Convalo Health International, Corp.

Convalo Health International, Corp.

August 02, 2016 23:57 ET

Convalo Health International Releases First Quarter Financials; Highlights 214% increase in Year-over-Year Revenue; Updates Market on Growth, Pricing and Management

LOS ANGELES, CALIFORNIA--(Marketwired - Aug. 2, 2016) -


Convalo Health International, Corp. ("Convalo") (TSX VENTURE:CXV), a company in the addiction recovery industry in the US, released its condensed interim consolidated financial statements for the three months ended May 31, 2016 on SEDAR.

Convalo Health International, operating under the brand name BLVD Centers (, is a leader in the highly fragmented addiction rehabilitation market. The company has operated since May 2014. In just under 30 months, Convalo has built capacity from a 60-seat outpatient center to 276-seat outpatient capacity and 36 residential and detox beds anticipated in the fall of 2016. Convalo is well positioned to take advantage of the growing market for addiction rehabilitation services with a strong balance sheet and an experienced operational team.

Operational and Financial Highlights:

  • Launched five BLVD branded facilities in the quarter: San Diego outpatient facility, Portland outpatient facility, Greater Los Angeles detox facility, Central Los Angeles detox facility, and an internal laboratory. All are expected to contribute revenues as they come online throughout the fiscal year.
  • Acquired $2,230,000 of real estate property, including $480,000 worth of property improvements for new facilities for the quarter.
  • Recognized revenue of $7,288,000 for the quarter compared to $2,318,000 for the quarter ended May 31, 2015 an increase of 214% year over year.
  • Generated $4,330,000 of gross profit for the quarter, adjusted for non-recurring staff costs, compared to $1,825,000 the quarter ended May 31, 2015, an increase of 137%.
  • Generated adjusted EBITDA of $936,000 for the quarter. (1)

"The first highlight for us is we continue to invest heavily in growth," said Dave Costine, Chairman of Convalo. "Our reported financial results were in line with our growth plans, this quarter in particular involved several facility launches as we had a substantial push to increase revenue and profit growth in the future quarters. The majority of our cash used this quarter was attributed to expenses and investments associated with more than doubling the capacity of the company, which will not recur in future quarters at nearly the same rate. We have launched five facilities since April which have yet to mature and fully ramp to profitable facilities. We have already made the significant necessary capital investments to open these facilities and have the necessary cash to invest in ramping these facilities into profit centers. Once these facilities are fully open and ramped to our expectation, they are expected to contribute operational cash flow, and more importantly, raise our adjusted EBITDA margins to over 25%. I expect we will start achieving these expected margins in the quarter starting next month."

Occupancy and Pricing Update

  • In fully opened facilities, patient census in detox and residential services, Convalo's highest paid services, increased 48% and 133% respectively compared to the third quarter, Convalo's last reported stand-alone quarter.
  • PHP outpatient census in fully opened outpatient facilities, Convalo's highest paid outpatient level of care, increased 67% compared to the third quarter.

Convalo relies overwhelmingly upon private US insurance companies for payment of patient services. Convalo, as an out-of-network provider for patients under 65 years of age, does not rely upon Medicare for payments and is generally not subject to Medicare reimbursement codes. Recently, there has been pricing volatility in the market perhaps due in part to planned mergers, including the mega mergers of HealthNet-Cetene, Cigna-Anthem and Aetna-Humana. Pricing from many providers, including these, has varied widely depending on location and service. While Convalo, a wholly out-of-network provider, is currently disputing these new prices, Convalo has recorded revenues consistent with collections. Convalo plans to file suit against these providers if necessary to compel them to pay the usual and customary rates. As part of this plan, Convalo has joined the Addiction Treatment Advocacy Coalition (ATAC). Convalo will update and increase recognized revenue and profits as and when these rates are restored. Convalo has also reduced staff after May 31st to align with current payment rates, which should be reflected in the upcoming quarters.

"Our operational census numbers continue to improve quarter-over-quarter for our fully ramped centers," continued Mr. Costine. "We are still operating below our overall target occupancy, but most of our facilities have only recently been launched. Older facilities are operating at above expected census and demand remains high. I will note that the prices for some of our services have unjustifiably decreased from certain insurance companies, albeit possibly temporarily. The top three highest paid services Convalo provides have all seen a significant increase in census levels, and while there is no guarantee that we will prevail in this effort to protect our pricing, we are expecting to dispute a large number insurance claims, that if collected, would fall to the bottom line. This is a capacity utilization business where we have very low fixed costs. Most of our costs are variable or semi-variable staff costs, which we can quickly adjust to protect our margins. In the case that pricing has indeed changed for the long term, I have stepped in this quarter to adjust our staffing model to ensure we protect our target EBITDA margin and generate strong operational cash flow expectations."

Convalo's 2017 first fiscal quarter financial statements and accompanying Management's Discussion & Analysis (MD&A) are available at All amounts are in Canadian dollars and are based on our consolidated financial statements and accompanying MD&A for the quarter ending May 31, 2016 and related notes prepared in accordance with International Financial Reporting Standards (IFRS), unless otherwise noted.

Update to Management

Dave Costine will step in as Chief Executive Officer and Chairman. Stampp Corbin is leaving Convalo to pursue substance use treatment industry related work as the President of the Addiction Treatment Advocacy Coalition (ATAC), as well as other opportunities. "The substance use treatment industry is at an important junction," stated Corbin. "It is time for the industry to come together to advocate on behalf of the 21.5 million people suffering from substance use disorder, as well as those organizations providing critical access to treatment."

About Convalo

Convalo Health International, operating under the brand name BLVD Centers (, is a leader in the highly fragmented addiction rehabilitation market. Led by a seasoned executive management team with experience in US healthcare, Convalo is well positioned for continued national expansion by launching pods in cities across the US. 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 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 Convalo, Convalo achieving 276-seat outpatient capacity and 36 residential and detox beds by the fall of 2016, expenses and investments associated with more than doubling the capacity of Convalo in the quarter not occurring in future quarters at nearly the same rate, Convalo's five new facilities contributing to operational cash flow and raising adjusted EBITDA margins to over 25% by the quarter starting in September 2016, and Convalo starting litigation against providers, if necessary, to compel them to pay usual and customary rates, are intended to identify forward-looking information. All statements other than statements of historical fact may be forward-looking information. Such statements reflect Convalo's current views and intentions with respect to future events, and current information available to Convalo, and are subject to certain risks, uncertainties and assumptions, including, all facilities open by the fall of 2016, launch costs associated with launching facilities ending once facilities are launched, Convalo generating cash flow and ebitda margins of 25% by operating at more than 80% occupancy rates at current pricing levels under a pro forma cost structure with the scale of nine operational facilities, Convalo being unsuccessful in collecting on usual and customary rates.
Material factors or assumptions were applied in providing forward-looking information. 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 the sellers of Hollywood Detox, the outcome and cost of any litigation with insurance providers, low profit market segments, as well as general economic, market and business conditions, amongst others. 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. Convalo's results and forward-looking information and calculations may be affected by fluctuations in exchange rates. All figures are in Canadian dollars. 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.

Non-GAAP Measures

Convalo uses a number of financial measures to assess its performance and are intended to provide additional information to investors concerning Convalo. Some of these measures, including, adjusted EBITDA and adjusted operating margin, are not calculated in accordance with Generally Accepted Accounting Principles (GAAP), which are based on International Financial Reporting Standards (IFRS), are not defined by GAAP and do not have standardized meanings that would ensure consistency and comparability between companies using these measures. These non-GAAP measures are used throughout this news release and are defined below:

(1) Throughout this document, "EBITDA" and "Adjusted EBITDA' are used as profitability measures excluding stock based compensation, onetime non-recurring costs, reserves for disputed pricing and new facility start-up costs. Please refer to the "Non-IFRS Measures" section of Convalo's MD&A for the three months ended May 31, 2016 for further discussion on these measures.
Three months ended May 31, 2016
Net income (loss) ($3,968 )
Add back:
Depreciation and amortization 366
Interest expense/(interest income) 1
Provision for income taxes -
EBITDA ($3,601 )
Add back:
Stock based compensation 558
One-time non-recurring costs 841
Reserve for disputed pricing 947
New facility start-up costs 2,191
Adjusted EBITDA $936

Adjusted gross profit is reconciled to gross profit as follows:

Three months ended May 31, 2016
Revenue $7,288
Cost of services 2,958
Adjusted gross margin $4,330
Cost of services - nonrecurring costs from staff reductions 472
Gross margin $3,859

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

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