Q1 2023 Acadia Healthcare Company, Inc. Earnings Call
And welcome to Acadia Healthcare's first quarter 2023 earnings conference call.
All participants will be in a listen only mode for the duration of the call and should you need any assistance. Please signal a conference specialist by pressing the star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
And to withdraw your question. Please press Star then two.
Please also note that this event is being recorded today.
I would now like to turn the conference over to Gretchen Hummer. Please go ahead.
Good morning, and welcome to Acadia <unk> first quarter 2023 conference call I'm, Gretchen Homrich, Vice President of Investor Relations for Acadia first provide you with our safe Harbor before turning the call sorry, Chief Executive Officer, Chris Hunter.
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 <unk> expected quarterly and annual financial performance for 2023 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 and Exchange Commission and the company's first quarter news release, and consequently actual operations.
And results may differ materially from the results discussed in the forward looking statements at this time for opening remarks, I would like to turn the conference call over to our Chief Executive Officer, Chris Hunter.
Thank you rich and good morning, everyone and thank you for being with US today for our first quarter 2023 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 first quarter of 2023 and following our comments, we'll open the line for your questions.
Today I am pleased to share that our first quarter results Mark a strong start to 2023 as we continue to execute our strategy with favorable results.
We reported year over year revenue growth of 14, 2%.
Adjusted EBITDA growth of 11, 6% and adjusted EPS growth of 11, 9% driven by robust demand for our behavioral health care services.
Stepping back our ability at Acadia to address complex behavioral health needs of our country has never been more urgent.
According to the National Alliance on mental illness suicide is now the second leading cause of death among Americans age 15 to 20 for nearly 20% of high school students report serious thoughts of suicide.
In a recent study by the Institute of mental Health estimated that one in five American adults is living with some type of mental illness.
These are discouraging statistics and that is why we remain so proud of the role of Acadia is playing to help lead the way and not only how we deliver outstanding care for those in need but also how we work to reduce the stigma around mental illness.
Earlier this month, the New York Times detailed the growing need for access to quality behavioral health care services and highlighted our Acadia Maple Heights behavioral health facility in Indiana is one that is helping to make standalone behavioral health treatment more accessible.
Today, Acadia is uniquely positioned to help support shape and deliver care across the full behavioral health spectrum. Each day, our 23000 employees across our network of 250 facilities and diversified service lines worked tirelessly to care for patients and advanced behavioral health care across the.
<unk>.
Our team working more effectively together as we expand our care strategy to meet the growing demand has helped to deliver continued strong results in the first quarter.
To start.
Our same facility revenue increased 13, 3% compared with the first quarter of 2022.
As we shared in February and demonstrated in our results release last night, we saw record patient volumes during the first quarter.
The six 5% year over year patient day growth for the first quarter was above the high end of our outlook range. We are also very pleased with our revenue per day growth of six 4%, which was driven by favorable rate increases across our service lines markets and Payors.
Like other health care providers, we're continuing to manage through a tight labor market.
Our team has done an excellent job navigating this environment, while maintaining our high standards of patient care.
We were pleased with our labor metrics for the first quarter of 2023 and believe the labor environment continues to show signs of improvement positioning the company for further stability and an easing of wage growth over the remainder of the year.
For the first quarter, our labor costs were in line with our expectations and our base wage inflation of seven 5% and premium pay showed sequential improvement as compared with the fourth quarter of 2022.
Even as we saw record sensus that required increased staffing to support our patients we were able to manage our labor cost with incremental improvement.
As we've previously shared with you our growth strategy is centered around our five distinct pathways and we continue to make the necessary investments to support our growth objectives. I will briefly update you on our continued work related to these five pathways during the first quarter.
Our first pathway facility expansion remains our primary and most efficient driver of growth. We added 106 beds to our existing facilities during the first quarter well on our way to our expected total bed additions of approximately 300 in 2023.
Importantly, as we indicated on our fourth quarter call. We continue to expect that many of the bed additions in 2023 will open in the first half of the year and are expected to contribute to an accelerating volume growth outlook for the company.
Our second growth pathway is to develop wholly owned de novo facilities in underserved markets for behavioral health care services.
We look forward to increasing the pace of our de novo's from opening one per year to two per year in 2023, and we are on track to meet that goal with the opening of a 101 bed adult hospital in Chicago, and a new 80 bed facility in India, California.
During the first quarter, we commenced construction on a new 100 bed acute care behavioral Health Hospital Agave Ridge behavioral hospital that will serve the residence of Mesa, Arizona and surrounding communities.
Opening additional de novo acute and specialty facilities remains a high priority for Acadia as we focus on supporting more communities.
Expanding our network of comprehensive treatment centers or Ctc's is another important priority for Acadia, we will continue to expand our network of 151 Ctc's in 32 states with the goal of adding at least six ctc's in 2023.
Our third attractive growth pathway is through forming strategic partnerships with leading health systems across the country.
<unk> has joint venture partnerships for 19 facilities in various stages of development with nine facilities in operation in 10 facilities expected to open over the next several years, we expect to open two facilities with our JV partners Geisinger health in Pennsylvania, and Bronson Health care.
Here in Michigan in the third quarter, we remain encouraged by the growing interest from potential JV partners and continue to strengthen our JV pipeline and we expect additional announcements later in 2023.
With respect to our fourth growth pathway, we continue to look for selective acquisitions that complement our growth objectives and meet the criteria of our capital allocation strategy.
We're fortunate to have a strong balance sheet that provides the flexibility to pursue M&A opportunities as well as make the necessary investments to support our other strategic growth pathways.
Yeah.
Our fifth and final growth pathway, we continue to identify additional ways to support the patients who come to Acadia for treatment by extending our continuum of care.
For example, we strengthened our mid level acuity programming with nine additional PHP iop's to assist our patients after residential treatment and provided greater access to virtual care offerings. We have also improved our cross referral program through enhanced systems that allow nurses and <unk>.
Initiatives to more easily identify cross referral opportunities across our Acadian network and identify the appropriate level of patient care.
Through each of these distinct pathways, we are well positioned to maintain our strong growth trajectory and meet our development targets for calendar 2023, which are summarized as follows adding approximately 670 beds through approximately 300 bed additions to existing facilities opening too.
<unk> inpatient de Novo facilities opening two facilities with JV partners and opening at least six CTC locations.
Looking ahead, we are focused on expanding access and availability of our services across new and existing markets. We will also look for ways to improve upon the delivery of care, we provide and strengthen our capabilities with the right technology investments and differentiated services that continue to.
<unk> favorable clinical outcomes.
As a leader in our industry. We also recognize our corporate responsibility to promote sustainability throughout our operations earlier. This month, we published our inaugural sustainability report, which outlines our focus and ongoing progress towards environmental social and governance initiatives across the <unk> or <unk>.
Report, which is posted to our corporate website highlights our dedication to quality service and care for patients our drive to foster employee empowerment engagement and excellence and our focus on environmental responsibility.
Across our network of 250 facilities, we have a shared mission to provide high quality behavioral health care services and we look forward to the opportunities ahead for Acadia in 2023 and beyond.
At this time I will now turn the call over to David Duckworth to discuss our financial results for the quarter and 2023 guidance.
Thanks, Chris and good morning.
Our first quarter financial performance marked a great start to 2023 with 14, 2% year over year revenue growth.
Revenue for the first quarter of 2023 with $704 3 million compared with $616 7 million for the first quarter of 2022, reflecting the robust demand for our services with favorable volume trends.
For the first quarter adjusted EBITDA increased 11, 6% to $151 $3 million.
Impaired with with $135 5 million for the first quarter of 2022.
Adjusted income attributable to Acadia stockholders per diluted share was <unk> 75.
Up 11, 9% for the first quarter of 2023 compared with 67.
For the first quarter of 2022.
Adjustments to income for the first quarter of 2023 include transaction related expenses and the related income tax effect.
Maintaining a strong financial position will continue to be a top priority for 2023, providing us the flexibility and capital to support our growth strategy and future investments.
As of March 31, 2023, we had $63 $8 million in cash and cash equivalents.
And $485 million available under our $600 million revolving credit facility with a net leverage ratio of approximately $2 two.
We remain focused on disciplined cost management across our operations and we will continue to pursue a disciplined capital allocation strategy that supports organic growth as well as opportunistic acquisitions.
Now turning to our guidance as noted in our press release, we are affirming our previously stated guidance for 2023, which includes revenue in a range of $2 eight two to $2 $88 billion.
<unk> EBITDA in a range of $635 million to $675 million and.
<unk> earnings per diluted share in a range of $3 10 to $3 40.
As a reminder, the company's guidance does not include the impact of future acquisitions divestitures transaction related expenses or the recognition of any additional provider relief fund income.
With that Joe 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.
If youre using a speakerphone please pick up your handset before pressing the keys.
Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.
We ask that you please limit yourself to one question and one follow up for today's call.
At this time, we will take our first question, which will come from Whit Mayo with SBB Securities. Please go ahead with your question.
Hey, Thanks, maybe just to start with the topic around labor just anything additional that you can unpack that you learned within the quarter that gives you some confidence that we've hit the high watermark.
Really more specifically my question as.
What are you married together sort of the labor and the demand in volume agenda and the strategy you have with this.
This hypothesis that I had that theres, probably a deliberate strategy to let labor creep in an effort to perhaps secure volume with referral sources in an effort to play the long game. It might just be helpful to kind of marry those two together. Thanks.
Okay.
Well this is Chris I'll start thanks for the question I would say just to start we're really pleased with the improvement overall in our base wage inflation from 8% in Q4 to seven 5% in Q1, and I think to your point I mean, the two are.
Closely linked in terms of our ability to increase our staffing requirements has led to the record sensus that we've seen in the quarter and that we continue to see.
No I would say an additional data point is that our wage inflation on a total basis. So when we're combining our premium pay it was seven 1% which is actually below.
Seven 5% on our premium pay relative to last year, where the metric was eight so overall I mean, I think that the pay adjustments that we put in place in the back half of 2022.
Got us to a point, where we're at market and I think really set us off for the rest of the year I do think that we have also seen some real improvement in recruiting and retention trends, which has also enabled our labor cost to be a little bit more stable. We've had a real focus on improving our net new hires and we had another.
Strong quarter around net new hires overall, and really all classes, but particularly all classes of employees, but particularly <unk> and <unk> and so we think that that improvement in net new hires is also going to benefit us with.
Reducing premium labor overtime and also any of the temporary staffing challenges we had.
The only other thing that I would just say on recruiting and retention. We just put a number of strategies in place that we think are really helping us on the labor front I mean, one has been developing several partnerships with nursing schools, where we're trying to attract nursing students into behavioral health, while in school offering interim shifts and rotations.
That's been beneficial we've also put some strategies in place around centralizing support of our in recruiting to all of our facilities.
We've heard some real demand for tuition reimbursement and so we've invested particularly in clinical roles and degree programs to help our employees advance their careers and we've also had some real variation in the way that we've done in clinical training that we've shored up and I think the final thing we've mentioned in the past around employee engagement.
We did our first ever employee engagement survey in the fall of last year, and we put action plans in place across the board to improve engagement in all of our facilities and our Ceos are now measured.
On their action plans in their annual incentives and we think that that also is improving our engagement, helping us with our net new hires and I think setting us up for for the future, but David anything you want to.
No I don't think so.
We were pleased to be.
Seeing record sensus throughout the quarter and at the same time have the success that we had in recruiting and retention.
To properly staff for that growth and at the same time see some improvement in our premium pay and base wage inflation. So it's really nice to see the positive labor trends, especially especially during a period of time, where our demand is census has been.
As strong as it's been.
Yeah, maybe my second question just any.
Fresh thoughts around Medicaid Redetermination and it may just be also helpful. Just to remind us looking at Medicaid how much is managed Medicaid as a percent of that revenue and also.
At all of the Medicaid revenue, how much of that is RTC versus the.
The CTC business. Thanks.
Okay.
This is Chris again I'll start with.
I would say Redetermination overall is still in very early stages and I think most know that and launched in April . So we only have five states right now that have started that process and Acadia has facilities in four of those five states, Arkansas, Arizona, New Hampshire.
<unk> and South Dakota.
There are other states that are almost all expected to begin the process between now and mid summer.
So as an example, we have five today that will ramp to 14 states in.
In May and we will continue to escalate from there.
So.
We've done some pretty extensive analysis on Redetermination overall I mean, there is some pretty good third party research that we've reviewed and estimates show that for the overall Medicaid population. There is about 15 million individuals or 17% of total enrollees.
<unk> that are expected to lose coverage and no longer meet the eligibility requirements.
But within that 75%, which is about 13% of total enrollees.
Our expected to still be able to get commercial insurance through either an employer plan or by moving to one of the health insurance exchanges. So the remaining 25%, which is about 4% of total enrollees are expected to become uninsured and so within this 4%.
<unk>.
When we look at our book of business to your question.
We really believe our volume is further risk mitigated because of the coverage continuity.
That's available for that for our patient population and then just some of the actions that we're taking so just a couple of quick thoughts on that on our RTC service line. The majority of our children. Our children now lessons that are treated in RTC, we do expect to maintain their Medicaid coverage. So we do not.
Spec the RTC service line to see a significant impact.
On our specialty business in most cases, our Medicaid volume there.
In a state that has fallback coverage for substance use treatment that is available and so because thats available from other governmental agencies within those states. We don't expect a specialty we will see a significant impact on redetermination, either and then finally, we have over 50%.
Our CTC patients that are actually in states that have some form of either uninsured or underinsured funding for opioid use disorder that we think also benefits us so.
That's kind of the overall protections that we're seeing and then just really quickly tactically. There are a number of strategies that we've continued to put in place to further limit the impact I mean, it starts with patient education, we have been working with our patients for many months now going back to last year, we have QR codes in our facilities.
We have digital materials, we're talking to them about the risks around.
Medicaid Redetermination, what that means for them as individual patients we setup a dedicated hotline.
That we found that is getting a lot of uptake and we're helping navigate these patients through some of the challenges that are coming up with when they do arise and we're trying to help them be proactive and we're obviously training our staff and doing everything that we can to make sure that we have resources that are on the ground. In addition to the hotline. So.
When you put all that together.
We feel like five states.
We have started in April 2014, more coming and we're just going to continue to closely monitor and provide updates throughout the year, David anything you want to add on that the mix, yes ill just.
Respond to a couple of your other questions around the residential business in the managed Medicaid we do see for our Medicaid We of course combined managed Medicaid into what we report as Medicaid but.
And our acute markets around 90% of the Medicaid revenue, we see is with a managed Medicaid payer and then as we think about Chris mentioned some of our protections in place within Medicaid for our RTC business as well as our specialty in CTC business.
As we look at the RTC business, which is 11% of our revenue.
That's 90% of Medicaid business, and we do have some commercial pay within that service line as well.
But it's good from our perspective that there's appropriate continuation of coverage for.
For that business and those childhood adolescence and that is a heavy mix of our RTC business.
Specialty also has Medicaid it's in total that service line is 22% of our business.
And within that Medicaid is a almost a 30% portion of our revenue there. So we do see not only for residential and specialty but for the CTC business.
As we move into the Redetermination process that really gets going.
Darted in just very select markets in April , but we will get going over the second half of the year, we hope with the actions, we're taking as well as some of these protections in place across our service lines.
The volume.
Risks that we had previously identified will really be mitigated.
Okay no. Thanks for the comprehensive thoughts thanks, guys.
Thanks Whit.
And our next question will come from Andrew Mok with UBS. Please go ahead with your question.
Hi, Good morning, first I just wanted to clarify the labor trends, you mentioned base wage inflation and premium pay trending better sequentially, but it wasn't entirely clear to me what the offsets are that are flowing through the <unk> line.
That resulted in <unk> per patient day remaining elevated up 9% year over year. So can you help us understand that better and how startup losses, maybe specifically are impacting that line. Thanks.
Yes, Andrew we.
We do look at that SW be per patient day understand that's what investors and analysts have access to as we report just directly from our financial statements and it is a useful metric.
It can be used as a measure of our wage increases but of course also incorporates our volume.
And it's.
You into our consolidated level results not just our facility results and incorporates benefits expense as well so the nine and a 5% this quarter was in line with our expectations.
Is higher than our wage inflation that was seven 5% and the startups were a part of that we opened.
Number of new facilities in the second half of 2022.
And they are making good progress in their startup.
But the level of.
Within the SBB per patient day.
But thats whats sort of causing that higher level of <unk> per patient day relative to base wage inflation. The timing of our merit increase is of course part of that where we do expect for this year, a higher level of wage inflation and <unk> per <unk>.
Great. Thanks for the color maybe as a follow up just curious to hear whether youre seeing any impact from the recent deregulation of buprenorphine as it relates to demand for methadone and your CPC business line. Thanks.
Yes, Andrew.
We.
We.
We're familiar with the legislation that's been.
Topic, among investors and was passed by legislators in March.
Round, what's referred to as the <unk>.
<unk> waiver, which.
Allows physicians to write prescriptions of buprenorphine also known as Suboxone.
And as we look back physicians have had this flexibility to write these prescriptions over the course of the public health emergency. So over the last three years physicians have had that ability to write these prescriptions.
Of course, we are supportive of any initiative that improves access for people that need treatment.
And we do use buprenorphine in our CTC locations.
For us we.
We look back at the three years, where physicians had that ability and really didn't see an increase in physicians really.
Increasing their treatment of the <unk> patient.
<unk>.
For our business as we think about it specifically, we have 90% of our business.
We're methadone is the medication that's used to treat our patients and we would attribute that to just the clinical effectiveness of methadone combined with the comprehensive <unk>.
View that we take into the treatment around counseling and other services that we provide.
Methadone.
Does have an ability relative to buprenorphine to treat a higher level of addiction, and a more complex <unk> patient.
Which we believe.
We're seeing more of in the industry because of things like fitting all.
Other advances that have made addiction stronger.
So we do not see a significant impact given how we're positioned and the treatment that we have of the higher acuity.
More complex patient.
And the 90% that we have within the methadone business.
But we will maintain the suboxone treatment and there are patients where that is appropriate but just given the limited growth in that over the last several years, we do not think that that ex waiver will materially impact our business and we will just add we are seeing we talk about about our <unk>.
Patient business and the record sensus that we're seeing.
We are also seeing record census levels, and our CTC business right now, which is a credit to the tremendous job. Our leadership team is doing our operators across our 32 states and the strong demand that we're seeing within that service line.
Great. Thanks for all the color.
Thanks.
And our next question will come from Kevin Fischbeck with Bank of America. Please go ahead with your question.
Great. Thanks.
I appreciate the comments about Redetermination. So maybe you can just put a finer point to it so you're talking about volume.
Offsets and headwinds being mitigated I mean, you guys have a net impact that you are thinking about either from a revenue on EBITDA.
And then 2024 there there's.
To be more of a full year impact.
Relative to the increased confidence that we have that more patients will continue to have access to coverage within our service lines.
Admit patients that that have appropriate coverage and work with our referral sources as we do that.
We think there is not a significant volume headwind at this point going into next year.
Okay, That's fair and I guess I mean, you guys. Obviously, so your guidance includes whatever impact if it's a third of the impact Youre growing this way this year through.
That in the back half of the year.
And I guess, maybe you can in theory, there's an offset that commercial rates are higher than Medicaid rich can you just remind us like what the rate differential is I know it's quite wide.
I think it's a little bit narrower per site.
You lose some Medicaid to become a commercial that's really another mitigating I guess from an economic perspective that you didn't highlight before just trying to understand.
And that might be.
Yes.
We thought about that payer mix shift and how that might impact the company and provide an offset.
Our difference between our Medicaid and commercial rates can vary by market.
And so while there could be that benefit that we see in certain markets.
Overall, our Medicaid rates in commercial rates don't have the differential that you may see in a lot of other parts of health care. So I don't think that payer mix shift will provide a significant benefit although we could see a benefit from that in certain markets.
And I'll be clear you mentioned the <unk>.
In 2023, we do think and obviously, we're affirming our guidance, we do think that what we had built in to our initial guidance for the second half of the year, which is just.
Kind of high level moderate impact was already reflected in our guidance, we still think.
That our 2023 guidance.
<unk>.
As we think think about our ability to navigate through this over the second half of the year.
Alright, great. Thanks.
And our next question will come from a J Rice with credit Suisse. Please go ahead with your question.
Thanks, Hi, everybody.
Wanted to maybe go back to the CTC business.
Flesh that out a little more.
Yes.
I think you are expecting to open this year.
I know one of the topics.
At the Investor day was that.
As some of this opioid money comes in states are looking for ways to support this population.
A couple of cases it turned to you partnerships I wonder if there's any update.
Discussions along those lines and then alternatively there is good.
<unk> about that.
Relative profitability of that business I know I know you don't break out profitability by one business, but.
And weather.
The amount of earnings.
The CTC business might attract attention down the road.
From the.
Medicaid payers can you comment on.
Your discussions around that and maybe to the extent you're willing to say it talk a little bit about the relative profitability of that business compared to your overall mix.
Yes, a J. This is Chris why don't I start I mean, I would say overall, David alluded to the fact that we've really attracted a very strong leadership team on CTC and so we now have a 151 locations in 32 states overall and I think it just really set up well to grow that business. So I think one stat that we saw.
<unk> recently.
Recently is that now 7% of all hospital spend in the U S is actually directed towards the care of patients with <unk>. So we just see this continuing to become a strong.
From the broader industry.
Youre right that we.
Our focused on opening at least the six ctc's in 2023, we're going to accelerate that to 14 in 2024, and we do think we're going to see some benefit from the opioid settlement dollars that are really just beginning to flow in again its $54 billion. The total expected.
Funding is.
And we're just beginning to see that happen now so only $2 billion to $3 billion of the 54 has actually been disbursed two states to date.
Bodies to oversee the disbursement of the funds at the individual county levels.
And some are a little bit more aggressive and progressive than others I mean, we see.
Rhode Island, North Carolina, and Ohio, as an example.
Probably being a little bit further along than some of the other states, but I think our team is doing a really good job of tracking.
The settlement opportunities, we actually were awarded our very first.
<unk> settlement in February which was $200000 for some wraparound services in North Carolina. So our team is just very focused on tracking this.
We're partnering in many instances with.
Community sponsors like the adjacent foundation.
On a grant to support youth outreach related to OLED and we're doing everything we can to continue to make sure that we're well positioned with these individual counties within the states that are going to disperse the dollars.
And with respect to just the margin for that business, we've always said.
We look at our service line margins the factors that we really see driving our margin across our service line is really more market specific and facility specific as we think about.
The strength of our local operation their occupancy and number of patients that are treated.
And maturity of many of our locations, especially those locations that have been in place for a really long time with a strong presence in the community and.
A significant population of patients that are treated so saying that we've always said those are the factors that can impact our margins and across our service line. The average for the company.
<unk> continues to be in the upper 20% range and we see that for each of our service lines.
We can see many of our CTC locations be above that 28% or so same facility margin.
And those facilities are usually demonstrate the factors that I mentioned around the the presence that they have and the number of patients that they treat.
So.
I'm glad to clarify I guess, there has always been and recently has been some questions around our margins for that business and while we can see some facilities with strong margins across our service lines. The average continues to be very close to the company average.
Okay, and if I could just slip in one other follow up.
Taking your guidance for this year and maybe you've talked around this a little in one of the earlier questions, but you've assumed a moderation in the update I think mainly as you describe it.
Medicaid states sort of do midyear updates and their resets and their rates you had assumed more return to normal.
Is that what Youre actually seeing is you get a little closer to discussing.
With that July one rate update of Medicaid might look like.
Any further thoughts on whether that assumption was a little conservative or is that what youre actually seeing.
Because 75% of all of our Medicaid revenue at least in our acute service line.
As new contracting years that start in the second half of the year, we just really don't have a significant.
For the commentary that we gave last quarter I would just say that we continue to engage very deliberately and all of our rate strategies throughout Q1, I think we continue to feel like we have.
We're getting better visibility in the second half of the year, but so many of these negotiations are still yet to be had.
I would say our outlook, maybe does reflect a little bit of conservatism because we continue to have a very positive view on our ability to achieve these rates, but I think we're still just in the early stage activities in many of these states we're doing all.
All the work that we usually do in anticipation of these discussions that we have with various payers.
And continue to be confident in our ability to execute on those.
Okay, great. Thanks, a lot.
Yes.
And our next question will come from John Ransom with Raymond James. Please go ahead with your questions.
Hey, there.
Just a couple of outlook detailed questions.
As you move through the year.
When do you what's your forecast for kind of the exit rate of labor inflation in <unk> and also just in your model when do you see <unk>.
Labor to revenue improving year over year.
Yes, John .
We because over the second half of 2023.
<unk> reached the anniversary date of many of our pay adjustments that we made in 2022 we.
We do believe at the end of the year, we would see that our year over year wage inflation at that point, we're just reflect.
Any adjustments, we have made in 2023, which which would largely be comprised of merit increases for our employees. This year. So as we.
I have talked about before the target for that would be less than 5%.
Could be in a range of 3% to 5%, but that's where we would expect to exit the year and we continue to have.
Our minds more positive indicators that the market is improving and that we should see that wage inflation improvement over the course of the year.
As we look at our.
Year over year benefit I do think we will see higher.
Wage inflation on a year over year basis and growth in <unk> as a percentage of revenue on a year over year basis.
That reflects not only the fact that our wages are growing more so than our non labor costs, but also just some of the investments we've made in our benefit programs.
And at the corporate level, So we may see.
The gap to narrow a little bit the year over year growth in <unk> as a percentage of revenue.
But as we look at that.
The stability that we've seen and the ability to manage our non labor costs.
Supports margin growth as we look at the second half of the year and so while wages may still be higher even though the gap narrows.
We do look at the second half of the year and project margin growth despite wages being up even.
Even in the second half of this year as wages moderate.
Yes, and just as a follow up corporate overhead.
How do we think about it did jump a little bit in first quarter sequential.
How do we think about are we done with the big investments and corporate overhead or is that going to continue to grow at an outsized space.
Yes, John let me take that one this is Chris I would say we've made a number of investments that are going to help us advance the business.
And really deliver on all the commitments that we had laid out.
At the Investor day that we did back in December .
I think theres, a number of areas, where historically, we've underinvested, a little bit and we need to position ourselves to continue to grow and meet the commitments that we've laid out I think there are several key areas I mean from it.
Which we've discussed at length.
HR and recruiting marketing, even managed care and strategy.
We needed to make some investments that I think will begin to see some benefit.
Overtime I would say that we are already beginning to see some benefits from some of these investments I mean, just in the short term, we're already seeing it with the higher level of expected volume growth in the range of 4% to 6% compared to the historical average of three to four.
And then I, just think we're going to see benefit.
Clearly going to provide value overall, and then I think.
Overall, it's just strengthening the company's founding foundation for the long term execution of all of these growth pathways that I covered in the opening I think is important.
The last thing I would say, though is that.
Been here for a little bit over a year one of the things that.
We clearly recognized as a leadership team is that we still have pretty significant variation.
Across the company across our 250 facilities. So our company really has grown by M&A, particularly in the early years and when you look at that variation.
<unk> limited to any one area. It can include admissions and marketing and even certain HR processes. So we have a really good business transformation team that is helping us look at that and I think over time here were putting together a number of initiatives.
Achieved better <unk>.
Efficiencies.
And specific cost savings in certain functions in the back half of the year. So a lot of these investments that we're making now we think will continue to benefit us beginning in the second half of the year and into next year and we haven't quite evaluated the financial impact will clearly be coming back to to share that but we do.
Expect to value.
Over time, and we recognize the need for continued operating leverage.
Alright, thank you.
Yes.
And our next question will come from Brian <unk> with Jefferies. Please go ahead with your question.
Hey, good morning, guys.
Chris maybe just to follow up on those comments you made to John last question I know during Investor Day you.
You talked about some of the initiatives that you feel are done.
Yes.
The business.
Anything you can share with us in terms of.
With the EHR rollout.
Thanks.
Yes sure.
A few things that I would say just on the on the IP front.
Again, we're early days here, we have done a pilot where we have on boarded.
Half a dozen hospitals around implementing an EHR and we're still in the early phases of evaluating it but I.
I would say, we're already beginning to see benefit.
The engagement survey that I referenced earlier.
For those facilities that actually have the new EMR.
We're seeing that.
<unk> employees are scoring significantly higher pretty much on every indices. When there is an EMR versus not having one.
And I think overall, there's going to be five kind of categories of benefit from these investments I mean, we're already seeing benefit on the safety and compliance side. We had a survey just a few weeks ago, where we got extremely.
Extremely high marks and the survey are specifically referenced the EMR that was in place as well as some of the remote monitoring software that we put in place. So we're already seeing some of the benefit there with respect to reducing our compliance risk and just overall driving a more standardized.
Compliance program and just overall patient safety I think theres going to be benefit secondly, just around overall patient experience, we're already seeing on the employee satisfaction front.
And Theres a number of just improvements in back office functions as well. So we continue to be just very optimistic about these investments that we're making we don't think we're going to have to wait several years to see the benefit we're really seeing the benefit now in several different categories and we will continue to provide updates as we go.
Got it and then David you asked my question for you My follow up would be as I think about the rest of the year I know, obviously, you don't give quarterly guidance here, but.
Yes, as you think about the quarterly earnings spread I think the street generally hasnt ride and understand the company's seasonality.
So we're optimistic on moving into the second and third quarter.
And we see a little bit more seasonality in the fourth quarter around the holidays, but its typically $4 million to $5 million lower than the second and third quarter. So I think hopefully thats a helpful Guide in terms of how the year typically plays out with our seasonality.
From a from a labor cost perspective, we've talked about.
Over the course of the year.
So hopefully thats helpful from a labor perspective, but we think the underlying core labor trends are really improving and in the second half of the year, we will see some of that year over year growth really moderate.
Our next question will come from Peter Chickering with Deutsche Bank. Please go ahead with your question.
Yes, good morning, guys and I appreciate that would be allowed to ask a question here.
So we didn't get to ask about the X waivers in areas repos.
It looks sort of changes that will after you take Helen methadone being prescribed by physicians. So I guess the question is with the number of changes to the law.
And just a lot around treating patients for methadone.
I'm just.
Treating patients I guess wider methadone clinics, the best site of care from the perspective of a patient burden and cost of care.
Yes.
Yes, Peter.
There have been a number of bills introduced to address access and of course the situation in the industry is less than 10% of those IUD.
Patients actually get treatment and so thats what.
No, everyone, including us and the industry as the industry leader wants to improve access it and drive that percentage higher and there is a bill that's out there that I know you've referenced around just some attempt to improve that access by more flexibility and.
How methadone is dispensed whether that.
On supervised 30 day doses or whether thats pharmacies being permitted to dispense methadone.
We and others have had been vocal about the.
The initiatives already in place to improve access that we think will be a positive.
And our view continues to be that this is a highly complex.
Patient population.
There is a risk of diversion.
Associated with any other setting of care.
And it takes a highly trained clinician that works very closely.
On a daily basis.
Weekly counseling sessions, and you really have to have the full treatment of that patient that has a complex disease and.
So.
That's why now not only do we believe methadone will stay in the.
The CTC otp setting, but also we believe there will continue to be just an importance of counseling and other wrap around services that we provide to our patients.
We have not heard there is a bill out there.
Modern modernizing opioid treatment access act.
We have not heard that its expected to really gain a lot of support it's been out there in other forums over the last couple of years.
So we our expectation is that that bill would not pass in its current form.
And we believe we have the right model in terms of treating that highly complex patient that honestly has a stronger addiction now than than even in the services, we were providing several years ago.
Peter This is Chris maybe just one thing I would add I just think the potency of <unk>, which is 50 times relative to heroine.
We see that when someone comes in that is has an advanced.
Diagnosis of OLED, they really need significant treatment in the early weeks and days and months in terms of regulating that medication and suboxone and.
Buprenorphine is just not.
The same clinical efficacy is what our clinicians see with methadone, which really continues to be the gold standard for medication and improving these these <unk> patients over time. So we just continue to think that that is the better model, particularly given the counseling and the cigna.
Difficult.
In person treatment that's required for these these patients that are extremely sick and we think that will continue into the future.
Great. Thanks, so much guys.
Yes.
We have time for one more question here and that will come from Gary Taylor with Cowen. Please go ahead with your question.
Hey, good morning.
Most of my somatic questions answered so I just want to shoot you a technical one financial one.
Cash flow from ops.
Little lighter than our model and down.
Year over year, a little lighter than typical <unk> seasonality it looks like the biggest part of that was just accrued SBB dropped about $30 million.
Sequentially, which looked a little unseasonal.
As well so just wondered if there was any particular explanation.
Yes, Gary Thanks for your question no. It does not impact how we see the year playing out.
Some of the accrued compensation items and timing of our payroll, but also as you just think about accounts receivable building up during a period of significant revenue growth. Our team continues to do an incredible job with our cash collections with AR days of 44.
Sure.
Thanks, Kevin.
[music].
[music].