Emerald Dairy Inc Reports Record Financial Results For the Second Quarter 2010
HARBIN, China, Aug. 17 /PRNewswire-Asia-FirstCall/ -- Emerald Dairy, Inc. (OTC Bulleting Board: EMDY) ("Emerald Dairy" or "the Company") a leading producer and distributor of infant and children's formula products, today announced record financial results for its second quarter ended June 30, 2010.
Second Quarter 2010 Highlights
-- Revenue was $13.3 million, up 29.9% from 2Q2009
-- Gross margins increased 400 basis points to 48.9% driven by sales of
the Company's high-margin Xinganling(R) brand
-- GAAP net income was $1.3 million, up 1.6% from 2Q2009 and EPS of $0.04
-- Adjusted net income was $2.1 million and adjusted EPS was $0.06, an
increase of 64.7% and 50.0% respectively
-- $9.9 million in adjusted cash flow from operations for the first six
months of 2010
-- On July 1, the Company completed a lease financing to double capacity
to 19,000 metric tons; the new production line is scheduled to "go-
live" on or before August 31, 2010.
Second Quarter 2010 Results
2Q 2010 2Q 2009 CHANGE
Net Sales $ 13.3 million $ 10.2 million + 29.9%
Gross Profit $ 6.5 million $4.6 million + 41.4%
GAAP Net Income $ 1.3 million $ 1.3 million + 1.6%
EPS (Diluted) $0.04 $0.04 --
Adjusted Net Income* $2.1 million $1.3 million + 64.7%
Adjusted EPS* $0.06 $0.04 + 50.0%
* 'Adjusted Net Income' and 'Adjusted EPS' and non-GAAP calculations and
excludes the non-cash charge of $230,387.00 related to stock options
granted to employees as of June 30, 2010 and $565,971 related to the
fair value of warrants provided to Fenghui Leasing as additional
compensation against the Company's sales leaseback in June, 2010.
"Our company has been running at nearly full capacity utilization for over a year and we have continued to shift more production to our higher margin Xinganling brand products and our sales team and distribution partners have been able to sell everything we produce," began Yong Shan Yang, CEO and President of Emerald Dairy "Though we have been able to make incremental improvements to maximize capacity at our Bei'an facility, our new line and facility in Hailun will be our principal growth driver for the balance of this year and into 2011. The Hailun line will be our second production line ("Line B") and will more than double our current capacity to 19,000 metric tons annually. We are focused on 'Tier Two' through 'Tier Four' cities, which represent 600 cities with the fastest growth of household incomes in China and provide us with the most growth potential. We have increased our marketing budget to lead this production expansion as we build further awareness for our Xianganling(R) brand, which is well respected and recognized amongst families in these high growth cities," Yang concluded.
Second Quarter 2010 Review
Total revenue for the second quarter of 2010 ended June 30, 2010 was $13.3 million, up 29.9% from $10.2 million for the quarter ended June 30, 2009, which was driven a 592 metric ton increase in production and shipments of Emerald Dairy products in the quarter. Though operating at or near 100% capacity for several months, Emerald Dairy has been able to further maximize production by eliminating downtimes during shifts and running a 'swing shift' which added two additional hours of production time. The Company focused its improved output on Xinganling(R)-branded products, the Company's high-profit, high and mid price pint powdered infant formulas which subsequently accounted for approximately 35% and 25% of sales in the quarter.
Gross profit for the second quarter of 2010 was $6.5 million, a 41.4% increase from $4.6 million in the second quarter of 2009 as a result of increased revenues of Xinganling(R)-branded products. Overall gross profit margin was 48.9% for the second quarter and represented a 390 basis point improvement on margins versus the same period, 2009. On average, gross margins for Emerald Dairy core products are detailed below.
Xinangling(R) Milk Powders - 45-55% margins
Rice Powders (for lactose intolerance) - 60-68% margins
Soybean Powders (for lactose intolerance) - 20-30% margins
Private Label Contracting - ~10%
Operating expenses for the quarter were $4.1 million, an increase of 30.1%, and were attributed to higher advertising and promotion expenses for marketing campaigns in 2010 plus increased salaries based on headcount of sales personnel. Operating income totaled $1.7 million in the second quarter of 2010, an 8.7% increase from $1.5 million in the second quarter of the previous year. Adjusted operating income excluding non cash items was $2.5 million. The Company's adjusted operating margin was 18.6% compared to 15.0% in the second quarter of the prior year, a 360 basis point improvement.
Beginning in June of 2010, the Company recorded an interest expense as a result of a sales lease-back and a shareholder loan the Company executed on June 24, 2010 to complete its capacity expansion. The terms of the $5.1 million lease-back require the company to pay 36-monthly lease payments of $163,000. In addition, the Company also obtained a 1-year shareholder note for approximately $0.8 million at 10% interest. Interest charges of $0.8 million in the second quarter of the year reflect these financings along with $0.5 million in non-cash expenses associated with the amortization of warrants tied to the lease-back financing.
GAAP net income for the second quarter of 2010 was $1.3 million, an increase of 1.6% from $1.3 million in the first quarter of 2009. Earnings per share were $0.04 per diluted share in the quarter. Adjusted net income excluding the non-cash value of stock options was $2.1 million, an increase of 64.7% year over year. Adjusted earnings per share increased 50.0% to $0.6 based on 34,660,893 weighted average diluted shares outstanding on June 30, 2010. In the same period prior year, the Company recorded only 30,105,880 fully diluted shares.
Six Months Results
For the Period Ended June 30, 2010
1H 2010 1H 2009 CHANGE
Net Sales $27.6 million $21.1 million + 30.6%
Gross Profit $13.6 million $9.6 million +41.6%
GAAP Net Income $(1.0) million $2.8 million (135.9)%
EPS (Diluted) $(0.03) $0.10
Adjusted Net Income* $5.2 million $2.8 million + 83.9%
Adjusted EPS
(Diluted)* $0.16 $0.10 + 60.0%
* 'Adjusted Net Income' and 'Adjusted EPS' are non-GAAP calculations and
excludes $5,021,669 in non-cash liquidating damages during the six
months ended June 30, 2010, as a result of the extension of warrants
previously issued by Company to satisfy certain registration provisions.
Adjusted net income and EPS also excludes the non-cash charge of
$602,266 related to stock options granted to employees as of June 30th,
2010 and $565,971 in warrant value provided to Fenghui Leasing as
additional compensation against the Company's sales leaseback in June,
2010. Adjusted net income and EPS in 1H2010 exclude the total amount
of $6,189,906 in non-cash items.
Total revenue for the first six months of 2010 was $27.6 million, up 30.6% from $21.1 million in the prior year's period. Over the six months ended June 30, 2010 there was little change year over year to the percentage of revenue contribution from each product category. Milk powders accounted for 86.8% of revenues, private labeling sales accounted for 7.4% of revenues, rice powder accounted for 3.1% of revenues and soybean powder accounted for 2.7% of revenues for the first six months of 2010.
Gross profits were $13.6 million, an increase of 41.6% for the period. Gross profit margin increased by 380 basis points to 49.4% in the first six months ended June 30, 2010. The increase in gross profit margin was primary due to an increase in the gross margins of all the product categories and particularly the Company's sales of high-margin Xinangling(R)-branded milk powders. During the six months ended June 30, 2009, gross margin on milk powder increased to 380 basis points to 52.8%.
In its operating expense item, the Company recorded three non-cash charges; $5.0 million in liquidated damages as a result of the extension of warrants previously issued by the Company to satisfy certain registration rights provisions, $0.6 million in non-cash stock options for employees and $0.6 million in non-cash warrant values associated to the Company's lease-back financing. Excluding these non-cash expenses of approximately $6.2 million, total operating expenses were $6.8 million in the first half of 2010 compared to $6.2 million in the first quarter of 2010. Selling and administrative expenses were $7.9 million, a 29.6% increase from $6.1 million in the half of 2009. Advertising increased by $0.3 million, or 62.2%, to $0.8 million in 2010, from $0.5 million in 2009, due to increased marketing campaigns in 2010. Promotion expenses increased by $0.6 million, or 80.8%, to $1.3 million in 2010, as the Company increased marketing expenses for brand building.
Rather than using wholesalers, Emerald Diary sales teams work closely with exclusive distributors and their customer's retail points of sale. Emerald Dairy believes that although this business model has slightly higher sales expenses, it is offset by higher profit margins and longer term relationships between the Company, its distributors and retailers.
Adjusted operating income was $6.6 million in the first half of 2010 compared to $3.4 million in the first half of 2009, a 94.1% increase year over year.
US GAAP loss for the first half of fiscal year 2010 was $1.0 million, compared to $2.8 million in profit the prior year's corresponding period, a 135.9% decrease year over year. Adjusted net income for the first half of 2010, which excludes a $6.2 in non-cash expense recorded during the first half of 2010, was $5.2 million, an increase of 83.9% year over year. Adjusted earnings per 33.4 million diluted shares outstanding on June 30, 2010 increased 60.0% to $0.16.
Financial Condition
As of June 30, 2010, the Company had $11.3 million in cash, down from $13.5 million as of December 31, 2009 and related to increased capital expenditures as it builds out its new line at the Hailun facility. Working capital was $27.2 million, up from $17.3 million as of December 31, 2009; accounts receivable were $7.5 million, compared to $7.2 million as of December 31, 2009; accounts receivable turnover in days for the second quarter of 2010 was 60 days. Cash flow from operations for the first six months of 2010 was $3.8 million, compared to $0.8 million for the year ago period. Adjusted cash flow excluding non-cash charges was $9.9 million. Current liabilities were $10.6 million compared to $9.7 million as of December 31, 2009. The Company had $5.7 million in short term loans as of June 30, 2010. Shareholder's equity was $40.7 million, a 21.9% increase from $33.4 million reported on December 31, 2009.
Guidance for 2010
The management maintains its 2010 guidance provided at the beginning of the year of $60-65 million in revenues and $8.0 to $9.0 in non-GAAP adjusted net income.
Second Quarter 2010 Conference Call
To attend the call, please use the dial-in information below. When prompted, ask for the "Emerald Dairy Call" and/or be prepared to provide the conference ID.
Conference Call Date: Tuesday, August 17, 2010
Time: 10:00 a.m. Eastern
Conference Line Dial-In (U.S.): 1-877-941-2324
International Dial-In: 1-480-629-9716
Conference ID: 4349040
Webcast link: http://viavid.net/dce.aspx?sid=000079A9
Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through August 24, 2010. To listen, please call 1-877-870-5176 within the United States or 1-858-384-5517 if calling internationally. Utilize the pass code 4349040 for the replay.
This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link, http://viavid.net/dce.aspx?sid=000079A9 , or at ViaVid's website at http://www.viavid.net , where the webcast can be accessed through August 17, 2011.
About Emerald Dairy
Through its wholly-owned operating subsidiaries, Emerald Dairy, Inc. is a producer and distributor of infant and children's formula, milk powder and soybean products in the People's Republic of China. The Company's products are sold under two brand names -- "Xing An Ling," designed for middle and high-end customers, and "Yi Bai," designed for low-end customers. Emerald Dairy's products are distributed throughout 20 provinces in mainland China and sold in over 6,000 retail points. For further information about Emerald Dairy Inc., please visit the Company's website at http://www.emeralddairy.com/
About Non-GAAP Financial Measures
To supplement the Company's consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP adjusted net income, and non-GAAP adjusted EPS. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance and liquidity by excluding certain expenses and expenditures that may not be indicative of "recurring core business operating results", meaning operating performance excluding non-cash amortization charges for intangibles. The Company believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to historical performance and liquidity as well as comparisons to competitors' operating results. The Company believes these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of the business.
Forward-Looking Statements
This press release contains certain "forward-looking statements" that involve a number of risks and uncertainties. There can be no assurance that such statements will prove to be accurate and the actual results and future events could differ materially from management's current expectations. Such factors include, but are not limited to, the Company's ability to obtain the necessary financing to continue and expand operations, to market its products in new markets and to offer products at competitive pricing, to attract and retain management, and to integrate and maintain technical information and management information systems, political and economic factors in the PRC, compliance requirement of laws and regulations of the PRC, the effects of currency policies and fluctuations, general economic conditions and other factors detailed from time to time in the Company's filings with the United States Securities and Exchange Commission and other regulatory authorities. The Company undertakes no obligation to publicly update or revise any forward- looking statements, whether as a result of new information, future events or otherwise.
- Financial Statements Follow -
Emerald Dairy Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, 2010 and December 31, 2009
ASSETS
June 30, December 31,
2010 2009
(Unaudited)
Current Assets
Cash and cash equivalents $11,328,951 $13,486,429
Trade accounts receivable, net 7,459,384 7,223,016
Inventory, net 1,567,638 1,298,488
Advances to equipment supplier 9,886,085 3,710,707
Other current assets 7,572,562 1,292,749
Total current assets 37,814,620 27,011,389
Property, plant and equipment
Property, plant and equipment, net 5,767,393 5,946,330
Construction in progress 9,409,890 8,772,931
15,177,283 14,719,261
Intangible assets, net 1,331,555 1,341,534
$54,323,458 $43,072,184
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses $3,263,668 $2,917,798
Notes payable, net of debt discount of
$357,780 and $729,830 at June
30, 2010 and December 31, 2009,
respectively 5,658,631 5,843,472
Other current liabilities 460,185 704,056
Current portion of long-term lease 997,084 --
Loan from shareholder 211,555 210,142
Total current liabilities 10,591,123 9,675,468
Long-term lease payable 3,012,383 --
Commitments and Contingencies
Stockholders' Equity
Preferred stock ($0.001 par value,
10,000,000 shares authorized,
none issued and outstanding at June 30,
2010 and December 31, 2009) -- --
Common stock ($0.001 par value,
100,000,000 shares authorized,
35,976,575 and 34,890,267
issued and outstanding at June
30, 2010 December 31, 2009, respectively) 35,977 34,890
Treasury Stock (1,944,444 shares at June
30, 2010 and December 31, 2009,
respectively) (1,944) (1,944)
Additional paid-in capital 25,037,259 17,003,093
Retained earnings (of which $3,191,614 and
$1,834,742 are restricted at June 30,
2010 and December 31, 2009, respectively,
for common welfare reserves) 13,305,727 14,318,425
Accumulated other comprehensive income 2,342,933 2,042,252
Total stockholders' equity 40,719,952 33,396,716
$54,323,458 $43,072,184
Emerald Dairy Inc. and Subsidiaries
Condensed Consolidated Statements of Income
For the Three and Six Months Ended June 30, 2010 and 2009
(Unaudited)
Three months ended Six months ended
June 30, June 30, June 30, June 30,
2010 2009 2010 2009
Sales $13,309,502 $10,246,935 $27,562,358 $21,103,487
Cost of Goods Sold 6,794,707 5,639,310 13,948,479 11,487,985
Gross Profit 6,514,795 4,607,625 13,613,879 9,615,502
Operating Expenses
Selling expenses
and administrative
expenses 4,004,280 3,073,694 7,906,670 6,100,398
Liquidated damages -- -- 5,021,669 --
Depreciation and
amortization 51,724 43,274 102,952 86,512
Total operating
expenses 4,056,004 3,116,968 13,031,291 6,186,910
Other Income
(Expense)
Interest income 1,077 2,191 2,135 3,144
Interest expense (784,679) 48,352 (784,679) --
Total other income
(expense) (783,602) 50,543 (782,544) 3,144
Net Income
(Loss) Before
Provision for
Income Tax 1,675,189 1,541,200 (199,956) 3,431,736
Provision for
Income Taxes
Current 391,243 278,064 812,742 615,894
391,243 278,064 812,742 615,894
Net Income (Loss) $1,283,946 $1,263,136 $(1,012,698) $2,815,842
Basic Earnings
(Loss) Per
Share $0.04 $0.04 $(0.03) $0.10
Basic Weighted
Average Shares
Outstanding 33,941,295 29,658,726 33,446,310 29,537,604
Diluted Earnings
(Loss) Per Share $0.04 $0.04 $(0.03) $0.09
Diluted Weighted
Average Shares
Outstanding 34,660,893 30,105,880 33,446,310 29,648,643
Net Income (Loss) $1,283,946 $1,263,136 $(1,012,698) $2,815,842
Foreign currency
translation
adjustment 444,016 16,406 454,311 (39,420)
Income tax related
to other
comprehensive
income (150,966) (5,578) (154,466) 13,403
Comprehensive
Income (Loss) $1,576,996 $1,273,964 $(712,853) $2,789,825
Emerald Dairy Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
For the Six Months Ended June, 2010 and 2009
(Unaudited)
2010 2009
Cash flows from operating activities
Net Income (Loss) $(1,012,698) $2,815,842
Adjustments to reconcile net cash provided
by operating activities
Depreciation and amortization 283,526 266,374
Amortization of loan discount 372,050 43,944
Capitalized interest (458,872) (220,727)
Stock issued for services 34,657 33,475
Warrants modified for liquidated damages 5,021,669 --
Warrants modified for services -- 3,975
Warrants issued for services 90,137 --
Warrants issued for loan costs 79,991 --
Incentive stock options 385,891 75,688
Net change in assets and liabilities
Trade accounts receivable (188,123) (563,653)
Inventory (260,477) (747,598)
Other current assets (877,809) (66,459)
Accounts payable and accrued expenses 576,581 (483,663)
Other current liabilities (248,574) (308,639)
Net cash provided by operating activities 3,797,949 848,559
Cash flows from investing activities
Deposit on equipment and construction (11,543,962) --
Construction in progress (119,489) --
Purchases of fixed assets and intangibles (45,995) (4,189,873)
Net cash used in investing activities (11,709,446) (4,189,873)
Cash flows from financing activities
Advances on notes payable 800,000 --
Repayments of notes payable (477,464) --
Advances on sale-leaseback 5,006,340 --
Exercise of warrants 296,408 758,231
Net cash provided by financing activities 5,625,284 758,231
Effect of exchange rate 128,735 (8,250)
Net decrease in cash (2,157,478) (2,591,333)
Cash and cash equivalents at beginning of
period 13,486,429 7,343,588
Cash and cash equivalents at end of period $11,328,951 $4,752,255
For more information, please contact:
COMPANY:
Mr. Shu Kaneko, CFO
Emerald Dairy Inc.
Email: [email protected]
Web: http://www.emeralddairy.com/
INVESTOR RELATIONS:
John Mattio, SVP
HC International, Inc.
Tel: US +1-203-616-5144
Email: [email protected]
Web: http://www.hcinternational.net
SOURCE Emerald Dairy Inc.
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