Concord Medical Services Holdings reports 24.3% increase in total net revenues for fourth-quarter 2009

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, 2009(1), and the appointment of Dr. Hongbin Cai as an independent board member.

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.

"We were encouraged to end 2009 with a solid quarter of financial performance and operational progress, and we are very excited by the growth opportunities we see in 2010," said Dr. Jianyu Yang, director, president and chief executive officer of Concord Medical.

"Having established our first radiotherapy center in 1997, Concord Medical's success has been driven by our outstanding ability to establish and operate these centers effectively. Looking forward, we will continue to expand our leading network by opening new centers and to improve the operational efficiency of existing centers. Our target is to operate at least 200 centers by 2012 and we are moving quickly toward that goal. In addition, the development of our two specialty cancer hospitals is well under way. We expect to open our Chang'an CMS International Cancer Center in June 2010 and our Beijing Proton Medical Center in early 2012."

Mr. Yang further commented, "Cancer is the leading cause of death in China and the cancer treatment market is one of China's fastest growing healthcare segments as Chinese people increasingly understand the importance of early-detection and high quality treatment. In addition, the Chinese government has been encouraging private investment in the healthcare sector in order to enhance the scope and quality of medical services provided in the country. With our leading expertise and solid capital position combined with increasing market demand and the Chinese government's commitment to implementing healthcare reform, we are confident that Concord Medical is well positioned to achieve our growth targets."

Mr. Boxun Zhang, Concord Medical's corporate vice president added, "Over the past three years, Concord Medical has consistently achieved strong top and bottom line growth and managing for profitable growth remains a top priority for us. In the future, while supporting our expansion strategies with positive operating cash flow, a strong cash balance and flexible bank credit, we will also continue to improve our operational efficiency and enhance financial management."

Independent Board Member Appointment

Concord Medical also announced that Dr. Hongbin Cai joined its board as an independent director and replaced Mr. Wai Hung Ku as a member of the audit committee. 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 nationally renowned academic leader and business advisor, Dr. Cai brings in-depth knowledge of corporate finance and economics. We also thank Mr. Ku for his valuable contributions to the Company during his tenure. This change in our board composition demonstrates our commitment to observing best practices in corporate governance as a newly listed company."

Dr. Hongbin Cai is currently a professor in economics and an associate dean at Peking University's Guanghua School of Management. Since 2006, he has been serving as a director of the Mirrlees Institute of Economic Policy Research and an associate director of the Institute of Poverty Research at Peking University. Prior to returning to Peking University as a professor, he served as an assistant professor of the economics department at the University of California, Los Angeles from 1997 to 2005. From 2000 to 2001, he served as a visiting assistant professor at the economics department and the Cowles Foundation 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 Peking University and a B.A. in Mathematics from Wuhan University. He has received various national recognitions in China, including being named as a National Chang Jiang Scholar and a National Outstanding Young Researcher and his academic papers have been published in renowned journals such as the American Economic Review, the Rand Journal of Economics, the Journal of Public Economics, the Journal of Economic Theory, and the Economic Journal.

Fourth Quarter 2009 Results

Concord Medical reported total net revenues of RMB86.8 million ($12.7 million) for the fourth quarter of 2009, a 24.3% increase from the corresponding period in 2008, primarily due to an increase in patient cases from existing centers and the opening of new centers.

Cost of revenues in the fourth quarter of 2009 was RMB25.0 million (US$3.7 million), a 45.2% increase from the corresponding period in 2008, primarily due to an increase in depreciation costs related to new equipment installation in 2009.

Gross profit margin in the fourth quarter of 2009 was 71.2% as compared to 71.4% 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 had a higher margin, accounting for a higher portion of total net revenues in the fourth quarter of 2008.

Operating expenses, consisting of selling expenses and general and administrative expenses, were RMB13.3 million ($2.0 million) in the fourth quarter of 2009 as compared to RMB9.7 million in the previous quarter and RMB8.6 million in the corresponding period in 2008. The quarter-over-quarter increase was mainly due to an increase in salary and compensation expenses related to business expansion, and RMB1.0 million in share-based compensation expenses associated with certain option grants in November 2009.

Operating income was RMB48.4 million ($7.1 million) in the fourth quarter of 2009, representing a 10.2% increase from the corresponding period in 2008. Operating income excluding share-based compensation expenses (non-GAAP) was RMB49.4 million ($7.2 million), a 12.5% increase from the corresponding period in 2008.

Income tax expense was RMB10.7 million ($1.6 million), compared to an income tax expense of RMB10.7 million in the corresponding period in 2008. The effective tax rate for the fourth quarter of 2009 was 22.9% as compared to 23.0% in the third quarter of 2009 and 21.5% for the corresponding period in 2008.

Net income was RMB35.9 million ($5.3 million), representing an 8.2% decrease from the corresponding period in 2008. This decrease was primarily due to a RMB7.7 million one-time gain recognized as other income in the fourth quarter of 2008. Both basic and diluted earnings per ADS for the fourth quarter of 2009 amounted to RMB0.69 ($0.10).

Net income excluding share-based compensation expenses (non-GAAP) was RMB36.9 million ($5.4 million), a 5.6% decrease from the corresponding period in 2008. Both basic and diluted earnings per ADS excluding share-based compensation expenses (non-GAAP) for the fourth quarter of 2009 amounted to RMB0.72 ($0.11).

Adjusted EBITDA (non-GAAP), was RMB 72.1 million ($10.6 million) for the fourth quarter of 2009, representing a 22.3% increase from the corresponding period in 2008.

As of December 31, 2009, the Company had total fixed assets valued at RMB584.9 million ($85.7 million) and cash and cash equivalents of RMB1, 037.2 million ($152.0 million).

As of December 31, 2009, the Company had bank credit lines totaling RMB2,145 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 RMB92.8 million as of December 31, 2008. The sequential decrease was mainly due to enhanced cash flow management. Days sales outstanding decreased to approximately 120 days in the fourth quarter of 2009 from approximately 128 days 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 new centers, and (ii) consolidation of China Medstar's revenues for the entire fiscal year 2009 as compared to for the last five months of 2008, as a result of 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 to the an increase 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 2009 was 70.1%, compared to 73.5% in 2008. This decrease was primarily due to (i) higher operating costs associated with having a bigger number of new centers in their ramp-up periods, and (ii) an increase 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), representing a 39.6% increase from RMB5.5 million in 2008, which was primarily due to increases in headcount and marketing and other expenses to support increased business development efforts. Selling expenses as a percentage of total net revenues decreased to 2.6% in 2009 from 3.2% in 2008 mainly due to economies of scale.

General and administrative expenses in 2009 were RMB29.8 million ($4.4 million), representing a 58.0% increase from RMB18.9 million in 2008, which was primarily due to (i) increases in headcount and travel expenses, and (ii) increases in auditing expenses and share based compensation charges. General and administrative expenses as a percentage of total net revenues decreased to 10.2% in 2009 from 11.0% in 2008 mainly due to economies of scale.

Share-based compensation expenses, which were allocated to related operating expense items, were RMB1.0 million ($0.1 million) in 2009, compared to 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-based compensation 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 an income tax expense of RMB23.3 million in 2008. The effective tax rate for 2009 was 22.6% as compared to 22.8% in 2008.

Net income in 2009 was RMB124.8 million ($18.3 million), representing a 57.9% increase from RMB79.1 million in 2008. Both basic and diluted earnings per ADS for 2009 amounted to RMB1.86 ($0.27).

Net income excluding share-based compensation expenses (non-GAAP) in 2009 was RMB125.8 million ($18.4 million), reflecting a 51.1% increase from RMB83.3 million in 2008. Both basic and diluted earnings per ADS excluding share-based compensation 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 the opening 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 estimated range of RMB360 million to RMB390 million in 2010, which would represent a 23.1% to 33.4% increase from 2009.

The Company intends to open 30 to 35 new radiotherapy and diagnostic imaging centers in 2010. The Company expects total capital expenditures related to these new centers to be in the range of RMB350 million to RMB400 million.

This forecast reflects Concord Medical's current and preliminary view, which is subject to change.

SOURCE Concord Medical Services Holdings Limited