CRH Medical Corporation Announces 2020 Third Quarter Results
VANCOUVER, BC, Nov. 12, 2020 /PRNewswire/ - CRH Medical Corporation (TSX: CRH) (NYSE MKT: CRHM) ("CRH" or the "Company"), today announced financial and operating results for the three months ended September 30, 2020.
Third quarter 2020 highlights:
-- Total revenue of $30.3 million, down 0.2% from third quarter 2019
-- Anesthesia services revenue of $28.0 million, up 0.1% from third quarter
2019
-- Product sales revenue of $2.4 million, down 3.4% from third quarter of
2019
-- Anesthesia patient cases of 94,052 increased 6.0% from third quarter
2019
-- Adjusted operating EBITDA of $11.8 million, down 9.3% from third quarter
2019
-- Adjusted operating shareholder EBITDA of $8.0 million, a decrease of
15.2% from third quarter 2019
-- Through the first nine months of 2020, the Company generated $24.8
million in cash from operating activities and $16.1 million in free cash
flow
-- The Company also completed three acquisitions and one startup joint
venture
Tushar Ramani, Chair and Chief Executive Officer of CRH, commented: "Although COVID-19 continued to exert a negative impact upon both of our business segments in the third quarter, we were encouraged by the 125% increase in anesthesia revenue and the 104% increase in O'Regan revenue as compared to Q2 2020. We remain confident in our ability to execute against our key business initiatives in order to extend and augment our growth trajectory."
Conference Call
CRH will host a conference call to discuss its results on Friday, November 13, 2020, at 8:30 am ET (5:30 am PT). To participate in the conference, please dial 1-888-664-6392, or 1-416-764-8659 and reference confirmation #64836562. An audio replay will be available shortly after the call by dialing 1-888-390-0541 or 1-416-764-8677 and entering access code 836562#. The replay will be available for two weeks after the call.
About CRH Medical Corporation:
CRH Medical Corporation is a North American company focused on providing gastroenterologists throughout the United States with innovative services and products for the treatment of gastrointestinal diseases. In 2014, CRH became a full-service gastroenterology anesthesia company that provides anesthesia services for patients undergoing endoscopic procedures in ambulatory surgical centers. To date, CRH has completed 30 anesthesia acquisitions, and now serves 66 ambulatory surgical centers in 13 states. In addition, CRH owns the CRH O'Regan System, a single-use, disposable, hemorrhoid banding technology that is safe and highly effective in treating all grades of hemorrhoids. CRH distributes the O'Regan System, treatment protocols, operational and marketing expertise as a complete, turnkey package directly to gastroenterology practices, creating meaningful relationships with the gastroenterologists it serves. CRH's O'Regan System is currently used in all 48 lower US states.
Non-GAAP Measures
This press release makes reference to certain non-GAAP financial measures including adjusted operating EBITDA (in total and broken down as attributable to non-controlling interest and shareholders of the Company) and adjusted operating EBITDA margin as supplemental indicators of its financial and operating performance. Adjusted operating EBITDA is defined as operating income before interest, taxes, depreciation, amortization, stock based compensation, acquisition related expenses and asset impairment charges. Adjusted operating EBITDA margin is defined as operating earnings before interest, taxes, depreciation, amortization, stock based compensation, acquisition related expenses and asset impairment charges as a percentage of revenue. These non-GAAP measures are not recognized measures under US Generally Accepted Accounting Principles ("US GAAP") and do not have a standardized meaning prescribed by US GAAP and thus the Company's definition may be different from and unlikely to be comparable to non-GAAP measures presented by other companies. These measures are provided as additional information to complement US GAAP measures by providing further understanding of the Company's results of operations from management's perspective. Accordingly, they should not be considered in isolation nor as a substitute for analyses of the Company's financial information reported under US GAAP. Management uses non-GAAP measures such as adjusted operating EBITDA and adjusted operating EBITDA margin to provide investors with a supplemental measure of the Company's operating performance and thus highlight trends in the Company's core business that may not otherwise be apparent when relying solely on US GAAP financial measures. Management also believes that securities analysts, investors and other interested parties frequently use non-GAAP measures in the evaluation of issuers. In addition, management uses these non-GAAP measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets, and to assess its ability to meet future debt service, capital expenditure, and working capital requirements. A quantitative reconciliation of adjusted operating EBITDA, and operating EBITDA margin to the most directly comparable measures under US GAAP is presented below.
Cautionary Note Regarding Forward-looking Statements
Information included or incorporated by reference in this press release may contain forward-looking statements. This information may involve known and unknown risks, uncertainties, and other factors which may cause our actual results, performance, or achievements to be materially different from the future results, performance, or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our future plans, strategies, and expectations, are generally identifiable by use of the words "may," "will," "should," "expect," "anticipate," "estimate," "believe," "plan," "intend" or "project" or the negative of these words or other variations on these words or comparable terminology. Certain risks underlying our assumptions are highlighted below; if risks materialize, or if assumptions prove otherwise to be untrue, our results will differ from those suggested by our forward looking statements and our results and operations may be negatively affected. Forward looking statements in this press release include statements regarding the Company's future growth. Actual events or results may differ materially from those discussed in forward-looking statements. There can be no assurance that the forward-looking statements currently contained in this report will in fact occur. The Company bases its forward-looking statements on information currently available to it. The Company disclaims any intent or obligations to update or revise publicly any forward-looking statements whether as a result of new information, estimates or options, future events or results or otherwise, unless required to do so by law.
Forward-looking information reflects current expectations of management regarding future events and operating performance as of the date of this document. Such information involves significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in forward-looking information, including, without limitation: Our ability to predict developments in the COVID-19 pandemic and its impact to our operations; changes to payment rates or methods of third-party payors, including United States government healthcare programs, changes to the United States laws and regulations that regulate payments for medical services, the failure of payment rates to increase as our costs increase, or changes to our payor mix, could adversely affect our operating margins and revenues; We are subject to decreases in our revenue and profit margin under our fee for service contracts and arrangements, where we bear the risk of changes in volume, payor mix, radiology, anesthesiology, and pathology benefits, and third-party reimbursement rates; We may or may not successfully identify and complete corporate transactions on favorable terms or achieve anticipated synergies relating to any acquisitions or alliances, and such acquisitions could result in unforeseen operating difficulties and expenditures, or require significant management resources and significant charges; Our senior management has been key to our growth, and we may be adversely affected if we lose any member of our senior management; ASCs or other customers may terminate or choose not to renew their agreements with us; If we are unable to maintain or increase anesthesia procedure volumes at our existing ASCs, the operating margins and profitability of our anesthesia segment could be adversely affected; We may not be able to successfully recruit and retain qualified anesthesia service providers or other independent contractors; We may be unable to enforce the non-competition and other restrictive covenants in our agreements; We operate in an industry that is subject to extensive federal, state, and local regulation, and changes in law and regulatory interpretations; Changes in the medical industry and the economy may affect the Company's business; Our failure to comply with U.S. federal and state fraud and abuse laws, including anti-kickback laws and other U.S. federal and state anti-referral laws, could have a material, adverse impact on our business; A significant number of our affiliated physicians could leave our affiliated ASCs; Our industry is already competitive and could become more competitive; Unfavorable economic conditions could have an adverse effect on our business; The Company may not be successful in marketing its products and services; Failure to manage third-party service providers may adversely affect our ability to maintain the quality of service that we provide; Congress or states may enact laws restricting the amount out-of-network providers of services can charge and recover for such services; Adverse events related to our product or our services may subject us to risks associated with product liability, medical malpractice or other legal claims, insurance claims, product recalls and other liabilities, which may adversely affect our operations; Our dependence on suppliers could have a material adverse effect on our business, financial condition and results of operations; We may need to raise additional capital to fund future operations; We are subject to various restrictive covenants and events of default under the Credit Facilities; The Affordable Care Act ("ACA") and potential changes to it may have a significant effect on our business; The Medicare Access and CHIP Reauthorization Act of 2015 ("MACRA") and potential changes to it may have a significant effect on our business; Government authorities or other parties may assert that our business practices violate antitrust laws; If regulations or regulatory interpretations change, we may be obligated to re-negotiate agreements of our anesthetists, anesthesiologists or other contractors; Despite current indebtedness levels, we may still be able to incur substantially more debt, which could further exacerbate the risks associated with increased leverage; Failure to timely or accurately bill for services could have a negative impact on our net revenue, bad debt expense and cash flow; If we or some of our suppliers fail to comply with the FDA's Quality System Regulation and other applicable requirements, our manufacturing or processing operations could be disrupted, our sales and profitability could suffer, and we may become subject to a wide variety of FDA enforcement actions; If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, shareholders could lose confidence in our financial and other public reporting, which would harm our business and the trading price of our common shares; Our industry is the subject of numerous governmental investigations into marketing and other business practices which could result in the commencement of civil and/or criminal proceedings, substantial fines, penalties, and/or administrative remedies, divert the attention of our management, and have an adverse effect on our financial condition and results of operations; We may write-off intangible assets; If we are unable to manage growth, we may be unable to achieve our expansion strategy; The continuing development of our products and provision of our services depends upon us maintaining strong relationships with physicians; Significant shareholders of the Company could influence our business operations, and sales of our shares by such significant shareholders could influence our share price; We have a legal responsibility to the minority owners of the entities through which we own our anesthesia services business, which may conflict with our interests and prevent us from acting solely in our own best interests; Our common shares may be subject to significant price and volume fluctuations; Unfavorable changes or conditions could occur in the states where our operations are concentrated: We may be subject to a variety of regulatory investigations, claims, lawsuits, and other proceedings; Our anesthesia employees and third-party contractors may not appropriately record or document services that they provide; If we are unable to adequately protect or enforce our intellectual property, our competitive position could be impaired; If there is a change in federal or state laws, rules, regulations, or in interpretations of such federal or state laws, rules or regulations, we may be required to redeem our physician partners' ownership interests in anesthesia companies under the savings clause in our joint venture operating agreements; Our employees and business partners may not appropriately secure and protect confidential information in their possession; Failure to protect our information technology infrastructure against cyber-based attacks, network security breaches, service interruptions or data corruption could significantly disrupt our operations and adversely affect our business and operating results; If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our share price and trading volume could decline; We may be subject to criminal or civil sanctions if we fail to comply with privacy regulations regarding the protection, use and disclosure of patient information; Evolving regulation of corporate governance and public disclosure may result in additional expenses and continuing uncertainty; Anti-takeover provisions could discourage a third party from making a takeover offer that could be beneficial to our shareholders; We are an "emerging growth company" and a "smaller reporting company," and any decision on our part to comply only with certain reduced reporting and disclosure requirements applicable to such companies could make our common shares less attractive to investors; We do not intend to pay dividends on our common shares, and, consequently, your ability to achieve a return on your investment will depend on appreciation, if any, in the price of our common shares; Tax reform could have a material adverse effect on us; Income tax audits and changes in our effective income tax rate could affect our results of operations; The patent protection for our products may expire before we are able to maximize their commercial value, which may subject us to increased competition and reduce or eliminate our opportunity to generate revenues; and We may face exposure to adverse movements in foreign currency exchange rates.
For a complete discussion of the Company's business including the assumptions and risks set out above, see the Company's Form 10-K Annual Report, which is available on EDGAR at www.sec.gov/edgar.shtml or on the Company's website at www.crhmedcorp.com.
Condensed Consolidated Balance Sheets
(unaudited)
September 30, December 31,
2020 2019
Assets
Current assets:
Cash and cash equivalents $
5,099,498 $
6,568,716
Trade and other receivables,
net 20,358,880 20,041,288
Income tax receivable 3,252,973 1,332,129
Loan to equity investment 1,000
Prepaid expenses and deposits 426,589 729,483
Inventories, finished goods 296,070 349,324
29,435,010 29,020,940
Non-current assets:
Property and equipment, net 201,959 251,933
Right of use asset 1,094,732 214,854
Intangible assets, net 168,325,328 163,108,193
Deferred asset acquisition
costs 228,777 59,249
Investment 2,016,076
Deferred tax assets 12,945,311 10,440,100
184,812,183 174,074,329
Total assets $
214,247,193 $
203,095,269
Liabilities
Current liabilities:
Trade and other payables $
7,449,298 $
6,196,741
Employee benefits 786,115 992,845
Income tax payable 28,589
Current portion of lease
liability 241,742 125,555
Deferred consideration 1,868,052
Earn-out obligation 686,973 1,063,060
Contract payable -CMS Advance 1,808,952
Member loan 220,880 68,600
11,193,960 10,343,442
Non-current liabilities:
Lease liability 865,372 54,300
Contract payable -CMS Advance 91,636
Contingent liability 2,617,110
Notes payable and bank
indebtedness 74,997,205 68,380,345
Deferred tax liabilities 23,786 101,822
78,595,109 68,536,467
Equity
Common stock, no par value;
71,461,684 and 71,603,584
shares issued and outstanding
at September 30, 2020 and
December 31, 2019,
respectively 56,268,562 56,056,113
Additional paid-in capital 8,648,801 7,168,156
Accumulated other
comprehensive loss (66,772) (66,772)
Retained earnings 7,423,053 13,154,981
Total equity attributable to
shareholders of the Company 72,273,644 76,312,478
Non-controlling interest 52,184,480 47,902,882
Total equity 124,458,124 124,215,360
Total liabilities and equity $
214,247,193 $
203,095,269
Condensed Consolidated Statements of Operations
(unaudited)
Three
months Nine
months
ended
ended
September
September
30, 30,
2020 2019 2020 2019
Revenue:
Anesthesia services $
27,983,903 $
27,966,629 $
63,561,613 $
82,685,905
Product sales 2,365,549 2,448,174 5,827,537 7,330,147
30,349,452 30,414,803 69,389,150 90,016,052
Expenses:
Anesthesia services
expense 26,963,897 23,774,049 70,580,981 69,804,891
Product sales expense 1,080,861 1,089,316 3,025,258 3,441,207
Corporate expense 2,219,867 1,838,812 6,344,402 4,645,347
30,264,625 26,702,177 79,950,641 77,891,445
Operating income (loss) 84,827 3,712,626 (10,561,491) 12,124,607
Net finance expense 441,967 1,125,410 1,386,007 5,696,343
(Gain) loss from equity
investment (77,278) 37,839 (416,584)
Other income (289,669) (5,146,488)
Income (loss) before tax (67,471) 2,664,494 (6,838,849) 6,844,848
Income tax expense
(recovery) (376,237) 565,165 (1,584,165) 736,052
Net and comprehensive
income (loss) $
308,766 $
2,099,329 $
(5,254,684) $
6,108,796
Attributable to:
Shareholders of the
Company $
(337,954) $
982,368 $
(5,324,264) $
2,552,084
Non-controlling interest 646,720 1,116,961 69,580 3,556,712
$
308,766 $
2,099,329 $
(5,254,684) $
6,108,796
Earnings (loss) per share
attributable to
shareholders
Basic $
(0.005) $
0.014 $
(0.074) $
0.036
Diluted $
(0.005) $
0.013 $
(0.074) $
0.035
Weighted average shares
outstanding:
Basic 71,506,045 71,831,356 71,558,371 71,845,812
Diluted 71,506,045 72,799,142 71,558,371 73,023,144
Condensed Consolidated Statements of Cash Flows
(unaudited)
Three months ended Nine months ended
September 30, September 30,
2020 2019 2020 2019
Operating activities:
Net income (loss) $
308,766 $
2,099,329 $
(5,254,684) $
6,108,796
Adjustments for:
Depreciation of property, equipment
and intangibles 10,760,397 8,555,909 29,686,467 25,974,283
Stock-based compensation 652,967 706,479 1,900,960 280,348
Unrealized foreign exchange 6,144 (50) 7,745 726
Deferred income tax recovery (968,387) (776,300) (2,358,260) (2,749,616)
Change in fair value of contingent
consideration (96,294) 181,805 (376,087) 2,771,238
Accretion on contingent
consideration and deferred 15,925 10,145 32,833 123,305
consideration
Amortization of deferred financing
fees 90,411 65,091 269,424 195,273
(Gain) loss from equity investment (77,278) 37,839 (416,584)
Change in current tax receivable (1,699,529) (17,826) (2,174,418) (154,474)
Change in trade and other
receivables (820,666) (182,433) (317,593) (102,733)
Change in prepaid expenses 102,542 (59,218) 302,894 268,162
Change in inventories (31,017) 153,837 53,254 45,309
Change in trade and other payables,
including contract (640,539) (83,936) 3,192,069 91,726
payable
Change in employee benefits 135,957 135,609 (206,730) 234,120
Net cash provided by operating
activities 7,816,677 10,711,163 24,795,713 32,669,879
Financing activities
Proceeds from (repayment of) member
loans (28,100) (14,375) 152,280 (18,375)
Equity investment loan (1,000) (1,000)
Repayment of short-term advances (26,783)
Payment of deferred consideration (64,827) (1,896,850) (1,100,000)
Payment of contingent consideration (4,795,822)
Repayment of notes payable and bank
indebtedness (1,500,000) (5,625,000) (9,500,000) (13,175,000)
Proceeds from bank indebtedness 11,006,750 7,000,000 16,006,750 11,300,000
Proceeds from exercise of stock
options 6,753 10,680 426,366
Payment of deferred financing fees (125,000) (159,314)
Distributions to non-controlling
interest (3,952,150) (3,615,819) (8,688,260) (11,804,480)
Repurchase of shares for
cancellation (296,600) (1,109,170) (652,165) (3,982,914)
Acquisition of equity interest from
non-controlling interest (7,018,658) (9,434,009)
Net cash provided by (used in)
financing activities 5,039,073 (10,376,269) (4,727,879) (32,611,017)
Investing activities
Acquisition of property and
equipment (10,957) (4,834) (32,829) (45,681)
Deferred asset acquisition costs 56,488 38,437 (191,934) (440)
Distribution received from equity
investment 92,400 92,400
Purchase adjustment relating to
anesthesia service providers 4,366,000 4,366,000
acquired in prior periods
Acquisition of cost investment (2,016,076) (2,016,076)
Acquisition of anesthesia services
providers (11,024,903) (2,174,003) (19,296,746) (9,204,437)
Net cash provided by (used in)
investing activities (12,995,448) 2,318,000 (21,537,585) (4,792,158)
Effects of foreign exchange on cash
and cash equivalents 2,134 (270) 533 1,395
Decrease in cash and cash
equivalents (137,564) 2,652,624 (1,469,218) (4,731,901)
Cash and cash equivalents,
beginning of period 5,237,062 2,562,420 6,568,716 9,946,945
Cash and cash equivalents, end of
period $
5,099,498 $
5,215,044 $
5,099,498 $
5,215,044
Adjusted EBITDA Reconciliation
(in thousands, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
(USD in thousands) 2020 2019 2020 2019
---
Net and comprehensive
income (loss) $
309 $
2,099 $
(5,254) $
6,109
Net finance expense 442 1,125 1,386 5,696
(Gain) loss on equity
investment (77) 38 (416)
Income tax expense
(recovery) (376) 565 (1,584) 736
Other income -government
assistance (290) (5,147)
Operating income (loss) 85 3,713 (10,561) 12,125
Amortization expense 10,735 8,528 29,604 25,892
Depreciation and related
expense 26 28 83 82
Stock based compensation 653 706 1,901 280
Acquisition expenses(1) 57 83 87 123
Inventory write-downs 65
Other non-recurring
items(2) 931
Other income -government
assistance 290 5,147
Total adjusted operating
EBITDA $
11,845 $
13,058 $
26,324 $
39,433
Adjusted operating EBITDA
attributable to:
Shareholders of the
Company $
7,968 $
9,392 $
17,520 $
27,819
Non-controlling interest $
3,877 $
3,666 $
8,804 $
11,615
Adjusted Operating Expense Reconciliation
(in thousands, unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2020 2019 2020 2019
Anesthesia services expense 26,964 23,774 70,581 69,804
Amortization expense (10,734) (8,527) (29,602) (25,890)
Depreciation and related
expense (3) (3) (11) (9)
Stock based compensation (148) (125) (349) (359)
Acquisition expenses(1) (57) (83) (87) (123)
Anesthesia services - adjusted
operating 16,022 15,036 40,532 43,424
expense
Product sales expense 1,081 1,089 3,025 3,440
Amortization expense (1) (1) (1) (2)
Depreciation and related
expense (5) (5) (15) (19)
Stock based compensation (95) (82) (210) (236)
Inventory write-downs (65)
Product sales -adjusted
operating expense 980 1,002 2,733 3,186
Corporate expense 2,220 1,839 6,345 4,645
Amortization expense
Depreciation and related
expense (18) (20) (57) (55)
Stock based compensation (410) (500) (1,343) 313
Other non-recurring items (931)
Corporate -adjusted operating
expenses 1,792 1,319 4,945 3,974
Total operating expense 30,265 26,702 79,951 77,891
Total adjusted operating
expense 18,794 17,357 48,211 50,583
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SOURCE CRH Medical Corporation
