Acadia Healthcare Company, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Acadia operates behavioral healthcare facilities in the U.S. and Puerto Rico; at quarter-end it operated 250 facilities with approximately 11,000 beds in 39 states and Puerto Rico.
Financial performance and liquidity
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $731.3 million | $651.7 million | $1,435.6 million | $1,268.4 million |
| Net income attributable to Acadia | $72.3 million | $80.1 million | $138.3 million | $140.9 million |
| Diluted EPS | $0.79 | $0.88 | $1.51 | $1.54 |
| Net cash from operations | Not provided for quarter | $208.2 million | $226.0 million |
- Revenue grew 12.2% year over year in Q2 and 13.2% for the first half. Same-facility revenue rose 11.4% and 12.3%, respectively.
- Q2 net income attributable to Acadia fell about 9.7% year over year; first-half attributable net income declined about 1.8%. Attributable net margin was 9.9% in Q2 versus 12.3% a year earlier, and 9.6% for the first half versus 11.1%.
- Q2 same-facility patient days increased 4.9%, admissions 4.3%, and revenue per patient day 6.1%. First-half increases were 5.7%, 6.4%, and 6.3%, respectively.
- Labor remained the largest cost: salaries, wages and benefits were 52.8% of revenue in Q2 versus 52.1% a year earlier; excluding equity compensation, the ratio was 51.9% versus 51.1%. Management cited staffing growth and wage inflation.
- Cash from operations was $208.2 million for the first half, down from $226.0 million. Capital expenditures were $157.4 million, including $117.9 million for expansion; investing cash use was $157.7 million. Cash increased to $112.2 million from $97.6 million at year-end.
- Debt carrying value was approximately $1.396 billion at June 30, including $95.0 million drawn on the revolver. Revolver availability was $501.6 million; the company reported compliance with financial covenants. Interest expense rose to $20.9 million in Q2 from $16.6 million, primarily due to higher rates on variable-rate debt.
- Current assets were $578.8 million and current liabilities $432.5 million. Management said cash, operating cash flow, revolver availability and potential additional financing should meet expected liquidity needs over the next 12 months.
Material changes and unusual items
- Q2 included $8.7 million of non-cash impairment charges related to facility closures: $4.7 million for indefinite-lived intangibles, $2.0 million for property and $2.0 million for lease right-of-use assets.
- Transaction-related expense increased to $9.1 million in Q2 from $3.9 million, principally reflecting $6.2 million of management-transition costs. First-half expense was $15.5 million versus $7.5 million.
- Q2 and first-half 2022 included $8.6 million of provider-relief-fund income; there was none in 2023, affecting year-over-year comparisons. The company reported $9.0 million of unrecognized government-relief funds and said potential repayment remains under evaluation.
- Medicaid represented 53.6% of Q2 revenue, up from 50.2%; commercial payors declined to 28.6% from 31.0%. The filing identifies Medicaid eligibility changes following the end of COVID-related continuous coverage as a risk.
- Cash paid for employee tax withholding on vested shares, net of option proceeds, was $45.9 million for the first half, compared with $9.9 million a year earlier.
Outlook, risks and contingencies
- No numerical revenue or earnings guidance is provided. For 2023, management expected to add approximately 300 beds, open two wholly owned facilities, two joint-venture facilities and at least six comprehensive treatment centers; 204 beds had been added and two CTCs opened in the first half.
- Management cited continued demand and a tight labor market, but said labor costs had stabilized and proactive staffing efforts were helping manage the environment. Same-facility adjusted EBITDA margin changed by negative 30 basis points in Q2 and positive 30 basis points for the first half; excluding prior-year relief-fund income, each period showed a 100-basis-point increase.
- Major litigation exposure: On July 7, 2023, after quarter-end, a jury awarded $80 million compensatory and $405 million punitive damages in the Inman case, part of the Desert Hills litigation. Acadia intends to challenge the verdict and said it cannot quantify ultimate liability. It may be required to post a bond of up to $970 million; the filing warns the litigation could materially affect financial condition and liquidity.
- Two other Desert Hills cases remain unresolved. The company also disclosed securities and derivative litigation and government investigations concerning alleged regulatory and patient-care issues; potential liabilities were not quantifiable in the filing.
- Other stated risks include staffing and wage pressure, inflation and interest rates, dependence on government and third-party payors, regulatory compliance, acquisition execution, patient incidents, cybersecurity, and debt obligations. A hypothetical 1% rate increase would reduce annual pretax income by approximately $4.6 million.
- In July 2023, Acadia signed a definitive agreement to acquire substantially all assets of Turning Point Centers, a 76-bed Utah provider.
Important facts for investors to verify
- Developments in the Inman appeal, any bond requirement, insurance coverage and possible effects on liquidity.
- Whether revenue and patient-volume growth can continue without further deterioration in labor expense ratios and profitability.
- Medicaid eligibility changes, payor mix and collections, including receivables aging and days sales outstanding.
- Cash generation relative to elevated expansion spending, debt service and revolver use; covenant headroom and variable-rate exposure.
- Execution and funding of planned bed additions, facility openings and the Turning Point transaction, alongside continuing regulatory and government-relief-fund contingencies.