Acadia Healthcare Company, Inc. (NASDAQ:ACHC) Q4 2023 Earnings Call Transcript
Acadia Healthcare Company, Inc. (NASDAQ:ACHC) Q4 2023 Earnings Call Transcript February 28, 2024
Acadia Healthcare Company, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Acadia Healthcare Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation there will be an opportunity to ask questions. [Operator Instructions] Please also note today’s event is being recorded. I would now like to turn the conference over to Gretchen Hommrich. Please go ahead.
Gretchen Hommrich: Good morning, and welcome to Acadia’s fourth quarter 2023 conference call. I’m Gretchen Hommrich, Vice President of Investor Relations for Acadia. Here with me today are Chris Hunter, Acadia's Chief Executive Officer; and Heather Dixon our Chief Financial Officer. I'll first provide you with our Safe Harbor before turning the call over to Chris. To the extent any non-GAAP financial measure is discussed in today’s call, you will also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by viewing yesterday’s news release under the Investors link. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Acadia’s expected quarterly and annual financial performance for 2024 and beyond.
You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Acadia’s filings with the Securities and Exchange Commission and in the company’s fourth quarter news release. And 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 our Chief Executive Officer, Chris Hunter, for opening remarks.
Chris Hunter: Thank you, Gretchen, and good morning everyone. Thank you for being with us for Acadia’s fourth quarter 2023 conference call. Our strong fourth quarter capped off another outstanding year of solid financial and operational performance for Acadia. Our team has continued to execute on our strategy with positive results across our full lines of business. For the full year 2023, we reported robust annual revenue growth of 12.2%, adjusted EBITDA growth of 13.1% and adjusted EPS growth of 14.3% as compared to 2022 excluding income from the Provider Relief Fund recognized from both periods. Moving to our fourth quarter results. Our same facility revenue increased 10.3% compared with the fourth quarter of last year with the increase driven by both rate improvements and patient day growth.
We were also pleased to see consistent improvement in our labor trends throughout 2023. Our wage inflation decreased from a peak of 8% in the fourth quarter of 2022 to below 5% in the fourth quarter of 2023, which is an improvement of over 300 basis points. In addition to improvements in the external labor market, our initiatives to drive higher employee engagement and more operational consistency in our facilities have enhanced our ability to attract and retain employees in a competitive market. We have focused on more extensive clinical training for new staff and more intentional sharing of best practices, while at the same time investing in technology tools that support Acadia employees and clinicians across our 253 facilities. We've also had an emphasis on benefits and progressive career development opportunities for employees at all levels of our facilities.
Efforts to improve retention and hiring are evident in our ability to support annual patient day growth of over 5% to ensure we provide high quality patient care. Our team has done an outstanding job in meeting the higher patient demand and effectively managing operations. During the fourth quarter, we continued to extend our market reach and add capacity through each one of our five defined growth pathways as follows. In support of our first pathway, facility expansions, we added 98 beds during the fourth quarter for a total of 302 beds that additions to existing facilities in 2023. We are pleased that this was in line with our stated goal to add approximately 300 beds. For our second pathway, we remain focused on developing wholly owned de novo facilities in underserved markets for behavioral health care services.
During the fourth quarter, we opened the newly renovated 101 bed adult hospital Montrose Behavioral Health Hospital in Chicago, Illinois. We have also completed construction on our 80-bed inpatient hospital, Coachella Valley Behavioral Health in Indio, California, which we expect to open later this year. Our CTC service line offers comprehensive care for patients who are affected by opioid use disorder or OUD. We opened two new CTC locations in the fourth quarter, bringing our total to six CTC opened in 2023 in line with our goal for the year and we remain focused on accelerating our CTC expansion by opening up to 14 CTCs in 2024. The opioid epidemic continues to intensify with approximately nine million Americans misusing opioids in the past year in new more potent drugs continuing to emerge.
In fact, some experts believe that we have now entered the fourth wave of the opioid epidemic, as drug users have now evolved from prescription drugs in the first wave to heroin and then of fentanyl in the second and third waves, and now to polysubstances that include fentanyl mixed with substances such as cocaine and methamphetamine. According to a recent report, nearly 93% of fentanyl positive urine samples contained additional substances. Methamphetamine, a highly addictive drug, was found in 60% of fentanyl positive tests last year, which is an 875% increase since 2015. As we continue to expand this important area of our business, we remain focused on driving strong clinical outcomes, improving access and delivering an exceptional patient experience spanning our traditional opioid treatment programs, or OTPs, to mobile vans and telehealth solutions.
But regardless of how patients come to Acadia for OUD, treatment quality is always a top priority and we were proud to have recently received a quality score of over 99% across 13 measures by the Commission on Accreditation of Rehabilitation Facilities, or CARF. For our third growth pathway, we are working to expand our reach through our joint ventures. Notably, Acadia is considered an attractive partner of choice for establishing relationships with premier health systems across the country. As the leading pure-play behavioral health provider, we bring the clinical expertise and experience and a proven ability to expand behavioral health care in more communities. Today, Acadia has 21 joint venture partnerships for 22 hospitals, with 11 hospitals already in operation and 11 additional hospitals expected to open over the next few years.
In early January 2024, Acadia announced a joint venture partnership with Ascension Seton, one of the nation’s leading integrated healthcare systems. The joint venture will focus on expanding Acadia's current operations at Cross Creek Hospital in Austin, Texas by constructing a 106-bed expansion of our existing acute behavioral hospital. This is the company's second joint venture partnership with Ascension and follows the opening in 2020 of Ascension Saint Thomas, a behavioral health facility in Nashville. Our new partnership with Ascension is a testament to the strength of our relationship and reflects our solid track record of clinical, operational and financial outcomes with our joint venture partners. The new partnership will expand access to behavioral health care in Austin and its surrounding communities.
The joint venture hospital will be in close proximity to Ascension Seton hospitals and will be one of the training sites for students, residents and fellows from the Dell Medical School at the University of Texas at Austin. Together with our JV Partners we have a shared commitment to providing access to high quality, compassionate behavioral health care and supporting the critical need in our local communities. Joint ventures will continue to play an important role in Acadia's future growth, and we remain excited about the opportunities to work with other leading providers in attractive geographies. For our fourth pathway, we continue to look for acquisitions that support our growth objectives and meet the criteria of our capital allocation strategy.
Last week, we closed on our previously announced acquisition of Turning Point Centers, a 76-bed specialty provider of substance use disorder and primary mental health treatment services that supports the Salt Lake City, Utah, metropolitan market. This acquisition completes the continuum of care in that market and represents the first market where Acadia has all four service lines present. Our fifth and final growth pathway extending the continuum of care is important to our clinical strategy. One of the key focus areas of this pathway is expanding our partial hospitalization programs, or PHP, and Intensive Outpatient Programs IOP that can provide 4 to 6 hours of care per day. The majority of our acute and specialty patients can clinically benefit from these programs as they offer a step-down level of care after discharge from a high-acuity stay, but also enable patients to step up again in acuity as their needs change.
This not only improves clinical outcomes, but also enhances the overall patient experience. We added 13 outpatient programs during the fourth quarter, bringing Acadia's total to 39 outpatient programs added during calendar 2023. We are also working to increase the opportunity for our patients to utilize PHP-IOP services as only a portion of our clinically eligible patients step down to PHP-IOP care post-discharge today. As we stated at our investor day in December of 2022, we expected an acceleration of our bed additions in 2024, and we are pleased to deliver on that goal this year by adding approximately 1,200 beds. This will include approximately 400 bed additions to existing facilities, which is a step up from our historical average of 300 bed additions to existing facilities.
We continue to make progress on our new facilities that will open in Florida, California, Michigan, Texas, Colorado, Arizona, and Wisconsin in 2024. Additionally, we plan to open up to 14 new CTC locations in 2024. As we continue to extend our market reach, patient safety and quality patient care remain our top priorities for delivering the best possible outcome for our patients. Quality is foundational to every aspect of the work we do at Acadia and drives operational effectiveness. Our quality initiatives are focused on providing industry-leading care to the patients we serve daily, supporting our Acadia teammates through leadership development and thorough competency-based training, building proactive tools for identifying risks and opportunities, and utilizing technology, including a quality data platform and predictive analytics to monitor our progress.
We have made significant technology investments in 2023 to further strengthen our core capabilities and enable us to deliver stronger clinical outcomes. Our recent investments in electronic medical records have helped support our clinical staff with improved retention, employee satisfaction, and workflow efficiencies. Our optimized EMR, which has been implemented using the insight from several of our medical, nursing, and clinical leaders, ensures we translate the best of behavioral science into practice at every bedside. In addition, we have now implemented patient monitoring technology in 53 facilities, promoting higher-touch care for fewer incidents and enhanced patient safety. These investments in our core infrastructure, combined with the EMR and patient care technology, provide access to better data to measure outcomes and provide a framework for value-based care.
The ability to measure and demonstrate these outcomes is important for collaborating with payers. We are proud of our impressive growth and progress over the past year, and look forward to the significant opportunities ahead for Acadia to extend our market reach to serve even more patients in 2024. Our strategic priorities will focus on accelerating facility growth, expanding services across the care continuum, strengthening our capabilities, and strategically leveraging technology to enhance patient care and improve clinical outcomes, all with the focus on delivering the highest quality patient care. We are well-positioned to meet our objectives with our financial strength, scale, and committed employees and clinicians who work hard every day to address the nation's critical need for safe, quality treatment for mental health and substance use issues.
At this time, I will now turn the call over to Heather to discuss our financial results for the quarter and 2024 guidance.
Heather Dixon: Thanks, Chris, and good morning, everyone. Our fourth quarter financial performance reflects strong and consistent growth in our business in 2023. We achieved solid top-line growth with $742.8 million in revenue for the quarter, up 10% over the fourth quarter of last year. Our same facility revenue grew 10.3% compared with the fourth quarter of 2022, which included an increase in revenue per patient day of 7.1% and patient days growth of 2.9%. The company recorded income related to the Provider Relief Fund established by the CARES Act of $2 million during the fourth quarter of 2023 and $5.2 million during the fourth quarter of 2022. Excluding income from the PRF for both periods, as well as the unfavorable adjustment to PLGL of $5.9 million or $0.05 per diluted share that was recorded in the fourth quarter of 2022, adjusted EBITDA for the fourth quarter of 2023 increased 11.9% over the prior year to $169.6 million and adjusted income attributable to Acadia stockholders per diluted share was $0.85, up 13.3% from the prior year.
Consistent with previous periods, adjustment to income for the fourth quarter of 2023 include transaction, legal and other costs, loss on impairment, gain on sale of property, and the related income tax effects of all items. Maintaining a strong financial position and disciplined capital allocation are top priorities for Acadia. As of December 31st, 2023, we had $100.1 million in cash and cash equivalents and $516.5 million available under our $600 million revolving credit facility with a net leverage ratio of approximately 1.9 times. As previously announced on January 19th, 2024, we entered into an amended credit agreement with our lenders to increase our term loan A by $350 million. Also, in January 24, we paid $400 million to settle three lawsuits in New Mexico previously disclosed.
Moving on to our outlook for 2024, as noted in our press release, we established our 2024 guidance, which includes revenue in the range of $3.18 to $3.25 billion, adjusted EBITDA in the range of $730 million to $770 million, adjusted earnings per diluted share in the range of $3.40 to $3.70, and total bed additions, excluding acquisitions of approximately 1,200 beds. We also established financial guidance for the first quarter of 2024 as follows. Revenue in a range of $775 million to $785 million, adjusted EBITDA in a range of $170 million to $175 million, and adjusted earnings per diluted share in a range of $0.78 to $0.83. This guidance reflects our expectation that same facility revenue growth will be driven by mid-single-digit growth for both revenue per day and patient days for the full year.
Please note that our guidance includes one-time payments from a state of approximately $10 million or $0.09 per diluted share for the year, of which approximately $7 million or $0.06 per diluted share was received in the first quarter of 2024. Also, as a reminder, the company's guidance does not include the impact of any future acquisitions, divestitures, transaction, legal, and other costs or non-recurring legal settlements expense. With that, operator, we are ready to open the call for questions.
See also 20 Countries with Most Blackouts in the World and 25 Countries with Developing Economies but Slow Growth Rates.
To continue reading the Q&A session, please click here.
