WellPoint Systems reports record EBITDA and net income for first half of 2009



    CALGARY, Aug. 24 /CNW/ - WellPoint Systems Inc., ("WellPoint" or the
"Company") (TSX-V:WPS), a leading provider of software and related solutions
to the energy industry, today announced its financial results for the quarter
and six months ended June 30, 2009. All monetary values are in Canadian
dollars unless otherwise indicated.


    
    Second Quarter and Six Month Financial Highlights

    -------------------------------------------------------------------------
                              Three                        Six
                           Months Ended  $ Change     Months Ended  $ Change
                             June 30         2008        June 30        2008
    In thousands (CDN$)    2009     2008   - 2009     2009     2008   - 2009
    -------------------------------------------------------------------------

    Revenue               8,734   10,269   (1,535)  19,117   19,789     (672)
    Gross Profit          6,187    6,053      134   13,246   11,446    1,800
    Adjusted EBITDA       2,026     (612)   2,638    4,615   (1,048)   5,663
    Net Income            1,559   (2,391)   3,950    1,030   (4,696)   5,726
    Adjusted EBITDA
     per share             0.04    (0.01)    0.05     0.09    (0.02)    0.11
    Net Income
     per share             0.03    (0.05)    0.08     0.02    (0.10)    0.12
    -------------------------------------------------------------------------
    

    "We have worked very hard over the last few quarters to position the
Company to grow profitably over the long term and our results this quarter
reflect the progress we continue to make on this front," said Mr. Richard
Slack, President and CEO of WellPoint Systems. "Despite a small drop in
revenue, gross profit was up and we generated a $2.6 million improvement in
adjusted EBITDA. As economic conditions improve, we will undertake a variety
of initiatives designed to drive growth, including further strengthening our
management team and aggressively marketing our products in key regions
globally."

    
    Second Quarter Business Highlights

    -   Increased net income by $4.0 million to $1.6 million, compared with a
        net loss of ($2.4) million in 2008;

    -   Increased Adjusted EBITDA by $2.6 million to $2.0 million, compared
        with an Adjusted EBITDA loss of ($0.6) million in 2008;

    -   Delivered US$1.0 million of the previously announced license sale to
        WellPoint's new Middle Eastern channel partner, QMENA for WellPoint's
        Microsoft Dynamics AX solutions;

    -   Grew customer base by 10 companies, including two sales of
        WellPoint's Dynamics AX EAM and EFM products;

    -   Sold additional licenses to 18 current customers;

    -   Held two regional WellPoint Users Conferences, in Denver, CO and
        Houston, TX;

    -   Achieved the Independent Software Vendor (ISV)/Software Solutions
        Competency in the Microsoft Partner Program This certification
        demonstrates WellPoint's specific expertise with Microsoft
        technologies and a proven ability to meet customers' needs;

    -   Released AX EAM 5.0 on AX 2009, setting the stage for asset intensive
        companies to take advantage of core AX capabilities such as role-
        based user experience, business intelligence, workflow and
        requisitions;

    -   Released WellPoint Intelligent Dashboard for BOLO product line which
        uses SQL Reporting Services and cube technology to aggregate data and
        measurements from WellPoint software as well as other third party
        applications; and

    -   Released IDEAS 5.0 which updated the product to Visual Basic 6, added
        a new Report Wizard and provided an Advanced AFE module to provide
        project management controls
    

    Second Quarter Financial Review

    Overall revenues for the second quarter of 2009 decreased by $1.5 million
as compared with the second quarter of 2008. License revenue increased to $3.2
million from $3.0 million in 2008. License revenue for the second quarter of
2009 includes $1.2 million of revenue from the Company's previously announced
license sale to QMENA. Maintenance revenue grew to $2.7 million in 2009 from
$2.3 million in 2008, an increase of 14%, due to expansion of the Company's
customer base. WellPoint now provides maintenance to 437 customers worldwide
and continues to achieve maintenance and support customer retention rates of
approximately 99%. Professional services revenue decreased by $2.0 million in
the second quarter of 2009 as compared with the same period of the prior year.
In 2008, the Company was working on a large implementation in South America.
This implementation was predominately complete in the third quarter of 2008
which contributed to the drop in the 2009 second quarter professional services
revenue. Further impacting the professional services revenue was the continued
instability in general economic climate with customers choosing to preserve
cash and defer implementations and software enhancements until conditions
improve.
    Gross profit was $6.2 million (71% of total revenue) compared with $6.1
million (59% of total revenue) for the second quarter of 2008. The $0.1
million increase in gross profit is attributed primarily to the Company's
changing revenue mix. During the second quarter of 2009 compared with the same
period of the prior year, the Company increased its sales of higher margin
license and maintenance revenue by $0.5 million and decreased its lower margin
professional services revenue by $2.0 million. This shift in revenue mix
resulted in an increase in both gross profit and gross margin.
    SG&A decreased to $2.4 million (28% of revenue) compared with $4.2
million (42% of revenue) in the second quarter of 2008. The 2008 SG&A costs
were negatively impacted by severance costs and high bad debt expenses. The
decrease in 2009 SG&A costs is a result of various cost reduction efforts
implemented during the latter half of 2008. In addition, due to the negative
general economic climate, the Company took additional steps in 2009 to reduce
SG&A expenses by rolling back salaries at its North American operations by
10%. Further impacting the comparison between the Company's 2008 and 2009 SG&A
costs is the decision by the Company to stop capitalizing research and
development costs in 2009 as projects no longer meet the criteria for
capitalization. In 2008 a portion of the Company's SG&A costs were allocated
to research and development and capitalized. Had these costs not been
capitalized in 2008, the comparative change in SG&A would have been even
greater.
    Facilities expenses decreased to $0.4 million compared with $0.5 million
in the second quarter of 2008. The decrease primarily relates to consolidation
of the Company's offices in Calgary.
    In the second quarter of 2009, the Company incurred research and
development expenses of $1.4 million (16% of revenue) compared with $1.1
million (11% of revenue) for the comparable period in 2008. The increase in
current research and development is related to a decision to stop capitalizing
research and development expenses as they no longer meet the criteria for
capitalization. When compared with development expenditures capitalized in the
2008, the Company's investment in research and development appears to have
decreased by $0.7 million. However, this decrease is primarily attributable to
various cost reduction efforts implemented during the latter half of 2008.
Further, due to the negative general economic climate, the Company took
additional steps in 2009 to reduce research and development expenses by
rolling back salaries at its North American operations by 10%. In 2008, a
portion of the Company's SG&A costs were allocated to research and development
and capitalized. Had these costs not been capitalized in 2008, the comparative
change in research and development costs would have been significantly
smaller. For greater clarity, the Company is continuing to invest in research
and development projects with the same vigor as in 2008, however the reduction
in the current year expenditure is related entirely to cost optimizations and
a reallocation of costs between research and development expenditures and SG&A
(please see SG&A section above).
    WellPoint Systems is committed to enhancing its position as a leading
provider of software and related solutions within the energy and natural
resources industries. The Company continues to increase its investment in the
development of new and innovative products utilizing the Microsoft AX Dynamics
architecture. This investment is a fundamental requirement as WellPoint
Systems continues to build products that meet the evolving needs of its
customers.
    Depreciation and amortization expenses decreased to $0.9 million compared
with $1.1 million for the second quarter of 2008. The decrease primarily
relates to the Company's decision to write-off a significant portion of its
deferred development costs in the third quarter of 2008. Since these costs
have been written off, there is no longer a requirement to amortize the
expenses.
    Interest expenses include the cash and interest accretion on the
Company's interest-bearing obligations. In addition, interest costs include
the interest payable on convertible debentures. Interest accretion is a result
of the allocation of proceeds received from the issuance of convertible debt
to their component parts, measured at their respective fair values at the time
of issue or renegotiation. The debt component has been calculated as the
present value of the required interest and principal payments, discounted at a
rate approximating the interest rate that would have been applicable to
non-convertible debt at the time the debenture was issued or reduced, when the
fair value of the conversion option increases following a change in the
conversion price or conversion period. Interest expense is determined on the
debt component. The difference between the debt component and the face value
of the debenture is classified as shareholders' equity-convertible debentures,
net of issue costs, and adjusted for income taxes. The debentures are accreted
to their face value over their term with a charge to operations included in
interest expense.
    Interest expenses increased to $1.5 million as compared with $0.9 million
for the second quarter of 2008. The increase primarily stems from the new
financings in 2008. As at June 30, 2009, the Company had notes payable,
capital leases and convertible debt with a carrying value of approximately
$34.4 million with an effective annual interest rate of approximately 16.0%.
    Most of the Company's businesses are organized geographically so that
many expenses are incurred in the same currency as the revenue generated,
which mitigates some exposure to currency fluctuations. Following the
acquisition of BOLO in 2007, the Company significantly increased its net
liabilities denominated in United States dollars in connection with notes
payable issued in connection with the acquisition along with US convertible
debentures needed to complete the acquisition. The Company has not entered
into any forward hedging contracts and therefore experiences gains and losses
relating to foreign exchange. The foreign exchange gain for the three months
ended June 30, 2009 was $1.6 million (2008 - $0.2 million).
    For the Second quarter of 2009 the tax recovery was ($0.3) million
compared with a tax expense of $0.7 million in the same period of the prior
year. The tax recovery is primarily as a result of the Company's operations in
the US.
    Due to the factors discussed above, the net income for the second quarter
of 2009 was $1.6 million compared with a net loss of ($2.4) million for the
second quarter of 2008. Basic and diluted net income per share was $0.03
compared with a net loss per share of ($0.05) for the second quarter of 2008.
    Adjusted EBITDA was $2.0 million compared to an Adjusted EBITDA loss of
($0.6) million for the second quarter of 2008. The $2.6 million increase in
Adjusted EBITDA was the result of the reduced operating costs as discussed
above. Basic and fully diluted Adjusted EBITDA per share was $0.04 compared
with an Adjusted EBITDA loss per share of ($0.01) for the second quarter of
2008.

    First Half 2009 Financial Review

    Revenues decreased by 3% to $19.1 million in the first half of 2009
compared with $19.8 million in the same period in 2008. Revenue from outside
of Canada stayed relatively flat compared with the same period in the prior
year. This was primarily due to the growth in other international revenue from
the QMENA license sale offset by decreases in South American revenue due to
the completion of the South American contract in the Q3 of 2008.
    License revenue increased to $6.6 million from $6.0 million in 2008. The
increase is the result of license revenues from the US$2.0 QMENA sale in the
first half of 2009. Maintenance revenue increased to $5.8 million in 2009 from
$4.7 million in 2008, an increase of 23% with a substantial portion of the
increase attributed to the South American customer whose implementation was
completed in the third quarter of 2008. Revenue from professional services
decreased to $6.8 million from $9.1 million in 2008, a decrease of 26%. The
substantial decrease in professional services revenue is attributed primarily
to the completion of the 2007 South American contract in Q3 of 2008. Further
impacting the professional services revenue is the continued instability in
general economic climate with customers choosing to preserve cash and defer
implementations and software enhancements until conditions improve.
    Gross profit was $13.2 million (69% of total revenue) compared with $11.4
million (58% of total revenue) for 2008. The $1.8 million (16%) increase in
gross profit is attributable to the increase in higher margin license and
maintenance revenue and a decrease in low margin professional services
revenue.
    SG&A expenses decreased by $2.4 million (32%) to $5.1 million (27% of
revenue) compared with $7.5 million (38% of revenue) in the first six months
of 2008. The decrease primarily relates to the various cost optimizations
implemented in the autumn of 2008 along with higher expenses relating to bad
debts and restructuring charges in 2008. Further impacting the comparison
between the Company's 2008 and 2009 SG&A costs is the decision by the Company
to stop capitalizing research and development costs in 2009 as the projects no
longer meet the criteria for capitalization. In 2008, a portion of the
Company's SG&A costs were allocated to research and development and
capitalized. Had these costs not been capitalized in 2008, the comparative
change in SG&A would have been even greater.
    Facilities expenses decreased to $0.8 million compared with $0.9 million
in 2008. The decrease primarily relates to consolidation of the Company's
offices in Calgary.
    In the first half of 2009, the Company incurred research and development
expenses of $2.9 million (15% of revenue) compared with $2.1 million (11% of
revenue) for the comparable period in 2008. The increase in current research
and development is related to a decision to stop capitalizing research and
development expenses as they no longer meet the criteria for capitalization.
When compared with development expenditures capitalized in the 2008, the
Company's investment in research and development appears to have decreased by
$1.3 million. However, this decrease is primarily attributable to various cost
reduction efforts implemented during the latter half of 2008. Further, due to
the negative general economic climate, the Company took additional steps in
2009 to reduce research and development expenses by rolling back salaries at
its North American operations by 10%. In 2008, a portion of the Company's SG&A
costs were allocated to research and development and capitalized. Had these
costs not been capitalized in 2008, the comparative change in research and
development costs would have been significantly smaller. For greater clarity,
the Company is continuing to invest in research and development projects with
the same vigor as in 2008, however the reduction in the current year
expenditure is related entirely to cost optimizations and a reallocation of
costs between research and development expenditures and SG&A (please see SG&A
section above).
    Depreciation and amortization expenses decreased to $1.7 million compared
with $2.3 million in 2008. The decrease primarily relates to the Company's
decision to write-off a significant portion of its deferred development costs
in the third quarter of 2008. Since these costs have been written off, there
is no longer a requirement to amortize the expenses.
    Interest expenses increased to $2.9 million as compared with $1.9 million
for the first half of 2008. The increase primarily stems from the new
financings in 2008 and the refinancing of the Company's debentures at the end
of 2008. As at June 30, 2009, the Company had notes payable and convertible
debt with a carrying value of approximately $34.4 million with an effective
annual interest rate of approximately 16.0%.
    Most of the Company's businesses are organized geographically so that
many expenses are incurred in the same currency as the revenue generated,
which mitigates some of our exposure to currency fluctuations. Following the
acquisition of BOLO in 2007, the Company significantly increased its net
liabilities denominated in United States dollars in connection with notes
payable issued in connection with the acquisition. The Company has not entered
into any forward hedging contracts and therefore may experience gains and
losses relating to foreign exchange. The foreign exchange gain for the first
six months of 2008 was $0.8 million (2008 - $0.3 million loss).
    For the six months ended June 30, 2009 the tax recovery was ($0.5)
million compared with a tax expense of $0.4 million for the same period in
2008. The tax recovery is primarily as a result of the Company's operations in
the US.
    The net income for the six months ended June 30, 2009 was $1.0 million
compared with a net loss of $4.7 million for the same period in 2008. Basic
and diluted net income per share was $0.02 compared with a loss per share of
($0.10) in 2008. The net income and increased earnings per share are
attributed to the factors discussed above.
    Adjusted EBITDA increased by $5.6 million to $4.6 million compared with
an Adjusted EBITDA loss of $1.0 million for the first six months of 2008.
Basic and fully diluted EBITDA per share was $0.09 compared with an Adjusted
EBITDA loss per share of ($0.02). The significant increase in 2009 Adjusted
EBITDA and Adjusted EBITDA per share is a result of the increased gross profit
and reduced operating expenses as discussed above.

    Outlook

    During 2008, the Company has invested significant capital and management
resources to integrate the BOLO and iSoft acquisitions into WellPoint Systems.
In 2009, with the acquisitions now in place, the Company has and will continue
to focus on increasing its net income and Adjusted EBITDA and expects to
advance on many fronts, through the following initiatives:

    
    -   Establishing deeper partnerships across the globe, including expanded
        and new agent relationships in international markets. In 2009, the
        Company particularly intends to focus its activities on increasing
        market share and driving revenue from opportunities primarily in the
        North American and Middle Eastern markets;

    -   Increasing sales and marketing of WellPoint Energy Broker in the
        North American and Middle Eastern markets and WellPoint EAM and
        WellPoint EFM solutions worldwide;

    -   Continuing development and marketing of BOLO and IDEAS to increase
        market share;

    -   Continuing development of the WellPoint Energy Suite (Enterprise
        Asset Management), WellPoint Energy Financial Management, and
        WellPoint Energy Broker solutions to expand functionality and better
        conform with best practices in the computer software industry;

    -   Increased sales and marketing of WellPoint EAM solution to broad-
        based manufacturers through partner channels; and

    -   Increasing operational efficiencies.
    

    In the first half of 2009, the Company recorded US$2.0 million in revenue
from the agreement the Company signed on December 24, 2008 with Quorum MENA
Limited ("QMENA"). The Company anticipates posting improved net income and
Adjusted EBITDA in 2009 as a result of increasing license revenues, proceeds
from the recently announced insurance claim, and lower operating costs.
    The information contained in this news release is in summary form and
should be read in conjunction with the Company's audited consolidated
financial statements and Management's Discussion and Analysis for the year
ended December 31, 2008 and three and six months ended June 30, 2009. Those
documents are available through the internet on the Canadian System for
Electronic Document Analysis and Retrieval (SEDAR) which can be accessed at
www.sedar.com.

    
    Notes

    (1) "EBITDA" is a financial measure that does not have any standardized
        meaning prescribed by Canadian generally accepted accounting
        principles ("GAAP") and may not be comparable to similar measures
        presented by other companies. EBITDA is a measure of the Company's
        operating profitability. EBITDA provides an indication of the results
        generated by the Company's principal business activities prior to how
        these activities are financed, assets are amortized or how results
        are taxed in various jurisdictions. Adjusted EBITDA is Standardized
        EBITDA(1), excluding foreign exchange gains primarily related to the
        US dollar denominated debt of the Company and can vary significantly
        depending on exchange rate fluctuations, which are beyond the control
        of the Company, and write downs of deferred development and
        intangible costs, goodwill impairment, financing costs, stock based
        compensation, fees and expenses on settlement of debt and losses on
        extinguishment of debt and after deducting the annual amount invested
        in respect of deferred development costs, which, with the
        implementation of International Financial Reporting Standards in the
        year ended December 31, 2011, will generally be required to be
        expensed on an annual basis.

    (2) "Gross Profit" is a financial measure that does not have any
        standardized meaning prescribed by GAAP and may not be comparable to
        similar measures presented by other companies.  Gross profit is
        provided to assist investors in determining WellPoint's ability to
        generate earnings from the sales of its products and services.  Gross
        profit is calculated by subtracting direct expenses from revenue.
    

    About WellPoint Systems Inc.

    WellPoint provides premier software and related services for managing
critical operations within the energy industry. As a Microsoft Gold Certified
Partner since 2005, WellPoint is the only Independent Software Vendor (ISV)
and Microsoft Dynamics partner dedicated to the energy sector. It is breaking
new ground with the creation of a more comprehensive, integrated energy
software suite based on existing Microsoft ERP technology that utilizes
state-of-the-art Dynamics AX(R) and .NET architectures. WellPoint also
provides software and services under the BOLO, IDEAS International and iSoft
brands.
    Founded in 1997, Calgary-based WellPoint Systems also has major
operations in Denver, CO, Houston, TX, Livingston, NJ, Tampa, FL, Tunis,
Tunisia and Pretoria, South Africa. WellPoint is publicly traded on the TSX
Venture Exchange under the symbol WPS.

    This document contains forward-looking statements. Some forward looking
statements may be identified by words like "expects", "anticipates", "plans",
"intends", "indicates" or similar expressions. The statements are not a
guarantee of future performance and are inherently subject to risks and
uncertainties. The Company's actual results could differ materially from those
currently anticipated due to a number of factors, including, but not limited
to, successful integration of structural changes, including restructuring
plans, acquisitions, technical or manufacturing or distribution issues, the
competitive environment for the Company's products, the degree of market
penetration of the Company's products, and other factors set forth in reports
and other documents filed by the Company with Canadian securities regulatory
authorities from time to time.

    
    The TSX Venture Exchange does not accept responsibility for the adequacy
    or accuracy of this release.



    WELLPOINT SYSTEMS INC.
    Consolidated Balance Sheets (Unaudited)
    (in thousands of dollars)
    -------------------------------------------------------------------------
                                                        June 30  December 31
                                                           2009         2008
    -------------------------------------------------------------------------

    Assets
    Current assets:
      Cash                                            $   1,029    $     406
      Accounts receivable                                 2,851        3,532
      Prepaid expenses                                      889          746
      -----------------------------------------------------------------------
                                                          4,769        4,684
    Property and equipment                                1,004        1,106
    Deferred development costs                            1,801        2,119
    Intangible assets                                    13,415       15,384
    Goodwill                                             23,338       24,442
    Future income taxes                                     588          132
    -------------------------------------------------------------------------
                                                      $  44,915    $  47,867
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable and accrued liabilities        $   5,175    $   5,718
      Current income tax liability                            -          106
      Deferred revenue                                    2,696        4,876
      Other deferred credits                                 55           55
      Note payable                                           55            -
      Current portion of long term notes payable             94           99
      Current portion of capital lease obligations           46           46
      Convertible debentures                              2,765        1,358
      -----------------------------------------------------------------------
                                                         10,886       12,258
    Long term notes payable                               5,723        6,005
    Capital lease obligations                                32           58
    Other deferred credits                                   50           77
    Convertible debentures                               25,665       26,476
    -------------------------------------------------------------------------
                                                         42,356       44,874
    Shareholders' equity:
      Share capital                                      14,497       14,497
      Contributed surplus                                 1,687        1,624
      Convertible debentures                              8,996        8,996

      Accumulated other comprehensive income              2,218        3,744
      Deficit                                           (24,839)     (25,868)
    -------------------------------------------------------------------------
                                                        (22,621)     (22,124)
    -------------------------------------------------------------------------
      Total shareholders' equity                          2,559        2,993

    -------------------------------------------------------------------------
                                                      $  44,915    $  47,867
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    WELLPOINT SYSTEMS INC.
    Consolidated Statements of Operations and Retained Earnings (deficit)
    (unaudited)
    (in thousands of dollars, except per share amounts)
    -------------------------------------------------------------------------
                                Three months ended          Six months ended
                                      June 30                   June 30
                                 2009         2008         2009         2008
    -------------------------------------------------------------------------

    Revenue
      License               $   3,157    $   3,012    $   6,559    $   5,972
      Maintenance               2,661        2,335        5,781        4,698
      Professional services     2,916        4,922        6,777        9,119
    -------------------------------------------------------------------------
                                8,734       10,269       19,117       19,789

    Direct costs                2,547        4,216        5,871        8,343
    -------------------------------------------------------------------------
    Gross margin                6,187        6,053       13,246       11,446

    Expenses:
      Sales, general and
       administrative           2,434        4,185        5,073        7,459
      Interest                  1,469          931        2,918        1,862
      Research and
       development              1,381        1,081        2,857        2,106
      Depreciation and
       amortization               859        1,144        1,744        2,294
      Facilities                  388          461          764          898
      Financing and
       amortization of debt
       and note payable
       issue costs                 63          161          144          254
      Foreign exchange loss
       (gain)                  (1,635)        (246)        (828)         300
      Fees and expenses on
       settlement  of long
       term note payable            -            -            -          614
      -----------------------------------------------------------------------
                                4,959        7,717       12,672       15,787
    -------------------------------------------------------------------------
    Net income (loss) before
     income taxes               1,228       (1,664)         574       (4,341)

    Income taxes
      Current expense               -          134            -          134
      Future expense
      (reduction)                (331)         593         (456)         221
    -------------------------------------------------------------------------
                                 (331)         727         (456)         355
    -------------------------------------------------------------------------
    Net income (loss)           1,559       (2,391)       1,030       (4,696)

    Deficit, beginning
     of period                (26,398)      (6,172)     (25,869)      (3,867)
    -------------------------------------------------------------------------
    Deficit, end of period  $ (24,839)   $  (8,563)   $ (24,839)   $  (8,563)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income (loss)
     per share
     Basic and diluted      $    0.03    $   (0.05)   $    0.02    $   (0.10)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: Richard Slack, President and Chief Executive
Officer, (303) 987-2238, rick.slack@wellpointsystems.com; Bharat Mahajan, CA,
Chief Financial Officer, (403) 444-3916, bharat.mahajan@wellpointsystems.com

Organization Profile

WELLPOINT SYSTEMS INC.

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