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AAC Holdings, Inc. Reports Third Quarter 2019 Results

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BRENTWOOD, Tenn., Nov. 12, 2019 (GLOBE NEWSWIRE) -- AAC Holdings, Inc. (OTC:AACH) ("the Company" or "AAC") announced financial results for the third quarter and nine months ended September 30, 2019, as well as updated 2019 guidance.

Third Quarter 2019 Operational and Financial Highlights:
(All comparisons are to second quarter ended June 30, 2019, unless otherwise noted)

  • New admissions improved to 4,844 from 4,830
  • Operating expenses decreased by 12% to $61.1 million
  • Net loss attributable to AAC Holdings, Inc. common stockholders decreased 20% to $(13.1) million, or $(0.52) per diluted common share from $(16.4) million, or $(0.66) per diluted share.
  • Adjusted EBITDA improved by 92% to $5.5 million compared to $2.9 million (see non-GAAP reconciliation herein).

"For the third consecutive quarter, we continue to see positive momentum in 2019," said Michael Cartwright, AAC Chairman & Chief Executive Officer. "The expense savings initiatives implemented in late 2018 and in 2019 are continuing to have a positive impact. Operating expenses have decreased by 27% or $22 million, for the third quarter of 2019 compared to the third quarter of 2018 representing just under $100 million in annualized savings."

Cartwright added, "We are pleased with the recent addition of three independent board members who bring extensive expertise to the Company and 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 right-size our balance sheet and reduce our cost of capital."

Appointment of New Independent Board Members

The Company appointed three new independent Board members during the quarter.  The new members include LOC Distribution CEO Bob Nash, Vogel Partners Managing Member Scott D. Vogel and TML Corporate Strategies President T. Michael Logan.  The new members join AAC CEO Michael Cartwright, Vaco Holdings CEO Jerry Bostelman, and Burch Investment Group CEO Lucius Burch on the board.

Agreement with Senior Secured Lenders

The Company reached an agreement on October 30, 2019 with its senior secured lenders that provided the Company with an additional $5 million of liquidity and a forbearance agreement through March 31, 2020 regarding certain events of default.

Third Quarter 2019 Financial Results

On a sequential basis total revenue decreased by $3.9, or 6% in the third quarter of 2019. Revenue during the third quarter of 2019 was negatively impacted by additional reserves recorded against outstanding accounts receivable related to closed facilities and other changes in estimates which totaled approximately $1.6 million. The remaining decrease was due to lower average daily census and average daily inpatient revenue. Average daily inpatient census decreased by approximately 1% and average daily inpatient revenue decreased by 11%. The decrease in average daily inpatient revenue was primarily related to a decline in payor mix. Average daily inpatient revenue compared to the third quarter of 2018 was materially consistent.

Operating expenses on a sequential basis decreased by approximately 12% to $61.1 million for the third quarter of 2019 compared to the second quarter of 2019. This was primarily due to the benefit from the cost savings initiatives enacted during the fourth quarter for 2018 and into 2019. Operating expenses on a year-over-year basis decreased 27% or $22.4 million.

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 revenues were $58.9 million for the third quarter of 2019 compared with $62.7 million for the second quarter of 2019.

  Three Months Ended,
September 30, 2019
  Three Months Ended,
June 30, 2019
    Increase/
(Decrease)
    % Change  
Inpatient treatment facility services $ 51,264   $ 57,690     $ (6,426 )     (11.1 )
Outpatient facility and sober living services   5,343     5,407       (64 )     (1.2 )
Client related diagnostic services   1,558     (2,502 )     4,060       162.3  
Total client related revenue   58,165     60,595       (2,430 )     (4.0 )
Non-client related revenue   690     2,129       (1,439 )     (67.6 )
Total revenues $ 58,855   $ 62,724     $ (3,869 )     (6.2 )

Inpatient treatment facility services revenue decreased 11.1% to $51.3 million for the three months ended September 30, 2019, compared with $57.7 million for the three months ended June 30, 2019.

Outpatient facility and sober living services revenue decreased 1.2% to $5.3 million for the three months ended September 30, 2019, compared with $5.4 million for the three months ended June 30, 2019.

Client related diagnostic services revenue increased 162.3% to $1.6 million for the three months ended September 30, 2019, compared with $(2.5) million for the three months ended June 30, 2019.

Non-client related revenue decreased 67.6% to $0.7 million for the three months ended September 30, 2019, compared with $2.1 million for the three months ended June 30, 2019.

Net loss attributable to AAC Holdings, Inc. common stockholders was $(13.1) million, or $(0.52) per diluted common share for the three months ended September 30, 2019, compared with net loss attributable to AAC Holdings, Inc. common stockholders of $(16.4) million, or $(0.66) per diluted common share for the three months ended June 30, 2019.

Adjusted EBITDA increased to $5.5 million for the three months ended September 30, 2019, compared with $2.9 million for the three months ended June 30, 2019. Adjusted EBITDA is a non-GAAP financial measure. 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 September 30, 2019, AAC's balance sheet reflected cash and cash equivalents of $1.5 million, accounts receivable of $52.2 million, net property and equipment of $158.5 million and total debt of $345.1 million (current and long-term portions).

Cash flows used in operations totaled $4 thousand for the third quarter of 2019 compared to $13.5 million for the second quarter of 2019.

Evaluation of Strategic Alternatives in AAC's Real Estate Portfolio

The Company has commenced a process to generate additional value from its assets, including 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.

2019 Outlook

AAC updates its guidance for the full year 2019 as follows:

  Full Year 2019 Guidance
  (in millions, except per share data)
Total Revenues $230 - $240
Inpatient treatment facility revenue $205 - $210
Outpatient and sober living facility revenue $20 - $22
Client related diagnostic services revenue $2 - $3
Non-client related revenue $3 - $5
   
Adjusted EBITDA $6 - $8
Adjusted Earnings per Diluted Common Share $(2.15) - $(2.10)

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 has provided an earnings release supplement that provides certain operating and financial results and information regarding its 2019 annual outlook that is available online in the Investor Relations section of the Company's website at ir.americanaddictioncenters.org.

The Company will host a conference call and live audio webcast on Tuesday, November 12, 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 November 21, 2019, by dialing 877-344-7529 and entering the replay access code, 1013610.

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) the Company's inability to meet the covenants in the Company's loan documents or lack of borrowing capacity; (ii)  the Company's inability to successfully raise capital to meet the Company's liquidity needs and to allow it to continue to operate as a going concern; (iii) the Company's inability to effectively operate its facilities; (iv) the Company's reliance on its sales and marketing program to continuously attract and enroll clients; (v) a reduction in reimbursement rates by certain third-party payors for inpatient and outpatient services and point-of-care and definitive lab testing; (vi) the Company's failure to successfully achieve growth through acquisitions and de novo projects; (vii) risks associated with estimates of the value of accounts receivable or deterioration in collectability of accounts receivable; (viii) a failure to achieve anticipated financial results from contemplated and prior acquisitions; (ix) the possibility that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of an acquisition; (x) the Company's failure to achieve anticipated financial results from contemplated and prior acquisitions; (xi) a disruption in the Company's ability to perform diagnostic laboratory services; (xii) maintaining compliance with applicable regulatory authorities, licensure and permits to operate the Company's facilities and laboratories; (xiii) potential adverse affects on our ability to raise financing through the sale of equity securities due to delisting from the NYSE; (xiv) a disruption in the Company's business and reputational and economic risks associated with the civil securities claims brought by shareholders or claims by various parties; ; and  (xv) general economic and market conditions, including conditions in the debt and equity capital markets in particular, as well as other risks discussed in the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2018 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. The Company is in the process of finalizing its Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, including the process of reviewing the financial statements contained therein. Results reported in this earnings release could change as a result of this process.

AAC HOLDINGS, INC.  
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS  
Unaudited  
(Dollars in thousands, except share data)  
        
  Three Months Ended  
  September 30, 2019     June 30,
2019
 
Revenues              
Client related revenue $ 58,165     $ 60,595  
Non-client related revenue   690       2,129  
Total revenues   58,855       62,724  
               
Operating expenses              
Salaries, wages and benefits   36,273       38,928  
Client related services   6,103       5,975  
Advertising and marketing   1,621       2,725  
Professional fees  
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