Centric Health Announces Results for the Fourth Quarter and Full Year of 2017

Centric Health completes transitional year, establishing solid base for growth

TORONTO, March 20, 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 fourth quarter ended December 31, 2017.

Highlights for the Fourth Quarter of 2017
(All comparative figures are for the fourth quarter of 2016)

With the completion of the Company's debt refinancing plan, during the second half of 2017, management has turned its primary focus to executing on the growth strategies and operational improvements for each of its business segments.

• Specialty Pharmacy Acquisition - the Company acquired the operating assets of Salus Pharmacare Inc. ("Salus") in Calgary, Alberta
• Serving 700 assisted living beds;
• Potential to service a further 700 independent living beds; and
• Increases market share in Calgary and makes the Company a leading pharmacy provider to assisted living and long-term care homes in Alberta.
  
  
• Revenue from continuing operations increased marginally to $42.3 million from $41.8 million
• Largely due to timing differences between the off-boarding of beds from a concluding contract ("Concluded Contract") with a large long-term care and retirement home operator and the on-boarding of beds under a new multi-year agreement with a large national customer ("New Contract"); and
• On-boarding of beds under the New Contract has been completed in the first quarter of 2018, allowing for a return to a normalized revenue run-rate by the second quarter of 2018.
  
  
• Adjusted EBITDA¹ from continuing operations declined 7% to $4.1 million from $4.4 million
• A result of the transition timing differences in Specialty Pharmacy between the Concluded Contract and New Contract coupled with excess labour costs that could not be eliminated in the short-term;
• Partially offset by growth in the Surgical and Medical Centres businesses; and
• Adjusted EBITDA¹ margin from continuing operations remained stable at 10%
  
  
• Expansive business re-engineering plan in Specialty Pharmacy segment to be completed by end of 2018
• Appointed a National COO of Specialty Pharmacy to execute national platform and strategy;
• 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 targeted annualized cost savings of $4 million.

Highlights for the Full Year 2017
(All comparative figures are for the full year 2016)

• Revenue from continuing operations grew 3% after normalizing for the $4.1 million reclassification of Revenue to cost of sales and increased before normalization by 1% to $169.0 million from $167.4 million.
  
  
• Adjusted EBITDA¹ from continuing operations grew 12% to $17.5 million from $15.6 million
• Resulting from organic growth of 23% in the Surgical and Medical Centre business and from organic growth and accretive acquisitions made in 2016 that were offset by labour inefficiencies in the Specialty Pharmacy business; and
• Adjusted EBITDA¹ margin from continuing operations expanded to 10% from 9%.
  
  
• Completion of Debt Refinancing Plan
• On May 3, 2017, the Company signed definitive agreements with a syndicate of lenders comprised of three major Canadian banks providing for new credit facilities in an aggregate amount of up to $113.5 million consisting of $100 million in senior secured facilities and $13.5 million in secured subordinated term credit facilities.
  
  
• Distribution and supply agreement signed with AceAge Inc. ("AceAge") for 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 independently, or without full-time care;
• Out of a total investment of up to $2 million, the Company invested $1 million and subscribed for 10 percent of the common shares of AceAge; and
• Delivery of the first batch of devices is expected in the summer of 2018.
  
  
• Long-term care and retirement beds serviced: 28,300 compared to 29,000 at December 31, 2016. All remaining beds under the New Contract were on-boarded during the first quarter of 2018.
  
  
• Surgical utilization rate of 49% compared to 42% in 2016.

Highlights subsequent to quarter-end

• Completed additional investment of $0.5 million in AceAge Inc., to fund the production of the first batch of Karie devices.
• The Company also received a further 2.5% in equity for its provision of certain ongoing support and consulting services, thereby increasing its ownership interest in AceAge to 17.5%; and
• The remaining commitment from the second tranche of $0.5 million would increase the Company's ownership stake to 22.5%.
  
  
• New agreement signed between pan-Canadian Pharmaceutical Alliance ("pCPA") and Canadian Generic Pharmaceutical Association ("CGPA")
• The pCPA, which represents participating federal, provincial, and territorial public drug plans, announced a new 5-year agreement with the CGPA with respect to the pricing of generic drugs in Canada;
• As of April 1, 2018, it is expected that the prices of nearly 70 of the most commonly prescribed drugs in Canada, including drugs used to treat high blood pressure, high cholesterol, and depression that are collectively used by millions of Canadians will be reduced by 25% - 40%, resulting in overall discounts of up to 90% off the price of their brand-name equivalents; and
• The impact of these anticipated changes is expected to be more than offset by cost savings realized through the implementation of the business re-engineering plan.
  
  
• 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 new limits on the frequency of dispensing fees and care plan follow-ups;
• The Company is actively seeking to engage with the Government of Alberta to discuss revisions to the funding model; and
• Various initiatives to mitigate the impact of these changes are being assessed by the Company.
  
  
• Amendment to credit agreements
• On March 20, 2018, the Company amended its agreements for its credit facilities to increase the threshold on its debt to trailing twelve month EBITDA covenant and decrease the threshold on its fixed-charge coverage ratio covenant. The March 20, 2018 amendment relates to the fourth quarter of 2017 and the first three quarters of 2018 due to non-compliance as of December 31, 2017 and to mitigate potential future breaches of covenants in 2018 as a result of timing differences in the transition between contracts and the delayed on-boarding of beds from issues with a third-party supplier; and
• Although the Company received an amendment subsequent to December 31, 2017, as required under IFRS, the Company has presented its total borrowings of $81.1 million as a current liability.

"In 2017 we completed what was a three-year transformation, which included selling off non-core businesses, making strategic acquisitions and strengthening the balance sheet," said Jack Shevel, Chairman and Interim CEO of Centric Health. "Moving into 2018, we are positioned as a leading provider of specialty pharmacy services and surgery and medical services with the resources to further consolidate and grow our position."

"In 2018 we will also look for opportunities to build on our position as a key provider to seniors to achieve solid growth," added Dr. Shevel. "This includes the launch of Karie, expected in the second half of the year, which will be a disruptor of traditional drug delivery for seniors at home, and also medical marijuana which has many applications in seniors care."

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 December 31,			For the years ended December 31,
		2017	2016	2015	2017	2016	2015
(thousands of Canadian Dollars)		$	$	$	$	$	$
Revenue		42,328	41,827	41,549	168,967	167,363	160,753
Income (loss) from continuing operations		(643)	585	(3,282)	996	(3,374)	(11,076)
Income (loss) from continuing operations before interest expense and income taxes		3,799	526	(98)	7,899	(8,800)	(6,626)
EBITDA^1 from continuing operations		6,282	2,992	5,122	17,371	2,578	6,460
Adjusted EBITDA^1 from continuing operations		4,058	4,373	1,797	17,514	15,590	8,524
	Per share - Basic and diluted	$0.02	$0.03	$0.01	$0.09	$0.09	$0.05
Adjusted EBITDA^1 Margin from continuing operations		9.6%	10.5%	4.3%	10.4%	9.3%	5.3%
Adjusted EBITDA^1		4,058	4,363	6,613	17,514	15,466	31,788
	Per share - Basic^2 and diluted^2	$0.02	$0.03	$0.04	$0.09	$0.09	$0.20
Adjusted EBITDA^1 Margin		9.6%	10.3%	7.4%	10.4%	9.2%	9.1%
Net income (loss)		3,301	(1,746)	70,220	2,279	(19,806)	45,868
	Per share - Basic^2 and diluted^2	$0.02	($0.01)	$0.44	$0.01	($0.12)	$0.29
Cash provided by operations		5,440	2,982	7,411	16,073	1,700	29,447
Weighted Average Shares Outstanding (Basic and diluted)^3		200,641	169,161	160,684	194,782	164,444	158,468
Shares Outstanding, December 31^3		201,469	169,983	160,883	201,469	169,983	160,883

^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 December 31, 2017 increased marginally by 1.2% to $42.3 million from $41.8 million. Revenue growth in Specialty Pharmacy was dampened due to timing differences in the transitions of certain contracts in Specialty Pharmacy due to the conclusion of a contract with a large long-term care and retirement home operator, and delay in the transition of beds due to a technical issue with a third-party supplier for a new large national customer expected to replenish the beds off-boarded from the concluded contract.  The on-boarding of beds under the new contract was substantially completed by the beginning of 2018, allowing for a return to a normalized revenue run-rate by the second quarter of 2018.

Adjusted EBITDA¹ from continuing operations for the three month period ended December 31, 2017 decreased to $4.1 million from $4.4 million for the same period in the prior year. The decrease was primarily due to the transition of certain contracts noted above and additional labour costs resulting from the on-boarding of beds under the New Contract, partially offset by growth in the Surgical and Medical Centres segment.

Consolidated revenue from continuing operations for the year ended December 31, 2017 increased by 1.0%, or $1.6 million, to $169.0 million from $167.4 million for the same period in the prior year.  However, after normalizing for the $4.1 million reclassification of Revenue to cost of sales, Revenue increased by 3.4%.

Adjusted EBITDA from continuing operations for the year ended December 31, 2017 increased to $17.5 million compared to $15.6 million for the year ended December 31, 2016.

The increase in Revenue and Adjusted EBITDA for the year ended December 31, 2017 was primarily driven by Revenue growth in the Surgical and Medical Centres business through increased surgical volumes and a net increase in higher margin procedures performed.

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 December 31,	Revenue		Adjusted EBITDA^1 from continuing operations
	2017	2016	2017		2016
(in $000)	$	$	$	%	$	%
Specialty Pharmacy	31,069	31,436	3,610	11.6	4,897	15.6
Surgical and Medical Centres	11,259	10,391	1,608	14.3	1,173	11.3
Corporate	—	—	(1,160)	—	(1,697)	—
Total	42,328	41,827	4,058	9.6	4,373	10.5

For the years ended December 31,	Revenue		Adjusted EBITDA^1 from continuing operations
	2017	2016	2017		2016
(in $000)	$	$	$	%	$	%
Specialty Pharmacy	124,451	125,132	17,016	13.7	17,154	13.7
Surgical and Medical Centres	44,516	42,231	6,179	13.9	5,039	11.9
Corporate	—	—	(5,681)	—	(6,603)	—
Total	168,967	167,363	17,514	10.4	15,590	9.3

SHARES OUTSTANDING

As at December 31, 2017, the Company had total shares outstanding of 206,522,963. The outstanding shares at December 31, 2017 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 201,468,731 common shares outstanding as at December 31, 2017 and 169,982,529 shares outstanding at December 31, 2016. The number of options outstanding is 2,347,500 at December 31, 2017. The number of restricted share units outstanding is 3,224,080 at December 31, 2017. The number of warrants outstanding is 2,972,000 at December 31, 2017. Should all outstanding options and warrants that were exercisable at December 31, 2017 be exercised, the Company would receive proceeds of $2.6 million.

As at the date of this press release, March 20, 2018, the Company had total shares outstanding of 207,139,399 which include 5,054,232 shares which are restricted or held in escrow. The number of options outstanding is 2,347,500; the number of warrants outstanding is 2,972,000; and the number of restricted share units outstanding is 2,993,246.

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 December 31,		For the years ended December 31,
	2017	2016	2017	2016
(in $000)	$	$	$	$
Income (loss) from continuing operations	3,702	(1,423)	(520)	(18,276)
Depreciation and amortization	2,394	2,517	9,522	11,642
Interest expense	1,485	3,157	9,902	18,348
Amortization of lease incentives	89	(51)	(50)	(264)
Income tax recovery	(1,388)	(1,208)	(1,483)	(8,872)
EBITDA from continuing operations	6,282	2,992	17,371	2,578
Transaction and restructuring costs	1,938	1,094	6,061	6,803
Change in fair value of contingent consideration liability	(4,352)	(169)	(6,047)	5,238
Reversal of impairment losses	—	—	(322)	—
Stock-based compensation expense	282	234	938	790
Change in fair value of derivative financial  instruments	(90)	228	(534)	188
Gain (loss) on disposal of property and equipment	(2)	(6)	47	(7)
Adjusted EBITDA from continuing operations	4,058	4,373	17,514	15,590
Adjusted EBITDA from discontinued operations	—	(10)	—	(124)
Adjusted EBITDA	4,058	4,363	17,514	15,466
Basic and diluted weighted average number of shares	200,641	169,161	194,782	164,444
Adjusted EBITDA per share from continuing operations (basic and diluted)	$0.02	$0.03	$0.09	$0.09
Adjusted EBITDA per share (basic and diluted)	$0.02	$0.03	$0.09	$0.09

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 fourth quarter financial results on Wednesday, March 21, 2017 at 9:30 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, March 28, 2018 at midnight.  To access the archived conference call, dial 1-855-859-2056 or 416-849-0833 and enter the reservation number   8564256.

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 "Patient 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 & 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

please contact: Jack Shevel, Chairman and Interim Chief Executive Officer, Centric Health Corporate, 416-927-8400, [email protected]; Leslie Cho, Chief Financial Officer, Centric Health Corporate, 416-927-8400, [email protected]