Yongye International's CEO Discusses Second Quarter Results - Earnings Call Transcript

Yongye International (YONG)

Q2 2012 Earnings Call

August 9, 2012, 08:30 am ET

Executives

John Capodanno – Investor Relations Advisor

Sam Yu – CFO

Kelly Wang – Financial Director

Analysts

John Harrell – Harrell Associates

(Ken Shriner) – Private Investor

(Anson Beard) – Private Investor

(Patrick McMullan) – Private Investor

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Yongye International second quarter 2012 earnings conference call. (Operator Instructions). I would now like to turn the conference over to your host for today's call, John Capodanno. Mr. Capodanno, please proceed.

John Capodanno

Thank you, operator. Good morning, ladies and gentlemen, and welcome to Yongye International's second quarter 2012 earnings conference call. I am John Capodanno of FTI Consulting, Yongye's investor relations advisor. With us today are Mr. Sam Yu, Yongye's Chief Financial Officer, and Ms. Kelly Wang, Yongye's Finance Director.

Before we start, I would like to remind our listeners that management's prepared remarks in this call contain forward-looking statements which are subject to risks and uncertainties and may make additional forward-looking statements in response to your questions. Therefore, the company claims the protection of the Safe Harbor for Forward-Looking Statements as contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today due to such risks as, but not limited to, fluctuations in customer demand, management of rapid growth, intensity of competition from other providers of plants and animal nutrient products and services, general economic conditions, geopolitical events, and regulatory changes and other information detailed from time to time in the company's filings and future filings with the United States Securities and Exchange Commission.

Although the company believes that the expectations in such forward-looking statements are reasonable, there's no assurance that such expectations will prove to be correct. On the call today, we'll also mentioned adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in the second quarter 2012 earnings release that was distributed early this morning.

Any projections as to the company's future performance represent management's estimates as of today, August 9, 2012. Yongye assumes no obligation to update these projections in the future as market conditions change. Having now stated those formalities, I will now turn the call over to Mr. Sam Yu for a review of the company's developments in the second quarter of 2012.

Sam Yu

Thank you, John. Thank you, everyone, for joining us today. Yongye has achieved another successful quarter with excellent growth in shipments of Shengmingsu and the continued strong uptake of our (inaudible) products highlighting the strength of our plan and the strength of our sales and distribution strategy.

We remained focused on expanding our distribution networks and strengthening our penetration in both new and existing markets.

During the second quarter of 2012, we continued expansion of our branded retailers to 32,015 stores covering over (inaudible) regions in China. The majority of newly recruited branded retailers are from Hebei, Shanxi, Jiangsu, and Henan provinces.

I would like to begin by providing an overview of our performance during the second quarter of 2012. Revenue increased 14.8% to $177.6 million from $154.7 million in the second quarter of 2011. Gross profit increased 17.8% year-over-year to $108.1 million. Income from operations increased 3.9% to $53.5 million.

Net income attributable to Yongye increased 4.0% to $41.1 million from $39.5 million for the same period of 2011. Diluted earnings per share stood at $0.74 compared to $0.77 for the same period of 2011.

Adjusted net income attributable to Yongye 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 was $43 million or $0.78 per diluted share compared to $40.5 million or $0.82 per diluted share in the same period last year.

Cash flows from operating activities was $8.1 million for six months ended June 30, 2012 compared to cash flows used in operating activities of negative $27.8 million in the same period of 2011.

In this month's activities, you will notice that we called attention to accounting principle that were applied in the fourth quarter of 2011 to revenue recognition for certain distributors who have (inaudible).

The impact of this issue among revenue and profit recorded under US GAAP was negative for the first quarter of 2012 which is a non-peak quarter for us. For this second quarter, which is our peak busy season, the account impact is quite significant.

It is important to note that this issue is not related to our (business fundamentals) in this quarter. We also had no production issues at all in this quarter as we have zero overdue accounts receivable.

I'd like to provide some additional color on (recovery). Due to the issues that we normally experience with the timing of collection of accounts receivable in the fourth quarter of 2011, we adopted and more conservative about our approach since then. (Inaudible) revenue is recognized on a cash basis rather than a shipping basis.

These distributors are the ones who have delayed payment in the fourth quarter of 2011. To reiterate, none of those distributors (inaudible) have overdue accounts receivable in this quarter. However, we cannot recognize the revenues from (inaudible) distributors' shipments until the cash is actually received.

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