Revenues Increase 102%, Fully Diluted EPS up 43%
Company Enters Biomass Renewable Energy Market with Multi Million Dollar Agreement
XI'AN, China, Aug. 17 /PRNewswire-Asia-FirstCall/ -- China Recycling Energy Corp. (Nasdaq: CREG; "CREG" or "the Company"), a leading industrial waste-to-energy solution provider in China, today announced its second quarter 2010 financial results.
Highlights:
For the quarter ended June 30, 2010
-- Revenues grew 102% to $22.54 million for the quarter ended June 30,
2010 from $11.14 million for the quarter ended June 30, 2009.
-- Income from operations grew 140% to $9.06 million for the quarter ended
June 30, 2010 from $3.83 million for the quarter ended June 30, 2009.
-- Net income grew to $5.04 million for the quarter ended June 30, 2010
from $3.23 million for the quarter ended June 30, 2009.
-- Fully diluted earning per share ("EPS") of $0.10 for the quarter ended
June 30, 2010 compared to $0.07 for the quarter ended June 30, 2009.
-- On an adjusted Non-GAAP basis, as defined below, the Company reported
Non-GAAP net income of $7.42 million, or non-GAAP fully diluted EPS of
$0.15 for the quarter ended June 30, 2010, compared to $3.44 million,
or fully diluted EPS of $0.08, for the same period in 2009.
For the six months ended June 30, 2010
-- Revenues grew 113% to $32.66 million for the six months ended June 30,
2010, compared to $15.46 million for the six months ended June 30,
2009.
-- Income from operations grew 129% to $14.48 million for the six months
ended June 30, 2010 from $6.33 million for the six months ended June
30, 2009.
-- Net income grew 67% to $7.18 million for the six months ended June 30,
2010 from $4.31 million for the six months ended June 30, 2009.
-- The company reported fully diluted earning per share ("EPS") of $0.15
for the six months ended June 30, 2010, compared to $0.10 for the six
months ended June 30, 2009.
-- On an adjusted Non-GAAP basis, the Company reported Non-GAAP net income
grew to $11.30 million, and Non-GAAP fully diluted EPS rose to $0.23,
for the six months ended June 30, 2010 compared to $4.90 million, or
fully diluted EPS of $0.11, for the same period of 2009.
Summary of Financial Results
(In '000s of U.S. Dollars, SIX MONTHS ENDED THREE MONTHS ENDED
except for per share data) JUNE 30, JUNE 30,
2010 2009 2010 2009
Revenue 32,664 15,460 22,538 11,137
Gross profit 8,064 3,994 5,736 2,692
Total Operating Income 14,482 6,327 9,060 3,827
Net income 7,181 4,310 5,038 3,234
Diluted EPS 0.15 0.10 0.10 0.07
Non-GAAP net income (1) 11,301 4,901 7,424 3,436
Non-GAAP diluted EPS (1)(2) $0.23 $0.11 $0.15 $0.08
(1) CREG provides net income and earnings per share on a non-GAAP basis
that excludes non-cash, share-based compensation expense and non-cash
interest expense on the amortization of the beneficial conversion
feature for the convertible notes and non-cash deferred income tax
expenses, as described below, to enable investors to better assess the
Company's operating performance. The non-GAAP measures are described
below and reconciled to the corresponding GAAP measure in the section
below titled "Non-GAAP Financial Measures";
(2) Non-GAAP diluted weighted average shares outstanding were calculated
based on outstanding shares, issued options, and estimated shares
under the assumption that they would be converted from our convertible
debentures based on CREG's 2009's net income.
Mr. Guohua Ku, Chairman and CEO of CREG commented, "Our Company continues to deliver superior financial and operating results on every level. I am very pleased to report tremendous growth on both our top and bottom line results. All of our projects are at or ahead of schedule, including Phase II and III of the Erdos Power Generation Project, which is expected to be completed in 2010."
Mr. Ku continued, "I am also pleased to announce that we expanded our energy recycling efforts to include Biomass Power Generation Systems (BPGS) which we recently acquired. Biomass is an important renewable energy resource and is one of the main strategic energy alternatives to conventional energy sources. It contains all the features of high power generation efficiency while protecting and improving the environment and benefiting from strong government incentive programs. To this extent, we successfully executed a new contract with Pucheng Biomass Power Generation Company. The agreement will allow us to have a minimum of $3.3 million per year in cash inflow for the next 15 years. BPGS will play an important role in our revenue growth going forward and expand our existing waste-to-energy business model to now include agriculture waste-to-energy."
Financial Results for the Second Quarter Ended June 30, 2010
Net sales for the three months ended June 30, 2010 was approximately $22.54 million compared to net sales for the three months ended June 30, 2009 of $11.14 million, an increase of approximately $11.4 million. The increase in sales is attributed to the sale of the Pucheng BPGS system compared to the same period of 2009 in which sales for the Jin Yang CHPG system and operating leasing income occurred. Also during the second quarter of 2010 the Company recorded a contingent rental income of $0.74 million from actual usage of the electricity that was in addition to the minimum lease payments from previous projects.
Gross profit was approximately $5.74 million for the three months ended June 30, 2010 as compared to $2.69 million for the same period in 2009, representing a gross margin of approximately 25% and 24% for the second quarter of 2010 and 2009, respectively. The increase in gross profit was mainly from the profit of the sales-type leases of Pucheng BPGS and additional contingent rental income.
Operating income was approximately $9.06 million for the three months ended June 30, 2010 compared to operating income for the same period in 2009 of $3.83 million, an increase of approximately $5.23 million. The growth in operating income was mainly due to the sales of the Pucheng BPGS and the increase in interest income from selling and leasing our sales-type lease systems which were two TRT systems, two CHPG systems, one WGPG system and two waste heat power generating systems associated with the Erdos Phase I project. The interest income for the three months ended June 30, 2010 was $3.32 million, an increase of $2.19 million compare to interest income of $1.13 million in the same quarter of 2009 when there were two TRT systems and one CHPG system only.
Operating expenses totaled approximately $1.39 million for the three months ended June 30, 2010 as compared to approximately $0.56 million for the same period in 2009, an increase of $0.83 million or 148%. This increase was mainly due to proportional increases in payroll, travel and marketing expenses as a result of increased sales and expansion of the business. In addition, we recorded $0.67 million compensation expense for stock options and warrants during the three months ended June 30, 2010, compared to $52,815 for the same period in 2009.
Net income for the three months ended June 30, 2010 was approximately $5.04 million as compared to an approximately $3.23 million for the comparable period in 2009, an increase of approximately $1.81 million. For the quarter ended June 30, 2010, GAAP diluted EPS was $0.10, compared with $0.07 in the same period of 2009.
Financial Results for the Six Months Ended June 30, 2010
Net sales for the six months ended June 30, 2010 was $32.66 million compared to net sales for the comparable period of 2009 of $15.46 million, an increase of $17.2 million. The increase was due to the completion and sale of the second 9MW capacity power station of the Erdos Phase I project through
sales-type lease in the first quarter of 2010 and the completion of transformation and sale of Pucheng Biomass Power Generation Station.
Gross profit was $8.06 million for the six months ended June 30, 2010 compared to $3.99 million for the comparable period in 2009, representing a gross margin of 25% and 26% for the six months ended June 30, 2010 and 2009, respectively. The gross profit was mainly from the selling of the Erdos Phase I second 9MW capacity power station in the first quarter of 2010 and Pucheng Biomass Power Generation Station in the second quarter of 2010, while in the first quarter of 2009, it was mainly for the selling of the Jinyang Shengwei heat power generation system and the operating lease business in connection with the leasing of two energy recycling power generation equipment systems after April of 2008.
Operating income was $14.48 million for the six months ended June 30, 2010 compared to operating income for the comparable period in 2009 of $6.33 million, an increase of $8.15 million. The growth in operating income was mainly due to the increase in interest income from selling and leasing of the Company's' energy saving systems through sales-type leasing. Interest income on sales-type leasing for the six months ended June 30, 2010 was $6.42 million, $4.09 million increase from $2.33 million for the comparable period in 2009.
Operating expenses totaled $2.75 million for the six months ended June 30, 2010 compared to $1.36 million for the comparable period in 2009, an increase of $1.39 million or 102%. The increase was due to proportional increases in payroll, traveling and marketing expenses as a result of continuous expansion of the business. In addition, we recorded $1.41 million compensation expense for stock options and warrants during the six months ended June 30, 2010, compared to $0.44 million for the same period in 2009.
Net income for the first six months ended June 30, 2010 was $7.18 million compared to $4.31 million for the comparable period in 2009, an increase of $2.87 million. For the six months ended June 30, 2010, GAAP diluted EPS was $0.15, compared with $0.10 in the same period of 2009.
As of June 30, 2010, the Company had cash and cash equivalents of $5.09 million, compared with $1.11 million at December 31, 2009. Total investments in sales-type leases were $83.07 million, compared with $52.5 million as of the end of December 2009. Total shareholders' equity was $59.3 million, compared with $46.7 million at December 31, 2009.
Net cash flow provided by operating activities was $11.10 million during the six months ended June 30, 2010, as compared to $8.99 million provided in the comparable period of 2009. The increase in net cash inflow was mainly due to the increase in net income as well as increase in interest payable and tax payable partially offset by a decrease in accounts payable.
As of June 30, 2010, the Company had 38,778,035 shares of its common stock outstanding.
Non-GAAP Financial Measures
We believe that "adjusted net income" and "adjusted earnings per share" information, when taken in conjunction with reported results, provide a useful measure of financial performance since they eliminate the impact of certain non-recurring, non-cash charges. These non-GAAP measures should not be considered in isolation or as a substitute for the most comparable GAAP measures. Additionally, the non-GAAP financial measures used by CREG may not be comparable to non-GAAP financial measures used by other companies.
(In '000s of U.S. Dollars, SIX MONTHS ENDED THREE MONTHS ENDED
except for per share data) JUNE 30, JUNE 30,
Adjusted Net Income and EPS 2010 2009 2010 2009
Net Income attributed to CREG 7,181 4,310 5,038 3,234
Adjustments
Deferred Income Taxes 1,832 149 1,287 149
Interest expense related to
beneficiary conversion
feature of convertible
debentures 880 -- 435 --
Stock based compensation
expenses 1,408 442 664 53
Adjusted Net Income 11,301 4,901 7,424 3,436
Diluted Weighted Average
Shares Outstanding
(Shares) 48,886,504 43,511,301 48,754,609 44,600,370
Adjusted EPS in Non-GAAP $0.23 $0.11 $0.15 $0.08
Non-GAAP net income, as defined above, was $7.42 million, for non-GAAP diluted EPS of $0.15, for the second quarter of 2010, compared with $3.44 million of Non-GAAP net income, or $0.08 in Non-GAAP diluted EPS for the same period ended in 2009.
For the six months ended June 30, 2010, Non-GAAP net income was $11.30 million, or non-GAAP diluted EPS of $0.23, compared with $4.90 million of
Non-GAAP net income, or $0.11 in Non-GAAP diluted EPS for the same period ended in 2009
Subsequent Event
On August 13, 2010, the Board of Directors authorized the grant of options for an aggregate of 2,200,000 shares of common stock to be issued to 36 employees, including options for 1,460,000 shares granted to Guohua Ku, the Company's Chairman of the Board and Chief Executive Officer, with an exercise price of the closing price on the date of grant.
2010 Business Guidance
The Company reaffirms its guidance that revenue for 2010 will be in the range of $68 million to $72 million, with net income, excluding non-cash charges, of $18 million to $20 million. These targets are based on the Company's current views on operating and market conditions, which are subject to change.
About Non-GAAP Financial Measures
This press release contains non-GAAP financial measures for earnings that exclude the effect of non-cash, non-operating expenses related to the Convertible Notes issued in April 2008, and the compensation expenses for the fair value of stock options, as well as deferred income tax expenses. The Company uses non-GAAP financial measures when it internally evaluates the performance of its business and makes operating decisions, including internal budgeting and performance measurement. The Company believes that providing the non-GAAP measures is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand CREG's financial performance in comparison to historical periods, and it allows investors to evaluate CREG's performance using the same methodology and information as that used by the Company's management. However, investors need to be aware that non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP, and they involve the exercise of judgment of which charges are excluded from the non-GAAP financial measure.
About China Recycling Energy Corp.
China Recycling Energy Corp. (NASDAQ: CREG or "the Company") is based in Xi'an, China and provides environmentally friendly waste-to-energy technologies to recycle industrial byproducts for steel mills, cement factories and coke plants in China. Byproducts include heat, steam, pressure, and exhaust to generate large amounts of lower-cost electricity and reduce the need for outside electrical sources. The Chinese government has adopted policies to encourage the use of recycling technologies to optimize resource allocation and reduce pollution. Currently, recycled energy represents only an estimated 1% of total energy consumption and this renewable energy resource is viewed as a growth market due to intensified environmental concerns and rising energy costs as the Chinese economy continues to expand. The management and engineering teams have over 20 years of experience in industrial energy recovery in China. For more information about CREG, please visit http://www.creg-cn.com .
Safe Harbor Statement
This press release may contain certain "forward-looking statements" relating to the business of China Recycling Energy Corp. and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements." These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website at http://www.sec.gov. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.
For more information, please contact:
In China:
Mr. Leo Wu
Investor Relations
China Recycling Energy Corp.
Tel: +86-29-8765-1096
Email: tch@creg-cn.com
In USA:
Mr. Howard Gostfraud
American Capital Ventures, Inc.
Tel: +1-305-918-7000
Email: info@amcapventures.com
Financial Statements
CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2010 December 31,
(Unaudited) 2009
ASSETS
CURRENT ASSETS
Cash & cash equivalents $5,089,700 $1,111,943
Restricted cash 1,671,354 1,461,659
Investment in sales type
leases, net 5,861,246 4,396,395
Interest receivable on sales
type leases 770,178 437,626
Prepaid expenses 167,310 445,458
Other receivables 206,819 184,355
VAT receivables - current 673,979 383,027
Total current assets 14,440,586 8,420,463
NON-CURRENT ASSETS
VAT receivables - noncurrent 1,617,203 957,567
Investment in sales type
leases, net 77,210,405 48,147,738
Property and equipment, net 204,606 97,311
Construction in progress 46,136,422 34,858,845
Total non-current assets 125,168,636 84,061,461
TOTAL ASSETS $139,609,222 $92,481,924
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $5,602,415 $3,583,219
Notes payable - bank acceptances 2,076,308 1,461,659
Interest payable 1,363,584 --
Taxes payable 1,100,159 681,707
Accrued liabilities and
other payables 2,632,080 2,785,796
Advance from related parties, net 2,503,578 468,475
Convertible note, net of
discount due to beneficial
conversion feature 3,564,348 --
Accrued interest on short
term convertible note 64,050 --
Deferred tax liability-current 71,833 148,193
Loan payable - current 1,325,304 --
Total current liabilities 20,303,659 9,129,049
NONCURRENT LIABILITIES
Deferred tax liability, net 4,695,937 2,762,115
Convertible notes 3,000,000 8,000,000
Accrued interest on long
term convertible notes 285,335 353,024
Loans payable 40,222,944 25,570,429
Total noncurrent liabilities 48,204,216 36,685,568
Total liabilities 68,507,875 45,814,617
SHARES TO BE ISSUED 11,780,471 --
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, $0.001 par value;
100,000,000 shares authorized,
38,778,035 shares issued and
outstanding as of June 30, 2010
and December 31, 2009, respectively 38,779 38,779
Additional paid in capital 42,042,866 38,319,163
Statutory reserve 3,770,192 2,497,724
Accumulated other
comprehensive income 4,053,438 3,709,490
Retained earnings 7,393,961 1,485,914
Total Company stockholders' equity 57,299,236 46,051,070
Noncontrolling interest 2,021,640 616,237
Total equity 59,320,876 46,667,307
TOTAL LIABILITIES AND EQUITY $139,609,222 $92,481,924
CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
(UNAUDITED) (UNAUDITED)
2010 2009 2010 2009
Revenue
Sales of
systems $31,921,309 $ 9,513,077 $21,795,873 $9,513,077
Contingent
rental income 742,638 -- 742,638 --
Rental income from
operating lease -- 5,946,892 -- 1,623,999
Total revenue 32,663,947 15,459,969 22,538,511 11,137,076
Cost of sales
Cost of systems 24,600,160 7,317,751 16,801,915 7,317,751
Rental expense -- 4,148,572 -- 1,126,899
Total cost of
sales 24,600,160 11,466,323 16,801,915 8,444,650
Gross profit 8,063,787 3,993,646 5,736,596 2,692,426
Interest income
on sales-type
leases 6,418,263 2,333,472 3,323,695 1,134,941
Total operating
income 14,482,050 6,327,118 9,060,291 3,827,367
Operating expenses
General and
administrative
expenses 2,746,173 1,355,741 1,386,476 560,303
Total operating
expenses 2,746,173 1,355,741 1,386,476 560,303
Income from
operations 11,735,877 4,971,377 7,673,815 3,267,064
Non-operating
income (expenses)
Interest
income 21,434 -- (37,705) --
Interest
expense (1,188,449) (433,768) (737,075) (375,549)
Other income (3,568) (5,153) 92,691 (3,059)
Total non-
operating
expenses, net (1,170,583) (438,921) (682,089) (378,608)
Income before
income tax 10,565,294 4,532,456 6,991,726 2,888,456
Income tax
expense
(benefit) 2,898,043 225,151 1,861,277 (342,960)
Net income from
operations 7,667,251 4,307,305 5,130,449 3,231,416
Less: Income (loss)
attributable to
noncontrolling
interest 486,573 (3,158) 92,132 (3,198)
Net income
attributable to
China Recycling
Energy Corp. 7,180,678 4,310,463 5,038,317 3,234,614
Other compre-
hensive item
Foreign currency
translation
(gain) loss
attributable
to China Recycling
Energy Corp. 343,948 (1,092) 385,866 28,803
Comprehensive
income
attributable to
China Recycling
Energy Corp. $ 7,524,626 $ 4,309,371 $5,424,183 $3,263,417
Comprehensive
income
attributable to
noncontrolling
interest $ 509,913 $ -- $ 112,927 $ --
Basic weighted
average shares
outstanding 38,778,035 37,348,071 38,778,035 38,260,905
Diluted weighted
average shares
outstanding 48,886,504 43,511,301 48,754,609 44,600,370
Basic net
earnings per
share $ 0.19 $ 0.12 $ 0.13 $ 0.08
Diluted net
earnings per
share $ 0.15 $ 0.10 $ 0.10 $ 0.07
CHINA RECYCLING ENERGY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Income including noncontrolling interest $ 7,667,251 $4,307,305
Adjustments to reconcile income including
noncontrolling interest to net cash
provided by operating activities:
Depreciation and amortization 25,323 15,018
Amortization of discount related
to conversion feature of convertible note 880,466 --
Stock options and warrants 1,407,547 442,191
Accrued interest on convertible notes (3,639) 167,342
Changes in deferred tax 1,832,221 123,438
(Increase) decrease in current assets:
Interest receivable on sales type lease (258,972) 230,051
Prepaid expenses 279,184 3,899,203
VAT receivable and other receivables (973,351) (1,708)
Inventory -- (299,355)
Increase (decrease) in current liabilities:
Accounts payable (1,362,890) 2,055,791
Taxes payable 412,624 (1,041,599)
Interest payable 1,356,732 --
Accrued liabilities and other payables (166,058) (906,267)
Net cash provided by operating
activities 11,096,438 8,991,410
CASH FLOWS FROM INVESTING ACTIVITIES:
Gross investment in sales type leases (6,122,391) (8,988,974)
Restricted cash (200,653) --
Acquisition of property & equipment (131,547) (14,297)
Construction in progress (18,201,622) (766,900)
Net cash used in investing (24,656,213) (9,770,171)
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Insurance of common stock -- 2,000,000
Insurance of convertible notes -- 3,000,000
Cash contribution from
noncontrolling interest 908,279 263,439
Proceeds from loans 15,757,780 2,927,101
Advance from (repayment to)
related parties 850,408 (3,440)
Net cash provided by financing
activities 17,516,467 8,187,100
EFFECT OF EXCHANGE RATE CHANGE ON CASH
& CASH EQUIVALENTS 21,065 (13,479)
NET INCREASE IN CASH & CASH EQUIVALENTS 3,977,757 7,394,860
CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD 1,111,943 7,267,344
CASH & CASH EQUIVALENTS, END OF PERIOD $ 5,089,700 $14,662,204
Supplemental Cash flow data:
Income tax paid $ 945,165 $1,074,560
Interest paid $ 201,635 $ 261,858
Source: China Recycling Energy Corp.
