WellPoint Systems reports results for the first quarter ended March 31, 2010

CALGARY, May 27 /CNW/ - WellPoint Systems Inc., (TSX-V:WPS), a leading provider of software and related solutions that transform complex data into Business Insight, today announced its financial results for the quarter ended March 31, 2010. All monetary values are in Canadian dollars unless otherwise indicated.

"Following a strong 2009, we took the opportunity in the first quarter of 2010 to rebuild core parts of our organization to drive improved growth over the long term," said Mr. Richard Slack, President and CEO of WellPoint Systems. "During the quarter we strengthened our sales and marketing teams with the addition of a new Vice President of Sales - USA, a dedicated Vice President of Partner Channels, and Senior Vice President of Marketing. We expected these initiatives to slow our momentum in the early part of the year, as the sales and marketing teams refocused on selling solutions - which have longer sales cycles, but generate larger overall opportunities. We continue to be optimistic about opportunities in 2010 and are seeing an uptick in service engagements which should reflect positively in the latter half of 2010."

First Quarter 2010 Financial Summary

    
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    March 31                                   Three Months Ended   $ Change
    In Thousands (CDN$)                           2010       2009  2009-2010
    -------------------------------------------------------------------------
    Revenue                                      6,248     10,384     (4,136)
    Gross Profit(1)                              3,521      7,060     (3,539)
    Adjusted EBITDA(2)                            (569)     2,588     (3,157)
    Net Income                                  (2,137)      (529)    (1,608)
    Adjusted EBITDA per share                   ($0.01)     $0.06     ($0.07)
    Net Income per share                        ($0.04)    ($0.01)    ($0.03)
    -------------------------------------------------------------------------
    

First Quarter 2010 Operational Highlights

    
        -  Strengthened the senior management team with the addition of a new
           Chief Financial Officer, Senior Vice President Marketing, Vice
           President Global Services, Vice President Sales - USA, and Vice
           President of Partner Channels;
        -  Achieved Code Completion for the Revenue Distribution module for
           the WellPoint Energy Suite (Dynamics AX), designed to specifically
           target U.S. markets;
        -  Rebranded WellPoint's Enterprise Asset Management (EAM) to DAXEAM
           (Dynamics AX EAM) to leverage its appeal and expand its reach into
           other non-energy industry verticals;
        -  Enhanced reporting capability for Energy Financial Management
           (EFM) for North Sea markets;
        -  Recognized as one of the fastest growing companies in Canada for
           the third straight year, achieving a ranking of 100 on the Branham
           300 list of the 250 fastest growing technology companies in
           Canada.
    

Mr. Slack continued, "Both the BOLO and IDEAS product lines continue to sell strongly in their respective markets. Meanwhile, the Company has been investing in our emerging Dynamics AX Energy Suite of products; although we have seen less than expected demand for these products, we anticipate accelerated growth throughout 2010 and into 2011 as marketing programs, such as the recent release and rebranding of WellPoint's energy asset management application, DAXEAM, begin to raise awareness around our brand."

"Our 2010 results were impacted by several events," said Mr. Hervé Seguin, Chief Financial Officer of WellPoint Systems. "Our first quarter results were negatively impacted by the weakening U.S. dollar since a large percent of our total revenue is recorded in US dollars; 2009 also included a large sale to our Middle Eastern partner that did not recur in the first quarter of this year; and our professional services revenue diminished in the first quarter as a result of the energy downtown in 2009 which saw exploration and production ("E&P") companies cut back on consulting engagements and services contracts."

First Quarter Financial Review

Revenue for the first quarter of 2010 decreased by $4.1 million compared with the same period in 2009. Revenues were lower primarily due to lower than normal license sales and reduced professional services engagements resulting from the energy downturn that extended into 2009. Gross profit decreased by $3.5 million in the first quarter of 2010 compared with the first quarter of 2009, due to the Company's revenue mix of higher margin license fees and a decrease in lower margin professional services. WellPoint decreased its selling, general and administrative ("SG&A") expenses by $0.1 million in the first quarter of 2010 compared with the first quarter of 2009. Research and development ("R&D") expenses for the first quarter of 2010 decreased by $0.2 million compared with the same period in 2009. Adjusted EBITDA decreased by approximately $3.1 million primarily due to the $3.5 million decrease in the Company's gross profit. Net loss increased by $1.6 million primarily due to the $3.5 million decrease in gross profit, which was partly offset by a $1.5 million increase in foreign exchange gain.

License revenue decreased in the first quarter 2010 to $1.8 million from $3.4 million in the first quarter of 2009. License revenue for 2009 included $1.2 million of revenue from the Company's previously announced license sale to QMENA, which did not repeat in this last quarter. Maintenance revenue decreased in the first quarter 2010 to $2.5 million from $3.1 million in the first quarter of 2009. Included in 2009 was maintenance revenue of $0.3 million to one customer which did not renew its maintenance contract in 2010. Professional services revenue decreased in the first quarter 2010 to $1.9 million from $3.8 million in the first quarter of 2009. The decrease is primarily due to lower than normal services engagements in 2009 resulting from the energy downturn and a reduction in E&P spending. Management expects to see the trend starting to reverse in future quarters. The strengthening Canadian dollar unfavorably impacted revenue by $1.0 million in the first quarter of 2010.

SG&A expenses remained relatively flat at $2.5 million in the first quarter of 2010, compared with $2.6 million in the same period of the prior year. The Company continues to focus on continual cost optimization efforts which started in the latter part of 2008. Foreign exchange had a favourable impact of $0.3 million on SG&A in the first quarter of 2010.

R&D expenses remained relatively flat at $1.3 million in the first quarter of 2010, compared with $1.5 million in the same period of the prior year. Foreign exchange variations had a favourable impact of $0.2 million on expenses in the first quarter of 2010. The Company is continuing to invest in research and development projects with the same vigor as in 2009, however the reduction in the current year expenditure is related entirely to cost optimizations.

Interest expense also remained relatively flat at $1.5 million in the first quarter of 2010, compared with $1.4 million in the same period of the prior year, reflecting costs accrued on the notes payable, capital leases and convertible debt during the quarter.

Due to the factors discussed above, the net loss for the first quarter of 2010 was $2.1 million compared with a net loss of $0.5 million for the first quarter of 2009. Basic and diluted net loss per share was ($0.04) compared with a net loss per share of ($0.01) for the first quarter of 2008.

Subsequent to Quarter-End

Subsequent to quarter end, the Corporation's major lenders agreed to delay the repayment of all debt maturing from June to August 2010 to October 1, 2010, while the Company works with the lenders to renegotiate the maturing debt and/or inject new capital. The Company's debtors include the Quorum Group, an experienced Oil & Gas investor., "WellPoint Systems is an important part of the Quorum portfolio of investments," said Ms. Wanda Dorosz, Managing Partner and CEO of The Quorum Group. "We have always viewed our investment in WellPoint as a long term investment with great potential for future appreciation. We support WellPoint's management team and are working closely with them to develop a solution to the short term debt obligations and at the same time promote long term growth."

Outlook

In 2009, the Company focused on increasing its net income and Adjusted EBITDA. In 2010, the Company is developing an infrastructure to drive organic revenue growth, while at the same time investing in growing recognition of the Company's solutions and brand through increased investments in sales and marketing. As a result of its new focus on solution sales (which have a longer sales cycle and resulting larger revenue impact) and expansion of the Company's sales and marketing footprint, the Company does not anticipate seeing its revenue grow until the latter half of 2010.

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.

    (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 Systems delivers software solutions and services that transform complex data into Business Insight for over 450 companies in 60 countries worldwide. WellPoint Systems is recognized as a leader in providing Financial, Energy Marketing and Trading solutions to the Oil and Gas industry with its award winning BOLO, IDEAS, Energy Financial Management and Energy Broker products. The company also serves asset intensive industries including aerospace/aviation, process manufacturing, mining, the public sector and fleets with its DAXEAM Asset Maintenance solutions.

Founded in 1997, Calgary-based WellPoint Systems 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.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release

    
    WELLPOINT SYSTEMS INC.
    Consolidated Balance Sheets (Unaudited)(in thousands of dollars)

    -------------------------------------------------------------------------
                                                       March 31  December 31
                                                           2010         2009
    -------------------------------------------------------------------------
    Assets
    Current assets:
      Cash                                            $       -    $     505
      Accounts receivable                                 2,930        3,188
      Prepaid expenses                                      605          333
      -----------------------------------------------------------------------
                                                          3,535        4,026
    Property and equipment                                  884          920
    Deferred development costs                            1,210        1,386
    Intangible assets                                    10,048       10,999
    Goodwill                                             20,384       21,091
    Future income taxes                                   1,409        1,132
    -------------------------------------------------------------------------
                                                      $  37,470    $  39,554
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity
    Current liabilities:
      Line of Credit                                  $     431    $       -
      Accounts payable and accrued liabilities            3,307        3,273
      Current income tax liability                           54           83
      Deferred revenue                                    2,686        2,062
      Other deferred credits                                 55           55

      Note payable                                        5,294        5,471
      Current portion of capital lease obligations           61           61
      Convertible debentures                              9,121        8,880
      -----------------------------------------------------------------------
                                                         21,009       19,885
    Long term notes payable                                   -            -
    Capital lease obligations                                81           63
    Other deferred credits                                    9           23
    Convertible debentures                               17,504       17,658
    -------------------------------------------------------------------------
                                                         38,603       37,629
    Shareholders' equity:
      Share capital                                      14,621       14,621
      Contributed surplus                                 2,057        2,009
      Convertible debentures                              8,661        8,664

      Accumulated other comprehensive income             (1,653)        (888)
      Deficit                                           (24,818)     (22,681)
    -------------------------------------------------------------------------
                                                        (26,471)     (23,569)
    -------------------------------------------------------------------------
      Total shareholders' equity                         (1,132)       1,925
    -------------------------------------------------------------------------
                                                      $  37,470    $  39,554
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    See accompanying notes to consolidated financial statements.

    WELLPOINT SYSTEMS INC.
    Consolidated Statements of Operations and Deficit (Unaudited)
    (in thousands of dollars)

    For the three months ended March 31

    -------------------------------------------------------------------------
                                                           2010         2009
    -------------------------------------------------------------------------
    Revenue :
      License                                         $   1,778    $   3,402
      Maintenance                                         2,535        3,121
      Professional services                               1,935        3,861
    -------------------------------------------------------------------------
                                                          6,248       10,384

    Direct costs                                          2,727        3,324
    -------------------------------------------------------------------------
    Gross margin                                          3,521        7,060

    Expenses:
      Sales, general and administrative                   2,545        2,639
      Research and development                            1,268        1,476
      Interest                                            1,512        1,449
      Depreciation and amortization                         819          885
      Foreign exchange (gain) loss                         (675)         807
      Facilities                                            325          376
      Financing and amortization of debt and
       note payable issue costs                              46           81
      Fees and expenses on settlement of long term
       note payable                                           -            -
      -----------------------------------------------------------------------
                                                          5,840        7,713
    -------------------------------------------------------------------------
    Loss before income taxes                             (2,319)        (654)
    -------------------------------------------------------------------------

    Income taxes
      Future expense (reduction)                           (182)        (125)
    -------------------------------------------------------------------------
    Net loss                                             (2,137)        (529)
    Deficit, beginning of year                          (22,681)     (25,869)
    -------------------------------------------------------------------------
    Deficit, end of year                              $ (24,818)   $ (26,398)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Loss per share, basic and diluted                 $   (0.04)   $   (0.01)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE WELLPOINT SYSTEMS INC.

For further information: For further information: Richard Slack, President and Chief Executive Officer, (303) 987-2238, rick.slack@wellpointsystems.com; Hervé Seguin, CMA, CGA, Chief Financial Officer, (416) 884-2001, herve.seguin@wellpointsystems.com

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WELLPOINT SYSTEMS INC.

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