LOS ANGELES, CALIFORNIA--(Marketwired - April 13, 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 updated the market on its retooled revenue growth model designed to increase revenues rapidly with significantly reduced corporate overhead.
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 a management services agreement ("MSA"). The last few MSA's are expected to be finalized this quarter. As a result, overhead has been reduced dramatically while patient census continues to be equal to or slightly higher as compared to the same period a year ago. While the fiscal first quarter is not over, if census level remain steady, the Company is on track to have a net profit before stock-based compensation for the fiscal first quarter ending May 30, 2017.
Additionally, in completing the shift to a new management team and new Board leadership, Mr. David Costine has resigned from the Board of Directors.
"My new team and I now have some time under our belt in this new model and I wanted to share a few highlights with our shareholders", said Chris Heath, CEO of Convalo. "First, it is clear that even with a massively reduced corporate overhead, we are able to provide the needed support services to the centers without any issues. We have cut costs significantly without foregoing quality in treatment or branding. Second, I am pleased to see that in our new model we have indeed aligned our incentives with our current operating partners and they seem to be making decisions that are increasing their census without increasing our costs. Thirdly, for the first time since I can remember, we have spent more time looking for new partners to increase our center count in the last two months than managing existing centers. This bodes well for our revenue growth in the near future. And lastly, we are finally growing our current assets, both cash and accounts receivable without the same level of expenses or accounts payable. This is particularly important in that, ultimately, this figure is the proof we are rebuilding shareholder value. I look forward to releasing first quarter results at the end of June, I think the contrast between last year and the first quarter of this year will be good for our shareholders to see. Our new team has really worked hard to make this company turn the corner into a profitable business with excellent growth potential. I can now say that the Convalo of the past is in the past, and my new team and our new Board leadership has instilled a culture of urgency and communication that is focused on quickly improving the financial position of this company and driving shareholder value."
Review of New Model:
The Board and management has adopted this new model to take advantage of Convalo's competitive advantages, while reducing costs and shrinking implementation periods.
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 1,750,000 options to Mr. Heath as CEO and 250,000 options to Mr. Allera as Chairman. In addition, a total of 1,500,000 options have been issued to other parties at Convalo key to the success of the new business model. All options have a strike price of $0.115, vest 1/3 each in March 2018, 2019 and 2020 respectively, and have a 10-year exercise provision.
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.
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, the last few MSA being finalized this quarter, the Company having a net profit before stock-based compensation for the fiscal first quarter ending May 30, 2017, 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.