BEIJING, May 19, 2011 (GLOBE NEWSWIRE) -- SinoTech Energy Limited ("SinoTech" or the "Company") (Nasdaq:CTE), a fast-growing provider of enhanced oil recovery ("EOR") services in China, today announced its unaudited financial results for the second quarter of fiscal year 2011.
Second Quarter of Fiscal Year 2011 Financial Highlights
- Sales in the second quarter of fiscal year 2011 were US$25.0 million, an increase of 201.5% from the corresponding period in fiscal year 2010
- Gross profit in the second quarter of fiscal year 2011 was US$17.6 million, an increase of 188.0% from the corresponding period in fiscal year 2010
- Net income in the second quarter of fiscal year 2011 was US$10.9 million, compared to a net loss of US$2.6 million in the corresponding period of fiscal year 2010
- GAAP diluted earnings per ADS was US$0.17 for the second quarter of fiscal year 2011
- Adjusted EBITDA (Non-GAAP)(1) in the second quarter of fiscal year 2011 was US$18.3 million, an increase of 306.1% from the corresponding period in fiscal year 2010
- Net cash balance was US$80.6 million as of March 31, 2011
- Sales guidance for fiscal year 2011 has been upgraded to a range of US$ 100 million to US$105 million
Recent Business Highlights
- On April 4, 2011, the Company announced that it had taken delivery of two new lateral hydraulic drilling ("LHD") units. The new units employ improved LHD technology, which SinoTech expects will enable further improvement in the productivity of its LHD services. The new units went into immediate operation in northern China.
- On March 2, 2011, the Company announced the appointment of Ernst & Young Hua Ming as its independent registered public accounting firm. The financial results for fiscal year 2010 were audited by Ernst & Young Hua Ming.
"Our very strong second quarter results offer a clear indication of both the very exciting growth prospects in China's EOR market and SinoTech's growing ability to take advantage of these opportunities," commented Mr. Guoqiang Xin, Chief Executive Officer of SinoTech. "Successful utilization of our LHD fleet, including two new units delivered in late March this year, has enabled us to meet fast-growing demand for our services from oil producers, and has driven robust growth on both the top and bottom lines. With the rapid pace of economic development in China driving rising demand for energy, the country's oil producers are increasingly reliant upon EOR solutions to improve productivity. SinoTech is ideally positioned to profit from this trend because producers recognize the clear benefits in terms of costs, technology and effectiveness that our LHD and MDF solutions offer. We are confident in our prospects for the year ahead, and that confidence is reflected in our decision last week to update our revenue guidance for the full fiscal year to a range of US$100 million to US$105 million."
Mr. Boxun Zhang, Chief Financial Officer of SinoTech, noted, "Despite the seasonal impact of the Chinese New Year, when our machines were offline for around a week, net income reached US$10.9 million in the second quarter of fiscal year 2011. This was a significant improvement compared to both the first quarter of fiscal year 2011, when we recorded net loss of US$28.0 million, and the same period last year, when we registered a net loss of US$2.6 million. In addition to operational improvements, we also benefited from the extinguishment of several non-operating expenses relating to warrant conversion and debt, resulting in more normalized financial results. In addition, I am pleased to note important progress in our efforts to maintain the highest standards of corporate governance. Our recently appointed auditors Ernst & Young Hua Ming have audited our fiscal year 2010 results while we have engaged PricewaterhouseCoopers as our SOX 404 compliance advisor."
Financial Results for the Second Quarter of Fiscal Year 2011
Sales were US$25.0 million in the second quarter of fiscal year 2011, an increase of 9.5% from US$22.8 million in the first quarter of fiscal year 2011, and a 201.5% increase from the corresponding period in fiscal year 2010, primarily due to the expansion of the Company's LHD fleet and MDF service coverage as well as the SinoTech team's effective execution. Sales for the LHD business increased 6.2% quarter-over-quarter to US$18.7 million in the second quarter of fiscal year 2011. The sequential quarterly increase was mainly due to the flexible working hours arranged around the Chinese New Year holiday and the fact that no annual maintenance was required for LHD units in the second quarter of fiscal year 2011. Sales from the MDF business reached US$5.8 million in the second quarter of fiscal year 2011, representing an 18.2% quarter-over-quarter growth, mainly attributable to the additional revenue from a new MDF service contract commenced in January 2011.
Cost of sales were US$7.4 million in the second quarter of fiscal year 2011, a 12.9% increase from US$6.6 million in the first quarter of fiscal year 2011, and a 239.1% increase from US$2.2 million in the corresponding period in fiscal year 2010. The quarter-over-quarter increase was primarily due to increased expenditure on spare parts in the second quarter of fiscal year 2011.
Gross profit was US$17.6 million in the second quarter of fiscal year 2011, representing an increase of 8.1% from US$16.3 million in the first quarter of fiscal year 2011, and an increase of 188.0% from US$6.1 million in the corresponding period in fiscal year 2010. Gross margin was 70.4% in the second quarter of fiscal year 2011, compared with 71.3% in the first quarter of fiscal year 2011, and 73.6% in the corresponding period in fiscal year 2010. The quarter-over-quarter decrease in gross margin was primarily due to the additional expenditure on spare parts for the LHD units. The year-over-year decline was mainly due to changes in the sales mix, with sales for the LHD business accounting for 74.9% of sales in the second quarter of fiscal year 2011, compared to 41.4% the same period last year. Gross margin for the LHD business was 64.5% in the second quarter of fiscal year 2011, compared to 63.6% in the same period of last year, and 66.6% in the first quarter of fiscal year 2011.
Expenses for the second quarter of fiscal year 2011 were US$3.0 million compared to US$3.2 million in the previous quarter and US$3.3 million in the corresponding period in fiscal year 2010. The year-over-year decrease was mainly due to a decrease in consulting and professional fees in the second quarter of fiscal year 2011.
Operating income increased 11.1% to US$14.6 million for the second quarter of fiscal year 2011 compared to US$13.1 million in the first quarter of fiscal year 2011, and US$2.8 million in the corresponding period in fiscal year 2010. The increase was in line with the Company's fast growing sales and effective expenses control.
Other income and expenses for second quarter of fiscal year 2011, which mainly consist of interest income and foreign exchange gain, totaled income of US$0.4 million, while other income and expenses for the first quarter of fiscal year 2011, which mainly consist of changes in fair value of warrant liabilities, write-off on bank loan discount and amortization of bank loan discount, bank loan interest, interest income and foreign exchange gain, totaled expenses of US$36.8 million. The quarter-over-quarter fluctuation was primarily the result of the Company having paid off its remaining debt (including interest) and the warrant holders having converted all the outstanding warrants into common shares at the time of its IPO.
Net income in the second quarter of fiscal year 2011was US$10.9 million, compared to net loss of US$28.0 million in the first quarter of fiscal year 2011.
GAAP diluted earnings per ADS were US$ 0.17 for the second quarter of fiscal year 2011.
Taking out amortization of intangible assets and share-based compensation, Non-GAAP earnings per ADS were US$0.20 for the second quarter of fiscal year 2011.
Adjusted EBITDA(Non-GAAP)(1) was US$18.3 million, representing quarter-over-quarter growth of 10.7% and a significant increase of 306.1% from the corresponding period in fiscal year 2010.
As of March 31, 2011, the Company had cash and cash equivalents of US$80.6 million. Accounts receivable were US$24.8 million as of March 31, 2011, compared to US$20.1 million as of September 30, 2010, which was a result of increased sales.
As of March 31, 2011, the Company had no bank loan or warrant liabilities as a result of the loan repayment and warrant conversion in November 2010.
In the second quarter of fiscal year 2011, capital expenditures totaled US$13.2 million, primarily as a result of increased purchase of LHD units. Depreciation and amortization expenses totaled US$3.4 million.
Outlook for Fiscal Year 2011
For fiscal year 2011, based on the current strong operation of existing LHD units and confirmed equipment supply pipeline, SinoTech has upgraded its guidance and now expects its total sales to be in an estimated range of US$100 million to US$105 million, representing a 120.7% to 131.7% increase from fiscal year 2010. According to its current schedule, the Company intends to add four LHD units to its fleet in fiscal year 2011, bringing the total number of operational LHD units to 16 by the end of fiscal year 2011 and 20 by the end of December 2011. Total capital expenditures related to the procurement of new equipment to be added in fiscal year 2011 and prepayments for additional LHD units to be delivered in 2012 are expected to be in the range of US$70 million to US$80 million.
This forecast reflects SinoTech's current and preliminary view, which is subject to change.
Use of Non-GAAP Financial Measures
To supplement SinoTech's consolidated financial results presented in accordance with GAAP, SinoTech uses the following measure defined as a non-GAAP financial measure by the SEC: adjusted EBITDA (Non-GAAP).
Adjusted EBITDA (Non-GAAP) refers to earnings before current income tax expenses, deferred income tax expenses (benefits), interest income, amortization of bank loan discount, share-based compensation, write-off bank loan discount and other adjustments. Other adjustments comprise of gain on disposal of equipment and foreign exchange gain.
Adjusted EBITDA (Non-GAAP) for prior periods has been reclassified so that the presentations are consistent. The presentation of this non-GAAP financial measure is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.
SinoTech believes that this non-GAAP financial measure provides meaningful supplemental information regarding its performance and is often used as a supplemental financial measure by management and by investors, research analysts and others, to assess the Company's intrinsic operating performance and return on capital as compared to those of other companies in the industry, without regard to financing or capital structure. The Company believes that both management and investors benefit from referring to this non-GAAP financial measure in assessing the Company's performance and when planning and forecasting future periods. A limitation of using adjusted EBITDA (non-GAAP) is that this non-GAAP measure fails to account for tax, interest income, bank loan interest and other non-operating cash expenses. The use of adjusted EBITDA (Non-GAAP) has certain limitations because it does not reflect all items of income and expense that affect the Company's operations. Items excluded from adjusted EBITDA (Non-GAAP) are significant components in understanding and assessing the Company's operating and financial performance. Depreciation, amortization, income tax expenses, bank loan interest and interest income as well as changes in fair value of warrant liabilities have been incurred in the Company's business and are not reflected in the presentation of adjusted EBITDA (Non-GAAP). Each of these items should also be considered in the overall evaluation of the Company's results. Additionally, adjusted EBITDA (Non-GAAP) does not consider capital expenditures and other investing activities and should not be considered as a measure of the Company's liquidity. Management compensates for these limitations by reconciling this non-GAAP financial measure to the most comparable U.S. GAAP performance measure, all of which should be considered when evaluating the Company's performance. The accompanying tables have more details on the reconciliations between GAAP financial measures that are comparable to non-GAAP financial measures.
Notes to Unaudited Financial Information
This release contains unaudited financial information which is subject to year-end audit adjustments. Adjustments to the financial statements may be identified when the audit work is completed, which could result in significant differences between the Company's audited financial statements and this unaudited financial information.
Second Quarter of Fiscal Year 2011 Conference Call Information
The Company has scheduled a conference call to discuss its second quarter results at 8:30 AM Eastern Time (ET) (8:30PM Beijing/Hong Kong time) on May 19, 2011.
Dial-in details for the live conference call are as follows:
A replay of the conference call will also be available until May 26, 2011 by dialing:
In addition, a live and archived webcast of the conference call will be available on Sinotech's website at http://ir.sinotechenergy.com/events.cfm.
About SinoTech Energy Limited
SinoTech Energy Limited (Nasdaq:CTE) ("SinoTech") is a fast-growing provider of enhanced oil recovery ("EOR") services in China. SinoTech provides innovative EOR services to major oil companies in China using leading technologies, including certain patented lateral hydraulic drilling ("LHD") technologies, which the Company has an exclusive right to use in China, and a molecular deposition film technology, for which the Company holds a PRC patent. SinoTech also provides technical services to coalbed methane customers using the LHD technology. For more information, please visit .
Safe Harbor Statement
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact in this press release are forward-looking statements, including but not limited to, SinoTech's goals and strategies, its future business development, growth of its operations, financial condition and results of operations, its ability to introduce successful new services and attract new clients, growth of the EOR services market in China and worldwide, its beliefs regarding its strengths and strategies, changes in the oil services industry in China, including changes in the policies and regulations of the PRC government governing the oil services industry, its access to current or future financing arrangements, and fluctuations in general economic and business conditions in China, and other risks and uncertainties disclosed in SinoTech's filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on information available to SinoTech's management as of the date hereof and on its current expectations, assumptions, estimates and projections about SinoTech and the oil and gas industry. Actual results may differ materially from the anticipated results because of such and other risks and uncertainties. SinoTech undertakes no obligation to update forward-looking statements to reflect subsequent events or circumstances, or changes in its expectations, assumptions, estimates and projections except as may be required by law.
([1]) Adjusted EBITDA (Non-GAAP) is a non-GAAP measure. Adjusted EBITDA refers to earnings before current income tax expenses, deferred income tax expenses (benefits), interest income, bank loan interest, depreciation and amortization, changes in fair value of warrant liabilities, amortization of bank loan discount, share-based compensation, write-off bank loan discount and other adjustments. Other adjustments comprise of gain on disposal of equipment and foreign exchange gain. The non-GAAP measures and related reconciliations to GAAP measures are described in the accompanying sections of "Reconciliation from net income to Adjusted EBITDA" at the end of the press release.
CONTACT: For investor and media inquiries please contact: Ms. Rebecca Guo SinoTech Energy Limited, Beijing + 86-10-8712-5555 rebecca.guo@sinotechenergy.com Ms. Yue Yu Brunswick Group LLP +86-10-6566-2256 sinotech@brunswickgroup.com