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"We were encouraged to end 2009 with a solid quarter of financialperformance and operational progress, and we are very excited by the growthopportunities we see in 2010," said Dr. Jianyu Yang, director, president andchief executive officer of Concord Medical.
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"Having established our first radiotherapy center in 1997, ConcordMedical's success has been driven by our outstanding ability to establish andoperate these centers effectively. Looking forward, we will continue to expandour leading network by opening new centers and to improve the operationalefficiency of existing centers. Our target is to operate at least 200 centersby 2012 and we are moving quickly toward that goal. In addition, thedevelopment of our two specialty cancer hospitals is well under way. We expectto open our Chang'an CMS International Cancer Center in June 2010 and ourBeijing Proton Medical Center in early 2012."
Mr. Yang further commented, "Cancer is the leading cause of death in Chinaand the cancer treatment market is one of China's fastest growing healthcaresegments as Chinese people increasingly understand the importance ofearly-detection and high quality treatment. In addition, the Chinesegovernment has been encouraging private investment in the healthcare sector inorder to enhance the scope and quality of medical services provided in thecountry. With our leading expertise and solid capital position combined withincreasing market demand and the Chinese government's commitment toimplementing healthcare reform, we are confident that Concord Medical is wellpositioned to achieve our growth targets."
Mr. Boxun Zhang, Concord Medical's corporate vice president added, "Overthe past three years, Concord Medical has consistently achieved strong top andbottom line growth and managing for profitable growth remains a top priorityfor us. In the future, while supporting our expansion strategies with positiveoperating cash flow, a strong cash balance and flexible bank credit, we willalso continue to improve our operational efficiency and enhance financialmanagement."
Independent Board Member Appointment
Concord Medical also announced that Dr. Hongbin Cai joined its board as anindependent director and replaced Mr. Wai Hung Ku as a member of the auditcommittee. Mr. Ku will remain on the Company's board.
Commenting on the appointment, Dr. Yang said, "We are delighted for Dr.Cai to join Concord Medical's board and audit committee. As a nationallyrenowned academic leader and business advisor, Dr. Cai brings in-depthknowledge of corporate finance and economics. We also thank Mr. Ku for hisvaluable contributions to the Company during his tenure. This change in ourboard composition demonstrates our commitment to observing best practices incorporate governance as a newly listed company."
Dr. Hongbin Cai is currently a professor in economics and an associatedean at Peking University's Guanghua School of Management. Since 2006, he hasbeen serving as a director of the Mirrlees Institute of Economic PolicyResearch and an associate director of the Institute of Poverty Research atPeking University. Prior to returning to Peking University as a professor, heserved as an assistant professor of the economics department at the Universityof California, Los Angeles from 1997 to 2005. From 2000 to 2001, he served asa visiting assistant professor at the economics department and the CowlesFoundation of Yale University. Dr. Cai holds a Ph.D. in Economics and an M.A.in Statistics from Stanford University, an M.A. in Economics from PekingUniversity and a B.A. in Mathematics from Wuhan University. He has receivedvarious national recognitions in China, including being named as a NationalChang Jiang Scholar and a National Outstanding Young Researcher and hisacademic papers have been published in renowned journals such as the AmericanEconomic Review, the Rand Journal of Economics, the Journal of PublicEconomics, the Journal of Economic Theory, and the Economic Journal.
Fourth Quarter 2009 Results
Concord Medical reported total net revenues of RMB86.8 million ($12.7million) for the fourth quarter of 2009, a 24.3% increase from thecorresponding period in 2008, primarily due to an increase in patient casesfrom existing centers and the opening of new centers.
Cost of revenues in the fourth quarter of 2009 was RMB25.0 million (US$3.7million), a 45.2% increase from the corresponding period in 2008, primarilydue to an increase in depreciation costs related to new equipment installationin 2009.
Gross profit margin in the fourth quarter of 2009 was 71.2% as compared to71.4% in the previous quarter and 75.3% in the corresponding period in 2008.The year-over-year decrease was primarily due to sale of equipments, which hada higher margin, accounting for a higher portion of total net revenues in thefourth quarter of 2008.
Operating expenses, consisting of selling expenses and general andadministrative expenses, were RMB13.3 million ($2.0 million) in the fourthquarter of 2009 as compared to RMB9.7 million in the previous quarter andRMB8.6 million in the corresponding period in 2008. The quarter-over-quarterincrease was mainly due to an increase in salary and compensation expensesrelated to business expansion, and RMB1.0 million in share-based compensationexpenses associated with certain option grants in November 2009.
Operating income was RMB48.4 million ($7.1 million) in the fourth quarterof 2009, representing a 10.2% increase from the corresponding period in 2008.Operating income excluding share-based compensation expenses (non-GAAP) wasRMB49.4 million ($7.2 million), a 12.5% increase from the corresponding periodin 2008.
Income tax expense was RMB10.7 million ($1.6 million), compared to anincome tax expense of RMB10.7 million in the corresponding period in 2008. Theeffective tax rate for the fourth quarter of 2009 was 22.9% as compared to23.0% in the third quarter of 2009 and 21.5% for the corresponding period in2008.
Net income was RMB35.9 million ($5.3 million), representing an 8.2%decrease from the corresponding period in 2008. This decrease was primarilydue to a RMB7.7 million one-time gain recognized as other income in the fourthquarter of 2008. Both basic and diluted earnings per ADS for the fourthquarter of 2009 amounted to RMB0.69 ($0.10).
Net income excluding share-based compensation expenses (non-GAAP) wasRMB36.9 million ($5.4 million), a 5.6% decrease from the corresponding periodin 2008. Both basic and diluted earnings per ADS excluding share-basedcompensation expenses (non-GAAP) for the fourth quarter of 2009 amounted toRMB0.72 ($0.11).
Adjusted EBITDA (non-GAAP), was RMB 72.1 million ($10.6 million) for thefourth quarter of 2009, representing a 22.3% increase from the correspondingperiod in 2008.
As of December 31, 2009, the Company had total fixed assets valued atRMB584.9 million ($85.7 million) and cash and cash equivalents of RMB1, 037.2million ($152.0 million).
As of December 31, 2009, the Company had bank credit lines totalingRMB2,145 million (US$314.2 million).
Accounts receivable was RMB111.3 million ($16.3 million) as of December 31,2009, compared to RMB119.1 million as of September 30, 2009 and RMB92.8million as of December 31, 2008. The sequential decrease was mainly due toenhanced cash flow management. Days sales outstanding decreased toapproximately 120 days in the fourth quarter of 2009 from approximately 128days in the previous quarter.
Fiscal Year 2009 Results
Total net revenues in 2009 were RMB292.4 million ($42.8 million),representing a 70.2% increase from RMB171.8 million in 2008, primarily due to(i) an increase in patient cases from existing centers and the opening of newcenters, and (ii) consolidation of China Medstar's revenues for the entirefiscal year 2009 as compared to for the last five months of 2008, as a resultof the acquisition of China Medstar being completed in July 2008.
Cost of revenues in 2009 was RMB87.6 million (US$12.8 million),representing a 92.0% increase from RMB45.6 million in 2008, primarily due tothe an increase depreciation cost related to the opening of new centers andthe resulting increase in salaries and benefits to additional personnelemployed and assigned to the new centers.
Gross profit margin in 2009 was 70.1%, compared to 73.5% in 2008. Thisdecrease was primarily due to (i) higher operating costs associated withhaving a bigger number of new centers in their ramp-up periods, and (ii) anincrease in the number of centers that offered diagnostic imaging services,which generally have a lower margin than radiotherapy treatment services.
Selling expenses in 2009 were RMB7.7 million ($1.1 million), representinga 39.6% increase from RMB5.5 million in 2008, which was primarily due toincreases in headcount and marketing and other expenses to support increasedbusiness development efforts. Selling expenses as a percentage of total netrevenues decreased to 2.6% in 2009 from 3.2% in 2008 mainly due to economiesof scale.
General and administrative expenses in 2009 were RMB29.8 million ($4.4million), representing a 58.0% increase from RMB18.9 million in 2008, whichwas primarily due to (i) increases in headcount and travel expenses, and (ii)increases in auditing expenses and share based compensation charges. Generaland administrative expenses as a percentage of total net revenues decreased to10.2% in 2009 from 11.0% in 2008 mainly due to economies of scale.
Share-based compensation expenses, which were allocated to relatedoperating expense items, were RMB1.0 million ($0.1 million) in 2009, comparedto RMB4.2 million in 2008.
Operating income in 2009 was RMB167.4 million ($24.5 million), a 64.4%increase from RMB101.8 million in 2008. Operating income excluding share-basedcompensation expenses (non-GAAP) in 2009 was RMB168.4 million ($24.7 million),representing a 58.8% increase from 2008.
Income tax expense was RMB36.4 million ($5.3 million), compared to anincome tax expense of RMB23.3 million in 2008. The effective tax rate for 2009was 22.6% as compared to 22.8% in 2008.
Net income in 2009 was RMB124.8 million ($18.3 million), representing a57.9% increase from RMB79.1 million in 2008. Both basic and diluted earningsper ADS for 2009 amounted to RMB1.86 ($0.27).
Net income excluding share-based compensation expenses (non-GAAP) in 2009was RMB125.8 million ($18.4 million), reflecting a 51.1% increase from RMB83.3million in 2008. Both basic and diluted earnings per ADS excluding share-basedcompensation expenses (non-GAAP) in 2009 were RMB1.92 ($0.28).
Capital expenditures were RMB168.8 million ($24.7 million) in 2009,compared to RMB31.6 million in 2008. The increase was primarily due to theopening of new centers.
Adjusted EBITDA (non-GAAP) was RMB246.6 million ($36.1 million) in 2009,representing a 71.0% increase from RMB144.2 million in 2008.
Outlook for First Quarter 2010
Concord Medical expects to generate total net revenues in an estimatedrange of RMB360 million to RMB390 million in 2010, which would represent a23.1% to 33.4% increase from 2009.
The Company intends to open 30 to 35 new radiotherapy and diagnosticimaging centers in 2010. The Company expects total capital expendituresrelated to these new centers to be in the range of RMB350 million to RMB400million.
This forecast reflects Concord Medical's current and preliminary view,which is subject to change.
Conference Call Information
Concord Medical's management will hold an earnings conference call at 8:00AM on March 18, 2010 U.S. Eastern Time (8:00 PM on March 18, 2010 Beijing/HongKong time).
A replay of the conference call may be accessed by phone at the followingnumber until March 25, 2010:
Additionally, a live and archived webcast of this conference call will beavailable at http://ir.cmsholdings.com/ .
About Concord Medical
Concord Medical operates the largest network of radiotherapy anddiagnostic imaging centers in China in terms of revenues and the total numberof centers in operation per available statistics. The Company currentlyoperates a network of more than 80 centers spanning 36 cities and 21 provincesand administrative regions in China. Under long-term arrangements withtop-tier hospitals in China, the Company provides radiotherapy and diagnosticimaging equipments and manages the daily operations of these centers locatedon its hospital partners' premises. The Company also provides ongoing trainingto doctors and other medical personnel in its network of centers to ensure ahigh level of clinical care for patients.
Safe Harbor Statement
This press release contains forward-looking statements. These statementsconstitute "forward-looking" statements within the meaning of Section 21E ofthe Securities Exchange Act of 1934, as amended, and as defined in the U.S.Private Securities Litigation Reform Act of 1995. These forward-lookingstatements can be identified by terminology such as "anticipate," "believe,""estimate," "expect," "forecast," "intend," "may," "plan," "project,""predict," "should" and "will" and similar expressions. In particular, many ofthe statements from management in this press release and the section under"Outlook for First Quarter 2010" are forward-looking in nature. These forwardlooking statements are based upon management's current views and expectationswith respect to future events and are not a guarantee of future performance.Furthermore, these statements are, by their nature, subject to a number ofrisks and uncertainties that could cause actual performance and results todiffer materially from those discussed in the forward-looking statements as aresult of a number of factors. Such factors include: the number of newradiotherapy and diagnostic imaging centers opened; the increase in the numberof patients in existing centers; the establishment of specialty cancerhospitals; changes in the healthcare industry in China, including changes inthe healthcare policies and regulations of the PRC government; andtechnological or therapeutic changes affecting the field of cancer treatmentand diagnostic imaging. Further information regarding these and other risksis included in the Company's filings with the U.S. Securities and ExchangeCommission at www.sec.gov. The Company does not undertake any obligation toupdate any forward-looking statement, except as required under applicable law.
Statement Regarding Unaudited Financial Information
The Company's independent auditors are in the process of completing anaudit of the Company's U.S. GAAP financial statements for 2009. Theseunaudited 2009 numbers disclosed in this announcement are, therefore, subjectto change.
About Non-GAAP Financial Measures
To supplement the consolidated financial statements presented inaccordance with United States Generally Accepted Accounting Principles (GAAP),Concord Medical uses certain non-GAAP measures. The Company presents certainof its financial information that is adjusted from results based on GAAP toexclude the impact of share-based compensation expense. The Company believesexcluding share-based compensation expense from its non-GAAP financialmeasures is useful for its management and investors to assess and analyze theCompany's core operating results as such expense is not directly attributableto the underlying performance of the Company's business operations and do notimpact its cash earnings. Concord Medical also believes these non-GAAPmeasures excluding share-based compensation expense are important in helpinginvestors to understand the Company's current financial performance and futureprospects and to compare business trends among different reporting periods ona consistent basis. In addition, Concord Medical also presents the non-GAAPmeasure of Adjusted EBITDA, which is defined in this announcement as net (loss)income plus interest, taxes, depreciation and amortization, share-basedcompensation expenses and other adjustments. Other adjustments include changein fair value of convertible notes, foreign exchange loss and other income.Furthermore, Adjusted EBITDA eliminates the impact of items that the Companydoes not consider indicative of the performance of its network of centers. TheCompany believes investors will similarly use Adjusted EBITDA as one of thekey metrics to evaluate its financial performance and to compare its currentoperating results with corresponding historical periods and with othercompanies in the healthcare services industry. The presentation of theseadditional measures should not be considered a substitute for or superior toGAAP results or as being comparable to results reported or forecasted by othercompanies. The non-GAAP measures have been reconciled to GAAP measures in theattached financial statements.Fourth Quarter and Fiscal Year 2009 Highlights -- Total net revenues in the fourth quarter of 2009 were RMB86.8 million ($12.7 million), a 24.3% increase from the corresponding period in 2008. Total net revenues in fiscal year 2009 were RMB292.4 million ($42.8 million), a 70.2% increase from 2008. -- Net income in the fourth quarter of 2009 was RMB35.9 million ($5.3 million). Net income in fiscal year 2009 was RMB124.8 million ($18.3 million), a 57.9% increase from the corresponding period in 2008. -- Both basic and diluted earnings per American Depository Share ("ADS")(2) in the fourth quarter of 2009 were RMB0.69 ($0.10). Both basic and diluted earnings per ADS in fiscal year 2009 were RMB1.86 ($0.27). -- Adjusted EBITDA(3) (non-GAAP) in the fourth quarter of 2009 was RMB72.1 million ($10.6 million), a 22.3% increase from the corresponding period in 2008. Adjusted EBITDA in fiscal year 2009 was RMB246.6 million ($36.1 million), a 71.0% increase from 2008. -- Concord Medical opened five centers in the fourth quarter of 2009, bringing the total number of centers in operation to 88 across 36 cities in China, as of December 31, 2009. To date, the Company has entered into agreements to establish 27 new centers in 2010. -- The number of treatment and diagnostic patient cases was 49,088 and 178,658 during the fourth quarter and fiscal year 2009, representing a 23.9% and 62.4% increase from the corresponding period in 2008, respectively. -- The Company raised $132.0 million in gross proceeds from its initial public offering ("IPO") of 12 million ADSs on the New York Stock Exchange on December 11, 2009, which are expected to be used to further expand its existing network of centers, establish two specialty cancer hospitals and for general corporate purposes. (1) This announcement contains translations of certain RMB amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.8259 to US$1.00, the effective noon buying rate as of December 31, 2009 in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. (2) Each ADS represents three ordinary shares of the Company. (3) Adjusted EBITDA is defined in this announcement as net (loss) income plus interest, taxes, depreciation and amortization, share-based compensation expenses and other adjustments. Other adjustments include change in fair value of convertible notes, foreign exchange loss and other income.
SOURCE Concord Medical Services Holdings Limited
