Chindex revenue increases 12% to $48.8M in fourth quarter 2013

Chindex International, Inc. (NASDAQ: CHDX), an American healthcare company providing premium quality healthcare services in China through the operations of United Family Healthcare ("UFH"), a network of private primary care hospitals and affiliated ambulatory clinics, today announced financial results for the fourth quarter and full year of 2013 ended December 31, 2013.

Fourth Quarter 2013 Financial Highlights

• Revenue from healthcare services increased 12% to $48.8 million from $43.5 million in the prior year period.
• Adjusted EBITDA increased 4% to $9.4 million from $9.0 million in the prior year period.
• Development, pre-opening and start-up expense was $4.1 million, compared to $2.8 million in the prior year period.
• Income from operations was $976,000, compared to income from operations of $4.0 million in the prior year period.
• Net loss was $2.1 million, or $(0.12) per diluted share, compared to net income of $3.5 million, or $0.20 per diluted share, in the prior year period.

Roberta Lipson, President and CEO of Chindex, commented, "We are proud of our operational and financial achievements for the fourth quarter and full year of 2013.  We grew across key financial and operating metrics, despite regulatory factors that carried over from the previous quarter.  The delayed openings at our Beijing Rehabilitation Hospital and Shanghai Quankou Clinic have shifted their respective timelines for significant revenue generation to 2014. We also continued to assist new physicians at our Shanghai United Family Hospital develop their patient base.  However, overall we finished the year with an expanded network, more comprehensive services, a more expansive team of specialized medical professionals, and a stronger platform for growth." 

"The past few months mark the beginning of another exciting period for Chindex.  On top of steady operational execution, we announced a strategic merger agreement to take our Company to a new phase. We are excited about the opportunities this major initiative can offer Chindex and the UFH network," concluded Lipson.

Business Updates

On February 17, 2014, the Company announced that it has entered into a definitive merger agreement (the "Merger") with a buyer consortium (the "Buyer Consortium") of an affiliate of TPG (together with its affiliates, "TPG"), an affiliate of Shanghai Fosun Pharmaceutical (Group) Co., Ltd. ("Fosun"), and Ms. Roberta Lipson, the CEO of the Company, in a transaction having an implied equity value of approximately $369 million.

Fourth Quarter 2013 Financial Results

Fourth quarter 2013 revenue from healthcare services increased 12% to $48.8 million from $43.5 million in the prior year period. These results reflect continued growth of inpatient and outpatient volume across the United Family Healthcare network as well as increasing contributions from the expansion of the Company's flagship hospital in Beijing. Overall, outpatient services contributed 58% and inpatient services contributed 42% of revenue, compared with 55% and 45%, respectively, in the prior year period. By service line, surgical services contributed 18.8%, OB/GYN contributed 13.9%, pediatrics contributed 9.8%, ancillary services contributed 28.5%, internal medicine contributed 3.3%, emergency room contributed 3.2%, dental contributed 1.8%, family medicine 2.0% and other clinical service lines contributed 18.7% of revenue.

Operating expenses in the fourth quarter of 2013 increased 21% to $47.8 million from $39.5 million in the prior year period. The increase was primarily driven by other operating expenses including the fees for the legal and professional services related to the Company's February merger announcement. Salaries, wages and benefits in the fourth quarter of 2013 increased 22% to $27.2 million from $22.3 million in the prior year period, reflecting a 19% increase in headcount to support revenue growth and development activities, including newly recruited staff for the Company's Beijing United Family Rehabilitation Hospital, United Family Quankou Clinic in Shanghai, and Tianjin United Family Hospital. Development, pre- and post-opening and start-up expenses were $4.1 million this quarter, compared to $2.8 million for the prior year period.  These expenses were driven by the aforementioned development projects as well as the fees for legal and other professional services of $1.3 million related to the merger announcement. Operating expenses also included certain non-cash expenses including $948,000 of stock-based compensation expense compared to $857,000 for the prior year period.

Adjusted EBITDA in the fourth quarter of 2013 increased 4% to $9.4 million, compared to $9.0 million in the prior year period. The Adjusted EBITDA results reflected a slower growth cycle associated with the delayed opening of the Beijing United Family Rehabilitation Hospital, the Quankou clinic and expanded investment in network infrastructure projects.  

Income from operations was $976,000, compared to income from operations of $4.0 million in the prior year period.

The Company recorded a $1.9 million provision for taxes in the fourth quarter of 2013, compared to the tax provision of $2.3 million in the prior year period. As in past quarters, the current period provision continued to be impacted by losses in development and start-up entities for which the Company cannot currently recognize tax benefits.

Net loss for the quarter ended December 31, 2013 was $2.1 million, or $(0.12) per diluted share, compared to net income of $3.5 million, or $0.20 per diluted share, in the prior year period. This included income from our minority interest in CML of $81,000 this year compared to an income of $1.6 million in the prior year period. For the fourth quarter of 2013, weighted average diluted shares outstanding were 17.4 million.

As of December 31, 2013, the Company had $33.1 million in unrestricted cash, cash equivalents and investments.

Full Year 2013 Financial Results

During the full year of 2013, revenue from healthcare services increased 18% to $179.4 million from $152.4 million in the prior year period, reflecting growing inpatient and outpatient volume across the United Family Healthcare network. Outpatient services contributed 57% of revenue and inpatient services contributed 43% of revenue in the full year of 2013 compared with 58% and 42%, respectively, for the full year of 2012. By service line, surgical services contributed 19.6%, OB/GYN contributed 13.9%, pediatrics contributed 8.2%, ancillary services contributed 29.0%, internal medicine contributed 3.4%, emergency room contributed 3.5%, dental contributed 2.6%, family medicine 1.9% and other services contributed 17.9% of revenue.

Operating expenses for the full year of 2013 increased 24% to $176.7 million from $142.9 million in the prior year period. Development, pre-opening and start-up expenses increased to $13.4 million from $11.2 million in the prior year period primarily as a result of delayed project openings, new pipeline projects, as well as legal and other professional service fees of $2.5 million related to the Company's merger agreement. Operating expenses also included certain non-cash expenses including $4.2 million of non-cash stock compensation expense compared to $3.4 million for the prior year. Income from operations was $2.7 million, compared to income from operations of $9.5 million in the prior year period. Adjusted EBITDA was approximately $29.0 million, compared to $28.2 million in the prior year period.

Provision for taxes was $6.5 million, compared to $6.8 million in the prior year period. Net loss was $6.1 million, or $(0.36) per diluted share, compared to net income of $4.1 million, or $0.24 per diluted share, in the full year of 2012. Net loss included a loss from the Company's equity interest in CML of $1.2 million this year compared to a gain of $1.0 million in the prior year period. For the full year of 2013 ended December 31, 2013, weighted average diluted shares outstanding were 16.8 million.

Chindex Medical Limited

For Chindex Medical Limited (CML), a joint venture between Shanghai Fosun Pharmaceutical (Group) Co., Ltd. ("Fosun Pharma") and Chindex International, Chindex recognized its 30% interest in CML's net income using the equity method of accounting since the acquisition of Alma Lasers, Inc. on May 27, 2013.

In the fourth quarter of 2013, Chindex recognized $81,000 in income for its equity interest in CML. For the full year of 2013, the Company recognized a loss of $1.2 million for its equity interest in CML.

The operating results of CML in 2013 were negatively impacted by restructuring at the Ministry of Health, uncertainty surrounding proposed government reforms and the disruption to normal hospital purchasing activity due to the government campaign to improve compliance in the public hospitals' purchasing activities, all of which has led to an overall slowdown in business activity among capital medical equipment markets in China.

Non-GAAP Measures

The Company presents Adjusted EBITDA to better illustrate ongoing operational results. Adjusted EBITDA is defined as income (loss) before interest expense, interest and other income, income taxes, depreciation and amortization, and also excludes development, pre-opening and start-up expenses related to new and pending hospitals and clinics and equity in earnings (loss) of unconsolidated affiliate. The Company anticipates recurring development, pre-opening and start-up expense and notes that such expense is a basic element of the long term growth plan. Management believes that providing an Adjusted EBITDA analysis to investors is a helpful metric to better illustrate the Company's operations, including development plans, and changes in presentation from historical periods. The Company uses Adjusted EBITDA for business planning and other purposes. Other companies may calculate Adjusted EBITDA differently, and therefore Chindex's Adjusted EBITDA may not be comparable to similarly titled measures of other companies. Adjusted EBITDA is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP), and should not be considered in isolation or as an alternative to net income (loss), cash flows from operating activities and other measures determined in accordance with GAAP. Items excluded from Adjusted EBITDA are significant and necessary components to the operations of the Company's business, and, therefore, Adjusted EBITDA should only be used as a supplemental measure of operating performance.

Conference Call

Management will host a conference call at 8:00 am ET Monday, March 17, 2014 to discuss financial results. To participate in the conference call, U.S. domestic callers may dial 1-877-303-9231 and international callers may dial 1-760-666-3567 approximately 10 minutes before the conference call is scheduled to begin.