Cleantech Solutions International Management Discusses Q2 2012 Results - Earnings Call Transcript

Cleantech Solutions International Inc. (CLNT)

Q2 2012 Earnings Call

August 15, 2012 9:00 AM ET

Executives

Elaine Ketchmere – IR

Adam Wasserman – VP, Financial Reporting

Presentation

Operator

Good morning. My name is (inaudible) and I will be your conference operator today. At this time, I would like welcome everyone to the Cleantech Solutions Second Quarter 2012 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer session. (Operator Instructions). Thank you. Ms. Ketchmere, you may begin your conference.

Elaine Ketchmere

Thank you for your time. Good morning ladies and gentleman and good evening to those of you who joining in from China. I’d like to welcome you to Cleantech Solutions earnings conference call for the second quarter of 2012. Listening today on the call are Cleantech Solutions Vice President of Financial Reporting, Mr. Adam Wasserman, and Vice President of Operations, Mr. Ryan Hua. Also on the call is Mabel Zhang from CCG, Investor Relations, she will provide translation from Mr. Hua.

At this time, I remind our listeners that on the call management’s prepared remarks contain forward-looking statements which are subject to risks and uncertainties and that management may make additional forward-looking statements in response to your questions. Therefore, the company claims for protection of the Safe Harbor in these forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those expressed today and therefore we refer you to more detailed section of the risk and uncertainties in the company’s filings with the U.S Securities and Exchange Commission particularly in the risk factors in our Form 10-K for the year ended December 31, 2011 and management’s expression and analysis of financial conditions and results of operation in our Form 10-K for the year ended December 31, 2011 and Form 10-Q filed for the quarter ended June 30, 2012.

In addition, any projections as for the company’s future performance represent management as of today August 15, 2012. Cleantech Solutions International Inc assumes no obligation to update these projections in the future as market conditions change. At this point, I would also like to state on this call we will be discussing non-GAAP financial measures, adjusted EBITDA and non-GAAP net income.

We present these financial measures as a supplement to our GAAP results because we believe it provides useful information in analyzing and benchmarking the performance of our operations, and assist investors in analyzing our year-over-year financial performance. Please visit our earnings press release for a complete reconciliation of adjusted EBITDA and non-GAAP net income to net income.

And now it’s my pleasure to welcome Cleantech Solutions Vice President of Financial Reporting Mr. Adam Wasserman who will deliver management prepared remarks covering operations and financing performance today. Adam, please proceed.

Adam Wasserman

Hey, thank you Elaine. Good morning and thank you for joining us on our call today. We appreciate your continued support in Cleantech Solutions. During the second quarter of 2012, our sales improved 1.8% on year-over-year basis and increased 36.4% compared to the first quarter of 2012. As compared to the first quarter of 2012, our sales increased across all segments probably driven by market demand and due to the decline in sales during the first quarter of 2012 by the result of seasonality related to the Chinese New Year holiday. European growing market demand for our dyeing machines for our solar products. We also pleased to see some modest increases in demand for forged rolled rings to heavy equipment industry.

With the exception of sales in wind industry, sales from our business segment reported year-over-year growth. We believe such revenue growth is in line with the increase in order volume we are seeing from our existing and new customers. This demonstrates the high quality of our products and our technical capabilities.

Our total revenue for the second quarter of 2012 was $12.8 million 1.8% increased compared to the same period last year. Our gross margin was $2.7 million, a 11.7% decrease compared to the same year period over last year. Gross margin decline to 21% during the second quarter compared to 24.2% for the same quarter a year ago.

Despite the growth in revenue, gross margin declined to 21% to 24% a year ago. The decline in gross margin was mainly attributable to the forged rolled rings and related product segments and was primarily due to lower operational cost efficiencies including the allocation of fixed costs s depreciation to cost of revenues the operated lower production levels.

Gross margin for our dyeing and finishing equipment segment reflected a slight decrease due to increase in labor cost. Now I want to discuss recent development and our growth strategy for each business segments.

Let’s begin with forged rolled ring and related components. Within the segment, we had experienced continued decline in sales to wind power industry which was in line with our expectations. In the short-term, we continue to expect wind power industry to face challenges due to our capacity and rapid growth.

We are experiencing weak market demand from the wind power industry over the past several quarters and therefore how strategically focus our efforts on diversifying our revenue base. Sales to wind power industry had now declined to 36% of our total revenue in the second quarter of 2012 compared to 50% a year ago. We had executed on our revenue diversification strategy with great success and hope to continue to modify our product portfolio to cater to other heavy equipment industries, the solar industry, LED lighting industry and other clean technology industries.

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