Q2 2016 Ossen Innovation Co Ltd Earnings Call
Oct 03, 2016 AM EDT
OSN - Ossen Innovation Co Ltd
Q2 2016 Ossen Innovation Co Ltd Earnings Call
Oct 03, 2016 / 12:30PM GMT
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Corporate Participants
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* Tina Xiao
Weitian Group LLC - IR
* Feng Peng
Ossen Innovation Co., Ltd. - CFO
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Conference Call Participants
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* John Sheehy
- Private Investor
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Presentation
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Operator [1]
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Good morning ladies and gentlemen. Thank you for standing by and welcome to the Ossen Innovation Co., Ltd. second-quarter 2016 earnings conference call.
(Operator Instructions)
This conference is being recorded today, October 3, 2016. I'd now like to turn the call over to Tina Xiao, Weitian investor relations. Please go ahead.
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Tina Xiao, Weitian Group LLC - IR [2]
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Thank you, operator, and welcome everyone to today's conference call for Ossen Innovation Co., Ltd. This call will cover Ossen's financial and operating results for three months and six months ended June 30, 2016. Joining us today are the Company's CFO Mr. Feng Peng.
Before we get started I'm going to quickly read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the federal security laws regarding Ossen Innovation Co., Ltd.
Forward-looking statements include statements about plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are different than historical facts. These forward-looking statements are based on current management expectations and are subject to risk and uncertainty that may result in expectations not being realized and may cause actual outcomes to differ materially from expectations reflected in these forward-looking statements.
Potential risks and uncertainties include change in demand for Company's products, the impact of complications and government regulation and other risks contained in statements filed from time to time with the SEC. All such forward-looking statements, whether written or oral, made on behalf of the Company are expressly qualified by this cautionary statement and such forward-looking statements are subject to risk and uncertainties. And we caution you not to place undue reliance on this.
At this time I would like to turn the call over to Mr. Feng Peng, the CFO of the Company. Feng, please go ahead.
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Feng Peng, Ossen Innovation Co., Ltd. - CFO [3]
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Thank you, Tina, and thanks to everyone for joining us today for our second-quarter 2016 financial results conference call. For the second quarter of 2016 both our revenues and the profitability decreased impacted by China's weakening economy and as a structural imbalance between supply and demand of the Chinese steel industry. Both gross and operating margins also decreased in the second quarter as a result of decline in average selling price of our coated products underscoring increased pricing pressure from our competitors as industry demand slowed. Looking forward we are committed to improve what we can control with uncertain market conditions.
Next I will discuss our financial results for the three months ended June 30, 2016. For the second quarter of 2016, revenue decreased by 9.4% to $23.4 million from $25.9 for the same period of last year. This decrease was made due to a decrease from zinc coated products and the plain surface and other products and partially offset by an increase of sales from rare earth coated products.
The sales of coated PC steel materials including both rare earth and zinc coated products decreased by $1.2 million to $21 million and accounted for 89% of total sales for the similar quarter of 2016. Sales of rare earth and zinc coated products was $20.7 million and is $0.3 million for the second quarter of 2016 compared to $19.7 million and $2.5 million respectively for the same period of last year. Sales of plain surface PC strands and others decreased by 30.7% to $2.5 million and accounted for 10.8% of total sales for the second quarter of 2016.
Cost of goods sold decreased by 7.1% to $21 million for the second quarter of 2016 from $22.6 million for the same period of last year. Gross profit decreased by 25.3% to $2.5 million for the second quarter of 2016 from $3.3 million for the same period of last year. Gross margin decreased to 10.5% for the second quarter of 2016 from 12.7% for the same period of last year.
Gross margins for rare earth and zinc coated products was 10.1% and 32.4% respectively for the second quarter of 2016 compared to 9.2% and 20.3% respectively for the same period last year. Gross margin for plain surface PC strands and others was 13.3% for the second quarter of 2016 compared to 26.2% for the same period of last year.
Selling expenses were approximately $0.2 million for the second quarter of 2016, decreasing $0.2 million from the same period of last year. G&A expenses were approximately $1.3 million for the second quarter of 2016, increasing $0.5 million from the same period of last year.
Operating income was $0.9 million for the second quarter of 2016 compared to $2 million for the same period of last year. Operating margin was 4% for the second quarter of 2016 compared to 7.8% for the same period of last year.
After allocating net income attributable to non-controlling interest net income attributable to Ossen Innovation Co., Ltd. was $0.3 million for the second quarter of 2016 compared to $1.3 million for the same period of last year. Earnings per share, both basic and diluted, were $0.02 for the second quarter of 2016 compared to $0.07 the same period of last year. During the second quarter of 2016 the Company repurchased 37,680 shares at a cost of approximately $37,000 under its repurchase plan.
Now shifting gears to six months ended June 30, 2016 financial results. For the first half of 2016 revenues increased by 1.7% to $53.5 million from $52.6 million for the same period of last year. This increase was mainly due to the increase in sales from rare earth coated products and revenue contribution from plain surface PC strands and other products and partially offset by decreased sales from zinc coated products.
The sales of coated PC steel materials including both rare earth and zinc coated products increased by $0.7 million to $45 million and accounted for 84% of total sales for the first half of 2016. Sales of rare earth and zinc coated products were $44.4 million and $0.6 million for the first half of 2016 compared to $37.9 million and $6.4 million respectively for the same period of last year. Sales of plain surface PC strands and others increased by 3.5% to $8.6 million for the first half of 2016.
Cost of goods sold increased by 4.9% to $47.9 million for the first half of 2016 from $45.7 million for the same period of last year. Gross profit decreased by 19.3% to $5.6 million for the first half of 2016 from $6.9 million for the same period of last year. Gross margin decreased to 10.4% for the first half of 2016 from 13.1% for the same period of last year.
Gross margins for rare earth and zinc coated products were 8.8% and 33.1% respectively for the first half of 2016 compared to 10.3% and 23.9% respectively for the same period of last year. Gross margin for plain surface PC strands and others was 18.2% for the first half of 2016 compared to 17.8% for the same period of last year. Selling expenses were approximately $0.4 million for the first half of 2016, decreasing $0.1 million from the same period last year.
G&A expenses were approximately $2.7 million for the first half of 2016 which is essentially unchanged from the same period of last year. Operating income was $2.5 million for the first half of 2016 compared to $3.7 million for the same period of last year. Operating margin was 4.6% for the first half of 2016 compared to 7% for the same period of last year.
After allocating net income attributable to a non-controlling interest net income attributable to Ossen Innovation was $0.8 million for the first half of 2016 compared to $2.2 million for the same period of last year. Earnings per share, both basic and diluted, were $0.04 for the first half of 2016 compared to $0.11 for the same period of last year.
Now turning to balance sheet and cash flows, as of June 30, 2016 Ossen had approximately $8.2 million of cash and restricted cash compared to $9.6 million at December 31, 2015. Total accounts receivable where $39 million as of June 30, 2016 compared to $43.2 million at December 31, 2015. The days of sales outstanding were 180 days for the three months ended June 30, 2016 compared to 212 days for the same period of last year.
The balance of prepayments to suppliers for raw materials was $59.2 million as of June 30, 2016 compared to $55.7 million at December 31, 2015. The Company had inventories of $30.2 million as of June 30, 2016 compared to $27.3 million at December 31, 2015. Total working capital was $93.8 million as of June 30, 2016 compared to $94.7 million at December 31, 2015.
Net cash provided by operating activities was $7.8 million for the six months ended June 30, 2016 compared to $5.4 million for the same period of last year. Net cash used in investing activities was $11,500 for the six months ended June 30, 2016 compared to $18,000 for the same period of last year. Net cash used in financing activities was $5.1 million for the six months ended June 30, 2016 compared to $4.2 million for the same period of last year.
Now I will discuss recent developments of the Company. On July 8, 2016 the Company announced that it has entered into a non-binding letter of intent with America-Asia Diabetes Research Foundation, a California corporation that owns 90.27% at the equity interest of San MediTech Huzhou Co. Ltd., a China-based medical device company engaging in research, development and the marketing of glucose control products and the shareholders of the foundation. Pursuant to the LOI, the Company intends to acquire all the issued and outstanding equity interest of the Foundation in exchange for 27,081,000 ordinary shares, which represented by approximately 9,027,000 shares after giving effect to the ratio change.
On August 4, 2016 the Company announced that its Board of Directors with the unanimous agreement of all directors has formed a special committee of the Board consisting exclusively of independent directors to evaluate the non-binding term sheet. As of September 28, 2016 the special committee is in the process of retaining its legal counsel and financial advisors.
On August 16, 2016, the Company announced a ratio change for the Company's ADS program. As a result the number of the Company's ordinary shares represented by each ADS was changed from 1 ordinary share to 3 ordinary shares. The effective date of the ratio change was August 22, 2016. On September 6, 2016 the Company received a notice from the NASDAQ stock market LLC that the Company has regained a compliance with NASDAQ Marketplace Rule 5550(a)(2) which requires that the closing bid price per share of the listed Company be at least $1 per share.
Now I will turn the call next to the operator for any questions.
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Questions and Answers
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Operator [1]
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(Operator Instructions) [John Sheehy].
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John Sheehy, - Private Investor [2]
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Hello, thank you for taking my call. Can you give us any information or a sense of how the proposed transaction would benefit the shareholders?
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Feng Peng, Ossen Innovation Co., Ltd. - CFO [3]
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Okay, thanks for the question. At this moment I don't have comments on this because our special committee is still reviewing these term it sheets. So we will update the investors in the near term on any progress.
And we are still in the due diligence process with the Company. So we will update investors about this progress.
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John Sheehy, - Private Investor [4]
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Okay. Do you have any idea how much time it will take to evaluate?
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Feng Peng, Ossen Innovation Co., Ltd. - CFO [5]
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The Company is still in the process of being audited by a US audit firm. So at this moment my information will be at least three months from today. But I can't be sure about that's just my estimation.
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John Sheehy, - Private Investor [6]
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Okay, thank you very much.
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Operator [7]
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(Operator Instructions) There are no further questions at this time. If you did not get the opportunity today to ask a question or if you have any follow-up questions you may email them through to Tina.Xiao@Weitian-ir.com. I repeat that's Tina.Xiao@Weitian-ir.com.
I would now like to hand the conference back to today's presenters. Please continue.
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Feng Peng, Ossen Innovation Co., Ltd. - CFO [8]
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On behalf of our entire management team I would like to thank everyone, again, for joining us today for Ossen Innovation's second-quarter 2016 earnings conference call. We appreciate your interest and support in Ossen and look forward to speaking with you again next time. Goodbye.
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Operator [9]
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Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating and you may all disconnect.
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