Carmanah Technologies Corporation released its results for the fourth quarter and year-end December 31, 2009.
2009 Year Summary ($USD)* Sales: $31.6 million for 2009, down from $51.9 million in 2008
o Signals & Illumination sales of $22.2 million for 2009, down from $27.9 million in 2008
o Systems & Other sales of $9.4 million for 2009, down from $24.1 million in 2008, primarily due to the 2009 exit of signage and distribution businesses
* Gross margin: 34% for 2009, down from 35% in 2008
* Net loss: $0.6 million for 2009, compared to a net loss of $7.5 million in 2008 (including the impact of the goodwill impairment write-off of $8.7 million)
* Adjusted EBITDA: $0.8 million of income for 2009, compared to $4.0 million income in 2008
* Positive cash flow from operations: $5.7 million for 2009, compared to $3.0 million in 2008
* Cash balance: $8.7 million as at December 31, 2009, up from $5.8 million at the end of 2008
* Debt: Nil
2009 Fourth Quarter Summary ($USD)* Sales: $6.8 million for Q4 2009, down from $12.2 million in 2008
o Signals & Illumination sales of $5.3 million for 2009, from $8.3 million in 2008 (primarily from solar LED illumination)
o Systems & Other sales of $1.5 million for 2009, down from $3.9 million in 2008 (due to the exit of sign and distribution businesses in early 2009)
* Gross margin: 27.4% for Q4 2009, down from 36.5% in 2008
* Net loss: $0.9 million for Q4 2009, compared to a net loss of $8.0 million (including the impact of the goodwill impairment write-off of $8.7 million) for Q4 2008
* Adjusted EBITDA: $0.3 million loss for 2009, compared to $2.0 million income in 2008
Summary of ResultsIn the face of a cautious and challenging 2009 sales environment, many steps were taken by Carmanah to assure growth in 2010 and beyond. The 2008 shift to independent channels of distribution began to take hold with the weaning out of weaker distributors and the strengthening of strategic partnerships, including new arrangements for distribution of signaling and illumination products with ADB Airfield Solutions, PTL Solar and Semex. The Companys EverGEN illumination lighting products continued to show acceptance in the marketplace and the Carmanah brand and reputation for quality in the solar powered illumination area broadened to open more doors for more partnerships.
Our progress is step by step and strategic, says Ted Lattimore, CEO, Carmanah Technologies. The restructuring process is complete and seeds of growth have been sown in many fertile fields during the recession. Were a stronger more sustainable company with each passing month and poised to take advantage of the improvement in the economy with our new illumination and signaling products both in North America and abroad. Our lengthening list of EverGEN Illumination customers is providing credibility and opening the doors to more prospects that are responding to the quality and cost effectiveness of the Carmanah solar powered lighting solutions.
Although 2009 was a challenging one, Carmanah continued to increase its cash in the bank, maintain a strong working capital position and have zero debt. said Roland Sartorius, CFO, Carmanah Technologies. This past year we completed several key internal initiatives which will generate benefits for the company in the future. Namely, we converted reporting to US from Canadian dollars to better reflect our business activities; we realigned our reporting segments; we completed the implementation of a new ERP system, on time and on budget and we completed the restructuring of Carmanah, an initiative that was announced in 2008. These allow us to now focus on executing the future growth strategies for Carmanah.
Balance Sheet HighlightsCarmanah is in a strong financial position, with cash resources, strong working capital, and no debt. The cash balance as at December 31, 2009, increased to $8.7 million from $5.8 million the previous year-end.
We anticipate that our cash and cash equivalents, short-term investments, cash flow from operations, and credit facility will be sufficient to fund future operations and capital expenditures. Our current plan is to continue to finance our planned growth through internally generated funds.
Overview of OperationsTechnology and product roadmap
Starting in the latter part of 2009, Carmanah began deploying their recently released 1500 series EverGEN illumination lights to private corporations, institutions and concession holders in North and Latin America.
Carmanahs research and development investment is focused on its industrial designed solar LED lighting systems. The companys 1700 EverGEN series illumination lights is on schedule for manufacturing release and sales launch at the 2010 Lightfair Tradeshow and Conference in Las Vegas, USA, during the first half of May 2010. The new 1700 EverGEN series will incorporate the industrial design work completed by the Companys strategic partner, frog design, and will also include the foundation for future Carmanah remote wireless asset management of the lighting products.
Strategic Partnerships & Worldwide Sales
During 2009 and the first part of 2010, Carmanah entered into significant strategic marketing, distribution and manufacturing partnerships to help penetrate new regional territories, facilitating both market penetration and growth of its lighting and signaling products.
On November 30, 2009, Carmanah partnered with airfield lighting technology provider ADB Airfield Solutions, LLC (ADB), the global market leader in airfield visual guidance and ground lighting systems, to provide a line of solar-based LED airfield lighting products for ADB. The arrangement will augment ADBs line of airfield lighting products with a range of Carmanahs solar-powered LED aviation lighting products.
On December 7, 2009, the Company announced a manufacturing partnership with PTL Solar in Dubai in order to bring its solar LED lighting technology to the Middle East and selected countries in Africa. This partnership will enable flexibility and responsiveness in meeting local market demands while continuing to provide high-performing solar LED lighting solutions within a cost framework the regional market expects.
On January 7, 2010, Carmanah further announced an additional regional manufacturing & distribution partnership with Semex SA, in Mexico, to manufacture solar LED lighting and signaling solutions for outdoor lighting and traffic applications at Semexs facility in Monterrey, Mexico. This partnership will combine the ingenuity of a leading traffic light component manufacturing company with our solar LED lighting solutions. This will further enable the offering of high-performance solar solutions at competitive market prices helping to accelerate the adoption of solar technology within the targeted Latin American territories. With Semexs strong local presence and service capabilities, customers will be able to procure solar lighting and solar traffic products and leverage Semexs local installation and maintenance capabilities, providing customers with full turn-key products and services.
To facilitate these partnerships with local leaders, Carmanah established a Powered by Carmanah brand of solar engines, allowing its strategic partners to leverage their assembly and fabrication strengths in conjunction with Carmanahs energy management expertise to result in a localized solar lighting product accessing the partners regional routes to market.
Carmanahs restructuring initiatives were intially announced in 2008 and have been completed during 2009. This included streamlining operations by exiting some tactical businesses, reducing staff levels, closing the Victoria, B.C. manufacturing facility and outsourcing its manufacturing. During 2008 and 2009, the company recorded a related restructuring charge of $1.4 million and $0.7 million respectively. The company believes that these restructuring intiatives have now been completed and that Carmanah is well positioned to scale up, starting in 2010. Several significant restructuring tranasactions were completed in 2009.
On February 6, 2009, Carmanah sold assets related to its illimunated road signs business for proceeds and gain of $0.7 million on the sale.
On August 17, 2009, the company sold its wholly owned subsidiary, Carmanah Signs, Inc., a LED edge-lit signs manufacturing and distribution business to a former director of the company for proceeds and gain of $1.9 million (combination of cash, shares and debt repayment) and $0.1 million respectively on the sale.
During October 2009, Carmanah announced a further 20 staff reductions across most departments to reduce labour costs. A total of $0.2 million associated with terminations was recorded in the fourth quarter of 2009. As at December 31, 2009, Carmanah had 107 staff, of which 43 are in engineering and product development.
Results of OperationsSales
Sales for the fourth quarter of 2009 declined $5.4 million over 2008 to $6.8 million and year-to-date they declined $20.3 million over 2008 to $31.6 million. The majority of this decline is due to lower sales in the Systems & Other business lines, which declined $14.6 million over 2008 to $9.4 million year-to-date. This was due to the low margin and unprofitable product/business lines that were sold or discontinued during 2009, including the roadway signage business and distribution business. When revenues are adjusted to eliminate sales related to the exited businesses, the year ended December 31, 2009 shows sales declined by $6.8 million or 17.8% year over year. This is due to lower sales in our aviation and obstruction product sales, primarily due to the weakened global economic environment in 2009.
The Signals & Illumination sales in the fourth quarter of 2009, representing 77.4% of total sales, were down $3.1 million compared to the same period in 2008, primarily due to a decrease in the aviation and obstruction signaling product verticals. Growth in the Signals & Illumination businesses was anticipated in 2009, but was tempered by the general global economic slowdown, which caused a number of large distributors and institutional customers to postpone orders and projects until there is more clarity surrounding the current economic picture. Carmanah has seen evidence of orders starting to be released in this sector during the first months of 2010. As well, it is expected that the recently announced distribution & marketing agreements will be fundamental in its future growth strategy.
The gross margin from our Signals & Illumination sales was 31.9% in the fourth quarter of 2009, down 12.6% from the fourth quarter of 2008. Year to date, the gross margin was 38.5%, down 8.6% from the prior year. This decrease is primarily due to reduced margins on sales of our marine, aviation, and obstruction product lines and write-offs of obsolete inventory. Going forward, we anticipate being able to maintain our margin percentages in the high thirties and low forties range as we increase our product sales mix with higher margin illumination product sales, increase lighting output efficiencies resulting from our research and development efforts and generate product cost savings from working together with our contract manufacturing partners.
Total operating expenses, excluding restructuring costs, in the fourth quarter of 2009 and year-ended 2009 decreased by $0.7 million over the same period of 2008. Year to date 2009, operating costs, excluding restructuring costs, have decreased $4.0 million over 2008, or 23.7%. This is mainly due to reduced expenses and headcount as a result of the exit of several business lines and the right sizing of staff size during 2009.
Sales and marketing expenses increased $0.2 million to $1.2 million in the fourth quarter of 2009 over the same period in 2008, primarily the result of changes to the sales force compensation plans. On a 2009 year to date basis, sales and marketing costs decreased by $0.6 million to $5.0 million over the same period in 2008, due to a net reduced salary expense resulting from the restructuring initiatives undertaken in the year.
Net research and development expenditures, after tax credits and capitalized illumination lighting development expenditures for the year-ended 2009 were $1.2 million. The net research and development expenditures during the fourth quarter of 2009 were in a credit balance of $0.2 million, which is partly due to the capitalization of certain development projects, and also due to amendments made to our prior year tax returns which resulted in the recognition of additional ITCs. The capitalization of development costs on next generation products as Intangible Assets began in the first quarter of 2009 and is expected to be completed during 2010 after which the capitalized costs will be amortized over the related products expected life cycle once they have been commercialized.
General and administrative costs declined during the fourth quarter of 2009 and year-ended 2009 declined by $0.6 million and $2.0 million respectively over the same periods in the prior year. These declines were primarily the result of reduced salaries resulting from the restructuring activities, and also from lower occupancy costs stemming from the closure of the manufacturing facility, which occurred in the prior year.
Amortization expense declined both in the fourth quarter 2009 and year-ended 2009 over the proper periods due to the elimination of Carmanahs manufacturing and distribution facilities.
During the year ended December 31, 2009, we recorded $0.7 million in restructuring charges, compared to $1.4 million in 2008. In 2009, two rounds of restructuring occurred. During the first half of 2009, the charges primarily related to the restructuring initiatives that were announced in 2008 and completed in 2009, which included the exit of some non-core business lines, and a reduction of staffing levels. The second round was announced in our fourth quarter of 2009 and primarily focused on a further right sizing of staffing levels. The related costs incurred in the fourth quarter of 2009 were $0.2 million.
Other income/expenses mainly relates to interest, foreign exchange gains or losses and miscellaneous non-operating items. During the fourth quarter of 2009, Carmanah recognized other income (net of other expenses) of $0.4 million, compared to net expenses of $7.8 million in the same period in 2008. These amounts primarily relate to foreign exchange translation gains and losses, while the prior year period contains an $8.6 million goodwill impairment write-off.
For the year ended December 31, 2009, the company recognized $2.2 million of other income, compared to net expenses of $7.2 million in the same period in 2008. The change year over year is mainly attributed to the goodwill impairment write-off in 2008. As well, Carmanah also incurred a foreign exchange gain of $1.4 million in both 2009 and 2008. Also included in other income is a $0.7 million gain associated with the sale of our roadway signage product line to a distributor.
Income tax recovery for the year-ended 2009 was $0.3 million compared to an expense of $0.6 million for 2008. This amount consisted primarily of future tax expense of $0.3 million (2008 - ($0.6) million).
Our effective income tax rate for 2009 was 58.5% compared to a statutory tax rate of 30.0%. The difference in the tax rates is primarily due to amendments made to prior year tax returns, which resulted in changes in the loss carry-forward balances and ITC amounts recognized. Our effective tax rate in 2008 was (7.9%) compared to a statutory rate of 31.0%. The difference in the tax rates is primarily due to the write down of goodwill ($8.6 million) as well as revisions to the estimated tax rates utilized.
Non-GAAP Financial Measures
For the fourth quarter of 2009, as well as the respective comparative period in 2008, Carmanah is disclosing adjusted EBITDA, a non-GAAP financial measure, as a supplementary indicator of operating performance. Adjusted EBITDA is defined as net income before interest, income taxes, amortization, goodwill impairment, restructuring charges, and discontinued operations. The non-GAAP financial measure is presented in the companys filings as they are used internally to make strategic decisions, forecast future results and to evaluate performance. Adjusted EBITDA is a non-GAAP measure and is not intended as a substitute for GAAP measures.