aac-10k_20181231.htm

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

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.

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 Act). Yes ☐ No ☒

As of June 29, 2018, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant (based on the closing price of $9.37 on that date), was approximately $69,400,000.

As of March 22, 2019, there were 24,680,710 shares of the registrant’s common stock outstanding.

Portions of the Registrant’s definitive proxy statement for its 2019 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

On March 29, 2019, the Company, the Audit Committee of the Company’s Board of Directors and executive management, in consultation with the Company’s independent registered public accounting firm, BDO USA, LLP (“BDO”), determined that adjustments to certain of its previously issued annual and interim financial statements were necessary and that those annual and interim financial statements could no longer be relied upon. The adjustments relate to estimates of accounts receivable, provision for doubtful accounts and revenue for the relevant periods described below, as well as the related income tax effects. Certain other immaterial reclassifications to the presentation of the financial statements are also reflected in the adjustments.

Subsequent to the year ended December 31, 2018 and as part of the preparation of the Company’s year-end financial statements, using recently developed financial database analytical tools, the Company became aware of historical cash collection trends by customer that existed at the time of the issuance of the historical financial statements. As a result of this review and after consultation and deliberation with regard to the appropriate accounting treatment, including discussion as to the size of the adjustments, the Company concluded that this oversight by the Company of the historical collection trends by customer led to the adjustments being considered corrections of an error under accounting principles generally accepted in the United States of America.

The adjustments resulted in an estimated increase to net income of approximately $7.7 million for the year ended December 31, 2017. The adjustments also resulted in an estimated decrease of net income of approximately $20.6 million for the year ended December 31, 2016. Periods prior to 2016 were also impacted as a result of the adjustments, resulting in an estimated cumulative effect adjustment of approximately $23.8 million, recorded as a reduction to stockholders’ equity on the balance sheet as of January 1, 2016. The adjustments did not affect the previously reported cash flows from operating activities.

The Company’s previously issued annual financial statements audited by BDO and included in the Company’s Annual Report on Form 10-K for the years ended December 31, 2017 and 2016 and the unaudited financial statements reviewed by BDO and included in the Company’s quarterly reports on Form 10-Q for the quarters ended September 30, 2018 and 2017, June 30, 2018 and 2017, and March 31, 2018 and 2017, are being restated in this Annual Report on Form 10-K to properly reflect these corrections.

The adjustments do not relate to the change in estimate that the Company made during the three months ended September 30, 2018 and effective as of July 1, 2018, regarding our estimate of the collectability of accounts receivable, specifically relating to accounts where the Company has received a partial payment from a commercial insurance company, and we are continuing to pursue additional collections for the balance that we estimate remains outstanding or “partial payment accounts receivable”.

The following table sets forth the effects of the restatement on the affected line items within our previously reported Consolidated Statements of Operations. The adjustments necessary to correct the errors have no effect on cash flow from operation activities as originally reported in our consolidated statements of cash flows for the year ended December 31, 2017 and 2016.

		Year Ended, December 31,
(in thousands, except share data)		2017			2016			2015
Provision for doubtful accounts	As Previously Reported	$	36,914		$	21,485		$	18,113
	Adjustments	$	(10,982	)	$	17,064		$	24,268
	Restated	$	25,932		$	38,549		$	42,381

Income (loss) from operations	As Previously Reported	$	(7,743	)	$	(636	)	$	14,228
	Adjustments	$	10,982		$	(17,064	)	$	(24,268	)
	Restated	$	3,239		$	(17,700	)	$	(10,040	)

Net (loss) income	As Previously Reported	$	(25,087	)	$	(5,741	)	$	8,341
	Adjustments	$	7,706		$	(20,629	)	$	(23,787	)
	Restated	$	(17,381	)	$	(26,370	)	$	(15,446	)

Basic (loss) earnings per common share	As Previously Reported	$	(0.88	)	$	(0.03	)	$	0.49
	Adjustments	$	0.33		$	(0.90	)	$	(1.11	)
	Restated	$	(0.55	)	$	(0.93	)	$	(0.62	)

Diluted (loss) earnings per common share	As Previously Reported	$	(0.88	)	$	(0.03	)	$	0.48
	Adjustments	$	0.33		$	(0.90	)	$	(1.10	)
	Restated	$	(0.55	)	$	(0.93	)	$	(0.62	)

The adjustments made as a result of the restatement are more fully discussed in Note 2A, Restatement of Previously Issued Financial Statements, and in Note 17, Unaudited Quarterly Information (Restated) of the Notes to Consolidated Financial Statements included in this Annual Report. To further review the effects of the accounting errors identified and the restatement adjustments, see “Part II—Item 6. Selected Financial Data” and “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Annual Report on Form 10-K.

Previously filed Annual Reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been, and will not be, amended. Accordingly, the Company’s previously issued consolidated financial statements included in those reports, the related reports of the Company’s independent registered public accounting firm, BDO, and the related financial information should not be relied upon. See Note 17, Unaudited Quarterly Information (Restated), of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for the impact of these adjustments on each of the quarterly periods in 2017 and for the first three quarters of 2018. Quarterly reports for 2019 will include restated results for the corresponding interim periods of 2018. All amounts in this Annual Report on Form 10-K affected by the restatement adjustments reflect such amounts restated.

Unless we indicate otherwise, or the context requires, “we,” “our,” “us” and the “Company” refer to AAC Holdings, Inc., together with our subsidiaries. The term “AAC” refers to our wholly owned subsidiary, American Addiction Centers, Inc.

We are a provider of inpatient and outpatient substance use treatment services for individuals with drug addiction, alcohol addiction and co-occurring mental/behavioral health issues. In connection with our treatment services, we perform clinical diagnostic laboratory services and provide physician services to our clients. As of December 31, 2018, we operated 11 inpatient substance abuse treatment facilities located throughout the United States, focused on delivering effective clinical care and treatment solutions across 1,080 inpatient beds, including 700 licensed detoxification beds, 24 standalone outpatient centers and 4 sober living facilities across 471 beds for a total of 1,551 combined inpatient and sober living beds.

Our highly trained clinical staff deploy research-based treatment programs with structured curricula for detoxification, inpatient treatment, partial hospitalization and intensive outpatient care. By applying a tailored treatment program based on the individual needs of each client, many of whom require treatment for a co-occurring mental health disorder such as depression, bipolar disorder or schizophrenia, we believe we offer the level of quality care and service necessary for our clients to achieve and maintain sobriety.

The Company was incorporated as a Nevada corporation on February 12, 2014 for the purpose of acquiring the common stock of AAC and to engage in certain reorganization transactions in connection with the initial public offering of our common stock, which was completed in October 2014 (the “IPO”). AAC was incorporated as a Nevada corporation on February 27, 2007.

We have developed our company and the American Addictions Centers national brand through substantial investment in our clinical expertise, our facilities, our professional staff and our national sales and marketing program. We seek to extend our position as a leading provider of treatment for drug and alcohol addiction by executing the following growth strategies:

We provide quality, comprehensive and compassionate care to adults struggling with alcohol and/or drug abuse and dependence as well as co-occurring mental health issues. We maintain a research-based, disciplined treatment plan for all clients with schedules designed to engage the client in an enriched recovery experience. Our purpose and passion is to empower the individual, their families and the broader community through the promotion of optimal wellness of the mind, body and spirit.

Our curriculum, which is peer reviewed and research-based, has been recognized as one of our program strengths by the Commission on Accreditation of Rehabilitation Facilities (“CARF”), a leader in the promotion and accreditation of quality, value and optimal outcomes of service. In particular, research studies show that certain aspects of our treatment programs, such as offering longer treatment stays, are effective for producing long-term recovery. In addition, we offer a variety of forms of therapy types, settings and related services that the National Institute on Drug Abuse has recognized as effective. We offer the following types of therapy: motivational interviewing, cognitive behavioral therapy, rational emotive behavior therapy, dialectical behavioral therapy, solution-focused therapy, eye movement desensitization and reprocessing and systematic family intervention. Our variety of therapy settings includes individual, group and family therapies, recovery-oriented challenge therapies, expressive therapies (with a focus on music and art), equine and trauma therapies.

We also provide Medicated-Assisted Treatment (“MAT”), which is the use of FDA-approved medications, in combination with counseling and behavioral therapies, to provide a “whole-patient” approach to the treatment of substance use disorders. We believe that it is particularly effective for treating certain conditions such as opioid use disorder, alcohol use disorder and tobacco use disorder. The use of MAT has been shown to significantly reduce overdoses from opioids and to improve long-term abstinence. MAT is an important and integral treatment modality that we deploy when appropriate based upon individual patient need.

Considering the high level of co-occurring substance abuse, mental health and medical conditions, we offer clients a spectrum of psychiatric, medical and wellness-focused services based upon individual needs as assessed through comprehensive evaluations at admission and throughout participation in the program. To maximize the likelihood of long-term recovery, all program levels provide clients access to the following services: assessment of individual substance abuse, mental health, medical history and physical condition promptly upon admission; psychiatric evaluations; psychological evaluations and services based on client needs; follow-up appointments with physicians and psychiatrists; medication monitoring; educational classes regarding health risks, nutrition, smoking cessation, HIV awareness, life skills, healthy nutritional programs and dietary plans; access to fitness facilities; interactive wellness activities such as swimming, basketball and yoga and structured daily schedules designed for restorative sleep patterns.

We emphasize clinical treatment, as well as the therapeutic value of overall physical and nutritional wellness. We are committed to providing fresh and nutritious meals throughout a client’s stay in order to promote healthy routines, beginning with diet and exercise. Some of our facilities offer comprehensive work-out facilities, and many locations offer various exercise classes and other amenities. We support long-term recovery for clients through research-based methodologies and individualized treatment planning while utilizing 12 step programs, which are a set of guiding principles outlining a course of action for recovery.

We believe we have a differentiated ability to manage dual diagnosis cases and coordinate treatment of individuals suffering from the common combination of mental illness and substance abuse simultaneously. These clients participate in education and discussion-oriented groups designed to provide information regarding the psychiatric disorders that co-occur with chemical dependency.

We place a strong emphasis on tracking client satisfaction scores in order to measure our client and staff interaction and overall outcome and reputation. In addition to client satisfaction surveys that we receive after a client’s discharge, we also solicit feedback during a client’s stay at our inpatient facilities. This allows us to further tailor an individual’s treatment plan to emphasize the programs that have been more impactful to a particular client.

We believe in tracking clinical outcomes. We partnered with Centerstone Research Institute to conduct independent three-year longitudinal outcome studies on the effectiveness of our clinical approach and released the results in 2018. This study is available on our website. We intend to continue to measure outcomes going forward in order to drive continual improvement in our programs.

As detailed below, we offer a full spectrum of treatment services to clients, based upon individual needs as assessed through comprehensive evaluations at admission and throughout their participation in the program. The assignment and frequency of services corresponds to individualized treatment plans within the context of the level of care and treatment intensity level.

Detoxification (“detox”). Detoxification is usually conducted at an inpatient facility for clients with physical or psychological dependence. Detoxification services are designed to clear toxins out of the body so that the body can safely adjust and heal itself after being dependent upon a substance. Clients are medically monitored 24 hours per day, seven days per week by experienced medical professionals who work to alleviate withdrawal symptoms through medication, as appropriate. We provide detoxification services for several substances including alcohol, sedatives and opiates.

Residential Treatment. Residential care is a structured treatment approach designed to prepare clients to return to the general community with a sober lifestyle, increased functionality and improved overall wellness. Treatment is provided on a 24 hours per day, seven days per week basis, and services generally include a minimum of two individual therapy sessions per week, regular group therapy, family therapy, didactic and psycho-educational groups, exercise (if cleared by medical staff), case management and recreational activities. Medical and psychiatric care is available to all clients, as needed, through our contracted professional physician groups.

Partial Hospitalization. Partial hospitalization is a structured program providing care a minimum of 20 hours per week. This program is designed for clients who are stable enough physically and psychologically to participate in everyday activities but who still require a degree of medical monitoring. Services include a minimum of weekly individual therapy, regular group therapy, family education and therapy, didactic and psycho-educational groups, exercise (if cleared by medical staff), case management and off-site recovery meetings and activities. Medical and psychiatric care is available to all clients, as needed, through our contracted professional physician groups.

Intensive Outpatient Services. Less intensive than the aforementioned levels of care, intensive outpatient services are comprised of a structured program providing care three days per week for three hours per day at a minimum. Designed as a “step down” from partial hospitalization, this program reinforces progress and assists in the attainment of sobriety, reduction of detrimental behaviors and improved overall wellness of clients while they integrate and interact in the community. Services include weekly individual therapy, group therapy, family education and therapy, didactic and psycho-educational groups, case management, off-site recovery meetings and activities and intensive transitional and aftercare planning.

Outpatient Services. Traditional outpatient services are delivered in regularly scheduled sessions, usually less the nine hours per week. Outpatient services include professionally directed screening, assessment, therapy, and other services designed to support successful transition to the community and long-term recovery. These services are tailored to a person’s specific needs and stage of recovery and may involve many modalities, including motivational enhancement, family therapy, educational groups, occupational and recreational therapy, psychotherapy and pharmacotherapy.

Ancillary Services. In addition to our inpatient and outpatient treatment services, we provide medical monitoring for adherence to addiction treatment as well as clinical diagnostic laboratory services. We also provide physician services to our clients through our contracted professional physician groups. We believe toxicological monitoring of clients is an important component of substance abuse treatment. Clients are evaluated for illicit substances upon admission and thereafter on a random basis and as otherwise determined to be medically necessary by the treating physician. We conduct laboratory testing for our facilities using quantitative liquid chromatography time-of-flight mass spectrometry technology at our laboratory located in Brentwood, Tennessee.

Sober Living Facilities. We provide sober living arrangements that serve as an interim environment for clients transitioning from inpatient treatment centers to lower levels of care and eventually back to their former living arrangements. Sober living facilities enable us to utilize existing beds for clients requiring higher levels of care, while still providing housing for clients completing outpatient treatment programs. We provide sober living arrangements to clients through our owned and leased properties in Texas, Nevada, Mississippi, and Florida. We plan to continue using sober living facilities as a complement to our outpatient services.

The following table presents information about our network of substance abuse treatment facilities, including current facilities and facilities under development as of December 31, 2018 and as of March 31, 2019:

			December 31, 2018		March 31, 2019
Facility Name		State	Beds⁽¹⁾		Beds⁽¹⁾		Property
Residential⁽²⁾
	Laguna Treatment Hospital	CA	93		93		Owned
	River Oaks	FL	162		162		Owned
	Recovery First	FL	56		56		Owned/Leased
	Townsend New Orleans⁽³⁾	LA	36		—		Leased
	AdCare Hospital	MA	114		114		Owned
	Oxford Treatment Center	MS	124		124		Owned
	Sunrise House	NJ	110		110		Owned
	Desert Hope	NV	148		148		Owned
	Solutions Treatment Center⁽⁴⁾	NV	48		—		Leased
	AdCare Rhode Island	RI	59		59		Owned
	Greenhouse	TX	130		130		Owned
	Total Residential Beds			1,080		996

Sober Living
	San Diego Sober Living⁽⁵⁾	CA	—		—		Leased
	Recovery First - Ft. Lauderdale East	FL	83		83		Leased
	Resolutions Oxford	MS	72		72		Owned/Leased
	Resolutions Las Vegas	NV	159		159		Leased
	Resolutions Arlington	TX	157		157		Leased
	Total Sober Living Beds		471		471
Total Beds				1,551	1,467


		State	Locations		Location		Property
Outpatient
	Recovery First Outpatient	FL	1		1		Leased
	Oxford Outpatient Center⁽⁶⁾	MS	2		1		Owned/Leased
	Townsend Outpatient Centers⁽³⁾	LA	7		—		Leased
	AdCare Outpatient Centers	MA/RI	6		6		Owned/Leased
	Sunrise House Outpatient	NJ	1		1		Owned
	Desert Hope Outpatient Center	NV	1		1		Leased
	Solutions Outpatient⁽⁴⁾	NV	1		—		Leased
	AdCare Rhode Island	RI	4		4		Owned/Leased
	Greenhouse Outpatient	TX	1		1		Leased
Total Outpatient Facilities			24		15

We use a multi-faceted approach to reach potential clients suffering from the disease of addiction and co-occurring psychiatric disorders.

We maintain a 24 hours per day, seven days per week admissions center. Our centralized admissions center is situated at our corporate headquarters in Brentwood, Tennessee, and focuses on enrolling clients. As part of its role, the admissions center team conducts benefits verification, handles initial communication with insurance companies, completes client intake screenings, consults with our clinicians where necessary regarding a potential patient’s specific medical or psychological condition, begins the pre-certification process for treatment authorization, helps each client choose a proper treatment facility for his or her clinical and financial needs and assists clients with arrangements and logistics.

We are affiliated with groups of physicians and mid-level service providers that provide certain professional services to our clients through professional services agreements with certain of our treatment facilities (the “Professional Groups”). Under the professional services agreements, the Professional Groups also provide a physician to serve as medical director for the applicable facility. The Professional Groups either bill the payor for their services directly or are compensated by the treatment facility based on fair market value hourly rates. Each of the professional services agreements has a term of five years and will automatically renew for additional one-year periods. For additional information related to the Professional Groups, see Note 2 to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

We believe we are one of the leading for-profit companies focused on substance abuse treatment in the United States. According to IBISWorld, the large majority of all substance abuse treatment clinics in the United States have a single location, and approximately 60% of all substance abuse treatment clinics have fewer than 20 employees. Many of the largest for-profit addiction treatment providers operate in the broader behavioral healthcare sector without focusing primarily on substance abuse. We believe our size and core focus on substance abuse treatment provide us with an advantage over competitors in terms of building our brand and marketing our platform to potential clients.

The market for mental health and substance abuse treatment facilities is highly fragmented with approximately 12,000 different companies providing services to the adult and adolescent population, of which only 30% are operated by for-profit organizations. Our inpatient treatment facilities compete with several national competitors and many regional and local competitors. Some of our competitors are government entities that are supported by tax revenue, and others are non-profit entities that are primarily supported by endowments and charitable contributions. We do not receive financial support from these sources. Some larger companies in our industry compete with us on a national scale and offer substance use treatment services among other behavioral healthcare services. To a lesser extent, we also compete with other providers of substance use treatment services, including other inpatient behavioral healthcare facilities and general acute care hospitals.

Substance abuse treatment providers are regulated extensively at the federal, state and local levels. In order to operate our business and obtain reimbursement from third-party payors, we must obtain and maintain a variety of licenses, permits, certifications and accreditations. We must also comply with numerous other laws and regulations applicable to the provision of substance abuse disorder services. Our facilities are also subject to periodic on-site inspections by the regulatory and accreditation agencies in order to determine our compliance with applicable requirements.

The laws and regulations that affect substance abuse treatment providers are complex and change frequently. We must regularly review our organization and operations and make changes as necessary to comply with changes in the law or new interpretations of laws or regulations. In recent years, significant public attention has focused on the healthcare industry, including attention to the conduct of industry participants and the cost of healthcare services. Federal and state government agencies have heightened and coordinated civil and criminal enforcement efforts relating to the healthcare industry. The ongoing investigations relate to, among other things, referral practices, cost reporting, billing practices, credit balances, physician ownership and joint ventures involving hospitals and other healthcare providers. Recently, federal and state governmental officials have focused on fraud and abuse in the addiction treatment industry. In particular, new laws and regulations have been passed in recent years that are intended to prohibit the payment of kickbacks, bribes and other inducements in exchange for referrals of patients to treatment providers, including residential treatment centers and outpatient programs. We expect that healthcare costs and other factors will continue to encourage both the development of new laws and regulations and increased enforcement activity, including among substance abuse treatment providers.

While we believe we are in substantial compliance with all applicable laws and regulations, and we are not aware of any material pending or threatened investigations involving allegations of wrongdoing, there can be no assurances of compliance. Compliance with such laws and regulations may be subject to future government review and interpretation, as well as significant regulatory action including fines, penalties and exclusion from government health programs.

All of our substance abuse treatment facilities are licensed under applicable state laws where licensure is required. Licensing requirements vary significantly depending upon the state in which a facility is located and the types of services provided. The types of licensed services that our facilities provide include medical detox, inpatient, partial hospitalization, intensive outpatient, outpatient treatment, ambulatory detox and community housing. In addition, our employed case managers, therapists, nurses, medical providers and technicians may be subject to individual state license requirements.

Our facilities that store and dispense controlled substances are required to register with the U.S. Drug Enforcement Administration (“DEA”) and abide by DEA regulations regarding controlled substances. Each of our substance abuse treatment facilities has obtained or is in the process of obtaining accreditation from CARF and/or The Joint Commission, which are the primary accreditation bodies in the substance abuse treatment industry. This type of accreditation program is intended to improve the quality, safety, outcomes and value of healthcare services provided by accredited facilities. CARF and The Joint Commission require an initial application and completion of on-site surveys demonstrating compliance with accreditation requirements. Accreditation is granted for a specified period, typically ranging from one to three years, and renewals of accreditation require completion of a renewal application and an on-site renewal survey.

The Clinical Laboratory Improvement Amendments of 1988 (“CLIA”) regulates virtually all clinical laboratories by requiring that they be certified by the federal government and comply with various technical, operational, personnel and quality requirements intended to ensure that laboratory testing services are accurate, reliable and timely. Standards for testing under CLIA are based on the level of complexity of the tests performed by the laboratory. A CLIA certificate of waiver is maintained by each of our treatment facilities that only perform the types of tests waived under CLIA, such as point-of-care drug analysis, glucose monitoring and pregnancy testing.

Our Brentwood, Tennessee, clinical laboratory facility performs high complexity testing. Our laboratory holds a CLIA certificate of accreditation, certifying it for complex testing, and is therefore required to meet more stringent requirements than laboratories performing less complex testing. We are regularly subject to survey and inspection to assess compliance with program standards. Our laboratory is also accredited by the College of American Pathologists (“CAP”), who conducts our proficiency testing program.

CLIA does not preempt state laws that are more stringent than federal law. State laws may require additional personnel qualifications, quality control, record maintenance and/or proficiency testing. A number of states in which we operate have implemented their own regulatory and licensure requirements. In addition, some states require laboratories that solicit or test samples collected from individuals within that state to hold a laboratory license even though the laboratory does not have physical operations within the state. Our Brentwood laboratory facility is licensed as a medical reference laboratory by the state of Tennessee. It is also

licensed in other states as required to process test samples originating from individuals within such states.

We believe that all of our facilities and programs are in substantial compliance with current applicable state and local licensure, certification and accreditation requirements. Periodically, state and local regulatory agencies, as well as accreditation entities, conduct surveys of our facilities, and may find that a facility is not in full compliance with all of the accreditation standards. Upon receipt of any such finding, the facility will submit a plan of correction and remedy any cited deficiencies.

The Food and Drug Administration (“FDA”) has regulatory responsibility over, among other areas, instruments, test kits, reagents and other devices used by clinical laboratories to perform diagnostic testing. A number of esoteric tests we develop internally are offered as laboratory developed tests (“LDTs”). The FDA has claimed regulatory authority over all LDTs but exercises enforcement discretion in not mandating FDA approval for most LDTs performed by high complexity CLIA certified laboratories. The FDA released draft guidance in 2014 that would increase regulation of LDTs but has indefinitely delayed finalizing the guidance.

Most of our treatment facilities are not enrolled in Medicare or Medicaid and do not bill or accept payments from those governmental programs. Therefore, the majority of our operations are generally not impacted by the anti-kickback provisions of the Social Security Act, commonly known as the Anti-Kickback Statute, or the federal prohibition on physician self-referrals, commonly referred to as the Stark Law. However, our AdCare operations in Massachusetts and Rhode Island participate in the Medicare and Medicaid programs and during 2018 our clinical laboratory became eligible to provide services to Medicare beneficiaries. We expect that over the longer term, an increasing number of our patients will be members of governmental health insurance programs and therefore, these rules and restrictions will increasingly affect our operations.

The Anti-Kickback Statute prohibits the payment, receipt, offer or solicitation of remuneration of any kind in exchange for items or services that are reimbursed under federal healthcare programs. The Stark Law prohibits physicians from referring Medicare and Medicaid patients to healthcare providers that furnish certain designated health services, including laboratory services and inpatient and outpatient hospital services, if the physicians or their immediate family members have ownership interests in, or other financial arrangements with, the healthcare providers. Many states have anti-kickback and physician self-referral prohibitions similar to the federal statutes and regulations. Some of these state laws are drafted broadly to cover all payors (i.e., not restricted to Medicare and other federal healthcare programs), and they often lack interpretative guidance. A violation of these laws could result in a prohibition on billing payors for such services, an obligation to refund amounts received, or civil or criminal penalties and could adversely affect the state license of any program or facility found to be in violation.

In addition to the Anti-Kickback Statute, the United States has recently enacted an addiction treatment-specific law known as the Eliminating Kickbacks in Recovery Act (“EKRA”). The EKRA created a new federal crime for knowingly and willfully: (1) soliciting or receiving any remuneration in return for referring a patient to a recovery home, clinical treatment facility, or laboratory; or (2) paying or offering any remuneration to induce such a referral or in exchange for an individual using the services of a recovery home, clinical treatment facility, or laboratory. Each conviction under EKRA is punishable by up to $200,000 in monetary damages, imprisonment for up to ten (10) years, or both. Unlike the Anti-Kickback Statutes, EKRA is not limited to services reimbursable under a government healthcare program. While EKRA contains certain exceptions similar to the Anti-Kickback Statute Safe Harbors, those exceptions are more narrow than the Anti-Kickback Statute Safe Harbors. As such, certain practices that would not have violated the Anti-Kickback Statute may violate EKRA.

Federal prosecutors have broad authority to prosecute healthcare fraud. For example, federal law criminalizes the knowing and willful execution or attempted execution of a scheme or artifice to defraud any healthcare benefit program as well as obtaining by false pretenses any money or property owned by any healthcare benefit program. Federal law also prohibits embezzlement of healthcare funds, false statements relating to healthcare and obstruction of the investigation of criminal offenses. These federal criminal offenses are enforceable regardless of whether an entity or individual participates in the Medicare program or any other federal healthcare program.

We are subject to state and federal laws that govern the submission of claims for reimbursement. These laws generally prohibit an individual or entity from knowingly and willfully presenting a claim (or causing a claim to be presented) for payment from Medicare, Medicaid or other third-party payors that is false or fraudulent. The standard for “knowing and willful” often includes conduct that amounts to a reckless disregard for whether accurate information is presented by claims processors. Penalties under these statutes include substantial civil and criminal fines, exclusion from the Medicare program and imprisonment.

One of the most prominent of these laws is the federal False Claims Act (“FCA”) which may be enforced by the federal government directly or by a qui tam plaintiff (or whistleblower) on the government’s behalf. When a private plaintiff brings a qui tam action under the FCA, the defendant often will not be made aware of the lawsuit until the government commences its own investigation or determines whether it will intervene. When a defendant is determined by a court of law to be liable under the FCA, the defendant may be required to pay three times the amount of the alleged false claim, plus mandatory civil penalties of between

$22,363 and $11,181 for each separate false claim. These and certain other civil monetary penalties will increase annually based on updates to the consumer price index.

Many states have passed false claims acts similar to the FCA. Under these laws, the government may impose a penalty and recover damages, often treble damages, for knowingly submitting or participating in the submission of claims for payment that are false or fraudulent or which contain false or misleading information. These laws may be limited to specific programs (such as state workers’ compensation programs) or may apply to all payors. In many cases, alleged violations of these laws may be brought by a whistleblower who may be an employee, a referring physician, a competitor, a client or other individual or entity, and who may be eligible for a portion of any recovery. Further, like the federal law, state false claims act laws generally protect employed whistleblowers from retribution by their employers.

Although we believe that we have procedures in place to ensure the accurate completion of claims forms and requests for payment, the laws, regulations and standards defining proper billing, coding and claim submission are complex and have not been subjected to extensive judicial or agency interpretation. Billing errors can occur despite our best efforts to prevent or correct them, and we cannot assure that the government or a payor will regard such errors as inadvertent and not in violation of the applicable false claims act laws or related statutes.

There are numerous federal and state regulations that address the privacy and security of client health information. In particular, federal regulations issued under the Drug Abuse Prevention, Treatment and Rehabilitation Act of 1979 (known as the “Part 2 Regulations”) restrict the disclosure of, and regulate the security of, client identifiable information related to substance abuse and apply to any of our facilities that receive federal assistance, which is interpreted broadly to include facilities licensed, certified or registered by a federal agency. Further, the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), extensively regulates the use and disclosure of individually identifiable health information (known as “protected health information”) and requires covered entities, which include most health providers, to implement and maintain administrative, physical and technical safeguards to protect the security of such information. Additional security requirements apply to electronic protected health information. These regulations also provide clients with substantive rights with respect to their health information.

The HIPAA privacy and security regulations and the Part 2 Regulations also require our substance abuse treatment programs and facilities to impose compliance obligations by written agreement on certain contractors to whom our programs disclose client information known as “business associates.” Covered entities may be subject to penalties as a result of a business associate violating HIPAA privacy and security regulations if the business associate is found to be an agent of the covered entity. Business associates are also directly subject to liability under the HIPAA privacy and security regulations. In instances where our programs act as a business associate to a covered entity, there is the potential for additional liability beyond the program’s covered entity status.

Covered entities must report breaches of unsecured protected health information to affected individuals without unreasonable delay but not to exceed 60 days of discovery of the breach by a covered entity or its agents. Notification must also be made to the U.S. Department of Health and Human Services (“HHS”), and, in certain situations involving large breaches, to the media. HHS is required to publish on its website a list of all covered entities that report a breach involving more than 500 individuals. All non-permitted uses or disclosures of unsecured protected health information are presumed to be breaches unless the covered entity or business associate establishes that there is a low probability the information has been compromised. Various state laws and regulations may also require us to notify affected individuals in the event of a data breach involving individually identifiable information without regard to whether there is a low probability of the information being compromised.

After considering 2018 updates to penalty amounts, violations of the HIPAA privacy and security regulations may result in civil penalties of up to $57,051 per violation for a maximum civil penalty of $1,711,533 in a calendar year for violations of the same requirement. These penalties will increase annually based on updates to the consumer price index. HIPAA also provides for criminal penalties of up to $250,000 and ten years in prison, with the severest penalties for obtaining or disclosing protected health information with the intent to sell, transfer or use such information for commercial advantage, personal gain or malicious harm. In addition, state attorneys general may bring civil actions seeking either injunction or damages in response to violations of the HIPAA privacy and security regulations that threaten the privacy of state residents. HHS is required to impose penalties for violations resulting from willful neglect and to perform compliance audits.

Our programs remain subject to any privacy-related federal or state laws that are more restrictive than the HIPAA privacy and security regulations. These laws vary by state and could impose additional requirements and penalties. For example, some states impose restrictions on the use and disclosure of health information pertaining to mental health or substance abuse treatment. The Federal Trade Commission also uses its consumer protection authority to initiate enforcement actions in response to data breaches or other privacy or security lapses.

We enforce a health information privacy and security compliance plan, which we believe complies with the HIPAA privacy and security regulations and other applicable requirements. We may be required to make operational changes to comply with revisions made to the Part 2 Regulations that generally became effective on February 2, 2018.

The regulatory framework in which we operate is constantly changing. For example, the Mental Health Parity and Addiction Equity Act of 2008 (“MHPAEA”), is a federal parity law that requires large group health insurance plans that offer mental health and addiction coverage to provide that coverage on par with financial requirements and treatment limitations of coverage offered for other illnesses. The scope of coverage offered by health plans must comply with federal and state laws and must be consistent with generally recognized independent standards of current medical practice. The MHPAEA also contains a cost exemption that operates to temporarily exempt a group health plan from the MHPAEA’s requirements if compliance with the MHPAEA becomes too costly.

The 21^st Century Cures Act (“Cures Act”), enacted in 2016, requires development of an action plan for enhanced enforcement of mental health parity requirements and additional compliance guidance for health plans regarding coverage under parity laws. Among other initiatives aimed at improving care for people with mental health and substance use disorders, the Cures Act includes provisions intended to increase the healthcare workforce dedicated to such treatment and expand programs that divert people with mental health and substance use disorders toward alternatives to incarceration. However, the impact of the Cures Act largely depends on its implementation by agencies such as HHS and on future appropriations by Congress.

Over the last decade, the U.S. Congress and certain state legislatures have passed a large number of laws intended to result in extensive change to the healthcare industry. The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, collectively known as the Affordable Care Act, is the most prominent of these legislative reform efforts. It resulted in reforms to the health insurance market and expansion of public program coverage, among other changes. As currently structured, the law requires all non-grandfathered small group and individual market health plans to cover ten essential health benefit categories, which currently include substance abuse addiction and mental health disorder services.

The Affordable Care Act poses both opportunities and risks for us but, overall, the expansion of health insurance coverage under the law has been beneficial for the substance abuse treatment industry. However, the overall and continued impact of the Affordable Care Act is difficult to determine, as the presidential administration and certain members of Congress have stated their intent to repeal or make significant changes to the Affordable Care Act, its implementation and its interpretation. For example, in October 2017, the president signed an executive order directing agencies to relax limits on certain health plans, potentially allowing for fewer plans that adhere to specific Affordable Care Act coverage mandates. In 2018, a federal district court in Texas ruled that the Affordable Care Act, in its entirety, is invalid. That decision has been stayed pending appeal, and will likely remain unresolved until finally decided by the United States Supreme Court. Further, effective January 1, 2019, Congress eliminated the financial penalty associated with the individual mandate that was established by the Affordable Care Act.

In October 2018, Congress enacted the Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the “SUPPORT Act”). The SUPPORT Act contains a number of provisions aimed at identifying at-risk individuals, increasing access to opioid abuse treatment, reducing overprescribing, funding treatment related research, and promoting data sharing with the primary goal of reducing the use and abuse of opioids. Most of the funding made available for treatment through the SUPPORT Act will be limited to patients covered by federal healthcare programs such as Medicaid.

The SUPPORT Act also contains an addiction treatment-specific law known as the Eliminating Kickbacks in Recovery Act (“EKRA”). For more information on the EKRA, See “Item I. Business, Regulatory Matters ―Fraud, Abuse and Self-Referral Laws.”

The construction of new healthcare facilities, the expansion, transfer or change of ownership of existing facilities and the addition of new beds, services or equipment may be subject to state laws that require prior approval by state regulatory agencies under certificate of need (“CON”) or determination of need (“DON”) laws. These laws generally require that a state agency determine the public need for construction or acquisition of facilities or the addition of new services. Review of CON or DON applications and other healthcare planning initiatives may be lengthy and may require public hearings. Violations of these state laws may result in the imposition of civil sanctions or revocation of a facility’s license.

Most states have a variety of laws that may potentially impact our operations and business practices. For instance, many states in which our programs operate prohibit corporations (and other legal entities) from practicing medicine by employing physicians and certain non-physician practitioners. These prohibitions on the corporate practice of medicine impact how our programs structure their relationships with physicians and other affected non-physician practitioners. These arrangements, however, have typically not been vetted by either a court or the applicable regulatory body.

Similarly, many states prohibit physicians from sharing a portion of their professional fees with any other person or entity. These so-called fee-splitting prohibitions range from prohibiting arrangements resembling a kickback to broadly prohibiting percentage-based compensation and other variable compensation arrangements with physicians.

If our arrangements with physicians are found to violate a corporate practice of medicine prohibition or a state fee-splitting prohibition, our contractual arrangements with physicians in such states could be adversely affected, which, in turn, may adversely

affect both our operations and profitability. Further, we could face sanctions for aiding and abetting the violation of the state’s medical practice act.

State governments have in recent years increased regulation of addiction treatment providers. A number of states, such as Florida, have passed laws prohibiting patient brokering, which broadly refers to the practice of paying or receiving kickbacks or other benefits in exchange for patient referrals. A number of these statutes mirror federal healthcare anti-Kickback laws and, in some instances, the restrictions apply regardless of whether the payor source is a governmental or commercial entity. Further, state governments, including Tennessee’s, have passed statutes aimed at prohibiting deceptive online addiction treatment marketing practices, such as the operation of websites and affiliated admission centers without disclosure to the caller about existing financial arrangements to promote particular treatment centers. We expect that these kinds of regulations and restrictions to increase.

Municipal and other local governments may also regulate our treatment programs. Many of our facilities must comply with zoning and land use requirements in order to operate. For example, local zoning authorities regulate not only the physical properties of a healthcare facility, such as its height and size, but also the location and activities of the facility. In addition, community or political objections to the placement of treatment facilities can result in delays in the land use permit process and may prevent the operation of facilities in certain areas.

The healthcare industry in general continues to experience an increase in the frequency and severity of litigation and claims. Like other providers of healthcare-related services, we could be subject to claims that our services have resulted in injury to our clients or had other adverse effects. In addition, resident, visitor and employee injuries could also subject us to the risk of litigation. While we believe that quality care is provided to our clients and that we substantially comply with all applicable regulatory requirements, an adverse determination in a legal proceeding or government investigation could have a material adverse effect on our financial condition. See Item 1A. Risk Factors — “As a provider of treatment services, we are subject to governmental investigations and potential claims and legal actions by clients, employees and others, which may increase our costs and have a material adverse effect on our business, financial condition results of operations and reputation.”

We maintain commercial insurance coverage for general liability claims with a $50,000 deductible and professional liability claims with a $150,000 deductible, a primary $1.0 million per claim limit and an annual aggregate primary limit of $3.0 million with umbrella coverage for an aggregate $20.0 million limit.

Compliance with government rules and regulations is a significant concern throughout our industry, in part due to evolving interpretations of these rules and regulations. We seek to conduct our business in compliance with all statutes and regulations applicable to our operations. To this end, we have established a compliance program that monitors our regulatory compliance procedures and policies at our facilities and throughout our business. Our executive management team is responsible for the oversight and operation of our compliance program. We provide periodic and comprehensive training programs to our personnel, which are intended to promote the strict observance of our policies designed to ensure compliance with the statutes and regulations applicable to us.

On October 21, 2016, certain of our subsidiaries, AAC (formerly known as Forterus, Inc.), Forterus Health Care Services, Inc., and ABTTC, Inc. (the “Defendants”), agreed to the entry of a Permanent Injunction and Final Judgment (the “PIFJ”) with the Bureau of Medi-Cal Fraud and Elder Abuse of the Office of the Attorney General of the State of California (“BMFEA”). Pursuant to the terms of the PIFJ, we were required to, among other things, (i) institute a three-year compliance program (the “California Compliance Program”) with respect to our California facilities that includes maintaining or developing and implementing certain policies and procedures to promote each covered facility’s compliance with applicable statutes, regulations and the PIFJ, under the responsibility of our Chief Compliance Officer; (ii) establish a Compliance Committee composed of the Compliance Officer and senior personnel responsible for overseeing clinical operations to address issues raised by the Compliance Officer in connection with the Compliance Program and (iii) establish an oversight committee of the Board of Directors, or a committee of the Board of Directors, to review the adequacy and responsiveness of the California Compliance Program. In addition, for a period of 30 months following the effective date of the PIFJ, the Defendants are required to retain a qualified independent monitor, appointed by BMFEA after consultation with the Defendants, to assess the effectiveness of the Defendants’ quality control systems and patient care.

We are subject to various federal, state and local environmental laws that: (i) regulate certain activities and operations that may have environmental or health and safety effects, such as the handling, storage, transportation, treatment and disposal of medical and pharmaceutical waste products generated at our facilities, the presence of other hazardous substances in the indoor environment and protection of the environment and natural resources in connection with the development or construction of our facilities; (ii) impose liability for costs of cleaning up, and damages to natural resources from, past spills, waste disposals on and off-site or other releases of hazardous materials or regulated substances; and (iii) regulate workplace safety, including the safety of workers who may be exposed to blood-borne pathogens such as HIV, the hepatitis B virus and the hepatitis C virus. Our laboratory and some of our

treatment facilities generate infectious or other hazardous medical waste due to the illness or physical condition of our clients and in connection with performing laboratory tests. The management of infectious medical waste is subject to regulation under various federal, state and local environmental laws that establish management requirements for such waste. These requirements include record-keeping, notice and reporting obligations. Management believes that our operations are generally in compliance with environmental and health and safety regulatory requirements or that any non-compliance will not result in a material liability or cost to achieve compliance. Historically, the costs of achieving and maintaining compliance with environmental laws and regulations at our facilities, including our laboratory, have not been material. See Item 1A. Risk Factors — “We could face risks associated with, or arising out of, environmental, health and safety laws and regulations.”

As of December 31, 2018, we employed approximately 1,900 people. Employees at the Sunrise House facility in New Jersey are part of a labor union. As a result of our Sunrise House facility entering into a three-year collective bargaining agreement with the union on June 14, 2017, a majority of our employees at Sunrise House are now represented by a collective bargaining agreement. None of our other employees are represented by a labor union or covered by a collective bargaining agreement. We believe that our employee relations are good.

We file periodic and current reports, proxy statements and other information with the Securities and Exchange Commission (the “SEC”). We are an electronic filer, and the SEC maintains an Internet site at http://www.sec.gov that contains the reports, proxy and information statements and other information we file electronically. Our website address is www.americanaddictioncenters.org. We make available free of charge, through our website, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. Our website and the information contained therein or linked thereto are not intended to be incorporated into this Annual Report on Form 10-K. Previously filed Annual Reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement described in the aforementioned Explanatory Note have not been, and will not be, amended. Accordingly, investors should no longer rely upon the Company’s previously filed financial statements for these periods and any earnings releases or other communications that were filed or furnished relating to these periods.

Our actual operating results may differ materially from those described in forward-looking statements as a result of various factors, including but not limited to, those described below. You should carefully consider the following risk factors in addition to the other information included in this Annual Report on Form 10-K.

Our revenue, profitability and cash flows could be materially adversely affected if we are unable to operate certain key treatment facilities, our corporate office or our laboratory facilities.

We derive a significant portion of our revenue from four treatment facilities located in California, Florida, Nevada and Texas. It is likely that a small number of facilities will continue to contribute a significant portion of our total revenue in any given year for the foreseeable future. Additionally, we have a centralized corporate office that houses our accounting, billing and collections, information technology, and admissions center departments, centralized marketing offices and a high complexity laboratory that conducts quantitative drug testing and other laboratory services. If any event occurs that results in a complete or partial shutdown of any of these facilities, our centralized corporate office, our centralized marketing offices or laboratory, including, without limitation, any material changes in legislative, regulatory, economic, environmental or competitive conditions in these states or natural disasters such as hurricanes, earthquakes, tornadoes or floods or prolonged airline disruptions due to a natural disaster or for any reason, such event could lead to decreased revenue and/or higher operating costs, which could have a material adverse effect on our revenue, profitability and cash flows.

We rely on our multi-faceted sales and marketing program to continuously attract and enroll clients in our network of facilities. Our sales and marketing program includes the use of digital media, including our recovery resource websites that provide information about addiction treatment and connect website visitors with our helpline. Any disruption in our national sales and marketing program, including our digital marketing resources, could have a material adverse effect on our business, financial condition and results of operations.

We believe our national sales and marketing program provides us with a competitive advantage compared to treatment facilities that primarily target local geographic areas, use fewer marketing channels to attract clients and have fewer treatment options than we can provide. If any disruption occurs in our national sales and marketing program for any reason, or if we are unable to effectively attract and enroll new clients to our network of facilities, our ability to maintain census could be adversely affected, which could have a material adverse effect on our business, financial condition and results of operations.

Internet search engines play an increasingly important role in addiction treatment marketing. Google and other search engines use complex algorithms to rank websites. The algorithms take into account many factors, including the domain name itself, website content and user-friendly factors such as the speed at which the website pages may be clicked through and viewed. We cannot predict or control changes in algorithms and website rankings, which may result in lower ranking search results for our websites. Additionally, Google and other online platforms have instituted review processes required to advertise on their websites. Some of these processes are time-consuming, complex and continuously evolving. We cannot predict how these private processes, rules and restrictions will evolve or be applied to individual advertising applicants. Unexpected changes in these areas may result in a decrease in calls to our admissions center, a decrease in interactions with potential clients and a lowering of our census, which could have and material adverse effects on our business, financial condition and results of operations.

In addition, our ability to grow or even to maintain our existing level of business depends significantly on our ability to establish and maintain close working and referral relationships with hospitals, other treatment facilities and clinicians, employers, alumni, employee assistance programs and other referral sources. We have no binding commitments with any of these referral sources. We may not be able to maintain our existing referral relationships or develop and maintain new relationships in existing or new markets. Negative changes to our existing referral relationships may cause the number of people to whom we provide care to decrease, which could have material adverse effects on our business, financial condition and results of operations.

If reimbursement rates paid by third-party payors are reduced, if we are unable to maintain favorable contract terms with payors or comply with our payor contract obligations, or if third-party payors otherwise restrain our ability to obtain or provide services to clients, our business, financial condition and results of operation could be adversely affected. This risk is heightened because we are generally an “out-of-network” provider.

Managed care organizations and other third-party payors pay for the services that we provide to many of our clients. For 2018, approximately 90% of our revenue was reimbursable by third-party payors, including amounts paid by such payors to clients, with the remaining portion payable directly by our clients. If any of these third-party payors reduce their reimbursement rates or elect not to cover some or all of our services, our business, financial condition and results of operations may be materially adversely affected.

In addition to limits on the amounts payors will pay for the services we provide to their members, controls imposed by third-party payors designed to reduce admissions and the length of stay for clients, including preadmission authorizations and utilization review, have affected and are expected to continue to affect our facilities. Utilization review entails the review of the admission and course of treatment of a client by third-party payors. Inpatient utilization, average lengths of stay and occupancy rates continue to be negatively affected by payor-required preadmission authorization and utilization review and by payor pressure to maximize outpatient and alternative healthcare delivery services for less acutely ill clients. We believe that generally, health insurance companies have become more stringent and aggressive with respect to addiction treatment providers; taking measures that have put pressure on reimbursement rates, length of stay and timing of reimbursement. We expect that payor efforts to impose more stringent cost controls will continue. Although we are unable to predict the effect these controls and changes could have on our operations, significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on our business, financial condition and results of operations. If the rates paid or the scope of substance use treatment services covered by third-party commercial payors are reduced, our business, financial condition and results of operations could be materially adversely affected.

Third-party payors often use plan structures, such as narrow networks or tiered networks, to encourage or require clients to use in-network providers. In-network providers typically provide services through third-party payors for a negotiated lower rate or other less favorable terms. Third-party payors generally attempt to limit use of out-of-network providers by requiring clients to pay higher copayment and/or deductible amounts for out-of-network care. Additionally, third-party payors have become increasingly aggressive in attempting to minimize the use of out-of-network providers by disregarding the assignment of payment from clients to out-of-network providers (i.e., sending payments directly to clients instead of to out-of-network providers), capping out-of-network benefits payable to clients, waiving out-of-pocket payment amounts and initiating litigation against out-of-network providers for interference with contractual relationships, insurance fraud and violation of state licensing and consumer protection laws. The majority of third-party payors consider certain of our facilities to be “out-of-network” providers. If third-party payors continue to impose and to increase restrictions on out-of-network providers, our revenue could be threatened, forcing our facilities to participate with third-party payors and accept lower reimbursement rates compared to our historic reimbursement rates.

Third-party payors also are entering into sole source contracts with some healthcare providers, which could effectively limit our pool of potential clients. Moreover, third-party payors are beginning to carve out specific services, including substance abuse treatment and behavioral health services, and establish small, specialized networks of providers for such services at fixed reimbursement rates. Continued growth in the use of carve-out arrangements could materially adversely affect our business to the extent we are not selected to participate in such smaller specialized networks or if the reimbursement rate is not adequate to cover the cost of providing the service.

If reimbursement rates paid by federal or state healthcare programs are reduced or if government payors otherwise restrain our ability to obtain or provide services to clients, our business, financial condition and results of operation could be adversely affected.

Managed care organizations and other third-party payors, both government and commercial, pay for the services that we provide to many of our clients. Following the acquisition of AdCare, a portion of our revenues come from government healthcare

programs, principally Medicare and Medicaid. Payments from federal and state government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease program payments, as well as affect the cost of providing service to patients and the timing of payments to facilities. We are unable to predict the effect of recent and future policy changes on our operations. In addition, the uncertainty and fiscal pressures placed upon federal and state governments as a result of, among other things, deterioration in general economic conditions and the funding requirements from the federal healthcare reform legislation, may affect the availability of taxpayer funds for Medicare and Medicaid programs. Changes in government healthcare programs may reduce the reimbursement we receive and could adversely affect our business and results of operations.

As federal healthcare expenditures continue to increase, and state governments continue to face budgetary shortfalls, federal and state governments have made, and continue to make, significant changes in the Medicare and Medicaid programs. These changes include reductions in reimbursement levels and to new or modified demonstration projects authorized pursuant to Medicaid waivers. Some of these changes have decreased, or could decrease, the amount of money we receive for our services relating to these programs. In some cases, private third-party payers rely on all or portions of Medicare payment systems to determine payment rates. Changes to government health care programs that reduce payments under these programs may negatively impact payments from private third-party payers.

In addition to limits on the amount payors will pay for the services we provide to their members, government and commercial payors attempt to control costs by imposing controls designed to reduce admissions and the length of stay for clients, including preadmission authorizations and utilization review. The ability of governmental payors to control healthcare costs using these measures may be enhanced by the increasing consolidation of insurance and managed care companies and vertical integration of health insurers with healthcare providers. Although we are unable to predict the effect these controls and changes could have on our operations, significant limits on the scope of services reimbursed and on reimbursement rates and fees could have a material adverse effect on our business, financial condition and results of operations. If the rates paid or the scope of substance use treatment services covered by government payors are reduced, our business, financial condition and results of operations could be materially adversely affected.

If we overestimate the reimbursement amounts that payors will pay us for out-of-network services performed, it would increase our revenue adjustments, which could have a material adverse effect on our revenue, profitability and cash flows and lead to significant shifts in our results of operations from quarter to quarter that may make it difficult to project long-term performance.

For out-of-network services, we recognize revenue from payors at the time services are provided based on our estimate of the amount that payors will pay us for the services performed. We estimate the net realizable value of revenue by adjusting gross client charges using our expected realization and applying this discount to gross client charges. A significant or sustained decrease in our collection rates could have a material adverse effect on our operating results. There is no assurance that we will be able to maintain or improve historical collection rates in future reporting periods.

Estimates of net realizable value are subject to significant judgment and approximation by management. It is possible that actual results could differ from the historical estimates management has used to help determine the net realizable value of revenue. If our actual collections either exceed or are less than the net realizable value estimates, we will record a revenue adjustment, either positive or negative, for the difference between our estimate of the receivable and the amount actually collected in the reporting period in which the collection occurred. A significant negative revenue adjustment could have a material adverse effect on our revenue, profitability and cash flows in the reporting period in which such adjustment is recorded. In addition, if we record a significant revenue adjustment, either positive or negative, in any given reporting period, it may lead to significant changes in our results from operations from quarter to quarter, which may limit our ability to make accurate long-term predictions about our future performance.

Certain third-party payors account for a significant portion of our revenue, and the reduction of reimbursement rates or coverage of services by any such payor could have a material adverse effect on our revenue, profitability and cash flows.

Certain payors may account for a significant portion of our revenue on an annual basis. These more significant payors can also change from year to year. If any of these or other third-party payors reduce their reimbursement rates for the services we provide or otherwise implement measures, such as specialized networks, that reduce the payments we receive, our revenue, profitability and cash flows could be materially adversely affected.

A deterioration in the collectability of the accounts receivable could have a material adverse effect on our business, financial condition and results of operations.

Collection of receivables from third-party payors and clients is critical to our operating performance. Our primary collection risks are (i) the risk of overestimating our net revenue at the time of billing, which may result in us receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) in certain states, the risk that clients will fail to remit insurance payments to us when the commercial insurance company pays out-of-network claims directly to the client and (iv) resource and capacity constraints that may prevent us from handling the volume of billing and collection issues in a timely manner. Additionally, our ability to hire and retain experienced personnel affects our ability to bill and collect accounts in a timely manner. We routinely review accounts receivable balances in conjunction with these factors and other economic conditions that might ultimately affect the collectability of the client accounts and adjust our allowances as warranted. Significant changes in business operations, payor mix or economic conditions, including changes resulting from legislation or other health reform efforts (including to repeal or significantly change the Affordable Care Act), could affect our collection of accounts receivable, cash flows and results of operations. In addition, increased client concentration in states that permit commercial insurance companies to pay out-of-network claims directly to the client instead of the provider, such as California and Nevada, could adversely affect our collection of receivables. Unexpected changes in reimbursement rates by third-party payors could have a material adverse effect on our business, financial condition and results of operations.

Our business depends on our information systems. Failure to effectively integrate, manage and keep our information systems secure could disrupt our operations and have a material adverse effect on our business.

Our business depends on effective and secure information systems that assist us in, among other things, admitting clients to our facilities, monitoring census and utilization, processing and collecting claims, reporting financial results, measuring outcomes and quality of care, managing regulatory compliance controls and maintaining operational efficiencies. These systems include software developed in-house and systems provided by external contractors and other service providers. To the extent that these external contractors or other service providers become insolvent or fail to support the software or systems, our operations could be negatively affected. Our facilities also depend upon our information systems for electronic medical records, accounting, billing, collections, risk management, payroll and other information. If we experience a reduction in the performance, reliability or availability of our information systems, our operations and ability to process transactions and produce timely and accurate reports could be adversely affected.

Our information systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs. We regularly upgrade and expand our information systems’ capabilities. If we experience difficulties with the transition and integration of information systems or are unable to implement, maintain or expand our systems properly or in a timely manner, we could suffer from, among other things, operational disruptions, regulatory problems, working capital disruptions and increases in administrative expenses.

In addition, we could be subject to cybersecurity risks such as a cyber-attack that bypasses our information technology security systems and other security incidents that result in security breaches, including the theft, loss, destruction or misappropriation of individually identifiable health information subject to HIPAA and other privacy and security laws, proprietary business information or other confidential or personal data. Such an incident could disrupt our information technology systems, impede clinical operations, cause us to incur significant investigation and remediation expenses, and subject us to litigation, government inquiries, penalties and reputational damages. Information security and the continued development, maintenance and enhancement of our safeguards to protect our systems, data, software and networks are a priority for us. As security threats continue to evolve, we may be required to expend significant additional resources to modify and enhance our safeguards and investigate and remediate any information security vulnerabilities. Cyber-attacks may also impede our ability to exercise sufficient disclosure controls. If we are subject to cyber-attacks or security breaches, our business, financial condition and results of operations could be adversely impacted.

Further, our information systems are vulnerable to damage or interruption from fire, flood, natural disaster, power loss, telecommunications failure, break-ins and similar events. A failure to implement our disaster recovery plans or ultimately restore our information systems after the occurrence of any of these events could have a material adverse effect on our business, financial condition and results of operations. Because of the confidential health information that we store and transmit, loss, theft or destruction of electronically-stored information for any reason could expose us to a risk of regulatory action, litigation, liability to clients and other losses.

Our acquisition strategy exposes us to a variety of operational, integration and financial risks, which may have a material adverse effect on our business, financial condition and results of operations.

An element of our business strategy is to grow by acquiring other companies and assets in the mental health and substance abuse treatment industry. We evaluate potential acquisition opportunities consistent with the normal course of our business. Our ability to complete acquisitions is subject to a number of risks and variables, including our ability to negotiate mutually agreeable terms with the counterparties, our ability to finance the purchase price and our ability to obtain any licenses or other approvals required to operate the assets to be acquired. We may not be successful in identifying and consummating suitable acquisitions, which may impede our growth and negatively affect our results of operations, and may also require a significant amount of management

resources. In addition, rapid growth through acquisitions exposes us to a variety of operational and financial risks. We summarize the most significant of these risks below.

Integration risks. We must integrate our acquisitions with our existing operations. This process involves various components of our business and the businesses we have acquired, including the following:

The integration of acquisitions with our operations could be expensive, require significant attention from management, may impose substantial demands on our operations or other projects and may impose challenges on the combined business including, without limitation, consistencies in business standards, procedures, policies, business cultures, internal controls and compliance. In addition, certain acquisitions require a capital outlay, and the return we achieve on such invested capital may be less than the return that we could achieve on other projects or investments.

Expected benefits may not materialize. When evaluating potential acquisition targets, we identify potential synergies and cost savings that we expect to realize upon the successful completion of the acquisition and the integration of the related operations. We may, however, be unable to achieve or may otherwise never realize the expected benefits. Our ability to realize the expected benefits from potential cost savings and revenue improvement opportunities is subject to significant business, economic and competitive uncertainties, many of which are beyond our control. Such uncertainties may include changes to regulations impacting the substance abuse treatment and behavioral healthcare industries, reductions in reimbursement rates from third-party payors, operating difficulties, difficulties obtaining required licenses and permits, client preferences, changes in competition and general economic or industry conditions. If we do not achieve our expected results, it may adversely impact our results of operations.

Assumptions of unknown liabilities. Businesses that we acquire may have unknown or contingent liabilities, including, without limitation, liabilities for failure to comply with healthcare laws and regulations. Although we typically attempt to exclude significant liabilities from our acquisition transactions and seek indemnification from the sellers of such facilities for at least a portion of these matters, we may experience difficulty enforcing those indemnification obligations, or we may incur material liabilities in excess of any indemnification for the past activities of acquired facilities. Such liabilities and related legal or other costs and/or resulting damage to a facility’s reputation could negatively impact our business.

Completing acquisitions. Suitable acquisitions may not be accomplished due to unfavorable terms. Further, the cost of an acquisition could result in a dilutive effect on our results of operations, depending on various factors, including the amount paid for an acquired facility, the acquired facility’s results of operations, the fair value of assets acquired and liabilities assumed, effects of subsequent legislation and limits on reimbursement rate increases. In addition, we may have to pay cash, incur additional debt or issue equity securities to pay for any such acquisition, which could adversely affect our financial results, result in dilution to our existing stockholders, result in increased fixed obligations or impede our ability to manage our operations.

Managing growth. Some of the facilities we have acquired or may acquire in the future had or may have significantly lower operating margins than the facilities we operated prior to the time of our acquisition thereof or had or may have operating losses prior to such acquisition. If we fail to improve the operating margins of the facilities we acquire, operate such facilities profitably or effectively integrate the operations of acquired facilities, our results of operations could be negatively impacted.

Our level of indebtedness could adversely affect our ability to meet our obligations, react to changes in the economy or our industry and to raise additional capital to fund our operations.

As of December 31, 2018, we had total debt of $319.2 million outstanding. Additionally, on March 8, 2019, we entered into that certain Credit Agreement (the “2019 Senior Credit Facility”) with Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto for a principal loan amount of $30 million. In conjunction with that agreement, we amended our existing senior credit facility. A summary of the material terms of our indebtedness can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

We have historically relied on debt financing to partially fund our acquisitions, de novo projects, facility expansions and operations, and we expect such debt financing needs to continue. Our level of indebtedness could have important consequences to our stockholders. For example, it could:

Our operating flexibility is limited in significant respects by the restrictive covenants in our credit facilities, and we may be unable to comply with all covenants in the future.

On June 30, 2017, the Company entered into a senior secured credit agreement with Credit Suisse AG, as administrative agent and collateral agent and the lenders party thereto (the “2017 Credit Facility”), which we have subsequently amended on March 1, 2018 and March 8, 2019. The March 8, 2019 amendment was made in conjunction with our entrance into the 2019 Senior Credit Facility for a principal loan amount of $30 million which matures on April 15, 2020 (we refer to the “2019 Senior Credit Facility,” together with our 2017 Credit Facility, as our “Credit Facilities”). Our Credit Facilities impose restrictions that could impede our ability and our subsidiaries’ ability to enter into certain corporate transactions, as well as increases our vulnerability to adverse economic and industry conditions, by limiting our flexibility in planning for, and reacting to, changes in our business and industry. These restrictions limit our ability to, among other things:

In addition, our Credit Facilities require us to meet a senior leverage ratio financial covenant and may preclude additional borrowings. This restriction may prevent us from taking actions that we believe would be in the best interests of our business and may make it difficult for us to successfully execute our business strategy or effectively compete with companies that are not similarly restricted. Our Credit Facilities also contains cross-default and cross-acceleration provisions that would apply to other material indebtedness we may have. We may also incur future debt obligations that might subject us to additional restrictive covenants that could affect our financial and operational flexibility. Our ability to comply with these restrictive covenants in future periods will largely depend on our ability to successfully implement our overall business strategy. We cannot assure you that we will be granted any waivers or amendments to our Credit Facilities if for any reason we are unable to comply with their terms in the future. The breach of any of these covenants or restrictions could result in a default under our credit facilities, which could result in the acceleration of our debt. In the event of an acceleration of our debt, we could be forced to apply all available cash flows to repay such debt and could be required to enter into insolvency proceedings.

A transition away from LIBOR as a reference rate for financial contracts could negatively affect our income and expenses and the value of various financial contracts.

LIBOR is used extensively in the United States and globally as a benchmark for various commercial and financial contracts, including adjustable rate mortgages, corporate debt, interest rate swaps and other derivatives. LIBOR is set based on interest rate information reported by certain banks, which may stop reporting such information after 2021. It is uncertain at this time whether LIBOR will change or cease to exist or the extent to which those entering into financial contracts will transition to any other particular benchmark. Other benchmarks may perform differently than LIBOR or alternative benchmarks have performed in the past or have other consequences that cannot currently be anticipated. It is also uncertain what will happen with instruments that rely on LIBOR for future interest rate adjustments and which remain outstanding if LIBOR ceases to exist.

We have a number of loans, derivative contracts, borrowings and other financial instruments, including the Credit Facilities, with attributes that are either directly or indirectly dependent on LIBOR. The transition from LIBOR could create considerable costs and additional risk. Since proposed alternative rates are calculated differently, payments under contracts referencing new rates will differ from those referencing LIBOR. The transition will change our market risk profiles, requiring changes to risk and pricing models, valuation tools, product design and hedging strategies. Furthermore, failure to adequately manage this transition process could

adversely us. Although we are currently unable to assess what the ultimate impact of the transition from LIBOR will be, failure to adequately manage the transition could have a material adverse effect on our business, financial condition and results of operations.

Liquidity risk could impair our ability to fund operations and meet our obligations as they become due, and our funding sources may be insufficient to fund our future operations and growth.

Liquidity is essential to our business. Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to obtain adequate funding. An inability to obtain such funding, at competitive rates or at all, could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the healthcare industry or economy in general.

Any substantial, unexpected and/or prolonged change in the level or cost of liquidity could have a material adverse effect on our ability to fund our future operations and growth, which could have a material adverse effect on our assets, business, cash flow, condition (financial or otherwise), liquidity, prospects and results of operations.

The uncertainties associated with the factors described above raise substantial doubt about our ability to continue as a going concern. In order for us to continue operations beyond the next twelve months and to be able to discharge its liabilities and commitments in the normal course of business, we must do some or all of the following: (i) improve operating results by increasing census while maintaining efficiency regarding operating expenses through the cost savings initiatives implemented in late 2018 and early 2019; (ii) execute strategic alternatives related to our real-estate portfolio which could include further sale leasebacks of individual facilities or larger portions of the real estate portfolio (iii) sell additional non-core or non-essential assets; and/or (iv) obtain additional financing. There can be no assurance that we will be able to achieve any or all of the foregoing.

We will need additional financing to execute our long-term business plan and fund operations, at which time additional financing may not be available on reasonable terms or at all.

To fund our acquisition development and operational strategies, we may consider raising additional funds through various financing sources, including the sale of our common or preferred stock and the procurement of commercial debt financing. However, there can be no assurance that such funds will be available on commercially reasonable terms, if at all. If such financing is not available on satisfactory terms, we may be unable to expand or continue our business as desired and operating results may be adversely affected. Any debt financing will increase expenses and must be repaid regardless of operating results and may involve restrictions limiting our operating flexibility. If we issue equity securities to raise additional funds, the percentage ownership of our existing stockholders will be reduced, and our stockholders may experience additional dilution in net book value per share.

Our ability to obtain needed financing may be impaired by such factors as the capital markets, both generally and specifically in our industry, which could impact the availability or cost of future financings. Any deterioration of credit and capital markets may adversely affect our access to sources of funding, and we cannot be certain that we will have access to adequate capital to fund our acquisition and development strategies when needed. In addition, substantial sales of our common stock by existing stockholders could adversely affect our stock price and limit our ability to raise capital. If the amount of capital we are able to raise from financing activities, together with our revenue from operations, is not sufficient to satisfy our capital needs, we may be required to decrease the pace of, or eliminate, our acquisition strategy and potentially reduce or even cease operations.

Our business may face significant risks with respect to future de novo expansion, including the time and costs of identifying new geographic markets, the ability to obtain necessary licensure and other zoning or regulatory approvals and significant start-up costs including advertising, marketing and the costs of providing equipment, furnishings, supplies and other capital resources.

As part of our growth strategy, we intend to develop new substance abuse treatment facilities in existing and new markets, either by building a new facility or by acquiring an existing facility with an alternative use and repurposing it as a substance abuse treatment facility. Such de novo expansion involves significant risks, including, but not limited to, the following:

As a result of these and other risks, there can be no assurance that we will be able to develop de novo treatment facilities or that a de novo treatment facility will become profitable; such expansion could expose us to liabilities or loss.

Our ability to maintain census is dependent on a number of factors outside of our control, and if we are unable to maintain census, our business, results of operations and cash flows could be materially adversely affected.

Our revenue is directly impacted by our ability to maintain census. These metrics are dependent on a variety of factors, many of which are outside of our control, including our referral relationships, average length of stay of our clients, the extent to which third-party payors require preadmission authorization or utilization review controls, competition in the industry and the decisions of our clients to seek and commit to treatment. Further, our census depends upon the effectiveness of our multi-faceted marketing program. See above, Item 1A. Risk Factors — “We rely on our multi-faceted sales and marketing program to continuously attract and enroll clients in our network of facilities. Our sales and marketing program includes the use of digital media, including our recovery resource websites that provide information about addiction treatment and connect website visitors with our helpline. Any disruption in our national sales and marketing program, including our digital marketing resources, could have a material adverse effect on our business, financial condition and results of operations.” A significant decrease in census could materially adversely affect our revenue, profitability and cash flows due to fewer or lower reimbursements received, and the additional resources required to collect accounts receivable and to maintain our existing level of business.

Given the client-driven nature of the substance abuse treatment sector, our business is dependent on clients seeking and committing to treatment. Although increased awareness and de-stigmatization of substance abuse treatment in recent years has resulted in more people seeking treatment, the decision of each client to seek treatment is ultimately discretionary. In addition, even after the initial decision to seek treatment, our clients may decide at any time to discontinue treatment and leave our facilities against the advice of our physicians and other treatment professionals. For this reason, among others, average length of stay can vary among periods without correlating to the overall operating performance of our business. If clients or potential clients decide not to seek treatment or discontinue treatment early, census could decrease and, as a result, our business, financial condition and results of operations could be adversely affected.

We operate in a highly competitive industry where competition may lead to declines in client volumes and an increase in labor costs, which could have a material adverse effect on our business, financial condition and results of operations.

The substance abuse treatment industry is highly competitive, and competition among substance abuse treatment providers (including behavioral healthcare facilities) for clients has intensified in recent years. In 2018, there were approximately 4,200 substance abuse treatment businesses in the United States. There are behavioral healthcare facilities that provide substance abuse and other mental health treatment services comparable to at least some of the services offered by our facilities in each of the geographical areas in which we operate. Some of our competitors are owned by tax-supported governmental agencies or by nonprofit corporations and may have certain financial advantages not available to us, including endowments, charitable contributions, tax-exempt financing and exemptions from sales, property and income taxes. In some markets, certain of our competitors may have greater financial resources, be better equipped and offer a broader range of services than we do. Some of our competitors are local, independent operators or physician groups with strong established reputations within the surrounding communities, which may adversely affect our ability to attract new patients in markets where we compete with such providers. If our competitors are better able to attract clients, expand services or obtain favorable participation agreements with third-party payors, we may experience a decline in client volume, which could have a material adverse effect on our business, financial condition and results of operations.

Our operations depend on the efforts, abilities and experience of our management team, physicians and medical support personnel, including our nurses, mental health technicians, therapists, addiction counselors, pharmacists and clinical technicians. We compete with other healthcare providers in recruiting and retaining qualified management, mental health technicians, therapists, nurses, counselors, and other support personnel responsible for the daily operations of our facilities. The nationwide shortage of nurses and other medical support personnel has been a significant operating issue facing our industry in recent years. This shortage may require us to enhance our wages and benefits to recruit and retain nurses and other medical support personnel or require us to hire expensive temporary personnel. If we are unable to attract and retain qualified personnel, we may be unable to provide our services, the quality of our services may decline and we could experience a decline in client volume, all of which could have a material adverse effect on our business, financial condition and results of operations.

Increased labor union activity is another factor that could adversely affect our labor costs. A labor union represents our employees at Sunrise House. As a result, with respect to our Sunrise House facilities, we are subject to the risk of labor disputes, strikes, work stoppages, slowdowns and other labor-relations matters. Although we are not aware of any union organizing activity at any of our other facilities, we are unable to predict whether any such activity will take place in the future.

We depend heavily on key executives and other key management personnel, and the departure of one or more of our key executives or other key management personnel could have a material adverse effect on our business, financial condition and results of operations.

The expertise and efforts of our key executives, including our chief executive officer, and other management personnel are critical to the success of our business. We do not currently have employment agreements or non-compete covenants with any of our key executives. The loss of the services of one or more of our key executives could significantly undermine our management expertise and our ability to provide efficient, quality healthcare services at our facilities. Furthermore, if one or more of our key executives were to terminate employment with us and engage in a competing business, we would be subject to increased competition, which could have a material adverse effect on our business, financial condition and results of operations.

Failure to adequately protect our trademarks and any other proprietary rights could have a material adverse effect on our business, financial condition and results of operations.

We maintain a trademark portfolio that we consider to be of significant importance to our business, and we may acquire additional trademarks or other proprietary rights in acquisitions that we pursue as part of our growth strategy. If the actions we take to establish and protect our trademarks and other proprietary rights are not adequate to prevent imitation of our services by others or to prevent others from seeking to block sales of our services as an alleged violation of their trademarks and proprietary rights, it may be necessary for us to initiate or enter into litigation in the future to enforce our trademark rights or to defend ourselves against claimed infringement of the rights of others. The cost of any such legal proceedings could be expensive and such legal proceedings could result in an adverse determination that could have a material adverse effect on our business, financial condition and results of operations.

Failure to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business.

We are subject to significant corporate regulation as a public company and failure to comply with all applicable regulations could subject us to liability or negatively affect our stock price. As a publicly traded company, we are subject to a significant body of regulation, including the Sarbanes-Oxley Act of 2002. We are required to maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act in the course of preparing our consolidated financial statements. If we are unable to maintain effective internal control over financial reporting, we may be unable to report our financial information on a timely basis or may suffer adverse regulatory consequences or violations of New York Stock Exchange listing rules. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in our financial statements could be impacted as a result of the material weakness in our internal control over financial reporting. In addition, we have incurred and will continue to incur incremental costs in order to improve our internal control over financial reporting and comply with Section 404 of the Sarbanes-Oxley Act, including increased auditing and legal fees.

Management’s determination that a material weakness exists in our internal controls over financial reporting could have a material adverse impact on the Company.

We are required to maintain internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. In Item 9A of this Annual Report on Form 10-K, the Company’s has identified a material weakness in its internal control over financial reporting as noted in Management’s Report on Internal Control over Financial Reporting.

Based on the evaluation of this material weakness, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s internal controls over financial reporting were not effective as of December 31, 2018 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Based on a number of factors, our internal review that identified restatements to our previously issued financial statements, and efforts to develop a detailed plan and timetable for the implementation of measures designed to remediate the material weakness in internal control over financial reporting described in this Annual Report on Form 10-K, we believe the consolidated financial statements in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with GAAP. Pending the Company’s remediation of the matters that have caused the control deficiencies underlying the material weakness, our business and results of operations could be harmed, we may be unable to report properly or timely the results of our operations, and investors may lose faith in the reliability of our financial statements. Accordingly, the price of our securities may be adversely and materially impacted.

At December 31, 2018, our goodwill and other identifiable intangible assets were $211.0 million. Under current accounting standards, if we determine goodwill or other identifiable intangible assets are impaired, we are required to write down the carrying value of these assets. We conduct a review at least annually to determine whether goodwill is impaired. We cannot provide assurance, however, that we will not be required to take an impairment charge in the future. Any impairment charge would have an adverse effect on our stockholders’ equity and financial results and could cause a decline in our stock price.

If we fail to comply with the extensive laws and government regulations impacting our industry, we could suffer penalties, be the subject of federal and state investigations or be required to make significant changes to our operations, which may reduce our revenue, increase our costs and have a material adverse effect on our business, financial condition and results of operations.

Healthcare service providers are required to comply with extensive and complex laws and regulations at the federal, state and local government levels relating to, among other things:

The United States has recently enacted the EKRA to create a new federal crime for knowingly and willfully: (1) soliciting or receiving any remuneration in return for referring a patient to a recovery home, clinical treatment facility, or laboratory; or (2) paying or offering any remuneration to induce such a referral or in exchange for an individual using the services of a recovery home, clinical treatment facility, or laboratory. Certain states, including Florida, have enacted similar laws, or will likely enact similar laws in the future.

As a provider of addiction treatment services, we are subject to governmental investigations and potential claims and lawsuits by clients, employees and others, which may increase our costs, cause reputational issues and have a material adverse effect on our business, financial condition results of operations and reputation.

Given the addiction and mental health issues of clients and the nature of the services provided, the substance abuse treatment industry is heavily regulated by governmental agencies and involves significant risk of liability. We and others in our industry are exposed to the risk of governmental investigations, regulatory actions and whistleblower lawsuits or other claims against us and our

physicians and other professionals arising out of our day to day business operations, including, without limitation, client treatment at our facilities and relationships with healthcare providers that may refer clients to us. Addressing any investigation, lawsuit or other claim may distract management and divert resources, even if we ultimately prevail. Regardless of the outcome of any such investigation, lawsuit or claim, the publicity and potential risks associated with the investigation, lawsuit or claim could harm our reputation or the reputation of our management and negatively impact the perception of the Company by clients, investors or others and could have a materially adverse impact on our financial condition and results of operations. Fines, restrictions, penalties and damages imposed as a result of an investigation or a successful lawsuit or claim that is not covered by, or is in excess of, our insurance coverage may increase our costs and reduce our profitability. Our insurance premiums have increased year over year, and insurance coverage may not be available at a reasonable cost in the future, especially given the significant increase in insurance premiums generally experienced in the healthcare industry.

We are also subject to an inherent risk of potential medical malpractice lawsuits and other potential claims or legal actions in the ordinary course of business. From time to time, we are subject to claims alleging that we did not properly treat or care for a client that we failed to follow internal or external procedures that resulted in death or harm to a client or that our employees mistreated our clients, resulting in death or harm. Any deficiencies in the quality of care provided by our employees could expose to governmental investigations and lawsuits from our patients. Some of these actions may involve large claims as well as significant defense costs. We cannot predict the outcome of these lawsuits or the effect that findings in such lawsuits may have on us. In an effort to resolve one or more of these matters, we may decide to negotiate a settlement, and amounts we pay to settle any of these matters may be material. All professional and general liability insurance we purchase is subject to policy limitations. We believe that, based on our past experience, our insurance coverage is adequate considering the claims arising from the operation of our facilities. While we continuously monitor our coverage, our ultimate liability for professional and general liability claims could change materially from our current estimates. If such policy limitations should be partially or fully exhausted in the future or if payments of claims exceed our estimates or are not covered by our insurance, they could have a material adverse effect on our financial condition and results of operations.

We care for a large number of clients with complex medical conditions, special needs or who require a substantial level of care and supervision. There is an inherent risk that our clients could be harmed while in treatment, whether through negligence, by accident or otherwise. Further, clients might engage in behavior that results in harm to themselves, our employees or to one or more other individuals. Patient safety incidents may result in regulatory enforcement actions, negative press about us or the addiction treatment industry generally and lawsuits filed by plaintiff’s lawyers against us. These developments could diminish public perception of the quality of our services, which in turn could lead to a loss of client placements and referrals, resulting in a material adverse effect on our business, results of operations and financial condition.

Failure to comply with these laws and regulations could result in the imposition of significant civil or criminal penalties, loss of license or certification or require us to change our operations, or the exclusion of one or more facilities from participation in the Medicare, Medicaid and other federal and state healthcare programs, any of which may have a material adverse effect on our business, financial condition and results of operations. Both federal and state government agencies as well as commercial payors have heightened and coordinated civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare organizations.

We endeavor to comply with all applicable legal and regulatory requirements, however, there is no guarantee that we will be able to adhere to all of the complex government regulations that apply to our business. We seek to structure all of our relationships with referral sources and clients to comply with applicable anti-kickback laws, physician self-referral laws, fee-splitting laws and state corporate practice of medicine prohibitions. We monitor these laws and their implementing regulations and implement changes as necessary. However, the laws and regulations in these areas are complex and often subject to varying interpretations. For example, if an enforcement agency were to challenge the compensation paid under our contracts with professional physician groups, we could be required to change our practices, face criminal or civil penalties, pay substantial fines or otherwise experience a material adverse effect as a result.

We may be required to spend substantial amounts to comply with legislative and regulatory initiatives relating to privacy and security of client health information.

There are currently numerous legislative and regulatory initiatives at the federal and state levels addressing client privacy and security concerns. In particular, the Part 2 Regulations restrict the disclosure, and regulate the security, of client identifiable information related to substance abuse. These requirements apply to any of our facilities that receive federal assistance, which is interpreted broadly to include facilities licensed, certified or registered by a federal agency. In addition, the federal privacy and security regulations issued under HIPAA require our facilities to comply with extensive requirements on the use and disclosure of protected health information and to implement and maintain administrative, physical and technical safeguards to protect the security of such information. Additional security requirements apply to electronic protected health information. These regulations also provide clients with substantive rights with respect to their health information and impose substantial administrative obligations on our facilities, including the requirement to enter into written agreements with contractors, known as business associates, to whom our programs disclose protected health information. We may be subject to penalties as a result of a business associate violating HIPAA, if the business associate is found to be our agent. Covered entities must notify individuals, HHS and, in some cases, the media of breaches involving unsecured protected health information. HHS and state attorneys general are authorized to enforce these

regulations. Violations of the HIPAA privacy and security regulations may result in significant civil and criminal penalties, and data breaches and other HIPAA violations may give rise to class action lawsuits by affected clients under state law.

Our programs remain subject to any privacy-related federal or state laws that are more restrictive than the HIPAA privacy and security regulations. These laws vary by state and may impose additional requirements and penalties. For example, some states impose strict restrictions on the use and disclosure of health information pertaining to mental health or substance abuse. Further, most states have enacted laws and regulations that require us to notify affected individuals in the event of a data breach involving individually identifiable information. In addition, the Federal Trade Commission may use its consumer protection authority to initiate enforcement actions in response to data breaches or other privacy or security lapses.

As public attention is drawn to issues related to the privacy and security of medical and other personal information, federal and state authorities may increase enforcement efforts, seek to impose harsher penalties as well as revise and expand laws or enact new laws concerning these topics. Compliance with current as well as any newly established provisions or interpretations of existing requirements will require us to expend significant resources. Increased focus on privacy and security issues by enforcement authorities may increase the overall risk that our substance abuse treatment facilities may be found lacking under federal and state privacy and security laws and regulations.

Our treatment facilities operate in an environment of increasing state and federal enforcement activity and private litigation targeted at healthcare providers.

Both federal and state government agencies have heightened and coordinated their civil and criminal enforcement efforts as part of numerous ongoing investigations of healthcare companies and various segments of the healthcare industry. These investigations relate to a wide variety of topics, including relationships with physicians, billing practices and use of controlled substances. The Affordable Care Act included an additional $350 million of federal funding over ten years to fight healthcare fraud, waste and abuse, including $10 million for each of federal fiscal years 2018 through 2020. The HHS Office of Inspector General and the Department of Justice have established national enforcement initiatives that focus on specific billing practices or other suspected areas of abuse. Some of our facilities participate in Medicare or Medicaid and, therefore, could be subject to government investigation. Furthermore, even though we operate a number of facilities that do not currently bill Medicare or Medicaid for substance use treatment services, there is a risk that specific investigative initiatives or new laws such as EKRA could result in investigations or enforcement actions that include or affect our treatment services, laboratory service providers, or marketing operations. In addition, increased government enforcement activities, even if not directed towards our treatment facilities or laboratories, also increase the risk that our facilities, physicians and other clinicians furnishing services in our facilities, or our executives and directors, could be named as defendants in private litigation such as state or federal false claims act cases or consumer protection cases, or could become the subject of complaints at the various state and federal agencies that have jurisdiction over our operations. Any governmental investigations, private litigation or other legal proceedings involving any of our facilities or laboratories, our executives or our directors, even if we ultimately prevail, could result in significant expense, adversely affect our reputation or profitability and materially adversely affect our financial condition and results of operation. In addition, we may be required to make changes in our laboratory, substance use treatment services or marketing or other operational practices as a result of an adverse determination in any governmental enforcement action, private litigation or other legal proceeding, which could materially adversely affect our business and results of operations.

Changes to federal, state and local regulations, as well as different or new interpretations of existing regulations, could adversely affect our operations and profitability.

Because our treatment programs and operations are regulated at federal, state and local levels, we could be affected by regulatory changes in different regional markets. Increases in the costs of regulatory compliance and the risks of noncompliance may increase our operating costs, and we may not be able to recover these increased costs, which may adversely affect our results of operations and profitability.

Many of the current laws and regulations are relatively new, including the EKRA and recent state laws intended to prohibit deceptive marketing practices in the addiction treatment industry. Thus, we do not always have the benefit of significant regulatory or judicial interpretation of these laws and regulations. Evolving interpretations or enforcement of these laws and regulations could subject our current or past practices to allegations of impropriety or illegality or could require us to make changes in our treatment facilities, equipment, personnel, services or capital expenditure programs. A determination that we have violated these laws, or a public announcement that we are being investigated for possible violations of these laws, could adversely affect our business, operating results and overall reputation in the marketplace.

In addition, federal, state and local regulations may be enacted that impose additional requirements on our facilities. Adoption of legislation or the creation of new regulations affecting our facilities could increase our operating costs, restrain our growth or limit us from taking advantage of opportunities presented and could have a material adverse effect on our business, financial condition and results of operations. Adverse changes in existing comprehensive zoning plans or zoning regulations that impose additional restrictions on the use of, or requirements applicable to, our facilities may affect our ability to operate our existing facilities or acquire new facilities, which may adversely affect our results of operations and profitability.

We are subject to uncertainties regarding the direction and impact of healthcare reform efforts, particularly efforts to repeal or significantly modify the Affordable Care Act.

The healthcare industry is subject to changing political, regulatory, scientific and technological changes, which have resulted and may continue to result in initiatives intended to reform the industry. The most prominent of recent efforts, the Affordable Care Act, as currently structured, provides for increased access to coverage for healthcare and seeks to reduce healthcare-related expenses. Among other mandates, it requires all new small group and individual market health plans to cover ten essential health benefit categories, which currently include substance abuse addiction and mental health disorder services. However, efforts by the executive branch and some members of Congress to repeal or make fundamental changes to the Affordable Care Act, its implementation and/or its interpretation have cast significant uncertainty on the future of the law. For example, in 2017, Congress eliminated the penalties associated with the individual mandate, effective January 2019, which may affect rates of insurance coverage. We are unable to predict the full impact of the Affordable Care Act and related regulations or the impact of its repeal or modification on our operations in light of the uncertainty regarding whether or how the law will be changed, what alternative reforms, if any, may be enacted or what other actions may be taken. Any government efforts related to health reform may have an adverse effect on our business, results of operations, cash flow, capital resources and liquidity. Moreover, the general uncertainty of health reform efforts, particularly if Congress elects to repeal provisions of the Affordable Care Act but delays the implementation of repeal or fails to enact replacement provisions at the time of repeal, may negatively impact our payment sources or demand for our services.

The expansion of health insurance coverage under the Affordable Care Act has been beneficial to the substance abuse treatment industry. This is due, in part, to higher demand for treatment services, which resulted from the requirement that small group and individual market plans comply with the requirements of the Mental Health Parity and Addiction Equity Act of 2008, which previously applied only to group health plans and group insurers. The 21^st Century Cures Act requires development of an action plan for enhanced enforcement of mental health parity requirements and additional guidance for health plans regarding compliance with parity laws. Increased demand for treatment services may bring new competitors to the market, some of which may be better capitalized and have greater market penetration than we do. In addition, we expect increased demand for substance use treatment services to increase the demand for case managers, therapists, medical technicians and others with clinical expertise in substance abuse treatment, which may make it more difficult to adequately staff our substance abuse treatment facilities and could significantly increase our costs in delivering treatment, which may adversely affect both our operations and profitability.

One of the many impacts of the Affordable Care Act and subsequent legislation has been a dramatic increase in payment reform efforts by federal and state government payors as well as commercial payors. These efforts take many forms, including the growth of accountable care organizations, pay-for-performance bonus arrangements, partial capitation arrangements and the bundling of services into a single payment. One result of these efforts is that more risk of the overall cost of care is being transferred to providers. As institutional providers and their affiliated physicians assume more risk for the cost of care, we expect more services to be furnished within provider networks that are formed for these types of payment arrangements. Our ability to compete and to retain our traditional sources of clients may be adversely affected by our exclusion from such networks or our inability to be included in such networks.

Change of ownership or change of control requirements imposed by state and federal licensure and certification agencies as well as third-party payors may limit our ability to timely realize opportunities, adversely affect our licenses and certifications, interrupt our cash flows and adversely affect our profitability.

State licensure laws and many federal healthcare programs (where applicable) impose a number of obligations on healthcare providers undergoing a change of ownership or change of control transaction. These requirements may require new license applications as well as notices given a fixed number of days prior to the closing of affected transactions. These provisions require us to be proactive when considering both internal restructuring and acquisitions of other treatment companies. Failure to provide such notices or to submit required paperwork can adversely affect licensure on a going forward basis, can subject the parties to penalties and can adversely affect our ability to operate our facilities.

Many third-party payor agreements, including government payor programs, also have change of ownership or change of control provisions. Such provisions generally include a prior notice provision as well as require the consent of the payor in order to continue the terms of the payor agreement. Abiding by the terms of such provisions may reopen pricing negotiations with third-party payors where the provider currently has favorable reimbursement terms as compared to the market. Failure to comply with the terms of such provisions can result in a breach of the underlying third-party payor agreement. Currently, we relatively have few third-party payor agreements; however, as substance abuse treatment coverage and payment reform initiatives continue to expand, these types of provisions could have a significant impact on our ability to realize opportunities and could adversely affect our cash flows and profitability.

State efforts to regulate the construction or expansion of healthcare facilities could impair our ability to operate and expand our facilities.

The construction of new healthcare facilities, the expansion, transfer or change of ownership of existing facilities and the addition of new beds, services or equipment may be subject to state laws that require a determination of public need and prior approval by state regulatory agencies under CON laws or other healthcare planning initiatives. Review of CONs and similar proposals may be lengthy and may require public hearings. States in which we now or may in the future operate may require CONs under certain

circumstances not currently applicable to us or may impose standards and other health planning requirements upon us. Violation of these state laws and our failure to obtain any necessary state approval could:

If we are unable to obtain required regulatory, zoning or other required approvals for renovations and expansions, our growth may be restrained, and our operating results may be adversely affected. In the past, we have not experienced any material adverse effects from such requirements, but we cannot predict their future impact on our operations.

We could face risks associated with, or arising out of, environmental, health and safety laws and regulations.

Compliance with these laws and regulations could increase our costs of operation. Violation of these laws may subject us to significant fines, penalties or disposal costs, which could negatively impact our results of operations, financial position or cash flows. We could be responsible for the investigation and remediation of environmental conditions at currently or formerly operated or leased sites, as well as for associated liabilities, including liabilities for natural resource damages, third-party property damage or personal injury resulting from lawsuits that could be brought by the government or private litigants relating to our operations, the operations of our facilities or the land on which our facilities are located. We may be subject to these liabilities regardless of whether we lease or own the facility, and regardless of whether such environmental conditions were created by us or by a prior owner or tenant, or by a third-party or a neighboring facility whose operations may have affected such facility or land, because liability for contamination under certain environmental laws can be imposed on current or past owners or operators of a site without regard to fault. We cannot assure you that environmental conditions relating to our prior, existing or future sites or those of predecessor companies whose liabilities we may have assumed or acquired will not have a material adverse effect on our business.

We may be unable to successfully implement the compliance program requirements imposed by the State of California.

On October 21, 2016, we entered into a Permanent Injunction and Final Judgement (“PIFJ”) relating to the criminal charges filed in connection with the death of a client in 2010 at one of our former locations. Pursuant to the terms of the PIFJ, we were required to, among other things, (i) institute the (“California Compliance Program”) with respect to our California facilities that includes maintaining or developing and implementing certain policies and procedures to promote each covered facility’s compliance with applicable statutes, regulations and the PIFJ, under the responsibility of our chief compliance officer; (ii) establish a compliance committee composed of the compliance officer and senior personnel responsible for overseeing clinical operations and (iii) establish an oversight committee of the Board of Directors, or a committee of the Board of Directors, to review the adequacy and responsiveness of the California Compliance Program. In addition, we are required to retain a qualified independent monitor through April 25, 2019 to assess the effectiveness of our quality control systems and patient care.

Since 2016, we have incurred costs in connection with the implementation of and compliance under the California Compliance Program and PIFJ, and expect to incur additional costs in connection with the California Compliance Program and with the PIFJ. The Company has been subject to the California Compliance Program for more than two years and continues to comply with its obligations and interactions with the Compliance Officer. Such efforts will be ongoing during the full term of the California Compliance Program. If we are not able to successfully fulfill our obligations under the California Compliance Program or timely implement recommendations made by the Compliance Officer in connection with the California Compliance Program, the BMFEA may pursue remedies under the PIFJ, including assessment of fines and civil and criminal actions. Should the BMFEA pursue remedies under the PIFJ, we could face significant fines and actions, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Changes in tax laws or their interpretations, or becoming subject to additional U.S., state or local taxes, could negatively affect our business, financial condition and results of operations.

We are subject to tax liabilities, including federal and state taxes such as excise, sales/use, payroll, franchise, withholding, and ad valorem taxes. Changes in tax laws or their interpretations could decrease the amount of revenues we receive, the value of any tax loss carryforwards and tax credits recorded on our balance sheet and the amount of our cash flow, and have a material adverse impact on our business, financial condition and results of operations. Some of our tax liabilities are subject to periodic audits by the respective taxing authority which could increase our tax liabilities. If we are required to pay additional taxes, our costs would increase,

and our net income would be reduced, which could have a material adverse effect on our business, financial condition and results of operations.

On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act,” which includes significant changes to the taxation of business entities. These changes include, among others, a reduction in the corporate income tax rate. We continue to examine the impact this tax reform legislation may have on our business. Notwithstanding the reduction in the corporate income tax rate, the overall impact of this tax reform is uncertain, and our business and financial condition could be adversely affected.

Our directors, executive officers and certain employees and their respective affiliates have substantial control over the company and could delay or prevent a change in corporate control.

Our directors, executive officers and certain employees owned, in the aggregate, approximately 33.1% of our outstanding common stock as of December 31, 2018. Michael T. Cartwright, our Chairman and Chief Executive Officer, and his affiliates owned approximately 19.4% of our common stock as of December 31, 2018. As a result, these stockholders, acting together, have substantial control over the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation or sale of all or substantially all of our assets. In addition, these stockholders, acting together, will continue to have significant influence over the management and affairs of our company. Accordingly, this concentration of ownership may have the effect of:

Anti-takeover provisions in our articles of incorporation, bylaws and Nevada law could prevent or delay a change in control of our company.

Provisions in our articles of incorporation and amended and restated bylaws, which we refer to as our bylaws, may discourage, delay or prevent a merger, acquisition or change of control. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors and take other corporate actions. These provisions:

We are an emerging growth company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors.

We are an “emerging growth company” as defined under the Jumpstart Our Business Startups Act (the “JOBS Act”). For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company until December 31, 2019. If some investors find our common stock less attractive because we may rely on these exemptions, there may be a less active trading market for our common stock, and our stock price may be more volatile.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period for implementing new or revised accounting standards and, therefore, will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies that are not emerging growth companies.

A listing of our owned and leased facilities is included in Item 1. Business of this Annual Report on Form 10-K under the heading Facilities. Additionally, we lease approximately 102,000 square feet of office space located at 200 Powell Place in Brentwood, Tennessee for our corporate headquarters and admissions center. The initial term of the lease is for ten years, with one option to extend the lease for five years. We also lease laboratory space in Brentwood, Tennessee to perform quantitative drug testing and other laboratory services that support our treatment facilities. We believe that these facilities are in good condition and suitable for our present requirements.

On June 30, 2017, Jeffrey Smith, Abhilash Patel and certain of their affiliates (“Plaintiffs”) filed a lawsuit in the Superior Court of the State of California in Los Angeles County against the Company, AAC, Sober Media Group, LLC, and certain of the Company’s current and former officers (Jeffrey Smith, Abhilash Patel v. American Addiction Centers, Inc. et al.) (the Smith Litigation). Plaintiffs are former owners of Referral Solutions Group, LLC (RSG) and Taj Media, LLC, which were acquired by the Company in July 2015. The plaintiffs generally alleged that, in connection with the Company’s acquisition, the defendants violated California securities laws and further allege intentional misrepresentation, common law fraud, equitable fraud, promissory estoppel, civil conspiracy to conceal an investigation and civil conspiracy to conceal profitability. On November 21, 2018, the Company entered into a settlement (the “Settlement”) with Plaintiffs providing that (i) the Company pay Plaintiffs an aggregate of $8,000,000 (the “Settlement Payment”) in payments to be made throughout 2019, (ii) mutual exchange of releases, (iii) dismissal of the litigation and (iv) other non-monetary terms. In connection with the Settlement, the Company also agreed to release its former officer and director, Jerrod N. Menz (“Menz”) from his agreement to contribute 300,000 shares to the settlement of a previously settled securities class action lawsuit in exchange for Menz releasing his claim for indemnification arising out of the Smith Litigation.

The Company provided general accounting, finance and governance documentation in response to a subpoena received from the SEC in March 2018. Following this initial document request, the Commission requested additional information pertaining to the Company’s accounting for partial payments from insurance companies, where the Company is continuing to pursue additional collections for the estimated balance. Beginning in the third quarter of 2018, the Company’s Audit Committee initiated a review of the Company’s accounting for these partial payments. The Audit Committee has completed this review. In connection with this review, the Audit Committee determined that the Company’s change in estimate of the collectability of accounts receivable relating to partial payments was appropriate. See Note 2. Basis of Presentation — Change in Accounting Estimate. The Commission’s investigation is ongoing, and the Company is continuing to fully cooperate on this matter. The Commission’s investigation is neither an allegation of wrongdoing nor a finding that any violation of law has occurred. At this time, the Company is unable to predict the final outcome of this matter or what impact it might have on the Company’s consolidated financial position, results of operations or cash flows.

The Company is also aware of various other legal matters arising in the ordinary course of business. To cover these other types of claims as well as the legal matters referenced above, the Company maintains insurance it believes to be sufficient for its operations, although some claims may potentially exceed the scope of coverage in effect and the insurer may argue that some claims, including, without limitation, the claims described above, are excluded from coverage. Plaintiffs in these matters may also request punitive or other damages that may not be covered by insurance. Except as described above, after taking into consideration the evaluation of such matters by the Company’s legal counsel, the Company’s management believes at this time that the anticipated outcome of these matters will not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The following graph compares the cumulative total return on our common stock during the period from October 2, 2014 (the day our common stock began trading on the NYSE) through December 31, 2018, with the cumulative total return of the S&P 500 Index and the S&P Health Care Index. The S&P 500 Index includes 500 companies representing all major industries. The S&P Health Care Index is a group of 62 companies involved in a variety of healthcare related businesses. The graph assumes $100 invested on October 2, 2014 in our common stock and in each index and assumes reinvestment of dividends, if any. Stock price performance shown in the graph is not necessarily indicative of future stock performance.

The Company has never declared or paid cash dividends on our common stock. We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business, and therefore, we do not anticipate paying cash dividends in the foreseeable future. Any future determination related to the payment of dividends will be made at the discretion of our Board of Directors and will depend on, among other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our Board of Directors may deem relevant. The Company is also restricted under the terms of our Credit Facilities from declaring or making, or agreeing to declare or make, any dividend on our common stock.

See “Part III — Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” for information regarding securities authorized for issuance under our equity compensation plans.

During the three months ended December 31, 2018, the Company had no publicly announced plans or programs to repurchase shares. However, the Company withheld shares of Company common stock to satisfy employee minimum statutory tax withholding obligations payable upon the vesting of restricted stock, as follows:

The following table presents our selected historical consolidated financial data as of the dates and for the periods indicated. The selected financial data set forth below as of and for the years ended December 31, 2017, 2016, and 2015 have been restated to reflect adjustments to our previously issued financial statements as more fully discussed in Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations, in Note 2A - Restatement of Previously Issued Financial Statements and in Note 17, Unaudited Quarterly Information (Restated) included in Item 8 of this Annual Report on Form 10-K. The following data should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations and the consolidated financial statements of the Company, including the notes thereto, in Items 7 and 8, respectively; of this Annual Report on Form 10-K in order to fully understand factors that may affect the comparability of the financial data. The selected financial data in this section is not intended to replace our consolidated financial statements and the related notes. Our historical results are not necessarily indicative of results that may be expected in the future.

	Year Ended December 31,
	2018			2017 Restated			2016 Restated			2015 Restated			2014
	(Dollars in thousands, except share data)
Income Statement Data:
Revenues
Client related revenue	$	284,525		$	308,538		$	270,569		$	205,752		$	132,968
Non-client related revenue		11,238			9,103			9,201			6,509			—
Total revenue		295,763			317,641			279,770			212,261			132,968

Operating expenses
Salaries, wages and benefits		174,772			146,390			141,073			91,406			54,707
Client related services		32,747			27,031			24,446			15,754			10,794
Provision for doubtful accounts		366			25,932			38,549			42,381			11,391
Advertising and marketing		13,744			12,315			18,275			20,821			15,683
Professional fees		19,894			12,638			16,468			10,316			8,075
Other operating expenses		47,716			36,309			29,627			22,708			13,518
Rentals and leases		10,367			7,514			7,363			5,298			2,106
Litigation settlement		11,136			23,607			1,292			2,379			487
Depreciation and amortization		21,986			21,504			17,686			7,837			4,662
Acquisition-related expenses		573			1,162			2,691			3,401			845
Total operating expenses		333,301			314,402			297,470			222,301			122,268
(Loss) income from operations		(37,538	)		3,239			(17,700	)		(10,040	)		10,700
Interest expense, net		32,220			16,811			8,175			3,607			1,872
Loss on extinguishment of debt		—			5,435			—			—			—
Gain on contingent consideration		(501	)		—			(1,350	)		—			—
Bargain purchase gain		—			—			—			(1,775	)		—
Other expense (income), net		465			116			(500	)		(725	)		(93	)
(Loss) income before income tax expense		(69,722	)		(19,123	)		(24,025	)		(11,147	)		8,921
Income tax (benefit) expense		(3,004	)		(1,742	)		2,345			4,299			2,555
Net (loss) income		(66,718	)		(17,381	)		(26,370	)		(15,446	)		6,366
Less: net loss attributable to noncontrolling interest		7,314			4,508			5,152			2,833			1,182
Net (loss) income attributable to AAC Holdings, Inc. stockholders		(59,404	)		(12,873	)		(21,218	)		(12,613	)		7,548
BHR Series A Preferred Unit dividend		—			—			—			(147	)		(693	)
Redemption of BHR Series A preferred Units		—			—			—			(534	)		—
Net (loss) income available to AAC Holdings, Inc. common stockholders	$	(59,404	)	$	(12,873	)	$	(21,218	)	$	(13,294	)	$	6,855
Earnings per share attributable to common stockholders:
Basic (loss) earnings per common share	$	(2.47	)	$	(0.55	)	$	(0.93	)	$	(0.62	)	$	0.41
Diluted (loss) earnings per common share	$	(2.47	)	$	(0.55	)	$	(0.93	)	$	(0.62	)	$	0.41
Weighted-average common shares outstanding:
Basic		24,090,639			23,277,444			22,718,117			21,605,037			16,557,655
Diluted		24,090,639			23,277,444			22,718,117			21,605,037			16,619,180

Previously filed Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q for the periods affected by the restatement have not been, and will not be, amended. Accordingly, investors should no longer rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Annual Report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are made only as of the date of this Annual Report. In some cases, you can identify forward-looking statements by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “may,” “potential,” “predicts,” “projects,” “should,” “will,” “would,” and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these words. Forward-looking statements may include information concerning the Company’s possible or assumed future results of operations, including descriptions of the Company’s revenue, profitability, outlook and overall business strategy. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from the information contained in the forward-looking statements. These risks, uncertainties and other factors include, without limitation: (i) our inability to effectively operate our facilities; (ii) our reliance on our sales and marketing program to continuously attract and enroll clients; (iii) a reduction in reimbursement rates by certain third-party payors for inpatient and outpatient services and point-of-care and definitive lab testing; (iv) our failure to successfully achieve growth through acquisitions and de novo projects; (v) risks associated with estimates of the value of accounts receivable or deterioration in collectability of accounts receivable; (vi) a failure to achieve anticipated financial results from contemplated and prior acquisitions; (vii) the possibility that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of an acquisition; (viii) our failure to achieve anticipated financial results from contemplated and prior acquisitions; (ix) a disruption in our ability to perform diagnostic laboratory services; (x) maintaining compliance with applicable regulatory authorities, licensure and permits to operate our facilities and laboratories; (xi) a disruption in our business and reputational and economic risks associated with the civil securities claims brought by shareholders or claims by various parties; (xii) inability to meet the covenants in our loan documents or lack of borrowing capacity; and (xiii) general economic conditions, as well as other risks discussed in the “Risk Factors” section of this Annual Report on Form 10-K and our other filings with the Securities and Exchange Commission. As a result of these factors, we cannot assure that the forward-looking statements in this annual report will prove to be accurate. Investors should not place undue reliance upon forward-looking statements.

The adjustments made as a result of the restatement are more fully discussed in Note 2A, Restatement of Previously Issued Financial Statements, to the Notes to Consolidated Financial Statements included in this Annual Report on Form 10-K. To further review the effects of the accounting errors identified and the restatement adjustments, see “Part II—Item 6. Selected Financial Data” included in this Annual Report on Form 10-K.

Previously filed Annual Reports on Form 10-K and quarterly reports on Form 10-Q for the periods affected by the restatement have not been, and will not be, amended. Accordingly, investors should no longer rely upon the Company’s previously released financial statements for these periods and any earnings releases or other communications relating to these periods. See Note 17, Unaudited Quarterly Information (Restated), of the Notes to the Consolidated Financial Statements in this Annual Report on Form 10-K for the impact of these adjustments on each of the quarterly periods in fiscal 2017 and for the first three quarters of fiscal 2018. Quarterly reports for fiscal 2019 will include restated results for the corresponding interim periods of fiscal 2018. All amounts in this Annual Report on Form 10-K affected by the restatement adjustments reflect such amounts restated.

We are a provider of inpatient and outpatient substance use treatment services for individuals with drug addiction, alcohol addiction and co-occurring mental/behavioral health issues. In connection with our treatment services, we perform clinical diagnostic laboratory services and provide physician services to our clients. Our highly trained clinical staff deploy research-based treatment programs with structured curricula for detoxification, residential treatment, partial hospitalization and intensive outpatient care. By applying a tailored treatment program based on the individual needs of each client, many of whom require treatment for a co-occurring mental health disorder such as depression, bipolar disorder or schizophrenia, we believe we offer the level of quality care and service necessary for our clients to achieve and maintain sobriety.

As of December 31, 2018, we operated 11 inpatient substance abuse treatment facilities located throughout the United States, focused on delivering effective clinical care and treatment solutions across 1,080 inpatient beds, including 700 licensed detoxification beds, 24 standalone outpatient centers, and 4 sober living facilities across 471 beds for a total of 1,551 combined inpatient and sober living beds.

As of March 31, 2019, we operated 9 inpatient substance abuse treatment facilities, 996 inpatient beds, including 616 licensed detoxification beds, 15 standalone outpatient centers, and 4 sober living facilities across 471 beds for a total of 1,467 combined inpatient and sober living beds.

In the fourth quarter of 2018 and continuing into the first quarter of 2019, we took a number of steps to consolidate and divest certain of our markets, as well as reduce corporate staffing and administrative expenses and increase operational efficiency. On December 1, 2018, we ceased operations at our 36-bed sober-living center and outpatient center operations in San Diego, California, consolidating its operations with our Laguna Treatment Hospital. Also, during the fourth quarter of 2018, we announced that we were seeking strategic alternatives for our Louisiana operations, which we subsequently sold with an effective date of January 28, 2019 pursuant to a Membership Interest Purchase Agreement among American Addiction Centers, Inc., Avenues Recovery Center of Louisiana, L.L.C. and certain affiliates of such parties.

In February 2019, we took action to reduce bed count and staffing in our Las Vegas, Nevada market, by consolidating our Solutions Recovery treatment operations into those of our Desert Hope operations. Earlier in 2018, we consolidated our Clinical Services of Rhode Island outpatient centers into AdCare’s Rhode Island outpatient operations. We also consolidated our diagnostic test operations, moving our laboratory operations in Louisiana to Tennessee. During the fourth quarter of 2018 and the first quarter of 2019, we also conducted reductions in force at our corporate headquarters in Brentwood, Tennessee and at certain of our facilities.

In 2018, we acquired AdCare, Inc. (“AdCare”), a 114-bed hospital in Worcester, Massachusetts that also operates five outpatient centers in Massachusetts, as well as a 59-bed residential treatment center and two outpatient centers in Rhode Island. AdCare participates in both Medicare and Medicaid and the acquisition therefore significantly increased our company’s overall participation in governmental payor programs. AdCare was purchased for total consideration of $85.1 million, subject to certain agreed-to adjustments. The purchase price was comprised of (i) approximately $66.8 million in cash, excluding expenses and other adjustments, (ii) approximately $5.4 million in shares of AAC Holdings’ common stock (or 562,051 shares at $9.68 per share), (iii) a promissory note in the aggregate principal amount of approximately $9.6 million (the “AdCare Note”), and (iv) contingent consideration valued at $0.5 million initially recorded in accrued and other current liabilities. We acquired $2.7 million of cash on hand at AdCare, which was returned to the Seller within 60 days of the acquisition as required by the Purchase Agreement. The contingent consideration that can be earned by the Seller ranges from zero to $1.7 million, subject to achievement of a certain adjusted EBITDA target for the 12 months following the transaction closing date.

During the three months ended September 30, 2018 and effective as of July 1, 2018, we made a change to our accounting estimate of the collectability of accounts receivable, specifically relating to accounts where we have received a partial payment from a commercial insurance company and we are continuing to pursue additional collections for the balance that we estimate remains outstanding (“partial payment accounts receivable”). Based on the limited number of claims that were closed through our historical appeals process, information with respect to the ultimate resolution of the appeals of these partial payment accounts receivable has been limited. As a result, initial assumptions of the ultimate collectability rates for partial payment accounts receivable were primarily based on industry and other data. During 2018, to enhance our own collection processes, we began using a third-party vendor to pursue collections on these partial payment accounts receivable. We are using this vendor exclusively for collection of the partial payment accounts receivable. As a result of utilizing the third-party vendor, the number of partial payment claims closed through the appeals process has increased allowing us to rely on our own collection history and additional information obtained from the third-party vendor to estimate ultimate collectability. This recent information indicated that our current assumptions were different from our historical assumptions. We used this additional information to further refine our procedures to more precisely estimate the collectability of partial payment accounts receivable. This change in estimate resulted in a reduction in revenue of approximately $6.0 million, an increase in net loss of approximately $5.7 million, or $0.24 loss per basic and diluted share for the year ended December 31, 2018. We determined this change in assumptions and estimation procedures of the collectability of partial payment accounts receivable is a change in accounting estimate in accordance with Accounting Standards Codification (“ASC”) 250-10 “Accounting Changes and Error Corrections.”

In January 2018, Michael Nanko joined the Company as President & Chief Operating Officer and Andrew McWilliams was promoted to Chief Financial Officer.

In September 2018, Stephen Ebbett joined the Company as Chief Digital & Marketing Officer. Prior to joining the Company, he served as Chief Digital Officer of Assurant, an international, consumer-oriented provider of housing and lifestyle protection products.

Chris Chi became our Chief Legal Officer & General Counsel effective January 1, 2019, succeeding Kathryn Phillips. He previously served as General Counsel of IASIS Healthcare, a national operator of acute care hospitals and managed care plans. Prior to that, he was a mergers and acquisitions and securities law partner at the law firm of Bass, Berry & Sims PLC.

The following table shows the break out of our total bed count between inpatient beds and sober living beds as of March 31, 2019 and December 31, 2018 and 2017, respectively:

On March 8, 2019, we entered into that certain Credit Agreement 2019 Senior Credit Facility with Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto. The 2019 Senior Credit Facility made available to the Company a term loan in the principal amount of $30.0 million. The 2019 Senior Credit Facility will mature on April 15, 2020. Net proceeds from funding of the 2019 Senior Credit Facility were approximately $23 million after the payment of fees, costs and other expenses.

The 2019 Senior Credit Facility is guaranteed by the Company’s wholly-owned subsidiary, American Addiction Centers, Inc., and certain of its other subsidiaries. The obligations are secured by a first priority lien (senior to liens granted in connection with the 2017 Credit Facility) on substantially all of the Company’s and each subsidiary guarantor’s assets.

The 2019 Senior Credit Facility bears interest at a rate per annum equal to LIBOR (with a 1.0% floor) plus 11.00% per annum. In the event of any repayment or prepayment of the 2019 Senior Credit Facility or any acceleration of the 2019 Senior Credit Facility after an event of default, the Company must make a payment equal to 1.00% of the then outstanding principal amount of the 2019 Senior Credit Facility (the “Exit Payment”) if such event occurs on or prior to the date that is nine months after the closing date of the 2019 Senior Credit Facility (the “2019 Senior Credit Facility Closing Date”). The Exit Payment will be increased by an additional 1.0% at the end of each 30-day period after the nine-month anniversary of the 2019 Senior Credit Facility Closing Date until the 2019 Senior Credit Facility matures.

The 2019 Senior Credit Facility requires the Company to prepay outstanding term loans thereunder, subject to certain exceptions, with:

The terms of the 2019 Senior Credit Facility contains certain financial covenants, including, a maximum Senior Secured Leverage Ratio of (i) 7.75:1.00 as of the last day of the fiscal quarter ending June 30, 2019, (ii) 6.50:1.00 as of the last day of the fiscal quarter ending September 30, 2019, (iii) 6.25:1.00 as of the last day of the fiscal quarter ending December 31, 2019, (iv) 5.75:1.00 as of the last day of the fiscal quarter ending March 31, 2020, (v) 5.50:1.00 as of the last day of the fiscal quarter ending June 30, 2020, (vi) 5.25:1.00 as of the last day of the fiscal quarters ending September 30, 2020 and December 31, 2020, (vii) 5.00:1.00 as of the last day of the fiscal quarters ending March 31 and June 30, 2021 and (viii) 4.75:1.00 as of the last day of each fiscal quarter ending on and after December 31, 2020. The 2019 Senior Credit Facility requires the Company to periodically report to lenders with respect to, and to comply with, the Company’s operating budget. The Company is also required to (i) maintain no less than $5.0 million at any time of cash, cash equivalents and undrawn revolving loans under the 2017 Credit Facility (“Available Liquidity”) and (ii) to maintain no less than $7.5 million of Available Liquidity for any calendar week.

In connection with the 2019 Senior Credit Facility, on March 8, 2019, we entered into that certain Amendment and Waiver No. 1 to Credit Agreement (the “Amendment to the 2017 Credit Facility”) together with the required lenders party thereto, Credit Suisse AG, as administrative agent and collateral agent, and the other loan parties party thereto, amending that certain Credit Agreement (the “2017 Credit Facility”), dated as of June 30, 2017, by and among the Company, Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto.

The Amendment to the 2017 Credit Facility increased the interest rate on the term loans outstanding under the 2017 Credit Facility (the “2017 Term Loans”) by, at the Company’s option, either (i) 2.00% per annum (which shall be reduced to 1.00% per annum if the Senior Secured Leverage Ratio Condition is satisfied), payable in cash or (ii) 4.00% per annum, payable-in-kind. The Senior Secured Leverage Ratio condition, as defined in the amendment to the 2017 Credit Facility, is satisfied. In addition, the Amendment to the 2017 Credit Facility increased the commitment fee for the undrawn portion of the revolving credit facility under the 2017 Credit Facility from 0.50% to 1.00% per annum.

If the Company has repaid all indebtedness under the 2019 Senior Credit Facility, the Amendments to the 2017 Credit Facility requires the Company to use net cash proceeds of certain asset sales and other dispositions of property to prepay outstanding term and revolving credit loans. If the 2017 Term Loans are prepaid at any time, the Amendment to the 2017 Credit Facility requires the payment of (i) a 2.00% premium if paid on or prior to the first anniversary of the closing of the Amendment to the 2017 Credit Facility and (ii) a 1.00% premium if paid after the first anniversary but before the second anniversary of the closing of the Amendment to the 2017 Credit Facility.

The Amendment to the 2017 Credit Facility contains financial covenants with respect to the Senior Secured Leverage Ratio (as defined therein) and budgeting and lender reporting covenants that mirror those contained in the 2019 Senior Credit Facility. It also restricts certain Company actions, including certain acquisitions and joint venture arrangements.

On March 1, 2018, in conjunction with the AdCare Acquisition, we secured a $65.0 million incremental term loan commitment under the 2017 Credit Facility. In connection with the incremental term loan, we incurred $2.6 million in deferred financing costs related to underwriting and other professional fees.

On March 1, 2018, and also in conjunction with the AdCare Acquisition, in consideration for covenants and agreements set forth in the Purchase Agreement, we issued the AdCare Note to the Seller in the original principal amount of $9.6 million, which matures on September 29, 2023 and accrues interest at a fixed rate per annum equal to 5.0%, compounded annually. Payments of principal and interest pursuant to the AdCare Note commenced on April 30, 2018 and will continue monthly until the maturity date.

Client Related Revenue. Our client related revenue primarily consists of service charges related to providing addiction treatment and related services, including clinical diagnostic laboratory services. We recognize revenue at the estimated net realizable value in the period in which services are provided. For the years ended December 31, 2018 and 2017, greater than 90% of our client related revenue was reimbursable by commercial payors, including amounts paid by such payors to clients, with the remaining revenue payable directly by our clients.

Given the scale and nationwide reach of our network of substance abuse treatment facilities, we generally have the ability to serve clients located across the country from any of our facilities, which allows us to operate our business and analyze revenue on a system-wide basis rather than focusing on any individual facility. Revenue concentration by payor remains modest. For the years ended December 31, 2018 and 2017, no single payor accounted for more than 10% of our revenue.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“Topic 606”), which outlines a five-step model for recognizing revenue and supersedes most existing revenue recognition guidance, including guidance specific to the healthcare industry. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which we expect to be entitled in exchange for those goods or services. We adopted the standard on January 1, 2018 using the modified retrospective approach. As a result of these new requirements, substantially all of our adjustments related to bad debt are now recorded as a direct reduction to revenue.

The following tables summarize the composition of our client related revenue for inpatient treatment facility services, outpatient facility and sober living services, and client related diagnostic services for the years ended December 31, 2018 and 2017. The selected financial data set forth below for the year ended December 31, 2017, have been restated to reflect adjustments to our previously issued financial statements as more fully discussed in Note 2A, Restatement of Previously Issued Financial Statements and in Note 17, Unaudited Quarterly Information (Restated) included in Item 8 of this Annual Report on Form 10-K. Inpatient treatment facility services include revenues from related professional services. Client related diagnostic services includes revenues from point of care services and laboratory services.

On a comparable accounting basis, as if we had adopted Topic 606 for both periods presented, our client related revenue was as follows (in thousands):

On an as reported basis, client related diagnostic services revenue for the year ended December 31, 2018, decreased 55.0% to $14.6 million compared with $32.5 million for the year ended December 31, 2017. Client related diagnostic services revenue, as a percentage of total client related revenue, was 5.1% for the year ended December 31, 2018 compared to 10.6% for the year ended December 31, 2017.

On a comparable accounting basis, client related diagnostic services revenue for the year ended December 31, 2018 decreased $8.7 million, or 37.4%, to $14.6 million, compared with $23.3 million for the three months ended December 31, 2017.

We recognize client related revenue from payors at the time services are provided based on our estimate of the amount that payors will pay us for the services performed. For in-network contracts, client related revenue is based on previously set contracted rates. We receive the majority of payments from commercial payors at out-of-network rates. We estimate the net realizable value of revenue by adjusting gross client charges using our expected realization and applying this discount to gross client charges. Our

expected realization is determined by management after considering the type of services provided and the historical collections received from commercial payors, on a per facility basis, compared to gross client charges billed.

Our accounts receivable primarily consists of amounts due from commercial payors. We do not recognize revenue for any amounts not collected from the client. We may provide free care to clients, which we refer to as scholarships. We do not recognize revenue for any scholarships that we provide. Included in the aging of accounts receivable are amounts for which the commercial insurance company paid out-of-network claims directly to the client and for which the client has yet to remit the insurance payment to us (which we refer to as “paid to client”). Such amounts paid to clients continue to be reflected in our accounts receivable aging as amounts due from commercial payors. Also included in the aging of accounts receivable are amounts where we have received a partial payment from the commercial insurance company and are continuing to pursue additional collections for the estimated remaining balance outstanding.

Non-Client Related Revenue. Our non-client related revenue primarily consists of charges for diagnostic laboratory services provided to clients of third-party addiction treatment providers, addiction care treatment services for individuals in the criminal justice system and payments by third-party behavioral healthcare providers who use our internet assets to reach potential patients who are seeking treatment. Non-client revenue is recognized at the point in time that the Company satisfies its performance obligations in each service area.

Provision for Doubtful Accounts. Prior to the adoption of Topic 606, the provision for doubtful accounts represented the expense associated with management’s best estimate of accounts receivable that could become uncollectible in the future. We established our provision for doubtful accounts based on the aging of the receivables, historical collection experience by facility, services provided, payor source and historical reimbursement rate, current economic trends and percentages applied to the accounts receivable aging categories.

As a result of the adoption of Topic 606 as of January 1, 2018, substantially all of our adjustments related to collectability are considered implicit variable price concessions and are recorded as a direct reduction to revenue. The only activity that is now recorded in operating expenses is bad debt related to specific customers that experience significant adverse changes in creditworthiness, such as bankruptcies. We recorded $0.4 million of expense related to one such digital outreach platform customer during the year ended December 31, 2018.

In addition, see Note 2A, Restatement of Previously Issued Financial Statements to the Notes to the Consolidated Financial Statements and in Note 17, Unaudited Quarterly Information (Restated) included in Item 8 of this Annual Report on Form 10-K for further information regarding the impact to prior periods.

Approximately $2.2 million and $14.6 million of the accounts receivable, net, at December 31, 2018 and December 31, 2017, respectively, includes accounts where we have received a partial payment from a commercial insurance company and we are continuing to pursue additional collections for the balance that we estimate remains outstanding. An account is written off only after we have pursued collection efforts or otherwise determined an account to be uncollectible.

Operating Expenses. Our operating expenses are primarily impacted by the following categories of expenses:

Key Drivers of Our Results of Operations. Our results of operations and financial condition are affected by numerous factors, including those described under “Risk Factors” and those described below:

The following table presents our consolidated statements of operations as reported (in thousands):

	Year Ended December 31,
	2018						2017 Restated						2016 Restated
	Amount			%			Amount			%			Amount			%
Revenues
Client related revenue	$	284,525			96.2		$	308,538			97.1		$	270,569			96.7
Non-client related revenue		11,238			3.8			9,103			2.9			9,201			3.3
Total revenue		295,763			100.0			317,641			100.0			279,770			100.0

Operating expenses
Salaries, wages and benefits		174,772			59.1			146,390			46.1			141,073			50.4
Client related services		32,747			11.1			27,031			8.5			24,446			8.7
Provision for doubtful accounts		366			0.1			25,932			8.2			38,549			13.8
Advertising and marketing		13,744			4.6			12,315			3.9			18,275			6.5
Professional fees		19,894			6.7			12,638			4.0			16,468			5.9
Other operating expenses		47,716			16.1			36,309			11.4			29,627			10.6
Rentals and leases		10,367			3.5			7,514			2.4			7,363			2.6
Litigation settlement		11,136			3.8			23,607			7.4			1,292			0.5
Depreciation and amortization		21,986			7.4			21,504			6.8			17,686			6.3
Acquisition-related expenses		573			0.2			1,162			0.4			2,691			1.0
Total operating expenses		333,301			112.7			314,402			99.0			297,470			106.3
(Loss) income from operations		(37,538	)		(12.7	)		3,239			1.0			(17,700	)		(6.3	)
Interest expense, net		32,220			10.9			16,811			5.3			8,175			2.9
Loss on extinguishment of debt		—			—			5,435			1.7			—			—
Gain on contingent consideration		(501	)		(0.17	)		—			—			(1,350	)		(0.5	)
Other expense (income), net		465			0.2			116			0.0			(500	)		(0.2	)
Loss before income tax expense		(69,722	)		(23.6	)		(19,123	)		(6.0	)		(24,025	)		(8.6	)
Income tax (benefit) expense		(3,004	)		(1.0	)		(1,742	)		(0.5	)		2,345			0.8
Net loss		(66,718	)		(22.6	)		(17,381	)		(5.5	)		(26,370	)		(9.4	)
Less: net loss attributable to noncontrolling interest		7,314			2.5			4,508			1.4			5,152			1.8
Net loss available to AAC Holdings, Inc. common stockholders	$	(59,404	)		(20.1	)	$	(12,873	)		(4.1	)	$	(21,218	)		(7.6	)

The following table presents our revenues and operating expenses on a comparable accounting basis, as if we had adopted Topic 606 for all periods indicated (in thousands):

	Year Ended
	December 31, 2018						Year Ended December 31, 2017								Increase (Decrease)
	As Reported						As Reported Restated				Comparable Basis Restated				Comparable Basis
	Amount			%			Amount		%		Amount		%		Amount			%
Revenues
Client related revenue	$	284,525			96.2		$	308,538		97.1	$	282,606		96.9	$	1,919			0.7
Non-client related revenue		11,238			3.8			9,103		2.9		9,103		3.1		2,135			23.5
Total revenues		295,763			100.0			317,641		100.0		291,709		100.0		4,054			1.4

Operating expenses
Salaries, wages and benefits		174,772			59.1			146,390		46.1		146,390		50.2		28,382			19.4
Client related services		32,747			11.1			27,031		8.5		27,031		9.3		5,716			21.1
Provision for doubtful accounts		366			0.1			25,932		8.2		—		—		366			—
Advertising and marketing		13,744			4.6			12,315		3.9		12,315		4.2		1,429			11.6
Professional fees		19,894			6.7			12,638		4.0		12,638		4.3		7,256			57.4
Other operating expenses		47,716			16.1			36,309		11.4		36,309		12.4		11,407			31.4
Rentals and leases		10,367			3.5			7,514		2.4		7,514		2.6		2,853			38.0
Litigation settlement		11,136			3.8			23,607		7.4		23,607		8.1		(12,471	)		(52.8	)
Depreciation and amortization		21,986			7.4			21,504		6.8		21,504		7.4		482			2.2
Acquisition-related expenses		573			0.2			1,162		0.4		1,162		0.4		(589	)		(50.7	)
Total operating expenses		333,301			112.7			314,402		99.0		288,470		98.9		44,831			15.5
(Loss) income from operations	$	(37,538	)		(12.7	)	$	3,239		1.0	$	3,239		1.1	$	(40,777	)		(1,258.9	)

Comparison of Year Ended December 31, 2018 to Year Ended December 31, 2017 (Restated)

Inpatient treatment facility services revenue, on an as reported basis, decreased $11.5 million, or 4.6%, to $235.5 million for the year ended December 31, 2018 from $247.0 million for the year ended December 31, 2017.

Inpatient treatment facility services revenue, on a comparable basis, increased $5.0 million, or 2.2%, to $235.5 million for the year ended December 31, 2018 from $230.5 million for the year ended December 31, 2017. On a comparable basis, the increase in inpatient treatment facility services revenue for the year ended December 31, 2018 compared to the year ended December 31, 2017, was primarily due to the AdCare Acquisition. Absent AdCare, on a comparable basis, inpatient treatment facility services revenue decreased 11.7% for the year ended December 31, 2018 compared to the year ended December 31, 2017, primarily due to a decrease in ADC.

Our consolidated ADC increased 108, or 11.1%, to 1,080 for the year ended December 31, 2018 from 972 for the year ended December 31, 2017. The increase in ADC was primarily due to the AdCare Acquisition partially offset by a decrease in ADC as a result of lower call volumes starting in August 2018. Absent AdCare, ADC decreased 2.1% for the year ended December 31, 2018 compared to the year ended December 31, 2017. In August of 2018, Google implemented a broad core algorithm change (the “Google algorithm change”). According to Internet marketing analysts, the Google algorithm change disproportionately negatively affected websites of healthcare and wellness companies, with many such websites becoming lower ranked, resulting in steep drop-offs of website visits. Following the Google algorithm change, our websites experienced lower rankings and decreased visits, resulting in significantly fewer calls to our helpline. We believe that this decline in calls and other potential client interactions resulted in an overall decline of admissions to our facilities, resulting in a lower ADC. Also, partially contributing to the decrease was a reduction in average daily residential revenue.

Outpatient facility and sober living services revenue, on an as reported basis, increased $5.3 million, or 18.3%, to $34.4 million for year ended December 31, 2018 from $29.1 million for the year ended December 31, 2017 as a result of the AdCare Acquisition, which significantly increased the number of outpatient visits but decreased the average revenue per outpatient visit.

Outpatient facility and sober living revenue, on a comparable accounting basis, increased $5.7 million, or 19.8%, to $34.4 million for the year ended December 31, 2018, from $28.7 million for the year ended December 31, 2017. Absent AdCare, on a comparable accounting basis, outpatient facility and sober living revenue decreased 7.5% for the year ended December 31, 2018 as compared to the year ended December 31, 2017, primarily as a result of a decrease in ARV. ARV decreased 50.1% to $198 for the year ended December 31, 2018 compared with $403 for the year ended December 31, 2017. The decrease is primarily related to a higher mix of in-network outpatient visits as a result of the full year impact of Recovery First Outpatient center. Recovery First Outpatient center started operations in Ft. Lauderdale, FL during the third quarter of 2017.

Client related diagnostic services revenue, on an as reported basis, for the year ended December 31, 2018, decreased 55.0% to $14.6 million compared with $32.5 million for the year ended December 31, 2017. Client related diagnostic services, on an as reported basis, was 5.1% of total client related revenue for the year ended December 31, 2018 compared to 10.6% for the year ended December 31, 2017.

Client related diagnostic services revenue, on a comparable accounting basis, decreased $8.7 million, or 37.4% to $14.6 million for the year ended December 31, 2018, from $23.3 million for the year ended December 31, 2017. Client related diagnostic service revenue, on a comparable accounting basis, was 5.1% and 8.3% of total client related revenue for the years ended December 31, 2018 and 2017, respectively.

Non-client related revenue, on an as reported basis, increased $2.1 million, or 23.5%, to $11.2 million for the year ended December 31, 2018 from $9.1 million for the year ended December 31, 2017.

Salaries, wages and benefits, on an as reported basis, increased $28.4 million, or 19.4%, to $174.8 million for the year ended December 31, 2018 from $146.4 million for the year ended December 31, 2017. On an as reported basis, salaries, wages and benefits were 59.1% of total revenue for the year ended December 31, 2018 compared to 46.1% of total revenue for the year ended December 31, 2017. The increase in salaries, wages and benefits was primarily due to the AdCare Acquisition.

On a comparable accounting basis, salaries, wages and benefits were 59.1% of total revenues for the year ended December 31, 2018, compared to 50.2% of total revenues for the year ended December 31, 2017. The increase in salaries, wages and benefits as

a percentage of total revenues, on a comparable basis, was primarily due to reduced revenues. In late 2018 and into the first quarter of 2019, the Company initiated and completed reductions in force in order to better align salaries, wages and benefits costs with ADC.

Client related services expenses, on an as reported basis, increased $5.7 million, or 21.1%, to $32.7 million for the year ended December 31, 2018 from $27.0 million for the year ended December 31, 2017, primarily as a result of the AdCare Acquisition as well as increased medical provider costs, including costs related to physician services. We are currently working to reduce physician services costs by hiring more full-time staff and fewer contracted physicians.

On an as reported basis, client related services expenses were 11.1% of total revenue for the year ended December 31, 2018 compared to 8.5% of total revenue for the year ended December 31, 2017.

On a comparable accounting basis, client related services expense was 11.1% of total revenues for the year ended December 31, 2018, compared to 9.3% of total revenues for the year ended December 31, 2017.

On an as reported basis, due to the change in presentation related to the adoption of Topic 606, the provision for doubtful accounts decreased $25.5 million to $0.4 million for the year ended December 31, 2018 from $25.9 million for the year ended December 31, 2017.

Advertising and marketing expenses, on an as reported basis, increased $1.4 million, or 11.6%, to $13.7 million for the year ended December 31, 2018, from $12.3 million for the year ended December 31, 2017. The increase in advertising and marketing expense was primarily due to the AdCare Acquisition.

On an as reported basis, advertising and marketing expenses were 4.6% of total revenue for the year ended December 31, 2018, compared to 3.9% of total revenue for the year ended December 31, 2017.

On a comparable accounting basis, advertising and marketing expense was 4.6% of total revenues for the year ended December 31, 2018, compared to 4.2% of total revenues for the year ended December 31, 2017.

Professional fees, on an as reported basis, increased $7.3 million, or 57.4%, to $19.9 million for the year ended December 31, 2018 compared to $12.6 million for the year ended December 31, 2017. The increase in professional fees was primarily related to increased legal costs related to certain litigation, government relations and regulatory matters, the AdCare Acquisition and increased costs related to third-party revenue cycle vendors.

On an as reported basis, professional fees were 6.7% of total revenue for the year ended December 31, 2018 compared to 4.0% of total revenue for the year ended December 31, 2017.

On a comparable accounting basis, professional fees were 6.7% of total revenues for the year ended December 31, 2018, compared to 4.3% of total revenues for the year ended December 31, 2017.

Other operating expenses, on an as reported basis, increased $11.4 million, or 31.4%, to $47.7 million for the year ended December 31, 2018 from $36.3 million for the year ended December 31, 2017. The increase in other operating expenses was primarily as a result of the AdCare Acquisition as well as additional recruiting costs for facility and corporate leadership positions.

On an as reported basis, other operating expenses were 16.1% of total revenue for the year ended December 31, 2018 compared to 11.4% of total revenue for the year ended December 31, 2017.

On a comparable accounting basis, other operating expenses were 16.1% of total revenues for the year ended December 31, 2018, compared to 12.4% of total revenues for the year ended December 31, 2017.

Rentals and leases increased $2.9 million, or 38.0%, to $10.4 million for the year ended December 31, 2018 from $7.5 million for the year ended December 31, 2017. An increase in rentals and leases expense was primarily due to the AdCare Acquisition and $0.8 million of one-time costs associated with closing of certain locations during 2018.

Litigation settlement expense was $11.1 million for the year ended December 31, 2018 compared with $23.6 million for the year ended December 31, 2017. For further discussion of 2018 significant legal matters, see Note 15 (Commitments and Contingencies) to the Company’s consolidated financial statements included in this Annual Report on Form 10-K.

Depreciation and amortization expense increased $0.5 million, or 2.2%, to $22.0 million for the year ended December 31, 2018 from $21.5 million for the year ended December 31, 2017. The increase in depreciation and amortization is related to the AdCare acquisition.

Depreciable and amortizable assets were $216.0 million and $177.8 million as of December 31, 2018 and 2017, respectively.

On an as reported basis, depreciation and amortization expense increased to 7.4% of total revenue for the year ended December 31, 2018, compared to 6.8% of total revenue for the year ended December 31, 2017.

Acquisition-related expense decreased $0.6 million, or 50.7%, to $0.6 million for the year ended December 31, 2018 from $1.2 million for the year ended December 31, 2017. The decrease in acquisition-related expense for the year ended December 31, 2018 was primarily related to lower professional fees and travel costs associated with our more limited acquisition activity during the year ended December 31, 2018, as compared to the year ended December 31, 2017, specifically as it pertains to the AdCare Acquisition.

Interest expense increased $15.4 million, or 91.7%, to $32.2 million for the year ended December 31, 2018 compared to $16.8 million for the year ended December 31, 2017. The increase in interest expense was primarily the result of an increase in outstanding debt as part of the 2017 Credit Facility and an increase in interest rates. Outstanding debt at December 31, 2018 was approximately $319.2 million compared to $201.2 million at December 31, 2017. Our weighted average interest rate on outstanding debt at December 31, 2018 was 9.1% compared to 8.1% at December 31, 2017.

On an as reported basis, interest expense was 10.9% of total revenue for the year ended December 31, 2018 compared to 5.3% of total revenue for the year ended December 31, 2017.

There was no loss from extinguishment of debt during the year ended December 31, 2018. Loss on extinguishment of debt was $5.4 million for the year ended December 31, 2017. The $5.4 million loss related to the repayment of the 2015 Credit Facility and the Deerfield Facility, which consisted of a $3.0 million consent fee related to calling the Deerfield Facility (the “Deerfield Consent Fee”), as well as a write-off of $2.3 million of previously deferred debt issuance costs, of which $1.4 million related to the 2015 Credit Facility and $0.9 million related to the Deerfield Facility. The loss was recognized in June 2017.

For the year ended December 31, 2018 income tax benefit was $3.0 million, reflecting an effective tax rate of 4.3%, compared to $1.7 million income tax benefit, reflecting an effective tax rate of 9.1%, for the year ended December 31, 2017. The decrease in income tax benefit and the change in the effective tax rate is primarily related to valuation allowance recorded against federal and state deferred tax assets during the year ended December 31, 2018.

Comparison of Year Ended December 31, 2017 (Restated) to Year Ended December 31, 2016 (Restated)

Inpatient treatment facility services revenue increased $57.5 million, or 30.3%, to $247.0 million for year ended December 31, 2017 from $189.5 million for the year ended December 31, 2016. Inpatient treatment facility services revenue was positively impacted by an increase average daily inpatient revenue as partially offset by a decrease in inpatient ADC.

Our average daily inpatient revenue (“ADR”) increased $240, or 37.9%, to $873 for the year ended December 31, 2017 from $633 for the year ended December 31, 2016. Of the $240 increase in ADR, approximately 22.9% relates to a favorable shift in the service level mix within our inpatient treatment facilities and a favorable shift in the mix of ADC among our inpatient treatment facilities. As a result of planned expansion of outpatient services, a greater percentage of lower levels of care such as partial hospitalization and intensive outpatient services that were historically performed in our inpatient treatment facilities are now performed in our outpatient treatment facilities. As the average daily revenue for these lower levels of care are significantly less than the ADR for higher levels of care such as detoxification and inpatient services, our ADR in our inpatient facilities has increased. We also experienced a favorable shift in the mix of ADC among our inpatient treatment facilities from facilities with lower average reimbursement to facilities with higher average reimbursement. The remaining increase in the ADR primarily relates to improved billing and collections activity as a result of revenue cycle improvements in both processes and technology.

As a result of our increase in sober living bed capacity from 20% to 40% and our reduction in inpatient bed capacity, our inpatient ADC has decreased while our average daily sober living census has increased. Our inpatient bed capacity decreased from 1,140 beds at December 31, 2016 to 939 beds at December 31, 2017, a 17.6% decrease. Also, partially contributing to the decrease in average daily inpatient census was a strike by union employees at our Sunrise House facility that began on May 23, 2017 and ended on June 14, 2017, which resulted in the Sunrise House facility temporarily not serving clients, causing our ADC in June to be lower than our historical average as we did not start readmitting patients until July 5, 2017. Separately, and also contributing to a lower inpatient census, was Hurricane Irma, which affected our River Oaks and Recovery First facilities during September 2017.

Outpatient facility and sober living services revenue increased $12.4 million, or 74.4%, to $29.1 million for year ended December 31, 2017 from $16.7 million for the year ended December 31, 2016 as a result of increases in outpatient visits and the average revenue per outpatient visit.

Outpatient visits increased 46.7% to 72,155 for the year ended December 31, 2017 from 49,173 for the year ended December 31, 2016. Contributing to the increase in outpatient visits was an increase in our average daily sober living census, which increased 91.3% to 197 for the year ended December 31, 2017, up from 103 for the year ended December 31, 2016.

Average revenue per outpatient visit increased 18.9% to $403 for the year ended December 31, 2017 compared with $339 for the year ended December 31, 2016. The increase in average revenue per outpatient visit is the result of a favorable shift in the mix of out-of-network outpatient compared to in-network outpatient visits and improved billing and collections activity as a result of revenue cycle improvements in both processes and technology.

Client related diagnostic services revenue for the year ended December 31, 2017 decreased 49.6% to $32.5 million compared with $64.4 million for the year ended December 31, 2016. Client related diagnostic services revenue as a percentage of total client related revenue was 10.5% for the year ended December 31, 2017 compared to 23.8% for the year ended December 31, 2016. The decrease in client related diagnostic services revenue is a result of previously anticipated lower reimbursements and combined with a shift in the mix of client related diagnostic services from higher reimbursed tests to lower reimbursed tests.

Non-client related revenue decreased $0.1 million, or 1.1%, to $9.1 million for the year ended December 31, 2017 from $9.2 million for the year ended December 31, 2016.

Salaries, wages and benefits increased $5.3 million, or 3.8%, to $146.4 million for the year ended December 31, 2017 from $141.1 million for the year ended December 31, 2016. The increase relates to an increase in severance costs due to certain executive departures as well as the full year effect of the Townsend and Solutions acquisitions. As a percentage of revenue, salaries, wages and benefits were 46.1% of total revenue for the year ended December 31, 2017 compared to 50.4% of total revenue for the year ended December 31, 2016.

Client related services expenses increased $2.6 million, or 10.6%, to $27.0 million for the year ended December 31, 2017 from $24.4 million for the year ended December 31, 2016. The increase in expense was primarily related to the growth in our total ADC to 972 for the year ended December 31, 2017 from 921 for the year ended December 31, 2016. As a percentage of revenue, client related services expenses were 8.5% of total revenue for the year ended December 31, 2017 compared to 8.7% of total revenue for the year ended December 31, 2016.

The provision for doubtful accounts decreased $12.7 million, or 32.7%, to $25.9 million for the year ended December 31, 2017 from $38.6 million for the year ended December 31, 2016. The decrease in the provision for doubtful accounts was primarily related to an improvement in our days sales outstanding (“DSO”). DSO’s decreased 10 days to 101 days as of and for the quarter ended December 31, 2017 compared with 111 days as of and for the quarter ended December 31, 2016. Total cash collections for the year ended December 31, 2017 as compared with total collections for the year ended December 31, 2016, increased by 15.1%, helping to lower our DSOs.

The following table presents a summary of our aging of accounts receivable, net of the allowance for doubtful accounts, as of December 31, 2017 and 2016 (restated):

Advertising and marketing expenses decreased $6.0 million, or 32.6%, to $12.3 million for the year ended December 31, 2017, from $18.3 million for the year ended December 31, 2016. The decrease in advertising and marketing expense was primarily driven by reducing television advertising and focusing on optimizing more efficient and cost-effective advertising platforms, including AAC owned websites. As a percentage of revenue, advertising and marketing expenses were 3.9% of total revenue for the year ended December 31, 2017, compared to 6.5% of total revenue for the year ended December 31, 2016.

Professional fees decreased $3.8 million, or 23.3%, to $12.6 million for the year ended December 31, 2017 compared to $16.5 million for the year ended December 31, 2016. The decrease in professional fees was primarily related to the decrease in fees associated with certain litigation costs in California. As a percentage of revenue, professional fees were 4.0% of total revenue for the year ended December 31, 2017 compared to 5.9% of total revenue for the year ended December 31, 2016.

Other operating expenses increased $6.7 million, or 22.6%, to $36.3 million for the year ended December 31, 2017 from $29.6 million for the year ended December 31, 2016. The increase was primarily the result of additional software expense, increases in professional liability insurance expense, additional medical supplies utilized at our two laboratories, as well as the full year impact of operating expenses associated with our 2016 acquisitions and de novo projects. As a percentage of revenue, other operating expenses were 11.4% of total revenue for the year ended December 31, 2017 compared to 10.6% of total revenue for the year ended December 31, 2016.

Rentals and leases increased $0.2 million, or 2.1%, to $7.5 million for the year ended December 31, 2017 from $7.4 million for the year ended December 31, 2016. As a percentage of revenue, rentals and leases were 2.4% of total revenue for the year ended December 31, 2017 compared to 2.6% of total revenue for the year ended December 31, 2016.

Litigation settlement expense is $23.6 million for the year ended December 31, 2017 compared with $1.3 million for the year ended December 31, 2016. The 2017 litigation settlement expense is due to the Kasper v. AAC Holdings, Inc. et al. matter.

Depreciation and amortization expense increased $3.8 million, or 21.6%, to $21.5 million for the year ended December 31, 2017 from $17.7 million for the year ended December 31, 2016. Depreciable and amortizable assets were $177.8 million and $143.1 million as of December 31, 2017 and 2016, respectively. The increase in depreciation and amortization expense is primarily related to additions of property and equipment, completed de novo projects, and additional software implemented at our corporate headquarters. As a percentage of revenue, depreciation and amortization expense increased to 6.8% of total revenue for the year ended December 31, 2017, compared to 6.3% of total revenue for the year ended December 31, 2016.

Acquisition-related expense decreased $1.5 million, or 56.8%, to $1.2 million for the year ended December 31, 2017 from $2.7 million for the year ended December 31, 2016. The decrease in acquisition-related expense for the year ended December 31, 2017 was primarily related to lower professional fees and travel costs associated with our more limited acquisition activity during the year ended December 31, 2017, as compared to the year ended December 31, 2016, specifically as it pertains to the 2016 acquisitions. As a percentage of revenue, acquisition-related expense was 0.4% of total revenue for the year ended December 31, 2017, compared to 1.0% of total revenue for the year ended December 31, 2016.

Interest expense increased $8.6 million, or 105.6%, to $16.8 million for the year ended December 31, 2017 compared to $8.2 million for the year ended December 31, 2016. The increase in interest expense was primarily the result of an increase in outstanding debt and in interest rates, primarily as a result of the 2017 Credit Facility. Separately, $0.8 million of interest expense relates to a ticking fee associated with $65.0 million of committed financing for the pending acquisition of AdCare. Outstanding debt at December 31, 2017, was approximately $201.2 million compared to $189.1 million at December 31, 2016. Our weighted average interest rate on outstanding debt at December 31, 2017 was 8.1% compared to 5.0% at December 31, 2016. As a percentage of revenue, interest expense was 5.3% of total revenue for the year ended December 31, 2017 compared to 2.9% of total revenue for the year ended December 31, 2016.

Loss on extinguishment of debt was $5.4 million for the year ended December 31, 2017. The $5.4 million loss related to the repayment of the 2015 Credit Facility and the Deerfield Facility, which consisted of a $3.0 million consent fee related to calling the Deerfield Facility (the “Deerfield Consent Fee”), as well as a write-off of $2.3 million of previously deferred debt issuance costs, of which $1.4 million related to the 2015 Credit Facility and $0.9 million related to the Deerfield Facility. The loss was recognized in June 2017. There was no loss from extinguishment of debt during the year ended December 31, 2016.

Gain on contingent consideration was $1.4 million for the year ended December 31, 2016. The gain on contingent consideration is directly attributable to the Townsend acquisition in April 2016, as it pertains to 2016 results against certain performance measures specified in the purchase agreement, which were not met within the specified timeframe. Therefore, no payments were made on our behalf. The consideration that was issued into escrow for the acquisition of Townsend has since been recouped as of December 31, 2017. There was no gain on contingent consideration for the year ended December 31, 2017.

For the year ended December 31, 2017, income tax benefit was $1.7 million, reflecting an effective tax rate of 9.1%, compared to $2.3 million income tax expense, reflecting an effective tax rate of 9.8%, for the year ended December 31, 2016. The decrease in income tax expense and the change in the effective tax rate is primarily related to the tax treatment of stock compensation, change in valuation allowance, and impact of the Tax Cuts and Jobs Act enacted December 22, 2017.

At December 31, 2018, we had $5.4 million in cash and cash equivalents, and $319.2 million of debt outstanding, net of debt issuance costs of $8.1 million. Our primary sources of liquidity are net cash generated from operations, borrowings under our Credit Facilities, anticipated access to debt and capital markets and anticipated proceeds from sale-leaseback transactions. We believe our existing debt agreements provide flexibility for future secured or unsecured borrowings.

We expect that our future funding for working capital needs, capital expenditures, long-term debt repayments and other financing activities will continue to be provided from some or all of these sources. Our future liquidity could be impacted by a

decrease in our net cash generated from operations due to a decrease in payments from commercial insurance companies or a decrease in New Admissions or our ability to access debt and capital markets, which may be restricted as a result of our leverage capacity, existing or future debt agreements, credit ratings and general market conditions.

Refer to NOTE 2 -Basis of Presentation to the consolidated financial statements for additional information.

We anticipate that our current level of cash on hand, internally generated cash flows and borrowings under our Credit Facilities in combination with any access to debt and capital markets and/or anticipated proceeds from sale-leaseback transactions will be sufficient to fund our anticipated working capital needs, debt service and repayment obligations and capital expenditures for at least the next year.

The 2019 Senior Credit Facility $30 million term loan matures on April 15, 2020. Management currently anticipates utilizing the proceeds from anticipated sale-leaseback transactions and/or accessing the debt and capital markets to repay the 2019 Senior Credit Facility. However, there can be no assurances that we will be able to successfully execute sale-leaseback transactions or access debt and capital markets.

Cash used in operating activities was $28.9 million for the year ended December 31, 2018, compared to cash flows from operations of $19.3 million for the year ended December 31, 2017. Cash flows used in operations for the year ended December 31, 2018 was primarily related to payments for litigation settlements, interest payments related to the 2017 Credit Facility, partially offset by a 13.1% increase in cash collections for the year ended December 31, 2018 as compared to the year ended December 31, 2017.

Cash provided by operating activities was $19.3 million for the year ended December 31, 2017, compared to cash used by operations of $0.1 million for the year ended December 31, 2016. Cash flows provided by operations for the year ended December 31, 2017 was primarily related to an increase in income from operations for the year ended December 31, 2017 as compared to the year ended December 31, 2016.

Cash used in investing activities was $84.8 million for the year ended December 31, 2018, an increase of $50.7 million compared to cash used in investing activities of $34.0 million for the year ended December 31, 2017. Cash used in investing activities for the year ended December 31, 2018, was primarily due to the AdCare Acquisition and $18.9 million used for the purchase of property, plant and equipment.

Cash used in investing activities was $34.0 million for the year ended December 31, 2017, a decrease of $22.5 million compared to cash used in investing activities of $56.5 million for the year ended December 31, 2016. Cash used in investing activities for the year ended December 31, 2017 was primarily related to $5.4 million for the acquisition of a 100-room hotel in Arlington, Texas that was converted into sober living beds to be used in support of the Greenhouse Outpatient Center, $6.7 million related to the acquisition of Solutions Treatment Center, $8.9 million related to the Oxford Treatment Center, $3.5 million related to the Ringwood property, $2.2 million related to the development of Laguna Treatment Hospital, with the remaining amount related to continuing costs associated with our expansion projects at existing facilities and other de novo projects.

Cash provided by financing activities was $105.2 million for the year ended December 31, 2018, an increase of $80.6 million compared to cash provided by financing activities of $24.6 million for the year ended December 31, 2017. Cash provided by financing activities for the year ended December 31, 2018 was primarily related to the net proceeds from the $65.0 million incremental term loan in conjunction with the AdCare Acquisition and $52.0 million drawn on our 2017 Revolver, of which $25.0 million related to the settlement of the Tennessee claim, partially offset by scheduled term loan repayments. Refer to Note 8 (Long-Term Debt) for further information regarding the 2017 Credit Facility. Refer to Note 15 for additional information regarding settlement of the Tennessee claim and the Nevada claim.

Cash provided by financing activities was $24.6 million for the year ended December 31, 2017, a decrease of $16.9 million compared to cash provided by financing activities of $41.5 million for the year ended December 31, 2016. Cash provided by financing activities for the year ended December 31, 2017 was primarily related to net proceeds from a 2017 sale-leaseback as well as debt

borrowings and repayments. Refer to Note 8 (Long-Term Debt) for further information regarding the 2017 Credit Facility. Refer to Note 9 (Financing Lease Obligation) for further information regarding the 2017 sale-leaseback.

On March 8, 2019, we entered into the 2019 Senior Credit Facility with Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto. The 2019 Senior Credit Facility makes available to the Company a term loan in the principal amount of $30.0 million. The 2019 Senior Credit Facility will mature on April 15, 2020. Net proceeds from funding of the 2019 Senior Credit Facility were approximately $23 million after the payment of fees, costs and other expenses.

In connection with the 2019 Senior Credit Facility, on March 8, 2019, we entered into the Amendment to the 2017 Credit Facility together with the required lenders party thereto, Credit Suisse AG, as administrative agent and collateral agent, and the other loan parties party thereto, amending that certain Credit Agreement (the “2017 Credit Facility”), dated as of June 30, 2017, by and among the Company, Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto.

The Amendment to the 2017 Credit Facility increased the interest rate on the term loans outstanding under the 2017 Credit Facility (the “2017 Term Loans”) by, at the Company’s option, either (i) 2.00% per annum (which shall be reduced to 1.00% per annum if the Senior Secured Leverage Ratio Condition as defined in the amended 2017 Credit Facility is satisfied), payable in cash or (ii) 4.00% per annum, payable-in-kind. In addition, the Amendment to the 2017 Credit Facility increased the commitment fee for the undrawn portion of the revolving credit facility under the 2017 Credit Facility from 0.50% to 1.00% per annum.

The Amendment to the 2017 Credit Facility amended financial covenants with respect to the Senior Secured Leverage Ratio (as defined therein) and contains budgeting and lender reporting covenants that mirror those contained in the 2019 Senior Credit Facility. It also restricts certain Company actions, including certain acquisitions and joint venture arrangements.

On June 30, 2017, we entered into the 2017 Credit Facility (as defined above) with Credit Suisse AG, as administrative agent for the lenders party thereto. The 2017 Credit Facility initially made available to us the 2017 Term Loan (as defined above) in the aggregate principal amount of $210.0 million and the $40.0 million 2017 Revolver (as defined above). The 2017 Credit Facility also provides for standby letters of credit in an aggregate undrawn amount not to exceed $7.0 million. We incurred approximately $12.9 million in debt issuance costs related to underwriting and other professional fees, of which $7.6 million related to the 2017 Term Loan and $5.3 million related to the 2017 Revolver.

The proceeds of the 2017 Term Loan were used by the Company to (i) prepay all existing indebtedness outstanding under the 2015 Credit Agreement (as defined below) and the Deerfield Facility (as further described below), (ii) to pay transaction costs associated with the foregoing and (iii) for general corporate purposes. The proceeds of the 2017 Revolver drawn at closing were used (i) to pay the Deerfield Consent Fee in full, (ii) to pay transaction costs associated with the foregoing and (iii) for general corporate purposes. Proceeds from any additional borrowings under the 2017 Revolver will be used solely for general corporate purposes.

The 2017 Term Loan matures on June 30, 2023, and the 2017 Revolver matures on June 30, 2022.

On September 25, 2017, we entered into the Incremental Agreement, relating to the 2017 Credit Facility. The Incremental Agreement provided for an increase in our existing revolving line of credit from $40.0 million to $55.0 million. This was entered into in connection with providing financing and debt capacity for operations and the then pending AdCare acquisition.

On October 6, 2017, in conjunction with our pending acquisition of AdCare, we also secured a $65.0 million incremental term loan commitment in conjunction with the 2017 Credit Facility, subject to customary closing conditions and regulatory provisions.

On August 9, 2017, the Company closed on a sale-leaseback transaction with MedEquities Realty Operating Partnership, LP, a subsidiary of MedEquities Realty Trust, Inc. (“MedEquities”), for $25.0 million (the “2017 Sale-Leaseback”), in which MedEquities purchased from subsidiaries of the Company two drug and alcohol rehabilitation outpatient facilities and two sober living facilities: the Desert Hope Facility and Resolutions Las Vegas, each located in Las Vegas, Nevada, and the Greenhouse Facility and Resolutions Arlington, each located in Arlington, Texas (collectively, the “Sale-Leaseback Facilities”).

Simultaneously with the sale of the Sale-Leaseback Facilities, the Company, through its subsidiaries and MedEquities entered into an operating lease, dated August 9, 2017, in which the Company will continue to operate the Sale-Leaseback Facilities. The operating lease provides for a 15-year term for each facility with two separate renewal terms of five years each if the Company chooses to exercise its right to extend the lease term.

The initial annual minimum rent payable from the Company to MedEquities is $2.2 million due in equal monthly installments of $0.2 million. On the first, second and third anniversary of the lease date, the annual rent will increase 1.5% from the annual rent in effect for the immediately preceding year. On the fourth anniversary of the lease date and thereafter during the lease term, the annual rent will increase to the amount equal to the CPI Factor (as defined in the Lease) multiplied by the annual rent in effect for the immediately preceding year; provided, however, that the adjusted annual rent increase will always be between 1.5% and 3.0%.

Due to the nature of the agreement between MedEquities and use and because of our continuing involvement in the Sale-Leaseback Facilities, the transaction does not qualify for sale-leaseback accounting under GAAP. Therefore, the Sale-Leaseback Facilities will remain on our balance sheet and will continue to be depreciated over the remaining life of the asset. We accounted for the $25.0 million of proceeds, less $0.4 million of transaction costs, as a financing obligation, of which $0.1 million was classified as a short-term liability. On a monthly basis, a portion of the payment is allocated to principal, which reduces the obligation balance, and interest, computed based on our incremental borrowing rate.

We have capital leases with third party leasing companies for equipment and office furniture. The capital leases bear interest at rates ranging from 2.7% to 5.8% and have maturity dates through April 2020. Total obligations under capital leases at December 31, 2018 were $0.9 million, of which $0.6 million was included in the current portion of long-term debt. Total obligations under capital leases at December 31, 2017 were $1.0 million, of which $0.7 million was included in the current portion of long-term debt.

The following table sets forth information regarding our contractual obligations as of December 31, 2018:

In connection with the 2019 Senior Credit Facility, on March 8, 2019, the Company entered into the Amendments to the 2017 Credit Facility together with the required lenders party thereto, Credit Suisse AG, as administrative agent and collateral agent, and the other loan parties party thereto, amending that certain Credit Agreement, dated as of June 30, 2017, by and among the Company, Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto.

The 2017 Credit Facility requires the maintenance of a certain coverage ratio in order for the Company to be in compliance with the agreement. As of December 31, 2018, the Company would have been in violation of this covenant absent the amendment. For the aforementioned factors, and in accordance with ASC 470-10-55, due to the uncertainties noted under Going Concern in Note 2 – Basis of Presentation, the Company has classified its obligations related to the 2017 Credit Facility as current liabilities as of December 31, 2018. This reclassification has no impact on the scheduled maturities or the timing of payments related to the debt obligations.

The Professional Groups engage physicians and mid-level service providers to provide professional services to our clients through professional services agreements with each treatment facility. Under the professional services agreements, the Professional Groups also provide a physician to serve as medical director for the applicable facility. The Professional Groups either bill the payor for their services directly or are compensated by the treatment facility based on fair market value hourly rates. Each of the professional services agreements has a term of five years and will automatically renew for additional one-year periods.

We provided the initial working capital funding in connection with the formation of the Professional Groups and recorded the balance as a receivable on our balance sheet. We make additional advances to the Professional Groups during periods in which there is a shortfall between revenue collected by the Professional Groups from the treatment facilities and payors, on the one hand, and the Professional Group’s contracting expenses and payroll requirements, on the other hand, thereby increasing the balance of the receivable. Excess cash flow of the Professional Groups is repaid to us, resulting in a decrease in the receivable. The Professional Groups are obligated to repay these funds and are charged interest at commercially reasonable rates. We had receivables from the Professional Groups at December 31, 2018. The receivables due to us from the Professional Groups are eliminated in consolidation as the Professional Groups are VIEs of which we are the primary beneficiary.

The Company has entered into written management services agreements with each of the Professional Groups under which the Company provides management and other administrative services to the Professional Groups. These services include billing, collection of accounts receivable, accounting, management and human resource functions. Pursuant to the management services agreements, the Professional Groups’ monthly revenue will first be applied to the payment of operating expenses consisting of refunds or rebates owed to clients or payors, compensation expenses of the physicians and other service providers, lease payments, professional and liability insurance premiums and any other costs or expenses incurred by the Company for the benefit of the Professional Groups and, thereafter, to the payment to the Company of a management fee equal to 20% of the Professional Groups’ gross collected monthly revenue. As described above, the Company also provides financial support to each Professional Group on an as-needed basis to cover any shortfall between revenue collected by such Professional Groups from the treatment facilities and payors and the Professional Group’s contracting expenses and payroll requirements. Through these arrangements, we are directing the activities that most significantly impact the financial results of the respective Professional Groups; however, treatment decisions

are made solely by licensed healthcare professionals employed or engaged by the Professional Groups as required by various state laws. Based on our ability to direct the activities that most significantly impact the financial results of the Professional Groups, provide necessary funding and the obligation and likelihood of absorbing all expected gains and losses, we have determined that we are the primary beneficiary, and, therefore, consolidate the seven Professional Groups as VIEs.

We have entered into various non-cancelable operating leases expiring through June 2025. Commercial properties under operating leases primarily include space required to perform client services, sober living accommodations for our clients and space for administrative facilities. Rent expense was $10.4 million and $7.5 million for the years ended December 31, 2018 and 2017, respectively.

Our consolidated financial statements have been prepared in accordance with GAAP. In preparing our consolidated financial statements, we are required to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses included in the financial statements. Estimates are based on historical experience and other available information, the results of which form the basis of such estimates. While we believe our estimation processes are reasonable, actual results could differ from our estimates. The following accounting policies are considered critical to our operating performance and involve subjective and complex assumptions and assessments.

Refer to Note 3 to the consolidated financial statements for additional information regarding the Company’s adoption of Topic 606.

We provide services to our clients in both inpatient and outpatient treatment settings. Revenue is recognized when services are performed at the estimated net realizable value amount from clients, third-party payors and others for services provided. We receive the majority of payments from commercial payors at out-of-network rates. Client service revenue is recorded at established billing rates less adjustments to estimate net realizable value. Adjustments are recorded to state client service revenue at the amount expected to be collected for the service provided based on historic adjustments for out-of-network services not under contract. Provisions for estimated third party payor reimbursements are provided in the period related services are rendered and adjusted in future periods when actual reimbursements are received.

Prior to admission, insurance coverage, as applicable, is verified and the client self-pay amount is determined. The client self-pay portion is generally collected upon admission. In some instances, clients will pay out-of-pocket as services are provided or will make a deposit and negotiate the remaining payments. These prepaid out-of-pocket payments are included in accrued liabilities in the accompanying consolidated balance sheets and revenue related to these payments is deferred and recognized over the period services are provided. We do not recognize revenue for any amounts not collected from the client. We may provide scholarships to a limited number of clients. We do not recognize revenue for scholarships provided.

We recognize revenue from commercial payors at the time services are provided based on our estimate of the amount that payors will pay us for the services performed. We estimate the net realizable value of revenue by adjusting gross client charges using our expected realization and applying this discount to gross client charges. Our methodology related to our net realizable value is designed to react to potential changes in reimbursements by facility, by type of service and by payor. Management adjusts the expected realization discount, on a per facility basis, to reflect a historical analysis of reimbursement data by facility in addition to considering the type of services provided, the payors and the gross client charge rates by facility. Subsequent to the year ended December 31, 2018 and as part of the preparation of our year-end financial statements, we used recently developed financial database analytical tools, in order to analyze cash collection trends for historical and prospective periods relating to our accounts receivable and allowance for doubtful accounts which resulted in more precise estimates being utilized beginning with the fourth quarter of 2018. See Note 2A, Restatement of Previously Issued Financial Statements to the Notes to the Consolidated Financial Statements and in Note 17, Unaudited Quarterly Information (Restated) included in Item 8 of this Annual Report on Form 10-K for further information regarding the impact to prior periods.

by third-party behavioral healthcare providers who use our digital outreach platforms. Non-client revenue is recognized at the point in time that the Company satisfies its performance obligations in each service area.

Accounts receivable primarily consist of amounts due from third-party commercial payors and clients and are recorded net of contractual discounts. Our ability to collect outstanding receivables is critical to our results of operations and cash flows. Prior to the adoption of Topic 606 on January 1, 2018, accounts receivable are reported net of the allowance for doubtful accounts, which is management’s best estimate of accounts receivable that could become uncollectible in the future. Accordingly, the accounts receivable reported in our consolidated financial statements are recorded at the net amount expected to be received. Our primary collection risks are (i) the risk of overestimating our net revenue at the time of billing that may result in us receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) the risk that clients will fail to remit insurance payments to us when the commercial insurance company pays out-of-network claims directly to the client, (iv) resource and capacity constraints that may prevent us from handling the volume of billing and collection issues in a timely manner and (v) the risk of non-payment from uninsured clients. In evaluating the collectability of accounts receivable and evaluating the adequacy of our allowance for doubtful accounts, management considers a number of factors, including historical experience, the age of the accounts and current economic trends. We continually monitor our accounts receivable balances and utilize retrospective reviews and cash collection data to support our estimates of the allowance for doubtful accounts.

Subsequent to the year ended December 31, 2018 and as part of the preparation of our year-end financial statements, we used recently developed financial database analytical tools, in order to analyze cash collection trends for historical and prospective periods relating to our accounts receivable and allowance for doubtful accounts which resulted in more precise estimates being utilized beginning with the fourth quarter of 2018. See Note 2A - Restatement of Previously Issued Financial Statements to the Notes to the Consolidated Financial Statements and in Note 17, Unaudited Quarterly Information (Restated) included in Item 8 of this Annual Report on Form 10-K for further information regarding the impact to prior periods.

If actual future collections are less favorable than those projected by management, additional allowances for uncollectible accounts may be required. There can be no guarantee that we will continue to experience the same collection rates that we have experienced in the past. We do not believe that there are any significant concentrations of revenue from any particular payor that would subject us to significant credit risks in the event a payor becomes unwilling or unable to pay claims.

Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired. Goodwill and intangible assets with indefinite lives are not amortized, but instead tested for impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. We have no intangible assets with indefinite useful lives other than goodwill. We consider the following to be important factors that could trigger an impairment review: significant underperformance relative to historical or projected future operating results; identification of other impaired assets within a reporting unit; significant adverse changes in business climate or regulations; significant changes in senior management; significant changes in the manner of use of the acquired assets or the strategy for our overall business; and significant negative industry or economic trends.

In 2017, the Financial Accounting Standards Board issued Accounting Standard Update 2017-04, “Simplifying the Test for Goodwill Impairment” which eliminates the previous requirement to calculate the implied fair value of goodwill to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value. Goodwill is assessed for impairment using a fair value approach at the reporting unit level.

In assessing the recoverability of goodwill, we consider historical results, current operating trends and results, and make estimates and assumptions about revenue, margins and discount rates based on our budgets, business plans, economic projections and anticipated future cash flows. Each of these factors contains inherent uncertainties, and management exercises substantial judgment and discretion in evaluating and applying these factors.

There was no goodwill impairment recorded during the years ended December 31, 2018, 2017 or 2016. See Note 7 – Goodwill and Intangible Assets to the Notes to the Consolidated Financial Statements for further discussion.

We account for income taxes in accordance with ASC 740, Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are

measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

Under ASC 740, the effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such assets will not be recovered.

Our practice is to recognize interest and/or penalties related to uncertain income tax positions in income tax expense.

We measure compensation expense for all stock-based awards at fair value on the date of grant and recognize compensation expense over the service period for the awards expected to vest.

In July 2014, the Company entered into two interest rate swap agreements to mitigate its exposure to fluctuations in interest rates. On June 29, 2017, the Company terminated the interest rate swap agreements. The fair value of the interest rate swap agreements as of December 31, 2016 represented a liability of $0.3 million. Refer to Note 13 (Fair Value of Financial Instruments) for further discussion of fair value of the interest rate swap agreements.

Prior to terminating the interest rate swap agreements on June 29, 2017, the interest rate swap agreements had notional amounts of $7.2 million and $10.5 million which fixed the interest rates over the life of the respective swap agreement at 4.21% and 4.73%, and were set to mature in May 2018 and August 2019, respectively. The notional amounts of the swap agreements represented amounts used to calculate the exchange of cash flows and were not the Company’s assets or liabilities. The interest payments under these agreements were to be settled on a net basis. The Company did not designate the interest rate swaps as cash flow hedges, and therefore, the changes in the fair value of the interest rate swaps are included within interest expense in the consolidated statements of operations.

Our interest expense is sensitive to changes in market interest rates. With respect to our interest-bearing liabilities, our long-term debt outstanding at December 31, 2018 consisted of $317.5 million of variable rate debt with interest based on LIBOR plus an applicable margin. A hypothetical 1.0% increase in interest rates would decrease our pre-tax income and cash flows by approximately $3.2 million on an annual basis based upon our borrowing level at December 31, 2018.

Information with respect to this Item is contained in our consolidated financial statements beginning on Page F-1 of this Annual Report on Form 10-K.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

As previously reported in the Company’s Current Report on Form 8-K filed on March 29, 2019 with the SEC, on March 29, 2019, the Company, the Audit Committee and the Company’s executive management, in consultation with BDO, concluded that the Company’s previously issued annual financial statements included in the Company’s Annual Report on Form 10-K for the years ended December 31, 2017 and 2016 and the unaudited financial statements included in the Company’s quarterly reports on Form 10-Q for the quarters ended September 30, 2018 and 2017, June 30, 2018 and 2017, and March 31, 2018 and 2017, must be restated to properly reflect accounts receivable balances and revenue for periods in 2018 and for periods prior to 2018, the provision for doubtful accounts as well as the related income tax effects. Accordingly, the Company has restated its previously issued financial statements for those periods. See “Part II—Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Background of the Restatement” and Note 2A - Restatement of Previously Issued Financial Statements of the Notes to Consolidated Financial Statements and in Note 17, Unaudited Quarterly Information (Restated) included in Item 8 of this Annual Report on Form 10-K included in “Part II—Item 8. Financial Statements and Supplementary Data”.

Under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), as of December 31, 2018. The Company’s evaluation has identified a material weakness in its internal control over financial reporting as noted below in Management’s Report on Internal Control over Financial Reporting. Based on the evaluation of this material weakness, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2018 to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods

specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures. Based on a number of factors including our internal review that identified restatements to our previously issued financial statements, and efforts to remediate the material weakness in internal control over financial reporting described below, we believe the consolidated financial statements in this Annual Report on Form 10-K fairly present, in all material respects, our financial position, results of operations and cash flows as of the dates, and for the periods, presented, in conformity with GAAP.

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements for external purposes in accordance with GAAP and includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. This Annual Report on Form 10-K does not include an attestation report from our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit emerging growth companies, which we are, to provide only management's report in this Annual Report on Form 10-K.

Under the supervision of and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). A material weakness is a control deficiency, or combination of control deficiencies, such that there is a reasonable possibility that a material misstatement to the annual or interim financial statements will not be prevented or detected on a timely basis. Based upon that evaluation, management identified the following material weakness as of December 31, 2018 in the Company’s internal control over financial reporting, principally related to the Company’s estimation of revenue and accounts receivable processes. The Company did not have effective controls to ensure the accuracy of its estimation of provision for doubtful accounts, revenue and accounts receivable.

This material weakness resulted in the misstatement and audit adjustments of financial statement line items and related financial disclosures, as disclosed in Note 2A, Restatement of Previously Issued Financial Statements of the Notes to Consolidated Financial Statements included in “Part II—Item 8. Financial Statements and Supplementary Data”.

As a result of the material weakness in internal control over financial reporting described above, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2018 based on the criteria in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

There have been no changes in our internal control over financial reporting during the fourth quarter ended December 31, 2018, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

Plan for Remediation of the Material Weakness in Internal Control Over Financial Reporting

The Audit Committee has directed management to develop a detailed plan and timetable for the implementation of measures designed to remediate the identified material weakness and other areas of related risks. The Audit Committee will monitor the design and implementation of these remedial measures. In addition, under the oversight of the Audit Committee, the Company’s management will continue to review and make necessary changes to the overall design of the Company’s internal control environment, as well as policies and procedures to improve the overall effectiveness of internal control over financial reporting.

As of the date of this Annual Report on Form 10-K, the Company’s management has commenced the design of remediation efforts that are intended both to address the identified material weakness and to enhance the Company’s overall financial control environment. These remediation efforts include the evaluation of collectability of accounts receivable and the appropriateness of the allowance for doubtful accounts, which include re-evaluating all accounting and financial reporting controls for revenue and accounts receivable.

Management is committed to the continuous improvement of the Company’s internal control processes and will continue to diligently review the Company’s financial reporting controls and procedures. As management continues to evaluate and work to

improve internal control over financial reporting, the Company may determine to take additional measures to address control deficiencies or determine to modify, or in appropriate circumstances not to complete, certain of the to-be-implemented remediation measures.

On April 5, 2019, AAC Holdings, Inc. (the “Company”) entered into that certain Amendment No. 1 to Credit Agreement (the “Amendment”) together with the required lenders party thereto, Credit Suisse AG, as administrative agent and collateral agent, and the other loan parties party thereto, amending that certain Credit Agreement (the “Credit Agreement”) by and among the Company, Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto. Pursuant to the terms of the Amendment, the maturity date of the term loan governed by the Credit Agreement has been extended from March 31, 2020 to April 15, 2020. The Credit Agreement has not otherwise been modified. The above discussion is qualified in its entirety by reference to the terms of the Amendment, a copy of which has been filed as Exhibit 10.23 to this Annual Report, which are incorporated herein by reference.

The information required by this Item will be presented in, and is incorporated herein by reference to, the Company’s Definitive Proxy Statement for the 2019 Annual Meeting of Shareholders which will be filed with the SEC within 120 days of December 31, 2018.

The information required by this Item will be presented in, and is incorporated herein by reference to, the Company’s Definitive Proxy Statement for the 2019 Annual Meeting of Shareholders which will be files with the SEC within 120 days of December 31, 2018.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required by this Item will be presented in and is incorporated herein by reference to the Company’s Definitive Proxy Statement for the 2019 Annual Meeting of Shareholder’s which will be filed with the SEC within 120 days of December 31, 2018.

Item 13. Certain Relationships and Related Transactions, and Director Independence

(a) The following documents are filed as part of this Annual Report on Form 10-K:

The consolidated financial statements required to be included in “Part II — Item 8. Financial Statements and Supplementary Data”, begin on Page F-1 and are submitted as a separate section of this report.

All schedules are omitted because they are not applicable or are not required, or because the required information is included in the consolidated financial statements or notes in this report.

The exhibits required by Item 601 of Regulation S-K, except as otherwise noted, have been filed with previous reports by the Company and are incorporated by reference herein.

We have audited the accompanying consolidated balance sheets of AAC Holdings, Inc. (the “Company”) and subsidiaries as of December 31, 2018 and 2017, the related consolidated statements of operations, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and subsidiaries at December 31, 2018 and 2017, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has incurred a loss from operations and negative cash flows from operations that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As discussed in Note 2A to the consolidated financial statements, the 2017 and 2016 consolidated financial statements have been restated to correct a misstatement.

As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for revenue recognition in 2018 due to the adoption of Accounting Standard Update 2014-09, Revenue from Contracts with Customers (Topic 606).

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

	Year Ended December 31,
	2018			2017 Restated			2016 Restated
Revenues
Client related revenue	$	284,525		$	308,538		$	270,569
Non-client related revenue		11,238			9,103			9,201
Total revenues		295,763			317,641			279,770

Operating expenses
Salaries, wages and benefits		174,772			146,390			141,073
Client related services		32,747			27,031			24,446
Provision for doubtful accounts		366			25,932			38,549
Advertising and marketing		13,744			12,315			18,275
Professional fees		19,894			12,638			16,468
Other operating expenses		47,716			36,309			29,627
Rentals and leases		10,367			7,514			7,363
Litigation settlement		11,136			23,607			1,292
Depreciation and amortization		21,986			21,504			17,686
Acquisition-related expenses		573			1,162			2,691
Total operating expenses		333,301			314,402			297,470
(Loss) income from operations		(37,538	)		3,239			(17,700	)
Interest expense, net (including change in fair value of interest rate swaps of $0, ($108), and ($180), respectively)		32,220			16,811			8,175
Loss on extinguishment of debt		—			5,435			—
Gain on contingent consideration		(501	)		—			(1,350	)
Other (income) expense, net		465			116			(500	)
Loss before income tax expense		(69,722	)		(19,123	)		(24,025	)
Income tax (benefit) expense		(3,004	)		(1,742	)		2,345
Net loss		(66,718	)		(17,381	)		(26,370	)
Less: net loss attributable to noncontrolling interest		7,314			4,508			5,152
Net loss attributable to AAC Holdings, Inc. common stockholders	$	(59,404	)	$	(12,873	)	$	(21,218	)

Basic loss per common share	$	(2.47	)	$	(0.55	)	$	(0.93	)
Diluted loss per common share	$	(2.47	)	$	(0.55	)	$	(0.93	)
Weighted-average common shares outstanding:
Basic		24,090,639			23,277,444			22,718,117
Diluted		24,090,639			23,277,444			22,718,117

	As of December 31,
	2018			2017 Restated
Assets
Current assets
Cash and cash equivalents	$	5,409		$	13,818
Accounts receivable, net of allowances		47,860			63,746
Prepaid expenses and other current assets		10,695			4,022
Total current assets		63,964			81,586
Property and equipment, net		166,921			152,548
Goodwill		198,952			134,396
Intangible assets, net		12,063			8,829
Deferred tax assets, net		-			1,650
Other assets		10,377			12,556
Total assets	$	452,277		$	391,565

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	13,507		$	4,579
Accrued and other current liabilities		30,544			27,661
Accrued litigation		8,000			23,607
Current portion of long-term debt		309,394			4,722
Total current liabilities		361,445			60,569
Deferred tax liabilities		1,227			-
Long-term debt, net of current portion and debt issuance costs		9,764			196,451
Financing lease obligation, net of current portion		24,421			24,541
Other long-term liabilities		13,147			10,546
Total liabilities		410,004			292,107

Stockholders’ equity
Common stock, $0.001 par value: 70,000,000 shares authorized, 24,573,679 and 23,872,436 shares issued and outstanding at December 31, 2018 and 2017, respectively		25			24
Additional paid-in capital		161,962			152,430
Retained deficit		(97,574	)		(38,170	)
Total stockholders’ equity		64,413			114,284
Noncontrolling interest		(22,140	)		(14,826	)
Total stockholders’ equity including noncontrolling interest		42,273			99,458
Total liabilities and stockholders’ equity	$	452,277		$	391,565

	Common Stock –											Total
	AAC Holdings, Inc.					Additional			Retained			Stockholders’			Non-			Total
	Shares					Paid-in			(Deficit)			Equity of			Controlling			Stockholders’
	Outstanding			Amount		Capital			Earnings			AAC Holdings, Inc.			Interests			Equity
Balance at December 31, 2015, as reported		22,813,809		$	23	$	121,923		$	19,708		$	141,654		$	(5,166	)	$	136,488
Cumulative effect of restatement on prior years (see Note 2A)		—			—		—			(23,787	)		(23,787	)		—			(23,787	)
Balance at December 31, 2015, restated		22,813,809		$	23	$	121,923		$	(4,079	)	$	117,867		$	(5,166	)	$	112,701
Common stock granted and issued under stock incentive plan, net of forfeitures		106,663			—		8,823			—			8,823			—			8,823
Common stock withheld for minimum statutory taxes		(65,089	)		—		(895	)		—			(895	)		—			(895	)
Effect of employee stock purchase plan		44,174			—		682			—			682			—			682
Townsend Acquisition		447,369			1		9,112			—			9,113			—			9,113
Solutions Acquisition		309,871			—		6,318			—			6,318			—			6,318
Acquisition of marketing intangibles		17,110			—		—			—			—			—			—
Net loss, restated		—			—		—			(21,218	)		(21,218	)		(5,152	)		(26,370	)
Balance at December 31, 2016, restated		23,673,907		$	24	$	145,963		$	(25,297	)	$	120,690		$	(10,318	)	$	110,372
Common stock granted and issued under stock incentive plan, net of forfeitures		229,958			—		7,513			—			7,513			—			7,513
Common stock withheld for minimum statutory taxes		(76,385	)		—		(660	)		—			(660	)		—			(660	)
Effect of employee stock purchase plan		97,589			—		614			—			614			—			614
Common stock recouped from escrow for contingent consideration on acquisition		(52,633	)		—		(1,000	)		—			(1,000	)		—			(1,000	)
Net loss, restated		—			—		—			(12,873	)		(12,873	)		(4,508	)		(17,381	)
Balance at December 31, 2017, restated		23,872,436		$	24	$	152,430		$	(38,170	)	$	114,284		$	(14,826	)	$	99,458
Common stock granted and issued under stock incentive plan, net of forfeitures		119,785			—		3,877			—			3,877			—			3,877
Common stock withheld for minimum statutory taxes		(28,989	)		—		(166	)		—			(166	)		—			(166	)
Effect of employee stock purchase plan		48,396			—		383			—			383			—			383
Common stock issued upon acquisition of AdCare, Inc.		562,051			1		5,438			—			5,439			—			5,439
Net loss		—			—		—			(59,404	)		(59,404	)		(7,314	)		(66,718	)
Balance at December 31, 2018		24,573,679		$	25	$	161,962		$	(97,574	)	$	64,413		$	(22,140	)	$	42,273

	Year Ended December 31,
	2018			2017 Restated			2016 Restated
Cash flows from operating activities:
Net loss	$	(66,718	)	$	(17,381	)	$	(26,370	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts		366			25,932			38,549
Depreciation and amortization		21,986			21,504			17,686
Equity compensation		3,877			7,513			8,823
Loss on disposal of property and equipment		1,007			55			163
Loss on extinguishment of debt		-			5,435			-
Gain on contingent consideration		(501	)		-			(1,350	)
Amortization of debt issuance costs		2,797			1,564			633
Deferred income taxes		2,878			(4,136	)		1,772
Changes in operating assets and liabilities:
Accounts receivable		19,876			(43,676	)		(45,838	)
Prepaid expenses and other assets		(5,578	)		(6,725	)		2,510
Accounts payable		5,737			(4,576	)		824
Accrued and other current liabilities		1,780			4,685			2,973
Accrued litigation		(15,607	)		22,645			162
Other long-term liabilities		(754	)		6,453			(394	)
Net cash (used in) provided by operating activities		(28,854	)		19,292			143
Cash flows from investing activities:
Purchase of property and equipment		(18,949	)		(33,041	)		(37,304	)
Acquisition of subsidiaries		(65,827	)		-			(18,825	)
Change in funds held on acquisition		-			(1,000	)		(325	)
Net cash used in investing activities		(84,776	)		(34,041	)		(56,454	)
Cash flows from financing activities:
Payments on 2015 Credit Facility and Deerfield Facility		-			(211,094	)		(5,376	)
Proceeds from 2015 Credit Facility and Deerfield Facility, net of deferred financing costs		-			18,000			48,930
Payments on 2017 Credit Facility		(6,896	)		(17,126	)		-
Proceeds from 2017 Credit Facility, net of deferred financing costs		114,286			211,073			-
Proceeds from financing lease obligation, net of deferred financing costs		-			24,621			-
Payments on capital leases and other		(798	)		(791	)		(834	)
Payments on AdCare Note		(750	)		-			-
Repayment of long-term debt — related party		-			-			(1,195	)
Change in funds held on acquisition		-			1,000			-
Payment of employee taxes for net share settlement		(621	)		(1,080	)		-
Net cash provided by financing activities		105,221			24,603			41,525
Net change in cash and cash equivalents		(8,409	)		9,854			(14,786	)
Cash and cash equivalents, beginning of period		13,818			3,964			18,750
Cash and cash equivalents, end of period	$	5,409		$	13,818		$	3,964

	Year Ended December 31,
	2018			2017 Restated			2016 Restated
Supplemental disclosures of cash flow information:
Cash and cash equivalents paid for:
Interest, net of capitalized interest	$	31,894		$	16,088		$	4,933
Income taxes, net of refunds	$	968		$	367		$	2,626

Supplemental information on non-cash investing and financing transactions:
2018 Acquisition:
Purchase price, including contingent consideration	$	85,103		$	—		$	—
Buyer common stock issued		(5,439	)		—			—
Contingent consideration		(501	)		—			—
Promissory note issued		(9,636	)		—			—
Cash acquired		(2,700	)		—			—
Change in funds held on acquisition		(1,000	)		—			—
Cash paid for acquisition	$	65,827		$	—		$	—
2016 Acquisitions:
Purchase price, including contingent consideration	$	—		$	(2,000	)	$	33,930
Buyer common stock received (issued)		—			1,000			(15,105	)
Cash (received) paid for acquisition	$	—		$	(1,000	)	$	18,825

Acquisition of equipment through capital lease	$	975		$	82		$	1,807
Accrued purchase of property and equipment	$	1,208		$	800		$	2,650
Accrued employee taxes for net share settlement	$	14		$	475		$	895

AAC Holdings, Inc. (collectively with its subsidiaries, the “Company”), was incorporated on February 12, 2014. The Company is headquartered in Brentwood, Tennessee and provides inpatient and outpatient substance use treatment services for individuals with drug and alcohol addiction. In addition to the Company’s inpatient and outpatient substance use treatment services, the Company performs drug testing, diagnostic laboratory services, and provides physician services to clients. The Company operates numerous facilities located throughout the United States, including inpatient substance abuse treatment facilities, standalone outpatient centers and sober living facilities that focused on delivering effective clinical care and treatment solutions.

The Company conducts its business through limited liability companies and C-corporations, each of which is a direct or indirect wholly owned subsidiary of the Company. The accompanying consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and the accounts of variable interest entities (“VIEs”) in which the Company is the primary beneficiary, which include certain professional groups through rights granted to the Company by contract to manage and control the business of such professional groups. All intercompany transactions and balances have been eliminated in consolidation.

The Company consolidated seven professional groups (“Professional Groups”) that constituted VIEs as of December 31, 2018 and 2017. The Professional Groups are responsible for the supervision and delivery of medical services to the Company’s clients. The Company provides management services to the Professional Groups. Based on the Company’s ability to direct the activities that most significantly impact the economic performance of the Professional Groups, provide necessary funding to the Professional Groups and the obligation and likelihood of absorbing all expected gains and losses of the Professional Groups, the Company has determined that it is the primary beneficiary of these Professional Groups.

The accompanying consolidated balance sheets include assets of $1.5 million and $2.1 million as of December 31, 2018 and 2017, respectively, and liabilities of $0.6 million and $0.4 million, respectively, related to the VIEs. The accompanying consolidated income statements include net loss attributable to noncontrolling interest of $7.3 million, $4.5 million and $5.2 million related to the VIEs for the years ended December 31, 2018, 2017 and 2016, respectively.

The accompanying consolidated financial statements have been prepared in accordance with GAAP. 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.

During the three months ended September 30, 2018 and effective as of July 1, 2018, the Company made a change in its accounting estimate of the collectability of accounts receivable, specifically relating to accounts where the Company has received a partial payment from a commercial insurance company and the Company is continuing to pursue additional collections for the balance that the Company estimates remains outstanding (“partial payment accounts receivable”). Based on the limited number of claims that were closed through the Company’s historical appeals process, information with respect to the ultimate resolution of the appeals of these partial payment accounts receivable has been limited. As a result, initial assumptions of the ultimate collectability rates for partial payment accounts receivable were primarily based on industry and other data. During 2018, to enhance the Company’s own collection processes, the Company began using a third-party vendor to pursue collections on these partial payment accounts receivable. As of December 31, 2018, the Company is using this vendor exclusively for collection of the partial payment accounts receivable. As a result of utilizing the third-party vendor, the number of partial payment claims closed through the appeals process has increased allowing the Company to rely on its own collection history and additional information obtained from the third party vendor to estimate ultimate collectability. This recent information indicated that the Company’s current assumptions were different from its historical assumptions. The Company used this additional information to further refine its procedures to more precisely estimate the collectability of partial payment accounts receivable. This change in estimate resulted in a reduction in revenue of approximately $6.0 million, an increase in net loss of approximately $5.7 million, or $0.24 loss per basic and diluted share for year ended December 31, 2018. The Company determined this change in assumptions and estimation procedures of the collectability of partial payment accounts receivable is a change in accounting estimate in accordance with Accounting Standards Codification (“ASC”) 250-10 “Accounting Changes and Error Corrections.”

The Company incurred a loss from operations and had negative cash flows from operations for the year ended December 31, 2018, which contributed to limited liquidity at December 31, 2018. This resulted primarily from declines in patient census during the third and fourth quarters of 2018. The Company’s revenue is directly impacted by its ability to maintain census, which is dependent on a variety of factors, many of which are outside of the Company’s control, including its referral relationships, average length of stay of its clients, the extent to which third-party payors require preadmission authorization or utilization review controls, competition in the industry, the effectiveness of the Company’s multi-faceted sales and marketing strategy and the individual decisions of the Company’s clients to seek and commit to treatment. On March 8, 2019 the Company entered into an incremental senior credit facility for a principal loan of $30 million which originally matured on March 31, 2020 and was subsequently amended to mature on April 15, 2020.

The uncertainties associated with the factors described above raise substantial doubt about the Company's ability to continue as a going concern. In order for the Company to continue operations beyond the next twelve months and to be able to discharge its liabilities and commitments in the normal course of business, the Company must do some or all of the following: (i) improve operating results by increasing census while maintaining efficiency regarding operating expenses through the cost savings initiatives implemented in late 2018 and early 2019; (ii) execute strategic alternatives related to the Company’s real-estate portfolio which could include further sale leasebacks of individual facilities or larger portions of the company’s real estate portfolio (iii) sell additional non-core or non-essential assets; and/or (iv) obtain additional financing. There can be no assurance that the Company will be able to achieve any or all of the foregoing.

The consolidated financial statements were prepared on a going concern basis in accordance with U.S. GAAP. The going concern basis of presentation assumes that the Company will continue in operation for the next twelve months and will be able to realize its assets and discharge its liabilities and commitments in the normal course of business. It does not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from its inability to continue as a going concern.

The cumulative effect of this error on the Company’s consolidated retained earnings at January 1, 2016 has been reflected as a reduction to retained earnings of approximately $23.8 million. The impact of the correction of an error on the affected line items of the Company’s consolidated balance sheets as of December 31, 2016 and 2017 and consolidated statements of operations and cash flows for the years ended December 31, 2016 and 2017 is set forth below:

	Year Ended, December 31, 2017									Year Ended, December 31, 2016
	As Previously Reported			Adjustments			Restated			As Previously Reported			Adjustments			Restated
Revenues
Client related revenue	$	308,538		$	-		$	308,538		$	270,569		$	-		$	270,569
Non-client related revenue		9,103			-			9,103			9,201			-			9,201
Total revenues		317,641			-			317,641			279,770			-			279,770

Operating expenses
Salaries, wages and benefits		146,390			-			146,390			141,073			-			141,073
Client related services		27,031			-			27,031			24,446			-			24,446
Provision for doubtful accounts		36,914			(10,982	)		25,932			21,485			17,064			38,549
Advertising and marketing		12,315			-			12,315			18,275			-			18,275
Professional fees		12,638			-			12,638			16,468			-			16,468
Other operating expenses		36,309			-			36,309			29,627			-			29,627
Rentals and leases		7,514			-			7,514			7,363			-			7,363
Litigation settlement		23,607			-			23,607			1,292			-			1,292
Depreciation and amortization		21,504			-			21,504			17,686			-			17,686
Acquisition-related expenses		1,162			-			1,162			2,691			-			2,691
Total operating expenses		325,384			(10,982	)		314,402			280,406			17,064			297,470
(Loss) income from operations		(7,743	)		10,982			3,239			(636	)		(17,064	)		(17,700	)
Interest expense, net (including change in fair value of interest rate swaps of ($108), and ($180), respectively)		16,811			-			16,811			8,175			-			8,175
Loss on extinguishment of debt		5,435			-			5,435			-			-			-
Gain on contingent consideration		-			-			-			(1,350	)		-			(1,350	)
Other (income) expense, net		116			-			116			(500	)		-			(500	)
Loss before income tax expense		(30,105	)		10,982			(19,123	)		(6,961	)		(17,064	)		(24,025	)
Income tax (benefit) expense		(5,018	)		3,276			(1,742	)		(1,220	)		3,565			2,345
Net loss		(25,087	)		7,706			(17,381	)		(5,741	)		(20,629	)		(26,370	)
Less: net loss attributable to noncontrolling interest		4,508			-			4,508			5,152			-			5,152
Net loss attributable to AAC Holdings, Inc. common stockholders		(20,579	)		7,706			(12,873	)		(589	)		(20,629	)		(21,218	)

Basic loss per common share	$	(0.88	)				$	(0.55	)	$	(0.03	)				$	(0.93	)
Diluted loss per common share	$	(0.88	)				$	(0.55	)	$	(0.03	)				$	(0.93	)
Weighted-average common shares outstanding:
Basic		23,277,444						23,277,444			22,718,117						22,718,117
Diluted		23,277,444						23,277,444			22,718,117						22,718,117

	Year Ended, December 31, 2017
	As Previously Reported			Adjustments			Restated
Assets
Current assets
Cash and cash equivalents	$	13,818		$	-		$	13,818
Accounts receivable, net of allowances		94,096			(30,350	)		63,746
Prepaid expenses and other current assets		4,022			-			4,022
Total current assets		111,936			(30,350	)		81,586
Property and equipment, net		152,548			-			152,548
Goodwill		134,396			-			134,396
Intangible assets, net		8,829			-			8,829
Deferred tax assets, net		8,010			(6,360	)		1,650
Other assets		12,556			-			12,556
Total assets	$	428,275		$	(36,710	)	$	391,565

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	4,579		$	-		$	4,579
Accrued and other current liabilities		27,661			-			27,661
Accrued litigation		23,607			-			23,607
Current portion of long-term debt		4,722			-			4,722
Total current liabilities		60,569			-			60,569
Deferred tax liabilities		-			-			-
Long-term debt, net of current portion and debt issuance costs		196,451			-			196,451
Financing lease obligation, net of current portion		24,541			-			24,541
Other long-term liabilities		10,546			-			10,546
Total liabilities		292,107			-			292,107

Stockholders’ equity
Common stock, $0.001 par value: 70,000,000 shares authorized, 23,872,436 shares issued and outstanding at December 31, 2017, respectively		24			-			24
Additional paid-in capital		152,430			-			152,430
Retained deficit		(1,460	)		(36,710	)		(38,170	)
Total stockholders’ equity		150,994			(36,710	)		114,284
Noncontrolling interest		(14,826	)		-			(14,826	)
Total stockholders’ equity including noncontrolling interest		136,168			(36,710	)		99,458
Total liabilities and stockholders’ equity	$	428,275		$	(36,710	)	$	391,565

	Year Ended, December 31, 2017									Year Ended, December 31, 2016
	As Previously Reported			Adjustments			Restated			As Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net loss	$	(25,087	)	$	7,706		$	(17,381	)	$	(5,741	)	$	(20,629	)	$	(26,370	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts		36,914			(10,982	)		25,932			21,485			17,064			38,549
Depreciation and amortization		21,504			-			21,504			17,686			-			17,686
Equity compensation		7,513			-			7,513			8,823			-			8,823
Loss on disposal of property and equipment		55			-			55			163			-			163
Loss on extinguishment of debt		5,435			-			5,435			-			-			-
Gain on contingent consideration		-			-			-			(1,350	)		-			(1,350	)
Amortization of debt issuance costs		1,564			-			1,564			633			-			633
Deferred income taxes		(7,412	)		3,276			(4,136	)		(1,793	)		3,565			1,772
Changes in operating assets and liabilities:
Accounts receivable		(43,676	)		-			(43,676	)		(45,838	)		-			(45,838	)
Prepaid expenses and other assets		(6,725	)		-			(6,725	)		2,510			-			2,510
Accounts payable		(4,576	)		-			(4,576	)		824			-			824
Accrued and other current liabilities		4,685			-			4,685			2,973			-			2,973
Accrued litigation		22,645			-			22,645			162			-			162
Other long-term liabilities		6,453			-			6,453			(394	)		-			(394	)
Net cash provided by operating activities		19,292			-			19,292			143			-			143
Cash flows from investing activities:
Purchase of property and equipment		(33,041	)		-			(33,041	)		(37,304	)		-			(37,304	)
Acquisition of subsidiaries		-			-			-			(18,825	)		-			(18,825	)
Change in funds held on acquisition		(1,000	)		-			(1,000	)		(325	)		-			(325	)
Net cash used in investing activities		(34,041	)		-			(34,041	)		(56,454	)		-			(56,454	)
Cash flows from financing activities:
Payments on 2015 Credit Facility and Deerfield Facility		(211,094	)		-			(211,094	)		(5,376	)		-			(5,376	)
Proceeds from 2015 Credit Facility and Deerfield Facility, net of deferred financing costs		18,000			-			18,000			48,930			-			48,930
Payments on 2017 Credit Facility		(17,126	)		-			(17,126	)		-			-			-
Proceeds from 2017 Credit Facility, net of deferred financing costs		211,073			-			211,073			-			-			-
Proceeds from financing lease obligation, net of deferred financing costs		24,621			-			24,621			-			-			-
Payments on capital leases and other		(791	)		-			(791	)		(834	)		-			(834	)
Payments on AdCare Note		-			-			-			-			-			-
Repayment of long-term debt — related party		-			-			-			(1,195	)		-			(1,195	)
Change in funds held on acquisition		1,000			-			1,000			-			-			-
Payment of employee taxes for net share settlement		(1,080	)		-			(1,080	)		-			-			-
Net cash provided by financing activities		24,603			-			24,603			41,525			-			41,525
Net change in cash and cash equivalents		9,854			-			9,854			(14,786	)		-			(14,786	)
Cash and cash equivalents, beginning of period		3,964			-			3,964			18,750			-			18,750
Cash and cash equivalents, end of period	$	13,818		$	-		$	13,818		$	3,964		$	-		$	3,964

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses at the date and for the periods that the consolidated financial statements are prepared. On an ongoing basis, the Company evaluates its estimates, including those related to insurance adjustments, provisions for doubtful accounts, goodwill and intangible assets, long-lived assets, deferred revenue and income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could materially differ from those estimates.

The majority of the Company’s expenses are “cost of revenue” items. Costs that could be classified as general and administrative expenses include the Company’s corporate overhead costs, which were $81.6 million, $96.1 million, and $74.8 million for the years ended December 31, 2018, 2017 and 2016, respectively.

The Company provides services to its clients in both inpatient and outpatient treatment settings. Client related revenues are recognized when services are performed at estimated net realizable value from clients, third-party payors and others for services provided. The Company receives the majority of payments from commercial payors at out-of-network rates. Client related revenues are recorded at established billing rates less adjustments to estimate net realizable value. Adjustments are recorded to state client service revenue at the amount expected to be collected for the service provided based on historic adjustments for out-of-network services not under contract. Prior to admission, each client’s insurance is verified, and the client self-pay amount is determined. The client self-pay portion is generally collected upon admission. In some instances, clients will pay out-of-pocket as services are provided or will make a deposit and negotiate the remaining payments. These out-of-pocket payments are included in accrued liabilities in the accompanying consolidated balance sheets, and revenue related to these payments is deferred and recognized over the period services are provided. Scholarships may be provided to a limited number of clients. The Company does not recognize revenue for care provided via scholarships.

For the year ended December 31, 2018, no payor accounted for more than 10% of the Company’s revenue for the year ended December 31, 2018.

For the year ended December 31, 2017, approximately 11.4% of the Company’s revenue was derived from Blue-Cross Blue Shield of Nevada, 10.9% came from Blue-Cross Blue-Shield of Texas and 10.3% came from Blue-Cross Blue-Shield of Florida. No other payor accounted for more than 10% of the Company’s revenue for the year ended December 31, 2017.

For the year ended December 31, 2016, approximately 10.5% of the Company’s revenue was derived from Anthem Blue-Cross Blue-Shield of Florida, 10.4% by Blue-Cross Blue-Shield of Texas and 10.4% by Aetna. No other payor accounted for more than 10% of revenue for the year ended December 31, 2016.

The following tables summarize the composition of the Company’s client related revenue for inpatient treatment facility services, outpatient facility and sober living services, and client related diagnostic services. Inpatient treatment facility services include revenues from related professional services, and client related diagnostic services includes revenues from point of care services as well as laboratory services.

For the year ended December 31, 2018 and 2017, client related revenue was (in thousands):

For the year ended December 31, 2018 and 2017, client related revenue on a comparable basis was (in thousands):

Our non-client related revenue primarily consists of service charges for diagnostic laboratory services provided to clients of third-party addiction treatment providers, addiction care treatment services for individuals in the criminal justice system and payments by third-party behavioral healthcare providers who use our digital outreach platforms. Non-client revenue is recognized at the point in time that the Company satisfies its performance obligations in each service area.

The Company derives the majority of its revenue from non-governmental commercial payors at out-of-network rates. Management estimates the allowance for contractual and other discounts based on its historical collection experience. The services authorized and provided, and the related reimbursements are often subject to interpretation and negotiation that could result in payments that differ from the Company’s estimates.

Accounts receivable primarily consists of amounts due from third-party payors and is recorded net of contractual discounts. The Company’s ability to collect outstanding receivables is critical to its results of operations and cash flows. Prior to the adoption of Topic 606, accounts receivable is reported net of an allowance for doubtful accounts, which is management’s best estimate of accounts receivable that could become uncollectible in the future. Accordingly, accounts receivable reported in the Company’s consolidated financial statements is recorded at the net amount expected to be received. The Company’s primary collection risks are (i) the risk of overestimating net revenue at the time of billing that may result in the Company receiving less than the recorded receivable, (ii) the risk of non-payment as a result of commercial insurance companies denying claims, (iii) the risk that clients will fail to remit insurance payments to the Company when the commercial insurance company pays out-of-network claims directly to the client and (iv) resource and capacity constraints that may prevent the Company from handling the volume of billing and collection issues in a timely manner. The Company’s allowance for doubtful accounts is based on historical experience, but management also takes into consideration the age of accounts, creditworthiness of payors and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. Subsequent to the year ended December 31, 2018 and as part of the preparation of the Company’s year-end financial statements, the Company used recently developed financial database analytical tools, in order to analyze cash collection trends for historical and prospective periods relating to its accounts receivable and allowance for doubtful accounts which resulted in more precise estimates being utilized beginning with the fourth quarter of 2018. See Note 2A, Restatement of Previously Issued Financial Statements to the Notes to the Consolidated Financial Statements and in Note 17, Unaudited Quarterly Information (Restated) included in Item 8 of this Annual Report on Form 10-K for further information regarding the impact to prior periods.

Approximately $2.2 million and $14.6 million of accounts receivable, net of the allowance for doubtful accounts, at December 31, 2018 and 2017, respectively, includes accounts where the Company has received a partial payment from a commercial insurance company and the Company is continuing to pursue additional collections for the estimated balance. An account is written off only after the Company has exhausted collection efforts or otherwise determines an account to be uncollectible.

The following table presents a summary of the Company’s aging of accounts receivable, net of the allowance for doubtful accounts as of December 31, 2017. 2018 is not presented as under Topic 606, the Company has no allowance for doubtful accounts as of December 31, 2018.

At December 31, 2018, no payor accounted for more than 10% of accounts receivable. At December 31, 2017, 11.6% of accounts receivable was from Anthem Blue-Cross Blue-Shield of Colorado and 10.3% was from Blue-Cross Blue-Shield of California. No other payor accounted for more than 10% of accounts receivable at December 31, 2017.

A summary of activity in the Company’s allowance for doubtful accounts is as follows (in thousands):

The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.

Property and equipment are stated at cost or at acquisition date fair value for assets obtained in business combinations, net of accumulated depreciation. Expenditures for maintenance and repairs are charged to expense as incurred. The Company capitalizes interest paid on debt that is outstanding while construction projects are in progress, and such interest is included in the cost of the related asset. Capitalized interest recognized by the Company for the year ended December 31, 2018 was $0.3 million. Assets held for development are classified as construction in progress, and the Company does not depreciate these assets until they are placed in service. Leasehold improvements are amortized over their estimated useful lives or the remaining lease period, whichever is less. Assets under capital leases are amortized over the lease term or in the event of transfer of ownership at the end of the lease over the economic life of the leased asset. Depreciation is calculated using the straight-line method over the estimated economic useful lives of the assets, as follows:

We report long-lived assets to be disposed of by sale as held for sale and recognize those assets in the balance sheet at the lower of carrying amount or fair value less cost to sell, and we cease depreciation and amortization.

In November 2018, the Company began actively pursuing the sale of its Townsend operations. On January 28, 2019, the Company finalized the sale for $1.9 million in cash proceeds from the buyer. The assets and liabilities deemed held for sale by the Company at December 31,2018 were as follows:

The fair value of the assets deemed as held for sale were considered a Level 1 estimate. Because the implied fair value of the assets and liabilities was greater than the carrying value as of December 31, 2018, the Company did not recognize a gain or loss related to the assets held for sale for the year ended December 31, 2018. The Company recognized a gain of $0.9 million on January 28, 2019 related to the sale.

The Company has only one operating segment, substance abuse and behavioral healthcare treatment services, for segment reporting purposes. The substance abuse and behavioral healthcare treatment services operating segment represents one reporting unit for purposes of the Company’s goodwill impairment test. Goodwill represents the excess of the purchase price over the fair value of the identifiable net assets acquired. Goodwill and intangible assets with indefinite lives are not amortized, but instead are tested for impairment at least annually or whenever events or changes in circumstances indicate the carrying value may not be recoverable. If the carrying value of goodwill exceeds its implied fair value, an impairment loss is recorded.

While performing the Company’s annual goodwill impairment test as of December 31, 2018, the Company assessed certain indicators of goodwill impairment including, but not limited to, a declining market capitalization, declining cash flows and negative trending performance indicators, such as admissions and total daily census. Because these factors indicated impairment was likely, the Company performed a quantitative analysis to measure the amount of loss due to goodwill impairment, if any. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We derive the required undiscounted cash flow estimates from our historical experience and our internal forecasted business plans. To determine fair value, we use quoted market prices when available, our internal cash flow estimates discounted at a discount rate of 16% and independent appraisals, as appropriate. See Note 7 for further discussion regarding the 2018 goodwill impairment test.

The Company has no intangible assets with indefinite useful lives other than goodwill.

The Company’s other intangible assets principally relate to trademarks, marketing intangibles, non-compete agreements, services contracts and leasehold interests acquired during business combinations. Trademarks, marketing intangibles and service contracts are amortized over a period of ten years, non-compete agreements are amortized over the term of the agreements, and leasehold interests are amortized over the remaining life of the leases.

Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net undiscounted cash flows expected to be generated by the asset. Impairment is measured by the amount by which the carrying value of the assets exceeds the fair value of the assets.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Due to the goodwill impairment recognized as of December 31, 2018, the Company considered indicators of impairment related to long-lived assets. Determining whether an impairment has occurred typically requires various estimates and assumptions, including determining which undiscounted cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. We derive the required undiscounted cash flow estimates from our historical experience and our internal forecasted business plans. To determine fair value, we use quoted market prices when available, our internal cash flow estimates discounted at an appropriate discount rate and independent appraisals, as appropriate.

The Company did not recognize any impairment to long-lived assets during the years ended December 31, 2018, 2017 or 2016.

The Company’s accrued liabilities, reflected as a current liability in the accompanying consolidated balance sheets, consist of the following (in thousands):

Separately disclosed on the balance sheet as of December 31, 2018 are accrued litigation expenses of $8.0 million of expenses related to shareholder lawsuits that were settled in November 2018.

Separately disclosed on the balance sheet as of December 31, 2017 are accrued litigation expenses of $23.6 million, which includes $23.3 million of expenses related to shareholder lawsuits that were settled in principle in December 2017, subject to court approval, which cannot be assured. Refer to Note 15 (Commitments and Contingencies) for further information regarding these matters.

The focus of all Company operations is centered on a single service, substance abuse and behavioral healthcare treatment. The Company is organized and operates as one reportable segment, consisting of various treatment facilities located in the United States. The treatment facilities have similar economic characteristics, services and clients. Management has the ability to direct and serve clients in any of these facilities, which allows it to operate the Company’s business and analyze its revenue on a system-wide basis, rather than focusing on any individual facility. The Company’s chief operating decision maker evaluates performance and manages resources based on the results of the consolidated operations as a whole.

The Company accounts for employee stock-based compensation using the fair-value based method for costs related to all share-based payments. The fair value of the portion of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service periods in the Company’s consolidated statements of operations.

Basic and diluted earnings per common share are calculated based on the weighted-average number of common shares outstanding in each period and non-vested shares, to the extent such securities have a dilutive effect on earnings per share using the treasury stock method.

The Company accounts for income taxes using the asset and liability method. Under the asset and liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for significant deferred tax assets when it is more likely than not that such assets will not be recovered.

Fair value, for financial reporting purposes, is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

Disclosure is required about how fair value was determined for assets and liabilities and following a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows: Level 1 —quoted prices in active markets for identical assets or liabilities; Level 2 — quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or Level 3 — unobservable inputs for the asset or liability, such as discounted cash flow models or valuations. The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As of December 31, 2018, 2017 and 2016, the Company did not have any components of other comprehensive income. As such, comprehensive income was the same as net income for each of the periods presented in the accompanying consolidated statements of operations.

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2017-04, “Simplifying the Test for Goodwill Impairment” (“ASU 2017-04”). The new guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of the current goodwill impairment test) to measure a goodwill impairment charge. Instead, entities will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on the current Step 1). ASU 2017-04 is effective for annual and interim impairment tests for periods beginning after December 15, 2019. The Company chose to early adopt ASU 2017-04 during the year ended December 31, 2018. The adoption did not have an impact on the Company’s financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statements of operations. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In July 2018, the FASB issued amendments in ASU 2018-11, which provide a transition election to not restate comparative periods for the effects of applying the new standard. This transition election, which the Company has elected, permits entities to change the date of initial application to the beginning of the year of adoption and to recognize the effects of applying the new standard as a cumulative-effect adjustment to the opening balance of retained earnings.

The Company is substantially complete in evaluating the impact of the standard, including practical expedients and updates to the standard, and has assessed its existing lease portfolio to determine the impact of adoption on its condensed consolidated financial statements and related disclosures. The Company expects to utilize available practical expedients, including the package of practical expedients not to reassess whether a contract is or contains a lease, the lease classification and initial direct costs, as well as the expedient forgoing the separation of lease and non-lease components. Total right-of-use assets and related operating lease obligations of approximately $33 million and $38 million, respectively will be recorded on the consolidated balance sheet on adoption, with no material impact to our Consolidated Statements of Operations.

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“Topic 606”), which outlines a five-step model for recognizing revenue and supersedes most existing revenue recognition guidance, including guidance specific to the healthcare industry. The core principle of the new standard is that a company should recognize revenue to depict the transfer of 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. The guidance was effective January 1, 2018 and was applied to all contracts on a modified retrospective basis.

The Company has analyzed the impact of the standard based on a review of its accounting policies and practices in relation to the five-step model to ensure proper assessment of operating results under Topic 606.

The analysis of the Company’s processes under the new revenue standard supports the recognition of revenue over time as clients simultaneously receive and consume the benefits of the services provided. However, the adoption of the standard has an impact on the presentation of revenue recognized and the provision for doubtful accounts due to additional requirements within Topic 606. As a result of these new requirements, substantially all of the Company’s adjustments related to price concessions will now be recorded as a direct reduction to revenue as opposed to the provision for doubtful accounts included within operating expenses.

The only activity related to collectability that will be recorded as an operating expense from January 1, 2018 forward will be bad debt related to specific customers that experience significant adverse changes in creditworthiness, such as bankruptcies. The Company recorded $0.4 million of expense related to one of the Company’s digital outreach platform customers during the year ended December 31, 2018.

The initial application of Topic 606 had no impact to the beginning balances of the Company's consolidated financial statements as of January 1, 2018. In adopting Topic 606, the Company elected the practical expedients related to immaterial contract acquisition costs and insignificant financing components of the transaction price.

For the year ended December 31, 2018, the impact on the Company's Condensed Consolidated Statements of Operations was as follows (in thousands):

Basic earnings per share (“EPS”) is computed by dividing net income attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period.

For the calculation of diluted EPS, net income attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities, including awards under stock-based payment arrangements, and outstanding convertible debt securities. Diluted EPS attributable to common stockholders is computed by dividing net income attributable to common stockholders by the weighted average number of fully diluted common shares outstanding during the period.

The following table sets forth the components of the numerator and denominator used in the calculation of basic and diluted EPS (in thousands except share data):

The Company had 42,997; 96,130 and 25,181 shares for the years ended December 31, 2018, 2017 and 2016, respectively, that are not included in the earnings per share calculation above, because to do so would be anti-dilutive for the periods presented.

Depreciation expense was $20.1 million, $20.0 million and $16.1 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Capitalized interest related to the purchase of property, plant and equipment totaled $0.3 million for the year ended December 31, 2018.

The Company considered the indicators of goodwill impairment to be an indicator of potential impairment of long-lived assets. The Company performed an analysis of undiscounted cash flows for each facility to determine if impairment existed for long-lived assets. Based on the Company’s analysis, there was no impairment of long-lived assets as of December 31, 2018.

On March 1, 2018, the Company acquired all of the outstanding shares of AdCare, Inc., a Massachusetts corporation (“AdCare”), and wholly owned subsidiary of AdCare Holding Trust, a Massachusetts business trust (the “Seller”) (the “AdCare Acquisition”). AdCare and its subsidiaries offer treatment of drug and alcohol addiction and own, among other things, a 114-bed hospital, five outpatient centers in Massachusetts, a 59-bed residential inpatient treatment center and two outpatient centers in Rhode Island. AdCare was purchased for total consideration of $85.1 million, including adjustments as set forth in the Securities Purchase Agreement (the “Purchase Agreement”), by and among AAC Healthcare Network, Inc., AAC Holdings, AdCare, and the Seller. The consideration was comprised of (i) approximately $66.8 million in cash, excluding expenses and other adjustments, (ii) approximately $5.4 million in shares of AAC Holdings’ common stock (or 562,051 shares at $9.68 per share), (iii) a promissory note in the aggregate principal amount of approximately $9.6 million (the “AdCare Note”), and (iv) contingent consideration valued at $0.5 million recorded in accrued and other current liabilities. The Company acquired $2.7 million of cash on hand at AdCare, which was returned to the Seller within 60 days of the acquisition as required by the Purchase Agreement. The contingent consideration that can be earned by the seller ranges from zero to $1.7 million, subject to achievement of a certain adjusted EBITDA target over the 12 months following the closing date of the transaction.

FASB ASC 805 requires that the fair value of a contingent consideration liability be updated at each reporting period until the contingency is resolved. The Company remeasured the fair value of the contingent consideration related to the AdCare Acquisition as of December 31, 2018 and determined that the fair value was zero. The change in the fair value resulted in the reduction of $0.5 million gain on contingent consideration recognized during the three months ended December 31, 2018. For the year ended December 31, 2018, the Company recorded a net $0.9 million as a reduction to acquisition related expense.

The AdCare Acquisition was accounted for as a business combination in accordance with FASB ASC 805, Business Combinations. For U.S. federal income tax purposes, the Purchase Agreement contemplates that the AdCare Acquisition shall be treated as an “applicable asset acquisition” as defined in Section 1060 of the Code. The Company recorded the transaction based upon the fair value of the consideration paid. This consideration was allocated to the fair value of the assets acquired and liabilities assumed on the acquisition date.

The allocation of assets acquired and liabilities assumed on the acquisition date, based on the fair value of AdCare, is as follows (in thousands):

Acquisition-related costs for the transaction were recorded as acquisition-related expenses in the consolidated statements of operations.

Total AdCare revenue and income before income tax expense from the date of acquisition through December 31, 2018 was approximately $44.4 million and $6.6 million, respectively. The following pro forma results of operations of the Company for the year ended December 31, 2018 and 2017, are presented as if the AdCare Acquisition had occurred on January 1, 2017.

The pro forma loss before income tax benefit for year ended December 31, 2018 was adjusted to exclude approximately $0.8 million of nonrecurring acquisition costs, to include additional interest expense of $0.4 million and depreciation and amortization expense of $0.2 million.

The pro forma income before income tax expense for the year ended December 31, 2017 was adjusted to exclude approximately $0.9 million of nonrecurring acquisition costs and to include additional interest expense of $6.2 million and depreciation and amortization expense of $1.0 million.

The following table presents pro forma results as discussed above, which are not indicative of the actual results of operations (in thousands):

The Company performed its annual test for goodwill impairment as of December 31, 2018 and based on certain qualitative factors, determined that more likely than not, the carrying value of its goodwill was greater than its fair value. These factors included, but were not limited to, a declining market capitalization, declining cash flows and negative trending performance indicators, such as admissions and total daily census. Because certain qualitative factors indicated impairment was likely, the Company performed a quantitative analysis to measure the amount of loss due to goodwill impairment, if any.

The Company used a blended approach of a market capitalization approach and income approach to determine the fair value of the reporting unit. For the market capitalization approach, the Company determined its implied fair value of total invested capital based on the number of outstanding shares as of December 31, 2018, its average stock price based on the ten days immediately proceeding and ten days immediately following the valuation date. For the income approach, the Company used a discounted cash flow model in which cash flows are projected using historical and internal forecasts over future periods including growth assumptions regarding revenue, EBITDA, tax depreciation and capital expenditures, plus a terminal value, and are discounted to present value using a risk-adjusted rate of return. The discount rate assumption is based on an assessment of the risk inherent in the future cash flows and was 16%.

Based on the implied fair value using the aforementioned blended approach, there was no goodwill impairment, as the fair value of goodwill exceeded the carrying value by a minimal amount as of December 31, 2018. There is a risk that future declines in fair value could result in goodwill impairment. The determination of fair value in step one of our goodwill impairment analysis is based on an estimate of fair value utilizing known and estimated inputs at the evaluation date. Some of those inputs include, but are not limited to, the most recent price of our common stock, estimates of future revenue and expenses, estimated market multiples, expected capital expenditures, income tax rates, and costs of invested capital. Future estimates of fair value could be adversely affected if the actual outcome of one or more of these assumptions changes materially in the future, including further decline in our stock price, lower than expected census, higher market interest rates or increased operating costs. Such changes impacting the calculation of our fair value could result in a material impairment charge in the future.

The Company’s goodwill balance was $199.0 million and $134.4 million as of December 31, 2018 and 2017, respectively.

The changes in goodwill relate to the AdCare Acquisition during the year ended December 31, 2018, as shown below:

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

Amortization expense was $1.9 million, $1.5 million, and $1.5 million for the years ended December 31, 2018, 2017 and 2016, respectively.

Changes to the net carrying value of intangible assets during the year ended December 31, 2018 and 2017 were as follows (in thousands):

At December 31, 2018, all intangible assets are amortized using a straight-line method. The following table presents amortization expense expected to be recognized during fiscal years subsequent to December 31, 2018 (in thousands):

In connection with the 2019 Senior Credit Facility further described below, on March 8, 2019, the Company entered into the Amendments to the 2017 Credit Facility together with the required lenders party thereto, Credit Suisse AG, as administrative agent and collateral agent, and the other loan parties party thereto, amending that certain Credit Agreement (the “2017 Credit Facility”), dated as of June 30, 2017, by and among the Company, Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto.

On March 8, 2019, the Company entered into the 2019 Senior Credit Facility with Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto. The 2019 Senior Credit Facility makes available to the Company a term loan in the principal amount of $30.0 million. The 2019 Senior Credit Facility will mature on April 15, 2020. Net proceeds from funding of the 2019 Senior Credit Facility were approximately $23 million after the payment of fees, costs and other expenses.

In connection with the 2019 Senior Credit Facility, on March 8, 2019, the Company entered into the Amendment to the 2017 Credit Facility together with the required lenders party thereto, Credit Suisse AG, as administrative agent and collateral agent, and the other loan parties party thereto, amending that certain Credit Agreement, dated as of June 30, 2017, by and among the Company, Credit Suisse AG, as administrative agent and collateral agent, and the lenders party thereto.

The Amendment to the 2017 Credit Facility increased the interest rate on the term loans outstanding under the 2017 Credit Facility (the “2017 Term Loans”) by, at the Company’s option, either (i) 2.00% per annum (which shall be reduced to 1.00% per annum if the Senior Secured Leverage Ratio Condition, as defined in the Amendment to the 2017 Credit Facility is satisfied), payable in cash or (ii) 4.00% per annum, payable-in-kind. In addition, the Amendment to the 2017 Credit Facility increased the commitment fee for the undrawn portion of the revolving credit facility under the 2017 Credit Facility from 0.50% to 1.00% per annum.

The Amendment to the 2017 Credit Facility amended financial covenants with respect to the Senior Secured Leverage Ratio (as defined therein) and budgeting and lender reporting covenants that mirror those contained in the 2019 Senior Credit Facility. It also restricts certain Company actions, including certain acquisitions and joint venture arrangements.

On June 30, 2017, the Company entered into a senior secured credit agreement with Credit Suisse AG, as administrative agent and collateral agent and the lenders party thereto (the “2017 Credit Facility”). The 2017 Credit Facility initially made available to the Company a $40.0 million revolving line of credit (the “2017 Revolver”) and a term loan in an aggregate original principal amount of $210.0 million (the “2017 Term Loan”). As discussed further below, on September 25, 2017 the 2017 Revolver was increased to $55.0 million. The 2017 Credit Facility also provides for standby letters of credit in an aggregate undrawn amount not to exceed $7.0 million.

The 2017 Term Loan matures on June 30, 2023 and requires scheduled quarterly principal repayments in an amount equal to $1.7 million for September 30, 2017, through June 30, 2019, $3.4 million for September 30, 2019, through March 31, 2023, with the remaining principal balance of the term loan due on the maturity date of June 30, 2023. The 2017 Term Loan was fully drawn on June 30, 2017.

The 2017 Revolver matures on June 30, 2022. As of December 31, 2018, $52.0 million was outstanding on the 2017 Revolver.

The 2017 Credit Facility also includes an incremental facility providing for the Company to incur Additional Term Loans in an aggregate principal amount of up to $25.0 million (plus such additional amounts, so long as, after giving pro forma effect to the incurrence of such additional borrowings, the Company’s Senior Secured Leverage Ratio (as defined in the 2017 Credit Facility) would be less than 3.90:1.00) (each, an “Incremental Term Loan”) and/or Additional Revolving Commitments in an aggregate principal amount of up to $15.0 million (the “Incremental Revolver”), each subject to the satisfaction of certain conditions contained in the 2017 Credit Facility, including obtaining additional commitments from existing or additional lenders. On September 25, 2017, the Company obtained its Incremental Revolver from certain incremental revolving credit lenders thereby increasing the 2017 Revolver pursuant to the 2017 Credit Facility from $40.0 million to $55.0 million. The lenders under the 2017 Credit Facility are not under any obligation to provide any Incremental Term Loans.

Borrowings under the 2017 Credit Facility bore interest at a rate tied to the Alternative Base Rate or the Adjusted London Interbank Offered Rate (“LIBOR”) (at the Company’s option, and both as defined in the 2017 Credit Facility). ABR Loans (as defined in the 2017 Credit Facility) made under the 2017 Revolver bore interest at a rate per annum equal to the Alternative Base Rate plus 5.0% per annum. ABR Loans made under the 2017 Term Loan bore interest at a rate per annum equal to the Alternate Base Rate plus 5.75% per annum. Eurodollar Loans (as defined in the 2017 Credit Facility) made under the 2017 Revolver bore interest at the applicable Adjusted LIBOR plus 6.0%. Eurodollar Loans made under the 2017 Term Loan bore interest at the applicable Adjusted LIBOR plus 6.75% (with a 1.0% floor). In addition, under the 2017 Credit Facility, the Company paid a commitment fee for the undrawn portion of the 2017 Revolver of 0.5% per annum.

Borrowings under the 2017 Credit Facility are guaranteed by the Company’s wholly owned subsidiary, AAC and certain of its other subsidiaries pursuant to that certain Guarantee and Collateral Agreement, dated as of June 30, 2017, by and among the Company, each of the subsidiary guarantors party thereto and Credit Suisse AG, as collateral agent (the “Guarantee and Collateral Agreement”). The obligations under the 2017 Credit Facility and the Guarantee and Collateral Agreement are secured by a lien on substantially all of the Company’s and each subsidiary guarantor’s assets.

The Company is permitted to voluntarily reduce the unutilized portion of the commitment amount and repay outstanding loans under the 2017 Credit Facility at any time without premium or penalty, other than (i) customary “breakage” costs with respect to Eurodollar Loans and, (ii) with respect to the 2017 Term Loan, if certain repricing transactions are consummated or certain mandatory repayments are made, (x) a yield maintenance premium within one year after the closing as set forth in the 2017 Credit Facility, (y) a 2.0% premium if paid after the first anniversary of the closing but before the second anniversary of the closing and (z) a 1.0% premium if paid after the second anniversary of the closing but before the third anniversary of the closing.

In addition, the 2017 Credit Facility places certain restrictions on the ability of the Company and its subsidiaries to, among other things, incur debt and liens; merge, consolidate or liquidate; dispose of assets; enter into hedging arrangements; pay dividends and make other restricted payments; undertake transactions with affiliates; enter into restrictive agreements on dividends and other distributions; make negative pledges; enter into certain sale-leaseback transactions; make certain investments; prepay or modify the terms of certain indebtedness and modify the terms of certain organizational agreements.

The 2017 Credit Facility contains customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to other material indebtedness, certain events of bankruptcy and insolvency, material judgments, certain ERISA events, invalidity of loan documents and certain changes in control.

The Company incurred approximately $12.9 million in debt issuance costs related to underwriting and other professional fees, of which $7.6 million related to the 2017 Term Loan and $5.3 million related to the 2017 Revolver.

On October 6, 2017, in conjunction with the Company’s pending acquisition of AdCare, Inc., the Company secured a $65.0 million incremental term loan commitment in conjunction with the 2017 Credit Facility, subject to customary closing conditions and regulatory provisions. In connection with the financing, the Company committed to a ticking fee that commenced on October 17, 2017, at a rate of LIBOR plus 3.375%, which increased to LIBOR plus 6.75% from November 2017, until the closing date of the acquisition. As of December 31, 2017, the Company had accrued for $0.8 million of expenses related to the ticking fee.

As of December 31, 2018, the Company had fully drawn on the 2017 Revolver less $2.7 million of outstanding letters of credit.

On March 1, 2018, in conjunction with the AdCare Acquisition, in consideration for covenants and agreements set forth in the Purchase Agreement, the Company issued the AdCare Note to the Seller, in the original principal amount of $9.6 million, which matures on September 29, 2023 and accrues interest at a fixed rate per annum equal to 5.0%, compounded annually. Payments of principal and interest pursuant to the AdCare Note commenced on April 30, 2018 and will continue until the maturity date.

On March 9, 2015, the Company entered into a five-year senior secured credit facility (the “2015 Credit Facility”) with Bank of America, N.A., as administrative agent for the lenders party thereto (in connection with the effectiveness of the 2017 Credit Facility, on June 30, 2017, the 2015 Credit Facility was repaid in full, and as of December 31, 2017, no amounts were outstanding under the 2015 Credit Facility). The 2015 Credit Facility initially consisted of a $50.0 million revolving credit facility and a $75.0 million term loan. The Company incurred approximately $2.0 million in debt issuance costs related to underwriting and other professional fees, of which approximately $1.1 were million related to the revolving credit loan and approximately $0.9 million were related to the term loan. The Company deferred these costs over the term of the 2015 Credit Facility.

On July 13, 2016, the Company increased its 2015 Credit Facility to $171.3 million, which consisted of a $50.0 million revolving credit facility and a $121.3 million term loan. The facility was scheduled to mature in March 2020 and bore interest at LIBOR plus a margin between 2.25% to 3.75% or a base rate plus a margin between 1.25% and 2.75%, in each case depending on the Company’s leverage ratio. The facility had an accordion feature that provides for an additional $75.0 million of borrowing capacity under the credit facility, subject to certain consents and conditions, including obtaining additional commitments from lenders. As of December 31, 2016, the balance on the term loan was $118.8 million, and the balance on the revolving credit facility was $21.0 million.

On February 27, 2017, the Company amended its 2015 Credit Facility, to, among other things, provide for certain modifications to the terms of the 2015 Credit Agreement, dated as of March 19, 2015, as amended (the “2015 Credit Agreement”), including the following: (i) extend the maximum Consolidated Total Leverage Ratio (as defined in the 2015 Credit Agreement) of 4:25:1.00 through the measurement period ending September 30, 2017; and (ii) amend the definition of Applicable Margin (as defined in the 2015 Credit Agreement) to add an additional pricing level of 3.75% for Eurodollar Rate Loans and Letter of Credit Fee, 2.75% for Base Rate Loans and 0.60% for Commitment Fee (as all such terms are defined in the 2015 Credit Agreement), which would have been applicable when the Consolidated Total Leverage Ratio was equal to or exceeded 4.00:1.00 at the end of the applicable measuring period (the “New Pricing Level”) and to provide that the Applicable Rate (as defined in the 2015 Credit Agreement) be set at the New Pricing Level from the date of such amendment until the first business day following the date the Company delivered its next Compliance Certificate (as defined in the 2015 Credit Agreement). The amendment also provided for additional Adjusted EBITDA (as defined in the 2015 Credit Agreement) add backs under the Company’s covenant calculation to account for its February 2017 reduction in workforce.

The 2015 Credit Facility required quarterly term loan principal repayments for the outstanding term loan of $2.3 million for March 31, 2017 to December 31, 2017, $3.9 million from March 31, 2018 to December 31, 2018, and $4.7 million from March 31, 2019 to December 31, 2019, with the remaining principal balance of the term loan was scheduled to mature on March 9, 2020. Repayment of the revolving loan is due on the maturity date of March 9, 2020. The 2015 Credit Facility generally required quarterly interest payments and limited the Company’s ability to pay dividends.

Borrowings under the 2015 Credit Facility were guaranteed by the Company and each of its subsidiaries and were secured by a lien on substantially all of the Company’s and its subsidiaries’ assets. Borrowings under the 2015 Credit Facility bore interest at a rate tied to the Company’s Consolidated Total Leverage Ratio (defined as Consolidated Funded Indebtedness to Consolidated EBITDA, in each case as defined in the 2015 Credit Facility, as amended). Eurodollar Rate Loans with respect to the 2015 Credit Facility bore interest at the Applicable Rate plus the Eurodollar Rate (each as defined in the 2015 Credit Facility, as amended) (based upon the LIBOR Rate (as defined in the 2015 Credit Facility, as amended) prior to commencement of the interest rate period). Base Rate Loans with respect to the 2015 Credit Facility bore interest at the Applicable Rate plus the highest of (i) the federal funds rate plus 0.50%, (ii) the prime rate and (iii) the Eurodollar Rate plus 1.0% (the interest rate at December 31, 2016 was 4.25%). In addition, the Company was required to pay a commitment fee on undrawn amounts under the revolving loan of the 2015 Credit Facility of 0.35% to 0.60% depending on the Company’s Consolidated Total Leverage Ratio (the commitment fee rate at December 31, 2016 was 0.50%).

In 2015, the Company incurred approximately $1.4 million in debt issuance costs related to underwriting and other professional fees, and deferred these costs over the term of the 2015 Credit Facility.

As of December 31, 2016, total borrowings under the $50.0 million revolver portion of the 2015 Credit Facility were $21.0 million and $2.5 million in standby letters of credit issued for various corporate purposes resulting in $26.5 million available to the Company.

In connection with the effectiveness of the 2017 Credit Facility, on June 30, 2017, the 2015 Credit Facility was repaid in full, and as of December 31, 2017, no amounts were outstanding under the 2015 Credit Facility.

On October 2, 2015, the Company entered into two financing facilities with affiliates of Deerfield Management Company, L.P. (“Deerfield”). The financing facilities consisted of $25.0 million of subordinated convertible debt and up to $25.0 million of unsecured subordinated debt, together with an incremental facility of up to an additional $50.0 million of subordinated convertible debt (subject to certain conditions) (the “Deerfield Facility”). The Company issued $25.0 million of subordinated convertible debt at closing. The $25.0 million of subordinated convertible debt bore interest at an annual rate of 2.50% and was scheduled to mature on September 30, 2021. The $25.0 million of subordinated convertible debt funded at closing was convertible into shares of the Company’s common stock at $30.00 per share. In the second quarter of 2016, the Company issued $25.0 million of the unsecured subordinated debt. The unsecured subordinated debt bore interest at an annual rate of 12.0% and was schedule to mature on October 2, 2020.

The Company incurred approximately $1.4 million in debt issuance costs related to underwriting and other professional fees and deferred these costs over the term of the debt.

As of December 31, 2016, both the $25.0 million of subordinated convertible debt, bearing interest at 2.5%, and the $25.0 million of unsecured subordinated debt, bearing interest at 12.0%, were outstanding. In connection with the effectiveness of the 2017 Credit Facility, on June 30, 2017, the Company terminated the Deerfield Facility and paid to Deerfield the Deerfield Consent Fee, and as of December 31, 2017, no amounts were outstanding under the Deerfield Facility.

Prior to terminating the interest rate swap agreements on June 29, 2017, the interest rate swap agreements had notional amounts of $7.2 million and $10.5 million which fixed the interest rates over the life of the respective swap agreement at 4.21% and 4.73%, respectively, and were set to mature in May 2018 and August 2019, respectively. The notional amounts of the swap agreements represented amounts used to calculate the exchange of cash flows and were not the Company’s assets or liabilities. The interest payments under these agreements were to be settled on a net basis. The Company did not designate the interest rate swaps as cash flow hedges, and therefore, the changes in the fair value of the interest rate swaps are included within interest expense in the consolidated statements of operations.

A summary of future contractual maturities of long-term debt, excluding unamortized debt issuance costs, as of December 31, 2018, is as follows (in thousands):

1 As noted above, as of December 31, 2018 the Company has classified its Term Loan and Revolver under the 2017 Credit Facility as current liabilities. This table presents the scheduled maturities of the loan per their respective agreements.

Simultaneously with the sale of the Sale-Leaseback Facilities, the Company, through its subsidiaries and affiliates of MedEquities, entered into an operating lease, dated August 9, 2017 (the “Lease”), in which the Company will continue to operate the Sale-Leaseback Facilities. The Lease provides for a 15-year term for each facility with two separate renewal terms of five years each if the Company chooses to exercise its right to extend the lease term.

The initial annual minimum rent payable to MedEquities pursuant to the Lease is $2.2 million due in equal monthly installments of $0.2 million. On the first, second and third anniversary of the lease date, the annual rent will increase to an amount equal to 101.5% of the annual rent in effect for the immediately preceding year. On the fourth anniversary of the lease date and thereafter during the lease term, the annual rent will increase to the amount equal to the CPI Factor (as defined in the Lease) multiplied by the annual rent in effect for the immediately preceding year; provided, however, that the adjusted annual rent increase will always be between 1.5% and 3.0%.

Due to the nature of the agreement between MedEquities and the Company and because of the Company’s continuing involvement in the Sale-Leaseback Facilities, the transaction does not qualify for sale-leaseback accounting under GAAP. Therefore, the Sale-Leaseback Facilities will remain on the Company’s balance sheet and will continue to be depreciated over the remaining life of the asset. The Company accounted for the $25.0 million of proceeds, less $0.4 million of transaction costs, as a financing obligation, of which $0.1 million was classified as a short-term liability. On a monthly basis, a portion of the payment is allocated to principal, which reduces the obligation balance, and interest, computed based on the Company’s incremental borrowing rate.

A summary of the Company’s financing lease obligation is as follows (in thousands):

The future minimum lease payments with remaining terms of one or more years as of December 31, 2018, as it relates to the 2017 Sale-Leaseback consisted of the following (in thousands):

Pursuant to the Articles of Incorporation of the Company, the aggregate number of shares which the Company shall have authority to issue is 75,000,000 shares, consisting of 70,000,000 shares of common stock, par value $0.001 per share, and 5,000,000 shares of preferred stock, par value $0.001 per share. As of December 31, 2018, there were 24,573,679 shares of common stock issued and outstanding and no shares of preferred stock issued and outstanding.

Holders of the Company’s common stock are entitled to one vote for each share held of record on all matters on which stockholders may vote. Certain restrictions imposed by the Company’s various debt instruments limit the Company’s ability to pay dividends.

The Company adopted the 2014 Equity Incentive Plan, as amended (“2014 Incentive Plan”) in 2014. An aggregate of 1,571,120 shares of common stock were initially reserved for issuance pursuant to the 2014 Incentive Plan. The 2014 Incentive Plan is administered by the Board of Directors, which determines, subject to the provisions of the 2014 Incentive Plan, the employees, directors or consultants to whom incentives are awarded. On May 16, 2017, the Company approved an amendment to the 2014 Incentive Plan to increase the number of shares reserved for issuance thereunder by 1,800,000 shares. As of December 31, 2018, 2,015,920 shares of common stock were available for issuance pursuant to the 2014 Incentive Plan.

On March 9, 2017, the Company granted 38,000 shares of fully vested common stock to each of its five non-employee directors. Additionally, on March 9, 2017, the Company issued 408,000 shares of restricted common stock under the 2014 Incentive Plan, which vest annually on each December 31 over a three year period.

For the years ended December 31, 2018, 2017 and 2016, the Company withheld 28,989, 76,385 and 65,089 common shares, respectively, to satisfy tax withholding obligations.

Excluding fully vested shares, the Company recognizes compensation expense on a straight-line basis over the life of each grant. The total compensation is based on the number of restricted shares issued and the fair market value of the restricted shares on the grant date. The Company recognizes compensation expense in its entirety for fully vested common stock on the day of grant based on the number of shares issued and the grant date fair market value of the shares.

The Company recognized $3.9 million, $7.5 million, and $8.8 million in stock-based compensation expense for the years ended December 31, 2018, 2017 and 2016, respectively, related to the 2014 Incentive Plan. As of December 31, 2018, there was $1.9 million of unrecognized compensation expense related to unvested restricted stock grants, which is expected to be recognized over the remaining weighted average vesting period of 1.6 years.

The total grant date fair value of restricted common stock vested during the year ended December 31, 2018 was $4.1 million.

The Company’s policy is to recognize forfeitures as they occur rather than estimating future forfeitures.

On May 19, 2015, the Company’s shareholders approved the Company’s Employee Stock Purchase Plan, as amended (“ESPP”), which was adopted by the Board of Directors in the fourth quarter of 2014. On May 16, 2017, the Company approved an amendment to the ESPP to increase the number of shares reserved for issuance thereunder by 250,000 shares. As of December 31, 2018, 297,204 shares of common stock were available for issuance pursuant to the ESPP.

The ESPP enables eligible employees to purchase shares of the Company’s common stock through a payroll deduction during certain option periods, generally commencing on January 1 and July 1 of each year and ending on June 30 and December 31 of each year. On the exercise date (the last trading day of each option period), the cumulative amount deducted from each participant’s salary during that option period will be used to purchase the maximum number of shares of the Company’s common stock at a purchase price equal to the lesser of (i) 85% of the closing market price of the Company’s common stock as quoted on the New York Stock Exchange on the exercise date or (ii) 85% of the closing market price of the Company’s common stock as quoted on the New York Stock Exchange on the grant date, subject to certain limitations and restrictions.

In 2018, 2017 and 2016, the Company issued 48,396; 97,589 and 44,174 shares of the Company’s common stock, respectively, in connection with employee deductions contributed to the ESPP.

At both December 31, 2018 and 2017, the Company recorded a liability of $0.2 million related to employee deductions contributed during the July 1, 2018 and December 31, 2018 and the July 1, 2017 through December 31, 2017 periods, respectively.

For the years ended December 31, 2018, 2017 and 2016 the Company recognized $0.1 million, $0.2 million and $0.3 million of compensation expense related to the ESPP, respectively.

On January 10, 2019, the Company issued 116,032 shares of the Company’s common stock in connection with employee deductions of $0.1 million contributed in the July 1, 2018 through December 31, 2018 ESPP option period.

The Company has a qualified 401(k) savings plan (the “Plan”) which provides for eligible employees (as defined) to make voluntary contributions to the Plan. The Company makes contributions to the Plan based upon the participants’ level of participation, which is fully vested at the time of contribution. For the years ended December 31, 2018, 2017 and 2016 the Company contributions under this Plan were $1.4 million, $0.9 million and $0.8 million, respectively.

Income tax (benefit) expense consisted of the following for the years ended December 31, 2018, 2017 and 2016:

The Company’s effective income tax rate for the years ended December 31, 2018, 2017 and 2016 reconciles with the federal statutory rate as follows:

The difference between the Company’s effective tax rate and federal statutory rate for 2018 is 16.7%, which is primarily due to the valuation allowance recorded against Federal and certain state deferred tax assets, state income taxes, and change in prior year estimates associated with the filing of 2017 income tax returns.

Deferred income tax assets (liabilities) are comprised of the following at December 31, 2018 and 2017:

At December 31, 2018, the Company has federal and state income tax NOL carryforwards of $87.5 million and $8.7 million, of which $17.0 million will expire between 2027 and 2038. The remaining $70.5 million will carry forward indefinitely subject to annual taxable income limitations.

Management assesses the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the existing deferred tax assets. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended December 31, 2018. Such objective evidence limits the ability to consider other subjective evidence, such as our projections for future growth.

On the basis of this evaluation, as of December 31, 2018, a valuation allowance of $34.7 million has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized. The amount of the deferred tax asset considered realizable, however, could be adjusted if estimates of future taxable income during the carryforward period are reduced or increased or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as our projections for growth. Overall, the Company’s valuation allowance increased by approximately $19.6 million during the year ended December 31, 2018.

The Company had no uncertain tax positions as of December 31, 2018 and 2017, respectively. Generally, for federal and state purposes, the Company's 2013 through 2018 tax years remain open for examination by tax authorities. Additionally, any net operating losses that were generated in prior years and utilized in these years may also be subject to examination by the IRS. The Internal Revenue Service is currently examining the Company’s 2013 and 2014 tax returns. The results of such examination and impact on the Company’s results of operation are not known at this time. The Company has not been notified of any state income tax examinations. The Company’s policy is to recognize interest and penalties associated with uncertain tax positions as part of income tax expense.

On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act”. This legislation created significant changes in U.S. tax law, including a reduction in corporate tax rates, changes to net operating loss carryforwards and carrybacks, a limitation on the amount of deductible business interest expense, and a repeal of the corporate alternative minimum tax. The legislation reduced the U.S. corporate tax rate from the current rate of 35% to 21% for tax periods beginning after December 31, 2017.

In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the legislation. At December 31, 2017, the Company recorded a discrete net tax expense of $3.5 million related to provisional amounts under SAB 118 for the remeasurement of U.S. deferred tax assets and liabilities due to reduction in the federal tax rate. The Company completed its accounting under SAB 118 in the fourth quarter and recorded no provisional adjustment to the amount recorded at December 31, 2017.

The carrying amounts reported at December 31, 2018 and 2017 for cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities approximate fair value because of the short-term maturity of these instruments and are categorized as Level 1 within the GAAP fair value hierarchy. The fair value of the Company’s revolving line of credit is categorized as Level 2.

The Company has debt with variable and fixed interest rates. The fair value of debt with fixed interest rates was determined using the quoted market prices of debt instruments with similar terms and maturities, which are considered Level 2 inputs. The fair value of debt with variable interest rates was also measured using other Level 2 inputs, including good faith estimates of the market value for the particular debt instrument, which represent the amount an independent market participant would provide, based upon market observations and other factors relevant under the circumstances. The carrying value of such debt approximated its estimated fair value at December 31, 2018 and 2017.

Prior to terminating the interest rate swap agreements on June 29, 2017, the Company had entered into the agreements to manage exposure to fluctuations in interest rates. Fair value of the interest rate swaps was determined using a pricing model based on published interest rates and other observable market data. The fair value was determined after considering the potential impact of collateralization, adjusted to reflect both our own nonperformance risk and the respective counterparty’s nonperformance risk. The fair value measurement of interest rate swaps utilized Level 2 inputs. Refer to Note 7 (Long-Term Debt) for further discussion of the interest rate swap agreements.

Intangible assets are measured at fair value on a non-recurring basis. These assets are classified in Level 3 of the fair value hierarchy. Goodwill and other indefinite-lived intangibles are tested for impairment at least annually, or more frequently if circumstances indicate that the carrying amount exceeds fair value.

The Company estimates the fair values of goodwill and other indefinite-lived intangibles utilizing multiple measurement techniques. The estimation is primarily determined based on an estimate of future cash flows (income approach) discounted at a market derived weighted-average cost of capital. The income approach has been determined to be the most representative of fair value. Other unobservable inputs used in these valuations include management’s cash flow projections and estimated terminal growth rates. The valuation of indefinite-lived intangible assets also includes an unobservable input for royalty rate, which is based on rates used by comparable industries.

The useful lives of definite-lived intangible assets (customer relationships) are evaluated whenever events or circumstances warrant a revision to the remaining amortization period. The fair value of definite-lived intangible assets is based on estimated cash flows from the future use of the asset, discounted at a market derived weighted-average cost of capital.

Long-lived assets are measured at fair value on a non-recurring basis and are classified in Level 3 of the fair value hierarchy. The fair value is estimated utilizing unobservable inputs, including appraisals on real estate as well as evaluations of the marketability and potential relocation of other assets in similar condition and similar market areas. The Company analyzes long-lived assets on an annual basis for any triggering events that would necessitate an impairment test. No impairment charges were recorded for the years ended December 31, 2018, 2017 and 2016.

The Company has entered into various operating leases expiring through June 2025. Commercial properties under operating leases primarily include space required to perform client services and space for administrative facilities. Rent expense was $10.4 million, $7.5 million and $7.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company recognizes rent expense on a straight line basis with the difference between rent expense and rent paid recorded as deferred rent. Such amount is included in accrued liabilities in the consolidated balance sheets.

The future minimum lease payments under non-cancelable operating leases with remaining terms of one or more years as of December 31, 2018 consisted of the following (in thousands):

On June 30, 2017, Jeffrey Smith, Abhilash Patel and certain of their affiliates (“Plaintiffs”) filed a lawsuit in the Superior Court of the State of California in Los Angeles County against the Company, AAC, Sober Media Group, LLC, and certain of the Company’s current and former officers (Jeffrey Smith, Abhilash Patel v. American Addiction Centers, Inc. et al.) (the “Smith Litigation). Plaintiffs are former owners of Referral Solutions Group, LLC (RSG) and Taj Media, LLC, which were acquired by the Company in July 2015. The plaintiffs generally alleged that, in connection with the Company’s acquisition, the defendants violated California securities laws and further allege intentional misrepresentation, common law fraud, equitable fraud, promissory estoppel, civil conspiracy to conceal an investigation and civil conspiracy to conceal profitability. On November 21, 2018, the Company entered into a settlement (the “Settlement”) with Plaintiffs providing that (i) the Company pay Plaintiffs an aggregate of $8,000,000 (the “Settlement Payment”) in payments to be made throughout 2019, (ii) mutual exchange of releases, (iii) dismissal of the litigation and (iv) other non-monetary terms. In connection with the Settlement, the Company also agreed to release its former officer and director, Jerrod N. Menz (“Menz”) from his agreement to contribute 300,000 shares to the settlement of a previously settled securities class action lawsuit in exchange for Menz releasing his claim for indemnification arising out of the Smith Litigation.

The Company provided general accounting, finance and governance documentation in response to a subpoena received from the SEC in March 2018. Following this initial document request, the Commission requested additional information pertaining to the Company’s accounting for partial payments from insurance companies, where the Company is continuing to pursue additional collections for the estimated balance. Beginning in the third quarter of 2018, the Company’s Audit Committee initiated a review of the Company’s accounting for these partial payments. The Audit Committee has completed this review. In connection with this review, the Audit Committee determined that the Company’s change in estimate of the collectability of accounts receivable relating to partial payments was appropriate. See “Note 2. Basis of Presentation and Recently Issued Accounting Pronouncements—Change in Accounting Estimate.” The Commission’s investigation is ongoing, and the Company is continuing to fully cooperate on this matter. The Commission’s investigation is neither an allegation of wrongdoing nor a finding that any violation of law has occurred. At this time, the Company is unable to predict the final outcome of this matter or what impact it might have on the Company’s consolidated financial position, results of operations or cash flows.

An entity beneficially owned by Mr. Cartwright, the Company’s Chief Executive Officer, owns an airplane that the Company uses for business purposes in the course of its operations pursuant to a written lease agreement. The Company pays an hourly rate for use of the airplane as well as fuel and certain maintenance costs. For the years ended December 31, 2018, 2017 and 2016, the Company made aggregate payments to the related entity for use of the airplane of approximately $1.2 million, $1.0 million and $0.9 million, respectively.

The tables below present summarized unaudited quarterly results of operations for the years ended December 31, 2018 and 2017, as restated to reflect adjustments to our previously issued financial statements as more fully discussed in Note 2A, Restatement of Previously Issued Financial Statements. The following data should be read in conjunction with Note 2A in order to fully understand factors that may affect the comparability of the financial data.

Management believes that all necessary adjustments have been included in the amounts stated below for a fair presentation of the results of operations for the periods presented when read in conjunction with the Company’s consolidated financial statements for the years ended December 31, 2018 and 2017. Results of operations for a particular quarter are not necessarily indicative of results of operations for an annual period and are not predictive of future periods.

	Quarter Ended
	March 31, Restated			June 30, Restated			September 30, Restated			December 31,
	(In thousands except share data)
2018:
Revenue	$	81,187		$	88,094		$	69,034		$	57,448		(a)
Net loss	$	(837	)	$	(3,592	)	$	(23,844	)	$	(38,445	)	(a),(b)
Net income (loss) available to AAC Holdings, Inc. common stockholders	$	1,056		$	(1,602	)	$	(22,181	)	$	(36,677	)	(a),(b)
Basic net loss per share	$	0.04		$	(0.07	)	$	(0.92	)	$	(1.52	)
Diluted net loss per share	$	0.04		$	(0.07	)	$	(0.92	)	$	(1.52	)

	Quarter Ended
	March 31, Restated			June 30, Restated			September 30, Restated			December 31, Restated
2017:	(In thousands except share data)
Revenue	$	73,039		$	78,042		$	80,424		$	86,136
Net (loss) income	$	(766	)	$	158		$	715		$	(17,488	)	(c)
Net (loss) income available to AAC Holdings, Inc. common stockholders	$	275		$	1,140		$	1,841		$	(16,129	)	(c)
Basic net (loss) income per share	$	0.01		$	0.05		$	0.08		$	(0.69	)
Diluted net (loss) income per share	$	0.01		$	0.05		$	0.08		$	(0.69	)

(a) Refer to Note 2 – Basis of Presentation to the Notes to the Consolidated Financial Statements.

(b) Refer to Note 15 – Commitments and Contingencies to the Notes to the Consolidated Financial Statements.

(c) Fourth quarter results include a $23.3 million litigation settlement expense related to the estimated settlement of the Tennessee class action litigation and the Nevada derivative litigation matters.

The following tables present our quarterly historical consolidated financial data as of the dates and for the periods indicated. The quarterly financial data set forth below have been restated to reflect adjustments to our previously issued financial statements as more fully discussed in Note 2A, Restatement of Previously Issued Financial Statements. The following data should be read in conjunction with Note 2A in order to fully understand factors that may affect the comparability of the financial data.

The initial application of Topic 606 caused no impact to the beginning balances of the Company’s consolidated financial statements as of January 1, 2018. The restated impact of the Adoption of Topic 606 on the Company’s Condensed Consolidated Statements of Operations for the first three quarters of 2018 was as follows (in thousands):

A summary of activity in the Company’s allowance for doubtful accounts is as follows (in thousands):

The provision for income taxes for the three months ended September 30, 2018 and 2017 reflects an income tax benefit of $1.1 million and expense of $0.7 million, respectively, at an effective tax rate of 4.3% and 50.9%, respectively. The increase in income tax benefit from the comparable period in 2017 and the change in the effective tax rate is primarily related to the change in loss before income tax benefit as well as tax treatment of stock compensation, litigation settlement expense and the effect of the Tax Cuts and Jobs Act.

The provision for income taxes for the three months ended June 30, 2018 and 2017 reflects an income tax benefit of $0.2 million and expense of $0.7 million, respectively, at an effective tax rate of 4.3% and 82.4%, respectively. The increase in income tax benefit from the comparable period in 2017 and the change in the effective tax rate is primarily related to the change in loss before

income tax benefit as well as tax treatment of stock compensation, litigation settlement expense and the effect of the Tax Cuts and Jobs Act.

The provision for income taxes for the three months ended March 31, 2018 and 2017 reflects an income tax benefit of $0.0 million and expense of $0.7 million, respectively, at an effective tax rate of 4.3% and (2,910.0%), respectively. The increase in income tax benefit from the comparable period in 2017 and the change in the effective tax rate is primarily related to the change in loss before income tax benefit as well as tax treatment of stock compensation, litigation settlement expense and the effect of the Tax Cuts and Jobs Act.

	As Previously Reported			Adjustments			Restated
Revenues
Client related revenue	$	74,477		$	(8,370	)	$	66,107
Non-client related revenue		2,996			(69	)		2,927
Total revenues		77,473			(8,439	)		69,034

Operating expenses
Salaries, wages and benefits		44,831			-			44,831
Client related services		8,594			-			8,594
Provision for doubtful accounts		-			-			-
Advertising and marketing		3,037			-			3,037
Professional fees		5,697			-			5,697
Other operating expenses		12,833			-			12,833
Rentals and leases		2,760			-			2,760
Litigation settlement		100			-			100
Depreciation and amortization		5,573			-			5,573
Acquisition-related expenses		1,058			(947	)		111
Total operating expenses		84,483			(947	)		83,536
Loss from operations		(7,010	)		(7,492	)		(14,502	)
Interest expense, net (including change in fair value of interest rate swaps of $0, respectively)		8,738			-			8,738
Loss on contingent consideration		-			947			947
Other expense, net		732			-			732
Loss before income tax expense		(16,480	)		(8,439	)		(24,919	)
Income tax benefit		(3,324	)		2,249			(1,075	)
Net loss		(13,156	)		(10,688	)		(23,844	)
Less: net loss attributable to noncontrolling interest		1,663			-			1,663
Net loss attributable to AAC Holdings, Inc. common stockholders	$	(11,493	)	$	(10,688	)	$	(22,181	)

Basic loss per common share	$	(0.47	)				$	(0.92	)
Diluted loss per common share	$	(0.47	)				$	(0.92	)
Weighted-average common shares outstanding:
Basic		24,205,159						24,205,159
Diluted		24,205,159						24,205,159

	As Previously Reported			Adjustments			Restated
Revenues
Client related revenue	$	83,293		$	1,327		$	84,620
Non-client related revenue		3,468			6			3,474
Total revenues		86,761			1,333			88,094

Operating expenses
Salaries, wages and benefits		46,850			-			46,850
Client related services		8,393			-			8,393
Provision for doubtful accounts		366			-			366
Advertising and marketing		2,584			-			2,584
Professional fees		4,950			-			4,950
Other operating expenses		12,194			-			12,194
Rentals and leases		2,563			-			2,563
Litigation settlement		244			-			244
Depreciation and amortization		5,909			-			5,909
Acquisition-related expenses		-			176			176
Total operating expenses		84,053			176			84,229
Income from operations		2,708			1,157			3,865
Interest expense, net (including change in fair value of interest rate swaps of $0, respectively)		7,893			-			7,893
Gain on contingent consideration		-			(176	)		(176	)
Other income, net		(98	)		-			(98	)
Loss before income tax expense		(5,087	)		1,333			(3,754	)
Income tax benefit		(84	)		(78	)		(162	)
Net loss		(5,003	)		1,411			(3,592	)
Less: net loss attributable to noncontrolling interest		1,990			-			1,990
Net loss attributable to AAC Holdings, Inc. common stockholders	$	(3,013	)	$	1,411		$	(1,602	)

Basic loss per common share	$	(0.12	)				$	(0.07	)
Diluted loss per common share	$	(0.12	)				$	(0.07	)
Weighted-average common shares outstanding:
Basic		24,166,976						24,166,976
Diluted		24,166,976						24,166,976

	As Previously Reported			Adjustments		Restated
Revenues
Client related revenue	$	75,923		$	2,707	$	78,630
Non-client related revenue		2,550			7		2,557
Total revenues		78,473			2,714		81,187

Operating expenses
Salaries, wages and benefits		40,084			-		40,084
Client related services		7,747			-		7,747
Provision for doubtful accounts		-			-		-
Advertising and marketing		2,599			-		2,599
Professional fees		3,650			-		3,650
Other operating expenses		10,588			-		10,588
Rentals and leases		2,116			-		2,116
Litigation settlement		2,791			-		2,791
Depreciation and amortization		5,464			-		5,464
Acquisition-related expenses		305			-		305
Total operating expenses		75,344			-		75,344
Income from operations		3,129			2,714		5,843
Interest expense, net (including change in fair value of interest rate swaps of $0, respectively)		6,709			-		6,709
Gain on contingent consideration		-			-		-
Other expense, net		9			-		9
Loss before income tax expense		(3,589	)		2,714		(875	)
Income tax benefit		(1,494	)		1,456		(38	)
Net loss		(2,095	)		1,258		(837	)
Less: net loss attributable to noncontrolling interest		1,893			-		1,893
Net (loss) income attributable to AAC Holdings, Inc. common stockholders	$	(202	)	$	1,258	$	1,056

Basic (loss) earnings per common share	$	(0.01	)			$	0.04
Diluted (loss) earnings per common share	$	(0.01	)			$	0.04
Weighted-average common shares outstanding:
Basic		23,744,208					23,744,208
Diluted		23,744,208					23,781,604

	As Previously Reported			Adjustments			Restated
Revenues
Client related revenue	$	77,948		$	-		$	77,948
Non-client related revenue		2,476			-			2,476
Total revenues		80,424			-			80,424

Operating expenses
Salaries, wages and benefits		36,709			-			36,709
Client related services		6,598			-			6,598
Provision for doubtful accounts		9,682			(2,276	)		7,406
Advertising and marketing		3,074			-			3,074
Professional fees		3,641			-			3,641
Other operating expenses		8,306			-			8,306
Rentals and leases		2,105			-			2,105
Litigation settlement		-			-			-
Depreciation and amortization		5,218			-			5,218
Acquisition-related expenses		370			-			370
Total operating expenses		75,703			(2,276	)		73,427
Income from operations		4,721			2,276			6,997
Interest expense, net (including change in fair value of interest rate swaps of $0, respectively)		5,492			-			5,492
Loss on extinguishment of debt		-			-			-
Gain on contingent consideration		-			-			-
Other expense, net		49			-			49
(Loss) income before income tax expense		(820	)		2,276			1,456
Income tax expense (benefit)		(456	)		1,197			741
Net (loss) income		(364	)		1,079			715
Less: net loss attributable to noncontrolling interest		1,126			-			1,126
Net income attributable to AAC Holdings, Inc. common stockholders	$	762		$	1,079		$	1,841

Basic earnings per common share	$	0.03					$	0.08
Diluted earnings per common share	$	0.03					$	0.08
Weighted-average common shares outstanding:
Basic		23,331,414						23,331,414
Diluted		23,469,985						23,469,985

	As Previously Reported			Adjustments			Restated
Revenues
Client related revenue	$	75,692		$	-		$	75,692
Non-client related revenue		2,350			-			2,350
Total revenues		78,042			-			78,042

Operating expenses
Salaries, wages and benefits		34,508			-			34,508
Client related services		6,646			-			6,646
Provision for doubtful accounts		9,496			(3,235	)		6,261
Advertising and marketing		3,266			-			3,266
Professional fees		3,039			-			3,039
Other operating expenses		8,199			-			8,199
Rentals and leases		1,849			-			1,849
Litigation settlement		-			-			-
Depreciation and amortization		5,058			-			5,058
Acquisition-related expenses		42			-			42
Total operating expenses		72,103			(3,235	)		68,868
Income from operations		5,939			3,235			9,174
Interest expense, net (including change in fair value of interest rate swaps of ($25), respectively)		2,846			-			2,846
Loss on extinguishment of debt		5,435			-			5,435
Gain on contingent consideration		-			-			-
Other income, net		6			-			6
(Loss) income before income tax expense		(2,336	)		3,235			899
Income tax expense		562			179			741
Net (loss) income		(2,898	)		3,056			158
Less: net loss attributable to noncontrolling interest		982			-			982
Net (loss) income attributable to AAC Holdings, Inc. common stockholders	$	(1,916	)	$	3,056		$	1,140

Basic (loss) earnings per common share	$	(0.08	)				$	0.05
Diluted (loss) earnings per common share	$	(0.08	)				$	0.05
Weighted-average common shares outstanding:
Basic		23,242,177						23,242,177
Diluted		23,242,177						23,254,162

	As Previously Reported			Adjustments			Restated
Revenues
Client related revenue	$	71,219		$	-		$	71,219
Non-client related revenue		1,820			-			1,820
Total revenues		73,039			-			73,039

Operating expenses
Salaries, wages and benefits		36,772			-			36,772
Client related services		6,378			-			6,378
Provision for doubtful accounts		6,587			(2,184	)		4,403
Advertising and marketing		3,775			-			3,775
Professional fees		2,642			-			2,642
Other operating expenses		8,789			-			8,789
Rentals and leases		1,885			-			1,885
Litigation settlement		-			-			-
Depreciation and amortization		5,469			-			5,469
Acquisition-related expenses		183			-			183
Total operating expenses		72,480			(2,184	)		70,296
Income from operations		559			2,184			2,743
Interest expense, net (including change in fair value of interest rate swaps of ($83), respectively)		2,734			-			2,734
Loss on extinguishment of debt		-			-			-
Gain on contingent consideration		-			-			-
Other expense, net		34			-			34
Loss before income tax expense		(2,209	)		2,184			(25	)
Income tax (benefit) expense		(565	)		1,306			741
Net loss		(1,644	)		878			(766	)
Less: net loss attributable to noncontrolling interest		1,041			-			1,041
Net (loss) income attributable to AAC Holdings, Inc. common stockholders	$	(603	)	$	878		$	275

Basic (loss) earnings per common share	$	(0.03	)				$	0.01
Diluted (loss) earnings per common share	$	(0.03	)				$	0.01
Weighted-average common shares outstanding:
Basic		23,163,626						23,163,626
Diluted		23,163,626						23,174,899

	As Previously Reported			Adjustments			Restated
Assets
Current assets
Cash and cash equivalents	$	5,259		$	-		$	5,259
Accounts receivable, net of allowances		94,583			(34,744	)		59,839
Prepaid expenses and other current assets		5,547			-			5,547
Total current assets		105,389			(34,744	)		70,645
Property and equipment, net		166,345			-			166,345
Goodwill		198,952			-			198,952
Intangible assets, net		12,561			-			12,561
Deferred tax assets, net		13,042			(10,118	)		2,924
Other assets		10,679			-			10,679
Total assets	$	506,968		$	(44,862	)	$	462,106

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	8,722		$	-		$	8,722
Accrued and other current liabilities		31,607			-			31,607
Accrued litigation		-			-			-
Current portion of long-term debt		8,350			-			8,350
Total current liabilities		48,679			-			48,679
Deferred tax liabilities		-			-			-
Long-term debt, net of current portion and debt issuance costs		297,143			-			297,143
Financing lease obligation, net of current portion		24,459			-			24,459
Other long-term liabilities		11,993			-			11,993
Total liabilities		382,274			-			382,274

Stockholders’ equity
Common stock, $0.001 par value: 70,000,000 shares authorized, 24,621,653 shares issued and outstanding at September 30, 2018, respectively		25			-			25
Additional paid-in capital		161,209			-			161,209
Retained deficit		(16,168	)		(44,862	)		(61,030	)
Total stockholders’ equity		145,066			(44,862	)		100,204
Noncontrolling interest		(20,372	)		-			(20,372	)
Total stockholders’ equity including noncontrolling interest		124,694			(44,862	)		79,832
Total liabilities and stockholders’ equity	$	506,968		$	(44,862	)	$	462,106

	As Previously Reported			Adjustments			Restated
Assets
Current assets
Cash and cash equivalents	$	11,353		$	-		$	11,353
Accounts receivable, net of allowances		97,362			(26,305	)		71,057
Prepaid expenses and other current assets		4,638			-			4,638
Total current assets		113,353			(26,305	)		87,048
Property and equipment, net		168,373			-			168,373
Goodwill		197,184			-			197,184
Intangible assets, net		13,201			-			13,201
Deferred tax assets, net		9,572			(7,723	)		1,849
Other assets		11,069			-			11,069
Total assets		512,752			(34,028	)		478,724

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	6,613		$	-		$	6,613
Accrued and other current liabilities		30,487			-			30,487
Accrued litigation		-			-			-
Current portion of long-term debt		6,723			-			6,723
Total current liabilities		43,823			-			43,823
Deferred tax liabilities		-			-			-
Long-term debt, net of current portion and debt issuance costs		295,322			-			295,322
Financing lease obligation, net of current portion		24,488			-			24,488
Other long-term liabilities		12,322			-			12,322
Total liabilities		375,955			-			375,955

Stockholders’ equity
Common stock, $0.001 par value: 70,000,000 shares authorized, 24,596,675 shares issued and outstanding at June 30, 2018, respectively		25			-			25
Additional paid-in capital		160,156			-			160,156
Retained deficit		(4,675	)		(34,028	)		(38,703	)
Total stockholders’ equity		155,506			(34,028	)		121,478
Noncontrolling interest		(18,709	)		-			(18,709	)
Total stockholders’ equity including noncontrolling interest		136,797			(34,028	)		102,769
Total liabilities and stockholders’ equity	$	512,752		$	(34,028	)	$	478,724

	As Previously Reported			Adjustments			Restated
Assets
Current assets
Cash and cash equivalents	$	14,341		$	-		$	14,341
Accounts receivable, net of allowances		99,581			(27,637	)		71,944
Prepaid expenses and other current assets		3,354			-			3,354
Total current assets		117,276			(27,637	)		89,639
Property and equipment, net		169,744			-			169,744
Goodwill		197,184			-			197,184
Intangible assets, net		13,712			-			13,712
Deferred tax assets, net		9,030			(7,343	)		1,687
Other assets		12,468			-			12,468
Total assets	$	519,414		$	(34,980	)	$	484,434

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	3,338		$	-		$	3,338
Accrued and other current liabilities		34,039			-			34,039
Accrued litigation		1,000			-			1,000
Current portion of long-term debt		7,319			-			7,319
Total current liabilities		45,696			-			45,696
Deferred tax liabilities		-			-			-
Long-term debt, net of current portion and debt issuance costs		296,443			-			296,443
Financing lease obligation, net of current portion		24,515			-			24,515
Other long-term liabilities		12,277			-			12,277
Total liabilities		378,931			-			378,931

Stockholders’ equity
Common stock, $0.001 par value: 70,000,000 shares authorized, 24,438,739 shares issued and outstanding at March 31, 2018, respectively		24			-			24
Additional paid-in capital		158,840			-			158,840
Retained deficit		(1,662	)		(34,980	)		(36,642	)
Total stockholders’ equity		157,202			(34,980	)		122,222
Noncontrolling interest		(16,719	)		-			(16,719	)
Total stockholders’ equity including noncontrolling interest		140,483			(34,980	)		105,503
Total liabilities and stockholders’ equity	$	519,414		$	(34,980	)	$	484,434

	As Previously Reported			Adjustments			Restated
Assets
Current assets
Cash and cash equivalents	$	16,412		$	-		$	16,412
Accounts receivable, net of allowances		92,547			(33,638	)		58,909
Prepaid expenses and other current assets		6,030			-			6,030
Total current assets		114,989			(33,638	)		81,351
Property and equipment, net		151,769			-			151,769
Goodwill		134,396			-			134,396
Intangible assets, net		9,169			-			9,169
Deferred tax assets, net		1,579			(1,579	)		-
Other assets		5,664			-			5,664
Total assets	$	417,566		$	(35,217	)	$	382,349

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	5,732		$	-		$	5,732
Accrued and other current liabilities		24,633			-			24,633
Accrued litigation		-			-			-
Current portion of long-term debt		4,736			-			4,736
Total current liabilities		35,101			-			35,101
Deferred tax liabilities		-			4,709			4,709
Long-term debt, net of current portion and debt issuance costs		197,872			-			197,872
Financing lease obligation, net of current portion		24,398			-			24,398
Other long-term liabilities		3,836			-			3,836
Total liabilities		261,207			4,709			265,916

Stockholders’ equity
Common stock, $0.001 par value: 70,000,000 shares authorized, 24,021,219 shares issued and outstanding at September 30, 2017, respectively		24			-			24
Additional paid-in capital		152,440			-			152,440
Retained earnings (deficit)		17,362			(39,926	)		(22,564	)
Total stockholders’ equity		169,826			(39,926	)		129,900
Noncontrolling interest		(13,467	)		-			(13,467	)
Total stockholders’ equity including noncontrolling interest		156,359			(39,926	)		116,433
Total liabilities and stockholders’ equity	$	417,566		$	(35,217	)	$	382,349

	As Previously Reported			Adjustments			Restated
Assets
Current assets
Cash and cash equivalents	$	10,793		$	-		$	10,793
Accounts receivable, net of allowances		96,527			(35,914	)		60,613
Prepaid expenses and other current assets		4,456			-			4,456
Total current assets		111,776			(35,914	)		75,862
Property and equipment, net		148,965			-			148,965
Goodwill		134,396			-			134,396
Intangible assets, net		9,551			-			9,551
Deferred tax assets, net		1,180			(1,180	)		-
Other assets		783			-			783
Total assets	$	406,651		$	(37,094	)	$	369,557

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	10,441		$	-		$	10,441
Accrued and other current liabilities		24,800			-			24,800
Accrued litigation		-			-			-
Current portion of long-term debt		4,503			-			4,503
Total current liabilities		39,744			-			39,744
Deferred tax liabilities		-			3,968			3,968
Long-term debt, net of current portion and debt issuance costs		208,467			-			208,467
Financing lease obligation, net of current portion		-			-			-
Other long-term liabilities		3,782			-			3,782
Total liabilities		251,993			3,968			255,961

Stockholders’ equity
Common stock, $0.001 par value: 70,000,000 shares authorized, 24,060,888 shares issued and outstanding at June 30, 2017, respectively		24			-			24
Additional paid-in capital		150,375			-			150,375
Retained earnings (deficit)		16,600			(41,062	)		(24,462	)
Total stockholders’ equity		166,999			(41,062	)		125,937
Noncontrolling interest		(12,341	)		-			(12,341	)
Total stockholders’ equity including noncontrolling interest		154,658			(41,062	)		113,596
Total liabilities and stockholders’ equity	$	406,651		$	(37,094	)	$	369,557

	As Previously Reported			Adjustments			Restated
Assets
Current assets
Cash and cash equivalents	$	5,880		$	-		$	5,880
Accounts receivable, net of allowances		94,144			(39,149	)		54,995
Prepaid expenses and other current assets		4,897			-			4,897
Total current assets		104,921			(39,149	)		65,772
Property and equipment, net		145,410			-			145,410
Goodwill		134,396			-			134,396
Intangible assets, net		9,953			-			9,953
Deferred tax assets, net		1,316			(1,316	)		-
Other assets		626			-			626
Total assets	$	396,622		$	(40,465	)	$	356,157

Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	13,711		$	-		$	13,711
Accrued and other current liabilities		24,865			-			24,865
Accrued litigation		-			-			-
Current portion of long-term debt		10,965			-			10,965
Total current liabilities		49,541			-			49,541
Deferred tax liabilities		-			3,227			3,227
Long-term debt, net of current portion and debt issuance costs		187,456			-			187,456
Financing lease obligation, net of current portion		-			-			-
Other long-term liabilities		4,121			-			4,121
Total liabilities		241,118			3,227			244,345

Stockholders’ equity
Common stock, $0.001 par value: 70,000,000 shares authorized, 24,076,469 shares issued and outstanding at March 31, 2017, respectively		24			-			24
Additional paid-in capital		148,323			-			148,323
Retained earnings (deficit)		18,516			(43,692	)		(25,176	)
Total stockholders’ equity		166,863			(43,692	)		123,171
Noncontrolling interest		(11,359	)		-			(11,359	)
Total stockholders’ equity including noncontrolling interest		155,504			(43,692	)		111,812
Total liabilities and stockholders’ equity	$	396,622		$	(40,465	)	$	356,157

	As Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net loss	$	(20,254	)	$	(8,019	)	$	(28,273	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts		366			-			366
Depreciation and amortization		16,946			-			16,946
Equity compensation		3,104			-			3,104
Loss on disposal of property and equipment		1,000			-			1,000
Loss on extinguishment of debt		-			-			-
Loss on contingent consideration		-			771			771
Amortization of debt issuance costs		2,077			-			2,077
Deferred income taxes		(5,032	)		3,627			(1,405	)
Changes in operating assets and liabilities:
Accounts receivable		3,503			4,392			7,895
Prepaid expenses and other assets		(461	)		-			(461	)
Accounts payable		645			-			645
Accrued and other current liabilities		2,207			(771	)		1,436
Accrued litigation		(23,300	)		-			(23,300	)
Other long-term liabilities		(559	)		-			(559	)
Net cash (used in) provided by operating activities		(19,758	)		-			(19,758	)
Cash flows from investing activities:
Purchase of property and equipment		(15,458	)		-			(15,458	)
Acquisition of subsidiaries		(65,827	)		-			(65,827	)
Change in funds held on acquisition		-			-			-
Net cash used in investing activities		(81,285	)		-			(81,285	)
Cash flows from financing activities:
Payments on 2015 Credit Facility and Deerfield Facility		-			-			-
Proceeds from 2015 Credit Facility and Deerfield Facility, net of deferred financing costs		-			-			-
Payments on 2017 Credit Facility		(5,172	)		-			(5,172	)
Proceeds from 2017 Credit Facility, net of deferred financing costs		99,286			-			99,286
Proceeds from financing lease obligation, net of deferred financing costs		-			-			-
Payments on capital leases and other		(563	)		-			(563	)
Payments on AdCare Note		(500	)		-			(500	)
Repayment of long-term debt — related party		-			-			-
Change in funds held on acquisition		-			-			-
Payment of employee taxes for net share settlement		(567	)		-			(567	)
Net cash provided by financing activities		92,484			-			92,484
Net change in cash and cash equivalents		(8,559	)		-			(8,559	)
Cash and cash equivalents, beginning of period		13,818			-			13,818
Cash and cash equivalents, end of period	$	5,259		$	-		$	5,259

	As Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net loss	$	(7,098	)	$	2,669		$	(4,429	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts		366			-			366
Depreciation and amortization		11,373			-			11,373
Equity compensation		2,159			-			2,159
Loss on disposal of property and equipment		34			-			34
Loss on extinguishment of debt		-			-			-
Gain on contingent consideration		-			(176	)		(176	)
Amortization of debt issuance costs		1,357			-			1,357
Deferred income taxes		(1,562	)		1,378			(184	)
Changes in operating assets and liabilities:
Accounts receivable		724			(4,047	)		(3,323	)
Prepaid expenses and other assets		1,475			-			1,475
Accounts payable		(1,464	)		-			(1,464	)
Accrued and other current liabilities		457			176			633
Accrued litigation		(23,300	)		-			(23,300	)
Other long-term liabilities		(230	)		-			(230	)
Net cash (used in) provided by operating activities		(15,709	)		-			(15,709	)
Cash flows from investing activities:
Purchase of property and equipment		(11,196	)		-			(11,196	)
Acquisition of subsidiaries		(65,185	)		-			(65,185	)
Change in funds held on acquisition		-			-			-
Net cash used in investing activities		(76,381	)		-			(76,381	)
Cash flows from financing activities:
Payments on 2015 Credit Facility and Deerfield Facility		-			-			-
Proceeds from 2015 Credit Facility and Deerfield Facility, net of deferred financing costs		-			-			-
Payments on 2017 Credit Facility		(3,448	)		-			(3,448	)
Proceeds from 2017 Credit Facility, net of deferred financing costs		94,286			-			94,286
Proceeds from financing lease obligation, net of deferred financing costs		-			-			-
Payments on capital leases and other		(440	)		-			(440	)
Payments on AdCare Note		(250	)		-			(250	)
Repayment of long-term debt — related party		-			-			-
Change in funds held on acquisition		-			-			-
Payment of employee taxes for net share settlement		(523	)		-			(523	)
Net cash provided by financing activities		89,625			-			89,625
Net change in cash and cash equivalents		(2,465	)		-			(2,465	)
Cash and cash equivalents, beginning of period		13,818			-			13,818
Cash and cash equivalents, end of period	$	11,353		$	-		$	11,353

	As Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net Income (loss)	$	(2,095	)	$	1,258		$	(837	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts		-			-			-
Depreciation and amortization		5,464			-			5,464
Equity compensation		798			-			798
Loss on disposal of property and equipment		34			-			34
Loss on extinguishment of debt		-			-			-
Gain (loss) on contingent consideration		-			-			-
Amortization of debt issuance costs		637			-			637
Deferred income taxes		(1,020	)		1,456			436
Changes in operating assets and liabilities:
Accounts receivable		(1,129	)		(2,714	)		(3,843	)
Prepaid expenses and other assets		1,485			-			1,485
Accounts payable		(4,739	)		-			(4,739	)
Accrued and other current liabilities		4,141			-			4,141
Accrued litigation		(22,300	)		-			(22,300	)
Other long-term liabilities		(275	)		-			(275	)
Net cash (used in) provided by operating activities		(18,999	)		-			(18,999	)
Cash flows from investing activities:
Purchase of property and equipment		(7,305	)		-			(7,305	)
Acquisition of subsidiaries		(65,185	)		-			(65,185	)
Change in funds held on acquisition		-			-			-
Net cash used in investing activities		(72,490	)		-			(72,490	)
Cash flows from financing activities:
Payments on 2015 Credit Facility and Deerfield Facility		-			-			-
Proceeds from 2015 Credit Facility and Deerfield Facility, net of deferred financing costs		-			-			-
Payments on 2017 Credit Facility		(1,724	)		-			(1,724	)
Proceeds from 2017 Credit Facility, net of deferred financing costs		94,432			-			94,432
Proceeds from financing lease obligation, net of deferred financing costs		-			-			-
Payments on capital leases and other		(221	)		-			(221	)
Payments on AdCare Note		-			-			-
Repayment of long-term debt — related party		-			-			-
Change in funds held on acquisition		-			-			-
Payment of employee taxes for net share settlement		(475	)		-			(475	)
Net cash provided by financing activities		92,012			-			92,012
Net change in cash and cash equivalents		523			-			523
Cash and cash equivalents, beginning of period		13,818			-			13,818
Cash and cash equivalents, end of period	$	14,341		$	-		$	14,341

	As Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net Income (loss)	$	(4,906	)	$	5,013		$	107
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts		25,765			(7,695	)		18,070
Depreciation and amortization		15,745			-			15,745
Equity compensation		6,048			-			6,048
Loss on disposal of property and equipment		-			-			-
Loss on extinguishment of debt		5,435			-			5,435
Gain on contingent consideration		-			-			-
Amortization of debt issuance costs		949			-			949
Deferred income taxes		(981	)		2,682			1,701
Changes in operating assets and liabilities:
Accounts receivable		(30,978	)		-			(30,978	)
Prepaid expenses and other assets		(703	)		-			(703	)
Accounts payable		(3,423	)		-			(3,423	)
Accrued and other current liabilities		1,171			-			1,171
Accrued litigation		165			-			165
Other long-term liabilities		(257	)		-			(257	)
Net cash (used in) provided by operating activities		14,030			-			14,030
Cash flows from investing activities:
Purchase of property and equipment		(27,186	)		-			(27,186	)
Acquisition of subsidiaries		-			-			-
Change in funds held on acquisition		-			-			-
Net cash used in investing activities		(27,186	)		-			(27,186	)
Cash flows from financing activities:
Payments on 2015 Credit Facility and Deerfield Facility		(211,094	)		-			(211,094	)
Proceeds from 2015 Credit Facility and Deerfield Facility, net of deferred financing costs		18,000			-			18,000
Payments on 2017 Credit Facility		(15,813	)		-			(15,813	)
Proceeds from 2017 Credit Facility, net of deferred financing costs		211,494			-			211,494
Proceeds from financing lease obligation, net of deferred financing costs		24,617			-			24,617
Payments on capital leases and other		(596	)		-			(596	)
Payments on AdCare Note		-			-			-
Repayment of long-term debt — related party		-			-			-
Change in funds held on acquisition		-			-			-
Payment of employee taxes for net share settlement		(1,004	)		-			(1,004	)
Net cash provided by financing activities		25,604			-			25,604
Net change in cash and cash equivalents		12,448			-			12,448
Cash and cash equivalents, beginning of period		3,964			-			3,964
Cash and cash equivalents, end of period	$	16,412		$	-		$	16,412

	As Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net Income (loss)	$	(4,542	)	$	3,934		$	(608	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts		16,083			(5,419	)		10,664
Depreciation and amortization		10,527			-			10,527
Equity compensation		4,189			-			4,189
Loss on disposal of property and equipment		-			-			-
Loss on extinguishment of debt		5,435			-			5,435
Gain on contingent consideration		-			-			-
Amortization of debt issuance costs		364			-			364
Deferred income taxes		(582	)		1,485			903
Changes in operating assets and liabilities:
Accounts receivable		(25,276	)		-			(25,276	)
Prepaid expenses and other assets		690			-			690
Accounts payable		1,286			-			1,286
Accrued and other current liabilities		526			-			526
Accrued litigation		-			-			-
Other long-term liabilities		(311	)		-			(311	)
Net cash (used in) provided by operating activities		8,389			-			8,389
Cash flows from investing activities:
Purchase of property and equipment		(18,665	)		-			(18,665	)
Acquisition of subsidiaries		-			-			-
Change in funds held on acquisition		-			-			-
Net cash used in investing activities		(18,665	)		-			(18,665	)
Cash flows from financing activities:
Proceeds from 2017 Revolving Facility, net of debt issuance costs		9,169			-			9,169
Proceeds from 2017 Term Loan, net of debt issuance costs		202,325			-			202,325
Payments on 2015 Credit Facility and Deerfield Facility		(193,094	)		-			(193,094	)
Payments on 2017 Credit Facility		-			-			-
Proceeds from 2017 Credit Facility, net of deferred financing costs		-			-			-
Proceeds from financing lease obligation, net of deferred financing costs		-			-			-
Payments on capital leases and other		(400	)		-			(400	)
Payments on AdCare Note		-			-			-
Repayment of long-term debt — related party		-			-			-
Change in funds held on acquisition		-			-			-
Payment of employee taxes for net share settlement		(895	)		-			(895	)
Net cash provided by financing activities		17,105			-			17,105
Net change in cash and cash equivalents		6,829			-			6,829
Cash and cash equivalents, beginning of period		3,964			-			3,964
Cash and cash equivalents, end of period	$	10,793		$	-		$	10,793

	As Previously Reported			Adjustments			Restated
Cash flows from operating activities:
Net Income (loss)	$	(1,644	)	$	878		$	(766	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for doubtful accounts		6,587			(2,184	)		4,403
Depreciation and amortization		5,469			-			5,469
Equity compensation		2,137			-			2,137
Loss on disposal of property and equipment		-			-			-
Loss on extinguishment of debt		-			-			-
Gain on contingent consideration		-			-			-
Amortization of debt issuance costs		173			-			173
Deferred income taxes		(718	)		1,306			588
Changes in operating assets and liabilities:
Accounts receivable		(13,397	)		-			(13,397	)
Prepaid expenses and other assets		406			-			406
Accounts payable		4,556			-			4,556
Accrued and other current liabilities		759			-			759
Accrued litigation		-			-			-
Other long-term liabilities		28			-			28
Net cash (used in) provided by operating activities		4,356			-			4,356
Cash flows from investing activities:
Purchase of property and equipment		(10,687	)		-			(10,687	)
Acquisition of subsidiaries		-			-			-
Change in funds held on acquisition		-			-			-
Net cash used in investing activities		(10,687	)		-			(10,687	)
Cash flows from financing activities:
Proceeds from revolving line of credit, net		11,679			-			11,679
Payments on 2015 Credit Facility and Deerfield Facility		-			-			-
Proceeds from 2015 Credit Facility and Deerfield Facility, net of deferred financing costs		-			-			-
Payments on 2017 Credit Facility		-			-			-
Proceeds from 2017 Credit Facility, net of deferred financing costs		-			-			-
Proceeds from financing lease obligation, net of deferred financing costs		-			-			-
Payments on capital leases and other		(2,537	)		-			(2,537	)
Payments on AdCare Note		-			-			-
Repayment of long-term debt — related party		-			-			-
Change in funds held on acquisition		-			-			-
Payment of employee taxes for net share settlement		(895	)		-			(895	)
Net cash provided by financing activities		8,247			-			8,247
Net change in cash and cash equivalents		1,916			-			1,916
Cash and cash equivalents, beginning of period		3,964			-			3,964
Cash and cash equivalents, end of period	$	5,880		$	-		$	5,880

Comparison of the Three Months Ended September 30, 2018 (Restated) to the Three Months Ended September 30, 2017 (Restated)

The following discussion sets forth the effects of the restatement for both periods on the affected line items within our previously reported interim Consolidated Statements of Operations.

Client related revenue decreased $11.8 million, or 15.2%, to $66.1 million for the three months ended September 30, 2018 from $77.9 million for the three months ended September 30, 2017. During the three months ended September 30, 2018, we recorded a change in accounting estimate which reduced revenue by $6.0 million. Excluding the change in accounting estimate, client related revenue, decreased $5.8 million, or 7.5%, to $72.1 million for the three months ended September 30, 2018 from $77.9 million for the three months ended September 30, 2017. The decrease in client related revenue was primarily due to a 17.6% decrease in ADR, excluding the change in accounting estimate, from the three months ended September 30, 2018 compared to the three months ended September 30, 2017, offset partially by the full quarter benefit of revenue from AdCare, which was acquired on March 1, 2018.

Our non-client related revenue primarily consists of service charges for diagnostic laboratory services provided to clients of third-party addiction treatment providers, addiction care treatment services for individuals in the criminal justice system and payments by third-party behavioral healthcare providers who use our internet assets to serve potential patients who are seeking treatment. Non-client related revenue increased $0.4 million, or 21.0%, to $2.9 million for the three months ended September 30, 2018 from $2.5 million for the three months ended September 30, 2017.

As a result of the adoption of Topic 606 as of January 1, 2018, substantially all of our adjustments related to bad debt will now be recorded as a direct reduction to revenue as opposed to the provision for doubtful accounts included within operating expenses. The only activity that will be recorded in operating expenses from 2018 forward will be bad debt related to specific customers that experience significant adverse changes in creditworthiness, such as bankruptcies.

Comparison of the Three Months Ended June 30, 2018 (Restated) to the Three Months Ended June 30, 2017 (Restated)

The following discussion sets forth the effects of the restatement on the affected line items within our previously reported interim Consolidated Statements of Operations.

Client related revenue increased $8.9 million, or 11.8%, to $84.6 million for the three months ended June 30, 2018 from $75.7 million for the three months ended June 30, 2017. The increase in client related revenue was primarily due to a 9.8% increase in ADR from the three months ended June 30, 2018 compared to the three months ended June 30, 2017, as well as the full quarter benefit of revenue from AdCare, which was acquired on March 1, 2018.

Our non-client related revenue primarily consists of service charges for diagnostic laboratory services provided to clients of third-party addiction treatment providers, addiction care treatment services for individuals in the criminal justice system and payments by third-party behavioral healthcare providers who use our internet assets to serve potential patients who are seeking treatment. Non-client related revenue increased $1.1 million, or 47.8%, to $3.5 million for the three months ended June 30, 2018 from $2.5 million for the three months ended June 30, 2017.

Comparison of the Three Months Ended March 31, 2018 (Restated) to the Three Months Ended March 31, 2017 (Restated)

The following discussion sets forth the effects of the restatement on the affected line items within our previously reported interim Consolidated Statements of Operations.

Client related revenue increased $7.4 million, or 10.4%, to $78.6 million for the three months ended March 31, 2018 from $71.2 million for the three months ended March 31, 2017. The increase in client related revenue was primarily due to a 5.0% increase in ADC and a 45.1% increase in ADR from the three months ended March 31, 2018 compared to the three months ended March 31, 2017, as well as the benefit of revenue from AdCare, which was acquired on March 1, 2018.

Our non-client related revenue primarily consists of service charges for diagnostic laboratory services provided to clients of third-party addiction treatment providers, addiction care treatment services for individuals in the criminal justice system and payments by third-party behavioral healthcare providers who use our internet assets to serve potential patients who are seeking treatment. Non-client related revenue increased $0.7 million, or 40.5%, to $2.6 million for the three months ended March 31, 2018 from $1.8 million for the three months ended March 31, 2017.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Title of each Class		Name of exchange on which registered
Common Stock, $0.001 par value		New York Stock Exchange

	10/2/2014		12/31/2014		12/31/2015		12/31/2016		12/31/2017		12/31/2018
AAC Holdings, Inc.	$	100.00		167.14		103.03		39.14		48.65		7.57
S&P 500	$	100.00		105.79		105.02		115.04		137.38		128.81
S&P 500 Health Care Index	$	100.00		108.38		114.03		109.06		130.88		137.01

	Total number of shares purchased		Aggregate price paid per share		Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet to be purchased under the plans or programs
October 1, 2018 through October 31, 2018		3,631	7.00			—		—
November 1, 2018 through November 30, 2018		—		—		—		—
December 1, 2018 through December 31, 2018		14,233	1.40			—		—

Balance Sheet Data (as of the end of the period):
Cash and cash equivalents	$	5,409	$	13,818	$	3,964	$	18,750	$	48,540
Total assets	$	452,277	$	391,565	$	341,954	$	291,781	$	145,952
Total debt, including current portion	$	319,158	$	201,173	$	189,106	$	145,141	$	28,641
Total stockholders' equity, including noncontrolling interests	$	42,273	$	99,458	$	110,372	$	112,701	$	95,141

	Year Ended December 31, 2018 As Reported				Year Ended December 31, 2017 Restated				Increase (Decrease)
	Amount		%		Amount		%		Amount			%
Inpatient treatment facility services	$	235,513		82.8	$	246,976		80.0	$	(11,463	)		(4.6	)
Outpatient facility and sober living services		34,405		12.1		29,080		9.4		5,325			18.3
Client related diagnostic services		14,607		5.1		32,482		10.6		(17,875	)		(55.0	)
Total client related revenue	$	284,525		100.0	$	308,538		100.0	$	(24,013	)		(7.8	)

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

Explanatory Note		3
PART I
Item 1. Business		4
Item 1A. Risk Factors		15
Item 1B. Unresolved Staff Comments		31
Item 2. Properties		31
Item 3. Legal Proceedings		31
Item 4. Mine Safety Disclosures		31
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities		32
Item 6. Selected Financial Data		34
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
Item 7A. Quantitative and Qualitative Disclosures About Market Risk		58
Item 8. Financial Statements and Supplementary Data		58
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		58
Item 9A. Controls and Procedures		58
Item 9B. Other Information		60
PART III
Item 10. Directors, Executive Officers and Corporate Governance		61
Item 11. Executive Compensation		61
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		61
Item 13. Certain Relationships and Related Transactions, and Director Independence		61
Item 14. Principal Accounting Fees and Services		61
PART IV
Item 15. Exhibits and Financial Statement Schedules		62
Item 16. Form 10-K Summary		64
SIGNATURES

	As of March 31, 2019		As of December 31, 2018		As of December 31, 2017
Inpatient Beds		996		1,080		939
Sober Living Beds		471		471		409
Total Beds		1,467		1,551		1,348

	As Reported				Comparable Accounting Basis
	Year Ended December 31, 2018				Year Ended December 31, 2017 Restated				Increase (Decrease)
	Amount		%		Amount		%		Amount			%
Inpatient treatment facility services	$	235,513		82.8	$	230,461		81.5	$	5,052			2.2
Outpatient facility and sober living services		34,405		12.1		28,710		10.2		5,695			19.8
Client related diagnostic services		14,607		5.1		23,435		8.3		(8,828	)		(37.7	)
Total client related revenue	$	284,525		100.0	$	282,606		100.0	$	1,919			0.7

	Current			31-180 Days			Over 180 Days			Total
December 31, 2017		31.2	%		44.7	%		24.1	%		100.0	%
December 31, 2016		32.8	%		49.3	%		17.9	%		100.0	%

	Payments due by period:
	(in thousands)
Contractual Obligations	Total		Less than 1 year		2 to 3 years		4 to 5 years		More than 5 years
Senior secured loans⁽¹⁾	$	437,601	$	40,485	$	84,189	$	312,927	$	—
Subordinated debt⁽²⁾		10,460		1,427		3,703		5,330		—
Capital lease obligations⁽³⁾		916		626		270		20		—
Operating lease obligations		84,542		11,722		18,712		15,751		38,357
Litigation settlement⁽⁴⁾		8,000		8,000		—		—		—
Financing lease obligation⁽⁵⁾		59,571		4,345		8,752		8,807		37,667
Total	$	601,090	$	66,605	$	115,626	$	342,835	$	76,024

Exhibit No.	Description
2.1†	Securities Purchase Agreement dated September 13, 2017, by and among AAC Holdings, Inc., AAC Healthcare Network, Inc., AdCare, Inc., and AdCare Holding Trust (previously filed as Exhibit 2.1 to the Current Report on Form 8-K (File 001-36643), filed on September 13, 2017 and incorporated herein by reference).

3.1	Articles of Incorporation of AAC Holdings, Inc. (previously filed as Exhibit 3.1 to Amendment No. 2 to Registration Statement on Form S-1 (Registration No. 333-197383), filed on September 10, 2014 and incorporated herein by reference).

3.2	Amended and Restated Bylaws of AAC Holdings, Inc. (previously filed as Exhibit 4.2 to the Registration Statement on Form S-8 (Registration No. 333-199161), filed on October 3, 2014 and incorporated herein by reference).
4.1	Form of Certificate of Common Stock of AAC Holdings, Inc. (previously filed as Exhibit 4.1 to Amendment No. 1 to the Registration Statement on Form S-1 (Registration No. 333-197383), filed on August 15, 2014 and incorporated herein by reference).

10.1+	Form of Restricted Share Award Agreement under the AAC Holdings, Inc. 2014 Equity Incentive Plan (previously filed as Exhibit 10.1 to the Current Report on Form 8-K (File No. 001-36643), filed on January 9, 2015 and incorporated herein by reference).
10.2+	Form of Non-Employee Director Award Agreement under the AAC Holdings, Inc. 2014 Equity Incentive Plan (previously filed as Exhibit 10.2 to the Current Report on Form 8-K (File No. 001-36643), filed on January 9, 2015 and incorporated herein by reference).

10.3+	Form of Director Indemnification Agreement (previously filed as Exhibit 10.6 to the Registration Statement on Form S-1 (Registration No. 333-197383), filed on July 11, 2014 and incorporated herein by reference).

10.4+	AAC Holdings, Inc. 2014 Equity Incentive Plan as amended (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on May 17, 2017 and incorporated herein by reference).

10.5+	AAC Holdings, Inc. Employee Stock Purchase Plan as amended (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on May 17, 2017 and incorporated herein by reference).

10.6	Credit Agreement dated June 30, 2017, by and among AAC Holdings, Inc., Credit Suisse AG, as administrative agent and collateral agent and the Lenders party thereto (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on August 3, 2017 and incorporated herein by reference).

10.7	Guarantee and Collateral Agreement, dated June 30, 2017, by and among AAC Holdings, Inc., the subsidiary guarantors party thereto and Credit Suisse AG, as collateral agent (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on August 3, 2017 and incorporated herein by reference).

10.8	Incremental Loan Assumption Agreement dated September 25, 2017, by and between AAC Holdings, Inc., the Incremental Revolving Credit Lenders, Credit Suisse AG, as administrative agent, and the other Loan Parties (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on September 26, 2017 and incorporated herein by reference).

10.9	Incremental Loan Assumption Agreement dated March 1, 2018, by and among AAC Holdings, Inc., American Addiction Centers, Inc. and the Incremental Term Lenders (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on March 2, 2018 and incorporated herein by reference).

10.10	Amendment No. 1, dated March 30, 2018, to Guarantee and Collateral Agreement, dated June 30, 2017 by and among AAC Holdings, Inc., a Nevada corporation and Credit Suisse AG. (previously filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q (File No. 001-36643), filed on May 9, 2018 and incorporated herein by reference).

10.11*	Credit Agreement, dated as of March 8, 2019, among the Company, the lenders party thereto and Credit Suisse AG, as administrative agent and collateral agent.

10.12*	Amendment And Waiver No. 1, dated as of March 8 2019, to the Credit Agreement, dated June 30, 2017 (as previously amended), by and among the Company, the other loan parties thereto, the required lenders party thereto and Credit Suisse AG, as administrative agent and collateral agent.

10.13*	Amendment No. 2, dated as of March 8, 2019, to the Guarantee and Collateral Agreement, dated as of June 30, 2017 (as previously amended), made by the Company and certain subsidiaries of the Company in favor of Credit Suisse AG, as collateral agent.

10.14*	Guarantee And Collateral Agreement, dated March 8, 2019, made by the Company, and certain subsidiaries of the Company in favor of Credit Suisse, AG, as collateral agent.

10.15*	Intercreditor Agreement, dated as of March 8, 2019, among Credit Suisse AG as senior lien representative and junior lien representative, AAC Holdings, Inc. and other grantor parties thereto

10.16	Purchase and Sale Agreement, dated August 7, 2017, by and among Concorde Real Estate, LLC, Greenhouse Real Estate, LLC and MedEquities Realty Operating Partnership, L.P. (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on August 10, 2017 and incorporated herein by reference).

10.17	Master Lease dated August 9, 2017, by and among Concorde Real Estate, LLC, Greenhouse Real Estate, LLC, AAC Las Vegas Outpatient Center, LLC, AAC Dallas Outpatient Center, LLC, MRT of Nevada – ATF, LLC and MRT of Texas – ATF, LLC. (previously filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on August 10, 2017 and incorporated herein by reference).

10.18+	Separation Agreement and Release dated September 8, 2017, by and among AAC Holdings, Inc., American Addiction Centers, Inc. and Jerrod N. Menz (previously filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K (File No. 001-36643), filed on February 23, 2018 and incorporated herein by reference.)

10.19+	Separation Agreement and Release dated November 9, 2017, by and among AAC Holdings, Inc., American Addiction Centers, Inc. and Kirk R. Manz (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on November 13, 2017 and incorporated herein by reference).

10.20+	Employment Offer Letter dated December 4, 2017, by and between AAC Holdings, Inc. and Michael Nanko (previously filed as exhibit 10.14 to the Company’s Annual Report on Form 10-K (File No. 001-36643), filed on February 23, 2018 and incorporated herein by reference)

10.21+	Employment Offer Letter dated September 5, 2018, by and by and between AAC Holdings, Inc. and Stephen Ebbett. (previously filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K (File No. 001-36643), filed on September 5, 2018 and incorporated herein by reference).

10.22*+	Confidential Separation Agreement and Mutual Release, dated March 12,2019, by and between the Company and Thomas W. Doub.

10.23*	Amendment No. 1 to Credit Agreement, dated as of April 5, 2019 among the Company, the other loan parties, the lenders party thereto and Credit Suisse AG, as administrative agent and collateral agent.
21.1*	List of subsidiaries.

23.1*	Consent of BDO USA, LLP.

31.1*	Certification of Chief Executive Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification of Chief Financial Officer pursuant to Exchange Act Rules 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1**	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	XBRL Instance Document.
101.SCH*	XBRL Taxonomy Extension Schema Document.
101.CAL*	XBRL Taxonomy Calculation Linkbase Document.
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*	XBRL Taxonomy Labels Linkbase Document.
101.PRE*	XBRL Taxonomy Presentation Linkbase Document.

		PAGE
Report of Independent Registered Public Accounting Firm		F-2
Consolidated Statements of Operations for the years ended December 31, 2018, 2017, and 2016		F-3
Consolidated Balance Sheets as of December 31, 2018 and 2017		F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2018, 2017, and 2016		F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017, and 2016		F-6
Notes to Consolidated Financial Statements		F-8

	Previous Accounting Guidance				As Reported
	Year Ended December 31, 2018				Year Ended December 31, 2017 Restated				Increase (Decrease)
	Amount		%		Amount		%		Amount			%
Inpatient treatment facility services	$	247,273		80.3	$	246,976		80.0	$	297			0.1
Outpatient facility and sober living services		35,947		11.7		29,080		9.4		6,867			23.6
Client related diagnostic services		24,561		8.0		32,482		10.6		(7,921	)		(24.4	)
Total client related revenue	$	307,781		100.0	$	308,538		100.0	$	(757	)		(0.2	)

Balance at December 31, 2015, restated	$	41,145
Additions charged to provision for doubtful accounts		38,549
Accounts written off, net of recoveries		(10,234	)
Balance at December 31, 2016, restated	$	69,460
Additions charged to provision for doubtful accounts		25,932
Accounts written off, net of recoveries		(6,968	)
Balance at December 31, 2017, restated	$	88,424

Balance at January 1, 2018 ⁽¹⁾	$	-
Additions charged to provision for doubtful accounts		366
Accounts written off, net of recoveries		(366	)
Balance at December 31, 2018	$	-

		Range of Lives
Computer software and equipment		3 years
Buildings		36 years
Furniture, fixtures and equipment		5 years
Vehicles		5 years
Equipment under capital lease		3-5 years
Leasehold improvements		Life of the asset or lease,
		whichever is less

	Year Ended December 31, 2018
	As Reported		Previous Accounting Guidance		Impact of Adopting Topic 606
Client related revenue	$	284,525	$	307,781	$	(23,256	)
Non-client related revenue	$	11,238	$	11,727	$	(489	)
Provision for doubtful accounts	$	366	$	24,111	$	(23,745	)

	AdCare Acquisition
Cash and cash equivalents	$	2,700
Accounts receivable		4,357
Prepaid expenses and other assets		996
Property and equipment		15,309
Goodwill		64,556
Intangible assets		5,120
Total assets acquired		93,038
Accrued and other current liabilities		5,931
Long-term liabilities		2,004
Net assets acquired	$	85,103

Balance at December 31, 2016	$	134,396
2017 Activity		-
Balance at December 31, 2017	$	134,396
AdCare Acquisition		64,556
Balance at December 31, 2018	$	198,952

	Gross Carrying Value				Accumulated Amortization
	December 31,		December 31,		December 31,		December 31,
	2018		2017		2018		2017
Trademarks	$	8,422	$	5,322	$	2,777	$	1,986
Non-compete agreements		2,107		1,587		1,583		1,372
Marketing intangibles		5,651		5,651		2,050		1,485
Leasehold interests		1,498		1,498	587		397
Service contracts		950		—	79			—
Other		601		51		90		40
Intangible assets	$	19,229	$	14,109	$	7,166	$	5,280

Balance at December 31, 2016	$	10,356
Amortization expense		(1,527	)
Balance at December 31, 2017	$	8,829
Amortization expense		(1,886	)
AdCare Acquisition		5,120
Balance at December 31, 2018	$	12,063

Year ended December 31,
2019	$	1,955
2020		1,951
2021		1,756
2022		1,619
2023		1,385
Thereafter		3,397
Total	$	12,063

Years ending December 31,	Notes Payable¹		Capital Lease Obligations
2019	$	11,343	$	626
2020		14,791		208
2021		14,791		62
2022		66,791		12
2023		218,647		8
Thereafter		—		—
Total	$	326,363	$	916
Less interest portion				(36	)
Total, excluding interest			$	880

Years ending December 31,	Annual Payment
2019	$	2,233
2020		2,267
2021		2,301
2022		2,336
2023		2,371
Thereafter		22,093
Total	$	33,601

				Weighted-
				Average Grant
	Shares			Date Fair Value
Unvested at December 31, 2016		522,175		$	23.22
Granted		446,000			8.60
Vested		(402,267	)		18.49
Forfeitures		(217,053	)		17.27
Unvested at December 31, 2017		348,855		$	13.69
Granted		196,000			11.47
Vested		(286,817	)		14.19
Forfeitures		(76,213	)		14.44
Unvested at December 31, 2018		181,825		$	10.20

	Three Months Ended March 31, 2018 Restated
	As Reported		Previous Accounting Guidance		Impact of Adopting Topic 606
Client related revenue	$	78,630	$	82,481	$	(3,851	)
Non-client related revenue		2,557		2,798		(241	)
Provision for doubtful accounts		-		4,092		(4,092	)

	Three Months Ended June 30, 2018 Restated
	As Reported		Previous Accounting Guidance		Impact of Adopting Topic 606
Client related revenue	$	84,620	$	96,150	$	(11,530	)
Non-client related revenue		3,474		3,616		(142	)
Provision for doubtful accounts		366		12,038		(11,672	)

	Three Months Ended September 30, 2018 Restated
	As Reported		Previous Accounting Guidance		Impact of Adopting Topic 606
Client related revenue	$	66,107	$	81,626	$	(15,519	)
Non-client related revenue		2,927		3,029		(102	)
Provision for doubtful accounts		-		15,621		(15,621	)

AAC Holdings, Inc.

By:		/s/ Michael T. Cartwright
		Michael T. Cartwright
		Chairman and Chief Executive Officer

Signature		Title		Date

/s/ Michael T. Cartwright		Chairman and Chief Executive Officer		April 12, 2019
Michael T. Cartwright		(Principal Executive Officer)

/s/ Andrew W. McWilliams		Chief Financial Officer		April 12, 2019
Andrew W. McWilliams		(Principal Financial and Accounting Officer)

/s/ Darrell S. Freeman, Sr.		Lead Independent Director		April 12, 2019
Darrell S. Freeman, Sr.

/s/ Michael J. Blackburn	Director		April 12, 2019
Michael J. Blackburn

/s/ Jerry D. Bostelman	Director		April 12, 2019
Jerry D. Bostelman

/s/ Lucius E. Burch, III		Director		April 12, 2019
Lucius E. Burch, III

/s/ W. Larry Cash		Director		April 12, 2019
W. Larry Cash

/s/ David W. Hillis	Director		April 12, 2019
David W. Hillis

/s/ David C. Kloeppel		Director		April 12, 2019
David C. Kloeppel