Telestone Technologies Corporation Announces Second-Quarter 2012 Results

   Telestone Technologies Corporation Announces Second-Quarter 2012 Results

PR Newswire

BEIJING, Aug. 15, 2012

BEIJING, Aug. 15, 2012 /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 financial results for the second quarter ended June 30, 2012.

Second-Quarter 2012 Highlights:

  o Revenues were $17.9 million, a decrease of 26.6% as compared to $24.3
    million in the year-ago quarter
  o Gross profit was $6.6 million, as compared to $10.6 million in the
    year-ago quarter
  o Net loss was $1.3 million, or $0.09 per diluted share; non-GAAP net loss
    was $1.2 million, or $0.08 per diluted share
  o A related company received an initial RMB 2.5 million (U.S. $0.4 million)
    investment from Zhongguancun Development Group (the "Group") for the
    research, development and commercialization of Telestone Intelligent
    Premise System (TIPS) technology. This investment is part of a RMB 15
    million (U.S. $2.4 million) total commitment awarded in May, which the
    Group is expected to fulfill over the next three to five years

"Although we reported a loss in the second quarter, which was in line with our
expectations, this was largely due to the current weak capital-spending
environment and an allowance for doubtful accounts. This year, we have
deliberately moderated our top-line growth in order to improve collections so
that we can position Telestone for a return to growth and focus on developing
our U-DAS (WFDS) and TIPS technologies," commented Mr. Daqing Han, Chairman
and CEO of Telestone.

Second-Quarter 2012 Results

Revenues in the second quarter of 2012 were $17.9 million, a 26.6% decrease
from $24.3 million in the year-ago quarter.  The year-over-year decrease in
revenue was primarily attributable to a slow start to 4G network construction,
the maturity of 3G deployment, intensified competition, and the Company's
strategic moderation of growth in certain cities with longer accounts
receivable collection periods.

Equipment sales decreased 32.6% to $6.0 million from $8.8 million in the
year-ago quarter. Sales of professional services declined 23.2% to $11.9
million, as compared to $15.5 million in the year-ago quarter. Equipment sales
declined more than sales of professional services due to market share changes
in a more competitive equipment market.

Sales to non-telecom operators and overseas customers amounted to
approximately $3.3 million in the second quarter, or 18.4% of total revenue.
Sales of WFDS-enabled products were $5.6 million, accounting for 31.4% of
sales in the quarter, representing a decrease of 1.2% from $5.7 million, or
23.4% of sales in the year-ago quarter.

In the second quarter, revenue from the "Big-3" telecom carriers - China
Mobile, China Unicom, and China Telecom - comprised 81.6% of total quarterly
revenue, compared to 94.3% in the year-ago quarter.

Gross profit in the second quarter was $6.6 million, as compared to $10.6
million in the year-ago quarter. The gross margin decreased to 37.1% from
43.7% in the year-ago quarter.

Total operating expenses were $7.6 million, an increase of 47.7% from $5.1
million in the year-ago quarter. Sales and marketing expense was $3.0 million,
roughly flat with the year-ago quarter. General and administrative expenses
were $3.8 million, as compared to $1.4 million in the year-ago quarter. The
increase in general and administrative expenses was primarily due to a $1.9
million allowance for doubtful accounts. Research and development expense was
$0.6 million, or 3.2% of revenues for the quarter, as compared to $0.6
million, or 2.5% of revenues in the year-ago quarter.

The operating loss was $1.0 million, as compared to operating income of $5.5
million in the year-ago quarter.

The net loss was $1.3 million, as compared to net income of $4.5 million in
the year-ago quarter. Both basic and diluted loss per share in the second
quarter of 2012 were $0.09, as compared to basic and diluted earnings per
share of $0.37 in the year-ago quarter.  Non-GAAP net loss, which excludes
$0.2 million of non-cash stock compensation expense, was $1.2 million, as
compared to non-GAAP net income of $5.0 million in the year-ago quarter.  The
non-GAAP loss per diluted share was $0.08, versus non-GAAP earnings per
diluted share of $0.40 in the year-ago quarter.

Six-Month Results

Revenue for the six months ended June 30, 2012 was $35.0 million, a 9.9%
decrease as compared to $38.8 million in the same period of 2011. Gross profit
decreased 23.6% to $13.2 million from $17.2 million in the year-ago period. 
Operating loss was $0.04 million, compared to operating income of $7.6 million
in the year-ago period.  Net loss was $0.8 million, or $0.06 per diluted share
for the six months ended June 30, 2012, compared to net income of $6.1
million, or $0.50 per diluted share in the year-ago period. Non-GAAP net loss
was $0.5 million, or $0.04 per diluted share, compared to non-GAAP net income
of $7.0 million, or $0.57 per diluted share in the year-ago period. Weighted
average diluted shares outstanding increased to 14.1 million shares from 12.3
million shares in the first six months of 2011.

Financial Condition

As of June 30, 2012, Telestone had $7.7 million in cash and cash equivalents,
as compared to $18.9 million on December 31, 2011. Inventory was $10.7 million
on June 30, 2012, as compared to $6.8 million at the end of 2011. Working
capital was $126.2 million as of June 30, 2012, versus $126.7 million at the
end of 2011. The Company had $11.2 million in short-term debt, as well as
$51.5 million in accounts payable at the end of second quarter of 2012.
Shareholders' equity, including $1.5 million of non-controlling interests,
totaled $143.4 million at the end the second quarter of 2012, as compared to
$142.8 million at the end of 2011.  Cash used in operating activities was $7.5
million in the first half of 2012, as compared to $11.1 million of cash used
in operating activities in the year-ago period.

As of June 30, 2012, Telestone's accounts receivable were $259.6 million,
versus $251.5 million at the end of 2011. The accounts receivable turnover
period (DSOs) for the quarter ended June 30 was 1,232 days. During the second
quarter, Telestone collected $13.4 million in accounts receivable.

Business Outlook

For the full-year 2012, Telestone continues to expect revenues to increase to
approximately $117 million.

"We believe that the current drought of spending is temporary and that the
start of the carriers' large-scale 4G network construction, in addition to the
development and growth of our U-DAS and TIPS technology-based products, will
help Telestone hit its revenue target this year and create a bright future for
the company, its employees, and 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 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

The Company will host a conference call on Wednesday, August 15, 2012 at 8:30
a.m. Eastern Daylight Time to discuss its financial results for the second
quarter ended June 30, 2012.

The conference call may be accessed by calling:

U.S. Toll Free:            800-860-2442
U.S. Toll / International: 412-858-4600
Canada Toll Free:          866-605-3852
China North Toll Free:     10-800-712-2304
China South Toll Free:     10-800-120-2304
Hong Kong Toll Free:       800-962475

The conference pass code is 10017274.

A replay will be available for seven days starting on Wednesday, August 15,
2012, at 10:30 a.m. Eastern Daylight Time and can be accessed by dialing (877)
344-7529. International callers should dial +1 (412) 317-0088. When prompted,
enter conference pass code 10017274.

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 ten years, Telestone has installed radio-frequency
(RF)-based 1G and 2G systems throughout China for 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 1,500 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
Condensed Consolidated Balance Sheets
                                                       As of       As of
                                                      June 30,      December 31,
                                                      2012         2011
ASSETS                                                US$'000      US$'000
                                                      (Unaudited)
Current assets:
Cash and cash equivalents                             7,674        18,850
Accounts receivable, net of allowance                 259,562      251,460
Due from related parties                              1,543        1,534
Inventories, net of allowance                         10,707       6,755
Prepayments                                           2,351        2,351
Other current assets                                  3,945        2,797
Total current assets                                  285,782      283,747
Goodwill                                              4,268        4,268
Property, plant and equipment, net                    10,335       9,264
Lease prepayment                                      2,559        2,571
                                                      17,162       16,103
Total assets                                          302,944      299,850
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans                                 11,232       14,941
Accounts payable - Trade                              51,481       46,450
Service cost payable                                  40,115       35,254
Customer deposits for sales of equipment              2,501        2,684
Due to related parties                                1,821        1,831
Income tax payable                                    19,204       18,695
Accrued expenses and other accrued liabilities        33,192       37,229
Total current liabilities                             159,546      157,084
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 June 30, 2012 
         and December 31, 2011
Issued and outstanding - 12,333,264 shares as of 
         June 30, 2012 and December 31, 2011,         12           12
respectively
Additional paid-in capital                            49,420       50,148
Dedicated reserves                                    6,871        6,871
Other comprehensive income                            13,072       12,329
Retained earnings                                     72,571       73,406
Total Telestone Technologies Corporation              141,946      142,766
stockholder's equity
Non-controlling interests                             1,452        -
Total equity                                          143,398      142,766
Total liabilities and stockholders' equity            302,944      299,850

 

Telestone Technologies Corporation
Condensed Consolidated Statements of Operations and Other Comprehensive Income
                                                 Three months ended June 30,  Six months ended June 30,
                                                 2012           2011          2012          2011
                                                 US$'000        US$'000       US$'000       US$'000
                                                 (Unaudited)    (Unaudited)   (Unaudited)   (Unaudited)
Operating revenues:
    Net sales of equipment                       5,953          8,834         9,484         15,826
    Service income                               11,913         15,503        25,485        22,983
    Total operating revenues                     17,866         24,337        34,969        38,809
Cost of operating revenues:
    Cost of net sales                            3,497          5,305         5,662         9,136
    Cost of service                              7,749          8,398         16,147        12,441
    Total cost of operating revenues             11,246         13,703        21,809        21,577
Gross profit                                     6,620          10,634        13,160        17,232
Operating expenses:
Sales and marketing                              3,032          3,026         6,649         5,157
General and administrative                       3,782          1,360         5,128         3,365
Research and development                         567            620           1,030         868
Depreciation and amortization                    192            120           393           222
Total operating expenses                         7,573          5,126         13,200        9,612
Operating (loss)/income                          (953)          5,508         (40)          7,620
Interest expense                                 (259)          (187)         (530)         (336)
Other income, net                                236            121           284           324
(Loss)/Income before income taxes                (976)          5,442         (286)         7,608
Income taxes                                     (326)          (918)         (537)         (1,465)
Net (loss)/income                                (1,302)        4,524         (823)         6,143
Net income attributable to non-controlling       (12)           -             (12)          -
  interests
Net (loss)/income attributable to Telestone
  Technologies Corporation common                (1,314)        4,524         (835)         6,143
  stockholders
Other comprehensive (loss)/income
Foreign currency translation                     (77)           1,911         744           1,911
Total comprehensive (loss)/income
  attributable to Telestone Technologies         (1,391)        6,435         (91)          8,054
  Corporation common stockholders
(Loss)/Earnings per share:
Weighted average number of common
  stock outstanding
Basic                                            14,133,264     12,333,264    14,133,264    12,333,264
Effect of dilutive warrants and stock options    -              8,571         -             12,690
Diluted                                          14,133,264     12,341,835    14,133,264    12,345,954
                                                 US$            US$           US$           US$
Net (loss)/income per share of common
  stock
Basic                                            (0.09)         0.37          (0.06)        0.50
Diluted                                          (0.09)         0.37          (0.06)        0.50

 

Telestone Technologies Corporation
Condensed Consolidated Statements of Cash Flows
                                                                                     Six months ended June
                                                                                     30,
                                                                                     2012         2011
                                                                                     US$'000      US$'000
                                                                                     (Unaudited)  (Unaudited)
Cash flows from operating activities
Net (loss)/income                                                                    (823)        6,143
Adjustments to reconcile net (loss)/income to net cash used in operating activities:
   Depreciation and amortization                                                     393          222
Loss on disposal of property, plant and equipment                                    4            3
Provision for doubtful debt                                                          1,870        -
Stock-based compensation                                                             316          904
Changes in assets and liabilities:
   Accounts receivable                                                               (8,477)      (9,694)
   Inventories                                                                       (3,918)      (4,032)
   Prepayments                                                                       11           124
   Other current assets                                                              (1,133)      (2,411)
   Accounts payable                                                                  4,770        1,713
Customer deposits for sales of equipment                                             (199)        348
Due to related parties                                                               (152)        (1,829)
Income tax payable                                                                   398          1,283
   Service cost payable, accrued expenses and other accrued liabilities              (587)        (3,898)
Net cash used in operating activities                                                (7,527)      (11,124)
Cash flows from investing activities
Proceeds from disposal of property, plant and equipment                              8            -
Purchase of property, plant and equipment                                            (383)        (505)
Net cash used in investing activities                                                (375)        (505)
Cash flows from financing activities
Capital injection by non-controlling interests                                       395          -
Repayment of short-term bank loans                                                   (3,798)      (3,868)
Short-term bank loans raised                                                         -            4,180
Net cash (used in) from financing activities                                         (3,403)      312
Net decrease in cash and cash equivalents                                            (11,305)     (11,317)
Cash and cash equivalents, beginning of the period                                   18,850       31,020
Effect on exchange rate changes                                                      129          202
Cash and cash equivalents, end of the period                                         7,674        19,905
Supplemental disclosure of cash flow information
Interest received                                                                    51           24
Interest paid                                                                        (500)        (314)
Tax paid                                                                             (138)        (120)

 

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

 

Telestone Technologies Corporation
Reconciliation of GAAP to Non-GAAP Results
(U.S. Dollars in Thousands, Except Per-Share Amounts)
                                   Three  Months
                                   Ended              Six Months Ended
                                                      March  30,
                                   June 30,
                                   2012       2011    2012     2011
Net Income                         ($1,314)   $4,524  ($835)   $6,143
Add back: Stock-based compensation 158        452     316      904
Non-GAAP Net Income                ($1,156)   4,976   (519)    7,047
Non-GAAP Diluted EPS               ($0.08)    $0.40   ($0.04)  $0.57

 

 

 

SOURCE Telestone Technologies Corporation

Contact: Company Contacts: Ms. Jun Man, Manager of the Office of the Board of
Directors of Telestone Technologies Corporation, +86-10-6860-8335 x1104 or
manjun-z@telestone.com; Investor Relations Contact: Mr. John Harmon, CFA, Sr.
Acct. Manager of CCG Investor Relations, +86-10-8573-1014 or
john.harmon@ccgir.com