Chindex first-quarter revenue from Healthcare Services division increases 12.3% to $24.7 million

Chindex International, Inc. (Nasdaq: CHDX), a leading independent American provider of Western healthcare products and services in the People's Republic of China, today announced financial results for the first quarter of fiscal year 2011, which reflects the three month period ended June 30, 2010.

First Quarter 2011 Financial Results

Revenue in the first quarter of fiscal 2011 reflected continued growth in the Healthcare Services division offset by lower year over year revenue performance in the Medical Products division. Revenue from the Healthcare Services division increased 12.3% to $24.7 million from $22.0 million in the prior year period, and reflects growing inpatient and outpatient volume across the United Family Healthcare network. Revenue from the Medical Products division was down 28.3% to $16.7 million from $23.3 million in the prior year period. Total revenue decreased 8.4% to $41.5 million from $45.3 million in the first quarter of fiscal year 2010. The Company believes that the Class A review process in China, along with annual hospital budgeting cycles and a general uncertainty about healthcare reform and expenditure, continued to impact this division's performance in the first quarter of fiscal 2011.

Roberta Lipson, President and CEO of Chindex, commented, "Our strong revenue performance in the Healthcare Services division reflects continued demand for our services across the UFH network. We are focused on the further build out of our network of premium care hospitals and clinics, and remain optimistic about the future as we more than double capacity in Beijing, ramp up patient volume in Shanghai and Guangzhou, and make progress with new facilities in other growing Chinese cities. In our Medical Products division, the review process for Class A medical equipment continued to hinder daVinci sales, and purchasing behavior demonstrated the seasonally slower first quarter in line with annual budgeting processes. However, demand for high-value medical equipment remains strong in China and we are well-positioned to capitalize on the market for these products in the future."

Income from operations in the first quarter of fiscal 2011 was $1.9 million, compared to income from operations of $5.3 million in the same quarter last year. Total operating costs and expenses for the first quarter of fiscal 2011 were roughly flat at $40.0 million compared to $40.1 million in the prior year period, primarily reflecting a decrease in product sales costs offset by general and administration cost increases commensurate with revenue growth in the Healthcare Services division.

Operating expenses in the first quarter of fiscal 2011 include the impact of a $1.2 million unrealized foreign exchange loss, equivalent to a loss of $0.07 per diluted share, compared to a $906,000 unrealized foreign exchange gain, equivalent to a gain of $0.06 per diluted share, in the same quarter of the prior year. The unrealized exchange loss was incurred as a result of the substantial weakening of the Euro against the U.S. Dollar during the period which impacted the translated value of intercompany debt owed from the Company's German subsidiary to the U.S parent company. In the prior year the Company experienced the opposite circumstance.

Operating expenses also included $664,000 of non-cash stock compensation expense, equivalent to $0.04 per diluted share compared to $689,000, or $0.04 per diluted share in the prior year. Development, startup, and post-opening expenses in the Healthcare Services division were $388,000 or $0.02 per diluted share in the period compared to $329,000, or $0.02 per diluted share in the prior year.

Income from operations before foreign exchange in the first quarter of fiscal 2011 was $3.1 million, compared to $4.4 million in the prior year period.

The Company recorded a $1.0 million provision for taxes, an effective tax rate of 54.8%, in the first quarter of fiscal 2011 as compared to a provision for taxes of $1.6 million, or an effective tax rate of 32.6%, in the prior year period. The effective tax rate in the current period reflects increased losses in entities for which the Company cannot yet recognize a tax benefit.

Net income for the quarter ended June 30, 2010 was $836,000, or $0.06 per diluted share. This compares to net income of $3.3 million, or $0.20 per diluted share, in the prior year period.

Healthcare Services division business results:

In the first quarter of fiscal year 2011, revenue increased 12.3% to $24.7 million from $22.0 million in the prior year period. The increase reflects growing inpatient and outpatient volume across the Company's United Family Healthcare network.

In the first quarter of fiscal 2011, operating costs increased 12.3% to $20.1 million, a rate proportional to revenue growth and inclusive of additional staffing efforts. Income from operations before foreign exchange increased 14.6% to $4.7 million from $4.1 million in the prior year period.

Lipson continued, "Our growth this quarter reflects continued demand for services across our network. We are pleased to see more and more patients rely on us to treat increasingly acute indications in Beijing, while volumes in Shanghai and Guangzhou continued to validate that we are replicating the UFH brand in these newer locations. Additionally, the Beijing hospital expansion is on-track to more than double our capacity by calendar year-end."

Medical Products division business results:

For the first quarter of fiscal 2011, revenue was $16.7 million, down 28.3% from $23.3 million in the prior year period. Revenue performance reflects increased sales from women's health imaging and ultrasound products, offset by a reduction in revenue from government-backed loan programs and lack of daVinci sales versus the prior year period. Overall, revenue performance reflects the Class A review process and timing, which impacts daVinci order flow, along with anticipated hospital budgeting cycles and a general uncertainty around healthcare reform and expenditure, which impacts demand and order flow for medical devices.

Gross profit for the Medical Products division was $5.1 million, compared to $5.8 million in the prior year period. Gross margin was 30.4% compared to 25.0% in the prior year period, in line with historical averages and revenue mix. Selling, marketing, general and administrative expenses for the Medical Products division increased to $6.7 million from $5.6 million in the first quarter of the prior year. The division had a loss from operations before foreign exchange of $1.6 million for the three months ended June 30, 2010, compared with income from operations before foreign exchange of $243,000 for the three months ended June 30, 2009.

Lipson added, "We continue to believe order and shipment delays related to the regulatory review of high-value technologies is a temporary reality, which substantiates the overall demand in the market for these products. We take a long-term view that the medical device market in China is extremely compelling despite the current regulatory challenges, and we look forward to pursuing this large addressable market in the coming years."

About Chindex International, Inc.SOURCE Chindex International, Inc.