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8-K - FORM 8-K - NATIONAL MENTOR HOLDINGS, INC.d348573d8k.htm

Exhibit 99.1

Press Release

National Mentor Holdings, Inc. Announces Second Quarter 2012

Results

BOSTON, Massachusetts, May 15, 2012– National Mentor Holdings, Inc. (the “Company”) today announced its financial results for the second quarter ended March 31, 2012.

Second Quarter Results

Revenue for the quarter ended March 31, 2012 was $278.8 million, an increase of $13.9 million, or 5.2%, over revenue for the quarter ended March 31, 2011. Revenue increased $8.4 million from organic growth, including growth related to new programs, and $6.4 million from acquisitions that closed during and after the three months ended March 31, 2011. Revenue growth was partially offset by a reduction in revenue of $0.9 million from businesses we divested during the same period and rate reductions in some states, including Arizona, Florida and Minnesota.

Income from operations for the quarter ended March 31, 2012 was $9.3 million, a decrease of $1.4 million as compared to income from operations for the quarter ended March 31, 2011. The operating margin was 3.3% for the quarter ended March 31, 2012, a decrease from 4.0% for the quarter ended March 31, 2011, for the reasons discussed below with respect to Adjusted EBITDA.

Net loss for the quarter ended March 31, 2012 was $1.1 million compared to net loss of $13.1 million for the quarter ended March 31, 2011. This reflected both an increase in interest expense of $5.8 million and an offsetting non-recurrence of certain one-time expenses incurred during the second quarter of fiscal 2011. During the quarter ended March 31, 2011, the Company recorded $19.3 million in extinguishment of debt costs in connection with the refinancing transactions entered into on February 9, 2011 and recorded $2.4 million in discretionary recognition bonuses. These expenses were partially offset by a $3.0 million gain recognized as the Company’s indirect parent, NMH Holdings, Inc., repurchased its Senior Floating Rate Toggle Notes due 2014 from the Company. In addition, during the quarter ended March 31, 2011, the Company recorded certain other expenses that did not recur during the three months ended March 31, 2012, as detailed in the paragraph on Adjusted EBITDA below.

Adjusted EBITDA(1) for the quarter ended March 31, 2012 was $25.4 million, a decrease of $3.9 million, or 13.2%, as compared to Adjusted EBITDA for the quarter ended March 31, 2011. Adjusted EBITDA was negatively impacted by the rate reductions noted above, by an increase in staffing in anticipation of growth opportunities, an increase in staffing to strengthen quality and service, and by an increase in travel and transportation expense. The increase in expenses was partially offset by the non-recurrence of certain expenses that were incurred during the second quarter of fiscal 2011, namely $1.3 million of expense associated with a one-time bonus to direct care workers and higher reserves for employment practices liability claims.

 

(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.


Year-to-Date Results

Revenue for the six months ended March 31, 2012 was $553.3 million, an increase of $23.8 million, or 4.5%, over revenue for the six months ended March 31, 2011. Revenue increased $15.1 million from organic growth, including growth related to new programs, and $10.5 million from acquisitions that closed during and after the six months ended March 31, 2011. Revenue growth was partially offset by a reduction in revenue of $1.8 million from businesses we divested during the same period and rate reductions in several states, including Arizona, Florida and Minnesota.

Income from operations for the six months ended March 31, 2012 was $21.8 million, a decrease of $0.1 million as compared to income from operations for the six months ended March 31, 2011. The operating margin was 3.9% for the six months ended March 31, 2012, a decrease from 4.1% for the six months ended March 31, 2011, for the reasons discussed below with respect to Adjusted EBITDA.

Net loss for the six months ended March 31, 2012 was $6.1 million compared to net loss of $11.3 million for the six months ended March 31, 2011. This reflected both an increase in interest expense of $17.5 million and an offsetting non-recurrence of certain one-time expenses incurred during the six months ended March 31, 2011. During the six months ended March 31, 2011, the Company recorded $19.3 million in extinguishment of debt costs in connection with the refinancing transactions and recorded $2.4 million in discretionary recognition bonuses. These expenses were partially offset by a $3.0 million gain recognized as NMH Holdings Inc., repurchased its Senior Floating Rate Toggle Notes due 2014 from the Company. In addition, during the six months ended March 31, 2011, the Company recorded certain other expenses that did not recur during the six months ended March 31, 2012, as detailed in the paragraph on Adjusted EBITDA below.

Adjusted EBITDA(1) for the six months ended March 31, 2012 was $53.3 million, a decrease of $4.0 million, or 7.0 %, as compared to Adjusted EBITDA for the six months ended March 31, 2011. Adjusted EBITDA was negatively impacted by the rate reductions mentioned above, by an increase in staffing in anticipation of growth opportunities, an increase in staffing to strengthen quality and service, and by an increase in travel and transportation expense. The increase in expenses was partially offset by a decrease in health insurance expense as a result of a change in plan design effective January 1, 2011 and a significant reduction in the number of large claims compared to prior period. In addition, the increase in expense was partially offset by the non-recurrence of certain expenses that were incurred during the prior period, namely $1.3 million of expense associated with a one-time bonus to direct care workers 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, May 18, 2012 at 11:00 a.m. EDT 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. EDT on Friday, May 25, 2012. Those wishing to participate in the May 18 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 under the captions “Forward-Looking Statements” and “Risk Factors” 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)

 

     Three Months Ended     Six Months Ended  
     March 31     March 31  
     2012     2011     2012     2011  

Statements of Operations Data:

        

Net revenue

   $ 278,829      $ 264,969      $ 553,262      $ 529,442   

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

     218,263        204,860        432,010        409,078   

General and administrative expenses

     35,917        34,704        69,210        69,043   

Depreciation and amortization

     15,363        14,719        30,264        29,430   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     9,286        10,686        21,778        21,891   

Management fee of related party

     (295     (310     (610     (655

Other income, net

     271        247        555        476   

Extinguishment of debt

     —          (19,278     —          (19,278

Gain from available for sale investment security

     —          3,018        —          3,018   

Interest income

     204        6        209        11   

Interest income from related party

     —          190        —          684   

Interest expense

     (19,988     (14,145     (39,775     (22,290
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations before income taxes

     (10,522     (19,586     (17,843     (16,143

Benefit for income taxes

     (9,689     (6,787     (11,994     (5,314
  

 

 

   

 

 

   

 

 

   

 

 

 

Loss from continuing operations

     (833     (12,799     (5,849     (10,829

Loss from discontinued operations, net of tax

     (226     (259     (289     (463
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (1,059   $ (13,058   $ (6,138   $ (11,292
  

 

 

   

 

 

   

 

 

   

 

 

 

Additional financial data:

        

Program rent expense

   $ 7,578      $ 7,792      $ 15,668      $ 15,470   

Adjusted EBITDA

   $ 25,436      $ 29,305      $ 53,259      $ 57,269   


Reconciliation of Non-GAAP Financial Measures

($ in thousands)

(unaudited)

 

     Three Months Ended     Six Months Ended  
     March 31     March 31  
     2012     2011     2012     2011  

Reconciliation from Net loss to Adjusted EBITDA:

        

Net loss

   $ (1,059   $ (13,058   $ (6,138   $ (11,292

Loss from discontinued operations, net of tax

     226        259        289        463   

Benefit for income taxes

     (9,689     (6,787     (11,994     (5,314

Gain from available for sale investment security

     —          (3,018     —          (3,018

Interest income

     (204     (6     (209     (11

Interest income from related party

     —          (190     —          (684

Interest expense

     19,988        14,145        39,775        22,290   

Depreciation and amortization

     15,363        14,719        30,264        29,430   

Management fee of related party (1)

     295        310        610        655   

Restructuring (2)

     185        773        330        1,623   

Stock-based compensation (3)

     168        174        333        174   

Acquisition costs (4)

     94        227        (48     657   

Loss (gain) on disposal of assets

     69        (51     47        (96

Claims made insurance liability (5)

     —          205        —          205   

Terminated transaction costs (6)

     —          (36     —          548   

Extinguishment of debt (7)

     —          19,278        —          19,278   

Discretionary recognition bonuses (8)

     —          2,361        —          2,361   
  

 

 

   

 

 

   

 

 

   

 

 

 

Adjusted EBITDA (9)

   $ 25,436      $ 29,305      $ 53,259      $ 57,269   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(1) Represents management fees incurred for payment to Vestar Capital Partners V, L.P.
(2) Represents costs incurred as part of the restructuring of corporate and certain field functions.
(3) Represents non-cash stock-based compensation.
(4) Represents external acquisition expenses.
(5) Represents a charge to establish a reserve reflecting the total probable loss from incurred but not yet reported employment practices liability claims.
(6) Represents consulting and legal costs related to a transaction which was not completed.
(7) Represents costs related to extinguish the old debt as part of the February 2011 refinancing, including tender premium and consent fees, deferred financing costs and transaction costs.
(8) Represents payment of one-time discretionary bonuses in recognition of individuals’ contributions to enabling the successful closing of the refinancing transactions.
(9) Represents net income (loss) before interest expense and interest income, income taxes, depreciation and amortization, and certain non-operating expenses.


Selected Balance Sheet and Cash Flow Highlights

($ in thousands)

(unaudited)

 

     As of  
Balance Sheet Data:    March 31, 2012     September 30, 2011  

Cash and cash equivalents

   $ 2,554      $ 263   

Working capital (1)

     41,813        12,028   

Total assets

     1,055,209        1,010,850   

Total debt (2)

     808,463        784,124   

Net debt (3)

     755,909        733,861   

Shareholder’s equity

     (36,822     (31,123

 

     Six Months Ended  
Other Financial Data :    March 31, 2012          March 31, 2011  

Cash flows provided by (used in):

       

Operating activities

   $ (2,165      $ 17,735   

Investing activities

     (17,305        (62,026

Financing activities

     21,761           30,387   

Purchases of property and equipment

     14,179           9,194   

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

     3,605           6,666   

 

(1) Calculated as current assets minus current liabilities. Current period reflects the adoption of ASU 2010-24.
(2) Includes obligations under capital leases.
(3) 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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