Attached files
| file | filename |
|---|---|
| 8-K - TELESTONE TECHNOLOGIES CORP | v194136_8k.htm |
| EX-99.2 - TELESTONE TECHNOLOGIES CORP | v194136_ex99-2.htm |
| EX-99.3 - TELESTONE TECHNOLOGIES CORP | v194136_ex99-3.htm |
Telestone
Technologies Corporation Reports Results for the Second Quarter
2010
Company
affirms guidance of $129.4 million in revenues and $22.9 million in net income
for FY2010 based on growing 3G and WFDS(TM) order backlog for third and fourth
quarter
Press Release Source:
Telestone Technologies Corporation On Thursday August 12, 2010, 4:05 pm
EDT
BEIJING,
Aug. 12 /PRNewswire-Asia-FirstCall/ — Telestone Technologies Corporation
("Telestone" or the "Company") (Nasdaq:TSTC - News), a leading
developer and provider of telecommunications local access network solutions
based in China, today announced its financial results for its second quarter
ended June 30, 2010.
Second
Quarter 2010 Highlights
|
|
—
|
Revenue
was $16.6 million, up 37.0% from 2nd Quarter of
2009
|
|
|
—
|
Gross
profit was $7.5 million, up 49.8% from 2nd Quarter of 2009;
gross profit margins were 45.1%, exceeding management guidance on
gross profit margins of 42%
|
|
|
—
|
Company
increased sales and marketing efforts to secure higher
margin WFDS(TM) projects and
installations
|
|
|
—
|
Net
income was $1.7 million, down 12.8% from 2nd Quarter of 2009 as
a result of increased SG&A expense in the
quarter
|
|
|
—
|
Earnings
per diluted share were $0.16 based on 10.5 million fully diluted
shares
|
|
|
—
|
Company
announced its first US-based WFDS(TM) contract for a Houston-based
hospital on August 9, 2010, opening up international sales
channel
|
Summary
of Financials
Second
Quarter 2010 Results
|
2Q
2010
|
2Q
2009
|
CHANGE
|
||||||||||
|
Net
Sales
|
$ | 16.6 million | $ | 12.1 million | +37.0 | % | ||||||
|
Gross
Profit
|
$ | 7.5 million | $ | 5.0 million | +49.8 | % | ||||||
|
Net
Income
|
$ | 1.7 million | $ | 2.0 million | (12.8 | )% | ||||||
|
EPS
(Diluted)
|
$ | 0.16 | $ | 0.19 | (15.8 | )% | ||||||
"We
recorded 37% growth during the quarter as we significantly increased our orders
and prepared for the ramp in new 3G and WFDS(TM) installations for the second
half of the year," began Han Daqing, CEO and Chairman of Telestone. "We have
made a conscious decision to focus our efforts on higher value, high-margin
WFDS(TM) projects and have concentrated our sales team on this Company-wide
goal. This focus requires an investment to market the benefits and cost savings
of WFDS(TM) fiber optic installations to local branch offices of the 'Big 3' and
building owners as well. Because our equipment allows carriers to generate
incremental revenues from new services and reduces the operating costs of
running multiple systems, we believe our WFDS products offer a compelling return
for carriers, building owners and consumers alike. Our sales teams based at our
30 branch offices continue to make good progress, having collectively secured a
solid backlog of both 3G and WFDS(TM) contracts and installations with the
majority to be realized during the third and fourth quarter of 2010. Thus, we
remain confident in meeting our revenue guidance of $129.4 million and $22.9
million in net income for the year."
Business
Overview and Second Quarter 2010 Financial Performance
Telestone
is awarded "last mile" local access network installation contracts from the "Big
3" telecommunication companies in China including China Mobile, China Unicom and
China Telecom. Based on its network design for a particular building site,
Telestone procures telecommunications hardware and utilizes local contractors to
install 3/G and WFDS(TM) fiber optic local access networks for carriers. A
majority of Telestone's project revenue is generated from its engineering and
network design solutions for first-time installations or network upgrades.
Telestone's projects in turn generate a combination of equipment and
professional services revenues. To a lesser extent, the Company generates
revenue from equipment-only sales or services-only sales.
Total
revenues in the second quarter ended June 30, 2010 were $16.6 million, an
increase of 37.0% from $12.1 million in the same period of prior year. Equipment
sales of $7.1 million were driven by the Company's sales of 3G and WFDS(TM)
local access network equipment used in installations. Additionally, $9.6 million
in service revenues for project design and installation costs were achieved in
the second quarter of 2010 compared to that of $5.0 million in the second
quarter of 2009, representing a 91.6% increase. Revenues generated during the
fiscal year are concentrated in the third and fourth quarter, when most of the
"Big 3's" projects are completed and subsequently billed. Due to this
seasonality, the Company normally records approximately 25% of its 2010
estimated revenues in the third quarter and approximately 50% of its 2010
estimated revenues in the fourth quarter for the year ending on
December 31, 2010.
In the
second quarter ended June 30, 2010 cost of operating revenues was $9.1 million.
Costs of operating revenue include costs of materials used in OEM manufacturing
of Telestone's 3G and WFDS(TM) product lines, costs of hardware components the
Company purchasing from other suppliers, costs for project management and costs
of installation at customers' sites. Corresponding gross profit was $7.5 million
with gross margin of 45.1% for the quarter compared to gross margin of 41.3% in
the second quarter of 2009. Gross margin for the 2nd quarter of 2010 exceeded
management target of 42% and was positively impacted by higher-margin WFDS(TM)
installations, which contributed gross margins of between 45-50%.
Selling,
general and administrative expenses (SG&A) were $5.1 million, accounting for
30.4% of total revenues, as compared to $2.3 million or 19.2% of total revenues,
for the corresponding period of 2009. The increase in SG&A expenses was
primarily attributable to a 126% year-over-year increase in sales and marketing
expenses which were $4.2 million during the second quarter of 2010 and are
directly attributable to efforts to secure WFDS(TM) systems for 3G networks from
the "Big 3" and also from building owners.
"We have
trained our sales teams at all of our 30 branch offices to market the benefits
of fiber optic systems and WFDS(TM) as the optimal local access network for
cellular, voice, data and media integration in building sites," stated Han
Daqing, "This has required an intense and focused effort on the part of our
sales teams, supported by a growing number of reference projects, as we educate
and empower our customers. We are also winning support from local city or
provincial authorities who help promote WFDS(TM) installations in particular
cities and provinces to support the Central Government convergence plan. We have
seen growing interests in our products as we demonstrate the improved service
quality and substantial cost savings and we can provide the customers with our
state-of-the-art solution. The recent news about our WFDS(TM) system
installation in the U.S. provides us a significant boost for our sales efforts
both in the U.S. and China as we look to gain significant market share by
capitalizing on our first-mover advantage," Han concluded.
Operating
income in the second quarter of 2010 was $2.2 million, with operating margin of
13.4%, a decrease of 4.7% from $2.4 million in the same period of prior year. As
detailed above, operating income and operating margins were affected by
additional costs in SG&A incurred in the second quarter of 2010. We expect
operating margins to benefit from WFDS as it grows.
-2-
For the
three months ended June 30, 2010, net income was $1.7 million, representing a
decrease of 12.8% from the same period in 2009. Based on 10.5 million shares,
earnings per weighted average diluted share were $0.16 per share for the
quarter, compared to $0.19 in the same period of 2009.
Six
Months ended June 30 Results
|
June
30, 2010
|
June
30, 2009
|
CHANGE
|
||||||||||
|
Net
Sales
|
$ | 27.8 million | $ | 20.0 million | +38.6 | % | ||||||
|
Gross
Profit
|
$ | 12.4 million | $ | 9.7 million | +28.1 | % | ||||||
|
GAAP
Net Income
|
$ | 0.6 million | $ | 3.1 million | (81.1 | )% | ||||||
|
GAAP
EPS (Diluted)
|
$ | 0.06 | $ | 0.30 | (80.0 | )% | ||||||
|
Adjusted
Net Income(*)
|
$ | 3.3 million | $ | 3.1 million | + 6.5 | % | ||||||
|
Adjusted
EPS (Diluted)(*)
|
$ | 0.31 | $ | 0.30 | 0.0 | % | ||||||
|
|
(*)
|
Adjusted
net income reported by the Company in the first half of 2010 excludes
a non-cash stock-based compensation charge of $2.2 million related to
the issuance of stocks to certain directors of Shandong Guolian
Telecommunications Technology, and a one-time noncash stock-based
compensation charge of $0.5 million for professional services
rendered.
|
Total
revenue for the first six months of fiscal 2010 was $27.8 million, an increase
of 38.6% from $20.0 million in the same period of prior year. Revenues from
WFDS(TM) installations accounted for approximately 21.0% of revenues in the
first half of the year. China Mobile accounted for 63.4% of revenues, China
Unicom accounted for 21.0% of revenues and China Telecom accounted for 13.3% of
revenues for the first half of 2010.
Gross
profit in the first half of fiscal year 2010 was $12.4 million, representing an
increase of 28.1% from $9.7 million in the prior year's corresponding period.
Gross profit margins for the first half of the year were 44.8% and exceeded
guided gross profit margin expectation of 42% for the year.
Selling,
general and administrative (SG&A) expenses in the first half of fiscal year
2010 were $10.7 million, compared to $5.3 million in the prior year's same
period, as a result of increased sales and marketing costs incurred mostly in
the second quarter of 2010. Additionally, during the first quarter of fiscal
2010 the general administrative expenses were allocated a non-cash charge of
$2.7 million related to the issuance of stock to shareholders of Shandong
Guolian Telecommunications Technology Limited in connection with Telestone's
acquisition of the company in 2007 and professional services rendered. Excluding
the effects of the non-cash charge, the SG&A expenses would have been $8.0
million.
Operating
income in the first half of 2010 was $1.4 million, with operating margin of
5.1%, representing a 64.6% decrease from $4.0 million in the prior year's same
period. Excluding the effects of the previously-mentioned noncash charge of $2.6
million, operating income was $4.1 million, representing a increase of 2.5%
year-over-year. Adjusted operating income margin for the first six months of
2010 is 14.7%.
GAAP net
income for the first half of fiscal year 2010 was $0.6 million, compared to $3.1
million in the prior year's corresponding period, representing a decrease of
81.1% year-over-year. Adjusted net income excluding the aforementioned non-cash
expenses is $3.3 million, representing an increase of 6.5%
year-over-year.
Earnings
per weighted average diluted share were $0.06 based on 10.6 million diluted
shares, while adjusted earnings were $0.31 per share.
-3-
Financial
Position
As of
June 30, 2010 Telestone Technologies had cash and cash equivalents of $7.7
million compared to $11.2 million as of December 31, 2009. Working capital was
$64.0 million, increased from $60.8 million as of December 31,
2009.
On June
30, 2010, Telestone had $101.0 million in receivables as compared to $89.0
million as of December 31, 2009. The amount of accounts receivable is directly
related to the projects the Company secured from China's Big 3 telecommunication
companies. Accounts receivable days sales outstanding (DSO) for the second
quarter of 2010 was 483 days. DSOs reflect the nature of the Company's business
conducted with China's largest state-owned telecommunication companies and to
date the Company has not experienced any significant bad debts. On an annualized
basis, the Company's average DSO is approximately 12-months, which has been
consistent with its business operations with the state-owned telecommunication
companies in China since it began project work in the industry in
2005.
Current
liabilities were $58.0 million compared to $51.7 million as of December 31,
2009. The Company had $5.9 million in short term loans as of June 30, 2010 and
held no long term debt. Shareholder's equity was $68.4 million, a 5.1% increase
from $65.1 million as of December 31, 2009.
Recent
Events
August 9,
2010 — Telestone announced that its Wireless Fiber Optic Distribution System
(WFDS(TM)) has been selected as the local access network technology for
installation at a Houston-based hospital in the USA. The project will be
installed by an U.S. engineering firm, Quell Corporation, which won the contract
after successfully demonstrating Telestone's WFDS(TM) functionality and cost
savings to the hospital and other major US telecommunication companies.
Telestone's equipment portion of the contract is valued at $2.0 million and is
scheduled for delivery at the end of 2010.
2nd
Quarter 2010 Earnings Conference Call
To attend
the call, please use the dial-in information below. When prompted,
ask for the "Telestone Technologies Corporation Q2 2010 Earnings Call."
|
Conference
Date:
|
Friday,
August 13, 2010
|
|
Conference
Time:
|
9.00
a.m. Eastern Time
|
|
Duration:
|
1
hour
|
|
U.S.
Participants:
|
800
860 2442
|
|
International
Participants:
|
+1 412 858 4600 |
|
Call
Title:
|
"Telestone
Technologies Corporation Q2 2010 Earnings
Call"
|
Webcast:
http://www.videonewswire.com/event.asp?id=71702
Please
dial in at least 10-minutes before the call to ensure timely participation. This
call is also being webcast and can be accessed by clicking on this link http://www.videonewswire.com/event.asp?id=71702
.
About
Telestone Technologies Corporation
Telestone
is a leading innovator in local access network technologies and solutions.
Telestone is a global company with 30 sales offices throughout China and a
network of international branch offices and sales agents. For more than 10
years, Telestone has been installing radio-frequency based 1G and 2G systems
throughout China for China's leading telecommunications companies. After
intensive research on the demands of carriers in the 3G age, Telestone developed
and commercialized its third generation technology for the local access network,
WFDS(TM) (Wireless Fiber-Optics Distribution System), which provides a scalable,
multi-access local access network solution for China's three cellular protocols.
Telestone offers services that include project design, project manufacturing,
installation, maintenance and after-sales support. Telestone Technologies has
approximately 1,200 employees.
-4-
Safe
Harbor Statement
This
release contains certain "forward-looking statements" relating to the business
of Telestone Technologies Corporation and its subsidiary companies.
Forward-looking statements can be identified by the use of forward-looking
terminology such as "believes," "expects" or similar expressions. Such forward
looking statements involve known and unknown risks and uncertainties, including
all business uncertainties relating to product development, marketing,
concentration in a single customer, raw material costs, market acceptance,
future capital requirements, competition in general and other factors that may
cause actual results to be materially different from those described herein as
anticipated, believed, estimated or expected. Certain of these risks and
uncertainties are or will be described in greater detail in our filings with the
Securities and Exchange Commission. Telestone Technologies is under no
obligation to (and expressly disclaims any such obligation to) update or alter
its forward-looking statements whether as a result of new information, future
events or otherwise. This press release shall not constitute an offer to
sell or the solicitation of an offer to buy nor shall there be any sale of these
securities in any state or jurisdiction in which such offer, solicitation or
sale would be unlawful prior to registration or qualification under the
securities laws of such state or jurisdiction.
Telestone
Technologies Corporation
-
CONDENSED CONSOLIDATED BALANCE SHEETS
- AS OF
JUNE 30, 2010 AND DECEMBER 31, 2009
-
(Currency expressed in United States Dollars ("US$"), except for
number
of
shares))
(Unaudited)
|
As
of
|
As
of
|
|||||||
|
June
30,
|
December
31,
|
|||||||
|
2010
|
2009
|
|||||||
|
|
US$'000
|
US$'000
|
||||||
| ASSETS | ||||||||
|
Current
assets:
|
||||||||
|
Cash
and cash equivalents
|
7,738 | 11,233 | ||||||
|
Accounts
receivable, net of allowance
|
100,977 | 89,005 | ||||||
|
Due
from related parties
|
1,963 | 1,963 | ||||||
|
Inventories,
net of allowance
|
6,375 | 4,442 | ||||||
|
Prepayments
|
758 | 1,223 | ||||||
|
Other
current assets
|
4,204 | 4,574 | ||||||
|
Total
current assets
|
122,015 | 112,440 | ||||||
|
Goodwill
|
3,119 | 3,119 | ||||||
|
Property,
plant and equipment, net
|
1,202 | 1,181 | ||||||
|
|
4,321 | 4,300 | ||||||
|
Total
assets
|
126,336 | 116,740 | ||||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
Current
liabilities:
|
||||||||
|
Short-term
bank loans
|
5,850 | 5,850 | ||||||
|
Accounts
payable - Trade
|
18,532 | 15,678 | ||||||
|
Customer
deposits for sales of equipment
|
1,589 | 1,582 | ||||||
|
Due
to related parties
|
6,326 | 4,947 | ||||||
|
Income
tax payable
|
8,095 | 7,132 | ||||||
|
Accrued
expenses and other accrued liabilities
|
17,575 | 16,473 | ||||||
|
Total
current liabilities
|
57,967 | 51,662 | ||||||
|
Commitments
and contingencies
|
||||||||
|
Stockholders'
equity:
|
||||||||
|
Preferred
stock, US$0.001 par value, 10,000,000 shares authorized,
no shares issued
|
||||||||
|
Common
stock and paid-in-capital, US$0.001 par value:
|
||||||||
|
Authorized
- 100,000,000 shares as of June 30, 2010 and December 31,
2009
|
||||||||
|
Issued
and outstanding -10,558,264 shares as of June 30, 2010
and 10,404,550 shares as of December 31, 2009
|
11 | 11 | ||||||
|
Additional
paid-in capital
|
21,690 | 18,989 | ||||||
|
Dedicated
reserves
|
5,024 | 4,807 | ||||||
|
Accumulated
other comprehensive income
|
5,682 | 5,682 | ||||||
|
Retained
earnings
|
35,962 | 35,589 | ||||||
|
Total
stockholders' equity
|
68,369 | 65,078 | ||||||
|
|
||||||||
|
Total
liabilities and stockholders' equity
|
126,336 | 116,740 | ||||||
-5-
Telestone
Technologies Corporation
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency
expressed in United States Dollars (US$), except for number of
shares) -
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
|
Three months ended
|
Six months ended
|
|||||||||||||||
|
June 30,
|
June 30,
|
|||||||||||||||
|
2010
|
2009
|
2010
|
2009
|
|||||||||||||
|
US$'000
|
US$'000
|
US$'000
|
US$'000
|
|||||||||||||
|
Operating
revenues:
|
||||||||||||||||
|
Net
sales of equipment
|
7,060 | 7,142 | 12,160 | 10,405 | ||||||||||||
|
Service
income
|
9,559 | 4,988 | 15,591 | 9,621 | ||||||||||||
|
Total
operating revenues
|
16,619 | 12,130 | 27,751 | 20,026 | ||||||||||||
|
Cost
of operating revenues:
|
||||||||||||||||
|
Cost
of net sales
|
3,998 | 4,741 | 6,868 | 6,639 | ||||||||||||
|
Cost
of service
|
5,123 | 2,382 | 8,446 | 3,680 | ||||||||||||
|
Total
cost of operating revenues
|
9,121 | 7,123 | 15,314 | 10,319 | ||||||||||||
|
Gross
income
|
7,498 | 5,007 | 12,437 | 9,707 | ||||||||||||
|
Operating
expenses:
|
||||||||||||||||
|
Sales
and marketing
|
4,176 | 1,847 | 6,904 | 4,028 | ||||||||||||
|
General
and administrative
|
882 | 478 | 3,816 | 1,321 | ||||||||||||
|
Research
and development
|
191 | 193 | 415 | 329 | ||||||||||||
|
Depreciation
and amortization
|
81 | 84 | 152 | 174 | ||||||||||||
|
Total
operating expenses
|
5,330 | 2,602 | 11,287 | 5,852 | ||||||||||||
|
Operating
income
|
2,168 | 2,405 | 1,150 | 3,855 | ||||||||||||
|
Interest
expense
|
(134 | ) | (89 | ) | (260 | ) | (130 | ) | ||||||||
|
Other
income, net
|
194 | 22 | 529 | 289 | ||||||||||||
|
Income
before income taxes
|
2,228 | 2,338 | 1,419 | 4,014 | ||||||||||||
|
Income
taxes
|
(508 | ) | (366 | ) | (829 | ) | (895 | ) | ||||||||
|
Net
income
|
1,720 | 1,972 | 590 | 3,119 | ||||||||||||
|
Other
comprehensive income
|
||||||||||||||||
|
Foreign
currency translation adjustment
|
— | (114 | ) | — | 131 | |||||||||||
|
Total
comprehensive income
|
1,720 | 1,858 | 590 | 3,250 | ||||||||||||
|
Earnings
per share:
|
||||||||||||||||
|
Weighted
average number of common stock outstanding
|
||||||||||||||||
|
Basic
|
10,549,143 | 10,404,550 | 10,531,304 | 10,404,550 | ||||||||||||
|
Dilutive
effect of warrants
|
— | — | 21,647 | — | ||||||||||||
|
Diluted
|
10,549,143 | 10,404,550 | 10,552,951 | 10,404,550 | ||||||||||||
|
Net
income per share of common stock
|
||||||||||||||||
|
Basic
(US$)
|
0.16 | 0.19 | 0.06 | 0.30 | ||||||||||||
|
Diluted
(US$)
|
0.16 | 0.19 | 0.06 | 0.30 | ||||||||||||
-6-
Telestone
Technologies Corporation
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE
SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency
expressed in United States Dollars (US$))
(Unaudited)
|
(Unaudited)
|
||||||||
|
Six months ended June 30,
|
||||||||
|
2010
|
2009
|
|||||||
|
US$'000
|
US$'000
|
|||||||
|
Cash
flows from operating activities
|
||||||||
|
Net
income
|
590 | 3,119 | ||||||
|
Adjustments
to reconcile net income to net cash used in
operating activities:
|
||||||||
|
Depreciation
and amortization
|
152 | 174 | ||||||
|
Allowance
for doubtful accounts
|
— | 283 | ||||||
|
Stock-based
compensation
|
2,701 | — | ||||||
|
Changes
in assets and liabilities:
|
||||||||
|
Accounts
receivable
|
(11,972 | ) | (8,644 | ) | ||||
|
Due
from related parties
|
— | 398 | ||||||
|
Inventories
|
(1,933 | ) | (2,734 | ) | ||||
|
Prepayments
|
465 | (2,743 | ) | |||||
|
Other
current assets
|
370 | 444 | ||||||
|
Accounts
payable
|
2,854 | 7,325 | ||||||
|
Customer
deposits for sales of equipment
|
7 | 169 | ||||||
|
Due
to related parties
|
1,379 | 34 | ||||||
|
Income
tax payable
|
963 | (1,321 | ) | |||||
|
Accrued
expenses and other accrued liabilities
|
1,102 | (798 | ) | |||||
|
Net
cash used in operating activities
|
(3,322 | ) | (4,294 | ) | ||||
|
Cash
flows from investing activities
|
||||||||
|
Purchase
of property, plant and equipment
|
(173 | ) | (371 | ) | ||||
|
Net
cash used in investing activities
|
(173 | ) | (371 | ) | ||||
|
Cash
flows from financing activities
|
||||||||
|
Repayment
of short-term bank loans
|
(3,656 | ) | (2,918 | ) | ||||
|
Short-term
bank loans raised
|
3,656 | 3,652 | ||||||
|
Net
cash from financing activities
|
— | 734 | ||||||
|
Net
decrease in cash and cash equivalents
|
(3,495 | ) | (3,931 | ) | ||||
|
Cash
and cash equivalents, beginning of the period
|
11,233 | 7,866 | ||||||
|
Effect
on exchange rate changes
|
— | (33 | ) | |||||
|
Cash
and cash equivalents, end of the period
|
7,738 | 3,902 | ||||||
|
Supplemental
disclosure of cash flow information
|
||||||||
|
Interest
received
|
29 | 7 | ||||||
|
Interest
paid
|
(195 | ) | (65 | ) | ||||
|
Tax
paid
|
(221 | ) | (2,486 | ) | ||||
-7-
For
further information, please contact:
Company:
Liping
Zhang, Board Secretary
Tel: +86-10-8367-0088
ext. 1003
Email:
zhangliping@telestone.com
Dan Feng,
Assistant Secretary of the Board
Tel: +86-10-8367-0088
x1232
Email:
fengdan@telestone.com
Investor
Relations:
John
Mattio
HC
International Inc.
Tel: +1-203-616-5144
Email:
john.mattio@hcinternational.net
-8-