Victoria, British Columbia, Canada - Tuesday, August 8, 2006 - Carmanah Technologies Corporation (TSX: CMH) is pleased to announce its second quarter results for the three and six months ended June 30, 2006 and 2005.
Highlights for the quarter:
- Record Q2 2006 revenues of $15,844,155, representing a 142% increase over Q2 2005 and 25% over Q1 2006 at $12,693,769.
- Record 2006 year-to-date revenues at $28,537,924, representing a 151% increase over the same six-month period in 2005.
- Record Q2 2006 orders booked of $16,152,968.
- Sales order backlog of $6,681,294.
- Gross margin at 34% for Q2 2006 and for the six months ending June 30, 2006.
- Q2 2006 EBITA in the amount of $773,025, representing an increase of 503% over Q1 2006 at $128,249.
- Q2 2006 net earnings in the amount of $123,543, compared to Q1 2006 loss of $(23,290).
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Summary of Results
Q2 2006 is trending as per management's expectations. During the quarter, Carmanah achieved record revenues of $15,844,155, which represents growth of 142% over the same quarter in 2005 at $6,542,507 and 25% over Q1 2006 at $12,693,769. The Company also booked a record $16,152,968 in sales orders and held a significant sales order backlog of $6,681,294 going into Q3 2006. In addition, gross margins were stable at 34% and all operating expenses declined as a percentage of sales.
"The last of the unusual expenses related to our integration of Soltek Powersource Ltd. and the capital costs associated with multiple facility moves and improvements were effectively completed in Q2", states Art Aylesworth, Carmanah's CEO. "Revenues and profits are now growing quarter over quarter and we are seeing our operating expenses decline as a percentage of sales. The past quarter also saw the Company enjoy several important milestones, including the successful launch of and orders for our feature-rich A704-5 aviation light, as well as the follow-on order from London Buses to extend the system-wide rollout of our solar LED bus stops. In addition, our solar LED roadway beacons received formal approval from the state of Florida and our mobile power systems division signed a new channel partnership agreement with a major US distributor, strengthening our US routes to market. All of these achievements signal increased mainstream acceptance of our products, which bodes well for a strong finish to the year. With the wide range of 'unusual' integration and expansion activities of the past year behind us, management is now focused on growth, efficiency and profitability initiatives."
Overview of Operations
The growth in Carmanah's operations, both organically and through acquisition, has resulted in a broadening of the Company's business activities to include the design, manufacture and/or distribution of three technology groups: solar powered LED lighting, solar power systems and LED-illuminated signage.
Carmanah's Solar LED Lighting Group provides a variety of energy-efficient LED lighting products for marine, aviation, transit, roadway and industrial worksite applications. The Company's Solar Power Systems Group offers a wide range of renewable energy system solutions for industrial, residential and recreational power applications. The Company's LED Sign Group designs and manufactures energy-efficient LED edge-lit signs for corporate identity, point-of-purchase and architectural applications.
Carmanah's headquarters and primary manufacturing and distribution facilities are located in Victoria, British Columbia, Canada. The Company also operates additional manufacturing and distribution facilities in Calgary, Alberta, Canada, as well as regional distribution and sub-assembly facilities in Barrie, ON; Santa Cruz, CA; and London, England.
Carmanah currently has more than 250,000 installations in 110 countries. Carmanah's customer list includes a wide range of government, commercial and private users worldwide, who are serviced directly by the Company or one of its regional authorized distributors and/or sales agents.
Results of Operations
Carmanah's total revenues for the three months ended June 30, 2006 were $15,844,155, representing a 142% increase over the same period in 2005 at $6,542,507. Revenues for the six months ended June 30, 2005 were $28,537,924, representing a 151% increase over the same period in 2005 at $11,392,049.
Solar LED Lighting Group
Revenues from the Solar LED Lighting Group were $5,770,912 in Q2 2006, representing an increase of 12% over Q2 2005 at $5,142,265. This is not indicative of sales momentum, however, as total orders booked by the Solar LED Lighting Group for the quarter was $6,719,976. The differential between orders booked and invoiced sales is primarily a result of orders in the system with delivery dates beyond Q2.
Revenues from the Solar LED Lighting Group for the six months ended June 30, 2006 were $11,097,912, representing an increase of 29% over the same period in 2005 at $8,585,446. The Solar LED lighting Group entered Q3 2006 with a sales order backlog of $3,446,525.
Solar Power Systems Group
Revenues from the Solar Power Systems Group amounted to $8,548,354 for the three months ended June 30, 2006, and $14,775,108 for the six months ended June 30, 2006. This group was acquired in July 2005 and therefore has no comparatives for the same periods in 2005. The Solar Power Systems Group entered Q3 2006 with a sales order backlog of $2,913,698.
LED Sign Group
Revenues from the LED Sign Group were $1,356,497 in sales for Q2 2006, compared to $1,400,242 for Q2 2005. Contributions for the six months ended June 30, 2006 were $2,246,699, compared to $2,806,603 for the same period in 2005. A significant portion of revenues achieved by this group are through larger orders, and therefore quarter-over-quarter results may vary significantly. The LED Sign Group entered Q3 2006 with a sales order backlog of $321,069.
A summary of revenues from each of Carmanah's technology groups is as follows:
Cost of Sales and Gross Profit Margin
Carmanah's cost of sales for the Q2 2006 was $10,496,659 (66% of sales), resulting in a gross profit margin of 34%, compared with gross profit margin of 35% for Q1 2006. For the six months ended June 30, 2006, the Company's gross profit margin was 34%, compared with 49% for the same period in 2005. The shift in Carmanah's gross margin from 2005 to 2006 is primarily due to the contribution by the Company's Solar Power Systems Group for the six months ended June 30, 2006 ($14,775,108 at 24% gross margin).
Carmanah offers product solutions to a variety of market sectors at various gross profit margins. The blended gross profit margin is significantly affected by the ratio of sales contributed by the various technological groups, by the product mix sold, as well as the related market sector.
Wages and Benefits
As a percentage of revenue, wage and benefit expenses continue to trend downwards from preceeding periods. For the three months ended June 30, 2006 wage and benefit expenses were 15%, compared to 21% for Q2 2005 and 19% for Q1 2006. Wage and benefit expenses for the six months ended June 30, 2006 were 17%, compared to 20% for the same period in 2005.
Wage and benefit expenses for the three months ended June 30, 2006 increased 99% to $2,389,990, compared with $1,202,770 for Q2 2005. For the six months ended June 30, 2006, wage and benefit expenses increased 116% to $4,824,958, compared with $2,233,269 for the same period in 2005. This increase is primarily due to the following:
- $1,600K in additional wage expenses resulting from the acquisition of the Solar Power Systems Group;
- $390K in additional commissions expense resulting from overall increased sales;
- $274K in additional sales, marketing, finance, purchasing and administrative staff in support of overall sales growth; and
- $247K in additional stock-based compensation expense.
Office and Administration
As a percentage of revenue, office and administration expenses for Q2 2006 were 6%, compared to 7% for Q2 2005 and 6% for Q1 2006. Office and administration expenses for the six months ended June 30, 2006 were also 6%, compared to 8% for the same period in 2005.
Office and administration expenses in Q2 2006 were $992,470, representing a 119% increase over Q2 2005 of $453,658. Office and administration expenses for the six months ended June 30, 2006 were $1,801,989, representing an increase of 99% over the same period in 2005 at $904,548. This increase is primarily due to:
- The acquisition of the Solar Power Systems Group in July 2005, which has no comparatives for the same periods in 2005, contributed to this increase with the additional costs of its four sub-assembly and warehouse operations (Victoria, BC, Calgary, AB, Barrie, ON, and Santa Cruz, CA);
- The expansion into Carmanah's new 28,000 square foot warehouse facility, as well as the associated increase in overall office, administration and information technology expenses; and
- Increased public company-related costs, including a one-time expense in Q1 2006 in the amount of $117,000 to transfer its listing from the TSX Venture Exchange to the TSX Toronto Stock Exchange, as well as an overall increase in regulatory fees and expenses paid under the new listing.
Sales and Marketing
As a percentage of revenue, sales and marketing expenses for Q2 2006 were 4%, compared to 6% for Q2 2005 and 4% for Q1 2006. Sales and marketing expenses for the six months ended June 30, 2006 were 4%, compared to 7% for the same period 2005.
Sales and marketing expenses for Q2 2006 were $632,523, representing a 51% increase over Q2 2005 of $418,478. Sales and marketing expenses for the six months ended June 30, 2006 were $1,157,818, representing a 49% increase over $776,103 for the same period in 2005. The Company continued to increase sales and marketing activities for new and existing product lines throughout its worldwide marketplace and is expanding its sales and marketing efforts to include the Power Systems Group's customers and verticals.
For the first six months of 2006, the Company attended 56 tradeshows and industry conferences, compared with 43 similar events during the same period in 2005.
Research and Development
As a percentage of revenue, research and development expenses for Q2 2006 were 3%, compared to 7% for Q2 2005, and 3% for Q1 2006. Research and development expenses for the six months ended June 30, 2006 were 3%, compared to 7% for the same period 2005.
During Q2 2006, gross research and development expenses increased 69% to $820,062, compared with $486,787 for Q2 2005. For the six months ended June 30, 2006, gross research and development expenses increased 68% to $1,432,329, compared with $850,012 for the same period in 2005. The increase in gross research and development expenses is primarily due to continued investment in new product development, cost reduction initiatives and existing product enhancements across all of the Company's technology groups.
During Q2 2006, a SR&ED investment tax credit in the amount of $326,361 was booked against total research and development expenses, resulting in net research and development expenses of $493,701. For the six months ended June 30, 2006, a SR&ED investment tax credit in the amount of $526,509 was booked against year-to-date research and development expenses, resulting in net research and development expenses of $905,820. There are no comparative SR&ED investment tax credits for 2005.
Income tax expense for Q2 2006 totaled $357,826. This amount is comprised of current tax expense of $282,199 and future income tax expense of $75,627. The current tax expense relates to taxable income generated by Carmanah in the normal course of operations. Current tax expense as a percentage of pre-tax earnings is high, as Carmanah chose to postpone certain tax deductions to use investment tax credits that offset taxes otherwise payable.
Earnings before interest, taxes and amortization (EBITA) for Q2 2006 were $773,025, compared to $447,471 for Q2 2005. For the six months ended June 30, 2006, EBITA were $901,274, compared to $754,043 for the same period in 2005.
Non-GAAP measures - the Company uses certain non-GAAP measures to assist in assessing its financial performance. Non-GAAP measures do not have any standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies. One such non-GAAP measure used for assessing financial performance is EBITA. EBITA is calculated as net earnings before interest income, taxes and amortization. A reconciliation of EBITA to net earnings is as follows:
Net earnings for Q2 2006 were $123,543, compared with $387,217 for Q2 2005. For the six months ended June 30, 2006, net earnings were $100,253 compared with $650,639 for the same period in 2005.
Carmanah is continuing to focus on maintaining or increasing the gross margins across all of its technology groups, and continuing to reduce overall operating expenses as a percentage of sales.
Balance Sheet Highlights
Carmanah's cash, cash equivalents, and short-term investments at June 30, 2006 were $4,444,241, compared to $11,662,214 at December 31, 2005.
Net cash usage from operations for the six months ended June 30, 2006 was $6,574,852. This is due primarily to:
- $3,840,003 in increased inventory levels in support of increased sales forecasts, particularly in areas of solar panel supply;
- $882,255 in prepayments to suppliers to secure solar panel product;
- $2,885,056 in increased accounts receivables due to a combination of sales generated through the Mobile markets booking program which has extended payment terms and to increased sales growth, particularly through the latter part of second quarter.
During the six months ended June 30, 2006, Carmanah also invested $1,387,838 in leasehold improvements and equipment related to setup and completion of the Company's new production and warehousing facility, as well as to improvements to its head office facility in anticipation of physically integrating Soltek and Carmanah sales and administration staff. These projects were effectively completed by the end of Q2 2006. These improvements have prepared Carmanah's facilities for the anticipated growth over the next two years. The Company anticipates no further significant facilities-related investments in the foreseeable future.
As per the December 2005 financing, management advised that funds raised would be primarily used for significant infrastructure improvements, as well as pro-active inventory investment related to potential supply-side challenges in the photovoltaics market. With availability of dollars to invest in inventory, management was able to negotiate supply contracts through to the end of 2007. As a result, current inventory levels will now be monitored and reduced where appropriate.
Net working capital as at June 30, 2006 was $26,743,748 with a current ratio of 5.2:1 and $7,609 of non-current lease obligations.
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About Carmanah Technologies Corporation
Carmanah is an award-winning manufacturer specializing in renewable and energy-efficient technology solutions. The Company is currently focused on three technology groups: solar power systems & equipment, solar-powered LED lighting and LED illuminated signage.
Carmanah is headquartered in Victoria, British Columbia, Canada and has branch offices and/or sales representation in 11 cities across Canada, the United States and the United Kingdom. With more than 250,000 installations worldwide, Carmanah is one of the world's premier suppliers of energy-efficient products.
The shares of Carmanah Technologies Corporation are publicly traded on the Toronto Stock Exchange under the symbol "CMH" and on the Berlin and Frankfurt Stock Exchanges under the symbol "QCX". For more information, please visit www.carmanah.com.
On Behalf of the Board of Directors
Carmanah Technologies Corporation
Praveen Varshney, Director
For further information, please contact:
Mr. Mark Komonoski, Director
Carmanah Technologies Corporation
Tel: (403) 470-8384
Mr. David Davies
Tel: (250) 382-4332
This release contains forward-looking statements within the meaning of the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties are described under the caption "Note Regarding Forward-looking Statements" and "Key Information - Risk Factors" and elsewhere in Carmanah's Annual Report for the fiscal year ended December 31, 2005, as filed with the U.S. Securities and Exchange Commission and which are incorporated herein by reference. Carmanah does not assume any obligation to update the forward-looking information contained in this press release.