10-Q 1 achc-10q_20180930.htm 10-Q achc-10q_20180930.htm

Table of contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2018

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number: 001-35331

 

ACADIA HEALTHCARE COMPANY, INC.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

 

45-2492228

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

6100 Tower Circle, Suite 1000

Franklin, Tennessee 37067

(Address, including zip code, of registrant’s principal executive offices)

(615) 861-6000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

 

Smaller reporting company

Emerging growth company 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

At November 6, 2018, there were 88,256,115 shares of the registrant’s common stock outstanding.

 

 

 


Table of contents

 

 

ACADIA HEALTHCARE COMPANY, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

  

Financial Statements

1

 

 

 

 

  

Condensed Consolidated Balance Sheets (Unaudited) at September 30, 2018 and December 31, 2017

1

 

 

 

 

  

Condensed Consolidated Statements of Income (Unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017

2

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the Three and Nine Months Ended September 30, 2018 and 2017

3

 

 

 

 

  

Condensed Consolidated Statement of Equity (Unaudited) for the Nine Months Ended September 30, 2018

4

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2018 and 2017

5

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

 

 

 

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

43

 

 

 

Item 4.

  

Controls and Procedures

44

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

  

Legal Proceedings

45

 

 

 

Item 1A.

  

Risk Factors

45

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

Item 6.

  

Exhibits

46

 

 

SIGNATURES

47

 

 

 


Table of contents

 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Acadia Healthcare Company, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

 

(In thousands, except share and per

share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,928

 

 

$

67,290

 

Accounts receivable, net

 

 

345,659

 

 

 

296,925

 

Other current assets

 

 

96,146

 

 

 

107,335

 

Total current assets

 

 

490,733

 

 

 

471,550

 

Property and equipment, net

 

 

3,126,642

 

 

 

3,048,130

 

Goodwill

 

 

2,729,941

 

 

 

2,751,174

 

Intangible assets, net

 

 

91,259

 

 

 

87,348

 

Deferred tax assets

 

 

3,630

 

 

 

3,731

 

Derivative instrument assets

 

 

33,084

 

 

 

12,997

 

Other assets

 

 

54,295

 

 

 

49,572

 

Total assets

 

$

6,529,584

 

 

$

6,424,502

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

33,264

 

 

$

34,830

 

Accounts payable

 

 

133,914

 

 

 

102,299

 

Accrued salaries and benefits

 

 

109,151

 

 

 

99,047

 

Other accrued liabilities

 

 

114,414

 

 

 

141,213

 

Total current liabilities

 

 

390,743

 

 

 

377,389

 

Long-term debt

 

 

3,181,962

 

 

 

3,205,058

 

Deferred tax liabilities

 

 

82,269

 

 

 

80,333

 

Other liabilities

 

 

165,663

 

 

 

166,434

 

Total liabilities

 

 

3,820,637

 

 

 

3,829,214

 

Redeemable noncontrolling interests

 

 

28,698

 

 

 

22,417

 

Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 10,000,000 shares authorized, no shares issued

 

 

 

 

 

 

Common stock, $0.01 par value; 180,000,000 shares authorized; 87,363,357

   and 87,060,114 issued and outstanding at September 30, 2018 and December 31, 2017, respectively

 

 

874

 

 

 

871

 

Additional paid-in capital

 

 

2,535,377

 

 

 

2,517,545

 

Accumulated other comprehensive loss

 

 

(440,462

)

 

 

(374,118

)

Retained earnings

 

 

584,460

 

 

 

428,573

 

Total equity

 

 

2,680,249

 

 

 

2,572,871

 

Total liabilities and equity

 

$

6,529,584

 

 

$

6,424,502

 

 

See accompanying notes.

1


Table of contents

 

Acadia Healthcare Company, Inc.

Condensed Consolidated Statements of Income

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands, except per share amounts)

 

Revenue before provision for doubtful accounts

 

$

760,916

 

 

$

728,712

 

 

$

2,268,895

 

 

$

2,143,696

 

Provision for doubtful accounts

 

 

 

 

 

(11,998

)

 

 

 

 

 

(31,892

)

Revenue

 

 

760,916

 

 

 

716,714

 

 

 

2,268,895

 

 

 

2,111,804

 

Salaries, wages and benefits (including equity-based compensation expense of $5,225, $4,175, $19,273 and $19,007, respectively)

 

 

417,917

 

 

 

385,562

 

 

 

1,246,186

 

 

 

1,145,578

 

Professional fees

 

 

59,509

 

 

 

53,042

 

 

 

166,988

 

 

 

142,772

 

Supplies

 

 

29,461

 

 

 

28,652

 

 

 

88,958

 

 

 

85,000

 

Rents and leases

 

 

19,866

 

 

 

19,049

 

 

 

60,390

 

 

 

57,455

 

Other operating expenses

 

 

90,464

 

 

 

82,328

 

 

 

265,977

 

 

 

249,161

 

Depreciation and amortization

 

 

39,659

 

 

 

36,442

 

 

 

119,360

 

 

 

105,256

 

Interest expense, net

 

 

46,651

 

 

 

44,515

 

 

 

137,706

 

 

 

130,777

 

Debt extinguishment costs

 

 

 

 

 

 

 

 

940

 

 

 

810

 

Transaction-related expenses

 

 

2,353

 

 

 

5,665

 

 

 

10,008

 

 

 

18,836

 

Total expenses

 

 

705,880

 

 

 

655,255

 

 

 

2,096,513

 

 

 

1,935,645

 

Income before income taxes

 

 

55,036

 

 

 

61,459

 

 

 

172,382

 

 

 

176,159

 

Provision for income taxes

 

 

8,757

 

 

 

15,970

 

 

 

16,339

 

 

 

46,259

 

Net income

 

 

46,279

 

 

 

45,489

 

 

 

156,043

 

 

 

129,900

 

Net (income) loss attributable to noncontrolling interests

 

 

(47

)

 

 

129

 

 

 

(156

)

 

 

306

 

Net income attributable to Acadia Healthcare Company, Inc.

 

$

46,232

 

 

$

45,618

 

 

$

155,887

 

 

$

130,206

 

Earnings per share attributable to Acadia Healthcare Company, Inc. stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.53

 

 

$

0.52

 

 

$

1.79

 

 

$

1.50

 

Diluted

 

$

0.53

 

 

$

0.52

 

 

$

1.78

 

 

$

1.50

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

87,344

 

 

 

87,017

 

 

 

87,233

 

 

 

86,912

 

Diluted

 

 

87,537

 

 

 

87,172

 

 

 

87,386

 

 

 

87,038

 

 

See accompanying notes.

2


Table of contents

 

Acadia Healthcare Company, Inc.

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Net income

 

$

46,279

 

 

$

45,489

 

 

$

156,043

 

 

$

129,900

 

Other comprehensive (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation (loss) gain

 

 

(31,959

)

 

 

69,622

 

 

 

(82,778

)

 

 

188,744

 

Gain (loss) on derivative instruments, net of tax of $2.4 million, $(6.7) million, $5.6 million and $(18.8) million, respectively

 

 

7,380

 

 

 

(9,402

)

 

 

16,434

 

 

 

(24,354

)

Other comprehensive (loss) income

 

 

(24,579

)

 

 

60,220

 

 

 

(66,344

)

 

 

164,390

 

Comprehensive income

 

 

21,700

 

 

 

105,709

 

 

 

89,699

 

 

 

294,290

 

Comprehensive (gain) loss attributable to noncontrolling interests

 

 

(47

)

 

 

129

 

 

 

(156

)

 

 

306

 

Comprehensive income attributable to Acadia Healthcare Company, Inc.

 

$

21,653

 

 

$

105,838

 

 

$

89,543

 

 

$

294,596

 

 

See accompanying notes.

3


Table of contents

 

Acadia Healthcare Company, Inc.

Condensed Consolidated Statement of Equity

(Unaudited)

(In thousands)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Retained

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Earnings

 

 

Total

 

Balance at December 31, 2017

 

 

87,060

 

 

$

871

 

 

$

2,517,545

 

 

$

(374,118

)

 

$

428,573

 

 

$

2,572,871

 

Common stock issued under stock incentive plans

 

 

303

 

 

 

3

 

 

 

241

 

 

 

 

 

 

 

 

 

244

 

Common stock withheld for minimum statutory

   taxes

 

 

 

 

 

 

 

 

(2,516

)

 

 

 

 

 

 

 

 

(2,516

)

Equity-based compensation expense

 

 

 

 

 

 

 

 

19,273

 

 

 

 

 

 

 

 

 

19,273

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(66,344

)

 

 

 

 

 

(66,344

)

Other

 

 

 

 

 

 

 

 

834

 

 

 

 

 

 

 

 

 

834

 

Net income attributable to Acadia Healthcare

   Company, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

155,887

 

 

 

155,887

 

Balance at September 30, 2018

 

 

87,363

 

 

$

874

 

 

$

2,535,377

 

 

$

(440,462

)

 

$

584,460

 

 

$

2,680,249

 

 

See accompanying notes.

4


Table of contents

 

Acadia Healthcare Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

 

(In thousands)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

156,043

 

 

$

129,900

 

Adjustments to reconcile net income to net cash provided by continuing operating

   activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

119,360

 

 

 

105,256

 

Amortization of debt issuance costs

 

 

7,763

 

 

 

7,340

 

Equity-based compensation expense

 

 

19,273

 

 

 

19,007

 

Deferred income taxes

 

 

(1,738

)

 

 

29,416

 

Debt extinguishment costs

 

 

940

 

 

 

810

 

Other

 

 

3,025

 

 

 

10,672

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(43,252

)

 

 

(28,681

)

Other current assets

 

 

3,021

 

 

 

26,099

 

Other assets

 

 

3,868

 

 

 

(566

)

Accounts payable and other accrued liabilities

 

 

9,230

 

 

 

(26,381

)

Accrued salaries and benefits

 

 

11,049

 

 

 

(7,937

)

Other liabilities

 

 

149

 

 

 

7,677

 

Net cash provided by continuing operating activities

 

 

288,731

 

 

 

272,612

 

Net cash used in discontinued operating activities

 

 

(2,548

)

 

 

(1,261

)

Net cash provided by operating activities

 

 

286,183

 

 

 

271,351

 

Investing activities:

 

 

 

 

 

 

 

 

Cash paid for capital expenditures

 

 

(249,989

)

 

 

(193,817

)

Cash paid for real estate acquisitions

 

 

(9,391

)

 

 

(33,297

)

Other

 

 

(3,114

)

 

 

(6,062

)

Net cash used in investing activities

 

 

(262,494

)

 

 

(233,176

)

Financing activities:

 

 

 

 

 

 

 

 

Principal payments on long-term debt

 

 

(31,492

)

 

 

(25,913

)

Common stock withheld for minimum statutory taxes, net

 

 

(2,272

)

 

 

(3,278

)

Other

 

 

(6,973

)

 

 

1,649

 

Net cash used in financing activities

 

 

(40,737

)

 

 

(27,542

)

Effect of exchange rate changes on cash

 

 

(1,314

)

 

 

7,965

 

Net (decrease) increase in cash and cash equivalents

 

 

(18,362

)

 

 

18,598

 

Cash and cash equivalents at beginning of the period

 

 

67,290

 

 

 

57,063

 

Cash and cash equivalents at end of the period

 

$

48,928

 

 

$

75,661

 

 

See accompanying notes.

5


Table of contents

 

 

Acadia Healthcare Company, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2018

(Unaudited)

1.

Description of Business and Basis of Presentation

Description of Business

Acadia Healthcare Company, Inc. (the “Company”) develops and operates inpatient psychiatric facilities, residential treatment centers, group homes, substance abuse facilities and facilities providing outpatient behavioral healthcare services to serve the behavioral health and recovery needs of communities throughout the United States (“U.S.”), the United Kingdom (“U.K.”) and Puerto Rico. At September 30, 2018, the Company operated 586 behavioral healthcare facilities with approximately 18,000 beds in 40 states, the U.K. and Puerto Rico.

Basis of Presentation

The business of the Company is conducted through limited liability companies, partnerships and C-corporations. The Company’s consolidated financial statements include the accounts of the Company and all subsidiaries controlled by the Company through its’ direct or indirect ownership of majority interests and exclusive rights granted to the Company as the controlling member of an entity. All intercompany accounts and transactions have been eliminated in consolidation.

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation of our financial position and results of operations have been included. The Company’s fiscal year ends on December 31 and interim results are not necessarily indicative of results for a full year or any other interim period. The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements as of that date. The information contained in these condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 27, 2018. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Certain reclassifications have been made to prior years to conform to the current year presentation.

2.

Recently Issued Accounting Standards

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). ASU 2017-12 amends the hedge accounting model to enable entities to better portray the economics of their risk management activities in the financial statements and simplifies the application of hedge accounting in certain situations. ASU 2017-12 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. Management is evaluating the impact of ASU 2017-12 on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, “Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). ASU 2017-04 simplifies the measurement of goodwill by eliminating the requirement to calculate the implied fair value of goodwill (step 2 of the current impairment test) to measure the goodwill impairment charge. Instead, entities will record impairment charges based on the excess of a reporting unit’s carrying amount over its fair value. ASU 2017-04 is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company has elected to early adopt ASU 2017-04 on January 1, 2018, and there was no significant impact on the Company’s consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments” (“ASU 2016-15”). ASU 2016-15 addresses treatment of how certain cash receipts and cash payments are presented and classified in the statement of cash flows to reduce the diversity in practice. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company adopted ASU 2016-15 on January 1, 2018. There is no significant impact on the Company’s consolidated financial statements.

6


Table of contents

 

In March 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02’s core principle is to increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet and disclosing key information. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Additionally, ASU 2016-02 would permit both public and nonpublic organizations to adopt the new standard early. Management believes the primary effect of adopting the new standard will be to record right-of-use assets and obligations for current operating leases. Management is continuing to evaluate the impact ASU 2016-02 will have on the Company’s consolidated financial statements, internal controls, policies and procedures.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”). ASU 2016-01 amends how entities recognize, measure, present and disclose certain financial assets and financial liabilities. It requires entities to measure equity investments (except for those accounted for under equity method) at fair value and recognize any changes in fair value in net income. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company adopted ASU 2016-01 on January 1, 2018. There was no significant impact on the Company’s consolidated financial statements.

In May 2014, the FASB and the International Accounting Standards Board issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). ASU 2014-09’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017. The Company adopted ASU 2014-09 on January 1, 2018 as described in Note 3 – Revenue. 

3.

Revenue

ASU 2014-09 requires companies to exercise more judgment and recognize revenue using a five-step process. The Company adopted ASU 2014-09 using the modified retrospective method for all contracts effective January 1, 2018 and is using a portfolio approach to group contracts with similar characteristics and analyze historical cash collections trends. Modified retrospective adoption requires entities to apply the standard retrospectively to the most current period presented in the financial statements, requiring the cumulative effect of the retrospective application as an adjustment to the opening balance of retained earnings at the date of initial application. Prior periods have not been adjusted. No cumulative-effect adjustment in retained earnings was recorded as the adoption of ASU 2014-09 did not significantly impact the Company’s reported historical revenue.

As a result of certain changes required by ASU 2014-09, the majority of the Company’s provision for doubtful accounts are recorded as a direct reduction to revenue instead of being presented as a separate line item on the condensed consolidated statements of income. The adoption of ASU 2014-09 has no impact on the Company’s accounts receivable as it was historically recorded net of allowance for doubtful accounts and contractual adjustments, and the Company has eliminated the presentation of allowance for doubtful accounts on the condensed consolidated balance sheets. The adoption of ASU 2014-09 did not have a significant impact on the Company’s condensed consolidated statements of income. The impact of adopting ASU 2014-09 on the condensed consolidated statements of income for the three and nine months ended September 30, 2018 was as follows (in thousands):

 

 

 

Three Months Ended September 30, 2018

 

 

Nine Months Ended September 30, 2018

 

 

 

As Reported

 

 

Prior to Adopting

ASU 2014-09

 

 

As Reported

 

 

Prior to Adopting

ASU 2014-09

 

Revenue before provision for doubtful accounts

 

$

760,916

 

 

$

772,380

 

 

$

2,268,895

 

 

$

2,298,084

 

Provision for doubtful accounts

 

 

 

 

 

(11,464

)

 

 

 

 

 

(29,189

)

Revenue

 

$

760,916

 

 

$

760,916

 

 

$

2,268,895

 

 

$

2,268,895

 

 

 

The Company evaluated the nature, amount, timing and uncertainty of revenue and cash flows using the five-step process provided within ASU 2014-09.

Revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care, outpatient psychiatric care and adolescent residential treatment. The services provided by the Company have no fixed duration and can be terminated by the patient or the facility at any time, and therefore, each treatment is its own stand-alone contract.

7


Table of contents

 

Services ordered by a healthcare provider in an episode of care are not separately identifiable and therefore have been combined into a single performance obligation for each contract. The Company recognizes revenue as its performance obligations are completed. The performance obligation is satisfied over time as the customer simultaneously receives and consumes the benefits of the healthcare services provided. For inpatient services, the Company recognizes revenue equally over the patient stay on a daily basis. For outpatient services, the Company recognizes revenue equally over the number of treatments provided in a single episode of care. Typically, patients and third-party payors are billed within several days of the service being performed or the patient being discharged, and payments are due based on contract terms.

As our performance obligations relate to contracts with a duration of one year or less, the Company elected the optional exemption in ASC 606-10-50-14(a). Therefore, the Company is not required to disclose the transaction price for the remaining performance obligations at the end of the reporting period or when the Company expects to recognize the revenue. The Company has minimal unsatisfied performance obligations at the end of the reporting period as our patients typically are under no obligation to remain admitted in our facilities.

The Company disaggregates revenue from contracts with customers by service type and by payor within each of the Company’s segments.

U.S. Facilities

The Company’s facilities in the United States (the “U.S. Facilities”) and services provided by the U.S. Facilities can generally be classified into the following categories: acute inpatient psychiatric facilities; specialty treatment facilities; residential treatment centers; and outpatient community-based services.

Acute inpatient psychiatric facilities. Acute inpatient psychiatric facilities provide a high level of care in order to stabilize patients that are either a threat to themselves or to others. The acute setting provides 24-hour observation, daily intervention and monitoring by psychiatrists.

Specialty treatment facilities. Specialty treatment facilities include residential recovery facilities, eating disorder facilities and comprehensive treatment centers. The Company provides a comprehensive continuum of care for adults with addictive disorders and co-occurring mental disorders. Inpatient, including detoxification and rehabilitation, partial hospitalization and outpatient treatment programs give patients access to the least restrictive level of care.

Residential treatment centers. Residential treatment centers treat patients with behavioral disorders in a non-hospital setting, including outdoor programs. The facilities balance therapy activities with social, academic and other activities.

Outpatient community-based services. Outpatient community-based programs are designed to provide therapeutic treatment to children and adolescents who have a clinically-defined emotional, psychiatric or chemical dependency disorder while enabling the youth to remain at home and within their community.

The table below presents total U.S. revenue attributed to each category (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Acute inpatient psychiatric facilities

 

$

208,885

 

 

$

187,497

 

 

$

608,311

 

 

$

566,173

 

Specialty treatment facilities

 

 

198,107

 

 

 

183,290

 

 

 

575,536

 

 

 

543,079

 

Residential treatment centers

 

 

72,351

 

 

 

72,677

 

 

 

218,041

 

 

 

213,300

 

Outpatient community-based services

 

 

9,283

 

 

 

10,214

 

 

 

30,613

 

 

 

32,763

 

Revenue

 

$

488,626

 

 

$

453,678

 

 

$

1,432,501

 

 

$

1,355,315

 

 

The Company receives payments from the following sources for services rendered in our U.S. Facilities: (i) state governments under their respective Medicaid and other programs; (ii) commercial insurers; (iii) the federal government under the Medicare program administered by the Centers for Medicare and Medicaid Services (“CMS”); and (iv) individual patients and clients. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

8


Table of contents

 

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and implicit price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. Implicit price concessions are based on historical collection experience. Most of our U.S. Facilities have contracts containing variable consideration. However, it is unlikely a significant reversal of revenue will occur when the uncertainty is resolved, and therefore, the Company has included the variable consideration in the estimated transaction price. Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense, which is included as a component of other operating expenses in the condensed consolidating statements of income. Bad debt expense for the three and nine months ended September 30, 2018 was not significant.

The Company derives a significant portion of its revenue from Medicare, Medicaid and other payors that receive discounts from established billing rates. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from the Company’s estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.

Settlements under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. Final determination of amounts earned under the Medicare and Medicaid programs often occurs in subsequent years because of audits by such programs, rights of appeal and the application of numerous technical provisions. In the opinion of management, adequate provision has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the Company’s financial condition or results of operations. The Company’s cost report receivables were $10.9 million at both September 30, 2018 and December 31, 2017, respectively, and were included in other current assets in the condensed consolidated balance sheets. Management believes that these receivables are properly stated and are not likely to be settled for a significantly different amount. The net adjustments to estimated cost report settlements were not significant for the three and nine months ended September 30, 2018.

Management believes that we comply in all material respects with applicable laws and regulations and is not aware of any material pending or threatened investigations involving allegations of wrongdoing. Compliance with such laws and regulations can be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties and exclusion from the Medicare and Medicaid programs.

The Company provides care without charge to patients who are financially unable to pay for the healthcare services they receive based on Company policies and federal and state poverty thresholds. Such amounts determined to qualify as charity care are not reported as revenue. The cost of providing charity care services were $1.0 million and $1.3 million for the three months ended September 30, 2018 and 2017, respectively. The cost of providing charity care services were $3.8 million and $4.2 million for the nine months ended September 30, 2018 and 2017, respectively. The estimated cost of charity care services was determined using a ratio of cost to gross charges determined from our most recently filed Medicare cost reports and applying that ratio to the gross charges associated with providing charity care for the period.

The following table presents revenue generated by each payor type (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Commercial

 

$

146,439

 

 

$

142,870

 

 

$

431,337

 

 

$

431,818

 

Medicare

 

 

73,528

 

 

 

73,593

 

 

 

210,307

 

 

 

212,992

 

Medicaid

 

 

229,390

 

 

 

199,592

 

 

 

668,236

 

 

 

587,705

 

Self-Pay

 

 

33,559

 

 

 

43,685

 

 

 

103,845

 

 

 

130,928

 

Other

 

 

5,710

 

 

 

5,936

 

 

 

18,776

 

 

 

23,758

 

Revenue before provision for doubtful accounts

 

 

488,626

 

 

 

465,676

 

 

 

1,432,501

 

 

 

1,387,201

 

Provision for doubtful accounts

 

 

 

 

 

(11,998

)

 

 

 

 

 

(31,886

)

Revenue

 

$

488,626

 

 

$

453,678

 

 

$

1,432,501

 

 

$

1,355,315

 

 

9


Table of contents

 

U.K. Facilities

The Company’s facilities located in the United Kingdom (the “U.K. Facilities”) and services provided by the U.K. Facilities can generally be classified into the following categories: healthcare facilities, education and children’s services, adult care facilities and elderly care facilities.

Healthcare facilities. Healthcare facilities provide psychiatric treatment and nursing for sufferers of mental disorders, including for patients whose risk of harm to others and risk of escape from hospitals cannot be managed safely within other mental health settings. In order to manage the risks involved with treating patients, the facility is managed through the application of a range of security measures depending on the level of dependency and risk exhibited by the patient.

Education and children’s services. Education and children’s services provide specialist education for children and young people with special educational needs, including autism, Asperger’s Syndrome, social, emotional and mental health, and specific learning difficulties, such as dyslexia. The division also offers standalone children’s homes for children that require 52-week residential care to support complex and challenging behavior and fostering services.

Adult care facilities. Adult care focuses on care of individuals with a variety of learning difficulties, mental health illnesses and adult autism spectrum disorders. It also includes long-term, short-term and respite nursing care to high-dependency elderly individuals who are physically frail or suffering from dementia. Care is provided in a number of settings, including in residential care homes and through supported living.

The table below presents total U.K. revenue attributed to each category (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Healthcare facilities

 

$

150,871

 

 

$

146,264

 

 

$

464,731

 

 

$

419,549

 

Education and Children’s Services

 

 

46,966

 

 

 

42,441

 

 

 

145,609

 

 

 

124,337

 

Adult Care facilities

 

 

74,453

 

 

 

74,331

 

 

 

226,054

 

 

 

212,603

 

Revenue

 

$

272,290

 

 

$

263,036

 

 

$

836,394

 

 

$

756,489

 

 

The Company receives payments from approximately 500 public funded sources in the U.K. (including the National Health Service (“NHS”), Clinical Commissioning Groups (“CCGs”) and local authorities in England, Scotland and Wales) and individual patients and clients. The Company determines the transaction price based on established billing rates by payor and is reduced by implicit price concessions. Implicit price concessions are insignificant in our U.K. Facilities. There is no significant variable consideration in our U.K. Facilities’ contracts. As the period between the time of service and time of payment is typically one year or less, the Company elected the practical expedient under ASC 606-10-32-18 and did not adjust for the effects of a significant financing component.

The following table presents revenue generated by each payor type (in thousands):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

U.K. public funded sources

 

$

245,919

 

 

$

236,778

 

 

$

756,094

 

 

$

678,623

 

Self-Pay

 

 

26,159

 

 

 

24,572

 

 

 

78,499

 

 

 

70,662

 

Other

 

 

212

 

 

 

1,686

 

 

 

1,801

 

 

 

7,210

 

Revenue before provision for doubtful accounts

 

 

272,290

 

 

 

263,036

 

 

 

836,394

 

 

 

756,495

 

Provision for doubtful accounts

 

 

 

 

 

 

 

 

 

 

 

(6

)

Revenue

 

$

272,290

 

 

$

263,036

 

 

$

836,394

 

 

$

756,489

 

 

10


Table of contents

 

The Company’s contract liabilities primarily consist of unearned revenue in our U.K. Facilities due to the timing of payments received mainly in our education and children’s services and healthcare facilities. Contract liabilities are included in other accrued liabilities on the condensed consolidated balance sheets. A summary of the activity in unearned revenue in the U.K. Facilities is as follows (in thousands):

 

Balance at December 31, 2017

 

$

30,812

 

Payments received

 

 

126,506

 

Revenue recognized

 

 

(124,894

)

Foreign currency translation loss

 

 

(1,687

)

Balance at September 30, 2018

 

$

30,737

 

 

4.

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2018 and 2017 (in thousands, except per share amounts):

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Acadia Healthcare

   Company, Inc.

 

$

46,232

 

 

$

45,618

 

 

$

155,887

 

 

$

130,206

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding for basic

   earnings per share

 

 

87,344

 

 

 

87,017

 

 

 

87,233

 

 

 

86,912

 

Effect of dilutive instruments

 

 

193

 

 

 

155

 

 

 

153

 

 

 

126

 

Shares used in computing diluted earnings per

   common share

 

 

87,537

 

 

 

87,172

 

 

 

87,386

 

 

 

87,038

 

Earnings per share attributable to Acadia Healthcare

   Company, Inc. stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.53

 

 

$

0.52

 

 

$

1.79

 

 

$

1.50

 

Diluted

 

$

0.53

 

 

$

0.52

 

 

$

1.78

 

 

$

1.50

 

 

Approximately 1.6 million and 1.0 million shares of common stock issuable upon exercise of outstanding stock option awards were excluded from the calculation of diluted earnings per share for the three months ended September 30, 2018 and 2017, respectively, because their effect would have been anti-dilutive. Approximately 1.9 million and 1.5 million shares of common stock issuable upon exercise of outstanding stock option awards were excluded from the calculation of diluted earnings per share for the nine months ended September 30, 2018 and 2017, respectively, because their effect would have been anti-dilutive.

 

11


Table of contents

 

5.

Other Intangible Assets

Other identifiable intangible assets and related accumulated amortization consisted of the following at September 30, 2018 and December 31, 2017 (in thousands):

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

 

September 30,

2018

 

 

December 31,

2017

 

 

September 30,

2018

 

 

December 31,

2017

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contract intangible assets

 

$

2,100

 

 

$

2,100

 

 

$

(2,100

)

 

$

(2,100

)

Non-compete agreements

 

 

1,147

 

 

 

1,147

 

 

 

(1,147

)

 

 

(1,147

)

 

 

 

3,247

 

 

 

3,247

 

 

 

(3,247

)

 

 

(3,247

)

Intangible assets not subject to amortization: