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Chindex International, Inc. (CHDX)

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Chindex International Inc. (CHDX)

F3Q09 Earnings Call

February 09, 2009; 08:00 am ET

Executives

Roberta Lipson - President, Chief Executive Officer, Director

Larry Pemble - Chief Financial Officer, Executive Vice President, Treasurer, Director

Analysts

Hamed Khorsand - BWS Financial

Anthony Petrone - Maxim Group

Howard Sterling - Sterling Group

Presentation

Operator

Welcome to the Chindex International fiscal third quarter conference call. This call is being recorded. I will now turn the call over to your host Roberta Lipson, the CEO and Larry Pemble, the CFO of Chindex.

Roberta Lipson

I’d like to welcome you all to our conference call, in which we will discuss Chindex International’s fiscal year 2009 third quarter results. As in the past, we have prerecorded our initial comments, which will be followed by a large Q-and-A session. Joining me today on the call is Larry Pemble, our CFO.

Before we proceed with the summary of operating results for the period and an update on recent events, I’ll ask Larry to read the Safe Harbor statement. I’ll make some brief comments and then Larry will review the financial results in detail. I’ll then comment on the quarterly results and our outlook for the fiscal year. Finally, we’ll turn over to Q-and-A.

Larry, will you proceed with the Safe Harbor statements please?

Larry Pemble

Yes, thank you Roberta and good morning everyone. Statements made in this conference call relating to plans, strategies, objectives, economic performance and trends and other statements that are not descriptions of historical facts, may be forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended, the Securities Act, and Section 21E of the Securities Exchange Act of 1934 as amended, the Exchange Act.

Forward-looking information is inherently subject to risks and uncertainties and actual results could differ materially from those currently anticipated due to a number of factors which include, but are not limited to the factors set forth in documents filed by us with the Securities and Exchange Commission from time to time, including without limitation, our annual report on Form 10-K and interim reports on Form 10-Q.

Forward-looking statements may be identified by such terms as may, will, should, could, expects, plans, intends, anticipates, believes, estimates, predicts, forecasts, potential or continue or similar terms or the negative of these terms. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We have no obligation to update these forward-looking statements.

Roberta Lipson

Thanks, Larry. We announced our results for the quarter ended December 31, 2008 in a press release this morning, which included our full income statement, balance sheet and divisional results for the quarter. Assuming you’ve had a chance to review the press release and can refer to the specific numbers, we’ll use this call to summarize operational results for the period and give updates on the current and upcoming issues in each division of the business.

This morning, we reported third quarter revenue growth of 16%, as well as net income of $850,000 or $0.05 per diluted share. There were approximately $0.03 per diluted share of miscellaneous charges, primarily related to the reinvestment of funds that should provide us with a better investment yield in the current environment. There were no big surprises this quarter. The key elements are as follows:

Healthcare services revenue continues to be strong, up 22% on a nine-month basis. Our results do however reflect the performance of our Shanghai Pudong Clinic, as well as the later than expected startup our Guangzhou clinic, which is now moving forward as expected and inline with historical performance and should take 46 quarters before reaching a break-even point.

We had anticipated that both of these locations would contribute to our results earlier than they are. Because of this, we anticipate that our full year revenue growth for Healthcare services should be in the mid 20% range and this falls somewhat short of the 30% we originally expected.

Medical products revenue reflects timing of shipments and revenue recognition accounting standard. We made substantial progress in shipping the pipeline government loan contracts in this quarter and we still have a large portion of both KfW and Exim Contracts that will be shipped and recognized in our fourth quarter.

Timing of shipments is also variable and that’s why we look at this business on a long-term basis rather than on a quarter-to-quarter basis. The standards for revenue recognition of large contracts delivered over multiple reporting periods require us to defer revenue in some cases.

We did not recognize any daVinci unit sales in the third quarter, due to the complexity of the sales order process, but we continue to see strong opportunities for additional sales this year. Importantly, we believe the demand for high-end medical equipment such as daVinci is only increasing in China, especially with the Governments’ dedication to Healthcare expenditure. China is a very different market than the U.S. and we wouldn’t be surprised to see several daVinci contract signed by the end of the fiscal year.

The drivers of our operating costs in both divisions did not change dramatically from the second quarter and as we expected, we had development and post-opening expenses for the new hospital projects. We were pleased to see that the reported inflation rate slowed again to 5.3% in the three-month period and this is down considerably from the average 12-month rate of approximately 7.5% last September.

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