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8-K - FORM 8-K - NATIONAL MENTOR HOLDINGS, INC.d270254d8k.htm

Exhibit 99.1

Press Release

National Mentor Holdings, Inc. Announces Fourth Quarter 2011

Results

BOSTON, Massachusetts, December 27, 2011– National Mentor Holdings, Inc. (the “Company”) today announced its financial results for the fourth quarter and fiscal year ended September 30, 2011.

Fourth Quarter Results

Revenue for the quarter ended September 30, 2011 was $271.5 million, an increase of $13.0 million, or 5.0%, over revenue for the quarter ended September 30, 2010. Revenue increased $9.6 million related to acquisitions that closed during and after the three months ended September 30, 2010 and $3.4 million related to organic growth, including growth related to new programs. Modest organic growth was achieved despite the negative impact of rate reductions in some states, including Oregon.

Income from operations for the quarter ended September 30, 2011 was $4.8 million, a decrease of $4.8 million as compared to income from operations for the quarter ended September 30, 2010. The operating margin was 1.8% for the quarter ended September 30, 2011, a decrease from 3.7% for the quarter ended September 30, 2010.

Net loss for the quarter ended September 30, 2011 was $14.5 million compared to net loss of $1.5 million for the quarter ended September 30, 2010. In addition to the factors noted below with respect to Adjusted EBITDA, other factors contributing to net loss included an increase in interest expense, an impairment charge related to indefinite lived trade names, an increase in loss from discontinued operations and an increase in depreciation and amortization expense.

Adjusted EBITDA(1) for the quarter ended September 30, 2011 was $26.4 million, a decrease of $2.2 million, or 7.6%, as compared to Adjusted EBITDA for the quarter ended September 30, 2010. Adjusted EBITDA was negatively impacted by an increase in direct labor costs as the Company increased staffing to prepare for growth opportunities, an increase in occupancy expense and the Company’s decision to pay a one-time cash bonus to direct care workers, $1.3 million of which was recorded in the fourth quarter. In addition, Adjusted EBITDA was negatively impacted by increased expense related to higher self-insured retentions and higher premiums for professional and general liability insurance, higher reserves for employment practices liability claims and rate reductions in some states, including Oregon.

 

(1)

Adjusted EBITDA is a non-GAAP financial performance measure used by management, which is net income (loss) before interest expense and interest income, income taxes, depreciation and amortization, and certain non-operating expenses. A reconciliation of Adjusted EBITDA to net loss is provided on page 6.


Fiscal Year Results

Revenue for the fiscal year ended September 30, 2011 (“fiscal 2011”) was $1,070.6 million, an increase of $59.1 million, or 5.8%, over revenue for the fiscal year ended September 30, 2010 (“fiscal 2010”). Revenue increased $43.0 million related to acquisitions that closed during and after fiscal 2010 and $16.1 million related to organic growth, including growth related to new programs. Modest organic growth was achieved despite the negative impact of rate reductions in several states, including Indiana, Oregon and Wisconsin.

Income from operations for fiscal 2011 was $35.2 million, a decrease of $9.5 million as compared to income from operations for fiscal 2010. The operating margin was 3.3% for fiscal 2011, a decrease from 4.4% for fiscal 2010.

Net loss for fiscal 2011 was $34.1 million compared to net loss of $6.9 million for fiscal 2010. In addition to the factors noted below with respect to Adjusted EBITDA, expenses related to the Company’s refinancing transactions contributed to net loss, partially offset by a gain recognized upon the repurchase of the Company’s investment in the notes issued by its indirect parent company, NMH Holdings, Inc. In addition, other factors contributing to net loss for fiscal 2011 included an increase in interest expense, an increase in depreciation and amortization expense, an impairment charge related to indefinite lived trade names; stock-based compensation expense related to the equity issuance in the third quarter; expense related to the restructuring of certain corporate and field functions, and expense for discretionary recognition bonuses in the second quarter.

Adjusted EBITDA(1) for fiscal 2011 was $113.9 million, an increase of $5.0 million, or 4.6%, as compared to Adjusted EBITDA for fiscal 2010. The increase in Adjusted EBITDA was the result of the increase in revenue noted above, as well as our on-going cost containment efforts. Partially offsetting this increase, Adjusted EBITDA was negatively impacted by increased occupancy expense, increased expense related to higher self-insured retentions and premiums for professional and general liability insurance, the Company’s decision to pay a one-time cash bonus to direct care workers totaling $3.8 million, rate reductions in several states, including Indiana, Oregon and Wisconsin and higher reserves for employment practices liability claims.


The reported results are available on the Company’s investor relations web site at www.tmnfinancials.com. The user name “mentor” and the password “results” are required in order to access this site. In addition, National Mentor Holdings, Inc. will hold a conference call Friday, January 6, 2012 at 11:00 a.m. EST to discuss its financial results. The call will be broadcast live on the web at www.tmnfinancials.com and at www.fulldisclosure.com. A rebroadcast of the call will be available on both web sites until 5:00 p.m. EST on Friday, January 13, 2012. Those wishing to participate in the January 6 conference call by telephone are required to email their name and affiliation to dwight.robson@thementornetwork.com for dial-in information.

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/or medically complex challenges. The MENTOR Network’s customized service plans offer its clients, as well as the payors for 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 33 states.


* * * * * * * * * * *

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 as Forward-Looking Statements and Risk Factors included in the Company’s filings with the Securities and Exchange Commission.

This press release includes presentations of Adjusted EBITDA because it is the primary measure used by management to assess financial performance. Adjusted EBITDA represents net income (loss) before interest expense and interest income, income taxes, depreciation and amortization, and certain non-operating expenses. Reconciliations of net income (loss) to Adjusted EBITDA are presented within the tables below. Adjusted EBITDA does not represent and should not be considered an alternative to net income or cash flows from operations, as determined by accounting principles generally accepted in the United States, or GAAP. While Adjusted EBITDA is frequently used as a measure of financial 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 method of calculation.


Selected Financial Highlights

($ in thousands)

(unaudited)

 

September 30, September 30, September 30, September 30,
       Three Months Ended
September 30
     Fiscal Year Ended
September 30
 
       2011      2010      2011      2010  

Statements of Operations Data:

             

Net revenue

     $ 271,466       $ 258,448       $ 1,070,610       $ 1,011,469   

Cost of revenue (exclusive of depreciation expense shown separately below)

       211,697         199,015         829,032         776,656   

General and administrative expenses

       39,050         35,574         144,516         133,731   

Depreciation and amortization

       15,953         14,268         61,901         56,413   
    

 

 

    

 

 

    

 

 

    

 

 

 

Income from operations

       4,766         9,591         35,161         44,669   

Management fee of related party

       (319      (366      (1,271      (1,208

Other expense, net

       (701      7         (159      (339

Extinguishment of debt

       —           —           (19,278      —     

Gain from available for sale investment security

       —           —           3,018         —     

Interest income

       —           7         22         42   

Interest income from related party

       —           496         684         1,921   

Interest expense

       (19,768      (11,696      (61,718      (46,693
    

 

 

    

 

 

    

 

 

    

 

 

 

Loss from continuing operations before income taxes

       (16,022      (1,961      (43,541      (1,608

Benefit for income taxes

       (5,665      (268      (14,427      (205
    

 

 

    

 

 

    

 

 

    

 

 

 

Loss from continuing operations

       (10,357      (1,693      (29,114      (1,403

(Loss) income from discontinued operations, net of tax

       (4,161      221         (5,028      (5,464
    

 

 

    

 

 

    

 

 

    

 

 

 

Net loss

     $ (14,518    $ (1,472    $ (34,142    $ (6,867
    

 

 

    

 

 

    

 

 

    

 

 

 

Additional financial data:

             

Program rent expense

     $ 7,970       $ 7,472       $ 31,994       $ 29,206   

Adjusted EBITDA

     $ 26,399       $ 28,583       $ 113,896       $ 108,882   


Reconciliation of Non-GAAP Financial Measures

($ in thousands)

(unaudited)

 

September 30, September 30, September 30, September 30,
       Three Months Ended
September 30
     Fiscal Year Ended
September 30
 
       2011      2010      2011      2010  

Reconciliation from Net loss to Adjusted EBITDA:

             

Net loss

     $ (14,518    $ (1,472    $ (34,142    $ (6,867

Loss (income) from discontinued operations, net of tax

       4,161         (221      5,028         5,464   

Benefit for income taxes

       (5,665      (268      (14,427      (205

Gain from available for sale investment security .

       —           —           (3,018      —     

Interest income

       —           (7      (22      (42

Interest income from related party

       —           (496      (684      (1,921

Interest expense

       19,768         11,696         61,718         46,693   

Depreciation and amortization

       15,953         14,268         61,901         56,413   

Extinguishment of debt (1)

       —           —           19,278         —     

Noncash impairment charges (2)

       5,993         —           5,993         —     

Stock-based compensation (3)

       166         39         3,675         677   

Restructuring (4)

       445         125         2,984         255   

Discretionary recognition bonuses (5)

       —           —           2,361         —     

Management fee of related party (6)

       319         366         1,271         1,208   

Lease termination fee (7)

       —           —           713         —     

Acquisition expenses (8)

       110         270         673         1,272   

Claims made insurance liability (9)

       375         2,339         580         2,339   

Terminated transaction costs (10)

       —           1,431         549         1,431   

Predecessor company claims (11)

       —           —           —           181   

Loss (gain) on disposal of assets

       92         161         (56      560   

Change in fair value of contingent consideration (12)

       (800      352         (479      1,424   
    

 

 

    

 

 

    

 

 

    

 

 

 

Adjusted EBITDA (13)

     $ 26,399       $ 28,583       $ 113,896       $ 108,882   
    

 

 

    

 

 

    

 

 

    

 

 

 


Selected Balance Sheet and Cash Flow Highlights

($ in thousands)

(unaudited)

 

September 30, September 30,
       As of  
       September 30, 2011      September 30, 2010  

Balance Sheet Data:

       

Cash and cash equivalents

     $ 263       $ 26,448   

Working capital (14)

       12,028         34,904   

Total assets

       1,010,850         1,015,885   

Total debt (15)

       784,124         506,182   

Net debt (16)

       733,861         486,089   

Shareholder’s equity

       (31,123      225,133   

 

September 30, September 30,
       Fiscal Year Ended  
       September 30, 2011      September 30, 2010  

Other Financial Data :

       

Cash flows provided by (used in):

       

Operating activities

     $ 30,199       $ 71,568   

Investing activities

       (82,542      (64,846

Financing activities

       26,158         (3,924

Purchases of property and equipment (including accrued property, plant and equipment)

       (22,479      (20,873

Cash paid for acquisitions (including cash paid for contingent consideration)

       (19,408      (49,337

 

(1)

Represents costs related to extinguish the old debt as part of the February 2011 refinancing, including tender premium and consent fees, financing costs and transaction costs.

(2)

Represents impairment charges associated with indefinite lived intangible assets and goodwill related to underperforming programs.

(3)

Represents non-cash stock-based compensation.

(4)

Represents costs incurred as part of the restructuring of corporate and certain field functions.

(5)

Represents payment of one-time discretionary bonuses in recognition of individuals’ contributions to enabling the successful closing of the refinancing transactions.

(6)

Represents management fees incurred for payment to Vestar Capital Partners V, L.P.

(7)

Represents an early lease termination fee incurred in conjunction with closing an underperforming program.

(8)

Represents external acquisition expenses.

(9)

Represents a charge to establish a reserve reflecting the total probable loss from incurred but not yet reported liability claims.

(10)

Represents consulting and legal costs related to a transaction which was not completed.

(11)

Represents adjustments for expenses related to professional and general liability insurance claims which occurred prior to the Merger on June 29, 2006.

(12)

Represents changes in fair value of contingent consideration arising from acquisitions.

(13)

Represents net income (loss) before interest expense and interest income, income taxes, depreciation and amortization, and certain non-operating expenses.

(14)

Calculated as current assets minus current liabilities.

(15)

Includes obligations under capital leases.

(16)

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

CONTACT: Dwight Robson at 617-790-4293 or dwight.robson@thementornetwork.com.

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