Strategic focus on seniors care services, commitment to strengthening balance sheet

TORONTO, Aug. 14, 2018 /CNW/ - Centric Health Corporation ("Centric Health" or "the Company") (TSX: CHH), one of Canada's leading healthcare services companies, today reported its financial results for the three and six month periods ended June 30, 2018.

"After completing my assessment of the Company as the new CEO, we are taking decisive action to reposition the business for profitable growth," said David Murphy, President and CEO of Centric Health. "This includes establishing a more focused strategic direction, developing new growth platforms, and accelerating the re-engineering of operations and deleveraging of our balance sheet.  Although previously announced regulatory changes will impact 2018 financial performance, we are embarking on an exciting new path that will transform the Company and position us to maximize value for all stakeholders."

Highlights for the Second Quarter of 2018
(All comparative figures are for the second quarter of 2017)

• Revenue from continuing operations increased by 1% to $43.3 million from $42.7 million, primarily driven by procedure growth in Surgical and Medical Centres.
  
  
• Adjusted EBITDA¹ from continuing operations declined 30% to $3.4 million from $4.9 million, primarily driven by regulatory changes and other gross margin compression in Specialty Pharmacy.
  
  
• Business Re-Engineering Plan underway to mitigate the impact of regulatory changes and improve the operational efficiency of the business, expected to be completed by the end of 2018.
  
  
• Continued advancement of a seniors medical cannabis strategy with operational plans underway to facilitate the provision of medical cannabis to seniors through strategic partnerships with licensed producers.
  
  
• Changes to strengthen leadership, with the appointment of David Murphy as President and CEO.

Highlights subsequent to quarter-end

• Secured new customer contracts in Specialty Pharmacy segment
• Signed new contracts with regional multi-site home operators located in Ontario and British Columbia;
• New contracts are expected to increase overall number of beds serviced in Specialty Pharmacy by approximately 1,400 beds nationally by the fourth quarter of 2018; and
• Newly serviced beds will leverage existing operational infrastructure and capacities within each respective province.
  
  
• Continued collaboration with AceAge Inc. ("AceAge") to launch its home-based automated drug delivery appliance ("Karie")
• The Company was selected as the Pharmacy Fulfillment Partner for AceAge's upcoming Industry Innovation Partnership Program study in Ontario and Alberta, led by the Centre for Aging + Brain Health Innovation; and
• AceAge is expected to launch the first Karie units in late summer of 2018, with 2,000 units expected to be deployed by the end of the year.

STRATEGIC POSITIONING AND PRIORITIES

Centric Health also announced today its strategic positioning and priorities under its new leadership.

"As CEO of Centric Health, my primary strategic focus is to establish the Company as the leading provider of pharmacy and other healthcare services to Canadian seniors," said Mr. Murphy. "The seniors population is the fastest growing demographic in Canada, and I believe the Company's footprint and capabilities strongly position us to capitalize on the significant opportunities and unmet needs that exist in seniors care services. Centric Health intends to be the leader in aggressively executing on the growth potential in this space, and our investment in AceAge and development of a seniors medical cannabis platform are examples of this commitment."

Successful execution of this strategic direction will require the Company to be disciplined in the allocation of its efforts and investment, and will require a further strengthening of its balance sheet.  Accordingly, today the Company announced that it is undertaking a review of existing businesses and assets that may not fit with its new strategic direction, and that it may consider divestitures in order to reduce debt and pursue growth opportunities in its core business.

2018 OUTLOOK

As previously announced, the Company initiated an expansive business re-engineering plan to improve the operational efficiency of the business and mitigate the impact of recent regulatory changes.  The Company is confident that the execution of this plan, on-boarding of new customer contracts and implementation of other strategic initiatives will enable it to offset the regulatory headwinds and re-establish a growth trajectory for the business.  However, the Company anticipates that there will be timing differences in offsetting the impact of the regulatory changes as these initiatives are implemented throughout the remainder of 2018.  This will continue to put downward pressure on short-term financial results, particularly in the third quarter of 2018, with an expected return to steady-state results by the first quarter of 2019.

FINANCIAL RESULTS

Selected Financial Information

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

Segment Results

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

Specialty Pharmacy

Revenue growth for the three and six month periods ended June 30, 2018 was driven primarily from an increase in the number of beds serviced.  This growth in revenue was offset by gross margin pressures compared to the same periods in the prior year, resulting in the decline in Adjusted EBITDA^1..  Margin pressures were derived from:

• Provincial regulatory changes that resulted in, amongst other things, dispensing fee reductions in Ontario and dispensing fee and dispensing frequency reductions in Alberta;
  
  
• The new April 1, 2018 agreement between the Pan-Canadian Pharmaceutical Alliance and Canadian Generic Pharmaceutical Association which reduced the prices of nearly 70 of the most commonly prescribed drugs in Canada by 25% to 45%; and
  
  
• Changes in the composition of beds serviced across the country, as funding models vary by geography and between types of beds such as long-term care and retirement. While overall beds serviced increased, a larger proportion of lower margin generating beds were serviced in the three and six month periods ended June 30, 2018 compared to the same periods in the prior year.

Surgical and Medical Centres

Growth in revenues for the three and six month periods ended June 30, 2018 was driven by higher surgical and healthcare services volumes across the country.  The significant increase in Adjusted EBITDA¹ was due to a net increase in higher margin services performed as well as labour savings achieved through operational efficiencies.

Corporate

Corporate office expenses were reduced for the three and six month periods ended June 30, 2018 as a result of a reduction in labour costs.  The run rate for corporate office expenses as a proportion of revenue from continuing operations remains below the target of 4%.

SHARES OUTSTANDING

As at June 30, 2018, the Company had total shares outstanding of 208,739,240. The outstanding shares at June 30, 2018 include 5,054,232 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 and certain customers. Accordingly, for financial reporting purposes, the Company reported 203,685,008 common shares outstanding as at June 30, 2018 and 201,468,731 shares outstanding at December 31, 2017. The number of options outstanding is 1,937,500 at June 30, 2018. The number of restricted share units outstanding is 6,200,908 at June 30, 2018. The number of warrants outstanding is 1,972,000 at June 30, 2018. Should all outstanding options and warrants that were exercisable at June 30, 2018 be exercised, the Company would receive proceeds of $2.2 million.

As at the date of this press release, August 14, 2018, the Company had total shares outstanding of 208,739,240 which include 5,054,232 shares which are restricted or held in escrow. The number of options outstanding is 1,937,500; the number of restricted share units outstanding is 6,325,908 and the number of warrants outstanding is 1,972,000.

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 EBITDA 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 EBITDA as a key component of the covenant calculations. EBITDA and Adjusted EBITDA are not recognized measures under IFRS.

Reconciliation of Non-IFRS Measures

PRESENTATION OF FINANCIAL RESULTS

The Company presents two reportable operating segments as follows: Specialty Pharmacy and Surgical and Medical Centres. The financial results of the Company's Performance Medical Group, are 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 second quarter financial results on Wednesday, August 15, 2018 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, August 22, 2018 at midnight.  To access the archived conference call, dial 1-855-859-2056 or 416-849-0833 and enter the reservation number   7152037.

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 "Seniors 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 28,000 residents in over 475 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 and 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