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,
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)

5.59

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:

  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

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 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