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Puda Coal, Inc. (PUDC)
Q4 2005 Earnings Conference Call
April 3, 2006, 4:30 p.m. EDT

Executives:

Zhao Ming - Chairman and Chief Executive Officer
Jin Xia - Chief Financial Officer

Analysts:

John LaMack - Sandor Capital Management
Larry Ditkip - Southridge Capital

Moderator

Good afternoon. My name is Aileen, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Puda Coal Fourth Quarter and Year-end 2005 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer period.

Except for historical information contained herein, statements made during this conference call are forward-looking statements. These forward-looking statements include expectations related to factors impacting anticipated revenue, growth margin, expenses, earnings, inventory and new product introduction. Investors are cautioned that all forward-looking statements involve risks and uncertainties and several factors could cause actual results to differ materially from those in the forward-looking statements. A more complete listing of these risk factors can be found in the company’s most recent report on Form 10-KSB.

In addition, if during this call we use any non-GAAP financial measure, as defined by the SEC and Regulation G, we will file the required reconciliation, the most directly comparable GAAP measure, on a current report on Form 8-K.

I would now like to turn the meeting over to Mr. Tim Keating, President of Keating Investments, LLC. Thank you, Mr. Keating, you may begin your conference.

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T. Keating

Thank you, Aileen. Good afternoon and welcome to Puda Coal’s first earnings conference call since becoming a public company through a reverse merger in July 2005. The purpose of this call is to augment the information provided in the company’s earning news release issued on Friday, March 31st. After completing the financial report, we will open the call to a few questions from the audience.

Puda Coal, through its controlled affiliates in Taiyuan City, China is a leading supplier of China’s highest grade metallurgical coking coal, which is used to make coke for purposes, such as steel manufacturing. Puda Coal is currently the largest coking coal cleaning company in Shanxi Province. Shanxi Province accounts for approximately 20% to 25% of China’s coal output and approximately 50% of China’s coke production.

As a profitable value-added coking coal supplier, Puda Coal offers a non-mine investment play in China’s growing coking coal sector. Puda’s stock is currently traded on the over-the-counter bulletin board under the ticker symbol PUDC.

At this time, I would like to introduce four members of the Puda management team participating on the call today, Mr. Zhao, who is the Chairman and Chief Executive Officer; Miss Xia, who is the Chief Financial Officer; Mr. Lee, who is the Vice President; and Mr. Tian, who is the Controller and Assistant to the Chief Executive Officer.

Mr. Tian will translate during the Q&A part of this call. At this point, we’re waiting for Mr. Tian to come in, so we’re going to begin the call. And I guess it’s about 4:30 a.m. in China, so, perhaps, they’re just waking up and getting ready.

First, let me begin by addressing revenue. Revenue for the year ended December 31, 2005 increased $31.9 million, or 162%, to $51.7 million from $19.7 million for the year ended December 31, 2004. Revenue for the fourth quarter 2005 increased $14.9 million, or 264%, to $20.7 million compared to the fourth quarter of 2004.

On the gross profit front, Puda’s gross profit for the year ended December 31, 2005 increased $5.2 million, or 79%, to $11.7 million compared to $6.5 million for the year ended December 31, 2004. Gross profit margin for the year ended 2005 was 23%, compared to 33% for the year ended December 31, 2004, a decrease of approximately 10%. The decrease in gross profit margin was primarily due to the significant increase in the price per ton of raw coal.

Due to non-cash charges incurred in connection with the private placement financing in November, the company had a net loss of $3.2 million, or $0.04 per share for the year-ended December 31, 2005. This compared to net income of $3.7 million or $0.05 per share for the year ended December 31, 2004.

The net loss was attributable to non-cash charges of $8.9 million for debt financing costs associated with Puda’s $12.5 million convertible note offering, which was completed in late 2005. The breakdown of these non-cash debt financing costs are as follows: $6.9 million for the amortization of the investor note discount related to so-called beneficial conversion feature, $900,000 attributable to warrants issued to the private placement investors, $800,000 attributable to warrants issued to the placement agent, and $300,000 attributable to the amortization of the debt issuance cause. Without the non-cash charges, net income for the year ended December 31, 2005 would have been $5.7 million, or $0.08 per share.

I think very importantly, I want to address everyone on this conference call to note 11 of the Form 10-KSB, which was filed last week. Note 11 contains a very detailed description of each element of the non-cash charges, and I urge everyone on this call to take a careful read of note 11 to understand in detail, the particulars behind each of these non-cash charges.

Next, we’re going to turn to some company news updates. And at this point, I would like to provide updates on two previously issued news releases.

Increased plant capacity: first, the company previously announced an increase in production capacity from 1.1 million metric tons in 2005 to 2.7 million metric tons in 2006. The company anticipates that it will meet the projected 2.7 million ton production capacity by May of 2006.

New supply contract: second, on November 1st, Puda Coal announced the signing of their largest contract to date with Changzhi Iron and Steel Company, Limited, one of China’s largest state-owned steel manufacturers in Shanxi Province. However, this contract was recently eclipsed in size by a new one-year supply contract with existing customer, Baotou Iron and Steel Group Company, Limited, which is the 17th largest steel mill in the People’s Republic of China. The contract with Baotou has three noteworthy aspects.

First, it is 46% larger than the Changzhi Iron and Steel contract. Second, total supply is 22,347 metric tons greater than the 677,000 metric tons delivered across all Puda clients in 2005. And third, the contract is approximately 596,000 metric tons greater than the approximately 104,000 metric tons that Puda delivered to Baotou in 2005, representing a 575% increase.

At this time, I’d like to review specific initiatives the company is undertaking to create greater visibility and awareness for its stock.

First, Puda is kicking off a major three-week U.S. road show, beginning April 28th. During the road show, Puda will meet with institutional investors, attend major conferences and give presentations to the U.S. financial community. The road show will begin with Puda presenting to an estimated 300 brokers and fund managers at the RedChip Conference in Hollywood, Florida on April 28th. And the road show will continue with stops in the following cities: Boston, various cities in Connecticut, New York, Chicago, Denver, San Francisco and Los Angeles. Puda will end its road show by presenting to an estimated 8,500 individual investors at The World Money Show Conference in Las Vegas on May 15th through the 18th.

For specific road show dates, please refer to the company’s Web site at puda-coal.com. If you’re interested in attending an event or would like to schedule a one-on-one meeting with company management, please contact Pamela Solly at Keating aftermarket support. You can contact Pamela at telephone 720-489-5876, or e-mail Pamela at ps@keatinginvestments.com.

Second, Puda Coal’s board of director has approved and will execute a one-for-two reverse split of its common stock during April 2006. The sole and explicit intent of the stock split is to make Puda Coal eligible for a listing upgrade to NASDAQ Capital Market, a requirement of which is that an applying company’s stock trade at or above $4 per share.

Following the reverse stock split, Puda Coal will file an application to list its stock on the NASDAQ Capital Market system. The purpose of this listing upgrade is to move to an improved market, to broaden the company’s shareholder base, and to create instant institutional exposure to an interest in the stock. The company intends to provide regular progress updates on its listing application as and when comments are received from NASDAQ.

As of March 31, 2006, Puda Coal had 75,450,000 shares of common stock issued and outstanding. On a fully diluted and as converted basis, the company had a total of 126,415,000 shares of common stock outstanding. Post the one-for-two reverse stock split, the company will have approximately 37,725,000 shares of common stock issued and outstanding and a total of approximately 63,207,500 shares issued and outstanding on a fully diluted and as converted basis.

Finally, Puda Coal has reengineered its entire Web site to be more user-friendly and has added a state-of-the-art investor relations module. The company’s Web site is www.puda-coal.com.

We would now like to move to the Q&A segment of the conference call. On behalf of the company, I thank you for your patience while certain questions are translated, assuming our translator has actually joined the call. Operator, please let us know if we have any callers with questions.

Moderator

Your first question comes from John LaMack with Sandor Capital Management.

J. LaMack

Yes, hello. I have a couple of questions. When you fully dilute the 126,000,000 shares, I’m assuming that it’s also including the exercise of warrants. How much capital would that bring into the company?

And then secondly, is Puda going to supply any revenue and earnings guidance for the new fiscal year for ’06?

T. Keating

Okay. The answer to the first question is that there are approximately 25,000,000 warrants outstanding with an exercise price of $0.60 per share. If all of those warrants were exercised, there would be gross proceeds to the company of approximately $15 million.

And the answer to the second question is, Puda had previously issued revenue guidance for 2006, as well as net income guidance. The revenue guidance was for $109 million. The net income guidance was approximately for $11.3 million. The company is at this point standing by their revenue guidance for all of 2006. They’re not going to be breaking out quarters at this point. They may make a decision to provide some quarterly guidance later on, but at this point, they are standing by the revenue guidance of $109 million for 2006.

The net income number of $11.3 million will have to be adjusted. The adjustment will be because of the non-cash charges in connection with the 2005 private placement financing. There are some additional charges. I don’t have the exact number right now. But I think above and beyond the $8.9 million that was incurred in 2005, there are likely to be a couple million dollars more of non-cash charges hitting sometime during the course of 2006. So the company will be adjusting the net income guidance to account for the non-cash charges related to the 2005 financing.

Moderator

Your next question comes from Larry Ditkip with Southridge Capital.

L. Ditkip

Yes, Tim, good year. I have a question concerning your comments about the margins for coal. Why was the company not capable of putting forth the increased cost of the coal into the prices they charge their customers?

T. Keating

Larry, let me just, let me see if our translator has actually joined the call at this point, and let me just sort of reach out. Whenway, are you there? If not, I will take a stab at that question. The company projects that on a going-forward basis the margins will be in about the 20% to 23% range, so their 2006 margins were in line with what they had forecast and projected over the year.

I think what’s happened is they’re coming off a very difficult comparison for previous years. And what happens, a lot of the run-up in the price of raw coal occurred in the previous year when they actually had an inventory buildup. So I think, if anything, the 33% margin is a somewhat inflated number and makes for a difficult comparison. But the company does think that on a go-forward basis, they’ll be able to control a 20% to 23% gross margin and will be able to pass-on any future increases in the cost of raw coal to their customers.

Moderator

At this time, sir, there are no further questions.

T. Keating

I’d like to thank everyone very much for joining the call. Again, if you have questions about the road show schedule, please get in touch with Pamela Solly at Keating Investments. We will have a detailed schedule on Puda Coal’s Web site.

And as I mentioned right at the outset of this call, this is going to be the first of what would be a regularly featured call, so we intend to do this on or about the day that earnings release. So we’ll provide some advance notification, but May 15th, thereabouts, will be the date for the conference call for the first quarter. So thank you very much, and we’ll speak to you in about 45 days. Bye-bye.

Moderator

Ladies and gentlemen, this concludes today’s Puda Coal Fourth Quarter and Year-end 2005 Financial Results Conference Call. You may now disconnect.

TRANSCRIPT SPONSOR

Dutton Associates

Want to read high-quality, independent, fundamental research on this stock?

Dutton Associates, one of the largest issuer-paid equity research firms in the United States, covers this stock. Read our research on Puda Coal here.

Our investment performance is ranked comparable to that of the top Wall Street firms. Our analysts, primarily CFAs with over 20 years of experience at the major securities firms, are among the most experienced on Wall Street.

Learn more about Dutton Associates here, read our research on the companies we cover (free), and track our research alerts.

If you're an under-followed publicly-traded company looking for a thorough, independent analysis of your competitive position, along with independently developed earnings and valuation models that otherwise would not be available to interested investors and institutions, contact us.

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