Chindex International reports fiscal 2010 second-quarter results

Chindex International, Inc. ("Chindex") (Nasdaq: CHDX), a leading independent American provider of Western healthcare products and services in the People's Republic of China, today announced results for the second quarter and first half of fiscal 2010, which ended September 30, 2009.

Financial Highlights: -- Revenue in the second quarter of fiscal 2010 was $38.1 million, flat on a year over year basis; -- Net income in the second quarter of fiscal 2010 was $538,000, or $0.03 per diluted share, compared to net income of $862,000, or $0.05 per diluted share, in the second quarter of fiscal 2009; -- Revenue in the first half of fiscal 2010 increased 19% to $83.5 million from $70.2 million during the first half of fiscal 2009; -- Net income in the first half of fiscal 2010 increased to $3.8 million, or $0.24 per diluted share, from $700,000, or $0.04 per diluted share, in the year over year period;

Roberta Lipson, President and CEO of Chindex stated, "We are pleased with our financial results for the first half of fiscal year 2010, which puts us on track to meet our full year expectations. Our second quarter reflects continued growth in the Healthcare Services division, offset by disruption related to construction at our Beijing facility. The Medical Products division is always subject to quarterly variations, and this quarter we encountered regulatory delays on high-value medical equipment purchases, although this does not undermine the significant excitement we see in the marketplace for our products, particularly for daVinci. As we enter the back half of the fiscal year, we remain extremely well-positioned to capitalize on China's premium-quality healthcare services market, continued economic vibrancy and opportunities created by healthcare reform."

Second Quarter Fiscal 2010 Financial Results

Revenue for the second quarter of fiscal 2010 was flat on a year over year basis at $38.1 million. Revenue from the Healthcare Services division increased 10% to $21.0 million from $19.1 million in the prior year period, and reflects continued growth of inpatient and outpatient volume offset by disruption due to construction of the expanded facility in Beijing. Revenue from the Medical Products division decreased 10% to $17.1 million from $19.0 million in the prior year period, and reflects delays in the order cycle for high value capital medical equipment, particularly robotic surgical systems, resulting from the Chinese government's review of import approvals and the timing of the tender process.

During the quarter, the Company recorded income from operations of $1.4 million, compared to $1.6 million in the same quarter of last year. Total operating costs and expenses were flat year over year at $36.7 million and reflect expense controls as well as normalized salary costs in the Healthcare Services division. Additionally, Chindex recognized development and startup expenses of approximately $313,000, equivalent to approximately $0.02 per diluted share, and non-cash stock compensation expense of $852,000, equivalent to approximately $0.05 per diluted share, in the second quarter of fiscal 2010. In the prior year period, the Company's development and startup expenses in the Healthcare Services division were $645,000, roughly $0.04 per diluted share, and non-cash stock compensation expense was $646,000 or roughly $0.04 per diluted share.

The Company's tax expense was approximately $1.0 million in the second quarter of fiscal 2010, an effective tax rate of 65.2%. The tax rate reflects losses in entities for which the Company cannot yet recognize benefit. In the prior year period, tax expense was approximately $251,000.

Net income in the second quarter of fiscal 2010 was $538,000, or $0.03 per diluted share. This compares to net income of $862,000, or $0.05 per diluted share, in the second quarter of fiscal 2009.

Healthcare Services division business results:

Revenue in the second quarter of the fiscal year 2010 was $21.0 million, an increase of 10% from $19.1 million in the prior year quarter. Operating costs increased by 4% to $18.7 million from $18.0 million in the prior year's second quarter. Salary expense represented 48% of divisional revenue, down from 51% in the prior year period, and reflects the normalization of physician salary costs as well as increased staffing compared to the year before. Income from operations before foreign exchange gains increased to $2.3 million from $1.1 million in the prior year period.

Lipson stated, "Continued growth in patient volume throughout our hospital and clinic network during the second fiscal quarter demonstrates our unique offering, proven operating history and the continued growing demand for premium quality care in China. While on-site construction in Beijing caused some disruption in our existing offerings such as pediatrics, we remain extremely confident that high-end healthcare services in China address an increasingly affluent and growing, underserved market. Our sights remain set on our long-term goal to substantially grow our network in the coming years."

Medical Products division business results:

For the second quarter of fiscal 2010, revenue decreased 10% to $17.1 million from $19.0 million in the prior year period. The Company did not realize any sales of robotic surgical systems during the quarter and sales of diagnostic ultrasound, women's health imaging, clinical chemistry and cosmetic laser systems products increased at lower than expected rates. Revenue performance reflects delays in the order cycle for high value capital medical equipment, particularly for robotic surgical systems, resulting from the Chinese government's review of import approvals, and also reflects the overall timing of the tender process in China. Gross profit margin was 28% and was in line with historical averages. The division had a loss from operations before foreign exchange gains of $1.5 million compared with income from operations of approximately $582,000 in the prior year period.

"The government's review of importing high value technologies into public hospitals is a routine process impacting new, big ticket medical products. We believe that the review itself substantiates the continued demand we see for premium medical technology in China, and bodes well for future sales across our portfolio despite causing disruptions to daVinci sales this quarter. Our expectation for the order flow for daVinci's has not changed and we continue to expect sales of one to two systems per quarter on average, over time. We also see excitement in the market for the other new technologies we have introduced recently, including in ultrasound and digital mammography, for example. In addition, over the first and second quarters this year we have shipped products under our KfW Development Bank and U.S. Export Import Bank contracts and expect to execute additional government backed contracts in the future," concluded Lipson.

SOURCE Chindex International, Inc.