Unaudited Fourth Quarter Financial Results For 2008:
Net revenue for the fourth quarter of 2008 was $40.8 million, up 136.5%, compared to $17.3 million for the fourth quarter in 2007. Revenue growth was driven by increased sales from all of the company’s product lines and revenues exceeded previously issued guidance by about 20%. Particularly during the fourth quarter, the company recorded $30.1 million in revenue from desulphurization projects, an increase of 140.8% from $12.5 million in same period in 2007, $1.8 million in wastewater treatment system sales, an increase of 232.3% over fourth quarter of 2007, $2.8 million in sales of anti-oxidation equipment and coatings compared to $8,000 recorded in the same period of 2007, and $6.1 million in machining service revenues, an increase of 45.2% from the $4.2 million recorded in the same period of 2007.
The cost of goods sold for fourth quarter of 2008 was $30.0 million compared to $9.1 million in the same period of 2007, an increase of 229.8%, which was driven mainly by increased sales, in addition to costs associated with hiring outside contractors in order to meet specific installation timelines, something the company does not expect to be a recurring cost.
The gross profit was $10.8 million in fourth quarter 2008 compared to $8.1 million for the same period in 2007, an increase of $2.6 million or 32.1%. Corresponding gross margins for the fourth quarters of 2008 and 2007 were about 26.4% and 47.2%, respectively. The decrease in gross margin is attributable to the higher costs incurred during the fourth quarter of 2008 in addition to the absence of higher margin royalty revenue which was present during 2007.
Total operating expenses for fourth quarter of 2008 were $10.7 million versus $8.6 million for the same period in 2007. Excluding the non-cash equity compensation charge of $6 million and $7.5 million recorded during fourth quarters of 2008 and 2007, respectively, operating income for the fourth quarters of 2008 and 2007 would have been $6.1 million and $7 million with operation margins of 14.9% and 40.7% respectively.
GAAP net income for the fourth quarter of 2008 was $1 million compared to a net loss of $1.2 million reported in the fourth quarter of 2007, representing diluted earnings per share of $0.04 and a negative $0.12 for the fourth quarter of 2007, based on 25.1 million and 19.7 million shares outstanding, respectively. Adjusted net income, excluding equity compensation expenses of $6.0 million and $7.5 million, respectively, was $7.0 million for the fourth quarter of 2008 compared to $6.3 million for fourth quarter of 2007, equating to earnings of $0.28 and $0.26 per diluted share, respectively. The company accrued for taxes in 2007 and did not for 2008.
‘We are pleased with our financial results for the fourth quarter and the fiscal year 2008,’ said Zou Dejun, president and chief executive officer of RINO International, ‘We have continued to deliver year-over-year growth in each of our product lines including our new anti-oxidation systems and coatings, while significantly increasing our customer base and geographic footprint in China. We are confident that the drivers in place, including increasing demand for environmental protection equipment supported by key government incentives, will enable us to deliver incremental revenue and earnings growth for our company during 2009.’
RINO International’s customer base was further diversified and revenue generation was much less concentrated as the top six customers accounted for 34.7% of the total gross revenues during 2008.
Gross profits for 2008 were $54.3 million compared to $30.5 million in 2007, an increase of 78.3%. Gross margins were 39.0% for 2008 compared to 48.1% in 2007, with the decrease related mainly to the absence of royalty based income recorded during 2007 and higher expenses for outsourcing incurred during the fourth quarter of 2008. Operating income for 2008 totaled $21.6 million, an increase of 36.8% compared to $15.8 million in 2007 with margins of 15.5% compared to 25.0% in 2007. Excluding the non-cash equity compensation charges of $17.7 million and $7.5 million incurred during 2008 and 2007, adjusted operating income for 2008 was $39.3 million, an increase of 68.7% from the $23.3 million in 2007. Adjusted operating margins were 28.2% for 2008 versus 36.8% for 2007 with 2007’s margins being positively impacted by the high margin royalty revenue absent in 2008.
‘We have aggressively capitalized on the opportunity created by State Environmental Protection Agency (SEPA) mandates aimed at significantly reducing sulphur emitted by iron and steel producers by completing 25 desulphurization projects in 2008, making us the dominant industry player in China. Tax credits and subsidies for steel producers, in addition to fines related to strict emission enforcement, has driven rapid adoption and we currently estimate that there are still about 200 coal-fired sinters which still need to be equipped, creating over a billion dollar opportunity in this product segment alone. While large desulphurization systems will comprise the majority of our revenues for 2009, we are intently focused on further diversifying our business through increased sales of anti-oxidation equipment and the coatings which accompany it. In addition, we are enthusiastic about the opportunity for our new sludge treatment product which addresses a market significantly larger than our current product portfolio and will be formally introduced to the market during the next several months,’ added Zou.
Balance Sheet and Cash Flow Discussion:
Cash and cash equivalents as of December 31, 2008 were $19.7 million, representing an increase of 167.1% as compared to $7.4 million as of December 31, 2007, while short term debt stood at $8.8 million compared to none at the end of 2007. Accounts receivable stood at $51.5 million on December 31, 2008 with days sales outstanding of 115 compared to $19.2 million on December 31, 2007 and corresponding days sales outstanding of 102. Inventories and advances for inventory totaled $23.2 million on December 31, 2008. The company generated $6.0 million in cash flow from operations for 2008, compared with $5.0 million cash used in operations in 2007. Stockholder’s equity increased 182.4% to $66.9 million versus $23.7 million in 2007, with the associated book value on December 31, 2008 of about $2.67 per share compared to $0.95 in the year ago period.
2009 Guidance:
Management is reiterating its revenue guidance for calendar 2009 of $176.5 million, representing at least 26.7% year-over-year growth. Revenue growth is projected in all of its business lines, including at least 10% for wastewater treatment, 50% for desulphurization, and 300% for anti-oxidation. Management believes gross margins for 2009 will range from 35% to 40%, with fluctuations possible on a quarterly basis due to outsourcing work necessary to meet installation requirements and deadlines across a large number of projects. As anti-oxidation coating revenue increases on an absolute basis it will have a modest positive impact on associated gross margins. Guidance does not include contributions from the company’s planned launch of its new sludge dehydration product. In addition, the company believes that cash on hand, its $15 million bank line with Pudong Development Bank of Shanghai, and cash flow from operations will enable it to meet these projections.
RINO is a China-based company that designs, manufactures, installs and services wastewater treatment, desulphurization equipment and high temperature anti-oxidation systems.
