Acadia Healthcare Company, Inc. — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018; comparisons are with Q1 2017 unless stated otherwise. Acadia operated 584 behavioral healthcare facilities with approximately 17,800 beds across the U.S., U.K. and Puerto Rico.
Financial results and position
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Revenue | $742.2 million | $679.2 million |
| Segment EBITDA | $145.7 million | $136.4 million |
| Income before taxes | $48.1 million | $48.5 million |
| Net income attributable to Acadia | $50.8 million | $35.0 million |
| Diluted earnings per share | $0.58 | $0.40 |
| Operating cash flow | $72.4 million | $57.0 million |
| Cash and cash equivalents | $57.8 million | $67.3 million at Dec. 31, 2017 |
| Total debt, carrying amount | $3.242 billion | $3.240 billion at Dec. 31, 2017 |
- Revenue increased 9.3%. Management attributed growth to 4.8% total facility revenue growth and $29.5 million from the stronger pound sterling. Same-facility revenue rose 5.6%, reflecting 2.0% growth in patient days and 3.5% growth in revenue per day.
- Segment EBITDA increased 6.9%; its margin was approximately 19.6% of revenue versus 20.1% a year earlier. Pretax margin declined to 6.5% from 7.2%. Net income growth was aided by a tax benefit, despite slightly lower pretax income.
- U.S. revenue was $462.4 million, up from $440.2 million; U.K. revenue was $279.8 million, up from $239.0 million. U.K. public-funded sources generated 90.5% of U.K. revenue. Medicaid was 46.1% of U.S. revenue, up from 42.4%.
- Operating cash flow was $72.4 million; capital expenditures were $70.3 million, including $52.2 million of expansion spending and $18.1 million of routine spending. Investing activities used $78.7 million. Working capital was $114.3 million, compared with $94.2 million at year-end; current assets of $503.9 million exceeded current liabilities of $389.6 million.
- Debt included $1.7 billion of variable-rate and $1.5 billion of fixed-rate debt. Cash less debt carrying amount was approximately $3.18 billion. The company reported $495.8 million of revolving-credit availability and $4.2 million of standby letters of credit; it was in compliance with debt covenants.
Changes, outlook and risks
- Operating costs grew: professional fees rose to $54.0 million from $43.4 million, primarily due to higher U.K. contract labor costs; depreciation and amortization rose to $39.8 million from $33.6 million. Interest expense increased to $45.2 million from $42.8 million.
- Q1 included $0.9 million of debt-extinguishment costs tied to March credit-facility repricing amendments and $4.8 million of transaction-related expenses. The repricing reduced applicable credit-facility margins; a subsequent $15.0 million debt payment was made on April 17, 2018.
- The effective tax rate was negative 5.8%, versus 28.3% a year earlier. The quarter included a $10.5 million discrete tax benefit related to a revision of a provisional Tax Act estimate. Acadia reported a cumulative provisional $19.3 million deferred-tax remeasurement and said its Tax Act accounting was not complete.
- Management expected to add more than 800 beds in 2018, excluding acquisitions; 121 beds were added in Q1. The filing gives no specific earnings or revenue guidance. Management expected the lower U.S. federal corporate tax rate to benefit future results and cash flow.
- Key risks include substantial indebtedness and restrictive covenants; dependence on government and third-party payors, particularly U.K. public funding; foreign-exchange exposure; labor availability and cost; regulatory compliance and reimbursement settlements; patient incidents, litigation and investigations; and acquisition and integration execution. Management said it knew of no pending proceeding expected to have a material adverse effect.
- Management identified no material change in internal control over financial reporting and concluded disclosure controls were effective. Revenue recognition standard adoption did not significantly affect reported financial statements; prior periods were not adjusted.
Important facts for investors to verify
- How much reported revenue growth reflects underlying facility performance versus currency translation, and whether same-facility volume and revenue-per-day trends continue.
- Whether higher U.K. contract labor and other operating costs pressure margins, and how the payor mix and U.K. public-funding concentration evolve.
- Debt leverage, variable-rate exposure, covenant headroom, scheduled repayments and the effect of repricing and subsequent debt payments.
- Cash conversion and returns on expansion capital spending, alongside receivables aging: days sales outstanding rose to 40 from 38 at year-end.
- Final Tax Act accounting and the sustainability of earnings excluding the quarter’s discrete tax benefit; also monitor reimbursement audits, legal or regulatory developments, and foreign-exchange effects.