Q4 2019 Earnings Call

After today's presentation, there will be an opportunity to ask questions to ask a question you press * then 1 and your touch tone phone to withdraw your question, please press * then two, please note this event is being recorded. I would not let you turn the conference over to your host today Saint Martin, please go ahead sir.

Thank you operator. Hello, everyone and thank you for joining us on today's call China and its fourth quarter and fiscal year 2019 Financial results are March 12th, 2020 after the market closed an arms race is available on the company's website today. You'll hear from China biologics chairman and CEO. Mr. Joseph who will start school with a review of the companies basic operating results and Report recent developments for the company. He will be followed by Mister minion senior vice president of China biologic who will give a detailed account of the company's Financial results CFO. Mister Ming. Yan will be available during the Q&A session following the prepared remarks.

before we proceed

To remind you of our Safe Harbor statement our conference call may include forward-looking statements made under the Safe Harbor provisions of the private Securities litigation Reform Act of 1995.

Although we believe that the expectations reflected in our forward-looking statements are reasonable. As of today those statements are subject to subject to risks and uncertainties that could cause the actual results to differ dramatically from those projected that can be no assurance that those expectations will prove to be correct.

Information about the risks associated with investing in China by Logic is included in our filings with the Securities and Exchange Commission, which we encourage you to review before making an investment decision off. The company does not assume any obligation to update any forward-looking statements as a result of new information future events changing changes in market conditions, or otherwise

All right management. Please proceed.

Thank you, Sam. Hello, everyone and welcome to China biologics fourth quarter and fiscal year 2019 conference call.

We're pleased to report that China biologic exceeded are up early revised guidance for the full year 2019 as anticipated wage or a year-over-year decline and the fourth quarter after exceptionally strong results over the first nine months in 2019. 2019 was an extra thousand a year for China biologic the years business environment was characterized by a unique set of challenges continued macro-level slow down increasingly strict industry regulations and intensified competition in the market.

The east of assistance to the unfavorable market and Regulatory conditions continue to pose challenges to ourselves and promotional operations in the fourth quarter revenue from placenta polypeptide products continue to decline as a result of the monitoring and prescription controls within Regional drug lists, and is exclusive from a national and Regional reimbursement drug list.

Changing who has also began to be impacted by these Health Care reforms as they begin to be applied to medical device products in addition to pharmaceutical products. However, rather than Buckle under the weight of the pressure China biologics management team and employees choose to adapt and the face of adversity and embarked on various initiatives to transform our business including launching comprehensive strategic review off off the company's operation centralizing Key Management functions to enhance overall efficiency optimizing our distribution networks as well as improve learning quality and credit policy management.

During the fourth quarter we saw.

encouraging progress in several areas, including distribution Channel consolidation plasma collection expansion and improving accounts receivable telenova

in 20 2019 the total volume of plasma collected by ozone collection stations surpassed 1000 tonnes for the first time achieving a 10-year 10% Year-over-year growth was news stations in operation for less than three years having contributed the majority of the organic growth off. The expansion of our plasma collection stations has been a resounding success with significant Improvement made in management standard wage obtained operating permits for two stations in the mid 20, 2019 and early 2020 respectively.

And recently received approval for the building of two additional collection stations in the regions of schendel and Chongqing respectfully.

We have also been granted additional collection territories is certain existing collection stations in Shandong Province. The approval we have received for this new collection territory coverage a new stations underscore the efforts. We've made to focus on the organic growth by a sustainable increasing our plasma collection volt.

Less fortunate see all sorts of plasma volume supplied by our collaboration partner in sinkiang Province as a supplement to our own Collective customer declines over 20% in 2019 due to issues surrounding a possible funding deficit situation at home.

We will explore all practical measures to minimize any negative impact this situation could have on our collaboration.

First of all, we were also pleased to see the effects of the re-evaluation of our credit terms with Distributors and increased collection efforts took control credit exposure our account receivable balance as of December 31st, 2019 decreased by approximately 30% compared to Thursday, September 13th, 2019. The average account receivable turnover days or plasma products were shortened to 95 days in the fourth quarter from 9 a.m. To 9 days in the third quarter and 106 days in the 2nd Court.

With a focus on improving learning growth quality were tilted to collaboration with tier one Distributors to ensure our products penetration into top-tier hospitals and sees tool cooperate with a number of small and credit dependent Distributors, which caused a certain level of temporary slowdown in our top-line growth wage and the past call tip.

further successes

Over the year included or enhancement of production efficiency or continue the research and development of new products our maintaining of high levels of product quality control and a whole-scale reorganization of our sales and marketing functions.

We have also strengthened our relationship with key distributors in China biologics brand image and reputation have continued to rise. These achievements have consolidate wage try to biologics Leading position in China's plasma industry.

As China travel was the Corona virus outbreak since the start of twenty-twenty. The economic damage is mounting around China businesses are dead loss of Revenue and disruptive Supply chairs as Nationwide Factory delayed all opening after the dinner.

New Year and workers stayed at home to help curb the spread of the virus were fortunate to see a less significant impact on us compared to other Industries since our IVIG product is listed as supplemental treatment for critical virus conditions.

Which has created a short-term substantial demand for IVIG and cleaned most of our prior inventory.

Nevertheless our business operation Beyond IVIG cell have been negatively impacted plasma collection and the first quarter fell behind planning and the recovery, the remaining quarters of 2020 will depend on when the the Corona virus outbreak will be fully contained sales of products other than IVIG are anticipated to be under great pressure since a substantial amount of Public Health Care funding has been spent in the treatment of infected patients.

Due to the sudden outbreak of the coronavirus and its related Ripple effects are choice of sales floor mats and channels customer management methods sales strategy adjustment with Hospital customers Brands and Supply chains will face New Opportunities and challenges in addition to the already existing complexities of macroeconomic situation and intensified Market competition that will persist in the near future 20/20 will be a year in which we further improve our operations off a year in which we Implement our strategies and a year in which we improve our overall management.

We have a talented team to achieve those goals and we're confident about the future.

Does concludes my prepared remarks? I will now turn the call over to mister minion our senior vice president to review Financial results for the fourth quarter wage school year 2019 ping, please go ahead. Thank you Joseph. And how do I have one now walk you through the key and rims for the full physical year 2019

Fourth quarter 2019 financial performance total sales in first quarter 2019 decreased by 9.6% or 11.1% off to one hundred two point two million dollars from 114.9 and quarter 2018 total sales fast food products increased by 2.7% off the terms or 1% in US dollar terms to ninety one point two million dollars from 90.3 million dollars in fourth quarter 2018, but the result of increased sales special enabling and the carbonation Factor products, which was partly offset by decreased sales of products and by-products two largest class this quarter accounting for 34.3% and 24.4% respectively photocells, total sales, 4.7 polypeptide products decreased 7 a.m.

.5% R&B terms or 77.8% u.s. Dollar trims 23.5 million dollars from 15.8 million dollars in full score of 2018 combined impact products and playing Santa polypeptide products total sales for pharmaceutical products decreased by 9.3% in RMB terms or 10.7% You are starting to 94.7 million dollars from 106.1 million dollars for a 2018 total sales for Bob mature products in fourth quarter 2019 respond with 13.5% R&B terms are 14.8% returns to seven point five million dollars from 8.8 million dollars for a 2018 was the result of a decrease artificial germane of products cost of sales increased by 1.6% to thirty eight point two million dollars in fourth quarter 2019 from forty seven point six million dollars in New Jersey.

For 2018 is the percentage of total sales cost of sales increased to Thirty 7.3% from Thirty 2.7% full score 2018 mini because of a 3.2 million dollars cost provision has been provided by change on that was estimated not to be put into production due to the lack of a subsequent wage quarantine gross profit decreased by 17.2% 6 to 4 million dollars in force Pro 2019 from 77.3 million dollars a month for 2018 gross margin was 62.6% in the 67.3% in for September 2019 and fourth quarter 2018 respectively total operating expenses in fourth quarter of 2019 increased by ten point six million dollars or 30.5% to forty five point four billion dollars from 34.8 Jun.

Being the 4th.

Quarter 2018 this increased many consists of increase of 14.2 million dollars in general and administrative expense and 1.3 million dollars in research and development expense off of 4.9 million dollars in this instance. This percentage of total sales total operating expense increased to 44.4% enforce quarter 2019 from 33% in fourth quarter, 2018 income from operations in fourth quarter, 2019 decreased by 55.7% R&B terms or 56.2% US dollars to eighteen twenty six million dollars from forty two point five million dollars in fourth quarter 2018 operating margin increased to 18% is for a 2019 from 37% full score 2018 income tax expense and full support of 2019 was 4.8 point two million dollars a month.

and your first quarter 2018, but the facts income tax rate was 21% and 17.5% for the fourth quarter 2019. 2018 respectable wage that income attributable to the company decreased by 63.7% and the terms or 64.1% to 12.5 dollars for 2019 from 34.8 million dollars first quarter 2018 that margin decreased 84.2% off this quarter 2019 from 30.3% Full score 2018 diluted earnings per share decreased to thirty two cents in fourth quarter 2019 compared to $0.07 in the fourth quarter 2018 ranked adjust income from operations decrease by 28.9% * 30.2 age

Saying u s. Terms to twenty seven point eight million dollars and full score 2018 from 39 point eight million dollars and fourth quarter 2018 non-gaap. I'm not in, to rid of the company decreased by 31.2% on the terms and 32.6% in u.s. Dollar terms to twenty point seven million dollars in fourth quarter 2019 with 34.7 million dollars in fourth quarter 2018 non-gaap net margin secrets to 20.3% in fourth quarter 2019 from $26.20 the same full Sports. Mm just earnings per diluted share dismiss to $0.53 in

Fourth quarter 2019 from Seventy-Six cents in the same quarter 2018 on Kappa just income from operations for fourth quarter 2019 excludes 7.3 million dollars in cash employer-based compensation expense and two million dollars. You have my position expense of intent process and then used widely relating to acquisition of changing from non-gaap are just not in a chair for for sport 2019 include six point six million dollars an hour cash for share-based compensation expense and one point seven million dollars amortizacion stance of intangible assets and land use rights related to Acquisitions things into physical year 2019 financial performance total sales in 2009 increased by 12.3% and R&B terms for some point nine percent in Western terms to Five Hundred three point seven billion dollars from 466.9 million dollars, which is dead.

For mechanical products increased by 12.9% Yar returns or 8.4% in u.s. Dollar terms to $457,000 off from 23.2 million dollars in 2018 as a result of increasing sales almost impassable products including human Alchemy by the IG a premium package in the bowling and the correlation Factor products, which was partly offset by decreasing sales play Santa polypeptide products for Plastic Products total sales in 2019 off base by twenty six twenty 6.7% or 21.7% u.s. Dollar terms to 430.7 million from 354 million years 2018 and 2019 Jeep product remain or two larger cells contributors revenue from humor. Al Green increased by 30.6% off.

25.7% u.s. Dollar terms from 149 point four million dollars from 2018 to 187.8 million dollars in 2019 revenue from new products increased by 7.8% in our midterms or 3.2% u.s. Dollar terms from 113.5 million dollars in 2018. 175 $1000000 in 2019.

What's the percentage of total sales from us for thirty, 7.3% and 23.2% respectively in 2019 the sales volume of Home Products increased by 31.5% in 2019 primary due to Temporary shortage of human element Supply in Market relate to the low lower import volume in first quarter 2019 sales volume of products increased by 10.6% 2019 reflect our efforts and sales marketing capabilities the average price for humor to find slightly by 0.7% R&B terms in 2019 compared to 2018 the average price for IVIG products decreased by 2.5%. 2018 because of a higher sales volume in distributor Channel and a lower price on certain computer to enhance sales volume in response to intensify the market competition in Georgia.

In terms the average price for humor value products decreased by 4.4% and 6.7% respectively in 2019 compared to 2018 revenue from other in Low Beam products in Chrome by Twenty 6.4% or 21.2% u.s. Dollar terms in 2019 compared to those eighteen representing 14.3% of the total sales as compared to 12.7% of total sales in 2018. The revenue increase was attributable in South Walden of human rivers in the bowling and human Tamanna similar products revenue from other plasma products increased by 76.6% R&B terms or 69.9% US dollar terms in 2019 compared to 2018.

Which bro?

Seeing revenue from all three other plasma products namely human calculation factor a room for something complex concentrate and the human fiber engine products reaching 10.7% of total sales in 2019 compared to 6.8% of total sales of 2018 revenue from plants and Polly Pepper products decreased by 59% off R&B terms or 60.4% u.s. Dollar terms in 2019. That's compared to 2018 accounting for 5.4% of total sales wage compared to 14.6% of total sales in 2018. The main reason for this decrease that is this product was included in the drug list for monitoring and not scripts and control in many regions which put downward pressure on the sales of points total sales for power mature products in 2019 increased by 7.4% yarn be terms or mm.

9% u.s. Dollar terms 246 million dollars from forty four point seven million dollars in 2018 many do to increase in sales artificial. They were made a products cost of sales increased by 18.9% to one hundred seventy four point six million dollars in 2019 from one hundred forty six point eight million dollars in 2018. Let's percentage of total monthly cost of sales increased to 34.7% in 2019 from 31.4% 2018. Let's Combine results of lower percentage of higher-margin, please send a pilot luggage racks in total sales decreased sales price for our major plasma products and the inquiries plasma collection cost gross profit increased by 2.8% 2329 or 1 million dollars in 2019 from 320.1 million dollars in 2018. Gross margin was 65.3% and 68.6

In 2019 and 2018 respectively total operating expenses in 2019 decreased by eight point five million dollars or 4.9% to 65.5 dollars from 173.9 dollars in 2018. This decrease many consists of decrease of 15.3 million dollars in that instance, which was partly offset wage increase of four point six million dollars in general and administrative expense and 2.2 million dollars in research and development expense as percentage of total sales total operating expenses decreased to Thursday 2 or 8 % 2019 from 37.3% in 2018 selling expense. We 2019 decreased by 15.3 million dollars or 16% off any points for a million dollars from 95.6 million dollars in two thousand four 2018. The decrease is primarily due to the decrease in marketing and promotion expenses related to

Play Santa Paula Taco products.

Which sales revenue decreased significantly from 2019. The sticker is is partly offset by increased an expense for passing power percentage of total suck stunning spends decrease to 15.9% in 2019 from 20.5% 2018 General and administrative expense in 2019 increased by eight point six million dollars or 6.7% to seventy three point four million dollars from 68.8 million dollars in 2018 mainly due to the increase of 3.5 million dollars a share based compensation expense as a percentage of total self General and administrative expense remain relatively stable at a 14.6% in 2019 compared to 14.8% in 2018 research and development expenses in 2019 increased by two point two million dollars or 23.2% to eleven point seven million dollars from 9.5 million dollars into dead.

Let's percentage of total sales research and development expense which 2.3% in 2019 from 2% in 2018 income from operations in 2018, increased Birth 16.4% R&B terms or 11.9% in terms to 130 longer is 63.6 million dollars from 146.2 million dollars from 2015 operating margin increased to Thirty 2.5% in 2019 from 31.3% in 2018. Income tax expense, which in 2019 was six point 1 million dollars compared to $18 in 2018 during 3rd quarter 2018. According to new regulations issued by us department travel in August 2018. We reversed Us corporate income tax up some point five million dollars based on themed repatriation to the United States of accumulated earnings mandated by us tax reform dead.

Including tax reversal impact and in fact of income tax rate was 14.7% and 15.4% for 2019 and 2018 respectively wage income travel to the company increased by 12.4% R&B terms or 3.4% to 138.8 million dollars a month in 2019 from 128.1 million dollars from 2018 that margin increased to 27.6% in 2019 from 27.4% Mm diluted earnings per share remain stable at $3.53 in 2019 compared to 2018. Non-gaap adjusted net income income from operations increase by 16.6% the R&B terms or 11.6% US dollar terms to one hundred ninety-eight point three million dollars in 2019 from 177.7 million dollars in New Jersey.

Don't cap just not in, trouble company increased by 20.5% R&B terms or 15.4% $165 in 2019 from 145.9 million dollars in 2018. Non-gaap net margin increased to Thirty 3.4% in 2019 compared to 35.2% 2018. Non-gaap adjusted earnings per diluted share was $4.28 and $4.02 respectively in 2019 and 2018 non-gaap adjust income from operations for 2019 excludes twenty six point six million dollars in non-cash employee share-based compensation expense and a Pack 1 million dollars in the amortization expense of intangible assets and use relate to acquisition of attention to non-gaap adjusted net income and earnings per diluted share for 2019. Excludes wage.

3.5 million.

Cash employee share-based compensation expense and six point 1 million dollars amortization intangible asset and now use device related to Acquisitions changing for December 31st of 2019. We had one hundred sixty one point eight million dollars in cash on hand and deemed a man deposits four hundred ninety-seven point seven million dollars in time deposits off and 267.8 million dollars, which will turn the last ones that cash providing my operating activities for 2019 was 229.3 million dollars as compared to $1,000 for 2018 125 point four million dollars increase in net cash provided by operating activities was many because of decreasing accounts receivable in Palm and the slow down the increase in inventories compared to 2018 accounts receivable decreased by twenty two point 1 million dollars during 2019 is compared to New Jersey.

So six three point nine million dollars 2018 accounts receivable turnover days for plasma products shortened 289 days during 2019 from a 25 days during 2018 reflecting our success in shortly in credit terms of some Distributors and the increased collection efforts to control credit exposure in 2019 month payment rates increased by fourteen point eight million dollars in 2019, which which relatively modest compared to the increase of forty two point six million dollars in 2018. This reflect lower-wage album inventory a tribute to higher-than-expected sales volume of album, which was partially offset by IVIG inventory due to sluggish sales of using 2019.

That cash using investing activities for 2019 was 180.1 million dollars compared to five hundred fifty eight point nine million dollars in 2018 during 2019. We paid 24.4 million acquisition property plan equipment intended by assets and we also purchased I'm deposit short term investment Bank. Yeah mount 2006 660 point five million dollars. This was partly offset by the maturity of the time deposit in the short term investment of $2,446 and proceeds from the sale of the property plan equipment and used right and tangible assets of six eight point six million dollars that cash using financing activity for 2019 was 229.5 million dollars as compared to net cash provided by financing activities.

571.3 million dollars for 2018 in 2019. We paid 118.9 million dollars for acquisition of the remaining 20% of equity interests changing 4 a.m. We remitted 110 million dollars to Investment Bank for share repurchase under the previous approved to share repairs programs, and the nine million dollars was refunded for the from the maximum back in 2019, 1196220 to 228 shares will repurchase under Thursday or repurchase program at aggregate amount of $111. In addition. We are substantial evidence of 10.1 million dollars to the non-controlling interest you suck.

Financial Outlook

Finally, I would like to discuss all look for the 2020. The reason Corona virus outbreak has impact various aspects of China biologics operation including plasma action production of certain products in sales and marketing activities were actively evaluating over all the impacts are our business. We have decided to postpone the. Financial guidance for the full year 2020. We will provide a financial guidance to the market one. We have better visibility that concludes our prepared remarks Thursday. We're now ready to take some questions. Yes. Thank you. Yes, we will now begin the question-and-answer session to ask you a question on your touch tone phone using a speaker phone. Please pick up your handset before pressing the keys.

To try your question, please. Press star has been to at this time. We all pause momentarily do some of the roster.

All right that there are no questions at the present time. So I would like to return to Florida management for any closing comments off. Thank you for your participation an ongoing support for China by biology. Have a great day.

Thank you. See conference says thank you for attending today's presentation. You may now disconnect your line. Thank you.