CML HealthCare Inc.
TSX : CLC

CML HealthCare Inc.

August 09, 2012 20:32 ET

CML HealthCare Inc. Reports Second Quarter 2012 Financial Results

MISSISSAUGA, ONTARIO--(Marketwire - Aug. 9, 2012) - CML HealthCare Inc. (the "Company" or "CML") (TSX:CLC) today reported its financial results for the three and six months ended June 30, 2012 (all amounts are in Canadian dollars, unless noted otherwise).

Consolidated Financial Summary:

For three month
period ended
For six month
period ended
(C$ million except percent & per share amounts) 30-Jun-
12
30-Jun-
11
%
Change
30-Jun-
12
30-Jun-
11
%
Change
Revenue 94.0 95.4 (1.4 %) 190.3 187.0 1.8 %
Cost of services 58.7 58.7 (0.0 %) 117.5 114.6 2.4 %
General & administrative 11.3 10.9 3.7 % 21.8 20.7 5.3 %
Add back: Depreciation & amortization 4.1 4.4 (6.7 %) 8.2 8.8 (7.0 %)
EBITDA(1) 28.1 30.1 (6.9 %) 59.2 60.4 (2.0 %)
EBITDA(1) Margin (%) 29.9 % 31.6 % na 31.1 % 32.3 % na
Depreciation & amortization 4.1 4.4 (6.7 %) 8.2 8.8 (7.0 %)
Foreign exchange loss - - na - 0.3 na
Restructuring & other expense - 2.6 na - 2.6 na
Interest expense 2.5 2.9 (14.8 %) 5.2 5.6 (7.1 %)
Interest and other (income) expense net (0.4 ) 0.2 na (0.5 ) - na
Earnings from continuing operations Before Taxes(2) (EBT) 21.9 20.0 9.4 % 46.4 43.1 7.6 %
Provision for income taxes:
Current taxes 6.1 4.6 na 12.3 4.6 na
Deferred taxes 1.3 1.0 na 1.5 7.6 na
Net earnings from continuing operations 14.5 14.4 0.8 % 32.6 30.9 5.5 %
Loss from discontinued operations, net of tax - (6.6 ) na - (8.7 ) na
Net earnings 14.5 7.8 86.3 % 32.6 22.3 46.5 %
EPS from continuing operations (basic and diluted) 0.16 0.16 na 0.36 0.34 5.9 %
EPS (basic and diluted) 0.16 0.09 77.8 % 0.36 0.25 44.0 %
Cash provided by operating activities from continuing operations 23.8 27.5 na 26.8 55.1 na
Purchase of property & equipment (2.5 ) (3.8 ) na (4.5 ) (10.3 ) na
Proceeds from sale of property and equipment and licences 1.1 - na 1.3 - na
Acquisition of intangible assets (0.4 ) (1.7 ) na (1.8 ) (3.3 ) na
Adjusted Funds From Operations(3) (AFFO) 22.1 22.0 na 21.8 41.5 na

"During the second quarter, the Ontario Ministry of Health and Long Term Care announced reimbursement cuts to certain lab and imaging procedures which impacted our revenue by $1.5 million. This impact was offset by lower interest expense and the absence of restructuring charges this quarter resulting in EBT of $21.9 million which was 9.4% higher than the comparable period in 2011," said Tom Weber, Executive Vice President and Chief Financial Officer.

"During the quarter, we have made solid progress on a number of key initiatives to strengthen our business and pave the way for growth," said Thomas Wellner, President and Chief Executive Officer. "We have finalized our plans to upgrade the hematology platform at our central laboratory and similar to the equipment upgrade to our biochemistry platform completed last year, we expect to realize improved quality, service, and efficiencies once the new, state-of-the-art hematology equipment is installed in early 2013."

"We have also started work on our previously announced accelerated clinic refurbishment program to improve the patient experience, the completion of which is targeted for the end of 2012." continued Mr. Wellner. "We are committed to providing our patients and staff with the highest standard of quality at all of our locations."

Financial Results for Three Months Ended June 30, 2012

Revenue decreased 1.4% to $94.0 million from $95.4 million in the same period in 2011. The decrease reflect primarily: i) $1.5 million decline due to reimbursement rate cuts to certain diagnostic imaging and laboratory procedures announced by the Ontario Ministry of Health and Long Term Care (MOH) in May 2012 effective April 1, 2012; ii) $0.4 million net decrease in one-time laboratory funding from the MOH, and iii) $0.4 million decrease in non-cap revenues. The decreases were partially offset by $0.9 million in laboratory performance-based funding not available in Q2 2011.

Cost of Services of $58.7 million was unchanged compared to the same period in 2011. A $0.8 million increase from general inflation primarily impacting staffing costs in Q2 2012 was offset by decreases to medical professional fees related to reimbursement rate cuts and lower depreciation.

General and administrative ("G&A") expenses of $11.3 million were 3.7% higher than $10.9 million in the same period in 2011. The increase was attributed to an increase in staffing costs as well as an increase in amortization.

EBITDA(1) of $28.1 million was 6.9% lower than the same period in 2011 of $30.1 million. EBITDA(1) margin of 29.9% in Q2 2012 was lower than 31.6% in Q2 2011. Both were impacted by lower revenue and higher G&A expenses as previously noted.

Net earnings from continuing operations of $14.5 million were effectively unchanged compared to $14.4 million in Q2 2011. Q2 2012 saw lower depreciation as well as lower interest expense compared to the same period in 2011, offset by an increase in income taxes. Interest expense declined due to lower average debt balances and lower interest rates.

AFFO(3) from continuing operations in Q2 2012 totaled $22.1 million compared to dividends declared of $17.0 million in the quarter. This compares to AFFO(3) from continuing operations of $22.0 million in Q2 2011. The increase reflects lower cash flow from operating activities offset by a decrease in capital spending in Q2 2012 compared to the same quarter in 2011.

Financial Results for Six-Months Ended June 30, 2012

For the six month period ended June 30, 2012, revenue increased 1.8% to $190.3 million compared to $187.0 million in the prior year. The increase was primarily attributable to: i) $3.3 million increase in laboratory performance-based funding not applicable in 2011; ii) $0.8 million in additional revenue associated with a new funding agreement related to data submissions into the Ontario Laboratory Information System; and iii) $1.4 million increase to non-cap revenue from lab and imaging due to organic growth. The increases were partially offset by a $0.7 million net decrease in one-time lab funding from the MOH, and a $1.5 million reduction due to reimbursement rate cuts announced by the MOH.

EBITDA(1) was $59.2 million for the six months ended June 30, 2012 compared to $60.4 million for the same period in 2011. The decline is a result of increased revenue as previously noted, offset by: i) higher staffing costs as a result of general inflation and ii) higher medical professional fees associated with increased volumes.

For the six month period ended June 30, net earnings from continuing operation of $32.6 million in 2012 was 5.5% higher than $30.9 million in 2011. The increase was largely attributed to $2.6 million in restructuring and other expenses in 2011 not applicable in 2012, and a decline in interest expense due to lower effective interest rate and lower outstanding debt, offset by increased income taxes.

Balance Sheet

As at June 30, 2012, the Company had cash balances of $13.4 million, compared to $50.6 million as at December 31, 2011 and $8.8 million as at March 31, 2012. The decline in cash balance compared to December 31, 2011 was due primarily to debt repayment of $23.4 million, and payment of 2011 income taxes totaling $16.3 million. Long-term debt of the Company, including the current portion, was $275.4 million as at June 30, 2012, essentially unchanged relative to the end of Q1 2012 of $275.8 million, but lower than $299.8 million as at December 31, 2011. As at June 30, 2012, the Company had approximately $125 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 Friday, August 10, 2012 at 10:00 am (EST) to discuss the Company's 2012 second 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 Saturday, August 25, 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 Canada's largest community-based, medical diagnostic services provider operating 115 laboratory collection centres in Ontario and 103 imaging centres in Ontario, British Columbia, and Alberta. 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) 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 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; 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)
June 30,
2012
December 31,
2011
$ $
ASSETS
Current assets
Cash 13,397 50,640
Trade and other receivables 37,973 44,627
Current portion of note receivable 1,445 1,373
Other current assets 3,354 2,874
56,169 99,514
Property and equipment 52,131 53,108
Licences 231,815 232,259
Intangible assets 17,146 18,090
Goodwill 30,672 30,582
Note receivable 6,183 6,916
Other assets - 328
Total Assets 394,116 440,797
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities 29,944 37,520
Dividends payable 5,650 5,650
Other current liabilities 2,015 2,671
Income taxes payable 4,511 17,968
Current portion of long-term debt 919 897
Provisions 1,499 2,136
44,538 66,842
Long-term debt 274,486 298,935
Other long-term liabilities 1,160 1,360
Interest rate swap 7,566 7,172
Deferred tax liabilities 25,806 24,489
Total Liabilities 353,556 398,798
SHAREHOLDERS' EQUITY
Common shares 55,134 55,134
Contributed surplus 139 51
Accumulated other comprehensive loss (5,577 ) (5,347 )
Deficit (9,136 ) (7,839 )
40,560 41,999
Total Liabilities and Shareholders' Equity 394,116 440,797
CML HealthCare Inc.
Unaudited Consolidated Statements of Earnings and Comprehensive Income
(in thousands of Canadian dollars, except share and per share amounts)
Six month
period ended
Three month
period ended
June 30 June 30 June 30 June 30
2012 2011 2012 2011
$ $ $ $
Revenue 190,321 187,018 93,989 95,368
Cost of services 117,472 114,663 58,655 58,666
Gross margin 72,849 72,355 35,334 36,702
Expenses
General and administrative 21,834 20,745 11,343 10,936
Foreign exchange loss (gain) - 278 - (7 )
Restructuring and other expenses - 2,607 - 2,607
21,834 23,630 11,343 13,536
Operating earnings from continuing operations 51,015 48,725 23,991 23,166
Interest expense 5,200 5,598 2,450 2,877
Interest and other (income) expense, net (536 ) 39 (389 ) 237
Earnings from continuing operations before income taxes 46,351 43,088 21,930 20,052
Provision for income taxes
Current taxes 12,294 4,619 6,104 4,619
Deferred taxes 1,452 7,558 1,277 995
13,746 12,177 7,381 5,614
Net earnings for the period from continuing operations 32,605 30,911 14,549 14,438
Loss from discontinued operations, net of tax - (8,662 ) - (6,629 )
Net earnings for the period 32,605 22,249 14,549 7,809
Other comprehensive income (loss) net of income taxes
Gain (loss) on interest rate swap (394 ) 1,507 (2,492 ) 37
(Provision for) recovery of income taxes 164 (383 ) 721 (9 )
Net (230 ) 1,124 (1,771 ) 28
Foreign currency translation adjustment - (1,203 ) - (1,233 )
(Recovery of) provision for income taxes - (37 ) - 142
Net - (1,240 ) - (1,091 )
Total other comprehensive loss (230 ) (116 ) (1,771 ) (1,063 )
Comprehensive income for the period 32,375 22,133 12,778 6,746
Continuing operations - basic and diluted earnings per share 0.36 0.34 0.16 0.16
Discontinued operations - basic and diluted earnings per share - (0.10 ) - (0.07 )
Net earnings - basic and diluted earnings per share 0.36 0.25 0.16 0.09
Weighted average number of common shares outstanding - basic 89,842,397 89,842,397 89,842,397 89,842,397
Weighted average number of common shares outstanding - diluted 89,854,901 89,842,397 89,851,165 89,842,397
CML HealthCare Inc.
Unaudited Consolidated Statements of Cash Flows
(in thousands of Canadian dollars)
Six month
period ended
Three month
period ended
June 30 June 30 June 30 June 30
2012 2011 2012 2011
$ $ $ $
Cash provided by (used in)
Operating activities
Net earnings for the period from continuing operations 32,605 30,911 14,549 14,438
Items not affecting cash
Depreciation of property and equipment 6,263 7,144 3,097 3,536
Amortization of intangible assets 1,925 1,663 974 827
Unrealized foreign exchange loss (gain) 7 (5 ) (153 ) 250
Interest expense 5,200 5,598 2,450 2,877
Other non-cash items (700 ) 189 (75 ) 414
Gain on sale of property and equipment and licences (580 ) - (580 ) -
Restructuring and other expenses - 2,607 - 2,607
Income tax expense 12,294 4,619 6,104 4,619
Deferred income taxes 1,452 7,558 1,277 995
Net change in non-cash working capital items (151 ) 1,306 4,540 391
Interest paid (5,719 ) (6,398 ) (3,052 ) (3,354 )
Income taxes paid (25,751 ) (117 ) (5,344 ) (118 )
Cash provided by operating activities of continuing operations 26,845 55,075 23,787 27,482
Cash provided by operating activities of discontinued operations - 358 - 177
Cash provided by operating activities 26,845 55,433 23,787 27,659
Investing activities
Purchase of property and equipment (4,470 ) (10,343 ) (2,454 ) (3,761 )
Proceeds from sale of property and equipment and licences 1,262 - 1,105 -
Receipts from notes receivable 1,039 - 519 -
Acquisition of intangible assets (1,835 ) (3,264 ) (351 ) (1,700 )
Cash used in investing activities of continuing operations (4,004 ) (13,607 ) (1,181 ) (5,461 )
Transaction costs paid (1,248 ) - (825 ) -
Cash used in investing activities of discontinued operations - (609 ) - (1,266 )
Cash used in investing activities (5,252 ) (14,216 ) (2,006 ) (6,727 )
Financing activities
Principal repayment of long-term debt and obligations under finance leases (23,431 ) (14,003 ) (222 ) (5,702 )
Dividends paid (33,902 ) (28,229 ) (16,951 ) (16,934 )
Transaction costs incurred on debt refinancing (1,503 ) - - -
Common shares acquired - (392 ) - -
Cash used in financing activities of continuing operations (58,836 ) (42,624 ) (17,173 ) (22,636 )
Cash used in financing activities of discontinued operations - (947 ) - (478 )
Cash used in financing activities (58,836 ) (43,571 ) (17,173 ) (23,114 )
(Decrease) increase in cash (37,243 ) (2,354 ) 4,608 (2,182 )
Cash, beginning of period 50,640 9,506 8,789 9,334
Cash, end of period 13,397 7,152 13,397 7,152

Contact Information

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

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