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China Medical Technologies Reports Second Fiscal Quarter Financial Results
Date:11/19/2009

BEIJING, Nov. 19 /PRNewswire-Asia-FirstCall/ -- China Medical Technologies, Inc. (the "Company") (Nasdaq: CMED), a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products, today announced its unaudited financial results for the second fiscal quarter ended September 30, 2009 ("2Q FY2009"). The Company's 2009 fiscal year ends on March 31, 2010 ("FY2009").

    2Q FY2009 Highlights

    -- Revenues decreased by 14.4% year-over-year to RMB166.1 million (US$24.3
       million).
    -- Loss from continuing operations was RMB47.1 million (US$6.9 million).
    -- Net loss was RMB47.1 million (US$6.9 million).
    -- Non-GAAP income from continuing operations, as defined below, decreased
       by 82.7% year-over-year to RMB17.7 million (US$2.6 million).
    -- Diluted loss from continuing operations per ADS* was RMB1.78 (US$0.26).
    -- Non-GAAP diluted earnings from continuing operations per ADS*, as
       defined below, decreased by 82.6% year-over-year to RMB0.67 (US$0.10).
    -- Net cash generated from operating activities was RMB45.5 million
       (US$6.7 million).

    3Q FY2009 Targets

    -- Target revenues are in the range of RMB170.0 million (US$24.9 million)
       and RMB180.0 million (US$26.4 million).
    -- Target non-GAAP income from continuing operations is not less than
       RMB38.0 million (US$5.6 million).

    *One American Depositary Share ("ADS") = 10 ordinary shares

See "Non-GAAP Measure Disclosures" below, where the impact of certain items on reported results is discussed.

"Despite recent challenges, we have seen several positive signs," commented Mr. Xiaodong Wu, Chairman and Chief Executive Officer of the Company. "In the past quarter, we received SFDA approvals for both our FISH probes in hematology and our SPR-based analysis system, representing a major milestone. Although our ECLIA business was impacted by increased competition and our implementation of price reduction in September, we have seen signs of stabilization. Our FISH business remained healthy despite the diversion of management's attention and we have seen growth resumed in this business recently. In addition, we have completed a trial launch on our SPR-based analysis system in a small number of top tier hospitals. With the constructive feedback from key opinion leaders after initial usage, we are well positioned for a full-scale launch on the system in the first quarter of 2010. We expect to generate revenue from the sale of HPV-DNA chips used with the system in that quarter."

2Q FY2009 Unaudited Financial Results

The Company reported revenues of RMB166.1 million (US$24.3 million) for 2Q FY2009, representing a 14.4% decrease from the corresponding period of FY2008.

The Company's revenues are currently generated from two segments, immunodiagnostic systems and molecular diagnostic systems. Immunodiagnostic systems are consisted of ECLIA products while molecular diagnostic systems include FISH products and are expected to include SPR products starting from 4Q FY2009.

Immunodiagnostic system sales for 2Q FY2009 were RMB76.8 million (US$11.3 million), representing a 37.1% decrease from the corresponding period of FY2008. The year-over-year decrease in the immunodiagnostic system sales was primarily due to the decrease in customers' inventory levels in anticipation of a selling price reduction on ECLIA reagent kits as well as the price reduction for ECLIA reagent kits in September 2009.

Molecular diagnostic system sales for 2Q FY2009 were RMB89.2 million (US$13.1 million), representing a 24.3% increase from the corresponding period of FY2008. The year-over-year growth in the molecular diagnostic system sales was primarily due to increase in sales of FISH probes to hospitals as a result of increase in new hospital customers and the increased usage of the Company's FISH probes by existing hospital customers.

Gross margin decreased to 65.4% for 2Q FY2009 as compared to 70.5% for the corresponding period of FY2008. The decrease in gross margin was primarily due to the price reduction on ECLIA reagent kits starting from September 2009.

Research and development expenses were RMB9.5 million (US$1.4 million) for 2Q FY2009, representing a 49.9% year-over-year increase. The increase was primarily due to the development of new ECLIA reagent kits, FISH probes and SPR-based chips.

Sales and marketing expenses were RMB17.4 million (US$2.6 million) for 2Q FY2009, representing a 55.0% year-over-year increase. The increase was primarily due to the continued expansion of the direct sales force for molecular diagnostic system sales.

General and administrative expenses were RMB45.1 million (US$6.6 million) for 2Q FY2009, representing a 77.2% year-over-year increase. The increase was primarily due to the costs of the independent internal investigation and provision for bad debts related to certain ECLIA customers.

Amortization of SPR intangible assets was RMB27.4 million (US$4.0 million) for 2Q FY2009. As the SPR acquisition was complete in December 2008, there was no amortization of SPR intangible assets in the corresponding period of FY2008.

Interest expense on convertible notes was RMB35.4 million (US$5.2 million) for 2Q FY2009, representing a 38.6% year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008. The Company's outstanding convertible notes of US$150.0 million and US$276.0 million bear interest at 3.5% and 4.0% per annum, respectively and will mature in November 2011 and August 2013, respectively. Due to the adoption of new authoritative guidance governing the accounting for convertible instruments that can be settled in cash or partially in cash upon conversion effective on April 1, 2009, the Company recorded additional non-cash interest expense of RMB7.6 million (US$1.1 million) for the US$150.0 million convertible notes in 2Q FY2009. The Company also made an adjustment related to these convertible notes for the corresponding period of FY2008 by increasing non-cash interest expense by RMB7.2 million to adopt this guidance retrospectively. This new guidance is not applicable to the US$276.0 million convertible notes.

Interest expense on amortization of convertible notes issuance costs was RMB4.4 million (US$0.6 million) for 2Q FY2009, representing a 47.6% year-over-year increase. The increase was primarily due to the issuance of US$276.0 million convertible notes in August 2008.

Income tax expense was RMB18.3 million (US$2.7 million) for 2Q FY2009. The occurrence of income tax expense was primarily because certain expenses of the Company such as stock compensation expense, amortization of acquired intangible assets and interest expense of convertible notes were not deductible for income tax purpose as well as the accrual for withholding income tax on distributable earnings generated during the quarter in the PRC.

Loss from continuing operations was RMB47.1 million (US$6.9 million) for 2Q FY2009 and net loss was RMB47.1 million (US$6.9 million) for 2Q FY2009.

Non-GAAP income from continuing operations excluding stock compensation expense, amortization of acquired intangible assets and non-cash interest expense of convertible notes arising from the adoption of the new guidance related to convertible instruments that can be settled in cash or partially in cash upon conversion was RMB17.7 million (US$2.6 million) for 2Q FY2009, representing a 82.7% decrease from the corresponding period of FY2008.

Stock compensation expense for 2Q FY2009 was RMB7.4 million (US$1.1 million), of which RMB1.3 million was allocated to research and development expenses and RMB6.1 million to general and administrative expenses.

The Company approved the grant of 2,450,000 restricted ordinary shares, equivalent to 245,000 ADS to certain directors, officers and employees on November 16, 2009, which was approximately 0.8% of the Company's issued ordinary shares. These restricted ordinary shares vest over a period of three years.

Amortization of acquired intangible assets for 2Q FY2009 was RMB49.8 million (US$7.3 million), of which RMB22.4 million was allocated to cost of revenues and RMB27.4 million to operating expenses.

As of September 30, 2009, the Company's cash and cash equivalents was RMB1,236.7 million (US$181.2 million). Net cash generated from operating activities for 2Q FY2009 was RMB45.5 million (US$6.7 million).

As of September 30, 2009, the Company's net accounts receivable was RMB317.9 million (US$46.6 million), representing a decrease of 7.3% from the balance at March 31, 2009.

For the convenience of readers, certain RMB amounts have been translated into U.S. dollars at the rate of RMB6.8262 to US$1.00, the noon buying rate in New York City for cable transfers of RMB per U.S. dollar as set forth in the H.10 weekly statistical release of the Federal Reserve Board, as of Wednesday, September 30, 2009. No representation is made that the RMB amounts could have been or could be converted into U.S. dollars at that rate or at any other certain rate on September 30, 2009 or at any other dates.

Outlook for 3Q FY2009

Given the full impact of the price reduction on ECLIA reagent kits but certain positive trends in December quarter, the Company estimates the target revenues for 3Q FY2009 range from RMB170.0 million (US$24.9 million) to RMB180.0 million (US$26.4 million).

The Company estimates the target non-GAAP income from continuing operations for 3Q FY2009 to be not less than RMB38.0 million (US$5.6 million).

The above targets are based on the Company's current views on the operating and marketing conditions, which are subject to change.

Non-GAAP Measure Disclosures

To supplement its consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), the Company uses non-GAAP measures of gross profit, operating income, income from continuing operations and earnings from continuing operations per ADS, which are adjusted from the results based on GAAP to exclude the impact of stock compensation expense, amortization of acquired intangible assets and non-cash interest expense of convertible notes arising from the adoption of the new guidance related to convertible instruments that can be settled in cash or partially in cash upon conversion. Non-GAAP financial measures are used by the Company in their financial and operating decision-making because management believes they reflect the Company's ongoing business in a manner that allows meaningful period-to-period comparison. The Company's management believes that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company's current operating performance and future prospects in the same manner as management does, if they so choose. The Company's management also believes the non-GAAP financial measures are useful for itself and investors because it makes more meaningful comparisons of the Company's current results of operations to those of prior periods.

The presentation of this additional financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For a reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures, please see the financial information included with this earnings announcement.

Conference Call

The Company's management team will host a conference call at 8:00a.m. U.S. Eastern Time on November 19, 2009 (or 9:00p.m. Beijing/Hong Kong time on the same date) to discuss the results following this earnings announcement.

    The dial-in details for the live conference call are as follows:

    U.S. Toll Free Number 1-800-435-1398
    International dial-in number 1-617-614-4078
    Passcode CMEDCALL

A live webcast of the conference call will be available on http://ir.chinameditech.com .

A replay of this webcast will be available for one month on this website.

A telephone replay of the call will be available after the conclusion of the conference call through 10:00a.m. U.S. Eastern Time on November 20, 2009.

    The dial-in details for the replay are as follows:

    U.S. Toll Free Number 1-888-286-8010
    International dial in numbers 1-617-801-6888
    Passcode 45921509

About China Medical Technologies, Inc.

China Medical Technologies is a leading China-based medical device company that develops, manufactures and markets advanced in-vitro diagnostic products using Enhanced Chemiluminescence (ECLIA) technology, Fluorescent in situ Hybridization (FISH) technology and Surface Plasmon Resonance (SPR) technology to detect and monitor various diseases and disorders. For more information, please visit http://www.chinameditech.com .

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Among other things, the quotations from management in this press release, the Company's strategic operational plans, as well as its outlook for 3Q FY2009, contain forward-looking statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks is included in the Company's filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. The Company does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

    For more information, please contact:

     Sam Tsang and Winnie Yam
     Tel:   +852-2511-9808
     Email: IR@chinameditech.com



    China Medical Technologies, Inc.
    Unaudited Condensed Consolidated Balance Sheets

                                                  As of
                                   March 31, 2009         September 30, 2009
                                  RMB          RMB          RMB       US$
                           As previously       As
                               reported    adjusted(1)
                                             (in thousands)
    Assets
    Current assets
    Cash and cash
     equivalents              1,456,410    1,456,410    1,236,696    181,169
    Trade accounts
     receivable, net            343,037      343,037      317,874     46,566
    Inventories                  16,932       16,932       38,995      5,713
    Prepayments and other
     receivables                 20,425       20,425       31,498      4,614
    Due from a related
     party                      204,987      204,987      204,786     30,000
      Total current assets    2,041,791    2,041,791    1,829,849    268,062

    Property, plant and
     equipment, net             169,422      169,422      164,917     24,160
    Land use rights               7,239        7,239        7,144      1,046
    Goodwill                      8,654        8,654        8,654      1,268
    Intangible assets, net    3,487,474    3,487,474    3,384,883    495,866
    Convertible notes
     issuance costs(1)           68,596       65,816       56,996      8,350
      Total assets            5,783,176    5,780,396    5,452,443    798,752

    Liabilities
    Current liabilities
    Trade accounts payable       27,863       27,863       23,287      3,411
    Accrued liabilities and
     other payables             892,905      892,905      557,754     81,708
    Income taxes payable         77,112       77,112       69,208     10,139
    Dividend payable                 --           --      121,097     17,740
      Total current
       liabilities              997,880      997,880      771,346    112,998

    Convertible notes(1)      2,910,815    2,826,348    2,838,810    415,870
    Deferred income taxes        29,898       29,898       39,757      5,824
      Total liabilities       3,938,593    3,854,126    3,649,913    534,692

    Shareholders' equity
    Ordinary shares US$0.1
     par value: 500,000,000
     authorized; 321,066,661
     issued and outstanding
     as of March 31, 2009
     and 322,546,661 issued
     and outstanding as of
     September 30, 2009         257,738      257,738      258,749     37,905
    Additional paid-in
     capital(1)                 544,178      709,949      729,460    106,862
    Accumulated other
     comprehensive loss(1)      (51,946)     (69,957)     (70,350)   (10,306)
    Retained earnings(1)      1,094,613    1,028,540      884,671    129,599
    Total shareholders'
     equity                   1,844,583    1,926,270    1,802,530    264,060
    Total liabilities and
     shareholders' equity     5,783,176    5,780,396    5,452,443    798,752


    Note:
    (1) As a result of the adoption of new authoritative guidance changing the
        accounting for convertible instruments that can be settled in cash or
        partially in cash upon conversion, the Company adjusted relevant
        numbers in the condensed consolidated balance sheet as of March 31,
        2009 retrospectively in accordance with GAAP.



    China Medical Technologies, Inc.
    Unaudited Condensed Consolidated Statements of Income

                                        For the Three Months Ended
                         September 30, 2008  June 30, 2009 September 30, 2009
                            RMB                   RMB        RMB      US$
                             As        As
                         previously adjusted
                         reported     (3)
                               (in thousands except for per ADS information)

    Revenues(1)           193,967    193,967    208,957    166,066     24,328
    Cost of revenues      (57,308)   (57,308)   (55,413)   (57,517)    (8,426)
    Gross profit          136,659    136,659    153,544    108,549     15,902
    Operating expenses:
    Research and
     development           (6,338)    (6,338)   (11,703)    (9,500)    (1,392)
    Sales and marketing   (11,250)   (11,250)   (10,870)   (17,432)    (2,554)
    General and
     Administrative       (25,472)   (25,472)   (46,954)   (45,130)    (6,611)
    Amortization of SPR
     intangible assets         --         --    (27,352)   (27,357)    (4,008)
    Total operating
     expenses             (43,060)   (43,060)   (96,879)   (99,419)   (14,565)
    Operating income       93,599     93,599     56,665      9,130      1,337
    Interest income        10,301     10,301      2,773      2,196        322
    Interest expense -
     convertible notes(3) (18,410)   (25,563)   (35,432)   (35,439)    (5,192)
    Interest expense -
     amortization of
     convertible notes
     issuance costs(3)     (3,235)    (2,969)    (4,380)    (4,381)      (642)
    Interest expense
     - other               (1,145)    (1,145)        --         --         --
    Other income/
     (expense), net        (1,387)    (1,387)       240       (255)       (37)
    Income/ (loss) before
     income tax            79,723     72,836     19,866    (28,749)    (4,212)
    Income tax expense    (14,423)   (14,423)   (16,919)   (18,343)    (2,687)
    Income/ (loss)
     from continuing
     operations            65,300     58,413      2,947    (47,092)    (6,899)
    Income from
     discontinued
     operation             52,432     52,432         --         --         --
    Net income/ (loss)    117,732    110,845      2,947    (47,092)    (6,899)
    Earnings/ (loss)
     from continuing
     operations per ADS
     - basic                 2.49       2.23       0.11      (1.78)     (0.26)
     - diluted(2)            2.43       2.20       0.11      (1.78)     (0.26)
    Earnings from
     discontinued
     operation
     per ADS
     - basic                 2.00       2.00        N/A        N/A        N/A
     - diluted(2)            2.02       1.98        N/A        N/A        N/A
    Weighted average
     number of ADS
     - basic           26,242,974 26,242,974 26,324,842 26,432,974 26,432,974
     - diluted(2)(3)   31,278,897 26,491,563 26,438,076 26,432,974 26,432,974


    Notes:
    (1) Revenues          RMB'000    RMB'000    RMB'000    RMB'000    US$'000
     - Immunodiagnostic
       systems            122,160    122,160    110,491     76,833     11,256
     - Molecular
       diagnostic
       systems             71,807     71,807     98,466     89,233     13,072
                          193,967    193,967    208,957    166,066     24,328

    (2) In computing diluted earnings from continuing operations per ADS,
        interest expense and amortization in connection with convertible notes
        were not added back in computing diluted earnings from continuing
        operations per ADS for the three months ended September 30, 2008 (as
        adjusted), June 30, 2009 and September 30, 2009 because the ordinary
        shares issued upon conversion of convertible notes (using the treasury
        stock method) were anti-dilutive.

    (3) As a result of the adoption of new authoritative guidance changing the
        accounting for convertible instruments that can be settled in cash or
        partially in cash upon conversion, the Company adjusted relevant
        numbers in the condensed consolidated statement of income for the
        three months ended September 30, 2008 retrospectively in accordance
        with GAAP.



    China Medical Technologies, Inc.
    Reconciliations of GAAP measures to Non-GAAP measures

                                            For the Three Months Ended
                                       September   June 30,    September
                                        30, 2008     2009       30, 2009
                                              RMB      RMB       RMB     US$
                                      As adjusted
                                               (2)
                                         (in thousands except for per ADS
                                                   information)

    Gross profit                     136,659    153,544    108,549     15,902
    Adjustment:
      Amortization of acquired
       intangible assets              22,447     22,428     22,430      3,286
    Non-GAAP gross profit            159,106    175,972    130,979     19,188
    Gross margin                       70.5%      73.5%      65.4%      65.4%
    Non-GAAP gross margin              82.0%      84.2%      78.9%      78.9%

    Operating income                  93,599     56,665      9,130      1,337
    Adjustments:
      Stock compensation expense      14,080     12,157      7,354      1,077
      Amortization of acquired
       intangible assets              22,447     49,807     49,787      7,294
    Non-GAAP operating income        130,126    118,629     66,271      9,708
    Operating margin                   48.3%      27.1%       5.5%       5.5%
    Non-GAAP operating margin          67.1%      56.8%      39.9%      39.9%

    Income/ (loss) from
     continuing operations            58,413      2,947    (47,092)    (6,899)
    Adjustments:
      Stock compensation expense      14,080     12,157      7,354      1,077
      Amortization of acquired
       intangible assets              22,447     49,807     49,787      7,294
      Non-cash interest expense
       of convertible notes
       arising from the adoption
       of new guidance related
       to convertible instruments      7,153      7,620      7,621      1,116
    Non-GAAP income from continuing
     operations                      102,093     72,531     17,670      2,588
    GAAP net margin                    30.1%       1.4%         --         --
    Non-GAAP net margin                52.6%      34.7%      10.6%      10.6%

    Earnings/ (loss) from continuing
     operations per ADS
     - basic                            2.23       0.11      (1.78)     (0.26)
     - diluted                          2.20       0.11      (1.78)     (0.26)
    Non-GAAP earnings from
     continuing
     operations per ADS
     - basic                            3.89       2.76       0.67       0.10
     - diluted(1)                       3.85       2.74       0.67       0.10
    Weighted average number
     of ADS
     - basic                      26,242,974 26,324,842 26,432,974 26,432,974
     - diluted(1)(2)              26,491,563 26,438,076 26,432,974 26,432,974


    Notes:

    (1) Interest expense and amortization in connection with convertible notes
        were not added back in computing non-GAAP diluted earnings from
        continuing operations per ADS for the three months ended September 30,
        2008 (as adjusted), June 30, 2009 and September 30, 2009 because the
        ordinary shares issued upon conversion of convertible notes (using the
        treasury stock method) were anti-dilutive.

    (2) As a result of the adoption of new authoritative guidance changing the
        accounting for convertible instruments that can be settled in cash or
        partially in cash upon conversion, the Company adjusted relevant
        numbers for the three months ended September 30, 2008 retrospectively
        in accordance with GAAP.

SOURCE China Medical Technologies, Inc.


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SOURCE China Medical Technologies, Inc.
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