Tianli Agritech's CEO Discusses Q3 2013 Results - Earnings Call Transcript

| About: Tianli Agritech, (OINK)

Tianli Agritech, Inc. (NASDAQ:OINK)

Q3 2013 Earnings Conference Call

November 14, 2013 08:00 AM ET

Executives

Tina Xiao - IR

Hanying Li - CEO

Analysts

Paul Bucket - Private investor

Operator

Hello and welcome to the Tianli Agritech Third Quarter Conference Call. All participants will be in a listen-only mode. (Operator Instructions). After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Tina Xiao. Please go ahead.

Tina Xiao

Thank you, operator and good morning everyone. Joining us today from Tianli Agritech are the Company’s Chairwoman and CEO, Ms. Hanying Li; and the Company's Chief Financial Officer, Mr. Guofu Zhang. I'll provide translation to Ms. Li's opening remarks and behalf of the management team, a review and comment on the reporting period for Tianli Agritech. Then management will respond to your questions during the Q&A session after management’s prepared remarks.

I would like to remind our listeners who are on this call, management's prepared remarks contains forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore the company claims the protection of Safe Harbor for forward-looking statements as contained in the Private Security and Litigation Reform Act of 1995. Tianli is under no obligation to update or alter its forward-looking statements, whether as a result of new information, future events and otherwise.

At this time, I would like to introduce Ms. Hanying Li, Chairwoman and CEO of Tianli Agritech. I will provide English translation to Ms. Li.

Hanying Li

[Foreign Language]

Thank you, Tina and thank you everyone for joining Tianli’s third quarter earnings conference call today. At the back of gradual recovery of hog prices and strong growth momentum for our black hog program and retail operations, we are very pleased to report our third quarter financial results that highlighted the 33% top line growth and the return to profitability since the second quarter of 2012.

[Foreign Language]

Recently, we also regained compliance with the minimum bid price requirement of $1.00 per share for continued listing of our common stock on the NASDAQ Capital Market and completed a $3.2 million private placement with Mr. Wei Gong, a prominent investor and one of the pioneers of incubation centers in China.

[Foreign Language]

On another note, early this month, we received a notice from the Animal Husbandry and Veterinary Bureau of Hubei district Wuhan City, asking us to shutdown our 8th farm located in the area of Dacha Lake in the Caidian district by the end of this year. We were advised that all agriculture and manufacturing activities surrounding the Dacha Lake were ordered to close as part of government’s efforts to restore the lake to its natural condition.

[Foreign Language]

Our 8th farm is situated on approximately 13.18 acres of leased land with 24 buildings dedicating to hog rearing and 1 building for administration and employee housing. Year-to-date we have sold 9,546 hogs from the 8th farm. We are currently petitioning the Animal Husbandry and Veterinary Bureau of Caidian district to allow us to operate the 8th farm into 2014 to ensure minimal disruption to our business. We planned to transfer operating stocks to our other hog rearing facilities and liquidate the remaining livestock.

[Foreign Language]

As we continue to advance our black hog program and expand our retail presence, we believe better days lie ahead of us. We want to thank our shareholders, many of whom have been with us since our IPO in 2010 for their continued patience and support.

Thank you again for your support and attention. Next, Tina will summarize our third quarter financial results on behalf of the management team. Thank you.

Tina Xiao

Thank you, Ms. Li and good morning everyone. Next on behalf of the management team, I will summarize some key financial results for the third quarter of 2013 and for the nine months ended 30, 2013 respectively. For the third quarter that ended September 30, 2013, revenue grew 33% to $8.73 million, from $6.57 million for the same period last year. This increase was primarily the results of increased sales in both breeder and market hogs, as well as the revenue contribution from retail operations that was resumed in April 2013. Total hog sales was 37,616 for the third quarter, compared to 29,702 hogs sold for the same period of last year. While average selling price for our hogs sold increased 4.47% to $232 per hog from $221 per hog for the third quarter of last year.

Breeding hog revenue increased 16% to $2.14 million with total numbers of breeder hogs sold increasing 19% to 7,605 hogs from 6,404 hogs for the third quarter of last year and average selling price down 2% to $282 per hog from $289 per hog for the same period last year.

Regular market hog revenue increased 9% to $5.17 million for the third quarter of 2013 as the number of regular market hog sold grew 3% to 23,951 hogs and average selling price of regular market hogs increased 6% to $216 per hog.

We also sold 5,323 black hogs with average selling price of $230 per hog, generating $1.23 million in revenue during the third quarter of 2013. We did not sell black hogs in comparable period of 2012. We also generated $0.19 million in revenue from retail operations during the third quarter of 2013.

Gross profit for the third quarter of 2013 was $0.9 million, compared to $0.62 million for the same period of last year. Gross margin for the third quarter of 2013 was 10.4%, compared to 9.5% for the same period last year. The combination of slight decrease in feed cost and slight increase in blended average selling price contributed to the year-over-year increase in gross margin.

SG&A expenses were $0.67 million for the third quarter of 2013, down $0.95 million from the third quarter of 2012. The decrease primarily reflect the non-cash expense of $1.1 million, resulting from the issuance of 1 million to our marketing consultants and employee for the black hog sale in the third quarter of 2012. There was no comparable expense in 2013.

Excluding net income attributable to non-controlling interest, net loss attributable to our common shareholders for the third quarter 2013 was $0.29 million or 3% per diluted share. This compared to a net loss attributable to common shareholders of $1.13 million or a loss of $0.10 per diluted share for the same period last year.

Now shift gear to year-to-date financial results. Revenue for the nine months ended September 30, 2013 grew 17% to $22.96 million from the same period last year. The increase was due to the results of selling more breeder hogs, market hogs and revenue contribution from retail operations and sales of black hogs.

The company sold a total of 106,593 breeder hogs, regular market hogs, black hogs and marketing hogs for just pork with blended average selling price of $215 per hog during the nine month period ended September 30, 2013, compared to 84,831 hogs sold at blended average selling price of $252 per hog for the same period last year.

Revenue for the nine months ended September 30, 2013 for breeder hog sales increased 4% to $6.23 million, with the number of breeder hogs sold increasing 15% to 23,013 hogs, and average selling price of breeder hogs decreasing 10% to $271 per hog.

Revenue for the nine months ended September 30, 2013 from regular market hog sales increased 2% to $14.1 million as the number of regular market hog sales grew 9% to 71,492 hogs, and average selling price of regular market hogs decreased 7% to $196 per hog. The decline in average selling price of both breeder and regular market hogs was remaining due to market conditions.

We also sold 11,136 black hogs with average selling price of $223 per hog generating $2.48 million in the revenue during the nine months ended September 30, 2013. We did not sell black hogs in comparable period of 2012. We also generated $0.24 million in revenue from retail during the nine months ended September 30, 2013.

Gross profit for the nine months ended September 30, 2013 was $1.43 million, compared to $2.72 million for the same period last year. Gross margin was 6% and 14% for the nine months ended September 30, 2013 and 2012 respectively. The impact of increased fee cost and reduced hog prices caused a significant decrease in gross margin.

SG&A expenses for the nine months ended September 30, 2013 were $2.32 million, down $0.36 million from $2.68 million for the same period last year. The decrease was primarily as a result of a one-time non-cash stock based selling expenses incurred in 2012, partially offset by increased expense of $2.27 million, in the addition of $0.07 million, the administrative expenses from our black hogs and retail operations.

Net loss from continued operations for the nine months ended September 30, 2013 was $1.14 million, compared to $0.14 million for the same period last year. The increase in max loss was primarily the result of both increase in cost of goods sold and increase of fee cost in the first half of 2013, partially offset by the increase in our revenue and a decrease in our Selling General and Administrative Expenses, reflecting a one-time non-cash expense for stock based composition in 2012.

After allocating the net loss attributable to non-controlling interests, net loss attributable to common shareholders for the nine months ended September 30, 2012 was $0.82 million, a loss of $0.07 per diluted share. This compared to net loss attributable to common shareholders of $0.1 million a loss of $0.01 per diluted share for the same period last year.

Now for a quick summary of our balance sheet and cash flow as of September 30, 2013 we had approximately $5.71 million cash and cash equivalents compared to $7.48 million at December 31, 2012. Working capital at September 30, 2013 was $12.48 million, as compared to $8.98 million at December 31, 2012. Cash flow from operating was 0.96 million and $4.73 million for the nine months ended September 30, 2013 and 2012 respectively.

Now I will like to turn the discussion over to operator for any questions. Thank you.

Question-and-Answer Session

Operator

We will now begin the question-and answer-question. (Operator Instructions). Our first question comes from a [indiscernible], Private Investor. Your line is open. You may ask your question.

Unidentified Analyst

I have two questions. The one is, as the Company disclosed the 8th Farm in Wuhan City was ordered to close by the end of 2013. So can you explain what is the financial impact from the farm shutdown especially for the coming quarters and how can you deal with the current livestock? Thanks.

Hanying Li

[Foreign Language]

On November 6, 2013, we received notice from the Animal Husbandry and Veterinary Bureau of Caidian District in Wuhan City to direct us to close our farm located in the Caidian District. We were advised that all agricultural and manufacturing activities in the area of Dacha Lake in the Caidian District are being ordered to close as part of the government’s efforts to restore the lake to its natural condition. Our farm in Caidian district was our 8th Farm, which was established in 2005.

The farm is situated on approximately 13.18 acres of land and has 24 buildings dedicated to hog rearing and 1 administration building and housing for the Company’s employees that regular work at the Farm. The 8th Farm had approximately 1018 breeder sold stock in the first nine months of 2013. We sold 9,546 hogs from the 8th Farm.

We are currently petitioning the Animal Husbandry and Veterinary Bureau of Caidian District to be allowed to operate the 8th Farm into 2014 to allow for orderly transfer of the breeding stock to other farms and for an orderly liquidation of the remaining livestock to enable us to minimize the adverse impact of the close.

We are also inspecting the livestock equipment and supplies located on the 8th Farm to determine what should be transferred to other farms, what should be sold and the best to method of disposing the livestock equipment and supplies as we determine to sell.

Unidentified Analyst

My second question is, why did the Company change the auditor? Can you explain more on that?

Hanying Li

[Foreign Language]

For October 23, 2013 to October 25th 2013, the Company dismissed RBSMLP and engaged HHC as its independent registered public accounting firm for the year end December 31, 2013. The HHC's auditor we engaged now used to work in RBSM and they split out to set up a new firm named HHC. Under these circumstances we choose to follow this team because they know our Company well and there will be no impact on audit work in coming quarters.

Operator

Next question comes from Paul Bucket, a Private Investor.

Paul Bucket - Private investor

I'd like to ask a question regarding what is the difference between market hogs for processed pork and regular market hogs. And the other one, there's a difference of $39. What is it that you do to the hogs? Do you slaughter them yourself and do you increase the weight? That’s the end of the question.

Tina Xiao

Hi operator, can you please mute Ms. Li, and I cannot clearly for the investor's question. Paul, can you please repeat your question again. There is echo in the front. Sorry about that.

Paul Bucket - Private investor

Can you hear me better now?

Tina Xiao

Yes, better. Thank you, Paul.

Paul Bucket - Private investor

There is. You have market hogs for processed pork at $255, which is your selling price. Then you have market hogs, regular hogs for $216 dollars. There's a difference of $39. What is it that you do to increase the price? Do you slaughter them yourself? Do you fatten them up? What's the difference between the two?

Tina Xiao

Okay thank you, I hear it clearly thank you. Let me translate to Ms. Li.

Hanying Li

[Foreign Language]

Paul, according to Ms. Li’s information I can tell you, the regular market hog is the regular hog except the breeder hog. That's the regular hog we can see in the market everywhere, and the processed pork is we feed it in Anshi Prefecture with our own feed and we cooperate with our farmers to breed them up, and we can understand that processed pork is a premier pork, with the higher average price. So that is the difference. And the price, we calculate it according to the quality. So the processed pork is higher than the regular market hog. Thank you Paul.

Paul Bucket - Private investor

I do have a follow up question.

Hanying Li

[Foreign Language]

And the difference is selling market hog in whole or in carts through retail. The ASP difference is actually difference [indiscernible].

Paul Bucket - Private investor

Do the processed hogs, are they black market hogs?

Tina Xiao

The processed pork are black hogs.

Paul Bucket - Private investor

Okay thank you very much.

Tina Xiao

You're welcome.

Operator

This concludes our question and answer session. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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