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Press release from Marketwire

CML HealthCare Inc. Reports 2011 Third Quarter Financial Results

Monday, November 07, 2011

CML HealthCare Inc. Reports 2011 Third Quarter Financial Results22:46 EST Monday, November 07, 2011MISSISSAUGA, ONTARIO--(Marketwire - Nov. 7, 2011) - CML HealthCare Inc. (the "Company" or "CML") (TSX:CLC) today reported its financial results for the three and nine month periods ended September 30, 2011 (all amounts are in Canadian dollars, unless noted otherwise).Highlights from Continuing Operations:Revenues increased 3.1% to $93.4 million EBITDA increased 13.3% to $32.7 million and EBITDA margin increased to 35% Earnings Before Taxes (EBT(3)) increased 17.2% to $25.1 million Net earnings from continuing operations were $18.1 million compared to $21.6 million in Q3 2010 Cash flow provided by operating activities from continuing operations increased 17.2% to $23.1 million Adjusted funds from continuing operations (AFFO(4)) increased 32.8% to $19.3 million ConsolidatedFinancialSummary:(C$millions, except percent & per share/unit amounts)For the three month period ended September 30:20112010(1)% ChangeRevenue93.490.53.1%Cost of services (COS)55.655.7(0.1%)General & administrative (G&A)9.59.5-Add back: Depreciation & amortization4.53.526.8%EBITDA(2)32.728.913.3%EBITDA(2) Margin35.0%31.9%9.9%Depreciation & amortization4.53.526.8%Foreign exchange gain(0.1)0.0-Restructuring & other expenses net-1.1-Interest expense3.32.817.6%EBT(3)25.121.417.2%Provision for (recovery of) income taxes6.9(0.2)-Net Earnings from continuing operations18.121.6(16.2%)Loss on discontinued operations, net of tax(5.9)(0.8)-Net Earnings12.320.8(41.1%)EPS from continuing operations0.200.24(16.2%)EPS including discontinued operations0.140.23(41.1%)Cash provided by operating activities from continuing operations 23.1 19.7 17.2%Purchase of property & equipment of continuing operations (2.8) (4.5) (36.9%)Acquisition of intangible assets of continuing operations(0.9)(0.6)40.6%AFFO(4) from continuing operations19.314.632.8%(1) 2010 results have been restated to classify the U.S. operations as a discontinued operation"Our Canadian operations delivered year-over-year growth in revenue, EBITDA, EBT, and cash flow from operations," said Tom Weber, Executive Vice President and Chief Financial Officer. "Since mid-October we have announced two significant transactions. On October 13, we announced the signing of a new two-year laboratory services funding agreement with the Ontario Ministry of Health and Long-Term Care ("MOHLTC") which will provide a 2.4% funding increase and stability of cash flow. Today we also announced the sale of our U.S. imaging business for total consideration of US $51.5 million which will be used to reduce our net debt." Financial Results for the three months ended September 30, 2011 ("Q3 2011") Given the sale of CML's U.S. imaging operations, third quarter operating results related to this business have been reclassified as discontinued operations.Revenue from continuing operations increased 3.1% to $93.4 million from $90.5 million for the same period in 2010 ("Q3 2010"). Increased revenue was largely attributable to expected $1.6 million in retroactive imaging technical fee reimbursements recorded in Q3 2011 for the Ministry of Health year ended March 31, 2011 and growth in non-cap revenue from both laboratory and imaging services.COS of $55.6 million were 0.1% lower than $55.7 million for the same period in 2010. The decrease is primarily due to a decline in supplies cost of $1.9 million reflecting improved inventory management and other supply chain cost savings, partially offset by general inflationary increases impacting salaries and certain services, increases in medical professional fees associated with increased non-cap revenues, and increases in depreciation and amortization associated with the purchase of property and equipment and intangible assets.G&A expenses of $9.5 million remained at the same level as in the same period in 2010.EBITDA(2) of $32.7 million was 13.3% higher than $28.9 million in Q3 2010. EBITDA(2) margin of 35.0% increased from 31.9% in Q3 2010.Net earnings from continuing operations of $18.1 million were lower than $21.6 million in Q3 2010. The decline was largely attributable to a $6.9 million provision for income taxes in Q3 2011 as a result of the Company becoming taxable in 2011 after its conversion from an income fund to a corporation, compared to a $0.2 million recovery of taxes in the same period in 2010.Earnings before taxes from continuing operations of $25.1 million increased by 17.2% over the same period in 2010.Net earnings, including net loss from discontinued operations, totaled $12.3 million compared to $20.8 million in Q3 2010. The increase in loss on discontinued operations reflects: lower reimbursement rates and hence, lower revenue in discontinued operations in Q3 2011 compared to the same period in 2010; a goodwill impairment charge of $3.5 million recorded in Q3 2011; $0.7 million in professional fees related to the sale of the U.S. imaging business expensed in Q3 2011; and a decrease in income tax recovery due to the application of valuation allowances to tax loss carry forwards. AFFO(4) from continuing operations in Q3 2011 totaled $19.3 million compared to $14.6 million in Q3 2010. The increase in Q3 2011 AFFO(4) reflects a $3.4 million increase in cash flow from operating activities. Dividends declared were $16.9 million in Q3 2011.Year-to-Date (YTD) Results:(C$millions, except percent & per share amounts)For the nine month period ended September 30:20112010(1)% ChangeRevenue280.3273.92.4%COS171.0168.31.6%G&A29.528.43.9%Add back: Depreciation and amortization13.311.218.7%EBITDA(2)93.088.35.3%EBITDA(1) Margin33.2%32.3%2.9%Depreciation & amortization13.311.218.7%Foreign exchange loss0.10.4-Restructuring & other expenses net2.61.9-Interest expense8.97.912.0%EBT(3)68.267.01.7%Provision for (recovery of) income taxes19.1(0.1)-Net Earnings for continuing operations49.067.1(26.9%)Loss on discontinued operations, net of tax(14.5)(3.6)-Net Earnings34.563.5(45.7%)EPS from continuing operations0.550.75(26.9%)EPS including discontinued operations0.380.71(45.7%)Cash provided by operating activities from continuing operations 78.1 75.8 3.1 %Purchase of property & equipment from continuing operations (13.2 ) (15.7 ) (16.2 %)Acquisition of intangible assets from continuing operations (4.2 ) (2.3 ) 84.4 %AFFO(4) from continuing operations60.857.85.2%(1) 2010 results have been restated to classify the U.S. operations as a discontinued operationFor the nine-month period ended September 30, 2011, revenue from continuing operations increased 2.4% compared to the same period in 2010 due primarily to: $1.6 million in retroactive imaging technical fee reimbursements $1.0 increase in total capped revenue based on the laboratory funding contract with the MOHLTC; $0.9 million one-time laboratory funding from the MOHLTC for the year ended March 31, 2011; and growth in non-capped revenue from both laboratory and imaging services. YTD COS were higher in 2011 compared to 2010 to reflect: $2.3 million from general annual increases in primarily salaries and certain services; $2.3 million impact from harmonized sales tax that took effect July 2010; $1.4 million increase in medical professional fees in line with increased non-capped laboratory revenue; increase in depreciation and amortization, partially offset by $4.4 million decrease in supplies costs resulting from improved inventory management and other supply chain cost savings. YTD G&A expenses increased in 2011 compared to 2010 largely the result of: general inflation and the impact of HST, accounting for $0.8 million; $0.8 million spend on information technology projects related to medical imaging systems; increase in depreciation and amortization, partially offset by $1.2 million decrease in salaries and compensation expenses primarily due to restructuring, including the departure of certain executives in Q2 2011. Net earnings from continuing operations in YTD 2011 of $49.0 million were lower than $67.1 million in YTD 2010. The decrease was primarily attributable to the provision for income taxes in 2011 since the Company became taxable after its conversion from an income fund to a corporation effective January 1, 2011.The YTD net loss from discontinued operations of $14.5 million compared to net loss of $3.6 million in 2010 reflects i) decreased reimbursement rates and revenues; ii) goodwill impairment of $8.5 million recorded in 2011; iii) $0.7 million in professional fees related to the sale of the U.S. imaging business; and iv) decreased income tax recovery due to the application of valuation allowances to tax loss carry forward, partially offset by i) decreased COS in line with decreased revenue and effective cost containment; ii) decreased depreciation and amortization; and iii) decreased restructuring expenses related to the departure of certain executives of the U.S. operations in 2010.YTD AFFO(4) from continuing operations increased 5.2% compared to 2010 reflecting increased funds from operations and decreased purchase of property and equipment from continuing operations. Balance Sheet As at September 30, 2011, the Company had cash balances of $5.1 million, compared to $9.5 million as at December 31, 2010, and $7.1 million as at June 30, 2011. Long-term debt of the Company, including the current portion, was $310.7 million as at September 30, 2011, compared to $330.2 million as at December 31, 2010 and $315.9 million as at June 30, 2011. As at September 30, 2011, the Company had approximately $64.0 million available under the revolving credit facility and 89,842,404 common shares issued and outstanding. Notice of Conference Call Patrice Merrin, Interim CEO and Chairman of the Board will be hosting a conference call on Tuesday, November 8, 2011 at 10:00 am (EST) to discuss the Company's 2011 third quarter financial results. Investors and analysts are invited to join the call by dialing 416-340-9531 / 877-440-9795. Please dial in 15 minutes prior to the call to secure a line. You will be put on hold until the conference call begins.A live audio webcast of the conference call will be available through www.cmlhealthcare.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be needed to hear the webcast. An archived replay of the webcast will be available for 90 days.A taped replay of the conference call will also be available until Tuesday, November 22, 2011 by calling 905-694-9451 or 800-408-3053, reference number 1573557.About CML HealthCare Inc.Based in Mississauga, Ontario, CML HealthCare Inc. is a leading provider of laboratory testing services in Ontario operating 118 laboratory collection centres and the largest provider of medical imaging services in Canada with 105 imaging centres. CML is publicly-traded on the Toronto Stock Exchange under the symbol "CLC" and has approximately 89.8 million common shares outstanding. For more information, please visit www.cmlhealthcare.com.(2) The Company defines EBITDA as earnings from continuing operations before interest, taxes, depreciation, amortization, restructuring and other expenses-net, loss on disposal of property and equipment, and foreign exchange gains/losses. EBITDA margins are calculated by dividing EBITDA by revenue. EBITDA is not a recognized measure under IFRS. Management believes that, in addition to net earnings, EBITDA is a useful supplemental measure, as it provides investors with an indication of the Company's performance. EBITDA is used by the Company to analyze performance and compare profitability between periods. Investors should be cautioned, however, that EBITDA should not be construed as an alternative to net earnings determined in accordance with IFRS. The Company's method of calculating EBITDA may differ from other companies and, accordingly, EBITDA may not be comparable to measures used by other companies.(3) The Company defines EBT as earnings from continuing operations before taxes. EBT is not a recognized measure under IFRS. Management believes that, in addition to net earnings, EBT is a useful supplemental measure, as it provides investors with an indication of the Company's performance. EBT is used by the Company to analyze operating performance. Investo rs should be cautioned, however, that EBT should not be construed as an alternative to net earnings determined in accordance with IFRS. The Company's method of calculating EBT may differ from other companies and, accordingly, EBT may not be comparable to measures used by other companies.(4) Adjusted funds from continuing operations ("AFFO") is not a recognized measure under IFRS. The Company uses this as a measure of financial performance, as an indicator of its cash flow strength, its ability to meet future operational and capital expenditure requirements and ability to pay dividends on the Company's common shares.Caution concerning forward-looking statementsThis document includes forward-looking statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario) and other provincial securities law in Canada. These forward-looking statements include, among others, statements with respect to our objectives, goals and strategies to achieve those objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions. The words "may", "will", "could", "should", "would", "suspect", "outlook", "believe", "plan", "anticipate", "estimate", "expect", "intend", "forecast", "objective" and "continue" (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements.By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, which give rise to the possibility that predictions, forecasts, projections and other forward-looking statements will not be achieved. Certain material factors or assumptions are applied in making forward-looking statements and actual results may differ materially from those expressed or implied in such statements. We caution readers not to place undue reliance on these statements, as a number of important factors, many of which are beyond our control, could cause our actual results to differ materially from the beliefs, plans, objectives, expectations, anticipations, estimates and intentions expressed in such forward-looking statements. These factors include, but are not limited to: dependence on government -based revenues in Canada; general economic conditions; pending and proposed legislative or regulatory developments in Canada including the impact of changes in laws, regulations and the enforcement thereof; reliance on funding models in Canada; intensifying competition resulting from established competitors and new entrants in the businesses in which we operate; our ability to complete strategic acquisitions and to integrate our acquisitions successfully; insurance coverage of sufficient scope to satisfy any liability claims; operational and infrastructure risks including possible equipment failure and performance of information technology systems; fluctuations in total patient referrals; technological change and obsolescence; loss of services of key senior management personnel; privacy laws; ability to pay dividends in the future; structural subordination of common shares; leverage and restrictive covenants; fluctuations in cash timing and amount of capital expenditures; tax-related risks; unpredictability and volatility of the price of common shares; dilution; and future sales of common shares.We caution that the foregoing list of important factors that may affect future results is not exhaustive. When reviewing our forward-looking statements, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. Additional information about factors that may cause actual results to differ materially from expectations, and about material factors or assumptions applied in making forward-looking statements, may be found in the "Risk Factors" section of our Annual Information Form, under "Business Risks" and elsewhere in our Management's Discussion and Analysis of Operating Results and Financial Position ("MD&A") for the year ended December 31, 2010 and elsewhere in our filings with Canadian securities regulators. Except as required by Canadian securities law, we do not undertake to update any forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf. Such statements speak only as of the date made.CML HealthCare Inc.Unaudited Consolidated Balance Sheets(in thousands of Canadian dollars)September 30,December 31,January 1,201120102010$$$ASSETSCurrent assetsCash5,1119,50621,309Trade and other receivables48,46253,92156,205Income taxes recoverable--523Other current assets2,1783,3774,436Restricted cash-995-Current assets of discontinued operations13,906--69,65767,79982,473Property and equipment56,23083,22782,676Licences232,259232,259232,259Intangible assets18,52120,86742,821Goodwill30,58245,15977,092Investments and other assets525,6671,883Assets of discontinued operations42,310--Total Assets449,611454,978519,204LIABILITIESCurrent liabilitiesAccounts payable and accrued liabilities33,01843,35448,310Dividends and distributions payable5,650-8,007Income taxes payable12,5301,720798Current portion of long-term debt8842,3403,596Provisions1,8611,537-Current liabilities of discontinued operations11,183--65,12648,95160,711Long-term debt309,850327,827310,287Other long-term liabilities10,68012,41013,598Deferred tax liabilities23,02814,77720,193Liabilities of discontinued operations2,728--Total Liabilities411,412403,965404,789SHAREHOLDERS' EQUITYCommon shares54,911--Contributed surplus23--Trust equity-54,461116,654Accumulated other comprehensive loss(408)(3,448)(2,239)Deficit(16,327)--38,19951,013114,415Total Liabilities and Shareholders' Equity449,611454,978519,204CML HealthCare Inc.Unaudited Consolidated Statements of Earnings and Comprehensive Income(in thousands of Canadian dollars, except share/unit and per share/unit amounts)Nine month period endedThree month period endedSeptember 30,September 30,September 30,September 30,2011201020112010$$$$Revenue280,326273,85993,36790,526Cost of services171,027168,29055,64555,695Gross margin109,299105,56937,72234,831ExpensesGeneral and administrative29,53928,4209,5059,510Foreign exchange loss (gain)163396(115)27Restructuring and other expenses, net2,6071,850-1,12132,30930,6669,39010,658Earnings from continuing operations before the undernoted76,99074,90328,33224,173Interest expense8,8567,9093,2582,770Foreign exchange gain(19)---Earnings from continuing operations before income taxes68,15366,99425,07421,403Provision for (recovery of) income taxesCurrent taxes11,0737966,455250Deferred taxes8,033(894)475(487)19,106(98)6,930(237)Net earnings for the period from continuing operations49,04767,09218,14421,640Loss on discontinued operations, net of tax(14,548)(3,590)(5,894)(836)Net earnings for the period34,49963,50212,25020,804Other comprehensive income (loss), net of income taxesUnrealized gain (loss) on interest rate swap710(73)(797)(84)(Provision for) recovery of income taxes(181)1820221Net529(55)(595)(63)Foreign currency translation adjustment2,548(670)3,751(1,624)Provision for income taxes(37)(149)-(301)Net2,511(819)3,751(1,925)Total other comprehensive (loss) income3,040(874)3,156(1,988)Comprehensive income for the period37,53962,62815,40618,816Continuing operations - basic and diluted earnings per share/unit0.550.750.200.24Discontinued operations - basic and diluted earnings per share/unit(0.16)(0.04)(0.07)(0.01)Net earnings-basic and diluted earnings per share/unit0.380.710.140.23Weighted average number of common shares/units outstanding - basic and diluted89,842,40489,842,40489,842,40489,842,404CML HealthCare Inc.Unaudited Consolidated Statements of Cash Flows(in thousands of Canadian dollars)Nine month period endedThree month period endedSeptember 30, 2011September 30,2010September 30, 2011September 30,2010$$$$Cash provided by (used in)Operating activitiesNet earnings for the period49,04767,09218,14421,640Items not affecting cashDepreciation of property and equipment10,6989,4573,5542,889Amortization of intangible assets2,5891,734926645Unrealized foreign exchange (gain) loss(13)252--Interest expense8,8567,9093,2582,770Income tax expense11,0737966,455250Restructuring and other expenses2,607828--Other non-cash items130618(59)852Deferred income taxes8,033(894)475(487)Net change in non-cash working capital items(5,275)(5,851)(6,581)(5,610)Supplier incentive received-1,755--Interest paid(9,487)(9,214)(3,089)(3,114)Income taxes (paid)/recovered(110)1,2817(128)Cash provided by operating activities of continuing operations78,148 75,76323,090 19,707Cash provided by (used in) operating activities of discontinued operations1,186 1,719828 5,270Cash provided by operating activities79,33477,48223,91824,977Investing activitiesPurchase of property and equipment(13,181)(15,736)(2,838)(4,496)Acquisition of intangible assets(4,174)(2,263)(910)(647)Cash used in investing activities of continuing operations(17,355)(17,999)(3,748)(5,143)Cash used in investing activities of discontinued operations(3,527)(3,956)(2,918)(1,263)Cash used in investing activities(20,882)(21,955)(6,666)(6,406)Financing activitiesPrincipal repayment of long-term debt and obligations under capital lease(16,061) (686)(2,058) (384)Proceeds from long-term debt-12,000-5,000Dividends and distributions paid(45,176)(72,041)(16,947)(24,011)Shares and units acquired(392)(518)--Cash used in financing activities of continuing operations(61,629)(61,245)(19,005)(19,395)Cash used in financing activities of discontinued operations(1,218)(3,481)(271)(860)Cash used in financing activities(62,847)(64,726)(19,276)(20,255)Effects of foreign exchange on cash-(87)-(67)Decrease in cash(4,395)(9,286)(2,024)(1,751)Cash, beginning of period9,50621,3097,13513,774Cash, end of period5,11112,0235,11112,023FOR FURTHER INFORMATION PLEASE CONTACT: Alice DunningCML HealthCare Inc.Director, Corporate Communications(905) 565-0043 ext.3472(905) 565-2844 (FAX)ORTom WeberCML HealthCare Inc.Executive Vice President, Chief Financial Officer(905) 565-0043 ext. 3204(905) 565-2844 (FAX)www.cmlhealthcare.com