Q3 2019 Earnings Call

Please standby we're about to begin.

Reminder, school is being recorded.

Proceed.

Good morning, and welcome to Acadias third quarter 2019 conference call to the extent any non-GAAP financial measure as discussed in today's call. You'll also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by viewing yesterday's news release under the investors link is.

<unk> conference call May contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements among others regarding Acadias expected quarterly and annual financial performance for 2019 and beyond.

Its purpose any statements made during this call that are not statements of historical fact, maybe deemed to be forward looking statements.

Without limiting the foregoing the words believes anticipates plans expects and similar expressions are intended to identify forward looking statement.

You are hereby cautioned that these statements may be affected by the important factors among others set forth in Acadias filings with the Securities and Exchange Commission and the company's third quarter news release, and consequently, actual operations and results may differ materially from the results discussed in the forward looking statement the company undertakes no.

Obligation to update publicly any forward looking statements, whether as a result of new information future for future events or otherwise.

It's time for opening remarks, I would like to turn the conference call over to Chief Executive Officer W. testing.

Good morning, and thank you for being with US today for our third quarter Conference call.

I'm here today, with Chief Financial Officer, David Duckworth, and other members of our executive management team.

David and I are pleased to provide some remarks about the third quarter.

We will then open the line for your questions.

For the third quarter U.S. same facility revenue increased 4.9% with a 2.8% increase in patient days and a 2% increase in revenue per patient day compared with the prior year period.

You as same facility EBITDA margin was 25.9% compared with 27.3% for the third quarter of 2018.

During the third quarter, we face certain operating issues at a handful of our U.S. facilities.

While we have historically had facilities at outperform and underperform against expectations in any given year.

We believe the impact at these specific facilities has been unique due to the size of the facilities in terms of their revenue and earnings contribution to the company.

There is not a systemic issue that has affected our business and we continued to be confident in the long term outlook for our company.

Adjusting our same facility stats for these facilities.

Revenue growth is 7.1%.

Patient day growth is 4.4%.

Revenue per patient day growth is 2.6% and.

And EBITDA margins would be flat as compared to the prior period.

The third quarter.

We also had a few specialty facilities impacted by Hurricane Dorian.

Patient volumes were affected in the month of September and some specialty patients were reluctant to travel to North Carolina, and Florida for treatment due to the adverse weather.

Combining the impact from the weather and the issues that this specific facilities, we estimate that the impact on EBITDA was approximately 9 million for the third quarter.

We are very focused on executing our action plans to respond to these issues and have started to see progress from our efforts.

However, as the exact timing for improvement and expected ramp up of the census is uncertain, we've adjusted our full year guidance accordingly.

In October we had three facilities that were evacuated because of the wildfires in California, and several other facilities on impact to admissions and census.

During the wildfires, we transferred our patients to other facilities and as a result, our fourth quarter results will be impacted and we have adjusted our guidance accordingly.

Our staff have done an extraordinary job of keeping our patient safety and it's very difficult time, and we commend them for their efforts.

During the third quarter, we added 82 beds, increasing our size and geographic scale and further enhancing our position as a leading provider of behavioral health care services.

Through the first nine months of the year, we have added 414 beds and we expect to reach approximately 650 bed additions for the year.

Throughout the quarter, we have continued to make progress around achieving the savings generated through the operational initiatives outlined in this strategic review update in May.

We continue to expect the 20 to 25 million of savings by year end 2020.

As detailed in the May update most of the savings will be in procurement, which will impact supplies and other operating expenses.

We recently completed a rebid of RG PEO and as a result will be making a change in the first part of 2020.

We have also added resources at the corporate level.

To oversee our projects and ensure achievement of our goal.

We believe these steps will facilitate the savings outlined in the review.

We will continue to provide updates as we realize the benefits of these initiatives.

Before turning to the UK I'd like to reemphasize, our commitment to our partnership strategy.

We had a strong track record of partnering with health systems and hospitals across the country.

We have five joint ventures operating and three currently under development with a robust pipeline of over 20 projects in different stages of development.

The market remained strong and the value proposition to our provider partners is very compelling.

As part of our strategic plan, we are targeting two jvs and one wholly owned denovo build per year.

We are excited that we've broken ground on our new JV Hospital was Saint Thomas Health.

A part of the Ascension health system, and the largest not for profit health system in the U.S.

The partnership includes the establishment of a new 76 bed psychiatric inpatient hospital in Nashville, encompassing 40 adult beds and 36 geriatric beds.

With respect to the UK operations, we were pleased to see continued stabilization in our operating metrics.

Same facility revenue was up 4% consisting of a 5.1% increase in revenue per day.

Driven by a 2.7% rate increase from the NHS and local payers and higher reimbursement related to an increase in the acuity of our patients.

The increase in revenue per patient day was partially offset by a 1.1 per cent decrease in patient days, which is related to our retooling efforts outlined on our second quarter call.

If these beds were online and when they do come back online. We believe this will contribute approximately 2% to our patient day growth, which would imply approximately 6% revenue growth in the UK.

Same facility EBITDA margin was 16.7% consistent with our expectations.

Total facility EBITDA margin increase over the prior year by 20 basis points to 15.2%.

We were pleased to see an improvement in the third quarter labor costs as compared to the same period in the prior year.

Agency labor as a percentage of total labor cost improved 60 basis points year over year to 13.4% for the third quarter of 29 team from 14% in the third quarter of 2018.

Total labor costs as a percentage of total revenue improved 70 basis points year over year to 67.9% for the third quarter of 29 team from almost 69% into third quarter of 2018.

Operationally the UK business continues to demonstrate stability.

The team in the UK remains focused on operating the business as our sales process continues.

We continue to work on reopening the beds offline for retooling.

Which involves identifying a facility where the patient can be transferred to.

Retooling the unit to the new service line.

And reopening the award would qualified staff for the new service.

We believe that there is a real long term benefit from retooling that will add value to our operations and this has been demonstrated from our analysis a pass retooling across the portfolio.

The demand for our services in the UK has been consistent.

Priory continues to receive referrals for the highest levels of acuity across all divisions and continuously reviews, our services to ensure this market need is safely meds.

We believe we are well positioned to take advantage of future demands across our service line.

With the bad, but we've retooled we believe this will help with future growth.

We will continue to work with the NHS and other referral sources to identify areas in which we can help meet their demand.

Finally, before we discuss our financial results in greater detail I'd like to address our ongoing exploration of a potential sale of our UK business.

As previously announced the board has engaged a financial adviser to run a process to explore the sale of the entirety of the UK business.

We have engaged in preliminary conversations with a number of interested parties and have completed the necessary front in preparatory steps consistent with market practice for UK transactions of this nature.

We are continuing discussions with perspective parties.

And after consulting with our advisors and in light of the upcoming December elections in the UK.

We expect to solicit initial bids for the UK business early next year.

We believe this timeline provides the best path forward for optimizing the certainty of the sales process and maximizing value for our shareholders in a thoughtful and deliberate manner.

Now I will turn the call over to David Duckworth to discuss our financial results and guidance in more detail.

Thanks, Debbie and good morning.

Revenue for the third quarter was $777.3 million compared with $760.9 million for the third quarter of 2018.

Our consolidated revenue growth of 2.1% was affected by the foreign currency exchange rate and revenue generated by close facilities in the prior year.

The exchange rate had a 15 million dollar or a 2% impact on revenue and revenue growth.

And the close facilities had a 13 million dollar or a 1.7% impact on revenue and revenue growth.

Consolidated revenue growth adjusted for these two factors was 5.8%.

The company's consolidated adjusted EBITDA for the third quarter of 2019 was $146.6 million or 18.9% of revenue.

As it relates to third quarter adjusted EBITDA as Debbie mentioned, our results were impacted by 9 million related to this specific U.S. facilities and the hurricane.

Additionally, the EBITDA impact of the lower exchange rate, which has rebounded to approximately 1.29 today, but averaged 1.233 for the third quarter was approximately $2.2 million.

Net income attributable to Acadia stockholders was $42.6 million or 48 cents per diluted share for the third quarter of 2019 compared with net income of $46.2 million were 53 cents per diluted share for the third quarter of 2018.

Adjusted income attributable to Acadia stockholders for the third quarter 2019 was $46 million or 52 cents per diluted share excluding transaction related expenses of $5.8 million and an income tax effective adjustments to income of 2.4.

In dollars based on a tax rate of 16.7%.

Turning to our financial guidance as noted in our press release, we've revised our guidance for the full year 2019 as follows.

Revenue in a range of $3.1 billion to $3.1 billion to $5 billion.

Adjusted EBITDA in a range of $584 million to $589 million and adjusted earnings per diluted share in a range of $2 to $2.05.

Our revised EBITDA guidance reflects the third quarter results as well as the following assumptions related to the fourth quarter.

Continued impact from the issues related to the specifically identified U.S. facilities and temporary facility closures related to the wildfires in California.

Secondly, and the shaved rate assumption of approximately 1.28 based on actual exchange rates for the month of October plus an estimate of 1.29 for the last two months of the year.

And a tax rate of approximately 17%.

We would like to briefly discuss the overall trends of the business and expectations for 2020.

As Debbie mentioned earlier, we believe the issues that these facilities are temporary and we're working to address the challenges with action plans. We do not believe there's a distant systemic issue or challenge that had an impact across all of our facilities or within one service line or geographic region.

We continue to believe that the demand for mental health and substance you services is strong.

We firmly believe that by executing on our action plans and our operational improvement initiatives, we will see high single digit revenue growth and EBITDA margin improvement in 2020.

We look forward to discussing our targets for next year, when we provide our 2020 guidance on the fourth quarter call, but wanted to provide this additional context today around our expectations.

We remain very excited about the potential of our platform and confident about the future.

This concludes our prepared remarks. This morning, I'll now ask Paul to open the floor for your questions.

Thank you if you would like to ask your question. Please signal by pressing star one on your telephone keypad.

Using speakerphone. Please make sure you functions turned off so now you will signal to return equipment.

Once again, ladies Dawan, if you wish to AWS good question over the phone.

Well now take off first question from AJ Rice from Credit Suisse. Please go ahead. Your line is open.

Thanks, So I'm just first of all too.

Drill down a little bit more on the troubled facilities and how long it might take to get those back on track.

So 9 million in Q3, obviously with the revised guidance, you're looking at more in the fourth quarter.

So some of that most of happened towards the end of the quarters sort of alluded to you've also got to wildfires in the hurricane any way to parse out.

How much of the.

Fourth quarter adjustment relates specifically those five facilities and then.

When you describe whether it's the natural disasters or these facilities.

Are you going to do you think at this early point you probably have some spill over into the first half from 2020 or will you haven't.

Thanks back on track by then.

Yeah, Hey, Jay we did mention that third quarter impact that these specific facilities of around 8 million 9 million. If you include the hurricane and we do believe since the timing of those issues many of which occurred in the middle or later part of the third quarter that.

There is an ongoing impact in the fourth quarter.

Additionally, we have had bed additions at several of these facilities that we previously expected will contribute to our earnings in the fourth quarter. We now see a delay of that continue to be optimistic about those bed additions ramping but see a delay in that.

Into 2020.

So the fourth quarter does reflect a revision that not only reflects just the timing of these issues.

But also the bed addition contribution that we expected that we now think will be delayed to next year.

In terms of just the size of it it is around 15 million.

And and again that just reflects the timing of it we do believe that many of the issues can be addressed very quickly and are very positive about the action plans that we have in place.

And believe that the issues can be addressed in the near term.

And.

I do think there will be some a ramp back up to the to the normal level of operations from these facilities and we expect that to to occur early in 2020.

Following the issues being addressed over the next several months.

I guess, just one other way to think about it.

It seems a little along that you'd have these five different facilities all have significant facilities have issues at roughly the same time was there an initiative that the company had undertaken it was there something happening on the policy front.

Any when you step back and think about the fact that you had all this happened in one time period is there any rhyme or reason to it from your perspective.

Hey, Jay there there really isn't these issues are very unique to the facilities that.

We have had the impact there's not really even a common service line here, it's not a common state we had.

Our initiative has been to focus on our growth in our performance improvement but.

Nothing that we have done here or frankly throughout the company has caused these issues I think they're very unique they're very individualized and we believe that they don't reflects the majority of our business, which is why we really called them out to focus on bad.

They are not reflective of the strength of the company and there's no trend from a macro perspective that we see causing these issues, they're very individualized and unique.

Okay, alright, thanks, a lot.

Thank you.

We'll now take our next question from Brian Tanquilut from Jefferies.

Hey, good morning, guys.

I guess my first question, Doug maybe to follow up on that point that you just made so if we isolate and take out the five facilities. What was the business have looked like in the U.S. number one and then I guess the second part of that is.

What are the steps you've taken.

To address issues in terms of timeline is at a one quarter issue you think or is this something that would take.

Six months nine months before we see that improvement.

Well I think if we if we back out those facilities, the third quarter or the revenue growth for the third quarter would be 7.1%.

If you look at patient day growth, it's 4.4% versus the 2.8% and then revenue per patient day.

We would see an increase of 2.6%.

Our EBITDA margin would would be flat and I think that.

Yes that reflects relate the majority of the facilities across all of our service lines.

I do think that there are action plans.

That are in place. The team is very focused on getting these specific unique issues resolved and I believe they feel that these issues will be resolved over the next quarter. They have very good plans. They are working very hard to make sure they are implemented properly.

And that we end up starting 2020 with this behind us.

So I guess, maybe to follow up and that where you sit today has your view on the 2020 earnings power of the company change versus where you were saying at the end of the second quarter.

Yeah. My view has not changed I see the strength of the company I see the opportunity for Acadia I'm disappointed for this temporary disruption because it doesn't reflect the overall strength of Acadia I think we have enormous.

So across all of our service lines and I think that we do have an opportunity to improve which we're doing to this performance initiatives.

We want to strengthen our balance sheet, but I have not changed my view at all and I believe that 2020 can be a very strong year for the company and I think that we will get these issues resolved, we're working very hard to do so, but I feel very positive about our future.

I appreciate it thank you Debbie.

Thank you.

Our next question comes from what Kevin Fischbeck from Bank of America.

Good morning, This is Joe and I got your filling in for Kevin today. Thanks for taking the questions. John So just to follow up on desktop I'm, just comment and I have another one.

In terms of the U.S. business, because I know a one of your peers experience some pressures and Oh, specifically in the substance abuse business in the U.S.

So is there any of these facilities somewhat you know impacted by a fight that and also if not then Oh, you know you're seeing any increased competition in that area.

[noise] no we really have not experienced any.

The industry trends that have been mentioned by our care, we have very solid performance in our specialty service line. It's actually very it's one of our leading platforms and I think that with the opioid epidemic in the ongoing demand I think we have.

Then very pleased with the performance, it's it's not impacting the facilities that we mentioned we also have a very unique sales and marketing platform, which works very well and so I think that is we look across the us that service line in particular, we.

We don't see the issues that I think had been mentioned our out of network.

Is less than 5% of our revenue and patient days in the substance you service line. So we've already transitioned a many of our contracts in our and our payer relationships to that so that puts us in a very good place because I think as consumers do start to one.

To be more in network with their coverage, we are going to be able to service them throughout the portfolio.

[noise] great. That's a that's very helpful and if I can switch the topics to the UK business, which can check it's a challenging to stabilise. There. So any change in your outlook I guess for a for next year in terms of labor cost I appreciate the commentary around these with too.

Put tooling as fortune, a that benefit to coming what it too. So I guess on debt fund also do you expect an incremental pricing increases when when you have more fee. So it just comes with the higher acuity mix.

[noise] Joanna this is David I think our outlook for the UK continues to be positive we expect that the labor costs that we have seen a lot of stability around in the last several quarters that that will continue.

The revenue per patient day growth as Debbie mentioned earlier reflects 2.7% pricing increases as well as the higher level. The acuity that we're seeing in many of our patients.

And the margin we the margin continues to be solid 15.2% for the quarter is within our range and we think we're positioned well for volume growth and bringing beds back online next year, which will.

Get us into a revenue growth in the mid single digit range. So we do see you know not only stability and improve performance this quarter, but have a positive outlook for 2020 in the UK.

[noise], great. It's helpful and try major squish last one off since I have you here. There was just of refinancing that you mentioned that took place in August and you paid off from that so I guess, you you've seen some of Spanish and third quarter or am I, right and I'm estimating that the annual.

The benefit of <unk> anxious about eight 9 million reduction to interest expense are there in the ballpark.

We did complete that transaction in mid August so we saw about half a quarter of an impact from that there is interest savings related to that transaction.

But it is more like four to 5 million annually.

So we saw that one and a half months worth of that savings during the quarter, but the annual benefit from that is four to 5 million.

Great because there's also some bad you'll pay down wasn't it so that its own closer to four to 5 million annually, that's kind of refinancing and also the Florida.

Yes, that's correct that we did pay down the 60 million that was outstanding on our revolver. We now have full availability of that revolver.

And we you know we paid the 60 million down on the revolver Joanna and then we have about 40 million of cash.

That we put on our balance sheet following that transaction.

Great itself I mean think there's so much.

Thank you.

Our next question comes from a Matthew Gilmore from.

[laughter] Hey, Thanks for the question I was hoping to get out a little more detail on on the nature of the operational issues that you you called out it it sounds like there are unique to each facility. So no I. Appreciate if you don't want to go through each one but if you could maybe just provide.

Earnings for two examples that impacted some of the larger facilities just help us understand.

Sure I'd be happy to Matt I mean, one of our large specialty facilities and made a change in their services in August and an early into September we they had been trading specialty patients, but also mental health patients and we.

We looked at and heard feedback from our referral sources that mixing those two patient types of more acute mental health with specialty.

The layout of the facility.

Was actually I think causing our referral sources to be hesitant to send the specialty patients to us.

They don't really mixed well when you take the layout of this campus I think we've done this successfully in other locations around the country, where we do co occurring and we do treat both but in this situation because of the lay out here. It just did not.

Work well, we made the change and I think that we brought in some outside resources to actually help us with the marketing because as we change and focus back solely on the specialty and substance abuse.

Business. It is a ramp while we were changing the service and we stopped taking the mental health patients. We were reluctant to address the cost structure, because we wanted to make sure we were ready to make this change and to start accepting patients.

I think that that impacted the cost again back to our margin impact, but I do believe they action plans that are in place are working we are starting to ramp back up.

And we see that continuing I think we've had a lot of positive feedback from referrals that are very pleased that we've made this change it. It's a long term core competency for this facility in in the specialty areas. So we feel that we can recover.

Yes, very quickly from deciding to stop taking these acute mental health patients. So that's one example, I'll I'll give another one we have a state where.

We have operated at campus.

As one license.

And so we staffed in that way.

We had a licensure interpretation that has directed us to staff by our buildings, which requires five licenses.

There is a waiver for the license, which we've applied for but as we had patient that at our facility. There. It had a pretty big impact on cost because as we have had to staff up per building, which is a big increase in our end, we actually had to bring in agency.

To actually meet those needs, but we're we're helping to here very soon about our new integrated license and we don't see any reason at this point that we would not get that but that's another example of really a unique situation that happened in one of the facilities that had a pretty.

Until impact on their cost.

Got it that that's helpful. In understanding and then one one clarification on your 2020 comments. So you talked about the high single digit revenue growth an EBITDA margin improvement I just wanted to confirm that that's against the current guide you've provided it's not adding back yes, the headwinds you're calling out and then I think David did but I just wanted to.

It could confirm that this also includes both the UK and the U.S.

Well, Matt I think we'll go into more detail, obviously around our 2020 guidance in February as we report our fourth quarter results.

And but we do believe just with the the turned around at these specific facilities combined with the operational improvement initiatives, we have in place in the U.S.

As you know as well as just the bed addition contribution and the benefit that we expect from facility expansions.

Yes, that's the commentary we provided is that we have a positive outlook for 2020, we will provide more detail as we report our our fourth quarter results.

Got it fair enough. Thank you.

Thank you.

We'll now take our next question from Peter Chickering from Deutsche Bank.

Good morning, guys. Thanks for taking my questions just a follow up on Mats you guys did offer sort of this high single digit EBITDA growth and yes. You guys are process of you know you've come to the or.

Listen to the sale the UK and beginning in next year. So just to be Super clear because you gave it number is that.

For the corporate average so that would be implies 633, EBITDA or is that solely against the U.S., which couldn't for something in the range of your five seven even the U.S. fixture.

Yes, Peter we will be more precise about that next year I do think that when we talk about our expected growth. It is based on a normal year and so we do expect that with the recovery from these items, we could see.

Stronger growth in 2020, but again, we'll provide more detail about that in February .

Okay Fair enough can you give us a update of you know how how the bad some ramping in the UK that you took all fine. Thank you mentioned the last quarter.

In addition, 150 beds are taken offline referred to rejoin any updates on those and also on the U.S. de novo's, there were slow to ramp in first half here.

A p., though we have seen in the UK some of those beds come back online, but we really didn't expect to see much in the third quarter. We do expect to see some additional beds come back on in the fourth quarter most of the re.

The tool beds will be coming on in 2020, and I think that you know it. So it's a process, which I talked about you know earlier, we we have patients that we have to move out and they have to go to secure setting and then there is the retooling. So some of this can take up to you know.

Six months, some can be done much faster, but as we retooled. These beds. We then ramp back up with staff. So we expect that these beds will be back online by by 2020 and you know it's my hope that they're in the earlier part of the year I think management is trying to accelerate as much.

As possible they work with that the referral sources on placing these patients. So some of that depends on collaboration of where are these patients are going but I think that we feel good that.

When these beds do come back online they have a very positive impact on on the results for for the UK.

And with respect to the U.S. you know our de Novo's are coming along I think that we're pleased to see after we were able to clear some of the license and certification issues that the market demand is there, they're they're coming along very nicely there well within what we produce.

Acted and both markets I think are going to be very strong for the company.

Okay, and then last question for process.

First I could Debbie.

Mentioned earlier that you are investing within a more corporate side I'm just a couple of hiccups serve tucuman treat units for facilities, having issues here and there you sort of walk us through that process perspective, how you've changed.

For corporate oversight team I kinda, how does it improve over the next 12 months. Thank you.

Sure.

Well, we've done several things.

You know we have had an outside group working with us to identify.

Savings throughout the company, we have used some of their expertise with the G.P.O., but.

We need our own procurement person and we have identified and hired that person who will oversee the process. We've also brought on an individual that we'll make sure that all of the parts of this work well, we're a big company, but we have a lot of opportunity. So we want to make sure we're keeping track of that.

Staying on schedule.

We have centralized our contracts for managed care, we have a database now we have better visibility around contract timing right.

We have a team in place to make sure that that progress continues. We also have made some changes to our financial structure and reporting so that we can have greater visibility around our day to day cost management and I think that you know the the group and the team here is.

Is.

Very strong I think that it's been a group that had been here for several years, they're working well, but what we've tried to do is enhance what's already the strength here and to get visibility around what we can do to accelerate growth, but also to manage the day to day cost and performance improve.

Matt initiatives.

Great. Thanks much.

Thank you.

Our next question comes from a Ryan Daniels from William Blair.

Hey, guys. This is mix speak out and for Ryan persistence clarify it was that walk down from the 700 bed or different target to the 650 or is that the badgers all knows.

Those.

Places that are struggling operationally.

No Nick we.

We we actually have opened beds at many of those facilities already or we'll continue with the bed additions that we have at those identified facilities in the fourth quarter, the slight adjustment to our bed additions target for 2019 from 700 to 650, it's just one project being.

In delayed to next year.

So we we will have that project in our numbers next year, but there was a delay from when we expected to happen.

Got you Great and then can you provide a little bit more color in the a downtick and same facility you pay margins up mostly afoura tissue or what caters provide locally.

No there is up there.

The FX is adjusted in our reporting of our same facility stats. So that's that's not the case I think as you compare the third quarter to the second quarter, we talk about seasonality that we that we expect to see in the third quarter each year.

Related to mainly the holiday season that occurs in August in the UK.

So sequentially, that's what we saw on the UK results, but we're very pleased with the margin the comparison to the prior year and stability there in the UK, but sequentially in the third quarter of each year, we do expect a slightly lower number then the second quarter.

Gotcha. Thanks, and then I guess, a quick clarification I know you've said this before but the 20 to 25 million and procurement savings is there a breakdown of U.S. worse UK, there is that mostly going to be in the U.S. business.

Nick It's it's a all in the U.S., we do have performance initiatives in the UK, but that's not included in that number.

Got you. Thanks, that's it for me how we're going.

Thank you like.

Our next question comes from which may or from a uva.

Hi, this is Brian or else on for with.

In the UK same store EBITDA growth in the quarter it looks like is.

2% and yes, that's inclusive of the the rate increases there anyway that you can size. The the revenue dollar impact did that had in the quarter or maybe look at it another way how did the same store cost per patient day trend in the UK.

Yeah, Brian we did see an increase in our cost per patient day, but we talk about the acuity of the patience. It we're seeing following some of the retooling that if that has happened and more growth that we have within the higher acuity services and so what we're focused on.

Is the revenue per day, reflecting that higher acuity and and we talked about the revenue per day growth being strong because of the rate increases as well is that higher acuity and so yes, we did see a cost per patient day increase but it was in line with the the service.

Mix benefit that is reflected in our revenue per day growth.

Got it.

And then quickly U.S. I know you talked about the de Novo.

Never before but on the losses, there any update on the performance of those in the quarter. Thank you had mentioned 1.2 million.

Expected just if there's any change there.

In the actual performance.

Yes, sure Brian we had an expectation for the third quarter of losses between one and 2 million and we were right in the middle at 1.5 that is that as essentially.

Taking you know half of the losses that we had then the second quarter. So we're seeing great progress there and we continue to have a goal at those two facilities to be at breakeven by the ended the year.

So it was close to 3 million for the second quarter, one and a half in the third and we still think those facilities can be breakeven by the end of the year.

Great. Thank you.

Okay. Thank you.

We will not take a follow up question from triggering from Deutsche Bank.

Hey, guys fixed you're going to follow up quick questions for you on the UK Silicom and thank you so much for.

Providing more clarity today.

Can you talk a little bit more about the process.

Can you give us some early reads on what type of buyers. Your <unk> you know you're talking to when the first bids are due and then when anything fundamentally do thanks so much.

Well I can say and I've said before we have a lot of interested parties that have reached out to us and we've obviously contacted with our advisors and I think you know they vary from you know infrastructure to private equity and.

Also strategic and I think that I think what has given us optimism here is that the number of interested parties is is very strong and you know we don't have a view on valuation at this point, but we do see that there's interest and we've done a number of things with our interest.

Third parties around.

Informal conversations, which they call fireside chats in the UK, but you know, it's really trying to educate.

Our potential interested parties about the market and priory, specifically and I think that those I think have moved along and so as we look at the first part of the year, we have said and I said in my prepared remarks that we.

We expect that to start the first part of the year I think we will have the elections and you know there is a holiday period that will occur there as well as here and so I think that we feel like once we initiate that process.

We'll see where we are with respect to how valuation comes in and will move from there. So we're not really trying to state a prediction around how long the process goes, but we want to make sure we take time to get.

Every one that has an interest in bidding to did and then we'll evaluate those bids and the next step will be hopefully to refine that number and to continue to move forward.

Great. Thanks much.

Thank you.

We will now take our next question from John Ransom from Raymond James.

Hey, good morning.

Back when you release your strategic plan you had a view on the UK real estate value of billions seven do you still have that view and if so can you provide any of the detail around what supports that assumptions like.

Of to you know to share an updated view around the real estate value. It is part of the work that we are doing with our advisers is to evaluate the real estate you know, we have 80% ownership and significant value in that real estate in the U.K., but we don't have an updated evaluation at this point.

In in the process.

Well, well, maybe I could ask it this way is there a comparable cap right. We should think about for especially medical real estate that you've seen and other transactions over there.

We we don't have a view that we're going to provide on any evaluation metrics within how you might a sign of value to the real estate.

So your your evaluation was just based on when you're carrying value on your balance sheet not no. What you thought the market wouldn't give me for it.

That's right John that 1.7 was based on the appraisal work that we did at the the time a vacuum acquisition of those various properties starting in 2014 through the Priory acquisition in 2016.

So it is it possible, though that one of the outcomes would be kind of an outgo propco type transaction or do you think it's more likely you're just gonna sell this thing for multiple of the but and the buyer would then extract the value down the road from the real estate.

Oh I think our goal is to to look at a sale of the entirety of the U.K. operations. If there is a structure like that that makes sense. It could could be something that we could help a buyer execute but our goal is to sell the entirety of the operations.

Okay.

And then I I guess my other question is this was the third year in a row is you know that.

Miss three q.

So where are you thinking about your guidance next year <unk> is it possible to maybe factor in a little more cushion for Murphy's law. That's [laughter]. It's like it's I I don't remember the last time you didn't that's three q. by a pretty wide margins that was as their thoughts and maybe a adjusting your guidance it'd be a bit more you know provide you a little more cushion.

For that to happen.

Well, well, obviously share more about our guidance in February I think as we reflect back. There's obviously very unique items that that have happened in each of the last several years. So we don't think there's any rhyme or reason to it. It's just unfortunate timing on the various.

Issues, but of course, we look forward to providing are 2020 outlook in February .

Okay, and John that we aren't going through a budget process right now and we have asked me.

Operators to give us in view of what they believe next year will look like we we feel like you know it's they are optimistic about what they can do with bad additions and other metrics.

I I will say that.

All but one of them five facilities that we've had mentioned because of issues that where you need to then we're add that into the second to the first half of the year. So but yeah, we'll we'll be doing a very thorough view as a budget.

Looking at it by facility by region trying to anticipate opportunity, but also any challenges that they might face and incorporating both of those views and a budget and then guidance that will give a an ally first quarter call.

Right. So for me thanks.

Thanks.

Oh next question comes from Michael <unk> from J.P. Morgan.

Hey, guys I'm on for Gary trailer, just a quick follow up on that you can't fail wanted to ask about if you had more clarity about why are you guys are waiting.

After the election, and then you can holiday period and the rationale there.

Well, we're taking advice from our advisers, who are in the U.K. and I think they have the view that having certain t. around us elections is important and we believe that having certain t. there with respect to parliament will.

Oh be something that we can move off the table from a buyer perspective, I think that we're going to continue through the end of the year with our discussions within interested parties. So we're not stopping our process. We're just moving to formal initial band to the first part of the year.

Got it thanks.

Thank you.

It appears on their further question at this time.

<unk>.

I was due for any additional closing remarks.

Thanks, again for being with us today and for your interest scan Acadia healthcare.

I would like to concludes by thanking all of our employees and clinicians for their dedication.

They're focused on providing the highest quality care to our patients and their families. If you have additional questions today.

Do not hesitate to contact us directly and have a good day.

Just confused today school. Thank you for your participation.

Now disconnect.

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Yeah.

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Yeah.