TLC Vision Corporation
TSX : TLC
NASDAQ : TLCV

TLC Vision Corporation

November 08, 2006 07:30 ET

TLCVision Reports Third Quarter Financial Results and Accelerates Consumer-Focused Refractive Strategy

ST. LOUIS, MISSOURI--(CCNMatthews - Nov. 8, 2006) - TLC Vision Corporation (NASDAQ:TLCV)(TSX:TLC), North America's premier eye care services company, today announced its financial results for the third quarter and nine months ended September 30, 2006. All dollar amounts are expressed in U.S. currency and results are reported in accordance with U.S. generally accepted accounting principles (U.S. GAAP) unless otherwise noted.

The Company also announced, based on positive indicators from current initiatives, that it is aggressively expanding its consumer-focused refractive strategy across a majority of its wholly-owned refractive centers. With the acceleration of this strategy, the Company now combines the most successful elements of the current medical referral model with a direct-to-consumer approach, creating a unique and competitive position for TLCVision as the only company to leverage these two key patient sources.

"Promising trends from our recent initiatives suggest that a more value-oriented pricing strategy, supported by increased advertising and our optometric co-management philosophy, will be a compelling combination," said Jim Wachtman, President and Chief Executive Officer. "TLCVision is responding to consumer trends, while leveraging the expertise we have developed over 13 years of leadership in this industry, to accelerate our long-term growth strategy.

Editor's Note: "Operating Business" (or "Operating") is defined as TLCVision's activities excluding the impact of the AMD segment, representing our investment in OccuLogix, Inc. To provide maximum transparency for investors, Operating Business financial results are listed separately from consolidated results in this press release.

REVENUES

TLCVision's third quarter revenues were $64.5 million, an increase of 6% from 2005 excluding AMD.

- Total refractive revenues were up 2.5% to $43.9 million, as higher average selling prices offset slightly lower overall procedure volumes (41,900). Total center revenues were 1% higher during the quarter, with same store center revenues up 4%. Refractive center procedure volume (including LECC) was 26,900, down 1% from prior year, consistent with economic-driven softness in the overall industry. Access revenues were up 8%, as slightly lower procedures volumes (15,000) were bolstered by a pricing increase to cover rising fuel costs.

- Other Healthcare Services revenues (excluding AMD) increased 13% to $20.6 million, with strong growth at Vision Source (+20%) and the surgical businesses, fueled in part by acquisitions in 2005. Total surgical procedures of 18,500 were 1% below prior year, but revenues were up 7% due to better mix overall and higher average selling prices in our mobile cataract business.

EARNINGS

Consolidated: Net income for the third quarter was $0.3 million, including the AMD net loss of $1.5 million.

Operating Business: Net income for the quarter was $1.8 million (or $0.03 per fully diluted share), including $0.2 million of stock compensation expense. Comparable amounts for 2005 were $1.9 million (or $0.03 per share) on an as-reported basis. After adjusting both periods to remove stock compensation and to apply current year income tax rates, pro forma 2006 net income of $2.3 million trailed 2005 by $0.2 million or 8%.

STRONG CASH GENERATION

Operating cash flow for the third quarter was $7.7 million, or $0.11 per fully diluted share. The Company continues to maintain a strong financial position, with cash and short-term investments totaling $47.1 million.

YEAR-TO-DATE RESULTS

For the nine months ended September 30, 2006, revenues (excluding AMD) grew 10% to $218.3 million from $197.9 million for the prior year period. Total refractive revenues increased 7% to $156.2 million, and total refractive procedure volume (including LECC) was 147,500. Other Healthcare Services revenues (excluding AMD) increased 19% to $62.1 million.

For the nine months ended September 30, 2006, consolidated net income was $13.9 million (or $0.20 per share) including a $4.7 million net loss from the AMD segment. Net income for the Operating Business was $18.6 million or $0.27 per share, an increase of $3.0 million or $0.05 per share on an as reported basis.

Consolidated operating cash flow for the nine month period was $30.5 million. Operating cash flow for the Operating Business was $35.3 million or $0.51 per share.

2006 OPERATING BUSINESS FINANCIAL GUIDANCE

Reflecting the financial results for the first nine months of the year, as well as factoring in the revised refractive industry growth rates for 2006, we are updating our 2006 guidance for the Operating Business as follows:

- Net revenues are now anticipated to be between $280 million and $285 million, or a growth of between 8% and 10% from full year 2005 results.

- Fully-taxed earnings per share are now anticipated to be between $0.28 to $0.30 per fully diluted share.

- Operating cash flow per fully-diluted share is expected to be between $0.55 and $0.57.

ACCELERATING REFRACTIVE BUSINESS GROWTH WITH A UNIQUE AND COMPETITIVE APPROACH

Over the past 12 months, TLCVision has undertaken several initiatives to determine the best combination of elements to maximize its competitive position in the refractive industry, and early indicators are promising. Consumers have been responsive to a more affordable, value-priced model and to upgrades based on legitimate technology options. In several TLC Laser Eye Center ® (TLC) locations, the Company has seen significant volume growth by combining this value-priced model with increased advertising to support its already strong optometric co-management network. This more consumer-focused approach not only makes it easier for the Company's affiliated optometrists to recommend the procedure, but has been shown to increase the number who are referring overall.

The acceleration of this strategy allows TLCVision to capitalize on these positive trends and its core strengths, as well as respond to changing consumer dynamics in the industry overall. With a more consistent and standardized offering, the Company will leverage all centers under the widely recognized TLC brand, which has performed more procedures than any company in the world. The majority of wholly-owned TLC centers will be repositioned between late 2006 and the end of 2007. In addition, LASIK Select centers will be re-branded to TLC, and the Company plans to expand by five to seven new TLC locations in 2007.

"TLCVision is making these investments to reinvigorate the refractive business," said Jim Wachtman. "We are doing so from a position of strength, with a highly-skilled team committed to growing the business. Our strong cash flow generation combined with our solid balance sheet gives us the flexibility to drive this change and create long-term shareholder value."

ANALYST DAY

TLCVision plans to host an Analyst Day for research analysts and shareholders in the first quarter of 2007. At that time, executive management and key business leaders will present a detailed outline of the entire company strategic plan, including this accelerated consumer-focused strategy and capital structure initiatives. More information will be released as it becomes available.

CONFERENCE CALL

TLCVision is pleased to invite all interested parties to participate in a conference call during which time the strategic repositioning and financial results will be discussed. The call will be held today, November 8, at 10:30 am Eastern Time at 1-877-888-4605.

The call will also be broadcast live and archived on the Company's web site at www.tlcv.com under the "Webcasts" link in the Investor Relations section. In addition, the live web cast will be available at various other popular portals and financial web sites. A replay will be available until November 22 by dialing 1-888-509-0081 and entering pass code 631525.

About TLCVision

TLCVision is North America's premier eye care services company, providing eye doctors with the tools and technologies needed to deliver high-quality patient care. Through its centers management and technology access service models, and its managed care contracting strength, TLCVision maintains leading positions in Refractive, Cataract and Optometric Services markets. More information about TLCVision can be found on the corporate website www.tlcv.com. Go to www.tlcvision.com for information on refractive surgery.

Forward Looking Statements

This press release contains certain forward looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933 and Section 21E of the U.S. Securities Exchange Act of 1934, which statements can be identified by the use of forward looking terminology, such as "may", "will", "expect", "intend", "anticipate", "estimate", "predict", "plans" or "continue" or the negative thereof or other variations thereon or comparable terminology referring to future events or results. The Company's actual results could differ materially from those anticipated in these forward looking statements as a result of numerous factors, including the timing of expenditures, effects of competition, changes to pricing, acquisitions and expansion opportunities, any of which could cause actual results to vary materially from current results or TLCVision's anticipated future results. See the Company's reports filed with the Canadian Securities Regulators and the U.S. Securities and Exchange Commission from time to time for cautionary statements identifying important factors with respect to such forward looking statements, including certain risks and uncertainties, that could cause actual results to differ materially from results referred to in forward looking statements. TLCVision assumes no obligation to update the information conntained in this press release.



TLC VISION CORPORATION
CONSOLIDATING STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands except per share amounts)

Three Months Three Months
Ended September Ended September
30, 2006 30, 2005
(As Restated)
---------------------------------------------------------
Results Results
Before Before
AMD AMD Total AMD AMD Total
Segment Segment TLCVision Segment Segment TLCVision
---------------------------------------------------------

Revenues:
Refractive:
Centers $ 35,422 $ - $ 35,422 $ 34,968 $ - $ 34,968
Access 8,449 - 8,449 7,846 - 7,846
Other healthcare
services 20,618 - 20,618 18,190 635 18,825
---------------------------------------------------------
Total revenues 64,489 - 64,489 61,004 635 61,639

Cost of
revenues:
Refractive:
Centers 26,260 - 26,260 26,147 - 26,147
Access 6,655 - 6,655 6,319 - 6,319
Other healthcare
services 12,617 - 12,617 11,289 363 11,652
---------------------------------------------------------
Total cost
of revenues 45,532 - 45,532 43,755 363 44,118
---------------------------------------------------------

Gross profit 18,957 - 18,957 17,249 272 17,521
---------------------------------------------------------

General and
administrative 8,066 - 8,066 6,695 1,994 8,689
Marketing
and sales 6,649 - 6,649 5,279 119 5,398
Research and
development,
clinical and
regulatory - - - - 1,140 1,140
Amortization
of intangibles 873 - 873 1,047 - 1,047
Other expenses
(income), net (230) - (230) 198 (166) 32
---------------------------------------------------------
Total operating
costs 15,358 - 15,358 13,219 3,087 16,306
---------------------------------------------------------
Operating income
(loss) 3,599 - 3,599 4,030 (2,815) 1,215

Interest
income 568 - 568 660 411 1,071
Interest
expense (387) - (387) (435) - (435)
Minority
interests (2,210) - (2,210) (1,867) 1,258 (609)
Earnings (losses)
from equity
investments 849 (1,453) (604) 487 - 487
---------------------------------------------------------
Income
(loss) before
income taxes 2,419 (1,453) 966 2,875 (1,146) 1,729

Income tax
benefit (expense) (665) - (665) (947) (3) (950)
---------------------------------------------------------

Net income (loss) $ 1,754 $ (1,453) $ 301 $ 1,928 $(1,149) $ 779
---------------------------------------------------------
---------------------------------------------------------

Earnings (loss)
per share
diluted $ 0.03 $ (0.03) $ 0.00 $ 0.03 $ (0.02) $ 0.01
---------------------------------------------------------
---------------------------------------------------------

Weighted average
number of common
shares
outstanding
- diluted 69,737 69,737 69,737 71,524 71,524 71,524

Note: The AMD segment includes the Company's interest in OccuLogix, Inc.


TLC VISION CORPORATION CONSOLIDATING STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands except per share amounts)

Nine Months Nine Months
Ended September Ended September
30, 2006 30, 2005
(As Restated)
---------------------------------------------------------
Results Results
Before Before
AMD AMD Total AMD AMD Total
Segment Segment TLCVision Segment Segment TLCVision
---------------------------------------------------------
Revenues:
Refractive:
Centers $ 126,959 $ - $ 126,959 $ 116,743 $ - $ 116,743
Access 29,208 - 29,208 29,085 - 29,085
Other
healthcare
services 62,118 - 62,118 52,045 1,635 53,680
---------------------------------------------------------
Total
revenues 218,285 - 218,285 197,873 1,635 199,508

Cost of
revenues:
Refractive:
Centers 88,056 - 88,056 80,597 - 80,597
Access 21,330 - 21,330 20,929 - 20,929
Other
healthcare
services 37,890 1,659 39,549 31,617 1,393 33,010
---------------------------------------------------------
Total cost of
revenues 147,276 1,659 148,935 133,143 1,393 134,536
---------------------------------------------------------

Gross profit
(loss) 71,009 (1,659) 69,350 64,730 242 64,972
---------------------------------------------------------

General
and
administrative 24,219 1,759 25,978 21,108 5,868 26,976
Marketing
and sales 20,155 169 20,324 15,747 491 16,238
Research
and development,
clinical and
regulatory - 1,475 1,475 - 3,794 3,794
Amortization of
intangibles 2,611 - 2,611 3,090 - 3,090
Other expenses
(income), net (756) 849 93 (835) (166) (1,001)
---------------------------------------------------------
Total
operating
costs 46,229 4,252 50,481 39,110 9,987 49,097
---------------------------------------------------------
Operating
income
(loss) 24,780 (5,911) 18,869 25,620 (9,745) 15,875

Gain on
sale of
OccuLogix, Inc.
stock - 1,450 1,450 - - -
Interest
income 1,437 366 1,803 2,174 1,187 3,361
Interest
expense (1,066) - (1,066) (1,316) - (1,316)
Minority
interests (7,677) 2,715 (4,962) (6,567) 4,167 (2,400)
Earnings (losses)
from equity
investments 2,723 (3,303) (580) 1,826 - 1,826
---------------------------------------------------------
Income
(loss) before
income taxes 20,197 (4,683) 15,514 21,737 (4,391) 17,346

Income
tax expense (1,634) - (1,634) (6,202) (3) (6,205)
---------------------------------------------------------

Net income
(loss) $ 18,563 $ (4,683) $ 13,880 $ 15,535 $ (4,394) $ 11,141
---------------------------------------------------------
---------------------------------------------------------

Earnings
(loss) per
share
- diluted $ 0.27 $ (0.07) $ 0.20 $ 0.22 $ (0.06) $ 0.16
---------------------------------------------------------
---------------------------------------------------------

Weighted average
number of
common shares
outstanding
- diluted 69,833 69,833 69,833 71,877 71,877 71,877

Note: The AMD segment includes the Company's interest in OccuLogix, Inc.


TLC VISION CORPORATION CONSOLIDATING BALANCE SHEETS
(In thousands)
September 30, December 31,
2006 (Unaudited) 2005
---------------------------------------------------------
Results Results
Before Before
AMD AMD Total AMD AMD Total
Segment Segment TLCVision Segment Segment TLCVision
---------------------------------------------------------
ASSETS
Current assets
Cash and cash
equivalents $ 37,047 $ 10 $ 37,057 $ 22,122 $ 9,607 $ 31,729
Short-term
investments 10,025 - 10,025 6,550 31,663 38,213
Accounts
receivable, net 21,779 - 21,779 20,056 527 20,583
Prepaid expenses,
inventory and
other 12,140 - 12,140 11,604 5,519 17,123
---------------------------------------------------------
Total current
assets 80,991 10 81,001 60,332 47,316 107,648

Intercompany (565) 565 - 1,693 (1,693) -
Restricted cash 1,035 - 1,035 975 - 975
Investments and
other assets 22,465 16,825 39,290 19,838 - 19,838
Goodwill 98,062 - 98,062 99,402 - 99,402
Other intangible
assets, net 21,376 - 21,376 23,886 135 24,021
Fixed assets,
net 54,799 - 54,799 48,646 513 49,159
Total assets $278,163 $ 17,400 $295,563 $254,772 $ 46,271 $ 301,043
---------------------------------------------------------
---------------------------------------------------------

LIABILITIES
Current
liabilities
Accounts
payable $ 12,570 $ - $ 12,570 $ 10,517 $ 514 $ 11,031
Accrued
liabilities 21,457 - 21,457 22,158 2,295 24,453
Current
maturities
of long-term
debt 6,667 - 6,667 5,268 - 5,268
---------------------------------------------------------
Total current
liabilities 40,694 - 40,694 37,943 2,809 40,752

Long-term
debt, less
current
maturities 15,791 - 15,791 12,665 - 12,665
Other
long-term
liabilities 3,053 - 3,053 3,427 - 3,427
Minority
interests 14,937 - 14,937 14,284 21,510 35,794
---------------------------------------------------------
Total
Liabilities 74,475 - 74,475 68,319 24,319 92,638

STOCKHOLDERS'
EQUITY
Common stock 418,656 30,898 449,554 419,936 30,767 450,703
Option and
warrant equity 1,813 - 1,813 1,861 - 1,861
Accumulated
deficit (216,781) (13,498) (230,279) (235,344) (8,815) (244,159)
---------------------------------------------------------
Total
stockholders'
equity 203,688 17,400 221,088 186,453 21,952 208,405
---------------------------------------------------------

Total
liabilities and
stockholders'
equity $278,163 $ 17,400 $ 295,563 $ 254,772 $ 46,271 $ 301,043
---------------------------------------------------------
---------------------------------------------------------

Note: The AMD segment includes the Company's interest in OccuLogix, Inc.


TLC VISION CORPORATION CONSOLIDATING STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands except per share amounts)

Nine Months Nine Months
Ended September Ended September
30, 2006 30, 2005
(As Restated)
---------------------------------------------------------
Results Results
Before Before
AMD AMD Total AMD AMD Total
Segment Segment TLCVision Segment Segment TLCVision
---------------------------------------------------------
OPERATING
ACTIVITIES
Net income
(loss) $ 18,563 $ (4,683) $ 13,880 $ 15,535 $ (4,394) $ 11,141

Adjustments to
reconcile net
income (loss)
to net cash
from operating
activities:
Depreciation and
amortization 11,764 34 11,798 11,931 88 12,019
Reimbursements
from investments
in research and
development
arrangements (300) - (300) (300) - (300)
Minority
interests 7,677 (2,715) 4,962 6,567 (4,167) 2,400
(Earnings)
losses from
equity
investments (2,723) 3,303 580 (1,826) - (1,826)
Deferred
taxes 2,744 - 2,744 4,806 - 4,806
Loss
(gain) on sales
and disposals
of fixed assets (12) 29 17 (38) (166) (204)
Gain on sale of
OccuLogix, Inc.
stock - (1,450) (1,450) - - -
Write-down of
OccuLogix, Inc.
inventory - 1,625 1,625 - - -
Gain on sale
of subsidiary (188) - (188) (319) - (319)
Non-cash
compensation
expense 1,120 186 1,306 69 216 285
Other - 26 26 - 135 135
Changes in
operating assets
and liabilities,
net of
acquisitions and
dispositions: (3,310) (1,225) (4,535) (2,725) (6,286) (9,011)
---------------------------------------------------------
Cash from
operating
activities 35,335 (4,870) 30,465 33,700 (14,574) 19,126
---------------------------------------------------------

INVESTING
ACTIVITIES
Purchases of
fixed assets (8,140) - (8,140) (6,526) (138) (6,664)
Proceeds from
sales of fixed
assets 635 - 635 966 284 1,250
Proceeds from
divestitures of
investments and
subsidiaries, net - - - 3,430 - 3,430
Proceeds from
sale of
OccuLogix, Inc.
stock, net - 2,226 2,226 - - -
OccuLogix, Inc.
cash balance at
time of
deconsolidation - (14,814) (14,814) - - -
Distributions and
loan payments
received from
equity
investments 2,662 - 2,662 1,828 - 1,828
Reimbursements
from investments
in research and
development
arrangements 300 - 300 300 - 300
Acquisitions and
equity
investments (4,859) - (4,859) (42,119) - (42,119)
Proceeds from
sales of
short-term
investments 300 9,925 10,225 78,025 20,550 98,575
Purchases of
short-term
investments (3,775) - (3,775) (27,710) (10,585) (38,295)
Other 80 (71) 9 48 (15) 33
---------------------------------------------------------
Cash from
investing
activities (12,797) (2,734) (15,531) 8,242 10,096 18,338
---------------------------------------------------------

FINANCING
ACTIVITIES
Restricted
cash movement (60) - (60) (208) - (208)
Transfer proceeds
from sale of
OccuLogix, Inc.
stock, net 2,226 (2,226) - - - -
Principal payments
of debt financing
and capital
leases (4,019) - (4,019) (7,500) - (7,500)
Proceeds from
debt financing 441 - 441 1,489 - 1,489
Distributions to
minority
interests (6,668) - (6,668) (6,024) - (6,024)
Purchases of
treasury stock - - - (10,031) - (10,031)
Proceeds from
issuances of
common stock 467 - 467 1,748 - 1,748
Proceeds from
issuances of
OccuLogix, Inc.
stock - 233 233 - 284 284
---------------------------------------------------------
Cash from
financing
activities (7,613) (1,993) (9,606) (20,526) 284 (20,242)
---------------------------------------------------------

Net increase
(decrease) in
cash and cash
equivalents
during the
period 14,925 (9,597) 5,328 21,416 (4,194) 17,222
Cash and cash
equivalents,
beginning
of period 22,122 9,607 31,729 15,847 17,588 33,435
---------------------------------------------------------
Cash and cash
equivalents,
end of period $ 37,047 $ 10 $ 37,057 $ 37,263 $ 13,394 $ 50,657
---------------------------------------------------------
---------------------------------------------------------

Operating cash
flow per
diluted share $ 0.51 $ (0.07) $ 0.44 $ 0.47 $ (0.20) $ 0.27

Note: The AMD segment includes the Company's interest in OccuLogix, Inc.



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