Acadia Healthcare Company, Inc. — FY2017 Form 10-K
Business and period: Annual report for the fiscal year ended December 31, 2017; the filing also reports unaudited fourth-quarter results. Acadia operated 582 behavioral healthcare facilities with approximately 17,800 beds across 39 U.S. states, Puerto Rico and the U.K. Its strategy centers on operating improvement, organic expansion and selective acquisitions.
Key financial results
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue, net of doubtful accounts | $2.836 billion | $2.811 billion |
| Income from continuing operations before tax | $236.8 million | $33.0 million |
| Net income attributable to Acadia | $199.8 million | $6.1 million |
| Diluted EPS | $2.30 | $0.07 |
| Cash from continuing operating activities | $401.3 million | $371.7 million |
| Cash and cash equivalents at year-end | $67.3 million | $57.1 million |
| Total debt, net of issuance costs, discounts and premiums | $3.240 billion | $3.288 billion |
| Working capital | $94.2 million | $85.1 million |
Revenue increased 0.9%; same-facility revenue before doubtful-account provision rose 5.5%, reflecting 3.6% growth in patient days and 1.9% higher revenue per day. Income from continuing operations was 7.1% of revenue versus 0.2% in 2016, but the comparison is heavily affected by the prior-year U.K. divestiture loss and unusual tax effects. Segment EBITDA, a non-GAAP measure, was $604.4 million versus $608.6 million; U.S. Facilities EBITDA increased to $475.3 million from $443.3 million, while U.K. Facilities EBITDA declined to $198.6 million from $245.0 million.
Fourth quarter: Revenue was $724.5 million versus $702.9 million in Q4 2016; income before tax was $60.6 million versus $42.4 million; net income attributable to Acadia was $69.6 million versus $41.8 million; and diluted EPS was $0.80 versus $0.48. Q4 2017 included a $20.2 million one-time tax benefit from remeasuring deferred taxes under the Tax Act.
Cash, debt and liquidity
Operating cash flow increased to $401.3 million. Investing used $336.5 million, including $274.2 million of capital expenditures ($70.8 million routine and $203.4 million expansion) and $41.1 million for real estate. Financing used $60.1 million, including $34.8 million of scheduled principal payments and a $22.5 million additional term-loan payment. Routine capital expenditures were approximately 2.5% of revenue.
Acadia reported $3.240 billion of debt carrying value, including $1.8 billion under its senior credit facility and senior notes and revenue bonds. Approximately $1.7 billion was variable-rate and $1.5 billion fixed-rate. The $500 million revolver had $493.4 million available, net of $6.6 million in standby letters of credit. The company reported compliance with its debt covenants at year-end. Cash included $20.4 million held by foreign subsidiaries. Management cited a potential $5.0 million annual net-income and cash-flow reduction from a hypothetical 10% rise in interest rates.
Changes, outlook and notable items
- Revenue growth was modest in reported terms, partly reflecting the loss of $154.7 million of revenue from facilities divested in 2016 and a $45.5 million unfavorable foreign-exchange translation effect. U.S. revenue increased to $1.81 billion; U.K. revenue declined to $1.03 billion from $1.11 billion.
- Same-facility growth was offset in part by increased professional fees, rents, other operating expenses and depreciation as a percentage of revenue. Interest expense fell to $176.0 million from $181.3 million, aided by repricing and debt paydown.
- Acadia acquired Aspire Scotland, a 36-bed education facility, for approximately $21.3 million. It added 750 beds excluding acquisitions during 2017 and expected to add more than 800 beds in 2018, excluding acquisitions.
- The 2017 effective tax rate was 15.7%; the company recorded a provisional $20.2 million benefit from the Tax Act’s deferred-tax remeasurement and said its tax accounting analysis remained incomplete. Management expected the lower federal corporate tax rate to benefit future results and cash flow.
- Management identified reimbursement and public-funding pressure, staffing and wage costs, U.K. National Living Wage increases and potential sleep-in shift back pay, foreign-exchange exposure, regulatory compliance, patient-care incidents, data security, and acquisition integration as significant risks. U.K. public-funded sources represented 32.6% of consolidated revenue; U.K. operations were approximately 36% of revenue.
- The company reported no proceeding that management believed would materially adversely affect it. Auditors gave unqualified opinions on the financial statements and internal control over financial reporting; management also concluded controls were effective.
Important facts for investors to verify
- Underlying earnings and Q4 EPS excluding the $20.2 million tax benefit, and the final accounting impact of the Tax Act.
- U.S. same-facility performance versus the decline in U.K. segment EBITDA, including the effects of exchange rates and public-sector funding.
- Debt reduction, variable-rate exposure, covenant headroom and ability to meet scheduled maturities and substantial lease commitments.
- Whether planned bed additions achieve expected occupancy and returns, and whether labor, professional-fee and other operating costs remain controlled.
- Potential exposure from U.K. sleep-in shift wage claims, reimbursement audits, patient-care matters and regulatory or data-security events.