Published in Finance

Agility Health ‘imminently fixable’ despite being highly leveraged, interim CEO says

BY Sunday, July 09, 2017 02:42pm

GRAND RAPIDS — Agility Health Inc. expects to complete a debt restructuring by this fall that would deleverage the company so it can get back to growing again and achieve profitability.

The Grand Rapids-based provider of physical therapy and rehabilitation lists $20.1 million in obligations on its balance sheet from debt accumulated through acquisitions and a 2012 deal to recapitalize the business. The deal involved the issuance of class B and C stock to investment firm Alaris USA Inc., a unit of Canadian-based Alaris Royalty Corp.

Agility Health has been working since January with New York City investment bank Maxim Group LLC to either restructure the debt or again recapitalize the business, which has become highly leveraged in recent years, Chairman and interim CEO Pierre Gagnon told MiBiz.

“We have some balance sheet challenges,” said Gagnon, who calls the situation “imminently fixable.”

“This is not a broken company, this is just an unhealthy balance sheet,” he said. “What it needs to do is refocus on what it does best. This is a great operation with great services and great people. It just needs to refocus a little bit.”

Gagnon joined Agility Health earlier this year following the acquisition of Hamilton, Ontario-based Medic Holdings Corp. in a stock transaction. Medic Holdings, which Gagnon owned and led as CEO, operates a dozen foot care clinics in Ontario and Quebec and produces and distributes orthotics. When Agility Health’s long-time CEO Steve Davidson retired in April, a month after the acquisition, Gagnon moved into the position of interim CEO.

The effort to restructure the outstanding debt comes after Agility Health worked to improve operations internally and reduce costs amid tightening reimbursements from Medicare, Medicaid and private health insurers.

“We actually already have done the hard work,” CFO Patrick Reid said.

Reid joined Agility Health this spring. He previously worked as vice president of physician practices at Grand Rapids-based Mary Free Bed Rehabilitation Hospital. Before that, he was CEO and CFO at Orthopaedic Associates of Michigan in Grand Rapids for 10 years.


Medicare and Medicaid accounted for more than 20 percent of Agility Health’s revenue stream in 2016, according a financial report. Commercial insurers typically follow the reimbursement levels for Medicare and Medicaid.

As those reimbursements have tightened, Agility Health has been unable to grow at a level it wants.

“It makes it very difficult to execute the growth strategy we have developed,” said Michael Daray, the company’s general counsel.

In recent years, Agility Health recorded flat or small revenue growth. In four operating years from 2013 to 2016, revenue grew just 5 percent from $60.5 million to $63.6 million.

“We’ve been treading water,” Gagnon said. “We haven’t focused as much as we could on growth and perhaps this transition will refocus us on growing the business.”

Gagnon projects 2017 revenues for Agility Health of about $80 million following the acquisition of Medic Holdings, which on its own last year generated revenues of $12.2 million.

As expenses outpaced revenue growth, Agility Health lost $2.9 million in 2016 and $1.9 million in 2015. Those two years were preceded by net losses of $6.5 million in 2014 and $8.8 million in 2013, according to annual financial reports filed with securities regulators in Canada, where the company in 2013 completed a reverse takeover with Toronto-based Thornapple Capital Inc.

Agility Health generated first quarter revenues of $17.3 million — up 11.6 percent from a year earlier largely because of the Medic Holdings acquisition — with a net loss of $1.1 million.

Despite the net losses and challenges, Gagnon notes that the company remains “nicely” EBITDA positive and already has “a good book of business” from which to grow.

“There are a lot of opportunities in our verticals to grow,” he said.

Agility Health provides physical therapy and rehab at 56 outpatient clinics, 36 hospitals, and 25 long-care facilities in 23 states, and offers injury prevention and fitness for workers at 51 industrial locations. The company employs nearly 1,100 people in the U.S. and about 130 at the Medic Holdings operations in Canada.


Once Agility Health gets past the debt restructuring, the company can pay more attention to growing through acquisitions, according to executives. In particular, the company will consider acquisitions in regions where it already operates and can generate economies of scale, Gagnon said.

A little more than half of the company’s 2016 revenues came from the outpatient rehab clinics. Another 37 percent came from providing services under contracts with hospitals and long-term care centers, and the rest came from industrial contracts.

As Agility Health restructures its debt, Gagnon said it has already taken off the table one possible option: a sale of the company.

“There’s too much potential for us to explore that issue,” he said. “We feel we have runway before we have to explore that.”

The work to restructure the company’s balance sheet will delay the search for a permanent CEO at Agility Health. Any new investor or investors coming to the company may want a voice in who becomes CEO, Gagnon said. When the company does begin seeking a new CEO, “we will do as exhaustive of a search that needs to be done.”

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