CML HealthCare Inc.
TSX : CLC

CML HealthCare Inc.

March 08, 2012 06:00 ET

CML HealthCare Inc. Reports 2011 Year-End Financial Results

MISSISSAUGA, ONTARIO--(Marketwire - March 8, 2012) - CML HealthCare Inc. (the "Company" or "CML") (TSX:CLC) today reported its financial results for the three and twelve month periods ended December 31, 2011 (all amounts are in Canadian dollars, unless noted otherwise).

Fiscal 2011 Highlights from Continuing Operations:

  • Revenue increased 2.1% to $376.1 million
  • EBITDA increased 6.6% to $124.8 million and EBITDA margin increased to 33.2% from 31.8%
  • Earnings Before Taxes (EBT(3)) increased 4.2% to $92.6 million
  • Net earnings from continuing operations were $67.0 million
  • Cash flow provided by operating activities from continuing operations increased 15.2% to $119.7 million
  • Adjusted funds from continuing operations (AFFO(4)) increased 25.4% to $101.3 million

Consolidated Financial Summary:

(C$ million except percent & per share amounts) Twelve-
months
ended
Dec. 31,
2011
("F2011")
Twelve-
months
ended
Dec. 31,
2010(1)
(
"F2010")
% Change
in F2011
Three-
months
ended
Dec. 31,
2011
("Q4
2011")
Three-
months
ended
Dec. 31,
2010(1)
("Q4
2010")
% Change
in
Q4
2011
Revenue 376.1 368.2 2.1 % 95.8 94.5 1.4 %
Cost of services 228.2 224.6 1.6 % 57.5 57.1 0.8 %
General & administrative 40.5 42.0 (3.6 %) 11.0 12.8 (14.0 %)
Add back: Depreciation & amortization 17.5 15.4 13.3 % 4.6 4.2 8.4 %
EBITDA(2) 124.8 117.1 6.6 % 31.9 28.9 10.2 %
EBITDA(2) Margin (%) 33.2 % 31.8 % 4.4 % 33.3 % 30.6 % 8.8 %
Depreciation & amortization 17.5 15.4 13.3 % 4.6 4.2 8.4 %
Foreign exchange loss (gain) 0.0 0.3 na (0.2 ) (0.1 ) na
Restructuring & other expenses, net 2.8 1.9 46.7 % 0.2 0.1 na
Interest expense 12.0 10.7 12.3 % 3.2 2.8 13.2 %
Interest & other income (0.1 ) (0.2 ) (28.5 %) 0.0 0.0 na
Earnings Before Taxes(3)(EBT) 92.6 88.9 4.2 % 24.5 21.9 11.9 %
Provision for (recovery of) income taxes 25.7 (0.2 ) na 6.6 (0.1 ) na
Net earnings from continuing operations 67.0 89.2 na 17.9 22.0 (18.5 %)
Loss from discontinued operations, net of tax (7.0 ) (56.5 ) (87.6 %) 7.5 (52.7 ) na
Net earnings 59.9 32.6 83.7 % 25.4 (30.9 ) na
EPS from continuing operations 0.75 0.99 (24.9 %) 0.20 0.25 (20.0 %)
EPS 0.67 0.36 86.1 % 0.28 (0.34 ) na
Cash provided by operating activities from continuing operations 119.7 103.9 15.2 % 41.6 28.1 47.8 %
Purchase of property & equipment from continuing operations (16.5 ) (18.6 ) (11.5 %) (3.3 ) (2.9 ) na
Acquisition of intangible assets from continuing operations (1.9 ) (4.5 ) (57.1 %) 2.2 (2.2 ) na
Adjusted Funds From Operations(4) 101.3 80.8 25.4 % 40.5 23.0 76.0 %

"With the sale of the U.S. imaging business in Q4, we are focused on our core laboratory and diagnostic imaging operations in Canada, which produced solid results in the fourth quarter of 2011," said Tom Weber, Executive Vice President and Chief Financial Officer. "Revenue growth of 1.4% reflects the recognition of laboratory revenues in respect of the new performance based funding agreement with the Ontario Ministry of Health and Long Term Care (the "MOHLTC"). Growth in EBT3 from continuing operations and AFFO of 11.9% and 76.0% respectively demonstrates our focus on managing costs and cash flows," continued Mr. Weber. "At the same time we are committed to investing in the business to ensure continued quality and delivery of value to all of our stakeholders."

"I am also pleased with the completion and previous announcement of the refinancing of our credit facility," noted Mr. Weber. "We took advantage of the opportunity to secure a five year revolver with lower interest costs, increased liquidity, and additional covenant flexibility."

Newly appointed President and Chief Executive Officer Thomas Wellner stated, "In my first month at CML, I have immersed myself in learning the various service offerings of the business. I have spent a significant amount of time in the field and interacted with many of the company's personnel, partners, and stakeholders. CML has a strong senior leadership team and we are all committed to identifying opportunities to further enhance our core business and build value."

Financial Results for the twelve months ended December 31, 2011 ("F2011")

With the sale of CML's U.S. imaging operations in Q4 2011, F2011 and fiscal 2010 ("F2010") operating results related to this business have been reclassified as discontinued operations.

Revenue from continuing operations increased 2.1% to $376.1 million from $368.2 million for the same period in F2010. Organic growth in non-capped lab and imaging revenues contributed $4.1 million in F2011 while increases associated with the lab funding agreement with the Ontario Ministry of Health and Long-Term Care ("MOHLTC") added $3.3 million to F2011 revenue. There was also a one-time laboratory funding for the MOHLTC year ended March 31, 2011 of $0.9 million recorded in F2011 that was not applicable in F2010.

Cost of Services totaling $228.2 million increased 1.6% from $224.6 million in F2010. The increase is due primarily to: i) $2.3 million from general inflationary increases impacting salaries and certain services; ii) $2.3 million from the harmonized sales tax ("HST") introduced on July 1, 2010; iii) $2.2 million in medical professional fees associated with increases in non-cap revenues and average reimbursement rates; and iv) increased depreciation and amortization associated with the purchase of property and equipment and intangible assets. The aforementioned were partially offset by a decrease of $4.4 million in supplies costs resulting from improved inventory management and other supply chain cost savings.

General and Administrative expenses of $40.5 million was 3.6% lower than $42.0 million in the same period in F2010. The decline primarily reflects: i) $1.0 million decrease in salaries and compensation expenses associated with restructuring changes, including the departure of previous senior management in May 2011; ii) $1.0 million related to commodity tax recovery of supplies; and iii) $1.3 million related to cost containment efforts. The aforementioned were partially offset by $0.7 million in added costs due to the impact from the HST and increased depreciation and amortization associated with the purchase of additional property and equipment and intangible assets.

EBITDA(2) of $124.8 million was 6.6% higher than $117.1 million in F2010. EBITDA(2) margin of 33.2% increased from 31.8% for the same period in 2010.

Net earnings from continuing operations of $67.0 million was 24.9% lower than $89.2 million in F2010. The decline was largely attributable to a $25.7 million provision for income taxes in F2011 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 F2010.

Excluding the impact from provision for income taxes, Earnings Before Taxes(3) from continuing operations of $92.6 million increased 4.2% over the same period in F2010.

Net earnings, including net loss from discontinued operations, totaled $59.9 million compared to $32.6 million in F2010. Improvement in net earnings reflect primarily i) a decline in goodwill impairment charge in F2011 related to discontinued operations; and ii) impact from ten months of net loss from discontinued operations in F2011 compared to twelve months of net loss in F2010.

Cash flows from operating activities of continuing operations totaled $119.7 million in F2011 compared to $103.9 million in F2010. AFFO(4) from continuing operations in F2011 totaled $101.3 million compared to $80.8 million in F2010. For the full year 2011, dividends declared totaled $67.8 million.

Financial Results for the three months ended December 31, 2011 ("Q4 2011")

For the three months ended December 31, 2011, revenue increased 1.4% to $95.8 million. The increase was due primarily to: i) $0.5 million in retroactive funding in imaging from the MOHLTC; ii) $2.4 million in performance-based funding in lab associated with the new MOHLTC lab funding agreement in place until March 31, 2013; and iii) organic growth in lab and imaging non-capped volumes. The aforementioned was partially offset by higher retroactive funding in imaging received in Q4 2010 of $2.3 million.

EBITDA(2) and EBITDA(2) margin in Q4 2011 of $31.9 million and 33.3% respectively were higher than Q4 2010 of $28.9 million and 30.6% respectively, as a result of a combination of increased revenue and cost containment activities.

Net earnings from continuing operations of $17.9 million in Q4 2011 were lower than $22.0 million for the same period in 2010 due primarily to provisions for income taxes since the Company restructured from an income trust to a corporation effective January 1, 2011. Excluding the impact from provision for income taxes, EBT(3) totaled $24.5 million in Q4 2011 compared to $21.9 million in Q4 2010.

Balance Sheet

As at December 31, 2011, the Company had cash balances of $50.6 million, compared to $9.5 million as at December 31, 2010, and $5.1 million as at September 30, 2011. The increase in cash balance was due primarily to proceeds from the sale of the U.S. imaging operations. Long-term debt of the Company, including the current portion, was $299.8 million as at December 31, 2011, compared to $330.2 million as at December 31, 2010 and $310.7 million as at September 30, 2011. Long-term debt declined in 2011 due to the repayment of $28.1 million with cash flow from operations. At December 31, 2011 the Company had approximately $75 million available under the revolving credit facility and 89,842,397 common shares issued and outstanding.

On February 29, 2012, CML announced that it had entered into a new $400 million credit facility, replacing the previous $373 million facility. With this new facility, the Company had approximately $115 million in undrawn credit available as at March 8, 2012.

Notice of Conference Call

Thomas Wellner, President and CEO of CML will be hosting a conference call on Thursday, March 8, 2012 at 10:00 am (EST) to discuss the Company's Fiscal 2011 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 Saturday, March 24, 2012 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 115 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.

(1) F2010 results have been restated to classify the U.S. operations as discontinued operations.
(2) The Company defines EBITDA as earnings from continuing operations before interest, taxes, depreciation, amortization, restructuring and other expenses, interest and other income, 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 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.
(4) 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 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.

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", "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.
Consolidated Balance Sheets (Unaudited)
(in thousands of Canadian dollars)
December 31, December 31, January 1,
2011 2010 2010
$ $ $
ASSETS
Current assets
Cash 50,640 9,506 21,309
Trade and other receivables 44,627 53,921 56,205
Current portion of notes receivable 1,373 - -
Income taxes recoverable - - 523
Other current assets 2,874 3,377 4,436
Restricted cash - 995 -
99,514 67,799 82,473
Property and equipment 53,108 83,227 82,676
Licences 232,259 232,259 232,259
Intangible assets 18,090 20,867 42,821
Goodwill 30,582 45,159 77,092
Notes receivable 6,916 3,442 -
Investments and other assets 328 2,225 1,883
Total Assets 440,797 454,978 519,204
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 37,520 41,721 46,051
Dividends and distributions payable 5,650 - 8,007
Other current liabilities 2,671 1,215 1,836
Income taxes payable 17,968 1,720 798
Current portion of long-term debt 897 2,340 3,596
Provisions 2,136 1,906 324
66,842 48,902 60,612
Long-term debt 298,935 327,827 310,287
Other long-term liabilities 1,360 2,489 1,844
Derivative liabilities 7,172 9,970 11,853
Deferred tax liabilities 24,489 14,777 20,193
Total Liabilities 398,798 403,965 404,789
SHAREHOLDERS' EQUITY
Common shares 55,134 - -
Contributed surplus 51 - -
Trust equity - 54,461 116,654
Accumulated other comprehensive loss (5,347 ) (3,448 ) (2,239 )
Deficit (7,839 ) - -
41,999 51,013 114,415
Total Liabilities and Shareholders' Equity 440,797 454,978 519,204


CML HealthCare Inc.
Consolidated Statements of Earnings and Comprehensive Income (Unaudited)
(in thousands of Canadian dollars, except share/unit and per share/unit amounts)
For the years ended December 31 2011 2010
$ $
Revenue 376,063 368,192
Cost of services 228,208 224,569
Gross margin 147,855 143,623
Expenses
General and administrative 40,522 42,014
Foreign exchange loss 40 266
Restructuring and other expenses 2,764 1,884
43,326 44,164
Operating earnings from continuing operations 104,529 99,459
Interest expense 12,036 10,720
Interest and other income (133 ) (186 )
Earnings from continuing operations before income taxes 92,626 88,925
Provision for (recovery of) income taxes
Current taxes 16,512 797
Deferred taxes 9,160 (1,027 )
25,672 (230 )
Net earnings for the year from continuing operations 66,954 89,155
Loss from discontinued operations, net of tax (7,017 ) (56,527 )
Net earnings for the year 59,937 32,628
Other comprehensive income (loss), net of income taxes
Gain on interest rate swap 2,798 1,883
Provision for income taxes (711 ) (480 )
Net 2,087 1,403
Foreign currency translation adjustment 1,418 (2,172 )
Reclassified to net earnings (5,367 ) -
Provision for income taxes (37 ) (440 )
Net (3,986 ) (2,612 )
Total other comprehensive loss (1,899 ) (1,209 )
Comprehensive income for the year 58,038 31,419
Continuing operations - basic and diluted earnings per share/unit 0.75 0.99
Discontinued operations - basic and diluted earnings per share/unit (0.08 ) (0.63 )
Net earnings - basic and diluted earnings per share/unit 0.67 0.36
Weighted average number of common shares/units outstanding - basic 89,842,397 89,842,397
Weighted average number of common shares/units outstanding - diluted 89,842,451 89,842,397


CML HealthCare Inc.
Consolidated Statements of Cash Flows (Unaudited)
(in thousands of Canadian dollars)
For the years ended December 31, 2011 2010
$ $
Cash provided by (used in)
Operating activities
Net earnings for the year from continuing operations 66,954 89,155
Items not affecting cash
Depreciation of property and equipment 13,973 12,862
Amortization of intangible assets 3,527 2,579
Unrealized foreign exchange gain (84 ) (118 )
Interest expense 12,036 10,720
Income tax expense 16,512 797
Restructuring and other expenses 2,764 828
Other non-cash items (17 ) (159 )
Deferred income taxes 9,160 (1,027 )
Net change in non-cash working capital items 5,388 (2,055 )
Supplier incentive received - 1,755
Deferred revenue 2,194 -
Interest paid (12,594 ) (12,498 )
Income taxes (paid) recovered (110 ) 1,044
Cash provided by operating activities of continuing operations 119,703 103,883
Cash provided by operating activities of discontinued operations 6,826 2,580
Cash provided by operating activities 126,529 106,463
Investing activities
Purchase of property and equipment (16,456 ) (18,594 )
Receipts from note receivable 223 -
Other investing activities (328 ) 379
Acquisition of intangible assets (1,926 ) (4,494 )
Cash used in investing activities of continuing operations (18,487 ) (22,709 )
Cash used in investing activities of discontinued operations (7,010 ) (5,672 )
Proceeds from sale of discontinued operations 31,176 -
Cash provided by (used in) investing activities 5,679 (28,381 )
Financing activities
Principal repayment of long-term debt and obligations under finance lease (27,188 ) (902 )
Proceeds from long-term debt - 20,000
Dividends and distributions paid (62,126 ) (104,078 )
Shares and units acquired (392 ) (518 )
Cash used in financing activities of continuing operations (89,706 ) (85,498 )
Cash used in financing activities of discontinued operations (1,368 ) (4,129 )
Cash used in financing activities (91,074 ) (89,627 )
Effects of foreign exchange on cash - (258 )
Increase (decrease) in cash 41,134 (11,803 )
Cash, beginning of year 9,506 21,309
Cash, end of year 50,640 9,506

Contact Information

  • CML HealthCare Inc.
    Alice Dunning
    Director, Corporate Communications
    (905) 565-0043 ext. 3472
    (905) 565-2844 (FAX)

    CML HealthCare Inc.
    Tom Weber
    Executive Vice President, Chief Financial Officer
    (905) 565-0043 ext. 3204
    (905) 565-2844 (FAX)
    www.cmlhealthcare.com