Centric Health Provides Update on Retail & Home Medical Equipment and Seniors Wellness/Home Care Operations and Credit Facility

TORONTO, March 24, 2014 /CNW/ - Centric Health Corporation ("Centric Health" or "the Company") (TSX: CHH), today provided an update on the operations of its Retail and Home Medical Equipment segment and the Seniors Wellness and Home Care operations in its Physiotherapy segment.  The Company also announced that it is pursuing amendments to its $50 million credit facility that provides the Company with additional financial flexibility going forward.

Retail and Home Medical Equipment Inventory Adjustment

The Company has determined that year-end physical inventory counts and valuations underway at the Company's Motion Specialties and MEDIchair corporate stores in the Retail and Home Medical Equipment segment are now expected to result in a non-recurring, non-cash adjustment to decrease inventory and increase cost of goods sold. The Company is continuing its work to finalize the quantum of this adjustment, which is currently estimated at approximately $8 million. As a result, the Adjusted EBITDA¹ margin for the Retail and Home Medical Equipment segment and the Company for the fourth quarter and 2013 year are expected to be materially lower than previous periods. Under the terms of the Company's existing credit facility, the inventory adjustment will be treated as an "add back" to Adjusted EBITDA¹ for the purposes of covenant calculations.

The Retail and Home Equipment segment, which carries over 110,000 SKUs in 30 stores across Canada, has historically employed the "retail method".  Under this method, margins from the prior year are used to estimate inventory and cost of goods sold for each of the immediately prior three quarters of the year, with an adjustment at year end based on the annual year-end physical inventory count and valuation.

The Company continues to address this matter going forward on both a short- and long-term basis, including an acceleration of the efforts to implement a perpetual inventory system across all Motion and MEDIchair corporate stores. Following the acquisition of Motion Specialties in February 2012, Centric Health embarked on a major systems implementation to amalgamate and integrate the 24 individual Motion Specialties systems with each other and with the Company's MEDIchair and corporately-owned stores.  At this time, the Company expects to implement the perpetual inventory system to cover approximately half of the aggregated inventory value of all Motion and MEDIchair corporate stores by the end of the current fiscal year.

"I previously identified that the need for the implementation of a robust, integrated information system was required for the Motion Specialties and MEDIchair corporate stores and this has been a top priority for the new team since each of us started with the Company," said David Cutler, President and Chief Executive Officer, Centric Health Corporation.  "Accordingly, in 2013 we redoubled efforts around the systems implementation, which includes a cross-network perpetual inventory system.  The new system has been successfully piloted in two locations and we intend to continue to focus on implementation efforts. While the perpetual inventory system is being implemented, the Company will complete quarterly physical inventory counts and valuations at its Motion Specialties and MEDIchair retail stores."

"Motion Specialties - and, more broadly, the Retail and Home Medical Equipment segment - is a healthy business that continues to generate strong top-line growth driven by favourable demographics that are forecast to continue over the long term," Mr. Cutler added. "In addition, we are already beginning to see the impact of a number of cost savings initiatives that the interim President of the segment, Chris Dennis, who took over in February, has put in place to improve profitability.  Based on these initiatives, we expect this segment to generate single-digit Adjusted EBITDA¹ margins in 2014 with additional upside longer term."

Sale of Home Care and Seniors Wellness Operations

In light of recent determinations by the Ministry of Health and Long Term Care (the "MOHLTC") surrounding a perceived conflict of interest between the Company's Home Care and Senior Wellness businesses (the "Operations") and its retail and home medical equipment operations, the Company has made a decision to sell the non-retail Operations, both of which are largely funded by the MOHLTC.

The perceived conflict of interest is a result of Centric Health employing and contracting physiotherapists for the Operations who are Registered Authorizers under the MOHLTC's Assisted Device Program ("ADP"), which provides patients with funding for mobility equipment, while at the same time seeking reimbursement from ADP for referrals of retail and home medical equipment product sales from these authorizers. While the Company has engaged extensively with the MOHLTC to address the matter of a perceived conflict, management now believes that it is in the best interests of its customers, the affected physiotherapists and the Operations generally that the Company take decisive action to resolve the matter expeditiously.

In order to address the perceived conflict, Centric Health has entered into a definitive agreement to sell 100% of the common shares of its Home Care business, Community Advantage Rehabilitation, Inc. ("CAR"), to an arm's length third party purchaser for proceeds of $2.5 million, subject to certain adjustments.  The purchase price will be satisfied by the issuance of an eight-year note.  The note is expected to bear interest at 12% per annum, subject to adjustment, payable monthly.  Completion of the purchase and sale transaction is subject to certain healthcare regulatory consents, as well as customary closing conditions.

Centric Health is also currently pursuing the sale of its Seniors Wellness operations and believes that it will be able to complete a similarly structured sale for this business.

This perceived conflict of interest has had a downward impact on revenues and Adjusted EBITDA¹ of the Retail and Home Medical Equipment segment for the fourth quarter as a result of lower ADP related referrals during this period.  Referrals are expected to progressively increase to historical levels once this perceived conflict is resolved. The MOHLTC's determination of a perceived conflict has no impact on the Company's Physiotherapy clinic network, where fees are paid privately by insurance companies and individuals.

"We have been in regular communication with the MOHLTC on this issue and are taking decisive action to resolve the matter such that our customers will continue to receive the same high level of service through their new provider that they received through Centric Health.  We believe we can achieve a similarly structured agreement and sale for the Seniors Wellness operations and are in advanced discussions to that end," said Mr. Cutler.

Centric Health's Home Care operation engages occupational therapists, physiotherapists, registered dieticians and social workers to perform homecare services in communities.  Centric Health's Seniors Wellness operations consist of a variety of health and wellness services, including physiotherapy, occupational therapy and massage therapy to seniors living in long-term care and retirement homes and in the community.

Amendments to Credit Facility

In light of recent developments, Centric Health has pursued amendments to the financial performance covenants included in its $50 million revolving credit facility agreement.  At this time, the Company has received the required lender consent for the amendments, which will become effective upon execution of the definitive documentation and payment of fees.

"The amendments to the facility provide us with additional financial flexibility as we continue to focus on optimizing the business to generate meaningful profitability and cash flow," said Daniel Gagnon, Chief Financial Officer, Centric Health Corporation.

About Centric Health 

Centric Health's vision is to be Canada's premier healthcare company, providing innovative solutions centered on patients and healthcare professionals. As a diversified healthcare company with investments in several niche service areas, Centric Health currently has operations in medical assessments, disability and rehabilitation management, physiotherapy and surgical centres, homecare, specialty pharmacy and wellness and prevention. With knowledge and experience of healthcare delivery in international markets and extensive and trusted relationships with payers, physicians, and government agencies, Centric Health is pursuing expansion opportunities into other healthcare sectors to create value for all stakeholders with an unwavering commitment to the highest quality of care. Centric Health is listed on the TSX under the symbol CHH. For further information, please visit www.centrichealth.ca. 

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. 

¹ The Company defines EBITDA as earnings before depreciation and amortization, interest expense, amortization of lease incentives, and income tax (recovery) expense. Adjusted EBITDA is defined as EBITDA before transaction and restructuring costs, change in fair value of contingent consideration liability, change in fair value of derivative financial instruments, (gain) loss on disposal of property and equipment and stock based compensation expense.  Adjusted EBITDA % is defined as Adjusted EBITDA divided by revenue.

SOURCE: Centric Health Corporation

Daniel Gagnon
Chief Financial Officer
Centric Health
416-619-9417
[email protected] 

Lawrence Chamberlain
Investor Relations
TMX Equicom
416-815-0700 ext. 257
[email protected]