U.S. Markets open in 1 hr 15 mins

Edited Transcript of ONP earnings conference call or presentation 8-Mar-19 1:00pm GMT

Q4 2018 IT Tech Packaging Inc Earnings Call

Baoding Mar 14, 2019 (Thomson StreetEvents) -- Edited Transcript of IT Tech Packaging Inc earnings conference call or presentation Friday, March 8, 2019 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Conference Call Participants

================================================================================

* Dan McCarron

* Janice Wang

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Hello, ladies and gentlemen, and welcome to participate in IT Tech Packaging's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded today. (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 fourth quarter and fiscal year 2018 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 fourth quarter and fiscal year 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 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 digital photo paper 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 expectations 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 expectations 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 is now available for download from the company's website at www.itpackaging.cn.

Please note that there will be discussions 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 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 Dan McCarron from Weitian Investor Relations. Mr. McCarron, please go ahead.

--------------------------------------------------------------------------------

Dan McCarron, [2]

--------------------------------------------------------------------------------

Thank you, operator, and good morning, everyone. Thanks for joining our fourth quarter and fiscal year 2018 earnings conference call.

With decreases in both revenues and margins, our fiscal year 2018 results highlighted continuous challenges facing our business. Our total revenue decreased by 25.9% to $86.7 million and gross profit decreased by 70.8% to $5.8 million. Production of regular CPM (sic) [CMP] was suspended in September 2018 due to equipment maintenance.

Our production of offset printing paper was temporarily restricted in August and September 2018 due to the same reason. As a result, the sale quantities of regular CPM (sic) CMP and offset printing paper products significantly decreased in 2018.

In the second half of 2018, we completed construction of one of our business expansion products (sic) [projects], our first tissue paper production line in Wei County Industrial Park, launching it in December 2018. As production in this plant increases over the coming months and with our existing packaging service product lines, we expect to see continuous revenue stream and improved financial conditions from 2019 sales.

Looking ahead, as Chinese paper market continues to grow, government environmental protection heightens and market competition escalates, we will be focusing on actively diversifying our product portfolio, opportunities for equipment upgrades, reducing raw material costs and leveraging technologies.

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

--------------------------------------------------------------------------------

Janice Wang, [3]

--------------------------------------------------------------------------------

Thanks, Dan, and thanks, everyone, for being on the call. Next, on behalf of the management team, I will summarize some key financial results for the fourth quarter of 2018. 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 #17.

Now let's look at our financial performance for the fourth quarter of 2018. Please turn to Slide #7. For the fourth quarter of 2018, total revenue decreased 29.5% to $25 million due to a decrease in both sales volume across our products and ASP of regular CMP.

Turning to Slide 8. For the fourth quarter of 2018, the CMP segment, including both regular CMP and lightweight CMP, generated revenue of $25.1 million, representing 100% of total revenue. [$19.8] million of revenue was from our regular CMP products and $5.3 million was from lightweight CMP. CMP segment volume slightly decreased by 0.6% to 53,402 tonnes, of which 41,870 tonnes were regular CMP and 11,532 tonnes were lightweight CMP. Average selling price, or ASP, for regular CMP decreased by 14.9% to $472 per tonne, and ASP for lightweight CMP decreased 17.1% to $459 per tonne.

Turning to Slide 9. For the fourth quarter of 2018, our offset printing paper segment did not generate any revenue as we sold 0 tonnes of offset printing paper in the fourth quarter of 2018 compared to 6,512 tonnes at an ASP of $826 per tonne in the same period of the prior year.

Turning to Slide 10. We recognized no revenue from tissue paper products for the fourth quarter of 2018 compared to $0.3 million from sales of 186 tonnes at an ASP of $1,448 per tonne for the fourth quarter of 2017. Production of the tissue paper was suspended in September and October 2017 due to the replacement of coal boilers. In December 2018, we completed the construction and installation and test of operation of PM8 and announced the commercial launch of tissue paper production. We're expecting to commence the full operation of production and sales of tissue paper products in year 2019.

In June 2016, we suspended the production of digital photo paper due to low market demand for our products and now are considering renovating the line to produce more competitive products. We expect that our digital photo paper production will remain suspended for the near future.

Slide #11 summarizes the changes in our revenue mix. For the fourth quarter of 2018, total cost of sales decreased by $9.1 million to $22.7 million leading to total gross profit of $2.2 million, down from $3.6 million for the same period last year, and overall gross margin of 9%, a decrease of 10.2% from last year.

For the fourth quarter of 2018, SG&A expenses increased by 14.7% to $3.4 million and losses from operations were $5 million compared to loss from operations of $1.7 million for the same period last year. Operating loss margin was 20.3% compared to operating loss margin of 4.7% for the same period last year.

For the fourth quarter of 2018, net loss was $5.2 million, resulting in net loss of $0.24 per basic and diluted share. This compared to net loss of $1.6 million or net loss of $0.08 per basic and diluted share for the same period last year.

For the fourth quarter of 2018 EBITDA decreased by $3.7 million to negative $1.7 million from $2 million for the same period last year.

Now shifting gear to year-to-date financial results. For the 12 months ended December 31, 2018, total revenue decreased 25.9% to $86.8 million as a result of decreases in sales volume of regular CMP and offset printing paper, which was partially offset by the increase in ASP of these products.

For the 12 months ended December 31, 2018, the CMP segment, including both regular and lightweight CMP, generated revenue of $81.6 million representing 94.1% of total revenue. $63.2 million in revenue was from our regular CMP products and $18.4 million was from lightweight CMP.

Volume for the CMP segment decreased by 27.2% to 150,658 tonnes, of which 116,020 tonnes (sic) [116,012 tonnes] were regular CMP and 34,646 tonnes were lightweight CMP. ASP for regular CMP increased by [17.5%] to $545 per tonne and ASP for lightweight CMP increased by 14.7% to $531 per tonne.

For the 12 months ended December 31, 2018, our offset printing paper segment generated revenue of $5.1 million, representing 5.9% of total revenue. We shipped 6,191 tonnes of offset printing paper for the 12 months ending December 31, 2018, a decrease of 76.7% from the same period last year. ASP for offset printing paper increased by 18.2% to $830 per tonne.

For the 12 months ended December 31, 2018, we sold 0 tonnes of tissue paper products as opposite (sic) [opposed] to 1,804 tonnes in the same period of 2017. Production was suspended from late January 2018 to mid-march 2018 due to a government-mandated restriction on the natural gas supply and production [due] to volatility with tissue paper prices. Revenue generated from digital photo paper was [$13,622] for the 12 months ended December 31, 2018.

For the 12 months ended December 31, 2018, total cost of sales decreased by $16.2 million to $80.9 million, leading to total gross profit of $5.8 million, a decrease of 70.8% from last year. Overall gross margin of 6.7% reflects a decrease of 10.4 percentage points from last year.

For the 12 months ended December 31, 2018, SG&A expenses were $13.1 million compared to $11.3 million for the same period of last year. For the 12 months ended 31st -- December 31, 2018, income from operations decreased from $4.7 million to a negative $11.2 million. Operating loss margin was 12.9% compared to operating profit margin of 4% for the same period of last year. For 12 months ended December 31, 2018, net loss was $10.5 million or $0.49 loss per basic and diluted share compared to net income of $1.7 million or earnings of $0.08 per basic and diluted share for the same period of last year. For the 12 months ended December 31, 2018, EBITDA decreased from $19.4 million to $3.4 million for the same period of last year.

Moving to Slides 24 and 25, let's look at the balance sheet and liquidity. As of December 31, 2018, the company had cash, bank balances, and restricted cash, short-term debt, including bank loans, current portion of long-term loans from credit union and related party loans, notes payable and long-term debt, including related party loans of $12.1 million, $40.3 million, $3.6 million and $6.9 million, respectively, compared to $9 million, $13.6 million, $6.1 million and $11.9 million, respectively, at the end of 2017.

Net accounts receivable was $2.9 million as of December 31, 2018, compared to $1.8 million as of December 31, 2017. Net inventory was $2.9 million as of December 31, 2018, compared to $8.5 million at the end of 2017. As of December 31, 2018, the company had current assets of $24.2 million and the current liabilities of $29.6 million, resulting in a working capital deficit of $5.5 million. This compared to current assets of $20 million, current liabilities of $21.8 million and the working capital deficit of $1.8 million at the end of 2017.

Net cash provided by operating activities was $9.8 million for 2018 compared to $18.2 million for 2017. Net cash used in investing activities was $2.2 million for 2018 compared to $9.3 million 2017. Net cash used by financing activities was $3.2 million for 2018 compared to $4.9 million for 2017.

In late January 2018, we temporarily suspended our production due to a government-mandated restriction on the natural gas supply. We resumed production on March 14, 2018. As a result, we incurred a net loss of $4 million in the first quarter of 2018. As production resumed, the net cash generated from operations for the 9 months from April 2018 to December 2018 was $14 million cash in as compared to net cash out of $4.8 million in the first quarter of 2018. The management expects that there will be sufficient and continuous cash in from sales in the first half of the year 2019, and working capital condition will be further improved.

If you have any questions, please contact us through e-mail at ir@itpackaging.cn. Management will respond to your questions through e-mails as soon as possible. Operator, please go ahead.

--------------------------------------------------------------------------------

Operator [4]

--------------------------------------------------------------------------------

Thank you for attending IT Tech Packaging's Fourth quarter and Fiscal Year 2018 Earnings Conference Call. This concludes our conference today, and we thank you for listening. Goodbye.