Q2 2022 Acadia Healthcare Company Inc Earnings Call

July 28, 2022

Good morning, and welcome to the Acadia Healthcare second quarter 2022 earnings Conference call.

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Please note that this event is being recorded.

I would now like to turn the conference over to Gretchen Homrich Vice President of Investor Relations. Please go ahead.

Yeah.

Good morning, and welcome to Acadia <unk> second quarter 2022 conference call. Congrats on Hummer, Vice President of Investor Relations for Acadia.

To provide you with our safe Harbor before turning the call over to our Chief Executive Officer, Chris <unk>.

The extent any non-GAAP financial measure is discussed in today's call. You'll also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by viewing yesterday's news release under the investors link.

This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1095.

Leading statements among others regarding Acadia is expected quarterly and annual financial performance for 2022 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 <unk> filings with the security Securities and Exchange Commission and the company's second 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.

At this time for opening remarks, I would like to turn the conference call over to our Chief Executive Officer, Chris Hunter.

Thank you Gretchen and good morning, everyone and thank you for being with US today for our second quarter 2022 conference call.

I'm here today, with our 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 performance for the second quarter of 2022. Following our comments, we will open the line for your questions.

Acadia has continued to execute our strategy throughout the first half of 2022 with favorable results. The <unk> has a proven operating model and diversified service lines across the continuum of care each of which offer high quality for our patients after 100 days into my role as CEO .

I continue to be confident in our ability to execute our strategy across our growth pathways and service lines to provide quality patient care to positively impact the communities, we serve and to create long term value for our stockholders.

We look forward to seeing many of you at our first ever Investor Day. Later this year planned for December 7th in New York City.

Turning to the second quarter, Acadia delivered strong financial and operating results. Despite ongoing COVID-19 and labor challenges during the second quarter. We saw increased COVID-19 cases in certain markets, which had a temporary impact on the companys patient admissions and staffing.

Our team has done an excellent job managing through these surges with robust policies and procedures to ensure the safety of our patients and staff.

I want to thank all of our dedicated employees and clinicians across our facilities, who have continued to work tirelessly through these challenges to meet the needs of our patients in a safe and effective manner.

We also continue to navigate through a tight labor market, we remain diligently focused on our recruiting and retention initiatives and we have been enhanced and adapted our processes for recruiting hiring and onboarding new employees, our operational leadership centralized recruiting and other corporate.

Support teams work in close collaboration with our facility operators and clinical staff to recruit employees in their respective markets.

We believe that we benefit from our broad geographic footprint across 39 states and our diversified service lines as we recruit clinical staff for various positions and levels of care and our facilities and clinics, while labor is still a challenging issue for all health care providers, we are cautiously optimistic that the.

Market is improving we have seen sequential improvement in our net new hires from March through the first half of July and our contract labor continues to be stable and represents a very low percentage of our labor.

During the second quarter, we saw a continuation of our positive trends in revenue per day. We believe this is attributable to our longstanding favorable relationships with our payers, who recognize and appreciate the value and the quality of care we provide.

As more payers and states are focused on supporting greater access to mental health and substance use treatment. We are encouraged by the improved coverage trends and positive reimbursement environment.

We continue to see strong underlying demand for behavioral health care services as issues surrounding mental health and substance use have taken center stage in our public discourse.

Stigma associated with treatment has lessened, resulting in more people seeking the care they need.

Without question the challenges of the past two years related to the pandemic have highlighted the need for quality behavioral health care services. A recent study by the National Center for educational statistics found that 87% of public schools reported that the COVID-19 pandemic hindered students sushi.

Emotional development during the 2021 to 2022 school year and 83% of schools reported that students behavioral development was stunted.

As such we see the importance of extending our role as a leading provider of behavioral health care services to help meet this critical societal need in our country.

As we've previously discussed Acadia has a well defined growth strategy with four distinct pathways to expand our market reach bed additions to existing facilities de novo's joint ventures and acquisitions Acadia has continued to execute this strategy and meet our objectives in the first.

Half of 2022, let me briefly outline our continued progress on these four growth pathways.

Our first pathway is adding beds to existing facilities. During the first half of the year. We added 78 beds to current Acadia facilities and are on track to meet our goal of adding approximately 300 beds in 2022 as.

As we initially expected our third quarter will reflect the highest number of bed additions to existing facilities for 2022 with 150 additional beds.

This facility expansions are needed to meet demand in our existing markets and we will continue to drive same facility volume growth in the near term and provide efficient and profitable growth opportunities in the long term.

Our second growth pathways de novo's, both inpatient acute facilities and ctc's.

We've worked to identify underserved markets, where we can develop and build wholly owned de novo facilities that meet the critical demand for behavioral health care services. We believe there are significant opportunities in communities across the country to address this unmet need at the local level in early July .

We opened a 60 bed children's hospital in Chicago as part of the three non operational facilities acquired by Acadia at the end of 2021, which together will operate as Montrose behavioral Health Hospital.

Renovation work continues for the 101, better adult hospital and the outpatient facility for Montrose, which are expected to begin operations in 2023 and.

In addition to the new Chicago facilities, we expect to open a de novo acute inpatient facility Coachella Valley behavioral health in Indio, California early next year.

We also continue to identify opportunities to expand our network of 142 Ctc's as these facilities play a critical role by providing medication assisted treatment for patients dealing with opioid use disorder demand for treatment has risen dramatically as the increase in opioid use disorder.

<unk> has led to a national epidemic of opioid overdose deaths with more than a 107000 estimated drug overdose deaths in 2021.

We opened two new <unk> during the first half of the year and we're on track to open at least six ctc's in 2022 to support the high demand for effective addiction treatment.

Our third growth pathway is joint venture partnerships with leading health systems across the country.

We recently announced our 17th and 18th JV partnerships and we continue to believe these represent an excellent growth Avenue for Acadia. We're very excited about two new joint ventures that we recently announced the first is with tough medicine, which is one of new England's elite health systems to build a new 140 <unk>.

For bed behavioral health hospital in Malden, Massachusetts near Boston.

And second a joint venture with <unk> health, one of Eastern North Carolina as Premier Health systems to build a 144 bed behavioral health hospital in Greenville, North Carolina.

The partnership with <unk> will expand our acute service line into the North Carolina market.

Through competitive processes. These health systems have chosen Acadia as their partner. These joint ventures further our strategy to bring together the best practices and expertise of Acadia and our partners to expand access to quality behavioral health care services in their respective communities.

We expect our joint ventures to be a strong driver of our growth in the future. We have previously announced joint venture partnerships for 19 facilities of which seven are currently open and operational we plan to open our <unk> joint venture facility in partnership with Covenant Health in Knoxville, Tennessee during the third.

Quarter, and our ninth joint venture facility in partnership with Lutheran Health Network in Fort Wayne, Indiana during the fourth quarter of 2022.

We plan to open an additional 10 hospitals with Premier Health systems, we have already executed partnership agreements with we have a strong pipeline of potential partners and we'll continue to pursue this attractive growth pathway for Acadia.

Our fourth and final pathway is expansion through strategic acquisitions. We believe these are attractive opportunities for acadia to acquire existing facilities and implement our operating model and make the necessary investments in both the infrastructure and service offerings to enhance the level of care, we believe both our dish.

<unk> approach to capital allocation and our strong balance sheet.

We have maintained since exiting our UK business, both position Acadia as a proactive acquirer.

In conclusion, we're pleased with our continued progress across our four growth pathways. We expect to add approximately 600 beds in 2022 through approximately 300 bed additions to existing facilities opening one inpatient de novo two facilities with JV partners and at least six.

CTC locations.

Acadia has demonstrated consistent execution with favorable results through the first half of 2022, and we believe the strong demand trends across our service lines will support continued growth. We are uniquely positioned to meet this demand with enterprise capabilities that extend across 239 facilities.

Offering diversified service lines and patient centered care.

At this time I will now turn the call over to David Duckworth to discuss our financial results for the quarter.

Thanks, Chris and good morning.

Looking at the second quarter, we delivered strong financial and operating results as we successfully delivered on our key performance metrics demonstrating consistent execution of our strategy.

Revenue for the second quarter increased 11, 9% to $651 $7 million compared with $582 2 million for the second quarter of 2021.

Our revenue growth includes an increase in same facility revenue of eight 5% compared with the second quarter of 2021, including an increase in revenue per patient day of seven 8% and an increase in patient days of <unk>, 7%.

Our revenue per patient day growth continues to reflect rate increases receipt.

Steve across many of our payers geographic markets and service lines as well as a favorable payer mix.

Additionally, during the second quarter. The company received a one time payment of $5 4 million from one of the states in which we operate.

Our adjusted EBITDA was $165 9 million for the second quarter of 2022, and adjusted income attributable to Acadia stockholders per diluted share was <unk> 91.

The company recorded income of $8 6 million during the second quarter of 2022 related to the provider relief fund established by the cares Act.

Excluding this income Acadia is adjusted EBITDA for the second quarter of 2022 was $157 $3 million and adjusted income attributable to Acadia stockholders per diluted share was <unk> 84.

Adjusted EBITDA and income exclude transaction related expenses and their income tax effect.

Our balance sheet remains strong with ample liquidity flexibility and capital to support our growth strategy and future investments.

Our operating cash flows were strong during the second quarter and first half of 2022, reflecting our positive operating results and working capital trends.

Additionally, we received approximately $22 million of distributions from the provider relief Fund and American rescue plan. During the second quarter. This funding will be further evaluated in the second half of 'twenty to 2022 and is not included in our financial guidance.

During the second 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.

And made additional payments of $15 million through the first half of 2022.

We will continue to repay the remaining $5 million balance throughout 2022.

We will also pay the remaining $20 million of the approximately $39 million of 2020 payroll tax deferrals in the second half of 2022.

Looking at our debt position and activity, we paid down $75 million during the second quarter and $85 million in the first half of 2022 on our revolving line of credit.

As of June 30th Acadia had a $120 million in cash and cash equivalents and $515 million available under our $600 million revolving credit facility.

Our net leverage ratio at the end of the quarter was approximately $2 one.

Moving onto guidance as noted in our press release due to our strong financial performance through the first half of the year. We have increased our financial guidance for 2022 as follows revenue is in a range of 256% to $2 6 billion.

Adjusted EBITDA, including income from provider relief fund and a range of $591 5 million to $621 $5 million.

Adjusted EBITDA, excluding the income from provider relief fund and a range of 583 million to $613 million.

Adjusted earnings per diluted share, including the income from provider relief fund and a range of $3 to $3 25.

And adjusted earnings per diluted share, excluding the income from provider relief fund and a range of $2 and 93.

To $3 18.

Operating cash flow is in a range of 380 million to $430 million and expansion capital expenditures in a range of $240 million to $280 million.

The company's guidance does not include the impact of any future acquisitions divestitures transaction related expenses or the recognition of additional provider relief fund income in the second half of 2022.

With that Joe we are ready to open the call for questions.

We will now begin the question and answer session.

Ask a question you May press Star then one on your Touchtone phone.

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If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.

Please limit yourself to one question and one follow up.

At this time, we will pause momentarily to assemble our roster.

Our first question will come from Andrew Mok with UBS. Please go ahead.

Hi, good morning.

Revenue per patient day was up almost 8% driving the majority of organic revenue growth can you break out the price increases are by payer for us and are there any significant revenue streams that you would call out as being.

Okay.

The public health emergency or some other government support programs. Thank you.

Yes, Andrew we saw another quarter of strong revenue per day trend that we've seen in the past several quarters and that is driven by payor rate increases that we've received and we have received rate increases pretty broadly across the different payer types in <unk>.

<unk> lines.

Geographic markets that we operate in.

Of the seven 8% that we reported for the second quarter, the onetime payments that we highlighted contributed about 1%.

But we would we would attribute most of the revenue per day growth more than somewhere between 5% and 6% certainly two rate increases that were broadly receiving across our payors.

It's been consistent we would not.

Highlight any specific payer or service line in market.

Our managed care and our financial operations team have just done a great job over many years working with our payers.

Those rate increases with respect to the public health emergency certainly.

Our Medicaid business as the coverage that we're focused on there.

Two what impact that might have over the next one to two years.

Certainly many states may look at their Medicaid eligibility.

But that's the only stream of our patients that we would be focused on as it relates to that and continue to believe that people will continue to have access to mental health and addiction treatment.

As that might change where that coverage is from.

We hope that.

Those people would become eligible for a commercial or maybe some other type of coverage.

Great and then you lowered just a follow up here you lowered discretionary capex by $55 million or so what was the driver of that and what impact will that have on 2022.

Yes.

We entered.

The year, we talked about an expectation that our expansion capital expenditures with step up over the course of the year really reflecting the joint ventures that were under development and beginning construction.

We have we continue to just revise the timeline of those projects.

We are seeing a step up in those investments.

We invested I think $39 million and expansion capex in the first quarter and saw that step up to $62 million in the second quarter. We believe that will continue to step up over the second half of the year.

But.

The adjustment that we made to our guidance is entirely related to the timing of those projects.

There are no projects that we had planned at the beginning of the year.

We have canceled still.

Planning to complete all of the plans and announcements that we've made before.

We've just adjusted the timing of the step up in those projects and still believe we talked about two of our joint venture facilities opening in the second half of this year and another 10 facilities that are.

And the progress in the process of being developed and planned and the construction is beginning for those 10 facilities and still believe those will open over the next several years.

So we're excited about bringing those beds online as quickly as we can.

And those plans continue.

Our next question will come from <unk> Mayo with SBB Securities. Please go ahead.

Yeah.

Hey, Thanks, maybe first question just on the CTC business.

Physician fee schedule had some.

Some positive developments as it relates to the otp industry, it's still some uncertainty around.

How they're going to address the Medicare bundled they proposed a 5% increase there.

Defining some of the mobile reimbursement what do you make of all of this and I guess sort of the follow up is also if you could comment on the performance of the CTC segment in the first half and the outlook for the second half.

Yes.

The fee schedule that was released provides ongoing support for the Medicare.

Coverage that we have it's still somewhat new we're two years into that for the CTG business and so we are happy to see the ongoing coverage in and rate improvements for that service line.

Each market can be different in terms of how the rates work. So we're still reviewing.

Those provisions and understanding how that affects the different payer contracts that we have across that service line.

The CTC business is performing well we are seeing revenue growth for that service line. That's in line with our expectations.

A lot of de Novo facilities have been opened from 2021 through the first half of this year. Several more will open in the second half of this year and we continue to have a number of tailwind.

We believe more and more people will have coverage for that treatment.

And we will have the capacity to provide that coverage and so they've had a good first half of the year and we expect that to continue.

And are excited to see the ramping and continued de novo's in that service line.

I think you sort of described that business is performing I guess sort of like in line with the overall enterprise are you or is the revenue growth above the overall enterprise growth is it in line below and then if maybe you could talk a little bit about just the opioid settlement.

How you guys are thinking about what that might mean for you.

Yes, I'll take the first part of that question with the CTC service line to the extent it.

Performs ahead of our inpatient service lines as a group.

See an incremental or an accretive impact to our revenue per day growth and to the extent, it's below we see a dilutive impact to our revenue per day growth for the second quarter.

Our revenue growth was almost exactly in line with our inpatient.

Facilities as a group.

So our CTC growth is very much consistent with our inpatient facilities as a group.

And like I said, a minute ago, we're pleased to see that performance.

Yes. This is Chris I'll speak to the opioid settlement funding and just the status. There. So just to remind everyone. I mean overall, we think this is a real positive for the company. The total funding is right at 26 billion and that's paid to 46 states.

<unk>, an 18 year period. So this is really just beginning.

46%, 46% to 50 states participated in the settlement.

There's 20 approved uses of the founding of the funding and some of those are actually geared towards treatment and access. So we just feel like we're really positioned well with 142 clinics across 32 states. Having these leadership teams that are in place.

Having existing programs these proven de Novo models.

Both in my prepared remarks about the new facilities that we're bringing up and then just our state and local relationships and support from from the trade associations I think will continue to position us well. Many of these states are still in the very very early stages of deploying the funding and many of them are figuring out exactly.

How they will be overseeing it and we're in active dialogue with many of these states that.

That have been.

A little bit ahead, I think it's too early for us to quantify the impact, but we do think there will be significant benefit and obviously this is a huge societal problem and.

As a leader in this space, we think that we really want to continue to expand access and I think are going to continue to really focus there. So overall I.

I think we're very well positioned but there is a lot that is going to play out over time.

Okay. Thanks, guys.

Yes.

Okay.

Our next question will come from Kevin Fischbeck with Bank of America. Please go ahead.

Great. Thanks.

The.

Strong pricing, obviously, a welcome sight, but I guess I was a little surprised that the volumetric wasn't.

Better in the quarter I mean, obviously, we're all aware of the secular drivers to that demand growth. So why isn't that demand growth.

Translating into something more than.

1% volume growth.

Yes, good morning, Kevin we continue to see strong demand.

We talked about this some in our release and in our opening remarks, but we did see throughout the quarter.

That a number of our facilities had an increase in the COVID-19 cases, and their patients and their employees.

We've always said that that can cause.

Temporary disruption in our admissions and in our patient days.

January was certainly the highest month of Covid cases that we've seen this year, but we had really seen a significant decline from February to April and saw an increase in the later part of April through May and June and.

So I think without that we would've seen a stronger occupancy and stronger patient day growth. We certainly expect in the second half of the year to return to what we expect we're excited to bring bed additions on we have a number of beds opening in the third quarter that I think we will continue to drive.

A return to the 3% plus volume growth.

And then lastly, we did see just a very strong second quarter in 2021.

The occupancy was was the strongest in that quarter of all the quarters that we saw throughout last year.

No.

We're up against a comp, but I think with the bed additions coming online with some of the Covid Covid disruptions, we think settling out over the second half of the year, we should see a return in that volume growth to what we've seen historically.

So it sounded like you were saying that the COVID-19 disruption kind of.

Are you seeing that kind of built during Q2 or are you just saw it up and down during Q2 I just wasn't sure.

How Q3 is necessarily starting off and then.

When you get someone who is who has COVID-19 does that help your rate at all or is your rate not really impacted by Covid youre trying to see if.

Any potential.

Implications if COVID-19 goes away.

No we do not receive any benefit from Covid.

In terms of an add on to our rate when when we treat our COVID-19 patient obviously, if they don't have a need.

Need medical need to be discharged from our facility, we do keep them in treatment.

But we have protocols and procedures in place to isolate that patient and maybe other patients that may test positive.

That could mean that we dedicate a unit.

To those COVID-19 patients and that can just have a limiting impact on additional admissions to that facility.

Employees being out if there is a significant number of employees out it can be challenging to backfill those positions in a way that supports the volume growth in occupancy.

As we've seen throughout the last two years, it's a temporary dynamic that we face.

We saw it at different times in different markets during the second quarter.

So it didn't necessarily build throughout the quarter I think may overall was our highest month.

But we feel good about where we're starting off the third quarter and in terms of seeing an acceleration from the growth rates that we saw in the second quarter.

Alright, thank you.

Our next question will come from Brian <unk> with Jefferies. Please go ahead.

Hey, good morning, guys and congrats on the quarter.

Chris I guess as I think about the cash generation of the business and where your balance sheet is today.

Obviously, a lot of cash coming through just wondering how youre thinking about capital deployment now and kind of like the opportunities youre seeing in the market for M&A, and where you remind us in terms of what kind of assets you're interested in.

Yes.

We clearly have an opportunity to deploy capital.

And numerous growth there is as we've gone through in the past I think as it relates and clearly talked about some of the real.

Tailwind, we're seeing with our joint ventures, as well as the de Novo's and just building out existing beds, but I would say on the M&A front.

With our strong balance sheet I mean, we have been very disciplined in the past.

As David referenced we're down to only two one times leverage.

But I think we have the opportunity to be opportunistic, but also patient and we've been very proactive in getting out there and meeting with companies across the service lines.

There has been a particular focus on the acute side and looking at facilities that are in attractive geographies for us that meet our profile.

I think this is a process over time, where given some of the valuations that we've seen in the last year.

There will be more and more companies that are.

Interested in a partner, we think over time and it's incumbent on us to build that relationship and to get out and meet with them proactively which we're doing so we feel.

We feel optimistic.

<unk>.

With our balance sheet that will continue to see numerous opportunities. We're working hard on that every day and just continuing to be proactive here moving forward.

Look forward to discussing it in more detail.

That makes sense I guess follow up follow up question for me I saw the Bill that was proposed in the house. The restoring legislation just curious what your thoughts are on that and how you think that could benefit of kgs SaaS.

Yeah, I mean, it's passed the house in June and.

Still.

Still prepared to go to the Senate, but I think overall there are several components of the bill that we think are advantageous to us I think some of the changes in federal opioid treatment standards overall, particularly for mobile units that previously had to be separately registered we have a number of mobile units already.

And so being able to increase access to to rural and just transportation challenges communities will be beneficial for us too.

There also have been some some adjustments to the number of cases that a physician or a provider.

Could care for and so just given the.

The eligible lives that were managing we think that that will ultimately benefit us as well.

And then there is there's also a number of.

Just expansion of access that the bill is.

Appropriating over time that we think will benefit us also.

Number of additional things in the Bill just screening treatment from a maternal mental health and substance use disorder, all things that we think ultimately.

Our advantageous to Acadia overall, so we're.

Very supportive of this bill and look forward to just watching in advance and doing everything that we can.

With our.

With our partners.

On the lobbying side with <unk> et cetera.

Awesome. Thank you Ross.

Yes.

Our next question will come from Ben Hendrix with RBC. Please go ahead.

Great. Thank you guys just a quick question on the on the Covid impact.

Staffing this quarter you guys have done a real good job of staying in front of your staffing issues.

Versus peers. It seems like and just was curious if there was anything that develop differently in this quarter just certain markets. So just trying wanted to get some color on where what markets youre seeing.

The heaviest issues and if there is any kind of different across service line acute versus RTC versus the others. Thanks.

Yes, we do talk about as it relates to navigating the tight labor environment that we continue to be in.

We are in a lot of different markets and we have different service lines that all have.

A different reliance on different categories of clinical staff.

We generally would say that that diversification certainly helps us overall, but a lot of the challenges that we faced are more market specific and our focus continues to be on identifying those challenges quickly and working at the corporate level through our <unk>.

<unk> team through our leadership.

Very quickly support any facilities as they navigate a challenge.

You asked about the Covid impact on our staffing.

Our facilities continued to do a great job if employees are out of bringing those employees back and we continue to have.

A good experience and just having those employees be out backfill and while they are out, but then bringing them back ultimately ended the position that we're in.

So a lot of the staffing challenge that we faced is not necessarily related to COVID-19 more just the labor environment in general and we continue to see a lot of success. We mentioned earlier that we're seeing a positive trend in our net new hires. So we have some optimism about that.

Labor environment for the second half of the year.

But just continue to think that that improvement may be more gradual than than quick.

But we continue to be focused on supporting our facilities, providing the right staff. So that we can see the patients to support the volume growth that we're expecting.

Thank you very much and just a quick follow up on some of the pricing conversation from earlier clearly a better than expect better than proposed behavioral final rule last night. If there is any comments you have there on the adequacy and then anything else from that final rule that stood out to you guys. Thanks.

Yeah.

Yes, the Medicare final rule that was published last night was ahead of the initial proposal the final rule.

Expect on average will provide a three 8% increase to our facilities. It does look different from market to market, but thats ahead of the initial proposal, which I believe was around two 7%.

That three 8% is an improvement over the last several years of Medicare rate increases.

We actually would expect going forward so thinking about.

Year or two from now that it should be at a higher rate. There is certainly a lag with when we received Medicare rate increases compared to when we see.

Cost increases relating to the services, we provide so hopefully that's the start of a higher trend in our Medicare rates, but we were certainly happy to see yesterday that that final rule will be ahead of the initial proposal.

Thanks.

Our next question will come from a J rice with credit Suisse. Please go ahead.

Hi, everybody.

Maybe two.

Two questions maybe first.

Pick up it feels like to me there is.

<unk> been steady joint venture announcements.

Announcements, but it seems like there may be a bit of a pickup I wonder if you could comment if you believe that's happening what is the future pipeline look like and is that being driven by hospitals facing the labor challenges.

Alrighty.

I just got to offload this or some other dynamic driving what seems to be a pickup in JV.

Wellness and is there any change in the structure of the deals to I guess I should ask as you get more of these announced.

Yes, a J this is Chris I'll take that thanks for the question I would say that the pipeline continues to build I mean theres a number of reasons that Acadia has continued to be chosen as the partner of choice I mean, I think it starts with just the expertise that we have around behavioral that these partners just increasingly tell us.

Is lacking.

And just.

Focusing core competence around behavioral is differentiated.

Our track record obviously speaks for itself, but I think also just the capital that we can bring to these facilities.

And just the track record the reference ability have all been instrumental.

And I think the pipeline continues to look and we will continue to look very strong.

When we've talked in the past about our hope of continuing to to add 4% to five <unk> in the next year and we still feel very comfortable about that if anything we're looking at are there ways to accelerate that and so.

Overall, we just feel very good about not only the pipeline, but are our current and prospects around execution as well.

Okay, and maybe then if I could add.

Go ahead, I'm, sorry, David I was just going to say a J that the terms of those joint ventures and the way we think about the structure has not changed significantly I didn't want to leave that question unanswered.

Yes, thanks I appreciate that.

And then maybe stepping back bigger picture I wonder.

Great, especially with you and taking a fresh look at things.

Any thoughts about the virtual world and extending the company's reach into that what Mike opportunities be down. The road. There are you spending much time thinking about that.

And then the 988 number just rolled out it sounds like.

There's a lot of press coverage on that you think thats going to have an impact on your business in any way.

Yes.

Several things off on that I would say.

We're big believers in leveraging technology in the virtual World and I think there is significant opportunity for us in the future I think we're trying to be very focused right now and how can we leverage technology to really gain cost efficiencies and generate revenue enhancements with the core business today.

I think there is also significant opportunity around analytics I think just as an industry.

Most would recognize the behavioral providers are just behind relative to other parts of healthcare and Theres a number of reasons for that I mean, just the lack of investment in meaningful use means that all behavioral providers seem to have less mature EMR systems.

You just don't have the scale and the ability to.

To track patient outcomes, and then ultimately to prepare for the continued move towards value based care. So I think theres a lot of opportunity around analytics.

In addition to some of the things that we can do on the virtual side.

988.

Clearly has now been launched.

Still very much in the early days, we're trying to do everything we can to be as supportive as possible.

Given our extensive capabilities and our call center capabilities and we're looking for continued ways to plug in on that but it is still very early on 988, but were glad to see it off to good start.

Alright, Thanks, a lot.

Yes.

Our next question will come from John Ransom with Raymond James. Please go ahead.

Hey, good morning.

So the Medicaid rate cycle is usually July one so do you have a number.

Or just.

What the rate look like there and if that.

It's going to be bigger than a breadbox in the back half of the year.

The Medicaid rate cycles that we see differ by state. There are many states that have new year effective in July . Many states are in October we continue to see.

Obviously, theres a lot of different <unk>.

<unk> that we contract with from a Medicaid perspective, and a lot of managed Medicaid payers within those states, but we do continue to see positive rate discussions with those payers and rate increases from those payers.

But it happens really throughout the year.

So we wouldn't size anything real specific as it relates to July but there are rate increases that we believe will take effect over the second half of the year as we expect.

We are a business that has those new rates.

Really being negotiated throughout the year across all of our payers, excluding Medicare which is really the only one that is more consistently at October one.

Chris did you noticed you didn't give me a single number that was well done David.

Yeah.

Remember that that answer.

So looking for a number of the second question my follow up is.

How much did the Medicare coverage affect the growth in our Nike when.

When it was layered in and what's your.

Proximate Medicare mix, there and then could you just kind of size the revenue mix.

This year this quarter to <unk> 22 versus <unk> 21 any of that would be helpful. Thank you.

<unk>.

Yes, John as we as we look at the the CTC business, which did have the Medicare coverage beginning in early 2020, we've certainly seen that mature to a place where we think it settled out and for for the last quarter. It was around 18% we really.

Seen it be consistent around that 18% level and we do believe that more individuals gained access to treatment through that coverage, but theres also some just shift.

We're self pay or Medicaid coverage could have shifted over to Medicare coverage. So it's a combination of a shift as well as more coverage.

And then our overall payer mix has been very stable.

Medicaid continues to be about 50% of our revenue.

Commercial is just over 30% and then Medicare overall for the company is right at 15% and there are several numbers that I just gave you commence.

<unk>.

That was.

I was asking the mix of revenue not the overall payer mix, what's that got it.

Sure.

Yes, David earlier, we made a comment that the CTC business was growing at a similar rate to our invitation, but I'm, saying as well.

I remember a number like 30% of your overall revenue something like that do happen under that right.

No. It's 16% it's remained consistent around six.

Ago size ballpark $300 million annually.

Okay. Thank you.

Our next question will come from Matthew Borsch with BMO capital markets. Please go ahead.

Good morning, Thanks for taking my question.

<unk> filling in for Matt here.

Just regarding that patient acuity.

Looking at revenue per patient day length of stay we're seeing that strong growth in rates with length of stay remaining elevated compared to previous years.

Is that a reflection of the type of acuity caseload you saw this quarter or is it possibly more related to your discharge capabilities and then how do you anticipate the cadence looks for the remainder of the year.

Thanks.

We have seen we look at our length of stay by service line and even.

At a level that reflects the different programs that we have within each of our service lines and we've seen it remain somewhat consistent.

We do believe that acuity can play a part in that length of stay.

And we certainly think that the different types of patients have programs that we operate can also impact our length of stay metric for.

For example, we would have certain programs that may be.

Geared towards the child and adolescent population, we would have units dedicated to that population and many of our acute facilities and there tends to be a longer length of stay.

With those patients and with those programs that we operate in we are seeing growth in that.

That service line and the mix of those types of programs. So that can be part of our length of stay but we've also seen.

Acuity and gist patients being in treatment slightly longer.

As we think about our specialty business and remaining in treatment and being able to step down through the continuum of care for that service line Thats also a contributing factor to our length of stay being being strong we do expect it to continue.

Around what we're seeing in the second quarter.

Yes.

Got it and just a quick follow up here you mentioned the bed additions, possibly being a contributor to some.

Volume growth during <unk> can you just give me some idea of the timing of when these additions will officially rollout and the operational.

Yes, we do we do have more than 150 of our 300 beds for this year opening in the third quarter.

And are excited about those beds coming online.

<unk>.

Depending on the size of the project and other factors we should see.

Variety and the ramping of those beds, but our team has a very strong track record of very quickly.

Filling those beds staffing those beds and having them contribute to volume growth. So the way that the project would ramp up does depend on the size of the project, but we believe those new beds will contribute to growth in the second half of the year.

Great. Thank you.

Our next question comes from Sarah James with Barclays. Please go ahead.

Thank you.

I wanted to understand a little bit better what the assumptions are in guidance for your cost trend.

Are you expecting a moderation flatter uptick in your supply cost and labor cost trends in the second half versus what you experienced in the first half.

Sara the way we <unk>.

Project are 70% of our operating costs are labor related certainly have many other costs that we.

And that other 30% of lot of individually smaller items.

We think about it in terms of range as it can be somewhat difficult.

Project exactly what the second half of the year. It looks like we do hope to see some moderation in wage inflation utilization and rates for premium labor as well as other costs.

But as we build the range of our guidance.

On the higher end, we would have.

More improvement in the trends that we've seen in the first half of the year and at the lower end of our guidance would reflect more of a continuation of the same level of cost growth.

I think our baseline would be that we continue to see that trend, maybe see some slow moderation and wage inflation.

But it is hard to make those projections.

And if you take a step back and you look at your cost trend inflation versus.

Pricing you talked about the 5% to 6%.

Sure.

Commercial are you guys in a positive spread situation this year where pricing is.

Seating cost Shanghai.

No we think that those two metrics are fairly correlated over the last several quarters we've seen.

Operating expenses per patient day.

ROE at just over 5% and we've seen our wage inflation that just over 5%. So we think that we've been fairly closely correlated between those two increases.

Thank you.

Sure.

We will now conclude our question and answer session.

I would like to turn the conference back over to Chris Hunter for any closing remarks.

Okay before we end the call I just want to thank our committed facility leaders clinicians and over 22000 dedicated employees across the country, who just have continued to work tirelessly to meet the needs of patients in a safe and effective manner.

Thank you all for being with US this morning and for your interest in Acadia and if anyone has further follow up questions. Please do not hesitate to contact us directly have a good day everyone. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines have a great day.

[music].

Good morning, and welcome to the Acadia Healthcare second quarter 2022 earnings Conference call.

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I would now like to turn the conference over to Gretchen Homrich Vice President of Investor Relations. Please go ahead.

Good morning.

And welcome to Acadia <unk> second quarter, 2022 conference call I'm, Gretchen Hummer, Vice President of Investor Relations for Acacia.

First provide you with our safe Harbor before turning the call over to our Chief Executive Officer, Chris Hunter.

To the extent any non-GAAP financial measure is discussed in today's call. You'll also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by viewing yesterday's news release under the investors link.

This conference call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995, including statements among others regarding Acadia is expected quarterly and annual financial performance for 2022 and beyond.

You are hereby cautioned that these statements may be affected by the important factors among others set forth in <unk> filings with the Securities Securities and Exchange Commission and in the company's second quarter news release, and consequently, actual operations and results may differ materially from the results discussed in the forward looking statements.