Business context and reporting period
Acadia Healthcare Company, Inc. filed this unaudited Form 10-Q for the quarter and nine months ended September 30, 2022. It operates behavioral healthcare facilities in the U.S. and Puerto Rico; at quarter-end it had 242 facilities and approximately 10,800 beds across 39 states and Puerto Rico. Results exclude the U.K. business, sold in January 2021 and reported as discontinued operations.
Key financial metrics
Amounts are in millions except per-share data and percentages.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $666.7 | $587.6 | $1,935.1 | $1,720.9 |
| Income from continuing operations | $73.0 | $67.9 | $216.9 | $136.7 |
| Net income attributable to Acadia | $71.1 | $66.1 | $212.0 | $120.4 |
| Diluted EPS attributable to Acadia | $0.78 | $0.73 | $2.31 | $1.33 |
| Cash provided by operating activities | Not provided separately | Not provided separately | $267.0 | $276.4 |
- Q3 revenue increased 13.5%; same-facility revenue rose 10.2%, supported by 3.1% growth in patient days and 6.9% growth in revenue per patient day. Nine-month revenue increased 12.4%; same-facility revenue rose 9.1%.
- Q3 pretax income was $97.1 million, equal to 14.6% of revenue, versus $85.3 million and 14.6% a year earlier. Continuing-operations income was 11.0% of revenue versus 11.6%.
- Q3 salaries, wages and benefits were 52.9% of revenue, compared with 52.6%. Excluding equity compensation, the ratio was 51.8% versus 51.1%; management cited wage inflation, acquisition costs and staffing for volume growth.
- Cash and equivalents were $93.4 million at September 30, down from $133.8 million at year-end 2021. Nine-month capital expenditures were $208.8 million, including $161.8 million for expansion.
- Debt carrying value was $1.401 billion, down from $1.497 billion at year-end. The company reported $511.6 million of revolver availability, net of outstanding letters of credit, and compliance with its debt covenants. Debt includes fixed- and floating-rate borrowings.
- Current assets were $521.7 million and current liabilities $401.0 million at quarter-end.
Material changes versus the prior comparable period
- Growth included revenue from CenterPointe, acquired December 31, 2021, as well as same-facility growth. Acadia added 360 beds and opened four comprehensive treatment centers during the first nine months of 2022.
- Q3 net income attributable to Acadia rose 7.5%, slower than revenue growth; Q3 transaction-related expenses increased to $10.9 million from $3.0 million, including $5.6 million in management-transition costs. Interest expense increased to $18.0 million from $15.7 million.
- For the first nine months, interest expense fell to $50.4 million from $61.4 million, primarily reflecting debt repayment following the U.K. sale. The 2021 comparison also included $24.7 million of debt-extinguishment costs, $24.3 million of impairment charges and a $12.6 million discontinued-operations loss.
- Nine-month operating cash flow declined to $267.0 million from $276.4 million. Management cited net government relief-fund cash payments of $32.6 million, versus $12.1 million in the prior-year period, among the cash-flow factors.
Outlook, commentary, risks and contingencies
- For 2022, management expected to add approximately 300 beds at existing facilities, add 270 beds through one wholly owned and two joint-venture facilities, and open at least six comprehensive treatment centers. This is operational expansion outlook; the filing provides no clear earnings or revenue guidance.
- Management described demand trends as favorable and said it was positioned for expected behavioral-health demand growth. It also cited a tight labor market and a focus on staffing levels; risks include wage inflation, recruitment and retention challenges, and higher supply and labor costs.
- Provider relief fund income reduced reported expenses by $7.7 million in Q3 and $16.2 million year to date. The company continued evaluating compliance with relief-program terms. The temporary Medicare sequestration reimbursement increase ended July 1, 2022.
- Acadia cited possible continuing effects from COVID-19, inflation, patient volumes, regulation and reimbursement, cybersecurity, acquisitions, and its substantial debt. A hypothetical 1% interest-rate increase was estimated to reduce annual pretax income by approximately $4.9 million.
- A securities class action was certified on September 30, 2022, covering purchasers or acquirers of Acadia common stock from April 30, 2014 through November 15, 2018. The company said potential liability could not be quantified. Related derivative matters are also pending or stayed.
- Government investigations involving facilities concern alleged regulatory issues including medical necessity, admission eligibility, discharge decisions, length of stay and patient care. Acadia is cooperating and said potential liability could not be quantified. Claims and investigations may result in repayment obligations, penalties or other consequences.
- Management stated disclosure controls were effective and reported no materially affecting changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of revenue and margin growth reflects durable same-facility demand and pricing versus CenterPointe and government relief income.
- Whether labor costs, staffing availability and other inflationary pressures continue to weigh on margins and facility capacity.
- Execution against the 2022 bed-addition and treatment-center expansion plans, including associated capital spending and returns.
- Cash conversion, receivables collection and liquidity needs, given higher days sales outstanding (44 days versus 42 at year-end) and substantial expansion capex.
- Debt balances, floating-rate exposure, covenant headroom and the potential financial effects of the securities litigation and government investigations.