© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, everyone. Welcome to Centric Health's First Quarter 2019 Results Conference Call.Please note that today's call is being broadcast live over the Internet and will be archived for replay both by telephone and via the Internet, beginning approximately 1 hour following the completion of the call. Details of how to access the replays are available in yesterday's news release announcing the company's financial results as well as on the company's website at www.centrichealth.ca. Today's call is accompanied by a slide presentation. Those listening via telephone can access the slide presentation from the company's website, in the Investor section, under Events & Presentations, by loading the webcast and choosing the non-streaming audio option.Before we begin, let me remind you that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks or uncertainties relating to Centric Health's future financial and business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in Centric Health's periodical results and registration statements and you can access these documents in the SEDAR database under www.sedar.com. Centric Health is under no obligation to update any forward-looking statements discussed today, and investors are cautioned not to place undue reliance on these statements.I would now like to turn the call over to David Murphy, President and CEO of Centric Health Corporation. Please go ahead, Mr. Murphy.
Thank you, and good morning, everyone. Welcome to our first quarter results conference call. With me on the call today is our Interim Chief Financial Officer, Andrew Mok.We are pleased to report that our first quarter results exceeded expectations. Our Specialty Pharmacy business again delivered significant sequential quarterly improvement in operating margins and adjusted EBITDA. After hitting a low point in Q3 2018 from the impact of various regulatory changes, in the last 2 quarters, we have made substantial progress in strengthening and growing the business. And now I'm pleased to report that we have delivered on our commitment to return this business to historical adjusted EBITDA levels. During Q1, we continued to increase the number of beds serviced, which should position us for further sequential quarterly growth in the balance of the year. And we made progress on a number of other key initiatives, including our deleveraging strategy and our seniors medical cannabis strategy.In our last earnings call, we indicated that we had completed our Business Re-Engineering Plan by the end of 2018 and that we met all financial targets established for the plan. As a result of the plan's success and our higher bed count, which I will discuss in a minute, in Q1 2019, we were able to almost completely offset the impact of the 2018 regulatory changes. Adjusted EBITDA of $3.4 million for our Specialty Pharmacy business was almost exactly in line with our performance in Q1 2018, which was the last quarter prior to the implementation of the regulatory changes. This performance exceeded our guidance for the quarter, with our adjusted EBITDA margin coming in at 9.9% versus the 9% target we had previously communicated. And after including the impact of the adoption of IFRS 16, which Andrew will discuss briefly later, our adjusted EBITDA margin for Q1 was 11.2%.As we communicated last quarter, we are targeting double-digit adjusted EBITDA margins before factoring in the benefit from IFRS 16 for the remainder of the year. In Q1 2019, our average beds serviced was up by more than 600 compared to Q4 2018 and up by more than 2,000 beds compared to the first quarter a year ago. By the end of the first quarter of 2019, total beds serviced was over 31,000. Our bed growth has increased meaningfully in the last 3 quarters. We are taking market share, and we believe we are currently growing faster than any other major competitor.We continue to advance our seniors medical cannabis strategy. In Canada, the seniors medical cannabis market is largely untapped. As you know, we formed a strategic partnership with Canopy Growth Corporation in the third quarter of 2018 to provide seniors living in the homes we service with access to medical cannabis. In the first quarter, we completed our joint implementation plan with Canopy, including clinical pharmacist-led prescriber information sessions and education sessions for staff, residents and their families. Importantly, deliveries of medical cannabis commenced during Q1, and we expect those deliveries to accelerate as we continue to support and educate home care operators and medical practitioners on the benefits of medical cannabis.Also, as we announced on April 15, we have collaborated with Apollo Cannabis Clinics, one of Canada's leading medical cannabis research organizations, to assist with virtual assessments of potential medical cannabis candidates. Finally, we are excited to be participating in a medical cannabis pilot study with the Ontario Long Term Care Association, which is being led by Canopy Growth. In addition to being part of the study, Centric has been asked to provide insights to the association's cannabis advisory committee on the role of pharmacies in supporting medical cannabis use in long-term care homes. As you can see, Q1 2019 was an eventful and successful quarter. The turnaround of our core business is ahead of schedule. Our operating performance continues to improve and we are starting to get traction with key growth initiatives.With that, I would like to turn the call over to Andrew for his review of our financial results. Andrew?
Thank you, David, and good morning, everyone. Our complete results for the first quarter are available in our financial statements and MD&A, which have been filed with SEDAR and are also available on our website.Before getting into our financial results, I wanted to highlight that we have completed our transition to the new lease accounting standard IFRS 16, which came into effect on January 1, 2019. Our Q1 results included the impact of the adoption of this new standard, which resulted in an increase to our reported Specialty Pharmacy adjusted EBITDA by $400,000 and an increase to adjusted EBITDA from continuing operations overall by $500,000. We adopted IFRS 16 using the modified retrospective approach, and therefore, our comparative information has not been restated for this new standard. As a result, when comparing our 2019 adjusted EBITDA to periods prior to January 1, 2019, the impact of IFRS 16 should be considered.Turning to our results for the quarter.Revenue in Specialty Pharmacy was $30.7 million compared to $32.9 million for the first quarter of 2018, which was the last quarter prior to the significant regulatory changes that impacted our business beginning in the second quarter of 2018. Our revenue for Q1 of this year was up from a low of $29.2 million in Q3 of last year, which was the first full quarter of the regulatory change impacts. While this improvement in revenue is significant, what we really want to highlight is the improvement in our adjusted EBITDA in Q1 2019, especially when you consider the fact that our revenue has not yet returned to the levels achieved prior to the regulatory changes.As David already touched on earlier, there was a significant improvement in our Specialty Pharmacy adjusted EBITDA margins, and we exceeded our target for the quarter. We achieved a second consecutive quarter of sequential growth in adjusted EBITDA in Specialty Pharmacy with $3.4 million for the quarter, representing a 60.3% increase over the fourth quarter of 2018 and a 139.6% increase from the third quarter of 2018. The improvement over the last 2 quarters was due to the successful completion of our Business Re-Engineering Plan as well as the increase in the average of beds serviced during the first quarter, as David mentioned earlier.We remain focused on improving our balance sheet as we look to provide the company with long-term stability and a path for continued success. During the quarter and as mentioned on our year-end call, we raised gross proceeds of $12 million through a private placement issuing 30 million convertible preferred shares at an issue price of $0.40 per share. Proceeds from the private placement were used to repay senior indebtedness. The preferred shares are convertible into common shares at the holder's option on a one-to-one basis and are redeemable at the company's option in certain circumstances, subject to customary anti-dilution adjustments.Also during the quarter, on February 14, we divested our retail pharmacy in Medicine Hat, Alberta for proceeds of $2.3 million, with net proceeds being used primarily for working capital purposes.Most importantly, we reduced our bank debt by over $10 million from the end of 2018 to the end of the first quarter of 2019. Also, subsequent to the end of the quarter, we signed a definitive agreement on May 2 to divest our retail pharmacy in Grande Prairie, Alberta for proceeds of $2 million. We continue to explore other strategic opportunities to further deleverage our balance sheet. While there is still work to do, we have made significant progress in transforming the company and have better positioned ourselves for growth.With that, I would like to turn the call back over to David for some closing remarks before we open the call up to questions. David?
Thank you, Andrew. As part of our new strategic direction, Centric Health is singularly focused on a large, fast-growing Canadian seniors health care market, with a vision to be the leading provider of pharmacy and other health care services in this space. Just looking at pharmacy alone, the prescription drug market for Canadian seniors is currently estimated to be $19.3 billion in size, with significant further growth expected over the next decade even with the impact of periodic regulatory pressures. With the number of seniors expected to grow from 6.6 million today to 9.4 million by 2030, this is a compelling and attractive market. And Centric Health is uniquely positioned to play a larger role in servicing this market. After completion of our Business Re-Engineering Plan, we have now established a truly national, scalable operating platform. We serve long-term care at retirement homes using a best-in-class service model which includes multidose compliance packaging that improves resident safety and adherence, an efficient network that allows us to make cost-effective daily deliveries of chronic medication and a superb team of pharmacists that provides specialized clinical services that are valued by both home operators and residents alike. In all the provinces in which we operate, our operating platform offers customers proximity, efficiency, innovation and the highest standards of accuracy and safety.We believe we can continue to leverage our service model and competitive differentiation to win new beds. And we believe that the platform is now strong enough to enable us to make and integrate acquisitions to create further scale and efficiencies and increase shareholder value. Because of the groundwork we have laid in the last 12 months, we are well positioned to pursue multiple organic and inorganic growth opportunities. We have momentum and a demonstrated track record of adding more beds under care. We are pursuing adjacent growth opportunities that leverage our footprint and relationships within seniors housing. And we believe we are increasingly well suited to participate from a position of strength in leading the overdue consolidations of the seniors pharmacy space.I would like to close by thanking our employees and our management team for their commitment to our new strategic direction and for their incredible work turning around our pharmacy business. And of course, I would like to thank our shareholders for their continued support. We are building momentum with each quarter, and I look forward to reporting on further progress and success in the quarters that follow.With that, we would now like to open the line for questions. Operator?
[Operator Instructions] And our first question is from Doug Cooper with Beacon Securities.
Congratulations on your success to date with the turnaround. First of all, just on the beds, you said you exited the quarter at 31,000. Or 31,000 is current?
We exited the quarter at just above 31,000, Doug. We -- from a metrics perspective, I think we've shifted to showing average beds serviced during the quarter, which I think is a more indicative indication of revenue and profitability, but the quarter end number was just north of 31,000.
Okay. In terms of visibility for the bed count for the rest of the year, is there RFPs? Or what -- how should we think about the exit rate for the year?
I think we continue to feel bullish about our ability to replicate the last 3 quarters' success. I mean, if you look at to the extent that we publicly announced some of the wins, they've all been in that sort of 500 to 1,700 bed wins. So none of them were huge necessarily, but there are those types of opportunities that we are currently actively engaged in RFP processes related to and also more coming, we think. So we're confident that we can replicate the growth over the last 3 quarters.
Okay. And the average rev per bed just over $4,000 on an annualized basis. The implementation of cannabis, did that have any impact on the average rev per bed in the quarter? And what impact do you think that could have over the course of the next 12 to 18, 24 months?
I think it's still early days. I think we will probably wait till we get to the midpoint of the year before we provide more of an update in terms of how we're modeling the cannabis impact. A lot has happened in the last 60 days. We were excited that revenue generation has commenced, but it's not enough to move the needle yet. So I think you'd probably expect that for the next quarter. We'll have both the first half of the year to speak to you and also be in a better position to indicate what we expect in the 12 months after that.
Okay. In terms of the segment margin, if we take the IFRS version of 11.2%, I guess historically under the old version, I guess, it got to as high as 15.5%, I think. I'm just looking back through my model in Q4 of '16. What -- when you say getting back to historical levels, what are you targeting, 13%, 14%, 15%? Like can you maybe just give us some sort of guidance [ there ]?
Yes. I don't think we're going to provide guidance to that extent. I mean I think you can definitely expect, based on the extent to which we added beds during the first quarter that having a full quarter at that bed level will allow us to accelerate beyond what Q1 was. We -- and we've normally provided that sort of guidance. I think just given the magnitude of the turnaround and the change sort of 3 -- Q3, Q4, Q1 this year, we wanted to give people an indication of where we're going, but I don't think we're going to guide, except that we will expect -- we expect to get better sequentially over the course of the rest of the year.
Okay. And I guess and then maybe from the division that was classified as a -- well, the surgical side, I -- of the business. Do you have any update there on the process? And I see that revenue was down. EBITDA was down year-over-year. Maybe just give us an idea what's happening on that side of the business either in terms of the business itself or the process to divest.
Sure. On the business performance, I think the -- to the extent that there's year-over-year decline, it's isolated to our False Creek facility in Vancouver. I think we had talked in previous quarters about the government, the BC government, attempts to restrict and impact the type of services done in that facility. Thankfully, we did win an injunction in November in order to preempt that action. But it did -- the uncertainty leading into November did impact the operations. So we saw a slowdown November, December that continued into the first 6 weeks of 2019. Happily, that's stabilized now and so we're in a better place, and the other facilities are performing well. But to the extent that you see any year-over-year declines, yes, you can assume it's all Vancouver. And more broadly, I think we've tried to -- since this new direction and strategic review was announced, we've tried to not comment publicly on any specific acquisition -- excuse me, divestitures. So I think we'll probably -- we'll continue that. We're happy with the progress we've made in some of the other transactions. But we'll continue to wait until a transaction is consummated before announcing it.
Okay. And the bank waivers, to the extent that you need them, they're all in place till when?
So we're currently working with our lenders right now in that process. So we'll have a better update kind of at the next quarter.
Okay. And my final question, is there any update on your investment in AceAge?
You know what, AceAge continues to ramp up. They're in full operational mode now. I think they're producing. Units are coming off the line every week. We -- a number of -- have added to the number of studies we're doing, pilots we're doing with -- in retirement homes in Canada. There's also -- they're pretty far along in terms of an international growth strategy and close to some distribution agreements elsewhere in the world. So as I said last quarter, it's still a start-up medical device, so there's still a long way to go, but fortunately, the operational -- the manufacturing process is now smoothly delivering units every week. The performance of the units has been strong. It's really now more about truly commercializing and getting units placed not just in Canada but in markets around the world.
And just as a reminder. You own 20% of that company. Is that correct?
It's just shy of 20%, 19% and change.
19.5%.
19.5%, okay. Great.
[Operator Instructions] I'm showing no further questions. I'll turn the call back over to Mr. Murphy for any closing remarks.
Thank you. Thanks to everyone for participating on today's call and for your continued interest in Centric Health. We look forward to reporting on our progress again next quarter.
Thank you. This concludes today's conference call. You may now disconnect.