AAC Ares Acquisition Corporation

BRENTWOOD, Tenn., April 16, 2019 /PRNewswire/ -- AAC Holdings, Inc. (NYSE: AAC) ("the Company") announced financial results for the fourth quarter and year ended December 31, 2018, as well as 2019 guidance.

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

• Total inpatient daily census improved by 26% at March 31, 2019 compared to December 31, 2018
• Total revenue decreased 26.6% to $57.4 million on a comparable accounting basis (total revenue decreased 33.3% on an as reported basis)
• Net loss attributable to AAC Holdings, Inc. common stockholders was $36.7 million, or $(1.52) per diluted common share
• Adjusted EBITDA was $(12.4) million (see non-GAAP reconciliation herein)
• Adjusted loss per diluted common share was $(0.85) (see non-GAAP reconciliation herein)
• New admissions increased 39% to 4,184 a (increase related to the acquisition of AdCare on March 1, 2018)
• Total average daily census (ADC) was 1,002 compared to 995 (increase related to the acquisition of AdCare on March 1, 2018)
• Outpatient visits increased 104% to 44,165 (increase primarily related to the acquisition of AdCare on March 1, 2018)
• Implemented over $30 million in annualized expense reductions to benefit 2019 operating margins
• Closed a $30 million incremental term loan with existing lenders to provide additional liquidity

"The last several months of 2018 saw a census decline that was more significant than we originally anticipated, with an initial 30% drop in call volume resulting in a sharp decrease in admissions in the second half of 2018 which resulted in a corresponding decrease in revenue," said Michael Cartwright, Chairman and Chief Executive Officer of AAC Holdings, Inc. "However, admissions have begun to improve in early 2019, with average admissions per day up by more than 25% for March 2019 compared to December 2018. The initiatives in sales and marketing we launched last year and continue to implement into 2019 are showing results and we continue to enhance our online outreach resources to better help those who need our help."

"We also acted quickly to improve liquidity and reduce operating expenses. We recently announced the closing of a $30 million incremental term loan that provides us with additional liquidity moving into 2019. We have also commenced a process to explore ways to generate additional value from our attractive treatment center real estate portfolio in order to improve our balance sheet. Finally, we continue to be focused on cost reduction initiatives. The expense savings initiatives implemented in late 2018 and in the first quarter of 2019, are expected to total over $30 million in annualized savings."

"Despite the challenges we faced last year, we've started this year with positive momentum and I'm confident that we will see continued improvement throughout 2019. We believe we have the right things to help us get there – significant cost savings initiatives, options with our real estate portfolio, new processes in place within our sales and marketing team, and most of all our continued commitment to excellent clinical care." 

Evaluation of Strategic Alternatives in AAC's Real Estate Portfolio

The Company has commenced a process to explore strategic alternatives to generate additional value from its real estate portfolio consisting of treatment centers located across the United States. Management's goal is to leverage the portfolio to create additional liquidity, lower its cost of capital and enhance shareholder value. Real estate strategic alternatives could include further sale leasebacks of individual facilities or larger portions of the Company's real estate portfolio.

Cost Savings Initiatives

The Company enacted a series of cost savings initiatives during the fourth quarter for 2018 and into the first quarter of 2019 which are expected to result in over $30 million of annualized cost savings. These initiatives have included reductions in the Company's corporate expenses, consolidation of its Las Vegas market, consolidation of the its southern California market, the sale of the Company's New Orleans operations, and the consolidation of its lab operations.

Incremental Term Loan and Amendment of Existing Credit Facility

In March 2019, the Company closed a $30 million incremental term loan with its existing lenders. In addition, the Company amended its existing secured credit facility to, among other items, provide increased flexibility with respect to certain financial covenants.

Restatement

On March 29, 2019, the Company, the Audit Committee of the Company's Board of Directors and executive management, in consultation with the Company's independent registered public accounting firm, BDO USA, LLP ("BDO"), determined that adjustments to certain of its previously issued annual and interim financial statements were necessary, and that those annual and interim financial statements could no longer be relied upon. The adjustments related to estimates of accounts receivable, provision for doubtful accounts and revenue for the relevant periods described below, as well as the related income tax effects. Certain other immaterial reclassifications within the financial statements are also reflected in the adjustments. The restatements do not implicate misconduct with respect to the Company, its management or its employees.

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

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

All comparisons to prior period results contained in this release are presented on an as restated basis.

Adoption of New Revenue Recognition Standard

In May 2014, the FASB issued Accounting Standards Codification Topic 606, "Revenue from Contracts with Customers" (ASC Topic 606), a replacement of Revenue Recognition ASC Topic 605. The Company adopted ASC Topic 606 on January 1, 2018 using the modified retrospective approach. Under ASC Topic 606, the provision for doubtful accounts, which historically was reported as an operating expense, is now reported as a direct reduction to revenue effective January 1, 2018. This change in presentation reduced revenues and operating expenses by the same amount and did not have an effect on net income or earnings per share. As the Company adopted ASC Topic 606 using the modified retrospective approach, prior year periods were not recast and as such, revenues as reported for those periods are not comparable to the current year presentation. For purposes of this release, the Company has applied its adoption of ASC Topic 606 to the prior year period. The Company believes this allows for an accurate comparison of prior period revenue. Where the Company has used language such as "less the provision for doubtful accounts" or "on a comparable accounting basis," this indicates a comparison of periods that reflects the Company's 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.

Fourth 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) decreased 26.6% to $57.4 million compared with $78.3 million in the same period in the prior year. Total revenue on an as reported decreased 33.3%, to $57.4 million compared with $86.1 million in the same period in the prior year.

Inpatient treatment facility revenue, on a comparable accounting basis, decreased 29.5% to $47.1 million compared with $66.8 million in the same period in the prior year. ADR decreased 31.1% to $688 compared with $999 in the same period in the prior year.

Outpatient and sober living facility revenue, on a comparable accounting basis, decreased 34.9% to $5.6 million compared with $8.7 million in the same period in the prior year. Average revenue per outpatient visit (ARV) decreased 69.6% to $127 compared with $418 in the same period in the prior year.

Client related diagnostic services revenue, on a comparable accounting basis, increased 607.4% to $2.4 million compared with $0.3 million in the same period in the prior year.

Non-client related revenue, on a comparable accounting basis, decreased 7.2% to $2.3 million compared with $2.5 million in the same period in the prior year.

Net loss attributable to AAC Holdings, Inc. common stockholders was $36.7 million, or $(1.52) per diluted common share, compared with $16.1 million, or $(0.69) per diluted common share, in the prior-year period.

Adjusted EBITDA decreased to $(12.4) million compared with $18.3 million for the same period in the prior year. Adjusted net loss attributable to AAC Holdings, Inc. common stockholders decreased to $20.7 million, or $(0.85) per diluted common share, compared with adjusted net income of $9.4 million, or $0.40 per diluted common share, for the same period in the prior year. Adjusted EBITDA, adjusted net income attributable to AAC Holdings, Inc. common stockholders and adjusted earnings per diluted common share are non-GAAP financial measures. Tables reconciling these non-GAAP measures to the most directly comparable GAAP measures are included at the end of this release.

Full Year 2018 Financial Results

Total revenue on a comparable accounting basis (i.e., less the provision for doubtful accounts) increased 1.4% to $295.8 million compared with $291.7 million in the same period in the prior year. Total revenue as reported decreased 6.9% to $295.8 million compared with $317.6 million in the prior year.

Inpatient treatment facility revenue, on a comparable accounting basis, increased 2.2% to $235.5 million compared with $230.5 million in the same period in the prior year. ADR decreased 2.2% to $800 compared with $818 in the same period in the prior year.

Outpatient and sober living facility revenue, on a comparable accounting basis, increased 19.8% to $34.4 million compared with $28.7 million in the same period in the prior year. ARV decreased 50.9% to $198 compared with $403 in the same period in the prior year.

Client related diagnostic services revenue, on a comparable accounting basis, decreased 37.7% to $14.6 million compared with $23.4 million in the same period in the prior year.

Non-client related revenue, on a comparable accounting basis, increased 23.5% to $11.2 million compared with $9.1 million in the same period in the prior year.

Net loss attributable to AAC Holdings, Inc. common stockholders was $59.4 million, or $(2.47) per diluted common share, compared with $12.9 million, or $(0.55) per diluted common share, in the prior-year period.

Adjusted EBITDA decreased 65.1% to $23.7 million compared with $67.9 million for the same period in the prior year. Adjusted net loss attributable to AAC Holdings, Inc. common stockholders decreased to $25.6 million, or $(1.06) per diluted common share, compared with adjusted net income of $27.0 million, or $1.16 per diluted common share, for the same period in the prior year. Adjusted EBITDA, adjusted net income attributable to AAC Holdings, Inc. common stockholders and adjusted earnings per diluted common share are non-GAAP financial measures. Tables reconciling these non-GAAP measures to the most directly comparable GAAP measures are included at the end of this release.

Balance Sheet and Cash Flows

As of December 31, 2018, AAC Holdings' balance sheet reflected cash and cash equivalents of $5.4 million, net property and equipment of $166.9 million and total debt of $319.2 million (current and long-term portions). In March 2019, we closed on a $30 million incremental term loan that provides the company with additional liquidity moving into 2019. 

Cash flows used in operations totaled $9.1 million and maintenance capital expenditures totaled $0.6 million for the fourth quarter of 2018.

The Company expects diluted weighted-average common shares outstanding of approximately 25.0 million for the year.

The 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 "2019 Outlook" above, reconciliation of adjusted EBITDA and adjusted earnings per diluted common share guidance to the closest corresponding GAAP measure on a forward-looking basis is not available without unreasonable efforts. This inability results from the inherent difficulty in forecasting generally and quantifying certain projected amounts that are necessary for such reconciliations. In particular, sufficient information is not available to calculate certain adjustments required for such reconciliations, including de novo start-up and other expense and acquisition-related expenses. We expect these adjustments may have a potentially significant impact on future GAAP financial results.

Earnings Conference Call

The Company will host a conference call and live audio webcast on Tuesday, April 16, 2019, at 9:00 a.m. CT to further discuss these results. The number to call for this interactive teleconference is 1-877-224-7960. A replay of the conference call will be available through April 30, 2019, by dialing 877-344-7529 and entering the replay access code, 10128808.

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

Management defines adjusted net (loss) income attributable to AAC Holdings, Inc. common stockholders as net (loss) income attributable to AAC Holdings, Inc. common stockholders adjusted for impairment of goodwill, litigation settlement, certain regulatory and California matter related expenses, acquisition-related expense (which includes professional services for accounting, legal, valuation services and licensing expenses), de novo start-up and other expenses, recruitment and retention expense, employee severance expense, change in accounting estimate, 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.

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SOURCE AAC Holdings, Inc.