Acadia Healthcare Company, Inc. (ACHC)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations with our audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statements that address future results or occurrences. In some cases you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “would,” “should,” “could” or the negative thereof. Generally, the words “anticipate,” “believe,” “continue,” “expect,” “intend,” “estimate,” “project,” “plan” and similar expressions identify forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, which could cause our actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the following:

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the impact of internal or governmental investigations, regulatory actions, whistleblower lawsuits and other legal proceedings;

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the impact of competition for staffing, labor shortages and higher turnover rates on our labor costs and profitability;

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the impact of inflationary pressure and interest rate volatility;

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compliance with laws and government regulations;

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our indebtedness, our ability to meet our debt obligations, and our ability to incur substantially more debt;

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the impact of payments received from the government and third-party payors on our revenue and results of operations;

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the impact of volatility in the global capital and credit markets, as well as significant developments in macroeconomic and political conditions that are out of our control;

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the impact of general economic and employment conditions on our business and future results of operations, including increased construction and other costs due to inflation, the imposition of tariffs or trade disputes;

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difficulties in successfully integrating the operations of acquired facilities or realizing the potential benefits and synergies of our acquisitions and joint ventures;

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our ability to recruit and retain quality psychiatrists and other physicians, nurses, counselors and other medical support personnel;

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the occurrence of patient incidents, which could result in negative media coverage, adversely affect the price of our securities and result in incremental regulatory burdens and governmental investigations;

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the impact of claims brought against us or our facilities including claims for damages for personal injuries, medical malpractice, overpayments, breach of contract, securities law violations, tort and employee related claims;

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the outcome of pending litigation;

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the impact of carrying a large self-insured retention, the possibilities of being responsible for significant amounts not covered by insurance, premium increases and insurance not being available on acceptable terms because of our claims experience;

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the impact of the enactment, amendment or expiration of statutes and regulations affecting the healthcare industry, and potential reductions to Medicare and Medicaid payment rates, changes in reimbursement practices or funding levels, or modification of Medicaid supplemental payment programs;

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our acquisition, joint venture and wholly-owned de novo strategies, which expose us to a variety of operational and financial risks, as well as legal and regulatory risks;

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the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and expand our operations;

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our ability to implement our business strategies;

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the impact of disruptions on our inpatient and outpatient volumes caused by pandemics, epidemics or outbreaks of infectious diseases;

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our dependence on key management personnel, key executives and local facility management personnel;

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our restrictive covenants, which may restrict our business and financing activities;

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the impact of adverse weather conditions and climate change, including the effects of hurricanes, wildfires and other natural disasters, and any resulting outmigration;

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the risk of a cybersecurity incident and any resulting adverse impact on our operations or violation of laws and regulations regarding information privacy;

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the impact of our business if our information systems fail or our databases are destroyed or damaged;

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our ability to access capital on acceptable terms;

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our future cash flow and earnings;

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the impact of our highly competitive industry on patient volumes;

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our ability to cultivate and maintain relationships with referral sources;

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the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients;

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the impact of value-based purchasing programs on our revenue;

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our potential inability to extend leases at expiration;

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the impact of controls designed to reduce inpatient services on our revenue;

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the impact of different interpretations of accounting principles on our results of operations or financial condition;

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the impact of environmental, health and safety laws and regulations, especially in locations where we have concentrated operations;

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the impact of laws and regulations relating to privacy and security of patient health information and standards for electronic transactions;

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the impact of a change in the mix of our earnings, adverse changes in our effective tax rate and adverse developments in tax laws generally;

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changes in interpretations, assumptions and expectations regarding tax legislation and policy, including provisions that may be issued by federal and state taxing authorities;

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failure to maintain effective internal control over financial reporting;

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the impact of fluctuations in our operating results, quarter to quarter earnings and other factors on the price of our securities; and

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those risks and uncertainties described from time to time in our filings with the SEC.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. These forward-looking statements are made only as of the date of this Annual Report on Form 10-K. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.

Overview

Our business strategy is to become the indispensable behavioral healthcare provider for the high-acuity and complex needs patient population. We are committed to providing the communities we serve with high-quality, cost-effective behavioral healthcare services, while growing our business, increasing profitability and creating long-term value for our stockholders. This strategy includes five growth pathways: expansions of existing facilities, joint venture partnerships, de novo facilities, acquisitions and expansion across our continuum of care. At December 31, 2024, we operated 262 behavioral healthcare facilities with approximately 11,850 beds in 39

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states and Puerto Rico. During the year ended December 31, 2024, we added 776 beds, consisting of 312 added to existing facilities and 464 added through the opening of four wholly-owned facilities and one joint venture facility, and we opened nine CTCs.

We are the leading publicly traded pure-play provider of behavioral healthcare services in the U.S. Management believes that we are positioned as a leading platform in a highly fragmented industry under the direction of an experienced management team that has significant industry expertise. Management expects to take advantage of several strategies that are more accessible as a result of our increased size and geographic scale, including continuing a national marketing strategy to attract new patients and referral sources, increasing our volume of out-of-state referrals, providing a broader range of services to new and existing patients and clients and selectively pursuing opportunities to expand our facility and bed count through acquisitions, wholly-owned de novo facilities, joint ventures and bed additions in existing facilities.

Acquisitions

On February 22, 2024, we acquired substantially all of the assets of Turning Point, a 76-bed specialty provider of substance use disorder and primary mental health treatment services that supports the Salt Lake City, Utah, metropolitan market. Turning Point provides a full continuum of treatment services, including residential, partial hospitalization and intensive outpatient services.

On November 7, 2022, we acquired four CTCs located in Georgia from Brand New Start.

Results of Operations

The following table illustrates our consolidated results of operations for the respective periods shown (dollars in thousands):

We believe that we are well positioned to help meet the growing demand for behavioral healthcare services and recorded revenue growth of 7.7% for the year ended December 31, 2024 compared to the year ended December 31, 2023. Similar with many other healthcare providers and other industries across the country, we have been navigating a tight labor market. While we experienced higher wage inflation compared to historical averages in recent years, we continue to see stability in our labor costs and our proactive focus helps us manage through this environment. We remain focused on ensuring that we have the level of staff to meet the demand in our markets across 39 states and Puerto Rico.

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The following table sets forth percent changes in same facility operating data for the years ended December 31, 2024 and 2023 compared to the previous years:

(a)
Results for the periods presented include facilities we have operated more than one year and exclude certain closed services.

(b)
Average length of stay is defined as patient days divided by admissions.

Same facility results include operating results only for facilities and services operated in both the current and prior year. These metrics exclude the operating results associated with facilities under operation for less than one year and facilities acquired during the current or prior year, as well as facilities divested or removed from service, and also exclude general and administrative costs related to our corporate functions. Such costs related to our corporate functions include, amongst others, costs for accounting and finance, information systems, human resources, legal and operational and executive leadership. General and administrative costs directly related to the facilities are included in same facility results. Such costs directly related to our facilities include, amongst others, labor at the facility level, insurance, including property, professional, legal and general liability insurance, hospital supplies, including medication, utilities and food service, and general maintenance costs for the facility. We determine which general and administrative costs to exclude and include in same facility results by ensuring those costs directly associated with facility operations are captured at the facility level for reporting.

We believe that providing results on a same facility basis is helpful to our investors as a measure of our financial and operating performance because it neutralizes the impact of corporate-level items that do not arise out of our core operations at our facilities and because it neutralizes the impact of new facilities that are in early stages of operation and facilities that we no longer operate, each of which may distort investors’ understanding of our underlying performance at our existing and continuing facilities. Further, we believe that providing same facility information is helpful to our investors as a measure of the financial and operating performance of our existing and continuing facilities on a comparable basis, and same facility results metrics provide investors with information useful in understanding underlying organic growth in such facilities. For these reasons, we believe that same facility results are particularly useful during periods of significant expansion or contraction.

Same facility results reflect adjustments that are intended to provide the specific presentation described above and that may be irregular in timing from period to period related to newly opened or acquired facilities or facilities that we no longer operate, and may omit certain results that investors may view as important. Same facility results may therefore not be indicative of the overall performance of our business and should be not be considered as an alternative for net income or any other performance measures derived in accordance with GAAP.

Year Ended December 31, 2024 compared to the Year Ended December 31, 2023

Revenue. Revenue increased $225.3 million, or 7.7%, to $3,154.0 million for the year ended December 31, 2024 from $2,928.7 million for the year ended December 31, 2023. Same facility revenue increased by $220.7 million, or 7.7%, for the year ended December 31, 2024 compared to the year ended December 31, 2023, resulting from same facility growth in patient days of 3.2%, an increase in same facility revenue per patient day of 4.3% and an increase in same facility admissions of 1.3%. Consistent with the same facility patient day growth in 2023, the growth in same facility patient days for the year ended December 31, 2024 compared to the year ended December 31, 2023 resulted from the addition of beds to our existing facilities and ongoing demand for our services.

Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $1,691.0 million for the year ended December 31, 2024 compared to $1,572.3 million for the year ended December 31, 2023, an increase of $118.7 million. SWB expense included $37.1 million and $32.3 million of equity-based compensation expense for the years ended December 31, 2024 and 2023, respectively. Excluding equity-based compensation expense, SWB expense was $1,653.9 million, or 52.4% of revenue, for the year ended December 31, 2024, compared to $1,540.0 million, or 52.6% of revenue, for the year ended December 31, 2023. Same facility SWB expense was $1,491.9 million for the year ended December 31, 2024, or 48.1% of revenue, compared to $1,393.6 million for the year ended December 31, 2023, or 48.4% of revenue.

Professional fees. Professional fees were $189.7 million for the year ended December 31, 2024, or 6.0% of revenue, compared to $176.0 million for the year ended December 31, 2023, or 6.0% of revenue. Same facility professional fees were $166.0 million for

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the year ended December 31, 2024, or 5.4% of revenue, compared to $156.2 million, for the year ended December 31, 2023, or 5.4% of revenue.

Supplies. Supplies expense was $112.7 million for the year ended December 31, 2024, or 3.6% of revenue, compared to $106.0 million for the year ended December 31, 2023, or 3.6% of revenue. Same facility supplies expense was $109.9 million for the year ended December 31, 2024, or 3.5% of revenue, compared to $103.1 million for the year ended December 31, 2023, or 3.6% of revenue.

Rents and leases. Rents and leases were $47.9 million for the year ended December 31, 2024, or 1.5% of revenue, compared to $46.6 million for the year ended December 31, 2023, or 1.6% of revenue. Same facility rents and leases were $42.7 million for the year ended December 31, 2024, or 1.4% of revenue, compared to $42.0 million for the year ended December 31, 2023, or 1.5% of revenue.

Other operating expenses. Other operating expenses consisted primarily of purchased services, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $440.8 million for the year ended December 31, 2024, or 14.0% of revenue, compared to $388.9 million for the year ended December 31, 2023, or 13.3% of revenue. Same facility other operating expenses were $408.3 million for the year ended December 31, 2024, or 13.2% of revenue, compared to $361.8 million for the year ended December 31, 2023, or 12.6% of revenue.

Income from provider relief fund. For the year ended December 31, 2023, we recorded $6.4 million of income from provider relief fund related to ARP funds received in 2022.

Depreciation and amortization. Depreciation and amortization expense was $149.6 million for the year ended December 31, 2024, or 4.7% of revenue, compared to $132.3 million for the year ended December 31, 2023, or 4.5% of revenue.

Interest expense. Interest expense was $116.4 million for the year ended December 31, 2024 compared to $82.1 million for the year ended December 31, 2023. The increase in interest expense was primarily the result of increased borrowings.

Legal settlements expense. Legal settlements expense for the year ended December 31, 2023 was $394.2 million associated with the Desert Hills Litigation.

Loss on impairment. During the year ended December 31, 2024, we recorded non-cash impairment charges totaling $17.3 million related to the closure of certain facilities. The non-cash impairment charges included indefinite-lived intangible asset impairments of $3.5 million, property impairments of $12.4 million and operating lease right-of-use asset impairments of $1.4 million. During the year ended December 31, 2023, we recorded non-cash impairment charges totaling $9.8 million related to the closure of certain facilities. The non-cash impairment charges included indefinite-lived intangible asset impairments of $5.4 million, property impairments of $2.0 million and operating lease right-of-use asset impairments of $2.4 million.

Gain on sale of property. During the year ended December 31, 2023, we recorded a $9.7 million gain on facility property sale.

Transaction, legal and other costs. Transaction, legal and other costs were $46.8 million for the year ended December 31, 2024 compared to $62.0 million for the year ended December 31, 2023. Transaction, legal and other costs represent legal, accounting, government investigation, termination, restructuring, management transition, acquisition and other similar costs incurred in the respective periods, as summarized below (in thousands):

Government investigations include legal fees and settlement costs related to certain litigation, including the matters referenced in Note 11 — Commitments and Contingencies. Legal, accounting and other acquisition-related costs include costs incurred for the development of new facilities ($5.0 million and $2.9 million for the years ended December 31, 2024 and 2023, respectively); legal and settlement costs incurred related to certain litigation not included in government investigations ($4.8 million and $8.8 million for the years ended December 31, 2024 and 2023, respectively); and direct costs associated with acquisitions ($1.4 million and $1.0 million for the years ended December 31, 2024 and 2023, respectively). Management transition costs include certain costs associated with the transition of the leadership team, including the design and implementation of the revised organizational structure. Management transition costs incurred with the transition of our Chief Executive Officer beginning in the first quarter of 2022 have concluded. Termination and restructuring costs include costs, net of gains, incurred related to the closure and disposition of certain facilities or contract amendments.

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Provision for (benefit from) income taxes. For the year ended December 31, 2024, the provision for income taxes was $77.4 million, reflecting an effective tax rate of 22.6%, compared to the benefit from taxes of $(9.7) million, reflecting an effective tax rate of 38.2%, for the year ended December 31, 2023. Our higher pre-tax results for the year ended December 31, 2024 yields lower volatility in the items impacting the effective tax rate for the year ended December 31, 2024 when compared to prior periods.

As we continue to monitor the implications of potential tax legislation in each of our jurisdictions, we may adjust our estimates and record additional amounts for tax assets and liabilities. Any adjustments to our tax assets and liabilities could materially impact our provision for income taxes and our effective tax rate in the periods in which they are made.

Year Ended December 31, 2023 compared to the Year Ended December 31, 2022

Revenue. Revenue increased $318.3 million, or 12.2%, to $2,928.7 million for the year ended December 31, 2023 from $2,610.4 million for the year ended December 31, 2022. Same facility revenue increased by $309.3 million, or 12.0%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, resulting from same facility growth in patient days of 5.1%, an increase in same facility revenue per day of 6.5% and an increase in the average length of stay of 4.9%. Consistent with the same facility patient day growth in 2022, the growth in same facility patient days for the year ended December 31, 2023 compared to the year ended December 31, 2022 resulted from the addition of beds to our existing facilities and ongoing demand for our services.

Salaries, wages and benefits. SWB expense was $1,572.3 million for the year ended December 31, 2023 compared to $1,393.4 million for the year ended December 31, 2022, an increase of $178.9 million. SWB expense included $32.3 million and $29.6 million of equity-based compensation expense for the years ended December 31, 2023 and 2022, respectively. Excluding equity-based compensation expense, SWB expense was $1,540.0 million, or 52.6% of revenue, for the year ended December 31, 2023, compared to $1,363.8 million, or 52.2% of revenue, for the year ended December 31, 2022. Same facility SWB expense was $1,396.1 million for the year ended December 31, 2023, or 48.2% of revenue, compared to $1,253.3 million for the year ended December 31, 2022, or 48.4% of revenue.

Professional fees. Professional fees were $176.0 million for the year ended December 31, 2023, or 6.0% of revenue, compared to $158.0 million for the year ended December 31, 2022, or 6.1% of revenue. Same facility professional fees were $156.0 million for the year ended December 31, 2023, or 5.4% of revenue, compared to $145.2 million, for the year ended December 31, 2022, or 5.6% of revenue.

Supplies. Supplies expense was $106.0 million for the year ended December 31, 2023, or 3.6% of revenue, compared to $100.2 million for the year ended December 31, 2022, or 3.8% of revenue. Same facility supplies expense was $104.0 million for the year ended December 31, 2023, or 3.6 of revenue, compared to $99.0 million for the year ended December 31, 2022, or 3.8% of revenue.

Rents and leases. Rents and leases were $46.6 million for the year ended December 31, 2023, or 1.6% of revenue, compared to $45.5 million for the year ended December 31, 2022, or 1.7% of revenue. Same facility rents and leases were $42.5 million for the year ended December 31, 2023, or 1.5% of revenue, compared to $42.1 million for the year ended December 31, 2022, or 1.6% of revenue.

Other operating expenses. Other operating expenses consisted primarily of purchased services, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $388.9 million for the year ended December 31, 2023, or 13.3% of revenue, compared to $349.3 million for the year ended December 31, 2022, or 13.4% of revenue. Same facility other operating expenses were $362.6 million for the year ended December 31, 2023, or 12.5% of revenue, compared to $331.7 million for the year ended December 31, 2022, or 12.8% of revenue.

Income from provider relief fund. For the year ended December 31, 2023, we recorded $6.4 million of income from provider relief fund related to ARP funds received in 2022. For the year ended December 31, 2022, we recorded $21.5 million of income from provider relief fund related to PHSSE Fund amounts and ARP funds received in 2021 and 2022.

Depreciation and amortization. Depreciation and amortization expense was $132.3 million for the year ended December 31, 2023, or 4.5% of revenue, compared to $117.8 million for the year ended December 31, 2022, or 4.5% of revenue.

Interest expense. Interest expense was $82.1 million for the year ended December 31, 2023 compared to $69.8 million for the year ended December 31, 2022. The increase in interest expense was primarily the result of rising interest rates.

Legal settlements expense. Legal settlements expense for the year ended December 31, 2023 was $394.2 million associated with the Desert Hills Litigation.

Loss on impairment. During the year ended December 31, 2023, we recorded non-cash impairment charges totaling $9.8 million related to the closure of certain facilities. The non-cash impairment charges included indefinite-lived intangible asset impairments of $5.4 million, property impairments of $2.0 million and operating lease right-of-use asset impairments of $2.4 million.

Gain on sale of property. During the year ended December 31, 2023, we recorded a $9.7 million gain on facility property sale.

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Transaction, legal and other costs. Transaction, legal and other costs were $62.0 million for the year ended December 31, 2023 compared to $23.8 million for the year ended December 31, 2022. Transaction, legal and other costs represent legal, accounting, government investigation, termination, restructuring, management transition, acquisition and other similar costs incurred in the respective periods, as summarized below (in thousands):

Government investigations include legal fees and settlement costs related to certain litigation, including the matters referenced in Note 11 — Commitments and Contingencies. Legal, accounting and other acquisition-related costs include costs incurred for the development of new facilities ($2.9 million and $3.0 million for the years ended December 31, 2023 and 2022, respectively); legal and settlement costs incurred related to certain litigation not included in government investigations ($8.8 million and $2.6 million for the years ended December 31, 2023 and 2022, respectively); and direct costs associated with acquisitions ($1.0 million and $0.2 million for the years ended December 31, 2023 and 2022, respectively). Management transition costs include certain costs associated with the transition of the leadership team, including the design and implementation of the revised organizational structure. Termination and restructuring costs include costs, net of gains, incurred related to the closure and disposition of certain facilities or contract amendments.

(Benefit from) provision for income taxes. For the year ended December 31, 2023, the benefit from income taxes was $(9.7) million, reflecting an effective tax rate of 38.2%, compared to the provision for income taxes of $94.1 million, reflecting an effective tax rate of 25.2%, for the year ended December 31, 2022. Our lower pre-tax results for the year ended December 31, 2023 yields higher volatility in the items impacting the effective tax rate for the year ended December 31, 2023 when compared to prior periods.

Liquidity and Capital Resources

Cash provided by operating activities for the year ended December 31, 2024 was $129.7 million compared to $462.3 million for the year ended December 31, 2023. The decline in cash provided by operating activities was primarily due to the Desert Hills Litigation payments made during the year ended December 31, 2024. Days sales outstanding at December 31, 2024 was 43 compared to 45 at December 31, 2023.

Cash used in investing activities for the year ended December 31, 2024 was $736.5 million compared to $397.2 million for the year ended December 31, 2023. Cash used in investing activities for the year ended December 31, 2024 primarily consisted of payments of $690.4 million of cash paid for capital expenditures, $53.6 million of cash paid for acquisitions and $3.0 million of cash paid for other, offset by proceeds from the sale of property and equipment of $10.4 million. Cash paid for capital expenditures for the year ended December 31, 2024 was $690.4 million, consisting of routine or maintenance capital expenditures of $104.0 million and expansion capital expenditures of $586.4 million. We define expansion capital expenditures as those that increase the capacity of our facilities or otherwise enhance revenue. Routine or maintenance capital expenditures, including information technology capital expenditures, were approximately 3% of revenue for the year ended December 31, 2024. Cash used in investing activities for the year ended December 31, 2023 primarily consisted of payments of $424.1 million of cash paid for capital expenditures, $0.3 million of cash paid for acquisitions and $2.2 million of cash paid for other, offset by proceeds from the sale of property and equipment of $29.4 million. Cash paid for capital expenditures for the year ended December 31, 2023 was $424.1 million, consisting of routine or maintenance capital expenditures of $99.6 million and expansion capital expenditures of $324.5 million.

Cash provided by financing activities for the year ended December 31, 2024 was $583.0 million compared to cash used in financing activities of $62.7 million for the year ended December 31, 2023. Cash provided by financing activities for the year ended December 31, 2024 primarily consisted of borrowings on long-term debt of $350.0 million, borrowings on revolving credit facility of $305.0 million and contributions from noncontrolling partners in joint ventures of $5.2 million, offset by principal payments on long-term debt of $56.3 million, principal payments on revolving credit facility of $15.0 million, distributions to noncontrolling partners in joint ventures of $3.0 million, payment of debt issuance costs of $1.5 million and repurchase of shares for payroll tax withholdings, net of proceeds from stock option exercises of $1.3 million. Cash used in financing activities for the year ended December 31, 2023 primarily consisted of repurchase of shares for payroll tax withholdings, net of proceeds from stock option exercises of $44.3 million, principal payments on revolving credit facility of $35.0 million, principal payments on long-term debt of $21.3 million and distributions to noncontrolling partners in joint ventures of $5.1 million, offset by borrowing on revolving credit facility of $40.0 million and contributions from noncontrolling partners in joint ventures of $3.0 million.

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We had total available cash and cash equivalents of $76.3 million, $100.1 million and $97.6 million at December 31, 2024, 2023 and 2022, respectively, of which approximately $7.7 million, $11.3 million and $3.7 million, respectively, was held by our foreign subsidiaries. Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S.

We actively manage our capital structure and regularly evaluate the availability of capital in the public and private markets that could strengthen our long-term financial profile. As such, we may opportunistically engage in financing transactions from time to time when we believe that conditions are favorable. Such transactions may include borrowings under credit facilities, the issuance of debt, equity or hybrid securities, the incurrence of term loans, or the refinancing or extinguishment of existing indebtedness. There can be no assurance any such financing opportunities will be available to us on terms and conditions acceptable to us or at all.

Share Repurchase Program

On February 25, 2025, our board of directors authorized the share repurchase program pursuant to which we may, from time to time, acquire up to $300.0 million of outstanding shares of our common stock, exclusive of any fees, commissions, or other expenses related to such repurchases. Repurchases made pursuant to the share repurchase program will be made in accordance with applicable securities laws and may be made at management’s discretion from time to time in the open market, in privately negotiated transactions, or through block trades, derivatives transactions, or purchases made in accordance with Rule 10b-18 and Rule 10b5-1 of the Exchange Act. The share repurchase program has no termination date and may be modified, suspended or discontinued by our board of directors at any time. The authorization does not obligate us to repurchase any shares.

Desert Hills Litigation

As described in more detail in Note 11 — Commitments and Contingencies in the accompanying notes to our consolidated financial statements, on October 30, 2023, we entered into settlement agreements in connection with the three lawsuits related to our subsidiary Youth and Family Centered Services of New Mexico. The settlement agreements were approved by the New Mexico State District Court in December 2023 and fully resolved such cases with no admission of liability or wrongdoing by us. On January 19, 2024, pursuant to the terms of the settlement agreements, we paid an aggregate amount of $400.0 million in exchange for the release and discharge of all claims arising from, relating to, concerning or with respect to all harm, injuries or damages asserted in such cases or that may be asserted in the future by the plaintiffs in those cases.

Credit Facility

On March 17, 2021, we entered into the Credit Facility, which provided for a $600.0 million Revolving Facility and a Term Loan Facility in an initial principal amount of $425.0 million, each maturing on March 17, 2026. The Revolving Facility further provides for a $20.0 million subfacility for the issuance of letters of credit.

On March 30, 2023, we entered into the First Amendment, which replaced LIBOR as the reference rate applicable to borrowings under the Credit Facility with Adjusted Term SOFR. After giving effect to the First Amendment, borrowings under the Credit Facility bear interest at a rate equal to, at our option, either (i) Adjusted Term SOFR plus a margin ranging from 1.375% to 2.250% or (ii) a base rate plus a margin ranging from 0.375% to 1.250%, in each case, depending on our Consolidated Total Net Leverage Ratio (as defined in the Credit Facility). In addition, an unused fee that varies according to our Consolidated Total Net Leverage Ratio ranging from 0.200% to 0.350% is payable quarterly in arrears based on the average daily undrawn portion of the commitments in respect of the Revolving Facility. The interest rates and the unused line fee on unused commitments related to the Credit Facility are based upon the following pricing tiers:

On January 18, 2024, we entered into the Second Amendment, which provided for the incurrence of $350.0 million of Incremental Term Loans. Such Incremental Term Loans are structured as an increase of the Term Loan Facility. The maturity date, the leverage-based pricing grid, mandatory prepayment events and other terms applicable to the Incremental Term Loans are substantially identical to those applicable to the initial $425.0 million term loans incurred under the Term Loan Facility. After giving effect to the Incremental Term Loans, the Credit Facility requires quarterly principal repayments for the Term Loan Facility of approximately $15.4 million for March 31, 2025, and $20.5 million for each quarter ending from June 30, 2025 to December 31, 2025. The remaining outstanding principal balance of the Term Loan Facility is due on the maturity date of March 17, 2026.

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We have the ability to increase the amount of the Credit Facility, which may take the form of increases to the Revolving Facility or the Term Loan Facility or the issuance of one or more incremental term loan facilities (collectively, the “Incremental Facilities”), upon obtaining additional commitments from new or existing lenders and the satisfaction of customary conditions precedent for such Incremental Facilities. Such Incremental Facilities may not exceed the sum of (i) the greater of $480.0 million and an amount equal to 100% of the Consolidated EBITDA (as defined in the Credit Facility) at the time of determination (the “Incremental Fixed Basket”), and (ii) the additional amounts that would not cause our Consolidated Senior Secured Net Leverage Ratio (as defined in the Credit Facility) to exceed 3.5 to 1.0 (the “Incremental Ratio Basket”). The Incremental Term Loans were incurred in reliance on the Incremental Ratio Basket, leaving the full amount of the Incremental Fixed Basket available for any future Incremental Facilities.

Subject to certain exceptions, substantially all of our existing and subsequently acquired or organized direct or indirect wholly-owned U.S. subsidiaries are required to guarantee the repayment of our obligations under the Credit Facility. We and such guarantor subsidiaries have granted a security interest in substantially all personal property assets as collateral for the obligations under the Credit Facility.

The Credit Facility contains customary representations and affirmative and negative covenants, including limitations on our ability and our subsidiaries’ ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay junior indebtedness and enter into affiliate transactions, in each case, subject to customary exceptions. In addition, the Credit Facility contains financial covenants requiring us on a consolidated basis to maintain, as of the last day of any consecutive four fiscal quarter period, a Consolidated Total Net Leverage Ratio of not more than 4.5 to 1.0 (which may be increased to 5.0 to 1.0 for a period of up to four consecutive fiscal quarters following the consummation of certain material acquisitions) and a Consolidated Interest Coverage Ratio (as defined in the Credit Facility) of at least 3.0 to 1.0. The Credit Facility also includes events of default customary for facilities of this type and upon the occurrence of such events of default, among other things, all outstanding loans under the Credit Facility may be accelerated, the lenders’ commitments terminated, and/or the lenders may exercise collateral remedies. At December 31, 2024, our Consolidated Total Net Leverage Ratio was 2.7x, and we were in compliance with all financial covenants. Total Consolidated Net Leverage Ratio is being reported as calculated under the Credit Facility and not pursuant to GAAP. Investors should refer to the agreements governing the Credit Facility attached as exhibits to our periodic reports for further information related to the calculation thereof, and should not consider Consolidated Total Net Leverage Ratio as an alternative for any measures derived in accordance with GAAP. For risks related to our indebtedness and compliance with these covenants, see “Item 1A. Risk Factors — Financial Risks — We are subject to a number of restrictive covenants, which may restrict our business and financing activities.”

During the year ended December 31, 2024, we borrowed $305.0 million on the Revolving Facility and repaid $15.0 million of the balance outstanding. During the year ended December 31, 2023, we borrowed $40.0 million on the Revolving Facility and repaid $35.0 million of the balance outstanding. We had $226.5 million of availability under the Revolving Facility and had standby letters of credit outstanding of $3.5 million related to security for the payment of claims required by our workers’ compensation insurance program at December 31, 2024.

As of the date of this Annual Report on Form 10-K, we are nearing completion of a syndication and closing process being led by JPMorgan Chase Bank, N.A. (“JPM”) for the replacement of the Revolving Facility and the Term Loan Facility with a new $1.0 billion, five-year senior secured revolving credit facility and a new $650 million, five-year senior secured term loan with JPM, as administrative agent, and a syndicate of lenders (the “Replacement Credit Facility”). JPM has provided us with a commitment for its allocated amount under the Replacement Credit Facility, and has received commitments from other lenders for the portion of the Replacement Credit Facility that will not be provided by JPM. While we currently expect to close the Replacement Credit Facility promptly after the filing of this Annual Report on Form 10-K, there can be no assurance that we will be able to complete any such transaction in that timeframe or at all.

Senior Notes

5.500% Senior Notes due 2028

On June 24, 2020, we issued $450.0 million of 5.500% Senior Notes due 2028 (the “5.500% Senior Notes”). The 5.500% Senior Notes mature on July 1, 2028 and bear interest at a rate of 5.500% per annum, payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2021.

5.000% Senior Notes due 2029

On October 14, 2020, we issued $475.0 million of 5.000% Senior Notes due 2029 (the “5.000% Senior Notes”). The 5.000% Senior Notes mature on April 15, 2029 and bear interest at a rate of 5.000% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2021.

The indentures governing the 5.500% Senior Notes and the 5.000% Senior Notes (together, the “Senior Notes”) contain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: (i) pay dividends, redeem stock or

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make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) engage in certain transactions with affiliates; (v) create restrictions on dividends or other payments by the restricted subsidiaries; (vi) merge, consolidate or sell substantially all of our assets; and (vii) create liens on assets.

The Senior Notes issued by us are guaranteed by each of our subsidiaries that guaranteed our obligations under the Credit Facility. The guarantees are full and unconditional and joint and several.

We may redeem the Senior Notes at our option, in whole or part, at the dates and amounts set forth in the indentures.

Supplemental Guarantor Financial Information

We conduct all of our business through our subsidiaries. The Senior Notes are jointly and severally guaranteed on an unsecured senior basis by all of our subsidiaries that guarantee our obligations under the Credit Facility. The summarized financial information presented below is consistent with our condensed consolidated financial statements, except transactions between combining entities have been eliminated. Financial information for our combined non-guarantor entities has been excluded pursuant to SEC Regulation S-X Rule 13-01. Presented below is financial information for the combined wholly-owned subsidiary guarantors at December 31, 2024 and 2023, and for the year ended December 31, 2024.

Summarized balance sheet information (in thousands):

Summarized operating results information (in thousands):

Contractual Obligations

The following table presents a summary of contractual obligations (dollars in thousands):

(a)
Amounts include required principal and interest payments. The projected interest payments reflect interest rates in place on our variable-rate debt at December 31, 2024.

(b)
Amounts exclude variable components of lease payments.

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Off-Balance Sheet Arrangements

At December 31, 2024, we had standby letters of credit outstanding of $3.5 million related to security for the payment of claims as required by our workers’ compensation insurance program.

Market Risk

Our interest expense is sensitive to changes in market interest rates. Our long-term debt outstanding at December 31, 2024 was composed of $917.6 million of fixed-rate debt and $962.5 million of variable-rate debt with interest based on Adjusted Term SOFR plus an applicable margin. Based on our borrowing level at December 31, 2024, a hypothetical 1% increase in interest rates would decrease our pretax income on an annual basis by approximately $9.6 million.

Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses included in the financial statements. Estimates are based on historical experience and other available information, the results of which form the basis of such estimates. While management believes our estimation processes are reasonable, actual results could differ from our estimates. The following accounting policies are considered critical to the portrayal of our financial condition and operating performance and involve highly subjective and complex assumptions and assessments:

Revenue and Accounts Receivable

Our revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care, outpatient psychiatric care and adolescent residential treatment. We receive payments from the following sources for services rendered in our facilities: (i) state governments under their respective Medicaid and other programs; (ii) commercial insurers; (iii) the federal government under the Medicare program administered by CMS and other programs; and (iv) individual patients and clients. We determine the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and implicit price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. Implicit price concessions are based on historical collection experience.

We derive a significant portion of our revenue from Medicare, Medicaid and other payors that receive discounts from established billing rates. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in our inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from our estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.

Settlements under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. Final determination of amounts earned under the Medicare and Medicaid programs often occurs in subsequent years because of audits by such programs, rights of appeal and the application of numerous technical provisions. In the opinion of management, adequate provision has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on our financial condition or results of operations. Our cost report payables were $0.8 million and $9.3 million as of December 31, 2024 and 2023, respectively, and were included in other current liabilities on the consolidated balance sheet. The net adjustments to estimated cost report settlements resulted in an increase to revenue of $0.2 million, $1.8 million and $0.1 million for the years ended December 31, 2024, 2023 and 2022, respectively.

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The following table presents revenue by payor type and as a percentage of revenue for the years ended December 31, 2024, 2023 and 2022 (in thousands):

The following tables present a summary of our aging of accounts receivable at December 31, 2024 and 2023:

December 31, 2024

December 31, 2023

Insurance

We are subject to medical malpractice and other lawsuits due to the nature of the services we provide. A portion of our professional liability risks are insured through a wholly-owned insurance subsidiary providing coverage for up to $7.0 million per claim and $10.0 million for certain other claims through August 31, 2024 and $10.0 million per claim, $15.0 million per claim for certain other claims and $25.0 million for certain batched claims thereafter. We have obtained reinsurance coverage from a third-party to cover claims in excess of those limits. The reinsurance policy has a coverage limit of $78.0 million or $75.0 million in the aggregate for certain other claims through August 31, 2024 and $80.0 million or $75.0 million in the aggregate for certain other claims thereafter. Our reinsurance receivables are recognized consistent with the related liabilities and include known claims and any incurred but not reported claims that are covered by current insurance policies in place. The reserve for professional and general liability risks was estimated based on historical claims, prior settlements and judgments, industry trends, severity factors, and other actuarial assumptions. The estimated accrual for professional and general liabilities could be significantly affected should current and future occurrences differ from historical claim trends and expectations. While claims are monitored closely when estimating professional and general liability accruals, the complexity of the claims and wide range of potential outcomes often hampers timely adjustments to the assumptions used in these estimates. We recorded unfavorable adjustments of $10.1 million and $5.3 million to our estimated liability for self-insured professional and general liability claims during the years ended December 31, 2024 and 2023, respectively, relating to the settlement or expected settlement of certain prior year claims. The professional and general liability reserve was $87.5 million at December 31, 2024, of which $12.5 million was included in other accrued liabilities and $75.0 million was included in other long-term liabilities. The professional and general liability reserve was $109.4 million at December 31, 2023, of which $12.5 million was included in other accrued liabilities and $96.9 million was included in other long-term liabilities. We estimate receivables for the portion of professional and general liability reserves that are recoverable under our insurance policies. Such receivable was $9.3 million at December 31, 2024, of which $0.5 million was included in other current assets and $8.8 million was included in other assets, and such receivable was $62.3 million at December 31, 2023, of which $33.6 million was included in other current assets and $28.7 million was included in other assets.

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Our statutory workers’ compensation program is fully insured with a $0.5 million deductible per accident. The workers’ compensation liability was $30.7 million at December 31, 2024, of which $12.0 million was included in accrued salaries and benefits and $18.7 million was included in other long-term liabilities, and such liability was $26.8 million at December 31, 2023, of which $12.0 million was included in accrued salaries and benefits and $14.8 million was included in other long-term liabilities. The reserve for workers compensation claims was based upon independent actuarial estimates of future amounts that will be paid to claimants. Management believes that adequate provisions have been made for workers’ compensation and professional and general liability risk exposures.

Property and Equipment and Other Long-Lived Assets

Property and equipment are recorded at cost. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets, which typically range from 10 to 50 years for buildings and improvements, three to seven years for equipment and the shorter of the lease term or estimated useful lives for leasehold improvements. When assets are sold or retired, the corresponding cost and accumulated depreciation are removed from the related accounts and any gain or loss is recorded in the period of sale or retirement. Repair and maintenance costs are expensed as incurred. Depreciation expense was $149.6 million, $132.3 million and $117.8 million for the years ended December 31, 2024, 2023 and 2022, respectively.

The carrying values of long-lived assets are reviewed for possible impairment whenever events, circumstances or operating results indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the asset will not be recoverable, as determined based upon the undiscounted cash flows of the operating asset over the remaining useful life, the carrying value of the asset will be reduced to its estimated fair value. Fair value estimates are based on independent appraisals, market values of comparable assets or internal evaluations of future net cash flows. During the year ended December 31, 2024, we recorded non-cash property impairment charges of $12.4 million related to the closure of certain facilities, which is included in loss on impairment in the consolidated statements of operations. During the year ended December 31, 2023, we recorded non-cash property impairment charges of $2.0 million related to the closure of certain facilities, which is included in loss on impairment in the consolidated statements of operations.

We performed an impairment review of long-lived assets in the fourth quarter of 2024, 2023 and 2022 and recorded no impairment.

Goodwill and Indefinite-Lived Intangible Assets

Our goodwill and other indefinite-lived intangible assets, which consist of licenses and accreditations, trade names and certificates of need intangible assets that are not amortized, are evaluated for impairment annually during the fourth quarter or more frequently if events indicate the carrying value of a reporting unit may not be recoverable.

As of our annual impairment test on October 1, 2024, we had one reporting unit, behavioral healthcare services. The fair value of our behavioral healthcare services reporting unit substantially exceeded its carrying value, and therefore no impairment was recorded.

During the year ended December 31, 2024, we recorded non-cash indefinite-lived intangible asset impairment charges of $3.5 million related to the closure of certain facilities, which is included in loss on impairment in the consolidated statements of operations. During the year ended December 31, 2023, we recorded non-cash indefinite-lived intangible asset impairment charges of $5.4 million related to the closure of certain facilities, which is included in loss on impairment in the consolidated statements of operations.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating loss and tax credit carryforwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, as applicable, based on tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date.

We review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

We record a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We have accruals for taxes and associated interest that may become payable in future years as a result of audits by tax authorities. We accrue for tax contingencies when it is more likely than not that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. Although management believes that the positions taken on previously

47

filed tax returns are reasonable, we nevertheless have established tax and interest reserves in recognition that various taxing authorities may challenge the positions taken by us resulting in additional liabilities for taxes and interest. These amounts are reviewed as circumstances warrant and adjusted as events occur that affect our potential liability for additional taxes, such as lapsing of applicable statutes of limitations, conclusion of tax audits, additional exposure based on current calculations, identification of new issues, release of administrative guidance, or rendering of a court decision affecting a particular tax issue.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations with our audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statements that address future results or occurrences. In some cases you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “would,” “should,” “could” or the negative thereof. Generally, the words “anticipate,” “believe,” “continue,” “expect,” “intend,” “estimate,” “project,” “plan” and similar expressions identify forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, which could cause our actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the following:

•
the impact of competition for staffing, labor shortages and higher turnover rates on our labor costs and profitability;

•
the impact of increases in inflation and rising interest rates;

•
compliance with laws and government regulations;

•
our indebtedness, our ability to meet our debt obligations, and our ability to incur substantially more debt;

•
the impact of payments received from the government and third-party payors on our revenue and results of operations;

•
the impact of volatility in the global capital and credit markets, as well as significant developments in macroeconomic and political conditions that are out of our control;

•
the impact of general economic and employment conditions, including increased construction and other costs due to inflation, on our business and future results of operations;

•
difficulties in successfully integrating the operations of acquired facilities or realizing the potential benefits and synergies of our acquisitions and joint ventures;

•
our ability to recruit and retain quality psychiatrists and other physicians, nurses, counselors and other medical support personnel;

•
the occurrence of patient incidents, which could result in negative media coverage, adversely affect the price of our securities and result in incremental regulatory burdens and governmental investigations;

•
the impact of claims brought against us or our facilities including claims for damages for personal injuries, medical malpractice, overpayments, breach of contract, securities law violations, tort and employee related claims;

•
the outcome of pending litigation;

•
the impact of carrying a large self-insured retention, the possibilities of being responsible for significant amounts not covered by insurance, premium increases and insurance not being available on acceptable terms because of our claims experience;

•
the impact of governmental investigations, regulatory actions and whistleblower lawsuits;

•
any failure to comply with the terms of our corporate integrity agreement with the OIG;

•
the impact of healthcare reform in the U.S.;

•
our acquisition, joint venture and wholly-owned de novo strategies, which expose us to a variety of operational and financial risks, as well as legal and regulatory risks;

•
the impact of state efforts to regulate the construction or expansion of healthcare facilities on our ability to operate and expand our operations;

•
our ability to implement our business strategies;

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•
the impact of Medicaid eligibility determinations associated with the end of COVID-19 related Medicaid continuing coverage requirements;

•
the impact of disruptions on our inpatient and outpatient volumes caused by pandemics, epidemics or outbreaks of infectious diseases, such as the COVID-19 pandemic;

•
our dependence on key management personnel, key executives and local facility management personnel, and the impact of any disruptions from the recent transition of various executives;

•
our restrictive covenants, which may restrict our business and financing activities;

•
the impact of adverse weather conditions and climate change, including the effects of hurricanes, wildfires and other natural disasters, and any resulting outmigration;

•
the risk of a cybersecurity incident and any resulting adverse impact on our operations or violation of laws and regulations regarding information privacy;

•
the impact of our business if our information systems fail or our databases are destroyed or damaged;

•
our future cash flow and earnings;

•
the impact of our highly competitive industry on patient volumes;

•
our ability to cultivate and maintain relationships with referral sources;

•
the impact of the trend for insurance companies and managed care organizations to enter into sole source contracts on our ability to obtain patients;

•
the impact of value-based purchasing programs on our revenue;

•
our potential inability to extend leases at expiration;

•
the impact of controls designed to reduce inpatient services on our revenue;

•
the impact of different interpretations of accounting principles on our results of operations or financial condition;

•
the impact of environmental, health and safety laws and regulations, especially in locations where we have concentrated operations;

•
the impact of laws and regulations relating to privacy and security of patient health information and standards for electronic transactions;

•
the impact of a change in the mix of our earnings, adverse changes in our effective tax rate and adverse developments in tax laws generally;

•
changes in interpretations, assumptions and expectations regarding recent tax legislation, including provisions of the CARES Act and additional guidance that may be issued by federal and state taxing authorities;

•
failure to maintain effective internal control over financial reporting;

•
the impact of fluctuations in our operating results, quarter to quarter earnings and other factors on the price of our securities; and

•
those risks and uncertainties described from time to time in our filings with the SEC.

Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. These forward-looking statements are made only as of the date of this Annual Report on Form 10-K. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.

Overview

Our business strategy is to become the indispensable behavioral healthcare provider for the high-acuity and complex needs patient population. We are committed to providing the communities we serve with high-quality, cost-effective behavioral healthcare services, while growing our business, increasing profitability and creating long-term value for our stockholders. This strategy includes five growth pathways: expansions of existing facilities, joint venture partnerships, de novo facilities, acquisitions and expansion across our continuum of care. At December 31, 2023, we operated 253 behavioral healthcare facilities with approximately 11,200 beds in 38 states and Puerto Rico. During the year ended December 31, 2023, we added 595 beds, consisting of 302 added to existing facilities

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and 293 added through the opening of one wholly-owned facility and two joint venture facilities, and we opened six CTCs. For the year ending December 31, 2024, we expect to add approximately 1,200 total beds and open up to 14 CTCs, excluding acquisitions.

We are the leading publicly traded pure-play provider of behavioral healthcare services in the U.S. Management believes that we are positioned as a leading platform in a highly fragmented industry under the direction of an experienced management team that has significant industry expertise. Management expects to take advantage of several strategies that are more accessible as a result of our increased size and geographic scale, including continuing a national marketing strategy to attract new patients and referral sources, increasing our volume of out-of-state referrals, providing a broader range of services to new and existing patients and clients and selectively pursuing opportunities to expand our facility and bed count in the U.S. through acquisitions, wholly-owned de novo facilities, joint ventures and bed additions in existing facilities.

On January 19, 2021, we completed the U.K. Sale pursuant to a Share Purchase Agreement in which we sold all of the securities of AHC-WW Jersey Limited, a private limited liability company incorporated in Jersey and a subsidiary of the Company, which constituted the entirety of our U.K. operations. As a result of the U.K. Sale, we reported, for all periods presented, results of operations and cash flows of the U.K. operations as discontinued operations in the accompanying financial statements.

Acquisitions

In July 2023, we signed a definitive agreement to acquire substantially all of the assets of Turning Point, a 76-bed specialty provider of substance use disorder and primary mental health treatment services that supports the Salt Lake City, Utah, metropolitan market. Turning Point provides a full continuum of treatment services, including residential, partial hospitalization and intensive outpatient services. The transaction closed on February 22, 2024.

On November 7, 2022, we acquired four CTCs located in Georgia from Brand New Start.

On December 31, 2021, we acquired the equity of CenterPointe for cash consideration of approximately $140 million. The acquisition was funded through a combination of cash on hand and a $70.0 million draw on the Revolving Facility. At the time of the acquisition, CenterPointe operated four acute inpatient hospitals with 306 beds and ten outpatient locations primarily in Missouri.

Results of Operations

The following table illustrates our consolidated results of operations for the respective periods shown (dollars in thousands):

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We believe that we are well positioned to help meet the growing demand for behavioral healthcare services and recorded revenue growth of 12% for the year ended December 31, 2023 compared to the year ended December 31, 2022. Similar with many other healthcare providers and other industries across the country, we continue to navigate a tight labor market. While we experienced higher wage inflation in 2023 compared to long-term historical averages, we have seen stability in our labor costs and our proactive focus helps us manage through this environment. We remain focused on ensuring that we have the level of staff to meet the demand in our markets across 38 states and Puerto Rico.

The following table sets forth percent changes in same facility operating data for our continuing operations for the years ended December 31, 2023 and 2022 compared to the previous years:

(a)
Results for the periods presented include facilities we have operated more than one year and exclude certain closed services.

(b)
Average length of stay is defined as patient days divided by admissions.

(c)
Adjusted EBITDA is defined as income before provision for income taxes, equity-based compensation expense, debt extinguishment costs, loss on impairment, gain on sale of property, transaction, legal and other costs, interest expense, legal settlements expense and depreciation and amortization. Management uses Adjusted EBITDA as an analytical indicator to measure performance and to develop strategic objectives and operating plans. Adjusted EBITDA is commonly used as an analytical indicator within the healthcare industry, and also serves as a measure of leverage capacity and debt service ability. Adjusted EBITDA should not be considered as a measure of financial performance under GAAP, and the items excluded from Adjusted EBITDA are significant components in understanding and assessing financial performance. Because Adjusted EBITDA is not a measurement determined in accordance with GAAP and is thus susceptible to varying calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA margin is defined as Adjusted EBITDA divided by revenue.

(d)
For the years ended December 31, 2023, 2022 and 2021, excludes income from provider relief fund of $6.4 million, $21.5 million and $17.9 million, respectively.

Year Ended December 31, 2023 compared to the Year Ended December 31, 2022

Revenue. Revenue increased $318.3 million, or 12.2%, to $2,928.7 million for the year ended December 31, 2023 from $2,610.4 million for the year ended December 31, 2022. Same facility revenue increased by $309.3 million, or 12.0%, for the year ended December 31, 2023 compared to the year ended December 31, 2022, resulting from same facility growth in patient days of 5.1%, an increase in same facility revenue per patient day of 6.5% and an increase in same facility admissions of 4.9%. Consistent with the same facility patient day growth in 2022, the growth in same facility patient days for the year ended December 31, 2023 compared to the year ended December 31, 2022 resulted from the addition of beds to our existing facilities and ongoing demand for our services.

Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $1,572.3 million for the year ended December 31, 2023 compared to $1,393.4 million for the year ended December 31, 2022, an increase of $178.9 million. SWB expense included $32.3 million and $29.6 million of equity-based compensation expense for the years ended December 31, 2023 and 2022, respectively. Excluding equity-based compensation expense, SWB expense was $1,540.0 million, or 52.6% of revenue, for the year ended December 31, 2023, compared to $1,363.8 million, or 52.2% of revenue, for the year ended December 31, 2022. Same facility SWB expense was $1,396.1 million for the year ended December 31, 2023, or 48.2% of revenue, compared to $1,253.3 million for the year ended December 31, 2022, or 48.4% of revenue.

Professional fees. Professional fees were $176.0 million for the year ended December 31, 2023, or 6.0% of revenue, compared to $158.0 million for the year ended December 31, 2022, or 6.1% of revenue. Same facility professional fees were $156.0 million for the year ended December 31, 2023, or 5.4% of revenue, compared to $145.2 million, for the year ended December 31, 2022, or 5.6% of revenue.

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Supplies. Supplies expense was $106.0 million for the year ended December 31, 2023, or 3.6% of revenue, compared to $100.2 million for the year ended December 31, 2022, or 3.8% of revenue. Same facility supplies expense was $104.0 million for the year ended December 31, 2023, or 3.6% of revenue, compared to $99.0 million for the year ended December 31, 2022, or 3.8% of revenue.

Rents and leases. Rents and leases were $46.6 million for the year ended December 31, 2023, or 1.6% of revenue, compared to $45.5 million for the year ended December 31, 2022, or 1.7% of revenue. Same facility rents and leases were $42.5 million for the year ended December 31, 2023, or 1.5% of revenue, compared to $42.1 million for the year ended December 31, 2022, or 1.6% of revenue.

Other operating expenses. Other operating expenses consisted primarily of purchased services, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $388.9 million for the year ended December 31, 2023, or 13.3% of revenue, compared to $349.3 million for the year ended December 31, 2022, or 13.4% of revenue. Same facility other operating expenses were $362.6 million for the year ended December 31, 2023, or 12.5% of revenue, compared to $331.7 million for the year ended December 31, 2022, or 12.8% of revenue.

Income from provider relief fund. For the year ended December 31, 2023, we recorded $6.4 million of income from provider relief fund related to ARP funds received in 2022. For the year ended December 31, 2022, we recorded $21.5 million of income from provider relief fund related to PHSSE Fund amounts and ARP funds received in 2021 and 2022.

Depreciation and amortization. Depreciation and amortization expense was $132.3 million for the year ended December 31, 2023, or 4.5% of revenue, compared to $117.8 million for the year ended December 31, 2022, or 4.5% of revenue.

Interest expense. Interest expense was $82.1 million for the year ended December 31, 2023 compared to $69.8 million for the year ended December 31, 2022. The increase in interest expense was primarily the result of rising interest rates.

Legal settlements expense. Legal settlements expense for the year ended December 31, 2023 was $394.2 million associated with the Desert Hills Litigation.

Loss on impairment. During the year ended December 31, 2023, we recorded non-cash impairment charges totaling $9.8 million related to the closure of certain facilities. The non-cash impairment charges included indefinite-lived intangible asset impairments of $5.4 million, property impairments of $2.0 million and operating lease right-of-use asset impairments of $2.4 million.

Gain on sale of property. During the year ended December 31, 2023, we recorded a $9.7 million gain on facility property sale.

Transaction, legal and other costs. Transaction, legal and other costs were $62.0 million for the year ended December 31, 2023 compared to $23.8 million for the year ended December 31, 2022. Transaction, legal and other costs represent legal, accounting, termination, restructuring, management transition, acquisition and other similar costs incurred in the respective periods, as summarized below (in thousands):

(Benefit from) provision for income taxes. For the year ended December 31, 2023, the benefit from income taxes was $(9.7) million, reflecting an effective tax rate of 38.2%, compared to the provision for taxes of $94.1 million, reflecting an effective tax rate of 25.2%, for the year ended December 31, 2022. The Company’s lower pre-tax results for the year yields higher volatility in the items impacting the effective tax rate for the year ended December 31, 2023 when compared to prior periods.

As we continue to monitor the implications of potential tax legislation in each of our jurisdictions, we may adjust our estimates and record additional amounts for tax assets and liabilities. Any adjustments to our tax assets and liabilities could materially impact our provision for income taxes and our effective tax rate in the periods in which they are made.

Year Ended December 31, 2022 compared to the Year Ended December 31, 2021

Revenue. Revenue increased $296.0 million, or 12.8%, to $2,610.4 million for the year ended December 31, 2022 from $2,314.4 million for the year ended December 31, 2021. Same facility revenue increased by $210.9 million, or 9.2%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, resulting from same facility growth in patient days of 2.5%, an increase in same facility revenue per day of 6.5% and an increase in the average length of stay of 3.6%. Consistent with the same

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facility patient day growth in 2021, the growth in same facility patient days for the year ended December 31, 2022 compared to the year ended December 31, 2021 resulted from the addition of beds to our existing facilities and ongoing demand for our services.

Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $1,393.4 million for the year ended December 31, 2022 compared to $1,243.8 million for the year ended December 31, 2021, an increase of $149.6 million. SWB expense included $29.6 million and $37.5 million of equity-based compensation expense for the years ended December 31, 2022 and 2021, respectively. Excluding equity-based compensation expense, SWB expense was $1,363.8 million, or 52.2% of revenue, for the year ended December 31, 2022, compared to $1,206.3 million, or 52.1% of revenue, for the year ended December 31, 2021. Same facility SWB expense was $1,208.4 million for the year ended December 31, 2022, or 48.3% of revenue, compared to $1,112.4 million for the year ended December 31, 2021, or 48.5% of revenue.

Professional fees. Professional fees were $158.0 million for the year ended December 31, 2022, or 6.1% of revenue, compared to $136.7 million for the year ended December 31, 2021, or 5.9% of revenue. Same facility professional fees were $132.6 million for the year ended December 31, 2022, or 5.3% of revenue, compared to $124.1 million, for the year ended December 31, 2021, or 5.4% of revenue.

Supplies. Supplies expense was $100.2 million for the year ended December 31, 2022, or 3.8% of revenue, compared to $90.7 million for the year ended December 31, 2021, or 3.9% of revenue. Same facility supplies expense was $94.7 million for the year ended December 31, 2022, or 3.8% of revenue, compared to $89.8 million for the year ended December 31, 2021, or 3.9% of revenue.

Rents and leases. Rents and leases were $45.5 million for the year ended December 31, 2022, or 1.7% of revenue, compared to $38.5 million for the year ended December 31, 2021, or 1.7% of revenue. Same facility rents and leases were $37.0 million for the year ended December 31, 2022, or 1.5% of revenue, compared to $35.0 million for the year ended December 31, 2021, or 1.5% of revenue.

Other operating expenses. Other operating expenses consisted primarily of purchased services, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $349.3 million for the year ended December 31, 2022, or 13.4% of revenue, compared to $301.3 million for the year ended December 31, 2021, or 13.0% of revenue. Same facility other operating expenses were $314.9 million for the year ended December 31, 2022, or 12.6% of revenue, compared to $290.0 million for the year ended December 31, 2021, or 12.6% of revenue.

Income from provider relief fund. For the year ended December 31, 2022, we recorded $21.5 million of income from provider relief fund related to PHSSE Fund and ARP funds received in 2021 and 2022. For the year ended December 31, 2021, we recorded $17.9 million of income from provider relief fund related to PHSSE Fund funds received in 2021 and 2020.

Depreciation and amortization. Depreciation and amortization expense was $117.8 million for the year ended December 31, 2022, or 4.5% of revenue, compared to $106.7 million for the year ended December 31, 2021, or 4.6% of revenue.

Interest expense. Interest expense was $69.8 million for the year ended December 31, 2022 compared to $77.0 million for the year ended December 31, 2021. The decrease in interest expense was primarily the result of a significant reduction to outstanding debt in connection with the U.K. Sale.

Debt extinguishment costs. Debt extinguishment costs were $24.7 million for the year ended December 31, 2021 and represented $6.3 million of cash charges and $18.4 million of non-cash charges in connection with the redemption of the 5.625% Senior Notes and the 6.500% Senior Notes and the termination of the Prior Credit Facility.

Loss on impairment. Loss on impairment was $24.3 million for the year ended December 31, 2021. During the second quarter of 2021, we opened a 260-bed replacement facility in Pennsylvania and recorded a non-cash property impairment charge of $23.2 million for the existing facility. Additionally, during the third quarter of 2021, we recorded a $1.1 million non-cash property impairment charge for one facility in Louisiana resulting from hurricane damage.

Transaction, legal and other costs. Transaction, legal and other costs were $23.8 million for the year ended December 31, 2022 compared to $12.8 million for the year ended December 31, 2021. Transaction, legal and other costs represent legal, accounting, termination, restructuring, management transition, acquisition and other similar costs incurred in the respective periods, as summarized below (in thousands):

Discontinued Operations. Loss from discontinued operations for the year ended December 31, 2021 was $12.6 million.

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Provision for income taxes. For the year ended December 31, 2022, the provision for income taxes was $94.1 million, reflecting an effective tax rate of 25.2%, compared to $67.6 million, reflecting an effective tax rate of 24.5%, for the year ended December 31, 2021. The increase in the effective tax rate for the year ended December 31, 2022 was primarily attributable to income tax benefits recognized in 2021 from the reversal of valuation allowances and the release of unrecognized tax benefit liabilities.

Liquidity and Capital Resources

Cash provided by continuing operating activities for the year ended December 31, 2023 was $462.3 million compared to $380.6 million for the year ended December 31, 2022. Days sales outstanding at December 31, 2023 was 45 compared to 44 at December 31, 2022.

Cash used in continuing investing activities for the year ended December 31, 2023 was $397.2 million compared to $305.8 million for the year ended December 31, 2022. Cash used in continuing investing activities for the year ended December 31, 2023 primarily consisted of payments of $424.1 million of cash paid for capital expenditures, $0.3 million of cash paid for acquisitions and $2.2 million of cash paid for other, offset by proceeds from the sale of property and equipment of $29.4 million. Cash paid for capital expenditures for the year ended December 31, 2023 was $424.1 million, consisting of routine or maintenance capital expenditures of $99.6 million and expansion capital expenditures of $324.5 million. We define expansion capital expenditures as those that increase the capacity of our facilities or otherwise enhance revenue. Routine or maintenance capital expenditures, including information technology capital expenditures, were approximately 3% of revenue for the year ended December 31, 2023. Cash used in continuing investing activities for the year ended December 31, 2022 primarily consisted of payments of $296.1 million of cash paid for capital expenditures, $9.5 million of cash paid for acquisitions and $7.2 million of cash paid for other, offset by proceeds from the sale of property and equipment of $7.1 million. Cash paid for capital expenditures for the year ended December 31, 2022 was $296.1 million, consisting of routine or maintenance capital expenditures of $60.5 million and expansion capital expenditures of $235.6 million.

Cash used in continuing financing activities for the year ended December 31, 2023 was $62.7 million compared to $110.9 million for the year ended December 31, 2022. Cash used in continuing financing activities for the year ended December 31, 2023 primarily consisted of repurchase of shares for payroll tax withholdings, net of proceeds from stock option exercises of $44.3 million, principal payments on revolving credit facility of $35.0 million, principal payments on long-term debt of $21.3 million and distributions to noncontrolling partners in joint ventures of $5.1 million, offset by borrowing on revolving credit facility of $40.0 million and contributions from noncontrolling partners in joint ventures of $3.0 million. Cash used in continuing financing activities for the year ended December 31, 2022 primarily consisted of principal payments on revolving credit facility of $95.0 million, principal payments on long-term debt of $18.6 million, repurchase of shares for payroll tax withholdings, net of proceeds from stock option exercises of $6.2 million, acquisition of ownership interests from noncontrolling partners of $5.5 million and distributions to noncontrolling partners in joint ventures of $1.0 million, offset by contributions from noncontrolling partners in joint ventures of $15.4 million and other of $0.1 million.

We had total available cash and cash equivalents of $100.1 million, $97.6 million and $133.8 million at December 31, 2023, 2022 and 2021, respectively, of which approximately $11.3 million, $3.7 million and $20.1 million, respectively, was held by our foreign subsidiaries. Our strategic plan does not require the repatriation of foreign cash in order to fund our operations in the U.S.

Desert Hills Litigation

As described in more detail in Note 11 – Commitments and Contingencies in the accompanying notes to our consolidated financial statements, on October 30, 2023, we entered into settlement agreements in connection with three of the lawsuits in our Desert Hills Litigation styled Inman v. Garcia, et al, Case No. D-117-CV-2019-00136, Rael v. Garcia, et al, Case No. D-117-CV-2019-00135 and Endicott-Quinones v. Garcia, et al, Case No. D-117-CV-2019-00137 (collectively the “Cases”). The settlement agreements were approved by the District Court in December 2023 and fully resolve each of the Cases with no admission of liability or wrongdoing by us. On January 19, 2024, pursuant to the terms of the settlement agreements, we paid an aggregate amount of $400.0 million in exchange for the release and discharge of all claims arising from, relating to, concerning or with respect to all harm, injuries or damages asserted or that may be asserted in the future.

Credit Facility

On March 17, 2021, we entered into the Credit Facility, which provides for a $600.0 million Revolving Facility and a Term Loan Facility in an initial principal amount of $425.0 million, each maturing on March 17, 2026. The Revolving Facility further provides for a $20.0 million subfacility for the issuance of letters of credit.

As a part of the closing of the Credit Facility on March 17, 2021, we (i) refinanced and terminated the Prior Credit Facility and (ii) financed the redemption of all of the outstanding 5.625% Senior Notes.

On March 30, 2023, we entered into the First Amendment, which replaces LIBOR as the reference rate applicable to borrowings under the Credit Facility with Adjusted Term SOFR. After giving effect to the First Amendment, borrowings under the Credit Facility bear interest at a rate equal to, at our option, either (i) Adjusted Term SOFR plus a margin ranging from 1.375% to 2.250% or (ii) a

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base rate plus a margin ranging from 0.375% to 1.250%, in each case, depending on our consolidated total net leverage ratio. In addition, an unused fee that varies according to our consolidated total net leverage ratio ranging from 0.200% to 0.350% is payable quarterly in arrears based on the average daily undrawn portion of the commitments in respect of the Revolving Facility. The interest rates and the unused line fee on unused commitments related to the Credit Facility are based upon the following pricing tiers:

On January 18, 2024, we entered into the Second Amendment, which provides for the incurrence of $350.0 million of Incremental Term Loans. Such Incremental Term Loans are structured as an increase of the Term Loan Facility. The maturity date, the leverage-based pricing grid, mandatory prepayment events and other terms applicable to the Incremental Term Loans are substantially identical to those applicable to the initial $425.0 million term loans incurred under the Term Loan Facility. After giving effect to the Incremental Term Loans, the Credit Facility requires quarterly principal repayments for the Term Loan Facility of approximately $10.2 million for the quarter ending March 31, 2024, $15.4 million for each quarter ending from June 30, 2024 to March 31, 2025, and $20.5 million for each quarter ending from June 30, 2025 to December 31, 2025. The remaining outstanding principal balance of the Term Loan Facility is due on the maturity date of March 17, 2026.

We have the ability to increase the amount of the Credit Facility, which may take the form of increases to the Revolving Facility or the Term Loan Facility or the issuance of one or more incremental term loan facilities (collectively, the “Incremental Facilities”), upon obtaining additional commitments from new or existing lenders and the satisfaction of customary conditions precedent for such Incremental Facilities. Such Incremental Facilities may not exceed the sum of (i) the greater of $480.0 million and an amount equal to 100% of the Consolidated EBITDA (as defined in the Credit Facility) at the time of determination (the “Incremental Fixed Basket”), and (ii) the additional amounts that would not cause our consolidated senior secured net leverage ratio to exceed 3.5 to 1.0 (the “Incremental Ratio Basket”). The Incremental Term Loans were incurred in reliance on the Incremental Ratio Basket, leaving the full amount of the Incremental Fixed Basket available for any future Incremental Facilities.

Subject to certain exceptions, substantially all of our existing and subsequently acquired or organized direct or indirect wholly-owned U.S. subsidiaries are required to guarantee the repayment of our obligations under the Credit Facility. We and such guarantor subsidiaries have granted a security interest in substantially all personal property assets as collateral for the obligations under the Credit Facility.

The Credit Facility contains customary representations and affirmative and negative covenants, including limitations on our ability and our subsidiaries’ ability to incur additional debt, grant or permit additional liens, make investments and acquisitions, merge or consolidate with others, dispose of assets, pay dividends and distributions, pay junior indebtedness and enter into affiliate transactions, in each case, subject to customary exceptions. In addition, the Credit Facility contains financial covenants requiring us on a consolidated basis to maintain, as of the last day of any consecutive four fiscal quarter period, a consolidated total net leverage ratio of not more than 4.5 to 1.0 (which may be increased to 5.0 to 1.0 for a period of up to four consecutive fiscal quarters following the consummation of certain material acquisitions) and an interest coverage ratio of at least 3.0 to 1.0. The Credit Facility also includes events of default customary for facilities of this type and upon the occurrence of such events of default, among other things, all outstanding loans under the Credit Facility may be accelerated, the lenders’ commitments terminated, and/or the lenders may exercise collateral remedies. At December 31, 2023, we were in compliance with all financial covenants.

During the year ended December 31, 2023, we borrowed $40.0 million on the Revolving Facility and repaid $35.0 million of the balance outstanding. During the year ended December 31, 2022, we repaid $95.0 million of the balance outstanding on the Revolving Facility. We had $516.5 million of availability under the Revolving Facility and had standby letters of credit outstanding of $3.5 million related to security for the payment of claims required by our workers’ compensation insurance program at December 31, 2023.

Senior Notes

5.500% Senior Notes due 2028

On June 24, 2020, we issued $450.0 million of 5.500% Senior Notes due 2028 (the “5.500% Senior Notes”). The 5.500% Senior Notes mature on July 1, 2028 and bear interest at a rate of 5.500% per annum, payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2021.

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5.000% Senior Notes due 2029

On October 14, 2020, we issued $475.0 million of 5.000% Senior Notes due 2029 (the “5.000% Senior Notes”). The 5.000% Senior Notes mature on April 15, 2029 and bear interest at a rate of 5.000% per annum, payable semi-annually in arrears on April 15 and October 15 of each year, commencing on April 15, 2021.

The indentures governing the 5.500% Senior Notes and the 5.000% Senior Notes (together, the “Senior Notes”) contain covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to: (i) pay dividends, redeem stock or make other distributions or investments; (ii) incur additional debt or issue certain preferred stock; (iii) transfer or sell assets; (iv) engage in certain transactions with affiliates; (v) create restrictions on dividends or other payments by the restricted subsidiaries; (vi) merge, consolidate or sell substantially all of our assets; and (vii) create liens on assets.

The Senior Notes issued by us are guaranteed by each of our subsidiaries that guaranteed our obligations under the Credit Facility. The guarantees are full and unconditional and joint and several.

We may redeem the Senior Notes at our option, in whole or part, at the dates and amounts set forth in the indentures.

5.625% Senior Notes due 2023

On February 11, 2015, we issued $375.0 million of the 5.625% Senior Notes. On September 21, 2015, we issued $275.0 million of additional 5.625% Senior Notes. The additional notes formed a single class of debt securities with the 5.625% Senior Notes issued in February 2015. Giving effect to this issuance, we had outstanding an aggregate of $650.0 million of the 5.625% Senior Notes. The 5.625% Senior Notes were to mature on February 15, 2023 and bear interest at a rate of 5.625% per annum, payable semi-annually in arrears on February 15 and August 15 of each year. On March 17, 2021, we redeemed the 5.625% Senior Notes.

6.500% Senior Notes due 2024

On February 16, 2016, we issued $390.0 million of the 6.500% Senior Notes. The 6.500% Senior Notes were to mature on March 1, 2024 and bear interest at a rate of 6.500% per annum, payable semi-annually in arrears on March 1 and September 1 of each year, beginning on September 1, 2016. On March 1, 2021, we redeemed the 6.500% Senior Notes.

Redemption of 5.625% Senior Notes and 6.500% Senior Notes

On January 29, 2021, we issued conditional notices of full redemption providing for the redemption in full of $650 million of the 5.625% Senior Notes and $390 million of the 6.500% Senior Notes to the holders of such notes.

On March 1, 2021, we satisfied and discharged the indentures governing the 6.500% Senior Notes. In connection with the redemption of the 6.500% Senior Notes, we recorded debt extinguishment costs of $10.5 million, including $6.3 million cash paid for breakage costs and the write-off of deferred financing costs of $4.2 million in the consolidated statement of operations.

On March 17, 2021, we satisfied and discharged the indentures governing the 5.625% Senior Notes. In connection with the redemption of the 5.625% Senior Notes, we recorded debt extinguishment costs of $3.3 million, including the write-off of deferred financing and premiums costs in the consolidated statement of operations.

Other long-term debt

During the year ended December 31, 2021, we repaid other long-term debt of $3.3 million, which is reflected in financing activities in the consolidated statement of cash flows.

Supplemental Guarantor Financial Information

We conduct substantially all of our business through our subsidiaries. The Senior Notes are jointly and severally guaranteed on an unsecured senior basis by all of our subsidiaries that guarantee our obligations under the Credit Facility. The summarized financial information presented below is consistent with our consolidated financial statements, except transactions between combining entities have been eliminated. Financial information for our combined non-guarantor entities has been excluded pursuant to SEC Regulation S-X Rule 13-01. Presented below is condensed financial information for the combined wholly-owned subsidiary guarantors at December 31, 2023 and 2022, and for the year ended December 31, 2023.

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Summarized balance sheet information (in thousands):

Summarized operating results information (in thousands):

Contractual Obligations

The following table presents a summary of contractual obligations (dollars in thousands):

(a)
Amounts include required principal and interest payments. The projected interest payments reflect interest rates in place on our variable-rate debt at December 31, 2023.

(b)
Amounts exclude variable components of lease payments.

Off-Balance Sheet Arrangements

At December 31, 2023, we had standby letters of credit outstanding of $3.5 million related to security for the payment of claims as required by our workers’ compensation insurance program.

Market Risk

Our interest expense is sensitive to changes in market interest rates. Our long-term debt outstanding at December 31, 2023 was composed of $915.9 million of fixed-rate debt and $426.7 million of variable-rate debt with interest based on Adjusted Term SOFR plus an applicable margin. Based on our borrowing level at December 31, 2023, a hypothetical 1% increase in interest rates would decrease our pretax income on an annual basis by approximately $4.3 million.

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Critical Accounting Policies

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. In preparing our financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses included in the financial statements. Estimates are based on historical experience and other available information, the results of which form the basis of such estimates. While management believes our estimation processes are reasonable, actual results could differ from our estimates. The following accounting policies are considered critical to the portrayal of our financial condition and operating performance and involve highly subjective and complex assumptions and assessments:

Revenue and Accounts Receivable

Our revenue is primarily derived from services rendered to patients for inpatient psychiatric and substance abuse care, outpatient psychiatric care and adolescent residential treatment. We receive payments from the following sources for services rendered in our facilities: (i) state governments under their respective Medicaid and other programs; (ii) commercial insurers; (iii) the federal government under the Medicare program administered by CMS and other programs; and (iv) individual patients and clients. We determine the transaction price based on established billing rates reduced by contractual adjustments provided to third-party payors, discounts provided to uninsured patients and implicit price concessions. Contractual adjustments and discounts are based on contractual agreements, discount policies and historical experience. Implicit price concessions are based on historical collection experience.

We derive a significant portion of our revenue from Medicare, Medicaid and other payors that receive discounts from established billing rates. The Medicare and Medicaid regulations and various managed care contracts under which these discounts must be calculated are complex, subject to interpretation and adjustment, and may include multiple reimbursement mechanisms for different types of services provided in the Company’s inpatient facilities and cost settlement provisions. Management estimates the transaction price on a payor-specific basis given its interpretation of the applicable regulations or contract terms. The services authorized and provided and related reimbursement are often subject to interpretation that could result in payments that differ from our estimates. Additionally, updated regulations and contract renegotiations occur frequently, necessitating regular review and assessment of the estimation process by management.

Settlements under cost reimbursement agreements with third-party payors are estimated and recorded in the period in which the related services are rendered and are adjusted in future periods as final settlements are determined. Final determination of amounts earned under the Medicare and Medicaid programs often occurs in subsequent years because of audits by such programs, rights of appeal and the application of numerous technical provisions. In the opinion of management, adequate provision has been made for any adjustments and final settlements. However, there can be no assurance that any such adjustments and final settlements will not have a material effect on the Company’s financial condition or results of operations. Our cost report payables were $9.3 million and $13.7 million as of December 31, 2023 and 2022, respectively, and were included in other current liabilities on the consolidated balance sheet. The net adjustments to estimated cost report settlements resulted in an increase to revenue of $1.8 million and $0.1 million for the years ended December 31, 2023 and 2022, compared to a decrease to revenue of $5.4 million for the year ended December 31, 2021.

The following table presents revenue by payor type and as a percentage of revenue for continuing operations for the years ended December 31, 2023, 2022 and 2021 (in thousands):

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The following tables present a summary of our aging of accounts receivable at December 31, 2023 and 2022:

December 31, 2023

December 31, 2022

Insurance

We are subject to medical malpractice and other lawsuits due to the nature of the services we provide. A portion of our professional liability risks are insured through a wholly-owned insurance subsidiary providing coverage for up to $5.0 million per claim and $10.0 million for certain other claims through August 31, 2023 and $7.0 million and $10.0 million for certain other claims thereafter. We have obtained reinsurance coverage from a third-party to cover claims in excess of those limits. The reinsurance policy has a coverage limit of $75.0 million or $70.0 million in the aggregate for certain other claims through August 31, 2023 and $78.0 million or $75.0 million in the aggregate for certain other claims thereafter. Our reinsurance receivables are recognized consistent with the related liabilities and include known claims and any incurred but not reported claims that are covered by current insurance policies in place. The reserve for professional and general liability risks was estimated based on historical claims, prior settlements and judgments, industry trends, severity factors, and other actuarial assumptions. The estimated accrual for professional and general liabilities could be significantly affected should current and future occurrences differ from historical claim trends and expectations. While claims are monitored closely when estimating professional and general liability accruals, the complexity of the claims and wide range of potential outcomes often hampers timely adjustments to the assumptions used in these estimates. We recorded unfavorable adjustments of $5.3 million and $5.9 million to our estimated liability for self-insured professional and general liability claims during the years ended December 31, 2023 and 2022, respectively, relating to the settlement or expected settlement of certain prior year claims. The professional and general liability reserve was $109.4 million at December 31, 2023, of which $12.5 million was included in other accrued liabilities and $96.9 million was included in other long-term liabilities. The professional and general liability reserve was $103.6 million at December 31, 2022, of which $12.1 million was included in other accrued liabilities and $91.5 million was included in other long-term liabilities. We estimate receivables for the portion of professional and general liability reserves that are recoverable under our insurance policies. Such receivable was $62.3 million at December 31, 2023, of which $33.6 million was included in other current assets and $28.7 million was included in other assets, and such receivable was $37.8 million at December 31, 2022, of which $10.2 million was included in other current assets and $27.6 million was included in other assets.

Our statutory workers’ compensation program is fully insured with a $0.5 million deductible per accident. The workers’ compensation liability was $26.8 million at December 31, 2023, of which $12.0 million was included in accrued salaries and benefits and $14.8 million was included in other long-term liabilities, and such liability was $24.2 million at December 31, 2022, of which $12.0 million was included in accrued salaries and benefits and $12.2 million was included in other long-term liabilities. The reserve for workers compensation claims was based upon independent actuarial estimates of future amounts that will be paid to claimants. Management believes that adequate provisions have been made for workers’ compensation and professional and general liability risk exposures.

Property and Equipment and Other Long-Lived Assets

Property and equipment are recorded at cost. Depreciation is calculated on the straight-line basis over the estimated useful lives of the assets, which typically range from 10 to 50 years for buildings and improvements, three to seven years for equipment and the shorter of the lease term or estimated useful lives for leasehold improvements. When assets are sold or retired, the corresponding cost and accumulated depreciation are removed from the related accounts and any gain or loss is recorded in the period of sale or retirement. Repair and maintenance costs are expensed as incurred. Depreciation expense was $132.3 million, $117.8 million and $106.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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The carrying values of long-lived assets are reviewed for possible impairment whenever events, circumstances or operating results indicate that the carrying amount of an asset may not be recoverable. If this review indicates that the asset will not be recoverable, as determined based upon the undiscounted cash flows of the operating asset over the remaining useful life, the carrying value of the asset will be reduced to its estimated fair value. Fair value estimates are based on independent appraisals, market values of comparable assets or internal evaluations of future net cash flows. During the year ended December 31, 2023, we recorded non-cash property impairment charges of $2.0 million related to the closure of certain facilities, which is included in loss on impairment in the condensed consolidated statements of operations. During the second quarter of 2021, we opened a 260-bed replacement facility in Pennsylvania and recorded a non-cash property impairment charge of $23.2 million for the existing facility. Additionally, during the third quarter of 2021, we recorded a $1.1 million non-cash property impairment charge for one facility in Louisiana resulting from hurricane damage.

We performed an impairment review of long-lived assets in the fourth quarter of 2023, 2022 and 2021 and recorded no impairment.

Goodwill and Indefinite-Lived Intangible Assets

Our goodwill and other indefinite-lived intangible assets, which consist of licenses and accreditations, trade names and certificates of need intangible assets that are not amortized, are evaluated for impairment annually during the fourth quarter or more frequently if events indicate the carrying value of a reporting unit may not be recoverable.

As of our annual impairment tests on October 1, 2023, October 1, 2022 and October 1, 2021, we had one reporting unit, behavioral healthcare services. The fair value of our behavioral healthcare services reporting unit substantially exceeded its carrying value, and therefore no impairment was recorded.

During the year ended December 31, 2023, we recorded non-cash indefinite-lived intangible asset impairment charges of $5.4 million related to the closure of certain facilities, which is included in loss on impairment in the condensed consolidated statements of operations. During the second quarter of 2021, we sold one outpatient facility for $4.3 million and recorded a write down of $1.8 million of goodwill and $0.2 million of intangible assets related to the disposition. During the fourth quarter of 2021, we sold one outpatient facility for $1.5 million and recorded a write down of $0.7 million of goodwill and $0.1 million of intangibles related to the disposition.

Income Taxes

We use the asset and liability method of accounting for income taxes. Under this method, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and net operating loss and tax credit carryforwards. The amount of deferred taxes on these temporary differences is determined using the tax rates that are expected to apply in the period when the asset is realized or the liability is settled, as applicable, based on tax rates and laws in the respective tax jurisdiction enacted as of the balance sheet date.

We review our deferred tax assets for recoverability and establish a valuation allowance based on historical taxable income, projected future taxable income, applicable tax strategies, and the expected timing of the reversals of existing temporary differences. A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized.

We report a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

We have accruals for taxes and associated interest that may become payable in future years as a result of audits by tax authorities. We accrue for tax contingencies when it is more likely than not that a liability to a taxing authority has been incurred and the amount of the contingency can be reasonably estimated. Although management believes that the positions taken on previously filed tax returns are reasonable, we nevertheless have established tax and interest reserves in recognition that various taxing authorities may challenge the positions taken by us resulting in additional liabilities for taxes and interest. These amounts are reviewed as circumstances warrant and adjusted as events occur that affect our potential liability for additional taxes, such as lapsing of applicable statutes of limitations, conclusion of tax audits, additional exposure based on current calculations, identification of new issues, release of administrative guidance, or rendering of a court decision affecting a particular tax issue.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations with our audited consolidated financial statements and notes thereto included elsewhere in this Annual Report on Form 10-K.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any statements that address future results or occurrences. In some cases you can identify forward-looking statements by terminology such as “may,” “might,” “will,” “would,” “should,” “could” or the negative thereof. Generally, the words “anticipate,” “believe,” “continue,” “expect,” “intend,” “estimate,” “project,” “plan” and similar expressions identify forward-looking statements. In particular, statements about our expectations, beliefs, plans, objectives, assumptions or future events or performance contained are forward-looking statements.

We have based these forward-looking statements on our current expectations, assumptions, estimates and projections. While we believe these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks, uncertainties and other factors, many of which are outside of our control, which could cause our actual results, performance or achievements to differ materially from any results, performance or achievements expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include, but are not limited to, the following:

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Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements. These risks and uncertainties may cause our actual future results to be materially different than those expressed in our forward-looking statements. These forward-looking statements are made only as of the date of this Annual Report on Form 10-K. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect future events or developments.

Overview

Our business strategy is to acquire and develop behavioral healthcare facilities and improve our operating results within our facilities and our other behavioral healthcare operations. We strive to improve the operating results of our facilities by providing high-quality services, expanding referral networks and marketing initiatives while meeting the increased demand for behavioral healthcare services through expansion of our current locations as well as developing new services within existing locations. At December 31, 2022, we operated 250 behavioral healthcare facilities with approximately 11,000 beds in 39 states and Puerto Rico. During the year ended December 31, 2022, we added 560 beds, consisting of 290 added to existing facilities and 270 added through the opening of one wholly-owned facility and two joint venture facilities, and we opened seven CTCs. For the year ending December 31, 2023, we expect to add approximately 300 beds through additions to existing facilities, and we expect to open two wholly-owned facilities, two joint venture facilities and at least six CTCs.

We are the leading publicly traded pure-play provider of behavioral healthcare services in the U.S. Management believes that we are positioned as a leading platform in a highly fragmented industry under the direction of an experienced management team that has significant industry expertise. Management expects to take advantage of several strategies that are more accessible as a result of

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our increased size and geographic scale, including continuing a national marketing strategy to attract new patients and referral sources, increasing our volume of out-of-state referrals, providing a broader range of services to new and existing patients and clients and selectively pursuing opportunities to expand our facility and bed count in the U.S. through acquisitions, wholly-owned de novo facilities, joint ventures and bed additions in existing facilities.

On January 19, 2021, we completed the U.K. Sale pursuant to a Share Purchase Agreement in which we sold all of the securities of AHC-WW Jersey Limited, a private limited liability company incorporated in Jersey and a subsidiary of the Company, which constituted the entirety of our U.K. operations. The U.K. Sale resulted in approximately $1,525 million of gross proceeds before deducting the settlement of existing foreign currency hedging liabilities of $85 million based on the current GBP to USD exchange rate, cash retained by the buyer and transaction costs. We used the net proceeds of approximately $1,425 million (excluding cash retained by the buyer) along with cash from the balance sheet to reduce debt by $1,640 million during the first quarter of 2021. As a result of the U.K. Sale, we reported, for all periods presented, results of operations and cash flows of the U.K. operations as discontinued operations in the accompanying financial statements.

Acquisitions

On November 7, 2022, we acquired four CTCs located in Georgia from Brand New Start.

On December 31, 2021, we acquired the equity of CenterPointe for cash consideration of approximately $140 million. The acquisition was funded through a combination of cash on hand and a $70.0 million draw on the Revolving Facility. At the time of the acquisition, CenterPointe operated four acute inpatient hospitals with 306 beds and ten outpatient locations primarily in Missouri.

Results of Operations

The following table illustrates our consolidated results of operations for the respective periods shown (dollars in thousands):

We are encouraged by the favorable trends in our business and believe we are well positioned to capitalize on the expected growth in demand for behavioral health services. As with many other healthcare providers and other industries across the country, we are currently dealing with a tight labor market. While we experienced higher wage inflation in 2022 compared to previous years, we believe the diversity of our markets and service lines and our proactive focus helps us manage through this environment. We remain focused on ensuring that we have the level of staff to meet the demand in our markets across our 39 states and Puerto Rico.

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The following table sets forth percent changes in same facility operating data for our continuing operations for the years ended December 31, 2022 and 2021 compared to the previous years:

Year Ended December 31, 2022 compared to the Year Ended December 31, 2021

Revenue. Revenue increased $296.0 million, or 12.8%, to $2,610.4 million for the year ended December 31, 2022 from $2,314.4 million for the year ended December 31, 2021. Same facility revenue increased by $210.9 million, or 9.2%, for the year ended December 31, 2022 compared to the year ended December 31, 2021, resulting from same facility growth in patient days of 2.5%, an increase in same facility revenue per day of 6.5% and an increase in the average length of stay of 3.6%. Consistent with the same facility patient day growth in 2021, the growth in same facility patient days for the year ended December 31, 2022 compared to the year ended December 31, 2021 resulted from the addition of beds to our existing facilities and ongoing demand for our services.

Salaries, wages and benefits. Salaries, wages and benefits (“SWB”) expense was $1,393.4 million for the year ended December 31, 2022 compared to $1,243.8 million for the year ended December 31, 2021, an increase of $149.6 million. SWB expense included $29.6 million and $37.5 million of equity-based compensation expense for the years ended December 31, 2022 and 2021, respectively. Excluding equity-based compensation expense, SWB expense was $1,363.8 million, or 52.2% of revenue, for the year ended December 31, 2022, compared to $1,206.3 million, or 52.1% of revenue, for the year ended December 31, 2021. Same facility SWB expense was $1,208.4 million for the year ended December 31, 2022, or 48.3% of revenue, compared to $1,112.4 million for the year ended December 31, 2021, or 48.5% of revenue.

Professional fees. Professional fees were $158.0 million for the year ended December 31, 2022, or 6.1% of revenue, compared to $136.7 million for the year ended December 31, 2021, or 5.9% of revenue. Same facility professional fees were $132.6 million for the year ended December 31, 2022, or 5.3% of revenue, compared to $124.1 million, for the year ended December 31, 2021, or 5.4% of revenue.

Supplies. Supplies expense was $100.2 million for the year ended December 31, 2022, or 3.8% of revenue, compared to $90.7 million for the year ended December 31, 2021, or 3.9% of revenue. Same facility supplies expense was $94.7 million for the year ended December 31, 2022, or 3.8% of revenue, compared to $89.8 million for the year ended December 31, 2021, or 3.9% of revenue.

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Rents and leases. Rents and leases were $45.5 million for the year ended December 31, 2022, or 1.7% of revenue, compared to $38.5 million for the year ended December 31, 2021, or 1.7% of revenue. Same facility rents and leases were $37.0 million for the year ended December 31, 2022, or 1.5% of revenue, compared to $35.0 million for the year ended December 31, 2021, or 1.5% of revenue.

Other operating expenses. Other operating expenses consisted primarily of purchased services, utilities, insurance, travel and repairs and maintenance expenses. Other operating expenses were $349.3 million for the year ended December 31, 2022, or 13.4% of revenue, compared to $301.3 million for the year ended December 31, 2021, or 13.0% of revenue. Same facility other operating expenses were $314.9 million for the year ended December 31, 2022, or 12.6% of revenue, compared to $290.0 million for the year ended December 31, 2021, or 12.6% of revenue.

Income from provider relief fund. For the year ended December 31, 2022, we recorded $21.5 million of income from provider relief fund related to PHSSE Fund and ARP funds received in 2021 and 2022. For the year ended December 31, 2021, we recorded $17.9 million of income from provider relief fund related to PHSSE Fund funds received in 2021 and 2020.

Depreciation and amortization. Depreciation and amortization expense was $117.8 million for the year ended December 31, 2022, or 4.5% of revenue, compared to $106.7 million for the year ended December 31, 2021, or 4.6% of revenue.

Interest expense. Interest expense was $69.8 million for the year ended December 31, 2022 compared to $77.0 million for the year ended December 31, 2021. The decrease in interest expense was primarily the result of a significant reduction to outstanding debt in connection with the U.K. Sale.

Debt extinguishment costs. Debt extinguishment costs were $24.7 million for the year ended December 31, 2021 and represented $6.3 million of cash charges and $18.4 million of non-cash charges in connection with the redemption of the 5.625% Senior Notes and the 6.500% Senior Notes and the termination of the Prior Credit Facility.

Loss on impairment. Loss on impairment was $24.3 million for the year ended December 31, 2021. During the second quarter of 2021, we opened a 260-bed replacement facility in Pennsylvania and recorded a non-cash property impairment charge of $23.2 million for the existing facility. Additionally, during the third quarter of 2021, we recorded a $1.1 million non-cash property impairment charge for one facility in Louisiana resulting from hurricane damage.

Transaction-related expenses. Transaction-related expenses were $23.8 million for the year ended December 31, 2022 compared to $12.8 million for the year ended December 31, 2021. Transaction-related expenses represent legal, accounting, termination, restructuring, management transition, acquisition and other similar costs incurred in the respective periods, as summarized below (in thousands):