BEIJING, Nov. 9, 2011 /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 September 30, 2011.
Third Quarter 2011 Financial Highlights
Revenue in the third quarter of 2011 increased 95.9% to $140.6 million from $71.8 million for the same period of 2010
Gross profit increased 103.2% year-over-year to $85.6 million
Income from operations increased 143.0% to $50.6 million
Net income attributable to Yongye increased 122.6% to $39.1 million, or $0.69 per diluted share, compared to $17.6 million, or $0.37 per diluted share, in the same period last year
Adjusted net income attributable to Yongye, which excludes non-cash expenses related to the amortization of the acquired Hebei customer list and a change in the fair value of derivative liabilities, was $39.7 million, or $0.70 per diluted share, compared to $18.3 million, or $0.39 per diluted share, in the same period last year*
Operating cash inflow was $7.3 million compared to an operating cash outflow of $0.2 million for the same period of 2010
Mr. Zishen Wu, Chairman and Chief Executive Officer of Yongye International, stated, "This was a particularly strong quarter for Yongye with year-over-year increases in revenue and net income attributable to Yongye of 95.9% and 122.6%, respectively. Additionally, our gross margins continue to improve, at 60.9% for the quarter. Such strong growth highlights the strength of our brand and the success we are having in existing and new markets with our sales and distribution strategy."
Mr. Wu added, "We continue to work closely with our distributors, and effectively manage our retail network in order to further penetrate existing markets. Our crop nutrient product is also beginning to pick up traction in newly developed provincial markets, as 21.4% of our sales this quarter were derived from new accounts. We are very excited about the future growth prospects of our business, and, to meet the growing demand for our products, we are focused on expanding our production capacity for next year."
Third Quarter 2011 Results
Sales increased by $68.8 million, or 95.9%, to $140.6 million for the three months ended September 30, 2011, from $71.8 million for the same period of 2010. For the three months ended September 30, 2011, $110.5 million, or 78.6% of total sales, was derived from existing provincial markets, and $30.1 million, or 21.4% of total sales, came from the newly developed provincial markets, which the Company started to actively manage after the second quarter of 2010. The newly developed provincial markets primarily included Jiangxi, Yunnan, Anhui, Sichuan and Shaanxi. During the quarter, the number of branded retailers increased from 28,373 to 29,307. The number of branded retailers as of September 30, 2011 increased 33.7% compared to the end of September 30, 2010.
Gross profit was $85.6 million for the three months ended September 30, 2011, compared to $42.1 million for the three months ended September 30, 2010, an increase of 103.2%. The $43.5 million increase in gross profit was due to the increase in sales of the Company's liquid crop nutrient product. Gross margin was 60.9% for the three months ended September 30, 2011, as compared to 58.7% for the same period of 2010.The increase in gross margin was mainly due to the Company's Wuchuan Facility becoming operational, which enabled the Company to start using lignite coal as the key raw material, and bypass intermediaries from whom the Company used to purchase humic acid. The Company recorded non-cash expenses of $0.7 million related to the amortization of the acquired Hebei customer list as part of its cost of sales for the third quarter of 2011.Excluding the aforementioned non-cash expenses related to the amortization of the acquired Hebei customer list, third quarter 2011 adjusted gross profit was $86.3 million, or 61.4% of sales.*
Selling expenses increased by $10.0 million, or 64.1%,to $25.6 million for the three months ended September 30, 2011, from $15.6 million for the same period of 2010. As a percentage of sales, selling expenses decreased from 21.7% for the three months ended September 30, 2010 to 18.2% for thesame periodof 2011. The increase in selling expenses was primarily due to (i) an increase in advertising and promotion expenses, and distributors' seminar expenditure of $9.8 million relating tomarketing and promotional activities in the Company's existing and new geographic markets, and (ii) an increase in the transportation expenses of $0.9 million due to increase in sales.
General and administrative ("G&A") expenses increased by $1.3 million, or 37.5%, to $4.8 million for the three months ended September 30, 2011, from $3.5 million for the same period of 2010.As a percentage of sales, G&A expenses decreased from 4.9% for the three months ended September 30, 2010 to 3.5% for the same period of 2011. The increase in G&A expenses was mainly due to increases in meeting expenditure, general maintenance expenses and staff training expenses.
Research and development ("R&D") expenses were $4.5 million for the three months ended September 30, 2011, as compared to $2.2 million for the same period of 2010. The increase in R&D expenses mainly consisted of field test expenses for new crops and newly developed provincial markets as well as new product development expenses.
Operating income was $50.6 million, or 36.0% of sales, for the three months ended September 30, 2011, compared to $20.8 million, or 29.0% of sales, in the same period last year. Excluding non-cash expenses related to the amortization of the acquired Hebei customer list, third quarter 2011 adjusted operating income was $51.3 million, or 36.5% of sales.*
Net income attributable to Yongye was $39.1 million, or $0.69 per diluted share, for the three months ended September 30, 2011, compared to a net income of $17.6 million, or $0.37 per diluted share, in the same period last year. The Company recorded a non-cash income related to a change in fair value of derivative liabilities of $119,663 in the third quarter of 2011. Excluding the impact of non-cash expenses related to 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 third quarter of 2011 was $39.7 million, or $0.70 per diluted share, compared to $18.3 million, or $0.39 per diluted share in the same period last year.*
Nine Month Financial Results
Revenue for the nine months ended September 30, 2011 increased 85.7% to $345.5 million from $186.1 million for the comparable period in 2010. For the same time period, gross profit was $204.6 million, compared to $106.0 million in 2010. Gross margin was 59.2% for the nine months ended September 30, 2011, as compared to 57.0% for the same period of 2010.Operating income for the nine months ended September 30, 2011 was $113.4 million, compared to $56.3 million for the same period 2010. Net income attributable to Yongye for the nine months ended September 30, 2011 was $87.0 million, compared to $46.2 million in the prior year period. For the nine months ended September 30, 2011, net income per diluted share was approximately $1.65, as compared to $1.01 diluted earnings per share for the same period of 2010. The Company recorded non-cash expenses of $5.0 million related to share-based compensation for management and independent directors and $2.1 million related to the amortization of the acquired Hebei customer list as part of its cost of sales, as well as a non-cash income related to a change in fair value of derivative liabilities of $533,250 for the nine months ended September 30, 2011. 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 nine months ended September 30, 2011 was $93.6 million, or $1.78 per diluted share, compared to $46.7 million, or $1.03 per diluted share in the same period last year.*
(*) See the table following this press release for a reconciliation of gross profit, income from operations, net income and diluted EPS to exclude non-cash items related to the amortization of the acquired Hebei customer list, share-based compensation for management and independent directors, and a change in the fair value of derivative liabilities to the comparable financial measure prepared in accordance with U.S. Generally Accepted Accounting Principles ("U.S. GAAP").
Financial Condition
As of September 30, 2011, the Company had $80.4 million in cash and restricted cash, compared to $42.0 million as of December 31, 2010. Working capital was $270.6 million, compared to $124.3 million at the end of 2010. Accounts receivable for the quarter more than doubled on a year-over-year basis, as the Company experienced extremely strong sales in September compared to the prior year. Yongye does not have any accounts receivable that are uncollectable or beyond the company's six month credit policy. The Company has a $15.6 million short-term bank loan and $3.7 million in long-term debt as of September 30, 2011. Stockholders' equity totaled $331.2 million as of September 30, 2011, compared to $225.1 million at the end of 2010. Cash flow used by operating activities was $20.5 million and $9.3 million for the nine months ended September 30, 2011 and 2010, respectively. These changes were primarily due to the increase of $62.4 million in working capital employed, which was primarily driven by higher accounts receivables, but was partially offset by a lower inventory balance and settled deposits to suppliers. Other factors include an increase of $43.4 million in earnings and a non-cash expense of $5.0 million for management stock compensation.
Recent Developments
On October 25, 2011, Yongye Nongfeng, the Company's main operating entity in China, received the "Inner Mongolia Science and Technology Achievement Award" for the 2010 year from the Science and Technology Administration of the Inner Mongolian government. The award recognizes Yongye's contribution to humic and fulvic acid extraction technology and its commercial application in green agriculture in China.
In August 2011, Yongye Fumin, a wholly-owned subsidiary of Yongye Nongfeng, the Company's main operating entity in China, obtained government approval for mineral resource exploration permit for its designated project site in Wuchuan, Inner Mongolia, China. The permit gives Yongye exclusive exploration rights for the 29.74 square kilometer project site for an initial period of three years effective August 2, 2011. It allows the Company to conduct exploration of the project site to obtain remaining government approvals for it to fully acquire the Mineral Right. Yongye entered into an agreement to purchase this mineral resource project in March 2010 to secure the key raw material used in the production of Yongye's Shengmingsu crop and animal nutrient products. The project site in Wuchuan is located near Yongye's primary production facility which manufactures the majority of Yongye's Shengmingsu products.
On August 25, 2011, Mr. Nan Xu, General Manager of the Company's National Sales Center, was appointed Chief Operating Officer of Yongye and joined the Company's Board of Directors. The Company separately announced that Mr. Taoran Sun and Mr. Qiang Zhao resigned as members of the Board of Directors of Yongye for personal reasons, but will remain advisors to the Company. In addition, Mr. Sean Shao resigned from the Nominating and Corporate Governance Committee of the Board of Directors and was replaced by Mr. Homer Sun. These changes bring the total number of members of the Board of Directors to seven.
Business Outlook
Together with results for the third quarter, the Company also announced that it is increasing both top and bottom line guidance for 2011. Previous guidance included revenues of $335 million to $345 million and adjusted net income of $85 million to $87 million. Revised guidance now includes revenue of $390 million to $400 million and net income, 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, of $100 million to $102 million. The Company also expects to expand its branded retailer network to at least 30,000 by the end of 2011, which represents a 24.8% increase over the 2010 year-end number of 24,036.
