Q3 2019 Earnings Call
Good day, and welcome to the China Biologic products third quarter 2019 earnings call.
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[noise]. Thank you operator, Hello, everyone and thank you for joining us on todays call.
China Biologic announces third quarter 2019 financial results on November 13, 2019 off to the market close.
I know things really is available on the company's website.
Today, you will hear from China, Biologics, Chairman and CEO Mr. Jones of child, who will start off a cool worth where their view of the company's basic operating result on reports recent developments for the company.
He will be followed by this Dominion senior Vice President of China, Biologic, who will give a detailed account as the Companys financial results.
China Biologic CFO Mr. among young will be available during the Q a nice session following prepared remarks.
Before we proceed I would like to remind you of all safe Harbor statement.
I'll Conference call May include forward looking statements made under the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995.
Although he believes the expectations reflected our forward looking statements a reasonable as of today.
These statements are subject to risks and uncertainties that could cause actual results to differ dramatically from those projected.
That can be no assurance that those expectations proved to be correct.
Information about the risks associated with investing in China Biologic is included in our filings with the Securities Exchange Commission, which we encourage you to review before making an investment decision.
The company does not assume any obligation to update any forward looking statements as a result of neo summation future events changes in market conditions or otherwise, except as required by law.
The company will also discuss non-GAAP measures, which are more thoroughly explained and reconciled to the motions comparable measures reported under generally accepted accounting principles and the company's earnings release on filings with the SEC.
You reminded that such non-GAAP measures should not be viewed in isolation or as an alternative to the covenants gas missions and non-GAAP measures not uniformly defined by all companies, including those in the biopharmaceutical industry.
Now I'm pleased to present Mr. Jones of Chow, Chairman and CEO of China biologic.
[laughter].
Alright, Thank you Sam.
Hello, everyone and welcome to try to biologics third quarter, plus 19 conference call.
We are pleased.
Another quarter of solid financial results.
Along with healthy sales growth across most of our products.
We were particularly encouraged to see a strong will revolve of Ivy I'd sales, which were up over 50% on a year over year basis.
I I just sales performance is a strong validation of our output.
So it was close China, biologic sales and marketing capabilities.
The past quarter, particularly in the distributor channel.
Our new promotional strategy has been very well received by distributors that has allowed us to reclaim market shares from our competitors.
Improving China biologic slot marketing effort to lower our higher inventory of Fiveg has become one of my focus.
Things I was appointed CEO .
I have worked closely on those with our newly.
Reorganized to stabilize the sales and marketing team.
We have launched vigorous moves to solidify relationships with existing distributors and built relationships with new distributors.
During the third quarter, we hosted a national Congress for distributors and eyes. Subsequently led a team to visit all of our major distributors across China.
These assets, even close to existing distributors confidence in us and also continues to multiple new distributors, including large scale distributors based in first tier cities to switch from competitors to China biologic.
I am pleased to report that these efforts.
Successfully lowered our historically high ideology inventories significantly from 11 loss of sales as of end of June two seven miles as of end of September .
However, given that these new distributors may need time to digest their newly purchased the inventories of Fiveg. We do not anticipate this strong sales growth to continue into the fourth quarter and beyond and the ability 2020 .
Our inventory position for GE is few higher than normal, but given the progress. We have made so far we are confident that we will be able to succeed in turning the situation around.
With a stable and experienced a sales team in place.
We will look to further pursue medical marketing strategy is to enhance doctors awareness about the benefits of ideology together with TCC and other coagulation factor products in treating chronic diseases.
Looking to our other products sales growth of our both all women and hyper immunoglobulin products in the third quarter also exceeded expectation.
In particular, the extra growth in all of in sales largely resulted from our efforts to convenience new distributors to buy I'd ITD, probably try that biologic rather than from our competitors, where as such distributers required all within to be bundled with Ivy I achieved in the sales through though.
[noise]. These additional demand for all the then over the third quarter has affected our production schedule as we look to the fourth quarter.
We now have less than a models of although that is inventory ribbit remaining much less than the two to three miles of inventory, we normally keep to maintain our album than production schedule.
We have how to allocate a proportion of next year's albumin supply to this year and are working to increase production volumes in order to maximize our ability to for a few orders and the fourth quarter.
However, all of those available volume with the still limited as we anticipate a material decrease of all of his sales volume during the fourth quarter.
As anticipated sales revenue of our placenta polypeptide products continue to decrease as plan during the third quarter.
As we continue to optimize our marketing pricing and promotion policies.
Going forward, we anticipate that RPP product may be included in the Nashville key dropped lows for monitoring and prescription control.
Also of the product has being excluded from the national reimbursement list or RTL in 2017.
And have only been included in a few provincial reimbursement lists instead.
According to a notice from the National Health Care Security Administration in August .
Each province must strictly follow the national list for reimbursement coverage at local revisions are prohibited.
The central government has set a three year transition period for drugs only covered by provincial list.
Oh RPP product may lose coverage, if access to the art Dl as not granted during this period, which would have a further negative impact of its sales.
During the third quarter, we were pleased to see the effect of our re evaluation of our credit terms with certain distributors and increase the collection efforts to control credit exposure, which began last quarter.
Well, our accounts receivable balance continuously increase alongside our sales growth we have seen improvements in turnover rates.
Over prior quarter, which was an average our turnover days of plasma products shortened to 99 days and the third quarter from 106 days in the second quarter.
Those Reformation of our credit terms did not have a significant negative impact on sales as we had expected probably due to our effort to solidify relationships with distributors.
And the fourth quarter beyond we will continue to implement further measures in the next phase of our accounts receivable management, putting quality over quantity of growth.
Hi, I'm sure you have seen and the release that we are raising our guidance for the full year 2019.
This decision is primarily due to three factors.
Stronger than expected all women sales over the first nine miles of the year.
The rebound in Ivy I'd sales and the third quarter and the higher than anticipated interest income for the full year.
I have already explained the dynamics behind the unexpected resiliency album, and sales growth and that could impact our sales and marketing efforts had I'll read in.
Other reinvigorating IBG to meet expectations after a slug sluggish beginning.
Of the year, neither of which we had visibility into the last quarter.
The higher than expected interest income, resulting from the fact that company had previously intended to allocate a significant amount of cash flow growth potential strategic acquisitions.
However, after an extended period of search of attractive.
Acquisition opportunities at present, we have now being able to come to agreement on the acquisition pocketing add a satisfactory price.
In summary.
Our work to transform China biologic has already begun to pay off in terms of improved distributor relationships and the reclaiming of market share from competitors, but we're still at the beginning stage of our efforts to transform the company.
Looking ahead, we will continue to enhance our sales and marketing capabilities improve operating efficiencies and explore business expansion opportunities to achieve our vision of creating a world class filed by Mo bio pharmaceutical and biotechnology company.
This concludes my prepared remarks.
I will now turn the call over to Mr., meaning in our senior Vice President to review our financial results for the sales first third quarter of 29 team.
Inc. Please go ahead.
Thank you Joseph and Hello, everyone.
No I will walk you through the key piano rooms for the third quarter 2019.
Total sales during Q3 2019 increased.
17.5% in RMB terms, all 14.3% in US dollar terms to $136.1 million from $119.1 million same quarter of 2018 total sales for bio pharmaceutical products, including plasma products in the placenta polypeptide products increase.
By 18.8% in RMB terms or 15.5% in us dollar terms to $124.3 million from $107.6 million. In Q3 2018 was the result of increased sales of most plasma products, including human albumin and Ivig EEG, which.
Was partially offset by decreased sales of placenta polypeptide public polypeptide products.
Forecast when chronic total sales in third quarter.
Increased by 39.3% in RMB terms for 35.5% in US dollar term to $119.8 million from $88.4 million in Q3 2018.
Total sales for power mature products increased by 5.7% in RMB terms or 2.6% U.S. dollar terms to $11.8 million from $11.5 million in Q3 2018, as a result of higher sales concentration of higher unit price under first show dramatic.
Products.
Human albumin and Ivig allergy products remain our two largest cells contributors during the quarter revenue from human albumin increased by 24.6% RMB terms or 21.1% U.S. dollar terms from $38.8 million in Q3, 2000 $18 million to $47 million in Q3 2019.
Revenues from Ivy I'd products increased by 51.9% RMB terms or.
47.9% newest on terms from $24.2 million in Q3, 2000 $18 million to $35.8 million in Q3 2019.
Percentage of total sales cells from human albumin and Ivig products in Q3, 2019 were 34.6% and 26.3% respectively.
The sales volume of human albumin products increased by 24.4% third quarter with gross primarily in direct sales to hospitals and inoculation centers supplemented by growth in distributor channels the cells gross.
New products increased by 55.6% over quarter waves of growth, primarily <unk> distributor channels supplemented by growth in direct sales channel. The average price for human albumin full quarter remains stable in RMB terms compared to Q3 2018, the average price for high value products decreased by two point.
4% RMB terms compared to Q3 2018, because on higher sales volume in disappear return on a lower price to certain distributors to enhance our sales volume in US dollar terms average prize pool, human albumin, and Ivig products, which you through 2019 decreased by 2.6% of 5.1% risk.
Compared to same quarter 2018.
Revenue from other immunoglobulin products from Q3, 2019 increased by 34.5% in RMB terms or 30.9% used on terms compared to Q3 2018, reaching 17.1% total sales as compared to 14.9% total sales from Q3 2018.
The revenue increase was mainly attributable to increased sales volume of human rabies immunoglobulin and the human patents, we will bring products revenue from other plasma products, including human coagulation factor eight can move corresponding complex concentrate and human fibrinogen products increased by 85.4% R&D terms or 80 point.
3% in US dollar terms compared to Q3, 2018, representing 10.1% thorough sales over the quarter. The gross was mainly due to increased sales through distributor channel revenue from please send our pulp paper products in Q3 2019 decreased by 75.9% in RMB turn.
Yes, or 76.6% used our terms as compared to Q3 2018.
Accounting for breakthrough, 3.3% of total sales compared to 16.1% of total sales in Q3 2018, mainly because of the product was including the drug list for monitoring and prescription control many regions, which put downward pressure on its sales volume.
Cost of sales increased by 25.3% to $47.5 million from Q3 2019 from $37.9 million in same quarter 2018 as percentage of.
Total sales cost of sales increased to 34.9% from 31.8% in same quarter of 2018, mainly due to decreased sales price for most of custom products and the increase plasma collection costs.
Gross profit increased by 9.1% to $88.6 million in Q3 2019 from $81.2 million in Q3, 2018 gross margin was 65.1% and in 6% to 8.2% in third quarter 2019, 2018, respectively total operate.
The expense through third quarter, 2019 decreased by $16.9 million or 32.2% to $35.6 million from $52.5 million in same quarter 2018. This decrease many consist of key increase of $9.7 million incentive expense seven.
Million dollars in general and administrative expense and a zero point $2 million in research and development expense as percentage of total sales total operating expense decreased to 26.2% in third quarter 2019 from 44.1% same quarter 2018, selling expense in third quarter.
2019 decreased by $9.7 million or 35.4% to $17.7 million from $27.4 million for third quarter 2018.
The decrease is primarily due to decrease in marketing and promotion expense related to plan, Santa Pancha products, which is partially offset by increased selling expense for plasma products.
Percentage of total sales selling expense decreased to 13% in Q3 2019 from 23% in Q3 2018.
General and administrative expense in Q3, 2019 decreased by $7 million or 31.5% to $15.2 million from $22.2 million in same quarter 2018 as percentage of total sales general and administrative expense decreased to 11.2 per se.
For Q3, 2019 from 18.6% for Q3 2018.
The decrease in general and administrative expense was mainly due to decrease in legal fees onetime provision in a share based compensation expense research and development expense Ings third quarter 2019.
Decreased by $4.2 million or 6.9% to $2.7 million from $2.9 million from same quarter 2018 as percentage of total sales research and development expense decreased to 2% in Q3 2019 from 2.4% in Q3 2018.
Income from operations in third quarter, 2019 increased by 89.9% in RMB terms or 84.7% us on terms to $53 million from.
$28.7 million in same quarter 2018 operating margin increased to 38.9% in Q3 2019 from 24.1% in Q3 2018 income tax expense in third quarter, 2019 War was $7.6 million compared to income tax benefit.
$3.6 million in same pure 2018.
During the quarter third quarter 2018, we reversed.
Some point $5 million use copper income tax based on deemed penetration to United States. Our companys accumulated earnings mandated by us tax reform. According to the new regulation that loose issue behind US Department of Treasury in August 2018, excluding the tax reversal impact the effective tax rate was.
12.4%, 11.5% for third quarter, 2019, and a 2018, respectively. Net income attributable to company increased by 48.6% in RMB terms or 40, 42.9% U.S. dollar terms to $47 million in third quarter 2019 from.
$32.9 million in same period of 2018 net margin increased to 34.5% in third quarter of 2009 cue from 27.6% same period of 2018 diluted net earnings per share increased to $1.21 cents in Q3 2019 compared to nine.
The four cents in Q3 2018.
non-GAAP adjusted income from operations increased by 64.1% RMB terms or 59.7% in US dollar terms to $61.15 million from Q3 2019 from $38.5 million in same period of 2018.
non-GAAP adjusted net income attributable to accompany in Q3 2019 increased by 66% in RMB terms and 61.4% you asked on terms to $54.4 million from $33.7 million in same period of 2018, non-GAAP net margin increased to 40% in Q3.
2019 from 28.3% same period of 2018 non-GAAP adjusted net earnings per diluted share increased to $1.40 cents third quarter 2019 from 96 cents in same period of 2018.
non-GAAP adjusted income from operations for third quarter of 2098 fluid $6.5 million in noncash employee share based comes based compensation expense and $2 million in amortization.
Assets and now use rise related to the acquisition of pinching pool non-GAAP adjusted net income and net earnings per diluted share for third quarter of 2019 to exclude $5.8 million in noncash.
Employee share based compensation expense and a $1.6 million, new amortization expense of intangible assets and land use rights related to acquisition of tension pool.
Now I would like turned to the balance sheet and the cash flow items as most of this September 32019, we had $220.8 million in cash on hand, and demand deposits $465.5 million in time deposits and $155 million in short term.
Estimates now.
Net cash provided by operating activities for third quarter of for nine months.
2019 was 156 point.
$4 million compared to $71 million for same period 2018, the 55 $85.4 million.
Net cash provided by operating activities was combined result of increasing net income and a slowdown of increasing accounts receivable and the inventories compared to first nine months of 2018.
Accounts receivable increased by $19.2 million during the first nine months to 2019 as compared to $47.7 million. During same period 2018, new accounts receivable turnover days for plasma products increased to 100 days during the first nine months of 2019 from 94 days.
During the same period of 2018, reflecting longer payment terms to hospitals result of a national wide implementation of health care reform measures and the intensified competition distributor channel.
Inventories increased by $8.9 million in first nine months 2018, which was relatively modest compared to the increase of $34.4 million into same period. A 2018. This reflects a lower level album inventory, a true to higher than expected to al living cells.
Which was partly offset by higher ISLG inventory due to sluggish IB energy sales.
Net cash using investing activities will first nine months 2019 was $37.6 million as compared to three $686.2 million for same period 2018. During the first nine months of 2019, we paid $21.3 million for.
Acquisitional property plan equipment intangible assets are now use right and also purchased time deposit and short term investment in the amount of 1800 $24.2 million. This was partly offset by maturity of time deposits and short term investment up 18, hundreds and $6.3 million and proceeds.
From cell property plant equipment, and land use right intangible assets will $1.6 million naqqash using planting activities for first nine months of 2019 was $238.7 million compared to net cash provided by financing activities are $581.3 million for same pure.
2018.
In the first nine months 2019 were paid $118.9 million for acquisition minority interest.
Hi, intention pool $110 million was committed to investment bank buyers.
Skewed the previous approval to share repurchase program on behalf of us.
During this period.
1.196 million 220 to 228 shares was repurchased at a total manner.
11 111 million.
Dollars. In addition, our subsidiary paid 10.1 million.
Dollars dividend to the non controlling interest shareholders.
Financial outlook.
Finally, I will like turn I'd love to update you on full year 2019 business outlook for the full year 2019, the company, reaching its full year forecast most on non-GAAP adjusted income from operations to 11% to 13% from 4% to 6% and a non-GAAP but.
Just not income grows too.
16% to 18% from 4% to 6% in RMB terms over the Companys full year 2018 financial results. The reasoning guidance was primarily due to the combined effect was stronger than expect to our booming cells will first nine months of the year rebounded Ivy I do sales in third quarter.
And higher than anticipated interest income for the full year. This guidance does not affecting any potential foreign currency translation impact having proven to adopt exchanger. Each Andrea approximately RMB 6.59 equals one U.S dollars based on a weighted average quarterly exchange rate in 2018.
Translating 2018 plans results the company expects the total sales and non-GAAP . Adjusted net income you asked our terms in 2019 could be affected by the foreign currency translation impact.
That concludes our prepared remarks, operator were now ready to take some questions.
We will now begin the question and answer session.
Ask a question.
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The first question comes from Destiny, Hannah with deal report and please go ahead.
Hi.
Go ahead, please talk question.
Just wondering with respect to that Hey, private proposal, if there's been any discussions between the special committee and the by converting.
And the second part of my Sir Ian.
To what extent todays positive result from the upgraded guidance sort of employees.
The company's negotiations with the by consolidating podium.
Okay.
I will try to answer your question to the basso my ability, even though this is a earning call.
In your question as say.
About the privatization asset.
We have disclosed.
For all the requirements of the regulations the proper.
Constant solve this discussion.
And today.
The.
The other thing I've had a common did without giving much more details this.
Are they the company has formed a special committee.
And the cost the company has also.
We tend to service Offsite independent of the financial advisor Doster themselves.
LLC and it's also dissolves securities and also the service off by legal advisor Davis, Polk World, well LP and yet they.
The Special Committee is evaluating the proposals add that were not pre privilege to that discussion that is ongoing as we speak now.
Mhm.
And in terms of I guess the today, there is only kind of quite strong.
And yes, I think it's in the first time in a while back the company's actually upgraded guidance do you think that we'll have a bearing on how things pan out.
With that and to be honest with you.
I cannot comment I typically a is as the company management.
We do not speculate how speculations Adam.
I'm sure all that rather than facts will be taken into consideration in their negotiation or discussion.
With all parties involved and the management remain focused on delivering the operation results and Jay Thats where were helpful.
Okay. Thanks. Thanks.
Again, if you'd like to ask a question. Please press Star then one.
At this time there are no further questions. This concludes our question and answer session I would like to turn the conference back over to Joseph Chow, Chairman and Chief Executive Officer for any closing remarks.
Thanks.
Okay. Thank you for your participation and ongoing support all China biologic biologic products have a great day. Thank you everyone thought.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.