American Addiction Centers, which operates six inpatient substance abuse treatment centers across the US, announced terms for its IPO on Monday. The Brentwood, TN-based company plans to raise $65 million by offering 5.0 million shares at a price range of $12 to $14. At the midpoint of the proposed range, it would command a fully diluted market value of $269 million.
Business
The company has 467 beds total at its inpatient facilities, which are located in Nevada, Texas, California and Florida. AAC was founded in 2004 and operated just one 76-bed California location until it began a series of acquisitions and new constructions in 2010, 2012, 2013, and most recently, a detoxification facility near Dallas. It plans to increase existing capacity by 67% by adding two new detox facilities; one in 2015 and the other in 2016. AAC is also constructing two smaller outpatient facilities for additional programming space in existing markets. One third of all substance abuse centers are for-profit, and AAC states that its premium facilities are able to treat co-occurring mental health disorders, such as depression and schizophrenia. The company claims that 65% of adults with substance abuse also have a co-occurring mental health disorder.
AAC does not receive reimbursement from government programs like Medicare or Medicaid but instead relies on commercial payors, which represented 90% of revenue in the 1H14. During the most recent quarter, AAC saw a decline in its collection as a percent of gross billing. At quarter-end, 41% of its receivables were over 180 days old, up from 33% at the end of the 2Q14. Its days sales outstanding increased from 72 to 81 at June 30, 2014. The company claims it is adjusting collection practices to ensure higher realization and faster payment. Primary shareholders include Chairman and CEO Michael Cartwright (29% pre-IPO stake) and co-founder Jerrod Menz (26%).
Financial performance
Revenue remained flat at $59 million for the six months ended June 30, 2014 compared to the prior year period. Its adjusted EBITDA fell 18% to under $8 million as AAC's provision for doubtful accounts was higher after the company revised its methodology for calculating the provision.
American Addiction Centers, which was founded in 2004 and booked $116 million in sales for the 12 months ended June 30, 2014, plans to list on the NYSE under the symbol AAC. William Blair and Raymond James are the joint bookrunners on the deal. It is expected to price during the week of September 29, 2014.
