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"We are happy to report a 12.0% year-over-year increase in revenues,driven primarily by this quarter's accelerated international sales growth of27.0%," commented Xu Hang, Mindray's chairman and co-chief executive officer."We are particularly encouraged by the accelerated growth we have seen in bothemerging and developed markets. Both Latin America and the CIS region ledgrowth among all regions while Western Europe and the U.S. recordeddouble-digit growth. In China, non-tender sales also continued to expand,growing 19.0% sequentially and 9.1% year-over-year. Government tenderactivities, however, unexpectedly continued to decline and as a result, ourtotal China sales decreased 4.6% year-over-year but grew 16.5% as compared tothe first quarter this year. While we cannot control the timing associatedwith tender sales, we are realigning our sales force and undertaking otherstrategic initiatives in product development and marketing, allowing us tofocus more intensely on our higher end product lines for the non-tender market.We also remain committed to our investment in international channels and thelocalization efforts of our on-site operations. We believe this approachshould position Mindray well to continue its strong performance in emergingmarkets and benefit from new opportunities in both high-end product segmentsand developed markets."
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Revenues
Mindray reported net revenues of $179.2 million for the second quarter of2010, a 12.0% increase from $160.1 million in the second quarter of 2009. Netrevenues generated in China in the second quarter of 2010 decreased 4.6% to$72.4 million from $76.0 million in the second quarter of 2009, while netrevenues generated in international markets in the second quarter of 2010increased 27.0% to $106.8 million from $84.1 million in the second quarter of2009.
Performance by Segment
Patient Monitoring & Life Support Products: Patient monitoring & lifesupport products segment revenues increased 19.9% to $82.8 million thisquarter from $69.1 million in the second quarter of 2009. The patientmonitoring & life support products segment contributed 46.2% to the total netrevenues in the second quarter of 2010.
In-Vitro Diagnostic Products: In-vitro diagnostic products segmentrevenues increased 8.0% to $43.2 million this quarter from $40.0 million inthe second quarter of 2009. The in-vitro diagnostic products segmentcontributed 24.1% to the total net revenues in the second quarter of 2010.
Medical Imaging Systems: Medical imaging systems segment revenuesincreased 1.9% to $42.7 million this quarter from $41.9 million in the secondquarter of 2009. The medical imaging systems segment contributed 23.8% to thetotal net revenues in the second quarter of 2010.
Other revenues, which are primarily comprised of service fees charged forpost warranty period repair services, increased 15.7% to $10.5 million thisquarter from $9.1 million in the second quarter of 2009. Other revenuescontributed 5.9% to the total net revenues in the second quarter of 2010.
Gross Margins
Second quarter 2010 gross profit was $104.4 million, a 14.1% increase from$91.6 million in the second quarter of 2009. Second quarter 2010 non-GAAPgross profit, as defined below, was $105.8 million, a 13.3% increase from$93.4 million in the second quarter of 2009. Second quarter 2010 gross marginwas 58.3% compared to 57.2% in the second quarter of 2009 and 56.4% in thefirst quarter of 2010. Non-GAAP gross margin was 59.0% in the second quarterof 2010 compared to 58.3% in the second quarter of 2009 and 57.5% in the firstquarter of 2010.
Operating Expenses
Selling expenses for the second quarter of 2010 were $27.2 million, or15.2% of the total net revenues, compared to 16.5% in the second quarter of2009 and 16.2% in the first quarter of 2010. Non-GAAP selling expenses for thesecond quarter of 2010 were $25.9 million, or 14.5% of the total net revenues,compared to 15.5% in the second quarter of 2009 and 15.3% in the first quarterof 2010.
General and administrative expenses for the second quarter of 2010 were$15.4 million, or 8.6% of the total net revenues, compared to 7.1% in thesecond quarter of 2009 and 8.4% in the first quarter of 2010. Non-GAAP generaland administrative expenses for the second quarter of 2010 were $15.1 million,or 8.4% of the total net revenues, compared to 6.7% in the second quarter of2009 and 8.1% in the first quarter of 2010.
Research and development expenses for the second quarter of 2010 were$14.3 million, or 8.0% of the total net revenues, compared to 9.2% in thesecond quarter of 2009 and 9.9% in the first quarter of 2010. Non-GAAPresearch and development expenses for the second quarter of 2010 were $13.5million, or 7.6% of the total net revenues, compared to 8.7% in the secondquarter of 2009 and 9.4% in the first quarter of 2010.
Total share-based compensation expenses, which were allocated to cost ofrevenues and related operating expenses, were $1.8 million in the secondquarter of 2010 compared to $1.9 million in the first quarter of 2010 and $2.6million in the second quarter of 2009.
Operating income was $47.5 million in the second quarter of 2010, a 21.9%increase from $39.0 million in the second quarter of 2009 and 49.0% increasefrom $31.9 million in the first quarter of 2010. Non-GAAP operating income inthe second quarter of 2010 was $51.2 million, a 16.6% increase from $43.9million in the second quarter of 2009 and 42.4% increase from $35.9 million inthe first quarter of 2010. Operating margin was 26.5% in the second quarter of2010 compared to 24.4% in the second quarter of 2009 and 21.9% in the firstquarter of 2010. Non-GAAP operating margin was 28.6% in the second quarter of2010 compared to 27.4% in the second quarter of 2009 and 24.6% in the firstquarter of 2010.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
Second quarter 2010 EBITDA increased 16.1% year-over-year to $54.2 millionfrom $46.7 million in the second quarter of 2009, and increased 39.6% from$38.8 million in the first quarter of 2010.
Net Income
Net income increased 28.1% year-over-year to $42.3 million from $33.0million in the second quarter of 2009. Non-GAAP net income increased 21.3%year-over-year to $45.9 million from $37.8 million in the second quarter of2009. Net margin was 23.6% in the second quarter of 2010 compared to 20.6% inthe second quarter of 2009 and 24.8% in the first quarter of 2010. Non-GAAPnet margin was 25.6% in the second quarter of 2010 compared to 23.6% in thesecond quarter of 2009 and 27.5% in the first quarter of 2010. Second quarter2010 income tax expense was $7.2 million representing an effective tax rate of14.5%.
Second quarter 2010 basic and diluted earnings per share were $0.37 and$0.36, respectively, compared to $0.30 and $0.29 in the second quarter of 2009.Basic and diluted non-GAAP earnings per share were $0.40 and $0.39,respectively, compared to $0.35 and $0.34 in the second quarter of 2009.Shares used in the computation of diluted earnings per share for the secondquarter 2010 were 118.1 million.
Other Select Data
Average accounts receivable days outstanding were 58 days in the secondquarter of 2010 compared to 69 days in the first quarter of 2010. Averageinventory days were 93 days in the second quarter of 2010 compared to 96 daysin the first quarter of 2010. Average accounts payable days outstanding were59 days in the second quarter of 2010 compared to 60 days in the first quarterof 2010. Mindray calculates the above working capital days using the averageof beginning and ending balances of the quarter.
As of June 30, 2010, the company had a total of $370.2 million in cash andcash equivalents, restricted cash and restricted investments and short-terminvestments, compared to $430.6 million as of March 31, 2010. Net cashgenerated from operating activities and net cash outflow from capitalexpenditures during the quarter were $19.8 million and $11.3 million,respectively.
First Half 2010 Results
Mindray reported net revenues of $325.1 million in the first half of 2010,representing a 10.5% increase from $294.2 million in the first half of 2009.
First half 2010 EBITDA increased 13.1% year-over-year to $93.0 millionfrom $82.3 million in the first half of 2009.
First half 2010 net income increased 34.5% year-over-year to $78.5 millionfrom $58.4 million in the first half of 2009. The first half 2010 net incomeincluded the recognition of $8.6 million corporate income tax reduction whichrelates to the nationwide key software enterprise status for the calendar year2009, awarded to our Shenzhen subsidiary in January 2010. First half 2010non-GAAP net income increased 25.9% year-over-year to $86.0 million from $68.4million in the first half of 2009.
First half 2010 diluted earnings per share increased 29.1% year-over-yearto $0.67 from $0.52 in the first half of 2009. First half 2010 non-GAAPdiluted earnings per share increased 20.9% to $0.74 from $0.61 in the firsthalf of 2009.
Business Outlook for Full Year 2010
The company has updated its full year guidance and now expects its fullyear 2010 net revenues to be $700 million.
The company also expects its full year 2010 non-GAAP net income to grow10% over its non-GAAP net income for full year 2009, excluding the $8.6million corporate income tax reduction recognized in the first quarter of 2010.This guidance assumes a corporate income tax rate of 15% applicable to theShenzhen subsidiary.
The company expects its capital expenditure for 2010 to remain in therange of $60 million to $70 million.
The company's practice is to provide guidance on a full year basis only.This forecast reflects Mindray's current and preliminary views, which aresubject to change.
"While we achieved better than expected international sales,lower-than-expected government spending in our domestic market for the firsthalf of the year has limited our planned growth rate and therefore our plannedprofit for the year," said Li Xiting, Mindray's president and co-chiefexecutive officer. "We have thus decided to lower our yearly guidance. Thisadjustment, however, does not impact our confidence in our long-term outlookfor China. We remain confident about the growth of the private sector in Chinaand the resultant non-tender sales, as well as the government's commitment toits healthcare reform plan and we are proactively addressing the areas of thebusiness and factors that are within our control. Equally, if not moreimportant, we will implement strategic initiatives more aggressively acrossproduct development, sales force organization, branding and marketing in thecoming quarters to expand in the fast growing hospital self-funded segment. Weexpect that these initiatives, together with realignment of our internationalsales network, will ensure China and international sales remain parallelgrowth drivers for the company."
Conference Call Information
Mindray's management will hold an earnings conference call at 8:00 AM onAugust 10, 2010 U.S. Eastern Time (8:00 PM on August 10, 2010 Beijing/HongKong Time).
A replay of the conference call may be accessed by phone at the followingnumbers until August 24, 2010.
Additionally, a live and archived webcast of this conference call will beavailable on the Investor Relations section of Mindray's website athttp://ir.mindray.com .
Use of Non-GAAP Financial Measures
Mindray provides gross profit, research and development expenses, sellingexpenses, general and administrative expenses, operating income, net incomeand earnings per share on a Non-GAAP basis that excludes share-basedcompensation expense, acquired intangible assets amortization expense,realignment costs -- post acquisition, all net of related tax impact, as wellas EBITDA to enable investors to better assess the company's operatingperformance. The Non-GAAP measures described by the company are reconciled tothe corresponding GAAP measure in the exhibit below titled "Reconciliations ofNon-GAAP results of operations measures to the nearest comparable GAAPmeasures."
The company has reported for the second quarter of 2010 and providedguidance for full year 2010 earnings per share on a Non-GAAP basis. Each ofthe terms as used by the company is defined as follows:
The company computes its Non-GAAP financial measures using the sameconsistent method from quarter to quarter. The company notes that thesemeasures may not be calculated on the same basis of similar measures used byother companies. Readers are cautioned not to view Non-GAAP results on astand-alone basis or as a substitute for results under GAAP, or as beingcomparable to results reported or forecasted by other companies, and shouldrefer to the reconciliation of GAAP results with Non-GAAP results for the forthe three months and six months period ended June 30, 2010 and 2009,respectively, in the attached financial information.
Cautionary Note Regarding Forward-Looking Statements
This press release contains "forward-looking statements," including thoserelated to the company's selected unaudited 2010 financial results, thecompany's business outlook for the fiscal year 2010, including with respect tonet revenues, non-GAAP net income, capital expenditure, anticipated growth orrecovery in particular geographic or product markets including emergingmarkets and high-end product and developed markets, the impact of anticipatedhealthcare reform or government expenditures, the level of investment inhealthcare from government and private sources, the company's ability tobenefit from planned company investments and new strategic initiatives inproduct development, sales force organization, realignment of ourinternational sales networks, branding and marketing, or to derive anticipatedoperation synergies, to improve cost structures and operational efficienciesto benefit from government tender sales in China, the growth of non-tendersales in China, and hospital self-funded sales, and our expectation that Chinaand international sales will remain parallel growth drivers for the company.These statements are not historical facts but instead represent only ourbelief regarding future events or circumstances, many of which, by theirnature, are inherently uncertain and outside of our control. It is possiblethat our actual results and financial condition and other circumstances maydiffer, possibly materially, from the anticipated results and financialcondition indicated in these forward-looking statements. Readers are cautionedthat these forward-looking statements are only predictions and may differmaterially from actual future events or results due to a variety of factors,including but not limited to: the expected growth of the medical device marketin China and internationally; relevant government policies and regulationsrelating to the medical device industry; market acceptance of our products;our expectations regarding demand for our products; our ability to expand ourproduction, our sales and distribution network and other aspects of ouroperations; our ability to stay abreast of market trends and technologicaladvances; our ability to effectively protect our intellectual property rightsand not infringe on the intellectual property rights of others; competition inthe medical device industry in China and internationally; and general economicand business conditions in the countries in which we operate. The financialinformation contained in this release should be read in conjunction with theconsolidated financial statements and notes thereto included in our publicfilings with the Securities and Exchange Commission. For a discussion of otherimportant factors that could adversely affect our business, financialcondition, results of operations and prospects, see "Risk Factors" beginningon page 7 of our annual report on Form 20-F, filed on May 25, 2010. Ourresults of operations for the second quarter of 2010 are not necessarilyindicative of our operating results for any future periods. Any projections inthis release are based on limited information currently available to us, whichis subject to change. Although such projections and the factors influencingthem will likely change, we will not necessarily update the information. Suchinformation speaks only as of the date of this release.
All references to "shares" are to our ordinary shares, which are dividedinto two classes, Class A and Class B. Each of our American Depositary Shares,which trade on the New York Stock Exchange, represents one Class A ordinaryshare.
About Mindray
We are a leading developer, manufacturer and marketer of medical devicesworldwide. We maintain our global operational headquarters in Shenzhen, China,and multiple sales offices in major domestic and international markets. Fromour main manufacturing and engineering base in China and through our worldwidedistribution network, we supply internationally a broad range of productsacross three primary business segments, comprised of patient monitoring andlife support products, in-vitro diagnostic products and medical imagingsystems. For more information, please visit http://ir.mindray.com .Highlights for Second Quarter and First Half 2010 -- Net revenues were $179.2 million, an increase of 12.0% over the second quarter of 2009 and 22.9% over the first quarter of 2010. -- Record international sales of $106.8 million as compared to $84.1 million for the second quarter of 2009. -- Solid China non-tender sales growth of 9.1% year-over-year and 19.0% over the first quarter 2010. -- Fully diluted EPS was $0.36, a 22.0% increase from the second quarter of 2009, and a 14.4% increase from the first quarter of 2010. -- Launched three products during the quarter, bringing the year-to-date total to four new products across three product lines. -- Paid dividend of $22.8 million in April 2010.
SOURCE Mindray Medical International Limited
