Acadia Healthcare Company, Inc. — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012; balance sheet as of September 30, 2012. Acadia operated 33 behavioral health facilities with more than 2,300 beds in 19 states.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue, after doubtful-account provision | $103.1m | $60.7m | $293.2m | $141.1m |
| Income (loss) from continuing operations | $6.6m | $3.6m | $16.0m | ($18.4m) |
| Net income (loss) | $6.5m | $3.1m | $16.0m | ($19.0m) |
| Diluted EPS | $0.15 | $0.18 | $0.43 | ($1.08) |
| Cash provided by continuing operating activities | Not presented separately for quarter | Not presented separately for quarter | $23.7m | $8.4m |
Q3 revenue before doubtful accounts rose 70.4% year over year; nine-month revenue before doubtful accounts rose 109.1%. Acquisitions drove much of the increase. Same-facility revenue before doubtful accounts grew 8.6% in Q3 and 9.3% year to date, alongside patient-day growth of 8.7% and 9.5%, respectively.
Continuing-operations net margins were approximately 6.4% for Q3 2012 and 5.4% for the first nine months. Q3 pretax income was $10.3m (9.9% of revenue); nine-month pretax income was $25.3m (8.6%). Interest expense rose to $7.4m for Q3 and $22.2m year to date, from $1.9m and $4.1m, respectively, primarily following debt issuance and borrowings.
Cash, debt and liquidity
- Cash was $11.7m, down from $61.1m at December 31, 2011. Nine-month operating cash flow was $23.3m including discontinued operations; investing used $230.0m and financing provided $157.3m.
- Working capital was $29.2m. Revolver availability was $74.6m, net of a $0.4m undrawn letter of credit. The company reported compliance with debt covenants.
- Debt carrying value totaled $296.6m: $148.9m of term loans and $147.7m of 12.875% senior notes due 2018. Term loans carried a 4.5% interest rate at period end; the term-loan facility matures April 2016.
- Contractual debt payments, including estimated interest, totaled $436.5m; operating lease commitments were $12.0m. These are obligations over time, not just balance-sheet principal.
- Accounts receivable, net, was $54.8m versus $35.1m at year-end. Days sales outstanding increased to 46 from 38. Receivables more than 150 days past due were 9.8% of the reported aging total, versus 8.5% at year-end.
Material changes and unusual items
- Acadia acquired the 166-bed Haven Facilities for $90.5m in March and the 122-bed Timberline Knolls facility for $75.5m in August. Timberline’s purchase-price allocation was preliminary, with certain intangible assets and assumed liabilities still under review.
- Acadia issued 9.49m common shares at $15.50 in May, receiving approximately $139.0m net proceeds, used for real estate purchases and the Timberline acquisition. Shares issued and outstanding rose to 41.8m from 32.1m at year-end.
- Acquisition-related real estate purchases were $50.7m, and capital expenditures were $14.5m for the first nine months. The company also added 213 beds at existing facilities during that period.
- Provision for doubtful accounts was $1.5m (1.4% of pre-provision revenue) in Q3 and $5.4m (1.8%) year to date; management cited acquisition-related payor-mix changes. Medicaid represented 60.5% of Q3 pre-provision revenue, versus 80.5% in the prior-year quarter.
- Equity compensation expense was $1.7m year to date, versus $19.8m in 2011, which related mainly to awards associated with the former holding-company structure. Transaction expenses also declined year over year.
- In June, the company disposed of a Florida facility and recorded a $0.2m pretax disposal loss. Discontinued operations contributed a $0.1m Q3 loss and $0.02m nine-month income.
Outlook, risks and other disclosures
No formal revenue or earnings guidance is provided in the supplied filing text. Management said it expected to add approximately 70 beds in the last quarter of 2012 and described a strategy of pursuing selective facility and bed growth, expanding referral networks and improving acquired-facility operations.
Management identified risks including substantial debt and debt-service capacity, reimbursement and payor mix, patient volumes and competition, staffing and labor costs, regulation and government investigations, claims, acquisition integration and contingent liabilities. The company said ordinary-course legal matters were not expected to have a material adverse effect. Disclosure controls were judged effective, with no material quarterly change in internal control over financial reporting.
Investor facts to verify
- How much reported growth and earnings reflect acquisitions versus same-facility performance, and whether acquired operations deliver expected integration benefits.
- Collection trends, the rising doubtful-account provision and aging of receivables, particularly as Medicaid remains the largest payor.
- Liquidity and covenant headroom given low period-end cash, debt service, the 12.875% notes and scheduled term-loan payments.
- Final Timberline Knolls purchase-price allocation and the effect of acquired goodwill and intangible assets.
- Whether planned bed additions and capital spending translate into sustainable cash generation and improved returns.