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Press release from Marketwire

CML HealthCare Inc. Reports Third Quarter 2012 Financial Results

Thursday, November 08, 2012

CML HealthCare Inc. Reports Third Quarter 2012 Financial Results06:00 EST Thursday, November 08, 2012MISSISSAUGA, ONTARIO--(Marketwire - Nov. 8, 2012) - CML HealthCare Inc. (the "Company" or "CML") (TSX:CLC) today reported its financial results for the three and nine months ended September 30, 2012. On October 2, 2012, CML announced the sale of its Alberta diagnostic imaging services comprising nine clinics in the province. Under International Financial Reporting Standards, current and prior year results related to this business have been reclassified as discontinued operations. Consolidated Financial Summary: For three month period endedFor nine month period ended(C$ million except percent & per share amounts)30-Sep- 1230-Sep- 11% Change30-Sep- 1230-Sep- 11% ChangeRevenue85.588.0(2.9%)265.4264.10.5%Cost of services52.550.83.3%161.0155.93.2%General & administrative11.99.723.6%33.430.210.5%Add back: Depreciation & amortization3.73.8(2.0%)10.811.2(3.7%)EBITDA124.731.3(21.0%)81.889.2(8.3%)EBITDA1Margin (%)29.0%35.6%na30.8%33.8%naDepreciation & amortization3.73.8(2.0%)10.811.2(3.7%)Foreign exchange loss-(0.1)na-0.2naRestructuring & other expense--na-2.6naInterest expense2.53.3(22.6%)7.78.9(12.8%)Interest and other (income) expense net--na(0.5)0.0naEarnings from continuing operations Before Taxes2(EBT)18.424.4(24.4%)63.866.3(3.9%)Provision for income taxes:Current taxes4.66.1(25.1%)16.310.4naDeferred taxes0.30.6(44.7%)2.18.2naNet earnings from continuing operations13.517.7(23.5%)45.447.7(5.0%)Earnings/(loss) from discontinued operations net of tax0.4(5.4)na1.1(13.2)naNet earnings14.012.313.9%46.534.534.7%EPS from continuing operations (basic and diluted)0.150.20na0.500.53naEPS (basic and diluted)0.160.14na0.520.38naCash provided by operating activities from continuing operations11.321.8(48.0%)37.074.3(50.3%)Purchase of property & equipment(2.9)(2.7)na(7.3)(13.1)naProceeds from sale of property and equipment and licences-na1.3-naAcquisition of intangible assets(1.0)(0.9)na(2.8)(4.2)naAdjusted Funds From Operations3(AFFO)7.518.2na28.157.0na"During the quarter, we continued to execute on our previously communicated strategy of investing in our infrastructure to strengthen our core operations and leverage our scale, as we transform the business into new areas of growth. This is clearly necessary given the unpredictable circumstances impacting government-pay services within the healthcare industry, evidenced by the previously announced reimbursement cuts in Ontario," commented Thomas Wellner, President and CEO of CML. "The execution of our strategy includes the previously announced sale of our Alberta imaging operations for $17 million, which closed on November 5th, allowing us to redeploy our capital into other opportunities with more attractive growth trajectory," continued Mr. Wellner. "From a growth perspective, we are also in the process of successfully integrating the acquisition of Hemostasis Reference Laboratory which provides us with attractive non-government pay service offerings to global customers in the areas of specialized coagulation testing. I am also excited about our recent launch of COLOGIC, an innovative and simple blood test to screen for colorectal cancer, which will allow us to further diversify our payor base," said Mr. Wellner. "We have a significant pipeline of new business opportunities, some of which are emanating from our previously announced partnership with MaRS Innovation that gives us priority access to over $1 billion of innovative healthcare research." Financial Results for Three Months Ended September 30, 2012 On October 2, 2012, CML announced the sale of its Alberta diagnostic imaging services comprising nine clinics in the province. Under International Financial Reporting Standards, current and prior year results related to this business have been reclassified as discontinued operations. Revenues for the quarter were $85.5 million, a decline of 2.9% from the prior year. This decline reflects the previously announced Ontario MOHLTC reimbursement rate cuts which reduced third quarter revenues by $1.3 million compared to the same period in the prior year and $1.6 million in retroactive diagnostic imaging technical fee reimbursements recorded in Q3 2011 that were not recognized in the current year. Cost of Services for the quarter were $52.5 million, an increase of 3.3% over the third quarter of 2011. This change reflects general inflationary increases in staffing costs, partially offset by decreases in medical professional fees related to lower revenues in the current quarter.General and administrative ("G&A") expenses for the third quarter were $11.9 million, an increase of 23.6% over the prior year reflecting higher staffing costs and increased depreciation and amortization.Net earnings and EPS from continuing operations for the third quarter were $13.5 million and $0.15 compared to $17.7 million and $0.20 in the prior year respectively. Lower interest expenses and incomes taxes in the current year partially offset in the decline in EBITDA1 in the quarter.AFFO3 from continuing operations for the third quarter were $7.5 million compared to $18.2 million in the prior year. The decline is due primarily to lower net earnings from continuing operations in the quarter as well as $4.5 million increase in tax payments compared to the same period in 2011. As well, AFFO3 in the quarter and in the prior year include net change in non-cash working capital items of $5.9 million and $6.6 million respectively, which are temporary uses of cash. Financial Results for Nine-Months Ended September 30, 2012 Revenues for the nine months ended September 30, 2012, were $265.4 million, an increase of 0.5% from the prior year. This increase reflects $4.4 million in net additional Ontario MOHLTC funding and $1.3 million incremental non-cap revenue from lab and imaging. These increases were partially offset by $2.8 million in Ontario MOHLTC reimbursement rate cuts to certain tests and $1.6 million in retroactive diagnostic imaging technical fee reimbursements recognized in 2011 not applicable in 2012.EBITDA1 for the nine months ended September 30, 2012 was $81.8 million, a decline of 8.3% from the prior year. The decline reflects higher cost of services and G&A expenses in the current year associated with higher staffing costs and increased medical professional fees, supplies, and other variable costs associated with increased volumes. Net earnings and EPS from continuing operations for the nine months ended September 30, 2012 were $45.4 million and $0.50 compared to $47.7 million and $0.53 respectively in 2011. Lower interest and restructuring expenses in 2012 partially offset the lower EBITDA1. AFFO3 from continuing operations for nine months ended September 30, 2012 of $28.1 million was lower than $57.0 million for the same period in 2011. The decline reflects a $29.4 million increase in income taxes paid in 2012 compared to 2011. Balance Sheet The Company had a cash balance of $2.4 million as at September 30, 2012, compared to $50.6 million as at December 31, 2011 and $13.4 million as at June 30, 2012. The decline in cash balance compared to December 31, 2011 and June 30, 2012 was primarily due to debt repayment of $26.5 million and $3.0 million respectively, as well as income tax payment of $29.5 million, $16.3 million of which reflect 2011 income taxes paid in the first quarter of 2012. Long-term debt including the current portion of $272.3 million as at September 30, 2012 was lower than $275.4 million, as at the end of Q2 2012, and lower than $299.8 million as at December 31, 2011. As at September 30, 2012, the Company had approximately $128 million available under the revolving credit facility and 89,842,397 common shares issued and outstanding. Notice of Conference Call Thomas Wellner, President and CEO of CML will be hosting a conference call on Thursday, November 8, 2012 at 10:00 am (EST) to discuss the Company's 2012 third quarter financial results. Investors and analysts are invited to join the call by dialing 416-695-6617 or 800-952-4972. 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 allow 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 Saturday, November 22, 2012 by calling 905-694-9451 or 800-408-3053, reference number 2559219.About CML HealthCare Inc.Based in Mississauga, Ontario, CML HealthCare Inc. is Canada's leading community-based, medical diagnostic services provider operating 140 laboratory collection centres in Ontario, 94 imaging centres in Ontario, and British Columbia, and a reference laboratory in Ontario focused on specialized coagulation testing for customers worldwide. 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 and follow us on Twitter @cmlhealthcare. 1 The Company defines EBITDA as earnings from continuing operations before interest, taxes, depreciation, amortization, restructuring and other expenses, interest and other (income)/expenses, net, 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.2 The Company defines EBT as earnings from continuing operations before income 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. Investors 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.3 Adjusted funds from continuing operations ("AFFO") is not a recognized measure under IFRS. AFFO is defined as cash flows from operating activities of continuing operations less purchases of property and equipment, proceeds from sale of property and equipment and licenses and acquisition of intangible assets. 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.Investors should be cautioned, however that adjusted funds from continuing operations should not be construed as an alternative to cash provided by operating activities of continuing operations determined in accordance with IFRS. The Company's method of calculating adjusted funds from continuing operations may differ from other companies and accordingly, adjusted funds from continuing operations may not be comparable to measures used by other Companies.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; operational and infrastructure risks including possible equipment failure and performance of information technology systems; 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; 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, 2011 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, 2012December 31, 2011$$ASSETSCurrent assetsCash2,40850,640Trade and other receivables44,34444,627Current portion of notes receivable7,0301,373Other current assets3,1222,874Current assets of discontinued operations17,198-74,10299,514Property and equipment49,29953,108Licences231,815232,259Intangible assets14,41918,090Goodwill20,31030,582Notes receivable-6,916Investments and other assets-328Total Assets389,945440,797LIABILITIESCurrent liabilitiesAccounts payable and accrued liabilities30,57337,520Dividends payable5,6505,650Other current liabilities1,6172,671Income taxes payable4,69517,968Current portion of long-term debt921897Provisions1,1322,13644,58866,842Long-term debt271,346298,935Provisions and other long-term liabilities2,5301,360Interest rate swap6,6847,172Deferred tax liabilities26,61724,489Total Liabilities351,765398,798SHAREHOLDERS' EQUITYCommon shares55,13455,134Contributed surplus20351Deficit(12,230)(7,839)Accumulated other comprehensive loss(4,927)(5,347)38,18041,999Total Liabilities and Shareholders' Equity389,945440,797CML HealthCare Inc.Unaudited Consolidated Statements of Earnings and Comprehensive Income(in thousands of Canadian dollars, except share and per share amounts)Nine month period endedThree month period endedSeptember 30,September 30,September 30,September 30,2012201120122011$$$$Revenue265,412264,13585,45188,010Cost of services160,994155,92952,50450,841Gross margin104,418108,20632,94737,169ExpensesGeneral and administrative33,40430,23311,9489,664Foreign exchange loss (gain)-163-(115)Restructuring and other expenses-2,607--33,40433,00311,9489,549Operating earnings from continuing operations71,01475,20320,99927,620Interest expense7,7228,8562,5223,258Interest and other (income) expenses(494)442(37)Earnings from continuing operations before income taxes63,78666,34318,43524,399Provision for income taxesCurrent taxes16,28310,4234,6006,139Deferred taxes2,1348,17633360318,41718,5994,9336,742Net earnings for the period from continuing operations45,36947,74413,50217,657Earnings (loss) from discontinued operations, net of tax1,093(13,245)353(5,407)Net earnings for the period46,46234,49913,85512,250Other comprehensive income, net of income taxesGain (loss) on interest rate swap488710882(797)(Provision for) recovery of income taxes(68)(181)164202Net4205291,046(595)Foreign currency translation adjustment-2,548-3,751Provision for income taxes-(37)--Net-2,511-3,751Total other comprehensive income4203,0401,0463,156Comprehensive income for the period46,88237,53914,90115,406Continuing operations - basic and diluted earnings per share0.500.530.150.20Discontinued operations - basic and diluted earnings per share0.01(0.15)0.00(0.06)Net earnings - basic and diluted earnings per share0.520.380.150.14Weighted average number of common shares outstanding - basic89,842,39789,842,39789,842,39789,842,397Weighted average number of common shares outstanding - diluted89,845,34689,842,39789,842,39789,842,397CML HealthCare Inc.Unaudited Consolidated Statements of Cash Flows(in thousands of Canadian dollars) Nine month period endedThree month period endedSeptember 30September 30September 30September 302012201120122011$$$$Cash provided by (used in)Operating activitiesNet earnings for the period from continuing operations45,36947,74413,50217,657Items not affecting cashDepreciation of property and equipment8,3189,0532,8923,029Amortization of intangible assets2,5142,193853793Unrealized foreign exchange loss (gain)268(15)262-Interest expense7,7228,8562,5223,258Other non-cash items(1,146)131(446)(51)Gain on sale of property and equipment and licences(580)---Restructuring and other expenses-2,607--Income tax expense16,28310,4234,6006,139Deferred income taxes2,1348,176333603Net change in non-cash working capital items(5,928)(5,250)(5,918)(6,553)Interest paid(8,473)(9,487)(2,754)(3,089)Income taxes paid(29,519)(110)(4,508)7Cash provided by operating activities of continuing operations36,96274,32111,33821,793Cash provided by operating activities of discontinued operations2,1685,0129472,125Cash provided by operating activities39,13079,33312,28523,918Investing activitiesPurchase of property and equipment(7,307)(13,131)(2,863)(2,714)Proceeds from sale of property and equipment and licences1,262---Receipts from notes receivable1,570-531-Acquisition of intangible assets(2,789)(4,174)(954)(910)Cash used in investing activities of continuing operations(7,264)(17,305)(3,286)(3,624)Transaction costs paid(1,248)---Cash used in investing activities of discontinued operations(41)(3,576)(15)(3,042)Cash used in investing activities(8,553)(20,881)(3,301)(6,666)Financing activitiesPrincipal repayment of long-term debt and obligations under finance leases(26,453)(16,061)(3,022)(2,058)Dividends paid(50,853)(45,176)(16,951)(16,947)Transaction costs incurred on debt refinancing(1,503)---Common shares acquired-(392)--Cash used in financing activities of continuing operations(78,809)(61,629)(19,973)(19,005)Cash used in financing activities of discontinued operations-(1,218)-(271)Cash used in financing activities(78,809)(62,847)(19,973)(19,276)Decrease in cash(48,232)(4,395)(10,989)(2,024)Cash, beginning of period50,6409,50613,3977,135Cash, end of period2,4085,1112,4085,111FOR FURTHER INFORMATION PLEASE CONTACT: Contact Information: CML HealthCare Inc.Alice DunningDirector, Corporate Communications(905) 565-0043 ext.3472(905) 565-2844 (FAX)dunninga@cml.caInternet: www.cmlhealthcare.comTwitter: @cmlhealthcare