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Despite reporting an increase in revenues of 29% for Q4 2008, Nstein Technologies (news, site) -- a Canadian provider of online publishing solutions -- has warned the market to expect a more conservative growth trajectory in 2009.

Last week the company reported 2008 Q4 revenues of US$ 8.1 million, an increase of 29% compared to US$ 6.3 million a year earlier. Nstein's revenues for 2008 amounted to US$ 25.7 million, an increase of 41%, compared to US$ 18.2 million a year earlier. Net earnings amounted to US$ 1.35 million, as opposed to US$ 109,713 for the same period last year.

License Revenues Less Than Stellar

Expected revenues from software licenses were lower than anticipated. Nstein pointed its finger at the market, observing that skittish customers delayed their decision to purchase. In response to economic uncertainty, the firm made adjustments in its cost structure in the second half of the year, halting its hiring program and reducing  discretionary spend -- as well as the size of its workforce.

Nstein also acknowledged its quarterly performances remain inconsistent because its client base still prefers to acquire perpetual license software resulting in uneven revenues from quarter to quarter. However, they say that there were signs that revenue streams were settling down into steady cycles.

But the principal concern, according to Luc Filiatreault, Chief Executive Officer of Nstein Technologies, is market uncertainty in the ongoing economic crisis.

“There was some concern that Nstein's newspaper clients would delay investment decisions as balance sheets were eroded. It appears as though many decisions were delayed until the 4th quarter when a lot of publishers were probably reacting to the free fall in print advertising dollars,” he acknowledged. "[But] despite a difficult economic environment, Nstein was able to increase sales  during the fourth quarter of 2008."

Riding the Picdar Wave

Much visible profit rose from the acquisition of Picdar at the start of 2008 that accounted for half of the increase in sales. Picdar is a picture and digital asset management provider. Nstein paid between US$ 6.6 million and US$ 9.2 million for Picdar, with part of it contingent on meeting future revenues and Earnings before Interest, Taxes, Depreciation and Amortization (EBITDA) targets.

The company posted a negative EBITDA of US$ 1.6 million compared to EBITDA of US$ 133,105 the previous year. The net loss amounted to US$ 2.1 million as opposed to US$ 1.8 million for 2007.

The decline in EBITDA is due in part to increased investment required at the beginning of the year to the sales force in order to accelerate the growth of the company's revenues and its developing markets in North America, the United Kingdom and France.

For the coming year, the company is predicting another four quarters of market growth, as its clients scramble to get online. Indications of a small economic reprise by the beginning of 2010 are likely to loosen the pockets of newspaper owners, pumping new revenues into the market and creating a healthier business environment.