China Agritech, Inc. Reports Fourth Quarter and Fiscal Year 2009 Financial Results
- Exceeded 2009 Guidance and Reiterates 2010 Guidance -
BEIJING, March 31 /PRNewswire-Asia-FirstCall/ -- China Agritech, Inc. (Nasdaq: CAGC) ("China Agritech", or the "Company"), a leading organic compound fertilizer manufacturer and distributor in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2009.
Fourth Quarter Financial Highlights
-- Quarterly net revenue increased 149.7% year-over-year to $20.7 million;
-- Gross profit increased 80.9% year-over-year to $7.0 million;
-- Excluding non-cash charges reflecting the change in fair value of
warrants issued and stock compensation, Non-GAAP net income increased
252.5% year-over-year to $3.8 million, or Non-GAAP fully diluted EPS
$0.22, up 144.4% from $0.09 in 2008, on a greater share count;
-- GAAP net loss was $6.6 million, or $0.39 loss per diluted share;
-- Receivables declined from third quarter of 2009;
-- Cash and cash equivalents were $20.3 million.
Fiscal Year 2009 Financial Highlights
-- Annual net revenue increased 68.3% year-over-year to $76.1 million,
exceeding revised guidance;
-- Gross margin was 37.9% due to the introduction of granular fertilizers
in 2009;
-- Operating income rose to $21.0 million from $13.7 million in 2008;
-- Excluding non-cash charges reflecting the change in fair value of
warrants issued, Non-GAAP net income attributable to common
stockholders in 2009 was $16.2 million, with diluted net earnings per
share of $1.14, up 62% from fiscal year 2008;
-- GAAP net income was $5.7 million, or $0.40 earning per diluted share.
Mr. Yu Chang, Chairman and Chief Executive Officer of China Agritech, commented, "We are encouraged by our fourth quarter results with the accelerated sales growth of our organic granular fertilizers. After two years of planning and ramping up our production capacity, we have successfully implemented our granular fertilizer strategy. Our vision, dedication and execution have started to bear fruit. Organic fertilizers enrich and repair soil quality, and also improve agricultural products' quality, taste and yield. We strongly believe the benefits of our organic fertilizers will become more widely recognized and accepted among Chinese farmers."
China Agritech advises that it expects to file its Form 10K for the 2009 year with the U.S. Securities and Exchange Commission on or before April 1, 2010. The financial results disclosed in this press release are believed to be final but are subject to change.
Fourth Quarter 2009 Results
Summary of Financial Results
(Thousand US dollars except earnings per share)
For the Three Months
Ended December 31,
2009 2008
Total revenue $20,750 $8,310
GAAP Net income (Loss) (6,663) 1,064
Stock-based compensation 564 13
Loss on change in fair value of warrants 9,894 --
Adjustments to the Net Income 10,458 13
Non-GAAP Net Income 3,795 1,077
GAAP Diluted earnings (loss) per share (0.39) 0.09
Adjustment to diluted EPS 0.61 0.00
Non-GAAP diluted EPS 0.22 0.09
Diluted avg. number of common shares 17,162,827 12,349,808
Net revenue for the fourth quarter of 2009 grew by 149.7% to $20.7 million from fourth quarter 2008 sales of $8.3 million. Sales of the Company's new organic granular fertilizers represented approximately $9.6 million of the 2009 fourth quarter sales increase, with liquid organic fertilizer sales approximating a $2.8 million gain. Net sales in the 2008 fourth quarter were affected by a cumulative accounting reclassification that changed marketing rebates from selling expenses into sales discounts to net off the Company's sales.
Gross profit increased 80.9% year-over-year to approximately $7.0 million. Gross margin for the quarter was 33.6%, down from 46.3%% in the fourth quarter of 2008. The lower gross margin was primarily due to the change in the product mix as the Company introduced granular organic compound fertilizer in the second half of 2009. Granular organic fertilizer carries a lower margin than liquid organic fertilizer, but presents a substantially larger market.
Selling expenses were $0.88 million, or 4.2% of revenue. Selling expenses in the fourth quarter of 2008 were $0.51 million reflecting the above referenced reclassification of marketing rebates in the 2008 fourth quarter. Operating and administrative expenses during the quarter were $1.7 million, up 13.5% from $1.5 million in the fourth quarter of fiscal year 2008. The percentage of operating and administrative expenses, decreased from 18.4% in the fourth quarter of 2008 to 8.4% in the same quarter of 2009.
Income from operations was approximately $4.3 million in the fourth quarter, as compared with $1.8 million in the same quarter of last year. Operating margin for the 2009 fourth quarter was 20.9% compared to 21.8% in the fourth quarter last year. The decrease in operating margin was mainly due to lower gross margin and increased selling expenses in marketing granular organic fertilizers.
GAAP net loss was $6.6 million, with diluted loss per share of $0.39, compared with net income of $1.1 million and diluted earnings per share of $0.09 in the fourth quarter of 2008.
Excluding non-cash charges for the change in fair value of warrants issued and stock compensation, Non-GAAP net income attributable to common shareholders for the fourth quarter of 2009 was $3.8 million, up 252.5% from the same period last year. Non-GAAP diluted net earnings per share was $0.22 versus $0.09 for the same quarter in 2008. Diluted weighted average shares outstanding for the fourth quarter of 2009 were 17.2 million compared with diluted weighted average shares outstanding of 12.3 million in the fourth quarter of 2008.
Fiscal Year 2009 Results
Summary of Financial Results
(Thousand US dollars except earnings per share)
Fiscal year
2009 2008
Total revenue $76,130 $45,240
GAAP Net income (Loss) 5,690 8,642
Stock-based compensation 567 13
Loss on change in fair value of warrants 9,894 --
Adjustments to the Net Income 10,461 13
Non-GAAP Net Income 16,151 8,655
GAAP Diluted earnings per share 0.40 0.70
Adjustment to diluted EPS 0.74 0.00
Non-GAAP diluted EPS 1.14 0.70
Diluted avg. number of common shares 14,228,943 12,349,808
For the fiscal year 2009, net revenue increased year-over-year by 68.3% to a record annual net sales of $76.1 million. The successful launch of the organic granular fertilizers and the further expansion of our customer base for our traditional organic liquid fertilizer contributed to the considerable annual sales growth. Organic granular compound fertilizer products reported net revenue of $29.0 million while the organic liquid compound fertilizers recorded net revenue of $ 47.2 million, which represented 609.5% and 14.6% year-over-year growth, respectively. In the third quarter of 2008, the Company sold 11,000 metric tons of organic granular fertilizer as trial orders. The Company began its commercial production of organic granular fertilizer in mid-2009.
Gross profit increased 41.9% to $28.9 million from $20.4 million in 2008. Gross margin was 37.9% compared with 45.0% in the same period of 2008. The decline in gross margin was mainly due to the launch of lower-margin granular organic compound fertilizers in the second quarter of 2009.
Selling expenses increased 11.4% year-over-year to $2.6 million, mainly due to an increase in sales commission driven by increased sales. Selling expense as a percentage of net revenue, however, declined to 3.5% in 2009 from the previous year's 5.2% as a result of strict cost controls, higher sales and leveraging the Company's broad sales network.
Operating and administrative expenses were $5.3 million, up 24.0% from $4.3 million for fiscal year 2008. Higher legal, professional and listing fees associated with the NASDAQ Global Market listing and a non-cash stock option compensation charge of approximately $0.6 million contributed to the increase in the general and administrative expenses. General and administrative expense as a percentage of net revenue declined to 6.9% from 9.4% in fiscal year 2008 due to effective cost control and rapid growth of net revenue.
Operating income in 2009 rose 52.8% to $21.0 million from $13.7 million in 2008. The increased income was generated by higher gross profit partially offset by higher operating expenses.
Income taxes were $4.91 million in 2009, with the effective tax rate of 44% compared to a 30% rate for 2008. The increase in effective tax rate was mainly attributable to the change in fair value of the warrants of $9.9 million and the increase in non-deductible, share-based compensation expense of $0.6 million.
GAAP net income attributable to common shareholders was $5.7 million, with diluted net earnings per share of $0.401, compared with annual net income of $8.6 million in fiscal year 2008, with diluted net earnings per share of $0.70. Excluding non-cash charges for the change in fair value of the warrants issued, Non-GAAP net income attributable to common shareholders in 2009 was $16.2 million, with diluted net earnings per share of $1.14, up 86.6% from GAAP net income of $8.6 million in 2008.
As of December 31, 2009, China Agritech had $20.3 million in cash and cash equivalents. Accounts receivable were $39.2 million, down from $46.4 million at September 30, 2009. Days Sales Outstanding (DSO) in 2009 was 177 days as compared to 244 days in 2008. The lower DSO was mainly due to the increased sales of granular organic fertilizer which carries substantially shorter payment term than liquid organic fertilizer. As of December 31, 2009, there was no long-term debt. Shareholders' equity was $77.3 million at December 31, 2009.
Highlights
On September 8, 2009, China Agritech announced that it expanded a sales and distribution partnership with China's largest fertilizer producer and distributor, Sinochem Fertilizer Co., Ltd. ("Sinochem") for the Company's "Green Vitality" granular fertilizer products. This contract is for the supply of 15,000 tons of Green Vitality granular fertilizer worth an estimated value of RMB 44 million (approximately US$6.4 million value of sales). On October 20, 2009, China Agritech announced closing of a private placement with Carlyle Asia Growth Partners, the growth capital arm of The Carlyle Group, of 2,785,636 shares of China Agritech common stock and warrants to purchase up to an additional 1,857,024 shares of China Agritech common stock for aggregate gross proceeds of $15 million.
Business Outlook
The Company's guidance for fiscal year 2010 includes revenues of approximately $114 million and non-GAAP net income, excluding change in fair value of warrants issued and stock based compensation, of approximately $23.5 million, representing a year-over-year growth of 50% and 45% on revenues and non-GAAP net income respectively. This target is based upon the Company's current views on operating and market conditions, which are subject to change. This guidance follows 68.3% revenue growth in 2009. The Company will periodically update this guidance.
Mr. Yu Chang, Chairman and Chief Executive Officer of China Agritech, concluded, "With the combination of a severe drought in western China, deterioration of soil quality due to pollution, and insufficient arable land throughout China exacerbated by rapid urbanization, we believe that agriculture will very likely return as the focal point of Chinese economic development in 2010. Sustaining development and improving agricultural product yields are among the most important areas where the Chinese government places strong emphasis and is renewing its support. As a leader in organic fertilizers in China, we remain focused on market share expansion and new market penetration to build long-term shareholders' value."
Conference Call
The Company will host a conference call, to be simultaneously web cast, on Wednesday, March 31, 2010 at 8:00 a.m. Eastern Daylight Time, or 8:00 p.m. Beijing Time.
To participate, please call the following phone numbers:
United States 1-866-519-4004
China, Domestic 800-819-0121-Landline
Hong Kong 852-2475-0994
Canada 866-386-1016
International Toll Dial-In Number: 656-723-9381
Conference ID # 63746799
A live web cast of the conference call will be available on China Agritech's website at http://www.chinaagritechinc.com . Please visit the website at least 15 minutes early to register for the web cast and download any necessary audio software.
A web cast replay will be available on the Company's website, and the call replay will be available through Tuesday, April 6, 2010 at 11:59 p.m. EDT. To access the replay, please call the following phone numbers:
United States Dial-In #: 1-866-214-5335
Canada Dial-In #: 1-800-301-5423
China North Dial-In #: 10-800-714-0386
China South Dial-In #: 10-800-140-0386
Hong Kong Dial-In #: 800-901-596
International Dial-In #: +61 2 8235 5000
Conference ID # 63746799
About China Agritech, Inc.
China Agritech, Inc. is engaged in the development, manufacture and distribution of liquid and granular organic compound fertilizers and related products in China. The Company has developed proprietary formulas that provide a continuous supply of high-quality agricultural products while maintaining soil fertility. The Company sells its products to farmers located in 28 provinces of China.
For more information about the Company, please visit http://www.chinaagritechinc.com .
This release may contain certain "forward-looking statements" relating to the business of China Agritech and its subsidiary companies, which can be identified by the use of forward-looking terminology such as "believes," "expects," "anticipates," "estimates" or similar expressions, including, but not limited to, statements regarding the continued demand for China Agritech's products, China Agritech's ability to sustain growth for the balance of the year and China Agritech's ability to generally meet all of its objectives. Such forward-looking statements involve known and unknown risks and uncertainties, including all business uncertainties relating to product development, marketing, concentration in a single customer, raw material costs, market acceptance, future capital requirements, and competition in general and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the SEC. Except as required by law, China Agritech is under no obligation to update or alter its forward-looking statements whether as a result of new information, future events or otherwise.
Use of Non-GAAP Financial Measures
The Company makes reference to Non-GAAP financial measures in portions of "Management's Discussion of Financial Condition and Results of Operations." Management believes that investors may find it useful to review our financial results that exclude the non-cash expenses of stock based compensation and changes in fair value of warrants, shown in the below chart, of $9,894,410 due to the adoption of a Financial Accounting Standards Board's ("FASB") ASC 815 (EITF 07-05) accounting standard effective from January 1 2009.
Management believes that these Non-GAAP financial measures are useful to investors in that they provide supplemental information to possibly better understand the underlying business trends and operating performance of the Company. The Company uses these Non-GAAP financial measures to evaluate operating performance. However, Non-GAAP financial measures should not be considered as an alternative to net income or any other performance measures derived in accordance with GAAP.
For more information, please contact:
In China:
Mr. Gareth Tang
Chief Financial Officer
China Agritech, Inc.
Email: [email protected]
In the U.S.:
Mr. Kevin Theiss
Investor Relations
Grayling
Tel: +1-646-284-9409
Email: [email protected]
CHINA AGRITECH, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008
(US Dollars)
2009 2008
ASSETS (Unaudited) (Audited)
Current Assets
Cash and cash equivalents $20,313,089 $11,952,235
Accounts receivable, net 39,256,098 34,773,115
Inventories 6,606,095 6,452,618
Advances to suppliers 25,348,687 10,795,357
Prepayments and other receivables 2,287,220 2,484,346
Total Current Assets 93,811,189 66,457,671
Property, plant and equipment, net 5,980,696 4,496,045
Construction in progress 424,006 961,551
Deposit for equipment -- 749,799
Intangible assets, net 397,507 --
Total Assets $100,613,398 $72,665,066
LIABILITIES AND STOCKHOLDERS'S
EQUITY
Current Liabilities
Accounts payable $62,616 $3,327,281
Accrued expenses and other payables 1,394,357 221,954
Taxes payable 1,695,665 1,388,897
Warrant liabilities 20,157,869 --
Total Current Liabilities 23,310,507 4,938,132
Commitments and Contingencies
Stockholders' Equity
Preferred stock: $0.001 par value,
10,000,000 shares authorized,
none issued -- --
Common stock: $0.001 par value;
100,000,000 shares authorized,
17,002,542* and 12,351,126*
shares issued and outstanding as
of December 31, 2009 and 2008 17,003 12,351
Additional paid in capital 34,698,080 26,161,228
Statutory reserves 2,195,818 5,425,407
Accumulated other comprehensive
income 5,723,265 5,837,917
Retained earnings 34,668,725 25,361,597
Total China Agritech
stockholders' equity 77,302,891 62,798,500
Noncontrolling Interest -- 4,928,434
Total Equity 77,302,891 67,726,934
Total Liabilities and
Stockholders' Equity $100,613,398 $72,665,066
* as retroactively adjusted for the 1-for-4 reverse stock split on
September 8, 2009 and the 2-for-1 forward stock split on February 1,
2010.
CHINA AGRITECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(US Dollars)
2009 2008
(Unaudited) (Audited)
Net revenue $76,129,839 $45,240,212
Cost of revenue (47,244,887) (24,889,387)
Gross profit 28,884,952 20,350,825
Operating expenses:
Selling expenses (2,638,800) (2,369,763)
Operating and administrative
expenses (5,289,845) (4,265,655)
Total operating expenses (7,928,645) (6,635,418)
Income from operations 20,956,307 13,715,407
Other income/(expenses):
Other income/(expense), net (7,225) (56,165)
Interest income 27,688 91,984
Exchange (loss)/gain, net (3,788) 231,326
Changes in fair value of warrants
classified as derivatives (9,894,410) --
Total other income/(expense), net (9,877,735) 267,145
Income before income taxes 11,078,572 13,982,552
Provision for income taxes (4,907,474) (4,151,782)
Net income 6,171,098 9,830,770
Net income attributable to
noncontrolling interest (481,452) (1,189,029)
Net income attributable to China
Agritech stockholders $5,689,646 $8,641,741
Earnings per share attributable to
China Agritech common stockholders*:
- Basic $0.41 $0.70
- Diluted $0.40 $0.70
Weighted average shares outstanding*:
- Basic 14,039,152 12,349,808
- Diluted 14,228,943 12,349,808
* as retroactively adjusted for the 1-for-4 reverse stock split on
September 8, 2009 and the 2-for-1 forward stock split on February 1,
2010.
CHINA AGRITECH, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
(US Dollars)
2009 2008
Cash flows from operating activities: (Unaudited) (Audited)
Net income $6,171,098 $9,830,770
Adjustments to reconcile net income to
net cash used in operating activities:
Share-based compensation 566,807 12,965
Depreciation and amortization of
property, plant and equipment 695,703 549,341
Amortization of intangible assets 41,826 --
Bad debts expense 320,960 195,616
Changes in fair value of warrants
classified as derivatives 9,894,410 --
Decrease / (Increase) in current assets:
Accounts receivable (4,858,975) (11,306,241)
Inventories (164,082) (2,638,273)
Advances to suppliers (14,566,555) 1,668,798
Prepayments and other receivable 185,291 (1,503,874)
(Decrease) / Increase in current
liabilities:
Accounts payable (3,258,407) 3,226,288
Tax payables 308,913 (375,076)
Accrued expenses and other payables 1,127,753 (553,730)
Net cash used in operating activities (3,535,258) (893,416)
Cash flows from investing activities:
Acquisition of property, plant and
equipment (881,685) (951,588)
Acquisition of intangible assets (439,170) --
Payment for construction in progress -- (966,168)
Acquisition of noncontrolling interest (1,000,000) --
Restricted cash -- 11,415
Net cash used in investing activities (2,320,855) (1,906,341)
Cash flows from financing activities:
Amount held in escrow account -- 2,000,000
Issuance of common stock for cash 2,410,096 --
Issuance of warrants for cash 11,805,632 --
Net cash provided by financing
activities 14,215,728 2,000,000
Effect of exchange rate change on
cash and cash equivalents 1,239 910,771
Net increase in cash and cash
equivalents 8,360,854 111,014
Cash and cash equivalents,
beginning of year 11,952,235 11,841,221
Cash and cash equivalents, end of
year $20,313,089 $11,952,235
Supplement disclosure of cash flow
information:
Cash paid for interest $ -- $ --
Cash paid for income tax $ 4,481,792 $ 4,437,384
Noncash Investment and Financing
Activity
Acquisition of noncontrolling
interest funded by issuance of
stock $ 4,410,321 $ --
Options issued to directors and
officers for services $ 566,807 $ 12,965
Offset of amounts due to/from
stockholders $ -- $ 320,666
Three Months Ended Fiscal Year Ended
December 31 December 31
2009 2008 2009 2008
Adjusted
Net Income
available
to Common
shareholders
- non-GAAP $3,795,500 $1,077,435 $16,150,863 $8,654,706
Subtract
(Add Back):
Change in
fair value
of warrants $9,894,410 $-- $9,894,410 $--
Stock based
compensation $564,104 $12,965 $566,807 $12,965
Net Income
(Loss) - GAAP $(6,663,014) $1,064,470 $5,689,646 $8,641,741
Adjusted
basic earning
per share -
non-GAAP $0.23 $0.09 $1.15 $0.70
Subtract:
Change in fair
value of warrant $0.61 $-- $0.70 $--
Stock based
compensation $0.03 $0.00 $0.04 $0.00
Basic earning
per share
- GAAP $(0.41) $0.09 $0.41 $0.70
Adjusted diluted
earning per
share -
non-GAAP $0.22 $0.09 $1.14 $0.70
Subtract:
Change in fair
value of warrant $0.58 $-- $0.70 $--
Stock based
compensation $0.03 $0.00 $0.04 $0.00
Diluted earning
per share -
GAAP $(0.39) $0.09 $0.40 $0.70
Weighted average
number of
shares - GAAP
Basic 16,411,685 12,349,808 14,039,152 12,349,808
Diluted 17,162,827 12,349,808 14,228,943 12,349,808
Weighted average
number of
shares -
non-GAAP
Basic 16,411,685 12,349,808 14,039,152 12,349,808
Diluted 17,162,827 12,349,808 14,228,943 12,349,808
SOURCE China Agritech, Inc.
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