Earnings Call Transcript - GURE Q2 2022

Operator, Operator

Greetings, ladies and gentlemen, and welcome to the Gulf Resources 2022 Quarter Earnings Conference. It is now my pleasure to turn the floor over to your host, Helen Xu. The floor is yours.

Helen Xu, IR Director

Thank you, operator. Good morning, ladies and gentlemen, and good evening to those of you joining us from China or the U.S. We would like to welcome all of you to Gulf Resources Second Quarter 2022 Earnings Conference Call. I'm Helen Xu, the IR Director. The company CEO, Mr. Xiaobin Liu; COO, Mr. Naihui Miao, will also join this call today. I'd like to remind all of our listeners that during this call, certain management statements will contain forward-looking statements about Gulf Resources Inc. and its subsidiaries' business and products. These statements are subject to various risks and uncertainties, and actual results may differ. We believe that the expectations reflected in those forward-looking statements are reasonable. Now let's look at the 3-month period ending June 30, 2022. We are pleased to report a strong and profitable second quarter in 2022. Revenues increased 41% to $15.7 million. Gross profit increased 80% to approximately $7.6 million. Income from operations was approximately $5.1 million, compared to a loss of approximately $2.4 million. Net income was $3.9 million, compared to a loss of $2.7 million. Earnings per share were $0.37, compared to a loss of $0.26. For the 6-month period ending June 30, 2022, net revenue increased 50% to approximately $24.6 million. Gross profit increased 126% to approximately $7 million. Income from operations was approximately $5 million, compared to a loss of approximately $5.7 million. Net income was $3.8 million, compared to a loss of $5.2 million. Earnings per share were $0.36, compared to a loss per share of $0.50. Now let's look at the second quarter business segment related to bromine. Bromine revenue in the second quarter increased 38% to $13.9 million. The primary contributor to the higher revenue was an increase in the selling price. The average selling price in the second quarter was $7,740, compared to $5,556 in the same quarter of the previous year. During the quarter, the company sold 1,795 tonnes of bromine, slightly lower than the 1,805 tonnes from the previous year. In order to control COVID-19, the government made a series of unannounced inspections that caused the company to shut down and then later reopen its facilities. The company believes these inspections in 2022 had a more significant impact on production than the inspections conducted in 2021. The cost of revenues in bromine was approximately $6.9 million, an increase of approximately $1.3 million from the same quarter of the previous year. The price of bromine in China has appreciated over 100% since September 2020, although the Chinese economy has slowed. Bromine prices remained very strong for two primary reasons: the demand remained strong for fire retardants and pharmaceuticals, and supply constraints due to environmental regulations that have forced the closure of bromine facilities in many countries. Due to a recent press release, we are considered one of the world's largest producers of bromine. The market conditions continue to drive strong demand and favorable pricing for bromine, and the balance of supply and demand remains very promising. To comply with new government directives, the company has separated bromine and crude salt into two separate business entities, resulting in higher allocations of expenses for bromine than in previous years. Nonetheless, income from the bromine segment increased 98.5% to approximately $5.3 million from approximately $2.7 million. The company spent approximately $32.8 million on its bromine wells and related infrastructure to enable increased utilization in the future. We believe that we will receive permission to reopen one of our closed facilities soon and hope to open a second facility in the first half of 2023. Shifting to the crude salt segment, revenues increased 62% to approximately $1.8 million. There was a 10% increase in production and a 47% increase in the average selling price. Income from operations was reported at $142,968, compared to a loss of $578,435 in the previous year. In the chemicals segment, revenues were $0 with a net loss of $475,000 due to delays caused by COVID-19 restrictions and supply chain issues that affected the construction of the factory. To date, approximately $45.6 million has been spent, with total costs projected to be around $69 million.

Naihui Miao, COO

Hello everyone, I'm the company's COO, Miao Naihui. Welcome to attend the Gulf Resources Second Quarter and First Half Year 2022 Earnings Conference Call. With our new and updated bromine wells and facilities, we should be able to maintain or slightly increase our utilization rate and production for the remainder of 2022, with strong prices for bromine. The average selling price in the second quarter was $7,740. As COVID-19 abates, we expect an increase in demand for bromine and related products, leading to significant improvement in profits in the third quarter and beyond.

Xiaobin Liu, CEO

Hello everyone, I'm the company's CEO, Mr. Xiaobin Liu. We are very pleased to report earnings of $0.37 per share this quarter despite the COVID disruptions. We believe earnings will continue to strengthen as we work to solve supply chain issues with our wastewater and solid waste treatment equipment for our new chemical factory. Once this equipment is delivered, we will complete construction and begin production, testing based on market demands for pharmaceuticals as well as other chemicals. We believe our chemical factory will yield strong returns. However, in the meantime, management has not received any stock grants for 2022 yet. If we do receive stock grants in the future, they will likely be lower than last year. We appreciate the patience of our shareholders, and although we are not projecting based on current bromine prices, we expect the remainder of the year to be extremely profitable. Our long-term plan includes producing pharmaceutical chemicals for export, enabling us to potentially buy back stock or pay dividends in the future.

Helen Xu, IR Director

Let's open the call up for the Q&A section.

Unidentified Analyst, Analyst

What percentage of the $33 million of bromine capital expenses in Q2 was for currently operating bromine factories? And what percentage was for the closed factories?

Helen Xu, IR Director

James, these expenditures were mainly for current operating facilities. We have not made large investments in the closed facilities yet.

Unidentified Analyst, Analyst

So there was no money spent on the closed facilities? Is that correct?

Helen Xu, IR Director

Yes, there might be around 2% spent on closed facilities, mainly for supervision control and safety production.

Unidentified Analyst, Analyst

What capital expenditures do you expect for the remainder of this year?

Helen Xu, IR Director

For the chemical segment, we projected around $23 million remaining. If we receive the equipment on time, that will be the full amount, but if not, it will be less. For the bromine segment, we expect a maximum of $1 million, assuming one factory reopens this year.

Unidentified Analyst, Analyst

Have you made any inroads with any EV car manufacturers about their batteries?

Helen Xu, IR Director

Currently, our customers are still our long-standing relations, but as production increases, we may look for opportunities in that area in the next half year.

Unidentified Analyst, Analyst

Has the management evaluated whether the current auditing team meets SEC requirements?

Helen Xu, IR Director

The management believes our auditing files and all disclosed information meet the SEC's requirements, and we submit our documents to our auditors on time.

Unidentified Analyst, Analyst

What is the name of the current auditor?

Helen Xu, IR Director

The auditor's name is WWC, with offices in both China and the U.S.

Operator, Operator

This concludes today's portion of the call for Q&A.

Helen Xu, IR Director

Thank you very much for attending this call.

Operator, Operator

Thank you, Helen. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time, and have a wonderful day. Thank you for your participation.