Q1 2020 Earnings Call

May 5, 2020

[music].

Please standby we're about to be.

As a reminder, this call is being recorded please proceed.

Good morning, and welcome to Acadias first quarter 2020 conference call, Congrats and Hallmark director of Investor Relations for Acadia I'll provide you with our safe Harbor before turning the call over to our Chief Executive Officer.

Study as seem to the extent any non-GAAP financial measures discussed in today's call. You'll also find a reconciliation of GAAP measure to the most directly comparable financial measures 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 the other private Securities Litigation Reform Act 1995, including stigma among others regarding acadias expected operational and financial performance for 22020 and beyond.

For this purpose any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements without limiting the foregoing. The words believe you anticipate plans expects and similar expressions are intended to identify forward looking statements. We caution you that these statements may be affected by imports.

Factors, among others set forth and Acadias filings with the Securities and Exchange Commission and the company's first quarter news release, and consequently, actual operations and results may differ materially from the results discussed in the forward looking statements 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 I would like to turn the call over to Debbie posting for opening remarks.

Good morning, and thank you for be staying with us today for our first quarter 2020 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 on our response to the covered 19 pandemic.

And on our financial and operating results for the first quarter.

We'll also discuss what we're seeing so far in the second quarter.

We will then open the call for your question.

Before I discuss our results I believe it is important to reinforce in times like these that our top priority now and I'll always hard to health and safety of our patients employees and visitors.

We have put into action the following initiatives to protect them, while continuing to provide quality care to our patients.

First in February we implemented the recommended the cautionary measures in response to cope with 19, including recommended patients and requirements issued by the CDC and state and local health authorities.

Second.

We instituted social distancing practices and protective measures throughout our facility which includes.

Restricting and in many cases suspending visit or access closing common areas limiting group therapy and screening patients since and staff, who enter our facilities based on criteria established by the CDC.

Third we advanced our supply chain management to ensure we have key P.D. and supplies for the continued say 50 of our employees.

This included conducting and updating a weekly inventory.

Across the company for PBB, and establishing a web based process to request Pbten.

For better visibility of our needs and distribution.

I want to thank our procurement team.

It's been an integral part of this process.

For over the course of the last two months.

He has significantly increased communications with physicians facility staff Division leadership in our corporate employees.

Including daily update calls and Webinars with resources and guidance for the facilities and we established a task force of key leaders that meets daily to address concerns develop action plan and monitor responses throughout our facility.

Moving to our results for the first quarter they were in line with our expectations.

During the quarter, we achieved revenue growth of 2.9 per cent compared to the same period of 29 team.

Reflecting our continued focus on growth initiatives, both his service expansion at our existing facilities and opening new facilities.

Since the first two months of the quarter. We were very pleased with our same facility patient day trends for both the U.S. and UK operations.

For our U.S. operations same facility patient days increased more than 4% to the first two months of the year compared to the prior year.

The covered 19 pandemic affected our business starting in late March and caused same facility patient day volumes to declined 3% in the last two weeks to the month relative to the same period last year.

In the UK.

Same facility patient days were flat through the first two months in 2020, and then declined 3% in the last two weeks.

March as compared to the same period last year.

The impact of Cobot 19 vary by geography, and business line with facilities and hotspot areas across our network more effective than others.

The diversity.

Of our service model breadth of our network and actions taken to shift our marketing efforts.

As offset some of the impact of the pandemic and continues to serve us well during this crisis.

Some of the factors that affect affected our business line starting in late March were first slowed down and referrals from traditional sources, such as emergency rooms and medical professionals.

In many of our markets our acute facilities receive referrals from emergency rooms.

As he our visits declines.

There was a corresponding effect on our admissions.

Second the stay at home, one quarter's implemented by many cities and state.

We saw very direct correlation to our admissions at state encouraged individuals to remain home.

Well not intended.

We believe our potential patients did not seek the care they needed.

As states begin to modify these orders, we anticipate that our potential patients will again seek needed mental health assistance.

Third.

The various effects of travel restrictions on our facilities to draw patients nationally for treatment.

Particularly in our specialty service line.

We have some facilities that admit patients from a wide geographic area and a portion of these patients travel.

To reach our services.

We believe these factors are temporary.

And the demand for our services remains strong across the portfolio and we expect to see continued improved movement as restrictions are lifted.

However, we do not have visibility on when volumes from our referral source with this will return to prior levels.

In the month of April our volumes declined 7% compared to last year.

Reflect being some deterioration in the first two weeks with signs of stabilization and improvement during the latter half two weeks.

Shifting to the UK operations beginning in late March our UK operations also face temporary disrupt.

And from the impact of the stay at home orders.

On the referral and commissioning process.

While the vault.

Im impact in the UK has been limited due to the longer length of stay pay for many of our service line certain services with the shorter length of stay have been impacted.

In April we have seen stability in our senses ending the bonds at a 5% decline compared to the prior year.

From our discussions with the NHS, we believe there may be a surge in individuals requiring mental health and addiction treatment.

And we have developed a comprehensive plan.

To meet this need across our service lines.

Due to the pandemic, there's only been a slight delay in the construction of our retooled beds and we are still on target to reopen those beds by the into the year.

As we move forward. These beds will be important to help address the demand and following the Pam Denny.

With the health of our experienced senior leadership team strong local leadership and staff in our facilities, we have implemented the following action to help mitigate.

Some of the impact from the covered 19 pandemic.

These include.

Increased utilization of technologies to support stay at home orders and better serve market demand, including Tele health options for patients and virtual visitations for families and Guardians.

I would like to thank the administration and state agencies for relaxing and modifying regulations for Tele health.

They worked rapidly to allow practitioners to work across state lines as we strive to accommodate our patients.

We shifted the approach for our sales and marketing platform to better reach patients who need our help during this pandemic and with our referral sources, many of whom have been working from home to tele health for care continuity.

We launched a national behavioral health crisis hotline designed to offer urgent assistance to any individuals in need of mental health for addiction treatment.

The centralized 24 seven crisis line offers immediate no charge clinically approved assessments to support underserved communities and connect patients with the treatment they need.

And we collaborated with other large public health care providers across the country in an effort to absorb patients coming from medical hospitals as they converted their resources to fight covert 19.

In addition, as volumes started to decline in the latter part of March and throughout April our operations team was very proactive in implementing necessary changes to mitigate the financial impact, including aligning corporate emphasis.

Pretty level staffing costs with patient volumes and implementing a hiring freeze for Nonclinical staff.

Canceling all non essential business travel, reducing discretionary expenditures and temporarily reducing marketing spending.

Negotiating with our vendors and less source for discounts and or revise payment terms.

Closely managing our working capital as our facilities continue to bill and collect for services rendered.

We continue to make prudent investments to serve our patients need ensure the safety and well being of everyone at our facilities and prepare for the mental and emotional impacts that this pandemic could produce in the months ahead.

During the quarter, we added 78 beds to existing facilities in the U.S.

Moving forward in 2020, we plan to reduce our capital expenditures and have modified the number of beds that we will add during the year.

We also remain committed to our partnership strategy.

In recent discussions with our partners and prospects during this crisis. They acknowledge that while cobot 19 requires considerable resources and executive attention from their health system.

Their leaders also believed this crisis will end and it is critical that they keep working on future plans.

We expect to opened three de Novo facilities later in 2020, including two facilities with joint venture partners.

Positioning us for the growth that we see across the portfolio.

I would like to update you on our sales process for our UK business.

As we announced in March the board decided to temporarily suspend the sale process of our UK business until market conditions recover.

We believe interest from potential buyers remain strong.

And our objective will be to restart the process at the appropriate time to maximize value for our stockholders.

Lastly, before I turn the call over to David.

I'd like to recognize and thank everyone of our employees across our network.

They're stream and dedication to providing care to our patients. During these challenging times has been nothing short of amazing.

We continue to draw strength from each other and our patients as they continue on their path to recovery.

This pandemic has undoubtedly created mental and emotional issues that will lead to be treated in the month and potentially years ahead.

And Acadia is ready to answer that call.

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 first quarter with $782.8 million increase of 2.9% compared with $760.6 million for the first quarter of 2019.

The company's consolidated adjusted EBITDA for the first quarter of Twentytwenty was $132.8 million compared to $136 billion in the first quarter last year.

Net income attributable to a caveat stockholders for the first quarter of Twentytwenty was $33.5 million or 38 cents per diluted share compared with a net income of $29.5 million or 34 cents per diluted share for the first quarter of 2019.

Adjusted income attributable to Acadia stockholders per diluted share was 42 sets for the first quarter of 2020, which excludes transaction related expenses of $3.5 million.

The income tax effect of adjustments to income of point $3 million.

Turning to our financial guidance the impact of Kogut 19 on our operations and financial results. During 2020 will depend on among other things.

The length of time and severity of the pandemic.

The lifting of stay at home orders as they restrictions.

The timing and phasing of the economic reopening and the willingness of patients to travel.

As we announced in our press release due to these factors and the general uncertainty related to the Cobot 19 pandemic. We're withdrawing the 2020 financial guidance that we previously issued with our fourth quarter announcement in February.

We continue to be confident in the company's long term growth opportunities based on the increasing need for mental health and addiction treatment services.

We have ample liquidity and capital to invest in and grow our business as of March 30, Onest 2020, we had $81 million in cash and cash equivalents plus availability on our 500 million dollar revolving credit facility.

Subsequent to the ended the quarter Acadia borrowed $100 million under its revolving line of credit in early April to enhance its overall cash position.

Acadias balance sheet remains strong and the company remains well positioned to meet the long term demand.

As part of our ongoing review of the business and efforts to enhance our financial flexibility. We conducted a thorough evaluation of all capital expenditure projects planned for 2020.

To further enhance our cash position, we decided to decrease our expansion capital expenditures by $35 million from the previous range of $240 million to $260 million to a revised range of $205 million to $225 million.

We are completing the projects that are close to completion, many of which have beds coming online in the near term.

New and existing facilities.

35 million dollar reduction represents termination or delays in certain early stage projects based on project returns and other considerations.

We have a high level of discretion to make further adjustments to our 2020 player.

Also to provide for greater near term financial flexibility in light of the impact from the ongoing pandemic, we've amended our credit agreement to increase the maximum consolidated leverage ratio from 5.75 times to 6.5 times for June 30.

At September Thirtyth 2020.

And from five and a half times to 6.25 times for December 30, Onest 2020.

Additionally, the company is closely monitoring the impact of legislative actions, including the passing into law all of that cares Act in late March.

Several of the notable benefits of the recent legislation include first reimbursement to hospitals and other healthcare providers.

Public health and social services Emergency fund of $100 billion has been established to prevent prepare for and respond to covert 19 by reimbursing eligible health care providers for expenses are lost revenues.

An additional 75 billion was approved in April 2020.

Acadia received approximately $20 million in April relating to the initial allocation of these funds. We're currently reviewing the terms and conditions associated with these payments and completing the attestation process.

Second the Medicare advance payments program Medicare has offered advance payments equal to our Medicare revenue for a three month period.

We applied for and received approximately $45 million of advance payments in April 2020, which we expect to repay over a three month period from August to November of this year.

Third a temporary suspension of Medicare sequestration, the listing of the 2% reduction.

On May Onest at December 30, Onest results, and an expected earnings and cash benefit of approximately $3 million in 2020.

For a delay in the payment of employer payroll taxes.

The employer portion of social security payroll taxes for the period for March 27 to December 30, Onest can now be deferred and paid in two equal installments at the end of 2021 2022, resulting in a cash benefit of approximately $39 million for 2000.

20.

And finally, the increase in the interest deductibility limitation applicable to our us income taxes.

As part of the tax cuts and jobs Act of 2017, our interest deduction was limited to 30% of adjusted taxable income.

Within the care Zach this interest expense deduction threshold was increased to 50% of adjusted taxable income for the 2019 in 2020 tax years.

Making our interest expense fully deductible for these years.

This change provides a cash flow benefit in the forms of refunds or lower tax payments of $16 million for the 2019 portion and between 15 and $20 million for the Twentytwenty portion.

In total we expect to receive approximately $100 million of incremental cash during the second quarter of 2020.

We will continue to monitor further developments and allocation of funds.

That concludes my prepared remarks, this morning, I'll turn it back over to Debbie for some final comments.

Thanks, David.

We believe the demand for mental health in substance abuse treatment is not discretionary or elective.

We believe this crisis will have wide ranging consequences for many individuals.

Behavioral health care providers will be a necessity to support our society's on the road to recovery.

We believe the global conversation has focused correctly on the importance of physical isolation to stop the spread of co that 19.

But across the world. This may be a negative experience for those with mental health issues prior to the pandemic or as a result of the isolation and inability to seek treatment.

With our experienced management team diversification of services and scale across 40 stage, Puerto Rico and the UK, We believe Acadia will play a vital and leading role in the industry.

This concludes our prepared remarks. This morning, I will now ask Jennifer to open the floor for your questions.

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

If you are usually speakerphone, please make sure.

And is turned off to a liar signal to reach our equipment.

Please limit yourself to one question and one follow up.

So again press star one to ask a question.

Pause for just a moment to allow everyone an opportunity to signal for questions.

And we'll go first to Kevin Fischbeck with Bank of America.

Great. Thanks, I was wondering if you could talk little bit about how you think about growth during a recession, maybe just walk us through.

Payer mix shifts, maybe give us a sense of kind of commercial rates versus Medicare versus Medicaid.

I think about volumes during recession, and then any kind of cost offset you might have on labor or other areas. Thanks.

Yes, Kevin I'll start with debt.

We do think that that business is resilient and performs well during a recession and the demand. We we expect will continue and as we've mentioned.

Potentially increase as we go through the next several months in years.

On your question about the payer mix.

I think we have a very strong and stable payer mix is diversified across the different payers and even within the different service lines that we have is a very strong and diversified payer mix.

We do have 50% of our revenue in the U.S. is Medicaid.

In a very balanced mix.

Medicare and commercial making up the other two main categories that we have a with a very low mix around 7% of self pay revenue. So we do treat patients that have.

Insurance coverage through a government or a commercial plan.

In terms of how we think about the differences between the different rates across those different payer categories.

It does depend on the service line and depend on the market, but for the most part we do not see a significant difference across those different payer categories.

We do think about commercial as being about 10% on average above our Medicare rates and Medicaid rates, while it depends on the market may be about 10% below Medicare rate, so a pretty pretty tight range from commercial to Medicaid rates.

I'll just add Kevin that I think many people so far have been able to keep their health insurance benefit that they've been furloughed, we're going to watch that very carefully, but I do know that in past economic downturns, the mental health business in particular has been resilient as Dave.

David mentioned, and we think we're well positioned to take care of the patients with our services and the diversification of those services.

We will watch this carefully but we do believe there's going to be a real demand surge in both the us in the UK and we feel like we're very well prepared to handle that.

Alright, Great. Let me just last question as far as the slowdown in the in the bed openings that you're hearing right now how do you think that's going to impact growth in for next year do you think that that will hover.

Meaningful headwind for your long term growth targets.

Kevin We really don't we we entered the year with a very strong number of bed additions in the U.S. and talked about approximately 600 new beds.

And the revisions that we've made in our Capex plan.

I think allow us to continue to bring on strong number of beds. This year. The revised ranges between 500 600, So we do not see a material change and the bed additions that we're bringing online.

Which supports the growth rate that we expect next year in the following years.

All all some there Kevin that in the youth in the UK with the retool bad that we have been in process with those beds have had just a slight delay, but we are definitely on track to bring them back by the ended the year. So the growth that we project in the UK.

Certainly still on track and we feel good about where we'll end up of years in.

Thank you.

Well go next to AJ Rice with credit Suisse.

Hello, everybody good to hear on say.

I know this maybe maybe isn't it fair question, but it's it's somewhat striking we don't have a lot of comparables, but your number one pier.

Talks about in there.

Thank you answer behavioral health business, they were down 25% in the last two weeks to margin admissions and you're calling out about a 3% decline.

I don't know if you have any.

Pretty sensitive as that mix driven do you think geographically driven.

I guess that level of disparity were used to some level of disparity, but that level seems just.

Just stand out any any thoughts about that.

Me AJ I think that we're a little unclear on the comparison.

With together company and their metric that we we really feel like we have.

Differences between our two companies we have a lot of diversification of our service line and really our markets as well, we have a very diverse and broad referral base.

And I think that has served us well during this crisis.

But I also think that we acted very quickly.

To address the decline in volumes with flexing staffing, we immediately shifted our sales and marketing approach I can't speak for how others have done that but I do know that we we did work with a sense of urgency we expanded the tele health very quickly we.

We shifted our focus with consumers and also our referral sources. So I think that is we look across our service lines. We certainly have had impact, but I think that we took action to try and minimize that impact during all of this crisis.

I mean at cross so service lines was there any.

Any meaningful service lines that were down in that order of magnitude or were they all similarly off as aggregate numbers.

Yes.

The format of service lines for our US business of course include acute being the largest our specialty business and our CTC and residential businesses.

The CTC and residential volumes have been very stable throughout.

Of course, the residential those patients are with us for a longer period of time as CTC, we have kept those patient.

Treatment and just really been focused on continuing that the treatment and the medication that that they made up and then as you compare our acute as specialty I think it's been a similar decline between the two as we think about.

How the different service lines makeup the 7% decline that we mentioned for April so we've not seen a significant difference from that level either within the acute or the specialty businesses.

Okay, maybe my other question would be.

Two items that were in progress before we hit this.

Oh good situation.

One being the changeover.

Oh viewers sourcing your Geo in February and the other be the five facilities that were under pressure in the second half of last year can you provide us an update on those played out as you expected.

Are there any challenges are positive surprises on any of that.

Well I think we were very pleased A.J. with the progress that we were making in in the first quarter with the facilities that we discussed last year and I think that certainly they action steps that we put in place we were seeing results.

Several of the facilities in the group, our specialty and they do draw from a national referral network. So they have been impacted by the stay at home orders, but we do believe that we have implemented the right actions and I think that we were we were pleased with where we were before.

Cobot 19 started impacting volumes at the end of March I'll say about the initiatives that we put in place around procurement, we're very thankful that we did that in the fall and build our team.

And we are initiatives are on track we have.

Made a transition to a new G.P. show.

Certainly the focus during you know into March and into April has been on making sure that we have proper PB, but they have not taken their eyes off of the other initiatives and those are moving forward and we feel like we're on track to to end up where we expected to be at the end.

The year.

Okay. Thanks all.

Thank you.

Well go next to Ralph Giacobbe with Citi.

Thanks, Good morning, I wanted to I want to ask a little about you had noted the demand surge you expect.

I guess, just a little bit more on the visibility on that is that just your expectation that it's going to come or is there some sort of.

Your backlog, that's just not allowing you to sort of see that demand and that related to that how are you finding the labor backdrop, you know at this point.

Obviously, a different skill set but perhaps for the first time it in a long time hospitals sort of Furloughing staff do you see that I sort of a viable opportunity to add staff for you.

Well I'll answer the first part of the question and I think that.

So we know that yeah. There has been a surge in the hotline Sam So reported a 900% increase and you know in past recessions in prices. It really has been linked to suicide and really stress and anxiety.

So while we can't predict how that might happen over the next course of the this year and into next year. It's you know I think as Gallup poll, which was done in late March they found that 60% of the adults that they polled were reported experiencing daily.

Feeling to stress.

And so I think even the polling company said that was unprecedented.

We expect that there has been paid there have been patients that have stayed at home because of the stay at home orders I think unlike other situations. There has been a factor of fear and I think other specialties has seen it as well where patients were afraid to seek care because they didnt.

One exposure to covert 19, so I think our instincts are and our belief is that there will be demand and it could be greater than what we normally see.

And on the Labor question the business in the U.S. and the UK I think have performed very well through a strong employment market and we've been able to staff our facilities with all the resources that we need to support the volumes as we.

It or potentially a lower unemployment market, it's probably too early to say what impact that could have but it could be a an additional positive for us as we think about recruiting and having all the resources, we need to support the business.

Okay. That's helpful and if I could just one more.

I know, obviously, you've pulled guidance, but any broad commentary around the consideration between pricing and volume.

Maybe in the second quarter patient days come down would you expect revenue per patient day to increase just based on the argument of higher acuity or would that not be the case and maybe if you can just give us a sense of what was revenue and April in the U.S. compared to the volume down 7%. Thanks.

Oh, it's too early to provide any specific numbers there.

I do think of course, we provided the volume decline that we have seen for the full month of April.

As we think about revenue per day.

It will be impacted by service mix and there are certain parts of the business where the.

The way, we're paid and this is within our CTC business.

We're working with our payers because in some states in with some payers.

We get paid when the patient is physically at our facility and is able to receive.

Balancing and some other services so our payers have been very supportive, but we do need to work through just finalizing how our payment will work with the CTC business. So we are dealing with some revenue per day initiatives like that.

But it's too early to provide any specific ranges there for the quarter.

Okay. Thank you.

The next to Brian Tanquilut with Jefferies.

Got it so everyone safe.

Then from view sort of your day around here I guess my first question for Debbie.

What about the marketing pullback that you talked about.

Are you thinking about how's that would impact demand or volumes. Once we get post test so that or are you re ramping the marketing efforts at this point or what are the plans in terms of just patient outreach strategy.

Well I think we're really monitoring it on a daily and weekly basis, and as we see a need to.

Change our current strategy, which has been to.

We do some of the expenditure we are prepared to do that we have some very good metrics here and were able to track that very very closely with data and so as we see the demand start to return we will change our strategy to two really need that I think that.

That certainly we'd focus more locally and regionally with the spend at this point, but as we see travel start to come back we will make adjustments to our spend in our strategy as we need to.

I appreciate that and I guess my follow up Debbie is I think about the UK.

Venture the sale process. They are what are the discussions with the would your advisors in that one I mean is that obviously this is a temporary decision right but.

How are you thinking about.

Factors would drive you to get back to market or is there anything operationally that you need to see with assets before you say, we're ready to.

We started the process.

Well our advisors in the UK have maintained regular dialogue with the potential buyers and Dave had discussions with them their interest levels in prior rate remained strong.

I think that what we're looking for is more visibility on the progression and a recovery from covert 19. It certainly has had.

A big impact in the UK much like the U.S., but I think primarily we want to see.

Normalization of the debt market conditions in the UK, we want to see that yeah financing a transaction of the size of priory can happen.

I do think said buyers are interested in meeting with our management team they've had some interaction, but they want to go to the facilities and so we're waiting for the opportunity to allow that to happen and right now as I know you can understand our management team is really focus on cash.

Going through this but at some point as we move through the the prices buyers want to be visiting facilities, and we'll provide that opportunity, but I do believe their interest level is very strong in the asset.

I appreciate it thank you.

[laughter].

Well go next to Pita chip.

Thanks.

Good morning, guys. Thanks for taking my questions drilling into the UK market for for for a minute can talk about what disruptions you saw within the UK how was different than in the U.S. and what are the any just telling you about how they view discharges over the next say 30 60 90 days.

Yes, Peter I think one of the key differences other than just the volume impact being more limited in the UK market is on the labor side.

We have been managing with a higher level of staff absences in the UK. There was it just a slightly different approach in that market to encourage even healthcare workers to self isolate if they met certain criteria and and we saw that accelerate some and.

Early April but have really already seeing that peak and a lot of the workers that self isolated in early April have returned to the business, but that will have an impact on our labor costs for April theres, a continuing pay for those employees as well as backfilling those positions but.

The team there has done a great job managing that.

Have also had a lot of flexibility around how we staff the facilities.

So really pleased to work through that we think fairly quickly and be able to run the the facilities that we have there with the right level of staffing.

We've also been told our team there that there may be reimbursement for some of those salary costs that are a direct result of poses a 19, they have not giving detail around that but we do believe that some of those expenses will be offset we just don't.

No what that number will look like at this point.

Great. Thanks, and then operate seems like Georgia that have already begun using the restrictions.

Like I realize it's very early in the process, but what did you see specifically in Georgia.

What bounce backs, you know I've seen relative to other states or what lines of business are coming back faster.

[music].

Well, it's very early on and many states are in partial phases of return we have seen any increase in our admissions.

At our facilities in Georgia, and Weve have specifically, saying increases in the E. R. Visit you know again I I don't know what that will mean long term, but.

We have seen a relationship between the state opening and then calls and added mission.

We don't know that that will hold true for all our stage, but it certainly hasn't yet in the early states that have come on.

[noise] well go next to Matthew Gilmore with Baird.

Oh Your line is open you maybe on me.

Hey, good morning, sorry about that.

I wanted to ask about the shift and referral sources. It sounds like you all are rather to shift your resources as the our volumes declined at acute hospitals can you give us a sense for how those patients are now I'm sort of getting treatment at your facilities and do you think that's a durable shift or something that will revert back once.

Some of it normalizes.

Upping Matthew what we've seen is that you know those higher acuity patients have continued to go to the E. R and it's not so much that theres been a complete shift, but there have been markets that have been more impacted and.

But those higher acuity patients I think are still going to the emergency room or finding another way to get to our facility and we mentioned abroad referral base that we have.

Theres many other ways those patients can get to our facilities.

And it's really it's been isolated to markets that are more impacted.

But but I think the volume there has continued but overall for the company given especially some of the markets that have seen a greater impact. It has just been at a lower rate.

Got it Okay fair enough and then can you.

Could you provide some commentary on me.

The S. Max rate increases that that's some states are getting and you do you have any visibility as to how or if that will trickle down into into provider rates.

No you know indirectly I think it's a benefit for providers, we don't have any visibility into that as of right now.

Got it thanks very much.

Thank you.

Well the next two Whit Mayo.

Hi, Thanks, Good morning, I know this is a a hard question, but as you guys revisit your you know two or three year plan. What do you think has changed in the last month that might influence that number up or down as you think about you know 2021 of many you're going to.

Presumably have a little bit more volume mix is a consideration there's a lot of.

Cross currents is I play this out in my head. So just any thoughts as you think about kind of the out year would be helpful. At this point.

I think what we don't really see any major changes to certainly our industry, but to our strategies I think there may be future opportunities that we might look at I think tele health and the reimbursed.

<unk> changes that had been made in somebody other rule changes they give us opportunity to actually grow that area. We've already put in place a pretty robust platform for that so that may continue it was part of our strategy before but I think we might see that accelerate now that reimbursement.

It is matching some of that I think we feel like our long term growth opportunities based on demand really will not change I think we're confident in what we have in our service lines and some of the plans we have around it our partnership strategy we back.

Actually seen any increase in some of the the discussions which was a little surprising I'll be honest to me that they were continuing to remain engaged and but I do think that you know we think there might be opportunities there that certainly would need to meet our capital criteria.

But we think that it makes sense to keep investing in you know our ctcs, the jvs and de Novos as as appropriate and and we'll watch carefully for any opportunities that might present as just a result of of what's happened here in the first part of the year.

No. That's the that's helpful and maybe just a follow on to that your comment on the CTC business and what we've heard.

Patients are getting longer supplies of drugs, given you know social distancing requirements et cetera, just curious how youve.

Responded and and you mentioned that some of the payers of adjusted to the new realities of this can you elaborate a little bit more on.

Those conversations is this a concern for you or do you feel pretty comfortable that they're all being fairly responsible about about this.

I think with at this stage said been dairy cognizant of the fact that we had to change our model.

I do think that the way we have done this treatment in the path, which is you know with medication and therapy that we'll see a return after somebody does stay at home orders are lifted to our previous model, but I think that you know so far are.

The CTC staff have just done an outstanding job the of really.

Handing out.

Out appropriate care.

And a new contacts which is the the medications that are being done on 15 to 30 days, but also still trying to maintain contact with those patients either through phone.

They some of them have been able to use tele health.

To really connect and make sure that our patients in that area are still you know safe and receiving the right at appropriate treatment.

We have had you know many states that have recognized that we've had to make these changes they've been very cooperative. We have a few states that was still as David mentioned earlier talking with about how to ensure that we are reimbursed for this change and I think we're optimistic that they will file.

Find a way to make this happen, but at this point.

The C.T.C. you know group management facility level. They acted very very quickly to put these changes in place really almost overnight and I think that we have you know we've seen that I think our patients have actually increased slightly in that area and I think that we'll see.

And continue to see our volumes remain in that business area.

Okay. Thanks, a lot.

Our next to Gary Taylor with JP Morgan.

Hey, good morning, most my questions answered you said a few.

Do you think little comments from the search hospitals with.

Behavioral units over the course of the quarter about.

Turning some of those key trying to create some additional on campus capacity in case the house co. The 19 patients where are you seeing him there wasn't give that no measurable.

You know as part of this no pretty solid and sense of top line you know this quarter.

I think we did see you know in some markets there were instances, where the medsurg system needed to free up bad I.

I think we actually had an agreement with a large med surge company here in Nashville odd to accommodate if they needed there beds freed that didn't end up happening, but we were prepared for it and they were prepared for it.

We I think saw this really.

Being more market specific.

And we actually probably saw this more in markets, where the covered 19 was was more impactful, but I wouldn't call it material in in our business our volumes back, but we certainly set up the structure. If if there was a need for our services in our band.

Thanks to the my last question just speak any comments about NHS anything that they.

You know I guess, we think about how they do their their budgeting the global budgeting so that the regional budgeting just wondering if.

Because of can't make its possible any budget dollars cookie shifted towards.

Medical versus behavioral is there any insight into.

In the that at all.

No I think Gary the NHS has been very focused on mental health services and having the capacity to meet what they view as a continuing and an increasing demand.

And they have shown their support.

To providers through block contracts and other arrangements to make sure that those beds it would be available.

There was also up as you guys know every April is our rate increase for the NHS and we did receive work that we are.

In the middle of our 2% to 3% range.

And the NHS took the initiative to to provide that clarity for providers for support and and it's a usually a process that we go through throughout this the second quarter with our many other payors and local commissioning groups.

They're in the UK, but I think then it just is focused on having the mental health health beds available and providing the right reimbursement to providers.

Okay. Thank you.

Our next to John Ransom with Raymond James.

Hey, good morning, Thanks for letting me at the end, David just doing the math on your new Covenant This would imply.

Something like $500 million of EBITDA.

Is there something that we're missing in that Matt.

No I think we view you know we our goal was to set the right covenants to give us the maximum amount of flexibility as we go through these uncertain times.

So yeah, we do view ourselves is having some some room.

As we don't yet know the potential impact.

But your math is.

Right.

Okay.

The second question is.

If we think about let's just assume for a minute seven points of revenue declined to go along with seven points volume declines.

Is that a dollar for dollar reduction of EBITDA or should there be some offsets.

Oh, well John Theres, a lot of moving pieces of course, as we think about the.

The volume decline and how it impacts our cost structure, we do have a highly flexible and variable cost structure.

So we the team's doing a great job in already had a lot of tools in place that has been implemented over the last several months just a really allow us to adjust the cost structure quickly as we saw the volume declines.

But it depends on so many factors, including just where we see the volume declines how significant it is it any one facility.

But we do think we have a variable cost structure that allows us to make adjustments.

But it's too early to do the math on just how we see that playing out over the next several months.

[noise] and look I'm, sorry, if I Miss I was having problems with your call. This morning for some reason but.

If I think a bus business on a continuum of sensitivity to recession I would assume the the the opioid business and the residential business being probably up in a downtick.

The adult acute business just mix shift to government and then what would be sensitive would be I would assume the residential addiction business just fewer corporate cases coming out of that lot of business, but the right way to think about your business.

Oh, Yeah, I think we agreed that the business is resilient in those other service lines I think even the substance abuse with the demand is there. We think will continue and we do not view that as a discretionary service.

We think you know after the temporary factors abate that we will pick back up on the volumes there and think Thats also another resilient service line for us.

Right.

Okay. Thanks, a lot.

Well the next to Ryan Daniels.

I'm Blair.

Hey, guys you must be telling for Ryan similar most of my question to answer this question for I guess.

With the beginning of April or towards the end of April have you been seen kind of like an uptick in referrals we done.

If so which I guess referral channels have been the quickest to come back in kind of which ones have been the most resilient over the past couple of weeks.

Oh, yes, we have seen improvement.

At the end of April and that includes seeing an uptick in our referral volumes I would say, we do have that broad base of referrals.

Most of those referrals have been very resilient and it depends on the market. We look at the data for for each of our facilities every day.

But he ours are the ones that in certain markets did decline the most and have come back the most in late April.

There are some other referral sources of.

The adolescent business with a lot of schools around the country being closed there's been less adolescent referrals and the team has done a nice job there just shifting.

Certain services in some facilities to be more adult focused and so there have been referrals like that that have gone down and it may stay down for a while but you know it's it's a very diversified referral base and has come back.

Nicely here at the end of April.

Thanks, and then I guess kind of going on that so but there is there's a word that some you know school districts may not even come back.

In discussion in the fall I was wondering if you had no any sort of plan so potentially dealing with that lack of referrals from that area or I guess the thing on that front.

Yeah, I think you know obviously, we think the demand there for that population will continue and our marketing strategy is focused on all the different ways. We can access those patients.

I do think also that you know if the schools remain closed I don't think that you know eliminates.

The need for the services, it's certainly been an important a referral source for us, but if that should change I think there'll be other ways that you know parents and others will find their way to services into our services in particular, so I think that were prepared.

To shift if we need to but I think at this point, we've had to stay at home orders, which I think has been a factor in adolescence thinking care. They they aren't going to school, but I think that they're still will be some of the behaviors will not be eliminated just because they're not in school.

So we'll watch that carefully and make sure we're staying in contact with where they may seek help and that would be professionals and pediatricians and others, where parents my access if they haven't need with an adolescent or a child.

Great. Thanks, guys.

Thank you. Thank you.

Well go next to Scott Fidel with Stephens.

Okay. Great. Thanks. This is gerard on for Scott.

Maybe just digging a little bit too you know you guys talk about three major items impacting the volumes in the U.S. slowdown in the referral and stay at home orders and the various travel restrictions. So wanted to see if you guys can put maybe in order of magnitude kind of on those three items and how those you know.

Impacted volumes through April so far.

No I think we theres not a way to directly manage that I think our goal is to give an idea and some color as to the different factors that we think have had this temporary impact on our referrals.

But it's it's hard to quantify each one of those factors that you know the stay at home orders are very widespread and have have affected the referral sources and.

And so that's probably the biggest factor that we're dealing with because it it does have an indirect impact into the referral volumes.

But there's not a way to quantify each one.

Great. Thanks, and then I guess, just maybe a quick I'm just a quick.

She just on that de Novo pipeline do you think you could you know coming out of this pandemic potentially see I'm sort of acceleration in acute hospitals wanting to partner on.

April facilities.

I think there's certainly could be that dynamic I think that as I mentioned, a little earlier, we we have seen them stay engaged.

And you know we plan to make some announcements very soon about agreement that we reach with.

Large systems, so I think there could be opportunity there and it's hard to know how their their strategies might change, but he kind of makes sense that they might look to work together in the future, which would be a positive attitude is but will be open to that and we're certainly I believe.

But there still are underserved markets that makes sense for Denovo bills, and we'll watch that we're watching our construction costs very closely as well as you know what we're paying for land in other thing. So you know there may be opportunity.

To actually see some cost savings on I'm, not going to predict that but you know, we clearly are watching it and trying to build as efficiently as we can but also at the same time I think there there could be opportunity in the future.

Great. Thanks.

Thank you [noise].

And at this time there no further questions.

Thanks, again for being with us today and for your interest in Acadia Health care.

I'm, so grateful and proud of the continued commitment and professionalism of all of our employees.

They come to work every day to care for patients.

If you have additional questions today, please do not hesitate to contact us directly and have a good day.

This does concludes today's conference we thank you for your participation.

[music].

[noise]. Please stand by we're about to began as a reminder, this call is being recorded. Please proceed.

Good morning, and welcome to Acadias first.

Quarter 2020 conference call I'm guessing harmonic director of Investor Relations for Acadia I'll provide you with our safe Harbor before turning the call over to our Chief Executive Officer.

Study as seem 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 measures 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 mean.

The private Securities Litigation Reform Act 1995, including segment among others regarding Acadias expected operational and financial performance for 22020 and beyond.

For this purpose any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements without limiting the foregoing the words believe.

Anticipates plans expects and similar expressions are intended to identify forward looking statements. We caution you that these statements may be affected but important factors among others set forth and Acadias filings with the Securities and Exchange Commission and the company's first quarter news release, and consequently, actual operations and results may differ.

Were materially from the results discussed in the forward looking statements.

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 I'd like to turn the call over to Debbie posting for opening remarks.

Good morning, and thank you for be staying with us today for our first quarter 2020 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 on our response to the covered 19 pandemic.

And on our financial and operating results for the first quarter.

We'll also discuss what we're seeing so far in the second quarter.

We will then open the call for your questions.

Before I discuss our results I believe it is important to reinforce in times like these that our top priority now and I'll always are the health and safety of our patients employees and visitors.

We have put into action the following initiatives to protect them, while continuing to provide quality care to our patients.

First in February we implemented the recommended precautionary measures in response to cope with 19, including recommending patients and requirements issued by the CDC and state and local health authorities.

Second.

We instituted social distancing practices and protective measures throughout our facility which includes.

Third we can start supply chain management to ensure we have key PBB and supplies for the continued say 50 of our employees.

This included conducting and updating a weekly inventory.

Across the company for PBT, and establishing a web based process to request Pbten.

For better visibility of our needs and distribution.

I want to thank our procurement team.

It's been an integral part of this process.

Fourth over the course of the last two months.

He has significantly increased communications with physicians facility staff Division leadership, and our corporate employees.

Including daily update calls and Webinars with resources and guidance for the facilities and we established a task force a key leaders that meets daily to address concerns develop action plan and monitor responses throughout our facility.

Moving to our results for the first quarter they were in line with our expectations.

During the quarter, we achieved revenue growth of 2.9 per cent compared to the same period of 2019.

Reflecting our continued focus on growth initiatives, both be service expansion at our existing.

Ladies and opening new facilities.

Since the first two months to the quarter. We were very pleased with our same facility patient day trends for both the U.S. and UK operations.

For our U.S. operations same facility patient days increased more than 4% to the first two months of the year compared to the prior year.

In the UK.

Same facility patient dates were flat.

Through the first two months in 2020, and then declined 3% in the last two weeks to March as compared to the same period last year.

The impact of Cobot 19 vary by geography, and business line with facilities and hotspot areas across our network more effective than others.

The diversity city of our service model breadth of our network and actions taken to shift our marketing efforts.

Has offset some of the impact of the pandemic and continues to serve us well during this crisis.

Some of the factors that affect affected our business line starting in late March were first slowdown in referrals from traditional sources, such as emergency rooms and medical professionals.

In many of our markets our acute facilities receive referrals from emergency rooms.

As he our visits decline.

And with a corresponding effect on our admissions.

Second to stay at home corridors implemented by many cities and state.

We saw at very direct correlation to our admissions at state encouraged individuals to remain home.

Well not intended we believe our potential patients did not see the care they need it.

As states begin to modify these orders, we anticipate that our potential patients will again seek needed mental health assistance.

Third the various effects of travel restrictions on our facilities to draw patients nationally for treatment.

Particularly in our specialty service line.

We have some facilities that admit patients from a wide geographic area and a portion of these patients travel.

To reach our services.

We believe these factors are temporary.

And the demand for our services remains strong across the portfolio and we expect to see continued improved hasn't been as restrictions are lifted.

However, we do not have visibility on when volumes from our referral source for this will return to prior levels.

In the month of April our volumes declined 7% compared to last year reflect thing some deterioration in the first two weeks with signs of stabilization and improvement during the latter half two weeks.

Shifting to the UK operations beginning in late March our UK operations also face temporary disrupt tons from the impact at the say at home orders.

On the referral and commissioning process.

While the vault volume impact in the UK has been limited due to the longer length of paid for many of our service line certain services with a shorter length of stay have been impacted.

In April we have seen stability in our senses ending demand.

5% decline compared to the prior year.

From our discussions with the NHS Weibos leave there may be a surge in individuals requiring mental health and addiction treatment.

And we have developed a comprehensive plan.

To make this need across our service lines.

Due to the pandemic there has only been a slight delay in the construction of our retool bed and we are still on target to reopen those beds by the into the year.

As we move forward these beds will be important to help address the demand and following depend Denny.

With the health of our experienced senior leadership team strong local leadership and staff in our facilities, we have implemented the following action to help mitigate.

Some of the impact from the covered 19 pandemic <unk>.

These include.

Increased utilization of technologies to support stay at home orders and better serve market demand, including Tele health options for patients and virtual visitations for families and Guardian.

I would like to thank the administration and state agencies for relaxing and modifying regulations for Tele health.

They worked rapidly to allow practitioners to work across state lines as we strive to accommodate our patients.

We launched a national behavioral health crisis hotline designed to offer urgent assistance to any individual indeed, a mental health or addiction treatment.

The centralized 24 seven prices line offers immediate no charge clinically approved assessments to support underserved communities and connect patients with the treatment they need.

In addition, as volume started to decline in the latter part of March and throughout April our operations team was very proactive in implementing necessary changes to mitigate the financial impact, including aligning corporate emphasis.

But he level staffing costs with patient volumes and implementing a hiring freeze for non clinical staff.

Cancelling all non essential business travel, reducing discretionary expenditures and temporarily reducing marketing spending.

Negotiating with our vendors and less source for discounts and or revise payment terms.

And closely managing our working capital as our facilities continue to build and collect for services winded.

We continue to make prudent investments to serve our patients need ensure the safety and well being of everyone at our facilities and prepare for the mental and emotional impact that this pandemic could produce in the months ahead.

During the quarter, we added 78 beds to existing facilities in the U.S.

Moving forward in 2020, we plan to reduce our capital expenditures and have modified the number of beds that we will add during the year.

We also remain committed to our partnership strategy.

In recent discussions with our partners and prospects during this crisis, they acknowledge that while cobot 19 require considerable resources and executive attention from their health system.

Their leaders also believed this crisis will end and it is critical that they keep working on future plans.

We expect to open trading, though both facilities later in 2020, including two facilities with joint venture partners.

Positioning us for the growth that we see across the portfolio.

I would like to update you on our sales process for our UK business.

As we announced in March the board decided to temporarily suspend the sale process of our UK business until market conditions recover.

We believe interest from potential buyers remain strong.

And our objective will be to restart the process at the appropriate time to maximize value for our stockholders.

Lastly, before I turn the call over to David.

I'd like to recognize and saying every one of our employees across our network.

They're stream and dedication to providing care to our patients. During these challenging times has been nothing short of amazing.

We continue to draw strength from each other and our patients as they continue on their path to recovery.

This pandemic has undoubtedly created mental and emotional issues that will need to be treated in the month and potentially years ahead.

And Acadia is ready to answer that call.

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 first quarter was $782.8 million, an increase of 2.9% compared with $760.6 million for the first quarter of 2019.

The company's consolidated adjusted EBITDA for the first quarter of 2020 was $132.8 million compared to $136 million in the first quarter last year.

Net income attributable to Acadia stockholders for the first quarter of 2020 was $33.5 million or 38 cents per diluted share compared with a net income of $29.5 million or 34 cents per diluted share for the first quarter of 2019.

Adjusted income attributable to Acadia stockholders per diluted share was 42 sets for the first quarter of 2020, which excludes transaction related expenses of $3.5 million.

The income tax effect of adjustments to income of point $3 million.

Turning to our financial guidance the impact of Cobot 19 on our operations and financial results. During 2020 will depend on among other things.

The length of time and severity of the pandemic.

The lifting of stay at home orders and state restrictions.

The timing and phasing of the economic reopening and the willingness of patients to travel.

We continue to be confident in the company's long term growth opportunities based on the increasing need for mental health and addiction treatment services.

Subsequent to the ended the quarter Acadia borrowed $100 million under its revolving line of credit in early April to enhance its overall cash position.

Acadias balance sheet remains strong and the company remains well positioned to meet the long term demand.

As part of our ongoing review of the business and efforts to enhance our financial flexibility. We conducted a thorough evaluation of all capital expenditure projects planned for 2020.

We are completing the projects that are close to completion, many of which have beds coming online in the near term.

New and existing facilities.

The 35 million dollar reduction represents termination or delays in certain early stage projects based on project returns and other considerations.

We have a high level of discretion to make further adjustments to our 2020 player.

Also to provide for greater near term financial flexibility in light of the impact from the ongoing pandemic, we have amended our credit agreement to increase the maximum consolidated leverage ratio from 5.75 times to 6.5 times for June 3rd.

At September Thirtyth, 2020, and from five and a half times to 6.25 times for December 30, Onest 2020.

Additionally, the company is closely monitoring the impact of legislative actions, including the passing into law of the cares Act in late March.

Several of the notable benefits of the recent legislation include first reimbursement to hospitals and other health care providers.

An additional 75 billion was approved in April 2020.

Acadia received approximately $20 million in April relating to the initial allocation of these funds. We are currently reviewing the terms and conditions associated with these payments and completing the attestation process.

Second the Medicare advance payments program Medicare has offered advance payments equal to our Medicare revenue for a three month period.

We applied for and received approximately $45 million of advanced payments in April 2020, which we expect to repay over a three month period from August to November of this year.

Third a temporary suspension of Medicare sequestration, the lifting of the 2% reduction.

On May Onest at December 30, Onest results ended expected earnings and cash benefit of approximately $3 million in 2020.

Fourth a delay in the payment of employer payroll taxes.

The employer portion of social security payroll taxes for the period from March 27 to December 30, Onest can now be deferred and paid and to equal installments at the end of 2021 2022, resulting in a cash benefit of approximately $39 million for 2000.

20.

And finally, the increase in the interest deductibility limitation applicable to our U.S. income taxes.

As part of the tax cuts and jobs Act of 2017, our interest deduction was limited to 30% of adjusted taxable income.

Within the cares Act. This interest expense deduction threshold was increased to 50% of adjusted taxable income for the 2019 and 2020 tax years.

Making our interest expense fully deductible for these years.

This change provides a cash flow benefit in the forms of refunds or lower tax payments of $16 million for the 2019 portion and between 15 and $20 million for the 2020 portion.

In total we expect to receive approximately $100 million of incremental cash during the second quarter of 2020.

We will continue to monitor further developments and allocation of funds.

That concludes my prepared remarks, this morning, I'll turn it back over to Debbie for some final comments.

Thanks, David.

We believe the demand for mental health in substance abuse treatment is not discretionary or elective.

We believe this crisis will have wide ranging consequences for many individuals.

Behavioral health care providers will be in necessity to support our society's on the road to recovery.

We believe the global conversation has focused correctly on the importance of physical isolation to stop the spread of coal that 19.

But across the world. This maybe a negative experience for those with mental health issues prior to the pandemic or as a result of the isolation an inability to seek treatment.

With our experienced management team diversification of services and scale across 40 stage, Puerto Rico and the UK, We believe Acadia will play a vital and leading role in the industry.

This concludes our prepared remarks. This morning, I will now ask Jennifer to open the floor for your questions.

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

If you are usually speakerphone, please make sure.

It's turned off to a liar signal to reach our equipment.

Please limit yourself to one question and one follow up.

Once again press star one to ask a question.

Well pause for just a moment to a lot everyone an opportunity to signal for questions.

And we'll go first to Kevin Fischbeck with Bank of America.

Great. Thanks, I was wondering if you could talk little bit about how you think about growth during a recession or maybe just walk us through pair mix shifts maybe give us a sensor kind of commercial rates versus Medicare versus Medicaid.

I think about volumes during the recession, and then any kind of cost offsets you might have on labor or other areas. Thanks.

Yes, Kevin I'll start with debt.

We do think that this business is resilient and performs well during a recession and the demand. We we expect will continue and as we've mentioned could potentially increase as we go through the next several months in years.

On your question about the payer mix up you know I think we have a very strong and stable payer mix is diversified across the different payers and even within the different service lines that we have is a very strong and diversified payer mix.

We do have 50% of our revenue in the U.S. is Medicaid.

In a very balanced mix.

Medicare and commercial making up the other two main categories that we have.

With a very low mix around 7% of self pay revenue. So we do treat patients that have.

Insurance coverage through a government or a commercial plan.

In terms of how we think about the differences between the different rates across those different payer categories.

It does depend on the service line and depending on the market, but for the most part we do not see a significant difference across those different payer categories. We do think about commercial as being about 10% on average above our Medicare rates and Medicaid rates.

Well it depends on the market may be about 10% below Medicare rate, so a pretty pretty tight range from commercial to Medicaid rates.

I'll just add Kevin that I think you know many people so far have been able to keep their health insurance benefits if they've been furloughed, we're gonna have watched that very carefully but I do know that in past economic downturn, the mental health business in particular has been resilient as.

David mentioned, and we think we're well positioned to take care of the patients with our services and the diversification of those services.

We will watch this carefully but we do believe there's going to be a real demand surge in both the U.S. in the UK and we feel like we're very well prepared to handle that.

Hi, Great. Let me just last question as far as the slowdown in the in the bed openings that you're hearing right now how do you think that's going to impact growth and for next year do you think that that will hover.

Meaningful headwinds your long term growth targets.

Kevin We really don't we we entered the year with a very strong number of bed additions in the U.S. and talked about approximately 600 new beds.

And the revisions that we've made in our Capex plan.

Think allow us to continue to bring on a strong number of beds. This year. The revised ranges between 500 600, So we do not see a material change and the bed additions that we're bringing online.

Which supports the growth rate that we expect next year in the following years.

All all sort of everything that Kevin that in the youth in the UK with the retool bad that we have been in process with those beds have had just a slight delay, but we are definitely on track to bring them back by the ended the year. So the growth that we project in the UK.

Certainly still on track and we feel good about where we'll end up of years in.

Thank you.

The next two AJ rice with credit Suisse.

Hello, everybody good to hear on say.

I know this maybe maybe isn't it fair question, but it's it's somewhat striking we don't have a lot of comparables, but your number one pier talked about in there psychiatric were behavioral health business. They were down 25%. The last two weeks of margin admissions and you're calling out about a 3% decline.

I don't know if you have any.

Pretty sensitive as that mix driven you think geographically driven.

I guess that level of disparity were used to some level of disparity, but that level seems just.

Just stand out any any thoughts about that.

Me AJ I think that we're a little unclear on the comparison with together company and their metric that we we really feel like we have.

Differences between our two companies we have a lot of diversification of our service line and really our markets as well, we have a very diverse and broad referral base.

And I think that has served us well during this crisis, but I also think that we acted very quickly.

We shifted our focus with consumers and also our referral sources. So I think that you know as we look across our service lines. We certainly have had impact, but I think that we took action to try and minimize that impact during all of this crisis.

I mean across those service lines was there any.

Any meaningful service lines that were down in that order of magnitude or were they all similarly off as aggregate number.

Suggest.

The form a service lines for our US business of course include acute being the largest our specialty business that are CTC and residential businesses.

The CTC in residential volumes have been very stable throughout.

Weve of course, the residential those patients are with us for a longer period of time as CTC, we have kept those patient.

Treatment and just really been focused on continuing.

That's the treatment in the medication that that they made up and then as you compare our acute and specialty I think it's been a similar decline between the two as we think about.

How the different service lines makeup the 7% decline that we mentioned for April so we've not seen a significant difference from that level either within the acute or the specialty businesses.

Okay, maybe my other question would be.

Had two items that were in progress before we hit this.

Kogut situation.

One being the changeover of.

All of your sourcing your Geo.

February and the other be the five facilities that were under pressure in the second half of last year can you provide us an update on those played out as you expected.

Is there any challenges are positive surprises on any of that.

Several of the facilities in the group, our specialty and they do drop off from a national referral network. So they have been impacted by the stay at home orders, but we do believe that we have implemented the right actions and I think that we were we were pleased with where we were before.

The covert 19 started impacting volumes at the end of March.

I'll say about the initiatives that we put in place around procurement, we're very thankful that we did that in the fall and build our team.

And we are initiatives are on track we have.

Made a transition to a new G.P.O.

Ended the year.

Okay. Thanks all.

Thank you.

Well go next to Ralph Giacobbe with Citi.

Thanks, Good morning, I wanted to I wanted to ask a little about you had noted the demand surge you expect I guess, just a little bit more on the visibility on that is that just your expectation that it's going to come or is there some sort of.

Your backlog, that's just not allowing you to sort of see that demand and that related to that how are you finding the labor backdrop, you know at this point.

Obviously, it's a different skill set but perhaps for the first time and long time hospital sort of Furloughing staff do you see that I sort of a viable opportunity to add staff for you.

Well I'll answer the first part of the question and I think that.

So we know that yeah. There has been a surge in the hotline Sam So reported a 900% increase and you know in past recessions and prices. It really has been linked to suicide in really stress and anxiety.

So while we can't predict how that might happen over the next course of the you know this year and into next year. It's you know I think as Gallup poll, which was done in late March they found that 60% of the adult that they polled were reported experiencing daily.

Feelings of stress.

So I think even the polling company said that was unprecedented we expect that there has been paid there have been patients that have stayed at home because of the stay at home orders I think unlike other situations. There has been a factor of fear and I think other specialties has seen it.

As well where patients were afraid to seek care because they didn't want to exposure to covert 19. So I think our instincts are and our belief is that there will be demand and it could be greater than what we normally see.

Our unemployment market, it's probably too early to say what impact that could have but it could be a an additional positive for us as we think about recruiting and having all the resources, we need to support the business.

Okay. That's helpful and if I could just one more.

I know, obviously, you've pulled guidance, but any broad commentary around the consideration between pricing and volume.

Maybe into second quarter, you guys patient days come down would you expect revenue per patient day to increase just based on the argument of higher acuity or would that not be the case and maybe if you can just give us a sense of what was revenue in April in the U.S. compared to the volume down 7%. Thanks.

Oh, it's too early to provide any specific numbers there.

I do think of course, we provided the volume decline that we have seen for the full month of April.

As we think about revenue per day.

It will be impacted bus service mix and there are certain parts of the business where.

The way, we're paid and this is within our CTC business.

We're working with our payers, but.

Because in some states in with some payers.

We get paid when the patient is physically at our facility and is able to receive.

But it's too early to provide any specific ranges there for the quarter.

Okay. Thank you.

Well go next to Brian Tanquilut with Jefferies.

Got it so everyone safe.

From the start with you today around here I guess my first question for Debbie because I think about the marketing pulled back that you talked about.

Are you thinking about how that would impact demand or volumes. Once you get posed to that or are you re ramping the marketing efforts at this point or what are the plants or is it just patient outreach tragic.

Well I think we're really monitoring it on a daily and weekly basis, and as we see a need to.

Change our current strategy, which has been to.

We do some of the expenditure we are prepared to do that we have some very good metrics here and were able to track that very very closely with data and so as we see the demand start to return a we will change our strategy to really need that I think that.

That certainly we'd focus more locally and regionally with the spend at this point, but as we see travel start to come back we will make adjustments to our spend in our strategy as we need to.

I appreciate that and I guess my follow up W is I think about the UK.

Essential to sale process. They are what are the discussions with the would your advisors in that one I mean is that obviously this is a temporary decision right but.

How are you thinking about.

Factors would drive you to get back to market or is there anything operationally that you need to see what assets before you say we're ready to.

We started the process.

Well our advisors in the UK have maintained regular dialogue with the potential buyers and they've had discussions with them their interest levels in prior rate remains strong.

I think that what we're looking for is more visibility on the progression and the recovery.

Over 19, it certainly has had.

A big impact in the UK much like the U.S., but I think primarily we want to see a normalization of the debt market conditions in the UK, we want to see that yeah financing a transaction at the size of Priory can happen I do think that.

Buyers are interested in meeting with our management team they've had some interaction, but they want to go to the facilities and so we're waiting for the opportunity to allow that to happen and right now as I know you can understand our management team is really focus on kitting through this but.

At some point is we moved through the the prices buyers want to be visiting facilities, and we'll provide that opportunity, but I do believe their interest level is very strong in the asset.

I appreciate it thank you.

Yes.

Well go next to Peto Chickering with Deutsche Bank.

Good morning, guys. Thanks for taking my questions drilling into the UK market for for for a minute can talk about what disruptions you saw within the UK how was different than in the U.S. and what do you any just telling you about how they view discharges over the next say you know 30 60 90 days.

Yes, Peter though I think one of the key differences other than just the volume impact being more limited in the UK market is on the labor side.

Early April but have really already seeing that peak and a lot of the workers that self isolated in early April have returned to the business, but that will have an impact on our labor costs for April there's a continuing pay for those employees as well as backfilling those positions but.

The team there has done a great job managing that have also had a lot of flexibility around how we staff the facilities.

So really pleased to work through that we think fairly quickly and be able to run the the facilities that we have there with the right level of staffing.

We've also been told our team there that there may be reimbursement for some of those salary costs that are a direct result of private 19, they have not giving detail around that but we do believe that some of those expenses will be offset we just.

No what that number will look like at this point.

Great. Thanks, and then.

It seems like Georgia that have already begun easing the restrictions and like I realize it's very early in the process, but what did you see specifically in Georgia.

Yeah, what bounce backs.

Seen relative to other states or what lines of business are coming back faster. Thanks.

Well, it's very early on and many states are and partial phases of return.

We have seen any increase in our admissions.

At our facilities in Georgia, and we've had specifically saying increases in the E. R visits.

Again, I I don't know what that will mean long term fad.

We have seen a relationship between the state opening and then calls and at admissions.

We don't know that that will hold true for all our states, but it certainly has been that in the early states that have come on.

[noise] well go next to Matthew.

Baird.

All of your line is open you maybe on me.

Hi, good morning, sorry about that.

I wanted to ask about the shift and referral sources. It sounds like you all rather to shift your resources as the our volumes declined at acute hospitals can you give us a sense for how those patients are now sort of getting treatment at your facilities and do you think that's a durable shift or something that will revert back once.

Cobot normalizes.

But I think Matthew what we've seen is that you are those higher acuity patients have continued to go to the E. R and it's not so much that theres been a complete shift, but there have been markets that have been more impacted and.

But those higher acuity patients I think are still going to the emergency room or finding another way to get to our facility and we mentioned abroad referral base that we have.

As many other ways the those patients can get to our facilities.

And it's really it's been isolated to markets that are more impacted.

But but I think the volume there has continued but overall for the company given especially some of the markets that have seen a greater impact. It has just been at a lower rate.

Okay Fair enough and then can you.

Could you provide some commentary on the you know the aftermath rate increases that that some states are getting and you do you have any visibility as to how or if that will trickle down and enter provider rates.

No indirectly it gets a benefit for providers, we don't have any visibility into that as of right now.

Got it thanks very much.

Thank you.

Well the next two Whit Mayo.

Hi, Thanks. Good morning, I know this is a hard question, but as you guys revisit your two or three year plan. What do you think has changed in the last month that might influence that number up or down as you think about 2021, I mean, you're going to.

Presumably have a little bit more volume mix as a consideration there's a lot of.

Cross currents is I play this out in my head. So just any thoughts as you think about kind of the out year would be helpful. At this point.

The changes that have been made in somebody other rule changes they give us opportunity to actually grow that area. We've already put in place a pretty robust platform for that so that may continue it was part of our strategy before but I think we might see that accelerate now that reimbursement.

But we think that it makes sense to keep investing in you know our ctcs that the jvs and de Novos adds as appropriate and and we'll watch carefully for any opportunities that might present as just a result of what's happened here in the first part of the year.

No that's the that's helpful.

Maybe just a follow on to your comment on the CTC business and what we've heard.

Patients are getting longer supplies or.

Drugs, given you know social distancing requirements et cetera, just curious how you.

Responded and you mentioned that some of the payers of adjusted to the new realities of this can you elaborate a little bit more on those conversations is this a concern for you or do you feel pretty comfortable that theyre, all being fairly responsible about about this.

I think with at this stage had been very cognizant of the fact that we had to change our model I do think that the way we have done this treatment in the past, which is you know with medication and therapy that will.

See a return after some of the stay at home orders are lifted to our previous model, but I think that you know so far our as the CTC staff have just done an outstanding job the of really.

Handling.

Out appropriate care in a new contacts which is the the medications that are being done on 15 to 30 day, but also still trying to maintain contact with those patients either through found a they some of them have been able to use tele health to really.

They connect and make sure that our patients in that area are still you know safe and receiving the right inappropriate treatment. We have had you know many states that have recognized that we've had to make these changes they've been very cooperative we have a few states that was still as Dave.

As mentioned earlier talking with about how to.

Ensure that we are reimbursed for this change and I think we're optimistic that they will find a way to make this happen but at this point.

The CTC you know growth management facility level. They acted very very quickly to put these changes in place really almost overnight and I think that we have you know we've seen that I think our patients have actually increased slightly in that area and I think that we'll see.

Continue to see our our volumes remain in that business area.

Okay. Thanks, a lot.

Gary Taylor with JP Morgan.

Hey, good morning, most my questions answered you said a few.

You anecdotal comments from med search hospitals with.

Behavioral units over the course of the quarter or both.

Turning some of those key trying to create some additional on campus capacity and keeps the know how those co. The 19 patients where are you seeing him there wasn't give that you know measurable.

You know as part of this pretty solid and sense of top line you know this quarter.

I think we did see you know in some markets there were instances, where the medsurg system needed to free up bad I.

I think we actually had an agreement with a large med surge company here in Nashville add to accommodate if they needed a their beds freed that didnt end up happening that we were prepared for it and they were prepared for it.

We I think I thought this really.

Being more market specific.

And we actually probably solve it's more in markets, where the covert 19 was was more impactful, but I wouldn't call it material and in our business our volumes back, but we certainly set up the structure. If there was a need for our services in our bad.

Thanks to the my last question just speak any comments about NHS anything that they.

I guess, we think about you know how they do their their budgeting the global budgeting.

Regional budgeting just wondering if.

Because the pandemic, it's possible any budget dollars cookie shifting towards you know medical versus behavioral is there any insight into.

With that at all.

No I think Gary the NHS has been very focused on.

Mental health services, and having the capacity to meet what they view as continuing at an increasing demand.

And they have shown their support.

To providers through block contracts and other arrangements to make sure that those beds that would be available.

There was also up as you guys know every April is our rate increase for the NHS and we did receive work that we are.

In the middle of our 2% to 3% range.

And the NHS took the initiative to to provide that clarity for providers for support and and it's usually a process that we go through throughout this the second quarter with our many other.

Payers and local commissioning groups.

They are in the UK, but I think the NHS is focused on having the mental health health beds available and providing the right reimbursement to providers.

Okay. Thank you.

The next to John Ransom with Raymond James.

Hey, good morning, Thanks for letting me at the end.

David just doing the math on your new Covenant this would imply.

Something like $500 million of EBITDA.

Is there something that we're missing in that math.

No I think we view.

Our goal was to set the right covenants to give us the maximum amount of flexibility as we go through these uncertain times.

So yes, we do view ourselves is having some some roe.

As we don't yet know the potential impact.

But you are bad guys.

Right.

Okay.

The second question is.

If we think about let's just assume for a minute seven points of revenue declined to go along with seven points volume decline.

Is that a dollar for dollar reduction of EBITDA or should there be some offsets.

Oh.

Theres a lot of moving pieces of course, as we think about the.

The volume decline and how it impacts our cost structure, we do have a highly flexible a variable cost structure.

So we the team's doing a great job and already had a lot of tools in place that had been implemented over the last several months just a really allow us to adjust the cost structure quickly as we saw the volume declines.

But it depends on so many factors, including just where we see the volume declines how significant it is at any one facility.

But we do think we have a variable cost structure that allows us to make adjustments.

But it's too early to do the math on just how we see that playing out over the next several months.

[noise] analog I'm, sorry, if I Miss this I was having problems with your call. This morning for some reason, but it if I think a bus business on a continuum of sensitivity to recession I would assume the.

The opioid business and the residential business being probably up in a downtick.

The the adult acute business just mix shift to government and then what would be sensitive would be I would assume the residential addiction business just fewer corporate cases coming out of that lot of business is not the right way to think about your business.

You know I think we agree that the businesses resilient in those other service lines I think even the substance abuse with the demands. There. We think will continue and we do not view that as a discretionary service.

We think you know after the temporary factors abate that we will pick back up on the volumes there and think Thats also another resilient service line for us.

Right Okay.

Okay. Thanks, a lot.

Well go next to Ryan Daniels.

Blair.

Hey, guys seem to me speak out in for Brian.

Similar most of my question to answer this question for I guess.

With the beginning of April or towards the end of April have you been seen kind of like an uptick in referrals we done.

So, which I guess referral channels have been the quickest to come back in kind of which ones have been the most resilient over the past couple of weeks.

Oh, yes, we have seen improvement.

At the end of April and that includes seeing an uptick in our referral volumes.

I would say, we do have that broad base of referrals.

Most of those referrals have been very resilient and it depends on the market. We look at the data for each of our facilities everyday.

But he ours are the ones that in certain markets did decline the most and have come back the most of in late April.

There are some other referral sources of.

The adolescent business with a lot of schools around the country being closed there's been less adolescent referrals and the team has done a nice job there just shifting.

Certain services and some facilities to be more adult focused and so there have been referrals like that that have gone down and it may stay down for awhile.

But it's it's a very diversified referral base and has come back.

Nicely here at the end of April.

Thanks, and then I guess kind of going on so.

Even though there there is a word that some you know school districts may not even come back.

In discussion in the fall I was wondering if you had any sort of plan so potentially dealing with that lack of referrals from that area or I guess a thing on that front.

Yeah, I think you know obviously, we think that demand there for that population will continue and our marketing strategy is focused on all the different ways. We can access those patients.

I do think also that you know if the schools remained close I don't think that eliminates.

The need for the services, it's certainly been an important a referral source for us, but if that should change I think there'll be other ways that you know parents and others will.

Find their way to services and to our services in particular, so I think that we're prepared to shift if we need to but I think at this point, we've had to stay at home orders, which I think has been a factor in adolescence thinking care. They are going to school, but I think that there.

Still will be some of the behaviors will not be eliminated just because they're not in school. So we'll watch that carefully and make sure. We're staying in contact with where they may seek help and that would be professionals and pediatricians and others, where parents might access if they haven't need with an adolescent.

There are a child.

Great. Thanks, guys.

Thank you. Thank you.

The next to Scott Fidel with Stephens.

Okay. Great. Thanks. This is our Gerard on for Scott.

Maybe just dig in a little bit to you guys talked about three major items impacting the volumes in the U.S. slowdown in the referral and stay at home orders and the various travel restrictions just wanted to see if you guys can put maybe an order of magnitude kind of on those three items and how those.

Impacted volume sales through April so far.

No I think we theres not a way that directly manage that I think our goal is to give an idea some color as to the different factors that we think have had this temporary impact on our referrals.

But it's it's hard to quantify each one of those factors that you know the stay at home orders are very widespread and have have affected the referral sources and.

And so that's probably the biggest factor that we're dealing with because it it does have an indirect impact into the referral volumes.

But there's not a way to quantify each one.

Great. Thanks, and then I guess, just maybe a quick I'm just a quick additional question just on the de Novo pipeline do you think you could you know coming out of this pandemic potentially see any sort of acceleration and acute hospitals wanting to to partner on.

April facilities.

I think to certainly could be that dynamic I think that as I mentioned, a little earlier, we have seen them stay engaged.

And you know we plan to make some announcements very soon about agreement that we reach with.

Large system. So I think there could be opportunity there it's hard to know how their their strategies might change, but he kind of makes sense that they might look to to work together in the future, which would be a positive attitude is.

But will be open to that and were certainly believed that there still are underserved markets that makes sense for de Novo builds and we'll watch that we're watching our construction cost very closely as well as you know what we're paying for land and other things. So you know there may be opportunity.

The to actually see some cost savings I'm not going to predict that but you know, we clearly are watching it and trying to build as efficiently as we can but also at the same time I think there there could be opportunity in the future.

Great. Thanks.

Thank you.

And at this time there no further questions.

Thanks, again for being with us today and for your interest in Acadia Health care.

I'm, so grateful and proud of that continued commitment and professionalism of all of our employees as they come to work every day to care for our patients.

If you have additional questions today, please do not hesitate to contact us directly and have a good day.

This does concludes today's conference we thank you for your participation.

Q1 2020 Earnings Call

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