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Press release from Marketwire

CML HealthCare Inc. Reports 2013 First Quarter Financial Results

Wednesday, May 08, 2013

CML HealthCare Inc. Reports 2013 First Quarter Financial Results

06:00 EDT Wednesday, May 08, 2013

MISSISSAUGA, ONTARIO--(Marketwired - May 8, 2013) - CML HealthCare Inc. (the "Company" or "CML") (TSX:CLC) today reported results for the three month period ended March 31, 2013. All financial results reflect the reclassification of CML's British Columbia and Ontario imaging operations, with the exception of two Ontario MRI/CT locations, as discontinued operations. The Company announced its intention to divest its imaging operation in January 2013. The sale process is in progress and is expected to be completed by the end of 2013.

First Quarter 2013 (Q1 2013) Highlights:

  • Significant progress made on new growth initiatives with acquisitions of Rocky Mountain Analytical, launch of CML HealthCare Bioanalytics, and partnership with Inflamax;
  • Continuing to strengthen core operations through automation;
  • Revenue of $62.2 million compares to $64.9 million in 2012;
  • EBITDA of $24.5 million compares to $27.6 million in 2012;
  • Net earnings of $12.1 million, which includes a pre-tax restructuring charge of $3.1 million, compares to $18.1 million in 2012;
  • Normalized AFFO2 totaled $ 15.9 million and dividends declared were $11.9 million, resulting in a payout ratio of 75.1%;
  • CML to host investor call today, May 8, 2013 at 10:00 am (ET). Call-in number: 416-340-8427 or 866-225-6564

"I am very pleased with the momentum we are building in the organization around new business opportunities and enhancing the service levels to our customers," said Thomas Wellner, President and Chief Executive Officer of CML HealthCare. "We are confident in the future and are making progress executing our plans to accelerate profitable growth by seeking new partnerships, introducing innovative tests and services, and leveraging technology to improve efficiency, reduce results turnaround time, and ultimately, improve patient care. The automation initiatives at our central laboratory are proceeding as planned. The hematology automation was completed in early April, and work has begun on the installation of Canada's first fully automated microbiology platform," continued Mr. Wellner.

"On the new business front, we had announced several transactions after the first quarter ended. These include: 1) the acquisition of Rocky Mountain Analytical, a western platform for CML to grow our laboratory business and to expand our private pay menu; and 2) the partnership with Inflamax, a leading contract research organization ("CRO") focused on allergy testing, and the establishment of CML HealthCare Bioanalytics to service CROs," commented Mr. Wellner. "In addition to these previously announced wins, we were recently awarded two laboratory services contracts with regional hospitals. While the estimated annual revenue is modest, it demonstrates the hospitals' recognition of CML's ability to deliver timely, quality services cost effectively. We hope to continue to leverage our core competence to attract other hospital contracts in the future."

"CML's capped funding contract with the Ontario Ministry of Health and Long Term Care expired on March 31, 2013. While discussions with the Ministry are ongoing, we continue to be funded based on the existing terms. When a new contract is finalized, we expect that reimbursements adjustments will be retroactive to April 1, 2013," said Thomas Wellner. "The sales process to divest of the Company's diagnostic imaging business is progressing as planned with value expectations holding. We continue to expect completion of the sales process by the end of the year. Given the pipeline of opportunities we are currently reviewing, we expect to be able to redeploy the net proceeds from the sale into new ventures with an improved growth profile and less capital intensive than diagnostic imaging."

Consolidated Financial Summary:
Three-months ended Mar. 31
(C$ million except percent & per share amounts) 2013 2012 % Change
Revenue 62.2 64.9 (4.2%)
Cost of services 28.4 30.1 (5.6%)
General and administrative 11.7 9.3 25.9%
Add back: Depreciation and amortization 2.4 2.1 16.2%
EBITDA 1 24.5 27.6 (11.2%)
EBITDA 1 Margin (%) 39.4% 42.6% NA
Depreciation and amortization 2.4 2.1 16.2%
Restructuring and other expense 3.1 - NA
Interest expense 2.5 2.7 (10.2%)
Interest and other income - (0.1) NA
Provision for income taxes 4.5 6.0 (24.7%)
Net earnings for the period from continuing operations 12.1 17.0 (28.8%)
Earnings from discontinued operations, net of tax - 1.1 NA
Net earnings for the period 12.1 18.1 (33.0%)
Basic and diluted earnings per share - continuing operations 0.13 0.19 (31.6%)
Basic and diluted earnings per share - discontinued operations - 0.01 NA
Basic and diluted earnings - per share 0.13 0.20 (35.0%)
Normalized Adjusted Funds From Operations 2 (AFFO 2 ): Q1 2013 Q1 2012 Q4 2012
Cash provided by operating activities of continuing operations 2.3 (0.5) 24.2
Adjust for net change in working capital 13.3 4.7 (6.4)
Adjust for tax payments 2.1 15.8 -
Average spending to maintain property and equipment (1.9) (1.9) (2.3)
Normalized AFFO 2 15.9 18.1 15.5
Dividends declared 11.9 17.0 17.0
Payout Ratio 75.1% 93.6% 109.7%

Q1 2013 revenue decreased 4.2% to $62.2 million from $64.9 million for the same period in 2012. $1.9 million of the decrease was related to timing of recognition of performance-based funding for laboratory services, PSA test funding, and funding for data submission into the Ontario Laboratory Information system. Reimbursement cuts by the Ministry of Health and Long Term Care effective April 1, 2012 accounted for $0.7 million of the revenue decline. The balance of $0.7 million decline in revenue reflects lower non-cap revenue due to lower laboratory utilization in the quarter. The aforementioned revenue declines were mitigated by a $0.6 million in revenue increase derived from Hemostasis Reference Laboratory, COLOGIC, and increased funding for Ontario MRI/CT.

Cost of services of $28.4 million was 5.6% lower than the same period in 2012 of $30.1 million. The decrease reflects lower supplies and other variable costs, as well as lower medical professional fees associated with lower laboratory test volumes.

General and administrative ("G&A") expenses of $11.7 million were 25.9% higher than the same period in 2012 of $9.3 million. The increase reflects higher staffing costs as the Company invested in its workforce to enhance operating capabilities and add depth and capacity, increased repair and maintenance expenses, and increased depreciation and amortization due to purchases of additional property and equipment and intangible assets.

Net earnings from continuing operations of $12.1 million (or $0.13 per share) were 28.8% lower than $17.0 (or $0.19 per share) in the prior year. Lower EBITDA in Q1 2013 and a restructuring charge of $3.1 million related to restructuring plans associated with the sale of the Company's diagnostic imaging business more than offset lower interest expense and income taxes in the quarter.

Normalized Adjusted Funds From Operations2 ("AFFO2") and dividends declared were $ 15.9 million and $11.9 million respectively in Q1 2013, resulting in a payout ratio of 75.1%. This is an improvement over Q4 2012 Normalized AFFO2 and payout ratio of $ 15.5 million and 109.7% respectively. For Q1 2012, Normalized AFFO2 totaled $18.1 million and dividends declared totaled $17.0 million for a payout ratio of 93.6%.

Balance Sheet

As at March 31, 2013, the Company had a cash balance of $1.1 million compared to $3.0 million as at December 31, 2012. Long-term debt including the current portion totaled $255.1 million at the end of Q1 2013 compared to $250.2 million at December 31, 2012. At March 31, 2013, the Company had approximately $145 million available under its revolving credit facility and a Debt/EBITDA ratio of 2.5 times. This compares to approximately $150 million available in its revolver, and Debt/EBITDA ratio of 2.4 times as at December 31, 2012. Common shares issued and outstanding totaled 89,842,397 as at March 31, 2013 and December 31, 2012.

Notice of Conference Call

Thomas Wellner, President and CEO of CML will be hosting a conference call on Wednesday, May 8, 2013 at 10:00 am (EST) to discuss the Company's 2013 first quarter financial results. Investors and analysts are invited to join the call by dialing 416-340-8427 or 866-225-6564. 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 Wednesday, May 22, 2013 by calling 905-694-9451 or 800-408-3053, reference number 3475885.

About CML HealthCare Inc.

Based in Mississauga, Ontario, CML HealthCare Inc. is a leading community-based, medical diagnostic services provider in Canada. In addition to operating 112 Client C.A.R.E. Centres in Ontario, 82 imaging centres in Ontario and British Columbia, its subsidiaries, Hemostasis Reference Laboratory, is focused on specialized coagulation testing and equipment calibration for international customers while Rocky Mountain Analytics provides specialized testing for naturopaths and physicians practicing integrated medicine in Canada. 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 or follow CML on Twitter @cmlhealthcare.

1 The Company defines EBITDA as earnings from continuing operations before interest, taxes, depreciation, amortization, impairment of non-financial assets, restructuring and other expense. 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 Normalized Adjusted funds from continuing operations ("AFFO") and Payout Ratio are not a recognized measures under IFRS. AFFO is defined as cash flows from operating activities of continuing operations adjusted for the net change in non-cash working capital items, adjustments for certain tax payments, and the average capital spending required to maintain property and equipment. Payout Ratio is defined as the dividends declared divided by Normalized AFFO. 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 Normalized AFFO and Payout Ratio 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 Normalized AFFO and Payout Ratio may differ from other companies and accordingly, Normalized AFFO and Payout Ratio may not be comparable to measures used by other Companies.

Caution concerning forward-looking statements

This 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", "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; disposal of our diagnostic imaging business under acceptable terms and conditions to our Company; 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, 2012 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 Interim Consolidated Balance Sheets
March 31, December 31,
2013 2012
(in thousands of Canadian dollars) $ $
ASSETS
Current assets
Cash 1,064 3,039
Trade and other receivables 42,502 39,601
Other current assets 4,155 3,630
Current assets of discontinued operations 81,095 -
128,816 46,270
Property and equipment 28,831 49,233
Intangible assets 9,234 12,712
Licences 175,989 223,468
Goodwill 5,692 16,900
Investment and other assets 530 362
Total Assets 349,092 348,945
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 26,035 35,729
Dividends payable 11,904 5,651
Other current liabilities 953 1,030
Income taxes payable 1,127 3,641
Current portion of long-term debt 908 922
Provisions 5,221 4,267
46,148 51,240
Long-term debt 254,181 249,279
Provisions and other long-term liabilities 2,001 2,433
Derivative liabilities 7,789 6,258
Deferred tax liabilities 24,481 24,333
Total Liabilities 334,600 333,543
SHAREHOLDERS' EQUITY
Common shares 55,210 55,210
Contributed surplus 267 218
Deficit (35,517 ) (35,711 )
Accumulated other comprehensive loss (5,468 ) (4,315 )
14,492 15,402
Total Liabilities and Shareholders' Equity 349,092 348,945
CML HealthCare Inc.
Unaudited Interim Consolidated Statements of Earnings and Comprehensive Income
For the three month period ended March 31 2013 2012
(in thousands of Canadian dollars, except share and per share amounts) $ $
Revenue 62,198 64,906
Cost of services 28,401 30,072
Gross margin 33,797 34,834
Expenses
General and administrative 11,663 9,262
Restructuring and other expenses 3,099 -
14,762 9,262
Earnings from continuing operations before interest and income taxes 19,036 25,572
Interest expense 2,469 2,750
Interest and other income (25 ) (147 )
Earnings from continuing operations before income taxes 16,592 22,969
Provision for income taxes
Current taxes 4,003 5,896
Deferred taxes 502 91
4,505 5,987
Net earnings for the period from continuing operations 12,086 16,982
Earnings from discontinued operations, net of tax 12 1,074
Net earnings for the period 12,098 18,056
Other comprehensive income, net of income taxes
Items that may be subsequently reclassified to net income
(Loss) gain on interest rate swap (1,581 ) 2,098
Provision for (recovery of) income taxes 428 (557 )
Net (1,153 ) 1,541
Comprehensive income for the period 10,945 19,597
Continuing operations - basic and diluted earnings per share 0.13 0.19
Discontinued operations - basic and diluted earnings per share - 0.01
Net earnings - basic and diluted earnings per share 0.13 0.20
Weighted average number of common shares outstanding - basic 89,842,397 89,842,397
Weighted average number of common shares outstanding - diluted 89,844,547 89,858,553
CML HealthCare Inc.
Unaudited Interim Consolidated Statements of Cash Flows
For the three month period ended March 31 2013 2012
(in thousands of Canadian dollars) $ $
Cash provided by (used in)
Operating activities
Net earnings for the period from continuing operations 12,086 16,982
Depreciation of property and equipment 1,552 1,467
Amortization of intangible assets 831 584
Unrealized foreign exchange gain - 160
Interest expense 2,469 2,750
Other non-cash items (17 ) (639 )
Restructuring and other expenses (Note 10) 3,099 -
Current taxes 4,003 5,896
Deferred taxes 502 91
Net change in non-cash working capital items (Note 9) (13,343 ) (4,691 )
Interest paid (2,262 ) (2,667 )
Income taxes paid (6,627 ) (20,407 )
Cash provided by (used in) operating activities of continuing operations 2,293 (473 )
Cash provided by operating activities of discontinued operations (Note 4) 956 3,531
Cash provided by operating activities 3,249 3,058
Investing activities
Purchase of property and equipment (2,620 ) (1,261 )
Receipts from notes receivable - 520
Other investing activities (168 ) 151
Acquisition of intangible assets (739 ) (639 )
Cash used in investing activities of continuing operations (3,527 ) (1,229 )
Transaction costs paid - (423 )
Cash used in investing activities of discontinued operations (Note 4) (730 ) (1,594 )
Cash used in investing activities (4,257 ) (3,246 )
Financing activities
Principal repayment of long-term debt and obligations under finance leases (316 ) (23,209 )
Proceeds from long-term debt 5,000 -
Dividends paid (5,651 ) (16,951 )
Transaction costs incurred on debt refinancing - (1,503 )
Cash used in financing activities of continuing operations (967 ) (41,663 )
Decrease in cash (1,975 ) (41,851 )
Cash, beginning of period 3,039 50,640
Cash, end of period 1,064 8,789

FOR FURTHER INFORMATION PLEASE CONTACT:

Contact Information:
CML HealthCare Inc.
Alice Dunning, MBA, CFA
Director, Corporate Communications
(905) 565-0043 ext.3472
(905) 565-2844 (FAX)
DunningA@cml.ca
www.cmlhealthcare.com / Twitter: @cmlhealthcare

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