- Second Quarter Revenue Increased 33% to $71.2 Million, Adjusted Net Income Increased 10% to $9.6 Million with Adjusted EPS of $0.11
- First Six Months Revenues Increased 33% to $130.6 Million, Adjusted Net Income Increased 26% to $17.9 Million with Adjusted EPS of $0.22
- Gujiao Revenues Totaled $8.5 Million in the Second Quarter of 2010
- First Six Months Increase in Inventory and Advances to Refinery Partners for Inventory of 41% to $20.4 Million
- Management to Host Q2 2010 Earnings Conference Call on Thursday, February 18, 2010 at 10 a.m. EST
TAIYUAN CITY, China, Feb. 17 /PRNewswire-Asia-FirstCall/ -- Longwei Petroleum Investment Holding Ltd. (OTC Bulletin Board: LPIH; "Longwei" or the "Company") transports, markets and sells finished petroleum products in the People's Republic of China ("PRC"). Longwei announced its financial results for the second quarter ended December 31, 2009. Summary financial data is provided below (in millions, except EPS and share data):
Second Quarter Ended
2009 2008
Revenues $71.2 $53.6
Gross Profit $13.9 $11.9
Adjusted Net Income $9.6 $8.8
GAAP Net (Loss)
Income $(3.6) $8.8
Adjusted Basic EPS $0.11 $0.11
GAAP Basic EPS $(0.15) $0.11
Six Months Ended December 31,
2009 2008
Revenues $130.6 $98.1
Gross Profit $25.5 $21.6
Adjusted Net Income $17.9 $14.3
GAAP Net Income $3.6 $14.3
Adjusted Basic EPS $0.22 $0.19
GAAP Basic EPS $(0.06) $0.19
Mr. Cai Yongjun, the Chairman and Chief Executive Officer of Longwei, stated: "Our Gujiao facility became fully operational in January 2010, as expected. However, we were able to generate $8.5 million in revenues at Gujiao with a limited number of significant deliveries of our products in November and December 2009. Our Gujiao deliveries in the third quarter of 2010 will greatly outpace our deliveries in this quarter. We generated a gross margin of 16% from the Gujiao deliveries during this last quarter. I expect the gross margin to increase as we begin to fulfill orders for seven out of the eleven largest potential customers we can service in Gujiao. I am also pleased to report that of the proceeds we received from the recent financing, a total of $11.75 million, or 85% of the cash proceeds we received from the recent financing, were delivered to a refinery partner who we recently signed a new supply agreement with. We believe we negotiated very favorable terms as a result of the size of our purchase commitment. This is the best use of our capital right now, and we look forward to seeing both the short-term and long-term results of this allocation of capital and expanded relationship with this specific refinery."
Second Quarter 2010 Results of Operations
Revenues - Revenues for the three months ended December 31, 2009 were $71.2 million as compared to $53.6 million for the three months ended December 31, 2008. The increase of $17.6 million, or 33%, was primarily due to certain new customer contracts and additional revenues generated by the new Gujiao facility. Additionally, the average sales price per metric ton of product the Company sold was $790 and $701 during the three months ended December 31, 2009 and 2008, respectively.
Costs of Sales - Costs of sales for the three months ended December 31, 2009 were $57.3 million as compared to $41.7 million for the three months ended December 31, 2008. The increase of $15.6 million or 37% was primarily due to the revenue growth resulting from certain new customer contracts and the additional $8.5 million in revenues generated by the new Gujiao facility. The Company's gross profit was 20% and 22%, respectively, for the three months ended December 31, 2009 and 2008. The average cost basis per metric ton of product the Company sold was $622 and $554 during the three months ended December 31, 2009 and 2008, respectively.
Operating Expenses - Operating expenses for the three months ended December 31, 2009 amounted to $0.9 million as compared to less than $0.1 million for the three months ended December 31, 2008. The increase of approximately $0.8 million was primarily due to the increased administrative costs from the Gujiao facility.
Net (Loss) Income - Net (loss) income for the three months ended December 31, 2009 was $(3.6) million as compared to $8.8 million for the three months ended December 31, 2008, due to the reasons set forth below. In accordance with GAAP, the Company recorded a noncash adjustment to the fair value of its newly issued stock warrants and previously outstanding stock warrants totaling $13.2 million. If the noncash adjustment had not been necessary to record, the Company's adjusted net income would have been $9.6 million, which would represent net income growth of 10% for the three months ended December 31, 2009 as compared to the three months ended December 31, 2008.
EPS - The Company's adjusted net income for the second quarter was $9.6 million, or adjusted EPS of $0.11. Adjusted net income is equal to GAAP net loss of $3.6 million with the change in fair value of derivatives of $13.2 million and deemed dividend of $8.6 million added back. GAAP net (loss) earnings per share was $(0.15) and $0.11 for the three months ended December 31, 2009 and 2008, respectively. The Company recorded a deemed dividend of $8.6 million, which is a noncash adjustment to retained earnings, during the three months ended December 31, 2009. The deemed dividend is a result of the calculation of the estimated fair value of the stock the investors purchased in the recent financing less the actual price the investors paid. The deemed dividend is calculated by multiplying the number of shares of common stock that the Series A Preferred Stock is convertible into, or 13,499,274, by the difference between the fair market value of the Company's common stock on October 29, 2009, or $2.05, less the purchase price of the Series A Preferred Stock, or $1.10 per share (13,499,274 * $0.95 = $12.8 million, subject to a gross proceeds allocation limitation, $8.6 million). As a result of the Series A Preferred Stock being immediately convertible into common stock, the deemed dividend is treated as a one-time, non-recurring expense and does not result in any additional mark to market adjustment, expense, or adjustment to the Company's basic or diluted (loss) income attributable to common shareholders per share in any future reporting period.
Six Months Ended December 31, 2009
Revenues - Revenues for the six months ended December 31, 2009 were $130.6 million as compared to $98.1 million for the six months ended December 31, 2008. The increase of $32.5 million, or 33%, was primarily due to certain new customer contracts and additional $8.5 million revenues generated by the new Gujiao facility. Additionally, the average sales price per metric ton of product the Company sold was $802 and $723 during the six months ended December 31, 2009 and 2008, respectively.
Costs of Sales - Costs of sales for the six months ended December 31, 2009 were $105.1 million as compared to $76.5 million for the six months ended December 31, 2008. The increase of $28.6 million or 37% was primarily due to the revenue growth resulting from certain new customer contracts, including those at Gujiao. The Company's gross profit was 20% and 22%, respectively, for the six months ended December 31, 2009 and 2008. The average cost basis per metric ton of product the Company sold was $571 and $549 during the six months ended December 31, 2009 and 2008, respectively.
Operating Expenses - Operating expenses for the six months ended December 31, 2009 amounted to $1.4 million as compared to $2.2 million for the six months ended December 31, 2008. The decrease of $0.8 million, or 36%, was primarily due to the curtailing of administrative costs in order to focus resources on the new Gujiao facility's buildout. Operating expenses for the remaining two quarters of the year ended June 30, 2010 should be more substantial.
Net Income - Net income for the six months ended December 31, 2009 was $3.6 million as compared to $14.3 million for the six months ended December 31, 2008. In accordance with GAAP, the Company recorded a noncash adjustment to the fair value of its newly issued stock warrants and previously outstanding stock warrants totaling $14.3 million. If the noncash adjustment had not been necessary to record, the Company's adjusted net income would have been $17.9 million, which would represent net income growth of 26% for the six months ended December 31, 2009 as compared to the six months ended December 31, 2008.
EPS - The Company's adjusted net income for first six months of fiscal 2010 was $17.9 million, or EPS of $0.22. Adjusted net income is equal to GAAP net income of $3.6 million with the change in fair value of derivatives of $14.3 million and the deemed dividend of $8.6 million added back. GAAP net (loss) earnings per share was $(0.06) and $0.11 for the six months ended December 31, 2009 and 2008, respectively. The Company recorded a deemed dividend of $8.6 million, which is a noncash adjustment, during the three months ended December 31, 2009.
Mr. James Crane, Longwei's Chief Financial Officer, stated: "We have exceeded our internal revenue forecasts for the quarterly reporting period ended December 31, 2009. Revenues for the three months ended December 31, 2009 were approximately $12.1 million higher than expected due to significant additional sales at the Gujiao facility. We also generated $9.1 million in revenue growth at the Taiyuan facility for the same period. The financing completed on October 29, 2009 resulted in a significant noncash expense of $11.6 million for the fair value measurement of the stock warrants outstanding as of December 31, 2009 and a deemed dividend, which is a one-time nonrecurring expense of $8.6 million that does not impact net income according to GAAP but does impact EPS. The fair value re-measurement of the stock warrants will be necessary each reporting period going forward. The deemed dividend is a one-time adjustment to earnings per share and retained earnings and will not result in additional expense or adjustment in future periods. Excluding these two noncash accounting adjustments, we had a very strong quarter and the timing and significant size of our recent commitments to additional inventory purchases should result in significant growth and potentially improved gross margins in the next few quarterly reporting periods."
Liquidity and Capital Resources
As of December 31, 2009, the Company's current assets were $109.5 million and current liabilities were $25.6 million. Cash and cash equivalents totaled $12.6 million as of December 31, 2009. The Company's shareholders' equity at December 31, 2009 was $128.2 million. The Company had cash (used in) provided by operating activities for the six months ended December 31, 2009 and 2008 of $(1.1 million) and $2.9 million, respectively. The Company used approximately 85%, or $11.75 million of the gross proceeds from the October 2009 financing to directly advance a refinery partner for future inventory purchases. Total advances to suppliers for the six months ended December 31, 2009 totaled $17.6 million. During the three months ended March 31, 2010, the Company expects significant deliveries of inventory to each of the Company's two facilities. The Company had net cash used in investing activities of $7.6 million and $2.0 million for the six months ended December 31, 2009 and 2008, respectively. During the six months ended December 31, 2009, the Company incurred $7.6 million in costs to refurbish and prepare the Gujiao facility in order for the facility to be fully operational as of January 1, 2010. During the six months ended December 31, 2008, the Company incurred $2.0 million in costs to refurbish the Company's facilities at the Taiyuan facility. The Company had net cash provided by financing activities of $13.9 million and $0 for the six months ended December 31, 2009 and 2008, respectively. The Company closed private placements for $13.9 million in net proceeds in October 2009.
Financial Outlook for 2010
Management has previously provided fiscal year 2010 financial results guidance. Revenues for the year ending June 30, 2010 were projected at $258.5 million and net income was projected at $31.0 million. As a result of sales recorded in the recent quarter at Gujiao and other factors and the noncash accounting measurements related to the recent financing, management is revising its 2010 forecast and will release its revised guidance in the near future.
Conference Call and Webcast
Longwei will hold a conference call on Thursday, February 18, 2010 at 10:00 a.m. Eastern time (7:00 a.m. Pacific) to discuss second quarter fiscal 2010 financial results.
To participate in the call please dial (888) 378-4353, or (719) 457-2621 for international calls, approximately 10 minutes prior to the scheduled start time. Interested parties can also listen via a live Internet webcast, which can be found via the Company's website at http://www.longweipetroleum.com.
A replay of the call will be available for two weeks from 1:00 p.m. EST on February 18, 2010, until 11:59 p.m. EST on March 4, 2010. The number for the replay is (888) 203-1112, or (719) 457-0820 for international calls; the passcode for the replay is 9571492. In addition, a recording of the call will be available via the company's website at http://www.longweipetroleum.com for one year.
About Longwei Petroleum Investment Holding Limited
Longwei Petroleum Investment Holding, Limited (the "Company") is an energy company that, through its subsidiaries, engages in oil and gas operations in the People's Republic of China ("PRC"). Oil and gas operations consist of transporting, marketing and selling finished petroleum products. The Company's headquarters and primary facilities are located in Taiyuan City, Shanxi Province ("Shanxi"). The Company's second facility is located in Gujiao, Shanxi. The Company purchases diesel, gasoline, fuel oil and kerosene (the "Products") from various petroleum refineries in the PRC. The Company is 1 of 3 licensed intermediaries in Taiyuan City and the sole licensed intermediary in Gujiao that operates its own large scale storage tanks. The Company has the necessary licenses to operate and sell Products not only in Shanxi but throughout the entire PRC. The Company's storage tanks have the largest storage capacity of any non-government operated entity in Shanxi. The Company seeks to earn profits by selling its Products at competitive prices to large-scale gas stations, coal plants, other power-supply customers and small, independent gas stations. The Company also earns revenue by acting as a purchasing agent for other intermediaries in Shanxi and through the sale of diesel and gasoline at gas stations located at each of the Company's facilities. The sales price and the cost basis of the Company's products are largely dependent on the price of crude oil. The price of crude oil is subject to fluctuation due to a variety of factors, all of which are beyond the Company's control. For further information on Longwei Petroleum Investment Holding Limited, please visit http://www.longweipetroleum.com. You may register to receive Longwei Petroleum Investment Holding Limited's future press releases or request to be added to the Company's distribution list by contacting Dave Gentry at info@RedChip.com or 1-800-RED-CHIP (733-2447), Ext. 104.
About Non-GAAP Financial Measures
This press release contains non-GAAP financial measures for the accounting for the change in the fair value of the Company's warrants under the Financial Accounting Standards Board's Accounting Standards Codification ("ASC") Topic 815-40 and the accounting for a deemed dividend associated with the October 29, 2009 financing under ASC Topic 470, subtopic 20-30-6. The Company believes that these non-GAAP financial measures are useful to investors because they exclude non-cash charges that our management excludes when evaluating the Company's business and makes operating decisions, prepares and revises financial forecasts, measures business performance, and because providing these Non-GAAP financial measures allows for comparison to historical periods. Accordingly, management excludes the change in the fair value of the Company's warrants under ASC 815-40 and the deemed dividend under ASC Topic 470, subtopic 20-30-6, when making operational decisions. The Company believes its investors can utilize these non-GAAP measures for a number of reasons. These non-GAAP measures provide a consistent basis for investors to understand the Company's financial performance in comparison to historical periods. In addition, it allows investors to potentially understand and evaluate the Company's performance using the same methodology and information our management utilizes. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses or adjustments included under GAAP and because they involve the exercise of judgment of which expenses or adjustments are excluded from the non- GAAP financial measures we make available to investors. However, we believe we are compensating for these limitations by providing the relevant disclosure of the items excluded.
The following tables provide certain non-GAAP financial measures and the related GAAP measures. We also provide reconciliations of these non-GAAP measures to the equivalent GAAP measures.
Three Months Six Months
Ended Ended
December 31, December 31,
2009 2009
To Compute Adjusted Net Income
------------------------------
GAAP Net Income $(3.6) $3.6
Additions (Deductions)
Change in Fair Value of
Derivatives $13.2 $14.3
----- -----
Adjusted Net Income $9.6 $17.9
==== =====
To Compute Adjusted EPS
-----------------------
GAAP Basic Earnings per Share $(0.15) $(0.06)
Additions (Deductions)
Change in Fair Value of
Derivatives $0.16 $0.17
Deemed Dividends $0.10 $0.10
----- -----
Adjusted Basic Earnings per
Share $0.11 $0.22
===== =====
Shares Used to Compute EPS and
Adjusted EPS 83,347,520 83,334,315
========== ==========
Forward-Looking Statements
Certain statements contained herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on current expectations, estimates and projections about Longwei's industry, management's beliefs and certain assumptions made by management. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Because such statements involve risks and uncertainties, the actual results and performance of the Company may differ materially from the results expressed or implied by such forward-looking statements. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Longwei's operations are conducted in the PRC and, accordingly, are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic and legal environment and foreign currency exchange. The Company's results may be adversely affected by changes in the political and social conditions in the PRC and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad, and rates and methods of taxation. Other potential risks and uncertainties include but are not limited to the ability to procure, properly price, retain and successfully complete projects, and changes in products and competition. Unless otherwise required by law, the Company also disclaims any obligation to update its view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements made here. Readers should review carefully reports or documents the Company files periodically with the Securities and Exchange Commission.
For more information, please contact:
Investor Relations:
Dave Gentry
RedChip Companies, Inc.
Tel: +1-407-644-4256 x104
Jon Cunningham
RedChip Companies, Inc.
Tel: +1-407-644-4256 x107
Email: info@redchip.com
http://www.RedChip.com
James Crane, Chief Financial Officer
Longwei Petroleum Investment Holding Ltd.
U.S.: +1-617-699-6325
P.R.C.: +86-186-0125-0891
http://www.longweipetroleum.com
-- Financial tables follow --
Longwei Petroleum Investment Holding Limited and Subsidiaries
Condensed Consolidated Balance Sheets
December 31, June 30,
2009 2009
Assets (In Thousands,
Current Assets: Except Share Data)
$12,556 $7,308
Cash
Accounts Receivable, Net of Allowance
for Doubtful Accounts of $0 as of December
31, 2009 and $0 as of June 30, 2009 26,639 26,796
Inventories 16,766 13,976
Prepaid Expenses 590 -
Advances to Suppliers 52,964 35,317
Total Current Assets 109,515 83,397
Property, Plant and Equipment, Net 44,237 36,745
Total Assets $153,752 $120,142
Liabilities and Shareholders' Equity
Current Liabilities:
Accounts Payable $1,764 $2,275
Convertible Notes Payable - 800
Warrant Derivative Liability 19,514 -
Taxes Payable 4,301 2,144
Total Current Liabilities 25,579 5,219
Total Liabilities 25,579 5,219
Commitments and Contingencies
Shareholders' Equity:
Preferred Stock, No Par Value,
86,000,000 Shares Authorized, 0
Issued and Outstanding as of December
31, 2009 and June 30, 2009 - -
Series A Convertible Preferred Stock,
No Par Value, 14,000,000 Shares
Authorized, 13,499,274 and 0 Issued
and Outstanding as of December 31,
2009 and June 30, 2009 (Liquidation
Preference of $14,849,201 as of
December 31, 2009) 6,176 -
Common Stock, No Par Value; 500,000,000
Shares Authorized; 85,131,546 and
81,852,831 Issued and Outstanding,
13,499,274 Shares Held in Escrow
Subject to Contingent Future Events,
as of December 31, 2009 and June 30, 2009 15,590 11,949
Shares to be Issued - 126
Stock Subscription Receivable - (76)
Deferred Stock Based Compensation (120) (25)
Additional Paid-in Capital 8,644 2,540
Retained Earnings 87,860 90,519
Other Comprehensive Income 10,023 9,890
Total Shareholders' Equity 128,173 114,923
Total Liabilities and Shareholders' Equity $153,752 $120,142
Longwei Petroleum Investment Holding Limited and Subsidiaries
Unaudited Condensed Consolidated Statements of Operations and Other
Comprehensive Income
(In Thousands, Except Share Data)
For the Three Months For the Six Months
Ended Ended
-------------------- ------------------
December 31, December 31,
------------ ------------
2009 2008 2009 2008
---- ---- ---- ----
Net Sales $71,236 $53,643 $130,597 $98,118
Cost of Sales 57,308 41,704 105,060 76,539
------ ------ ------- ------
Gross Profit 13,928 11,939 25,537 21,579
General and
Administrative
Expenses 862 43 1,407 2,210
--- --- ----- -----
Operating Income 13,066 11,896 24,130 19,369
Change in Fair Value
of Derivatives (13,220) - (14,276) -
Interest Income 4 4 9 8
Interest Expense (22) (102) (53) (124)
--- ---- --- ----
(Loss) Income Before
Income Tax Expense (172) 11,798 9,810 19,253
Income Tax Expense (3,403) (3,039) (6,180) (5,003)
------ ------ ------ ------
Net (Loss) Income (3,575) 8,759 3,630 14,250
------ ----- ----- ------
Foreign Currency
Translation 6 (436) 133 634
--- ---- --- ---
Comprehensive
(Loss) Income $(3,569) $8,323 $3,763 $14,884
======= ====== ====== =======
Net (Loss) Income $(3,575) $8,759 $3,630 $14,250
------- ------ ------ -------
Preferred Stock
Dividends Paid
in Cash (156) - (156) -
Preferred Stock
Deemed Dividends (8,644) - (8,644) -
------ --- ------ ---
Net (Loss) Income
Attributable to
Common Shareholders (12,375) $8,759 (5,170) $14,250
======= ====== ====== =======
(Loss) Earnings Per
Common Share:
Basic $(0.15) $0.11 $(0.06) $0.19
====== ===== ====== =====
Diluted $(0.15) $0.11 $(0.06) $0.18
====== ===== ====== =====
Weighted Average
Common Shares
Outstanding:
Basic 83,347,520 76,205,000 83,334,315 76,205,000
========== ========== ========== ==========
Diluted 83,347,520 81,080,000 83,334,315 81,080,000
========== ========== ========== ==========
Longwei Petroleum Investment Holding Limited and Subsidiaries
Unaudited Condensed Consolidated Statements of Cash Flows
For the Six Months Ended
December 31,
2009 2008
(In Thousands)
Cash Flows From
Operating
Activities:
Net Income $3,630 $14,250
Adjustments to
Reconcile Net
Income to Net
Cash Provided By
Operating
Activities-
Depreciation
and
Amortization 154 197
Stock Based
Compensation 119 -
Change in Fair
Value of
Derivatives 14,276 -
Accretion of
Debt Discount - 637
(Increase)
Decrease in
Assets-
Accounts
Receivable 157 (18,463)
Inventories (2,790) 10,462
Prepaid
Expenses (590) -
Advances to
Suppliers (17,647) (5,696)
Increase
(Decrease) in
Liabilities-
Accounts
Payable (601) (193)
Taxes Payable 2,157 1,581
Other Current
Liabilities - 142
Net Cash (Used
in) Provided By
Operating
activities (1,135) 2,917
Cash Flows From
Investing
Activities:
Property
Improvements (7,646) (1,994)
Net Cash Used in
Investing
Activities (7,646) (1,994)
Cash Flows From
Financing
Activities:
Net Proceeds From
Issuance of
Series A
Convertible
Preferred Stock 13,820 -
Net Proceeds From
Issuance of
Common Stock 76 -
Net Cash Provided
By Financing
activities 13,896 -
Effect of
Exchange Rate
Changes in Cash 133 86
Increase in Cash 5,115 1,009
Cash, Beginning
of Period 7,308 8,633
Cash, End of
Period $12,556 $9,642
Supplemental Cash
Flow Information:
Cash Paid During
the Period for
Interest $- $-
Income Taxes $4,023 $3,961
Supplemental
Schedule of Noncash
Investing and
Financing
activities:
Common Stock
Issued for
Services,
Deferred
Compensation $239 $-
Increase to
Warrant
Derivative
Liability for
Fair Value of
Stock Warrants
Prior to
Conversion to
Common Stock $3,645 $-
Increase to
Common Stock,
Par, for
Conversion of
Debt $892 $-
Increase to
Common Stock,
Par, for Common
Stock
Compensation
Related to
October 2009
Financing $317 $-
Initial Fair
Value Allocation
of Investor Stock
Warrants, to
Warrant
Derivative
Liability $6,205 $-
Initial Fair
Value Allocation
of Placement
Agent Warrants,
to Warrant
Derivative
Liability $1,122 $-
Increase to
Additional Paid
in Capital, for
Beneficial
Conversion
Feature $8,644 $-
Increase to
Accounts Payable
for Quarterly
Dividends
Accrued $156 $-
Increase to
Warrant
Derivative
Liability for
Cumulative Effect
of Accounting
Change $1,557 $-
