After Retiring Publicly Traded Debt, CRC Health Will No Longer Report Quarterly Financials

Addiction Treatment Industry Newswire

05/22/2014 -ATIN – After nearly a decade of publicly reporting its finances in quarterly reports due to the fact that certain portions of its debt were traded publicly in the same way stocks are traded publicly, the nation’s largest “pure play” addiction treatment provider CRC Health Corp. will no longer be making its quarterly financial reports after the company earlier this year completed the refinancing of its 10.75% publicly traded notes,

CRC reported in an 8K filing with the Securities and Exchange Commission and its CEO Jerry Rhodes confirmed for Treatment Magazine. The development is a key one for the approximately $35B a year addiction treatment industry because, due to the breadth of CRC’s operations in virtually all areas of addictions care – public and privately financed residential and outpatient care, by far the largest nationwide chain of medicated-assisted opiate care clinics, the world’s largest chain of adolescent therapeutic boarding schools, etc… – the quarterly reports from CRC provided one of the very few regular, publicly available insights into the health of the addiction treatment industry as a whole…. with CRC’s financial results to some extent being a proxy – we emphasize, only to some extent – for the entire treatment industry.

Jerry Rhodes Comments

In response to questions from Treatment Magazine about whether, and more importantly why, CRC would no longer be reporting quarterly with the SEC, Rhodes said: “your [Treatment Magazine’s] interpretation is correct and supporting this {is} the fact that CRC had the opportunity to refinance its debt on favorable terms. In connection with this refinancing, CRC bought out all of its senior subordinated debt. This was the publicly traded debt pursuant to which CRC was required to file its financials pursuant to the Securities Act of 1934. Since CRC no longer holds publicly traded debt, CRC no longer is required to file public financial statements. This decision was based solely on what CRC felt was the best available refinancing terms.” In, other words what Rhodes and CRC are saying is that it retired the publicly traded portion of its debt, and thus became a private company once again, solely because the company was able to refinance that debt on favorable terms. Of course, that begs the questions: why didn’t CRC make the newly refinanced debt publicly traded and thus remain a publicly traded company and why did CRC make the original $200M of 10.75% private notes, used by CRC founder Barry Karlin to finance CRC’s $135M purchase of venerable Sierra Tucson way back 2005, publicly traded in the first place?

Analyst Following

While the only comment Rhodes would provide was that made above, we here at Treatment Magazine believe that CRC’s decision to make the original 10.75% notes publicly traded was to find a way to quietly make CRC a publicly traded entity with regular quarterly filings so that Wall Street would develop an analyst following for CRC which would have smoothed the way for a possible stock IPO eventually, allowing as it would have, and has had, a chance for investors to follow CRC’s progress. Also, after it’s nearly three quarters of a billion dollar buyout in late 2005 by Bain Capital, CRC became a highly leveraged investment play and the quarterly SEC filings also allowed for debt analysts to conveniently follow the company. Since then, of course, much has changed; most importantly the monster housing-led recession that devastated CRC’s nearly $300M purchase of youth therapeutic schools giant Aspen Education and, thus, the rationale behind CRC quarterly filings has basically faded away. It is clearly no longer in CRC’s interest to have its financial numbers published publicly and the company has every right, and even a duty to investors in its private equity funds, to return to private status to maintain the confidentiality of its financials that is a key competitive advantage husbanded greatly by all private companies.

CRC’s Last and Latest Public Numbers

In another 8K SEC filing by CRC recently, the company has given what will likely be among the very last snapshots of its operations. In the 8K, CRC reports preliminary client services revenues – revenues from providing addiction treatment services to its clientele – of $456M for the 2013 year ending Dec 31 and including the key acquisition made in late 2013 of a the big chain of Northeast opiate clinics Habit OPCO. CRC’s adjusted “pro forma” (non-GAAP) cash flow (EBITDA) for the same period and also including Habit OPCO was just shy of $120M. Habit OPCO’s contribution on the revenue side for 2013 was about $43M and on the cash flow side about $19M. Full year 2012 CRC client services revenues were about $452M, according to CRC’s 2012 10K filing of full annual results which was filed with the SEC in early 2013