Mindray Medical International Limited (MR)

MR 
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Mindray Medical International Limited (MR)

Q4 2010 Earnings Call

March 1, 2011 8:00 am ET

Executives

May Li – Director of Finance and Investor Relations

Jie Liu – Chief Operating Officer

Ronald Ede – Chief Financial Officer

David Gibson – President of Mahwah Operations

Minghe Cheng – Chief Strategic Officer

Analysts

Bin Li – Morgan Stanley

Ingrid Yin – Brean Murray

Jinsong Du – Credit Suisse

Katherine Lu – Oppenheimer & Company

Richard Yeh – Citigroup

Hongbo Lu – Piper Jaffray

Jack Hu – Deutsche Bank

Shaojing Tong – Bank of America Merrill Lynch

David Turkaly – SIG

Joshua Jennings – Jefferies

Yale Jen – Maxim Group

Presentation

Operator

Good morning and thank you for standing by for the Mindray Fourth-Quarter 2010 and Full-Year 2010 Earnings Conference Call. At this time all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections you may disconnect at this time.

I would now like to turn the call over to your host for today’s conference, Ms. May Li, of – Director of Finance and Investor Relations. Please proceed.

May Li

Hi everyone, and welcome to Mindray’s 2010 fourth quarter and full-year earnings conference call. Our financial results were released last night and are available on the Company’s website as well as on newswire services. In addition, an archived webcast of this web conference call will be available on the Investor Relations section of our website at www.mindray.com.

Joining today’s call are Mr. Xu Hang, our Chairman and Co-CEO; Mr. Li Xiting, our President and Co-CEO; Mr. Jie Liu, our Chief Operating Officer; Mr. Ronnie Ede, our Chief Financial Officer; Mr. Minghe Cheng, our Chief Strategic Officer; and Mr. David Gibson, our President of North America Operations.

Our management team will review fourth-quarter and full-year highlights, as well as speak to the current financial and market 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 obligations to update any forward-looking statements, except as required under applicable law.

I will now turn the call over to Mindray’s Chief Operating Officer, Mr. Jie Liu.

Jie Liu

Thank you, May. Good morning and good evening, ladies and gentlemen. Thank you for joining us today for 2010 fourth-quarter and the full-year earnings results conference call. During today’s call, I will provide an overview of the company’s overall operational performance.

Our CFO Ronnie Ede will review the detailed financial results. President of North America Operations, David Gibson will then discuss Mindray’s operations in North American region. Before opening the call to questions, Ronnie will discuss the company’s 2011 outlook.

First, let me provide some operational highlights for the year. In 2010, we were encouraged to see recovery in certain geographies in which we operate, especially throughout the second half of the year. Overall, we achieved solid revenue growth of 11.1% year over year at $704.3 million. During the year, we maintained our focus on operational excellence and innovation. We increased our investments in the international delivery channel and our efforts yielded fruitful results.

International sales has demonstrated solid growth of 20% – 20.3% year-over-year, accelerating from 2010 levels. Of this, emerging markets remained our key drivers of growth and developed markets also recorded better than expected growth.

In China unexpected weak government tender negatively impacted our results. As a result, overall domestic sales growth was bad compared to 2009. I will go into details during this call to provide perspectives on key national territories under the Chinese market growth.

R&D continued to be our focus in 2010. Our total R&D spending, pre-capitalization, for 2010 was again about 10% of net revenues. As a result, we were able to launch 10 new products into the market, including one brand new product, MRI system. Launch into the MRI market was a major product breakthrough for Mindray. We are extremely proud of this R&D achievement, optimistic about radiology line’s potential for future growth.

I will now turn the call over to Ronnie for financial details as well some fourth-quarter highlights.

Ronald Ede

Thanks Jie. For the year – full year 2010, we exclude the $8.6 million tax benefit recognized in the first quarter of 2010. Our non-GAAP net income grew 10.1% year-over-year to $162.3 million, exceeding our financial guidance. We have achieved healthy margins. Our full-year non-GAAP gross margin was 57.7%, non-GAAP operating margin was 24.3% and non-GAAP net margins was 24.3%.

During the year, we continued to make significant progress in North America operations. A number of significant R&D achievements were made under the close collaboration between the China and U.S. teams. Cost synergies were achieved for our U.S. entity, which has improved our overall gross margins.

Another factor that contributed to the gross margin expansion were the shift towards both higher margin products and higher margin regions, as well as lower government tender sales in 2010.

In 2010, we generated $147.8 million in net operating cash. We also completed an equity offering of approximately $150 million. This, along with our strong operating cash flow generation, greatly helped to increase our cash reserves and strengthened our ability to further develop business.

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