Earnings Transcript for CPHI - Q1 Fiscal Year 2019

Operator: Ladies and gentlemen, thank you standing by and welcome to China Pharma Holdings Inc. Q1 2019 Earnings Conference Call. At this time, all participants are in listen-only mode. There will be a presentation followed by question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your first speaker today, Ms. Diana Huang. Thank you. Please go ahead, ma’am.

Diana Huang: Thank you, operator. Good morning, ladies and gentlemen, and good evening to those of you joining us from China. Welcome to China Pharma Holdings’ first quarter 2019 earnings conference call. I'm Diana Huang, the company's Investor Relations Manager. Speaking on the call today are China Pharma's President and CEO and Interim CFO, Ms. Zhilin Li; and Corporate Vice President, Mr. Sam Hsing. In addition, I will provide translation during the Q&A session of the call. I would like to remind our listeners that on this call, management's prepared remarks contain 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 the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today due to risks such as market and customer acceptance and demand for our products. Our ability to market our products, the impact of competitive products and pricing, the ability to develop and launch new products on a timely basis, the regulatory environment, including government regulation in the PRC, our ability to obtain the requisite regulatory approvals to commercialize our products, fluctuations in operating results, including spending for R&D, and sales and marketing activities, and other risks detailed from time-to-time in our filings with the SEC. In addition, any projections as to company's future performance represent management's estimates as of today, May 15, 2019. China Pharma assumes no obligation to update those projections in the future as market conditions change. Now, it is my pleasure to turn the call over to China Pharma's CEO and Interim CFO, Ms. Li to make her opening remarks in Chinese, which will be translated by Sam. Afterwards, Sam will continue translating Ms. Li’s detailed discussion of the company's first quarter 2019 financial results.

Zhilin Li: [Foreign Language]

Sam Hsing: Thank you, Diana, and good morning, everyone. I would like to thank each of you for joining us today and for your continued support of China Pharma. We experienced certain market fluctuations in the first quarter of 2019, which has negatively impacted our revenue in this period. Management will continue to vigorously promote sales through active participation in recent provincial market openings to solicit new drug tender offers and allow China Pharma to expand its presence in these markets. In addition, we continue experiencing sustained pressure from the more stringent requirements of the drug registration standards, consistency evaluations, and the challenging environment in our industry in this period. We will continue to actively adapt to states policies, guidance, and further evaluate market conditions for our current existing products, pipeline products, and the competition in the market in order to optimize our development strategy. I will now read the rest of Ms. Li’s prepared remarks in English. Now, I would like to review our first quarter 2019 financial results and balance sheet information. Revenue decreased by 19% to $2.9 million for the three months ended March 31, 2019, as compared to $3.6 million for the three months ended March 31, 2018. This decrease was mainly due to the market fluctuations. Gross profit for the three months ended March 31, 2019 was $0.7 million, as compared to $1.1 million during the same period in 2018. Our gross profit margins in the three months ended March 31, 2019 was 22.4% as compared to 29.1% during the same period in 2018. The decrease in our gross profit margin was mainly due to the decrease in revenue and the increased ratio of the fixed cost to revenue. Our selling expenses for the three months ended March 31, 2019 and 2018 were $0.5 million and $0.7 million, respectively. Selling expenses accounted for 16.3% of the total revenue in the three months ended March 31, 2019, as compared to 18.8% during the same period in 2018. Because of the adjustments in our sales practices, due to the healthcare reform policies, we had reduced number of the personnel and expenses to efficiently support our sales and the collection of accounts receivable. Our general and administrative expenses for the three months ended March 31, 2019 were $0.4 million, which represented a decrease of $0.1 million, as compared to $0.5 million for the same period in 2018. General and administrative expenses accounted for 14.6% and 13.6% of our total revenues in the three months ended March 31, 2019 and 2018, respectively. Net loss for the three months ended March 31, 2019 was $0.4 million, as compared to $0.3 million for the same period a year ago. The increase in net loss was mainly the result of decreased revenue, whereas the expenditures did not decrease in proportion to revenue, which was due to the fixed cost. For the three months ended March 31, 2019 and 2018, loss per basic and diluted common share was both $0.01. Turning to the balance sheet. As of March 31, 2019, the company had cash and cash equivalents of $1 million, compared to $1.2 million as of December 31, 2018. As of March 31, 2019, our net accounts receivable was $0.8 million, compared to $0.9 million as of December 31, 2018. For the three months ended March 31, 2019, cash flow from operating activities was $0.1 million, as compared to $0.5 million for the same period in 2018. Overall, we will continue focusing on our business development and promote our sales and believe that this will suppose a fair duration of our share holders’ interest in the future. With that, we will now open the call up for questions. Operator?

Operator: Thank you. [Operator Instructions] We have the first question from the line of Peter [indiscernible]. Please go ahead.

Unidentified Analyst: [Foreign Language] My question is simple. You have wonderful production facilities. You have hospitals in China owing you a gigantic amount of money, which you now have this doubtful accounts, if the government working, put in new stringent policies, you know you are very honorable – very honest people, and I guess my question is, is there a better strategy for this company? Is there a strategy where you could use your assets to align with other people – are there other things that you could be doing that could recognize some of the hard work that you put in over the years?

Diana Huang: [Foreign Language]

Zhilin Li: [Foreign Language]

Diana Huang: Ms. Li said, she totally agrees with you as mentioned just now. And the management have working – have worked actively to search the potential opportunities of partners, projects, and product with synergy effect of China Pharma and on top of that she believes the most important [indiscernible] is to generate huge positive cash flow. So, that’s her opinion.

Unidentified Analyst: Well, the money that the hospitals owe you that you have written off as doubtful accounts, these are government hospitals, they still owe you the money, right? It is just that you don’t have the [indiscernible] to collect?

Diana Huang: [Foreign Language]

Zhilin Li: [Foreign Language]

Diana Huang: Yes, your understanding was correct. It should continue, because we have adjusted our sales strategy to constrain the sales activity of selling and credit. In that condition the collection performance from old clients become even more difficult.

Unidentified Analyst: But if you, and let me just ask one more thing. [Indiscernible] is now being made a free trade area, which has benefits for other companies wanting to locate there, is that correct?

Diana Huang: [Foreign Language]

Zhilin Li: [Foreign Language]

Diana Huang: Yes. There has been several beneficial policies being released in recent months and should continue that. Actually, the general healthcare industry has been chosen as one of the main focus of the local provincial government, which means that probably in the future there will be more positive government policies to come out in our industry and with the possibly – estimates that all those government policies and nice environment will boost a [indiscernible] to grow to the condition like Hong Kong and Singapore in the future. She has quite positive view on this topic. Thank you.

Unidentified Analyst: So, with all those things, why aren’t companies standing in-line to make partnerships with you?

Diana Huang: [Foreign Language]

Zhilin Li: [Foreign Language]

Diana Huang: She says, there has been several potential partners who have come to talk to us in terms of forming partnership and doing things together. And for those opportunities, we are still communicating with those companies and develop our mutual understanding and the [indiscernible] result, any practical solution for the partnership and we have not yet formed any recent material or reached any significant milestone to this growth, those kind of news to the public.

Unidentified Analyst: Great. [Foreign Language]

Zhilin Li: [Foreign Language]

Diana Huang : Thank you, Peter.

Operator: [Operator Instructions] As there are no further questions, I would like to hand the conference back to our presenters for today.

Sam Hsing: On behalf of the entire China Pharma team, we would like to thank you for your interest in the company and the participation on this call. For any of you travelling to China, we always welcome and encourage any visitors from our shareholders, potential investors, and analysis. This concludes China Pharma’s first quarter 2019 earnings call. Thanks.

Operator: Ladies and gentlemen, that does conclude your conference for today. Thank you for participating. You may all disconnect. Thank you.