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Chindex International, Inc. (CHDX)

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Chindex International Inc. (CHDX)

F1Q09 (Qtr End 06/30/08) Earnings Call Transcript

August 14, 2008 8:00 am ET

Executives

Roberta Lipson – President and CEO

Larry Pemble – EVP and CFO

Analysts

Anthony Petrone – Maxim Group

Julie Chen – CRT Capital

Lewis Fan – Brean Murray

Andrew Gold – Gold Capital Ventures

Gregg Hillman – First Wilshire Securities

Presentation

Roberta Lipson

Good morning. I would like to welcome you all to our conference call in which we will discuss Chindex International's fiscal year 2009 first quarter results. As in the past, we have prerecorded our initial comments which will be followed by a live Q&A session. Joining me today on the call is Larry Pemble, our CFO. Before we proceed with a summary of operating results for the period and an update on recent events, I will ask Larry to read the Safe Harbor statement then we will turn to Q&A. Larry, please proceed with the Safe Harbor statement.

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

Thank you, Larry. We announced our results for the quarter ending June 30, 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, as usual, I will 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.

We reported 20% consolidated top-line growth, income from operations decreased by 45% to $0.8 million, with a net loss for the period of $160,000 dollars. Thus, our consolidated performance for the quarter was somewhat below our expectations, stemming in part from lower than expected revenue in both operating divisions. However, it is most important to note that we do not expect these factors to impact our full year revenue, which will be significantly back-end weighted. Results for the quarter were impacted by several factors, many of which we do not expect to recur, including product approval delays and the devastating earthquake in Sichuan province in May, which disrupted our products business significantly. Furthermore, we found volume and acuity in our hospital division to be lower than usual, in part due to factors related to China’s preparation for the Olympics and to a weaker than usual flu season.

On the cost side, inflation was a factor this quarter. During the twelve-month period ended June 30, 2008 the average rate of inflation in China was 7.5%, relative to a historical average of 2.8% over the three-year period from 2005 to 2007.

In the Healthcare Services division, our revenue increased to $19.6 million, an increase of 26% over the prior year quarter. Operating profits remained constant from the previous quarter at $2.8 million. Historically, the Healthcare Services Division has exhibited seasonality in its revenue patterns, with the first half of the year usually being lighter than the second half. This quarter, these seasonal trends were further impacted by several unique factors which I will detail in a moment, but, again, we do not expect these factors to impact our full year revenue.

Due to China’s preparations for the Olympics, it became more difficult for foreigners to obtain visas to enter China in the first quarter, and business travel and tourism was lighter than usual. This resulted in fewer than expected patient visits and admissions. A light flu season also affected our admissions and resulted in a lower acuity case mix.

Finally, during the quarter, many of our providers were pulled away from clinical duties as they assisted with preparation for the Joint Commission re-accreditation inspection which occurred in July. It is worth noting that we have already seen hospital volume accelerate with the advent of travel and tourism related to the Olympics. Expenses in the division increased by 32% over the prior-year quarter. This was largely due to an increase in salary expense as many multi-year physician contracts were renewed during the quarter at higher rates, given the inflationary environment. Additionally, the impact of expenditures related to the Joint Commission accreditation process and to the preparation for the opening of the clinics in Guangzhou were reflected in this period’s expenses.

In response to inflationary pressures, we have a plan in place to implement select price increases on hospital services. Furthermore, we are encouraged that the Chinese government has indicated that it is taking steps to slow the rate of inflation.

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