Nova LifeStyle Reports Third Quarter 2016 Financial Results
Revenues Increase 26.9% as Shift to Higher-Margin Products Takes Root
LOS ANGELES, Calif., Nov. 14, 2016 (GLOBE NEWSWIRE) -- Nova LifeStyle, Inc. (NASDAQ:NVFY), a U.S. based fast-growing, innovative designer, manufacturer and distributor of modern LifeStyle furniture, today announced financial results for the third quarter ended September 30, 2016.
Third Quarter 2016 Financial Highlights:
- Third quarter net sales were $30.5 million, an increase of 26.9% compared to $24.0 million in the prior year period.
- The year over year increase was the result of a 55% increase in average selling price as the Company’s recent efforts to focus its sales mix on premium products began yielding positive results. As expected, the focus on higher-margin, lower volume products did negatively impact overall volumes, which fell 19% in the quarter.
- Third quarter gross margin was 15.1%, compared to 14.6% in the prior year period, as the product focus noted above had a positive impact on margins.
- Gross profit increased 31.3% to $4.6 million for the three months ended September 30, 2016 compared to $3.5 million in the same quarter of the prior year.
- Operating expenses in the third quarter of 2016 were $3.5 million, compared to $3.0 million in the third quarter of 2015. As a percentage of sales, operating expenses in the third quarter of 2016 were 11.6% of sales versus 12.3% during the same period a year ago.
- Net income from continuing operations was $1.0 million, or $0.04 per diluted share based on 25.7 million shares outstanding in the third quarter of 2016, compared to net income from continuing operations of $0.4 million or $0.02 per diluted share based on 24.1 million shares outstanding in the same period of the prior year.
- The Company agreed to sell its Chinese manufacturing operations for $8.5 million in order to focus the business on an “asset light” operating model.
Management Commentary
Tawny Lam, President and Interim Chief Executive Officer of Nova LifeStyle, stated, "We are excited to report a very solid third quarter for Nova LifeStyle. Our top line sales grew nearly 27% versus the same period last year as efforts we have made in recent quarters to focus our sales mix on higher-margin products began to pay off in the form of higher average selling prices and improved gross margins. Sales improved in every geography we serve, with European sales more than doubling in this quarter as compared to the same period last year as the regional economy there continues to improve. Our expectation is that growth will continue there and we are looking to capitalize on that momentum with an increased local sales and marketing effort.”
Ms. Lam continued, “The third quarter also saw us make a significant strategic change to our business as we agreed to sell our Chinese operations in order to focus on an “asset-light” operating model. The transaction, which we announced on September 29th and closed on October 25th, added $8.5 million to our balance sheet while also eliminating a significant source of margin pressure which has negatively impacted our results in recent quarters. As part of our strategic transition, we are devoting more energy and emphasis to developing our E-commerce initiatives, as exemplified by our recent agreement with Inno International. That partnership will allow us to engage consumers who are utilizing reward point programs for a wide variety of products and services.”
Operational Overview
Product Category
Nova LifeStyle’s largest selling product categories in the three months ended September 30, 2016 and 2015 were sofas, beds and dining tables, which accounted for approximately 57%, 15% and 6% of sales, versus 23%, 10% and 13% of sales in the prior year period.
Geographic Breakdown
North America
Sales to North America were $22.5 million in the three months ended September 30, 2016, an increase of 4% from $21.6 million in the same period of 2015. The Company is aggressively focusing on changing its product mix while also implementing sales and marketing strategies designed to diversify sales. Termination of promotional discounts that were offered in the second quarter positively impacted margin in the quarter as well.
Europe
Sales to Europe were $2.9 million in the three months ended September 30, 2016, an increase of 114.2% from $1.4 million in the same period of 2015 as European economies continued to improve, leading to increased sales volume. Nova LifeStyle anticipates increasing sales and marketing efforts in Europe in order to capitalize on continued regional economic growth.
Geographical distribution of sales is set out as follows:
| (US$ in millions) | For nine months ended September 30, | For three months ended September 30, | |||||||||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||||||||||||
| Sales | % of Total | Sales | % of Total | Sales | % of Total | Sales | % of Total | ||||||||||||||||||
| North America | 52.5 | 72 | % | 57.0 | 85 | % | 22.5 | 74 | % | 21.6 | 90 | % | |||||||||||||
| Asia* | 3.6 | 5 | % | 2.1 | 3 | % | 1.7 | 6 | % | 0.8 | 3 | % | |||||||||||||
| Europe | 10.7 | 15 | % | 6.9 | 10 | % | 2.9 | 10 | % | 1.4 | 6 | % | |||||||||||||
| Australia | 3.4 | 5 | % | 0.4 | 1 | % | 1.4 | 5 | % | 0.2 | 1 | % | |||||||||||||
| Hong Kong | 2.2 | 3 | % | 0.2 | 0 | % | 1.9 | 6 | % | 0.2 | 1 | % | |||||||||||||
| Other countries | 0.2 | 0 | % | 0.1 | 0 | % | 0.1 | 0 | % | 0.0 | 0 | % | |||||||||||||
| $ | 72.7 | 100 | % | $ | 66.7 | 100 | % | $ | 30.5 | 100 | % | $ | 24.1 | 100 | % | ||||||||||
| * excluding Hong Kong | |||||||||||||||||||||||||
Balance Sheet and Cash Flow Highlights
- Cash and cash equivalents were $5.8 million at September 30, 2016, as compared to $1.0 million as of December 31, 2015.
- Working capital at September 30, 2016 was $56.5 million, as compared to $50.9 million at June 30, 2016; $48.3 million at September 30, 2015; and $48.6 million at December 31, 2015.
The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended September 30, 2016 and 2015:
| 2016 | 2015 | |||||||||
| Cash (used in) provided by: | ||||||||||
| Operating activities | $ | (1,465,248 | ) | $ | (4,217,872 | ) | ||||
| Investing activities | 5,274,558 | (2,224,830 | ) | |||||||
| Financing activities | 1,409,387 | 5,388,462 | ||||||||
Net cash provided by operating activities was $1.5 million in the nine months ended September 30, 2016, a decrease in cash outflow of $2.7 million from $4.2 million of cash used in operating activities in the same period of 2015.
Investor Inquiries
An open line of communication with investors and analysts remains a top priority of the Company and management is readily available for discussions with investors on a one on one basis. Investors and analysts wishing to speak with management are urged to contact the Company’s investor relations representatives at The Equity Group at +1 212 836 9600 or aprior@equityny.com.
About Nova LifeStyle
Nova LifeStyle, Inc., a NASDAQ Global Markets Exchange listed company headquartered in California, is a fast growing, innovative designer, manufacturer and distributor of modern LifeStyle furniture; primarily sofas, dining rooms, cabinets, office furniture and related components, bedrooms, and various accessories in matching collections. Nova's products are made in the US, Europe, and Asia and include LifeStyle brands such as Diamond Sofa, Colorful World, Giorgio Mobili, Nova QwiK, and Bright Swallow International. Nova's products feature urban contemporary styles that integrate comfort and functionality incorporating upscale luxury designs appealing to LifeStyle-conscious middle and upper middle-income consumers in the U.S., China, Europe, and elsewhere in the world. To learn more about Nova LifeStyle, Inc., please visit our website at www.NovaLifeStyle.com.
Safe Harbor Statement
All statements in this press release that are not historical are forward-looking statements made pursuant to the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. There can be no assurance that actual results will not differ from the company's expectations. You are cautioned not to place undue reliance on any forward-looking statements in this press release as they reflect Nova's current expectations with respect to future events and are subject to risks and uncertainties that may cause actual results to differ materially from those contemplated. Potential risks and uncertainties include, but are not limited to, the risks described in Nova's filings with the Securities and Exchange Commission.
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NOVA LIFESTYLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) | |||||||||||||||||||
| Nine Months Ended September 30, | Three Months Ended September 30, | ||||||||||||||||||
| 2016 | 2015 | 2016 | 2015 | ||||||||||||||||
| Net Sales | $ | 72,748,972 | $ | 66,725,811 | $ | 30,538,918 | $ | 24,064,319 | |||||||||||
| Cost of Sales | 62,091,435 | 55,176,720 | 25,935,832 | 20,558.658 | |||||||||||||||
| Gross Profit | 10,657,537 | 11,549,091 | 4,603,086 | 3,505,661 | |||||||||||||||
| Operating Expenses | |||||||||||||||||||
| Selling Expenses | 4,358,206 | 2,709,161 | 2,050,201 | 1,151,721 | |||||||||||||||
| General and Administrative Expenses | 4,756,118 | 4,806,282 | 1,491,684 | 1,811,767 | |||||||||||||||
| Total Operating Expenses | 9,114,324 | 7,515,443 | 3,541,885 | 2,963,488 | |||||||||||||||
| Income from Operations | 1,543,213 | 4,033,648 | 1,061,201 | 542,173 | |||||||||||||||
| Other Income (Expenses) | |||||||||||||||||||
| Non-operating income (expense), net | 40,994 | 38,826 | 16,623 | 11,859 | |||||||||||||||
| Foreign exchange transaction gain | (5,578 | ) | (5,208 | ) | (3,281 | ) | (1,860 | ) | |||||||||||
| Loss on change in fair value and extinguishment of warrant liability | - | (767,096 | ) | - | (17,644 | ) | |||||||||||||
| Interest expense | (241,202 | ) | (205,324 | ) | (96,535 | ) | (69,576 | ) | |||||||||||
| Financial expense | (88,098 | ) | (42,070 | ) | (33,733 | ) | (13,460 | ) | |||||||||||
| Total Other Expenses, Net | (293,884 | ) | (980,872 | ) | (116,926 | ) | (90,681 | ) | |||||||||||
| Income Before Income Taxes and Discontinued operations | 1,189,266 | 3,052,776 | 944,275 | 451,492 | |||||||||||||||
| Income Tax (Benefit) Expense | 60,063 | 111,936 | (100,656 | ) | 48,233 | ||||||||||||||
| Income From Continuing Operations | 1,189,266 | 2,940,840 | 1,044,931 | 403,259 | |||||||||||||||
| Loss From Discontinued Operations | (1,476,572 | ) | (1,425,101 | ) | (743,594 | ) | (372,854 | ) | |||||||||||
| Net Income (Loss) | (287,306 | ) | 1,515,739 | 301,337 | 30,405 | ||||||||||||||
| Other Comprehensive (Loss) Income | |||||||||||||||||||
| Foreign currency translation | (420,752 | ) | (665,170 | ) | (98,638 | ) | (668,723 | ) | |||||||||||
| Comprehensive (Loss) Income | $ | (708,058 | ) | $ | 860,569 | $ | 202,699 | $ | (638,318 | ) | |||||||||
| Basic weighted average shares outstanding | 24,937,069 | 22,362,381 | 25,558,604 | 24,144,512 | |||||||||||||||
| Diluted weighted average shares outstanding | 24,937,069 | 22,362,381 | 25,558,604 | 24,144,512 | |||||||||||||||
| Income from continuing operations per share of common stock | |||||||||||||||||||
| Basic | $ | 0.05 | $ | 0.13 | $ | 0.04 | $ | 0.02 | |||||||||||
| Diluted | $ | 0.05 | $ | 0.13 | $ | 0.04 | $ | 0.02 | |||||||||||
| Loss from discontinued operations per share of common stock | |||||||||||||||||||
| Basic | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.02 | ) | |||||||
| Diluted | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.02 | ) | |||||||
| Net income (loss) per share of common stock | |||||||||||||||||||
| Basic | $ | (0.01 | ) | $ | 0.07 | $ | 0.01 | $ | 0.00 | ||||||||||
| Diluted | $ | (0.01 | ) | $ | 0.07 | $ | 0.01 | $ | 0.00 | ||||||||||
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NOVA LIFESTYLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
| September 30, | December 31, | ||||
| 2016 | 2015 | ||||
| (Unaudited) | |||||
| Assets | |||||
| Current Assets | |||||
| Cash and cash equivalents | $ | 5,843,598 | $ | 988,029 | |
| Accounts receivable, net | 43,209,014 | 50,451,665 | |||
| Advance to suppliers | 11,549,905 | 7,958,870 | |||
| Inventories | 2,272,708 | 5,254,029 | |||
| Prepaid expenses and other receivables | 1,305,327 | 1,180,452 | |||
| Assets held for sale | 25,055,319 | - | |||
| Total Current Assets | 89,235,871 | 65,833,045 | |||
| Noncurrent Assets | |||||
| Heritage and cultural assets | - | 124,868 | |||
| Plant, property and equipment, net | 174,133 | 15,201,395 | |||
| Lease deposit | 43,260 | 94,235 | |||
| Deposits for equipment and factory construction | - | 143,758 | |||
| Goodwill | 218,606 | 218,606 | |||
| Intangible assets, net | 5,818,504 | 8,062,649 | |||
| Deferred tax asset | 61,000 | 69,451 | |||
| Total Noncurrent Assets | 6,315,503 | 23,914,962 | |||
| Total Assets | $ | 95,551,374 | $ | 89,748,007 | |
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NOVA LIFESTYLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS | |||||
| September 30, | December 31, | ||||
| 2016 | 2015 | ||||
| (Unaudited) | |||||
| Liabilities and Stockholders’ Equity | |||||
| Current Liabilities | |||||
| Accounts payable | $ | 6,354,379 | $ | 9,822,857 | |
| Line of credit | 8,033,733 | 4,604,560 | |||
| Advance from customers | 648,756 | 187,359 | |||
| Accrued liabilities and other payables | 1,129,541 | 2,584,622 | |||
| Deposit received from buyer | 5,500,000 | - | |||
| Taxes payable | 129,644 | 5,773 | |||
| Liabilities held for sale | 10,891,907 | - | |||
| Total Current Liabilities | 32,687,960 | 17,205,171 | |||
| Noncurrent Liabilities | |||||
| Line of credit | - | 5,659,357 | |||
| Deferred rent payable | - | 89,904 | |||
| Income tax payable | 2,075,175 | 6,801,893 | |||
| Total Noncurrent Liabilities | 2,269,303 | 12,551,154 | |||
| Total Liabilities | 34,763,135 | 29,756,325 | |||
| Contingencies and Commitments | |||||
| Stockholders’ Equity | |||||
| Common stock, $0.001 par value; 75,000,000 shares authorized, | |||||
| 25,716,271 and 24,254,160 shares issued and outstanding; | |||||
| As of September 30, 2016 and December 31, 2015, respectively | 25,716 | 24,254 | |||
| Additional paid-in capital | 33,265,136 | 31,761,983 | |||
| Statutory reserves | 6,241 | 6,241 | |||
| Accumulated other comprehensive income | 1,149,782 | 1,570,534 | |||
| Retained earnings | 26,341,364 | 26,628,670 | |||
| Total Stockholders’ Equity | 60,788,239 | 59,991,682 | |||
| Total Liabilities and Stockholders’ Equity | $ | 95,551,374 | $ | 89,748,007 | |
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NOVA LIFESTYLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| Cash Flows From Operating Activities | ||||||||
| Net (loss) income | $ | 1,189,266 | $ | 2,940,840 | ||||
| Adjustments to reconcile net (loss) income to net cash | ||||||||
| Used in operating activities: | ||||||||
| Depreciation and amortization | 462,194 | 377,085 | ||||||
| Stock compensation expense | 1,216,765 | 1,089,549 | ||||||
| Change in fair value and extinguishment of warrant liability | - | 767,096 | ||||||
| Changes in bad debt expenses | 33,818 | 651,989 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | (558,573 | ) | (8,429,217 | ) | ||||
| Advance to suppliers | (3,613,765 | ) | 1,900,128 | |||||
| Inventories | 241,611 | (2,124,204 | ) | |||||
| Other current assets | (711,727 | ) | (555,168 | ) | ||||
| Accounts payable | 129,278 | (543,253 | ) | |||||
| Advance from customers | 584,968 | (56,125 | ) | |||||
| Accrued expenses and other payables | (325,799 | ) | (515,286 | ) | ||||
| Deferred rent payable | - | (1,260 | ) | |||||
| Taxes payable | 52,864 | 17,949 | ||||||
| Net Cash Provided by (Used) in Continuing Operations | (1,299,100 | ) | (4,479,877 | ) | ||||
| Net Cash Provided by (Used) in Discontinued Operations | (166,148 | ) | 262,005 | |||||
| Net Cash Provided by (Used) in Operating Activities | (1,465,248 | ) | (4,217,872 | ) | ||||
| Cash Flows From Investing Activities | ||||||||
| Purchase of property and equipment | (7,272 | ) | (1,525 | ) | ||||
| Cash received from Buyer | 5,500,000 | - | ||||||
| Construction in progress | - | (112,750 | ) | |||||
| Net Cash Used in Continuing Operations | 5,492,728 | (114,275 | ) | |||||
| Net Cash Used Provided by Discontinued Operations | (218,170 | ) | (1,325,154 | ) | ||||
| Net Cash Used in Investing Activities | 5,274,558 | (1,439,429 | ) | |||||
| Cash Flows From Financing Activities | ||||||||
| Proceeds from line of credit and bank loan | 29,828,074 | 25,603,644 | ||||||
| Repayment to line of credit and bank loan | (29,301,699 | ) | (24,896,823 | ) | ||||
| Proceeds from warrant exercised | 203,250 | - | ||||||
| Proceeds from equity financing, net of expenses of $355,000 | - | 3,645,002 | ||||||
| Net Cash Used in Continuing Operations | 729,625 | 4,351,823 | ||||||
| Net Cash Used Provided by Discontinued Operations | 319,762 | 1,036,639 | ||||||
| Net Cash Provided by Financing Activities | $ | 1,049,387 | $ | 5,388,462 | ||||
| NOVA LIFESTYLE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2016 AND 2015 (UNAUDITED) | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2016 | 2015 | |||||||
| (Unaudited) | ||||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | $ | (3,128 | ) | $ | (4,595 | ) | ||
| Net (decrease) increase in cash and cash equivalents | 4,855,569 | (273,434 | ) | |||||
| Cash and cash equivalents, beginning of period | 988,029 | 1,244,308 | ||||||
| Cash and cash equivalents, ending of period | $ | 5,843,598 | $ | 970,874 | ||||
| Supplemental Disclosure of Cash Flow Information | ||||||||
| Cash paid during the period for: | ||||||||
| Income tax payments | $ | 7,200 | $ | 93,984 | ||||
| Interest expense | $ | 371,036 | $ | 282,961 | ||||
| Supplemental Disclosure of Non-Cash Investing and Financing Activities | ||||||||
| Deposit on plant construction and website design transfer to construction in progress | $ | - | $ | 726,722 | ||||
| Issuance of common stock in exchange of surrender and termination of warrants | $ | - | $ | 2,212,707 | ||||
Company Contact: Investor Relations: The Equity Group Inc. In U.S. Adam Prior, Senior Vice President +1 (212) 836-9606 aprior@equityny.com In China Katherine Yao, Senior Associate +86-10-6587-6435 kyao@equityny.com
