VANCOUVER, Feb. 13, 2015 /CNW/ – CRH Medical Corporation (TSX: CRH) (OTCQX: CRMMF) (“CRH” or the “Company”), a North American medical company focused on providing physicians with innovative products and services for the treatment of gastrointestinal diseases, today announced its audited financial results for the year ended December 31, 2014. These results reflect the full year of existing operations derived from the CRH O’Regan System and one month of financial results from the anesthesia services business CRH acquired in December 2014. All financial results are expressed in U.S. dollars.
2014 Financial Highlights
(All amounts in US$)
“2014 was another year of record revenue for the CRH O’Regan System. The continued strong performance of the CRH O’Regan System, and the relationships we have created within the US gastroenterology community, enabled the Company to significantly expand our offerings by acquiring Gastroenterology Anesthesia Associates, LLC,” said Edward Wright, Chief Executive Officer of CRH. “The acquisition of GAA is the first of many acquisitions we are pursuing in our anesthesia business and marks the start of an exciting new opportunity that we expect will significantly increase revenue and operating EBITDA. We look forward to continued growth in each of our business lines over the next fiscal year.”
Launch of CRH Anesthesia Services
On December 1, 2014, CRH, through a wholly owned subsidiary, acquired the business, assets interests, and related management services agreements of Gastroenterology Anesthesia Associates, LLC (“GAA”), a leading provider of anesthesia services for gastroenterology procedures in the United States. The acquisition of GAA further aligns CRH with gastroenterologists that either are, or could be, customers of CRH. “As part of the acquisition of GAA, CRH acquired the expertise, skills and exemplary track record from which to pursue a strategy of consolidating additional anesthesia groups,” commented Richard Bear, Chief Financial Officer of CRH. “We believe this new platform has the potential to not only grow revenues via future accretive acquisitions but also through organic growth of the acquired business.”
On a pro forma basis, assuming CRH operated GAA from January 1, 2014 through December 31, 2014, the Company would have reported total revenue of $43.1 million and operating EBITDA1 of $22.7 million.
2014 Financial Results
Revenues for the year ended December 31, 2014 were $11,984,170 compared to $7,682,628 for the year ended December 31, 2013. Revenues from product sales for the year ended December 31, 2014 were $8,598,097 compared to $7,682,628 for the year ended December 31, 2013. The 12% increase in product sales is the result of the continuing successful execution of the Company’s direct to physician program that provides physicians the ability to purchase our hemorrhoid banding technology, treatment protocols, marketing and operational experience. As of December 31, 2014 the Company had trained 1,916 physicians to use the CRH O’Regan System, representing 701 clinical practices, which compares to 1,650 physicians trained, representing 580 clinical practices, as of December 31, 2013. In the future, the Company expects revenue from product sales to continue to increase as CRH expands its physician network and increases physician use of CRH’s technology. Revenues from anesthesia services from December 1, 2014, the effective date of acquisition of GAA, through December 31, 2014 were $3,386,073. Based on GAA’s historical information, December represents approximately 10% of GAA total annual revenue. In the future, the Company expects anesthesia revenue to increase through organic growth and through additional acquisitions.
For the year ended December 31, 2014, total operating expenses – adjusted2 was $7,288,075 compared to $5,566,065 for fiscal 2013, an increase of $1,722,010.
Product sales operating expenses – adjusted2 for the year ended December 31, 2014 was $3,868,830 compared to $4,012,358 for the year ended December 31, 2013. The decrease in expenses related to the Company’s clinical sales program which was scaled down during the fourth quarter of 2013 and thus the full effect of the scale down was experienced in 2014. Also contributing to the decrease in product sales expenses is the Company’s decision, effective February 17, 2014, to begin invoicing customers for the 2.3% medical device excise tax. Prior to February 17, 2014 the Company was expensing the cost of the medical device excise tax. Product sales expenses primarily include employee wages, product cost and support, marketing programs, office expenses, professional fees, and insurance. In the future, the Company expects operating expenses – adjusted1 to increase as the Company continues to invest in activities designed to increase demand for training and use of the CRH O’Regan System. Anesthesia services operating expenses – adjusted1 for the year ended December 31, 2014 was $1,255,193. Anesthesia services expenses primarily include labor related cost for the medical director and certified registered nurse anesthetists, medical drugs and supplies, and billing and management related expenses. Corporate operating expenses – adjusted1 for the year ended December 31, 2014 was $2,164,052 compared to $1,553,707 for the year ended December 31, 2013. This reflects a growth in expenses in 2014 of $610,345. The growth in corporate expenses is primarily the result of an increase in employee related expenses and professional fees. In the future, the Company expects corporate expenses to marginally increase in support of Company’s expanded service offering.
Operating EBITDA2 for the year was $4,696,095, an increase of $2,579,532. This is primarily a reflection of GAA’s contribution during the month of December 2014, offset by net increases in product and corporate operating expenses.
Operating income for the year ended December 31, 2014 was $2,977,893 compared to $1,799,795 for the year ended December 31, 2013, an increase of $1,178,098. Contributing to the improved operating income is the increase in total Operating EBITDA2 of $2,579,532, less costs related to the acquisition of GAA, including the amortization of acquired professional service agreements of $458,070 and acquisition related expenses of $845,336.
The GAA acquisition was financed by cash on hand along with senior and subordinated credit facilities from Knight Therapeutics Inc. and affiliates of Crown Capital Partners Inc., in the amounts of $30,000,000 and CAD$22,500,000 ($USD19,863,000) respectively, as well as a loan from Bloom Burton Healthcare Structured Lending Fund II and a private placement of the Company’s common shares. As a result of the debt acquired to fund the GAA acquisition, the Company has recorded finance expense of $1,623,459 during the year. Net finance expense is comprised of both interest and other debt related expenses, as well as foreign exchange gains and losses experienced on the portion of our debt which is denominated in Canadian dollars. In the year ended December 31, 2014, the Company recorded an exchange gain of $410,208 in relation to this Canadian dollar debt. Excluding the impact of the exchange gain, the finance expense for the period was $2,033,667.
For the year ended December 31, 2014, the Company recorded net income of $1,498,153 ($0.031 basic and $0.030 diluted income per share) compared to a net income of $2,492,646 ($0.051 basic and diluted income per share) for the year ended December 31, 2013. The decrease in net income year over year is largely a reflection of the net finance expense recorded in 2014 and other expenses related to the acquisition of GAA.
About CRH Medical Corporation:
CRH Medical Corporation is a North American company focused on providing physicians with innovative products and services for the treatment of gastrointestinal diseases. The Company’s product distribution strategy focuses on physician education, patient outcomes, and patient awareness. The Company’s first product, the CRH O’Regan System, is a single use, disposable, hemorrhoid banding technology that is safe and highly effective in treating hemorrhoid grades I – IV. CRH distributes the CRH O’Regan System, treatment protocols, operational and marketing expertise as a complete, turnkey package directly to physicians, allowing CRH to create meaningful relationships with the physicians it serves. CRH recently acquired a full service gastroenterology anesthesia company, Gastroenterology Anesthesia Associates, LLC, which provides anesthesia services for patients undergoing endoscopies and colonoscopies. Performing these procedures under anesthetic makes these procedures more comfortable for patients and allows gastroenterologists to perform more procedures. CRH expects to leverage the capabilities it acquired through GAA to consolidate the highly fragmented gastroenterology anesthesia provider business. The Company’s goal is to establish CRH as the premier provider of innovative products and essential services to gastroenterologists throughout the United States.
This press release makes reference to certain non-IFRS measures. These non-IFRS measures are not recognized measures under IFRS and do not have a standardized meaning prescribed by IFRS, and are therefore unlikely to be comparable to similar measures presented by other companies. When used, these measures are defined in such terms as to allow the reconciliation to the closest IFRS measure. These measures are provided as additional information to complement those IFRS 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 IFRS. Management uses non-IFRS measures such as operating expenses – adjusted and operating EBITDA 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 IFRS financial measures. Management also believes that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers. Management also uses non-IFRS 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.
The non-IFRS measures are reconciled to reported IFRS figures in the tables below:Operating EBITDA
Operating expenses – adjusted
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. Readers are cautioned regarding statements discussing profitability; growth strategies; anticipated trends in our industry; our future financing plans; and our anticipated needs for working capital. Forward looking statements in this press release include statements regarding additional acquisitions, increasing revenue and operating EBITDA, continued growth of our business and leveraging our capabilities. 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 press release will in fact occur. The Company bases its forward-looking statements on information currently available to it, and assumes no obligation to update them. 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 press release. 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 estimates of the growth of business and revenues, our financial estimates and assumptions, we may not continue to attract gastroenterologists and other licensed providers to purchase and use the CRH O’Regan System; we may not be able to successfully recruit and retain qualified clinicians to provide anesthesia services; our need for additional financing and our estimates regarding our capital requirements and future revenues and profitability; our ability to make interest and principal payment on our debt; our debt agreements contain restrictions that limit our flexibility in operating our business; our ability to successfully market and sell our products and services; our estimates of the size of the potential markets for our products and services; we may be subject to competition and technological risk which may impact the price and amount of the CRH O’Regan System product we can sell; our ability to and the cost of compliance with extensive existing regulation and any changes or amendments thereto; government-funded programs or private insurers may limit, reduce or make retroactive adjustments to reimbursement amounts or rates; we may not be able to collect reimbursements for our services from third-party payors in a timely manner; the Affordable Care Act may have a significant effect on our business; changes in key United States federal or state laws, rules, and regulations; the healthcare industry is highly regulated, and government authorities may determine that we have failed to comply with applicable laws, rules or regulations; our ability to establish, maintain and defend intellectual property rights in our products; our ability and forecasts of expansion and the Company’s management of anticipated growth; our senior management has been key to our growth and we may be adversely affected if we are unable to retain, conflicts of interest develop or we lose any key member of our senior management; risks associated with manufacture of our products and our economic dependence on suppliers; changes in the industry and the economy may affect the Company’s business; evolving regulation of corporate governance and public disclosure may result in additional corporate expenses; adverse events relating to our product or services could result risks relating to in product liability, medical malpractice, insurance and product recalls; risks associated with use of our products in unapproved circumstances; various risks associated with other legal, regulatory or investigative proceedings; we may not find suitable acquisition candidates or successfully integrate our acquisitions; our acquisitions may expose us to greater business risks and could affect our payor mix; there may be competition for anesthesia services impacting our ability to source and close future acquisitions; competition may negatively impact our ability to renew exclusive service agreements; new technologies may impact the demand for the anesthesia services we provide; our anesthesia services are provided under exclusive service agreements of varying duration, our ability to renew or replace these agreements could significantly impact our revenue and net income; we have significant debt which require us to generate significant cash flows from operations in order to make scheduled interest payments and principal payments; we may not be able to meet certain covenants under our credit facilities and our inability to meet these covenants could result in acceleration of our long term liabilities and or increased cost; we may be subject to the risks of foreign exchange rate fluctuation which could result in foreign exchange losses; and risks associated with the trading of our common shares on a public marketplace.
SOURCE CRH Medical Corporation