Matrikon(TM) announces first quarter 2008 results



    -------------------------------------------------------------------------
    Highlights
    -------------------------------------------------------------------------
    -   Record revenue for a quarter period of $19.62 million compared to
    $18.81 million in Q1-07

    -   Net income of $2.24 million or $0.07 per share compared to
    $1.80 million or $0.06 per share in Q1-07

    -   Gross margin of 56% compared to 59% in Q1-07

    -   Record software license revenue of $4.21 million compared to
    $3.72 million in Q1-07

    -   Record support revenue of $2.10 million compared to $1.81 million
    in Q1-07

    -   Overhead expenses, including stock-based compensation and
    amortization, were reduced to 40% of revenue compared to 49% of
    revenue in Q1-07
    -------------------------------------------------------------------------

    EDMONTON, Jan. 14 /CNW/ - Matrikon Inc. (TSX:MTK), a leading provider of
solutions for industrial intelligence, today reported financial results for
the first quarter of fiscal year 2008, which ended November 30, 2007.
    First quarter revenue was a record $19.62 million compared to
$18.81 million in Q1-07 and $18.44 million in Q4-07. Net income in the first
quarter was $2.24 million or $0.07 per share, compared to $1.80 million or
$0.06 per share in Q1-07 and a net loss of $0.25 million or $0.01 per share in
Q4-07.
    Matrikon president and CEO Nizar J. Somji commented on the quarter: "Our
results in the first quarter validate the steps we took to improve operations
and profitability. Our Products/Solutions strategy is now firmly entrenched
and our strong Products growth in Q1 suggests that the separation of our
businesses was the right move to unleash the potential of our Products while
enabling our Solutions business to better meet customer needs.
    We have significantly lowered our operating expenses by aligning our cost
structure to our revenue and by ensuring that the investments we do make are
the right ones to drive our business forward. Even while we were realigning
our business, our opportunities remained strong.
    Our priority now is to continue to build on the momentum of the first
quarter. We will maintain our focus on cost containment, and continue to seek
means of improving project execution efficiency and driving improvements in
both our Products and our Solutions businesses. We will continue to capitalize
on our opportunities as we aspire to be THE best company to work for and to do
business with in our industry."

    
    Additional Highlights

    -   Record software license and support revenue contributed to record
        revenue in the quarter.

    -   Gross margin was 56%, with 92% gross margin on software license
        revenue, 91% on support revenue, 41% on consulting revenue and 28% on
        equipment revenue. Software license gross margin was affected by an
        increase in the sale of products containing third party components.

    -   Overhead expenses were significantly reduced in Q1-08. They were
        $7.82 million or 40% of revenue compared to $9.25 million or 49% of
        revenue in Q1-07 and $9.51 million or 52% of revenue in Q4-07.

    -   Cash provided by operations was $2.51 million compared to
        $2.70 million in Q1-07 and $0.31 million in Q4-07.
    

    Financial Statements

    The Financial Statements for the current quarter can be found on
Matrikon's website at
http://www.matrikon.com/about/corporate/investors/financial/q-reports.aspx or
by contacting Nicole Sayler at 1-877-628-7456 extension 4010.

    Conference Call and Webcast

    Matrikon President, CEO and interim CFO Nizar J. Somji will hold a
conference call to discuss first quarter results on Tuesday, January 15, 2008
at 8:30 am Eastern time (6:30 am Mountain time). To participate live, call
416-644-3416 in the Toronto area and 1-800-732-9303 for all other areas.
    A replay will be available until midnight, January 22, 2008. To access
the playback service, please dial 416-640-1917 in Toronto or 1-877-289-8525
elsewhere. The reservation number is 21257550 followed by the pound sign.
    The conference call will also be webcast and podcast at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2127180

    Matrikon and the Matrikon logo mark are trademarks or registered
    trademarks of Matrikon Inc.


    Forward Looking Statements
    -------------------------------------------------------------------------
    In order to provide our investors with an understanding of our current
results and future prospects, our communications often include written or oral
forward-looking statements. This earnings announcement & MD&A and other
material filed with the Canadian securities regulators contain statements that
are forward-looking. These statements are made pursuant to the "safe harbor"
provisions of applicable Canadian securities legislation. These statements
represent Matrikon's intentions, plans, expectations and beliefs and are based
on our experience and our assessment of historical and future trends and the
application of key assumptions relating to future events and circumstances.
These statements may include, but are not limited to, comments about our
objectives and priorities for 2008 and beyond, strategies and targets,
expectations for our financial condition, and the outlook for our operations
and external factors that may impact results, including global economies and
industry trends.
    Forward-looking statements require assumptions and involve risks and
uncertainties related to our business and the general economic environment,
many beyond our control. There is significant risk that the predictions,
forecasts, conclusions or projections we make will not prove to be accurate
and that our actual results will be materially different from the targets,
expectations, estimates or intentions expressed in the forward-looking
statements. We caution readers of this information circular not to place undue
reliance on our forward-looking statements.
    The future outcomes that relate to forward-looking statements may be
influenced by many factors, including but not limited to: general economic
conditions in the countries in which we operate; currency fluctuations; market
demand for our products and services; our ability to execute projects and
deliver solutions; our ability to execute our strategic plans and to complete
and integrate acquisitions; the degree of competition in the geographic and
business areas in which we operate; our ability to attract and retain
qualified employees and contain payroll costs; our ability to contain
expenses; technological changes and research and development; the length of
the sales cycle required to close larger solution contracts; availability of
financial resources to carry out our strategy; our ability to protect our
intellectual and intangible properties; legal claims; critical accounting
estimates; the possible effects on our business of war or terrorist
activities; disease or illness that affects local, national or international
economies; and disruptions to public infrastructure, such as transportation,
communications, power or water supply. We caution that this list is not
exhaustive of all possible factors.
    Other factors could adversely affect our results. For more information,
please see the discussion on the principal risks that could affect our
results, beginning on page 44 of Matrikon's 2007 Annual Report.
    When relying on forward-looking statements to make decisions with respect
to Matrikon, investors should carefully consider these factors, as well as
other uncertainties and potential events, and the inherent uncertainty of
forward-looking statements. Unless required by law, we do not undertake to
update any forward-looking statement, whether written or oral, that may be
made from time to time by the company or on its behalf.
    -------------------------------------------------------------------------


    Management's Discussion & Analysis
    January 14, 2008
    -------------------------------------------------------------------------
    The following Management's Discussion & Analysis should be read in
conjunction with the financial statements and notes to the consolidated
financial statements for the quarter ended November 30, 2007 and the
Management's Discussion & Analysis and notes to the consolidated financial
statements appearing in the Annual Report for the fiscal year ended August 31,
2007.
    Matrikon's Board of Directors, on the recommendation of the Audit
Committee, approved the content of this MD&A on January 14, 2008.
    All dollar amounts included in this MD&A are Canadian dollars unless
otherwise specified.
    -------------------------------------------------------------------------


    Non-GAAP Measures
    -------------------------------------------------------------------------
    We refer to terms that are not specifically defined in the CICA Handbook
and do not have any standardized meaning prescribed by GAAP. These non-GAAP
measures may not be comparable to similar measures presented by other
companies.
    We believe that these non-GAAP measures are useful in assisting investors
in understanding components of our financial results. The non-GAAP terms that
we refer to in this analysis are defined below.

    Gross margin is our total revenue minus the cost of sales, divided by the
total revenue and is expressed as a percentage. This measure is used to
indicate the relative efficiency with which we earn revenue. Gross margin is a
percentage based on two GAAP measures and as such has no quantitative
reconciliation.

    Net margin is our total net income (loss) divided by total revenue and is
expressed as a percentage. This measure is used to indicate the relative
efficiency with which we earn net income. Net margin is a percentage based on
two GAAP measures and as such has no quantitative reconciliation.

    Utilization or utilization rate measures the billable time for each
employee against the total available time, based on a standard 260 work days
per year and is expressed as a percentage. Utilization is used to demonstrate
capacity to increase output rate in our Solutions business without adding
resources. Utilization is a measure of working capacity and not a financial
measure and therefore has no reconciliation to GAAP.

    Average daily rate is consulting revenue divided by billable people
multiplied by utilization rate divided by working days available in the period
described. This measure is used by management to monitor overall project
profitability and as an indication of progress in the transition of our
business to higher margin engagements based on Matrikon technology. Average
daily rate is based on non-financial measures and has no reconciliation to
GAAP.
    -------------------------------------------------------------------------


    Other Information
    -------------------------------------------------------------------------
    Additional information about Matrikon, including our annual information
form, information circular and quarterly reports, is available on SEDAR at
www.sedar.com and in the investor relations section of our website at
www.matrikon.com/investors.
    -------------------------------------------------------------------------


    Strategic Progress Update

    The following table shows our progress against the fiscal year 2008
objectives laid out in our annual report.

    
    -------------------------------------------------------------------------
    2008 Objective             On      3 Month Results
                               Track?
    -------------------------------------------------------------------------
    Improve profitability       yes    -  Returned to profitability in Q1-08
                                       -  Net income grew by 24% compared to
                                          Q1-07
                                       -  Strong net margin of 11%
                                       -  Operating expenses were reduced by
                                          15% compared to Q1-07 and by 18%
                                          compared to Q4-07
    -------------------------------------------------------------------------
    Improve employee            yes    -  Annualized employee turnover at the
     retention                            end of Q1-08 indicates a reduction
                                          of 4% compared to FY07
    -------------------------------------------------------------------------
    Increase sales via          yes    -  Sales by partners grew by 34%
     Reseller Partners                    compared to the average sales by
                                          partners for FY07 (since greater
                                          emphasis was placed on developing
                                          our Reseller Partner program in the
                                          latter part of the year, growth
                                          compared to Q1-07 is not an ideal
                                          indicator of progress)
    -------------------------------------------------------------------------
    Increase sales volume of    yes    -  Sales of off-the-shelf products
     off-the-shelf products               (Alarm Manager, Operational Insight
                                          and OPC) grew by 18% compared to
                                          Q1-07 and by 31% compared to Q4-07
    -------------------------------------------------------------------------
    Develop a roadmap to plan   yes    -  Assessment of existing technology
     next generation product              development completed
                                       -  Initial design of next generation
                                          Operational Insight product
                                          underway
    -------------------------------------------------------------------------
    Continue to sell and        yes    -  Continuing to develop Mobile
     deploy industry                      applications Equipment Monitor;
                                          immediate opportunities for this
                                          industry application remain
                                          significant
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Summary of Results
    -------------------------------------------------------------------------
    3 Months       30-Nov-07       30-Nov-06       31-Aug-07    Q1-08  Q1-08
     Ended                                                        vs     vs
    (CAN $000s) (Q1-08) revenue (Q1-07) revenue (Q4-07) revenue Q1-07  Q4-07
    -------------------------------------------------------------------------
    Total
     Revenue   $19,618    100% $18,807    100% $18,435    100%     4%     6%
    -------------------------------------------------------------------------
    Consulting
     fees       12,024     61%  12,394     66%  12,671     69%    (3%)   (5%)
    -------------------------------------------------------------------------
      Margin on
       consulting
       fees        41%             48%             46%
    -------------------------------------------------------------------------
    Equipment
     sales       1,282      7%     880      5%   1,020      6%    46%    26%
    -------------------------------------------------------------------------
      Margin on
       equipment
       sales       28%              1%             14%
    -------------------------------------------------------------------------
    Total
     Solutions
     revenue    13,306     68%  13,274     71%  13,691     74%     0%    (3%)
    -------------------------------------------------------------------------
    Software
     license
     fees        4,211     21%   3,720     20%   2,821     15%    13%    49%
    -------------------------------------------------------------------------
      Margin on
       software
       license
       fees        92%             99%             95%
    -------------------------------------------------------------------------
    Support      2,101     11%   1,813     10%   1,923     10%    16%     9%
    -------------------------------------------------------------------------
      Margin on
       support     91%             89%             92%
    -------------------------------------------------------------------------
    Total
     Products
     revenue     6,312     32%   5,533     29%   4,744     26%    14%    33%
    -------------------------------------------------------------------------
      Consulting
       headcount   279             300             267            (7%)     4%
    -------------------------------------------------------------------------
      Gross margin 56%             59%             51%
    -------------------------------------------------------------------------
      Utilization  76%             74%             78%
    -------------------------------------------------------------------------
    Total
     Expenses    7,820     40%   9,248     49%   9,505     52%   (15%)  (18%)
    -------------------------------------------------------------------------
    Consulting
     G&A         1,496      8%   1,890     10%   2,111     11%   (21%)  (29%)
    -------------------------------------------------------------------------
    Sales &
     marketing   1,359      7%   2,331     12%   2,084     11%   (42%)  (35%)
    -------------------------------------------------------------------------
    Research &
     development 1,621      8%   1,561      8%   1,743      9%     4%    (7%)
    -------------------------------------------------------------------------
    General &
     adminis-
     trative     2,798     14%   2,654     14%   2,943     16%     5%    (5%)
    -------------------------------------------------------------------------
      Operations
       headcount   251             281             263           (11%)   (5%)
    -------------------------------------------------------------------------
    Stock-based
     compensation  242      1%     445      2%     256      1%   (46%)   (5%)
    -------------------------------------------------------------------------
    Amortization   304      2%     367      2%     368      2%   (17%)  (17%)
    -------------------------------------------------------------------------
    Foreign
     exchange
     translation
     gain (loss)  (474)            794            (261)         (160%)   82%
    -------------------------------------------------------------------------
    Net income
     (loss)      2,239     11%   1,803     10%    (245)    (1%)   24%    nmf
    -------------------------------------------------------------------------
    Earnings
     per share
     - basic      0.07            0.06           (0.01)           17%    nmf
    -------------------------------------------------------------------------
    Earnings
     per share
     - diluted    0.07            0.06           (0.01)           17%    nmf
    -------------------------------------------------------------------------
    Weighted
     average
     shares
     outstanding
     (000s)     30,598          30,978          30,308            (1%)    1%
    -------------------------------------------------------------------------
    Total
     assets     66,434          64,920          64,663             2%     3%
    -------------------------------------------------------------------------
    Total
     long term
     liabilities   546             284             569            92%    (4%)
    -------------------------------------------------------------------------
    Deferred
     revenue     8,419           7,363           9,578            14%   (12%)
    -------------------------------------------------------------------------
    Contracts in
     progress    5,601           6,901           6,015           (19%)   (7%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Our results for the first quarter of fiscal year 2008 indicate the
initial success of our Products/Solutions strategy, which has had a positive
impact on both revenue and operating expenses.
    Products revenue, which includes software license fees and related
support, grew by 14% compared to Q1-07 and by 33% compared to Q4-07. We set
new records for both software license and support revenue in Q1-08. Software
license revenue was improved by the recognition of deferred revenue which met
recognition criteria in Q1-08. Support revenue in the comparable period did
not include support revenue for Industrial Control Software Limited (ICS), a
product company we acquired in December 2006.
    As we implement our Products strategy, we seek to drive growth in our
software license and support revenue streams. In Q1-08, we increased sales of
off-the-shelf product (Alarm Manager, Operational Insight, OPC and IMAC) by
18% compared to Q1-07 and by 31% compared to Q4-07. Our commitment to
developing a strong Reseller Partner program and expanding distribution
channels is also beginning to bear results, with growth in sales by partners
of 34% compared to the average sales by partners in FY07. Since more emphasis
was placed on developing the Reseller Partner program in the latter part of
the year, growth compared to Q1-07 is not a true indicator of progress.

    Our Solutions revenue was relatively flat compared to Q1-07 and declined
by 3% compared to Q4-07. As we focus on improving execution and transition to
the Partner model of sales in our Solutions organization, there may be some
lumpiness in revenue while the pipeline is built. Overall, Solutions
consulting margin was lower by 5-7% compared to Q1-07 and Q4-07 as we
transition more Solutions staff to customer-facing, billable roles.

    Gross Margin

    Gross margin in Q1-08 was 56% compared to 59% in Q1-07 and 51% in Q4-07.
Gross margin was positively impacted by the revenue mix in Q1-08. The higher
portion of software license and support revenue, which contributed to strong
gross margin, was offset by increased cost of sales on consulting and software
license revenue in the quarter. As we increase sales of certain products that
contain third party components (such as Control Performance Monitor TaiJi and
Mobile Equipment Monitor), the cost of sales associated with software revenue
also increases.

    Operating Expenses

    Our focus on aligning operating costs to revenue levels resulted in
significantly reduced operating expenses in Q1-08. Combined operating expenses
were $7.82 million (40% of revenue) in Q1-08 compared to $9.25 million (49% of
revenue) in Q1-07 and $9.51 million (52% of revenue) in Q4-07.
    Overall operating expense reductions were driven by the execution of our
Products/Solutions strategy, which creates a leaner operating model for branch
offices and focuses on increased use of external sales and distribution
channels, improved productivity in R&D and clearer accountability for results
and the costs required to achieve them.

    
    -   We have reorganized our Solutions organization to be client-facing
        and to eliminate pure management roles. As a result, consulting
        general and administrative employees have been reassigned to revenue
        generating roles where possible. This led to a reduction to
        Consulting G&A expense of 21% compared to Q1-07 and of 29% compared
        to Q4-07.
    -   The Partner model for our Solutions organization resulted in sales
        people being refocused on Product sales or being redeployed in other
        areas of the company. Sales and marketing staff was reduced to 58
        people, down from 86 in Q1-07 and 76 in Q4-07, resulting in a
        reduction to Sales and Marketing expenses of 42% compared to Q1-07
        and 35% compared to Q4-07.
    -   General and Administrative expense increased by 5% compared to Q1-07
        and decreased by 5% compared to Q4-07. The increase compared to Q1-07
        is consistent with headcount increases, while the decrease compared
        to Q4-07 is consistent with our focus on cost containment.
    

    We will continue our diligent focus on cost containment throughout fiscal
2008.

    Net Income

    Net income was $2.24 million or $0.07 per share in Q1-08 compared to net
income of $1.80 million in Q1-07 and a net loss of $0.25 million in Q4-07. The
following contributed to near record net margin of 11%

    
    -   Record revenue was comprised of a higher proportion of software
        license and support revenue, which have higher margins.
    -   Our focus on cost containment resulted in reduced operating expenses
        in the quarter (40% of revenue, compared to 49% in Q1-07 and 52% in
        Q4-07).
    -   These positive impacts to net margin were offset by a foreign
        currency translation loss of $0.47 million, which reduced net income
        by approximately $0.34 million (tax affected) or $0.01 per share.

    The following tables show the percentage of revenue by the various
currencies in which we do business, and the period end exchange rates.


                                             --------------------------------
                                                  % Billings by Currency
                                                      (3 Months Ended)
                                             --------------------------------
                                             30-Nov-07  30-Nov-06  31-Aug-07
    -------------------------------------------------------------------------
    Australian Dollar                               26%        25%        26%
    -------------------------------------------------------------------------
    British Pound                                   20%        17%        18%
    -------------------------------------------------------------------------
    Canadian Dollar                                 20%        14%        17%
    -------------------------------------------------------------------------
    Euro                                             2%         1%         7%
    -------------------------------------------------------------------------
    United States Dollar                            32%        42%        32%
    -------------------------------------------------------------------------
    Other Currencies                                 0%         1%         0%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                             --------------------------------
                                                    Period End Exchange
                                                     Rate for $1.00 CAN
                                             --------------------------------
                                             30-Nov-07  30-Nov-06  31-Aug-07
    -------------------------------------------------------------------------
    Australian Dollar                           0.8749     0.8886     0.8674
    -------------------------------------------------------------------------
    British Pound                               2.0499     2.2127     2.1366
    -------------------------------------------------------------------------
    Canadian Dollar                                  -          -          -
    -------------------------------------------------------------------------
    Euro                                        1.4644     1.4946     1.4478
    -------------------------------------------------------------------------
    United States Dollar                        0.9900     1.1343     1.0609
    -------------------------------------------------------------------------
    Other Currencies                                 -          -          -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Segment Results

    We report four strategic business segments based on how we monitor and
assess performance internally: North America, Asia-Pacific, Europe Middle East
& Africa (EMEA) and Products. A fifth segment, Corporate, captures corporate
expenses.
    We adjusted our segments at the beginning of fiscal year 2008 to reflect
current evaluation practices. The Canada and United States segments have been
combined into the North America segment.

    
    -------------------------------------------------------------------------
    3 Months Ended
    CAN$ (000s)           North    Asia-
    30-Nov-07           America  Pacific     EMEA  Products Corporate  Total
    -------------------------------------------------------------------------
    Revenue               6,499    4,928    4,514    3,677        -   19,618
    -------------------------------------------------------------------------
    % of revenue             33%      25%      23%      19%       -      100%
    -------------------------------------------------------------------------
    Gross profit          2,804    2,570    2,587    3,051        -   11,012
    -------------------------------------------------------------------------
    Gross margin             43%      52%      57%      83%       -       56%
    -------------------------------------------------------------------------
    Expenses             (1,655)  (1,419)    (938)  (1,843)  (1,965)  (7,820)
    -------------------------------------------------------------------------
    Other income (loss)
     & foreign exchange
     gain (loss)            117       98      110        -     (433)    (108)
    -------------------------------------------------------------------------
    Income (loss) before
     taxes                1,266    1,249    1,759    1,208   (2,398)   3,084
    -------------------------------------------------------------------------
    Revenue change %
     (Q1-08 vs Q1-07)      (14%)      22%      34%     (3%)       -        4%
    -------------------------------------------------------------------------
    Employees at
     30-Nov-07              145      118       71      122       74      530
    -------------------------------------------------------------------------
    Utilization              67%      78%     100%       -        -       76%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
    3 Months Ended
    CAN$ (000s)           North    Asia-
    30-Nov-06           America  Pacific     EMEA  Products Corporate  Total
    -------------------------------------------------------------------------
    Revenue               7,592    4,041    3,374    3,800        -   18,807
    -------------------------------------------------------------------------
    % of revenue             40%      21%      18%      20%       -      100%
    -------------------------------------------------------------------------
    Gross profit          4,137    1,852    2,029    3,017        -   11,035
    -------------------------------------------------------------------------
    Gross margin             54%      46%      60%      79%       -       59%
    -------------------------------------------------------------------------
    Expenses             (2,173)  (1,192)    (843)  (2,260)  (2,780)  (9,248)
    -------------------------------------------------------------------------
    Other income (loss)
     & foreign exchange
     gain (loss)            136       41       70        -      799    1,046
    -------------------------------------------------------------------------
    Income (loss) before
     taxes                2,100      701    1,256      757   (1,981)   2,833
    -------------------------------------------------------------------------
    Employees at
     30-Nov-06              213      117       56      141       54      581
    -------------------------------------------------------------------------
    Utilization              62%      89%      98%       -        -       74%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    North America: Revenue in North America declined by 14% compared to
Q1-07. Contributing to this decline, consulting revenue was down by 12% while
the number of billable staff was down by 15%. Software license revenue was
down by 34% and maintenance and support was down by 17% while equipment sales
and revenue from intercompany borrowed labour was up significantly. Expenses
were down by 24%, reflecting a reduction in overall staff of 32% consistent
with our strategy of aligning our cost structure to revenue.
    Compared to Q4-07, North America revenue increased by 8% while expenses
were reduced by 29%. A 16% reduction in staff and the closure of the St. Louis
office contributed to the reduction in expenses.
    First quarter gross margin in this segment was impacted by the revenue
mix which included a reduction in higher margin software and support revenue
and increases to lower margin equipment and borrowed labour revenue.

    Asia-Pacific: Revenue in Asia-Pacific increased by 22% compared to Q1-07.
Consulting revenue was up by 23% and software license revenue was up by 131%
(related to a single large project). Support revenue was also up by 104%.
These increases in higher margin revenue sources led to record gross margin of
52% for Asia-Pacific. This compares to gross margin of 46% in Q1-07 and 44% in
Q4-07. Average daily rate also increased by 38% compared to Q1-07 and by 16%
compared to Q4-07.
    Expenses increased by 19% compared to Q1-07 due to market rate
adjustments to salaries and increases in office rent and amortization.
    Compared to Q4-07, Asia-Pacific revenue increased by 10% while expenses
increased by 1% and headcount increased by 3%.

    EMEA: EMEA revenue increased by 34% compared to Q1-07. This increase is a
result of significant growth in software license revenue and support, offset
by an increase in intercompany borrowed labour. Compared to Q1-07, expenses
were up by 11%, reflecting a 27% increase in staff. We acquired ICS, a product
company, in Q2-07. The results of ICS are included from the date of
acquisition and are not included in the comparable period of 2007. ICS
contributed $0.11 million in support revenue.
    Gross margin for EMEA was 57% in Q1-08 compared to 60% in Q1-07 and 58%
in Q4-07. The reduction in gross margin is a result of an increase in lower
margin equipment sales in the revenue mix.
    Compared to Q4-07, EMEA revenue increased by 7% and expenses increased
by 1%.

    Products: Revenue in the products segment was down by 3% compared to
Q1-07 in spite of achieving record software license and support revenue in the
quarter. This is because a larger portion of software and support were sold by
the North America, Asia-Pacific and EMEA segments. These segments retain 50%
of the revenue for the software and support they sell.
    Gross margin in the Product segment improved to 83% compared to 79% in
Q1-07 and 76% in Q4-07.
    Compared to Q1-07, expenses in the Product segment decreased by 18% while
headcount declined by 13%.
    Compared to Q4-07, Product revenue declined by 1% and expenses declined
by 17%.
    In the first quarter, we increased the volume of off-the-shelf product
revenue by 18% compared to Q1-07 and by 31% compared to Q4-07. Increasing
off-the-shelf product revenue is a key strategy for the Product segment.

    Corporate: The Corporate segment includes all shared corporate services
(including executive management, finance, information technology and human
resources) that cannot be directly allocated to other segments. In addition,
the Corporate segment includes stock-based compensation, other income or
expenses, foreign exchange translation gains and losses and amortization.
    Expenses in the Corporate segment fluctuate period by period based on
corporate activity and foreign exchange rate fluctuations. Corporate expenses
decreased by 29% compared to Q1-07 as a result of our focus on cost
containment and realignment of operational costs.

    Quarterly Results

    The following table presents a summary of our unaudited consolidated
operating results for the past eight quarters. This information should be read
in conjunction with the applicable interim financial statements, notes to the
financial statements and management's discussion and analysis.

    
    -------------------------------------------------------------------------
    CAN $000s                                                FY 06
    except per share amounts                          Q2       Q3       Q4
    -------------------------------------------------------------------------
    Revenue                                         17,892   17,290   19,293
    -------------------------------------------------------------------------
    Gross Profit                                    10,334    9,023   10,690
    -------------------------------------------------------------------------
    Gross Margin                                        58%      52%      55%
    -------------------------------------------------------------------------
    Operating income                                 2,469      839    1,940
    -------------------------------------------------------------------------
    Net income (loss)                                1,229      931    1,493
    -------------------------------------------------------------------------
    Net income %                                         7%       5%       8%
    -------------------------------------------------------------------------
    Shares outstanding (000s)                       31,139   31,180   31,246
    -------------------------------------------------------------------------
    Diluted shares outstanding (000s)               31,754   31,757   31,459
    -------------------------------------------------------------------------
    EPS - basic                                       0.04     0.03     0.05
    -------------------------------------------------------------------------
    EPS - diluted                                     0.04     0.03     0.04
    -------------------------------------------------------------------------
    Headcount                                          559      561      569
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    -------------------------------------------------------------------------
    CAN $000s                                   FY 07                  FY 08
    except per share amounts        Q1       Q2       Q3       Q4       Q1
    -------------------------------------------------------------------------
    Revenue                       18,807   17,247   19,009   18,435   19,618
    -------------------------------------------------------------------------
    Gross Profit                  11,035   10,011    9,789    9,361   11,012
    -------------------------------------------------------------------------
    Gross Margin                      59%      58%      51%      51%      56%
    -------------------------------------------------------------------------
    Operating income               1,787      (73)  (1,531)    (144)   3,192
    -------------------------------------------------------------------------
    Net income (loss)              1,803      307   (2,085)    (245)   2,239
    -------------------------------------------------------------------------
    Net income %                      10%       2%    (11%)     (1%)      11%
    -------------------------------------------------------------------------
    Shares outstanding (000s)     30,978   30,637   30,191   30,308   30,598
    -------------------------------------------------------------------------
    Diluted shares outstanding
     (000s)                       31,386   31,006   30,691   31,574   31,549
    -------------------------------------------------------------------------
    EPS - basic                     0.06     0.01    (0.07)   (0.01)    0.07
    -------------------------------------------------------------------------
    EPS - diluted                   0.06     0.01    (0.07)   (0.01)    0.07
    -------------------------------------------------------------------------
    Headcount                        581      605      582      530      530
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    We have decided to hold our users conference every other year and as such,
our users conference in the third quarter will be replaced by a Reseller
Partner conference. As such, software license revenue should not be negatively
impacted in the third quarter as it has in the past few years. Management has
not noted any change to the seasonality of our business as reported in the
2007 annual MD&A.

    Liquidity & Capital Resources

    -------------------------------------------------------------------------
    At                                                   Q1-08 vs   Q1-08 vs
    (CAN $000s except                                       Q4-07      Q1-07
     ratios)           30-Nov-07  30-Nov-06  31-Aug-07   % Change   % Change
    -------------------------------------------------------------------------
    Cash & equivalents    14,894     18,681     12,923         15%      (20%)
    -------------------------------------------------------------------------
    Accounts receivable   20,655     19,578     19,991          3%        6%
    -------------------------------------------------------------------------
    Trade receivables     17,732     17,165     17,192          3%        3%
    -------------------------------------------------------------------------
    Average collection
     period (trade
     receivables)        84 days    84 days    86 days    (2 days)        -
    -------------------------------------------------------------------------
    Contracts in
     progress              5,601      6,901      6,015         (7%)     (19%)
    -------------------------------------------------------------------------
    Deferred revenue       8,419      7,363      9,578        (12%)      14%
    -------------------------------------------------------------------------
    Current liabilities   17,803     15,784     18,387         (3%)      13%
    -------------------------------------------------------------------------
    Cash flow from
     operations            2,512      2,701        311        708%       (7%)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    The rolling 12-month average collection period (on trade receivables) was
84 days at the end of Q1-08, down from 86 days at the end of Q4-07 and
unchanged from Q1-07.
    Matrikon's client base consists primarily of Global 500 companies with
strong credit ratings. Bad debt returned to historically minimal levels at
less than 0.5% of revenue in Q1-08 compared to 5% in Q4-07.
    Current liabilities were $17.80 million at the end of Q1-08 compared to
$18.39 million at the end of Q4-07 and $15.78 million at the end of Q1-07.
Compared to Q4-07, the decrease is primarily attributable to a decrease in
deferred revenue of $1.16 million offset by an increase in income taxes
payable of $0.70 million as we returned to profitability following a loss in
Q4-07. Deferred revenue at the end of the first quarter includes $3.88 million
in deferred support revenue and $4.54 million in unearned software license and
equipment revenue. The significant contributor to the increase in current
liabilities compared to Q1-07 is an increase in deferred revenue of
$1.06 million combined with increases in accounts payable and accrued
liabilities of $0.63 million and income taxes payable of $0.40 million.
    Cash provided by operating activities was $2.51 million in Q1-08 compared
to $0.31 million in Q4-08 and $2.70 million in Q1-07. This increase over the
prior quarter is a result of increased income. In comparison to the same
quarter in fiscal year 2007, the decrease is primarily a result of unrealized
foreign exchange loss.
    We had cash and cash equivalents of $14.89 million at November 30, 2007
compared to $12.92 million at August 31, 2007. The increase in cash and cash
equivalents is due to positive cash flow from operations.
    Our effective income tax rate was 27.4% in Q1-08 compared to 36.4% in
Q1-07. The effective tax rate was below our target range of 30% - 35% as a
result of R&D tax credits received in Asia-Pacific and EMEA in Q1, which are
applied against taxes payable according to jurisdictional tax regulations. In
North America, we estimate the Scientific Research & Experimental Development
(SR&ED) tax credits that we will receive each year and apply it against R&D
expense equally over the year.
    Management believes that we have the capital resources and liquidity
necessary to meet our commitments, support our operations and finance our
current growth strategies.

    Financial Instruments

    Forward Contracts: We periodically enter into forward contracts to
partially manage our exposure to currency fluctuations between United States
(US) and Canadian dollars. Forward contracts are entered into based on our
projected requirements for converting US cash to Canadian dollars. We do not
recognize these contracts in our consolidated financial statements when we
enter them, nor do we account for them as hedges. Instead, they are marked to
the market exchange rate at the date of the balance sheet. Changes to the
market value are recorded into income or expense. The fair value (the
difference between the market rate and the forward contract rate) is included
in accounts receivable for a gain or accounts payable for a loss.
    At November 30, 2007, the fair value of forward contracts was
$(8) thousand compared to $(36) thousand at November 30, 2006.
    For additional information regarding Financial Instruments, please refer
to Changes in Accounting Policies.

    Off Balance Sheet Arrangements

    Matrikon is a lessee under several operating type leases for office
space, office equipment and motor vehicles and is also a party to research
funding arrangements with educational institutions in Canada and Australia.
The future cash flow impacts of these arrangements are summarized in the table
below. Matrikon is not party to any undisclosed off balance sheet
arrangements.

    
    -------------------------------------------------------------------------
                                            Payment Due
                                  Less than                            After
    At 30-Nov-07           Total     1 year  2-3 years  4-5 years    5 years
    -------------------------------------------------------------------------
    Operating lease
     obligations
     (CAN $000s)           6,625      1,827      2,909      1,837         52
    -------------------------------------------------------------------------
    Other long term
     obligations
     (CAN $000s)             350        150        200          -          -
    -------------------------------------------------------------------------
    Foreign exchange
     forward contracts
     (US $000s)              750        750
    -------------------------------------------------------------------------
    Total contractual
     obligations           7,725      2,727      3,109      1,837         52
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Share Data

    Matrikon is listed on the Toronto Stock Exchange under the trading symbol
"MTK". As at January 10, 2008 there were 30,422,630 common shares of the
corporation issued and outstanding and 576,234 options and 766,775 restricted
share units outstanding, each convertible into one common share upon exercise
or exchange.

    Critical Accounting Estimates

    These interim financial statements were prepared with the same critical
accounting estimates and methods as fiscal year 2007. Please see pages 42-43
of Matrikon's annual MD&A for the fiscal year ended August 31, 2007 dated
November 8, 2007 for a discussion of these estimates.

    Changes in Accounting Policies

    On September 1, 2007, we adopted the Canadian Institute of Chartered
Accountants (CICA) new Handbook sections 3855 "Financial Instruments -
Recognition and Measurement", 3861 "Financial Instruments - Disclosure and
Presentation", 3865 "Hedges", and 1530 "Comprehensive Income". Prior periods
have not been restated.
    Section 3855 requires that all financial assets and liabilities be
classified as one of: held-to-maturity, held-for-trading, loans and
receivables, available-for-sale or other financial liabilities.
    Transitional adjustments resulting from these standards are recognized in
the opening balances of retained earnings.
    We made the following adjustments to our balance sheet to adopt the new
requirements:

    
    -------------------------------------------------------------------------
                                                                 Adjustments
    CAN $000s                      Applicable Accounting Model   (Net of Tax)
    -------------------------------------------------------------------------
    Cash and cash equivalents      Held-for-trading                        -
    -------------------------------------------------------------------------
    Accounts receivable            Loans and receivables                (128)
    -------------------------------------------------------------------------
    Accounts payable and accrued
     liabilities                   Other financial liabilities            79
    -------------------------------------------------------------------------
    Contracts in progress          Loans and receivables                 (57)
    -------------------------------------------------------------------------
    Transition adjustment to
     opening retained earnings                                          (106)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    We made the following adjustments to our income statement to adopt the new
requirements:

    -------------------------------------------------------------------------
                                                                 Adjustments
    CAN $000s                                                         (Gross)
    -------------------------------------------------------------------------
    Interest income relating to the accretion of accounts
     receivable and contracts in progress                                271
    -------------------------------------------------------------------------
    Interest expense relating to the accretion of accounts payable       (83)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Section 1530 "Comprehensive Income" requires that we present
comprehensive income in our financial statements. Comprehensive income is
comprised of net income, changes in unrealized gains or losses related to
available-for-sale securities, changes in unrealized gains or losses related
to cash flow hedges and the net unrealized foreign exchange gain or loss for
the period. We had no Other Comprehensive Income transactions during the
period and no opening balance for accumulated Other Comprehensive Income.
    Section 3865 "Hedges" did not have any impact on our consolidated
financial statements as at November 30, 2007.

    Risks Related to Our Business

    There has been no significant change in our risk factors from those
described in our 2007 Annual Report. Please see pages 44-26 of Matrikon's 2007
Annual Report.

    Internal Control over Financial Reporting and Disclosure Controls

    There were no changes during Q1-08 that materially affected or are
reasonably likely to materially affect our internal control over financial
reporting and disclosure controls. Please see pages 46-47 of Matrikon's 2007
Annual Report.

    About Matrikon

    Founded in 1988, Matrikon is a growing international provider of
integrated industrial intelligence solutions that enable our industrial
customers to improve operating efficiency. Solutions include data acquisition
and storage, data analysis for plant optimization, decision support systems,
data connectivity and web delivered data presentation for improved
collaboration.
    Matrikon is one of the largest industrial solution integrators in North
America with a client base diversified across a number of industries,
including oil and gas, power, forestry pulp and paper, refining and
petrochemicals and mining and mineral processing.
    At November 30, 2007, Matrikon had 530 employees, including 98 in
corporate and administrative services, 58 in sales and marketing, 102 in
product development and support and 272 in professional services (integration
and consulting).





For further information:

For further information: Nicole Sayler, Corporate Communications
Director, (780) 945-4010, (877) 628-7456 x 4010, email:
nicole.sayler@matrikon.com

Organization Profile

MATRIKON INC.

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890