Cleantech Solutions International Reports Third Quarter 2012 Results

WUXI, China, November 13, 2012 /PRNewswire-FirstCall/ -- Cleantech Solutions International, Inc. ("Cleantech Solutions" or "the Company") (NASDAQ: CLNT), a manufacturer of metal components and assemblies, primarily used in the wind power, solar, dyeing and finishing equipment and other clean technology industries, today announced its financial results for the three and nine months ended September 30, 2012.

"Against a weak macro-economic background, we are very pleased to have achieved 48.5% growth in revenues and 107.5% growth in net income during the third quarter of 2012. Our performance was driven by a sharp improvement in demand for our next generation of dyeing machines as well as solid growth in forged products for non-wind applications," commented Mr. Jianhua Wu, Chairman and Chief Executive Officer of Cleantech Solutions. "Profitability improved due to expansion of our gross margins to 24.9%, as well as strict controls over operating expenses. With an increasingly diversified portfolio of precision products, we believe we have greater flexibility to adjust to fluctuations in our served markets so as to optimize our performance," added Mr. Wu.

Third Quarter 2012 Results

Revenue for the third quarter of 2012 increased 48.5% to $17.3 million, compared to $11.7 million for the same period of 2011. Sequentially, revenue increased 35.2% compared to the second quarter of 2012.

Revenue from the sale of forged rolled rings to the wind power industry and other industries increased 29.1% to $9.8 million, or 56.7% of net revenue, compared to $7.6 million, or 65.2% of net revenue, in the same period last year. The increase in revenue was mainly due to improving market demand for capital equipment related to the Company's forged rolled rings and related products for other industries, which was counterbalanced by continued weak demand in the wind industry due to overcapacity, vertical integration by turbine manufacturers, and reduced government subsidies.

The increase in revenue is summarized as follows:

• Revenue from the sale of forged rolled rings exclusively to the wind power industry decreased by 28.4% to $3.2 million, representing 18.5% of net revenue, compared to $4.5 million, or 38.5% of net revenue, in the comparable period last year.
• Revenue from the sale of forged rolled rings to other industries increased 112.1% to $6.6 million, or 38.2% of net revenue, compared with $3.1 million, or 26.7% of net revenue for the comparable period of the prior year.

Revenue from the Company's dyeing and finishing equipment segment increased 84.8% to $7.5 million, or 43.3% of net revenues, compared to $4.1 million, or 34.8% of net revenue, for the third quarter of 2011. This increase was largely attributable to the dyeing industry's response to local government's policies which encourage the purchase of low-emission airflow dyeing machines.

Gross profit for the third quarter of 2012 increased 64.2% to $4.3 million, compared to $2.6 million for the same period in 2011. Gross margin increased to 24.9% during the third quarter of 2012 compared to 22.5% for the same period a year ago. The increase in gross margin was attributable to improved operational and cost efficiencies in the forged rolled rings and related products segment, including the allocation of fixed costs such as depreciation to cost of revenues as the Company operated at higher production levels. Gross margin for the dyeing and finishing equipment segment also improved due to the higher ASPs for our next-generation dyeing equipment.

Operating expenses increased 11.6% to $1.1 million, compared to $1.0 million in the comparable period last year. The increase was primarily due to an increase in depreciation, related to the equipment for ESR production, partially compensated for by reduced bad debt expenses.

Selling, general and administrative expenses for the three months ended September 30, 2012 decreased 19.0% to $0.7 million, as compared to $0.9 million for the three months ended September 30, 2011.

Operating income increased 96.3% to $3.2 million, compared to $1.6 million for the same period of 2011. Operating margin was 18.5% compared to 14.0% in the third quarter last year.

Other expense was $26,446 compared to other expense of $47,552 for the same period in 2011. The decrease was due to an increase in other income, offset by higher interest expense as a result of increase in debt and capital lease obligations.

Adjusted EBITDA, a non-GAAP measurement, which excludes interest, taxes, warrant modification expense, depreciation and amortization, was up 74.5% to $4.9 million, compared to $2.8 million in the same quarter last year.

Net income for the third quarter of 2012 was $2.4 million, or $0.88 diluted earnings per share, compared to $1.1 million, or $0.46 diluted earnings per share, in the third quarter of 2011. Diluted earnings per share were calculated using diluted weighted average shares of 2,667,017 and 2,462,159 for the three months ended September 30, 2012 and 2011, respectively. All share and per share information has been adjusted to reflect a one-for-ten reverse stock split effective March 6, 2012.

Results for Nine Months

For the nine months ended September 30, 2012, revenues decreased 5.4% to $39.6 million from $41.9 million in 2011. Gross profit decreased 13.1% to $8.9 million, compared to $10.2 million last year. Gross margin for the nine months ended September 30, 2012 was 22.5%, compared to 24.5% in the corresponding period of 2011. Operating income decreased 19.2% to $5.6 million from $7.0 million in 2011. Adjusted EBITDA was $10.5 million, compared to $10.8 million in the same period last year. Net income was $3.7 million, or $1.42 per diluted share, a 25.0% decrease from $5.0 million, or $1.98 per diluted share, in the year ago period. All share and per share information has been adjusted to reflect a one-for-ten reverse stock split effective March 6, 2012.

Financial Condition

As of September 30, 2012, Cleantech Solutions held cash and cash equivalents of $1.0 million compared with $1.2 million at December 31, 2011. Accounts receivable were $10.5 million and total current assets of $19.6 million. The Company had $2.7 million in short-term bank loans payable and stockholders' equity was $76.4 million. In the first nine months of 2012, the Company generated $5.8 million in cash flow from operations.

Subsequent Events

On October 10, 2012 the Company announced that it has received new and follow-on purchase orders to supply 23 units of airflow dyeing machines and related components to domestic customers, for an aggregate amount of $2.2 million.

On October 31, 2012 the Company announced that it has received a new purchase order to supply 63 units of airflow dyeing machines and related components to a domestic customer for a purchase price of $1.7 million.

Business Outlook

"We had a very successful quarter, despite the significant challenges that are facing both the wind energy and the solar industry in the near term. Growth of our forged products for non-wind applications has been very strong, and we are exploring additional markets, including petroleum and petrochemical industries. We are also excited about the new opportunities presented in China's solar industry, which is expected to undergo some major change following recent supportive government policies, and we are also expanding our range to include high performance components for production equipment targeting smart phones and LED lighting. In the dyeing and finishing equipment segment, we are benefiting from a major upgrade cycle, as manufacturers embrace our more energy efficient and environmentally friendly technology. We anticipate strong growth potential in 2013 with the expected launch of our new after-treatment equipment, which is in the late stages of research and development.

"Thanks to improving volumes and strong expense controls, our margins improved dramatically in the third quarter. In the next few quarters, we continue to foresee a slight increase in our margins, as raw material costs are not expected to have great fluctuations given the general weak economy. We have been generating positive cash flow from operations and believe they are sufficient to fund our new product development initiatives," Mr. Wu concluded.

Conference Call

Cleantech Solutions will conduct a conference call at 9:00 a.m. Eastern Time on November 15, 2012 to discuss financial results for the third fiscal quarter ended September 30, 2012.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (866) 759-2078. International callers should dial (706) 643-0585. When prompted, please enter conference passcode: 69519396.

If you are unable to participate in the conference call at this time, a replay will be available for 14 days starting on November 15, 2012 at 12:00 noon ET. To access the replay, dial (855) 859-2056. International callers dial (404) 537-3406, and enter passcode: 69519396.

Use of Non-GAAP Financial Measures

The Company has included in this press release certain non-GAAP financial measures. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of the Company and when planning and forecasting future periods. Readers are cautioned not to view non-GAAP financial measures on a stand-alone basis or as a substitute for GAAP measures, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP measures with non-GAAP measures also included herein.

About Cleantech Solutions International

Cleantech Solutions is a manufacturer of metal components and assemblies, primarily used in clean technology industries. The Company supplies forging products, fabricated products and machining services to a range of clean technology customers, primarily in the wind power sector and supplies dyeing and finishing equipment to the textile industry. Cleantech Solutions is committed to achieving long-term growth through ongoing technological improvement, capacity expansion, and the development of a strong customer base. The Company's website is www.cleantechsolutionsinternational.com. Any information on the Company's website or any other website is not a part of this press release.

Safe Harbor Statement

This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary and affiliated companies. These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. 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, including factors described in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the year ended December 31, 2011 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-Q for the quarter ended September 30, 2012. All forward-looking statements attributable to the Company or to 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.

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