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SinoHub, Inc. Announces 2011 Third Quarter Financial Results

November 14, 2011

SHENZHEN, China, Nov. 14, 2011 /PRNewswire-Asia/ — SinoHub, Inc. (“SinoHub” or the “Company”), (NYSE Amex: SIHI), an electronics company whose main growth driver is manufacturing and distributing custom, private-label mobile phones, today announced its unaudited financial results for the third quarter ended September 30, 2011.

THIRD QUARTER 2011 FINANCIAL HIGHLIGHTS

  • Total net sales declined year-over-year to US$52.0 million in the third quarter of 2011 compared to US$55.8 million in the third quarter of 2010.
  • Gross profit was US$6.3 million compared to US$10.2 million in the same quarter in 2010. Gross margin was 12.1% compared to 18.3% in the third quarter of 2010.
  • Cash used in operations was US$17.6 million, compared with US$4.7 million in the third quarter of 2010.
  • Net income was US$2.6 million, down from US$6.0 million in the third quarter of 2010.
  • Net income per basic and diluted share were both US$0.08, down from US$0.21 per basic and diluted share, in the third quarter of 2010.

BUSINESS HIGHLIGHTS:

Commenting on the results, SinoHub’s CEO, Mr. Harry Cochran said, “Our results for the third quarter were largely in line with our expectations, as we continued to be impacted by the decline in ICM revenue following the cut back in orders from a major customer in the second quarter. While we have not yet replaced all of the revenue lost from this key customer, our results have stabilized thanks to our progress on the business development front. In fact, we have successfully broadened our base of smaller ICM customers placing higher margin orders, which led to an improvement in our ICM gross profit margin from the low in the previous quarter. We have also made significant inroads with a number of large developing market mobile phone operators. For example, Philippine Long Distance Telephone Company (PLDT), owners of Smart Communications, Inc, the leading wireless services provider in the Philippines, recently added SinoHub to their List of Accredited Suppliers for Mobile Phones (Private label) for a three year period. This marks a significant step in the sales process with one of the largest mobile phone operators in Southeast Asia, and while we have not yet secured any orders, we are working hard to move this relationship to the order phase.

“The process to shift the electronic component sales part of our ECSS segment to a brokerage model is ongoing, and we expect to make further progress here in the fourth quarter of 2011. This transition is necessary as we continue to focus our resources on developing our ICM business segment.

“Looking ahead, we remain committed to our long-term strategy to deepen penetration of the mobile device market in developing nations and in other international markets, including North and South America. We believe that our joint design process and our track record of delivering high quality phones with minimal lead times and flexible order quantities continue to provide us with clear competitive advantages. While we may continue to face near-term pressure in the short term, we remain confident that our rate of growth in the ICM business segment will rebound in the year ahead.”

Lei Xia, President of SinoHub, added, “We are delighted to become an accredited supplier to PLDT after a thorough due diligence process run by Dun & Bradstreet on their behalf. With forty-eight million subscribers, Smart Communications has a dominant position in their market, and we look forward to establishing a strong long-term relationship with them.”

THIRD QUARTER 2011 FINANCIAL RESULTS

Net Sales

Net sales for the third quarter of 2011 were US$52.0 million, representing a decrease of 7.3% from US$55.8 million in the third quarter of 2010. The year-over-year decrease was primarily attributable to a decline in sales in the Company’s ICM business segment. Sales in the ICM business segment in the third quarter of 2011 were US$16.9 million, down 11.4% from US$19.0 million in the third quarter of 2010 as the Company was not successful in replacing all of the revenue that was lost when a major customer had to drastically cut back on orders with SinoHub starting in the second quarter of 2011 due to inventory problems at the customer.

Net sales from the electronic component sales and supply chain management services segment (collectively ECSS) for the third quarter of 2011 were US$35.1 million, a year-over-year decrease of 4.4% from US$36.7 million in the third quarter of 2010. The primary reason for the decrease in the ECSS business segment was the increasing maturity of the 2G market and the lack of clear leadership in the 3G market. This contrasts with the plentiful arbitrage opportunities that existed in the past in the 2G market when Mediatek had a dominant position and the technology was changing very rapidly.

The Company has begun the process of shifting the electronic component sales (ECP) portion of our ECSS segment, which constitutes most of this segment, to a brokerage model from our current model where we take ownership of components. This should result in much lower revenue (the Company will only be able to record commissions as revenue instead of the full value of the components), but much higher gross margins.

Gross Profit and Margin

Gross profit for the quarter was US$6.3 million, down 61.9% from US$10.2 million in the third quarter of 2010. Gross margin for the quarter was 12.1%, down from 18.3% in the third quarter of 2010. However, in the three months ended September 30, 2011, gross margins in ICM recovered to 16.2% from the low level in the three months ended June 30, 2011 as the Company’s sales initiatives to broaden our base of ICM customers started to pay off.

Operating Expenses

Operating expenses, including selling, general and administrative (SG&A) expenses, professional services and other operating income was US$2.7 million, unchanged from US$2.7 million in the third quarter of 2010.

Income from Operations

Income from operations for the quarter was US$3.6 million, or 6.9% of sales, as compared to operating income of US$7.5 million, or 13.4% of sales in the third quarter of 2010.

Income Taxes

The Company recorded US$1.1 million of income tax expenses in the third quarter of 2011, versus the US$1.9 million of income tax expenses it recorded in the corresponding period in 2010. The reason for the decrease is that there was less taxable income. However, because taxes are calculated on a subsidiary level, resulting in losses in one subsidiary not offsetting gains in another for tax purposes, the decrease is not proportional to the decrease in income, which is calculated on a consolidated basis.

Net Income

Net income attributable to SinoHub’s shareholders was US$2.6 million, compared to US$6.0 million in the third quarter of 2010. Net margin was 5.0%, as compared to 10.8% in the third quarter of 2010. Net income per basic and diluted shares were both US$0.08, down from US$0.21 per basic and diluted share, in the third quarter of 2010, based on 33.5 million weighted average, basic and diluted shares outstanding.

Liquidity and Capital Resources

As of September 30, 2011, the Company had US$7.0 million in cash and cash equivalents, an increase from US$4.5 million as of December 31, 2010 resulting primarily from new money raised in the first half of 2011. The Company had working capital of US$75.5 million on September 30, 2011, up from US$57.5 million at the end of 2010, and a current ratio of 1.6 to 1 on September 30, 2011.

As of September 30, 2011, the Company had approximately US$7.0 million available to borrow under its credit facilities.

During the nine months ended September 30, 2011, the net amount of cash used in the Company’s operating activities was US$17.6 million, compared to US$4.7 in the same period in 2010, which was mainly attributable to the increase in inventories and accounts receivable.

As of September 30, 2011, inventories were approximately US$37.1 million and accounts receivable were US$60.2 million, compared to approximately US$14.6 million and US$45.7 million on December 31, 2010, respectively. The increase in inventory was related to our ICM business and the increase in accounts receivable resulted from lower collections in ECP in the quarter caused by a change in policy by the Chinese banks which had the effect of lowering credit availability for our customers.

Full-year 2011 Revenue Guidance

The Company reiterates its sales outlook of approximately 2.5 million mobile phones in 2011, and its full-year 2011 revenue guidance of approximately $195 million. The forecasts reflect the Company’s current and preliminary view, which is subject to change.

BUSINESS OUTLOOK

SinoHub is focused on expanding our ICM business segment by gaining new customers in Southeast Asia where we started and by entering new markets (primarily North and South America). In addition we have begun a strategic initiative to develop our own mobile phone brand in China, the world’s largest mobile phone market. As announced in June 2011, the Company received an application acceptance notice from the Trademark Office of the State Administration for Industry and Commerce of the PRC for the use of the Topolo(TM) brand name and logo in China, which SinoHub has selected as the brand name for its self-branded line of mobile phones to be sold in the China. The Company is currently in the process of securing a sales license to sell Topolo(TM) branded mobile phones in China, and expects to begin initial marketing efforts upon approval of its application for a sales license toward the end of Q1 2012.

CONFERENCE CALL

SinoHub’s senior management will host a conference call at 7:00 am (Pacific) / 10:00 am (Eastern) / 11:00 pm (Beijing/Hong Kong) on Monday, November 14, 2011 to discuss the Company’s 2011 third quarter financial results and recent business activity. To access the live teleconference, please dial +1-877-941-1428 (US) or +1-480-629-9665 (International), and reference the passcode 4487375. Please dial in approximately 10 minutes before the scheduled time of the call.

A replay of the conference call will be available shortly after the call until Monday, November 21, 2011, by dialing +1-877-870-5176 (US) or +1-858-384-5517 (International) and entering the passcode 4487375.

A listen-only webcast of the conference call will also be available on the investor relations page of SinoHub’s website at: http://www.sinohub.com.

About SinoHub, Inc. (NYSE Amex: SIHI)

SinoHub, Inc. (NYSE Amex: SIHI) is a leading electronics company based in Shenzhen, PR China which services clients worldwide. The Company’s integrated contract manufacturing (ICM) business unit is currently focused on providing custom, private label mobile phones to customers in developing countries. This ICM segment is capitalizing on a trend by carriers and distributors to offer their own brands with features and functionality targeted at their local markets, including 3G smart phones, at competitive price points. The Company’s electronic component sales and services (ECSS) business unit provides procurement-fulfillment, spot component sales and supply chain management (SCM) services to manufacturers and design houses. The company’s SCM services include warehousing, delivery, import/export, and give its customers total transparency into their supply chains by delivering SinoHub SCM, a proprietary, Web-based software platform the company has been using for almost ten years. For more information, visit the Company’s Web site at http://www.sinohub.com and the B2B Chips Web site at http://www.b2chips.com.

Cautionary Statement Regarding Forward-looking Information

Some of the statements contained in this press release that are not historical facts constitute forward-looking statements under the federal securities laws. Forward-looking statements can be identified by the use of the words “may,” “will,” “should,” “could,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “intends,” “potential,” “proposed,” or “continue” or the negative of those terms. These statements involve risks known to the Company, significant uncertainties, and other factors, many of which cannot be predicted with accuracy and some of which may not even be anticipated, which may cause actual results, levels of activity, performance, or achievements, or our published guidance, to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by those forward-looking statements. Such risks, uncertainties and factors include, but are not limited to, the Company’s ability to expand its customer base, the ability to access capital for such expansion, assumptions concerning future economic and competitive conditions and other factors detailed from time to time in the Company’s filings with the United States Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements. The Company undertakes no obligation to update or revise any forward looking statements, whether as a result of new information, future events or otherwise.

Except as required by law, the company assumes no obligation to update any forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available in the future. For further information on factors which could impact SinoHub and the statements contained herein, see the “Risk Factors” included in Item 1A of the Company’s Annual Report on Form 10-K filed with the Securities Exchange Commission on March 14, 2011, as amended by Form 10-K/A filed with the Securities Exchange Commission on May 24, 2011. The company assumes no obligation to update and supplement forward-looking statements that become untrue because of subsequent events, new information or otherwise.


    Contacts:

    SinoHub, Inc.                         Investor Relations (Hong Kong)
    Grace Wang                            Mahmoud Siddig
    Tel: + 86-755-2661-1080               Taylor Rafferty
    Email: grace.wang@sinohub.com         Tel: +852-3196-3712
                                          Email: sinohub@taylor-rafferty.com

                                          Investor Relations (US)
                                          Bryan Degnan
                                          Taylor Rafferty
                                          Tel: +1-212-889-4350
                                          Email: sinohub@taylor-rafferty.com

- Financial Tables to Follow -

                                  SINOHUB, INC. AND SUBSIDIARIES
                              CONDENSED CONSOLIDATED BALANCE SHEETS
                                         September 30, 2011 December 31, 2010
                                         ------------------ -----------------
                                             (Unaudited)       (As Restated)
                        ASSETS
                        ------

    CURRENT ASSETS
         Cash and cash equivalents                $6,956,000        $4,524,000
         Restricted cash                          94,749,000        32,059,000
         Accounts receivable, net                 60,207,000        45,686,000
         Note receivable                           1,523,000                 -
         Inventories, net                         37,129,000        14,631,000
         Prepaid expenses and other
          current assets                           1,017,000           704,000
         Deposit with suppliers                      959,000         1,308,000
                                                     -------         ---------
              Total current assets               202,540,000        98,913,000

    PROPERTY AND EQUIPMENT, NET                   12,061,000        11,190,000

    TOTAL ASSETS                                $214,601,000      $110,103,000
                                                ============      ============

                   LIABILITIES AND
                 STOCKHOLDERS' EQUITY
                 --------------------

    CURRENT LIABILITIES
         Accounts payable                         $8,553,000          $865,000
         Customer deposits                         1,172,000           107,000
         Accrued expenses and other
          current liabilities                        954,000           709,000
         Bank borrowings                         103,054,000        37,299,000
         Collateralized bank
          advances                                10,110,000                 -
         Capital lease obligations -
          current portion                            793,000           756,000
         Income and other taxes
          payable                                  2,437,000         1,712,000
                                                                     ---------
              Total current liabilities          127,073,000        41,449,000

    LONG-TERM LIABILITIES
         Capital lease obligations,
          net of current portion                     679,000           845,000
         Warrant Derivatives                         358,000         1,692,000
              Total long-term
               liabilities                         1,037,000         2,537,000

    TOTAL LIABILITIES                            128,110,000        43,987,000
                                                 -----------        ----------

    STOCKHOLDERS' EQUITY
         Preferred stock, $0.001 par
          value, 5,000,000 shares
          authorized;                                      -                 -
         no shares issued
         Common stock, $0.001 par
          value, 100,000,000 shares
          authorized;                                                   29,000
         33,454,903 shares and
          28,570,859 shares issued
          and outstanding
         as of September 30, 2011
          and December 31, 2010,
          respectively                                33,000
         Additional paid-in capital               30,791,000        20,122,000
         Retained earnings
              Unappropriated                      49,464,000        42,303,000
              Appropriated                           934,000           934,000
         Accumulated other
          comprehensive income                     5,269,000         2,730,000
                                                                     ---------
              Total stockholders' equity          86,491,000        66,116,000

    TOTAL LIABILITIES AND
     STOCKHOLDERS' EQUITY                       $214,601,000      $110,103,000
                                                ============      ============

                                 SINOHUB, INC. AND SUBSIDIARIES
                              CONDENSED CONSOLIDATED STATEMENTS OF
                        OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)
                                                   Three months ended
                                                      September 30,
                                                    2011             2010
                                                    ----             ----
                                                                   (As
                                                               Restated)
    NET SALES
         ECSS                                $35,112,000      $36,727,000
         ICM                                  16,854,000       19,024,000
              Total net sales                 51,966,000       55,751,000
                                              ----------       ----------
    COST OF SALES
         ECSS                                 31,528,000       29,816,000
         ICM                                  14,120,000       15,755,000
              Total cost of sales             45,648,000       45,571,000
                                              ----------       ----------

    GROSS PROFIT                               6,318,000       10,180,000

    OPERATING EXPENSES
         Selling, general and
          administrative                       2,028,000        2,123,000
         Professional services                   101,000          193,000
         Depreciation                            502,000          479,000
         Stock compensation expense                    -           57,000
         Stock option compensation
          amortization                            76,000          110,000
         Provision for bad debts
          (write back of allowance
          for doubtful accounts)                  33,000         (236,000)
                                                  ------         --------
              Total operating expenses         2,740,000        2,726,000

    INCOME FROM OPERATIONS                     3,578,000        7,454,000

    OTHER INCOME (EXPENSE)
         Interest expense                       (708,000)        (109,000)
         Interest income                         595,000           41,000
         Changes in fair values of
          warrant derivatives                    536,000          539,000
         Other, net                             (344,000)           9,000
                                                --------            -----
              Total other income, net             79,000          480,000

    INCOME BEFORE INCOME TAXES                 3,657,000        7,934,000
         Income tax expense                   (1,075,000)     (1,898,000)
                                              ----------       ----------

    NET INCOME                                 2,582,000        6,036,000

    OTHER COMPREHENSIVE INCOME
         Foreign currency translation
          gain                                   891,000          909,000
                                                 -------          -------

    COMPREHENSIVE INCOME                      $3,473,000       $6,945,000
                                              ==========       ==========

    SHARE AND PER SHARE DATA
         Net income per share-basic                $0.08            $0.21
                                                   =====            =====
         Weighted average number of
          shares-basic                        33,455,000       28,558,000
                                              ==========       ==========
         Net income per share-
          diluted                                  $0.08            $0.21
                                                   =====            =====
         Weighted average number of
          shares-diluted                      33,478,000       28,721,000
                                              ==========       ==========


                                                    Nine months ended
                                                      September 30,
                                                    2011             2010
                                                    ----             ----
                                                                   (As
                                                               Restated)
    NET SALES
         ECSS                                $88,326,000      $99,512,000
         ICM                                  42,531,000       38,723,000
              Total net sales                130,857,000      138,235,000
                                             -----------      -----------
    COST OF SALES
         ECSS                                 76,637,000       81,540,000
         ICM                                  35,779,000       31,843,000
              Total cost of sales            112,416,000      113,383,000
                                             -----------      -----------

    GROSS PROFIT                              18,441,000       24,852,000

    OPERATING EXPENSES
         Selling, general and
          administrative                       6,494,000        6,261,000
         Professional services                   595,000          694,000
         Depreciation                          1,510,000        1,051,000
         Stock compensation expense                    -          207,000
         Stock option compensation
          amortization                           265,000          328,000
         Provision for bad debts
          (write back of allowance
          for doubtful accounts)                 128,000          (45,000)
                                                 -------          -------
              Total operating expenses         8,992,000        8,496,000

    INCOME FROM OPERATIONS                     9,449,000       16,356,000

    OTHER INCOME (EXPENSE)
         Interest expense                     (1,813,000)        (352,000)
         Interest income                       1,379,000          145,000
         Changes in fair values of
          warrant derivatives                  1,334,000        1,011,000
         Other, net                              396,000           16,000
                                                 -------           ------
              Total other income, net          1,296,000          820,000

    INCOME BEFORE INCOME TAXES                10,745,000       17,176,000
         Income tax expense                   (3,583,000)     (4,287,000)
                                              ----------       ----------

    NET INCOME                                 7,162,000       12,889,000

    OTHER COMPREHENSIVE INCOME
         Foreign currency translation
          gain                                 2,539,000        1,017,000
                                               ---------        ---------

    COMPREHENSIVE INCOME                      $9,701,000      $13,906,000
                                              ==========      ===========

    SHARE AND PER SHARE DATA
         Net income per share-basic                $0.22            $0.46
                                                   =====            =====
         Weighted average number of
          shares-basic                        32,363,000       28,126,000
                                              ==========       ==========
         Net income per share-
          diluted                                  $0.22            $0.45
                                                   =====            =====
         Weighted average number of
          shares-diluted                      32,416,000       28,362,000
                                              ==========       ==========

                               SINOHUB, INC. AND SUBSIDIARIES
                            CONDENSED CONSOLIDATED STATEMENTS OF
                                   CASH FLOWS (UNAUDITED)
                                               Nine months ended September
                                                           30,
                                                        2011          2010
                                                        ----          ----
                                                                   (As
                                                                Restated)
    CASH FLOWS FROM OPERATING
     ACTIVITIES
         Net income                               $7,162,000   $12,889,000
         Adjustments to reconcile net
          income to cash used in
          operations:
              Depreciation -operating
               expenses                            1,510,000     1,051,000
              Depreciation -cost of sales          1,252,000             -
              Stock compensation expense                   -       207,000
              Stock option compensation
               amortization                          265,000       328,000
              Provision for bad debts( write
               back of allowance for
               doubtful accounts)                    128,000       (45,000)
              Loss on disposal of property
               and equipment                          18,000             -
              Changes in fair values of
               warrant derivatives                (1,334,000)   (1,011,000)
         Changes in operating assets
          and liabilities:
              Accounts receivable               (13,021,000)  (16,578,000)
              Note receivable                     (1,499,000)            -
              Inventories                       (21,692,000)     3,187,000
              Prepaid expenses and other
               current assets                       (291,000)       56,000
              Deposit with suppliers                 367,000    (4,628,000)
              Accounts payable                     7,542,000      (608,000)
              Customer deposits                    1,065,000    (1,313,000)
              Accrued expenses and other
               current liabilities                   226,000        87,000
              Income and other taxes payable         657,000     1,696,000
                   Net cash used in operating
                    activities                  (17,645,000)    (4,682,000)
                                                 -----------    ----------

    CASH FLOWS FROM INVESTING
     ACTIVITIES
         Increase of restricted cash            (60,650,000)    (3,129,000)
         Purchase of property and
          equipment                               (3,335,000)   (3,385,000)
         Proceed from disposal of
          property and equipment                       9,000             -
              Net cash used in investing
               activities                       (63,976,000)    (6,514,000)
                                                 -----------    ----------

    CASH FLOWS FROM FINANCING
     ACTIVITIES
         Proceeds from issuance of
          common stock, net of cost               10,395,000     4,470,000
         Proceeds from exercise of
          options, net of costs                       15,000        22,000
         Bank borrowings - proceeds              141,967,000    24,609,000
         Bank borrowings - repayments           (78,470,000)  (20,382,000)
         Collateralized bank advances -
          proceeds                                20,102,000             -
         Collateralized bank advances -
          repayments                            (10,154,000)             -
         Repayments of capital lease
          obligations                               (129,000)     (647,000)
              Net cash provided by financing
               activities                         83,726,000     8,072,000
                                                  ----------     ---------

    EFFECT OF EXCHANGE RATE
     CHANGES                                         327,000       190,000
                                                     -------       -------

    NET INCREASE DECREASE IN CASH
     AND CASH EQUIVALENTS                          2,432,000    (2,934,000)

    CASH AND CASH EQUIVALENTS AT
     BEGINNING OF PERIOD                           4,524,000     8,347,000
                                                   ---------     ---------

    CASH AND CASH EQUIVALENTS AT
     END OF PERIOD                                $6,956,000    $5,413,000
                                                  ==========    ==========

    SUPPLEMENTAL DISCLOSURE OF
     CASH FLOW INFORMATION
         Cash paid for interest                   $1,813,000      $352,000
         Cash paid for income tax                 $2,540,000    $2,444,000
         Equipment acquired under
          capital leases                      $            -    $2,436,000

SOURCE SinoHub, Inc.


Source: PR Newswire