omniture

China Medical Technologies Reports Second Fiscal Quarter Financial Results

2010-11-17 16:34 938

BEIJING, Nov. 17, 2010 /PRNewswire-Asia-FirstCall/ -- 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 second fiscal quarter ended September 30, 2010 ("2Q FY2010").

2Q FY2010 Highlights

  • Revenues increased by 21.5% year-over-year to RMB201.8 million (US$30.2 million).
  • Non-GAAP net income, as defined below, increased 270.1% year-over-year to RMB65.4 million (US$9.8 million).
  • Non-GAAP diluted earnings per ADS*, as defined below, increased 273.1% year-over-year to RMB2.50 (US$0.37).
  • Adjusted EBITDA, as defined below, increased 62.6% year-over-year to RMB116.3 million (US$17.4 million).
  • Net cash generated from operations was RMB67.3 million (US$10.1 million).
Outlook for 3Q FY2010
  • Target revenues are expected to be not less than RMB220.0 million (US$32.9 million), representing a year-over-year increase of not less than 27.7%.
  • Target non-GAAP net income is expected to be not less than RMB74.0 million (US$11.1 million), representing a year-over-year increase of not less than 62.2%.
  • Target non-GAAP diluted earnings per ADS* is expected to be not less than RMB2.82 (US$0.42), representing a year-over-year increase of not less than 62.1%.
Outlook for FY2010
  • Target revenues are expected to be not less than RMB846.0 million (US$126.4 million), representing a year-over-year increase of not less than 17.0%. The year-over-year increase of annual revenues for FY2010 is lower than that of 3Q FY2010 because of the 10.9% year-over-year decrease in quarterly revenues of 1Q FY2010.
  • Target non-GAAP net income is expected to be not less than RMB280.0 million (US$41.9 million), representing a year-over-year increase of not less than 49.5%.
  • Target non-GAAP diluted earnings per ADS* is expected to be not less than RMB10.69 (US$1.60), representing a year-over-year increase of not less than 49.9%.

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

*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 are pleased to see the commencement of contribution from sales of HPV-DNA chips which are expected to become another main revenue stream and an important growth driver in addition to our FISH business during the next few years. We have received strong interest in our SPR equipment from many of our top tier hospital customers and significant purchase orders on our chips from hospitals which have used our chips for their patients on a regular basis. We expect substantial growth on sales of our chips in upcoming quarters. In addition, our FISH business continued its growth momentum and our ECLIA business has resumed year-over-year growth," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company.

2Q FY2010 Unaudited Financial Results

The Company reported revenues of RMB201.8 million (US$30.2 million) for 2Q FY2010, representing a 21.5% increase from the corresponding period of FY2009.

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

Molecular diagnostic system sales for 2Q FY2010 were RMB118.3 million (US$17.7 million), representing a 32.6% increase from the corresponding period of FY2009. The year-over-year increase was primarily due to the increase in usage of the Company's FISH probes by existing and new hospital customers served by the Company's direct sales personnel as well as the sales of SPR-based HPV-DNA chips of RMB3.8 million (US$0.6 million) to hospitals during 2Q FY2010.

Immunodiagnostic system sales for 2Q FY2010 were RMB83.5 million (US$12.5 million), representing an 8.7% increase from the corresponding period of FY2009. The year-over-year increase was primarily due to the increase in sales of the Company's ECLIA reagent kits to existing and new distributors.

Gross margin was 55.2% for 2Q FY2010 which decreased year-over-year from 65.4% for the corresponding period of FY2009. Due to the commencement of sales of HPV-DNA chips, the amortization of SPR intangible assets amounted to RMB27.3 million (US$4.1 million) was classified from operating expenses to cost of revenues starting from 2Q FY2010. The year-over-year decrease in gross margin was primarily due to this change in classification. The gross margin for 2Q FY2010 would be 68.6% without this change in classification of expense.

Research and development expenses were RMB10.9 million (US$1.6 million) for 2Q FY2010, representing a 14.5% year-over-year increase. The year-over-year increase was primarily due to product research and development for FISH probes and SPR chips.

Sales and marketing expenses were RMB21.5 million (US$3.2 million) for 2Q FY2010, representing a 23.2% year-over-year increase. The year-over-year increase was primarily due to the increase in direct sales efforts for molecular diagnostic systems.

General and administrative expenses were RMB25.0 million (US$3.7 million) for 2Q FY2010, representing a 44.5% year-over-year decrease. The year-over-year decrease was primarily due to no cost of independent internal investigation and lower allowance for doubtful accounts for 2Q FY2010.

Interest expense on convertible notes was RMB32.0 million (US$4.8 million) for 2Q FY2010. As of September 30, 2010, the Company's outstanding convertible notes of US$135 million and US$248 million bear interest at 3.5% and 4% per annum, respectively, and will mature in November 2011 and August 2013, respectively.

Interest expense on amortization of convertible notes issuance costs was RMB3.9 million (US$0.6 million) for 2Q FY2010.

Interest expense on amortization of share lending costs was RMB2.5 million (US$0.4 million) for 2Q FY2010.

Income tax expense was RMB21.8 million (US$3.3 million) for 2Q FY2010. The significant 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. In addition, the Company was required to accrue for withholding income tax on distributable earnings generated in China during 2Q FY2010.

Net loss was RMB2.9 million (US$0.4 million) for 2Q FY2010, representing a 94.1% decrease from the corresponding period of FY2009. The significant year-over-year decrease in net loss was primarily due to growth in molecular diagnostic system sales and recovery from immunodiagnostic system sales.

Non-GAAP net income, as defined below, was RMB65.4 million (US$9.8 million) for 2Q FY2010, representing a 270.1% increase from the corresponding period of FY2009.

Earnings before interest, taxes, depreciation and amortization ("EBITDA") was RMB107.1 million (US$16.0 million) for 2Q FY2010, representing a 66.8% increase from the corresponding period of FY2009.

Adjusted EBITDA, which excludes stock compensation expense and gain on purchase of convertible notes from EBITDA, was RMB116.3 million (US$17.4 million) for 2Q FY2010, representing a 62.6% increase from the corresponding period of FY2009.

Stock compensation expense for 2Q FY2010 was RMB9.2 million (US$1.4 million), of which RMB0.1 million was allocated to cost of revenues, RMB1.1 million to research and development expenses, RMB0.2 million to sales and marketing expenses and RMB7.8 million to general and administrative expenses. The Company approved the grant of 2,100,000 restricted stock, equivalent to 210,000 ADSs, to directors, officers and certain employees on November 5, 2010. The restricted stock vests at the end of a three-year period.

Amortization of acquired intangible assets for 2Q FY2010 was RMB49.4 million (US$7.4 million) which was all allocated to cost of revenues.

As of September 30, 2010, the Company's cash and cash equivalents was RMB805.9 million (US$120.5 million). Net cash generated from operating activities for 2Q FY2010 was RMB67.3 million (US$10.1 million). Net cash used in investing activities for 2Q FY2010 was RMB1.2 million (US$0.2 million). There was no financing activity for 2Q FY2010.

As of September 30, 2010, the Company's net accounts receivable was RMB333.1 million (US$49.8 million), representing an increase of 7.0% from the balance at June 30, 2010.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.6905 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, September 30, 2010. 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 rate on September 30, 2010 or at any other dates.

Update on Receivable from Chengxuan

The receivable of US$30 million from Chengxuan, one of the Company's major shareholders and owned by Mr. Xiaodong Wu, is due on December 31, 2010 which relates to the sale of the Company's HIFU business to Chengxuan. Chengxuan made an early payment of US$8 million to the Company in November 2010 and has indicated to the Company that the remaining amount will be paid on or before December 31, 2010.

Non-GAAP Measure Disclosures

The Company provides gross profit, operating income, net income, earnings per ADS, EBITDA and adjusted EBITDA on a Non-GAAP basis to enable investors to better assess the Company's operating performance. The Non-GAAP measures described by the Company are reconciled to the corresponding GAAP measures in the exhibit below titled "Reconciliations of GAAP measures to Non-GAAP measures".

The Company reported for 2Q FY2010 and provided estimates of net income and diluted earnings per ADS for 3Q FY2010 and full year FY2010 on a Non-GAAP basis. Each of the terms used by the Company is defined as follows:

  • Non-GAAP gross profit represents gross profit reported in accordance with GAAP, adjusted for the effects of stock compensation expense and amortization of acquired intangible assets.
  • Non-GAAP operating income represents operating income reported in accordance with GAAP, adjusted for the effects of stock compensation expense and amortization of acquired intangible assets.
  • Non-GAAP net income represents net income reported in accordance with GAAP, adjusted for the effects of stock compensation expense, amortization of acquired intangible assets, non-cash interest expense of convertible notes, non-cash interest expense for amortization of share lending costs and gain on purchase of convertible notes.
  • Non-GAAP earnings per ADS represents Non-GAAP net income divided by the weighted average number of ADSs used in computing basic and diluted earnings per ADS in accordance with GAAP.
  • EBITDA represents net income reported in accordance with GAAP, adjusted for the effects of interest income, interest expenses, income tax expense, depreciation as well as amortization of acquired intangible assets.
  • Adjusted EBITDA represents EBITDA adjusted for the effects of stock compensation expense and gain on purchase of convertible notes.
Non-GAAP financial measures are used by the Company in its 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 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 senior management team will host an earnings conference call at 8:00 a.m. U.S. Eastern Time on November 17, 2010 (or 9:00 p.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 1-800-591-6923



International Dial-in Number 1-617-614-4907



Passcode: CMEDCALL






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 10:00 a.m. U.S. Eastern Time on November 18, 2010.  

The dial-in details for the replay are as follows:


U.S. Toll Free Number 1-888-286-8010



International Dial-in Number 1-617-801-6888



Passcode: 10798661




About China Medical Technologies, Inc.

China Medical Technologies, Inc. is a leading China-based advanced IVD company using molecular diagnostic technologies including Fluorescent in situ Hybridization (FISH) and Surface Plasmon Resonance (SPR) and an immunodiagnostic technology, Enhanced Chemiluminescence Immunoassay (ECLIA), to develop, manufacture and distribute diagnostic products used for the detection of various cancers, diseases and disorders as well as companion diagnostic tests for targeted cancer drugs. The Company generates all of its revenues in China through the sale of diagnostic consumables including FISH probes, SPR-based DNA chips and ECLIA reagent kits to hospitals which are recurring users of the consumables for their patients. The Company sells FISH probes and SPR chips to large hospitals through its direct sales force and ECLIA reagent kits to small and mid-size hospitals through distributors. 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, as well as its outlook for 3Q FY2010 and full year FY2010, 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.

Contacts




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,
2010

June 30,
2010

September 30,
2010



RMB

RMB

RMB

US$



(in thousands)


Assets






Current assets






Cash and cash equivalents

815,453

742,340

805,901

120,455


Trade accounts receivable, net

303,368

311,282

333,123

49,791


Inventories

24,889

20,177

21,351

3,191


Prepayments and other receivables

21,508

12,048

19,093

2,854


Due from a related party

204,774

203,445

200,715

30,000


 Total current assets

1,369,992

1,289,292

1,380,183

206,291








Property, plant and equipment, net

155,825

151,621

147,355

22,024


Land use rights

7,049

7,001

6,954

1,039


Goodwill

8,654

8,654

8,654

1,293


Intangible assets, net

3,285,190

3,216,535

3,128,820

467,651


Convertible notes issuance costs

46,681

39,166

34,782

5,199


Share lending costs

35,678

30,744

27,905

4,171


   Total assets

4,909,069

4,743,013

4,734,653

707,668








Liabilities






Current liabilities






Trade accounts payable

20,126

24,136

43,958

6,570


Accrued liabilities and other payables

183,498

186,036

173,693

25,960


Income taxes payable

57,529

56,518

59,334

8,869


   Total current liabilities

261,153

266,690

276,985

41,399








Convertible notes

2,777,086

2,556,014

2,528,848

377,976


Deferred income taxes

67,134

72,518

78,408

11,720


   Total liabilities

3,105,373

2,895,222

2,884,241

431,095








Shareholders' equity






Ordinary shares US$0.1 par value:

500,000,000 authorized; 322,680,001 issued and outstanding as of March 31, 2010, June 30, 2010 and September 30, 2010

258,840

258,840

258,840

38,688


Additional paid-in capital

808,221

820,778

830,016

124,058


Treasury stock

(45,143)

(47,108)

(47,108)

(7,041)


Accumulated other comprehensive loss

(70,556)

(70,731)

(74,412)

(11,122)


Retained earnings

852,334

886,012

883,076

131,990


   Total shareholders' equity

1,803,696

1,847,791

1,850,412

276,573


   Total liabilities and shareholders' equity

4,909,069

4,743,013

4,734,653

707,668


















China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Income



For the Three Months Ended



September 30, 2009

June 30, 2010

    September 30, 2010



RMB

RMB

    RMB

US$  



As adjusted (4)






                       (in thousands except for per ADS information)



Revenues, net (1)

166,066

186,170

201,834

30,167


Cost of revenues (2)

(57,517)

(61,354)

(90,477)

(13,523)


Gross profit

108,549

124,816

111,357

16,644


Operating expenses                            






Research and development (2)

(9,500)

(10,632)

(10,877)

(1,625)


Sales and marketing (2)

(17,432)

(18,266)

(21,473)

(3,209)


General and administrative (2)

(45,130)

(25,149)

(25,048)

(3,744)


Amortization of SPR intangible assets

(27,357)

(27,329)

-

-


Total operating expenses

(99,419)

(81,376)

(57,398)

(8,578)


Operating income

9,130

43,440

53,959

8,066


Interest income

2,196

4,597

5,119

765


Interest expense convertible notes

(35,439)

(32,505)

(32,019)

(4,786)


Interest expense amortization of convertible notes issuance costs

(4,381)

(4,012)

(3,906)

(584)


Interest expense amortization of share lending costs

(2,756)

(2,475)

(2,456)

(367)


Other (expense) income, net

(255)

43,295

(1,802)

(269)


Income (loss) before income tax

(31,505)

52,340

18,895

2,825


Income tax expense

(18,343)

(18,662)

(21,831)

(3,263)


Net income (loss)

(49,848)

33,678

(2,936)

(438)


Earnings (loss) per ADS






- basic

(1.89)

1.30

(0.11)

(0.02)


- diluted (3)

(1.89)

1.29

(0.11)

(0.02)


Weighted average number of ADS






- basic

26,432,974

26,005,975

26,117,308

26,117,308


- diluted (3)

26,432,974

26,128,403

26,117,308

26,117,308


Notes:






(1)  Revenues, net

RMB'000

RMB'000

RMB'000

US$'000


- Molecular diagnostic systems

89,233

108,092

118,347

17,689


- Immunodiagnostic systems

76,833

78,078

83,487

12,478



166,066

186,170

201,834

30,167


Molecular diagnostic systems

- HPV-DNA chips

-

18

3,802

568



(2)  Stock compensation expense

RMB'000

RMB'000

RMB'000

US$'000


- Cost of revenues

-

52

117

18


- Research and development

1,256

1,418

1,145

171


- Sales and marketing

-

91

204

30


- General and administrative

6,098

9,031

7,772

1,162



7,354

10,592

9,238

1,381


(3) Interest expense and amortization in connection with convertible notes were not added back in computing diluted earnings per ADS because they were anti-dilutive.




(4) As a result of the adoption of new authoritative guidance governing the accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing effective on April 1, 2010, the Company adjusted relevant numbers in the unaudited condensed consolidated statements of income for the three months ended September 30, 2009 retrospectively in accordance with GAAP.














China Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows



For the Three Months Ended



September 30, 2009

June 30, 2010

   September 30, 2010



RMB

RMB

RMB

US$



(in thousands)








Net cash provided by operating activities

45,472

69,847

67,303

10,059








Net cash used in investing activities

(357,165)

(1,289)

(1,244)

(186)








Net cash provided by (used in) financing activities

1,011

(144,537)

-

-








Effect of foreign currency exchange rate change on cash

(155)

2,866

(2,498)

(372)


Net increase (decrease) in cash and cash equivalents

(310,837)

(73,113)

63,561

9,501


Cash and cash equivalents:






At beginning of period

1,547,533

815,453

742,340

110,954


At end of period

1,236,696

742,340

805,901

120,455














China Medical Technologies, Inc.

Reconciliations of GAAP measures to Non-GAAP measures



For the Three Months Ended



September 30, 2009

June 30, 2010

   September 30, 2010  



RMB

RMB

RMB

US$



As adjusted (2)






                         (in thousands except for per ADS information)


Gross profit

108,549

124,816

111,357

16,644


Adjustments:






Stock compensation expense

-

52

117

18


  Amortization of acquired intangible assets

22,430

22,414

49,422

7,386


Non-GAAP gross profit

130,979

147,282

160,896

24,048


Gross margin

65.4%

67.0%

55.2%

55.2%


Non-GAAP gross margin

78.9%

79.1%

79.7%

79.7%








Operating income

9,130

43,440

53,959

8,066


Adjustments:






Stock compensation expense

7,354

10,592

9,238

1,381


Amortization of acquired intangible assets

49,787

49,743

49,422

7,386


Non-GAAP operating income

66,271

103,775

112,619

16,833


Operating margin

5.5%

23.3%

26.7%

26.7%


Non-GAAP operating margin

39.9%

55.7%

55.8%

55.8%








Net income (loss)

(49,848)

33,678

(2,936)

(438)


Adjustments:






Stock compensation expense

7,354

10,592

9,238

1,381


Amortization of acquired intangible assets

49,787

49,743

49,422

7,386


Non-cash interest expense of convertible notes

7,621

7,916

7,221

1,079


Non-cash interest expense amortization of share lending costs

2,756

2,475

2,456

367


Gain on purchase of convertible notes

-

(47,393)

-

-


Non-GAAP net income

17,670

57,011

65,401

9,775


GAAP net margin

-

18.1%

-

-


Non-GAAP net margin

10.6%

30.6%

32.4%

32.4%








Net income (loss)

(49,848)

33,678

(2,936)

(438)


Adjustments:






Interest income

(2,196)

(4,597)

(5,119)

(765)


Interest expense convertible notes

35,439

32,505

32,019

4,786


Interest expense amortization of convertible notes issuance costs

4,381

4,012

3,906

584


Interest expense – amortization of share lending costs

2,756

2,475

2,456

367


Income tax expense

18,343

18,662

21,831

3,263


Depreciation

5,521

5,475

5,497

822


Amortization of acquired intangible assets

49,787

49,743

49,422

7,386


EBITDA

64,183

141,953

107,076

16,005


EBITDA margin

38.6%

76.2%

53.1%

53.1%















EBITDA

64,183

141,953

107,076

16,005


Adjustments:






Stock compensation expense

7,354

10,592

9,238

1,381


Gain on purchase of convertible notes

-

(47,393)

-

-


Adjusted EBITDA

71,537

105,152

116,314

17,386


Adjusted EBITDA margin

43.1%

56.5%

57.6%

57.6%


Earnings (loss) per ADS






- basic

(1.89)

1.30

(0.11)

(0.02)


- diluted

(1.89)

1.29

(0.11)

(0.02)








Non-GAAP earnings per ADS






- basic

0.67

2.19

2.50

0.37


- diluted (1)

0.67

2.18

2.50

0.37








Weighted average number of ADS






- basic

26,432,974

26,005,975

26,117,308

26,117,308


- diluted (1)

26,432,974

26,128,403

26,117,308

26,117,308



Notes:




(1) Interest expense and amortization in connection with convertible notes were not added back in computing non-GAAP diluted earnings per ADS because they were anti-dilutive.




(2) As a result of the adoption of new authoritative guidance governing the accounting for own-share lending arrangements in contemplation of convertible debt issuance or other financing effective on April 1, 2010, the Company adjusted relevant numbers in the unaudited condensed consolidated statements of income for the three months ended September 30, 2009 retrospectively in accordance with GAAP.












CONTACT: Sam Tsang and Winnie Yam of CMED, +852-2511-9808, or IR@chinameditech.com

Source: China Medical Technologies, Inc.
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