BEIJING, Sept. 1 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the “Company”) , 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 first fiscal quarter ended June 30, 2009 (“1Q FY2009"). The Company’s 2009 fiscal year ends on March 31, 2010 (“FY2009").
See “Non-GAAP Measure Disclosures” below, where the impact of certain items on reported results is discussed.
“While we remain confident in the fundamentals of the Company and its prospects in the longer term, we were recently affected on several fronts,” commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. “Our ECLIA customers, mainly distributors, have reduced their inventory level during the past months in anticipation of a price reduction on our ECLIA reagent kits due to increasing market competition. We have reduced the selling price on our ECLIA reagent kits from September 2009 to maintain our competitiveness. Besides, we launched our SPR-based analysis system to our existing FISH hospital customers in April 2009 but the progress of the placement of our analysis system with hospitals was significantly affected because the attention of our senior management was significantly diverted to the internal investigation since April 2009. Nevertheless, we expect to deliver our analysis system to some hospitals in October 2009 and will commence the training for hospital personnel on the use of our analysis system for HPV testing. We expect to generate revenue from the sale of our HPV chips used with our analysis system in January 2010.”
1Q FY2009 Unaudited Financial Results
The Company reported revenues from continuing operations of RMB209.0 million (US$30.6 million) for 1Q FY2009, representing a 28.9% increase from the corresponding period of FY2008.
The Company’s revenues from continuing operations are currently generated from two product lines, ECLIA diagnostic systems and FISH diagnostic systems.
ECLIA system sales for 1Q FY2009 were RMB110.5 million (US$16.2 million), representing a 1.1% decrease from the corresponding period of FY2008. The year-over-year decrease in the ECLIA system sales was primarily due to the attention of the Company’s senior management and certain sales personnel significantly diverted to the independent internal investigation and the decrease in inventory level of customers in anticipation of a price reduction on the ECLIA reagent kits.
FISH system sales for 1Q FY2009 were RMB98.5 million (US$14.4 million), representing a 95.6% increase from the corresponding period of FY2008. The strong year-over-year growth in the FISH system sales was primarily due to significant 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 increased to 74.7% for 1Q FY2009 as compared to 68.4% for the corresponding period of FY2008. The increase in gross margin was primarily due to the change in revenue mix where almost all revenues were from recurring sales of higher margin ECLIA reagent kits and FISH probes in 1Q FY2009.
Research and development expenses were RMB11.7 million (US$1.7 million) for 1Q FY2009, representing a 90.7% 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 RMB13.4 million (US$2.0 million) for 1Q FY2009, representing an 18.8% year-over-year increase. The increase was primarily due to the continued expansion of the direct sales force for FISH system sales and increased product promotional activities.
General and administrative expenses were RMB74.4 million (US$10.9 million) for 1Q FY2009, representing a significant year-over-year increase. The increase was primarily due to the costs of the independent internal investigation and amortization of acquired intangible assets in connection with the acquisition of the SPR technology in December 2008.
Interest expense of convertible notes was RMB35.4 million (US$5.2 million) for 1Q FY2009, representing a significant 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 the FASB Staff Position No APB14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“FSP APB14-1") 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 1Q 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 FSP APB14-1 retrospectively in accordance with GAAP. This new guidance does not apply to the US$276.0 million convertible notes.
Interest expense of amortization of convertible notes issuance costs of RMB4.4 million (US$0.6 million) for 1Q FY2009, representing a significant 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 RMB16.9 million (US$2.5 million) for 1Q FY2009. The high effective tax rate was primarily due to certain expenses of the Company such as amortization of acquired intangible assets, stock compensation expense and interest expense of convertible notes were not deductible for income tax computation in the PRC and the accrual for withholding income tax on distributable earnings generated during the quarter in the PRC.
Income from continuing operations was RMB2.9 million (US$0.4 million) for 1Q FY2009, representing a 92.8% decrease from the corresponding period of FY2008.
Net income was RMB2.9 million (US$0.4 million) for 1Q FY2009, representing a 96.0% year-over-year decrease.
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 FSP APB14-1 was RMB72.5 million (US$10.6 million) for 1Q FY2009, representing a 7.7% decrease from the corresponding period of FY2008.
Stock compensation expense for 1Q FY2009 was RMB12.2 million (US$1.8 million), of which RMB2.1 million was allocated to research and development expenses and RMB10.1 million to general and administrative expenses.
Amortization of acquired intangible assets for 1Q 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 general and administrative expenses.
As of June 30, 2009, the Company’s cash balance was RMB1,547.5 million (US$226.6 million). Net operating cash flow for 1Q FY2009 was RMB94.3 million (US$13.8 million).
As of June 30, 2009, the Company’s net accounts receivable was RMB346.9 million (US$50.8 million), representing an increase of 1.1% 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 RMB6.8302 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 Tuesday, June 30, 2009.
Outlook for 2Q FY2009
Due to the uncertainties relating to various aspects of the Company’s businesses, the Company is only able to provide the target revenues from continuing operations for the second fiscal quarter ending September 30, 2009 (“2Q FY2009"). The target revenues from continuing operations for 2Q FY2009 range from RMB165.0 million (US$24.2 million) to RMB180.0 million (US$26.4 million).
The above targets are based on the Company’s current views on the operating and marketing conditions, which are subject to change.
New Management Appointment
The nomination committee and the board of directors of the Company have approved the promotion of Mr. Charles Zhu to the position of Senior Vice President - Operations effective October 1, 2009. Mr. Zhu has been working as Vice President - Business Development of the Company since January 2005 and successfully helped the Company identify and acquire the FISH technology in early 2007. Mr. Zhu and our management team have built up the FISH business over the past two years, which has become a major growth driver of the Company and led the Company to enter the fast growing molecular diagnostic sector in the PRC.
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 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 FSP APB14-1. 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 measure, please see the financial statements 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 September 1, 2009 (or 8:00p.m. Beijing/Hong Kong time on the same date) to discuss the results following this earnings announcement.
A live webcast of the conference call will be available on http://ir.chinameditech.com .
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 September 2, 2009.
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.com .
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 our outlook for 2Q 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.
SOURCE China Medical Technologies, Inc.
CONTACT: Sam Tsang and Winnie Yam at +852-2511-9808 or
IR@chinameditech.com
Web site: http://www.chinameditech.com/
