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Non-GAAP adjusted income from continuing operation, as defined below, increased by 94.5% year-over-year to RMB119.4 million (US$17.5 million)
Message: China Medical Technologies Reports Second Fiscal Quarter Financial Results
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China Medical Technologies Reports Second Fiscal Quarter Financial Results

posted on Nov 19, 09 03:29AM

BEIJING, Nov. 19 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED - News), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its unaudited financial results for the second fiscal quarter ended September 30, 2009 ("2Q FY2009"). The Company's 2009 fiscal year ends on March 31, 2010 ("FY2009").

  2Q FY2009 Highlights

-- Revenues decreased by 14.4% year-over-year to RMB166.1 million (US$24.3
million).
-- Loss from continuing operations was RMB47.1 million (US$6.9 million).
-- Net loss was RMB47.1 million (US$6.9 million).
-- Non-GAAP income from continuing operations, as defined below, decreased
by 82.7% year-over-year to RMB17.7 million (US$2.6 million).
-- Diluted loss from continuing operations per ADS* was RMB1.78 (US$0.26).
-- Non-GAAP diluted earnings from continuing operations per ADS*, as
defined below, decreased by 82.6% year-over-year to RMB0.67 (US$0.10).
-- Net cash generated from operating activities was RMB45.5 million
(US$6.7 million).

3Q FY2009 Targets

-- Target revenues are in the range of RMB170.0 million (US$24.9 million)
and RMB180.0 million (US$26.4 million).
-- Target non-GAAP income from continuing operations is not less than
RMB38.0 million (US$5.6 million).

*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.

"Despite recent challenges, we have seen several positive signs," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. "In the past quarter, we received SFDA approvals for both our FISH probes in hematology and our SPR-based analysis system, representing a major milestone. Although our ECLIA business was impacted by increased competition and our implementation of price reduction in September, we have seen signs of stabilization. Our FISH business remained healthy despite the diversion of management's attention and we have seen growth resumed in this business recently. In addition, we have completed a trial launch on our SPR-based analysis system in a small number of top tier hospitals. With the constructive feedback from key opinion leaders after initial usage, we are well positioned for a full-scale launch on the system in the first quarter of 2010. We expect to generate revenue from the sale of HPV-DNA chips used with the system in that quarter."

2Q FY2009 Unaudited Financial Results

The Company reported revenues of RMB166.1 million (US$24.3 million) for 2Q FY2009, representing a 14.4% decrease from the corresponding period of FY2008.

The Company's revenues are currently generated from two segments, immunodiagnostic systems and molecular diagnostic systems. Immunodiagnostic systems are consisted of ECLIA products while molecular diagnostic systems include FISH products and are expected to include SPR products starting from 4Q FY2009.

Immunodiagnostic system sales for 2Q FY2009 were RMB76.8 million (US$11.3 million), representing a 37.1% decrease from the corresponding period of FY2008. The year-over-year decrease in the immunodiagnostic system sales was primarily due to the decrease in customers' inventory levels in anticipation of a selling price reduction on ECLIA reagent kits as well as the price reduction for ECLIA reagent kits in September 2009.

Molecular diagnostic system sales for 2Q FY2009 were RMB89.2 million (US$13.1 million), representing a 24.3% increase from the corresponding period of FY2008. The year-over-year growth in the molecular diagnostic system sales was primarily due to increase in sales of FISH probes to hospitals as a result of increase in new hospital customers and the increased usage of the Company's FISH probes by existing hospital customers.

Gross margin decreased to 65.4% for 2Q FY2009 as compared to 70.5% for the corresponding period of FY2008. The decrease in gross margin was primarily due to the price reduction on ECLIA reagent kits starting from September 2009.

Research and development expenses were RMB9.5 million (US$1.4 million) for 2Q FY2009, representing a 49.9% year-over-year increase. The increase was primarily due to the development of new ECLIA reagent kits, FISH probes and SPR-based chips.

Sales and marketing expenses were RMB17.4 million (US$2.6 million) for 2Q FY2009, representing a 55.0% year-over-year increase. The increase was primarily due to the continued expansion of the direct sales force for molecular diagnostic system sales.

General and administrative expenses were RMB45.1 million (US$6.6 million) for 2Q FY2009, representing a 77.2% year-over-year increase. The increase was primarily due to the costs of the independent internal investigation and provision for bad debts related to certain ECLIA customers.

Amortization of SPR intangible assets was RMB27.4 million (US$4.0 million) for 2Q FY2009. As the SPR acquisition was complete in December 2008, there was no 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 2Q FY2009, representing a 38.6% year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008. 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 2Q 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 2Q FY2009, representing a 47.6% year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008.

Income tax expense was RMB18.3 million (US$2.7 million) for 2Q 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 of 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 RMB47.1 million (US$6.9 million) for 2Q FY2009 and net loss was RMB47.1 million (US$6.9 million) for 2Q 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 RMB17.7 million (US$2.6 million) for 2Q FY2009, representing a 82.7% decrease from the corresponding period of FY2008.

Stock compensation expense for 2Q FY2009 was RMB7.4 million (US$1.1 million), of which RMB1.3 million was allocated to research and development expenses and RMB6.1 million to general and administrative expenses.

The Company approved the grant of 2,450,000 restricted ordinary shares, equivalent to 245,000 ADS to certain directors, officers and employees on November 16, 2009, which was approximately 0.8% of the Company's issued ordinary shares. These restricted ordinary shares vest over a period of three years.

Amortization of acquired intangible assets for 2Q 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 September 30, 2009, the Company's cash and cash equivalents was RMB1,236.7 million (US$181.2 million). Net cash generated from operating activities for 2Q FY2009 was RMB45.5 million (US$6.7 million).

As of September 30, 2009, the Company's net accounts receivable was RMB317.9 million (US$46.6 million), representing a decrease of 7.3% from the balance at March 31, 2009.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.8262 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 Wednesday, September 30, 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 September 30, 2009 or at any other dates.

Outlook for 3Q FY2009

Given the full impact of the price reduction on ECLIA reagent kits but certain positive trends in December quarter, the Company estimates the target revenues for 3Q FY2009 range from RMB170.0 million (US$24.9 million) to RMB180.0 million (US$26.4 million).

The Company estimates the target non-GAAP income from continuing operations for 3Q FY2009 to be not less than RMB38.0 million (US$5.6 million).

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

Non-GAAP Measure Disclosures

To supplement its consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), the Company uses non-GAAP measures of gross profit, operating income, income from continuing operations and earnings from continuing operations per ADS, which are adjusted from the results based on GAAP to exclude the impact of 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. Non-GAAP financial measures are used by the Company in their financial and operating decision-making because management believes they reflect the Company's ongoing business in a manner that allows meaningful period-to-period comparison. The Company's management believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company's current operating performance and future prospects in the same manner as management does, if they so choose. The Company's management also believes the non-GAAP financial measures are useful for itself and investors because it makes more meaningful comparisons of the Company's current results of operations to those of prior periods.

The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the financial information included with this earnings announcement.

Conference Call

The Company's management team will host a conference call at 8:00a.m. U.S. Eastern Time on November 19, 2009 (or 9:00p.m. Beijing/Hong Kong time on the same date) to discuss the results following this earnings announcement.

The dial-in details for the live conference call are as follows: U.S. Toll Free Number 1-800-435-1398 International dial-in number 1-617-614-4078 Passcode CMEDCALL

A live webcast of the conference call will be available on http://ir.chinameditech.... .

A replay of this webcast will be available for one month on this website.

A telephone replay of the call will be available after the conclusion of the conference call through 10:00a.m. U.S. Eastern Time on November 20, 2009.

The dial-in details for the replay are as follows: U.S. Toll Free Number 1-888-286-8010 International dial in numbers 1-617-801-6888 Passcode 45921509

About China Medical Technologies, Inc.

China Medical Technologies is a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products using Enhanced Chemiluminescence (ECLIA) technology, Fluorescent in situ Hybridization (FISH) technology and Surface Plasmon Resonance (SPR) technology to detect and monitor various diseases and disorders. For more information, please visit http://www.chinameditech... .

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the quotations from management in this press release, the Company's strategic operational plans, as well as its outlook for 3Q FY2009, contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

For more information, please contact: Sam Tsang and Winnie Yam Tel: +852-2511-9808 Email: IR@chinameditech.com China Medical Technologies, Inc. Unaudited Condensed Consolidated Balance Sheets As of March 31, 2009 September 30, 2009 RMB RMB RMB US$ As previously As reported adjusted(1) (in thousands) Assets Current assets Cash and cash equivalents 1,456,410 1,456,410 1,236,696 181,169 Trade accounts receivable, net 343,037 343,037 317,874 46,566 Inventories 16,932 16,932 38,995 5,713 Prepayments and other receivables 20,425 20,425 31,498 4,614 Due from a related party 204,987 204,987 204,786 30,000 Total current assets 2,041,791 2,041,791 1,829,849 268,062 Property, plant and equipment, net 169,422 169,422 164,917 24,160 Land use rights 7,239 7,239 7,144 1,046 Goodwill 8,654 8,654 8,654 1,268 Intangible assets, net 3,487,474 3,487,474 3,384,883 495,866 Convertible notes issuance costs(1) 68,596 65,816 56,996 8,350 Total assets 5,783,176 5,780,396 5,452,443 798,752 Liabilities Current liabilities Trade accounts payable 27,863 27,863 23,287 3,411 Accrued liabilities and other payables 892,905 892,905 557,754 81,708 Income taxes payable 77,112 77,112 69,208 10,139 Dividend payable -- -- 121,097 17,740 Total current liabilities 997,880 997,880 771,346 112,998 Convertible notes(1) 2,910,815 2,826,348 2,838,810 415,870 Deferred income taxes 29,898 29,898 39,757 5,824 Total liabilities 3,938,593 3,854,126 3,649,913 534,692 Shareholders' equity Ordinary shares US$0.1 par value: 500,000,000 authorized; 321,066,661 issued and outstanding as of March 31, 2009 and 322,546,661 issued and outstanding as of September 30, 2009 257,738 257,738 258,749 37,905 Additional paid-in capital(1) 544,178 709,949 729,460 106,862 Accumulated other comprehensive loss(1) (51,946) (69,957) (70,350) (10,306) Retained earnings(1) 1,094,613 1,028,540 884,671 129,599 Total shareholders' equity 1,844,583 1,926,270 1,802,530 264,060 Total liabilities and shareholders' equity 5,783,176 5,780,396 5,452,443 798,752 Note: (1) As a result of the adoption of new authoritative guidance changing the accounting for convertible instruments that can be settled in cash or partially in cash upon conversion, the Company adjusted relevant numbers in the condensed consolidated balance sheet as of March 31, 2009 retrospectively in accordance with GAAP. China Medical Technologies, Inc. Unaudited Condensed Consolidated Statements of Income For the Three Months Ended September 30, 2008 June 30, 2009 September 30, 2009 RMB RMB RMB US$ As As previously adjusted reported (3) (in thousands except for per ADS information) Revenues(1) 193,967 193,967 208,957 166,066 24,328 Cost of revenues (57,308) (57,308) (55,413) (57,517) (8,426) Gross profit 136,659 136,659 153,544 108,549 15,902 Operating expenses: Research and development (6,338) (6,338) (11,703) (9,500) (1,392) Sales and marketing (11,250) (11,250) (10,870) (17,432) (2,554) General and Administrative (25,472) (25,472) (46,954) (45,130) (6,611) Amortization of SPR intangible assets -- -- (27,352) (27,357) (4,008) Total operating expenses (43,060) (43,060) (96,879) (99,419) (14,565) Operating income 93,599 93,599 56,665 9,130 1,337 Interest income 10,301 10,301 2,773 2,196 322 Interest expense - convertible notes(3) (18,410) (25,563) (35,432) (35,439) (5,192) Interest expense - amortization of convertible notes issuance costs(3) (3,235) (2,969) (4,380) (4,381) (642) Interest expense - other (1,145) (1,145) -- -- -- Other income/ (expense), net (1,387) (1,387) 240 (255) (37) Income/ (loss) before income tax 79,723 72,836 19,866 (28,749) (4,212) Income tax expense (14,423) (14,423) (16,919) (18,343) (2,687) Income/ (loss) from continuing operations 65,300 58,413 2,947 (47,092) (6,899) Income from discontinued operation 52,432 52,432 -- -- -- Net income/ (loss) 117,732 110,845 2,947 (47,092) (6,899) Earnings/ (loss) from continuing operations per ADS - basic 2.49 2.23 0.11 (1.78) (0.26) - diluted(2) 2.43 2.20 0.11 (1.78) (0.26) Earnings from discontinued operation per ADS - basic 2.00 2.00 N/A N/A N/A - diluted(2) 2.02 1.98 N/A N/A N/A Weighted average number of ADS - basic 26,242,974 26,242,974 26,324,842 26,432,974 26,432,974 - diluted(2)(3) 31,278,897 26,491,563 26,438,076 26,432,974 26,432,974 Notes: (1) Revenues RMB'000 RMB'000 RMB'000 RMB'000 US$'000 - Immunodiagnostic systems 122,160 122,160 110,491 76,833 11,256 - Molecular diagnostic systems 71,807 71,807 98,466 89,233 13,072 193,967 193,967 208,957 166,066 24,328 (2) In computing diluted earnings from continuing operations per ADS, interest expense and amortization in connection with convertible notes were not added back in computing diluted earnings from continuing operations per ADS for the three months ended September 30, 2008 (as adjusted), June 30, 2009 and September 30, 2009 because the ordinary shares issued upon conversion of convertible notes (using the treasury stock method) were anti-dilutive. (3) As a result of the adoption of new authoritative guidance changing the accounting for convertible instruments that can be settled in cash or partially in cash upon conversion, the Company adjusted relevant numbers in the condensed consolidated statement of income for the three months ended September 30, 2008 retrospectively in accordance with GAAP. China Medical Technologies, Inc. Reconciliations of GAAP measures to Non-GAAP measures For the Three Months Ended September June 30, September 30, 2008 2009 30, 2009 RMB RMB RMB US$ As adjusted (2) (in thousands except for per ADS information) Gross profit 136,659 153,544 108,549 15,902 Adjustment: Amortization of acquired intangible assets 22,447 22,428 22,430 3,286 Non-GAAP gross profit 159,106 175,972 130,979 19,188 Gross margin 70.5% 73.5% 65.4% 65.4% Non-GAAP gross margin 82.0% 84.2% 78.9% 78.9% Operating income 93,599 56,665 9,130 1,337 Adjustments: Stock compensation expense 14,080 12,157 7,354 1,077 Amortization of acquired intangible assets 22,447 49,807 49,787 7,294 Non-GAAP operating income 130,126 118,629 66,271 9,708 Operating margin 48.3% 27.1% 5.5% 5.5% Non-GAAP operating margin 67.1% 56.8% 39.9% 39.9% Income/ (loss) from continuing operations 58,413 2,947 (47,092) (6,899) Adjustments: Stock compensation expense 14,080 12,157 7,354 1,077 Amortization of acquired intangible assets 22,447 49,807 49,787 7,294 Non-cash interest expense of convertible notes arising from the adoption of new guidance related to convertible instruments 7,153 7,620 7,621 1,116 Non-GAAP income from continuing operations 102,093 72,531 17,670 2,588 GAAP net margin 30.1% 1.4% -- -- Non-GAAP net margin 52.6% 34.7% 10.6% 10.6% Earnings/ (loss) from continuing operations per ADS - basic 2.23 0.11 (1.78) (0.26) - diluted 2.20 0.11 (1.78) (0.26) Non-GAAP earnings from continuing operations per ADS - basic 3.89 2.76 0.67 0.10 - diluted(1) 3.85 2.74 0.67 0.10 Weighted average number of ADS - basic 26,242,974 26,324,842 26,432,974 26,432,974 - diluted(1)(2) 26,491,563 26,438,076 26,432,974 26,432,974 Notes: (1) Interest expense and amortization in connection with convertible notes were not added back in computing non-GAAP diluted earnings from continuing operations per ADS for the three months ended September 30, 2008 (as adjusted), June 30, 2009 and September 30, 2009 because the ordinary shares issued upon conversion of convertible notes (using the treasury stock method) were anti-dilutive. (2) As a result of the adoption of new authoritative guidance changing the accounting for convertible instruments that can be settled in cash or partially in cash upon conversion, the Company adjusted relevant numbers for the three months ended September 30, 2008 retrospectively in accordance with GAAP.


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