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Edited Transcript of ONP earnings conference call or presentation 15-May-20 12:00pm GMT

Q1 2020 IT Tech Packaging Inc Earnings Call

Baoding Jun 28, 2020 (Thomson StreetEvents) -- Edited Transcript of IT Tech Packaging Inc earnings conference call or presentation Friday, May 15, 2020 at 12:00:00pm GMT

TEXT version of Transcript

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Conference Call Participants

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* Janice Wang;EverGreen Consulting Inc.

* Melody Shi;EverGreen Consulting Inc.

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Presentation

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Operator [1]

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Hello, ladies and gentlemen, and welcome to participate in IT Tech Packaging's First 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 first 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 first quarter 2020, and 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 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 and offset printing 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 obligations 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's 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 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 like now to turn the call over to Mr. Liu. His comments will be delivered in English by Melody Shi from Evergreen Investor Relations. Ms. Shi, please go ahead.

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Melody Shi;EverGreen Consulting Inc., [2]

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Thank you, operator, and good morning, everyone. Thanks for joining our first quarter 2020 earnings conference call.

As we have expected, our first quarter 2020 recorded 49.9% year-over-year decrease with revenue of USD 8.7 million, mainly as our production was suspended from mid-January 2020 to early March 2020, due to the COVID-19 pandemic outbreak as well as the seasonal effect of the Chinese New Year. While our facilities have been ramping up since March, our production and sales in the first quarter were all impacted, resulting in sales decline and profit loss.

Despite the unprecedented challenge created by the COVID-19 pandemic, our tissue paper products are in growing demand due to control of COVID-19 and the production lines have been running at full production capacity to fulfill orders secured since April. Given the market demands, we are scheduling a new tissue paper production line, PM10, which we expect to be launched shortly. In addition to adding a tissue paper production line, in April, we launched a nonmedical face mask production line to meet the huge demands for protective gear needed for the public and workers in different industries.

As such, we are confident the underlying demand for our products remains strong, and we look to improve the overall performance in the coming quarters.

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

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Janice Wang;EverGreen Consulting Inc., [3]

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Thanks, Melody, and thanks everyone for being on the call. Next, on behalf of the management team, I will summarize some key financial results for the first quarter of 2020. Also, I will currently refer to specific production lines associated with various products. I will make clear which products I'm referring to. For reference, the numbering system for our production lines provided on Slide #17.

Now let's look at our financial performance for the first quarter of 2020. Please turn to Slide #7. For the first quarter of 2020, total revenue decreased 49.9% to $8.7 million due to the decrease in both sales volume and average selling prices of CMP and tissue paper products.

Turning to Slide 8. For the first quarter of 2020, the CMP segment, including both regular CMP and lightweight CMP generated revenue of $7.7 million, representing 88.5% of total revenue. $5.7 million of revenue was from our regular CMP products and $2 million was from lightweight CMP.

CMP segment volumes significantly decreased by 44.6% to 18,677 tonnes, of which 13,788 tonnes were regular CMP and 4,889 tonnes were lightweight CMP. Average selling price or ASP for regular CMP decreased by 10.8% to $415 per tonne, and ASP for lightweight CMP decreased by 9.1% to $420 per tonne -- or sorry, $412 per tonne.

Turning to Slide 9. For the first quarter of 2020, our offset printing paper segment did not generate any revenue. Production of offset printing paper was suspended from mid-January 2020 to early March 2020 due to the COVID-19 pandemic outbreak. We expect revenue from this segment will be generated in the second quarter of 2020.

Turning to Slide 10. We recognized a revenue of $1 million from tissue paper products for the first quarter of 2020, resulting from sales of 1,185 tonnes at an ASP of $849 per tonne.

Slide #11 summarizes the changes in our revenue mix. For the first quarter of 2020, total cost of sales decreased by $8.7 million to $8.9 million, leading to total gross loss of $0.2 million, equaling to a gross loss of $0.2 million for the same period of last year and overall gross loss margin of 1.9%.

For the first quarter of 2020, SG&A expenses decreased by 9.5% to $2.7 million, and the losses from operations were $2.9 million compared to loss from operations of $3.2 million for the same period of last year.

Operating loss margin was 32.8% compared to operating loss margin of 18.2% for the same period of last year. For the first quarter of 2020, net loss was $2.4 million, resulting in a net loss of $0.11 per basic and diluted share. This compared to a net loss of $2.7 million or net loss of $0.12 per basic and diluted share for the same period last year.

Our first quarter of 2020, earnings before interest taxes, depreciation and amortizations increased by $0.3 million to $1.1 million from $0.8 million for the same period last year.

Moving to Slide 12, 19 and 20, let’s look at our balance sheet and liquidity. As of March 31, 2020, the company had cash and bank balances, short-term debt, including bank loans, current portion of long-term loans from Crédit Union and related party loans and long-term debt, including related party loans of $11.7 million, $8.3 million and $7.3 million, respectively, compared to $5.8 million, $8.3 million and $7.4 million, respectively, at the end of 2019.

Net accounts receivable was $1.8 million as of March 31, 2020, compared to $3.1 million as of December 31, 2019. Net inventory was $2 million as of March 31, 2020, compared to $1.6 million at the end of 2019. As of March 31, 2020, the company had current assets of $21.6 million and current liabilities of $40 million resulted in a working capital of $7.6 million. This was compared to current assets of $24 million and 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 were $6.9 million for the first quarter of 2020 compared to net cash used in operating activities of $3.1 million for the same period of last year. Net cash used in investing activities were $0.8 million for the first quarter of 2020 compared to $1.4 million for the same period of last year. Net cash from financing activities were 0 for the first quarter of 2020 compared to net cash used in financing activities of $5.4 million for the same period of last year.

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.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have one question over the phone, comes from the line of [Timothy Clarkson from Investments].

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Unidentified Analyst, [2]

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Sure. Just a comment. I just -- yes. I just want to make a comment to congratulate the company on opening up its new facility, which maybe some people aren't familiar with the company. They've spent over $100 million, and it's been over 5 years to develop this, that's like $5 a share. So I just want to congratulate the company. Most of that money was internally generated from profits and cash flow. My first question is, do you expect your regular cardboard business, your lightweight cardboard business and your offset paper to go back to the normal levels that you were seeing in the third and fourth quarter?

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Melody Shi;EverGreen Consulting Inc., [3]

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Janice will respond to this question.

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Janice Wang;EverGreen Consulting Inc., [4]

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We are expecting our CMP products business will be back on track in second and the third quarter this year.

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Unidentified Analyst, [5]

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Good. And just one last question. Would the company consider a stock buyback or dividends later this year or next year if the company becomes more profitable?

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Melody Shi;EverGreen Consulting Inc., [6]

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Currently, the company has no dividend plans, but we will consider this if the company becomes more profitable in the near future. We expected much solid liquid -- much liquid cash positions in the third and fourth quarters this year because we launched another new tissue paper production, and we launched the facial mask products. So this will allow the company a much more profitable business. So we think we will consider this maybe when the company gets a solid financial condition at the end of this year.

Okay. Do you have any other questions?

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Operator [7]

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There are no further questions over the phone, presenters, please continue.

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Melody Shi;EverGreen Consulting Inc., [8]

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Okay. If no more questions from investors, maybe we can go ahead and end this conference call.

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Janice Wang;EverGreen Consulting Inc., [9]

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Yes, we can conclude the conference call operator, if there are no fresh questions from the participants.

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Operator [10]

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Thank you, presenters. Ladies and gentlemen, this concludes our conference for today. Thank you all for participating. Stay safe, everyone. You may now disconnect.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]