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
    

    TSX Symbol: COA

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

    VANCOUVER, Dec. 20 /CNW/ - 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
    -------------------------------------------------------------------------
    Sales                         26,657      23,344     102,174      81,014
    Cost of sales                 19,443      16,576      74,497      60,709
    -------------------------------------------------------------------------
    Gross profit                   7,214       6,768      27,677      20,305
    -------------------------------------------------------------------------

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

    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)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Coastal Contacts Inc.

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

                                                            2007        2006
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
                                                          44,141      44,974
    -------------------------------------------------------------------------
    Property, equipment and leasehold improvements         2,700       2,773
    Intangible assets                                     11,712      13,632
    Goodwill                                               7,529       6,697
    -------------------------------------------------------------------------
                                                          66,082      68,076
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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
    -------------------------------------------------------------------------
                                                          14,683      12,263
    -------------------------------------------------------------------------
    Long-term lease inducement                               158         133
    Future income tax liability                            3,661       4,227
    -------------------------------------------------------------------------
                                                          18,502      16,623
    -------------------------------------------------------------------------

    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)
    -------------------------------------------------------------------------
                                                          47,580      51,453
    -------------------------------------------------------------------------
                                                          66,082      68,076
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                    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)
    -------------------------------------------------------------------------
    Cash provided by (used in) operating activities        9,422      (5,822)
    -------------------------------------------------------------------------

    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)
    -------------------------------------------------------------------------
    Cash used in investing activities                     (5,611)     (6,839)
    -------------------------------------------------------------------------

    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)
    -------------------------------------------------------------------------
    Cash provided by (used in) financing activities       (3,985)     23,629
    -------------------------------------------------------------------------

    Effect of exchange rate changes on cash and
     cash equivalents                                       (732)       (305)
    -------------------------------------------------------------------------

    Increase (decrease) in cash and cash equivalents        (906)     10,663
    Cash and cash equivalents, beginning of year          24,273      13,610
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of year                23,367      24,273
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    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
    ---------------------------------------------------------------------

    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

    ---------------------------------------------------------------------

    EBITDA                        $    966  $  1,060  $  4,230  $    304
    ---------------------------------------------------------------------
    ---------------------------------------------------------------------
    

    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.





For further information:

For further information: Terry Vanderkruyk Vice President, Corporate
Development, Coastal Contacts Inc., (604) 676-4498,
terryv@coastalcontacts.com

Organization Profile

COASTAL CONTACTS INC.

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