China BAK Reports Second Quarter Fiscal Year 2010 Financial Results
China BAK Battery, Inc. announced its financial results for the second quarter of fiscal year 2010 ("Q2 2010").
Net revenues for the second quarter of FY10 were $50.4 million, up 0.4% from $50.2 million from Q1 FY10 reflecting traditional seasonal slowdown during the Chinese New Year and up 23.5% from $40.8 million in the same quarter of last year. Overall average sales price increased almost 6% sequentially.
Revenues from cylindrical cells used in notebook computers were $13.4 million, up 65.0% from $8.1 million sequentially and up 45.1% from $9.2 million in the same quarter of last fiscal year. Revenues from prismatic products, including aluminum-case cells, steel-case cells and battery packs, which are used in mobile phones and certain personal electronic devices, were $35.0 million, down 9.8% from $38.8 million last quarter due to seasonality, and up 18.2% from $29.6 million in the same quarter of last year. Revenues from lithium polymer cells, used in personal electronic devices such as PDAs, MP3 players and Bluetooth devices, were $1.7 million in the second quarter of FY10, down 45.7% from last quarter, and down 16.8% from the same quarter of last year.
Gross profit for the second quarter of FY10 was $9.0 million, down 5.8% from $9.6 million last quarter and up 197.9% from $3.0 million in the same quarter of last year. The Company has adopted a pricing strategy on certain categories of its prismatic battery cells to maintain its share in the domestic market. As a result, gross margin declined slightly to 17.9% sequentially, but increased strongly from 7.4% in the same quarter of last year. Our sales of higher-margin products, including prismatic and cylindrical cells, during the second quarter of FY10 increased in proportion to our overall sales from their proportion of overall sales during the same quarter of last year, which resulted in this increase.
"We are pleased to have shown continued improvement in our operating results during the second fiscal quarter of 2010, including a modest operating profit and $6.2 million in EBITDA," said Xiangqian Li, CEO of China BAK. "With the addition of Mr. Jun Zou as our new Chief Financial Officer, China BAK is working as a team to enhance our business turnaround, through increased focus on improving capital allocation, increasing expense discipline and tying management incentives to enhancing profitability. We believe this hard work will deliver increasing value to our shareholders in the quarters and years to come."
Operating expenses totaled $8.1 million or 16.2% of revenues in the second quarter of FY10, as compared to $12.4 million or 24.8% of revenues last quarter and $6.4 million or 15.7% of revenues in the same quarter of last year. Operating expenses included non-cash, share-based compensation costs of $0.8 million in Q2, $1.1 million in Q1 of FY10, and $0.7 million in Q2 of FY09. Research and development expenses were $1.6 million, or 3.2% of revenues, as compared to $1.8 million, or 3.5% of revenues, last quarter and $1.1 million, or 2.8% of revenues, in the same quarter of last year. Sales and marketing expenses were $1.7 million, or 3.4% of revenues, as compared to $2.0 million, or 4.0% of revenues last quarter, and $1.2 million, or 2.8% of revenues, in the second quarter of last year. General and administrative expenses were $4.8 million, or 9.6% of revenues, as compared to $8.6 million, or 17.2% of revenues, last quarter and $4.1 million, or 10.1% of revenues, in the same quarter of last year.
Operating income for the second quarter of FY10 was $0.9 million, a significant improvement as compared to an operating loss of $2.9 million last quarter and an operating loss of $3.4 million in the same quarter of last year.
Net loss was $2.5 million in the second quarter of FY10, as compared to net loss of $3.4 million last quarter and net loss of $5.7 million in the same quarter of last year. Diluted earnings per share were negative $0.04 compared with negative $0.06 per diluted share last quarter and negative $0.10 per diluted share in the same quarter of last year.
"Reviewing the second quarter of fiscal 2010, we are very encouraged to see that the demand for high power cells for the E-Bike and EV market continues to grow, and we look forward to scaling our production levels in line with the development of this exciting market. We were able to achieve gradual improvement of our shipments to the OEM domestic market for branded mobile phone manufacturers through our in house pack line, which will further improve profitability of our traditional prismatic business. We are pleased with our initial relationships with major global notebook OEMs in the cylindrical segment and are focused on demonstrating that we can be a dependable, high volume, high quality partner to these companies over time," commented Xiangqian Li, CEO of China BAK.
"I am excited to join the China BAK team and aim to lead the Company’s success in the quarters and years ahead through a deep commitment to both financial management and transparent communication with the investment community," commented Jun Zou, CFO of China BAK. "After careful scrutiny of our performance in first half of FY 2010 we found that the business recovery in certain segments is likely to be slower than we expected. As a result, we believe it is prudent to revise our revenue guidance to approximately $220 million for FY 2010. We expect to show positive operating income and EBITDA in the second half of the fiscal year."
