Centric Health Announces Results for the First Quarter of 2018

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Business focuses on operational efficiencies and new growth opportunities under newly appointed CEO

TORONTO, May 9, 2018 /CNW/ - Centric Health Corporation ("Centric Health" or "the Company") (TSX: CHH), Canada's leading diversified healthcare services company, today reported its financial results for the first quarter ended March 31, 2018.

"As we completed the transition of beds under a large national contract with an interim management structure, and began to execute on the business re-engineering plan, the results in the first quarter of 2018 were slightly below the Company's expectations.  While we face headwinds as a result of previously disclosed changes in government regulations, we are confident that we can mitigate the impact by improving efficiency and reducing costs in our new national Specialty Pharmacy structure," said Jack Shevel, Chairman of Centric Health. "Despite the potential impact of these changes, we expect to deliver year-over-year Adjusted EBITDA growth in 2018."

Highlights for the First Quarter of 2018

(All comparative figures are for the first quarter of 2017)

• Revenue from continuing operations increased by 2% to $44.5 million from $43.6 million
  • Revenue generated in Specialty Pharmacy was relatively flat due to the similar number of beds serviced year-over-year, with the slight increase associated with increased influenza outbreaks in the first quarter of 2018 and higher surgical procedure and healthcare service volumes in Surgical and Medical Centres.

• Adjusted EBITDA¹ from continuing operations declined 14% to $3.8 million from $4.5 million
  • Due to ODB fee reductions, inventory adjustments related to reductions in generic drug pricing, and labour inefficiencies in Specialty Pharmacy;
  • Partially offset by growth in the Surgical and Medical Centres business; and
  • Adjusted EBITDA¹ margin from continuing operations decreased to 9% from 10% in the same period in the prior year.

• Expansive business re-engineering plan in Specialty Pharmacy segment to be completed by end of 2018
  • Focused on utilization of technology to maximize efficiencies through further automation of processes and minimizing manual activities;
  • Scaling capital investment through consolidation of sites and utilization of high-volume fulfillment centres;
  • Comprehensive workflow analysis to optimize the labour model, allow for a more dynamic cost base and gain efficiencies through centralization of functions; and
  • Company has increased its targeted annualized cost savings from $4.0 million to $7.5 million, of which $2 million has been implemented as of May 2018.

• Completed additional investment of $0.5 million in AceAge Inc. ("AceAge"), to fund the production of the first batch of its home-based automated drug delivery appliance ("Karie").
  • Karie is an innovative device designed to solve the medication compliance issues of individuals taking multiple medications, particularly seniors living in seniors' housing communities and the aging population at home;
  • Production of the devices has commenced, with the first 2,000 units available by August 2018; and
  • The Company currently has an ownership interest in AceAge of 17.5% and has the ability to increase its investment in AceAge up to 32.5%.

• Accelerated preparation for entry into the medical cannabis distribution business
  • Building operational plans in anticipation of receiving medical cannabis sales-only distribution license in second half of 2018;
  • Focus on leveraging our Specialty Pharmacy footprint and capabilities to assist in the provision of medical cannabis to seniors, complex care patients and Karie users; and,
  • In advanced discussions with a number of licensed producers about supply agreements and other potential partnerships.

Highlights subsequent to quarter-end

• Appointed David Murphy as President and CEO
  • Over a decade of senior leadership experience in Canadian healthcare;
  • Most recently with Cardinal Health, serving as President of Canadian business, leading the strategic transformation of the organization; and
  • Has an impressive track record of increasing operating margins in the face of ongoing pricing pressure, while improving employee engagement and workplace culture.

• Entered into collaborative program with Think Research Corporation to digitize Specialty Pharmacy operations
  • Solution will digitize the Company's medication review program, eliminating paperwork duplication in the pharmacy clinical review process;
  • Provides cost savings and labour efficiencies while offering valuable clinical insights to the Company's partner homes through real-time information; and
  • Maximizes safety of seniors through data analytics capabilities.

• Expiration of Alberta Blue Cross agreement, announcement of new funding framework
  • Alberta Health announced a new funding framework to take effect May 17, 2018;
  • Amongst other things, the announcement stated reductions to dispensing fees in the province and changes to the frequency of dispensing and care plan follow-ups; and
  • In response to the changes in the new framework, we are evaluating and implementing a number of significant changes to our operating and service model in Alberta which are included as part of the additional $3.5 million cost savings targeted in the business re-engineering plan.

"As CEO, my focus will be on driving operational efficiency and excellence in execution, and delivering on the many growth opportunities that exist in the space in which we operate," added David Murphy, President and CEO of the Company. "Our management team has taken strong recent action to optimize our operations and lay the groundwork for a number of key growth initiatives.  I look forward to working with the team to deliver outstanding patient care while creating sustainable value for stakeholders."

FINANCIAL RESULTS

Discontinued Operations

The Company's discontinued operations consist of the businesses divested as part of the sale of its Physiotherapy, Rehabilitation and Medical Assessments segment in 2015 and London Scoping Centre in 2016.

Selected Financial Information

(All amounts in the chart below are in thousands except per share, shares outstanding, and percentage data)

		For the three month periods ended March 31,
		2018	2017	2016
(in $000)		$	$	$
Revenue		44,472	43,563	40,694
Income (loss) from continuing operations		480	127	(1,100)
Income (loss) from continuing operations before interest expense and income taxes		267	936	(1,341)
EBITDA^1 from continuing operations		2,653	3,260	1,598
Adjusted EBITDA^1 from continuing operations		3,825	4,456	2,878
	Per share - Basic and diluted	$0.02	$0.02	$0.02
Adjusted EBITDA^1 Margin from continuing operations		8.6%	10.2%	7.1%
Adjusted EBITDA^1		3,825	4,456	2,821
	Per share - Basic^2 and diluted^2	$0.02	$0.02	$0.02
Adjusted EBITDA^1 Margin		8.6%	10.2%	6.9%
Net loss		(1,699)	(3,870)	(10,022)
	Per share - Basic^2 and diluted^2	($0.01)	($0.02)	($0.06)
Cash provided by (used in) operations		(316)	1,114	(7,208)
Weighted Average Shares Outstanding (Basic and diluted)^3		202,110	179,693	161,974
Shares Outstanding, March 31^3		203,085	198,576	162,258

^1	See "Non-IFRS Measures" below.
^2	Basic and diluted earnings per share is based on the profit or loss attributable to shareholders of Centric Health Corporation.
^3	Excludes contingent escrowed shares and restricted shares.

Consolidated Results

Consolidated revenue from continuing operations for the three month period ended March 31, 2018 increased by 2.1% to $44.5 million from $43.6 million. Revenue growth in Specialty Pharmacy was due to the influenza outbreak in the first quarter of 2018, while revenue growth in Surgical and Medical Centres was driven by higher surgical procedure and healthcare service volumes.

Adjusted EBITDA¹ from continuing operations for the three month period ended March 31, 2018 decreased to $3.8 million from $4.5 million for the same period in the prior year. The decrease was primarily due to labour inefficiencies and the ODB fee reduction in Specialty Pharmacy.

Segment Results

(All amounts in the charts below are in thousands except per share, shares outstanding, and percentage data)

For the three month periods ended March 31,		Revenue			Adjusted EBITDA^1
		2018		2017	2018		2017
(in $000)		$		$	$	%	$	%
Specialty Pharmacy		33,539		32,907	3,537	10.5	4,924	15.0
Surgical and Medical Centres		10,933		10,656	1,538	14.1	1,177	11.0
Corporate		—		—	(1,250)	—	(1,645)	—
Total		44,472		43,563	3,825	8.6	4,456	10.2

SHARES OUTSTANDING

As at March 31, 2018, the Company had total shares outstanding of 208,139,402. The outstanding shares at March 31, 2018 include 5,054,232 shares which are restricted or held in escrow and will be released to certain vendors of previously acquired businesses based on the achievement of certain stated performance targets and certain customers. Accordingly, for financial reporting purposes, the Company reported 203,085,170 common shares outstanding as at March 31, 2018 and 201,468,731 shares outstanding at December 31, 2017. The number of options outstanding is 2,197,500 at March 31, 2018. The number of restricted share units outstanding is 6,313,246 at March 31, 2018. The number of warrants outstanding is 1,972,000 at March 31, 2018. Should all outstanding options and warrants that were exercisable at March 31, 2018 be exercised, the Company would receive proceeds of $2.3 million.

As at the date of this press release, May 8, 2018, the Company had total shares outstanding of 208,139,402 which include 5,054,232 shares which are restricted or held in escrow. The number of options outstanding is 2,197,500; the number of restricted share units outstanding is 6,313,246; and the number of warrants outstanding is 1,972,000.

¹NON-IFRS MEASURES

This press release includes certain measures which have not been prepared in accordance with IFRS such as EBITDA, Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EBITDA per share.  These non-IFRS measures are not recognized under IFRS and, accordingly, shareholders are cautioned that these measures should not be construed as alternatives to net income determined in accordance with IFRS.  The non-IFRS measures presented are unlikely to be comparable to similar measures presented by other issuers.

The Company defines EBITDA as earnings before depreciation and amortization, interest expense, amortization of lease incentives, and income tax expense (recovery).  Adjusted EBITDA is defined as EBITDA before transaction and restructuring costs, changes in the fair value of the contingent consideration liability, impairments, stock based compensation expense, change in fair value of derivative financial instruments and gain on disposal of property and equipment recognized in the statement of income. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue. Adjusted EBITDA per share is defined as Adjusted EBITDA divided by the weighted outstanding shares on both a basic and diluted basis. The Company believes that Adjusted EBITDA¹ is a meaningful financial metric as it measures cash generated from operations which the Company can use to fund working capital requirements, service interest and principal debt repayments and fund future growth initiatives.  The Company's agreements with senior lenders are structured with certain financial performance covenants which includes Adjusted EBITDA¹ as a key component of the covenant calculations. EBITDA and Adjusted EBITDA¹ are not recognized measures under IFRS.

Reconciliation of Non-IFRS Measures

	For the three month periods ended March 31,
	2018	2017
(in $000)	$	$
Loss from operations	(1,699)	(3,870)
Depreciation and amortization	2,267	2,389
Interest expense	1,668	3,821
Amortization of lease incentives	119	(65)
Income tax expense	298	985
EBITDA from operations	2,653	3,260
Transaction and restructuring costs	501	1,656
Change in fair value of contingent consideration liability	331	(958)
Stock-based compensation expense	458	324
Change in fair value of derivative financial  instruments	(118)	149
Gain on disposal of property and equipment	—	25
Adjusted EBITDA	3,825	4,456
Basic and diluted weighted average number of shares	202,110	179,693
Adjusted EBITDA per share (basic and diluted)	$0.02	$0.02

PRESENTATION OF FINANCIAL RESULTS

The Company presents two reportable operating segments as follows: Specialty Pharmacy and Surgical and Medical Centres. The financial results of the Company's Performance Medical Group, are included as part of the Surgical and Medical Centres segment.

CONFERENCE CALL

Centric Health will host a conference call, including a slide presentation, to discuss its first quarter financial results on Wednesday, May 9, 2018 at 8:30 a.m. (ET).

Telephone Dial-In Access Information

To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191.  Please connect approximately 10 minutes prior to the beginning of the call to ensure participation.  Those participating in the conference call by telephone can view the slide presentation by accessing the online webcast (see instructions below) and choosing the Non-Streaming Audio option.

Webcast Access Information

A live webcast of the conference call, including the slide presentation, will be available on the Events and Presentations page of the Investors section of the Company's web site (http://www.centrichealth.ca/investors/events-and-presentations.html).  Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. To view the webcast presentation with slides, please choose either the Real Streaming Audio or Windows Streaming Audio option.

Archive Access Information

The conference call will be archived for replay by telephone until Wednesday, May 16, 2018 at midnight.  To access the archived conference call, dial 1-855-859-2056 or 416-849-0833 and enter the reservation number 6195098.

The webcast with slide presentation will be archived for 90 days on the Events and Presentations page of the Investors section of the Company's web site (http://www.centrichealth.ca/investors/events-and-presentations.html).

For further information please refer to the Company's complete filings at www.sedar.com.

About Centric Health

Centric Health's vision is to be Canada's most respected and recognized provider in the independent healthcare sectors in which it operates, world renowned for delivering the highest levels of quality care and outcomes, innovative solutions and value to patients, clients and stakeholders. To this end, Centric Health primarily focuses on two core healthcare businesses:

• The Specialty Pharmacy division is a "Seniors First" model composed of a growing national network of fulfilment centres that deliver high-volume solutions for the cost effective supply of chronic medication and other specialty clinical care services, serving more than 28,000 residents in over 440 seniors communities (long term care facilities, retirement homes and assisted living facilities) nationally. The Specialty Pharmacy division also provides pharmaceutical dispensing services for employees insured by corporate health plans.
  
  
• The Surgical and Medical Centres division is Canada's largest independent surgical provider operating five facilities across four provinces. It serves a diversified customer base with private paid non-insured surgeries and diagnostics, government outsourcing of insured surgeries and diagnostics and other procedures funded by third-party payors (including Workers Compensation) and is the proud owner of Canada's first Centre of Excellence in Metabolic and Bariatric Surgery.

With national networks of facilities in each of its businesses, deep knowledge and experience of healthcare delivery and extensive, trusted relationships with payers, physicians, and government agencies, the Company is uniquely positioned to address current and future healthcare needs in growing markets as the Canadian healthcare industry goes through a major transformation over the medium to long term.

This press release contains statements that may constitute "forward-looking statements" within the meaning of applicable Canadian securities legislation.  These forward-looking statements include, among others, statements regarding business strategy, plans and other expectations, beliefs, goals, objectives, information and statements about possible future events. Readers are cautioned not to place undue reliance on such forward-looking statements. Forward-looking statements are based on current expectations, estimates and assumptions that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Centric Health and described in the forward-looking statements contained in this press release. No assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur or, if any of them do so, what benefits Centric Health will derive there-from.

SOURCE Centric Health Corporation

David Murphy, President and Chief Executive Officer, Centric Health Corporation, 416-927-8400, [email protected]; Leslie Cho, Chief Financial Officer, Centric Health Corporation, 416-927-8400, [email protected]