Acadia Healthcare Company, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. The filing also reports unaudited fourth-quarter results. Amounts are in U.S. dollars unless noted.
Business context
Acadia operates behavioral healthcare facilities in the U.S., U.K. and Puerto Rico. At year-end it operated 585 facilities with approximately 18,200 beds. The U.S. represented 64.6% of FY2019 revenue and the U.K. 35.4%. The company acquired 11 facilities during 2019 and added 585 beds excluding acquisitions, including two new facilities.
Financial results and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $3,107.5 million | $3,012.4 million |
| Income (loss) attributable to Acadia | $108.9 million | $(175.8) million |
| Diluted EPS | $1.24 | $(2.01) |
| Segment EBITDA, non-GAAP | $585.9 million | $593.6 million |
| Cash from continuing operating activities | $332.9 million | $416.6 million |
| Cash and cash equivalents at year-end | $124.2 million | $50.5 million |
| Working capital at year-end | $78.6 million | $34.0 million |
| Total debt, net of issuance costs, discounts and premiums | $3,149.1 million | $3,193.5 million |
- Revenue rose 3.2%; same-facility revenue increased 5.1%. A $48.0 million adverse currency-translation impact partially offset growth.
- Acadia reported a 3.5% attributable net income margin in 2019. Segment EBITDA declined about 1.3% year over year.
- U.S. same-facility revenue grew 5.8%, with patient days up 3.2%; its EBITDA margin contracted 30 basis points. U.K. same-facility revenue grew 3.8%, but patient days fell 0.6% and its EBITDA margin contracted 220 basis points. Management cited lower U.K. census and higher operating costs, particularly labor.
- Fourth-quarter 2019 revenue was $780.2 million; pretax loss was $10.2 million, attributable net loss was $11.3 million, and diluted EPS was $(0.13). The quarter included the full-year $54.4 million impairment charge.
- Investing activities used $201.1 million, including $284.7 million of capital expenditures and $45.7 million for acquisitions, partly offset by $105.0 million received on termination of currency derivatives. Maintenance capital expenditures were approximately 3.0% of revenue.
- The company had $485.1 million available under its $500 million revolving facility, net of $14.9 million of standby letters of credit, and reported compliance with its debt covenants. Actual covenant leverage ratios are not clearly provided in the filing text.
- Debt included approximately $1.7 billion under the senior credit facility and $1.49 billion of senior notes. The term A loan matures in November 2021; senior notes mature in 2021, 2022, 2023 and 2024. Variable-rate debt was approximately $1.5 billion.
Material changes and unusual items
- FY2019 returned to profitability after the FY2018 loss, which principally included a $325.9 million non-cash U.K. goodwill impairment, a $12.0 million long-lived asset impairment and $22.1 million of legal settlement expense. FY2019 impairment was $54.4 million, related to closed U.S. and U.K. facilities.
- FY2019 operating cash flow fell $83.7 million from 2018. Management attributed the decline mainly to weaker U.K. earnings, legal settlement payments and higher net cash taxes.
- In 2019, Acadia paid $17.0 million to settle a West Virginia Medicaid lab-billing matter and entered into a Corporate Integrity Agreement with the HHS Office of Inspector General. The agreement imposes ongoing compliance and reporting obligations.
- Adoption of lease accounting in 2019 placed $501.8 million of operating lease right-of-use assets and $531.4 million of operating lease liabilities on the year-end balance sheet.
- Acadia terminated and replaced $105.0 million of cross-currency derivatives in August 2019 and entered new $650 million-notional cross-currency swaps.
Outlook, commentary and risks
- Management expected to add approximately 600 beds in 2020, excluding acquisitions. This is an expectation, not a guarantee.
- Acadia began a strategic review in 2019 and launched a formal process to sell its U.K. business in January 2020. It had received initial, non-binding offers from multiple bidders and was proceeding with confirmatory diligence; no definitive sale was assured.
- Key exposures include reliance on government-funded reimbursement—42% of revenue came from U.S. Medicare and Medicaid and 32% from U.K. public sources—along with U.K. commissioning and census trends, staffing shortages and wage inflation, foreign-exchange movements, high debt and variable interest rates, and extensive healthcare regulation.
- The filing identifies ongoing government investigations into claims at multiple facilities concerning, among other matters, medical necessity, admission eligibility, discharge decisions, length of stay and patient care. Potential liabilities were not quantifiable. Securities class and derivative actions were also pending, with potential liability not quantifiable.
- The filing discusses COVID-19 as a potential risk to staffing, patient volumes and operations; it does not quantify an impact on FY2019 results.
- Ernst & Young issued an unqualified opinion on the financial statements and internal controls. The audit identified revenue recognition and goodwill valuation as critical audit matters.
Investor verification priorities
- Track progress, terms and any valuation or impairment consequences of a potential U.K. sale.
- Reconcile reported growth and segment EBITDA trends with U.S. and U.K. patient days, labor costs, and currency effects.
- Review cash conversion, capital spending, debt maturities, covenant headroom and refinancing needs, particularly around 2021.
- Monitor compliance with the Corporate Integrity Agreement and the outcomes of the outstanding government investigations and litigation.
- Assess whether the planned 2020 bed additions can be staffed and filled profitably, and whether COVID-19 or reimbursement changes affect demand and costs.