PHC Pathway Health Corp

• Adjusted EBITDA loss improved by 21% from previous quarter to $1.4 million compared to $1.7 million in the previous quarter
• Entered into a $1.25 million and a $1.0 million secured bridge loan to support general working capital, professional fees and other costs associated with the Arrangement transaction
• Subsequent to year end, the Company entered into a definitive agreement whereby Pathway will acquire all of the issued and outstanding common shares in the capital of HEAL and The Newly from their respective shareholders in exchange for common shares in the capital of Pathway

TORONTO, April 25, 2023 /CNW/ - Pathway Health Corp. (TSXV: PHC) (Frankfurt: KL1) ("Pathway" or the "Company"), a Canadian leader in chronic pain solutions and management services, is pleased to report its financial results for the three and twelve-month period ended December 31, 2022. Unless otherwise noted, all amounts are in Canadian dollars and are prepared in accordance with International Financial Reporting Standards ("IFRS").

"We are excited about the proposed strategic merger of the Pathway, Newly and HEAL companies as we believe it will provide significant scale, resources and future growth opportunities," said Ken Yoon, Pathway's Chief Executive Officer. "Combining these innovative healthcare leaders will allow for significant cross-selling and cross-referral opportunities and create a truly integrated interdisciplinary health and wellness company that is well positioned to address a growing $700 billion global market for mental health and chronic pain services and products."

Recent Highlights

• Adjusted EBITDA loss improved by 21% to $1.4 million compared to $1.7 million in the previous quarter, reflecting management's continued focus on streamlining operations and cash conservation measures. 
• The Company appointed MNP LLP as its new auditors in anticipation of future key changes to the business, including the approval of a non-possession sales license which is currently under review with Health Canada and potential international expansion.
• Subsequent to year end, on February 3, 2023, the Company announced a $1.25 million private placement of a secured convertible promissory note with HEAL Global Holdings Corp. ("HEAL") which will be used to support the Company's operations and future growth.
• On March 31, 2023, the Company entered into a definitive agreement whereby Pathway will acquire all of the issued and outstanding common shares in the capital of HEAL and The Newly Institute Inc. ("The Newly") from their respective shareholders in exchange for common shares in the capital of Pathway (the "Arrangement"). 
• The Company entered into a debt restructuring transaction with Avonlea-Drewry Holdings Inc. ("ADH") whereby approximately $4 million of debt (including principal amount, all accrued and unpaid interest and fees) owing to ADH, and debt restructuring advisory fee will be converted into Pathway shares concurrently with the completion of the Arrangement.
• Completion of the Arrangement is subject to certain conditions including using reasonable commercial efforts to carry out one or more equity, debt or convertible debt financings for aggregate gross proceeds of not less than $10,000,000.
• On April 25, 2023, the Company announced a $1.0 million secured short term bridge loan from ADH to support the Company's general working capital obligations and ongoing transaction expenses related to closing of the Arrangement transaction.

Summary of the Results for the Three Months Ended December 31, 2022 (Q4 2022) compared to the Three Months Ended December 31, 2021 (Q4 2021), unless otherwise noted

Revenues were $2.4 million and $2.7 million for the three months ended December 31, 2022, and 2021, respectively. Cannabis education revenues were partially impacted by a reduction in marketing fees previously provided by licensed producers as clinics moved to a telemedicine platform. The decline in revenue also reflects the continued downward trend in the Canadian medical cannabis market.  However, the Company hopes to offset this by focusing on specialty group markets and offering more comprehensive services to these targeted markets. 

Gross margins were $1.2 million and $1.5 million for the three months ended December 31, 2022, and 2021, which represented 46% and 56% of gross revenues, respectively. The difference is mainly a result of the increase in products and provincially insured and non-insured physician services as a total percentage of overall revenue compared to the same prior year period. The Company has noted an increase in supply costs driven by inflation and various supply chain issues exacerbated by the global COVID-19 pandemic. Lastly, subsequent to year end, the Canada Revenue Agency ("CRA") informed the Company of its initial assessment of the requirement to collect HST on management services that the CRA asserts that the Company is providing to its physicians in the Silver clinic.  While management intends to refute the CRA position, it has accrued $0.1 million under cost of sales related to the uncollected HST.  Adjusting for this accrual, gross margins as a percentage of net revenue would have been 50% for the three months ended December 31, 2022. 

Selling, general and administrative expenses ("SG&A") were $2.6 million and $3.7 million for the three months ended December 31, 2022, and 2021, respectively. The combined decrease in wages and benefits, marketing, public company costs and office expenses totaled $0.9 million as a result of continued cost cutting and streamlining measures taken by management.  Wages and benefits expenses in the three months ended December 31, 2021 included $0.3 million additional bonus accruals which were not repeated in the current period.  This was offset by a $0.2 million increase in other expenses related to the CRA HST assessment described above. 

The Company incurred a net loss of $2.1 million and had a basic and diluted loss per share of $0.02 for the three months ended December 31, 2022, compared to a net loss of $3.2 million and a basic and diluted loss per share of $0.03 for the same period prior year.

Earnings before interest, tax, depreciation, and amortization ("EBITDA")¹ was a loss of $1.7 million and adjusted EBITDA¹ was a loss of $1.4 million for the three months ended December 31, 2022, compared to an EBITDA and adjusted EBITDA loss of $2.8 million and $1.7 million respectively in the prior year.

Cash as of December 31, 2022, was $0.4 million compared with $2.6 million on December 31, 2021. As of December 31, 2022, the Company had a principal balance of $3.6 million outstanding from its Credit Facility.

On March 31, 2023, the Company announced it had entered into a definitive arrangement agreement with The Newly, a premier operator of inter-disciplinary mental health clinics in Canada which is one of the pioneers in intensive bio-psycho-social treatment models in Canada, and HEAL, a private Alberta company established with the goal of becoming a global leader in personalized, curated healthcare.  In accordance with the terms and conditions of the Arrangement Agreement, Pathway will acquire all of the issued and outstanding common shares in the capital of HEAL and The Newly from their respective shareholders (other than those Newly Shares held by HEAL) (the "Transaction") in exchange for common shares in the capital of Pathway.  Pursuant to the Transaction, Pathway expects to change its name to "Global Healthcare Holdings Corp." (https://globalhealthcareholdings.com/) or such other name as the future Pathway board may determine.

The Company believes there are a number of benefits which are anticipated to result from the Arrangement, including, without limitation to the following:

• the anticipated increased financial strength of the combined entities is expected to provide enhanced ability to fund the robust pipeline of new clinical locations and growth projects;
• the combined entities will create a larger ecosystem for patients who could benefit from access to a broader and more extensive range of services and/or products leading to the potential for increased revenue per patient without increasing per patient retention costs;
• corporate overhead leveraged across a larger operating base and cost reducing synergies from the combined businesses of Pathway and Newly;
• combined client list in excess of 350,000 patients within Combined entities' end-to-end mental health and pain database.

Pathway Health is an integrated healthcare company that provides products and services to patients suffering from chronic pain and related conditions. The Company owns and operates eleven community-based clinics across five provinces where its team of health professionals work together to help patients through a variety of evidence-based approaches and products, including medical cannabis. Pathway Health's patient care programs utilize an interdisciplinary approach that is guided by trained pain specialists, physical and occupational therapists, psychologists, nurses, and other healthcare providers. Pathway is also the leading provider of medical cannabis services in Canada and has established itself as the leading partner with national and regional pharmacy companies for the delivery of medical cannabis services to their customers. The Company is working with several pharmacy companies on the development of Cannabis Health Products (CHPs) for OTC product distribution through retail pharmacy locations across the country following anticipated changes to the Cannabis Act.

For more information, visit Pathway Health's website: www.pathwayhealth.ca 

¹Non-IFRS financial measures
The non-IFRS measures included in this MD&A are not recognized measures under IFRS, and do not have a standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other issuers. 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 its perspective. Accordingly, they should not be considered in isolation nor as a substitute for analysis of the Company's financial information reported under IFRS. Despite the importance of these measures to management in goal setting and performance measurement, these are non-IFRS measures that may be limited in their usefulness to investors.

Management uses non-IFRS measures, such as EBITDA and Adjusted 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 valuation of issuers. Management also uses non-IFRS measures to facilitate operating performance comparisons from period to period, prepare annual operating budgets, and to assess the Company's ability to meet its future debt service, capital expenditure and working capital requirements. The definition and reconciliation of EBITDA and Adjusted EBITDA used and presented by the Company to the most directly comparable IFRS measures follows below:

EBITDA and Adjusted EBITDA

EBITDA is defined as net (loss)/income adjusted for income tax, depreciation of property and equipment, amortization of intangible assets, interest on long-term debt and other financing costs, interest income, and changes in fair values of derivative financial instruments. Management uses EBITDA to assess the Company's operating performance. Adjusted EBITDA is defined as EBITDA adjusted for, as applicable, share-based compensation, loss of control of related company, fair value loss of guarantee, impairment of intangible assets, impairment of goodwill, gain on remeasurement of contingent consideration, reverse takeover transaction costs and additional professional fees due to the reverse takeover transaction and Asset Acquisition Transaction costs. We use Adjusted EBITDA as a key metric in assessing our business performance when we compare results to budgets, forecasts, and prior years. Management believes Adjusted EBITDA is a good alternative measure of cash flow generation from operations as it removes cash flow fluctuations caused by non-cash expenses, or extraordinary and non-recurring items, including changes in working capital. A reconciliation of net (loss)/income to EBITDA (and Adjusted EBITDA) is set out below:

This news release includes certain "forward-looking statements" under applicable Canadian securities legislation. Forward-looking statements are necessarily based upon a number of estimates and assumptions that, while considered reasonable, are subject to known and unknown risks, uncertainties, and other factors that may cause the actual results and future events to differ materially from those expressed or implied by such forward-looking statements. Such factors include but are not limited to: the Company's ability to continue as a going concern, general business, economic, competitive, political, and social uncertainties; delay or failure to receive applicable approvals; and the results of operations. There can be no assurance that such statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements. Pathway disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. 

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SOURCE Pathway Health Corp.