BRENTWOOD, Tenn., Nov. 6, 2018 /PRNewswire/ -- AAC Holdings, Inc. (NYSE: AAC) today announced financial results for the third quarter ended September 30, 2018 and updates its previously issued full year 2018 guidance.
Third Quarter 2018 Operational and Financial Highlights:
(All comparisons are to the comparable prior-year period, unless otherwise noted)
- Total revenue increased 10% to $77.5 million on a comparable accounting basis (decreased 4% as reported)
- Average daily inpatient revenue (ADR) decreased 12% to $758
- Total average daily census (ADC) increased 16% to 1,132
- Outpatient visits increased 163% to 48,626
- Net loss attributable to AAC Holdings, Inc. common stockholders was $11.5 million, or $(0.47) per diluted common share
- Adjusted EBITDA was $10.7 million (see non-GAAP reconciliation herein)
- Adjusted loss per diluted common share was $(0.08) (see non-GAAP reconciliation herein)
Included in the Company's results of operations for the third quarter ended September 30, 2018 is a $6.0 million reduction to revenue as a result of a change in accounting estimate, which took effect on July 1, 2018 (see section titled "Change in Accounting Estimate"). Adjusting for the change in accounting estimate, 2018 Operational and Financial Highlights on a non-GAAP basis are as follows:
- Total revenue, excluding the change in estimate, increased 18% to $83.5 million on a comparable accounting basis (see non-GAAP reconciliation herein)
- Average daily inpatient revenue (ADR), excluding the change in estimate, decreased 3% to $828
- Net loss attributable to AAC Holdings, Inc. common stockholders, excluding the change in estimate, was $6.7 million or $(0.28) per diluted common share (see non-GAAP reconciliation herein)
"Our third quarter results were not what we expected. Although we started off the third quarter with a very strong July, we hit unanticipated headwinds in August that caused a significant decline in call volume and led to lower census," said Michael Cartwright, Chairman and Chief Executive Officer of AAC Holdings, Inc. "We believe that we have the right marketing leadership to navigate these headwinds. Our marketing strategy is broad and diverse, focused on various paid and earned media online and in other traditional media. We strive to be as accessible and as informative as possible to those searching for addiction treatment."
Adoption of New Revenue Recognition Standard
In May 2014, the FASB issued Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" (ASC Topic 606), a replacement of Revenue Recognition ASC Topic 605. The Company adopted ASC Topic 606 on January 1, 2018 using the modified retrospective approach. Under ASC Topic 606, the provision for doubtful accounts, which historically was reported as an operating expense, is now reported as a direct reduction to revenue effective January 1, 2018. This change in presentation reduced revenues and operating expenses by the same amount and did not have an effect on net income or earnings per share. As the Company adopted ASC Topic 606 using the modified retrospective approach, prior year periods were not recast and as such, revenues as reported for those periods are not comparable to the current year presentation. For purposes of this release, we have applied our adoption of ASC Topic 606 to the prior year period. We believe this allows for an accurate comparison of prior period revenue. Where we have used language such as "less the provision for doubtful accounts," this indicates a comparison of periods that reflects our adoption of ASC Topic 606.
On March 1, 2018, AAC acquired AdCare, Inc. and its subsidiaries ("AdCare"). AdCare offers treatment for drug and alcohol addiction and includes, among other things, a 114-bed hospital and 5 outpatient centers in Massachusetts, as well as a 59-bed residential inpatient treatment center and 2 outpatient centers in Rhode Island. AdCare was purchased for total consideration of $85.0 million, subject to adjustments.
Change in Accounting Estimate
During the three months ended September 30, 2018 and effective as of July 1, 2018, we made a change to our accounting estimate of the collectability of accounts receivable, specifically relating to accounts where we have received a partial payment from a commercial insurance company and we are continuing to pursue additional collections for the balance that we estimate remains outstanding ("partial payment accounts receivable"). Based on the limited number of claims that were closed through our historical appeals process, information with respect to the ultimate resolution of the appeals of these partial payment accounts receivable has been limited. As a result, initial assumptions of the ultimate collectability rates for partial payment accounts receivable were primarily based on industry and other data. During 2018, to enhance our own collection processes, we began using a third-party vendor to pursue collections on these partial payment accounts receivable. As of September 30, 2018, we are using this vendor exclusively for collection of the partial payment accounts receivable. As a result of utilizing the third-party vendor, the number of partial payment claims closed through the appeals process has increased allowing us to rely on our own collection history and additional information obtained from the third party vendor to estimate ultimate collectability. This recent information indicated that our current assumptions were different from our historical assumptions. We used this additional information to further refine our procedures to more precisely estimate the collectability of partial payment accounts receivable. This change in estimate resulted in a reduction in revenue of approximately $6.0 million, an increase in net loss of approximately $4.8 million, or $0.20 loss per basic and diluted share for the three and nine months ended September 30, 2018. We determined this change in assumptions and estimation procedures of the collectability of partial payment accounts receivable is a change in accounting estimate in accordance with Accounting Standards Codification ("ASC") 250-10 "Accounting Changes and Error Corrections."
Third Quarter 2018 Financial Results
AAC breaks down its revenues between client related revenue and non-client related revenue. Client related revenue includes: (1) inpatient treatment facility services and related professional services; (2) outpatient facility services, related professional services and sober living services; and (3) client related diagnostic services, which includes point of care drug testing and client related diagnostic laboratory services. Non-client related revenue includes marketing and diagnostic services provided to third parties as well as addiction services provided to individuals in the criminal justice system.
Total revenue on a comparable accounting basis (i.e., less the provision for doubtful accounts) increased 10% to $77.5 million compared with $70.7 million in the same period in the prior year. Total revenue as reported decreased 4%.
Inpatient treatment facility revenue, on a comparable accounting basis, decreased 2% to $58.5 million compared with $59.4 million in the same period in the prior year. ADR decreased 12% to $758 compared with $857 in the same period in the prior year.
Outpatient and sober living facility revenue, on a comparable accounting basis, increased 56% to $11.3 million compared with $7.3 million in the same period in the prior year. Average revenue per outpatient visit (ARV) decreased 47% to $233 compared with $437 in the same period in the prior year.
Client related diagnostic services revenue, on a comparable accounting basis, increased 185% to $4.7 million compared with $1.6 million in the same period in the prior year.
Non-client related revenue, on a comparable accounting basis, increased 21% to $3.0 million compared with $2.5 million in the same period in the prior year.
Net loss attributable to AAC Holdings, Inc. common stockholders was $11.5 million, or $(0.47) per diluted common share, compared with $0.8 million, or $0.03 per diluted common share, in the prior-year period.
Adjusted EBITDA decreased 29% to $10.7 million compared with $14.9 million for the same period in the prior year. Adjusted net (loss) income attributable to AAC Holdings, Inc. common stockholders decreased to $2.1 million, or $(0.08) per diluted common share, compared with $2.7 million, or $0.12 per diluted common share, for the same period in the prior year. Adjusted EBITDA, adjusted net income attributable to AAC Holdings, Inc. common stockholders and adjusted earnings per diluted common share are non-GAAP financial measures. Tables reconciling these non-GAAP measures to the most directly comparable GAAP measures are included at the end of this release.
Balance Sheet and Cash Flows
As of September 30, 2018, AAC Holdings' balance sheet reflected cash and cash equivalents of $5.3 million, net property and equipment of $166.3 million and total debt of $305.5 million, net of debt issuance costs of $8.5 million. Cash on hand in addition to our borrowing capacity under the Company's revolver was $20.8 million at September 30, 2018. From time to time, we expect to engage in additional debt and capital markets, bank credit and other financing activities, and sale-leaseback transactions depending on our needs and financing alternatives available at that time. Our current cash flow, cash on hand, access to borrowings under our credit facility, along with anticipated access to debt and capital markets and/or anticipated proceeds from sale-leaseback transactions will be sufficient to fund our expected future liquidity needs.
Cash flows used in operations totaled $4.0 million and maintenance capital expenditures totaled $1.8 million for the third quarter of 2018.
The Company expects an annual effective tax rate of 20% and diluted weighted-average common shares outstanding of approximately 24.1 million for the year.
This outlook above does not include the impact of any future acquisitions, transaction-related costs, litigation settlement or expenses related to legal defenses.
With respect to the "2018 Outlook" above, reconciliation of adjusted EBITDA and adjusted earnings per diluted common share guidance to the closest corresponding GAAP measure on a forward-looking basis is not available without unreasonable efforts. This inability results from the inherent difficulty in forecasting generally and quantifying certain projected amounts that are necessary for such reconciliations. In particular, sufficient information is not available to calculate certain adjustments required for such reconciliations, including de novo start-up and other expense and acquisition-related expenses. We expect these adjustments may have a potentially significant impact on future GAAP financial results.
Earnings Conference Call
The Company will host a conference call and live audio webcast on Tuesday, November 6, 2018, at 8:00 a.m. CT to further discuss these results. The number to call for this interactive teleconference is 412-542-4144. A replay of the conference call will be available through November 13, 2018, by dialing 877-344-7529 and entering the replay access code, 10126088. The live audio webcast of the Company's quarterly conference call will also be available online in the Investor Relations section of the Company's website at ir.americanaddictioncenters.org .
About American Addiction Centers
American Addiction Centers is a leading provider of inpatient and outpatient substance abuse treatment services. We treat clients who are struggling with drug addiction, alcohol addiction and co-occurring mental/behavioral health issues. We currently operate substance abuse treatment facilities located throughout the United States. These facilities are focused on delivering effective clinical care and treatment solutions. For more information, please find us at AmericanAddictionCenters.org or follow us on Twitter.
Forward Looking Statements
This release contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are made only as of the date of this release. In some cases, you can identify forward-looking statements by terms such as "anticipates," "believes," "could," "estimates," "expects," "may," "potential," "predicts," "projects," "should," "will," "would," and similar expressions intended to identify forward-looking statements, although not all forward-looking statements contain these words. Forward-looking statements may include information concerning AAC Holdings, Inc.'s (collectively with its subsidiaries; "AAC Holdings" or the "Company") possible or assumed future results of operations, including descriptions of the Company's revenue, profitability, outlook and overall business strategy. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results and performance to be materially different from the information contained in the forward-looking statements. These risks, uncertainties and other factors include, without limitation: (i) our inability to effectively operate our facilities; (ii) our reliance on our sales and marketing program to continuously attract and enroll clients; (iii) a reduction in reimbursement rates (or failure to pay) by certain third-party payors for inpatient and outpatient services and point-of-care and definitive lab testing; (iv) our failure to successfully achieve growth through acquisitions and de novo projects; (v) the possibility that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of an acquisition; (vi) our failure to achieve anticipated financial results from contemplated and prior acquisitions; (vii) a disruption in our ability to perform diagnostic laboratory services; (viii) maintaining compliance with applicable regulatory authorities, licensure and permits to operate our facilities and laboratories; (ix) a disruption in our business and reputational and economic risks associated with civil claims by various parties; (x) inability to meet the covenants in our loan documents or lack of borrowing capacity; (xi) our inability to effectively integrate acquired facilities; and (xii) general economic conditions, as well as other risks discussed in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2017, the Company's Quarterly Report on Form 10-Q for the period ended March 31, 2018, the Company's Quarterly Report on Form 10-Q for the period ended September 30, 2018 and other filings with the Securities and Exchange Commission. As a result of these factors, we cannot assure you that the forward-looking statements in this release will prove to be accurate. Investors should not place undue reliance upon forward-looking statements.
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SOURCE AAC Holdings, Inc.