Acadia Healthcare Company, Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022; comparisons are with the corresponding 2021 periods. Acadia operates behavioral-health facilities in the U.S. and Puerto Rico. At quarter-end it operated 239 facilities with approximately 10,600 beds. The U.K. business, sold in January 2021, is reported as discontinued operations.
Financial performance and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $651.7 million | $582.2 million | $1,268.4 million | $1,133.4 million |
| Income from continuing operations | $81.9 million | $45.7 million | $143.8 million | $68.8 million |
| Net income attributable to Acadia | $80.1 million | $44.5 million | $140.9 million | $54.2 million |
| Diluted EPS attributable to Acadia | $0.88 | $0.49 | $1.54 | $0.60 |
- Q2 revenue grew 11.9%; same-facility revenue increased 8.5%, with revenue per patient day up 7.8% and patient days up 0.7%. Six-month same-facility revenue also grew 8.5%.
- Q2 income from continuing operations was 12.6% of revenue, versus 7.8% a year earlier; pretax income was $109.7 million versus $65.0 million. Q2 included $8.6 million of provider-relief income. Six-month reported earnings also reflect the prior-year discontinued-operations loss and 2021 debt-extinguishment and impairment charges.
- Q2 salaries, wages and benefits were 52.1% of revenue as reported; excluding equity-based compensation, they were 51.1%, compared with 51.6% in Q2 2021. Same-facility adjusted EBITDA margin improved 270 basis points, or 130 basis points excluding provider-relief income. The filing does not provide an absolute adjusted EBITDA amount in the cited same-facility data.
- Six-month operating cash flow was $226.0 million, versus $166.3 million. Capital expenditures were $132.4 million, including $100.2 million of expansion spending; cash used in investing was $135.8 million. Cash at June 30 was $128.4 million.
- Debt carrying value was approximately $1.405 billion, down from $1.497 billion at December 31, 2021. The company had $511.6 million of revolver availability and $3.4 million of letters of credit outstanding. It reported compliance with credit-facility covenants. A hypothetical 1% increase in interest rates would reduce annual pretax income by approximately $5 million.
- Current assets were $518.0 million and current liabilities $441.7 million. Management said cash on hand, operating cash flow, revolver availability and additional financing were expected to meet liquidity needs for the next 12 months.
Material changes and unusual items
- Revenue growth included the CenterPointe acquisition, completed at the end of 2021, and approximately $5.4 million in one-time state payments. Same-facility growth was supported by higher revenue per patient day, bed additions and demand.
- Labor costs rose with acquired operations, staffing to support volume and wage inflation; management described the labor market as tight. Same-facility salary expense as a share of revenue nevertheless declined year over year.
- Interest expense for the first half fell to $32.4 million from $45.7 million, primarily reflecting debt repayment after the U.K. sale. The prior-year period included $24.7 million of debt-extinguishment costs and a $23.2 million noncash impairment charge; neither recurred in first-half 2022.
- Medicaid represented 50.1% of Q2 revenue and 49.4% for the first half. Medicare sequestration relief declined to 1% on April 1, 2022 and ended July 1, 2022.
Outlook, risks and contingencies
- No numerical earnings or revenue guidance is provided. For 2022, management expected to add approximately 300 beds at existing facilities, open one wholly owned facility and two joint-venture facilities, and open at least six comprehensive treatment centers. In the first half, it added 78 beds and opened two such centers.
- Management cited favorable demand trends and plans to grow through acquisitions, new facilities, joint ventures, bed additions and expanded services. It also emphasized staffing and retention as ongoing priorities.
- Key risks include COVID-19-related disruption, labor availability and wage inflation, supply costs, reimbursement and regulatory changes, dependence on government payors, acquisition integration, indebtedness and interest rates, cybersecurity, and patient-care or compliance matters.
- The company faces securities and derivative litigation and government investigations concerning alleged regulatory and patient-care issues at facilities. It said potential liability could not currently be quantified. Professional-liability claims are self-insured up to $10 million, with reinsurance above that retention.
- The company expected to repay remaining CMS advance payments and deferred employer payroll taxes during the second half of 2022. It noted that changes in tax legislation or estimates could materially affect tax expense and balances.
- The CEO transition and integration of new CEO Christopher H. Hunter were identified as risks. Management reported effective disclosure controls and no material changes in internal control over financial reporting during the quarter.
Investor verification priorities
- Separate organic same-facility growth from CenterPointe contributions and one-time state payments; assess patient-day trends and revenue per patient day.
- Track labor costs, staffing levels, and margins excluding provider-relief income and equity compensation.
- Confirm the effect of the end of Medicare sequestration relief and the timing and completion of advance-payment and payroll-tax repayments.
- Review debt, floating-rate exposure, covenant headroom, and planned expansion capital spending against operating cash generation.
- Monitor regulatory investigations, litigation, reimbursement compliance, and acquisition integration for developments or quantified exposures.