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Centric Health Reports Strong Growth From Continuing Operations for the Fourth Quarter and Full Year 2015

8 March 2016

TORONTO, March 8, 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 fourth quarter and year ended December 31, 2015.

Highlights for the Fourth Quarter and 2015 Full Year

(All comparative figures are for the fourth quarter and and full year 2014)

  • Revenue from continuing operations for the fourth quarter increased 20.3% to $41.9 million from $34.8 million, and for the year increased 20.1% to $162.4 million from $135.2 million;
  • Adjusted EBITDA from continuing operations for the fourth quarter increased 27.4% to $1.7 million from $1.4 million and for the year increased 57.4% to $8.4 million from $5.3 million, with all periods being impacted by out-sized corporate expenses required to support the Physiotherapy, Rehabilitation and Assessments operations prior to their divestiture on December 31, 2015 (7.2% of revenue from continuing operations for both the fourth quarter and full year 2015 as compared to the current run rate of approximately 4.0%);
  • Adjusted EBITDA margin from continuing operations for the fourth quarter and year was 4.2% and 5.2%, respectively, compared with 3.9% and 3.9%, with all periods being impacted by out-sized corporate expenses required to support the Physiotherapy, Rehabilitation and Assessments operations prior to their divestiture on December 31, 2015 (7.2% of revenue from continuing operation as compared to the current run rate of approximately 4.0%);
  • Normalizing for the out-sized corporate expenses, assuming 4% of revenue from continuing operations (the Company's current run rate post rightsizing of corporate infrastructure following the sale of the Physiotherapy, Rehabilitation and Assessments operations) and pro forma the acquisition of Pharmacare in March 2015, revenue and adjusted EBITDA from continuing operations for the 2015 year were $167.3 million and $14.6 million, respectively, representing an adjusted EBITDA margin of 8.7%;
  • Cash flow from operations for the fourth quarter was $7.4 million and for the year was $29.4 million, which included $(0.5) million and $5.0 million, respectively, of restructuring and transaction charges, and marked the fifteenth consecutive quarter of positive cash flow from operations;
  • The Company's Smart Shape Weight Loss Centre ("SWLC") was recognized as Canada's first and only Centre of Excellence (COE) in Metabolic and Bariatric Surgery by the Surgical Review Corporation (SRC), an internationally recognized healthcare leader committed to advancing the safety, and efficiency of surgical care worldwide. After a rigorous review process, the SRC has recognized SWLC and its surgeons for its commitment to excellence; and,
  • Completed of the sale of substantially all of the businesses within its Physiotherapy, Rehabilitation and Medical Assessments segment (the "Sale Transaction") to Audax Private Equity for cash consideration on closing of $245.0 million, subject to working capital adjustments, plus up to $5.0 million in contingent consideration. The transaction generated net proceeds of $233.9 million.

Highlights Subsequent to Quarter End

  • Used a portion of the net proceeds from the Sale Transaction to purchase and cancel 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 (the "Notes"). Following the purchase, there is a principal balance of $25.9 million of the Notes remaining;
  • Used $30.0 million of the net proceeds from the Sale Transaction and a promissory note for Lifemark Health Limited Partnership to redeem all of its issued and outstanding remaining Preferred Partnership Units (the "Units"), all of which were held by Alaris Income Growth Fund Partnership ("Alaris"), for the full repurchase price of approximately $38.4 million. Immediately upon redemption of the Units and payment of $30.0 million in cash, Alaris loaned the Company approximately $8.4 million as a promissory note (the "Alaris Promissory Note") on substantially the same economic terms as applied to the equivalent value of Units.
  • As a result of the purchase of Notes and redemption of Units, the Company has reduced outstanding debt by an aggregate of $194.3 million since the beginning of 2016, representing 83% of the net proceeds from the Sale Transaction. The Company's current outstanding debt at March 4, 2016 is $120.5 million and net debt (outstanding debt less cash) at March 4, 2016 is $82.9 million. The redemption of the Units will generate incremental interest expense savings of approximately $3.3 million annually, bringing total annual interest savings from the redemption of Units and purchase of Notes to $17.5 million. The debt reduction has reduced the Company's total net debt to Adjusted EBITDA ratio to 5.7 times from 9.7 times and improved its interest coverage ratio to 2.3 times from 1.2 times.
  • The Company is in the process of negotiating a renewal of the Revolving Facility. A renewed Revolving Facility, along with any remaining proceeds from the Sale Transaction of $34.8 million, would provide the Company with sufficient funding and flexibility to invest in growing the ongoing businesses and manage its cash requirements through 2016, within the restraints of the amended facility's covenants. As part of the negotiations, the Company is discussing the repayment of the convertible debentures that are coming due in 2016 and 2017, which may include repayment from a portion of the remaining proceeds of $34.8 million or with new financing, extensions or exercising the Company's right to use shares to repay the convertible debentures.
  • Right-sized the corporate infrastructure following the Sale Transaction such that the current run rate for corporate expenses as proportion of revenue is 4.0%.

"Our financial results for both the fourth quarter and the entire 2015 year were once again indicative of the underlying strength of our continuing operations," said David Cutler, President and Chief Executive Officer, Centric Health Corporation. "We delivered our seventh consecutive quarter of year-over-year growth in continuing operations, with revenue up 20.3% and adjusted EBITDA1 up 27.4%. For the full year, revenue and adjusted EBITDA1 grew 20.1% and 57.4%, respectively. We also achieved our fifteenth consecutive quarter of cash flow from operations at $7.4 million bringing our total for the year to $29.4 million. Importantly, immediately upon announcement of the Sale Transaction, we moved to right-size our corporate infrastructure to bring our run rate for corporate expenses back into line with our target of 4% of revenue from continuing operations and, I am pleased report, that we achieved that several quarters ahead of schedule."

Mr. Cutler added, "Following our deployment of more than $190 million to debt reduction since the beginning of 2016, we have entered a new era for Centric Health -- one in which our primary focus can be on the significant opportunities within our ongoing businesses and our strengthened balance sheet and significantly greater financial flexibility provide the ability to invest in their growth. With leading market positions, national networks and an overriding commitment to the highest quality care and best possible patient outcomes, our Specialty Pharmacy and Surgical Medical Centres businesses are each positioned benefit from our increased focus and investment to generate sustainable growth and healthy free cash flow over the long term."

The Company also announced that, following from the divestiture of the Company's Physiotherapy, Rehabilitation and Assessments operations, Craig Gattinger will retire from Centric Health's Board of Directors, effective March 31, 2016. Mr. Gattinger joined Centric Health's Board following the Company's acquisition in 2011 of LifeMark Health, of which he was Chief Executive Officer.

"On behalf of the Board of Directors and senior management team, we would like to thank Craig for his significant contribution to the Company throughout the past five years," said Dr. Jack Shevel, Chairman, Centric Health Corporation. "Craig's deep expertise in the field of physiotherapy and rehabilitation has been invaluable as we built upon the LifeMark asset to grow our Physiotherapy, Rehabilitation and Assessments operations, culminating with its monetization at an attractive multiple at the end of 2015. We wish Craig well in his future pursuits."

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