April 11, 2013 at 16:46 PM EDT
Cleantech Solutions International Reports Fourth Quarter and Full Year 2012 Results

WUXI, Jiangsu Province, China, April 11, 2013 /PRNewswire-FirstCall/ -- Cleantech Solutions International, Inc. ("Cleantech Solutions" or "the Company") (NASDAQ: CLNT), a manufacturer of metal components and assemblies, primarily used in the wind power, solar, dyeing and finishing equipment and other clean technology industries, today announced its financial results for the three months and year ended December 31, 2012.

"The year 2012 was marked by a challenging environment in China that impacted capital spending and demand from customers in our key end markets, particularly during the first half of the year.  Despite these challenges, we closed the year with 28.3% growth in revenue in the fourth quarter, driven by strong demand for our patented airflow dyeing machines and improving sales of forged products to customers in the wind power industry.  Although we recorded a non-cash impairment loss related to equipment which we are no longer using and which is being held for sale during the fourth quarter, we were still profitable due to greater operational efficiencies and careful cost control," said Mr. Jianhua Wu, Chairman and CEO of Cleantech Solutions.

Fourth Quarter 2012 Results

Revenue for the fourth quarter of 2012 increased 28.3% to $17.6 million, compared to $13.7 million for the same period of 2011. Revenue increased slightly compared to the third quarter of 2012.

Revenue from the sale of forged rolled rings to the wind power industry and other industries increased 2.6% to $8.3 million, or 47.2% of net revenue, compared to $8.1 million, or 59.1% of net revenue, in the same period last year. The increase in revenue was mainly due to improving demand from existing customers in the wind power industry following several quarters of reduced order flow, which was counterbalanced by lower market demand for capital equipment related to the Company's forged rolled rings and related products for other industries.

The increase in revenue is summarized as follows:

  • Revenue from the sale of forged rolled rings exclusively to the wind power industry increased by 15.5% to $5.6 million, representing 31.7% of net revenue, compared to $4.8 million, or 35.2% of net revenue, in the comparable period last year. 
  • Revenue from the sale of forged rolled rings to other industries decreased 16.5% to $2.7 million, or 15.5% of net revenue, compared with $3.3 million, or 23.9% of net revenue for the comparable period of the prior year. 

Revenue from the Company's dyeing and finishing equipment segment increased 65.5% to $9.3 million, or 52.8% of net revenues, compared to $5.6 million, or 40.9% of net revenue, for the fourth quarter of 2011. This increase was largely attributable to the dyeing industry's response to local government's policies which encourage the purchase of low-emission airflow dyeing machines.

Gross profit for the fourth quarter of 2012 increased 38.2% to $4.2 million, compared to $3.1 million for the same period in 2011. Gross margin increased to 24.1% during the fourth quarter of 2012 compared to 22.4% for the same period a year ago. The increase in gross margin for the fourth quarter was primarily attributable to (i) the increased operational and cost efficiencies for forged rolled rings and related products segment, including the allocation of fixed costs primarily consisting of depreciation, to cost of revenues as the Company operated at higher production levels in response to higher revenues, and (ii) the significant portion of revenue for the dyeing and finishing equipment segment generated from the sale of airflow dyeing machinery, which generates a higher gross margin than the Company's traditional dyeing machinery.  The principal source of dyeing revenue in the fourth quarter of 2011 was traditional dyeing machinery.

Operating expenses increased 90.8% to $3.5 million, compared to $1.8 million in the comparable period last year. The increase was primarily due to a non-cash impairment loss of $2.2 million as a result of writing down the carrying value of equipment to its estimated fair value based on an impairment assessment conducted on the equipment held for sale at December 31, 2012. This equipment had been used to manufacture certain electro-slag re-melted ("ESR") equipment that was used to produce forged products for the high performance components market.  Because the Company did not generate any revenue from these products since 2011, the Company decided to try to sell the equipment, which it classified at December 31, 2012 as equipment held for sale.  The Company did not record any impairment loss in the fourth quarter of 2011.

Selling, general and administrative expenses for the three months ended December 31, 2012 decreased 27.6% to $0.9 million, as compared to $1.2 million for the three months ended December 31, 2011, primarily due to the decrease in bad debt expense in the fourth quarter of 2012 as compared to the bad debt expense for the fourth quarter of 2011.

Operating income decreased 40.8% to $0.7 million, compared to $1.2 million for the same period of 2011. Operating margin was 4.1% compared to 8.9% in the fourth quarter last year. Adjusted operating income, a non GAAP measurement, which adds back to operating income the impairment loss, was $2.9 million, up 139.0% from the same quarter last year.  Adjusted operating margin was 16.7% in the fourth quarter of 2012.

Other expense was $46,070, relatively unchanged compared to the same period in 2011.

Adjusted EBITDA, a non-GAAP measurement, which adds back to net income interest expense, income tax, warrant modification expense, impairment loss, depreciation and amortization, was up 60.4% to $4.8 million, compared to $3.0 million in the same quarter last year.

Net income for the fourth quarter of 2012 was $469,313, or $0.17 per diluted share, compared to $0.8 million, or $0.31 per diluted share, in the fourth quarter of 2011.  Adjusted net income, a non-GAAP measurement which does not deduct impairment loss and warrant modification expense, was $2.7 million, or $0.98 diluted earnings per share, up 238.5% from the same quarter of last year.  Diluted earnings per share were calculated using diluted weighted average shares of 2,742,040 and 2,553,213 for the three months ended December 31, 2012 and 2011, respectively.  All share and per share information has been adjusted to reflect a one-for-ten reverse stock split effective March 6, 2012.

Results for Full Year 2012

For the year ended December 31, 2012, revenues increased 2.9% to $57.2 million from $55.6 million in 2011. Gross profit decreased 1.3% to $13.1 million, compared to $13.3 million last year. Gross margin for the year ended December 31, 2012 was 23.0%, compared to 23.9% in 2011. Operating income decreased 22.5% to $6.3 million from $8.2 million in 2011. Adjusted operating income, a non GAAP measurement which adds back the impairment loss, was $8.5 million, up 4.5% from 2011.  Adjusted EBITDA, a non GAAP measurement which adds back to net income interest expense, income tax, warrant modification expense, impairment loss, depreciation and amortization, was $15.3 million, compared to $13.7 million last year.  Net income was $4.2 million, or $1.58 per diluted share, a 27.1% decrease from $5.8 million, or $2.30 per diluted share, in 2011.  Adjusted net income, a non GAAP measurement which adds back impairment loss and warrant modification expense, was $6.6 million, or $2.51 per diluted share, in 2012.  All share and per share information has been adjusted to reflect a one-for-ten reverse stock split effective March 6, 2012.

Financial Condition

As of December 31, 2012, Cleantech Solutions held cash and cash equivalents of $1.4 million compared with $1.2 million at December 31, 2011.  Accounts receivable were $10.1 million and total current assets of $19.1 million. The Company had $2.2 million in short-term bank loans payable and stockholders' equity was $78.0 million. In 2012, the Company generated $10.6 million in cash flow from operations.

Recent Events

In the first quarter of 2013, the Company announced that it has received a total of five purchase orders from new and existing customers to supply 147 units of dyeing machines, including 85 airflow dyeing machines using the company's patented production technique, for an aggregate amount of $8.9 million

On January 4, 2013, the Company renewed its loan with Bank of China in the amount of $949,953. The loan is due January 3, 2014 with interest at the annual rate of 7.35% and secured by certain assets of the Company.

On January 29, 2013, the Company appointed RBSM LLP as its independent registered public accounting firm, following Sherb & Co., LLP's, combining its practice with RBSM LLP effective January 1, 2013.

Business Outlook

"Despite a challenging environment in 2012, we saw modest growth in our top line as we diversified and expanded our product offering.  More importantly, we achieved strong growth in profitability, on an adjusted basis, and generated solid cash flow from operations to fund our capital expenditures and product development initiatives. 

"Thus far in 2013, we have seen strong order flow in our dyeing machine segment which we expect to continue throughout the year.  As a result, we have added shifts, increased staff and placed orders for additional equipment to expand capacity and meet anticipated demand. We saw a nice increase in demand from wind power customers in the fourth quarter of 2012 and expect sales to remain near these levels in the remainder of 2013.  We are also hopeful that favorable Chinese government policy towards domestic solar companies will influence demand by year end.    

"We continue to utilize our expertise in manufacturing precision products to meet demand in new and existing end markets.  We recently shipped a prototype of a new model of after-treatment textile equipment and have another model in the late stages of development.  We are optimistic about sales of forged products to non-wind customers and are currently seeking to expand into other industries including oil and natural gas," Mr. Wu concluded.    

Conference Call

Cleantech Solutions will conduct a conference call at 9:00 a.m. Eastern Time on Friday, April 12, 2013 to discuss financial results for the fourth quarter and full year ended December 31, 2012.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (866) 759-2078. International callers should dial (706) 643-0585. When prompted, please enter conference passcode: 35398924.

If you are unable to participate in the conference call at this time, a replay will be available for 14 days starting on April 12, 2013 at 10:00 am ET. To access the replay, dial (855) 859-2056. International callers dial (404) 537-3406, and enter passcode: 35398924.

Use of Non-GAAP Financial Measures

The Company has included in this press release certain non-GAAP financial measures. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing the performance of the Company and when planning and forecasting future periods. Readers are cautioned not to view non-GAAP financial measures on a stand-alone basis or as a substitute for GAAP measures, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP measures with non-GAAP measures also included herein.

About Cleantech Solutions International

Cleantech Solutions is a manufacturer of metal components and assemblies, primarily used in clean technology industries. The Company supplies forging products, fabricated products and machining services to a range of clean technology customers, primarily in the wind power sector and supplies dyeing and finishing equipment to the textile industry. Cleantech Solutions is committed to achieving long-term growth through ongoing technological improvement, capacity expansion, and the development of a strong customer base. The Company's website is www.cleantechsolutionsinternational.com. Any information on the Company's website or any other website is not a part of this press release.

Safe Harbor Statement

This release contains certain "forward-looking statements" relating to the business of the Company and its subsidiary and affiliated companies. These forward looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website, including factors described in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K for the year ended December 31, 2012. All forward-looking statements attributable to the Company or to persons acting on its behalf are expressly qualified in their entirety by these factors other than as required under the securities laws. The Company does not assume a duty to update these forward-looking statements.

Company Contact:


Mr. Adam Wasserman

Elaine Ketchmere, CFA

Chief Financial Officer

CCG Investor Relations

Cleantech Solutions International, Inc.

Tel: +1 310 954-1345

Email: adamw@cleantechsolutionsinternational.com   

Email: Elaine.Ketchmere@ccgir.com

Web: www.cleantechsolutionsinternational.com

Web: www.ccgirasia.com

- Financial Tables Follow-

 

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME














For the Three Months Ended


For the Years Ended




December 31,


December 31,




2012


2011


2012


2011




Unaudited


Unaudited


Audited


Audited


REVENUES


$17,613,406


$13,728,005


$57,199,221


$55,579,262


COST OF REVENUES


13,373,200


10,658,894


44,062,636


42,275,919


GROSS PROFIT


4,240,206


3,069,111


13,136,585


13,303,343


OPERATING EXPENSES:










     Depreciation


413,283


607,443


1,535,715


1,112,769


     Impairment loss


2,206,253


-


2,206,253


-


     Selling, general and administrative


893,858


1,234,303


3,050,911


4,007,997


        Total Operating Expenses


3,513,394


1,841,746


6,792,879


5,120,766


INCOME FROM OPERATIONS


726,812


1,227,365


6,343,706


8,182,577


OTHER INCOME (EXPENSE):










     Interest income


465


2,712


11,384


3,652


     Interest expense


(60,974)


(70,729)


(305,659)


(193,709)


     Foreign currency gain


(6,485)


9,863


157


5,046


     Warrant modification expense


-


-


(235,133)


-


     Other income


20,924


12,069


85,727


103,448


        Total Other Income (Expense)


(46,070)


(46,085)


(443,524)


(81,563)


INCOME BEFORE INCOME TAXES


680,742


1,181,280


5,900,182


8,101,014


INCOME TAXES


211,429


390,846


1,701,602


2,340,471


NET INCOME


$469,313


$790,434


$4,198,580


$5,760,543












COMPREHENSIVE INCOME:










       NET INCOME


$469,313


$790,434


$4,198,580


$5,760,543


OTHER COMPREHENSIVE INCOME:










       Unrealized foreign currency translation gain


201,400


403,282


543,415


2,549,278


       COMPREHENSIVE INCOME


$670,713


$1,193,716


$4,741,995


$8,309,821












NET INCOME PER COMMON SHARE:










    Basic


$0.17


$0.39


$1.65


$2.94


    Diluted


$0.17


$0.31


$1.58


$2.30












WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:








    Basic


2,742,040


2,036,680


2,538,246


1,962,146


    Diluted


2,742,040


2,553,213


2,649,043


2,500,805
















 

 

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

AUDITED CONSOLIDATED BALANCE SHEETS






December 31,


2012


2011

ASSETS




CURRENT ASSETS:




    Cash and cash equivalents

$1,445,728


$1,152,607

    Restricted cash

-


314,233

    Notes receivable

88,029


53,420

    Accounts receivable, net of allowance for doubtful accounts

10,078,623


7,087,958

    Inventories, net of reserve for obsolete inventory

5,897,555


4,276,090

    Advances to suppliers

593,104


219,347

    Prepaid VAT on purchases

542,032


1,512,213

    Prepaid expenses and other

428,326


110,670

        Total Current Assets

19,073,397


14,726,538

PROPERTY AND EQUIPMENT - net

59,436,100


64,042,079

OTHER ASSETS:




   Deferred tax assets

551,890


-

   Equipment held for sale

7,118,555


-

   Land use rights, net

3,756,342


3,820,536

        Total Assets

$89,936,284


$82,589,153





LIABILITIES AND STOCKHOLDERS' EQUITY




CURRENT LIABILITIES:




    Short-term bank loans

$2,216,558


$2,356,749

    Bank acceptance notes payable

-


314,233

    Accounts payable

5,474,479


4,997,109

    Accrued expenses

986,824


771,597

    Capital lease obligation - current portion

251,413


244,747

    Advances from customers

1,851,987


1,166,942

    VAT and service taxes payable

206,527


-

    Income taxes payable

822,082


592,202

        Total Current Liabilities

11,809,870


10,443,579

OTHER LIABILITIES:




    Capital lease obligation - net of current portion

132,756


381,235

         Total Liabilities

11,942,626


10,824,814





STOCKHOLDERS' EQUITY:




    Preferred stock ($0.001 par value; 10,000,000 shares authorized and 0 share




       issued and outstanding at December 31, 2012; 30,000,000 shares authorized




       and designated  as series A convertible preferred stock and




       10,995,807 shares issued and outstanding at December 31, 2011)

-


10,996

    Common stock ($0.001 par value; 50,000,000 shares authorized;




       2,894,586 and 2,101,849 shares issued and outstanding




       at December 31, 2012 and 2011, respectively)

2,894


2,102

    Additional paid-in capital

28,987,128


27,489,600

    Retained earnings

38,401,734


34,618,341

    Statutory reserve

2,479,738


2,064,551

    Accumulated other comprehensive gain - foreign currency translation adjustment

8,122,164


7,578,749

        Total Stockholders' Equity

77,993,658


71,764,339

        Total Liabilities and Stockholders' Equity

$89,936,284


$82,589,153

 

 

 

CLEANTECH SOLUTIONS INTERNATIONAL, INC. AND SUBSIDIARIES

AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS







For the Years Ended






December 31,






2012


2011









CASH FLOWS FROM OPERATING ACTIVITIES:






Net income


$4,198,580


$5,760,543


Adjustments to reconcile net income from operations to net cash







provided by operating activities:







Depreciation


6,519,394


5,351,359



Amortization of land use rights


93,537


91,316



Decrease in inventory reserve


(37,882)


-



(Decrease) increase in allowance for doubtful accounts


(46,672)


720,302



Loss on impairment of equipment held for sale


2,206,253


-



Warrant modification expense


235,133


-



Stock-based compensation expense


167,714


355,856


Changes in operating assets and liabilities:







Notes receivable


(34,178)


(848)



Accounts receivable


(2,887,716)


694,014



Inventories


(1,549,740)


(761,072)



Prepaid value-added taxes on purchases


981,236


1,331,923



Prepaid and other current assets


(43,513)


(64,667)



Advances to suppliers


(371,849)


125,396



Accounts payable


438,945


(3,425,206)



Accrued expenses


209,831


224,493



VAT and service taxes payable


206,405


(83,358)



Income taxes payable


(326,373)


(777,914)



Advances from customers


675,667


906,282









NET CASH PROVIDED BY OPERATING ACTIVITIES


10,634,772


10,448,419









CASH FLOWS FROM INVESTING ACTIVITIES:







Purchase of property and equipment


(10,744,247)


(11,115,640)









NET CASH USED IN INVESTING ACTIVITIES


(10,744,247)


(11,115,640)









CASH FLOWS FROM FINANCING ACTIVITIES:







Principal payments on capital lease


(246,485)


(156,918)



Proceeds from bank loans


3,481,101


4,325,320



Repayments of bank loans


(3,639,333)


(3,861,893)



Decrease (increase) in restricted cash


316,464


(308,951)



(Decrease) increase in bank acceptance notes payable


(316,464)


308,951



Proceeds from sale of common stock


-


125,000



Proceeds from sale of common stock - related parties


612,903


-



Proceeds from exercise of warrants


198,142


400,000









NET CASH PROVIDED BY FINANCING ACTIVITIES


406,328


831,509









EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS


(3,732)


41,142









NET INCREASE IN CASH AND CASH EQUIVALENTS


293,121


205,430









CASH AND CASH EQUIVALENTS - beginning of year


1,152,607


947,177









CASH AND CASH EQUIVALENTS - end of year


$1,445,728


$1,152,607









SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:






Cash paid for:








Interest


$305,659


$193,709




Income taxes


$2,027,976


$3,118,384









NON-CASH INVESTING AND FINANCING ACTIVITIES:






Security deposit and leased property in exchange for capital lease obligations

$               -


$772,379


Increase in property in exchange for increase in payable


$               -


$516,531


Series A preferred converted to common shares


$13,198


$5,916


Common stock issued for future service


$281,265


$7,833

 

Reconciliation of Net Income to Adjusted EBITDA

(Amounts expressed in US$)












For the Three Months Ended December 31,


For the Years Ended
December 31,



2012


2011


2012


2011

Net income

$

469,313

$

790,434

$

4,198,580

$

5,760,543

Add: income tax


211,429


390,846


1,701,602


2,340,471

Add: interest expense


60,974


70,729


305,659


193,709

Add: warrant modification expense

-


-


235,133


-

Add:  impairment loss


2,206,253


-


2,206,253


-

Add: depreciation and amortization

1,823,094


1,723,362


6,612,931


5,442,675

Adjusted EBITDA

$

4,771,063

$

2,975,371

$

15,260,158

$

13,737,398



















 

 

Reconciliation of Adjusted Operating Income, Net Income and EPS

(Amounts expressed in US$)












For the Three Months Ended December 31,


For the Years Ended
December 31,



2012


2011


2012


2011

Income from operations

$

726,812

$

1,227,365

$

6,343,706

$

8,182,577

Add:  impairment loss


2,206,253


-


2,206,253


-

Adjusted income from operations

$

2,933,065

$

1,227,365

$

8,549,959

$

8,182,577










Net income

$

469,313

$

790,434

$

4,198,580

$

5,760,543

Add:  impairment loss


2,206,253


-


2,206,253


-

Add:  warrant modification expense

-


-


235,133


-

Adjusted net income

$

2,675,566

$

790,434

$

6,639,966

$

5,760,543










Weighted average shares - diluted


2,742,040


2,553,213


2,649,043


2,500,805










Adjusted diluted EPS

$

0.98

$

0.31

$

2.51

$

2.30

 

  

SOURCE Cleantech Solutions International, Inc.

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