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AAC Holdings, Inc. Reports Fourth Quarter and Full Year 2014 Results

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AAC Holdings, Inc. (NYSE:AAC) , the parent holding company of American Addiction Centers, Inc., announced its results for the fourth quarter and year ended December 31, 2014. All comparisons included in this release are for the fourth quarter of 2014 to the fourth quarter of 2013 unless otherwise noted.

Fourth Quarter 2014 Financial Highlights:

  • Revenues increased 32% to $37.2 million
  • Net income available to stockholders per diluted share increased to $0.15 from a net loss of $(0.14)
  • Net income increased to $3.3 million from a net loss of $(2.0) million
  • Adjusted EBITDA increased to $6.6 million from a loss of $(1.1) million
  • Client admissions increased 35% to 1,276
  • Average daily census increased 35% to 418
  • Average net daily revenue increased 1% to $890

De Novo, Acquisition and Corporate Highlights:

  • Expanded de novo pipeline to 438 beds and total investment of $59.1 million
  • Announced acquisitions totaling $15 million and annualized revenue of $8.5 million
  • Secured new space for corporate headquarters and growing call center for late 2015

Revenues in the fourth quarter of 2014 increased to $37.2 million compared with $28.1 million in the fourth quarter of 2013 and $36.6 million in the third quarter of 2014. Net income available to stockholders increased to $3.1 million, or $0.15 per diluted share, compared with a net loss of $(1.9) million, or $(0.14) per diluted share, in the fourth quarter of 2013 and net income available of $2.2 million, or $0.14 per diluted share, in the third quarter of 2014. Adjusted EBITDA was $6.6 million compared with $(1.1) million in the fourth quarter of 2013 and $6.7 million in the third quarter of 2014. Adjusted EBITDA is a non-GAAP financial measure. A table reconciling net income to Adjusted EBITDA is included in this release.

Michael Cartwright, Chairman and Chief Executive Officer of AAC Holdings, noted, “We maintained a strong pace in the fourth quarter with results in line with our previous expectations, solid facility and operating metrics, and the sourcing of attractive new growth opportunities. The continued build out of our outpatient center network complements the significant expansion of our de novo bed pipeline. Securing new space for our growing call center and an anticipated new credit facility will help ensure that we can adequately support this growth.”

Year Ended December 31, 2014

Revenues for 2014 increased 15% to $133.0 million compared with $115.7 million for 2013. Net income available to stockholders was $6.9 million, or $0.41 per diluted share, compared with $1.8 million, or $0.12 per diluted share, for 2013. Adjusted EBITDA increased 82% to $21.1 million compared with $11.6 million for 2013. Included in 2013 results are $2.6 million related to a litigation settlement and $0.8 million of restructuring expenses primarily related to centralizing the Company’s call centers.

De Novo Activity and Pipeline

During the fourth quarter of 2014, the Company completed construction of its new $2.6 million outpatient center in Las Vegas. The new outpatient center, which provides step-down capacity for AAC’s Desert Hope residential facility, received licensure on January 8, 2015 and began treating clients.

In January 2015, the Company added 31 beds, 24 of which were detox beds, to its Forterus facility in Temecula, California, increasing capacity at the facility to 107 beds.

In January 2015, the Company entered into a definitive agreement to acquire an 84-bed hospital in Aliso Viejo, California for an aggregate of $13.5 million in cash. Closing of the acquisition is expected to occur in the second quarter of 2015. AAC will begin renovation of the facility in the second quarter of 2015 and expects to apply for a license to operate as a Chemical Dependency Recovery Hospital. The Company anticipates it will invest an additional approximately $5 million for renovations and construction, which will include the addition of up to 40 beds (bringing the total up to 124 beds) and has targeted completion for the first half of 2016.

In February 2015, AAC purchased a former convent and a total of 96 acres in Ringwood, New Jersey for $6.5 million in cash. Renovation of the existing structure and grounds is anticipated to begin summer 2015 with a targeted opening late in the second half of 2016. The renovated facility will be a 150-bed residential treatment facility and the Company anticipates an additional investment of approximately $16 million.

The Company’s new $2.4 million outpatient center in Arlington, Texas was completed in January 2015 and, pending licensure, is expected to begin treating clients in the second quarter of 2015. The Company expects to complete construction of the 164-bed, $18.1 million residential facility in Tampa, Florida in the second half of 2015.

Acquisition Activity

During the fourth quarter of 2014, the Company signed a definitive agreement to acquire Recovery First, an operator of a 56-bed in-network, inpatient substance abuse treatment facility in the greater Fort Lauderdale, Florida area, for $13.0 million in cash. The acquisition subsequently closed in February 2015.

In January 2015, the Company signed a definitive agreement to acquire Clinical Services of Rhode Island, an operator of three outpatient treatment facilities in Greenville, Portsmouth and South Kingstown, Rhode Island, for $650,000 in cash and $1.3 million in restricted shares of the Company’s common stock. The acquisition is expected to close during the second quarter of 2015.

Balance Sheet and Cash Flows from Operations

As of December 31, 2014, AAC Holdings’ balance sheet reflected cash and cash equivalents of $48.5 million and total debt and mezzanine equity of $36.5 million. Capital expenditures in the fourth quarter of 2014 totaled $3.6 million. Cash flows provided by operations totaled $2.2 million for the fourth quarter of 2014 compared with $2.1 million in the prior-year period and $5.8 million in the third quarter of 2014. Days sales outstanding (DSO) was 71 for the fourth quarter of 2014 compared with 81 for the fourth quarter of 2013 and 69 for the third quarter of 2014.

The Company has a commitment from Bank of America and SunTrust to lead a syndicated secured credit facility that is expected to consist of term debt and a revolver. The Company expects to close the new credit facility in the first quarter of 2015.

2015 Outlook

The Company is providing the following outlook for 2015 in lieu of formal financial guidance at this time. This outlook does not include the impact of any future acquisitions and transaction-related costs.

Revenues – Based on the revenues from the fourth quarter of 2014, the addition of new beds at our Forterus facility and the previously disclosed acquisition of Recovery First, the Company expects utilization of the current 580 beds to remain in the 85% to 90% range for 2015 with Average Daily Revenue in the mid-to-high $800-range. The Company expects to receive a full year benefit from our new outpatient center in Las Vegas and a three-quarter benefit from our new outpatient center in Arlington, Texas. The Company also expects to receive an economic benefit from the new Tampa facility in the fourth quarter of 2015.

Adjusted EBITDA and Diluted EPS – The Company expects Adjusted EBITDA margins to remain in a range comparable to what the Company experienced in the second half of 2014 with a slight benefit from the addition of Recovery First and the new Forterus beds. The Company expects an annual tax rate of 38% to 40%.

Earnings Conference Call

The Company will host a conference call and live audio webcast, both open for the general public to hear, on Wednesday, February 25, 2015, at 11:00 a.m. ET to discuss fourth quarter and fiscal year 2014 financial results and business highlights. The number to call for this interactive teleconference is (412) 317-6016. A replay of the conference call will be available through March 5, 2015, by dialing (412) 317-0088 and entering the replay access code, 10059403.

The live audio webcast of the Company’s quarterly conference call will be available online in the Investor Relations section of the Company’s website at www.americanaddictioncenters.com. The online replay will be available in the Investor Relations section of the Company’s website one hour after the call.

About American Addiction Centers

American Addiction Centers is a leading provider of inpatient substance abuse treatment services. We treat adults as well as adolescents who are struggling with drug addiction, alcohol addiction, and co-occurring mental/behavioral health issues. We operate eight substance abuse treatment facilities and one mental health facility specializing in overeating disorders. Located throughout the United States, these facilities are focused on delivering effective clinical care and treatment solutions.

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’ possible or assumed future results of operations, including descriptions of AAC Holdings’ revenues, 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 operate our facilities; (ii) our ability to integrate newly acquired facilities; (iii) our reliance on our sales and marketing program to continuously attract and enroll clients; (iv) a reduction in reimbursement rates by certain third-party payors; (v) our failure to successfully achieve growth through acquisitions and de novo expansions; and (vi) general economic conditions and other similar matters, as well as other risks discussed in the “Risk Factors” section of the Company’s registration statement on Form S-1, as amended, 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 INCOME STATEMENTS
Unaudited
(Dollars in thousands, except per share amounts)
Three Months Ended Year Ended
December 31, 2013 September 30, 2014 December 31, 2014 December 31, 2013 December 31, 2014
Revenues $ 28,060 $ 36,599 $ 37,166 $ 115,741 $ 132,968
Operating expenses
Salaries, wages and benefits 13,881 15,625 14,958 46,856 54,707
Advertising and marketing 3,725 3,910 4,694 13,493 15,683
Professional fees 3,000 1,722 1,458 10,277 8,075
Client related services 2,747 2,789 2,794 7,986 10,794
Other operating expenses 2,971 4,064 3,903 11,615 13,518
Rentals and leases 485 536 630 4,634 2,106
Provision for doubtful accounts 3,117 2,180 2,923 10,950 11,391
Litigation settlement 88 118 129 2,588 487
Restructuring 806
Depreciation and amortization 875 1,209 1,225 3,003 4,662
Total operating expenses 30,889 32,153 32,714 112,208 121,423
Income from operations (2,829 ) 4,446 4,452 3,533 11,545
Interest expense 231 845 322 1,390 1,872
Acquisition-related expenses 845 845
Other expense (income), net (59 ) 65 (173 ) 36 (93 )
Income (loss) before income tax expense (3,001 ) 3,536 3,458 2,107 8,921
Income tax (benefit) expense (1,033 ) 1,511 185 615 2,555
Net income (loss) (1,968 ) 2,025 3,273 1,492 6,366

Less: net (income) loss attributable to noncontrolling interest

23 433 81 (706 ) 1,182

Net income (loss) attributable to AAC Holdings, Inc. stockholders

(1,945 ) 2,458 3,354 786 7,548

Deemed contribution-redemption of Series B Preferred Stock

1,000
BHR Series A Preferred Unit dividend (245 ) (245 ) (693 )

Net income (loss) available to AAC Holdings, Inc. common stockholders

$ (1,945 ) $ 2,213 $ 3,109 $ 1,786 $ 6,855
Basic earnings per common share $ (0.14 ) $ 0.14 $ 0.15 $ 0.13 $ 0.41
Diluted earnings per common share $ (0.14 ) $ 0.14 $ 0.15 $ 0.12 $ 0.41
Weighted-average shares outstanding:
Basic 13,855,796 15,598,396 20,701,288 13,855,797 16,557,655
Diluted 14,276,723 15,614,380 20,762,593 14,292,937 16,619,180
AAC HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
Unaudited
(Dollars in thousands)
December 31, December 31,
2013 2014
Assets
Current assets
Cash and cash equivalents (variable interest entity- 2013: $441; 2014: $166) $ 2,012 $ 48,540
Accounts receivable, net of allowances – (variable interest entity-2013: $169; 2014: $308) 24,567 28,718
Deferred tax assets 676 1,214
Prepaid expenses and other current assets (variable interest entity-2013: $173; 2014: $6) 2,274 1,450
Total current assets 29,529 79,922
Property and equipment, net (variable interest entity-2013: $29,257; 2014: $0) 37,008 49,196
Goodwill 10,863 12,702
Intangible assets, net 3,496 2,935
Note receivable – related party 250
Other assets (variable interest entity-2013: $142; 2014: $0) 492 1,197
Total assets $ 81,638 $ 145,952
Liabilities, mezzanine equity and stockholders’ equity
Current liabilities
Accounts payable $ 1,895 $ 2,001
Accrued liabilities (variable interest entity- 2013: $172; 2014: $4,281) 10,455 10,411
Current portion of long-term debt (variable interest entity-2013: $12,932; 2014: $0) 15,164 2,570
Current portion of long-term debt – related party 795 1,787
Total current liabilities 28,309 16,769
Deferred tax liabilities 2,329 1,479
Long-term debt, net of current portion (variable interest entity-2013: $8,616; 2014: $0) 23,341 24,097
Long-term debt-related party, net of current portion 3,775 187
Other long-term liabilities 159 431
Total liabilities 57,913 42,963
Commitments and contingencies
Mezzanine equity including noncontrolling interest 11,842 7,848
Stockholders’ equity of AAC Holdings, Inc. 8,183 97,474
Noncontrolling interest 3,700 (2,333 )
Total stockholders’ equity including noncontrolling interest 11,883 95,141
Total liabilities, mezzanine equity and stockholders’ equity $ 81,638 $ 145,952
AAC HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited
(Dollars in thousands)
Year Ended December 31,
2013 2014
Cash flows from operating activities:
Net income $ 1,492 $ 6,366

Adjustments to reconcile net income to net cash provided by operating activities:

Provision for doubtful accounts 10,950 11,391
Depreciation and amortization 3,003 4,662
Loss on disposal of property and equipment 395
Equity compensation 979 1,802
Accretion of BHR Series A Preferred Units 66
Amortization of discount on notes payable 32 32
Deferred income taxes (1,500 ) (1,374 )
Decrease in fair value of contingent related-party note payable (91 )
Changes in operating assets and liabilities (excluding acquisitions):
Accounts receivable (14,810 ) (15,155 )
Prepaid expenses and other assets (1,287 ) 190
Accounts payable 510 106
Accrued liabilities 3,611 (320 )
Other long term liabilities 159 272
Net cash provided by operating activities 3,443 8,038
Cash flows from investing activities:
Purchase of property and equipment (12,975 ) (15,584 )
Issuance of notes and other receivables – related parties (488 )
Acquisition of subsidiaries, net of cash acquired (3,483 )
Cash acquired in consolidation of variable interest entity 210
Escrow funds held on acquisition (500 )
Collection of notes and other receivables – related parties 50 738
(Purchase) reimbursement of other assets (429 ) (204 )
Net cash used in investing activities (13,144 ) (19,521 )
Cash flows from financing activities:
Proceeds from (payments on) revolving line of credit, net 5,851 (12,550 )
Proceeds from long-term debt 9,150 4,053
Payments on long-term debt and capital leases (2,433 ) (5,742 )
Repayment of long-term debt – related party (1,554 ) (2,601 )
Repurchase of common stock (5,063 ) (5,710 )
Proceeds from sale of common stock – initial public offering 69,518
Proceeds from sale of common stock – private placement 7,429 6,089
Proceeds from sale of BHR Series A Preferred Units 8,203
Redemption of BHR Series A Preferred Units (1,825 )
Dividends paid (509 )
Contributions from noncontrolling interest 1,979
Distributions to noncontrolling interest (1,396 ) (915 )
Redemption of noncontrolling interest (2,990 )
Net cash provided by financing activities 10,973 58,011
Net increase in cash and cash equivalents 1,272 46,528
Cash and cash equivalents, beginning of period 740 2,012
Cash and cash equivalents, end of period $ 2,012 $ 48,540
AAC Holdings, Inc.
Operating Metrics
Unaudited
Three Months Ended
December 31, 2013 September 30, 2014 December 31, 2014
Operating Metrics:
Average daily census1 309 413 418
Average daily revenue2 $ 987 $ 963 $ 966
Average net daily revenue3 $ 877 $ 906 $ 890
New admissions4 944 1,275 1,276
Bed count at end of period5 431 493 493
Days sales outstanding (DSO)6 81 69 71

1 Includes client census at all of our owned and leased inpatient facilities, including FitRx.

2 Average daily revenue is calculated as total revenues during the period divided by the product of the number of days in the period multiplied by average daily census.

3 Average net daily revenue is calculated as total revenues less provision for doubtful accounts during the period divided by the product of the number of days in the period multiplied by average daily census.

4 Includes total client admissions for the period presented.

5 Bed count at end of period includes all beds at owned and leased inpatient facilities, including FitRx. In the first quarter of 2014, we added two beds at the FitRx facility to accommodate increased client census and eliminated six beds at The Academy facility as a result of an expired housing lease. In addition, the Greenhouse expansion, completed in July 2014, added 60 beds, all of which are licensed for detoxification and we added six adolescent beds at The Academy at the end of September 2014.

6 Revenues per day is calculated by dividing the revenues for the quarter by the number of days in the quarter. Days sales outstanding is then calculated as accounts receivable, net of allowance for doubtful accounts, at the end of the quarter divided by revenues per day.

AAC Holdings, Inc.
Supplemental Reconciliation of Non-GAAP Disclosures
Unaudited
(Dollars in Unaudited)
Three Months Ended Year Ended
December 31, 2013 September 30, 2014 December 31, 2014 December 31, 2013 December 31, 2014
Net Income $ (1,968 ) $ 2,025 $ 3,273 $ 1,492 $ 6,366
Non-GAAP Adjustments:
Interest expense 231 845 322 1,390 1,872
Depreciation and amortization 875 1,209 1,225 3,003 4,662
Income tax (benefit) expense (1,033 ) 1,511 185 615 2,555

Stock-based compensation and related tax reimbursements

726 911 342 1,649 3,030
Litigation settlement 88 118 129 2,588 487
Restructuring 806
Reorganization 82 238 15 1,176
Acquisition-related expense 845 845
De novo start-up expense 99
Adjusted EBITDA1 $ (1,081 ) $ 6,701 $ 6,559 $ 11,558 $ 21,092

1 Adjusted EBITDA is a “non-GAAP financial measure” as defined under the rules and regulations promulgated by the U.S. Securities and Exchange Commission. Management defines Adjusted EBITDA as net income adjusted for interest expense, depreciation and amortization expense, income tax expense, stock-based compensation and related tax reimbursements, litigation settlement, restructuring charges, reorganization expense (which includes certain reorganization transactions in April 2014 and expenses associated with the amendment and restatement of our then-existing credit facility in April 2014), acquisition-related expense, and de novo startup expense. Where applicable, these include professional services for accounting, legal, valuation services and licensing expenses. Adjusted EBITDA is considered a supplemental measure of the Company’s performance and is not required by, or presented in accordance with, generally accepted accounting principles, or GAAP. Adjusted EBITDA is not a measure of the Company’s financial performance under GAAP and should not be considered as an alternative to net income or any other performance measures derived in accordance with GAAP. Management has included information concerning Adjusted EBITDA because they believe that such information is used by certain investors as a measure of a company’s historical performance. Management believes this measure is frequently used by securities analysts, investors and other interested parties in the evaluation of issuers of equity securities, many of which present EBITDA and Adjusted EBITDA when reporting their results. Because Adjusted EBITDA is not determined in accordance with GAAP, it is subject to varying calculations and may not be comparable to the Adjusted EBITDA (or similarly titled measures) of other companies. Management’s presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.

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