ACHC | Hiring in 1Q22 Appears Strong
Update
When we added Acadia Healthcare (ACHC) as a best idea short in December 2021, we expected labor shortages and wage inflation to pose a significant headwind. 4Q21 results were in- line with this thesis where the company only added 13 organic beds during the quarter, although the Centerpointe acquisition and state affiliated direct payment programs offset the weakness. Over 1Q22, and most recently with the March 22 update, our ACHC provider count derived from our Locations Tracker points to upside to 1Q22. We are also seeing some signs of wage disinflation in other data sets. As a result we are moving ACHC to the Short Bench.
Thesis
After analyzing the most recent updates of the BLS data for behavioral health and our forecast algorithm for ACHC’s patient admissions, we expected the company to exhibit the weakness we had originally forecasted for 1H22. However, the most recent update of our ACHC Locations Tracker shows the company has continued to maintain stable hiring on a percentage basis and improved attrition by 0.44%. On a purely numerical basis, hiring accelerated in 1Q22, increasing month- over- month from January through March by 29, 44, and 51 providers, and lost 25 providers for the quarter which was lower sequentially compared to 4Q21.
The additional 99 providers hired should translate to roughly 350 additional beds added in the quarter based on the historical bed-to-provider ratio. These inputs drive upside to 1Q22 revenue of 1.6% versus consensus notwithstanding the company's additional $6MM in Cares Act Money that should be recognized within FY22. We now expect total revenue for the quarter to be $616.0MM versus consensus of $606.5MM.
Additionally, the tracker shows ACHC opened 3 new centers (2 outpatient substance abuse, 1 outpatient psychiatric) since the last update and closed a poorly reviewed CTC in Michigan during the quarter. While we know from management’s commentary that they are facing labor tightness and have raised the percentage of agency labor, the company does not appear to be facing the significant near- term headwinds in hiring organically that we had expected they would.
Valuations & Catalysts
Since 4Q21 earnings, the stock has experienced a positive revision cycle in sales estimates for FY22 and FY23, but a negative estimate revision for EBITDA in these same years to account for the impact of the CentrePointe acquisition. After the revision cycles, the stock broke from its historical multiple range (not inclusive of pre-UK divestiture) to 14.1x EV/NTM EBITDA. Despite trading at the upper end of its recent multiple range, near- term upside, and the possibility that the market sees some signs of wage relief has led us to move ACHC down from an active short position to the short bench.
Catalysts from here include the company’s 1Q22 earnings call and release, updates to our internal Locations Tracker, and inflections in the wage trends.
Key Slides
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Thomas Tobin
Managing Director
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