Centric Health Reports Continued Strong Financial Results for Fourth Quarter of 2016

– Company Delivers Eleventh Consecutive Quarter of Year-Over-Year Growth in Revenue and Adjusted EBITDA1 as it Continues to Execute on Stated Strategic Objectives –

TORONTO, March 7, 2017 /CNW/ - Centric Health Corporation ("Centric Health" or "the Company") (TSX: CHH), Canada's leading diversified healthcare services company, today reported its financial results for the fourth quarter ended December 31, 2016.

Highlights for the Fourth Quarter of 2016
(All comparative figures are for the fourth quarter 2015)

  • Adjusted EBITDA1 from continuing operations increased to $4.4 million from $1.8 million and Adjusted EBITDA1 margin from continuing operations was 10% compared with 4% (with Adjusted EBITDA1 and Adjusted EBITDA1 margin for the fourth quarter of 2015 reflecting out-sized corporate costs to support since-discontinued operations);
  • Adjusted EBITDA growth from continuing operations, normalizing for the out-sized corporate costs to support since-discontinued operations, was 38%;
  • Revenue from continuing operations increased 0.7% to $41.8 million from $41.5 million (with fourth quarter 2016 revenue reflecting $1.7 million that was reclassified to cost of sales);
  • Revenue growth from continuing operations, normalizing for the reclassification of revenue to cost of sales, was 5%;
  • Returned to meaningful positive cash flow from operations at $3.0 million;
  • Completed three accretive tuck-in acquisitions in its Specialty Pharmacy, adding an aggregate of 2,100 beds at 37 long-term care and assisted living communities through six fulfillment centers located in Vancouver, Victoria, Nanaimo, British Columbia, and Grande Prairie and Medicine Hat, Alberta. Combined, the acquisitions generated trailing 12-month EBITDA of $2.6 million (with earn out targets based on EBITDA of $4.4 million over two years), provide a platform for significant growth in the local markets and further strengthens the Company's ability to serve national customers;
  • Made permanent the appointment of Mr. Leslie Cho as Chief Financial Officer; and,
  • Continued to advance its debt reduction and balance sheet simplification strategy through:
    • Redemption of the entire outstanding principal amount of $10.8 million of its 6% Unsecured Subordinated Notes scheduled to mature on December 22, 2016;
    • Commencement of a normal course issuer bid to purchase through the facilities of the Toronto Stock Exchange ("TSX") for cancellation up to $2.75 million principal amount, representing 10% of the $27.5 million principal amount issued and outstanding at the date hereof of its Unsecured Subordinated Convertible Notes maturing on October 31, 2017 bearing interest at 6.75% (TSX:CHH.NT).

Highlights for the Full Year 2016
(All comparative figures are for the full year 2015)

  • Adjusted EBITDA1 from continuing operations increased to $15.6 million from $8.5 million and Adjusted EBITDA1 margin from continuing operations was 9% compared with 5% (with Adjusted EBITDA1 and Adjusted EBITDA1 margin for the year ended December 31, 2015 reflecting out-sized corporate costs to support since-discontinued operations);
  • Adjusted EBITDA1 growth from continuing operations, normalizing for the out-sized corporate costs to support since-discontinued operations, was 13%;
  • Grew the Surgical and Medical Centre segment Adjusted EBITDA by 40% supported by investments made in facility upgrades and accreditations in 2015;
  • Revenue from continuing operations increased 4% to $167.4 million from $160.8 million;
  • Revenue growth from continuing operations, normalizing for the reclassification of revenue to cost of sales, was 5%;
  • Achieved near term target of corporate costs being below 4% of revenue following the divestiture of the Physiotherapy, Rehabilitation and Medical Assessments operations in December 2015;
  • Opened a Specialty Pharmacy fulfillment centre in Lethbridge, AB, with an additional centre set to open in Kelowna, BC; and,
  • Increased the number of beds serviced in the Specialty Pharmacy segment by more than 40% from 2014 to the end of 2016.

Highlights Subsequent to the End of 2016

  • Further strengthened and simplified its balance sheet with the early conversion of its July 2017 6.5% and April 2018 6.0% convertible loans to common shares, further reducing Centric Health's outstanding debt by $14.08 million, bringing the Company's total net debt as of December 31, 2016, pro forma the conversions, to $85.2 million, and reducing its annual interest expense by $0.9 million;
  • Since the beginning of 2016, reduced outstanding debt by $233.5 million and lowered annual interest expense by $20.5 million; and,
  • Signed an indicative term sheet with a tier-one Canadian bank for a proposed credit facility that would enable the Company to repay its remaining outstanding borrowings, while providing access to capital for potential acquisitions, organic growth initiatives and general working capital.

"A solid fourth quarter capped off a year that saw the Centric Health deliver 83% growth in Adjusted EBITDA, while successfully executing on both our organic and acquisitive growth strategies, right-size our corporate infrastructure, and significantly reduce our debt levels and interest payments," said David Cutler, President and Chief Executive Officer, Centric Health Corporation.  "For the fourth quarter we delivered our eleventh consecutive quarter of year-over-year growth in Revenue and Adjusted EBITDA, expanded our Adjusted EBITDA margin and, as expected, returned to strong positive cash flow from operations. Each of the three acquisitions completed during the quarter is accretive and has significant growth potential and, together, substantially expand our national presence."

"As we look to 2017, we are well positioned to deliver continued organic growth in each of business segments, complemented by the $2.7 million-plus potential of the Specialty Pharmacy acquisitions completed in 2016, as well as the contributions of new Specialty Pharmacy contracts awarded in the second half of 2016, as we continue to pursue additional strategic tuck-in acquisition opportunities."

Mr. Cutler added, "We continue to make steady progress on our debt reduction and balance sheet simplification strategy.  Since the beginning of 2016, we have reduced our debt by more than $233 million and our annual interest expense by more than $20 million, providing the financial flexibility to capitalize on the significant opportunities in each of our businesses. Our additional progress in the first quarter of 2017 paves the way for us to refinance our remaining debt, further simplifying our balance sheet, reducing our overall interest rate and extending the maturity of our debt.  Moreover, the significant interest savings, combined with the corporate cost reductions and new contracts, which are expected to drive growth in Adjusted EBITDA, will bode well for future free cash flow generation and stakeholder value creation, all predicated by Centric Health's unwavering commitment to the highest levels of clinical excellence and customer satisfaction."

FINANCIAL RESULTS

Discontinued Operations

On December 31, 2015, the Company completed the sale of its Physiotherapy, Rehabilitation and Assessments operations ("PR&A operations"), which are composed of its physiotherapy network, Community Advantage Rehabilitation ("CAR") (the Company's Home Care operations) and Active Health Services Ltd. ("AHS") (the Company's Seniors Wellness operations) and the Company's Assessments (Independent Medical Examinations) operations.  Consequently, those businesses have been classified as discontinued operations for both the current and comparative periods and the Company now organizes its operations into two reportable operating segments based on the various products and services that it offers. The consolidated operations of the Company are composed of: (i) Specialty Pharmacy; and (ii) 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. The sale of the PR&A operations does not include Performance Medical Group, which was previously part of the Company's Physiotherapy, Rehabilitation and Assessments segment, is now included in the Company's Surgical and Medical Centres segment.

Selected Financial Information

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


For the three month periods
ended December 31,

For the years ended
December 31,


2016

2015

2014

2016

2015

2014

(thousands of Canadian Dollars)

$

$

$

$

$

$

Revenue

41,827

41,549

34,310

167,363

160,753

133,209








Loss (gain) from continuing operations

585

(3,282)

(3,905)

(3,374)

(11,076)

(12,397)








Loss (gain) from continuing operations before interest expense and income taxes

526

(98)

(3,513)

(8,800)

(6,626)

(13,532)








EBITDA1 from continuing operations

2,992

5,122

(938,000)

2,578

6,460

(3,149,000)

Adjusted EBITDA1 from continuing operations

4,373

1,797

1,331

15,590

8,524

5,110


Per share - Basic and diluted

$0.03

$0.01

$0.01

$0.09

$0.05

$0.04

Adjusted EBITDA1 Margin from continuing operations

10.5%

4.3%

3.9%

9.3%

5.3%

3.8%








Adjusted EBITDA1

4,363

6,613

6,992

15,466

31,788

29,159


Per share - Basic2 and diluted2

$0.03

$0.04

$0.05

$0.09

$0.20

$0.20

Adjusted EBITDA1 Margin

10.3%

7.4%

7.1%

9.2%

9.1%

9.0%








Net income (loss)

(1,746)

70,220

(8,035)

(19,806)

45,868

(57,203)


Per share - Basic2 and diluted2                                                                        

($0.01)

$0.44

$(0.05)

($0.12)

$0.29

$(0.40)








Cash flow from operations

2,982

7,411

5,524

1,700

29,447

19,917















Weighted Average Shares Outstanding (Basic and diluted)3

169,161

161,110

153,324

164,444

159,470

145,221

Shares Outstanding, December 313

169,983

160,883

153,389

169,983

160,883

153,389


1 See "Non-IFRS Measures" below.

Basic and diluted earnings per share is based on the profit or loss attributable to shareholders of Centric Health Corporation.

3 Excludes contingent escrowed shares and restricted shares.

 

Consolidated Results

Consolidated Revenue from continuing operations for the three month period ended December 31, 2016 increased 0.7% to $41.8 million from $41.5 million for the three month period ended December 31, 2015. Adjusted EBITDA1 from continuing operations for the three month period ended December 31, 2016 increased to $4.4 million from $1.8 million from the three month period ended December 31, 2015 (Adjusted EBITDA1 for the fourth quarter of 2015 reflects out-sized corporate costs of 6.6% of Revenue to support since-discontinued operations). The growth was primarily due to organic growth driven by the performance of the Specialty Pharmacy segment in Western Canada, combined with contributions from the three tuck-in acquisitions, as well as organic growth from the Surgical and Medical Centres.

Consolidated revenue from continuing operations for the year ended December 31, 2016 increased by 4.1%, or $6.6 million, to $167.4 million from $160.8 million for the same period in the prior year. Adjusted EBITDA from continuing operations for the year ended December 31, 2016 increased to $15.6 million compared to $8.5 million over the same period in the prior year (Adjusted EBITDA1 for the year ended December 31, 2015 reflects out-sized corporate costs of 7.0% of Revenue to support since-discontinued operations.).

The increase in Revenue and Adjusted EBITDA for the year ended December 31, 2016 was primarily due to the acquisition of Pharmacare in March 2015, organic growth in the Specialty Pharmacy business in Western Canada and in the Surgical and Medical Centres, as well as the acquisitions completed in 2016 partially offset by the impact of the reduction of the Ontario Drug Benefit ("ODB") dispensing fee that became effective as of October 1, 2015. The net impact of the reduction in the dispensing fee on Revenue and Adjusted EBITDA for the year was approximately $3.8 million and $3.0 million, respectively

Segment Results

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

For the three month periods
ended December 31,

Revenue

Adjusted EBITDA1 from continuing
operations


2016

2015

2016


2015


(in $000)

$

$

$

%

$

%

Specialty Pharmacy

31,436

31,243

4,897

15.6

3,692

11.8

Surgical and Medical Centres

10,391

10,306

1,173

11.3

1,150

11.2

Corporate

(1,697)

(3,045)

Total

41,827

41,549

4,373

10.5

1,797

4.3

 

For the years ended
December 31,

Revenue

Adjusted EBITDA1 from continuing
operations


2016

2015

2016


2015


(in $000)

$

$

$

%

$

%

Specialty Pharmacy

125,132

121,448

17,154

13.7

16,571

13.6

Surgical and Medical Centres

42,231

39,305

5,039

11.9

3,607

9.2

Corporate

(6,603)

(11,654)

Total

167,363

160,753

15,590

9.3

8,524

5.3

 

SHARES OUTSTANDING

As at December 31, 2016, the Company had total shares outstanding of 175,183,554. The outstanding shares at December 31, 2016 include 5,201,025 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 169,982,529 common shares outstanding as at December 31, 2016  and 160,882,600 shares outstanding at December 31, 2015. The number of options outstanding is 3,345,000 at December 31, 2016. The number of restricted share units outstanding is 4,738,984 at December 31, 2016. The number of warrants outstanding is 1,096,000 at December 31, 2016. Should all outstanding options and warrants that were exercisable at December 31, 2016 be exercised, the Company would receive proceeds of $1.2 million.

As at the date of this press release, March 7, 2017, the Company had total shares outstanding of 203,914,644 which include 5,521,025 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. The number of options outstanding is 3,275,000; the number of warrants outstanding is 2,996,000; and the number of restricted share units outstanding is 4,738,984.

1NON-IFRS MEASURES

This press release includes certain measures which have not been prepared in accordance with IFRS such as EBITDA, Adjusted EBITDA, Adjusted EBITDA margin 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 non-IFRS measures presented are unlikely to be comparable to similar measures presented by other issuers.

The Company defines EBITDA as earnings before depreciation and amortization, interest expense, amortization of lease incentives, and income tax expense (recovery).  Adjusted EBITDA is defined as EBITDA before transaction and restructuring costs, changes in the fair value of the contingent consideration liability, impairments, stock based compensation expense, change in fair value of derivative financial instruments and gain on disposal of property and equipment recognized in the statement of income. Adjusted EBITDA margin 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 EBITDA1 is a meaningful financial metric as it measures cash generated from operations which the Company can use to fund working capital requirements, service interest and principal debt repayments and fund future growth initiatives.  The Company's agreements with senior lenders are structured with certain financial performance covenants which includes Adjusted EBITDA1 as a key component of the covenant calculations. EBITDA and Adjusted EBITDA1 are not recognized measures under IFRS.

Reconciliation of Non-IFRS Measures


For the three month periods
ended December 31,

For the years ended
December 31,


2016

2015

2016

2015

(in $000)

$

$

$

$

Net income (loss) from continuing operations

(1,423)

(4,661)

(18,276)

(35,472)

Depreciation and amortization

2,517

5,273

11,642

13,279

Interest expense

3,157

9,655

18,348

35,483

Amortization of lease incentives

(51)

(53)

(264)

(193)

Income tax recovery

(1,208)

(5,092)

(8,872)

(6,637)

EBITDA from continuing operations

2,992

5,122

2,578

6,460

Transaction and restructuring costs

1,094

(533)

6,803

4,979

Change in fair value of contingent consideration liability

(169)

(4,021)

5,238

(3,788)

Stock-based compensation expense

234

243

790

1,267

Change in fair value of derivative financial  instruments

228

(563)

188

(2,062)

Gain (loss) on disposal of property and equipment

(6)

149

(7)

268

Adjusted EBITDA from continuing operations

4,373

1,797

15,590

8,524

Adjusted EBITDA from discontinued operations

(10)

4,816

(124)

23,264

Adjusted EBITDA

4,363

6,613

15,466

31,788






Basic and diluted weighted average number of shares

169,161

161,110

164,444

159,470

Adjusted EBITDA per share from continuing operations (basic and diluted)

$0.03

$0.01

$0.09

$0.05

Adjusted EBITDA per share (basic and diluted)

$0.03

$0.04

$0.09

$0.20

 

PRESENTATION OF FINANCIAL RESULTS

As a result of the Company completing the Sale Transaction on December 31, 2015, the Company has amended its reportable operating segments. The Company will now present two reportable operating segments rather than three reportable operating segments as was previously presented. Operating segments are as follows: Specialty Pharmacy and Surgical and Medical Centres. The financial results of the Company's Performance Medical Group, which were included in the past as part of the Physiotherapy, Rehabilitation and Assessments segment, is now included as part of the Surgical and Medical Centres segment.

CONFERENCE CALL

Centric Health will host a conference call, including a slide presentation, to discuss its fourth quarter financial results today, Wednesday, March 8, 2017 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/investors/events-and-presentations.html).  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, March 15, 2017 at midnight.  To access the archived conference call, dial 1-855-859-2056 or 416-849-0833 and enter the reservation number   69555313.

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/investors/events-and-presentations.html).

For further information please refer to the Company's complete filings at www.sedar.com.

About Centric Health

Centric Health's vision is to be Canada's most respected and recognized provider in the independent healthcare sectors in which it operates, world renowned for delivering the highest levels of quality care and outcomes, innovative solutions and value to patients, clients and stakeholders. To this end, Centric Health primarily focuses on two core healthcare businesses:

  • The Specialty Pharmacy division is a "Patient First" model composed of a growing national network of fulfilment centres that deliver high-volume solutions for the cost effective supply of chronic medication and other specialty clinical care services, serving more than 29,000 residents in over 425 seniors communities (long term care facilities, retirement homes and assisted living facilities) nationally. The Specialty Pharmacy division also provides pharmaceutical dispensing services for employees insured by corporate health plans.

  • The Surgical & Medical Centres division is Canada's largest independent surgical provider operating five facilities across four provinces. It serves a diversified customer base with private paid non-insured surgeries and diagnostics, government outsourcing of insured surgeries and diagnostics and other procedures funded by third-party payors (including Workers Compensation) and is the proud owner of Canada's first Centre of Excellence in Metabolic and Bariatric Surgery.

With national networks of facilities in each of its businesses, deep knowledge and experience of healthcare delivery and extensive, trusted relationships with payers, physicians, and government agencies, the Company is uniquely positioned to address current and future healthcare needs in growing markets as the Canadian healthcare industry goes through a major transformation over the medium to long term.

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: David Cutler, Chief Executive Officer, Centric Health Corporate, 416-619-9401, david.cutler@centrichealth.ca; Leslie Cho, Chief Financial Officer, Centric Health Corporate, 416-619-9488, leslie.cho@centrichealth.ca


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