Civitas Solutions, Inc. (NYSE:CIVI) today reported financial
results for the fiscal first quarter ended December 31, 2016.
First Quarter Fiscal 2017 Highlights
- First quarter net revenue increased
3.9% to $359.4 million; excluding at-risk youth ("ARY") divested
operations, first quarter net revenue increased by 6.1%
- First quarter net income was $4.2
million, compared to a net loss of $5.6 million in the first
quarter of fiscal 2016
- First quarter Adjusted EBITDA increased
3.3% to $37.5 million
“Our first quarter growth reflects increases in volumes and
rates in our I/DD, SRS and ADH service lines, and includes a very
strong operating performance from our SRS service line, in which
gross revenue increased 9.7%. In addition, gross revenue from our
newest service line—adult day health—doubled from the year earlier
period, and we continued to reduce leverage. At the same time, we
maintained our elevated level of new start investment and, while
the first quarter was quiet with regard to the closing of M&A
deals, we are poised to leverage a robust acquisition
pipeline.”
First Quarter Fiscal 2017 Financial Results
Net revenue for the first quarter was $359.4 million, an
increase of $13.6 million, or 3.9%, 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 $6.9 million as compared
to the first quarter of the prior year. Excluding these operations,
net revenue increased by $20.5 million, or 6.1%, of which $11.5
million was from acquisitions that closed during and after the
quarter ended December 31, 2015, and $9.0 million was from organic
growth.
Net revenue consisted of:
- Intellectual and Developmental
Disabilities ("I/DD") services net revenue of $238.2 million, an
increase of 3.6% compared to the first quarter of fiscal 2016.
- Post-Acute Specialty Rehabilitation
Services ("SRS") services net revenue of $74.3 million, an increase
of 9.2% compared to the first quarter of fiscal 2016.
- ARY service net revenue of $35.8
million, a decrease of 15.3% compared to the first quarter of
fiscal 2016. Excluding the ARY divestitures, ARY services net
revenue increased by 1.2%.
- Adult Day Health ("ADH") services net
revenue of $11.1 million, an increase of approximately 100%
compared to the first quarter of fiscal 2016.
Income from operations for the first quarter was $15.5 million,
or 4.3% of net revenue, compared to $7.2 million, or 2.1% of net
revenue, for the first quarter of the prior year. The increase in
our operating margin was driven by a decrease in general and
administrative expenses compared to the first quarter of fiscal
2016. This decrease was primarily due to cost containment efforts
and a $9.6 million reduction in stock based compensation resulting
from a $10.5 million stock based compensation charge recorded
during the first quarter of the prior year related to awards under
our former equity plan. The increase in our operating margin was
partially offset by an increase in direct labor costs, due to
higher amounts of overtime in some markets and increased health
insurance costs, and an increase in occupancy costs due to higher
open occupancy rates primarily within our I/DD business. The
increase was also partially offset by a $2.9 million favorable
adjustment to acquisition related contingent consideration recorded
during the first quarter of the prior year.
Net income for the first quarter was $4.2 million compared to a
net loss of $5.6 million for the same period of the prior year. Net
loss during the first quarter of fiscal 2016 was negatively
affected by the tax impact of the stock compensation charge
described above, which was not deductible for tax purposes.
Basic and diluted net income per common share from continuing
operations was $0.11 for the first quarter ended December 31, 2016,
compared to basic and diluted net loss per common share from
continuing operations of $0.15 for the same period of the prior
year.
Adjusted EBITDA for the first quarter was $37.5 million, or
10.4% of net revenue, compared to Adjusted EBITDA of $36.3 million,
or 10.5% of net revenue, for the first quarter of the prior year.
The increase in our Adjusted EBITDA was primarily due to cost
containment efforts in administrative staffing, business and office
related costs and the positive impact of divesting lower margin ARY
businesses during the first half of fiscal 2016. The increase was
partially offset by the increases in direct labor and occupancy
costs described above.
Fiscal 2017 Outlook and Guidance
The Company is confirming its fiscal year 2017 net revenue and
Adjusted EBITDA guidance that it originally communicated on
December 14, 2016 during the release of fiscal 2016 fourth quarter
and full year
For fiscal 2017, we are maintaining our guidance for net revenue
with a range of $1.48 billion to $1.52 billion and Adjusted EBITDA
with a range of $162.0 million to $166.0 million.
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,
2017
(In millions)
Low-end High-end Net income $
26.7 $ 29.1 Provision for income taxes 17.8 19.4 Interest
expense, net 32.7 32.7 Depreciation and amortization 73.0 73.0
Stock-based compensation 10.0 10.0 Contingent consideration
adjustment 0.4 0.4 Expense reduction project costs 1.4
1.4 Adjusted EBITDA $ 162.0 $ 166.0 Modeling
guidelines for the current fiscal year assume the following:
Average basic and diluted shares
outstanding for the year: 38 million
Capital expenditures: 3.3% of net
revenue
Annual tax rate: 40%
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, Thursday, February 9, 2017, Civitas Solutions
management will host a conference call at 5:00 p.m. (Eastern Time)
to discuss the fiscal 2017 first quarter operating results.
Conference Call Dial-in #: Domestic U.S. Toll
Free: 877-255-4315 International: 412-317-5467
Replay Details (available 1 hour after conclusion of the
conference call through 5/9/2017):
Domestic U.S. Toll Free: 877-344-7529
International: 412-317-0088 Canada Toll Free: 855-669-9658 Replay
Access Code: 10101091
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 May 9,
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 page 7 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 Ended
December 31,
2016
2015
Gross revenue $ 364,441 $ 349,736 Sales adjustments (5,047 )
(3,989 ) Net revenue 359,394 345,747 Cost of revenue 283,976
271,012 Operating expenses: General and administrative expenses
41,792 49,542 Depreciation and amortization 18,155
17,987 Total operating expenses 59,947
67,529 Income from operations 15,471 7,206 Other
income (expense): Other income (expense), net 56 (815 ) Interest
expense (8,485 ) (8,573 ) Income (loss) from
continuing operations before income taxes 7,042 (2,182 ) Provision
for income taxes 2,863 3,392 Income
(loss) from continuing operations 4,179 (5,574 ) Loss from
discontinued operations, net of tax — (30 )
Net income (loss) $ 4,179 $ (5,604 ) Income (loss) per
common share, basic and diluted Income (loss) from continuing
operations $ 0.11 $ (0.15 ) Loss from discontinued operations
— — Net income (loss) $ 0.11 $
(0.15 ) Weighted average number of common shares outstanding, basic
37,231,067 37,095,279 Weighted average number of common shares
outstanding, diluted 37,328,638 37,095,279
Selected Balance Sheet and Cash Flow
Highlights
($ in thousands)
(unaudited)
As of
December 31, 2016
September 30, 2016
Cash and cash equivalents
$
53,725
$ 50,683 Working capital (a) $ 87,879 $ 77,354 Total assets
$ 1,067,921 $ 1,086,158 Total debt (b) $ 642,820 $ 644,591 Net debt
(c) $ 539,095 $ 543,908 Stockholders' equity $ 154,496 $ 145,590
Three Months Ended December 31,
2016 2015 Cash
flows provided by (used in): Operating activities $ 15,797 $ 6,617
Investing activities $ (10,571 ) $ (13,073 ) Financing activities $
(2,184 ) $ (1,040 ) Purchases of property and equipment $ (11,327 )
$ (9,122 ) Acquisition of businesses, net of cash acquired $ — $
(4,156 ) (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.
Reconciliation of Non-GAAP Financial
Measures
($ in thousands)
(unaudited)
Three Months Ended December
31,
2016
2015
Net income $ 4,179 $ (5,604 ) Loss from discontinued
operations, net of tax — 30 Provision for income taxes 2,863 3,392
Interest expense, net 8,481 8,349 Depreciation and amortization
18,155 17,987
Adjustments: Stock-based compensation (a)
2,079 11,719 Exit costs(b) — 2,140 Contingent consideration
adjustment (c) 375 (2,945 ) Sale of business(d) — 1,250 Expense
reduction project costs(e) 1,375 —
Adjusted EBITDA $ 37,507 $ 36,318 (a)
Represents non-cash stock-based compensation expense. For the three
months ended December 31, 2015, stock- based compensation includes
$10.5 million of expense related to certain awards under our former
equity compensation plan that vested in connection with our
secondary offering and the distribution of our shares held by NMH
Investment, LLC in October 2015. The vesting of these awards
impacted the allocation of the shares of Civitas that were
distributed from NMH Investment, LLC to our private equity sponsor
and management and not the number of shares outstanding. (b)
Represents severance and lease terminations costs associated with
our ARY divestitures. (c) Represents the fair value adjustment
associated with acquisition related contingent consideration
liabilities. (d) Represents the loss recorded on the sale of our
North Carolina ARY business. (e) Represents consulting and
severance costs incurred in connection with the Company's project
to optimize business operations and reduce company-wide expenses.
Reconciliation of Non-GAAP Financial
Measures (continued)($ in thousands)(unaudited)
Reconciliations of net revenue to net revenue excluding ARY
divested operations, for the three months ended December 31, 2016
and 2015 are as follows:
Three Months Ended December
31,
2016 2015
$ Change
% Change Net revenue $ 359,394 $ 345,747
$
13,647
3.9 % Less net revenue from ARY divested operations 17
6,889 (6,872 ) Net revenue excluding ARY divested
operations $ 359,377 $ 338,858 $ 20,519 6.1 %
Three Months Ended December
31,
2016 2015
$ Change
% Change ARY net revenue $ 35,757 $ 42,194 $ (6,437 )
(15.3 )% Less net revenue from ARY divested operations 17 6,889
(6,872 ) Human Services net revenue excluding ARY divested
operations $ 35,740 $ 35,305 $ 435 1.2 %
A reconciliation of total debt to net debt
is as follows:
As of
December 31, 2016
September 30, 2016
Total debt
$
642,820
$
644,591
Cash and cash equivalents
53,725
50,683
Restricted cash
50,000
50,000
Net debt
$
539,095
$
543,908
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/20170209006295/en/
Civitas Solutions, Inc.Dwight Robson, 617-790-4800Chief Public
Strategy and Marketing
Officerdwight.robson@civitas-solutions.com
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