Acadia Healthcare Company, Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. The filing also reports unaudited fourth-quarter results. Unless stated otherwise, amounts are in U.S. dollars.
Business context and reporting period
Acadia operates inpatient psychiatric and specialty facilities, residential treatment centers, and outpatient behavioral-health services. At year-end it operated 51 facilities with approximately 4,200 licensed beds in 23 states and Puerto Rico. Revenue mix was 66% acute inpatient psychiatric and specialty facilities, 29% residential treatment, and 5% outpatient community-based services.
Growth was acquisition-led: the company acquired seven facilities during 2013 and added 325 beds, including two newly developed facilities. Acquisitions completed in 2012 and 2013 contributed $325.6 million of 2013 revenue.
Financial and operating highlights
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue, net of doubtful-account provision | $713.4 million | $407.5 million |
| Revenue before doubtful-account provision | $735.1 million | $413.9 million |
| Provision for doubtful accounts | $21.7 million; 3.0% of pre-provision revenue | $6.4 million; 1.5% |
| Income from continuing operations | $43.3 million; 6.1% of revenue | $20.5 million; 5.0% |
| Net income | $42.6 million | $20.4 million |
| Diluted EPS from continuing operations | $0.86 | $0.53 |
| Net cash from continuing operating activities | $65.3 million | $34.3 million |
| Cash and cash equivalents at year-end | $4.6 million | $49.4 million |
| Working capital at year-end | $30.4 million | $69.1 million |
| Total debt at year-end | $617.1 million | $473.3 million |
Revenue rose 77.6% before the doubtful-account provision, primarily reflecting acquisitions. Same-facility revenue before that provision increased 10.5%, driven by 8.8% growth in patient days and 1.1% growth in revenue per day. Salaries, wages and benefits fell to 57.2% of revenue from 58.8%; pre-tax margin increased to 9.7% from 8.0%. Interest expense increased to $37.3 million from $29.8 million. The 2013 results included a $9.4 million debt-extinguishment charge related to redeeming part of the 12.875% notes.
Operating cash flow was more than offset by $68.9 million of capital expenditures; cash used in investing activities was $243.0 million, including $164.0 million for acquisitions. Maintenance capital expenditures were 2.3% of revenue. Days sales outstanding increased to 46 from 39, which management attributed mainly to longer collection periods at 2013 acquisitions.
For the fourth quarter of 2013, revenue was $190.0 million, income from continuing operations before tax was $19.9 million, and net income was $12.3 million, or $0.25 per basic share and $0.24 per diluted share.
Debt, liquidity, and material changes
Year-end debt included $346.0 million under the senior credit facility, $96.2 million of 12.875% notes, $150.0 million of 6.125% notes, and $24.9 million of revenue bonds. The company reported $46.1 million available under its revolving credit line at year-end and compliance with its debt covenants. A hypothetical 10% increase in interest rates was estimated to reduce annual net income and cash flows by $0.6 million.
In March 2013, Acadia issued $150.0 million of 6.125% notes due 2021 and redeemed $52.5 million of 12.875% notes at a premium, recording the charge noted above. After year-end, a February 2014 credit amendment expanded the revolver to $300.0 million, set term loans at $300.0 million, extended facility maturity, lowered applicable rates, and increased covenant flexibility.
Outlook, commentary, risks, and unusual items
- Management expected to add more than 300 beds in 2014, excluding acquisitions, and intended to pursue further acquisitions and organic growth.
- On January 1, 2014, Acadia acquired Pacific Grove Hospital for $10.5 million. The 2013 acquisition purchase-price allocations were preliminary; some acquired receivables, liabilities, real estate, and intangibles remained under assessment.
- Payor exposure is material: Medicare and Medicaid together represented 69.5% of 2013 revenue (reported as approximately 70%). Medicaid alone was 48%. Reimbursement reductions, utilization controls, and state budget pressure could affect results.
- Other principal risks include substantial debt and restrictive covenants; acquisition integration and execution; staffing and physician recruitment; regulatory, fraud-and-abuse, licensing, and certificate-of-need compliance; malpractice claims; and collection risk. Five states—Arkansas, Michigan, Mississippi, Tennessee, and Texas—accounted for approximately 45% of revenue.
- Management and the auditor reported effective internal control over financial reporting, but the assessment excluded certain 2013 acquisitions, which represented 9.4% of revenue and 14.5% of year-end assets. The financial-statement audit opinion was unqualified.
- The company stated it did not anticipate paying cash dividends in the foreseeable future. Summer, holiday, and school-break periods can bring lower patient volumes because of the company’s significant child and adolescent business.
Important facts for investors to verify
- How much of reported growth and earnings improvement is sustainable same-facility performance versus acquired revenue, and whether acquisition synergies materialize.
- Whether the sharp increase in doubtful-account provisions, higher DSO, and acquired-facility collection patterns persist or require further reserve adjustments.
- Current debt balances, covenant headroom, borrowing availability, variable-rate exposure, and the post-year-end credit amendment’s terms and effects.
- Final acquisition purchase-price allocations and any resulting changes to goodwill, intangible assets, or assumed liabilities.
- Reimbursement developments and operating performance in the states and government-payor programs on which the company is concentrated.