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IT Tech Packaging, Inc. (ITP)

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IT Tech Packaging, Inc. (ITP)

Q4 2018 Earnings Conference Call

March 08, 2019, 08:00 ET

Company Participants

Dan McCarron - Weitian Investor Relations

Jing Hao - CFO

Conference Call Participants

Presentation

Operator

Hello, ladies and gentlemen, and welcome to participate in IT Tech Packaging's Fourth Quarter and Fiscal Year 2018 Earnings Conference Call. At this time, I would like to inform you that this conference is being recorded today. [Operator Instructions]. Joining us today are Mr. Zhenyong Liu, IT Tech Packaging's Chairman and Chief Executive Officer; and Ms. Jing Hao, the company's Chief Financial Officer. Remarks from both Mr. Liu and Ms. Hao will be delivered in English by interpreters.

IT Tech Packaging announced its fourth quarter and fiscal year 2018 financial results via press release yesterday, which can be found on the company's website at www.itpackaging.cn. First, Mr. Liu will brief you on the company's key operational highlights over the fourth quarter and fiscal year 2018, and then Ms. Hao will review the company's financial results.

Before we start, I would like to draw your attention to our safe harbor statement. Management's prepared remarks contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts in its announcement, are forward-looking statements, including, but not limited to, anticipated revenues from the corrugating medium paper, tissue paper, offset printing paper and digital photo paper business segments; the actions and initiatives of current and potential competitors; the company's ability to introduce new products; the company's ability to implement capacity expansion; market acceptance of new products; general economic and business conditions; the ability to attract or retain qualified senior management personnel and research and development staff; and other risks detailed in the company's filings with the Securities and Exchange Commission. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations, assumptions, estimates and projections about the company and the industry.

The company undertakes no obligation to update forward-looking statements to reflect subsequent or current events or circumstances or to changes in its expectations except as may be required by law. Although the company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that this expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results. There is a presentation document featuring management's prepared remarks and is now available for download from the company's website at www.itpackaging.cn.

Please note that there will be discussions on non-GAAP financial measure or EBITDA, or earnings before interest, taxes, depreciation and amortization. Please refer to our press release for a complete reconciliation of EBITDA to net income. As a reminder, all numbers in our presentation are quoted in U.S. dollars, and all comparisons refer to year-over-year comparisons unless otherwise stated.

I would now like to turn the call over to Mr. Liu. His comments will be delivered in English by Dan McCarron from Weitian Investor Relations. Mr. McCarron, please go ahead.

Dan McCarron

Thank you, Operator, and good morning, everyone. Thanks for joining our fourth quarter and fiscal year 2018 earnings conference call. With decreases in both revenues and margins, our fiscal year 2018 results highlighted continuous challenges facing our business. Our total revenue decreased by 25.9% to $86.7 million and gross profit decreased by 70.8% to $5.8 million. Production of regular CMP was suspended in September 2018 due to equipment maintenance. Our production of offset printing paper was temporarily restricted in August and September 2018 due to the same reason. As a result, the sale quantities of regular CMP and offset printing paper products significantly decreased in 2018. In the second half of 2018, we completed construction of one of our business expansion projects, our first tissue paper production line in Wei County Industrial Park, launching it in December 2018. As production in this plant increases over the coming months and with our existing packaging service product lines, we expect to see continuous revenue stream and improved financial conditions from 2019 sales.

Looking ahead, as Chinese paper market continues to grow, government environmental protection heightens and market competition escalates, we will be focusing on actively diversifying our product portfolio, opportunities for equipment upgrades, reducing raw material costs and leveraging technologies.

Now I will turn the call over to our CFO, Ms. Jing Hao, who will review and comment on the fourth quarter financial results. Her comments will be delivered in English by my colleague, Jing Hao. Janice, please go ahead.

Jing Hao

Thanks, Dan, and thanks, everyone for being on the call. Next, on behalf of the management team, I will summarize some key financial results for the fourth quarter of 2018. Also I will occasionally refer to specific production lines associated with various products. I will make clear which products I am referring to. For reference, the numbering system for our production lines is provided on Slide 17. Now let's look at our financial performance for the fourth quarter of 2018. Please turn to Slide 7. For the fourth quarter of 2018, total revenue decreased 29.5% to $25 million due to a decrease in both sales volume across our products and ASP of regular CMP.

Turning to Slide 8. For the fourth quarter of 2018, the CMP segment, including both regular CMP and lightweight CMP, generated revenue of $25.1 million, representing 100% of total revenue. $19.8 million of revenue was from our regular CMP products and $5.3 million was from lightweight CMP. CMP segment volume slightly decreased by 0.6% to 53,402 tonnes, of which 41,870 tonnes were regular CMP and 11,532 tonnes were lightweight CMP. Average selling price, or ASP, for regular CMP decreased by 14.9% to $472 per tonne, and ASP for lightweight CMP decreased 17.1% to $459 per tonne.

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