Centric Health Reports Second Quarter 2013 Financial Results

- Quarter Highlighted by Record Revenue and Adjusted EBITDA, Fifth Consecutive Quarter of Positive Cash Flow from Operations and Strengthened Balance Sheet -

TORONTO, Aug. 13, 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 second quarter and six-month period ended June 30, 2013.

Financial and Operating Highlights for the Second Quarter

• Revenue increased to a record $122.2 million as compared to $114.1 million for the corresponding period in 2012, primarily the result of organic growth initiatives;
• Adjusted EBITDA¹increased to a record $13.2 million from $12.5 million for the corresponding period in 2012 and from $9.7 million for the first quarter in 2013;
• The Company is now realizing the benefits of management's efforts in response to regulatory reforms in the fall of 2010 in the Assessments segment as Adjusted EBITDA¹ increased to $2.6 million in the second quarter from $1.8 million in the prior year;
• Reported fifth consecutive quarter of positive cash flow from operations as a result of the Company's continued focus on cash management and improved operational income;
• Strengthened the balance sheet and added financial flexibility through completion of a $200 million public offering of second lien senior secured notes, used to repay the Company's Term Loan, Revolving Facility and a portion of outstanding preferred partnership units. The Company also entered into an amended and restated agreement for its Revolving Facility, providing for borrowing capacity of $50 million; and,
• Redeemed a total of $30 million of outstanding preferred partnership units, the Company's most expensive debt instrument, which when combined with the refinancing, is expected to generate more than $10 million in incremental cash flow annually.

Financial and Operating Highlights Subsequent to the Second Quarter

• Established a five-year strategic alliance with Vancouver Imaging ("VI"), a premier sub-specialty Diagnostic and Interventional Radiology Group based in British Columbia, under which VI will provide imaging services at the Company's state-of-the-art False Creek Healthcare Centre and the two parties will jointly explore other imaging opportunities across Canada;
• Established two specialized Centres of Excellence (COEs) at False Creek Healthcare Centre:
• Canada sinus and nasal centre; and,
• Women's Urology Centre;
• Launched an Extended Patient Choice Network (EPCN), a Canadian solution, that offers patients out-of-province surgical choices for early intervention and treatment through Centric Health's network of surgical centres across Canada; and,
• Launched a Triage Assessment Program (TAP) at the Rouge Valley Health System in Toronto, Ontario which offers patients on waiting lists a multi-disciplinary assessment and non-surgical treatment alternatives.

"Our record results for the second quarter are demonstrative of our ability to leverage our one-of-a-kind healthcare services platform for growth," said David Cutler, President and Chief Executive Officer, Centric Health Corporation.  "While we are pleased with this performance, we are only just beginning to capitalize on the significant long-term opportunity inherent in our platform.  With key additions to the senior management team in the first half of this year, we remain focused on the many organic growth initiatives across our business, as well as numerous cross-selling opportunities, and expanding margins through ongoing right-sizing activities and operational efficiency projects. As many of our growth initiatives have protracted sales cycles, we expect to begin to see meaningful contribution from some of these initiatives in the second half of this year and into 2014.  Of particular note, our Bundled Services Offering to Long-term Care and Retirement Homes continues to gain momentum. Our recently announced alliance with Vancouver Imaging is evidence of the solid headway we are making with our strategy to drive utilization of our surgical centres through innovative programs that partner with the country's leading healthcare professionals."

Daniel Gagnon, Chief Financial Officer, Centric Health Corporation added, "The second quarter saw meaningful progress on our stated objectives to strengthen our balance sheet and improve our management of working capital.  Our debt refinancing activity during the quarter provides additional financial flexibility to support our growth plans, while the ongoing success of our cost savings and working capital management programs is driving improved cash flow."

FINANCIAL RESULTS

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

Selected Financial Information

		Three months ended June 30,			Six months ended June 30,
		2013 $	2012 $	2011 $	2013 $	2012 $	2011 $
Revenue		122,184	114,123	33,596	235,465	218,376	56,631
(Loss) income from operations		(1,136)	3,167	2,632	(2,251)	5,111	4,381
	% of revenue	(0.9)%	2.8%	7.8%	(1.0)%	2.3%	7.7%
(Loss) income before interest expense and income taxes		(1,514)	48,165	14,087	8,201	48,859	7,969
EBITDA^1		7,469	54,460	15,236	25,777	61,470	9,981
Adjusted EBITDA^1		13,211	12,454	3,213	22,955	24,233	5,408
	Per share - basic ($)	0.10	0.11	0.04	0.18	0.22	0.07
Per share - diluted ($)		0.07	0.10	0.03	0.13	0.18	0.07
Adjusted EBITDA^1margin		10.8%	10.9%	9.6%	9.7%	11.1%	9.5%
Net (loss) income		(12,361)	42,366	11,722	(7,989)	37,715	4,598
	Per share ($) - basic	(0.10)	0.38	$0.15	(0.06)	0.35	0.06
	Per share ($) - diluted	(0.10)	0.34	$0.11	(0.06)	0.29	0.05
Cash flow from operations		6,464	8,003	(439)	6,661	(2,900)	(2,260)
Weighted average shares outstanding (basic) *		126,698	112,370	80,525	125,355	109,123	74,298
Shares outstanding June 30*		127,424	112,847	80,643	127,424	112,847	80,643

*Excludes contingent escrowed shares and restricted shares

Consolidated Results

Consolidated revenue for the second quarter of 2013 increased by 7.1% to $122.2 from $114.1 million for the second quarter of 2012. This increase was primarily attributable to:

• Organic growth - Same store revenue growth of $8.6 million, with growth in all segments except Surgical and Medical Centres;
• Acquisitions - Retail and Home Medical Equipment stores acquired in the fourth quarter of 2012 and the first quarter of 2013 were accretive to revenue by $1.6 million; and,
• Working days - Higher revenue of $1.4 million as a result of one additional working day in the second quarter of 2012.

Offsetting these increases were:

• Pharmacy - A decrease in revenue of $2.0 million as a result of certain high volume drugs becoming generic; and,
• Surgical and Medical Centres - A decrease in revenue of $1.5 million resulting from the restructuring of the Sarnia operations in order to position this centre for future growth opportunities.

The Company's revenue for the first six months of 2013 increased by 7.8% to $235.5 million from $218.4 million for the first six months of 2012. This increase was primarily attributable to:

• Acquisitions - Purchase of Motion Specialties in February 2012, the addition of 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 collectively increased revenue by $12.5 million; and,
• Organic growth - Same store revenue growth of $13.5 million in the Physiotherapy, Pharmacy and Retail and Home Medical Equipment segments.

Offsetting these increases were:

• Pharmacy - A decrease in revenue of $3.5 million as a result of certain high volume drugs becoming generic;
• Surgical - A decrease in revenue of $2.8 million resulting from the restructuring of the Sarnia operations in order to position this centre for future growth opportunities;
• Assessments - A decrease in revenue of $1.2 million due to a decline in referrals resulting from legislative changes in this segment; and
• Physiotherapy - The impact of $0.9 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 second quarter of 2013 increased to $13.2 million from $12.5 million for the corresponding period in 2012. The majority of this increase was the result of organic growth initiatives in all segments except for the Surgical and Medical Centres segment. Adjusted EBITDA also increased on a sequential basis from $9.7 million in the first quarter of 2013. Adjusted EBITDA grew in every segment from the first to the second quarter of 2013.

Adjusted EBITDA¹ margin for the second quarter of 2013 increased sequentially to 10.8% from 8.6% for the first quarter of 2013, and was essentially unchanged from 10.9% for the second quarter of 2012.

Adjusted EBITDA, for the first six months of the year decreased to $23.0 million from $24.2 million for the corresponding period in 2012. Adjusted EBITDA margin decreased to 9.7% from 11.1% for the corresponding period in 2012, due primarily to low utilization of operating room capacity in the Surgical and Medical Centres segment and the contribution of Motion Specialties (acquired in January 2012), which generates lower margins.

Segment Results

			Three months ended June 30,
		Revenue			Adjusted EBITDA^1
		2013		2012	2013		2012
		$		$	$	%	$	%
Physiotherapy		47,716		45,563	7,570	15.9	7,284	16.0
Pharmacy		26,392		23,381	2,779	10.5	2,426	10.4
Retail & Home Medical Equipment		29,895		26,307	1,633	5.5	1,961	7.5
Assessments		10,020		9,545	2,552	25.5	1,831	19.2
Surgical & Medical Centres		8,161		9,327	541	6.6	1,132	12.1
Corporate		-		-	(1,864)	-	(2,180)	-
Total		$ 122,184		$ 114,123	$  13,211	10.8	$   12,454	10.9

			Six months ended June 30,
		Revenue			Adjusted EBITDA^1
		2013		2012	2013		2012
		$		$	$	%	$	%
Physiotherapy		92,329		90,688	13,688	14.8	14,258	15.7
Pharmacy		50,669		46,680	5,060	10.0	4,955	10.6
Retail & Home Medical Equipment		58,574		43,467	3,093	5.3	3,878	8.9
Assessments		18,332		19,668	4,103	22.4	3,352	17.0
Surgical & Medical Centres		15,561		17,873	909	5.8	2,268	12.7
Corporate		-		-	(3,898)	-	(4,478)	-
Total		$ 235,465		$ 218,376	$  22,955	9.7	$   24,233	11.1

SHARES OUTSTANDING

As at June 30, 2013 and the date of this press release, the Company had total shares outstanding of 145,981,068 and 150,808,381 respectively. The outstanding shares include 18,557,470 shares which are restricted or held in escrow and will be released to certain vendors of acquired businesses based on the achievement of certain performance targets. Accordingly, for financial reporting purposes, the Company reported 127,423,598 common shares outstanding as at June 30, 2013 and 121,389,445 shares outstanding at December 31, 2012. The number of options outstanding is 8,683,500 at June 30, 2013 and 8,383,500 at August 13, 2013. The number of restricted share units outstanding is 1,707,707 at June 30, 2013 and August 13, 2013. The number of warrants outstanding is 33,078,390 at June 30, 2013 and August 13, 2013.  Should all outstanding options and warrants that were exercisable at June 30, 2013 be exercised, the Company would receive proceeds of $25,443.

FINANCING

During the six month period ended June 30, 2013, the Company repaid $188,253 for its Term Loan and original Revolving Facility from the net proceeds of $194,217 which were received from the issuance of second lien senior secured notes in April 2013. For the three and six month periods ended June 30, 2013, the Company borrowed an additional $18,100 from its restated and amended Revolving Facility. The Company utilized $30,000 of proceeds from the second lien senior secured notes and the restated and amended Revolving Facility to redeem preferred partnership units whose interest rate was higher than the Company's senior debt facilities. The Company paid $4,963 and $9,580 in cash interest on its borrowings for the three and six month periods ended June 30, 2013.

OUTLOOK

Under the leadership of its new President and CEO, David Cutler, appointed September 2012, and supported by the appointments of Daniel Gagnon as CFO, Chris Dennis as COO and Jim Black as CIO in the first half of 2013, Centric Health is poised to take advantage of its unparalleled Canadian national healthcare platform and the Company's new management team continues to focus on optimizing and growing results from that platform. Projects have been launched for the advancement and implementation of growth initiatives, the effective use of technology to enhance business integration, management of working capital and cost saving initiatives.

The Company's principal focus in 2013 is on organic growth initiatives. Many organic growth initiatives were commenced in2012 and in the first half of 2013 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. The Company expects that seasonal factors will affect their third quarter results as revenues tend to be lower in the Physiotherapy and Surgical and Medical Centre segments during the summer months.

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 half of 2013 and plans on continuing its focus in this area. Other cross-selling initiatives include expanding orthotic sales in physiotherapy clinics and Motion Specialties and MEDI chair stores, and promoting rehabilitative services to surgical patients to expedite recovery. The Company recently launched its first Triage Assessment Program at the Rouge Valley hospital in Toronto and entered into a strategic alliance with Vancouver Imaging. The Company also continues to assess potential strategic acquisitions that will bolster its existing national platform, however any such acquisitions must provide an appropriate return relative to any debt which the Company incurs to complete the acquisition and the return is expected to be in excess of the Company's risk adjusted weighted average cost of capital including cross platform pollination benefits. Further initiatives are forthcoming from the Company's new leadership team, which include a common branding initiative and pilot projects in the Surgical and Medical Centre segment.

The Company's focus on improving its operating margins through right-sizing activities and operational efficiency projects is ongoing. The Company expects to realize further margin benefits in the surgical segment as capacity utilization increases through additional demand from COEs and the introduction of new technologies and in the retail and home medical segment as it realizes the benefits from a significant IT integration.

A key strategic priority for the new executive team is strengthening the Company's balance sheet as evidenced by the completion of the $200 million second lien senior secured notes offering in April 2013, used to pay down the Company's Term Loan, Revolving Facility and $10 million of preferred partnership units. A further $20 million was drawn from the Company's amended and restated Revolving Facility in April and June 2013 in order to further pay down preferred partnership units. In aggregate, these transactions are expected to provide the Company with more than $10 million in incremental free cash flow on an annualized basis. The Company anticipates that, based on meeting its risk-adjusted 2013 operating budget, it will generate sufficient cash flow from operations in 2013 to meet its obligations as they come due.

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 June 30,		Six months ended June 30,
			2013 $	2012 $	2013 $	2012 $
Net (loss) income			(12,361)	42,366	(7,989)	37,715
		Depreciation and amortization	8,878	6,319	17,439	12,552
		Interest expense	12,568	5,584	19,486	10,654
		Amortization of lease incentives	105	(24)	137	59
		Income tax (recovery) expense	(1,721)	215	(3,296)	490
EBITDA^1			7,469	54,460	25,777	61,470
		Transaction and restructuring costs	1,889	2,454	2,413	4,781
		Change in fair value of contingent consideration liability	(48)	(44,993)	(6,993)	(43,591)
		Stock-based compensation expense	3,475	538	5,222	1,686
		Change in fair value of derivative financial instruments	426	(5)	(3,459)	(157)
		(Gain) loss on disposal of property and equipment	-	-	(5)	44
Adjusted EBITDA^1			13,211	12,454	22,955	24,233
Basic weighted average number of shares			126,698	112,370	125,355	109,123
Adjusted EBITDA per share (basic)			$0.10	$0.11	$0.18	$0.22
Fully diluted weighted average number of shares			183,873	126,288	183,056	131,505
Adjusted EBITDA per share (diluted)			$0.07	$0.10	$0.13	$0.18

CONFERENCE CALL

Centric Health will host a conference call, including a slide presentation, to discuss its second quarter 2013 financial results tomorrow, Wednesday, August 14, 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, August 21, 2013 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 22194370.

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]