Orient Paper, Inc. Announces Third Quarter 2016 Financial Results

BAODING, China, Nov 10, 2016 /PRNewswire/ --

• Earnings Conference Call is Scheduled for Thursday, November 10, 2016, 8:00 am ET

Orient Paper, Inc. (NYSE MKT: ONP) ("Orient Paper" or the "Company"), a leading manufacturer and distributor of diversified paper products in North China, today announced its unaudited financial results for the third quarter ended September 30, 2016.

Third Quarter of 2016 Financial Highlights

• Total revenue increased by 15.6% to $37.5 million, mainly due to the increase in sales of regular CMP and tissue paper products.
• Total sales volume increase by 26.2% to 96,971 tonnes, offsetting the 8.4% decrease in overall blended average selling price ("ASP").
• Gross profit increased by 14.2% to $7.3 million for the third quarter of 2016, mainly due to the increase in gross profit of offset printing paper as a result of the decrease of the purchase cost of recycled white scrap paper in the third quarter of 2016.
• Net income was $3.0 million, or $0.14 per basic and diluted share, for the third quarter of 2016, as compared to net income of $1.7 million, or $0.08 per basic and diluted share, for the same period of last year.
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") was $8.5 million, an increase of 8.6% from the same period of last year.
• The newly launched tissue paper products segment generated revenue of $1.6 million with sales volume of 1,327 tonnes and an ASP of $1,227/tonne.

"We are pleased to report solid results for the third quarter of 2016, with increases in sales volume across all major product categories that more than offset a decrease in average selling prices, leading to 15.6% and 80.0% growth in revenues and net income, respectively, as compared to the third quarter of 2015," said Mr. Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper. "Over the last few months, we have seen orders for our products begin to stabilize and we expect this trend to carry over into the beginning of 2017."

Three Months Ended September 30, 2016 Financial Results

Revenue

For the third quarter of 2016, total revenue increased by $5.1 million, or 15.6%, to $37.5 million from $32.4 million for the same period of the last year. The increase in total revenue was primarily due to an increase in sales of regular CMP and tissue paper products. The following table summarizes revenue, volume sold and ASP by product for the third quarter of 2016 and 2015:

Revenue from CMP, including both regular CMP and light-weight CMP, increased by $3.8 million, or 16.6%, to $26.4 million, and accounted for 70.6% of total revenue for the third quarter of 2016, as compared to $22.7 million, or 69.9% of total revenue, for the same period of last year. The Company sold 81,035 tonnes of CMP at an ASP of $326/tonne in the third quarter of 2016, as compared to 62,875 tonnes at an ASP of $361/tonne in the same period of last year.

Of the total CMP sales, revenue from regular CMP increased by $3.3 million, or 17.4%, to $22.2 million, a result of sales of 68,422 tonnes at an ASP of $325/tonne for the third quarter of 2016, as compared to revenue of $19.0 million, a result of sales of 52,737 tonnes at an ASP of $359/tonne, for the same period of last year. Revenue from light-weight CMP increased by $0.5 million, or 12.6%, to $4.2 million, a result of sales of 12,613 tonnes at an ASP of $332/tonne, for the third quarter of 2016, as compared to revenue of $3.7 million, a result of sales of 10,138 tonnes at an ASP of $366/tonne, for the same period of the last year.

Revenue from offset printing paper increased slightly by 0.3% to $9.3 million for the third quarter of 2016, from $9.3 million for the same period of last year. The Company sold 14,571 tonnes of offset printing paper at an ASP of $641/tonne in the third quarter of 2016, as compared to 13,689 tonnes at an ASP of $680/tonne in the same period of last year. The decrease in ASP for offset printing paper in USD was the result of the depreciation of the RMB against the USD in 2016.

Revenue from tissue paper products was $1.6 million for the third quarter of 2016, compared to $0.3 million for the same period of last year. The Company sold 1,327 tonnes of tissue paper products at an ASP of $1,227/tonne in the third quarter of 2016, compared to 208 tonnes at an ASP of $$1,324/tonne in the same period of last year. Revenue from digital photo paper was $0.06 million for the third quarter of 2016. The Company sold 38 tonnes of digital photo paper at an ASP of $1,702/tonne in the third quarter of 2016. In October 2014, we shut down and disassembled our digital photo paper production facilities (the PM4 and PM5 production lines) for a relocation mandated by the local county government to a new workshop that we built across the street from our main production base, Xushui Paper Mill. We completed the relocation and resumed commercial production of digital photo paper in August 2015. However, we suspended production in June 2016, due to low market demand for our photo paper products. We expect that our digital photo paper production will remain suspended in the near future. We intend to resume the production of digital photo paper if and when the market shows a greater demand for our products.

Cost of Sales

Total cost of sales increased by $4.1 million, or 15.9%, to $30.1 million for the third quarter of 2016, from $26.0 million for the same period of last year. Cost of sales per tonne was $311 for the third quarter of 2016, as compared to $338 for the same period of last year. Costs of sales per tonne for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper were $273, $251, $464, $1,075, and $2,151, respectively, for the third quarter of 2016, as compared to $286, $254, $568, $1,301, and $7,695, respectively, for the same period of last year.

Gross Profit and Gross Margin

Total gross profit increased by $0.9 million, or 14.2%, to $7.3 million for the third quarter of 2016, from $6.4 million for the same period of last year. Total gross margin decreased by 0.2 percentage points to 19.6% for the third quarter of 2016, from 19.8% for the same period of last year.

Gross margin for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper was 16.0%, 24.3%, 27.5%, 12.4% and -26.4%, respectively, for the third quarter of 2016, as compared to 20.4%, 30.7%, 16.5%, 1.8%, and -93.2%, respectively, for the same period of last year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") decreased by $1.2 million, or 31.9%, to $2.6 million for the third quarter of 2016, from $3.8 million for the same period of the last year. The decrease was mainly due to the additional depreciation charge for idle property, plant and equipment at the tissue paper plant in Wei County that took place in the third quarter of 2015.

Income from Operations

Income from operations increased by $2.1 million, or 81.8%, to $4.7 million for the third quarter of 2016 from $2.6 million for the same period of last year, as a combined result of increase in revenue and decrease in SG&A expenses. Operating profit margin was 12.6% for the third quarter of 2016, as compared to operating profit margin of 8.0% for the same period of last year.

Net Income

Net income increased by $1.3 million, or 80.0%, to $3.0 million for the third quarter of 2016, from $1.7 million for the same period of last year. Basic and diluted earnings per share for the third quarter of 2016 was $0.14, compared to $0.08 for the same period of last year.

EBITDA

EBITDA increased by $0.7 million, or 8.6%, to $8.5 million for the third quarter of 2016, from $7.8 million for the same period of last year. See the reconciliation of Net Income to EBITDA below.

Note 1: Non-GAAP Financial Measures

In addition to our U.S. GAAP results, this press release includes a discussion of EBITDA, a non-GAAP financial measure as defined by the Securities and Exchange Commission ("SEC"). The Company defines EBITDA as net income before interest, income taxes, depreciation and amortization. EBITDA is a key measure used by management to evaluate our results and make strategic decisions. Management believes this measure is useful to investors because it is an indicator of operational performance. Because not all companies use identical calculations, the Company's presentation of EBITDA may not be comparable to similarly titled measures of other companies, and should not be viewed as an alternative to measures of financial performance or changes in cash flows calculated in accordance with the U.S. GAAP.

Revenue

For the nine months ended September 30, 2016, total revenue increased by $3.2 million, or 3.2%, to $103.4 million from $100.2 million for the same period of the last year. The increase in total revenue was primarily due to the increase in sales of tissue paper products, which was partially offset by the decrease in sales of regular CMP in the nine months of 2016. The following table summarizes revenue, volume sold and ASP by product for the nine months ended September 30, 2016 and 2015:

Revenue from CMP, including both regular CMP and light-weight CMP, decreased by $2.1 million, or 2.9%, to $71.1 million, and accounted for 68.8% of total revenue for the nine months ended September 30, 2016, as compared to $73.2 million, or 73.0% of total revenue, for the same period of last year. The Company sold 217,522 tonnes of CMP at an ASP of $327/tonne in the nine months ended September 30, 2016, as compared to 197,582 tonnes at an ASP of $370/tonne in the same period of last year.

Of the total CMP sales, revenue from regular CMP decreased by $1.7 million, or 2.7%, to $59.6 million, a result of sales of 183,044 tonnes at an ASP of $326/tonne for the nine months ended September 30, 2016, as compared to revenue of $61.2 million, a result of sales of 165,959 tonnes at an ASP of $369/tonne, for the same period of last year. Revenue from light-weight CMP decreased by $0.4 million, or 3.7%, to $11.5 million, a result of sales of 34,478 tonnes at an ASP of $332/tonne, for the nine months ended September 30, 2016, as compared to revenue of $11.9 million, a result of sales of 31,623 tonnes at an ASP of $376/tonne, for the same period of the last year.

Revenue from offset printing paper increased by $0.3 million, or 1.3%, to $26.9 million for the nine months ended September 30, 2016, from $26.6 million for the same period of last year. The Company sold 41,440 tonnes of offset printing paper at an ASP of $650/tonne in the nine months ended September 30, 2016, as compared to 38,545 tonnes at an ASP of $689/tonne in the same period of last year. The decrease in ASP for offset printing paper in USD was the result of the depreciation of the RMB against the USD in 2016.

Revenue from tissue paper products was $4.7 million for the nine months ended September 30, 2016, compared to $0.3 million for the same period of last year. The Company sold 3,788 tonnes of tissue paper products at an ASP of $1,245/tonne in the nine months ended September 30, 2016, compared to 208 tonnes at an ASP of $1,324/tonne in the same period of last year.

Revenue from digital photo paper was $0.7 million for the nine months ended September 30, 2016, compared to $0.2 million for the same period of last year. The Company sold 372 tonnes of digital photo paper at an ASP of $1,786/tonne in the nine months ended September 30, 2016, compared to 44 tonnes at an ASP of $4,026/tonne in the same period of last year. In June 2016, we suspended the production of digital photo paper due to low market demand for our products. We expect that our digital photo paper production will remain suspended in the near future. We intend to resume the production of digital photo paper when and if the market shows a greater demand for our products.

Cost of Sales

Total cost of sales increased by $7.1 million, or 9.0%, to $85.4 million for the nine months ended September 30, 2016, from $78.3 million for the same period of last year. Cost of sales per tonne was $321 for the nine months ended September 30, 2016, as compared to $330 for the same period of last year. Costs of sales per tonne for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper were $276, $253, $506, $1,095, and $2,835, respectively, for the nine months ended September 30, 2016, as compared to $290, $258, $556, $1,301, and $7,138, respectively, for the same period of last year.

Gross Profit and Gross Margin

Total gross profit decreased by $3.9 million, or 17.8%, to $18.0 million for the nine months ended September 30, 2016, from $21.9 million for the same period of last year. Total gross margin decreased by 4.4 percentage points to 17.4% for the nine months ended September 30, 2016, from 21.8% for the same period of last year. The decrease in total gross margin was mainly due to (i) decreased gross margins for CMP and light-weight CMP, and (ii) negative gross margin for digital photo production lines.

Gross margin for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper was 15.3%, 23.9%, 22.2%, 12.0% and -58.7%, respectively, for the nine months ended September 30, 2016, as compared to 21.4%, 31.4%, 19.4%, 1.8%, and -77.3%, respectively, for the same period of last year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") increased by $2.3 million, or 31.4%, to $9.7 million for the nine months ended September 30, 2016, from $7.4 million for the same period of the last year. The increase was mainly due to (i) the increase in the depreciation expenses for our temporarily idle property, plant and equipment at our new tissue paper plant in Wei County and (ii) 1,133,916 shares of common stock granted under compensatory incentive plans, valued at $1.4 million.

Income from Operations

Income from operations decreased by $6.2 million, or 42.8%, to $8.3 million for the nine months ended September 30, 2016 from $14.5 million for the same period of last year. Operating margin was 8.0% for the nine months ended September 30, 2016, as compared 14.5% for the same period of last year.

Net Income

Net income decreased by $5.1 million, or 54.8%, to $4.2 million for the nine months ended September 30, 2016, from $9.4 million for the same period of last year. Basic and diluted earnings per share for the third quarter of 2016 was $0.20, compared to $0.46 for the same period of last year.

EBITDA

EBITDA decreased by $5.1 million, or 20.1%, to $20.1 million for nine months ended September 30, 2016, from $25.1 million for the same period of last year. See the reconciliation of Net Income to EBITDA below.

Note 2: Non-GAAP Financial Measures

In addition to our U.S. GAAP results, this press release also includes a discussion of EBITDA, a non-GAAP financial measure as defined by the SEC. The Company defines EBITDA as net income before interest, income taxes, depreciation and amortization. EBITDA is a key measure used by management to evaluate our results and make strategic decisions. Management believes this measure is useful to investors because it is an indicator of operational performance. Because not all companies use identical calculations, the Company's presentation of EBITDA may not be comparable to similarly titled measures of other companies, and should not be viewed as an alternative to measures of financial performance or changes in cash flows calculated in accordance with the U.S. GAAP.

Cash, Liquidity and Financial Position

As of September 30, 2016, the Company had cash and cash equivalents, short-term debt (including notes payable and related party loan), current capital lease obligations, long term debt (including related party loans) and non-current capital lease obligations of $5.6 million, $16.2 million, $9.3 million, $12.5 million and $nil, respectively, as compared to $2.6 million, $27.7 million, $6.9 million, $19.0 million and $3.2 million, respectively, at the end of 2015.

Net cash provided by operating activities was $8.6 million for the nine months ended September 30, 2016, as compared to $10.7 million for the same period of last year. Net cash used in investing activities was $7.7 million for the nine months ended September 30, 2016, as compared to $11.3 million for the same period of last year. Net cash provided by financing activities was $2.2 million for the nine months ended September 30, 2016, as compared to $1.4 million for the same period of last year.

Earnings Conference Call:

The Company's management will host a conference call to discuss its third quarter 2016 financial results at 8:00 am US Eastern Time (5:00 am US Pacific Time/ 9:00 pm Beijing Time) on Thursday, November 10, 2016.

To attend the conference call, please dial in using the information below. When prompted upon dialing-in, please provide the conference ID or ask for the "Orient Paper Third Quarter 2016 Earnings Conference Call."

This conference call will be broadcast live on the Internet and can be accessed by all interested parties at http://www.orientpaperinc.com/, or http://edge.media-server.com/m/p/2j5ehseu.

Please access the link at least fifteen minutes prior to the start of the call, to register, download, and install any necessary audio software.

A playback will be available through November 17, 2016. To listen, please dial +1-855-452-5696 if calling from the United States, or +61-290-034-211 if calling internationally. Use the passcode 9574128 to access the replay.

About Orient Paper, Inc.

Orient Paper, Inc. ("Orient Paper") is a leading paper manufacturer in North China. Using recycled paper as its primary raw material (with the exception of its digital photo paper and tissue paper products), Orient Paper produces and distributes three categories of paper products: corrugating medium paper, offset printing paper, and other paper products, including digital photo paper and tissue paper products.

With production based in Baoding and Xingtai in North China's Hebei Province, Orient Paper is located strategically close to the Beijing and Tianjin region, home to a growing base of industrial and manufacturing activities and one of the largest markets for paper products consumption in the country.

Orient Paper's production facilities are controlled and operated by its wholly owned subsidiary Shengde Holdings Inc, which in turn controls and operates Baoding Shengde Paper Co., Ltd., and Hebei Baoding Orient Paper Milling Co., Ltd.

Founded in 1996, Orient Paper has been listed on the NYSE MKT under the ticker symbol "ONP" since December 2009. For more information about the Company, please visit http://www.orientpaperinc.com.

Safe Harbor Statements

This press release may contain forward-looking statements. These forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks outlined in the Company's public filings with the SEC, including the Company's latest annual report on Form 10-K. All information provided in this press release speaks as of the date hereof. Except as otherwise required by law, the Company undertakes no obligation to update or revise its forward-looking statements.

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