Day4 Energy Reports Second-Quarter 2010 Results

BURNABY, BC, Aug. 10 /CNW/ - Day4 Energy Inc. (TSX: DFE), a solar electric technology developer and supplier of premium solar energy solutions, today reported operating results for the second quarter 2010.

"Throughout the second quarter we concentrated on building a number of fundamental components of our business that are required to reach the ultimate goal of sustainable long-term operating profitability," said George Rubin, president of Day4 Energy. "In addition to realizing the strongest sales quarter in our history with revenues of $44.8 million, another really significant event of the quarter was the progress we made in our long-term transition to a solution provider business model. We believe that, when completed, this transition will significantly alter the company's revenue model with higher profit margin sales and royalty streams becoming an increasingly larger component of the company's revenue mix over time."

Other key events of the second quarter:

    
    -   Surpassed previous high set in the fourth quarter of 2009 and
        diversified revenues with almost 20% of total revenues generated
        outside of our core market in Germany;

    -   Completed the expansion of our production capacity at Jabil to 10MW
        per month or 120MW annualized and transitioned most of our production
        output to the next generation Day4 Guardian Technology(TM) 60MC-I
        modules with intelligent shade protection;

    -   Worked closely with our manufacturing partners and material suppliers
        to qualify and certify new production materials. We expect these
        changes that will be introduced gradually through the third quarter,
        to result in as much as a 19% reduction in our encapsulation material
        costs. These costs represent approximately 30% of our module cost;

    -   Completed construction of two power projects for a total of 2.5MW and
        $7.6 million in revenues in record time of less than six weeks,
        expanding our turnkey power project business and contributing
        positively to our profit margins; and

    -   Signed two manufacturing and licensing agreements that are expected
        to come on-line in 2011 and would provide approximately 1.9 million
        Euros per year in royalty revenue to Day4.
    

"During the second quarter the solar sector in general benefited from strong demand ahead of the German subsidy changes; however this was offset by substantial depreciation of the Euro which impacted our gross margin. We believe that, outside the foreign exchange dynamics, the fundamentals of our business have improved during the quarter and the company is positioned to take advantage of its recent investments in new business segments, strengthened teams, improved products and encapsulation cost reductions going forward," added Mr. Rubin.

Q2 2010 FINANCIAL RESULTS

Worldwide Product Revenues

Second quarter revenues of $44.8 million increased by $39.1 million or 685% from the same period in 2009 and by $21.9 million or 95% from the prior quarter. Demand was particularly strong in the second quarter due to our sales efforts combined with the anticipation of the German subsidy adjustment on July 1, 2010.

Gross Margins

Gross margin was $0.9 million (2%) for the second quarter 2010 as compared to a gross margin of $1.7 million (7%) in the first quarter and gross loss of $10.8 million in second quarter 2009. We were able to maintain a positive gross margin in the second quarter despite the volatility experienced in the euro currency. Euro/USD foreign exchange declines contributed to approximately 4% decrease in the gross margin in the second quarter. Negative gross margins in the prior year mainly related to inventory write-down and period cost relating to low capacity utilization. Both of these costs did not occur in 2010.

Expenses

For the second quarter of 2010, general and administrative (G&A) expenses were $2.8 million, an increase of $0.8 million from expenses of $2.0 million for the same period in 2009. The increase in G&A expenses in 2010 primarily relates to costs relating to the due diligence activities for the acquisition of ACI. We expect to incur additional costs in the subsequent months relating to the integration of ACI.

Sales and marketing expenses of $1.2 million for the second quarter 2010 compared to $1 million in the same period in 2009. The lower expenditure in 2009 reflected the corporate restructuring and cost reduction activities. As we continue to take advantage of the economic recovery in 2010, we have strategically increased and strengthened our sales and marketing activities with the addition of seasoned management experience and leadership to meet expectations in the growing European markets. This focused and dedicated effort is a key requirement to address the rapidly expanding field of opportunities in each of our core markets as well as to align our infrastructure to roll out our turnkey manufacturing technology solution. Staffing levels in sales and marketing was twenty at June 30, 2010 compared to thirteen at June 30, 2009.

R&D expenses in the second quarter were $0.6 million compared to $0.5 million for the same period in 2009. During the quarter, we utilized the equipment in our Burnaby facility as a pilot line to produce our new 60MC-I Guardian technology modules. Most of the modules produced in this line were sold in the quarter resulting in lower R&D expenses compared to the first quarter expense of $0.9 million.

Loss per Share

The net loss for the second quarter 2010 was $4.2 million ($0.12 per share) compared to $14.1 million ($0.38 per share) for the same period in 2009. The higher net loss in the second quarter of 2009 was mainly attributed to the inventory write-down and fixed overhead period cost due to low capacity utilization. These costs did not occur in 2010. The net loss of $4.2 million during the second quarter 2010 was affected by one-time expenses relating to production capacity expansion, transitioning to the new product design and ACI acquisition and restructuring costs. It was further affected by the unfavorable Euro/USD foreign exchange trends that when compared to the first quarter have contributed approximately $2.0 million to cost of goods sold during the quarter. The total combined negative impact of these events was approximately $2.9 million.

Cash and Short-Term Investments

Cash and cash equivalents, restricted cash and short-term investments totaled $21.0 million at June 30, 2010, an increase of $4.7 million from $16.3 million at March 31, 2010 and a decrease of $6.2 million from $27.2 million at December 31, 2009. Cash and cash equivalents have decreased since December 31, 2009 primarily due to the utilization of funds to finance operations.

Detailed financial results and management's discussion and analysis can be found on our website at www.day4energy.com or on SEDAR at www.sedar.com.

About Day4 Energy

Day4 Energy Inc. is a Canadian company dedicated to providing high performance photovoltaic (PV) solutions for residential, commercial and utility scale installations. By fundamentally improving on the design and assembly of solar cells and modules, the Company produces unique PV panels of high power density, increased lifetime and uncompromised aesthetic appearance. Day4 Energy partners with international technology leaders to develop and deliver IEC- and UL-certified solar products to customers around the world. Day4 Energy is listed on the Toronto Stock Exchange under the symbol "DFE". For more information, please visit www.day4energy.com.

Conference Call Information

Day4 Energy's management will conduct a conference call at 8:30am (ET) August 10, 2010 to review the company's second quarter 2010 financial results. The call can be accessed by dialing 1-800-319-4610 (Canada and US) or 1-604-638-5340 (International) prior to the start of the call. Following the call a recording of the conference call will be archived on Day4 Energy's website, www.day4energy.com

Caution Regarding Forward-Looking Statements

This news release contains forward-looking statements that relate to our current expectations and views of future events. These forward-looking statements include, among other things, statements relating to our expectations regarding our revenues, expenses, cash flows, operating performance and future profitability. Forward-looking statements are statements that are not historical facts and are generally, but not always, identified by words such as "anticipate", "continue", "estimate", "expect", "forecast", "may", "will", "project", "could", "plan", "intend", "should", "believe", "outlook", "potential", "target", and similar words suggesting future events or future performance.

The forward-looking statements contained in this news release are based on assumptions, which include, but are not limited to, our ability to continue to successfully outsource the majority of our annual PV manufacturing capacity; our ability to manage and meet demand for our products; our ability to obtain an adequate spread between our module average selling price and cost of raw materials, including PV cells; achieving increased PV cell and PV module efficiencies; expanding our existing product line; building the Day4 brand, attracting customers and developing and maintaining customer and supplier relationships; continuing our strong relationships with our suppliers; effectively managing foreign exchange risks; protecting our intellectual property rights and not infringing on the intellectual property rights of third parties; timely processing by certification agencies of new products; and complying with applicable governmental regulations and standards.

Such forward-looking statements are subject to risks, uncertainties and other factors, including those listed in our Annual Information Form filed with Canadian securities regulatory authorities, many of which are beyond our control and each of which contributes to the possibility that our forward-looking statements will not occur or that actual results, performance or achievements may differ materially from those expressed or implied by such statements. These risks, uncertainties and other factors include, but are not limited to, the impact of general economic, market or business conditions; risks related to the implementation of outsource manufacturing and our dependence on Jabil for the manufacture of our products; the meeting of conditions precedent to the completion of the acquisition of ACI; ACI's ability to fulfill orders in a timely fashion for equipment needed to manufacture Day4 products; our dependence on a limited number of PV cell suppliers; price fluctuations that may impact relations with existing customers; risks relating to the protection of our intellectual property and intellectual property infringement claims by third parties; our reliance on a limited number of suppliers; government subsidies and economic incentives for PV power could be reduced or eliminated; the financial strength of our competitors; competition from other forms of renewable energy; our ability to manage growth effectively; our ability to open up new markets for our products; demand for PV modules may reduce; technological advances from competitors that may render our products uneconomic or obsolete; the impact of global events; and other factors, many of which are beyond our control.

The forward-looking statements made in this news release relate only to events or information as of the date indicated above. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

    
    Day4 Energy Inc.
    Consolidated Balance Sheets
    As at June 30, 2010 and December 31, 2009
    -------------------------------------------------------------------------
                                                       June 30   December 31
                                                          2010          2009
                                                             $             $
                                                    (unaudited)
                                                 ----------------------------


    Assets

    Current assets
    Cash and cash equivalents                       15,327,241    17,804,941
    Restricted cash                                    185,000       335,000
    Short-term investments                           5,510,494     9,067,397
    Accounts receivable                             11,747,244     3,598,384
    Investment tax credits receivable                  658,174       600,000
    Other receivables                                2,406,406     8,447,806
    Inventory                                       10,877,325    11,078,173
    Prepaid expenses                                   923,288       564,336
                                                  ---------------------------
                                                    47,635,172    51,496,037

    Property, plant and equipment                   18,694,881    21,679,300
                                                 ----------------------------
                                                    66,330,053    73,175,337
                                                 ----------------------------
                                                 ----------------------------
    Liabilities

    Current liabilities
    Accounts payable and accrued liabilities        19,392,949    13,321,691
    Taxes payable                                      830,000       830,000
    Short-term debt                                  1,162,947     1,143,521
    Deferred revenue                                   554,744       322,331
                                                 ----------------------------
                                                    21,940,640    15,617,543

    Shareholders' Equity

    Share capital
    Authorized
      Unlimited number of common shares
      Unlimited number of preferred shares

    Issued and outstanding
      37,059,366 (2009 - 36,739,366)
       common shares                               131,075,529   130,972,498

    Contributed surplus                              2,791,929     2,581,508

    Warrants                                         2,279,890     2,279,890

    Accumulated other comprehensive income         (10,573,267)   (3,201,330)

    Deficit                                        (81,184,668)  (75,074,772)
                                                 ----------------------------
                                                    44,389,413    57,557,794
                                                 ----------------------------
                                                    66,330,053    73,175,337
                                                 ----------------------------
                                                 ----------------------------



    Day4 Energy Inc.
    Consolidated Statements of Operations and Deficit
    For the three and six months ended June 30, 2010 and 2009 (unaudited)
    -------------------------------------------------------------------------

                              Three-months ended            Six-months ended
                                         June 30,                    June 30,
                       ------------------------------------------------------
                              2010          2009          2010          2009
                                 $             $             $             $


    Revenues            44,811,143     5,729,904    67,735,291    10,074,449

    Cost of revenues    43,914,378    16,506,946    65,153,257    21,315,103
                       ------------------------------------------------------

    Gross margin (loss)    896,765   (10,777,042)    2,582,034   (11,240,654)
                       ------------------------------------------------------

    Expenses
    General and
     administrative      2,778,288     1,980,493     5,298,361     4,985,194
    Research and
     development           585,194       522,684     1,435,908     1,038,391
    Less: Government
     assistance            (94,130)            -      (171,149)            -
    Selling and
     marketing           1,245,418       970,691     1,996,489     1,621,549
    Depreciation           443,904       209,408       923,263       212,825
                       ------------------------------------------------------

                         4,958,674     3,683,276     9,482,872     7,857,959
                       ------------------------------------------------------
    Loss before
     undernoted          4,061,909    14,460,318     6,900,838    19,098,613
                       ------------------------------------------------------

    Foreign exchange
     gain (loss)          (223,317)      355,396       723,951     2,278,430
    Interest and
     other income           62,191        48,783       110,190       114,504
    Interest expense       (21,733)      (24,517)      (43,199)      (55,649)
    Gain (loss) on
     disposal of
     property, plant
     and equipment               -             -             -        26,730
    Gain on disposition
     of subsidiary               -             -             -        24,677
    Accretion expense            -        (6,656)            -       (12,990)
                       ------------------------------------------------------

                          (182,859)      373,006       790,942     2,375,702
                       ------------------------------------------------------

    Loss before non-
     controlling
     interest            4,244,768    14,087,312     6,109,896    16,722,911

    Non-controlling
     interest                    -             -             -       (11,323)
                       ------------------------------------------------------

    Loss for the period  4,244,768    14,087,312     6,109,896    16,711,588

    Deficit - Beginning
     of period          76,939,900    57,315,661    75,074,772    54,691,384
                       ------------------------------------------------------

    Deficit -
     End of period      81,184,668    71,402,973    81,184,668    71,402,973
                       ------------------------------------------------------
                       ------------------------------------------------------

    Net loss per
     share - basic
     and diluted              0.12          0.38          0.17          0.46
                       ------------------------------------------------------
                       ------------------------------------------------------

    Weighted average
     number of shares
     outstanding -
     basic and diluted  36,767,498    36,679,366    36,753,510    36,679,366
                       ------------------------------------------------------
                       ------------------------------------------------------



    Day4 Energy Inc.
    Consolidated Statements of Cash Flows
    For the three and six months ended June 30, 2010 and 2009 (unaudited)
    -------------------------------------------------------------------------

                              Three-months ended            Six-months ended
                                         June 30,                    June 30,
                       ------------------------------------------------------
                              2010          2009          2010          2009
                                 $             $             $             $

    Cash flows from
     operating
     activities
    Loss for the period (4,244,768)  (14,087,312)   (6,109,896)  (16,711,589)
      Items not
       affecting cash
        Stock-based
         compensation      133,458       118,913       233,451       268,546
        Depreciation and
         amortization      758,477       676,801     1,499,382     1,093,734
        Loss (gain) on
         sale of property,
         plant and
         equipment                             -                     (26,730)
        Gain on disposal
         of subsidiary                         -                     (24,677)
        Unrealized foreign
         exchange (gain)
         loss             (122,996)      139,212      (877,449)       38,622
        Change in value
         of derivative
         instruments                           -                  (2,157,218)
        Non-controlling
         interest                              -                     (11,323)
    Changes in non-cash
     working capital
     items
      Accounts
       receivable       (6,925,154)    2,419,496    (8,977,284)    3,149,510
      Investment tax
       credit receivable   (58,174)            -       (58,174)            -
      Other receivables  4,446,869       846,165     5,242,533    (2,600,414)
      Inventory          6,610,139    11,504,374    (1,317,416)    4,090,154
      Prepaid expenses    (481,492)       (4,638)     (456,235)      (10,174)
      Accounts payable
       and accrued
       liabilities       5,499,803    (2,309,702)    7,669,401     1,779,910
      Deferred revenue     165,690        25,810       289,457         8,367
                       ------------------------------------------------------
                         5,781,852      (670,881)   (2,862,230)  (11,113,282)
                       ------------------------------------------------------

    Cash flows from
     investing activities
    Purchase of
     short-term
     investments        (1,500,000)   (5,000,000)   (1,500,000)   (9,000,000)
    Proceeds from sale
     of short-term
     investments         5,000,000             -     5,000,000             -
    Change in
     restricted cash             -     4,667,065       150,000    10,668,745
    Purchase of property,
     plant and equipment  (822,097)     (920,745)   (1,348,694)   (2,507,932)
    Proceeds from sale
     of property, plant
     and equipment               -             -             -     8,213,638
    Proceeds from sale
     of subsidiary - net
     of cash included
     in sale of 29,098           -             -             -         9,590
                       ------------------------------------------------------
                         2,677,903    (1,253,680)    2,301,306     7,384,041
                       ------------------------------------------------------
    Cash flows from
     financing activities
    Proceeds from exercise
     of stock options        80,000            -        80,000
                       ------------------------------------------------------
                             80,000            -        80,000             -
                       ------------------------------------------------------

    Effect of foreign
     exchange rate
     changes on cash       (332,914)     334,884    (1,996,776)      364,211
                       ------------------------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents          8,206,841   (1,589,677)   (2,477,700)   (3,365,030)

    Cash and cash
     equivalents -
     Beginning of period  7,120,400   12,954,941    17,804,941    14,730,294
                       ------------------------------------------------------

    Cash and cash
     equivalents -
     End of period       15,327,241   11,365,264    15,327,241    11,365,264
                       ------------------------------------------------------
                       ------------------------------------------------------

    Supplemental cash
     flow information
    Cash paid for
     interest                 1,249        1,185         2,426         2,968
    Cash received for
     interest               106,572        3,105       106,616        18,463



    Day4 Energy Inc.
    Consolidated Statements of Comprehensive Loss and Accumulated
     Other Comprehensive Loss
    For the three and six months ended June 30, 2010 and 2009 (unaudited)
    -------------------------------------------------------------------------

                              Three-months ended            Six-months ended
                                         June 30,                    June 30,
                       ------------------------------------------------------
                              2010          2009          2010          2009
                                 $             $             $             $

    Loss for the period  4,244,768    14,087,312     6,109,896    16,711,589

    Unrealized foreign
     exchange losses on
     translation of
     consolidated
     financial
     statements to the
     presentation
     currency            2,632,214             -     7,371,937             -
                       ------------------------------------------------------

    Comprehensive Loss   6,876,982    14,087,312    13,481,833    16,711,589
                       ------------------------------------------------------
                       ------------------------------------------------------




                              Three-months ended            Six-months ended
                                         June 30,                    June 30,
                       ------------------------------------------------------
                              2010          2009          2010          2009
                                 $             $             $             $
    Accumulated Other
     Comprehensive
     Loss - Beginning
     of period           7,941,053             -     3,201,330             -

    Unrealized foreign
     exchange losses
     on translation of
     consolidated
     financial
     statements to the
     presentation
     currency            2,632,214             -     7,371,937             -

                       ------------------------------------------------------
    Accumulated Other
     Comprehensive Loss
     - End of period    10,573,267             -    10,573,267             -
                       ------------------------------------------------------
                       ------------------------------------------------------
    

%SEDAR: 00026066E

SOURCE Day4 Energy Inc.

For further information: For further information: Contacts: Therese Hayes, Head, Corporate Development, Day4 Energy Inc., (604) 296-0434, thayes@day4energy.com; Justin Lacey, Media Contact, Day4 Energy Inc., (604) 297-0449, media@day4energy.com

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