SinoHub, Inc. Reports Second Quarter 2010 Financial Results
- Second quarter 2010 revenues increased 39.9% to $43.9 million
- New Contract Manufacturing business exceeds expectations with sales of $13.3 million, up 107.8% quarter-over-quarter
- Net income increased 23.4% to $6.4 million, with EPS of $0.23 for first six months of 2010
SANTA CLARA, Calif. and SHENZHEN, China, Aug. 12 /PRNewswire-Asia/ -- SinoHub, Inc. (NYSE Amex: SIHI), a rapidly growing electronics company in the People's Republic of China currently engaged in electronic component sales, private label mobile phone manufacturing and sales, and electronic component supply chain management (SCM) services, today reported financial results for the three-month period ended June 30, 2010 and reaffirmed full-year revenue guidance for 2010.
Summary Financials
Second Quarter 2010 Results (USD) (unaudited)
(three months ended June 30,) Q2 2010 Q2 2009 CHANGE
Sales $43.9 million $31.4 million +39.9%
Gross Profit $7.6 million $5.7 million +32.9%
Net Income $2.9 million $3.2 million -9.4%
Fully diluted EPS $0.10 $0.13 -23.1%
Second Quarter 2010 Results
Sales - Total revenues for second quarter 2010 grew 39.9% to $43.9 million from $31.4 million for the second quarter of 2009. Revenues from electronic component sales (ECP), including procurement-fulfillment and spot component sales, declined 1% to $28.8 million from the second quarter of 2009 as several customers pulled forward purchases in the first quarter of 2010, when revenues advanced 88%. The Company's supply chain management services (SCM) business generated $1.8 million in the three months ended June 30, 2010 compared to $2.3 million in the same period in 2009. Revenues from the Company's virtual contract manufacturing (VCM) business, which was launched in late 2009, totaled $13.3 million, up 107% from the first quarter.
Second Quarter 2010 Revenue Breakdown By Business Unit
(USD in thousands)(unaudited)
(three months ended June 30,) 2010 2009 CHANGE
Electronic Components $28.8 million $29.1 million -1.0%
% of Sales 65.6% 92.7%
Virtual Contract Manufacturing $13.3 million -- --
% of Sales 30.3%
Supply Chain Management Services $1.8 million $2.3 million -21.7%
% of Sales 4.1% 7.3%
Total Sales $43.9 million $31.4 million +39.9%
Cost of Sales - Cost of goods sold totaled $36.3 million in the second quarter of 2010, up 41.5% from $25.7 million in the second quarter of 2009.
Gross Profit and Gross Margin - Gross profit for the second quarter of 2010 totaled $7.6 million, an increase of 32.9% over $5.7 million in the second quarter of 2009. For the second quarter of 2010, gross profit margin decreased 90 basis points to 17.3% from the second quarter of 2009, which was primarily due to the lower contribution from its high-margin supply chain business. Compared to the first quarter of 2010, gross margin decreased by 110 basis points from 18.4%. Gross margin in the quarter for the ECP, SCM and VCM businesses were 12.2%, 98.4%, and 17.2%, respectively. As the higher margin VCM business grows as a percentage of total revenues, the Company expects overall gross margins to improve in the second half of 2010 from second quarter levels. The gross margin in the VCM business was adversely affected in Q2 2010 by the PCBA production business, which the Company outsourced to build demand for its new surface mount machines that were installed in July. The Company is currently ramping up production of these machines as an important growth component for its VCM business. With the exception of the lower margins associated with PCBA production for third parties, gross margins in the mobile phone sales business stayed relatively constant in Q2 with the 20.4% that was recorded in Q1.
Operating Expenses - Total operating expenses were $3.2 million, or 7.4% of revenues in the second quarter of 2010, compared to $1.6 million, or 5.0% of revenues in the same period in 2009. Selling, general and administrative expenses increased to $2.2 million in the second quarter of 2010 from $1.1 million in the second quarter of 2009, as the Company spent on capacity expansion at its new factory to prepare for the ramp in its VCM business. Income from operations was $4.4 million in the second quarter of 2010, a 5.3% increase from $4.1 million in the second quarter of 2009, and represented operating margins of 9.9% and 13.2% for each respective period.
Net Income - Net income for the second quarter of 2010 fell 9.4% to $2.9 million, or $0.10 per fully diluted share, compared to $3.2 million, or $0.13 per fully diluted share, in the second quarter of 2009, based on 28.8 million and 25.2 million weighted average, diluted shares outstanding, respectively.
Summary Financials
First Six Months 2010 Results (USD) (unaudited)
(six months ended June 30,) 1H 2010 1H 2009 CHANGE
Sales $82.5 million $49.5 million +66.8%
Gross Profit $14.7 million $9.5 million +54.7%
Net Income $6.4 million $5.2 million +23.1%
Fully diluted EPS $0.23 $0.21 +9.5%
First Half 2010 Results
Sales - Total revenues for six months of 2010 advanced 66.8% to $82.5 million from $49.5 million for the first half of 2009. ECP revenues increased 30.9% to $59.4 million for first half 2010 from the same year ago period as sales increased from new and existing customers. The Company's SCM business generated $3.3 million for the six months of 2010, compared to $4.0 million in the same period in 2009. Revenues from the Company's new virtual contract manufacturing business which commenced this year totaled $19.7 million.
First half 2010 Revenue Breakdown By Business Unit
(USD in thousands)(unaudited)
(six months ended June 30,) 2010 2009 CHANGE
Electronic Components $59.4 million $45.4 million +30.9%
% of Sales 72.0% 91.7%
Virtual Contract Manufacturing $19.7 million -- --
% of Sales 23.9%
Supply Chain Management Services $3.3 million $4.0 million -17.0%
% of Sales 4.1% 8.3%
Total Sales $82.5 million $49.5 million +66.8%
"We are pleased to report a solid first half of the year, as sales from our new virtual contract manufacturing (VCM) business exceeded our expectations. We produced about 250,000 handsets in the second quarter, up from roughly 200,000 during the first quarter, while our sales pipeline continues to improve. As we bring on additional capacity to support our fast growing VCM business, we expect this segment to contribute meaningfully to top and bottom line growth during the second half of the year. Revenues from our ECP business unit were up 31% year to date and we expect measured growth for the balance of the year as we expand our customer base and overall volumes," said Harry Cochran, Chief Executive Officer of SinoHub. "While margins were impacted by the product mix during the quarter, we expect our relationships with large design houses to boost overall volume and growth rates within our ECP business."
Cost of Sales - Cost of goods sold totaled $67.8 million in the first half of 2010, up 69.9% in dollar terms from $39.9 million in the first half of 2009.
Gross Profit and Gross Margin - Gross profit for the first half of 2010 totaled $14.7 million, an increase of 54.7% over $9.5 million in the first half of 2009. Gross profit margin for the first half of 2010 was 17.8% compared to 19.3% in the same period last year. The year-over-year decline was primarily due to lower contribution from its higher-margin SCM business and somewhat lower margins in its ECP business due to seasonal factors. In the first six months of operation, the VCM business generated margins of 18.3%.
Operating Expenses - Total operating expenses were $5.8 million, or 7.0% of revenues, in the first half of 2010 compared to $2.8 million, or 5.7% of revenues, in the same period in 2009. Selling, general and administrative expenses increased to $4.1 million in the first half of 2010 from $2.0 million in the first half of 2009 to support the rapid growth in its VCM business. Income from operations was $8.9 million in the first half of 2010, an increase of 32.9% from $6.7 million in the first half of 2009. Operating margins were 10.8% compared to 13.5%.
Net Income - Net income for the first half of 2010 increased 23.1% to $6.4 million, or $0.23 per fully diluted share, compared to $5.2 million, or $0.21 per fully diluted share, in the first half of 2009, based on 28.3 million and 25.2 million weighted average, diluted shares outstanding, respectively.
Liquidity and Capital Resources
SinoHub's cash and cash equivalents grew to $9.5 million at June 30, 2010 from $8.3 million at December 31, 2009. The Company had working capital of $48.5 million on June 30, 2010, up from $39.4 million at the end of 2009, and a current ratio of 2.9 to 1 at June 30, 2010 compared to a current ratio of 3.2 to 1 at December 31, 2009. Inventories were approximately $8.2 million and accounts receivable were $40.9 million on June 30, 2010, compared to approximately $11.6 million and $28.8 million on December 31, 2009, respectively. DSOs were 85 days for the second quarter of 2010 compared to 83 days in the same year ago period. During the first six months of 2010, the Company used $2.0 million in cash in operations versus $1.9 million used in operations in the same period in 2009.
Full-year 2010 Revenue Guidance
For full fiscal year 2010, SinoHub reaffirmed revenue guidance of $180 million, representing anticipated year-over-year growth of 40% over 2009. Guidance includes approximately $50 million in anticipated sales from its virtual contract manufacturing (VCM) business.
Business Review and Outlook
In April 2010, SinoHub commenced operations at its new 77,500 sq. ft. mobile phone manufacturing facility located in the Bao'an district of Shenzhen, China, marking a significant milestone in the development of the Company's VCM business unit. By operating its own manufacturing facility, the Company believes it can leverage its SCM platform to ensure the quality and on-time delivery of initial and rush phone orders, resulting in incremental revenue and earnings growth with higher associated gross and operating margins.
The Company recently expanded its production facility to 6 assembly lines, with production capacity of about 200,000 handsets per month, to accommodate anticipated growth. In addition, the Company installed 3 high speed and 1 medium speed surface mount lines during the second quarter with production capacity of approximately 200,000 mobile phone mother boards per month.
During its first six months of operations, the VCM business generated $19.7 million of revenues, with gross margins of 18.3% higher than the Company's 17.6% consolidated rate. The second quarter included some outsourced printed circuit board assembly production work which was lower margin but built demand for utilization of the new SMT lines in Q3. Management expects margins to improve as it makes improvements in operating efficiencies and product mix, while shifting away from outsourced work over time so this production capacity can be dedicated to the Company's own mobile phone customers. Having produced and sold roughly 450,000 phones in the first six months of this year, the Company remains on track to meet its stated goal of selling at least one million phones for the full year 2010. "We remain extremely excited about the growth prospects for our VCM business," stated CEO Harry Cochran. "With a higher replacement rate and private label phone manufacturers continuing to gain share in countries like Indonesia, Malaysia, Vietnam and India, we are well positioned to participate in robust growth of mobile phones in emerging markets."
Conference Call and Webcast
SinoHub will hold a conference call at 10:30 a.m. ET on Thursday, August 12, 2010. Interested participants should call 1-877-941-2068 when calling within the United States or 1-480-629-9712 when calling internationally. Please download the PowerPoint that we will reference on the call in the investor section of http://www.sinohub.com through this link http://sinohub.com/investors-online%20audio%20files.html approximately 10 minutes prior to the start time in order to download a copy of the company's earnings results presentation.
A playback will be available through August 19, 2010. To listen, please call 1-800-870-5176 within the United States or 1-858-384-5517 when calling internationally. Utilize the pass code 4348175 for the replay. An archived version of the teleconference will also be available on the Company's Web site at http://www.sinohub.com under the Investors tab at Online Audio Files.
This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://viavid.net/dce.aspx?sid=00007993 , or visiting ViaVid's website at http://www.viavid.net , where the webcast can be accessed through August 24, 2010.
About SinoHub, Inc.
SinoHub, Inc., founded in 2000 by veteran entrepreneur Harry Cochran and electronics industry veteran Lei Xia to play a part in the electronics revolution in China, provides virtual contract manufacturing, electronic component purchasing, and world-class supply chain management services with transparent information access for participants in the electronic components supply chain in China. SinoHub conducts substantially all of its operations through its wholly-owned subsidiary SinoHub Electronics Shenzhen Limited in the People's Republic of China and its wholly-owned B2B Chips subsidiary in Hong Kong, which offers electronic component purchasing and virtual contract manufacturing services currently focusing on the mobile phone market. For more information, visit the Company's Web site at http://www.sinohub.com and the B2B Chips Web site at http://www.b2bchips.com .
Cautionary Statement Regarding Forward-looking Information
Some of the statements contained in this press release that are not historical facts constitute forward-looking statements under the federal securities laws. Forward-looking statements can be identified by the use of the words "may," "will," "should," "could," "expects," "plans," "anticipates," "believes," "estimates," "predicts," "intends," "potential," "proposed," or "continue" or the negative of those terms. These statements involve risks known to the Company, significant uncertainties, and other factors, many of which cannot be predicted with accuracy and some of which may not even be anticipated, which may cause actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by those forward-looking statements. Such risks, uncertainties and factors include, but are not limited to, the Company's ability to expand its customer base, the ability to access capital for such expansion, assumptions concerning future economic and competitive conditions and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.
For additional information, please contact:
SinoHub, Inc.:
Susan Liu
Tel: +86-755-2661-1080
Email: susan.liu@sinohub.com
In the US:
HC International, Inc.
Ted Haberfield
Tel: +1-760-755-2716
Email: thaberfield@hcinternational.net
(Financial Tables Follow)
SINOHUB, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
Three months ended Six months ended
June 30, June 30,
2010 2009 2010 2009
NET SALES
Supply chain
management
services $1,797,000 $2,255,000 $3,349,000 $4,033,000
Electronic
components 28,769,000 29,105,000 59,436,000 45,419,000
VCM business 13,314,000 -- 19,699,000 --
Total net sales 43,880,000 31,360,000 82,484,000 49,452,000
COST OF SALES
Supply chain
management
services 28,000 128,000 87,000 210,000
Electronic
components 25,257,000 25,531,000 51,637,000 39,706,000
VCM business 11,018,000 -- 16,088,000 --
Total cost
of sales 36,303,000 25,659,000 67,812,000 39,916,000
GROSS PROFIT 7,577,000 5,701,000 14,672,000 9,536,000
OPERATING EXPENSES
Selling,
general and
administrative 2,243,000 1,105,000 4,138,000 2,026,000
Professional
services 256,000 132,000 501,000 361,000
Depreciation 349,000 133,000 571,000 237,000
Stock compensation
expense 220,000 14,000 369,000 26,000
Allowance for
doubtful accounts 158,000 184,000 191,000 186,000
Total operating
expenses 3,226,000 1,568,000 5,770,000 2,836,000
INCOME FROM
OPERATIONS 4,351,000 4,133,000 8,902,000 6,700,000
OTHER INCOME
(EXPENSE)
Interest expense (212,000) (38,000) (243,000) (63,000)
Interest income 98,000 4,000 105,000 11,000
Other, net 2,000 2,000 7,000 5,000
Total other
expense, net (112,000) (32,000) (131,000) (47,000)
INCOME BEFORE INCOME
TAXES 4,239,000 4,101,000 8,771,000 6,653,000
Income tax
expense 1,352,000 920,000 2,390,000 1,482,000
NET INCOME 2,887,000 3,181,000 6,381,000 5,171,000
OTHER COMPREHENSIVE
INCOME
Foreign currency
translation gain 81,000 2,000 109,000 33,000
COMPREHENSIVE INCOME $2,968,000 $3,183,000 $6,490,000 $5,204,000
SHARE AND PER SHARE
DATA
Net income per
share-basic $ 0.10 $ 0.13 $ 0.23 $ 0.21
Weighted average
number of
shares-basic 28,536,000 24,581,000 27,909,000 24,581,000
Net income per
share-diluted $ 0.10 $ 0.13 $ 0.23 $ 0.21
Weighted average
number of
shares-diluted 28,780,000 25,187,000 28,277,000 25,186,000
SINOHUB, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS June 30, December 31,
2010 2009
(Unaudited) (Audited)
CURRENT ASSETS
Cash and cash equivalents $ 9,463,000 $ 8,347,000
Restricted cash 12,446,000 7,595,000
Accounts receivable, net of
allowance 40,901,000 28,828,000
Inventories, net 8,234,000 11,647,000
Prepaid expenses and other current
assets 757,000 650,000
Deposit with suppliers 1,949,000 -
Total current assets 73,750,000 57,067,000
PROPERTY AND EQUIPMENT, NET 4,467,000 2,271,000
TOTAL ASSETS $ 78,217,000 $ 59,338,000
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 2,437,000 $ 1,209,000
Customer deposits 1,297,000 1,348,000
Accrued expenses and other current
liabilities 617,000 731,000
Bank borrowings 18,120,000 11,793,000
Income and other taxes payable 2,742,000 2,605,000
Total current liabilities 25,213,000 17,686,000
STOCKHOLDERS' EQUITY
Preferred stock, $0.001 par value,
5,000,000 shares authorized;
no shares issued -- --
Common stock, $0.001 par value,
100,000,000 shares authorized;
28,557,632 shares and 26,669,605
shares issued and outstanding
as of June 30, 2010 and December 31,
2009, respectively 29,000 27,000
Additional paid-in capital 22,210,000 17,239,000
Deferred stock compensation (111,000) --
Retained earnings
Unappropriated 29,106,000 22,725,000
Appropriated 788,000 787,000
Accumulated other comprehensive
income 982,000 874,000
Total stockholders' equity 53,004,000 41,652,000
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 78,217,000 $ 59,338,000
SINOHUB, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30,
2010 2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $6,381,000 $5,171,000
Adjustments to reconcile net income
to cash used in operations:
Depreciation 571,000 237,000
Stock compensation expense 369,000 26,000
Allowance for doubtful accounts 191,000 186,000
Changes in operating assets and
liabilities:
Accounts receivable (12,097,000) (8,381,000)
Inventories 3,448,000 (3,886,000)
Prepaid expenses and other
current assets (103,000) 77,000
Deposit with suppliers (1,941,000) --
Accounts payable 1,219,000 4,759,000
Customer deposits (57,000) --
Accrued expenses and other
current liabilities (116,000) 991,000
Income and other taxes payable 126,000 (1,088,000)
Net cash used in operating
activities (2,009,000) (1,908,000)
CASH FLOWS FROM INVESTING ACTIVITIES
Increase of restricted cash (4,851,000) (2,301,000)
Purchase of property and
equipment (2,749,000) (1,545,000)
Net cash used in investing
activities (7,600,000) (3,846,000)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common
stock, net of cost 4,470,000 --
Proceeds from exercise
of options, net of costs 22,000 13,000
Bank borrowing proceeds 20,999,000 6,964,000
Bank borrowing
repayments (14,746,000) (2,123,000)
Net cash provided
by financing activities 10,745,000 4,854,000
EFFECT OF EXCHANGE RATE CHANGES (20,000) 29,000
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 1,116,000 (871,000)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 8,347,000 5,860,000
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $9,463,000 $4,989,000
SUPPLEMENTAL DISCLOSURE
OF CASH FLOW INFORMATION
Cash paid for interest $243,000 $63,000
Cash paid for income tax $2,438,000 $2,189,000
Source: SinoHub, Inc.
