AAC Holdings, Inc. Reports First Quarter 2018 Results

AAC Holdings, Inc. Reports First Quarter 2018 Results

Early stages of AdCare integration proving successful

Quarter in-line with Company expectations ahead of back half 2018 growth targets

BRENTWOOD, Tenn., May 2, 2018 /PRNewswire/ -- AAC Holdings, Inc. (NYSE: AAC) today announced financial results for the first quarter ended March 31, 2018 and reiterates its previously issued full year 2018 guidance.

First Quarter 2018 Operational and Financial Highlights:
(All comparisons are to the comparable prior-year period, unless otherwise noted)

    --  Total revenue increased 18% to $78.5 million on a comparable accounting
        basis (increased 7% as reported)
    --  Average daily inpatient revenue (ADR) increased 46% to $933
    --  Total average daily census (ADC) increased to 1,027 compared with 956
    --  Outpatient visits increased 83% to 30,313
    --  Net loss attributable to AAC Holdings, Inc. common stockholders was $0.2
        million, or $(0.01) per diluted common share
    --  Adjusted EBITDA increased 20% to $15.1 million (see non-GAAP
        reconciliation herein)
    --  Adjusted earnings per diluted common share was $0.13 (see non-GAAP
        reconciliation herein)

"We are off to a solid start in 2018," said Michael Cartwright, Chairman and Chief Executive Officer of AAC Holdings, Inc. "A highlight for us this quarter was the closing of our acquisition of AdCare on March 1, and the integration since then has been going well. We also continue to be disciplined in improving our operational efficiencies, and I'm happy to see DSOs continuing to trend down to less than 100 days."

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 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.

AdCare Acquisition

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.

First 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 18% to $78.5 million compared with $66.5 million in the same period in the prior year. Total revenue as reported increased 7%.

Inpatient treatment facility revenue, less the provision for doubtful accounts, increased 40% to $64.9 million compared with $46.3 million in the same period in the prior year. Average daily inpatient revenue increased 46% to $933 compared with $640 in the same period in the prior year.

Outpatient and sober living facility revenue, less the provision for doubtful accounts, increased 60% to $8.4 million compared with $5.3 million in the same period in the prior year. Average revenue per outpatient visit (ARV) decreased 13% to $278 compared with $318 in the same period in the prior year.

Client related diagnostic services revenue, less the provision for doubtful accounts, decreased 80% to $2.6 million compared with $13.0 million in the same period in the prior year. The decrease in client related diagnostic services is a result of previously anticipated lower reimbursements combined with a shift in the mix of client related diagnostic services from higher reimbursed tests to lower reimbursed tests.

Non-client related revenue, less the provision for doubtful accounts, increased 40% to $2.6 million compared with $1.8 million in the same period in the prior year.

Net loss attributable to AAC Holdings, Inc. common stockholders was $0.2 million, or $(0.01) per diluted common share, compared with $0.6 million, or $(0.03) per diluted common share, in the prior-year period.

Adjusted EBITDA increased 20% to $15.1 million compared with $12.7 million for the same period in the prior year. Adjusted net income attributable to AAC Holdings, Inc. common stockholders was $3.2 million, or $0.13 per diluted common share, for both the current and prior year period. 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 March 31, 2018, AAC Holdings' balance sheet reflected cash and cash equivalents of $14.3 million, net property and equipment of $169.7 million and total debt of $303.8 million, net of debt issuance costs of $9.4 million.

Cash flows used in operations totaled $19.0 million for the first quarter of 2018 and included a $25.0 million payment related to the settlement of the Tennessee class action litigation matter. Capital expenditures in the first quarter of 2018 totaled $7.3 million.

2018 Outlook

AAC maintains its previously issued guidance, which includes AdCare from the March 1, 2018 acquisition date, as follows:


                                         Full Year 2018 Guidance
                                         -----------------------

                                         (in millions, except per
                                                share data)

    Total Revenues                                     $325 - $340

    Inpatient treatment facility revenue               $262 - $266

    Outpatient and sober living facility
     revenue                                             $40 - $46

    Client related diagnostic services
     revenue                                             $12 - $15

    Non-client related revenue                           $11 - $13


    Adjusted EBITDA                                      $68 - $72

    Adjusted Earnings per Diluted Common
     Share                                           $0.75 - $0.80

The Company expects an annual effective tax rate of 24% to 26% and diluted weighted-average common shares outstanding of approximately 24.5 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 Thursday, May 3, 2018, at 10:00 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 May 10, 2018, by dialing 412-317-0088 and entering the replay access code, 10119636. 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 or laboratories; (ii) our reliance on our sales and marketing program to continuously attract and enroll clients; (iii) a reduction in reimbursement rates by certain third-party payors for inpatient and outpatient services and diagnostic services; (iv) our failure to successfully achieve growth through acquisitions and de novo projects; (v) our failure to achieve anticipated financial results from contemplated and prior acquisitions; (vi) maintaining compliance with applicable regulatory authorities, licensure and permits to operate our facilities and laboratories; (vii) a disruption in our business and reputational and economic risks associated with the civil securities claims brought by shareholders or claims by various parties; (viii) inability to meet the covenants in our loan documents; (ix) our inability to effectively integrate acquired facilities; and (x) general economic conditions, as well as other risks discussed in the "Risk Factors" section of the Company's Annual Report on Form 10-K, 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.


                                                   AAC HOLDINGS, INC.

                                    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                       Unaudited

                                     (Dollars in thousands, except per share data)


                                                       Three Months Ended
                                                       ------------------

                                             March 31, 2018                         March 31, 2017
                                             --------------                         --------------

    Revenues

    Client related revenue                                         $75,923                                    $71,219

    Non-client related revenue                                     2,550                                      1,820
                                                                   -----                                      -----

    Total revenues                                                78,473                                     73,039


    Operating expenses

    Salaries, wages and benefits                                  40,084                                     36,772

    Client related services                                        7,747                                      6,378

    Provision for doubtful accounts                       -                                        6,587

    Advertising and marketing                                      2,599                                      3,775

    Professional fees                                              3,650                                      2,642

    Other operating expenses                                      10,588                                      8,789

    Rentals and leases                                             2,116                                      1,885

    Litigation settlement                                          2,791

    Depreciation and amortization                                  5,464                                      5,469

    Acquisition-related expenses                                     305                                        183
                                                                     ---                                        ---

    Total operating expenses                                      75,344                                     72,480
                                                                  ------                                     ------

    Income from operations                                         3,129                                        559

    Interest expense, net                                          6,709                                      2,734

    Other expense, net                                                 9                                         34
                                                                     ---                                        ---

    Loss before income tax benefit                               (3,589)                                   (2,209)

    Income tax benefit                                           (1,494)                                     (565)
                                                                  ------                                       ----

    Net loss                                                     (2,095)                                   (1,644)

    Less: net loss attributable to
     noncontrolling interest                                       1,893                                      1,041
                                                                   -----                                      -----

    Net loss attributable to
     AAC Holdings, Inc.                                             $(202)                                    $(603)

          common stockholders



    Basic loss per common
     share                                                         $(0.01)                                   $(0.03)

    Diluted loss per common
     share                                                         $(0.01)                                   $(0.03)

    Weighted-average common shares
     outstanding:

    Basic                                                     23,744,208                                 23,163,626

    Diluted                                                   23,744,208                                 23,163,626



                                                   AAC HOLDINGS, INC.

                                         CONDENSED CONSOLIDATED BALANCE SHEETS

                                                       Unaudited

                                                 (Dollars in thousands)


                                     March 31,                                 December 31,

                                           2018                                         2017
                                           ----                                         ----

    Assets

    Current assets

    Cash and cash equivalents                                      $14,341                     $13,818

    Accounts receivable, net of
     allowances                                                     99,581                      94,096

    Prepaid expenses and other
     current assets                                                  3,354                       4,022
                                                                     -----                       -----

    Total current assets                                           117,276                     111,936
                                                                   -------                     -------

    Property and equipment, net                                    169,744                     152,548

    Goodwill                                                       197,184                     134,396

    Intangible assets, net                                          13,712                       8,829

    Deferred tax assets, net                                         9,030                       8,010

    Other assets                                                    12,468                      12,556
                                                                    ------                      ------

    Total assets                                                  $519,414                    $428,275
                                                                  ========                    ========


    Liabilities and Stockholders'
     Equity

    Current liabilities

    Accounts payable                                                $3,338                      $4,579

    Accrued and other current
     liabilities                                                    34,039                      27,661

    Accrued litigation                                               1,000                      23,607

    Current portion of long-term
     debt                                                            7,319                       4,722

    Total current liabilities                                       45,696                      60,569

    Long-term debt, net of current
     portion and debt issuance costs                               296,443                     196,451

    Financing lease obligation, net
     of current portion                                             24,515                      24,541

    Other long-term liabilities                                     12,277                      10,546
                                                                    ------                      ------

    Total liabilities                                              378,931                     292,107
                                                                   -------                     -------


    Stockholders' equity                                           157,202                     150,994

    Noncontrolling interest                                       (16,719)                   (14,826)
                                                                   -------                     -------

    Total stockholders' equity
     including noncontrolling
     interest                                                      140,483                     136,168
                                                                   -------                     -------

    Total liabilities and
     stockholders' equity                                         $519,414                    $428,275
                                                                  ========                    ========


                                                     AAC HOLDINGS, INC.

                                      CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                         Unaudited

                                                   (Dollars in thousands)


                                                             Three Months Ended
                                                           ------------------

                                                      March 31,                       March 31,
                                                         2018                             2017
                                                     ----------                       ----------

    Cash flows (used in) provided by
     operating activities:

    Net loss                                                       $(2,095)                                $(1,644)

    Adjustments to reconcile net loss to net
     cash (used in) provided by operating
     activities:

    Provision for doubtful accounts                           -                                    6,587

    Depreciation and amortization                                   5,464                                    5,469

    Equity compensation                                               798                                    2,137

    Loss on disposal of property and
     equipment                                                         34                                        -

    Amortization of debt issuance costs                               637                                      173

    Deferred income taxes                                         (1,020)                                   (718)

    Changes in operating assets and
     liabilities:

    Accounts receivable                                           (1,129)                                (13,397)

    Prepaid expenses and other assets                               1,485                                      406

    Accounts payable                                              (4,739)                                   4,556

    Accrued liabilities                                             4,141                                      759

    Accrued litigation                                           (22,300)                                       -

    Other long-term liabilities                                     (275)                                      28
                                                                     ----                                      ---

    Net cash (used in) provided by operating
     activities                                                  (18,999)                                   4,356
                                                                  -------                                    -----

    Cash flows used in investing activities:

    Purchase of property and equipment                            (7,305)                                (10,687)

    Acquisition of subsidiaries                                  (65,185)                                       -

    Net cash used in investing activities                        (72,490)                                (10,687)
                                                                  -------                                  -------

    Cash flows provided by financing
     activities:

    Payments on 2015 Credit Facility and
     Deerfield Facility                                       -                                  (2,344)

    Proceeds from 2015 Credit Facility and
     Deerfield Facility,                                      -                                   11,679

    net of deferred financing costs

    Payments on 2017 Credit Facility                              (1,724)                                       -

    Proceeds from 2017 Credit Facility, net
     of deferred financing costs                                   94,432                                        -

    Payments on capital leases and other                            (221)                                   (193)

    Payment of employee taxes for net share
     settlement                                                     (475)                                   (895)
                                                                     ----                                     ----

    Net cash provided by financing activities                      92,012                                    8,247
                                                                   ------                                    -----

    Net change in cash and cash equivalents                           523                                    1,916

    Cash and cash equivalents, beginning of
     period                                                        13,818                                    3,964
                                                                   ------                                    -----

    Cash and cash equivalents, end
     of period                                                      $14,341                                   $5,880
                                                                    =======                                   ======


                                   AAC HOLDINGS, INC.

                                   OPERATING METRICS

                                       Unaudited


                                        Three Months Ended
                                        ------------------

                                 March 31,                 March 31,
                                    2018                       2017
                                ----------                 ----------

    Operating Metrics:

    New admissions(1)                         3,739                    3,216

    Average daily inpatient
     census(2)                                  773                      802

    Average daily sober living
     census(3)                                  254                      154

    Total average daily census                1,027                      956

    Average episode length
     (days)4                                     25                       27

    Average daily
     inpatient revenue5                          $933                     $640

    Revenue per
     admission6                               $20,306                  $20,097

    Outpatient visits7                       30,313                   16,550

    Revenue per
     outpatient visit8                           $278                     $318

    Client related diagnostic
     services9                                   4%                     23%

    Inpatient bed count at end
     of period10                              1,112                    1,128

    Effective inpatient bed
     count at end of period11                 1,108                    1,063

    Average effective inpatient
     bed utilization12                          78%                     75%


    (1)  Represents total client admissions at our
     inpatient facilities for the periods
     presented.

    (2)  Represents average daily client census at
     all of our inpatient facilities.

    (3)  Represents average daily client census at
     our sober living facilities.

    4  Average episode length is the consecutive
     number of days from admission to discharge
     that a client stays at an AAC inpatient
     facility and, when applicable, an AAC sober
     living facility.

    5  Average daily inpatient revenue is
     calculated as total revenues from all of our
     inpatient facilities less provision for
     doubtful accounts during the period, divided
     by the product of the number of days in the
     period multiplied by average daily inpatient
     census.

    6  Revenue per admission is calculated by
     dividing total client related revenue, after
     the provision for doubtful accounts, by new
     admissions.

    7 Represents the total number of outpatient
     visits at our standalone outpatient centers
     during the periods presented.

    8  Revenue per outpatient visit is calculated
     as total revenues from all of our standalone
     outpatient facilities, after the provision for
     doubtful accounts, divided by the number of
     outpatient visits during the period.

    9  Client related diagnostic services revenue,
     as a percentage of client related revenue,
     includes point-of-care and client related
     diagnostic laboratory services.

    10  Inpatient bed count at end of period
     includes all beds at inpatient facilities.

    11  Effective bed count at end of period
     represents the number of beds for which our
     facilities are staffed based on planned
     census.

    12  Average effective inpatient bed utilization
     represents average daily inpatient census
     divided by the average effective inpatient bed
     count during the applicable period.


                                                    AAC HOLDINGS, INC.

                                    SUPPLEMENTAL RECONCILIATION OF NON-GAAP DISCLOSURES

                                                         Unaudited

                                                  (Dollars in thousands)

           Reconciliation of Adjusted EBITDA to Net Loss Attributable to AAC Holdings, Inc. Common Stockholders
           ----------------------------------------------------------------------------------------------------


                                                            Three Months Ended
                                                            ------------------

                                                       March 31,                           March 31,
                                                          2018                                 2017
                                                      ----------                           ----------

    Net loss attributable to AAC
     Holdings, Inc. common
     stockholders                                                    $(202)                                        $(603)

    Non-GAAP Adjustments:

    Interest expense                                                6,709                                          2,734

    Depreciation and amortization                                   5,464                                          5,469

    Income tax benefit                                            (1,494)                                         (565)

    Net loss attributable to noncontrolling
     interest                                                     (1,893)                                       (1,041)

    Stock-based compensation and related tax
     reimbursements                                                   798                                          2,137

    Litigation settlement and California
     matter related expense                                         3,202                                            159

    Acquisition-related expense                                       429                                            272

    De novo start-up and other expense                                428                                          3,354

    Employee severance expense                                        911                                            743

    Facility closure operating losses and
     expense                                                          792                                              -
                                                                      ---                                            ---

    Adjusted EBITDA                                                 $15,144                                        $12,659
                                                                    =======                                        =======

Adjusted EBITDA, adjusted net income attributable to AAC Holdings, Inc. common stockholders and adjusted diluted earnings per common share (herein collectively referred to as "Non-GAAP Disclosures") are "non-GAAP financial measures" as defined under the rules and regulations promulgated by the U.S. Securities and Exchange Commission, each of which are defined below. Management believes the Non-GAAP Disclosures provide investors with additional meaningful financial information that should be considered when assessing our underlying business performance and trends. We believe the Non-GAAP Disclosures also enhance investors' ability to compare period-to-period financial results. The Non-GAAP Disclosures should not be considered as measures of financial performance under U.S. generally accepted accounting principles ("GAAP"). The items excluded from the Non-GAAP Disclosures are significant components in understanding and assessing our financial performance and should not be considered as an alternative to net income or other financial statement items presented in the condensed consolidated financial statements. Because the Non-GAAP Disclosures are not measures determined in accordance with GAAP, the Non-GAAP Disclosures may not be comparable to other similarly titled measures of other companies.

Management defines adjusted EBITDA as net income (loss) attributable to AAC Holdings, Inc. common stockholders adjusted for interest expense, depreciation and amortization expense, income tax benefit, net loss attributable to noncontrolling interest, stock-based compensation and related tax reimbursements, litigation settlement and California matter related expense, acquisition-related expense (which includes professional services for accounting, legal, valuation services and licensing expenses), de novo start-up and other expenses, employee severance expense and facility closure operating losses and expense.



                                                    AAC HOLDINGS, INC.

                                    SUPPLEMENTAL RECONCILIATION OF NON-GAAP DISCLOSURES

                                                         Unaudited

                                       (Dollars in thousands, except per share data)

    Reconciliation of Adjusted Net Income Attributable to AAC Holdings, Inc. Common Stockholders to Net Loss Attributable to
                                           AAC Holdings, Inc. Common Stockholders
    ------------------------------------------------------------------------------------------------------------------------


                                                        Three Months Ended
                                                        ------------------

                                              March 31, 2018                              March 31, 2017
                                              --------------                              --------------

    Net loss attributable
     to AAC Holdings, Inc.
     common stockholders                                             $(202)                                                   $(603)

    Non-GAAP Adjustments:

    Litigation settlement and
     California matter related
     expense                                                        3,202                                                       159

    Acquisition-related expense                                       429                                                       272

    De novo start-up and other
     expense                                                          428                                                     3,354

    Employee severance expense                                        911                                                       743

    Facility closure operating losses
     and expense                                                      792                                                         -

    Income tax effect of non-GAAP
     adjustments                                                  (2,399)                                                  (1,158)
                                                                   ------                                                    ------

    Adjusted net income
     attributable to AAC
     Holdings, Inc. common
     stockholders                                                    $3,161                                                    $2,767
                                                                     ======                                                    ======

    Weighted-average common shares
     outstanding - diluted                                     23,744,208                                                23,163,626

    GAAP diluted loss per
     common share                                                   $(0.01)                                                  $(0.03)

    Adjusted earnings per
     diluted common share                                             $0.13                                                     $0.12
                                                                      =====                                                     =====

Management defines adjusted net income attributable to AAC Holdings, Inc. common stockholders as net income (loss) attributable to AAC Holdings, Inc. common stockholders adjusted for litigation settlement and California matter related expense, acquisition-related expense (which includes professional services for accounting, legal, valuation services and licensing expenses), de novo start-up and other expenses, employee severance expense, facility closure operating losses and expense and the income tax effect of the non-GAAP adjustments at the then applicable effective tax rate.

Adjusted diluted earnings per common share represents diluted earnings per common share calculated using adjusted net income attributable to AAC Holdings, Inc. common stockholders as opposed to net income attributable to AAC Holdings, Inc. common stockholders.

CONTACT: Investor Contact: Elizabeth Saunders, Clermont Partners, (312) 690-6008, IR@contactAAC.com; Media Contact: Joy Sutton, (615) 587-7728, Mediarequest@contactAAC.com

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SOURCE AAC Holdings, Inc.