iKang Announces Unaudited Financial Results for the Fiscal First Quarter Ended June 30, 2017

BEIJING, Sept. 14, 2017 (GLOBE NEWSWIRE) — iKang Healthcare Group, Inc. (“iKang” or the “Company”) (NASDAQ:KANG), a major provider in China’s fast growing private preventive healthcare services market, today announced its unaudited financial results for the first quarter ended June 30, 2017.

Fiscal First Quarter Ended June 30, 2017 Financial Highlights

  • Net revenues were US$115.6 million, an increase of 14.2% year-over-year (an increase of 19.9% on RMB basis)(1) 
  • Gross profit was US$48.4 million, an increase of 8.1% year-over-year (an increase of 13.5% on RMB basis)(1) 
  • Net income attributable to the Company was US$3.6 million, an increase of 73.1% year-over-year (an increase of 81.8% on RMB basis)(1) 
  • Non-GAAP net income attributable to the Company(2) was US$4.0 million, an increase of 55.3% year-over-year (an increase of 63.1 % on RMB basis)(1) 
  • Basic and diluted income per ADS attributable to common shareholders were US$0.05 and US$0.05, respectively, as compared to US$0.03 and US$0.03, respectively, in the fiscal first quarter of 2016
  • Non-GAAP basic and diluted income per ADS(3) attributable to common shareholders were US$0.06 and US$0.06, respectively, as compared to US$0.04 and US$0.04, respectively, in the fiscal first quarter of 2016

(1) RMB basis refers to the year on year comparison made on local currency – Chinese Renminbi basis.
(2) Non-GAAP net income attributable to the Company is defined as net income attributable to the Company excluding share-based compensation expenses. For more information on these non-GAAP financial measures, please see the section captioned under “Non-GAAP Financial Measures” and the tables captioned “Reconciliation of GAAP and Non-GAAP Results” set forth at the end of this release.
(3) Non-GAAP basic and diluted income per ADS is defined as non-GAAP net income divided by the weighted average number of basic and diluted ADS.

Mr. Lee Ligang Zhang, Chairman and Chief Executive Officer of iKang, commented on the results.

“Our fiscal first quarter 2017 earnings represent a solid foundation to start the fiscal year. Total net revenues and Non-GAAP net income for the fiscal first quarter grew by 14.2% and 55.3% respectively (by 19.9% and 63.1% respectively on RMB basis), compared to those for the same period last year. The solid performance is underpinned by the continued focus on expanding the network, enhancing customer engagement and broadening the value based services and revenue sources”, said Mr. Lee Ligang Zhang. “Over the course of June and July, we have launched a number of strategic initiatives including iKang Partners+ and iKangCare+ which is a comprehensive advisory healthcare platform for corporate customers and individuals, a healthcare investment fund to invest in medical centers and the partnership to introduce IBM Watson for Oncology cognitive computing solutions as part of iKangcare+ and iKang Partners+ initiatives and build the IBM Watson for Oncology Center in iKang’s existing and future medical centers in China.

“With iKangCare+ and iKang Partners+ strategies, iKang is now fully utilizing the latest technologies in genetic testing and in vitro diagnosis to offer more advanced screening services to our corporate customers and individuals. The value proposition we bring to the marketplace is clearly resonating with consumers as we continued to improve the quality, efficiency and affordability of private preventive healthcare for our loyal corporate customers and also seized opportunities from the fast growing individual customer segment. Our growing portfolio of facilities and services continues to provide customers with the premium level of care. iKang’s nationwide network of 104 operating medical centers as of today creates a strong platform for growing our core and ancillary services which we see continued revenue growth trajectory for fiscal 2017.”

“The management remains focused on and fully committed to customers, partners and shareholders. It is because of this that we continue to make strides in advancing our strategy to invest in growing our network, portfolio of facilities and services with improved efficiencies, hence, we are well positioned for a sustainable long term business growth”, Mr. Zhang concluded.

Fiscal First Quarter ended June 30, 2017 UNAUDITED FINANCIAL RESULTS

Net Revenues
Net revenues for the fiscal first quarter were US$115.6 million, representing a 14.2% increase from US$101.2 million in the same period of the last fiscal year. As of June 30, 2017, the number of self-owned operating medical centers totaled 104 compared to 90 as of June 30, 2016. During the quarter, the Company served approximately a total of 1,415,000 customer visits under both corporate and individual programs, representing an increase of 11.9% over the fiscal first quarter of 2016.

The table below sets forth a breakdown of net revenues:

(US$ million)       Fiscal First Quarter
Ended June 30, 2017
      Fiscal First Quarter
Ended June 30, 2016
      YoY % Change      
Medical Examinations   95.0   85.0   11.7%  
Disease Screening   9.7   7.3   33.0%  
Dental Services   2.9   1.3   127.4%  
Other Services   8.0   7.6   4.7%  
Total   115.6   101.2   14.2%  
               

Medical Examinations: Net revenues for the quarter were US$95.0 million, representing an 11.7% increase from US$85.0 million in the same period of the last fiscal year.

Disease Screening: Net revenues for the quarter were US$9.7 million, representing a 33.0% increase from US$7.3 million in the same period of the last fiscal year. Disease screening services refer to the additional services requested by individuals under the basic corporate medical examination programs as a result of individual needs. 

Dental Services: Net revenues for the quarter were US$2.9 million, representing a 127.4% increase from US$1.3 million in the same period of the last fiscal year.

Other Services: Net revenues for the quarter were US$8.0 million, representing a 4.7% increase from US$7.6 million in the same period of the last fiscal year.

Cost of Revenues
Cost of revenues for the quarter was US$67.2 million, representing a 19.0% increase from US$56.5 million in the same period of the last fiscal year.

Gross Profit and Gross Margin
Gross profit for the quarter was US$48.4 million, representing an 8.1% increase from US$44.7 million in the same period of the last fiscal year. Gross margin for the quarter was 41.8%, as compared to 44.2% in the first quarter of fiscal 2016. The lower gross margins of newly operated medical centers which were in the ramping up period have contributed to the decrease in our overall gross margin.

Operating Expenses
Total operating expenses for the quarter were US$39.5 million, representing a 4.1% increase from US$37.9 million in the same period of the last fiscal year.  

Selling and marketing expenses
Selling and marketing expenses for the quarter were US$19.3 million, accounting for 16.7% of total net revenues as compared to 18.1% in the same period of the last fiscal year.

General and administrative expenses
General and administrative expenses for the quarter were US$19.5 million, accounting for 16.9% of total net revenues as compared to 18.5% in the same period of the last fiscal year. 

Research and development expenses
Research and development expenses for the quarter were US$706,000, accounting for 0.6% of total net revenues as compared to 0.9% in the same period of the last fiscal year.

Income from Operations
Income from operations for the quarter was US$8.9 million, representing a 30.1% increase from US$6.8 million in the same period of the last fiscal year. Excluding share-based compensation expenses of US$384,000 for this quarter and US$484,000 for the same quarter last year, non-GAAP income from operations for the quarter was US$9.3 million as compared to US$7.3 million, which reflected a rise of 26.8% as a result of improving operating leverage.

Non-GAAP EBITDA
Non-GAAP EBITDA for the quarter was US$19.5 million, representing a 22.1% increase from US$16.0 million in the same period of the last fiscal year.

Net Income
Net income attributable to the Company for the quarter was US$3.6 million, representing a 73.1% increase from US$2.1 million in the same period of the last fiscal year. 

Non-GAAP net income for the quarter was US$4.0 million, representing a 55.3% increase from US$2.6 million in the same period of fiscal 2016.

Basic and Diluted Income per ADS
Basic and diluted income per ADS attributable to common shareholders were US$0.05 and US$0.05, respectively, compared to basic and diluted income per ADS attributable to common shareholders of US$0.03 and US$0.03, respectively, in the same quarter of fiscal 2016. 

Non-GAAP basic and diluted income per ADS attributable to common shareholders were US$0.06 and US$0.06, respectively, compared to basic and diluted income per ADS attributable to common shareholders of US$0.04 and US$0.04, respectively, in the same quarter of fiscal 2016.

STATEMENT REGARDING UNAUDITED FINANCIAL INFORMATION

The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company’s year-end financial statements, which could result in significant differences from this unaudited financial information.

NON-GAAP FINANCIAL MEASURES

To supplement our consolidated financial statements which are presented in accordance with U.S. GAAP, we also use non-GAAP operating income, non-GAAP net income and non-GAAP EBITDA as additional non-GAAP financial measures. We present these non-GAAP financial measures because they are used by our management to evaluate our operating performance. We also believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating our consolidated results of operations in the same manner as our management and in comparing financial results across accounting periods and to those of our peer companies.

Reconciliation of non-GAAP operating income, non-GAAP net income and non-GAAP EBITDA to the most directly comparable financial measures calculated and presented in accordance with U.S. GAAP is set forth at the end of this release.

About iKang Healthcare Group, Inc.

iKang Healthcare Group, Inc. is one of the largest providers in China’s fast-growing private preventive healthcare space through its nationwide healthcare services network.

iKang’s nationwide integrated network of multi-brand self-owned medical centers and third-party facilities, provides comprehensive and high-quality preventive healthcare solutions across China, including medical examination, disease screening, outpatient service and other value-added services. iKang’s customer base primarily comprises corporate clients, who contract with iKang to deliver medical examination services to their employees and clients, and receive these services at pre-agreed rates. iKang also directly markets its services to individual customers. In the fiscal first quarter ended June 30, 2017, iKang served a total of 1.41 million customer visits under both corporate and individual programs.

As of September 14, 2017, iKang has a nationwide network of 104 self-owned operating medical centers, covering 33 of China’s most affluent cities: Beijing, Shanghai, Guangzhou, Shenzhen, Chongqing, Tianjin, Nanjing, Suzhou, Hangzhou, Chengdu, Fuzhou, Changchun, Jiangyin, Changzhou, Wuhan, Changsha, Yantai, Yinchuan, Weihai, Weifang, Shenyang, Xi’an, Wuhu, Guiyang, Ningbo, Foshan, Jinan, Bijie, Qingdao, Wuxi, Kaili and Mianyang, as well as Hong Kong. iKang has also extended its coverage to over 200 cities by contracting with over 400 third-party facilities, which include selected independent medical examination centers and hospitals across all of China’s provinces, creating a nationwide network that allows iKang to serve its customers in markets where it does not operate its own medical centers.

Forward-looking Statements

This press release contains forward-looking statements. These statements, including management quotes and business outlook, are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,” “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “intend,” “potential,” “plan,” “goal” and similar statements. iKang may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These forward-looking statements include, but are not limited to, statements about: the Company’s goals and strategies; its future business development, financial condition and results of operations; its ability to retain and grow its customer base and network of medical centers; the growth of, and trends in, the markets for its services in China; the demand for and market acceptance of its brand and services; competition in its industry in China; relevant government policies and regulations relating to the corporate structure, business and industry; fluctuations in general economic and business conditions in China. Further information regarding these and other risks is included in iKang’s filing with the Securities and Exchange Commission. iKang undertakes no duty to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law. 

IR Contact:

iKang Healthcare Group, Inc.
Christy Xie
Director of Investor Relations
Tel: +86 10 5320 8599
Email: ir@ikang.com
Website: www.ikanggroup.com

FleishmanHillard
Email: ikang@fleishman.com

 
IKANG HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of US dollars, except share data and per share data)
(Unaudited)
 
          As of         As of
    March 31,   June 30,
    2017   2017
             
ASSETS            
Current assets:            
Cash and cash equivalents   $ 64,898   $ 41,530
Restricted cash     392     398
Term deposits     4,359     2,213
Accounts receivable, net of allowance for doubtful accounts of $14,261     79,576     105,622
and $17,125 as of March 31, 2017 and June 30, 2017, respectively            
Inventories     6,781     6,218
Deferred tax assets-current     9,635     8,902
Amount due from a related party     4,538     4,575
Prepaid expenses and other current assets     49,736     52,738
             
Total current assets   $ 219,915   $ 222,196
             
Property and equipment, net   $ 163,081   $ 164,784
Acquired intangible assets, net     25,852     24,190
Goodwill     107,237     108,678
Long-term investments     180,758     182,565
Deferred tax assets-non-current     16,698     16,922
Rental deposit and other non-current assets     14,950     15,891
             
TOTAL ASSETS   $ 728,491   $ 735,226
             
LIABILITIES, MEZZANINE AND EQUITY            
Current liabilities:            
Accounts payable (including accounts payable of the consolidated VIEs            
without recourse to iKang Healthcare Group, Inc. of $34,637            
and $38,026 as of March 31, 2017 and June 30, 2017, respectively)   $ 39,892   $ 43,174
Accrued expenses and other current liabilities (including accrued expenses            
and other current liabilities of the consolidated VIEs without recourse            
to iKang Healthcare Group, Inc. of $48,910 and $49,049 as of March 31, 2017            
and June 30, 2017, respectively)     59,278     59,515
Income tax payable (including income tax payable of the consolidated VIEs            
without recourse to iKang Healthcare Group, Inc. of $6,414 and            
$8,650 as of March 31, 2017 and June 30, 2017, respectively)     11,951     9,683
Deferred revenues (including deferred revenues of the consolidated VIEs            
without recourse to iKang Healthcare Group, Inc. of $57,361 and            
$64,179 as of March 31, 2017 and June 30, 2017, respectively)     64,740     69,849
Short term borrowings (including short term borrowings of the consolidated            
VIEs without recourse to iKang Healthcare Group, Inc. of $111,299            
and $102,385 as of March 31, 2017 and June 30, 2017, respectively)     111,299     102,385
             
Total current liabilities   $ 287,160   $ 284,606
             

 
IKANG HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS – continued
(In thousands of US dollars, except share data and per share data)
(Unaudited)
 
        As of       As of
    March 31,   June 30,
    2017   2017
             
Long-term borrowings (including long term borrowings of the consolidated            
VIEs and VIEs’ subsidiaries without recourse to iKang Healthcare Group, Inc.            
of $101,697 and $103,255 as of March 31, 2017 and June 30, 2017, respectively)     101,697     103,255
Deferred tax liabilities-non-current (including deferred tax liabilities            
non-current of the consolidated VIEs without recourse to iKang            
Healthcare Group, Inc. of $7,009 and $6,627 as of March 31, 2017 and            
June 30, 2017, respectively)     7,229     6,831
             
TOTAL LIABILITIES   $ 396,086   $ 394,692
             
Equity:            
Total iKang Healthcare Group, Inc. shareholders’ equity     312,437     320,142
Non-controlling interests     19,968     20,392
             
TOTAL EQUITY   $ 332,405   $ 340,534
             
TOTAL LIABILITIES AND EQUITY   $ 728,491   $ 735,226
             

 
IKANG HEALTHCARE GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of US dollars, except share data and per share data)
(Unaudited)
 
         Three-month periods  
     ended June 30,  
     2016          2017  
                 
Net revenues   $ 101,238     $ 115,599  
Cost of revenues     56,505       67,236  
                 
Gross profit   $ 44,733     $ 48,363  
                 
Operating expenses:                
Selling and marketing expenses   $ 18,301     $ 19,259  
General and administrative expenses     18,702       19,489  
Research and development expenses     884       706  
                 
Total operating expenses   $ 37,887     $ 39,454  
                 
Income from operations   $ 6,846     $ 8,909  
Interest expense     (3,281 )     (3,089 )
Interest income     376       145  
                 
Income before income tax expenses and loss from                
equity method investments   $ 3,941     $ 5,965  
Income tax expenses     985       1,550  
Loss from equity method investments     (1,037 )     (870 )
                 
Net income   $ 1,919     $ 3,545  
Less: Net loss attributable to non-controlling interest     (147 )     (31 )
                 
Net income attributable to iKang Healthcare Group, Inc.   $ 2,066     $ 3,576  
                 
Net income attributable to common shareholders                
of iKang Healthcare Group, Inc.   $ 2,066     $ 3,576  
                 
Net income per share attributable to common shareholders                
of iKang Healthcare Group, Inc.                
Basic   $ 0.06     $ 0.10  
Diluted   $ 0.06     $ 0.10  
                 
Net income per ADS (one common share equals to two ADSs)                
Basic   $ 0.03     $ 0.05  
Diluted   $ 0.03     $ 0.05  
                 
Weighted average shares used in calculating net income                
per common share                
Basic     33,955,067       34,230,899  
Diluted     34,654,762       34,669,869  
                 

 
IKANG HEALTHCARE GROUP, INC.
RECONCILIATION OF GAAP AND NON-GAAP RESULTS
(In thousands of US dollars, except share data and per share data)
(Unaudited)
 
        Three-month periods
    ended June 30,
    2016       2017
             
Income from operations   $ 6,846   $ 8,909
Add:            
Share-based compensation expenses     484     384
             
Non-GAAP operating income   $ 7,330   $ 9,293
             
Net income attributable to iKang Healthcare Group, Inc.   $ 2,066   $ 3,576
Add:            
Share-based compensation expenses     484     384
             
Non-GAAP net income   $ 2,550   $ 3,960
             
             
Income from operations   $ 6,846   $ 8,909
Add:            
Depreciation and amortization     8,647     10,208
Share-based compensation expenses     484     384
             
Non-GAAP EBITDA   $ 15,977   $ 19,501
             
Non-GAAP net income attributable to common shareholders            
of iKang Healthcare Group, Inc.   $ 2,550   $ 3,960
             
Non-GAAP net income per share attributable to common shareholders            
of iKang Healthcare Group, Inc.            
Basic   $ 0.08   $ 0.12
Diluted   $ 0.07   $ 0.11
             
Non-GAAP net income per ADS (one common share equals to two ADSs)            
Basic   $ 0.04   $ 0.06
Diluted   $ 0.04   $ 0.06
             

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