Q3 2024 Acadia Healthcare Co Inc Earnings Call

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Speaker Change: Good day and welcome to a Katie House Gares, third quarter of 2024 earnings call.

Speaker Change: All participants will be may listen only to the duration of the call, introducing need any assistance, placing going conference specialists by pressing the star key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. Into a draw question, please press star, then two.

Speaker Change: Today's call, we ask that you please limit yourself to one question in one follow up during Q&A. Also, please be aware that today's call is being recorded.

Speaker Change: But we now have to come to call over to Patrick Feeley, Heather and best of relations. Please go ahead.

Patrick Feeley: Thank you and good morning. Yesterday after the market closed, we issued a press release announcing our third quarter of 2024 financial results.

Patrick Feeley: This press release can be found in the Investor Relations section of the KDHELCARE.com website. Here with me today to discuss the results are Chris Hunter, Chief Executive Officer, and Heather Dixon, Chief Financial Officer.

Patrick Feeley: To the extent any non-gap financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure Calculated according to Gap in the press release that is posted on our website as well as the 10Q filed yesterday afternoon

Patrick Feeley: This conference called May contain forward-looking statements within the meeting of the private security's litigation reform act of 1995, including statements among others regarding a Katie is expected quarterly in the annual financial performance for 2024 and beyond.

Patrick Feeley: These statements may be affected by the important factors among others, set forth in a case of filing with the Securities and Exchange Commission, and in the company's third quarter news release and consequently actual operations and results may differ materially from the results discussed in the forward-looking statements.

Speaker Change: At this time, it likes to turn the call over to Chris.

Chris Hunter: Thank you, Patrick, and good morning everyone. Thank you for being with us for Acadias 3rd Quarter 2020 for Conference Call.

Chris Hunter: We've a lot to cover today, but I want to begin with our results in key highlights of the quarter. I'll then provide a broader update on our quality standards here to Cadia, followed by a legal update.

Chris Hunter: I will close with the discussion of how we drive outcomes for the vulnerable populations we serve and how we are expanding access to high quality care for a patient population that's so desperately needed.

Chris Hunter: During the third quarter, we reported strong results with total revenue of 816 million, representing growth of 8.7% over the third quarter of 2023, driven by both rate improvement and patient-day growth.

Chris Hunter: This top line growth combined with solid operating leverage led to adjusted EBITDA growth at 10.5% over the same quarter last year.

Chris Hunter: Underlying labor costs continued to trend favorably and our initiatives around recruitment, retention and engagement have helped attract and maintain talent.

Chris Hunter: We've also made consistent progress against our bedgrowth targets.

Chris Hunter: We are on pace to complete construction on approximately 1,200 beds this year, including nearly 700 beds in the fourth quarter from several new, holy owned and joint venture facilities.

Chris Hunter: This includes hospitals and partnerships with Henry Ford, Health and Detroit, and Intermountain Health in Denver, Colorado, as well as a new acute care, Nova Facility and Madison, Wisconsin that was completed earlier this month.

Chris Hunter: We also want to track to add over 400 beds to our existing facilities for the year.

Chris Hunter: including over 300 expected in the fourth quarter.

Chris Hunter: With that, I'd like to take this opportunity to remind you about our ongoing commitment to quality, safety, and compliance.

Chris Hunter: At a Katie our mission is to provide compassionate care that improves lives and spires hope and elevates communities.

Chris Hunter: And when you consider the patient populations we serve in behavioral health and addiction treatment, they are truly amongst our nation's most acute at risk and underserved.

Chris Hunter: We play an incredibly important role in supporting these patients and we take that role seriously.

Chris Hunter: With respect to recent inaccurate media reports about the cared, our behavioral health facilities, we want to share more about how our facilities operate and how we aim not only to meet but exceed the standards that regulation requires.

Chris Hunter: First, I want to be clear of medical necessity drives patient care decisions of the

Chris Hunter: These decisions are made by licensed providers and adhere to all associated legal requirements.

Chris Hunter: The allegation that a Katie is systematically holds patients longer than medically necessary as false and goes directly against everything we do and stands for when it comes to patient care.

Chris Hunter: If you've not already done so, I would encourage you to read our response at quality.acadahhealthcare.com

Chris Hunter: which importantly includes data that shows the average length of stay across the Katie's hospitals is in fact in line with the industry average and below those in government and non-profit non-facilities.

Chris Hunter: Behavioral Health is complex, but it is clear that the need has never been greater for high quality behavioral health care given the severe mental health crisis that our nation faces.

Chris Hunter: It's estimated that more than one in five Americans live with the mental illness.

Chris Hunter: and one in three Americans with serious mental illness are still receiving no treatment.

Chris Hunter: The United States has 40% fewer psychiatric beds per capita than comparable countries.

Chris Hunter: It's a disease that impacts every family in our country. In every day, our 23,500 KD employees, helps fulfill our mission to provide compassionate care that improves the lives of patients and their families.

Chris Hunter: We operate in one of the most highly regulated and supervised sub-sectors of healthcare.

Chris Hunter: Our facilities, clinicians, and practices are routinely subject to oversight and inspection by various agencies to ensure compliance with regulatory requirements.

Chris Hunter: including but not limited to robust CMS guidelines on all aspects of patient care, documentation, and billing.

Chris Hunter: To give you just a sense of the oversight of our facilities, consider that over the past five years are acute psychiatric hospitals have been subject to routine inspections and surveys by independent third parties.

Chris Hunter: and Government agencies such as the Joint Commission, CMS and various state agencies in average of roughly five times per hospital per year.

Chris Hunter: Like other well-run provider organizations, these hospitals are routinely subject to third-party audits, including chart reviews, both as part of routine regulatory reviews and part of our own internal compliance programs.

Chris Hunter: They are also routinely subject to oversight from third party payers, with utilization management efforts taking place before, during, and afterpatient stays.

Chris Hunter: This oversight ranges from payers' own clinicians rounding with local providers within our facilities to retroactive chart reviews and payer audits.

Chris Hunter: I want to stress that this type of oversight is important to help ensure that patients receive the best care of the elderly.

Chris Hunter: The work we do matters, and our clinicians often must make difficult critical decisions about lifesaving care on a daily basis.

Chris Hunter: We also believe it is important not to perpetuate myths that psychiatric care is ineffective or even harmful. It is a Cadia, clinicians follow industry standard, clinically driven admission in discharge criteria, and we hold ourselves to an incredibly high standard.

Chris Hunter: With that, I'll provide a briefly go update.

Chris Hunter: As we disclose last month in September, we received a voluntary request for information from the U.S. Attorney's Office for the Southern District of New York.

Chris Hunter: is well as a subpoena from the U.S. District Court for the Western District of Missouri related to admissions, length of stay, and billing practices.

Chris Hunter: On the same day, one of our acute care hospitals also received a subpoena from the Western District of Missouri regarding similar subject matter.

Chris Hunter: Since that time, the Southern District of New York is withdrawn its request.

Chris Hunter: Furthermore, the Department of Justice, which issued the original subpoenas from the Western District of Missouri, has since withdrawn both of those subpoenas in its permitting the company to produce documents and information on a voluntary basis.

Chris Hunter: As the organization within the federal government tasked with law enforcement, the Department of Justice is leading and coordinating efforts on behalf of multiple federal agencies and departments and thus, beginning similar matters, any of which may make their own request.

Chris Hunter: The company recently received a subpoena from the SEC requesting similar information and it's reasonable to assume that we could receive additional requests for information from other federal agencies in the future as long as the investigation is ongoing.

Chris Hunter: We are fully engaged and will continue to work through this process.

Chris Hunter: We believe strongly that quality care is foundational to everything we do.

Chris Hunter: This is not new, we believe that quality, compliance and safety, not only are important from a patient experience and regulatory standpoint, but also are simply good business practices in the best interest of all stakeholders.

Speaker Change: I'd like to share some updates on our quality focus and efforts since I joined the company back in 2022.

Chris Hunter: for those who may have.

Chris Hunter: Covered us for a while, you will call then in 2022 we committed to spending approximately $100 million in incremental technology investments to enhance.

Chris Hunter: Patient and Staff Safety as well as Augment Care Coordination.

Chris Hunter: As a result, our acute care hospitals today employ wearable remote patient monitoring systems to make sure we're doing the best job we can of keeping patients safe.

Chris Hunter: Similarly, our hospitals have implemented wearable safety technology for staff that enables expedited response times in mitigation of adverse events.

Chris Hunter: We've also implemented software solutions that provide real-time tracking and oversight on clinical and quality operations at our facilities, including compliance with regulatory requirements.

Chris Hunter: You will also recall that psychiatric facilities were specifically excluded from the 2009 High Tech Act, which provided billions in funding to hospitals and physicians for the implementation of electronic health records.

Chris Hunter: As a result, the prevalence of EMRs in psychiatric facilities has lagged other parts of the healthcare industry.

Chris Hunter: It is a Katie we found that unacceptable and over the past two years have been implementing electronic medical records across our acute hospitals.

Chris Hunter: This is enabling our clinicians to spend more time doing what they do best, focusing on patient care while enhancing our ability to leverage data and analytics, as well as enabling our providers efficient access to care information to provide the very best in care.

Chris Hunter: Part of our quality reviews include an executive committee review, a peer review and a review by the Joint Commission of Patient Charms, all of which are facilitated on a much more granular and simplified basis with EMRs in place.

Chris Hunter: To highlight a few other areas of focus two years ago, we separated quality and compliance into two distinct specialized teams.

Chris Hunter: Our Chief Medical Officer and Chief Quality Officer provide direct oversight on patient safety.

Chris Hunter: Clinical Quality and Regulatory Compliance Initiatives. While our Chief Compliance Officer provides direct oversight of our corporate compliance program, including ongoing chart audits to ensure accurate documentation, coding, and building.

Chris Hunter: Over the past two years, we have also implemented quality dashboards across our hospitals. And last year implemented monthly quality reviews to hold leaders accountable for quality.

Chris Hunter: These efforts are resulting in better care, better outcomes and better lives for our patients.

Chris Hunter: In 2023 for instance, 81% of our patients who responded to follow-up surveys, including, in voluntarily admitted a response, reported feeling hopeful as a result of the care they received in our hospitals.

Chris Hunter: and our payer partners have seen these results in their members as well. Many of our facilities have received a center of excellence designation from some of the largest payers in the market.

Chris Hunter: I'd like to conclude by speaking briefly about our ongoing commitment to expanding access to life-saving treatment.

Chris Hunter: As I noted, the remains of significant unmet need for behavioral health care services in our country. The behavioral health related deaths in the United States remain at or near all time highs. According to the CDC, 49,000 Americans died of suicide in 2022.

Chris Hunter: During that same year, more than 100,000 Americans died due to drug overdose deaths.

Chris Hunter: Meanwhile, the inpatient psychiatric industry remains fragmented and underbedded a result of decades of underfunding and underinvestment that has exacerbated the supply demand imbalance.

Chris Hunter: Notably, based on standard clinical benchmarks, it's estimated that approximately 75,000 additional beds are required across the country to meet estimated needs.

Speaker Change: and according to Samson, nearly 30 million Americans with mental illness receive no mental health treatment.

Speaker Change: Put simply the need for behavioral health care in this country is increasing, while the number of available beds has been decreasing, creating a broadening gap in leaving those patients who need the most care unable to get it.

Speaker Change: So to meet that need, Acadia is in the process of investing billions of dollars to expand access over the next several years, including the expected construction of over 2,000 beds over the next two years.

Speaker Change: This continues to be an attractive use of capital and we expect new bed capacity will help drive accelerating volume growth in 2025 and beyond.

Speaker Change: We remain committed to investing, to expand access to the high-quality behavioral care that is so desperately needed in this country.

Speaker Change: Finally, and has always been the case. We also cannot indefinitely fund facilities if there is not a path to viability or strong patient utilization.

Speaker Change: That would be an irresponsible use of resources that could be deployed where more acutely needed.

Speaker Change: Therefore, as we've done historically, from time to time, we will take action to deploy resources or close facilities. During the third quarter, we made the decision to close two subscale satellite programs in one of our markets that together comprise 104 beds.

Speaker Change: With that, I'd like to turn the call over to Heather to discuss our financial results for the quarter and forward guidance.

Thanks, Chris and good morning, everyone. For the third quarter, we reported $816 million in revenue, representing an increase of 8.7% over the third quarter of last year.

Speaker Change: St. Facility Revenue Group 8.6% compared with the third quarter of 2023, which included patient-day growth of 4.7% and an increase in revenue per patient-day of 3.6%.

Speaker Change: Revenue for Patient Day, excluding the CTC Business, which, as you will recall, does not have associated patient days, increased 4.9%.

Speaker Change: Adjusted EBITDA for the third quarter of 2024 increased 10.5% over the prior year to $194.3 million, excluding income from provider relief funds in the third quarter of 2023.

Speaker Change: Adjusted EBITDA margin was 23.8% compared with 23.4% for the same quarter last year, an expansion of 40 basis points.

On a Saint's facility basis, the Justice Evidon Margin increased 100 basis points over the prior years quarter to 29.7%. Excluding the income from the provider release on last year.

Speaker Change: Adjusted income attributable to a Katie A. Stockholder's per-deluted share was 91 cents for both the current and prior year period, excluding the income from the provider release fund in the third quarter of 2023.

Speaker Change: Consistent with previous periods, adjustments to end comes with a third quarter of 2024, include transactions, legal and other costs, and loss on impairment.

Maintaining a strong financial position remains a top priority for Acadia, providing the flexibility to make strategic investments that are in-line with our disciplined capital allocation strategy and support our continued growth.

As of September 30, 2024, we had $82.1 million in cash and cash equivalents and $321.5 million available under our $600 million revolving credit facility with a net leverage ratio of approximately 22.5 times.

Moving on to our outlook for 2024, as noted in our press release, we have updated our previously announced guidance for the year, which includes

Revenue in the range of $3.15 to $3.16 billion.

I adjusted EBITDA in the range of 725 to 735 million dollars, and adjusted earnings per diluted share in the range of $3.35 to $3.45.

Speaker Change: As we discussed on the second quarter earnings call coming into the back half of the year, we expect same facility patient they grew to accelerate into the mid-single digit range.

As you saw in our results, we achieved that in the third quarter with same facility patient day growth of 4.7% and acceleration of 230 basis points over the first half of the year.

Speaker Change: While volume growth in September remained above 5%, we have experienced lower volume growth than expected in October, with same facility patient-day growth of approximately 3% for the month, which we believe is a result of the recent headlines and reporting in the media that Chris addressed at the top of the call.

As such, our revised guidance reflects expected fourth quarter year over year, Saint's facility volume growth of approximately 3 to 4 percent, which is 2 to 300 basis points below our previous expectations for the quarter.

We do expect this headwinds to be transitory in nature, however, and as we have been doing for some time now, we continue to engage with our referral sources and our local communities to ensure that we are addressing any concerns as they arise.

Speaker Change: This change in our volume grows outlook for the fourth quarter, resulted in a $20 to $30 million impact to our revenue guidance, and a $10 to $15 million impact to our EBITDA outlook.

of note, our updated EBITDA guidance reflects the expectation that we will not make material reductions to the cost structure and response to the anticipated lower volume growth in the fourth quarter as we do believe this recent disruption to be temporary.

Speaker Change: Therefore, we do not view the anticipated $10-15 million reduction to 4,4 Ebeda as reflective of the potential run rate impact.

Should lower the expected volume for CISC longer than we anticipate, we will of course reduce facility level cost accordingly.

Speaker Change: Beyond these near-time headwinds, we are also highly confident in the future for Acadia, as we are on the Cusp of the significant acceleration and capacity expansion.

As Chris noted, we have a large pipeline of over 2,000 beds under construction. This includes approximately 1,000 beds expected to open over the next few months, which represents an expansion of our inpatient capacity of nearly 9%.

Speaker Change: We've also been able to accelerate certain construction projects ahead of schedule and as a result we expect to deliver multiple new facilities in the first half of 2025. You will see this reflected in our guidance revision for expansion capital expenditures.

Additionally, as Chris noted, our revised guidance reflects the exit of two subscale satellite programs in one of our markets during the third quarter.

Prior to your guidance contemplated approximately $17 million of revenue contribution and approximately $1 million of EBITDA contribution from these programs in the second half of the year.

Finally, as a reminder, 2024 guidance excludes any contribution from the Tennessee Supplemental Payment Program, payments which we expect will be retroactive to July 1, 2024 upon program approval and implementation.

Speaker Change: The company's guidance also does not include the impact of any future acquisitions, the best teachers, transaction, legal and other costs, or non-versign legal settlements expense.

With that operated 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 telephone keypad. And if you're using a speaker phone, please pick up your hands up before pressing the keys.

to withdraw a question, please press star and two.

Again, we ask that you please limit yourself to one question and one follow-up.

At this time we will take our first question which will come from a device with UBS. Please go ahead.

Hi everybody, thanks for all the comments.

Obviously, as you've seen, this sort of desaleration in growth and through just still desing growth

Speaker Change: in volumes.

Speaker Change: but obviously an expected more is that can you give us, I don't know, this pretty granular but obviously the question is in light of the media.

Dynamics, did you take a step down and then it seems like it's stabilized or

Speaker Change: Heather, steps to jointly deteriorate as you progress through the first part of the...

for squater, and it's still trying to figure out where the bottom would be. And it's concentrated in certain markets where maybe the New York Times had focused its article on and...

Substance inquiries or isn't more broad-based than I may have one more follow-up.

Okay, thanks, AJ, thanks for the question. I'll start with your question about sort of the step-down and what we saw. We did see that step-down beginning at the start of October, and we saw that run pretty consistently throughout the month of October. So, to answer your question, we didn't see a continued decline throughout the month. We saw relatively stable volumes for the month of October.

Speaker Change: in regards to your question about any concentration or where we saw this. We do, as I mentioned, expect that the recent news coverage and the news of the investigation has had some moderating effects on the group, but it's early days.

We see this as largely temporary and we've been working with our partners to sort of identify any specific questions that they have.

Okay, and maybe just...

Evidence, you got a number of JV discussions in the pipeline, some that have been announced, and you've also worked hard to get your recruitment of clinicians there. Are you seeing any impact in either of those areas from the news articles and the inquiries?

Yeah, this is Chris, thanks for the question. You know, I would say on the JV pipeline front, we continue to just have a really robust pipeline as you would expect

We have given that we have 21 JV partners. Those that have been with us for some time and you remember that we actually have multiple facilities with any of these partners.

that we're talking about adding additional facilities to.

You know, our pipeline looks good. I think they're, you know, further down in the pipeline clearly there are questions that come up.

across the board. And I think that's the case with employees as well. But I think we have done a really good job as a company this year, continuing to talk about all the investments that we're making on the technology front, continuing to work hard on our employee engagement.

and we've actually been very encouraged by our ability to continue to attract and retain talent.

Speaker Change: Okay, thanks a lot.

and our next question will come from the Hoyt Mayo with the Learn Partners. Please go ahead.

Thanks for appreciate the comments. Which is helping maybe to, if you guys could maybe provide a little bit more color if you're preliminary thoughts around.

2025, I heard Tennessee DPP comments, Chris mentioned that they could accelerate and grow with the van conditions as they feather into the business. Anything to share just headwinds tailwinds, maybe any preliminary thoughts around the startup cost that you might have in 25-x.

Speaker Change: Hi, I'll take that. I'll maybe talk about a few different categories here, but let me start with volume and then I'll move on to rate and then you know, finally your question about start-up costs and the impact of the bad additions.

So of course, you know, we're not going to give guidance today. It's a little early for that. We'll give that sort of in another few months.

So won't attempt to size this, but I'm going to give you some of my thoughts. So what I would say is you're going back to the first quarter in regards to the volume, we talked about the next expectation of volume improvement over the course of the year, and that's what we've seen.

Volume Growth, improved throughout the second quarter and then into the third quarter as you can see we were back in the mid-single digit volume growth range and we exited the quarter and set timber above the 5% same store volume growth rate so that continued acceleration that we expected that we saw coming through.

Speaker Change: and wild that groove.

Speaker Change: State of Oz, five percent in September, you know, as I just discussed in the prepare of the marks, we've seen some moderation.

to that volume growth in October. And again, we believe that's a result of the headlines in the reporting. But we are seeing October run at around 3%. And that's about 2 to 300 basis points below where we would have expected to be.

You know, as we mentioned, we think that's temporary, so as we look forward to 2025, we don't know the exact timing, but certainly we would look to be back on track throughout the year, but we'll need to wait and see where we exit the end of the year.

and then of course, don't forget as we know from a volume perspective, we expect the benefit from the continued ramp up of beds that we added over the last several quarters to continue to come through. Those new beds that are expecting to contribute to come, you know, come, come online and come in quarters will continue to ramp and they'll continue to contribute for the growth over the course of 2025. So the volume that we expect will come back, I'm pretty somewhat we're seeing now and then combined with the volume from the incremental beds.

from a rate perspective, you know, we continue to feel really good. As you know, the states are continuing to disinvest in psychiatric care, which has, you know,

Long Suffered from the lack of investment and the conversations with our pairs continue to be positive.

Tennessee is the latest state that's on the past in proving reimbursement and we're very optimistic that we'll see that that benefit next year, once the program's approved. There are other states that we think may follow but the timing of those are a little less clear than the timing indications we have for Tennessee.

and then as always is in the case of the timing of supplemental payments can be uncertain. For example, wait for the Tennessee, we'll be retroactive to July 1st.

Speaker Change: So there's likely going to be some sort of an out-of-pair-advent if it is associated with that and we'll call that out. Once it's approved, but we just have to continue to wait and see on the timing.

So overall, as we said in the past, we continue to expect rates to normalize, back to the low-med single-digit range at some point in the future, but it is the same like we're going to see that happen in the short term.

and it may be finally all talk about stirred up, pause.

As you know, this year we have embarked on a pretty significant step-up in the investment and bed growth over multiple years and I think as you all are aware, the startup cost is another factor that we need to think about for 2025.

Dis-reminder, we have over 2,000 beds currently under construction and in total we expect to complete construction on about 1200 for the full year this year.

and of course we have a pipeline of the opportunities that we continue to see and then we'll backfill that construction pipeline and pull things in as soon as we can. The pace of that addition this year is a material step up over the prior year.

First is the five to 600 beds that we've added over the last few years each.

Finally, as we discussed back in February, this year's Fed editions are also disproportionately weighted towards the end of the year.

Speaker Change: If you'll recall our initial guidance included startup costs of around 20 to 25 million in total, which was roughly flat relative to 2023 due to the back end loaded 2024 cadence.

and as we've talked about previously, the startup cost for the 2024 class of denolive will mostly fall in 2025 due to the back end timing.

So with the number of new beds being added this year roughly doubling that will result in a new step up in the starting costs beginning next year, particularly in the first part of the year.

Speaker Change: Two-really-for-us-us-provid numbers on that today with, but in part because that 2025 cadence and cost amount is going to depend on the timing of the openings of the bed additions, and it's a little too early for us to have those specifics, but, you know, hopefully this at least gives you a framework of how to think about it.

Speaker Change: You know of course.

We'll expect that those new beds will ramp towards breaking an oversawess of next year and by the end of 2025, we'd expect them to be contributing to the EVID-O growth and by that point we'd also be rolling them into the same facility bucket so they would contribute to the same sort of volume growth as well. And in the end of 2025 we would expect startup costs to level off. It's not, you know, outright decline. And at the same time we would expect to have the continued benefit of those new cohorts of beds over the past several years ramping throughout that period.

Speaker Change: But that was a lot with I hope that answered your question and gave you some... Not really, yeah, not really. I'm like 20 to 25 is what we have this year. You have a pretty good idea of timing factors as it relates to the opening of some of this in the end.

3035, 40, I mean, any help within a range is to like what we could see.

Now, you know, I appreciate the question. I think it's just too early for us to put a number on it. I would just point to the factors and how the cohort stack up with the beds.

from last year this year and next year coming into compliance. And then the timing of those beds that are back into this year versus a more moderate pace next year.

Okay, this all I got, thanks.

and our next question will come from Brian Tankerlet with Jefferies. Please go ahead.

Hey, good morning Chris, maybe just circle back to the conversations you're having with the referral sources and your JV partners I mean obviously you have a lot of referral sources right so if you can walk us through what that looks like and so far what's the feedback

and are you seeing any change in behavior from those referral sources at this point?

Yeah, thanks for the question Brian. I mean, as you can imagine, I mean we've been

Chris Hunter: Highly engaged with outreach to really multiple stakeholders. Certainly, you know, key referral sources as well as JB Partners for the last several months.

I would also say that we all know healthcare is local and with so many of these

Literally thousands of referral sources, you know, being on the ground across the country.

Chris Hunter: We've had to be even more deliberate about the outreach. I think particularly to shore up any misunderstandings that sometimes have been the case due to media reporting. We've been really consistent.

about emphasizing the quality of the care that we provide, the investments that we're making at safety, compliance quality over the last two years, which is nothing new, we're just reaffirming that. And we placed a lot of emphasis on...

and sharing that our most important referral sources understand these facts and understand where we believe that some of the media reporting has been inconsistent or inaccurate. And so, you know, that's what referral sources as well as JB Partners.

I would say when we sit down and we present them with the 5 key points from the recent release that I decided to website quality. The KatieHealthCare.com, the setting the record straight that's in our that was in my prepare for marks.

There's kind of five key points that we take them through that seem to be resonating. The first is that patient care decisions, including whether treatment is necessary and for how long are medical decisions that are made by licensed providers.

Chris Hunter: The second is that the average length of stay at a KDF acute hospitals is in line with national averages

Chris Hunter: The third is that independent third parties make the initial determination that a patient requires hospitalization and evaluation.

The fourth is that our hospitals are highly regulated.

and required to meet policies and standards set by federal state and local governments. And then finally, you know, it's widely recognized within the medical community that discharging psychiatric patients, particularly those that are endangered themselves for others.

Chris Hunter: 2 early can result in catastrophic consequences. And I think these referral sources understand this. And I think it resonates based on the feedback that we've continued to get. You know, I think in the small percentage of cases where we have heard any concern.

Chris Hunter: These really tend to be a little bit more correlated with intense local media coverage within that facility's local market rather than any broader news at the national level.

We've only been experiencing this, as we've said in the prepared remarks over the past month

but I would just say based on the conversations that we're having, we do feel confident that we're having the right conversations with these referral partners, we're trying to be intentional about getting into...

Chris Hunter: Person when we can and then we have the right programs in place.

Chris Hunter: with these referral sources going forward as well as our J.D. partners. And I think any opportunity for us to...

to meet in person and to have even greater touch points is something that we're just very focused on.

Literally on a daily basis.

So I hope that helps.

Now that it helps, then maybe Heather, you mentioned your prepared remarks.

The volume impact, and he does like 10 to 15 million, I think he cut the midpoint by 20 So just curious what's the bridge there, and then how should we be thinking about, you know, the levers that you can pull if this volume weakness persists into 2025 Like, you know, from a staffing or a capacity perspective

Chris Hunter: How easy or what does that look like?

Yes, I'll take those in turn. So first, maybe just to give a little more clarity on sort of the revision to guidance. You are correct, but certainly the largest driver was the volume trend that we saw and just again to reiterate the...

The numbers that we were looking at when we made the decision, you know, we exited September, same store.

Patient Big Rose

Chris Hunter: Over 5%

which was a significant acceleration over the first half of the year as we expected.

and originally of course we would have expected that to continue into Q4 as we accelerated on those even further. Whenever we exited...

or as we exit October we are expecting around 3% so drop us 2,300 basis points from our expectations. So that is what proves that 10 to 15 million in Ebeda reduction for the balance of the year.

What I would say is that on top of that we had a couple of other things that were moving throughout there. There's a little bit of impact from the hurricane, just a couple of million dollars. Although it did have some impact on the cadence of some of our construction projects.

and then there was about a million as we mentioned the prepare remarks related to the closing of those satellite.

Chris Hunter: Facility Bed during the quarter, but that's really what drove that.

Chris Hunter: Maybe just to the second part of your question and regards to leverage, you know, we mentioned or I mentioned in the prepare remarks that, you know, the revenue guide was coming down related to that volume discussion by about 20 to 30 million and the EBITDA relates to that was about 10 to 15 million. So that's a higher impact proportionately on EBITDA than on revenue for what you would normally expect to see for us.

and that is, you know, certainly the area where if this were to become a longer term, impact we would look to make, you know, the appropriate revisions there to the cost structure. But as we mentioned, because we do feel this is temporary, we have not made some of those more significant changes to our cost structure. And we remain ready to welcome those patients back at any time. So that would be, I would say, the biggest lever that we would call on to really focus on a sustained downturn.

Speaker Change: and our next question will come from John Ransson with Raymond James. Please go ahead.

Hey, good morning. Just going back to this referral management issue.

Speaker Change: How much more work do you think you have to do to kind of carry the initial flurry of effect and then how long are you giving yourself?

So where you would say, okay, this just seems like we may have lost a permanent 2-3% of our referrals. I'm just trying to get a sense of timing on this.

John, I would just say, I mean, this is something that we continue to work on every single day. It's just really difficult for us to put.

You know a time parameter on that.

But I think you're having regular touch points of course.

with all these referral sources regularly. We've continued to dial that up, or it makes sense. We've tried to meet in person certainly, where it makes sense even more frequently. But I just could not speculate on the timing as of right now. I would just say this hasn't just started.

This month, this has been something that we've been working on, you know, very consistently and of course, in normal course, we're always talking to our referral partners regularly and that will continue.

I mean, it was interesting, I mean, it was an article with late August and it took a month for this effect to be felt. So I guess there was a lag right, I mean, there was a 30 day lag before you saw it. The other question I had was,

I know you said before that the VA was a bit of an air pocket so maybe that was down to 300 bits. Has there been any additional pressure from that particular referral source given that they are also looking at you?

No, I mean, nothing, nothing that we would call out on the VA, to answer your question.

Speaker Change: Thank you.

Speaker Change: Hey, John, maybe I'll just jump into the first part of your question and just remind you that we did.

Talk about what we think on a go-for basis, I know it's been a Christmas Christmas to early for us to think about what that duration looks like because it's early days here, but just reminding you that we do not think that the Q4 reduction, sort of that relative reduction for revenue and guidance is how you should think about the go-forward run rate related to that.

Speaker Change: Alright, that out.

for Eva Dahn of course. Yeah, thank you.

Speaker Change: Yep.

and our next question will come from Joanna Gugget with Bank of America. Please go ahead.

Speaker Change: Hi, this is Christian Porter on for Joanna. Thank you for taking our question.

Christian Porter: My first question was just wondering, with the legal scrutiny that you guys are facing, have you seen any impact to your hiring or retention or just ability to find people to staff your facilities? And then I have one follow up.

Yeah, thanks for the question. I would say overall nothing material that I would call out. I think, you know, we're a company that continues to build capacity as we set in the prepared remarks.

Obviously, you know, a key factor is us continuing to attract talent in to fill these new facilities, as well as to retain the existing, you know, excellent staff that we have.

We do lean heavily on the extensive investments that we've made, not only in these new facilities, but also in technology, EMRs, remote patient monitoring, staff safety devices.

that really resonate with our employees. We also have just done yet another employee engagement survey and we take those results which we think really factor into our ability to attract and retain as well. So I would just say overall, you know, it's...

Normal Course, we're certainly available for questions that periodically come up. We're trying to be very communicative and transparent with our leadership and our staff. We'll continue to do that.

Speaker Change: Nothing else I would add on that front

Alright, thank you. And then my follow-up question was, you guys have mentioned that you guys are implementing people, technology, clinical protocols and training just to make sure that quality is that it's best. We were wondering how do you measure your results from these initiatives? So yeah, thank you.

Yeah, I would say, I mean this is...

This is something that we have invested in now for...

Speaker Change: Over two years with respect to the quality protocols that we put in place. So this isn't anything new.

You know, I would say that again, as I cited, it's not just one thing, it's not just the fact that we've put in an EMR in place or that we've put patient monitoring in place. We've been really intentional in the quality front about

Literally putting entirely new all-in-one dashboards in place for our facilities.

Speaker Change: that are...

you know providing all metrics.

that we're tracking routinely, patient safety, staff training and experience, patient experience, incidents and observations, all these things. We use this in a way to look at our chief quality officer. Also,

has done a phenomenal job of putting a heat map in place that we're holding our...

Facilities Accountable 2, and we're also implemented for the last several years, not just a monthly operating review, but a monthly quality review, where we're holding our operators accountable for coming in and specifically talking about the advancements that they've made on the quality front.

Speaker Change: So I think maybe the final thing I would point out is that we've also implemented the Joint Commission's AMP AMP, their software program at all of our acute facilities in the middle of this past year.

and this is a cloud-based solution that's produced by the Joint Commission.

Speaker Change: that reflects all the up-to-date CMS standards and conditions that will modernize all of our quality assurance and performance improvement tactics.

Speaker Change: So having that in place.

This software ensures that our teams are auditing, that they're educating, that they're monitoring, clinical, and operational practices, that all coincide with the joint commission standards, as well as the CMS conditions on participation. So just overall.

Really modernizes our approach to survey preparedness.

to accreditation readiness. It puts us in a position where we're proactively looking for trouble spots across the portfolio and we're able to mobilize resource and proactively hold our operators accountable for quality standards.

Speaker Change: and it's, you know, early days here because we literally have just implemented the software by the middle of the year but we're very encouraged by just the cultural change this will continue to enhance and manifest for the company.

Thank you.

Speaker Change: and our next question will come from Ben Hendricks with RBC Capital Market. Please go ahead.

Thank you very much. As far as you can talk about the volume top of the synoc tuber, it sounds like most of that is related and acute related, just want to see to what degree you're seeing, RTC pressure as well or not or any overall volume.

Trends across the other segments as well.

Speaker Change: Yeah, thanks for the question. I'll take that. You know, as we've looked at that volume pressure, you know, of course we have have done a lot of deep diving into the trends or looking for trends. What I would say is that as Chris mentioned, there's not a very specific outlier here in anyone area or business line. As he mentioned, we do see a little more impact where some facilities have had a ponderance of local media focus as opposed to the national media focus.

But then more broadly, we've seen it relatively consistent throughout the month, as I mentioned, that, you know, so what we saw from a volume impact perspective to the started right at the beginning of the month, and we saw it consistently at relatively the same level throughout the month.

Of course, there's always normal fluctuations as you go through the month, but really pretty consistent there. From a business line perspective, I'd say it was...

Consistent, Relatively Speaking Across Acute and Specialty. Both of those saw relatively the same impact.

Speaker Change: Specifically to your question on RTCs, you know, there were, you know, the normal fluctuation here and there, but

You know what I would say about RTCs is that you know in a typical month, very sadly the total number of adolescents need of care far outweighed to be available beds across the board.

and RCC facilities are typically operating at or near capacity throughout the year, of course, with normal variations. So that's sort of a view of what we saw and where we looked into things, but it's pretty consistent across acute and specialty.

Speaker Change: Appreciate that. This is a follow-up kind of same question for third quarter on the revenue vacation day 3.6. Looks like that slowed a little bit from...

Speaker Change: and typical trends and maybe lower than you would expect, I just wanted to see how that falls across the various segments and any observations you can offer there.

Sorry, I'm correcting myself. So for third quarter, you know what we saw coming through would have been, you know, impacted by the CTC portion that contributed to that. And if you recall, you know, CTC had very strong year last year sort of growing each quarter significantly. If you exclude the impact of CTC from Q3, it would have been 4.9% revenue per patient day growth. So that's probably a good way to look at that and hopefully answers your question.

Thank you very much.

and our next question will come from Peter Chikker with Doitzer Bank. Please go ahead.

Hey, good morning guys. Looking at the referral sources on acute, if you see many channels of those referrals more impacted than others, thinking about the ERs versus co-workers, police, schools, or cell-for-furl.

Yeah, there aren't anything that we're all about.

So I'm picking up an echo. I would say, you know, the hospitals and the EDS are always an area of focus, but you've listed a number of them. I mean, there's so many your community based.

Shelters, Law Enforcement. I mean, as we've said at the outset, we literally have thousands of referral sources.

Speaker Change: So I wouldn't say that there are any specifically that we would call out. We continue to be even more intentional about reaching out to all of them and increasing the frequency of touchpoints.

Speaker Change: Okay, and then, looking at the possibility, was there any impact within any specific division with the end specialty versus the others? To think, you know, the kind of should be thinking about that recovery, it is more of a consumer-driven business versus the others, there is more of a sort of, you know, medical referral. Thank you.

Speaker Change: Yeah, I wouldn't say any really to call out there either.

Speaker Change: Great things so much.

and our next question, will come from Andrew Mock with Barclays. Please go ahead.

Andrew Mock: Hi, good morning.

I just wanted to follow up on the referrals in the areas where you are seeing pressure is the referral decision typically made at the organization or department level or is it select individuals within a department making decisions autonomously and then secondly, I'm still struggling to reconcile this notion that the volume had when this temporary with the fact that referral sources tend to be sticky so have you seen any evidence or early signs of recovering law through referrals and if not as there are push to open the door into new referrals to pack fill these volumes just want to understand what's behind the temporary outlook. Thank you.

Speaker Change: Yeah, thanks Andrew. I would say that, to answer your first question, these are decisions that are made by individuals.

Speaker Change: and I would say specifically, you know, there have been instances where there have been concerns that have been raised and we've mobilized.

Speaker Change: Leaders to move on the ground and to meet directly. And I think in many instances we have been able to improve the referral situation. Certainly to answer a lot of questions.

and to get those referral patterns back on track. You know, there have also been, you know, some situations where it's just harder to get in front of that referral source. But I would say overall, the strategies that we are putting in place.

Um, you know, this is a ground game, healthcare is local and we really like the approach that we're putting in place and can continue to execute on that.

and our next question will come from Sarah James of Cantor Fitzgerald. Please go ahead.

Sarah James: Thank you. One clarification on your last response. It sounds like you're saying you have seen proof of concept where a face-to-face meeting.

had a positive impact on referral pattern after that meeting. It's up the right way to read that, but in some cases you have been the actual trend move after the meeting.

Yeah sure, I mean, I would again remind you that we have thousands of referral sources, we love to get in front of all them face-to-face all the time, that just isn't possible with so many

You know, I personally

Speaker Change: Ben and in front of, you know, so many of our JV partners just over the course of the last few months. That's always preferred as opposed to doing a phone call or doing a video. But I think just overall,

The way that our operators

Speaker Change: function in the local market and again healthcare being local.

is the try to get in front of these.

Speaker Change: Referral sources is frequently as we can. I just think that we have dialed up the expectation and asked them where possible to make that happen. But these are literally daily interactions that are already happening in normal course, and we'll continue to. So I hope that's helpful.

and then can you give us an idea of the normal patient-day seasonality throughout FWQ? Is that tuber usually the high watermark or does it ramp through the year?

At the E.F. or 4.4, that's a great question. You are correct October is normally the strongest month out of that quarter. The normal seasonality patterns that we see during 4.4 are very specifically related to the holidays that occur throughout the end of November and through December. Typically speaking, you know, families that have an option or an alternative to, you know, bring someone home over the holiday period will do so. And so we typically see that impact in our volumes and we factor that in. We expect that.

Yes, directly October is strongest month.

and our next question, you'll come from Matthew Gilwalla, Faird, please go ahead.

Thanks for actually keeping it to one. I think Chris had mentioned that labor was trending favorably, something that provides some color in terms of wage inflation or turnover and just how that's been trending in the recent months.

Yes, sure, I'll take that, I'll jump in. So, you know, for the wage inflation perspective, you know, we have seen that continue to track favorably. You know, at the beginning of the year we said we would anticipate for that to trend below 5% and we have seen that continue to play out.

Speaker Change: The highest watermark was the end of 2022, where it was up around 8% so we've seen that moderate.

Speaker Change: Significantly and then for this year has held steady. And again, just to mention, throughout the first nine months, we've seen it today and that sort of sub 5% range. And we would expect that to continue.

Speaker Change: Gotta take care

Speaker Change: and our next question here will come from March, tomorrow with Steven's, please go ahead.

This is Rajan Theskapadell. I think you've taken a question. Just head one around, you know, one that we get particularly around desert hills and

Speaker Change: and I'm late to the tell of...

Speaker Change: Of those cases with the 16-cylinder earlier and then two kind of remaining just kind of any update on that

and then just another one on just a legal strategy going further around like settlement versus contesting in what actions the Katie has taken internally or externally took on a counterback.

Speaker Change: and the other two.

Yeah, thanks for the question. I would start and just say, with your question on Desert Hills, we just can't comment on individual cases, but I would say, you know, we haven't, we will continue to disclose.

litigation matters that we view as material and all of our filings.

We have bolstered our team.

Speaker Change: on the legal front.

Speaker Change: and I think we have also disclosed that we hired Kirkland and Ellis as our outside council.

and for the broader investigations and consulting with them very closely. But just with respect to ongoing investigations and cases, it's just very limited in what we can say publicly. And I would just leave it at that.

Speaker Change: and this concludes our question and answer session. I'd like to turn the conference back over to Clayton, for any closing remarks.

Clayton: Thank you, I'm closing, I just want to again thank our committed facility leaders

Clinicians and approximately 23,500 dedicated employees across the country who have continued to work tirelessly to meet the needs of our patients in a safe and effective manner. We are together doing incredibly important work for our patients across the country and remain committed to serving them with care, compassion and excellence.

Thank you all for being with us this morning and for your interest in the radio.

Speaker Change: The conference has now concluded, thank you for attending today's presentation. You may now disconnect your lines.

Clayton: The End

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Speaker Change: The End

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Speaker Change: Good day, and welcome to Acadia Healthcare's third quarter of 2024 earnings call.

Speaker Change: 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 will be an opportunity to ask questions.

To ask a question, you may press star one.

Music Music Music Music Music Music Music Music Music Music

Speaker Change: Good day, and welcome to Acadia Healthcare's third quarter of 2024 earnings 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.

Speaker Change: After today's presentation, there will be an opportunity to ask questions.

To ask a question, you may press star, then one on your telephone keypad. And to withdraw a question, please press star, then two.

On today's call, we ask that you please limit yourself to one question and one follow-up during Q&A.

Also, please be aware that today's call is being recorded.

Speaker Change: I would now like to turn the call over to Patrick Feeley, Kaiser Investor Relations. Please go ahead.

Thank you and good morning. Yesterday after the market closed, we issued a press release announcing our third quarter 2024 financial results. This press release can be found in the investor relations section of the AcadiaHealthcare.com website. Here with me today to discuss the results are Chris Hunter, Chief Executive Officer, and Heather Dixon, Chief Financial Officer.

Speaker Change: To the extent any non-GAAP financial measure is discussed in today's call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP in the press release that is posted on our website as well as the 10-Q filed yesterday afternoon.

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's expected quarterly and annual financial performance for 2024 and beyond.

These statements may be affected by important factors, among others, set forth in acadious filings with the Securities and Exchange Commission and in the company's third quarter news release and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.

At this time, I'd like to turn the call over to Chris.

Thank you, Patrick, and good morning, everyone. Thank you for being with us for Acadia's third quarter 2024 conference call.

We have a lot to cover today, but I want to begin with our results and key highlights of the quarter. I will then provide a broader update on our quality standards here at Acadia, followed by a legal update.

Speaker Change: I will close with the discussion of how we drive outcomes for the vulnerable populations we serve and how we are expanding access to high quality care for a patient population that so desperately needs it.

Speaker Change: During the third quarter, we reported strong results with total revenue of $816 million representing growth of 8.7% over the third quarter of 2023, driven by both rate improvement and patient day growth.

This top-line growth, combined with solid operating leverage, led to adjusted EBITDA growth of 10.5% over the same quarter last year.

Speaker Change: Underlying labor costs continue to trend favorably and our initiatives around recruitment, retention, and engagement have helped attract and maintain talent.

We've also made consistent progress against our bed growth targets.

We are on pace to complete construction on approximately 1,200 beds this year, including nearly 700 beds in the fourth quarter from several new wholly owned and joint venture facilities.

We're also on track to add over 400 beds to our existing facilities for the year.

including over 300 expected in the fourth quarter.

With that, I'd like to take this opportunity to remind you about our ongoing commitment to quality, safety, and compliance.

Speaker Change: At Acadia, our mission...

Speaker Change: is to provide compassionate care that improves lives, inspires hope, and elevates communities.

And when you consider the patient populations we serve in behavioral health and addiction treatment, they are truly amongst our nation's most acute, at risk, and underserved.

We play an incredibly important role in supporting these patients and we take that role seriously.

Speaker Change: With respect to recent and accurate media reports about the care at our behavioral health facilities, we want to share more about how our facilities operate and how we aim not only to meet, but exceed the standards that regulation requires.

Speaker Change: First, I want to be clear, medical necessity drives patient care decisions at Acadia.

These decisions are made by licensed providers and adhere to all associated legal requirements.

The allegation that Acadia systematically holds patients longer than medically necessary is false and goes directly against everything we do and stand for when it comes to patient care.

Which importantly includes data that shows the average length of stay across Acadia's hospitals is in fact in line with the industry average and below those in government and non-profit run facilities.

Speaker Change: Transcription by CastingWords

Behavioral health is complex, but it is clear that the need has never been greater for high-quality behavioral health care, given the severe mental health crisis that our nation faces.

It is estimated that more than 1 in 5 Americans live with a mental illness.

and one in three Americans with serious mental illness are still receiving no treatment.

Yet the United States has 40% fewer psychiatric beds per capita than comparable countries.

It's a disease that impacts every family in our country and every day our 23,500 Acadia employees help fulfill our mission to provide compassionate care that improves the lives of patients and their families.

Our facilities, clinicians, and practices are routinely subject to oversight and inspection by various agencies to ensure compliance with regulatory requirements, including but not limited to robust CMS guidelines on all aspects of patient care, documentation, and billing.

Speaker Change: To give you just a sense of the oversight at our facilities, consider that over the past five years, our acute psychiatric hospitals have been subject to routine inspections and surveys by independent third parties.

Speaker Change: and government agencies such as the Joint Commission, CMS and various state agencies an average of roughly five times per hospital per year.

Speaker Change: Like other well-run provider organizations, these hospitals are routinely subject to third-party audits, including chart reviews, both as part of routine regulatory reviews and part of our own internal compliance programs.

They are also routinely subject to oversight from third-party payers, with utilization management efforts taking place before, during, and after patient stays.

Speaker Change: This oversight ranges from payer's own clinicians rounding with local providers within our facilities to retroactive chart reviews and payer audits.

Speaker Change: I want to stress that this type of oversight is important to help ensure that patients receive the best care available.

Speaker Change: The work we do matters, and our clinicians often must make difficult, critical decisions about life-saving care on a daily basis.

Speaker Change: We also believe it is important not.

to perpetuate myths that psychiatric care is ineffective.

or even harmful. At Acadia, clinicians follow industry standard, clinically driven admission and discharge criteria, and we hold ourselves to an incredibly high standard.

Speaker Change: As we disclosed last month, in September, we received a voluntary request for information from the U.S. Attorney's Office for the Southern District of New York, as well as a subpoena from the U.S. District Court for the Western District of Missouri related to admissions, length of stay, and billing practices.

Speaker Change: On the same day, one of our acute care hospitals also received a subpoena from the Western District of Missouri regarding similar subject matter.

Since that time, the Southern District of New York has withdrawn its request.

Speaker Change: Furthermore, the Department of Justice, which issued the original subpoenas from the Western District of Missouri, has since withdrawn both of those subpoenas and is permitting the company to produce documents and information on a voluntary basis.

As the organization within the federal government tasked with law enforcement, the Department of Justice is leading and coordinating efforts on behalf of multiple federal agencies and departments investigating similar matters, any of which may make their own request.

The company recently received a subpoena from the SEC requesting similar information, and it's reasonable to assume that we could receive additional requests for information from other federal agencies in the future, as long as the investigation is ongoing.

We are fully engaged and will continue to work through this process.

Speaker Change: We believe strongly that quality care is foundational to everything we do.

Speaker Change: This is not new. We believe that quality, compliance, and safety, not only are important from a patient experience and regulatory standpoint, but also are simply good business practices in the best interest of all stakeholders.

I'd like to share some updates on our quality focus and efforts since I joined the company back in 2022.

For those who may have

patient and staff safety as well as augment care coordination.

As a result, our acute care hospitals today employ wearable remote patient monitoring systems to make sure we're doing the best job we can of keeping patients safe.

Speaker Change: Similarly, our hospitals have implemented wearable safety technology for staff that enables expedited response times and mitigation of adverse events.

We've also implemented software solutions that provide real-time tracking and oversight on clinical and quality operations at our facilities, including compliance with regulatory requirements.

You will also recall that psychiatric facilities were specifically excluded from the 2009 HITECH Act which provided billions in funding to hospitals and physicians for the implementation of electronic health records.

Speaker Change: As a result, the prevalence of EMRs in psychiatric facilities has lagged other parts of the healthcare industry.

In Acadia, we found that unacceptable, and over the past two years have been implementing electronic medical records across our acute hospitals.

This is enabling our clinicians to spend more time doing what they do best.

Focusing on patient care while enhancing our ability to leverage data and analytics as well as enabling our providers efficient access to care information to provide the very best in care.

Part of our quality reviews include an executive committee review, a peer review, and a review by the Joint Commission of Patient Charged, all of which are facilitated on a much more granular and simplified basis with EMRs in place.

Speaker Change: Transcription by CastingWords

Speaker Change: To highlight a few other areas of focus, two years ago we separated quality and compliance into two distinct specialized teams.

Our Chief Medical Officer and Chief Quality Officer provide direct oversight on patient safety.

Clinical Quality, and Regulatory Compliance Initiatives, while our Chief Compliance Officer provides direct oversight of our corporate compliance program, including ongoing chart audits to ensure accurate documentation, coding, and billing.

Speaker Change: Over the past two years, we have also implemented quality dashboards across our hospitals, and last year, implemented monthly quality reviews to hold leaders accountable for quality.

These efforts are resulting in better care, better outcomes, and better lives for our patients.

In 2023, for instance, 81% of our patients who responded to follow-up surveys, including involuntarily admitted respondents, reported feeling hopeful as a result of the care they received in our hospitals.

Speaker Change: And our payer partners have seen these results in their members as well. Many of our facilities have received Center of Excellence designation from some of the largest payers in the market.

I'd like to conclude by speaking briefly about our ongoing commitment to expanding access to life-saving treatment.

As I noted, there remains a significant unmet need for behavioral health care services in our country. Behavioral health-related deaths in the United States remain at or near all-time highs. According to the CDC, 49,000 Americans died of suicide in 2022.

During that same year, more than 100,000 Americans died due to drug overdose deaths.

Speaker Change: Meanwhile, the inpatient psychiatric industry remains fragmented and underbedded, a result of decades of underfunding and underinvestment that has exacerbated the supply-demand imbalance.

Speaker Change: Notably...

Speaker Change: Based on standard clinical benchmarks, it's estimated that approximately 75,000 additional beds are required across the country to meet estimated needs.

And according to SAMHSA, nearly 30 million Americans with mental illness receive no mental health treatment.

Put simply, the need for behavioral health care in this country is increasing while the number of available beds has been decreasing, creating a broadening gap and leaving those patients who need the most care unable to get it.

Speaker Change: So to meet that need, Acadia is in the process of investing billions of dollars to expand access over the next several years, including the expected construction of over 2,000 beds over the next two years.

Speaker Change: This continues to be an attractive use of capital, and we expect new bed capacity will help drive accelerating volume growth in 2025 and beyond.

We remain committed to investing to expand access to the high quality behavioral care that is so desperately needed in this country.

That would be an irresponsible use of resources that could be deployed where more acutely needed.

Therefore, as we have done historically, from time to time, we will take action to deploy resources or close facilities. During the third quarter, we made the decision to close two subscale satellite programs in one of our markets that together comprised 104 beds.

Speaker Change: With that, I'd like to turn the call over to Heather to discuss our financial results for the quarter and forward guidance.

Thanks, Chris, and good morning, everyone. For the third quarter, we reported $816 million in revenue, representing an increase of 8.7% over the third quarter of last year.

Same facility revenue grew 8.6% compared with the third quarter of 2023, which included patient day growth of 4.7% and an increase in revenue per patient day of 3.6%.

Speaker Change: Revenue for patient day excluding the CTC business, which as you will recall does not have associated patient days, increased 4.9 percent.

Adjusted EBITDA for the third quarter of 2024 increased 10.5% over the prior year to $194.3 million, excluding income from provider relief funds in the third quarter of 2023.

Adjusted EBITDA margin was 23.8% compared with 23.4% for the same quarter last year, an expansion of 40 basis points.

On a same facility basis, adjusted EBITDA margin increased 100 basis points over the prior year's quarter to 29.7%, excluding the income from the Provider Relief Fund last year.

Speaker Change: Adjusted income attributable to Acadia stockholders per diluted share was $0.91 for both the current and prior year period, excluding the income from the Provider Relief Fund in the third quarter of 2023.

Consistent with previous periods, adjustments to income for the third quarter of 2024 include transaction, legal and other costs, and loss on impairment.

Maintaining a strong financial position remains a top priority for Acadia, providing the flexibility to make strategic investments that are in line with our disciplined capital allocation strategy and support our continued growth.

Speaker Change: As of September 30, 2024, we had $82.1 million in cash and cash equivalents and $321.5 million available under our $600 million revolving credit facility with a net leverage ratio of approximately 2.5 times.

Moving on to our outlook for 2024, as noted in our press release, we have updated our previously announced guidance for the year, which includes.

Revenue in the range of $3.15 to $3.165 billion.

Adjusted EBITDA in the range of $725 to $735 million, and adjusted earnings per diluted share in the range of $3.35 to $3.45.

As we discussed on the second quarter earnings call, coming into the back half of the year, we expect same-facility patient day growth to accelerate into the mid-single-digit range. As you saw in our results, we achieved that in the third quarter with same-facility patient day growth of 4.7 percent and acceleration of 230 basis points over the first half of the year.

While volume growth in September remained above 5%, we have experienced lower volume growth than expected in October, with same facility patient day growth of approximately 3% for the month, which we believe is a result of the recent headlines and reporting in the media that Chris addressed at the top of the call.

As such, our revised guidance reflects expected 4th quarter year-over-year safe facility volume growth of approximately 3 to 4 percent, which is 200 to 300 basis points below our previous expectations for the quarter.

Speaker Change: We do expect this headwinds to be transitory in nature, however, and as we have been doing for some time now, we continue to engage with our referral sources and our local communities to ensure that we are addressing any concerns as they arise.

This change in our volume growth outlook for the fourth quarter resulted in a $20 to $30 million impact to our revenue guidance and a $10 to $15 million impact to our EBITDA outlook.

Transcription by Trans-Expert at Fiverr.com

Of note, our updated EBITDA guidance reflects the expectation that we will not make material reductions to the cost structure in response to the anticipated lower volume growth in the fourth quarter, as we do believe this recent disruption to be temporary.

Speaker Change: Therefore, we do not view the anticipated $10 million to $15 million reduction to fourth quarter EBITDA as reflective of the potential run rate impact.

Should lower-than-expected volumes persist longer than we anticipate, we will of course reduce facility-level costs accordingly.

Beyond these near-term headwinds, we are also highly confident in the future for Acadia, as we are on the cusp of a significant acceleration in capacity expansion.

As Chris noted, we have a large pipeline of over 2,000 beds under construction. This includes approximately 1,000 beds expected to open over the next few months, which represents an expansion of our inpatient capacity of nearly 9%.

We've also been able to accelerate certain construction projects ahead of schedule, and as a result, we expect to deliver multiple new facilities in the first half of 2025. You will see this reflected in our guidance revision for expansion capital expenditures.

Additionally, as Chris noted, our revised guidance reflects the exit of two subscale satellite programs in one of our markets during the third quarter.

Prior full year guidance contemplated approximately $17 million of revenue contribution and approximately $1 million of EBITDA contribution from these programs in the second half of the year.

Finally, as a reminder, 2024 guidance excludes any contribution from the Tennessee Supplemental Payment Program. Payments which we expect will be retroactive to July 1, 2024, upon program approval and implementation.

The company's guidance also does not include the impact of any future acquisitions, divestitures, transaction legal, and other costs, or non-recurring legal settlements expense.

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

We will now begin the question and answer session.

To withdraw a question, please press star, then two. Again, we ask that you please limit yourself to one question and one follow-up.

At this time, we will take our first question, which will come from A.J. Rice with UBS. Please go ahead.

A.J. Rice: Hi, everybody. Thanks for all the comments.

A.J. Rice: Obviously, as you're seeing this sort of deceleration in growth, I know 3% is still decent growth.

Speaker Change: and volumes. Thank you.

but obviously you'd expect it more, is that, can you give us, I know this is pretty granular, but obviously the question is, in light of the media,

Did you take a step down and then it seems like it's stabilized or has it subsequently deteriorated as you progress through the first part of the fourth quarter and it's still trying to figure out where the bottom would be? And is it concentrated in certain markets where maybe the New York Times had focused its article on?

Subsequent inquiries or is it more broad-based than that and I may have one more follow-up

Okay, thanks, AJ. Thanks for the question. I'll start with your question about sort of the step down and what we saw. We did see that step down beginning at the start of October, and we saw that run pretty consistently throughout the month of October. So to answer your question, we didn't see a continued decline throughout the month. We saw relatively stable volumes for the month of October.

In regards to your question about sort of any concentration or where we saw this, you know, we do, as I mentioned, expect that that the recent news coverage and the news of the investigation has had some moderating effect on the growth, but it's early days.

We see this as largely temporary and we've been working with our partners to sort of identify any specific questions that they have.

Okay and maybe just you've obviously got a number of JV discussions in the pipeline some that have been announced and you've also worked hard to get your recruitment of clinicians there. Are you seeing any impact in either of those areas from the from the news articles and inquiries?

Chris Hunter: This is Chris. Thanks for the question. You know, I would say on the JV pipeline front, we continue to just have a really robust pipeline, as you would expect.

Speaker Change: You know, we have.

Speaker Change: Given that we have 21 JV partners, those that have been with us for some time, and you remember that we actually have multiple facilities with many of these partners.

that we're talking about adding additional facilities to.

Speaker Change: You know, our pipeline looks good. I think they're, you know, further down in the pipeline. Clearly, there are questions that come up.

across the board. And I think that's the case with employees as well. But I think we have done a really good job as a company this year, continuing to talk about all the investments that we're making on the technology front, continuing to work hard on our employee engagement. And we've actually been very encouraged by our ability to continue to attract and retain talent.

Transcription by Trans-Expert at Fiverr.com

And our next question will come from Whit Mayo with Lyrinc Partners. Please go ahead.

Whit Mayo: Yeah, thanks. I appreciate the comments. I was just hoping maybe to, if you guys could maybe provide a little bit more color as to, you know, your preliminary thoughts around

2025, I heard Tennessee DPP comments, Chris mentioned, I think, accelerating growth with the bet additions as they feather into the business. Anything to share, just headwinds, tailwinds, and maybe any preliminary thoughts around the startup cost that we might have in 2025, thanks.

Hi, Whit, I'll take that. So I'll maybe talk about a few different categories here. But let me start with with volume, and then I'll move on to you know, rate and then you know, finally, your question about startup costs and the impact of the bet additions.

Speaker Change: So, of course, you know, we're not going to give guidance today. It's a little early for that. We'll give that sort of in another few months.

Speaker Change: So I won't attempt to size this, but I'm going to give you some of my thoughts. So what I would say is, you know, going back to the first quarter in regards to volume, we talked about an expectation of volume improvement over the course of the year, and that's what we've seen.

Volume growth improved throughout the second quarter and then into the third quarter. As you can see, we were back in the mid-single-digit volume growth range, and we exited the quarter in September above the 5% same-store volume growth rate. So that continued acceleration that we expected that we saw coming through.

And while that growth stayed above 5% in September, you know, as I just discussed in the prepared remarks, we've seen some moderation.

Speaker Change: to that volume growth in October. And, you know, again, we believe that's a result of the headlines and the reporting. But we are seeing October run at around 3%. And that's about 200 to 300 basis points below where we would have expected to be.

You know, as we mentioned, we think that's temporary. So as we look forward to 2025, we don't know the exact timing, but certainly we would look to be back on track throughout the year, but we'll need to wait and see where we exit at the end of the year.

Speaker Change: And then of course, you know, don't forget, as you know, as we know, from a volume perspective, we expect the benefit from the continued ramp up of beds that we added over the last several quarters to continue to come through.

Speaker Change: Those new beds that are expecting to contribute to, you know, come

contribute and come online in the coming quarters will continue to ramp and they'll continue to contribute to the growth over the course of 2025. So the volume that we expect will come back based on what we're seeing now and then combined with the volume from the incremental beds.

From a rate perspective, you know, we continue to feel really good. As you know, the states are continuing to just invest in psychiatric care, which has, you know,

long suffered from the lack of investment. And the conversations with our payers continue to be positive.

Tennessee is the latest state that's on the path to improving reimbursement and we're very optimistic that we'll see that that net benefit next year once the program is approved. There are other states that we think may follow but the timing of those are a little less clear than the timing indications we have for Tennessee.

Speaker Change: And then, as always, it's been the case, you know, the timing of supplemental payments can be uncertain. For example, we expect Tennessee will be retroactive to July 1.

So there's likely going to be some sort of an out-of-period benefit associated with that and we'll call that out once it's approved, but we just have to continue to wait and see on the timing.

Speaker Change: So overall, as we said in the past, we continue to expect rates to normalize back to the low mid-single-digit range at some point in the future, but it doesn't seem like we're going to see that happen in the short term.

And then maybe finally, I'll talk about startup costs.

As you know, this year we have embarked on a pretty significant step up in the investment in bed growth over multiple years, and I think as you all are aware, the start-up cost is another factor that we need to think about for 2025. Just a reminder, we have over 2,000 beds currently under construction, and in total we expect to complete construction on about 1,200 for the full year this year.

And of course, we have a pipeline of the opportunities that we continue to see, and then we'll backfill that construction pipeline and pull things in as soon as we can. The pace of bed additions this year is a material step up over the prior year.

versus the five to six hundred beds that we've added over the last few years each.

Finally, as we discussed back in February, this year's bed additions are also disproportionately weighted towards the end of the year.

Speaker Change: If you'll recall, our initial guidance included startup costs of around $20 to $25 million in total, which was roughly flat relative to 2023 due to the back-end loaded 2024 cadence.

And as we've talked about previously, the startup cost for the 2024 class of Denovo's will mostly fall in 2025 due to the back-end timing.

So with the number of new beds being added this year roughly doubling, that will result in a new step up in the starting costs beginning next year, particularly in the first part of the year.

It's too early for us to provide numbers on that today, Whit, but, you know, in part because that 2025 cadence and cost amount is going to depend on the timing of the openings of the bed additions, and it's a little too early for us to have those specifics. But, you know, hopefully this at least gives you a framework of how to think about it.

Whit Mayo: You know, of course.

We'll expect that those new beds will ramp towards breakeven over the course of next year. And by the end of 2025, we'd expect them to be contributing to the EBITDA growth, and by that point, we'd also be rolling them into the same facility bucket, so they would contribute to the same store volume growth as well. And then beyond 2025, we would expect startup costs to level off, if not outright decline. And at the same time, we would expect to have the continued benefit of those new cohorts of beds over the past several years, ramping throughout that period.

So that was a lot, Whit. I hope that answered your question and gave you some sort of insight. Not really. Yeah, not really. I mean, like, 20 to 25 is what we had this year. I mean, you have a pretty good idea of timing factors as it relates to the opening of some of this. I mean, 30, 35, 40. I mean, like, any help within a range as to, like, what we could see?

Whit Mayo: Transcription by CastingWords

Speaker Change: No, you know, I appreciate the question. I think it's just too early for us to put a number on it. I would just, you know, point to the factors and how the cohorts stack up with the beds, sort of, from last year, this year, and next year coming into confluence, and then the timing of those beds that are back-ended this year versus a more moderate pace next year.

And our next question will come from Brian Tankulat with Jeffries. Please go ahead.

Hey, good morning. Chris, maybe just circling back to the conversations you're having with the referral sources and your JV partners. I mean, obviously, you have a lot of referral sources, right? So if you can walk us through what that looks like and so far, what's the feedback? And are you seeing any change in behavior from those referral sources at this point?

Whit Mayo: At this point.

Yeah, thanks for the question, Brian. I mean, as you can imagine, I mean, we've been

Chris Hunter: highly engaged with outreach to really multiple stakeholders. I mean, certainly, you know, key referral sources as well as JB partners for the last several months. You know, I would also say that we all know healthcare is local and with so many of these

Literally thousands of referral sources, you know, being on the ground across the country.

Whit Mayo: You know, we've had to be even more deliberate about the outreach, I think particularly to shore up any misunderstandings that sometimes have been, you know, the case due to media reporting. And so, you know, we've been really consistent.

about emphasizing the quality of the care that we provide, the investments that we're making in safety, compliance, quality over the last two years, which is nothing new. We're just reaffirming that. And, you know, we placed a lot of emphasis on ensuring that our most important referral sources.

Whit Mayo: understand these facts and understand where we believe that we you know the some of the media reporting has been inconsistent or inaccurate and so you know and that's with referral sources as well as JV partners.

Whit Mayo: You know, I would say when we sit down and we present them with the five key points from the recent release that I, you know, cited the website quality.acadiahealthcare.com, the setting the record straight that's in our, that was in my prepared remarks.

There's kind of five key points that we take them through that seem to be resonating. The first is that patient care decisions, including whether treatment is necessary and for how long, are medical decisions that are made by licensed providers.

Whit Mayo: The second is that the average length of stay at Acadia Acute Hospitals is in line with national averages. The third is that independent third parties make the initial determination that a patient requires hospitalization and evaluation.

Whit Mayo: The fourth is that our hospitals are highly regulated and required to meet policies and standards set by federal, state, and local governments. And then finally, you know, it's widely recognized within the medical community that discharging psychiatric patients, particularly those that are a danger to themselves or others,

These really tend to be a little bit more correlated with intense local media coverage within that facility's local market rather than, you know, any broader news at the national level. And so, you know, we've only been experiencing this as we've said in the prepared remarks over the past month.

Whit Mayo: Person when we can and then we have the right programs in place, you know with these referral sources going forward as well as our JV partners And I think any opportunity for us to to meet in person and to have even greater touch points is something that we're just very focused on literally on a daily basis

So I hope that helps

That would help. And then maybe, Heather, you mentioned in your prepared remarks that

The volume impact and even does like 10 to 15 million. I think you cut the midpoint by 20. So just curious, what's the bridge there? And then how should we be thinking about, you know, the levers that you can pull if this volume weakness persists into 2025, like, you know, from a staffing or capacity perspective?

How easy or what does that look like?

that we were looking at when we made the decision, you know, we exited September, same store,

Whit Mayo: Patient day growth.

Whit Mayo: Over 5%.

which was a significant acceleration over the first half of the year, as we expected.

And originally, of course, we would have expected that to continue into Q4, as we accelerated on those even further. Whenever we exited, or as we exit October, we are expecting around 3%, so a drop of 200 to 300 basis points from our expectations. So that is what drove that $10 to $15 million in EBITDA reduction for the balance of the year.

What I would say is that on top of that, we had, you know, a couple of other things that were moving throughout there, you know, there was a little bit of impact from the hurricane, just a couple million dollars, although it did have some impact on the cadence of some of our construction projects.

And then there was about a million, as we mentioned, in the prepared remarks related to the closing of those satellites.

Whit Mayo: Facility beds during the quarter. But that's really that's really what drove that.

Maybe just to the second part of your question in regards to leverage, you know, we mentioned or I mentioned in the prepared remarks that

The Revenue Guide was coming down related to that volume discussion by about $20-$30 million, and the EBITDA related to that was about $10-$15 million, so that's a higher impact proportionately on EBITDA than on revenue for what you would normally expect to see from us.

And that is certainly the area where if this were to become a longer term impact, we would look to make the appropriate revisions there to the cost structure. But as we mentioned, because we do feel this is temporary, we have not made some of those more significant changes to our cost structure, and we remain ready to welcome those patients

Speaker Change: All right. Thank you.

Speaker Change: And our next question will come from John Ransom with Raymond James. Please go ahead.

John Ransom: Hey, good morning.

Just going back to this referral management issue.

How much more work do you think you have to do to kind of parry the initial flurry of effect and then how long are you giving yourself?

To where you would say, okay, this, this just seems like we may have lost some, you know, permanent two, 3% of our referrals. I'm just trying to get a sense of timing on this.

Speaker Change: Yeah, John, I would just say, I mean, this is something that we continue to work on every single day. It's just really difficult for us to put

You know, a time parameter on that.