BEIJING, Nov. 12 /PRNewswire-Asia-FirstCall/ -- Telestone Technologies Corporation ("Telestone" or the "Company") (Nasdaq: TSTC), a leading developer and provider of wireless communication local access network solutions based in China, today announced the Company's third quarter financial results for the quarter ending September 30, 2009.
-- Third quarter 2009 revenues increased 124.7% to $18.9 million
year-over-year; gross margins were 52.7%
-- Third quarter 2009 net income increased 281.8 % to $4.2 million
year-over-year with net margins of 22.3%; EPS was $0.41 vs. $0.11
year-over-year
-- For the nine months ended September 30, 2009, revenues increased 86.1%
to $38.9 million year-over-year; net income increased 96.8% to
$7.4 million year-over-year; EPS was $0.71 versus $0.36 year-over-year
-- WFDS(TM) product represents about 20% of third quarter revenues
-- Accounts receivable decreased 19.6% to $59.2 million for the third
quarter ended September 30, 2009, compared to $70.8 million for the
second quarter ended June 30, 2009
-- Telestone reaffirms guidance of $70.0 million in revenues for 2009
based on strong order bookings for the balance of the year.
SUMMARY FINANCIALS
Third Quarter 2009 Results
Q3 2009 Q3 2008 CHANGE
Net Sales $ 18.9 million $ 8.4 million + 124.7%
Gross Profit $ 8.9 million $ 3.9 million + 128.2%
Net Income $ 4.2 million $ 1.1 million + 281.8%
EPS (Fully Diluted) $0.41 $0.11 +272.7%
Nine Month 2009 Results
First 9 months First 9 months
of 2009 of 2008 CHANGE
Net Sales $38.9 million $20.9 million +86.1%
Gross Profit $18.6 million $10.5 million +77.1%
Net Income $7.4 million $3.7 million +100.0%
EPS (Fully Diluted) $0.71 $0.36 +97.2%
Third Quarter Financial Results
Revenues for the third quarter ended September 30, 2009 increased 124.7% to $18.9 million compared to same period of 2008. Telestone revenues are a combination of equipment and service sales. Equipment sales, which totaled $11.1 million, are attributed to the Company's shipments of its proprietary 2G and 3G local wireless access network equipment, manufactured for specific customer site installations. Service revenue, which totaled $7.8 million, is a combination of billable system integration and installation charges by Telestone's project design and implementation engineers. Total revenue growth for the quarter was directly attributed to the Company's sales of 2G and 3G network installations throughout China. In addition, a growing contributor to the Company's revenues is its Wireless Fiber Option Distribution System(TM) (WFDS(TM)) which accounted for about 20% of Telestone's revenues for the quarter. WFDS(TM) systems provide "multi-play" capabilities for media, voice, fax, closed circuit TV, data and all three protocols of Chinese cellular signals over a fiber optic cable routed directly into an installation site. WFDS(TM) is a certified-technology by the three Chinese telecommunications companies; China Mobile, China Unicom and China Telecom, and was recently approved by the FCC of the United States in September of this year. The certification by FCC can allow installation of WFDS(TM) based systems in the U.S.
"We are very pleased with our third quarter results, which represents a record and key turning point for our business. We are also proud that our customer base in China, including the three major telecommunication suppliers, have accepted our WFDS(TM) technology as a viable market standard for 3G products," opened Han Daqing, CEO and Chairman of Telestone. "We anticipate WFDS(TM) installations will continue to accelerate as carriers come to prefer its functionality advantage over the traditional 3G network equipment. We anticipate this trend will continue throughout the balance of the year and into 2010 as we gain further market shares," stated Han.
Costs of goods sold were $10.0 million in the third quarter of 2009 which yielded gross profits of $8.9 million. Costs of goods are comprised of components used in the manufacturing of Telestone's 2G and 3G product line and installation costs of project management and labor costs at commercial and residential customer locations. Specifically, cost of equipment sales totaled $7.1 million, yielding gross margins of 36.0% while cost of services totaled $2.9 million, yielding gross margins of 62.8%. Blended gross margins were 47.2% compared to 46.9% for the third quarter of 2008.
Total operating expenses for the quarter were $3.3 million, or 18.0% of revenues. Third quarter operating expenses as a percentage of revenues decreased 9.20 percentage points compared to the same quarter in 2008. The decrease in percentage for operating expenses is primarily due to the fact that expenses are rather fixed in nature. As a result, operating income increased 223.6% to $5.5 million in the quarter compared to $1.7 million recorded in the third quarter of 2008. Telestone maintains a 24% effective income tax rate for the quarter. However the taxes paid in the third quarter were not only for the net income in the quarter, but also including taxes due in previous quarters. As a High and New Technology Enterprise in China, the Company expects its income tax rate to be 15% for a three-year period.
Net income for the third quarter ended September 30, 2009 increased 281.8% to $4.2 million compared to $1.1 million in the third quarter of 2008. Net income margins for the quarter were 22.5% compared to 13.3% recorded in the third quarter of 2008. Earnings per share were $0.41 on 10.4 million fully diluted shares issued and outstanding, an increase of 272% compared to $0.11 reported in the third quarter of 2008.
Nine-Month Financial Results
For the nine months ended September 30, 2009, revenues increased 86.1% to $38.9 million compared to $20.9 million reported for the same period of 2008. The China-based telecommunications companies' goals to upgrade more than 200 cities in China to a 3G network platform by the close of 2009 was one of the principal drivers of this growth. As announced in January of 2009, Beijing has allocated $41 billion as part of a telecommunications stimulus package to upgrade China's more than 700 million cellular subscribers to a 3G network platform by 2013. Though Telestone has agent relationships in 28 countries worldwide and plans to continue increasing this component of revenue streams, over 98% of the nine months in 2009 revenues are China-based.
"Given our visibility into new orders, we are confident that continued strong demand in China will enable us to meet our $70 million in revenue guidance for the year," confirmed Han Daqing. "With more than 900 million cell phone subscribers forecasted by 2013 in China, the requirement to upgrade the networks to 3G creates a tremendous opportunity for the telecom providers and is our first priority. Securing the U.S.-FCC approval for our WFDS(TM) technologies will enable us to begin both marketing and commercialization roll-out efforts in the Americas. While we recognize China will be the principal growth driver for our business in the immediate future, we are also excited about capitalizing on growth opportunities in international markets to drive incremental sales and further diversify our customer base."
Gross profits for the nine month period ended was $18.6 million, representing a 77.1% increase over $10.5 million for the same period of 2008. Gross margins for the first nine months of 2009 were 47.8% compared to 50.4% for the same period of 2008.
Net income for the nine months period was $7.4 million, a 100% increase over the same period of 2008. Earnings per share for the period were $0.71 compared to $0.36 for the same period of 2008.
Balance Sheet and Cash Flow Discussion
As of September 30, 2009, Telestone Technologies had cash and cash equivalents totaling $5.3 million compared to $7.9 million on December 31, 2008. The Company maintained a current ratio of 2.0 based on $75.0 million in current assets and $38.1 million in current liabilities with a working capital position of $36.9 million. On September 30, 2009, Telestone had $59.2 million in receivables compared to $70.8 million on June 30, 2009, a reduction of accounts receivable by 19.6%, while revenues grew significantly. The Company was able to reduce its days of sales by185 days to 405. However account receivables older than a year become long-term receivables which were $18.8 million as of the end of September 2009. Even with that included, the total DSO is still lower than that of the second quarter of 2009. We expect our DSO number to be around 360 by the end of the year. Included in accounts receivable and DSO are 10% of Telestone customers' contract value to provide warranty service on installations for a twenty-four months period, a value which per GAAP must remain on the Company's accounts receivable until paid in full. For the nine months period of 2009, the Company recorded zero (0) bad debts.
Stockholders' equity was $59.9 million as of September 30, 2009, a 14% increase compared to $52.4 million as of December 31, 2008.
Conference Call
To attend the call, please use the dial information below. When prompted, ask for the "Telestone Technologies Call" and/or be prepared to provide the conference ID.
Date: November 13, 2009
Time: 10:00am ET
Conference Line Dial-In (U.S.): 1-877-941-8602
International Dial-In: 1-480-629-9811
Conference ID: 4182022
Please dial in at least 10-minutes before the call to ensure timely participation. A playback will be available through November 20th, 2009. To listen, please call 1-800-406-7325 within the United States or +1-303-590-3030 when calling internationally. Utilize the pass code 4182022 for the replay.
About Telestone Technologies Corporation
Telestone provides Local Access Network Solutions, products and engineering integration to telecom carriers. In terms of 2G technologies, Telestone is a main supplier in wireless access coverage infrastructure building for the GSM and CDMA network base on its RFPA technologies primarily in the PRC. The products; repeaters, line-amplifiers, antennas and radio accessories are all based on RFPA technologies. After intensive research on the demands of carriers in 3G technologies, based on its strong R&D capabilities in both wireless and Fiber-Optics, Telestone has invented its WFDS unification local access network solution and products which are highly welcomed by all telecom carriers and property owners. Telestone also provides services that include project design, project manufacturing, installation, maintenance and after-sales services. Telestone currently has approximately 1,200 employees.
For further information, please contact:
Company:
Ren Hu, Board Secretary
Tel: +86-137-1872-8163
Email: arenhu@gmail.com
Investor Relations:
HC International Inc.
John Mattio
Tel: +1-203-616-5144
Email: john.mattio@hcinternational.net
Appendix: Financial Statements of Telestone Technologies Corporation
Condensed Consolidated Balance Sheets
(Dollars in thousands except share data and per share amounts)
(Unaudited)
As of As of
September 30, December 31,
2009 2008
ASSETS US$’000 US$’000
Current assets:
Cash and cash equivalents 5,288 7,866
Accounts receivable, net of
allowance 59,208 62,136
Due from related parties 1,662 1,826
Inventories, at lower of cost or
market 6,930 7,843
Prepayment 1,770 2,347
Other current assets 98 1,352
Total current assets 74,956 83,370
Long-term receivables 18,774 --
Goodwill 3,119 3,119
Property, equipments and software,
net 1,162 1,050
23,055 4,169
Total assets 98,011 87,539
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term bank loans 3,656 2,918
Accounts payable – trade 15,338 11,776
Customer deposits for sales of
equipment 1,232 739
Due to related parties 1,708 1,673
Taxes payable 6,700 6,805
Accrued expenses and other accrued
liabilities 9,480 11,197
Total current liabilities 38,114 35,108
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$0.001 par value: Authorized -
100,000,000 shares as of September
30, 2009 and December 31, 2008 --
Issued and outstanding - 10,404,550
shares as of September 30, 2009 and
December 31, 2008 11 11
Additional paid-in capital 18,989 18,989
Dedicated reserves 4,513 3,787
Other comprehensive income 5,677 5,573
Retained earnings 30,707 24,071
Total stockholders’ equity 59,897 52,431
Total liabilities and stockholders’
equity 98,011 87,539
Condensed Consolidated Statements of Operations and Other Comprehensive
Income
Three months ended Nine months ended
September 30, September 30,
2009 2008 2009 2008
US$’000 US$’000 US$’000 US$’000
Operating revenues:
Net sales of equipment 11,099 5,797 21,504 12,112
Service income 7,792 2,610 17,413 8,832
Total operating revenues 18,891 8,407 38,917 20,944
Cost of operating revenues:
Cost of net sales (7,099) (3,586) (13,738) (7,116)
Cost of service (2,878) (879) (6,558) (3,281)
Total cost of operating revenues (9,977) (4,465) (20,296) (10,397)
Gross income 8,914 3,942 18,621 10,547
Operating expenses:
Sales and marketing 2,007 1,430 6,035 4,028
General and administrative 1,182 571 2,503 1,824
Research and development 138 208 467 461
Depreciation and amortization 79 76 253 237
Total operating expenses 3,406 2,285 9,258 6,550
Operating income 5,508 1,657 9,363 3,997
Interest expense (40) (112) (170) (255)
Other income, net 83 (28) 372 915
Income before income taxes 5,551 1,517 9,565 4,657
Income taxes (1,308) (395) (2,203) (917)
Net income 4,243 1,122 7,362 3,740
Other comprehensive income
Foreign currency translation
adjustment (27) 26 104 1,515
Comprehensive income 4,216 1,148 7,466 5,255
Earnings per share:
Weighted average number of common
stock outstanding
Basic 10,404 10,404 10,404 10,404
Dilutive effect of warrants -- 20 -- 59
Diluted 10,404 10,424 10,404 10,463
Net income per share of common stock
Basic and diluted (US$) 0.41 0.11 0.71 0.36
Condensed Consolidated Statements of Changes in Stockholders' Equity
(Dollars in thousands except share data and per share amounts)
Common stock
Additional
Number of paid-in
shares Amount capital
US$’000 US$’000
Balance at January 1, 2009 10,404,550 11 18,989
Net income
Foreign currency translation
adjustment
Transfer to dedicated reserves
Balance at September 30, 2009 10,404,550 11 18,989
Other
compre-
Dedicated hensive Retained
reserves income earnings Total
US$’000 US$’000 US$’000 US$’000
Balance at January 1, 2009 3,787 5,573 24,071 52,431
Net income 7,362 7,362
Foreign currency translation
adjustment 104 104
Transfer to dedicated reserves 726 (726) --
Balance at September 30, 2009 4,513 5,677 30,707 59,897
Condensed Consolidated Statements of Cash Flows
(Dollars in thousands except share data and per share amounts)
Nine months ended September 30,
2009 2008
US$’000 US$’000
Cash flows from operating activities
Net income 7,362 3,740
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Loss on disposal of property,
plant and equipment (15)
Depreciation and
amortization 253 237
Allowance for doubtful accounts 1,163 337
Changes in assets and liabilities:
Accounts receivable (17,009) (8,349)
Due from related
parties 164 55
Inventories 913 881
Prepayment 577 (330)
Other current assets 1253 (751)
Accounts payable 3,562 1,693
Customer deposits for sales of
equipment 493 (64)
Due to related parties 35 (595)
Taxes payable (105) (66)
Accrued expenses and
other accrued
liabilities (1,718) 3,335
Net cash used in operating activities (3,057) 108
Cash flows from investing activities
Purchase of property, plant and
equipment (366) (32)
Proceeds from disposal of property,
plant and equipment -- 49
Net cash used in investing activities (366) 17
Cash flows from financing activities
Repayment of short-term bank loans (2,918) (2,142)
Repayment of long-term loan from
related parties -- (27)
Proceeds from new short-term bank
loans raised 3,656 2,856
Net cash used in financing activities 738 687
Net increase (decrease) in cash and
cash equivalents (2,685) 812
Cash and cash equivalents, beginning
of the period 7,866 5,473
Effect on exchange rate changes 107 42
Cash and cash equivalents, end of the
period 5,288 6,327
Supplemental disclosure of cash flows
information
Interest received 7 23
Interest paid (76) 187
Tax paid (2,587) 54
