Concord Medical first quarter total net revenues increase 14.7% to $13.3 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 first quarter ended March 31, 2011.

First Quarter Fiscal 2011 Highlights

• Total net revenues in the first quarter of 2011 were RMB87.4 million ($13.3 million), a 14.7% increase from the corresponding period in 2010.
• Gross profit in the first quarter of 2011 was RMB54.7 million ($8.4 million), an 11.3% increase from the corresponding period in 2010.
• Net income in the first quarter of 2011 was RMB22.9 million ($3.5 million), a 6.1% increase from the corresponding period in 2010. Both basic and diluted earnings per American depositary share ("ADS") (2) for the first quarter of 2011 were RMB0.48 ($0.07).
• Non-GAAP net income (3) in the first quarter of 2011 was RMB25.3 million ($3.9 million), a 5.3% increase from the corresponding period in 2010. Both non-GAAP basic and diluted earnings per ADS for the first quarter of 2011 were RMB0.53 ($0.08).
• Adjusted EBITDA (4) (non-GAAP) in the first quarter of 2011 was RMB65.6 million ($10.0 million), a 14.7% increase from the corresponding period in 2010.
• Concord Medical added 2 centers in the first quarter of 2011, bringing the total number of centers in operation to 121 in 46 cities in China, as of March 31, 2011. To date, the Company has entered into agreements to establish 30 new centers.
• The number of treatment and diagnostic patient cases were 7,788 and 31,136, respectively, during the first quarter of 2011, representing a 13.4% and 17.2% increase from the corresponding period of 2010.

"In the first quarter of 2011, we delivered an approximately 15% increase in net revenues compared with the first quarter of 2010," said Dr. Jianyu Yang, director, president and chief executive officer of Concord Medical. "The moderate growth can be primarily attributed to the ramp up process in the newly opened centers." Dr. Yang continued, "We are confident in our expansion strategy and growth prospects. We are pushing forward on all fronts including establishing standalone hospitals and centers, developing new centers with hospital partners, pursuing acquisition targets, and increasing utility and efficiency at our existing facilities."

Recent Developments

During the first quarter of 2011, Concord Medical entered into a joint venture agreement with the Oncology Hospital of Zhongshan Medical University, a leading oncology hospital in China, to form a specialty hospital in Guangzhou for cancer diagnosis and treatment. Pursuant to terms of the agreement, Concord Medical is expected to own 70% of the equity interests in the joint venture, which is expected to have 400 patient beds. The joint venture is expected to start operation in 2013.

"The establishment of a joint venture with the Oncology Hospital of Zhongshan Medical University, one of the top cancer hospitals in China, further underlines our strategy to establish a line of standalone facilities alongside our center network on hospital premises," said Dr. Yang. "The purpose of these standalone facilities is to establish the highest benchmark in cancer treatment in China and to strengthen Concord Medical's brand among patients and doctors. Looking forward, Concord Medical intends to continue the expansion of our standalone facilities as a key part of our growth strategy."

On January 6, 2011, Concord Medical announced that it entered into agreements to acquire 52% of the equity interests in Chang'An Hospital from certain shareholders of the hospital for an aggregate consideration of approximately RMB200 million, subject to satisfactory due diligence results and relevant government approval. The acquisition is intended to expand the development of Chang'An CMS International Cancer Center ("CCICC"), a cancer specialty hospital with a focus on cancer diagnosis and treatment services, by consolidating the full capacity of the hospital into CCICC. The acquisition process is currently experiencing a delay in completing the due diligence and the required government approval.

First Quarter of 2011 Results

Total net revenues were RMB87.4 million ($13.3 million) for the first quarter of 2011, a 14.7% increase from the corresponding period in 2010. The increase is 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 first quarter of 2011 was RMB32.7 million ($5.0 million), a 21.0% increase from the corresponding period in 2010, primarily due to an increase in depreciation costs related to new equipment in 2011.

Gross profit margin in the first quarter of 2011 was 62.6% as compared to 72.2% in the fourth quarter of 2010 and 64.5% in the first quarter in 2010. The lower gross profit margin was primarily due to an increase in depreciation and amortization cost as a result of business expansion.

Operating expenses, consisting of selling expenses and general and administrative expenses, were RMB19.9 million ($3.0 million) in the first quarter of 2011 as compared to RMB30.1 million ($4.6 million) in the fourth quarter of 2010 and RMB17.6 million ($2.6 million) in the corresponding period in 2010. The year-on-year increase was primarily due to increases in professional expenses, office and travel expenses, and operating expenses as a result of the expanded business size.

Operating income was RMB34.8 million ($5.3 million) in the first quarter of 2011, representing a 10.3% increase from the corresponding period in 2010. Operating income excluding share-based compensation expenses (non-GAAP) was RMB37.1 million ($5.7 million), an 8.8% increase from the corresponding period in 2010.

Income tax expense in the first quarter of 2011 was RMB8.9 million ($1.4 million), compared to an income tax expense of RMB8.5 million ($1.2 million) in the corresponding period in 2010. The effective tax rate for the first quarter of 2011 was 27.9% as compared to 18.8% in the fourth quarter of 2010 and 28.3% in the corresponding quarter of 2010.

Net income in the first quarter of 2011 was RMB22.9 million ($3.5 million), representing a 6.1% increase from the corresponding period in 2010. Both basic and diluted earnings per ADS for the first quarter of 2011 were RMB0.48 ($0.07).

Non-GAAP net income in the first quarter of 2011 was RMB25.3 million ($3.9 million), a 5.3% increase from the corresponding period in 2010. Both non-GAAP basic and diluted earnings per ADS in the first quarter of 2011 were RMB0.53 ($0.08).

Adjusted EBITDA (non-GAAP) was RMB65.6 million ($10.0 million) for the first quarter of 2011, representing a 14.7 % increase from the corresponding period in 2010.

Capital expenditure for the first quarter of 2011 was RMB31.5 million ($4.8 million). Total depreciation expenses were RMB21.9 million ($3.3 million). In addition, amortization of acquired intangibles was RMB6.0 million ($0.9 million).

As of March 31, 2011, the Company had total fixed assets of RMB958.2 million ($146.3 million), cash of RMB491.1 million ($75.0 million), and restricted cash of RMB39.8 million ($6.1 million).

As of March 31, 2011, the Company had bank credit lines of RMB2.1 billion ($315 million), of which RMB89.7 million ($13.7 million) were drawn down.

Accounts receivable was RMB181.5 million ($27.7 million) as of March 31, 2011, compared to RMB169.4 million ($25.7 million) as of December 31, 2010.

Days sales outstanding was approximately 181 days in the first quarter of 2011, up from 127 days in the fourth quarter of 2010 primarily due to seasonality impact.

Outlook for Fiscal Year 2011

Based on current market and operating conditions, estimated business expansion and forecasted patient volume, Concord Medical reiterates its outlook for fiscal year 2011. The Company 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 arising as a result of the currently pending acquisition of equity interests in Chang'An Hospital but includes income from CCICC's preliminary operations. The Company notes that any 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 revenue contribution 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.