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Lihua International Reports First Quarter 2012 Financial Results

May 10, 2012

DANYANG, China, May 10, 2012 /PRNewswire-Asia/ — Lihua International, Inc. (NASDAQ: LIWA) (“Lihua” or the “Company”), a leading Chinese developer, designer, and manufacturer of low cost, high quality alternatives to pure copper products, including refined copper products and superfine and magnet wire, as well as copper clad aluminum (“CCA”) wire, today announced financial results for the first quarter ended March 31, 2012.

First Quarter 2012 Financial Highlights

  • Sales increased 23.5% year-over-year to $169.1 million.
  • Gross profit increased 10.2% year-over-year to $18.6 million.
  • Net income was $11.5 million, or $0.38 per diluted share, compared with $12.5 million, or $0.41 per diluted share in the first quarter of 2011.
  • Non-GAAP net income(1) was $11.8 million, or $0.39 per diluted share, compared with $11.1 million, or $0.37 per diluted share in the first quarter of 2011.
  • Adjusted EBITDA(2) was $16.7 million, compared with $15.7 million in the first quarter of 2011.
  • Strong balance sheet with $108.0 million in cash and cash equivalents, or $3.59 per diluted share, as of March 31, 2012, compared with $105.6 million as of December 31, 2011.
  • Cash flow from operations of $6.7 million, compared with cash flow from operations of $1.3 million in the first quarter of 2011.

First Quarter and Recent Business Highlights

  • On May 3, 2012, Lihua initiated the pre-heating phase on its two new copper anode smelters. Product shipments are expected to begin in early June 2012.
  • Paid special dividends of $0.03 per share to shareholders of record as of December 31, 2011 and March 31, 2012 on January 13, 2012 and April 13, 2012, respectively.
  • Received the first order of production equipment for the new CCA cable and wire products, ahead of plan.
  • Construction of the Company’s 30-acre plant site continued, with the eighth factory unit and related infrastructure near completion. Lihua remains on-track to fully develop the site by the end of 2013. Pictures displaying the construction progress can be viewed on the Company’s website at http://www.lihuaintl.com/About_Us/Our_Facility.html.
  • Reiterated full-year 2012 guidance, which calls for gross profit of $93-96 million, and non-GAAP net income of $61-64 million, representing 23-27% and 22-28% growth, respectively, over 2011.
    (1) Lihua defines non-GAAP net income
     as net income excluding the change in
     fair value of warrants, gain on
     extinguishment of warrant liabilities,
     and other one-time or non-recurring
     items that are evaluated on an
     individual basis. Lihua uses non-GAAP
     net income and other non-GAAP metrics
     to provide information about its
     operating trends.
    (2) Adjusted EBITDA is a non-GAAP
     measurement. Lihua defines Adjusted
     EBITDA as net income before
     depreciation and amortization, interest
     income/expense, income taxes, gain on
     extinguishment of warrant liabilities,
     change in fair value of warrants and
     non-cash share-based compensation
     expenses.

“Our first quarter results reflect the strength of our business, the sizeable market opportunity for our products and the success of our efforts to maximize output through innovation and efficiency improvement initiatives. We increased total sales volume nearly 50% over the first quarter of 2011 and grew revenue over 23%, despite ASP pressure caused by a decline in the average price of copper. Our ability to generate such a sizeable increase in sales volume during what is usually a slow quarter due to the Chinese New Year speaks to the significant, unmet demand for our products,” said Mr. Jianhua Zhu, Lihua’s founder, chairman and CEO. “Market response to our copper rod product, which was re-introduced in the fourth quarter following the doubling of capacity on our dedicated smelter, has been enthusiastic and we expect that copper rod will be an important contributor to our revenue, gross profit and net income growth in 2012. Moreover, we further strengthened our balance sheet with operating cash inflow of $6.7 million, bringing our total cash position at the end of Q1 to approximately $108 million, an increase of nearly $18 million over March 31, 2011, which will be used to accelerate investment in Lihua’s longer-term growth initiatives.

“In addition to our strong financial performance, we began the pre-heating process on the two new smelters at our facility on May 3rd. As it normally requires one month of pre-heating before we can commence volume production, we expect to fully ramp production on these smelters in early June, increasing copper anode production capacity to 85,000 – 95,000 tons and total refined copper production capacity to 135,000 – 145,000 tons per year. These ongoing efforts to maximize output are becoming increasingly important as we work to address the needs of China’s copper consumers. With this new capacity on line, we are well positioned to capture additional market share in our existing businesses while accelerating the construction and development efforts for our upcoming CCA cable and wire products, which will gain us entry into the large, highly lucrative power transmission cable and wire market. We are poised for continued growth in 2012, and maintain our expectation for gross profit of $93-96 million and non-GAAP net income of $61-64 million for the year, representing an increase of 23-27% and 22-28%, respectively, over 2011.”

First Quarter 2012 Financial Results

Sales for the first quarter of 2012 increased 23.5% to $169.1 million, compared with sales of $136.9 million in the first quarter of 2011. The increase in sales resulted from an increase in volume due to continued demand across all of Lihua’s product categories and the addition of copper rod sales following the Company’s fourth quarter 2011 capacity expansion, partially offset by the decrease in copper prices in the first quarter of 2012 compared with the same period of 2011. Lihua’s wire products, copper anode and copper rod accounted for sales of $89.6 million, $63.0 million and $16.5 million, respectively, in the first quarter of 2012. This compares with CCA and copper wire sales of $70.9 million, and copper anode sales of $66.0 million, respectively, in the first quarter of 2011. During the first quarter of 2012, the average selling price of Lihua’s products was $8,362 per ton, compared with $9,980 per ton in the same period last year, reflecting a decrease of 16.2% year-over-year.

Gross profit for the first quarter of 2012 was $18.6 million, an increase of 10.2% from gross profit of $16.9 million for the first quarter of 2011. As a percentage of total sales, gross margin declined to 11.0% in the first quarter of 2012 from 12.3% for the same period last year, primarily due to increased sales of copper anode, copper rod and fine copper wire, which carry lower margins than superfine and other wire products, and a narrower average spread between scrap copper and pure copper prices in the first quarter of 2012 compared with the year-ago period.

Selling, general and administrative (“SG&A”) expenses for the first quarter of 2012 were $2.8 million, up 32.8%, compared with $2.1 million in the same period of 2011. The increase in SG&A was related to an increase in the Company’s sales force compared with the first quarter of 2011, product distribution insurance and other costs directly related to Lihua’s increased business volume and scale of operations, as well as continued investment in the Company’s research and development efforts.

The Company recorded no interest expense in the first quarter of 2012, compared with interest expense of $21,000 in the first quarter of 2011.

For the three months ended March 31, 2012, provision for income tax expense was $4.3 million, compared with $3.9 million for the three months ended March 31, 2011. The effective tax rate for the first quarter of 2012 was 27.1%, compared to 23.9% for the first quarter of 2011.

Net income for the first quarter of 2012 was $11.5 million, or $0.38 per share, based on 30.1 million weighted average diluted shares outstanding, compared with net income of $12.5 million, or $0.41 per share, based on 30.3 million weighted average diluted shares outstanding during the same period in 2011.

Non-GAAP net income for the first quarter of 2012 was $11.8 million or $0.39 per diluted share, compared with non-GAAP net income of $11.1 million, or $0.37 per diluted share, for the first quarter of 2011. Non-GAAP net income excludes the impact of losses of $0.4 million and a gain of ($1.4 million), related to the change in fair value of warrants, in the first quarters of 2012 and 2011, respectively, and gains on the extinguishment of warrant liabilities of ($73,000) and ($60,000) in the first quarter of 2012 and 2011, respectively.

Adjusted EBITDA for the three months ended March 31, 2012 was $16.7 million, compared with $15.7 million for the same period in the prior year.

Balance Sheet

As of March 31, 2012, Lihua had $108.0 million, or $3.59 per diluted share in cash and cash equivalents, compared with $105.6 million as of December 31, 2011. As of March 31, 2012, Lihua had working capital of $168.6 million and no debt.

Outlook

At the conclusion of the one-month pre-heating period that began on May 3, 2012, the Company expects to ramp production on its two new copper anode smelters in early June 2012, increasing copper anode capacity to 85,000 – 95,000 tons per year. Additional construction on the Company’s 30-acre plant site is scheduled for completion in 2013, and will include warehouse and storage facilities, production facilities for the Company’s new CCA power transmission cable and wire products, a new R&D center, office space and employee facilities.

The Company has reiterated its full-year 2012 guidance, which calls for gross profit to be between $93-96 million, and non-GAAP net income between $61-64 million, representing year-over-year growth of 23-27% and 22-28%, respectively. The Company expects that 2012 growth will be largely the result of this additional capacity and continued strong demand in China for recycled copper and copper alternative products in end markets that include household appliances, consumer white goods and infrastructure.

Mr. Zhu concluded, “Our first quarter performance and the recent steps we have taken toward opening our new copper anode production facility have set the stage for continued success in 2012 and further into the future. While we faced a few days of delay in the launch of the new facility due to China’s Labor Day holidays at the beginning of May, we are pleased to have the pre-heating process underway and are prepared to ramp production in June, allowing us to focus on other strategic growth initiatives including the installation of production equipment, test production, marketing and commercialization of our CCA cable and wire products for power transmission. We believe that this new CCA product could have as significant an impact on our business and end markets as copper anode did upon its introduction. We look forward to its launch, which is currently targeted for the second half of 2013. With our leadership position in the markets we serve, robust cash position and strong product portfolio and pipeline, we are confident in our ability to continue growing Lihua’s business in new and existing markets.”

Conference Call and Webcast

Management of Lihua International will host a conference call today, May 10, 2012 at 8:00 a.m. Eastern time to discuss the first quarter 2012 financial results.

Individuals interested in participating in the conference may do so by dialing 1-877-941-2069 in the U.S. and Canada, or 1-480-629-9713 internationally.

Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company’s Web site at: http://www.lihuaintl.com/Investor_Relations/Events_Presentations.html.

For those unable to participate, an audio replay of the call will be available beginning approximately one hour after the conclusion of the live call through May 17, 2012. The audio replay can be accessed by dialing 1-800-406-7325 from the U.S or Canada, or 1-303-590-3030 internationally, and entering access ID No. 4534832#. Following the live webcast, an online archive will be available for 90 days.

About Non-GAAP Financial Measures

The Company uses non-GAAP net income and other non-GAAP metrics such as Adjusted EBITDA to provide information about its operating trends. Investors are cautioned that non-GAAP net income and Adjusted EBITDA are not measures of liquidity or of financial performance under Generally Accepted Accounting Principles (“GAAP”).

The Company defines non-GAAP net income as net income excluding the change in fair value of warrants and other one-time or non-recurring items that are evaluated on an individual basis. The Company defines Adjusted EBITDA as net income before depreciation and amortization, interest income/expense, income taxes, change in fair value of warrants and non-cash share-based compensation expenses. The non-GAAP net income and Adjusted EBITDA numbers presented may not be comparable to similarly titled measures reported by other companies. Non-GAAP net income and Adjusted EBITDA, while providing useful information, should not be considered in isolation or as an alternative to net income or cash flows as determined under GAAP. Consistent with Regulation G under the U.S. federal securities laws, the non-GAAP measures in this press release have been reconciled to the nearest GAAP measure, and this reconciliation is located under the headingsNon-GAAP Net Income Calculation” and “Adjusted EBITDA Calculation” below.

                                                    For Three Months Ended March 31,
                                                    --------------------------------
                                                              2012                          2011
                                                              ----                          ----
    Net income                                         $11,475,012                   $12,511,986
      Gain on Extinguishment of Warrant Liabilities        -73,291                       -60,724
      Change in fair value of warrants                     430,000                    -1,375,101
                                                           -------                    ----------
    Non-GAAP Net Income                                $11,831,721                    11,076,161
    -------------------                                -----------                    ----------

                                                                   For Three Months Ended March 31,
                                                                   --------------------------------
                                                                             2012                          2011
                                                                             ----                          ----
    Net income                                                      $11,475,012                   $12,511,986
      Depreciation and amortization                                       657,320                       622,755
      Share-based compensation expense                                    112,875                       146,281
      Gain on Extinguishment of Warrant Liabilities                       -73,291                       -60,724
      Change in fair value of warrants                                    430,000                    -1,375,101
      Interest income                                                    -163,136                      -133,105
      Interest expenses                                                         0                        21,466
      Provision for income tax                                        4,277,346                     3,923,154
      ------------------------                                        ---------                     ---------
                                              Adjusted EBITDA       $16,716,126                   $15,656,712
                                                   ---------------

About Lihua International, Inc.

Lihua, through its two wholly owned subsidiaries, Lihua Electron and Lihua Copper, is a leading value-added manufacturer of copper replacement products for China’s rapidly growing copper wire and copper replacement product market. Lihua is one of the first vertically integrated companies in China to develop, design and manufacture lower cost, high quality alternatives to pure copper magnet wire and pure copper alternative products. Lihua’s products include CCA and refined copper products. Current product offerings include CCA and pure copper wire, copper rod and copper anode. Except for CCA wire, all other products are produced from recycled scrap copper. Lihua’s products are sold in China either directly to manufacturers or through distributors in the wire and cable industries and manufacturers in a wide variety of industries including the consumer electronics, white goods, automotive, utility, telecommunications and specialty cable industries. Lihua’s corporate and manufacturing headquarters are located in the heart of China’s copper industry in Danyang, Jiangsu Province. For more information, visit: http://www.lihuaintl.com.

To be added to the Company’s email distribution for future news releases, please send your request to lihua@tpg-ir.com.

Safe Harbor Statement

This press release contains certain statements that may be deemed to be “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, that address activities, events or developments that the Company expects, projects, believes or anticipates will or may occur in the future, including, without limitation, statements about its business or growth strategy, general industry conditions including availability of copper or recycled scrap copper, future operating results of the Company, capital expenditures, expansion and growth opportunities, bank borrowings, financing activities and other such matters, are forward-looking statements. Although the Company believes that its expectations stated in this press release are based on reasonable assumptions, actual results may differ from those projected in the forward-looking statements.

Please note that information in this press release reflects management views as of the date of issuance.

Contact:

The Piacente Group, Inc.
Investor Relations
Brandi Floberg or Lee Roth
(212) 481-2050
lihua@tpg-ir.com

                                                         LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES
                                                            CONDENSED CONSOLIDATED BALANCE SHEETS
                                                              (AMOUNTS EXPRESSED IN US DOLLARS)

                                                              March 31,                                           December 31,
                                                              ---------                                           ------------
                                                                   2012                                                  2011
                                                                   ----                                                  ----
                                   ASSETS
                                   ------
    CURRENT ASSETS
    Cash and cash equivalents                                                                       $107,994,088               $105,637,627
    Accounts receivable, net                                                                          28,279,542                 31,082,460
    Prepayments for raw material purchases                                                            27,939,318                 21,882,977
    Other receivables, deposits and prepayments                                                        1,003,611                  1,882,864
    Prepaid land use right - current portion                                                             405,458                    405,034
    Deferred income tax assets                                                                            21,002                    200,588
    Inventories                                                                                       17,579,376                 15,502,246
                                                                                                      ----------                 ----------
    Total current assets                                                                             183,222,395                176,593,796
                                                                                                     -----------                -----------
    OTHER ASSETS
    Property, plant and equipment, net                                                                20,177,224                 20,565,875
    Construction in progress                                                                          24,148,099                            18,794,910
    Deposits for plant and equipment                                                                           -                  3,428,082
    Prepaid land use right - long-term portion                                                        18,824,760                 18,906,280
    Intangible assets                                                                                          -                        170
                                                                                                             ---                        ---
    Total non-current assets                                                                          63,150,083                 61,695,317
                                                                                                      ----------                 ----------
    Total assets                                                                                    $246,372,478               $238,289,113
                                                                                                    ============               ============

                    LIABILITIES AND STOCKHOLDERS' EQUITY
                    ------------------------------------
    CURRENT LIABILITIES
    Accounts payable                                                                                  $5,181,514                 $6,066,261
    Other payables and accruals                                                                        4,145,588                  6,370,833
    Income taxes payable                                                                               4,144,320                  4,607,533
    Dividend payable                                                                                     496,423                    992,846
    Warrant liabilities                                                                                  660,000                    615,000
                                                                                                         -------
    Total current liabilities                                                                         14,627,845                 18,652,473
                                                                                                      ----------                 ----------
    Total liabilities                                                                                 14,627,845                 18,652,473
                                                                                                      ----------                 ----------

    STOCKHOLDERS' EQUITY
    Preferred stock: $0.0001 par value, 10,000,000
     shares authorized, none                                                                                   -                          -
          issued and outstanding
    Common stock, $0.0001 par value: 75,000,000 shares
     authorized,
      30,084,883 shares issued and 29,820,836 shares
       outstanding as of March
          31, 2012 (December 31, 2011: 30,036,481 shares
           issued and 29,772,434                                                                           3,008                      3,003
          shares outstanding)
    Additional paid-in capital                                                                        78,988,702                 78,564,128
    Treasury stock, at cost, 264,047 and 264,047 shares
     as of March 31, 2012                                                                             (2,126,597)
          and December 31, 2011, respectively                                                                                    (2,126,597)
    Statutory reserves                                                                                11,217,579                 10,418,476
    Retained earnings                                                                                127,045,396                116,369,487
    Accumulated other comprehensive income                                                            16,616,545                 16,408,143
                                                                                                      ----------                 ----------
    Total stockholders' equity                                                                       231,744,633                219,636,640
                                                                                                     -----------                -----------
    Total liabilities and stockholders' equity                                                      $246,372,478               $238,289,113
                                                                                                    ============               ============

                                             LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES
                                CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
                                                 (AMOUNTS EXPRESSED IN US DOLLARS)

                                                        For the Three Months Ended
                                                                   March 31,
                                                      2012                                           2011
                                                      ----                                           ----

    NET REVENUE                                                 $169,086,267                              $136,931,096

    Cost of sales                                               (150,451,275)                             (120,023,023)
                                                                ------------                              ------------

    GROSS PROFIT                                                  18,634,992                                16,908,073

    Selling expenses                                                (686,006)                                 (523,036)
    General and administrative
     expenses                                                     (2,097,834)                               (1,573,312)
                                                                  ----------

    Income from operations                                        15,851,152                                14,811,725
                                                                  ----------                                ----------

    Other income (expenses):
    Interest income                                                  163,136                                   133,105
    Interest expenses                                                      -                                   (21,466)
    Gain on extinguishment of
     warrant liabilities                                              73,291                                    60,724
    Change in fair value of
     warrants                                                       (430,000)                                1,375,101
    Other income                                                      94,779                                    75,951
                                                                      ------                                    ------
    Total other income
     (expenses)                                                      (98,794)                                1,623,415
                                                                     -------                                 ---------

    Income before income taxes                                    15,752,358                                16,435,140
    Provision for income taxes                                    (4,277,346)                               (3,923,154)
                                                                  ----------                                ----------

    NET INCOME                                                   $11,475,012                               $12,511,986
                                                                 ===========                               ===========

    OTHER COMPREHENSIVE INCOME:

    Foreign currency
     translation adjustments                                         208,402                                 1,664,517
                                                                     -------                                 ---------

    COMPREHENSIVE INCOME                                         $11,683,414                               $14,176,503
                                                                 ===========                               ===========

    Net income per share
    Basic                                                              $0.39                                     $0.42
                                                                       =====                                     =====
    Diluted                                                            $0.38                                     $0.41
                                                                       =====                                     =====

    Weighted average number of
     shares outstanding
    Basic                                                         29,800,624                                29,858,780
                                                                  ==========                                ==========
    Diluted                                                       30,080,154                                30,313,996
                                                                  ==========                                ==========

                                                   LIHUA INTERNATIONAL, INC. AND SUBSIDIARIES
                                                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                       (AMOUNTS EXPRESSED IN US DOLLARS)

                                       Three Months Ended March 31,
                                      2012                                                    2011
                                      ----                                                    ----
    CASH FLOWS FROM OPERATING
     ACTIVITIES
    Net income                                                   $11,475,012                       $12,511,986
    Adjustments to reconcile net
     income to cash provided by
     operating activities:
    Depreciation and amortization                                    657,320                           622,755
    Share-based compensation                                         112,875                           146,281
    Gain on extinguishment of warrant
     liabilities                                                     (73,291)                          (60,724)
    Change in fair value of warrants                                 430,000                        (1,375,101)
    Deferred income tax benefits                                     179,426                           (29,355)
    (Increase) decrease in assets:
    Accounts receivable                                            2,829,666                        (6,284,812)
    Bills receivable                                                       -                           531,747
    Prepayments for raw material
     purchases                                                    (6,020,960)                                -
    Other receivables, deposits and
     prepayments                                                     879,411                          (667,402)
    Inventories                                                   (2,056,628)                       (6,706,922)
    Increase (decrease) in
     liabilities:
    Accounts payable                                                (889,271)                        5,073,347
    Other payables and accruals                                     (371,130)                       (1,486,687)
    Income taxes payable                                            (467,079)                         (969,219)
                                                                    --------                          --------
    Net cash provided by operating
     activities                                                    6,685,351                         1,305,894
                                                                   ---------                         ---------

    CASH FLOWS FROM INVESTING
     ACTIVITIES
    Purchase of property, plant and
     equipment                                                      (146,645)                         (178,897)
    Addition to construction in
     progress                                                     (3,754,080)                       (2,867,317)
    Deposits for plant and equipment                                       -                           (29,249)
    Net cash used in investing
     activities                                                   (3,900,725)                       (3,075,463)
                                                                  ----------                        ----------

    CASH FLOWS FROM FINANCING
     ACTIVITIES
    Repurchase of common stock                                             -                          (926,250)
    Proceeds from exercise of
     warrants                                                              -                         1,898,050
    Dividend paid                                                   (496,423)                                -
                                                                    --------                               ---
    Net cash (used in) provided by
     financing activities                                           (496,423)                          971,800
                                                                    --------                           -------

    Foreign currency translation
     adjustment                                                       68,258                           890,414
                                                                      ------                           -------
    INCREASE IN CASH AND CASH
     EQUIVALENTS                                                   2,356,461                            92,645
    CASH AND CASH EQUIVALENTS, at the
     beginning of the period                                     105,637,627                        90,609,340

    CASH AND CASH EQUIVALENTS, at the
     end of the period                                          $107,994,088                       $90,701,985
                                                                ============                       ===========

    MAJOR NON-CASH TRANSACTION:
      Share-based compensation to
       employees and directors                                      $112,875                          $146,281
      Issuance of common stock to
       settle warrant liabilities                                   $311,704                        $4,722,948
    SUPPLEMENTAL DISCLOSURE
     INFORMATION
      Cash paid for interest             $                                 -                           $21,466
      Cash paid for income taxes                                  $4,564,999                        $4,865,045

SOURCE Lihua International, Inc.


Source: PR Newswire