Centric Health Reports First Quarter 2012 Financial Results

May 15, 2012
7:00am

- Solid Progress on Integration of Acquired Companies -

TORONTO, May 15, 2012 /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 endedMarch 31, 2012.

Financial and Operating Highlights for the First Quarter

  • Revenue increased 353% to $104.3 million from $23.0 million in the prior year period as a result of the completion of seven notable acquisitions and organic growth;
  • Adjusted EBITDA1 increased 433% to $11.7 million ($0.09 per share diluted) from $2.2 million in the prior year period;
  • Adjusted EBITDA margin was 11.2% compared with 8.1% for the fourth quarter of 2011 and 9.5% for the same period in the prior year;
  • Completed the acquisition of Motion Specialties Inc. ("Motion Specialties"), which expanded the Company's national presence in the retail and home medical equipment sector;
  • Further expanded the Company's national physiotherapy footprint by completing the acquisition of five physiotherapy businesses;
  • Completed the second closing of an innovative securities offering focused on Centric Health staff and healthcare professionals, which in total generated gross proceeds of $13.6 million from approximately 180 participants; and
  • Announced plans to establish Centres of Excellence ("COE") across the country focusing on the provision of specialty niche healthcare services that offer the highest standards of care with cutting edge technology.  With the introduction of the Centric Health COEs, Dr. Glenn Copeland was appointed as Medical Director of the Company's Surgical Centre Division.

Highlights Subsequent to the First Quarter

  • Completed a private placement of $15.0 million of subordinated, unsecured convertible notes to a group of investors, including Centric Health's largest shareholder, certain members of the corporate management team, management of the businesses acquired by the Company over the past 12 months, and certain existing institutional shareholders of the Company.  The proceeds from the private placement were used to pay down the Company's Senior Debt;
  • Amended its lending agreement with its Senior Lender Syndicate, revising certain of the Company's financial performance covenants to provide the Company with greater financing flexibility.

"We began 2012 with improved financial results, highlighted by margin expansion from the preceding quarter as we made solid progress in the integration of our acquired businesses and realized savings from our ongoing cost rationalization efforts," said Dr. Jack Shevel, Executive Chairman and Interim President and Chief Executive Officer, Centric Health Corporation.  "We look forward to building on this performance throughout the remainder of the year as we execute on key integration projects that will drive efficiencies and synergies across our operations.  Over the last 18 months, we have assembled strong national networks in each of our business segments that position us well for both organic growth and cross-selling opportunities.  Through our acquisitions, we have brought together an exceptional team of proven business operators, who have a track record of success and who are heavily invested and incentivized in the growth and success of the Company."

"Our recently completed $15 million private placement and the revised covenant terms on our senior debt announced last week strengthen our financial position and provide additional financing flexibility as we continue our integration and rationalization plans to realize the targeted cost savings in the consolidated business," said Peter Walkey, Chief Financial Officer, Centric Health Corporation.

FINANCIAL RESULTS

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

Centric Health's results for the three months ended March 31, 2012 include the contribution of Motion Specialties from the date of its acquisition on February 13, 2012.

   
Selected Financial Information  
   
  Three months ended March 31,
  2012
$
2011
$
%
Change
Revenue   104,253   23,035 353%
           
Income from operations   5,463   1,749 212%
  % of revenue        5.2%   7.6% NM
           
EBITDA1   7,967   (535) NM
           
Adjusted EBITDA1        11,696   2,196 356%
Adjusted EBITDA1 margin    11.2%   9.5% NM
  Per share - basic ($) $     0.11 $      0.03 267%
Per share - diluted ($) $     0.09 $      0.03 200%
Income tax expense   275   370 NM
                 
           
Net loss   (4,651)   (2,404) (91%)
  Per share ($) - basic   ($0.04)   ($0.03) NM
  Per share ($) - diluted   ($0.04)   ($0.03) NM
           
Weighted average shares outstanding   105,839   77,198 NM
Shares outstanding March 31   112,447   80,443 NM
         
NM - Not meaningful
   
   
Reconciliation of Non-IFRS Measures  
EBITDA1 and Adjusted EBITDA1  
   
      Three months ended March 31,
      2012
$
2011
$
Net loss     (4,651)   (2,404)
  Depreciation and amortization     6,233   477
  Interest expense     5,070   637
  Change in fair value of derivative financial instruments     (152)   -
  Loss on disposal of property and equipment     44   -
  Stock-based compensation     1,148   415
  Income taxes     275   370
EBITDA1     7,967   (535)
  Transaction and restructuring costs     2,327   947
  Change in fair value of contingent consideration liability     1,402   1,784
           
Adjusted EBITDA1     11,696   2,196
           
Basic weighted average number of shares     105,839   77,198
Adjusted EBITDA1 per share (basic)   $ 0.11 $  0.03
Fully diluted weighted average number of shares     126,105   95,224
Adjusted EBITDA1 per share (diluted)   $ 0.09  $  0.03
   

Consolidated Revenue and EBITDA

Consolidated revenue for the first quarter of 2012 increased by 353% to $104,253 million from $23,035 for the comparable period of 2011.  This increase was due mainly to the completion of seven notable acquisitions and organic growth.  Revenue growth from acquisitions completed after March 31, 2011 includes $13,725 from Motion Specialties,$45,927 from LifeMark Health Partnership ("LifeMark"), $18,053 from Classic Care Pharmacy Corporation ("Classic Care"), and $7,291 from other acquisitions including Dedicated National Pharmacies Inc. ("DNP"), Blue Water Diagnostics Ltd., Windsor Endoscopy Centre Ltd., and 75% of the outstanding shares in the London Scoping Centre (collectively "BWC"), and Performance Medical Group ("Performance Medical").  The balance of the revenue increase of $1,243 is attributed to organic growth, synergies resulting from acquisitions and growth strategies.  Revenue growth was offset by a decline of $3,939 in assessment revenues due to changes in government regulations in the Assessments segment (see Assessments below).

Adjusted EBITDA1, which excludes transaction and restructuring costs and the change in the fair value of the contingent consideration liability, increased 433% to $11.7 million from $2.2 million in the prior year period.  Adjusted EBITDA margin for the first quarter of 2012 was 11.2%, an increase from 9.5% for the comparable period of 2011 and an increase from 8.1% in the fourth quarter of 2011.

   
Revenue and Adjusted EBITDA by Segment  
  Three months ended Mar. 31,
  Revenue Adjusted EBITDA
  2012 2011 2012 2011
Physiotherapy $ 45,125 $ 11,743 $ 6,974 $ 2,205
Pharmacy   23,300   1,078   2,530   43
Surgical & Medical Centres   8,546   5,140   1,135   671
Assessments   10,124   5,074   1,521   864
Retail & Home Medical Equipment   17,158   -   1,917   -
Corporate   -   -   (2,381)   (1,587)
Total  $ 104,253  $ 23,035 $ 11,696 $ 2,196
             

Physiotherapy

The Physiotherapy segment consists of the Company's rehabilitation, seniors' wellness, and homecare services.

Revenue for the Physiotherapy segment for the first quarter of 2012 increased to $45,125 from $11,743 for the comparable period in 2011.  This increase is primarily due to the acquisition of LifeMark, including its seniors' wellness division and the operations of over 100 clinics, which contributed $33,087. The Company added 12,174 beds through the LifeMark acquisition on June 9, 2011.  The remainder of the increase is due to organic growth in the seniors' wellness business through successful awards of new contracts with long-term care and retirement home providers.  This success is testimony to Centric's existing infrastructure, partnerships and advanced rehabilitation programs that therapists deliver to seniors, with a key focus on the highest quality care while monitoring and providing outcomes to show improvements in falls, mobility, continence, wounds, restraints, and other important metrics that keep seniors independent and active.

Adjusted EBITDA for the first quarter of 2012 increased to $6,974 from $2,205 for the comparable period in 2011.  Adjusted EBITDA margin for the first quarter of 2012 was 15.5% compared to 18.8% for the comparable period in 2011.  This decrease is due to the addition of LifeMark physiotherapy clinics to the Company's as these operations have lower margins than the Company's legacy operations.  In addition, there were higher than anticipated clinical human resources costs for certain physiotherapy clinics that commenced operations during 2011.

Pharmacy

The Pharmacy segment consists of 18 pharmacies servicing 34 treatment centres and three pharmaceutical dispensing operations that service over 200 long-term care facilities with over 16,000 residents.

Revenue for the Pharmacy segment for the first quarter of 2012 increased to $23,300 from $1,078 for the comparable period of 2011. The increase is primarily due to the acquisitions of DNP and Classic Care, which contributed $4,485and $18,053, respectively.  The Company's Pharmacy operations continue to pursue revenue-generating and diversification strategies to improve its performance.

Adjusted EBITDA for the first quarter of 2012 increased to $2,530 from $43 for the comparable period in 2011.  Adjusted EBITDA margin for the first quarter of 2012 increased to 10.9% from 4.0% for the comparable period of 2011.  The increase in adjusted EBITDA margin is primarily the result of addition of DNP and Classic Care, which generate higher margins than the Company's legacy operations.

Surgical and Medical Centres

The Surgical and Medical Centre segment consists of seven centres across Canada, with 19 operating rooms and 86 beds.

Revenue for the Surgical and Medical Centre segment for the first quarter of 2012 increased to $8,546 from $5,140 for the comparable period in 2011.  The increase is primarily due to the acquisitions of Canadian Surgical Solutions (as part of the LifeMark transaction) and BWC, which contributed $1,364 and $1,979, respectively.

Adjusted EBITDA for the first quarter of 2012 increased to $1,135 from $671 for the comparable period in 2011.  Adjusted EBITDA margin for the first quarter of 2012 increased marginally to 13.3% from 13.1% for the same period of 2011.  These margins are comparable on a period over period basis.

Assessments

The Assessments segment consists of eight medical assessment facilities, operating primarily through referrals from auto insurers.

Revenue for the Assessments segment for the first quarter of 2012 was $10,124 compared with $5,074 for the comparable period in 2011.  The increase is due to the acquisition of LifeMark.

Adjusted EBITDA for the first quarter of 2012 increased to $1,521 from $864 for the comparable period in 2011.  Adjusted EBITDA margin for the first quarter of 2012 was 15.0% compared with 16.9% for the comparable period of 2011.  The decrease in adjusted EBITDA margin is primarily the result of the impact of regulatory reform enacted in September 2010.  As previously disclosed, referrals from auto insurers had been in continuous decline as a result of the regulatory reform and has led to consolidation within the industry causing insurance companies to use fewer vendors to perform assessment services.  In response, the Company has re-engineered this business and is aggressively pursuing revenue generating opportunities with auto insurers and workers compensation boards and has successfully obtained additional contracts with insurers for future work.  The acquisition of LifeMark in 2011 provided critical mass in the national market, providing greater diversification within the auto insurance industry, adding disciplines to our current assessor roster and adding resources to allow the business to capitalize on opportunities within the disability, employer and government markets.  In addition, the Company has implemented cost savings initiatives to maintain profit margins.  The Company incurred certain redundant costs in 2011 as a result of the acquisition of LifeMark and is working to consolidate administrative and support staff to improve the efficiency of operations and rationalize costs.

The Company is encouraged by the recent increase in activities on a month-over-month basis for the first time since regulatory reform was enacted.

Retail and Home Medical Equipment

The Retail and Home Medical Equipment consists of MEDIchair (which was acquired as part of the LifeMark transaction), Performance Medical, and Motion Specialties, operating through more than 140 retail and home medical equipment locations across Canada.  The Retail and Home Medical Equipment segment was a new segment for the Company in 2011, established in second quarter.  As a result, there are no comparable results for the first quarter of 2011.

Revenue for the Retail and Home Medical Equipment segment for the first quarter of 2012 was $17,158 which includes the contribution from Motion Specialties from the date of its acquisition on February 13, 2012.

Adjusted EBITDA for the first quarter of 2012 was $1,917.  From the date of its acquisition to the end of the first quarter, Motion Specialties was accretive by $1,132 in adjusted EBITDA, excluding transaction and restructuring costs.  EBITDA margin for the first quarter of 2012 was 11.2%.  Motion Specialties' stores are corporately owned and, as a result, generate lower margins than the MEDIchair stores, which are primarily franchised and therefore the Company mainly generates royalty income from these operations.  Motion Specialties represented approximately 80% of first quarter 2012 revenue for the retail and home medical equipment segment.

Expenses

Cost of healthcare services and supplies for the first quarter of 2012 was $53,408, compared with $14,107 for the comparable period in 2011. Most of the Company's costs have increased between the first quarter of 2011 and the first quarter of 2012 due to the seven notable acquisitions that the Company has completed since March 31, 2011.

Employee costs for the first quarter of 2012 were $21,479 compared with $3,340 for the comparable period in 2011.  Other operating expenses for the period ended March 31, 2012, were $13,568 compared to $1,848 in the comparable period. Corporate expenses for the period ended March 31, 2012, were $4,102 compared to $1,544 in the comparable period. The support services provided through the corporate offices largely support the operations of the Company and certain of these costs have been allocated to the operating segments based on the extent of corporate management's involvement in the reportable segment during the period.  The increase in these costs and expenses can be attributed to the increase in revenues from acquired businesses as well as further bolstering central support services for the underlying operations. It is expected that continued focus on value add, support and further efficiencies in these corporate services will result in the corporate costs as a percentage of the Company's revenue improving on a go-forward basis.

For the three months ended March 31, 2012, income from operations, expressed as revenue less cost of healthcare services and supplies, employee costs, other operating expenses, corporate office expenses and depreciation and amortization was $5,463.  For the three months ended March 31, 2011, income from operations was $1,749.

Depreciation and amortization for the first quarter of 2012 was $6,233 compared with $447 for comparable period in 2011. The majority of this increase is a result of the amortization of intangible assets recognized in the determination of identifiable assets from the Company's acquisitions after March 31, 2011.

Stock-based compensation, a non-cash expense, was $1,148 for the first quarter of 2012, compared with $415 for the comparable period in 2011. This increase is due an increase in the fair value of stock-based compensation due to an increase in the value of the common shares of the Company as compared to the same period in the prior year.

Interest expense for the first quarter was $5,070, compared with $637 for the comparable period in 2011. Interest expense relates to the term loan and revolving facility arranged in June 2011, the distribution on preferred partnership units, the related party loan obtained in November 2010, the capital leases assumed in acquisitions, the convertible debt issued in December 2011 and February 2012 and the amortization of interest rate swaps which do not qualify for hedge accounting treatment.

During the first quarter of 2012, option holders exercised 37,500 options to purchase an equivalent number of shares at a weighted average exercise price per share of $0.42.

As at March 31, 2012, the Company had total shares outstanding of 182,152,586 of which 69,106,081 are currently restricted or held in escrow pending acquired businesses achieving performance targets or vesting milestones.  As atMarch 31, 2011, there were 98,220,254 shares outstanding excluding restricted shares and shares held in escrow.

As at the date of this news release, May 15, 2012, the number of shares outstanding, including restricted and escrowed shares, is 181,402,586; the number of options outstanding is 13,193,000; and, the number of warrants outstanding is 27,794,363.  Included in the shares outstanding are 69,208,354 shares held in escrow, or in trust, and are not freely tradable.

LIQUIDITY AND CAPITAL RESOURCES

The Company did not meet certain financial performance covenants at March 31, 2012 and obtained a waiver from its lenders subsequent to period end with regards to this matter.  Subsequent to March 31, 2012, the Company amended its lending agreement with its Senior Lender Syndicate revising certain of the Company's financial performance covenants in order to provide the Company with greater financing flexibility.  Subsequent to March 31, 2012, the Company also completed a private placement of $15,000 of subordinated, unsecured convertible notes to a group of investors, including Centric Health's largest shareholder and certain members of the Company's corporate management team, as well as the management of the businesses acquired by the Company over the past 12 months.  The proceeds from this private placement have been used to pay down the Company's Term Debt.

In the first quarter of 2012, the Company used additional working capital from operations as the Company undertook a strategic initiative to negotiate more favorable terms with certain suppliers in the retail and home medical equipment segment.  As a part of this initiative, the Company paid down its amounts owing to these suppliers on a more rapid basis this quarter.  The Company is focused on managing its cash flows, which vary between the different business segments, and is seeking to better align supplier payment terms with its cash collections cycle from government agencies and insurance companies.

The Company has identified numerous cash flow improvement initiatives which are being implemented in 2012 that are expected to improve the net cash flow after debt service costs.  The Company is pursuing initiatives to reduce its senior debt levels through improved cash flow and may undertake equity financings from time to time subject to favorable market conditions.  Longer-term capital requirements will depend on many factors including the number and size of acquisitions completed, the rate of growth of the Company's client base, and the cost of expanding in new markets for existing and new healthcare services.  The Company's target in the medium term of 18 to 24 months is to maintain a debt to EBITDA level of between 2.75 and 3.25.

ACCREDITATION

The Company has a significant commitment to patient care and quality outcomes.  The Company believes that the accreditation seal of achievement assures clients that the Company meets or exceeds independent, nationally and internationally recognized standards for excellence in business practices and clinical service.  The Company re-invests and continually reviews patient outcomes in order to provide clients with quality care.

OUTLOOK

The Company continues to focus on the effective integration of acquisitions and driving synergies across its various operations.  The Company's focus for the balance of 2012 will be to continue developing leverage and cross-selling opportunities in order to drive revenue and income growth.  The Company has initiated several special projects to achieve revenue and income growth, economies of scale and rationalization benefits going forward.  These special projects include consolidated purchasing, undertaking a company-wide branding strategy, systems integration initiatives, focused working capital management, centralization of operational support services to achieve economies of scale and directed cross selling and new service initiatives across various operating segments.  The Company continues to focus on cost savings through the integration of acquisitions which is leading to a reduction in operational redundancies.  In the second quarter of 2012, the Company will focus on the integration of Motion Specialties into the Company's centralized operational support services.  As reported in the MD&A in the third quarter of 2011, the Company anticipates that its rationalization and integration activities will result in $5,500 in savings.  The Company realized some of these efficiencies in the first quarter of 2012 and expects the full financial impact of these efforts will be realized over the medium term.

The Company completed the acquisition of five physiotherapy operations in the first quarter of 2012 and is focused on growth in the physiotherapy segment through the acquisition of additional clinics that will be accretive to income and complimentary to the national network.  The Company is also focused on extracting further efficiencies through the continued integration of LifeMark's eldercare operations with the Company's legacy operations.  Seasonality factors can cause revenues from clinics in the physiotherapy segment to be higher in the second and fourth quarters and lower in the first and third quarters.

Revenue and EBITDA for the Company's Pharmacy operations are expected to increase for the balance of 2012 as compared to 2011 due to organic growth through tenders for contracts, retail initiatives and maximizing the utilization of existing infrastructure.

The Surgical and Medical Centres segment of the Company have strong prospects for the remaining three quarters of 2012.  Under the direction of the Company's Medical Director, Dr. Glenn Copeland, the Company is expected to launch its first Surgical Centre of Excellence in 2012.  This initiative will partner the Company with some of the country's leading surgical specialists.

While revenues in the Assessments segment continue to be adversely affected by legislative changes surrounding automobile insurance coverage, substantial efforts were made in the fourth quarter of 2011 and the first quarter of 2012 to reduce fixed costs and "right size" the business.  In the first quarter of 2012, the Company continued to consolidate its operations in Ontario with fewer assessment centres in order to reduce excess overhead costs.  Revenue for this segment is anticipated to be $12 million to $15 million lower on a pro forma basis in 2012 as compared to 2011. The Company is focusing on margin improvement practices to re-engineer the business and ensure future success so that the Company can continue to serve insurers and clients on a national basis with quality care and outcomes.

The Company's Retail and Home Medical Equipment segment expects to continue to grow with the integration of Motion Specialties.  The acquisition of Motion Specialties has not only expanded the Company's retail footprint inCanada, it also provides the Company with exciting synergy opportunities with the Company's existing MEDIchair operations, in addition to potential cross-selling initiatives with the Company's other operations.

CONFERENCE CALL

Centric Health will host a conference call, including a slide presentation, to discuss its first quarter 2012 financial results and provide a corporate update today, Tuesday, May 15, 2012, 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 Tuesday, May 22, 2012 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 78766887.

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.

 
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 interest expense, income taxes, amortization and stock-based compensation expense.  Adjusted EBITDA is defined as EBITDA before transaction costs related to acquisitions and changes in fair value of contingent consideration recognized on the statement of income and comprehensive income.  Management believes that Adjusted EBITDA is a useful financial metric as it assists in the ability to measure cash generated from operations.  Adjusted EBITDA per share for any period represents the cash generated on a per share basis for the weighted average number of shares outstanding at the end of the period.  The method of calculating EBITDA may differ from other companies and accordingly, EBITDA may not be comparable to measures used by other companies.
 

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 visitwww.centrichealth.ca and www.lifemark.ca.  Centric Health's strategic advisor is Global Healthcare Investments & Solutions, Inc. ("GHIS") (www.ghis.us).  GHIS and entities controlled by shareholders of GHIS are currently the largest shareholders of Centric Health.

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.

For further information:

Peter Walkey
Chief Financial Officer
Centric Health
416-619-9417
peter.walkey@centrichealth.ca

Lawrence Chamberlain
Investor Relations
The Equicom Group
416-815-0700 ext. 257
lchamberlain@equicomgroup.com