PGND Press Ganey Holdings, Inc.

Press Ganey Holdings, Inc. (NYSE: PGND) (the “Company”) announced financial results today for the second quarter and six months ended June 30, 2016.

“We are pleased with our solid performance in the second quarter of 2016. We remain steadfast in our commitment to delivering innovative solutions that help our clients improve the overall safety, quality and experience of care. During the quarter, we also made significant progress integrating Avatar International Holding Company (“Avatar International”), acquired May 2, 2016, into our business operations,” said Patrick T. Ryan, Chief Executive Officer of Press Ganey Holdings, Inc.

Second Quarter 2016 Results

• Revenue was $91.2 million for the quarter compared to $77.5 million for the same period in the prior year, an increase of 17.8%. Revenue growth consisted of 10.8% organic growth and 7.0% acquired growth. Revenue for this year’s quarter included $3.0 million attributable to Avatar International.
• Net income was $7.9 million compared to net loss of $53.8 million for the same period in the prior year. Adjusted net income was $16.0 million compared to $10.9 million for the same period in the prior year, an increase of 46.3%.
• Adjusted EBITDA was $36.3 million compared to $29.1 million for the same period in the prior year, an increase of 24.5%. Adjusted EBITDA for this year’s quarter included a loss of $0.1 million attributable to Avatar International.
• Diluted net income (loss) per share was $0.15 compared to $(1.15) for the same period in the prior year. Adjusted diluted net income per share was $0.30 compared to $0.23 for the same period in the prior year, an increase of 28.0%.

Year to Date 2016 Results

• Revenue was $178.0 million for the six-month period compared to $152.3 million for the same period in the prior year, an increase of 16.8%. Revenue growth consisted of 11.9% organic growth and 4.9% acquired growth. Revenue for this year’s period included $3.0 million attributable to Avatar International.
• Net income was $16.0 million compared to net loss of $47.8 million for the same period in the prior year. Adjusted net income was $30.5 million compared to $20.6 million for the same period in the prior year, an increase of 47.9%.
• Adjusted EBITDA was $70.1 million compared to $56.5 million for the same period in the prior year, an increase of 24.1%. Adjusted EBITDA for this year’s period included a loss of $0.1 million attributable to Avatar International.
• Diluted net income (loss) per share was $0.30 compared to $(1.06) for the same period in the prior year. Adjusted diluted net income per share was $0.57 compared to $0.46 for the same period in the prior year, an increase of 24.8%.

2016 Guidance

The Company currently expects 2016 revenue to be $361 million and adjusted EBITDA to be $141 million, excluding the impact of the May 2, 2016 acquisition of Avatar International. The Company currently expects the acquisition of Avatar International to contribute revenue of $5.5 million to $6 million from continuing clients for the remainder of 2016 and have no material impact on adjusted EBITDA in 2016.

Conference Call Information

The Company will host a conference call on August 2, 2016 at 8:30 a.m. Eastern Time to discuss the second quarter 2016 results. To participate in the Company's live conference call and webcast, please dial 877-201-0168 (647-788-4901 for international participants) using conference code number 28532174, or visit investors.pressganey.com.

About Press Ganey

Press Ganey Holdings (NYSE: PGND) is a leading provider of patient experience measurement, performance analytics and strategic advisory solutions for health care organizations across the continuum of care. Celebrating 30 years of experience, Press Ganey is recognized as a pioneer and thought leader in patient experience measurement and performance improvement solutions. Our mission is to help health care organizations reduce patient suffering and improve clinical quality, safety and the patient experience. As of January 1, 2016, we served more than 26,000 health care facilities.

Forward-Looking Statements

This document includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future, not past, events and are subject to risks and uncertainties. The forward-looking statements, which address the Company's expected business and financial performance and financial condition, among other matters, contain words such as: “believe,” “could,” “opportunities,” “continue,” “expect,” “may,” “will,” or “would” and other words and terms of similar meaning.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain, such as statements about expected income; earnings; revenues; and growth. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made.

Factors that could cause actual results to differ materially from these forward-looking statements, include, but are not limited to, the following:

• Because our clients are concentrated in the healthcare industry, our revenue and operating results may be adversely affected by changes in regulations, a business downturn or consolidation in the healthcare industry.
• If our clients do not continue to purchase our products and solutions, or we are unable to attract new clients, our business and operating results could be materially and adversely affected.
• The loss of several of our large clients or a significant reduction in business from such clients would adversely affect our operating results.
• We may not maintain our current rate of revenue growth.
• We may be unable to effectively execute our growth strategy which could have an adverse effect on our business and competitive position in the industry.
• We may not be able to develop new products and solutions, or enhancements to our existing products and solutions, or be able to achieve widespread acceptance of new products or solutions.
• Technological developments could render our products and solutions obsolete or uncompetitive.
• We may be unable to effectively identify, complete or integrate the operations of future acquisitions, joint ventures, collaborative arrangements or other growth investments.
• We cannot assure you that we will be able to manage our growth effectively, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
• We operate in an increasingly competitive market, which could adversely affect our revenue and market share.
• If we fail to promote and maintain awareness of our brand in a cost-effective manner, our business might suffer.
• We may not be able to maintain our certification to conduct CMS mandated surveys, and this could adversely affect our business.
• We depend on our senior management, and we may be materially harmed if we lose any member of our senior management.
• Data security and integrity are critically important to our business, and actual or attempted breaches of security, unauthorized disclosure of information, denial of service attacks or the perception that personal and/or other sensitive or confidential information in our possession is not secure, could result in a material loss of business, substantial legal liability or significant harm to our reputation.
• Our business and operating results could be adversely affected if we experience business interruptions, errors or failure in connection with our or third-party information technology and communication systems and other software and hardware products used in connection with our business.
• We may be liable to our clients and may lose clients if we are unable to collect and maintain client data or if we lose client data.
• Protection of our intellectual property may be difficult and costly, and our inability to protect our intellectual property could reduce the value of our products and solutions.
• The agreements governing our 2015 Credit Agreement impose significant operating and financial restrictions on our company and our subsidiaries, which may prevent us from capitalizing on business opportunities, and we have pledged substantially all of our assets to secure indebtedness under our 2015 Credit Agreement.
• Our internal control over financial reporting does not currently meet the standards required by Section 404 of the Sarbanes-Oxley Act.

A further description of these uncertainties and other risks can be found in the Company’s filings with the Securities and Exchange Commission, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and its Registration Statement on Form S-1 and the accompanying prospectus filed with the Securities and Exchange Commission on May 22, 2015. These or other uncertainties may cause the Company’s actual future results to be materially different than those expressed in any forward-looking statements. The Company undertakes no obligation to update or revise any forward-looking statements.

Non-GAAP Financial Measures

The Company defines Adjusted EBITDA as net income (loss) before interest expense, net, income taxes, depreciation and amortization, with further adjustments to add back (i) items that were terminated in connection with the initial public offering, or the IPO, (ii) non-cash charges, (iii) non-recurring items that are not indicative of the underlying operating performance of the business and (iv) items that are solely related to changes in the Company’s capital structure, and therefore are not indicative of the underlying operating performance of the business. The Company defines Adjusted Net Income as net income adjusted for non-cash and other non-recurring items. Management uses Adjusted EBITDA and Adjusted Net Income (i) to compare the Company’s operating performance on a consistent basis, (ii) to calculate incentive compensation for the Company’s employees, (iii) for planning purposes, including the preparation of the Company’s internal annual operating budget, (iv) to evaluate the performance and effectiveness of the Company’s operational strategies and (v) as an element of metrics used to assess compliance associated with the agreements governing the Company’s indebtedness. The Company also believes that Adjusted EBITDA and Adjusted Net Income are useful to investors in assessing the Company’s financial performance because these measures are similar to the metrics used by investors and other interested parties when comparing companies in the Company’s industry that have different capital structures, debt levels and/or income tax rates. Accordingly, the Company believes that Adjusted EBITDA and Adjusted Net Income provide useful information to investors and others in understanding and evaluating the Company’s operating performance in the same manner as the Company’s management. Adjusted EBITDA and Adjusted Net Income are not determined in accordance with U.S. generally accepted accounting principles, or GAAP, and should not be considered in isolation or as an alternative to net income, income from operations, net cash provided by operating, investing or financing activities or other financial statement data presented as indicators of financial performance or liquidity, each as presented in accordance with GAAP. To calculate Adjusted Net Income the Company uses the following additional non-GAAP measures: (i) Adjusted Operating Expenses, which includes Adjusted Cost of Revenue, Adjusted General and Administrative, Adjusted Depreciation and Amortization and Adjusted Loss (Gain) on Disposal of Property and Equipment, (ii) Adjusted Income from Operations, (iii) Adjusted Other Income (Expense), which includes Adjusted Management Fee of Related Party, (iv) Adjusted Income before Income Taxes and (v) Adjusted Provision for Income Taxes. See “Reconciliation of Non-GAAP Items to GAAP Net Income” below for a reconciliation of these non-GAAP measures to the most directly comparable GAAP measure and reasons why the Company believes these non-GAAP measures provide useful information to investors and others in understanding and evaluating the Company’s operating performance in the same manner as the Company’s management.

 

Press Ganey Holdings, Inc.Condensed Consolidated Statements of Operations(In thousands, except per share amounts)(Unaudited)

                Three Months Ended Six Months Ended June 30, June 30, 2016 2015 2016 2015   Revenue $ 91,240 $ 77,458 $ 177,971 $ 152,349 Operating expenses: Cost of revenue 39,103 43,112 75,572 74,539 General and administrative 25,040 79,102 47,683 97,403 Depreciation and amortization 11,543 10,237 23,115 20,096 Loss (gain) on disposal of property and equipment   2     15   20     (31 ) Total operating expenses   75,688     132,466     146,390     192,007   Income (loss) from operations 15,552 (55,008 ) 31,581 (39,658 ) Other income (expense): Interest expense, net (1,136 ) (3,775 ) (2,366 ) (8,354 ) Extinguishment of debt — (638 ) — (638 ) Management fee of related party   —     (267 ) —   (553 ) Total other income (expense), net   (1,136 )   (4,680 )   (2,366 )   (9,545 ) Income (loss) before income taxes 14,416 (59,688 ) 29,215 (49,203 ) Provision for income taxes   6,489     (5,871 )   13,169     (1,360 ) Net income (loss) $ 7,927   $ (53,817 ) $ 16,046   $ (47,843 )   Earnings (net loss) per share: Basic $ 0.15 $ (1.15 ) $ 0.30 $ (1.06 ) Diluted $ 0.15 $ (1.15 ) $ 0.30 $ (1.06 )   Weighted average shares of common stock outstanding: Basic 52,917 46,803 52,862 45,058 Diluted 53,464 46,803 53,375 45,058  

See Supplemental Financial Data below for additional information.

       

Press Ganey Holdings, Inc.Condensed Consolidated Balance Sheets(Thousands of dollars, except share and per share amounts)

 

            June 30, December 31, 2016 2015 (Unaudited) ASSETS Current assets: Cash $ 46,383 $ 35,235 Accounts receivable, net of allowances of $821 and $774 at June 30, 2016 and December 31, 2015, respectively 53,627 53,568 Unbilled revenue 6,413 2,993 Prepaid expenses and other assets 5,495 4,603 Income taxes receivable   689     4,603   Total current assets 112,607 101,002 Property and equipment, net 58,133 60,262 Other non-current assets 2,799 897 Intangible assets, net 354,073 362,465 Goodwill   426,673     411,203   Total assets $ 954,285   $ 935,829   LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 9,250 $ 9,250 Current portion of capital lease obligations 4,852 4,626 Accounts payable 8,957 9,420 Accrued payroll and related liabilities 11,890 15,830 Accrued expenses and other liabilities 1,929 1,969 Deferred revenue   37,206     31,555   Total current liabilities 74,084 72,650 Long-term debt, less current portion 166,842 171,226 Capital lease obligations, less current portion 1,631 4,165 Deferred income taxes   122,749     125,179   Total liabilities 365,306 373,220 Commitments and contingencies — — SHAREHOLDERS' EQUITY Common stock, $0.01 par value, 350,000,000 shares authorized; 53,012,876 and 52,770,722 shares issued and outstanding as of June 30, 2016 and December 31, 2015, respectively 530 528 Additional paid-in capital 608,897 598,575 Accumulated deficit   (20,448 )   (36,494 ) Total shareholders' equity   588,979     562,609   Total liabilities and shareholders' equity $ 954,285   $ 935,829            

Press Ganey Holdings, Inc.Condensed Consolidated Statement of Cash Flows(Thousands of dollars)(Unaudited)

  Six Months Ended June 30, 2016 2015 Operating activities Net income (loss) $ 16,046 $ (47,843 ) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 23,115 20,096 Amortization of deferred financing fees and debt discount 340 354 Equity-based compensation 13,349 74,997 Excess tax benefits from equity awards (703 ) — Extinguishment of debt — 638 Provision for doubtful accounts 51 321 Loss (gain) on disposal of property and equipment 20 (31 ) Deferred income taxes (2,430 ) (4,913 ) Changes in assets and liabilities: Accounts receivable 2,522 (3,508 ) Unbilled revenue (2,468 ) (542 ) Prepaid expenses and other assets (354 ) (2,911 ) Accounts payable (1,640 ) (2,834 ) Accrued payroll and related liabilities (4,335 ) (3,781 ) Accrued expenses and other liabilities (40 ) 36 Deferred revenue 3,992 10,589 Income taxes, net   4,617     (3,137 ) Net cash provided by operating activities 52,082 37,531 Investing activities Acquisitions of businesses, net of cash acquired (16,744 ) — Investment in unconsolidated affiliate (2,000 ) — Capital expenditures   (12,231 )   (15,179 ) Net cash used in investing activities (30,975 ) (15,179 ) Financing activities Payments on long-term debt (4,626 ) (225,140 ) Deferred financing payments — (50 ) Payments on capital lease obligations (2,308 ) (2,190 ) Proceeds from sale of equity interests — 100 Purchases of equity interests (787 ) (731 ) Taxes paid for net settlements of restricted stock vesting (2,941 ) (10,858 ) Excess tax benefits from equity awards 703 — Distribution payments — (8,500 ) Proceeds from the issuance of common stock in initial public offering, net of fees   —     237,977   Net cash used in financing activities   (9,959 )   (9,392 ) Net increase in cash 11,148 12,960 Cash at beginning of period   35,235     6,962   Cash at end of period $ 46,383   $ 19,922      

Press Ganey Holdings, Inc.Supplemental Financial Data(In thousands, except per share amounts)(Unaudited)

 

 

Reconciliation of Non-GAAP Items to GAAP Net Income (Loss)

                            Three Months Ended June 30, 2016 Three Months Ended June 30, 2015 GAAP Actual Adjustments

Non-GAAPResults

GAAP Actual Adjustments

Non-GAAPResults

%ChangeNon-GAAPResults

  Revenue $ 91,240 $ — $ 91,240 $ 77,458 $ — $ 77,458 17.8

 

%

  Operating expenses: Cost of revenue 39,103 1,500 (1 ) 37,603 43,112 10,643 (1 ) 32,469 15.8

 

%

General and administrative 25,040 7,683 (2 ) 17,357 79,102 63,244 (2 ) 15,858 9.5

 

%

Depreciation and amortization 11,543 4,196 (3 ) 7,347 10,237 4,137 (3 ) 6,100 20.4

 

%

Loss (gain) on disposal of property and equipment   2     2   (4 )   —     15     15   (4 )   —   0.0

 

%

Total operating expenses   75,688     13,381     62,307     132,466     78,039     54,427   14.5

 

%

Income (loss) from operations 15,552 (13,381 ) 28,933 (55,008 ) (78,039 ) 23,031 25.6

 

%

Other income (expense) Interest expense, net (1,136 ) — (1,136 ) (3,775 ) — (3,775 ) (69.9

)

%

Extinguishment of debt — — — (638 ) (638 ) (5 ) — 0.0

 

%

Management fee of related party   —     —     —     (267 )   (267 ) (6 )   —   0.0

 

%

Total other income (expense), net   (1,136 )   —     (1,136 )   (4,680 )   (905 )   (3,775 ) (69.9

)

%

Income (loss) before income taxes 14,416 (13,381 ) 27,797 (59,688 ) (78,944 ) 19,256 44.4

 

%

Provision for income taxes   6,489     (5,301 ) (7 )   11,790     (5,871 )   (14,182 ) (7 )   8,311   41.9

 

%

Net income (loss) $ 7,927   $ (8,080 ) $ 16,007   $ (53,817 ) $ (64,762 ) $ 10,945   46.3

 

%

  Adjusted earnings (loss) per share: Basic $ 0.15 $ 0.30 $ (1.15 ) $ 0.23 29.4

 

%

Diluted $ 0.15 $ 0.30 $ (1.15 ) $ 0.23 28.0

 

%

  Weighted average shares of common stock outstanding: Basic 52,917 52,917 46,803 46,803 13.1

 

%

Diluted 53,464 53,464 46,803 46,803 14.2

 

%

  Percentages of revenue Cost of revenue 42.9

 

%

41.2

 

%

55.7

 

%

41.9

 

%

General and administrative 27.4

 

%

19.0

 

%

102.1

 

%

20.5

 

%

Income from operations 17.0

 

%

31.7

 

%

(71.0

)

%

29.7

 

%

Net income 8.7

 

%

17.5

 

%

(69.5

)

%

14.1

 

%

 

See footnotes below.

 

Press Ganey Holdings, Inc.Supplemental Financial Data(In thousands, except per share amounts)(Unaudited)

 

Reconciliation of Non-GAAP Items to GAAP Net Income (Loss) (continued)

                            Six Months Ended June 30, 2016 Six Months Ended June 30, 2015 GAAP Actual Adjustments

Non-GAAPResults

GAAP Actual Adjustments

Non-GAAPResults

%ChangeNon-GAAPResults

  Revenue $ 177,971 $ — $ 177,971 $ 152,349 $ — $ 152,349 16.8

 

%

  Operating expenses: Cost of revenue 75,572 2,611 (1 ) 72,961 74,539 11,355 (1 ) 63,184 15.5

 

%

General and administrative 47,683 12,744 (2 ) 34,939 97,403 64,709 (2 ) 32,694 6.9

 

%

Depreciation and amortization 23,115 8,391 (3 ) 14,724 20,096 8,274 (3 ) 11,822 24.5

 

% Loss (gain) on disposal of property and equipment   20     20   (4 )   —     (31 )   (31 ) (4 )   —   0.0

 

%

Total operating expenses   146,390     23,766     122,624     192,007     84,307     107,700   13.9

 

%

Income (loss) from operations 31,581 (23,766 ) 55,347 (39,658 ) (84,307 ) 44,649 24.0

 

%

Other income (expense) Interest expense, net (2,366 ) — (2,366 ) (8,354 ) — (8,354 ) (71.7

)

%

Extinguishment of debt — — — (638 ) (638 ) (5 ) — 0.0

 

%

Management fee of related party   —     —     —     (553 )   (553 ) (6 )   —   0.0

 

%

Total other income (expense), net   (2,366 )   —     (2,366 )   (9,545 )   (1,191 )   (8,354 ) (71.7

)

%

Income (loss) before income taxes 29,215 (23,766 ) 52,981 (49,203 ) (85,498 ) 36,295 46.0

 

%

Provision for income taxes   13,169     (9,302 ) (7 )   22,471     (1,360 )   (17,025 ) (7 )   15,665   43.4

 

%

Net income (loss) $ 16,046   $ (14,464 ) $ 30,510   $ (47,843 ) $ (68,473 ) $ 20,630   47.9

 

%

  Adjusted earnings (loss) per share: Basic $ 0.30 $ 0.58 $ (1.06 ) $ 0.46 26.1

 

%

Diluted $ 0.30 $ 0.57 $ (1.06 ) $ 0.46 24.8

 

%

  Weighted average shares of common stock outstanding: Basic 52,862 52,862 45,058 45,058 17.3

 

%

Diluted 53,375 53,375 45,058 45,058 18.5

 

%

  Percentages of revenue Cost of revenue 42.5

 

%

41.0

 

%

48.9

 

%

41.5

 

%

General and administrative 26.8

 

%

19.6

 

%

63.9

 

%

21.5

 

%

Income from operations 17.7

 

%

31.1

 

%

(26.0

)

%

29.3

 

%

Net income 9.0

 

%

17.1

 

%

(31.4

)

%

13.5

 

%

 

See footnotes below.

 

Press Ganey Holdings, Inc.Supplemental Financial Data(Thousands of dollars)(Unaudited)

 

Reconciliation of Non-GAAP Items to GAAP Net Income (Loss) (continued)

                Three Months Ended Six Months Ended June 30, June 30, Excluded items: 2016 2015 2016

2015

 

(1)

Equity-based compensation expense associated with (i) the modification of existing equity awards and forgiveness of loans associated with certain equity awards in connection with the Company's initial public offering ("IPO") and liquidating distribution of PG Holdco, LLC in 2015, and (ii) equity awards granted to attract and retain employees and directors. The Company has also excluded expense associated with severance related to the acquisition of Avatar International. The Company's incentive compensation plan excludes these expenses. The Company has also excluded these items in order to provide consistent operating performance insight as these expenses have fluctuated period to period, and do not necessarily reflect current period effectiveness of operational strategies. Equity-based compensation, IPO-related $ — $ 10,124 $ — $ 10,124 Equity-based compensation 1,429 519 2,540 1,231 Severance   71     —     71     —   $ 1,500   $ 10,643   $ 2,611   $ 11,355       (2) Equity-based compensation charges (noted above), expense associated with severance related to the acquisition of Avatar International, transaction costs incurred in connection with completed and potential acquisitions, and other non-comparable expenses which include costs incurred in connection with the Company’s IPO and capital structure and strategic corporate planning in 2015, and professional fees incurred for the preparation for compliance with Section 404 of the Sarbanes-Oxley Act and for design of the Company's equity incentive and compensation programs in 2016. The Company's incentive compensation plan excludes these expenses. The Company has also excluded severance, acquisition expenses and other non-comparable items in order to provide consistent operating performance insight as these expenses are associated with specific acquisition targets or specific projects that are not associated with ongoing operating activities. Equity-based compensation, IPO-related $ — $ 60,314 $ — $ 60,314 Equity-based compensation 5,920 2,076 10,809 3,328 Severance 638 — 638 — Acquisition expenses 1,125 195 1,191 203 Other non-comparable items   —     659     106     864   $ 7,683   $ 63,244   $ 12,744   $ 64,709       (3) Amortization expense associated with acquired intangible assets from business combinations. The Company has excluded this item as analysts and investors commonly exclude this expense in assessing financial performance across companies and industries. Amortization of intangibles $ 4,196 $ 4,137 $ 8,391 $ 8,274     (4) Noncash gains and losses associated with disposals of property and equipment. The Company's incentive compensation plan excludes this item. Loss (gain) on disposal of property and equipment $ 2 $ 15 $ 20 $ (31 )     (5) Write-off of unamortized deferred financing fees, loss on original issuance discount and lender fees in connection with debt refinancings. Extinguishment of debt $ — $ 638 $ — $ 638     (6) Fees paid to the Company’s majority owner under a management agreement prior to the Company’s IPO. The management agreement was terminated upon the closing of the IPO in May 2015. Management fee of related party $ — $ 267 $ — $ 553     (7) Provision for income taxes based on the Company’s state and federal effective tax rates, including usual non-deductible expenses.    

Press Ganey Holdings, Inc.Supplemental Financial Data(Thousands of dollars)(Unaudited)

 

Reconciliation of Net Income (Loss) to EBITDA and Adjusted EBITDA (Non-GAAP)

                Three Months Ended Six Months Ended June 30, June 30, 2016 2015 2016 2015   Net income (loss) $ 7,927 $ (53,817 ) $ 16,046 $ (47,843 ) Interest expense, net 1,136 3,775 2,366 8,354 Provision for income taxes 6,489 (5,871 ) 13,169 (1,360 ) Depreciation and amortization   11,543     10,237     23,115     20,096   EBITDA 27,095 (45,676 ) 54,696 (20,753 ) Adjustments Equity-based compensation (1) 7,349 73,033 13,349 74,997 Extinguishment of debt (2) — 638 — 638 Management fee to related party (3) — 267 — 553 Acquisition expenses (4) 1,125 195 1,191 203 Severance (5) 709 — 709 — Loss (gain) on disposal of property and equipment (6) 2 15 20 (31 ) Other non-comparable items (7)   -     659     106     864   Adjusted EBITDA $ 36,280   $ 29,131   $ 70,071   $ 56,471   Adjusted EBITDA Margin 39.8

 

%

 

37.6

 

%

 

39.4

 

%

37.1

 

%

(1) Equity-based compensation expense associated with (i) the modification of existing equity awards and forgiveness of loans associated with certain equity awards in connection with the Company’s IPO and liquidating distribution of PG Holdco, LLC in 2015, and (ii) equity awards granted to attract and retain employees and directors. The Company’s incentive compensation plan excludes this expense. The Company has also excluded this item in order to provide consistent operating performance insight as these expenses have fluctuated period to period, are noncash, and do not necessarily reflect current period effectiveness of operational strategies.

(2) Write-off of unamortized deferred financing fees, loss on original issuance discount and lender fees in connection with debt refinancings. The Company’s incentive compensation plan excludes this noncash expense.

(3) Fees paid to the Company’s majority owner under a management agreement prior to the Company’s IPO. The management agreement was terminated upon the closing of the IPO in May 2015.

(4) Transaction costs incurred in connection with completed and potential acquisitions. The Company’s incentive compensation plan excludes this expense. The Company has also excluded this item in order to provide consistent operating performance insight as these expenses are not ongoing in nature but are associated with specific acquisition targets.

(5) Expenses associated with severance related to the acquisition of Avatar International. The Company’s incentive plan excludes this item. The Company has also excluded severance as it is related to the integration of Avatar International in order to provide consistent operating performance of the Company and is not associated with ongoing activities of Avatar International or the Company.

(6) Noncash gains and losses associated with disposals of property and equipment. The Company’s incentive compensation plan excludes this item.

(7) Other non-comparable items include costs incurred in connection with the Company's IPO and capital structure and strategic corporate planning in 2015 and professional fees incurred for the preparation for compliance with Section 404 of the Sarbanes-Oxley Act and for design of the Company’s equity incentive and compensation programs in 2016. The Company’s incentive compensation plan excludes these expenses. The Company has also excluded this item in order to provide consistent operating performance insight as these expenses are associated with specific projects that are not associated with ongoing operating activities.

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Press Ganey Holdings, Inc.Balaji Gandhi, 781-295-0390(Investors)IR@pressganey.comorMSL GroupJon Siegal, 781-684-0770(Media)PressGaney@mslgroup.com