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Biostar Pharmaceuticals, Inc. (NASDAQ:BSPM)

Q2 2013 Results - Earnings Call Transcript

August 20, 2013 09:30 AM ET

Executives

Chris Lee

Ronghua Wang, Chairman and CEO

Qinghua Liu - Chief Financial Officer

Analysts

Charles Ognar - Ognar Trading

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to Biostar Pharmaceuticals, Inc. second quarter 2013 earnings conference call. During today’s presentation, all participants will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator Instructions).

I would now like to turn the conference over to Mr. Chris Lee, please go ahead.

Chris Lee

Thank you and welcome everyone to Biostar’s second quarter 2013 earnings conference call. My name is Chris Lee and I am translator of Biostar. With us today, Mr. Ronghua Wang, Chief Executive Officer and Chairman of the Board of Directors; Mrs. Qinghua Liu, Chief Financial Officer and Ally Gong, Secretary of the Board. After management’s prepared remarks there will be a Q&A session.

Before we continue I would like to remind our listeners that this conference call may include items of forward-looking nature with respect to certain securities regulation. We refer you to the forward-looking statement disclaimer made in the 10-K and 10-Q filings with the Securities and Exchange Commission as well as those forward-looking statements made in the company’s press release.

The details of the results are available in the news release and the Form 10-Q we filed yesterday afternoon. If you have not received a copy of our press release, please send email to office@aoxing-group.com and we will email you a copy.

Now I will hand the conference call over to our Chairmen and CEO, Mr. Ronghua Wang who will discuss recent developments and then our CFO Mrs. Qinghua Liu will review the financial results. Mr. Wang.

Ronghua Wang

[Foreign Language]

Thank you everyone for attending Biostar’s second quarter 2013 earnings conference call. I am Chairman and CEO, Ronghua Wang. As we announced in 10-Q and news release, we continued positive momentum in the second quarter of 2013, with 79.6% year-over-year growth and 21.2% quarter-over-quarter growth in sales.

Since the approval from Xianyang SFDA authorities to restart sales of gel capsule products in July 2012, we implemented the plan to recover our sales of capsule products and we have seen improvements quarter-over-quarter in turn. We will continue to expand our product portfolio, enhance our marketing and distribution to support the growth in the second half of 2013.

We are making progress on our business. We will remain focused on expanding our sales footprint, expanding our leading products while introducing new products which we believe will collectively drive growth and increase profitability.

I will now turn the call over to our CFO, Mrs. Qinghua Liu, who will discuss our second quarter 2013 results. She will also discuss the new development of our business. Then, we will be available to answer your questions. Mrs. Liu, please go ahead.

Qinghua Liu

[Foreign Language]

Thank you, Mr. Wang. Revenue for the second quarter of 2013 increased 79.6% to approximately $14.7 million compared to $8.2 million for the second quarter of 2012. The increase was mainly attributed to the increase in sales volume and introduction of several new products, partially offset by decrease in average sales price and discontinuation of four products since the first quarter of 2013.

Sales of products under the Aoxing Pharmaceutical brand increased by approximately $4 million, or 62.9%, to $10.4 million for the three months ended June 30, 2013, compared to the same period in 2012.

Sales of Shaanxi Weinan’s products increased by approximately $0.5 million or 30.2% to $2.3 million for the three months ended June, 2013, compared to the same period in 2012. The increase was attributed to an increase in sales volume and introduction of new products.

The company has also begun sales of three new products that were sold exclusively at a local hospital since the third quarter in 2012. These products accounted for approximately $1.9 million of total net sales for the three months ended June 30, 2013.

Cost of goods sold for the three months ended June 30, 2013 was approximately $7.8 million or 53% of revenue as compared to $3.6 million or 34% of revenue for the three months ended June 30, 2012. This increase is mainly due to the increase in sales and the introduction of the new hospital product.

Gross profit for the second quarter of 2013 was $6.9 million with gross margins of 47% compared to $4.6 million in gross profit and gross margin of 56% for the second quarter of 2012. The increase in gross profit was due to increased sales. A decrease in gross profit margin was mainly due to higher average cost of Xin Aoxing Capsule.

Operating expenses for the three months ended June 30, 2013 were approximately $7.7 million, a decrease of 54.3% compared to the same period in 2012. The decrease is attributable to decrease in advertising and selling expenses. The company incurred a one-time compensation expense of $7.9 million paid to customers during the sales suspension as a result of the Capsule incident during the three months ended June 30, 2012.

Advertising expenses accounted for 17.4% and 53.8% of total net sales for the three months ended June 30, 2013 and 2012. The overall decrease of approximately $1.8 million or 41.9% is consistent with the temporary discontinuation of several products.

Selling expenses increased approximately $0.3 million or 11.9% to $2.6 million for the three months ended June 30, 2013 as compared to the same period in 2012. For the three months ended June 30, 2013 and 2012, general and administrative were approximately $1.5 million and $1.12 million.

Loss from operations for the second quarter of 2013 totaled approximately $0.8 million a 93.5% decrease from $12.2 million reported for the second quarter of 2012. Net loss was approximately $0.7 million for the second quarter of 2013 compared to $9.5 million for the second quarter of 2012.

Diluted earnings per share were $0.06 for the second quarter of 2013 compared to [minus] $1.01 for the second quarter of 2012 based upon 11.6 million and 9.4 million diluted common stocks outstanding respectively.

For the six months ended June 30, 2013 revenue increased approximately 11.2% to $26.7 million compared to the same period in 2012. Gross profit was approximately $13.6 million for the first six months of 2013 representing a decrease of 11.9% from the first six months of 2012. Gross margin decreased to 50.7% for the first six months of 2013 compared to the same period one year ago.

Loss from operations was $63,618 and $9.1 million for the first six months of 2013 and 2012 respectively. Net loss was $0.2 million for the six months ended June 30, 2013; compared to $7.3 million from the same period in 2012. Fully diluted earnings per share were minus $0.02 compared to minus $0.78 for the first six months of 2013 and 2012 respectively, based up on 10.8 million and 9.4 million shares.

Cash and cash equivalents totaled $10 million on June 30, 2013, compared to $1.8 million on December 31, 2012. Accounts receivable balance was approximately $13.5 million on June 30, 2013, versus approximately $21.9 million on December 31, 2012. Days sales outstanding for the first six months of 2013 were at 91 days, compared to 176 days for the same period in 2012. The company had a current ratio of 3.8:1 and stockholders’ equity of $60.4 million, with total assets of $71.2 million versus total liability of $10.8 million on June 30, 2013.

For the first six months of 2013, the company generated $10.5 million in cash from operations versus $2.7 million for the same period in 2012.

Now I would like to discuss a new business development during the second quarter of 2013.

In April 2013, we executed a supplemental agreement to the Weinan Share Transfer Agreement with all the former equity holders of Shaanxi Weinan to acquire 13 drug approval numbers which were excluded from the Weinan Share Transfer Agreement due to the ongoing re-registration. We acquired ownership of the 13 drug approval numbers for which re-registration has been completed in April 2013. The aggregate purchase price was approximately $10.2 million, consisting of approximately $8.8 million in cash and 1,602,564 shares of the company’s common stock, valued at approximately $1.4 million.

During the second quarter of 2013, despite the impact on the net profit due to the lower sales price of new products, our revenue growth and business remains solid, despite the impact on our profitability is temporary, and we anticipated a strong and profitable second half of 2013.

Ladies and gentlemen, this concludes our prepared remarks. We would like to open the line to your questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Charles Ognar with Ognar Trading.

Charles Ognar - Ognar Trading

I see that there will be almost $20 million in cash when the loan is paid off. Why don’t you use some of the cash to buy back stock? In light of the insiders, like management, Chairman Wang buy stock to get the stock over $1, the reverse split last time I thought was a mistake and I think that we need management and the cash position to buy some shares so that the investors can have confidence.

Chris Lee

Okay. I will translate to Mr. Wang.

Ronghua Wang

[Foreign language]

The payment (inaudible) for the loan, the management considered upon business development requirement.

Charles Ognar - Ognar Trading

So nobody has any confidence to buy stock, hello?

Chris Lee

Yes, I will translate that to them.

Charles Ognar - Ognar Trading

Thank you, please.

Qinghua Liu

[Foreign Language]

Two years ago, we used to own these buyback, did buybacks there of stock, actually don’t sincerely got a lot of impact on the share price.

Charles Ognar - Ognar Trading

That is because you are almost ruined the company with this terrible capsule fiasco, but now that the sales are coming back and you have so many new drugs, I'm sure it would have an impact.

Qinghua Liu

[Foreign Language]

Beside the float there was 30 million shares outstanding now other, since the reverse split there is only 9 million shares away from the float, in fact there is probably only 4 million or 5 million of float and it would have a lot of impact now after the reverse split.

Chris Lee

Okay. Thank you for your suggestion. The management will consider your suggestion.

Operator

(Operator Instructions) And our next question is a follow up from Charles Ognar with Ognar Trading. Please go ahead.

Charles Ognar - Ognar Trading

I would like to know about the foot spray Zushima, you have been developing that and it's been on the table for over two years, is that an issue, will the army ever give the contract to USA company?

Qinghua Liu

[Foreign Language]

The officials have already (inaudible) up our product and we got waiting for their approval right now.

Charles Ognar - Ognar Trading

Do you even think it will happen?

Qinghua Liu

[Foreign Language]

I don't think it will be a problem because they have contacted the local officials and it’s just the time (inaudible).

Charles Ognar - Ognar Trading

One follow-up question. When do you think profit margins will return?

Qinghua Liu

[Foreign Language]

We expect the second half of the year will be getting better.

Operator

Thank you. And I am showing no further questions at this time. Please continue with closing remarks. And Mr. Lee I am showing no further questions.

Chris Lee

Are there any more questions?

Operator

No sir.

Chris Lee

Okay. Again I want to thank everyone for joining us today. We look forward to updating you on our third quarter 2013 results in late November. Thank you very much, take care. Thank you.

Operator

Ladies and gentlemen this does conclude our conference for today. Thank you for your participation. You may now disconnect.

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