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ACHC Acadia Healthcare

Filed: 30 Apr 21, 4:18pm

Table of contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2021

Or

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

 

For the transition period from                     to                     

Commission File Number: 001-35331

 

Acadia Healthcare Company, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

 

45-2492228

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

6100 Tower Circle, Suite 1000

Franklin, Tennessee 37067

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

(615) 861-6000

(Registrant’s telephone number, including area code)

 

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

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

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

 

Large accelerated filer

 

Accelerated filer

  Non-accelerated filer

 

Smaller reporting company

 

Emerging growth company 

 

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

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

Securities registered or to be registered pursuant to Section 12(b) of the Act:

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, $.01 par value

 

ACHC

 

NASDAQ Global Select Market

At April 30, 2021, there were 89,739,084 shares of the registrant’s common stock outstanding.

 

 

 


Table of contents

 

 

 

ACADIA HEALTHCARE COMPANY, INC.

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

 

 

 

 

Item 1.

  

Financial Statements

1

 

 

 

 

  

Condensed Consolidated Balance Sheets (Unaudited)

1

 

 

 

 

  

Condensed Consolidated Statements of Operations (Unaudited)

2

 

 

 

 

  

Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

3

 

 

 

 

  

Condensed Consolidated Statements of Equity (Unaudited)

4

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows (Unaudited)

5

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements (Unaudited)

6

 

 

 

Item 2.

  

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

23

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

34

 

 

 

Item 4.

  

Controls and Procedures

34

 

 

PART II – OTHER INFORMATION

 

 

 

 

Item 1.

  

Legal Proceedings

35

 

 

 

Item 1A.

  

Risk Factors

35

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

 

 

Item 6.

  

Exhibits

36

 

 

SIGNATURES

37

 

 

 


Table of contents

 

 

PART I – FINANCIAL INFORMATION

Item 1.

Financial Statements

Acadia Healthcare Company, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

(In thousands, except share and per

share amounts)

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

178,915

 

 

$

378,697

 

Accounts receivable, net

 

 

276,041

 

 

 

273,551

 

Other current assets

 

 

73,269

 

 

 

61,332

 

Current assets held for sale

 

 

 

 

 

1,809,815

 

Total current assets

 

 

528,225

 

 

 

2,523,395

 

Property and equipment, net

 

 

1,654,732

 

 

 

1,622,896

 

Goodwill

 

 

2,105,264

 

 

 

2,105,264

 

Intangible assets, net

 

 

68,627

 

 

 

68,535

 

Deferred tax assets

 

 

3,177

 

 

 

3,209

 

Operating lease right-of-use assets

 

 

96,205

 

 

 

96,937

 

Other assets

 

 

70,685

 

 

 

79,126

 

Total assets

 

$

4,526,915

 

 

$

6,499,362

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

$

11,911

 

 

$

153,478

 

Accounts payable

 

 

91,505

 

 

 

87,815

 

Accrued salaries and benefits

 

 

127,827

 

 

 

124,912

 

Current portion of operating lease liabilities

 

 

18,696

 

 

 

18,916

 

Other accrued liabilities

 

 

161,040

 

 

 

178,453

 

Derivative instrument liabilities

 

 

 

 

 

84,584

 

Current liabilities held for sale

 

 

 

 

 

660,027

 

Total current liabilities

 

 

410,979

 

 

 

1,308,185

 

Long-term debt

 

 

1,484,212

 

 

 

2,968,948

 

Deferred tax liabilities

 

 

68,678

 

 

 

50,017

 

Operating lease liabilities

 

 

83,731

 

 

 

84,029

 

Other liabilities

 

 

124,616

 

 

 

133,412

 

Total liabilities

 

 

2,172,216

 

 

 

4,544,591

 

Redeemable noncontrolling interests

 

 

56,700

 

 

 

55,315

 

Equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value; 10,000,000 shares authorized, 0 shares issued

 

 

 

 

 

 

Common stock, $0.01 par value; 180,000,000 shares authorized; 88,729,527

   and 88,024,395 issued and outstanding at March 31, 2021 and

   December 31, 2020, respectively

 

 

887

 

 

 

880

 

Additional paid-in capital

 

 

2,597,781

 

 

 

2,580,327

 

Accumulated other comprehensive loss

 

 

 

 

 

(371,365

)

Accumulated deficit

 

 

(300,669

)

 

 

(310,386

)

Total equity

 

 

2,297,999

 

 

 

1,899,456

 

Total liabilities and equity

 

$

4,526,915

 

 

$

6,499,362

 

 

 

See accompanying notes.

1


Table of contents

 

Acadia Healthcare Company, Inc.

Condensed Consolidated Statements of Operations

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands, except per share amounts)

 

Revenue

 

$

551,199

 

 

$

509,217

 

Salaries, wages and benefits (including equity-based compensation

     expense of $7,034 and $4,979, respectively)

 

 

304,333

 

 

 

286,987

 

Professional fees

 

 

31,617

 

 

 

31,051

 

Supplies

 

 

21,322

 

 

 

22,196

 

Rents and leases

 

 

9,412

 

 

 

9,117

 

Other operating expenses

 

 

72,010

 

 

 

68,156

 

Depreciation and amortization

 

 

24,894

 

 

 

22,835

 

Interest expense, net

 

 

29,027

 

 

 

42,565

 

Debt extinguishment costs

 

 

24,650

 

 

 

 

Transaction-related expenses

 

 

4,610

 

 

 

1,526

 

Total expenses

 

 

521,875

 

 

 

484,433

 

Income from continuing operations before income taxes

 

 

29,324

 

 

 

24,784

 

Provision for income taxes

 

 

6,204

 

 

 

5,806

 

Income from continuing operations

 

 

23,120

 

 

 

18,978

 

(Loss) income from discontinued operations, net of taxes

 

 

(12,641

)

 

 

15,089

 

Net income

 

 

10,479

 

 

 

34,067

 

Net income attributable to noncontrolling interests

 

 

(762

)

 

 

(604

)

Net income attributable to Acadia Healthcare Company, Inc.

 

$

9,717

 

 

$

33,463

 

Basic earnings per share attributable to Acadia Healthcare Company,

    Inc. stockholders:

 

 

 

 

 

 

 

 

Income from continuing operations attributable to Acadia Healthcare Company, Inc.

 

$

0.25

 

 

$

0.21

 

(Loss) income from discontinued operations

 

 

(0.14

)

 

 

0.17

 

Net income attributable to Acadia Healthcare Company, Inc.

 

$

0.11

 

 

$

0.38

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to Acadia Healthcare Company,

    Inc. stockholders:

 

 

 

 

 

 

 

 

Income from continuing operations attributable to Acadia Healthcare Company, Inc.

 

$

0.25

 

 

$

0.21

 

(Loss) income from discontinued operations

 

 

(0.14

)

 

 

0.17

 

Net income attributable to Acadia Healthcare Company, Inc.

 

$

0.11

 

 

$

0.38

 

Weighted-average shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

88,242

 

 

 

87,765

 

Diluted

 

 

89,941

 

 

 

87,971

 

 

See accompanying notes.

2


Table of contents

 

Acadia Healthcare Company, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Net income

 

$

10,479

 

 

$

34,067

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

 

(4,260

)

 

 

(122,000

)

Gain on derivative instruments, net of tax of $0.1 million and $16.3 million, respectively

 

 

19

 

 

 

43,746

 

U.K. Sale

 

 

375,606

 

 

 

 

Other comprehensive income (loss)

 

 

371,365

 

 

 

(78,254

)

Comprehensive income (loss)

 

 

381,844

 

 

 

(44,187

)

Comprehensive income attributable to noncontrolling interests

 

 

(762

)

 

 

(604

)

Comprehensive income (loss) attributable to Acadia Healthcare

     Company, Inc.

 

$

381,082

 

 

$

(44,791

)

 

See accompanying notes.

3


Table of contents

 

Acadia Healthcare Company, Inc.

Condensed Consolidated Statements of Equity

(Unaudited)

(In thousands)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

Other

Comprehensive

 

 

Retained

Earnings

(Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit)

 

 

Total

 

Balance at December 31, 2019

 

 

87,715

 

 

$

877

 

 

$

2,557,642

 

 

$

(414,884

)

 

$

361,746

 

 

$

2,505,381

 

Common stock issued under stock incentive plans

 

 

127

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Common stock withheld for minimum statutory taxes

 

 

 

 

 

 

 

 

(1,402

)

 

 

 

 

 

 

 

 

(1,402

)

Equity-based compensation expense

 

 

 

 

 

 

 

 

4,979

 

 

 

 

 

 

 

 

 

4,979

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(78,254

)

 

 

 

 

 

(78,254

)

Net income attributable to Acadia Healthcare

   Company, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,463

 

 

 

33,463

 

Balance at March 31, 2020

 

 

87,842

 

 

 

878

 

 

 

2,561,218

 

 

 

(493,138

)

 

 

395,209

 

 

 

2,464,167

 

Common stock issued under stock incentive plans

 

 

56

 

 

 

1

 

 

 

169

 

 

 

 

 

 

 

 

 

170

 

Common stock withheld for minimum statutory taxes

 

 

 

 

 

 

 

 

(145

)

 

 

 

 

 

 

 

 

(145

)

Equity-based compensation expense

 

 

 

 

 

 

 

 

5,808

 

 

 

 

 

 

 

 

 

5,808

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(7,741

)

 

 

 

 

 

(7,741

)

Net income attributable to Acadia Healthcare

   Company, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

41,079

 

 

 

41,079

 

Balance at June 30, 2020

 

 

87,898

 

 

 

879

 

 

 

2,567,050

 

 

 

(500,879

)

 

 

436,288

 

 

 

2,503,338

 

Common stock issued under stock incentive plans

 

 

22

 

 

 

 

 

 

180

 

 

 

 

 

 

 

 

 

180

 

Common stock withheld for minimum statutory taxes

 

 

 

 

 

 

 

 

(114

)

 

 

 

 

 

 

 

 

(114

)

Equity-based compensation expense

 

 

 

 

 

 

 

 

5,471

 

 

 

 

 

 

 

 

 

5,471

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

60,766

 

 

 

 

 

 

60,766

 

Net income attributable to Acadia Healthcare

   Company, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

36,998

 

 

 

36,998

 

Balance at September 30, 2020

 

 

87,920

 

 

 

879

 

 

 

2,572,587

 

 

 

(440,113

)

 

 

473,286

 

 

 

2,606,639

 

Common stock issued under stock incentive plans

 

 

104

 

 

 

1

 

 

 

1,676

 

 

 

 

 

 

 

 

 

1,677

 

Common stock withheld for minimum statutory taxes

 

 

 

 

 

 

 

 

(182

)

 

 

 

 

 

 

 

 

(182

)

Equity-based compensation expense

 

 

 

 

 

 

 

 

6,246

 

 

 

 

 

 

 

 

 

6,246

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

68,748

 

 

 

 

 

 

68,748

 

Net loss attributable to Acadia Healthcare

   Company, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(783,672

)

 

 

(783,672

)

Balance at December 31, 2020

 

 

88,024

 

 

 

880

 

 

 

2,580,327

 

 

 

(371,365

)

 

 

(310,386

)

 

 

1,899,456

 

Common stock issued under stock incentive plans

 

 

705

 

 

 

7

 

 

 

12,733

 

 

 

 

 

 

 

 

 

12,740

 

Common stock withheld for minimum statutory taxes

 

 

 

 

 

 

 

 

(4,521

)

 

 

 

 

 

 

 

 

(4,521

)

Equity-based compensation expense

 

 

 

 

 

 

 

 

7,034

 

 

 

 

 

 

 

 

 

7,034

 

Other

 

 

 

 

 

 

 

 

2,208

 

 

 

 

 

 

 

 

 

2,208

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

371,365

 

 

 

 

 

 

371,365

 

Net income attributable to Acadia Healthcare

   Company, Inc.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,717

 

 

 

9,717

 

Balance at March 31, 2021

 

 

88,729

 

 

 

887

 

 

 

2,597,781

 

 

 

 

 

 

(300,669

)

 

 

2,297,999

 

 

See accompanying notes.

4


Table of contents

 

Acadia Healthcare Company, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

(In thousands)

 

Operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

10,479

 

 

$

34,067

 

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

    activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

24,894

 

 

 

22,835

 

Amortization of debt issuance costs

 

 

1,646

 

 

 

3,050

 

Equity-based compensation expense

 

 

7,034

 

 

 

4,979

 

Deferred income taxes

 

 

3,962

 

 

 

11,264

 

Loss (income) from discontinued operations, net of taxes

 

 

12,641

 

 

 

(15,089

)

Debt extinguishment costs

 

 

24,650

 

 

 

 

Other

 

 

1,737

 

 

 

(108

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable, net

 

 

(2,490

)

 

 

(4,214

)

Other current assets

 

 

75

 

 

 

(18,276

)

Other assets

 

 

(3,570

)

 

 

(1,561

)

Accounts payable and other accrued liabilities

 

 

(3,979

)

 

 

(19,115

)

Accrued salaries and benefits

 

 

2,915

 

 

 

(6,347

)

Other liabilities

 

 

(4,210

)

 

 

5,101

 

Net cash provided by continuing operating activities

 

 

75,784

 

 

 

16,586

 

Net cash provided by discontinued operating activities

 

 

253

 

 

 

28,960

 

Net cash provided by operating activities

 

 

76,037

 

 

 

45,546

 

Investing activities:

 

 

 

 

 

 

 

 

Cash paid for capital expenditures

 

 

(58,682

)

 

 

(58,427

)

Proceeds from U.K. Sale

 

 

1,511,020

 

 

 

 

Settlement of foreign currency derivatives

 

 

(84,795

)

 

 

 

Proceeds from sale of property and equipment

 

 

134

 

 

 

38

 

Other

 

 

926

 

 

 

(1,671

)

Net cash provided by (used in) continuing investing activities

 

 

1,368,603

 

 

 

(60,060

)

Net cash used in discontinued investing activities

 

 

 

 

 

(14,101

)

Net cash provided by (used in) investing activities

 

 

1,368,603

 

 

 

(74,161

)

Financing activities:

 

 

 

 

 

 

 

 

Borrowings on long-term debt

 

 

425,000

 

 

 

 

Borrowings on revolving credit facility

 

 

430,000

 

 

 

 

Principal payments on revolving credit facility

 

 

(270,000

)

 

 

 

Principal payments on long-term debt

 

 

 

 

 

(10,621

)

Repayment of long-term debt

 

 

(2,224,603

)

 

 

 

Payment of debt issuance costs

 

 

(9,935

)

 

 

 

Common stock withheld for minimum statutory taxes, net

 

 

8,219

 

 

 

(1,402

)

Distributions to noncontrolling interests

 

 

(377

)

 

 

(264

)

Other

 

 

(6,793

)

 

 

(423

)

Net cash used in continuing financing activities

 

 

(1,648,489

)

 

 

(12,710

)

Net cash used in discontinued financing activities

 

 

 

 

 

(720

)

Net cash used in financing activities

 

 

(1,648,489

)

 

 

(13,430

)

Effect of exchange rate changes on cash

 

 

4,067

 

 

 

(1,143

)

Net decrease in cash and cash equivalents, including cash classified within

    current assets held for sale

 

 

(199,782

)

 

 

(43,188

)

Less: cash classified within current assets held for sale

 

 

 

 

 

(19,592

)

Net decrease in cash and cash equivalents

 

 

(199,782

)

 

 

(62,780

)

Cash and cash equivalents at beginning of the period

 

 

378,697

 

 

 

124,192

 

Cash and cash equivalents at end of the period

 

$

178,915

 

 

$

61,412

 

See accompanying notes.

5


Table of contents

 

 

Acadia Healthcare Company, Inc.

Notes to Condensed Consolidated Financial Statements

March 31, 2021

(Unaudited)

1.

Description of Business and Basis of Presentation

Description of Business

Acadia Healthcare Company, Inc. (the “Company”) develops and operates inpatient psychiatric facilities, residential treatment centers, group homes, substance abuse facilities and facilities providing outpatient behavioral healthcare services to serve the behavioral health and recovery needs of communities throughout the United States (“U.S.”) and Puerto Rico. At March 31, 2021, the Company operated 228 behavioral healthcare facilities with approximately 10,000 beds in 40 states and Puerto Rico.

On January 19, 2021, the Company completed the sale of its United Kingdom (“U.K.”) operations to RemedcoUK Limited, a company organized under the laws of England and Wales and owned by funds managed or advised by Waterland Private Equity Fund VII (the “U.K. Sale”). The U.K. Sale allowed us to reduce our indebtedness and focus on our U.S. operations. As a result of the U.K. Sale, the Company reported, for all periods presented, results of operations and cash flows of the U.K. operations as discontinued operations in the accompanying financial statements. See Note 3 – U.K. Sale.

Basis of Presentation

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

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation of our financial position and results of operations have been included. The Company’s fiscal year ends on December 31 and interim results are not necessarily indicative of results for a full year or any other interim period. The condensed consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements as of that date. The information contained in these condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021. 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 March 2020, the global pandemic of the novel coronavirus known as COVID-19 (“COVID-19”) began to affect the Company’s facilities, employees, patients, communities, business operations and financial performance, as well as the broader U.S. and U.K. economies and financial markets. At many of the Company’s facilities, employees and/or patients have tested positive for COVID-19. The Company is committed to protecting the health of our communities and has been responding to the evolving COVID-19 situation while taking steps to provide quality care and protect the health and safety of patients and employees. All of the Company’s facilities are closely following infectious disease protocols, as well as recommendations by the Centers for Disease Control and Prevention (“CDC”) and local health officials. The Company has established an internal COVID-19 taskforce, taken steps to secure its supply chain, expanded telehealth capabilities and implemented emergency planning in directly impacted markets. Nevertheless, COVID-19 may adversely impact the Company’s business and have an impact on its financial results that management is not currently able to quantify. Disruptions to the Company’s business as a result of the COVID-19 pandemic could have a material adverse effect on its results of operations, financial condition, cash flows and ability to service its indebtedness and may affect the amounts reported in the consolidated financial statements including those related to collectability of accounts receivable as well as professional and general liability reserves, tax assets and liabilities and may result in a potential impairment of goodwill and long-lived assets.

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

2.

Recently Issued Accounting Standards

In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) ASU 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (“ASU 2020-04”). ASU 2020-04 provides optional guidance for a limited period of time to ease the potential burden in accounting for or

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recognizing the effects of reference rate reform on financial reporting and applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective as of March 12, 2020 through December 31, 2022. Entities may adopt ASU 2020-04 as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020 or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. Management is evaluating the impact of ASU 2020-04 on the Company’s consolidated financial statements.

In December 2019, FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes" (“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Topic 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill and allocating consolidated income taxes to separate financial statements of entities not subject to income tax. ASU 2019-12 is effective for fiscal years beginning after December 15, 2020. Upon adoption, the Company must apply certain aspects of this standard retrospectively for all periods presented while other aspects are applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. The Company adopted ASU 2019-12 on January 1, 2021. There is no significant impact to the Company’s consolidated financial statements.

3.

U.K. Sale

On January 19, 2021, the Company completed the U.K. Sale pursuant to a Share Purchase Agreement in which it sold all of the securities of AHC-WW Jersey Limited, a private limited liability company incorporated in Jersey and a subsidiary of the Company, which constituted the entirety of the Company’s U.K. business operations. The U.K. Sale resulted in approximately $1,525 million of gross proceeds before deducting the settlement of existing foreign currency hedging liabilities of $85 million based on the current British Pounds (“GBP”) to US Dollars (“USD”) exchange rate, cash retained by the buyer and transaction costs. The Company used the net proceeds of approximately $1,425 million (excluding cash retained by the buyer) along with cash from the balance sheet to reduce debt by $1,640 million during the first quarter of 2021 as described in Note 11 – Long-Term Debt.

As a result of the U.K. Sale, the Company reported, for all periods presented, results of operations and cash flows of the U.K. operations as discontinued operations in the accompanying financial statements. In December 2020, the Company’s U.K. operations met the criteria to be classified as assets held for sale. The carrying value of the U.K. operations was written down to fair value less costs to sell in the condensed consolidated balance sheets at December 31, 2020. This resulted in a loss on sale of $867.3 million, which includes approximately $356.2 million of non-cash goodwill impairment, within discontinued operations in the condensed consolidated statements of operations for the year ended December 31, 2020. For the three months ended March 31, 2021, an additional $14.3 million was recorded as loss on sale primarily resulting from an increase in the U.K. operations carrying value.

For the three months ended March 31, 2021 and 2020, results of operations of the U.K. operations were as follows (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Revenue

 

$

62,520

 

 

$

273,593

 

Salaries, wages and benefits

 

 

35,937

 

 

 

153,329

 

Professional fees

 

 

6,815

 

 

 

32,249

 

Supplies

 

 

2,217

 

 

 

9,775

 

Rents and leases

 

 

2,509

 

 

 

11,707

 

Other operating expenses

 

 

6,682

 

 

 

30,373

 

Depreciation and amortization

 

 

 

 

 

18,845

 

Interest expense, net

 

 

10

 

 

 

220

 

Loss on sale

 

 

14,254

 

 

 

 

Transaction-related expenses

 

 

6,265

 

 

 

2,023

 

Total expenses

 

 

74,689

 

 

 

258,521

 

(Loss) income from discontinued operations before income taxes

 

 

(12,169

)

 

 

15,072

 

Provision for (benefit from) income taxes

 

 

472

 

 

 

(17

)

(Loss) income from discontinued operations

 

$

(12,641

)

 

$

15,089

 

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The major classes of assets and liabilities for the U.K. operations as of December 31, 2020 are shown below (in thousands):

Cash and cash equivalents

 

$

75,051

 

Accounts receivable, net

 

 

52,196

 

Other current assets

 

 

13,361

 

Current assets of discontinued operations

 

 

140,608

 

Property and equipment, net

 

 

1,297,923

 

Goodwill

 

 

 

Intangible assets, net

 

 

22,289

 

Operating lease right-of-use assets

 

 

341,289

 

Other assets

 

 

7,706

 

Total assets of discontinued operations

 

$

1,809,815

 

 

 

 

 

 

Current liabilities:

 

 

 

 

Accounts payable

 

$

44,929

 

Current portion of operating lease liabilities

 

 

11,141

 

Other current liabilities

 

 

136,895

 

Current liabilities of discontinued operations

 

 

192,965

 

Operating lease liabilities

 

 

387,607

 

Deferred tax liabilities

 

 

57,230

 

Other liabilities

 

 

22,225

 

Total liabilities of discontinued operations

 

$

660,027

 

 

4.

Revenue

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

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

The Company disaggregates revenue from contracts with customers by service type and by payor.

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

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

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

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

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

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

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Acute inpatient psychiatric facilities

 

$

267,359

 

 

$

239,414

 

Specialty treatment facilities

 

 

211,757

 

 

 

193,611

 

Residential treatment centers

 

 

68,649

 

 

 

70,434

 

Outpatient community-based facilities

 

 

3,434

 

 

 

5,758

 

Revenue

 

$

551,199

 

 

$

509,217

 

The Company receives payments from the following sources for services rendered in our facilities: (i) state governments under their respective Medicaid and other programs; (ii) commercial insurers; (iii) the federal government under the Medicare program administered by CMS; and (iv) individual patients and clients.

The Company determines the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and implicit price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. Implicit price concessions are based on historical collection experience. Most of our facilities have contracts containing variable consideration. However, it is unlikely a significant reversal of revenue will occur when the uncertainty is resolved, and therefore, the Company has included the variable consideration in the estimated transaction price. Subsequent changes resulting from a patient’s ability to pay are recorded as bad debt expense, which is included as a component of other operating expenses in the condensed consolidated statements of operations. Bad debt expense for the three months ended March 31, 2021 and 2020 was not significant.

The following table presents the Company’s revenue by payor type and as a percentage of revenue (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Commercial

 

$

162,702

 

 

 

29.5

%

 

$

143,142

 

 

 

28.1

%

Medicare

 

 

86,185

 

 

 

15.6

%

 

 

72,271

 

 

 

14.2

%

Medicaid

 

 

274,620

 

 

 

49.8

%

 

 

260,044

 

 

 

51.1

%

Self-Pay

 

 

22,443

 

 

 

4.1

%

 

 

27,034

 

 

 

5.3

%

Other

 

 

5,249

 

 

 

1.0

%

 

 

6,726

 

 

 

1.3

%

Revenue

 

$

551,199

 

 

 

100.0

%

 

$

509,217

 

 

 

100.0

%

Contract liabilities primarily consisted of unearned revenue from CMS’ Accelerated and Advance Payment Program. In April 2020, the Company received approximately $45 million from CMS’ Accelerated and Advance Payment Program for Medicare providers, which the Company expects to repay over the 12-month period beginning in April 2021. Once repayment begins, the amount will be recouped from the Company’s new Medicare claims. Contract liabilities are included in other accrued liabilities for the three months ended March 31, 2021 and, for December 31, 2020, $35.9 million is included in other accrued liabilities and $11.3 million in other liabilities on the condensed consolidated balance sheets. A summary of the activity in unearned revenue is as follows (in thousands):

Balance at December 31, 2020

 

$

47,196

 

Payments received

 

 

2,436

 

Revenue recognized

 

 

(478

)

Balance at March 31, 2021

 

$

49,154

 

 

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5.

Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share for the three months ended March 31, 2021 and 2020 (in thousands, except per share amounts):

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Numerator:

 

 

 

 

 

 

 

 

Income from continuing operations attributable to Acadia

    Healthcare Company, Inc.

 

$

22,358

 

 

$

18,374

 

(Loss) income from discontinued operations

 

 

(12,641

)

 

 

15,089

 

Net income attributable to Acadia Healthcare

    Company, Inc.

 

$

9,717

 

 

$

33,463

 

Denominator:

 

 

 

 

 

 

 

 

Weighted average shares outstanding for basic

   earnings per share

 

 

88,242

 

 

 

87,765

 

Effects of dilutive instruments

 

 

1,699

 

 

 

206

 

Shares used in computing diluted earnings per

   common share

 

 

89,941

 

 

 

87,971

 

 

 

 

 

 

 

 

 

 

Basic earnings per share attributable to Acadia

   Healthcare Company, Inc. stockholders:

 

 

 

 

 

 

 

 

Income from continuing operations attributable to Acadia

    Healthcare Company, Inc.

 

$

0.25

 

 

$

0.21

 

(Loss) income from discontinued operations

 

 

(0.14

)

 

 

0.17

 

Net income attributable to Acadia Healthcare

    Company, Inc.

 

$

0.11

 

 

$

0.38

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share attributable to Acadia

   Healthcare Company, Inc. stockholders:

 

 

 

 

 

 

 

 

Income from continuing operations attributable to Acadia

    Healthcare Company, Inc.

 

$

0.25

 

 

$

0.21

 

(Loss) income from discontinued operations

 

 

(0.14

)

 

 

0.17

 

Net income attributable to Acadia Healthcare

    Company, Inc.

 

$

0.11

 

 

$

0.38

 

 

Approximately 0.7 million and 2.9 million shares of common stock issuable upon exercise of outstanding stock option awards were excluded from the calculation of diluted earnings per share for the three months ended March 31, 2021 and 2020, respectively, because their effect would have been anti-dilutive.

6.

Other Current Assets

Other current assets consisted of the following (in thousands):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Assets held for sale

 

$

16,991

 

 

$

 

Prepaid expenses

 

 

15,227

 

 

 

19,480

 

Workers’ compensation deposits – current portion

 

 

12,000

 

 

 

12,000

 

Other receivables

 

 

8,903

 

 

 

10,025

 

Insurance receivable – current portion

 

 

6,917

 

 

 

6,792

 

Income taxes receivable

 

 

5,255

 

 

 

897

 

Inventory

 

 

4,579

 

 

 

4,851

 

Cost report receivable

 

 

2,063

 

 

 

5,818

 

Other

 

 

1,334

 

 

 

1,469

 

Other current assets

 

$

73,269

 

 

$

61,332

 

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7.

Property and Equipment

Property and equipment consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

 

 

 

March 31, 2021

 

 

December 31, 2020

 

Land

 

$

144,399

 

 

$

144,221

 

Building and improvements

 

 

1,502,862

 

 

 

1,490,149

 

Equipment

 

 

224,755

 

 

 

220,690

 

Construction in progress

 

 

255,188

 

 

 

217,479

 

 

 

 

2,127,204

 

 

 

2,072,539

 

Less: accumulated depreciation

 

 

(472,472

)

 

 

(449,643

)

Property and equipment, net

 

$

1,654,732

 

 

$

1,622,896

 

 

8.

Other Intangible Assets

Other identifiable intangible assets and related accumulated amortization consisted of the following at March 31, 2021 and December 31, 2020 (in thousands):

 

 

Gross Carrying Amount

 

 

Accumulated Amortization

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

March 31,

2021

 

 

December 31,

2020

 

Intangible assets subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-compete agreements

 

$

1,131

 

 

$

1,131

 

 

$

(1,131

)

 

$

(1,131

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intangible assets not subject to amortization:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Licenses and accreditations

 

 

11,873

 

 

 

11,873

 

 

 

0

 

 

 

0

 

Trade names

 

 

39,526

 

 

 

39,526

 

 

 

0

 

 

 

0

 

Certificates of need

 

 

17,228

 

 

 

17,136

 

 

 

0

 

 

 

0

 

 

 

 

68,627

 

 

 

68,535

 

 

 

0

 

 

 

0

 

Total

 

$

69,758

 

 

$

69,666

 

 

$

(1,131

)

 

$

(1,131

)

 

All of the Company’s definite-lived intangible assets are fully amortized. The Company’s licenses and accreditations, trade names and certificate of need intangible assets have indefinite lives and are, therefore, not subject to amortization.

9.

The CARES Act

As part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”), the U.S. government announced it would offer $100 billion of relief to eligible healthcare providers. On April 24, 2020, then President Trump signed into law the Paycheck Protection Program and Health Care Enhancement Act (the “PPP Act”). Among other things, the PPP Act allocated $75 billion to eligible healthcare providers to help offset COVID-19 related losses and expenses. The $75 billion allocated under the PPP Act is in addition to the $100 billion allocated to healthcare providers for the same purposes in the CARES Act and has been disbursed to providers under terms and conditions similar to the CARES Act funds. During the three months ended June 30, 2020, the Company participated in certain relief programs offered through the CARES Act, including receipt of approximately $19.7 million relating to the initial portions of the Public Health and Social Services Emergency Fund (“PHSSE Fund”), also known as the Provider Relief Fund, and approximately $45 million of payments from the Centers for Medicare and Medicaid Services’ (“CMS”) Accelerated and Advance Payment Program. The Company expects to repay these funds over a 12-month period beginning in April 2021. Once repayment begins, the amount will be recouped from the Company’s new Medicare claims. In August 2020, the Company received approximately $12.8 million of additional funds from the PHSSE Fund. In addition, the Company received a 2% increase in facilities’ Medicare reimbursement rate as a result of the temporary suspension of Medicare sequestration from May 1, 2020, to December 31, 2021. 

The CARES Act also provides for certain federal income and other tax changes, including an increase in the interest expense tax deduction limitation and bonus depreciation of qualified improvement property. Furthermore, under the CARES Act, (i) for taxable years beginning before 2021, net operating loss (“NOL”) carryforwards and carrybacks may offset 100% of taxable income and (ii) NOLs arising in 2018, 2019 and 2020 taxable years may be carried back to each of the preceding five years to generate a refund. As a result, in 2019 and 2020 the Company received a benefit, in the form of refunds and lower future tax payments, of $51.6 million, consisting of $22.8 million related to interest expense, $20.5 million related to qualified improvement property legislation and an $8.3

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million permanent benefit due to loss being able to be carried back at a 35% tax rate to offset income in tax years prior to 2018 (21% for tax years after 2017). The Company also received a cash benefit of approximately $39 million for 2020 relating to the delay of payment of the employer portion of Social Security payroll taxes, as enacted by the CARES Act.

During the fourth quarter of 2020, the Company recorded $32.8 million of other income in the consolidated statement of operations related to $34.9 million of PHSSE funds received from April through December 2020. The Company’s recognition of this income was based on revised guidance in the Consolidated Appropriations Act, 2021 enacted in December 2020. The Company continues to evaluate its compliance with the terms and conditions to, and the financial impact of, funds received under the CARES Act and other government relief programs.

10.

Other Accrued Liabilities

Other accrued liabilities consisted of the following (in thousands):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

Unearned revenue

 

$

49,154

 

 

$

35,946

 

Finance lease liabilities

 

 

32,022

 

 

 

32,188

 

Accrued expenses

 

 

29,168

 

 

 

28,452

 

Accrued interest

 

 

17,781

 

 

 

40,479

 

Insurance liability – current portion

 

 

9,700

 

 

 

9,700

 

Government relief funds

 

 

6,285

 

 

 

5,495

 

Accrued property taxes

 

 

6,143

 

 

 

6,763

 

Income taxes payable

 

 

6,080

 

 

 

16,345

 

Other

 

 

4,707

 

 

 

3,085

 

Other accrued liabilities

 

$

161,040

 

 

$

178,453

 

 

 

11.Long-Term Debt

Long-term debt consisted of the following (in thousands):

 

 

 

March 31,

2021

 

 

December 31,

2020

 

New Credit Facility:

 

 

 

 

 

 

 

 

Term Loan A

 

$

425,000

 

 

$

 

Revolving Line of Credit

 

 

160,000

 

 

 

 

Prior Credit Facility:

 

 

 

 

 

 

 

 

Senior Secured Term A Loan

 

 

 

 

 

311,733

 

Senior Secured Term B Loans

 

 

 

 

 

872,870

 

Senior Secured Revolving Line of Credit

 

 

 

 

 

 

5.625% Senior Notes due 2023

 

 

 

 

 

650,000

 

6.500% Senior Notes due 2024

 

 

 

 

 

390,000

 

5.500% Senior Notes due 2028

 

 

450,000

 

 

 

450,000

 

5.000% Senior Notes due 2029

 

 

475,000

 

 

 

475,000

 

Other long-term debt

 

 

3,319

 

 

 

3,625

 

Less: unamortized debt issuance costs, discount and

   premium

 

 

(17,196

)

 

 

(30,802

)

 

 

 

1,496,123

 

 

 

3,122,426

 

Less: current portion

 

 

(11,911

)

 

 

(153,478

)

Long-term debt

 

$

1,484,212

 

 

$

2,968,948

 

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New Credit Facility

The Company entered into a new credit agreement (the “New Credit Facility”) on March 17, 2021. This New Credit Facility provides for a $600.0 million senior secured revolving credit facility (the “Revolving Facility”) and a $425.0 million senior secured term loan facility (the “Term Loan Facility” and, together with the Revolving Facility, the “Senior Facilities”), each maturing on March 17, 2026 unless extended in accordance with the terms of the New Credit Facility. The Revolving Facility further provides for (i) up to $20.0 million to be utilized for the issuance of letters of credit and (ii) the availability of a swingline facility under which the Company may borrow up to $20.0 million.  

As a part of the closing of the New Credit Facility on March 17, 2021, the Company (i) refinanced and terminated the Company’s prior credit facilities under the Amended and Restated Credit Agreement, dated as of December 31, 2012 (the “Prior Credit Facility”) and (ii) financed the redemption of all of the Company’s outstanding 5.625% Senior Notes due 2023 (the “5.625% Senior Notes”).

The Company had $422.0 million of availability under the Revolving Facility and had standby letters of credit outstanding of $18.0 million related to security for the payment of claims required by its workers’ compensation insurance program at March 31, 2021.

The New Credit Facility requires quarterly term loan principal repayments for the Term Loan Facility of $2.7 million for June 30, 2021 to March 31, 2022, $5.3 million for June 30, 2022 to March 31, 2024, $8.0 million for June 30, 2024 to March 31, 2025, $10.6 million for June 30, 2025 to December 31, 2025, with the remaining principal balance of the Term Loan Facility due on the maturity date of March 31, 2026.

The Company has the ability to increase the amount of the Senior Facilities, which may take the form of increases to the Revolving Facility or the Term Loan Facility or the issuance of one or more incremental term loan facilities (collectively, the “Incremental Facilities”), upon obtaining additional commitments from new or existing lenders and the satisfaction of customary conditions precedent for such Incremental Facilities. Such Incremental Facilities may not exceed the sum of (i) the greater of $480.0 million and an amount equal to 100% of Consolidated EBITDA (as defined in the New Credit Facility) of the Company and its Restricted Subsidiaries (as defined in the New Credit Facility) (as determined for the four fiscal quarter period most recently ended for which financial statements are available), and (ii) additional amounts so long as, after giving effect thereto, the Consolidated Senior Secured Net Leverage Ratio (as defined in the New Credit Facility) does not exceed 3.5 to 1.0.

Subject to certain exceptions, substantially all of the Company’s existing and subsequently acquired or organized direct or indirect wholly-owned U.S. subsidiaries are required to guarantee the repayment of the Company’s obligations under the New Credit Facility. Borrowings under the Senior Facilities bear interest at a floating rate, which will initially be, at the Company’s option, either (i) adjusted LIBOR plus 1.75% or (ii) an alternative base rate plus 0.75% (in each case, subject to adjustment based on the Company’s consolidated total net leverage ratio). An unused fee initially set at 0.25% per annum (subject to adjustment based on the Company’s consolidated total net leverage ratio) is payable quarterly in arrears based on the actual daily undrawn portion of the commitments in respect of the Revolving Facility.

The New Credit Facility contains customary representations and affirmative and negative covenants, including limitations on the Company’s and its subsidiaries’ ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay junior indebtedness and enter into affiliate transactions, in each case, subject to customary exceptions. In addition, the New Credit Facility contains financial covenants requiring the Company on a consolidated basis to maintain, as of the last day of any consecutive four fiscal quarter period, a consolidated total net leverage ratio of not more than 5.0 to 1.0  and an interest coverage ratio of at least 3.0 to 1.0. The New Credit Facility also includes events of default customary for facilities of this type and upon the occurrence of such events of default, among other things, all outstanding loans under the Senior Facilities may be accelerated and/or the lenders’ commitments terminated. At March 31, 2021, the Company was in compliance with such covenants.

 

Prior Credit Facility

The Company entered into a senior secured credit facility (the “Senior Secured Credit Facility”) on April 1, 2011. On December 31, 2012, the Company entered into the Prior Credit Facility which amended and restated the Senior Secured Credit Facility. The Company has amended the Prior Credit Facility from time to time as described in the Company’s prior filings with the SEC.

On April 21, 2020, the Company entered into the Thirteenth Amendment (the “Thirteenth Amendment”) to the Prior Credit Facility. The Thirteenth Amendment amended the Consolidated Leverage Ratio in the prior covenant to increase such leverage ratio for the rest of 2020.

On November 13, 2020, the Company entered into the Fourth Repricing Facilities Amendment (the “Fourth Repricing Facilities Amendment”) to the Prior Credit Facility. The Fourth Repricing Facilities Amendment extended the maturity date of each of the prior

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revolving line of credit and the prior TLA Facility from November 30, 2021 to November 30, 2022. The Fourth Repricing Facilities Amendment also (1) replaced the revolving line of credit in an aggregate committed amount of $500.0 million with an aggregate committed amount of approximately $459.0 million and (2) replaced the TLA Facility aggregate outstanding principal amount of approximately $352.4 million with an aggregate principal amount of approximately $318.9 million. The interest rate margin applicable to both facilities remained unchanged from the prior facilities, and the commitment fee applicable to the new revolving line of credit also remained unchanged from the prior revolving line of credit. In connection with the Fourth Repricing Facilities Amendment, the Company recorded a debt extinguishment charge of $1.0 million, including the write-off of discount and deferred financing costs, which was recorded in debt extinguishment costs in the consolidated statements of operations for the year ended December 31, 2020.

On January 5, 2021, the Company made a voluntary payment of $105.0 million on the Tranche B-4 Facility. On January 19, 2021, the Company used a portion of the net proceeds from the U.K. Sale to repay the outstanding balances of $311.7 million of its TLA Facility and $767.9 million of its Tranche B-4 Facility of the Prior Credit Facility. At March 31, 2021, in connection with the termination of the Prior Credit Facility, the Company recorded a debt extinguishment charge of $10.9 million, including the write-off of discount and deferred financing costs, which was recorded in debt extinguishment costs in the condensed consolidated statements of operations.

Senior Notes

5.500% Senior Notes due 2028

On June 24, 2020, the Company issued $450.0 million of 5.500% Senior Notes due 2028 (the “5.500% Senior Notes”). The 5.500% Senior Notes mature on July 1, 2028 and bear interest at a rate of 5.500% per annum, payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2021.

5.000% Senior Notes due 2029

On October 14, 2020, the Company issued $475.0 million of 5.000% Senior Notes due 2029 (the “5.000% Senior Notes”). The 5.000% Senior Notes mature on April 15, 2029 and bear interest at a rate of 5.000% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2021. The Company used the net proceeds of the 5.000% Senior Notes to prepay approximately $453.3 million of the outstanding borrowings on our existing Tranche B-3 Facility and used the remaining net proceeds for general corporate purposes and to pay related fees and expenses in connection with the offering. In connection with the 5.000% Senior Notes, the Company recorded a debt extinguishment charge of $2.9 million, including the write-off of discount and deferred financing costs of the Tranche B-3 Facility, which was recorded in debt extinguishment costs in the consolidated statements of operations for the year ended December 31, 2020.

The indentures governing the 5.500% Senior Notes and the 5.000% Senior Notes (together, the “Senior Notes”) contain covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) engage in certain transactions with affiliates; (v) create restrictions on dividends or other payments by the restricted subsidiaries; (vi) merge, consolidate or sell substantially all of the Company’s assets; and (vii) create liens on assets.

The Senior Notes issued by the Company are guaranteed by each of the Company’s subsidiaries that guarantee the Company’s obligations under the New Credit Facility at March 31, 2021. The guarantees are full and unconditional and joint and several.

The Company may redeem the Senior Notes at its option, in whole or part, at the dates and amounts set forth in the indentures.

5.625% Senior Notes due 2023

On February 11, 2015, the Company issued $375.0 million of 5.625% Senior Notes. On September 21, 2015, the Company issued $275.0 million of additional 5.625% Senior Notes. The additional notes formed a single class of debt securities with the 5.625% Senior Notes issued in February 2015. Giving effect to this issuance, the Company has outstanding an aggregate of $650.0 million of 5.625% Senior Notes. The 5.625% Senior Notes mature on February 15, 2023 and bear interest at a rate of 5.625% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. On March 17, 2021, the Company redeemed the 5.625% Senior Notes.

6.500% Senior Notes due 2024

On February 16, 2016, the Company issued $390.0 million of 6.500% Senior Notes due 2024 (the “6.500% Senior Notes”). The 6.500% Senior Notes mature on March 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2016. On March 1, 2021, the Company redeemed the 6.500% Senior Notes.

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Redemption of 5.625% Senior Notes and 6.500% Senior Notes

On January 29, 2021, the Company issued conditional notices of full redemption providing for the redemption in full of $650 million of 5.625% Senior Notes and $390 million of 6.500% Senior Notes to the holders of such notes.

On March 1, 2021, the Company satisfied and discharged the indentures governing the 6.500% Senior Notes. In connection with the redemption of the 6.500% Senior Notes, the Company recorded debt extinguishment costs of $10.5 million, including $6.3 million cash paid for breakage costs and the write-off of deferred financing costs of $4.2 million in the condensed consolidated statements of operations.  

On March 17, 2021, the Company satisfied and discharged the indentures governing the 5.625% Senior Notes. In connection with the redemption of the 5.625% Senior Notes, the Company recorded debt extinguishment costs of $3.3 million, including the write-off of deferred financing and premiums costs in the condensed consolidated statements of operations.  

6.125% Senior Notes due 2021

On March 12, 2013, the Company issued $150.0 million of 6.125% Senior Notes due 2021 (the “6.125% Senior Notes”). The 6.125% Senior Notes mature on March 15, 2021 and bear interest at a rate of 6.125% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. On June 24, 2020, the Company redeemed the 6.125% Senior Notes.

5.125% Senior Notes due 2022

On July 1, 2014, the Company issued $300.0 million of 5.125% Senior Notes due 2022 (the “5.125% Senior Notes”). The 5.125% Senior Notes mature on July 1, 2022 and bear interest at a rate of 5.125% per annum, payable semi-annually in arrears on January 1 and July 1 of each year. On June 24, 2020, the Company redeemed the 5.125% Senior Notes.

Redemption of 6.125% Senior Notes and 5.125% Senior Notes

On June 10, 2020, the Company issued conditional notices of full redemption providing for the redemption in full of the 6.125% Senior Notes and 5.125% Senior Notes on July 10, 2020 (the “Redemption Date”), in each case at a redemption price equal to 100.0% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but not including the Redemption Date (the “Redemption Price”). On June 24, 2020, the Company satisfied and discharged the indentures governing the 6.125% Senior Notes and the 5.125% Senior Notes by irrevocably depositing with a trustee sufficient funds equal to the Redemption Price for the 6.125% Senior Notes and the 5.125% Senior Notes and otherwise complying with the terms in the indentures relating to the satisfaction and discharge of the 6.125% Senior Notes and the 5.125% Senior Notes. In connection with the redemption of the 6.125% Senior Notes and the 5.125% Senior Notes, the Company recorded a debt extinguishment charge of $3.3 million, including the write-off of the deferred financing and other costs in the consolidated statements of operations for the year ended December 31, 2020.

12.

Noncontrolling Interests

Noncontrolling interests in the consolidated financial statements represents the portion of equity held by noncontrolling partners in the Company’s non-wholly owned subsidiaries. At March 31, 2021, the Company operated 6 facilities through non-wholly owned subsidiaries. The Company owns between 60% and 86% of the equity interests of these entities and noncontrolling partners own the remaining equity interests. The initial value of the noncontrolling interests is based on the fair value of contributions, and the Company consolidates the operations of each facility based on its equity ownership and its control of the entity. The noncontrolling interests are reflected as redeemable noncontrolling interests on the accompanying condensed consolidated balance sheets based on put rights that could require the Company to purchase the noncontrolling interests upon the occurrence of a change in control.

The components of redeemable noncontrolling interests are as follows (in thousands):

 

Balance at December 31, 2020

 

$

55,315

 

Contribution of redeemable noncontrolling interests

 

 

1,000

 

Net income attributable to noncontrolling interests

 

 

762

 

Dividend payments to noncontrolling interests

 

 

(377

)

Balance at March 31, 2021

 

$

56,700

 

 

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13.

Variable Interest Entities

For legal entities where the Company has a financial relationship, the Company evaluates whether it has a variable interest and determines if the entity is considered a variable interest entity (“VIE”). If the Company concludes an entity is a VIE and the Company is the primary beneficiary, the entity is consolidated. The primary beneficiary analysis is a qualitative analysis based on power and benefits. A reporting entity has a controlling financial interest in a VIE and must consolidate the VIE if it has both power and benefits. It must have the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses of the VIE that potentially could be significant to the VIE or the right to receive benefits from the VIE that potentially could be significant to the VIE.

At March 31, 2021, the Company operated 6 facilities through non-wholly owned subsidiaries. The Company owns between 60% and 86% of the equity interests of these entities, and noncontrolling partners own the remaining equity interests. The Company manages each of these facilities, is responsible for the day to day operations and, therefore, has the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or receive benefits from the VIE that could potentially be significant to the VIE. These activities include, but are not limited to, behavioral healthcare services, human resource and employment-related decisions, marketing and finance. The terms of the agreements governing each of our VIEs prohibit us from using the assets of each VIE to satisfy the obligations of other entities. Consolidated assets at March 31, 2021 and December 31, 2020 include total assets of variable interest entities of $269.9 million and $261.7 million, respectively, which cannot be used to settle the obligations of other entities. Consolidated liabilities at March 31, 2021 and December 31, 2020 include total liabilities of variable interest entities of $26.2 million and $26.1 million, respectively.

The consolidated VIEs assets and liabilities in the Company’s condensed consolidated balance sheets are shown below (in thousands):

 

 

March 31,

2021

 

 

December 31,

2020

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,657

 

 

$

15,151

 

Accounts receivable, net

 

 

21,007

 

 

 

18,507

 

Other current assets

 

 

1,454

 

 

 

1,461

 

Total current assets

 

 

41,118

 

 

 

35,119

 

Property and equipment, net

 

 

177,449

 

 

 

175,103

 

Goodwill

 

 

34,945

 

 

 

34,945

 

Intangible assets, net

 

 

9,581

 

 

 

9,581

 

Operating lease right-of-use assets

 

 

6,834

 

 

 

6,909

 

Total assets

 

$

269,927

 

 

$

261,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,427

 

 

$

4,143

 

Accrued salaries and benefits

 

 

5,024

 

 

 

4,357

 

Current portion of operating lease liabilities

 

 

172

 

 

 

164

 

Other accrued liabilities

 

 

8,561

 

 

 

8,366

 

Total current liabilities

 

 

17,184

 

 

 

17,030

 

Operating lease liabilities

 

 

6,819

 

 

 

6,863

 

Other liabilities

 

 

2,166

 

 

 

2,166

 

Total liabilities

 

$

26,169

 

 

$

26,059

 

 

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14.

Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss are as follows (in thousands):

 

 

 

Foreign Currency

Translation

Adjustments

 

 

Change in Fair

Value of

Derivative

Instruments

 

 

Pension Plan

 

 

Total

 

Balance at December 31, 2020

 

$

(373,101

)

 

$

13,686

 

 

$

(11,950

)

 

$

(371,365

)

Foreign currency translation (loss) gain

 

 

(4,293

)

 

 

 

 

 

33

 

 

 

(4,260

)

Gain on derivative instruments, net of tax of $0.1

   million

 

 

 

 

 

19

 

 

 

 

 

 

19

 

U.K. Sale

 

 

377,394

 

 

 

(13,705

)

 

 

11,917

 

 

 

375,606

 

Balance at March 31, 2021

 

$

 

 

$

 

 

$

 

 

$

 

 

15.

Equity-Based Compensation

Equity Incentive Plans

The Company issues stock-based awards, including stock options, restricted stock and restricted stock units, to certain officers, employees and non-employee directors under the Acadia Healthcare Company, Inc. Incentive Compensation Plan (the “Equity Incentive Plan”). At March 31, 2021, a maximum of 8,200,000 shares of the Company’s common stock were authorized for issuance as stock options, restricted stock and restricted stock units or other share-based compensation under the Equity Incentive Plan, of which 442,139 were available for future grant. Stock options may be granted for terms of up to ten years. The Company recognizes expense on all share-based awards on a straight-line basis over the requisite service period of the entire award. Grants to employees generally vest in annual increments of 25% each year, commencing one year after the date of grant. The exercise prices of stock options are equal to the most recent closing price of the Company’s common stock on the most recent trading date prior to the date of grant.

The Company recognized $7.0 million and $5.0 million in equity-based compensation expense for the three months ended March 31, 2021 and 2020, respectively. At March 31, 2021, there was $47.8 million of unrecognized compensation expense related to unvested options, restricted stock and restricted stock units, which is expected to be recognized over the remaining weighted average vesting period of 1.6 years.

The Company recognized a deferred income tax benefit of $1.8 million and $1.3 million for the three months ended March 31, 2021 and 2020, respectively, related to equity-based compensation expense.

Stock Options

Stock option activity during 2020 and 2021 was as follows:

 

 

 

Number

of

Options

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Contractual

Term (in years)

 

 

Aggregate

Intrinsic

Value (in thousands)

 

Options outstanding at January 1, 2020

 

 

1,360,068

 

 

$

39.40

 

 

 

7.57

 

 

$

1,650

 

Options granted

 

 

507,600

 

 

 

33.13

 

 

 

9.18

 

 

 

157

 

Options exercised

 

 

(68,700

)

 

 

29.15

 

 

N/A

 

 

 

854

 

Options cancelled

 

 

(288,662

)

 

 

39.67

 

 

N/A

 

 

N/A

 

Options outstanding at December 31, 2020

 

 

1,510,306

 

 

 

37.56

 

 

 

7.35

 

 

 

1,414

 

Options granted

 

 

282,320

 

 

 

57.14

 

 

 

10.01

 

 

 

 

Options exercised

 

 

(352,297

)

 

 

36.16

 

 

N/A

 

 

 

7,300

 

Options cancelled

 

 

(34,725

)

 

 

37.44

 

 

N/A

 

 

N/A

 

Options outstanding at March 31, 2021

 

 

1,405,604

 

 

$

41.85

 

 

 

7.88

 

 

$

19,300

 

Options exercisable at December 31, 2020

 

 

596,606

 

 

$

45.37

 

 

 

5.55

 

 

$

543

 

Options exercisable at March 31, 2021

 

 

524,509

 

 

$

44.58

 

 

 

6.09

 

 

$

6,183

 

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Fair values are estimated using the Black-Scholes option pricing model. The following table summarizes the grant-date fair value of options and the assumptions used to develop the fair value estimates for options granted during the three months ended March 31, 2021 and year ended December 31, 2020:

 

 

March 31,

2021

 

 

December 31,

2020

 

Weighted average grant-date fair value of options

 

$

26.53

 

 

$

12.37

 

Risk-free interest rate

 

 

2.3

%

 

 

1.6

%

Expected volatility

 

 

51

%

 

 

41

%

Expected life (in years)

 

 

5.0

 

 

 

5.0

 

 

The Company’s estimate of expected volatility for stock options is based upon the volatility of our stock price over the expected life of the award. The risk-free interest rate is the approximate yield on U.S. Treasury Strips having a life equal to the expected option life on the date of grant. The expected life is an estimate of the number of years an option will be held before it is exercised.

Other Stock-Based Awards

Restricted stock activity during 2020 and 2021 was as follows:

 

 

 

Number of

Shares

 

 

Weighted

Average

Grant-Date

Fair Value

 

Unvested at January 1, 2020

 

 

805,136

 

 

$

34.14

 

Granted

 

 

637,312

 

 

 

25.82

 

Cancelled

 

 

(129,683

)

 

 

34.56

 

Vested

 

 

(289,769

)

 

 

35.88

 

Unvested at December 31, 2020

 

 

1,022,996

 

 

$

28.41

 

Granted

 

 

242,900

 

 

 

55.97

 

Cancelled

 

 

(15,675

)

 

 

32.50

 

Vested

 

 

(269,733

)

 

 

29.33

 

Unvested at March 31, 2021

 

 

980,488

 

 

$

34.92

 

 

Restricted stock unit activity during 2020 and 2021 was as follows:

 

 

 

Number of

Units

 

 

Weighted

Average

Grant-Date

Fair Value

 

Unvested at January 1, 2020

 

 

447,357

 

 

$

38.89

 

Granted

 

 

583,680

 

 

 

10.60

 

Performance adjustment

 

 

117,772

 

 

 

13.50

 

Cancelled

 

 

(63,056

)

 

 

43.35

 

Vested

 

 

(12,691

)

 

 

42.09

 

Unvested at December 31, 2020

 

 

1,073,062

 

 

$

20.15

 

Granted

 

 

 

 

 

 

Performance adjustment

 

 

120,919

 

 

 

19.48

 

Cancelled

 

 

 

 

 

 

Vested

 

 

(184,051

)

 

 

42.30

 

Unvested at March 31, 2021

 

 

1,009,930

 

 

$

16.03

 

 

Restricted stock awards are time-based vesting awards that vest over a period of three or four years and are subject to continuing service of the employee or non-employee director over the ratable vesting periods. The fair values of the restricted stock awards were determined based on the closing price of the Company’s common stock on the trading date immediately prior to the grant date.

Restricted stock units are granted to employees and are subject to Company performance compared to pre-established targets and Company performance compared to peers. In addition to Company performance, these performance-based restricted stock units are subject to the continuing service of the employee during the two- or three-year period covered by the awards. The performance condition for the restricted stock units is based on the Company’s achievement of annually established targets for diluted earnings per

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share. Additionally, the number of shares issuable pursuant to restricted stock units granted during 2021 and 2020 are subject to adjustment based on the Company’s three-year annualized total stockholder return relative to a peer group consisting of S&P 1500 companies within the Healthcare Providers & Services 6 digit GICS industry group and selected other companies deemed to be peers. The number of shares issuable at the end of the applicable vesting period of restricted stock units ranges from 0% to 200% of the targeted units based on the Company’s actual performance compared to the targets and, for 2021 and 2020 awards, performance compared to peers.

The fair values of restricted stock units were determined based on the closing price of the Company’s common stock on the trading date immediately prior to the grant date for units subject to performance conditions, or at its Monte-Carlo simulation value for units subject to market conditions.

 16.

Acquisitions

The Company’s strategy is to acquire and develop behavioral healthcare facilities and improve operating results within its facilities and its other behavioral healthcare operations.

Transaction-related expenses represent primarily related to termination, restructuring, strategic review, acquisition and other similar costs. Transaction-related expenses for the three months ended March 31, 2021 and 2020 were as follows (in thousands):

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

Termination, restructuring and strategic review costs

 

$

2,823

 

 

$

396

 

Legal, accounting and other acquisition-related costs

 

 

1,787

 

 

 

1,130

 

 

 

$

4,610

 

 

$

1,526

 

 

17.

Income Taxes

The provision for income taxes for the three months ended March 31, 2021 and 2020 reflects effective tax rates of 21.2% and 23.4%, respectively. The decrease in the effective tax rate for the three months ended March 31, 2021 was primarily attributable to the Company’s permanent deduction related to equity-based compensation.

As the Company continues to monitor tax implications of the CARES Act and other state, federal and foreign stimulus and tax legislation, we may make adjustments to our estimates and record additional amounts for tax assets and liabilities. Additionally, market disruption due to COVID-19 may affect the Company’s ability to realize our deferred tax assets. Any adjustments to our tax assets and liabilities could materially impact our provision for income taxes and our effective tax rate in the periods in which they are made.

18.

Fair Value Measurements

The carrying amounts reported for cash and cash equivalents, accounts receivable, other current assets, accounts payable and other current liabilities approximate fair value because of the short-term maturity of these instruments.

The carrying amounts and fair values of the Company’s New Credit Facility, Prior Credit Facility, 5.625% Senior Notes, 6.500% Senior Notes, 5.500% Senior Notes, 5.000% Senior Notes other long-term debt and derivative instruments at March 31, 2021 and December 31, 2020 were as follows (in thousands):

 

 

 

Carrying Amount

 

 

Fair Value

 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

March 31,

2021

 

 

December 31,

2020

 

New Credit Facility

 

$

581,075

 

 

$

 

 

$

581,075

 

 

$

 

Prior Credit Facility

 

$

 

 

$

1,175,437

 

 

$

 

 

$

1,175,437

 

5.625% Senior Notes due 2023

 

$

 

 

$

646,344

 

 

$

 

 

$

647,960

 

6.500% Senior Notes due 2024

 

$

 

 

$

385,636

 

 

$

 

 

$

393,850

 

5.500% Senior Notes due 2028

 

$

443,325

 

 

$

443,139

 

 

$

466,733

 

 

$

475,931

 

5.000% Senior Notes due 2029

 

$

468,404

 

 

$

468,245

 

 

$

486,063

 

 

$

499,852

 

Other long-term debt

 

$

3,319

 

 

$

3,625

 

 

$

3,319

 

 

$

3,625

 

Derivative instrument liabilities

 

$

 

 

$

84,584

 

 

$

 

 

$

84,584

 

The Company’s New Credit Facility, Prior Credit Facility, 5.625% Senior Notes, 6.500% Senior Notes, 5.500% Senior Notes, 5.000% Senior Notes and other long-term debt were categorized as Level 2 in the GAAP fair value hierarchy. Fair values were based on trading activity among the Company’s lenders and the average bid and ask price as determined using published rates.

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The fair values of the derivative instruments were categorized as Level 2 in the GAAP fair value hierarchy and were based on observable market inputs including applicable exchange rates and interest rates.

 

19.Commitments and Contingencies

Professional and General Liability

A portion of the Company’s professional liability risks are insured through a wholly-owned insurance subsidiary. The Company is self-insured for professional liability claims up to $3.0 million per claim and has obtained reinsurance coverage from a third party to cover claims in excess of the retention limit. The reinsurance policy has a coverage limit of $75.0 million in the aggregate. The Company’s reinsurance receivables are recognized consistent with the related liabilities and include known claims and any incurred but not reported claims that are covered by current insurance policies in place.

Legal Proceedings

The Company is, from time to time, subject to various claims, lawsuits, governmental investigations and regulatory actions, including claims for damages for personal injuries, medical malpractice, overpayments, breach of contract, securities law violations, tort and employment related claims. In these actions, plaintiffs request a variety of damages, including, in some instances, punitive and other types of damages that may not be covered by insurance. In addition, healthcare companies are subject to numerous investigations by various governmental agencies. Certain of the Company’s individual facilities have received, and from time to time, other facilities may receive, subpoenas, civil investigative demands, audit requests and other inquiries from, and may be subject to investigation by, federal and state agencies. These investigations can result in repayment obligations, and violations of the False Claims Act can result in substantial monetary penalties and fines, the imposition of a corporate integrity agreement and exclusion from participation in governmental health programs. In addition, the federal False Claims Act permits private parties to bring qui tam, or “whistleblower,” suits against companies that submit false claims for payments to, or improperly retain overpayments from, the government. Some states have adopted similar state whistleblower and false claims provisions.

On April 1, 2019, a consolidated complaint was filed against the Company and certain former and current officers in the lawsuit styled St. Clair County Employees’ Retirement System v. Acadia Healthcare Company, Inc., et al., Case No. 3:19-cv-00988, which is pending in the United States District Court for the Middle District of Tennessee. The complaint purports to be brought on behalf of a class consisting of all persons (other than defendants) who purchased securities of the Company between April 30, 2014 and November 15, 2018, and alleges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder. At this time, we are not able to quantify any potential liability in connection with this litigation because the case is in its early stages.  

On February 21, 2019, a purported stockholder filed a related derivative action on behalf of the Company against certain former and current officers and directors in the lawsuit styled Davydov v. Joey A. Jacobs, et al., Case No. 3:19-cv-00167, which is pending in the United States District Court for the Middle District of Tennessee. The complaint alleges claims for violations of Section 10(b) and 14(a) of the Exchange Act, breach of fiduciary duty, waste of corporate assets, and unjust enrichment. On May 23, 2019, a purported stockholder filed a second related derivative action on behalf of the Company against certain former and current officers and directors in the lawsuit styled Beard v. Jacobs, et al., Case No. 3:19-cv-0441, which is pending the United States District Court for the Middle District of Tennessee. The complaint alleges claims for violations of Sections 10(b), 14(a), and 21D of the Exchange Act, breach of fiduciary duty, waste of corporate assets, unjust enrichment, and insider selling. On June 11, 2019, the Davydov and Beard actions were consolidated. On February 16, 2021, the parties filed a stipulation staying the case. On October 23, 2020, a purported stockholder filed a third related derivative action on behalf of the Company against former and current officers and directors in the lawsuit styled Pfenning v. Jacobs, et al., Case No. 2020-0915-JRS, which is pending in the Court of Chancery of the State of Delaware. The complaint alleges claims for breach of fiduciary duty. On February 17, 2021, the court entered an order staying the case. At this time, we are not able to quantify any potential liability in connection with this litigation because the cases are in their early stages.  

On April 25, 2018, plaintiff filed Pence v. Sober Living By the Sea, Inc. - 30-2018-00988742-CU-OE-CXC, Orange County Superior Court (Pence I). On July 13, 2018, plaintiff next filed Pence v. Sober Living by the Sea, Inc.; Acadia Healthcare Company, Inc. - 30-2018-01005317-CU-OE-CJC, Orange County Superior Court (Pence II). These cases have now been consolidated before the same judge in the Complex Litigation Department of the Orange County Superior Court. The complaints allege various wage and hour violations under California law on behalf of a putative class of all non-exempt California employees of Acadia and various subsidiaries, going back to April 25, 2014, and on behalf of purportedly aggrieved non-exempt employees under California’s Private Attorney General Act (“PAGA”). The claims include (1) failure to provide overtime wages; (2); failure to provide minimum wages; (3) failure to provide meal periods; (4) failure to provide rest periods; (5); failure to pay wages due at termination; (6) failure to provide accurate wage statements; (7) violations of California Business and Professions Code section 17200; and (8) civil penalties under California Labor Code section 2699 (PAGA). During the second quarter of 2020, the Company recorded approximately $4.0 million to transaction-related expenses in the condensed consolidated statements of operations based on the Company’s expected settlement and legal fees.  

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In the fall of 2017, the Office of Inspector General (“OIG”) issued subpoenas to three of the Company’s facilities requesting certain documents from January 2013 to the date of the subpoenas. The U.S. Attorney’s Office for the Middle District of Florida issued a civil investigative demand to one of the Company’s facilities in December 2017 requesting certain documents from November 2012 to the date of the demand. In April 2019, the OIG issued subpoenas relating to six additional facilities requesting certain documents and information from January 2013 to the date of the subpoenas. The government’s investigation of each of these facilities is focused on claims not eligible for payment because of alleged violations of certain regulatory requirements relating to, among other things, medical necessity, admission eligibility, discharge decisions, length of stay and patient care issues. The Company is cooperating with the government’s investigation but is not able to quantify any potential liability in connection with these investigations.  

20.

Derivatives

The Company entered into foreign currency forward contracts during the year ended December 31, 2020 in connection with certain transfers of cash between the U.S. and U.K. under the Company’s cash management and foreign currency risk management programs. Foreign currency forward contracts limit the economic risk of changes in the exchange rate between USD and GBP associated with cash transfers.

In August 2019, the Company also entered into multiple cross currency swap agreements with an aggregate notional amount of $650.0 million to manage foreign currency risk by effectively converting a portion of its fixed-rate USD-denominated senior notes, including the semi-annual interest payments thereunder, to fixed-rate GBP-denominated debt of £538.1 million. During the term of the swap agreements, the Company received semi-annual interest payments in USD from the counterparties at fixed interest rates, and the Company made semi-annual interest payments in GBP to the counterparties at fixed interest rates. The interest payments under the cross-currency swap agreements resulted in £25.4 million of annual cash flows from the Company’s U.K. business being converted to $35.8 million.

In conjunction with the U.K. Sale in January 2021, the Company settled its cross currency swap liability and outstanding forward contracts. Cash received from the settlement of the cross currency swap derivatives and forward contracts outstanding at December 31, 2020 are included in investing activities as part of the net proceeds received from the U.K. Sale in the condensed consolidated statement of cash flows.

The Company designated the cross currency swap agreements and forward contracts entered into during 2020 as qualifying hedging instruments and accounted for these derivatives as net investment hedges. The fair value of these derivatives at December 31, 2020 of $84.6 million is recorded as derivative instrument liabilities in the condensed consolidated balance sheets. During 2019, the Company elected the spot method for recording its net investment hedges. Gains and losses resulting from the settlement of the excluded components were recorded in interest expense on the condensed consolidated statements of operations. Gains and losses resulting from fair value adjustments to the cross currency swap agreements were recorded in accumulated other comprehensive loss as the swaps are effective in hedging the designated risk. These gains and losses were considered in the carrying value of the U.K. operations and included in the loss on the U.K. Sale recorded in December 31, 2020 and January 2021. Prior to the U.K. Sale, cash flows related to the cross currency swap derivatives are included in operating activities in the condensed consolidated statements of cash flows.

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21.

Financial Information for the Company and Its Subsidiaries

The Company conducts substantially all of its business through its subsidiaries. The 5.500% Senior Notes and 5.000% Senior Notes are jointly and severally guaranteed on an unsecured senior basis by all of the Company’s subsidiaries that guarantee the Company’s obligations under the New Credit Facility. The 5.625% Senior Notes, 6.500% Senior Notes, 5.500% Senior Notes and 5.000% Senior Notes were jointly and severally guaranteed on an unsecured senior basis by all of the Company’s subsidiaries that guarantee the Company’s obligations under the Prior Credit Facility. Summarized financial information is presented below is consistent with the condensed consolidated financial statements of the Company, except transactions between combining entities have been eliminated. Financial information for the combined non-guarantor entities has been excluded. Presented below is condensed financial information for Acadia Healthcare Company, Inc. and the combined wholly-owned subsidiary guarantors at March 31, 2021 and December 31, 2020, and for the three months ended March 31, 2021.

Summarized balance sheet information (in thousands):

 

 

March 31, 2021

 

 

December 31, 2020

 

Current assets

 

$

469,786

 

 

$

654,735

 

Property and equipment, net

 

 

1,451,690

 

 

 

1,421,875

 

Goodwill

 

 

1,992,305

 

 

 

1,992,305

 

Total noncurrent assets

 

 

3,661,678

 

 

 

3,640,809

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

390,351

 

 

 

626,419

 

Long-term debt

 

 

1,458,735

 

 

 

2,786,125

 

Total noncurrent liabilities

 

 

1,728,106

 

 

 

3,045,981

 

Redeemable noncontrolling interests

 

 

 

 

 

 

Total equity

 

 

2,013,007

 

 

 

623,144

 

Summarized operating results information (in thousands):

 

 

Three Months Ended

March 31, 2021

 

Revenue

 

$

509,173

 

Income before income taxes

 

 

24,287

 

Net income

 

 

19,210

 

Net income attributable to Acadia Healthcare Company, Inc.

 

 

19,210

 

 

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Item 2.

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

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statements that address future results or occurrences. In some cases you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “would,” “should,” “could” or the negative thereof. Generally, the words “anticipate,” “believe,” “continue,” “expect,” “intend,” “estimate,” “project,” “plan” and similar expressions identify forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, which could cause our actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to:

 

the impact of the COVID-19 pandemic on our inpatient and outpatient volumes, or disruptions caused by other pandemics, epidemics or outbreaks of infectious diseases;

 

the impact of an increase in uninsured and underinsured patients or the deterioration in the collectability of the accounts of such patients on our results of operations, particularly as the unemployment rate and number of underinsured patients have increased as a result of the COVID-19 pandemic;

 

costs of providing care to our patients, including increased staffing, equipment and supply expenses resulting from the COVID-19 pandemic;

 

our significant indebtedness, our ability to meet our debt obligations, and our ability to incur substantially more debt;

 

our ability to implement our business strategies, especially in light of the COVID-19 pandemic;

 

the impact of payments received from the government and third-party payors on our revenue and results of operations;

 

difficulties in successfully integrating the operations of acquired facilities or realizing the potential benefits and synergies of our acquisitions and joint ventures;

 

our ability to recruit and retain quality psychiatrists and other physicians, nurses, counselors and other medical support personnel;

 

the impact of competition for staffing on our labor costs and profitability;

 

the impact of increases to our labor costs;

 

the occurrence of patient incidents, which could result in negative media coverage, adversely affect the price of our securities and result in incremental regulatory burdens and governmental investigations;

 

our future cash flow and earnings;

 

our restrictive covenants, which may restrict our business and financing activities;

 

our ability to make payments on our financing arrangements;

 

the impact of the economic and employment conditions on our business and future results of operations;

 

the impact of adverse weather conditions, including the effects of hurricanes;

 

compliance with laws and government regulations;

 

the impact of claims brought against us or our facilities including claims for damages for personal injuries, medical malpractice, overpayments, breach of contract, securities law violations, tort and employee related claims;

 

the impact of governmental investigations, regulatory actions and whistleblower lawsuits;

 

any failure to comply with the terms of the Company’s corporate integrity agreement with the OIG;

 

the impact of healthcare reform in the U.S. and abroad, including the potential repeal, replacement or modification of the Patient Protection and Affordable Care Act;

 

the impact of our highly competitive industry on patient volumes;

 

our dependence on key management personnel, key executives and local facility management personnel;

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our acquisition, joint venture and de novo strategies, which expose us to a variety of operational and financial risks, as well as legal and regulatory risks;

 

the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and expand our operations;

 

our potential inability to extend leases at expiration;

 

the impact of controls designed to reduce inpatient services on our revenue;

 

the impact of different interpretations of accounting principles on our results of operations or financial condition;

 

the impact of environmental, health and safety laws and regulations, especially in locations where we have concentrated operations;

 

the risk of a cyber-security incident and any resulting violation of laws and regulations regarding information privacy or other negative impact;

 

the impact of laws and regulations relating to privacy and security of patient health information and standards for electronic transactions;

 

our ability to cultivate and maintain relationships with referral sources;

 

the impact of a change in the mix of our earnings, adverse changes in our effective tax rate and adverse developments in tax laws generally;

 

changes in interpretations, assumptions and expectations regarding recent tax legislation, including provisions of the CARES Act and additional guidance that may be issued by federal and state taxing authorities;

 

failure to maintain effective internal control over financial reporting;

 

the impact of fluctuations in our operating results, quarter to quarter earnings and other factors on the price of our securities;

 

the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients;

 

the impact of value-based purchasing programs on our revenue; and

 

those risks and uncertainties described from time to time in our filings with the SEC.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. These forward-looking statements are made only as of the date of this Quarterly Report on Form 10-Q. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.

Overview

Our business strategy is to acquire and develop behavioral healthcare facilities and improve our operating results within our facilities and our other behavioral healthcare operations. We strive to improve the operating results of our facilities by providing high-quality services, expanding referral networks and marketing initiatives while meeting the increased demand for behavioral healthcare services through expansion of our current locations as well as developing new services within existing locations. At March 31, 2021, we operated 228 behavioral healthcare facilities with approximately 10,000 beds in 40 states and Puerto Rico. During the three months ended March 31, 2021, we added 92 beds to existing facilities and opened two comprehensive treatment centers (“CTCs”). For the year ending December 31, 2021, we expect to add approximately 300 beds to existing facilities, 170 beds through the opening of one wholly-owned facility and one joint venture facility and expect to open 11 CTCs.

We are the leading publicly traded pure-play provider of behavioral healthcare services in the U.S. Management believes that we are positioned as a leading platform in a highly fragmented industry under the direction of an experienced management team that has significant industry expertise. Management expects to take advantage of several strategies that are more accessible as a result of our increased size and geographic scale, including continuing a national marketing strategy to attract new patients and referral sources, increasing our volume of out-of-state referrals, providing a broader range of services to new and existing patients and clients and selectively pursuing opportunities to expand our facility and bed count in the U.S. through acquisitions, de novo facilities, joint ventures and bed additions in existing facilities.

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On January 19, 2021, we completed the U.K. Sale pursuant to a Share Purchase Agreement in which we sold all of the securities of AHC-WW Jersey Limited, a private limited liability company incorporated in Jersey and a subsidiary of the Company, which constituted the entirety of our U.K. business operations. The U.K. Sale resulted in approximately $1,525 million of gross proceeds before deducting the settlement of existing foreign currency hedging liabilities of $85 million based on the current GBP to USD exchange rate, cash retained by the buyer and transaction costs. We used the net proceeds of approximately $1,425 million (excluding cash retained by the buyer) along with cash from the balance sheet to reduce debt by $1,640 million during the first quarter of 2021. As a result of the U.K. Sale, we reported, for all periods presented, results of operations and cash flows of the U.K. operations as discontinued operations in the accompanying financial statements.

COVID-19

During March 2020, the global pandemic of COVID-19 began to affect our facilities, employees, patients, communities, business operations and financial performance, as well as the broader U.S. and U.K. economies and financial markets. At many of our facilities, employees and/or patients have tested positive for COVID-19. We are committed to protecting the health of our communities and have been responding to the evolving COVID-19 situation while taking steps to provide quality care and protect the health and safety of our patients and employees. All of our facilities are closely following infectious disease protocols, as well as recommendations by the CDC and local health officials.

We have taken numerous steps to help minimize the impact of the virus on our patients and employees. For example, we:

 

established an internal COVID-19 taskforce;

 

instituted social distancing practices and protective measures throughout our facilities, which includes restricting or suspending visitor access, limiting group therapy and screening patients and staff who enter our facilities based on criteria established by the CDC and local health officials;

 

have taken steps to secure our supply chain;

 

expanded telehealth capabilities;

 

implemented emergency planning in directly impacted markets;

 

limited all non-essential business travel; and

 

implemented work-from-home policies for certain employees, to the extent practicable, and suspended in-person trainings and conferences.

We have developed additional supply chain management processes, which includes extensive tracking and delivery of key personal protective equipment (“PPE”) and supplies and sharing resources across all facilities. However, we are also experiencing supply chain disruptions and could experience significant price increases in equipment, pharmaceuticals and medical supplies, particularly PPE. Pandemic-related staffing difficulties and equipment, pharmaceutical and medical supplies shortages may impact our ability to treat patients at our facilities. Such shortages could lead to us paying higher prices for supplies, equipment and labor and an increase in overtime hours paid to our employees.

 

CARES Act and Other Regulatory Developments

On March 27, 2020, the CARES Act was signed into law. The CARES Act is intended to provide over $2 trillion in stimulus benefits for the U.S. economy. Among other things, the CARES Act includes additional support for small businesses, expands unemployment benefits, makes forgivable loans available to small businesses, provides for certain federal income tax changes, and provides $500 billion for loans, loan guarantees, and other investments for or in U.S. businesses.

In addition, the CARES Act contains a number of provisions that are intended to assist healthcare providers as they combat the effects of the COVID-19 pandemic. Those provisions include, among others:

 

an appropriation of $100 billion to the PHSSE Fund for a new program to reimburse, through grants or other mechanisms, eligible healthcare providers and other approved entities for COVID-19-related expenses or lost revenue;

 

the expansion of CMS’ Accelerated and Advance Payment Program;

 

the temporary suspension of Medicare sequestration from May 1, 2020, to December 31, 2021; and

 

waivers or temporary suspension of certain regulatory requirements.

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As noted above, the U.S. government initially announced it would offer $100 billion of relief to eligible healthcare providers through the PHSSE Fund. On April 24, 2020, then President Trump signed into law the PPP Act. Among other things, the PPP Act allocated $75 billion to eligible healthcare providers to help offset COVID-19 related losses and expenses. The $75 billion allocated under the PPP Act is in addition to the $100 billion allocated to healthcare providers for the same purposes in the CARES Act and has been disbursed to providers under terms and conditions similar to the CARES Act funds. We received approximately $19.7 million of the initial PHSSE funds distributed in April 2020. We received approximately $12.8 million of additional PHSSE funds in August 2020.

During the fourth quarter of 2020, we recorded $32.8 million of other income in the consolidated statements of operations related to $34.9 million of PHSSE funds received from April through December 2020. Our recognition of this income was based on revised guidance in the Consolidated Appropriations Act, 2021 enacted in December 2020.

Using existing authority and certain expanded authority under the CARES Act, HHS has expanded CMS’ Accelerated and Advance Payment Program to a broader group of Medicare Part A and Part B providers for the duration of the COVID-19 pandemic. Under the program, our facilities were eligible to request up to 100% of their Medicare payment amount for a three-month period. Under the original terms of the program, the repayment of these accelerated/advanced payments would have begun 120 days after the date of the issuance of the payment and the amounts advanced to our facilities would have been recouped from new Medicare claims as a 100% offset. Our facilities would have had 210 days from the date the accelerated or advance payment was made to repay the amounts that they owe.

On October 1, 2020, Congress amended the terms of the Accelerated and Advance Payment Program to extend the term of the loan and adjust the repayment process. Under the new terms of the program, all providers will have 29 months from the date of their first program payment to repay the full amount of the accelerated or advance payments they have received. The revised terms extend the period before repayment begins from 210 days to one year from the date that payment under the program was received. Once the repayment period begins, the offset will be limited to 25% of new claims during the first 11 months of repayment and 50% of new claims during the final 6 months. The revised program terms also lower the interest rate on outstanding amounts due at the end of the repayment period from 10% to 4%. We applied for and received approximately $45 million in April 2020 from this program, which we expect to repay over the 12-month period beginning April 2021.

Also under the CARES Act, we received a 2% increase in our facilities’ Medicare reimbursement rate as a result of the temporary suspension of Medicare sequestration from May 1, 2020 to December 31, 2021.

The CARES Act also provides for certain federal income and other tax changes, including an increase in the interest expense tax deduction limitation and bonus depreciation of qualified improvement property. Furthermore, under the CARES Act, (i) for taxable years beginning before 2021, NOL carryforwards and carrybacks may offset 100% of taxable income and (ii) NOLs arising in 2018, 2019 and 2020 taxable years may be carried back to each of the preceding five years to generate a refund. As a result, in 2019 and 2020 we received a benefit, in the form of refunds and lower future tax payments, of $51.6 million, consisting of $22.8 million related to interest expense, $20.5 million related to qualified improvement property legislation, and an $8.3 million permanent benefit due to the loss being able to be carried back at a 35% tax rate to offset income in tax years prior to 2018 (21% for tax years after 2017). We also received a cash benefit of approximately $39 million for 2020 relating to the delay of payment of the employer portion of Social Security payroll taxes, as enacted by the CARES Act.

In addition to the financial and other relief that has been provided by the federal government through the CARES Act and other legislation passed by Congress, CMS and many state governments have also issued waivers and temporary suspensions of healthcare facility licensure, certification, and reimbursement requirements in order to provide hospitals, physicians, and other healthcare providers with increased flexibility to meet the challenges presented by the COVID-19 pandemic. For example, CMS and many state governments have temporarily eased regulatory requirements and burdens for delivering and being reimbursed for healthcare services provided remotely through telemedicine. CMS has also temporarily waived many provisions of the Stark law, including many of the provisions affecting our relationships with physicians. Many states have also suspended the enforcement of certain regulatory requirements to ensure that healthcare providers have sufficient capacity to treat COVID-19 patients. These regulatory changes are temporary, with most slated to expire at the end of the declared COVID-19 public health emergency.  

We are continuing to evaluate the terms and conditions and financial impact of funds received under the CARES Act and other government relief programs.

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Results of Operations

The following table illustrates our consolidated results of operations for the respective periods shown (dollars in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Revenue

 

$

551,199

 

 

 

100.0

%

 

$

509,217

 

 

 

100.0

%

Salaries, wages and benefits

 

 

304,333

 

 

 

55.2

%

 

 

286,987

 

 

 

56.4

%

Professional fees

 

 

31,617

 

 

 

5.7

%

 

 

31,051

 

 

 

6.1

%

Supplies

 

 

21,322

 

 

 

3.9

%

 

 

22,196

 

 

 

4.4

%

Rents and leases

 

 

9,412

 

 

 

1.7

%

 

 

9,117

 

 

 

1.8

%

Other operating expenses

 

 

72,010

 

 

 

13.1

%

 

 

68,156

 

 

 

13.4

%

Depreciation and amortization

 

 

24,894

 

 

 

4.5

%

 

 

22,835

 

 

 

4.5

%

Interest expense

 

 

29,027

 

 

 

5.3

%

 

 

42,565

 

 

 

8.4

%

Debt extinguishment costs

 

 

24,650

 

 

 

4.5

%

 

 

 

 

 

0.0

%

Transaction-related expenses

 

 

4,610

 

 

 

0.8

%

 

 

1,526

 

 

 

0.3

%

Total expenses

 

 

521,875

 

 

 

94.7

%

 

 

484,433

 

 

 

95.3

%

Income from continuing operations before income taxes

 

 

29,324

 

 

 

5.3

%

 

 

24,784

 

 

 

4.7

%

Provision for income taxes

 

 

6,204

 

 

 

1.1

%

 

 

5,806

 

 

 

1.1

%

Income from continuing operations

 

 

23,120

 

 

 

4.2

%

 

 

18,978

 

 

 

3.6

%

(Loss) income from discontinued operations, net of taxes

 

 

(12,641

)

 

 

-2.3

%

 

 

15,089

 

 

 

3.0

%

Net income

 

 

10,479

 

 

 

1.9

%

 

 

34,067

 

 

 

6.6

%

Net income attributable to noncontrolling interests

 

 

(762

)

 

 

-0.1

%

 

 

(604

)

 

 

-0.1

%

Net income attributable to Acadia Healthcare Company, Inc.

 

$

9,717

 

 

 

1.8

%

 

$

33,463

 

 

 

6.5

%

 

At March 31, 2021, we operated 228 behavioral healthcare facilities with approximately 10,000 beds in 40 states and Puerto Rico. For all periods presented, results of operations and cash flows of the U.K. operations are reported as discontinued operations in the accompanying financial statements.

The following table sets forth percent changes in same facility operating data for our U.S. Facilities for the three months ended March 31, 2021 compared to the same period in 2020:

 

 

Three Months Ended

 

U.S. Same Facility Results (a)

 

 

 

 

Revenue growth

 

7.4%

 

Patient days growth

 

2.7%

 

Admissions growth

 

0.8%

 

Average length of stay change (b)

 

1.9%

 

Revenue per patient day growth

 

4.5%

 

Adjusted EBITDA margin change (c)

 

280 bps

 

 

 

(a)

Results for the periods presented include facilities we have operated more than one year and exclude certain closed services.

 

 

(b)

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

 

(c)   Adjusted EBITDA is defined as income before provision for income taxes, equity-based compensation expense, debt extinguishment costs, transaction-related expenses, interest expense and depreciation and amortization. Management uses Adjusted EBITDA as an analytical indicator to measure performance and to develop strategic objectives and operating plans. Adjusted EBITDA is commonly used as an analytical indicator within the health care industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted EBITDA should not be considered as a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.

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Three months ended March 31, 2021 compared to the three months ended March 31, 2020

Revenue. Revenue increased $42.0 million, or 8.2%, to $551.2 million for the three months ended March 31, 2021 from $509.2 million for the three months ended March 31, 2020. Same facility revenue increased $37.5 million, or 7.4%, for the three months ended March 31, 2021 compared to the three months ended March 31, 2020, resulting from same facility growth in patient days of 2.7% and an increase in same facility revenue per day of 4.5%. Consistent with same facility patient growth in 2020, the growth in same facility patient days for the three months ended March 31, 2021 compared to the three months ended March 31, 2020 resulted from the addition of beds to our existing facilities and ongoing demand for our services.

Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $304.3 million for the three months ended March 31, 2021 compared to $287.0 million for the three months ended March 31, 2020, an increase of $17.3 million. SWB expense included $7.0 million and $5.0 million of equity-based compensation expense for the three months ended March 31, 2021 and 2020, respectively. Excluding equity-based compensation expense, SWB expense was $297.3 million, or 53.9% of revenue, for the three months ended March 31, 2021, compared to $282.0 million, or 55.4% of revenue, for the three months ended March 31, 2020. Same facility SWB expense was $274.6 million for the three months ended March 31, 2021, or 50.3% of revenue, compared to $263.0 million for the three months ended March 31, 2020, or 51.8% of revenue.

Professional fees. Professional fees were $31.6 million for the three months ended March 31, 2021, or 5.7% of revenue, compared to $31.1 million for the three months ended March 31, 2020, or 6.1% of revenue. Same facility professional fees were $28.1 million for the three months ended March 31, 2021, or 5.1% of revenue, compared to $27.8 million, for the three months ended March 31, 2020, or 5.5% of revenue.

Supplies. Supplies expense was $21.3 million for the three months ended March 31, 2021, or 3.9% of revenue, compared to $22.2 million for the three months ended March 31, 2020, or 4.4% of revenue. Same facility supplies expense was $21.1 million for the three months ended March 31, 2021, or 3.9% of revenue, compared to $22.1 million for the three months ended March 31, 2020, or 4.3% of revenue.

Rents and leases. Rents and leases were $9.4 million for the three months ended March 31, 2021, or 1.7% of revenue compared to $9.1 million for the three months ended March 31, 2020, or 1.8% of revenue. Same facility rents and leases were $8.5 million for the three months ended March 31, 2021, or 1.6% of revenue, compared to $8.4 million for the three months ended March 31, 2020, or 1.6% of revenue.

Other operating expenses. Other operating expenses consisted primarily of purchased services, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $72.0 million for the three months ended March 31, 2021, or 13.1% of revenue, compared to $68.2 million for the three months ended March 31, 2020, or 13.4% of revenue. Same facility other operating expenses were $68.7 million for the three months ended March 31, 2021, or 12.6% of revenue, compared to $66.4 million for the three months ended March 31, 2020, or 13.1% of revenue.

Depreciation and amortization. Depreciation and amortization expense was $24.9 million for the three months ended March 31, 2021, or 4.5% of revenue, compared to $22.8 million for the three months ended March 31, 2020, or 4.5% of revenue.

Interest expense. Interest expense was $29.0 million for the three months ended March 31, 2021 compared to $42.6 million for the three months ended March 31, 2020. The decrease in interest expense was primarily due to debt repayments in connection with the U.K. Sale.

Debt extinguishment costs. Debt extinguishment costs were $24.7 million for the three months ended March 31, 2021 and represented $6.3 million of cash charges and $18.4 million of non-cash charges in connection with the redemption of the 5.625% Senior Notes and 6.500% Senior Notes and the termination of the Prior Credit Facility.

Transaction-related expenses. Transaction-related expenses were $4.6 million for the three months ended March 31, 2021 compared to $1.5 million the three months ended March 31, 2020. Transaction-related expenses primarily relate to termination, restructuring, strategic review and other similar costs incurred in the respective periods, as summarized below (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Termination, restructuring and strategic review costs

 

$

2,823

 

 

$

396

 

Legal, accounting and other acquisition-related costs

 

 

1,787

 

 

 

1,130

 

 

 

$

4,610

 

 

$

1,526

 

 

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Provision for income taxes. For the three months ended March 31, 2021, the provision for income taxes was $6.2 million, reflecting an effective tax rate of 21.2%, compared to $5.8 million, reflecting an effective tax rate of 23.4%, for the three months ended March 31, 2020. The decrease in the effective tax rate for the three months ended March 31, 2021 was primarily attributable to our permanent deduction related to equity-based compensation.

As we continue to monitor tax implications of the CARES Act and other state, federal and foreign stimulus and tax legislation, we may make adjustments to our estimates and record additional amounts for tax assets and liabilities. Additionally, market disruption due to COVID-19 may affect the Company’s ability to realize our deferred tax assets. Any adjustments to our tax assets and liabilities could materially impact our provision for income taxes and our effective tax rate in the periods in which they are made.

Revenue

Our revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care, outpatient psychiatric care and adolescent residential treatment. We receive payments from the following sources for services rendered in our facilities: (i) state governments under their respective Medicaid and other programs; (ii) commercial insurers; (iii) the federal government under the Medicare program administered by CMS; and (iv) individual patients and clients. We determine the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and implicit price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. Implicit price concessions are based on historical collection experience.

The following table presents revenue by payor type and as a percentage of revenue for the three months ended March 31, 2021 and 2020 (dollars in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2021

 

 

2020

 

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Commercial

 

$

162,702

 

 

 

29.5

%

 

$

143,142

 

 

 

28.1

%

Medicare

 

 

86,185

 

 

 

15.6

%

 

 

72,271

 

 

 

14.2

%

Medicaid

 

 

274,620

 

 

 

49.8

%

 

 

260,044

 

 

 

51.1

%

Self-Pay

 

 

22,443

 

 

 

4.1

%

 

 

27,034

 

 

 

5.3

%

Other

 

 

5,249

 

 

 

1.0

%

 

 

6,726

 

 

 

1.3

%

Revenue

 

$

551,199

��

 

 

100.0

%

 

$

509,217

 

 

 

100.0

%

 

 

The following tables present a summary of our aging of accounts receivable at March 31, 2021 and December 31, 2020:

March 31, 2021

 

 

Current

 

 

30-90

 

 

90-150

 

 

>150

 

 

Total

 

Commercial

 

 

22.5

%

 

 

5.6

%

 

 

2.6

%

 

 

6.5

%

 

 

37.2

%

Medicare

 

 

13.0

%

 

 

1.8

%

 

 

0.6

%

 

 

1.8

%

 

 

17.2

%

Medicaid

 

 

25.5

%

 

 

3.7

%

 

 

1.9

%

 

 

7.1

%

 

 

38.2

%

Self-Pay

 

 

1.5

%

 

 

1.7

%

 

 

1.2

%

 

 

2.3

%

 

 

6.7

%

Other

 

 

0.2

%

 

 

0.2

%

 

 

0.1

%

 

 

0.2

%

 

 

0.7

%

Total

 

 

62.7

%

 

 

13.0

%

 

 

6.4

%

 

 

17.9

%

 

 

100.0

%

 

December 31, 2020

 

 

Current

 

 

30-90

 

 

90-150

 

 

>150

 

 

Total

 

Commercial

 

 

19.8

%

 

 

5.6

%

 

 

2.2

%

 

 

6.3

%

 

 

33.9

%

Medicare

 

 

12.0

%

 

 

1.2

%

 

 

0.6

%

 

 

1.5

%

 

 

15.3

%

Medicaid

 

 

27.4

%

 

 

4.7

%

 

 

2.7

%

 

 

8.6

%

 

 

43.4

%

Self-Pay

 

 

1.5

%

 

 

1.4

%

 

 

1.3

%

 

 

2.5

%

 

 

6.7

%

Other

 

 

0.0

%

 

 

0.3

%

 

 

0.1

%

 

 

0.3

%

 

 

0.7

%

Total

 

 

60.7

%

 

 

13.2

%

 

 

6.9

%

 

 

19.2

%

 

 

100.0

%

 

 

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Liquidity and Capital Resources

Cash provided by continuing operating activities for the three months ended March 31, 2021 was $75.8 million compared to $16.6 million for the three months ended March 31, 2020. The increase in operating cash flows primarily relates to an increase in earnings, a reduction in cash paid for interest and favorable working capital trends. Days sales outstanding were 45 days for March 31, 2021 compared to 47 days at December 31, 2020.

Cash provided by continuing investing activities for the three months ended March 31, 2021 was $1,368.6 million compared to cash used in continuing investing activities of $60.1 million for the three months ended March 31, 2020. Cash provided by investing activities for the three months ended March 31, 2021 primarily consisted of $1,511.0 million of proceeds from U.K. Sale, $0.9 million of other and $0.1 million of proceeds from the sale of property and equipment offset by $84.8 million of settlement of foreign currency derivatives and $58.7 million of cash paid for capital expenditures. Cash paid for capital expenditures for the three months ended March 31, 2021 consisted of $7.7 million of routine capital expenditures and $51.0 million of expansion capital expenditures. We define expansion capital expenditures as those that increase the capacity of our facilities or otherwise enhance revenue. Routine or maintenance capital expenditures were 1.4% of revenue for the three months ended March 31, 2021. Cash used in continuing investing activities for the three months ended March 31, 2020 primarily consisted of $58.4 million of cash paid for capital expenditures and other of $1.7 million. Cash paid for capital expenditures for the three months ended March 31, 2020 consisted of $10.9 million of cash paid for routine capital expenditures and $44.4 million of expansion capital expenditures.

Cash used in continuing financing activities for the three months ended March 31, 2021 was $1,648.5 million compared $12.7 million for the three months ended March 31, 2020. Cash used in continuing financing activities for the three months ended March 31, 2021 consisted of repayment of long-term debt of $2,224.6 million, principal payments on revolving credit facility of $270.0 million, payment of debt issuance costs of $9.9 million, distributions to noncontrolling interests of $0.4 million and other of $6.8 million offset by common stock withheld for minimum statutory taxes of $8.2 million, borrowings of long-term debt of $425.0 million and borrowings on revolving credit facility of $430.0 million. Cash used in continuing financing activities for the three months ended March 31, 2020 primarily consisted of principal payments of long-term debt of $10.6 million, common stock withheld for minimum statutory taxes of $1.4 million, $0.3 million of distributions to noncontrolling interest and other of $0.4 million.

We had total available cash and cash equivalents of $178.9 million and $378.7 million at March 31, 2021 and December 31, 2020, respectively, of which approximately $11.1 million and $17.0 million was held by our foreign subsidiaries, respectively. Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S., and it is our current intention to permanently reinvest our foreign cash and cash equivalents outside of the U.S.

We believe existing cash on hand, cash flows from operations, the availability under our revolving line of credit and cash from additional financing will be sufficient to meet our expected liquidity needs during the next 12 months.

New Credit Facility

We entered into a New Credit Facility on March 17, 2021. This New Credit Facility provides for a $600.0 million Revolving Facility and a $425.0 million Term Loan Facility with each maturing on March 17, 2026 unless extended in accordance with the terms of the New Credit Facility. The Revolving Facility further provides for (i) up to $20.0 million to be utilized for the issuance of letters of credit and (ii) the availability of a swingline facility under which we may borrow up to $20.0 million.  

As a part of the closing of the New Credit Facility on March 17, 2021, we (i) refinanced and terminated our Prior Credit Facility and (ii) financed the redemption of all of our outstanding 5.625% Senior Notes.

We had $422.0 million of availability under the Revolving Facility and had standby letters of credit outstanding of $18.0 million related to security for the payment of claims required by our workers’ compensation insurance program at March 31, 2021.

The New Credit Facility requires quarterly term loan principal repayments for our Term Loan Facility of $2.7 million for June 30, 2021 to March 31, 2022, $5.3 million for June 30, 2022 to March 31, 2024, $8.0 million for June 30, 2024 to March 31, 2025, $10.6 million for June 30, 2025 to December 31, 2025, with the remaining principal balance of the Term Loan Facility due on the maturity date of March 31, 2026.

We have the ability to increase the amount of the Senior Facilities, which may take the form of increases to the Revolving Facility or the Term Loan Facility or the issuance of one or more Incremental Facilities, upon obtaining additional commitments from new or existing lenders and the satisfaction of customary conditions precedent for such Incremental Facilities. Such Incremental Facilities may not exceed the sum of (i) the greater of $480.0 million and an amount equal to 100% of our Consolidated EBITDA (as defined in the New Credit Facility) and its Restricted Subsidiaries (as defined in the New Credit Facility) (as determined for the four fiscal quarter period most recently ended for which financial statements are available), and (ii) additional amounts so long as, after giving effect thereto, the Consolidated Senior Secured Net Leverage Ratio (as defined in the New Credit Facility) does not exceed 3.5 to 1.0.

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Subject to certain exceptions, substantially all of our existing and subsequently acquired or organized direct or indirect wholly-owned U.S. subsidiaries are required to guarantee the repayment of its obligations under the New Credit Facility. Borrowings under the Senior Facilities bear interest at a floating rate, which will initially be, at our option, either (i) adjusted LIBOR plus 1.75% or (ii) an alternative base rate plus 0.75% (in each case, subject to adjustment based on the Company’s consolidated total net leverage ratio). An unused fee initially set at 0.25% per annum (subject to adjustment based on the Company’s consolidated total net leverage ratio) is payable quarterly in arrears based on the actual daily undrawn portion of the commitments in respect of the Revolving Facility.

The interest rates and the unused line fee on unused commitments related to the Senior Facilities are based upon the following pricing tiers:

 

Pricing Tier

 

Consolidated Total Net

Leverage Ratio

 

Eurodollar Rate Loans

and Letter of Credit Fees

 

 

Base Rate and

Swing Line Loans

 

 

Commitment

Fee

 

1

 

≥ 4.50:1.0

 

 

2.250

%

 

 

1.250

%

 

 

0.350

%

2

 

<4.50:1.0 but ≥ 3.75:1.0

 

 

2.000

%

 

 

1.000

%

 

 

0.300

%

3

 

<3.75:1.0 but ≥ 3.00:1.0

 

 

1.750

%

 

 

0.750

%

 

 

0.250

%

4

 

<3.00:1.0 but ≥ 2.25:1.0

 

 

1.500

%

 

 

0.500

%

 

 

0.200

%

5

 

<2.25:1.0

 

 

1.375

%

 

 

0.375

%

 

 

0.200

%

The New Credit Facility contains customary representations and affirmative and negative covenants, including limitations on the Company’s and its subsidiaries’ ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay junior indebtedness and enter into affiliate transactions, in each case, subject to customary exceptions. In addition, the New Credit Facility contains financial covenants requiring the Company on a consolidated basis to maintain, as of the last day of any consecutive four fiscal quarter period, a consolidated total net leverage ratio of not more than 5.0 to 1.0  and an interest coverage ratio of at least 3.0 to 1.0. The New Credit Facility also includes events of default customary for facilities of this type and upon the occurrence of such events of default, among other things, all outstanding loans under the Senior Facilities may be accelerated and/or the lenders’ commitments terminated. At March 31, 2021, the Company was in compliance with such covenants.

Prior Credit Facility

We entered into the Senior Secured Credit Facility on April 1, 2011. On December 31, 2012, we entered into the Prior Credit Facility which amended and restated the Senior Secured Credit Facility. We have amended the Prior Credit Facility from time to time as described in our prior filings with the SEC.

On April 21, 2020, we entered into the Thirteenth Amendment to the Prior Credit Facility. The Thirteenth Amendment amended the Consolidated Leverage Ratio in the prior covenant to increase such leverage ratio for the rest of 2020.

On November 13, 2020, we entered into the Fourth Repricing Facilities Amendment to the Prior Credit Facility. The Fourth Repricing Facilities Amendment extended the maturity date of each of the prior revolving line of credit and the prior TLA Facility from November 30, 2021 to November 30, 2022. The Fourth Repricing Facilities Amendment also (1) replaced the revolving line of credit in an aggregate committed amount of $500.0 million with an aggregate committed amount of approximately $459.0 million and (2) replaced the TLA Facility aggregate outstanding principal amount of approximately $352.4 million with an aggregate principal amount of approximately $318.9 million. The interest rate margin applicable to both facilities remained unchanged from the prior facilities, and the commitment fee applicable to the new revolving line of credit also remained unchanged from the prior revolving line of credit. In connection with the Fourth Repricing Facilities Amendment, we recorded a debt extinguishment charge of $1.0 million, including the write-off of discount and deferred financing costs, which was recorded in debt extinguishment costs in the consolidated statements of operations at December 31, 2020.

On January 5, 2021, we made a voluntary payment of $105.0 million on the Tranche B-4 Facility. On January 19, 2021, we used a portion of the net proceeds from the U.K. Sale to repay the outstanding balances of $311.7 million of its TLA Facility and $767.9 million of its Tranche B-4 Facility of the Prior Credit Facility. At March 31, 2021, in connection with the termination of the Prior Credit Facility, we recorded a debt extinguishment charge of $10.9 million, including the write-off of discount and deferred financing costs, which was recorded in debt extinguishment costs in the condensed consolidated statements of operations.

 

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Table of contents

 

 

Senior Notes

5.500% Senior Notes due 2028

On June 24, 2020, we issued $450.0 million of 5.500% Senior Notes due 2028. The 5.500% Senior Notes mature on July 1, 2028 and bear interest at a rate of 5.500% per annum, payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2021.

5.000% Senior Notes due 2029

On October 14, 2020, we issued $475.0 million of 5.000% Senior Notes. The 5.000% Senior Notes mature on April 15, 2029 and bear interest at a rate of 5.000% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2021. We used the net proceeds of the 5.000% Senior Notes to prepay approximately $453.3 million of the outstanding borrowings on our existing Tranche B-3 Facility and used the remaining net proceeds for general corporate purposes and to pay related fees and expenses in connection with the offering. In connection with the 5.000% Senior Notes, we recorded a debt extinguishment charge of $2.9 million, including the write-off of discount and deferred financing costs of the Tranche B-3 Facility, which was recorded in debt extinguishment costs in the consolidated statements of operations for the year ended December 31, 2020.

The indentures governing the Senior Notes contain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) engage in certain transactions with affiliates; (v) create restrictions on dividends or other payments by the restricted subsidiaries; (vi) merge, consolidate or sell substantially all of our assets; and (vii) create liens on assets.

The Senior Notes issued by us are guaranteed by each of our subsidiaries that guarantee our obligations under the Prior Credit Facility. The guarantees are full and unconditional and joint and several.

We may redeem the Senior Notes at our option, in whole or part, at the dates and amounts set forth in the indentures.

5.625% Senior Notes due 2023

On February 11, 2015, we issued $375.0 million of 5.625% Senior Notes due 2023. On September 21, 2015, we issued $275.0 million of additional 5.625% Senior Notes. The additional notes formed a single class of debt securities with the 5.625% Senior Notes issued in February 2015. Giving effect to this issuance, we have outstanding an aggregate of $650.0 million of 5.625% Senior Notes. The 5.625% Senior Notes mature on February 15, 2023 and bear interest at a rate of 5.625% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. On March 17, 2021, we redeemed the 5.625% Senior Notes.

6.500% Senior Notes due 2024

On February 16, 2016, we issued $390.0 million of 6.500% Senior Notes due 2024. The 6.500% Senior Notes mature on March 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2016. On March 1, 2021, we redeemed the 6.500% Senior Notes.

Redemption of 5.625% Senior Notes and 6.500% Senior Notes

On January 29, 2021, we issued conditional notices of full redemption providing for the redemption in full of $650 million of 5.625% Senior Notes and $390 million of 6.500% Senior Notes to the holders of such notes.

On March 1, 2021, we satisfied and discharged the indentures governing the 6.500% Senior Notes. In connection with the redemption of the 6.500% Senior Notes, we recorded debt extinguishment costs of $10.5 million, including $6.3 million cash paid for breakage costs and the write-off of deferred financing costs of $4.2 million in the condensed consolidated statements of operations.  

On March 17, 2021, the Company satisfied and discharged the indentures governing the 5.625% Senior Notes. In connection with the redemption of the 5.625% Senior Notes, the Company recorded debt extinguishment costs of $3.3 million, including the write-off of deferred financing and premiums costs in the condensed consolidated statements of operations.  

6.125% Senior Notes Due 2021

On March 12, 2013, we issued $150.0 million of 6.125% Senior Notes due 2021. The 6.125% Senior Notes mature on March 15, 2021 and bear interest at a rate of 6.125% per annum, payable semi-annually in arrears on March 15 and September 15 of each year. On June 24, 2020, we redeemed the 6.125% Senior Notes.

 

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5.125% Senior Notes due 2022

On July 1, 2014, we issued $300.0 million of 5.125% Senior Notes due 2022. The 5.125% Senior Notes mature on July 1, 2022 and bear interest at a rate of 5.125% per annum, payable semi-annually in arrears on January 1 and July 1 of each year. On June 24, 2020, we redeemed the 5.125% Senior Notes.

 

Redemption of 6.125% Senior Notes and 5.125% Senior Notes

On June 10, 2020, we issued conditional notices of full redemption providing for the redemption in full of the 6.125% Senior Notes and 5.125% Senior Notes on Redemption Date, in each case at the Redemption Price. On June 24, 2020, we satisfied and discharged the indentures governing the 6.125% Senior Notes and the 5.125% Senior Notes by irrevocably depositing with a trustee sufficient funds equal to the Redemption Price for the 6.125% Senior Notes and the 5.125% Senior Notes and otherwise complying with the terms in the indentures relating to the satisfaction and discharge of the 6.125% Senior Notes and the 5.125% Senior Notes. In connection with the redemption of the 6.125% Senior Notes and the 5.125% Senior Notes, we recorded a debt extinguishment charge of $3.3 million, including the write-off of the deferred financing and other costs in the consolidated statements of operations for the year ended December 31, 2020.

Contractual Obligations

The following table presents a summary of contractual obligations at March 31, 2021 (dollars in thousands):

 

 

 

Payments Due by Period

 

 

 

Less Than

1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

More Than

5 Years

 

 

Total

 

Long-term debt (a)

 

$

72,421

 

 

$

164,291

 

 

$

647,998

 

 

$

1,057,875

 

 

$

1,942,585

 

Operating lease liabilities (b)

 

 

24,642

 

 

 

38,465

 

 

 

26,268

 

 

 

51,895

 

 

 

141,270

 

Finance lease liabilities

 

 

32,205

 

 

 

1,980

 

 

 

2,120

 

 

 

23,728

 

 

 

60,033

 

Total obligations and commitments

 

$

129,268

 

 

$

204,736

 

 

$

676,386

 

 

$

1,133,498

 

 

$

2,143,888

 

 

(a)

Amounts include required principal and interest payments. The projected interest payments reflect the interest rates in place on our variable-rate debt at March 31, 2021.

(b)

Amounts exclude variable components of lease payments.

Off-Balance Sheet Arrangements

At March 31, 2021, we had standby letters of credit outstanding of $18.0 million related to security for the payment of claims as required by our workers’ compensation insurance program.

Critical Accounting Policies

Our goodwill and other indefinite-lived intangible assets, which consist of licenses and accreditations, trade names and certificates of need intangible assets that are not amortized, are evaluated for impairment annually during the fourth quarter or more frequently if events indicate the carrying value of a reporting unit may not be recoverable. As of our most recent impairment test on October 1, 2020, we had two operating segments for segment reporting purposes, U.S. Facilities and U.K. Facilities, each of which represented a reporting unit for purposes of our goodwill impairment test.

Our annual goodwill impairment and other indefinite-lived intangible assets test performed as of October 1, 2020 considered recent financial performance, including the impacts of COVID-19 on certain portions of the U.K. business. The 2020 impairment test of the U.K. Facilities indicated carrying value of the reporting unit exceeded the estimated fair value and resulted in a non-cash loss on impairment of the remaining goodwill of the U.K. Facilities of $356.2 million. As of our impairment test on October 1, 2020, the fair value of our U.S Facilities reporting unit substantially exceeded its carrying value, and therefore no impairment was recorded.

Due to the classification of the U.K. Facilities in discontinued operations, we have one operating segment, behavioral health services, for segment reporting purposes. The behavioral healthcare services operating segment represents one reporting unit for future goodwill impairment tests.

There have been no material changes in our critical accounting policies at March 31, 2021 from those described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

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Table of contents

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

Our interest expense is sensitive to changes in market interest rates. Our long-term debt outstanding at March 31, 2021 was composed of $915.0 million of fixed-rate debt and $581.1 million of variable-rate debt with interest based on LIBOR plus an applicable margin. A hypothetical 10% increase in interest rates (which would equate to a 0.19% higher rate on our variable rate debt) would decrease our net income and cash flows by $0.8 million on an annual basis based upon our borrowing level at March 31, 2021.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, our management conducted an evaluation, with the participation of our chief executive officer and chief financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit 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 disclosure.

Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting during the three months ended March 31, 2021 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.

Information with respect to this item may be found in Note 19—Commitments and Contingencies in the accompanying notes to our consolidated financial statements beginning on Page 6 of this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

Item 1A.

Risk Factors

In addition to the other information set forth in this report, an investor should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020. The risks described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, are not the only risks facing the Company. Additional risks and uncertainties not currently known to management or that management currently deems immaterial also may materially, adversely affect the Company’s business, financial condition, operating results or cash flows.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended March 31, 2021, 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:

 

Period

 

Total Number

of Shares

Purchased

 

 

Average Price

Paid per Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Number

of Shares that

May Yet Be

Purchased Under

the Plans

or Programs

 

January 1 – January 31

 

 

15,301

 

 

$

18.00

 

 

 

 

 

 

 

February 1 – February 28

 

 

28,352

 

 

 

34.19

 

 

 

 

 

 

 

March 1 – March 31

 

 

42,296

 

 

 

26.68

 

 

 

 

 

 

 

Total

 

 

85,949

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Item 6.

Exhibits

 

Exhibit No.

  

Exhibit Description

 

 

3.1

  

Amended and Restated Certificate of Incorporation, as amended. (1)

 

 

3.2

 

Amended and Restated Bylaws of the Company, as amended. (1)

 

10.1

 

Credit Agreement, dated as of March 17, 2021, among the Company, certain subsidiaries of the Company, as guarantors, the several banks and other financial institutions as may from time to time become parties thereunder as lenders, and Bank of America, N.A., as Administrative Agent and Swingline Lender. (2)

 

 

 

10.2

 

Security and Pledge Agreement, dated as of March 17, 2021, among the Company, the other obligors party thereto and Bank of America, N.A., as Administrative Agent. (2)

 

 

 

22*

 

List of Subsidiary Guarantors and Issuers of Guaranteed Securities.

 

 

 

31.1*

  

Certification of the Chief Executive Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

31.2*

  

Certification of the Chief Financial Officer of the Company pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

32*

  

Certification of Chief Executive Officer and Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

101.INS**

  

Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document.

 

 

101.SCH**

 

Inline XBRL Taxonomy Extension Schema Document.

 

 

101.CAL**

  

Inline XBRL Taxonomy Calculation Linkbase Document.

 

 

101.DEF**

  

Inline XBRL Taxonomy Extension Definition Linkbase Document.

 

 

101.LAB**

  

Inline XBRL Taxonomy Label Linkbase Document.

 

 

101.PRE**

  

Inline XBRL Taxonomy Presentation Linkbase Document.

 

 

 

104

 

The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, has been formatted in Inline XBRL.

 

(1)

Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed May 25, 2017 (File No. 001-35331).

(2)

Incorporated by reference to exhibits filed with the Company’s Current Report on Form 8-K filed March 22, 2021 (File No. 001-35331).

*

Filed herewith.

**     The XBRL related information in Exhibit 101 to this quarterly report on Form 10-Q shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability of that section and shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing or document.

 

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Acadia Healthcare Company, Inc.

 

 

By:

 

/s/ David M. Duckworth

 

 

David M. Duckworth

 

 

Chief Financial Officer

Dated: April 30, 2021

 

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