Acadia Healthcare Company, Inc. — Q1 2012 Form 10-Q
Reporting period: Three months ended March 31, 2012. Unless stated otherwise, financial amounts are in U.S. dollars; the financial statements present amounts in thousands.
Business context and reporting period
Acadia operates inpatient psychiatric hospitals, residential treatment centers, group homes, substance-abuse facilities and outpatient behavioral-health services. Its strategy is to acquire and develop facilities and grow patient volumes and services. The quarter included the March 1 acquisition of three Haven hospitals with 166 licensed beds for $90.4 million. The 2011 comparison period preceded the acquisitions of YFCS and PHC, so reported year-over-year growth is substantially acquisition-driven.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue before doubtful-account provision | $93.0 million | $17.6 million |
| Provision for doubtful accounts | $1.7 million | $0.7 million |
| Revenue | $91.3 million | $16.8 million |
| Income (loss) from continuing operations before taxes | $5.0 million | $(0.5) million |
| Income (loss) from continuing operations | $3.4 million | $(0.3) million |
| Net income (loss), including discontinued operations | $3.7 million | $(0.2) million |
| Net cash provided by continuing operating activities | $5.5 million | $0.6 million |
| Cash and cash equivalents at period end | $0.8 million | $8.0 million at Q1 2011 end |
- Revenue increased 429%; management attributed $72.1 million of the increase to YFCS, PHC and Haven. Same-facility revenue before doubtful accounts grew 13.6%, with patient days up 15.1%.
- Continuing-operations pretax margin was 5.5% and continuing net margin was 3.7%. Salaries, wages and benefits were 61.9% of revenue, including $0.6 million of equity compensation. Excluding that compensation, the ratio was 61.3%, versus 63.6% in Q1 2011.
- Interest expense rose to $7.3 million from $0.2 million, reflecting the credit facility borrowings and $150 million of senior notes. No EBITDA value is provided in the filing text.
- Operating cash flow was $4.9 million including discontinued operations. Investing used $94.2 million, principally the Haven acquisition ($90.4 million), plus $3.9 million of capital expenditures. Financing provided $29.0 million.
- Cash fell from $61.1 million at December 31, 2011 to $0.8 million at March 31, 2012, primarily amid the acquisition outlay. Working capital was $15.5 million; days sales outstanding were 40, versus 38 at year-end.
- Total debt was $307.5 million, including $8.0 million current and $299.5 million long-term; cash was $0.8 million. The $150 million senior notes bear 12.875% interest and mature in 2018. Secured-credit-facility borrowings bore 4.50% at quarter-end, and the facility had $67.6 million of revolver availability.
- Medicaid represented 65.8% of revenue before doubtful accounts, compared with 45.7% in Q1 2011; commercial payors were 18.7% and Medicare 9.6%.
Material changes, outlook and risks
- The Haven acquisition added $74.3 million of preliminary goodwill. Goodwill totaled $261.4 million at quarter-end; acquisition fair values remained subject to revision.
- On March 1, the company amended its secured credit facility, adding $25 million in term loans and increasing revolver capacity from $30 million to $75 million. It reported compliance with its financial covenants at March 31. The facility matures April 1, 2016 and is secured by substantially all company and domestic-subsidiary assets.
- The filing provides no specific earnings or revenue guidance. Management described plans to integrate acquisitions, pursue marketing and referral growth, expand services and selectively add facilities and beds; it cautioned that integration and realization of expected synergies may be difficult.
- Key stated risks include significant debt and ability to meet obligations; reliance on government and third-party payors; reimbursement, regulation and healthcare reform; staffing and physician recruitment; patient volumes and competition; collection risk; legal and regulatory claims; and acquisition integration and contingent liabilities. A 10% increase in interest rates was estimated to reduce annual net income and cash flows by approximately $0.4 million.
- Management said ordinary-course legal claims, including malpractice and employment matters, were not expected to have a material adverse effect. No material proceeding was identified. Disclosure controls were assessed as effective, with no material first-quarter change in internal control over financial reporting.
Important facts for investors to verify
- How much of subsequent growth and profitability is attributable to same-facility performance versus acquired operations, and whether acquisition synergies materialize.
- Cash conversion, receivables aging and collectability, particularly given the 40-day DSO and Medicaid concentration.
- Debt service capacity, variable-rate exposure, covenant headroom and upcoming principal payments.
- The final Haven purchase-price allocation, goodwill and acquired-facility operating performance.
- Whether patient volumes, reimbursement rates, staffing costs and regulatory developments support the company’s stated expansion plans.