Q4 2021 Acadia Healthcare Company Inc Earnings Call
It was $593 $5 million compared with $541 $3 million for the fourth quarter of 2020.
The company recorded income of $17 $9 million and $32 8 million in the fourth quarters of 2021, and 2020, respectively related to the provider relief fund established by the cares Act.
Excluding this income from the provider relief fund.
<unk> adjusted EBITDA for the fourth quarter of 2021 was $138 $2 million compared with $125 1 million for the same period last year.
And adjusted income attributable to Acadia stockholders per diluted share was <unk> 67.
For the current period presented in our earnings release adjusted income excludes transaction related expenses.
In 2021, we continue to strengthen our financial position and reduce our debt our balance sheet remains strong with ample liquidity flexibility and capital to support our growth strategy.
On December 31, 2021, we completed the Centerpoint acquisition for cash consideration of approximately $139 million, which was funded through a combination of cash on hand, and borrowings of $70 million under the company's revolving credit facility.
As of December 31, 2021, Acadia had $133 $8 million in cash and cash equivalents and $430 million available under our $600 million revolving credit facility.
Both of which reflect the completion of the Centerpoint acquisition.
Our net leverage ratio at the end of 2021 was approximately $2 four.
During the fourth quarter. The company continued its repayment of amounts received pursuant to the Medicare accelerated and advanced payment program under the cares Act.
Of the $45 million of advanced payments received in 2020, the company repaid $25 million in 2021.
Including payments of $8 $2 million in the fourth quarter.
We will continue to repay the remaining balance throughout 2022.
In September of 2021, we also repaid half of the approximately $39 million of 2020 payroll tax deferrals and will repay the remaining portion in the second half of 2022.
Now turning to our guidance as noted in our press release, we are providing guidance for the full year and first quarter of 2022.
First for the full year 2022, our guidance includes revenue in a range of $2.550 billion to $2 $600 million.
Adjusted EBITDA in a range of 575 million to $610 million.
Adjusted earnings per diluted share in a range of $2 85.
To $3 15.
Interest expense in a range of 65 million to $70 million.
Tax rate in a range of 25% to 26% dip.
Depreciation and amortization expense in a range of $120 million to $130 million.
Stock compensation expense of approximately $30 million.
Operating cash flows in a range of $350 million to $400 million, which includes $39 million in repayments of Medicare advanced payments and payroll tax deferrals.
Expansion capital expenditures in a range of 290 million to $340 million and maintenance capital expenditures of approximately $50 million.
And for the first quarter of 2022, our guidance includes revenue in a range of 600 million to $610 million adjusted EBITDA in a range of $130 million to $135 million and adjusted earnings per diluted share in a.
The range of 62 to 66.
As a reminder, this guidance does not include the impact of any future acquisitions divestitures or transaction related expenses.
Our first quarter guidance considers the normal expected seasonality with volumes ramping up after the ended the year holidays, and a higher level of payroll taxes, we incur at the beginning of the year.
While our first quarter guidance reflects the impact of the <unk> variant on our patient volumes and staffing cost in January . It also reflects strong volume trends in the month of February .
Our full year guidance represents our confidence in the business supported by favorable demand trends and a strong growth trajectory.
As it relates to <unk> growth in 2022 and beyond we have previously shared Acadia strategy that is centered around our distinct growth pathways that we believe will provide additional opportunities for acadia to reach more patients in new and existing markets and.
The strong demand across all of our service lines.
First we continue to believe that facility expansions are a key driver of our growth and represent the best return on investment when.
When we add beds to an existing facility, we can meet the growth in demand in that particular market, but also leverage the existing facilities cost structure, which allows us to improve margins and profitability.
We have a goal to add 300 beds through facility expansion this year and each year through 2024.
We continue to identify opportunities to accelerate and add to these projects.
An important growth objective for Acadia is to identify underserved markets for behavioral health treatment and develop wholly owned de novo facilities that help fill this gap.
Acadia has a strong record of success with six acute de novo's and 21 CTC de novo's opened since 2014.
We believe there are approximately 100 markets with a significant need for inpatient psychiatric beds.
In 2022, we expect to open two de Novo inpatient facilities, which include the 60 bed children's hospital in Chicago, and an 80 bps facility in India, California, along with six to 10 CTC locations.
For years. After 2022, we expect to open one to two inpatient de novo's per year, along with six to 10 Ctc's.
As a leading provider of behavioral health services, we are especially proud to work with leading health systems across the country, who are looking for a strong partner to help expand behavioral health treatment options and their respective communities.
For Acadia These joint ventures provide market access that might not otherwise be available and allow us to leverage our partners established reputation in the community and relationships with payers.
Later this year, we expect to open two new facilities through joint ventures, with Covenant health in Knoxville, Tennessee, and Lutheran Health network in Fort Wayne, Indiana.
We will continue to seek partnerships with Premier health systems, who share our commitment to expand access to quality care and behavioral health treatment.
In 2023, and 2024, we expect to further accelerate joint venture openings and open between four and five joint ventures per year.
To summarize in 2022, we expect to add over 600 beds through approximately 300 bed additions to existing facilities.
Opening two inpatient de novo's and two facilities with JV partners and also opened six to 10 CTC locations.
In 2023, and 2024, we expect to accelerate our bed additions by opening between 801100 beds per year.
We are very proud of the visibility that we have into our growth for the next several years, which will enable us to meet the robust demand for Roger for our diversified services.
Through our investment in our business, our focus on cost management initiatives and our disciplined capital allocation strategy, we expect to achieve a 10% EBITDA growth rate over the next several years.
This is supported by the strong industry demand, our proven operating model, our financial strength and our ability to deliver greater value for our patients the communities, we serve and our stakeholders.
With that grant we are ready to open the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
We are using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then two.
We ask that you limit yourself to one question and one follow up at this time, we will pause momentarily to assemble our roster.
Our first question today comes from Brian <unk> with Jefferies. Please go ahead.
Hey, good morning, and congratulations to you guys.
I guess Debbie My first question for you, obviously, a lot of concern about the labor market and what it looks like especially for behavioral providers. So if you could just address that I mean, what are you seeing how are you thinking about the labor environment going forward and how should we be thinking about obviously you had good margin performance. This past quarter, how should we be thinking about that thanks.
Well I think we are in a tight labor environment and I think we've been dealing with that for some time.
Certainly throughout all of 2021, I do think that some markets are impacted more than others and we have been able to manage the challenges I think in 2021 with all of the ways that we saw in the early fall and then into December .
Our.
Team has done I think a very good job of demonstrating that we can manage those labor challenges without restricting our Greg I think we've done a few things that I think made a lot of sense and it made a difference and one of those is having a centralized recruiting team.
That supports our facilities. So as we see needs that we are have a real time data that we know what we need at each facility. We are able to mobilize that team and they have been successful in recruiting and they were successful in recruiting even though December was a very challenging time with <unk>.
Cron and absences, but the team continued to recruit.
And I think the other part of what we tried to focus on and we've done that consistently is making sure that we are retaining employees. So we've done a lot this past year to onboard and other programs that we've implemented across the company to ensure that when we do recruit in.
<unk> that they stay with us.
And I think that there are things that are important to our staff.
Certainly monetary and money is important but also the environment and safety and flexibility and those elements. We also have focused on as we think about how to retain our good staff. So it's a tight market.
But I think we've shown that we have the right process and we see that in 2022, and we've already seen that through January that we can recruit staff and we plan to retain them and we're very optimistic that we can weather any challenges that might prove.
Dan.
No I appreciate that and then Debbie.
The drug distributors just side of their settlement or agreed to the settlement with.
With the states and all good stuff and there's a lot of discussion about distributing those dollars for opioid addiction treatment. So just curious if you're hearing anything from your state yet in terms of what that benefit or how that benefit would trickle down to <unk>.
Providers, such as you guys.
Yes, I mean, we were pleased to see that the settlement actually did get yes.
Settled.
And.
We have been involved even prior to this last week with our states and we've been talking to them about what's important and.
As everyone knows we are in a crisis situation and there Ben.
Over $100000 one.
100000 deaths.
Individuals. So what we are focused on with the state is expanding coverage.
And also service expansion other ways to deliver care workforce development.
Tracking outcomes and other things that we can do to demonstrate that.
<unk> and what we offer to our patients I do think that it is going to be a process each state.
Is allowed freedom.
But there are certain few things that are stipulated in the settlement and that is that these funds have to be used for opioid treatment and preventative.
And so they can't be used for other things within the state, which I think is positive and so what we're doing is just making sure. Our voice is heard our lobbyists are engaged and then also our leaders in the CTC division have been very active in talking with state officials and others that we will make decisions about how the money.
Gets distributed.
Thank you Doug.
Thank you.
Our next question comes from a J Rice with credit Suisse. Please go ahead.
Hi, everybody.
And best wishes again Debbie.
We had particularly that ducommun wells in a row.
Yes.
There is a lot of development.
Development activity.
Youre doing new beds addition, jbs.
You've got the.
CTC expansions can you just remind us on those different avenues.
Gross what.
What is the startup cost typically.
How long does it take us take to get to.
Our mature margin or contribution on those.
Maybe if you could just walk through and I'm, assuming but I'll ask you to confirm that you have factored all of that development into your guidance for 'twenty, two but that is reflected in the outlook you've offered yes last night.
A J, yes, our 2022 guidance does assume some increase in our startup losses over what we incurred in 2021, we've factored in startup losses in a range of $15 million to $20 million.
For those new facilities that opened this year of which there are four which is some growth over 2021 openings and we expect that to to further accelerate going into 2020 through 2023.
Our goal is that our new facilities will be at breakeven by the end of their first year of operations and that will be at company level margins around the third year.
Many times as we look at a joint venture project, we do set a faster ramp up for that joint venture facility given that we do have somewhat of a head start with relationships in the community.
Through our partner with referral sources and with payers in that location. So we have seen some joint ventures ramp faster than our wholly owned inpatient de novo, but our goal for all of those facilities is that they would be breakeven by the end of that first year losses can vary some.
From one new facility to another but in general in that first year per facility the losses in between two $5 million to $4 million.
And that like I said that 15% to $20 million that we expect for this year is factored into our guidance and Hai just say, we haven't startup team that is very engaged in making sure. We're prepared before we open a facility.
They have done I think just a very good job in just looking at all the detail that goes in before we get open to try and minimize that period.
Reaching breakeven and I think as David said with the JV.
As we leverage the relationship of our partner we found that it does help.
Reduce that time, they very often we'll be have.
<unk> beds that they are putting into the joint venture as well as staff and physicians. So that is favorable when you look at just getting a facility open and getting to a point, where we are at breakeven.
Okay.
And my follow up question.
You had strong pricing this quarter up seven 8% of revenue per patient day, I know that can be partly patient mix it can be partly absolute.
Year to year pricing can you just maybe talk about what youre seeing there.
Yeah.
Well as we think about our reimbursement we've been fortunate because we have had some very strong rate increases.
In 2021, our payers are supporting us and they're recognizing the services and the need for our services. We also have a component of service mix, which is.
Our acute and larger specialty facilities have a higher revenue per day and they have represented a greater portion of the volume growth. The demand is strong in both of those areas.
We do have.
We look at our payer mix.
As we've seen specialty <unk>.
Recovered.
Early in 2021, we see more patients traveling to our specialized facilities.
Those patients tend to be more commercial and they are covered by commercial payers. So that has played a role in just the strong net revenue as well as some of our specialty programs, we'd become even more specialized without putting new programs within our specialty hospitals and again our payers.
Recognize that that requires more intensity and also staff and they've been willing to give higher rates for those services.
Okay, great. Thanks, so much.
Thank you AJ.
Our next question comes from Kevin Fischbeck with Bank of America. Please go ahead.
Alright, Great and then maybe just to clarify that last.
Question there.
The growth in CTC revenue impact kind of the revenue per day is that is that contributing to a higher revenue because that revenue comes in without it.
Hey attached to it or is that broken out separately from that metric.
Yes, Kevin any growth in our CTC revenue, whether it's volume or pricing within that division does impact our revenue per days that at.
And what we've seen is that since that divisions growth rate is in line with our other service lines. It doesn't really have much of an impact on the metric where we could see an impact as if their growth rate is significantly different above or below.
The other service lines, but since it's pretty much in line with other service lines. It does not have a significant impact on the metrics currently.
Okay. So that so you view that as a good <unk>.
Representation of actual rate per day.
Yes, yes, along with the factors that Debbie mentioned around service mix payer mix and then of course, the payer rate increases.
Okay and then just another question I have is that you guys announced a lot of.
Construction this year.
Capex guidance is up this year, but you are looking to accelerate that again going forward.
Im not sure I understand you guys believe that youre going to be able to.
Fully fund that Capex spending over the next couple of years through free cash flow or would you have to potentially borrow.
Somebody can finance.
<unk> growth embedded to ads that youre expecting the next couple of years.
Yes, our outlook right now is even with some.
The increase in the expansion Capex guidance for.
For 2022, we should be able to fully fund that capex with cash flows as we've done in the past and even looking out into the next years as those opportunities continue to grow we believe that we will we'll be able to fund those projects and then of course in the outer years there would be.
Greater access and free cash flow over those expansion Capex investments.
For the next couple of years, where we see that step up in Capex occurring we do not expect to use our our debt capacity that we currently have as those should be funded with free cash flows.
Excellent. Thank you.
Thanks, Kevin.
Our next question comes from Whit Mayo with SPD Leerink. Please go ahead.
Hi, Thanks, just a couple things here.
Just on the development topic for a second I mean, I don't think that the demand side of the equation has changed or the industry has really changed but the velocity of the activity and the number of press releases that are coming out from you certainly has changed I know you've added some resources internally Debbie I don't know, if thats, having an impact or influence but.
I don't know if you just had to kind of put your finger on here sort of like one to two key observations that we're making today that we think is driving this level of increased engagement or activity. What would you what would you point us to.
Well I do think our bed expansions.
We see such a strong demand out in the markets that we're in and.
<unk> broad from the team.
At the facility and I think that they see patients.
Certainly that and demand.
We were.
Our occupancy is pretty strong and I think they see that there is the ability to add additional beds to our existing operations. So that's a key factor that's our best return.
With respect to the JV, which we did announce three in the fourth quarter and we added six partners in 2021, I do think that the health systems are looking for a solution.
Two the mental health issues and subsequent these issues and they have <unk>, where people are staying too long and and so I think that that's been a driver.
Have brought in a very strong team in that area and <unk> has done a great job in really communicating our track record it stands for itself and all of our potential partners.
Visit our other partnerships and they look at what we're doing and they talk to partners. So I do think that is a key factor, but it's really around a demand that's out there right now and just a greater acceptance with Av.
Just seeking help so it's manifesting itself in the bed expansions, but also our partnerships that de novo's, where we see there not enough beds to treat these patients and then.
We were able to complete the.
Transaction at the end of December four.
The beds in Missouri, and we think that there are other providers out there right now that are not faring as well through all of this it's gone on now for as we all know several years. So we think theres opportunity there with and I think a lot of this has to do with.
The fact that we have our leverage is low we have the capacity to grow we're thinking about it strategically now what is the best use of our capital where should it be but the opportunities are really across all of our services and we're fortunate because we have that diverse.
Diversification and but we also now have the ability to execute on that with our with our leverage where it is and then this this demand factor that's out in every part of the U S.
That's helpful. Maybe just to follow up I don't think I heard you specifically give any numbers around centerpoint I mean, I think we have an idea and there's some numbers in the public domain, but really I'm looking for the expectation that you see around just the EBITDA contribution this year.
And how that that could potentially.
ROE over time as you implement some of your your initiatives.
Synergy opportunities thanks.
We are excited about that transaction with <unk>.
<unk> met a lot of what we're looking for in an acquisition and does have.
Opportunities for us to improve their margin and to bring on new beds and other growth projects that will really enhance the growth profile for those facilities and tie into what <unk> is doing in our existing facilities.
We do believe there is improvement as we integrate those facilities into Acadia.
It's part of our guidance for the year, having closed the acquisition on December 31, It does account for around 4% of our revenue growth.
And their margins historically are I'll say well below the Acadia average margin.
But we do think with the growth initiatives in place at those facilities and.
With the just what we bring in terms of.
The processes and platforms that we can implement throughout those facilities, we expect that over over the first year and then continuing beyond that we should see improvement in those facilities margins.
Well, let me just ask one follow up question there.
That earlier, David I think expect $15 million to $20 million.
Of startup losses is it possible that centerpoint can absorb all of that half of that just.
Maybe trying to.
I think through what the overall impact will be this year.
Yes.
I think as we historically look at the business kind of.
Looking back at 2021, the acquired EBITDA is more in the range of $10 million.
And as we think about where they should be exiting the year. We do think that they could grow to a run rate closer to $15 million by the end of the year, so somewhere in that 10% to $15 million range would be our expectation in year one of that acquisition.
And I do think with that.
Centerpoint, they had very concrete plans and actually and started executing on those plans, which we always like to say it was not a pro forma of something that might happen, but it was happening. So we think that's going to feed very nicely into our bed expansions and even other.
<unk> to grow the continuum they have a very strong outpatient base in a very motivated team that is.
<unk> is putting those programs in place. So it's one where it met all of our criteria that we've set as we think about opportunity for M&A.
Great. Thanks for the time.
Our next question comes from Peter Chickering with Deutsche Bank. Please go ahead.
Hey, good morning, guys. Thanks for taking my questions.
Jay's comment.
Congrats and yes, we'll see assume steady maybe maybe one for you I guess, we'll see what happens.
Going back to Brian's question on labor.
Between your results and your peers is pretty substantial so a couple of sort of quick question.
<unk> can you quantify your staff retention in fourth quarter, and how that wasn't 'twenty 'twenty. One can you quantify on the condition that you hired in the fourth quarter versus third quarter and can you also refresh us on what percent of S&P in the fourth quarter is due to contract labor overtime and how the truck versus <unk>, how we should think about that in 2022.
Yeah.
Peter our retention throughout 2021, including the fourth quarter has been stable.
There are.
Markets that are different and it does vary by job category and by market, but we've had a very stable retention as.
As we've gone through the year and I do not have new higher metrics, but the last time I looked at that Thats also been very stable along with our retention metrics with respect to just our percentage of labor.
We do have premium pay components to our labor that we use in certain markets, sometimes just temporarily.
Specially if there is a higher level of sick pay because of the pandemic.
But that premium pay labor was consistent in the fourth quarter with where we've trended earlier in the year, we do still see agency labor at around the 2% of our overall labor cost and the premium.
Related to that agency labor has been consistent and it's about two times our base wage rates.
Over time, another source of premium pay labor has also been very consistent.
It's more like 5% of our labor. So we continue to do a great job at a local level just finding staff to support the volume and the demand that we see across our markets and the premium component of our labor has been stable.
Okay, and then a follow up question during the pandemic, our commercial payer generally manage length of stay as aggressively as they did prior to Covid just curious what behavior, you're seeing from commercial payers managing length of stay for today versus 2018 and sort of as a follow up on pricing questions.
As you look at commercial revenue per day price increases in 2022, I guess, where does that fit relative to where it wasn't already mentioned thanks. So much.
Peter we didn't really see a big change in the behavior from our commercial payers.
We certainly have to follow a process of.
Showing that there is a need for our services whatever surface that might be in and we did not see that really relax in fact, our length of stay has has been fairly stable for our acute service line, it's been around nine days.
And so I think that.
We work I think in collaboration with our payers, they're interested in high quality service that's done in the right setting.
And we've worked very diligently to make sure that happens so we didn't see a big pullback during the pandemic at least across our services with our payers.
Were they relax requirements medical necessity is.
Is still important to them and our clinicians and our teams at the facility level still have to show that that's in place and I think they've done a good job of that and we are in we from time to time, we will see a little bit more acuity.
Among our facilities, but overall, it's been pretty stable.
And then the commercial rate increases per day in 2022% in 2018 can you help quantify that course, thanks so much.
We continue to work closely with our commercial payers maintain good relationships as you know most of those are in and that were longstanding relationship that we've had in.
Of course, the discussion regarding rate increases.
Factors in just the value the quality of the care that we provide across our markets and services and different programs.
I think our payers.
Realize the importance of the services, we provide and the pricing expectations.
Really depend on the market depending on the payer the past increases that we may have seen but on average would be consistent with what we've seen historically, which we would say is in the 3% to 5% level. Many payers it could be more than that and it depends on a <unk>.
There are factors, but that <unk>.
Pricing increase across our commercial payers on average has not really changed as we think about what the average was couple of years ago.
Great. Thanks, so much guys.
Okay.
Our next question comes from Andrew Mok with UBS. Please go ahead.
Hi, Good morning, just a couple of follow up questions.
Labor can you help us understand.
Direct labor pressures.
Specialty settings, and we're setting are you seeing greater pressure on what's driving that difference.
Yes, Andrew.
We do believe that our diversified services and just the geographic diversification that we have.
Has helped us from a labor perspective.
We do of course, we have all behavioral but the components of our staffing can look different from one service onto another where we may have for our acute service on a greater percentage of nurses then in specialty and in specialty we may have.
Greater percentage of therapists and counsellors as compared to acute.
Wouldn't necessarily.
Give a different metric or wage inflation.
For those service lines in total because it does also depend on the geographic market.
As we look back and reflect on the service lines, we have and our ability to navigate a difficult labor environment do think it has helped us to have not only the service line diversification, but it to be in the geographic markets that we're in.
Okay.
And then just a quick follow up.
In the quarter was there any benefit.
State supplemental payments.
Call out.
Yes, we have.
We did have one new program.
That was finalized and approved and this was a new program in the state of Florida. The directed payments program implemented in that state.
And we did record sort of the full annual benefit of that program in our fourth quarter numbers and that was about a $4 million net benefit to the company.
In addition to a lot of the strong pricing and revenue per day trends that we've seen we did have $4 million in the fourth quarter related to that program and our guidance for next year does.
Reflect.
The strong likelihood that that program will continue into 2022.
And for 2022, it should not be something that we record in one quarter. The way we did here in this first year as that program was implemented an effective for the first time.
Other than that we participate in any supplemental programs that we can across other states and many of those have been around for quite some time.
Florida was the one in the fourth quarter that did provide some incremental benefit to us.
Got it thanks for the call.
Thanks, Andrew.
Thank you.
Our next question will come from Matthew Borsch with BMO. Please go ahead.
Okay.
Yes, I was hoping that maybe you could.
Just talk about how you're thinking about your long term forecast for.
Opioid treatment I mean do you.
Based on the sources that you look at do you see any sign of abatement.
In the forecast as you look at it.
Well as we look at the demand and just the prevalence right now.
Those using opioids, we as we think about our states and we're in many of them. We think that there is still a need for additional clinics in services.
And I think that what's happened with the pandemic, it's made really.
A real crisis, even worse than it was before.
We are seeing individuals that.
Are seeking.
Opioid treatment.
And we're also I think seeing at the same time, some very favorable trends in reimbursement so Medicaid.
Mandated the states to cover opioid treatment in October of 2020, and then in the first part of 2021 Medicare.
<unk> became effective for.
Opioid treatment. So we're we're thinking about it and we added the 10 clinics in 2021, because we do think there still is.
A big need for days treatment services.
And we also see that continuing and I think it has gotten even more.
The crisis is worse than it was when you think about the 100000 overdose deaths.
And the worsening of the epidemic. There is also fitting all coming in now that has caused some of this but it's really it's an increase in deaths of over 30%. So as we look across our stage. We believe there are opportunities to add our services. We provide are very rote.
But I think service offering, which we have individuals and demand that is growing every year and so we as we look ahead, we don't see that abating.
And we will continue to add clinics there we.
Do have less capital involved when we do so and we have a very strong team and they have a lot of experience. We're the largest provider. So we see it as a.
That opportunity too.
Add in states, where we're pretty careful about where we put our clinics not every state reimbursements at the same level. There is some variation, but overall, we think that.
As this crisis is happening and getting worse that we're in a good position and we will continue to add to that service line.
And maybe just on.
Similar note on the long term planning as you talked about 100 markets 100, new markets.
If I understood your comment.
Can you generalize at all about.
Why.
Characterizing the new markets and how you screen them.
Well as we look at de Novo builds and yes. There are 100 markets that we believe are under bedded. We have some very clear criteria of what we look for and we do a lot of front end work to make sure that.
It is a market that yes, it's under batted but also has other factors that are present, we we look certainly at reimbursement we want to make sure that we can enter a market.
And have staff availability.
We look at construction costs some states differ.
And what a bad cost to build so usually fortunately if it cost more to build a bad the reimbursement is stronger. So all of that is contemplated we have a very I think it's a very robust process around that now of just where are we building and what makes the most sense.
So we would not suggest that we are going to build in 100 of those markets, but there are a number of markets that we've identified in our process. We meet every couple of weeks just on that on de Novo's, where where we are how what are the staff and the team on the operations.
Side are very engaged in making sure that we can get ahead because there is a process involved when you build a hospital.
Steps that we have to take place, but we think that's a real opportunity for us to grow based on the strong demand.
Alright, Thank you and congratulations.
Thank you.
Our last question today comes from Sarah James with Barclays. Please go ahead.
Hi, Thanks for squeezing me in.
Can you talk a little bit about how you're viewing seasonality for this year or are you assuming any sort of improvement in the labor market or availability of labor in the second half.
Sarah we of course factored some seasonality into our first quarter, which is very typical for what we've seen in the past around the holidays and payroll taxes and then this year the greater number of cases.
In January from the AMA Chrome variant and we mentioned that we've really seen a return to the strong trends in February so that is factored into our guidance outside of our first quarter seasonality.
We do not see a lot of <unk>.
Seasonality later in the year, we see some in the fourth quarter just around the end of the year holidays, but we do think that Q2 and Q3 are very similar.
As it relates to labor.
We do think that.
The labor environment that we see now will continue through.
Through a lot of the year, maybe in the second half of the year.
We could get some moderation in some of the premium pay and other things that we've seen which in our minds are very closely correlated to just COVID-19 cases, and replacing employees that are out.
But other than some moderation, especially around premium pay we.
We think that the labor environment will be pretty stable throughout the year.
And the cost saving initiatives that you guys flagged earlier.
For driving long term, 10% growth can you.
Give us a little color on what those are and if any of that.
<unk> is reflected in the 2018 numbers.
Well, we identified some cost savings targets.
I guess, two and a half years ago.
And realized most of that.
<unk> million dollars.
Early 2020.
And our team facility corporate.
New procurement team that we established has done an outstanding job sustaining those savings and having programs in place too to really manage a lot of our purchasing at a facility and at corporate level. So those savings have been sustained and there is an ongoing.
Focus.
On what other efficiencies and savings can we identify.
None of that is really factored in directly into our 2020 guidance in other words, we did not set externally.
New target.
But it's really become embedded in the way we approach operations the way, we manage our cost according to the patient volumes that we see we do have some margin improvement that's reflected in our guidance relating to our same facility group.
Around 50 basis points of margin improvement for that group.
And that of course does reflect efficiencies from our volume growth, but also just an ongoing focus from the operations team around cost management.
And Sir I'll, just add to what David said, we put in a real disciplined framework around the facilities and utilizing our scale.
And the size of the company, we change purchasing groups a couple of years ago.
The number of facilities, taking advantage of that resource into pricing that comes with it has gone up pretty dramatically and I think they can see as we experience some of these inflationary.
<unk> with food and other things that we're in a good place and we have a good framework. So that's another area that we meet regularly on which is really to make sure that we're identifying ways to use our scale and in our contracting and other pricing because.
We are a big operator, and we we wanted to take advantage of that size as we deal with our various contractors and other vendors.
Congratulations again.
Thank you.
Ladies and gentlemen, this concludes our question and answer session.
I would like to turn the conference back over to <unk> for any closing remarks.
Before we end the call I would like to say that it has been my great privilege.
To play a part in the extraordinary effort.
The more than 20000 middle health clinicians.
Nurses physicians and staff, who have help patients in need gained hope.
Stay on the path toward recovery and healing.
This opportunity has truly been the highest in my career and a highlight for me.
I am proud of our team.
And what we've accomplished since I joined Acadia in December of 2018.
Over the last three years I have witness the remarkable commitment from all of the Kt is dedicated employees under the most trying circumstances.
I've been rewarded everyday.
Knowing that our work is improving and saving lives.
Acadia is well positioned to continue implementing and executing our strategy and our growth pathways solidifying our position as the largest standalone behavioral health care company in the U S.
I look forward to continuing my role on the board.
Thanks, again for being with us today and for your interest in Acadia healthcare. If you have additional questions. Today. Please do not hesitate to contact us directly have a good day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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