Centric Health Reports Strong Third Quarter Results

- Strategic Acquisitions Drive Significant Growth in Revenue and Profitability supported by Solid Progress in Centralization, Rationalization and Integration -

TORONTO, Nov. 10, 2011 /CNW/ - Centric Health Corporation ("Centric Health" or "the Company") (TSX: CHH), Canada's leading diversified healthcare services company, today announced financial results for the third quarter and nine-month period ended September 30, 2011.

"The third quarter was shaped by the landmark LifeMark transaction as well as the other key strategic acquisitions which have not only significantly increased the scale of our Company but also diversified our operations by both services offered and geography," said Dr. Jack Shevel, Executive Chairman of Centric Health.  "We are continuing to execute our growth strategy of expansion, diversification and consolidation, primarily into healthcare sectors that not only exhibit compelling growth prospects but also present opportunities for synergies, efficiencies and cross-selling.  One of the fundamental philosophies in delivering a unique, personalized brand of care is to align healthcare providers to ensure that patient's expectations are exceeded.  The launch of the base shelf prospectus also represents a corporate action which affords the Company the flexibility to use the various securities to offer its employees and associates an investment opportunity in an industry that they serve, understand, and are passionate about."

"The results are reflective of solid acquisitive growth combined with continued progress in developing best practices as management executes on the defined business strategy and establishes a core infrastructure and value proposition to deliver sustainable stakeholder value creation," said Peter Walkey, Chief Financial Officer of Centric Health.

"During the third quarter, we made strong progress in our strategy to build a centralized organizational infrastructure that will allow for rationalization of processes, economies of scale and efficiencies to support our expanding business units and to ensure an effective integration process," added Daniel Carriere, Chief Executive Officer of Centric Health.  "These measures will generate cost savings during 2012 whilst we continue to focus on top line growth and margin expansion."

Financial and Operating Highlights for the Third Quarter

  • On August 15, 2011, the Company completed its acquisition of the assets of Dedicated National Pharmacies adding ten locations in Ontario to its specialty pharmacy business;
  • On August 17, 2011, the Company completed its acquisitions of Blue Water Surgical and London Scoping Centres Inc. adding to its portfolio of surgical and medical clinics in Ontario;
  • Revenue increased to $67.1 million as compared to $15.8 million in the comparable quarter of 2010 largely due primarily to the LifeMark and other acquisitions made in the year;
  • Adjusted EBITDA1 increased to $9.7 million as compared to $2.2 million in the comparable quarter of 2010;
  • Adjusted EBITDA per share increased 197% to $0.092 per share from $0.031 per share on a diluted basis as compared to the comparable quarter of 2010; and,
  • Announced during the reporting period, subject to closing, the acquisitions of Performance Medical Group, Medical Imaging Centres Inc. and certain business assets of Rads 24/7 Teleradiology Consultants.

Operating Highlights Subsequent to the End of the Third Quarter

  • On October 24, 2011, the Company filed a base shelf prospectus to serve as a flexible, efficient mechanism and process which can be utilized if and when required, and subject to appropriate market conditions, to raise funds over a 25 month period through common shares, debt or warrants; and,
  • On November 8, 2011, the Company announced that it intends to acquire Motion Specialties Inc., one of Canada's largest home health care providers thereby expanding further into the home health sector across Canada.

Financial Results

(All amounts below are in thousands)

Centric's financial results for third quarter of 2011 reflect the additions of the Dedicated National Pharmacies and Blue Water Surgical and London Scoping Centres Inc. from their dates of acquisition on August 15, 2011, and August 17, 2011, respectively, and the contribution of the LifeMark businesses for the entire period.  The Company's results for the first nine months of 2011 include the contribution of the LifeMark businesses and Surgical Spaces Inc. from their dates of acquisition on June 9, 2011 and January 19, 2011, respectively.

Selected Financial Information

  Three months ended Sep 30, Nine months ended Sep 30,
  2011
$
2010
$
$ Chg 2011
$
2010
$
$ Chg
Revenue       67,096    15,755 51,341 123,727 45,422 78,305
             
Operating margin 8,428 2,059 6,369 12,809             6,126 6,683
  % of revenue       12.6% 13.1% NM 10.4%       13.5% NM
               
EBITDA1 61,935 1,968 59,967 73,200 6,110 67,090
Adjusted EBITDA1       9,698 2,198 7,500 15,114       6,489 8,625
Adjusted EBITDA1margin       14.5% 14.0% NM 12.2% 14.3% NM
             
  Per share - basic ($) $    0.117 $     0.036 $     0.081 $    0.196 $      0.106 $    0.089
Per share - diluted ($) $    0.092 $     0.031 $     0.061 $    0.155 $      0.091 $    0.064
             
Current income tax expense 511 348 163 1,115             1,350 (235)
Deferred income tax expense       114 142 (28) 506 308 198
             
Net earnings 52,625 951 51,674 58,506             2,854 55,652
  Per share ($) - basic $0.633 $0.016 $     0.617 $0.757 $0.047 $    0.710
  Per share ($) - diluted $0.501 $0.013 $     0.488 $0.600 $0.040 $    0.560
             
Weighted average shares outstanding 83,156 61,152 22,004 77,285 61,117 16,168
Shares outstanding Sep 30, 2011 151,064 61,195 89,869 151,064 61,195 89,869

NM - Not meaningful

Reconciliation of Non-IFRS Measures

EBITDA and Adjusted EBITDA1

      Three months ended
September 30,
Nine months ended
September 30,
      2011
$
2010
$
2011
$
2010
$
Net income               52,625             951 58,506             2,854
    Amortization               1,270             139 2,305             363
    Interest expense               5,018             205 7,489       664
    Mark to market on interest swap               1,580 - 1,485 -
    Stock-based compensation               817             183 1,794 571
    Income taxes               625             490 1,621             1,658
EBITDA               61,935             1,968             73,200             6,110
    Transaction costs               873             184             4,554 333
    Change in fair value of contingent consideration liability                 (53,110)             46        (62,640) 46
Adjusted EBITDA               9,698       2,198 15,114             6,489
             
Basic weighted average number of shares   83,156 61,152 77,285 61,117
Adjusted EBITDA per share (basic)         $  0.117       $ 0.036       $ 0.196 $     0.106
Fully diluted weighted average number of shares   105,053             71,034 97,531 70,968
Adjusted EBITDA per share (diluted)         $  0.092       $ 0.031       $ 0.155       $ 0.091

Revenue

Consolidated revenue for the third quarter of 2011 increased by $51,341, to $67,096 from $15,755 for the comparable period of 2010.  The increase was primarily due to the contribution of acquisitions, of which LifeMark contributed $41,233, while other acquisitions combined to contribute $10,876.  Revenue from previously existing businesses decreased by $768 as a result largely to challenges in the assessments business due to the implementation of regulatory reforms enacted in September 2010, as well as changes to the case-mix and effects of price caps imposed by such reforms. All other existing business units exhibited positive organic growth over the period.

Consolidated revenue for the first nine months of 2011 increased by $78,305, to $123,727 from $45,422 for the comparable period in 2010.  The increase was primarily due to LifeMark contributing $52,208, while other acquisitions combined to contribute $25,040.  Organic growth from previously existing businesses contributed $1,057 in additional revenue.

Revenue by Segment

    Three months ended
September 30,
Nine months ended
September 30,
      2011
$
2010
$
2011
$
2010
$
Physiotherapy & Assessments   $ 53,085 $ 15,399 $ 96,243 $ 44,385
Surgical & Medical Centres   7,575 356 18,213  1,037
Pharmacy & Home Medical Equipment   6,436 -   9,271 -
Total               $ 67,096              $ 15,755         $ 123,727  $ 45,422

Physiotherapy & Assessments

The Physiotherapy & Assessments segment is comprised of Rehabilitation, Medical Assessments, Seniors' Wellness, and Homecare. Revenue for the third quarter of 2011 increased to $53,085 from $15,399 for the comparable period in 2010.  Revenue for first nine months of 2011 increased to $96,243 from $44,385 for the comparable period in 2010.  Revenue generated by the LifeMark acquisition for the third quarter and first nine months of 2011 was $28,286 and $35,783, respectively.

The significant increase in revenues and profit from operations is attributable to the acquisition of LifeMark, the inclusion of the home care business acquired in the third quarter of 2010, as well as organic growth in Seniors' Wellness. Revenue was affected negatively by seasonality in the quarter as well as the results of the Assessments business which, compared with the prior year, experienced a decline in revenue of $2,373 and $4,662 for the three and nine-month periods ended September 30, 2011, respectively.

Seniors' Wellness operations added 12,174 beds serviced in 115 homes through the LifeMark acquisition. In addition thereto, 5,588 new beds were added in its existing business in the first nine months of 2011, which has contributed revenue growth of approximately $3,200.

The Assessments business, operating primarily through referrals from auto insurers, has continued to decline in the three-month period ended September 30, 2011, compared with the same period in 2010. Results are excluding the impact of acquisitions and reflect the impact of regulatory reform on this segment. This is largely due to the regulatory reform of minor injury guidelines, price caps, change in case-mix of referrals, and consolidation within the industry leading to insurance companies using fewer vendors to perform assessment services. Management is working diligently to make cost-effective changes to maintain profit margins and has been successful in securing new contracts that will commence in the New Year.  Given industry changes, insurance companies are seeking to partner with providers that can deliver on a national basis. This changing landscape is a key focus area as management right-sizes the division in anticipation of providing sustainable, quality focused services. Centric believes it is well positioned in this regard which has been proven through the recent awarding of three new RFP's with insurance companies. 

Surgical and Medical Centres

Revenue for the Surgical and Medical Centres segment for the third quarter of 2011increased to $7,575 from $356 for the comparable period in 2010. The increase is attributable to the acquisition of Surgical Spaces Inc., Canadian Surgical Solutions, Blue Water Surgical and London Scoping Centres, which contributed $7,196.  For the first nine months of 2011, revenue increased to $18,213 from $1,037 for the comparable period in 2010.

Pharmacy and Home Medical Equipment

Revenue for the Pharmacy and Home Medical Equipment segment for the third quarter of 2011 was $6,436 compared with $nil for the comparable period in 2010, as Pharmacy operations were only established in the fourth quarter of 2010 and Home Medical Equipment operations commenced with the inclusion of Medichair as part of LifeMark. During the third quarter of 2011, an additional corporate owned Medichair store was purchased.  Management has identified and has begun to roll-out rationalization strategies for the administration and support of the Medichair business.  Notably, revenue contribution from Medichair is comprised largely by royalties from franchisees as opposed to total revenue for corporate owned stores.  The acquisition of Dedicated National Pharmacies in the third quarter has contributed revenues of $2,929 since its date of closing on August 15, 2011. For the first nine months of 2011, revenue was $9,271.

Costs

Cost of healthcare services and supplies for the third quarter of 2011 was $33,136, compared with $9,689 for the comparable period in 2010. The increase in costs was driven by the commensurate increase in revenues and costs associated with the acquired businesses.  Employee costs were $13,203 compared with $1,942 for the comparable period of 2010.  Other operating expenses include occupancy costs, insurance, communication, advertising and promotion and administrative expenses incurred at the operational level.  Other operating expenses were $9,069 compared with $996 in the comparable period of 2010.  Corporate office expenses include salaries and benefits, occupancy costs, insurance, communication, advertising and promotion and other costs of the corporate offices.  The corporate office supports human resources, finance and information technology as well as the executive management of the Company.  Corporate office expenses were $1,990, compared with $930 for the comparable period of 2010. This increase resulted primarily from higher compensation costs associated with the inclusion of certain centralized costs from acquisitions as well as the hiring ofa CEO in December 2010.

Profit from operations, expressed as revenue less cost of healthcare services and supplies, employee costs, other operating expenses, corporate office expenses and depreciation and amortization, for the third quarter of 2011 was $8,428 or 12.6% of revenues, compared with $2,059 or 13.1% of revenue for the comparable period in 2010.  The increase in profit from operations of $6,369 was driven by acquisitions and the increased revenues in seniors' wellness.  The decrease in profit from operations, as a percentage of revenue, is due to the added costs of the acquired businesses.   The Company and its management are working to streamline various areas where consolidation, rationalization and economies of scale exist with targeted cost benefits anticipated in the coming quarters.

Cost of healthcare services and supplies for the nine-month period ended September 30, 2011 was $65,887, compared with $27,795 for the comparable period in 2010.  The increased costs are in line with the acquired businesses during the year.  Employee costs were $22,065 compared with $5,464 for the comparable period in 2010.  Other operating expenses and corporate office expenses were $15,138 and $5,523, respectively, compared with $2,715 and $2,959, respectively for the comparable period in 2010.

Profit from operations for the first nine months of 2011, was $12,809, compared to $6,126 for the comparable period in 2010. The increase is due to the added contribution of the acquired businesses in the period.

Overall, the added costs are largely due to the addition of staff and administrative costs from the acquisitions before rationalization strategies have been fully implemented.  In addition, the integration of the LifeMark acquisition is in its early stages and cost savings and rationalization between operations have only been marginally realized at this time.  It is the expectation of management that significant savings can be achieved through implementation of cost-savings initiatives at the operational and corporate levels.  The corporate administrative functions have largely been aligned and consolidated into one location.

Amortization for the third quarter of 2011 was $1,270, compared with $139 for the comparable period in 2010.  The increase in amortization is due to the increase of capital assets from acquisitions.  Amortization for the first nine months of 2011 was $2,305, compared with $363 for the comparable period in 2010.

Stock-based compensation, a non-cash expense, was $817 for the third quarter of 2011, compared with $183 for the comparable period in 2010.This expense is largely related to the vesting of options granted from time to time and the amortization of the expense related to the restricted shares issued to the CEO at the end of 2010.  Stock-based compensation for the first nine months of 2011 was $1,794, compared with $571 for the comparable period in 2010.

Total interest and interest-related expenses was $6,598 for the third quarter, compared with $205 for the comparable period in 2010. Interest expense for the three and nine-month periods ended September 30, 2011 relates to the term loan, LifeMark preference share distributions to Alaris Royalty Corp. and revolving facility arranged in June 2011, the revolving operating facility arranged in October, 2010, the related party loans obtained in November, 2010, the capital leases assumed in the acquisition of Surgical Spaces Inc., and amortization of the unwound interest rate swap.  In addition, during the quarter, the Company entered into an interest rate swap.  The change in fair value of the mark-to-market on the interest rate swaps for the three-month period was $1,580, compared with $nil for the comparable period in 2010.  Total interest expense has increased significantly in the three-month period ended September 30, 2011, as compared to the comparable year, primarily due to the increased overall debt, addition of the term loan and revolving facility entered into in June, 2011, to partially fund acquisitions together with performance-based equity issuances.

Total interest and interest-related expenses for the first nine months of 2011 was $8,974, compared with $664 for the comparable period in 2010.  The change in fair value of the mark-to-market on the interest rate swaps was $1,485, compared with $nil for the comparable period in 2010.

During the third quarter of 2011, option holders exercised 50,000 options to purchase an equivalent number of shares at a weighted average exercise price per share of $0.47.  During the nine-month period ended September 30, 2011, 662,500 options were exercised to purchase an equivalent number of shares at a weighted average exercise price per share of $0.37.

As at September 30, 2011, the Company had total shares outstanding of 151,064,397 of which 66,631,802 are currently restricted or held in escrow pending acquired businesses achieving performance targets or vesting milestones. As at September 30, 2010, there were 61,195,095 shares outstanding.

As at the date of this report, November 9, 2011, the number of shares outstanding, including restricted and escrowed shares, is 151,778,681; the number of options outstanding is 10,157,000; and, the number of warrants outstanding is 21,998,200.  Included in the shares outstanding are 66,631,802 shares held in escrow, or in trust, and are not freely tradable.

International Financial Reporting Standards ("IFRS") Impact

The most significant impacts of the transition to IFRS relate to the non-cash gain related to the decrease in fair value of contingent consideration liabilities pursuant to its business combination activities and the transaction costs incurred relating thereto.  For the three months ended September 30, 2011, the Company recorded a non-cash gain of $53,110 to earnings, reflective of the change in fair value of the contingent consideration related to acquisitions.  This non-cash gain in fair value was largely the result of the decrease in the Company's share price from the date of June 30, 2011, to September 30, 2011.

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 visit www.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.

SOURCE Centric Health Corporation

For further information:

Peter Walkey
Chief Financial Officer
Centric Health
416-927-8400 ext. 9417
peter.walkey@centrichealth.ca
      Lawrence Chamberlain
Investor Relations
The Equicom Group
416-815-0700 ext. 257
lchamberlain@equicomgroup.com

 


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