Acadia Healthcare Company, Inc.

Good morning, and welcome to the Acadia Healthcare Second Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. Should you need any 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 a touch-tone phone. To withdraw your question, please press star, then two. Please note that this event is being recorded. I would now like to turn the conference over to Gretchen Homrick, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to Acadia's second 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 second 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 our Chief Executive Officer, Chris Hunter.

Thank you, Gretchen. Good morning, everyone, and thank you for being with us today for our second quarter 2022 conference call. I'm here today with our 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 performance for the second quarter of 2022. Following our comments, we will open the line for your questions. Acadia has continued to execute our strategy throughout the first half of 2022 with favorable results. Acadia has a proven operating model and diversified service lines across the continuum of care, each of which offer high quality for our patients. After 100 days into my role as CEO, I continue to be confident in our ability to execute our strategy across our growth pathways and service lines, to provide quality patient care, to positively impact the communities we serve, and to create long-term value for our stockholders. We look forward to seeing many of you at our first ever Investor Day later this year, planned for December 7th in New York City. Turning to the second quarter, Acadia delivered strong financial and operating results despite ongoing COVID and labor challenges. During the second quarter, we saw increased COVID cases in certain markets, which had a temporary impact on the company's patient admissions and staffing. Our team has done an excellent job managing through these surges with robust policies and procedures to ensure the safety of our patients and staff. I want to thank all of our dedicated employees and clinicians across our facilities who have continued to work tirelessly through these challenges to meet the needs of our patients in a safe and effective manner. We also continue to navigate through a tight labor market. We've remained diligently focused on our recruiting and retention initiatives, and we have enhanced and adapted our processes for recruiting, hiring, and onboarding new employees. Our operational leadership, centralized recruiting, and other corporate support teams work in close collaboration with our facility operators and clinical staff to recruit employees in their respective markets. We believe that we benefit from our broad geographic footprint across 39 states and our diversified service lines as we recruit clinical staff for various positions and levels of care in our facilities and clinics. While labor is still a challenging issue for all healthcare providers, we are cautiously optimistic that the market is improving. We have seen sequential improvement in our net new hires from March through the first half of July, and our contract labor continues to be stable and represents a very low percentage of our labor. During the second quarter, we saw a continuation of our positive trends in revenue per day. We believe this is attributable to our longstanding favorable relationships with our payers who recognize and appreciate the value and the quality of care we provide. As more payers and states are focused on supporting greater access to mental health and substance use treatment, we are encouraged by the improved coverage trends and positive reimbursement environment. We continue to see strong underlying demand for behavioral health care services. As issues surrounding mental health and substance use have taken center stage in our public discourse, the stigma associated with treatment has lessened, resulting in more people seeking the care they need. Without question, the challenges the past two years related to the pandemic have highlighted the need for quality behavioral health care services. A recent study by the National Center for Educational Statistics found that 87% of public schools reported that the COVID-19 pandemic hindered student socio-emotional development during the 2021 to 2022 school year. and 83% of schools reported that students' behavioral development was stunted. As such, we see the importance of extending our role as a leading provider of behavioral healthcare services to help meet this critical societal need in our country. As we've previously discussed, Acadia has a well-defined growth strategy with four distinct pathways to expand our market reach. Bed additions to existing facilities, de novos, joint ventures, and acquisitions. Acadia has continued to execute this strategy and meet our objectives in the first half of 2022. Let me briefly outline our continued progress on these four growth pathways. Our first pathway is adding beds to existing facilities. During the first half of the year, we added 78 beds to current Acadia facilities, and are on track to meet our goal of adding approximately 300 beds in 2022. As we initially expected, our third quarter will reflect the highest number of bed additions to existing facilities for 2022 with 150 additional beds. These facility expansions are needed to meet demand in our existing markets and will continue to drive same facility volume growth in the near term and provide efficient and profitable growth opportunities in the long term. Our second growth pathway is de novos, both inpatient acute facilities and CTCs. We've worked to identify underserved markets where we can develop and build wholly owned de novo facilities that meet the critical demand for behavioral healthcare services. We believe there are significant opportunities in communities across the country to address this unmet need at the local level. In early July, we opened a 60-bed children's hospital in Chicago as part of the three non-operational facilities acquired by Acadia at the end of 2021, which together will operate as Montrose Behavioral Health Hospital. Renovation work continues for the 101-bed adult hospital and the outpatient facility for Montrose, which are expected to begin operations in 2023. In addition to the new Chicago facilities, we expect to open a de novo acute inpatient facility, Coachella Valley Behavioral Health, in Indio, California, early next year. We also continue to identify opportunities to expand our network of 142 CTCs as these facilities play a critical role by providing medication-assisted treatment for patients dealing with opioid use disorder. Demand for treatment has risen dramatically as the increase in opioid use disorder has led to a national epidemic of opioid overdose deaths with more than 107,000 estimated drug overdose deaths in 2021. We opened two new CTCs during the first half of the year, and we're on track to open at least six CTCs in 2022 to support the high demand for effective addiction treatment. Our third growth pathway is joint venture partnerships with leading health systems across the country. We recently announced our 17th and 18th JV partnerships, and we continue to believe these represent an excellent growth avenue for Acadia. We're very excited about two new joint ventures that we recently announced. The first is with Tufts Medicine, which is one of New England's elite health systems, to build a new 144-bed behavioral health hospital in Malden, Massachusetts, near Boston. And second, a joint venture with ECU Health, one of Eastern North Carolina's premier health systems, to build a 144-bed behavioral health hospital in Greenville, North Carolina. The partnership with ECU will expand our acute service line into the North Carolina market. Through competitive processes, these health systems have chosen Acadia as their partner. These joint ventures further our strategy to bring together the best practices and expertise of Acadia and our partners to expand access to quality behavioral healthcare services in their respective communities. We expect our joint ventures to be a strong driver of our growth in the future. We have previously announced joint venture partnerships for 19 facilities of which seven are currently open and operational. We plan to open our eighth joint venture facility in partnership with Covenant Health in Knoxville, Tennessee during the third quarter, and our ninth joint venture facility in partnership with Lutheran Health Network in Fort Wayne, Indiana during the fourth quarter of 2022. We plan to open an additional 10 hospitals with premier health systems we have already executed partnership agreements with, We have a strong pipeline of potential partners and will continue to pursue this attractive growth pathway for Acadia. Our fourth and final pathway is expansion through strategic acquisitions. We believe these are attractive opportunities for Acadia to acquire existing facilities and implement our operating model and make the necessary investments in both the infrastructure and service offerings to enhance the level of care. We believe both our disciplined approach to capital allocation and our strong balance sheet that we have maintained since exiting our UK business both position Acadia as a proactive acquirer. In conclusion, we're pleased with our continued progress across our four growth pathways. We expect to add approximately 600 beds in 2022 through approximately 300 bed additions to existing facilities, opening one inpatient de novo two facilities with JV partners, and at least six CTC locations. Acadia has demonstrated consistent execution with favorable results through the first half of 2022, and we believe the strong demand trends across our service lines will support continued growth. We're uniquely positioned to meet this demand with enterprise capabilities. They extend across 239 facilities, offering diversified service lines and patient-centered care. At this time, I will now turn the call over to David Duckworth to discuss our financial results for the quarter.

Thanks, Chris, and good morning. Looking at the second quarter, we delivered strong financial and operating results as we successfully delivered on our key performance metrics, demonstrating consistent execution of our strategy. Revenue for the second quarter increased 11.9% to $651.7 million compared with $582.2 million for the second quarter of 2021. Our revenue growth includes an increase in same-facility revenue of 8.5% compared with the second quarter of 2021, including an increase in revenue per patient day of 7.8% and an increase in patient days of 0.7%. our revenue per patient day growth continues to reflect rate increases received across many of our payers, geographic markets, and service lines, as well as a favorable payer mix. Additionally, during the second quarter, the company received one-time payments of $5.4 million from one of the states in which we operate. Our adjusted EBITDA was $165.9 million for the second quarter of 2022 and adjusted income attributable to Acadia stockholders per diluted share was 91 cents. The company recorded income of $8.6 million during the second quarter of 2022 related to the Provider Relief Fund established by the CARES Act. Excluding this income, Acadia's adjusted EBITDA for the second quarter of 2022 was $157.3 million, and adjusted income attributable to Acadia stockholders per diluted share was 84 cents. Adjusted EBITDA and income exclude transaction-related expenses and their income tax effects. Our balance sheet remains strong with ample liquidity, flexibility, and capital to support our growth strategy and future investments. Our operating cash flows were strong during the second quarter and first half of 2022, reflecting our positive operating results and working capital trends. Additionally, we received approximately $22 million of distributions from the Provider Relief Fund and American Rescue Plan during the second quarter. This funding will be further evaluated in the second half of 2022 and is not included in our financial guidance. During the second 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 $15 million through the first half of 2022. We will continue to repay the remaining $5 million balance throughout 2022. We will also pay the remaining $20 million of the approximately $39 million of 2020 payroll tax deferrals in the second half of 2022. Looking at our debt position and activity, We paid down $75 million during the second quarter and $85 million in the first half of 2022 on our revolving line of credit. As of June 30th, Acadia had $120 million in cash and cash equivalents and $515 million available under our $600 million revolving credit facility. Our net leverage ratio at the end of the quarter was approximately 2.1. Moving on to guidance, as noted in our press release, due to our strong financial performance through the first half of the year, we have increased our financial guidance for 2022 as follows. Revenue is in a range of $2.56 to $2.6 billion. Adjusted EBITDA, including income from Provider Relief Fund in a range of $591.5 million to $621.5 million. Adjusted EBITDA excluding the income from Provider Relief Fund in a range of $583 million to $613 million. Adjusted earnings per diluted share including the income from Provider Relief Fund in a range of $3 to $3.25. and adjusted earnings per diluted share excluding the income from Provider Relief Fund in a range of $2.93 to $3.18. Operating cash flow is in a range of $380 million to $430 million, and expansion capital expenditures in a range of $240 million to $280 million. The company's guidance does not include the impact of any future acquisitions, divestitures, transaction-related expenses, or the recognition of additional provider relief fund income in the second half of 2022. 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 our roster.

Our first question will come from Andrew Mock with UBS.

Please go ahead.

Hi, good morning. Revenue per patient day was up almost 8%, driving the majority of organic revenue growth. Can you break out the pricing increases by payer for us? And are there any significant revenue streams that you would call out as being sensitive to either the public health emergency or some other government support programs? Thank you.

Yeah, Andrew, we saw another quarter of a strong revenue per day trend that we've seen the past several quarters, and that is driven by payer rate increases that we've received. And we have received rate increases pretty broadly across the different payer types and service lines and geographic markets that we operate in. Of the 7.8 percent that we reported for the second quarter, The one-time payments that we highlighted contributed about 1%, but we would attribute most of the revenue per day growth, somewhere between 5% and 6%, certainly, to rate increases that we're broadly receiving across our payers. And it's been consistent. We would not highlight any specific payer or service line in markets. Our managed care and our financial operations team have just done a great job over many years working with our payers on those rate increases. With respect to the public health emergency, certainly our Medicaid business is the coverage that we're focused on there as to what impact that might have over the next one to two years. as certainly many states may look at their Medicaid eligibility. But that's the only stream of our patients that we would be focused on as it relates to that and continue to believe that people will continue to have access to mental health and addiction treatment as that might change where that coverage is from. We hope that those people would become eligible for commercial or maybe some other type of coverage.

Great. And then you lowered, just a follow-up here, you lowered discretionary CapEx by $55 million or so. What was the driver of that, and what impact will that have on 2022 earnings? Thanks.

Yeah, when we entered the year, we talked about an expectation that our expansion capital expenditures would step up over the course of the year, really reflecting the the joint ventures that were under development and beginning construction. We continue to just revise the timeline of those projects. We are seeing a step up in those investments. We invested, I think, $39 million in expansion CapEx in the first quarter and saw that step up to $62 million in the second quarter. We believe that will continue to step up over the second half of the year. but the adjustment that we made to our guidance is entirely related to the timing of those projects. There are no projects that we had planned at the beginning of the year that we have canceled, still planning to complete all of the plans and announcements that we've made before, and we've just adjusted the timing of the step-up in those projects and still believe. We talked about, two of our joint venture facilities opening in the second half of this year and another 10 facilities that are in the progress, in the process of being developed and planned and the construction is beginning for those 10 facilities and still believe those will open over the next several years. So we're excited about bringing those beds online as quickly as we can and those plans continue.

Our next question will come from Huich Mayo with SVB Securities. Please go ahead.

Hey, thanks. Maybe first question just on the CTC business. The physician fee schedule had some, I think, some positive developments as it relates to the OTP industry. Still some uncertainty around, you know, how they're going to address the Medicare bundle. They proposed a 5% increase. They're you know, codifying some of the mobile reimbursement. What do you make of all of this? And I guess sort of the follow-up is also if you could comment on just the performance of the CTC segment in the first half and the outlook for the second half.

Yeah, the fee schedule that was released provides ongoing support for the Medicare program coverage that we have that's still somewhat new. You know, we're two years into that for the CTC business, and so we are happy to see the ongoing coverage and rate improvements for that service line. You know, each market can be different in terms of how the rates work, so we're still reviewing those provisions and understanding how that affects the different payer contracts that we have across that service line. The CTC business is performing well. We are seeing revenue growth for that service line that's in line with our expectations. You know, a lot of de novo facilities have been opened from 2021 through the first half of this year. Several more will open in the second half of this year. And we continue to have a number of tailwinds as we believe more and more people will have coverage for that treatment. and we will have the capacity to provide that coverage. So they've had a good first half of the year, and we expect that to continue and are excited to see the ramping and continued de novos in that service line.

I think you sort of described that business as performing, I guess, sort of like in line with the overall enterprise. Is the revenue growth above the overall enterprise growth? Is it in line, below? And then if maybe... you could talk a little bit about just the opioid settlement and how you guys are thinking about what that might mean for you.

Yeah, I'll take the first part of that question, Whit. The CTC service line, to the extent it performs ahead of our inpatient service lines as a group, we see an incremental or an accretive impact to our revenue per day growth. And to the extent it's below, we see a dilutive impact to our revenue per day growth. For the second quarter, our revenue growth was almost exactly in line with our inpatient facilities as a group. So our CTC growth is very much consistent with our inpatient facilities as a group. And like I said a minute ago, we're pleased to see that performance.

Yeah, and this is Chris. I'll speak to the opioid settlement funding and just the status there. So just to remind everyone, I mean, overall, we think this is a real positive for the company. The total funding is right at $26 billion, and, you know, that's paid to 46 states over an 18-year period. So this is really, you know, just beginning. You know, 46 of the 50 states participated in the settlement, There's 20 approved uses of the funding, and some of those are actually geared towards treatment and access. So, we just feel like we're really positioned well with 142 clinics across 32 states, you know, having these leadership teams that are in place, you know, having existing programs, these proven de novo models, and we, you know, I spoke in my prepared remarks about the new facilities that we're bringing up. And then just our state and local relationships and support from the trade associations I think will continue to position as well. Many of these states are still in the very, very early stages of deploying the funding, and many of them are figuring out exactly how they will be overseeing it. And we're in active dialogue with many of these states that have been a little bit ahead I think it's too early for us to quantify the impact, but we do think there will be significant benefit. Obviously, this is a huge societal problem. As a leader in the space, we think that we really want to continue to expand access and I think are going to continue to really focus there. Overall, I think we are very well positioned, but there's a lot that is going to play out over time.

Okay. Thanks, guys.

Our next question will come from Kevin Fischbeck with Bank of America. Please go ahead.

Great. Thanks. You know, the strong pricing, obviously a welcome sight, but I guess I was a little bit surprised that the volume metric wasn't better in the quarter. I mean, obviously we're all aware of the secular drivers to that demand growth. So why isn't that demand growth translating into something more than, you know, 1% volume growth?

Yeah, good morning, Kevin. We continue to see strong demand. We talked about this some in our release and in our opening remarks, but we did see throughout the quarter that a number of our facilities had an increase in the COVID cases in their patients and their employees. And we've always said that that can cause a temporary disruption in our admissions and in our patient days. January was certainly the highest month of COVID cases that we've seen this year, but we had really seen a significant decline from February to April and saw an increase in the later part of April through May and June. And so I think without that, we would have seen a stronger occupancy and stronger patient day growth. We certainly expect in the second half of the year to return to what we expect. We're excited to bring bed additions on. We have a number of beds opening in the third quarter that I think will continue to drive a return to the 3% plus volume growth. And then lastly, we did see just a very strong second quarter in 2021. The occupancy was the strongest in that quarter of all the quarters that we saw throughout last year. And so, you know, we are up against a comp, but I think with the bed addition coming online, with some of the COVID disruptions, we think settling out over the second half of the year, we should see a return in that volume growth to what we've seen historically.

So it sounded like you were saying that the COVID disruption kind of, you were saying that it kind of built during Q2, or you just saw it up and down during Q2? I just wasn't sure if, you know, how Q3 is necessarily starting off, and then When you get someone who has COVID, does that help your rate at all, or is your rate not really impacted by COVID? Just trying to see if there's any potential rate implications if COVID goes away.

No, we do not receive any benefit from COVID in terms of an add-on to our rate. When we treat a COVID patient, obviously if they don't have a medical need, to be discharged from our facility. We do keep them in treatment, but we have protocols and procedures in place to isolate that patient and maybe other patients that may test positive. That could mean that we dedicate a unit to those COVID patients, and that can just have a limiting impact on additional admissions to that facility. And then employees being out, if there is a significant number of employees out, It can be challenging to backfill those positions in a way that supports volume growth and occupancy. As we've seen throughout the last two years, it's a temporary dynamic that we face. And we saw it at different times in different markets during the second quarter. So it didn't necessarily build throughout the quarter. I think May overall was our highest month. But we feel good about where we're starting off the third quarter in terms of seeing an acceleration from the growth rates that we saw in the second quarter. Great. Thank you.

Our next question will come from Brian Tanquillette with Jefferies. Please go ahead.

Hey, good morning, guys, and congrats on the quarter. Chris, I guess as I think about the cash generation of the business and where your balance sheet is today, I mean, obviously a lot of cash coming through. Just wondering how you're thinking about capital deployment now and kind of like the opportunities you're seeing in the market for M&A and where your mind is in terms of what kinds of assets you're interested in?

Yeah, I mean, we clearly have an opportunity to deploy capital in numerous growth areas, you know, as we've gone through in the past. I think as it relates and, you know, clearly talked about some of the real tailwinds we're seeing with our joint ventures as well as the de novos and just building out existing beds. But I would say on the M&A front, you know, with our strong balance sheet, I mean, we have been very disciplined in the past. As David referenced, you know, we're down to, you know, only 2.1 times leverage in But I think we have the opportunity to be opportunistic, but also patient. And we've been very proactive in getting out there and meeting with companies, you know, across the service lines. You know, there has been, you know, particular focus on the acute side and, you know, looking at facilities that are in attractive geographies for us that, you know, meet our profile. And, you know, I think this is a process over time. where, you know, given, you know, some of the valuations that we've seen in the last year, there will be, you know, more and more companies that are, you know, interested in a partner, we think, over time. And, you know, it's incumbent on us to build that relationship and to get out and meet with them proactively, which we're doing. So we feel, you know, we feel optimistic that And with our balance sheet, we'll continue to see numerous opportunities. We're working hard on that every day and just continuing to be proactive here moving forward. And, you know, look forward to discussing it in more detail. That makes sense.

I guess a follow-up question for me. You know, I saw the bill that was proposed in the House, the Restoring Hope legislation. I'm just curious what your thoughts are on that and how you think that could benefit Acadia if that's passed.

Yeah. I mean, it's passed the House in June and still prepared to go to the Senate. But I think overall, there's several components of the bill that we think are advantageous to us. I think some of the changes in federal opioid treatment standards overall, particularly for mobile units that previously had to be separately registered. We have a number of mobile units already, and so being able to increase access to rural and just transportation challenges communities will be beneficial for us too. There also have been some adjustments to the number of cases that a physician or a provider could care for. And so just given the eligible lives that we're managing, we think that that will ultimately benefit us as well. And then there's also a number of just expansion of access that the bill is appropriating over time that we think will benefit us also. There's a number of additional things in the bill, just screening, treatment for maternal mental health and substance use disorder, all things that we think ultimately are advantageous to Acadia overall. So we're very supportive of this bill and look forward to just watching it in advance and doing everything that we can with our partners on the lobbying side and with NABH, et cetera.

Awesome.

Thank you, Chris.

Yep.

Our next question will come from Ben Hendricks with RBC. Please go ahead.

Great. Thank you, guys. Just a quick question on the COVID impact on staffing this quarter. You guys have done a real good job of staying in front of your staffing issues versus peers, it seems like. And just was curious if there was anything that developed differently in this quarter, you know, to certain markets. Just wanted to get some color on what markets you're seeing the heaviest issues and if there's any kind of difference across service line, acute versus RTC versus the others. Thanks.

Yeah, we do talk about as it relates to navigating the tight labor environment that we continue to be in, that we are in a lot of different markets and we have different service lines that all have a different, you know, reliance on different categories of clinical staff. We generally would say that, you know, that diversification certainly helps us overall. But a lot of the challenges that we faced are more market specific. And our focus continues to be on identifying those challenges quickly and working at the corporate level through our recruiting team, through our leadership to very quickly support any facilities as they navigate a challenge. You know, you asked about the COVID impact on our staffing. Our facilities continue to do a great job if employees are out, bringing those employees back. And we continue to have a good experience in just having those employees be out backfilling while they are out, but then bringing them back ultimately into the position they were in. So a lot of the staffing challenge that we faced is not necessarily related to COVID, more just the labor environment in general. And we continue to see a lot of success. We mentioned earlier that we're seeing a positive trend in our net new hires. So we have some optimism about the labor environment for the second half of the year. But continue to think that that improvement may be more gradual than quick. But we continue to be focused on supporting our facilities, providing the right staff, so that we can see the patients and support the volume growth that we're expecting.

Thank you very much. And just a quick follow-up on some of the pricing conversation from earlier, clearly a better than proposed behavioral final rule last night. If there's any comments you have there on the adequacy and then anything else from the final rule that stood out to you guys, thanks.

Yeah, the Medicare final rule that was published last night was ahead of the initial proposal. The final rule we expect on average will provide a 3.8% increase to our facilities. It does look different from market to market, but that's ahead of the initial proposal, which I believe was around 2.7%. That 3.8% is an improvement over the last several years of Medicare rate increases. We actually would expect going forward, so thinking about a year or two from now, that it should be at a higher rate. There's certainly a lag with when we receive Medicare rate increases compared to when we see cost increases relating to the services we provide. Hopefully that's the start of a higher trend in our Medicare rates, but we were certainly happy to see yesterday that that final rule be ahead of the initial proposal.

Thanks. Our next question will come from AJ Rice with Credit Suisse. Please go ahead. Hi, everybody.

Maybe I have two questions. Maybe first, the pickup, it feels like to me there's, you've had steady joint venture announcements, but it seems like there may be a bit of a pickup. I wonder if you could comment if you believe that's happening. What does the future pipeline look like? And is that being driven by hospitals facing the labor challenges in a variety of areas saying, hey, I just got to offload this or some other dynamic driving what seems to be a pickup in JV willingness. And is there any change in the structure of the deals too, I guess I should ask, as you get more of these announced?

Yeah, AJ, this is Chris. I'll take that. Thanks for the question. I mean, I would say that, you know, the pipeline continues to build. I mean, there's a number of reasons that, you know, Acadia has continued to be chosen as the partner of choice. I mean, I think it starts with just, you know, the expertise that we have around behavioral that these partners just increasingly tell us is lacking and just, you know, our focus and, you know, core competence around behavioral is differentiated. Our track record obviously speaks for itself, but I think also just the capital that we can bring to these facilities and just the track record, the referenceability have all been instrumental. And I think that the pipeline continues to look and will continue to look very strong You know, we've talked in the past about, you know, our hope of continuing to add, you know, four to five JVs into next year, and we still feel very comfortable about that. If anything, we're, you know, looking at are there ways to, you know, to accelerate that. And so, you know, overall, you know, we just feel very good about not only the pipeline, but our current and, you know, prospects around execution as well.

Okay. And maybe then if I could add. I'll go ahead. I'm sorry, David.

I was just going to say, AJ, the terms of those joint ventures and the way we think about the structure has not changed significantly. I didn't want to leave that question unanswered.

Yeah, no, thanks. Appreciate that. Then maybe stepping back, bigger picture, I wonder, Chris, especially with you and taking a fresh look at things, Any thoughts about the virtual world and extending the company's reach into that? What might opportunities be down the road there? Are you spending much time thinking about that? And then the 988 number that just rolled out, it sounds like there's a lot of press coverage on that. Do you think that's going to have an impact on your business in any way?

Yeah, so several things on that. I would say, you know, week We're big believers in leveraging technology in the virtual world, and I think there's significant opportunity for us in the future. I think we're trying to be very focused right now on how can we leverage technology to really gain cost efficiencies and generate revenue enhancements you know, with the core business today. I think there's also significant opportunity around analytics. You know, I think just as an industry, you know, most would recognize that behavioral providers are just behind relative to other parts of healthcare. And there's a number of reasons for that. I mean, just the lack of investment in meaningful use means that, you know, all behavioral providers seem to have less mature EMR systems and um, just don't have the scale and the ability to, to, to track patient outcomes and then ultimately to prepare for, you know, the continued move towards value-based care. So I think there's a lot of opportunity around analytics, um, as a, in addition to, um, some of the things that we can do on the virtual side. And then, you know, 988, um, you know, clearly has now been launched, um, still very much in the early days. We're trying to do everything we can to be as supportive as possible, you know, given our extensive capabilities and our call center capabilities, and we're looking for continued ways to plug in on that. But, you know, it is still very early on 988, but we're glad to see it off to a good start.

All right. Thanks a lot.

Yep. Our next question will come from John Ransom with Raymond James. Please go ahead. Hey, good morning.

So the Medicaid rate cycle is usually, you know, July 1. So do you have a number for just what the rate looked like there and if that's, you know, going to be bigger than a red box in the back half of the year?

The Medicaid rate cycles that we see differ by state. There are many states that have a new year effective in July. Many states are in October. We continue to see, obviously there's a lot of different states that we contract with from a Medicaid perspective and a lot of managed Medicaid payers within those states. But we do continue to see positive rate discussions with those payers and rate increases from those payers. But it happens really throughout the year. So we wouldn't size anything real specific as it relates to July. But there are rate increases that we believe will take effect over the second half of the year, as we expect, because we are a business that has those new rates really being negotiated throughout the year across all of our payers, excluding Medicare, which is really the only one that is more consistently at October 1st.

So, Chris, did you notice he didn't give me a single number? That was well done, David. Not a single number in that answer. So looking for a number, the second question, my follow-up is, how much did the Medicare coverage affect the growth in MAT, you know, when it was layered in? And what's your approximate Medicare mix there? And then could you just kind of size the revenue mix You know, this year, this quarter, 2Q22 versus 2Q21. Any of that would be helpful. Thank you.

Yeah, John, as we look at the CTC business, which did have the Medicare coverage beginning in early 2020, we've certainly seen that mature to a place where we think it's settled out. And for the last quarter, it was around 18%. We've really seen it be consistent around that 18% level. And we do believe that more individuals gained access to treatment through that coverage. But there's also some just shift, you know, where self-pay or Medicaid coverage could have shifted over to Medicare coverage. So it's a combination of a shift as well as more coverage. And then our overall payer mix has been very stable. Medicaid continues to be about 50% of our revenue. Commercial is just over 30%. And then Medicare overall for the company is right at 15%. And there's several numbers that I just gave you. That was great.

Well, I was asking the MAT mix of revenue, not the overall payer mix. So what's that kind of year versus last year?

MAT, yeah, earlier we made a comment that the CTC business was growing at a similar rate to our inpatient business.

I remember a number. It's like 30% of your overall revenue, something like that. Do I remember that right?

No, it's 16%. It's remained consistent around 16%. So size is at ballpark $300 million. Annually. Okay, thank you.

Our next question will come 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. So just regarding that patient acuity, when looking at revenue per patient day and length of stay, we're seeing that strong growth in rates with length of stay remaining elevated compared to previous years. Is that a reflection of the type of acuity caseload you saw this quarter, or is it possibly more related to your discharge capabilities? And then, how do you anticipate the cadence looks for the remainder of the year?

Thanks. We have seen, we look at our length of stay by service line, and even at a level that reflects the different programs that we have within each of our service lines. And we've seen it remain somewhat consistent. We do believe that acuity can play a part in that length of stay. And we certainly think that the different types of patients and programs that we operate can also impact our length of stay metric. For example, we would have certain programs that may be geared towards the child and adolescent population. we would have units dedicated to that population in many of our acute facilities. And there tends to be a longer length of stay with those patients and with those programs that we operate. And we've seen growth in that service line and the mix of those types of programs So that could be part of our length of stay, but we've also seen acuity and just patients being in treatment slightly longer. As we think about our specialty business and remaining in treatment and being able to step down through the continuum of care for that service line, that's also a contributing factor to our length of stay being strong. We do expect it to continue. around what we're seeing in the second quarter.

Got it. And just a quick follow-up here. You mentioned the bet additions possibly being a contributor to some volume growth during 3Q. Can you just give me some idea of the timing of when the additions will officially roll out and be operational?

Yeah, we do have more than 150 of our 300 beds for this year opening in the third quarter and are excited about those beds coming online. Depending on the size of the project and other factors, we should see a variety in the ramping of those beds, but our team has a very strong track record of very quickly filling those beds, staffing those beds, and having them contribute to volume growth. So the way that a project would ramp up does depend on the size of the project, but we believe those new beds will contribute to growth in the second half of the year. Great. Thank you.

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

Thank you. I wanted to understand a little bit better what the assumptions are in guidance for your cost trends. So are you expecting a moderation, flatter uptick in your supply costs and labor cost trends in the second half versus what you experienced in the first half?

Sarah, the way we project are, you know, 70 percent of our operating costs are labor related. certainly have many other costs that we have in that other 30%, a lot of individually smaller items. And we think about it in terms of ranges. It can be somewhat difficult to project exactly what the second half of the year looks like. We do hope to see some moderation in wage inflation, utilization and rates for premium labor, as well as other costs. But as we build the range of our guidance, you know, on the higher end, we would have more improvement in the trends that we've seen in the first half of the year. And at the lower end of our guidance would reflect more of a continuation of the same level of cost growth. So it's, you know, I think our baseline would be that we continue to see that trend, maybe see some slow moderation in wage inflation. But it is hard to make those projections.

Got it. And if you take a step back and you look at your cost trend inflation versus your pricing growth, you talked about the 5% to 6% core on commercial. Are you guys in a positive spread situation this year where pricing growth is exceeding cost trend growth?

No, we think that those two metrics are fairly correlated over the last several quarters. We've seen operating expenses per patient day grow at just over 5%, and we've seen our wage inflation at just over 5%. So we think that we've been fairly closely correlated between those two increases.

Thank you.

Thank you, Sarah. We will now conclude our question and answer session. I would like to turn the conference back over to Chris Hunter for any closing remarks.

Okay, before we end the call, I just want to thank our committed facility leaders, clinicians, and over 22,000 dedicated employees across the country who just have continued to work tirelessly to meet the needs of patients in a safe and effective manner. Thank you all for being with us this morning and for your interest in Acadia. And if anyone has further follow-up questions, please do not hesitate to contact us directly. Have a good day, everyone. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Have a great day.