)     (2,082)     (4,820)
    - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

    Effect of changes in
     exchange rate on cash
     held in foreign
     currencies                    1,114         704       1,421         380
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    Net increase (decrease)
     in cash and cash
     equivalents                     457       3,631        (527)       (932)
    Cash and cash equivalents,
     beginning of period          22,237       8,924      23,221      13,487
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    Cash and cash equivalents,
     end of period                22,694      12,555      22,694      12,555
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SOURCE 20-20 Technologies Inc.

For further information: For further information: Media Relations: Rick Leckner, MaisonBrison, (514) 731-0000

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