Mindray Medical International's CEO Discusses Q2 2013 Results - Earnings Call Transcript

Aug. 6.13 | About: Mindray Medical (MR)

Mindray Medical International Ltd. (NYSE:MR)

Q2 2013 Earnings Call

August 6, 2013 8:00 AM ET

Executives

Li Xiting – President and the Co-CEO

Minghe Cheng – Co-CEO and the Chief Strategic Officer

Wang Jianxin – Chief Administrative Officer

Jie Liu – COO

Alex Lung – CFO

May Li, – Chief Investment Officer

Cathy Gao – IR

Analysts

Richard Yeh – Citigroup

Ingrid Yin – Oppenheimer

Ben Li – Morgan Stanley

Jack Hu – Deutsche Bank

Wei Du – Goldman Sachs

Sean Wu – JPMorgan

Anthony Petrone – Jefferies

Iris Wang – Credit Suisse

Operator

Good morning, everyone. Thank you for standing by and welcome to Mindray's Second Quarter 2013 Earnings Conference call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, we will conduct a question-and-answer session. Today's conference is being recorded for replay purposes. 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. Cathy Gao, Mindray's Manager of Investor Relations. Please proceed, Ms. Gao.

Cathy Gao

Thank you. Hi everyone, welcome to Mindray's 2013 second quarter earnings conference call, we released our financial results last night and they are now available on the Company's website and Newswire Services. There will also be an archived webcast of this conference call on our Investor Relation's website.

Joining today's call are, Mr. Li Xiting, our President and the Co-CEO; Mr. Minghe Cheng, our Co-CEO and the Chief Strategic Officer; Wang Jianxin, our Chief Administrative Officer, Mr. Jie Liu, our Chief Operating Officer; Mr. Alex Lung, our Chief Financial Officer and Ms. May Li, our Chief Investment Officer.

In a moment, Ms. May Li will provide an update of the Company's operational performance. Mr. Alex Lung will review the detailed financial results, as well as the company's outlook for the year of 2013. After that the management team would be happy to take 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. Statements made and the views expressed here which are not historical facts are forward-looking statements. You should be cautioned that the forward-looking statements are only predictions and may involve inherent risks and uncertainties. As such, our actual results may be materially different from the statements and the views expressed here today due to a variety of factors.

A number of such risks and uncertainties, and the factors are outlined in our public filings with the SEC. In particular, please refer to risk factors beginning on Page 5 of our Annual Report on Form 20-F. Any projections made here today are based only on limited information currently available to us, and are subject to change. 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 CIO, Ms. May Li. Please.

May Li

Thank you, Cathy. Good morning and good evening ladies and gentlemen. Thank you for joining us today. In the second quarter, we reported a$300.72 million in total net revenues representing 14.7% year-over-year growth. Our top line growth was primarily driven by robust China's sales, which grew around 28% over the same period last year to $147.4 million and represented 40% – 48% of our total net revenues. We’re very pleased to see sustainable strong demands of our products in the domestic China market especially in the in-vitro diagnostic segment.

Outside of China, our International sales grew 4.7% year-over-year to $159.7 million. In this quarter, the emerging market sales growth improved up from 18% over the same period of last year. We also recorded some solid results in Western Europe with 19% year-over –year growth. We are again delighted with our performance though considering the market weakness in the region.

In North America our business was weak mainly due to tough comparison over the last year. Among all product lines our IVD segment continued to grow the fastest and recorded about 20% year-over-year growth. The regents accounted for around 37% in total IVD sales up from 34% a year ago.

Now, let me discuss some other achievements during this quarter. Our non-GAAP gross margin 58.2%, improved from 57.8% in the same period last year. Our net operating cash flow for the quarter increased 24.3% from the same period last year. Our cash conversation cycle 85 days compared to 97 days a year ago. These improvements demonstrated our continued effort to drive better operational performance. In addition, during the quarter we acquired ZONARE Medical Systems, Inc. for $101.7 million and just completed this transaction a few weeks ago. We are very excited about the potential of this deal. With these acquisitions, we have quickly stepped up anti-capability in ultrasound and extended our high end product portfolio. Over time, we also expect to achieve cost efficiency for this acquired business. We look forward to providing more update in the future.

Now, let’s look at our detailed performance by geography and segments respectively, starting with our biggest sales contributing regions namely, China an emerging market then on to the developed market. As mentioned, we had another very strong quarter for our domestic China sales with around 28% year-over-year growth. This was primarily the result of the continuing strong performance of our IVD sales, our improved sales programs as well as our extended direct servicing platforms. Our IVD sales in China again generated strong momentum and it led our overall IVD segment in the second quarter.

We continue to make inroads in the high end segment with products such as BS-800 and BC-6800 our reagent sales proportionate continued to increase on an annual and sequential basis. We are optimistic about the growth prospects of the segment based on our increased brand recognition and attractive product performance as well as the gradual change in the market trending which will become a more important sort of income for hospitals.

In addition the fundamentals of the healthcare industry in China remained favorable. The government’s long term focus to expand and operate country level hospitals, increase patient traffic to such hospitals and support domestic brands in the industry are all beneficial to Mindray. Additionally the depth and breadth of our product offerings along with our extensive sales and service network also allow us to further expand into pre-hospitals.

As for our international sales, we recorded 4.7% year-over-year growth in the second quarter. Sales growth from the emerging market improved from the first quarter despite a continued challenging operating environment in certain Latin American countries.

We achieved around 14% year-over-year growth in overall emerging market in the quarter. Middle-east represented the highest growth to region with over 60% year-over-year growth, due to strong sales in Turkey and Saudi Arabia. We also recorded over 30% year-over-year sales growth in CIS and Africa regions respectively.

In the Latin American regions, similar to the prior quarter, our performances in some countries were affected by tightened effects in the import policy as well as political instability. Then as well our sales growth continued to decline in the second quarter though at a slower rate compared to the first quarter. We’re hopeful that the macro environment there should gradually improve over the next few quarters.

In the meantime, we did well in other key Latin American countries such as Brazil and Columbia both of which achieved over 35% year-over-year growth. In the CIS region we did better this quarter with over 30% sales growth. However, we continued to anticipate self-demand for the rest of the year. This is because we do not expect to repeat the extraordinary growth pattern that we experienced in 2012 resulting from the Russian presidential election and the country’s modernization program.

Looking ahead, we will continue our key account coverage in the top emerging countries and enhance our capability in both public and private sector participation. Developed market sales were down around 9% year-over-year. Western Europe posted mid-teen year-over-year growth while North America recorded double digit sales decline. In Western Europe, we continue to achieve excellent growth in key countries such as Germany, U.K. and Italy. As a result of our increasing brand awareness, high performance products and service we are confident about our long-term prospects in the region. Having said that the weak market environment will present challenges for all industry participants including us.

In North America, recall that we had a very strong second quarter in 2012 in which sales grew over 20% due to several large orders. The tough year-over-year comparison explains a majority of our weakness this quarter. Looking ahead, we expect the hospital CapEx environment to remain uncertain. However, internally, we will continue to execute our growth strategy, focusing on accelerating product development as well as improving operational efficiency. We expect to realize more benefits from these initiatives in the coming quarters and believed that they will help us enhance our long-term competitive position.

The ZONARE acquisition will add the radiology segment to our presence in the North American market and hence present new opportunity for Mindray as a whole. Now let me give you a breakdown of the performance of our different business segments in the second quarter. In this quarter, net revenues from the Patient Monitoring and Life Support techniques grew at the low single digit rates year-over-year. This is largely due to weaker performance in the North American region. Overall, our surgical equipment, defibrillators and high-end monitors performed well for the quarter. Patient monitor and life support is the most mature segment among our three business lines.

In the last two decades, we have gradually transformed from a product provider to a total solution provider. We are now able to provide continued solutions for clinicians from critical care two sub-acute settings across emergency, OR, ICU and the CCU departments. Based on our comprehensive product portfolio, we are confident that we can maintain our leading position in the marketplace.

In our IVD segment, sales were robust with year-over-year growth of close to 20% in this quarter. The main contributors this quarter were the reagent, the five part hematology analyzers and the mid end bio chemistry analyzers. At installation base of product such as BS-800, BC-6800 and the BS-2000 continued to increase. Together with the recent and mere future additions of these segments including coagulation, microbiology and immunoassay we are excited to be able to provide increasingly competitive and comprehensive lab solutions for our customers.

For the medical imaging segment, the year-over-year net revenues growth for this quarter was around 19%, accelerated significantly from previous quarters. Color ultrasound was the primary driver of sales growth in this quarter. Our other net revenues grew 68.7% year-over-year in the second quarter. This was mainly because of sales contribution from the orthopedics business that we acquired last year as well as increasing revenues from our after-sales services.

Now I will pass the call to Alex to discuss the quarter’s financial details and our outlook for the second half of 2013.

Alex Lung

Thanks May, in the second quarter our topline recorded a 14.7% year-over-year increase to $307.2 million. Leading our growth was China net revenues of $147.4 million, a 27.9% year-over-year increase. This is primarily driven by our strong regular sales that made up more than 97% of China net revenues. International net revenues were $159.7 million, a 4.7% year-over-year growth. This represents 52% of our total net revenues.

Non-GAAP gross margin was 58.2%, higher than 57.8% in the second quarter of 2012 and compared to 58.1% in the previous quarter. The year-over-year increase was mainly due to a change of products and geographical mix and improved service efficiency.

Our non-GAAP selling expenses were 17% of total net revenues, same as last year’s level and lower than the previous quarter of 18.5%. The sequential difference was mainly due to seasonality.

Non-GAAP general and administrative expenses were 8.5% of total net revenues compared to 8.7% in the fourth quarter and 10% in first quarter of 2013. The sequential decrease was a result of seasonality. We have continued to invest in research and development over the past quarter. Our non-GAAP R&D expenses were 8.9% of total net revenue compared to 8.4% in the same period last year and 10.5% in previous quarter. EBITDA was $78.9 million, an 18.8% increase over the second quarter of 2012.

Non-GAAP operating income grew 15.2% year-over-year to $73.1 million. Non-GAAP net income increased 14.7% over the same period last year to $68.2 million. In terms of margins, non-GAAP operating margin was 23.8% and non-GAAP net margin was 22.2%.

Our cash conversion cycle was 85 days in the second quarter, down from 97 days a year ago and compared to 110 days in the prior quarter. The year-over-year improvement was mainly due to better control on receivable collections, and sequential difference was mostly because of seasonality. Our accounts receivable days were 52 days, versus 54 days in the same period last year and 66 days in the first quarter of 2013.

Our inventory turnover days were 88 days compared to 87 days in the second quarter of 2012 and 103 days in the prior quarter. Overall, we are happy with our improvement in the receivable collections. We will continue to adopt healthy credit policies and enforce insurance protection in our key markets worldwide.

Now, I will discuss our financial guidance for full year 2013. At this time, we are raising our topline guidance of more than 18% year-over-year net revenue growth for 2013. This figure includes sales contributions from ZONARE acquisition which will be completed in July. In detail, if you view that China will have the most favorable outlook for us due to our strong competitive position as well as continued favorable spending trends in the healthcare industry.

In the emerging markets, we did better in the second quarter and believe that the overall situation should continue to improve. Though, we still expect political and currency issues to affect us in some of our key countries. In the developed markets, we are happy with our performance in Western Europe so far and anticipate that our competitive advantage will allow us to continue to gain market share in the region. In North America, like other industry participants, we still view that the operating environment remains uncertain and we will continue to execute our strategies in order to strengthen our market position.

Moving on to our non-GAAP net income guidance, we continue to expect our full year non-GAAP net income to grow at more than 15%. This guidance includes diluted impact on the ZONARE acquisitions and excludes any tax benefits related to the National Key Software Enterprise Status and assumes corporate income tax rate of 15% for the Shenzhen subsidiary. For the full year, we expect gross margin to stabilize and our operating margin to be closed to last year. We still view that other non-operating figures such as capital subsidizes are difficult for us to predict. Our forecast on capital expenditure in 2013 remains at $130 million. That’s all I have for now and I would like to turn the call back to Cathy.

Cathy Gao

Thanks, Alex. We’ll now open the lines for questions. Operator, please go ahead. Thank you.

Question-and-Answer Session

Operator

Thank you, ma’am. Ladies and gentleman, we will now begin the question-and-answer section. (Operator Instructions) The first question comes from the line of Ingrid Yin from Oppenheimer. Please answer your question.

Ingrid Yin

Hi, good evening everyone. Thank you for taking my question. So my question is about the function of your new guidance, does that include ZONARE’s financial? And if so what is you're assumption for ZONARE’s contribution to revenue and net income pros and also would you please share with us your expected gross rate for China, EU, North America and other emerging market for you know 2013. Thank you.

Jie Liu

This is Jie Liu and for your question and what I would say is the -- at least 18% more than 18% and we closed the deal and as part of the integration and the ZONARE of some (inaudible) we have the plan in place. In U.S we will have the COO, Jie Liu in charge of this two coordinated business especially this two adjacent thing.

In emerging market we will have some cost sales agility between two teams and also we put them together, so this cannot discount business. We have the rest of the integration period of ZONARE again is 5.5 marks and they were still maintaining our guidance China over 20%, emerging market mid-teen, Western Europe low-teen, North America including total ZONARE was low single digit. So essentially we were priced from the assumptions of our operations and various other (ph) operation.

Ingrid Yin – Oppenheimer

Okay. Great. Thank you. So this guidance includes ZONARE’s operations and then that’s combined under North American region right?

Jie Liu

Yes the small conservative way.

Ingrid Yin – Oppenheimer

Okay. Can you also explain you know your plan of applying for, to register for ZONARE’s products in China, any progress so far?

Jie Liu

Original products are already registered this -- history, have not registered yet. We will have another maybe a year, but we still can sell the -- to own that product.

Ingrid Yin – Oppenheimer

Okay. Great. That’s very helpful. Thank you.

Operator: Thank you. And your next question comes from the line of Ben Li of Morgan Stanley, please ask your question.

Ben Li – Morgan Stanley

Thanks for taking my questions. My question will be very simple, basically on your balance sheet and cash flow. And Alex you mentioned the cash cycle was improving quite a bit, now can you explain in little more detail in terms of what kind of better controls you’ve in place and how much is contributed to the sequential differences. I mean, to me you know the improvement is quite and the sequential difference may not explain everything. So I just want to hear your thoughts on the, you know what kind of better control you put in place. Also on the balance sheet there's an item called, on the payable there's this item called purchase consideration payable the amount increased sorry decreased on 20 million last year to eight million this year can you explain what that moving item is? And what's the and you know what's the outlook for that item does that impact your P&L in this quarter at all? Thank you.

Alex Lung

Hi, Ben. This is Alex answering the question. We talked to your first question on the cash conversion cycle, most of the improvement from cash conversion cycle in this quarter and also in the sequentially past quarter was coming from the accounts receivable turnover days. The control that we put in place on accounts receivable turnover days is, happens across-the-board in different regions as well, but the development market we actually step up the personnel in collection, try to enforce contract payment period more stringently compared to the past, that actually been very effective in the countries where by we have direct sales operations.

Whereas the country that we operate in the with the distributor model, we are also adhere very strictly in terms of net payment terms, including countries in the emerging markets. And we actually tightening the payment terms equity compared to maybe a year ago and also some of the country whereby we have imposed on initial deposits is the part we also you know impose our quality very strictly, so there will be often the deposit of repayment before the shipment is made.

So all this collectively help us to improve the overall balance of the capital… working capital we have in receivable despite the continuous increase in top line, so that helped us to increase our receivable dates sequentially.

Ben Li – Morgan Stanley

Yeah, what’s your outlook for the increment?

Alex Lung

I think, we put a lot of emphasis in improving the accounts receivable turnover dates in the past one year plus. I think for us the most important is how we actually balance out the working capital deployment with the business growth. I think we have demonstrated our capability to manage the business in order to get results from the working capital. But I think going forward we definitely need to revisit our growth strategy and in order to balance the working capital standard together with our overall topline growth strategy. I think that will be you know a key parts for us in determining this financial matrix.

With regards to your second question about the purchase consideration that is actually in relation to the purchase considerations we commit it when we engaged into an acquisition. I believe that the balance what we referred to were related to one or whole of our prior acquisitions in China, because the way we structure our agreement is that, we will pay the total purchase ones considerations so that’s why as such, even though we completed acquisitions, some of the consideration is only paid at the later time when so the conditions have been met, based on the contract.

So if you see the balance has been reduced, what is represented is that certain milestone in accordance with the contract has been met. So we basically fulfilled the contract and then paid the remaining considerations.

In terms of the occurrence or the behavior of this balance, it is highly incidental. It will be depending on the timing of the acquisitions and also the terms that we agree upon with the (inaudible)

Ben Li – Morgan Stanley

Thanks.

Operator

Thank you. As a reminder for all participants, please note that you are allowed to ask question at a time. If you have further questions, please rejoin the queue after your first question has been answered. Thank you. And the next question comes from the line of Richard Yeh of Citigroup. Please ask your question.

Richard Yeh – Citigroup

Thanks for taking my question. My question was regarded to the imaging segment. I wanted to add some color on what was actually the growth driver for that segment. And I also follow-up questions for Cheng is that, in the last couple of years, we made a number of acquisitions and with the most recent ZONARE acquisition. I wanted to see what will be the acquisition strategy going forward or are we going to see a different strategy or bigger companies or we’re going to pretty much will be integration mode in 2013 and the remainder of the 2013 and go straight to 2014 and are we going to see more acquisitions going forward? Thank you.

Cheng Minghe

Hi, Richard. This is Cheng. Coming from actually -- are from ourselves specifically more coming (inaudible) system and the [debts there] extremely well in what you know is actually, so that’s driving the growths. For the acquisition of ZONARE and I think that their strategy is very clear we communicated earlier what we need is either the technology and with equal talent and there are technologies attributes and embedded in kind of also by the evidence in the both sides of their technology and mentality in the ZONARE and also the engineering capability initiative and the manufacturing capabilities. And we do believe that really develop some more high influx which for example might need to get access to the high end to premier segment of this and it is kind of just to get a future sustainable growth.

Richard Yeh – Citigroup

Thank you. Thank you, Cheng.

Operator

Thank you. And the next question comes from the line of Jack Hu of Deutsche Bank. Please answer your question.

Jack Hu – Deutsche Bank

Sure. Thank you for taking that question. I have one question on China growths. Can you help me understand actually China growth drivers, actually for what you have seen natural for this year, especially for this quarter as see actually, actual growth acceleration given on our constant [effort], so if you are going to help me at level that would be great. And the second also on the China and Hawaii side, so how should we that think about it Hawaii actually in China are going forward?

Unidentified Participant

I will translate the question. (Foreign Language). I’m throwing this question to our Chief Administrative Officer Mr. Jianxin Wang. With regard to your first question, the main drivers for the robust China growth, I think there are primarily three aspects that Mr. Wang touching upon. First of which is, that I think earlier this year related deployment by these including minister of health have launched their initiatives to support domestic branded medical device companies. And the previous quarter, in the past quarter, we have seen such policies and initiatives of really construct to contribute okay to our domestic our China sales in certain regions, such policies have already been implemented and it’s a reflective in hospital purchase activities in certain region.

The second aspect is also you know answering the previous question by, which are the acquisitions that we did in China over the last two years or so, as started to see some contributions to the topline and the bottom line growth in China.

And the third aspect, but not the last aspect is the new product launches in China especially in the IVD segment together with the robust or so contribution from regency are behind the strong sales force in China this quarter. (Foreign Language)

Regarding your second question on IOI of the China business, I think, the main reasons behind the profitability increment in China and also the future margin improvement trend are that lot of the new products we launched this year or I think in recent quarters exhibits better gross margins than other the product and whereas the contribution from such new products continuing to increase in proportions of our China sales -- sectors will continue to benefit our future China LA.

And the second aspect is that I think in recent quarters we have further improved our channel management in China i.e., we have launch various policies and initiatives to make sure that we have a better and a more efficient distribution network in China. Hence profits – profitability improvements is a result – also a result of such initiatives and this – these initiatives should continue to benefit for future China margins. So I hope these have answered your questions.

Unidentified Analyst

Thank you.

Operator

Thank you. And the next question comes from the line of Wei Du of Goldman Sachs. Please ask your question.

Wei Du – Goldman Sachs

Hi, this is Wei. Thanks for taking our question. Actually, Jie you just mentioned that growths in China was also partially driven by the new key award, the new service. Could – do you mind to tell us what are the new service and on the other hand I want look at other revenue lines seems to grow very robust. I think, if I’m not mistaking May, you mentioned that also includes some of the orthopedics and then your acquisition was also launched in that items. So do you mind to provide at least the break down on how much of those other lines were coming from both sales and service, which I believe that was also a large chunk of this? Thank you.

Liu Jie

Wei, actually just to clarify if you remember in the past we did have talk about in ballpark, the sales showed contributions from these acquisitions in China. And the biggest acquisition so far in China was the Orthopedics, Orthopedics acquisition. And in terms of sales contributions that’s in the – that’s only a $2 million a year, so even though this – in this particular quarter other revenues were up very significantly year-over-year. Most of the growths and the contribution to the growth is due from the service revenues instead of the acquisitions.

Wei Du – Goldman Sachs

Thank you.

Operator

Thank you. The next question comes from the line of (Inaudible). Please ask your question.

Unidentified Analyst

Hi, thank you very much for taking my question. I’ve a question regarding old issue which actually got related to your mova [ph] manufacturing site. Can you give us an update regarding the instruction or the compliance to the manufacturing standard here and what’s the timeline to reach the compliance and also more importantly does this delivery issue has any impact to our U.S. sales this year which showed pretty weak trend. Thank you.

Liu Jie

This is Jie. We remain – probably you’re talking about the -- last time that’s the ongoing process we’re dealing with. There are no further new information come out that we being with all the tax to comply with the requirement of the regulation. I want to focus on the one point in one of the other global company we’re pretty serious on comply all these requirements with difference in regulations and continue to deliver the highest quality product to the customers. Of course when you really touch above the one major, some people always want to make use of that. And that means some sales force form different company probably, say something about that. We are people who have to deal with that. I think there, there are very minor effect because of this, only the sales is major because of their, I think the second quarter tough comparison with vastly and simultaneously the American economy, U.S. economy is now bigger and the U.S. hospitals have delayed -- and that’s all the factors I think you mean the other company already talk about a lot about this, that’s a – that may be the major reason.

Unidentified Analyst

Okay. Thank you very much.

Operator

Thank you and the next question comes from the line of Sean Wu of JPMorgan. Please ask your question.

Sean Wu – JPMorgan

Hello, thank you for taking my question. I have a very small question about the growth of your patient monitoring and life, clearly in-vitro lines are pretty low and I understand that, you said it’s a maturing conditions, so can – I now like you won’t disclose the geographic region for this particular cost line. If you can help us a little bit more with future plan focusing, so what is the overall growth in China and also in the U.S., so we can have a sense if your North American like the operations recover to a normal course pretend, how do we expect target growth you’re looking now, I think for the, a fair reach of 93% and I suppose you don’t want to say this but continue. Thank you very much.

Jie Liu

Hi, Sean this is Jie. In terms of -- for the line probably you know that that’s worth the largest part of the money. Yes, it’s a pretty mature dropped in also, the major reason out there of the lower growth which is because of the North America operation and their – because it’s a larger part of that. And we – have you probably all you know that we don’t disclose specifically for each region for the patient monitoring. So this – now there’s lower growth rate, the major region from the U.S. and the positive coming from North America also.

Sean Wu – JPMorgan

So I suppose like the overall growth kind of in the year last year still be like in those single digit or -- and like how you have combated in doing in China, what is the overall growth in China?

Jie Liu

We really explore the US, the (inaudible) and we don’t disclose that. As I said we don’t disclose specific number of products fund getting more only in China, but then we do disclose the three line together in number only in China.

Sean Wu – JPMorgan

Okay, that’s great. So you mentioned that – something about the – there is an high end patient monitors (inaudible) much fast but can you give us some idea like how fast or that can way grow?

Jie Liu

Now, we don’t quantify there, sorry.

Sean Wu – JPMorgan

Okay, thank you very much. I appreciate.

Operator

Thank you. The next question comes from the line of (inaudible). Please ask your question.

Unidentified Analyst

Thank you for taking my question. I have you quick question on current – currency impact as (inaudible) strongly in second quarter. Could you inform us of the (inaudible) this quarter and what’s the number in the same period last year?

Alex Lung

Hi, thank you for the questions. Actually in this we have record some epics losses. Actually the – as of the appreciation of the RMB also in our business operations if there’s a 10% appreciation in RMB versus U.S. dollar that will be a negative 1.3% impact to our bottom line. Whereas, we also have part of our business derived from Euro and then the – if that’s a 10%, the evaluation in Euro then it will have about 0.2% impact to our net income.

Unidentified Analyst

So the total impact is 3.3% right, including the US and the Euro?

Alex Lung

Sorry, I’m just quoting to you with regards to the relativities of how the effects fluctuate will impact our bottom line. I’m not actually quantifying the (inaudible) for you.

Unidentified Analyst

Okay, thanks.

Operator

Thank you. And the next question comes from the line of Anthony Petrone of Jeffrey’s group. Please ask your question.

Anthony Petrone – Jefferies

Thank you. Thank you and good morning, good afternoon. Just a couple of questions works on the cash conversion cycle and receivables, I’m wondering if the improvement in cash conversion had anything to do with selling any updated accounts receivables and then when we look at the changes in AR controls, is that impacting the overall growth that’s in international markets, thanks.

Alex Lung

Hi Anthony, it’s Alex. Actually in this quarter we did not sell any accounts receivables. So that’s the first part. And secondly, it’s that – I think in this quarter, you will see in our international market outside the North America, we have received quite a good growth in the emerging market regions and also in the European regions.

As Jie mentioned earlier, the adverse factors affecting the North America not necessarily directly related to the credit policies, but you will see in the emerging markets and also in the Western Europe our growth rate has been good and very consistence and also in particular for the emerging markets, growth has actually improved sequentially from first quarter as well. Having said that, we received a credit policy from time to time to as ascertain the right balance point for the working capital requirement and also the growth requirement.

Anthony Petrone

Thank you.

Operator

Thank you. And the next question comes from the line of Iris Wang of Credit Suisse. Please ask you question.

Iris Wang – Credit Suisse

Thank you for taking my question. My question is about the also related to the account receivable day’s improvement. Is that a partially related to the double digit decline for the U.S. revenue?

Alex Lung

All right, thank you for the question. I mean the U.S. decline had some impact to the reduction in DSO if it's only a small factor.

Iris Wang – Credit Suisse

Okay, thank you.

Operator

Thank you and the next question, this is a follow up question from Miss. Ingrid Yin. Please ask your question. Excuse me Miss. Yin you may ask your question.

Ingrid Yin – Oppenheimer

Hello, I’m sorry my question has already been answered.

Operator

Sure, no problem. Thank you. And the next question comes from the line of (inaudible) please ask you question.

Unidentified Analyst

Follow-up question. Can you update on the – could it be the launch time for the CL 2009 new product?

Jie Liu

I think for the IVD product that we then we do have some brand new product pipeline to (inaudible) project.

Unidentified Analyst

Specifically for the (inaudible) which we have input on excavate the (inaudible) in that new product so we trust excavating its core idea will be launched by 4Q this year. Is that correct?

Cathy Gao

Yeah, yeah, yeah that’s correct.

Unidentified Analyst

Thank you.

Operator

Thank you. And the next question is a follow up question from the line of Jack Hu of Deutsche Bank. Please ask your question.

Jack Hu

Thank you, this is a housekeeping question for Alex. Can you please actually quantify your impact on topline and bottom line. If I recall correctly you have had some asking to be slightly dilutive to bottom line by that I mean your effect to the increasing your profit guidance. So can you please quantify for us?

Alex Lung

Okay, thanks Jack for the question. I’ll answer first and then – with, I mean, your change, I mean, you change – provide more colors. I think overall things we have now completed the acquisitions and we are working on the integration time. I think, our guidance actually mostly comes from now the larger group of my rates. I think the key point of the reason behind why we are guiding our topline on the collective basis is because we believe that in a process we will be able to unlock the sale and synergy that will actually help the operations. But in the process, we are still learning from the ZONARE and also evaluating that how is actually going to help us flow the integration process.

We are actually taking a cautious approach when we are actually translating this potential in determining our topline guidance. And then, for the bottom line as we reported in our last press release, in early June when we announced acquisitions, we mentioned about slightly dilutive situations. I think overall because of the ongoing situations of the profitability that we achieved in the first two quarters. We do believe that on the enlarged space after the ZONARE acquisition, we may be able to begin to account, some of this dilutive impact. So, that’s the reason why we are still confident that to maintain our overall bottom line guidance as going over 15% after taking into accounts of this acquisition impact.

Operator

Thank you. And we have now come to the end of today’s conference. I would now like to hand the conference back to today’s presenter, please continue.

Cathy Gao

Thank you. Thank you, everyone for participating in today's call. As always we appreciate your support on Mindray. The replay of today's webcast will be available later today. Our management team and the IR team will be available for questions. Thank you again for joining us and I will look forward to speaking with you soon.

Operator

Ladies and gentlemen that does conclude our conference call today. Thank you for participating. You may all now disconnect.

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