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
    --  Product sales revenue of $2.4 million, down 3.4% from third quarter of
    --  Anesthesia patient cases of 94,052 increased 6.0% from third quarter
    --  Adjusted operating EBITDA of $11.8 million, down 9.3% from third quarter
    --  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
    --  The Company also completed three acquisitions and one startup joint

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 or on the Company's website at

Condensed Consolidated Balance Sheets

                                     September 30,                  December 31,

                                              2020                           2019


     Current assets:

      Cash and cash equivalents                      $
       5,099,498                 $

      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               $


     Current liabilities:

      Trade and other payables                       $
       7,449,298                 $

     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


      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               $

Condensed Consolidated Statements of Operations

            months                                 Nine
           30,                                                      30,

                                                                2020                  2019                                   2020                  2019


      Anesthesia services                                            $
        27,983,903            $
           27,966,629                $
          63,561,613   $

     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


      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)   $

      Attributable to:

      Shareholders of the
       Company                                                        $
        (337,954)              $
           982,368               $
          (5,324,264)   $

      Non-controlling interest                                                646,720                      1,116,961                            69,580           3,556,712

        308,766             $
           2,099,329               $
          (5,254,684)   $

      Earnings (loss) per share
       attributable to

     Basic                                                             $
        (0.005)                $
           0.014                   $
          (0.074)       $

     Diluted                                                           $
        (0.005)                $
           0.013                   $
          (0.074)       $

      Weighted average shares

     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

          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) $

     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


      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


      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  $

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) $

        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 $

                     Adjusted operating EBITDA

                        attributable to:

        Shareholders of the
         Company                                     $
         7,968              $
      9,392                            $
         17,520 $

        Non-controlling interest                     $
         3,877              $
      3,666                             $
         8,804 $

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


                  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

View original content:

SOURCE CRH Medical Corporation