Q1 2007 MINDRAY MEDICAL INTL LTD Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good morning, and thank you for standing by for Mindray's First Quarter 2007 Earnings Conference Call.

(OPERATOR INSTRUCTIONS)

I would now like to turn the meeting over to your host for today's conference, Lisa Li, Mindray's Investor Relations Manager. Please proceed.

LISA LI, IR, MINDRAY MEDICAL INTERNATIONAL LIMITED: Thank you operator. Hello everyone, welcome to Mindray's First Quarter 2007 Earnings Conference Call. Our First Quarter 2007 Earnings result were released earlier today, and are available on the company's website, as well as on Newswire services. In addition, an archive of the webcast of this conference call will be available on the Investor Relations section of our website at www.mindray.com.

Today, you will hear from Mr. Xu Hang, our Chairman and Co-Chief Executive Officer, Mr. Li Xiting, our President and Co-Chief Executive Officer, and Ms. Joyce Hsu, our Chief Financial Officer. After their prepared remarks they will be available to answer your questions. Before we continue, please note that the discussion today will contain forward looking statements made under the Safe Harbor Provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Forward looking statement 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 findings with 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 Chairman and Co-Chief Executive Officer, Mr. Xu Hang. Mr. Xu?

XU HANG, CEO, CHAIRMAN, MINDRAY MEDICAL INTERNATIONAL LIMITED: Thank you. Good evening, everybody. I know you are waiting long for our first quarter results, so we are very pleased to have you here today. At this morning in China I'm pleased to report that Mindray achieved year-over-year net income gross of 79% in the first quarter 2007, and the growth in net margin extended as we continue to drive down costs.

Top line revenue for the quarter increased more that 40% after adjusting for a large central government tender in the first quarter of last year. This year we are seeing a great number of smaller government tenders coming from the provincial governments. It's not likely we will see such a big tender from central government.

In quarter one, our products continue to grow in popularity with medical professionals, especially our newest product. In fact, sales of new product accounted for 60% of revenue gross for this quarter. Products such as the BeneView T8 and the T5, which is a high end patient monitor, and the five-part Hematology Analyzer BC-5500, and the DC-6 Doppler ultrasound imaging system, color one.

(Inaudible-highly accented language), we released BS-400, a fully automatic Bio-temperature Analyzer targeting higher market segments. This is also the first of its kind in China's medical provider -- device manufacturers can provide. We are optimistic about its potential [goals] in China and internationally. The [BS-400] shows our ability to successfully develop products tailored for specific markets. This new product showed the stronger returns we are seeing from our R&D investments.

In fact, we expect to have a total of 1,000 R&D stock by the end of this year, which will help us to further lower costs of a [drifting] product like we've seen from this quarter's results. And it will bring more product to the market in the future. R&D is one of our big engines for future growth.

I will now turn to Mr. Li, our president and CEO, to discuss our market outlook and strategies.

LI XITING, CEO, PRESIDENT, MINDRAY MEDICAL INTERNATIONAL LIMITED: (Interpreted) Thank you all again for joining us on the call this morning. As we discussed on our annual earnings call, we expect the macro-environment in China to be much healthier than last year. We are optimistic about the domestic industry outlook for the remainder of 2007 as the government plans to increase spending on (inaudible) area hospitals and the community clinics.

And we expect to see domestic sales return to a high level of growth as we benefit from our broad portfolio product and the largest distribution network of any medical device manufacturer in China. Also, our leading R&D gives us a unique competitive advantage in gaining a significant market share from new government spending as we continue to drive product costs down while increasing functionality.

Internationally, growth remains robust, with revenue from international markets up 60% year-over-year . In the first quarter 2007, the United States became our largest international market, followed by Germany. In fact, our own brand sales more than doubled in North America during the first quarter 2007.

We are particularly encouraged by this trend as we are starting to see returns from our investments in establishing overseas sales and distribution networks. We believe that the acceptance of Mindray's products in our overseas markets will continue to accelerate as we continue to build our team, distribution space, and the brand recognition.

Now I will turn the call over to Ms. Joyce Hsu, our CFO, to take you through the financial

JOYCE HSU, CFO, MINDRAY MEDICAL INTERNATIONAL LIMITED: Thank you Mr. Li, and thank you everybody again for joining us today. I will not repeat all the number in the press release. I would rather focus on certain key results and contributors to our first quarter 2007 results and some financial highlights for this quarter.

Please know that certain measures I will discuss our non-GAAP in nature, and we believe the -- both management [and] investors benefit from referring to these non-GAAP financial measures to help understand the underlying different performance and operations trends of the company, and we'll continue to provide these measures in the future.

Specifically, in the first quarter 2007 results, these measures exclude RMB13.3 million of share based compensation expenses, and on the RMB$4.7 million net income impact, related to amortization expenses resulting from the April, 2006 acquisition of our minority interest.

You can find a reconciliation of non-GAAP to GAAP figures in the financial tables at the end of our press release. We reported net revenues of RMD$422.4 million or US$54.7 million for the first quarter 2007. As [Mr. Xiting] mentioned earlier, after factoring out the benefits attributable to the central government tenders in the first quarter 2006, first quarter 2007 net revenue growth would have been 40.6% year-over-year , which is in line with our revenue guidance for the full year 2007.

Net revenue generated in international markets in first quarter …