IT Tech Packaging Inc (ITP) 2020 Q2 法說會逐字稿

Hello, ladies and gentlemen, and welcome to participate in IT Tech Packaging's Second Quarter 2020 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded. (Operator Instructions)

Joining us today are Mr. Zhenyong Liu, IT Tech Packaging'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 interpreters.

IT Tech Packaging announced its second quarter 2020 financial results via press release yesterday, which can be found on the company's website at www.itpackaging.cn.

First, Mr. Liu will brief you on the company's key operational highlights over the second quarter of 2020, 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 provisions of the Private Securities Litigation Reform Act of 1995. All statements other than 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 and face mask business segments; the actions 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 filings with the Securities and Exchange Commission.

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

Although the company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that this expectation will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

There is a presentation document featuring management's prepared remarks, and it is now available for download from the company's website at www.itpackaging.cn.

Please note that there will be a discussion on 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 refer to 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 [Hebe Xu] from EverGreen Investor Relations. Mrs. Xu, please go ahead.

[Interpreted] Thank you, operator, and good morning, everyone. Thanks for joining our second quarter 2020 earnings conference call.

Despite our sales and operations were impacted by the COVID-19 pandemic during the first quarter, we made improvements in the second quarter as our paper products business recovered as new face mask business launched in April generated revenue of $0.9 million with gross margin of 59.5% in the second quarter. Our tissue paper continued a 100% growth in revenue and hit a historical high with sales volume of 2,884 tonnes. Due to the pandemic impact to downstream industry, we experienced a 13% to 21% decrease in ASPs over all paper products categories. However, except for offset printing paper, we did not see much sales volume fluctuation from our paper products during the second quarter. So we believe the underlying demand for our products remains strong, and we expect the overall performance will continue to be improved as the ASPs for all paper products become stabilized when the pandemic economy recovery continues through the whole industry chain.

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

[Interpreted] Thanks, [Hebe], and thanks, everyone, for being on the call. Next, on behalf of the management team, I will summarize some key financial results for the second quarter of 2020.

Also, I will occasionally refer to specific production lines associated with various products. I will make clear which products I am referring to. For reference, the numbering system for our production lines is provided on Slide #18.

Now let's look at our financial performance for the second quarter of 2020. Please turn to Slide #7.

For the second quarter 2020, total revenue decreased 21.6% to $26.4 million, due to the decrease in average selling prices for all paper products, combined with a significant decrease in sales volume of offset printing paper, which was also partially offset by the increase in sales volume of tissue paper products.

Turning to Slide 8. For the second quarter of 2020, the CMP segment, including both regular CMP and lightweight CMP, generated revenue of $21.9 million, representing 83% of total revenue. $17.4 million of revenue was from our regular CMP products, and $4.5 million was from lightweight CMP. CMP segment volume slightly decreased by 1.6% to 59,590 tonnes, of which 46,979 tonnes were regular CMP and 12,611 tonnes were lightweight CMP. Average selling price, or ASP, for regular CMP decreased by 15% to $370 per tonne, and ASP for lightweight CMP decreased by 15.4% to $357 per tonne.

Turning to Slide 9. For the second quarter 2020, the offset printing paper generated revenue of $1.3 million, decreased by $5 million or 79.8% from the same period of last year. The offset printing paper volume decreased by 74.5% to 2,183 tonnes. ASP for offset printing paper decreased by 20.7% to $578 per tonne.

Turning to Slide 10. Tissue paper products generated revenue of $2.4 million, increased by $1.2 million or 100.2%. This resulted from sales of 2,884 tonnes of tissue paper products with a 130% increase at an ASP of $825 per tonne with a decrease of 13%.

Turning to Slide 11. We sold 6,280 thousand pieces of face masks and generated revenue of $0.8 million from selling face masks for the second quarter 2020.

Slide #12 summarizes the changes in our revenue mix. For the second quarter of 2020, total cost of sales decreased by $6.9 million to $23.8 million, leading to total gross profit of $2.6 million, 12% decrease from the gross profit of $2.9 million for the same period of last year, and overall gross margin of 9.7% for the second quarter of 2020.

For the second quarter of 2020, SG&A expenses increased by 39.4% to $3.4 million, and a loss from operations was $0.8 million, compared to income from operations of $0.5 million for the same period of last year. Operating loss margin was 3% compared to operating margin of 1.6% for the same period of last year.

For the second quarter of 2020, net loss were $1 million, resulting in a net loss of $0.04 per basic and diluted share. This compares to a net income of $0.5 million or net income of $0.02 per basic and diluted share for the same period of last year.

For the second quarter of 2020, earnings before interest, taxes, depreciation and amortization decreased by $1.7 million to $2.9 million from $4.6 million for the same period of last year.

Now shifting gear to year-to-date financial results.

For the 6 months ended June 30, 2020, total revenue decreased on 31.3% to $35.1 million as a result of decreases in ASPs for all paper products combined with significant decrease in sales volume of offset printing paper products, this was also partially offset by increases in volume of tissue paper products.

For the 6 months ended June 30, 2020, the CMP segment, including both regular and lightweight CMP, generated revenue of $29.6 million, representing 94.4% of total revenue. $23.1 million in revenue was from our regular CMP products and $6.5 million was from lightweight CMP. Volume for the CMP segment decreased by 17% to 78,267 tonnes, of which 60,767 tonnes were regular CMP, and 17,500 tonnes were lightweight CMP. ASP for regular CMP decreased by 14.8% to $380 per tonne, while ASP for lightweight CMP decreased by 14.3% to $372 per tonne.

For the 6 months ended June 30, 2020, our offset printing paper segment generated a revenue of $1.3 million. We shipped 2,183 tonnes of offset printing paper for 6 months ending June 30, 2020, a decrease of 74.5% from the same period last year. ASP for offset printing paper decreased by 20.7% to $578 per tonne.

For the 6 months ended June 30, 2020, tissue paper products generated revenue of $3.4 million increased by $0.3 million or 11.1%. This resulted from sales of 4,069 tonnes tissue paper products with a 42.4% increase, at an ASP of $832 per tonne with a decrease of 22%.

For the 6 months ended June 30, 2020, face masks generated revenue of $0.8 million with sales volume of 6,280 thousand pieces of face mask.

For the 6 months ended June 30, 2020, total cost of sales decreased by $15.6 million to $32.7 million, leading to total gross profit of $2.4 million and a decrease of 20% from last year. Overall gross margin of 6.8% reflects an increase of 1.5 percentage points from last year.

For the 6 months ended June 30, 2020, SG&A expenses were $6 million compared to $5.4 million for the same period of last year. Loss from operations increased from $2.6 million to $3.7 million. Operating loss margin was 10.4%, compared to operating loss margin of 5.2% for the same period of last year.

Net loss was $3.4 million or $0.14 loss per basic and diluted share compared to net loss of $2.3 million or net loss of $0.10 per basic and diluted share for the same period of last year.

For the 6 months ending June 30, 2020, earnings before interest, taxes, depreciation and amortization decreased from $5.4 million to $4 million for the same period of last year.

Moving to Slide 19 and 20, let's look at our balance sheet and liquidity. As of June 30, 2020, the company had a cash and bank balances, short-term debt, including bank loans, current portion of long-term loans from credit union and related party loans, and long-term debt, including loans from credit union of $12.8 million, $10.4 million and $5.2 million, respectively, compared to $5.8 million, $8.3 million and $7.4 million, respectively, at the end of 2019.

Net accounts receivable was $3.2 million as of June 30, 2020, compared to $3.1 million as of December 31, 2019. Net inventory was $5.9 million as of June 30, 2020, compared to $1.6 million at the end of 2019. As of June 30, 2020, the company had current assets of $27.8 million and current liabilities of $16.6 million, resulting in a working capital of $11.2 million. This was compared to current assets of $24.04 million and the current liabilities of $16.8 million, resulting in a working capital of $7.2 million at the end of 2019.

Net cash provided by operating activities was $5.9 million for the second quarter of 2020, compared to net cash used in operating activities of $0.8 million for the same period of last year. Net cash used in investing activities was $0.98 million for the second quarter of 2020, compared to $5.02 million for the same period of last year.

Net cash provided by financing activities was $2.3 million for second quarter of 2020, compared to net cash used in financing activities of $5.3 million for the same period of last year.

If you have any questions, please contact us through email at ir@itpackaging.cn. Management will respond to your questions through emails as soon as possible.

Operator, please go ahead.

Thank you for attending IT Tech Packaging's Second Quarter 2020 Earnings Conference Call. This concludes our call today, and we thank you all for listening in. Goodbye.