Earnings Call: Q4 2018

Mar 1, 2019

Please standby. We are about to begin. As a reminder, this call is being recorded. Please proceed. Good morning, and welcome to Acadia's 4th Quarter 2018 Conference Call. 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 on our website by viewing yesterday's news release under the Investors link. This conference call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Acadia's 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 the Securities and Exchange Commission and in the company's 4th quarter news release. And consequently, actual operations and results may differ materially from the results discussed in the forward looking statements. The company takes no obligation to update publicly any forward looking statements, whether as a result of new information, future events or otherwise. At this time, for opening remarks, I would like to turn the conference call over to Chief Executive Officer, Debbie Osteen. Please go ahead. Good morning, and thank you for being with us today for our Q4 conference call. I'm very pleased to have this opportunity to speak with you in my first investor call as Chief Executive Officer of Acadia. Since arriving at Acadia in late December, I've had the opportunity to talk with many of our employees, referral sources and other key stakeholders and I am impressed with the strong platform that is in place. We are providing excellent patient care and our business remains highly relevant in the rapidly evolving healthcare market. I'm here today with our President, Britt Turner Chief Financial Officer, David Duckworth and other members of our executive management team. David and I each have some remarks about the Q4. I will then close with some additional comments and open the line for your questions. Our results for the Q4 reflect the consistent revenue improvement we achieved throughout 2018 in spite of some operational challenges, primarily in the UK. For the Q4 of 2018, revenue increased 2.6% and was up 6.2% for 2018. We have continued to drive organic growth within our existing facilities by expanding our services and adding more bed capacity. Same facility revenue was up 3.8% for the 4th quarter and 5.2% for the full year. Our 3.8% total same facility revenue growth for the 4th quarter included a 2.6% increase in patient days and a 1.2% increase in revenue per patient day. In 2018, we continued to look for opportunities to acquire new facilities and enter into strategic partnerships and joint ventures to develop additional behavioral healthcare facilities. During the Q4, we added 243 beds to existing facilities and 6.51 total beds for the full year, increasing our size and geographic scale and further enhancing our position as a leading provider of behavioral healthcare services. U. S. Same facility revenue increased 3.5% for the quarter, with a 3.5% increase in patient days. Revenue per patient day was flat compared with the prior year period. U. S. Same facility EBITDA margin decreased 130 basis points to 24.9%. We had an accounts receivable adjustment in the 4th quarter that affected these results, and David will provide more detail in his comments. For our operations in the U. K, same facility revenue was up 4.4%, consisting of a 1.5% increase in patient days and a 2.8% increase in revenue per patient day. Same facility EBITDA margin declined 460 basis points to 16.4 percent for the quarter, consistent with the 3rd quarter and with our expectations for the Q4. Our U. K. Results continue to be impacted by increased operating costs, primarily due to the ongoing nursing and clinical staff shortage and our dependence on higher cost agency labor. While we expect continued challenges related to the nursing and clinical staff shortage, we remain focused on identifying ways to improve our U. K. Operations. Finally, as noted in our press release, we closed 2 previously announced acquisitions in February, Mission Treatment and the Whittier Pavilion. Mission Treatment operates 9 comprehensive treatment centers that provide medication assisted treatment and counseling for people struggling with opioid addiction in California, Nevada, Arizona and Oklahoma. The Whittier Pavilion is a 71 bed inpatient psychiatric hospital located in Haverhill, Massachusetts. Additionally, we opened 2 de novo facilities in February. Mount Carmel Behavioral Health, a joint venture with 80 beds located in Columbus, Ohio and Rio Vista Behavioral Health, an 80 bed de novo facility located in El Paso, Texas. Now, I will turn the call over to David Duckworth to discuss our financial results and guidance in more detail. Thanks, Debbie, and good morning. Revenue for the Q4 was $743,500,000 an increase of 2.6% compared with $724,500,000 for the Q4 of 2017. Net loss attributable to Acadia's stockholders was $331,600,000 or $3.80 per diluted share for the Q4 of 2018 compared with net income of $69,600,000 or $0.80 per diluted share for the Q4 of 2017. In the Q4 of 2018, the company completed its goodwill impairment test and recorded a noncash loss on impairment of $337,900,000 related to our U. K. Operations. This impairment was based on the market challenges, the recent financial performance and revised financial forecast for our U. K. Operations. Our 4th quarter results also include legal settlements expense of $22,100,000 which primarily relates to the company's billing for lab services in our 7 CTC locations in West Virginia. We were notified of the government's investigation during the Q3 and concluded from our internal review completed in the 4th quarter that our clinics were not following the West Virginia billing requirements. The West Virginia regulations do not permit clinics to bill for lab services performed by a 3rd party lab. Our clinics utilize the 3rd party lab according to the billing methodology that was in place prior to Acadia's acquisition of the clinics in 2015. The settlement relates to claims submitted for lab services from 2012 to 2018. We expect this settlement to be finalized in the Q2. Adjusted income attributable to Acadia stockholders for the Q4 of 2018 was $40,800,000 or $0.47 per diluted share, excluding transaction related expenses of $24,500,000 debt extinguishment cost of $900,000 legal settlements expense of $22,100,000 and the loss on impairment of $337,900,000 The company's consolidated adjusted EBITDA for the Q4 of 2018 was $133,900,000 or 18 percent of revenue. U. S. Same facility revenue was impacted by a 4th quarter 2018 accounts receivable adjustment of approximately $8,000,000 primarily related to the CTCs and state Medicaid programs in Wisconsin. More specifically, starting in 20 16, Wisconsin Medicaid moved from its traditional state Medicaid program covering medication assisted treatment services to contracting with 18 managed Medicaid payers. Neither the state, the managed care organizations nor our clinics were prepared for the different billing requirements implemented by each payer. For 2018, we have successfully implemented processes under which we build and collected for our services on a current basis. However, we've been working with the state to review claims that accumulated during the 1st 2 years of the transition in 2016 2017. While the review and collection are ongoing, we determined during the Q4 that an $8,000,000 adjustment was appropriate based on the status of the discussions. Excluding this adjustment, U. S. Same facility revenue increased 5.3% with a 1.7% increase in revenue per patient day and U. S. Same facility EBITDA margin stayed consistent at 26.2%. Acadia's operating cash flows from continuing operations were $416,600,000 for 2018 compared with 401 $300,000 last year, an increase of 3.8%. We recently amended our senior secured credit facility to modify certain definitions and provide increased flexibility in terms of our financial covenants. As of December 31, 2018, the company had significant availability under our $500,000,000 revolving credit facility, and our leverage ratio was approximately 5.3. Turning to our financial guidance and as announced in our news release, our guidance for the full year 2019 and for the Q1 of 2019 is as follows: revenue for 2019 in a range of $3,150,000,000 to $3,200,000,000 adjusted EBITDA for 2019 in a range of $610,000,000 to $630,000,000 adjusted earnings per diluted share for 2019 in the range of $2.15 to 2 $0.30 and adjusted earnings per diluted share for the Q1 of 2019 in a range of $0.35 to $0.36 Our guidance includes the following forecast for non operating costs for 2019: interest expense of approximately $195,000,000 depreciation expense of approximately $170,000,000 stock compensation expense of approximately $26,000,000 and exchange rate of $1.30 per British pound sterling and an effective tax rate of approximately 16%. This concludes my prepared remarks this morning. I'll turn it back over to Debbie for some final comments. Thanks, David. Now that we have covered the results and before we take your questions, I would like to take some time this morning to talk about some initial impressions and my plans to address our future strategy. I joined the company in December because I saw the opportunity to lead a company with a history of driving shareholder value and delivering the highest levels of patient quality. Since joining, I've been working to better understand the opportunities and challenges ahead for Acadia. I'm very impressed with the team at the corporate level as well as the operations team supporting facilities. So 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 have heard candid feedback and take it seriously. I am closely evaluating all aspects of our business to see where we have opportunities and I'm also looking for improvements we can make to deliver better performance. My highest priority is to drive a significant increase in shareholder value over time by developing and executing strategies that will leverage our strengths and provide excellent care to the many patients that come to Acadia facilities for help. Although as you would expect, I'm still working on evaluating our business, I expect to provide my views on strategy and future direction in May. In the meantime, I look forward to engaging with you over the coming weeks. I will now ask April to open the floor for your questions. Thank And we'll take our first question from A. J. Rice with Credit Suisse. Please go ahead. Thanks. Hello, everybody. Best wishes, Debbie, in the new role. Thank you, A. J. First question, I don't know if you've had a chance to develop an opinion about this yet, but Acadia has consistently, in the U. S. Operations delivered mid to sometimes even high single digit comparable facility revenue growth. I know that seems not to be able to be what other public peers have done, as you know, a little lower than that. Have you developed a view as to is it a service mix thing? Is it a geographic mix? Is it maybe the labor pipeline? Have you been able to develop a view as to how they've been able to do that? And you did it this quarter with 5.3% same store growth. And do you think that sort of mid single digit type of growth rate on the U. S. Operations is a reasonable long term target realizing quarter to quarter could fluctuate? A. J, I think you've mentioned a couple of the key things that I've been able to see since I joined the company. I think there's a very strong growth platform here. There's a real diversification of services across geography that I think has been very helpful and very strong to generate the growth. I think the team that I've met and the processes I've seen have really shown the ability to respond to opportunities. And I think that just the way the facilities are laid out and configured, I think they really have very good relationships with their payers and that's helped as well as doing a good job frankly with the staffing and physician challenges that the industry faces. Okay. And then my follow-up question or I guess my other question would be that I know there was discussion in the Q4 about there being potentially 20 or 30 facilities in the U. K. That were operating around breakeven, plus or minus a little bit, and that maybe, the performance over there could be significantly enhanced if there was a more focused look at either repositioning those, eliminating those, closing those even for real estate value. I know you took a big charge related to the U. K. Operations with the Q4. Is that a prelude to doing something on those targeted facilities? Any comment about how much taking that charge might help operating margins in the U. K. Going forward? Well, A. J. 9 sites in the U. K. Closed in 2018. There wasn't a lot of financial impact, but I recently visited there and I think the team is looking closely at the facilities that might be appropriate for closure, but I think they're also looking at the possibility of facilities that are closed being retooled into higher revenue services and changing the service mix. So I think that evaluation has been ongoing and it continues. Okay. All right. I appreciate that. Thanks a lot and again best wishes. Thank you. And we'll take our next question from Brian Tanquilut with Jefferies. Please go ahead. Hi, good morning guys and Deb welcome to Acadia. So I guess my first question is just from a guidance perspective, maybe for David or Brent. Can you guys walk us through how you would bridge from the Q4 numbers or think about it as a run rate to the guidance for 2019? And then the ramp that you would assume given the Q1 guidance that you've given? Thank you. Hey, good morning, Brian. This is David. We do see a number of factors that are impacting our guidance for the Q1. And then as you look at the rest of the year, these factors also play a role in the improvement that we see in our U. S. And U. K. Operations. So let me walk through those factors. First, in the U. K, we do have an EBITDA margin in the second half of twenty eighteen of just under 15%. We do see that continuing in the Q1, but think with a number of initiatives that, that will improve, The occupancy as well as rate increases and other initiatives we think will play a role in the improvement in the U. K. Operations. But in the Q1 and really the 1st part of the year, we do see a lower run rate for our U. K. Operations in terms of the margin. And then in the U. S, we have a number of beds that have been brought online, 6 de novo facilities going back to Q4 of 2017, all the way through the 2 that have opened in February. So we have a number of beds that have been ramping. We're very optimistic about the contribution from those facilities, but we do see a Q1 impact from those facilities, especially with the 2 that have opened this quarter. So we do have around 2,500,000 dollars of losses that are affecting the Q1 number from the de novo facilities, but see at the end of the year that there's going to be a positive EBITDA contribution from those facilities. Additionally, in the U. S, we had 2 facilities that closed in the Q4. In addition, we had one facility closing in the Q1 of this year. There are some losses incurred at those facilities in the Q4 as well as the Q1, and that's about $1,500,000 per quarter of losses. We think that the wind down of those operations will be complete. And as we move past the Q1, that there will be contribution from those facilities. So in terms of the operating contribution, the new beds in the U. S. Will improve and will be more reflective of the improvement in the last 9 months of the year. And then from a non operating cost, we did provide the guidance around interest and depreciation and the stock comp, there is about a $0.07 impact or so just year over year in the Q1 that's impacting the results and that also moderates and has less of an impact throughout the year. All right, got it. And then my follow-up, as I think about growth initiatives, I noticed that you've stepped down the target number of bed openings for this year and obviously you came in the 600 range for 2018. So is that sort of the new way we should be thinking about growth and what's your perspective on ratcheting this down a little bit from the previous targets of about 800 or so? I think, Brian, that we've really tried to identify what we think makes sense as far as bed additions to our existing facilities. So a lot of the bed growth that we are projecting in 2019 relates to existing facilities. We aren't planning to open any additional de novos for the year. We, I think, just looked and previewed where we think those beds can be added. We're going to take each year really down in a way that's going to continue, but really just tried to project what we think makes sense for this coming year. All right. Appreciate that. Thank you. And we'll take our next question from John Ransom with Raymond James. Please go ahead. Hi, good morning and I'll add my welcome, Deb. A number of people who watch your company question whether the U. K. Asset is long term a strategic asset for the company. So in your strategic review process, is potentially divesting the U. K. Part of something that you're still thinking about? Or have you ruled that out at this point? Well, John, I think we haven't really ruled anything out because we really want to do a thorough and thoughtful assessment. And part of that will be for the U. S. As well as the U. K. So we're going to evaluate all aspects of the business as well as potential strategies for the U. S. And the U. K. And I will be talking hopefully more about, I think, the strategy in a more concrete way in May. Okay. And secondly, it's not clear, at least to me, if we assume labor shortages are structural in the U. K. And the state is going to pay what the state is going to pay, what are the levers that you guys are going to pull this year to try to improve the margin, which as you noted was down almost 500 bps year over year. So what can you do other than just shutting down facilities that don't make money? I think the team in the U. K. Is really focused on a few areas. One is improving the occupancy at the facilities that are open now. They brought a number of beds that were retooled last year and offline back online. Another area obviously that needs focus and I think they've got some good plans around is really reducing the agency spend by bringing in more permanent employees, nurses and workers. And then the other area is just around the fees and trying to work in collaboration with NHS to present the increased costs that are part of the environment there with the national living wage and other areas. And so I think their idea and plan is to focus around those and really trying to improve capacity rather than adding a lot of additional beds, really improving the pipeline of patients coming into the existing facilities. Okay. That's it for me. Thank you. We'll take our next question from Ralph Giacobbe with Citi. Please go ahead. Great. Thanks. Good morning. The business has obviously faced margin pressure for a while now and in some cases even despite mid or high single digit revenue growth. So I guess the question is, do you have any sense of sort of margin targets in the U. S. And in the U. K? And what kind of organic top line you think is needed to sort of sustain a baseline level? Yes, Ralph, this is David. We do have targeted margin improvement in the U. K, and that's compared to the second half of twenty eighteen. There is top line revenue growth of between 3% 5% that will support some margin improvement. That's just as occupancy improves in the U. K, the beds that have been retooled come back online. We see that 3.5% revenue growth driving some margin improvement with a target of around 16% for the U. K. On the margin. In the revenue for revenue in the U. S, we do have a 5% to 6% revenue growth target that should support some margin improvement in our U. S. Operations as well. So we're optimistic about the beds that have come online. The number of beds coming online in 2019 is also a strong number that we think supports continued U. S. Revenue growth. Okay, great. That's very helpful. And then just a follow-up, can you maybe help on sort of the amendment in the credit facility and how much flexibility it gives you? And then you mentioned deals in 1Q. How active will you be versus managing leverage? And if there is any update on the leverage target at this point as well? Thanks. Sure. We continue to have a leverage target of 5 times and think that we get there at the end of the year just from the earnings growth that we expect. We did as we looked at the step downs that were in our existing credit agreement, We did want to take out some of the just risk there and create a better cushion for us throughout the year and add more flexibility to what how we can access our credit. And so we did add about half a turn. The covenants were stepping down on a total leverage basis to 5.75 and then to 5.5 at the end of the year. And we've added about a half turn to that and now stepped down within our covenants to 6 times at the end of 2019. There's a similar cushion that was added for the remaining term of the credit facility. There were also some definitional adjustments that were made that are positive for us, mainly around an add back to EBITDA for any non cash items, such as an impairment, whereas in the past agreement, that was a limited non cash add back. So feeling positive about the amendments that were made to the credit facility and the support from our debt lenders there. Okay. Thank you. We'll take our next question from Whit Mayo with UBS. Please go ahead. Hey, thanks. Good morning. Debbie, maybe not a terribly fair question, but once we get to May and you have a better sense of what the go forward strategy is going to be, do you envision the implementation of that strategy to be terribly different? Do we need to be prepared for an investment period? Is there a major pivot in strategy, no pivot in strategy? And then maybe what do you see as the clear, like two areas today as an opportunity for improvement within the organization? Whit, I think I want to complete our assessment and I want to be very thoughtful about it before I start talking about changes and direction. As I said earlier, I think there's a very strong platform here, but I do think there's opportunity for improvement in both the U. S. And certainly the U. K. So I'll be able to discuss more about that in May. Okay. I had to try. Hey, David, so of the AR write down, can you maybe give a little bit more color around how much was really out of period dating back to 2016? I think we have an understanding of what happened. Did you write off everything? Is there anything left that is that risk going forward? And is there an opportunity potentially to pick up some more of that as the year plays out? I'm just trying to think about the right jumping off point for the year. Right. We do attribute all of the $8,000,000 adjustment to prior years and to 2016 2017 specifically. We do think the reserve that we've put in place is appropriate and therefore not really reflecting any opportunity in our view for there to be much upside there. We're going through the final discussions around the amount that we expect to collect for those 2 years, but feel like the reserve we established was appropriate. Okay. And maybe one last one, just back to the startup losses. I think you said, David, you expect maybe 2,500,000 dollars of losses in the Q1. Looking at your disclosures, it looks like that you may have had about 12,000,000 dollars in the past 12 months. And so I'm just trying to get a sense of how quickly that $2,500,000 reverses itself in the Q1 and what you're expecting for the full year contribution in 2019? Right. We do expect $2,500,000 of losses in the Q1. And keep in mind, we have 2 facilities that are currently brand new going through the licensing survey process. We'll take the next 2 to 3 months just to focus on that. And we have a number of other facilities that have now been open more than a year in that 6 to 9 month period where we expect to get very close to breakeven and positive results. And so the way we see it playing out throughout the year is probably another $1,000,000 or so of losses in the second quarter, but expect breakeven and even some positive contribution in the second half of the year. And hopefully, EBITDA in the second half of the year from those six facilities will be around $2,000,000 in those 6 months. So on a year over year basis with the negative impact in 2018, we expect to be about a $1,000,000 to $2,000,000 loss in 2019. Thank you. We'll take our next question from Frank Morgan with RBC Capital Markets. Please go ahead. Good morning. Hey, I'd like to go back to A. J. Original question looking and comparing and contrasting your company to your former employer. There's always been a lot of discussion around some glaring differences in what is otherwise seems to be the same business. But could you give us some knowledge and some insights into what you're seeing specifically in your labor markets? I know labor has been always called out as a shortage issue more for your neighbors. And then also on the payer mix side, are you seeing as much of this shift from traditional Medicare to managed I'm sorry, traditional Medicaid to managed Medicaid? And then the 3rd point that always seems to come up as a difference related to this differential you're seeing in length of stay. Are you seeing what do you attribute the differences to in terms of length of stay pressure? Thanks. That's my first question. Okay. I'll take the salary wage piece first, Frank. I think that the distribution of the Acadia facilities is geographically different than my neighbor, UHS. I think that when you look at where the facilities are and also some of the more competitive markets that where a lot of beds have been built, a lot of competition for staff and physicians. Acadia is not in some of those markets. They clearly have a few that they're in, but I think it's really a different distribution. And also the service lines that Acadia has are different than UHS. I think they are more evenly distributed across substance use, the acute behavioral, certainly with the CTC portfolio as well and the RTC. So it's really not a direct comparison that can be made because it's different geography and then different service lines in the business. As far as the Medicaid movement, we really haven't seen that movement in the markets and states that Acadia is in. We don't have an overly concentrated presence in any of the states that I think have been called out by UHS. And so that puts us in a different position. The length of stay for Acadia is very stable. It's 9.1 days and it's consistent from 17 to 18. So there's not been that pressure from the managed Medicaid in any meaningful way that we have pockets where clearly we see that but not in a meaningful way to Acadia. I think that answered everything, Brad. Yes. And maybe just one more is my follow-up. On that topic of managed Medicaid, would you by chance of your Medicaid book, would you know the percentage that's actually in managed Medicaid today? Frank, this is David. I'll take that one. We do already see Managed Medicaid within what we report as Medicaid. The last time we looked, I think it was around 2 thirds of our Medicaid was with a managed Medicaid payer in the U. S. And I'll just add, Frank, I think one difference here too is that Acadia is in states that have already gone managed, and so there hasn't been as much of the conversion that's taken place moving from straight Medicaid to managed as there has been in some of the states that UHS is in. Okay. Thank you. That's very helpful. We'll take our next question from Kevin Fischbeck with Bank of America. Please go ahead. Great, thanks. Just want to clarify, I think you said 5% to 6% growth in the U. S. Obviously, you did some deals there. Is that a same store number or was that a total revenue number? Kevin, that is an organic number, the 5% to 6%. There would be some additional contribution from the de novo facilities and as well as the 2 acquisitions that we announced, but also some impact from the facility closures. So 5% to 6% organic revenue growth and another 1% or so of growth just from what's outside of that same facility group. Okay. That's helpful. And then I guess when you think about that 5% to 6% number, is that kind of the right way to think about the growth over the, at least the next several years given where the demand drivers are? Or is there a reason to think that number could be higher or lower in the near term? I think from an organic perspective, that's our expectation going forward. And then any M and A activity, any joint ventures would provide an enhancement to that number. Okay. Great. I just wanted to confirm that we had a lot of discussion about UHS versus Acadia. I just wanted to make sure that we were going talking about it going forward as much as we were talking about historical relative growth rate, you still feel like that's a good number going forward? All right. Thank you. Yes, we do. Thanks, Kevin. We'll take our next question from Pito Chickering with Deutsche Bank. Please go ahead. Thank you. And I would join the rest of my colleagues in welcoming you to Acadia, Debbie. Looking at the U. K, what is the ideal customer mix in that market? And I asked because you talked about the possibility of reopening facilities, focus on new modalities. I I just want to make sure I understand what that opportunity is. Well, the business Priory's business is divided into sections there with the hospital section. They have an education, they have the elderly care, and then they have the adult. I think that what Priory management and the team has been focused on is making sure that we have facilities that can treat the high acuity because those are the patients that NHS frequently sends to the private sector. So I think the opportunity as we look at those retool beds and the beds that have come back online are more in some of the specialty areas as well as the acute. So like child and adolescent, which they call CAMS in the U. K. As well as eating disorder. Those are specialty areas that Priory really leads the market And so and those are also areas where NHS looks to the private sector. So those are a focus for management to try and, 1st of all, have beds available, but also then to improve occupancy through those specialty services. Got it. On the substance like abuse markets in the U. S, there have been some losses recently about managed care sending checks directly to the patients and forcing behavioral facilities to collect. Have you guys seen any impact from that? This is David. We have seen that. It's pretty minimal in terms of what we see there. It's mainly with 1 or 2 substance abuse facilities. But again, where we see any activity there is pretty minimal. Got it. And then last question from just to be very clear from M and A perspective, is it fair to say that you'll be putting the brakes on new announced deals until we talk again in May? I don't know whether I wouldn't characterize it like that. I think we continue to look at opportunities, but we do want a full plan that we can roll out for the remainder of this year and next year. But we still get calls for acquisitions, but anything we do is going to be carefully evaluated. And hopefully, we'll have a very solid plan in May that will incorporate the various growth areas that we think we want to move in. And we'll take our next question from Ana Gupte with SVB Leerink. Please go ahead. Hi, thanks. Good morning. Congrats Debbie and welcome to Acadia again. Thank you. Just to follow-up a little on some of the questions, the line of questioning before, it was helpful to hear your view of the challenges that UHF was facing and you helped address relative to where AKCEA is. More broadly, would you say that as you come into this asset that your focus will be on squeezing out more value from the assets that Acadia has right now relative to very aggressive capital deployment that's been the history of this company, de novos, adding beds and M and A, where would you kind of lean here? Anna, I think it's going to be more appropriate and hopefully I'll have a lot more thorough assessment in May on those various areas. I happen to believe that there's always an ability to improve operations. I think the team here shares that view. So we're going to focus in the U. S. And the U. K. On how to improve, but also as far as strategy and areas of growth, I think I'll be better able to talk about that in May. Okay. All right. So again, just to follow-up again, to the degree you can offer any color. Acadia is, as you say, pretty differentiated compared to UHS on more of a focus on substance abuse in an outpatient asset base and the like. I mean, do you see that as being better able to overcome challenges that have hit secularly hit the industry on payer mix, length of stay, staffing, all of that because they've already invested in CIC Health and built out some of those capabilities? Well, I mean, I think before I joined Acadia and now that I'm here, I think there's a real strong track record around being able to handle the challenges around staffing. And certainly with the way the portfolio and the service lines are configured across the various states, I think that we've got a lot of stability here in length of stay and the team does a very good job really in all the service lines. Substance use has been very strong for Acadia and I've been very pleased with just seeing the growth platform and the sales and marketing. I think they do some innovative things and I think it's a strong support for growth across the company. Thanks. Thanks, Debbie. Appreciate it. Good luck. Thank you. We'll take our next question from Gary Taylor with JPMorgan. Please go ahead. Hi, good morning. Just a couple of quick clarifications. On the 700 beds, I presume majority of those are U. S, but do you have a breakdown for us on the 2019 bed addition? Yes, Gary, this is David. More than 600 of those beds are in the U. S. The opportunity in the U. K. Is, of course, mostly related to the occupancy. We will still add just under 100 beds in the U. K, I think the occupancy is the key for the U. K. For this year and that's a great number for the U. S. The more than 600 beds does include the 2 that we have already opened in the Q1, but it's a great number for the remainder of the year to our existing facilities. Got you. And the 16% U. K. Margin target, is that for the full year or for the second half of twenty nineteen? That's for the second half of twenty nineteen, Gary. Got you. Then I was just hoping for cash from ops and CapEx guidance, but if you can't give that, maybe just talk qualitatively or directionally about CapEx with the bed growth coming down a little bit and none of that being new facility building, I would imagine the CapEx would come down year over year, but any help on those two metrics? Sure. We are forecasting 2019 to be similar to 2018. And operating cash flows, we do see in a range of $400,000,000 to $425,000,000 The maintenance CapEx should be similar to 2018 as well. It's around $74,000,000 in 2018. We see that at that same level in 2019. And the expansion CapEx is similar to 2018 as well. We spent $286,000,000 in 2018 and see a range of $275,000,000 to $300,000,000 in 20 19. You can't exactly look at the number of beds that are added in a year and predict the expansion CapEx just because a lot of the activity starts well in advance of opening a bed. And so a lot of what we would be spending in 2019 would not only relate to 2019 beds, but also to what's in the works for 2020. So it's very similar year in terms of the cash flows and the use of the cash flows in 2019 as it was in 2018. Got you. And then just a last quick one for Deb. When we think about this review that you're doing and going to present the conclusions of in May, can you is that characterized primarily as a operational strategic review or is it as broad as including strategic alternatives? Obviously, there was a lot of rumors in the fall that the company was considering a potential buyout. I don't think ever publicly Acadia had commented on it. But is this does this review you're doing potentially as wide as including strategic alternatives or it'd be more operational in nature or not care to refine the characterization? I think I would say that it's going to be very comprehensive. Okay, fair enough. Thank you. And we'll take our next question from Peter Costa with Wells Fargo. Please go ahead. Good morning and congrats on the new role. Two questions here. The first one really, Acadia had a number of issues over the last couple of years and bad press and presumably you saw all that before you came aboard. And so presumably one of the first things you did was look at the operational controls and compliance that the company has. And how do you feel about that compared to where you came from? I think it's very strong here, the compliance and quality efforts. Acadia has a corporate medical director who's very focused on supporting quality at the facility. There's a very robust team that supports the facilities. So I've been very pleased with what I've seen. I think there's always room for improvement. We treat very ill patients that are acute. And what I've seen on the Acadia side is we're working really hard to make sure we're proactive and that we evaluate the facilities and make sure that we keep any incidents to a minimum. But I think the compliance and quality team is strong. So we shouldn't be thinking about a big spend on that going forward after your review is done. Is that the way for me to think about that answer? I think, again, I'm assessing everything. So I don't really want to comment on where we're going to end up with that, but I do think that it's a very solid process in place now. But one of the things I will look at is if there are other things we need to be doing. Okay. And then my second question is really, last year we saw a couple of spending bills to increase opioid funding. It's not clear we've seen a lot of that come through, although perhaps we have. If we look at your performance relative to Universal, your strongest same store growth and perhaps it's from your more outpatient, more substance abuse focus than they have. Is it the opioid spending money that's keeping your growth rate a little bit higher? Or is that still yet to come? Can you kind of comment on where that opioid money is today? Yes, Peter, this is Brent Turner. A couple of things. Again, as David pointed out earlier, the bed additions and the service line diversity have really fueled the Acadia same facility growth. Along with our comprehensive treatment centers, I'd say the demand is continuing to outpace supply in the opioid treatment market. There's been recent bills over the last few years, most recently in the fall, the SUPPORT Act, which will continue to bring benefit to the outpatient treatment, but also inpatient needs of substance abuse disorders that Medicaid will cover that where they haven't been covering it under the IMD limitation. So what I'd say is there's good demand, but there's definitely future funding that will benefit providers. In fact, the bill I just referenced doesn't go effective until October 1 this year. So we're continuing to focus on trying to make sure that the headline positivity around opioid coverage, the money actually finds its way to the patients. That's the ultimate goal here. So I think we've got some positives there. Have you been able to track that in any way so that you can sort of share with us some progress on that? Well, you might remember over the last 12 months, we've seen a couple of states that historically did not cover the outpatient opioid treatment for their Medicaid population due to some of the cures monies that came to the states. They actually moved and began to cover that. And again, this is just a huge position change because Medicaid beneficiary has financial challenges and these individuals were having to pay for that treatment themselves and it was unbelievably impressive that they were doing that. Now they're able to access their treatment through the Medicaid plans. So I think those are a couple of examples and I think we will see more of that as we go forward. We'll take our next question follow-up from John Ransom with Raymond James. Please go ahead. Hi. This is taking you in after all these good strategic questions. But David, I was just looking for a little bit of help, as we think about the EBITDA progression through the year. And also, could you you mentioned a number of things. Is there any way you could maybe more precisely size some of the contributors of the 1Q run rate followed into the next three quarters? Thanks. Yes. Sure, John. The items I mentioned earlier around the U. K. Run rate, the improvement in the U. S. Operations from the bed growth as well as the non operating expenses, happy to clarify and provide more detail there around some of those items. In the U. S, we do see the 1st quarter EBITDA number reflecting the de novo losses as well as the facility closures does cause the U. S. EBITDA to be somewhat flat year over year. And then as we move ahead into the remainder of the year, there's significant build in the EBITDA, and we see EBITDA growth there of around $15,000,000 coming off of the Q1 into the run rate then for the last 9 months of the year. In the U. K, the year over year impact of the margin comparing the Q1 of 2019 to the Q1 of 2018 has about a $7,000,000 to $8,000,000 year over year impact, just on the Q1 number. And that's where as we see some of initiatives, the retooling beds, the occupancy improvement, the pricing increases and other matters, we think that by the second quarter, the year over year will be somewhat flat with a growth opportunity in the UK in the second half of the year. So thanks for that. So if you had to say 1, 2, 3, what are the top 3 EBITDA contributors if you look at the 4Q versus say the 1Q? What are the 3 biggest things that will change? Well, going from the Q4 to the Q1, of course, you have just every year we have the resetting of payroll taxes, the fewer days in the Q1 that has an impact Q4 to Q1. And that's about an $8,000,000 or $9,000,000 impact that we see every Q1. So that would be the key factor just going from the Q4 to the Q1. So I'm sorry, I was saying like Q1 'nineteen to Q4 'nineteen, what are if in your model, if you look at 4Q EBITDA, what's the is it the I guess, is the improvement in the U. S. Is the biggest factor and just improved census? Is that really the biggest as you fill up the de novo beds? Is that really the number one, Trevor? Yes. Number one factor, I'm sorry, Q1 of 2019 to the run rate by the end of 2019, absolutely the U. S. Filling up the beds that have been added in 2018, seeing the improvement in the de novo beds, and then also the contribution from 2019 new beds, the U. S. Improvement would be number 1. And secondly, just in the U. K, we do see, while it's a headwind in the Q1, we do see that improvement opportunity in the second half of the year. And how much of the U. K. Is just the pricing? Well, we don't really provide that detail on the pricing. The pricing does happen for the most part for much of their revenue in April. So that's why it will be a positive in the Q2. A lot of the cost increases do happen more throughout the year. So that's one reason why the Q2 does get a little bit better. And then lastly for Deb, when you kind of wrap up your review, how do you guys plan to roll this message out to the market? Is there going to be a call, a presentation? What are you planning on? And is it going to be later in the month, middle of the month or are we just not down the road enough to have that figured out? I don't think we're down the road enough to have a detail about how and when. But I'm working as very diligently and as quickly as we can, so we can get a plan to articulate to investors and also to direct the team around our strategies. Well, mark me down in favor of a call. I think that'll be an interesting I made a note. That's what vote of 1, but doesn't matter. But thank you. Thanks for the time. And we'll take our final question from Whit Mayo. Thank you. Please go ahead. Hey, yes. I just need to go back to the UK just for a second. I mean looking at the last 2 years, the same store EBITDA on a constant currency basis has declined for has declined about 9%. It fell 18% in the second half of the year. I think you stated you believe the margins are expected to be around 15% in the Q1, which implies another decline of 15% on a same store basis. And then I'm just really struggling to visualize how we get an abrupt reversal in this trend line to flatten out and turn positive. So David, is there anything else to say to give us increased confidence that given the trajectory that it's been on that it can actually reverse itself from some of these initiatives? Yes. And Whit, maybe I'll start by just saying it's not necessarily a reversal back to the previous margins, but the decline that we saw starting in the Q3 will anniversary in the second half of twenty nineteen and we do see improvement in the margin from some of the initiatives that we've mentioned. Just a number of items that affected the margin decline where we saw employee labor cost increases, the impact of the beds that have been offline for retooling. The cost increases haven't always been covered by the pricing increases and we're more positive on that for this year. So I think that just the progress that we see and the beds that have been retooled, seeing a stronger occupancy and margin from those facilities, the pricing increases that hopefully will be more appropriate based on the cost increases and just getting past the first half comparison from 2018. Okay. And then, I'm sorry, 2 quick clarification questions. On the acquisitions, I think you said there was $40,000,000 of annualized EBITDA you bought in the Q1. Any way to put a margin and an EBITDA number on that just so we understand the tailwinds this year? And then are there any other implications about the lap business in West Virginia, anything to sort of consider headwinds or tailwinds? Thanks. Yes. Let me clarify for the acquisitions. The combined purchase price for those two acquisitions was approximately 40,000,000 dollars The revenue and EBITDA associated with those, around $20,000,000 of revenue and $3,500,000 to $4,000,000 of trailing EBITDA. With respect to your question on the lab, we do think West Virginia was unique. Most of our payers and states pay a bundled rate for the medication assisted treatment. And so West Virginia was a pretty unique situation in terms of there being a separate billing for the lab services. Okay, thanks. At this time, I would like to turn the conference back to Debbie for any closing or additional remarks. Thank you. Thanks again for being with us today and for the welcome. As the new leader of Acadia Health Care, I'm very pleased with what I've seen these past few months. The company has dedicated employees and clinicians and also quality treatment programs, which I believe will be a solid foundation for the future growth and success of Acadia. If you have additional questions today, please do not hesitate to contact directly us directly and have a good day. Thank you. Ladies and gentlemen, this does conclude today's presentation. We thank you for your participation. You may now disconnect.