Tongxin International, Ltd. Reports Third Quarter 2008 Financial Results
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NEW YORK and CHANGSHA, China, November 10, 2008: Tongxin International Ltd. ("Tongxin") ("Company")a manufacturer of engineered commercial vehicle body structures ("EVBS"), SUV passenger vehicle bodies and stamped body parts for the Chinese commercial vehicle market, today announced the Company's third quarter financial results ended September 30th, 2008.
Third quarter revenues increased 4.7 % to $22.8 million
Nine-month revenues increased 21.3 % to $76.3 million vs. the same period in 2007
Nine-month net income increased 8.0 % to $8.1 million vs. the same period in 2007
2008 Third Quarter Financial Results
Net revenues for the third quarter ended September 30, 2008 reached $22.8 million, an approximate $1.1 million or 4.7% increase over the same period of the prior year. As reported earlier this year, the third quarter for Tongxin International and other companies in the automotive and steel sectors were hampered by factory reductions in preparation for, and during, the Beijing Olympics this summer. Government restrictions on power and emissions were placed on many automotive manufacturers and supply from steel mills producing cold-rolled steel for the months of July, August and half of September were also reduced. The effects of these measures anticipated a slow quarter for the entire sector. As reported by the UK Telegraph on September 21st, manufacturers including both sectors of automotive, passenger and commercial, resumed full production in mid September. Further adding to the challenges for the third quarter were slowdowns in production as the industry prepared for Euro III emission regulations in China.
Cost of goods sold were $18.5 million in the third quarter 2008, an increase of 13 % versus the same period, 2007. Gross profits for the third quarter were $4.4 million compared to $5.5 million in the third quarter of 2007. Gross margin percentages decreased to 19.2% in 2008 from 25.1% for the three months ended September 30, 2007. The decrease was directly attributed to higher costs in raw materials, specifically the 29% price increase in cold- rolled steel since January 1, 2008. Pricing increases are yet being passed on to customers, particularly Tongxin's largest customers in the Company's network of 130 commercial vehicle manufacturers throughout China. The Company anticipates a return to its standard gross margins of approximately 25% as steel pricing levels and material increases in contracts are recorded from recent invoices.
Total operating expenses for the third quarter of 2008 were $1.5 million versus $1.4 million for the same period in 2007. Operating expenses as a percentage of revenues were 6.5% compared with 6.2% for the same period, 2007. Operating income and operating margin for the quarter were $2.9 million and 12.6%, versus $4.1 million and 18.9% in 2007.
Net income was $2.1 million, representing a decrease of 16.2% from $2.5 million reported in the same period prior year. The net income reflects the $175,000 one-time transaction costs recorded by Tongxin International, Ltd (previously Automotive Acquisition Corporation) for the Company's business combination with Hunan Tongxin. The Company incurred $521,000 in taxes for the quarter and pays an effective tax rate of 23.5% for the year. Corresponding net profit margins were 9.1% for the quarter which represented a 230-basis point decrease versus the same quarter, 2007. This decrease was related to increases in raw material costs. Earnings per share for the quarter was $0.19 based on 11.2 million shares.
"We believe our management team properly estimated the effects of the factory restrictions and associated demands of the Euro III emission standards on our sales and shipments in the third quarter," opened Rudy Wilson, CEO of Tongxin International. "Despite our predictions, we were encouraged to see a slight increase in revenues quarter over quarter especially since the same set of circumstances were not present for our 2007 third quarter. Considering the highly-restrictive environment in which we were operating around the dates of the Olympics, an increase in revenues during third quarter demonstrates the resilience of the commercial market and our position as the leading EVBS supplier," Wilson concluded.
2008 Nine-Month Financial Results
Revenue increased approximately 21.3% to $76.3 million for the nine months ended September 30, 2008 as compared to $62.9 million for the same period last year. Operating expenses for the nine months ended September 30, 2008 were $4.7 million compared to $3.9 million for the same period in 2007. Operating expenses as a percentage of revenues remained steady at 6.2% for the nine months ended September 30, 2008 compared to the same period in 2007. Operating income for the nine months ended September 30, 2008 was $11.9 million, a decrease of 5.3% compared to $12.6 million for the nine months ended September 30, 2007. Net income was $8.1 million for the nine months ended September 30, 2008, an increase of 8.0% compared to same period last year. Net income for the nine months ended September 30th, 2008 reflected an one-time transaction cost of $320,000 associated with the Company's business combination on April 17th, 2008. Earnings per diluted share were $0.73 based on 11.2 million shares.
"We are very confident about our business operation and that our team will reach our guidance of the year. After polling our top customers and scheduling our builds and deliveries of the fourth quarter, the market has responded with added demand pent up from manufacturers and their customers in October. A combination of lowered steel prices, strong order bookings from our customers and the relaxing of the Euro III compliance time table should result in a return to our standard margins and pace of business we experienced during the first quarter of this year," Wilson added.
Balance Sheet and Cash Flow Discussion
As of September 30, 2008, Tongxin International had approximately $19.0 million in cash and cash equivalents. The company maintained a current ratio of 1.1 to 1 and $12.0 million in accounts receivable on September 30, 2008. Corresponding days sales outstanding (DSO) were 47 days. Stockholders' equity was $34.2 million on September 30, 2008, representing an increase of 52.8% versus same period 2007.
The Company has approximately five million warrants with strike price of $5.00 and callable at $10.00. If exercised, warrants would yield $25.2 million in proceeds to the company.
Business Outlook
Based on its order bookings and accrued demand for the same time period, the Company anticipates a strong fourth quarter as its customer base completely resumes production and the extension of timetables to meet Euro III regulations. Additionally, the Company is completing USGAAP audit of Meihua Bus for which a framework agreement was signed on July 28th, 2008. Preliminary results for Meihua Bus indicate higher than expected revenues and net income for the 2008 year. Tongxin anticipates closing the Meihua acquisition before year end.
Conference Call
The Company will host a conference call on November 10th, 2008, at 5:00 p.m. EST. To attend the call, please use the dial information below. When prompted, ask for the "Tongxin International" and or be prepared to provide the conference ID.
Date: November, 10th 2008 Time: 5:00 pm ET Conference Line Dial-In (U.S.): 1-800-762-8932 International Dial-In: +1-480-629-9031 Conference ID: 3941507 Webcast link: VIAVID
Please dial in at least 10-minutes before the call to ensure timely participation. A playback will be available through November 17th, 2008. To listen, please call 800-406-7325 within the United States or +1 303-590-3030 when calling internationally. Utilize the pass code 3941507 for the replay.
