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CRH Medical talks revenue, omits Q3 net P&L in NR
2018-10-31 17:33 ET - News Release
Mr. Edward Wright reports
CRH MEDICAL CORPORATION ANNOUNCES 2018 THIRD QUARTER RESULTS AND NEW MONITORED ANESTHESIA CARE PROGRAM
CRH Medical Corp. has released its financial results for the quarter ended Sept. 30, 2018.
In addition, CRH announced that it has entered into an exclusive agreement to develop and manage a monitored anesthesia care ("MAC") program with Digestive Health Specialists ("DHS"), in North Carolina. The Company will develop and manage the program and has an option to acquire up to 51% of the newly created anesthesia practice at a future date, no sooner than 12 months. DHS owns ambulatory surgical centers in the Winston-Salem area, consisting of a total of six procedure rooms.
Edward Wright, Chief Executive Officer of CRH commented, "We are very pleased with our strong third quarter and year to date financial and operating results. Revenue growth and operating margins remain very strong, with year to date adjusted shareholder EBITDA more than $25 million. This shows the impressive strength of our business model and ability to execute especially considering the impact of the CMS changes that went into effect on January 1, 2018." Mr. Wright continued, "We are also excited to announce our most recent MAC partnership with Digestive Health Specialists. This transaction follows the successful execution of our first MAC acquisition, which resulted in a transaction in July 2018 and furthers our goal of becoming the preeminent provider of GI anesthesia. Our infrastructure and expertise in assisting gastroenterology anesthesia practices plays a role in better patient care."
This news release should be read in conjunction with the Company's audited financial statements and management discussion and analysis for the three and nine months ended September 30, 2018 and 2017 that have been filed on SEDAR and are available at www.sedar.com and on the Company's website at www.crhmedcorp.com
Consolidated Financial Highlights (expressed in USD) Three Months Ended Sept. 30, Year-to-Date Sept. 30 2018 2017 (1) Change 2018 2017 (1) Change Anesthesia services revenue 26,073,482 19,294,005 35% 72,858,705 56,026,667 30% Product revenue 2,658,131 2,864,742 (7%) 7,868,907 8,428,735 (7%) Total revenue 28,731,593 22,158,747 30% 80,727,612 64,455,402 25% Operating expenses - adjusted(2) Anesthesia services 13,046,659 9,176,676 42% 35,565,127 26,188,105 36% Product 1,064,824 1,094,305 (3%) 3,428,884 3,273,259 5% Corporate 1,108,505 993,672 12% 2,915,197 2,822,097 3% Total operating expenses - adjusted(2) 15,219,988 11,264,653 35% 41,909,208 32,283,461 30% Total adjusted operating EBITDA(2) 13,511,605 10,894,094 24% 38,818,404 32,171,941 21% Shareholders of the Company 8,515,300 7,775,349 10% 25,176,077 22,846,790 10% Non-controlling interest 4,996,305 3,118,745 60% 13,642,327 9,325,151 46% Anesthesia patient cases serviced 71,044 49,113 45% 195,843 137,664 42%
(1)On adoption of IFRS 15, the Company restated prior year revenue and operating expenses. Refer to note 3 of the unaudited interim financial statements for the three and nine months ended September 30, 2018 for further details.
(2)Non-IFRS measure. Please refer to page 6 of this document for a reconciliation of reported results to non-IFRS measures.
Results of Operations - Three and Six Months Ended September 30, 2018
Revenues for the quarter ended September 30, 2018 were $28,731,593 compared to $22,158,747 for the three months ended September 30, 2017, an increase of $6,572,846 when compared to the three months ended September 30, 2017. Revenues for the nine months ended September 30, 2018 were $80,727,612, an increase of $16,272,210 when compared to the nine months ended September 30, 2017.
Revenues from anesthesia services for the three months ended September 30, 2018 were $26,073,462 compared to $19,294,005 for the three months ended September 30, 2017, an increase of $6,779,457. As noted below, the increase was primarily due to the Company's anesthesia acquisitions completed mid-year in 2017 and in 2018. The $6.8 million increase in revenue from the prior period is reflective of the following:
growth through acquisitions completed in 2017 and 2018 contributed $10.1 million of the increase when comparing the two periods. This is comprised of growth from acquisitions completed in 2017 ($6.2 million) and growth from acquisitions completed in 2018 ($3.9 million);
the impact of the CMS final fee schedule resulted in a decrease in revenue of approximately $1.7 million when compared to the third quarter of 2017;
executing contracts with non-contracted payors and changes in payor mix, primarily related to entities acquired in 2016 and 2017, decreased revenue in the third quarter of 2018 by $1.5 million when compared to the third quarter of 2017;
revenues relating to our monitored anesthesia care program decreased by $0.2 million as a result of the acquisition of LWA; and
the company incurred a positive adjustment as a result of a non-recurring change in estimate of $0.1 million.
Anesthesia revenues for the nine months ended September 30, 2018 were $72,858,705 compared to $56,026,667 for the nine months ended September 30, 2017, an increase of $16,832,038. The $16.8 million increase in revenue from the prior period is reflective of the following: growth through acquisitions completed in 2017 and 2018 contributed $25.0 million of the increase when comparing the two periods. This is comprised of growth from acquisitions completed in 2017 ($18.6 million) and growth from acquisitions completed in 2018 ($6.4 million);
the impact of the CMS final fee schedule resulted in a decrease in revenue of approximately $5.0 million when compared to the first nine months of 2017;
executing contracts with non-contracted payors and changes in payor mix, primarily related to entities acquired in 2016 and 2017, decreased revenue in the first nine months of 2018 by $3.8 million when compared to the first nine months of 2017;
a positive adjustment as a result of the change in the impact of revenue estimates of $0.6 million; and
revenue growth from our exclusive agreement to develop and manage a monitored anesthesia care program with Puget Sound Gastroenterology of approximately $0.1 million.
As adjusted operating expenses are largely fixed in nature, changes in revenue primarily drive changes in operating income and adjusted operating EBITDA.
In the three months ended September 30, 2018, the anesthesia services segment serviced 71,044 patient cases compared to 49,113 patient cases during the three months ended September 30, 2017. In the nine months ended September 30, 2018, the anesthesia services segment serviced 195,843 patient cases compared to 137,664 patient cases during the nine months ended September 30, 2017.
Revenues from product sales for the three months ended September 30, 2018 were $2,658,131 compared to $2,864,742 for the third quarter of 2017. Revenues from product sales for the nine months ended September 30, 2018 were $7,868,907 compared to $8,428,735 for the nine months ended September 30, 2017. The decrease in product sales is the result of decreased sales of the CRH O'Regan System at previously trained practices due to changes in practice emphasis and to a lesser extent the introduction of competitive products. We have initiated additional practice support initiatives, including a greater emphasis on re-training physicians in practices where usage has decreased. Additionally, we plan to increase marketing support to enhance awareness of the CRH O'Regan System to both patients and physicians. The Company continues to successfully execute on the Company's direct to physician program that allows physicians to purchase our hemorrhoid banding technology, treatment protocols, marketing and operational experience. As of September 30, 2018, the Company has trained 2,869 physicians to use the O'Regan System, representing 1,099 clinical practices. This compares to 2,620 physicians trained, representing 1,011 clinical practices, as of September 30, 2017.
For the three months ended September 30, 2018, total adjusted operating expenses were $15,219,988 compared to $11,264,653 for the three months ended September 30, 2017. For the nine months ended September 30, 2018, total adjusted operating expenses were $41,909,208 compared to $32,283,461 for the nine months ended September 30, 2017. Increases in adjusted operating expenses are primarily related to adjusted operating expenses in the anesthesia services business. Factors impacting the fluctuation of total adjusted operating expenses are consistent with those impacting operating expenses.
Anesthesia services adjusted operating expenses for the three months ended September 30, 2018 were $13,046,659, compared to $9,176,676 for the three months ended September 30, 2017. Anesthesia services adjusted operating expenses for the nine months ended September 30, 2018 were $35,565,127, compared to $26,188,105 for the nine months ended September 30, 2017. Anesthesia services adjusted operating expenses primarily include labor related costs for Certified Registered Nurse Anesthetists and MD anesthesiologists, billing and management related expenses, medical drugs and supplies and other related expenses. The Company's first anesthesia acquisition was in the fourth quarter of 2014, with eighteen further acquisitions completed in 2015, 2016, 2017 and 2018. As a result, the third quarter of 2018 and the respective year to date period is not directly comparable to 2017, with the majority of the increase relating to operating expenses for acquired companies. Though quarterly revenue may fluctuate significantly, quarterly adjusted operating expenses, which are primarily employee related costs, due to their fixed nature, increase as a result of the Company's acquisition strategy. Total adjusted operating expenses per case for the anesthesia segment were $184 and $182 per case for the three and nine months ended September 30, 2018, respectively, as compared to $187 and $190 per case for the three and nine months ended September 30, 2017, respectively. The decrease in expense per case is reflective of the leverage of our existing infrastructure and the cost profile of acquisitions completed subsequent to June 30, 2017.
Product sales adjusted operating expenses for the three months ended September 30, 2018 were $1,064,824 compared to $1,094,305 for the three months ended September 30, 2017. Product sales adjusted operating expenses for the nine months ended September 30, 2018 were $3,428,884 compared to $3,273,259 for the nine months ended September 30, 2017. Employment and related costs have remained consistent with the third quarter of 2017, with the increase relating to higher product support costs, specifically related to marketing and training. In the future, the Company expects adjusted operating expenses to increase as the Company continues to invest in activities aimed at increasing demand for training and use of the CRH O'Regan System.
Corporate adjusted operating expenses for the three months ended September 30, 2018 were $1,108,505 compared to $993,672 for the three months ended September 30, 2017. Corporate adjusted operating expenses for the nine months ended September 30, 2018 were $2,915,197 compared to $2,822,097 for the nine months ended September 30, 2017. The increase in corporate adjusted operating expense is a reflection of higher professional fees and employee related costs when compared to the third quarter of 2017. We expect corporate adjusted operating expenses to increase as the Company performs additional activities in relation to the loss of its foreign private issuer status.
Adjusted operating EBITDA attributable to shareholders of the Company for the three months ended September 30, 2018 was $8,515,300, an increase of $739,951 from the three months ended September 30, 2017. Adjusted operating EBITDA attributable to shareholders of the Company for the nine months ended September 30, 2018 was $25,176,077 an increase of $2,329,287 from the nine months ended September 30, 2017. The increases in adjusted operating EBITDA attributable to shareholders is primarily a reflection of the contributions from acquisitions completed in 2017 and 2018, offset by the impacts of the CMS final rule, and the impact of moving from non-contracted to in contract status for commercial payors. Adjusted operating EBITDA is also favourably impacted by the decrease in adjusted anesthesia operating expense per case.
Adjusted operating EBITDA attributable to non-controlling interest was $4,996,305 for the three months ended September 30, 2018. This comprises the non-controlling interests' share of revenues of $8,663,660 and adjusted operating expenses of $3,667,355. Adjusted operating EBITDA attributable to non-controlling interest was $13,642,327 for the nine months ended September 30, 2018. This comprises the non-controlling interests' share of revenues of $23,354,450 and adjusted operating expenses of $9,712,123.
Total adjusted operating EBITDA was $13,511,605 for the three months ended September 30, 2018, an increase of $2,617,511 from the same period in 2017. Total adjusted operating EBITDA was $38,818,404 for the nine months ended September 30, 2018, an increase of $6,646,463 from the same period in 2017.
At September 30, 2018, the Company had $6,832,560 in cash and cash equivalents compared to $12,486,884 at the end of 2017. The decrease in cash and equivalents is primarily a reflection of cash generated from operations, timing of distributions to non-controlling shareholders and payments in respect of normal course issuer bid repurchases, acquisitions in the period, debt and tax payments made during the nine months ended September 30, 2018.
Working capital was $13,411,824 compared to working capital of $20,102,948 at December 31, 2017. The Company expects to meet its short-term obligations, including short-term obligations in respect of its notes payable, deferred consideration and earn-out obligation through cash earned through operating activities. The average number of days receivables outstanding at September 30, 2018 was 53 days. Excluding the Company's most recent acquisitions, WOSA, SSA, LWA and LESA, days receivable outstanding remained at 53 days outstanding. At December 31, 2017, the average number of days receivables outstanding was 42 days. Impacting the days receivable outstanding as of September 30, 2018 is the implementation of the new CMS billing codes in the first quarter of 2018, which resulted in delays in the processing of payments by payors. This has had a continued impact in the third quarter of the year, but is expected to improve.