Concord Medical fourth quarter total net revenues increase 30.1% to RMB112.9 million

Concord Medical Services Holdings Limited (“Concord Medical” or the “Company”) (NYSE: CCM), the operator of the largest network of radiotherapy and diagnostic imaging centers in China, today announced its unaudited consolidated financial results for the fourth quarter and fiscal year ended December 31, 2010, the Company’s first full year of operations since completing its IPO in December 2009, underwritten by Morgan Stanley, J.P. Morgan and CICC.

Fourth Quarter and Fiscal Year 2010 Highlights

• Total net revenues in the fourth quarter of 2010 were RMB112.9 million ($17.1 million), a 30.1% increase from the corresponding period in 2009. Total net revenues in fiscal year 2010 were RMB389.5 million ($59.0 million), a 33.2% increase from 2009.
• Gross profit in the fourth quarter of 2010 was RMB81.5 million ($12.4 million), a 32.0% increase from the corresponding period in 2009. Gross profit in fiscal year 2010 was RMB266.8 million ($40.4 million), a 30.2% increase from 2009.
• Net income in the fourth quarter of 2010 was RMB43.7 million ($6.6 million), a 21.8% increase from the corresponding period in 2009. Net income in fiscal year 2010 was RMB130.9 million ($19.8 million), a 4.9% increase from 2009.
• Non-GAAP net income in the fourth quarter of 2010 was RMB45.5 million ($6.9 million), a 23.3% increase from the corresponding period in 2009. Non-GAAP net income in fiscal year 2010 was RMB140.5 million ($21.3 million), an 11.6% increase from 2009.
• Both basic and diluted earnings per American depositary share (“ADS”) in the fourth quarter of 2010 were RMB0.87 ($0.13). Both basic and diluted earnings per ADS in fiscal year 2010 were RMB2.66 ($0.40).
• Both Non-GAAP basic and diluted earnings per American depositary share (“ADS”) in the fourth quarter of 2010 were RMB0.91 ($0.14). Both basic and diluted earnings per ADS in fiscal year 2010 were RMB2.86 ($0.43).
• Adjusted EBITDA (non-GAAP) in the fourth quarter of 2010 was RMB80.6 million ($12.2 million), an 11.8% increase from the corresponding period in 2009. Adjusted EBITDA in fiscal year 2010 was RMB295.4 million ($44.8 million), a 19.8 % increase from 2009.
• Concord Medical added 10 centers and closed 2 centers in the fourth quarter of 2010, bringing the total number of centers in operation to 119 across 44 cities in China, as of December 31, 2010. To date, the Company has entered into agreements to establish 29 new centers.
• The number of treatment and diagnostic patient cases was 8,309 and 34,646 during the fourth quarter and fiscal year 2010, representing a 13.0% and 37.0% increase from the fourth quarter and fiscal year 2009, respectively.

“We are pleased to report a year of solid financial and operational growth in 2010, the first full year of operations since our IPO and listing on the NYSE in December 2009, underwritten by Morgan Stanley, J.P. Morgan and CICC,” said Dr. Jianyu Yang, director, president and chief executive officer of Concord Medical. “In 2010, revenues grew 33% year-over-year to RMB389.5 million while we brought the total number of centers in our network to 119 by adding 33 centers in the year. In 2011, we will continue to grow our already established center network and are committed to meeting our target of operating 200 centers by the end of 2012. In addition, Concord Medical will focus more resources on expanding our network of standalone facilities such as our Chang’An CMS International Cancer Center and our Beijing Proton Medical Center.”

“The government continues to encourage private investment into the healthcare system in China,” continued Dr. Yang. “In December 2010, we saw more specific guidelines such as prioritizing private investment in new projects, extending medical insurance coverage to treatment through private providers and allowing talent transfer between private and public hospitals. Combining the increasingly favorable macroeconomic conditions with our effective marketing and execution efforts, we are confident that Concord Medical is well on its way to achieving greater success.”

Dr. Yang added, “In the fourth quarter of 2010, we had healthy top line growth despite a drop in patient volume in the first week of October caused in part by the Golden Week holiday. Our operating and net margins for year 2010 were also affected by costs and expenses associated with being a public company. We expect this impact to diminish over time as our business increases in scale. Looking forward, we will focus on continuing to enhance operational and financial efficiency while further expanding our network.”

Recent Developments

On July 12, 2010, Concord Medical announced it entered into a joint venture agreement with Chang’An Hospital and commenced preliminary operations of Chang’An CMS International Cancer Center (“CCICC”) in anticipation of obtaining a clinical license for CCICC. As of this announcement, CCICC had not received such license. On January 6, 2011, Concord Medical announced that it entered into agreements to acquire a total of 52% of the equity interest in Chang'An Hospital from certain shareholders of the Hospital for an aggregate consideration of approximately RMB200 million, subject to satisfactory due diligence and relevant government approval. The acquisition is intended to expand the development of CCICC by consolidating the full capacity of the Hospital into CCICC, a cancer specialty hospital with a focus on cancer diagnosis and treatment services.  

Concord Medical completed its share repurchase program in the fourth quarter 2010. During the fourth quarter of 2010, the Company repurchased 719,626 ADSs, representing 2,158,878 ordinary shares, for an aggregate consideration of $5.274 million, inclusive of fees. Since the inception of the share repurchase program in July 2010, the Company has repurchased a total of 1,700,656 ADSs, representing 5,101,968 ordinary shares, for an aggregate consideration of $11.552 million, inclusive of fees. As of December 31, 2010, the Company had a total of 17.4 million ADSs outstanding, representing 52.2 million ordinary shares, or 37% of its outstanding ordinary shares.

Fourth Quarter 2010 Results

Concord Medical reported total net revenues of RMB112.9 million ($17.1 million) for the fourth quarter of 2010, a 30.1% increase from the corresponding period in 2009, primarily due to an increase in patient cases from existing centers and the opening of new centers, as well as income from the preliminary operation of CCICC.  

Cost of revenues in the fourth quarter of 2010 was RMB31.3 million (US$4.7 million), a 25.2% increase from the corresponding period in 2009, primarily due to an increase in depreciation costs related to new equipment added in 2010.

Gross profit margin in the fourth quarter of 2010 was 72.2% as compared to 66.2% in the third quarter of 2010 and 71.2% in the corresponding period in 2009. The lower gross profit margin in the third quarter of 2010 was mostly due to depreciation and amortization from business expansion.

Operating expenses, consisting of selling expenses and general and administrative expenses, were RMB30.1 million ($4.6 million) in the fourth quarter of 2010 as compared to RMB17.3 million in the previous quarter and RMB13.3 million in the corresponding period in 2009. The quarter-over-quarter increase was primarily due to a government grant in the previous quarter, increases in office and travel expenses, and operating expenses related to the preliminary operation of CCICC. The year-over-year increase was primarily due to increases in professional expenses associated with being a public company, increases in headcount, office and travel expenses, share-based compensation charges, and operating expenses related to the preliminary operation of CCICC.

Operating income was RMB51.4 million ($7.8 million) in the fourth quarter of 2010, representing a 6.3% increase from the corresponding period in 2009. Operating income excluding share-based compensation expenses (non-GAAP) was RMB53.2 million ($8.1 million), a 7.7% increase from the corresponding period in 2009.

Income tax expense in the fourth quarter of 2010 was RMB10.1 million ($1.5 million), compared to an income tax expense of RMB10.7 million in the corresponding period in 2009. The effective tax rate for the fourth quarter of 2010 was 18.8% as compared to 27.0% in the third quarter of 2010 and 22.9% for the corresponding period in 2009. The decrease in effective tax rate was mainly due to the resolution of a previously accrued uncertain tax position amounting to RMB6.2 million.

Net income in the fourth quarter of 2010 was RMB43.7 million ($6.6 million), representing an 21.8% increase from the corresponding period in 2009. Both basic and diluted earnings per ADS for the fourth quarter of 2010 amounted to RMB0.87 ($0.13).

Non-GAAP net income in the fourth quarter of 2010 was RMB45.5 million ($6.9 million), a 23.3% increase from the corresponding period in 2009. Both non-GAAP basic and diluted earnings per ADS in the fourth quarter of 2010 amounted to RMB0.91 ($0.14).

Adjusted EBITDA (non-GAAP), was RMB80.6 million ($12.2 million) for the fourth quarter of 2010, representing an 11.8% increase from the corresponding period in 2009.

As of December 31, 2010, the Company had total fixed assets valued at RMB925.3 million ($140.2 million), cash and cash equivalents of RMB535.8 million ($81.2 million), and restricted cash of RMB 117.7 million ($17.8 million).

As of December 31, 2010, the Company had bank credit lines totaling RMB2.2 billion (US$335 million), of which RMB241.1 million ($36.5) were utilized.

Accounts receivable was RMB169.4 million ($25.7 million) as of December 31, 2010, compared to RMB149.5 million as of September 30, 2010 and RMB111.3 million as of December 31, 2009. Days sales outstanding was approximately 127 days in the fourth quarter of 2010, unchanged from 127 days in the third quarter of 2010.

Fiscal Year 2010 Results

Total net revenues in 2010 were RMB389.5 million ($59.0 million), representing a 33.2% increase from RMB292.4 million in 2009, primarily due to an increase in patient cases from existing centers and the opening of new centers, as well as income from the preliminary operation of CCICC.

Cost of revenues in 2010 was RMB122.7 million (US$18.6 million), representing a 40.1% increase from RMB87.6 million in 2009, primarily due to the increased depreciation cost related to the opening of new centers and the resulting increase in salaries and benefits to additional personnel employed and assigned to the new centers.

Gross profit margin in 2010 was 68.5%, compared to 70.1% in 2009. This decrease was primarily due to higher operating costs associated with having a larger number of new centers in their ramp-up periods.

Selling expenses in 2010 were RMB17.2 million ($2.6 million), representing a 123.5% increase from RMB7.7 million in 2009. Selling expenses as a percentage of total net revenues increased to 4.4% in 2010 from 2.6% in 2009. The increase was primarily due to increases in headcount and marketing and other expenses to support increased business development efforts.

General and administrative expenses in 2010 were RMB70.0 million ($10.6 million), representing a 134.8% increase from RMB29.8 million in 2009. General and administrative expenses as a percentage of total net revenues increased to 18.0% in 2010 from 10.2% in 2009.  The increase was primarily due to increases in professional expenses associated with being a public company, share-based compensation charges, headcount, office and travel expenses, and operating expenses related to the preliminary operation of CCICC.

Share-based compensation expenses, which were allocated to related operating expense items, were RMB9.6 million ($1.5 million) in 2010, compared to RMB1.0 million in 2009.

Operating income in 2010 was RMB179.7 million ($27.2 million), a 7.3% increase from RMB167.4 million in 2009. Operating income excluding share-based compensation expenses (non-GAAP) in 2010 was RMB189.3 million ($28.7 million), representing a 12% increase from 2009.

Income tax expense in 2010 was RMB43.9 million ($6.6 million), compared to an income tax expense of RMB36.4 million in 2009. The effective tax rate for 2010 was 25.1% as compared to 22.6% in 2009.

Net income in 2010 was RMB130.9 million ($19.8 million), representing a 4.9% increase from RMB124.8 million in 2009. Both basic and diluted earnings per ADS for 2010 amounted to RMB2.66 ($0.40).

Net income excluding share-based compensation expenses (non-GAAP) in 2010 was RMB140.5 million ($21.3 million), reflecting a 11.7% increase from RMB125.8 million in 2009. Both basic and diluted earnings per ADS excluding share-based compensation expenses (non-GAAP) in 2010 were RMB2.86 ($0.43).

Capital expenditures were RMB345.2 million ($52.3 million) in 2010, compared to RMB228.7 million in 2009. The increase was primarily due to the opening of new centers.

Adjusted EBITDA (non-GAAP) was RMB295.4 million ($44.8 million) in 2010, representing a 19.8% increase from RMB246.6 million in 2009.

Outlook for Fiscal Year 2011

Based on current market and operating conditions, estimated business expansion and forecasted patient volume, Concord Medical expects to generate total net revenues in an estimated range of RMB480 million to RMB520 million in 2011, which would represent a 23% to 33% increase from 2010. This estimated range excludes any potential future revenue as a result of the currently pending acquisition of Chang’An Hospital but includes income from CCICC’s preliminary operations. The Company notes that unanticipated delays in the closing of Chang’An Hospital’s acquisition, any failure to obtain CCICC’s clinical license and other uncertainties may result in CCICC not achieving its anticipated benefits to the Company, which in turn could have a material adverse effect on the Company’s business, financial condition and results of operations in 2011 and future periods.  

The Company intends to open 25 to 30 new radiotherapy and diagnostic imaging centers, excluding any potential major acquisitions, in 2011. The Company expects total capital expenditures related to these new centers to be in the range of RMB300 million to RMB360 million.

The foregoing reflects Concord Medical’s current and preliminary views, which are subject to change.