The Company also announced today that an agreement has been signed to acquire the Planit Fusion business, the kitchen and bath business from the United Kingdom based Planit Holdings Limited. Please refer to the separate release issued today, "20 20 Technologies Announces an Agreement to Acquire the Planit Fusion business from Planit Holdings Limited."
"This has been a good year for 20-20 despite a difficult environment caused by deepening housing contraction, continuing credit issues in North America and the sharp rise in the Canadian dollar, which have mainly affected our bottom line," said Jean Mignault, Co-Chairman of the Board and Chief Executive Officer. "We are continuing to deliver on our expansion plan worldwide. Our internationally-diversified product offering continued to contribute to our performance, mainly due to growth in recurring revenues from our installed base and in revenues from professional services."
"The growth momentum we have built through acquisitions and internal growth during the last few years, including our latest acquisition of Planit Fusion, puts us in a favorable position for the future," added Jean-François Grou, President and Chief Operating Officer. "Going forward this year, we expect revenue growth to be generated primarily from our European operations with the weakened U.S. economy expected to create a flat business environment for much of 2008."
Revenues grew by 11.9% to $67.6 million in the fiscal year ended October 31, 2007. The increase is attributable to additional recurring support and maintenance services generated by a growing licensee base and higher professional services revenues, as well as to $2.8 million generated by MBI, Data One, VSI and PSI acquisitions in fiscal 2007, for which there were no revenues for the corresponding period last year. On an organic basis, excluding the impact of acquisitions made over the last 12 months, revenues grew by 7.2% over the comparable period in 2006. Revenues for the fourth quarter of 2007 increased slightly to $17.6 million, compared to $17.4 million for the same period a year ago.
License sales for fiscal 2007 increased 0.7% to $24.5 million. License sales to customers in the commercial market showed strong organic growth, rising 43.0% from 2006, while license sales in the residential market fell 11.4%, a reflection of market conditions. Maintenance and other recurring revenues grew by 17.9% to $28.6 million, while revenues from professional services increased 22.2% to $14.6 million for the year ended October 31, 2007.
Revenues continued to be generated mainly in North America, which represented 67.9% of total sales for the twelve months ended October 31, 2007.
Operating income excluding the unusual item - write-off of development costs, decreased by 19.5% to $5.1 million or 7.5% of total revenues for fiscal 2007, compared to $6.3 million or 10.4% of total revenues for fiscal 2006. The lower operating income was mainly attributable to increases in sales and marketing costs related to salaries, rent and bad debt provision adjustments in 2007 and 2006, and in research and development expenses due to rising amortization related to higher capitalized costs in prior periods, and amortization of development costs due to acquisition accounting of recent acquisitions. For the fourth quarter of fiscal 2007, operating income decreased by 65.1% to $1.1 million compared to $3.1 million for the same period in 2006.
In the fourth quarter of 2007, the Company accentuated its conduct of financial due diligence review related to a potential acquisition (note 22). This due diligence process resulted in a review by the Company, as of October 31, 2007, of a portion of its business plan and of product commercialized or in development. Following this review, the Company concluded that certain criteria enabling, under generally accepted accounting principles, the continued deferral of development costs were no longer met and, accordingly, recorded a non-cash $12,558,000 charge for the write-off of certain development costs.
"We expect the dollar amount of our selling and marketing expenses to increase in future periods as amounts paid out to our sales force and industry consultants increase commensurate with the growth in our sales," said Steve Perrone, Chief Financial Officer. "We do not anticipate, however, that sales and marketing costs will vary significantly as a percentage of sales in the near future."
The strength of the Canadian dollar versus the U.S. dollar also had a significant impact on operating and financial expenses.
The Company hedges approximately 40% of its exposure in net monetary assets held in currencies other than the Canadian dollar.
"Due to the sharp rise of the Canadian dollar over a very brief period of time, we were adversely affected on our exposure. We will continue to monitor this situation closely," added Mr. Perrone.
As a result of the sharp drop in the value of the U.S. dollar compared to the Canadian dollar in fiscal 2007, the Company recorded an exchange loss of approximately $1.5 million, compared to a gain of $191,000 in 2006. For the fourth quarter of fiscal 2007, the Company recorded an exchange loss of about $700,000 as the U.S. dollar decreased by approximately 9%. In addition to these losses largely related to translation, operating expenses denominated in Canadian dollars increased by $1.2 million, or $579,000 in the fourth quarter, simply due to the rate of increase when converted to U.S. dollars.
These exchange losses when combined with unusual item above, resulted in a net loss of $5.2 million for fiscal 2007, compared to net earnings of $5.9 million or 9.7% of total revenues in 2006. Loss per share for the year amounted to ($0.28) on a fully diluted basis, compared to earnings per share of $0.31 the previous year. Fourth quarter net loss stood at $8.3 million or $0.43 per share compared to net earnings of $2.7 million or $0.14 per share for the same period in 2006. Excluding the unusual items, net earnings for the quarter would have been $0.5 million or $0.03 per share.
EBITDA* excluding unusual item above, increased 7.6% to $12.7 million for fiscal 2007, compared to $11.8 million for the same period in 2006.
At October 31, 2007, 20-20 showed a stronger balance sheet than a year earlier, with working capital of $37.2 million compared to $27.6 million at the end of fiscal 2006.
The Company's cash and investments are essentially held in AAA and R1 rated instruments issued by major Canadian chartered banks and governments. The Company has no exposure to asset-backed instruments.
"Both our residential point-of-sale solutions and manufacturing markets continue to be affected in North America by the sub-prime issue and tight credit, as well as by the general economic environment in the United States," said Mr. Mignault. "Management expects these conditions to be prevalent in the coming quarters. We expect, however, our newer solutions and ERP systems for the office furniture markets - and for automating office furniture sales processes - will help compensate for these factors."
Forecasts from industry organizations and remodeling professionals indicate stable, if not slightly declining, spending for renovation in 2008, with growth resuming in 2009. Longer term indications are positive. It is expected the Company's revenue mix weighting in fiscal 2008 will change slightly as licenses are expected to account for a greater proportion of total revenues.
"In Europe, we will gradually integrate and leverage our Planit Fusion teams and distributors while pursuing the integration of our North American product portfolio for the benefit of our customer base. At the same time, we will seize further growth opportunities in emerging markets, namely in the Asia-Pacific region, especially in China where we recently concluded an acquisition in Shanghai. In Brazil and other Latin American countries we will continue to selectively introduce our sales and design software for office furniture," said Mr. Grou.
A marketing and product management priority for 20-20 in the year ahead will involve the introduction of new products in geographical markets where the Company is already active, and to expand its activities into adjacent markets to increase licenses sales. Success in this objective will not only contribute to the Company's organic growth, but also progressively improve its gross margins over the coming quarters.
"The sub-prime issue will play a significant role in our future," said Mr. Mignault. "The event did not touch us in Europe, but created a headwind for us in North America. We have seen such events before, and we know what habitually follows them. No company in our industry is better positioned to meet the opportunities that will accompany revived demand. The finest minds in our industry are members of 20-20's global management team. We have aligned that talent to leverage the muscle of our global presence and the strength of our unmatched product portfolio. Once the symptoms created by the sub-prime matter ease, our momentum will resume, we'll see accelerated growth - and 20-20's global competitive position will have sharply improved. With 20-20's stable financial situation and strong cash position, we are well placed to further consolidate our position in the dealer graphical systems in the European market."
Conference Call Information
20-20 will host a conference call to discuss these developments today, January 30, 2008 at 10 a.m. (EST). The call will be available by telephone at 514-807-8791 and 1-800-731-6941. The call will be webcast at www.2020technologies.com on the Investors page, Events Calendar section. An audio replay of the conference call will be available until midnight on Sunday, March 30, 2008. To access it, dial 416-640-1917 or 1 877 289-8525 and enter passcode 21260614#.
About 20-20 Technologies Inc.
20-20 Technologies is the world's leading provider of computer-aided design, business and manufacturing software solutions tailored for the interior design and furniture industries. Dealers and retailers use its desktop and Web-based products and solutions for the residential and commercial markets. 20-20 offers a unique proprietary end to end solution, integrating the entire breadth of functions in interior design through one platform. It provides a bridge between data communication from a point-of-sale to manufacturing and world-leading enterprise resource planning (ERP) systems, including computer-aided engineering and plant floor automation software. Operating in 13 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.
References in this press release to the term "EBITDA" are related to cash earnings. EBITDA is defined for these purposes as Operating Income 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.
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.
Chief Executive Officer
Laval: +1 (514) 332-4110
Chief Financial Officer
Laval: +1 (514) 332-4110