SmartHeat Inc. Announces Record Third Quarter 2010 Financial Results - 36% Revenue Growth, 25% Net Income Growth, Ups Guidance for 2010, and Announces Guidance for 2011

News provided by

SmartHeat Inc.

Nov 10, 2010, 05:00 ET

NEW YORK, Nov. 10, 2010 /PRNewswire-Asia/ -- SmartHeat Inc. (Nasdaq: HEAT; website: www.smartheatinc.com), a market leader in China's clean technology, energy savings industry, today announced record financial results for the third quarter ended September 30, 2010. SmartHeat management is scheduled to host an investor conference call tomorrow at 9:00 a.m. EST on November 11, 2010.

Financial Highlights:

  • Revenues of $51.48 million, up 36.05% from 3Q09
  • Operating income of $13.02 million, up 21.71% from 3Q09
  • Net income of $11.11 million, up 25.07% from 3Q09

Financial Summary:



3Q10


3Q09

Change

Revenue

$

51,476,821

$

37,835,897

36.05%

   Gross Profit

$

18,414,968

$

13,148,438

40.05%

   Gross Profit Margin

35.77

%

34.75

%

   Operating Income

$

13,018,212

$

10,695,856

21.71%

   Operating Margin

25.29

%

28.27

%

Net Income

$

11,106,505

$

8,880,536

25.07%

   Net Margin

21.58

%

23.47

%

Diluted EPS

$

0.34

$

0.36



Revenues

In the third quarter of 2010, total sales increased 36.05% to $51.48 million compared to $37.84 million in 3Q09. All three of the Company's product lines contributed to higher sales in the third quarter and were a result of China's energy-saving policies, continued growth in energy-saving industry, and our successful market expansion.

The breakdown of revenues for the third quarter of 2010 was $43.66 million from PHE units and heat exchangers, with sales from PHE units up 19.64% compared to 3Q09 and sales from heat exchangers up 72.47% compared to 3Q09. Sales from heat meters were up 5.55% from 3Q09 and accounted for $7.82 million in revenues for the quarter.

The following table presents the revenue contribution by percentage for each major product line in 3Q10 in comparison with 3Q09.


Percent of Total Revenues

Product Line

3Q10

3Q09

Plate Heat Exchange (PHE) Unit

38.80%

44.13%

Heat Exchanger

46.01%

36.29%

Heat Meters

15.19%

19.58%

Total

100.00%

100.00%

Net Income

Net income in the quarter totaled $11.11 million ($0.34 per diluted share), up 25.07% from $8.88 million ($0.36 per diluted share) in 3Q09. The higher net income was driven primarily by increased sales from PHEs and PHE units. Earnings per share decreased by $0.02 per share because of our secondary offering in the third quarter of 2009.

Gross Profit Margin

Gross profit margin for 3Q10 was 35.77%, up from 34.75% in 3Q09. The margin enhancement is mainly due to fixed cost leverage resulting from significant sales growth and better product mix arising from sales to some high-margin projects.

Operating Income

Operating income totaled $13.02 million, compared with $10.70 million in 3Q09, representing a 21.71% year over year growth. Higher operating income was mainly due to increased sales of the PHE and PHE unit product lines. Total operating expenses including selling, general and administrative ("SG&A") expenses was $5.40 million, compared with $2.45 million a year ago. Operating margin was 25.29% compared with 28.27% a year ago. The increase in operating expense and decline of operating margin was mainly due to increased sales and expansion of our business, including the hiring of more sales personnel, higher depreciation expense, training of the marketing team and establishing new sales offices in more regions of China. We anticipate robust revenue and operating income growth in the future due to the efforts we made in 2010 to develop our sales and distribution channels.

Updates Full Year 2010 Earnings Guidance and Target 2011 Earnings Guidance  

SmartHeat is updating its full year 2010 guidance from $106 - $116 million in revenues to $110 - $120 million in revenues and from $20 - $22 million in net income to $22 - $24 million in net income.

In addition, SmartHeat is announcing full year 2011 guidance of $25 - $30 million in net income on $135 - $160 million in revenues.

Outlook

Mr. James Jun Wang, Chairman and Chief Executive Officer of Smart Heat Inc., commented: "We maintained the momentum from the first half of 2010 and delivered another set of strong results. We thank our hard working employees who are dedicated to executing our operational strategy. We are quite pleased to see the significant business expansion to West China and are very satisfied with the growth across all our existing business lines and the benefits we expect to receive from investments made to expand our sales and distribution channels."

"Government requirements to implement energy savings and emission reduction have increased the demand for our energy-saving products in all industrial sectors. Taking advantage of economic development in West China and urbanization trends throughout China will be continue to be part of our long-term strategy. Based on the successful expansion to West China's market and some second and third tier cities, SmartHeat is well positioned to reap significant benefits," concluded Mr. Wang.

Investor Conference Call Instructions:

SmartHeat management will host an earnings conference call tomorrow to discuss its third quarter financial results and outlook.

Date and time: 9:00 a.m. U.S. Eastern Standard Time, November 11, 2010

U.S. toll free number: +1-888-339-2688

International direct dial-in: +1-617-847-3007

Conference passcode: 95275033

About SmartHeat Inc.

Founded by James Jun Wang, a former executive at Honeywell China, SmartHeat Inc. (www.smartheatinc.com) is a NASDAQ Global Market listed (NASDAQ: HEAT) U.S. company with its primary operations in China. SmartHeat is a market leader in China's clean technology energy savings industry. SmartHeat manufactures heat exchangers, custom plate heat exchanger units (PHE Units) and heat meters. SmartHeat's products directly address air pollution problems in China where massive coal burning for cooking and heating purposes is the only source of economical heat energy in China. With broad product applications, SmartHeat's products significantly reduce heating costs, increase energy use, reduce air pollution, and have broad applications. SmartHeat's customers include global Fortune 500 companies as well as municipalities and industrial/residential users. China's heat transfer market is currently estimated at approximately $2.4 billion with double-digit annual growth according to China Heating Association.

Safe Harbor Statement

All statements in this press release that are not historical are forward- looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company's expectations. SmartHeat's actual results may differ from its projections. Further, preliminary results are subject to normal year-end adjustments. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect SmartHeat's current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in SmartHeat's filings with the Securities and Exchange Commission.

Corporate Communications Contact:

Ms. Jane Ai, Corporate Secretary

SmartHeat Inc.

Tel: 011-86-24-25363366

Email: [email protected]

SMARTHEAT INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS




September 30, 2010 (Unaudited)

December 31, 2009

ASSETS




CURRENT ASSETS

    Cash & cash equivalents

$                                                                  14,724,091

$                                                            48,967,992

    Restricted cash

1,296,318

1,301,573

    Accounts receivable, net

50,052,608

31,887,785

    Retentions receivable

2,096,943

885,642

    Advances to suppliers

12,623,696

7,657,791

    Other receivables, prepayments and deposits

5,352,081

3,572,600

    Inventories

32,457,863

11,259,273

    Notes receivable - bank acceptances

944,769

397,248



       Total current assets

119,548,369

105,929,904



NON-CURRENT ASSETS

    Deferred tax asset

14,837

-

    Restricted cash

92,013

48,361

    Accounts receivable, net

219,725

237,384

    Retentions receivable

734,238

349,931

    Deposit for land use right

9,597,390

-

    Intangible assets, net

4,127,767

4,071,021

    Construction in progress

80,254

-

    Property and equipment, net

8,044,911

7,739,609



      Total noncurrent assets

22,911,135

12,446,306



TOTAL ASSETS

$                                                                142,459,504

$                                                          118,376,210






LIABILITIES AND STOCKHOLDERS' EQUITY




CURRENT LIABILITIES

    Accounts payable

$                                                                    5,421,730

$                                                              3,493,196

    Unearned revenue

4,283,004

2,130,637

    Taxes payable

2,799,694

2,140,627

    Accrued liabilities and other payables

4,887,566

3,685,272

    Notes payable - bank acceptances

1,516,865

1,806,564

    Loans payable

4,476,877

4,393,544



        Total current liabilities

23,385,736

17,649,840



DEFERRED TAX LIABILITY

-

8,526



COMMITMENTS AND CONTINGENCIES




STOCKHOLDERS' EQUITY

    Common stock, $0.001 par value; 75,000,000        
       shares authorized,  32,811,125 and 32,794,875
       shares issued and outstanding at September 30,
       2010 and December 31, 2009, respectively

32,811

32,795

    Paid in capital

75,163,813

74,917,370

    Statutory reserve

4,613,151

2,872,006

    Accumulated other comprehensive income

2,901,709

969,988

    Retained earnings

35,673,363

21,231,484



        Total Company stockholders' equity

118,384,847

100,023,643



        NONCONTROLLING INTEREST

688,921

694,201



        TOTAL EQUITY

119,073,768

100,717,844



TOTAL LIABILITIES AND EQUITY

$                                                                142,459,504

$                                                          118,376,210

SMARTHEAT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(UNAUDITED)







NINE MONTHS ENDED SEPTEMBER 30,

THREE  MONTHS ENDED SEPTEMBER 30,

2010

2009

2010

2009







Net sales

$                                   83,613,250

$                                     56,541,795

$                                       51,476,821

$                               37,835,897

Cost of goods sold

54,177,914

36,562,363

33,061,854

24,687,460







Gross profit

29,435,336

19,979,432

18,414,968

13,148,438







Operating expenses





    Selling expenses

5,972,651

2,325,471

3,335,303

1,165,939

    General and administrative expenses

4,622,468

2,626,775

2,061,453

1,286,643







    Total operating expenses

10,595,119

4,952,245

5,396,756

2,452,582







Income from operations

18,840,217

15,027,187

13,018,212

10,695,856







Non-operating income (expenses)





    Interest income

322,462

145,839

122,898

65,418

    Interest expense

(41,871)

(209,462)

(46,916)

(91,850)

    Financial expense

(36,430)

(222,625)

(17,427)

(222,625)

    Exchange loss

24,652

-

68,323

-

    Other income

135,715

21,443

51,910

(14,866)

    Other expenses

(1,269)

61,644

150

72,843







    Total non-operating income

     (expenses), net

403,259

(203,161)

178,938

(191,080)







Income before income tax

19,243,476

14,824,026

13,197,149

10,504,776

Income tax expense

3,059,182

2,304,672

2,092,876

1,624,240







Income from operations

16,184,294

12,519,354

11,104,273

8,880,536







Less: Income attributable to noncontrolling interest

16,962

-

2,232

-







Income to SmartHeat Inc.

16,201,256

12,519,354

11,106,505

8,880,536







Other comprehensive item







    Foreign currency translation

1,931,721

270,399

1,418,870

257,256







Comprehensive Income

$                                   18,132,977

$                                     12,789,753

$                                       12,525,375

$                                 9,137,792







Basic weighted average shares outstanding

32,804,292

24,430,806

32,811,125

24,924,435







Diluted weighted average shares outstanding

32,846,171

24,513,092

32,817,520

25,010,735







Basic earnings per share

$                                              0.49

$                                                0.51

$                                                  0.34

$                                          0.36







Diluted earnings per share

$                                              0.49

$                                                0.51

$                                                  0.34

$                                          0.36

SMARTHEAT INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

NINE MONTHS ENDED SEPTEMBER 30,

2010

2009



CASH FLOWS FROM OPERATING ACTIVITIES:

           Income including noncontrolling interest

$                                         16,184,294

$                                   12,519,354

           Adjustments to reconcile income including noncontrolling

           interest to net cash used in operating activities:

           Depreciation and amortization

709,544

409,371

           Allowance for accounts receivable

15,744

-

           Unearned interest on accounts receivable

(74,520)

195,901

           Stock option compensation expense

142,869

1,755

           Stock issued for consulting service

18,090

-

           Changes in deferred tax

(23,160)

(23,357)

                        (Increase) decrease in current assets:

                                  Accounts receivable

(17,807,291)

(9,305,812)

                                  Retentions receivable

(1,547,759)

(2,403,726)

                                  Advances to suppliers

(4,761,889)

(3,051,902)

                                  Other receivables, prepayments and deposits

1,995,914

485,060

                                  Inventory

(20,659,166)

(8,277,813)

                                  Note receivables

(404,449)

(55,986)

                        Increase (decrease) in current liabilities:

                                  Accounts payable

3,635,847

5,782,299

                                  Unearned revenue

2,079,159

1,232,371

                                  Taxes payable

608,861

818,141

                                  Accrued liabilities and other payables

128,354

(4,450,011)



           Net cash used in operating activities

(19,759,558)

(6,124,354)



CASH FLOWS FROM INVESTING ACTIVITIES:

                                  Change in restricted cash

(12,593)

(380,457)

                                  Acquisition of property & equipment

(3,277,320)

(3,610,566)

                                  Acquisition of intangible asset

(170,689)

-

                                  Deposit for land use right

(9,448,356)

-

                                  Construction in progress

(79,008)

(60,203)



           Net cash used in investing activities

(12,987,966)

(4,051,226)



CASH FLOWS FROM FINANCING ACTIVITIES:

                                  Proceeds from short term loan

4,407,357

12,117,636

                                  Repayment to short term loan

(4,407,357)

(9,216,986)

                                  Payment on notes payable

(1,812,243)

-

                                  Issuance of common stock

-

66,138,390

                                  Warrants exercised

85,500

-



           Net cash provided by (used in) financing activities

(1,726,743)

69,039,040



EFFECT OF EXCHANGE RATE CHANGE ON CASH & CASH EQUIVALENTS

230,366

(3,978)



NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS

(34,243,901)

58,859,482



CASH & CASH EQUIVALENTS, BEGINNING OF PERIOD

48,967,992

1,435,213



CASH & CASH EQUIVALENTS, END OF PERIOD

$                                         14,724,091

$                                   60,294,695



Supplemental Cash flow data:

  Income tax paid

$                                           1,634,509

$                                     1,272,797

  Interest paid

$                                              137,787

$                                        219,061

SOURCE SmartHeat Inc.

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