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Edited Transcript of AAC earnings conference call or presentation 12-Nov-19 3:00pm GMT

Q3 2019 AAC Holdings Inc Earnings Call

Brentwood Dec 4, 2019 (Thomson StreetEvents) -- Edited Transcript of AAC Holdings Inc earnings conference call or presentation Tuesday, November 12, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew W. McWilliams

AAC Holdings, Inc. - CFO

* Michael T. Cartwright

AAC Holdings, Inc. - Chairman & CEO

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Presentation

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Operator [1]

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Good morning, and welcome to the American Addiction Centers Third Quarter 2019 Earnings Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Andrew McWilliams, CFO. Please go ahead.

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Andrew W. McWilliams, AAC Holdings, Inc. - CFO [2]

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Good morning, and welcome to our earnings call for the third quarter of 2019. I'm Andrew McWilliams, Chief Financial Officer of AAC Holdings. To the extent any non-GAAP financial measure is used in today's call, you'll find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by following the Investor Relations link to this morning's news release.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding AAC's expected annual performance for 2019. For this purpose, any statements made during this call that are not statements of historical facts may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in AAC's filings with the Securities and Exchange Commission and in the company's third quarter 2019 earnings release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

I would now like to turn the call over to our Chairman and Chief Executive Officer, Michael Cartwright.

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Michael T. Cartwright, AAC Holdings, Inc. - Chairman & CEO [3]

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Thank you, Andrew, and good morning, everyone. Before we start the earnings discussion, I'd like to make a few comments about Veterans Day. Studies indicate that 1 in 10 veterans have been diagnosed with substance abuse disorder. However, we believe there may be even more of our nation's heroes that need care. Here at American Addiction Centers, we've made it an annual tradition to provide free care on Veterans Day as our way of giving back to those who have sacrificed for our nation's freedom. In observance of Veterans Day, AAC provided 30 days of free in-patient care to 10 members of the Armed Forces, and we opened a dedicated hotline for veterans.

However, our commitment to veterans is year-round. These include our Salute to Recovery treatment program at Desert Hope and Recovery First which is a dedicated treatment program to military veterans and first responders and our recruitment initiatives to establish a staff across the company comprised of 25% veterans.

On today's call, I'll be discussing our recent operational highlights before turning the call to Andrew to walk through our financial results. Though we still have a lot of work to do, I am pleased with the sequential progress we have been making this year. For the third consecutive quarter, we continue to see positive momentum in 2019. The expense saving initiatives implemented in late 2018 and into 2019 are continuing to have positive impact. Operating expenses have decreased by $23 million or 28% for the third quarter of 2019 compared to the third quarter of 2018, representing over $100 million in annualized savings. The expense saving initiatives included the consolidations of our Las Vegas, Southern California and Southern Florida markets, the sale of our Townsend operations in Louisiana, consolidation of our lab operations and corresponding reductions in our corporate expenses.

While these cost-saving initiatives began in late 2018, they are continuing throughout the remainder of 2019 as we continue to optimize our existing infrastructure to deliver high-quality care in an efficient manner. There are several additional vendor cost savings initiatives that we have been working on that will result in further expense reductions in our corporate expenses beginning in 2020.

As previously announced, we have added 3 independent Board members who bring extensive expertise to the company. I'm very excited to add their expertise to the Board. The new members include Michael Logan, Bob Nash and Scott Vogel. The new members joined myself, Jerry Bostelman and Lucius Burch on the Board of Directors.

I would also like to make a few comments about our listing on the New York Stock Exchange. As we have shared in our recent SEC filings, we are transitioning from the New York Stock Exchange to a new exchange. We are finalizing our plans to be listed on a new exchange, the stock is currently traded on the OTC under the ticker symbol AACH. We remain a publicly traded company and still follow all the same SEC reporting requirements that we have historically followed.

Turning to the balance sheet. We are pleased to have recently reached a mutual agreement with our senior secured lenders that provided the company with $5 million of additional liquidity and gives the company through March 31, 2020, to improve the balance sheet and reduce our cost of capital. We remain committed to our strategic initiatives to improve the balance sheet and enhance value to all stakeholders. As we have discussed on previous calls, we launched a process to evaluate our strategic alternatives related to our balance sheet, and we are currently engaged in discussions with multiple third parties, and I look forward to sharing more with you on future calls.

I will now turn the call over to Andrew to discuss our financial results.

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Andrew W. McWilliams, AAC Holdings, Inc. - CFO [4]

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Thank you, Michael. For the third quarter of 2019, total revenue decreased by approximately $4 million or 7% to $59 million from $63 million in the second quarter of this year. Revenue during the third quarter of 2019 was negatively impacted by additional reserves recorded against the outstanding accounts receivable related to closed facilities and other changes in estimates, which totaled approximately $2 million. The remaining $2 million decrease in revenue is primarily related to a decline in our nonclient-related revenue, which includes criminal justice programs in the New England area and declines in inpatient average daily revenue as a result of changes in payer mix.

Average daily inpatient census remained materially consistent at 791 in the third quarter of 2019 compared to 802 in the second quarter of 2019. Average daily inpatient revenue in the second quarter of 2019 decreased to $704 per day from $790 per day in the second quarter of 2019. Of the $86 per day decline in the average daily revenue, approximately 20% or $16 of that decrease related to additional reserves recorded in the third quarter of 2019 related to the closed facilities and other change in estimates that I noted a few moments ago. The remainder of the decrease in average daily inpatient revenue was due to unfavorable payer mix. However, it is worth noting that on a year-over-year basis, our average daily inpatient revenue remained materially consistent with the third quarter of 2018.

The $4.1 million decrease in diagnostic services revenue was directly related to additional reserves recorded in the second quarter of 2019 that were more onetime in nature and did not reoccur to the same level in the current quarter. Overall, our volume for diagnostic services revenue remained materially consistent on a sequential basis.

The cost savings initiatives that we have discussed on prior calls related to consolidation of beds and facilities, combined with improvements in our corporate SG&A, have resulted in a reduction of operating expenses of $23 million or 12%, down to $61.1 million in the third quarter from $69.1 million in the second quarter of 2019. On a year-over-year basis, operating expenses have reduced by $23 million or 28% compared to the third quarter of 2018.

These improvements in operating expenses had a positive impact on adjusted EBITDA. On a sequential basis, adjusted EBITDA went from a loss of $12 million in the fourth quarter of 2018 to a loss of $7 million in the first quarter of 2019 to positive adjusted EBITDA of $3 million in the second quarter of 2019 and into positive adjusted EBITDA of $6 million in the third quarter of 2019. This represents an $18 million or 150% improvement in quarterly adjusted EBITDA since the fourth quarter of 2018. Overall, as Michael mentioned earlier on this call, while we still have a lot of work to do, I'm pleased with the sequential momentum that we've had so far in 2019.

We continue to remain focused on improving both the top line revenue and our operating expenses to ensure that we are delivering high-quality care as efficient as possible. In addition, we remain committed to improving the balance sheet and reducing our cost of capital through the strategic alternatives that Michael discussed earlier.

Turning to our 2019 guidance, our full year guidance has revenue in the range of $230 million to $240 million, and adjusted EBITDA in the range of $6 million to $8 million.

I will now turn the call over to Michael for a few closing remarks.

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Michael T. Cartwright, AAC Holdings, Inc. - Chairman & CEO [5]

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Thank you, Andrew. I would like to take this time to thank our doctors, clinicians and staff for their incredible dedication and professionalism in the lives they are saving every day. Just in the first 9 months of this year, we have treated 15,000 new inpatient and -- just the first 9 months of this year, we have treated 15,000 new patients in our inpatient facilities and have delivered over 113,000 outpatient visits at our outpatient centers. We received countless stories from our patients and their families on how we saved and impacted their lives.

I would like to take a moment to briefly share one of these stories. This is an excerpt from a letter from a patient at our Greenhouse treatment facility in Texas.

"I'd like to personally thank you for helping to get me in this fine facility. Never have I met such caring individuals. This establishment is nothing short of absolutely amazing. I genuinely feel like Greenhouse has given me a new lease on life and has literally saved my life. These people don't just work for AAC, they save lives. Please recommend this facility to any and every person suffering from this monstrous disease. Thank you, and god bless every single person affiliated with this beautiful program."

Again, this is just one example of the impact we're having on thousands of lives and families across America. Again, I want to say thank you to our Board of Directors, our staff. It's been a very, very tough year, but as you can tell, we're still treating 15,000 new patients, 113,000 outpatient visits so far just this year. I'm proud to be the CEO and Chairman of the Board of American Addiction Centers. I appreciate your interest in our company and look forward to talking to you on the next call. Have a good day.

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Operator [6]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.