Mindray Medical International: Mindray Announces First Quarter 2014 Financial Results


The following excerpt is from the company's SEC filing.

SHENZHEN, China, May 5, 2014 — Mindray Medical International Limited (“Mindray”, NYSE: MR), a leading developer, manufacturer and marketer of medical devices worldwide, announced today its selected unaudited financial results for the first quarter ended March 31, 2014.

  •   Launched several new products, including the M9, a premium portable color ultrasound system, and the CAL 8000, a cellular analysis line. These products have received positive customer feedbacks at the recent CMEF trade show.

  •   Since the launch of its share repurchase program in November of 2013, the company has bought bac k approximately $110 million of Mindray’s American Depositary Shares so far.

“In the first quarter, the dynamics in various key markets continued to be challenging for our business. Nevertheless, we are pleased with our Western Europe performance, as well as our IVD reagent sales year-over-year increase,” commented Mr. Li Xiting, Mindray’s President and Co-Chief Executive Officer. “We are also excited about the launch of our first premium portable color ultrasound system, the M9, as well as the cellular analysis line, the CAL 8000, which demonstrate our capabilities of consistent innovation and our focus on making better healthcare solutions for our customers. Overall, management remains committed to delivering our financial goals for the year.”

1  For this press release, net income and non-GAAP net income refers to GAAP net income attributable to the Company and Non-GAAP net income attributable to the Company as stated in exhibit below, respectively.

2  The non-GAAP net income (ex tax benefit) excludes the tax benefits of $19.4 million recognized in the first quarter of 2013 for the calendar years 2011 and 2012 and $1.4 million recognized in the first quarter of 2014 for the first quarter of calendar year 2014 in relation to the nationwide key software enterprise status.

Mindray reported net revenues of $264.8 million for the first quarter of 2014, a 9.4% increase from the first quarter of 2013.

Patient Monitoring and Life Support Products: Net revenues in this segment decreased 1.4% from the first quarter of 2013 to $98.0 million, contributing 37.0% to the total net revenues in this quarter.

In-Vitro Diagnostic Products: Net revenues in this segment increased 6.8% year-over-year to $73.0 million, contributing 27.6% to the total net revenues in this quarter. Reagents sales represented 38.1% of this segment’s net revenues.

Medical Imaging Systems: Net revenues in this segment increased 27.1% from a year ago to $67.6 million, contributing 25.5% to the total net revenues in this quarter.

Others: Others net revenues increased 23.6% from the first quarter of 2013 to $26.2 million, contributing 9.9% to the total net revenues in this quarter. Others net revenues mainly include sales from the orthopedics business, service revenues from extended warranties, sales of accessories and repair-service revenues for the post-warranty period.

First quarter 2014 gross profit was $146.0 million, a 5.0% increase from the first quarter of 2013. Non-GAAP gross profit was $148.1 million, a 5.3% increase from the first quarter of 2013. The gross margin was 55.1% compared to 57.4% in the first quarter of 2013 and 55.9% in the fourth quarter of 2013. Non-GAAP gross margin was 55.9% compared to 58.1% in the first quarter of 2013 and 56.5% in the fourth quarter of 2013.

Selling expenses for the first quarter of 2014 were $54.8 million, or 20.7% of the total net revenues, compared to 19.5% in the first quarter of 2013 and 16.7% in the fourth quarter of 2013. Non-GAAP selling expenses were $52.2 million, or 19.7% of the total net revenues, compared to 18.5% in the first quarter of 2013 and 16.1% in the fourth quarter of 2013.

General and administrative expenses for the first quarter of 2014 were $29.8 million, or 11.3% of the total net revenues, compared to 11.0% in the first quarter of 2013 and 13.5% in the fourth quarter of 2013. Non-GAAP general and administrative expenses were $24.6 million, or 9.3% of the total net revenues, compared to 10.0% in the first quarter of 2013 and 9.1% in the fourth quarter of 2013.

Research and development expenses for the first quarter of 2014 were $30.1 million, or 11.4% of the total net revenues, compared to 10.9% in the first quarter of 2013 and 11.1% in the fourth quarter of 2013. Non-GAAP research and development expenses were $29.1 million, or 11.0% of the total net revenues, compared to 10.5% in the first quarter of 2013 and 10.7% in the fourth quarter of 2013.

Total share-based compensation expenses for the first quarter of 2014, which were allocated to cost of revenues and related operating expenses, were $7.6 million, compared to $4.8 million in the first quarter of 2013 and $3.8 million in the fourth quarter of 2013.

Operating income in the first quarter of 2014 was $31.3 million, a 19.8% decrease from the first quarter of 2013. Non-GAAP operating income was $42.3 million, an 8.7% decrease from the first quarter of 2013. Operating margin was 11.8% compared to 16.1% in the first quarter of 2013 and 14.6% in the fourth quarter of 2013. Non-GAAP operating margin was 16.0% compared to 19.1% in the first quarter of 2013 and 20.6% in the fourth quarter of 2013.

First quarter 2014 net income decreased 37.9% from a year ago to $35.6 million. Non-GAAP net income declined 28.7% from the first quarter of 2013 to $46.1 million. Net margin was 13.5%, compared to 23.7% in the first quarter of 2013 and 20.4% in the fourth quarter of 2013. Non-GAAP net margin was 17.4%, compared to 26.7% in the first quarter of 2013 and 20.0% in the fourth quarter of 2013. Excluding the tax benefits related to the nationwide key software enterprise status, first quarter 2014 non-GAAP net income decreased 1.2% year-over-year to $44.7 million and non-GAAP net margin was 16.9%, compared to 18.7% in the first quarter of 2013 and 17.8% in the fourth quarter of 2013. First quarter 2014 income tax expense was $4.5 million, compared to an income tax benefit of $12.9 million in the first quarter of 2013.

First quarter 2014 basic and diluted earnings per share were both $0.30, compared to $0.49 and $0.48 respectively in the first quarter of 2013. First quarter 2014 basic and diluted non-GAAP earnings per share were both $0.39, compared to $0.55 and $0.53 respectively in the first quarter of 2013. Shares used in the computation of diluted earnings per share for the first quarter of 2014 were approximately 118.3 million.

Accounts receivable turnover days were 69 days in the first quarter of 2014, compared to 66 days in the first quarter of 2013 and 50 days in the fourth quarter of 2013. Inventory turnover days were 114 days in the first quarter of 2014, compared to 103 days in the first quarter of 2013 and 79 days in the fourth quarter of 2013. Accounts payable turnover days were 78 days in the first quarter of 2014, compared to 59 days in the first quarter of 2013 and 54 days in the fourth quarter of 2013. Mindray calculates the above working capital days using the average of beginning and ending balances of the quarter.

As of March 31, 2014, the company had a total of $1.0 billion in cash and cash equivalents, and short-term investments as compared to $0.9 billion as of March 31, 2013 and $1.2 billion as of December 31, 2013. Net cash generated from operating activities and net cash outflow for capital expenditures for the first quarter of 2014 were $19.7 million and $27.9 million respectively.

The company continues to expect its full year 2014 net revenues to grow at least 15% over its full year 2013 net revenues. The company also continues to anticipate its full year 2014 non-GAAP net income to remain at a similar level to its full year 2013 non-GAAP net income. This guidance excludes the tax benefits related to the nationwide key software enterprise status and assumes a corporate income tax rate of 15% applicable to the Shenzhen subsidiary.

The company’s practice is to provide guidance on a full year basis only. This forecast reflects Mindray’s current and preliminary views, which are subject to change.

Separately, the company announced that Mr. Jie Liu has resigned from his Chief Operating Officer position for personal reasons, effective immediately. Mr. Wang Jianxin, Mindray’s Chief Administrative Officer, will now be the Chief Operating Officer and will focus on research and development, China sales and marketing, manufacturing and supply chain management as well as some other operations. In addition, Mr. Minghe Cheng, Mindray’s Co-Chief Executive Officer and Chief Strategic Officer, will oversee international sales and marketing and the North America operations, which were part of Mr. Liu’s previous responsibilities.

“At this time, we are maintaining our financial guidance for 2014. We still expect Western Europe and some emerging countries to be the growth drivers, and the operating environment in China to gradually improve,” commented Mr. Cheng Minghe, Mindray’s Co-Chief Executive Officer and Chief Strategic Officer. “As we discussed earlier this year, we will continue to execute our investment strategy on strengthening our sales, marketing and distribution capabilities as well as product innovation, to further grow Mindray and improve our long-term position in the global marketplace. Last but not least, management will keep on exploring M&As and other collaboration opportunities.”

Mindray’s management will hold an earnings conference call at 8:00 AM on May 6, 2014 U.S. Eastern Time (8:00 PM on May 6, 2014 Beijing/Hong Kong Time).

Additionally, a live and archived webcast of this conference call will be available on the Investor Relations section of Mindray’s website at: http://ir.mindray.com/

Mindray provides gross profit, selling expenses, general and administrative expenses, research and development expenses, operating income, net income and earnings per share on a non-GAAP basis that excludes share-based compensation expense and acquired intangible assets amortization expense, all net of related tax impact, as well as EBITDA to enable investors to better assess the company’s operating performance for the first quarter of 2014. The non-GAAP measures described by the company are reconciled to the corresponding GAAP measure in the exhibit below titled “Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures”.

The company has reported for the first quarter 2014 earnings on a non-GAAP basis. Each of the terms as used by the company is defined as follows:

  •   Non-GAAP gross profit represents gross profit reported in accordance with GAAP, adjusted for the effects of share-based compensation and amortization of acquired intangible assets.

  •   Non-GAAP operating income represents operating income reported in accordance with GAAP, adjusted for the effects of share-based compensation and amortization of acquired intangible assets.

  •   Non-GAAP selling expenses represent selling expenses reported in accordance with GAAP, adjusted for the effects of share-based compensation and amortization of acquired intangible assets.

  •   Non-GAAP general and administrative expenses represent general and administrative expenses reported in accordance with GAAP, adjusted for the effects of share-based compensation.

  •   Non-GAAP research and development expenses represent research and development expenses reported in accordance with GAAP, adjusted for the effects of share-based compensation.

  •   Non-GAAP net income represents net income reported in accordance with GAAP, adjusted for the effects of share-based compensation and amortization of acquired intangible assets, all net of related tax impact.

  •   Non-GAAP earnings per share represents non-GAAP net income divided by the number of shares used in computing basic and diluted earnings per share in accordance with GAAP, and excludes the impact of the declared dividends for the basic calculation.

  •   EBITDA represents net income reported in accordance with GAAP, adjusted for the effect of interest income and expenses, income tax provision/benefits, depreciation and amortization.

The company computes its non-GAAP financial measures using the same consistent method from quarter to quarter. The company notes that these measures may not be calculated on the same basis of similar measures used by other companies. Readers are cautioned not to view non-GAAP results on a stand-alone basis or as a substitute for results under GAAP, or as being comparable to results reported or forecasted by other companies, and should refer to the reconciliation of GAAP results with non-GAAP results for the three months ended March 31, 2013 and 2014, respectively, in the attached financial information.

This press release contains “forward-looking statements” within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that are not historical facts, including, without limitation, statements about Mindray’s anticipated net revenues, non-GAAP net income and capital expenditure for 2014, our assumption of a corporate income tax rate of 15% applicable to the Shenzhen subsidiary, statements that overall, management remains committed to delivering our financial goals for 2014, that we still expect Western Europe and some emerging countries to be the growth drivers and the operating environment in China to gradually improve, that we will keep on executing our investment strategy on strengthening our sales, marketing and distribution capabilities as well as product innovation, to further grow Mindray and improve our long-term position in the global marketplace, that management will continue to explore M&As and other collaboration opportunities and other statements under “Business Outlook for Full Year 2014” are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual results due to a variety of factors, including, without limitation, the growth and expected growth of the medical device market in China and internationally; applicable government policies and regulations; our ability to satisfy the requirements imposed by relevant regulatory bodies; market acceptance of our products; our expectations regarding demand for our products; our ability to expand our production, our sales and distribution network and other aspects of our operations; our ability to stay abreast of market trends and technological advances; our ability to effectively protect our intellectual property rights and not infringe on the intellectual property rights of others; our ability to settle disputes with our customers and suppliers; competition in the medical device industry in China and internationally; and general economic and business conditions in the countries in which we operate. For a discussion of other important factors that could adversely affect our business, financial condition, results of operations and prospects, see “Risk Factors” beginning on page 5 of our annual report on Form 20-F which was filed on April 28, 2014. Our results of operations for the first quarter of 2014 are not necessarily indicative of our operating results for any future periods. The financial information contained in this release should be read in conjunction with the consolidated financial statements and notes thereto included in our public filings with the Securities and Exchange Commission. Any projections in this release are based on limited 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 only as of the date of this release.

All references to “shares” are to our ordinary shares, which are divided into 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 ordinary share.

We are a leading developer, manufacturer and marketer of medical devices worldwide. We maintain our global headquarters in Shenzhen, China, U.S. headquarters in Mahwah, New Jersey and multiple sales offices in major international markets. From our main manufacturing and engineering base in China, we supply through our worldwide distribution network a broad range of products across three primary business segments, namely patient monitoring and life support, in-vitro diagnostics, and medical imaging systems. For more information, please visit http://ir.mindray.com.

(2) In respect of cash and cash equivalents and short-term investments, there is an aggregate compensating balance arrangement of $241,500 and $189,000 as of December 31, 2013 and March 31, 2014, respectively in relation to the drawings of certain bank loans.

The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here.

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Other recent filings from the company include the following:

Report of foreign issuer [Rules 13a-16 and 15d-16] - Nov. 13, 2014
Mindray Medical International: Mindray Announces Third Quarter 2014 Financial Results - Nov. 3, 2014

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