Mindray net revenues increase 8.9% to $334.5 million in Q2 2014

Published on August 12, 2014 at 1:35 AM · No Comments

Mindray Medical International Limited (NYSE: MR), a leading developer, manufacturer and marketer of medical devices worldwide, announced today its selected unaudited financial results for the second quarter ended June 30, 2014.

Highlights for Second Quarter 2014

  • Net revenues increased 8.9% year-over-year to $334.5 million. International sales were $182.0 million, representing 54.4% of the company's total net revenues. China sales totaled $152.5 million.
  • Reagent sales contributed 41.2% to the IVD segment, up from 36.6% in the same period last year and from 38.1% in the previous quarter.
  • In addition to the reagents, the biochemistry analyzers BS-800 and BS-2000 performed well in China.

"In the second quarter, the Chinese healthcare market remained sluggish for our business while unfavorable foreign exchange and political issues affected our sales in some key emerging markets," commented Mr. Li Xiting, Mindray's President and Co-Chief Executive Officer. "However, we are encouraged by our reagent sales performance and the growth momentum achieved by our high-speed biochemistry analyzers and high-end ultrasound products. This is the result of our focus on innovation, which allows us to consistently introduce new products into different markets."

SUMMARY -- Second quarter 2014

Net Revenues

Mindray reported net revenues of $334.5 million for the second quarter of 2014, an 8.9% increase from the second quarter of 2013.

  • Net revenues generated in China increased 3.4% year-over-year to $152.5 million.
  • Net revenues generated in the international markets increased 13.9% year-over-year to $182.0 million.

Performance by Segment

Patient Monitoring & Life Support Products: Net revenues in this segment increased 1.8% from the second quarter of 2013 to $119.3 million, contributing 35.7% to total net revenues in the second quarter of 2014.

In-Vitro Diagnostic Products: Net revenues in this segment increased 11.3% year-over-year to $98.3 million, contributing 29.4% to total net revenues in the second quarter of 2014. Reagents sales represented 41.2% of this segment's net revenues.

Medical Imaging Systems: Net revenues in this segment increased 11.2% from a year ago to $84.6 million, contributing 25.3% to total net revenues in the second quarter of 2014.

Others: Net revenues increased 26.3% from the second quarter of 2013 to $32.2 million, contributing 9.6% to total net revenues in the second quarter of 2014. Other net revenues mainly include sales from the orthopedics business, service revenues from extended warranties, sales of accessories and repair service revenues for post-warranty period.

Gross Margin

Second quarter 2014 gross profit was $189.2 million, a 7.2% increase from the second quarter of 2013. Second quarter 2014 non-GAAP gross profit was $191.4 million, a 7.1% increase from the second quarter of 2013. Second quarter 2014 gross margin was 56.6% compared to 57.5% in the second quarter of 2013 and 55.1% in the first quarter of 2014. Second quarter 2014 non-GAAP gross margin was 57.2% compared to 58.2% in the second quarter of 2013 and 55.9% in the first quarter of 2014.

Operating Expenses 

Selling expenses in the second quarter of 2014 were $63.5 million, or 19.0% of total net revenues, compared to 17.8% in the second quarter of 2013 and 20.7% in the first quarter of 2014. Non-GAAP selling expenses were $60.6 million, or 18.1% of total net revenues, compared to 17.0% in the second quarter of 2013 and 19.7% in the first quarter of 2014.

General and administrative expenses for the second quarter of 2014 were $27.6 million, or 8.2% of total net revenues, compared to 8.7% in the second quarter of 2013 and 11.3% in the first quarter of 2014. Non-GAAP general and administrative expenses for the second quarter of 2014 were $26.8 million, or 8.0% of total net revenues, compared to 8.5% in the second quarter of 2013 and 9.3% in the first quarter of 2014.

Research and development expenses for the second quarter of 2014 were $33.7 million, or 10.1% of total net revenues, compared to 9.3% in the second quarter of 2013 and 11.4% in the first quarter of 2014. Non-GAAP research and development expenses for the second quarter of 2014 were $32.3 million, or 9.7% of total net revenues, compared to 8.9% in the second quarter of 2013 and 11.0% in the first quarter of 2014.

Total share-based compensation expenses, which were allocated to cost of revenues and related operating expenses, were $3.8 million in the second quarter of 2014 compared to $3.2 million in the second quarter of 2013 and $7.6 million in the first quarter of 2014.

Operating income was $64.4 million in the second quarter of 2014, a 3.4% decrease from a year ago. Non-GAAP operating income in the second quarter of 2014 was $71.6 million, a 2.0% decrease from the second quarter of 2013. Operating margin was 19.3% in the second quarter of 2014 compared to 21.7% in the second quarter of 2013 and 11.8% in the first quarter of 2014. Non-GAAP operating margin was 21.4% in the second quarter of 2014 compared to 23.8% in the second quarter of 2013 and 16.0% in the first quarter of 2014.

Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")

Second quarter 2014 EBITDA decreased 2.4% year-over-year to $77.0 million.

Net Income

Net income decreased 3.9% year-over-year to $59.6 million in the second quarter of 2014. Non-GAAP net income decreased 3.0% year-over-year to $66.2 million in the second quarter of 2014. Net margin was 17.8% in the second quarter of 2014 compared to 20.2% in the second quarter of 2013 and 13.5% in the first quarter of 2014. Non-GAAP net margin was 19.8% in the second quarter of 2014, compared to 22.2% in the second quarter of 2013 and 17.4% in the first quarter of 2014. Excluding the tax benefits related to the nationwide key software enterprise status, second quarter 2014 non-GAAP net income decreased 5.8% year-over-year to $64.3 million and non-GAAP net margin was 19.2%, compared to 22.2% in the second quarter of 2013 and 16.9% in the first quarter of 2014. Second quarter 2014 income tax expense was $9.4 million, representing an effective tax rate of 13.4%.

Second quarter 2014 basic and diluted earnings per share were $0.51 and $0.50 respectively, compared to $0.52 and $0.51 in the second quarter of 2013. Basic and diluted non-GAAP earnings per share were $0.57 and $0.56 respectively, compared to $0.58 and $0.56 in the second quarter of 2013. Excluding the tax benefits, diluted non-GAAP earnings per share was $0.54 in the second quarter of 2014. Shares used in the computation of diluted earnings per share for the second quarter of 2014 were 118.1 million.

Other Select Data

Accounts receivable turnover days were 52 days in the second quarter of 2014, same as a year ago and lower than 69 days in the first quarter of 2014. Inventory turnover days were 99 days in the second quarter of 2014, compared to 88 days in the second quarter of 2013 and 114 days in the first quarter of 2014. Accounts payable turnover days were 62 days in the second quarter of 2014, compared to 54 days in the second quarter of 2013 and 78 days in the first quarter of 2014. Mindray calculates the above working capital turnover days using the average of the beginning and ending net balances of the quarter.

As of June 30, 2014, the company had $915.6 million in cash and cash equivalents as well as short-term investments, compared to $1.0 billion as of March 31, 2014. Net cash provided by operating activities and net cash outflow for capital expenditures during the second quarter of 2014 were $84.6 million and $23.2 million respectively.

As of June 30, 2014, the company had around 8,200 employees.

Board of Directors Change

Separately, the company announced that Mr. Chen Qingtai has resigned for personal reasons as an independent director of Mindray's Board of Directors and a member of Audit Committee, with effect from July 31, 2014. Mr. Chen has confirmed that his resignation was not the result of any disagreement with the company on any matter relating to its operations, policies or practices.

Business Outlook for Full Year 2014

The company now expects its full year 2014 net revenues to grow at least 10% over its full year 2013 net revenues. The company now also anticipates its full year 2014 non-GAAP net income to decrease by a mid-single-digit percentage over 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 expects its capital expenditure for full year 2014 to be around $130 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 are subject to change.

"In light of the weakness in China and some key emerging markets in the first half of the year, we are revising our financial guidance for 2014. Nevertheless, we believe the long-term fundamentals of these healthcare markets remain solid," commented Mr. Cheng Minghe, Mindray's Co-Chief Executive Officer and Chief Strategic Officer. "To achieve sustainable growth for our company in the long run, we will continue to strengthen our sales, marketing, distribution and product development capabilities as well as evaluate M&A and other collaboration opportunities."

Source:

Mindray Medical International Limited

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