Yongye International Announces Third Quarter 2009 Results
"During the third quarter of 2009, we achieved excellent revenue growth,benefiting from strong demand in existing markets and successful entries intonew ones," commented Mr. Zishen Wu, Chief Executive Officer. "Leveraging ourunique distribution model and integrated marketing campaign, we expanded ourbranded store distribution network by 40% to approximately 7,000 stores at theend of the third quarter. In September 2009, we successfully upgraded to theNASDAQ Global Select Market with a new stock symbol, 'YONG'. We will continueto improve our operations and governance to meet the stringent requirements ofthe NASDAQ Global Select Market and to increase shareholder value."
Third Quarter 2009 Results
During the three months ended September 30, 2009, total revenue increased60.9% to $29.3 million, as compared to $18.2 million during the same period of2008, primarily due to the overall increase in market demand in existingmarkets and strong growth in new markets. During the third quarter of 2009,the retail network of branded stores increased to approximately 7,000 from5,000 at the end of the second quarter of 2009.
Gross profit increased 77.5% to $15.8 from $8.9 million in the comparableperiod last year. Gross margin increased 510 basis points to 54.1%, ascompared to 49.0% in the same period of 2008, as a result of increasedeconomies of scale gained after transitioning the manufacturing processin-house.
Selling, general and administrative expenses, including research anddevelopment, increased 4.8% to $4.1 million, from $3.9 million in the sameperiod of 2008. Total expenses were relatively flat as a result of a $0.8million decrease in selling expenses, but were offset by higher expensesrelated to salaries and professional fees associated with being apublicly-traded company.
Yongye recorded $69,871 in research and development expenses, reflectingthe Company's continued efforts to strengthen and further expand itsShengmingsu branded product offerings. In the comparable period of 2008, theCompany recorded no research and development expenses.
Income from operations increased 133.9% to $11.8 million, from $5.0million during the third quarter of 2008. Operating income margin increased12.6 percentage points to 40.2% from 27.6% in the comparable period last year.
Yongye recently adopted EITF 00-19, whereby the Company now accounts forits warrants, issued to investors and its placement agent as part of theCompany's private placement financings in April 2008, September 2008, and May2009, as a derivative liability measured at fair value through earnings. Thenon-cash $15.8 million charge taken to other expenses due to the change infair value of the warrants during the third quarter of 2009 resulted from thesignificant increase in Yongye's closing stock price from $3.61 per share onJune 30, 2009 to $8.35 on September 30, 2009.
Provision for income taxes for the three months ended September 30, 2009was $3.1 million as compared to $0.2 million in the corresponding period of2008. For the year ended December 31, 2008, the Company's sole operatingsubsidiary, Yongye Nongfeng was only subject to a business tax rate of 1.25%of its gross revenue, which was applied to small to medium enterprises in thelocal development zone. However, effective January 1, 2009, the Company beganto accrue for taxes at the national, statutory, enterprise income tax rate of25% of its assessable income in accordance with the relevant income tax rulesand regulations of the PRC.
For the third quarter of 2009, largely due to the non-cash chargeassociated with the increase in fair value of derivatives, the Companyreported a net loss of $7.0 million, or $0.22 per fully diluted share, ascompared to net income of $8.1 million, or earnings per diluted share of $0.20.
Non-GAAP adjusted net income which excludes the increase in fair value ofthe warrants was $8.8 million, or $0.27 per share on a fully diluted basis, ascompared to non-GAAP adjusted net income of $4.5 million, or $0.20 per shareon a fully diluted basis, in the same period of 2008.
The diluted weighted average number of shares outstanding increased from22,807,756 in the third quarter of 2008 to 32,730,054 in the third quarter of2009, as a result of additional shares issued in private placements inSeptember 2008 and May 2009.
Nine Month Results
Net revenue increased 94.7% to $88.0 million in the nine months endedSeptember 30, 2009, from $45.2 million in the comparable period of 2008.Gross profit increased 98.8% to $46.7 million, from $23.5 million in thecomparable period of 2008. Gross profit margin increased 110 basis points to53.1%, from 52.0% in the same period last year. Income from operationsincreased 110% to $31.0 million, as compared to $14.8 million in the sameperiod last year. Operating margin expanded 260 basis points to 35.3% from32.7% in the comparable period in 2008. Net income was $2.3 million, or $0.08per fully diluted share, as compared to $13.7 million, or $0.69 per fullydiluted share, in the nine months ended September 30, 2008.
Non-GAAP adjusted net income, which excludes the charge for the increasein fair value of the warrants, was $23.2 million, or $0.78 per share on afully diluted basis in the first nine months of 2009, as compared to non-GAAPadjusted net income of $12.2 million, or $0.69 per share on a fully dilutedbasis, in the same period of 2008.
The diluted weighted average number of shares outstanding increased from17,699,747 in the nine months ended September 30, 2008 to 29,926,052 in thenine months ended September 30, 2009, as a result of additional shares issuedin private placements in September 2008 and May 2009.
As of September 30, 2009, the Company recorded total assets of $87.6million, compared to $34.5 million as of December 31, 2008. Working capitalincreased to $31.4 million from $23.3 million at the end of 2008.Stockholders' equity, excluding noncontrolling interest, totaled $38.8 millionas of September 30, 2009, compared to $27.3 million at the end of 2008.
As of September 30, 2009, cash totaled $3.5 million, compared to $4.5million on December 31, 2008. Accounts receivable totaled $43.3 million atthe end of the third quarter of 2009, up from $2.7 million as of December 31,2008. The increase in accounts receivable is due in part to the high level ofsales throughout the second and third quarters. It is customary in China'sagriculture industry to extend credit terms which allow distributors to payover a longer period of time. As of September 30, 2009, Yongye did not haveany accounts receivable that were uncollected beyond 180 days. Inventoryincreased from $20.7 million at the end of 2008 to $31.0 million at the end ofthe third quarter of 2009. The Company anticipates strong sales growth insubsequent periods and therefore has begun to accumulate more inventories ofraw materials and finished goods.
In November of 2009, one of the independently owned Yongye branded storesset a new, single store, one-day sales record for Shengmingsu branded plantproducts by selling 25,163 bottles for approximately $50,000.
In October 2009, Yongye Shengmingsu branded nutrient products werefeatured on the China Central Television (CCTV) English Channel for theChinese National Day celebration. CCTV broadcasted a comprehensive program onChina's agricultural achievements, farming reforms and policies over the past60 years that included a segment on Shengmingsu as an example of currentdomestic innovation in the organic farming sector. Please seen Yongye'shomepage for links to this video.
In October 2009, Yongye raised its 2009 annual revenue guidance to $94-$95million which represents a 96%-98% increase over 2008 results. The Companyalso provided guidance for 2009 annual pre-tax income from operations of$30-$31 million, which represents an increase of 119%-126% over 2008 results,and for 2009 annual pre-tax operating income margin of approximately 32%-33%.
In October 2009, Yongye completed the restructuring plan required by itsSeptember 2008 financing. The Company is now a fully integrated manufacturer,having acquired the land, buildings, equipment, and fertilizer license of itspredecessor, Inner Mongolia Yongye.
In October 2009, Yongye announced its 2010-2012 strategic plan. TheCompany expects to achieve at least 50% growth in revenue during each of thenext three years through a strategy focused on geographic expansion into newmarkets, increased penetration in existing markets, additional marketing andbrand-building efforts, and expanded production capacity. The Company alsointends to improve its cost structure and gain greater control of its supplyand distribution through vertical integration so as to enhance its profitmargins.
In previous financings the company issued warrants in conjunction with thepurchase of common stock and as of September 30, 2009, there were 2,914,827warrants outstanding. Between October 1, 2009 and November 12, 2009, theholders of 1,924,309 warrants exercised their warrants, resulting in theissuance of 1,653,548 shares of common stock. Roth Capital, the placementagent, also exercised 246,224 warrants for 198,247 shares of common stock.Approximately 990,518 warrants remain outstanding after these transactions.Management anticipates that the decrease in the number of outstanding warrantsin the Company's capital structure will ultimately benefit the Company bydecreasing its accounting liability caused by the derivative nature of thewarrants.
As announced on October 22, 2009, Yongye expects to generate $94-$95million in revenue for full-year of 2009. In addition, Yongye re-affirms its2009 annual pre-tax income from operations guidance of $30-$31 million and2009 annual pre-tax operating income margin guidance of approximately 32%-33%.
"Our business has achieved significant growth in the first nine months of2009. The recently updated annual guidance further reflects our confidence inour ability to achieve a successful fourth quarter of 2009. With thepreviously announced 2010-2012 strategic plan, we intend to strengthen ourmarket leadership through geographic expansion, deeper market penetration, andstronger productivity. As a result, we expect to grow revenues 50% annuallyduring this period while expanding our profit margins. We have begun theprocess of examining upstream and downstream acquisition opportunities inorder to integrate our value chain and obtain higher profitability for ourbusiness. Although third quarter GAAP net income was significantly affectedby the non-cash charged related to the change in the fair value of thewarrants we issued during 2008 and 2009 financings, we have been pro-activelytaking steps to resolve this issue," stated Mr. Wu.
The Company will host a conference call at 10:00 a.m. Eastern time onNovember 16, 2009 to discuss its third quarter 2009 results. To participate inthe live conference call, please dial the following number five to ten minutesprior to the scheduled conference call time: +1-888-419-5570. Internationalcallers should dial +1-617-896-9871. The conference pass code is 120 619 18.For those who are unable to participate in the conference call at the time ofthe call, a replay will be available for fourteen days after the call is held.To access the replay, please dial +1-888-286-8010. International callersshould dial +1-617-801-6888. The replay pass code is 402 454 82.
Interested parties may also listen to the live conference call via webcastand access the replay by visiting http://www.yongyeintl.com/webcast.html .
Use of Non-GAAP Financial Measures
This press release and the related conference call contain non-GAAPfinancial measures, called non-GAAP adjusted net income, as described above. .
The Company defines non-GAAP adjusted net income as net income adjustedfor the impact of charges associated with the Company's increase/(decrease) infair value of derivative liabilities related to outstanding warrants. TheCompany believes that the presentation of these non-GAAP financial measuresprovides useful information to its investors and lenders because thesemeasures allow for more accurate comparisons of operating results fromperiod-to-period, enhance the overall understanding of the Company's financialperformance and provide greater insight into the prospects for the Company'songoing business operations. Moreover, the Company also believes it isappropriate to exclude costs associated with the increase/(decrease) in fairvalue of derivative liabilities related to outstanding warrants because thesecharges are excluded from management's assessment of the Company's operatingperformance and are not related to the Company's ongoing business operations.In addition, the Company excludes these charges described above in itscalculations to determine its ability to borrow additional funds to finance orexpand its operations.
The Company believes that by reporting these measures, it provides insightand consistency in its financial reporting and presents a basis for comparisonof its business operations between current, past and future periods. Inaddition, the measures provide a basis for the Company to compare itsfinancial results to those of other comparable publicly traded companies andare used by management to plan and forecast its business.
Non-GAAP financial measures should not be considered as a substitute for,or superior to, measures of financial performance which are prepared inaccordance with U.S. GAAP and may be different from non-GAAP financialmeasures used by other companies. Investors are encouraged to review thereconciliations of GAAP to non-GAAP net income and adjusted EBITDA, which areset forth below.
About Yongye International, Inc.
Yongye International, Inc., headquartered in Beijing, is engaged in themanufacturing, development, distribution and sales of Shengmingsu brand plantand animal nutrient products. The Company's patented and patent pendingformulas and proprietary extraction processes allow it to create products thatincrease crop yields and improve the health of livestock. Its sole operatingsubsidiary, Inner Mongolia Yongye Nongfeng Biotechnology Co., Ltd., isheadquartered in Beijing with administrative and sales offices located inInner Mongolia, People's Republic of China. For more information, pleasevisit the Company's website at http://www.yongyeintl.com .
Safe Harbor Statement
This press release contains certain statements that may include"forward-looking statements." All statements other than statements ofhistorical fact included herein are "forward-looking statements." Theseforward-looking statements are often identified by the use of forward-lookingterminology such as "believes," "expects" or similar expressions, involvingknown and unknown risks and uncertainties. Although the Company believes thatthe expectations reflected in these forward-looking statements are reasonable,they do involve assumptions, risks and uncertainties, and these expectationsmay prove to be incorrect. You should not place undue reliance on theseforward-looking statements, which speak only as of the date of this pressrelease. The Company's actual results could differ materially from thoseanticipated in these forward-looking statements as a result of a variety offactors, including the risk factors discussed in the Company's periodicreports that are filed with the Securities and Exchange Commission andavailable on the SEC's website ( http://www.sec.gov ). All forward-lookingstatements attributable to the Company or persons acting on its behalf areexpressly qualified in their entirety by these risk factors. Other than asrequired under the securities laws, the Company does not assume a duty toupdate these forward-looking statements.Third Quarter 2009 Highlights -- Revenue increased 60.9% year-over-year to $29.3 million -- Gross profit increased 77.5% year-over-year to $15.8 million, or 54.1% of sales -- Operating income grew 133.9% year-over-year to $11.8 million -- Net loss of $7.0 million, or $0.22 per fully diluted share, as compared to net income of $8.1 million, or $0.20 per fully diluted share in the same period last year -- Non-GAAP adjusted net income, excluding the charge associated with the increase in fair value of warrants was $8.8 million, or $0.27 per diluted share, as compared to $4.5 million, or $0.20 per diluted share, in the comparable period of 2008 -- Expanded branded store network by 40% to 7,000 stores, from the end of the second quarter of 2009 -- Began trading on the Nasdaq Global Select Market in September 2009
SOURCE Yongye International, Inc.
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