Acadia Healthcare Company, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing also presents unaudited fourth-quarter results. Unless otherwise noted, financial comparisons are with 2019 and 2020 results classify the U.K. business as discontinued operations.
Business context
Acadia operated 572 behavioral healthcare facilities with approximately 18,100 beds across 40 U.S. states, Puerto Rico and the U.K. at year-end. The U.S. business comprised 227 facilities and approximately 9,900 beds. On January 19, 2021, the company completed the sale of its U.K. operations, which included 345 facilities and approximately 8,200 beds, and said it would focus on U.S. operations.
Financial and operating performance
| Metric | 2020 | 2019 |
|---|---|---|
| Continuing-operations revenue | $2,089.9 million | $2,008.4 million |
| Income from continuing operations | $143.2 million | $53.3 million |
| Continuing-operations income before tax | $183.8 million; 8.8% of revenue | $78.4 million; 3.8% of revenue |
| Net income (loss) attributable to Acadia | $(672.1) million | $108.9 million |
| Basic EPS | $(7.65) | $1.24 |
| Cash from continuing operating activities | $502.8 million | $183.4 million |
| Cash and cash equivalents at year-end | $378.7 million | $99.5 million |
- Continuing revenue increased 4.1%; same-facility revenue rose 3.9%, reflecting 2.5% growth in patient days and 1.4% growth in revenue per patient day. Admissions at same facilities fell 0.6%, while average length of stay increased 3.2%.
- Same-facility Adjusted EBITDA margin improved 250 basis points. The filing excerpt does not provide an absolute Adjusted EBITDA amount; the measure is non-GAAP.
- Interest expense declined to $158.1 million from $187.3 million, primarily due to lower rates on variable-rate debt. Continuing investing activities used $238.2 million, including $216.6 million of capital expenditures; continuing financing activities used $48.2 million.
- Year-end debt was approximately $3.1 billion net of debt issuance costs, discounts and premiums. The company had $441.6 million of available revolving-credit capacity, subject to borrowing conditions, and reported compliance with its debt covenants.
- Fourth-quarter revenue was $541.3 million and income from continuing operations was $46.2 million. The quarter included a discontinued-operations loss of $828.7 million and a net loss attributable to Acadia of $783.7 million, primarily reflecting the U.K. sale loss.
Material changes, outlook and notable items
- The U.K. sale generated approximately $1.525 billion in gross proceeds. The filing reports approximately $1.425 billion of net proceeds before cash retained by the buyer, and approximately $1.350 billion after that retained cash. Proceeds repaid the Term Loan A and Tranche B-4 balances, approximately $312 million and $768 million, respectively; the filing also says $345 million was added to the balance sheet. The sale produced an $867.3 million discontinued-operations loss, including $356.2 million of non-cash U.K. goodwill impairment.
- COVID-19 reduced referrals and patient volumes, particularly in late March and April. Management reported improving patient-day trends during the second quarter and second half, but said future effects remained difficult to predict. Staffing constraints, supply disruptions, higher costs and weaker collections remained risks.
- The company recorded $32.8 million of other income in the fourth quarter related to $34.9 million of Provider Relief Fund payments received during 2020. It also received approximately $45 million in Medicare accelerated payments, expected to be repaid through Medicare claim offsets beginning April 2021. CARES Act tax provisions provided $51.6 million of tax benefits; delayed employer Social Security tax payments provided approximately $39 million of cash benefit for 2020.
- For 2021, management expected to add approximately 300 beds at existing facilities, 170 beds through one wholly owned and one joint-venture facility, and open 11 comprehensive treatment centers. The filing does not provide financial revenue or earnings guidance.
- After year-end, Acadia made a voluntary $105 million Tranche B-4 payment and completed the U.K.-sale-related loan repayments; it reported having no variable-rate debt following those repayments. It also issued conditional redemption notices for $1.04 billion of senior notes, with completion expected in early March 2021, funded by approximately $430 million of cash and a planned $625 million secured credit facility. The filing’s text inconsistently identifies the $650 million notes as “5.265%” in the redemption discussion, while elsewhere listing $650 million of 5.625% notes; verify the applicable series in the filed debt documents.
Risks, contingencies and unusual items
Key exposures include COVID-19’s effect on patient volumes and liquidity; reliance on Medicaid, Medicare and commercial reimbursement; substantial debt and restrictive covenants; competition for clinical staff; patient safety and professional-liability claims; and complex healthcare, billing, privacy and fraud-and-abuse regulation. Acadia remained subject to a 2019 Corporate Integrity Agreement following a $17 million settlement concerning historical lab billing at West Virginia treatment centers. The filing also describes securities and derivative litigation, California wage-and-hour claims, and government investigations of facility claims; potential liabilities for several matters were not quantifiable. Professional and general liability reserves were $77.5 million at year-end, compared with $52.6 million a year earlier.
Investor verification priorities
- Reconcile the U.K. sale proceeds, cash retained, debt repayment and reported addition to cash, and confirm the final post-sale balance sheet and debt levels.
- Confirm the senior-note series and coupon subject to the announced $1.04 billion redemption, and whether the planned refinancing and redemptions closed as expected.
- Assess the sustainability of operating cash flow and margins excluding relief-fund income, tax benefits and other unusual items.
- Track patient volumes, admissions, collections and labor and supply costs as pandemic effects and government relief change.
- Review developments in the Corporate Integrity Agreement, government investigations, litigation and the company’s self-insured liability reserves.