Acadia Healthcare Company, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; balance-sheet comparisons are to December 31, 2022. Acadia operates behavioral healthcare facilities across the U.S. and Puerto Rico. At quarter-end, it had 253 facilities and approximately 11,100 beds.
Financial performance and position
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $750.3m | $666.7m | $2,185.9m | $1,935.1m |
| Net income (loss) attributable to Acadia | $(217.7)m | $71.1m | $(79.4)m | $212.0m |
| Diluted EPS | $(2.39) | $0.78 | $(0.87) | $2.31 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $346.0m | $267.0m |
Q3 revenue rose 12.5% year over year; nine-month revenue rose 13.0%. Same-facility revenue increased 13.0% in Q3 and 12.5% for the first nine months, supported by patient-day growth, admissions growth and higher revenue per patient day. Medicaid represented 53.4% of Q3 revenue, making it the largest payor category.
The Q3 net loss primarily reflects a $394.2m legal settlements expense. Q3 net margin was (29.0%), versus 10.7% a year earlier; nine-month net margin was (3.6%), versus 11.0%. Excluding equity compensation, salaries and benefits were 51.4% of Q3 revenue and 52.6% for the nine-month period. Management reported same-facility adjusted EBITDA margin improvement of 20 basis points in Q3 and 30 basis points year to date; excluding provider relief fund income, improvement was 80 and 90 basis points, respectively. Adjusted EBITDA is a non-GAAP measure.
For the nine months, investing cash outflow was $287.1m, including $285.4m of capital expenditures ($211.5m expansion and $73.9m maintenance). Financing cash outflow was $57.0m. Cash at September 30 was $99.6m, compared with $97.6m at year-end 2022. Current assets were $703.5m and current liabilities $864.9m; current liabilities included the accrued legal settlement.
Debt carrying value was $1,376.5m, including $80.0m drawn on the revolving facility. The company reported $516.5m of revolver availability and $3.5m of outstanding standby letters of credit. It was in compliance with its financial covenants at quarter-end. Debt includes $450m of 5.5% senior notes due 2028, $475m of 5.0% senior notes due 2029, and credit-facility borrowings; variable-rate debt was $434.5m. Management estimated that a 1% rate increase would reduce annual pretax income by approximately $4.3m.
Material changes and unusual items
- On October 30, 2023, after quarter-end, Acadia and its subsidiary agreed to pay $400m to settle three Desert Hills-related cases, subject to District Court approval. The agreement resolves the cases without admission of liability. The company accrued $394.2m at September 30, net of reinsurance receivables and inclusive of associated legal fees. Payment is due within 30 days after court approval; management expects to use insurance proceeds, cash and existing credit lines.
- A New Mexico jury had awarded $80m compensatory and $405m punitive damages in one case in July 2023. The subsequent settlement is below that award but remains a material cash and liquidity obligation.
- Nine-month results include $8.7m of non-cash impairment charges tied to facility closures. Provider relief fund income was $4.4m in 2023, compared with $16.2m in the first nine months of 2022.
- Interest expense increased to $20.7m in Q3 from $18.0m, and to $61.7m for nine months from $50.4m, primarily due to higher rates on variable-rate debt.
Outlook, commentary and risks
Management cited continuing demand for behavioral healthcare and a tight labor market, including wage inflation, while saying labor costs had stabilized. For 2023, it expected to add approximately 300 beds at existing facilities, open two wholly owned facilities, two joint-venture facilities and six comprehensive treatment centers. A July 2023 agreement to acquire Turning Point Centers, a 76-bed Utah provider, was expected to close by year-end.
Management stated that cash, operating cash flows and revolver availability should meet expected liquidity needs over the next 12 months and beyond, while acknowledging the settlement’s material liquidity impact. Key risks include settlement approval and payment, other litigation and government investigations, staffing and wage pressures, Medicaid eligibility changes, reimbursement and regulatory developments, higher interest rates, and dependence on government and commercial payors. The company also reported that disclosure controls were effective and that there had been no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- District Court approval, timing, final funding sources and insurance recovery for the $400m Desert Hills settlement.
- Cash, revolver borrowings and covenant headroom after settlement payments.
- Whether revenue and patient-volume growth can be sustained while controlling labor costs and other operating expenses.
- Progress and actual costs for planned bed additions, facility openings and the Turning Point acquisition.
- Developments in the securities litigation, government investigations and any remaining provider-relief-fund repayment exposure.