Civitas Solutions, Inc. (NYSE: CIVI) today reported financial
results for the fiscal fourth quarter and full year ended
September 30, 2016.
Fourth Quarter and Full Year Fiscal 2016 Highlights
- Fourth quarter net revenue increased
3.1% to $362.2 million; excluding at-risk youth ("ARY") divested
operations, fourth quarter net revenue increased by 6.3%
- Fourth quarter net income was $2.7
million, compared to net income of $4.3 million in the fourth
quarter of fiscal 2015
- Fourth quarter Adjusted EBITDA
increased 12.5% to $42.6 million
- Fiscal 2016 net revenue increased 3.0%
to $1,407.6 million; excluding at-risk youth ("ARY") divested
operations, net revenue increased by 6.7%
- Fiscal 2016 net income was $9.2
million, compared to $3.1 million in fiscal 2015
- Fiscal 2016 Adjusted EBITDA increased
4.1% to $160.8 million
- Two acquisitions were completed during
the fourth quarter, bringing the fiscal 2016 total to twelve
acquisitions with total annual revenues of $48.6 million
“I am pleased to report a strong finish to the fiscal year, with
solid growth in net revenues, excluding the ARY divested
operations, and a 12.5% increase in adjusted EBITDA in the fiscal
fourth quarter,” stated Bruce Nardella, president and chief
executive officer. “While growth in fiscal year 2016 was affected
by the redesign of the West Virginia Waiver program and higher
health care costs, as previously disclosed, we increased our level
of investment in new start initiatives by nearly 30%, acquired 12
companies with total annual revenues of more than $48 million, and
expanded our new adult day health service line into a second state
growing its revenue by nearly 80%."
“Looking forward, we are well positioned to execute our long
term growth strategy and fulfill our mission,” Nardella added. “We
have developed a robust acquisition pipeline, and expect fiscal
2017 to be another strong year of new start investment. In
addition, given the headwinds we face in the coming year, we are
also focused on accelerating efforts to identify and implement cost
efficiencies. This effort is expected to produce savings of
approximately $2 million in fiscal year 2017, and by the end of
fiscal year 2018 we anticipate annual cost savings of more than $4
million.”
Fourth Quarter Fiscal 2016 Financial Results
Net revenue for the fourth quarter was $362.2 million, an
increase of $11.0 million, or 3.1%, over net revenue for the same
period of the prior year. The growth in net revenue was negatively
impacted by the divestiture of our ARY operations in six states
during fiscal 2015 and the first half of fiscal 2016, which
resulted in a decrease in net revenue of $10.5 million as compared
to the prior year period. Excluding these operations, net revenue
increased by $21.6 million or 6.3%, of which $11.8 million was from
acquisitions that closed during and after the quarter ended
September 30, 2015, and $9.7 million was from organic growth.
Net revenue consisted of:
- Human Services net revenue of $286.7
million (79.1% of total net revenue), an increase of 1.3% compared
to the fourth quarter of fiscal 2015; excluding ARY divested
operations, Human Services net revenue increased by 5.2%; and
- Post-Acute Specialty Rehabilitation
Services net revenue of $75.5 million (20.9% of total net revenue),
an increase of 10.7% compared to the fourth quarter of fiscal
2015.
Income from operations for the fourth quarter was $11.3 million,
or 3.1% of net revenue, compared to $16.6 million, or 4.7% of net
revenue, for the fourth quarter of the prior year. The decrease in
our operating margin during the fourth quarter was primarily due to
a $10.3 million goodwill impairment charge related to our Adult Day
Health ("ADH") business. The impairment was driven by higher than
anticipated operating costs in a recent acquisition that have
negatively affected the business's projected operating margins. In
addition to this charge, our operating margin was negatively
affected by increases in occupancy costs primarily due to higher
open occupancy rates in certain programs, direct wages due to
higher amounts of overtime in some markets and health insurance
expense due to higher enrollment and utilization in our employee
benefit plans compared to the fourth quarter of the prior year. The
impact of these items was partially offset by margin improvements
resulting from a decrease in net sales adjustments due to positive
contract amendments and process improvements, leveraging of general
and administrative expenses and contributions from
acquisitions.
Net income for the fourth quarter was $2.7 million compared to
net income of $4.3 million for the same period of the prior year.
Net income was negatively affected by the decrease in our income
from operations described above.
Basic and diluted net income per common share from continuing
operations was $0.07 for the fiscal fourth quarter ended
September 30, 2016, compared to basic and diluted net income
per common share from continuing operations of $0.12 and $0.11,
respectively, for the same period of the prior year.
Adjusted EBITDA for the fourth quarter was $42.6 million, or
11.8% of net revenue, compared to Adjusted EBITDA of $37.9 million,
or 10.8% of net revenue, for the fourth quarter ended
September 30, 2015. The increase in our Adjusted EBITDA margin
was primarily due to a decrease in net sales adjustments resulting
from positive contract amendments and process improvements,
leveraging of general and administrative expenses and contributions
from acquisitions. The improvement in our EBITDA margin was
partially offset by the increases in occupancy costs, direct wages,
and health insurance expense described above.
Full Year Fiscal 2016 Financial Results
Net revenue for the year ended September 30, 2016 was
$1,407.6 million, an increase of $40.6 million, or 3.0%, over net
revenue for the prior year. The growth in net revenue was
negatively impacted by the divestiture of our ARY operations in six
states during fiscal 2015 and the first half of fiscal 2016, which
resulted in a decrease in net revenue of $46.9 million as compared
to fiscal 2015. Excluding these operations, net revenue increased
by $87.5 million or 6.7%, of which $42.3 million was from
acquisitions that closed during and after the year ended September
30, 2015, and $45.2 million was from organic growth.
Net revenue consisted of:
- Human Services net revenue of $1,118.5
million (79.5% of total net revenue), an increase of 1.4% compared
to the year ended September 30, 2015; excluding ARY divested
operations, Human Services net revenue increased by 5.9%; and
- Post-Acute Specialty Rehabilitation
Services net revenue of $289.1 million (20.5% of total net
revenue), an increase of 9.5% compared to the year ended September
30, 2015.
Income from operations for the year ended September 30,
2016 was $57.7 million, or 4.1% of net revenue, compared to $62.6
million, or 4.6% of net revenue, for fiscal 2015. The decrease in
our operating margin during the year ended September 30, 2016 was
primarily due to a $10.5 million stock-based compensation charge
related to our former equity plan and the $10.3 million goodwill
impairment charge described above. In addition to these charges,
our operating margin during fiscal 2016 was negatively affected by
increases in direct wages from higher amounts of overtime in some
markets, occupancy costs primarily due to higher open occupancy
rates in certain programs, and health insurance expense due to
higher enrollment and utilization in our employee benefit plans
compared to the prior year. The impact of these items was partially
offset by margin improvements from divesting lower margin ARY
operations, a decrease in net sales adjustments due to positive
contract amendments and process improvements and a decrease in
amortization expense due to intangible impairment charges of $10.4
million related to the ARY divestitures that were recorded during
fiscal 2015.
Net income for the year ended September 30, 2016 was $9.2
million compared to $3.1 million in the prior year. In addition to
the items discussed above, net income for fiscal 2016 was
positively impacted by lower interest expense and debt
extinguishment costs as compared to the prior year resulting from
the redemption of senior notes in fiscal 2015. This benefit was
partially offset by the tax impact associated with the stock-based
compensation charge discussed above. This expense was not
deductible for tax purposes.
Basic and diluted net income per common share from continuing
operations was $0.25 for the year ended September 30, 2016,
compared to a $0.11 for the year ended September 30, 2015.
Adjusted EBITDA for the year ended September 30, 2016 was
$160.8 million, or 11.4% of net revenue compared to Adjusted EBITDA
of $154.5 million, or 11.3% of net revenue, for the year ended
September 30, 2015. The increase in our Adjusted EBITDA margin
was primarily due to the positive impact of divesting lower margin
ARY operations and a decrease in net sales adjustments resulting
from positive contract amendments and process improvements. The
improvement in our EBITDA margin was partially offset by the
increases in direct wages, occupancy costs and health insurance
expense described above.
Fiscal 2017 Outlook and Guidance
For fiscal year 2017, we expect net revenue to be between $1.48
billion and $1.52 billion and Adjusted EBITDA to be between $162
million and $166 million. This guidance takes into account
approximately $2.7 million of costs associated with the
implementation during the fiscal second quarter of some of the
changes that were part of our plan to comply with the Department of
Labor’s overtime rule that was to be effective December 1, 2016,
prior to a nationwide preliminary injunction issued on November 22,
2016 by the U.S. Federal District Court for the Eastern District of
Texas. The potential annual costs of implementing our complete plan
were previously estimated to be in the range of $7.0 to $9.0
million annually. We have not factored into this guidance any
additional labor costs, beyond the approximately $2.7 million noted
above, that we could incur if the overtime rule is implemented in
full during FY17.
A reconciliation of the low-end and high-end of the Adjusted
EBITDA guidance to net income is as follows:
Fiscal Year Ending September 30, 2016 (In
millions)
Low-end High-end Net income $ 28.6 $
31.0 Provision for income taxes 17.7 19.3 Interest expense, net
32.7 32.7 Depreciation and amortization 73.0 73.0 Stock-based
compensation 10.0 10.0 Adjusted EBITDA $ 162.0 $
166.0
Modeling guidelines for the current fiscal year are as
follows:
Average basic and diluted shares outstanding
for the year: 38 millionCapital expenditures: 3.3% of net
revenue
Net income as presented in the reconciliation of Adjusted EBITDA
guidance to net income may be further impacted by potential future
non-operating charges that would impact net income without
affecting Adjusted EBITDA.
Conference Call
This afternoon, Wednesday, December 14, 2016, Civitas Solutions
management will host a conference call at 5:00 pm (Eastern Time) to
discuss the fiscal 2016 fourth quarter and full year operating
results.
Conference Call Dial-in #:Domestic U.S. Toll Free:
877-255-4315International: 412-317-5467
Replay Details (available 1 hour after conclusion of the
conference call through 12/21/16):Domestic U.S. Toll Free:
877-344-7529International: 412-317-0088Canada Toll Free:
855-669-9658Replay Access Code: 10097671
A live webcast of the conference call will be available via the
investor relations section of the company’s website:
www.civitas-solutions.com. Following the call, an archived replay
of the webcast will be available on this website through March 14,
2017.
Non-GAAP Financial Information
This earnings release includes a discussion of Adjusted EBITDA,
net revenue excluding ARY divested operations, and net debt, which
are non-GAAP financial measures. Adjusted EBITDA is presented
because it is an important measure used by management to assess
financial performance, and management believes it provides a more
transparent view of the Company’s underlying operating performance
and operating trends. In addition, the Company believes this
measurement is important because securities analysts, investors and
lenders use this measurement to compare the Company’s performance
to other companies in our industry. Net revenue excluding ARY
divested operations is presented to enhance investors’
understanding of the financial performance and operating trends of
the continuing operations. Net debt is presented because it is
useful for lenders, securities analysts, and investors in
determining the Company's net debt leverage ratio.
The non-GAAP financial measures are not determined in accordance
with GAAP and should not be considered in isolation or as
alternatives to net income, revenues or total debt or other
financial statement data presented as indicators of financial
performance or liquidity, each as presented in accordance with
GAAP. Adjusted EBITDA should not be considered as a measure of
discretionary cash available to us to invest in the growth of our
business. While we and other companies in our industry frequently
use Adjusted EBITDA as a measure of operating performance and the
ability to meet debt service requirements, it is not necessarily
comparable to other similarly titled captions of other companies
due to potential inconsistencies in the methods of calculation. All
non-GAAP financial measures should be reviewed in conjunction with
the Company’s financial statements filed with the SEC.
For a reconciliation of each non-GAAP financial measure to the
most directly comparable GAAP financial measure, please see
“Reconciliation of non-GAAP Financial Measures” on pages 8-9 of
this press release.
Forward-Looking Statements
This press release contains statements about future events and
expectations that constitute forward-looking statements, including
our guidance, outlook and statements about our expectations for
future financial performance. Forward-looking statements are based
on our beliefs, assumptions and expectations of industry trends,
our future financial and operating performance and our growth,
taking into account the information currently available to us.
These statements are not statements of historical fact.
Forward-looking statements involve risks and uncertainties that may
cause our actual results to differ materially from the expectations
of future results we express or imply in any forward-looking
statements and you should not place undue reliance on such
statements. Factors that could contribute to these differences
include, but are not limited to: reductions or changes in Medicaid
or other funding; changes in budgetary priorities by federal, state
and local governments; substantial claims, litigation and
governmental proceedings; reductions in reimbursement rates or
changes in policies or payment practices by the Company’s payors;
increases in labor costs; matters involving employees that may
expose the Company to potential liability; the Company’s
substantial amount of debt; the Company’s ability to comply with
billing and collection rules and regulations; changes in economic
conditions; increases in insurance costs; increases in workers
compensation-related liability; the Company’s ability to maintain
relationships with government agencies and advocacy groups;
negative publicity; the Company’s ability to maintain existing
service contracts and licenses; the Company’s ability to implement
its growth strategies successfully; the Company’s financial
performance; and other factors described in “Risk Factors” in
Civitas’ Form 10-K. Words such as “anticipates”, “believes”,
“continues”, "positions", “estimates”, “expects”, “goal”,
"aspiration", “objectives”, “intends”, “may”, “hope”,
“opportunity”, “plans”, “potential”, “near-term”, “long-term”,
“projections”, “assumptions”, “projects”, “guidance”, “forecasts”,
“outlook”, “target”, “trends”, “should”, “could”, “would”, “will”
and similar expressions are intended to identify such
forward-looking statements. We qualify any forward-looking
statements entirely by these cautionary factors. We assume no
obligation to update or revise any forward-looking statements for
any reason, or to update the reasons actual results could differ
materially from those anticipated in these forward-looking
statements, even if new information becomes available in the
future. Comparisons of results for current and any prior periods
are not intended to express any future trends or indications of
future performance, unless expressed as such, and should only be
viewed as historical data.
Select Financial Highlights($ in thousands, except
share and per share data)(unaudited)
Three Months EndedSeptember 30, Year
EndedSeptember 30,
2016
2015
2016
2015
Net revenue $ 362,194 $ 351,182 $ 1,407,587 $ 1,366,946 Cost of
revenue 280,796 273,340 1,092,181 1,059,364 Operating expenses:
General and administrative expenses 52,035 43,387 184,649 162,839
Depreciation and amortization 18,109 17,894
73,061 82,172 Total operating
expenses 70,144 61,281 257,710
245,011 Income from operations 11,254 16,561
57,696 62,571 Other income (expense): Management fee of related
party — 190 — 28 Other income (expense), net 190 (992 ) (908 )
(1,325 ) Extinguishment of debt — — — (17,058 ) Interest expense
(8,511 ) (8,587 ) (34,041 ) (37,455 )
Income from continuing operations before income taxes 2,933 7,172
22,747 6,761 Provision for income taxes 258
2,874 13,290 2,689 Income from
continuing operations 2,675 4,298 9,457 4,072 Loss from
discontinued operations, net of tax (15 ) (34 )
(270 ) (1,000 ) Net income $ 2,660 $ 4,264
$ 9,187 $ 3,072 Income (loss) per common
share, basic Income from continuing operations $ 0.07 $ 0.12 $ 0.25
$ 0.11 Loss from discontinued operations — —
— (0.03 ) Net income $ 0.07 $
0.12 $ 0.25 $ 0.08 Income (loss) per common
share, diluted Income from continuing operations $ 0.07 $ 0.11 $
0.25 $ 0.11 Loss from discontinued operations —
— — (0.03 ) Net income $ 0.07
$ 0.11 $ 0.25 $ 0.08 Weighted average
number of common shares outstanding, basic 37,145,034 36,989,663
37,112,794 36,959,997 Weighted average number of common shares
outstanding, diluted 37,307,979 37,212,475 37,262,915 37,088,632
Selected Balance Sheet and Cash Flow
Highlights($ in thousands)(unaudited)
As of September 30, 2016 September 30,
2015 Cash and cash equivalents $ 50,683 $ 41,690 Working
capital (a) $ 77,354 $ 60,150 Total assets $ 1,092,048 $ 1,063,184
Total debt (b) $ 644,591 $ 651,643 Net debt (c) $ 543,908 $ 559,953
Stockholders' equity $ 145,590 $ 121,275
Year Ended
September 30,
2016
2015
Cash flows provided by (used in): Operating activities $ 107,122 $
90,478 Investing activities $ (87,426 ) $ (79,004 ) Financing
activities (d) $ (10,703 ) $ (165,931 ) Purchases of property and
equipment $ (43,356 ) $ (42,793 ) Acquisition of businesses, net of
cash acquired $ (45,196 ) $ (38,738 )
(a) Calculated as current assets minus current liabilities.(b)
Includes obligations under capital leases.(c) Represents net debt
as defined in our senior credit agreement (total debt, net of cash
and cash equivalents and restricted cash). See Reconciliation of
non-GAAP Financial Measures for a reconciliation of total debt to
net debt.(d) A portion of the IPO proceeds of $182.2 million that
we received in fiscal 2014 was used to retire $162.0 million of
senior unsecured notes on October 17, 2014 and pay the related
redemption premium and fees.
Reconciliation of Non-GAAP Financial Measures($ in
thousands)(unaudited)
Three Months EndedSeptember
30,
Year EndedSeptember 30,
2016
2015
2016
2015
Net income $ 2,660 $ 4,264 $ 9,187 $ 3,072 Loss from discontinued
operations, net of tax 15 34 270 1,000 Provision for income taxes
258 2,874 13,290 2,689 Interest expense, net 8,511 8,825 33,811
37,943 Depreciation and amortization 18,109 17,894 73,061 82,172
Adjustments: Management fee of related party (a) — (190 ) —
(28 ) Stock-based compensation (b) 1,872 1,477 17,072 5,238
Extinguishment of debt and related costs (c) — — — 17,259 Long-term
compensation plan payment (d) — — — 2,470 Exit costs(e) — — 2,005 —
Contingent consideration adjustment (f) 961 — 616 — Sale of
business(g) — — 1,250 — Goodwill impairment(h) 10,251 — 10,251 —
Secondary offering costs(i) — 1,023 — 1,023 Retirement
compensation(j) — 1,688 — 1,688
Adjusted EBITDA $ 42,637 $ 37,889 $ 160,813 $ 154,526
(a) Represents adjustments to reimbursable expenses under our
management agreement with our private equity sponsor that were
incurred prior to the termination of this agreement in September
2014.(b) Represents non-cash stock-based compensation expense. For
the year ended September 30, 2016, stock-based compensation
includes $10.5 million of expense related to certain awards under
our former equity compensation plan that vested in connection with
our secondary offering and the distribution of our shares held by
NMH Investment, LLC in October 2015. The vesting of these awards
impacted the allocation of the shares of Civitas that were
distributed from NMH Investment, LLC to our private equity sponsor
and management and not the number of shares outstanding.(c)
Represents the costs associated with the redemption of $162.0
million and $50.0 million of senior notes in October 2014 and March
2015, respectively, and the write-off of the associated deferred
financings costs and original issue discount.(d) Represents
payments associated with the termination of an equity-like plan for
employees of the CareMeridian business unit made in connection with
our initial public offering ("IPO").(e) Represents expenses of $0.5
million for severance and $1.5 million for lease terminations
associated with our ARY divestitures.(f) Represents the fair value
adjustment associated with acquisition related contingent
consideration liabilities.(g) Represents the loss recorded on the
sale of our ARY North Carolina business.(h) Represents the non-cash
goodwill impairment charge related to the ADH reporting unit.(i)
Represents professional service fees and other costs incurred in
connection with the Company's secondary offering that was completed
in October 2015.(j) Represents expense for the contractual
retirement benefits to the Company's former Executive Chair that
are payable over a 24-month period which began on the retirement
date of December 31, 2015.
Reconciliation of Non-GAAP
Financial Measures (continued)($ in
thousands)(unaudited)
Reconciliations of net revenue to net
revenue excluding ARY divested operations, during the three and
twelve months endedSeptember 30, 2016 and 2015 are as follows:
Three Months EndedSeptember 30,
2016
2015
$Change % Change Net revenue $ 362,194 $ 351,182 $
11,012 3.1 % Less ARY divested operations net revenue 140
10,679 (10,539 ) Net revenue excluding ARY divested
operations $ 362,054 $ 340,503 $ 21,551 6.3 %
Three
Months EndedSeptember 30,
2016
2015
$Change % Change Human Services net revenue $ 286,650
$ 282,915 $ 3,735 1.3 % Less ARY divested operations net revenue
140 10,679 (10,539 ) Human Services net
revenue excluding ARY divested operations $ 286,510 $ 272,236 $
14,274 5.2 %
Year EndedSeptember 30,
2016
2015
$Change % Change Net revenue $ 1,407,587 $ 1,366,946
$ 40,641 3 % Less ARY divested operations net revenue 7,062
53,941 (46,879 ) Net revenue excluding ARY divested
operations $ 1,400,525 $ 1,313,005 $ 87,520 6.7 %
Year
EndedSeptember 30,
2016
2015
$Change % Change Human Services net revenue $
1,118,494 $ 1,103,026 $ 15,468 1.4 % Less ARY divested operations
net revenue 7,062 53,941 (46,879 ) Human
Services net revenue excluding ARY divested operations $ 1,111,432
$ 1,049,085 $ 62,347 5.9 %
A reconciliation of total debt to net debt is as follows:
As of September 30, 2016
September 30, 2015 Total debt $ 644,591 $ 651,643 Cash and
cash equivalents (50,683 ) (41,690 ) Restricted cash (50,000
) (50,000 ) Net debt $ 543,908 $ 559,953
About Civitas
Civitas Solutions, Inc. is the leading national provider of
home- and community-based health and human services to must-serve
individuals with intellectual, developmental, physical or
behavioral disabilities and other special needs. Since our founding
in 1980, we have evolved from a single residential program to a
diversified national network offering an array of quality services
in 35 states.
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version on businesswire.com: http://www.businesswire.com/news/home/20161214006204/en/
Civitas Solutions, Inc.Dwight Robson, 617-790-4800Chief Public
Strategy and Marketing
Officerdwight.robson@civitas-solutions.com
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