Carmanah Technologies Corporation (TSX: CMH) (“the Company” or “Carmanah”) today reported its fourth quarter and fiscal 2018 financial results for the periods ended December 31, 2018. Currency amounts are in U.S. dollars unless otherwise noted.
All figures below, unless otherwise stated, are for Carmanah’s continuing operations and exclude the operating results from the Company’s discontinued operations, which include the Power division (divested in 2017) and the Marine, Airfield Ground Lighting and Aviation Obstruction divisions (divested in 2019).
The Offshore segment of our business was previously included within the Signals segment, but due to the sale of a significant portion of Carmanah’s assets to SPX Corporation on February 1, 2019, including all of the issued and outstanding equity interests in its Marine, Airfield Ground Lighting and Aviation Obstruction Lighting businesses as well as some miscellaneous business assets that support the businesses sold (the “SPX Divestiture”), and the subsequent reclassification of results to discontinued operations, the Company determined that its Offshore Wind vertical now meets the definition of a reportable segment in accordance with IFRS 8 – Operating Segments. Accordingly, new reportable segment was recognized within continued operations presented as at December 31, 2018.
Fourth Quarter Revenues and Profitability
In the fourth quarter of 2018, we generated revenues of $8.1 million, up $1.4 million or 22% over the same period in 2017.
- Signals generated revenues of $4.5 million, up $1.8 million or 67%, driven by increased sales in our Telematics vertical (up $1.1 million) and our Traffic vertical (up $0.7 million), with the Traffic increase due to our acquisition of IDC in October 2018.
- Offshore generated revenues of $2.8 million, down $0.3 million or 11%, due to project delays that are expected to shift revenues into future periods.
- Illumination generated revenues of $0.7 million, which remained consistent with the same period in 2017.
Gross margin percentage in the fourth quarter of 2018 was 34.0%, up from 33.2% in the same period in 2017.
Core operating expenditures1 (a non-IFRS financial measure) in the fourth quarter of 2018 were $3.1 million, down from $3.2 million or 4% over the same period in 2017, primarily due to a decrease in development costs.
Net income in the fourth quarter of 2018 was $0.4 million, up from net loss of $0.7 million in the same period in 2017. The positive impact on net income was due to increased revenues, a higher gross margin, and a decrease in operating expenses.
Carmanah’s management relies on adjusted EBITDA2 (a non-IFRS financial measure) to gauge financial performance. In the fourth quarter of 2018, adjusted EBITDA was $0.4 million or 5.4% of revenue, an improvement from ($0.8) million or (12.2%) of revenue in the same period in 2017. A table reconciling net income and adjusted EBITDA is included in this release.
Fiscal 2018 Revenues and Profitability
For the year ended December 31, 2018, we generated revenues of $30.7 million, up $3.4 million or 13% over 2017 revenues of $27.3 million.
- Signals generated revenues of $14.8 million, up $3.9 million or 35% over 2017, driven by increased sales in our Telematics vertical (up $3.5 million) and our Traffic vertical (up $0.4 million).
- Offshore generated revenues of $11.8 million, down $0.7 million or 6% over 2017, due to project delays that are expected to shift revenues into future periods.
- Illumination generated revenues of $4.2 million, up $0.3 million or 6% over 2017. We anticipated a moderate increase in 2018 revenues as 2017 was restricted by our ability to produce and ship due to component delays for our EverGen product. We resumed normal production and delivery lead times in the first quarter of 2018.
Gross margin percentage for the year was 36.9%, up from 35.3% in 2017.
Core operating expenditures for the year were $12.2 million, up from $11.2 million or 9% in 2017. The increase is due to an increase in amortization expenses relating to traffic control patents acquired in March 2018, combined with increased research and development expenditures.
Net loss for the year was $0.8 million, which compares favourably to a net loss of $1.5 million in 2017. The decrease is a direct result of increased revenues due to the growth of our Telematics vertical in 2018 and a higher gross margin.
For the year ended December 31, 2018, adjusted EBITDA was $1.3 million or 4.4% of revenue, vs. $1.6 million, or 5.9% of revenue in 2017. A table reconciling net income and adjusted EBITDA is included in this release.
“2018 continued to be a very active year for Carmanah, culminating with the announcement and subsequent divestiture of our Marine, Airfield Ground Lighting and Aviation Obstruction verticals to SPX Corporation on February 1, 2019.” said John Simmons CEO. “The cash proceeds of the SPX Divestiture were $77.6 million, and our cash reserves are now approximately $88.0 million. Management and the Board of Directors are currently evaluating our go-forward strategy and focus. Alternatives under consideration include investments and or acquisitions that grow and support our residual business activities and returning cash to shareholders. These alternatives, as well as any additional alternatives not presently listed here, may be considered or utilized in whole or in part. We are also currently considering whether it is necessary for the Company to undertake a reorganization of its operations or restructuring of its businesses in order to achieve profitability in the years to come.”
Highlights for the quarter are provided below:
| Three months ended December 31, | Twelve months ended December 31, | |||
| (US$ thousands) | 2018 | 2017 | 2018 | 2017 |
| Revenue | 8,090 | 6,652 | 30,719 | 27,313 |
| Gross margin % | 34.0% | 33.2% | 36.9% | 35.3% |
| Core operating expenditures | 3,098 | 3,219 | 12,196 | 11,189 |
| Net (loss)/income | 387 | (671) | (775) | (1,532) |
| Adjusted EBITDA1 | 440 | (809) | 1,333 | 1,614 |
Financial Condition at December 31, 2018 compared to December 31, 2017
- Cash and cash equivalents of $10.8 million, down $1.0 million from $11.8 million.
- Working capital of $42.9 million, up $21.7 million from $21.2 million.
Complete set of Financial Statements and Management Discussion & Analysis
A complete set of Financial Statements and Management’s Discussion & Analysis (“MD&A”) for the fourth quarter ended December 31, 2018 are available on Carmanah’s corporate website. To view these documents, visit: https://carmanah.com/company/financial-reports. Both documents are also filed on SEDAR at www.sedar.com. The financial information included in this release is qualified in its entirety and should be read together with the audited consolidated financial statements for the year ended December 31, 2018, including the notes thereto.
EBITDA and Adjusted EBITDA
| EBITDA reconciliations | Three months ended December 31, | Twelve months ended December 31, | ||||
| (US$ in thousands) | 2018 | 2017 | 2018 | 2017 | ||
| Net income/(loss) | 387 | (671) | (775) | (1,532) | ||
| Add/(deduct): | ||||||
| Interest | (3) | 56 | 99 | 104 | ||
| Income tax recovery | (621) | (451) | (133) | (148) | ||
| Amortization | 372 | 235 | 1,303 | 912 | ||
| Non-cash stock-based compensation | 73 | 102 | 366 | 566 | ||
| EBITDA | 208 | (729) | 860 | (98) | ||
| Merger and acquisition costs | 87 | 123 | 201 | 451 | ||
| Extraordinary legal costs | – | 51 | 66 | 372 | ||
| Other non-recurring expenses/(recoveries) | – | (186) | (61) | 987 | ||
| Foreign exchange (gain)/loss | 145 | (68) | 267 | (98) | ||
| Adjusted EBITDA | 440 | (809) | 1,333 | 1,614 | ||
1 NON-IFRS FINANCIAL MEASURES: Core operating expenditures. This news release presents information about core operating expenditures, which is a non-IFRS financial measure, as a supplementary indicator of operating performance. Carmanah defines core operating expenditures as operating expenditures excluding anomalies, such as the recognition of previously unrecognized investment tax credits or restructuring charges. Carmanah uses this non-IFRS measure internally to make strategic decisions, forecast future results and evaluate its performance. Additionally, Carmanah uses this non-IFRS measure to assess current and future operating results and to make investment decisions. Core operating expenditures is not intended as a substitute for IFRS measures. A limitation of utilizing this non-IFRS measure is that the IFRS 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 IFRS measures of net loss and the same respective non-IFRS measure should be considered together. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Readers should refer to the “Non-IFRS Financial Measures” section of the Company’s most recently filed MD&A for the three and twelve months ended December 31, 2018 for a more detailed discussion of these measures and their calculation.
2 NON-IFRS FINANCIAL MEASURES: EBITDA and Adjusted EBITDA. This news release presents information about EBITDA and adjusted EBITDA, both of which are non-IFRS financial measures, to provide supplementary information about 2018 operating performance. Carmanah defines EBITDA as net income or loss before interest, income taxes, amortization, and non-cash stock-based compensation. Adjusted EBITDA removes unusual or non-operating items from EBITDA, such merger and acquisition costs, restructuring charges, asset write offs, and foreign exchange gains and losses. Carmanah uses these non-IFRS measures internally to make strategic decisions, forecast future results and evaluate its performance. EBITDA and adjusted EBITDA are not intended as a substitute for IFRS measures. A limitation of utilizing these non-IFRS measures is that the IFRS 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 IFRS measures of net loss and the same respective non-IFRS measure should be considered together. Non-IFRS measures do not have any standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Readers should refer to the “Non-IFRS Financial Measures” section of the Company’s most recently filed MD&A for the three and twelve months ended December 31, 2018 for a more detailed discussion of these measures and their calculation.
About Carmanah Technologies Corporation
Carmanah designs, develops and distributes a portfolio of products focused on energy optimized LED solutions for infrastructure. Since 1996, we have earned a global reputation for delivering durable, dependable, efficient and cost-effective solutions for industrial applications that perform in some of the world’s harshest environments. We manage our business within three reportable segments: Signals, Illumination and Offshore. The Signals segment serves the Traffic and Telematics markets. The Illumination segment provides solar powered LED outdoor street lights for municipal and commercial customers, while the Offshore segment specializes in the provision of comprehensive safety and marking systems for offshore wind farms.
Contact
Carmanah Technologies Corporation:
Evan Brown, (250) 380-0052
Chief Financial Officer/Corporate Secretary
investors@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 “anticipate”, “consider”, “expect”, “could”, or variations of such words and phrases. Forward-looking statements or information in this news release relate to, among other things: revenues, and revenue growth, for the fourth quarter and year ended December 31, 2018; gross margins and estimates of EBITDA and adjusted EBITDA; and estimates of core operating expenditures. 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. Such factors include, but are not limited to: our ability to develop products and technologies that keep pace with the continuing changes in technology, evolving industry standards, new product introductions by competitors and changes in client preferences and requirements; our ability to find a suitable and appropriate investment for the use of proceeds from the SPX Divestiture; and our ability to achieve future profitability upon a potential restructuring or reorganization of Carmanah’s business. These forward-looking statements are based on management’s current expectations and beliefs but given the uncertainties, assumptions and risks, readers are cautioned not to place undue reliance on such forward-looking statements or information. Carmanah disclaims any obligation to update, or to publicly announce, any such statements, events or developments except as required by law.
For additional information on these risks and uncertainties, see Carmanah’s most recently filed Annual Information Form (“AIF”) and annual MD&A, which are available on SEDAR at www.sedar.com and on the Company’s website at www.carmanah.com. The risk factors identified in Carmanah’s AIF and MD&A are not intended to represent a complete list of factors that could affect Carmanah.