Sales increase 186% Year-over-year to $40.9 Million;
Net Loss of $1.3 Million; Non-GAAP Net Income of $6.7 Million, Excluding $8 Million Non-Cash Charge, and Adjusted EBITDA of $8.6 Million
DANYANG, China, Nov. 16 /PRNewswire-Asia/ -- Lihua International, Inc. (Nasdaq: LIWA) ("Lihua" or the "Company"), a leading Chinese developer, designer, manufacturer, marketer and distributor of low cost, high quality alternatives to pure copper superfine and magnet wire, as well as copper rod products, today announced financial results for the third quarter and nine months ended September 30, 2009.
Third Quarter and Recent Financial and Business Highlights
-- Sales increased 186% year-over-year to $40.9 million.
-- Gross profit of $9.7 million, or 23.9% of sales, compared with $5.2
million, or 36.2% of sales in the third quarter of 2008.
-- Net loss was ($1.3 million), or $(0.08) per share, compared with net
income of $3.8 million, or $0.27 per share in the third quarter of
2008. Net loss for the third quarter of 2009 included an $8.0 million
non-cash charge for the change in fair value of warrants issued to
investors in conjunction with the Company's issuance of convertible
Preferred Stock in October 2008. Excluding the non-cash charge, third
quarter net income would have been $6.7 million, or $0.39 per share
based upon 17.1 million shares outstanding..
-- Adjusted EBITDA increased 81% to $8.6 million, compared with the third
quarter of 2008.(1)
-- Strong balance sheet with $38.5 million in cash and cash equivalents as
of September 30, 2009, an increase of $10.4 million compared with June
30, 2009.
-- Completed initial public offering on NASDAQ on September 10, 2009 for
net proceeds of $7.9 million.
-- Began production on four new proprietary high speed manufacturing lines
in September to increase annual CCA wire and copper wire capacity from
18,000 tons to 25,200 tons.
-- Appointed Deloitte & Touche LLP as a Sarbanes-Oxley 404 consultant to
further align best practice corporate governance policies.
(1) Adjusted EBITDA is a non-GAAP measurement that the Company uses as
a metric to provide information about Lihua's operating trends.
Lihua defines adjusted EBITDA as net income before discontinued
operations, interest expense, income taxes, depreciation and
amortization, non-operating income (expense), and non-cash share-
based compensation expenses.
"During the third quarter, year-over-year sales increased across all of our industry leading product lines including copper rod, pure copper superfine and magnet wire and copper clad aluminum, or CCA, superfine and magnet wire," said Jianhua Zhu, Chairman and Chief Executive Officer of Lihua. "Although historically our business experiences seasonality during the third quarter due to the excessive heat in Jiangsu Province, our increase in production capacity and strong execution enabled us to put forward another strong quarter. We achieved significant gains in sales and excluding the non-cash charge for our warrants, improved our net income by nearly 74% year-over-year to $6.7 million.
"We are actively working to increase our production capacity to keep pace with the growing demand for copper in China. Along with a large market opportunity in front of us, we have a proven management team, strong, established distribution channels, and a healthy balance sheet that is stronger since our IPO," Mr. Zhu concluded.
Third Quarter Financial Results
Sales for the third quarter of 2009 increased 186% to $40.9 million, compared with sales of $14.3 million in the third quarter of 2008. The increase in sales was driven by strong market demand for Lihua's CCA and copper wire products, an increase in the average selling price of copper wire and copper rod products based on an increase in the average price of copper, an increase in production capacity and the addition of Lihua's copper recycling business, which commenced operations at the end of the first quarter of 2009.
Gross profit for the third quarter of 2009 was $9.8 million, or 23.9% of sales. This compares with gross profit of $5.2 million, or 36.2% of sales, for the third quarter of 2008. The year-over-year decrease in gross margin was primarily due to the addition of the copper recycling operation to Lihua's product mix, which produces copper rod. In March of 2009, Lihua commenced production of recycling scrap copper into copper rod with a consistently high purity content. Due to current drawing and enameling capacity constraints, Lihua can process only a portion of this copper rod into value added fine wire products and sells the remaining copper rod into the market at a lower gross margin. Lihua expects gross margins to increase in future periods as it continues to ramp up the conversion of copper rod products into higher margin super fine and copper magnet wire products. Sequentially, gross profit dollars per ton increased to $1,613 in the third quarter of 2009 from $1,161 dollars per ton in the second quarter of 2009, an increase of 39%.
Selling, general and administrative (SG&A) expenses for the third quarter of 2009 were $1.6 million, compared with $641,000 for the same period in 2008. The increase in SG&A for the 2009 period was attributable to $273,000 in one-time charges associated with the Company's initial public offering, increased expenses associated with being a public company and expenses associated with expanding the Company's scale of operations.
Interest income for the third quarter of 2009 was $66,000, compared with $18,000 for the third quarter of 2008. Interest expense for the third quarter of 2009 was $63,000, compared with $172,000 for the same period in the prior year. The decrease in interest expense was mainly due to the repayment of short term bank loans, which were used for working capital purposes.
For the three months ended September 30, 2009, the provision for income tax expense was $1.4 million, reflecting an effective tax rate ("EIT") of 16.5% from operation excluding the $8.0 million non cash charge. This compares with income tax expense of $547,000 for the three months ended September 30, 2008. The effective tax rate for the 2008 period was 12.5%.
For the third quarter of 2009 Lihua's other comprehensive income including foreign currency translation adjustment gains was $17,000, compared with $313,000 in the third quarter of 2008. The foreign currency translation adjustment is based on the average exchange rate of the RMB compared with the US dollar in the respective reporting period.
Net loss for the third quarter of 2009 was ($1.3 million), or ($0.08) per share based on 17.1 million weighted average shares outstanding. This compares with net income of $3.8 million, or $0.27 per share based on 14.0 million weighted average shares outstanding during the same period of last year. Excluding non-cash charges, third quarter net income would have been $6.7 million, or $0.39 per share.
Adjusted EBITDA for the three months ended September 30, 2009 increased by 81% to $8.6 million over the same period last year.
Balance Sheet
As of September 30, 2009, Lihua had approximately $38.5 million in cash and cash equivalents, compared with $28.1 million as of June 30, 2009. On September 10, 2009, the Company completed its initial public offering on NASDAQ raising $7.9 million in net proceeds.
Outlook
"We continue to accelerate our expansion to meet surging domestic demand for our, copper and CCA products," said Mr. Zhu. "In September, we began production on four new proprietary high speed manufacturing lines. With these additions, we can currently produce approximately 7,200 tons of CCA wire and 18,000 tons of copper wire annually. Based on our current capacity, for the full year 2009 we expect to achieve year-over-year gross profit growth of approximately 110-115% and net income growth of 115-120%, excluding any non-cash charges.
"For 2010, we are planning to add 10 new proprietary high speed production lines. Six of these we expect to have completed by the end of the second quarter of 2010, which would increase our annual copper magnet and copper fine wire capacity to 25,000 tons. In the second half of 2010 we plan to add an additional four production lines increasing our CCA magnet and CCA fine wire capacity to 10,000 tons per year. We believe that our existing cash, expected revenue and our revolving credit facility line will be sufficient to fund our current expansion plans," Mr. Zhu concluded.
Conference Call and Webcast
Management of Lihua International will host a conference call today, Monday, November 16, 2009 at 8:00 a.m. Eastern time to discuss third quarter 2009 financial results and answer questions from the professional investment community.
Individuals interested in participating in the conference call may do so by dialing 877-941-8416 from the U.S. or Canada, or 480-629-9812 from outside the U.S. Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company's Web site at: http://www.lihuaintl.com/Investor_Relations/Events_Presentations.html .
A telephone replay will be available for 48 hours following the conclusion of the call by dialing 800-406-7325 from the U.S. or Canada, or 303-590-3030 from outside the U.S., and entering access ID number 4183516. A webcast replay will be available for 90 days.
About Non-GAAP Financial Measures
EBITDA Calculation For Three Months Ended September 30,
2009 2008
Net income $ -1,336,448 $ 3,839,288
Depreciation and amortization 367,948 222,438
Share-based compensation expense 124,778 --
Change in fair value of warrants 8,035,650 --
Interest income -66,395 -18,087
Interest expenses 62,796 171,880
Provision for income tax 1,425,505 546,985
EBITDA 8,613,834 4,762,504
The Company uses adjusted EBITDA as a measure of the Company's operating trends. Investors are cautioned that adjusted EBITDA is not a measure of liquidity or of financial performance under Generally Accepted Accounting Principles (GAAP). The adjusted EBITDA numbers presented may not be comparable to similarly titled measures reported by other companies. Adjusted EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Consistent with Regulation G under the U.S. federal securities laws, the non-GAAP measures in this press release have been reconciled to the nearest GAAP measure, and this reconciliation is located under the heading "Adjusted EBITDA Reconciliation" following the Consolidated Statements of Operations included in this press release.
About Lihua International, Inc.
Lihua International, through its two wholly-owned subsidiaries, Lihua Electron and Lihua Copper, is a leading value-added manufacturer of copper replacement products for China's rapidly growing magnet and fine wire market. Lihua is one of the first vertically integrated companies in China to develop, design, manufacture, market and distribute lower cost, high quality, alternatives to pure copper magnet wire. Lihua's products include copper-clad aluminum wire ("CCA") and recycled scrap copper wire and are sold in China either directly to manufacturers or through distributors in the wire and cable industries and manufacturers in the consumer electronics, white goods, automotive, utility, telecommunications and specialty cable industries. Lihua's corporate and manufacturing headquarters are located in the heart of China's copper industry in Danyang, Jiangsu Province. http://www.lihuaintl.com
To be added to the Company's email distribution for future news releases, please send your request tolihua@tpg-ir.com.
Safe Harbor Statement
This press release contains certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future, including, without limitation, statements about its business or growth strategy, general industry conditions including availability of copper or recycled scrap copper, future operating results of the Company, capital expenditures, expansion and growth opportunities, bank borrowings, financing activities and other such matters, are forward-looking statements. Although the Company believes that its expectations stated in this press release are based on reasonable assumptions, actual results may differ from those projected in the forward-looking statements.
Please note that information in this press release reflects management views as of the date of issuance.
For more information, please contact:
The Piacente Group, Inc.
Investor Relations
Kristen McNally or Brandi Floberg
Tel: +1-212-481-2050
Email: lihua@tpg-ir.com
Tables Follow
LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(AMOUNTS EXPRESSED IN US DOLLAR)
September 30, December 31,
2009 2008
(Unaudited) (Audited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 38,517,098 $ 26,041,849
Restricted cash 700,000 1,750,000
Notes receivable, net -- 321,892
Accounts receivable, net 7,183,128 5,042,739
Other receivables and current
assets 745,762 --
Prepaid land use right - current
portion 172,495 172,353
Inventories 12,681,327 586,938
Due from related company 2,929 --
Total current assets 60,002,739 33,915,771
OTHER ASSETS
Buildings, machinery and
equipment, net 15,350,862 7,440,943
Construction in progress 1,499,926 6,017,941
Deposits for buildings,
machinery and equipment 605,255 1,077,892
Prepaid land use right-long term
portion 8,210,195 8,332,732
Intangible assets 3,163 4,214
Deferred income tax assets -- 23,395
Total non-current assets 25,669,401 22,897,117
Total assets $ 85,672,140 $ 56,812,888
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Short term bank loans $ 4,393,030 $ 6,145,202
Accounts payable 5,245,041 1,643,544
Other payables and accruals 777,921 830,744
Income taxes payable 1,425,922 401,436
Total current liabilities 11,841,914 9,020,926
OTHER LIABILITIES
Common stock purchase warrants 10,682,505 --
Total liabilities 22,524,419 9,020,926
COMMITMENT AND CONTINGENCIES
Series A redeemable convertible
preferred stock: $0.0001 par
value:
10,000,000 shares authorized
(liquidation preference of $2.2
per share), none and 6,818,182
shares issued and outstanding -- 13,116,628
SHAREHOLDERS' EQUITY
Series A convertible preferred
stock: $0.0001 par value
(liquidation preference of $2.2
per share), 10,000,000 shares
authorized, none issued and
outstanding -- --
Common stock, $0.0001 par value:
75,000,000 shares authorized,
24,118,183 and 15,000,000 shares
issued and outstanding 2,412 1,500
Additional paid-in capital 28,578,685 7,976,976
Statutory reserves 2,603,444 2,603,444
Retained earnings 29,354,586 21,521,937
Accumulated other comprehensive
income 2,608,594 2,571,477
Total shareholders' equity 63,147,721 34,675,334
Total liabilities and
shareholders' equity $ 85,672,140 $ 56,812,888
LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
AND COMPREHENSIVE INCOME
(AMOUNTS EXPRESSED IN US DOLLAR)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2009 2008 2009 2008
Revenue $40,913,348 $14,310,692 $110,279,536 $39,037,047
Cost of goods sold (31,155,238) (9,130,373) (84,926,800) (26,148,814)
Gross profit 9,758,110 5,180,319 25,352,736 12,888,233
Selling expenses (451,689) (312,523) (1,242,142) (566,130)
General and
administrative
expenses (1,184,877) (327,730) (2,820,335) (817,974)
Income from
operations 8,121,544 4,540,066 21,290,259 11,504,129
Other income
(expenses):
Interest income 66,395 18,087 137,809 28,038
Interest expenses (62,796) (171,880) (281,605) (352,747)
Exchange expenses (436) -- (545) --
Change in fair
value of warrants (8,035,650) -- (8,375,817) --
Other -- -- 500,753 (5,683)
Total other
expenses (8,032,487) (153,793) (8,019,405) (330,392)
Income before
income tax (89,507) 4,386,273 13,270,854 11,173,737
Provision for
income tax (1,425,505) (546,985) (3,761,427) (1,411,131)
Net income (loss) (1,336,448) 3,839,288 9,509,427 9,762,606
Other comprehensive
income:
Foreign currency
translation
adjustment 17,296 313,136 37,117 1,805,581
Total comprehensive
income (loss) $(1,319,152) $4,152,424 $9,546,544 $11,568,187
Earnings (loss)
per share
Basic $(0.08) $0.27 $0.61 $0.70
Diluted $(0.08) $0.27 $0.57 $0.70
Weighted average
number of shares
outstanding
Basic 17,081,324 14,025,000 15,701,399 14,025,000
Diluted 17,081,324 14,025,000 16,811,976 14,025,000
LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS EXPRESSED IN US DOLLAR)
Nine months ended September 30,
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $9,509,427 $9,762,606
Adjustments to reconcile net
income to cash provided
by operating activities:
Depreciation and amortization 972,370 569,058
Share-based compensation expense 251,903 --
Change in fair value of warrants 8,375,817 --
(Increase) decrease in assets:
Accounts receivable (2,135,285) 1,403,026
Notes receivables 322,009 269,206
Other receivables and current
assets (745,424) (4,112)
Inventories (12,088,420) (631,681)
Deferred income tax assets 23,403 --
Increase (decrease) in
liabilities:
Accounts payable 3,598,516 1,237,108
Other payables and accruals (53,452) 184,523
Income taxes payable 1,023,692 117,483
Net cash provided by operating
activities 9,054,556 12,907,217
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of buildings, machinery
and equipment (3,748,024) (2,755,327)
Prepayment for land use right -- (3,575,464)
Net cash used in investing
activities (3,748,024) (6,330,791)
CASH FLOWS FROM FINANCING ACTIVITIES
New short-term bank loans 1,464,343 6,435,835
Proceeds from related parties -- 4,140,737
Repayment to related parties (2,407) (2,550,661)
Release of restricted cash related
to Private Placement 1,050,000 --
Proceeds from public offering of common
stock, net of expenses of $1,336,000 7,864,000 --
Repayments of short-term bank loans (3,221,555) (3,575,464)
Net cash provided by financing
activities 7,154,381 4,450,447
Foreign currency translation adjustment 14,336 1,439,317
INCREASE IN CASH AND CASH EQUIVALENTS 12,475,249 12,466,190
CASH AND CASH EQUIVALENTS, at the
beginning of the period 26,041,849 3,213,649
CASH AND CASH EQUIVALENTS, at the
end of the period $38,517,098 $15,679,839
SUPPLEMENTAL DISCLOSURE INFORMATION
Interest paid $281,605 $352,747
Income taxes paid $2,714,332 $1,293,648
MAJOR NON-CASH TRANSACTION:
Share-based payment to employee
and directors $251,903 $--
