Second Quarter 2010 Financial Highlights
— Revenue increased 30.1% to $74.8 million from $57.5 million in the prior year period.
— Gross profit increased 51.1% to $11.6 million from $7.7 million in the prior year period.
— Gross margin was 15.5% compared to 13.4% in the prior year period.
Mr. Jinxiang Lu, A-Power’s Chairman and CEO commented, ‘Our results in the second quarter were primarily driven by growth in our DG business, both domestically and internationally. This segment experienced larger project orders and also benefited from higher international sales in the second quarter which fueled our gross margin increase. We are pleased that our revenue contribution from international projects has exceeded 30% of total revenues for the first time this quarter. With significant wins in Vietnam, Pakistan and Thailand, we hope to continue building upon this international success. While our DG business generated EPC work for wind projects, we did not recognize revenue from wind turbine sales in the second quarter due to delays obtaining final permits for our 2.7 MW wind turbines scheduled for delivery to our Inner Mongolia and Shandong wind projects. We believe wind turbine sales will pick up in the second half of the year.’
Second Quarter 2010 Financial Results
Revenues in the 2010 second quarter increased 30.1% to $74.8 million from $57.5 million in the second quarter of 2009. The increase was primarily due to higher revenues recognized in the Company’s core DG business, with 2.3% of the total revenue attributable to the sale of PV solar equipment. Within the DG business segment, domestic sales represented approximately 67.4% of total revenue while International DG sales represented 32.6% of total DG revenue.
Gross profit in the second quarter increased 51.1% to $11.6 million from $7.7 million in the prior year period. Gross margin was 15.5%, up from 13.4% in the same quarter of 2009. The improvement in gross margin was attributable to an increase in large-scale DG orders as well as higher international sales which typically carry slightly higher margins.
Selling, general and administrative expenses in the second quarter were $8.7 million compared with $3.0 million in the prior year period. The increase in selling, general and administrative expenses was mainly due to the growth of the businesses and $2.7 million of SG&A expenses from Evatech Co. Ltd. (‘Evatech’) which the Company acquired in January 2010. The Company continues to shift PV solar production for Evatech to its home base in Shenyang. As a percentage of revenues, selling, general and administrative expenses increased to 11.7% for the second quarter of 2010 from 5.2% in the second quarter of 2009.
Operating income was $2.9 million, or 3.9% of revenue in the second quarter of 2010 compared with $4.7 million, or 8.2% of revenue in the prior year period.
GAAP net income attributable to A-Power in the 2010 second quarter increased 86.3% to $11.6 million, or $0.25 per diluted share, from $6.3 million, or $0.14 per diluted share in the prior year period. Non-GAAP net income, declined to $1.1 million from $4.7 million in prior year period. In the 2010 second quarter, total shares outstanding on a diluted basis were 46.5 million shares, an increase of 32%, compared with 35.3 million in the prior year period.
Please refer to the tables below for a complete financial overview of our second quarter and first half results for 2010 and a reconciliation of non-GAAP financial measures included in this announcement to the most comparable GAAP financial measures.
Balance Sheet
As of June 30, 2010, the Company had cash and cash equivalents and restricted cash totaling $182.7 compared to $179.8 million at December 31, 2009. Prepayments, deposits, other receivables from customers were $86.7 million compared with $52.5 million at the end of 2009. Short-term loans outstanding, as of June 30, 2010, were $63.1 million, compared with $19.9 million at December 31, 2009. Working capital increased by approximately $22.6 million in the 2010 second quarter to $178.1 million. Total stockholders’ equity rose to $357.3 million at June 30, 2010 from $252.6 million at December 31, 2009.
Recent Developments
Earlier in August, 2010, the Company signed cooperative agreements with The United Steelworkers (USW) and Shenyang Power Group (‘SPG’). A-Power and SPG anticipate purchasing over time approximately 50,000 tons of steel from suppliers with employees represented by the USW. The USW will also guide and work collaboratively on all aspects of A-Power’s U.S. market strategies including manufacturing, assembly, component sourcing, distribution and wind energy project development. The Company expects that the cooperation with USW will benefit the development of its projects including the planning of a wind turbine assembly plant in Nevada and the ongoing development of the supply chain for the expected delivery of wind turbines to the 615MW wind farm under development in Texas.
In July 2010, the Company renewed its license agreement with German wind technology company Fuhrlander AG (‘Fuhrlander’), and obtained the right to manufacture, operate, service and sell 2.7 MW wind turbines using Furhlander’s F2500 technology throughout China. With the license agreement with Fuhrlander, the Company expects to bolster its position in the market of high capacity 2.7MW turbines, as the wind industry is increasingly transitioning to higher capacity turbines.
Also in the month of July, the Company’s subsidiary, Shenyang (Ruixiang) Lucky Wind Power Equipments Co., Ltd. (‘Ruixiang’) has entered into a strategic partnership with Baoding Huide Wind Power Engineering Co. Ltd (‘Baoding Huide’), a renewable energy company primarily focused on the development, manufacturing, and sales of 2.0 MW wind turbines and various design parts of wind power equipments in China. The partnership is intended to complement A-Power’s wind business with Baoding Huide’s assembly facility of wind turbine equipment to meet the growing demand for wind power in China, the United States and elsewhere.
Effective June 30, 2010, the Company appointed Mr. Kam F. Cheung to the position of Vice President of the International Division and Mr. Morris Li, Ph.D., to the position of Vice President of Solar Research and Development. Mr. Cheung has more than 20 years of business development, corporate finance, portfolio management, and securities underwriting experience including within the energy financing industry. Doctor Li contributes to the Company’s proprietary PV cell production business and has more than 13 years of semiconductor industry experience.
Business Outlook
The Company reiterates its guidance for its full year 2010 outlook of revenues of $500 million and net income of $60 million. This guidance is based upon the on-going DG projects and revenues from the expected sale of wind turbines to be generated during the remainder of 2010.
Mr. Lu continued, ‘We have many compelling opportunities in our business that can drive our revenue growth significantly higher in the second half of the year. Our DG business is expected to remain the primary performance driver with sales coming from our existing 15 projects. Significant sales are also expected in our wind turbine business in the second half of the year. We expect to begin delivery of 2.0 MW or larger turbines to customers in the second half of 2010. We are building a platform that will establish A-Power as an emerging leader in both distributed power and alternative power generation systems and are working aggressively to capitalize on the long-term growth opportunities in these areas.’
Conference Call
A-Power’s management will host an earnings conference call August 26, 2010 at 8:00 am. U.S. Eastern Time. Listeners may access the call by dialing 1-866-713-8566, or 1-617-597-5325 for international callers, access code: 63631409. A webcast of the conference call will be available through the Company’s website at http://www.apowerenergy.com . A replay of the call will be accessible through September 2, 2010 by dialing 1-888-286-801 or 1-617-801-6888 for international callers, access code: 54527452.
A-Power Energy Generation Systems, Ltd. (‘A-Power’), through its China-based operating subsidiaries, is a leading provider of distributed power generation systems in China and is expanding into the production of alternative power generation systems. Focusing on energy-efficient and environmentally friendly DG projects of 25MW to 400MW, A-Power also operates one of the largest wind turbine manufacturing facilities in China and in March 2009, entered into an agreement to establish a joint venture partnership with GE Drivetrain Technologies to produce wind turbine gearboxes in Shenyang, Liaoning Province. It also acquired Evatech, a designer and manufacturer of industrial equipment for amorphous-silicon (a-Si) photovoltaic (PV) panels, in 2010.
In addition to the establishment of strategic relationships with the world’s leading wind energy design and engineering companies, A-Power has formed joint research programs with Tsinghua University and the China Academy of Sciences to develop and commercialize other renewable energy technologies.
