15 November 2010

Cereplast Announces Third Quarter 2010 Results

Record Q3 Revenue of $1.5 Million up 122% YOY - Company Reiterates Revenue Guidance of $8 to $10 Million for 2010

Cereplast, Inc. (NASDAQ: CERP), a leading manufacturer of proprietary bio-based, compostable and sustainable plastics, today announced its financial results for the third quarter ended September 30, 2010.

“We are extremely pleased to report a very successful third quarter and to reiterate our 2010 full year revenue guidance of between $8 and $10 million,” said Frederic Scheer, Chairman and CEO of Cereplast, Inc. “Our accelerating revenue growth in the third quarter combined with an excellent quarter of new customer business, gives us the confidence to reiterate this milestone guidance.”

Q310 Financial Highlights

  • Record third quarter sales of $1.5 million, a 122% increase year-over-year and 121% increase sequentially
  • Record gross profit of $381,000, a 267% increase year-over-year
  • Gross margins improved to 25.2% from 15.2% in the third quarter of 2009
  • Working capital increased approximately $3.7 million from December 31, 2009 to $4.7 million
  • Cash and cash equivalents increased approximately $2.0 million from December 31, 2009 to $3.3 million
  • Signed new multi-million dollar agreement with RI.ME. Masterbatch S.r.l. (RI.ME.), a leading European supplier of colorized resin used in the manufacturing of plastics
  • Struck new deal with Sezersan Ambalaj to produce bio-based twist film packaging for European marketplace
  • Reiterated revenue guidance of between $8 to $10 million for 2010

“During the quarter we saw a significant increase in demand for our bio-based plastic resin, specifically in European countries where we are seeing increasing legislative efforts to reduce the use of oil in the production of plastic,” continued Scheer. “While current legislation is only aimed at the production of plastic bags, there is a broader movement afoot in Europe to curtail the use of oil in manufacturing plastics of all kinds in an effort to preserve and protect the environment.

“Our record revenue in the third quarter reflects the increasing demand and market acceptance of Cereplast’s bio-based resins in Europe. One example is the multi-million dollar agreement we announced during the quarter with RI.ME. Masterbatch in Italy. In September, we started shipping approximately 200 tons of blown film resin per month under this contract and now, due to the significant increase in market demand for alternatives to petroleum-based plastics, we expect that shipments could reach 1,000 tons per month before the third quarter of 2011. In addition to the contracts we signed and began fulfilling during the third quarter, we have begun initial conversations with several other European manufacturers that have reached out to us as they seek alternatives to petroleum-based plastics.

“Looking ahead, we are well positioned to increasingly participate in the tremendous growth we expect to see in the bio-plastics industry at large. In addition to European legislative drivers, we expect steadily increasing demand for our resin in the US, as major retailers demand sustainable products from their suppliers. With these market drivers in mind we have significantly upgraded our manufacturing capacity and remain confident we can support the significant growth we see going forward.”

Q310 Operational Highlights

  • Current Product Markets and Customers: Cereplast continues to focus on several primary product markets including food packaging and service ware, consumer durables, cosmetics, gift card and bag markets in North America, South America and Europe. Cereplast has commercialized new applications with RI.ME., Dorel Industries, Bunge, Sezersan, WNA, Alcoa, Solo, Cadaco, Jatco, Dentek, Warner Tools, and Pace Industries. As a result of successful testing and commercial product launches, many customers have signed multi-year supply contracts with increasing volumes.
  • New Customer Development: As of September 30, 2010, the Company had over 400 potential direct new business opportunities representing a total of over 340 million pounds of potential sales volume. Cereplast is actively working with 125 of these companies on more than 160 bio-plastic application opportunities, representing a total of over 300 million pounds of potential sales volume. Of these companies, 110 have advanced to the prototype testing and qualification stage on over 150 bio-plastic applications.
  • Product Development Advances: Significant progress was made toward full implementation of the Company’s upgraded application development and resin-testing laboratory during the quarter. When fully operational in Q410, Cereplast will be able to conduct all standard product development and qualification testing in-house, accelerating the development cycle for new resin and enhancing the technical support to customers.
  • Production Improvements: As part of Cereplast’s continued manufacturing improvements, the Company saw the completion of the installation of the rail-spur at its Seymour plant during the quarter. Cereplast is planning on installing the necessary auxiliary equipment to make the rail operational by the second quarter of 2011. Additionally, the Company installed new automatic loader systems on the second production line earlier this month. Continued plant automation will allow for higher output with a lower level of labor. During the third quarter the plant was operating four days a week, 24 hours a day. The Company expects to increase production to 5 days a week, 24 hours a day by December 2010. Based on current sales expectation, the Company expects to have the plant running 7 days a week, 24 hours a day, by mid 2011. On September 30, 2010, the total company headcount was 40 people, up from 12 a year ago. The Company expects headcount to increase further as production expands during the Q4 2010.
  • Supplier Agreements: During the quarter, the Company successfully increased its available credit with most major suppliers to gain access to larger quantities of raw material to support its order growth.

Third Quarter 2010 Results
Revenues for the third quarter ended September 30, 2010 totaled $1.5 million, up 122% compared to $684,000 in the third quarter last year. The year-over-year increase was primarily due to the continued ramp up in orders associated with the increasing demand for bio-plastic resin from existing and new customer contracts with European manufacturers.

Gross profit in the third quarter was a record $381,000, an increase of $277,000 or 267%, compared to gross profit of $104,000 for the third quarter last year. As a percentage of net sales, gross margin increased to 25.2% in the third quarter of 2010, compared to the 15.2% in the third quarter last year. The increase in gross profit margin is primarily attributable to cost savings and operational improvements in manufacturing from the Company’s new bioplastics facility in Seymour, Indiana.

Total operating expenses for the third quarter were $2.3 million, compared to $958,000 for the third quarter last year. The increase for the period is largely attributable to the increase in headcount from 12 people in the third quarter of 2009 to 40, as of September 30, 2010, to support business growth. Additional increases in operating expenses were the result of increased sales commission, staff and activities designed to increase product and market exposure in the US and European markets, as well as increased rent and depreciation expense associated with the new Seymour manufacturing facility.

Net loss for the third quarter was $2.2 million, or a loss of $0.17 per share, compared to a net loss of $989,000, or $0.12 per share for the same quarter a year ago. The increase in net loss was primarily the result of increased operating costs, and restructuring costs associated with the movement of the Company’s manufacturing operations from California to Indiana.

Nine-Month Financial Results
Revenues for the nine months ended September 30, 2010 increased to a record $2.5 million, or an increase of 17% compared to revenues of $2.1 million for the same period last year. The sales increase for the period was attributable to the continued ramp up in orders associated with the increasing demand for bio-plastic resin from European manufacturers. Gross margin as a percentage of net sales in the nine months ended September 30, 2010 was 27.4%, compared to 13.0% for the same period in 2009. The increase is primarily due to cost savings from the Company’s new facility and increased production efficiencies. Net loss for the first nine months of 2010 was $5.6 million, or a loss of $0.49 per share, compared to a net loss of $4.2 million, or $0.54 per share, in the same period in 2009.

Balance Sheet
As of September 30, 2010, the Company had cash and cash equivalents of $3.3 million, compared to $1.3 million as of December 31, 2009 and working capital of $4.7 million. Shareholders’ equity as of September 30, 2010 was $8.4 million, an increase of 62% from stockholders’ equity of $5.2 million as of December 31, 2009. Net cash used in operating activities during the nine months ended September 30, 2010 was $5.3 million, up from $2.0 million in the first nine months of 2009. The increase in cash used for operating activities was primarily a result of an increase in accounts receivable, inventory purchases and payment of accounts payable and accrued expenses.

Financial Guidance
Cereplast, Inc. is reiterating its revenue guidance of $8 million to $10 million in 2010.

Conference Call
The company will conduct a conference call and live webcast at 9:00 a.m. Pacific Time (PT) on Monday, November 15, 2010, to discuss its third quarter 2010 financial results. Participating on the call will be Mr. Frederic Scheer, Founder, Chairman, and CEO of Cereplast, Inc. and Heather Sheehan, CFO.

To join the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 877-312-5508. International callers should dial 706-645-9291. A live webcast and archive of the call will also be available on the Investor Relations section of Cereplast’s website at www.cereplast.com. If you are unable to participate in the call at this time, a telephonic replay will be available for three days starting two hours after the conclusion of the call. To access the telephonic replay, dial 800-642-1687, international callers dial 706-645-9291, and enter the Conference ID, 22669031.

Source: Cereplast, Inc., press release 2010-11-15.

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