Centric Health Reports First Quarter 2013 Financial Results

TORONTO, May 7, 2013 /CNW/ - Centric Health Corporation ("Centric Health" or "the Company") (TSX: CHH), Canada's leading diversified healthcare services company, today announced financial results for the first quarter ended March 31, 2013.

Financial and Operating Highlights for the First Quarter

• Revenue increased to $113.3 million from $104.3 million for the corresponding period of 2012, the result of acquisitions and organic growth;
• Adjusted EBITDA¹ decreased to $9.7 million from $11.8 million for the corresponding period of 2012, due mainly to a decline in the financial performance of the surgical division and two fewer business days between the comparative periods.  Adjusted EBITDA increased marginally on a sequential basis from $9.6 million for the fourth quarter of 2012;
• Reported fourth consecutive quarter of positive cash flow from operations as a result of the Company's continued focus on cash management. Cash flow from operations was $0.2 million compared with cash used in operations of $10.9 million for the corresponding period of 2012;
• Strengthened the senior management team with the appointments of Daniel Gagnon as Chief Financial Officer, Chris Dennis as Chief Operating Officer and Jim Black as Chief Information Officer;
• Strengthened the Board of Directors with the appointment of Yazdi Bharucha as an independent Director and Chair of the Audit Committee; and,
• Amended the consulting agreement with Global Healthcare Investments and Solutions, Inc. ("GHIS"), (subject to approval of the shareholders of the Company), which eliminates completion fees, removes consulting fees for 2013, and reduces consulting fees beginning January 2014 to the completion of the agreement in June 2015. The Company expects to issue 4,802,311 common shares (equivalent of $2.15 million, subject to a one year hold period).

Financial and Operating Highlights Subsequent to the First Quarter

• Strengthened balance sheet and added financial flexibility through a successful $200 million public offering of second lien senior secured notes which was used to repay its Term Loan, Revolving Facility and $10 million of preferred partnership units; and,
• Entered into an amended and restated credit agreement with senior lenders. The amended and restated agreement revises the Revolving Facility to a maximum borrowing limit of $50 million which matures on June 9, 2015. The Company utilized $12.5 million of the amended and restated Revolving Facility to repay preferred partnership units;

"Centric Health has assembled an unparalleled national platform that is favourably positioned to capitalize on the long-term secular trends in the Canadian healthcare industry," said David Cutler, President and Chief Executive Officer, Centric Health Corporation. "With our recent additions to the senior management team, we now have the experience and expertise across operations, information technology and finance to realize the value inherent in the integration of the acquired businesses and generate long-term, sustainable growth from the platform.  Importantly, we have taken a meaningful first step in our stated objective to strengthen our balance sheet and add flexibility to our financial position with a successful senior note offering and debt refinancing, including the initial repayment of our most expensive debt with Alaris."

Mr. Cutler continued, "Our results for the first quarter were in line with our expectations for incremental sequential growth as we expect our new team and the impact of our integration and growth strategies to make a meaningful contribution beginning in the second half of this year.  We are driving forward with numerous growth and margin expansion opportunities within each of our business segments.  Most notably, we continue to see momentum with our bundled services initiative with more than 120 contracts won since last September. We are also making steady progress across multiple initiatives to increase utilization at our surgical centres."

FINANCIAL RESULTS

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

Selected Financial Information

					Three months ended March 31,
					2013 $			2012 $			2011 $
Revenue					113,281			104,253			23,035
(Loss) Income from operations					(1,115)			1,944			387
	% of revenue				(1.0)%			1.9%			1.7%
Income (loss) before interest expense and income taxes					9,716			694			(1,767)
EBITDA^1					18,309			7,010			(950)
Adjusted EBITDA^1					9,743			11,779			2,195
	Per share - basic ($)				$ 0.08			$ 0.11			0.03
Per share - diluted ($)					$ 0.06			$ 0.09			$ 0.03
Adjusted EBITDA^1margin					8.6%			11.3%			9.5%
Net income (loss)					4,373			(4,651)			(2,404)
	Per share ($) - basic				$0.04			($0.04)			($0.03)
	Per share ($) - diluted				$0.02			($0.04)			($0.03)
Cash flow from operations					192			(10,903)			(1,821)
Weighted average shares					123,990			105,839			77,198
	outstanding (basic) *
Shares outstanding March 31*					125,934			112,447			80,443

*Excludes contingent escrowed shares and restricted shares

Consolidated Results

Consolidated revenue for the first quarter of 2013 increased by 8.7% to $113.3 million from $104.3 million for the comparable period of 2012.  This increase was primarily due to:

• Acquisitions - purchase of Motion Specialties in February 2012 which increased revenue by $9.6 million on a comparative basis in addition to physiotherapy clinics acquired in the first quarter of 2012 and retail and home medical equipment stores acquired in the fourth quarter of 2012 and the first quarter of 2013; and
• Organic growth - same store revenue growth of $4.4 million in its physiotherapy, pharmacy and retail and home medical equipment segments.

Offsetting these increases were:

• Working days - two fewer working days in the current quarter as compared to the same period in the prior year resulting in decreased revenues of $1.9 million;
• Pharmacy - a decrease in revenue of $1.5 million as a result of certain high volume drugs becoming generic;
• Assessments - decrease of $1.5 million due to a decline in referrals resulting from legislative changes in this segment;
• Surgical - a decline of $1.0 million mainly due to management changes at the Company's Sarnia location; and
• Physiotherapy - an impact of $0.5 million from physiotherapy clinics that were closed since the first quarter of 2012.

Adjusted EBITDA¹, which excludes transaction and restructuring costs, the change in fair value of derivative financial instruments and the non-cash change in the fair value of the contingent consideration liability, for the first quarter of 2013 decreased to $9.7 million from $11.8 million for the corresponding period of 2012.  The decrease is primarily the result of low utilization of operating room capacity in the Surgical and Medical Centres segment and there being two fewer business days in the quarter as compared to the prior year.  Adjusted EBITDA increased marginally on a sequential basis from $9.6 million for the fourth quarter of 2012.

Adjusted EBITDA¹ margin for the first quarter of 2013 was 8.6% compared with 11.3% for the corresponding period of 2012.  As excess operating room capacity in the surgical segment decreases in the future an improvement in margins in the surgical segment is anticipated. The margins for Motion Specialties which was acquired in February 2012 are lower than the Company's other operating segments which impacts on the Company's overall margin percentage.  Adjusted EBITDA margin was unchanged on a sequential basis from 8.6% for the fourth quarter of 2012.

Segment Results

		Three months ended March 31,
		Revenue						Adjusted EBITDA^1
		2013			2012			2013							2012
		$			$			$				%			$				%
Physiotherapy		44,614			45,125			6,118				13.7			6,974				15.5
Pharmacy		24,278			23,300			2,281				9.4			2,530				10.9
Retail & Home Medical Equipment		28,679			17,158			1,460				5.1			1,917				11.2
Assessments		8,311			10,124			1,552				18.7			1,521				15.0
Surgical & Medical Centres		7,399			8,546			368				5.0			1,135				13.3
Corporate		-			-			(2,036)				-			(2,298)				-
Total		$ 113,281			$ 104,253			$  9,743				8.6%			$ 11,779				11.3%

*Adjusted EBITDA margins reflect acquisitions since the first quarter of 2012 which generate lower margins than legacy operations.

SHARES OUTSTANDING

As at March 31, 2013 and the date of this news release, the Company has total shares outstanding of 144,620,526 and 145,170,526 respectively, of which 18,686,853 are held in escrow pending acquired businesses achieving performance targets or restricted. Consequently, there are 125,933,673 and 126,483,673 shares, respectively outstanding excluding restricted shares and shares held in escrow as contingent consideration for the vendors of acquired businesses at March 31, 2013 and May 7, 2013.  The number of options outstanding is 10,099,500 at March 31, 2013 and 9,194,500 at May 7, 2013.  The number of restricted share units outstanding is 610,000 at March 31, 2013 and May 7, 2013. The number of warrants outstanding is 33,078,390 at March 31, 2012 and May 7, 2013.  Should all outstanding options and warrants that were exercisable at March 31, 2013 be exercised, the Company would receive proceeds of $24,994.

FINANCING

The Company was in compliance with its financial performance covenants at March 31, 2013.  The Company used the net proceeds from its April 2013 public offering to repay its Term Loan, Revolving Facility and $10 million of preferred partnership units.  The Company also entered into an amended and restated credit agreement which provides the Company with a new Revolving Facility with a limit of $50 million.  The Company used $12.5 million of the new Revolving Facility to repay preferred partnership units.  The new Revolving Facility includes less onerous financial performance covenants.  The Company anticipates that, based on meeting its 2013 operating budget, it will generate sufficient cash flow from operations in 2013 to meet its obligations as they come due.

OUTLOOK

Centric Health has established an integrated national healthcare company with a platform for growth that is unparalleled in Canada and well positioned to assist with Canada's ever-expanding healthcare needs. The Company appointed David Cutler as its new President and Chief Executive Officer in September 2012, an individual with a track record of success in the healthcare industry, in order to drive the Company to realize its full potential over the long-term.  Under the direction of Mr. Cutler, the Company made several significant personnel appointments in the first quarter of 2013 including the hiring of Daniel Gagnon as CFO, Chris Dennis as COO and Jim Black as CIO.  This new management team is focused on optimizing and growing results from the Company's existing platform. Projects aimed at the advancement and implementation of growth initiatives, the effective use of technology to enhance business integration, management of working capital and cost saving initiatives have been launched since September 2012 and further initiatives are forthcoming from the new leadership team.

The new executive team is focused on strengthening the Company's balance sheet by concentrating on financial performance and free-cash flow generation, thereby reducing the Company's senior debt and total debt leverage ratios over the medium term. The Company recently completed a $200 million prospectus supplement for second lien senior secured notes in April 2013 which was used to pay down the Company's Term Loan, Revolving Facility and $10 million of preferred partnership units. A further $12.5 million was drawn from the Company's amended and restated Revolving Facility in April 2013 in order to further pay down preferred partnership units. A key initiative is the repayment of preferred partnership units as this is the Company's most expensive debt instrument. In addition, the second lien senior secured notes and the amended and restated Revolving Facility contain less onerous financial performance covenants. The Company anticipates that based on meeting the sensitivity adjusted 2013 operating budget, it will generate sufficient cash flow from operations in 2013 to meet its obligations as they come due.

While the Company continues to seek out strategic acquisitions that will bolster its existing national platform, its main focus in 2013 will be to grow its existing businesses. Many organic growth initiatives were commenced in 2012 which tend to have a long sales cycle and as such, the Company does not expect to begin to realize the benefits of these initiatives until the second half of 2013 and beyond. Cross-selling initiatives include bundled service contracts which leverage the Company's platform to offer bundled services of physiotherapy, pharmacy and home medical equipment services to long-term care and retirement homes. The Company signed new bundled services contracts in the first quarter of 2013 and plans on continuing its focus in this area. Other cross-selling initiatives include expanding orthotic sales in physiotherapy clinics, Motion Specialties and MEDIchair stores and promoting rehabilitative services to surgical patients to expedite recovery.  Growth from future expansion or new initiatives will only occur if the acquisition or initiative will be accretive to income within a reasonable period of time and is complementary to the Company's national network.

In addition to growth initiatives, the Company continues to focus on improving its operating margins through right-sizing activities and operational efficiency projects. The Company is working to further consolidate purchasing initiatives in its surgical and retail and home medical equipment operations and has undertaken systems integration initiatives specifically aimed at its Retail and Home Medical Equipment operations.

The Company is currently evaluating proposed regulatory changes announced by the Ontario Ministry of Health in April 2013 related to physiotherapy services for seniors.  Approximately 12% of consolidated revenues in 2012 were derived from services that may be impacted by these proposed regulatory changes. The Company is continuing its strategy to expand the number of beds serviced in retirement and long-term care homes through the Company's bundled services initiatives, ensuring the continued provision of quality care and outcomes to the seniors we serve.

¹Non-IFRS Measures

This press release includes certain measures which have not been prepared in accordance with IFRS such as EBITDA, Adjusted EBITDA 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 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, changes in the fair value of the contingent consideration liability, stock based compensation expense, change in fair value of derivative financial instruments and (gain) loss on disposal of property and equipment recognized in the statement of income.  Adjusted EBITDA % 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 EBITDA is a meaningful financial metric as it assists in the ability to measure cash generated from operations.  EBITDA and Adjusted EBITDA are not recognized measures under IFRS.

Reconciliation of Non-IFRS Measures

					Three months ended March 31,
					2013 $				2012 $
Net income (loss)					4,373				(4,651)
	Depreciation and amortization				8,561				6,233
	Interest expense				6,918				5,070
	Amortization of lease incentives				32				83
	Income tax (recovery) expense				(1,575)				275
EBITDA^1					18,309				7,010
	Transaction and restructuring costs				523				2,327
	Change in fair value of contingent consideration liability				(6,945)				1,402
	Stock-based compensation expense				1,747				1,148
	Change in fair value of derivative financial instruments				(3,886)				(152)
	(Gain) loss on disposal of property and equipment				(5)				44
Adjusted EBITDA^1					9,743				11,779
Basic weighted average number of shares					123,990				105,839
Adjusted EBITDA per share (basic)					$0.08				$0.11
Fully diluted weighted average number of shares					156,228				126,105
Adjusted EBITDA per share (diluted)					$0.06				$0.09

CONFERENCE CALL

Centric Health will host a conference call, including a slide presentation, to discuss its first 2013 financial results tomorrow, Wednesday, May 8, 2013, 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/events-presentations.php).  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 15, 2013 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 59251620.

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/events-presentations.php).

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

About Centric Health

Centric Health is Canada's leading diversified healthcare company and dedicated to building on the strengths of Canada's healthcare system through innovative solutions.  Through a series of strategic acquisitions, the Company has amassed a national platform for delivery of a broad range of services through more than 3,600 staff and consultants at almost 1,000 locations and has preferred provider contracts with over 50 corporations, government agencies and employers, and over 600 contracts with Long Term Care and Retirement Homes.  This platform provides compelling growth prospects through synergies, rationalization and cross-pollination opportunities to create meaningful value for all stakeholders.  Above all, Centric Health has an unwavering commitment to employ the highest service and ethical standards and deliver a superior quality of care with the best possible clinical outcomes.  For more information, 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.

 

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]