CML HealthCare Inc.
TSX : CLC

CML HealthCare Inc.

August 12, 2009 07:00 ET

CML HealthCare Income Fund Reports 2009 Second Quarter Financial Results

MISSISSAUGA, ONTARIO--(Marketwire - Aug. 12, 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 the three and six-month periods ended June 30, 2009.

Q2 2009 Summary



- Revenue increased 12.9% to $133.9 million from $118.6 million in
Q2 2008
- EBITDA(1) totaled $36.8 million compared to $36.6 million in the same
quarter last year
- Net earnings decreased 1.5% to $25.9 million from $26.3 million in
Q2 2008
- Cash provided by operating activities of $32.5 million decreased
$11.2 million compared to Q2 2008 due to timing of working capital
changes
- The Fund generated distributable cash(2) of $24.3 million and
declared distributions totaling $24.0 million, representing a payout
ratio of 98.6%, reflecting timing of working capital changes


"Our growth in revenue and EBITDA in the second quarter demonstrate the resilience of our business during challenging economic periods," said Paul Bristow, President and CEO of CML HealthCare Income Fund. "Our second quarter results also substantiate the progress we have made in enhancing margins in our U.S. imaging business. The completion of our digital mammography rollout in the U.S. in the fourth quarter last year played a significant role in this operational improvement, along with cost controls. As we move ahead with the digitization of our medical imaging operations in Canada and adopt a common Radiology Information System and Picture Archiving Communication System in both Canada and the U.S., we believe there will be further opportunities to enhance our performance, while delivering improved patient care."

Financial Results

Revenue for the Fund second quarter of 2009 ("Q2 2009") increased 12.9% to $133.9 million from $118.6 million in the second quarter of 2008 ("Q2 2008"). The Fund's increased revenue in the quarter is primarily attributable to: i) $7.7 million in additional revenue from American Radiology Services, Inc. ("ARS") primarily resulting from $5.3 million in foreign exchange, ARS's transition to digital mammography from analog, and a shift in procedures mix to high end modalities; ii) $3.1 million in revenue from acquisitions of new imaging clinics in Canada; iii) a $1.9 million increase in total cap revenue based on the MOH Funding agreement for laboratory services; iv) $0.8 million one-time technical fee payment from MOH for CML's share of available funding per the Ontario Medical Association agreement; v) $0.6 million in retroactive payments for imaging test fee increases in British Columbia related to 2008; and vi) organic growth in non-cap revenue.

Operating, general and administrative ("OG&A") expenses totaled $97.1 million in Q2 2009 compared to $82.0 million in Q2 2008. Higher OG&A expenses in Q2 2009 compared to the prior year reflect: i) additional operating expenses (including salaries, rent and professional fees) from acquisitions, including an increase of $3.7 million from ARS (of which $3.5 million is related to changes in foreign exchange rates) and $2.1 million from imaging acquisitions in Canada; ii) increased costs in line with revenue increases to support growth; iii)additional laboratory service costs to support utilization increases in excess of MOH cap funding; and iv) investments made in corporate infrastructure to support the Fund's growth plans.

EBITDA(1) in the second quarter of 2009 totaled $36.8 million, or 27.5% of revenue, compared to $36.6 million, or 30.9% of revenue, in Q2 2008. Decreased EBITDA(1) margin as a percentage of revenue in Q2 2009 compared to the prior year result primarily from a higher proportion of consolidated revenue being derived from medical imaging services as the Fund acquired medical imaging clinics in Canada over the past year.

The Fund's net earnings for the second quarter of 2009 totaled $25.9 million or $0.29 per Fund unit (basic), compared to $26.3 million or $0.29 per Fund unit (basic) in Q2 2008.



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Financial Summary Three-months Three-months Six-months Six-months
(C$ millions, except ended ended ended ended
per unit amounts) June 30, June 30, June 30, June 30,
(unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue 133.9 118.6 262.2 211.2
-------------------------------------------------------------------------
Operating, general and
administrative 97.1 82.0 191.8 144.3
-------------------------------------------------------------------------
EBITDA(1) 36.8 36.6 70.4 66.8
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Amortization 8.4 6.3 17.1 8.8
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Foreign Exchange gain (0.2) - (0.7) -
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Transaction cost on debt
financing - - - 3.5
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Other expense 0.4 - 0.4 -
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Interest expense 3.2 3.7 7.3 6.9
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(Recovery of) provision for
income taxes (0.9) 0.3 (2.6) (0.6)
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Net earnings for the period 25.9 26.3 49.0 48.2
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Basic earnings per unit 0.29 0.29 0.55 0.55
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For the six months ended June 30, 2009, revenue for the Fund totaled $262.2 million, EBITDA(1) totaled $70.4 million, or 26.9% of revenue, and net earnings totaled $49.0 million or $0.55 per Fund unit, compared to revenue of $211.2 million, EBITDA(1) of $66.8 million, or 31.6% of revenue, and net earnings of $48.2 million or $0.55 per Fund unit in the first six months of 2008. For the six months ended June 30, 2008, OG&A expenses totaled $191.8 million or 73.1% of revenue, compared to OG&A expenses of $144.3 million, or 68.4% of revenue, in the first half of 2008.

Distributable Cash(2)

For the three months ended June 30, 2009, the Fund generated distributable cash(2) of $24.3 million and declared distributions totaling $24.0 million, representing a payout ratio of 98.6%. The high payout ratio in the quarter is primarily the result of timing of working capital changes. Please refer to Standardized Distributable Cash(3) and Distributable Cash(2) table below.



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April 1, January 1,
2009 2009
to June 30, to June 30,
Standardized Distributable Cash(3) and 2009 2009
Distributable Cash(2) Table ($000s) (unaudited) (unaudited)
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Cash flow from operating activities 32,505 70,283
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Less:
Total capital expenditures as per consolidated
statement of cash flows (4,555) (15,292)
Acquisition of licences and intangible assets (1,256) (1,256)
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Standardized distributable cash(3) 26,694 53,735
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Normalizing adjustments to non-cash working
capital items(4) (4,304) (9,610)
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Capital Expenditures:
Add back: One time capital expenditures 2,280 5,226
Changes in capital expenditure notional reserve (2,184) 990
Capital lease payments (19) (38)
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Sub-total 77 6,178
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Discretionary/non-recurring expenses(5) 1,130 956
One-time acquisition of licences and intangible
assets 1,256 1,256
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Cash available for distribution 24,853 52,515
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Non-recurring revenue(6) (535) (646)
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Distributable cash(2) 24,318 51,869
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Distributions to unitholders 23,984 47,995
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Total payouts as a percentage of distributable
cash(2) 98.6% 92.5%
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Total payouts as a percentage of standardized
distributable cash(3) 89.8% 89.3%
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Weighted average number of Fund units
outstanding in the period 89,842,404 89,842,404
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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 June 30, 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 represent pre-implementation
costs related to certain system implementation projects and a one-time
tax adjustment.
(6) Non-recurring revenue represents retroactive payments for
professional and technical fees and retroactive MOH cap adjustment in the
first quarter.


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

Canadian Operations

-------------------------------------------------------------------------
Three-months Three-months Six-months Six-months
(C$ millions, ended ended ended ended
except percentages) June 30, June 30, June 30, June 30,
(unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Number of business days 63 64 125 126
-------------------------------------------------------------------------
Revenue 92.8 85.2 180.0 165.6
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OG&A 62.3 53.4 120.3 105.0
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EBITDA(1) 30.5 31.8 59.7 60.6
-------------------------------------------------------------------------
EBITDA(1) margin 32.9% 37.3% 33.2% 36.6%
-------------------------------------------------------------------------
Net earnings for the period 24.7 25.6 48.0 47.1
-------------------------------------------------------------------------


The increase in revenue and OG&A in Canada in Q2 2009 and YTD 2009, as compared to the comparable prior year periods, is mainly due to CML HealthCare's acquisitions of medical imaging clinics across Canada in the last year, increased cap revenue, and organic growth in non-cap revenue. EBITDA(1) margins were lower in Q2 2009 and year-to-date primarily due to: a higher proportion of consolidated revenue derived from medical imaging services; additional laboratory service costs to support utilization increases in excess of MOH cap funding; and investments made in corporate infrastructure to support the Fund's growth plans.

U.S. Operations



-------------------------------------------------------------------------
Three-months Three-months Six-months Six-months
(US$ millions, ended ended ended ended
except percentages) June 30, June 30, June 30, June 30,
(unaudited) 2009 2008 2009 2008(*)
-------------------------------------------------------------------------
Number of business days 64 64 127 85
-------------------------------------------------------------------------
Revenue 35.2 33.0 68.2 45.2
-------------------------------------------------------------------------
OG&A 29.8 28.3 59.3 39.0
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EBITDA(1) 5.4 4.7 8.9 6.2
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EBITDA(1) margin 15.3% 14.2% 13.0% 13.7%
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Net earnings for the period 1.1 0.7 0.9 1.1
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(*) Represents ARS operations from March 1, 2008 onwards


For Q2 2009, revenue from U.S. operations of US$35.2 million was higher than Q2 2008 primarily as a result of increased reimbursements due to the conversion from analog to digital mammography and a shift in procedure mix to high end modalities. Higher EBITDA(1) margins of 15.3% in Q2 2009 as compared to 14.2% in Q2 2008 are the result of higher revenues and effective cost containment. The increase in the net earnings in Q2 2009 as compared to Q2 2008 is mainly due to an increase in EBITDA(1), partially offset by a decrease in the income tax recovery in the U.S. as a result of an increase in income, and other expenses of US$0.4 million relating to professional fees in respect of a potential acquisition written-off in the current quarter.

For the first six months of 2009, revenue and OG&A of US$68.2 million and US$59.3 million, respectively, were higher than first half of fiscal 2008 and reflect the inclusion of ARS results for six-month period in 2009 compared to four months in 2008. Lower EBITDA(1) margins of 13.0% in the first six months of 2009 as compared to 13.7% in the comparable period in 2008 are due primarily to average revenues per business day in January and February typically being lower than those of March through June. Accordingly, since the ARS acquisition closed on February 29, 2008, the first half of fiscal 2008's four month results reflect higher average revenue per day than the first six months results in 2009.

Balance Sheet

As at June 30, 2009, the Fund had working capital of $29.1 million, including cash and cash equivalents of $23.6 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 $315.2 million as at June 30, 2009, compared to $320.2 million as at December 31, 2008. As at June 30, 2009, the Fund has approximately $79.0 million available under the revolving credit facility.

As at June 30, 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, Wednesday, August 12, 2009 at 10:00 am (EST) to discuss the Fund's 2009 second 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 Wednesday, August 19, 2009 by calling 1-877-289-8525 or 416-640-1917, reference number 21310902 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 the Fund's Q2 2009 Financial statements and Notes, please click here: http://files.newswire.ca/476/CML_Q2-financials-notes.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 Ministry of Health and Long Term Care 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 Medicare and Medicaid reimbursements levels and including those that may arise from potential U.S. Healthcare reform initiatives.

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, 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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