Shengkai Innovations, Inc. (Nasdaq:VALV) ("the
Company", " we", or "our"), a leading ceramic valve manufacturer in
the People's Republic of China (the "PRC"), today announced results
for its FY2012 second quarter and first six months ended December
31, 2011.
FY2012 Second Quarter Highlights
- Revenues were approximately $10.3 million compared with
approximately $22.4 million in the second quarter of FY2011;
- Revenues from the electric power segment were approximately
$2.6 million compared with approximately $16.0 million in the
second quarter of FY2011;
- Revenues from the petrochemical and chemical segment increased
32.8% year-over-year to approximately $7.1 million;
- Gross profit was approximately $4.3 million with a gross margin
of 42.0%, compared with approximately $13.3 million and 59.2% in
the second quarter of FY2011; and
- Quarterly ceramic valves output was 1,784 sets compared with
5,350 sets a year ago.
FY2012 First Six Months Highlights
- Revenues were approximately $21.3 million compared with $39.5
million in the first six months in FY2011;
- Revenues from the electric power segment were approximately
$6.1 million compared with $27.2 million in the first six months in
FY2011;
- Revenues from the petrochemical and chemical segment increased
30.1% year-over-year to approximately $13.8 million;
- Gross profit was approximately $9.1 million with a 42.9% gross
margin, compared with $23.2 million and 58.7% in the first six
months of FY2011;
- Net income was approximately $2.7 million, or $0.08 earnings
per diluted share;
- Non-GAAP net income was approximately $4.1 million, or $0.11
non-GAAP earnings per share, after adjusting for non-cash items of
share-based compensation and gain resulting from changes in the
fair value of instruments; and
- First six months ceramic valves output was 3,762 sets compared
with 9,806 sets during the same period a year ago.
FY2012 Second Quarter Results
Revenues in the second quarter were approximately $10.3 million
as compared to approximately $22.4 million in the second quarter of
FY2011. Quarterly ceramic valves output was 1,784 sets as compared
to 5,350 sets a year ago. Shengkai continues to transition its
operations away from the electric power industry and expand into
the domestic and international petrochemical and chemical
industry.
During the second quarter of FY2012, electric power industry,
petrochemical and chemical industry, and other industries accounted
for 25.7%, 68.6% and 5.7% of the quarterly revenues, respectively,
compared with 71.3%, 23.8% and 4.9% in the second quarter of
FY2011.
Specifically, revenues from the electric power industry were
approximately $2.6 million compared with $16.0 million in the
second quarter of FY2011. The decrease was primarily due to the
ongoing transition into the petrochemical and chemical industry. As
previously disclosed, revenues from the electric power industry
would continue to decrease in future fiscal quarters and major
sales contribution would come from the petrochemical and chemical
industry.
During the second quarter, revenues from the petrochemical and
chemical industry increased 32.8% year-over-year to approximately
$7.1 million from approximately $5.3 million in the second quarter
of FY2011. The increase was due to the Company's continuous efforts
to market its ceramic valve products to customers in the
petrochemical and chemical industry whose unusually corrosive and
abrasive working conditions require highly durable valve
products.
Revenues from other industries, including the aluminum and
metallurgy industries were approximately $0.6 million compared with
approximately $1.1 million in the second quarter of FY2011. Due to
its limited market potential, other industries will continue to
remain peripheral to the Company's core priorities. Orders related
to new blast furnace gas cleaning systems which led to recent
increase in revenues have been completed by the end of June 30,
2011.
In the second quarter, cost of sales decreased 34.6%
year-over-year to approximately $6.0 million from approximately
$9.1 million in the second quarter of FY2011. Cost of sales as a
percentage of net revenues was 58.0% compared with 40.8% in the
comparable period a year ago mainly due to decrease in
revenues.
Gross profit in the second quarter was approximately $4.3
million compared with approximately $13.3 million for the second
quarter of FY2011. This decrease was primarily attributable to
decrease in revenue and increase in depreciation expense and cost
of raw material. Gross margin was 42.0%, compared with 59.2% for
the second quarter of FY2011. The decrease in gross margin was
primarily due to 1) approximately $0.6 million increase in
depreciation expenses resulting from an addition of approximately
$46.4 million to property, plant and equipment during the past
twelve months; and 2) an approximately 13% year-over-year price
increase in steel raw materials and steel die-casting
components.
Selling expenses in the second quarter decreased by 48.4%
year-over-year to approximately $1.0 million from approximately
$2.0 million for the comparable period in FY2011. Commissions paid
to agents for introducing new sales decreased year-over-year to
approximately $0.8 million from $1.8 million in the second quarter
of FY2011. Since minor components of selling expenses such as sales
staff's salaries and after-sale service expenses are flat-rate and
did not diminish proportionally to revenue decrease, selling
expenses as a percentage of quarterly sales increased to 10.0% from
8.9% in the second quarter of FY2011. The Company expects selling
expense for future quarters to change proportionally with
revenue.
General and administrative ("G&A") expenses in the second
quarter were approximately $2.0 million, down from approximately
$2.4 million for the comparable period in FY2011. Excluding the
non-cash share-based compensation, G&A expenses in the second
quarter were approximately $1.0 million or 9.9% of total revenue,
compared with approximately $1.2 million or 5.6% of total revenue
for the comparable period of FY2011.
Total operating expenses in the second quarter of FY2012 were
approximately $3.1 million compared with approximately $4.4 million
for the comparable period in FY2011. Operating income in the second
quarter of FY2012 was approximately $1.3 million compared with
approximately $8.8 million for the comparable period in FY2011.
Excluding the non-cash share-based compensation, non-GAAP
operating income was approximately $2.3 million, compared with
non-GAAP operating income of approximately $10.0 million for the
comparable period in FY2011.
Provision for income taxes in the second quarter was
approximately $0.5 million compared with approximately $1.6 million
in the second quarter of FY2011. In April 2010, Shengkai, the
Company's operating entity in Tianjin, China, was awarded the
status of "High Technology" enterprise by the local government. The
new tax rate is 15% starting from January 1, 2010 through December
31, 2011. The Company expects to renew such treatment in calendar
2012.
GAAP net income was approximately $1.8 million compared with
approximately $14.9 million in the second quarter of FY2011. Based
on a greater weighted average number of shares, diluted earnings
per share were $0.05 compared to diluted earnings per share of
$0.42 in the second quarter of FY2011. During the second quarter,
the number of diluted shares was 36,363,979 compared with
35,579,888 diluted shares in the second quarter of FY2011.
Excluding the non-cash items of share-based compensation and
changes in fair value of instruments, non-GAAP net income was
approximately $2.0 million compared with approximately $8.5 million
in FY2011. The decrease was primarily due to the decline in
revenues resulting from operational transition and higher costs
associated with depreciation and raw material expenses. Based on a
greater weighted average number of shares, non-GAAP earnings were
$0.05 per diluted share compared with $0.24 per diluted share in
the second quarter of FY2011.
FY2012 First Six Months Results
Total net revenue for the first six months of FY2012 was
approximately $21.3 million compared with $39.5 million for the
first six months of FY2011. The decrease in revenue was due to loss
of business resulting from unsolicited investigations and the
subsequent transition into the petrochemical and chemical segment.
The electric power, petrochemical and chemical, and other
industries each contributed 28.9%, 64.7% and 6.4%, respectively, of
total sales revenue during the six months ended December 31, 2011.
Specifically, revenues from the electric power industry were
approximately $6.1 million. Revenues from the petrochemical and
chemical industries increased 30.1% year-over-year to approximately
$13.8 million. Revenues from other industries, including the
aluminum and metallurgy industries were approximately $1.4
million.
Gross profit for the first six months of FY2012 was
approximately $9.1 million compared with approximately $23.2
million for the same period in FY2011. Gross margin was 42.9%
compared with 58.7% one year ago. The decrease in gross margin was
primarily due to 1) approximately $1.4 million increase in
depreciation expenses resulting from an addition of approximately
$46.4 million to property, plant and equipment during the past
twelve months; and 2) an approximate 13% year-over-year price
increase in steel raw material and steel die-casting
components.
Net income for the first six months of FY2012 was approximately
$2.7 million, or diluted earnings per share of $0.08, compared with
a net income of approximately $41.8 million, or diluted net income
per share of $1.18 during the first six months of FY2011.
Excluding non-cash items of share-based compensation and change
in fair value of instruments, non-GAAP net income for the first six
months of FY2012 was approximately $4.1 million compared with a
non-GAAP net income of approximately $14.7 million for the
comparable period in FY2011. The decrease was primarily due to the
decline in revenues resulting from operational transition and
higher costs associated with depreciation and raw material
expenses.
Based on a greater weighted average number of shares, non-GAAP
diluted earnings for the six months ended December 31, 2011 were
$0.11 per diluted share, compared to non-GAAP earnings of $0.42 per
diluted share for the comparable period in FY2011.
GAAP to Non-GAAP
Reconciliation Table (Unaudited) |
(in U.S. Dollars) |
|
For the Three Months Ended
December 31, |
For the Six Months Ended
December 31, |
|
2011 |
2010 |
2011 |
2010 |
GAAP Net Income |
$1,782,084 |
14,864,300 |
2,726,422 |
41,809,385 |
Add back/(Subtract): |
|
|
|
|
Share-based compensation – employee options
and stock awards |
1,021,468 |
1,200,697 |
3,168,436 |
2,233,261 |
Changes in fair value of instruments |
(830,085) |
(7,602,384) |
(1,756,722) |
(29,307,135) |
Non-GAAP Net Income |
$ 1,973,467 |
8,462,613 |
4,138,136 |
14,735,511 |
GAAP Earnings per share (diluted) |
$ 0.05 |
0.42 |
0.08 |
1.18 |
Non-GAAP Earnings per share (diluted) |
$ 0.05 |
0.24 |
0.11 |
0.42 |
Financial
Condition
As of December 31, 2011, the Company had cash and cash
equivalents of approximately $69.0 million and accounts receivable
of approximately $6.5 million compared to approximately $59.9
million cash and cash equivalents and $12.6 million of accounts
receivable as of June 30, 2011. Total current liabilities as of
December 31, 2011 were approximately $4.7 million, compared with
approximately $9.6 million as of June 30, 2011. Additionally, the
Company has no short-term or long-term debts.
Net cash flow provided by operating activities was approximately
$7.7 million for the first six months of FY2012 compared with $10.1
million in the first six months of FY2011. The decrease was
primarily attributable to the lower adjusted net income.
Business
Outlook
In response to the business disruptions and changes in the
application of ceramic in the valve industry, Shengkai management
has decided to gradually phase out its less profitable domestic
market segments including the electric power market and focus on
expanding the Company's presence in the more profitable domestic
and foreign oil and chemical industries where ceramic valve
products typically command higher prices than the domestic Chinese
market. Successful penetration into the international oil and
chemical markets, however, would require the Company to obtain
various industry-wide certifications, including but not limited to
ISO14000 and OHSAS18000 and other firm-specific supplier
qualifications, which will take time to go through various
application procedures, efforts in new product development and
investment in additional or different equipment.
There are less effective working days during the period between
January and March due to various holidays such as the New Year and
the Spring Festival. In addition, the increase in the average
selling price of our products is impacting our domestic sales in
the foreseeable future before the new pricing dynamics takes hold.
In light of such developments, we expect the total revenue for the
quarter ending March 31, 2012 to be approximately $5.5 million. We
expect the Company to continue to run with positive but
significantly reduced cash flow from operations. Such decrease may
persist until our marketing and sales efforts to some new customers
and projects pay off, and the expansion in the international market
picks up meaningfully.
Teleconference
The Company plans to host the conference call on Friday,
February 10th, 2012 at 8:00 a.m. Eastern Time/9:00 p.m. Beijing
Time. Interested parties may participate in the conference call by
dialing 1-877-393-9085 (Toll-Free U.S.), 1-760-298-5098
(International) approximately five minutes before the call start
time. The Conference ID is 51561764. A live webcast of the
conference call will be available on the conference call website.
On the date of the event, please click here to be directed to the
website.
Non GAAP Financial
Measures
To supplement the Company's consolidated financial statements
for the three and six months ended December 31, 2011 and 2010
presented on a GAAP basis, the Company provided non-GAAP financial
information in this release that excludes the impact of non-cash
items of i) share-based compensation costs related to the stock
options and stock awards granted to independent directors and
management staff, and (ii) changes in the fair value of instruments
as a result of adoption on July 1, 2009 of FASB ASC Topic 815,
"Derivative and Hedging" ("ASC 815"). The Company's management
believes that these non-GAAP measures, namely non-GAAP operating
and net income and non-GAAP diluted earnings per share, provide
investors with a better understanding of how the results relate to
the Company's current and historical performance. The additional
non-GAAP information is not meant to be considered in isolation or
as a substitute for GAAP financials. The non-GAAP financial
information that the Company provides also may differ from the
non-GAAP information provided by other companies. Management
believes that these non-GAAP financial measures are useful to
investors because they exclude non-cash expenses that management
excludes when it internally evaluates the performance of the
Company's business and makes operating decisions, including
internal budgeting, and performance measurement, because these
measures provide a consistent method of comparison to historical
periods. Moreover, management believes that these non-GAAP measures
reflect the essential operating activities of the Company. In
addition, the provision of these non-GAAP measures allows investors
to evaluate the Company's performance using the same methodology
and information as that used by the Company's 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
the non-GAAP financial measure. However, the Company's management
compensates for these limitations by providing the relevant
disclosure of the items excluded.
About Shengkai Innovations, Inc.
Shengkai Innovations is primarily engaged in the design,
manufacture and sale of ceramic valves, high-tech ceramic materials
and the provision of technical consultation and related services.
The Company's industrial valve products are used by companies in
the electric power, petrochemical and chemical, metallurgy and
other industries as high-performance, more durable alternatives to
traditional metal valves. The Company was founded in 1994 and is
headquartered in Tianjin, the PRC.
The Company is one of the few ceramic valve manufacturers in the
world with research and development, engineering, and production
capacity for structural ceramics and is able to produce large-sized
ceramic valves with calibers of 6" (150mm) or more. The Company's
product portfolio includes a broad range of valves that are sold
throughout the PRC, to Europe, North America, United Arab Emirates,
and other countries in the Asia-Pacific region. The Company has
over 200 customers, and is the only ceramic valve supplier
qualified to supply SINOPEC. The Company joined the supply network
of China National Petroleum Corporation ("CNPC") in 2006 and
subsequently received a CNPC Certificate of Material Supplier for
valve products in 2011.
Safe Harbor Statements
Under the Private Securities Litigation Reform Act of 1995: Any
statements set forth above that are not historical facts are
forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from those in
the forward-looking statements. Such factors include, but are not
limited to, the effect of political, economic, and market
conditions and geopolitical events, legislative and regulatory
changes, the Company's ability to expand and upgrade its production
capacity, the actions and initiatives of current and potential
competitors, and other factors detailed from time to time in the
Company's filings with the United States Securities and Exchange
Commission and other regulatory authorities. All forward-looking
statements attributable to the Company or to persons acting on its
behalf are expressly qualified in their entirety by these factors
other than as required under the securities laws. The Company
undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
SHENGKAI INNOVATIONS,
INC. |
(F/K/A SOUTHERN SAUCE
COMPANY, INC.) AND SUBSIDIARIES |
CONSOLIDATED BALANCE
SHEETS |
AS AT DECEMBER 31, 2011
AND JUNE 30, 2011 |
(Stated in US
Dollars) |
|
|
|
|
December 31,
2011 |
June 30, 2011 |
|
|
|
ASSETS |
|
|
Current Assets |
|
|
Cash and cash equivalents |
$ 68,951,971 |
$ 59,870,108 |
Restricted cash |
258,740 |
1,386,873 |
Accounts receivable, net |
6,458,486 |
12,623,359 |
Notes receivable |
176,142 |
217,502 |
Other receivables |
2,775,388 |
2,722,300 |
Advances to suppliers |
305,279 |
274,814 |
Inventories |
2,750,851 |
2,532,485 |
Total Current Assets |
81,676,857 |
79,627,441 |
Property, plant and equipment, net |
53,695,199 |
53,921,084 |
Land use rights, net |
2,546,088 |
2,534,059 |
Other intangible assets, net |
4,975,929 |
5,370,148 |
TOTAL ASSETS |
$ 142,894,073 |
$ 141,452,732 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
|
|
Current Liabilities |
|
|
Notes payable |
258,740 |
1,386,873 |
Accounts payable |
2,402,331 |
3,829,491 |
Advances from customers |
624,353 |
227,451 |
Other payables and accrued expenses |
884,091 |
2,350,144 |
Income tax payable |
533,162 |
1,816,995 |
Total Current
Liabilities |
4,702,677 |
9,610,954 |
Warrant liabilities |
64,153 |
168,442 |
Preferred (conversion option)
liabilities |
1,329,045 |
5,782,014 |
TOTAL LIABILITIES |
$ 6,095,875 |
$ 15,561,410 |
|
|
|
Commitments and
Contingencies |
$ -- |
$ -- |
|
|
|
STOCKHOLDERS' EQUITY |
|
|
Preferred stock – $0.001 par value 15,000,000
shares authorized; 3,087,368 and 5,987,368 issued and outstanding
as of December 31, 2011 and June 30, 2011, respectively. |
$ 3,087 |
$ 5,987 |
Common stock -- $0.001 par value 100,000,000
shares authorized; 33,276,611 and 29,776,611 shares issued and
outstanding as of December 31, 2011 and June 30, 2011,
respectively. |
33,277 |
29,777 |
Additional paid-in capital |
69,522,623 |
63,554,251 |
Statutory reserves |
11,196,604 |
11,196,604 |
Retained earnings |
45,396,012 |
42,669,590 |
Accumulated other comprehensive income |
10,646,595 |
8,435,113 |
TOTAL STOCKHOLDER'S
EQUITY |
136,798,198 |
125,891,322 |
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY |
$ 142,894,073 |
$ 141,452,732 |
|
|
SHENGKAI INNOVATIONS,
INC. |
(F/K/A SOUTHERN SAUCE
COMPANY, INC.) AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE INCOME |
FOR THE THREE AND SIX
MONTHS ENDED DECEMBER 31, 2011 AND 2010 |
(Stated in US
Dollars) |
|
|
|
|
|
|
For the Three
Months Ended December 31, |
For the Six
Months Ended December 31, |
|
2011 |
2010 |
2011 |
2010 |
|
|
|
|
|
Revenues |
$ 10,293,828 |
$ 22,372,827 |
$ 21,304,955 |
$ 39,547,343 |
Cost of sales |
(5,966,161) |
(9,121,882) |
(12,162,812) |
(16,342,310) |
Gross profit |
4,327,667 |
13,250,945 |
9,142,143 |
23,205,033 |
Operating expenses: |
|
|
|
|
Selling expenses |
(1,024,253) |
(1,986,395) |
(2,075,733) |
(3,588,967) |
General and administrative expenses |
(2,040,607) |
(2,448,367) |
(5,446,642) |
(4,510,013) |
Total operating
expenses |
(3,064,860) |
(4,434,762) |
(7,522,375) |
(8,098,980) |
Income from operations |
1,262,807 |
8,816,183 |
1,619,768 |
15,106,053 |
Other income, net |
40,568 |
(376) |
54,041 |
57,595 |
Interest income, net |
180,740 |
14,885 |
346,682 |
33,629 |
Changes in fair value of instruments -
gain |
830,085 |
7,602,384 |
1,756,722 |
29,307,135 |
Income before income
taxes |
2,314,200 |
16,433,076 |
3,777,213 |
44,504,412 |
Income taxes |
(532,116) |
(1,568,776) |
(1,050,791) |
(2,695,027) |
Net income |
1,782,084 |
14,864,300 |
2,726,422 |
41,809,385 |
Foreign currency translation adjustment |
925,698 |
1,254,302 |
2,211,482 |
2,570,328 |
Comprehensive income |
$ 2,707,782 |
$ 16,118,602 |
$ 4,937,904 |
$ 44,379,713 |
|
|
|
|
|
Basic earnings per share |
$ 0.05 |
$ 0.61 |
$ 0.08 |
$ 1.76 |
|
|
|
|
|
Diluted earnings per share |
$ 0.05 |
$ 0.42 |
$ 0.08 |
$ 1.18 |
|
|
|
|
|
Basic weighted average shares
outstanding |
33,276,611 |
24,294,785 |
33,013,839 |
23,739,960 |
|
|
|
|
|
Diluted weighted average shares
outstanding |
36,363,979 |
35,579,888 |
36,234,903 |
35,454,103 |
|
|
SHENGKAI INNOVATIONS,
INC. |
(F/K/A SOUTHERN SAUCE
COMPANY, INC.) AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS
OF CASH FLOWS |
FOR THE SIX MONTHS ENDED
DECEMBER 31, 2011 AND 2010 |
(Stated in US
Dollars) |
|
|
|
|
Six months ended
December 31, |
|
2011 |
2010 |
Cash flows from operating
activities |
|
|
Net income |
$ 2,726,422 |
$ 41,809,385 |
Adjustments to reconcile net income
to net cash provided by operating activities: |
|
|
Depreciation |
1,866,042 |
361,584 |
Amortization |
510,253 |
506,685 |
Provision for doubtful accounts |
110,259 |
-- |
(Gain) on disposal of property, plant and
equipment |
(10,584) |
(3,320) |
Changes in fair value of instruments –
(gain) |
(1,756,722) |
(29,307,135) |
Stock based compensation |
3,168,436 |
2,233,261 |
Changes in operating assets and
liabilities: |
|
|
(Increase) decrease in
assets: |
|
|
Accounts receivable |
6,227,905 |
(4,893,834) |
Notes receivable |
45,972 |
73,743 |
Other receivables |
31,363 |
(1,198,389) |
Advances to suppliers |
(26,318) |
195,777 |
Inventories |
(177,693) |
(1,032,384) |
Increase (decrease) in
liabilities: |
|
|
Notes payable |
(1,139,952) |
(1,164,962) |
Accounts payable |
(1,480,002) |
2,570,463 |
Advances from customers |
389,850 |
(718,498) |
Other payables and accrued expenses |
(1,491,281) |
206,610 |
Income tax payable |
(1,300,673) |
483,425 |
Net cash provided by operating
activities |
7,693,277 |
10,122,411 |
Cash flows from investing
activities |
|
|
(Expenditure for) proceeds from disposition
of property, plant and equipment |
(487) |
517 |
Purchase of property, plant and
equipment |
(44,556) |
(54,430) |
Payment of construction in progress |
(492,277) |
(6,692,941) |
Purchase of intangible assets |
-- |
(1,966) |
Increase in advances to suppliers for
purchase of equipment and construction |
(132,035) |
(1,216,447) |
Decrease in restricted cash |
1,139,952 |
793,205 |
Net cash provided by (used in)
investing activities |
470,597 |
(7,172,062) |
|
|
|
Cash flows from financing
activities |
|
|
Proceeds from issuance of common stock, net
of offering costs |
-- |
17,466,689 |
Net cash provided by financing
activities |
-- |
17,466,689 |
|
|
|
Net increase in cash and cash
equivalents |
$ 8,163,874 |
$ 20,417,038 |
|
|
|
Effect of exchange rate changes on cash and
cash equivalents |
917,989 |
715,117 |
|
|
|
Cash and cash equivalents–beginning of
year |
59,870,108 |
20,995,182 |
|
|
|
Cash and cash equivalents–end of
year |
$ 68,951,971 |
$ 42,127,337 |
CONTACT: Shengkai Innovations, Inc.
David Ming He, CFO
+86-22-5883-8509
ir@shengkai.com
http://www.shengkaiinnovations.com
Grayling
Shiwei Yin
+1 646-284-9474
shiwei.yin@grayling.com
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