On August 23, 2019 Concord Medical Services Holdings Limited ("Concord Medical" or the "Company") (NYSE: CCM), a specialty hospital management group and an operator of the network of radiotherapy and diagnostic imaging centers in China, reported its unaudited consolidated financial results for the six months ended June 30, 2019[1] (Press release, Concord Medical Services Holdings, AUG 23, 2019, View Source [SID1234538964]).
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2019 First Half Highlights
Total net revenues were RMB99.5 million ($14.5 million) in the first half of 2019, a 5.3% decrease from total net revenues of RMB105.1 million in the same period last year. Total net revenues included net revenue from the network business of RMB68.0 million ($9.9 million) and net revenue from hospital business of RMB31.5 million ($4.6 million).
Gross profit was RMB3.1 million ($0.5 million) in the first half of 2019, representing an 87.0% decrease from RMB23.9 million in the first half of 2018. The gross profit margin was 3.1% for the first half of 2019, compared to 22.8% for the same period last year.
Net loss attributable to ordinary shareholders in the first half of 2019 was RMB140.1 million ($20.4 million), compared to RMB128.1 million in the same period last year.
Basic and diluted loss per American Depositary Share ("ADS")[2] in the first half of 2019 were both RMB6.10 ($0.89), compared to RMB2.95, respectively, in the same period last year.
Non-GAAP net loss in the first half of 2019 was RMB149.3 million ($21.7 million), compared to non-GAAP net loss of RMB121.5 million in the same period last year. Non-GAAP basic and diluted loss per ADS in the first half of 2019 were both RMB3.44 ($0.50), compared to RMB2.81 in the same period last year.
Adjusted EBITDA[3] (non-GAAP) was negative RMB108.3 million ($15.8 million) in the first half of 2019, compared to negative RMB73.3 million in the same period last year.
Dr. Jianyu Yang, Chairman and Chief Executive Officer of Concord Medical, commented, "With the smooth construction of the Company’s hospitals, the corresponding costs have increased and have had an impact on the Company’s financial results. However, the year 2018-2019 was an important stage for the Company’s business development. In 2018, the Company received financing from strategic investors. In 2019, the Company’s three premium cancer hospitals are all under construction. Beijing Proton Medical Center and Guangzhou Concord Cancer Center are expected to commence the operations in 2020. The Company believes that its performance will be greatly improved."
"The proportion of revenue generated from the hospital business is increasing gradually. Revenue from the Company’s hospital business accounted for 32% of total revenue during the first half of 2019, representing an 8% increase from 24% in the first half of 2018. During the first half of 2019, Shanghai Meizhong Jiahe Cancer Center (also known as Shanghai Concord Medical Cancer Center) handled 4,758 patient treatment cases and patient diagnostic cases, representing a 190% increase from the same period last year."
"In the future, the Company will utilize its strengths in cancer treatment and explore business opportunities in the operation and management of cancer franchise hospitals and proton center operations."
2019 First Half Financial Results
Network Business
Net revenues from the network business were RMB68.0 million ($9.9 million), representing a 14.4% decrease from net revenues of RMB79.4 million in the first half of 2018, primarily attributable to the closure of certain centers in our network of centers. With one center closed in the first half of 2019, the Company operated a network of 30 centers in 20 cities in China as of June 30, 2019.
Cost of revenue of the network business was RMB34.8 million ($5.1 million), representing a 18.9% decrease from RMB42.9 million in the first half of 2018.
Gross profit from the network business was RMB33.2 million ($4.8 million), representing a 9.0% decrease from RMB36.5 million in the first half of 2018. The gross profit margin for the first half of 2019 was 48.8%, compared to 46.0% for the same period last year.
Selling expenses of the network business were RMB9.3 million ($1.4 million), representing a 6.1% decrease from RMB9.9 million in the first half of 2018. Selling expenses as a percentage of net revenues was 13.7% in the first half of 2019, compared to 12.5% in the first half of 2018. 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 RMB82.5 million ($12.1 million), representing a 0.3% increase from RMB82.6 million in the first half of 2018. General and administrative expenses as a percentage of net revenues were 121.9% in the first half of 2019, compared to 104.0% in the same period last year. The increases were mainly due to the counsel fee and travel expense related to the closure of certain centers.
Comparing to RMB4.8 million in the same period last year, capital expenditures increased to RMB24.8 million ($3.6 million) in the first half of 2019 primarily for procuring equipment for network centers.
Accounts receivable were RMB85.0 million ($12.4 million) as of June 30, 2019, compared to RMB82.0 million as of December 31, 2018. The average period of sales outstanding for accounts receivable (also known as "Days Sales Outstanding") was 221 days in the first half of 2019.
During the first half of 2019, the Company handled 5,334 patient treatment cases and 74,721 patient diagnostic cases, representing a 0.4% decrease and a 5.9% increase from the same period last year, respectively. The increase in patient diagnostic cases was mainly due to the counting of the cases from a center which entered into network contract with the Company in December 2018.
Hospital Business
Net revenues from the hospital business were RMB31.5 million ($4.6 million) in the first half of 2019, representing a 22.6% increase from net revenues of RMB25.7 million in the first half of 2018, mainly due to the consolidation of Shanghai Meizhong Jiahe Cancer Center Co., Ltd. in the fourth quarter of 2018.
Cost of service of the hospital business in the first half of 2019 was RMB61.6 million ($9.0 million), a 60.8% increase from cost of service of RMB38.3 million in the first half of 2018, mainly because of the consolidation of Shanghai Meizhong Jiahe Cancer Center Co., Ltd. in the fourth quarter of 2018.
Gross loss from the hospital business was RMB30.1 million ($4.4 million) in the first half of 2019, compared to RMB12.6 million in same period last year.
Selling expenses of the hospital business were RMB1.5 million ($0.2 million) in the first half of 2019, representing a 114.3% increase from selling expenses of RMB0.7 million in the first half of 2018. The increase was mainly due to the consolidation of Shanghai Meizhong Jiahe Cancer Center Co., Ltd. in the fourth quarter of 2018.
General and administrative expenses of the hospital business were RMB57.0 million ($8.3 million) in the first half of 2019, of which employee benefit expenses were RMB19.9 million ($2.9 million). In the same period of last year, general and administrative expenses of the hospital business were RMB31.8 million. The increase was mainly due to the increase in salary and consultation fees for hospitals.
Comparing to RMB282.1 million in the first half of 2018, capital expenditures of the hospital were RMB410.5 million ($59.8 million) in the first half of 2019, which was mainly related to the construction fees and medical equipment payment for Beijing Proton Medical Center, Shanghai Concord Cancer Center and Guangzhou Concord Cancer Center.
As of June 30, 2019, accounts receivable from hospital business were RMB10.9 million ($1.6 million), a 55.7% increase from accounts receivable of RMB7.0 million as of December 31, 2018. The number of Days Sales Outstanding was 51 days in the first half of 2019.
As of June 30, 2019, the Company had bank loan totaling RMB1.1 billion ($163.0 million).
Recent Developments
Starting from February 20, 2019, the basic medical services of Shanghai Meizhong Jiahe Cancer Center (also known as Shanghai Concord Medical Cancer Center) used by Shanghai medical insurance participants have been fully covered by medical insurance. Moreover, effective on July 22, 2019, Shanghai Meizhong Jiahe Cancer Center has become a designated hospital in Shanghai, allowing the general outpatient services and the major outpatient services (including radiotherapy and chemotherapy for malignant tumors) to be settled by medical insurance according to the standard of the local third-level hospitals.
Shanghai Meizhong Jiahe Medical Imaging Diagnostic Center (also known as Shanghai Concord Medical Imaging Diagnostic Center) has completed the construction stage and is expected to commence a trail operation in the third quarter of 2019.
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 RMB6.8650 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, 2019.
[2] Each ADS represents three Class A ordinary shares of the Company; the Company adjusts for the accretion of mezzanine equity in the calculation of loss attributable to ordinary shareholders of the Company used in the earnings per ADS calculation.
[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, loss on disposal of long-lived assets and other income.