Prism Medical Reports Second Quarter Results

TORONTO, July 24, 2013 /CNW/ - Prism Medical Ltd., ("Prism Medical" or "the Company") (TSXV: PM), a leading provider of durable medical equipment and related services to the mobility challenged, today reported financial results for the second quarter (Q2) ended May 31, 2013.

Financial Summary

(in thousands of Canadian dollars)	Three months ended May 31			Six months ended May 31
	2013	2012	% Change	2013	2012	% Change
Revenues	$19,711	$21,912	(10.0%)	$37,016	$40,569	(8.8%)
Gross margin	$7,911	$8,764	(9.7%)	$14,256	$16,068	(11.3%)
(as % of revenues)	40.1%	40.0%		38.5%	39.6%
Total SG&A	$5,933	$6,545	(9.4%)	$11,558	$12,588	(8.2%)
(as % of revenues)	30.1%	29.9%		31.2%	31.0%
Net income	$1,257	$1,538	(18.3%)	$1,462	$2,347	(37.7%)
(as % of revenues)	6.4%	7.0%		3.9%	5.8%
Adjusted EBITDA	$2,897	$2,843	1.9%	$4,437	$4,840	(8.3%)
(as % of revenues)	14.7%	13.0%		12.0%	11.9%
Earnings per share
Basic	$0.15	$0.18	(16.7%)	$0.17	$0.28	(39.3%)
Diluted	$0.15	$0.18	(16.7%)	$0.17	$0.28	(39.3%)

Second Quarter Highlights

• EBITDA performance slightly ahead of last year and significantly higher than the last three quarters;
• Solid growth in US market particularly in the institutional sector;
• The performance of the MedCare supply agreement in line with expectations;
• SG&A costs continue to be well below prior year levels and in line with expectations;
• UK performing well despite the economic environment and the non-repeating first half 2012 Leonard Cheshire sales;
• Canadian sales were well below last year due to high non-repeating first half 2012 BC sales and a general slowdown in government expenditures;
• Two dividends of $0.08 per share have been paid this fiscal year;
• Gross margin rates in excess of 40%.

Financial Review

Revenues for the three months and six months ended May 31 2013 decreased by $2,201 or 10.0% and $3,552 or 8.8% respectively as detailed below:

United Kingdom (UK)

For the three and six months ended May 31, 2013, UK revenues decreased $1,314 or 11.8% and $1,750 or 8.6% respectively compared to the same periods last year.  The prior year included the positive impact of continued sales from the Leonard Cheshire contract.  If we exclude the Leonard Cheshire impact in prior year's revenue, the UK's first half revenues in fiscal 2013 would be slightly ahead of the same period last year. Despite the continued impact of the austerity cuts in the UK, the healthcare market remains solid.

United States (US)

For the three and six months ended May 31, 2013, US revenues increased $1,863 or 41.5%  and $2,529 or 27.0% respectively compared to the same periods last year. The increase in revenues related primarily to increased product sales to the institutional market and incremental sales generated through our exclusive supply agreement with  MedCare Products Inc. ("MedCare").  Incremental revenues from the MedCare transactions were in line with our expectations.  In addition, we signed up more dealers in the home care sector as we continue to expand our geographic footprint.

Canada

For the three and six months ended May 31, 2013, Canada revenues decreased $2,750 or 44% and $4,331 or 40.1 % respectively compared to the same periods last year. Last year's second quarter continued to be favorably impacted by a large replacement order for ceiling track lifts in B.C.  Provincial budgetary spending continues to be tight.

Gross Margin

For the three and six months ended May 31, 2013, gross margin decreased $853 or 9.7% and $1,812 or 11.3% compared to the same periods last year due to lower Canadian and UK revenues offset by incremental margins from sales to MedCare.  As a percentage of revenues, gross margin remained steady at 40.0% in the second quarter compared to the prior quarter in fiscal 2012 and decreased from 39.6% to 38.5% for the six months ended May 31, 2013 and 2012. The Leonard Cheshire contract and the high replacement sales in BC contributed to the higher margins last year when compared to this quarter and the six months ended May 31, 2013 as fixed costs were spread over a larger revenue base. In addition, the margins in the first half of this year were negatively impacted by the acquisition of MedCare's inventory which carried a higher valuation and re-sold at lower margin rates than similar product produced by the Company. Offsetting these negative, largely one time impacts, were significant reductions in our fixed overhead costs in the UK.

Selling, General and Administrative

Selling, general and administrative expenses for the three and six months ended May 31, 2013 decreased $612 or 9.4%  and $1,030 or 8.2% in the first half of fiscal 2013 respectively. Included in SG&A is $200 and $400 respectively relating to the amortization of the MedCare supply agreement over a 10 year period.  The decrease in SG&A was due to restructuring initiatives taken by the Company in the 4^th quarter of 2012 which was anticipated to remove $2,500 of SG&A costs in 2013.

Adjusted EBITDA¹

Adjusted EBITDA for the three month period ended May 31, 2013 grew approximately 1.9% to $2,897, or 14.7% of sales, compared to $2,843, or 13.0% of sales in Q2 2012.   Adjusted EBITDA for the six month period ended May 31, 2013 decreased 8.3% to $4,437 compared to $4,840 for the six months ended May 31, 2012.  The US profitability level improved significantly in the quarter and first half of this year compared to the same periods last year as a result of increased institutional sales, the positive impact of the MedCare transaction and significantly lower SG&A costs.  These positive variances were partially offset by lower sales in the UK and Canada as a result of non-repeating first half 2012 Leonard Cheshire sales in the UK and non-repeating BC sales in Canada.

Net Income

Net Income for the three and six months ended May 31, 2013 decreased $281 or 18.3% and $885 or 37.7% respectively compared to comparable periods last year.

Liquidity

At May 31, 2013, total debt net of cash was $19.7 million, compared with $10.1 million at November 30, 2012. The increase in net debt relates to a bank indebtedness incurred on the acquisition of the MedCare supply agreement.

Outlook

Prism intends to grow sales, profitability and return on shareholders' equity. The Company believes that performance will be positively affected by continued North American institutional demand for our products, improved manufacturing efficiencies, greater geographic coverage, and revenues and profits from new product introductions. Through the addition of additional distribution, both through independent dealers and Company-owned platforms, Prism hopes to achieve gradual growth in UK and North American profitability even with the ongoing restricted spending environment.

The demand for our core products and services, in management's estimation, continues to experience growth at different rates in the geographic markets in which we participate. Government funding for our products, particularly in Canada and the UK is a key driver of sales. Although government policies related to healthcare in the markets we operate continues to change, we believe that the long term trend continues to be favorable.

We estimate that for Prism, the US market holds the greatest long-term potential to provide above-average revenue growth. Institutional penetration for safe patient moving and handling equipment is well below what may be witnessed in mature markets such as the UK and the homecare market is similarly underdeveloped. While budget constraints and the cyclicality of the institutional order pipeline can cause variability in US revenue, our efforts to build a larger footprint in this market have already translated into strong revenue growth. Prism is actively growing its sales footprint in the US and designing affordable products for the private-pay homecare market.

Dividend Declaration

The Board of Directors has approved a dividend of $0.08 per common share payable on September 2, 2013 to shareholders of record on August 15, 2013. This will be the third dividend payment of this fiscal year.

While the Company has no formal policy on dividend payments and the Board of Directors determines the suitability of such payments on a quarterly basis, the Company views dividend payments an important part of its investor strategy and expects to continue its historical pattern of four dividend payments per fiscal year.

Notice of Conference Call

Prism Medical will host a conference call on July 25, 2013 at 9:00 a.m. EST to discuss its financial results.  Stuart Meldrum, CEO, will Chair and George Chiarucci, CFO, will co-chair the call. All interested parties can join the call by referring to the information below:

Conference call details

Dial-In Number:	[phone] or [phone]
Taped Replay:	[phone] or [phone]
Reference Number:	21911042

Please dial in 15 minutes prior to the call to secure a line. A live audio webcast of the conference call will also be available at www.prismmedicalltd.com. 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.

About Prism Medical Ltd.

Prism Medical Ltd. is one of the largest providers and manufacturers of durable medical equipment and related services to the mobility challenged in Canada, the US and the UK, with more than 100,000 installations and 200,000 product solutions sold. The Prism Medical brands include Waverley Glen and ErgoSafe, North America's leading supplier of lifting, handling and repositioning aid products and services across Canada and the US. Freeway and Prism Service & Repair are leading suppliers of moving and handling products and services in the UK. For further information visit Prism Medical's website at www.prismmedicalltd.com or www.sedar.com.

¹Non-IFRS Financial Measures

Prism Medical's consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The Company also uses non-IFRS measures such as Adjusted EBITDA to measure its financial performance. Adjusted EBITDA consists of earnings before interest, income taxes, depreciation, amortization and stock-based compensation expense and equity gains and losses from investments in associates accounted on an equity basis. Adjusted EBITDA is a financial metric used by many investors to compare companies on the basis of operating results, asset value and the ability to incur and service debt. Management believes that Adjusted EBITDA is a useful measure for evaluating the performance of the Company. Adjusted EBITDA is not a recognized measure under IFRS and does not have a standardized meaning prescribed by IFRS and may not be comparable to similarly titled financial metrics reported by other companies.

Forward-Looking Information

This document contains forward‐looking statements relating to our operations and to the environment in which we operate and our strategy, action plans and investments, which may involve estimates, forecasts and projections. These statements are not guarantees of future performance and involve risks and uncertainties that are difficult to predict and/or are beyond our control. A number of important factors could cause actual outcomes and results to differ materially from those expressed in these forward‐looking statements. These factors include those set forth in this report and our other public filings. Consequently, readers should not place any undue reliance on such forward‐looking statements. These forward‐looking statements are made as of the date of this report. Prism Medical is under no obligation to update any forward‐looking statements contained herein should material facts change due to new information, future events or other factors. All forward‐looking statements attributable to Prism Medical are expressly qualified by these cautionary statements. 

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

PRISM MEDICAL LTD. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (unaudited)
(thousands of Canadian dollars)	May 31 2013 $	November 30 2012 $
ASSETS
Current assets
Cash and cash equivalents	1,907	1,381
Accounts receivable, net	15,132	14,371
Inventories	13,485	10,768
Prepaid expenses	1,759	1,030
Other receivables	621	1,202
Income taxes recoverable	486	219
Total current assets	33,390	28,971
Equity investment	327	-
Equipment and leaseholds	2,618	3,017
Intangible assets	13,310	5,580
Goodwill	18,418	18,456
Deferred income tax assets	822	694
Total assets	68,885	56,718
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness	10,876	10,127
Accounts payable, accrued liabilities and other	9,864	8,818
Current portion of deferred revenue	180	221
Income taxes payable	871	783
Current portion of long-term debt	1,175	570
Total current liabilities	22,966	20,519
Retirement benefit obligation	447	291
Long-term portion of deferred revenue	312	312
Long-term debt	9,523	821
Deferred income tax liabilities	1,757	1,565
Total liabilities	35,005	23,508
Total Shareholders' equity	33,880	33,210
Total liabilities and shareholders' equity	68,885	56,718

PRISM MEDICAL LTD. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
	Three months ended		Six months ended
(thousands of Canadian dollars, except per share amounts)	May 31 2013 $	May 31 2012 $	May 31 2013 $	May 31 2012 $
Revenues	19,711	21,912	37, 16	40,569
Cost of products and services sold	11,800	13,148	22,760	24,501
Gross margin	7,911	8,764	14,256	16,068
Expenses
Selling and marketing expenses	1,754	1,902	3,280	3,636
General and administrative expenses	4,179	4,643	8,278	8,952
Interest expense	304	208	561	394
Foreign exchange loss	10	79	88	79
Loss from equity investment	45	-	137	-
	6,292	6,832	12,344	13,061
Income before income taxes	1,619	1,932	1,912	3,007
Income tax provision (recovery)
Current	276	372	459	597
Deferred	86	22	(9)	63
	362	394	450	660
Net income for the period	1,257	1,538	1,462	2,347
Earnings per share
Basic	0.15	0.18	0.17	0.28
Diluted	0.15	0.18	0.17	0.28

PRISM MEDICAL LTD. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED)
(thousands of Canadian dollars and number of common shares)	Number of common shares #	Share capital $	Contributed surplus $	Retained earnings $	Accumulated other comprehensive income (loss) $	Total shareholders' equity $
Balance as at November 30, 2012	8,391	24,010	997	8,841	(638)	33,210
Net income for the period		-	-	1,462	-	1,462
Other comprehensive income (loss)		-	-	-	416	416
Total comprehensive income (loss) for the period		-	-	1,462	416	1,878
Stock based compensation			135	-	-	135
Dividends paid on common shares		-	-	(1,343)	-	(1,343)
Balance as at May 31, 2013	8,391	24,010	1,132	8,960	(222)	33,880
(thousands of Canadian dollars and number of common shares)	Number of common shares #	Share capital $	Contributed surplus $	Retained earnings $	Accumulated other comprehensive income (loss) $	Total shareholders' equity $
Balance as at November 30, 2011	8,334	23,676	703	9,232	38	33,649
Net income for the period		-	-	2,347		2,347
Other comprehensive income (loss)		-	-	-	(11)	(11)
Total comprehensive income (loss) for the period		-	-	2,347	(11)	2,336
Issued under stock option plan		227	(33)	-	-	194
Stock based compensation	37	-	161	-	-	161
Dividends paid on common shares		-	-	(2,004)	-	(2,004)
Balance as at May 31, 2012	8,371	23,903	831	9,575	27	34,336

PRISM MEDICAL LTD. CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		Three months ended		Six months ended
(thousands of Canadian dollars)		May 31 2013 $	May 31 2012 $	May 31 2013 $	May 31 2012 $
Cash flows from operating activities
Net income for the period		1,257	1,538	1,462	2,347
Income tax provision		362	394	450	660
Interest expense		304	208	561	394
Income before interest and taxes		1,923	2,140	2,473	3,401
Cash taxes paid		(284)	(350)	(602)	(717)
Interest paid		(262)	(272)	(481)	(442)
	Add (deduct) items not affecting cash:
	Depreciation and amortization	879	651	1,693	1,267
	Stock-based compensation	51	69	135	161
	Loss from equity investment	45	-	137	-
	Other items not affecting cash - foreign exchange and other	248	308	191	155
		2,600	2,546	3,546	3,825
Net change in non-cash working capital balances related to operations		(44)	(242)	(2,261)	(833)
Cash provided by operating activities		2,556	2,304	1,285	2,992
Cash flows from investing activities
	Purchase of equipment and leaseholds	(79)	(129)	(233)	(236)
	Purchase of intangible assets	(227)	(264)	(8,557)	(455)
	Purchase of equity interest in associates	-		(446)
Cash used in investing activities		(306)	(393)	(9,236)	(691)
Cash flows from financing activities
	(Decrease) increase in bank indebtedness	(1,133)	1,019	749	(531)
	Increase in long-term debt	-	23	9,240	281
	Repayment of long-term debt	(91)	(675)	(181)	(1,013)
	Issuance of share capital	-	194	-	194
	Dividends paid	(672)	(1,337)	(1,343)	(2,004)
Cash provided by (used in) financing activities		(1,896)	(776)	8,465	(3,073)
Effect of foreign exchange rate changes on cash		37	23	12	(21)
Net increase (decrease) in cash and cash equivalents during the period		391	1,158	526	(793)
Cash and cash equivalents, beginning of period		1,516	1,162	1,381	3,113
Cash and cash equivalents, end of period		1,907	2,320	1,907	2,320

 

 

 

 

SOURCE: Prism Medical Ltd.

George Chiarucci
Chief Financial Officer
[email protected]
416-260-2145 ext. 229