Acadia Healthcare Company, Inc.

Good morning and welcome to Acadia's first quarter 2021 conference call. I'm Gretchen Homrick, Director of Investor Relations for Acadia. I'll first provide you with our safe harbor before turning the call over to our Chief Executive Officer, Debbie Osteen. 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 2021 and beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Acadia's filings with the Securities and Exchange Commission and in the company's first quarter news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. At this time for opening remarks, I would like to turn the conference call over to Chief Executive Officer Debbie Osteen.

Good morning, and thank you for being with us today for our first quarter 2021 conference call. I'm here today with Chief Financial Officer David Duckworth and other members of our executive management team. David and I will provide some remarks about our financial and operating results for the first quarter of 2021 and guidance for 2021. Following David's comments, we will open the line for your questions. We are very pleased with our solid financial and operating performance for the first quarter, marking a strong start to 2021. These results demonstrate consistent and successful execution of our growth strategy, as well as strong cost management in the face of the impact from the resurgence of COVID and one less day in 2021 due to leap year in 2020. Before we get into the results, I want to commend Acadia's dedicated employees and clinicians across our operations who have continued to meet this critical demand and provide the highest quality care in a safe and accessible manner. We have a proven operating model supported by an experienced team, as well as the financial strength to support our ability to reach more patients who need our services. For the first quarter of 2021, our U.S. operations produced very favorable results driven by solid volumes and Strong Cost Management. Our SANE facility revenue increased 7.4% compared with the first quarter of 2020, including a 2.7% increase in patient days and a 4.5% increase in revenue per patient day. Acadia is well positioned to meet the needs of those seeking behavioral treatment with our diversified service line, all of which provide high levels of exceptional patient care. In 2021 and beyond, we believe that there will be continued growth in demand for all these services. While we are beginning to see some relief from the pandemic with increased vaccinations and a less restrictive environment, elevated levels of mental health and substance use disorders are expected to remain long after the COVID-19 pandemic ends. A recent study from Kaiser finds that about half of adults continue to report negative mental health issues related to worry or stress from the pandemic. And we are prepared to help these individuals get the treatment they need. We are also seeing higher demand and societal acceptance of behavioral health increases, and coverage options for those seeking treatment expand and improve. I would like to highlight a couple of trends in the quarter. Overall, we continue to see strong demand in the first quarter and have seen the demand continue into April. While there was some resurgence of COVID-19 that followed the holidays, as always, our facility management teams and clinicians did a great job in addressing this challenge by strictly adhering to safety protocols and processes and working in collaboration with local health departments. Through consistent and open communication, we were able to operate effectively and meet the needs of our patients. Our specialty business, which focuses on inpatient residential programs has been slower to rebound following the initial impact from the pandemic, but we were encouraged by the strong trends in this service line as the quarter progressed. As more people are willing to travel, vaccination rates increase and restrictions are lifted. We are seeing higher admissions in these facilities. On our fourth quarter 2020 call, We shared with investors our growth strategy going forward with our singular focus now on our U.S. operations. We identified four distinct growth pathways that we believe will provide additional opportunities for Acadia to reach more patients in new and existing markets. I am pleased with our progress so far this year in each of these initiatives as we continue to make investments in key strategic areas that will support our long-term growth across our service lines. First, facility expansions remain a primary focus of our growth strategy. And accordingly, we added 92 beds to our existing US operations in the first quarter. As previously announced, we plan to add approximately 300 beds this year to meet the growing demand in our current markets. We also continued to identify underserved markets for behavioral health treatment, especially for treatment of patients with opioid use disorder. As I noted earlier, in addition to the many challenges presented by COVID-19, recent studies have shown that the pandemic has continued to affect mental health, including a resurgence in opioid use in the wake of widespread unemployment and isolation. New data also shows that more Americans died of drug overdoses in the year leading up to September 2020 than any 12-month period since the opioid epidemic began. To address this critical and growing need, we opened two new CTCs in the first quarter of 2021. CTCs operate on an outpatient basis and combine behavioral therapy and medication to achieve long-term recovery from opioid use disorder. We continue to see opportunities to help more individuals struggling with addiction. and we are on track to open 11 new CTCs in 2021. Second, following the end of the quarter, we executed on another priority for our continued growth by completing construction of a de novo facility, Glenwood Behavioral Health, an 80-bed hospital in Cincinnati, Ohio. This facility will provide inpatient psychiatric treatment for those who are struggling with a mental health or substance use disorder. We expect this facility to be fully operational during the second quarter of 2021. Third, establishing joint venture partnerships with healthcare delivery systems across the country has been another important growth initiative for Acadia. And we have been fortunate to partner with many leading providers in attractive markets. In March, we were pleased to announce a joint venture with Lutheran Health Network of Indiana, one of Indiana's premier integrated healthcare delivery systems. Together, we plan to build a new 120-bed behavioral health hospital serving Fort Wayne and the surrounding counties. The new hospital Slated to open in Spring 2022, will provide a full continuum of inpatient and outpatient care services. We also announced a joint venture with Geisinger Health, one of Pennsylvania's premier integrated healthcare systems. The new partnership will build two new 96-bed behavioral health facilities, providing comprehensive inpatient services in the central and northeastern regions of the state. The first facility is expected to open in 2022 and the second in 2023. Both the Lutheran Health and Geisinger Health partnerships will leverage our combined expertise and resources with a shared commitment to provide quality care and achieve strong clinical outcomes. We will continue to pursue this important pathway of growth for Acadia in the year ahead and beyond. With a solid pipeline of joint venture projects in different stages, we expect 2022 to be our strongest year for joint ventures, with four to five facilities expected to open. Finally, another important pathway to growth is through acquisitions. Acquisitions have been an important part of Acadia's growth strategy, and the fragmented behavioral healthcare industry provides ample opportunity for future acquisitions. During the first quarter, we signed a definitive agreement to acquire Vallejo Behavioral, a 61-bed psychiatric hospital in Vallejo, California, from Adventist Health. We are excited to add this facility to our portfolio, and we will continue to identify additional acquisitions that meet our criteria. We believe there are significant opportunities for growth for Acadia as we continue to expand our market reach through bed expansions, wholly owned de novo facilities, strategic joint ventures, and acquisitions. Importantly, our balance sheet is very strong with ample capital to pursue these growth initiatives and also continue to make strategic investments in our business. Now, I will turn the call over to David Duckworth to discuss our financial results in more detail.

Thanks, Debbie, and good morning. Revenue from our continuing operations for the first quarter was $551.2 million, compared with $509.2 million for the first quarter of 2020, a growth rate of 8.2%. Net income attributable to Acadia stockholders was $9.7 million, or 11 cents per diluted share. Adjusted income from continuing operations attributable to Acadia stockholders per diluted share was 47 cents for the first quarter of 2021. Adjusted income excludes income from discontinued operations, as well as a $1.7 million tax benefit related to ASU 2016-09, transaction-related expenses, debt extinguishment costs, and the income tax effect of these adjustments to income. Acadia's continuing operations adjusted EBITDA for the first quarter of 2021 was $119.5 million compared with $96.7 million for the same period last year. Same facility adjusted EBITDA margin improved 280 basis points to 26.5%. In March 2021, the company completed its expected debt repayment and refinancing plans following the completion of the UK sale in January. We have strengthened our capital structure through the reduction in debt totaling $1.6 billion in the first quarter of 2021, as well as the refinancing transactions completed in 2020 and in the first quarter this year. With the completion of these transactions, Acadia's debt structure includes the new $1,025,000,000 revolving credit and term loan facilities, $450 million of 5.5% senior notes due 2028, and $475 million of 5% senior notes due 2029. The company's net leverage ratio was approximately 2.7 times as of March 31st, 2021. Cash at the end of the first quarter was $179 million and we have $160 million drawn on our new revolving line of credit of $600 million. Turning to our financial guidance as noted in our press release, we have increased the previous financial guidance for 2021 as follows. revenue in a range of $2,240,000,000 to $2,290,000,000 adjusted EBITDA in a range of $500,000,000 to $530,000,000 and adjusted earnings per diluted share in a range of $2.30 to $2.55. With the completion of our debt refinancings in March, Our interest expense for the remainder of 2021 is expected to be approximately $17 million per quarter. With our improved debt structure, our ongoing cost management initiatives, and our disciplined capital allocation, we have a solid financial position to support our business. We will continue to make strategic investments in the business while aligning our costs to meet the ongoing needs of our patients. We are confident that the essential nature of the services we provide supported by robust demand will lead to growth through 2021 and beyond. With that, Christina, we are ready to open the call for questions.