Recon Technology, Ltd Reports Financial Results for the First Six Months of Fiscal Year 2022

BEIJING, March 30, 2022 /PRNewswire/ -- Recon Technology, Ltd (Nasdaq: RCON) ("Recon" or the "Company"), today announced its financial results for the first six months of Fiscal Year 2022.

First Six Months of Fiscal 2022 Financial:

• Total revenues for the six months ended December 31, 2021 increased by 116.2% to $8.6 million (RMB54.4 million), while revenue from our oily sludge and waste water segments increased by 605.9% or $2.7 million (RMB16.9 million). 
• Gross profit for the six months ended December 31, 2021 was $2.3 million (RMB14.5 million). Our gross profit as a percentage of revenue remained at the same level of 26.7% for the six months ended December 31, 2021 compared with the same period in 2020.
• Net income attributable to Recon for the six months ended December 31, 2021 was $17.5 million (RMB111.4 million), RMB4.08 ($0.64) per basic and RMB3.87 ($0.61) per diluted share, compared to a net loss attributable to Recon of RMB8.9 million, or RMB1.22 per basic and diluted share, for the six months ended December 31, 2020.

Management Commentary

Mr. Shenping Yin, co-founder and CEO of Recon stated, "We are very pleased to see the rapid recovery of our business. Our revenue for the period reached twice the level of the same period last year and even exceeded the total revenue for the entire fiscal year 2021. As the overall level of oil and gas prices continues to rise, we expect our upstream customers, mainly domestic oil and gas companies, to increase Capital Expenditures (also known as "CapEx") on  oil and gas production, which brings more opportunities for the rapid development of the Company. More particularly, as the oil prices increase, we have observed China's oil companies' performances greatly improve and we expect the companies to increase their investments in drilling for new oil and gas wells and production activities as compared to prior years. As their vendor, we anticipate benefiting from these trends, especially with respect to our wastewater and sludge treatment business and specialized equipment for oil and gas fields clients with relatively high technology content. As oil and gas companies ramp up productions, we have also seen the number of orders and average order amount increased from late 2022 to date."

Mr. Yin continued, "With rising oil prices and increased investments by domestic oil companies, the market demand will continue to increase, and competition is expected to become more intensive. In anticipation of increased competition, we will strengthen investments in the research and development of new products and continue to integrate automation technology into other business segments to improve the digital content and enhance the overall competitive advantage of our products. In addition, the Company's financing, which was completed in June 2021, has greatly enhanced the Company's cash reserves and financial condition. We will use our enhanced cash reserves and financial condition to our advantage by expanding our business scope to further improve the Company's business structure, its long-term profitability, enhance our values, and safeguard the interests of our shareholders."

First Six Months Fiscal 2022 Financial Results:

Revenue

Total revenues for the six months ended December 31, 2021 increased by RMB29.2 million ($4.6 million) or 116.2%, to RMB54.4 million ($8.6 million) compared to RMB25.2 million for the six months ended December 31, 2020. The overall increase in revenue was mainly due to the increased revenue from automation product and software, oilfield environmental protection and platform outsourcing services segments, which was partially offset by the decreased revenue from equipment and accessories segment during the six months ended December 31, 2021.

Revenue from automation product and software increased by RMB11.2 million ($1.8 million), or 89.1%, to RMB23.9 million ($3.8 million) for the six months ended December 31, 2021 from RMB12.6 million for the six months ended December 31, 2020. The increase was mainly caused by 1) the completion of previously delayed projects in the Ji Dong oilfield; 2) the recovery of Shenhua Group's requirement; and 3) the contributions from operation and maintenance services regarding metering instruments, which were new business resources developed by the Company from fiscal year 2021.

Revenue from equipment and accessories decreased by RMB3.6 million ($0.6 million), or 36.6%, to RMB6.2 million ($1.00 million) for the six months ended December 31, 2021 from RMB9.8 million for the six months ended December 31, 2020. Although oil prices rose from early 2021, our clients were prudent in budgeting expenditures, and they preferred continued maintenance of old equipment instead of replacing them with new ones. At the same time, there was usually several months' lag time from oil price increase to capital expenditure made. Thus, revenue from equipment and accessories decreased.

Revenue from oilfield environmental protection projects increased by RMB16.9 million ($2.7 million), or 605.9%, to RMB19.7 million ($3.1 million) for the six months ended December 31, 2021. This was mainly contributed to continuously increased reequipment of our wastewater treatment and oily sludge treatment.

Revenue from platform outsourcing services increased by RMB4.6 million ($0.7 million) or 100.0%. The increase was mainly due to the acquisition of FGS. FGS was consolidated into our operations from January 2021.

Cost and Margin

Total cost of revenues increased from RMB18.5 million for the six months ended December 31, 2020 to RMB39.9 million ($6.3 million) for the same period in 2021. This increase was mainly caused by the increased cost of revenue from automation product and software, oilfield environmental protection and platform outsourcing services segments.

Gross profit increased by RMB7.8 million ($1.2 million), or 116.0%, to RMB14.5 million ($2.3 million) for the six months ended December 31, 2021 from RMB6.7 million from the six months ended December 31, 2020. Our gross profit as a percentage of revenue remained at the same level of 26.7% for the six months ended December 31, 2021 from 26.7% for the same period in 2020.

Operating Expenses

Selling expenses increased by 71.9% or RMB2.0 million ($0.3 million), from RMB2.8 million in the six months ended December 31, 2020 to RMB4.7 million ($0.7 million) in the same period of 2021. An increase of RMB1.6 million ($0.3 million) was primarily due to the step acquisition of FGS.

General and administrative expenses increased by RMB34.3 million ($5.4 million), or 263.7%, to RMB47.3 million ($7.4 million) for the six months ended December 31, 2021 from RMB13.0 million for the six months ended December 31, 2020. The increase was primarily due to the increased share-based compensation and salary to our management and employees.

Net recovery of provision for credit losses was RMB5.7 million ($0.9 million) for the six months ended December 31, 2021, compared to net recovery of provision for credit losses of RMB3.7 million for the six months ended December 31, 2020.

Research and development expenses increased from approximately RMB3.8 million for the six months ended December 31, 2020 to RMB5.5 million ($0.9 million) for the same period of 2021. This increase was primarily due to more research and development expense spent on design of new automation platform systems and treatment of wastewater during the period as compared to the same period last year.

Net Income/Loss

Loss from operations was RMB37.3 million ($5.9 million) for the six months ended December 31, 2021, compared to a loss from operations of RMB9.1 million for the six months ended December 31, 2020. This RMB28.2 million ($4.4 million) increase in loss from operations was primarily due to the increase in operating expense partially offset by the increase in gross profit as discussed above.

Net income was RMB111.4 million ($17.5 million) for the six months ended December 31, 2021, an increase of RMB121.4 million ($19.1 million) from net loss of RMB10.0 million for the six months ended December 31, 2020. Net loss attributable to the Company for the six months ended December 31, 2020 was RMB8.9 million, or RMB1.22 per basic and diluted share, compared to a net income of RMB111.4 million ($17.5 million). or RMB4.08 ($0.64) per basic and RMB3.87($0.61) per diluted share for the six months ended December 31, 2021.

As of December 31, 2021, the Company had cash of RMB332.9 million ($52.3 million), compared to RMB344.0 million as of June 30, 2021. As of December 31, 2021, the Company had working capital of RMB403.8 million ($63.5 million) while as of June 30, 2021, the Company had working capital of RMB412.0 million.

Net cash used in operating activities was RMB23.0 million ($3.6 million) for the six months ended December 31, 2021, compared to net cash used in operating activities of approximately RMB16.7 million for the six months ended December 31, 2020. Net cash provided by investing activities was RMB26.8 million ($4.2 million) for the six months ended December 31, 2021, compared to net cash provided by investing activities RMB1.9 million for the six months ended December 31, 2020. Net cash used in financing activities was RMB9.2 million ($1.5 million) for the six months ended December 31, 2021, compared to net cash provided by financing activities of RMB56.2 million for the six months ended December 31, 2020.

Exchange Rate

The translation of RMB amounts into U.S. dollars are included solely for the convenience of readers and have been made at the rate of RMB6.3614 to $1.00, the approximate exchange rate prevailing on December 31, 2021.

About Recon Technology, Ltd ("RCON")

Recon Technology, Ltd (NASDAQ: RCON) is China's first NASDAQ-listed non-state-owned oil and gas field service company. Recon supplies China's largest oil exploration companies, Sinopec (NYSE: SNP) and The China National Petroleum Corporation ("CNPC"), with advanced automated technologies, efficient gathering and transportation equipment and reservoir stimulation measure for increasing petroleum extraction levels, reducing impurities and lowering production costs. Through the years, RCON has taken leading positions on several segmented markets of the oil and gas filed service industry. RCON also has developed stable long-term cooperation relationship with its major clients, and its products and service are also well accepted by clients. For additional information please visit: http://www.recon.cn/.

Forward-Looking Statements

Forward-Looking Statements in this press release, which are not historical facts, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Our actual results, performance or achievements may differ materially from those expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by the use of words such as "may," "could," "expect," "intend," "plan," "seek," "anticipate," "believe," "estimate," "predict," "potential," "continue," "likely," "will," "would" and variations of these terms and similar expressions, or the negative of these terms or similar expressions. Such forward-looking statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management, are inherently uncertain. Factors that may cause actual results to differ materially from current expectations include, among others, whether we will establish successfully cooperation with major clients; changes in the competitive environment in our industry and the markets where we operate; our ability to access the capital markets; and other risks discussed in the Company's filings with the U.S. Securities and Exchange Commission ("SEC"), including our Annual Report on Form 20-F, which filings are available from the SEC. We caution you not to place undue reliance on any forward-looking statements, which are made as of the date of this press release. We undertake no obligation to update publicly any of these forward-looking statements to reflect actual results, new information or future events, changes in assumptions or changes in other factors affecting forward-looking statements, except to the extent required by applicable laws. If we update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

For more information, please contact:

Ms. Liu Jia
Chief Financial Officer
Recon Technology, Ltd
Phone: +86 (10) 8494-5799
Email: info@recon.cn

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