Aug 9 2010
China-Biotics, Inc. (Nasdaq: CHBT) ("China-Biotics" or "the Company"), a leading developer, manufacturer and distributor of probiotics products in China, today reported its financial results for the first quarter of its 2011 fiscal year, ended June 30, 2010.
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.
Mr. Jinan Song, China-Biotics' Chairman and CEO commented, "We are very excited to report the record-setting first quarter results as our business has outperformed our expectations by all metrics. The rapidly growing sales of our bulk additive products, improving economies-of-scale, launches of new retail products all contributed to another robust quarter. In particular, the successful integration of our bulk additives facility has enabled us to quickly ramp up production to meet high demand from dairy producers and animal feed manufacturers. Our retail business also expanded steadily as quarterly sales increased 22% year-over-year."
Mr. Song continued, "With favorable receptions of our bulk products in the marketplace and the higher production utilization in our recently opened new Qingpu facility, our top line growth, once again, outpaced that of our operaing expenses. We remain focused on strengthening our core competence by continuing investing in R&D and new product development. We successfully launched 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. The increase was primarily due to increased sales volume in retail and bulk additive products, and bulk additive products accounted for 40% of total quarterly 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 the same period of fiscal year 2010. Gross margin was 68.6% compared with 70.8% in the same period of fiscal year 2010. The decline in blended gross margin was mainly attributable to a product mix change as comparatively lower margin bulk products 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 and administrative expenses was primarily due to the increase of professional fees and 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 percentage of revenue decreased from 6.9% in the first quarter of fiscal year 2010 to 4.8% 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. The increase in R&D expenses was mainly due to additional research costs related to the development of new products. R&D expenses as a percentage of revenue was 4.3%, in line with the first quarter of fiscal year 2010.
Selling expenses for the first quarter of fiscal year 2011 were $3.1 million, compared with $2.3 million in first quarter in fiscal year 2010. This increase in selling expenses was primarily caused by the increase of overall sales. However, selling expenses as a percentage of revenue decreased from 15.2% in the first quarter of fiscal year 2010 to 12.3% for the first quarter of 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 year 2010. Operating expenses as a percentage of revenue decreased from 26.3% in the first quarter fiscal year 2010 to 21.0% in the first quarter of fiscal year 2011.
Operating income was $11.9 million compared with $6.9 million in the same period of fiscal year 2010, reflecting a 72.8% year-over-year increase.
GAAP net income for the first quarter of fiscal year 2011 was $18.9 million, compared with net income of $5.8 million in the same period of fiscal year 2010. Diluted net income per share were $0.39, compared with diluted earning per share $0.34 in the same period of fiscal year 2010, on a substantially 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 $5.3 million 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 the same quarter of fiscal year 2010, on a substantially greater number of shares outstanding.
For the three months ended on June 30, 2010, the total shares outstanding on both GAAP and non-GAAP fully diluted basis were 24,453,333, as compared to non-GAAP diluted basis of 19,163,333 shares and GAAP diluted basis of 17,080,000 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. The company had a convertible note amounted at $25 million with conversation price at $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 March 31, 2010.
Net cash-flow from operating activities was $6.1 million as compared to 5.2 million in the same quarter last year. Free cash flow was $3.9 million compared 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 gained more bulk customers and the total number of bulk customers increased to 38 by the end of June. Among the 38 customers, 4 are animal feed producers and the remaining are dairy enterprises. The Qingpu facility produced over 15 metric tons of bulk probiotics products during the first quarter of fiscal year 2011 and the production utilization rate has steadily ramped up to over 60 metric tons on an annual basis.
In April 2010, the Ministry of Health in China expanded its probiotics list for food industry to include 21 different probiotics strains. China-Biotics' strain portfolio includes all of the listed strains and they are widely used in the Company's bulk additive products.
In July 2010, the Company's Board of Directors has approved a share repurchase program under which the Company may purchase up to $20 million of the Company's outstanding common stock from time-to-time over the next 12 months. 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 net sales to be at least 50% year-over-year growth. This target is based on the Company's current views on the operating and market conditions, which are subject to change.
Mr. Jinan Song, Chairman and CEO of China-Biotics, concluded, "We remain bullish on the outlook of fiscal year 2011. We will continue to invest in R&D in probiotics studies and applications, strengthen our product portfolio. The Qingpu facility's strong utilization rate growth demonstrated not only the depth of the probiotics demand in China, but our competitiveness of our products in the marketplace as well. As Chinese government is stepping up on the food safety measures and Chinese consumers are increasing their healthcare expenditures, we expect that more and more dairy and animal feed companies will embrace and increase the use of our probiotics products."
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