Chindex 2011 second quarter revenue increases 18.6% to $45.2 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 second quarter and first half of fiscal year 2011, which ended September 30, 2010.

• Revenue in the second quarter of fiscal 2011 increased 18.6% to $45.2 million from $38.1 million in the second quarter of fiscal 2010;
• Net income in the second quarter of fiscal 2011 was $3.2 million, or $0.20 per diluted share, compared to net income of $538,000, or $0.03 per diluted share, in the second quarter of fiscal 2010.
• Revenue in the first half of fiscal 2011 increased 3.8% to $86.7 million from $83.5 million in the first half of fiscal 2010;
• Net income in the first half of fiscal 2011 increased to $4.1 million, or $0.26 per diluted share, from $3.8 million, or $0.24 per diluted share, in the year over year period.

Second Quarter 2011 Financial Results

Revenue in the second quarter of fiscal 2011 reflected continued growth in the Healthcare Services division and Medical Products division. Revenue from the Healthcare Services division increased 11.4% to $23.4 million from $21.0 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 increased 27.5% to $21.8 million from $17.1 million in the prior year period, and mainly reflects stronger second quarter demand for imaging products. Total revenue increased 18.6% to $45.2 million from $38.1 million in the second quarter of fiscal year 2010.

Income from operations in the second quarter of fiscal 2011 was $4.8 million, compared to income from operations of $1.4 million in the same quarter last year. Total operating costs and expenses for the second quarter of fiscal 2011 increased to $40.3 million compared to $36.7 million in the prior year period but decreased as a percentage of revenue to 89.3% from 96.3%. This primarily reflects cost containment in the Medical Products division and general and administrative expenditure commensurate with revenue growth in the Healthcare Services division.

Operating expenses in the second quarter of fiscal 2011 include the benefit of a $1.1 million unrealized foreign exchange gain compared to a $613,000 unrealized foreign exchange gain in the same quarter of the prior year. The unrealized exchange gain was recognized as a result of the strength 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.

Operating expenses also included $375,000 of non-cash stock compensation expense compared to $852,000 in the prior year. Development, startup, and post-opening expenses in the Healthcare Services division were $653,000 in the period compared to $313,000 in the prior year.

Income from operations before foreign exchange in the second quarter of fiscal 2011 was $3.7 million, compared to $800,000 in the prior year period.

The Company recorded a $1.5 million provision for taxes, an effective tax rate of 31.6%, in the second quarter of fiscal 2011 as compared to a provision for taxes of $1.0 million, or an effective tax rate of 65.2%, in the prior year period. The effective tax rate in the prior period reflected losses in entities for which the Company could not recognize a tax benefit.

Net income for the quarter ended September 30, 2011 was $3.2 million, or $0.20 per diluted share. This compares to net income of $538,000, or $0.03 per diluted share, in the prior year period.

Healthcare Services division business results:

In the second quarter of fiscal year 2011, revenue increased 11.4% to $23.4 million from $21.0 million in the prior year period. The increase reflects continued growth of inpatient and outpatient volume across the Company's United Family Healthcare network.

In the second quarter of fiscal 2011, operating costs increased 6.0% to $19.9 million, a rate commensurate with revenue growth and inclusive of additional staffing efforts in advance of new facility openings. Income from operations before foreign exchange increased 47.8% to $3.4 million from $2.3 million in the prior year period.

Roberta Lipson, President and CEO of Chindex, stated, "Our performance this quarter reflects ongoing demand for services across our network. Volumes in Shanghai and Guangzhou continue to validate that we are replicating the UFH brand in these newer locations. We are on-track to more than double our capacity in the Beijing hospital by calendar year-end, and we intend to start accepting patients into our New Hope cancer facility in the next several weeks."

Medical Products division business results:

In the second quarter of fiscal 2011, the Company reported revenue from the Medical Products division of $21.8 million compared to $17.1 million in the prior year period. Revenue increased 27.5% on a year over year basis and reflects strong demand for the Company's diagnostic ultrasound and imaging products despite a reduction in revenue from government-backed loan programs and lack of daVinci sales versus prior periods. While revenue performance continues to reflect general uncertainty around healthcare reform and expenditure, which impacts demand and order flow for medical devices, the Company's second quarter revenue illustrates ongoing market opportunities and consistent demand for high-end medical products in China.

Gross profit for the Medical Products division was $6.7 million, compared to $4.7 million in the prior year period. Gross margin was 30.7% compared to 27.7 % in the prior year period, at the high end of historical averages. Selling, marketing, general and administrative expenses for the Medical Products division increased to $6.4 million from $6.2 million in the second quarter of the prior year. The division had an income from operations before foreign exchange of $306,000 for the three months ended September 30, 2011, compared with a loss of $1.5 million in the prior year period.

Lipson added, "In the second quarter, we witnessed strong demand for our imaging products, despite systemic headwinds relating to temporary regulatory uncertainty, which we believe could be alleviated in the coming months. Strict attention to optimizing our purchase behavior helped drive profitability this quarter, in tandem with our revenue performance. We continue to take a long-term view that the medical device market in China is extremely compelling."

First Half Fiscal 2011 Financial Results

During the first half of fiscal 2011, revenue increased 3.8% year over year to $86.7 million, compared to $83.5 million in the prior year. Revenue from the Healthcare Services division increased 11.9% to $48.1 million from $43.0 million in the first half of fiscal 2010. Revenue from the Medical Products division was $38.6 million, down 4.5% from $40.4 million in the prior year.

Income from operations remained flat at $6.6 million for the first half of fiscal 2011 as compared to the prior year period. Total operating costs and expenses for the fiscal year 2010 increased 4.0% to $79.9 million from $76.8 million in the prior year. This reflects $1.0 million of non-cash stock compensation expense compared to $1.5 million in the prior year period. Development, startup, and post-opening expenses in the Healthcare Services division were $1.1 million in the period compared to $642,000 in the prior year.

The Company recorded a $2.5 million provision for taxes, or an effective tax rate of 38.1%, in the first half of fiscal 2011, compared to a provision for taxes of $2.6 million, or an effective tax rate of 40.5%, for the prior year period.

In the first half of fiscal 2011, net income increased 7.9% to $4.1 million, or $0.26 per diluted share, from $3.8 million, or $0.24 per diluted share, in the prior year period. Non-cash stock compensation expense was $1.0 million during the first half of fiscal 2011 compared to $1.5 million in the prior year period.