Press Release

Acadia Healthcare Reports Third Quarter Adjusted Earnings Increase to $0.46 per Diluted Share on Revenue of $294.5 million

PDF Version

Announces Definitive Agreement for $1.175 Billion Acquisition of CRC Health Group

Raises 2014 Guidance for Adjusted Earnings per Diluted Share to Range of $1.52 to $1.53 from Previous Range of $1.44 to $1.46

FRANKLIN, Tenn.--(BUSINESS WIRE)--Oct. 29, 2014-- Acadia Healthcare Company, Inc. (NASDAQ: ACHC) today announced financial results for the third quarter and nine months ended September 30, 2014. For the quarter, revenue increased 59.4% to $294.5 million from $184.7 million for the third quarter of 2013. Income from continuing operations was $25.5 million, or $0.43 per diluted share, for the third quarter of 2014 compared with $14.5 million, or $0.29 per diluted share, for the third quarter of 2013. Adjusted income from continuing operations rose 79.5% to $27.3 million for the third quarter of 2014 from $15.2 million for the third quarter of 2013, while adjusted income from continuing operations per diluted share increased 53.3% to $0.46 from $0.30. For the third quarter of 2014, the adjusted results exclude transaction-related expenses of $6.2 million and a gain on foreign currency derivatives of $1.5 million that was related to Acadia’s recent acquisition of Partnerships in Care (PiC). For the third quarter of 2013, the adjusted results exclude transaction-related expenses of $1.0 million. Weighted average shares outstanding increased 18.0% for the third quarter of 2014 from the third quarter of 2013 primarily due to the Company’s public equity offering in June, 2014. A reconciliation of all GAAP and non-GAAP financial results in this release is on pages 8 and 9.

Revenue for the first nine months of 2014 was $709.7 million, a 35.6% increase from $523.4 million for the first nine months of 2013. Income from continuing operations was $60.9 million, or $1.13 per diluted share, for the first nine months of 2014 compared with $30.9 million, or $0.61 per diluted share, for the same period in 2013. Adjusted income from continuing operations was $57.9 million for the first nine months of 2014, up 48.0% from $39.1 million for the first nine months of 2013, while adjusted income from continuing operations per diluted share increased 37.2% to $1.07 from $0.78. The adjusted results exclude a gain on foreign currency derivatives of $15.3 million for the first nine months of 2014, debt extinguishment costs of $9.4 million for the first nine months of 2013 and transaction-related expenses of $10.8 million and $3.8 million for the first nine months of 2014 and 2013, respectively. Weighted average shares outstanding increased 7.4% for the first nine months of 2014 from the same period in 2013.

“Acadia achieved very strong profitable growth for the third quarter of 2014, as both our organic and acquisition growth strategies produced strong results,” said Joey Jacobs, Chairman and Chief Executive Officer of Acadia. “We were pleased to complete the acquisition of PiC during the third quarter, which is the U.K.’s second-largest independent behavioral healthcare provider. The PiC transaction added 23 inpatient psychiatric facilities with over 1,200 licensed beds to Acadia’s operations and was meaningfully accretive to our third quarter results. In addition, during the third quarter we acquired McCallum Place, an eating disorder treatment facility with 85 beds offering residential, partial hospitalization and intensive outpatient treatment programs located in St. Louis, Missouri, and Austin, Texas.

“Today, we are also announcing a definitive agreement for the acquisition of CRC Health Group Inc., the nation’s largest specialized behavioral healthcare provider. CRC, headquartered in Cupertino, California, provides substance abuse treatment and other specialty programs through 36 residential facilities and 84 comprehensive treatment facilities that currently treat approximately 40,000 patients daily. These facilities are expected to produce aggregate revenues for 2014 of approximately $450 million and adjusted EBITDA of approximately $115 million. Consideration for the acquisition of privately held CRC is $1.175 billion, consisting of up to approximately 6.3 million shares of Acadia’s common stock and the assumption of CRC’s debt. We expect to complete this accretive transaction, which is subject to normal closing conditions, in the first quarter of 2015.

“Including the PiC and McCallum Place transactions in the third quarter, Acadia completed five acquisitions in the 12 months ended September 30, 2014, that brought 27 facilities and more than 1,500 licensed beds to the Company. During this 12 month period, we also added approximately 410 new beds to existing facilities and through the opening of two de novo facilities and one facility that was under construction when acquired in the second quarter last year. We added 40 of these new beds during the third quarter of 2014, including seven new beds within PiC.

“The new beds added to existing U.S. facilities in our same facility base since the end of the third quarter last year significantly contributed to same facility revenue growth of 9.9% in our operations for the third quarter of 2014. We also continuously work to drive same-facility revenue growth through facility specific initiatives to generate additional revenue growth in every facility. The growth in same-facility revenue for the third quarter reflected an 11.2% increase in patient days for the quarter and 1.2% lower revenue per patient day.

“The substantial increase in same facility revenue growth for the third quarter, combined with increased operating efficiencies, produced a 130 basis point increase in our same facility EBITDA margin to 25.8%. The Company’s adjusted consolidated EBITDA increased 69.1% to $65.1 million for the third quarter of 2014, which is 22.1% of revenue compared with 20.8% for the third quarter last year.

“We continue to evaluate potential acquisitions in the highly fragmented behavioral healthcare markets in the U.S. and the U.K., as well as to add new beds in existing facilities. We are well positioned to finance these growth strategies, with availability under our revolving credit facility of approximately $136 million at September 30, 2014 and with substantial net cash flows from continuing operations, which totaled approximately $40 million for the third quarter and $69 million for the first nine months of 2014. Our ratio of total net debt to trailing 12 months adjusted EBITDA was approximately 4.0 at the end of the third quarter compared with 4.2 at the end of the second quarter of 2014.”

Acadia today raised its guidance for 2014 adjusted earnings per diluted share to a range of $1.52 to $1.53 from the previous range of $1.44 to $1.46. The Company’s guidance does not include the impact of any future acquisitions or transaction-related expenses.

Acadia will hold a conference call to discuss its third quarter financial results and the pending CRC transaction at 9:00 a.m. Eastern Time on Thursday, October 30, 2014. A live webcast of the conference call will be available at www.acadiahealthcare.com in the “Investor Relations” section of the website. The webcast of the conference call will be available through November 14, 2014.

Risk Factors

This news release contains forward-looking statements. Generally words such as “may,” “will,” “should,” “could,” “anticipate,” “expect,” “intend,” “estimate,” “plan,” “continue,” and “believe” or the negative of or other variation on these and other similar expressions identify forward-looking statements. These forward-looking statements are made only as of the date of this news release. We do not undertake to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements are based on current expectations and involve risks and uncertainties and our future results could differ significantly from those expressed or implied by our forward-looking statements. Factors that may cause actual results to differ materially include, without limitation, (i) Acadia’s ability to complete acquisitions, including the acquisition of CRC, and successfully integrate the operations of acquired facilities, including the PiC facilities; (ii) Acadia’s ability to add beds, expand services, enhance marketing programs and improve efficiencies at its facilities; (iii) potential reductions in payments received by Acadia from the government and third-party payors; (iv) the occurrence of patient incidents, which could adversely affect the price of our common stock and result in incremental regulatory burdens and governmental investigations; (v) the risk that Acadia may not generate sufficient cash from operations to service its debt and meet its working capital and capital expenditure requirements; and (vi) potential operating difficulties, client preferences, changes in competition and general economic or industry conditions that may prevent Acadia from realizing the expected benefits of its business strategy. These factors and others are more fully described in Acadia’s periodic reports and other filings with the SEC.

About Acadia

Acadia is a provider of inpatient behavioral healthcare services. Acadia operates a network of 76 behavioral healthcare facilities with approximately 5,800 licensed beds in 24 states, the United Kingdom and Puerto Rico. Acadia provides psychiatric and chemical dependency services to its patients in a variety of settings, including inpatient psychiatric hospitals, residential treatment centers, outpatient clinics and therapeutic school-based programs.


Acadia Healthcare Company, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)

	September 30,			December 31,
	2014			2013
	(In thousands)

ASSETS
Current assets:
Cash and cash equivalents	$	42,179		$	4,569
Accounts receivable, net of allowance for doubtful accounts of $21,730 and $18,345, respectively		130,253			95,885
Deferred tax assets		19,782			15,703
Other current assets		37,626			28,969
Total current assets		229,840			145,126
Property and equipment, net		1,026,378			370,109
Goodwill		804,647			661,549
Intangible assets, net		21,621			20,568
Deferred tax assets - noncurrent		15,933			-
Other assets		42,049			27,307
Total assets	$	2,140,468		$	1,224,659


LIABILITIES AND EQUITY
Current liabilities:
Current portion of long-term debt	$	13,320		$	15,195
Accounts payable		43,260			36,026
Accrued salaries and benefits		56,213			37,721
Other accrued liabilities		29,747			25,748
Total current liabilities		142,540			114,690
Long-term debt		1,016,002			601,941
Deferred tax liabilities - noncurrent		64,771			7,971
Other liabilities		30,579			19,347
Total liabilities		1,253,892			743,949
Equity:
Common stock		592			501
Additional paid-in capital		843,528			461,807
Accumulated other comprehensive loss		(36,857	)		-
Retained earnings		79,313			18,402
Total equity		886,576			480,710
Total liabilities and equity	$	2,140,468		$	1,224,659


Acadia Healthcare Company, Inc.
Condensed Consolidated Statements of Income
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(In thousands, except per share amounts)

Revenue before provision for doubtful accounts	$	303,001		$	190,574		$	729,784		$	539,230
Provision for doubtful accounts		(8,522	)		(5,872	)		(20,084	)		(15,821	)
Revenue		294,479			184,702			709,700			523,409

Salaries, wages and benefits (including equity-based compensation expense of $2,805, $1,331, $6,975 and $3,744, respectively)		168,632			103,789			408,680			298,904
Professional fees		14,878			8,956			36,151			27,294
Supplies		14,062			9,806			34,722			28,017
Rents and leases		3,214			2,656			8,872			7,377
Other operating expenses		31,432			22,345			79,188			59,424
Depreciation and amortization		10,325			4,414			21,696			12,248
Interest expense, net		14,068			9,465			33,505			27,672
Debt extinguishment costs		-			-			-			9,350
Gain on foreign currency derivatives		(1,527	)		-			(15,262	)		-
Transaction-related expenses		6,239			984			10,834			3,813
Total expenses		261,323			162,415			618,386			474,099
Income from continuing operations before income taxes		33,156			22,287			91,314			49,310
Provision for income taxes		7,703			7,741			30,383			18,439
Income from continuing operations		25,453			14,546			60,931			30,871
Loss from discontinued operations, net of income taxes		(51	)		(182	)		(20	)		(572	)
Net income	$	25,402		$	14,364		$	60,911		$	30,299

Basic earnings per share:
Income from continuing operations	$	0.43		$	0.29		$	1.14		$	0.62
Loss from discontinued operations		-			-			-			(0.01	)
Net income	$	0.43		$	0.29		$	1.14		$	0.61

Diluted earnings per share:
Income from continuing operations	$	0.43		$	0.29		$	1.13		$	0.61
Loss from discontinued operations		-			-			-			(0.01	)
Net income	$	0.43		$	0.29		$	1.13		$	0.60

Weighted-average shares outstanding:
Basic		59,175			50,040			53,670			49,987
Diluted		59,409			50,343			53,922			50,213


Acadia Healthcare Company, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)

	Nine Months Ended September 30,
	2014			2013
	(In thousands)

Operating activities:
Net income	$	60,911		$	30,299
Adjustments to reconcile net income to net cash provided by continuing operating activities:
Depreciation and amortization		21,696			12,248
Amortization of debt issuance costs		2,229			1,686
Equity-based compensation expense		6,975			3,744
Deferred income tax expense		4,645			10,545
Loss from discontinued operations, net of taxes		20			572
Debt extinguishment costs		-			9,350
Gain on foreign currency derivatives		(15,262	)		-
Other		163			16
Change in operating assets and liabilities, net of effect of acquisitions:
Accounts receivable, net		(25,395	)		(18,378	)
Other current assets		1,322			(5,657	)
Other assets		(2,086	)		(1,676	)
Accounts payable and other accrued liabilities		1,078			2,596
Accrued salaries and benefits		8,972			(2,114	)
Other liabilities		3,805			3,538
Net cash provided by continuing operating activities		69,073			46,769
Net cash used in discontinued operating activities		(27	)		(541	)
Net cash provided by operating activities		69,046			46,228

Investing activities:
Cash paid for acquisitions, net of cash acquired		(722,797	)		(135,605	)
Cash paid for capital expenditures		(70,680	)		(50,678	)
Cash paid for real estate acquisitions		(22,247	)		(4,676	)
Settlement of foreign currency derivatives		15,262			-
Other		(733	)		(1,088	)
Net cash used in investing activities		(801,195	)		(192,047	)

Financing activities:
Borrowings on long-term debt		307,500			150,000
Borrowings on revolving credit facility		230,500			27,500
Principal payments on revolving credit facility		(120,000	)		(8,000	)
Principal payments on long-term debt		(5,625	)		(5,625	)
Repayment of long-term debt		-			(52,500	)
Payment of debt issuance costs		(10,909	)		(4,307	)
Payment of premium on note redemption		-			(6,759	)
Issuance of common stock, net		374,431			-
Common stock withheld for minimum statutory taxes, net		(3,477	)		(1,120	)
Excess tax benefit from equity awards		3,779			1,265
Cash paid for contingent consideration		(5,000	)		-
Net cash provided by financing activities		771,199			100,454

Effect of exchange rate changes on cash		(1,440	)		-

Net increase (decrease) in cash and cash equivalents		37,610			(45,365	)
Cash and cash equivalents at beginning of the period		4,569			49,399
Cash and cash equivalents at end of the period	$	42,179		$	4,034

Effect of acquisitions:
Assets acquired, excluding cash	$	802,767		$	163,706
Liabilities assumed		(78,003	)		(16,417	)
Prior year deposits paid for acquisitions		(500	)		(11,684	)
Contingent consideration issued in connection with acquisition		(1,467	)		-
Cash paid for acquisitions, net of cash acquired	$	722,797		$	135,605


Acadia Healthcare Company, Inc.
Operating Statistics
(Unaudited)
(Revenue in thousands)

	Three Months Ended September 30,							Nine Months Ended September 30,
	2014			2013			% Change	2014			2013			% Change
Same Facility Results
Revenue	$	202,344		$	184,071		9.9%	$	575,735		$	521,368		10.4%
Patient Days		307,247			276,193		11.2%		866,025			788,383		9.8%
Admissions		17,763			14,804		20.0%		48,331			41,870		15.4%
Average Length of Stay (a)		17.3			18.7		-7.3%		17.9			18.8		-4.8%

Revenue per Patient Day	$	659		$	666		-1.2%	$	665		$	661		0.5%
EBITDA margin		25.8	%		24.5	%	130 bps		26.0	%		24.2	%	180 bps

U.S. Facility Results
Revenue	$	217,427		$	184,071		18.1%	$	630,825		$	521,368		21.0%
Patient Days		326,479			276,193		18.2%		939,246			788,383		19.1%
Admissions		19,949			14,804		34.8%		56,775			41,870		35.6%
Average Length of Stay (a)		16.4			18.7		-12.3%		16.5			18.8		-12.1%

Revenue per Patient Day	$	666		$	666		-0.1%	$	672		$	661		1.6%
EBITDA margin		24.8	%		24.5	%	30 bps		24.5	%		24.2	%	30 bps

U.K. Facility Results
Revenue	$	76,026						$	76,026
Patient Days		95,375							95,375
Admissions		319							319
Average Length of Stay (a)		299.0							299.0

Revenue per Patient Day	$	797						$	797
EBITDA margin		26.6	%						26.6	%

Total Facility Results
Revenue	$	293,453		$	184,071		59.4%	$	706,851		$	521,368		35.6%
Patient Days		421,854			276,193		52.7%		1,034,621			788,383		31.2%
Admissions		20,268			14,804		36.9%		57,094			41,870		36.4%
Average Length of Stay (a)		20.8			18.7		11.6%		18.1			18.8		-3.8%

Revenue per Patient Day	$	696		$	666		4.4%	$	683		$	661		3.3%
EBITDA margin		25.2	%		24.5	%	70 bps		24.7	%		24.2	%	50 bps

(a) Average length of stay is defined as patient days divided by admissions.


Acadia Healthcare Company, Inc.
Reconciliation of Net Income to Adjusted EBITDA
(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2014			2013		2014			2013
	(in thousands)

Net income	$	25,402		$	14,364	$	60,911		$	30,299
Loss from discontinued operations		51			182		20			572
Provision for income taxes		7,703			7,741		30,383			18,439
Interest expense, net		14,068			9,465		33,505			27,672
Depreciation and amortization		10,325			4,414		21,696			12,248
EBITDA		57,549			36,166		146,515			89,230

Adjustments:
Equity-based compensation expense (a)		2,805			1,331		6,975			3,744
Debt extinguishment costs (b)		-			-		-			9,350
Gain on foreign currency derivatives (c)		(1,527	)		-		(15,262	)		-
Transaction-related expenses (d)		6,239			984		10,834			3,813
Adjusted EBITDA	$	65,066		$	38,481	$	149,062		$	106,137

See footnotes on page 10.


Acadia Healthcare Company, Inc.
Reconciliation of Adjusted Income from Continuing Operations to Income from
Continuing Operations
(Unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
	(in thousands, except per share amounts)

Income from continuing operations	$	25,453		$	14,546		$	60,931		$	30,871
Provision for income taxes		7,703			7,741			30,383			18,439
Income from continuing operations before income taxes		33,156			22,287			91,314			49,310

Adjustments to income from continuing operations:
Debt extinguishment costs (b)		-			-			-			9,350
Gain on foreign currency derivatives (c)		(1,527	)		-			(15,262	)		-
Transaction-related expenses (d)		6,239			984			10,834			3,813
Income tax provision reflecting tax effect of adjustments to income from continuing operations (e)		(10,603	)		(8,082	)		(29,016	)		(23,359	)
Adjusted income from continuing operations	$	27,265		$	15,189		$	57,870		$	39,114

Weighted-average shares outstanding - diluted		59,409			50,343			53,922			50,213

Adjusted income from continuing operations per diluted share	$	0.46		$	0.30		$	1.07		$	0.78

See footnotes on page 10.

Acadia Healthcare Company, Inc.

Footnotes

We have included certain financial measures in this press release, including EBITDA, Adjusted EBITDA and Adjusted income from continuing operations, which are “non-GAAP financial measures” as defined under the rules and regulations promulgated by the SEC. We define EBITDA as net income adjusted for loss (income) from discontinued operations, net interest expense, income tax provision and depreciation and amortization. We define Adjusted EBITDA as EBITDA adjusted for equity-based compensation expense, debt extinguishment costs, gain on foreign currency derivatives and transaction-related expenses.

EBITDA, Adjusted EBITDA and Adjusted income from continuing operations are supplemental measures of our performance and are not required by, or presented in accordance with, generally accepted accounting principles in the United States (“GAAP”). EBITDA, Adjusted EBITDA and Adjusted income from continuing operations are not measures of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as measures of our liquidity. Our measurements of EBITDA, Adjusted EBITDA and Adjusted income from continuing operations may not be comparable to similarly titled measures of other companies. We have included information concerning EBITDA, Adjusted EBITDA and Adjusted income from continuing operations in this press release because we believe that such information is used by certain investors as measures of a company’s historical performance. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of issuers of equity securities, many of which present EBITDA, Adjusted EBITDA and Adjusted income from continuing operations when reporting their results. Our presentation of EBITDA, Adjusted EBITDA and Adjusted income from continuing operations should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

(a) Represents the equity-based compensation expense of Acadia.

(b) Represents debt extinguishment costs related to the repayment of $52.5 million of the Company's 12.875% Senior Notes due 2018 on March 12, 2013, including a prepayment premium of $6.8 million and the write-off of $2.6 million of deferred financing costs.

(c) Represents the change in fair value of foreign currency derivatives purchased by Acadia related to its acquisition of Partnerships in Care on July 1, 2014.

(d) Represents transaction-related expenses incurred by Acadia related to acquisitions.

(e) Represents the income tax provision adjusted to reflect the tax effect of the adjustments to income from continuing operations based on tax rates of 28.0% for the three months ended September 30, 2014 and 33.4% for the nine months ended September 30, 2014.

Source: Acadia Healthcare Company, Inc.

Acadia Healthcare Company, Inc.
Brent Turner, 615-861-6000
President