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Section 1: 10-Q (10-Q)

aac-10q_20180630.htm

E a

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from           to           

Commission File Number: 001-36643

 

AAC Holdings, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

Nevada

 

35-2496142

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

200 Powell Place

Brentwood, TN

 

37027

(Address of principal executive offices)

 

(Zip code)

Registrant’s telephone number, including area code: (615) 732-1231

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

 (do not check if a smaller reporting company)

 

 

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 27, 2018, the registrant had 24,596,675 shares of common stock, $0.001 par value per share, outstanding.

 

 

 

 

 


AAC HOLDINGS, INC.

Form 10-Q

June 30, 2018

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

PART I

 

 

 

FINANCIAL INFORMATION

 

 

 

Item 1:

 

 

Condensed Consolidated Financial Statements

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and 2017 (unaudited)

 

3

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2018 (unaudited) and December 31, 2017

 

4

 

 

 

Condensed Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2018 (unaudited)

 

5

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (unaudited)

 

6

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

Item 2:

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

20

 

Item 3:

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

40

 

Item 4:

 

 

Controls and Procedures

 

40

 

 

 

PART II

 

 

 

OTHER INFORMATION

 

 

 

Item 1:

 

 

Legal Proceedings

 

41

 

Item 1A:

 

 

Risk Factors

 

41

 

Item 2:

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

Item 3:

 

 

Defaults Upon Senior Securities

 

41

 

Item 4:

 

 

Mine Safety Disclosures

 

41

 

Item 5:

 

 

Other Information

 

41

 

Item 6:

 

 

Exhibits

 

42

 

Signatures

 

 

 

 

2


PART 1. FINANCIAL INFORMATION

Item 1.  Condensed Consolidated Financial Statements

AAC HOLDINGS, Inc.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017

Unaudited

(Dollars in thousands, except share data)

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Client related revenue

$

83,293

 

 

$

75,692

 

 

$

159,216

 

 

$

146,911

 

Non-client related revenue

 

3,468

 

 

 

2,350

 

 

 

6,018

 

 

 

4,170

 

Total revenues

 

86,761

 

 

 

78,042

 

 

 

165,234

 

 

 

151,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Salaries, wages and benefits

 

46,850

 

 

 

34,508

 

 

 

86,934

 

 

 

71,280

 

Client related services

 

8,393

 

 

 

6,646

 

 

 

16,140

 

 

 

13,024

 

Provision for doubtful accounts

 

366

 

 

 

9,496

 

 

 

366

 

 

 

16,083

 

Advertising and marketing

 

2,584

 

 

 

3,266

 

 

 

5,183

 

 

 

7,041

 

Professional fees

 

4,950

 

 

 

3,039

 

 

 

8,600

 

 

 

5,681

 

Other operating expenses

 

12,194

 

 

 

8,199

 

 

 

22,782

 

 

 

16,988

 

Rentals and leases

 

2,563

 

 

 

1,849

 

 

 

4,679

 

 

 

3,734

 

Litigation settlement

 

244

 

 

 

 

 

 

3,035

 

 

 

 

Depreciation and amortization

 

5,909

 

 

 

5,058

 

 

 

11,373

 

 

 

10,527

 

Acquisition-related expenses

 

 

 

 

42

 

 

 

305

 

 

 

225

 

Total operating expenses

 

84,053

 

 

 

72,103

 

 

 

159,397

 

 

 

144,583

 

Income from operations

 

2,708

 

 

 

5,939

 

 

 

5,837

 

 

 

6,498

 

Interest expense, net (change in fair value of interest rate

      swaps of $0, ($25), $0 and ($108), respectively)

 

7,893

 

 

 

2,846

 

 

 

14,602

 

 

 

5,580

 

Loss on extinguishment of debt

 

 

 

 

5,435

 

 

 

 

 

 

5,435

 

Other (income) expense, net

 

(98

)

 

 

(6

)

 

 

(89

)

 

 

28

 

Loss before income tax (benefit) expense

 

(5,087

)

 

 

(2,336

)

 

 

(8,676

)

 

 

(4,545

)

Income tax (benefit) expense

 

(84

)

 

 

562

 

 

 

(1,578

)

 

 

(3

)

Net loss

 

(5,003

)

 

 

(2,898

)

 

 

(7,098

)

 

 

(4,542

)

Less: net loss attributable to noncontrolling interest

 

1,990

 

 

 

982

 

 

 

3,883

 

 

 

2,023

 

Net loss attributable to AAC Holdings, Inc.

       common stockholders

$

(3,013

)

 

$

(1,916

)

 

$

(3,215

)

 

$

(2,519

)

Basic loss per common share

$

(0.12

)

 

$

(0.08

)

 

$

(0.13

)

 

$

(0.11

)

Diluted loss per common share

$

(0.12

)

 

$

(0.08

)

 

$

(0.13

)

 

$

(0.11

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

24,166,976

 

 

 

23,242,177

 

 

 

23,956,760

 

 

 

23,203,081

 

Diluted

 

24,166,976

 

 

 

23,242,177

 

 

 

23,956,760

 

 

 

23,203,081

 

See accompanying notes to condensed consolidated financial statements.

3


 

AAC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands, except share data)

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

 

 

 

 

Assets

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

11,353

 

 

$

13,818

 

Accounts receivable, net of allowances

 

 

97,362

 

 

 

94,096

 

Prepaid expenses and other current assets

 

 

4,638

 

 

 

4,022

 

Total current assets

 

 

113,353

 

 

 

111,936

 

Property and equipment, net

 

 

168,373

 

 

 

152,548

 

Goodwill

 

 

197,184

 

 

 

134,396

 

Intangible assets, net

 

 

13,201

 

 

 

8,829

 

Deferred tax assets, net

 

 

9,572

 

 

 

8,010

 

Other assets

 

 

11,069

 

 

 

12,556

 

Total assets

 

$

512,752

 

 

$

428,275

 

 

 

Liabilities and Stockholders’ Equity

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,613

 

 

$

4,579

 

Accrued and other current liabilities

 

 

30,487

 

 

 

27,661

 

Accrued litigation

 

 

 

 

 

23,607

 

Current portion of long-term debt

 

 

6,723

 

 

 

4,722

 

Total current liabilities

 

 

43,823

 

 

 

60,569

 

Long-term debt, net of current portion and deferred financing costs

 

 

295,322

 

 

 

196,451

 

Financing lease obligation, net of current portion

 

 

24,488

 

 

 

24,541

 

Other long-term liabilities

 

 

12,322

 

 

 

10,546

 

Total liabilities

 

 

375,955

 

 

 

292,107

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.001 par value:

   70,000,000 shares authorized, 24,596,675 and 23,872,436 shares issued

   and outstanding at June 30, 2018 and December 31, 2017, respectively

 

 

25

 

 

 

24

 

Additional paid-in capital

 

 

160,156

 

 

 

152,430

 

Retained deficit

 

 

(4,675

)

 

 

(1,460

)

Total stockholders’ equity

 

 

155,506

 

 

 

150,994

 

Noncontrolling interest

 

 

(18,709

)

 

 

(14,826

)

Total stockholders’ equity including noncontrolling interest

 

 

136,797

 

 

 

136,168

 

Total liabilities and stockholders’ equity

 

$

512,752

 

 

$

428,275

 

See accompanying notes to condensed consolidated financial statements.

4


 

AAC HOLDINGS, Inc.

CONDENSED Consolidated Statement of Stockholders’ Equity

Unaudited

(Dollars in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock –

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

AAC Holdings, Inc.

 

 

Additional

 

 

 

 

 

 

Stockholders’

 

 

Non-

 

 

Total

 

 

 

Shares

 

 

 

 

 

 

Paid-in

 

 

Retained

 

 

Equity of

 

 

Controlling

 

 

Stockholders’

 

 

 

Outstanding

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

AAC Holdings, Inc.

 

 

Interest

 

 

Equity

 

Balance at December 31, 2017

 

 

23,872,436

 

 

$

24

 

 

$

152,430

 

 

$

(1,460

)

 

$

150,994

 

 

$

(14,826

)

 

$

136,168

 

Common stock granted and issued under stock incentive   plan, net of forfeitures

 

 

141,895

 

 

 

 

 

 

2,159

 

 

 

 

 

 

2,159

 

 

 

 

 

 

2,159

 

Common stock withheld for minimum statutory taxes

 

 

(7,607

)

 

 

 

 

 

(92

)

 

 

 

 

 

(92

)

 

 

 

 

 

(92

)

Effect of employee stock purchase plan

 

 

27,900

 

 

 

 

 

 

221

 

 

 

 

 

 

221

 

 

 

 

 

 

221

 

Common stock issued upon acquisition of AdCare, Inc.

 

 

562,051

 

 

 

1

 

 

 

5,438

 

 

 

 

 

 

5,439

 

 

 

 

 

 

5,439

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,215

)

 

 

(3,215

)

 

 

(3,883

)

 

 

(7,098

)

Balance at June 30, 2018

 

 

24,596,675

 

 

$

25

 

 

$

160,156

 

 

$

(4,675

)

 

$

155,506

 

 

$

(18,709

)

 

$

136,797

 

See accompanying notes to condensed consolidated financial statements.

5


 

AAC HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Unaudited

(Dollars in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

Cash flows (used in) provided by operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(7,098

)

 

$

(4,542

)

Adjustments to reconcile net loss to net cash (used in) provided by

      operating activities:

 

 

 

 

 

 

 

 

Provision for doubtful accounts

 

 

366

 

 

 

16,083

 

Depreciation and amortization

 

 

11,373

 

 

 

10,527

 

Equity compensation

 

 

2,159

 

 

 

4,189

 

Loss on extinguishment of debt

 

 

 

 

 

5,435

 

Loss on disposal of property and equipment

 

 

34

 

 

 

 

Amortization of deferred financing costs

 

 

1,357

 

 

 

364

 

Deferred income tax benefit

 

 

(1,562

)

 

 

(582

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

724

 

 

 

(25,276

)

Prepaid expenses and other assets

 

 

1,475

 

 

 

690

 

Accounts payable

 

 

(1,464

)

 

 

1,286

 

Accrued and other current liabilities

 

 

457

 

 

 

932

 

Accrued litigation

 

 

(23,300

)

 

 

(406

)

Other long-term liabilities

 

 

(230

)

 

 

(311

)

Net cash (used in) provided by operating activities

 

 

(15,709

)

 

 

8,389

 

Cash flows used in investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(11,196

)

 

 

(18,665

)

Acquisition of AdCare, Inc., net of cash acquired

 

 

(65,185

)

 

 

 

Net cash used in investing activities

 

 

(76,381

)

 

 

(18,665

)

Cash flows provided by financing activities:

 

 

 

 

 

 

 

 

Payments on 2015 Credit Facility and Deerfield Facility

 

 

 

 

 

(204,773

)

Proceeds from 2015 Credit Facility and Deerfield Facility, net of

   deferred financing costs

 

 

 

 

 

11,679

 

Payments on 2017 Credit Facility

 

 

(3,448

)

 

 

 

Proceeds from 2017 Credit Facility, net of deferred financing costs

 

 

94,286

 

 

 

211,494

 

Payments on capital leases and other

 

 

(440

)

 

 

(400

)

Payments on AdCare Note

 

 

(250

)

 

 

 

Payment of employee taxes for net share settlement

 

 

(523

)

 

 

(895

)

Net cash provided by financing activities

 

 

89,625

 

 

 

17,105

 

Net change in cash and cash equivalents

 

 

(2,465

)

 

 

6,829

 

Cash and cash equivalents, beginning of period

 

 

13,818

 

 

 

3,964

 

Cash and cash equivalents, end of period

 

$

11,353

 

 

$

10,793

 

 

 

 

 

 

 

 

 

 

Supplemental information on non-cash investing and financing transactions:

 

 

Accrued purchase of property and equipment

 

$

136

 

 

$

1,300

 

Accrued employee taxes for net share settlement

 

$

44

 

 

$

109

 

 

 

 

 

 

 

 

 

 

2018 Acquisition:

 

 

 

 

 

 

 

 

Purchase price, including contingent consideration

 

$

83,905

 

 

$

 

Buyer common stock issued

 

 

(5,439

)

 

 

 

Contingent consideration

 

 

(945

)

 

 

 

Promissory note issued

 

 

(9,636

)

 

 

 

Cash acquired

 

 

(2,700

)

 

 

 

Cash paid for acquisition

 

$

65,185

 

 

$

 

See accompanying notes to condensed consolidated financial statements.

6


 

AAC Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited

1.   Description of Business

AAC Holdings, Inc. (collectively with its subsidiaries, the “Company” or “AAC Holdings”) was incorporated on February 12, 2014. The Company is headquartered in Brentwood, Tennessee, and provides inpatient and outpatient substance use treatment services for individuals with drug addiction, alcohol addiction and co-occurring mental/behavioral health issues. In connection with the Company’s substance use treatment services, the Company performs drug testing, diagnostic laboratory services and provides physician services to clients. The Company operates numerous facilities located throughout the United States, including inpatient substance abuse treatment facilities, standalone outpatient centers and sober living facilities that focus on delivering effective clinical care and treatment solutions.

2.   Basis of Presentation and Recently Issued Accounting Pronouncements

Principles of Consolidation

The Company conducts its business through limited liability companies and C-corporations, each of which is a direct or indirect wholly owned subsidiary of the Company. The accompanying condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiaries, and the accounts of variable interest entities (“VIEs”) in which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated in consolidation.

The Company consolidated seven professional groups (“Professional Groups”) that constituted VIEs as of June 30, 2018 and 2017. The Professional Groups are responsible for the supervision and delivery of medical services to the Company’s clients, and the Company provides management services to the Professional Groups. Based on the Company’s ability to direct the activities that most significantly impact the economic performance of the Professional Groups, provide necessary funding and the obligation and likelihood of absorbing all expected gains and losses, the Company has determined that it is the primary beneficiary of these Professional Groups.

The accompanying condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017 include assets of $1.0 million and $2.1 million, respectively, and liabilities of $0.7 million and $0.4 million, respectively related to the VIEs. The accompanying condensed consolidated statements of operations include net loss attributable to noncontrolling interest of $2.0 million and $1.0 million for the three months ended June 30, 2018 and 2017, respectively, and net loss of $3.9 and $2.0 million for the six months ended June 30, 2018 and 2017, respectively.

The accompanying condensed consolidated financial statements are unaudited, with the exception of the December 31, 2017 balance sheet, which is consistent with the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles (“GAAP”) for a complete set of financial statements. The information contained in these condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and notes thereto for the fiscal year ended December 31, 2017 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on February 23, 2018. Management believes that all adjustments of a normal, recurring nature considered necessary for a fair presentation have been included. In addition, the interim financial information does not necessarily represent or indicate what the operating results will be for the year ending December 31, 2018 for many reasons including, but not limited to, acquisitions, dispositions, capital financing transactions, changes in interest rates and the effects of other trends, risks and uncertainties. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recently Issued Accounting Standards Updates 

In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASU 2016-02”). The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record an ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the statements of operations. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company anticipates that the adoption of ASU 2016-02 will result in an increase in both total assets and total liabilities. The Company is continuing to evaluate the impact that adoption of this standard will have on its consolidated financial statements.

7


AAC Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers” (“Topic 606”), which outlines a five-step model for recognizing revenue and supersedes most existing revenue recognition guidance, including guidance specific to the healthcare industry. The core principle of the new standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The two permitted transition methods under the new standard are the full retrospective method and the modified retrospective approach. The guidance was effective January 1, 2018, and was applied to all contracts on a modified retrospective basis.

The Company has analyzed the impact of the standard based on a review of its accounting policies and practices in relation to the five-step model to ensure proper assessment of operating results under Topic 606.

The analysis of the Company’s processes under the new revenue standard is complete and supports the recognition of revenue over time as clients simultaneously receive and consume the benefits of the services provided. However, the adoption of the standard has an impact on the presentation of revenue recognized and the provision for doubtful accounts due to additional requirements within Topic 606. As a result of these new requirements, substantially all of the Company’s adjustments related to bad debt will now be recorded as a direct reduction to revenue as opposed to the provision for doubtful accounts included within operating expenses.

The only activity that will be recorded in operating expenses from 2018 onward will be bad debt related to specific customers that experience significant adverse changes in creditworthiness, such as bankruptcies. The Company recorded $0.4 million of expense related to one of our digital outreach platform customers during the quarter ended June 30, 2018.

The initial application of Topic 606 had no impact to the beginning balances of the Company's consolidated financial statements as of January 1, 2018. In adopting Topic 606, the Company elected the practical expedients related to immaterial contract acquisition costs and insignificant financing components of the transaction price.

For the three and six months ended June 30, 2018, the impact on the Company's Condensed Consolidated Statements of Operations was as follows (in thousands):

 

Three Months Ended June 30, 2018

 

 

Six Months Ended June 30, 2018

 

 

As Reported

 

 

Previous Accounting Guidance

 

 

Impact of Adopting Topic 606

 

 

As Reported

 

 

Previous Accounting Guidance

 

 

Impact of Adopting Topic 606

 

Client related revenue

$

83,293

 

 

$

96,150

 

 

$

(12,857

)

 

$

159,216

 

 

$

178,630

 

 

$

(19,414

)

Non-client related revenue

$

3,468

 

 

$

3,616

 

 

$

(148

)

 

$

6,018

 

 

$

6,414

 

 

$

(396

)

Provision for doubtful accounts

$

366

 

 

$

13,371

 

 

$

(13,005

)

 

$

366

 

 

$

20,176

 

 

$

(19,810

)

 

3.   Client Related Revenue and Non-Client Related Revenue

Client Related Revenue

Client related revenue primarily consists of service charges related to providing addiction treatment and related services, including diagnostic laboratory services. As it relates to recognizing revenue, the Company’s contracts are with the individuals for whom the Company provides care. The majority of the Company’s contracts with clients have a single performance obligation because the promise to deliver services is not separately identifiable from other promises in the contracts. The Company’s performance obligations are satisfied over time as clients simultaneously receive and consume the benefits provided. Therefore, the Company recognizes revenue in the same period the services are performed, and there are no remaining performance obligations at period-end.

Due to the nature of the industry, there are often more than two parties to the service transactions (including customers, providers and payors), and the estimation of revenue is complex and requires significant judgment. Management estimates variable consideration using the expected value method. The expected value method is used when an entity has a large number of contracts with similar characteristics, as is the case with the Company’s contracts. The transaction price is recorded based on the estimated ultimate value remaining after all uncertainty is resolved. The estimates of variable consideration are based largely on an assessment of the Company’s anticipated performance as well as historical, current, and forecasted information. The Company updates its estimate of the transaction price at the end of each reporting period, and any amounts allocated to a satisfied performance obligation are recognized as revenue or a reduction of revenue in the period in which the transaction price changes.

8


AAC Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

The following tables summarize the composition of our client related revenue for inpatient treatment facility services, outpatient facility and sober living services, and client related diagnostic services. Inpatient treatment facility services include revenues from related professional services, and client related diagnostic services includes revenues from point of care services as well as laboratory services.

For the three months ended June 30, 2018 and 2017, on an as reported basis (in thousands):

 

Three Months Ended

June 30, 2018

 

 

Three Months Ended

June 30, 2017

 

 

Increase (Decrease)

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Inpatient treatment facility services

$

66,721

 

 

 

80.1

 

 

$

61,754

 

 

 

81.6

 

 

$

4,967

 

 

 

8.0

 

Outpatient facility and sober living services

 

9,028

 

 

 

10.8

 

 

 

6,238

 

 

 

8.2

 

 

 

2,790

 

 

 

44.7

 

Client related diagnostic services

 

7,544

 

 

 

9.1

 

 

 

7,700

 

 

 

10.2

 

 

 

(156

)

 

 

(2.0

)

Total client related revenue

$

83,293

 

 

 

100.0

 

 

$

75,692

 

 

 

100.0

 

 

$

7,601

 

 

 

10.0

 

 

For the three months ended June 30, 2018 and 2017, on a comparable accounting basis as if the Company had not adopted Topic 606 (in thousands):

 

Previous Accounting Guidance

 

 

As Reported

 

 

 

 

 

 

 

 

 

 

Three Months Ended

June 30, 2018

 

 

Three Months Ended

June 30, 2017

 

 

Increase (Decrease)

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Inpatient treatment facility services

$

74,527

 

 

 

77.5

 

 

$

61,754

 

 

 

81.6

 

 

$

12,773

 

 

 

20.7

 

Outpatient facility and sober living services

 

11,515

 

 

 

12.0

 

 

 

6,238

 

 

 

8.2

 

 

 

5,277

 

 

 

84.6

 

Client related diagnostic services

 

10,108

 

 

 

10.5

 

 

 

7,700

 

 

 

10.2

 

 

 

2,408

 

 

 

31.3

 

Total client related revenue

$

96,150

 

 

 

100.0

 

 

$

75,692

 

 

 

100.0

 

 

$

20,458

 

 

 

27.0

 

For the six months ended June 30, 2018 and 2017, on an as reported basis (in thousands):

 

Six Months Ended

June 30, 2018

 

 

Six Months Ended

June 30, 2017

 

 

Increase (Decrease)

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Inpatient treatment facility services

$

131,616

 

 

 

82.7

 

 

$

111,249

 

 

 

75.7

 

 

$

20,367

 

 

 

18.3

 

Outpatient facility and sober living services

 

17,440

 

 

 

11.0

 

 

 

11,953

 

 

 

8.1

 

 

 

5,487

 

 

 

45.9

 

Client related diagnostic services

 

10,160

 

 

 

6.3

 

 

 

23,709

 

 

 

16.2

 

 

 

(13,549

)

 

 

(57.1

)

Total client related revenue

$

159,216

 

 

 

100.0

 

 

$

146,911

 

 

 

100.0

 

 

$

12,305

 

 

 

8.4

 

For the six months ended June 30, 2018 and 2017, on a comparable accounting basis as if the Company had not adopted Topic 606 (in thousands):

 

Previous Accounting Guidance

 

 

As Reported

 

 

 

 

 

 

 

 

 

 

Six Months Ended

June 30, 2018

 

 

Six Months Ended

June 30, 2017

 

 

Increase (Decrease)

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

 

Amount

 

 

%

 

Inpatient treatment facility services

$

142,750

 

 

 

79.9

 

 

$

111,249

 

 

 

75.7

 

 

$

31,501

 

 

 

28.3

 

Outpatient facility and sober living services

 

19,026

 

 

 

10.7

 

 

 

11,953

 

 

 

8.1

 

 

 

7,073

 

 

 

59.2

 

Client related diagnostic services

 

16,854

 

 

 

9.4

 

 

 

23,709

 

 

 

16.2

 

 

 

(6,855

)

 

 

(28.9

)

Total client related revenue

$

178,630

 

 

 

100.0

 

 

$

146,911

 

 

 

100.0

 

 

$

31,719

 

 

 

21.6

 

 

Non-Client Related Revenue

Non-client related revenue consists of diagnostic laboratory services provided to clients of third-party addiction treatment providers, addiction care treatment services for individuals in the criminal justice system and services provided to third-party behavioral health providers who use our digital outreach platforms.

Revenue from diagnostic laboratory services provided to clients of third-party addiction treatment providers is recognized at the point in time when the order is completed. These contracts have a single performance obligation, and the transaction price is agreed upon between the Company and the third-party lab provider to services being rendered.


9


AAC Holdings, Inc.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

Revenue for addiction care treatment services for individuals in the criminal justice system is recognized as services are provided in accordance with contracts with certain Massachusetts state agencies.

Revenue from third-party behavioral health providers who use our digital outreach platforms is recognized over time as these customers simultaneously receive and consume the benefits of the services provided. The Company’s marketing contracts typically have one performance obligation. There are no significant judgments in determining the transaction price as the price is listed in the contract and not subject to change.

4.   General and Administrative Costs

The majority of the Company’s expenses are cost of revenue items. Costs that could be classified as general and administrative expenses include the Company’s corporate overhead costs, which were $21.3 million and $17.6 million for the three months ended June 30, 2018 and 2017, respectively, and $43.3 and $36.7 million for the six months ended June 30, 2018 and 2017, respectively.

5.   Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is computed by dividing net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period.

For the calculation of diluted EPS, net income attributable to common stockholders for basic EPS is adjusted by the effect of dilutive securities, including awards under stock-based payment arrangements, and outstanding convertible debt securities. Diluted EPS attributable to common stockholders is computed by dividing net income attributable to common stockholders by the weighted average number of diluted common shares outstanding during the period.

The following table presents the components of the numerator and denominator used in the calculation of basic and diluted EPS for the three and six months ended June 30, 2018 and 2017 (in thousands, except share data):

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to AAC Holdings, Inc. common stockholders

$

(3,013

)

 

$

(1,916

)

 

$

(3,215

)

 

$

(2,519

)

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding – basic

 

24,166,976

 

 

 

23,242,177

 

 

 

23,956,760

 

 

 

23,203,081

 

Dilutive securities

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding – diluted

 

24,166,976

 

 

 

23,242,177

 

 

 

23,956,760

 

 

 

23,203,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic loss per common share

$

(0.12

)

 

$

(0.08

)

 

$

(0.13

)

 

$

(0.11

)

Diluted loss per common share

$

(0.12

)

 

$

(0.08