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or Name
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Centric Health Corp
Symbol CHH
Shares Issued 161,202,080
Close 2015-05-05 C$ 0.375
Market Cap C$ 60,450,780
Recent Sedar Documents

Centric loses $12.33-million in Q1

2015-05-05 20:27 ET - News Release

Ms. Renee Hourigan reports

CENTRIC HEALTH REPORTS CONTINUED GROWTH FOR THE FIRST QUARTER OF 2015

Centric Health Corp. has released its financial results for the first quarter ended March 31, 2015.

Highlights for the first quarter (all comparative figures are for the corresponding period of the prior year):

  • Revenue from continuing operations increased 11.3 per cent to $83.2-million from $74.8-million.
  • Adjusted earnings before interest, taxes, depreciation and amortization from continuing operations increased 7.2 per cent to $7.4-million from $6.9-million.
  • Adjusted EBITDA margin from continuing operations was 8.9 per cent compared with 9.2 per cent.
  • The company generated cash flow from operations of $2.0-million, which included $2.7-million of restructuring and transaction charges, the 12th consecutive quarter of positive cash flow from operations.
  • It completed the reacquisitions of Community Advantage Rehabilitation Inc. (previously referred to as the company's home care operations) and Active Health Services Ltd. (previously known as the company's seniors wellness operations) from Lifespan Health and Wellness Ltd. in consideration for the full repayment of the amounts owing under the two promissory notes previously issued in favour of Centric Health by Lifespan (principal amounts of $2.5-million and $12.0-million).
  • The company completed the acquisition of 100 per cent of the shares of Pharmacare Fulfillment Center Ltd., an Edmonton-based leading specialty pharmacy business operating under the Care Plus, Pharmacare and Lidia's Pharmacy brands in Western Canada that generated annualized trailing 12-month (period ended Dec. 31, 2014) EBITDA of $5.1-million.

Highlights subsequent to quarter-end:

  • The company has received commitments to extend the revolving facility, which was set to mature on June 9, 2015, for one year with consistent terms and conditions. The closing of the extension is expected to occur prior to May 11, 2015. The facility has been increased to $35.0-million from its current temporary level of $25.0-million, an amount that effectively met the company's operating needs. The continued focus on debt repayment includes a planned $15.0-million permanent debt reduction. The debt reduction will be completed through this $5.0-million permanent reduction to the revolving facility and a $10.0-million redemption of the second-lien senior secured notes in the second quarter of 2015.

"The first quarter marked our fourth consecutive period of year-over-year increases in both revenue and adjusted EBITDA, and our 12th consecutive quarter of positive cash flow from operations," said David Cutler, president and chief executive officer. "The majority of first quarter growth was driven by our acquisitions, with several transient factors, primarily related to our physiotherapy, rehabilitation and assessments segment, contributing to lower organic growth than in recent quarters. We remain confident in the underlying strength and momentum of our business and its ability to generate sustainable, year-over-year organic growth for the long term.

"Strategically, the quarter was highlighted by realizing our objective to redeploy net proceeds from our divestitures of non-core operations last year into high-growth businesses with strong margins that align with our focus on hands-on care. The acquisition of Pharmacare in our specialty pharmacy segment delivered on our strategy to expand into the rapidly growing Western Canadian market while significantly enhancing our ability to serve national clients. Combined with our reacquisitions of Active and CAR, these businesses will further support our organic growth going forward.

"We are pleased to deliver on our commitment to finalize our debt reduction plan for the $15.0-million that was used to temporarily reduce our revolving facility," said Daniel Gagnon, chief financial officer. "We continue to actively pursue further opportunities to reduce our debt level, and the additional EBITDA contributions of Pharmacare, Active and CAR, which are higher than the EBITDA contributions of the divested businesses, will support our efforts in this regard."

Financial results

The company has organized its operations based on the various products and services that it offers. The consolidated operations of the company comprise three reportable operating segments, referred to as: (i) physiotherapy, rehabilitation and assessments; (ii) specialty pharmacy; and (iii) surgical and medical centres. 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.

                               SELECTED FINANCIAL INFORMATION
             (all amounts in thousands except per-share and percentage data)

                                                    For the three-month periods ended March 31,
                                                              2015          2014          2013

Revenue                                                    $83,249       $74,817       $66,928
(Loss) from continuing operations                           (2,317)         (955)       (2,080)
(Loss) income from continuing operations before
interest expense and income taxes                           (3,751)         (545)        2,494
EBITDA from continuing operations                            2,795         5,882         9,146
Adjusted EBITDA from continuing operations                   7,393         6,910         6,620
Per share -- basic                                           $0.05         $0.05         $0.05
Per share -- diluted                                         $0.03         $0.04         $0.04
Adjusted EBITDA margin from continuing operations              8.9%          9.2%          9.9%
Adjusted EBITDA                                              7,352         6,717         9,743
Per share -- basic                                           $0.05         $0.05         $0.08
Per share -- diluted                                         $0.03         $0.04         $0.05
Adjusted EBITDA margin                                         8.8%          6.1%          8.6%
Net income (loss)                                          (12,336)      (27,958)        4,373
Per share -- basic                                          ($0.08)       ($0.21)        $0.04
Per share -- diluted                                        ($0.08)       ($0.21)        $0.01

Consolidated results

Consolidated revenue from continuing operations for the three-month period ended March 31, 2015, increased 11.2 per cent to $83.2-million from $74.8-million for the three-month period ended March 31, 2014. The increase was primarily due to:

  • The reacquistions of CAR and Active and the acquisition of Pharmacare, which, in aggregate, contributed revenue growth of $6.5-million, or 8.7 per cent;
  • Organic growth of $1.9-million, or 2.6 per cent.

Adjusted earnings before interest, taxes, depreciation and amortization from continuing operations for the three-month period ended March 31, 2015, increased 7.2 per cent to $7.4-million from $6.9-million from the three-month period ended March 31, 2014. Adjusted EBITDA margin from continuing operations for the three-month period ended March 31, 2015, was 8.9 per cent compared with 9.2 per cent for the three-month period ended March 31, 2014.

Outlook

With services that address growing demand and evolving needs within the Canadian health care system, Centric Health's unparalleled national care delivery platform provides significant potential for future expansion and growth. Following an extensive review of its core competencies, business segment performance and market opportunities, in June, 2014, the company announced a refocused strategy on its core health care service businesses in the pursuit of top-line growth, improved profitability and free cash flow generation.

The company's organic growth initiatives will be focused on business development opportunities, with low capital investment, that leverage the company's existing resources and capacity. Going forward, while management expects continued organic growth from each of the segments, management would also expect that the timing and cycles of the contract procurement process could result in some fluctuation of organic growth rate from quarter to quarter. Acquisitions are expected to be accretive and consistent with the company's focus on its core business segments and on operations that generate high margins and strong cash flow, require low capital expenditures, and have low exposure to regulatory or public financing changes.

As management continues to explore opportunities to further optimize the company's asset mix and strengthen the company's balance sheet, the board of directors has approved further debt reduction strategies to maximize shareholder value, which may include additional divestitures of existing businesses and other such initiatives to reduce overall leverage.

Physiotherapy, rehabilitation and assessments

The company's physiotherapy, rehabilitation and assessments segment achieved solid growth during the period ended March 31, 2015, driven by both acquisition and organic growth. In the early part of 2015, the company completed the reacquisition of Active and CAR. The company anticipates continued growth in the rehabilitation clinic network through organic initiatives such as continued expansion of its preferred provider relationships with employers and other organizations. Specialty programs offered by the company's network of rehabilitation clinics differentiate Centric Health in a highly competitive industry. The company is also undertaking expanded digital and local marketing initiatives to drive brand awareness and increase the volume of patient visits. Growth in the company's assessments business is targeted through increased market share from successful RFPs.

In addition to the listed organic growth opportunities through preferred provider networks and specialty programs, the company will continue to pursue expansion of the national clinic footprint through additional tuck-in acquisitions. Growth through acquisition will only occur if the acquisition will be accretive to earnings and complementary to the national network and plan. Over the longer term, this segment should benefit from growth in employer health care management and wellness contracts, which should contribute to increased volumes at the company's rehabilitation clinics.

Specialty pharmacy

Delivering on the previously stated objective to expand into Western Canada and to establish a national delivery platform, on March 2, 2015, the company completed the acquisition of 100 per cent of the shares of Pharmacare, an Edmonton-based leading specialty pharmacy business operating under the Care Plus, Pharmacare and Lidia's Pharmacy brands in Western Canada, effectively expanding the number of residents serviced by its specialty pharmacy segment by almost 25 per cent.

In addition to the acquisition of Pharmacare, the specialty pharmacy segment also continued to achieve success with its organic growth strategy focused on maximizing the utilization of existing infrastructure by winning new tenders for contracts with long-term-care and retirement homes that increased the number of homes serviced by 16 per cent and expanding its retail initiatives. While the company anticipates that revenue and adjusted earnings before interest, taxes, depreciation and amortization growth in its specialty pharmacy segment will continue for 2015 and beyond through the previously mentioned revenue growth opportunities, management will also continue to pursue operational efficiencies and cost savings to offset increased competition and investments in administrative start-up costs new RFPs may require.

The western expansion of the specialty pharmacy segment provides important diversification across the existing payor base. By delivering services across a number of provinces, the segment has less reliance on any one government payor for continuing revenue streams. In addition to diversification across the existing payor base, the specialty pharmacy segment now also benefits from the scale of national operations from a management and operational perspective.

Surgical and medical centres

Growth in the company's surgical and medical centres segment is expected to be driven primarily by increasing utilization of the existing network capacity through a multifaceted strategy that includes: partnerships with local physicians and health authorities, marketing and brand development, and the introduction of innovative programs and new technologies. Efforts to further expand the roster of physicians and surgical privileges to optimize operating room capacity are in progress at all of the company's surgical centres. Additionally, Centric Health will continue to pursue opportunities to work alongside governments, health authorities and hospitals to find opportunities to relieve surgical wait-lists through new partnerships and business models.

The benefits of the positioning of the centres as partners with physicians, hospitals and health authorities are beginning to be realized as is demonstrated by the revenue increase over the same period in the prior year. As the surgical centres continue to explore opportunities to increase utilization of available capacity, the segment remains susceptible to one-time events, which may impact adjusted EBITDA and adjusted EBITDA margin, although the overall growth in revenue is indicative of continued progress in the segment. The new contracts and relationships, including other Centric Health services, are affirmations of management's belief in the importance of the surgical network. During the first quarter of 2015, the company undertook significant renovation to its False Creek location in Vancouver, B.C., to further enhance the patient experience and ensure that the facility continues to meet and exceed all accreditation standards, which resulted in work disruption of the facility over the period.

Employer health care management and wellness

First launched during the second half of 2014, the company's employer health care management and wellness initiative provides employee benefits and wellness programs to large employer clients, enabling them to select from a broad range of health care and wellness options and combine them into a plan that meets their needs. Supported by a dedicated cross-divisional business development team, the initiative continued to gain traction and momentum with clients throughout the first quarter of 2015, resulting in several new and expanded contracts, including a contract with a major Canadian benefits provider for assessments and orthopedics, marking the company's first multisegment contract that includes surgical services. The company expects contracts signed in the first quarter of 2015 to begin generating additional revenue into various core segments in the second quarter of 2015. Importantly, Centric Health is able to implement this growth initiative with minimal investment through its existing platform and national network.

Corporate infrastructure

Management believes overall profitability can be improved through further optimization of corporate infrastructure. The company continues to implement opportunities to reduce corporate costs as a proportion of consolidated revenue through centralization of functions, rightsizing, achieving deeper synergies amongst the operating segments through co-ordinated business development efforts, and managing discretionary spend and professional fees.

Financing and debt reduction

As at March 31, 2015, the company has $10.4-million of restricted cash representing the balance of net proceeds from the sale of the methadone pharmacy operations and the retail and home medical equipment business after the cash payment for the Pharmacare acquisition. The company intends to use the remaining restricted cash to reinvest in its core businesses through accretive acquisitions, further debt reductions and capital expenditures.

With the successful acquisition of Pharmacare, the company was in compliance with its financial performance covenants at March 31, 2015. Notwithstanding the acquisition, the company had previously received a waiver for one financial covenant for the three-month period ended March 31, 2015.

The company has received commitments to extend the revolving facility, which was set to mature on June 9, 2015, for one year with consistent terms and conditions. The closing of the extension is expected to occur prior to May 11, 2015. The facility has been increased to $35.0-million from its current temporary level of $25.0-million, an amount that effectively met the company's operating needs. The continued focus on debt repayment includes a planned $15.0-million permanent debt reduction. The debt reduction will be completed through this $5.0-million permanent reduction to the revolving facility and a $10.0-million redemption of the second-lien senior secured notes in the second quarter of 2015.

With the completion of accretive acquisitions made during the first quarter of 2015, the company anticipates it will be in compliance with the covenants in its revolving facility during 2015 and continue to generate sufficient cash flow to meet its obligations as they come due through future organic growth and continuing operational improvements and cost containment initiatives. There can be no assurance that the company will be successful in achieving the results targets as set out in its operating plan for each of the quarters in 2015.

Shares outstanding

As at March 31, 2015, and as at the date of this press release (May 5, 2015) the company had total shares outstanding of 161,202,080. The outstanding shares at March 31, 2015, and May 5, 2015, include 1,813,916 shares which are restricted or held in escrow and will be released to certain vendors of previously acquired businesses based on the achievement of certain stated performance targets. Accordingly, for financial reporting purposes, the company reported 159,388,164 common shares outstanding as at March 31, 2015, and 153,388,986 shares outstanding at Dec. 31, 2014. The number of options outstanding is 7,871,000 at March 31, 2015, and May 5, 2015. The number of restricted share units outstanding is 4,036,657 at March 31, 2015, and May 5, 2015. The number of warrants outstanding is 12,694,427 at March 31, 2015, and May 5, 2015. Should all outstanding options and warrants that were exercisable at March 31, 2015, be exercised, the company would receive proceeds of $20.8-million.

Conference call

Centric Health will host a conference call, including a slide presentation, to discuss its first quarter financial results on May 6, 2015, at 2 p.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 on-line webcast (see instructions herein) 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 website. 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 May 13, 2015, at midnight. To access the archived conference call, dial 1-855-859-2056 or 416-849-0833 and enter the reservation No. 32364230.

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 website. For further information, please refer to the company's complete filings at SEDAR.

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