Convalo Health International, Corp.
TSX VENTURE : CXV

Convalo Health International, Corp.

May 23, 2017 09:00 ET

Convalo Executes Agreement With Operating Partner for Hollywood Detox Center

LOS ANGELES, CALIFORNIA--(Marketwired - May 23, 2017) -

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Convalo Health International, Corp. ("Convalo" or the "Company") (TSX VENTURE:CXV), a leading company in the United States addiction recovery industry, today announced it has executed a management services agreement ("MSA") with an operating partner to operate the Company's 18-bed detox and residential center located in the heart of Hollywood, California.

Since executing the MSA earlier in May, the operating partner has increased census by over 90%. The financial impact of these results will only begin to be reflected in May 2017, the third month of the first fiscal quarter. No additional corporate overhead has been incurred by Convalo as a result of executing the MSA. This MSA is another example of Convalo implementing its new strategy.

The operating partner has been in the addiction treatment industry for many years and specializes in marketing specifically to residential and detox patients. Previously, the partner's business model centered only on helping detox centers source potential patients, rather than benefiting from operating their own center. With the new partnership, the operating partner has now turned its resources to filling the 18 bed center and has expressed interest in operating further residential and detox centers once the relationship has developed with Convalo.

"This experience with our new operating partner is an example of the leverage we can achieve with our new strategy," said Chris Heath, CEO of Convalo. "Since taking over the residential center, they have increased patient enrollment quickly and significantly, bringing census from about one third to about two thirds full in a matter of weeks. I believe with their background and expertise, we could see a near capacity center there soon. We have moved all payroll and associated operating costs from Convalo's responsibility to that of the operating partner, reducing operating costs for the month of May. These costs savings will be most visible in our second quarter ending in August, when those savings could be achieved in each month of the quarter. My team and I continue to look for new operating partners since changing our model earlier in the year. All things being equal, we have the cash on the balance sheet to double our revenues."

Convalo has shifted to a strategy of decentralizing treatment operations, including sales and marketing functions. The majority of the current location's management and staffing decisions, including sales and marketing, now reside with a local leadership team at each individual center through an MSA.

Review of New Model:

Convalo is shifting the clinical and operational staff management and hiring at each individual center, as well as the majority of the sales and marketing responsibilities of the clinics, to the local general managers and outreach leaders through an MSA, enabling these leaders to make cost decisions independently. The model allows local operators to keep some of the annual cash flow generated from their operations and aligns incentives between the Company and the operators. These leaders, the majority of whom have already executed an MSA, have been established at the current seven sites, in some cases for as long as two years. Because of the previous "centralized" management model, they were restricted from hiring local staff and managing the center as a "stand alone" or decentralized model. Further, they were not incentivized to use local marketing techniques, which are often a fraction of the cost of national advertising. The previous management team attempted to centralize all aspects of the centers, from staffing and back office to sales and marketing, resulting in expenditure of a tremendous amount of time, energy and money without commensurate rewards in revenue growth. "With the new model," explained Mr. Heath, "we should be able to expand more rapidly and limit our risk if one of our partners underperforms."

Under the new model, Convalo will continue to own or lease its existing facilities (depending on the market) and provide branding support, facilities (real estate, furniture, fixtures and equipment) management and upkeep, call center services, clinical protocols, and documentation support to all centers. Convalo will continue to maintain control of these facilities in the event a change in local management is someday needed. For new facilities, Convalo will have the flexibility to decide whether to own or lease, and management will focus upon speed to profitability and return on equity in deciding upon the proper structure.

Convalo will shift corporate ownership costs at new locations to the local operational and outreach leaders, incentivizing them like partners instead of employees.

As part of incentives for the new team, the Board issued 100,000 options to Mr. Jason Monroe as COO. In addition, the Board issued 1,400,000 options to parties at Convalo that are key to the success of the new business model. All options have a strike price of $0.165, vest 1/3 each in May 2018, 2019 and 2020 respectively, and have a 10-year exercise provision.

About Convalo

Convalo, operating under the brand name BLVD Centers (www.blvdcenters.com), is a leader in the highly fragmented addiction rehabilitation market. Led by a new executive management team, Convalo is well positioned for continued national expansion by launching pods in cities across the United States. A pod consists of a residential, detox, and mental health facility (detox facility) and an intensive outpatient (IOP) facility. Convalo, under the BLVD brand, is focused upon becoming the largest national provider of a range of mental health services, including addictive and co-occurring disorders. In conjunction with the long standing 12-Step approach, BLVD also offers supplemental insurance-reimbursed services catering to a variety of communities: gender specific, creatively-oriented, meditation/mindfulness, trauma and LGBT affirmative.

Forward-Looking Statements

Certain statements contained in this press release constitute "forward-looking information" as such term is defined in applicable Canadian securities legislation. The words "may", "would", "could", "should", "potential", "will", "seek", "intend", "plan", "anticipate", "believe", "estimate", "expect" and similar expressions as they relate to the Company, near capacity patient enrollment soon at the Hollywood detox and residential center, costs savings in the second quarter, expanding more rapidly and limiting risk under the new model, and the Company shifting corporate ownership costs to the local operational and outreach leaders, incentivizing them like partners instead of employees, are intended to identify forward-looking information. All statements other than statements of historical fact may be forward-looking information. Such statements reflect the Company's current views and intentions with respect to future events, and current information available to the Company, and are subject to certain risks, uncertainties and assumptions. Material factors or assumptions were applied in providing forward-looking information, including: insurance reimbursement remains at levels similar to today, census levels and patient demand remains strong, partners operate their locations profitably, partners reimburse the Company for any and all working capital loans, additional corporate overhead is not needed). Many factors could cause the actual results, performance or achievements that may be expressed or implied by such forward-looking information to vary from those described herein should one or more of these risks or uncertainties materialize. These factors include, without limitation, changes in law, the ability to implement business strategies and pursue business opportunities, state of the capital markets, the availability of funds and resources to pursue operations, decline of reimbursement rates, dependence on few payors, possible new drug discoveries, a novel business model, dependence on key suppliers, granting of permits and licenses in a highly regulated business, competition, difficulty integrating newly acquired businesses, the outcome and cost of any litigation with insurance providers, low profit market segments, as well as general economic, market and business conditions, as well as those risk factors discussed or referred to in Convalo's annual Management's Discussion and Analysis for the year ended February 29, 2016, filed with the securities regulatory authorities in certain provinces of Canada and available at www.sedar.com.
Should any factor affect Convalo in an unexpected manner, or should assumptions underlying the forward looking information prove incorrect, the actual results or events may differ materially from the results or events predicted. Any such forward-looking information is expressly qualified in its entirety by this cautionary statement. Moreover, Convalo does not assume responsibility for the accuracy or completeness of such forward-looking information. The forward -looking information included in this press release is made as of the date of this press release and Convalo undertakes no obligation to publicly update or revise any forward-looking information, other than as required by applicable law. Convalo's results and forward-looking information and calculations may be affected by fluctuations in exchange rates. All figures are in Canadian dollars unless otherwise indicated.

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