Centric Health Reports Continued Strong Growth for First Quarter of 2016 and Significantly Strengthened Balance Sheet

– Company Delivers Eighth Consecutive Quarter of Year-Over-Year Growth in Revenue and Adjusted EBITDA1

– Company Pays Down $208.6 Million in Debt, Significantly Reducing Interest Expense and Strengthening Ability to Generate Free Cash Flow –

TORONTO, May 16, 2016 /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 first quarter and year ended March 31, 2016.

Highlights for the First Quarter
(All comparative figures are for the first quarter of 2015)

  • Revenue from continuing operations increased 10.5% to $41.0 million from $37.1 million;
  • Adjusted EBITDA1 from continuing operations increased to $2.8 million from $1.1 million and adjusted EBITDA1 margin from continuing operations was 6.9% compared with 3.0% (with adjusted EBITDA1and adjusted EBITDA1 margin for the first quarter of 2015 reflecting out-sized corporate costs to support since-discontinued operations);
  • Substantially completed a right-sizing of corporate infrastructure following the sale of substantially all of the assets of the Company's Physiotherapy, Rehabilitation and Medical Assessments segment (the "Sale Transaction") such that the current run rate for corporate expenditures as a proportion of revenue is 4.0%;
  • Due to the timing of the payment of transaction costs of $6.5 million associated with the Sale Transaction that were accrued in the fourth quarter of 2015 but paid in the first quarter of 2016, cash flow from operations was negative $7.2 million, which included $0.8 million of restructuring and transaction charges incurred in the first quarter.  Excluding transaction costs and normalizing for the of $6.5 million of costs associated with the Sale Transaction, the Company would have generated positive cash flow from operations for the sixteenth consecutive quarter.

 

Significant Progress on Debt Reduction

During 2016 the Company has taken multiple and meaningful steps to reduce its debt and strengthen its balance sheet. Through these actions, the Company has reduced outstanding debt by an aggregate of $208.6 million, significantly improving its leverage ratios. The debt repayment will result in annual interest expense savings of $18.8 million, strengthening the Company's ability to generate free cash flow and providing increased financial flexibility to invest in the growth of its businesses.

  • Purchased and canceled a total principal amount of $164.3 million (plus $4.8 million in accrued and unpaid interest for a total payment of $169.1 million) of the Company's Second Lien Senior Secured Notes (principal balance of $25.9 million remaining);
  • Redeemed all of the remaining Alaris Income Growth Fund Partnership ("Alaris")Preferred Partnership Units, for the full repurchase price of $38.4 million; and,
  • Made an offer to the noteholders of the 5.5% April 2016 convertible notes to extend the maturity date to July 31, 2017, of which, noteholders of $9.1 million principal outstanding agreed to the offer and noteholders of the remaining $5.9 million principal outstanding were repaid at par plus accrued and unpaid interest subsequent to the end of the first quarter of 2016.

 

The Company's net debt at May 16, 2016 is $86.7 million.  The debt reduction has reduced the Company's total net debt to Adjusted EBITDA1 ratio to 5.7 times from 9.7 times and improved its interest coverage ratio to 2.3 times from 1.2 times.

In addition, the Company extended its Revolving Credit Facility for a two-year term expiring March 22, 2018, at a reduced interest rate.

"The start of 2016 has been truly transformational for Centric Health, as we have effectively achieved our objective around debt reduction that we set two years ago through the deployment of $208.6 million of the net proceeds of the sale of our Physiotherapy, Rehabilitation, and Medical Assessments segment towards debt repayment," said David Cutler, Chief Executive Officer. "Our successful de-leveraging marks the beginning of a new era as a significantly more focused Company able to devote our full attention to the considerable growth opportunities in our Specialty Pharmacy and Surgical and Medical Centres businesses. These businesses generate strong margins and cash flows, have low working capital and ongoing capital expenditure requirements. Importantly, our national networks in each segment have significant operating leverage that will allow us to generate high margins on incremental volumes."

Mr. Cutler added, "Our financial results for the first quarter yet again show the strength and potential of each of our segments, as we delivered our eighth consecutive quarter of year-over-year growth in revenue and adjusted EBITDA1," said David Cutler, President and Chief Executive Officer, Centric Health Corporation.  "With our de-leveraging substantially addressed, our primary focus moving forward will be on continuing to drive growth in revenue and adjusted EBITDA1 with an emphasis on maximizing sustainable free cash flow."

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 period
ended March 31,


2016

2015

2014

(in $000)

$

$

$

Revenue

40,975

37,079

32,540





Loss from continuing operations

(1,199)

(4,023)

(2,890)





Loss from continuing operations before interest expense and income taxes

(1,440)

(5,457)

(2,474)





EBITDA1 from continuing operations

1,541

(2,898)

111

Adjusted EBITDA1 from continuing operations

2,821

1,116

1,029


Per share - Basic and Diluted

$0.02

$0.01

$0.01

Adjusted EBITDA1 Margin from continuing operations

6.9%

3.0%

3.2%





Adjusted EBITDA1

2,821

7,342

6,717


Per share - Basic and Diluted

$0.02

$0.05

$0.05

Adjusted EBITDA1 Margin

6.9%

8.8%

6.1%





Net loss

(10,022)

(12,336)

(27,958)


Per share - Basic2 and Diluted2

($0.06)

($0.08)

$(0.21)





Cash flow from operations

(7,208)

2,009

3,832





Weighted Average Shares Outstanding (Basic)3

161,974

155,303

133,563

Shares Outstanding, March 313

162,258

159,388

133,563

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 March 31, 2016 increased 10.5% to $41.0 million from $37.1 million for the three month periods ended March 31, 2015.  The increase was primarily due to due to acquisition growth of $5.0 million, primarily from the Pharmacare acquisition in the Specialty Pharmacy segment, as well as organic growth in both segments, which was partially offset by the impact of the reduction in the Ontario Drug Benefit dispensing fee, which became effective October 1, 2015, in the Specialty Pharmacy segment.

Adjusted EBITDA1 from continuing operations for the three month period ended March 31, 2016 increased to $2.8 million from $1.1 million from the three month periods ended March 31, 2015.  (Adjusted EBITDA1 for the first quarter of 2015 reflects out-sized corporate costs of 8.6% of revenue, compared with 4.0% of revenue in the first quarter of 2016, to support the since-discontinued Physiotherapy, Rehabilitation and Assessments operations that were divested on December 31, 2015.) The increase was primarily the result of the accretive Pharmacare acquisition in the Specialty Pharmacy segment, as well as organic growth in both segments.  Adjusted EBITDA1 was impacted by the reduction in the Ontario Drug Benefit dispensing fee that became effective as of October 1, 2015, which was partially offset by cost containment measures.

Adjusted EBITDA1 margin from continuing operations for the three month period ended March 31, 2016 was 6.9% compared with 3.0% for the three month periods ended March 31, 2015.

Segment Results

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

For the three month period ended
March 31,

Revenue

Adjusted EBITDA1 from continuing
operations


2016

2015

2016


2015


(in $000)

$

$

$

%

$

%

Specialty Pharmacy

30,303

27,009

3,283

10.8

3,517

13.0

Surgical and Medical Centres

10,672

10,070

1,179

11.0

779

7.7

Corporate

(1,641)

(3,180)

Total

40,975

37,079

2,821

6.9

1,116

3.0

 

SHARES OUTSTANDING

As at March 31, 2016, the Company had total shares outstanding of 162,458,625. The outstanding shares at March 31, 2016 include 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 162,257,600 common shares outstanding as at March 31, 2016 and 160,882,600 shares outstanding at December 31, 2015. The number of options outstanding is 5,691,000 at March 31, 2016. The number of restricted share units outstanding is 2,982,488 at March 31, 2016. The number of warrants outstanding is 7,691,507 at March 31, 2016. Should all outstanding options and warrants that were exercisable at March 31, 2016 be exercised, the Company would receive proceeds of $12.5 million.

As at the date of this press release, May 16, 2016, the Company had total shares outstanding of 162,458,625, which include 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. The number of options outstanding is 5,691,000; the number of warrants outstanding is 7,691,507; and the number of restricted share units outstanding is 2,982,488.

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 period ended March 31,

For the three month periods ended March 31,


2016

2015

2016

2015

(in $000)

$

$

$

$

Net loss from continuing operations

(8,985)

(13,592)

(8,985)

(13,592)

Depreciation and amortization

3,039

2,610

3,039

2,610

Interest expense

8,211

8,356

8,211

8,356

Amortization of lease incentives

(58)

(51)

(58)

(51)

Income tax recovery

(666)

(221)

(666)

(221)

EBITDA from continuing operations

1,541

(2,898)

1,541

(2,898)

Transaction and restructuring costs

779

2,138

779

2,138

Change in fair value of contingent consideration liability

287

425

287

425

Stock-based compensation expense

261

442

261

442

Change in fair value of derivative financial  instruments

(46)

1,009

(46)

1,009

Gain on disposal of property and equipment

(1)

(1)

Adjusted EBITDA from continuing operations

2,821

1,116

2,821

1,116

Adjusted EBITDA from discontinued operations

6,226

6,226

Adjusted EBITDA

2,821

7,342

2,821

7,342






Basic weighted average number of shares

161,974

155,303

161,974

155,303

Adjusted EBITDA per share from continuing operations (basic)

$0.02

$0.01

$0.02

$0.01

Adjusted EBITDA per share (basic and diluted)

$0.02

$0.05

$0.02

$0.05

 

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 first quarter financial results Monday, May 16, 2016, 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 Monday, May 23, 2016 at midnight.  To access the archived conference call, dial 1-855-859-2056 or 416-849-0833 and enter the reservation number 96939134.

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 provider and brand 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 composed of a growing national network of fulfilment centres that offer high-volume solutions for the cost effective supply of chronic medication and other specialty clinical services, serving more than 25,000 residents in over 300 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 six 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 continues to evolve 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: Daniel Gagnon, Chief Financial Officer, Centric Health, 416-619-9417, daniel.gagnon@centrichealth.ca; Lawrence Chamberlain, Investor Relations, NATIONAL Equicom, 416-848-1457, lchamberlain@national.ca


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