IT Tech Packaging Inc (ITP) 2018 Q1 法說會逐字稿

Hello, ladies and gentlemen, and welcome to participate in Orient Paper's First Quarter of 2018 Earnings Conference Call. (Operator Instructions) At this time, I would like to inform you that this conference is being recorded. (Operator Instructions)

Joining us today are Mr. Zhenyong Liu, Orient Paper's Chairman and Chief Executive Officer; and Ms. Jing Hao, the company's Chief Financial Officer. Remarks from both Mr. Liu and Ms. Hao will be delivered in English by an interpreter.

Orient Paper announced its first quarter of 2018 financial results via the press release yesterday, which can be found on the company's website at www.orientpaperinc.com.

First, Mr. Liu will brief you on the company's key operational highlights over the first quarter of 2018, and then Ms. Hao will review the company's financial results.

Before we start, I would like to draw your attention to our safe harbor statement. Management's prepared remarks contain forward-looking statements within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. All statements, other than the statements of historical facts in its announcement are forward-looking statements including, but not limited to, anticipated revenues from the corrugating medium paper, tissue paper, offset printing paper business segments; the action and initiatives of current and potential competitors; the company's ability to introduce new products; the company's ability to implement capacity expansion; market acceptance of new products; general economic and business conditions; the ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the company's filing with the Securities and Exchange Commission.

These forward-looking statements involve known and unknown risks and uncertainties and are based on the current expectation, assumption, estimates and projection about the company and the industry. The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances to the changes in its expectation except as may be required by the law.

Although the company believes expectations expressed in these forward-looking statements are reasonable, it cannot assure that the expectation will turn out to be correct and investors are cautioned the actual result may differ materially from the anticipated results. This is a presentation document featuring the management's prepared remarks, and it's now available for download from the company's website at www.orientpaperinc.com.

Please note that there will be a discussion on the non-GAAP financial measure or EBITDA, or earnings before interest, taxes, depreciation and amortization. Please refer to our press release for a complete reconciliation of EBITDA to net income. As a kind reminder, all numbers in our presentation are quoted in U.S. dollars and all comparisons after year-over-year comparisons unless otherwise stated.

I would now like to turn the call over to Mr. Liu. His comments will be delivered in English by Dan McCarron from Weitian Investor Relations. Dan, please go ahead.

(foreign language)

Thank you, operator, and good morning, everyone. Thank you for joining our first quarter 2018 earnings conference call. Both revenues and profits for our first quarter saw substantial decreases, with a sharp decline in sales and volumes for all product categories. The disappointing first quarter results reflected the impact of temporary suspension of production due to government-mandated restriction on the supply of natural gas that lasted for most of the first quarter. However, production at our manufacturing facilities has been back to normal since mid-March, and we anticipate a strong rebound in our business in the second quarter.

Now I will turn the call over to our CFO, Ms. Jing Hao, who will review and comment on the first quarter financial results. Her comments will be delivered in English by my colleague, Janice Wang. Janice, please go ahead.

(foreign language)

Thanks, Dan, and thanks, everyone, for being on the call. And next on behalf of the management team, I will summarize some key financial results for the first quarter of 2018, also, occasionally refer to specific production lines associated with various products. I will make clear to which products I'm referring to. For reference, though, a numbering system for our production line provided in our earnings press release and on Slide #17, the earnings call presentation.

Now let's look at the financial performance for the first quarter of 2018. Please turn to Slide #7.

For the first quarter of 2018, total revenue decreased 92.5% to $1.9 million due to the decrease in sales volume for all product categories and partially offset by increase in blended average selling price.

Turning to Slide 8. For the first quarter of 2018, the CMP segment, including both regular CMP and the lightweight CMP, generated revenue of $1.6 million, representing 82.6% of total revenue. $0.9 million of revenue was from our regular CMP products and $0.7 million was from lightweight CMP. Volume for CMP segment decreased by [94.5%] to 2,923 tonnes, of which 1,672 tonnes was regular CMP and 1,251 tonnes was lightweight CMP. Average selling price or ASP for regular CMP increased by 33.4% to $543 per tonne, while ASP for lightweight CMP increased 18.4% to $521 per tonne.

Turning to Slide 9. For the first quarter of 2018, our offset printing paper segment generated revenue of $0.3 million, down 88.8% from the same period last year and representing 17.4% of total revenue. We shipped 379 tonnes of offset printing paper in the first quarter, decreased 92% from the same period last year. ASP for offset printing paper also increased by 41% to $967 (sic) [$867] per tonne.

Production of tissue paper was suspended in September and October 2017 for the replacement of coal boilers and the maintenance production in the following month due to volatility of tissue paper price. We had no revenue from tissue paper products for the first quarter of 2018, compared to $0.7 million, resulting from sales of 558 tonnes and an ASP of $1,260 per tonne for the first quarter of 2017. We expect to resume and increase production of tissue products when the market condition becomes favorable.

Slide #11 summarizes the changes in our revenue mix. For the first quarter of 2018 cost of sales decreased by $17.1 million to $2.6 million, leading to gross loss of $0.7 million from $5.7 million from the same period last year and a gross loss margin of 36.8% compared to gross profit margin of 22.4% from the last year.

For the first quarter of 2018, SG&A increased by $1 million or 37.1% to $3.8 million, compared to $2.8 million from the same period the prior year. For the first quarter of 2018, loss from operations was $4.5 million compared to income from operations of $2.8 million

(technical difficulty)

11.4% for the same period in the prior year.

(inaudible) $4.1 million, a net loss of $0.19 per basic and diluted share. This compared to net income of $1.7 million or net earnings of $0.08 per basic and diluted share for the same period last year.

Moving to Slide 12, 19 and 20, let's look at the balance sheet and the liquidity. As of March 31, 2018, the company had cash and cash equivalents, short-term debt, including related party loan, notes payable and the long-term debt, including related party loans of $0.7 million, $19.7 million, $4 million, and $7.6 million, respectively, compared to $2.9 million, $13.6 million, $6.1 million and $11.9 million respectively at the end of 2017.

Net accounts receivable was $0.8 million as of March 31, 2018, compared to $1.8 million as of December 31, 2017. Net inventory was $9 million as of March 31, 2018, compared to $8.5 million at the end of 2017.

As of March 31, 2018, the company had current assets of $17.8 million and current liabilities of $25.8 million, resulting in a working capital deficit of $8 million, this compared to current assets of $20 million, current liabilities of $21.8 million and a working capital deficit of $1.8 million at the end of 2017.

Net cash used in operating activities was $4.9 million for the 3 months ended March 31, 2018, compared to net cash provided by operating activities of $1.4 million for the same period of the prior year. Net cash used in investment activities was $0.7 million for the 3 months ended March 31, 2018, compared to $5.3 million for the same period the prior year. Net cash provided by financing activities was $0.8 million for the 3 months ended March 31, 2018, compared to $9.8 million for the same period of the prior year.

If you have any questions, please contact us through e-mail at ir@orientpaperinc.com. Management will respond to your questions through e-mails as soon as possible.

Operator, Please go ahead.

Thank you for attending the Orient Paper's First Quarter 2018 Earnings Conference Call. This concludes our call today. We thank you for listening. Goodbye.