CRC Health Corporation Reports Operating Results For the Three Months Ended March 31, 2013

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CRC Health Corporation Reports Operating Results For the Three Months Ended March 31, 2013

CUPERTINO, Calif.--(BUSINESS WIRE)-- CRC Health Corporation, a leading provider of substance abuse treatment and adolescent youth services, announced its results for the three months ended March 31, 2013.

"During the first quarter of 2013, we delivered revenue growth in our recovery business, driven by both our CTCs and our residential recovery businesses, while our youth business struggled to achieve growth due to lack of demand in the marketplace and our weight management businesses delivered improved profitability as well as revenue growth. The future is promising as we continue to invest in areas that position us well for the dramatic changes occurring given healthcare reform," said R. Andrew Eckert, Chief Executive Officer.


Three Months Ended March 31, 2013 Operating Results:

Net client service revenues for the three months ended March 31, 2013 increased $2.4 million, or 2%, to $110.6 million compared to the same period in 2012. For the three months ended March 31, 2013, operating income decreased $0.3 million, or 2%, compared to the same period in 2012. Adjusted EBITDA increased $0.1 million, or 1%, compared to the same period in 2012.

The following table presents our net client service revenues, operating income (loss), Adjusted EBITDA and Adjusted EBITDA margin by division (in thousands, except for percentages):

  
Three Months Ended March 31,
20132012
Net client service revenues:
Recovery$90,675$87,096
Youth14,93816,302
Weight management4,9614,800
Corporate 10  23 
 
Total net client service revenues110,584108,221
Operating expenses:
Recovery64,78462,036
Youth17,56717,761
Weight management5,0225,325
Corporate 9,213  8,774 
 
Total operating expenses96,58693,896
Operating income (loss):
Recovery25,89125,060
Youth(2,629)(1,459)
Weight management(61)(525)
Corporate (9,203) (8,751)
 
Operating income13,99814,325
Interest expense(11,480)(11,787)
Other income 262  243 
 
Income from continuing operations before income taxes2,7802,781
Income tax expense 1,183  1,249 
 
Income from continuing operations, net of tax1,5971,532
Loss from discontinued operations, net of tax (210) (789)
 
Net income$1,387 $743 
 
Three Months Ended March 31,
20132012
Adjusted EBITDA margin:(1)
Recovery32%32%
Youth(13)%(4)%
Weight Management3%(7)%
Total Adjusted EBITDA margin19%19%

(1) Adjusted EBITDA margin is defined as Adjusted EBITDA divided by net client service revenues.

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

Recovery:

  • Net client service revenues increased $3.6 million, or 4%, primarily due to a $2.1 million increase from our CTC facilities and $1.4 million increase in our residential facilities. The increase in revenues at our CTC facilities was due to a combination of increased patient days at our facilities driven by marketing programs and clinically appropriate retention efforts, as well as certain rate increases across our facilities. The increase in revenues at our residential facilities was primarily driven by one of our Recovery residential facilities, New Life Lodge, where admissions had been suspended during the first quarter of 2012. This facility re-opened in April 2012.
  • Operating expenses increased $2.7 million, or 4%, primarily due to a $1.6 million increase related to our residential facilities and a $1.1 million increase related to our CTC facilities. The increased operating expenses at our residential facilities was primarily driven by the reopening of our New Life Lodge facility in April 2012 and the related increases in salaries, wages and benefits, outside services and other operating costs. The increased operating expenses at our CTC facilities was primarily due to increased marketing activities and employee salaries, wages and benefits.
  • Adjusted EBITDA increased $1.0 million, or 4%, from the comparable prior period.

Youth:

  • Net client service revenues decreased by $1.4 million, or 8%, due primarily to a decrease in patient days at our residential facilities.
  • Operating expenses decreased $0.2 million, or 1%, due to a decrease in marketing activities and other facility operating costs associated with the decline in patient days. This decrease in operating expenses was slightly offset by an increase in employee benefit costs.
  • Adjusted EBITDA decreased $1.2 million from the comparable prior period.

Weight Management:

  • Net client service revenues increased by $0.2 million, or 3%, primarily due to an increase in patient days.
  • Operating expenses decreased $0.3 million, or 6%, primarily due to our efforts to manage facility operating costs and related salaries, wages and benefits.
  • Adjusted EBITDA increased $0.5 million from the comparable prior period.

Non-GAAP Financial Measures:

Under the terms of the our borrowing arrangements, we are required to comply with various covenants, including the maintenance of certain financial ratios, the calculations of which are based on Adjusted EBITDA, as defined in our credit agreements. As of March 31, 2013, we were in compliance with all such covenants. A breach of these could result in a default under our credit facilities and in our being unable to borrow additional amounts under our revolving credit facility. If an event of default occurs, the lenders could elect to declare all amounts borrowed under our credit facilities to be immediately due and payable and the lenders under our term loans and revolving credit facility could proceed against the collateral securing the indebtedness.

The computation of Adjusted EBITDA is provided below to provide an understanding of the impact that Adjusted EBITDA has on our ability to comply with certain covenants in our borrowing arrangements that are tied to these measures and to borrow under the credit facility. Adjusted EBITDA should not be considered as an alternative to net income (loss) or cash flows from operating activities (which are determined in accordance with GAAP) and is not being presented as an indicator of operating performance or a measure of liquidity. Other companies may define Adjusted EBITDA differently and as a result, such measures may not be comparable to our Adjusted EBITDA.

The following table reconciles our net income to our Adjusted EBITDA (in thousands):

  
Three Months Ended March 31,
20132012
Net Income Attributable to CRC Health Corporation:$1,387$743
Depreciation and amortization (1)4,8554,825
Income tax expense (1)1,045763
Interest expense 11,480 11,787 
EBITDA18,76718,118
Adjustments to EBITDA:
Discontinued operations222628
Non-impairment restructuring activities (1)167717
Stock-based compensation expense558485
Foreign exchange translation34(30)
Loss on disposal of property and equipment (1)9240
Management fees600575
Non-recurring legal costs558316
Debt costs61108
Other non-cash charges and non-recurring costs  (5)
Total adjustments to EBITDA 2,292 2,834 
Adjusted EBITDA$21,059$20,952 
 

(1) Includes amounts related to both continuing operations and discontinued operations.

Key Operating Statistics:

  
Three Months Ended March 31,
20132012
Recovery
Residential and outpatient facilities
Net client service revenues (in thousands)$56,214$54,765
Patient days142,932139,838
Net client service revenues per patient day$393.29$391.63
CTCs
Net client service revenues (in thousands)$34,461$32,331
Patient days2,627,1842,505,971
Net client service revenues per patient day$13.12$12.90
Youth
Residential facilities
Net client service revenues (in thousands)$9,486$10,910
Patient days30,75738,574
Net client service revenues per patient day$308.42$282.83
Outdoor programs
Net client service revenues (in thousands)$5,452$5,392
Patient days11,53611,248
Net client service revenues per patient day$472.61$479.37
Weight Management
Net client service revenues (in thousands)$4,961$4,800
Patient days12,08711,967
Net client service revenues per patient day$410.44$401.10
 

Other Data (in thousands except ratios):

  
March 31,
2013
December 31,
2012
Total Adjusted Debt (1)$572,058$570,996
Cash Interest Expense (2)$42,710$42,144
Adjusted EBITDA (2)$102,385$102,279
Debt Covenant Ratios
Leverage Ratio (3)5.595.58
Maximum Required Leverage Ratio per Credit Facility6.756.75
CompliantCompliant
Interest Coverage Ratio (4)2.402.43

Minimum Required Interest Coverage Ratio per Credit Facility

2.002.00
CompliantCompliant
 

Notes:

  1. Consolidated Total Debt is defined as the aggregate principal amount of indebtedness outstanding on such date, determined on a consolidated basis, consisting of borrowed money, capitalized leases, promissory notes or similar instruments minus cash and cash equivalents in excess of $0.5 million (cash reserve). The Total Adjusted Debt includes debt of discontinued operations of less than $0.1 million and $0.2 million at March 31, 2013 and December 31, 2012 respectively.
  2. Calculated over the four trailing quarters.
  3. Leverage ratio is defined as Consolidated Total Debt divided by the Adjusted EBITDA for the respective four trailing quarters.
  4. Interest coverage ratio is defined as our Adjusted EBITDA for the respective four trailing quarters divided by the cash interest expense over the same period
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CRC HEALTH CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands, except share amounts)

 
March 31,
2013
December 31,
2012
Assets
Current assets:
Cash and cash equivalents$13,283$19,058
Restricted cash183364
Accounts receivable, net38,83436,737
Prepaid expenses7,5904,781
Other current assets2,8022,591
Income taxes receivable1,1091,109
Deferred income taxes6,3526,352
Current assets of discontinued operations 2,761  2,623 
Total current assets 72,914  73,615 
Property and equipment, net130,431130,381
Goodwill519,093518,953
Other intangible assets, net291,560292,846
Other assets, net 19,572  20,396 
Total assets$1,033,570 $1,036,191 
 
Liabilities and stockholders' equity
Current liabilities:
Accounts payable$7,099$6,801
Accrued payroll and related expenses21,82718,333
Accrued interest5,2309,412
Accrued expenses8,9188,721
Income taxes payable910
Current portion of long-term debt94,840
Deferred revenue9,3119,494
Other current liabilities1,4081,592
Current liabilities of discontinued operations 2,155  2,372 
Total current liabilities 56,867  61,565 
Long-term debt584,833584,535
Other long-term liabilities8,7518,740
Long-term liabilities of discontinued operations6,0586,275
Deferred income taxes 107,305  107,289 
Total liabilities 763,814  768,404 
 
Commitments and contingencies
Stockholders' equity
Common stock, $0.001 par value - 1,000 shares authorized, issued and outstanding
Additional paid-in capital465,490464,932
Accumulated deficit(195,687)(197,074)
Accumulated other comprehensive loss (47) (71