Chindex International Inc. Reports Second Quarter FY 2009 Financial Results
Revenue for the second quarter of fiscal year 2009 increased 17% to $38.1million from $32.7 million in the second quarter of fiscal year 2008,reflecting growth in inpatient and outpatient services in its hospitaldivision and increasing demand for products and services. Revenue growth inthe second quarter of fiscal year 2009 was impacted by lower than expectedpatient volume due to disruptions in travel and tourism related to theOlympics.
During the quarter, the Company recorded income from operations of $1.6million, as compared to income from operations of $2.6 million for the samequarter last year. Costs and expenses for the second quarter of fiscal year2009 increased 22% to $36.5 million as compared with $30.0 million for theprior period.
Roberta Lipson, President and CEO of Chindex, commented, "We are pleasedby the turnaround in our medical products business. Profitability in thedivision was better than expected this quarter and, as we announced last week,our revenue projections for the remainder of the year exceed our priorexpectations. During the recent quarter, revenue in the healthcare servicesdivision continued to be impacted by the disruption in patterns of businesstravel and tourism related to the Olympics, but we do not expect this impactto continue. As we announced last week, we are increasingly optimistic aboutour prospects for the second half of fiscal 2009 and expect our medicalproducts revenue to be weighted heavily toward the later part of the fiscalyear."
As disclosed previously, the Company recognized a noncash expense of $0.6million or $0.04 per share for the change in the fair value of the derivativeportion of investments in $40 million (principal value) of Certificates ofDeposits (CDs) linked to various equity indices and foreign currency markets.This was a result of the significant disruptions in the world financial andcredit markets. Although there was no risk to the principal portion of theinvestment, given an unfavorable outlook for these investments in thenear-term, in October 2008 the Company redeemed the CD's and reinvested thefunds in traditional deposits with guaranteed returns.
The Company recorded a $0.3 million provision for taxes, or an effectivetax rate of 22.6%, in the three months ended September 30, 2008 as compared toa provision for taxes of $0.8 million, or an effective tax rate of 34.0%, forthe three months ended September 30, 2007. The provision for income taxes waspositively impacted this quarter by the recognition of benefit from losses incertain entities, partially offset by the negative effect of losses inentities for which we cannot recognize benefit.
The net income for the quarter ended September 30, 2008 was $0.9 million,or $0.05 per diluted share. This compares to net income of $1.6 million forthe quarter ended September 30, 2007.
Net income of $0.9 million, or $0.05 per diluted share, for the quarterincludes a $0.6 million or $0.04 per share expense related to the developmentof the United Family Healthcare network and a noncash expense of $0.6 million,or $0.04 per share for the change in the fair value of certain derivativesassociated with our investments, which was a result of the dramatic drop inmarkets worldwide.
Medical Products division business results:
For the second quarter of fiscal year 2009, revenue increased 9% to $19.0million from $17.6 million for the prior year quarter. Revenue during theperiod included two robotic surgical systems.
Expenses for the Medical Products division increased 23.3% to $5.3 millionfrom $4.3 million for the prior year quarter. Increased expenses during theperiod were a result of increased sales activity concurrent with and inadvance of expected greater increases in sales.
Gross profit for the Medical Products division increased to $5.9 millionfrom $4.6 million in the prior year's second quarter, representing an increasein gross profit margin to 31% from 26% in the prior year's second quarter.The gross profit margin in the current period was above historical averagesdue in part to higher margins on certain contract shipments which accountedfor a significant portion of total division revenue in the period.
Healthcare Services division business results:
For the second quarter of fiscal year 2009, revenue increased 26% to $19.1million from $15.1 million for the prior year quarter. The increase inrevenue is attributable to growth in both inpatient and outpatient servicesprovided in the Beijing and Shanghai markets. Revenue growth, however,continued to be negatively impacted during the July and August months due todisruptions in travel and tourism related to the Olympics.
During the period, operating costs increased 38% to $18.0 million from$13.1 million in the prior year quarter. The increase in costs was primarilydue to an increase in salary expense, resulting from the renegotiation ofmulti-year physician contracts and an expected ramp-up in personnel needed tomeet the increasing demand for services in Beijing and Shanghai, to costsrelated to the new clinic in Guangzhou, which opened in early October, and toother costs related to the development of the United Family Healthcare network.
Fiscal 2009 Outlook:
Lipson stated, "Regarding the remainder of fiscal 2009, with continuedprogress in the Medical Products division, as we noted last week we are moreenthusiastic about our prospects for the second half of the year. We nowexpect Medical Products revenue of $50.0-$55.0 million for the second half ofthe year and are now reporting profitability in the division on a quarterlybasis earlier than expected.
"In the Healthcare Services division, we believe this quarter's resultsare reflective of the well-publicized business slowdown related to theOlympics. However, since the conclusion of the games, we have seen revenuelevels return to normal and we continue to expect an increase in annualrevenues of approximately 30% over fiscal 2008. Operating margins have beennegatively impacted in the recent quarters primarily as a result of increasedexpense related to renewal of multi-year contracts for physicians in theexisting markets of Beijing and Shanghai as well as development expenses fornew UFH facilities. We expect to continue to see development expenses impactoperations at similar levels over the next several quarters as operations inthe new Guangzhou clinic get underway. Operating margins in existing marketswill be slightly lower than expected due to larger than anticipated increasesin compensation as reported in our first quarter results.
"Although we remain enthusiastic about our full-year operating results, wewere disappointed with the effects of global economic events on ourinvestments in certain CDs. As noted above, we have redeemed the CDs and willincur an early redemption penalty of $1.1 million which will be partiallyoffset on the income statement by the reversal of $0.6 million of CDinvestment discounts previously recorded for a net charge in the third quarterof $0.5 million or an estimated $0.03 per diluted share in the third quarterof fiscal 2009. The reinvested funds will provide us a better yield over theterm of the investment in the current environment.
"To date, we have not seen an impact on the demand for our products andservices as a result of the world-wide financial crisis. Given the policiesimplemented by China in response to the crisis, we are optimistic that ourbusiness growth opportunities will not be substantially impacted by thecurrent situation."
Fiscal 2009 Second Quarter Conference Call
Management will host a conference call today at 8:00 am ET to discussfinancial results.
To participate in the conference call, international callers dial719-325-4797 and domestic callers dial 877-879-6174 approximately 10 minutesbefore the conference call is scheduled to begin.
The telephone replay will be available on the day of the call at(international) 719-457-0820 and (domestic) 888-203-1112 and continue to beavailable through November 26, 2008.
This call is also being webcast and will be accessible through Chindex'swebsite http://ir.chindex.com/events.cfm . The event will be archived andavailable for replay through February 10, 2009.
About Chindex International, Inc.
Chindex is an American healthcare company that provides healthcareservices and supplies medical capital equipment, instrumentation and productsto the Chinese marketplace, including Hong Kong. Healthcare services areprovided through the operations of its United Family Hospitals and Clinics, anetwork of private primary care hospitals and affiliated ambulatory clinics inChina. The Company's hospital network currently operates in Beijing, Shanghai,Guangzhou and Wuxi. The Company sells medical products manufactured byvarious major multinational companies, including Siemens AG and IntuitiveSurgical, for which the Company is the exclusive distribution partner for thesale and servicing of color ultrasound systems and surgical robotic systemsrespectively. It also arranges financing packages for the supply of medicalproducts to hospitals in China utilizing the export loan and loan guaranteeprograms of both the U.S. Export-Import Bank and the German KfW DevelopmentBank. With twenty-seven years of experience, approximately 1,200 employees,and operations in China, Hong Kong, the United States and Germany, theCompany's strategy is to expand its cross-cultural reach by providing leadingedge healthcare technologies, quality products and services to Greater China'sprofessional communities. Further company information may be found at theCompany's websites, http://www.chindex.com andhttp://www.unitedfamilyhospitals.com .
Safe Harbor Statement
Statements made in this press release relating to plans, strategies,objectives, economic performance and trends and other statements that are notdescriptions of historical facts may be forward-looking statements within themeaning of Section 27A of the Securities Act of 1933, as amended (the"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, asamended (the "Exchange Act"). Forward-looking information is inherentlysubject to risks and uncertainties, and actual results could differ materiallyfrom those currently anticipated due to a number of factors, which include,but are not limited to, the factors set forth under the heading "Risk Factors"in our annual report on Form 10-K for the year ended March 31, 2008, updatesand additions to those "Risk Factors" in our interim reports on Form 10-Q,Forms 8-K and in other documents filed by us with the Securities and ExchangeCommission from time to time. Forward-looking statements may be identified byterms such as "may", "will", "should", "could", "expects", "plans", "intends","anticipates", "believes", "estimates", "predicts", "forecasts", "potential",or "continue" or similar terms or the negative of these terms. Although webelieve that the expectations reflected in the forward-looking statements arereasonable, we cannot guarantee future results, levels of activity,performance or achievements. We have no obligation to update these forward-looking statements.
The Company operates in two businesses: Healthcare Services and MedicalProducts. The Company evaluates performance and allocates resources based onprofit or loss from operations before income taxes, not including foreignexchange gains or losses. The following segment information has been providedper Statement of Financial Accounting Standards No. 131, "Disclosures aboutSegments of an Enterprise and Related Information:" (in thousands)Financial Summary Attached CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (in thousands except share and per share data) (Unaudited) Three months ended Six months ended September 30, September 30, 2008 2007 2008 2007 Product sales $19,041 $17,550 $31,538 $28,762 Healthcare services revenue 19,069 15,102 38,641 30,661 Total revenue 38,110 32,652 70,179 59,423 Cost and expenses Product sales costs 13,187 12,916 23,083 21,285 Healthcare services costs 16,666 12,106 32,401 23,970 Selling and marketing expenses 3,265 2,782 5,724 5,466 General and administrative expenses 3,344 2,233 6,570 4, 723 Income from operations 1,648 2,615 2,401 3,979 Other (expenses) and income Interest expense (253) (187) (479) (374) Interest income 321 74 789 141 Miscellaneous (expense) - net (603) (21) (596) (47) Income before income taxes 1,113 2,481 2,115 3,699 Provision for income taxes (251) (843) (1,415) (1,251) Net income $862 $1,638 $700 $2,448 Net income per common share - basic $.06 $.15 $.05 $.22 Weighted average shares outstanding - basic 14,400,655 11,163,020 14,360,758 10,999,713 Net income per common share - diluted $.05 $.13 $.04 $.20 Weighted average shares outstanding - diluted 16,042,327 12,492,771 16,126,008 12,450,241 CONSOLIDATED CONDENSED BALANCE SHEETS (in thousands except share data) September 30, March 31, 2008 2008 (Unaudited) ASSETS Current assets: Cash and cash equivalents $36,886 $79,258 Restricted cash 40 1,123 Investments 19,795 Trade accounts receivable, less allowance for doubtful accounts of $4,212 and $3,940, respectively Product sales receivables 13,559 12,098 Patient service receivables 9,943 9,085 Inventories, net 11,040 9,796 Deferred income taxes 1,758 1,656 Other current assets 3,326 3,294 Total current assets 96,347 116,310 Noncurrent investments 19,604 -- Property and equipment, net 20,186 18,428 Noncurrent deferred income taxes 114 -- Other assets 2,036 1,241 Total assets $138,287 $135,979 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt and vendor financing $435 $82 Current portion of capitalized leases 36 36 Accounts payable 6,496 11,097 Accrued expenses 11,703 11,064 Other current liabilities 5,217 3,177 Income taxes payable 172 349 Total current liabilities 24,059 25,805 Long-term debt, vendor financing and convertible debentures 23,823 22,556 Long-term portion of capitalized leases 5 22 Long-term deferred tax liability -- 208 Total liabilities 47,887 48,591 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value, 500,000 shares authorized, none issued -- -- Common stock, $.01 par value, 28,200,000 shares authorized, including 3,200,000 designated Class B: Common stock - 13,452,007 and 13,074,593 shares issued and outstanding at September 30, 2008 and March 31, 2008, respectively 135 131 Class B stock - 1,162,500 shares issued and outstanding at September 30, 2008 and March 31, 2008, respectively 12 12 Additional paid in capital 94,150 92,586 Accumulated other comprehensive income 2,954 2,210 Accumulated deficit (6,851) (7,551) Total stockholders' equity 90,400 87,388 Total liabilities and stockholders' equity $138,287 $135,979 SEGMENT INFORMATION
SOURCE Chindex International, Inc.
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