CRC Health Corporation Reports Operating Results For the Three Months Ended March 31, 2013
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, | ||||||||
2013 | 2012 | |||||||
Net client service revenues: | ||||||||
Recovery | $ | 90,675 | $ | 87,096 | ||||
Youth | 14,938 | 16,302 | ||||||
Weight management | 4,961 | 4,800 | ||||||
Corporate | 10 | 23 | ||||||
Total net client service revenues | 110,584 | 108,221 | ||||||
Operating expenses: | ||||||||
Recovery | 64,784 | 62,036 | ||||||
Youth | 17,567 | 17,761 | ||||||
Weight management | 5,022 | 5,325 | ||||||
Corporate | 9,213 | 8,774 | ||||||
Total operating expenses | 96,586 | 93,896 | ||||||
Operating income (loss): | ||||||||
Recovery | 25,891 | 25,060 | ||||||
Youth | (2,629 | ) | (1,459 | ) | ||||
Weight management | (61 | ) | (525 | ) | ||||
Corporate | (9,203 | ) | (8,751 | ) | ||||
Operating income | 13,998 | 14,325 | ||||||
Interest expense | (11,480 | ) | (11,787 | ) | ||||
Other income | 262 | 243 | ||||||
Income from continuing operations before income taxes | 2,780 | 2,781 | ||||||
Income tax expense | 1,183 | 1,249 | ||||||
Income from continuing operations, net of tax | 1,597 | 1,532 | ||||||
Loss from discontinued operations, net of tax | (210 | ) | (789 | ) | ||||
Net income | $ | 1,387 | $ | 743 | ||||
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Adjusted EBITDA margin:(1) | ||||||||
Recovery | 32 | % | 32 | % | ||||
Youth | (13 | )% | (4 | )% | ||||
Weight Management | 3 | % | (7 | )% | ||||
Total Adjusted EBITDA margin | 19 | % | 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, | |||||||
2013 | 2012 | ||||||
Net Income Attributable to CRC Health Corporation: | $ | 1,387 | $ | 743 | |||
Depreciation and amortization (1) | 4,855 | 4,825 | |||||
Income tax expense (1) | 1,045 | 763 | |||||
Interest expense | 11,480 | 11,787 | |||||
EBITDA | 18,767 | 18,118 | |||||
Adjustments to EBITDA: | |||||||
Discontinued operations | 222 | 628 | |||||
Non-impairment restructuring activities (1) | 167 | 717 | |||||
Stock-based compensation expense | 558 | 485 | |||||
Foreign exchange translation | 34 | (30 | ) | ||||
Loss on disposal of property and equipment (1) | 92 | 40 | |||||
Management fees | 600 | 575 | |||||
Non-recurring legal costs | 558 | 316 | |||||
Debt costs | 61 | 108 | |||||
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, | ||||||
2013 | 2012 | |||||
Recovery | ||||||
Residential and outpatient facilities | ||||||
Net client service revenues (in thousands) | $ | 56,214 | $ | 54,765 | ||
Patient days | 142,932 | 139,838 | ||||
Net client service revenues per patient day | $ | 393.29 | $ | 391.63 | ||
CTCs | ||||||
Net client service revenues (in thousands) | $ | 34,461 | $ | 32,331 | ||
Patient days | 2,627,184 | 2,505,971 | ||||
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 days | 30,757 | 38,574 | ||||
Net client service revenues per patient day | $ | 308.42 | $ | 282.83 | ||
Outdoor programs | ||||||
Net client service revenues (in thousands) | $ | 5,452 | $ | 5,392 | ||
Patient days | 11,536 | 11,248 | ||||
Net client service revenues per patient day | $ | 472.61 | $ | 479.37 | ||
Weight Management | ||||||
Net client service revenues (in thousands) | $ | 4,961 | $ | 4,800 | ||
Patient days | 12,087 | 11,967 | ||||
Net client service revenues per patient day | $ | 410.44 | $ | 401.10 | ||
Other Data (in thousands except ratios):
March 31, | December 31, | |||||
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) | 5.59 | 5.58 | ||||
Maximum Required Leverage Ratio per Credit Facility | 6.75 | 6.75 | ||||
Compliant | Compliant | |||||
Interest Coverage Ratio (4) | 2.40 | 2.43 | ||||
Minimum Required Interest Coverage Ratio per Credit Facility | 2.00 | 2.00 | ||||
Compliant | Compliant | |||||
Notes:
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.
Calculated over the four trailing quarters.
Leverage ratio is defined as Consolidated Total Debt divided by the Adjusted EBITDA for the respective four trailing quarters.
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
CRC HEALTH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share amounts) | ||||||||
March 31, | December 31, | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 13,283 | $ | 19,058 | ||||
Restricted cash | 183 | 364 | ||||||
Accounts receivable, net | 38,834 | 36,737 | ||||||
Prepaid expenses | 7,590 | 4,781 | ||||||
Other current assets | 2,802 | 2,591 | ||||||
Income taxes receivable | 1,109 | 1,109 | ||||||
Deferred income taxes | 6,352 | 6,352 | ||||||
Current assets of discontinued operations | 2,761 | 2,623 | ||||||
Total current assets | 72,914 | 73,615 | ||||||
Property and equipment, net | 130,431 | 130,381 | ||||||
Goodwill | 519,093 | 518,953 | ||||||
Other intangible assets, net | 291,560 | 292,846 | ||||||
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 expenses | 21,827 | 18,333 | ||||||
Accrued interest | 5,230 | 9,412 | ||||||
Accrued expenses | 8,918 | 8,721 | ||||||
Income taxes payable | 910 | — | ||||||
Current portion of long-term debt | 9 | 4,840 | ||||||
Deferred revenue | 9,311 | 9,494 | ||||||
Other current liabilities | 1,408 | 1,592 | ||||||
Current liabilities of discontinued operations | 2,155 | 2,372 | ||||||
Total current liabilities | 56,867 | 61,565 | ||||||
Long-term debt | 584,833 | 584,535 | ||||||
Other long-term liabilities | 8,751 | 8,740 | ||||||
Long-term liabilities of discontinued operations | 6,058 | 6,275 | ||||||
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 capital | 465,490 | 464,932 | ||||||
Accumulated deficit | (195,687 | ) | (197,074 | ) | ||||
Accumulated other comprehensive loss | (47 | ) | (71 | |||||
