Acadia Healthcare at BofA Conference: Strategic Growth and Challenges

On Wednesday, 14 May 2025, Acadia Healthcare (NASDAQ:ACHC) presented at the BofA Securities 2025 Healthcare Conference, highlighting a robust first quarter with significant growth in bed additions and comprehensive treatment centers. Despite facing temporary challenges from underperforming facilities, the company maintains a positive outlook, reaffirming its financial guidance and strategic expansion plans.

Key Takeaways

• Acadia reported Q1 2025 revenue and EBITDA in line with guidance, with EBITDA at the high end.
• The company added 378 new beds and seven comprehensive treatment centers.
• Plans to reduce capital expenditures in the latter half of 2025 and significantly in 2026.
• Consistent demand across service lines due to the ongoing behavioral health crisis.
• Anticipates generating self-sustaining free cash flow by the end of 2026.

Financial Results

• Revenue, EBITDA, volume, revenue per day, and margins met expectations, with EBITDA at the high end.
• Reaffirmed 2025 full-year financial guidance for revenue and adjusted EBITDA.
• Revenue growth is projected at 6% for the year.
• Capital expenditure is set to decrease in the second half of 2025 and materially in 2026.
• Startup costs for new bed additions are expected to be $50 to $55 million this year.

Operational Updates

• Acadia operates 270 behavioral healthcare facilities with approximately 12,000 beds across 39 states and Puerto Rico.
• Added 378 newly licensed beds and seven new CTCs in Q1.
• Plans to add 800 to 1,000 beds in 2025, with a long-term goal of 600 to 800 beds annually from 2026 to 2028.
• Same-facility patient days grew by 3.3% in Q1, with underperforming facilities impacting growth by 90 basis points.

Future Outlook

• Confident in adding 600 to 800 beds annually from 2026 to 2028.
• Expects to achieve self-sustaining free cash flow by the end of 2026.
• Anticipates significant volume growth as nearly 1,000 beds enter the same-store category in 2026.
• CTC business is projected to grow at a mid-single-digit rate over the next few years.

Q&A Highlights

• Consistent demand across all four lines of business, driven by the behavioral health crisis.
• The industry faces a shortage of 75,000 beds nationally.
• Only 10% of individuals with opioid use disorder are receiving medication-assisted therapy.
• Opioid settlement funds have been slow to reach states and counties.
• Pre-purchased materials mitigate potential tariff impacts on capital expenditures.

Readers are encouraged to refer to the full transcript for a detailed account of the conference call.

Full transcript - BofA Securities 2025 Healthcare Conference:

Joanna, Bank of America Analyst, Bank of America: I cover health care facilities and managed care for Bank of America. Thanks so much for joining the conference. And now this session, I’m pleased to have a discussion with Acadia Healthcare, one of the largest behavioral health provider in The US. And today with us is Chris Hunter, the CEO. And I guess we’re to go right into Q and A, Chris.

Great. You’re brave enough to agree to do that. So I guess first maybe since you just reported, so maybe just in case people were busy having drinks at a casino, Right? Maybe give us a high level, you know, points from that from the

Chris Hunter, CEO, Acadia Healthcare: Yes. We had our call yesterday, and unfortunately, there was a technical snafu that went out for a little bit. So 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 to slightly better than our expectations and 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. And we reaffirmed our previously issued twenty five full year financial guidance ranges for both revenue and adjusted EBITDA.

So just overall a solid quarter.

Joanna, Bank of America Analyst, Bank of America: No, exactly. I agree with that. I’m surprised that the stock, I guess is not really responding well today. So I wonder what, you know, what the pushback was, but maybe first we can talk about just a little bit of, you know, high level comments, you know you know, this quarter was pretty good. I mean, there’s some moving pieces brought up.

Maybe talk about the demand, right? Cause I guess we hearing from all the payers talking about high trend and one of the categories being brought out is, you know, behavioral health services. So maybe talk about, you know, you have different service lines right under the hood. So maybe talk about growth rates, you know, by service line and, you know, and how do you think about the growth outlook for those lines going forward?

Chris Hunter, CEO, Acadia Healthcare: Yeah, we’re seeing consistent demand across all four of our lines of business. And I guess just to step back for maybe those investors that don’t know the company as well, we’re operating a network of two seventy behavioral healthcare facilities with approximately 12,000 beds in 39 States and Puerto Rico. And we’re serving more than 80,000 patients a day. And so the breadth of our service lines is a differentiating factor for us. And we continue to see consistent demand from a macro standpoint.

Mean, the surgeon general of The US last year pointed out that behavioral health is the defining public health crisis of our time. And we really believe that that’s not hyperbole. So 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 under bedded by 75,000 additional beds that are still required to meet the overall demand for mental health services in the country. And thirty million Americans today that have some sort of mental illness where they’re receiving absolutely no care.

And I would say even on the CTC side, only ten percent 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. So just a lot of opportunity, lot of continued consistency on the demand front. And 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 to 1,800 beds right now coming off last year and this year.

And we’re going to continue to ramp those to meet the demand overall. And I would say on the CTC side, we’re 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. So hopefully that helps just on the demand front, pretty consistent across the board.

Joanna, Bank of America Analyst, Bank of America: No, thank you. And to that end, given like all this demand it’s out there and again, like the commentary from health plans, you know, why are you slowing down your de novo plans?

Chris Hunter, CEO, Acadia Healthcare: Yeah, well, 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. And we expect to add another 800 to a thousand in 2025. And already through the first quarter, we’re almost halfway there. So just a really significant period of meeting that unmet need. Our current CapEx numbers, we expect to come down in the second half of twenty five and then materially in ’25 in ’26.

And so we’re just very confident in our ability to generate self sustaining free cash flow exiting ’26 as we begin to to pace our bed growth next year and, you know, lap this period of of peak startup losses what we’ve seen pretty recently. I would just add that we feel very comfortable with our our ability to add 600 to 800 beds a year in ’26 to ’28. 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.

Joanna, Bank of America Analyst, Bank of America: And I guess on this de novos, maybe we should talk about you mentioned, you know, the the losses, the peak losses because of this, accelerated growth that you just had. But maybe walk us through the economics of that additions. When do they breakeven? When do they mature? And then when do they reach target margins?

Chris Hunter, CEO, Acadia Healthcare: Sure. I would start with when we decide to build a de novo, we’re looking at an eighteen to twenty four month construction period. And then our cost per bed for new facility beds we’ve disclosed is 500 to $550,000 per bed. And we target breakeven usually within twelve to thirteen months. And then expect maturity occupancy of 80 to 85% within three to five years.

And then steady state 30% facility level margins, you know, upon upon maturity during that three to five year period.

Joanna, Bank of America Analyst, Bank of America: So sort of exiting the the year five? Yes. Exactly. Getting to 30%. And you mentioned, you know, CTC where you kinda talk about, you added, seven centers, right?

And you expect mid single digits. So 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 these opioid settlement fundings, but, you know, we cannot really see it, I guess, coming through. So kind of give us bring us here up to speed like what’s going on at these states? Are these monies eventually gonna come?

Chris Hunter, CEO, Acadia Healthcare: Yes. Well, 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. And we’re really pleased with the performance of that business.

It was a service line that we had under invested in historically. And we saw a really nice pickup in outsized growth in ’23 and ’24 and 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 in that line of business and, you know, our 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, and you’re increasingly seeing methamphetamine, cocaine, even horse tranquilizers that are all mixed together in very potent formulas. So those with OUD that are coming and presenting in our clinics are presenting with an even higher acuity than they have in the past. And that’s creating, you know, complexity that we’re uniquely, you know, positioned to achieve.

We also have been a little bit more focused in the last year on doing tuck in M and A. We can acquire one off CTCs, continues to be a very fragmented part of healthcare. We acquired four just in the first quarter and we’re able to drive efficiencies and get those up the J curve even more quickly than if we were to just build de novos overall. So again, kind of mid single digit grower. I wanna go back to your question on opioid settlement dollars, which is something it’s fair question and one that we frequently get.

There have been about 50,000,000,000 of opioid settlement dollars and a very small percentage of that has actually trickled down to individual states and then to counties to date. And so, you know, we would have expected at this point that that pace would have happened a little bit more aggressively, but we have a team that is full time dedicated to watching RFPs that come in from these individual counties. And 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 don’t have a car, can’t get to one of our clinics. The third would be peer support and peer support specialists. We see a number RFPs that are tied specifically to peer support. And then the fourth is CapEx for de novo expansions where we continue to see a number of RFPs there. So 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 don’t have any risk with the the broader policy considerations that are going on right now.

They’ve just taken a little bit longer to to get going.

Joanna, Bank of America Analyst, Bank of America: And maybe staying on policy a little bit and and, you know, the hot topic, you know, the last few days starting, I guess, on Sunday night was around the the house proposal, right, for the reconciliation bill. So what are your high level thoughts? There were a couple of things included, some things we’re missing. So kind of, you know, how do you think, you know, this this kind of positions, you know, this going forward? Because obviously this is not final.

Right? So also what’s your thought process? What actually the final bill is gonna look like?

Chris Hunter, CEO, Acadia Healthcare: Yes. Well, 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 and, you know, obviously, it’s only in the house. It’s about a hundred 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. And 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 health care for these populations, you tend to get exploding costs in other areas of the system. And 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 to $6 in economic benefit. So there is a real linkage between behavioral health and physical health that I think, you know, will be will be acknowledged here and is being acknowledged as part of the bill. One of the things that comes up frequently are work requirements and as we’re which we’re kind of going through the proposal, we remain optimistic that a a good population 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. And so we’re just continuing to to look through it. We also remain confident that supplemental payment programs are also going to remain important and important funding mechanism for the patients we serve and that those patients who are less at risk for losing access to Medicaid.

So still a ways to go. I mean, you know, this is one committee of the house still would need to go through the house and ultimately to the senate, but we’re tracking this very, very closely as we as we go.

Joanna, Bank of America Analyst, Bank of America: And just since you mentioned VPPs, right, they were they were not really major cuts in their grandfather, you know, calling for grandfather existing DPP programs. And obviously there’s one that was, you know, I guess we’re waiting for that Tennessee DPP program. So can you remind us how much you include in your guidance for this program and kind of when do you estimate your guidance is coming through?

Chris Hunter, CEO, Acadia Healthcare: Yes. We 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 we expect total net supplemental payments to be approximately flat relative to ’24 to up to 15,000,025. And so there are on Tennessee specifically, there are three components that require approval. CMS has approved both the ’24 and the ’25 model.

And we are right now waiting for a budget neutrality waiver that would be the third component of that. And we don’t have clarity on the the timing from what we hear. We do expect to recognize the the Tennessee program if approved in the quarter that that comes in, but we’re we’re just waiting to see on that.

Joanna, Bank of America Analyst, Bank of America: And was there anything else in this reconciliation proposal or anything else that’s flowing around in DC that you’re kinda paying attention to?

Chris Hunter, CEO, Acadia Healthcare: 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 and that was to go into effect in 2026. And so we’re waiting to see to further read draft language and to 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 there’s still some some time to go on that that we’ll have to continue to dig into the proposed legislation.

Joanna, Bank of America Analyst, Bank of America: 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. So have you observed anything, you know, into this year that, like, you know, maybe the demand from employers is higher and such? So is that also partially, you know, driving some demand out there?

Chris Hunter, CEO, Acadia Healthcare: 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.

Joanna, Bank of America Analyst, Bank of America: And maybe switching gears, to volumes. Right? So you guided for, this year. Right? Low to mid single digits.

Right? And then mid single digits, I guess, six and later. That number, right, it seems to be depressed this year because of these handful of facilities that had a, you know, headwind, I guess, starting, you know, late last year into this year. So, you know, is there something else that kinda drove that change to to this long term outlook? Because I think it previously you talk about a little bit higher, you know, volume growth longer term.

And 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?

Chris Hunter, CEO, Acadia Healthcare: Well, just a few things that I would call out to. And I think the first is that same facility patient days in the quarter grew 3.3% in q one. And that’s excluding the the impact of, you know, the leap year with underperforming facilities that you’re pointing out impacting patient day growth by about 90 basis points overall. So our ’25 outlook overall assumes low to mid single digit same facility volume growth, which assumes we’ll return to mid single digit growth by the fourth quarter as we continue to lapse over the headwind from the underperforming facilities that were was beginning to develop late last year. And we had we previously called that out $20,000,000 headwind that we’re working through a handful of facilities.

And we’ve 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. And so we just continue to execute on that front. I would say on for ’25, we also feel from a volume standpoint very good about our ability to deliver the 800 to a thousand beds for the full year. Just, you know, a reminder, we’re almost halfway there. 378 beds delivered and licensed in the first quarter.

’2 hundred and ’80 ’8 from two new facilities and then another 90 that were bed additions to existing facilities. So, you know, again, nearly halfway there through the first quarter and good progress on that front. And so as we look ahead to 2026, we’re gonna have a dynamic where we have nearly a thousand 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. And then from ’26 to ’28, we plan to add another 600 to 800 beds per year, which still is well above our historical pace. And we feel, you know, very good on our ability to execute on that as well.

Joanna, Bank of America Analyst, Bank of America: So maybe just quickly on these handful facilities you mentioned, the 20,000,000 impact. So sounds like in q one, right, just refreshing in case you people missed the missed the transcript or the on the or the web because so those sounds like they were tracking sort of as expected. Right? Yes. But is there something you’re trying still to do there?

And, you know, is there some sort of, you know, hope or like, is there potential that actually you might see some improvement?

Chris Hunter, CEO, Acadia Healthcare: Well, we continue to execute on, the turnaround plan on the sand full of facilities that again would be a $20,000,000 EBITDA drag for the year to the extent that we were able to outperform the pace. And right now, we’re very much on track with our expectations. But if we were able to outperform, that would represent upside, you know, by the end of the year.

Joanna, Bank of America Analyst, Bank of America: And 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, your kind of development plans. So are you seeing any slowdown because of that as in because you do a lot of these, developments with, you know, in joint ventures with, hospital systems. Right? So is that sort of impacting their thinking about, you know, moving forward with some plans or you kinda as of now, it’s still on plan?

Chris Hunter, CEO, Acadia Healthcare: Very much on plan. And I would say the pipeline of opportunities for potential JV partnerships continues to look very strong, not only for incremental new partnerships. And 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. And so we’re actually at a point right now as a company where we are continuing to do multiple facilities with the same partner. So we’ll open our second facility with Geisinger in Pennsylvania this year.

We did our first facility we opened, in the third quarter of twenty twenty three, in Moosick, Pennsylvania, right outside of Scranton. And we are opening a new facility, brand new facility in a different location in their headquarters at 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 doing training of medical residents as well. So we’re continuing to see traction with our existing partners as well as building a pipeline of incremental new JV partners as well.

And that continues to be something that 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 and these JV partnerships have been a very strong path.

Joanna, Bank of America Analyst, Bank of America: Another hot topic in DC has been around potential tariffs, And that is, we can sort of link it up maybe less to your supply costs and such, but I guess maybe to your development plans. So how would that change your plans if at all, right, if there were to be some tariffs implemented eventually. Right? Yeah. Were you considering some sort of mitigation strategies to kinda be able to manage through that if that was to happen?

Chris Hunter, CEO, Acadia Healthcare: 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 and into next year. And, you know, we have already pre purchased nearly all of the materials for facilities that are to be built over the next twelve months. So we really don’t see tariffs as having, you know, an impact on CapEx during this stretch.

I think for for future financial modeling, we’ve also included a factor for potential tariff increases and have overall concluded that the impact is largely immaterial relative to what we’re seeing. But I think, you know, it’s something we’ll continue to be vigilant about, but we’re not seeing any exposure right now.

Joanna, Bank of America Analyst, Bank of America: So we spoke about volumes, and I also wanna ask you So we touched on the 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. So 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 I think might be impacted in number. And is there anything else, I guess, when it comes to pricing?

Chris Hunter, CEO, Acadia Healthcare: 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. And we’ve seen outperformance on that just over the last several years. 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’s upside that will be given to companies that can demonstrate, improve superior clinical health outcomes over time. But for now, we’re obviously have been very focused on our supplemental payments and, you know, we’ve continued to guide to to low single digits just on the on the rate front overall across our lines of business.

Joanna, Bank of America Analyst, Bank of America: And since you mentioned, maybe you can also touch on the commercial rate increases, how they’ve been tracking. Are you also seeing any any changes, you know, as you, I guess, enter into maybe the the new the next wave of negotiations with the commercial payers as they complain about high trend and such. So is it getting a little bit more difficult?

Chris Hunter, CEO, Acadia Healthcare: Well, I would just say that our 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 immediately call out. I think that there is concern as there is across healthcare with what are some of the implications of from a policy standpoint on rates. But, you know, we have 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. And again, just nothing to call out at this point.

Joanna, Bank of America Analyst, Bank of America: So what rate increases have you been getting? Hospitals talk about like mid single digits. Are you also in their range or a little bit lower

Chris Hunter, CEO, Acadia Healthcare: commercial? 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 we’ve talked about, you know, low low single digits to mid single digits.

Joanna, Bank of America Analyst, Bank of America: And I guess just to wrap everything together. Right? So 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 ’26? Well,

Chris Hunter, CEO, Acadia Healthcare: we’ve I mean, we’ve talked about obviously the supplemental payments which are, you know, a significant swing for the for this year. And, you know, just the, you know, the step down that we’ve that we’ve seen. We’ve also called out the PLGL expense that, you know, we accrued at 10,000,000 on ’25 that’s proportionately spread across the year as well. You know, we expected supplemental payments overall to be down 10 to 15,000,000 year over year. And we’ve landed, you know, right in the middle of that range to date.

So, 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 I would call out.

Joanna, Bank of America Analyst, Bank of America: In terms of the headwinds. Right? Yes. Would you call any 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 to the bed addition.

Chris Hunter, CEO, Acadia Healthcare: Facilities and the bed addition 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, our labor trends came in a little bit better. And our startup costs came in several million dollars ahead of our expectations as well. But we continue to expect just with the preponderance of new bed additions that are coming in 50 to 55,000,000 of startup costs this year, which is a little bit more skewed to the front half of the year just given that we still have 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 twenty four that will continue to pivot into ’25 as well.

Joanna, Bank of America Analyst, Bank of America: Great. Thank you so much. This is all the time we have for today. Thank you so much, Chris. Good to you.

Chris Hunter, CEO, Acadia Healthcare: Thank you, Joanna. Thanks, Evan. Appreciate it.

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