American Oriental Bioengineering, Inc. Q3 2008 Earnings Call Transcript

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American Oriental Bioengineering, Inc. (AOB)

Q3 2008 Earnings Call Transcript

November 10, 2008, 8:00 am ET

Executives

Hong Zhu – VP, IR

Tony Liu – Chairman and CEO

Lily Li – CFO and COO

Wilfred Chow – SVP of Finance

Analysts

Katherine Lu – Oppenheimer

Gene Mack – Lazard

Julie Chen – CRT Capital

Hongbo Lu – Piper Jaffray

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2008 American Oriental Bioengineering Inc. earnings conference call. My name is Francis and I will be your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator instructions) As I reminder at this conference is being recorded for reply purpose.

I would now like to turn the call over to Hong Zhu, Vice President of Investor Relations. Please proceed.

Hong Zhu

Good morning everyone, and welcome to the American Oriental Bioengineering’s third quarter 2008 conference call. On our call today is Tony Liu, Chairman and CEO; Lily Li, Chief Financial Officer and Chief Operating Officer; Wilfred Chow, SVP of Finance.

Before we begin, I would like to mention that this conference call may contain forward-looking statements within the meaning of the Federal Securities Laws. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, our performance and underlying assumptions and other statements that are not historical in nature.

These forward-looking statements are based on management’s current expectations and are subject to risks and uncertainties that may result in expectations not being realized and may cause actual outcomes to differ materially from the expectations reflected in these forward-looking statements.

Potential risks and uncertainties include products, service, demand and acceptance, changes in technology or economic conditions, the impact of competition on pricing and the impact of governmental regulation and other risks contained in the periodic reports filed by the company with the SEC. For more information on this matter, we encourage you to review the company’s most recent 10-Q filing and in its annual report on Form 10-K for 2007 filed with the SEC.

With that said, I would like now to turn the call over to Tony Liu. Go ahead Tony.

Tony Liu

(Interpreted) Good morning and welcome to our third quarter 2008 conference call. During today’s call, I will give you an update on the progress we are making toward achieving our strategic goal of becoming one of the China’s top pharmaceutical companies. Wilfred will provide you with an overview of our financial performance for the third quarter. Lily will also discuss our outlook for the remainder of the year of 2008. Thereafter, we will open the call for your questions.

I am pleased to report to you that we ended the third the third quarter of 2008 long financial performance in which all of our products performed ahead of our expectations. Our third quarter financial results reflect in particular the continued increasing demand for our prescription and OTC pharmaceutical products. Our brand recognition continues to improve and our distribution capabilities continue to expand into untapped rural areas throughout China.

We continue to realize synergies from our acquisitions and we are particularly excited about Nuo Hua and GHK, which help us further vertically integrate to expand our distribution reach and capitalized on a variety of new product opportunities in the future.

The results of this quarter indicate solid progress toward fulfilling our goal of becoming one of the China’s major pharmaceutical companies. In order to be successful we are convinced, we must build a company that can maintain with flexibility in the constantly changing and evolving healthcare market in China. In this regard, we are focused on vertically integrating our operations to ensure the self sufficiency required to maintain such flexibility in this changing environment.

We have a very strong fundamental financial position and we intent to selectively put our capital to use, whether it is through acquisitions, our stock buyback or investing in our manufacturing facilities, our productivity, and our product development.

We find acquisition landscape continue to be very compelling in China’s health care sector. In a while, we do intent to continue our acquisition effort. We do not intent to approach the capital markets in the next 12 months, between the cash on our balance sheet and our consistent cash flow generation. We are in the enviable position of strength at a time when smaller companies need excess to capital to gain scale. In this sense, we are stronger than ever before versus our competitors.

We thank all of you for your continued support. I will now turn the call over to Wilfred.

Wilfred Chow

Thank you, Tony. I will now review our financial results and then Lily will review our recent acquisitions and some key initiatives we are working on here at AOBO.

We generate net sales up $70.6 million with a 62% year over year increase. Net income increased to 38% to $16.5 million and our diluted earnings per share was $0.21 for the third quarter, even while the number of weighted average share outstanding increased by approximately $10 million during the period accounting for our convertible debt.

The strong revenue growth continues to reflect the expansion and diversification of our portfolio products and distribution capability as well as our acquisition. In particular, our organic growth was 23% during the third quarter, primarily driven by our leading over the counter pharmaceutical brands including, our Jinji series and the Jinji Yimucao product line that were launched in early 2007.

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