Q4 2020 Acadia Healthcare Company Inc Earnings Call
[music].
Please standby were about to begin.
A reminder of this call is being recorded please proceed.
Good morning, and welcome to Acadia as the fourth quarter 2020 conference call I'm Gretchen <unk> director of Investor Relations for Acadia will first provide you with our safe Harbor before turning the call over to Chief Executive Officer, Debbie O steam to the extent any non-GAAP financial measure is discussed in today's call.
You will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by viewing yesterday's news release under the investors link.
This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 995, including statements among others regarding <unk> expected quarterly and annual financial performance for 2021 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 believes anticipates plans expects and similar expressions are intended to identify forward looking statements.
You are hereby cautioned that these statements may be affected by the important factors among others set forth in Acadia as filings with the Securities and Exchange Commission and in the company's fourth 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 for opening remarks, I would like to turn the conference call over to Chief Executive Officer <unk>.
Good morning, and thank you for being with US today for our fourth quarter 2020 conference calls.
I'm here today, with Chief Financial Officer, David Duckworth, and other members of our executive management team.
David and I will provide some remarks about our financial and operating results for the fourth quarter and year and guidance for 2021.
Following Davids comments I will provide additional details on our strategy going forward.
We will then open the line for your questions.
We are very pleased with our solid financial and operating performance for the fourth quarter cash.
Capping off what was an extraordinary and challenging year for our company and the nation since the onset of the COVID-19 pandemic.
Before we get into the results.
I want to thank all of the Acadia is dedicated employees and clinicians for their continued support and heroic work to provide the highest quality care to our patients and their families in a safe and accessible manner.
As the global COVID-19 pandemic continues to affect communities across the nation, we recognize our critical role as a leading provider of behavioral healthcare services.
The ongoing uncertainties and economic and societal concerns as well as the added fear in isolation caused by the pandemic have resulted in heightened demand for our services, especially for those already struggling with mental health and substance use issues.
As always our primary mission is to support our patients and the communities we serve.
We are fortunate to have an experienced team across our operations and a proven business model that supports our ability to meet this strong demand and execute our strategy in this dynamic environment.
Were pleased to complete the sale of our UK operations to water Linde private equity in January.
This transaction represents a significant milestone for Acadia.
As it enables us to focus singularly on our U S operations, and we now have complete financial flexibility to pursue our strategic agenda.
We are committed to our efforts to extend Acadia as market reach and enhance our service offerings in the U S, which will in turn maximize long term value for our stockholders.
Our U S operations delivered favorable results with improvement across all key metrics for the fourth quarter of 2020, driven by higher demand and operational improvement.
U S same facility revenue increased seven 6%, including a three 6% increase in patient days and of three 8% increase in revenue per patient day, reflecting robust demand for our services.
Throughout 2020.
We continued to see measurable improvement in our cost management efforts that we implemented in 2019 and 2020 driving operation efficiencies.
And in fact, we achieved our goal of $20 million in annual run rate savings by the end of 2020.
We continued to employ disciplined cost management across our business to maintain our strong capital position.
We remain committed.
The making strategic investments in our future growth in the U S by expanding our market reach the bed expansions and additional growth opportunities.
Despite challenges from Covid.
We added a total of 460 beds, which includes 220 beds to the opening of two new joint venture facilities as well as opening six ctc's in the U S.
We have extended our strong track record of partnering with health systems and hospitals across the country.
<unk> ventures.
In December we opened Ascension Saint Thomas behavioral health.
New 76 bed inpatient facility through our joint venture with Ascension Saint Thomas in Nashville, Tennessee.
With the proceeds from our divestiture.
Of the UK operations, we now have of balance sheet that will allow us to pursue additional investments to grow.
We believe ample opportunities exist, which I will discuss in more detail at the end of this call.
Now I will turn the call over to David Duckworth to discuss our financial results in more detail.
Thanks, Debbie and good morning.
First of all I'd like to point out that our UK business was reclassified to discontinued operations in our fourth quarter financial statements.
References to continuing operations represent our U S only business while references to combined results include the UK business.
Revenue from our continuing operations for the fourth quarter was $541 3 million compared to $501 2 million for the fourth quarter of 2019.
Growth rate of 8%.
The including discontinued operations the results for the fourth quarter of 2020 reflect total consolidated revenue of $843 3 million.
As Debbie noted we reached an agreement to sell of the UK business at the end of 2020 and completed the transaction on January 19th.
The sale of the UK business resulted in a loss of $867 $3 million, which is included in the loss from discontinued operations.
Results for the fourth quarter of 2020 include other income of $32 $8 million related to the provider relief fund established by the cares Act.
The company's lost revenues and additional expenses incurred in the 12 months ended December 31, 2020, as a result of the COVID-19 pandemic.
Ceded the grant income recognized in 2020.
Combined adjusted income attributable to Acadia stockholders per diluted share was $1 13 for the fourth quarter of 2020.
Adjustments to income include transaction related expenses debt extinguishment costs loss on impairment loss on sale and the income tax effect of adjustments to income.
<unk> combined adjusted EBITDA for the fourth quarter of 2020 was $207 $5 million.
Excluding income recognized from the cares Act combined adjusted EBITDA was $174 6 million.
Compared to $144 4 million for the fourth quarter of 2019.
I would now like to provide an update on the UK sale proceeds and debt transactions.
As of December 31, 2020, the company had $378 $7 million in cash and cash equivalents, which excludes cash held by our UK operations.
Cash flows from continuing operations were $503 million for 2020.
In early January 2021, the company voluntarily pay down of $105 million of term b loans.
From the UK sale on January 19th the company received growth proceeds of $1 billion 525 million before deducting the settlement of foreign currency hedging liabilities of $85 million.
Cash retained by the buyer of approximately $75 million and transaction cost of approximately $16 million.
These deductions resulted in net proceeds of approximately $1 billion $350 million.
The company initially use the sales proceeds to repay all of its outstanding term, a and term b loans of $1 billion $80 million and added cash to the balance sheet.
On January 29, 2021, the company conditional notices of full redemption for our $650 million of five and $5, 8% senior notes due 2023.
And our $390 million of six 5% senior notes due 2024.
The redemption of this combined $1 billion $40 million of additional debt along with breakage costs of only $6 million and estimated transaction cost of $9 million is expected to be completed in early March and to be funded with cash from the balance sheet of 400 <unk>.
$30 million and proceeds from a new senior secured credit facility of $625 million.
The company expects to enter a new term loan and revolving line of credit facility as part of a five year senior secured credit facility.
Upon completion of all of these transactions Acadia is debt structure is expected to include a $1 $25 million of our senior secured credit facility for.
$450 million of five 5% senior notes due in 2028 and $475 million of 5% senior notes due in 2029.
These actions should result in the company's net leverage ratio being below three times and we expect to maintain our leverage going forward and the range of three to four times.
Turning to our financial guidance as noted in our press release, we are providing guidance for the year in the first quarter as follows.
First for the full year 2021 revenue in a range of $2 billion $230 million to $2 billion $280 million.
Adjusted EBITDA in a range of $490 million to $520 million.
Adjusted earnings per diluted share in a range of $2 20 to $2 45.
Interest expense of approximately $80 million to $85 million of.
Of which $11 million of interest expense is expected to be eliminated after the first quarter of.
A tax rate of approximately 26.5%.
Stock compensation of approximately $28 million.
Appreciation and amortization expense in a range of $105 million to $110 million.
Operating cash flows in a range of $250 million to $285 million.
And total capital expenditures in a range of $285 million to $325 million, which includes approximately $45 million for maintenance capital expenditures.
And for the first quarter of 2021, our guidance includes revenue in a range of $540 million to $550 million adjusted.
The EBITDA in a range of $110 million to $115 million and adjusted earnings per diluted share in a range of 40.
To <unk> 45.
As a reminder of this guidance does not include discontinued operations or the impact of any future acquisitions divestitures or transaction related expenses.
Acadia is in a strong financial position for 2021 and beyond as a result of the sale of the UK business, our cost management initiatives and our disciplined capital allocation.
Our first quarter and full year guidance represents management's confidence in the business underpinned by the positive revenue and cost trends, we are seeing in our U S operations.
We will continue to make strategic investments in the business, while aligning our cost of meet the ongoing needs of our patients.
We are confident in the essential nature of the services, we provide coupled with robust demand will lead to growth through 2021 and beyond.
I will now turn it back to Debbie for additional details on our strategy going forward.
I'd now like to spend a few minutes, giving you our view of the business for the next five years.
As we look to the years ahead.
We believe the Acadia is well positioned to address the needs of those seeking treatment for mental health and substance use issues.
And we expect the demand for our services will continue to increase.
Without question 2020 was a very difficult year for many people.
And even more pronounced for those already struggling with mental health and substance use issues.
Based on a recent report by Mckinsey.
Approximately 35 million Americans are expected to experience behavioral health conditions post pandemic.
Prior to the pandemic there were approximately 20 million adults with the substance use disorder.
Research collected since the onset of the COVID-19 pandemic last spring.
As pointed to an increase in subsequent to us.
Related to stress job loss isolation and as the means to cope with other issues like anxiety and depression.
Studies also demonstrate that COVID-19 is affecting the mental health of children and adolescents and that depression and anxiety are prevalent.
Elevated levels of mental health and substance use disorders are expected to remain long after the COVID-19 pandemic and.
Therefore, we believe that there will be continued growth in demand for our services.
We are also seeing higher demand of societal acceptance of behavioral health increases.
And coverage options for those seeking treatment expand and improve.
We operate in a growing and fragmented industry.
Our four diversified service lines offer exceptional high levels of care for our patients.
Our expansive network of treatment facilities and options enable greater access to care.
Allowing us to serve the diverse needs of patients.
While maintaining a keen focus on the individuals' needs.
I'd like to give a brief overview of our service lines.
Acadia is acute business is our largest service line at 47% of U S revenue.
This segment provides the highest level of care for patients who are of threat to the himself or others.
We are very diversified within this service line.
With 44 inpatient acute psychiatric facilities across 20 states and Puerto Rico.
And we see opportunities to further grow our share of this highly fragmented market.
Turning to our second largest service line, our specialty business is focused on inpatient residential programs that treat patients who are suffering from either of substance use or eating disorders.
This area of treatment is highly specialized and Acadia is further differentiated by our strong marketing platform and national clinical referral network.
Within this service line, we are positioned as an in network provider for over 90% of our services.
We also have the favorable payer mix, which includes 63% commercial revenue.
Specialty contributed 21% of our total U S revenue.
Next is our CTC or comprehensive treatment centers.
Which is in the outpatient business, which combines behavioral therapy and medication to treat substance use disorders.
In addition to the many challenges presented by COVID-19 the.
There are reports that the pandemic is also causing a resurgence in opioid use in the wake of widespread unemployment in isolation.
With the 131 clinics.
We are the largest provider of medication assisted treatment in the U S.
And our robust platform helps eliminate barriers to treatment.
We continue to see opportunities to help individuals deal with their opioid misuse.
And as previously mentioned, we plan to open 11, new locations in 2021.
Additionally, we continue to see positive legislative support for our services and favorable reimbursement trends, including expanded funding of Medicare and Medicaid last year.
Our CTC business contributes approximately 17% of our U S revenue.
Lastly, our RTC business also known as residential treatment centers.
As our force service line in the U S representing approximately 14% of our U S revenue.
This service line provides longer term residential treatment for children and adolescence with behavioral health disorders, and a non hospital setting.
Acadia is RTC business is differentiated by our unique specialized programs.
Led by strong facility management teams and our relationships with state referring agencies.
This business demonstrates consistent returns.
And we will continue to look to grow the bed additions in our existing facilities.
As we continue to deal with the challenges from the COVID-19 pandemic and.
In other societal and economic disruptions, we are focused on our strategic priorities that will ensure our business is positioned to deliver the highest quality of care for those who need treatment, both now and into the future.
With our singular focus now on our U S operations and increased financial flexibility.
We intend to make strategic investments in four distinct growth pathways.
That expansion de novo facilities, partnering with health systems and through strategic M&A.
Together these growth pathways will provide additional opportunities for acadia to reach more patients in new and existing markets.
We expect that our multiple pathways will provide a 10% EBITDA growth rate over the next five years.
I will now spend some time discussing in more detail. These four strategic growth levers that will support sustained long term growth across our service lines.
First we believe facility expansions provide us with the best return for our investment.
To address the growing demand in our existing markets, we add beds to existing Acadia facilities, which allows us to leverage the facilities existing cost structure and improve margins and profitability.
As I mentioned, we added 240 beds to existing facilities in 2020 and.
And plan to add approximately 300 beds this year to meet the ongoing demand in our current markets.
After 2021, we believe that our existing facilities will have ongoing expansion opportunities.
And expect to add 300 to 350 beds to existing facilities, which is included in our assumptions of our 10% EBITDA growth target.
Our second pathway to growth is partnering with health systems across the country, the joint venture agreements to build new facilities.
This provides access to attractive markets that might otherwise be inaccessible through acquisitions.
We also benefit from the partner hospitals established market presence and favorable reputation in the community.
And importantly, joint ventures enable us to integrate physical and mental health services to develop quality programs.
Through our partnership with Covenant Health, we expect to open a new 90 bed inpatient facility in Knoxville later this year.
We also announced the joint venture partnership with Henry Ford Health system for 192 bed inpatient facility.
Which will service the Detroit Metro area when it opens in late 2022.
With the solid pipeline of approximately 30 projects in different stages.
We expect 2022.
To be the strongest year for joint ventures, with our partners today with four to five facilities expected to open.
Our third pathway is opening wholly owned de Novo.
There are many markets throughout the country that are still underserved with the shortage of available beds for behavioral health treatment.
We believe there are as many as of 100 markets in the U S with the significant need for inpatient psychiatric beds.
This year, we expect the opened one acute inpatient 80 bed facility in Cincinnati, Ohio.
For years 2023 to 2025, we expect to open three to four new inpatient facilities, including JV and wholly owned de Novo.
We also believe there is still tremendous unmet need for medication assisted treatment in the 32 States. We currently operate in.
Additionally, five states remain of interest for de Novo targets.
We plan to open 11, CTC locations throughout the U S. In 2021, and six to 10 CTC locations per year for years 2022 to 2025.
The fourth pathway to growth is through M&A.
We recently announced that we signed the definitive agreement to acquire the Leighow behavior of.
Of 61 bed acute facility located in Vallejo, California from Adventist Health.
Tuck in acquisitions have been an important part of the Acadia is growth strategy and.
And we believe this facility will be of good addition to our portfolio.
The fragmented behavioral healthcare industry provides ample opportunity for future acquisitions, and we are well positioned to capitalize on these opportunities with our flexible balance sheet and disciplined capital allocation framework.
Future M&A would be incremental to our 10% EBITDA growth targets.
Our growth for each of these pathways.
Is supported by our marketing platform, which has been and continues to be of strength for the company.
We have a strong diversified referral base across all service lines and regions, we strive to eliminate barriers to treatment.
Prop response times from initial outreach to admission R.
Our marketing team has been and will continue to play an essential role by supporting our facilities and working to reach the many patients that need our services.
Another focus for us moving forward will be within the area of telehealth.
During the second quarter of 2020 with the implementation of stay at home orders. We quickly expanded ARTEL ahead of health capabilities to better reach and support our patients.
We see telehealth as an opportunity to expand the continuum of care for our patients both now and into the future.
At the same time, we will be reinforcing our quality proposition.
We believe increasing the utilization of our telehealth platforms will help broaden community outreach assist with physician coverage support increased opportunities for group therapy and encourage more timely assessments.
We will continue to evaluate opportunities to grow in this area of our business within three major buckets.
The port for existing services, Inc.
Expansion of existing services and growth into new services.
Acadia is setting the standard for excellence in the treatment of behavioral health and substance use concerns.
We are intently focused on fostering high levels of quality and safety for all of our patients every day.
Our strong financial position will support our strategic focus on our U S operations and growth initiatives.
Across our operations, we will leverage our experienced clinical teams to deliver the highest quality of patient care.
While also extending our market reach and advancing our market leadership as the leading behavioral healthcare provider.
This concludes our prepared remarks this morning.
I will now ask Cody to open the floor from your question.
Thank you if you'd like to ask a question. Please taking my pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach of equipment. We would also like to ask you to please limit yourself to one question and one follow up before reentering the queue.
Thank you once again that is star one to ask a question we will take our first question from Ralph Giacobbe from Citi.
Great. Thank you. Thank you very much and very helpful framework.
I just wanted to clarify on the 10% growth you said too.
The facility expansion I think it was included M&A was not included what about the partnership and de Novo's or are those included in the in the 10%.
Yes, Ralph the facility expansions joint ventures and de Novo's are included in the 10% and as we commented M&A would be incremental to that that threshold.
Got it and then you just delever the balance sheet, you talked about the target sort of the I guess, the three to four times range.
I guess, how quickly should we think of the speed and ramp up of these projects.
In regard to that leverage ratio.
Well.
These projects that we highlighted are really funded with cash from operations. They are included in our projection of capital expenditures, which we do believe will continue to accelerate as.
As we finalize some of those projects.
And so there is an earnings ramp associated with new facilities, not with the bed expansions at existing facilities, but with those new facilities.
We plan to fund those with cash that we generate in the business.
And really see the deleveraging benefit of that as we look out over the next several years.
Okay. That's that's helpful. And then just my follow up here.
Can you talk a little bit more about the guidance the underlying assumptions may be on the same store metrics, the volume and pricing and then implied margins at the midpoint of guidance is about 22%, maybe how you view the opportunities to move that higher of whether it's more about sort of driving top line to your point sort of of breaking out all of the opportunities that you have.
Going forward any color around the trajectory there would be helpful. Thanks.
Yes, sure. We do believe that revenue growth will continue at the 6% to 8% range of.
Our second quarter, obviously, we will have a comp that compares to.
What was a challenging quarter in 2020, so is expected to be above that range.
But in addition to that 6% revenue growth, we do see margin improvement in the business. Our 2021 guidance assumes about a 27% margin for our U S same facility group.
And then as you mentioned the implied guidance for the company in total which would include our corporate office as well as in a new facilities and startup losses that are not part of that same facility group puts our consolidated margin in the range of 22% to 23%.
The revenue growth of six 6% to 8%. It continues to break down very similar to the trends we've seen in the past with about 2% to 3% pricing growth within that as well as 4% to 5% volume growth. We do believe going forward as we look past 2021.
With the.
<unk> growth the efficiencies and the ongoing cost management focus that we have we should continue to see margin improvement.
As we grow the business.
The expectation there is around 50 basis points of annual margin improvement.
Very helpful. Thank you.
Okay. Thank you. Thank you.
Thank you we'll hear next from true.
The <unk> with Deutsche Bank. Please go ahead.
Yes.
Good morning, guys. Thanks for taking my questions.
Drilling in a little bit on the same store patient days are up two 6% comprised of admissions up 70 basis points and length of stay up two 9%.
Give us some more color.
On the emissions what are you seeing from each referral channel. For example, you said that acute as nearly 47% of your business. How is demand from the EUR referral channel trended and also length of stay any color on what's happening.
In terms of the length of stay growing is this the read through for trends in 2021 and beyond in the post Covid environment.
Good morning Pedro.
August mentioned, a little bit along the service line than what we saw in the fourth quarter. Our Q continued to see very strong volumes and its really driven by our referral network, which include the yards and we did not see much disruption there and in fact that.
Stayed very consistent with what we've seen from June forward.
Our specialty service line, we did see a sequential decline there from quarter, three and that was really due to the resurgence in COVID-19.
Was some reluctance to travel.
And we saw certain markets that where we consider to be more hotspots of California, Arizona.
We managed through that very well, but and we have actually started to see recovery on that in January and is even stronger in February. So I think that was the temporary and that's again based on the fact that we pull from the abroad area of geographic area across the <unk>.
Entry.
TC was very stable.
And it's really been stable throughout the pandemic, we actually not only saw stability there, but we saw improvement in our census in RTC and then the last area that I'll mention is our CTC and that continues to be strong.
It's outperformed the prior year and we mentioned that we're adding clinics. This year, we feel like this is an area for strong growth, but it is certainly in the fourth quarter was extremely strong and we were very pleased that we were able to offer services and there was really no.
Disruption there.
Length of stay I think has been even though it is up.
Slightly I think as we look at it we don't see one common factor there I think the it's within our expected range of if we look at of by service line.
Thanks Ted.
While I say, there's not one common factor I do think that in the acute area. It is up.
From what we have seen over the years and I think part of that could be too.
Some increase in acuity, but as I said, it's still within the range that we see and have seen over many years.
Okay great.
For a follow up question Telehealth is typically use more in the outpatient setting can you give us some color of what you mean by growing into new services is there a chance that you can leverage your.
Physicians nurses to expand outside of the inpatient or residential service markets. Thanks, So much.
Sure.
We feel like we have a strong platform here and as I mentioned in my remarks, we did expand the capabilities of our facilities very quickly really within about two weeks, which I have to give credit to our it department working in collaboration with our facilities.
But we also think there may be opportunity to expand telehealth and as you mentioned using our physician network and our capabilities that we have clinically.
Not only for.
Patient follow up that might of core as per.
Patients are discharged, but then also we're looking at additional markets that we might not be in right now as well as partnerships that we might have with other telehealth providers or perhaps even trying to expand our capabilities here within Acadia.
So just to be sort of very clear.
On the telehealth youre talking about possibly expanding outside of your core business lines into.
The demand youre seeing within the behavioral telehealth market.
Yes, Peter we do believe that that could be an opportunity we have already seen an expansion and just a better continuum of care in our existing markets that does expand our reach and we believe that trend could continue.
Great. Thanks, so much guys, Chris add to that.
Peter before you go.
Our.
What we have used telehealth for is really even through our assessments and using it as a way to extend the therapy, because we do pull from some wide geographic areas. So when we talk about extending beyond our current offerings. We believe that we may.
Have opportunity to extend our connection to patients that are in other parts of the country and also we also pull from rural markets, where sometimes they go back and they don't have a continuum and they don't have resources. So we want to be avail.
Available to them and we see telehealth as a way to do that.
Perfect. Thanks, so much.
Thank you we'll take our next question from Whit Mayo with UBS.
Hey, Thanks. Good morning, just quickly on the 10% does that include startup cost and should we think that same store EBITDA is more like.
The high single digit number and then the the de novo's and the new.
New hospitals will contribute above and beyond the 10% number I'm just trying to make sure I sort of decompose the building blocks to get the Tim.
Yes.
It's a good question that does include us covering our startup costs and <unk>.
The year, we have some normal level of start up given that we are typically OPEC opening multiple facilities every year, we of course could see a year, especially in 2022, where we have more facilities opening.
But the 10% does have us.
Covering that investment and the startup period.
Of course, keeping in mind that we could see some years, where we have more facilities coming online.
It's inclusive of that number.
Awesome, what's the what are you budgeting for startup cost in 2021.
In 2021, we believe it will be in the range of $6 million to $8 million, we do have three facilities in various fei.
Phases of the process right now.
That compares to more like $4 million to $5 million in 2020 for the facilities that were the similar phase of the process. So some slight growth in net investment in 2021.
Okay.
Maybe two quick ones I'm, just curious Debbie maybe to get an update on some of the the underperforming hospitals that you had in late 2019, how are those performing vs.
Budget and plan and then back to your comments around sort of like policy and legislation when I've seen like California 855 is there anything that is.
Kind of like bubbled up to the surface that you.
You're paying particularly close amount of attention too. Thanks.
Sure.
Well with respect to the five facilities I think in 2020, we were able to execute our plans around them for improvement.
And despite COVID-19.
They actually perform very well and I was pleased and they were all unique as we had talked about a couple of years ago, but I think that they've all.
Exceeded the budget expectations and then.
They are strong performers and we did see a couple where specialty as we had talked about and we saw some disruption from COVID-19 not anything that was controllable by the facility but.
Overall, we see a lot of opportunity.
For each of those they're meeting our expectations, but we expect them to continue to improve this year and they are a very solid strong facilities for the company.
As far as legislation.
Thank you.
<unk> been watching the as we have a new president.
Just his views on healthcare and particularly mental health and I think that you know I've been pleased to see that he is supportive of enforcing mental health parity and I think that while there has been some work and attention given to that I think thats opportunity frankly for.
The industry I do think that there are still.
The managed care companies that have not embraced parity and should be held accountable and so I think he has said very publicly that he wants to focus on that he is also a supporter of telehealth for rural communities that I see that as the positive because.
Telehealth is not going to replace our inpatient business, but it can be as I talked earlier.
A real continuum for us that allows people that can't drive or have too far of of distance to come to services.
And then I think just from the the state point of view, we've seen strong support for mental health across the board and I think of lot of that is based on the attention that mental health is getting and you've been putting some of those numbers out there.
There's very strong demand and I think the states.
Have really collaborated with us and been very supportive and what we're trying to do in our place and in really the the industry and meeting the needs. So.
Im encouraged that I think we have a precedent that is supportive of what we do and also has talked about funding for opioid and extending that so we're watching that very carefully and we're making sure our voices heard but but I am pleased that he understands the importance of.
The mental health.
Thanks, a lot.
Thank you we'll hear next from Kevin Fischbeck with Bank of America.
Alright, great. Thanks, just wanted to confirm.
The five year growth targets of 10% EBITDA, what EBITDA number is that is that off of the 'twenty 'twenty, one guidance or is that off of the.
The 2020 pro forma number.
The that's off of the 2021 guidance and it's a similar growth rate. If we think about 2021 compared to 2020 so.
It is the trends that we see in 2021 and continuing over that five year period.
Okay, and then just to confirm that.
Do you think it should be relatively stable if you could talk a few times about.
Like 2022 is going to be a big year for jbs, youre going to be adding more beds in the out years.
Yes.
But net net it should be more of that kind of consistent rate of a little bit at times.
Time period.
Yes, that's how we see it Kevin we do see just the ongoing bed expansions being very stable within that the number of new facilities being very stable and so we do think that is a.
Really as we look at each year, that's the number that we think we can achieve.
And then I think the new facilities of course, even if we are investing in a greater number of those.
And there is potentially of greater investment in that and of cost in that that could drive incrementally greater returns. Once you get one to two years into those new facilities, but its a very stable rate of growth that we are projecting.
Kevin we see potential for M&A over and above that which I I talked about earlier and we think that there is a good pipeline.
And we believe that that will be additional growth opportunity, which obviously.
Have not included in the 10%, but we think that there's real potential now that we do have our balance sheet in much better condition.
Yeah look of tuck ins and other opportunities out in the market and we think that there's a good pipeline for that.
The gist of my question.
Very helpful. The Peter kind of reset.
The U S business and the exposure to the different service line.
As you think about exiting this growth strategy five years from now are those percentages going to be pretty much the thing or would you expect the business to be shifting.
The one direction over another.
Thanks.
We we provided the detail around the service lines within our U S business and we do certainly see the acute service line growing through the joint ventures and other growth pathways. The.
The our focus maybe more on acute but the growth should occur throughout all of our service lines. So I think any shift would be very gradual we could see acute continue to grow as the mix of our U S business, but we believe all of the service line is really provide a good platform.
For continuing growth. So I don't think we see a significant shift in the composition of the business five years from now.
Alright, thank you.
Thank you we'll hear next from AJ rice with the credit Suisse.
Yes.
Hi, everybody.
Yes. Thanks.
Laying out the different business segments that was very helpful. It does sound like acute will grow.
Given where some of the strategic initiatives or M&A in the JV.
JV and so forth.
Faster than the rest of those business lines I guess the question is.
Part of the target is to get of 50 basis point improvement.
The margin.
Sort of annually.
How much of that is driven by margin differentials across the business lines of the business shifting toward higher margin business, which I would assume acute is relative to some of those other businesses, but if you could confirm that.
No, we don't see that being a contributing factor to the margin improvement it really is more the.
The growth the efficiencies that we believe we should continue to see from.
Volume growth at existing facilities, leveraging the cost structure that we already have that is the key driver of margin growth.
We don't view the service mix.
Being a factor in that margin improvement.
Is there the big differential in margin across the business lines.
We see across our U S service lines.
The strong margins and we really characterize this all service lines.
Going around the U S same facility level, which is approximately 27% it can be different.
Cross the country and the the different programs that we operate.
But in general our service lines are similar to our overall U S same facility margins and.
And a J I'll, just add Inc, and the.
The specialty area, we have a lot of diversity and so depending on payer mix you might see some very and so of of margin there because some are larger and very specialized in and there is there is.
A lot of diversity, there so with the acute it's a little bit more straightforward and certainly with CTC as well, but I think within specialty we have a very strong payer mix there as well as referral base.
Okay.
And then maybe the other question just ask would be.
Around labor, obviously thats been a constraint in this sector from time to time on growth and some of the other sectors like acute or talking about some pressures theyre having.
Finding adequate labor and some burn out of the existing staff and so forth can you just sort of give us an update on how you see that what's happening with your turnaround of turnover rate what's the.
What's happening with your ability to recruit and some of the initiatives maybe in that regard.
Yeah.
Well, a J we've had a very.
<unk> focus on recruitment and retention.
And I think that we did see occasions in the fourth quarter because of Covid and because we saw a lot more staff being impacted and we certainly saw more patients coming in that I think the team did a fantastic job of just making sure that God services, but I'll say that.
There are occasions, where we view the lies the agency and overtime.
To ensure that we have appropriate staff, but as I look at the company and really look across the the service lines, we haven't seen significant disruption of our change in in the availability.
We were very fortunate our turnover rate is fairly stable, we always work to bring it down but its stable and and I think that again I just go back to the the operators in the field did a great job of making sure. We had the staff there when the patients needed to to seek treatment.
Thank you we'll hear next from Brian can correlate with Jefferies.
Hey, good morning, guys and congratulations.
I guess, Debbie just to follow up on your comments on M&A earlier.
What is your appetite for larger deals at this point or should we be thinking about this more of the tuck in strategy.
And then I guess, given the lack of deal flow in the space I mean is it safe to assume that valuations are much lower than what we saw let's say three years to four years ago.
Well I'll take the first part of that question and let David talk about valuations, but I think.
M&A has historically been a priority here.
I think we're very well informed about the platforms that are out there and larger platforms.
We're not going to comment on any specific transaction, but I'll just say, we're open to what makes sense for us.
We do look at valuation in multiples, but we also look at.
The strategic part of that as well as synergy so I think the.
As we approach this year, we have an open mind for M&A, but we also have a disciplined approach to it and of framework, that's kind of keep us very disciplined and I think that it looks from.
Just the pipeline that there are opportunities not only for the tuck ins, but perhaps going forward some of the larger M&A that might.
Come to market.
You want to mentioned and really Brian nothing to add around valuation compared to the last several years any day.
<unk> point is is the right. One we will remain disciplined we think many different types of M&A opportunities will be attractive and we will we will look at those and just evaluated under our framework, but we do not have of specific view right now on where valuations should be.
Got it and then I guess as I look at the CTC side of the business or just the whole addiction treatment complex right.
Obviously, the states are trying to negotiate a big settlement with the drug supply chain and they are saying that theyre going to use the funds to pay for addiction treatment at the community level. So have you had conversations with your state clients yet on what that could mean for for Acadia or just the industry as a whole once that settle.
And that happens presumably sometime this year.
We stay in very close touch with our states and.
Think of the Ceos and leadership out in the field really do a good job of making sure that theyre talking with state officials and those that are.
I think involved in making decisions around funding.
Do we we.
We talked about this I guess, maybe a year before last and.
It didn't work out it does look like this is going to it's going to happen now with the settlement and I think that we believe that we're in a good position to.
To receive some of those funds, but we can't really predict how the states right now, we'll lay that out there or other.
Proactive preventative services that I think they would seek to have but we also believe we provide a key part of that continuum. So I think we are in close contact we're watching that and we're hopeful that it will allow us to treat more individuals.
With the funding debt that may or may not become available.
Awesome. Thank you Debbie.
Yes. Thank you.
We'll hear next from John Ransom with Raymond James.
Okay.
Hey, good morning, Thanks for the update and all of the detail on the U S business.
Just a couple from me.
All of the CPC side.
Given the Theres no public comp.
Top out their standalone and I don't think the businesses.
Fully understood, but are there any sizable price.
Private equity backed portfolio companies that you could see yourself being a true sedan or is this going to be in.
The opinion, probably just said the novo.
Yeah.
Well as I mentioned.
Brian.
We don't comment on specifics, but there are platforms for CTC and we certainly.
Them and I think that they have.
Some different geographies than we might have so those platforms might provide an opportunity for us to move into other states that were not an or of states that we feel would be good to go in with the an acquisition rather than a de novo.
I do think the team is does the very thorough job of really looking at what makes the most sense for states and really they've got some good criteria and metrics that they view, but we would not rule out M&A in the CTC area. We just now.
C of very strong pipeline frankly for our de Novo's, and we have plans and their concrete very defined by by state, but on the other hand, we would always be open the opportunity if they're presented.
Okay.
On your labor.
No I'll turn the nobody has been vaccinated.
<unk> seen.
Is there a subset that's just not willing to take the vacuum at this point is reported in other sectors of healthcare.
Yeah.
We have tried to be.
Very open with our staff and provide communication and education about the vaccine.
I think that right now I think about 15% of our staff have received the vaccine.
I think that you know it varies by.
The facility and by state, but Theyre also states is as we know from hearing the news are in varying stages of actually getting the vaccine out to those that need it but you know where we're going to continue to educate about I think the importance of the vaccine.
But yeah, we'd not mandated it here, we don't plan to do that but we do think it's important.
For just the.
Of the country.
And we would always encourage our staff to receive it.
But we're not at this point mandating it.
Got you.
And then lastly.
For me.
The U.
David If we think about the.
The novo losses that you're going to absorb any of your 10% EBIT of target could you.
Maybe provide some sizing of that just from a dollar of perspective.
At least kind of a 2000 and 2021 of your guidance of maybe 2010.
Yeah, We mentioned John for this year, we have three facilities that are starting up and that's around $6 million to $8 million number for us.
So that first year, where of facility is going through the opening process and the licensing survey process hence.
Tends to be around a $2 million loss I think the team that we have has done a great job in finding ways to manage that and the the survey process and our work with the the survey team is essential to that.
So I think in general it's around $2 million of facility the timing of opening is a factor.
Right, but I think we could see some improvement in that number but in general it's of about $2 million per facility and should stay sort of in the $5 million to $10 million range.
And how long does it generally take you to get to your average occupancy when you open up of a new.
Either wholly owned or JV is there a difference of the JV of the wholly owned in terms of the I would assume the JV ramp a little quicker because you probably transfer over some existing patients.
Patients from the acute care hospital, but just how long does it take all of those two cases to get the full occupancy.
Yes, we do have a goal for a new facility of getting to breakeven from an earnings perspective by the end of the first year getting all the way to the average occupancy for the company of of mature facility.
It can be two to three years and the joint ventures that we have opened have demonstrated a faster ramp and the occupancy compared to a de novo.
So intend to be a little bit faster in getting to that occupancy.
But as of two to three year ramp to get all the way to the company average.
And I'm sorry, if you mentioned this but do I remember correctly that you generally 80% of the the JV.
Is that right.
Depends on the it depends on the transaction.
Sorry, Jonathan.
It depends on the transaction the contributions from both parties that is.
A general target that we have and where we see a lot of our joint ventures, but we're very flexible and working through what's right for a specific transaction and it can vary somewhere around that level.
Got you. Thanks, so much.
Okay. Thanks, Joe Thank you.
Thank you and that concludes today's question and answer session I would now like to turn the conference back over to Debbie Osteen for any additional or closing remarks.
Well, thank you again for being with us today and for your interest in the Acadia healthcare.
So grateful to our field and corporate leaders for their resiliency and their commitment.
Keeping our key growth and operational initiatives moving forward.
While at the same time responding to this unprecedented crisis.
If you have additional questions today, please do not hesitate to contact us directly and have a good day.
Thank you that does conclude today's conference. Thank you all for your participation.
[music].
Yes.
Uh huh.