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"Mindray delivered solid results this quarter and we are encouraged by thecontinuous sales uptake we are seeing in the international markets," commentedXu Hang, Mindray's chairman and co-chief executive officer. "In the domesticChinese market, normal distributor sales remained strong while tender saleswere much lower than expected due to a slow-down in the government budgetdeployment process; this is a result of normal quarterly fluctuation intenders and hence we maintain our growth expectation for China for the year.Mindray continues to focus on innovation and we are pleased to deliver on ourannual new product development goals ahead of schedule as we successfullyintroduced four additional new products to the market during the quarter."
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Revenues
Mindray reported net revenues of $151.1 million for the third quarter of2009, a 3.1% increase from $146.5 million in the third quarter of 2008. Netrevenues generated in China in the third quarter of 2009 increased 9.3% to$66.8 million from $61.1 million in the third quarter of 2008, while netrevenues generated in international markets in the third quarter of 2009decreased 1.3% to $84.3 million from $85.4 million in the third quarter of2008.
Performance by Segment
Patient Monitoring & Life Support Products: Patient monitoring & lifesupport products segment revenues declined 0.6% to $67.7 million from $68.1million in the third quarter of 2008. The patient monitoring & life supportproducts segment contributed 44.8% to total net revenues in the third quarterof 2009.
In-Vitro Diagnostic Products: In-vitro diagnostic products segmentrevenues increased 5.8% to $37.3 million from $35.3 million in the thirdquarter of 2008. The in-vitro diagnostic products segment contributed 24.7% tototal net revenues in the third quarter of 2009.
Medical Imaging Systems: Medical imaging systems segment revenuesincreased 10.2% to $36.4 million from $33.0 million in the third quarter of2008. The medical imaging systems segment contributed 24.1% to total netrevenues in the third quarter of 2009.
Others: Other revenues, which are primarily comprised of service feescharged for post warranty period repair services, declined 4.2% to $9.7million from $10.1 million in the third quarter of 2008. Other revenuescontributed 6.4% to total net revenues in the third quarter of 2009.
The segment revenue amounts discussed above include shipping and handlingfees charged to customers.
Gross Margins
Third quarter 2009 gross profit was $85.5 million, a 7.7% increase from$79.4 million in the third quarter of 2008. Third quarter 2009 non-GAAP grossprofit was $87.2 million, a 4.3% increase from $83.6 million in the thirdquarter of 2008. Third quarter 2009 gross margin was 56.6% compared to 54.2%in the third quarter of 2008 and 57.2% in the second quarter of 2009. Non-GAAPgross margin was 57.7% in the third quarter of 2009 compared to 57.0% in thethird quarter of 2008 and 58.3% in the second quarter of 2009.
Operating Expenses
Selling expenses for the third quarter of 2009 were $24.8 million, or16.4% of total net revenues, compared to 15.0% in the third quarter of 2008and 16.5% in the second quarter of 2009. Non-GAAP selling expenses for thethird quarter of 2009 were $23.3 million, or 15.4% of total net revenues,compared to 14.4% in the third quarter of 2008 and 15.5% in the second quarterof 2009.
General and administrative expenses for the third quarter of 2009 were$11.3 million, or 7.5% of total net revenues, compared to 8.6% in the thirdquarter of 2008 and 7.1% in the second quarter of 2009. Non-GAAP general andadministrative expenses for the third quarter of 2009 were $10.5 million, or6.9% of the total net revenues, compared to 8.1% in the third quarter of 2008and 6.7% in the second quarter of 2009.
Research and development expenses for the third quarter of 2009 were $14.2million, or 9.4% of total net revenues, compared to 10.0% in the third quarterof 2008 and 9.2% in the second quarter of 2009. Non-GAAP research anddevelopment expenses for the third quarter of 2009 were $13.4 million, or 8.8%of total net revenues, compared to 9.4% in the third quarter of 2008 and 8.7%in the second quarter of 2009.
Total share-based compensation expenses, which were allocated to cost ofrevenues and related operating expenses, were $2.6 million in the thirdquarter of 2009 compared to $2.6 million in the second quarter of 2009 and$2.6 million in the third quarter of 2008.
Operating income was $34.2 million in the third quarter of 2009, a 13.5%increase from $30.2 million in the third quarter of 2008. Non-GAAP operatingincome in the third quarter of 2009 was $40.0 million, a 6.7% increase from$37.5 million in the third quarter of 2008. Operating margin was 22.6% in thethird quarter of 2009 compared to 20.6% in the third quarter of 2008 and 24.4%in the second quarter of 2009. Non-GAAP operating margin was 26.5% in thethird quarter of 2009 compared to 25.6% in the third quarter of 2008 and 27.4%in the second quarter of 2009.
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")
Third quarter 2009 EBITDA increased 51.6% year-over-year to $60.1 millionfrom $39.6 million in the third quarter of 2008 and increased 28.7% from $46.7million in the second quarter of 2009.
Net Income
Net income increased 55.2% year-over-year to $43.4 million from $28.0million in the third quarter of 2008. Non-GAAP net income increased 11.0%year-over-year to $37.4 million from $33.7 million in the third quarter of2008. Net margin was 28.7% in the third quarter of 2009 compared to 19.1% inthe third quarter of 2008 and 20.6% in the second quarter of 2009. Non-GAAPnet margin was 24.7% in the third quarter of 2009 compared to 23.0% in thethird quarter of 2008 and 23.6% in the second quarter of 2009. Third quarter2009 income tax expense was $10.2 million representing an effective tax rateof 19.0%
Third quarter 2009 basic and diluted earnings per share were $0.40 and$0.38, respectively, compared to $0.26 and $0.24 in the third quarter of 2008.Basic and diluted non-GAAP earnings per share were $0.34 and $0.33,respectively, compared to $0.31 and $0.29 in the third quarter of 2008. Sharesused in the computation of diluted earnings per share for the third quarter2009 were 113.4 million.
Other Select Data
Average accounts receivable days outstanding were 62 days in the thirdquarter of 2009 compared to 54 days in the second quarter of 2009. Averageinventory days were 98 days in the third quarter of 2009 compared to 82 daysin the second quarter of 2009. Average accounts payable days outstanding were62 days in the third quarter of 2009 compared to 59 days in the second quarterof 2009. Mindray calculates the above working capital days using the averageof beginning and ending balances of the quarter.
As of September 30, 2009, the company had $299.3 million in cash, cashequivalents, restricted cash and restricted investments, compared to $286.7million as of June 30, 2009. Net cash generated from operating activities andnet cash outflow for capital expenditures during the quarter were $20.9million and $13.5 million, respectively.
As of September 30, 2009, the company had 5,760 employees.
Nine Months Ended September 30, 2009 Results
Mindray reported net revenues of $445.3 million for the first nine monthsof 2009, representing a 17.3% increase from $379.6 million in the same periodin 2008.
First nine months of 2009 EBITDA increased 36.0% year-over-year to $142.3million from $104.6 million in the first nine months of 2008.
First nine months of 2009 net income increased 32.0% year-over-year to$101.8 million from $77.1 million in the first nine months of 2008. First ninemonths of 2009 non-GAAP net income increased 9.3% year-over-year to $105.7million from $96.7 million in the first nine months of 2008.
First nine months of 2009 diluted earnings per share increased 33.7%year-over-year to $0.90 from $0.68 in the first nine months of 2008. Firstnine months of 2009 non-GAAP diluted earnings per share increased 10.7% to$0.94 from $0.85 in the first nine months of 2008.
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.
"The updated guidance conveys our confidence in delivering solidoperational and financial results for the year, backed by continuous stronggrowth in China and increasing stability in international markets," commentedLi Xiting, Mindray's president and co-chief executive officer. "To sustainfuture growth, we will invest in expanding our presence in key emergingmarkets, maintaining our aggressive pace of new product introductions, anddriving cost synergies across all business units."
Conference Call Information
Mindray's management will hold an earnings conference call at 8:00 AM onNovember 10, 2009 U.S. Eastern Time (9:00 PM on November 10, 2009 Beijing/HongKong Time).
A replay of the conference call may be accessed by phone at the followingnumbers until November 21, 2009.
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, R&D expenses, selling expenses, general andadministrative expenses, operating income, EBITDA, net income and earnings pershare on a non-GAAP basis that excludes share-based compensation expense andacquired intangible assets amortization expense, in progress research anddevelopment expenses, realignment costs -- post acquisition, as well astermination payments, all net of related tax impact, to enable investors tobetter assess the company's operating performance. The non-GAAP measuresdescribed by the company are reconciled to the corresponding GAAP measure inthe exhibit below titled "Reconciliations of non-GAAP results of operationsmeasures to the nearest comparable GAAP measures."
The company has reported for the third quarter of 2009 and providedguidance for full year 2009 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 thethree months and nine months period ended September 30, 2008 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 market performance, the business outlook for thefiscal year 2009 with respect to net revenues, Non-GAAP EPS, capitalexpenditure, share based compensation, and amortization of intangible assets,the company's ability to grow in various geographic markets, to adapt tochanging market environments, to take advantage of cost advantages, to capturegrowth opportunities, to improve cost structures and operational efficienciesand to benefit from government spending in China. These statements are nothistorical facts but instead represent only our belief regarding future events,many of which, by their nature, are inherently uncertain and outside of ourcontrol. It is possible that our actual results and financial condition andother circumstances may differ, possibly materially, from the anticipatedresults and financial condition indicated in these forward-looking statements.Readers are cautioned that these forward-looking statements are onlypredictions and may differ materially from actual future events or results dueto a variety of factors, including but not limited to: the expected growth ofthe medical device market in China and internationally; relevant governmentpolicies and regulations relating to the medical device industry; marketacceptance of our products; our expectations regarding demand for our products;our ability to expand our production, our sales and distribution network andother aspects of our operations; our ability to stay abreast of market trendsand technological advances; our ability to effectively protect ourintellectual property rights and not infringe on the intellectual propertyrights of others; competition in the medical device industry in China andinternationally; and general economic and business conditions in the countriesin which we operate. The financial information contained in this releaseshould be read in conjunction with the consolidated financial statements andnotes thereto included in our public filings with the Securities and ExchangeCommission. For a discussion of other important factors that could adverselyaffect our business, financial condition, results of operations and prospects,see "Risk Factors" beginning on page 5 of our annual report on Form 20-F,filed on May 8, 2009. Our results of operations for the third quarter of 2009and for fiscal year 2009 are not necessarily indicative of our operatingresults for any future periods. Any projections in this release are based onlimited information currently available to us, which is subject to change.Although such projections and the factors influencing them will likely change,we will not necessarily update the information. Such information speaks onlyas 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 global headquarters in Shenzhen, China, U.S.headquarters in Mahwah, New Jersey and multiple sales offices in majorinternational markets. From our main manufacturing and engineering base inChina and through our worldwide distribution network, we are able to supplyinternationally a broad range of products across three primary businesssegments, comprised of patient monitoring and life support products, in-vitrodiagnostic products and medical imaging systems. For more information, pleasevisit http://ir.mindray.com .Highlights for Operations as of September 30, 2009 -- Third quarter 2009 net revenues were $151.1 million, an increase of 3.1% over the third quarter of 2008. First nine months net revenues were $445.3 million, an increase of 17.3% year-over-year. -- International markets continued to recover in the third quarter of 2009 with only 1.3% year-over-year decline, backed by stronger growth in emerging markets and narrower decline in developed markets. -- Fully diluted EPS in the third quarter of 2009 was $0.38, a 56.9% increase from the third quarter of 2008 and a 30.6% increase from the second quarter of 2009. First nine months fully diluted EPS was $0.90, an increase of 33.7% year-over-year. -- Fully diluted non-GAAP EPS in the third quarter of 2009 was $0.33, a 12.2% increase from the third quarter of 2008. First nine months fully diluted non-GAAP EPS was $0.94, an increase of 10.7% year-over-year. -- EBITDA in the third quarter of 2009 was $60.1 million, a 51.6% increase from the third quarter of 2008 and a 28.7% increase from the second quarter of 2009. -- Gross margin in the third quarter of 2009 was 56.6%, compared to 54.2% in the third quarter of 2008 and 57.2% in the second quarter of 2009. -- Net operating cash generated during the third quarter of 2009 was $20.9 million. -- Mindray recorded special one-time income of $14.0 million resulting from a mutually agreed upon termination of a joint development and OEM chemical analyzer project between Beckman Coulter, Inc. and Mindray. The agreement resulted from changes in business strategy by Beckman Coulter, Inc. after it acquired the Olympus Diagnostic division. -- Mindray met product launch goals for the year with four more product launches in the third quarter, including the DC-7 color ultrasound system, BC-5800 hematology analyzer and WATO EX 20/30 anesthesia machine, as well as the Passport V, the second jointly developed patient monitor from the Shenzhen and Mahwah engineering teams. Mindray has launched 9 new products year to date.
SOURCE Mindray Medical International Limited
