Acadia Healthcare Company, Inc.

Good day and welcome to the Acadia Healthcare second quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, then zero, on your telephone keypad. 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 your 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 second quarter 2023 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 2023 and beyond. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Acadia's filings with the Securities and Exchange Commission and in the company's second quarter news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. At this time, I would like to turn the conference call over to our Chief Executive Officer, Chris Hunter, for opening remarks.

Thank you, Gretchen, and good morning, everyone. Thank you for being with us for Acadia's second quarter 2023 conference call. For the second quarter, we reported impressive results across multiple measures. Given this momentum and our confidence in the continued strong performance of our business, we're increasing our guidance for the year. I'm eager to discuss our performance, but first I want to acknowledge several outstanding additions to our leadership team. This includes Heather Dixon, who started with the company earlier this month as our new Chief Financial Officer. Heather brings significant executive-level financial expertise with substantial payer, provider, and pharmacy experience across the healthcare landscape. We're also pleased to welcome Judith Simone as the company's new Chief Human Resources Officer, and Brian Farley as our Executive Vice President, General Counsel, and Secretary. Both Judith and Brian bring deep experience, and we know they will make valuable contributions in their respective roles. And as we welcome these new leaders, I want to also thank David Duckworth and Chris Howard for the contributions they made in support of Acadia's growth and success. We wish them the very best. Turning to the quarter, our second quarter results reflect continued momentum in our business through the first half of 2023. Excluding $8.6 million of income from the Provider Relief Fund recognized back in the second quarter of 2022, we reported year-over-year revenue growth of 12.2%, adjusted EBITDA growth of 10.9%, and adjusted EPS growth of 9.5%. We are pleased with the growth trajectory of our business. with solid performance across all service lines. Same facility revenue increased 11.4 percent compared with the same period last year. Notably, we achieved strong patient day growth of 4.9 percent and revenue per day growth of 6.1 percent, which is supported by favorable rate increases across our service lines, including CTC, markets, and payers. In line with our forecast, we continued to see sequential improvement in our labor trends, with wage inflation decreasing from 7.5% in the first quarter of 2023 to 6.3% in the second quarter of 2023. While not all markets are the same, on an overall basis, the labor environment continues to show signs of improvement, positioning the company for continued stability and wage growth moderation over the remainder of the year. The team has continued to execute on our five distinct growth pathways with significant progress made this year. For our first pathway, facility expansions, we added 98 beds to existing facilities in the second quarter, bringing the total additions to 204 beds to date. We expect to add a total of approximately 300 beds in 2023, consistent with prior years. For our second pathway, we're making good progress towards our plan of accelerating wholly owned de novo hospital growth. We're on schedule to open a newly renovated 101-bed adult hospital and outpatient facility, which is part of the Montrose Behavioral Health Hospital in Chicago, Illinois, as well as an 80-bed inpatient hospital, Coachella Valley Behavioral Health in Indio, California. Both are expected to commence operations later this year and we are actively identifying and advancing additional de novo expansion opportunities to open in 2024 and beyond. Our network of CTCs also continues to expand, and we opened two new CTC locations in the second quarter. We're experiencing solid demand for medication-assisted treatment for patients dealing with opioid use disorder, a chronic disease affecting nearly 10 million individuals nationwide that, untreated, can lead to serious potential consequences, including disability, relapse, and death. We are focused on accelerating the expansion of our network of 153 CTCs in 32 states with the goal of adding at least six CTCs in 2023. Regarding our third growth pathway, we are extremely proud of our work across the country with our joint venture partners, and we continue to expand the strategic network. We recently announced our 19th and 20th joint ventures, a partnership with Solution Health for 144-bed behavioral health hospital in southeast New Hampshire, as well as a partnership with Nebraska Methodist Health System for developing a 96-bed hospital that will serve the Omaha, Nebraska, and Council Bluff, Iowa metropolitan area. These new hospitals will expand our acute service line into two additional states, New Hampshire and Iowa. As we have demonstrated in our other joint ventures, we will combine our expertise with the experience and established market presence of these leading providers to develop and provide quality behavioral healthcare services in their respective communities. Additionally, early in the third quarter, we opened a 96-bed hospital with our joint venture partner Bronson Healthcare in Battle Creek, Michigan, and another 96-bed hospital with our partner Geisinger Behavioral Health Center Northeast in Moosick, Pennsylvania. We look forward to working together with these premier health systems to provide needed quality behavioral healthcare in their respective markets. Today, Acadia's 20 JV partnerships represent a combined total of 21 hospitals with 11 hospitals already in operation and 10 hospitals expected to open over the next several years. We have a growing pipeline of potential joint venture partners and will continue to pursue this important growth pathway in 23 and beyond. For our fourth pathway, we continue to look for acquisitions that advance our growth strategy. We're excited about our announcement yesterday to acquire Turning Point Centers, a 76-bed specialty provider of substance use disorder and primary mental health treatment services that serves the Salt Lake City, Utah metropolitan market. Turning Point Centers provides a full continuum of treatment services, including residential, partial hospitalization, and intensive outpatient services. This acquisition will extend Acadia's geographic footprint for our specialty service line into a new state and enhance our continuum of care in Utah to include all four service lines. We expect to close this transaction in 2023. Our fifth and final pathway is focused on improving our service offerings and ensuring that we have the appropriate level of care for patients seeking treatment. During the second quarter, we have expanded our treatment options by adding 14 outpatient programs in PHP IOPs and virtual services and 23 PHP IOPs since the beginning of the year at select facilities to assist patients after they leave inpatient and residential treatment. Through each of these five growth pathways, we are well positioned to maintain our strong growth trajectory and meet our stated development targets for calendar 2023 as follows. Adding approximately 670 beds through approximately 300 bed additions to existing facilities, of which we've already opened 204 year-to-date, opening two inpatient de novo hospitals, opening two hospitals with JV partners, which we completed early in the third quarter, and opening at least six CTC locations, including the two already mentioned. In addition to expanding our market reach to meet the increasing demand for our services, we're focused on making the right strategic investments to enhance our service offerings and drive favorable clinical outcomes. Importantly, we remain committed to quality in every aspect of our operations. We strive to set the standard for clinical excellence by utilizing our enterprise-wide quality and safety platform, which supports consistent and effective compassionate care delivery. We continue to make investments in our technology platform, leadership development, staff training, and treatment programming with a common goal to deliver the best possible outcome for our patients. As Acadia continues to grow, we're also committed to strengthening the technology and systems that underpin our operations. Our investment in electronic medical records, for example, is focused on improving clinical standardization, workflow, clinician experience, and ultimately the quality and efficiency of the care we deliver for our complex patients. Additionally, we are investing in patient monitoring technology, which helps us ensure our foundational commitment to patient safety. This technology provides real-time data visibility and feedback to our clinical staff, ensuring consistent execution across our facilities. Through the patient safety initiatives that we've implemented over the last 12 months, we are pleased with our progress and have seen positive results in patient care and fewer patient incidents. We're extremely grateful for our dedicated employees who continue to advance our purpose to lead care with light and to provide safe quality care for more patients and families who come to us for treatment during their darkest times. At this point, I will now turn the call over to Heather to discuss our financial results for the quarter and our 2023 guidance.