Concord Medical Reports Financial Results for the First Half of 2018

BEIJING, Aug. 29, 2018 /PRNewswire/ -- Concord Medical Services Holdings Limited (“Concord Medical” or the “Company”) (NYSE: CCM), a leading cancer hospital operations management solutions provider and operator of a network of radiotherapy and diagnostic imaging centers in China, today announced its unaudited consolidated financial results for the six months ended June 30, 2018^[1].

2018 First Half Highlights

Total net revenue was RMB105.1 million ($15.9 million) in the first half of 2018, representing a 49.0% decrease from total net revenue of RMB206.2 million in the same period last year. Total net revenue included net revenue from the network business of RMB79.4 million ($12.0 million) and net revenue from the hospital business of RMB25.7 million ($3.9 million).

Gross profit was RMB23.9 million ($3.6 million) in the first half of 2018, representing a 66.5% decrease from RMB71.3 million in the first half of 2017. The gross profit margin for the first half of 2018 was 22.8%, compared to 34.6% for the same period last year.

Net loss attributable to ordinary shareholders in the first half of 2018 was RMB128.1 million ($19.4 million), compared to RMB101.8 million in the same period last year.

Both basic and diluted loss per American Depositary Share (“ADS”)^[2] in the first half of 2018 were both RMB2.95 ($0.45), compared to RMB2.34 in the same period last year.

Non-GAAP net loss in the first half of 2018 was RMB121.5 million ($18.4 million), compared to non-GAAP net loss of RMB100.1 million in the same period last year. Non-GAAP basic and diluted loss per ADS in the first half of 2018 were both RMB2.81 ($0.42).

Adjusted EBITDA^[3] (non-GAAP) was negative RMB73.3 million ($11.1 million) in the first half of 2018, compared to negative RMB3.9 million in the same period last year.

Dr. Jianyu Yang, Chairman and Chief Executive Officer of Concord Medical, commented, “Changes in the policies regarding the hospital partners have further led to the closure of our centers, which put pressure on our operating income in the first half of 2018 and presented us with challenges. Nevertheless, our network business still has new demands. Within the past six months, we developed new centers with reliable partners in suitable locations, including the co-established cooperative radiotherapy center at PKU Healthcare Zibo Hospital and the comprehensive management cooperative center for the departments of radiotherapy and nuclear medicine at PKU International Hospital. Based on our extensive experiences in radiotherapy and imaging diagnosis over years, we believe our network business would continue to provide Chinese cancer patients with high-quality diagnosis and treatment services.”

“Although the revenue from the network business shrinks, our self-operating independent cancer hospital business is steadily growing and developing. The revenue from the hospital business in the first half of 2018 had a year-on-year increase of 160%, while its percentage of the Company’s total revenue increased from 5% last year to 25% this year.”

“The cumulative number of patient visits within the first half of 2018 at our independent cancer center in Shanghai had a good increase, compared with the number of the first half of 2017. Shanghai Concord Cancer Center is an outpatient department that integrates imaging diagnosis, radiotherapy, chemotherapy, and targeted therapy. At present this center has started to develop joint consultation with MD Anderson Cancer Center in the United States and our Concord International Hospital in Singapore, offering international diagnosis and treatment plans for patients with certain demands.”

“The revenue of the Concord International Hospital in Singapore in the first half of 2018 had a dramatical increase of 118%, compared with that of the same period in the last year, while the net loss had also decreased by 41%, compared with that in last year. As for operational data, the number of patients visits in surgery, radiotherapy, and internal medicine has been improved in Concord International Hospital in Singapore. Among them, the number of surgical patient visits was 359 in the first half of 2018, a 122% increase from 162 in the first half of 2017.”

“In general, 2018 is the start of a full upgrade of the Company’s business. Our new business mode that is focusing on self-established and operating cancer hospitals is steadily growing and developing, which relieves the influence of adverse impacts on one hand, and lays a solid foundation for our future development on the other. We have high hopes and firmly believe that we can provide good-quality and efficient medical services for more cancer patients in the future.”

2018 First Half Financial Results

Network Business

Net revenue from the network business was RMB79.4 million ($12.0 million), representing a 59.6% decrease from net revenue of RMB196.4 million in the first half of 2017, primarily attributable to the closure of certain centers in our network of centers. With one center closed in the first half of 2018, the Company operated a network of 30 centers in 21 cities in China as of June 30, 2018.

Cost of revenue of the network business was RMB42.9 million ($6.5 million), representing a 60.8% decrease from RMB109.5 million in the first half of 2017.

Gross profit from the network business was RMB36.5 million ($5.5 million), representing a 57.9% decrease from RMB86.8 million in the first half of 2017. The gross profit margin for the first half of 2018 was 46.0%, compared to 44.2% for the same period last year.

Selling expenses of the network business were RMB9.9 million ($1.5 million), representing a 67.3% decrease from RMB30.3 million in the first half of 2017. Selling expenses as a percentage of net revenue was 12.5% in the first half of 2018, compared to 15.4% in the first half of 2017. The decrease in selling expenses of the network business was mainly due to reduced marketing, conference, office and travel expenses.

General and administrative expenses of the network business were RMB82.6 million ($12.5 million), representing a 12.1% decrease from RMB94.0 million in the first half of 2017. General and administrative expenses as a percentage of net revenue was 104.0% in the first half of 2018, compared to 47.9% in the same period last year. The increase in general and administrative expenses as a percentage of net revenue was mainly due to the counsel fee and travel expense related to the closure of certain centers.

Compared to RMB11.1 million in the same period last year, capital expenditures were RMB4.8 million ($0.7 million) in the first half of 2018.

Accounts receivable were RMB105.9 million ($16.0 million) as of June 30, 2018, compared to RMB127.2 million as of December 31, 2017. The average period of sales outstanding for accounts receivable (“Days Sales Outstanding”) was 263 days in the first half of 2018.

As of June 30, 2018, the Company had bank loan totaling RMB592.6 million ($89.6 million).

During the first half of 2018, the Company handled 5,354 patient treatment cases and 70,562 patient diagnostic cases, representing a 37.9% decrease and a 38.7% decrease from the same period last year, respectively, mainly due to the closure of certain centers during the past year and first half of 2018.

Hospital Business

Hospital business includes Singapore Concord International Hospital, Datong Meizhong Jiahe Cancer Hospital, Shanghai Concord Cancer Hospital and Guangzhou Concord Cancer Hospital.

Net revenue from the hospital business was RMB25.7 million ($3.9 million) in the first half of 2018, representing a 160.0% increase from net revenue of RMB9.9 million in the first half of 2017, mainly due to the increased revenue from Singapore Concord International Hospital.

Cost of service of the hospital business in the first half of 2018 was RMB38.3 million ($5.8 million), a 50.2% increase from cost of service of RMB25.5 million in the first half of 2017, mainly because of the increased revenue of Singapore Concord International Hospital.

Gross loss from the hospital business was RMB12.6 million ($1.9 million) in the first half of 2018, a 19.2% decrease from RMB15.6 million in the same period last year, mainly due to the increased revenue of Singapore Concord International Hospital.

Selling expenses of the hospital business were RMB0.7 million ($0.1 million) in the first half of 2018. The selling expenses of the hospital business were RMB0.2 million in the first half of 2017.

General and administrative expenses of the hospital business were RMB31.8 million ($4.8 million) in the first half of 2018, of which employee benefit expenses were RMB10.8 million ($1.6 million). In the same period of last year, general and administrative expenses of the hospital business were RMB21.9 million.

Compared to RMB72.6 million in the first half of 2017, capital expenditures of the hospital were RMB282.1 million ($42.6 million) in the first half of 2018, which was mainly related to the construction fees and medical equipment payment for Shanghai Concord Cancer Hospital and Guangzhou Concord Cancer Hospital.

As of June 30, 2018, accounts receivable from hospital business is RMB5.7 million ($0.9 million), representing a 21.3% increase from accounts receivable of RMB4.7 million as of December 31, 2017. The number of Days Sales Outstanding was 44 days in the first half of 2018.

Recent Developments

Concord Medical and the investment institutions led by CICC Capital Management Company Limited (“CICC Capital”), a wholly-owned subsidiary of China International Capital Corporation Limited (“CICC”), jointly made a strategic investment in Concord Medical’s subsidiary, Beijing Meizhong Jiahe Hospital Management Co., Ltd. (“Meizhong Jiahe”). The total investment was RMB 1.5 billion. After completion of the investment, the total shares held by the institutions led by CICC Capital accounted for 37.5% of the equity interests of Meizhong Jiahe.

Shanghai Concord Medical Imaging Diagnostic Center (“Imaging Center”), the first independent imaging diagnostic center of Concord Medical, obtained an independent imaging diagnostic license. The Imaging Center is expected to introduce world-class diagnostic technology and management services, cover the Medical Center and the Yangtze River Delta region through a remote sharing consultation platform, and provide a full range of imaging diagnosis and high-quality services for domestic and foreign commercial insurance patients.

 Notes: [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 of RMB into U.S. dollars are made at a rate of RMB6.6171 to $1.00, the noon buying rate in New York City for cable transfers payable in RMB, as certified for customs purposes by the Federal Reserve Bank of New York on June 30, 2018. [2] Each ADS represents three Class A ordinary shares of the Company. [3] Adjusted EBITDA is defined as net income plus interest, taxes, depreciation and amortization, share-based compensation expenses, and other adjustments. Other adjustments include foreign exchange gain, gain from disposal of property, plant and equipment and other income. 

About Concord Medical

Concord Medical Services Holdings Limited is a leading specialty hospital management solution provider and operator of the largest network of radiotherapy and diagnostic imaging centers in China. As of June 30, 2018, the Company operated a network of 30 centers with 21 hospital partners that spanned 21 cities and 14 provinces and administrative regions in China. Under long-term arrangements with top-tier hospitals in China, the Company provides radiotherapy and diagnostic imaging equipment and manages the daily operations of these centers, which are located on the premises of its hospital partners. The Company also provides ongoing training to doctors and other medical professionals in its network of centers to ensure a high level of clinical care for patients. For more information, please see http://ir.ccm.cn.

Safe Harbor Statement

This announcement contains forward-looking statements. These forward-looking statements can be identified by words or phrases such as “will,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions. Forward-looking statements are inherently subject to uncertainties and contingencies beyond the Company’s control and based upon premises with respect to future business decisions, which are subject to change. A number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. The Company does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement the consolidated financial statements presented in accordance with United States Generally Accepted Accounting Principles (“GAAP”), Concord Medical uses certain non-GAAP measures. The Company presents certain of its financial information that is adjusted from results based on GAAP to exclude the impact of share-based compensation expense. The Company believes excluding share-based compensation expense from its GAAP financial measures is useful for its management and investors to assess and analyze the Company’s core operating results, as such expense is not directly attributable to the underlying performance of the Company’s business operations and do not impact its current cash earnings. Concord Medical also believes these non-GAAP measures excluding share-based compensation expense are important in helping investors to understand the Company’s current financial performance and future prospects and to compare business trends among different reporting periods on a consistent basis. In addition, Concord Medical also presents the non-GAAP measure of Adjusted EBITDA, which is defined in this announcement as net income plus interest, taxes, depreciation and amortization, and share-based compensation expenses and other adjustments. Other adjustments include foreign exchange gain, gain from disposal of property, plant and equipment and other income. Furthermore, Adjusted EBITDA eliminates the impact of items that the Company does not consider to be indicative of the performance of the network business and hospital business. The Company believes investors will similarly use Adjusted EBITDA as one of the key metrics to evaluate its financial performance and to compare its current operating results with corresponding historical periods and with other companies in the healthcare services industry. The presentation of these additional measures should not be considered a substitute for or superior to GAAP results or as being comparable to results reported or forecasted by other companies. The non-GAAP measures have been reconciled to GAAP measures in the attached financial information.

 Concord Medical Services Holdings Co., Ltd. Consolidated Balance Sheets (in thousands) December 31, 2017 June 30, 2018 RMB RMB US$ (audited) (Unaudited) (Unaudited) ASSETS Current assets Cash and cash equivalents 98,191 459,968 69,512 Restricted cash, current portion 563,986 211,727 31,997 Accounts receivable 131,952 111,592 16,864 Inventories 6,284 5,195 785 Prepayments and other current assets 264,723 299,275 45,228 Non-current assets held for sale 27,100 5,048 763 Net investments in direct financing leases, current portion 18,900 23,646 3,573 Total current assets 1,111,136 1,116,451 168,722 --------- --------- ------- Non-current assets Property, plant and equipment, net 793,571 815,698 123,272 Intangible assets, net 7,799 6,946 1,050 Deposits for non-current assets 266,180 462,947 69,962 Net investments in direct financing leases, non-current portion 54,052 46,891 7,086 Equity method investments 732,167 740,286 111,875 Cost method investment 22,160 22,160 3,349 Other non-current assets 30,392 31,223 4,719 Prepaid land lease payments 447,933 443,351 67,001 Prepayment for long term investment - 480,688 72,643 Total non-current assets 2,354,254 3,050,190 460,957 --------- --------- ------- Total assets 3,465,390 4,166,641 629,679 ========= ========= ======= LIABILITIES AND EQUITY Current liabilities Short-term bank borrowings 512,222 480,870 72,671 Long-term bank borrowings, current portion 197,139 110,364 16,679 Accounts payable 4,563 5,536 837 Accrued expenses and other liabilities 385,919 408,765 61,774 Income tax payable 5,990 5,512 833 Dividend payable 2,338 2,378 359 Total current liabilities 1,108,171 1,013,425 153,153 --------- --------- ------- Non-current liabilities Long-term bank borrowings, non-current portion 284,584 1,375 208 Deferred tax liabilities, non-current portion 73,577 70,970 10,725 Long-term secured borrowings 163,498 123,711 18,696 Other long term liabilities 73,392 77,751 11,750 Redeemable noncontrolling interest 396,281 403,279 60,945 Amount due to related parties, non-current portion 350,969 344,725 52,096 Total non-current liabilities 1,342,301 1,021,811 154,420 --------- --------- ------- Total liabilities 2,450,472 2,035,236 307,573 --------- --------- ------- EQUITY Ordinary shares 105 105 16 Treasuary stock (8) (8) (1) Additional paid-in capital 1,860,763 1,860,763 281,205 Accumulated other comprehensive loss (47,418) (52,191) (7,887) Accumulated deficit (879,393) (1,007,519) (152,260) -------- ---------- -------- Total Concord Medical Services Holdings Limited 934,049 801,150 121,073 shareholders’ equity Noncontrolling interests 80,869 1,330,255 201,033 ------ --------- ------- Total equity 1,014,918 2,131,405 322,106 --------- --------- ------- Total liabilities and equity 3,465,390 4,166,641 629,679 ========= ========= ======= 

 Concord Medical Services Holdings Co., Ltd. Consolidated Profit & Loss (in thousands, except for number of ADS and per ADS data) June 30, 2017 June 30, 2018 RMB RMB US$ (Unaudited) (Unaudited) (Unaudited) Revenues, net of business tax , value-added tax and related surcharges: Network 196,350 79,393 11,998 Hospital 9,893 25,722 3,887 ----- ------ ----- Total net revenues 206,243 105,115 15,885 Cost of revenues: Network (109,512) (42,882) (6,481) Hospital (25,458) (38,287) (5,786) ------- ------- ------ Total cost of revenues (134,970) (81,169) (12,267) Gross profit 71,273 23,946 3,618 Operating expenses: Selling expenses (30,513) (10,621) (1,605) General and administrative expenses (115,802) (114,351) (17,281) Impairment of long-lived assets (28) - - --- --- --- Operating loss (75,070) (101,026) (15,268) Interest expense (37,809) (33,381) (5,045) Foreign exhange gain 9,636 10,693 1,616 Gain (loss) from disposal of property, plant and equipment 973 (2,060) (311) Interest income 6,728 5,129 775 Equity pick up of equity investee 3,967 (3,438) (520) Other income 3,002 2,161 327 ----- ----- --- Loss before income tax (88,573) (121,922) (18,426) Income tax expenses (15,847) (5,949) (899) Net loss (104,420) (127,871) (19,325) ======== ======== ======= Net (loss) gain attributable to noncontrolling interests (2,641) 255 39 Net loss attributable to ordinary shareholders (101,779) (128,126) (19,364) ======== ======== ======= Loss per ADS Basic (2.34) (2.95) (0.45) Diluted (2.34) (2.95) (0.45) Weighted average number of ADS outstanding: Basic 43,543,956 43,363,992 43,363,992 Diluted 43,543,956 43,363,992 43,363,992 Other comprehensive income, net of tax Foreign currency translation 3,041 4,773 721 Total other comprehensive income, net of tax 3,041 4,773 721 ----- ----- --- Comprehensive loss (101,379) (123,098) (18,604) -------- -------- ------- Comprehensive loss attributable to noncontrolling interests (931) (614) (92) ---- ---- --- Comprehensive loss attributable to Concord Medical (100,448) (122,484) (18,512) Services Holdings Limited’s shareholders 

 Reconciliations of non-GAAP results of operations measures to the nearest comparable GAAP measures (*) (in RMB thousands, except ADS data, unaudited) For the six months ended June 30, 2017 For the six months ended June 30, 2018 -------------------------------------- -------------------------------------- GAAP Measure Adjustment Non-GAAP Measure GAAP Measure Adjustment Non-GAAP Measure ------------ ---------- ---------------- ------------ ---------- ---------------- Operating loss (75,070) 4,272 (70,798) (101,026) 6,341 (94,685) Net loss (104,420) 4,272 (100,148) (127,871) 6,341 (121,530) Basic loss per ADS (2.34) 0.10 (2.24) (2.95) 0.15 (2.81) Diluted loss per ADS (2.34) 0.10 (2.24) (2.95) 0.15 (2.81) (*) The only adjustment is share-based compensation. 

 Reconciliation from net loss to adjusted EBITDA(*) (in RMB thousands, unaudited) For the six months ended For the six months ended ------------------------ ------------------------ June 30, 2017 June 30, 2018 ------------- ------------- Net loss (104,420) (127,871) Interest expenses, net 31,081 28,252 Income tax expenses 15,847 5,949 Depreciation and amortization 62,901 24,835 Share-based compensation 4,272 6,341 Other adjustments (13,611) (10,794) ------- ------- Adjusted EBITDA (3,930) (73,288) ====== ======= EBITDA margin -2% -92% (*) Definition of adjusted EBITDA: Adjusted EBITDA is defined as net income plus interest, taxes, depreciation and amortization, share-based compensation expenses and other adjustments. Other adjustments include foreign exchange gain, gain (loss) from disposal of property, plant and equipment and other income. 

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SOURCE Concord Medical Services Holdings Limited

Company Codes: NYSE:CCM