Yongye International Announces First Quarter 2012 Financial Results

BEIJING, May 10, 2012 /PRNewswire-Asia-FirstCall/ -- Yongye International, Inc. (NASDAQ: YONG), ("Yongye" or the "Company") a leading developer, manufacturer, and distributor of crop nutrient products in the People's Republic of China ("PRC"), today announced its financial results for the quarter ended March 31, 2012.

First Quarter 2012 Financial Highlights

• Revenue increased 28.2% to $64.4 million from $50.2 million in the first quarter of 2011
• Gross profit increased 29.7% year-over-year to $35.4 million
• Income from operations was $21.9 million, an increase of 94.1% over income from operations of $11.3 million in the first quarter of 2011
• Net income attributable to Yongye increased 95.8% to $16.4 million, or $0.27 per diluted share, from $8.4 million, or $0.16 per diluted share, in the same period of 2011
• Adjusted net income attributable to Yongye, which excludes non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities, was $18.3 million, or $0.31 per diluted share, compared to a net income of $13.3 million, or $0.27 per diluted share, in the same period of 2011*
• Operating cash flow was $61.7 million compared to $6.6 million in the same period of 2011

Mr. Zishen Wu, Chairman and Chief Executive Officer of Yongye International, stated, "We are pleased to announce strong first quarter results with year-over-year increases in revenue and net income of 28.2% and 95.8%, respectively. The strong growth demonstrates the continued strength of our brand and our successful launch of two new products, which contributed 77.3% of our total liquid crop nutrient sales this quarter. These new products highlight our commitment to product diversification and our strong research capabilities; we believe they will further solidify our market leading position. During the first quarter of 2012, we prioritized our resources to focus on the launch of those two new products, as their peak season is in the first quarter. Because the focus of our manufacturing capacity and sales and marketing efforts was shifted to the new products, sales of our regular crop nutrient products decreased compared to the first quarter of last year. In addition, to better manage our accounts receivable, we made a decision to decrease shipment of products to certain distributors who had prolonged payment periods in 2011. We do not foresee a decrease in demand for our regular crop nutrient products, and expect that the decreased sales of these products in the first quarter of 2012 will be made up by the sales increase generated in the second and third quarters, which is the peak season for our regular crop nutrient product. During the first quarter of 2012, we also continued the expansion of our branded store network to 30,886 stores covering over 30 provincial regions in China."

Mr. Wu added, "Moving forward, we will continue working diligently to drive higher penetration in our traditional markets and further develop our retail network in new markets throughout China. With the successful launch of two new products, our improved working capital management and our brand building efforts, we look forward to achieving another successful year in 2012."

First Quarter 2012 Financial Results

Sales increased by $14.1 million, or 28.2%, to $64.4 million in the first quarter of 2012, from $50.2 million for the same period of 2011. In the first quarter of 2012, $62.0 million, or 96.3% of the total sales, were from liquid crop nutrient, and $2.4 million, or 3.7% of the total sales, were from the powder animal crop nutrient. For the liquid crop nutrient, the two new products for crop seeds and roots contributed $47.9 million, or 77.3% of the total liquid crop nutrient sales, while the regular crop nutrient contributed $14.1 million, or 22.7% of total liquid crop nutrient sales. During the first quarter of 2012, the number of branded retailers increased from 30,086 to 30,886, and the majority of newly recruited branded retailers are from Xinjiang, Hubei, Henan, Jiangsu and Shanxi provinces.

Gross profit was $35.4 million in the first quarter of 2012, compared to $27.3 million in the first quarter of 2011, an increase of 29.7%. Gross margin was 55.0% in the first quarter of 2012, compared to 54.4% for the same period of 2011.

Selling expenses increased by $6.5 million, or 84.9%, to $14.2 million in the first quarter of 2012, from $7.7 million for the same period of 2011. The increase in selling expenses was primarily due to an increase in advertising and promotion expenses of US$6.2 million relating to marketing and promotional activities for newly launched products in the existing geographic markets.

General and administrative ("G&A") expenses decreased by $9.5 million, or 130.4%, to negative $2.2 million in the first quarter of 2012, from $7.3 million for the same period of 2011. The decrease in G&A expenses was mainly due to the reverse of allowance for doubtful accounts of US$6.3 million, and a decrease in management compensation expenses resulting from the grants of restricted stock by US$3.4 million to US$1.2 million for the three months ended March 31, 2012 from US$4.6 million for the same period of 2011.

Research and development ("R&D") expenses were $1.5 million in the first quarter of 2012, compared to $1.1 million for the same period of 2011. The increase in R&D expenses was due to field test expenses for new products and tests on different crops and in newly developed markets.

Operating income was $21.9 million in the first quarter of 2012, compared to $11.3 million in the same period of 2011. Excluding non-cash expenses related to share-based compensation for management and independent directors and the amortization of the acquired Hebei customer list, first quarter 2012 adjusted operating income was $23.8 million, or 37.0% of sales.* The increase in profits from operations was mainly due to this quarter's strong sales and the reverse of allowance for doubtful accounts of US$6.3 million.

Net income attributable to Yongye was $16.4 million, or $0.27 per diluted share in the first quarter of 2012, compared to a net income of $8.4 million, or $0.16 per diluted share, in the same period of 2011. The Company recorded non-cash income related to a change in fair value of derivative liabilities of $59,398 in the first quarter of 2012. Excluding the impact of non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities, adjusted net income attributable to Yongye for the first quarter of 2012 was $18.3 million, or $0.31 per diluted share, compared to adjusted net income of $13.3 million, or $0.27 per diluted share in the same period of 2011.*

Financial Condition

As of March 31, 2012, the Company had $141.9 million in cash and restricted cash, compared to $81.2 million as of December 31, 2011. Working capital was $288.2 million, compared to $270.4 million at the end of 2011. Accounts receivable decreased by $72.0 million to $81.6 million, compared to $153.6 million as of December 31, 2011. The significant decrease was mainly due to the collection during the first quarter of 2012. The Company collected $140 million of the $154 million accounts receivable, net of allowance for doubtful accounts at the end of 2011. The Company has taken measures to increase its collection efforts and closely monitor its distributors' financial status.

The Company had a $28.5 million short-term bank loan and $9.4 million in long-term debt as of March 31, 2012. Stockholders' equity totaled $352.8 million as of March 31, 2012, compared to $331.9 million at the end of 2011. Cash flow provided by operating activities were US$61.7 million and US$6.6 million for the three months ended March 31, 2012 and 2011, respectively. The changes were primarily due to the decrease of US$54.8 million in working capital consumption, which was driven by collection of accounts receivable, but was partially offset by a higher inventory balance and increased deposits to suppliers. Other factors include an increase of US$8.3 million in earnings and a non-cash income of US$6.3 million for reversal of allowance for doubtful accounts.

Recent Developments

• On April 3 2012, the Company provided an update on accounts receivable collection as of the quarter ended March 31, 2012. During the first quarter of 2012, the Company collected $140 million of $154 million accounts receivable, net of allowance for doubtful accounts at the end of the year of 2011. The Company has taken measures to increase its collection efforts and closely monitor its distributors' financial status, and it expects to collect the remaining accounts receivable balance of $14 million in the second quarter of 2012.
  
• On March 23, 2012, the Company announced that it had launched two new fulvic acid based crop nutrient products, Zhongbaosheng and Qianggenbao, in the first quarter of 2012. The two products are complementary to Yongye's existing Shengmingsu products and help the Company break into the nutrient market for seed and root nutrient products in China. Both products were developed by the Company's industry leading research and development team, and have been successfully field tested extensively throughout China.
  
• On March 5, 2012, the lead plaintiffs in the previously announced class action lawsuit filed against the Company by Robbins Geller Rudman & Dowd LLP in the United States District Court Southern District of New York in May 2011 voluntarily dismissed by the suit with prejudice as to themselves as named plaintiffs. Yongye did not incur any material legal fees, charges or costs related to this class action lawsuit or its voluntary dismissal.

Business Outlook

For the full year 2012, the Company reiterates its expected revenue between $495 million and $515 million and adjusted net income between $110 million and $120 million, which excludes the impact of non-cash expenses related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities. The Company also expects that its branded retailer network will be expanded to 35,000 by the end of 2012, which represents a 16.3% increase over the 2011 year-end number of 30,086.

Conference Call

The Company will host a conference call at 8:30 a.m. Eastern Time on May 10, 2012, to discuss its first quarter 2012 results.

To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: +1 (866) 519-4004. International callers should dial +1 (718) 354-1231. The conference pass code is 784 72 285.

For those who are unable to participate on the live conference call, a replay will be available for fourteen days starting from 11:30 a.m. Eastern Time on May 10 to 23:59 Eastern Time on May 24. To access the replay, please dial +1 (866) 214-5335. International callers should dial +1 (718) 354-1232. The replay pass code is 784 72 285. A webcast recording of the conference call will be accessible through Yongye's website at www.yongyeintl.com.

Use of Non-GAAP Financial Measures

GAAP results for the three months ended March 31, 2012 and 2011 include non-cash items related to share-based compensation for management and independent directors, the amortization of the acquired Hebei customer list, and a change in the fair value of derivative liabilities. To supplement the Company's condensed consolidated financial statements presented on a U.S. GAAP basis, the Company has provided adjusted financial information excluding the impact of these items in this release. Such adjustment is a departure of U.S. GAAP; however, the Company's management believes that these adjusted measures provide investors with a better understanding of how the results relate to the Company's historical performance. These adjusted measures should not be considered an alternative to net income, or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. These measures are not necessarily comparable to a similarly titled measure of another company. A reconciliation of the adjustments to U.S. GAAP results appears in the table accompanying this press release. This additional adjusted information is not meant to be considered in isolation or as a substitute for U.S. GAAP financials. The adjusted financial information that the Company provides also may differ from the adjusted information provided by other companies.

About Yongye International, Inc.

Yongye International, Inc. is a leading crop nutrient company headquartered in Beijing, with its production facilities located in Hohhot, Inner Mongolia, China. Yongye's principal product is a liquid crop nutrient, from which the Company derived substantially all of the sales in 2011. The Company also produces powder animal nutrient product which is mainly used for dairy cows. Both products are sold under the trade name "Shengmingsu," which means "life essential" in Chinese. The Company's patented formula utilizes fulvic acid as the primary compound base and is combined with various micro and macro nutrients that are essential for the health of the crops. The Company sells its products primarily to provincial level distributors, who sell to the end-users either directly or indirectly through county-level and village-level distributors. For more information, please visit the Company's website at www.yongyeintl.com.

Safe Harbor Statement

This press release contains certain statements that may include "forward-looking statements." All statements other than statements of historical fact included herein are "forward-looking statements." These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involving known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including the risk factors discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on the SEC's website (http://www.sec.gov). All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these risk factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

Contacts

Yongye International, Inc.

Ms. Kelly Wang
Finance Director - Capital Markets
Phone: +86-10-8231-9608
E-mail: ir@yongyeintl.com

Ms. Wendy Xuan
Business Associate
Phone: +86-10-8232-8866 x 8827
E-mail: ir@yongyeintl.com

FTI Consulting

Mr. John Capodanno (U.S. Contact)
Phone: +1-212-850-5705
E-mail: john.capodanno@fticonsulting.com

Ms. Mingxia Li (China Contact)
Phone: +86-10-8591-1060
E-mail: mingxia.li@fticonsulting.com

(Financial Tables to Follow)