Telestone Technologies Corporation Announces Record Fourth-Quarter and Full-Year 2010 Results

Mar 31, 2011, 04:49 ET from Telestone Technologies Corporation

BEIJING, March 28, 2011 /PRNewswire-Asia-FirstCall/ -- Telestone Technologies Corporation (Nasdaq: TSTC) ("Telestone" or the "Company"), a leading developer and provider of telecommunications local access networks in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2010.

Fourth Quarter 2010 Highlights

  • Revenue increased 84.5% year-over-year to $60.8 million
  • WFDS contributed $19.6 million, or approximately 31.8% of revenues
  • Gross profit increased 126.9% year-over-year to $26.9 million, with gross margin of 44.3%
  • Operating income rose 149.5% year-over-year to $16.0 million
  • Operating margin increased to 26.3% from 19.5%
  • GAAP net income increased 137.9% year-over-year to $12.3 million, or $1.10 per diluted share
  • Non-GAAP income increased 184.8% year-over year to $14.8 million, or $1.33 per diluted share
  • Raised $18.9 million in net proceeds through a public offering of 1,675,000 shares of the common stock, at a price of $12 per share, in November 2010

Full-Year 2010 Highlights

  • Revenue increased 83.2% to $131.7 million
  • WFDS™ contributed $36.7 million, or 27.8% of total revenues
  • Gross profit increased 93.2% to $58.9 million with gross margin of 44.7%
  • Operating income increased 98.0% to $31.2 million
  • GAAP net income increased 99.0% to $25.0 million, or $2.33 per diluted share
  • Non-GAAP net income increased 140.0% to $30.1 million, or $2.82 per diluted share

"We are pleased to report record fourth-quarter as well as full-year 2010 results with remarkable revenue and earnings per share growth," said Mr. Daqing Han, Chairman and Chief Executive Officer of Telestone. "During the course of 2010, our Wireless Fiber-Optic Distribution System (WFDS™) technology based system has received much market recognition and made a significant contribution to our Telestone's growth. The Houston hospital WFDS™ project also represented an important milestone for our international market-expansion strategy. With the recent award of the Beijing-Shanghai high speed railway project, we feel confident that our WFDS™ platform will remain a major element of Telestone's growth strategy," he continued.

"In addition, Telestone successfully expanded its footprint in the domestic market in 2010 with the opening of four new regional branches. We are also developing a new facility in Hebei province for manufacturing, R&D and training, which will improve our profitability even further and help us continue to develop innovative, industry-leading products," continued Mr. Han.

Fourth Quarter 2010 Results

Revenue for the fourth quarter of 2010 increased 84.5% to $60.8 million compared to $33.0 million for the same period last year. Revenue from sales of equipment increased 309.8% to $35.5 million, as compared to $8.7 million for the three months ended December 31, 2009. Sales from professional services increased slightly from $24.3 million to $25.3 million in the fourth quarter of 2010.

Gross profit for the quarter ended December 31, 2010 increased 126.9% to $26.9 million compared to $11.9 million a year ago. The gross margin increased by 8.3% to 44.3% compared to 36.0% in the same period last year. The significant gross margin increase was primarily due to higher sales of higher margin WFDS™ products in the quarter.

Operating expenses were $10.9 million, or 17.9% of total revenue, up 100.4% from $5.4 million, or 16.5% of total revenue, in the same period last year. The increase in SG&A expenses was mainly attributable to higher general and administrative expense, which includes $2.5 million of stock compensation expense.

Operating income was $16.0 million, up 149.5% from $6.4 million in the fourth quarter of 2009.

GAAP net income was $12.3 million, up 137.9% from $5.2 million in the same period last year. Basic and diluted earnings per share for the fourth quarter of 2010 were $1.10 compared to $0.50 for the same period a year ago. Non-GAAP net income, which excludes $2.5 million of non-cash stock compensation expense, was $14.8 million, up 184.8% from the year-ago period. Non-GAAP earnings per share was $1.33.

Full Year 2010 Results

Total revenue for fiscal year ended December 31, 2010, was $131.7 million, up 83.2%, from $71.9 million in 2009. Revenue generated from China Mobile, China Telecom, and China Unicom accounted for 99% of our total revenue in 2010, as compared to 98.3% for the fiscal year 2009. In 2010, WFDS™ sales amounted to $30.2 million, or 23.0% of revenues. Gross profit was $58.9 million, up 93.1%, from gross profit of $30.5 million last year. Gross margin was 44.7%, an increase of 230 basis points from 42.4% for the same period a year ago. The increase in gross margin was due to higher sales of higher-margin WFDS™ products. Operating income was $31.2 million, up 97.5% from $15.8 million in 2009. Net income was $25.0 million, up 100% from $12.5 million in fiscal year 2009. Basic and diluted earnings per share were $2.33 compared to $1.21 in fiscal year 2009. Non-GAAP net income for the year ended December 31, 2010 was $30.1 million, up 140.0% from the prior year. Non-GAAP EPS was $2.82.

Financial Condition

As of December 31, 2010, Telestone had $31.0 million in cash and cash equivalents, compared to $11.2 million at the end of 2009. Accounts receivable were $192.5 million at the end of 2010, compared to $89.0 million at the end of 2009. Days' sales outstanding (DSOs) for the 12 months ended December 31, 2010 was 355 days, slightly lower than 358 days in 12 months ended December 31, 2009. Inventory was $3.1 million on December 31, 2010, compared to $4.4 million on December 31, 2009. Working capital was $109.6 million at the end of December 31, 2010, versus $60.8 million at the end of 2009. The current ratio at December 31, 2010 was 1.9-to-1 compared to 2.2-to-1 at December 31, 2009. The Company had $9.8 million in short-term debt as well as $40.7 million in accounts payable as of December 31, 2010. Also, as of December 31, 2010, shareholders' equity totaled $116.9 million compared to $65.1 million at the end of 2009.

In 2010, cash flow used in operating activities was $0.3 million, as compared to cash flow generated from operating activities of $0.9 million in 2009.

Recent Developments

  • In January 2011, Telestone was awarded a WFDS™ contract by China Beijing-Shanghai High Speed Rail Shareholding Corporation Limited to install a WFDS™-enabled Unified Access Network (UAN) solution and the corresponding proprietary equipment in connection with the upcoming Beijing-Shanghai high-speed railway. The $10 million contract is scheduled for delivery by June 30, 2011.
  • In February 2011, Mr. Daqing Han, the Company's Chairman and Chief Executive Officer, adopted a Rule 10b5-1 plan under which he can purchase up to $5 million worth of the Company's shares of common stock.

Business Outlook

"As a leading integrated equipment and engineering services supplier for 2G, 3G, and potentially, 4G-based systems in China, we maintain our positive view of the need to integrate telecom, TV and radio broadcasting and internet access networks during the next several years. Based on the rapid growth of our commercialized WFDS™ technology and applications in 2010, Telestone believes that the WFDS™ based solutions will receive even greater acceptance by China's telecom carriers in the future. We are on track to gradually deploy more customized WFDS™-focused products and network designs, which include WFDS™-UOINS (Unified Office Information Network System), WFDS™-UPCMS (Unified Premises Control & Management System), and WFDS™-UPINS (Unified Premises Information Network System), during the next two years.

"In 2011, we expect over 40% of revenues from the sales of WFDS™ products. We are also committed to significantly increase our sales to international customers in 2011. Our goal is to continue expanding our business in the U.S., and take advantage of other commercial opportunities in Europe, Southeast Asia, Africa, and Middle East. Our primary goal is to continue to expand our business and provide an attractive return for our shareholders," concluded Mr. Han.

Non-GAAP Financial Measures

This release contains adjusted non-GAAP financial measures. These adjusted financial measures, which are used as measures of the Company's performance, should be considered in addition to, not as a substitute for, measures of the Company's financial performance prepared in accordance with United States Generally Accepted Accounting Principles ("GAAP"). The Company's adjusted financial measures may be defined differently than similar terms used by other companies. Accordingly, care should be exercised in understanding how the Company defines its adjusted financial measures.

Reconciliations of the Company's adjusted measures to the nearest GAAP measures are set forth in the section below titled "Reconciliation of GAAP to Non-GAAP Results." These adjusted measures include adjusted operating expenses, adjusted income from operations, adjusted net income, and adjusted diluted net income per share.

The Company's management uses adjusted financial measures to gain an understanding of the Company's comparative operating performance (when comparing such results with previous periods or forecasts) and future prospects. The Company's adjusted financial measures exclude certain special items, including stock-based compensation charge from its internal financial statements for purposes of its internal budgets. Adjusted financial measures are used by the Company's management in their financial and operating decision-making, because management believes they reflect the Company's ongoing business in a manner that allows meaningful period-to-period comparisons. The Company's management believes that these adjusted financial measures provide useful information to investors and others in the following ways: 1) in understanding and evaluating the Company's current operating performance and future prospects in the same manner as management does, if they so choose, and 2) in comparing in a consistent manner the Company's current financial results with the Company's past financial results.

The Company's management believes excluding stock-based compensation from its adjusted financial measures is useful for itself and investors, as such expense will not result in future cash payment and is not an indicator used by management to measure the Company's core operating results and business outlook.

The adjusted financial measures have limitations. They do not include all items of income and expense that affect the Company's operations. Specifically, these adjusted financial measures are not prepared in accordance with GAAP, may not be comparable to adjusted financial measures used by other companies and, with respect to the adjusted financial measures that exclude certain items under GAAP, do not reflect any benefit that such items may confer to the Company. Management compensates for these limitations by also considering the Company's financial results as determined in accordance with GAAP.

Conference Call Information

The Company will host a conference call at 8:00 a.m. Eastern Daylight Time on Tuesday, March 29, 2011, to discuss its fourth quarter and full year 2010 results. Mr. Daqing Han, Chairman and Chief Executive Officer, Ms. Xiaoli Yu, Chief Financial Officer, and Ms. Yue Zhai, Secretary of the Board, will host the call.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: (800) 860-2442. International callers should dial + 1 (412) 858-4600.

This call is also being webcast and can be accessed by clicking on this link: http://www.visualwebcaster.com/event.asp?id=77609

About Telestone Technologies Corporation

Telestone is a leader and innovator in wireless local-access network technologies and solutions. The company has a global presence, with 30 sales offices throughout China and a network of international branch offices and sales agents. For more than 10 years, Telestone has installed radio-frequency (RF)-based 1G and 2G systems throughout China for its leading telecommunications companies. After intensive research on the needs of carriers in the 3G age, Telestone developed and commercialized its proprietary third-generation local-access network technology, WFDS™(TM) (Wireless Fiber-optic Distribution System), which provides a scalable, multi-access local access network solution for China's three cellular protocols. Telestone also offers services including project design, manufacturing, installation, maintenance and after-sales support. The Company has approximately 1,200 employees.

Safe Harbor Statement

This release contains certain "forward-looking statements" relating to the business of Telestone Technologies Corporation and its subsidiary companies. Forward looking statements can be 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, including all business uncertainties relating to product development, marketing, concentration in a single customer, raw material costs, market acceptance, future capital requirements, competition in general and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the Securities and Exchange Commission. Telestone Technologies is under no obligation to (and expressly disclaims any such obligation to) update or alter its forward-looking statements whether as a result of new information, future events or otherwise. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction.

– Financial Tables Follow –

Telestone Technologies Corporation

Consolidated Statements of Operations and Other Comprehensive Income


Quarter Ended

Year Ended


December 31,

December 31,

US$'000

2010

2009

2010

2009

Operating revenues:





Net sales of equipment

35,482

8,658

65,160

30,162

Service income

25,318

24,304

66,492

41,717

Total operating revenues

60,800

32,962

131,652

71,879

Cost of operating revenues:





Cost of net sales

19,785

5,959

36,494

19,697

Cost of service

14,109

15,147

36,274

21,705

Total cost of operating revenues

33,894

21,106

72,768

41,402

Gross income

26,906

11,856

58,884

30,477

Operating expenses:





Sales and marketing

4,230

4,572

15,579

10,607

General and administrative

5,131

-504

9,661

1,999

Research and development

1,421

1,301

2,052

1,768

Depreciation and amortization

123

73

350

326

Total operating expenses

10,905

5,442

27,642

14,700

Operating income

16,001

6,414

31,242

15,777






Interest expense

-379

-120

-761

-290

Other expenses income, net

-348

33

463

405

Income before income taxes

15,274

6,327

30,944

15,892






Income taxes

-2,961

-1,151

-5,989

-3,354

Net income

12,313

5,176

24,955

12,538






Other comprehensive income





Foreign currency translation adjustment

2,755

5

2,755

109

Comprehensive income

15,068

5,181

27,710

12,647

Earnings per share:





Weighted average number of common stock outstanding





Basic

11,142

10,405

10,692

10,405

Dilutive effect of warrants

7,838

--

11,022

-

Diluted

11,150

10,405

10,703

10,405

Net income per share of common stock





Basic

1.11

0.50

2.33

1.21

Diluted

1.10

0.50

2.33

1.21




Telestone Technologies Corporation

Consolidated Balance Sheets


As of December 31,

US$'000

2010

2009

Current assets:



Cash and cash equivalents

31,020

11,233

Accounts receivable, net of allowance

192,487

89,005

Due from related parties

2,018

1,963

Inventories, net of allowance

3,123

4,442

Prepayment

1,748

1,223

Other current assets

1,630

4,574

Total current assets

232,026

112,440




Goodwill

3,119

3,119

Property, plant and equipment, net

1,565

1,181

Lease prepayments, net

2,528

-


7,212

4,300

Total assets

239,238

116,740




LIABILITIES AND STOCKHOLDERS' EQUITY



Current liabilities:



Short-term bank loans

9,846

5,850

Accounts payable – Trade

40,685

15,678

Customer deposits for sales of equipment

2,089

1,582

Due to related parties

3,977

4,947

Income tax payable

13,760

7,132

Accrued expenses and other accrued liabilities

52,031

16,473

Total current liabilities

122,388

51,662


 

 

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 December 31, 2010 and 2009

Issued and outstanding – 12,233,264 and 10,404,550 shares as of December 31, 2010 and 2009

12

11

Additional paid-in capital

43,050

18,989

Dedicated reserves

5,115

4,807

Other comprehensive income

8,437

5,682

Retained earnings

60,236

35,589

Total stockholders' equity

116,850

65,078

Total liabilities and stockholders' equity

239,238

116,740




Telestone Technologies Corporation

Consolidated Statements of Cash Flows


Years ended December 31,

US$'000

2010

2009

Cash flows from operating activities



Net income

24,955

12,538

Adjustments to reconcile net income to net cash provided by operating activities:



Depreciation and amortization

350

326

Allowance for doubtful accounts

1,689

408

Allowance for inventories

-

436

Stock-based compensation

5,180

-

Loss on disposal of property, plant and equipment, net

1

-

Changes in assets and liabilities:



Accounts receivable

-101,996

-27,123

Inventories

1,477

2,978

Due from related parties

-

-133

Prepayment

-482

1,128

Other current assets

3,204

-3,213

Accounts payable

24,448

3,866

Due to related parties

-1,099

3,264

Customer deposits for sales of equipment

451

840

Income tax payable

6,374

310

Accrued expenses and other accrued liabilities

35,196

5,240

Net cash (used in) provided by operating activities

-252

865




Cash flows from investing activities



Purchase of property, plant and equipment

-654

-414

Additions of long-term land lease prepayments

-2,580

-

Proceeds from disposal of property, plant and equipment

4

-

Net cash used in investing activities

-3,230

-414




Cash flows from financing activities



Issuance of common stock, net of issue costs

18,882

-

Proceeds from short-term bank loans

9,846

5,850

Repayment of short-term bank loans

-5,850

-2,953

Net cash provided by financing activities

22,878

2,897




Net increase in cash and cash equivalents

19,396

3,348




Cash and cash equivalents, beginning of year

11,233

7,866

Effect on exchange rate changes

391

19

Cash and cash equivalents, end of year

31,020

11,233




The following table reconciles GAAP measures to non-GAAP measures:

Telestone Technologies Corporation

Reconciliation of GAAP to Non-GAAP Results

(USD 000)

Three Months ended

Twelve Months Ended


December 31, 2010

December 31, 2009

December 31, 2010

December 31, 2009

Net Income

$12,313

$5,194

$24,955

$12,556

Add back: Stock-based compensation

2,328

--

5,180

--

Non-GAAP Net Income

14,641

5,194

30,195

12,556

Non-GAAP Diluted EPS

1.31

0.50

2.33

1.21





Company Contacts:

Telestone Technologies Corporation

Ms. Yue Zhai, Secretary of the Board

Phone: +86-10-6860 8335 x1105

E-mail: zhaiyue@telestone.com


Ms. Julia Yuan, Investor Relations Associate

Phone: +86-10-6860-8335 x1115

E-mail: yuanqi@telestone.com


Investor Relations Contact:

CCG Investor Relations

Mr. John Harmon, CFA, Sr. Account Manager

Phone: +86-10-6561-6886 x807 (Beijing)

E-mail: john.harmon@ccgir.com





SOURCE Telestone Technologies Corporation



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