Acadia Healthcare Company, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Acadia operated 588 behavioral healthcare facilities with approximately 18,200 beds across the U.S., U.K. and Puerto Rico.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $782.8 million | $760.6 million | +2.9% |
| Income before taxes | $39.9 million | $36.9 million | +8.1% |
| Net income attributable to Acadia | $33.5 million | $29.5 million | +13.5% |
| Diluted EPS | $0.38 | $0.34 | +$0.04 |
| Segment EBITDA | $132.8 million | $136.0 million | -2.3% |
| Net cash from operating activities | $45.5 million | $43.7 million | +$1.9 million |
Segment EBITDA is a company-defined, non-GAAP measure. Revenue grew 2.9%, while Segment EBITDA margin was approximately 17.0%, compared with 17.9% a year earlier. Net income attributable to Acadia was approximately 4.3% of revenue, versus 3.9%. The effective tax rate declined to 14.5% from 20.0%, primarily reflecting CARES Act-related tax effects and a discrete tax benefit.
Operating cash flow was partly offset by $69.5 million of capital expenditures; investing activities used $74.2 million. Cash and cash equivalents fell to $81.0 million from $124.2 million at year-end. Total debt was approximately $3.14 billion before cash; net debt on that basis was approximately $3.06 billion. Net interest expense declined to $42.8 million from $48.1 million, mainly due to lower rates on variable-rate debt.
Material changes versus prior year
- U.S. revenue increased to $509.2 million from $488.0 million; same-facility revenue grew 4.1%. U.S. same-facility patient days rose 2.9% and revenue per patient day rose 1.2%.
- U.K. revenue was $273.6 million versus $272.7 million. U.K. same-facility patient days declined 1.0%, while revenue per patient day rose 3.0%. U.K. Segment EBITDA declined to $36.2 million from $40.1 million; U.S. Segment EBITDA was $120.1 million versus $119.0 million.
- Professional fees rose to $63.3 million from $57.0 million, reflecting higher agency labor costs, partly related to COVID-19. Supplies increased to $32.0 million from $30.0 million, including pandemic-related purchases such as protective equipment.
- Other comprehensive loss was $78.3 million, including a $122.0 million foreign-currency translation loss, partly offset by a $43.7 million derivative gain. This reduced reported equity but did not turn the quarter’s net income into a loss.
Liquidity, debt and outlook
- At March 31, Acadia reported $81.0 million cash and $485.0 million of revolver availability; $15.0 million of standby letters of credit were outstanding. It reported compliance with debt covenants at quarter-end.
- In early April, Acadia borrowed $100 million on its revolver. In April it also received approximately $20 million of initial federal provider relief funds and approximately $45 million in Medicare accelerated payments, which it expected to repay over August–November 2020.
- An April 21 credit amendment increased the permitted consolidated leverage ratio for the remainder of 2020. The company said it believed cash, operating cash flows and financing availability would meet expected liquidity needs over the next 12 months.
- COVID-19 reduced referrals and patient volumes. For April, U.S. average daily census was approximately 7% below the prior-year month; U.K. census ended the month approximately 5% lower. Management cited signs of U.S. stabilization late in April but could not predict when, or whether, volumes would return to pre-pandemic levels.
- Management expected the pandemic to affect Q2 2020 results and warned of materially higher losses and lower Adjusted EBITDA in Q2 and potentially later quarters. It reduced or planned to reduce capital spending, staffing costs, travel, marketing and discretionary spending, and was managing working capital.
- The company had previously expected to add 500–600 beds in 2020, excluding acquisitions; the filing cautions that pandemic disruptions could constrain growth plans. No updated bed target or earnings guidance is provided.
- The proposed sale of the U.K. business was temporarily suspended in mid-March because of market conditions, after multiple non-binding offers had been received. Timing and viability of restarting the process were uncertain.
Risks, contingencies and unusual items
- Management said COVID-19 was adversely affecting operations and that the financial impact could not yet be quantified. Risks include lower admissions and referrals, staffing and supply shortages or cost increases, worsening receivable collection, and pressure on liquidity and debt service.
- Acadia’s U.S. revenue depends substantially on government programs, including Medicaid; 51.1% of U.S. revenue was Medicaid-funded. U.K. public sources, including the NHS, accounted for 90.0% of U.K. revenue.
- Long-term debt included $150 million of 6.125% notes due March 2021, and the Term Loan A balance was due November 2021. Debt agreements include financial and restrictive covenants; failure to comply could accelerate repayment. The company also identified LIBOR transition and GBP/USD fluctuations as risks.
- Goodwill was $2.43 billion. No impairment indicators were identified at March 31, but management said prolonged COVID-19 disruption could affect goodwill and long-lived asset valuations.
- The filing describes securities litigation, shareholder derivative actions, California wage-and-hour claims, and government investigations involving alleged healthcare billing and regulatory issues. Potential liabilities were not quantifiable in the filing.
Important facts for investors to verify
- Subsequent-quarter patient volumes, referrals, staffing costs and operating cash flow, especially whether April’s census declines persisted or reversed.
- Updated liquidity, revolver borrowings and availability, debt covenant headroom, and repayment requirements for the $45 million in accelerated Medicare payments.
- Whether CARES Act provider relief funds carry conditions, repayment obligations or potential revenue-recognition effects; the filing says the company was evaluating their terms and impact.
- Any revised 2020 bed expansion plans, capital spending and earnings outlook, and the status and potential proceeds of a renewed U.K. sale process.
- Developments in the disclosed legal and government matters, accounts receivable collectability, and impairment testing as pandemic effects evolve.