Acadia Healthcare Company, Inc. — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012; filed August 1, 2012. Acadia operates inpatient psychiatric, residential, substance-abuse and outpatient behavioral-health services. At quarter-end it operated 32 facilities, with more than 2,150 beds in 18 states.
Financial performance
Amounts below are in millions except per-share data. Results are not fully comparable year over year because acquisitions substantially expanded the business.
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Revenue, net of doubtful accounts | $100.5 | $63.6 | $190.1 | $80.4 |
| Income (loss) from continuing operations | $6.1 | ($21.7) | $9.4 | ($22.0) |
| Net income (loss) | $5.9 | ($21.9) | $9.6 | ($22.1) |
| Diluted EPS | $0.16 | ($1.24) | $0.28 | ($1.25) |
| Continuing-operations net margin | 6.1% | (34.2%) | 5.0% | (27.3%) |
- Revenue before doubtful-account provisions rose 61.0% in Q2 and 138.3% in the first half. Management attributed most of the increase to YFCS, PHC and Haven acquisitions. Same-facility revenue before provisions increased 8.9% in Q2 and 9.9% in the first half, primarily on patient-day growth associated with facility expansions.
- The doubtful-account provision was $2.2 million in Q2 and $3.9 million in the first half, equal to 2.2% and 2.0% of pre-provision revenue, respectively. The company cited acquired payor mix and prior-period bad-debt recoveries as factors.
- First-half continuing operating cash flow was $10.7 million, versus $5.3 million in 2011. Investing used $110.6 million, including $90.5 million for Haven, $7.6 million of capital expenditures and $13.9 million for real estate. Financing provided $159.1 million, principally from the $139.0 million stock offering and $25.0 million of additional term loans.
- Cash and equivalents were $120.2 million at June 30, versus $61.1 million at year-end 2011. Current assets were $184.1 million and current liabilities $44.3 million. Days sales outstanding rose to 40 from 38.
- Total debt was $298.6 million, comprising $150.9 million of variable-rate term loans and $147.6 million carrying value of 12.875% senior notes due 2018. The company had $74.6 million available on its $75 million revolver and reported compliance with debt covenants. Q2 interest expense was $7.5 million; first-half expense was $14.8 million.
- The stock offering issued 9.49 million shares at $15.50 per share, producing approximately $139.0 million net proceeds. Shares outstanding increased to 41.7 million from 32.1 million at year-end.
Changes, outlook and risks
- Acadia acquired three Haven hospitals, totaling 166 beds, for $90.5 million in March 2012. The filing reports preliminary acquired goodwill of $74.5 million. PHC and YFCS acquisitions also contributed materially to the growth in reported revenue and costs.
- Prior-year losses included $19.8 million of equity-based compensation expense in the first half of 2011, compared with $1.2 million in the first half of 2012. Transaction-related expenses declined to $1.4 million from $8.4 million. These items, along with acquired operations, affect year-over-year comparisons.
- Management expected to add approximately 170 beds in the second half of 2012, following 125 beds added during the first half. It planned to use remaining stock-offering proceeds principally for acquisitions and described growth through facility expansion, referrals and service development. The filing provides no formal earnings or revenue guidance.
- Key exposures include substantial debt and interest costs, variable-rate borrowing, government and third-party reimbursement, Medicaid concentration (62.5% of Q2 pre-provision revenue), collectability, staffing and regulatory requirements. Management highlighted uncertainty over healthcare reform and the potential effects of reimbursement and fraud-and-abuse provisions.
- Management cited acquisition-integration and contingent-liability risks. It reported no legal proceeding expected to have a material adverse effect and stated disclosure controls were effective. A stock offering ended the company’s “controlled company” status, beginning a phase-in of NASDAQ independent-director and committee requirements.
- Acadia disposed of a Florida facility in June and recorded a $0.2 million loss in discontinued operations. A hypothetical 10% increase in interest rates was estimated to reduce annual net income and cash flow by approximately $0.4 million.
Investor verification priorities
- Separate organic same-facility growth from acquisition-driven revenue and assess whether acquired operations and expected synergies are being realized.
- Track doubtful-account expense, receivable aging and collection trends, especially given the higher provision and Medicaid payor exposure.
- Review debt service, covenant headroom, refinancing requirements and the cost of the 12.875% notes; confirm use of offering proceeds and acquisition spending.
- Monitor planned bed additions, staffing and operating-cost trends, healthcare reimbursement changes, regulatory exposure and NASDAQ governance compliance.