Yongye International revenues increases 60.9% year-over-year in third quarter 2009

Yongye International, Inc. (Nasdaq: YONG), ("Yongye or "the Company") a leading manufacturer, developer and distributor of Shengmingsu brand plant and animal nutrient products in the People's Republic of China (PRC), today reported its financial results for the quarter ended September 30, 2009.

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

"During the third quarter of 2009, we achieved excellent revenue growth, benefiting from strong demand in existing markets and successful entries into new ones," commented Mr. Zishen Wu, Chief Executive Officer. "Leveraging our unique distribution model and integrated marketing campaign, we expanded our branded store distribution network by 40% to approximately 7,000 stores at the end of the third quarter. In September 2009, we successfully upgraded to the NASDAQ Global Select Market with a new stock symbol, 'YONG'. We will continue to improve our operations and governance to meet the stringent requirements of the NASDAQ Global Select Market and to increase shareholder value."

Third Quarter 2009 Results

During the three months ended September 30, 2009, total revenue increased 60.9% to $29.3 million, as compared to $18.2 million during the same period of 2008, primarily due to the overall increase in market demand in existing markets and strong growth in new markets. During the third quarter of 2009, the retail network of branded stores increased to approximately 7,000 from 5,000 at the end of the second quarter of 2009.

Gross profit increased 77.5% to $15.8 from $8.9 million in the comparable period last year. Gross margin increased 510 basis points to 54.1%, as compared to 49.0% in the same period of 2008, as a result of increased economies of scale gained after transitioning the manufacturing process in-house.

Selling, general and administrative expenses, including research and development, increased 4.8% to $4.1 million, from $3.9 million in the same period of 2008. Total expenses were relatively flat as a result of a $0.8 million decrease in selling expenses, but were offset by higher expenses related to salaries and professional fees associated with being a publicly-traded company.

Yongye recorded $69,871 in research and development expenses, reflecting the Company's continued efforts to strengthen and further expand its Shengmingsu branded product offerings. In the comparable period of 2008, the Company recorded no research and development expenses.

Income from operations increased 133.9% to $11.8 million, from $5.0 million during the third quarter of 2008. Operating income margin increased 12.6 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 for its warrants, issued to investors and its placement agent as part of the Company's private placement financings in April 2008, September 2008, and May 2009, as a derivative liability measured at fair value through earnings. The non-cash $15.8 million charge taken to other expenses due to the change in fair value of the warrants during the third quarter of 2009 resulted from the significant increase in Yongye's closing stock price from $3.61 per share on June 30, 2009 to $8.35 on September 30, 2009.

Provision for income taxes for the three months ended September 30, 2009 was $3.1 million as compared to $0.2 million in the corresponding period of 2008. For the year ended December 31, 2008, the Company's sole operating subsidiary, 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 the local development zone. However, effective January 1, 2009, the Company began to accrue for taxes at the national, statutory, enterprise income tax rate of 25% of its assessable income in accordance with the relevant income tax rules and regulations of the PRC.

For the third quarter of 2009, largely due to the non-cash charge associated with the increase in fair value of derivatives, the Company reported a net loss of $7.0 million, or $0.22 per fully diluted share, as compared 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 of the warrants was $8.8 million, or $0.27 per share on a fully diluted basis, as compared to non-GAAP adjusted net income of $4.5 million, or $0.20 per share on a fully diluted basis, in the same period of 2008.

The diluted weighted average number of shares outstanding increased from 22,807,756 in the third quarter of 2008 to 32,730,054 in the third quarter of 2009, as a result of additional shares issued in private placements in September 2008 and May 2009.

Nine Month Results

Net revenue increased 94.7% to $88.0 million in the nine months ended September 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 the comparable period of 2008. Gross profit margin increased 110 basis points to 53.1%, from 52.0% in the same period last year. Income from operations increased 110% to $31.0 million, as compared to $14.8 million in the same period last year. Operating margin expanded 260 basis points to 35.3% from 32.7% in the comparable period in 2008. Net income was $2.3 million, or $0.08 per fully diluted share, as compared to $13.7 million, or $0.69 per fully diluted share, in the nine months ended September 30, 2008.

Non-GAAP adjusted net income, which excludes the charge for the increase in fair value of the warrants, was $23.2 million, or $0.78 per share on a fully diluted basis in the first nine months of 2009, as compared to non-GAAP adjusted net income of $12.2 million, or $0.69 per share on a fully diluted basis, in the same period of 2008.

The diluted weighted average number of shares outstanding increased from 17,699,747 in the nine months ended September 30, 2008 to 29,926,052 in the nine months ended September 30, 2009, as a result of additional shares issued in private placements in September 2008 and May 2009.

Financial Condition

As of September 30, 2009, the Company recorded total assets of $87.6 million, compared to $34.5 million as of December 31, 2008. Working capital increased to $31.4 million from $23.3 million at the end of 2008. Stockholders' equity, excluding noncontrolling interest, totaled $38.8 million as 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 $4.5 million on December 31, 2008. Accounts receivable totaled $43.3 million at the 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 of sales throughout the second and third quarters. It is customary in China's agriculture industry to extend credit terms which allow distributors to pay over a longer period of time. As of September 30, 2009, Yongye did not have any accounts receivable that were uncollected beyond 180 days. Inventory increased from $20.7 million at the end of 2008 to $31.0 million at the end of the third quarter of 2009. The Company anticipates strong sales growth in subsequent periods and therefore has begun to accumulate more inventories of raw materials and finished goods.

Recent Events

In November of 2009, one of the independently owned Yongye branded stores set a new, single store, one-day sales record for Shengmingsu branded plant products by selling 25,163 bottles for approximately $50,000.

In October 2009, Yongye Shengmingsu branded nutrient products were featured on the China Central Television (CCTV) English Channel for the Chinese National Day celebration. CCTV broadcasted a comprehensive program on China's agricultural achievements, farming reforms and policies over the past 60 years that included a segment on Shengmingsu as an example of current domestic innovation in the organic farming sector. Please seen Yongye's homepage for links to this video.

In October 2009, Yongye raised its 2009 annual revenue guidance to $94-$95 million which represents a 96%-98% increase over 2008 results. The Company also 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 its September 2008 financing. The Company is now a fully integrated manufacturer, having acquired the land, buildings, equipment, and fertilizer license of its predecessor, Inner Mongolia Yongye.

In October 2009, Yongye announced its 2010-2012 strategic plan. The Company expects to achieve at least 50% growth in revenue during each of the next three years through a strategy focused on geographic expansion into new markets, increased penetration in existing markets, additional marketing and brand-building efforts, and expanded production capacity. The Company also intends to improve its cost structure and gain greater control of its supply and distribution through vertical integration so as to enhance its profit margins.

In previous financings the company issued warrants in conjunction with the purchase of common stock and as of September 30, 2009, there were 2,914,827 warrants outstanding. Between October 1, 2009 and November 12, 2009, the holders of 1,924,309 warrants exercised their warrants, resulting in the issuance of 1,653,548 shares of common stock. Roth Capital, the placement agent, 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 warrants in the Company's capital structure will ultimately benefit the Company by decreasing its accounting liability caused by the derivative nature of the warrants.

Business Outlook

As announced on October 22, 2009, Yongye expects to generate $94-$95 million in revenue for full-year of 2009. In addition, Yongye re-affirms its 2009 annual pre-tax income from operations guidance of $30-$31 million and 2009 annual pre-tax operating income margin guidance of approximately 32%-33%.

"Our business has achieved significant growth in the first nine months of 2009. The recently updated annual guidance further reflects our confidence in our ability to achieve a successful fourth quarter of 2009. With the previously announced 2010-2012 strategic plan, we intend to strengthen our market leadership through geographic expansion, deeper market penetration, and stronger productivity. As a result, we expect to grow revenues 50% annually during this period while expanding our profit margins. We have begun the process of examining upstream and downstream acquisition opportunities in order to integrate our value chain and obtain higher profitability for our business. Although third quarter GAAP net income was significantly affected by the non-cash charged related to the change in the fair value of the warrants we issued during 2008 and 2009 financings, we have been pro-actively taking steps to resolve this issue," stated Mr. Wu.