RINO Announces Third Quarter 2010 Financial Results

DALIAN, China, Nov. 15, 2010 /PRNewswire-Asia-FirstCall/ -- RINO International Corporation (the “Company” or “RINO”) (Nasdaq: RINO), a leading provider of clean technology solutions to China’s iron and steel industry, announced today its unaudited financial results for the third quarter ended September 30, 2010.

Third Quarter Highlights

• Total revenues in the third quarter of 2010 were $52.7 million, a 16.7% decrease from the corresponding period in 2009.

• Operating profit in the third quarter of 2010 was $9.9 million, a 49.3% decrease from the corresponding period in 2009.

• Net income in the third quarter of 2010 was $8.8 million, a 48.3% decrease from the corresponding period in 2009. Net income excluding change in fair value of warrants (non-GAAP) was $8.7 million, a 55.6% decrease from the corresponding period in 2009.

• Diluted earnings per share (“EPS”) for the third quarter of 2010 was $0.31. Diluted EPS excluding change in fair value of warrants (non-GAAP) was $0.31, a 60.8% decrease from $0.78 for the corresponding period in 2009.

“Revenues in the third quarter were down due to recent reform in the steel industry which has caused a ‘wait and see’ approach toward capex including investment in clean technologies,” said Mr. Dejun Zou, director and chief executive officer of RINO. “We are also seeing our clients experiencing a tightening of cash flow which has led to an increase in accounts receivable. However we still have a full order book with several new contracts successfully negotiated as well as backlog from the third quarter which will generate revenues in the fourth quarter.”

“We believe that despite the temporary market downturn, the long-term industry environment remains very encouraging with increasing government pressure coming to bear on polluting industries and demand getting even stronger,” Mr. Zou continued. “We are racing to meet that demand by expanding capacity and investing in advanced technology to help us solidify our leading position. At the same time we are continuing to look for opportunities to expand outside our traditional de-sox and wastewater treatment segments to capture market share in new high growth areas.”

“After a weaker than expected third quarter we are revising our full year guidance to reflect the disruption caused by industry consolidation. However we remain confident in our long-run prospects and are moving ahead with several projects to drive revenues in the future. We are continuing to work to improve internal controls and we remain focused on fulfilling Sarbanes-Oxley requirements according to schedule,” Mr. Zou concluded.

2010 Third Quarter Results

RINO reported total revenues of $52.7 million for the third quarter of 2010, representing a 16.7% decrease from the corresponding period in 2009. Revenue decrease was caused by the decrease in our wastewater treatment and anti-oxidation businesses. Specifically, the Company recorded $43.0 million in revenues from the desulphurization business, an increase of 29.1 % from $33.3million in the same period of 2009; $7.5 million from wastewater treatment system sales, a decrease of 50.6% over the third quarter of 2009; and $1.7million in anti-oxidation equipment and coatings as compared to $13.8 million recorded in the same period of 2009.

Cost of sales for the third quarter of 2010 was $36.4 million as compared to $37.2 million in the same quarter of 2009, a decrease of 2.0%. Gross profit was $16.3 million in the third quarter of 2010 compared to $26.1 million for the same period of 2009, a decrease of 37.7%, and representing gross margins of 30.9% and 41.3%, respectively. The decreases in gross margins were mainly attributable to increases in the costs of outsourcing. Outsourcing costs for the third quarter of 2010 were $9.7 million, of which $5.7 million were incurred by the Shougang Jingtang Project using a cost recovery method, representing an increase of 164.8% from $3.7 million in the same period of 2009.

Total operating expenses for the third quarter of 2010 were $6.4 million as compared to $6.6 million for the same period in 2009. The decrease in operating expenses was primarily due to decrease in sales commission expenses. Operating margin was 18.8% for the third quarter of 2010 as compared to 30.9% for the third quarter of 2009. The decrease of operating margin was mainly due to the intensive competition in desulphurization market, which leads to our reduced gross margin. At the same time, revenue from the Shougang Jingtang Project is recognized using a cost recovery method and no gross margin was recognized during the three months ended September 30, 2010.

Stock compensation expenses, which were allocated to related operating costs and expenses line items, increased in aggregate to $325,937 in the third quarter of 2010 from ($9,263) in the corresponding period in 2009. The increase in share-based compensation expenses was primarily due to additional options granted to staff and board members.

Income tax expense provision was $1.5 million, or $0.05 per share, for the third quarter of 2010, compared to nil in the same period in 2009. The Company's effective tax rate for the third quarter of 2010 is 14.5% compared to 0% for the same period in 2009. As a foreign investment enterprise, and the only taxable entity within the Company in the third quarter of 2010, Dalian Innomind Environment Engineering Co., Ltd., is qualified for an income tax exemption for 2008 and 2009, and a 50% reduction from the normal income tax rate of 25% for the three years from 2010 through 2012.

Net income for the third quarter of 2010 was $8.8 million, representing a decrease of 48.3% as compared to $17.1 million reported in the same period in the prior year. Diluted earnings per share were $0.31 for the third quarter of 2010 as compared to $0.68 for the same period in 2009, based on 28.6 million and 25.2 million weighted average shares outstanding, respectively. Non-GAAP net income, which is net income excluding a $97,620 gain from the change in the fair value of warrants for the third quarter of 2010, was $8.7 million, translating to non-GAAP diluted EPS of $0.31.

Balance Sheet and Cash Flow Discussion

Cash and cash equivalents as of September 30, 2010 were $56.1 million, representing a decrease of 58.3% as compared to $134.5 million as of December 31, 2009. At the end of the third quarter, the Company had working capital of $245.0 million and a current ratio of 7.1.

Accounts receivable stood at $112.0 million, a 93.8% increase from $57.8 million reported as of December 31, 2009. Accounts receivable days sales outstanding stood at 138 days compared to 111 days at the end of last year. As of September 30, 2010, the Company had $8.2 million in long-term loans and $3.7 million in short term loans. Stockholder's equity increased 26.4% to $258.1 million as of September 30, 2010 as compared to $204.2 million as of December 31, 2009.

For the first nine months of 2010, cash used in operations totaled $67.6 million as compared to $8.4 million cash provided by operations for the first nine months of 2009, mainly due to an increase in accounts receivable, advances for inventory purchases to support additional projects, and costs and estimated earnings in excess of billings on uncompleted contracts.

Backlog as of September 30, 2010

Backlog, defined as unfinished projects, includes any projects that the Company has undertaken but hasn’t yet commenced. As of September 30, 2010, backlog amounted to $56.3 million (VAT excluded), the breakdown of which is set forth in the following table. The Company expects that approximately 75% of the backlog will turn into revenue by the end of 2010.

Outlook for Fiscal Year 2010

Affected by reform and contracting cash flows in the iron & steel industry in China, the company is expecting softer demand for its services in the immediate future. Based on analysis of current market demand, the company estimates its total revenue for fiscal year 2010 to range from $203.0 million to $211.0 million, down from the previously estimated range of $221.0 to $229.0 million, representing a year over year increase of 5.4% to 9.6%.

Conference Call Information

RINO’s management will hold an earnings conference call at 7 PM on November 16, 2010 U.S. Eastern Time (8 AM on November 17, 2010 Beijing/Hong Kong time), at which time management will discuss this quarter’s earnings results.

A replay of the conference call may be accessed by phone at the following number until November 23, 2010:

Additionally, a live and archived webcast of this conference call will be available at http://ir.stockpr.com/rinointernational/.

About RINO International Corporation

RINO International Corporation is a leading provider of clean technology solutions to China’s iron and steel industry. RINO designs, manufactures, installs and services an extensive suite of products and solutions, including its patented wastewater treatment, flue gas desulphurization, high temperature anti-oxidation and sludge treatment systems, to a large customer base with the aim to reduce industrial pollution and improve energy utilization in China. With strong research and development capabilities, RINO currently has eight Chinese listed patents, three invention or utility model patents related to wastewater treatment, one utility model patent for its desulfurization system and one utility model patent for its waste incineration system. The Company also has invention patents for its anti-oxidation technology listed both in China and internationally under the Patent Cooperation Treaty. Seven patents are under application as of November 2010. For additional investor information, please visit http://ir.stockpr.com/rinointernational/.

Cautionary Statement Regarding Forward-Looking Information

Certain statement in this press release may contain forward-looking information about the Company. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and statements which may include discussions of strategy, and statements about industry trends future performance, operations and products of each of the entities referred to above. Actual performance results may vary significantly from expectations and projections as a result of various factors, including without limitation and the risks set forth "Risk Factors" contained in the Company's Annual Reports on Form 10-K, and Quarterly Reports on Form 10-Q.

About Non-GAAP Financial Measures

The management of RINO International Corporation (herein "RINO") uses non-GAAP adjusted net earnings to measure the performance of the Company's business internally by excluding non-recurring items as well as special non-cash charges. The Company's management believes that these non-GAAP adjusted financial measures allow the management to focus on managing business operating performance because these measures reflect the essential operating activities of RINO and provide a consistent method of comparison to historical periods. The Company believes that providing the non-GAAP measures that management uses internally to its investors is useful to investors for a number of reasons. The non-GAAP measures provide a consistent basis for investors to understand RINO's financial performance in comparison to historical periods without variations caused by non-recurring items and non-operating related charges. In addition, it allows investors to evaluate the Company's performance using the same methodology and information as that used by the management. Non-GAAP measures are subject to inherent limitations because they do not include all of the expenses included under GAAP and because they involve the exercise of judgment of which charges are excluded from GAAP financial measure. However, the management of RINO compensates for these limitations by providing the relevant disclosure of the items excluded.