China Medical Technologies reports revenues of US$25.2 million for third-quarter fiscal 2009

China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based advanced in-vitro diagnostic ("IVD") company, today announced its unaudited financial results for the third fiscal quarter ended December 31, 2009 ("3Q FY2009"). The Company's 2009 fiscal year ends on March 31, 2010 ("FY2009").

3Q FY2009 Highlights -- Revenues decreased by 23.5% year-over-year to RMB172.3 million (US$25.2 million) but increased by 3.8% on a quarter-over-quarter basis. -- Loss from continuing operations was RMB22.0 million (US$3.2 million). -- Non-GAAP income from continuing operations, as defined below, decreased by 61.9% year-over-year to RMB45.6 million (US$6.7 million) but increased by 158.2% on a quarter-over-quarter basis. -- Diluted loss from continuing operations per ADS* was RMB0.84 (US$0.12). -- Non-GAAP diluted earnings from continuing operations per ADS*, as defined below, decreased by 61.8% year-over-year to RMB1.74 (US$0.25) but increased by 159.7% on a quarter-over-quarter basis. -- Net cash flows generated from operations was RMB80.4 million (US$11.8 million). -- Approximately 390,000 ADSs* were repurchased under the Company's share repurchase program. 4Q FY2009 Targets -- Target revenues are expected to be more than RMB175.0 million (US$25.6 million). -- Target non-GAAP income from continuing operations is expected to be more than RMB47.0 million (US$6.9 million). -- Target non-GAAP diluted earnings from continuing operations per ADS* is expected to be more than RMB1.79 (US$0.26). * One American Depositary Share ("ADS") = 10 ordinary shares

See "Non-GAAP Measure Disclosures" below, where the impact of certain items on reported results is discussed.

"We achieved sequential growth in our business in the past quarter," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. "Despite the challenges we encountered in the first 9 months of fiscal year 2009, our turnaround has started and will continue, which is demonstrated by robust growth in our molecular diagnostic business and stabilization in our immunodiagnostic business in the past quarter. We have witnessed stabilizing pricing environment for our ECLIA reagent kits and growth of end user demand for both of our FISH probes and ECLIA reagent kits. Meanwhile, we completed the trial launch of our SPR system in December 2009 and from January 2010, we began a formal full scale launch of our SPR system, targeting at least 30 top tier hospitals each quarter. Besides, we are waiting for SFDA approval for several new products in both molecular diagnostic business and immunodiagnostic business in 2010 which will expand our product offering and strengthen our product portfolio. We expect the Company to experience another phase of accelerated growth in later quarters."

3Q FY2009 Unaudited Financial Results

The Company reported revenues of RMB172.3 million (US$25.2 million) for 3Q FY2009, representing a 23.5% decrease from the corresponding period of FY2008 and a 3.8% increase from 2Q FY2009.

The Company's revenues are currently generated from two segments, molecular diagnostic systems and immunodiagnostic systems. The molecular diagnostic systems segment includes FISH products and is expected to include SPR products in 2010 while the immunodiagnostic systems segment consists of ECLIA products.

Molecular diagnostic system sales for 3Q FY2009 were RMB96.2 million (US$14.1 million), representing a 2.8% increase from the corresponding period of FY2008 and a 7.8% increase from 2Q FY2009.

Immunodiagnostic system sales for 3Q FY2009 were RMB76.2 million (US$11.2 million), representing a 42.2% decrease from the corresponding period of FY2008 and a 0.9% decrease from 2Q FY2009. The year-over-year decrease was primarily due to the price reduction for ECLIA reagent kits in September 2009.

Gross margin decreased to 63.4% for 3Q FY2009 as compared to 73.9% for the corresponding period of FY2008 and 65.4% for 2Q FY2009. The decrease in gross margin was primarily due to the impact of the price reduction on ECLIA reagent kits.

Research and development expenses were RMB10.7 million (US$1.6 million) for 3Q FY2009, representing a 29.3% year-over-year increase and a 13.0% sequential increase. The increase was primarily due to the development of new FISH probes, SPR-based chips and ECLIA reagent kits.

Sales and marketing expenses were RMB19.1 million (US$2.8 million) for 3Q FY2009, representing a 63.3% year-over-year increase and a 9.3% sequential increase. The increase was primarily due to the increase in direct sales efforts for molecular diagnostic systems.

General and administrative expenses were RMB25.8 million (US$3.8 million) for 3Q FY2009, representing a 12.6% year-over-year decrease and a 42.7% sequential decrease. The significant sequential decrease was primarily because no costs for the independent internal investigation were incurred and the provision for bad debts was substantially lower in 3Q FY2009.

Amortization of SPR intangible assets was RMB27.3 million (US$4.0 million) for 3Q FY2009. As the SPR acquisition was completed in December 2008, there was only one month amortization of SPR intangible assets in the corresponding period of FY2008.

Interest expense on convertible notes was RMB35.4 million (US$5.2 million) for 3Q FY2009. The Company's outstanding convertible notes of US$150.0 million and US$276.0 million bear interest at 3.5% and 4.0% per annum, respectively and will mature in November 2011 and August 2013, respectively. Due to the adoption of new authoritative guidance governing the accounting for convertible instruments that can be settled in cash or partially in cash upon conversion effective on April 1, 2009, the Company recorded additional non- cash interest expense of RMB7.6 million (US$1.1 million) for the US$150.0 million convertible notes in 3Q FY2009. The Company also made an adjustment related to these convertible notes for the corresponding period of FY2008 by increasing non-cash interest expense by RMB7.2 million to adopt this guidance retrospectively. This new guidance is not applicable to the US$276.0 million convertible notes.

Interest expense on amortization of convertible notes issuance costs was RMB4.4 million (US$0.6 million) for 3Q FY2009.

Income tax expense was RMB13.1 million (US$1.9 million) for 3Q FY2009. The occurrence of income tax expense was primarily because certain expenses of the Company such as stock compensation expense, amortization of acquired intangible assets and interest expense on convertible notes were not deductible for income tax purpose as well as the accrual for withholding income tax on distributable earnings generated during the quarter in the PRC.

Loss from continuing operations was RMB22.0 million (US$3.2 million) for 3Q FY2009 and net loss was RMB22.0 million (US$3.2 million) for 3Q FY2009.

Non-GAAP income from continuing operations excluding stock compensation expense, amortization of acquired intangible assets and non-cash interest expense of convertible notes arising from the adoption of the new guidance related to convertible instruments that can be settled in cash or partially in cash upon conversion was RMB45.6 million (US$6.7 million) for 3Q FY2009, representing a 61.9% decrease from the corresponding period of FY2008 and a 158.2% increase from 2Q FY2009.

Stock compensation expense for 3Q FY2009 was RMB10.2 million (US$1.5 million), of which RMB1.6 million was allocated to research and development expenses and RMB8.6 million to general and administrative expenses.

Amortization of acquired intangible assets for 3Q FY2009 was RMB49.8 million (US$7.3 million), of which RMB22.4 million was allocated to cost of revenues and RMB27.4 million to operating expenses.

As of December 31, 2009, the Company's cash and cash equivalents was RMB829.9 million (US$121.6 million). The decrease in cash and cash equivalents from the balance at September 30, 2009 was primarily due to the final payment for the SPR acquisition, the payment of annual cash dividends and the repurchase of the Company's ADSs. Net cash generated from operating activities for 3Q FY2009 was RMB80.4 million (US$11.8 million).

As of December 31, 2009, the Company's net accounts receivable was RMB300.8 million (US$44.1 million), representing a decrease of 5.4% from the balance at September 30, 2009.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.8259 to US$1.00, the noon buying rate in New York City for cable transfers of RMB per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of Thursday, December 31, 2009. No representation is made that the RMB amounts could have been or could be converted into U.S. dollars at that rate or at any other certain rate on December 31, 2009 or at any other dates.

Share Repurchase Program

In September 2009, the Company's board of directors authorized a share repurchase program, under which the Company may repurchase up to US$30 million worth of its outstanding ADSs from the open market or in block trades for a period of one year, commencing on October 1, 2009. As of December 31, 2009, the Company repurchased about 390,000 ADSs at a cost of approximately US$5.0 million (including transaction costs). The Company will continue to repurchase issued and outstanding ADSs depending on market conditions, the trading price of its ADSs and other factors.

Outlook for 4Q FY2009

Although the New Year holiday in January 2010 and the Chinese New Year holiday in February 2010 reduced about 10% of normal working days in 4Q FY2009, the Company still expects to achieve sequential growth in its business. In 1Q FY2010, without the holiday impact, the Company expects to achieve a higher sequential growth in its business.

The Company estimates the target revenues for 4Q FY2009 to be more than RMB175.0 million (US$25.6 million).

The Company estimates the target non-GAAP income from continuing operations for 4Q FY2009 to be more than RMB47.0 million (US$6.9 million).

The Company estimates the target non-GAAP diluted earnings from continuing operations per ADS for 4Q FY2009 to be more than RMB1.79 (US$0.26).

The above targets are based on the Company's current views on the operating and marketing conditions, which are subject to change.

SOURCE China Medical Technologies, Inc.