Acadia Healthcare Company, Inc. — 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. Although the request identifies 2012 Q4, this filing reports full-year results and includes unaudited quarterly data. Financial amounts below are in U.S. dollars.
Business context
Acadia operates inpatient psychiatric and specialty facilities, residential treatment centers, outpatient community-based services and other behavioral health operations. At year-end it operated 42 facilities, with more than 3,100 licensed beds, across 21 states. Its strategy centers on acquisitions, improving existing-facility performance and expanding beds and services.
During 2012, the company acquired facilities including Haven, Timberline Knolls, Park Royal, AmiCare and BCA, and added 281 beds at existing facilities. AmiCare and BCA closed on December 31. Acquisitions completed in 2012 accounted for much of the reported growth; same-facility revenue before doubtful accounts increased 9.3%, alongside 9.3% growth in same-facility patient days.
Financial performance
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue, net of doubtful accounts | $407.5 million | $216.5 million |
| Revenue before doubtful accounts | $413.9 million | $219.7 million |
| Income (loss) from continuing operations | $20.5 million | $(33.2) million |
| Net income (loss) | $20.4 million | $(34.9) million |
| Diluted continuing-operations EPS | $0.53 | $(1.77) |
| Cash from continuing operating activities | $34.3 million | $(18.9) million |
| Cash and cash equivalents at year-end | $49.4 million | $61.1 million |
| Working capital at year-end | $69.1 million | $71.9 million |
| Total debt at year-end | $473.3 million | $277.5 million |
Revenue rose about 88% year over year, principally because of acquisitions. Continuing-operations income improved substantially; 2011 included $41.5 million of transaction-related expenses, including a $20.6 million fee to terminate the Waud Capital Partners services agreement, and $17.3 million of equity-based compensation. In 2012, transaction-related expenses were $8.1 million. Salaries, wages and benefits were 58.8% of revenue, versus 70.5% in 2011; the filing attributes the decline partly to lower equity compensation and operating efficiencies. Interest expense increased to $29.8 million from $9.2 million. Continuing-operations net margin was approximately 5.0% in 2012.
Fourth quarter: Revenue was $114.3 million; income before taxes was $7.5 million and net income was $4.4 million, or $0.10 per basic and diluted share. The quarter included approximately $6.0 million of transaction-related expenses, primarily for the AmiCare and BCA acquisitions.
Cash flow and investment: Continuing operating activities provided $34.3 million. Investing activities used $524.6 million, including $443.5 million for acquisitions, $27.6 million for capital expenditures and $53.2 million for real estate purchases. Routine maintenance capital expenditures were 1.8% of revenue. Financing activities provided $479.0 million, including $311.8 million from common-stock issuance and $176.1 million in long-term borrowings.
Liquidity and debt: Year-end debt included $300.0 million of senior secured term loans, $147.7 million of 12.875% senior notes due 2018 and $25.6 million of Park Royal revenue bonds. The $100 million revolving facility was undrawn, with $99.6 million available; the credit agreement also provides a potential $50 million incremental facility, subject to conditions. The term loans mature December 31, 2017, with the remaining balance due at maturity. The company reported compliance with debt covenants at year-end. The filing estimates that a hypothetical 10% rise in interest rates would reduce annual net income and cash flow by $0.6 million.
Changes, outlook and key risks
- Growth and comparability: Reported results reflect significant acquisitions and are not directly comparable to the smaller 2011 business. Unaudited pro forma revenue, assuming specified 2011–2012 acquisitions occurred at the start of 2011, was $562.0 million in 2012 versus $508.8 million in 2011; pro forma pretax income was $69.3 million versus $18.8 million. These figures are illustrative, not actual reported results.
- Management outlook: Acadia expected to add approximately 200 beds to existing facilities in 2013, excluding acquisitions, and described further selective acquisitions and organic growth as strategic priorities. The filing does not provide numerical revenue or earnings guidance.
- Subsequent events: The company acquired Greenleaf, a 50-bed facility, on January 1, 2013 for $6.3 million, and Delta Medical Center, a 243-bed facility, on January 31 for $23.1 million. On February 11, it announced a conditional plan to redeem up to $52.5 million of the 12.875% notes on March 12 at 112.875% of principal plus accrued interest.
- Payor and regulatory exposure: Medicaid represented 63.6% and Medicare 11.8% of 2012 revenue before doubtful accounts. Reimbursement reductions, state budget pressure, utilization review, audits and complex healthcare compliance requirements could affect revenue, collections and costs.
- Debt and execution: Debt increased materially to finance growth. Variable-rate borrowing, restrictive covenants, required principal payments and the high-coupon senior notes create financing risks. Rapid acquisition integration, realization of expected benefits and preliminary acquisition valuations are additional uncertainties.
- Other risks and contingencies: The filing cites staffing and physician recruitment, competition, patient-care and malpractice claims, accounts-receivable collectability, privacy and cybersecurity, certificates of need, and geographic concentration. Management said no pending or threatened legal proceeding was expected to have a material adverse effect. It also reported no material investigations known to management.
- Audit and controls: Ernst & Young issued unqualified opinions on the financial statements and internal control over financial reporting. However, internal controls at ten facilities acquired during 2012 were excluded from the company’s assessment; those facilities represented 40.9% of year-end assets and 3.4% of 2012 revenue.
Investor verification priorities
- Separate acquisition-driven growth from same-facility performance and assess whether patient-day growth and cost improvements persist.
- Review the full debt terms, covenant headroom, variable-rate exposure, maturity schedule and completion and economics of the planned note redemption.
- Verify integration progress and final purchase-price allocations for recent acquisitions, including goodwill of $557.4 million at year-end and contingent consideration for Park Royal.
- Track Medicaid and Medicare reimbursement, payer mix, aged receivables and the doubtful-account allowance, which was $7.5 million at year-end.
- Assess the effect of subsequent acquisitions, planned bed additions and any further acquisition spending on liquidity, dilution and returns.