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TMCNet:  National Mentor Holdings, Inc. Announces Results for its Third Quarter Ended June 30, 2014

[August 13, 2014]

National Mentor Holdings, Inc. Announces Results for its Third Quarter Ended June 30, 2014

BOSTON --(Business Wire)--

National Mentor Holdings, Inc. (the "Company") today announced its financial results for the third quarter ended June 30, 2014.

The Company also announced that it is not holding a conference call to discuss third quarter results. The Company's indirect parent company, Civitas Solutions, Inc., has filed an S-1 Registration Statement and therefore is in an SEC (News - Alert)-imposed quiet period.

Third Quarter Results

Revenue for the quarter ended June 30, 2014 was $321.6 million, an increase of $17.2 million, or 5.7%, over revenue for the quarter ended June 30, 2013. Revenue increased $8.6 million from organic growth, including growth related to new programs, and $8.6 million from acquisitions that closed during and after the three months ended June 30, 2013.

Income from operations for the quarter ended June 30, 2014 was $16.0 million, an increase of $0.2 million as compared to income from operations for the quarter ended June 30, 2013. Net loss for the quarter ended June 30, 2014 was $45 thousand compared to a net loss of $2.5 million for the quarter ended June 30, 2013.

Adjusted EBITDA1 for the quarter ended June 30, 2014 was $35.8 million, an increase of $4.1 million, or 12.8%, as compared to Adjusted EBITDA for the quarter ended June 30, 2013. Adjusted EBITDA increased due to organic growth and acquisitions closed since June 30, 2013 as well as expense leveraging and cost containment efforts. The growth in Adjusted EBITDA was partially offset by an increase in occupancy expense.

Year-to-Date Results

Revenue for the nine months ended June 30, 2014 was $938.9 million, an increase of $45.3 million, or 5.1%, over revenue for the nine months ended June 30, 2013. Revenue increased $26.8 million from organic growth, including growth related to new programs, and $18.5 million from acquisitions that closed during and after the nine months ended June 30, 2013.

Income from operations for the nine months ended June 30, 2014 was $44.2 million, an increase of $9.9 million as compared to income from operations for the nine months ended June 30, 2013. Net loss was $16.3 million and $18.7 million for the nine months ended June 30, 2014 and 2013, respectively.

Adjusted EBITDA for the nine months ended June 30, 2014 was $97.1 million, an increase of $14.7 million, or 17.9%, as compared to Adjusted EBITDA for the nine months ended June 30, 2013. Adjusted EBITDA increased due to organic growth and acquisitions closed since June 30, 2013 as well as expense leveraging and cost containment efforts. The growth in Adjusted EBITDA was partially offset by an increase in occupancy expense.

The reported results are available on the Company's investor relations web site at www.tmnfinancials.com. The password "results" is required in order to access this site.

Non-GAAP Financial Measures

This earnings release includes a presentation of EBITDA and Adjusted EBITDA, which are non-GAAP financial measures. EBITDA and Adjusted EBITDA are presented because they are important measures used by management to assess financial performance, and management believes they provide a more transparent view of the Company's underlying operating performance and operating trends. Reconciliations of net loss to EBITDA and Adjusted EBITDA are presented within the tables below.

EBITDA and Adjusted EBITDA do not represent and should not be considered alternatives to net income or cash flows from operations, as determined by accounting principles generally accepted in the United States, or GAAP. While EBITDA and Adjusted EBITDA are frequently used as measures of financial performance and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to potential inconsistencies in the methods of calculation. EBITDA and Adjusted EBITDA should be reviewed in conjunction with the Company's financial statements filed with the SEC.

The Adjusted EBITDA presented in this earnings release differs from the Company's prior presentation of Pro Forma Adjusted EBITDA. The difference between the two measures is that the new Adjusted EBITDA does not include certain adjustments that were previously included in Pro Forma Adjusted EBITDA. Reconciliations of the new Adjusted EBITDA to the prior Pro Forma Adjusted EBITDA as presented in the earnings release for the three and nine months ended June 30, 2013 are presented in the footnotes to the tables below.

About the Company

National Mentor Holdings, Inc., which markets its services under the name The MENTOR Network, is a leading provider of home and community-based health and human services to adults and children with intellectual and/or developmental disabilities, acquired brain injury and other catastrophic injuries and illnesses; and to youth with emotional, behavioral and medically complex challenges. The MENTOR Network's customized services offer its clients, as well as the payors of these services, an attractive, cost-effective alternative to health and human services provided in large, institutional settings. The MENTOR Network provides services to clients in 36 states. Additional information is available on the company's web site at www.thementornetwork.com.

Forward-Looking Statements

From time to time, the Company may make forward-looking statements in its public disclosures. The forward-looking statements are based on estimates and assumptions made by management of the Company and are believed to be reasonable, although they are inherently uncertain and difficult to predict. The forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from any such forward-looking statements, including the risks and uncertainties disclosed under the captions "Forward-Looking Statements" and "Risk Factors" in the Company's filings with the Securities and Exchange Commission.

1 Adjusted EBITDA is a non-GAAP financial measure. See "Non-GAAP Financial Measures".




               

Selected Financial Highlights

 

($ in thousands)

(unaudited)

Three Months Ended

June 30,

Nine Months Ended

June 30,

Statements of Operations Data:

2014

2013

2014

2013

Net revenue $ 321,564 $ 304,335 $ 938,861 $ 893,541
Cost of revenue (exclusive of depreciation expense shown separately below) 250,552 234,626 734,887 700,401
General and administrative expenses 36,671 37,014 108,811 110,879
Depreciation and amortization  

18,317

 

   

16,826

 

     

50,987

 

   

47,970

 

Income from operations 16,024 15,869 44,176 34,291
Management fee of related party (342 ) (321 ) (1,041 ) (985 )
Other income (expense), net 124 (106 ) 499 628

Extinguishment of Debt

-

-

(14,699

)

-

Interest income 25 33 163 109
Interest expense  

(16,253

)

   

(19,535

)

     

(53,204

)

   

(58,482

)

Loss from continuing operations before income taxes (422 ) (4,060 ) (24,106 ) (24,439 )
Benefit for income taxes  

(380

)

   

(1,653

)

     

(7,833

)

   

(8,437

)

Loss from continuing operations (42 ) (2,407 ) (16,273 ) (16,002 )
Gain (loss) from discontinued operations, net of tax  

(3

)

   

(64

)

     

19

 

   

(2,678

)

Net loss $ (45 ) $ (2,471 ) $ (16,254 ) $ (18,680 )
Additional financial data:
Program rent expense $ 10,728 $ 9,743 $ 31,377 $ 28,541
 
 

Reconciliation of Non-GAAP Financial Measures

 

($ in thousands)

(unaudited)

               

Three Months Ended

June 30,

Nine Months Ended

June 30,

2014

2013

2014

2013

 
(dollars in thousands)
Net loss

$

(45

)

$ (2,471 ) $ (16,254 ) $ (18,680 )
Loss (gain) from discontinued operations, net of tax 3 64 (19 ) 2,678
Benefit for income taxes (380 ) (1,653 ) (7,833 ) (8,437 )
Interest expense, net 16,228 19,502 53,041 58,373
Depreciation and amortization 18,317 16,826   (50,987 )     (47,970 )
EBITDA 34,123 32,268 79,922 81,904
Adjustments:
Management fee of related party (b) 342 321 1,041 985
Stock based compensation (c) 46 20 103 253
Predecessor provider tax reserve adjustments (d) - (2,118 ) - (2,118 )
Extinguishment of debt (e) - - 14,699 -
Non-cash impairment charges (f) 1,310 1,262   1,310       1,334  
Adjusted EBITDA $ 35,821 $

31,753(a)

 

$ 97,075 $

82,358(a)

 

 

Supplemental Information

Operating losses for new starts (g) $ 1,767 $ 2,408 $ 4,491 $ 7,852
Pro forma acquired EBITDA (h) 161 - 1,748 22
 

a) Adjusted EBITDA for the three and nine months ended June 30, 2013 is presented in accordance with the new basis of presentation in this earnings release. The following table sets forth a reconciliation of Adjusted EBITDA reported in this earnings release to Pro Forma Adjusted EBITDA as presented in the earnings release for the three and nine months ended June 30, 2013.

           
Three Months Ended

June 30, 2013

Nine Months Ended

June 30, 2013

Adjusted EBITDA

$

31,753

$ 82,358
PL/GL tail reserve - 2,427
Transaction-related costs, fees and expenses 279 655
Loss on disposal of assets 143 220
Operating losses from new starts 2,544 7,987
Business optimization expenses 33 161
Acquired EBITDA  

-

 

     

22

 

Pro Forma Adjusted EBITDA $ 34,752 $ 93,830
 

b) Represents management fees incurred under our management agreement with Vestar.

c) Represents non-cash stock based compensation.

d) Represents an adjustment to a reserve for a provider tax that is not required to be paid.

e) Represents the write-off of the remaining deferred financings costs on debt that we refinanced during the second quarter of fiscal 2014.

f) Represents impairment charges associated with intangible assets related to the closing of underperforming programs.

g) Adjusted EBITDA does not include any adjustments for "operating losses from new starts." Operating losses for new starts represents losses from any new start programs initiated within 18 months of the end of the period that had operating losses during the period. Net operating loss from a new start is defined as its revenue for the period less direct expenses but not including allocated overhead costs.

h) Adjusted EBITDA does not include any adjustments for "pro forma acquired EBITDA." Pro forma acquired EBITDA represents pre-closing EBITDA with respect to acquisitions made during the period based on actual EBITDA generated by the acquired entity or business from the most recent 12-month period that is available at the time of acquisition, after giving effect to identified adjustments as a result of the combination, pro-rated for the portion of that 12-month period that falls within the applicable reporting period.

         

Selected Balance Sheet and Cash Flow Highlights

 

($ in thousands)

(unaudited)

 
As of
June 30, 2014 September 30, 2013

Balance Sheet Data:

Cash and cash equivalents $ 47,401 $ 19,315
Working capital (a) 65,390 58,267
Total assets 1,030,920 1,020,372
Total debt (b) 817,128 803,464
Net debt (c) 719,727 734,149
Shareholder's deficit

(75,742

)

(60,831

)

 

Nine Months
Ended

June 30, 2014

June 30, 2013

Other Financial Data:

 

 

Cash flows provided by (used in):

Operating activities

$

66,667

$

32,654

Investing activities

(39,711

)

(21,033

)

Financing activities

1,130

4,465

Purchases of property and equipment

(24,271

)

(22,334

)

Cash paid for acquisitions

(15,178

)

(475

)

 
 

(a) Calculated as current assets minus current liabilities

(b) Includes obligations under capital leases.

(c) Net debt as defined in the senior credit agreement (total debt, net of cash and cash equivalents and LOC restricted cash of $50 million).


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