Mindray fourth quarter net revenues increase 19.7% to $316.1 million

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 fourth quarter and full year ended December 31, 2012.

Highlights for Fourth Quarter and Full Year 2012

• Full year net revenues increased 20.4% year-over-year to $1,060.1 million; excluding tax benefits, full year non-GAAP net income increased 18.4% to $211.7 million.
• China revenues rose 26.4% for the full year, primarily driven by robust regular sales.
• International sales increased 15.9% for the full year. Emerging markets[1] were again the key growth drivers.
• In-vitro diagnostic sales grew 29.8% year-over-year in the fourth quarter. Reagent revenues contributed 36.9% to the segment, up from 32.1% in the same period last year.
• Non-GAAP gross margin was 58.5% in the fourth quarter, improved from 54.7% a year ago and 56.5% in the previous quarter. Full year non-GAAP gross margin was 57.2%, improved from 55.8% in 2011.
• Net operating cash inflow for the full year strengthened to $325.7 million, representing an increase of 69.3% from 2011, mainly as a result of improved working capital management.
• Cash conversion cycle was 89 days in the fourth quarter, compared to 100 days a year ago and 106 days in the previous quarter, due to better control on receivable collections and inventory management.
• Declared dividend of $0.50 per share, representing a 25% increase from 2011.
• Announced a total of 10 new products and four acquisitions in 2012 to further enhance the company's technology and product offerings.

"2012 marks another remarkable year for Mindray, as our revenue surpassed $1 billion for the first time in the company's history. We also achieved strong revenue and net income growth, beating our financial guidance," said Mr. Li Xiting, Mindray's President and Chief Executive Officer. "In addition, our continuous focus on strengthening operating efficiency resulted in significant improvement on our gross margin, working capital and operating cash flow. China and emerging markets were again the main propellers for our company's growth in 2012, reflecting the success of our strategy to strengthen sales, distribution and services in these markets over the last few years. For our in-vitro diagnostic segment, we have successfully ramped up sales in our higher-margin reagents and are optimistic about the future growth prospects of this business."

SUMMARY – Fourth Quarter and Year Ended December 31, 2012

Fourth Quarter 2012 Results

Revenues

Mindray reported net revenues of $316.1 million for the fourth quarter of 2012, a 19.7% increase from $264.1 million in the fourth quarter of 2011.

• Net revenues generated in China increased 25.9% to $148.1 million from $117.6 million in the fourth quarter of 2011.
• Net revenues generated in the international markets increased 14.7% to $168.0 million from $146.5 million in the fourth quarter of 2011.

Performance by Segment

Patient Monitoring and Life Support Products: Revenues in this segment increased 13.0% to $135.0 million from $119.5 million in the fourth quarter of 2011, contributing 42.7% to the total net revenues in this quarter.

In-Vitro Diagnostic Products: Revenues in this segment increased 29.8% to $82.9 million from $63.9 million in the fourth quarter of 2011, contributing 26.2% to the total net revenues in this quarter. Reagents sales represented 36.9% of this segment's revenues.

Medical Imaging Systems: Revenues in this segment increased 15.8% to $75.4 million from $65.1 million in the fourth quarter of 2011, contributing 23.8% to the total net revenues in this quarter.

Others: The other revenues increased 45.3% to $22.8 million from $15.7 million in the fourth quarter of 2011, contributing 7.3% to the total net revenues in this quarter. Other 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 Margins

Fourth quarter 2012 gross profit was $182.8 million, a 27.7% increase from $143.1 million in the fourth quarter of 2011. Non-GAAP gross profit was $184.8 million, a 27.9% increase from $144.5 million in the fourth quarter of 2011. The gross margin was 57.8%, compared to 54.2% in the fourth quarter of 2011 and 56.0% in the third quarter of 2012. Non-GAAP gross margin was 58.5%, compared to 54.7% in the fourth quarter of 2011 and 56.5% in the third quarter of 2012.

Operating Expenses

Selling expenses for the fourth quarter of 2012 were $53.7 million, or 17.0% of the total net revenues, compared to 19.7% in the fourth quarter of 2011 and 18.5% in the third quarter of 2012. Non-GAAP selling expenses were $51.2 million, or 16.2% of the total net revenues, compared to 19.0% in the fourth quarter of 2011 and 17.8% in the third quarter of 2012.

General and administrative expenses for the fourth quarter of 2012 were $36.5 million, or 11.5% of the total net revenues, compared to 6.7% in the fourth quarter of 2011 and 13.2% in the third quarter of 2012. Non-GAAP general and administrative expenses were $36.0 million, or 11.4% of the total net revenues, compared to 6.3% in the fourth quarter of 2011 and 9.2% in the third quarter of 2012.

Research and development expenses for the fourth quarter of 2012 were $32.9 million, or 10.4% of the total net revenues, compared to 9.7% in the fourth quarter of 2011 and 9.0% in the third quarter of 2012. Non-GAAP research and development expenses were $31.9 million, or 10.1% of the total net revenues, compared to 9.3% in the fourth quarter of 2011 and 8.6% in the third quarter of 2012.

Total share-based compensation expenses for the fourth quarter of 2012, which were allocated to cost of goods sold and related operating expenses, were $2.7 million, compared to $3.2 million in the fourth quarter of 2011 and $3.1 million in the third quarter of 2012.

Operating income in the fourth quarter was $59.7 million, a 24.6% increase from $47.9 million in the fourth quarter of 2011. Non-GAAP operating income was $65.8 million, a 24.2% increase from $53.0 million in the fourth quarter of 2011. Operating margin was 18.9% compared to 18.1% in the fourth quarter of 2011 and 15.2% in the third quarter of 2012. Non-GAAP operating margin was 20.8%, compared to 20.1% in the fourth quarter of 2011 and 20.8% in the third quarter of 2012.

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

Fourth quarter 2012 EBITDA increased 24.8% year-over-year to $71.9 million from $57.6 million in the fourth quarter of 2011.

Net Income

Fourth quarter 2012 net income increased 19.3% to $55.8 million from $46.8 million in the fourth quarter of 2011. Non-GAAP net income increased 19.0% to $61.7 million from $51.8 million in the fourth quarter of 2011. Net margin was 17.7%, unchanged from the fourth quarter of 2011 and compared to 13.9% in the third quarter of 2012. Non-GAAP net margin was 19.5%, compared to 19.6% in the fourth quarter of 2011 and unchanged from the third quarter of 2012. Fourth quarter 2012 income tax expense was $9.9 million, representing an effective tax rate of 14.8%, compared to a 14.9% effective tax rate in the fourth quarter of 2011.

Fourth quarter 2012 basic and diluted earnings per share were $0.48 and $0.47, respectively, compared to $0.41 and $0.40 in the fourth quarter of 2011. Fourth quarter 2012 basic and diluted non-GAAP earnings per share were $0.53 and $0.51, respectively, compared to $0.45 and $0.44 in the fourth quarter of 2011. Shares used in the computation of diluted earnings per share for the fourth quarter of 2012 were 120.1 million.

Other Selected Data

Accounts receivable days were 53 days in the fourth quarter of 2012, improved from 66 days both in the fourth quarter of 2011 and the third quarter of 2012. Inventory days were 83 days in the fourth quarter of 2012, compared to 78 days in the fourth quarter of 2011 and 100 days in the third quarter of 2012. Accounts payable days were 47 days in the fourth quarter of 2012, compared to 44 days in the fourth quarter of 2011 and 60 days in the third quarter of 2012. Mindray calculates the above working capital days using the average of beginning and ending balances of the quarter.

As of December 31, 2012, the company had total $862.9 million in cash and cash equivalents, and short-term investments as compared to $747.6 million as of September 30, 2012. Net cash generated from operating activities and net cash outflow for capital expenditures for the quarter were $144.9 million and $18.4 million, respectively.

As of December 31, 2012 the company had approximately 7,500 employees, including those from the acquired businesses.

Full Year 2012 Results

Mindray reported net revenues of $1,060.1 million for the full year 2012, a 20.4% increase from $880.7 million for the full year 2011.

• Net revenues generated in China for the full year 2012 increased 26.4% to $473.0 million from $374.3 million in 2011.
• Net revenues generated in international markets for the full year 2012 increased 15.9% to $587.1 million from $506.4 million in 2011.

Full year 2012 EBITDA increased 14.5% to $233.3 million from $203.7 million in 2011.

Full year 2012 net income increased 8.1% to $180.2 million from $166.6 million in 2011. Non-GAAP net income increased 13.6% year-over-year to $211.7 million from $186.3 million in 2011. Net margin was 17.0%, compared to 18.9% in 2011. Non-GAAP net margin was 20.0%, compared to 21.2% in 2011. Full year 2012 income tax expense was $37.4 million, representing an effective tax rate of 17.0%, compared to 11.9% in 2011.

Diluted earnings per share increased 6.9% year-over-year to $1.50 from $1.41 in 2011. Non-GAAP diluted earnings per share increased 12.3% to $1.77 from $1.57 in 2011.

Dividend Declaration

Mindray's board of directors has declared a cash dividend on its ordinary shares of $0.50 per share, based on the company's net income for the full year 2012. The cash dividend will be payable on or around April 8, 2013, to shareholders of record as of March 8, 2013. The company has approximately 119 million outstanding ordinary shares as of January 31, 2013.

Business Outlook for Full Year 2013

The company expects its full year 2013 net revenues to grow at least 17% over its full year 2012 net revenues. The company also expects its full year 2013 non-GAAP net income to grow at least 15% over its non-GAAP net income for the full year 2012. This guidance excludes the tax benefits related to the key software enterprise status for the calendar year 2011 and 2012 that we may receive in 2013 and assumes a corporate income tax rate of 15% applicable to the Shenzhen subsidiary.

The company expects its capital expenditure for 2013 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.

"Looking ahead, China will remain the primary engine for our growth this year, due to our strong competitive position in the domestic market and favourable spending environment on healthcare. As for emerging markets, the prospects, albeit favourable overall, are somewhat overshadowed by potential political instability and currency risks in some regions," said Li Xiting, Mindray's President and Chief Executive Officer. "We anticipate that the developed markets[3] will remain challenging this year because of lingering uncertainties over their economies or hospital spending. But our strategy of offering great products at reasonable prices will continue to serve us well in all markets. We will work on strengthening our research and development and pursuing suitable M&A opportunities in order to drive long-term growth for Mindray."