Investor Presentation February 2012
Safe Harbor Some of the statements made in this presentation constitute 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, should, could or the negative thereof. Generally, the words anticipate, believe, continues, 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 in this 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. 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. Additional risks and uncertainties are described more fully in our periodic reports and other filings with the Securities & Exchange Commission. These forward-looking statements are made only as of the date of this presentation. 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.
Use of Non-GAAP Financial Measures We have included certain financial measures in this presentation, including Pro Forma EBITDA and Pro Forma Adjusted EBITDA, which are non-gaap financial measures as defined under the rules and regulations promulgated by the SEC. We define Pro Forma EBITDA as pro forma net income (loss) adjusted for (loss) income from discontinued operations, net interest expense, income tax provision (benefit) and depreciation and amortization. We define Pro Forma Adjusted EBITDA as Pro Forma EBITDA adjusted for equity-based compensation expense, transaction-related expenses, management fees, impairment charges, legal settlement, and integration and closing costs. For the nine-month periods ended September 30, 2011 and 2010 and the twelve-month period ended December 31, 2010, Pro Forma Adjusted EBITDA also includes adjustments relating to a rate increase on one of PHC s contracts, anticipated future operating income at the Seven Hills Behavioral Center, the elimination of rent expense associated with PHC s subsidiary, Detroit Behavioral Institute, Inc., and cost savings/synergies in connection with the Merger (as defined herein). We may not achieve all of the expected benefits from synergies, cost savings and recent improvements to our revenue base. Pro Forma EBITDA and Pro Forma Adjusted EBITDA, as presented, are supplemental measures of our performance and are not required by, or presented in accordance with, generally accepted accounting principles in the United States ( GAAP ). Pro Forma EBITDA and Pro Forma Adjusted EBITDA are not measures of our financial performance under GAAP and should not be considered as alternatives to net income or any other performance measures derived in accordance with GAAP or as an alternative to cash flow from operating activities as measures of our liquidity. Our measurements of Pro Forma EBITDA and Pro Forma Adjusted EBITDA may not be comparable to similarly titled measures of other companies and are not measures of performance calculated in accordance with GAAP. We have included information concerning Pro Forma EBITDA and Pro Forma Adjusted EBITDA in this presentation because we believe that such information is used by certain investors as measures of a company s historical performance. We believe these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of issuers of equity securities, many of which present EBITDA and Adjusted EBITDA when reporting their results. Our presentation of Pro Forma EBITDA and Pro Forma Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items.
Acadia Overview Company Overview Acadia Healthcare Company is a facility-based behavioral healthcare company established in 2005 to acquire, develop and operate behavioral healthcare facilities In February 2011, five members of the former Psychiatric Solutions, Inc. ( PSI ) senior management team joined Acadia to bolster the management team and accelerate Acadia s growth strategy Senior management made a significant equity investment in Acadia Acquired YFCS in April 2011 Acquired PHC in November 2011 Began trading publicly (Nasdaq:ACHC) following completion of the merger on November 1, 2011 Primary focus on inpatient treatment via acute psychiatric facilities and residential treatment centers Other facilities and services include: group home, therapeutic group home and foster care; substance abuse facilities; outpatient community-based services; and other behavioral services, including specialized educational services and call centers Operates 29 facilities across 18 states, with approximately 1,970 beds and approximately 5,800 employees LTM 9/30/11 Pro Forma Revenue and Pro Forma Adjusted EBITDA of $332.8 million and $53.7 million, respectively Facilities Headquarters Commercial 21% Medicare 8% Payor Profile (1) Other 5% Facility Locations Medicaid 66% 3 (1) For the LTM period ended September 30, 2011. Pro forma for acquisitions of PHC and YFCS. Medicaid includes 23 state payors and other payment providers including educational institutions and state governments.
Recent Definitive Agreement for Accretive Acquisition Agreement to acquire three acute inpatient facilities signed January 5, 2012 Facilities located in Tucson, AZ, Wichita Falls, TX, and Ada, OK. 166 beds in aggregate $43 million revenues for LTM ended September 30, 2011 Expected accretive impact on annualized earnings of $0.20 to $0.22 per diluted share Plan to increase acute beds at each facility during 2012 Transaction expected to be completed by the end of the first quarter Cash purchase price of $91 million to be funded from net proceeds of December stock offering and availability under revolving credit facility 4
PSI s Superior Performance An intense focus on facility-level operations is our key to success Focused on revenue and profitability growth through operational improvements and acquisitions Track record of growing organically through facility improvements and integration into larger platform History of successful identification and integration of acquisitions Enhanced existing programs and developed new programs to improve financial performance by utilizing management expertise; rolled out best practices, constantly evolving, reacting and improving operations Invested in strong markets, addressed capital constrained facilities that had underperformed and improved management systems Selectively increased geographic footprint and attracted new patients and referral sources by developing a national marketing strategy PSI Historical Revenue and Adj. EBITDA Margin (1) PSI Total Debt / Adj. EBITDA (1) ($ millions) $2,500 $2,000 $1,500 $1,000 10.8% 11.9% 12.9% 14.9% 16.8% 17.3% 17.7% 18.2% 20.4% 25.0% 20.0% 15.0% 10.0% 7.5x 6.0x 4.5x 3.0x 6.2x 3.6x 5.1x 5.0x 4.5x 4.7x 4.6x 3.8x 28 2.8x 29x 2.9x $500 5.0% 1.5x $0 2002 2003 2004 2005 2006 2007 2008 2009 LTM 9/30/10 (2) 0.0% 0.0x '01 '02 '03 '04 '05 '06 '07 '08 '09 LTM 9/30/10 Revenue Adj. EBITDA Margin Note: PSI Adjusted EBITDA reconciliations are provided on page 24. (1) PSI filings and press releases. (2) Adjusted EBITDA margin represents PSI s 9/30/10 YTD revenue and Adjusted EBITDA when the company was sold. 5
Premier Management Team with Track Record of Success Management Team s History of Success Grew PSI from five facilities in 2002 to 94 facilities at the time of the UHS acquisition Increased PSI s consolidated adjusted EBITDA margin from 10.8% in 2002 to 20.4% Exceptional industry reputation Strong and deep relationships with referral networks and throughout the healthcare industry Approximately 145 years of experience Industry Leading Management Team Joey Jacobs Chairman & Chief Executive Officer Years in Industry: 35 Brent Turner Trey Carter Ron Fincher Jack Polson Chief Operating Co-President Co-President Chief Financial Officer Officer Years in Industry: 15 Years in Industry: 16 Years in Industry: 16 Years in Industry: 25 Chris Howard Executive Vice President, General Counsel Years in Industry: 8 Bruce Shear Executive Vice Chairman, Years in Industry: 36 6
Investment Highlights U.S. Behavioral Healthcare Market National expenditures on mental health and substance abuse treatment are projected to reach $239 billion by 2014, a compounded annual growth rate of 6.4% since 2003 (1) Adult Behavioral Healthcare The Mental health and substance abuse facilities market was estimated to be $9.0 billion in 2010, and is expected to grow at a 3.2% CAGR through 2014 to $10.2 billion (2) Attractive Industry Trends acceptance ( ) An estimated 26% of Americans ages 18 and older suffer from diagnosable mental disorders in a given year (3) Market is poised for growth due to increased awareness of mental health illnesses and treatment acceptance (4) Youth Behavioral Healthcare Market The Child and Adolescent Behavioral Healthcare industry is estimated to be a $10.1 billion industry in 2011 and is expected to be a $11.0 billion industry by 2014 (5) Focus on services to children mitigates reimbursement pressure from Medicaid (4) Substance Abuse An estimated 2.8% of persons 12 or older are dependent on or abuse illicit drugs, and an estimated 7% are dependent on or abuse alcohol (2) Favorable Legislative Environment The Mental Health Parity and Addiction Equity Act of 2008 provides for equal coverage between psychiatric or mental health services and physical medical health services (2) Forbids employers and insurers from placing stricter limits on mental healthcare compared to other health conditions for group plans of 51 employees or more (2) Projected to affect more than 113 million individuals (2) A number of states have individually adopted parity laws with regard to mental health services (1) US Department of Health and Human Services. (2) IBISWorld Industry Report Mental Health and Substance Abuse Centers in the US, May 2011. (3) National Institute of Mental Health. (4) Based on management beliefs and forecasts. (5) IBISWorld Industry Report Youth Programs and Miscellaneous Care Facilities in the U.S., August 2010. 7
Investment Highlights (Cont d) Geographic diversification with operations in 18 states through 34 facilities Diversified Revenue and Payor Base No state accounts for more than 15% of revenue, resulting in diversified Medicaid revenue Largest facility accounts for less than 12% of total facility revenue, and the second largest facility accounts for less than 9% of total facility revenue Company receiveses Medicaid funding from 23 states Improving mix of services by increasing acute psychiatric beds Steady Cash Flow Generation Pro forma revenue and pro forma Adjusted d EBITDA have grown at a compounded d annual growth rate of 5.8% and 9.9%, respectively from 2009 to LTM 9/30/11 Operating performance has remained steady through economic turmoil due to the critical nature of services provided Low capital expenditure requirements support high free cash flow generation Pro forma Adjusted EBITDA less capital expenditures for LTM 9/30/11 was $43.9 million, representing a Cash Conversion Rate (1) of 82% Attractive Balance Sheet and Flexible Capital Structure Attractive balance sheet with favorable mix of low rate, prepayable senior secured credit facility and fixed rate senior notes Status as a public company combined with greater scale provides financial flexibility to appropriately fund growth initiatives (1) Cash Conversion Rate defined as (pro forma Adjusted EBITDA Capex) / pro forma Adjusted EBITDA. 8
Investment Highlights (Cont d) Leading Platform in Highly Attractive Healthcare Niche Acadia is the only publicly traded, pure-play behavioral healthcare services provider 29 facilities across 18 states, approximately 1,970 beds, approximately 5,800 employees Management expertise in driving operational and margin improvement Significant local market knowledge and key relationships withpayors and referral sources Proven strategy to identify, acquire, integrate and improve facility operations Desirable strategic partner due to pure focus on behavioral health and successful track record Attractive Organic and Acquisition Growth Opportunities Attractive opportunity to drive organic growth and margin expansion Increasing bed count at existing facilities Improving mix of acute psychiatric care beds, which have higher reimbursement rates on average The senior management team has proven ability to integrate and improve operations of acquired companies Highly fragmented industry with a number of acquisition candidates available at attractive valuations Premier Operational Management Team with Track Record of Success Grew PSI s revenues from approximately $114.0 million in 2002 to approximately $2.0 billion in LTM 9/30/10 Generated substantial equity returns by driving stock price from $2.80 per share in 2002 to $33.75 in 2010, reflecting a $3.1 billion enterprise value Expanded number of owned / leased facilities from five in 2002 to 94 in 2010 9
Industry Dynamics Highly Favorable Compared to Medical/Surgical Providers and Other Facility-Based Healthcare Businesses General Acute Care Hospitals Inpatient Behavioral Healthcare Acute Hospitalization Residential Treatment Focus Broad clinical focus Focused on inpatient care with average length of stay (ALOS) of roughly 5 days Most intensive level of care offered 24-hour observation and care Daily intervention and oversight by a psychiatrist py 10-day average length of stay Transition to less-intensive level of care Less intensive treatment in non-hospital settings Focused on children and adolescents Physician-led multi-disciplinary treatment addressing overall medical, psychiatric, social and academic needs of the patient Balance of therapies and activities in a safe, structured setting Longer length of stay 180 to 270 days Inpatient On average, hospitals have ~200 beds Increasing inpatient occupancy and utilization Heavy competition from outpatient setting Limited competition from outpatient setting Capabilities Reimbursement Profile Bad debt expense as high as +10% Higher level of private payors More complex reimbursement system 670 Diagnosis Related Groups for medical/surgical hospitals Medicare reimbursement via a prospective payment system (PPS) Low bad debt exposure (<3% of Net Revenue) Diverse and stable payor mix Limited emergency room exposure Preauthorization Simple reimbursement system Per diem based 15 Diagnosis Related Groups Medicare PPS payment system implemented January 2005 Facility Level Profitability Mid-teens margin Capex can be 4% - 6% of revenue 20 40% margin Minimal maintenance capital expenditure requirements: ~2% of revenue 15 25% margin Minimal maintenance capital expenditure requirements: ~2% of revenue Competitors 10
Attractive Industry Fundamentals Industry Trends Make a Compelling Growth Story Mental health and substance abuse facilities market is estimated to grow at 3.2% CAGR from 2010 to reach $10.2 billion (1) in 2014 Stable pricing and inpatient ALOS combined with increased admissions and occupancy trends Highly fragmented industry with small establishments In 2010, the largest four companies accounted for ~37% of revenues, with ~36% derived from the largest player, UHS (1) Medicare PPS has had a positive impact to freestanding providers Significant barriers to entry because of high degree of specialization and regulation (1) Youth Behavioral Market Growing population of people ages 0-17 (expected to be 81.7 million by 2020) (2) Child and adolescent behavioral healthcare services market was estimated to be ~$10.1 billion in 2011, and is expected to grow at 2.9% through h 2014 to $11.0 billion (3) Approximately 1 in 5 children and adolescents have a mental disorder (4) Focus on services to children mitigates reimbursement pressure from Medicaid (5) Mental Health and Substance Abuse Facilities Market (1) Youth Behavioral Market (3) ($ Billions) ($ Billions) $15 $16 $10 $8.6 $8.7 $9.0 $9.4 $9.7 $10.0 $10.2 $12 $9.6 $9.7 $9.9 $10.1 $10.4 $10.7 $11.0 $8 $5 $4 $0 $0 2008 2009 2010 2011E 2012E 2013E 2014E 2008 2009 2010E 2011E 2012E 2013E 2014E (1) IBISWorld report Mental Health & Substance Abuse Centers in the US, May 2011. (2) United States Census Bureau. (3) IBISWorld report Youth Programs & Miscellaneous Care Facilities in the U.S., August 2010. (4) National Institute of Mental Health. (5) Based on management beliefs and/or projections. 11
Favorable Legislative Environment Promotes positive awareness of mental health issues and environment Mental Health Parity Legislation Difficult to cut reimbursement for coverage that relates to children (1) Provides incentives and requirements for employers to provide comparable coverage for mental health and physical health Several states have adopted parity laws requiring private insurance policies to have the same deductibles, number of office visits, inpatient visits and co-payments for mental health disorders as for other illnesses Patient Protection and Affordable Care Act Enables most people who are now uninsured to get insurance through an insurance exchange, resulting in healthcare coverage for more than 90% of Americans (2) Significantly expands options for affordable coverage through Medicaid expansion (2) Healthcare Reform will Spur Revenues Reform is expected to provide more Americans, including low-income, single, childless adults, with insurance and bring mental health and substance abuse coverage on par with coverage for medical and surgical services Healthcare Exchanges will be subject to the Federal Mental Health Parity Law resulting in more individuals having comparable coverage for mental health and physical health (1) (1) Based on management expectations. (2) Source: IBISWorld Industry Report Mental Health and Substance Abuse Centers in the US. 12
Proven and Replicable Growth Strategy Increase Margins and Improve Underperforming Facilities Utilize management expertise and experience to enhance existing programs and develop new programs to improve financial performance Realize efficiencies by investing in strong markets, addressing capital constrained facilities that have underperformed and improving management systems Develop a national marketing strategy to increase our existing facilities geographic reach and attract new patients and referral sources Drive Organic Growth at Existing Facilities Increase licensed bed counts in existing facilities, with a focus on increasing the number of acute psychiatric beds Leverage management s deep industry relationships to increase the volume of out-of-state referrals and minimize payor concentration Provide a broader range of services to new and existing patients and clients Opportunistically Pursue Acquisitions Selectively seek opportunities to expand and diversify operations by acquiring additional facilities, with an emphasis on acquiring acute psychiatric facilities Execute disciplined acquisition strategy that focuses on quality of service, ROI and strategic benefits Leverage management s expertise to identify and integrate acquisitions Desirable strategic partner due to pure focus on behavioral health and successful track record 13
Attractive Opportunities for Organic Growth and Diversification Major drivers of organic growth include: Expanding bed count at existing facilities Increasing occupancy of existing beds and increasing mix of higher margin services Examples of recent organic growth initiatives: Approximately 124 new beds expected to be added in 2nd half of 2011 (net increase of approximately 112 acute beds) 42 existing RTC beds have been converted to acute beds, which on average have higher reimbursement rates 14
Attractive Revenue Diversification and Payor Base No significant state concentration Services diversified between adult and youth behavioral, in-patient, outpatient and general psychiatric facilities, residential treatment facilities, substance abuse facilities, and other behavioral healthcare services Receive Medicaid payments from 23 states Medicaid reimbursements are almost exclusively for services provided to children and adolescents Medicare accounts for just ~8% of Acadia s total payor mix Inpatient psychiatric facilities account for less than 1% of Medicare spending and received a 2.7% reimbursement increase, effective September 2011 (1) Pro Forma Payor Mix LTM 9/30/11 Pro Forma Combined Revenue by State LTM 9/30/11 Medicare 8% Other 5% FL, 2% TN, 2% VA, 1% UT, 3% AZ, 3% MS, 15% TX, 3% LA, 4% Commercial 21% DE, 4% NM, 5% AR, 14% MO, 5% Medicaid 66% GA, 5% MI, 8% PA, 5% MT, 6% NV, 7% IN, 7% (1) Source: Centers for Medicare & Medicaid Services. 15
Summary Pro Forma Historical Financials Revenue (1) Pro Forma Adjusted EBITDA (1) ($ Millions) ($ Millions) $400 $80 $320.3 $332.8 $301.5 $300 $56.4 $259.6 $60 $53.7 $45.5 $200 $40 17.6% $31.5 16.1% 15.1% $100 $20 12.1% 26% 22% 18% 14% 10% $0 2008 2009 2010 LTM 9/30/11 $0 2008 2009 2010 LTM 9/30/11 6% $80 $60 Capital Expenditures Pro Forma Adj. EBITDA Capex ($ Millions) ($ Millions) $40 $20 $0 2.4% 1.5% $6.1 0.9% $2.8 $4.8 2.9% $9.8 2008 2009 2010 LTM 9/30/11 Capex % of Revenue (1) 2009, 2010 and LTM 9/30/11 include results for Acadia, YFCS, PHC and MeadowWood. 2010 and LTM 9/30/11 pro forma Adjusted EBITDA include synergies and run-rate adjustments outlined on page 21. 2008 excludes results for MeadowWood. 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% $80 $60 $40 $20 $0 $25.3 $51.6 $42.7 $43.9 2008 2009 2010 LTM 9/30/11 16
Adjusted EBITDA Reconciliation Description of Adjustments (1) In connection with the execution of the sale agreement and plan of merger for the purchase of YFCS, YFCS recorded an impairment charge of approximately $23.5 million for the year ended December 31, 2010 (2) Approximately $19.8 million of equity-based compensation was recognized in the second quarter of 2011 related to equity units issued in conjunction with the acquisition of YFCS (3) Includes headcount reduction associated with duplicative functions and the integration of PHC s corporate functions into Acadia s headquarters in Franklin, TN (4) Represents the increased revenue that would have resulted from an increased rate on one of PHC s contracts that became effective in March 2011, assuming such increased rate had been effective throughout the twelve month period ended September 30, 2011. The increased rate was estimated by multiplying the historical plan enrollment by the newlycontracted rate (5) Reflects integration costs incurred through 9/30/11 for the acquisition of YFCS by Acadia (6) Includes run-rate effect of the expansion of an existing PHC contract, normalized operating income for PHC s Seven Hills Facility, a legal settlement at PHC, rent elimination associated with PHC s Detroit Behavioral Institute facility, management fees and other transaction related expenses already incurred Pro Forma Adjusted EBITDA Reconciliation FYE December 31, LTM ($ millions) 2008 2009 2010 9/30/2011 Pro Forma Results Income (Loss) from Continuing Operations $3.1 $15.4 ($11.6) ($33.9) Interest expense, net 13.4 11.2 28.3 28.3 Income tax provision (benefit) 3.3 8.6 2.7 3.7 Depreciation and amortization 11.4 9.8 6.0 4.9 Other Expense, Net (0.0) (0.2) 0.0 0.0 Pro Forma EBITDA $31.2 $44.7 $25.3 $3.0 Adjustments (1) Impairment charges 0.0 0.0 23.5 23.5 (2) Equity-based compensation expense 0.3 0.3 0.2 20.0 (3) Cost savings/synergies 0.0 0.0 3.4 3.4 (4) Rate increase on a PHC contract 0.0 0.0 1.9 0.8 (5) Integration and closing costs 0.0 0.0 0.0 0.9 (6) Other 0.0 0.5 2.1 2.0 Total PF Adjusted EBITDA $31.5 $45.5 $56.4 $53.7 17
Investment Highlights Leading Platform in Highly Attractive Healthcare Niche Attractive Organic and Acquisition Growth Opportunities Attractive Industry Trends Steady Cash Flow Generation Favorable Legislative Environment Attractive Balance Sheet and Flexible Capital Structure Diversified Revenue and Payor Base Premier Operational Management Team with Track Record of Success 18