China BAK Battery, Inc. (CBAK)

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China BAK Battery, Inc. (CBAK)

F1Q10 (Qtr End 12/31/09) Earnings Call Transcript

January 28, 2010 8:00 am ET

Executives

Tony Shen – CFO and Secretary

Analysts

Mark Tobin – Roth Capital

Doug Ruth – Lenox Financial Services

Jim Stone – PSK Advisor

Presentation

Operator

Good morning, everyone, and thank you for joining us on China BAK Battery’s first quarter of fiscal year 2010 ended December 31st, 2009 conference call. During today’s call, we will provide details on the company’s first quarter fiscal year 2010 results, as well as provide a corporate update about recent activities. Today’s call will be limited to one hour.

With me today on the call is China BAK’s Chief Financial Officer Mr. Tony Shen. He will be available to answer questions during the question-and-answer session.

Our agenda for today is as follows. Mr. Shen will make remarks on behalf of the management team on the company’s financial performance and discuss current business strategies and he then will make remarks about China BAK’s business outlook. Finally, we will open the call to your questions.

Before we get started, I’d like to remind our listeners that our comments today will contain forward-looking statements and management may take – may make additional forward-looking statements in response to your questions. Such written and verbal disclosures are made pursuant to the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risk and uncertainties that could cause actual results to differ materially from the anticipated result. These types of statements and underlying factors as well as risks and uncertainties are listed in filings with the Securities and Exchange Commission as well as the news release that was distributed earlier this morning.

Our statements on this call are made as of January 28, 2009 and the company undertakes no obligations to update any of the forward-looking statements contained herein whether as a result of new information, future events, changes in expectations or otherwise.

With that said, it is my pleasure to turn the call over to China BAK’s CFO, Mr. Shen. Please proceed.

Tony Shen

Thank you, operator. I would like to extend a warm welcome to everyone joining us today. I will be available to answer question during the Q&A session later on.

First, some highlights. Gross margin rose to 19.0% because of improved production yields and cost reduction. BAK Shenzhen won its first major contract for high power batteries, for electric buses. We won a $27 million bid to directly supply cell phone batteries to ZTE Corporation in the first half of 2010 and our capital structure is strengthened by $20 million registered direct offering.

Now, I would like to review the quarter’s financial performance in more details. All of the dollar numbers will be in U.S. dollar.

Net revenue for the first quarter of FY ‘01 – ‘10 – FY ‘10 were $50.2 million, down 12.7% from $57.6 million last quarter and downturn is 6.2% from $68.1 million from the same quarter of last year.

Revenues from cylindrical cells used in notebook computers were $8.1 million, down 46.1% from last quarter and down 55.9% from same quarter of last year.

Revenues from prismatic products, including aluminum-case cells, steel-case cells and battery packs which are use in mobile phones and certain such new electronic devices were $38.8 million, up 3.3% from last quarter and down 15.1% from the same quarter of last year.

Revenue from lithium-polymer cells, used in personal electronic devices such as PDA, MP3 players and Bluetooth devices were $3.2 million in the first quarter, down 35.3% from last quarter and down 21.2% from the same quarter of last year.

Gross profit for the first quarter was $9.6 million, up 18.1% from last quarter and down 19.8% from same quarter of last year. Gross margin was 19.0%, compared to 14.1% last quarter and 15.6% in the same quarter of last year. Improved production yields and cost reduction contributed to the rise and gross margin.

Operating expenses totaled $12.4 million or 24.8% of revenue as compared to $9 million or 15.7% of revenue last quarter and $9.8 million or 14.4% of revenue in the same quarter of last year. R&D expenses were $1.8 million or 3.5% of revenue as compared to 2.8% of revenue last quarter and 2.1% of revenue in the same quarter of last year. Sales and marketing expenses were $2 million or 4% of revenue as compared to 3.2% of revenue last quarter or 2.3% of revenue in the same quarter of last year.

G&A expenses were $8.6 million or 17.2% of revenue as compared to 9.7% of revenue last quarter and 9.9% of revenue in the same quarter of last year. Operating loss for this quarter was $2.9 million as compared to operating loss of $0.9 million last quarter and an operating income of $0.8 million in the same quarter of last year.

Net loss was $3.4 million as compared to net loss of $1.4 million last quarter and a net loss of $1.7 million in the same quarter of last year. Diluted earnings per share were negative $0.06 compared with negative $0.02 last quarter and a negative $0.03 in the same quarter of last year.

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