Tri-Tech Holding Reports First Quarter 2013 Financial Results

Conference Call Scheduled on May 15, 2013 at 8:00 PM EDT

BEIJING, May 15, 2013 /PRNewswire-Asia-FirstCall/ -- Tri-Tech Holding Inc. (Nasdaq: TRIT), which provides turn-key water resources management, water and wastewater treatment, industrial safety and pollution control solutions, announced its financial performance for the first quarter ended March 31, 2013. Highlights include the following:

• In the first quarter, the Company’s revenues declined by 45.5% to $10.5 million, compared to $19.2 million in first quarter 2012.
• In the first quarter, gross profit declined by 55.3% to $2.3 million compared to $5.2 million in first quarter 2012. Gross margin decreased to 22.3% from 27.1% in the first quarter of 2012.
• The Company had a Loss from operations of $1.6 million, compared to income from operations of $1.5 million in first quarter of 2012.
• Net loss was $1.1 million, compared to net income of $1.4 million in the same period of 2012.
• Weighted average number of diluted shares outstanding was 8,238,406 compared to 8,317,224 in the same period in 2012.
• Diluted earnings per share was a loss of $0.13 compared to a gain of $0.17 per share in the same period of 2012

Mr. Gavin Cheng, CEO of Tri-Tech Holding Inc. commented, “The Company has experienced another quarter of loss due primarily to delays in implementing a number of projects as clients required project design adjustments. These delays in turn slowed project-related revenue recognition. As new competitors entered the market and competed on pricing, our gross margin suffered. In an effort to broaden its market coverage, the Company increased spending and efforts in sales and marketing. The Company believes its strategies will position the Company well for the long term and thanks our shareholders for their continued confidence in these efforts and our Company.”

FY2012 Financial Performance Metrics
Revenue

Revenue decreases were primarily attributable to a decrease of 50.7% in the system integration category, from $18,532,662 in the first quarter of 2012 to $9,137,158 in the same period for 2013. Of the system integration category, revenue from the Ordos project decreased from $3,132,366 for the period ended March 31, 2012 to $559,116 in the same period 2013 because the project was primarily completed. In order to reduce cash flow pressures, we evaluated the projects we planned to bid on and elected not to bid on domestic BT projects, which typically require significant investments and feature slower client payment periods. At the same time, these BT projects are typically higher-value projects, so the absence of these projects from 2013 results significantly reduced our revenues.

Gross Margin

Our gross margin decrease was largely a result of increases in material and equipment costs and labor subcontracting costs. Shifting from BT projects, which usually have higher gross margins, also contributed the lower gross margin.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of compensation, marketing, travel and business entertainment expenses. In the first quarter of 2013, total selling and marketing expenses increased by 24.5%, from $838,993 in the first quarter of 2012 to $1,044,526 in the same period of 2013 as a result of the increased efforts required to drive revenue from a larger number of lower-value projects in light of our move away from BT projects.  

General and Administrative Expenses

General and administrative expenses consist primarily of compensation costs, rental expenses, professional fees, and other overhead expenses. General and administrative expenses increased by $45,651 from $2,853,360 in the first quarter of 2012 to $2,899,011 in the first quarter of 2013 due largely to first quarter 2013 costs associated with reducing our headcount in the fourth quarter of 2012.

Loss before Income Taxes

In the quarter ended March 31, 2013, our net loss before provision for income taxes was $1,192,508, a decrease of $2,939,690 compared to net income before income tax of $1,747,182 in the same period in 2012. The Company’s provision for income taxes decreased by 82.6%, from $314,493 in the first three months of 2012 to $54,749 in the same period in 2013. Some of the entities were income tax free because of loss while the others were taxable, so the Company had income tax expenses in spite of overall net loss. In the period ended March 31, 2013, net loss attributable to the shareholders of TRIT was $1,098,773, a decrease of $2,536,898, from net income of $1,438,125 for the same period in 2012.

Liquidity and Capital Resources

Our liquidity and available capital resources are impacted by four key components: (i) cash and cash equivalents, (ii) operating activities, (iii) financing activities, and (iv) investing activities.

Cash and Cash Equivalents

As of March 31, 2013, our cash and cash equivalents amounted to $6,014,862. The restricted cash as of March 31, 2013 and December 31, 2012 amounted to $7,523,965 and $7,816,967, respectively, which are not included in the total amount of cash and cash equivalents. The restricted cash consisted of deposits as collateral for the issuance of letters of credit. Our subsidiaries that own these deposits do not have material cash obligations to any third parties. Therefore, the restriction does not impact our liquidity.

Operating Activities

Net cash used in operating activities was $693,046 for the three months ended March 31, 2013, compared with $7,731,944 in the same period in 2012. The decrease of $7,038,898 in operating cash outflow was caused by our strategic adjustments and cost control efforts in 2012. Net accounts and notes receivable increased from $18,598,110 on December 31, 2012 to $19,689,826 on March 31, 2013, an increase of 5.9%. Current unbilled receivables increased from $27,954,525 on December 31, 2012 to $28,267,776 on March 31, 2013, an increase of 1.1%. The remaining portion was mainly due to the decreased accounts payable and cost accruals, due to the drop in total revenue.

Investing Activities

Net cash used in investing activities was $177,287 during the three months ended March 31, 2013, a decrease of $197,800 from net cash used in investing activities of $375,087 in the same period of 2012. Currently we have no further plan to add capital expenditure.

Financing Activities

The cash used in by financing activities was $1,365,888 in the three months ended March 31, 2013, compared to cash provided by financing activities of $3,317,057 in the same period of 2012. The decrease was due to paying back bank borrowings and loans from third-party companies and a noncontrolling shareholder.

Restricted Net Assets

As of both March 31, 2013 and December 31, 2012, restricted retained earnings were $2,246,910, and restricted net assets were $4,878,975. Unrestricted retained earnings as of March 31, 2013 and December 31, 2012 were $15,939,623 and $17,038,396, respectively, which were the amounts available for distribution in the form of dividends or for reinvestment.

Working Capital and Cash Flow Management

As of March 31, 2013, our working capital was $24,916,099, with current assets totaling $86,514,353 and current liabilities totaling $61,598,254. Of the current assets, cash and cash equivalents was $6,014,862. We believe our current assets are sufficient to meet our capital requirements for the next 12 months.

To support our operations, we plan to sell our real property in Baoding, along with all construction including the costs of construction and operation expended since acquisition for approximately $18 million. We acquired this property on November 26, 2010. The sale is expected to close before the end of 2013 and we expect to break even on the sale. This fund will support our operating cash flow and the corporate bond will be removed from financing cash flow.

Order Backlog and Pipelines

The Company’s backlog represents the amount of contract work remaining to be completed, that is, revenues from existing contracts and work in progress expected to be recognized in current period, based on the assumption that these projects will be completed on time according to the project schedules. The Company evaluates the ongoing projects regularly and updates the schedules as appropriate.

The following table provides backlogs by segments for as of March 31, 2013 and December 31, 2012, respectively.

Our pipeline represents the values of projects we have been actively pursuing. The pipeline by the ended of March 31, 2013 was $38.1 million in Segment 1, $23.7 million in Segment 2 and $5.4 million in Segment 3.

Having a dynamic nature, the values of secured projects move from pipeline into backlog and backlog to revenue based on percentage of completion, sometimes simultaneously. The backlog increased by $2.6 million from December 31, 2012 to March 31, 2013, which is because we successfully bid for new contracts.