Concord Medical second quarter total net revenues increase 24.5% to $19.2 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 higher revenues, net income, and earnings per ADS for its unaudited consolidated financial results for the second quarter ended June 30, 2011 compared with the second quarter ended June 30, 2010.

Second quarter 2011 highlights

• Total net revenues were RMB123.8 million ($19.2 million) in the second quarter 2011, up 24.5% from the second quarter 2010.
• Gross profit was RMB83.7 million ($13.0 million) in the second quarter 2011, up 20.9% from the second quarter 2010.
• Net income was RMB37.4 million ($5.8 million) in the second quarter 2011, up 16.1% from the second quarter 2010.
• Basic and diluted earnings per American depositary share ("ADS") for the second quarter of 2011 were RMB0.79 ($0.12), up 19.7 % from the second quarter 2010.Each ADS represents 3 ordinary shares.
• Non-GAAP net income was RMB39.6 million ($6.1 million) in the second quarter 2011, up 13.7% from the second quarter 2010.
• Non-GAAP basic and diluted earnings per ADS2011were RMB0.84 ($0.13) in the second quarter 2011, up 18.3% from the second quarter 2010.
• Adjusted EBITDA (non-GAAP) was RMB85.2 million ($13.2 million) in the second  quarter 2011, up 11.8% from the second quarter 2010.
• Concord Medical added 4 radiotherapy and diagnostic imaging centers in the second quarter of 2011, bringing the total number of centers in operation to 125 in 46 cities in China, as of June 30, 2011. To date, the Company has entered into agreements to establish 32 additional centers.
• During the second quarter 2011, the Company handled 8,608 patient treatment cases and 42,019 patient diagnostic cases, representing an increase of 0.7% and 17.4%, respectively, from the second quarter 2010.

Dr. Jianyu Yang, Director, President, and Chief Executive Officer of Concord Medical, commented, "We delivered a quarter of solid financial growth, in both revenues and net income, mainly due to higher patient volumes at existing centers, the contribution from centers added since last year, and the results from the Chang'an CMS International Cancer Center ("CCICC").

"We established six new centers in the first half of this year, which were fewer than we expected, mainly due to delays in hospital construction by our partners and in deliveries of gamma knife equipment by our suppliers. We remain committed to executing our long-term strategy to develop new radiotherapy and diagnostic imaging centers with hospital partners, increase utilization and efficiency at our existing centers, establish new specialty hospitals and stand-alone centers, and pursue prudent acquisitions.

"In summary, we are pleased that our operations continued to perform well in the second quarter. Although it is likely that we will open fewer centers in 2011 than the 25 to 30 centers that we had previously expected, our revenue outlook for the year 2011 remains unchanged, given our solid growth in the first half of 2011 and our anticipated volume growth and additional centers in the second half."

Other developments

In July, the Board of Directors declared a special dividend of $0.18 per American depositary share to provide shareholders with a tangible recognition of Concord Medical's growth and financial performance since its initial public offering in December 2009. The dividend is payable on September 30, 2011 to shareholders of record at the close of business on August 31, 2011.

The acquisition of the Chang'an Hospital is still pending the conclusion of the due diligence and the required government approval.

Second quarter 2011 results

Net revenues wereRMB123.8 million ($19.2 million) in the second quarter 2011, up 24.5% from the second quarter 2010, primarily due to an increase in patient cases from existing centers, the opening of new centers, and revenues from the Chang'an CMS International Cancer Center, which did not exist in the second quarter last year.

Cost of revenues was RMB40.1 million ($6.2 million) in the second quarter 2011, up 32.9% from the second quarter 2010, primarily due to higher consumables and equipment maintenance charges in support of higher revenues.

Gross profit margin was 67.6% in the second quarter of 2011 compared with 69.7% in the second quarter 2010. The lower gross profit margin was primarily due to the higher consumables and equipment maintenance charges in support of higher revenues.

Operating expenses, consisting of selling expenses and general and administrative expenses, were RMB 28.6 million ($4.4 million) in the second quarter 2011, up 29.0% from RMB22.2 million in the second quarter 2010.The increase was primarily due to increases in office and travel expenses and higher selling expenses in support of higher revenues.

Operating income was RMB 55.2 million ($8.5 million) in the second quarter of 2011, up 17.2% from RMB 47.1 million in the second quarter 2010.

Operating income excluding share-based compensation expenses (non-GAAP) was RMB57.4 million ($8.9 million) in the second quarter 2011, up 15.4% from RMB49.7 million the second quarter 2010.

Income tax expense was RMB 14.0 million ($2.2 million) in the second quarter of 2011, up 9.0% from RMB12.9 million in the second quarter 2010, mainly due to the higher pretax income. The effective tax rate for the second quarter of 2011 was 27.2% compared with 28.6% in the second quarter 2010.

Net income was RMB 37.4 million ($5.8 million) in the second quarter of 2011, up 16.1% from RMB 32.2 million in the second quarter 2010.

Basic and diluted earnings per ADS for the second quarter of 2011 were RMB0.79 ($0.12), up 19.7% from basic and diluted earnings per ADS of RMB0.66 in the second quarter 2010.

Non-GAAP net income was RMB39.6 million ($6.1 million) in the second quarter 2011, up 13.7% from RMB 34.8 million in the second quarter 2010.

Non-GAAP basic and diluted earnings per ADS were RMB0.84 ($0.13) in the second quarter of 2011, up 18.3% from RMB0.71in the second quarter of 2010.

Adjusted EBITDA (non-GAAP) was RMB85.2 million ($13.2 million) for the second quarter 2011, up 11.8% from RMB76.2 million the second quarter 2010.

In the second quarter 2011, capital expenditures were RMB85.7 million ($13.3 million), total depreciation expenses were RMB 21.1 million ($3.3 million), and amortization of acquired intangibles was RMB 6.5 million ($1.0 million).

As of June 30, 2011, the Company had total fixed assets of RMB969.5 million ($150.0 million), cash of RMB417.9 million ($64.7 million), and current and noncurrent restricted cash of RMB35.9 million ($5.6million).

Accounts receivable was RMB228.8 million ($35.4 million) as of June 30, 2011, compared with RMB169.4 million as of December 31, 2010. The average period of sales outstanding for accounts receivable (also known as days sales outstanding) was 149 days in the second quarter 2011, down from 181 days in the first quarter of 2011 primarily due to the normal seasonal payment pattern during the year.

As of June 30, 2011, the Company had bank credit lines of RMB2.1 billion ($329 million), of which RMB71.3 million ($11.0 million) were drawn down.

Concord Medical believes its existing cash and available bank borrowing capacity will be sufficient to finance its special dividend to be paid in the third quarter 2011, investments in new facilities, and working capital needs over the next 12 months.

Outlook for the year 2011

Based on current market and operating conditions, estimated business expansion, and expected patient volume, Concord Medical reiterates its prior revenue outlook for the year 2011, as shown below.

The Company expects to generate net revenues in an estimated range of RMB480 million to RMB520 million for the year 2011, which would be an estimated increase of approximately 23% to 33% in net revenues 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 revenues from CCICC's preliminary operations. The Company notes that any unanticipated delays in completing the acquisition of Chang'an Hospital, any failure to obtain CCICC's clinical license, and other uncertainties may result in CCICC not achieving its expected 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.

Because of issues not under the control of Concord Medical, the Company is not able to provide an outlook for the number of new radiotherapy and diagnostic imaging centers it expects to open in the second half of 2011, compared with the 25 to 30 centers for the year 2011 that it stated in its prior outlook. The Company believes that variations in the number and timing of centers to be opened in the second half of 2011 will not have a material effect on its revenue outlook for the year 2011.