Tri-Tech Holding Reports First Quarter 2012 Financial Results
Gross Margin Improved to 27.1% Quarter-on-Quarter; Revenue Stream Increasingly Balanced among Operating Segments and Domestic and International Projects
Conference Call May 15, 2012 at 9:00 AM EST
Beijing, China – May 14, 2012 – Tri-Tech Holding Inc. (Nasdaq: TRIT), a premier Chinese company that provides leading turn-key solutions for the water resources management, water and wastewater treatment, industrial safety and pollution control, announced today that revenue for the first fiscal quarter ended March 31, 2012 increased by 9.5% to $19.2 million from $17.6 million in Q1 2011. Net income for the quarter was $1.4 million, a 15.4% decrease over net income of $1.7 million in Q1 2011. Diluted EPS was $0.17 per diluted share compared to that of $0.21 in Q1 2011.
The decrease in net income and EPS was due to several factors in the first quarter: relatively sluggish revenue recognition from several of the Company’s largest projects such as the expansion phase of the Odors water processing plant and India wastewater system projects; delays between project awards and implementation, and a substantial increase in operating expenses mainly due to continued hiring of staff for business development and project execution to meet aggressive market expansion goals. As occurs each year, the company’s revenues, net income and EPS decreased from the fourth quarter of 2011 to the first quarter of 2012, as winter weather and long holiday periods adversely affected sales.
Performance Highlights in First Quarter of 2012
Revenue from Water Resource Management Systems and Engineering Services increased 281.1% to $6.2 million from $1.6 million in Q1 2011
Revenue from Industrial Pollution Control and Safety increased 51.6% to $4.6 million from $3 million in Q1 2011
Gross profit was $5.2 million, slightly above $5 million in Q1 2011
Gross margin decreased slightly to 27.1%, compared to 28.5% for Q1 2011 but marked the first improvement in a quarter since the quarter ended June 30, 2011
Weighted average number of diluted shares outstanding was 8,317,224 for Q1 2012, compared to 8,155,222 for Q1 2011
Key Events in First Quarter of 2012
Awarded multiple contracts collectively valued at $13.05 million, including:
A water processing unit contract for a steel plant in Mexico,
Several flash flood early warning and hydrologic monitoring contracts in Hubei, Liaoning, Fujian, Hunan, Henan and Hebei,
A strategic collaboration agreement with Wuhan Natural Gas High-Pipeline Co.
Appointed Mr. Gavin Cheng as Joint Chief Executive Officer
Recognized as Top 10 Emerging Enterprise in China’s Water Industry
Financial Performance in First Quarter of 2012
Net revenue for Q1 2012 was $19.2 million, an increase of $1.7 million, or 9.5%, from $17.6 million in 2011.
Revenue from Water/Wastewater Treatment and Municipal Infrastructure, constituting 43.7% of total revenues, or $8.4 million, decreased by $4.5 million, or 34.9%, from $12.9 million in 2011. This decrease was mainly due to slower revenue recognition from the Ordos drinking water plant project, which contributed 16.3% of the total revenue for Q1 2012 versus 68.1% of the total revenue in Q1 2011. In Q1 2012, we recognized only $3.1 million as revenue from the Ordos project, which consisted of 2.5% of the initial phase contract value and 10% of the expansion phase contract value in Q1 2012. By contrast, we recognized $11.9 million as revenue from this project in Q1 2011. The Indian Bihar municipal wastewater projects, contributing $4 million, or 20.7% of the company’s revenue in Q1 2012, were 15% completed as of the end of Q1 2012.
Revenue from Water Resources Management Systems and Engineering Services saw substantial growth of 281.1%, to $6.2 million from $1.6 million in Q1 2012, representing 32.5% of total revenues. Revenue in this segment increased significantly mainly due to a strong revenue stream from the flash flood early warning and small river hydrologic monitoring projects awarded in the first quarter and timely implementation of these projects.
Revenue from Industrial Pollution Control and Safety was $4.6 million, an increase of 51.6% from $3 million in Q1 2011, representing 23.8% of total revenues for Q1 2012. This increase was primarily due to an increase of revenues from the wastewater system contract for Dawangdian Industrial Park in Hebei and several international projects in Qatar and Mexico. The Dawangdian Industrial Park project was 20% completed and the Qatar seawater desalination project reached 15% completion by the end of Q1 2012.
Gross Profit and Margin
Gross profit was $5.2 million for the quarter, slightly higher than Q1 2011. Gross margin for the quarter slightly declined to 27.1% compared to 28.5% for the same quarter in 2011. It was actually the first sign of improvement since the second quarter of 2011 and even higher than the gross margin for the whole year of 2011, which was 25.5%.
Total Operating Expenses
Total operating expenses for Q1 2012 were $3.8 million or 19.6% of the total revenue, an increase of 55.4% from $2.4 million or 13.8% of the total revenue for Q1 2011. The increase was a result of the combination of rapid growth of selling and marketing expenses and continued growth of SG&A expenses as the company implements its growth plans.
Selling and Marketing Expenses
In Q1 2012, total selling and marketing expenses increased by 167.0% from $0.3 million in Q1 2011 to $0.8 million. This was caused by increases in our aggressive marketing development efforts to pursue new businesses during Q1 2012.
General and Administrative Expenses
General and administrative expenses increased by 38.1%, from $2.1 million in Q1 2011 to $2.9 million in Q1 2012. This increase was mainly due to adjustments to office staffs’ compensation, audit and related service expenses in Q1 2012. General and administrative expenses for Q1 2012 were approximately 14.8% of total revenues.
Income from Operations
Income from operations totaled $1.5 million, a 43.8% decrease from $2.6 million in Q1 2011. Our operating margin was 7.6%, compared to 14.8% in Q1 2011. The decrease in operating margin was a result of a flat gross margin and higher operating expenses.
Net Income and EPS
Diluted EPS was $0.17, based on net income of $1.4 million and 8,317,224 weighted average number of diluted shares outstanding for the quarter ended March 31, 2012, compared to $0.21 in Q1 2011, based on net income of $1.7 million and 8,155,222 weighted average number of diluted shares outstanding in Q1 2011.
Liquidity and Capital Resources
As of March 31, 2012, cash and cash equivalents excluding restricted cash of $4.4 million were $7.5 million, a decrease of $4.4 million, or 36.8% from the $11.9 million balance on December 31, 2011, largely due to expenses associated with rapid market expansion. As of March 31, 2012, working capital was $8.3 million, compared to $3.3 million as of December 31, 2011. We received $5.1 million from Ordos water treatment plant build-transfer (“BT”) contract in April and May 2012. In aggregate, $13 million in cash has been collected from the Ordos project as of the time of this announcement.
As of March 31, 2012, the company has an aggregate of $28.7 million in lines of credit, including $12.7 million, $6.4 million and $9.6 million underwritten by Hangzhou Bank, ICBC Bank and CITIC Bank respectively.
Projects Backlog and Pipeline
As of March 31, 2012, the Company had a total projects backlog of $86.7 million, which it expect to be recorded in 2012 and onwards. This included $49.3 million in Municipal Water and Wastewater Services, $14.2 million in Water Resource Services and $23.2 million in Industrial Sector Services.
The Company is currently tracking potential projects with a total expected value of $150.2 million, of which approximately $80.2 million is related to Wastewater Treatment and Municipal Infrastructure, $11.1 million is related to Water Resource Management and Engineering Services Segment and $58.9 million is related to Industrial Pollution Control and Safety. The Company has not been awarded any of these projects, and there are no guarantees that it will be selected for any of such projects if and when it bids.
Year 2012 Guidance Reaffirmation
Based on the performance in the first quarter of 2012 and the estimate for the remaining quarters, the Company reaffirms the previously announced guidance for the year 2012. Revenue is expected to be between $103 million to $128 million. Net income will likely be between $9.7 million and $12.1 million. Assuming the number of total shares outstanding remains at 8,317,224, excluding the 21,100 shares held in treasury, we expect our earnings-per-share (“EPS”) to range from $1.18 to $1.47. These are the Company’s targets, not predictions of actual performance. The foregoing statements regarding targets are forward-looking and actual results may differ materially.
Mr. Warren Zhao, Joint CEO of Tri-Tech Holding commented, “We are pleased to report a quarter with solid revenue growth and operational performance, including stronger-than-expected results from our water resources management business and achievements from our international projects in India, Qatar, Canada and Mexico, despite the challenge of the increased project execution costs and market expansion expenses. We are also excited about the strong order backlog and project pipeline we are pursuing, which make us much more confident with the remaining quarters and feel more comfortable to deliver the projected earnings for 2012. Here I would like to review some recent key business developments:
Recent Business Developments
The initial and expansion phases of the Ordos water treatment plants project continued to contribute revenues in Q1 2012. By the end of the first quarter, the initial phase of the Ordos project started trial operation and the remaining 2.5% will be considered complete upon the customer’s acceptance. The expansion phase contract was 70% completed by the end of the first quarter, including design, major parts of civil construction, and order placement of most equipment and materials. The test runs of the expansion phase are expected to occur by the end of June 2012.
During the first quarter, the design of construction drawings and key equipment procurement for the Tianjin Airport Economic Zone Wastewater Treatment Plant expansion project was completed. We completed 10% of the BT contract for the construction of a wastewater treatment plant and a wastewater pipeline network in Dawangdian Industrial Park in Xushui County, Hebei Province, including the design of construction drawings.
In the first quarter, we received major contracts with an aggregate contract value of $7.9 million in flash flood forecasting and river hydrologic monitoring in six Chinese provinces. Continuing our active expansion to the water resources management market in 2012, we recently secured projects in Heilongjiang, Fujian, Guizhou, Anhui, Shanxi provinces and Beijing in China, with an aggregate contract value of $8.61 million. We expect strong momentum in this segment and plan to submit additional tenders for flash flood monitoring and forecasting projects over the remainder of 2012.
In January 2012, we secured a strategic collaboration agreement with Wuhan Natural Gas High-Pressure Pipeline Co. to implement an automated control system for natural gas plants, terminal stations and distribution pipelines in the city of Wuhan, Hubei Province. The project has been divided into four phases, and currently 50% of the phase 1 and 2 has been completed, including equipment procurement and partial system design. We expect to complete the phase 1 and 2 in 2012, which collectively account for 60%-70% of the whole agreement.
During the first quarter, our subsidiary Yuanjie Water completed ten projects, providing non-subpressure water supply equipment to several residential communities, campuses and hospitals in Beijing.
As we submitted all required application documents to establish project offices in India, we proceeded with the partial design as well as selections of the project execution team and qualified subcontractors for the India wastewater system projects. We believe we are fully mobilized to start the construction in the second quarter.
During the first quarter, we started equipment and materials assembly and commissioning in the fabrication plant for the Canada Jasper Lodge, following completion of detailed design and procurement. We expect to complete system installation and put this project in commission by early June 2012.
In the first quarter, we finished detailed engineering designs for the whole system of a seawater desalination unit for the Utility Plant of Qatar Petrochemical Co. Ltd. in Doha. We expect to complete the project in November 2012.
In late March, we won a contract from a Mexican water company, to provide a pre-concentrator Mechanical Vapor Compression (“MVC”) evaporator system and final MVC concentrator for a Mexican steel plant. The successful contract bid fits well in our strategy of international business development as we emphasize marketing our technical specialties, such as zero liquid discharge (“ZLD”) for industrial wastewater treatment as well as seawater desalination. We expect to deliver the complete water processing unit by early April 2013. Currently, we have started the engineering design and the negotiations of specific terms and conditions on project execution with the customer.
Recently, we bid for a boundary security system and Terrestrial Trunked Radio communication system for a natural gas processing plant for the South Yolotan-Osman Gas Field in Turkmenistan, one of the world’s largest known gas fields. This award marks another successful international industrial production safety project bid. We expect to complete the project by the end of 2012.
Research and Development
Phase one, Part I (the odor control system manufacturing and automatic control box assembly workshop) of our Baoding research, development and production base has been placed in operation for research and development of odor control equipment after the acceptance inspection in the first quarter. The pilot production and testing of multiple effect distillation (“MED”) equipment have been started on the site. The main structures of the office building, staff dormitory building and operator building have been completed, and the interior design for these buildings is proceeding.
As the construction of the Baoding R&D and production base proceeds and part of the facilities
have been put into operation, during the first quarter the Baoding subsidiary was recognized as a National High and New Tech Enterprise and Technical Innovation Enterprise in Tianjin, which reduces the income tax rate imposed on the subsidiary to 15% from the standard rate of 25%. In addition, the subsidiary was also awarded with a bonus from the Tianjin municipality for the research and development project we are implementing.
We produced a trial run of a small number of Hydration Technology Innovations licensed forward osmosis membrane personal hydration products. Based on the positive reactions from potential customers of these products, we continued to conduct a localization- and marketing-focused survey and analysis to assess domestic market demand for these and similar products.
Recently we signed a strategic cooperation agreement with Hebei University of Engineering (“HUE”) for human resources development partnership and potential collaboration for technologies development in the future. The HUE, a key university jointly established by Ministry of Water Resources and Hebei Provincial Government is well-regarded for its water conservancy and environmental protection programs, which are complimentary with our business. HUE will provide qualified talents in these majors to Tri-Tech, and we may develop some technology-oriented research projects in the future.
Tri-Tech Joint CEOs Warren Zhao and Gavin Cheng, President Phil Fan and CFO Peter Dong will host a conference call at 9:00 AM EDT, May 15, 2012 (9:00 PM Beijing/Hong Kong Time on May 15, 2012) to review the Company's financial results and respond to questions and comments.
To participate, call U.S. Toll Free Number +1 (877) 941-1427 approximately 10 minutes before the call. International callers, please dial +1 (480) 629-9664. The conference ID number is 4538230. A live webcast of the call will be available at http://public.viavid.com/index.php?id=100507. Both an MP3 file one hour after the call and a transcript 48 hours after the call will be available. These will be archived for 90 days and accessible via http://www.tri-tech.cn.
About Tri-Tech Holding Inc.
Tri-Tech designs customized sewage treatment and odor control systems for municipalities and private sectors in China and international markets. These systems combine software, information management systems, resource planning and local and distant networking hardware that includes sensors, control systems, programmable logic controllers, supervisory control and data acquisition systems. The company also designs systems that track natural waterway levels for drought control, monitor groundwater quality and assist the Chinese government in managing its water resources. The company is also moving into the industrial pollution control market. Tri-Tech owns 39 software copyrights and 11 product patents, and employs 390 people. Please visit http://www.tri-tech.cn for more information.
An online investor kit including a company profile, presentations, press releases, current price quotes, stock charts and other valuable information for investors is available at http://www.tri-tech.cn/ir. To subscribe to future releases via e-mail alert, visit http://www.tri-tech.cn/ir/info/request .
This press release contains forward-looking statements. These statements are made under the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts. These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.