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AAC Maps Out 10-Year Strategy to Reverse Slide

May 14, 2019

One week after filing a defamation lawsuit against the National Association of Addiction Treatment Providers, American Addiction Centers was back on the offensive during a conference call with investors on Monday, dissecting a series of external factors that have caused its market capitalization to dwindle over the past four years while also outlining a strategy to reignite the company over the next decade.

Since reaching a peak of $1 billion in 2015, AAC’s market cap has dropped to $40 million in 2019. CEO Michael Cartwright told investors that from 2007 to 2017, the addiction treatment industry was flooded with new providers entering the space and outpacing the number of patients seeking treatment. Citing data from the Substance Abuse and Mental Health Services Administration, Cartwright noted the number of patients seeking treatment climbed from just 1.14 million to 1.36 million, while the number of treatment centers operating soared 36%, from 11,000 to 16,000.

Cartwright also said that, within the past three years, commercial insurers have become “completely irrational” in attempting to push down rates both in-network and out-of-network while also calling for “best-in-class medicine.”

“They’re not paying providers,” Cartwright said. “This is not AAC’s problem. This is an industry problem. You can call any of the industry organizations, and they’ll tell you the same thing. … They’re absolutely coming through our entire industry and trying to push down costs. I love it when they tell everybody they want to partner with you. That means they’ll partner with you if you can deliver services for a lot cheaper.”

Looking at how organizations in other industries have successfully evolved their business models, Cartwright and AAC chief financial officer Andrew McWilliams outlined the company’s priorities for both the near future and the next decade. Filling beds at existing facilities is an immediate priority, Williams said, adding that in combination with reductions in operational expenses executed over the second half of 2018 and the first quarter of 2019, AAC could see a run rate EBITDA of $80 million annually. The company plans to sell off a project in Ringwood, New Jersey, within the next three to six months, a move that it expects to generate up to $20 million to pay down existing debt.

Developing new revenue streams

Cartwright touted AAC’s diagnostics testing and laboratory, websites and real estate as the company’s largest assets. He said he sees untapped potential in AAC’s web properties, which generate 10 million visitors per month. As part of its strategy unveiled Monday, AAC has several digital initiatives on tap, including:

  • Offering branded nutraceuticals through its website
  • Repackaging its website content into a mobile app subscription service
  • Developing a broader advertising base on its website

McWilliams outlined an example of a tiered subscription model, with lower-end options that offer a mobile app with curated content, middle tiers that incorporate telemedicine and physician-guided plans, and high-end versions with greater personalization with pharmacogenetics, brain scans and in-person treatment experiences.

“Technology as an industry disruptor” was a recurring theme through the conference call, as Cartwright noted the ability of Amazon’s virtual assistant Alexa to connect patients with telemedicine options, as well as Google’s forays in to addiction treatment. In addition to the subscription-based model, Cartwright said AAC will look to incorporate more technology into facility redesigns and use more artificial intelligence- and virtual reality-based therapies.

“We have to address the fact that Alexa, Google and everyone else with big capital is coming into the healthcare space,” he said. “We’re probably the best situated of everyone in the behavioral space to pivot.”

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