Tianyin Pharmaceutical's Management Discusses F2Q12 Results - Earnings Call Transcript

Tianyin Pharmaceutical Co., Inc. ( TPI)

F2Q12 Earnings Call

February 14, 2012 08:30 am ET

Executives

James Jiayuan Tong – Chief Financial Officer & Chief Business Development Officer

Simon Minute Ren – Director of Investor Relations

Analysts

Adam Waldo – Lismore Partners LLC

Steve Unger – Lazard Capital

David Sheridan – WorldOver Capital

Presentation

Operator

Good day ladies and gentlemen thank you for standing by. Welcome to the Tianyin Pharmaceutical Co., Inc., second quarter 2012 annual financial results conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today Tuesday February 14, 2012.

I would now like to turn the conference over to Chief Financial Officer, James Tong. Please go ahead sir.

James Jiayuan Tong

Thank you, Kristina. Good morning, good evening ladies and gentlemen. Welcome to Tianyin Pharmaceutical fiscal year 2012 second quarter earnings conference call. I am James Jiayuan Tong, Chief Financial Officer and Chief Business Development Officer of TPI along with Simon Ren, Director of Investor Relations and the other member of the Capital Market Group.

During this conference call, we’ll be reviewing the second quarter fiscal 2012 financial highlights followed by the question-and-answer period. Before we continue please know that this call will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Any statements set forth in this presentation that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, which may include, but are not limited to, such factors as unanticipated changes in product demand, increased competition, failure to obtain or maintain intellectual property protection, fluctuation in the economy, results of research and development, failure to obtain regulatory approvals and other information detailed from time-to-time in TPI’s filings and future filings with the United States Securities and Exchange Commission

The forward-looking statements contained in this presentation are made only for this date and TPI is not under any obligation to revise or update these forward-looking statements. The second quarter fiscal year 2012 ended December 31, 2011 financial highlights.

Second quarter fiscal year 2012, revenue delivered $18.2 million, compared with $25.3 million in second quarter fiscal year 2011. Second quarter fiscal year 2012 operating income delivered $2.1 million, compared with $5.2 million a year earlier. Net income was $1.7 million, compared with $5.9 million in second quarter fiscal year 2011.

Earnings per share is $0.06 per basic share or $0.06 per diluted share, compared with 0.21 per basic share, or $0.20 per diluted share in second quarter fiscal year 2011. Cash and cash equivalents totaled $36.9 million on December 31, 2011. Operating cash flow for the six months ended December 31, 2011 was $8.2 million, compared with $10.8 million for the six months ended December 31, 2010.

Sales for the quarter ended December 31, 2011 was $18.2 million, a decrease of 28% as compared to $25.3 million for the quarter ended December 31, 2010, but a slight gain from the first quarter of fiscal 2012, which was $17.5 million.

The sales decrease from the prior year was mainly due to the generic pricing pressure, government policy to prioritize Essential Drug List drug sales that led to the sales and margin compression of higher margined generic pharmaceuticals, and three in the quarter ended December 31, 2010, ahead of the current healthcare reform policies being enforced, downstream customers had significantly built up their inventory, which led to a revenue gain of 69.6% for TPI from the prior year.

Our five core product sales are Gingko Mihuan, GMOL $4.3 million; Apu Shuangxin, APU: $0.77 million, Azithromycin, AZI $0.80 million; Xue Lian Chong Cao XLCC, $0.78 million; and Qing Re Jie Du QR $0.83 million. These products totaled $7.5 million in sales, representing 41% of the total quarterly revenue. This is a gain of 33.9% from the first quarter fiscal 2012 during, which core product sales totaled $5.6 million, or 32% of the quarterly revenue.

Gross Margin for the quarter ended December 31, 2011 was 33.1% as compared to 44.7% for the quarter ended December 31, 2010. The factors that influence the gross margins are mainly raw material prices and production cost.

During the second quarter, our organic product portfolio delivered 42.4% gross margins, 9% lower than the 51.4% for the quarter ended December 31, 2010. The reduction in gross margins are due to 1) generic pricing pressure, 2) distribution revenue business through Tianyin Medicine Trading TMT delivered $4.5 million at approximately 10% gross margin and 3) increase of raw material costs.

Based on the blend of the TMT lower margin revenue and the current pricing restriction, our overall gross margin in the near-term, on a quarter-to-quarter comparison basis, may trend lower, but on a sequential basis should stabilize depending on the sales mix of TMT, JCM, which is Jiangchuan Pharmaceutical API revenue as compared to the proprietary portfolio revenue performance.

Operating Expenses were $4.0 million for the quarter ended December 31, 2011, as compared to $6.0 million for the quarter ended December 31, 2010. And also compared with $3.7 million in the first quarter of fiscal 2012, the decrease in operating expenses is mainly associated with the lower sales and marketing costs as a result of the lower sales, and in the prior year, there was a one-time restricted stock compensation impact of approximately $500,000 million in the quarter ended December 31, 2010.

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