Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Tianyin Pharmaceutical Co., Inc. (NYSEMKT:TPI)

F3Q12 Earnings Call

May 15, 2012 09:00 AM ET

Executives

James Tong – CFO

Guoqing Jiang – CEO and Chairman

Analysts

Adam Waldo – Lismore Partners LLC

Operator

Good day ladies and gentlemen thank you for standing by. Welcome to the Tianyin Pharmaceutical Incorporated Third quarter fiscal 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).

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

James Tong

Thank you. Good morning, good evening ladies and gentlemen. Welcome to Tianyin Pharmaceutical, TPI third quarter fiscal 2012 earnings conference call. I am James Jiayuan Tong, Chief Financial Officer and Chief Business Development Officer of TPI along with Dr. Guoqing Jiang, Chief Executive Officer and Chairman of the Board; Simon Ren, Director of Investor Relations.

During this conference call, we’ll be reviewing the third 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 US 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 such 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 under no obligation to revise or update those forward-looking statements.

The third quarter fiscal year 2012 ended March 31, 2012 financial highlights. Revenue delivered $14.4 million, compared with $24.9 million in third quarter fiscal year 2011. Operating income delivered $1.3 million compared to $5 million a year earlier. Net income was $0.9 million compared with $4.1 million a year earlier. Earnings were $0.03 per basic and diluted share in the third quarter of fiscal 2012 compared with $0.14 per basic or diluted share in the third quarter of fiscal 2011. Cash and cash equivalents totaled $29.9 million on March 31st, 2012, operating cash flow for the nine months and in March 31st, 2012 was $4.8 million compared with $12.2 million, in nine month ended March 31st, 2011.

Sales for the quarter were $13.4 million, a decrease of 40.6% as compared to $24.0 million a year earlier. The decrease was mainly due to generic pricing pressure and competitive market conditions to restrictive government policies to prioritized the central drug list, EDR drug sales were simultaneously reduced a negative impact of sales and margins, with higher margin generic pharmaceuticals.

Third, (inaudible) was negatively effect of sales in this period and for during the prior period, a rise in demand as a result of inventory accumulation by our downstream customers prior to the enforcement of healthcare reform policies last year.

Our top five products sales are Ginkgo Mihuan Oral Liquid GMOL, $2.6; Apu Shuangxin APU, $0.9 million and Azithromycin AZI, $0.52 million; Xue Lian Chong Cao XLCC, $0.65 million and Qingre Jiedu Oral Liquid, $0.4 million. The use of products totaled $5.1 million in sales representing 35% of the total revenue. For the remainder of fiscal 2012, we expect that our generic portfolio analysis distribution revenue to continue with flat to slightly rising growth as a result of the current pricing restrictions from a healthcare reform policy presently in place.

Our Jiangchuan macrolide JCM facility production capacity is expected to ramp up after the remainder of fiscal 2012, after an initial readjustment of the production effeminacy during third quarter of fiscal 2012. We project JCM sales for the fourth quarter of fiscal 2012 to reach approximately 30% of capacity or 10 tons per month. We further expect that JCM to gradually increase capacity to 80%, approximately 200 tones earning capacity by the end of 2012.

Gross margin for the quarter ended March 31st, was 33.5% as compared to 43.6% a year earlier. Our organic product portfolio delivered 41.1% gross margin or 10.2% lower than our 51.4% with the respect to prior period. As a result of the mix, the lower margin distribution revenue and gross margin reduction under the current pricing environment and we expect that our overall gross margin in the near term, on a quarterly comparison basis, trend lower but on a sequential basis, they stabilize depending upon sort of revenue mix of our distribution and JCM revenue as compared to the proprietary portfolio performance.

Net income was (inaudible) for the quarter ended March 31st, 2012 as compared to net income $4.1 million that includes 0.35, $350,000 non-cash gain due to the chain in fair value warrants for the quarter ended March 31st, 2011, a net decrease of $2.8 million. This is direct result of the sale decrease along with the gross margin compression.

Diluted earnings per share for the quarter was $0.03 based on 29.2 million shares, compared with the earnings of $0.14 per diluted share for the quarter ended March 31st, 2011 based on 29.8 million shares.

Balance sheet and cash flow. As of March 31st, 2012, we had cash and cash equivalents of $29.9 million, net cash generated from operating activities was $4.8 million for the nine months ended March 31st, 2012 compared with $12.2 million operating cash flow for the nine months ended march 31st, 2011.

The days sales outstanding, DSO for the quarter was 24.5 days, including from 38.7 days for the quarter ended March 31st, 2011. We believe that TIP's adequately funds meet all the working and capital expenditure needs for the fiscal 2012.

Business development highlights. Progress update for flagship product Ginkgo Mihuan. Our flagship product Ginkgo Mihuan Oral Liquid contributes to more than 30% of our total revenue. Under the ongoing healthcare reform policies that favor the EDL drug sales, the national or traditional supplementary EDL listing could substantially for the market development of these products. Recently GMOL has been submitted as a provisional supplemented media drug in both Henan and Shandong provinces with a combined population of approximately 300 million. The EDL status grants for full insurance coverage or 100% government reimbursement for patients.

Pre-extraction formulation plan development at Jiangchuan Facility. In preparation for the new JMP stipulated by the PRC government already in 2011 (inaudible) the profits are optimizing that contractual facility and production line and comprised with the new JMP standard by 2013. The QLF Qionglai facility is estimated to be 0 mu or 53000 square meters. Both pre-extraction plant and the formulation finance to be relocated. The relocation constructing cost is definite at $25 million for Phase 1 which when completed at the end of the calendar year, 2012, will expand the total capacity by 30%. In early February, 2012, after an initial planning stage, our QLF relocation project officially began. Our pre-extraction plant will be relocated during Phase 1 of the QLF project.

Fiscal year, 2012 financial guidance, as a result of the current pricing restriction by the healthcare reform policy for along with the rippling effect of the highly competitive market environment for our generic portfolio. We revised our fiscal 2012 revenue guidance from $100 million to $66 million and our net income guidance from $10 million to $6.5 million. Our revised estimated projection is based upon several factors including but not limited to the following. A delay in JCE and revenue ramp up estimated occurring second half 2012, reduced to generic as a result of pricing restrictions in the healthcare reform policy, are partially offset by the steady revenue stream of our flagship product portfolio, flat with steady TMT distribution revenue. Management will continue to evaluate the company's business outlook and communicate any changes on the quarterly basis or as plan to focus.

Operator, please begin the question and answer period.

Question-and-Answer Session

(Operator Instructions). Our first quarter comes from the line of Adam Waldo from Lismore Partners LLC. Please go ahead sir.

Adam Waldo – Lismore Partners LLC

I want to spend a bit of time on just an update on the time line or completion of QLF Phase 1. Are you still expecting that to be completed by the end of fiscal 2012?

James Tong

Yes. As we have nation viewing our announcement that we have started the construction in early February and so far the foundation has been laid out and we have double checked our schedule. We reaffirm that the construction to be completed by the end of 2012

Adam Waldo – Lismore Partners LLC

And at this point is the projected costs still expected to be $25 million or less? Are you seeing anything that I guess the higher costs, the 25 million previously communicated reaffirmed today?

James Tong

At this moment it's still reconfirmed as $25 million.

Adam Waldo – Lismore Partners LLC

Okay, on our last call we had talked about that you expect to see $5 to $7 million of proceeds from the sale of existing facility back in the municipal government. Is that still your expectation and if so, when would you expect to realize that?

James Tong

We certainly expect that the proceeds of sales of the property of the land looks like after we relocationed, but we do next expect that beneath proceeds or will be booked any sooner than our relocation is completed.

Adam Waldo – Lismore Partners LLC

Okay, so what is your best current expectation for that now?

James Tong

The current expectation is that we will finish the relocation first which is then at the end of 2012 and then as we complexly moved out, which means that some of the clippings, we are moving out of the old facility to the new facility. When everything is all relocated, cleaned out and that the time and that we can submit the proposal to the local government, (inaudible) government that the relocation is completed and then that all comes to the land use right, I can say transfer back to the government.

Adam Waldo – Lismore Partners LLC

Okay, so would it be fair to assume that certainly you would have expected to realize those proceeds in banks by the end of calendar year 2012? Is that a conservative expectation at this point?

James Tong

Actually we expect there is going to sometime happen in 2013. Because the relocation construction is completed and then the whole relocation has to be finished with equipments moved out. So that will happen actually in 2013, we believe that the proceeds could be booked.

Adam Waldo – Lismore Partners LLC

2013 fiscal year or calendar year, just to be out there.

James Tong

That will be within the 2013 calendar year. At this moment we do not have the resolution of exactly what month this is going to happen.

Adam Waldo – Lismore Partners LLC

Okay, and so then again, we had some conservation on last couple of quarterly calls around going onto the bank market to seek project financing for part or all those QLF phase one. Any update there?

James Tong

At this moment that we do have the capital reserve for our relocation, if you look at our value function, we do have a valve $4 million of bank debt which are renewed every year. So we pay back every year and then we renew it.

Adam Waldo – Lismore Partners LLC

So it’s a rolling once year term? Okay.

James Tong

Yes.

Adam Waldo – Lismore Partners LLC

Have you had conservations without expanding the amount of bank debt given the long width nature of this project rather than consuming a significant amount of company's surplus cash for the project announced?

James Tong

At this moment we do not have further plans to expand this debt financial.

Adam Waldo – Lismore Partners LLC

And the reasoning there?

James Tong

As you look at, we have the $30 million on the book. At the moment, we have already spent from the last quarter of $36 million to towards the construction and relocation. So we dedicated you can say $6 million from the last quarter, so we already spent $6 million towards. So I think that would be net income, the cash flow we have throughout the year, we should be able just to fund the project without bringing any additional debt. But if there is any particular need at the moment, we do not see that we will certainly communicate with our investors. But at this moment, this will be it.

Adam Waldo – Lismore Partners LLC

So you are not in discussions with banks at this point about any of the remaining project finance for phase 1 despite the company's continued strong liquidity and decent operating profitability cash generation you are intending to fund essentially all with surplus cash from the company's existing reserves.

James Tong

Yes, at this moment, yes.

Adam Waldo – Lismore Partners LLC

Just again, it’s a little counterintuitive given that the cost value is the stock buys and beyond going profitability cash generation of business. Why would they see some bank debt financing at 6, 7, 8% interest rate over five to 10 year term and go off and buy back every sum stock with the existing reserves. So I'm still a little bit confused by why the project would be finance with some more bank debt and some of the existing cash reserves.

James Tong

Okay, let me bring this question to my CEO. That will certainly help you.

Guoqing Jiang

[Foreign Language].

James Tong

Guoqing's explanation is, let me translate. First of all that at the moment that this due location is not simply moving one plant to another location, it also combined with the upgrade and compliance to the new G&P standard which were just came out in March last year and then it won't be in compliance with all the pharmaceutical manufacturing facilities by 2013.

And second of all is that with the working capital and the debt financing, it's certainly non-zero cost to us and I can certainly understand that there is a ROE buying back stock to increase the return. Since this plan is the core business drug, so moving the plan and then expand certain capacity, about 30% capacity and then could be complying with the new G&P standard will certainly be the priority of the return of equity. And we can certainly buy back certain amount of stock that we will, if we consume too much capital, so buying back stock. If there is any capital needs for further upgrades or any R&D expenditures we might have which will certainly for the long-term growth of the company, we might be strained for capital. So at this moment we think that the priority is the relocation and then the (inaudible) of the plant and then we're certainly very seriously considering buying back shares, but please understand that from the operating point of view, to generate return on equity, our plant will need to be successfully relocated and constructed.

Adam Waldo – Lismore Partners LLC

No to be sure. So it sounds like that, the thinking is the still the same as a few months ago which is, let's get through the base line to our property location, make sure everything's in good working order in our business, possibly cash generation remain solid before we revisit share repurchase to some extent.

Operator

(Operator Instructions). And we have no further questions at this time.

James Tong

Okay, shall I say the closing remarks? Ladies and gentlemen, good morning and good evening. Thank you very much for dialing in for the third quarter fiscal year 2012 Tianyin Pharmaceuticals' earnings conference call. We appreciate your understanding and patient for our relocation and various business development. We will certainly communicate with you for any update on the progress of our major portfolio drug (inaudible) and the other developments. And please communicate with us and any time of your convenience. We will be more than happy to respond and communicate with you in the future. Thank you very much.

Operator

Ladies and gentlemen, this concludes the Tianyin Pharmaceutical Incorporated third quarter fiscal 2012 annual financial results conference call. Thank you for your participation, you may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

This Transcript
All Transcripts