Orient Paper, Inc. Announces Third Quarter 2017 Financial Results

Earnings Conference Call is Scheduled for Friday, November 10, 2017, 8:00 am ET

BAODING, China, Nov. 9, 2017 /PRNewswire/ -- 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, 2017.

• Revenue decreased by 10.6% to $33.5 million, primarily attributable to a decrease in overall sales volume and partially offset by an increase in blended average selling prices ("ASPs") particularly for regular CMP and Light-Weight CMP that increased by 59.4% and 47.9%, respectively. The decrease in sales volume was primarily due to the continued government-mandated restriction on production in compliance with environmental regulation and due to our replacement of outdated paper facilities.
• Gross profit decreased by 1.5% to $7.2 million. Gross margin increased by 2.0 percentage points to 21.6%. The increase in gross margin was primarily related to CMP as a result of significant increase in ASP.
• Net income was $1.6 million, or $0.07 per diluted share, compared to $3.0 million, or $0.14 per diluted share, for the same period of last year.
• Earnings before interest, taxes, depreciation and amortization ("EBITDA") decreased by 23.7% to $6.5 million.

Zhenyong Liu, Chairman and Chief Executive Officer of Orient Paper, commented, "Our third quarter results continued to be impacted by the government mandated restriction on production. In addition, our production was suspended in September 2017 during the replacement of all of our coal burning boilers with gas boilers in compliance with the latest government regulations. Total sales volume decreased by 36.2% to 61,903 tonnes, leading to a 10.6% decrease in total revenue in the third quarter. Gross margin improved as a result of increase in ASPs for regular CMP and light-weight CMP. Looking ahead, as the government continues to promulgate and fully implement rules and regulations on environmental protections, outdated productions in paper industry are accelerating to phase out, we believe large-scale enterprises like us will benefit from industry consolidation as a result of the phasing out of outdated productions for a long-term sustainable development. We expect the overall price and market demand will show an upward trend in the near future and the Company's operations will continue to improve."

Third Quarter 2017 Financial Results

Revenue

For the third quarter of 2017, total revenue decreased by $4.0 million, or 10.6%, to $33.5 million from $37.5 million for the same period of last year. The decrease in total revenue was mainly due to decreases in sales volume across all product categories and partially offset by increase in blended ASP. The restrictions on our production volume by the Chinese government remained in place during the quarter. Additionally, our production was interrupted in September 2017 as we removed all coal burning boilers and started to replace them with gas boilers in compliance with the latest government regulation. Production was suspended during the replacement of boilers. As a result, the production volume of regular CMP, light-Weight CMP and offset printing paper in the third quarter of 2017 declined and sales of these products decreased accordingly. The following table summarizes revenue, volume and ASP by product for the third quarter of 2017 and 2016, respectively:

Revenue from CMP, including both regular CMP and light-Weight CMP, increased by $1.0 million, or 3.6%, to $27.4 million and accounted for 81.8% of total revenue for the third quarter of 2017, compared to $26.4 million, or 70.6%, of total revenue for the same period of last year. The Company sold 53,375 tonnes of CMP at an ASP of $513/tonne in the third quarter of 2017, compared to 81,035 tonnes at an ASP of $326/tonne in the same period of last year.

Of the total CMP sales, revenue from regular CMP increased by $0.1 million, or 0.7%, to $22.4 million, resulting from sales of 43,202 tonnes at an ASP of $518/tonne, during the third quarter of 2017, compared to revenue of $22.2 million, resulting from sales of 68,422 tonnes at an ASP of $325/tonne, for the same period of last year. Revenue from light-weight CMP increased by $0.8 million, or 19.5%, to $5.0 million, resulting from sales of 10,173 tonnes at an ASP of $491/tonne for the third quarter of 2017, compared to revenue of $4.2 million, resulting from sales of 12,613 tonnes at an ASP of $332/tonne for the same period of last year.

Revenue from offset printing paper decreased by $3.9 million, or 41.6%, to $5.5 million for the third quarter of 2017, from $9.3 million for the same period of last year. The Company sold 8,035 tonnes of offset printing paper at an ASP of $679/tonne in the third quarter of 2017, compared to 14,571 tonnes at an ASP of $641/tonne in the same period of last year.

Revenue from tissue paper products decreased by $1.0 million, or 59.5%, to $0.7 million for the third quarter of 2017, from $1.6 million for the same period of last year. The Company sold 493 tonnes of tissue paper products at an ASP of $1,339/tonne in the third quarter of 2017, compared to 1,327 tonnes at an ASP of $1,227/tonne in the same period of last year.

We had no revenue from digital photo paper for the third quarter of 2017, compared to $64,671, resulting from sales of 38 tonnes at an ASP of $1,702/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 and are now upgrading the production line to produce more competitive products. We expect to resume our digital photo paper production in the near future.

Gross Profit and Gross Margin

Total cost of sales decreased by $3.8 million, or 12.8%, to $26.3 million for the third quarter of 2017, from $30.1 million for the same period of last year. Cost of sales per tonne was $425 for the third quarter of 2017, compared to $311 for the same period of last year. The increase in overall cost of sales per tonne was mainly attributable to the higher average unit purchase costs of recycled paper board, cost of recycled white scrap paper and additional subsidies to the labors during the production restriction, and partially offset by the use of natural gas and liquefied gas to replace coal into the production. Costs of sales per tonne for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper were, $402, $364, $573, $1,249, and $nil, respectively, for the third quarter of 2017, compared to $273, $251, $464, $1,075, and $2,151, respectively, for the same period of last year.

Total gross profit decreased by $0.1 million, or 1.5%, to $7.2 million for the third quarter of 2017, from $7.3 million for the same period of last year. Overall gross margin increased by 2.0 percentage points to 21.6% for the third quarter of 2017 from 19.6% for the same period of last year.  Gross margins for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper were 22.5%, 25.8%, 15.6%, 6.7% and nil, respectively, for the third quarter of 2017, compared to 16.0%, 24.3%, 27.5%, 12.4%, and -26.4%, respectively, for the same period of last year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") increased by $0.2 million, or 9.6%, to $2.8 million for the third quarter of 2017 from $2.6 million for the same period of last year. As a percentage of total revenue, SG&A was 8.5% for the third quarter of 2017, compared to 6.9% for the same period of last year.

Income from Operations

Income from operations decreased by $2.0 million, or 42.5%, to $2.7 million for the third quarter of 2017, from $4.7 million for the same period of last year. Operating margin was 8.1% for the third quarter of 2017, compared to 12.6% for the same period of last year.

Net Income

Net income was $1.6 million, or $0.07 per basic and diluted share, for the third quarter of 2017, compared to $3.0 million, or $0.14 per basic and diluted share, for the same period of last year.

EBITDA

EBITDA decreased by $2.0 million, or 23.7%, to $6.5 million for the third quarter of 2017 from $8.5 million for the same period of last year.

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.

Nine Months Ended September 30, 2017 Financial Results

Revenue

For nine months ended September 30, 2017, total revenue decreased by $21.8 million, or 21.1%, to $81.6 million from $103.4 million for the same period of last year. The decrease in total revenue was mainly decreases in sales volume across all product categories and partially offset by a moderate increase in blended ASP. We removed all coal burning boilers and started to replace them with gas boilers in September 2017 in compliance with the latest government regulations. Production was suspended during the removal of boilers. In addition, the restrictions on our production volume instated in November 2016 by the government remain in place. The following table summarizes revenue, volume and ASP by product for the nine months ended September 30, 2017 and 2016, respectively:

Revenue from CMP, including both regular CMP and light-Weight CMP, decreased by $4.9 million, or 6.9%, to $66.2 million, and accounted for 81.1% of total revenue for the nine months ended September 30, 2017, compared to $71.1 million, or 68.8% of total revenue for the same period of last year. The Company sold 153,384 tonnes of CMP at an ASP of $432/tonne for the nine months ended September 30, 2017, compared to 217,522 tonnes at an ASP of $327/tonne in the same period of last year.

Of the total CMP sales, revenue from regular CMP decreased by $3.9 million, or 6.5%, to $55.7 million, resulting from sales of 128,988 tonnes at an ASP of $432/tonne, for the nine months ended September 30, 2017, compared to revenue of $59.6 million, resulting from sales of 183,044 tonnes at an ASP of $326/tonne for the same period of last year. Revenue from light-weight CMP decreased by $1.0 million, or 8.8%, to $10.4 million, resulting from sales of 24,396 tonnes at an ASP of $428/tonne for the nine months ended September 30, 2017, compared to revenue of $11.5 million, resulting from sales of 34,478 tonnes at an ASP of $332/tonne for the same period of last year.

Revenue from offset printing paper decreased by $13.6 million, or 50.6%, to $13.3 million for the nine months ended September 30, 2017, from $26.9 million for the same period of last year. The Company sold 20,098 tonnes of offset printing paper at an ASP of $662/tonne for the nine months ended September 30, 2017, compared to 41,440 tonnes at an ASP of $650/tonne in the same period of last year.

Revenue from tissue paper products decreased by $2.6 million, or 55.7%, to $2.1 million, for the nine months ended September 30, 2017, from $4.7 million for the same period of last year. The Company sold 1,619 tonnes of tissue paper products at an ASP of $1,289/tonne for the nine months ended September 30, 2017, compared to 3,788 tonnes at an ASP of $1,245/tonne in the same period of last year.

We had no revenue from digital photo paper for the nine months ended September 30, 2017, compared to $0.7 million, resulting from sales of 372 tonnes at an ASP of $1,786/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 and are now upgrading the production line to produce more competitive products. We expect to resume our digital photo paper production in the near future.

Gross Profit and Gross Margin

Total cost of sales decreased by $20.1 million, or 23.6%, to $65.2 million for the nine months ended September 30, 2017, from $85.4 million for the same period of last year. Cost of sales per tonne was $373 for the nine months ended September 30, 2017, compared to $324 for the same period of last year. The increase in overall cost of sales per tonne was mainly due to higher average unit purchase costs of recycled paper board, cost of recycled white scrap paper and additional subsidies created by the Company to the labors suspending work during the production restriction in September 2017 and partially offset by the use of natural gas and liquefied gas to replace coal in the production. Costs of sales per tonne for regular CMP, light-weight CMP, offset printing paper, tissue paper products, and digital photo paper were, $334, $328, $545, $1,205, and $nil, respectively, for the nine months ended September 30, 2017, compared to $276, $253, $506, $1,095, and $2,835, respectively, for the same period of last year.

Total gross profit decreased by $1.6 million, or 9.2%, to $16.3 million for the nine months ended September 30, 2017, from $18.0 million for the same period of last year. Overall gross margin increased by 2.6 percentage points to 20.0% for the nine months ended September 30, 2017 from 17.4% 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 20.5%, 23.3%, 17.7%, 6.5% and nil, respectively, for the nine months ended September 30, 2017, compared to 15.3%, 23.9%, 22.2%, 12.0%, and -58.7%, respectively, for the same period of last year.

Selling, General and Administrative Expenses

Selling, general and administrative expenses ("SG&A") decreased by $1.3 million, or 13.7%, to $8.3 million for the nine months ended September 30, 2017, from $9.6 million for the same period of last year. As a percentage of total revenue, SG&A was 10.2% for the nine months ended September 30 of 2017, compared to 9.3% for the same period of last year.

Income from Operations

Income from operations decreased by $2.0 million, or 23.6%, to $6.4 million for the nine months ended September 30, 2017 from $8.3 million for the same period of last year. Operating margin was 7.8% for the nine months ended September 30, 2017, compared to 8.0% for the same period of last year.

Net Income

Net income was $3.3 million, or $0.15 per basic and diluted share, for the nine months ended September 30, 2017, compared to $4.2 million, or $0.20 per basic and diluted share, for the same period of last year.

EBITDA

EBITDA decreased by $2.7 million, or 13.6%, to $17.4 million for the nine months ended September 30, 2017, from $20.1 million for the same period of last year.

Note 2: 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.

Cash, Liquidity and Financial Position

As of September 30, 2017, the Company had cash and cash equivalents, short-term debt (including related party loan), current capital lease obligations, notes payable and long-term debt (including related party loans) of $6.5 million, $14.1 million, $nil, $6.0 million and $14.2 million, respectively, compared to $2.3 million, $5.1 million, $8.8 million, $2.2 million and $14.9 million, respectively, at the end of 2016. Net accounts receivable was $0.1 million as of September 30, 2017, compared to $3.9 million as of December 31, 2016. Net inventory was $9.6 million as of September 30, 2017, compared to $5.6 million at the end of 2016. As of September 30, 2017, the Company had a net working capital deficit of $1.0 million, compared to $6.1 million at the end of 2016.

Net cash provided by operating activities was $16.8 million for the nine months ended September 30, 2017, compared to $8.6 million for the same period of last year. Net cash used in investing activities was $7.6 million for the nine months ended September 30, 2017, compared to $7.7 million for the same period of last year. Net cash used by financing activities was $5.4 million for the nine months ended September 30 of 2017, compared to net cash provided in financing activities of $2.2 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 2017 financial results at 8:00 am US Eastern Time (5:00 am US Pacific Time/9:00 pm Beijing Time) on Friday, November 10, 2017.

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 2017 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 https://edge.media-server.com/m6/p/sybi9bhf. 

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 11:00 am ET on November 10, 2017 to 7:59 am ET on November 18, 2017. 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 6797929 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 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, 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 Securities and Exchange Commission, 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.

For more information, please contact:

Company Contact:
Orient Paper, Inc.
Email: ir@orientpaperinc.com

Investor Relations:
Tony Tian, CFA                
Weitian Group LLC
Email: tony.tian@weitian-ir.com
Phone: +1-732-910-9692

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