Tri-Tech Holding Reports Third Quarter 2011 Financial Results

BEIJING, November 15, 2011 /PRNewswire-Asia-FirstCall/ -- Tri-Tech Holding Inc. (Nasdaq: TRIT), a premier public company that provides leading turn-key solutions in China for the water resources management, water and wastewater treatment, industrial safety and pollution control markets, announced today that revenues for the third fiscal quarter ended September 30, 2011 reached $24.0 million, an increase of 42.2% from $16.9 million in Q3 2010. Net income for the quarter was $1.9 million, or a 13.7% decrease from $2.2 million in Q3 2010. Diluted EPS was $0.24, compared to $0.28 in Q3 2010.

The decrease in net income was due to the delayed revenue stream from new projects such as the recently announced projects in India totaling $42 million. The India projects were originally expected to be awarded in early Q3. Total expenses for Q3, as well as for previous quarters, increased significantly mainly due to marketing efforts in new geographical areas such as India and North America, and team building efforts in our sales and technical support departments to better prepare for the upcoming challenges and opportunities. However, these activities caused the decrease in net income and EPS, and had an adverse impact on our Q3 financials.

Additional Third Quarter 2011 Highlights

• Revenue from Water/Wastewater Treatment and Municipal Infrastructure operations increased by 43.2% to $15.5 million
• Revenue from Water Resource Management Systems and Engineering Services increased by 182.3% to $3.5 million
• Revenue from Industrial Pollution Control and Safety increased slightly from $4.8 million to $4.9 million
• Gross profit increased by 35.5% from $4.5 million to $6.1million
• Gross margin decreased from 26.6% to 25.3%
• Income from operations increased by 12.3% from $2.8 million to $3.1 million
• Weighted average number of diluted shares outstanding was 8,160,407 at September 30, 2011
• Won flash flood monitoring and forecasting contracts valued at $4.08 million in Yunnan and Hebei Provinces and Beijing Municipality
• Won a production security system project contract valued at $1.87 million with Shaanxi Oil Field Industrial Park
• Received a $9.4 million line of credit from China CITIC Bank

Mr. Warren Zhao, CEO of Tri-Tech Holding, commented: "During the third quarter, the Chinese economy continued to slow its previously rapid pace of growth, due to the implementation of tight monetary policy by the Chinese government for the purposes of reining in inflation and softening the impact of slow global recovery. In spite of the general economic climate, the nature of our business enabled us to continue growth as investment in water and wastewater treatment continued to increase at record levels. We believe the overall Chinese economy will stay healthy and stable as investment and import showed robust performance in the third quarter. We expect that the falling commodity prices in the following quarters will give relief to the tight monetary policy, which we believe will favor our business growth from a macroeconomic perspective."

Mr. Zhao added: "For the overseas markets, we are now strategically positioning ourselves to penetrate the water and wastewater services sector in India, the Middle East and North America, where we expect to see higher growth as the majority of industry end-users seek cost-effective solutions while expanding their existing operations. We will also be engineering and constructing new waterwork projects to address the mounting pressure from government legislations to control environmental pollution. The Indian market presents significant growth opportunities for us in the areas of wastewater treatment, water supply and municipal solid waste."

Third Quarter 2011 Financial Performance

Revenue

Net revenue for the quarter was $24.0 million, an increase of $7.1 million, or 42.2%, from that of $16.9 million in the same period of 2010.

Revenue from Water/Wastewater Treatment and Municipal Infrastructure continued to be strong, constituting 64.8% of total revenues, or $15.5 million, an increase of $4.7 million, or 43.2%, from that of $10.9 million in Q3 2010. This solid increase was mainly attributable to the progress on the Ordos drinking water plant project. In the third quarter, we recognized revenue of $13.7 million on the Ordos project, which consisted of 20% of the initial phase contract value and 20% of the expansion phase contract value. In total, the initial phase project has reached approximately 90% completion. The customer's acceptance of the initial phase project is expected before the end of the year. The remaining 10% of the revenue will be recognized upon customer acceptance.

Revenue from Water Resources Management Systems and Engineering Services saw growth of 182.3%, to $3.5 million from $1.2 million in Q3 2010, representing 14.6% of total revenues. Revenue in this segment increased significantly as the revenue from projects awarded during June and July 2011 started to be recognized in the third quarter of 2011. Contracts for the flash flood early warning projects in Hebei Province and Beijing Municipality and the projects in Yunnan Province have a total value of $4.1 million. These projects are expected to be completed at different points in time during the rest of 2011.

Revenue from Industrial Pollution Control and Safety was $4.9 million, a slight increase of 3.6% from the same period in 2010, representing 20.6% of total revenues for Q3 2011.

Gross Margin

Gross profit increased by 35.5% to $6.1 million for the quarter, compared to $4.5 million in Q3 2010. Our gross margin decreased from 26.6% in the third quarter of 2010 to 25.3% in the third quarter of 2011. The foremost reason is that a large part of our total revenues for this quarter was for the Ordos project, which, given the scale of the project, has a relatively low gross margin.

Total Operating Expenses

Total operating expenses for the third quarter of 2011 were $2.9 million, an increase of 73.6% from $1.7 million for the same period of 2010. The increase was a result of the rapid growth of our technical support and project management team and our market development efforts. The headcount for our project management, technical specialists, and the research and development team increased to a record high of 162, constituting 54% of our total headcount.

-- Selling and Marketing Expenses

In the third quarter of 2011, total selling and marketing expenses increased by $231,143, or 80.2%, from $288,308 in the third quarter of 2010 to $519,451. The continuous business development in new geographical areas was the main cause of increase in the headcount- and travel-related expenses.

-- General and Administrative Expenses

General and administrative expenses increased by 84.0%, from $1.3 million in the third quarter of 2010 to $2.4 million in the third quarter of 2011. General and administrative expenses for the three months ended September 30, 2011 took up approximately 10% of total revenues. For the same period last year, it took up 8% of the total revenues.

Income from Operations

Income from operations totaled $3.1 million, a 12.3% increase from that of $2.8 million for the same period last year. Our operating margin was 13.1% compared to 16.5% for the same period last year. The decrease in operating margin was a result of the lower gross margin and higher operating expenses.

Net Income and EPS

Diluted EPS was $0.24, based on net income of $1.94 million and weighted average number of diluted shares outstanding of 8,160,407 for the quarter ended September 30, 2011, compared to $0.28 in the third quarter of 2010, based on net income of $2.24 million and weighted average number of diluted shares outstanding of 7,927,734. The deduction of minority interest in our Ordos subsidiary was among the causes for the difference between operational income and net income.

Nine Months 2011 Financial Performance

Net revenue for the nine months ended September 30, 2011 was $61.7 million, an increase of $32.5 million, or 111.4%, compared to that of $29.2 million in the same period of 2010. Net income attributable to TRIT shareholders was up 20.4%, from $4.5 million to $5.4 million. Diluted EPS was $0.66, up from $0.65 for the same period of 2010.

Liquidity and Capital Resources

As of September 30, 2011, cash and cash equivalents excluding restricted cash of $2.4 million were $13 million, including U.S. dollar deposits of $0.3 million and RMB deposits of $12.7 million. As of September 30, 2011, working capital was $8.5 million. Recently, we received an additional $3.1 million of cash from the Ordos project. Total cash collection from the Ordos project has reached $7.9 million. Our account receivable days this quarter have improved significantly, to 63 days. Our nine-month account receivable days were 79.

Recent Business Development

During the third quarter, we finished and delivered flash flood forecasting system projects in Inner Mongolia Autonomous Region, Gansu and Anhui provinces. We also finished projects for six counties in Heilongjiang Province in mid-August, and projects in Shandong, Hunan and Beijing by the end of September. Projects in Shanxi, Hebei and Yunnan are on track to be finished as scheduled. Since March 2011, we have been awarded contracts of flash flood and forecasting for 35 counties and cities across 14 provinces with a total value of $12 million, which accounted for a substantial market share in the sector.

At the end of the third quarter, the initial phase of our largest project, the Ordos water treatment plant project, was 90% complete and has been supplying source water for purification as part of the trial operation. The majority of the civil engineering work for the expansion phase of the plant has been completed in the third quarter.

In the third quarter, we won a 30-year commercial franchise of a build-own-operate-subsidy-transfer municipal infrastructure construction project covering the water supply system, and the water and wastewater collection and treatment system for the Yelaman Township of Buerjin County in Xinjiang. To build the project, we established a joint venture with the Buerjin government in which we take a majority interest of 80%. We are currently preparing for the procurement and construction of the water and wastewater pipeline.

In mid-July, we were awarded flash flood monitoring and forecasting contracts with a total value of $4.08 million in Yunnan and Hebei provinces and Beijing Municipality. Most recently, we won additional similar bids valued at 1.1 million in nine counties located in five provinces across China.

On July 22, we completed the acquisition of Huaxia Yuanjie Water Technology Co. Ltd., a company specializing in water equipment for high-rising buildings. During the third quarter, we enhanced our sales force at Yuanjie Water and increased its headcount by 40.

At the end of September, we were awarded a production security system project valued at $1.87 million for Shaanxi Oil Field Industrial Park. Recently, we secured a framework agreement for a natural gas distribution security system with Wuhan City.

Most recently, we were awarded two contracts of wastewater treatment plant construction in Hebei Province and Tianjin Municipality with a total value of approximately $16 million. The contracts for these projects will be signed shortly.

We are also actively pursuing overseas projects in the water treatment sector, particularly in the North American and the Middle Eastern markets. We have had a good start so far. The U.S.-based J&Y water division we integrated recently secured a water treatment system project with Oxford Properties Inc. for a hotel in the Jasper Park Resort in Alberta, Canada. We are also actively pursuing a seawater desalination project in Qatar for petrochemical processing which is in the final bidding evaluation stage.

Recently, we won three engineering-procurement-construction contracts amounting to $42 million for three sewage collection systems and sewage treatment plants for the towns of Hajipur, Buxar and Begusarai in the State of Bihar, India. The contracts will be executed primarily through our Indian joint venture. We expect all three projects to be completed by the end of 2013.

For the construction of our research, development and production base in Tianjin, the Baoding facility, part I of phase one of the constructions, of about 7,500 square meters for the odor control system manufacturing and automatic control box assembly workshop, has been mostly completed in the third quarter. We have also launched part II of phase one for our pilot test workshop and multifunction building.

To ensure our leading position in the water sector in China, we recently introduced water quantity and quality monitoring instruments to our application development. At the time of this announcement, we have completed such development and have upgraded our proprietary products accordingly.

Our HTI-licensed forward osmosis membrane personal hydration products achieved progressive results at the development stage during the third quarter. Currently, we have completed the design localization and the sample product is being tested by our customers.

On September 27, we received approval for a line of credit of RMB 60 million ($9.4 million) from China CITIC Bank. Currently, we have drawn down RMB 30 million.

Order Backlog and Pipeline

As of November 10, 2011, we had a total order backlog of $101.6 million compared with $48.3 million as of June 30, 2011. This included $71.1 million in water treatment services, $7.8 million in water resource management services, and $22.7 million in industrial pollution control services.

We are currently pursuing prospective projects with a total expected value of $95.2 million, of which approximately $43.4 million is in wastewater treatment and municipal infrastructure, $32.8 million in water resource management and engineering services, and $19 million in industrial pollution control and safety. We have not been awarded any of these projects yet, and there are no guarantees that we will be selected for any such projects.

Year 2011 Guidance Update

Based on the performance of the first three quarters of 2011 and the estimated results for the remaining quarter, we raised our revenues guidance for the year from the previously announced range between $75 million and $80 million to a range between $84 million and $89 million. We raised our revenues guidance for the year based on our strong backlog.

We lowered our net income guidance for 2011 from the previous range between $11 million and $12.8 million to between $7.9 million and $8.1 million, and lowered our EPS guidance from the previous range between $1.35 and $1.58 to between $0.97 and $1.00, assuming the number of total outstanding shares remains at 8,160,407. We lowered our net income and EPS forecast mainly due to the following two reasons:

• The delay in the awards of some major projects we have been pursuing for extensive periods of time; and
• The rapid growth of our technical support team and project management professionals and the corresponding increase in our project costs and general expenses.

Business Outlook

Since 2010, we have been continuously implementing our strategic plans in both domestic and overseas markets for water, water resources and industrial pollution control projects. Although our current financial results showed a moderate growth, we expect the fourth quarter to be the first quarter to benefit from our strategic expansion into new regions and our continued diversification into more private sector projects.

-- Domestic Markets

We are continuously working on expanding our geographical reach from the existing bases of operations. For the expansion phase of the Ordos water treatment plant project, we plan to complete equipment procurement and expect continued revenue recognition in the fourth quarter. With our first build-own-operate-subsidy-transfer municipal infrastructure project in Xinjiang, we can ensure our leading position as a service provider for construction, operation and investment of urban water infrastructure in the emerging Xinjiang market, which continues to attract a great amount of government investment.

Currently, bidding invitations for most projects under the first round of the flash flood and monitoring program initiated by the Ministry of Water Resources (the "MWR") have been closed and those projects have assumed construction. In September, the MWR launched a new round of bidding invitations of the flash flood monitoring program for 500 counties nationwide. We have actively participated in the new round of bidding, meanwhile establishing our marketing branches and strengthening project execution capabilities. We expect to continue the growth of our market share.

In addition to the projects for water resources management we are pursuing, we also actively develop partnerships with manufacturers in hydrological instruments and sensors in preparation of water resources networking monitoring projects.

Presently, our team in the segment of industrial safety and pollution control is focusing on multiple projects in water/wastewater treatment for coal-fired power plants. In the long term, we will also expand our client base into industries such as thermal power, chemicals, petrochemicals, iron and steel, and etc.

-- Overseas Markets

For overseas markets, following the acquisition of J&Y, we conducted corporate structural integration as well as technological integration. J&Y, serving as a business development platform and technology support source to our domestic and overseas projects, ensures the technical feasibility of our global operations. J&Y also allows us to leverage our technologies such as zero liquid discharge and thermal technologies for seawater desalination to explore the Indian and the Middle Eastern markets.

To better execute oversea projects, we are in the process of building a fully integrated network of engineering solutions, human resources, administrative and logistics supports. We have started to recruit experienced local project managers and engineers to build up our local project execution team. We are also sending senior engineers and project management teams from our headquarters to collaborate with our on-site teams as the projects proceed. At the same time, we are studying the construction conditions and communicate with our clients regarding their specific requirements in order to provide them with satisfactory preliminary proposals and to make better preparation for the actual construction.

During the last quarter of 2011, we continue to look for strategic and accretive acquisition targets to further our long-term growth goals through adding individual components that fit into our overall portfolio of services and products offered to our customers worldwide. In light of the high market demand on wastewater treatment solutions, we believe that opportunities abound for up-stream wastewater pipeline manufacturers and mid-stream wastewater treatment plant builders. We are exploring strategic acquisitions to take advantage of up-stream pipeline development capabilities. For example, we are seeking partners in water resources and hydrological measurement instruments. We are also looking at water treatment technology companies in North America for cooperation or possible acquisitions.

Conference Call

Tri-Tech's CEO Warren Zhao, President Phil Fan, Co-President Gavin Cheng and CFO Peter Dong will host a conference call at 9:00 AM EST, Tuesday, November 15, (10:00 PM Beijing/Hong Kong Time on November 15) to review the Company's financial results and respond to questions and comments.

To participate, dial U.S. toll free number 1-877-317-6789 approximately 10 minutes before the scheduled call. International callers please dial 1-412-317-6789.

A live webcast of the call will be available at http://www.visualwebcaster.com/event.asp?id=83755 . An MP3 file will be available one hour after the call and will be archived for 90 days, accessible via http://www.tri-tech.cn.

About Tri-Tech Holding Inc.

Tri-Tech designs customized sewage treatment and odor control systems for China's municipalities and its larger cities. These systems combine software, information management systems, resource planning, and local and distant networking hardware that includes sensors, control systems, programmable logic controllers, supervisory control and data acquisition systems. The Company also designs systems that track natural waterway levels for drought control, monitor groundwater quality and assist the government in managing its water resources. The Company is also moving into the industrial pollution control market. Tri-Tech owns 27 software copyrights, six technological patents and five trademarks. It employs 299 people. Please visit http://www.tri-tech.cn for more information.

This press release contains forward-looking statements. These statements are made under the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. Among other things, expectations about expansion into adjacent industry verticals, growth of our Industrial Pollution Control Services, and the potential development of the company's other existing service lines contain forward-looking statements. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

Investor Relations Contact:
Mr. Craig T. Stewart
North Coast Advisors Inc.
Rochester, N.Y.
+1 (585) 388-3340
cstewart@ncainc.com

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