Xantrex Technology Inc. Reports Second Quarter 2007 Results

    VANCOUVER, July 31 /CNW/ - Xantrex Technology Inc. (TSX:XTX) reported
financial results for the second quarter and first half ended June 30, 2007.
All currency amounts are reported in US dollars unless otherwise indicated,
and financial results are reported in accordance with accounting principles
generally accepted in Canada.
    For the second quarter, revenue rose 46 percent to $59.2 million from
$40.5 million for the year-ago quarter as a result of significant growth in
Renewable, Programmable and Portable Power offset by declines in Mobile Power
revenue. Programmable Power revenue grew due to the acquisition of Elgar which
closed on March 12, 2007.
    Xantrex's net loss for the quarter was $1.2 million, or $0.04 per diluted
share, compared with net income of $2.3 million, or $0.08 per diluted share, a
year ago.
    While there were many differences between these two quarters, a major
portion of the change can be explained by the following items: accruals for
previously announced plant consolidation and resolution of a quality issue
($854,000), higher Canadian dollar ($448,000), and non-cash amortization
related to the Elgar acquisition ($1.6 million).
    Non-GAAP net income was $843,000 or $0.03 per diluted share, compared
with $2.8 million or $0.9 per diluted share a year ago. Adjusted EBITDA, also
a non-GAAP measure, was $4.2 million in the quarter compared with $3.7 million
a year ago, an increase of 13 percent. (Please see table below for a
reconciliation of the non-GAAP measures to net income)
    Mr. Mossadiq S. Umedaly, Chairman of Xantrex, commented, "While we
expected the first half of 2007 to be weaker than the second half, we did not
sufficiently anticipate the rise of several issues, symptoms of rapid growth,
and the impact of the change in UL standards, that temporarily added costs,
slowed production, and caused a loss for the second quarter. However, we view
the financial results of the quarter as largely transitional between a first
half in which we achieved major strategic progress and a second half when we
expect to transform that progress into improved financial performance. From a
strategic perspective, the second quarter was impressive and encouraging,
positioning future quarters for improved growth and profitability. In
Renewable Power, demand for solar and back-up products across the board was
exceptionally strong; we completed a technically challenging solar product
redesign for residential, commercial grid-tie and off-grid applications; made
good progress in the integration of our recently enlarged Programmable Power
business and consolidation of our manufacturing facilities; and identified and
quickly resolved a manufacturing quality issue in a solar product line."
    John Wallace, Xantrex's CEO said, "A series of interrelated problems,
primarily associated with rapidly growing Renewable Power, hurt our financial
performance in the second quarter. First, developing the tooling and processes
for several of the redesigned solar products took longer than expected,
thereby slowing production. As a result, we did not fulfill all customer
demand and incurred additional costs to expedite deliveries to meet customer
commitments. Second, wind shipments were delayed as anticipated. Third, while
the integration of our Programmable Power operations occurred quickly and
effectively, orders for the quarter were slightly lower than expected,
attributable in part to the consolidation of our sales channel and to
quarterly variability. And lastly, we discovered a quality issue with a
limited number of batches of solar products manufactured and shipped last
year, which we arranged to replace in the field."
    Gross margin for the quarter was 31.5 percent, up from 30.4 percent for
year ago quarter and 30.9 percent for the preceding quarter. The increase
reflected a higher percentage of sales from Programmable Power products offset
by expenses from several largely quarter-specific developments and foreign
exchange costs due to a higher Canadian dollar, which, in the aggregate, was
equivalent to two percentage points of gross margin.
    Operating expenses increased to $18.5 million, or 31 percent of sales,
from $10.6 million, or 26 percent a year ago. The increase reflected primarily
the inclusion of Elgar's operating expenses of $5.4 million and other
operating expenses noted above. Lastly, cash from operations was $4.6 million,
up $1.0 million from a year ago.
    Mr. Wallace continued, "The quarter was one of our most active ever for
new product introductions. In Renewable Power, we introduced and began
shipping the redesigned and improved single phase line of GT solar inverters,
a new 500 kW three phase grid-tie solar inverter for North American utility
scale applications, as well as special variants of our single phase inverters
for Asia and for an OEM customer. In backup power, we launched the Xantrex XW
System, the first fully-integrated, battery-based system designed for
residential and commercial solar and backup power applications. And in
Portable Power, we introduced the Xantrex Power Hub 1800, an innovative backup
power system for homeowners. We note that the initial Duracell branded
Portable Power products are slightly delayed but on track to be introduced
later in the third quarter."
    Mr. Wallace concluded, "We expect our revenue for 2007 to grow 47% to 49%
from last year. Of that increase, we expect Elgar to contribute $55 million to
$58 million. We also expect to improve profitability through the second half
of the year as a result of increased sales volumes including sales of improved
new products, and the resolution of our manufacturing and logistics issues
while maintaining operating expenses at or near current levels. While net
income for the Elgar acquisition will be substantially offset in 2007 by
amortization expense of purchased intangibles, the Elgar acquisition is
accretive from an EBITDA and cash flow perspective. In addition, we expect to
incur interest expense in 2007 related to the Elgar acquisition of $3.2
million compared with $2.6 million in interest income a year ago. However, as
we realize operating synergies, we expect Elgar's contribution to net income
will grow in 2008 and beyond."

                   Three months ended June 30     Six months ended June 30
              -------------------------------- ------------------------------
                                           %                              %
                   2007         2006    change    2007         2006    change
              -------------------------------- ------------------------------
    Revenue     $59,215,000  $40,520,000  46%  $99,121,000  $75,175,000  32%
    Net income
     (loss)     ($1,182,000)  $2,262,000  n/a  ($1,290,000)  $2,967,000  n/a
    Net income
     (loss) per
     share
     (diluted)       ($0.04)       $0.08  n/a       ($0.04)       $0.10  n/a
    Fully diluted
     avg. shares
     outstanding 28,801,322   29,728,476  -3%   28,831,504   29,825,331  -3%

    Note: On June 29, 2007, the Bank of Canada's exchange rate for one
    Canadian dollar was $0.94 compared with $0.90 on June 30, 2006.

    The complete second quarter of 2007 Management's Discussion and Analysis
and Financial Statements for Xantrex Technology Inc. are available on the
Xantrex web site www.xantrex.com.

    Cautionary Note on Forward-looking Information

    Some of the statements contained in this report are forward-looking
statements. Since forward-looking statements are based on assumptions and
address future events and conditions, by their very nature they involve
inherent risks and uncertainties. Actual results, including Xantrex's growth
rate, could differ materially from those currently anticipated in forward
looking statements, based on regional and global economic growth, electricity
supply and demand, government regulations and incentives, technological
advances by Xantrex and others, our ability to execute on our plans, and other
factors, including those discussed in the our 2006 Annual "Management's
Discussion and Analysis". Readers should not place undue reliance on Xantrex's
forward-looking statements.

    Non-GAAP Financial Measure

    For the quarter and six month periods ended June 30, 2007 we are
disclosing adjusted EBITDA and non-GAAP net income, non-GAAP financial
measures, as supplemental indicators of operating performance. We define
adjusted EBITDA as net income before interest, income taxes, depreciation,
amortization, stock option compensation expense and manufacturing plant
consolidation costs, and we define non-GAAP net income as net income excluding
the after-tax impact of stock option compensation expense, intangible asset
amortization and manufacturing plant consolidation costs. We are presenting
the non-GAAP financial measures in our filings this quarter because we use
them internally to make strategic decisions, forecast future results and
evaluate our performance and because we believe that our current and potential
investors and many analysts use these measures to assess our current and
future operating results and to make investment decisions. In addition,
management believes that these measures are useful to investors in enabling
them to better assess changes in our business across different time periods.
Investors should not consider adjusted EBITDA or non-GAAP net income as
alternatives to net income, nor to cash provided by operating activities, nor
to any other indicators of performance or liquidity which have been determined
under GAAP. Adjusted EBITDA and non-GAAP net income do not have any
standardized meaning prescribed by GAAP and may be different from and
therefore not comparable to similar measures presented by other companies.

    The following table provides a reconciliation of adjusted EBITDA and
non-GAAP net income to net income for the periods indicated.

                      Three months ended June 30    Six months ended June 30
                     ---------------------------- ---------------------------
                              2007          2006          2007          2006
                     ---------------------------- ---------------------------
    Net income (loss) $ (1,182,000) $  2,262,000  $ (1,290,000) $  2,967,000
      Interest income      (47,000)     (679,000)     (650,000)   (1,277,000)
      Interest expense   1,104,000         6,000     1,323,000        16,000
      Income taxes         297,000       857,000       787,000     1,552,000
      Depreciation and
       amortization      3,097,000       938,000     4,217,000     1,851,000
      Stock-based
       compensation        470,000       317,000       836,000       639,000
      Manufacturing
       plant
       consolidation
       costs(1)            454,000             -       454,000             -
                     ---------------------------- ---------------------------
    Adjusted EBITDA   $  4,193,000  $  3,701,000  $  5,677,000  $  5,748,000
                     ---------------------------- ---------------------------



                      Three months ended June 30   Six months ended June 30
                     ---------------------------- ---------------------------
                              2007          2006          2007          2006
                     ---------------------------- ---------------------------
    Net income (loss) $ (1,182,000) $  2,262,000  $ (1,290,000) $  2,967,000
     per share,
     diluted                 (0.04)         0.08         (0.04)         0.10

    Adjustments
    Add:
      Stock-based
       compensation        470,000       317,000       836,000       639,000
      Intangible asset
       amortization(2)   2,032,000       390,000     2,466,000       780,000
      Manufacturing
       plant
       consolidation
      costs(1)             454,000             -       454,000             -
    Deduct:
      Tax recovery for
       intangible asset
       amortization       (772,000)      (148,000)    (937,000)     (296,000)
      Tax recovery for
       manufacturing
       plant
       consolidation
       costs              (159,000)            -      (159,000)            -
    Non-GAAP net
     income                843,000     2,821,000     1,370,000     4,090,000
    Non-GAAP net
     income per
     share, diluted   $       0.03  $       0.09  $       0.05  $       0.14
    Shares used to
     calculate
     non-GAAP net
     income per share,
     diluted            29,441,933    29,728,476    29,234,581    29,825,331

    (1) Manufacturing plant consolidation costs are the costs associated with
        the closure of the Burnaby, British Columbia and
        Arlington, Washington manufacturing facilities as we consolidate the
        manufacture of programmable products in our San Diego facility, and
        solar commercial products in our Livermore facility.

    (2) Intangible asset amortization is primarily for the intellectual
        property acquired as part of the acquisition of Elgar described in
        Note 3(a) of the unaudited interim financial statements.

    Conference Call

    Xantrex Technology Inc. has scheduled a conference call for Wednesday,
August 1st, 2007 at 6:00 am Pacific Time (9:00 am Eastern Time) to discuss the
second quarter 2007 financial results. To access the conference call by
telephone, please call 416-644-3430 or 604-677-8677. Alternatively, the audio
webcast of the conference call may be accessed through the Xantrex web site at
http://www.xantrex.com/invevents.asp. The audio replay will be available on
the web shortly after the conclusion of the conference call.

    About Xantrex

    Xantrex Technology Inc. (www.xantrex.com) is a world leader in the
development, manufacturing and marketing of advanced power electronic products
and systems for the renewable, programmable, mobile, and portable power
markets. The company's products convert and control raw electrical power from
any central, distributed, renewable, or backup power source into high-quality
power required by electronic and electrical equipment. Headquartered in
Vancouver, British Columbia, the company has facilities in Arlington,
Washington; Livermore and San Diego, California; Elkhart, Indiana; Barcelona,
Spain; and Reading, England. Xantrex is listed on the Toronto Stock Exchange
under the ticker symbol "XTX".

For further information: Donna Clark, (604) 422-2601,
donna.clark@xantrex.com