Earnings call transcript: Acadia Healthcare’s Q4 2024 results disappoint investors

Acadia Healthcare Company Inc. (NASDAQ:ACHC) reported its financial results for the fourth quarter of 2024, revealing a notable miss on both earnings per share (EPS) and revenue forecasts. The company posted an EPS of $0.64, falling short of the expected $0.72. Revenue reached $774.2 million, missing the forecasted $780.22 million. Following these results, the company’s stock plunged 23.37% in after-hours trading, closing at $30.85, which is near its 52-week low. This latest decline adds to a challenging period for the stock, which has fallen over 50% in the past six months according to InvestingPro data, suggesting significant undervaluation based on comprehensive Fair Value analysis.

Key Takeaways

• EPS and revenue both missed forecasts, leading to a significant stock decline.
• Q4 revenue grew 4.2% year-over-year, but EBITDA margins decreased.
• The company is facing operational challenges with underperforming facilities.
• Expansion efforts continue with new hospital openings and bed additions.
• Market sentiment is negative, driven by earnings miss and increased liability reserves.

Company Performance

Acadia Healthcare’s performance in Q4 2024 showed revenue growth of 4.2% compared to the previous year, totaling $774 million. Despite this growth, the company’s adjusted EBITDA margin declined to 19.8%, down from 22.8% in the prior year, indicating increased operational costs or inefficiencies. The company continues to lead in technology adoption within the behavioral healthcare sector, but challenges remain in stabilizing underperforming facilities. InvestingPro analysis reveals the company maintains a GOOD financial health score of 2.91, with particularly strong marks in profitability (3.74) and relative value (3.19). Discover 12+ additional exclusive financial health metrics and insights with an InvestingPro subscription.

Financial Highlights

• Revenue: $774 million, up 4.2% year-over-year
• Full Year 2024 Revenue: $3.1 billion, up 7.7%
• Adjusted EBITDA: $153.1 million
• Adjusted EBITDA Margin: 19.8%, down from 22.8% in the previous year
• Same-facility patient days increased by 3.2%

Earnings vs. Forecast

Acadia Healthcare reported an EPS of $0.64, missing the forecast of $0.72 by $0.08, or approximately 11.1%. Revenue came in at $774.2 million, below the expected $780.22 million, marking a shortfall of $6.02 million. This performance marks a deviation from the company’s historical trend of meeting or exceeding expectations and suggests potential internal or market challenges.

Market Reaction

The market reacted negatively to Acadia Healthcare’s earnings miss, with the stock price dropping by 23.37% to $30.85, approaching its 52-week low of $30.63. This sharp decline indicates significant investor disappointment and concern over the company’s ability to meet financial targets. Despite the selloff, the company trades at attractive multiples with a P/E ratio of 10.1x and EV/EBITDA of 8.51x. According to InvestingPro, analyst targets range from $43 to $78, suggesting potential upside. Access the comprehensive Pro Research Report for detailed valuation analysis and expert insights.

Outlook & Guidance

For 2025, Acadia Healthcare projects revenue between $3.3 billion and $3.4 billion, with adjusted EBITDA expected to range from $675 million to $725 million. The company anticipates an adjusted EPS of $2.50 to $2.80. Despite current challenges, Acadia plans to add 800 to 1,000 new beds in 2025 and expects an EBITDA inflection point in 2026. InvestingPro data indicates net income is expected to grow this year, supported by the company’s strong historical revenue CAGR of 9% over the past five years. Get access to detailed growth forecasts and 30+ additional key metrics with an InvestingPro subscription.

Executive Commentary

CEO Chris Hunter emphasized the company’s dedication to transforming lives and highlighted ongoing expansion efforts. CFO Heather Dixon pointed to an anticipated earnings growth inflection in 2026. Hunter also noted, "Healthcare is local," reflecting the company’s tailored approach to facility performance.

Risks and Challenges

• Continued pressure on EBITDA margins due to operational inefficiencies.
• Increased reserves for self-insured liability claims, impacting financial stability.
• Potential $20 million EBITDA headwind from underperforming facilities.
• Uncertain market conditions in the behavioral healthcare sector.
• Dependence on successful execution of expansion and technology initiatives.

Q&A

During the earnings call, analysts inquired about the company’s strategy to improve referral activity and manage supplemental payments. Executives reiterated their focus on expanding de novo facilities and highlighted a $300 million share repurchase program as part of their capital allocation strategy.

Full transcript - Acadia Healthcare Company Inc (ACHC) Q4 2024:

Conference Operator: Hello, and welcome to the Acadia Healthcare Fourth Quarter twenty twenty four Earnings Conference Call. All participants will be in listen only mode. As a reminder, this conference is being recorded. I would now like to hand the call to Patrick Feeley. Please go ahead.

Patrick Feeley, Investor Relations, Acadia Healthcare: Thank you, and good morning. Yesterday after the market closed, we issued a press release announcing our fourth quarter twenty twenty four financial results. This press release can be found in the Investor Relations section of the acadiahhealthcare.com website. Here with me today to discuss the results are Chris Hunter, Chief Executive Officer and Heather Dixon, Chief Financial Officer. 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 in the press release that is posted on our website.

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 2024 and beyond. 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 fourth quarter news release. Consequently, actual operations and results may differ materially from the results discussed in the forward looking statements. At this time, I would like to turn the conference call over to Chris.

Chris Hunter, Chief Executive Officer, Acadia Healthcare: Thank you, Patrick, and good morning, everyone. Thank you for being with us for Acadia’s fourth quarter twenty twenty four conference call. For the fourth quarter, we reported solid financial and operating results, capping off another year of growth and progress for Acadia. Total (EPA:TTEF) revenue increased 4.2% over the prior year’s fourth quarter to $774,000,000 For the full year, we delivered over $3,100,000,000 in revenue, a 7.7% increase over 2023. Same facility patient days grew 3.2% in the fourth quarter and remained stable between 34% in each month throughout the quarter.

Excluding the impact of a handful of underperforming facilities, same facility growth would have been above 5% in the quarter. We also benefited from a more stable labor environment in 2024, supported by our initiatives centered around recruitment, retention and employee engagement and a strong focus on training in our local markets. Working together with our facility operators has helped us attract and maintain talent in a competitive market. I’d like to now take a moment to reflect on what drives us forward as an organization and why I remain as confident as ever in our strategy. At our core, we are a company dedicated to transforming the lives of patients, families and those in the communities we serve for the better.

Our facilities treat many of the most complex high acuity cases and fill a critical gap in the continuum of care for evidence based specialized behavioral healthcare. What sets us apart is our unwavering commitment to putting patient needs first, setting a high bar for care standards and compliance and prioritizing quality. We back up this commitment by investing heavily in technologies to enhance safety and people and processes to support effective patient care delivery. We believe we have led the industry in adopting the latest technology and evidence based practices and attracting the most skilled practitioners in the field, helping us to deliver safe quality care with positive clinical outcomes and patient satisfaction scores. For example, we are going above and beyond what’s required of behavioral healthcare facilities by investing in electronic medical records, which reduce medication errors, improve care coordination, support quality and ensure the consistent delivery of evidence based care.

We have added patient monitoring devices across Acadia’s acute facilities, which enhance patient safety and mitigate incident risk. We believe we lead the industry in performance metrics in the use of this technology, underscoring our confidence that the care delivered at Acadia sets the standard for other providers. We have also implemented wearable safety devices for staff that enables improved response times and mitigation of potential risk. Our ability to use data has continued to advance significantly. Our integrated quality dashboard now provides real time visibility into over 50 distinct safety, patient experience and regulatory compliance related key performance indicators.

This gives facility leadership real time insight into performance across our hospitals, creating a culture of accountability for quality. As CEO of Acadia, I continue to remain highly focused on these initiatives, and we will continue to prioritize them and expand them when necessary. I strongly believe this patient centered approach is driving superior outcomes and patient experience and also unlocking operational effectiveness across the organization. Before I turn it over to Heather to dive deeper into the financial discussion, I’d like to provide a progress update on our growth strategy. We completed construction on approximately 1,300 beds in 2024, including approximately 1,100 completed during the fourth quarter.

’7 ’70 ’6 of these new beds became operational during 2024, including the opening of four new acute inpatient hospitals. In the fourth quarter, ’5 ’70 ’7 newly constructed beds became operational, including two thirty three beds to existing facilities and three forty four beds from new facilities. In the first two months of 2025, we have added an additional three thirteen licensed beds. Joint venture partnerships continue to be an important part of our growth strategy. We are fortunate that a growing number of well respected health systems are choosing to partner with Acadia to better serve patients by bridging the gap between physical and behavioral healthcare.

During the fourth quarter, we opened our 144 bed joint venture hospital with Intermountain Health in Denver, Colorado. We also recently opened our 192 bed joint venture hospital in partnership with Henry Ford (NYSE:F) Health in Detroit. Looking forward, we have a solid pipeline of potential opportunities to work with other leading providers in attractive markets and expect to add between 801,000 total beds this year. We are proud of this progress, which would not have been possible without the efforts of the over 25,000 dedicated employees, clinicians and healthcare professionals who work at Acadia. As communities across The United States continue to face an unprecedented mental health and addiction crisis with rising rates of depression, anxiety, substance use disorders and suicide, Acadia continues to be committed to expanding access and providing the specialized care and treatment that’s so desperately needed.

As we look to 2025 and beyond, we remain confident in our strategy and goals we have set for ourselves. At this time, I will now turn the call over to Heather to discuss our financial results for the quarter.

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Thanks, Chris, and good morning, everyone. Our fourth quarter financial performance reflects consistent growth trends across our diversified portfolio of behavioral health service lines. We reported $774,000,000 in revenue for the quarter, representing an increase of 4.2% over the fourth quarter of last year. Same facility revenue grew 4.7% compared with the fourth quarter of twenty twenty three, which included patient day growth of 3.2% and an increase in revenue per patient day of 1.4%. As Chris mentioned, same facility patient day growth stabilized in the 3% to 4% range for each month in the quarter.

Our revenue per patient day growth moderated versus the third quarter, primarily due to the timing of supplemental payments. Absent the impact of timing, pricing trends remained stable as payers continued to place a high degree of emphasis on the behavioral health needs of their members. Adjusted EBITDA for the fourth quarter of twenty twenty four was $153,100,000 Adjusted EBITDA margin was 19.8% compared with 22.8% for the same quarter last year. On a same facility basis, adjusted EBITDA was $196,400,000 and adjusted EBITDA margin was 25.7% in the fourth quarter of this year and 28.4% for the prior year’s fourth quarter. During the fourth quarter of twenty twenty four, we recorded a $14,000,000 increase to our reserves for self insured professional and general liability claims.

This adjustment is related to years prior to ’24 and is largely a result of the unfavorable trends experienced by the broader industry in recent years. Start up losses related to new facilities were $11,200,000 in the fourth quarter of twenty twenty four, a $6,000,000 year over year increase relative to the fourth quarter of twenty twenty three and a $4,000,000 increase sequentially over the third quarter, a reflection of the step up in the number of newly constructed facilities. These quarterly results also reflect a $7,000,000 revenue impact and a $5,000,000 EBITDA impact due to the decision to close the facility in the fourth quarter as a part of our ongoing portfolio management efforts. Adjusted income attributable to Acadia stockholders per diluted share was $0.64 for the fourth quarter of twenty twenty four and $0.85 for the prior year period, prior year period, excluding the income from the provider relief fund in the fourth quarter of twenty twenty three. Consistent with previous periods, adjustments to income for the fourth quarter of twenty twenty four include transaction, legal and other costs, loss on impairment and provision for income taxes.

We continued to maintain a strong financial position throughout 2024, providing us with the ability to make the right strategic investments to enhance our operations and support our growth strategy. As of 12/31/2024, we had $76,300,000 in cash and cash equivalents and $226,500,000 available under our $600,000,000 revolving credit facility with a net leverage ratio of approximately 2.7. Moving on to our outlook for 2025. As noted in our press release, we are providing full year guidance as follows: Revenue is expected to be in the range of $3,300,000,000 to $3,400,000,000 Adjusted EBITDA is expected to be in the range of $675,000,000 to $725,000,000 Adjusted earnings per share is expected to be in the range of $2.5 to $2.8 We expect operating cash flows to be in the range of $460,000,000 to $510,000,000 We expect capital spending to be in the range of $630,000,000 to $690,000,000 This includes approximately $525,000,000 to $575,000,000 in expansion spending related to the construction of new beds. Our full year guidance includes same facility patient day growth in the low to mid single digits.

As Chris mentioned, we continue to focus on improving volume at a handful of underperforming facilities. However, our outlook does not assume a material improvement in the performance of this group. Were we to see a more material improvement sooner, that would represent potential upside to our guidance range. As a result, full year guidance therefore assumes an approximate $20,000,000 EBITDA headwind from this small group of facilities. Our full year guidance assumes same facility revenue per patient day growth in the low single digits.

This includes a net year over year change in Medicaid supplemental payments in the range of flat to a $15,000,000 increase. This contemplates a range of outcomes related to the new Tennessee program, which the company expects to recognize subsequent to the first quarter of twenty twenty five. I would also remind you that as called out throughout the last year, 2024 EBITDA included approximately $10,000,000 in non recurring supplemental payments. Full year guidance includes 50,000,000 to $55,000,000 in total startup losses related to newly opened facilities. This represents a year over year increase in startup costs of approximately $25,000,000 as compared to 2024, a reflection of the significant increase in the pace of bed growth as well as the timing of new facility openings.

Full year guidance also includes a year over year increase in professional liability expense of approximately $10,000,000 This increase is related to recent trends experienced across the industry, including higher reinsurance costs and we believe reflects a more conservative position. I would also point out that 2024 consolidated results included approximately $60,000,000 of revenue and $5,000,000 of EBITDA from facilities that were subsequently exited or a 200 basis point and 70 basis point headwind to 2025 revenue and EBITDA growth respectively. We also issued financial guidance for the first quarter of twenty twenty five as follows: revenue in the range of $765,000,000 to $775,000,000 and adjusted EBITDA in the range of $130,000,000 to $135,000,000 First quarter guidance includes the following assumptions. Given the large number of beds open towards the end of twenty twenty four and anticipated in early twenty twenty five, start up losses are expected to be disproportionately weighted towards the first half of the year. First quarter start up losses are expected to be approximately $20,000,000 representing an increase of approximately $15,000,000 over the first quarter of twenty twenty four.

First quarter guidance assumes a net decrease in Medicaid supplemental payments of approximately $10,000,000 to $15,000,000 As a reminder, twenty twenty four first quarter results included $7,000,000 in non recurring supplemental payments. I would also note that first quarter twenty twenty four consolidated results included approximately $25,000,000 of revenue from facilities that were subsequently closed, representing a 300 basis point headwind to first quarter growth. Facility closures are expected to be a headwind to year over year EBITDA growth of approximately $5,000,000 in the first quarter. Finally, for modeling purposes, I would remind you that last year’s first quarter had one extra day compared to this year’s first quarter. As always, the company’s guidance does not reflect the impact of any future acquisitions, divestitures, transaction legal and other costs or non recurring settlements expense.

Before we move on to Q and A, I would like to talk briefly about the outlook beyond 2025 and the significant tailwinds for this business over the next few years. We materially accelerated the pace of new bed growth in 2024 and we expect to add another 800 to 1,000 beds in 2025. This means we will have roughly 1,600 to 1,800 new beds that we expect to go from generating start up losses to a positive EBITDA contribution over the course of 2026 and beyond. At the same time, startup losses from new facilities are expected to decline beyond 2025. Therefore, we see an inflection point in earnings growth in 2026 and expect 2026 EBITDA growth to be towards the high end of the long term outlook range provided with our press release yesterday.

We anticipate the benefit of accelerating EBITDA growth combined with the decline in capital spending will drive the company towards meaningful free cash flow generation. As a reminder, a little over $100,000,000 of our annual CapEx is related to maintenance and IT spending or about 2% to 3% of revenue with the remainder going towards the construction of new beds and CTC facilities. As such, we anticipate a material reduction in capital expenditures relative to our current quarterly run rate later this year and again in 2026 as the pace of bed construction moderates from the recent highs. Over the three years beginning 2026, we expect revenue growth of 7% to 9% and EBITDA growth of 8% to 10%. We have excellent visibility into this level of growth as we moderate the pace of our bed additions to 600 to 800 beds per year, still well above our historical pace of annual bed growth.

Moderating the pace of bed growth will allow us to unlock more of the embedded EBITDA and free cash flow generating power of the record setting beds added throughout 2024 and 2025. Going forward, we believe the pace of investment in new bed growth strikes the right balance between investment and the growth of the business and the generation of free cash flow. In summary, we believe we can continue to invest to meet growing demand and drive a healthy pace of top and bottom line growth, while returning to free cash flow positive by the end of twenty twenty six. We believe this more balanced approach to growth and free cash flow generation will also provide the company increased flexibility going forward when it comes to capital deployment. Finally, as noted in our press release, our Board of Directors has authorized a new $300,000,000 share repurchase program.

Repurchases will be made in accordance with applicable securities laws and are subject to market conditions and other factors. With that operator, we are ready to open the call for questions.

Conference Operator: Thank you. We will now begin the question and answer session. Today’s first question comes from Whit Mayo with Leerink Partners. Please go ahead.

Whit Mayo, Analyst, Leerink Partners: Hey, thanks. Maybe Heather to follow-up on that last comment. Obviously, you have a lot of capital commitment this year. Guidance implies that you’re burning maybe $180,000,000 of cash. The interest expenses up presumably might include some incremental debt required to fund the growth.

So one, are there financing plans this year? And can you give us an idea on preliminary sources and uses of cash next year? Like how much exactly will the growth CapEx and IT spending be down in 2026?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Hi, Whit. Thanks for the question. Yes, just to give you a little bit of information in regards to the financing option It mentions that we have refinanced the existing bank facilities and also that we will be upsizing our revolver to about $1,000,000,000 So that is contemplated in what’s disclosed in the 10 ks and there should be more coming about that shortly. In terms of free cash flow and how we think about that, we have messaged and you would have seen in our disclosures that came out in the press release that we expect to see cash flow be back to cash flow positive by the end of twenty twenty six. And that is largely a result of a couple of things.

The first would be the EBITDA contribution that we expect to see beginning in 2026 and that is as you know the result of a couple of things. One, the contribution from the new beds that we have been adding those should start to really generate nice EBITDA in 2026 and two, the cessation of the elevated level of costs associated with the pre opening of those facilities. So those two things in confluence should generate operating cash flows at a nice rate. In addition, you’ll see that CapEx will come down as well. The high watermark for CapEx sort of came to the end of twenty twenty four and will continue with that rate in the beginning of twenty twenty five as we continue to have that high pace of beds opening.

But that should moderate and then start to ’25 and then continue to decline in 2026.

Whit Mayo, Analyst, Leerink Partners: Is there a number that you can share within a range for how much the CapEx is going to decline next year?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: I don’t want to provide guidance on 2026 at this point, but we would expect the run rate of of CapEx to come down materially over $25,000,000 and then again into $2,026,000,000 dollars I mean maybe ballpark around $100,000,000

Whit Mayo, Analyst, Leerink Partners: Okay. And then the follow-up here, just the first quarter guide implies that you’re going to earn I think like 18% of the full year, which certainly a question that we’re getting. Can you just maybe help us think through a bridge from the first quarter to the full year? I mean, there should be more supplemental dollars in the back half, your startup losses, maybe an expectation the growth is better, just any numbers around that to frame kind of the walk forward would be helpful? Thanks.

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Yes. Let me take that and hopefully I’ll hit all the pieces that you were looking at. So, you can see in the first quarter and certainly the full year guidance that the first quarter is expected to contribute less to the full year than what we would see in a typical year. But we would also anticipate the second quarter is likely to be less than typical as a percentage of the full year as well due to similar timing factors looking year over year. That’s largely driven by a couple of things.

The first, the start up costs that we’ve been talking about and then also the timing of supplemental payments. We expect the first quarter to be the high watermark for start up losses with about $20,000,000 in total startup losses for the quarter out of the $50,000,000 to $55,000,000 that we’re guiding to for the full year. So think about roughly 35% to 40% of the full year startup costs landing in the first quarter alone. Start up costs are expected to taper down over the course of the year, so the second quarter is also likely to be elevated. But again, that depends on the timing of several factors, which are hard to predict with any precision.

The other swing factor I would mention is related to the quarterly cadence for supplemental payments, the net supplemental payments, including the associated taxes and those can be lumpy and as you know hard to predict with precision. But what our guidance assumes is that first quarter supplemental payments will be down about $10,000,000 to $15,000,000 year over year, but they will be up for the full year. So I would suggest for modeling purposes, you assume second quarter net supplemental payments are down year over year as well.

Andrew Mok, Analyst, Barclays (LON:BARC): Question is from

Conference Operator: Brian Tanquilut with Jefferies. Please go ahead.

Brian Tanquilut, Analyst, Jefferies: Hey, good morning. Maybe Heather, just to drill down into some of the comments you made on the longer term growth algorithm or growth outlook. Just curious, I mean, as we think about 10% bet add the past few years and a soft comp in 2025. And I know you said high end of the range in 2026. So shouldn’t that be higher than that 8% to 10% range, number one?

And how should we be thinking about the margin and pricing assumptions that you have post 2025?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Yes. Hi. Thanks for the question. I’ll just maybe start by reiterating a couple of things. The revenue growth at 7% to 9% for those several years beginning after this year and EBITDA growth of 8% to 10%.

So to your question about how should we feel about margin and margin expansion, just to point out the delta in those two numbers that we’ve headlined. And I’ll just point out one more thing. We would expect 2026 to be at the high end of that range based on all the things that I just talked to in response to Whit’s question. A little bit more granularity, we’d expect volume growth to be in the mid single digit range on average, and that pulls in the beds that we’re adding, of course, and to answer that question that you asked. But as we said in the past, we’d expect average rates to normalize back towards the historical low to mid single digit range at some point in the future and our long term outlook assumes we see rate growth in that area.

That doesn’t mean that we won’t have years when we outperform. As I mentioned 2026, we’re going to be at the high end of that range, but our base case assumes that we see a more normalized growth rate and that’s a prudent approach and leaves room for conservatism and for us to outpace that. Maybe just stepping back a little bit higher level that was a lot of granular detail. I just want to say a couple of things about the long term guide. Nothing has changed with how we’re thinking about the opportunity here.

The strategy that we have in terms of meeting that significant unmet demand is the same. We’ll continue to expand capacity and we’ll continue to meet that need. But what we’re doing today is taking a more balanced approach and that’s balancing CapEx, bed growth and free cash flow. We can still add beds at a much faster rate than the company has historically done and drive top and bottom line growth at the same time. To be clear, our growth strategy remains primarily focused on deploying capital efficiently towards growth and expanding the footprint of the business to meet those needs.

And I’m not suggesting any sort of shift away from that with this long term guide. But we also recognize the opportunity to moderate the pace of spending, smooth out the bed growth a bit and then unlock more of the free cash flow power embedded in the business as these beds continue to ramp as we’ve been talking about. And that’s going to give us the ability to be more opportunistic from a capital allocation perspective. So that’s a reflection, this refreshed look is a reflection as we look back and look forward and making sure that we are being appropriately prudent when we’re building our assumptions and putting targets in the market. So maybe just to summarize, I’ve said a lot.

It’s really a combination of those two things. I would add that we have a high level of confidence in this growth outlook and our visibility is supported by the significant embedded EBITDA power from the thousands of beds that we’ve been adding.

Brian Tanquilut, Analyst, Jefferies: I appreciate that. And then my follow-up as I think about Q1, there’s a lot of chatter about weather, whether it’s fire issues in California or snowstorms. Just curious what you’re seeing in terms of that? And then kind of like if you can share the same store assumptions that you baked into the Q1 guide just out of curiosity? Thanks.

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Why don’t I just maybe give you a little bit of color on the bridge in general just to address that and then any sort of knock on questions here just for clarity. So for Q1, I’ll start with start up costs. I mentioned this, but I’ll just reiterate in terms of Q1 specifically here to be complete. We expect about $15,000,000 in higher start up costs versus the first quarter of twenty twenty four, and we expect that to be at the high watermark for the year. In terms of supplemental payment, the first quarter will be down around $10,000,000 to $15,000,000 year over year due to timing.

And recall that we had $7,000,000 in out of period payments in the first quarter last year. We mentioned in our press release that we had a facility closure right at the beginning of Q1. That’s about a $5,000,000 drag to Q1 for 2025. And then come to your point on volume, our 2025 outlook does not assume a material improvement on those handful of facilities that we’ve previously talked about. It’s difficult for us to put an estimate on the timing for the turnaround of a small group of facilities.

And so we believe it’s more prudent just to take a conservative approach when we’re setting guidance. So 2025 as a result of that assumes roughly a $20,000,000 EBITDA headwind for the full year from that handful of underperforming facilities. And just directly to your question, that’s not specifically related to fires or any of the other events there. There’s normal seasonality with weather, of course, always in Q1, but nothing that I would call out here. It’s just focused on those few facilities.

One point on that, the year over year headwinds would be spread over the first three quarters of the year, just as a reminder, because the fourth quarter would already have been impacted in 2024. And so we should see a tailwind as we comp over the fourth quarter of twenty twenty four results. So that’s total 20 in the year, but really distributed to the first three quarters and then starting in Q1. One last thing that we haven’t talked about that I’ll just mention for completeness as I’m going through the bridge for Q1 is professional liability expense. We you would have seen that we took a charge in Q4 and we’re also assuming in the guidance for 2025 an incremental $10,000,000 year over year for the full year.

So obviously there’s going to be a piece of that in Q1 as well. That’s just a reflection of what we believe is a more conservative approach to reserve claims this year.

Andrew Mok, Analyst, Barclays: Awesome. Thank you.

Conference Operator: The next question comes from A. J. Rice with UBS. Please go ahead.

A.J. Rice, Analyst, UBS: Thanks. Hi, everyone. So in Q4, I think the revenue per day moderated growth to 1.7% and then 3.6% in Q3, which is more like what it was for the full year. And you’re calling out low single digit pricing growth for 2025. I’m just trying to understand, I know there’s some moving parts and maybe that’s impacting you more than is apparent.

But is that something you’re seeing rates come down on the Medicaid side, on the commercial side or otherwise or rate growth rather moderate? Or are you just giving yourself the leeway that it could moderate?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Yes. Hi, A. J. Thanks for the question. Maybe I’ll just go through a little bit of detail on the rates and what we’re thinking about when we go through guidance.

First, I just want to I know I’ve said it a couple of times, but I think it bears saying again, the $25,000,000 guidance assumes supplemental payments will be flat to up $15,000,000 for this year. So, the $25,000,000 guidance essentially assumes we’ll get a little less of a tailwind relative to the years past. The timing and the magnitude of those payments can be very difficult to predict. And if that improves, then we have more visibility or timing shifts, then we will see upside and that could be a positive swing factor for us in the reported revenue per day. And second thing I would say is given the noise on the policy front, we just believe it’s prudent at this early point in the year to incorporate a more conservative approach in our thinking about rate updates given the broader environment.

There’s nothing specific on the horizon that we’re seeing is concerning, but we have taken a slightly more cautious approach as we think about 2025 given the level of uncertainty on the policy front. If this level of conservatism proves unnecessary, then rate growth could wind up closer to the mid single digit range. And then maybe finally, just to round it out from an overall rate perspective, we’re assuming the commercial rate environment remains stable.

A.J. Rice, Analyst, UBS: Okay. And then for my follow-up, looking at the different margin dynamics, I know again there’s a lot of moving parts. I think fourth quarter you were 19.8% that gave you the full year EBITDA margin about 22.5%. I think for the last five years prior to that, you’ve been more like 23.3%. If I look at peel away what you’re saying about liability and those cluster of facilities that are underperforming, what are you assuming in 2025 that your core portfolio does in margin?

Is it stable? Is it down? And if I look at the implied growth going out a couple of years, I think you sort of back of the envelope get to about 21.5% for 28%, which is below the five year prior. Are you thinking that you can’t the margin in the last five years is probably higher than you’re going to see for quite a while. So essence of it, what’s the assumption for the underlying portfolio, actually, the call outs for 2025?

And is the assumption that the margin in the last five years is a couple of hundred basis points higher than what you’re likely to get to even a couple of years from now?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Okay, A. J. Let me try to answer that. So I would point to a couple of things at a very high level. Let me just talk about a couple of things.

You talked about Q4 twenty twenty four and the impact full year and then moving into 2025, what do we expect and pointing to specifically that margin compression. Q4 margin compression was very specifically a result of two things that was the additional reserve for the professional liability reserve and the closure of liability in the quarter. So that’s what drove that and obviously it impacted the full year as well. As we think about 2025, I would just point out to a couple of things, I won’t belabor these, but we’ve got the start up costs and we have the continuation of the professional liability expense that we are assuming a higher rate for 2025. That’s about $10,000,000 over 2024.

And then when we look at volume, we’re not expecting a material improvement as I said in those few facilities, and we’re just trying to be prudent and take a conservative approach when we set the guidance. And that is giving us about a $20,000,000 headwind to EBITDA for 2025. If those items that I’m calling out improve, then we will have upside and we will have a tailwind as we move throughout the year. We just felt it was better to be more cautious at this point. To your question of what’s the underlying business look like from a margin perspective, we see that as stable.

It’s just these few things that we’re calling out specifically on top, but the underlying we see is continuing to be stable in the range that we’ve seen historically.

A.J. Rice, Analyst, UBS: Okay. All right. Thank you.

Conference Operator: The next question comes from Ben Hendricks with RBC Capital Markets. Please go ahead.

Ben Hendricks, Analyst, RBC Capital Markets: Hey, thank you very much. Last quarter, you talked a lot about depressed referral activity on the back of some difficult press headlines last year. Can you give us an update on how your referral activity has progressed across your various service lines into 2025? And then how should that impact the pacing we should expect through the year of your low to mid single digit same store volume growth that you’ve put into guidance? Thanks.

Chris Hunter, Chief Executive Officer, Acadia Healthcare: Hey, thanks, Ben. This is Chris. Why don’t I start and maybe Heather can add some commentary as well. Source front that we just continue to be very engaged with outreach to our external stakeholders, including all these key referral sources and other important partners. We have been very, very intentional about consistent outreach.

We have been very, very intentional about consistent outreach really to correct any of the misunderstandings that were created from the media reporting. And as we’ve consistently emphasized for them the quality of the care that we provide, over the last two years and that we continue to make, we think that that is resonating. We have put particular focus on ensuring that our most important referral sources do understand the facts. And we’ve clearly put some commentary on our website that I think has a lot of detail that has been very well received. And so when you just look across our entire facility base, the referral issue continues to be less and less of a challenge, and it allows us to focus on the smaller number of facilities that Heather referenced are still performing below our expectation right now.

So Heather, anything you would add?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Just maybe to double down on a couple of things there, Chris. We talked about back in January that the majority of the headwinds were coming from a handful of facilities and that began in Q4. As Chris mentioned, we are just continuing to work through the process and turning around the small group of facilities. But I would just note as well that in the portfolio of this size in any period, we’re going to have some that over perform and some that under perform. And we’ve spent the last several months just really getting to referral pattern issue and mitigate it where appropriate.

And we’re at a point now where if you look across our entire book of business, we feel good that referrals are not a widespread issue. But as I noticed, we’re focused on the small number of facilities that are performing below our expectations.

Andrew Mok, Analyst, Barclays: Thank you.

Conference Operator: The next question comes from John Ransom with Raymond (NSE:RYMD) James. Please go ahead.

John Ransom, Analyst, Raymond James: Hey, good morning. As we look out to twenty sixth and beyond, the mix of bed add, it’s crept up in terms of de novos versus facility adds. What does that look like in the out years?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Hi, John. Good morning. As we look out in the out years, I think we’ll continue to be focused on de novos. Some of those JV partners just based on the pipeline that we have as well. But I would say de novo facilities heavily focused in the acute space.

John Ransom, Analyst, Raymond James: So our math is that the construction costs have gone up probably a third or so since the plan was laid out by the old management team in 2021. So unless the returns have improved, it looks like to us like the EBITDA returns are in the maybe 10% range. But I just didn’t know, is there a rethinking of the de novo math? Do all these projects still make sense and kind of lie to the current environment?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: So no, I don’t think there’s anything there to talk about in terms of the profitability or sort of the returns expectations for those facilities. I mean, it’s clear that we have multiple options of how to deploy capital and we apply a very rigorous approach that we’ve talked about many times before. We are constantly looking at those returns. We’re making sure that we have our models updated for the right information. And we continue to see the benefit from those hospitals, those de novos that we’re adding.

And we have seen nice returns over the last several years. We’ve seen rate improvement and we’ve seen that really contribute to volume. And I think we will see that in a big way in 2026 whenever we see that happening. So whenever we see the cost of construction, the construction rates going up in some pockets, that’s what we feel confident about the rate growth that has kept up with that construction cost at the same time. So from a returns perspective, we still feel good about those returns.

John Ransom, Analyst, Raymond James: Okay. Thank you. And just two more quick ones for me. The MAT business slowed a bit in the quarter. We’re seeing mid single digit growth, number one.

And then number two, just going back to the question on referral patterns and underperforming facilities, are the ones that are left, are these mostly in the markets that were the subject of the media scrutiny or are

Andrew Mok, Analyst, Barclays: there other markets? Thank you.

Heather Dixon, Chief Financial Officer, Acadia Healthcare: So that business as you will recall has grown substantially over the past twelve, eighteen months, maybe even twenty four months. And that is that experienced great growth. The growth rate we have expected would come down just as a comp over the prior years because of that significant growth. There is a lot of strength in that business. We continue to see record volumes associated with that business.

So there’s nothing I would point to apart from just the normal growth pattern as we comp over some periods of significant growth. We still see that as a strong business and we think about it as a mid single digit grower for future periods. Okay. Thank you.

Conference Operator: The next question comes from Matthew Gillmor with KeyBanc. Please go ahead.

Patrick Feeley, Investor Relations, Acadia Healthcare0: Hey, thanks for the question. So for the underperforming facilities that you’ve called out, can you maybe just give us a sense for what you’re doing on the ground to improve the results there?

Chris Hunter, Chief Executive Officer, Acadia Healthcare: Yes. Thanks, Matt. I would start with healthcare is local. So for us, it really starts with a comprehensive review of the competitive landscape. We look really closely at the programming at that individual facility.

And then as we really dig in and make an assessment on a specific facility, we’re going to look at a number of very specific factors. So one would be, we’ll look at the business development function. We’ll look at the current funnel. We’ll look at the referral sources, identify any gaps in coverage and clearly work with the team, you don’t want to plan there. We’re going to look really closely at admissions and that can include inquiries, it can look at deflections and what’s going on there.

We’re going to do an assessment of the leadership team, not only the quality of the team, but also any staffing needs and gaps related to that team. We’ll look at technology. We’ve obviously invested heavily, but we want to ensure that there’s adherence and really strong adoption of the platforms that we’ve put in place from the remote monitoring technology to the EMR to the patient safety and specifically the comprehensive quality dashboards that we put in place as well. So we want to make sure that that is also in place. And then the final thing I would say is maybe just the physical plant.

We would even look at are there any facility improvements that would be an impediment. So it’s a comprehensive suite of things that we’re looking at working very closely with our operational leadership and getting very granular on the ground level.

Patrick Feeley, Investor Relations, Acadia Healthcare0: Got it. And then as a follow-up, should we think about the drag from those facilities assuming there’s no improvement over the near term, but that’d be a 2% drag kind of consistent with what you saw in the fourth quarter?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Yes, that’s about the right ballpark, Matt.

Patrick Feeley, Investor Relations, Acadia Healthcare0: Okay. Thank you.

Conference Operator: The next question comes from Scott Fidel with Stephens. Please go ahead.

Patrick Feeley, Investor Relations, Acadia Healthcare1: Hi. Thanks. Good morning. First question, just wanted to get your update around I know that you had talked about in the last few quarters that it ultimately saw sort of the volumes start to moderate a bit that you would have flexibility to potentially flex down some of the labor staffing related costs. The full year guidance does assume a bit lower of a volume frame around it.

So just curious sort of how are you guys thinking about that option or lever? Doesn’t seem like you have much embedded into the guidance around that, but was hoping to get your sort of breakdown of some of the options you have around flexing down cost potentially?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Yes. Hi, thanks for the question. That’s a good question. If you recall in Q4, when we brought the guide down related to the pressure that we were seeing, we brought the EBITDA guide down disproportionately higher than the revenue guide and that implied about a $15,000,000 EBITDA headwind for Q4 of twenty twenty four. As we think about 2025, we are anticipating for that same small group of facilities about $20,000,000 of a headwind built into $25,000,000 So to your question of have we started to focus on cost levers and rightsizing the cost structure?

Yes, because $15,000,000 for one quarter alone versus $20,000,000 for the full year is factoring in the cost measures that we are taking and the things that we’re doing in relation to those facilities. Just as a reminder, we have not built in any upside expectations from a volume perspective for that handful of facilities for the year. But if those facilities were to begin to turn around and the volume improves, that would of course be upside and a tailwind for us as we move throughout the year. But at this point, because the timing is hard to predict on those facilities or any facility that we’re working on, we thought it was more prudent to take a cautious approach.

Patrick Feeley, Investor Relations, Acadia Healthcare1: Okay. And then as my follow-up, wanted to know whether as you’ve announced or the Board announced that the $300,000,000 expansion of the buyback program, whether there’s any type of methodical inputs or sort of framing that you’re going to be approaching this around in terms of sort of like a maximum leverage target that you’d be willing to go to to fund buybacks as compared to comparing against sort of the current valuation and pressure in the stock? And then on that front, maybe if you want to just give us some clarity around what you’re thinking would be the maximum leverage given the increase in the revolver that you have accessible to fund some of the negative free cash flow in the projects that you have until you get to ’26 where FCS is expected to improve?

Chris Hunter, Chief Executive Officer, Acadia Healthcare: Thanks, Scott. This is Chris. I’ll go ahead and start and see if Heather wants to add anything. I would just start by saying, I mean, we have this authorization that’s been approved by the board in place and it was clearly deliberately put in place to utilize and we’re planning to do so. We’re not going to comment on any specific timeline, but I think specific timeline, but I think right now from a leverage standpoint and Heather can chime in, we would expect to naturally delever as EBITDA grows over the next few years.

And we talked about anticipating an inflection point with respect to free cash flow in 2026. And so what would you add from there?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: That’s the exact point that I would add. If we think about to your point of of effectively when and how would we fund and think about actually being in the market in terms of leverage, we have a comfortable leverage ratio and we are expecting that to come down naturally. To Chris’s point, we’ve talked about ’26 being a significant growth year for us from an EBITDA perspective and that will naturally bring that leverage back down. And then we think even beyond that, if you think about the CapEx reductions, that’s going to bring that leverage down as well. And so given that, we would be comfortable looking at taking up leverage in order to fund what we need to do from a share repurchase perspective, just given the cash flow power in the business, we’d see comfort there.

John Ransom, Analyst, Raymond James: Okay. Thank you.

Conference Operator: The next question comes from Andrew Mok with Barclays. Please go ahead.

Andrew Mok, Analyst, Barclays: Hi, good morning. Obviously, a lot of attention on state directed payments lately. I think you’re going to appreciate that investors want to understand the risk to get comfortable around that area of concern. So can you disclose your total exposure to state directed payments for us for 2024?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Yes, sure. Hi, Andrew. Good morning. Would be happy to. So the total gross supplemental payments would be less than $200,000,000 and that’s of course before the provider taxes that we pay into those programs.

Andrew Mok, Analyst, Barclays: Okay. So about two thirds of that is a good ballpark to think about in terms of net benefit?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: I wouldn’t expect ours to be any different than that for the rest of the industry. That’s pretty good ballpark.

Andrew Mok, Analyst, Barclays: Okay, understood. And then I’m still struggling to understand how there could be such a significant drop off in revenue per patient day from mid to low single digit mid single digit to low single digit, especially when I think about fiscal year twenty twenty five rates carrying into the first half of calendar year twenty twenty five and state supplementals being up overall. It seems like you’re kind of pointing to state supplementals being the area of conservatism, but that seems to go against the philosophy of booking six quarters of Tennessee. So if state directed payments are up overall, it feels like there’s a moderation in either core rate or CTC revenue. Is there anything you can share that might help reconcile these comments?

Heather Dixon, Chief Financial Officer, Acadia Healthcare: Yes. Let me hit on a couple of things. The first, we’ve talked about supplemental payments that in prior years they’ve been a nice tailwind for us and that it will be less of a tailwind certainly compared to the relative recent years. The second thing that I will just reiterate is that we feel that there is that it’s the right thing to do to just be prudent at this point in the year, just given everything that the noise that we’re seeing, we feel like it’s better to take a conservative approach. And certainly there will be upside there, if our conservative approach is sort of proven wrong.

And then just directly to your question regarding CPC, that service line delivered above trend growth obviously in 2023 and early twenty twenty four. And that was a tailwind of about 100 basis points to our growth in the early part of twenty twenty four from a rate perspective. And that’s just naturally as the growth rates moderates over the prior year comps, we would see that become less of a tailwind. In 2025, we wouldn’t expect that service line to be a material swing factor in either direction. It’s just not the tailwind that we had early in 2024.

Conference Operator: Thank you. This concludes our question and answer session. I would now like to turn the call back over to Mr. Hunter for closing remarks.

Chris Hunter, Chief Executive Officer, Acadia Healthcare: Thank you. In closing, I want to again thank our committed facility leaders, clinicians and over 25,000 dedicated employees across the country who have continued to work tirelessly to meet the needs of patients in a safe and effective manner. We have a strong foundation and a proven strategy for driving growth and delivering greater value to both the patients we serve and our shareholders. Thank you for being with us this morning and for your interest in Acadia. Have a great day.

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