ACADIA HEALTHCARE COMPANY, INC. 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;
• 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 and wildfires;
• 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
potential repeal, replacement or modification of the Patient Protection and
Affordable Care Act;
• the risk of a cyber-security incident and any resulting adverse impact on
our operations or violation of laws and regulations regarding information
privacy;
• the impact of our highly competitive industry on patient volumes;
23
--------------------------------------------------------------------------------
Table of contents
• our dependence on key management personnel, key executives and local
facility management personnel;
• our acquisition, joint venture and wholly-owned 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 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 careorganizations 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
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. AtJune 30, 2021 , we operated 229 behavioral healthcare facilities with approximately 10,100 beds in 40 states andPuerto Rico . During the six months endedJune 30, 2021 , we added 258 beds, consisting of 178 beds to existing facilities and 80 through the opening of one wholly-owned facility and three comprehensive treatment centers ("CTCs"). For the year endingDecember 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 inthe United States . 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 theU.S. through acquisitions, wholly-owned de novo facilities, joint ventures and bed additions in existing facilities. 24
--------------------------------------------------------------------------------
Table of contents
OnJanuary 19, 2021 , we completed the U.K. Sale pursuant to a Share Purchase Agreement in which we sold all of the securities ofAHC-WW Jersey Limited , a private limited liability company incorporated in Jersey and a subsidiary of the Company, which constituted the entirety of ourU.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 theU.K. operations as discontinued operations in the accompanying financial statements.
COVID-19
DuringMarch 2020 , the global pandemic of COVID-19 began to affect our facilities, employees, patients, communities, business operations and financial performance, as well as the broaderU.S. andU.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 theCDC 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
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. We could experience supply
chain disruptions and 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
OnMarch 27, 2020 , the CARES Act was signed into law. The CARES Act is intended to provide over$2 trillion in stimulus benefits for theU.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 inU.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
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
December 31, 2021 ; and • waivers or temporary suspension of certain regulatory requirements. 25
--------------------------------------------------------------------------------
Table of contents As noted above, theU.S. government initially announced it would offer$100 billion of relief to eligible healthcare providers through thePHSSE Fund . OnApril 24, 2020 , thenPresident 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 funds distributed from thePHSSE Fund inApril 2020 . We received an additional$12.8 million from thePHSSE Fund inAugust 2020 . InApril 2021 , we received$24.2 million of additional funds from thePHSSE Fund , which is included in other accrued liabilities on the condensed consolidated balance sheet atJune 30, 2021 . We continue to evaluate our compliance with the terms and conditions to, and the financial impact of, these additional funds received. During the three months endedJune 30, 2020 , we recorded$18.1 million of other income in the condensed consolidated statement of operations related to$19.7 million received from thePHSSE Fund during the quarter. This was subsequently reversed during the third quarter of 2020. During the fourth quarter of 2020, we recorded$32.8 million of other income in the consolidated statement of operations related to$34.9 million received from thePHSSE Fund from April throughDecember 2020 . Our recognition of this income was based on revised guidance in the Consolidated Appropriations Act, 2021 enacted inDecember 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. OnOctober 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 is 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 inApril 2020 from this program. We repaid approximately$7 million of the$45 million of advance payments during the second quarter of 2021 via recoupment from our new Medicare claims and will continue to repay the remaining balance on a monthly basis throughJune 2022 .
Under the CARES Act, we also received a 2% increase in our facilities' Medicare
reimbursement rate as a result of the temporary suspension of Medicare
sequestration from
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 ofSocial Security payroll taxes, as enacted by the CARES Act. Additionally, we expect to repay half of the$39 million in 2020 payroll tax deferrals by the end of 2021 and the remaining portion in 2022. In addition to the financial and other relief that has been provided by the federal government through the CARES Act and other legislation passed byCongress , 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. 26
--------------------------------------------------------------------------------
Table of contents
We are continuing to evaluate the terms and conditions and financial impact of funds received under the CARES Act and other government relief programs.
Results of Operations
The following table illustrates our consolidated results of operations for the respective periods shown (dollars in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Amount % Amount % Amount % Amount %
Revenue $ 582,156 100.0 % $ 491,475 100.0 % $ 1,133,355 100.0 % $ 1,000,692 100.0 %
Salaries, wages and benefits 309,233 53.1 % 275,258 56.0 % 613,566 54.1 % 562,245 56.2 %
Professional fees 34,696 6.0 % 30,586 6.2 % 66,313 5.9 % 61,637 6.2 %
Supplies 22,633 3.9 % 21,059 4.3 % 43,955 3.9 % 43,255 4.3 %
Rents and leases 9,620 1.7 % 9,493 1.9 % 19,032 1.7 % 18,610 1.9 %
Other operating expenses 73,751 12.7 % 66,171 13.5 % 145,761 12.9 % 134,327 13.4 %
Other income - 0.0 % (18,070 ) -3.7 % - 0.0 % (18,070 ) -1.8 %
Depreciation and amortization 25,650 4.4 % 23,331 4.7 % 50,544 4.5 % 46,166 4.6 %
Interest expense 16,687 2.9 % 38,518 7.8 % 45,714 4.0 % 81,083 8.1 %
Debt extinguishment costs - 0.0 % 3,271 0.7 % 24,650 2.2 % 3,271 0.3 %
Loss on impairment 23,214 4.0 % - 0.0 % 23,214 2.0 % - 0.0 %
Transaction-related expenses 1,675 0.3 % 5,008 1.0 % 6,285 0.6 % 6,534 0.7 %
Total expenses 517,159 89.0 % 454,625 92.4 % 1,039,034 91.8 % 939,058 93.9 % Income from continuing operations before income taxes
64,997 11.0 % 36,850 7.6 % 94,321 8.3 % 61,634 6.1 % Provision for income taxes
19,333 3.3 % 9,177 1.9 % 25,537 2.2 % 14,983 1.5 % Income from continuing operations 45,664 7.8 % 27,673
5.7 % 68,784 6.1 % 46,651 4.6 %
Income (loss) from discontinued
operations, net of taxes - 0.0 % 14,041 2.8 % (12,641 ) -1.1 % 29,130 2.9 %
Net income 45,664 7.8 % 41,714 8.5 % 56,143 5.0 % 75,781 7.5 %
Net income attributable to
noncontrolling interests (1,150 ) -0.2 % (635 ) -0.1 % (1,912 ) -0.2 % (1,239 ) -0.1 %
Net income attributable to Acadia
Healthcare Company, Inc. $ 44,514 7.6 % $ 41,079 8.4 % $ 54,231 4.8 % $ 74,542 7.4 %
At
The following table sets forth percent changes in same facility operating data
for our
Three Months Ended Six Months Ended
U.S. Same Facility Results (a) Revenue growth 18.0% 12.6% Patient days growth 9.8% 6.2% Admissions growth 13.4% 6.9% Average length of stay change (b) -3.1% -0.6% Revenue per patient day growth 7.5% 6.0% Adjusted EBITDA margin change (c) 180 bps 230 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, loss on
impairment, transaction-related expenses, interest expense and depreciation and
amortization. Management uses Adjusted EBITDA as an
27--------------------------------------------------------------------------------
Table of contents
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.
Three months ended
Revenue. Revenue increased$90.7 million , or 18.5%, to$582.2 million for the three months endedJune 30, 2021 from$491.5 million for the three months endedJune 30, 2020 . Same facility revenue increased$87.9 million , or 18.0%, for the three months endedJune 30, 2021 compared to the three months endedJune 30, 2020 , resulting from same facility growth in patient days of 9.8% and an increase in same facility revenue per day of 7.5%. Consistent with same facility growth in 2020, the growth in same facility patient days for the three months endedJune 30, 2021 compared to the three months endedJune 30, 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$309.2 million for the three months endedJune 30, 2021 compared to$275.3 million for the three months endedJune 30, 2020 , an increase of$33.9 million . SWB expense included$9.0 million and$5.8 million of equity-based compensation expense for the three months endedJune 30, 2021 and 2020, respectively. Excluding equity-based compensation expense, SWB expense was$300.2 million , or 51.6% of revenue, for the three months endedJune 30, 2021 , compared to$269.5 million , or 54.8% of revenue, for the three months endedJune 30, 2020 . The decrease in SWB expense as a percentage of revenue is primarily due to the fixed staffing and benefit costs in the period of lower occupancy resulting from COVID-19 during the three months endedJune 30, 2020 . Same facility SWB expense was$275.9 million for the three months endedJune 30, 2021 , or 47.9% of revenue, compared to$249.5 million for the three months endedJune 30, 2020 , or 51.1% of revenue. Professional fees. Professional fees were$34.7 million for the three months endedJune 30, 2021 , or 6.0% of revenue, compared to$30.6 million for the three months endedJune 30, 2020 , or 6.2% of revenue. Same facility professional fees were$30.7 million for the three months endedJune 30, 2021 , or 5.3% of revenue, compared to$27.3 million , for the three months endedJune 30, 2020 , or 5.6% of revenue. Supplies. Supplies expense was$22.6 million for the three months endedJune 30, 2021 , or 3.9% of revenue, compared to$21.1 million for the three months endedJune 30, 2020 , or 4.3% of revenue. Same facility supplies expense was$22.3 million for the three months endedJune 30, 2021 , or 3.9% of revenue, compared to$20.9 million for the three months endedJune 30, 2020 , or 4.3% of revenue. Rents and leases. Rents and leases were$9.6 million for the three months endedJune 30, 2021 , or 1.7% of revenue, compared to$9.5 million for the three months endedJune 30, 2020 , or 1.9% of revenue. Same facility rents and leases were$8.5 million for the three months endedJune 30, 2021 , or 1.5% of revenue, compared to$8.7 million for the three months endedJune 30, 2020 , or 1.8% 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$73.8 million for the three months endedJune 30, 2021 , or 12.7% of revenue, compared to$66.2 million for the three months endedJune 30, 2020 , or 13.5% of revenue. Same facility other operating expenses were$70.0 million for the three months endedJune 30, 2021 , or 12.2% of revenue, compared to$65.7 million for the three months endedJune 30, 2020 , or 13.5% of revenue. Other income. For the three months endedJune 30, 2020 , we recorded$18.1 million of other income related to$19.7 million received from thePHSSE Fund . This was subsequently reversed during the third quarter of 2020. During the fourth quarter of 2020, we recorded$32.8 million of other income in the consolidated statement of operations related to$34.9 million received from thePHSSE Fund from April throughDecember 2020 . Our recognition of this income was based on revised guidance in the Consolidated Appropriations Act, 2021 enacted inDecember 2020 .
Depreciation and amortization. Depreciation and amortization expense was
28
--------------------------------------------------------------------------------
Table of contents
Interest expense. Interest expense was$16.7 million for the three months endedJune 30, 2021 compared to$38.5 million for the three months endedJune 30, 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$3.3 million for the three months endedJune 30, 2020 and represented$1.0 million of cash charges and$2.3 million of non-cash charges in connection with the redemption of the 6.125% Senior Notes and 5.125% Senior Notes. Loss on impairment. During the three months endedJune 30, 2021 , we opened a 260-bed replacement facility inPennsylvania and recorded a non-cash property impairment charge of$23.2 million for the existing facility.
Transaction-related expenses. Transaction-related expenses were
Provision for income taxes. For the three months endedJune 30, 2021 , the provision for income taxes was$19.3 million , reflecting an effective tax rate of 29.7%, compared to$9.2 million , reflecting an effective tax rate of 24.9%, for the three months endedJune 30, 2020 . The increase in the effective tax rate for the three months endedJune 30, 2021 was primarily attributable to an increase in our amount of disallowed compensation-related deductions in the current year and an increase to our valuation allowance recorded on certain deferred tax assets. 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.
Six months ended
Revenue. Revenue increased$132.7 million , or 13.3%, to$1,133.4 million for the six months endedJune 30, 2021 from$1,000.7 million for the six months endedJune 30, 2020 . Same facility revenue increased$125.5 million , or 12.6%, for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 , resulting from same facility growth in patient days of 6.2% and an increase in same facility revenue per day of 6.0%. Consistent with same facility growth in 2020, the growth in same facility patient days for the six months endedJune 30, 2021 compared to the six months endedJune 30, 2020 resulted from the addition of beds to our existing facilities and ongoing demand for our services. Salaries, wages and benefits. SWB expense was$613.6 million for the six months endedJune 30, 2021 compared to$562.2 million for the six months endedJune 30, 2020 , an increase of$51.3 million . SWB expense included$16.1 million and$10.8 million of equity-based compensation expense for the six months endedJune 30, 2021 and 2020, respectively. Excluding equity-based compensation expense, SWB expense was$597.5 million , or 52.7% of revenue, for the six months endedJune 30, 2021 , compared to$551.5 million , or 55.1% of revenue, for the six months endedJune 30, 2020 . Same facility SWB expense was$550.5 million for the six months endedJune 30, 2021 , or 49.1% of revenue, compared to$512.5 million for the six months endedJune 30, 2020 , or 51.4% of revenue. Professional fees. Professional fees were$66.3 million for the six months endedJune 30, 2021 , or 5.9% of revenue, compared to$61.6 million for the six months endedJune 30, 2020 , or 6.2% of revenue. Same facility professional fees were$58.8 million for the six months endedJune 30, 2021 , or 5.2% of revenue, compared to$55.0 million , for the six months endedJune 30, 2020 , or 5.5% of revenue. Supplies. Supplies expense was$44.0 million for the six months endedJune 30, 2021 , or 3.9% of revenue, compared to$43.3 million for the six months endedJune 30, 2020 , or 4.3% of revenue. Same facility supplies expense was$43.4 million for the six months endedJune 30, 2021 , or 3.9% of revenue, compared to$43.0 million for the six months endedJune 30, 2020 , or 4.3% of revenue. Rents and leases. Rents and leases were$19.0 million for the six months endedJune 30, 2021 , or 1.7% of revenue, compared to$18.6 million for the six months endedJune 30, 2020 , or 1.9% of revenue. Same facility rents and leases were$17.0 million for the six months endedJune 30, 2021 , or 1.5% of revenue, compared to$17.1 million for the six months endedJune 30, 2020 , or 1.7% of revenue. 29
--------------------------------------------------------------------------------
Table of contents
Other operating expenses. Other operating expenses consisted primarily of purchased services, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were$145.8 million for the six months endedJune 30, 2021 , or 12.9% of revenue, compared to$134.3 million for the six months endedJune 30, 2020 , or 13.4% of revenue. Same facility other operating expenses were$138.7 million for the six months endedJune 30, 2021 , or 12.4% of revenue, compared to$132.2 million for the six months endedJune 30, 2020 , or 13.3% of revenue. Other income. For the six months endedJune 30, 2020 , we recorded$18.1 million of other income related$19.7 million received from thePHSSE Fund . This was subsequently reversed during the third quarter of 2020. During the fourth quarter of 2020, we recorded$32.8 million of other income in the consolidated statement of operations related to$34.9 million received from thePHSSE Fund from April throughDecember 2020 . Our recognition of this income was based on revised guidance in the Consolidated Appropriations Act, 2021 enacted inDecember 2020 .
Depreciation and amortization. Depreciation and amortization expense was
Interest expense. Interest expense was$45.7 million for the six months endedJune 30, 2021 compared to$81.1 million for the six months endedJune 30, 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 six months endedJune 30, 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. Debt extinguishment costs were$3.3 million for the six months endedJune 30, 2020 and represented$1.0 million of cash charges and$2.3 million of non-cash charges in connection with the redemption of the 6.125% Senior Notes and 5.125% Senior Notes. Loss on impairment. During the six months endedJune 30, 2021 , we opened of a 260-bed replacement facility inPennsylvania and recorded a non-cash property impairment charge of$23.2 million for the existing facility. Transaction-related expenses. Transaction-related expenses were$6.3 million for the six months endedJune 30, 2021 compared to$6.5 million for the six months endedJune 30, 2020 . Transaction-related expenses represent termination, restructuring, strategic review, acquisition and other similar costs. Provision for income taxes. For the six months endedJune 30, 2021 , the provision for income taxes was$25.5 million , reflecting an effective tax rate of 27.1%, compared to$15.0 million , reflecting an effective tax rate of 24.3%, for the six months endedJune 30, 2020 . The increase in the effective tax rate for the six months endedJune 30, 2021 was primarily attributable to an increase in our amount of disallowed compensation-related deductions in the current year and an increase to our valuation allowance recorded on certain deferred tax assets. 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.
30--------------------------------------------------------------------------------
Table of contents
The following table presents revenue by payor type and as a percentage of revenue for the three and six months endedJune 30, 2021 and 2020 (dollars in thousands): Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 Amount % Amount % Amount % Amount % Commercial$ 178,846 30.7 %$ 140,028 28.5 %$ 341,548 30.1 %$ 283,170 28.3 % Medicare 90,494 15.5 % 75,914 15.4 % 176,679 15.6 % 148,185 14.8 % Medicaid 282,416 48.5 % 245,690 50.0 % 557,036 49.1 % 505,734 50.5 % Self-Pay 23,434 4.0 % 22,476 4.6 % 45,877 4.0 % 49,510 5.0 % Other 6,966 1.3 % 7,367 1.5 % 12,215 1.2 % 14,093 1.4 % Revenue$ 582,156 100.0 %$ 491,475 100.0 %$ 1,133,355 100.0 %$ 1,000,692 100.0 %
The following tables present a summary of our aging of accounts receivable at
June 30, 2021 Current 30-90 90-150 >150 Total Commercial 20.8 % 6.2 % 3.0 % 6.5 % 36.5 % Medicare 10.9 % 1.7 % 0.7 % 1.6 % 14.9 % Medicaid 31.1 % 3.0 % 2.0 % 5.6 % 41.7 % Self-Pay 1.4 % 1.4 % 1.4 % 2.4 % 6.6 % Other 0.1 % 0.1 % 0.0 % 0.1 % 0.3 % Total 64.3 % 12.4 % 7.1 % 16.2 % 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 %
Liquidity and Capital Resources
Cash provided by continuing operating activities for the six months endedJune 30, 2021 was$166.3 million compared to$203.3 million for the six months endedJune 30, 2020 . Operating cash flows for the six months endedJune 30, 2021 and 2020 included approximately$17 million and$87 million , respectively, of funds received from the CARES Act net of repayments. Additionally, operating cash flows were impacted by an increase in earnings, a reduction in cash paid for interest and an increase in tax payments during the six months endedJune 30, 2021 . Days sales outstanding were 45 days atJune 30, 2021 compared to 47 days atDecember 31, 2020 . Cash provided by continuing investing activities for the six months endedJune 30, 2021 was$1,319.1 million compared to cash used in continuing investing activities of$119.1 million for the six months endedJune 30, 2020 . Cash provided by investing activities for the six months endedJune 30, 2021 primarily consisted of$1,511.0 million of proceeds from U.K. Sale ,$5.0 million of other and$0.9 million of proceeds from the sale of property and equipment offset by$84.8 million of settlement of foreign currency derivatives and$113.0 million of cash paid for capital expenditures. Cash paid for capital expenditures for the six months endedJune 30, 2021 consisted of$18.0 million of routine capital expenditures and$95.0 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 1.6% of revenue for the six months endedJune 30, 2021 . Cash used in continuing investing activities for the six months endedJune 30, 2020 primarily consisted of$114.3 million of cash paid for capital expenditures and other of$4.8 million . Cash paid for capital expenditures for the six months endedJune 30, 2020 consisted of$20.6 million of cash paid for routine capital expenditures and$93.7 million of expansion capital expenditures. 31
--------------------------------------------------------------------------------
Table of contents
Cash used in continuing financing activities for the six months endedJune 30, 2021 was$1,682.9 million compared to$34.5 million for the six months endedJune 30, 2020 . Cash used in continuing financing activities for the six months endedJune 30, 2021 consisted of repayment of long-term debt of$2,227.9 million , principal payments on revolving credit facility of$305.0 million , payment of debt issuance costs of$8.0 million , principal payments on long-term debt of$2.7 million , distributions to noncontrolling interests of$0.6 million and other of$6.9 million offset by common stock withheld for minimum statutory taxes of$13.3 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 six months endedJune 30, 2020 primarily consisted of principal payments of long-term debt of$21.2 million , repayment of long-term debt of$450.0 million , payment of debt issuance costs of$10.6 million , principal payments on revolving credit facility of$100.0 million , common stock withheld for minimum statutory taxes of$1.4 million ,$0.5 million of distributions to noncontrolling interest and other of$0.9 million offset by borrowings on long-term debt of$450.0 million and borrowings on revolving credit facility of$100.0 million . We had total available cash and cash equivalents of$185.5 million and$378.7 million atJune 30, 2021 andDecember 31, 2020 , respectively, of which approximately$14.5 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 theU.S. , and it is our current intention to permanently reinvest our foreign cash and cash equivalents outside of theU.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 onMarch 17, 2021 . The New Credit Facility provides for a$600.0 million Revolving Facility and a$425.0 million Term Loan Facility with each maturing onMarch 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
We had$470.7 million of availability under the Revolving Facility and had standby letters of credit outstanding of$4.3 million related to security for the payment of claims required by our workers' compensation insurance program atJune 30, 2021 .
During the three months ended
The New Credit Facility requires quarterly term loan principal repayments for our Term Loan Facility of$2.7 million forSeptember 30, 2021 toMarch 31, 2022 ,$5.3 million forJune 30, 2022 toMarch 31, 2024 ,$8.0 million forJune 30, 2024 toMarch 31, 2025 ,$10.6 million forJune 30, 2025 toDecember 31, 2025 , with the remaining principal balance of the Term Loan Facility due on the maturity date ofMarch 17, 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. Subject to certain exceptions, substantially all of our existing and subsequently acquired or organized direct or indirect wholly-ownedU.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. 32
--------------------------------------------------------------------------------
Table of contents
The interest rates and the unused line fee on unused commitments related to the Senior Facilities are based upon the following pricing tiers:
Eurodollar Rate
Consolidated Total Loans
Net and Letter of Base Rate and Commitment
Pricing Tier Leverage Ratio Credit Fees Swing Line Loans 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 June 30, 2021 , the
Company was in compliance with such covenants.
Prior Credit Facility
We entered into the Senior Secured Credit Facility on
OnApril 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. OnNovember 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 fromNovember 30, 2021 toNovember 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 statement of operations atDecember 31, 2020 . OnJanuary 5, 2021 , we made a voluntary payment of$105.0 million on the Tranche B-4 Facility. OnJanuary 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. AtMarch 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 statement of operations. Senior Notes 5.500% Senior Notes due 2028 OnJune 24, 2020 , we issued$450.0 million of 5.500% Senior Notes due 2028. The 5.500% Senior Notes mature onJuly 1, 2028 and bear interest at a rate of 5.500% per annum, payable semi-annually in arrears onJanuary 1 andJuly 1 of each year, commencing onJanuary 1, 2021 .
5.000% Senior Notes due 2029
OnOctober 14, 2020 , we issued$475.0 million of 5.000% Senior Notes. The 5.000% Senior Notes mature onApril 15, 2029 and bear interest at a rate of 5.000% per annum, payable semi-annually in arrears onApril 15 andOctober 15 of each year, 33
--------------------------------------------------------------------------------
Table of contents
commencing onApril 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 statement of operations for the year endedDecember 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 guaranteed our obligations under the New 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
OnFebruary 11, 2015 , we issued$375.0 million of 5.625% Senior Notes due 2023. OnSeptember 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 inFebruary 2015 . Giving effect to this issuance, we had outstanding an aggregate of$650.0 million of 5.625% Senior Notes. The 5.625% Senior Notes were to mature onFebruary 15, 2023 and bear interest at a rate of 5.625% per annum, payable semi-annually in arrears onFebruary 15 andAugust 15 of each year. OnMarch 17, 2021 , we redeemed the 5.625% Senior Notes.
6.500% Senior Notes due 2024
OnFebruary 16, 2016 , we issued$390.0 million of 6.500% Senior Notes due 2024. The 6.500% Senior Notes were to mature onMarch 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in arrears onMarch 1 andSeptember 1 of each year, beginning onSeptember 1, 2016 . OnMarch 1, 2021 , we redeemed the 6.500% Senior Notes.
Redemption of 5.625% Senior Notes and 6.500% Senior Notes
On
OnMarch 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 statement of operations. OnMarch 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 statement of operations.
6.125% Senior Notes Due 2021
OnMarch 12, 2013 , we issued$150.0 million of 6.125% Senior Notes due 2021. The 6.125% Senior Notes were to mature onMarch 15, 2021 and bear interest at a rate of 6.125% per annum, payable semi-annually in arrears onMarch 15 andSeptember 15 of each year. OnJune 24, 2020 , we redeemed the 6.125% Senior Notes.
5.125% Senior Notes due 2022
OnJuly 1, 2014 , we issued$300.0 million of 5.125% Senior Notes due 2022. The 5.125% Senior Notes were to mature onJuly 1, 2022 and bear interest at a rate of 5.125% per annum, payable semi-annually in arrears onJanuary 1 andJuly 1 of each year. OnJune 24, 2020 , we redeemed the 5.125% Senior Notes.
Redemption of 6.125% Senior Notes and 5.125% Senior Notes
OnJune 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. OnJune 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 34
--------------------------------------------------------------------------------
Table of contents
of$3.3 million , including the write-off of the deferred financing and other costs in the consolidated statement of operations for the year endedDecember 31, 2020 . Other long-term debt
During the three months ended
Contractual Obligations
The following table presents a summary of contractual obligations atJune 30, 2021 (in thousands): Payments Due by Period Less Than More Than 1 Year 1-3 Years 3-5 Years 5 Years Total Long-term debt (a)$ 72,954 $ 163,384 $ 601,266 $ 1,045,750 $ 1,883,354 Operating lease liabilities (b) 25,109 39,885 27,456 54,523 146,973 Finance lease liabilities 32,205 1,980
14,873 23,728 72,786
Total obligations and commitments
(a) Amounts include required principal and interest payments. The projected
interest payments reflect the interest rates in place on our variable-rate
debt at
(b) Amounts exclude variable components of lease payments.
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 onOctober 1, 2020 , we had two operating segments for segment reporting purposes,U.S. Facilities and facilities in theU.K. ("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 ofOctober 1, 2020 considered recent financial performance, including the impacts of COVID-19 on certain portions of theU.K. business. The 2020 impairment test of theU.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 theU.K. Facilities of$356.2 million . As of our impairment test onOctober 1, 2020 , the fair value of ourU.S. Facilities reporting unit substantially exceeded its carrying value, and therefore no impairment was recorded.
Due to the classification of the
There have been no material changes in our critical accounting policies at
© Edgar Online, source
