Mindray Medical International Ltd. (MR)

Q1 2010 Earnings Call

May 11, 2010 8:00 am ET


May Li – Director of Investor Relations

Ronald Ede – Chief Financial Officer

Xu Hang – Chairman, co-CEO

Li Xiting – President, co-CEO

Jie Liu – Chief Operating Officer


Ding Ding – SIG

Wei Du – Goldman Sachs

Hongbo Lu – Piper Jaffray

Jinsong Du – Credit Suisse

Bin Li – Morgan Stanley

Richard Yeh – Citigroup

[Bennie Wong – Merrill Lynch]

Katherine Lu – Oppenheimer & Company

Yale Gen – Maxim Group

[Amy Zu – UBS]



Thank you for standing by for Mindray first quarter 2010 earnings conference call. (Operator Instructions) I would now like to turn the call over to your host for today’s conference, Miss May Li, Mindray’s Director of Investor Relations.

May Li

Hi everyone and welcome to Mindray’s first quarter 2010 earnings conference call. Our financial results were released last night and are available on the company’s website as well as newswire services. In addition, an archived webcast of this conference call will available on the investor relations section of our website at www.mindray.com.

Joining today’s call are Xu Hang, our Chairman and co-CEO, Mr. Li Xiting, our President and co-CEO, Mr. Ronnie Ede, our Chief Financial Officer, Mr. Jie Liu, our Chief Operating Officer, and Mr. Gibson, our President of Mindray Operations.

Our management team will review first quarter highlights as well as provide additional detail on the current financial and micro environment in each of our major sales markets, after which management will be available to answer your questions.

Before we continue, please note that this call will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today.

A number of potential risks and uncertainties are outlined in our public filings with the SEC. Mindray does not undertake any obligation to update any forward-looking statements except as required under applicable law.

I will now turn the call over to Mindray’s CFO, Ronnie Ede.

Ronald Ede

Good morning and good evening ladies and gentlemen. Thank you for joining us today for our first quarter 2010 earnings results conference call. Again, I will follow the usual format by first providing an overview of the company’s overall operational performance, followed by a discussion of the detailed financial results. Mr. Jie Liu, our COO will then discuss our operations by region, after which management will be available to answer your questions.

The quarter just passed, reinforced some of our original assumptions when we first formulated the company’s sales and profit guidance for 2010 back in January. We saw very strong China non tender sales and substantial growth in the emerging market including Eastern European countries as well as the CIS region.

We also are very happy to report positive revenue growth and stronger bookings. Running counter to these strongly performing area we’re experiencing a slowdown of Chinese Government tender sales and continued weaknesses in the western European regions.

In particular, we reported our net revenue growth of 8.7% to $145.8 million for the first quarter of 2010. Before I go any further, I would like to remind you that for comparison purposes, in Q1 of 2009, we recorded a total of $6.5 million in retroactive refunds, which has impacted our year over year comparison percentages. Excluding this refund, our total sales growth would have been 14.2% for Q1 2010.

Domestic China sales were flat year over year. Excluding the retroactive refund from Q1 2009, overall China sales would have increased 11.3%. Our domestic sales were impacted by the lingering effect of the Chinese New Year, which came late in the quarter this year, and by a drop in Government tender sales due to slower government spending.

But as I mentioned, our non tender sales were very strong with growth over 45% year over year, excluding last year’s retroactive portion of the refund.

Internationally, our sales increased 16.6% driven by continuous robust growth in emerging markets with about 30% year over year sales growth in most territories. We are particularly encouraged by the return to growth in Eastern Europe and the CIS region. We are also seeing signs indicative of a market recovery, as hospitals in more international markets begin to return to a more normal spending pattern.

Another encouraging sign is the 2.4% year over year growth in the North American market and the order intake is increasing at an even faster pace. Our company’s net income demonstrated excellent year over year growth of 42.8% to $36.2 million from $25.3 million in Q1 of 2009, including $8.6 million of tax reduction leading to a net margin of 24.8%.

Gross profit for the quarter was up 10% year over year to $32.3 million resulting in a consolidated gross margin for the quarter of 56.4%. Our operating margin was 21.9%.

Non-GAAP net income increased 31.6% to $40.1 million over the first quarter of 2009, resulting in a non-GAAP net margin of 27.5%. This past quarter non-GAAP gross margin was 57.5%, up from 56.9% a year ago. The margin improvement was mainly due to reduced tender sales, lower products costs and product mix changes. EBITDA was $38.8 million during the quarter, a 9% increase over the first quarter of 2009.

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