CRC Health Reports Operating Results for the Quarter & Six Months Ended June 30, 2007

Posted at August 13, 2007 | Categories : 2007,Investor Press | 0 Comment

FOR IMMEDIATE RELEASE: August 13, 2007

CRC Health Reports Operating Results  for the Quarter & Six Months Ended June 30, 2007

CUPERTINO, CA, August 13, 2007 — CRC Health Corporation (“CRC” or the “Company”), the nation’s largest substance abuse treatment and youth treatment provider, announced its results for the second quarter and six months ended June 30, 2007, reflecting contributions from the acquisition of Aspen Education Group, Inc. (“Aspen”) in the fourth quarter of 2006 and other acquisitions in 2006 and 2007, and continued organic growth. In the six months ended June 30, 2007, CRC completed one acquisition of a residential youth treatment facility and paid total cash consideration of $1.1 million, including acquisition related expenses.

Bain Capital Partners’ acquisition of CRC
On February 6, 2006, investment funds managed by Bain Capital Partners, LLC (“Bain”) completed the acquisition of CRC for approximately $723.0 million. As part of the acquisition, certain members of the CRC management team partnered with Bain by retaining an equity stake in CRC. The acquisition resulted in several large merger-related expenses during the year ended December 31, 2006. CRC’s pro forma results excluding these non-recurring items can be derived from the reconciliation of non-GAAP “EBITDA from continuing operations” to non-GAAP “Adjusted Pro Forma EBITDA”, presented below.  CRC refers to the February 6, 2006 Bain acquisition, the related mergers and related financings as the “Transactions.”

The date of the Bain acquisition was February 6, 2006, but for accounting purposes and to coincide with its normal financial closing, CRC has utilized February 1, 2006 as the effective date of the Bain acquisition. As a result, CRC has reported operating results and financial position for all periods presented prior to February 1, 2006 as those of the Predecessor Company and for all periods from and after February 1, 2006 as those of the Successor Company due to the resulting change in the basis of accounting. CRC’s operating results for the six months ended June 30, 2006 are presented as the mathematical addition of the Predecessor Company’s operating results for the one 2monthended January 31, 2006 to the Successor Company’s operating results for the five months ended June 30, 2006.  This approach is not consistent with accounting principles generally accepted in the United States of America (“GAAP”) and may yield results that are not strictly comparable on a period-to-period basis primarily due to the impact of purchase accounting entries recorded as a result of the Transactions. However, CRC’s management believes that it is a meaningful way to present CRC’s results of operations for the six months ended June 30, 2006.

Historical Financial Results
Second Quarter and Six Months Ended June 30, 2007 Financial Results:

  • Net revenue for the second quarter of 2007 increased by $53.7 million, or 86.4%, to $115.8 million as compared to $62.1 million for the second quarter of 2006. Of the $53.7 million increase, the youth treatment division contributed $41.2 million and the remaining net revenue growth was driven by net revenue increases of $9.1 million, or 22.9%, and $3.4 million, or 15.1%, in CRC’s residential and outpatient treatment divisions, respectively. The net revenue growth in the residential and outpatient treatment divisions was mainly driven by increases of $5.5 million and $1.4 million, respectively, resulting from the 2006 acquisitions that were not included in the results of operations for the second quarter of 2006. In addition, same-facility revenue growth in residential and outpatient treatment divisions of $2.9 million, or 7.3%, and $1.0 million, or 4.6%, respectively, resulted from increases in average daily census and net revenue per patient day and contributed to the net revenue growth. The remaining net revenue growth in the residential and outpatient treatment divisions was driven by start-up facilities.
  • Net revenue for the six months ended June 30, 2007 increased by $103.1 million, or 85.5%, to $223.7 million as compared to $120.6 million for the same period in 2006. Of the $103.1 million increase, the youth treatment division contributed $76.9 million and the remaining net revenue growth was driven by net revenue increases of $19.6 million, or 25.6%, and $6.6 million, or 15.2%, in CRC’s residential and outpatient treatment divisions, respectively. The net revenue growth in the residential and outpatient treatment divisions was mainly driven by increases of $13.2 million and $2.8 million, respectively, resulting from the 2006 acquisitions and the Transactions that were not included in the results of operations during the six months ended June 30, 2006. In addition, same-facility revenue growth in residential and outpatient treatment divisions of $5.2 million, or 6.7%, and $2.1 million, or 5.1%, respectively, resulted from increases in average daily census and net revenue per patient day and contributed to the net revenue growth. The remaining net revenue growth in the residential and outpatient treatment divisions was driven by start-up facilities.
  • CRC’s operating margin was 16.3% for the second quarter of 2007, as compared to 21.9% for the second quarter of 2006. The decline in operating margin in 2007 was primarily attributable to lower operating margins associated with the Aspen 3acquisition. On a same-facility basis, CRC’s operating margin increased to 36.9% for the second quarter of 2007, as compared to 36.4% for the second quarter of 2006.
  • CRC’s operating margin was 15.2% for the six months ended June 30, 2007, as compared to (14.3)% for the same period in 2006. The operating margin for 2006 was primarily impacted by non-recurring expenses of $43.7 million related to the Transactions. CRC did not incur such non-recurring expenses during the six months ended June 30, 2007 but was partially impacted by lower operating margins associated with the Aspen acquisition. On a same-facility basis, CRC’s operating margin increased to 36.7% for the six months ended June 30, 2007, as compared to 36.3% for the same period in 2006. · Net income as a percentage of consolidated net revenue for the second quarter of 2007 was 2.5% compared to 2.8% in the second quarter of 2006. The slight decline in net income percentage in the second quarter of 2007 was primarily due to an increase in interest expenses of $4.2 million resulting mainly from the additional borrowings related to the Aspen acquisition.
  • Net income as a percentage of consolidated net revenue for the six months ended June 30, 2007 was 1.3% compared to (30.1)% in the six months ended June 30, 2006. The negative net income percentage for the six months ended June 30, 2006 was mainly due to the operating margin decline as described above. The net income percentage for the six months ended June 30, 2007 was not impacted by the non-recurring expenses related to the Transactions but was primarily impacted by an increase in interest expenses of $10.4 million resulting mainly from the additional borrowings related to the Aspen acquisition.

Pro Forma Financial Results
Adjusted pro forma EBITDA was $26.6 million for the quarter ended June 30, 2007, compared to $25.7 million for the quarter ended June 30, 2006, an increase of $0.9 million, or 3.5%. Adjusted pro forma EBITDA was $50.8 million for the six months ended June 30, 2007, compared to $48.0 million for the six months ended June 30, 2006, an increase of $2.8 million, or 5.7%.

In order to supplement its condensed consolidated financial statements presented in accordance with GAAP, CRC is providing a summary to show the computation of earnings before interest, taxes, depreciation and amortization (“EBITDA”), as well as adjusted pro forma EBITDA.  Adjusted pro forma EBITDA takes into account certain adjustments which are excluded from EBITDA for purposes of various covenants in the indenture governing CRC’s 10¾% senior subordinated notes due 2016 and its senior secured credit facility, as amended to date.  CRC believes that the adjusted pro forma EBITDA information presented provides useful information to both management and investors concerning its ability to meet its future debt obligations and to comply with 4certain covenants in its borrowing arrangements that are tied to these measures. CRC also believes that including the effect of these items allows management and investors to better compare CRC’s financial performance from period-to-period, and to better compare CRC’s financial performance with that of its competitors. The presentation of this additional information is not meant to be considered in isolation of, or as a substitute for, results prepared in accordance with GAAP.

The unaudited adjusted pro forma EBITDA for the periods presented gives effect to the 2006 acquisitions as if they had occurred on January 1, 2006. The pro forma adjustments are based upon available information and certain assumptions that CRC believes are reasonable. The pro forma adjusted EBITDA is for informational purposes only and does not purport to represent what CRC’s results of operations or financial position would have been if the 2006 acquisitions occurred at any date, nor does such information purport to project the results of operations for any future period.

Click here to download the full version of CRC Health Group Reports Operating Results for the Quarter and Six Months Ended June 30, 2007.

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