Joanna Gadjuk, I c over Healthcare Facilities and Managed Care for Bank of America. Thanks so much for joining the conference. This session, I'm pleased to have a discussion with Acadia Healthcare, one of the largest behavioral health providers in the U.S. Today with us is Chris Hunter, the CEO. I guess we're going to go right into Q&A, Chris, if you're brave enough to agree to do that. I guess first, maybe since you just reported, maybe just in case people were busy having drinks at the casino, right? Maybe give us a high-level, you know, points from the call.
Yes, we had our call yesterday, and unfortunately, there was a technical snafu that went out for a little bit. I'll just go ahead and just recap the quarter. I would say overall revenue, EBITDA, volume, revenue per day, and margins were all in line with our guidance with EBITDA at the high end of our range. Performance across our businesses was in line with our expectations. We added 378 newly licensed beds during the first quarter. We also added seven new CTCs, Comprehensive Treatment Centers. On the labor side, our SWB growth is tracking in line to slightly better than our expectations. Core base wage inflation has continued to moderate. We observed a little bit of a step down in premium pay year- over- year and on a sequential basis in Q1.
We reaffirmed our previously issued 2025 full-year financial guidance ranges for both revenue and adjusted EBITDA. Just overall, a solid quarter.
No, exactly. I agree with that. I'm surprised the stock, I guess, has not really responded well today. I wonder what, you know, what the pushback was. Maybe first we can talk about just a little bit of, you know, high-level comments. You know, this quarter was pretty good. I mean, there were some moving pieces, but maybe talk about the demand, right? I guess we're hearing from all the payers talking about high trend, and one of the categories being brought out is, you know, behavioral health services. Maybe talk about, you know, you have different service lines, right, under the hood. Maybe talk about growth rates, you know, by service line. You know, and how do you think about the growth outlook for those lines going forward?
Yeah, we're seeing consistent demand across all four of our lines of business. I guess just to step back for maybe those investors that don't know the company as well, we're operating a network of 270 behavioral healthcare facilities with approximately 12,000 beds in 39 states and Puerto Rico. We're serving more than 80,000 patients a day. The breadth of our service lines is a differentiating factor for us. We continue to see consistent demand from a macro standpoint. I mean, the Surgeon General of the U.S. last year pointed out that behavioral health is the defining public health crisis of our time. We really believe that that's not hyperbole. We've been pretty active in terms of building new beds.
There has been an estimate that across the United States, the industry is still underbedded by 75,000 additional beds that are still required to meet the overall demand for mental health services in the country. 30 million Americans today have some sort of mental illness where they're receiving absolutely no care. I would say even on the CTC side, only 10% of those that have an underlying opioid use disorder are actually receiving treatment from medication-assisted therapy, MAT, which is really the gold standard for OUD treatment. Just a lot of opportunity, a lot of continued consistency on the demand front. You know, our company continues to have really strong differentiation across the board. I would say that we also are in the midst of a period of record growth right now.
We have added roughly 1,600-1,800 beds right now coming off last year and this year. We are going to continue to ramp those to meet the demand overall. I would say on the CTC side, we are expecting that to be kind of a, after a period of pretty significant growth where that had been a flat business, expect that to be kind of a mid-single-digit grower over the next few years. Hopefully that helps just on the demand front, pretty consistent across the board.
No, thank you. To that end, given like all this demand, it's out there. Again, like the commentary from health plans, you know, why are you slowing down your de novo plans?
Yeah, I would just go back to what I said, which is that we are undergoing right now the strongest growth period in the history of the company with total bed additions of nearly, I think we were at 776 last year, nearly 800. We expect to add another 800-1,000 in 2025. Already through the first quarter, we're almost halfway there. Just a really significant period of, you know, meeting that unmet need. Our current CapEx numbers, we expect to come down in the second half of 2025 and then materially in 2025 and in 2026. We are just very confident in our ability to generate self-sustaining free cash flow exiting 2026 as we begin to pace our bed growth next year and, you know, lap this period of peak startup losses, what we've seen pretty recently.
I would just add that we feel very comfortable with our ability to add 600-800 beds a year in 2026 to 2028 and balancing that with an, you know, with an ability to demonstrate and show that significant embedded EBITDA and cash flow that has been underpinning all of this growth that we've done over the last couple of years.
I guess on these de novos, maybe we should talk about, you mentioned, you know, the losses, the peak losses because of this, you know, accelerated growth that you just had. Maybe walk us through the economics of bed additions. You know, when do they break even? When do they mature? And then when do they reach target margins?
Sure. I would start with when we decide to build a de novo, we're looking at an 18-24 month construction period. Our cost per bed for new facility beds we've disclosed is $500,000-$550,000 per bed. We target break even usually within 12-13 months and then expect maturity occupancy of 80%-85% within three to five years. You know, steady state, 30% facility-level margins upon maturity during that three to five-year period.
Sort of exiting the year five.
Yes, exactly.
Kind of getting to 30%. And you mentioned, you know, CTC, right? You kind of talk about you added seven centers, right? And you expect mid-single digits. Can you talk about demand there? And also as it relates to, you know, over the last couple of years, you know, a lot of discussions around this opioid settlement funding, but, you know, we cannot really see it, I guess, coming through. Kind of give us, you know, bring us, yeah, up to speed, like, you know, what's going on at these states? Are these monies eventually going to come?
Yes. I think maybe just to first start with demand. I mean, our CTC business, again, Comprehensive Treatment Centers that are helping treat those that have an underlying opioid use disorder. It's about 17% of our overall business right now. We're really pleased with the performance of that business. It was a service line that we had underinvested in historically. We saw a really nice pickup in outsized growth in 2023 and 2024 in kind of the mid-teens to low 20%. We've put in a new team there. We have been able to demonstrate extremely strong quality outcomes. Our regulator is CARF in that line of business. You know, our outcomes we're extremely proud of. I would say the demand for CTC right now continues to be high. You continue to see the potency of these drugs that are available are very strong.
Fentanyl right now is 50 times more potent than heroin. You are increasingly seeing methamphetamine, cocaine, even horse tranquilizers that are all mixed together in very potent formulas. Those with OUD that are coming and presenting at our clinics are presenting with an even higher acuity than they have in the past. That is creating, you know, complexity that we are uniquely, you know, positioned to achieve. We also have been a little bit more focused in the last year on doing tuck-in M&A. We can acquire one-off CTCs, which continues to be a very fragmented part of healthcare. We acquired four just in the first quarter. We are able to drive efficiencies and get those up the J-curve even more quickly than if we were to just build de novos overall. Again, kind of mid-single digit grower.
I want to go back to your question on opioid settlement dollars, which is something, it's a fair question and one that we frequently get. There have been about $50 billion of opioid settlement dollars. And a very small percentage of that has actually trickled down to individual states and then to counties to date. You know, we would have expected at this point that that pace would have happened a little bit more aggressively. We have a team that is full-time dedicated to watching RFPs that come in from these individual counties. We've had some nice wins on that front. I mean, there's kind of four areas that I would point out from the, you know, from these different RFPs. The first is treatment for uninsured patients, which we see pretty regularly.
A second is wraparound services, particularly around transportation to keep patients in treatment, particularly those that maybe do not have a car or cannot get to one of our clinics. The third would be peer support and peer support specialists. We see a number of RFPs that are tied specifically to peer support. The fourth is CapEx for de novo expansions where we continue to see a number of RFPs there. Longer term, we continue to think that this will be a nice opportunity for the industry and for us, but for whatever reason, despite the fact that these opioid settlements dollars are there, they really do not have any risk with the broader policy considerations that are going on right now. They have just taken a little bit longer to get going.
Maybe staying on policy a little bit and, you know, the hot topic, you know, the last few days starting, I guess, on Sunday night was around the House proposal, right, for the reconciliation bill. What are your high-level thoughts? There were a couple of things included, some things were missing. Kind of, you know, how do you think, you know, this kind of positions, you know, this going forward? Because obviously this is not final, right? Also, what's your thought process? What actually the final bill is going to look like?
Yes. We're, you know, actively along with everyone else, you know, digesting this. I mean, the draft that the Energy and Commerce Committee put out is just that. It's obviously a draft. You know, obviously it's only in the House. It's about 100 pages right now. We've gone through it. I think overall, we continue to believe that given the patient population that we're serving and our strategy of dealing with the highest acuity patients, we think that over time they'll be relatively less impacted in terms of their risk of losing access to Medicaid. We think that the bill, you know, would reinforce that. We've seen time and time again that if you take out access to high acuity mental healthcare for these populations, you tend to get exploding costs in other areas of the system.
I was just reviewing last night on the plane ride in, there's a McKinsey study that just came out that pointed out that every dollar of behavioral health interventions translates to $5-$6 in economic benefit. There is a real linkage between behavioral health and physical health that I think, you know, will be acknowledged here and is being acknowledged as part of the bill. One of the things that comes up frequently are work requirements. As we're kind of going through the proposal, we remain optimistic that a good portion of our population would be exempt from work requirements, both based on the existing structures that are in place, but also on our initial interpretation, you know, of the language. We're just continuing to look through it.
We also remain confident that supplemental payment programs are also going to remain important and an important funding mechanism for the patients we serve and that those patients who are less at risk for losing access to Medicaid. Still a ways to go. I mean, obviously, you know, this is one committee of the House, still would need to go through the House and ultimately to the Senate. We are tracking this very, very closely as we go.
Just since you mentioned DPPs, right, there were not really major cuts in their, you know, kind of calling for grandfathering existing DPP programs. Obviously there's one that was, you know, I guess we're waiting for that Tennessee DPP program, right? Can you remind us how much you include in your guidance for this program and kind of when do you assume your guidance is coming through?
Yes. We continue to assume that the Tennessee DPP will be approved as part of our guidance, though the exact timing of that is to be determined. From what we know today, we expect total net supplemental payments to be approximately flat relative to 2024 to up to $15 million in 2025. There are, on Tennessee specifically, three components that require approval. CMS has approved both the 2024 and the 2025 model. We are right now waiting for a budget neutrality waiver that would be the third component of that. We do not have clarity on the timing from what we hear. We do expect to recognize the Tennessee program if approved in the quarter that that comes in. We are just waiting to see on that.
Was there anything else in this reconciliation proposal or anything else that's flowing around in D.C. that you're kind of paying attention to?
There's nothing else that I would call out. I mean, obviously there has been some back and forth on the parity bill that was approved last year. That was to go into effect in 2026. We're waiting to see to further read draft language and to understand, you know, what the implications of that will be. I mean, we're obviously strong believers of mental health parity, but I think there's still some time to go on that that we'll have to continue to dig into the proposed legislation.
Because wasn't there like another version that took effect this year? Because I think we've heard from some employers talking about like the requirements are getting tighter, like now we have to offer more of these behavioral health services. Have you observed anything, you know, into this year that, you know, maybe the demand from employers is higher and such? Is that also partially, you know, driving some demand out there?
I would say it comes up with payer partners occasionally, but I would not say that, you know, there's been a material impact that we would call out to date.
Maybe switching gears to volumes, right? You guided for this year, right? Low to mid-single digits, right? And then mid-single digits, I guess 2026 and later. That number, right, it seems to be depressed this year because of this handful of facilities that had a, you know, headwind, I guess, starting, you know, late last year into this year. You know, is there something else that kind of drove that change to this long-term outlook? Because I think previously you talked about a little bit higher, you know, volume growth longer term. I guess, you know, what gives you confidence that you can get from this, call it mid-single digits, you know, this year to, you know, a little bit higher number, you know, heading into next year?
Just a few things that I would call out, Joanna . I think the first is that same facility patient days in the quarter grew 3.3% in Q1. That is excluding the impact of, you know, the leap year with underperforming facilities that you are pointing out impacting patient day growth by about 90 basis points overall. Our 2025 outlook overall assumes low to mid-single digit same facility volume growth, which assumes we will return to mid-single digit growth by the fourth quarter as we continue to lapse over the headwind from the underperforming facilities that were beginning to develop late last year. We had, you know, we have previously called that out, $20 million headwind that we are working through a handful of facilities.
We've, you know, continued to be very focused on those facilities and we'll continue to be there developing very much in line with what our expectations are. You know, we just continue to execute on that front. I would say for 2025, we also feel from a volume standpoint very good about our ability to deliver the 800-1,000 beds for the full year. Just, you know, a reminder, we're almost halfway there, 378 beds delivered and licensed in the first quarter, 288 from two new facilities and then another 90 that were bed additions to existing facilities. You know, again, nearly halfway there through the first quarter and good progress on that front.
As we look ahead to 2026, we're going to have a dynamic where we have nearly 1,000 beds that are actually entering that same store bucket throughout the year, which we'd expect to have a significant impact on the same store volumes as those beds ramp. From 2026 to 2028, we plan to add another 600-800 beds per year, which still is well above our historical pace. We feel, you know, very good on our ability to execute on that as well.
Maybe just quickly on these handful of facilities, you mentioned that $20 million impact. It sounds like in Q1, right, just refreshing in case people missed the transcript or the webcast. Those sound like they were tracking sort of as expected, right? Is there something you're trying still to do there? You know, is there some sort of, you know, hope or like is there a potential that actually you might see some improvement?
We continue to execute on the turnaround plan on this handful of facilities that again would be a $20 million EBITDA drag for the year to the extent that we were able to outperform the pace. Right now we're very much on track with our expectations. If we were able to outperform, that would represent upside, you know, by the end of the year.
Since we were talking a little bit about, you know, reconciliation bill and all these questions around potential policy changes, and then you were talking also about the, you know, bed additions and, you know, kind of development plans. Are you seeing any slowdown because of that? Because you do a lot of these developments with, you know, joint ventures with hospital systems, right? Is that sort of impacting their thinking about, you know, moving forward with some plans or you kind of as of now it's still on plan?
Very much on plan. I would say the pipeline of opportunities for potential JV partnerships continues to look very strong, not only for incremental new partnerships. Just a reminder for those that may not be as familiar with the company, we have 21 joint venture partners that we've announced for 22 different facilities. We are actually at a point right now as a company where we are continuing to do multiple facilities with the same partner. We'll open our second facility with Geisinger in Pennsylvania this year. We did our first facility we opened in the third quarter of 2023 in Moosic, Pennsylvania, right outside of Scranton. We are opening a new facility, brand new facility in a different location in their headquarters of Danville later this year. Likewise, we have a facility with Ascension that's in our corporate HQ hometown of Nashville.
We're also planning to open another facility with Ascension this year in Austin, Texas, where we'll be working also with the Dell Medical School and, you know, doing training of medical residents as well. We're continuing to see traction with our existing partners as well as building a pipeline of incremental new JV partners as well. That continues to be something that, you know, has been an important part of our growth historically and something that we'll continue to focus on in the future. We have many different attractive ways to deploy capital. These JV partnerships have been a very strong path.
Another hot topic in D.C. has been around, you know, potential tariffs, right? I guess, you know, you can sort of link it maybe less to your supply costs and such, but I guess maybe to your development plans. You know, how would that change your kind of, you know, plans if at all, right? If there were to be some tariffs implemented eventually, right?
Yeah.
Are you considering some sort of mitigation strategies to kind of be able to manage through that if that was to happen?
Yeah, no question. I mean, like everyone, you know, we have looked hard at what the implications of tariffs would be for us, particularly with these new beds that are coming online this year and into next year. You know, we have already pre-purchased nearly all of the materials for facilities that are to be built over the next 12 months. We really do not see tariffs as having, you know, an impact on CapEx during this stretch. I think for future financial modeling, we have also included a factor for potential tariff increases and have overall concluded that the impact is largely immaterial relative to what we are seeing. I think, you know, it is something we will continue to be vigilant about, but we are not seeing any exposure right now.
We spoke about volumes and I also want to ask you about pricing. We touched on the DPPs a little bit, but for this year, right, when you gave guidance, you also assumed some slowdown, right, from like a high single to low single digits growth in pricing. Can you talk about, you know, the core sort of pricing outlook excluding DPPs, right? And then maybe touch on the business mix and payer mix and how, you know, those I think might be impacting the number. Is there anything else, I guess, when it comes to pricing?
Yes. I mean, I would say that, you know, our pricing overall, you know, we have talked about this is an industry that has seen kind of low single digit rates historically. We have seen outperformance on that just over the last several years. You know, I continue to believe that as somebody that came from the payer side, that we will eventually be in a dynamic where pricing is low single digits and there is upside that will be given to companies that can demonstrate and prove superior clinical health outcomes over time. For now, you know, we are, you know, obviously have been very focused on our supplemental payments. You know, we have continued to guide to low single digits just on the rate front overall across our lines of business.
Since you mentioned, maybe you can also touch on the commercial rate increases, how they've been tracking. Are you also seeing any changes, you know, as you, I guess, enter into maybe the next wave of negotiations with the commercial payers since they complain about high trend and such? Is it getting a little bit more difficult?
I would just say that we have, you know, very strong payer partnerships across the country. And we, you know, take those conversations always very seriously. I would say on the commercial front, there isn't anything that I would, you know, immediately call out. I think that there is concern as there is across healthcare with, you know, what are some of the implications from a policy standpoint on rates. But, you know, we have, you know, clearly factored that into our guidance and, you know, our expectations on the low single digit front. So it's something that we're, you know, continuing to monitor and track. And but nothing I would call out right now because those conversations have continued to go really well. We're through, you know, approximately a third of our pricing negotiations at this point in the year.
Again, just nothing to call out at this point.
What rate increases have you been getting? Hospitals talk about like mid-single digits. Are you also in that range or a little bit lower?
They've been just very consistent with what, you know, we would have expected at this point, you know, in aggregate. You know, we've talked about, you know, low single digits to mid-single digits.
I guess just to wrap everything together, right? Your guidance calls for revenues growing 6% for this year, right? And then EBITDA actually down year over year. There's a lot of moving pieces, but can you walk us through, you know, the main drivers of this year over year on decline in EBITDA and also as it relates to, you know, as people think about 2026, you know, which of these things are more temporary, right? And which should essentially go away in 2026?
I mean, we've talked about obviously the supplemental payments, which are, you know, a significant swing for this year. And, you know, just the, you know, the step down that we've seen. We've also called out the PLGL expense that, you know, we accrued at $10 million on 2025. That's proportionately spread across the year as well. You know, we expected supplemental payments overall to be down $10 million-$15 million year- over- year. And we've landed, you know, right in the middle of that range to date. You know, I think, you know, we've talked about the underperforming facilities and our focus on that front. So between PLGL and supplemental payments, those are the only others that I would call out.
In terms of the headwinds, right?
Yes.
Would you call any tailwinds, I guess, in the, what, you know, things I guess that are, you know, kind of good guys 2025 and they should repeat in 2026? I mean, I guess you alluded to that addition.
The supplemental facilities and the bed additions certainly. I mean, I would, you know, call two things out in terms of favorability that we saw in the first quarter in terms of where we slightly outperformed. You know, one was, you know, our, you know, labor trends came in a little bit better. And our startup costs came in several million dollars ahead of our expectations as well. I mean, we continue to expect just with the preponderance of new bed additions that are coming in, $50 million-$55 million of startup costs, you know, this year, which is a little bit more skewed to the front half of the year just given that, you know, we still have, you know, so many beds that are underway. Also because that's, you know, done on a CapEx is recognized on a cash basis.
We've got a number of the bed additions and the CapEx expense from the end of 2024 that will continue to pivot into 2025 as well.
Great. Thank you so much. This is all the time we have for today. Thank you so much, Chris. Good to see you.
Thank you, Joanna.
Thanks everyone.