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Mr. Jinan Song, China-Biotics' Chairman and CEO commented, "We are veryexcited to report the record-setting first quarter results as our business hasoutperformed our expectations by all metrics. The rapidly growing sales of ourbulk additive products, improving economies-of-scale, launches of new retailproducts all contributed to another robust quarter. In particular, thesuccessful integration of our bulk additives facility has enabled us toquickly ramp up production to meet high demand from dairy producers and animalfeed manufacturers. Our retail business also expanded steadily as quarterlysales increased 22% year-over-year."
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Mr. Song continued, "With favorable receptions of our bulk products in themarketplace and the higher production utilization in our recently opened newQingpu facility, our top line growth, once again, outpaced that of ouroperaing expenses. We remain focused on strengthening our core competence bycontinuing investing in R&D and new product development. We successfullylaunched 3 retail products and recruited critical research talents."
First Quarter FY2011 Financial Results
Net sales in the first quarter of fiscal year 2011 increased by 61.8% to$24.9 million from $15.4 million in the first quarter of fiscal year 2010. Theincrease was primarily due to increased sales volume in retail and bulkadditive products, and bulk additive products accounted for 40% of totalquarterly net sales. Bulk sales increased by 170% year-over-year and 46%quarter-over-quarter from the fourth quarter of fiscal year 2010.
Gross profit increased 56.8% to $17.1 million from $10.9 million in thesame period of fiscal year 2010. Gross margin was 68.6% compared with 70.8% inthe same period of fiscal year 2010. The decline in blended gross margin wasmainly attributable to a product mix change as comparatively lower margin bulkproducts increasingly account for larger share of the total sales.
General and administrative (G&A) expenses amounted to $1.2 million,compared with $1.1 million in the previous year. The increase of general andadministrative expenses was primarily due to the increase of professional feesand staff costs. As of June 30, 2010 the Company had a total of 513 employees,compared with 379 as of June 30, 2009. However, G&A expenses as a percentageof revenue decreased from 6.9% in the first quarter of fiscal year 2010 to4.8% for the first quarter of fiscal year 2011.
Research and development (R&D) expenses were $1.1 million, a 60.5%increase from $0.7 million in the first quarter of fiscal year 2010. Theincrease in R&D expenses was mainly due to additional research costs relatedto the development of new products. R&D expenses as a percentage of revenuewas 4.3%, in line with the first quarter of fiscal year 2010.
Selling expenses for the first quarter of fiscal year 2011 were $3.1million, compared with $2.3 million in first quarter in fiscal year 2010. Thisincrease in selling expenses was primarily caused by the increase of overallsales. However, selling expenses as a percentage of revenue decreased from15.2% in the first quarter of fiscal year 2010 to 12.3% for the first quarterof fiscal year 2011.
Total operating expenses for the first quarter of fiscal year 2011 were$5.2 million compared with $4.0 million in the first quarter of fiscal year2010. Operating expenses as a percentage of revenue decreased from 26.3% inthe first quarter fiscal year 2010 to 21.0% in the first quarter of fiscalyear 2011.
Operating income was $11.9 million compared with $6.9 million in the sameperiod of fiscal year 2010, reflecting a 72.8% year-over-year increase.
GAAP net income for the first quarter of fiscal year 2011 was $18.9million, compared with net income of $5.8 million in the same period of fiscalyear 2010. Diluted net income per share were $0.39, compared with dilutedearning per share $0.34 in the same period of fiscal year 2010, on asubstantially greater number of shares outstanding.
Excluding the non-cash gains from the change in value of convertible bonds,non-GAAP net income was a quarterly record of $9.7 million, compared with $5.3million in the first quarter of fiscal year 2010, a robust 83.5% year-over-year increase. Non-GAAP diluted EPS was $0.39, increased from $0.27 in thesame quarter of fiscal year 2010, on a substantially greater number of sharesoutstanding.
For the three months ended on June 30, 2010, the total shares outstandingon both GAAP and non-GAAP fully diluted basis were 24,453,333, as compared tonon-GAAP diluted basis of 19,163,333 shares and GAAP diluted basis of17,080,000 shares a year ago, respectively.
As of June 30, 2010, the Company had cash and cash equivalents totaling$159.8 million, compared with $155.6 million at the end of March 2010. Thecompany had a convertible note amounted at $25 million with conversation priceat $12, whose expiration date is on December 11, 2010. Total stockholders'equity rose to $175.4 million at June 30, 2010, from $156.2 million at March31, 2010.
Net cash-flow from operating activities was $6.1 million as compared to5.2 million in the same quarter last year. Free cash flow was $3.9 millioncompared with $4.3 million in the first quarter of fiscal year 2010.
Recent Developments
Subsequent to the first quarter of fiscal year 2011, China-Biotics gainedmore bulk customers and the total number of bulk customers increased to 38 bythe end of June. Among the 38 customers, 4 are animal feed producers and theremaining are dairy enterprises. The Qingpu facility produced over 15 metrictons of bulk probiotics products during the first quarter of fiscal year 2011and the production utilization rate has steadily ramped up to over 60 metrictons on an annual basis.
In April 2010, the Ministry of Health in China expanded its probioticslist for food industry to include 21 different probiotics strains.China-Biotics' strain portfolio includes all of the listed strains and theyare widely used in the Company's bulk additive products.
In July 2010, the Company's Board of Directors has approved a sharerepurchase program under which the Company may purchase up to $20 million ofthe Company's outstanding common stock from time-to-time over the next 12months. The Company plans to fund repurchases from its available cash balance.
Outlook for the Fiscal Year 2011
For fiscal year 2011, the management maintains the expectation that netsales to be at least 50% year-over-year growth. This target is based on theCompany's current views on the operating and market conditions, which aresubject to change.
Mr. Jinan Song, Chairman and CEO of China-Biotics, concluded, "We remainbullish on the outlook of fiscal year 2011. We will continue to invest in R&Din probiotics studies and applications, strengthen our product portfolio. TheQingpu facility's strong utilization rate growth demonstrated not only thedepth of the probiotics demand in China, but our competitiveness of ourproducts in the marketplace as well. As Chinese government is stepping up onthe food safety measures and Chinese consumers are increasing their healthcareexpenditures, we expect that more and more dairy and animal feed companieswill embrace and increase the use of our probiotics products."
Conference Call
The Company will host a conference call, to be simultaneously webcast, onMonday, August 9, 2010, at 8:00 a.m. Eastern Daylight Time or 8:00 p.m.Beijing Time. Interested parties may participate in the conference call bydialing +1-866-783-2138 (North America) or +1-857-350-1597 (International),passcode: 76874068, approximately 10 minutes before the call start time. Alive webcast of the conference call will be available on the Company's Websiteat http://www.chn-biotics.com .
A replay of the call will be available shortly after the conclusion of theearnings conference call through midnight EDT, on August 16, 2010. Interestedparties may access the replay by dialing +1-888-286-8010 (North America) or+1-617-801-6888 (International) and entering passcode: 75529413.
About China-Biotics
China-Biotics, Inc. ("China-Biotics," "the Company"), a leadingmanufacturer of biotechnology products and supplements, engages in theresearch, development, marketing and distribution of probiotics dietarysupplements in China. Through its wholly owned subsidiary, Shanghai ShiningBiotechnology Co., Ltd., the Company develops and produces its proprietaryproduct portfolio including live microbial nutritional supplements under the"Shining" brand. Currently, the products are sold OTC through largedistributors to pharmacies and supermarkets in Shanghai, Jiangsu, and Zhejiangprovince. In February 2010, China-Biotics began its commercial production inChina's largest probiotics production facility to meet growing demand in China.For more information, please visit http://www.chn-biotics.com .
Safe Harbor Statement
The information in this release contains forward-looking statements whichinvolve risks and uncertainties, including statements regarding the Company'scapital needs, business strategy and expectations. Any statements containedherein that are not statements of historical fact may be deemed to beforward-looking statements, which may be identified by terminology such as"may," "should," "will," "expect," "plan," "intend," "anticipate," "believe,""estimate," "predict," "potential," "forecast," "project," or "continue," thenegative of such terms or other comparable terminology. Readers should notrely on forward-looking statements as predictions of future events or results.Any or all of the Company's forward-looking statements may turn out to bewrong. They can be affected by inaccurate assumptions, risks and uncertaintiesand other factors which could cause actual events or results to be materiallydifferent from those expressed or implied in the forward-looking statements.In evaluating these statements, readers should consider various factors,including the risks described in "Item 1A. Risk Factors" beginning on page 17and elsewhere in the Company's 2010 Annual Report on Form 10-K. These factorsmay cause the Company's actual results to differ materially from anyforward-looking statement. In addition, new factors emerge from time to timeand it is not possible for the Company to predict all factors that may causeactual results to differ materially from those contained in anyforward-looking statements. The Company disclaims any obligation to publiclyupdate any forward-looking statements to reflect events or circumstances afterthe date of this document, except as required by applicable law.
Use of Non-GAAP Financial Measures
GAAP results for the first quarters ended June 30, 2010 and 2009, includenon-cash losses or gains related to change in fair value of the Company'sconvertible notes. To supplement the Company's condensed consolidatedfinancial statements presented on a GAAP basis, the Company has providednon-GAAP financial information excluding the impact of these items in thisrelease, which are non-GAAP net income and non-GAAP diluted earnings per share.The Company's management believes that these non-GAAP measures provideinvestors with a better understanding of how the results relate to theCompany's historical performance. A reconciliation of adjustments to GAAPresults appears in the tables accompanying this press release. This additionalnon-GAAP information is not meant to be considered in isolation or as asubstitute for GAAP financials.First Quarter FY2011 Highlights -- Net sales increased 61.8% year-over-year to $24.9 million; -- Bulk products sales increased 170% year-over-year and 46% sequentially; -- Gross profit increased 56.8% year-over-year to $17.1 million, with a gross margin of 68.6%; -- Operating margin was 47.6% vs. 44.6% a year ago and 42.2% in the preceding quarter; -- GAAP net income was $18.9 million, or $0.39 per diluted share; -- Excluding the non-cash gains from change in fair value of convertible bonds, non-GAAP net income was a quarterly record of$9.7 million, or non-GAAP diluted EPS $0.39; -- Cash and cash equivalents were $159.8 million; -- Bulk facility achieved 60MT annualized plant utilization.
SOURCE China-Biotics, Inc.
