Behavioral Healthcare Stocks down 7.2% in April
The Behavioral Health Composite, which tracks investor interest in the three public behavioral healthcare companies – Acadia Healthcare (ACHC), American Addiction Centers (AAC), and Universal Health Services (UHS) – was down 7.2% for the month of April. The S&P 500, by comparison, was up 2.7% during the same period.
The loss in the BHC index was mainly driven by AAC.
American Addiction Centers – AAC (↓23.7%) fell sharply on the delivery of its postponed Q4 2018 earnings call. For Q4 2018, revenue decreased 26.6% to $57.4MM year over year. Net loss was ($1.52) per diluted common share and adjusted EBITDA was ($12.4MM). “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 CEO. “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 company is also exploring strategic alternatives in its real estate portfolio, including sale-leasebacks of individual facilities or larger portions of the company’s real estate portfolio, to generate additional liquidity. In March 2019, the company also closed a $30.0MM incremental term loan with its existing lenders.
Acadia Healthcare – ACHC (↑8.0%) increased on positive Q1 2019 earnings. The Company reported revenue of $760.6MM for Q1 2019, a 2.5% increase from the same period the prior year. EPS was $0.34 per diluted share for Q1 2019 compared with $0.58 per diluted share for the same period the prior year. Total same facility revenue increased 5.6% for Q1 2019 YoY, including a 2.8% increase in patient days and a 2.7% increase in revenue per patient day. Total same facility EBITDA margin declined 150 basis points to 22.7%. U.S. same facility revenue rose 6.1%, on a 4.3% increase in patient days and a 1.7% increase in revenue per patient day. U.S. same facility EBITDA margin was consistent with the first quarter last year at 26.1%. U.K. same facility revenue grew 4.7% for the first quarter of 2019 from the first quarter last year, including a 0.9% increase in patient days and a 3.7% increase in revenue per patient day. U.K. same facility EBITDA margin declined 430 basis points to 16.3%. Acadia’s consolidated adjusted EBITDA for Q1 2019 was $136.0MM, compared with $145.7 million for the same period the prior year. Acadia also affirmed its previously established financial guidance for 2019.
Universal Health Services – UHS (↓5.9%) was down for the month of April. On April 26th, UHS delivered its Q1 2019 earnings. EPS for Q4 came in at $2.45 per share, down 5.8% from estimates. Revenue came in at $2.75Bn compared to estimates of $2.74Bn. For the Behavioral Health segment, on the same facility basis, adjusted admissions inched up 2.9% while adjusted patient days dipped 0.9%, both on a year-over-year basis. Net revenues were up 3% during the quarter under review on the same facility basis.
For the last twelve months (LTM), the BHC is well behind the S&P 500 at a -28.7% loss relative to the S&P’s gain of 11.0%.
Valuation – Public Comps
Below are the Enterprise Value / EBITDA and Enterprise Value / Revenue ratios for AAC, ACHC, and UHS. The valuations provide a relative barometer for what smaller companies can expect. Given the higher relative risk of smaller companies (e.g., less liquidity, smaller revenue base), we typically (though not always) see multiples that are lower than those of the public companies.
Company 4/30/17 4/30/18 4/30/19
AAC 12.23x 12.30x N/A
ACHC 12.10x 10.91x 11.75x
UHS 9.15x 8.59x 9.32x
Company 4/30/17 4/30/18 4/30/19
AAC 1.35x 1.69x 1.20x
ACHC 2.47x 2.23x 2.18x
UHS 1.57x 1.40x 1.45x
April 30, 2019 – BayMark Health Services announced the acquisition of Recovery Services of New Mexico (RSONM). RSONM has three traditional Opioid Treatment Programs (OTP), one physician’s office-based treatment program providing buprenorphine treatment, and a fifth location inside of Bernalillo County Metropolitan Detention Center providing opioid medication treatment services for incarcerated individuals. BayMark Health Services operates more than 218 locations, offering various treatment methods for opioid addiction, across the country. Mertz Taggart acted as exclusive M&A advisor to this transaction, representing the seller.
April 23, 2019 – LifeSkills, Inc. (LifeSkills) and Pennyroyal Center, the largest behavioral health care organization in Southern Kentucky, have announced that they will merge as of July 1. The merged entity will total over 875 employees, and 26 service locations, all of which will remain in operation. The combined entity will have a total budget of just over $95 million and will continue to operate under the LifeSkills and Pennyroyal Center names in their respective markets.
April 17, 2019 –Pinnacle Treatment Centers (PTC), a provider of accessible treatment for substance use disorders, announced it has acquired four outpatient opioid treatment programs within the state of Virginia, including one office-based opioid treatment program (OBOT) and three opioid treatment programs (OTPs) for adult men and women. The three OTPs are American Addiction Treatment Center (AATC) and the OBOT is Addiction Medicine Specialists Inc.
April 16, 2019 – Bridges Fund Management, a specialist fund manager focused exclusively on sustainable and impact investment, with offices in London and New York, has made an investment in Sunrise, a medication-assisted treatment, and behavioral counseling program for individuals suffering from opioid use disorder. Sunrise provides medication-assisted treatment and behavioral counseling programs to individuals suffering from opioid use disorder, treating patients through five clinics in Ohio. Sunrise’s management team is retaining a significant ownership stake in the business.
April 16, 2019 – Blue Sprig Pediatrics, Inc. (BlueSprig) announces that it has acquired the assets of West Texas Autism Center, a West Texas-based autism therapy provider with two clinics in Abilene and San Angelo. West Texas Autism Center is a clinic-based provider of Applied Behavior Analysis (ABA) therapy services treating children with Autism Spectrum Disorder (ASD). Headquartered in Houston, TX, BlueSprig is the largest autism services provider in Texas with locations in Ohio, Oklahoma, Oregon, South Carolina, and Washington.
April 11, 2019 – Kadiant Inc., which was established in 2019 between Lani Fritts, TPG Capital, and Vida Venturesa as a provider of Applied Behavior Analysis (ABA) therapy to individuals with autism spectrum disorder (ASD), announced it has partnered with two ABA therapy providers: Kids Overcoming (KOI) and Integrated Behavioral Solutions (IBS). The founders of KOI and IBS will join Kadiant on the executive team.
April 11, 2019 – Sprout Health Group, a leading network of inpatient and outpatient facilities for treating addiction and co-occurring disorders, announced the acquisition of Endeavor House North, a drug treatment center in Kearny, NJ. Sprout is assuming management of the program, including taking care of current patients, while also investing to revitalize the facilities. The acquisition enables Sprout to serve all regions of New Jersey and surrounding areas, while putting the group in-network with every major insurance carrier in the state, including Horizon Blue Cross Blue Shield, Optum, Cigna, and Aetna.