CML HealthCare Inc.
TSX : CLC

CML HealthCare Inc.

May 07, 2009 07:00 ET

CML HealthCare Income Fund Reports 2009 First Quarter Financial Results

MISSISSAUGA, ONTARIO--(Marketwire - May 7, 2009) -

NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

CML HealthCare Income Fund (the "Fund" or "CML HealthCare") (TSX:CLC.UN) today reported its financial results for three-month period ended March 31, 2009.

Q1 2009 Highlights



- Revenue increased 38.6% to $128.3 million from $92.6 million in Q1
2008
- EBITDA(1) rose to $34.1 million compared to $30.2 million in the same
quarter last year
- Net earnings increased 5.4% to $23.0 million from $21.9 million in Q1
2008
- Cash provided by operating activities of $38.7 million is 165.7%
higher than $14.6 million in Q1 2008
- The Fund generated distributable cash(2) of $28.4 million and
declared distributions totaling $24.0 million, representing a payout
ratio of 84.6%


"We are pleased to report continued growth in revenue, EBITDA(1), net earnings, and cash flow from operations in the quarter. Our results reflect the central importance of healthcare services, regardless of challenging economic periods, and the stability in both our lab and imaging services," said Paul Bristow, President and CEO of CML HealthCare Income Fund. "We continue to advance our new Radiology Information System ("RIS") and Picture Archiving Communications System ("PACS") initiative for both our U.S. and Canadian operations. We anticipate the digitization of our Canadian medical imaging operations will take approximately 24 months, while upgrading our U.S. operations to the new RIS / PACS is anticipated to take approximately 12 months. We expect the total cost of implementation to be in the range of $30 to $35 million, which will be funded by available cash and credit resources, and future cash flow generated from operations. It will not impact the Fund's distributable cash(2). We are also advancing our Canadian branding and clinic refurbishment programs. Since our clinic refurbishment program commenced last year, 25 clinics have been completed or are currently under construction."

"Looking ahead, we will continue to advance our digital imaging and clinic refurbishment initiatives, while also exploring acquisitions of medical diagnostic assets in both Canada and in the U.S.," continued Mr. Bristow. "With approximately $79 million in revolving credit facility available and solid cash flow from operations, we have sufficient liquidity and capital resources to finance growth opportunities and our capital commitments."

Financial Results

Revenue for the Fund in the first quarter of 2009 ("Q1 2009") increased 38.6% to $128.3 million from $92.6 million in the first quarter of 2008 ("Q1 2008"). The Fund's increased revenue in the quarter reflects: i) $29.0 million in revenue from the inclusion of a three months of American Radiology Services, Inc. ("ARS") results in Q1 2009 as compared to one month of results in Q1 2008 (ARS was acquired on February 29, 2008); ii) $3.7 million in revenue from acquisitions of new imaging clinics in Canada; iii) $1.7 million increase in total cap revenue based on the Ontario Ministry of Health and Long-Term Care("MOH") Funding agreement for laboratory services; and vi) organic growth in non-cap revenues.

Operating, general and administrative ("OG&A") expenses for the first quarter of 2009 were $94.2 million compared to $62.4 million in Q1 2008. Higher OG&A expenses in Q1 2009 compared to Q1 2008 reflect: i) higher operating expenses (including salaries, rent and professional fees) associated with acquisitions completed in 2008; ii) three months of operating expense from ARS in Q1 2009 compared to one month in the same period in 2008; iii) increased costs in line with revenue increases to support growth; and iv) investments made in corporate infrastructure to support the Fund's growth
plans.

EBITDA(1) in the first quarter of 2009 totaled $34.1 million, or 26.6% of revenue, compared to $30.2 million, or 32.6% of revenue, in Q1 2008. Decreased EBITDA(1) margins in Q1 2009 compared to the prior year result from a higher proportion of consolidated revenue being derived from medical imaging services as the Fund acquired medical imaging clinics in Canada and the U.S. (ARS purchase) over the past two years.



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Comparative Quarterly
Financial Summary
($ millions, except
per unit amounts) January 1, 2009 to January 1, 2008 to
(unaudited) March 31, 2009 March 31, 2008
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Revenue $128.3 $92.6
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Operating, general
and administrative 94.2 62.4
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EBITDA(1) 34.1 30.2
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Amortization 8.7 2.5
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Transaction cost on debt financing - 3.5
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Interest expense 4.1 3.2
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Recovery of income taxes (1.7) (0.9)
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Net earnings for the period 23.0 21.9
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Basic earnings per unit 0.26 0.25
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The Fund's net earnings for the first quarter of 2009 increased 5.4% to $23.0 million or $0.26 per Fund unit (basic), compared to $21.9 million or $0.25 per Fund unit (basic) in Q1 2008.

Distributable Cash(2)

For the three months ended March 31, 2009, the Fund generated distributable cash(2) of $28.4 million and declared distributions totaling $24.0 million, representing a payout ratio of 84.6%. Please refer to Standardized Distributable Cash(3) and Distributable Cash(2) table below.



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Standardized Distributable January 1, 2009 to January 1, 2008 to
Cash(3) and Distributable March 31, 2009 March 31, 2008
Cash(2) Table ($000s) (unaudited) (unaudited)
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Cash flow from operating
activities $38,669 $14,556
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Less:
Total capital expenditures
as per consolidated statement
of cash flows (11,629) (2,649)
-------------------------------------------------------------------------
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Standardized distributable cash(3) 27,040 11,907
-------------------------------------------------------------------------
Normalizing adjustments to
non-cash working capital items(4) (5,306) 11,088
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Capital Expenditures:
Add back: One time
capital expenditures 3,838 212
Changes in capital expenditure
notional reserve 3,174 34
Capital lease payments (19) (305)
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Sub-total 28,727 (59)
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Discretionary/non-recurring
expenses/(recovery)(5) (174) 3,384
-------------------------------------------------------------------------
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Cash available for distribution 28,553 26,320
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Non-recurring revenue(6) (171) -
-------------------------------------------------------------------------
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Distributable cash(2) 28,382 26,320
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Distributions to unitholders 24,011 22,665
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Total payouts as a percentage
of distributable cash(2) 84.6% 86.1%
-------------------------------------------------------------------------
Total payouts as a percentage
of standardized distributable cash(3) 88.8% 190.3%
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Weighted average number of Fund
units outstanding in the period 89,842,404 86,853,393
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-------------------------------------
(3) On July 18, 2007, the Canadian Institute of Chartered Accountants
issued its interpretive release "Standardized Distributable Cash in
Income Trusts and Other Flow Through Entities: Guidance on Preparation
and Disclosures". The Fund has reviewed the interpretive release and has
adopted the guidance as applicable to the Fund. The above table
represents a summarized presentation. Please refer to our March 31, 2009
Management's Discussion and Analysis ("MD&A") for complete disclosure
relating to Standardized Distributable Cash.
(4) Comprised of adjustments related to known and measurable timing
differences in respect of MOH cap revenue receivables; insurance
adjustments; bonus adjustments; ARS tax refunds related to pre-
acquisition periods; and non-recurring settlement of a pre-acquisition
liability relating to ARS.
(5) Discretionary/Non-recurring expenses/(recovery) represents one-time
retail sales tax recovery.
(6) Non-recurring revenue represents retroactive payments for
professional and technical fees and retroactive MOH cap adjustment in the
quarter.

Segmented Analysis
------------------

Canadian Operations

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For the three-month Canadian Operations
periods ended March 31 (C$ million except percent amount)
-------------------------------------------------------------------------
2009 2008
-------------------------------------------------------------------------
Revenue $87.2 $80.4
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OG&A $57.4 $51.6
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EBITDA(1) $29.8 $28.8
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EBITDA(1) margin 34.2% 35.8%
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Net earning for the period $23.3 $21.5
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For the three month period ended March 31, 2009, revenue and OG&A of $87.2 million and $57.4 million respectively, were higher than the same period in 2008 as a result of the acquisitions of medical imaging clinics across Canada completed post March 31, 2008, as well as organic growth. Lower EBITDA(1) margins of 34.2% compared to 35.8% in Q1 2008 resulted from a higher proportion of consolidated revenue derived from medical imaging services, as the Fund has been active in acquiring medical imaging clinics across Canada.

U.S. Operations



-------------------------------------------------------------------------
For the three-month U.S. Operations
period ended: (U.S. $ million except percent amount)
-------------------------------------------------------------------------
Mar. 31, 2009 Mar. 31, 2008 Dec. 31, 2008
-------------------------------------------------------------------------
Number of business
days 63 21 64
-------------------------------------------------------------------------
Revenue $33.0 $12.2 $34.8
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OG&A $29.5 $10.7 $30.3
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EBITDA(1) $3.5 $1.5 $4.5
-------------------------------------------------------------------------
EBITDA(1) margin 10.6% 12.3% 12.9%
-------------------------------------------------------------------------
Adjusted Revenue to
account for an
additional
business day. $33.5 - -
-------------------------------------------------------------------------
Adjusted EBITDA(1) to
account for an
additional
business day $4.0 - -
-------------------------------------------------------------------------
Adjusted EBITDA(1) to
account for year-end
accrual adjustments - - $4.1
-------------------------------------------------------------------------
Adjusted EBITDA(1) margin 11.9% 12.3% 11.8%
-------------------------------------------------------------------------
Net earnings (loss)
for the period ($0.2) $0.4 ($0.1)
-------------------------------------------------------------------------


For the three-month period ended March 31, 2009, revenue and OG&A of US$33.0 million and US$29.5 million respectively were higher than the same period in 2008 and reflect the inclusion of ARS results for three-month period in the current quarter compared to one month in the prior year. Lower EBITDA(1) margins of 10.6% compared to 12.3% in Q1 2008 are due primarily to average revenues per business day in March being typically higher than in January and February. Accordingly, since the ARS acquisition closed on February 29, 2008, Q1 2008's one month results reflect higher average revenue per day than the three months results in Q1 2009.

Q1 2009 EBITDA(1) margin of 10.6% is lower than Q4 2008 EBITDA(1) margin of 12.9% primarily due to one less business day in Q1 2009. Furthermore, there were three days of inclement weather in Q1 2009. Q1 2009 revenues were adversely affected by the number of business days compared to Q4 2008 while OG&A consists mainly of fixed costs. Adjusting revenue by US$0.5 million to account for the lost business day in Q1 2009 would result in an adjusted EBITDA(1) margin of 11.9%. Q4 2008 EBITDA(1) was adjusted by US$0.4 million due to a reduction in the provision of U.S. medical malpractice insurance established in a prior period, which results in an adjusted EBITDA(1) margin of 11.8%.

Balance Sheet

As at March 31, 2009, the Fund had working capital of $30.7 million, including cash and cash equivalents of $21.9 million, compared to working capital of $37.5 million, including cash and cash equivalents of $21.5 million as at December 31, 2008. Long-term debt of the Fund, including the current portion, was $323.1 million as at March 31, 2009, compared to: $320.2 million as at December 31, 2008. The increase in debt is due to foreign exchange fluctuation on the Fund's U.S. dollar denominated debt. As at March 31, 2009, the Fund has approximately $79.0 million available under the revolving credit facility.

As at March 31, 2009, there were 89,842,404 Fund units issued and outstanding.

Tax Fairness Plan

In June of 2007, the Government of Canada enacted legislation previously proposed on October 31, 2006 that will apply a tax at the income trust level on unitholder distributions commencing January 1, 2011. While CML HealthCare will continue to evaluate its options for the post-2010 tax regime, at this time the Fund does not see any compelling reasons to make changes to its structure prior to 2011.

Notice of Conference Call

Management of CML HealthCare Income Fund will host a conference call today, Thursday, May 7, 2009 at 10:00 am (EST) to discuss the Fund's 2009 first quarter financial results. A live audio webcast of the call will be available at 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 Thursday, May 14, 2009 by calling 1-877-289-8525 or 416-640-1917, reference number 21304396 followed by the number sign.

(1) The Fund defines EBITDA as earnings before interest, taxes, depreciation, amortization, other expenses, non-controlling interest, gain/loss on disposals of property and equipment, foreign exchange gain and transaction costs on debt financing. Adjusted EBITDA is defined as EBITDA less certain adjustments for revenue and operating expenses. EBITDA and adjusted EBITDA margins are calculated by dividing EBITDA by revenue and adjusted EBITDA by adjusted revenue respectively. EBITDA is not a recognized measure under Canadian GAAP. Management believes that, in addition to net earnings, EBITDA is a useful supplemental measure, as it provides investors with an indication of the Fund's performance. EBITDA is used by the Fund 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 GAAP. The Fund's method of calculating EBITDA may differ from other companies or income trusts and, accordingly, EBITDA may not be comparable to measures used by other companies or income trusts.

(2) Distributable Cash of the Fund is not a Canadian generally accepted accounting principle ("GAAP") measure, and though it is generally used by Canadian open-ended trusts as an indicator of financial performance, it should not be seen as a measure of liquidity or a substitute for comparable metrics prepared in accordance with GAAP. One characteristic of certain non-GAAP measures such as Distributable Cash is the inclusion of management's adjustments for entity-specific issues not contemplated in a standard measurement, such as Standardized Distributable Cash that focuses on comparability across entities and consistency over time. Therefore, the Fund's Distributable Cash may differ from similar calculations as reported by other similar entities and, accordingly, may not be comparable to Distributable Cash as reported by such entities. The Fund's objective for disclosing the Distributable Cash calculation is to outline the net cash flow generated by the Fund that was available for distribution during the period and anticipated to be sustainable into the next period. The Fund uses Distributable Cash to evaluate, on a consistent basis, sustainable cash generated from its operations, and to evaluate cash available for distributions.

To view CML HealthCare's 2009 first quarter financial statements and notes to financials, please click here: http://files.newswire.ca/476/CMLHealthCareIncomeFund.pdf.

About CML HealthCare Income Fund

CML HealthCare Income Fund is an unincorporated open-ended trust that owns CML HealthCare Inc., one of Canada's largest healthcare services businesses. Based in Mississauga, Ontario, CML HealthCare Inc. is a leading provider of laboratory testing services in Ontario and the largest private provider of medical imaging services in Canada. The Fund also owns American Radiology Services, Inc., a leading provider of fully-integrated diagnostic medical imaging services based in Baltimore, Maryland. CML HealthCare Income Fund is publicly traded on the Toronto Stock Exchange under the symbol "CLC.UN" and has approximately 89.8 million units outstanding. To reach CML HealthCare Income Fund via the worldwide web log on to www.cmlhealthcare.com.

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, general economic conditions; dependence on government-based revenues; the ability to renew the MOH contract on favourable terms; pending and proposed legislative or regulatory developments including the impact of changes in laws, regulations and the enforcement thereof; intensifying competition, resulting from established competitors and new entrants in the businesses in which we operate; technological change; interest rate fluctuations; insurance coverage of sufficient scope to satisfy any liability claims; fluctuations in operating results; dependence on our operating subsidiary to pay its interest obligations to us; fluctuations in cash distributions and capital investment; management of credit, market, liquidity and funding and operational risks; judicial judgments and legal proceedings; privacy laws; our ability to complete strategic acquisitions and to integrate our acquisitions successfully; changes in accounting policies and methods we use to report our financial condition, including uncertainties associated with critical accounting assumptions and estimates; operational and infrastructure risks including possible equipment failure and performance of information technology systems; fluctuations in total patient referrals; loss of services of key senior management personnel; other factors that may affect future growth and results including timely development and introduction of new products and services, changes in our estimates relating to reserves and allowances, future sales of units, changes in tax laws, technological changes and obsolescence, natural disasters, the possible impact on our businesses from public health emergencies, international conflicts and other developments including those relating to terrorism; the effect of any one or more of such events and risks on our stability ratings and any changes thereto; and our success in anticipating and managing the foregoing risks. Additional factors related to the Acquisition include, but are not limited to, our ability to successfully integrate the operations of ARS; additional liabilities or costs attributable to the Acquisition; unknown liabilities of ARS; the ability to retain senior management of ARS; the ability to complete accretive acquisitions in the U.S.; the continuation and nature of the relationship with Johns Hopkins; and changes in U.S. federal and state healthcare laws and regulations, including with respect to Medicare and Medicaid reimbursements levels.

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 hereof, under "Business Risks" and elsewhere in our Management's Discussion and Analysis of Operating Results and Financial Position for the year ended December 31, 2008 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.

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