Acadia Healthcare Company, Inc. — Q1 2013 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2013; comparisons are with Q1 2012 unless otherwise noted. Acadia operates inpatient psychiatric, residential treatment, substance abuse and outpatient behavioral healthcare facilities. At quarter-end it operated 44 facilities with approximately 3,500 licensed beds in 21 states.
Financial performance and liquidity
| Metric | Q1 2013 | Q1 2012 / prior date |
|---|---|---|
| Revenue before doubtful-account provision | $165.7 million | $91.3 million |
| Revenue, net of provision | $161.2 million | $89.6 million |
| Provision for doubtful accounts | $4.5 million; 2.7% of pre-provision revenue | $1.7 million; 1.9% |
| Income from continuing operations | $4.1 million; 2.5% of revenue | $3.3 million; 3.7% |
| Net income | $3.7 million; diluted EPS $0.07 | $3.7 million; diluted EPS $0.11 |
| Cash from continuing operating activities | $0.4 million | $5.4 million |
| Cash and cash equivalents | $99.8 million | $49.4 million at Dec. 31, 2012 |
| Working capital | $141.5 million | $69.1 million at Dec. 31, 2012 |
| Total debt | $569.7 million | $473.3 million at Dec. 31, 2012 |
Revenue grew 81.6%, primarily reflecting acquisitions. Same-facility pre-provision revenue increased 9.4%, with patient days up 8.8%. Salaries and benefits were 58.5% of revenue versus 61.6%; total expenses were 95.8% versus 94.4%. Continuing-operations income margin declined to 2.5% from 3.7%, partly reflecting the debt-redemption charge. Weighted-average diluted shares rose to 50.3 million from 32.3 million, contributing to lower per-share earnings.
Investing cash outflow was $35.3 million, including $22.4 million for acquisitions and $12.8 million for capital expenditures. Financing cash inflow was $85.5 million. Accounts receivable increased; days sales outstanding rose to 44 from 39 at year-end. The filing does not provide a clear EBITDA value.
Material changes, outlook and risks
- Acadia acquired 243-bed Delta Medical Center for $23.1 million and 50-bed Greenleaf Center for $6.3 million during Q1. Acquisition purchase-price allocations remain preliminary.
- On March 12, Acadia issued $150 million of 6.125% notes due 2021 and redeemed $52.5 million of 12.875% notes due 2018. The redemption generated a $9.35 million extinguishment charge, including $6.8 million cash premium and $2.6 million noncash charge.
- At quarter-end, debt included $298.1 million of variable-rate senior credit facility borrowings, $150 million of 6.125% notes, $96.1 million of remaining 12.875% notes and $25.4 million of revenue bonds. The company reported $99.6 million available on its $100 million revolver and compliance with debt covenants. Debt agreements impose financial and other restrictive covenants.
- Management expected to add approximately 300 beds during 2013, excluding acquisitions. On May 1, after quarter-end, Acadia bought Ten Broeck Tampa and Capestrano for $91.8 million plus construction costs, funded with cash on hand; a new 75-bed Tampa facility was scheduled to open in Q3 2013.
- Management cited acquisition integration and synergy execution, reimbursement and payor mix, collections, staffing and labor costs, regulation, patient volumes, litigation and substantial indebtedness among key risks. A hypothetical 10% rise in interest rates was estimated to reduce annual net income and cash flow by $0.6 million. Management reported no legal proceeding expected to have a material adverse effect; ordinary-course claims remain possible.
Most important facts for investors to verify
- How much reported growth and future performance are attributable to acquisitions versus sustainable same-facility growth.
- Whether receivables, billing transitions and higher doubtful-account provisions affect collections and operating cash flow.
- Debt levels, interest-rate exposure, covenant headroom and the impact of the refinancing and subsequent $91.8 million acquisition.
- Whether planned bed additions, acquired-facility integration and the Tampa hospital opening meet management’s expectations.
- Final acquisition valuations, including goodwill and contingent consideration, and any resulting adjustments.