Investor Update

May 30, 2019

Slides

Please standby. We are about to begin. As a reminder, this call is being recorded. Please proceed. Good morning. Before we begin the call, I'd like to read the following disclosure statement. This 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 growth strategy and expected quarterly and annual financial performance for 2019 and beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Acadia's filings with Securities and Exchange Commission, and consequently, actual operations and results may differ materially from the results discussed in the forward looking statements. The company undertakes no obligation to update publicly any forward looking statements whether as a result of new information, future events or otherwise. Thank you for joining us this morning to discuss the completion of the strategic review of Acadia's business portfolio. Today, we will provide the results of that review as well as cover other important topics. For those of you listening to the live broadcast of this conference call, a supplemental slide presentation has been posted to our website. We will refer to those slides during this call. Joining on the call from Acadia are Reeve Wadd, Chairman of the Board of Directors Debbie Osteen, Chief Executive Officer and David Duckworth, Chief Financial Officer. We are very excited to share the results of the strategic review and have a lot of important information to cover. So with that, let me introduce Reeve, who will provide an overview of strategic review process before Debbie Osteen, Acadia's CEO, discusses the findings. Thank you, Gretchen. Good morning and thank you all for joining us today. Before Debbie takes us through the outcome of the strategic review process, I want to say a few words about the Board's perspective on Acadia, our strategy and why we remain very confident that our company has a bright future. When the Board asked me to return as Chairman in December, it was clear that as a company, we needed to redouble our efforts to deliver excellent care for our patients, value for our shareholders and opportunities for our employees. As a first step, the Board brought Debbie in as CEO, which was an excellent move and Acadia is benefiting immensely her experience and expertise. Together with Debbie, we are driving improvements throughout the organization with an unrelenting focus on excellent patient care at all of our facilities. The Board has an unwavering commitment to be the leading behavioral healthcare company in our industry in quality and patient care. We believe that by achieving this, we will be able to deliver significant additional value to our shareholders. Since Debbie joined Acadia, she and her team in consultation with the Board have been evaluating our business and the markets in which we operate. With the help of a 3rd party strategy consulting firm, we conducted a thorough, in-depth strategic review to determine the best way to deliver value to all of our stakeholders. With the review now complete, the Board is confident that we now have an aligned strategy to drive value by developing and executing on a plan that will provide excellent care to the many patients that come to Acadia facilities for help. With that, let me hand the call over to Debbie Osteen, our CEO. Debbie and David Duckworth will then be available to answer your questions. Thank you, Reed. Good morning, and thank you all for joining us today. The Board of Directors hired me 5 months ago to drive improvements throughout the organization with an unrelenting focus on excellent patient care at all of our facilities. That is and always will be Acadia's firm commitment to our patients, their families, our employees, our shareholders and to the public. Though my conversations with employees and stakeholders have reinforced my belief in Acadia's strong position, I recognize that there is more work for our team to do. I am pleased to report that we have completed the first phase of the strategic review, which our management team launched with our 3rd party strategy consulting firm in mid March. The strategic review concentrated on evaluating the core of Acadia's business by focusing on our portfolio strategy, determining the future, shape and direction of the entire business, including the UK business line, and identifying opportunities for operational improvement. Throughout this process, we have been singularly focused on one goal, creating a future strategy and identifying related actions that will deliver enhanced shareholder return, while positioning the business lines for growth going forward. The following are the findings of our strategic review, each of which I will discuss in greater depth. 1st, we are well positioned and a diversified leader in behavioral healthcare with plans to grow and improve operational efficiency. 2nd, our Board of Directors will explore strategic alternatives with respect to the UK operations, including a potential sale. 3rd, we have identified and targeted areas in the U. S. For operational improvement based on a review of our business lines. And 4th, our capital allocation framework will identify and prioritize future opportunities and create the financial flexibility needed to accelerate Acadia's growth. Moving to Slide 5, since I assume the position of CEO, I've had the pleasure of working with a strong leadership team and dedicated employees across the organization who have been instrumental in getting Acadia to where it is today, a leading pure play behavioral health care company. Our goal is to identify any weaknesses and to continue to build upon our success to enhance value for our shareholders and other stakeholders, including our employees and patients who use our vital services. We have a very strong platform to build on, including a culture that is predicated on providing the highest quality care, a set of unique and valuable assets in both the U. S. And U. K. That are a critical part of delivering a high quality evidence based continuum of care an experienced team that has executed well on growth in the U. S. And built a diverse and difficult to replicate portfolio with leadership positions in large, fragmented and growing markets. A clear path to improve margins and our business mix in the UK regardless of the outcome from the strategic review process and a long term opportunity to continue to build a best in class behavioral healthcare company and to play a natural role as an industry consolidator from our position of strength. After our comprehensive review, we have reached the following conclusions on how to best position Acadia for the long term and increase growth and profitability through operational improvements in the near term. We have identified the following the Board of Directors has decided now is the right time to explore strategic alternatives, including a potential sale of the UK business. As a final review, we have identified cost and revenue by operating in a more standardized, integrated and disciplined way. And finally, while we are currently somewhat constrained by our relatively high debt level, our capital allocation framework is focused on increasing returns and prioritizing best opportunities, which will lead to delivering results. Turning to Slide 7. As I mentioned earlier, we have decided to explore a potential sale of the UK operations. The Board will evaluate a potential transaction expeditiously and ensure that any transaction maximizes shareholder value. And while there's no guarantee that a transaction will occur, we are fully committed to this process. Following today's call, we do not plan to make any further statements about the U. K. Process unless or until our Board determines that further disclosure is necessary or appropriate. I will say that as we conducted our review, it has confirmed the strength and attractiveness of the UK operations. The business has an enviable leadership position in the European behavioral market with numerous valuable characteristics, including being a clear market leader in an attractive market with strong fundamentals and a strong asset backed portfolio. Our U. K. Business has stable financial results with operational opportunities for improvement, and we will continue concurrently to focus and implement actions to improve the business and maximize value. Slide 8 provides an overview of Acadia's market leading and resilient UK business. The business has a long term growth trajectory with numerous opportunities. Acadia is the clear market leader in terms of revenue, quality and brand recognition, servicing a $19,000,000,000 mental health market where approximately 8,700,000 people currently have mental health disorders. Here, we are the leading independent provider in the behavioral health care market. We currently operate 370 behavioral health care facilities with 8,800 beds across England, Wales, Scotland and Northern Ireland. The sector has numerous attractive dynamics, including a large addressable market, demand driven by demographics, diagnosis and less stigma, and a growing private pay sector. We have a diversified revenue stream from healthcare, adult care, education and children services and elderly care that brought in approximately $1,100,000,000 in revenue in 2018. Furthermore, our unique service offerings enable us to address highly acute individuals and achieve positive clinical outcomes. We maintain a strong clinical reputation and we have an unrivaled brand awareness that enables us to attract high quality healthcare professionals despite U. K. Labor shortages. Slide 9 provides an overview of the business improvements that we have identified on the revenue and labor side for our U. K. Operations. Regardless of the outcome of our evaluation of strategic alternatives, we are confident in the opportunity for revenue and margin improvement in this business. On the revenue side, we believe that we are well positioned to drive a sustained collaboration with NHS to deliver on the transforming care agenda and the new care models. We are well positioned to cultivate trusted relationships with the NHS to receive preferred contracts with NHS entities. We believe we will continue to receive rate growth that is more in line with inflation and the cost of providing care. We also have the ability to retool facilities to address higher acuity patients by geography. We will continue to maintain our focus on quality and expand our ability to provide the full continuum of care. We are positioned to maximize private provision across existing and new services, and we will continue to utilize our new sales and marketing platform to drive occupancy across all service lines. On the labor side, our goal is to build and retain a best in class workforce. We will maintain our strong reputation as a great place to work. Our goal is to reduce reliance on higher cost agency labor and we have mandated use of preferred agency vendors. Over the past several months, we have increased recruitment support and strengthened retention efforts across all service lines. We recently reduced management layers of the organization to more quickly respond to issues. We will now provide an overview of our 4 major service lines in the U. S. And lay out the roles that each service plays within our portfolio. As you've heard me say before, one thing that makes Acadia unique is the diversity of its behavioral service lines. Our review has underscored this viewpoint. During our review, we have also identified several areas of improvement, which I will outline. While we are continually striving to improve, it's important to point out that Acadia is a leader in the 4 major sectors that we operate in, and we expect to continue to build upon this position. Turning to Slide 11, Acadia's acute service line is our largest by revenue with approximately 810,000,000 dollars in 2018 and accounted for 43% of total 2018 revenue. We are a leading provider in an approximately $15,000,000,000 market with projected growth of approximately 2% annually, bolstered by a reimbursement tailwind. We have demonstrated an ability to grow the business through bed expansions, de novo and JV builds. We have added more than 1300 beds to our acute facilities since 2010. We have successfully opened 6 de novo facilities with plans for additional markets. We also opened 5 facilities with an additional 3 under development with our JV partners and continue to have a healthy pipeline of potential partners. Our review has confirmed our confidence in the ability to continue to grow this business. Acadia's specialty service line is our 2nd largest by revenue, with approximately $450,000,000 in 2018, which accounted for 24% of total 2018 revenue. This too is a large and growing market of approximately $16,000,000,000 with projected growth of approximately 4% annually, bolstered by reimbursement changes that are driving growth as more people can afford access to treatment. Our Specialty Business segment has a strong and diverse portfolio in a fragmented market and a favorable payer mix with approximately 65% of reimbursement from commercial with a significant in network coverage of close to 80%. We are well positioned in the market due to our structural competitive advantages, which includes our highly specialized facilities, consistent high quality service offering, national clinical referral network, and cross referrals with acute facilities. In both of our acute and specialty service lines, we believe that we have additional opportunities through continued development of outpatient services to expand our continuum of care and to further improve patient outcomes and continued expansion of telehealth to provide broader treatment options. Turning to Slide 12, Acadia's CTC business is our 3rd largest by revenue with approximately $310,000,000 in 2018 and it accounted for 16% of total 2018 revenue. We are a leading provider of medication assisted treatment with 125 locations focused on delivering comprehensive care, and we believe this base will allow us to expand and offer other treatment options. The segment is additionally bolstered by favorable reimbursement trends, including expanded funding in Medicaid and new coverage for Medicare. Business line highlights include early success with expansion of Suboxone treatment at approximately 75% of our facilities. We are also the largest provider in opioid treatment driven through acquisitions and recent builds. Acadia's RTC business is our smallest by revenue with approximately $290,000,000 in 2018, which accounted for 15% of total 2018 revenue. This service continues to demonstrate consistent returns. Our RTC facilities have a strong presence in our existing markets and offer unique specialized programs for our patients. Going forward, it is our plan to be very selective with deployment of capital in the RTC business. Turning to Slide 13, we provide an overview of our strategies to enhance top line growth and the decision making framework for each of the options. Our first growth area is facility expansions. Through market support and demand for new services, we will continue to expand our facilities in all of our service lines. For our acute and specialty inpatient facilities, we will expand our existing facilities through bed additions. For our CTC service line, we will continue to add capacity at our existing clinics. The second growth area is our JV partnerships. It is clear that to succeed in today's healthcare environment, strategic collaborations, alliances and partnerships are critical. Acadia has established a dedicated department and framework to target the development of JVs in markets with favorable reimbursement. In those markets, we target working with a health system who has a strong local brand and an existing patient stream. JV partnerships help expedite ramp up of new hospital operations through their contributing behavioral health service line. Additionally, we can better integrate physical and mental health services into holistic programs. 3rd, de novos. We plan to expand into new geographies through acute and CTC facility builds by targeting de novos in underserved markets with a clear indication of unmet need. We target markets with a broad, diversified referral source base and favorable payer mix and reimbursement rates. 4th, M and A. We will evaluate the potential for growth acceleration through M and A, adhering to the disciplined return model we have developed in our capital allocation framework. We look for an established business with strong local brand, ensuring the facility fits within our portfolio by opening access to a new geographic market or providing synergies and complementary services in an existing market. Additionally, we must see opportunities for revenue and margin growth through operational improvements and ability to add beds. Our operational improvement initiative will enhance our ability to be effective across these strategies. Turning to Slide 14. Since 2014, Acadia has rapidly grown from 54 facilities to 223 facilities in the U. S. Over that period, we have improved operations at acquired facilities by expanding margins and improving quality. Given our size, we believe additional operational improvement opportunities exist due to increased scale. We are developing action plans for several areas of potential improvements with the goal to maximize value over time. In the first area of procurement, we plan to leverage our purchasing volume and optimize in source and outsource opportunities. The second area is shared services, where we expect to centralize and standardize certain back office operations. In addition, we want to further expand our sales and marketing platform. In the 3rd area of contracting, we plan to utilize a centralized database for all contracts, prepare value cases to payers to support favorable rates, and provide assistance to our facilities in rate negotiations from our team at corporate. And the 4th area is internal referrals, where we want to leverage our treatment continuum to expand referrals across facilities where appropriate. Through our initial review of potential operational improvements, we expect an estimated $20,000,000 to $25,000,000 savings opportunity to be implemented over the next 2 years, including estimated costs to achieve. Now, I will turn the presentation over to David Duckworth, Acadia's CFO, to discuss our capital allocation framework. As discussed earlier in the presentation, Acadia's current assets produce significant free cash flow and offer a variety of opportunities to create value. Our capital allocation framework will focus on 3 buckets organic growth opportunities, debt reduction and potential M and A. Organic growth investments include expansions of existing facilities as well as de novo and joint venture projects. Investments in these projects must meet strict criteria with clear strategic rationales that are aligned with that service line and its role in the overall portfolio. We will assess opportunities based on our decision making framework previously discussed. Our decision to enter the UK market has led to a somewhat levered balance sheet that must be addressed if we want to continue our growth and have greater financial flexibility. We believe earnings growth and our mandatory debt repayments play a part in improving our credit profile. And additionally, a potential sale transaction of the UK business and ongoing evaluation of debt repayments could further improve our financial profile. The final bucket in our capital allocation framework is targeted M and A. Here, free cash flows along with the capacity from a lower leverage ratio would fund opportunistic tuck in M and A in targeted markets within specific service lines. We will utilize a disciplined M and A approach driven by longer term business strategy and return requirements. Successful integration will be a key in maintaining growth and margin profiles. Additionally, as noted in an 8 ks filed this morning, we affirmed our financial guidance for the full year 2019 that was detailed in our April 30 earnings release. I will now turn the call back over to Debbie to review the final slide. The following slides, Slide 16, provides you with an overview of our strategies for the company as a whole to focus on our continued growth. We have a strong focus on quality. This entails focus on delivering high quality care and maintaining compliance with industry regulations, utilizing evidence based practices across all treatment settings and patient populations an emphasis on data driven decision making to promote best practices, demonstrate results and address emerging value based payments and expanding our outcomes measure initiative throughout all service lines. We are focused on solidifying the core of our business. This entails exploring strategic alternatives in the UK, implementing operational improvement plans in the UK and the US, continuing our leadership position in the industry with quality treatment and patient outcomes. These near and midterm objectives will be implemented concurrently when possible so as to expedite and maximize shareholder returns. In the future, our priorities are centered on pursuing a robust growth path. This entails increasing financial flexibility through deleveraging, making selective growth investments with focused return on capital discipline, and solidifying our role as a best in class behavioral healthcare company. We believe by achieving these goals, Acadia will maintain its position as a leading behavioral health provider with exceptional operational performance, high quality care and market leading growth. This concludes our prepared remarks. I will now ask the operator to open the line for your questions. Thank And we will take our first question from A. J. Rice with Credit Suisse. I might just ask a little more in detail about your thinking around the UK operations and the decision to put that on the block now potentially. Can you just comment, is you've mentioned several different things that could be behind that. 1, a desire to have enhanced flexibility financially and deleverage. Obviously, you've got, managerial control. There's, the macro issues over there. I don't know whether you've gotten expressions of interest from 3rd parties. I guess just trying to frame what is driving the decision right now, because it seems like it's stabilizing and frankly has the potential for operational improvement over time. And so just trying to understand, what are the drivers behind making the decision now to move forward in that direction? And, yes, I guess that'll do it. And maybe just your criteria on evaluating whether you would be in fact go forward with something here. You mentioned that you wanted to be a positive for shareholders, maybe anything on that? Okay. A. J, I think that what we want to do with this process is consider all our alternatives in the context of shareholder value. I mean, we have a very strong business and there has been interest. At the same time, we are going to remain very disciplined in this process and we're only going to transact if we feel it creates value. We do believe that we have a strong business and there are improvements that we can make and are making. So at this point, we're going to evaluate all of our options and we want to speak to any potential interested bidders, but at the same time, we will only do so in the context of maximizing value for the shareholders. Clarify that. I don't know it's a one question, but there are different business lines in the UK. Is the whole business on the market or would you consider maybe if you got an attractive offer for one piece of it, is that a possibility as well? I mean, at this point, I don't think we're prepared to discuss our process or how we're going to undertake that. We will be moving expeditiously really to evaluate how a transaction might occur and also interest levels, but we don't feel that at this point it's appropriate to comment on the detail of how we might sell the business. Okay, great. Thanks a lot. Okay. Thank you, A. J. Our next question is from Brian Tanquilut with Jefferies. Hey, good morning. It's Jason Plagman on for Brian. So I noticed, it sounds like an increased focus on paying down debt and reducing leverage. Do you have a targeted longer term level of debt leverage you'd like to get to over the next few years? Jason, this is David. Good morning. We do have a goal of lowering our leverage and the earnings growth and debt repayment that we already have planned for 2019 as part of that. We are not yet providing our longer term leverage target, but we will have more information on that going forward. Okay. Thanks. Our next question is from Kevin Fischbeck with Bank of America. Good morning. This is actually Joanna Gajuk filling in for Kevin. Thanks for taking the question. So just switching gears to the U. S. Business. So UHS has been growing their SAC business in 3% range or so, but they've been targeting a 5% growth. So how should we think about Acadia's U. S. Business outlook? You clearly talking about you've been growing faster than UHS has started and I guess now you talk about even improving that growth. So how should we think about sort of the near term growth for the business and also long term growth? And maybe within that, you can talk about kind of the outlook by business line, like some of those lines you expect to grow faster than others? So any color there will be also very helpful. Thank you. Well, I think I have mentioned before that the business service lines within Acadia are much different than the UHS business lines. There are some certainly common factors in the acute area in RTC. But I think that as we look at our business here at Acadia, we believe that because of the diversification, because of how our businesses are set out across geographies that we really have a very strong position. And I'll let David talk a little bit about where we project the short term revenue growth to be. But we feel very strong that we're going to continue at the levels that you've seen from us. And hopefully, as we execute on some of the things that we talked about in our strategic review, we'll see those numbers increase. David? And to add to that, as Debbie mentioned, we do have growing service lines. We also have multiple pathways that we mentioned around bed expansions, joint ventures and de novos. And so with that, we do believe that we can generate high single digit revenue growth in the U. S. And that's in a range of 6% to 8%. And then of course, as we think about any M and A opportunities, especially as we think about an improved capital structure, we do think we can enhance that revenue growth to the double digit range. That's helpful. Thank you so much. We will take our next question from Pito Chickering with Deutsche Bank. Good morning, guys. Thanks for taking my questions. Two different questions here. Looking at the UK business, obviously selling assets outright one option here. I guess the first question is number 1, are you guys currently in discussions and are the books out for the UK assets? And number 2, if you guys don't sell the assets outright, have you considered breaking that out into a REIT, then OpCo as a way to monetize those assets? Thanks so much. Pito, we're not going to be commenting on the process and giving any detail about that. I'll let David talk about the real estate option. We certainly, as we did our review, we've considered, I think, a very comprehensive we've considered it in a very comprehensive way and we've looked at really a variety of alternatives. And I think at this point, the Board would like to look at those alternatives and there are a variety of things that we might do, should the business not sell. But at this point, we're going to focus on trying to get a process moving as quickly as we can. We want to evaluate as we do that process and go through it all of our options and we will be giving more color around that as appropriate. Yes. And then, Peto, just to add to that, the real estate is an important asset in our U. K. Business. Over 80% of our facilities in the UK are owned. And so we do believe that's an important part of the business. And of course, that will be part of the alternatives that we review as we think about what's best for the UK business. We also believe it gives strength to a potential buyer because it is such a strong asset backed business. Thanks guys. We will take our next question from Ryan Daniels with William Blair. Hey, guys. This is Nick Spiekow in for Ryan Daniels. Just going out, so the $20,000,000 $20,000,000 to 25,000,000 dollars in savings over the next 2 years, it looks like kind of with reiterating guidance that you're focusing more on that maybe in 2020. I was just wondering if there is any more near term benchmarks you guys would be looking to hit or if it's still fairly early in the process there? I think we're just beginning our review. We have identified the areas that I talked about in the presentation, but we're undertaking a Phase 2, which will really look at other areas of opportunity. And we're hopeful that we will and we believe that we will find other areas for efficiency within the operations. Our $20,000,000 to $25,000,000 is based on an early look and it really is just starting a process for trying to use our scale for operational efficiencies. Great. Thanks guys. Thank you. We will take our next question from Whit Mayo with UBS. Hey, thanks. Good morning. Just curious when you look at the I guess this first review, did this really change anything looking at your 2019 or your 2 year budget in the U. S? I mean, are you rethinking debt additions? I mean, I'm just not really sure what exactly has changed as you think about what you learned in your first phase of this review and then what that means for your internal plan over the next 12 or 24 months? I'll say the review, as Debbie mentioned earlier, confirmed the strength of the U. S. Business and confirmed the opportunities that we've had around bed expansions, joint ventures and de novos. We do think that there could be an opportunity to further enhance the opportunities there. But for the most part, the review just did confirm the strength of the U. S. Business and also identified opportunities for operational improvements. I will add, Whit, and good morning. I think that the other thing that we have as part of this review and also are going forward is we are going to be more disciplined about our use of capital and also our evaluation of potential opportunities. And while we've confirmed that we're in the right service lines, we also have adjusted some of our thought process and also our models here around that discipline and how we choose to allocate capital within the service lines. Okay. That's helpful. And then of the $20,000,000 to $25,000,000 of savings in the U. S, is there a timeframe that we should think about this like 2 years starting? Do we model this starting in the second half of this year? Is this something that's really beginning in 2020? And then David, it might be helpful if you could perhaps decompose the savings into the 4 buckets just to give us a sense of where the savings and the growth will come from? Well, we are moving forward with a further evaluation of the savings, as Debbie mentioned. There's other areas that we will be looking at in addition to the examples that we provided. And so the way I think about it, there may not be an immediate impact, say, in the Q3. So we do see 2020 as the opportunity to start to realize some of the savings. But we, at this point, are not breaking that down and are really in the early stages, but are excited about going into more detail in the coming months around these opportunities. I'll just say too, we see some immediate things that are evident from this initial review with regard to procurement and other things that we're going to start and have started to look at. We, at this point, have some gaps in areas where we do need to add resources, but at the same time, we plan to implement these as quickly as we can. And some of them will be more of a process. There will be some things that I think we can do very quickly. Okay. No, I just want to make sure that sometimes we can double count numbers and just wanted to be sure that like the $20,000,000 to $25,000,000 this is something that's like out of the normal course of operations that you've identified as total incremental that should drive incremental growth in the out years, nothing that you would have already identified as an organic growth opportunity? I just want to make sure that we're thinking about the $20,000,000 to 25,000,000 dollars appropriately? I mean, if they the $20,000,000 to $25,000,000 is incremental and it's not currently in our model. Okay. Great. And I got one last one for you, Debbie. Are you thinking any differently about clinical IT and any investments that you may need to make there? I mean, I think one thing with behavioral is the industry has just traditionally done a terrible job on providing outcomes and quality. And how do you think differently about maybe making some investments into those areas over the next few years? And I'll hop off. Thanks. That's actually part of our Phase 2 is looking at our IT operations of what we have in house and what we outsource, but also what we need to drive our quality metrics. We want to prepare for value based payments going forward and one of the areas that I think is key is the IT area. Okay, great. Is Phase 2 the last phase or are we looking for a Phase 3? Right now, I'm dealing with Phase 2. And I think that really part of Phase 2 is really looking at who do we need to accomplish some of our plans and do we have the right people in place. We have an excellent team here that are all very focused on this, but we want to make sure we have appropriate resources to execute on the plans and the operational improvements. Great. Thanks for the call. Really helpful. Thank you. We will take our next question from Kevin Ellich with Craig Hallum. Hey guys, thanks for taking my questions. Actually just following up on Whit's line of questioning. I understand that $20,000,000 to $25,000,000 of cost savings is net, but how much investment or what sort of areas do you need to invest in to achieve those cost savings? We as Debbie mentioned, we do plan to review each of the opportunities and identify the resources that we need to achieve those in terms of the people, the processes, the systems. And so we haven't quantified that in total, but are looking at each opportunity and what we need and we'll be reviewing that over the coming months. Got it. And then one thing I just hope you could provide a little bit more color on it. Under the procurement section, understand we all understand leverage purchasing volume, but can you give us an example of optimizing in source versus outsource opportunities for procurement? Any detail there? I think under first of all, we are a participant in a purchasing group. Part of that will be a review of that participation to start. And we also want to look at how we do some of the service areas like lab and pharmacy and how some of those functions are just decentralized right now and whether we would be better centralizing them. So we'll have more detail around procurement, but those are areas that are, I think, pretty obvious for us to look at and have been identified by our advisors as areas that we should pursue. But we will weigh whether those remain more decentralized and frankly fragmented and whether we could actually benefit from bringing those into a more centralized corporate structure to maximize on the efficiencies. Great. Thank you. We will take our next question from Ana Gupte with SVB Leerink. Hi, guys. This is Scott on for Ana. I was hoping you could talk a little bit more about the revenue outlook for the UK business. You mentioned kind of a near term target for the U. S. Business, but I was wondering if you could compare kind of the demand environment and the facility expansion investments in the UK versus the U. S? And then it was favorable to see the it was really good to see the favorable April 1 rate update from NHS you guys spoke about in the last call. Is this kind of a one time thing or do you expect a real change in their mindset moving forward? Thank you. Sure. We do see revenue opportunities in the UK going forward that should drive a mid single digit revenue growth. You mentioned the rate increases. We also continue with the retooling projects, which should drive occupancy growth for the company. We do see the rate increase and several of these other opportunities that we outlined on the slides as being more of a long term recurring opportunity and that these are not quick 2019 only opportunities. There is an immediate benefit from these, but a more long term opportunity as we have rate increases going forward and continue with several of the other opportunities. And I'll just add to what David said. I think that the Priory is very well positioned with their high acuity services and ability to take care of very acute patients. I think that NHS has acknowledged that they are providing these needed services And so they have been willing to acknowledge that those services have higher costs and also at points require higher staffing. So I think they've been willing to look at this not as a short term one time event, but a change in the way that they recognize our ability to serve these high acuity patients. Very helpful. Thank you. And we will take a follow-up question from Pito Chickering with Deutsche Bank. Hey, guys. A couple of quick follow ups here. On the U. S. Business, I've heard you right, you are going to be pursuing M and A in the RTC business. If I ask that a different way, does the RTC business make sense relative to the rest of the U. S. Business at this point? And have you considered divesting those assets? Pito, the RTC business includes some strong operations with the company that we've had for a long time that have grown very well and serve just a great need in the states and communities that they operate in. We do look at all options, but we are positive about the RTC business and the specific facilities and markets that we're in. They do have bed expansion opportunities at the RTC locations that we think we look at those on a case by case basis, but we think those should drive some good growth on a more selective basis within the RTC segment. Got it. And I'll just add, I just want to add, I think that we actively monitor all of the portfolio, not just the RTC, really to ensure that that's a good mix. And at this point, as David mentioned, we have some very strong performers there. But going forward, we will continue to monitor what fits best with Acadia. Okay. And then as you think about capital deployment, can you divulge what IRR you've been achieving last couple of years from growth CapEx? And if that's changed at all over the last 1, 2, 3 years? Yes, Peter, we are not providing the specific investment hurdles by specific growth opportunities. Bed expansions has historically been our highest growth, highest value opportunity, and we do expect it to be the most attractive going forward. But we do look at each opportunity on a case by case basis and so we're not providing the specific calculations at that level. Okay. And then last one, David, just for you. If I think about sort of 2nd quarter UK operating margins in 17% range due to NHS price increases, is there anything wrong with that assumption? Well, I think we've provided a target of getting to 16% margins, but we do hope to see an improvement as we've talked about compared to where we have been in the last three quarters. Okay, fair enough. Thanks guys. I appreciate the extra questions. Thank you. And we will take our next question from Matt Borsch with BMO Capital Markets. Hi, this is Josh Howerkel on for Matt. I just had a quick question. You gave a target in the U. S. Business for potential cost savings in the next 2 years. If you don't sell the U. K. Business, do you have anything that you could provide us on what the potential savings could be in the U. K? Our goal there on the UK was just to lay out all of the revenue and cost opportunities that we have. There are a number of those. And so we will think about providing more detail around that. But our goal for now is, as we did on our last earnings call, just provide an update on all of the different revenue and cost opportunities, many of which are included in our 2019 expectations and some will provide incremental benefits on a more long term basis. Okay, great. Thank you. Thank you. And there are no additional phone questions at this time. So I would like to turn the conference back to Debbie Osteen for any additional or closing remarks. Thank you again for being with us today and for your interest in Acadia Healthcare. If you have additional questions today, please don't hesitate to contact us directly and have a good day. Ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.