Centric Health Reports First Quarter Results

TORONTO, June 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 first quarter ended March 31, 2011.

"Centric Health has made substantial progress in 2011, investing in quality healthcare businesses, appointing key executives and developing a corporate infrastructure that positions the group well for continued strategic expansion in line with its stated objectives," said Dr. Jack Shevel, Chairman of Centric Health Corporation. "The corporate advancements represent a meaningful phase in the establishment of a solid platform to building a growth and quality focused, sustainable healthcare company."

"In light of the significant corporate activity during the quarter, we are encouraged by the financial performance and cash generation of the underlying businesses," said Peter Walkey, Chief Financial Officer of Centric Health Corporation.

Financial and Operating Highlights
During and subsequent to the quarter ended March 31, 2011:

  • Revenue increased 67% to $23.0 million, as compared to $13.8 million in the first quarter of 2010.
  • Operating margin increased by 40% to $3.7 million, as compared to $2.7 million in the first quarter of 2010.
  • On January 19, 2011, the Company completed its acquisition of Surgical Spaces Inc. ("SSI") expanding its offerings in Western Canada with surgical centres in Winnipeg and Vancouver. SSI is expected to contribute over $20 million of revenue in 2011.
  • On March 3, 2011, the Company completed a private placement bought deal of 17,940,000 shares for proceeds of $21.5 million.
  • On May 6, 2011, the Company announced the acquisition of LifeMark Health ("LifeMark") which closed on June 9, 2011. The acquisition of LifeMark provides Centric Health with significant market expansion and scale in the Canadian healthcare industry, accompanied by annualized revenue of approximately $180 million and strong earnings and cash flow which will act as a catalyst for Centric Health's broader strategy.
  • On May 19, 2011, the Company announced an agreement to acquire substantially all of the assets of the Blue Water Surgical and Diagnostics group ("Blue Water"). Blue Water owns and operates three state-of-the-art surgical and endoscopy facilities located in Sarnia, London and Windsor, Ontario. This acquisition will provide Centric with a presence in south-western Ontario for growth in its surgical and medical offerings.

All amounts below are in thousands

International Financial Reporting Standards ("IFRS") Impact
The three months ended March 31, 2011, was the Company's first reporting period under IFRS. As anticipated and disclosed in the fourth quarter of 2010, the adoption of IFRS had an impact on the presentation of the Company's 2011 first quarter financial results. As a result, from a net income standpoint, the decrease for the first quarter compared to previous quarters is largely due to the non-cash charges related to acquisitions specific to the transition to IFRS.

As expected for a company in its growth stage, transaction costs incurred are directly related to the size of acquisition targets, and have increased year over year leading to a charge of $947 in the first quarter of 2011 compared to a charge of $4 in the same period last year. In addition, the Company is required to value the contingent consideration liabilities pursuant to its business combination activities. As part of the Company's acquisition strategy, such consideration for acquired businesses is often subject to profit performance paid in shares and or warrants of the Company. Management's valuation method to determine the value of the contingent consideration is largely based on the value of its common shares and the probability of the acquired business achieving stated performance targets. The valuation of contingent consideration on the date the acquisition closes is included in the purchase price of the acquisition. Subsequently, the contingent consideration is revalued on each reporting date with changes in fair value included in the determination of net income and comprehensive income. For the three months ended March 31, 2011, the Company recorded a charge of $6,454 to earnings, reflective of the change in fair value of contingent consideration related to the purchases of Community Advantage Rehabilitation ("CAR") and SSI. This non-cash charge was driven by the increase in share price. 

Financial Results
(in thousands)

            Three months ended March 31
            2011       2010       $ Increase/
(Decrease)
      % Increase
Revenue           $     23,035       $     13,775       9,260         67%
                                     
Gross profit           8,928       5,303       3,625       68%
  % of revenue           38.8%       38.6%                
                                     
Operating margin           3,740       2,679       1,061       40%
  % of revenue           16%       19%                
                                     
Adjusted EBITDA1           2,196       1,848       348       19%
                                     
Current income tax expense           138       440       (302)                       
Deferred income tax expense           232       63       169               
                                     
Net (loss) earnings           (7,074)       865       (7,940)        
                                       
  Per share ($) - basic           (0.092)       0.014       (0.106)        
  Per share ($) - diluted           NM       0.012       NM        
                                     
Weighted average shares outstanding           78,298       61,078       17,220        
Shares outstanding
March 31
          93,371       61,115       32,256        

Consolidated revenue for the three months ended March 31, 2010 increased by 67% or $9,260 to $23,035 over the comparable period last year. Organic growth from our existing businesses increased by approximately $2,140, or 15%, over the same period in the prior year. Growth from acquisitions was approximately $7,120.

Revenue for Medical Assessments and Rehabilitation was $6,886, a 1% increase from the prior year. The flat performance of this segment is largely due to regulatory reforms enacted in the third and fourth quarters of 2010 which capped medical assessment fees to be charged to the auto insurers. Management has worked diligently to make cost-effective changes in the division to maintain profit margin and is aggressively pursuing revenue-generating opportunities with auto insurers and workers compensation boards.

Revenue for physiotherapy services rendered through the Eldercare and Homecare division was $9,931 for the quarter ended March 31, 2011, a 50% increase over the same period in the prior year. This growth is attributable to the inclusion of the Homecare business in the first quarter of 2011 as well as organic growth in the Eldercare division. Eldercare added 47 homes and over 6,400 beds in the current period which has contributed $2,054 of growth for the three months ended March 31, 2011. The Eldercare division has also made efforts to streamline its cost structure which has helped improve its gross profit margin.

Revenue for Surgical and Medical Centres in the current period was $5,140, a significant increase from the prior period primarily due to the SSI acquisition. For the three months ended March 31, 2010, revenue from DMSU was $339. SSI contributed $4,790 to the increased surgical revenue.

Revenue for the Pharmacy division was $1,078. The division was established in the fourth quarter of 2010.

Cost of services and supplies for the quarter ended March 31, 2011, was $14,107 which was an increase of $5,635 compared with the prior period driven by the increase in revenues and acquired businesses. For the first quarter, gross profit, expressed as revenue less cost of services and supplies, was $8,928 or 38.8% of revenues. In the first quarter of the prior year, gross profit was $5,303 or 38.5% of revenues. The increase in gross profit of $3,625 was driven by the increased revenues in the Eldercare division and the performance from acquired businesses of SSI and CAR.

Employee costs include salaries and benefits of employees working directly in each business segment. Direct operating costs include occupancy costs, insurance, communications and other costs incurred directly within each operating segment.

Operating margin, expressed as gross profit less employee costs and other direct costs, for the three months ended March 31, 2011, increased by $1,061 to $3,740 compared to $2,679 in the prior period. This increase was largely driven from higher revenue, however operating margin represented as a percentage of revenue dropped to 16% from 19% in the prior period. This is largely due to the higher cost structure of the acquired businesses at the end of 2010 and SSI in the current quarter.

Corporate administrative expenses for the quarter ended March 31, 2011 were $1,544 which was $713 higher than the prior period. This increase resulted primarily from higher salary and benefit costs of $337 associated with the hiring of a CEO, increased administrative staff for the expanded business and an expected increase in the overhead costs for infrastructure to support the growth of the business. Included in the increased overhead are additional audit, legal and consulting fees of $229 and other administrative costs of $160.

Stock-based compensation, a non-cash expense, increased by $211 to $415 in the period ended March 31, 2011. This expense is largely related to the vesting of options granted at the end of 2009 and during 2010.  In addition to the options granted in previous years, restricted shares issued to the Company's CEO at the end of 2010, which vest over a period of three years, are included in the stock-based compensation for the current period.

Amortization was higher during the quarter ended March 31, 2011 due to the amortization of the capital assets acquired in the SSI acquisition. Amortization for the first quarter was $353 higher than the prior period.

At March 31, 2011, the Company had total cash on hand of $4,101, a decrease of $5,109 from December 31, 2010 (2010 decrease of $147). The decrease in cash is largely due the acquisition of SSI and increases in working capital.

During the quarter ended March 31, 2011, option holders exercised 412,500 options to purchase an equivalent number of shares at a weighted average exercise price per share of $0.35. Pursuant to the private placement, 17,940,000 shares were issued for cash proceeds of $21,528, less issue costs of $1,484, and 538,200 warrants to purchase common shares were issued at an exercise price of $1.27 for a term of two years. The private placement shares are subject to a four-month hold period before trading.

As at December 31, 2010, the total number of shares outstanding was 62,090,095. There were also 21,500,000 warrants outstanding entitling holders to acquire 21,500,000 common shares, and 6,100,000 options outstanding to purchase an equivalent number of common shares with various expiration dates through 2015.

As at March 31, 2011, the Company had total shares outstanding of 93,370,551; of which 1,200,000 are restricted shares held by the CEO which vest over time as discussed in Note 12 to the Company's 2010 audited consolidated financial statements, and 11,827,956 shares are held in escrow pending SSI achieving performance targets as disclosed in Note 6 to the March 31, 2011 unaudited interim consolidated financial statements.

As at the date of this report, June 9, 2011, the number of shares outstanding is 93,520,551; the number of options outstanding is 7,778,000; and, the number of warrants outstanding is 22,038,200. Included in the shares outstanding are 13,027,956 shares held in escrow or trust and are not freely tradeable.

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 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.

Non-GAAP Measure1:
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.

SOURCE Centric Health Corporation

For further information:

Peter Walkey
Chief Financial Officer
Centric Health
416-496-6166 ext. 329
peter.walkey@centrichealth.ca
          Catherine Love
Investor Relations
The Equicom Group
416-815-0700 ext. 266
clove@equicomgroup.com


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