Centric Health first quarter revenue increases 67% to $23.0 million

Centric Health Corporation ("Centric Health" or "the Company") (TSX: CHH), Canada's leading diversified healthcare services company, today announced financial results for the first quarter ended March 31, 2011.

"Centric Health has made substantial progress in 2011, investing in quality healthcare businesses, appointing key executives and developing a corporate infrastructure that positions the group well for continued strategic expansion in line with its stated objectives," said Dr. Jack Shevel, Chairman of Centric Health Corporation. "The corporate advancements represent a meaningful phase in the establishment of a solid platform to building a growth and quality focused, sustainable healthcare company."

"In light of the significant corporate activity during the quarter, we are encouraged by the financial performance and cash generation of the underlying businesses," said Peter Walkey, Chief Financial Officer of Centric Health Corporation.

Financial and Operating Highlights
During and subsequent to the quarter ended March 31, 2011:

• Revenue increased 67% to $23.0 million, as compared to $13.8 million in the first quarter of 2010.
• Operating margin increased by 40% to $3.7 million, as compared to $2.7 million in the first quarter of 2010.
• On January 19, 2011, the Company completed its acquisition of Surgical Spaces Inc. ("SSI") expanding its offerings in Western Canada with surgical centres in Winnipeg and Vancouver. SSI is expected to contribute over $20 million of revenue in 2011.
• On March 3, 2011, the Company completed a private placement bought deal of 17,940,000 shares for proceeds of $21.5 million.
• On May 6, 2011, the Company announced the acquisition of LifeMark Health ("LifeMark") which closed on June 9, 2011. The acquisition of LifeMark provides Centric Health with significant market expansion and scale in the Canadian healthcare industry, accompanied by annualized revenue of approximately $180 million and strong earnings and cash flow which will act as a catalyst for Centric Health's broader strategy.
• On May 19, 2011, the Company announced an agreement to acquire substantially all of the assets of the Blue Water Surgical and Diagnostics group ("Blue Water"). Blue Water owns and operates three state-of-the-art surgical and endoscopy facilities located in Sarnia, London and Windsor, Ontario. This acquisition will provide Centric with a presence in south-western Ontario for growth in its surgical and medical offerings.

All amounts below are in thousands

International Financial Reporting Standards ("IFRS") Impact
The three months ended March 31, 2011, was the Company's first reporting period under IFRS. As anticipated and disclosed in the fourth quarter of 2010, the adoption of IFRS had an impact on the presentation of the Company's 2011 first quarter financial results. As a result, from a net income standpoint, the decrease for the first quarter compared to previous quarters is largely due to the non-cash charges related to acquisitions specific to the transition to IFRS.

As expected for a company in its growth stage, transaction costs incurred are directly related to the size of acquisition targets, and have increased year over year leading to a charge of $947 in the first quarter of 2011 compared to a charge of $4 in the same period last year. In addition, the Company is required to value the contingent consideration liabilities pursuant to its business combination activities. As part of the Company's acquisition strategy, such consideration for acquired businesses is often subject to profit performance paid in shares and or warrants of the Company. Management's valuation method to determine the value of the contingent consideration is largely based on the value of its common shares and the probability of the acquired business achieving stated performance targets. The valuation of contingent consideration on the date the acquisition closes is included in the purchase price of the acquisition. Subsequently, the contingent consideration is revalued on each reporting date with changes in fair value included in the determination of net income and comprehensive income. For the three months ended March 31, 2011, the Company recorded a charge of $6,454 to earnings, reflective of the change in fair value of contingent consideration related to the purchases of Community Advantage Rehabilitation ("CAR") and SSI. This non-cash charge was driven by the increase in share price. 

Financial Results
(in thousands)

Consolidated revenue for the three months ended March 31, 2010 increased by 67% or $9,260 to $23,035 over the comparable period last year. Organic growth from our existing businesses increased by approximately $2,140, or 15%, over the same period in the prior year. Growth from acquisitions was approximately $7,120.

Revenue for Medical Assessments and Rehabilitation was $6,886, a 1% increase from the prior year. The flat performance of this segment is largely due to regulatory reforms enacted in the third and fourth quarters of 2010 which capped medical assessment fees to be charged to the auto insurers. Management has worked diligently to make cost-effective changes in the division to maintain profit margin and is aggressively pursuing revenue-generating opportunities with auto insurers and workers compensation boards.

Revenue for physiotherapy services rendered through the Eldercare and Homecare division was $9,931 for the quarter ended March 31, 2011, a 50% increase over the same period in the prior year. This growth is attributable to the inclusion of the Homecare business in the first quarter of 2011 as well as organic growth in the Eldercare division. Eldercare added 47 homes and over 6,400 beds in the current period which has contributed $2,054 of growth for the three months ended March 31, 2011. The Eldercare division has also made efforts to streamline its cost structure which has helped improve its gross profit margin.

Revenue for Surgical and Medical Centres in the current period was $5,140, a significant increase from the prior period primarily due to the SSI acquisition. For the three months ended March 31, 2010, revenue from DMSU was $339. SSI contributed $4,790 to the increased surgical revenue.

Revenue for the Pharmacy division was $1,078. The division was established in the fourth quarter of 2010.

Cost of services and supplies for the quarter ended March 31, 2011, was $14,107 which was an increase of $5,635 compared with the prior period driven by the increase in revenues and acquired businesses. For the first quarter, gross profit, expressed as revenue less cost of services and supplies, was $8,928 or 38.8% of revenues. In the first quarter of the prior year, gross profit was $5,303 or 38.5% of revenues. The increase in gross profit of $3,625 was driven by the increased revenues in the Eldercare division and the performance from acquired businesses of SSI and CAR.

Employee costs include salaries and benefits of employees working directly in each business segment. Direct operating costs include occupancy costs, insurance, communications and other costs incurred directly within each operating segment.

Operating margin, expressed as gross profit less employee costs and other direct costs, for the three months ended March 31, 2011, increased by $1,061 to $3,740 compared to $2,679 in the prior period. This increase was largely driven from higher revenue, however operating margin represented as a percentage of revenue dropped to 16% from 19% in the prior period. This is largely due to the higher cost structure of the acquired businesses at the end of 2010 and SSI in the current quarter.

Corporate administrative expenses for the quarter ended March 31, 2011 were $1,544 which was $713 higher than the prior period. This increase resulted primarily from higher salary and benefit costs of $337 associated with the hiring of a CEO, increased administrative staff for the expanded business and an expected increase in the overhead costs for infrastructure to support the growth of the business. Included in the increased overhead are additional audit, legal and consulting fees of $229 and other administrative costs of $160.

Stock-based compensation, a non-cash expense, increased by $211 to $415 in the period ended March 31, 2011. This expense is largely related to the vesting of options granted at the end of 2009 and during 2010.  In addition to the options granted in previous years, restricted shares issued to the Company's CEO at the end of 2010, which vest over a period of three years, are included in the stock-based compensation for the current period.

Amortization was higher during the quarter ended March 31, 2011 due to the amortization of the capital assets acquired in the SSI acquisition. Amortization for the first quarter was $353 higher than the prior period.

At March 31, 2011, the Company had total cash on hand of $4,101, a decrease of $5,109 from December 31, 2010 (2010 decrease of $147). The decrease in cash is largely due the acquisition of SSI and increases in working capital.

During the quarter ended March 31, 2011, option holders exercised 412,500 options to purchase an equivalent number of shares at a weighted average exercise price per share of $0.35. Pursuant to the private placement, 17,940,000 shares were issued for cash proceeds of $21,528, less issue costs of $1,484, and 538,200 warrants to purchase common shares were issued at an exercise price of $1.27 for a term of two years. The private placement shares are subject to a four-month hold period before trading.

As at December 31, 2010, the total number of shares outstanding was 62,090,095. There were also 21,500,000 warrants outstanding entitling holders to acquire 21,500,000 common shares, and 6,100,000 options outstanding to purchase an equivalent number of common shares with various expiration dates through 2015.

As at March 31, 2011, the Company had total shares outstanding of 93,370,551; of which 1,200,000 are restricted shares held by the CEO which vest over time as discussed in Note 12 to the Company's 2010 audited consolidated financial statements, and 11,827,956 shares are held in escrow pending SSI achieving performance targets as disclosed in Note 6 to the March 31, 2011 unaudited interim consolidated financial statements.

As at the date of this report, June 9, 2011, the number of shares outstanding is 93,520,551; the number of options outstanding is 7,778,000; and, the number of warrants outstanding is 22,038,200. Included in the shares outstanding are 13,027,956 shares held in escrow or trust and are not freely tradeable.