VANCOUVER, B.C. – February 13, 2015 – 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$)
| December 31, 2014 | December 31, 2013 | ||
| Change | |||
| Product sales | 8,598,097 | 7,682,628 | 12% |
| Anesthesia services (December 1 – 31) | 3,386,073 | – | NA |
| Total Revenue | 11,984,170 | 7,682,628 | 56% |
| Operating expenses – adjusted[1] | |||
| Product sales | 3,868,830 | 4,012,358 | (4%) |
| Anesthesia services (December 1 – 31) | 1,255,193 | – | NA |
| Corporate | 2,164,052 | 1,553,707 | 39% |
| Total operating expenses – adjusted[1] | 7,288,075 | 5,566,065 | 31% |
| Total operating EBITDA[2] | 4,696,095 | 2,116,563 | 122% |
“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 EBITDA[3] 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 – adjusted[4] 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 $3,868,830compared 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 – adjusted[5] 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 EBITDA[6] 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.
The Company’s December 31, 2014 financial report and corresponding MD&A are available on www.sedar.com and the Company’s website at www.crhmedcorp.com.
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.
For more information, please contact:
Edward Wright, Chief Executive Officer
CRH Medical Corporation
604.633.1440 x1008
or
Richard Bear, Chief Financial Officer
CRH Medical Corporation
604.633.1440 x1048
[1] Operating expenses – adjusted: This is a non-IFRS measure defined as operating expenses before acquisition related corporate expenses, stock based compensation, depreciation and amortization. Refer to page 5 of this document for a reconciliation of reported financial results to non-IFRS measures.
[2] Operating EBITDA: This is a non-IFRS measure defined as operating income before acquisition related corporate expenses, stock based compensation, depreciation and amortization. Refer to page 5 of this document for a reconciliation of reported financial results to non-IFRS measures.
[3] Operating EBITDA: This is a non-IFRS measure defined as operating income before acquisition related corporate expenses, stock based compensation, depreciation and amortization. Refer to page 5 of this document for a reconciliation of reported financial results to non-IFRS measures.
[4] Operating expenses – adjusted: This is a non-IFRS measure defined as operating expenses before acquisition related corporate expenses, stock based compensation, depreciation and amortization. Refer to page 5 of this document for a reconciliation of reported financial results to non-IFRS measures.
[5] Operating expenses – adjusted: This is a non-IFRS measure defined as operating expenses before acquisition related corporate expenses, stock based compensation, depreciation and amortization. Refer to page 5 of this document for a reconciliation of reported financial results to non-IFRS measures.
[6] Operating EBITDA: This is a non-IFRS measure defined as operating income before acquisition related corporate expenses, stock based compensation, depreciation and amortization. Refer to page 5 of this document for a reconciliation of reported financial results to non-IFRS measures.