Q4 2019 Earnings Call
Sure currently on hold for the Acadia Healthcare's fourth quarter and year end 2019 earnings conference call.
Currently gathering additional participants please continue to hold the call will begin in a few minutes.
[music].
Please standby we're about to begin.
As a reminder, this call is being recorded please proceed.
Good morning, and welcome to Acadias fourth 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 like.
This 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 reform and for 2020 and beyond.
This purpose any statements made during this call that are not statements of historical fact may be deemed to be forward looking statement without limiting the foregoing. The word believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
Hereby cautioned that these statements may be affected by the important factors among others.
And Acadias filings with the Securities and Exchange Commission and the company's fourth 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 events or otherwise at this time for opening remarks, I would like to turn the conference call over to Chief Executive Officer, Debbie adjusting.
Good morning, and thank you for being with US today for our fourth quarter and year in 2019 conference call.
I'm here today, with Chief Financial Officer, David Duckworth, and other members of our executive management team.
David and I will provide some remarks about or financial and operating results for the fourth quarter and year.
We will then open the line for your questions.
Our results for the fourth quarter were in line with our expectation.
We achieved overall revenue growth of 4.9% over the fourth quarter and 2018, reflecting our continued focus on growth initiatives. Both his service expansion at our existing facilities and additional bed capacity.
On a same facility basis overall revenue was up 4.5% into fourth quarter at 2019 compared with 2018.
Are you ask facilities showed solid improvement across key metrics.
For the fourth quarter U.S. same facility revenue increased 5.5% within 2.4% increase in patient days.
On a 3% increase in revenue per patient day, compared with the prior year period.
U.S. same facility EBITDA margin increased 30 basis points to 25% compared with 24.7% for the fourth quarter and 2018.
Regarding the specific facility issues that affected our results in the third quarter.
We believe that we have addressed the issues with the action plans that have been implemented by our operations team during the fourth quarter.
We're very pleased with the progress that has been made which is in line with our expectations.
David will provide additional details on the fourth quarter impact and 2020 expectations for these facilities.
During the fourth quarter, we added 171, bad, including 150 beds in the U.S. and 21 beds in the UK.
For the full year, we added 585 beds to existing and new facilities.
Moving forward to 2020, we expect to add approximately 600 beds to existing and new facilities in the U.S.
We're excited about these opportunities to expand capacity in our markets, which adds beds to 10 states across all service lines.
2020 presents an opportunity to add the highest number of beds to our U.S. facilities in the last three years.
We also continue to work on our partnership strategy.
We have a strong track record of partnering with health systems and hospitals across the country.
We have five joint ventures operating and three currently in development.
The integration team has received increased interest from health systems, who would like to partner with us.
We now have a robust pipeline of approximately 30 projects.
The market remains strong and the value proposition to our provider partners is very compelling.
Acadias collaborating with health system partners nationwide to improve integration of behavioral health care throughout their organization as they focus on population health initiatives and improving clinical outcomes for their patients.
We look forward to opening a new joint venture Hospital would tower held in writing, Pennsylvania plant for the second quarter and a new joint venture Hospital with Ascension Saint Thomas plan for the fourth quarter.
We also expect to open in Denovo facility in Cincinnati, Ohio planned for the fourth quarter at 2020.
We are excited about these and other opportunities ahead for Acadia to meet the growing demands in the market better served the needs in the local community and advance our position as a leading operator, a behavioral health care facilities.
Additionally, we see new opportunities in pathways to grow in our CTC service line.
We plan to open six CTC denovos in 2022 expands our footprint into new markets that are underserved.
As of January 1st Medicare expanded coverage to include opioid treatment programs.
While it is too early decides the full benefit we expected this will drive volume growth by treating new patients and allowing improved coverage and access for dual eligible patients.
As you can see through our JV activity, new bed expansion and denovo activity the growth opportunity in behavioral health services remains robust and Acadia is well position to capitalize on these multiple pathways to grow revenue and profitability.
Throughout the quarter, we have continued to make progress in achieving the savings generated did the operational initiatives outlined in the strategic review update we provided last may.
We remain focused on implementing these initiatives to improve operational efficiencies throughout our operations.
We believe we will achieve approximately 20 million in annualized cost savings by the end of 2020, which is in line with our original announcement in may of last year.
As previously mentioned most of the savings will be in procurement, which will impact supplies and other operating expenses.
We have successfully completed a conversion of our contracted G.P. show in early February.
Our new G.P.O. will provide additional resources and closer alignment to drive de identified cost savings.
As we continue to implement initiatives throughout the year, we expect a gradual ramp to the full run rate savings amount of 20 million Bobby ended the year.
Because the facilities have done a fantastic job implementing the initial changes we're very pleased with our progress today and look forward to realizing the incremental benefits of our strategy. While we continue to support our patients with the highest quality of care.
The performance of our UK facilities was in line with our expectations.
For the fourth quarter same facility revenue was up 2.7% consisting of a 4.7% increase in revenue per patient day, driven by our rate increases 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 2% decrease in patient day, which is related to the retooling efforts, we discussed on previous calls.
Same facility EBITDA margin was 16.1% consistent with our expectation.
Operationally the UK business continues to demonstrate stability.
The team in the UK remains focused on operating the business as our process of assessing strategic alternatives continues.
As we previously discussed 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 his safely med.
At the ended the year, we had approximately 150 beds offline for read too late.
We have a detailed timeline for each project and we're working diligently to reopened a bad on schedule.
We believe there was a real long term benefit from retooling that will add value to our operations.
With the bad said, we've retooled we've already seen good results and believe this will contribute to our future growth.
We will continue to work with DNA jazz and other referral sources to identify areas in which we can help meet their demands and believe we are well positioned across our service line.
I would like to update you on our strategic review and potential sale at the UK business.
As we announced last year. The board has engaged a financial advisor to run a process to explore the sale of the entirety of our UK business.
The formal process was launched in January 2020, following the UK elections, and preliminary discussions with prospective buyers at the end of last year.
Consistent with market practice for UK transactions of this nature and in conjunction with our advisors.
We solicited and now have received initial non binding offers to acquire our UK business from multiple bidders.
We're currently in the second phase of the sale process.
During which interested bidders will recede proposed transaction documents and complete their confirmatory due diligence.
We expect to complete the sale of our UK business into second quarter or early into third quarter 2020, yes, as a result of our sale process.
We received that final from offer that our board determined maximizes value for our shareholders.
Lastly, before I turn the call over to David.
I'd like to set the stage for 2020.
We will continue to focus on quality and everything we do.
Whether it is maintaining exceptional standards and patient care across our network.
Investing in new beds or acquiring hospitals to serve the critical needs in our society or aligning ourselves with the premier joint venture partners around the U.S.
We are pursuing a purposeful and best in class growth trajectory.
We will continue to de leveraged the company.
Well, making prudent investments based on a disciplined return on capital allocation framework.
As we continue to grow our four lines of business you will see the synergies complimentary investments and corresponding operating leverage we can achieve to this approach.
We believe Acadia is in the ideal position to meet the tremendous market need that exists.
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 fourth quarter with $780.2 million compared with $743.5 million for the fourth quarter of 2018.
Our consolidated revenue growth of 4.9% was affected by revenue generated by close facilities in the prior year.
The close facilities had a 9.4 million had $9.4 million of revenue in the fourth quarter 2018, which represents.
1.3 per cent impact on revenue growth.
Consolidated revenue growth adjusted for these facility closures was 6.2%.
As a reminder, our fourth quarter 2018, U.S. revenue was impacted by an accounts receivable adjustment of approximately $8 million.
Adjusting our U.S. same facility stats for this adjustment as well as the impact from the specific facilities. We highlighted in the third quarter fourth quarter 2019, U.S. same facility revenue growth was 6.6% patient day growth was 4.4% red.
Revenue per patient day growth was 2.2% EBITDA margins increased 40 basis points as compared to the prior period.
The company's consolidated adjusted EBITDA for the fourth quarter of 2019 was $144.4 million or 18.5% of revenue.
Adjusted income attributable to Acadia stockholders for the fourth quarter of 2019 was $45 million or 51 cents per diluted share excluding transaction related expenses of $11.8 million, a 54.4 million dollar loss on impairment and an inc.
Some tax effect of adjustments to income of $9.9 million based on a tax rate of 18.1%.
The loss on impairment relates to property values that facilities that were close during 2019.
Turning to our financial guidance and as noted in our press release, we're providing guidance for the full year Twentytwenty as follows.
Revenue in a range of 3.28 billion to $3.34 billion adjusted EBITDA in a range of 610 million to $630 million adjusted earnings per diluted share in a range of $2.20 to $2.40.
Appreciation and amortization expense in a range of 175 million to $180 million interest expense in a range of 172 million to $177 million.
Total diluted shares outstanding of approximately 88.1 million shares.
Operating cash flows in a range of 375 million to $420 million.
Total capital expenditures in a range of 330 million to $350 million, which includes maintenance capex of approximately nine that $90 million.
Our guidance also assumes an exchange rate of $1.30 cents per British pound Sterling and a tax rate of approximately 17%.
Our guidance for the first quarter 2020 is as follows.
Revenue in a range of 795 million to $805 million adjusted EBITDA in a range of 133 million to $137 million and adjusted earnings per diluted share in a range of 37 cents to 42 cents.
This guidance does not include the impact of any future acquisitions divestitures or transaction related expenses.
Due to the process relating to our UK business, we are providing the following annual guidance for that segment for 2020.
Revenue in a range of 1.16 billion to $1.19 billion.
Adjusted EBITDA in a range of 180 million to $190 million and depreciation expense related to our UK business in a range of $78 million to $80 million.
As we look to 2020, there are several items that we would like to highlight regarding the timing of factors that impact our guidance.
First we continue to see progress at this specific facilities, we highlighted in the third quarter of 2019. The action plans at these facilities have been implemented we're seeing these facilities ramp up and expect improvement will continue through the first and second quarter.
Second as Debbie mentioned, we expect to see an ongoing contribution from the operational improvement initiatives throughout the year, which we expect to achieve a run rate of $20 million by the ended the year.
Third we expect bed additions to continue to drive strong growth throughout the year.
We have added 585 beds and in 2019 and expect to bring approximately 600 beds online in the U.S. and Twentytwenty.
As a result of these factors, we expect to achieve revenue growth in the 5% to 7% range throughout 2020 for our U.S. operations. Additionally, in the second half a year, we expect to achieve our goal of revenue growth at the high end of that range and EBITDA margin improvement.
For our U.S. operations.
This concludes our prepared remarks. This morning, I'll now ask Lisa to open the floor for your questions.
Thank you if he would like to ask a question please signal or pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure your mute options turned off to allow your signal to reach our equipment.
Also please limit yourself to one question and one follow up question.
Again that is star one to ask the question.
We'll take our first question from A. J Rice with credit Suisse.
Hi, everybody. Thanks, just maybe a look into the UK I think you're putting its a slight moderation in growth in the fourth quarter revenue and EBITDA versus what you've seen early in the year.
It sounds like that's mostly just retooling beds to get ready to take higher acuity patients, but we also do have the political backdrop going on and a move ahead with Brexit and so forth is still your views is that not having any impact on.
The business or the way NHS is relating to either staffing needs across the country or reimbursement on patient pool.
Hey, Jay you know I've talked with the team in the UK and they don't see any significant impact from Brexit I.
I think that you know historically, they really employed very few people from Europe, I think less than 5% of their workforce, but they don't see that being an impact I think you know as far as the election and just the political climate. There is a focus on mental health.
Well the UK I think that you know there may be more funding.
Through NHS, but there's not going to be capital necessarily for extra bad. So we think theres actually going to be more opportunities for independent providers.
There are provider collaboratives that are going to be.
In place and had there's been a lot of discussion they actually become effective in the spring. We're very involved with that and we think that's going to open new opportunities regionally for us. So we don't see an impact from the you know from the Brexit and also we don't see really changes in the.
The labor market. There there are talks about doing more from by NHS perspective to provide more training and money to for education for nurses and others, but you know we will be a recipient of that as that happens.
Okay.
And then maybe my follow up would be around a discussion around partnerships with health systems, a that seems like it's going to become an increasing.
Avenue for growth can you just tell us now does that sort of settled out last couple of last year too.
As.
Anything about the terms of the deals is every deal its own thing or is there a.
On situation or is there interesting aspects to the way terms are being done or most of these situations competitive are they coming through brokers or are these things that your network. You just are making contact with systems and and really pretty much work or whether exclusively.
I, probably answer that AJ to say all of the above I think that there are some processes that are competitive there are some systems that have taken the position they want to higher bankers to represent them and look at who is out there.
To partner with them. We also have several that have not done a competitive processes have reached out to us.
Exclusively and I think that's based really on our track record you. Most of those systems will do a back check of how we're doing with our partnerships and wouldn't wed when they do that we have excellent recommendations from the partners that we currently.
Have our existing relationships with but I also think said, it's a growing area and I think as I said in my remarks, we see actually more.
Systems, reaching out to us because I think they are seeing that they need to have mental health expertise.
As they look at how to serve their patient population health and and other areas. Each one is really different and I think that we do have a template that we try and look at four deal terms, but we also want to be responsive to our partners, we want to listen to what they feel is appropriate and we usually.
Come to terms, so that it's really a positive for both of us.
Okay, alright, thanks, a lot.
Thank you.
Well take our next question from Brian Tanquilut with Jefferies.
Okay.
Hey, good morning, it's Jason Plagman for Brian.
Thanks for the update on the UK sale process. So.
Looking forward at any thoughts on potential deployment of the proceeds you'd receive from that from a transaction and then or thoughts on potential capital structure.
Debt leverage things like that after a potential transaction.
Jason This is David we you know we don't have specifics to share with you at this time.
We do intend to de leveraged the company and have a capital structure that allows us to pursue the the growth and the the different opportunities that we believe we have.
The initial 10 is absolutely to de leveraged the company and we will share more specifics on what that looks like.
Immediately add in the long term for our capital structure as the process continues.
Okay Fair enough and then my follow up.
It seems like that to Novo and performance improved in Q4 can you talk about.
Outlook for those facilities in 2020 and then.
What you baked into your guidance for 2020 as far as EBITDA in back from the New de Novos you have plans to open in 2020.
Sure. We did talk about having two new facilities that opened in the first quarter of 2019, and some of the startup losses relating to those facilities throughout the year. We were very pleased that that both of those facilities achieved breakeven in the fourth quarter.
Sure.
That is within a year of opening that is the goal that we generally have for our new facilities in both of those facilities after getting off to a slow start did achieved that goal in the fourth quarter.
For the new facilities that we mentioned earlier for 2020, we do have about 5 million of startup cost in our 2020 guidance relating to those facilities those open throughout the year. So unlike 2019, where we had two at the same time, we have more of a phased approach for the de novo's that we see.
Coming online in 2020.
But the startup losses for those will be 5 million as a group.
Great. Thanks for the questions.
Thanks.
Well take our next question from Ralph Giacobbe with Citi.
Thanks, Good morning, I'm, just want to go to the guidance specifically the revenue guidance for 6.5% revenue growth.
2019, obviously slower year and you still have the UK challenges in that case under sales process. So.
I guess, just a comfort on that magnitude of growth.
Maybe I'll give it if you can give us sort of the underlying growth expectations for for the U.S. in the UK.
Oh sure. This is David we do have a strong revenue growth outlook in both the U.S. and the UK.
We are expecting for the U.S., 5% to 7% revenue growth throughout the year and we see that being at the high end of the range in the second half the year.
With the primary sector factors driving that being the bed additions being a strong number as well as the facilities that we highlighted in the third quarter improving throughout the year.
In the UK, we also have a strong revenue growth outlook.
And that primarily relates to the re tooling, we now have.
For the 150 beds that are currently offline detailed timeline as to when those beds come back online.
And and we see that starting in the first quarter and continuing throughout the year.
And so the volume growth if we see in the UK.
The project timelines that we have supporting the visibility that we now have around the re tooling is the key driver of the revenue growth in the UK.
Our pricing outlook in both markets.
Is between two and 3%. So in addition to the volume or we do expect an ongoing stability and and strong pricing in the two person to 3% range.
Okay. That's helpful and then just to follow up.
Maybe I missed it can you give us what the UK volume growth would have been at three tooling and is that sort of the bridge because I think given the guidance you gave just on the UK EBITDA of 180 to 190 million.
Pickup implies.
Good point growth of about 11% EBITDA growth. So can you just help bridge out I mean, that's that's a pretty sizable jump I'm kind of year over year to what we saw Nike. Thanks.
Sure, Yes in the UK up there is about a 2% impact from the retooling beds.
The revenue per day performance has been strong on increased pricing as well as improved acuity and service mix.
But there is the volume impact from the that beds that were closed for retooling so as those beds come back online.
We think theres, 2% volume growth just from that with other volume growth relating to an overall improvement in the UK occupancy and so you know mid single digit UK revenue growth is supported by the retooling beds coming back online overall other opportunities we have in the occupancy.
As well as the pricing that we mentioned so the the UK revenue growth isn't that 4% to 6%. If you look at it on a constant currency basis, there's a little bit of contribution from the foreign currency. So I'm not sure if you're seeing that in your numbers, but on a same cost.
Currency basis, it's a mid single digit expectation for the UK.
I'll just add that as we have been opening the retool bad.
The team in the UK has had a lot of success working with commissioners to obtain blob contracts.
And what that does is it assures is reimbursement for all of the beds were reopening.
And it gives us the ability to ramp back up on our staffing and get the beds back open but through a block contracted assures payment and we have over 30 of those presently and as we do reopen and we get to a point, where we finished construction that's when the negotiation starts with our coming.
Centers, and and I think that protects us a little bit from reopening the bags and having to ramp back up because we have taken that down obviously for construction. So they've done a good job with that and we expect more of those with the retool beds and opened during 2020.
Okay. That's helpful. Thank you.
Well take our next question from Kevin Fischbeck with Bank of America.
Hi, Good morning, this is actually Joanna gajuk filling in for Kevin today. Thanks for taking the questions. So first I guess, so just to clarify Oh, Oh, I guess I'm.
Also good on this phone call on to comment around the UK sale process. So you said you accept to complete a this transaction I asked because at the end of Q2, two kids, we so it doesn't mean that.
Oh, you know you can get it it's gonna be closed or you're going to have a final decision.
Announced by the time.
Well, we're in the second phase Joanna of our of our process and when we.
Talk about the second quarter early in the third we're talking about completing the sale and actually having that finished find out that is providing that we do have as I said in my remarks, you know a firm and final bid that we determine maximizes value, but if we do have does start.
Im stances, we expect to close either second quarter early third quarter.
Okay, great and I'm on the other piece I appreciate a common that oh, you're not oh, commenting on specifics in terms of they use of profits, but just philosophically, where I guess longer term you know when you talk about.
Turning to de lever. So can you give us a frame a you know I guess, how you'd think about the optimal leverage for the remaining U.S. best and I've seen how you're thinking more full time salaries to tell you know in different number in terms of debt to EBITDA kind of target for that business. Thank you.
Yeah, I mean, we were confirming that we are targeting a leverage that is lower than where we are today, we will provide more specifics and a range.
Once we complete the deal.
Okay great.
Oh, so can squeeze in a question on dog on that guidance are you now you are talking about the specific segments.
Oh, the UK cover which seems to be flying or the guidance for the UK business, just stupid I'm pretty decent growth, but the when we put their numbers tend to pay for it seems like foot. The U.S.. It's a it's kind of surprising low so instead of missing piece in terms of Oh, the unallocated corporate overhead or we should be also considering here in terms of just trying to.
Well I picked off you know implied you wish numbers, because we're getting I was very low low single digits. That's why I don't think that there will be what the guidance should be implying because you're talking about dog much stronger revenue growth on same store basis. So can you just frame to watch how you think about the U.S. growth outlook for the EBITDA I'm, you know 20 Twond you'll.
Let me also trying it in their kinda alongside the terms of how you think about that business. Thank you.
Sure Joanna and we did provide the guidance around the margin throughout the year with improvement happening throughout the year and and really in the second half of the year getting to a margin improvement on a year over year basis.
EBITDA if you just look at our U.S. facilities without the corporate overhead.
He is in a strong mid to upper single digit range.
The timing is part of that as we mentioned.
If you include the corporate office cost, let me just provide the detail around that because it sounds like that is something to clarify we we did finish 2019 with about $84 million of corporate overhead in the U.S. that supports our U.S. facilities.
We don't have a overhead and that number relating to our UK operations.
We do see that growing problem it and the expectation for next years at a range of 95 to 98 million. The reason for that really is items in the is the 2019 number.
It just cause that to be lower than what we target and the normal year, specifically our bonus accruals.
Our resetting in the 2020 guidance to more of the targeted number. So that is the primary reason for our corporate office projection going from 84.
On the $95 million to $98 million range.
Great. Thanks for clarifying <unk>. Thank you.
Thanks.
We're taking our next question from Peto, triggering with Deutsche Bank.
Good morning, guys. Thanks for taking my questions first one on on bed retooling cues quantify the number of bad several retooled and open during 19 and that finishing 250, they're close the ended the year.
Oh, Peter we did have a route of hunt 100 beds of the 300 total that we'll have gone through the retooling program.
That were open up at the beginning of the year are opened in 2019, and we mentioned having 150 beds at the ended the year that will be reopening in 2020.
Okay and then.
During I guess changes question, you talked about provider collaboration which I believe starts in April.
Let's see W. Two any new bed retooling throughout the year or do you think that sort of the 150 and then have those come online we won't see any additional back retooling is during 2020.
The team believes that were really add and I think the peak of the retooling I don't think that they expect to have a you know a substantial number of bad like we've seen in 2019, you know we're always going to look for opportunity. If we think a bad could be providing a higher level of.
Service brass by our customers, but there are any plans to do any more in a more of a material way around the retooling for this year.
Okay, Great and then last question.
In the U.S. and you see an impact from your competitors and autism or eating disorders in your markets.
Thanks, so much.
We really haven't I'm you know there are competitors and in both of those areas. We don't do you know we do provide some autism services, but not to any great extent, we had several eating disorder specialty programs and a.
They seem to be doing well and actually growing I think you know there are competitors and there have been this is it's an area that I think there's a great need in.
For that kind of treatment that we have not seen any real meaningful impact competition.
Great. Thanks, so much.
Our next question comes from Whit Mayo with you'd be yes.
Hey, Thanks. Good morning, just wanted to go back to the to the UK a bit I'm I'm struggling a little bit with with with the guidance, but looking at the fourth quarter, you don't want a constant currency basis, the operating cost per patient day increased about 7%, which as you know actually sequentially worse than this trend of.
Continued cost inflation really hasn't improved in and just continues to you know trend in the wrong direction, which I know it was partially a function of the retooling efforts. So there's just a lot going on and I guess I'm just trying to understand what do you sort of underwriting and your plan for 2024.
Operating cost per patient day, or if there's any way that you can provide some context around.
The last quarter or two how much extra expense you're carrying through your your run rate right now from all these retooling efforts.
Yes with on on a cost per patient day basis, we actually see the growth. If you look at it in constant currency, it's less than 5% year over year and that that really reflects the service mix and the higher acuity of the patients were seeing.
We are focused on.
The margin.
And just making sure that the revenue growth reflects that that service mix in that higher acuity and from that perspective. The margin has been very stable over the last six quarters.
As we look at the labor metrics, we've seen stability in both the a the agency percentage that we're utilizing within the labor as well as just the overall labor cost as a percentage of revenue. So there is an increase in the operating cost, but it does relate to the acuity in service mix that we see.
So maybe I didn't understand them. So how are you assuming that that trends and in 2020 minutes should it should moderate I'm just trying to get a sense of.
What are your assumptions are.
Yeah. It does it does moderate I you know the other part of the equation is obviously the volume and we have maintained.
Some staff during the retooling and that allows us to see the volume in the margin benefit as those bids come back online.
So that will be reflected in the 2020 cost per patient day numbers.
Primarily driven by the stability that we see in the labor costs, but also the incremental benefit of the volume.
And when I'll just add as we have retooled and we have brought to the beds down and we you know discharge patients to a lower level of care. There's a core staff that we have needed to make sure that you know the ward is safe. So in some instances to the year, Anna and actually the third quarter and into the fourth we.
We're keeping a you know a core group there to make sure that as we ramp down we had safety and a on the warrants in the UK.
That's helpful. Maybe just to two quick ones of the 20 million of of savings that you've identified identified from you know a host of operational initiatives. What do you I actually expect to realize a in 2020 I know the you you'll hit the run rate of 20 million by the fourth quarter, but wanted to know what the incremental realization is and then off.
For your joint ventures, as there're a number to think about from real estate acquisition spend this year and that's it for me.
Well first on the operational improvement initiative, we do think that we will gradually build to that 20 million that we achieved by the ended the year.
It's somewhat gradual throughout the year and around $10 million is our expectation for what the realized during the year.
As it relates to the real estate acquisitions, but some of that spending does relate to just when we buy land or when we have other real estate assets acquired relating to an expansion or a new facility or joint venture project.
Going forward.
That will continue to be around where it was this year as it typically is around $10 million to $20 million, but we think of that as part of the investments that we're making right in the different types of growth.
Okay. Thanks, a lot.
Thanks.
Our next question comes from Matthew Borsch with BMO capital markets.
Hi, I said a question on the EPS guidance, if I take the high end of your revenue and EBITDA adjusted EBITDA range is.
And the other guidance that you are giving on DNA in interest expense in the share count.
I'm getting to something well above the arch.
The sorry, the range of 220 to 40.
Making a stupid mistakes, we can take it offline, but I just wanted to see if there was something obviously I might be missing I know the tax rate you're guiding to 70%.
Yeah, Matt It does depend on the range that you use for those non operating cost and weve provided clarity around depreciation and interest so depending on whether you use the low end throughout all of the numbers docket are you incorporate some type of high end yeah. Okay.
Makes sense. The other question is on that first quarter it looks like.
Youre you Guy I got you something sort of flat EBIT thats, the first quarter and I'm just wondering on the revenue Hi line, sorry annual revenue was obviously up like 5%.
What about the calendar impact how are you estimating that decent data benefit.
With respect to the the leap day, obviously, but theres also a little bit of other year over year benefit there.
Yes, we do see a benefit from having one extra day compared to the first quarter of 2019, we estimate that somewhere in the range of one to 2 million, okay, but that is a year over year benefit that we expect okay and how are you thinking about the stranded if well.
Are there any stranded costs as you see it or at least lost operating leverage or that you would expect to have for some period of time hi.
After the UK sale.
No there's really not I'm in the U.S. corporate office costs that we mentioned a minute ago relate specifically to our U.S. facilities and there are a few million of cost that we have within that number.
Just that relate to the cost of us being a multinational company. If you think about higher professional fees relating to the tech tax requirements and things like that.
So there will be a wind down of a few million of additional costs that we carry.
But we don't think about there being any stranded costs just given the self sufficiency of eve each of those two segments.
Let me just one last question on that which is do you think that we external we have the data elements on Q.
To really asking me what the run earnings.
Run rate's going to look like.
Just a sale of UK I mean absent the impacts maybe of out there.
You know capital reallocation from that sale.
Yes, Matt, we do and as part of our intent and providing the UK depreciation number and other metrics. Okay. Just to give you all the information that we think.
Thank you very much.
Okay. Thank you.
Our next question comes from John Ransom with Raymond James.
Hey, good morning.
Sorry, India way back in machine.
When you bought CRC from vein at about 475 million of revenue.
600 empty beds and I don't think you guys disclose how big the.
Methadone business was but could you just approximately size that business today, and I'm, particularly interested in how how much. The a method on business has grown in the last six years.
You know we have 127 clinics were now in 32 different states.
We have seen strong performance in that business.
Improvement in the coverage that we haven't.
Really a diversified payer mix within that business.
So yeah, we we've seen strong revenue growth in line with what we've reported on an organic basis for U.S. facilities as part of that number.
So hopefully that helps you size, where the businesses today, we don't separately report revenue relating to that segment because it's just it's one component of our us operations.
Do you remember how many you had when you bought it definitely versus the 127.
John I don't I think it was somewhere around 75 clinics, we've done for so tuck in acquisitions within that service line.
Okay.
And do you remember kind of approximately <unk> of the 475 million at the time what percent of that was is it fair to say that was maybe 25% of the mix at the time.
Does that crazy.
Hi, I don't remember what that representative the CRC business, where we are today that segment that service line is around.
15, 17% of our U.S. revenue.
But I don't recall, what piece of previous acquisitions that was.
And then just last one for me is of the beds, you've added and plan to add in 2020, so let's kind of take 18 1920.
Approximately what percent of those are de novo's, freestanding standalones versus adding beds to existing facilities.
John I didn't know those are 300 of the the 600 and the remaining or bed additions.
We will be making to our existing facilities, so would that happen half.
Great All right see you next week. Thank you.
Hi, Thank you.
Well take our next question from Gary Taylor with JP Morgan.
[noise] Hi, good morning, most my questions answered I just wanted to understand just a little bit.
Of the a U.S. trajectory year over year in sequentially. So it looks like if we adjust for the C or charge in the fourth quarter of 2018.
Let's see improvement sequentially in the U.S. same store.
Margins are down about 140 in the third down about 90 adjusted in though.
Fourth so are you based on your comments I guess, implying that you do think same store margin U.S. are down in the first half and then they'll be up in the second half.
Like that's what sort of underlying though the guide.
Yes, Gary we do and and hopefully we provided enough explanation around some of the factors driving that.
There are a few other factors that that we do think contributes to that.
Ill give you just another example that will hopefully just help you understand the.
The guidance throughout the year, we did make a change in the timing of our merit increases for our U.S. facilities. We so in 2020, we are transitioning that merit increase to happen rather than at each employees annual anniversary date to once a year either in January or April.
For all facilities. This is an improvement.
Not only in just the in the process the employee evaluation process and performance review process, but also you know just the visibility the control that we have as we think about facility level cost.
As part of that there was a shift.
Is that we will be going through on a onetime basis that affects the year over year comparison 21 to 2019. It does shift some cost at the first half of the year, but will result in a more stable costs throughout the year going into the second half of the year, so that along with some.
The other factors that we mentioned around the specific facilities improving bed additions coming online the operational improvements.
That's part of our margin expectation improving throughout the year.
That sounds like the second my follow up was just it looks like a consolidated margins down 40. This quarter. Your first quarter guidance is for those margins to be down about 100 basis points.
Year over year. So it sounds like there was some of the corporate overhead stuff. He talked about stepping up also this change on the.
Merit Com, probably I guess would be to the biggest factors on just that sequential guide.
Yes, Thats right Gary Okay. Thank you.
Okay. Thanks.
Our next question comes from Ryan Daniels with William Blair.
Hey, guys, Nick speak out in for a Ryan Thanks for taking my questions I.
Hi, guys I know, we're talking about this in the past and you haven't seen anything but just wondering what you guys are seeing on the labor front in the U.S. I know competitor.
Nor are they are having some trouble filling some baking season I think they quoted that their annual wage increases jumped about <unk> percent this year. So.
It's a little bit update there.
Hi. This is this is daddy, we haven't really seen labor pressures you know really.
Differ from 2019 are projected to I think you know part of it and you know looking at other than the industry. We have our service lines that I believe factor into some of the the labor pressures, particularly around our end Oh, we do have the special.
The area and CTC, which are not as depended on NR oriented they use other professionals and the other I think factor, which I think is very positive is we have had a very focused process on recruiting and retention.
And I think that while we make changes in market. When we think we might be at a point, where we might limit census, which we have not done and we see capacity issues developing because it staffing we have been proactive and making sure that were putting in wages.
Segments is necessary, it's very you know variable by market and I think you know again comparing to others in the industry. We're not in all of the same market. So we have markets, where we do have pressure, but then we have others, where we're keeping up with the competition through our our wages.
Great. Thanks to that and I guess, just shifting to the UK retooling, what's the progression of after 2020 that is that weighted in the back half or in the front half are pretty even about for those ER beds coming back online.
It's really evenly throughout the year, we do have some of the projects that tend to be larger than others are they typically range between 10 and 30 beds each.
And and we have the first one is ready to open in March and it has a block contract for the reopening and so it's starting in March and it's somewhat evenly throughout the year.
Okay, great. Thanks, guys. It for me.
Thank you.
And that does conclude the question and answer session I'd like to turn the call back over to Debbie asking for any additional closing remarks.
I just want to say, thanks for being with US today and for your interest in Acadia healthcare I'd like to conclude by thanking all of our employees and our clinicians.
Every day, they show real dedication and focus.
They want to provide the highest quality care to our patience and our families and I appreciate their efforts and I just want to thank them.
I'll also say that if you have additional questions today, please do not hesitate to contact us directly and have a good day.
And that concludes today's presentation. Thank you for your participation and you may now disconnect.
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