DESERT HOPE ALUMNI INVESTOR PRESENTATION | SEPTEMBER 2017
IMPORTANT PRESENTATION INFORMATION We use market data and industry forecasts and projections throughout this presentation, including data from publicly available information and industry publications. Notice to These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the Investors information are not guaranteed. The forecasts and projections are based on industry surveys and the preparers’ experience in the industry, and there can be no assurance that any of the forecasts or projections will be achieved. We believe that the surveys and market research others have performed are reliable, but we have not independently investigated or veri fi ed this information. Forecasts and other forward-looking information obtained from these sources are subject to the same quali fi cations and uncertainties as the other forward-looking statements contained in this presentation. Some of the statements made in this presentation constitute forward-looking statements within the meaning of federal securities laws. Forward-looking statements Forward-Looking re fl ect our current views with respect to future events and performance. In some cases you can identify forward-looking statements by terminology such as “may,” Statements “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 pipeline, industry growth opportunities, disclosure of key performance indicators, business growth strategy and fi nancial guidance in this presentation 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 di ff er materially from any results, performance or achievements expressed or implied by such forward-looking statements. For additional discussion of risks, uncertainties and other factors, see the section titled “Risk Factors” in our Annual Report on Form 10-K and other fi lings with the Securities and Exchange Commission (the "SEC"). These risks, uncertainties and other factors include, without limitation: (i) the ability to consummate and realize the benefits of the proposed acquisition; (ii) uncertainties regarding the timing of the closing of the acquisition; (iii) the failure or inability of either AAC or AdCare to satisfy closing conditions or obtain approvals necessary to close the transaction; (iv) unexpected costs or delays associated with efforts to obtain the regulatory or other approvals necessary to close the transaction; (v) unexpected difficulties and expenditures in connection with integration programs; (vi) risks and uncertainties in litigation or investigative proceedings, whether or not related to the transaction; (vii) the availability of financing; (viii) incurrence of additional debt in connection with the transaction, as well as other risks discussed in the “Risk Factors” section of the Company’s Annual Report on Form 10-K, and other filings with the Securities and Exchange Commission. As a result of these factors, we cannot assure you that the forward-looking statements in this release will prove to be accurate. Investors should not place undue reliance upon 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 di ff erent than those expressed in our forward-looking statements. These forward-looking statements are made only as of the date of this presentation. We do not undertake and speci fi cally decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to re fl ect future events or developments. 2
PRESENTERS • Founder and CEO of Foundations Recovery Network Michael T. Cartwright • At Foundations, opened notable treatment facilities including the Canyon in Chairman Malibu, La Paloma in Memphis and Michael’s House in Palm Springs Chief Executive Officer • Started Moments of Change & Lifestyle Intervention , two of the leading national industry conferences • Author of Believable Hope • 20+ years industry experience • Founder and Managing Member of Private Capital Securities , a boutique Kirk R. Manz investment banking firm • Former Vice President at Piper Jaffray and Fixed Income Specialist with Chief Financial Officer Stephens Inc. • Co-founder and CEO of four communications companies including Igaea , an international VoIP Company • 23+ years management experience • Former auditor with Ernst & Young LLP , a national public accounting firm • Served multiple large for profit healthcare clients in Nashville, TN and Atlanta, GA including Fortune 100 Andrew W. McWilliams • Experience across a variety of corporate transactions, including public offerings of Chief Accounting Officer securities and mergers and acquisitions • 17+ years industry experience 3
TRANSACTION OVERVIEW > On September 13, 2017, AAC signed a definitive agreement to acquire AdCare for $85 million, or 6.9x 6/30/17 LTM pro forma adjusted EBITDA including $3.9 million of estimated synergies > AdCare, Inc. (“AdCare”) is a leading provider of treatment for substance abuse and related behavioral conditions in the Northeast • 6/30/17 LTM revenue and pro forma adjusted EBITDA of $51mm and $8.5mm, respectively • Provides further diversification by payor, service offering and geography > The transaction is anticipated to be financed through: • $65 million incremental First Lien Term Loan • $10 million Seller Note • $5 million of restricted shares in AAC Holdings, Inc. (issued at closing) • $7 million cash from balance sheet > Pro-forma for the acquisition and financing, AAC will have a projected net leverage of 4.1x, based on pro forma adjusted EBITDA of $66 million (1) > Transaction is expected to close 1H 2018 subject to regulatory approvals and customary closing conditions (1) AEBITDA represents a non-GAAP financial measure. For the reconciliation to net income (loss), the corresponding GAAP financial measure, see the Appendix. 4
ADCARE ACQUISITION RATIONALE > Leading provider of treatment for substance abuse and related behavioral conditions in the Northeast • 30+ year operating history with exceptional management team and well-developed marketing and referral channels > Payor diversification • Expands AAC payor mix to include government payors (i.e. Medicare and Medicaid) at similar residential ADRs to AAC average • Increases in-network payor mix • Lowers DSOs (AdCare DSO’s were 32 days for their fiscal year ending 9/30/16) > Service line diversification • Reduces AAC’s 2017E diagnostic revenue mix from 16% to 13% (AdCare has no material diagnostic revenue) • Expands AAC hospital inpatient revenue from 6% to 13% and standalone outpatient revenue from 8% to 9% (pro forma) > Geographic diversification • Further penetration of Northeast markets with addition of Massachusetts and expansion in Rhode Island > Attractive cost and revenue synergy opportunities • Identified $2.8 million of cost savings synergies expected to be realized in 12 months plus another $1.1 million in anticipated revenue synergies expected to be realized in the second year • Ability to leverage combined sales and marketing effort and broader service offering to treat a larger patient population 5
ADCARE: LEADING NEW ENGLAND PROVIDER > Operates one inpatient hospital, one residential treatment facility and seven outpatient centers across Massachusetts and Rhode Island • 2016 ADC of 142 with over 115,000 outpatient visits > Also provides a range of treatment services to correctional institutions through AdCare Criminal Justice Services (“ACJS”) with 12 contracts across the Northeast > LTM 6/30/17 revenue and adjusted EBITDA of $51 million and $8.5 million (1) , respectively • Expected cost saving and revenue synergies represent an additional $3.9 million of AEBITDA > Payor mix: 59% Medicare, 22% commercial, 19% Medicaid (18% commercially managed, 1% traditional) (1) AEBITDA represents a non-GAAP financial measure. For the reconciliation to net income (loss), the corresponding GAAP financial measure, see the Appendix. 6
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