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Chindex International (CHDX)

Q2 2013 Earnings Call

August 08, 2013 8:00 am ET

Executives

Roberta Lipson - Co-Founder, Chief Executive Officer, President and Director

Lawrence Pemble - Chief Operating Officer, Executive Vice President, Director and Chief Financial Officer of Chindex Medical Limited

Analysts

R. Gregg Hillman

David Stein

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Chindex International Second Quarter 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to turn the conference over to your host, Ms. Roberta Lipson, President and CEO. Please go ahead.

Roberta Lipson

Thank you, and welcome to Chindex International's Second Quarter 2013 Conference Call. Joining me on the call today is Larry Pemble, our Chief Operating Officer. 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 Larry will review the financial results, then we'll turn to Q&A.

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

Lawrence Pemble

Yes, thank you, Roberta, and good morning, everyone. Please note that this call will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC, included in our Form 10-Q for the year -- period ended June 30, 2013, which will be filed on August 9. Chindex does not undertake any obligations to update any forward-looking statements except as required under applicable law.

Roberta Lipson

Thanks, Larry. As noted in our Safe Harbor statement, we announced our quarterly financial results on Wednesday, after the market closed. An earnings release is now available on the company's website.

I'd like to begin with highlights of our financial performance in the second quarter of 2013. For the second quarter, revenues grew 18% year-over-year to $46 million, representing our strongest second quarter revenue performance. We're quite pleased with this growth, particularly when compared to last year's second quarter revenue growth level of 33%, when we newly opened BJU 2 and experienced very strong demand for our core services.

Adjusted EBITDA was $7.1 million, representing 16% adjusted EBITDA margin, which was within our internally forecasted projection and reflected increased investment in centralized administrative resources to support current operations. Sales growth in the quarter should be viewed in comparison to unusually strong sales results from the year-ago period, which reflected the increased capacity from the newly opened BJU facility in early 2012.

As we've stated before, 2013 is the year on which we are focused on the expansion and ramp-up of new facilities and service lines. These initiatives will enhance our current facilities with the added capacity and service offerings and are well-planned to capitalize on the favorable policy support for private investments in health care, as well as the growing affluence of China's population.

Our Beijing market continues to play a key role in driving our revenue growth and pioneering new service lines. We officially opened Beijing United Family Rehabilitation Hospital in late June with a grand ceremony officiated by Ambassador Gary Locke. This is a key milestone in UFH's development history as it is the first foreign-operated world-class rehab specialty hospital in China and signals another step in our commitment to deliver high-quality health care and advanced medical services to patients in China. The rehab hospital is operational and has begun admitting patients as of July 8 and is fully staffed for the initial opening phase and equipped for regular operations. Our current rehabilitation patient base includes patients transferred from Shanghai, Singapore, Beijing's public hospitals, as well as our own acute-care facilities. As with all new facilities and services, we expect to experience gradual growth over the course of the 2013-2014 period.

The official opening of our rehab facility was about 3 months later than our original projected timeline that was used for our full year financial forecast. This is why you see the lower-than-expected numbers related to development expenses and EBITDA. While Larry can provide more financial information on this topic later in the call, I'd like to remind you that China's health care sector is approval- and license-heavy. We have communicated regularly over the years that this environment impacts our ability to provide precise opening dates for new facilities. Our team is one of the most experienced and successful on navigating through the complex Chinese regulatory environment. We will continue to provide regular updates to you on projects expected to be opened and contribute to operating results in the near term.

At the BJU main campus, at the end of June 2013, we now have 70 available beds in service out of a total of 120 licensed beds. Admission rates have been increasing at our cardio and neurosurgery units, which have benefited from facility improvements and are contributing to our operating margin and adjusted EBITDA margin.

As we increase caseloads and expand our expertise in these new service specialty areas, the reputation of United Family Healthcare is becoming increasingly well respected within the clinical and academic medical community. Well-known practitioners such as the renowned Dr. Hu Dayi and Professor Ling Feng are drawn to our service model. Their endorsement is further confirmation of our credibility in the market, which places us for further growth in our core markets and potential to extend UFH services to secondary and tertiary markets in the future.

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