Acadia Healthcare Company, Inc.

Good morning, and welcome to Acadia Healthcare's first quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw a question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Gretchen Homrick. Please go ahead.

Good morning and welcome to Acadia's first quarter 2022 conference call. I'm Gretchen Homrick, Vice President of Investor Relations for Acadia. I'll first provide you with our safe harbor before turning the call over to our Chief Executive Officer, Chris Hunter. 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 2022 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 Chris Hunter. Thank you.

Thank you, Gretchen. Good morning, everyone, and thank you for being with us today for our first quarter 2022 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 business and financial and operating results for the first quarter of 2022. Following our comments, we will open the line for your questions. But before we get into the results, I just want to start by saying what an honor it is to be with you today as the new CEO. Acadia is a strong, respected organization, and I look forward to building on the successful trajectory set by Debbie Osteen and the Acadia leadership team. I want to personally thank Debbie for her leadership, for the solid foundation she leaves in place, for her time since I joined the company, and for the future work ahead as we continue our CEO transition plan. I'm grateful that Debbie is continuing her role on our board of directors and know we will benefit from her expertise. Some quick background on me. I'm passionate about healthcare and the difference our industry makes in people's lives. I've worked in the healthcare industry now for over two decades in managed care and healthcare IT. For the past eight years, I've worked at Humana in two different roles, first as Humana's Chief Strategy Officer with responsibility for corporate strategy in mergers and acquisitions, and most recently as the president of a business unit that together served the combined 20 million members in 45 states. Prior to Humana, I ran the provider business at Trizetto Corporation, and from these multiple vantage points, I have witnessed firsthand the critical need for effective behavioral health solutions. As we may finally be emerging from the height of the COVID-19 pandemic, there's clear evidence that the challenges around mental health are only increasing. Recent studies reported that approximately one-third of Americans experienced elevated depressive symptoms in 2021, compared to only 8.5% prior to the pandemic, while more than 55% of adults with a mental illness received no treatment for their conditions. As the leading pure play provider of behavioral health care services, Acadia has a significant opportunity to meet this critical societal need in our country. We take this responsibility seriously, and across our operations, we have a shared commitment to ensure that Acadia is well positioned to address this growing need. Since I joined three weeks ago, I have been encouraged by our team's discipline and ability to execute in a tough environment with COVID and labor challenges while continuing to meet the growing demand across all of our service lines. I'm also very impressed with our diversified offering of comprehensive services within behavioral health, which are focused on real patient needs that continue to be undertreated and the strong growth pathways across our businesses to serve those patients. Moving to an update on the first quarter, we continued to build on our solid foundation and proven operating model through Acadia's four strategic growth pathways. First, our facility expansion efforts continue to address the unmet demand for behavioral healthcare services and reach more patients in new and existing markets. We added 28 beds to current facilities in the first quarter and expect to add approximately 300 beds through facility expansions this calendar year. Our second growth avenue is to identify underserved markets for behavioral health treatment and develop wholly owned de novo facilities that help fill this gap. At the end of 2021, Acadia completed the purchase of three non-operational facilities in Chicago. We have since commenced work on the planned improvements for a 60-bed children's hospital that we expect to open next month. In addition, both a 101-bed adult hospital and an outpatient facility are slated to begin Chicago operations in 2023 and will operate as Montrose Behavioral Health Hospitals. Additionally, We continue to expand our network of comprehensive treatment centers, or CDCs, which are designed to address the growing and critical need for medication-assisted treatment for patients dealing with opioid use disorder. In the first quarter of 2022, we opened one new CTC in Virginia, and we plan to open at least five more CTCs in 2022. Our third lever for Acadia's continued growth is through joint venture partnerships. We announced six new partnerships with health systems in 2021 and plan to open a new facility in partnership with Covenant Health in Knoxville, Tennessee this summer and expect to launch operations in a new facility in partnership with the Lutheran Health Network in Fort Wayne, Indiana later in 2022. Working together with these partners, we can combine our expertise and resources with a shared commitment to expand access to quality behavioral health care. Finally, for our fourth growth pathway, we will continue to look for acquisition opportunities in high-growth markets that meet the criteria of our disciplined capital allocation framework. Acadia has a proven operating model, and our strategy is to identify facilities and programs where we can leverage our scale and expertise, make necessary investments for expansion, and add service offerings to further enhance the continuum of care. So to recap these four growth avenues, in 2022, we expect to add over 600 beds in total through approximately 300 bed additions to existing facilities, opening two inpatient de novos, two facilities with JV partners, and at least six CTC locations. As we witness the significant need for more effective treatment, we have also seen a greater public acceptance of mental health at parity with other health issues, as well as a reduction in the stigma that has often prevented patients from seeking the health they need. My goal is to build upon our strong momentum and extend our market reach to more patients and communities. We will continue to execute on our strategic growth plans as we address the unmet needs that exist across all service lines. I plan to conduct ongoing reviews of each of our businesses in order to identify incremental opportunities to create long-term value and determine how we can best position Acadia to lead the industry into the future. I look forward to sharing this perspective in the coming months and also to conducting our first Acadia Investor Day in New York later this year. I would like to address some of our industry headwinds. As with many other healthcare providers and other industries across the country, we are currently dealing with a tight labor market. At the same time, I've been impressed with our team's ability to manage through this environment with an unwavering focus on treating our patients. We continue to be intentional in recruiting and retaining our clinical staff in line with patient needs, and we believe we have the tools to effectively manage through potential challenges. We continue to be successful with recruiting new employees through robust local efforts and utilizing our centralized recruiting function to support our facilities. While we have focused on market competitive pay for our valuable employees, our wage inflation is manageable, and our premium pay is stable and continues to account for a low percentage of our labor costs. As always, our primary mission is to support the patients and communities we serve. We will continue to focus on providing high-quality patient care while extending our market reach and advancing our position as a leading behavioral health care provider that our country is counting on to grow and serve more families in need. At this time, I'll now turn the call over to David Duckworth to discuss our financial results for the quarter and our 2022 guidance in more detail.

Thanks, Chris, and good morning. Looking at the first quarter, we delivered a solid financial and operating performance marking a strong start to 2022. While we faced some early challenges in January related to the surge of the Omicron variant of COVID-19, our operating trends recovered quickly with meaningful improvement in February and March. Our facilities have managed well through each stage of the pandemic with strict protocols in place to ensure high standards of safety for our patients with minimal disruptions to our operations. We successfully delivered on our key performance metrics in the first quarter, demonstrating consistent execution of our strategy. Revenue for the first quarter increased 11.9% to $616.7 million, compared with $551.2 million for the first quarter of 2021. Acadia's adjusted EBITDA for the first quarter of 2022 was $135.5 million, compared with $119.5 million for the same period last year. And adjusted EBITDA margin was 22%, compared with 21.7% in the prior year. Adjusted income attributable to Acadia stockholders per diluted share was 67 cents. For the current period presented in our earnings release, adjusted income excludes transaction-related expenses and income tax effects. For the first quarter of 2022, our same facility revenue increased 8.6% compared with the first quarter of 2021, including an increase in revenue per patient day of 6.2% and an increase in patient days of 2.2%. We have experienced robust demand for our behavioral health care services, and our dedicated team of employees and clinicians across our operations have continued to support our patients with high-quality patient care. Our balance sheet remains strong with ample liquidity, flexibility, and capital to support our growth strategy and future investments. As of March 31st, Acadia had $140.4 million in cash and cash equivalent and $440 million available under our $600 million revolving credit facility. our net leverage ratio at the end of the quarter was approximately 2.3 times. During the first quarter, the company continued its repayment of amounts received pursuant to the Medicare accelerated and advanced payment program under the CARES Act. Of the $45 million of advanced payments received in 2020, the company repaid $25 million in 2021 and made additional payments of $8 million in the first quarter of 2022. We will continue to repay the remaining balance throughout 2022. We will also repay the remaining half of the approximately $39 million of 2020 payroll tax deferrals in the second half of 2022. Now turning to our guidance, as noted in our press release, We are affirming our previously stated guidance for 2022, which includes revenue in a range of $2.55 to $2.6 billion, adjusted EBITDA in a range of $575 million to $610 million, and adjusted earnings per diluted share in a range of $2.85 to $3.15. As a reminder, this guidance does not include the impact of any future acquisitions, divestitures, or transaction-related expenses. With that, Joe, we are ready to open the call for questions.

We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. Please limit yourself to one question and one follow-up. At this time, we will pause momentarily to assemble the roster. Our first question will come from Brian Tenquillet from Jefferies. Please go ahead.

Hey, good morning, guys, and Chris, welcome to the call. Nice to meet you here. I guess my first question for you, obviously new to the job, but I'm sure you've done a lot of diligence on the company before you took this position. So just curious how you're seeing or how you're thinking about the strategy. I know you laid out the growth goals earlier, but as you look at Acadia, anything you can see where you can enhance the strategy or where there are opportunities to improve? And then I guess maybe conversations with the board in terms of your mandate as CEO and as you step into the role.

Thank you, Brian. I really appreciate the question. A few things I'd start with from the outset. I really like the diversification across all areas of behavioral health, from those with psychiatric needs to substance use disorder and co-occurring disorders, and even serving patients of all ages. We have diversification across all lines of business, payer mix, geography, And as I've started into the role, I'm particularly impressed with the strong execution of the team. I think particularly as we discussed in the prepared remarks during a very difficult stretch with industry headwinds around COVID and the tight labor market. But I think with the strong balance sheet, the levers of growth that we discussed earlier, there's a lot that excites me around our future prospects. I would say that I would like to see the behavioral sector overall, probably embrace technology and digitization and take advantage of cost benefits and efficiencies and even revenue enhancements and other ways to just further enhance our platform. But it's really building off a base of foundational strength. And I think we just have, we'll continue to have significant opportunity ahead of us. In terms of the board mandate, You know, I am in week three and haven't had my first board meeting yet, but I'm very excited and have spoken to the board about, you know, the ability to grow the company, the strategic levers that we clearly have in front of us, and just how positioned we are with real tailwinds from a demand standpoint across all four of our lines of business.

I appreciate that. And then, David, just my follow-up question. REV for patient day was pretty strong. Is there anything to call out there? And then how do you think about the sustainability of that level of growth in that metric?

We have seen a strong revenue per day performance, which we saw throughout 2021 and continued into the first quarter. And we would say that the most significant component of that is rate increases that we are seeing broadly across many of our payers and many of our service lines. We have a team that maintains a close and collaborative relationship with our commercial and our other managed care payers and have worked with them very well at a local level and at a corporate level on those rate increases. A payer mix for the company is part of our strong revenue per day this quarter. We saw our commercial volumes at just over 30%. But most of that 6.2 increase that we saw on a same facility basis is rate increases that we are getting from our payers. Awesome. Thank you.

Our next question comes from Whit Mayo with SVB Learing. Please go ahead.

Hey, thanks. Maybe for David, given the increased level of activity that you have on the development front, all these joint ventures, all these new construction projects. Are there any changes in strategy, talent processes, just anything as you refine the resources around the construction side? It just feels that there should be some opportunities to drive enhanced scale across some of these construction costs with all this activity.

We are, of course, planning for a significant amount of growth and bed additions over the next several years. and we continually focus on the resources that we need to execute on the plan. We have a strong team already, but we will continue to look at the right team as we bring new facilities online. Many of those are joint venture relationships where we've already built strong relationships with those partners for those facilities that we have planned. So we will continue to look at resources that we need, as we've always done, From a construction perspective, we have added resources to our construction department over the last year and are looking at a number of initiatives. Many of those are to open the beds as quickly as we can. Where can we shorten certain parts of the process for opening and building those beds? But many of them are also focused on the cost and the efficiencies that we might be able to find within construction. So we stay focused on our growth. We want to open all these beds as quickly and as efficiently as we can, and we have built the team and will continue to build the team around those initiatives.

That's helpful. And just maybe one follow-up on just the CTC business, and I guess I mean this in the context of sort of labor, we get a lot of questions around maybe how that labor or the staff model has evolved in the pandemic. And maybe if you could just talk about some of the trends in that business as you sort of compare and contrast it to acute psych or residential treatment. Thanks.

Yeah, that business has grown and we've opened new clinics and continue to see a strong performance from our CTC service line And reimbursement has improved as many states have added Medicaid coverage and have been focused at a state level on more treatment options and more locations for the opiate use treatment. And so we have grown along with that and continue to look for opportunities to open new locations and grow the ones that we already have. From a staffing perspective, the model does look different for our CTCs compared to our other service lines. The nursing is a significant component of that service line at around a third of our clinical employees, but we do have a higher utilization there of LPNs relative to the acute business that would have more RNs. And then the other significant category would just be counselors and therapists. And we remain focused on recruiting and retaining the counselors and therapists within that service line. But the staffing model there does have a much higher mix of both the counselors and therapists and a greater ability to utilize LPNs versus our other service lines. Great. Thanks a lot. Thanks, Whit.

Our next question comes from Kevin Fishbeck with Bank of America. Please go ahead.

Great, thanks. Maybe, Chris, I want to go back to your comments. In your prepared remarks, you talked about kind of doing ongoing business reviews and driving incremental value, and I think the market always wonders what the new CEO might bring with them. It sounds to me like you're basically, you know, revalidating the four pillars of growth and kind of the long-term growth growth outlook of the company, but you see additional opportunity for upside. Am I interpreting that correctly, or is there some other nuance we should be taking away from this kind of business review process you're going through?

Yeah, no, thank you for the question, Kevin. You know, I would start just by saying that the company has, you know, four very strong levers of growth between the facility expansions, the DeNovos, the JVs, and obviously M&A. And we'll continue to want to build upon this really strong core foundation that we have. I do think that there will be some opportunities. I will see them as enhancements along the way. We'll certainly look at partnerships and we'll look at things that we can do to continue to accelerate growth. But I just want to reinforce and had an opportunity to spend some time with our top operators last week. that we really need to continue to execute on doing a great job to produce the strong quarter that we have the privilege of talking about right now. And we will be looking for every opportunity to continue to enhance that as we go. And clearly, we'll be drawing on my background and really look forward to trying to bring some innovation to the business where it makes sense, but in a prudent way and over a period of time.

Okay, that's helpful. And then just on labor costs, which is obviously a big focus. Some of your peers have struggled, but even broadly speaking, a number of companies this quarter have struggled with labor costs. I guess, what would you attribute, you know, overall your ability to manage through this? Because is it, you know, the rate updates that you've been getting that kind of give you a little bit more, you know, cover to raise wages? Or is there something else you would point to? Because I wouldn't think about behavioral necessarily as being an easy place to recruit into, generally speaking. So when labor is a little bit tight, it's pretty impressive what you've done. So any additional color there would be helpful. Thanks.

Yeah, Kevin, we have been navigating, in our view, a tight labor market overall for the last several quarters, and the team continues to do a fantastic job navigating the market. We are in 40 states plus Puerto Rico, and we continue to believe that each market has a different challenge, and not all markets do see a challenge. And it is helpful that we have different service lines and different types of employees within each service line. That's not to say that we don't have challenges across the different categories and across our markets. But it does look different from one market and one job category to another. And I would just have to give credit to our facility leadership teams and our recruiting team that's at the facility but also supported by centralized recruiting resources that we have at the corporate level. We keep a proactive approach to staffing. We are always planning. to have staff available so it does not impact our volume. We want to make sure that if staffing does impact our volume, it's only temporary and we bring the right resources to fix the situation and continue to support the strong inquiries and demand that we are seeing across our service lines and markets. And so to us, it's all about just the proactive approach, having the tools in place, having the focus on managing the staff, recruiting, using premium pay if we need to, and all of that has made it manageable. You mentioned rates. We have seen improvement year over year in our salaries and wages as a percentage of our revenue, which actually declined year over year. We have seen wage inflation, but we have been able to cover that wage inflation with strong volume and with rate increases that we are seeing from our payers. So the labor costs in total have been manageable and have allowed us to continue to see volume growth. Great, thanks.

Our next question comes from Andrew Mock with UBS. Please go ahead.

Hi, good morning. I wanted to follow up on those strong pricing trends. When we think about the strong commercial price increases that you cited, can you give us a bit more color on the drivers of that demand? Are there specific types of employers or payers that are driving that increase? And any service lines that you would call out that drive a differentiated behavioral offering that resonates with that commercial base? Thanks.

Yeah, Andrew, we would say as we look at our different service lines that we have seen strong reimbursement increases this quarter across those service lines. Of course, the timing of rate increases and the process that we go through with our payers can look different from one payer category to another. We are, with our commercial payers, talking to them in advance of an annual rate increase. And we do stay focused at a local level and a corporate level on receiving those annual rate increases. And as we do that, we are talking to them about the value that we bring, the programs that we design for their members, and the investments that we make and the cost increases that we've seen and the services we provide. And so commercial has been And we're over 90% in network across our commercial payers where we have longstanding collaborative relationships. And commercial has been a source of good rate increases. Our view is that it may take longer across all of our Medicaid and certainly Medicare to receive appropriate rate increases. We've certainly seen a good environment for Medicaid in general. But the process can look different from one state to another. And then Medicare tends to be very much a lagged increase in terms of using cost data that's several years prior in setting each rate increase. But it's been a stable, consistent payer. And there's another proposed rate increase this October that's in line and actually slightly better than what we've received historically. So broadly across our service lines and across our different types of payers, we are seeing positive rate increase trends.

Great. And just as a follow-up, can you remind us how the CTC business impacts the patient day revenue and volume metrics? Does that all flow through the revenue per patient day, and is there a corresponding volume capture there? Thanks.

Yeah, it's a good question, Andrew. It does all flow through our revenue per day metric because that service line does not have patient days included in that metric. And so usually we are talking about the growth rate for our CTC business in total and to the extent that it's different from our same facility total revenue growth, then it would impact our revenue per day metric. For this particular quarter and in general, looking back at the last several years, the CTC growth that we are seeing is in line with the overall same facility revenue growth. And so it has not had a significant either positive or negative impact on our revenue per day. But that is how it in some quarters could have an impact. But any CTC related either volume or or per visit trends have not had an impact on our revenue per day this particular quarter.

Great, thanks for the call.

Thanks. Our next question comes from Pito Chickering with Deutsche Bank. Please go ahead.

Hey, good morning, guys. Thanks for sending my questions. Chris, it's good to meet you via the telephone. You talked about revenue opportunities in digitization. We've seen... demand for telemedicine and behavioral continue to grow? Is that an area that you think that Acadia could be successful in?

Thanks, Peter. I think it's a good question. I think the company today is already using telehealth quite successfully and has done so throughout the pandemic, particularly with our outpatient programs. and individual and group counseling sessions. We also have used it successfully when we need physicians for a market and we're able to use it as an alternative to locum coverage. That said, I think that there will continue to be opportunity just as the world continues to evolve into virtual offerings. And while we don't think it will ultimately be a replacement for inpatient care, I think there will be opportunity for us to continue to look at innovation and to potentially even think through whether it makes sense to partner in certain instances as well. But any opportunity to leverage technology for the benefit of improving our health outcomes is something we would take a look at.

Right, and then a follow-up question to David on the CDC question again. What percent of revenues in the first quarter of 21, the first quarter of 22, came from CDC?

Peter, I think it was around 15% or 16% for the first quarter.

Okay, so just mathematically it's about $130 sort of growth to revenue per patient day come from CDC, you know, relative to if you didn't have CDC involved.

Yeah, that's right. It's about $100 million for the quarter.

Got it. Okay. And then on the cost side, is CBC sort of a more profitable segment kind of as that grows, even in line with the overall revenue growth? I guess can you sort of help quantify sort of what type of margin sort of tailwind that gives you to offset sort of the overall macro inflationary pressures? And also on the cost side, is CBC more of a 60-40 labor versus supplies versus just standard 90-10 acute? Just trying to understand more on the cost side.

Well, the CTC margin that we see overall is similar to our same facility business. Of course, we're making investments in new CTC facilities, and they don't go through the exact process that an inpatient facility goes through in terms of the ramp-up and the licensing. But they do go through a period of time where they ramp up their operations and build their census and other aspects of their business And so we've made investments in that, and that, you know, as it does on the inpatient side, affects the margin that we see for that service line. But for the mature CTC facilities, it depends on the market. That's true across our company and across our service lines that one market to another, our margin can be different. And the CTC business, just like our other businesses, is seeing strong volume growth, reimbursement growth, and is managing their costs. And we're seeing strong margins there, but we're also seeing that in our other service lines. We don't kind of manage the business to say that improved margins on one side will help us offset costs that we are seeing grow in another service line. We are focused on each of our service lines capturing the demand and the volume opportunities that they have in managing their costs. I think you also asked about the CTC mix and the operating expenses that we have. It is labor intensive just like our other service lines. The majority of the cost that we see on the CTC side is similar. In general, we say that 70% of our operating cost is staffing or staffing related. And that looks the same on the CTC side as it does on the inpatient side.

Okay. Just to clarify, on a mature CTC facility versus a mature acute facility, those have the same margins.

Well, not every facility has the same margin within any of our service lines. So it can look different, but when we talk about averages for a service line in total, yes, we see similar margins across our service lines.

Great. Thanks so much, guys.

Thanks, Peter.

Thank you.

Our next question comes from John Ransom with Raymond James. Please go ahead.

Hey, good morning. This is one for Chris. I guess the impression of Acadia is that you know, relative to, say, other providers, you know, kind of paper-based medical records and don't track outcomes data, you know, when patients are discharged. So from your approach at the payer level, you know, do you think this is something that will change over the next couple of years, and is it something that might be a focus for you?

Yeah, thank you for the question, John. I think it's a good one. I think it's something that has to change over time. I mean, at the end of the day, having come from and having worked in numerous payers, Payers want quality care, and they clearly are looking for superior outcomes, and I think that's why we've been able to see the rate increases that David was talking about earlier. I think they also are looking for solutions that are going to enable patients to be identified even earlier. you know, further upstream, and I think that's going to continue to require technology and advanced analytics to make that happen. So, I mean, obviously, the behavioral health sector, as you well know, missed out on some of the meaningful use investment years ago, but there is legislation out there right now that would provide funding for the sector to effectively catch up on investment in EHRs, which are overdue. And I do think that that's something that will create a significant amount of value in the system. I think that payers will continue to want to contract with the providers that are showcasing the best outcomes. And that's something that we're going to continue to be very focused on in the days ahead.

Great. And my... My follow-up would be is, you know, the company has cycled through a few M&A heads. And, you know, the external growth, especially relative to your peers, is very impressive. But I guess if I were to say that if anything's been missing, you know, we don't see a lot of what I'd call kind of small bore in M&A of existing facilities. Do you see opportunity in M&A to widen the aperture beyond what the company has already done? And would you agree that may be an area of opportunity?

Yeah, John, I would say that I do think it's an area of opportunity. I have not had an opportunity to do a thorough review of our entire pipeline and want to clearly spend more time with our team on that front. But I've been very impressed with the work that they have done to date. I think our pipeline, since David Keyes has come in, is much more robust, and we are very proactive in and being out there and looking for opportunities that meet our criteria, you know, around our discipline capital allocation framework. And so we'll continue to do that. And, you know, I will need a little bit more time, but that's something that I'll certainly, you know, keep you updated on as we go.

Sure.

Thanks so much. Our next question comes from Matthew Borish with BMO Capital Markets. Please go ahead.

Good morning. Thanks for taking my question. You actually have Ben Rossi filling in for Matt here. Regarding patient acuity and the uptick in length of stay compared to previous years, you reported an increase year-over-year in average length of stay. Just curious if that is a reflection of the type of acuity caseload you saw this quarter and how you anticipate decaying this looks for the remainder of the year. And then do you see length of stay continuing to increase as the year goes on?

Yeah, Ben, we would attribute the increased length of stay to a couple of factors for the first quarter. One, the impact of the Omicron variant in January did have an impact on that metric. In January, we did see a greater impact on our acute service line and even our specialty service line, where our longer length of stay services, you know, RTCs, stayed a little more consistent and stable. The impact of that is that there was a disproportionate impact on admissions relative to patient days, which then impacted that length of stay metric. But separate from that, we are seeing a longer length of stay within a couple of our service lines. And it's still within the range that we expect. But what we've seen is that our service mix within a service line can depend on the programs that we have, the demographics and age of our patients, and you mentioned acuity, even the acuity of our patients. And so we have seen some of our services that have a different type of program and a more specialized program and the demographics and higher acuity. We have seen a greater mix in some of those programs and programs that have been added that that are to treat certain patients that need a longer length of stay. So the service mix within our service lines have been part of that increase in the length of stay. In terms of what it will look like for the rest of the year, we may continue to see some of those trends. You know, certainly don't think the impact of the Omicron variant, while there is still COVID out there in certain markets, don't think that that's going to have the impact it did in January. But we may still see service mix have an impact on our length of stay in the remainder of the year.

Great. And then just as a follow-up, your guidance on the six CTCs is actually on the lower end of the initial guidance of six to ten from last quarter's release. Just curious if that's just due to higher stand-up costs or maybe reflective of other conditions such as labor?

No, we actually, we may still be at the higher end of that range. We talked about, in this morning's comments, at least six CTCs, so we still have a strong pipeline of new CTC locations. We just are talking about it as at least six, and we'll continue to keep everyone updated on what that looks like for the year, but continue to have a strong pipeline for new CTCs.

Okay, great. Thanks for that clarification.

Thank you. Our next question comes from Sarah James with Barclays. Please go ahead.

Thank you. So, one of the divergences we've noticed coming out this quarter is on the LPN versus RN mix due to staffing availability. Some companies are shifting that mix from where their goal would be, and I'm wondering what that looks like for you guys. Are you finding shortages being more intense in either of those categories, and is it changing how you see the progression to moving labor to work at the highest end of their license?

We have had initiatives in place for several quarters now focused on the mix and where we can leverage different types of employees to do certain tasks. And I know our operations team has been focused on letting our RNs and other Clinical employees focus on providing patient care and taking away as much as possible any clerical duties that they may have. So looking at our model for staffing has been part of our initiative. In terms of availability of one type of nurse from another, it can depend on the market. But we have different service lines where we have a different nursing mix within each service line. Acute is where we see a higher percentage of RNs and where we're focused on potentially leveraging different types of nurses within our acute facilities. But we already have a higher LPN mix as we think about our other service lines. RTC, specialty, and then CTC, as I mentioned earlier, has a very high percentage of LPNs. And so I know recruiting and retention is a focus across all job categories, and it can depend on the market. But we already have a mix, and we've already had initiatives in place to really look at letting each job category focus on their skill set and be able to work in their skill set within our facilities.

Great. Thank you.

Thanks, Sarah. And with that, this concludes our question and answer session. I would like to turn the conference back over to the Chief Executive Officer, Christopher Hunter, for any closing remarks.

Thank you. So before we end the call, I do want to acknowledge Acadia's committed facility leaders, clinicians, and over 22,000 dedicated employees across the country who have just continued to provide quality patient care for those seeking treatment for mental health and substance use issues. I really look forward to meeting with more of our employees and to visiting additional facilities in the coming months. Our employees truly are the backbone of this organization, and their strength is one of the main reasons that I joined Acadia. With a strong first quarter performance, we have an opportunity to now build on our momentum. We are well positioned to meet the growing demand for our services with a proven operating model, an expansive network of 238 facilities, and diversified service lines across the continuum of care. I look forward to working with Acadia's management team and board as we pursue a strategic direction that continues to provide positive outcomes for the patients under our care and deliver greater value for all of our stakeholders. Thank you for being with us this morning. If you're interested in Acadia, As a public company, it is vitally important that I get to know our investors, and I look forward to the opportunities ahead to speak and meet in person. If you have additional questions today, please do not hesitate to contact us directly. Thank you, and have a good day, everyone.