CML HealthCare Inc.
TSX : CLC

CML HealthCare Inc.

March 04, 2009 07:00 ET

CML HealthCare Income Fund Reports Fiscal 2008 Year End Financial Results

MISSISSAUGA, ONTARIO--(Marketwire - March 4, 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 twelve-month periods ended December 31, 2008.

2008 Highlights



- Revenue rose 47.9% to $462.5 million
- EBITDA(*) increased 12.2% to $138.2 million
- Net earnings increased 1.3% to $101.5 million
- Cash provided by operating activities increased 10.1% to $116.4
million
- The Fund generated distributable cash(*)(*) of $109.8 million and
declared distributions totaling $94.4 million, representing a payout
ratio of 85.9%
- Annualized unitholder distributions increased 3.5% from $1.035 per
unit to $1.071 per unit, effective as of the Fund's May 2008
distribution
- New three-year funding agreement with the Ontario Ministry of Health
and Long-Term Care ("MOH") for the period April 1, 2008 to March 31,
2011
- Completed the acquisition of 15 multi-modality and two single
modality imaging clinics in the U.S. and 14 medical imaging clinics
in Canada (10 in British Columbia, three in Ontario and one in
Alberta)
- Secured a $450 million credit facility
- Completed bought-deal equity financing for net proceeds of $47.3
million


"Despite a weakening economy in 2008, CML HealthCare Income Fund reported record levels of revenue, EBITDA, net earnings and distributable cash. Our performance reflects our financial discipline, medical imaging acquisitions, and organic growth in both our lab and imaging operations. During the year, we completed six medical imaging acquisitions across Canada, and entered the U.S. medical imaging market with our acquisition of Baltimore, Maryland based American Radiology Services, Inc. ("ARS"). In total, we added fourteen clinics to our Canadian network, and established a platform for future growth in the U.S. with 15 multi-modality and two single modality clinics," said Paul Bristow, President and CEO of CML HealthCare Income Fund. "During the fourth quarter, the Ontario Association of Medical Laboratories successfully negotiated a new three-year funding agreement with the MOH retroactive to April 1, 2008, with increases to the provincial payment cap of up to 3.0%, 2.8%, and 2.2% for the years ending March 31, 2009, 2010, and 2011, respectively (including additional funding in the second and third year)."

"Throughout 2008, we continued to make progress on our previously announced organic growth initiatives. In our U.S. operations, our digital mammography rollout is now complete with 15 new units operational. In our Canadian operations, our clinic upgrade program is proceeding well with 20 clinics completed," continued Mr. Bristow. "Going forward, we will continue with our Canadian clinic upgrade program, enhanced branding program, and our rollout of a new Picture Archiving Communications System ("PACS") and Radiology Information System ("RIS") in our U.S. and Canadian operations. We also continue to explore accretive acquisition opportunities of medical diagnostic assets both in Canada and in the U.S. Although the global economy has entered a recession, this is also creating opportunities for well capitalized businesses. We believe our strong balance sheet, $21.5 million in cash and cash equivalents, $79.0 million of availability under our revolving credit facility and solid cash flow from operations, provide us with sufficient liquidity and capital resources to maintain operations, fulfill our capital commitments, and invest in growth opportunities."

Financial Results

Three Months Ended December 31, 2008

Revenue for the Fund in the fourth quarter of 2008 increased 62.1% to $133.4 million from $82.3 million in the fourth quarter of 2007. The Fund's increased revenue in the quarter reflects: i) new revenue from the inclusion of American Radiology Services, Inc. ("ARS") acquired on February 29, 2008; ii) new revenue from the acquisitions of imaging clinics in Ontario, Alberta, and British Columbia; iii) increased lab services funding as per the MOH agreement; iv) additional funding received as per the MOH agreement; v) $4.3 million in retroactive fee increase by the MOH for the period April 1, 2008 to December 31, 2008 ($2.8 million of which relates to second and third quarters of 2008); and vi) organic growth in non-cap revenues.

Operating, general and administrative ("OG&A") expenses for the fourth quarter of 2008 were $95.6 million, or 71.7% of revenue, compared to $52.1 million, or 63.3% of revenue, for the comparable period in 2007. Increased OG&A expenses in the fourth quarter were primarily attributable to: i) higher operating expenses (including salaries, rent and professional fees) due to acquisitions and growth in tests and procedures performed.

EBITDA(*) in the fourth quarter of 2008 totaled $37.8 million, or 28.3% of revenue, compared to $30.2 million, or 36.7% of revenue, for the fourth quarter of 2007. See reconciliation of EBITDA(*) to net earnings for the fourth quarters of 2008 and 2007 below.



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Comparative Quarterly Financial Summary October 1, October 1,
($ millions, except per unit amounts) 2008 to 2007 to
(unaudited) December 31, December 31,
2008 2007
-------------------------------------------------------------------------
Revenue 133.4 82.3
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Operating, general and administrative 95.6 52.1
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EBITDA(*) 37.8 30.2
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Amortization 8.7 1.3
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Other expenses 0.3 0.3
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Interest expense 4.1 16.2
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Provision for (recovery of) income taxes (1.5) (11.9)
-------------------------------------------------------------------------
Loss (Gain) on disposal of property and
equipment 1.3 -
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Foreign exchange gain (2.0) -
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Net earnings for the period 26.9 24.3
-------------------------------------------------------------------------
Basic and diluted earnings per unit 0.30 0.28
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The Fund's net earnings for the fourth quarter of 2008 increased 10.7% to $26.9 million or $0.30 per Fund unit (basic and diluted), compared to $24.3 million or $0.28 per Fund unit (basic and diluted) in the fourth quarter of 2007.

For the three months ended December 31, 2008, the Fund generated distributable cash(*)(*) of $24.8 million and declared distributions totaling $24.0 million, representing a payout ratio of 96.6%.

Twelve Months Ended December 31, 2008

For the twelve months ended December 31, 2008, revenue for the Fund increased 47.9% to $462.5 million compared to $312.8 million for the year ended December 31, 2007. Increased revenue in 2008 resulted from: i) $123.4 million from the inclusion of ARS since February 29, 2008; ii) $17.5 million in new revenue from the acquisitions of imaging clinics in Ontario, Alberta, and British Columbia; iii) $5.6 million increase in cap revenue, based on the MOH Funding Agreement for laboratory services; iv) a $0.9 million increase in retroactive technical fees for certain imaging services performed; and v) organic growth in non-cap revenue.

OG&A expenses for the twelve months ended December 31, 2008 totaled $324.3 million or 70.1% of revenue, compared to $189.7 million or 60.6% of revenue in F2007. Increased OG&A expenses in the full year 2008 were primarily attributable to: i) higher operating expenses (including salaries, rent, and professional fees) due to acquisitions and growth in tests and procedures performed; ii) investments made in corporate infrastructure to support the Fund's growth plans; and iii) a charge of $1.1 million for senior management bonuses for the successful completion of the ARS acquisition and related financing.

EBITDA(*) for the year ended December 31, 2008 totaled $138.2 million or 29.9% of revenue, compared to $123.1 million or 39.3% of revenue for the year ended December 31, 2007. The decrease in EBITDA(*) margins compared to the prior year are inherent from a higher proportion of consolidated revenue derived from medical imaging services as the Fund acquired ARS and other medical imaging clinics across Canada over the past two years. In addition, the lower margins reflect higher OG&A expenses as discussed above. See reconciliation of EBITDA(*) to net earnings for the years ended 2008 and 2007 below.



-------------------------------------------------------------------------
Comparative Annual Financial Summary January 1, January 1,
($ millions, except per unit amounts) 2008 to 2007 to
(unaudited) December 31, December 31,
2008 2007
-------------------------------------------------------------------------
Revenue 462.5 312.8
-------------------------------------------------------------------------
Operating, general and administrative 324.3 189.7
-------------------------------------------------------------------------
EBITDA(*) 138.2 123.1
-------------------------------------------------------------------------
Amortization 22.5 4.7
-------------------------------------------------------------------------
Other expenses 1.3 0.3
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Interest expense 14.7 24.5
-------------------------------------------------------------------------
Provision for (recovery of) income taxes (2.7) (6.8)
-------------------------------------------------------------------------
Loss (Gain) on disposal of property and
equipment (0.6) -
-------------------------------------------------------------------------
Foreign exchange gain (2.0) -
-------------------------------------------------------------------------
Transaction cost on debt financing 3.5 -
-------------------------------------------------------------------------
Net earnings for the year before
non-controlling interest 101.5 100.4
-------------------------------------------------------------------------
Non-controlling interest - 0.2
-------------------------------------------------------------------------
Net earnings for the year 101.5 100.2
-------------------------------------------------------------------------
Basic and diluted earnings per unit 1.14 1.16
-------------------------------------------------------------------------


For the year ended December 31, 2008, the Fund's net earnings increased 1.3% to $101.5 million or $1.14 per Fund unit (basic and diluted), compared to $100.2 million or $1.16 per Fund unit (basic and diluted) for the year ended December 31, 2007. The decrease in earnings per Fund unit (basic and diluted) was the result of increased amortization of intangible assets, transaction cost on debt financing, and professional fees incurred in respect of a potential acquisition that was not completed.

For the year ended December 31, 2008, the Fund generated distributable cash(*)(*) of $109.8 million, and declared distributions totaling $94.4 million, representing a payout ratio of 85.9%. Please refer to Standardized Distributable Cash(1) and Distributable Cash(*)(*) table below.



-------------------------------------------------------------------------
October 1, January 1,
Standardized Distributable Cash(1) 2008 to 2008 to
and Distributable Cash(*)(*) Table ($000s) December 30, December 30,
2008 2008
(unaudited) (unaudited)
-------------------------------------------------------------------------
Cash flow from operating activities 29,675 116,433
-------------------------------------------------------------------------
Less:
Total capital expenditures as per
consolidated statement of cash flows (6,567) (23,103)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Standardized distributable cash(1) 23,108 93,330
-------------------------------------------------------------------------
Normalizing adjustments to non-cash
working capital items(2) 3,679 6,590
-------------------------------------------------------------------------
Capital Expenditures:
Add back: One time capital expenditures 434 5,690
Non-recurring capital expenditure(3) - 1,767
Changes in capital expenditure notional
reserve 1,963 1,184
Capital lease payments (237) (1,162)
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Sub-total 28,947 107,399
-------------------------------------------------------------------------
Discretionary/non-recurring expenses(4) 751 4,746
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Cash available for distribution 29,698 112,145
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Non-recurring revenue(5) (4,853) (2,300)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Distributable cash 24,845 109,845
-------------------------------------------------------------------------
Distributions to unitholders 24,004 94,387
-------------------------------------------------------------------------
Total payouts as a percentage of
distributable cash(*)(*) 96.6% 85.9%
-------------------------------------------------------------------------
Total payouts as a percentage of
standardized distributable cash(1) 103.9% 101.1%
-------------------------------------------------------------------------
Weighted average number of Fund units
outstanding in the period 89,842,404 89,099,235
-------------------------------------------------------------------------

---------------------------------
1 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 December 31,
2008 Management's Discussion and Analysis ("MD&A") for complete
disclosure relating to Standardized Distributable Cash.
2 Comprised of adjustments related to known and measurable timing
differences in respect of: MOH cap revenue receivables; interest payments
on long-term debt; insurance; bonus payments, lease cancellation fee
payment; tax installments; work fee paid for acquisitions that were not
completed; adjustments for payments related to liabilities incurred in
2007; adjustment relating to property and equipment purchase and
payments; and non-recurring settlement of a pre-acquisition liability
relating to ARS.
3 Non-recurring capital expenditure relates to certain property and
equipment purchased by ARS prior to the date of acquisition but paid for
subsequent to the acquisition date.
4 Discretionary/Non-recurring expenses represents costs paid in
establishing the new credit facility and professional fees expensed in
respect of a potential acquisition that was not completed.
5 Non-recurring revenue represents retroactive payments from MOH for
technical fee and cap increases as well as additional funding relating to
the MOH year ended March 31, 2008.


As at December 31, 2008, the Fund had working capital of $37.5 million, including cash and cash equivalents of $21.5 million, compared to working capital of $62.7 million, including cash and cash equivalents of $58.4 million as at December 31, 2007; and working capital of $34.2 million, including cash and cash equivalents of $21.8 million as at September 30, 2008. Long-term debt of the Fund, including the current portion, was $320.2 million as at December 31, 2008, compared to: $205.1 million as at December 31, 2007; and $309.5 million as at September 30, 2008. The increase in debt is due to the new credit facility established in the first quarter of fiscal 2008 to finance the acquisition of ARS. As at December 31, 2008, the Fund has approximately $79 million in undrawn revolving credit facility available.

As at December 31, 2008, 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, March 4, 2009 at 10:00 am (EST) to discuss the Fund's 2008 year end 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, March 11, 2009 by calling 1-877-289-8525 or 416-640-1917, reference number 21298030 followed by the number sign.

((*)) 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. 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.

((*)(*)) 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's 2008 year end unaudited financial statements, please click here: http://files.newswire.ca/736/CML_FS__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

Statements made in this news release, other than those concerning historical financial information, may be forward-looking and therefore subject to various risks and uncertainties. Some forward-looking statements may be identified by words like "may", "will", "anticipate", "estimate", "expect", "intend", or "continue" or the negative thereof or similar variations. Readers are cautioned not to place undue reliance on such statements, as actual results may differ materially from those expressed or implied in such statements. Factors that could cause results to vary include, but are not limited to: dependence on government-based revenues; pending and proposed legislative or regulatory developments including the impact of changes in laws, regulations and the enforcement thereof; intensifying competition from established competitors and new entrants in the businesses in which we operate; technological change; interest rate fluctuations and general economic conditions; insurance coverage of sufficient scope to satisfy any liability claims; fluctuations in operating results; dependence on our ability to renegotiate the MOH contract on favourable terms; dependence on our operating subsidiary to pay its interest obligations; fluctuations in cash distributions and capital investment; management of credit, market, liquidity and funding and operational risks; judicial judgments and legal proceedings; 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 anyone 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 recent acquisition of American Radiology Services, Inc. ("ARS") include, but are not limited to, the Fund's ability to successfully integrate the operations of ARS, additional liabilities or costs attributable to the acquisition of ARS, 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 The Johns Hopkins University and The Johns Hopkins Health System Corporation (collectively "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 factors is not exhaustive and that when reviewing our forward-looking statements, investors and others should refer to the "Risk Factors" section of the Fund's Annual Information Form, the "Risks and Uncertainties" and other sections of our Management's Discussion and Analysis of Operating Results and Financial Position and our other periodic filings with Canadian securities regulatory authorities. All forward-looking statements presented herein should be considered in conjunction with such filings. 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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