On August 26, 2020 Concord Medical Services Holdings Limited ("Concord Medical" or the "Company") (NYSE: CCM), a healthcare provider specializing in cancer care, research and prevention by operating a network of medically advanced comprehensive cancer hospitals and standalone radiotherapy and diagnostic imaging centers in China, reported its unaudited consolidated financial results for the six months ended June 30, 2020[1] (Press release, Concord Medical Services Holdings, AUG 26, 2020, View Source [SID1234564077]).

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2020 First Half Highlights

Total net revenues were RMB83.0 million ($11.7 million) in the first half of 2020, representing a 16.6% decrease from total net revenues of RMB99.5 million in the same period last year. Total net revenues included the net revenues from the network business of RMB37.7 million ($5.3 million) and the net revenues from hospital business of RMB45.3 million ($6.4 million).
Gross loss was RMB3.5 million ($0.5 million) in the first half of 2020, compared to the gross profit of RMB3.1 million in the first half of 2019. The gross loss margin was 4.2% for the first half of 2020, compared to the gross profit margin of 3.1% for the same period last year.
Net loss attributable to ordinary shareholders in the first half of 2020 was RMB128.8 million ($18.2 million), compared to RMB140.1 million in the same period last year.
Basic and diluted loss per share for Class A and Class B ordinary shares[2] in the first half of 2020 were both RMB2.23 ($0.32), compared to RMB2.03, respectively, in the same period last year.
Non-GAAP net loss in the first half of 2020 was RMB155.0 million ($21.9 million), compared to non-GAAP net loss of RMB149.3 million in the same period last year. Non-GAAP basic and diluted loss per share for Class A and Class B ordinary shares in the first half of 2020 were both RMB2.15 ($0.30), compared to RMB1.95 in the same period last year.
Adjusted EBITDA[3] (non-GAAP) was negative RMB113.1 million ($16.0 million) in the first half of 2020, compared to negative RMB108.3 million in the same period last year.
Dr. Jianyu Yang, Chairman and Chief Executive Officer of Concord Medical, commented, "In the first half of 2020, the Company’s business was affected by the coronavirus disease (COVID-19) epidemic. As the epidemic situation is under control in China, the Company’s business has returned to normal. In particular, compared with the same period in 2019, our Shanghai Meizhong Jiahe Cancer Center nearly doubled its revenue."

"The Company’s Shanghai Meizhong Jiahe Medical Imaging Diagnostic Center (the "Imaging Diagnosis Center") has been officially opened in April 2020, which will expand the Company’s business income."

"The proton equipment of Guangzhou Concord Cancer Center (the "Cancer Center") has arrived and is expected to be hoisted in the recent months. Besides, the construction of the Cancer Center (exclude the proton part) is nearly competed, and the Company is starting the preparation for the opening of the Cancer Center. With the gradual operation of the Cancer Center to the mature stage, the Company’s revenue will also be greatly improved in the next few years."

2020 First Half Financial Results

Network Business

Net revenues from the network business were RMB37.7 million ($5.3 million), representing a 44.6% decrease from net revenues of RMB68.0 million in the first half of 2019, primarily attributable to the effect of the COVID-19 epidemic and the closure of certain centers in our network of centers. With four centers closed in the first half of 2020, the Company operated a network of 27 centers in 20 cities in China as of June 30, 2020.

Cost of revenues of the network business was RMB14.6 million ($2.1 million), representing a 58.0% decrease from RMB34.8 million in the first half of 2019.

Gross profit from the network business was RMB23.1 million ($3.3 million), representing a 30.4% decrease from RMB33.2 million in the first half of 2019. The gross profit margin of the network business for the first half of 2020 was 61.3%, compared to the gross profit margin of 48.8% for the same period last year.

Selling expenses of the network business were RMB19.4 million ($2.7 million), representing a 108.6% increase from RMB9.3 million in the first half of 2019. Selling expenses as a percentage of net revenues from the network business was 51.5% in the first half of 2020, compared to 13.7% in the first half of 2019. The increase in selling expenses of the network business was mainly due to the increase in advertisement and promotion expenses.

General and administrative expenses of the network business were RMB56.9 million ($8.1 million), representing a 30.1% decrease from RMB81.4 million in the first half of 2019. General and administrative expenses as a percentage of net revenues from the network business were 150.9% in the first half of 2020, compared to 119.7% in the same period last year. The decrease was mainly because Zhongrong Fund management fees have been fully settled in the second half of 2019.

Comparing to RMB24.8 million in the same period last year, capital expenditures decreased to RMB3.9 million ($0.6 million) in the first half of 2020, primarily for procuring equipment for network centers.

Accounts receivable were RMB61.1 million ($8.6 million) as of June 30, 2020, compared to RMB67.1 million as of December 31, 2019. The average period of sales outstanding for accounts receivable (also known as "Days Sales Outstanding") was 298 days in the first half of 2020.

During the first half of 2020, the Company handled 3,837 patient treatment cases and 40,444 patient diagnostic cases, representing a 28.1% decrease and a 45.9% decrease from the same period last year, respectively. The decreases in patient treatment and diagnostic cases were mainly due to the influence of the COVID-19 epidemic.

Hospital Business

Net revenues from the hospital business were RMB45.3 million ($6.4 million) in the first half of 2020, representing a 43.8% increase from net revenues of RMB31.5 million in the first half of 2019, mainly because the operation of Shanghai Meizhong Jiahe Cancer Center Co., Ltd. has gradually matured and the Imaging Diagnostic Center opened in this April.

Cost of revenues of the hospital business in the first half of 2020 was RMB71.8 million ($10.2 million), representing a 16.6% increase from cost of revenues of RMB61.6 million in the first half of 2019, mainly because of the preparation and operation of the Imaging Diagnostic Center.

Gross loss from the hospital business was RMB26.5 million ($3.8 million) in the first half of 2020, compared to RMB30.1 million in same period last year. The gross loss margin of the hospital business for the first half of 2020 was 58.5%, compared to the gross loss margin of 95.8% for the same period last year.

Selling expenses of the hospital business were RMB2.7 million ($0.4 million) in the first half of 2020, representing an 80.0% increase from selling expenses of RMB1.5 million in the first half of 2019. Selling expenses as a percentage of net revenues from the hospital business was 6.0% in the first half of 2020, compared to 4.8% in the first half of 2019. The increase was mainly because the market research cost increase for the Imaging Diagnosis Center and the Cancer Center.

General and administrative expenses of the hospital business were RMB77.5 million ($11.0 million) in the first half of 2020, of which employee benefit expenses were RMB31.7 million ($4.5 million). In the same period of last year, general and administrative expenses of the hospital business were RMB58.1 million. The increase was mainly due to the increase in salary and rental fees for hospitals. General and administrative expenses as a percentage of net revenues from the hospital business was 171.1% in the first half of 2020, compared to 184.4% in the first half of 2019.

Comparing to RMB410.5 million in the first half of 2019, capital expenditures of the hospital were RMB364.9 million ($51.6 million) in the first half of 2020. The decrease was mainly related to the decrease in construction fees and medical equipment payment for Beijing Proton Medical Center, Shanghai Concord Cancer Center and the Cancer Center.

As of June 30, 2020, accounts receivable from hospital business were RMB11.2 million ($1.6 million), representing an 18.2% decrease from accounts receivable of RMB13.7 million as of December 31, 2019. The number of Days Sales Outstanding was 50 days in the first half of 2020.

As of June 30, 2020, the Company had bank loans and other borrowings totaling RMB2.0 billion ($288.6 million).

Recent Developments

The Imaging Diagnosis Center commenced operation in April 2020. The Imaging Diagnosis Center is located on the second floor of the Medical Technology Center of Shanghai Xinhongqiao International Medical Park (the "Park"), which is the center of the Park. The Imaging Diagnosis Center provides high-quality diagnostic imaging services, such as radiology, ultrasound and nuclear medicine, diagnosis and remote consultation, education and training, to all the medical institutions, premium clinics and medical institutions around the Park. Advanced imaging diagnostic equipment, such as CT, magnetic resonance, PET-CT and PET-MRI, have been installed in the Imaging Diagnosis Center.