Acadia Healthcare Company, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. Acadia operates behavioral healthcare facilities in the U.S. and Puerto Rico. At quarter-end it operated 229 facilities with approximately 10,100 beds across 40 states and Puerto Rico. The U.K. business was sold on January 19, 2021; its results are presented as discontinued operations for all periods shown.
Financial performance and position
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $582.2 million | $491.5 million | $1,133.4 million | $1,000.7 million |
| Income from continuing operations | $45.7 million | $27.7 million | $68.8 million | $46.7 million |
| Net income attributable to Acadia | $44.5 million | $41.1 million | $54.2 million | $74.5 million |
| Diluted EPS from continuing operations | $0.49 | $0.31 | $0.74 | $0.51 |
| Cash from continuing operating activities | Not provided for quarter | Not provided for quarter | $166.3 million | $203.3 million |
- Revenue grew 18.5% in Q2 and 13.3% in the first half. Same-facility revenue increased 18.0% and 12.6%, respectively, supported by patient-day growth of 9.8% and 6.2%, and revenue-per-patient-day growth of 7.5% and 6.0%.
- Q2 income from continuing operations was 7.8% of revenue, versus 5.7% a year earlier; first-half continuing income was 6.1% of revenue, versus 4.6%. Management reported same-facility Adjusted EBITDA margin improvement of 180 basis points in Q2 and 230 basis points for the first half; the filing cautions that Adjusted EBITDA is a non-GAAP measure.
- Reported net income comparisons reflect the U.K. disposal and discontinued operations: first-half 2021 included a $12.6 million discontinued-operations loss, while first-half 2020 included $29.1 million of discontinued-operations income. Q2 2020 also included $18.1 million of government relief income, subsequently reversed in Q3 2020.
- At June 30, cash was $185.5 million, versus $378.7 million at year-end 2020. Debt carrying value was $1.456 billion, including $13.3 million current and $1.443 billion long-term; cash less reported debt was approximately $1.271 billion. The company had $470.7 million available under its revolving facility and $4.3 million of standby letters of credit.
- First-half operating cash flow from continuing operations was $166.3 million, down from $203.3 million. Capital expenditures were $113.0 million, including $95.0 million of expansion spending. The filing does not provide a separate quarterly cash-flow figure.
Material changes and unusual items
- The U.K. sale generated approximately $1.425 billion in net proceeds, excluding cash retained by the buyer. Together with balance-sheet cash, proceeds funded $1.640 billion of debt reduction in Q1. Acadia refinanced its prior credit facility and redeemed $650 million of 5.625% notes and $390 million of 6.500% notes.
- Interest expense fell to $16.7 million in Q2 from $38.5 million, and to $45.7 million in the first half from $81.1 million, primarily due to debt repayments following the sale.
- First-half debt-extinguishment costs were $24.7 million, including cash and non-cash charges. Q2 included a $23.2 million non-cash impairment for a replaced Pennsylvania facility. A new 260-bed replacement facility opened during Q2.
- The new credit facility includes a $425 million term loan and a $600 million revolving facility, both maturing in March 2026. At June 30, floating-rate debt was $544.4 million and fixed-rate debt was $912.1 million. Acadia reported compliance with the facility’s maximum 5.0-to-1 net-leverage covenant and minimum 3.0-to-1 interest-coverage covenant.
Outlook, commentary, and risks
- Management expects to add approximately 300 beds to existing facilities, open a 170-bed wholly owned facility and a joint-venture facility, and open 11 comprehensive treatment centers during 2021. This is operational expansion guidance; the filing provides no specific financial earnings or revenue guidance.
- Management stated that cash on hand, operating cash flows, revolver availability, and potential additional financing should meet expected liquidity needs for the next 12 months.
- COVID-19 could affect patient volumes, staffing, supply costs, collections, and the value of assets. Management said the financial impact remained difficult to quantify; labor and supply constraints and higher costs were among the risks described.
- Medicaid represented 48.5% of Q2 revenue and 49.1% of first-half revenue. The company also identified payor reimbursement, regulation, staffing and recruitment, patient incidents, acquisitions, cybersecurity, and its significant indebtedness as risks.
- Acadia received $24.2 million of additional Provider Relief Fund payments in April 2021, recorded in accrued liabilities at quarter-end while it continued evaluating compliance with program terms. It was also repaying Medicare advance payments through claim recoupments, with the remaining balance scheduled to be repaid monthly through June 2022.
- Pending matters include securities and derivative litigation, California wage-and-hour claims, and government investigations concerning alleged regulatory and patient-care issues. The company said it could not quantify potential liability for the securities matters or investigations.
Investor verification priorities
- Confirm that patient-day, pricing, and same-facility margin gains persist, and assess whether staffing costs or labor availability constrain capacity.
- Review cash conversion and capital spending, particularly the decline in first-half operating cash flow despite higher continuing income.
- Track debt balances, variable-rate exposure, covenant headroom, and the pace of repayment of Medicare advances and deferred payroll taxes.
- Verify the accounting, eligible uses, and potential repayment or other obligations associated with Provider Relief Fund amounts.
- Monitor the COVID-19 impact on occupancy, collections, staffing, and asset valuations, as well as developments in the disclosed litigation and government investigations.