Acadia Healthcare Company, Inc. — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also reports unaudited fourth-quarter results. Acadia operates behavioral healthcare facilities and services; 2011 results reflect major acquisitions completed during the year, including YFCS (April 1) and PHC (November 1). Unless identified as pro forma, financial figures below are reported consolidated results.
Financial performance and position
| Metric | 2011 | 2010 |
|---|---|---|
| Revenue, after doubtful-account provision | $221.4 million | $62.1 million |
| Revenue before doubtful-account provision | $224.6 million | $64.3 million |
| Continuing-operations income (loss), before tax | $(38.3) million | $7.2 million |
| Continuing-operations income (loss) | $(32.9) million | $6.7 million |
| Net income (loss) | $(34.9) million | $6.2 million |
| Net income (loss) per share | $(1.86) | $0.35 |
| Cash from continuing operating activities | $(18.6) million | $8.1 million |
| Cash and cash equivalents at year-end | $61.1 million | $8.6 million |
| Total debt at year-end | $277.5 million | $10.0 million |
| Total equity at year-end | $96.4 million | $25.1 million |
Continuing-operations loss was 14.9% of reported revenue. The filing does not provide a clear EBITDA figure or a directly stated operating margin. Year-end working capital was $71.9 million; current assets were $112.6 million and current liabilities $40.7 million. Days sales outstanding rose to 38 from 31.
Cash used in investing activities was $225.3 million, primarily for acquisitions ($206.4 million), capital expenditures ($9.6 million) and real estate acquisitions ($8.7 million). Cash provided by financing activities was $298.7 million, reflecting debt and equity proceeds as well as a $74.4 million cash distribution to existing equity holders.
At December 31, debt included $129.9 million under the senior secured credit facility and $147.6 million, net of discount, in 12.875% Senior Notes due 2018. The secured borrowing rate was 4.80% at year-end; the notes carry a fixed 12.875% coupon. The company reported compliance with its credit-facility covenants at year-end. The filing states the company had $29.6 million of revolving availability at year-end.
Fourth quarter and comparison with prior periods
- Fourth-quarter 2011 revenue was $77.0 million; loss from continuing operations before tax was $23.4 million and net loss was $15.9 million. The quarter included $31.0 million of transaction-related expenses, primarily connected with the PHC acquisition.
- Reported 2011 revenue increased 249.1% from 2010, largely because YFCS and PHC contributed revenue only for the portions of 2011 after their respective acquisition dates. The acquisitions contributed $152.6 million of 2011 revenue. Same-facility revenue before doubtful-account provision grew 12.0%, with same-facility patient days up 13.3%.
- Pro forma revenue, assuming YFCS and PHC had been acquired at the start of each year, was $330.4 million in 2011 versus $314.2 million in 2010. Pro forma pretax continuing-operations loss was $34.6 million in 2011, compared with income of $9.1 million in 2010.
- 2011 results included $41.5 million of transaction-related expense, including a $20.6 million fee to terminate the Waud Capital Partners professional services agreement, and $17.3 million of equity-based compensation. Management said the equity-based compensation was not expected to recur at a similar level.
Business, outlook and principal risks
As of December 31, 2011, Acadia reported operating 29 facilities in 18 states; elsewhere the filing describes 32 facilities across 19 states, reflecting differing dates or facility definitions. Pro forma 2011 revenue mix was approximately 67% Medicaid, 20% commercial payors, 8% Medicare and 5% private pay and other. Pro forma service mix included residential treatment/group homes (41%), outpatient community-based services (28%) and acute inpatient psychiatric facilities (27%).
Management’s strategy is to improve margins and performance at existing facilities, grow services and bed capacity, and selectively pursue acquisitions. It described opportunities for added beds and expanded referral networks but provided no quantified earnings or revenue guidance. Management cited favorable demand trends and mental-health parity as potential growth drivers, while emphasizing execution and integration of acquired operations.
- Reimbursement and regulation: Government programs represented about 75% of pro forma revenue; Medicaid budget and reimbursement changes, utilization controls, audits and evolving healthcare reform could affect revenue and cash flow.
- Leverage and liquidity: Debt service, restrictive covenants, variable-rate exposure and refinancing needs may constrain investment and acquisitions. The 12.875% notes are a significant fixed-cost obligation.
- Acquisition execution: Integrating YFCS and PHC and realizing expected synergies remain key uncertainties; goodwill rose to $186.8 million, and PHC purchase-price allocations were preliminary.
- Other exposures: Staffing and physician recruitment, patient-care claims, fraud-and-abuse compliance, licenses and certificates of need, collection of receivables, and seasonal demand are material risks. Pro forma revenue concentration in Arkansas, Indiana, Michigan, Mississippi and Nevada was approximately 53%.
- Post-year-end events: On March 1, 2012, Acadia acquired three Haven facilities with 166 beds for $91.0 million and amended its credit facility, adding $25.0 million of term loans and increasing the revolver commitment from $30.0 million to $75.0 million. These events were subsequent to the reporting date.
Management said disclosure controls were effective. The filing did not include management’s assessment or auditor attestation of internal control over financial reporting, citing the transition period for newly public companies. The independent auditor gave an unqualified opinion on the financial statements, but did not express an opinion on internal-control effectiveness. Management reported no legal proceeding expected to have a material adverse effect.
Most important facts for investors to verify
- Separate reported results from pro forma results: acquisition timing substantially changes the revenue comparison, and the 2011 pro forma business remained loss-making before tax.
- Reconcile cash generation and working capital, including the impact of transaction costs, acquisitions, receivables and the year-end equity offering proceeds.
- Review post-Haven debt, liquidity, covenant headroom and debt-service costs; year-end debt and availability do not reflect the March 2012 acquisition and facility amendment.
- Assess whether the company can integrate YFCS, PHC and Haven and achieve the operating improvements underlying management’s growth strategy.
- Monitor Medicaid exposure, reimbursement policy and the company’s geographic concentration, as well as the status of preliminary PHC acquisition accounting and related goodwill.