China ACM Reports Third Quarter FY 2010 Results Non-GAAP Adjusted Net Income Up 49% YoY on 77% Higher Revenue

BEIJING, May 17 /PRNewswire-FirstCall/ -- China Advanced Construction Materials Group, Inc. (Nasdaq: CADC) ("China ACM" or the "Company"), a leading provider of eco-friendly ready-mix concrete in China, today announced its unaudited financial results for the fiscal third quarter and nine months ended March 31, 2010. The Company will host a conference call to discuss the quarter's results today, at 11:00 a.m. Eastern; details are provided below.

Third Quarter 2010 Financial Highlights

• Q3 revenue increased 77% year over year to $16.5 million
• Nine-months revenue increased 146% year over year to $62.1 million
• Q3 gross margin up sequentially at 25.3%
• Non-GAAP adjusted net income available to common shareholders increased 49% to $3.0 million
• Net income available to common shareholders rose 10% to $2.2 million from a year ago
• $0.15 fully diluted EPS, compared with $0.16 a year ago, on 17% higher shares
• $0.20 non-GAAP adjusted fully diluted EPS, up $0.04 from a year ago
• March 31, 2010 order backlog of $43.5 million
• $14.1 million in working capital at March 31, 2010

Management Commentary

Mr. Xianfu Han, Chairman and Chief Executive Officer of China ACM, commented, "China ACM made solid progress in the third quarter strategically, as well as across all three primary business segments. We generated strong revenue growth in concrete sales, concrete manufacturing services and technical support services, and posted a solidly profitable Company bottom line.

"During the third quarter we continued to grow our higher margin services business. Our concrete manufacturing services revenue increased by 211 percent to a record $4.1 million with a 59.2 percent gross margin, and our technical services revenue increased by 36 percent to $587,000 with an 85.7 percent gross margin. The Company's blended gross margin was 25.3 percent, up significantly from 20.0 percent sequentially, and drove a 49 percent increase in adjusted non-GAAP net income available to common shareholder to $3.0 million. Our third quarter gross margin declined from a 41.9% a year ago as the fiscal 2009 quarter reflects exceptional Beijing Olympics construction market-driven supply/demand imbalance which produced far higher concrete prices than normal. The Company aims to maintain a leadership position in industry profitability."

"We also produced solid growth in our traditional concrete sales division at our fixed plants in Beijing. Revenues in this division were up 77 percent to $11.6 million with a gross margin of 9.3 percent," said Mr. Xianfu Han. "Our traditional concrete sales continue to be an important business segment that provides a solid foundation of sales and business development.

"Our services model leverages China ACM's intellectual property to deliver expertise and premium, eco-friendly ready mix concrete ("RMC"). Our RMC meets the custom specification required for high-speed rail and complex architectural, commercial and industrial projects. Anticipating sustained strong growth ahead, we plan to continue to shift the business mix from concrete sales to higher margin manufacturing services and invest in increased manufacturing services capacity.

Mr. Xianfu Han concluded, "China ACM is well positioned for the future. We finished the quarter with a substantial backlog, and hold a strong competitive position in a vast, high-growth China RMC market and a proven track record of generating profitable growth."  

Third Quarter Highlights

Operating Highlights

In the third quarter, concrete sales were lower than planned. The Company's March equity capital raise was inadvertently delayed several weeks, thereby delaying the Company's planned purchase of five pump trucks, 40 transit mixers and two mixing stations valued at about $5.6 million. With orders pending for its premium RMC from new and increasing high-speed rail contracts, China ACM diverted a significant portion of its pump truck and transit mixer fleet from supporting fixed plant concrete sales in Beijing, to support its portable RMC plants to fulfill those more profitable, strategic high-speed rail customer orders.

With temporarily limited capacity, the Company did not bid on some previously planned, fixed plant concrete sales projects in the quarter. Also, as a result of constrained capacity, the Company's mixer rental revenue, the largest component of the Company's "other" business segment, declined to $198,000 in the third fiscal quarter of 2010 from $996,000 a year ago.

Most of the Company's new fleet of pump trucks and transit mixers are expected to be delivered and placed into service by the end of Q4 increasing overall capacity to meet growing demand.

"The third quarter disruption to the scheduled delivery of our expanded fleet was a challenge, one that China ACM successfully met with operational flexibility, financial management and a business plan that ensured a solidly profitable quarter," said Mr. Jeremy Goodwin, President and Chief Financial Officer, China ACM.

"In addition to its growing fleet, China ACM in the second and third quarters began investing in four portable manufacturing services plants that are scheduled to be put into service in the fourth fiscal quarter at a capitalized cost of about $3 million.

"By strategically deploying its capital into high-growth, high margin business segments, China ACM increases its opportunities and builds earnings power," Mr. Goodwin added. "Our growing backlog of contracted sales orders and new business pipeline speaks well to our outlook for growth."

New Contract Awards

During the third quarter, China ACM won a $1.6 million contract for RMC services on one section of the PanJin to YingKou high-speed railway in Liaoning Province. This high-profile contract elevates the Company's stature and competitive position in the industry and positions China ACM to win additional high-speed rail services work.

Corporate Developments

The Company's leadership position in the industry has been reinforced by its access to growth capital which also serves as an important differentiator, and barrier to entry, in an industry where many companies don't have the resources to invest in growth. In March, 2010, China ACM completed its first underwritten equity offering, raising $9.6 million in net proceeds.  As a result, China ACM plans a higher level of interaction with analysts and shareholders and has recently taken the following steps to reinforce its capital markets following:  

• Promoted Mr. Jeremy Goodwin to president and -- quite recently -- chief financial officer.
• Appointed corporate finance professional Ms. Jing Liu, Ph.D. to be an independent member of the board
• Named Mr. John Shaw, a veteran corporate communications executive, as Director of Corporate Communication.
• Additionally, the Company intends to increase the focus and expand the scope of its investor relations programs, and plans to report further news on that shortly.

Capex and Increasing Capacity

In addition to its ongoing investment in industrial fleet vehicles and rapid assembly portable mixing stations, estimated at $5.6 million for the three months ended March 31, 2010, the Company has built four new portable RMC plants to increase capacity of its manufacturing services segment.  The total combined capitalized expenditure made in these four plants is estimated at about $3 million for their associated rapid assembly mixing stations.

Backlog and New Business Pipeline

At the March 31 end of its FY 2010 third quarter, China ACM's backlog, or bids in house, was substantial. This is comprised of unfilled orders for its Concrete Sales segment, and $14 million in unfilled orders for its Manufacturing Services segment.

The Company's new business pipeline, a broad measure of the value of bids it has submitted that are currently open or pending, along with requests for proposals (RFP) received by China ACM upon which it expects to submit formal bids, is nearing record levels. China ACM believes its backlog and pipeline reflect its strong competitive position and growing addressable market.

Market Opportunity

China ACM's addressable market in China continues to grow and offers enormous potential both near and longer-term.  In the railway market alone, analysts estimate that China invested US$87.9 billion in railway construction in 2009, increasing over 80 percent year over year, and forecasts it will invest an additional $120.75 billion in 2010. The Ministry of Railways estimates that $732.1 billion in investment will be required to meet the 120,000 km railway network target by 2020. Just this sector is estimated to require about $15 billion in RMC contracts.

Near term, growth will be fueled by the construction of airports, roads, intra-city transportation links and urbanization, commercial and government and municipal buildings. In addition to powerful rates of organic economic development, the Chinese Government's $586 billion economic stimulus package enacted last year is being allocated in 2009 and 2010 and offers major projects requiring premium RMC.

Outlook

China ACM targets sequential and year-over-year growth in its revenue across all of its three primary business lines, and in non-GAAP adjusted net income, for the fourth quarter of fiscal year 2010.

Based on its recent contract wins, order backlog, new business pipeline, a newly deployed fleet, and new portable plants construction underway the Company is highly confident in its outlook for growth in the fourth quarter of 2010 and through fiscal year 2011.

FY 2010 Third Quarter Results

Revenue for the third quarter of fiscal year 2010 grew by 77% to $16.5 million from $9.3 million in the fiscal third quarter of 2009. Sales of the Company's proprietary environmentally friendly concrete represented approximately $5.0 million of the quarterly sales increase, with manufacturing service and technical service sales approximating $2.8 million and $0.16 million of the gain, respectively. Increased concrete production volume in and outside of Beijing helped generate the high concrete sales in this quarter. China ACM continued to supply concrete products to 13 railway projects with 16 portable plants throughout China, which contributed $4.1 million to our total revenue for the quarter ended March 31, 2010. Revenue generated through technical consulting was $0.59 million during the quarter, a 36% gain compared to the same fiscal quarter in 2009. Mixer rental revenue was $0.2 million, compared with $1.0 million.

Gross profit for the third quarter of fiscal year 2010 increased 7% to approximately $4.2 million from $3.9 million in the third quarter of fiscal year 2009. The increase in cost of sales was due to increased yearly activity in the production of concrete especially by the five fixed plants in Beijing and the Company's services and investment lead time in additional portable plants before they come into service. Gross margin for the quarter was 25.3%.  

Selling, general and administrative ("SG&A") expenses during the third quarter of fiscal year 2010 were $1.5 million compared with $0.8 million in the fiscal third quarter last year. As a percentage of revenues, SG&A was 9.4% of revenue, compared with 8.7% of revenue in the third quarter of 2009. The increased expense was primarily because of an increase in employment and lease expenses resulting from higher production during the quarter, and professional and consulting expenses from being a public company.

Provision for income taxes amounted to $0.6 million and $0.9 million for the quarters ended March 31, 2010 and 2009, respectively. China ACM uses recycled raw materials which created an income tax rate reduction from January 1, 2009 to March 31, 2011, an exemption from the Value Added Tax ("VAT") as well as generating additional contracts. Since January 1, 2009, the Company has had a 15% income tax rate.

Net income attributable to common shareholders for the 2010 fiscal third quarter was $2.2 million, up 10% from $2.0 million in the same quarter last year. Diluted net earnings per share were $0.15 versus $0.16 for the same quarter last year. During the 2010 fiscal third quarter, the Company recognized a non-cash loss on the fair value of its warrants of $0.47 million and non-cash stock-based compensation expense of $0.36 million. Recognizing these changes, non-GAAP net income attributable to common shareholders for the 2010 fiscal third quarter was $3 million, up 49% versus Non-GAAP net income of $2.1 million in the year ago same quarter. Non-GAAP diluted net earnings per share were $0.20 showing growth of $0.04 for the same quarter last year. Diluted weighted average shares outstanding for the 2010 fiscal third quarter were 16,419,406 compared with diluted weighted average shares outstanding of 14,021,832 in the fiscal third quarter of 2009.

Nine Month Results

For the nine months ended March 31, 2010, net revenues increased by 146% to $62.1 million from $25.2 million in the corresponding period of fiscal year 2009. Gross profit increased 20.5% in the first nine months of fiscal year 2010 to $12.7 million from approximately $10.5 million in the comparable period one year ago. Gross margin was 20.4% in the first three quarters of fiscal year 2010. Income from operations grew by $0.6 million, or 8%, to $9.1 million from $8.5 million in the same period one year ago. Net income attributable to common shareholders for the first nine months of 2010, were $4.9 million, with diluted net earnings per share of $0.37. During the 2010 fiscal nine months period, the Company recognized a non-cash expense on the fair value of its warrants and options of $4.4 million and a non-cash stock-based compensation expense of $0.48 million. Non-GAAP net income attributable to common shareholders for the first nine months of 2010, increased by $4.3 million to $9.8 million, with Non-GAAP diluted net earnings per share of $0.68.  

Balance Sheet Overview

China ACM had working capital of $14.1 million at the end of the third quarter, March 31, 2010.  Shareholders' equity was $49.8 million at March 31, 2010 compared with $30.0 million on June 30, 2009.  

Conference Call

The Company will host a conference call, to be simultaneously web cast, on Monday, May 17th at 11:00 a.m. Eastern Daylight Time, or 11:00 p.m. Beijing Time.

To participate, please call the following phone numbers:

A live web cast of the conference call will be available on China ACM's website at http://www.china-acm.com. Please visit the website at least 15 minutes early to register for the web cast and download any necessary audio software.

A web cast replay will be available on the Company's website, and the call replay will be available until midnight on May 17, 2010.  To access the replay, please call the following phone numbers:

Account # 286

Conference ID # 350691

About China ACM

China ACM, founded in 2002 and based in Beijing, China, is a leading producer of advanced construction materials for large scale infrastructure, commercial and residential developments. The Company is primarily focused on producing and supplying a wide range of advanced ready-mix concrete materials for highly technical, large scale, and environmental construction projects. The Company also aims to develop and produce new and innovative energy efficient and environmentally conscious construction materials.

China ACM provides materials and services through its five ready-mix concrete plant network covering the Beijing metropolitan area. China ACM owns one plant and leases four plants in Beijing and has technical services and preferred procurement agreements with five other independently-owned plants across China.  The Company presently owns 16 portable plants deployed in 10 provinces across China. China ACM is ISO 9001 (product quality), ISO 14001 (environmental safety), and ISO 18001 (employment environment safety) certified.  Additional information about the Company is available at www.china-acm.com.

This press release contains "forward-looking statements" within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that could cause the actual results of the Company to differ materially from the results expressed or implied by such statements, including changes from anticipated levels of sales, future national or regional economic and competitive and regulatory conditions, changes in relationships with customers, access to capital, difficulties in developing and marketing new products, marketing existing products, customer acceptance of existing and new products, and other factors. Additional Information regarding risks can be found in the Company's Annual Report on Form 10K and in the Company's recent report on Form 8K filed with the SEC. Accordingly, although the Company believes that the expectations reflected in such forward-looking statements are reasonable, there can be no assurance that such expectations will prove to be correct. The Company has no obligation to update the forward-looking information contained in this press release.

Use of Non-GAAP Financial Measures

The Company makes reference to non-GAAP financial measures. Management believes that investors may find it useful to review our financial results that exclude the non-cash expenses of change in fair value of warrants and management owned options as a result of the adoption of a Financial Accounting Standards Board's ("FASB") ASC 815 (EITF 07-05) accounting standard effective from January 1, 2009.

Management believes that these non-GAAP financial measures are useful to investors in that they provide supplemental information to possibly better understand the underlying business trends and operating performance of the Company. The Company uses these non-GAAP financial measures to evaluate operating performance. However, non-GAAP financial measures should not be considered as an alternative to net income or any other performance measures derived in accordance with GAAP.

SOURCE China Advanced Construction Materials Group, Inc.