Acadia Healthcare Company, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise stated. Acadia operates behavioral healthcare facilities in the U.S. and Puerto Rico. At quarter-end, it operated 250 facilities with approximately 11,100 beds across 39 states and Puerto Rico.
Key financial results
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Revenue | $704.3 million | $616.7 million; up 14.2% |
| Income before taxes | $85.6 million; 12.2% of revenue | $79.3 million; 12.9% of revenue |
| Net income attributable to Acadia | $66.0 million | $60.8 million |
| Diluted EPS | $0.72 | $0.67 |
| Operating cash flow | $44.4 million | $76.8 million |
| Capital expenditures | $66.5 million | $50.5 million |
| Cash and cash equivalents | $63.8 million at March 31 | $97.6 million at December 31, 2022 |
| Total debt, carrying amount | $1.421 billion | $1.386 billion at December 31, 2022 |
Revenue growth was supported by same-facility revenue growth of 13.3%, admissions growth of 8.6%, patient-days growth of 6.5%, and revenue per patient day growth of 6.4%. Same-facility adjusted EBITDA margin improved 90 basis points; the filing does not provide a clear dollar value for adjusted EBITDA in the supplied text.
Costs also rose: salaries, wages and benefits increased to $391.2 million from $335.8 million and were 55.6% of revenue versus 54.4%. Interest expense rose to $20.0 million from $15.8 million, primarily due to higher rates on variable-rate debt. Net income grew, but net margin declined to 9.4% from 9.9%.
Liquidity, debt and cash flow
Operating cash flow declined by $32.4 million year over year, reflecting, among other items, increased accounts receivable and other current assets and lower accrued salaries and benefits. Investing cash use was $66.9 million, including $48.5 million of expansion capital expenditures and $18.0 million of routine or maintenance expenditures. Operating cash flow less capital expenditures was negative $22.1 million.
Acadia had $481.6 million of availability under its $600 million revolving facility, after $115 million was drawn; standby letters of credit were $3.4 million. The company reported compliance with its financial covenants. Its credit facility requires a maximum consolidated net leverage ratio of 5.0x and minimum interest coverage of 3.0x. Cash less reported debt implies approximate net debt of $1.36 billion.
Debt includes $450 million of 5.5% senior notes due 2028, $475 million of 5.0% senior notes due 2029, and borrowings under the credit facility. A March 2023 amendment replaced LIBOR with Term SOFR-based rates. The company reported $485.1 million of variable-rate debt; a 1% increase in rates would reduce annual pretax income by approximately $4.9 million. Current assets exceeded current liabilities by approximately $159.7 million at quarter-end.
Outlook, commentary and risks
- Management cited favorable demand trends and a tight labor market, noting wage inflation above long-term historical averages while describing labor costs as stable. Staffing and wage pressure remain risks.
- For 2023, management expects to add approximately 300 beds, open two wholly owned facilities, two joint-venture facilities, and at least six comprehensive treatment centers. The filing provides no specific revenue or earnings guidance.
- Management identified competition for staff, inflation, rising interest rates, payor and regulatory changes, acquisition execution, patient-care events, cyber risks, and dependence on referral sources among risks.
- Medicaid represented 51.8% of Q1 revenue, up from 48.7%; commercial payors declined to 28.9% from 31.6%, increasing the importance of government reimbursement and payor mix.
- Transaction-related expenses were $6.5 million versus $3.6 million, including $4.8 million of management transition costs. Cash financing activity included $47.7 million of share withholding for employee taxes, not a publicly announced repurchase program.
- The company had $9.0 million of unrecognized government relief funds recorded as a liability and continued to assess compliance and possible repayment. Government reporting is subject to audit.
- Disclosed proceedings include a securities class action, related derivative actions, and government investigations involving facility billing and regulatory requirements. Acadia said it could not quantify potential liability for the cited matters.
Important facts for investors to verify
- Whether revenue and patient-volume growth can continue while labor costs remain elevated and the salary expense ratio rises.
- Cash conversion, working-capital movements, and the expected pace and returns of expansion capital spending.
- Variable-rate borrowing exposure, debt covenant headroom, and the effect of interest-rate changes.
- Progress against the stated 2023 bed-addition and facility-opening plans.
- Developments in government investigations, litigation, and the potential repayment or audit outcome for relief funds.