Please stand by. We're about to begin. As a reminder, this call is being recorded. Please proceed.
Good morning. I'm Brent Turner, president of Acadia Healthcare, and I'd like to welcome you to our first quarter 2018 conference call. To the extent any non-GAAP financial measure is discussed in today's call, you will find a reconciliation of that measurement 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 2018 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 important factors among others set forth in Acadia's filings with the Securities and Exchange Commission and in the company's first quarter news release, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes 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'd like to turn the conference over to our Chairman and Chief Executive Officer, Joey Jacobs.
Good morning. Thank you for being with us today for our first quarter conference call. In addition to Brent, I'm here today with our Chief Financial Officer, David Duckworth, and other members of our executive management team. David and I each have some remarks about the first quarter and our outlook for going forward in 2018. We'll open the line for your questions. We are pleased with our first quarter results as consolidated revenue increased 9.3% and adjusted EPS increased 13%. Our revenue growth was primarily organic, comprised of a 5.6% increase in total same-facility revenue. The 5.6% growth in same-facility revenue primarily reflected the impact of over 550 beds added to existing facilities for the 12 month ended March 31st, 2018, most of which are in our same facility base of operations.
We continue to expect to add more than 800 beds to existing and new facilities for 2018, which includes opening an 88-bed facility with our joint venture partner, Erlanger Health System in Chattanooga, Tennessee, in the second quarter. Our total same-facility revenue growth reflected a 2% increase in patient days and a 3.5% increase in revenue per patient day. Same-facility EBITDA margin increased 30 basis points to 24.2%. U.S. same-facility revenue was up 6.1% for the quarter, consisting of a 2% increase in patient days and a 4% increase in revenue per patient day. U.S. same-facility EBITDA margin rose 30 basis points to 26.3%. U.K. same-facility revenue increased 4.6% with growth of 1.9% in patient days and 2.6% in revenue per patient day. Same-facility EBITDA margin for our U.K. operations increased 30 basis points to 20.3%. To summarize, our overall first quarter results were in line with our expectations.
We believe we are well-positioned to continue producing meaningful organic growth as we expand bed capacity in existing and new facilities to meet increasing community demand for behavioral health services. We will also continue to evaluate potential acquisitions, especially in acute care and comprehensive treatment centers, with strong execution of these growth strategies in a positive environment with attractive industry dynamics. We expect to achieve additional long-term growth in earnings and shareholder value. Thanks for your time this morning and your interest in Acadia. Now, here's David Duckworth to discuss our financial results and the increased guidance in more detail.
Thanks, Joey, and good morning. The company's revenue for the first quarter of 2018 was $742.2 million, an increase of 9.3% from $679.2 million for the first quarter of 2017. Adjusted earnings per diluted share increased 13% for the first quarter of 2018 to $0.52 from $0.46 for the first quarter of 2017. Adjusted EPS for the latest quarter excludes a non-recurring tax benefit of $10.5 million due to tax reform, transaction-related expenses of $4.8 million, and debt extinguishment costs of $940,000. Results for the quarter include a benefit of $0.03 per diluted share from a reduction in our tax rate to 16% from the anticipated 21% tax rate, which is primarily due to the publication and evaluation of additional tax reform rules and accounting interpretations that result in a tax rate that now reflects the benefit in a future period of interest cost disallowed in 2018.
We project an effective tax rate of approximately 16% for the remainder of 2018, which also represents the company's cash tax rate. Acadia's tax rate on adjusted income from continuing operations before income taxes was 15.9% for the first quarter of 2018. Compared with 24.5% for the first quarter of 2017. The company's consolidated adjusted EBITDA for the first quarter of 2018 was $145.7 million, or 19.6% of revenue. Acadia's operating cash flows from continuing operations were $72.6 million for the first quarter of 2018, a 26.5% increase from $57.4 million for the first quarter of 2017. Turning to our financial guidance, as announced in yesterday afternoon's news release, we have adjusted our 2018 financial guidance based on our revised tax rate estimate.
Our guidance includes revenue in a range of $3.04 billion-$3.08 billion, adjusted EBITDA in a range of $637 million-$644 million, adjusted diluted EPS in a range of $2.58-$2.62, and an exchange rate of $1.35 per British pound sterling, and a tax rate of approximately 16%. Our financial guidance does not include the impact from any future acquisitions and transaction-related expenses. This concludes our prepared remarks this morning, and thank you for being with us. I'll now ask Cynthia to open the floor for your questions.
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We ask that you limit yourself to one question with one follow-up question to allow everyone an opportunity, the chance to ask their questions. Again, press star 1 to ask a question. We'll take our first question from Kevin Fischbeck with Bank of America.
Hey, good morning. This is actually Joanna Gajuk filling in for Kevin today. Thank you for taking the question. On the U.K. business, which showed a nice sequential improvement, where the volumes were up, patient days were up 2%. Can you just flesh it out a little bit? Is it a result of the transition process that you mentioned before at NHS in terms of where patients are sent, or is there something in terms of the company actions that help the sequential acceleration in volumes to the U.K.?
Sure. This is Joey. In the U.K., our team is working very hard and the transition is still occurring, and it will still be occurring for several more months from moving the patients to the local area. However, we have, during the past several months, converted some of our nursing home bed facilities into more of the demand of service. For example, our CAMHS beds in the U.K., the government needed another 62 beds, and we got 57 of those beds. The NHS is coming to us to meet their needs on growing census, and our reputation for quality in the U.K. Those factors are, once again, driving the patients, or the patients are coming to us for the care, and our team is doing a good job meeting that. The transition will still occur throughout 2018 and maybe even into 2019.
We are very pleased with what the team has done during the last two quarters, and they got a lot of activity going on for the next three quarters.
Great. If I may follow up on the margin in the U.K., which also improved nicely year-over-year. Is it a function of that strong volume or that volume improving, or something improved in terms of the labor situation in that market? Thank you.
Two things occurred there, is that we did do a good job on the census there, but also the team has been working very hard on agency expense there, and we saw a sequential decline from 11.9% in the fourth quarter to 11.5% in the first quarter. It's expense management, but it's also growing our patient days, and those two combinations gave us the improvement in the margin.
Thank you.
Next, we'll hear from Frank Morgan with RBC Capital Markets.
Good morning. I guess, just to follow up on that question about the margins. Certainly volume seemed to improve sequentially, but I'm just curious about the more detail on the margin. Exactly what you can do on this better agency management. I guess if you've got the volume there, you have to have them. How do you improve agency management in a tight market, and where volumes are growing? That'd be part one, and part two would just be, maybe talk about labor in the U.S. We still hear a lot of questions and concerns about the labor markets, particularly with behavioral healthcare in the U.S. What you're seeing and your thoughts on the outlook there. Thanks.
Sure. Frank, two things going on in the U.K. that help us is, first, is that we have made progress on setting up our own temporary bank of employees, that if you need to fill a spot inside the system, inside U.K., we have a call-in center where we pool the people that are available, so we can fill them with our own employees versus going to outside agency.
Also, many of our facilities had a contract with a local agency to meet their needs. We're consolidating that and going through a rebidding process on where the amount we pay for the PRN employees from the agencies is going to be reduced. Those two things are what's driving the improvement that we saw in the first quarter. Our team is doing a great job working on that over there. In the U.S., the labor market is tight, as everybody knows, but it's not keeping us from building our facilities and finding the staff to open our beds and to grow our beds. There is pressure there. Our teams here in the U.S. are doing a great job of managing through that.
There are isolated markets where it's tougher than other ones, but we're working through that here in the U.S. and feel good about where we're at today and the beds that we're building, and that we'll be able to get them open.
Got you. Just one final and I'll hop. It looks like this, maybe turnaround's not the right word, but definitely that looks like we're in perhaps an inflection point in the U.K. I'm just curious, would you agree with that assessment? Really, what kind of timeframe do you think it will take to get that business optimized back to where you would like it to be? Thanks.
Okay. I think, Frank, the team over there has put together two good quarters. The first quarter of this year, you continue to see the improvement. As we stated before, it's a process, and we want to take another step forward in the second quarter. It will take the remainder of the year, I believe, to continue to work on blocking and tackling and getting the agency expense even lower. We're shooting to have total labor costs there under 64% by the end of the year. That's a good goal for us, and Trevor and the team over there are working very hard towards that. We've taken a couple of small steps. There's more steps to do before we're really running, but we, senior management at the company, are pleased with what is happening in the U.K. and what our management team there is doing.
Next, we'll hear from Brian Tanquilut with Jefferies.
Hey, good morning, guys. Brent or Joey, just wanted to hear your thoughts on same-store volume growth and what your outlook is going forward, especially if you look at kind of like the LTM or last 18 months bed adds and what you have in the pipeline. How should we be thinking about, especially in the U.S., volume growth on the same-store side?
My expectation is that volume growth will continue to be positive, and quite frankly, I expect it to be higher than 2%. We have a handful of facilities that are in the same-store group that have some issues that we're working through, and Ron Fincher and the division presidents are working through those issues. I would expect during the last half of this year that many of those issues will be resolved and that growth above 2% will occur for the U.S. same-store facilities. Also, we are carrying four de novo projects on the inpatient side and about six projects on the CTC side. There is a lot of new development going on, de novo development going on inside the company, and we're carrying those beginning losses in our operations, and we expect them also to start in the last two quarters to be positive to us.
Right now we feel good, but we want the 2% to be higher, but we got to have a few issues that the operations is working on.
No, I appreciate that, Joey. My last question, as I look at your U.S. revenue per patient day at 4%, do you think that's sustainable? What are the drivers of that? Is there anything to call out that's different from this quarter?
I think revenue increases from pricing can be in that 3% to 4% range. We got off to a great start. There was several states that gave us good Medicaid increases, and we've had some success on the commercial side. We expect or hope those continue, and we have hired a new person to head up our managed care contracting department who helps the local facilities with their negotiations. We think the resources we're spending there are going to come back to us in better rate increases for our facilities. Cautiously optimistic here, but we're off to a great start, and there have been several states give us good raises on the Medicaid population.
I appreciate it. Thanks, guys.
Next, we'll hear from John Ransom with Raymond James.
Hey, good morning. A couple from me here. Last quarter, you talked about the agency labor percentage having fallen about 60 basis points, and for the quarter it fell about 50. Is that flattening out, or do you think you can continue to make progress in the U.K. agency labor metric?
We expect to get by the end of the year, John, we expect it to be at a 64% of our revenue. Right now, I think it's about 65%.
Okay. No change there.
As total labor cost.
The agency labor, is it not-
It's inside that and it's at 11.5 for the first quarter.
Yeah
We're very optimistic that it will get into the tens. There's an outside chance by the fourth quarter, if we've executed really well, we might even get back to single digits. We're so much better than the industry over there, than NHS and the other competitors. We do expect more improvement there.
Okay. In the U.S., you've talked about adding 800 beds. How much of that is at existing facilities versus de novos?
I'm looking at our man, David, right now.
John, we do have with the four new facilities that we plan to open this year, those bring over 300 beds to the company.
Okay.
The rest of those would be to our existing facilities.
How would you, just in broad terms, you're going to have an EBITDA loss on your de novos, and you'll have an EBITDA pickup on the new beds. Is the overall addition EBITDA positive, or how do we think about that? Because it takes you a while to build the new beds.
We-
How do we think about the overall EBITDA effect of that? Sorry.
The total joint ventures and de novos by the fourth quarter of this year are all positive, is positive.
Okay.
We would be covering all the expenses for that group of de novos and be positive EBITDA to the company.
All right. My last one is, there was a lot of chatter in the middle of the quarter about this, and I think I'll get this right, but the NHS, the proposal to pretty dramatically increase the wage scale, especially at the unskilled level. What's your thought about, A, do you think that'll happen, B, when will we know, and C, what's the knock-on effect? I guess D, do you think there'll be some offsetting rate or is this just the downstream cost you're going to have to absorb in 2019?
John, you know I went to Middle Tennessee State and we don't get below A.
I had a few Cs at Presbyterian College. I think I got one up on you.
Okay. I even forgot what the question was. It was so long and complicated. What was it, Gretchen?
Oh, it's the-
NHS payment. Okay, first-
The labor proposal
Yes. Here we go.
All right.
It's not final. There's still discussion going on. My best guess, this is just me, my best guess that it probably gets done by July 1st. We, Acadia, are in a better position. We have always paid a little bit more than what was mandated or required by the NHS or the government. Trevor and Nigel and the operations team there is already working on this and how to offset any impact it might have on us. I expect not to have to talk about this as an issue this year. That we have things we can do and where we're positioned. The NHS will finally get it settled with that union, and there will be some wage increases, but it's put out over several years. We were with our team last week, and so the information I'm giving you is 10 days old.
We're in a better position operationally than the other providers in the U.K.
Okay, that's it for me. Thanks.
Next, we'll hear from Ana Gupte with Leerink Partners.
Yeah. Hi, good morning. Thanks for taking the questions. The question was about the difference in the final rate notice from February to April. It looked quite significantly good. Can you tell us what your thoughts are around the margins that you would target then into 2019, and the progression back to the 4.5%-5%? Do you think that might accelerate, or might you again just funnel that back into investments and the like?
Ana, hey, this is Brent. When you mention the rate, help us with what your reference point was on driving that. We just didn't follow the rate commentary. Ana? Operator, we may have lost her. Let's go to the next question.
Okay. Our next question comes from Brian Tanquilut with Jefferies.
Hey, guys. Just a follow-up to John's question earlier. Assuming that the NHS negotiation results in an increase in minimum wages for nurses, if you balance out the adjustments that you're making to try to reduce temp staffing or agency labor, should we still be thinking that your overall nurse wages in the U.K. will have to go down as you succeed in doing that?
I think what you should expect from us is that by the fourth quarter, the U.K. operations, no matter what happens concerning the salary wages and whatever, that our goal of being at 64% by the fourth quarter is still good, is still valid. I'm not going to be changing that number. We know about these factors. We knew about those factors when we set the 64% goal for the end of the year. Something extraordinary would have to occur to make us even think about changing that goal. Right now, we feel like we're on our way to making that 64%.
No, that's awesome, Joey. Last question from me. We haven't really seen much M&A activity, but obviously you've been very active on the JV front. Should we be thinking of this as a slight pivot in strategy where the JVs are obviously higher ROIC, and that's where capital focus is right now instead of pursuing the platform acquisition types of deals?
You're going to see us continue to build our own beds through the joint ventures, and I think in the last six months of this year, you will see an acquisition.
All right. Got it. Thank you, guys.
It appears there are no further questions at this time. Mr. Jacobs, I'd like to turn the conference back to you for any additional or closing remarks.
Thank you very much, operator. To all the folks listening in out there in our facilities, thank you for taking care of our patients. There is not an Acadia if we do not take care of our patients every day and focus on quality and address and help on the opiate addiction throughout the country here in the U.S. To our teams, the U.K. team, guys, you all, everybody, I enjoyed my visit over there recently and being with our employees there and our team there, and thank you for all you did. You had a great first quarter. For here back in the U.S., to Peter and Richard and Dwight, thank you all very much for running your divisions and delivering the results.
Please, as you all talk to the field and talk to the CEOs and the nurses and the medical directors, please make sure you thank them for me. First quarter is behind us. Let us get the second quarter, and we will go from there. Thank you very much for your questions and interest in Acadia today.
Ladies and gentlemen, this concludes today's call. Thank you all for your participation. You may now disconnect.