20-20 Technologies Reports Third Quarter Results
LAVAL, QC, Sept. 14 /CNW Telbec/ - 20-20 Technologies Inc. (TSX: TWT), the world leader in 3D interior design and furniture manufacturing software, today announced its results for the third quarter and nine months ended July 31, 2010. All amounts are in US dollars unless otherwise indicated.
Third Quarter Highlights
- Revenues of $14.8 million, down 8.3% from $16.1 million last year
- EBITDA stood at $1.4 million or 9.5% of revenues from $2.0 million or
12.7% of revenues in 2009
- Net earnings of $0.8 million or $0.04 per share compared to $1.0
million or $0.06 per share in 2009
- Healthy Balance Sheet with working capital at $11.6 million
"During the quarter market conditions continued to be challenging, particularly in the U.S. Home sector, combined with some business seasonality," said Jean-François Grou, Chief Executive Officer. "Excluding the impact of Southern Europe and exchange rates, operations in Europe, fuelled by market share gains in the Manufacturing Sector and building momentum in the Bathroom domain, have performed in line with our expectations. Market conditions in the Office sector remained sluggish. For the quarter, EBITDA of $2.0 million in constant dollars was achieved in spite of a lower sales volume, while margins remained stable and operating expenses decreased."
Revenues
Third quarter revenues decreased 8.3% to $14.8 million, compared with $16.1 million a year ago. In constant dollars, revenues declined modestly in the Home sector and more significantly in the Office sector while the Manufacturing sector was up. For the quarter, unfavourable currency exchange rates negatively impacted revenues by 3.8%. Revenues for the nine-month period increased to $48.6 million or 2.6%.
For the quarter, revenues in North America and Europe declined by 13.5% and 5.2% respectively, while International revenues increased by 36.0% largely fuelled by continued strong momentum in China. In percentage of total revenues, North America, Europe and International markets represented 51.2%, 43.7% and 5.1% respectively.
For the quarter, Home sector revenues reached $8.4 million accounting for 56.7% of total revenues, down 6.7% taking into account currency exchange rates and 3.6% in constant dollars over the previous year. After being the engine of growth in recent quarters, the Home sector slowed down in the U.S. and southern Europe partially offset by growth in the rest of Europe and International markets. In recent months, U.S. economic data related to construction and housing has turned somewhat negative after a period of modest recovery stimulated by various short-term government incentive programs.
For the quarter, Manufacturing sector revenues which account for 27.4% of total revenue, declined by 5.3% to $4.0 million. In constant dollars, revenues were up 2.5% reflecting relatively stable market conditions in North America and Europe since the beginning of the current fiscal year. In Fiscal 2010, we have acquired 19 new manufacturing customers in China (added to the 23 we had at the beginning of the year), with most of them specializing in residential furniture and closets, our newest target markets. Some of these manufacturers are already among the largest in that country and poised to become some of the most important in the world.
For the quarter, as expected, the Office sector remained weak reflecting an oversupply of office space with revenues reaching $2.4 million, down 17.9% over the previous year with most of the impact on licenses and services, and also down 9.5% on a sequential basis. According to real estate research firm Reis Inc, office vacancies in the U.S. rose to the highest level since 1993 in the second quarter of 2010 to reach 17.4% from 16% last year and 17.3% in the first quarter of 2010.
For the quarter, revenues from licenses declined 8.3% to $4.4 million largely attributable to weakness in the U.S. Home sector following a solid performance in the first half of 2010. Year-to-date, overall and Home sector license revenue remained strong with growth of 14.9% and 22.1% respectively.
During the quarter, revenues from recurring licenses increased by 61.6% to $1.2 million reflecting strong momentum of web solutions such as Virtual Planner and Virtual Showroom product sales in the Home sector as was the case in the past few quarters. Most of the growth during the quarter was attributable to Europe. Web solutions were recently introduced to the International market and have generated significant interest. After nine months, the Home sector's recurring license revenues registered 152.1% growth when compared with 2009.
Maintenance and other recurring services performed relatively well with revenues of $7.0 million, down 9.2% after foreign exchange rates and 6.0% in constant dollars over the prior year. The decline is mainly attributable to Southern Europe and the Office sector. As a validation of the high level of service and 20-20's commitment to customers, 20-20 was awarded the silver medal for "Best Contact Center Best Practices" at the Contact Center Industry Conference in Orlando, Florida in June. More than 1,000 companies worldwide were in the same category, among them some renowned names.
For the third quarter, professional services revenues remained under pressure and declined by 24.4% to $2.2 million. Professional services were impacted by the addition of fewer new customers. Although a larger number of new licenses were sold in recent quarters, many of those licenses required less integration and training services. Furthermore, with the general slowdown in the introduction of new products by manufacturers there is less need for new catalogs and updates.
Operating Income
Operating income for the quarter was $0.5 million, compared to $1.2 million last year. For the quarter, EBITDA declined to $1.4 million (9.5% of revenues) from $2.0 million (12.7% of revenues) a year ago. In constant dollars, EBITDA for the quarter would have reached $2.0 million (13.5% of revenues). The remainder of the decline in EBITDA is largely attributable to lower revenues.
Net Earnings
The Company generated net earnings of $840,000 for the third quarter, or $0.04 per share, compared with net earnings of $1.0 million or $0.06 per share, a year ago. Earnings were positively impacted by exchange gains of $838,000 ($376,000 in 2009), essentially attributable to the translation of financial statements of our subsidiaries, which are denominated in European currencies, effectively offsetting a loss of $975,000 incurred in the second quarter of this year. For the nine-month period, net earnings were $1.6 million, or $0.08 per share, compared to $1.8 million, or $0.10 per share for the same period in 2009.
Balance Sheet
The Company maintained a solid balance sheet with cash and cash equivalents reaching $19.8 million at the end of the third quarter compared with $15.5 million for the previous year. For the quarter, working capital was $11.6 million compared to $12.6 million for the prior year.
Outlook
"In recent months, the economic recovery in the U.S. proved to be much more fragile than many expected and market conditions in the Home Sector during the third quarter haven't improved and remained challenging in the Office sector. The Manufacturing sector was one of the bright spots during the quarter, particularly in Europe, and we currently have a healthy pipeline of business opportunities but customer purchasing decisions are often pushed back mostly in North America. In the context of very prudent and selective investments, many customers are deploying efforts to diversify and reorganize their sales and manufacturing operations, and are evaluating various solutions to further computerize their operations," said Jean-François Grou.
"Market conditions in Europe are unchanged compared to previous quarters with a higher than normal percentage of revenues derived from large retailers and manufacturers making selective investments, as is the case in North America. Fluctuations in currency exchange rates will continue to impact results, particularly in the euro zone. International markets, China in particular, display no signs of slowdown but remain small in percentage of total sales. In all geographic regions, small retailers and manufacturers remain on the side lines. Since the beginning of the fiscal year, our high revenue dependence on a small number of large customers and orders accentuates quarter to quarter revenue fluctuations.
"We have selectively resumed our participation in the most important trade shows but we are doing so while maintaining a very tight control on expenses. We are actively pursuing opportunities to sell solutions to new customers and also focus on existing customers with success on adding complementary solutions. While current market conditions somewhat attenuate the revenue ramp-up of our new desktop and web solutions, an increasing level of interest worldwide clearly validate our decisions in terms of product roadmap.
"We remain clearly focused on monitoring and controlling expenses and staff levels while maintaining our gross margin levels. We continue to maintain an optimal balance between protecting our existing customer base and our recurring revenues, increasing our market share and making select investments to generate incremental revenue streams," concluded Mr. Grou.
Conference Call Information
20-20 will host a conference call to discuss the third quarter results September 15, 2010 at 8:30 a.m. (EDT). The call will be accessible by telephone at 1-888-231-8191, or 514-807-9895. An audio replay of the conference call will be available until midnight, September 23, 2010. To access it, dial 1-800-642-1687 and enter the pass code: 98043437.
Please note that 20-20 Technologies' full financials and MD&A are available on SEDAR as well as on the Company's web site, www.2020technologies.com.
About 20-20 Technologies Inc.
20-20 Technologies is the world's leading provider of computer-aided design, business and software solutions tailored for the interior design and furniture industries. Dealers and retailers use its desktop and Web-based products and solutions for the home and office markets. 20-20 offers a unique proprietary end-to-end solution, integrating the entire breadth of functions in interior design. It provides a bridge for data communication from the point-of-sale to manufacturing, including computer-aided engineering and plant floor automation software. Operating in eleven countries with more than 500 employees, 20-20 is a publicly traded company (TWT) on the Toronto Stock Exchange (TSX). For more information, visit www.2020technologies.com.
NON-GAAP MEASURE
References in this press release to the term "EBITDA" are related to cash earnings. EBITDA is defined for these purposes as Operating Income before restructuring charges plus amortization and depreciation expenses. EBITDA is not a recognized measure under GAAP in Canada and may not be comparable to similar measures used by other companies.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this news release constitute forward-looking information within the meaning of securities laws.
Implicit in this information, particularly in respect of future operating results and economic performance of the Company are assumptions regarding projected revenue and expenses. These assumptions, although considered reasonable by the Company at the time of preparation, may prove to be incorrect. Readers are cautioned that actual future operating results and economic performance of the Company are subject to a number of risks and uncertainties, including general economic, market and business conditions and could differ materially from what is currently expected.
For more exhaustive information on these risks and uncertainties, please refer to our most recently filed annual information form, available at www.sedar.com. Forward-looking information contained in this report is based on management's current estimates, expectations and projections, which management believes are reasonable as of the current date. You should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While we may elect to do so, we are under no obligation and do not undertake to update this information at any particular time unless required by applicable securities law.
20-20 Technologies Inc.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of U.S. dollars)
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July 31, October 31,
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2010 2009
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(Unaudited) (Audited)
$ $
ASSETS
Current assets
Cash and cash equivalents 19,791 23,221
Accounts receivable 20,552 18,910
Income taxes receivable 224 24
Contracts in progress 93 253
Prepaid expenses 1,206 1,243
Future income taxes 141 421
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42,007 44,072
Property and equipment 2,251 2,322
Intangibles 7,532 9,099
Goodwill 60,798 58,161
Future income taxes 1,866 3,131
Other assets 1,343 451
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115,797 117,236
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LIABILITIES
Current liabilities
Bank loan 148 149
Accounts payable 9,596 11,040
Income taxes payable 1,161 1,674
Deferred revenue 15,827 14,665
Installment on long-term debt 3,227 3,024
Future income taxes 415 903
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30,374 31,455
Long-term debt 10,714 14,645
Leasehold inducements 297 343
Non-controlling interest 75 37
Future income taxes 2,469 3,853
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43,929 50,333
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SHAREHOLDERS' EQUITY
Capital stock 58,588 58,582
Common stock options and warrants 1,481 1,279
Contributed surplus 1,054 1,015
Deficit (2,693) (4,268)
Accumulated other comprehensive income 13,438 10,295
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10,745 6,027
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71,868 66,903
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115,797 117,236
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20-20 Technologies Inc.
CONSOLIDATED EARNINGS
(Amounts in thousands of U.S. dollars, except per share data)
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Three months ended Nine months ended
July 31 July 31
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(Unaudited) 2010 2009 2010 2009
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$ $ $ $
Revenues 14,806 16,148 48,565 46,926
Cost of revenues 3,973 4,179 12,482 12,071
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Gross margin 10,833 11,969 36,083 34,855
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Operating expenses
Sales and marketing 4,126 4,281 12,891 12,515
Research and development 3,091 3,193 9,333 9,074
General and
administrative 3,081 3,192 9,736 8,627
Stock-based compensation 66 89 358 99
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10,364 10,755 32,318 30,315
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Operating income 469 1,214 3,765 4,540
Financial expenses (income)
Bank charges and
interest expense 273 383 972 984
Exchange loss (gain) (838) (376) 614 719
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(565) 7 1,586 1,703
Non-controlling interest (4) 8 35 (24)
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Earnings before income
taxes 1,038 1,199 2,144 2,861
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Income taxes
Current 328 256 1,128 1,255
Future (130) (102) (559) (240)
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198 154 569 1,015
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Net earnings 840 1,045 1,575 1,846
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Earnings per share
Basic 0.04 0.06 0.08 0.10
Diluted 0.04 0.06 0.08 0.10
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20-20 Technologies Inc.
CONSOLIDATED CASH FLOWS
(Amounts in thousands of U.S. dollars)
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Three months ended Nine months ended
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July 31 July 31
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(Unaudited) 2010 2009 2010 2009
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$ $ $ $
OPERATING ACTIVITIES
Net earnings 840 1,045 1,575 1,846
Non-cash items
Amortization 941 972 2,917 2,810
Leasehold inducements (20) 12 (61) 33
Stock-based compensation 54 89 324 83
Capitalized interest
on long term debt 12 7 52 21
Non-controlling interest (4) 8 35 (24)
Future income taxes (130) (102) (559) (240)
Unrealized loss (gain)
on long term debt
exchange 245 (1,182) (314) (1,416)
Unrealized loss (gain)
on forward exchange
contracts 43 (186) 26 (117)
Changes in working
capital items (2,214) 1,000 (3,759) 242
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Cash flows from (used in)
operating activities (233) 1,663 236 3,238
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INVESTING ACTIVITIES
Business acquisitions - 664 98 664
Short-term investments - - - (1,625)
Short-term investments
dispositions - - - 3,235
Property and equipment (268) (156) (747) (301)
Intangible costs - acquired (24) - (24) -
Product of disposition
capital asset (net of gain) (2) - 41 -
Other assets (6) (2) (3) (2)
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Cash flows from (used in)
investing activities (300) 506 (635) 1,971
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FINANCING ACTIVITIES
Long-term debt - - 1,300 -
Repayment of long-term
debt (2,000) (9) (5,382) (4,798)
Common shares repurchased - - - (31)
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Cash flows used in
financing activities (2,000) (9) (4,082) (4,829)
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Effect of changes in
exchange rate on
cash held in foreign
currencies (370) 819 1,051 1,667
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Net increase (decrease)
in cash and cash
equivalents (2,903) 2,979 (3,430) 2,047
Cash and cash equivalents,
beginning of period 22,694 12,555 23,221 13,487
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Cash and cash equivalents,
end of period 19,791 15,534 19,791 15,534
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For further information: Media Relations: Pierre Boucher, MaisonBrison, (514) 731-0000
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