CML HealthCare Inc.
TSX : CLC

CML HealthCare Inc.

November 11, 2009 07:00 ET

CML HealthCare Income Fund Reports 2009 Third Quarter Financial Results

MISSISSAUGA, ONTARIO--(Marketwire - Nov. 11, 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 nine-month periods ended September 30, 2009 (all amounts are in Canadian dollars, unless noted otherwise).



Q3 2009 Summary
---------------
- Revenue increased to $128.2 million from $117.9 million in Q3 2008
- EBITDA(1) totaled $35.3 million compared to $33.6 million in Q3 2008
- Net earnings decreased to $24.0 million from $26.4 million in Q3 2008
- Cash provided by operating activities totaled $28.9 million compared
to $28.5 million in Q3 2008
- The Fund generated distributable cash(2) of $28.6 million and
declared distributions totaling $24.0 million, representing a payout
ratio of 83.8%


"We continued to achieve growth in revenue, EBITDA(1) and cash flow from operations in the third quarter of 2009, while advancing our acquisition strategy and operating initiatives. Strong operating cash flow in Q3 2009 resulted in improved distributable cash and a lower payout ratio over last quarter," said Paul Bristow, President and CEO of CML HealthCare Income Fund. "Looking ahead, we will maintain our focus on margin improvement in our U.S. operations, while continuing to invest in growth opportunities. We believe the digitization of our medical imaging operations in Canada and the implementation of a common Radiology Information System and Picture Archiving Communication System platform in both Canada and the U.S. will position us to further improve our patient care and financial performance going forward."

"With respect to the taxation changes impacting income trusts in 2011, we have assessed early conversion from an income trust to a corporate structure in terms of the best interests of our unitholders, but at this time, we see no compelling reason to convert prior to 2011," said Mr. Bristow. "Decisions relating to CML HealthCare's structure and distribution policy will be in careful consideration of delivering the greatest value for our investors."

Financial Results

Revenue for the Fund third quarter of 2009 ("Q3 2009") increased 8.8% to $128.2 million from $117.9 million in the third quarter of 2008 ("Q3 2008"). Increased revenue in the quarter is largely attributable to: i) $2.4 million in revenue from American Radiology Services, Inc. ("ARS") which includes $2.0 million due to changes in foreign exchange rates and a full quarter impact of increased reimbursements resulting from ARS's conversion to digital mammography; ii) $2.2 million in revenue from acquisitions of new imaging clinics in Canada; iii) a $2.8 million increase in total cap revenue based on the MOH Funding agreement for laboratory services; iv) $0.5 million in retroactive payments including imaging test fee increases in British Columbia related to fiscal 2007 and 2008, and one-time technical and professional fee payments from the MOH; and v) organic growth in non-cap revenue.

Operating, general and administrative ("OG&A") expenses totaled $92.8 million in Q3 2009 compared to $84.3 million in Q3 2008. Higher OG&A expenses in Q3 2009 compared to the prior year reflect: i) additional expenses (including salaries, rent and professional fees) from 2008 imaging acquisitions in Canada; ii) $1.5 million in additional expenses from ARS due to changes in foreign exchange rates; iii) increased costs in line with revenue increases to support growth; iv) additional laboratory service costs to support utilization increases in excess of MOH cap funding; and v) investments made in corporate infrastructure and systems implementations to support the Fund's growth plans.

EBITDA(1) in Q3 2009 totaled $35.3 million, or 27.6% of revenue, compared to $33.6 million, or 28.5% of revenue, in Q3 2008. Decreased EBITDA(1) margin as a percentage of revenue in Q3 2009 compared to Q3 2008 primarily results 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 twelve months.

The Fund's net earnings for Q3 2009 totaled $24.0 million or $0.27 per Fund unit (basic), compared to $26.4 million or $0.29 per Fund unit (basic) in Q3 2008. A $3.5 million increase in amortization in Q3 2009 (primarily due to the Fund acquiring additional property and equipment, re-assessing the useful lives of its property and equipment in the fourth quarter of 2008, increases in the valuation of intangibles due to finalization of purchase price allocation related to ARS in the fourth quarter of 2008 and changes in foreign exchange rates); and the $1.9 million gain on sale of property and equipment in Q3 2008, which did not repeat in the current year, were the primary contributors to the lower net earnings in Q3 2009.



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Financial Summary
(C$ millions, Three-months Three-months Nine-months Nine-months
except per unit ended ended ended ended
amounts) September 30, September 30, September 30, September 30,
(unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Revenue 128.2 117.9 390.5 329.1
-------------------------------------------------------------------------
Operating,
general
and
administrative 92.8 84.3 284.6 228.7
-------------------------------------------------------------------------
EBITDA(1) 35.3 33.6 105.9 100.4
-------------------------------------------------------------------------
Amortization 8.5 5.0 25.6 13.9
-------------------------------------------------------------------------
Foreign Exchange
loss (gain) 0.5 - (0.2) -
-------------------------------------------------------------------------
Loss/(gain) on
sale of
property and
equipment 0.1 (1.9) 0.2 (2.0)
-------------------------------------------------------------------------
Transaction cost
on debt
financing - - - 3.5
-------------------------------------------------------------------------
Other expense - 1.0 0.4 1.0
-------------------------------------------------------------------------
Interest expense 3.1 3.7 10.4 10.6
-------------------------------------------------------------------------
Recovery of
income
taxes (0.9) (0.6) (3.5) (1.2)
-------------------------------------------------------------------------
Net earnings for
the period 24.0 26.4 73.0 74.6
-------------------------------------------------------------------------
Basic earnings
per unit 0.27 0.29 0.81 0.84
-------------------------------------------------------------------------


For the nine months ended September 30, 2009 ("YTD 2009"), revenue for the Fund totaled $390.5 million, EBITDA(1) totaled $105.9 million, or 27.1% of revenue, and net earnings totaled $73.0 million, or $0.81 per Fund unit; compared to revenue of $329.1 million, EBITDA(1) of $100.4 million, or 30.5% of revenue, and net earnings of $74.6 million, or $0.84 per Fund unit, for the nine months ended September 30, 2008 ("YTD 2008"). OG&A expenses YTD 2009 totaled $284.6 million, or 72.9% of revenue, compared to OG&A expenses of $228.7 million, or 69.5% of revenue, in YTD 2008.

Distributable Cash(2)

For Q3 2009, the Fund generated distributable cash(2) of $28.6 million and declared distributions totaling $24.0 million, representing a payout ratio of 83.8%. For Q3 2008, the Fund generated distributable cash(2) of $28.5 million and declared distributions totaling $24.0 million, representing a payout ratio of 84.3%. Please refer to Standardized Distributable Cash(3) and Distributable Cash(2) table below.



-------------------------------------------------------------------------
Standardized
Distributable
Cash(3) & Three-months Three-months Nine-months Nine-months
Distributable ended ended ended ended
Cash(2) Table September 30, September 30, September 30, September 30,
(C$000s) 2009 2008 2009 2008
-------------------------------------------------------------------------
Cash flow from
operating
activities 28,882 28,500 99,165 86,758
-------------------------------------------------------------------------
Less:

Total capital
expenditures
as per
consolidated
statement of
cash flows (9,706) (7,904) (24,998) (16,536)
Acquisition of
licences &
intangible
assets (1,641) - (2,897) -
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Standardized
distributable
cash(3) 17,535 20,596 71,270 70,222
-------------------------------------------------------------------------
Normalizing
adjustments to
non-cash
working
capital
items(4) 5,773 3,842 (3,837) 2,598
-------------------------------------------------------------------------
Capital
Expenditures:

Add back:
One time
capital
expenditures 6,937 2,747 12,163 5,256
Non-recurring
capital
expenditure - - - 1,767
Changes in
capital
expenditure
notional
reserve 27 1,185 1,017 (779)

Capital lease
payments (19) (312) (57) (925)
-------------------------------------------------------------------------
Sub-total 30,253 28,058 80,556 78,139
-------------------------------------------------------------------------
Discretionary/
non-recurring
(recovery)
expenses(5) (626) 509 330 3,995

One-time
acquisition of
licences and
intangible
assets 63 - 1,319 -
-------------------------------------------------------------------------
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Cash available
for
distribution 29,690 28,567 82,205 82,134
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-recurring
revenue(6) (1,087) (93) (1,700) (819)
-------------------------------------------------------------------------
Distributable
cash(2) 28,603 28,474 80,505 81,315
-------------------------------------------------------------------------
Distributions to
unitholders 23,983 23,994 71,978 70,383
-------------------------------------------------------------------------
Total payouts as
a percentage of
distributable
cash(2) 83.8% 84.3% 89.4% 86.6%
-------------------------------------------------------------------------
Total payouts as
a percentage of
standardized
distributable
cash(3) 136.8% 116.5% 101.0% 100.2%
-------------------------------------------------------------------------
Weighted average
number of Fund
units
outstanding in
the period 89,842,404 89,842,404 89,842,404 88,849,703
-------------------------------------------------------------------------

(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
September 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 represents pre-implementation
costs related to certain business re-engineering projects; a one-time
tax adjustment; and non-recurring commodity tax recoveries.
(6) Non-recurring revenue represents retroactive payments for
professional and lab fees from MOH, retroactive payments in British
Columbia and retroactive MOH cap adjustment in the first quarter.


Segmented Analysis
------------------
Canadian Operations

-------------------------------------------------------------------------
(C$ millions,
except
percentages Three-months Three-months Nine-months Nine-months
and business ended ended ended ended
days) September 30, September 30, September 30, September 30,
(unaudited) 2009 2008 2009 2008
-------------------------------------------------------------------------
Number of
business
days 63 63 189 188
-------------------------------------------------------------------------
Revenue 90.1 82.2 270.1 247.9
-------------------------------------------------------------------------
OG&A 59.9 52.9 180.1 157.9
-------------------------------------------------------------------------
EBITDA(1) 30.3 29.4 90.0 90.0
-------------------------------------------------------------------------
EBITDA(1)
margin 33.6% 35.7% 33.3% 36.3%
-------------------------------------------------------------------------
Net earnings
for the
period 22.8 25.8 70.8 73.0
-------------------------------------------------------------------------


The increase in revenue and OG&A in Canada in Q3 2009 and YTD 2009, compared to the corresponding periods in 2008, is primarily attributable to CML HealthCare's acquisitions of medical imaging clinics across Canada in the last twelve months, increased cap revenue, and organic growth in non-cap revenue. EBITDA(1) margins were lower in Q3 2009 and YTD 2009 primarily due to: i) a higher proportion of consolidated revenue derived from medical imaging services; ii) additional laboratory service costs to support utilization increases in excess of MOH cap funding; and iii) investments made in corporate infrastructure and systems implementations to support the Fund's growth plans.



U.S. Operations

-------------------------------------------------------------------------
(US$ millions,
except
percentages Three-months Three-months Nine-months Nine-months
and business ended ended ended ended
days) September 30, September 30, September 30, September 30,
(unaudited) 2009 2008 2009 2008*
-------------------------------------------------------------------------
Number of
business
days 64 64 191 149
-------------------------------------------------------------------------
Revenue 34.7 34.2 102.9 79.5
-------------------------------------------------------------------------
OG&A 30.0 30.2 89.3 69.3
-------------------------------------------------------------------------
EBITDA(1) 4.7 4.1 13.6 10.2
-------------------------------------------------------------------------
EBITDA(1)
margin 13.3% 11.9% 13.2% 12.8%
-------------------------------------------------------------------------
Net earnings
for the
period 1.1 0.5 1.9 1.6
-------------------------------------------------------------------------
* Represents ARS operations from March 1, 2008 onwards


For Q3 2009, revenue from U.S. operations of US$34.7 million was higher than Q3 2008 primarily as a result of increased reimbursements from the conversion to digital mammography. Higher EBITDA(1) margins of 13.3% in Q3 2009 compared to 11.9% in Q3 2008 are the result of higher revenue and effective cost containment. The increase in the net earnings to US$1.1 million in Q3 2009 as compared to $0.5 million in Q3 2008 is mainly due to an increase in EBITDA(1) as previously noted; and a decrease in other expenses of US$1.0 million representing a write-off in Q3 2008 of deferred costs in respect of a potential acquisition that was not completed.

For YTD 2009, revenue and OG&A of US$102.9 million and US$89.3 million, respectively, were higher than the same period in 2008 due to the inclusion of ARS results for the nine-month period in 2009 compared to seven months in 2008. Improved EBITDA(1) margins of 13.2% YTD 2009 compared to 12.8% in the comparable period in 2008 are primarily due to increased reimbursements resulting from the conversion to digital mammography and effective cost containment.

Balance Sheet

As at September 30, 2009, the Fund had working capital of $24.1 million, including cash and cash equivalents of $18.4 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 $310.9 million as at September 30, 2009, compared to $320.2 million as at December 31, 2008. As at September 30, 2009, the Fund had approximately $79.0 million available under the revolving credit facility.

As at September 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. At this time, the Fund does not anticipate making changes to its structure prior to 2011.

Notice of Conference Call

Management of CML HealthCare Income Fund will host a conference call today, Wednesday, November 11, 2009 at 10:00 am (EST) to discuss the Fund's 2009 third 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, November 18, 2009 by calling 877-289-8525 or 416-640-1917, reference number 4173907 followed by the number sign.



(1) The Fund defines EBITDA as earnings before interest, taxes,
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 margins are calculated by dividing EBITDA by revenue. 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 Q3 2009 Financial statements and Notes, please click here: http://files.newswire.ca/476/FSandNOTESQ32009.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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