Carmanah Reports Fourth Quarter and Fiscal Year 2010 Results

 
 
VICTORIA, BC, CANADA (March 30, 2011) - Carmanah Technologies Corporation (TSX: CMH) (“the Company” or “Carmanah”) today reported its fourth quarter and fiscal year financial results for the period ended December 31, 2010.
 
Sales for the three months ended December 31, 2010 were $9.3 million, up 36.1% from $6.8 million for the same quarter in 2009. Net loss for the quarter, primarily due to non-recurring items, was $4.1 million compared to a net loss of $0.9 million in the same period of the prior year. Sales for fiscal 2010 were $33.9 million, up 7.3% from $31.6 million in 2009. Net loss for the year ended December 31, 2010, primarily due to non-recurring items, was $5.0 million, compared to a net loss of $0.6 million in fiscal 2009. Excluding non-recurring items, a non-GAAP measure, the net loss for the year ended December 31, 2010 was $1.3 million, a 28.4% improvement over 2009 on the same basis.
 
Non-recurring items in 2010, on a pre-tax basis include a $3.0 million non-cash charge related to the elimination of the capitalized deferred development costs, $0.8 million in restructuring costs, and $1.5 million in expenses related to a terminated Merger Agreement with Lightech Electronics Industries Ltd. (“Lightech”). Non-recurring items, on a pre-tax basis, in 2009 include a non-cash gain of $0.7 million on the disposal of a subsidiary, a $1.4 million non-cash foreign exchange gain resulting from the conversion of the Company’s reporting currency from Canadian dollars to US dollars, and $0.7 million in restructuring costs.
 
“Looking beyond the non-recurring items that contributed to our net loss and the Q4 non-cash losses, the annual results for 2010 are positive. Overall revenues grew 7% over 2009,” stated Ted Lattimore, Chief Executive Officer. “Our outdoor Illumination area lighting product sales grew by 43% year over year and we successfully completed our Illumination development roadmap investment. We expect this strategic product segment to start growing substantially over the next 3-5 years, paralleling the off-grid LED lighting market adoption curve, and contributing positively to both revenue and earnings.”
 
It was a year that tested and proved the mettle of the Company. “Carmanah and its people were dealt its most harsh circumstances in years; the thrill of an anticipated acquisition – unraveled by the anguish of the termination of the Lightech agreement and the action of an opposing shareholder; coinciding with a wrenching restructuring and downsizing, and the further realization that an investment in the Company’s core Illumination product line is taking longer to be rewarded than planned. What was the response? Remarkably, achievement of the largest revenue quarter of the year and setting a revenue trend in the first quarter of 2011, that is even higher” said Lattimore. “The revenue success was not unexpected, and if anything, overdue. The work we put into stabilizing and preparing our Illumination, Signals and Mobile distribution and partner network, to meld in an acquisition, created no distraction or concern within our sales channels, and strengthened their position and offerings relative to competitors. Our commitment to industrial grid-tie power systems projects in Ontario, Canada, within the provincial government’s Feed-In-Tariff (“FIT”) program is now being rewarded and putting a fast start to 2011. The clarity of purpose and line of sight decision making within the new divisional organizations requires fewer staff and is more inclusive of operational management. This divisional organization has created proud ownership amongst the staff and they have embraced the opportunity to control their destiny. In turn, this has provided the executive with the time and motivation to deal with the shareholder and Lightech issues. I’m completely impressed with the reaction of the staff and our partners, the commitment they have to their company and relationships, and the momentum they are building together; as we wrap up this near term challenge” Lattimore continued.
 
With regards to the lawsuits involving Lightech, “Management is aggressively defending its rights and taking all measures to bring the matter to an end,” Lattimore stated. “In 2010 we embarked on our previously announced non-organic growth strategy with the signing of a definitive agreement to purchase Lightech Electronics subject to several conditions precedent of which the main one was the successful completion of an equity offering. As a result of steps taken by a previously unknown significant shareholder, for the Company not to proceed with the equity offering, our Board of Directors determined after careful deliberation that it had no choice but to bring the Lightech agreement to an end in accordance with its rights under the Lightech agreement. That unfortunately resulted in legal actions initiated by both Carmanah and Lightech. Both actions are in the early stages of the litigation process.”
 
“2011 performance is planned on a more focused sales approach and additional efficiencies resulting from the restructuring initiatives we completed in 2010,” Lattimore continued.” For the first quarter of 2011, we are targeting revenues in excess of $9.5 million and we anticipate positive pre-tax income, as we expect to benefit from a continued increase in Illumination and Grid-tie revenues and reduced operating expenses. Now that contracts are working their way through the FIT program process in Ontario, we see an inflow of million dollar contracts to the Solar Power System division of our business during at least 2011. For 2011, we anticipate organic revenue to increase 15-20%, gross margins to be in the low 30% range, and lower overall operating expenses. This should enable us to achieve profitable operating results.”
 
Financial Condition at December 31, 2010 compared to December 31, 2009
  • Cash and cash equivalents of $5.7 million, down $ 3.0 million from $8.7 million
  • Working capital of $7.5 million, down $5.2 million from $12.7 million
  • Continued debt-free operations
 
Fourth Quarter 2010 compared to fourth quarter 2009
  • Sales: $9.3 million, up $2.5 million or 36.1% from $6.8 million
  • Gross margin : 26.0%, down from 27.4%
  • Operating costs, excluding non-recurring items (a non-GAAP measure): $3.2 million, up $0.3 million or 10.7% from $2.9 million
  • Net loss, excluding non-recurring items (a non-GAAP measure): $0.8 million, down $0.1 million or 19.3% from $0.9 million
  • Adjusted EBITDA (a non-GAAP measure): $0.4 million, down $0.1 million or 15.7% from $0.3 million
 
Fiscal 2010 compared to fiscal 2009
  • Sales: $33.9 million, up $2.3 million or 7.3% from $31.6 million
  • Gross margin: 33.3%, down from 33.9%
  • Operating costs, excluding non-recurring items (a non-GAAP measure): $12.7 million, down $0.1 million or 1.2% from $12.8 million
  • Net loss, excluding non-recurring items (a non-GAAP measure): $1.3 million, down $0.6 million or 28.4% from $1.9 million
  • Adjusted EBITDA (a non-GAAP measure): $0.1 million, down $0.7 million or 91.5% from $0.8 million
 
Summary of operations:

  • Sales for the fourth quarter were $9.3 million, up 36.1% from the fourth quarter of 2009 and up 8.7% from the third quarter of 2010. Broken down by product sector, sales are as follows:
    • Signals, $4.2 million, up 3.6% from $4.0 million in the fourth quarter of 2009 and down 17.6% from the third quarter of 2010
    • Illumination, $1.2 million, down 10.0% from $1.3 million in the fourth quarter of 2009 and up 57.8% from the third quarter of 2010
    • Grid-tie, $2.9 million, up 245.6% from $0.8 million in the fourth quarter of 2009 and up 70.2% from the third quarter of 2010
    • Mobile, $1.1 million, up 58.5% from $0.7 million in the fourth quarter of 2009 and up 2.5% from the third quarter of 2010
  • Sales for fiscal 2010 were $33.9 million, up 7.2% from fiscal 2009. Broken down by product sector, sales are as follows:
    • Signals, $18.5 million, down 2.3%
    • Illumination, $4.7 million, up 43.2%
    • Grid-tie, $5.7 million, up 15.2%
    • Mobile, $5.0 million, up 21.8%
  • Gross margin percentages for fiscal 2010 were 33.3%, down from 33.9% for fiscal 2009. Broken down by product sector, gross margin percentages are as follows:
    • Signals, 38.1% up from 37.6%
    • Illumination, 27.3% down from 43.2%
    • Grid-tie, 20.0% down from 27.8%
    • Mobile, 36.2% up from 20.8%
  • Product development initiatives during fiscal 2010 included:
    • On March 18, 2010, the Company announced that it has joined forces with Sabik Oy (“Sabik”) of Finland to deliver a complete range of marine lighting solutions under the Carmanah/Sabik brand.
    • On May 11, 2010, the EverGEN™ 1710 Illumination area lighting product line was launched. This was accompanied by a limited time “See the Light” marketing program designed to seed the market with deployed installations in order to provide demonstration sites.
    • On October 12, 2010, Carmanah announced a strategic partnership with Trojan Battery Company, the world’s leading manufacturer of deep cycle batteries. Under the agreement, Carmanah will use Trojan’s deep cycle batteries to provide energy storage for its EverGENTM portfolio of outdoor solar LED lights.
    • During the second half of 2010, the EG300-series roadway Illumination products were developed. These products, which provide a high lumen output at a competitive price, were formally launched in January 2011.
    • During fiscal 2010, a further $1.6 million was invested to finalize Carmanah’s Illumination product roadmap. These costs were capitalized in the past and with the off-grid LED lighting market now being estimated to not be in the early adoption phase until 2013-2015, these capitalized costs have been eliminated in 2010.
    • Through the partnership with Sabik, Carmanah expanded its short range marine Signal product line to also include Sabik’s long range marine Signal products.
  • Significant sales that were announced during fiscal 2010:
    • Signals
      • On June 2, 2010, the Company announced that, through the partnership with Sabik, Carmanah received four one-year Standing Offers worth over $1.0 million (CAD) from the Canadian Coast Guard (“CCG”) to supply a range of solar-powered LED marine signals for aids-to-navigation (“AtoN”) lighting on Canadian waterways.
      • On June 15, 2010, Carmanah announced that through its marine partnership with Sabik Oy, the Company is providing solar LED marine lanterns for marking oil spill containment booms in the Gulf of Mexico. The lanterns helped to keep marine traffic safe while containment and cleanup work continued in the area.
      • On September 23, 2010, Carmanah received orders totaling over $1.1 million from the United States Coast Guard (“USCG”) for marine signals as part of the USCG’s seasonal stock-up. More than 2,500 Carmanah/Sabik M700 series solar LED marine signals were delivered to USCG stations in 25 US states along the Atlantic and Pacific coasts, the Mississippi, Gulf of Mexico and Great Lakes regions. The orders were part of an ongoing USCG initiative to replace incandescent signals with self-contained solar LED signals.
      • On November 1, 2010, through the partnership with ADB Airfield Solutions (“ADB”), Carmanah received a purchase order in excess of $0.3 million from the Venezuela Air Force for a joint solar and AC-powered airfield signal system as part of an infrastructure upgrade at an undisclosed base.
    • Illumination
      • On May 4, 2010, an unnamed Southwestern, US power generating facility which serves the electrical power needs of approximately four million people in several states ordered $1.0 million of Carmanah’s EverGEN™ 1530 Illumination products to light up its perimeter security fencing.
      • On November 9, 2010, Carmanah announced that a major electric company in the United States is illuminating a power generating facility parking lot with solar-powered LED lighting systems provided by Carmanah. The power generating facility was installing the Carmanah EverGEN™ 1530 solar LED lighting systems as part of a pilot project to evaluate the effectiveness of solar-powered LED lighting, while at the same time saving electricity. The new solar lights were selected to help underscore the power company’s commitment to renewable energies and sustainable business practices while presenting an economical alternative to traditional grid-powered lighting systems for situations where grid power may be difficult or costly to access.
      • On December 1, 2010, Carmanah announced that it is providing 70 EverGEN 1710 solar LED lighting systems to illuminate Haxton Way Trail for the Lummi Nation Indian Reservation, Lummi Nation, Washington. The EverGEN solar lighting systems are being deployed to improve the safety of pedestrians that use the popular three-mile long pathway, which stretches across environmentally-sensitive wetlands.
    • Grid-Tie
      • On July 7, 2010, Carmanah was awarded a $1.5 million (CAD) contract by the Town of Markham, Ontario, Canada to supply, install, and commission a 250 kW solar photovoltaic grid-tie system for the Town’s newly re-located Emergency Operation Centre.
      • On August 24, 2010, Carmanah completed installation for a 38 kW solar grid-tied photovoltaic system designed for the newly constructed Dr. David Suzuki Public School in Windsor Ontario. Capable of delivering to 10 per cent of the facility’s total energy needs, the new solar PV system is expected to serve as both a sustainable, revenue-generating power source as well as a functional learning tool for the students.
      • On December 6, 2010, Carmanah was awarded four contracts with a combined value in excess of $5.0 million (CAD) by Northland Power Inc., Canada’s largest independent power producers, to design, supply and install two 500 kW, a 250 kW and a 10 kW solar PV rooftop system for a national retailer and distributor.
  • Restructuring activities during 2010 included the following:
    • On September 14, 2010, Carmanah announced the acceptance of the resignation of its Chief Operating Officer.
    • On November 10, 2010, the Company completed restructuring activities in order to reduce its operating costs. These activities primarily consisted of staff reductions related to a planned reduction of research and development investment, as a significant amount of development projects within the illumination product roadmap have been completed or were nearing completion.
    • As at December 31, 2010, Carmanah employed 65 employees compared to 107 as at December 31, 2009.
    • Divisional re-alignment:
      • Starting in the fourth quarter of 2010, the Company divided its business into two divisions: Signals & Illumination and Mobile & Grid-Tie as it believes that this divisional reporting format better reflects how it views and manages the business. Until the end of the third quarter of 2010, the business segments were referred to as Signals & Illumination and Systems & Other.
  • Non-organic growth initiative – Lightech:
    • During 2010, the Company embarked on its non-organic growth strategy. On September 21, 2010, the Company announced that it had entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Lightech, pursuant to which its wholly-owned subsidiary Carmanah Lightech would acquire all of the issued and outstanding shares of Lightech (the “Lightech Acquisition”). Lightech is an Israeli corporation engaged in the business of designing and manufacturing power supplies for LED lighting. The aggregate purchase price payable to security holders of Lightech was $18.5 million, of which $12.3 million was to be satisfied in cash and $6.2 million was to be satisfied by the issuance of 8.6 million of the Company’s common shares. Upon execution of the Merger Agreement, the Company paid a cash advance of $625,000 (the “Signing Payment”) (of which half was paid directly to Lightech and the balance was paid to an escrow agent).
    • On October 25, 2010, Carmanah announced that it had received a formal request for the calling of a special meeting of its shareholders from a corporation holding approximately 9.5% of the Company’s issued and outstanding common shares. The requisition stated that the business to be transacted at the meeting was to consider an ordinary resolution directing the Company not to proceed with the proposed public offering and to remove the Company’s board of directors (the “Board of Directors”) if the Board of Directors did not agree to be bound by the outcome of such an ordinary resolution.
    • On November 10, 2010, having considered advice from the lead agent for the Offering, as well its financial advisor, the Board of Directors concluded that, despite its reasonable commercial efforts, the Company would not be able to complete the Offering by December 31, 2010 because, among other reasons beyond its control, of the uncertainty over the results of the shareholder meeting to approve the ordinary resolution directing the Company not to proceed with the Offering and/or replace the Board of Directors. Having determined that the Company would be incapable of completing the Offering by December 31, 2010, the Company provided a notice of termination to Lightech on the same date.
    • Under the terms of the Merger Agreement, the Company is entitled to full repayment of the Signing Payment upon termination of the Merger Agreement as a result of an inability to complete the Offering. As of December 31, 2010, Lightech had not repaid the Signing Payment and on January 4, 2011, the Company announced that it had filed a lawsuit in the Supreme Court of British Columbia, Canada against Lightech seeking restitution of the Canadian Dollar equivalent of the Signing Payment (plus interest and costs).
    • On January 28, 2011, the Company announced that Lightech and certain of its shareholders had filed a Statement of Claim in the District Court for Tel-Aviv Yaffo, Israel against the Company, Carmanah Lightech and certain of its officers alleging a breach of the terminated Merger Agreement, among other things, and is claiming damages of $6.0 million. As of the date hereof, both actions are in the early stages of the litigation process. Carmanah maintains that it properly terminated the Merger Agreement and has engaged Israeli council to fully and vigorously defend the Israeli claim.
 
Subsequent to December 31, 2010:
  • On January 6, 2011, Carmanah announced that the ADB/Carmanah team has been awarded a $0.5 million project for solar powered aviation lights at a forward operating base in Afghanistan. On January 19, 2011, the Company announced the launch of the EG300 series Illumination light; a new generation of solar-LED outdoor lighting systems designed to meet the specific roadway performance features required for customers in global sun-belt regions where core infrastructure development is underway, including regions such as Latin American and the Caribbean.
  • On February 2, 2011, Carmanah announced that the City of Los Angeles has selected Carmanah EverGEN 1710 solar powered lights for a $0.5 million project to light a popular bicycle path.
  • On February 10, 2011, Carmanah announced that its EG340 series Illumination lights, the Company’s latest product was chosen by the City for the Parque Caneguin, Mexico to light its historically significant heritage park located in Delegacion Miguel Hidalgo, Mexico City. This order represents one of the initial launch installations within a key market for the new EG300-series product. Parque Caneguin is also recognized by the Insistuto Nacional de Antropologia e Historia (“INAH”) as a Mexico City, Mexico heritage site as well as being valued by the community as the “lungs” of the district.

 

Non-GAAP Measures

Management believes that the non-GAAP measures presented provide useful information by excluding certain items that may not be indicative of Carmanah’s core operating results and that these non-GAAP measures will allow for a better evaluation of the operating performance of the Company’s business and facilitate meaningful comparison of results in the current period to those in prior periods as well as future periods. Reference to these non-GAAP measures should not be considered as a substitute for results that are presented in a manner consistent with GAAP. These non-GAAP measures are provided to enhance investors’ overall understanding of Carmanah’s current financial performance.
 
A limitation of utilizing these non-GAAP measures is that the GAAP accounting effects of the non-recurring items do in fact reflect the underlying financial results of Carmanah’s business and these effects should not be ignored in evaluating and analyzing Carmanah’s financial results. Therefore, management believes that Carmanah’s GAAP measures on net loss and the same respective non-GAAP measure should be considered together.
 
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 Adjusted EBITDA, defined as net income before interest, income taxes, amortization, restructuring charges, goodwill, intangible impairments, discontinued operations and acquisition costs.
(US$ thousands)
Q4 Fiscal
2010
Q4 Fiscal
2009
Year to date
2010
Year to date
2009
 
 
 
 
 
 
Net loss
$(4,147)
$(901)
(4,951)
(642)
Add/(deduct):
 
 
 
 
 
Interest
(3)
(6)
11
(187)
 
Income taxes
(1,206)
46
(1,482)
(305)
 
Amortization
300
278
1,243
827
 
Restructuring charges
491
221
807
673
 
Intangible asset impairment
Acquisition costs
2,969
1,228
-
-
2,969
1,470
-
-
 
Discontinued operations
-
44
-
425
Adjusted EBITDA
(368)
(318)
67
791

Complete set of Financial Statements and Management Discussion & Analysis

A complete set of the annual 2010 Financial Statements and Management’s Discussion & Analysis are available on Carmanah's corporate website. To view these documents, visit: www.carmanah.com/Company/Investors/Financial_Reports.aspx. Both documents for the year ended December 31, 2010 will also be filed on SEDAR (www.sedar.com).

 

###

About Carmanah Technologies Corporation
As one of the most trusted names in solar technology, Carmanah has earned a reputation for delivering strong and effective products for industrial applications worldwide. Industry proven to perform reliably in some of the world's harshest environments, Carmanah solar LED lights and solar power systems provide a durable, dependable and cost effective energy alternative. Carmanah is a publicly traded company, with common shares listed on the Toronto Stock Exchange under the symbol "CMH”. For more information, visit carmanah.com.

 

Carmanah Technologies Corporation

 

“Roland Sartorius”

 

Roland Sartorius, Chief Financial Officer

 

 

For further information:

 

 

Investors:

Investor Relations: Roland Sartorius, CFO

Toll-Free: 1.877.722.8877

investors@carmanah.com

Media:

Public Relations: David Davies

Tel: +1.250.382.4332

ddavies@carmanah.com

 

This release may contain forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as “expects,” “plans,” “estimates,” “intends,” “believes,” “could,” “might,” “will” or variations of such words and phrases. Forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results, performance, or achievements of Carmanah to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. These statements are based on management’s current expectations and beliefs and are subject to a number of risks and uncertainties which are described under the caption “Forward-looking statements” and “Risk Factors” and elsewhere in Carmanah’s Annual Information Form for the fiscal year ended December 31, 2010, as filed on SEDAR at www.sedar.com. The risk factors identified in Carmanah’s Annual Information Form are not intended to represent a complete list of factors that could affect Carmanah. Accordingly, readers should not place undue reliance on forward-looking statements. Carmanah does not assume any obligation to update the forward-looking information contained in this press release.