Acadia Healthcare Company Conference Call Summary Company Overview - Acadia Healthcare Company is one of the largest operators of behavioral health facilities in the U.S. [1] Core Industry Insights - The demand for behavioral health services remains structurally strong, particularly for patients with rising acuity and comorbidities [17] - There is a supply-demand imbalance in behavioral health, especially in underserved areas [17] - The company is focused on delivering high-quality, evidence-based behavioral health services [2] Financial Performance and Guidance - 2025 has been a challenging year for Acadia, with volumes coming in below expectations due to weaker Medicaid volumes [2][3] - The company has paused several projects, reducing 2026 CapEx by at least $300 million compared to 2025 levels [4][12] - Acadia added nearly 1,800 beds between 2024 and 2025 and expects to add an additional 500 to 700 beds in 2026 [4][7] - The company anticipates significant improvement in EBITDA growth and free cash flow generation in 2026 and 2027 [7][8] Operational Strategy - Acadia is taking a more measured approach to capital deployment, focusing on markets with favorable reimbursement environments [13][18] - The company has closed five underperforming facilities to concentrate resources on core business areas [23] - A comprehensive review of facilities is ongoing, with five additional facilities being monitored for potential closure [26] Medicaid Dynamics - Challenges in the acute line of business include payer behavior, leading to denials and reduced lengths of stay for patients [9][10] - The company is experiencing tighter scrutiny from managed Medicaid plans [10] Capital Expenditure and Investment - The decision to cut CapEx was driven by a thorough review of growth opportunities and market demand [11][12] - Acadia is focusing on optimizing capital deployment and enhancing shareholder value through strategic facility closures [22][28] Quality and Technology Investments - Acadia has made significant investments in technology and quality infrastructure, which are expected to improve clinical outcomes and operational consistency [20][47] - The company tracks over 50 key performance indicators (KPIs) to ensure quality and operational efficiency [47] Market Position and Competitive Landscape - Acadia differentiates itself through technology and quality, addressing the historical underinvestment in behavioral health [20] - The company is well-positioned to leverage its joint venture partnerships for reimbursement advantages [41] Future Outlook - Acadia expects to unlock free cash flow potential and achieve strong top and bottom line growth in the coming years [48] - The company is closely monitoring the evolving reimbursement environment, particularly with upcoming changes in state-directed payments [44][46] Key Takeaways - The depth of Acadia's quality infrastructure and operational discipline is often underappreciated by investors [47] - The company is committed to sustainable growth and long-term expansion despite current challenges [48]

Financial Data and Key Metrics Changes - The company reported total revenue of $869.2 million for Q2 2025, representing a 9.2% increase year-over-year [5][19] - Adjusted EBITDA for the quarter was $201.8 million, reflecting a 7.5% increase compared to the same period last year, with an adjusted EBITDA margin of 23.2% [5][19] - Same facility revenue grew by 9.5% year-over-year, including a 7.5% increase in revenue per patient day and a 1.8% growth in patient days [19][20] Business Line Data and Key Metrics Changes - The company added 101 beds to existing facilities in Q2, totaling 191 beds added for 2025, and 479 beds added to date in 2025 [8][10] - Same facility patient days increased by 1.8%, with strong performance in specialty and comprehensive treatment centers (CTCs) [11][12] - The company experienced a slight decline in Medicaid volumes year-over-year in its acute care hospitals, while commercial and Medicare volumes increased by 98% respectively [12] Market Data and Key Metrics Changes - The company anticipates approximately $230 million in gross revenue from existing state Medicaid supplemental programs for the full year 2025, with potential reductions starting in fiscal 2028 [6][20] - The approval of the Tennessee supplemental payment program resulted in a favorable pre-tax benefit of $51.8 million for the quarter [20] Company Strategy and Development Direction - The company remains committed to delivering essential care to underserved populations and prioritizes partnerships with payers and state agencies [7] - The company is focusing on quality initiatives and technology investments to enhance patient safety and care coordination [12][15] - The company plans to pause some capital spending to unlock more free cash flow and reduce startup costs [35][36] Management's Comments on Operating Environment and Future Outlook - Management noted that the primary driver of lower-than-expected volumes was weaker Medicaid volumes in the acute care business, reflecting evolving utilization patterns among managed Medicaid plans [26][27] - The company expects adjusted EBITDA for the full year to be in the range of $675 million to $700 million, with startup losses projected to be approximately $60 million to $65 million [21][22] - Management expressed confidence in the long-term growth potential despite current challenges, emphasizing the importance of quality care and operational efficiency [15][34] Other Important Information - Heather Dixon, the Chief Financial Officer, will be stepping down, and Tim Sides will assume the role of Interim CFO [17][18] - The company is experiencing more favorable labor trends in 2025, supported by initiatives focused on recruitment and retention [16] Q&A Session Summary Question: Can you elaborate on the Medicaid volume issues? - Management indicated that weaker Medicaid volumes were primarily due to evolving utilization patterns among managed Medicaid plans, impacting admissions trends [26][27] Question: What is driving the increase in startup costs? - The increase in startup costs is due to an accelerated opening pace of new facilities, resulting in earlier-than-expected costs [28][29] Question: How does the company view free cash flow opportunities in 2026? - Management believes there is an opportunity to accelerate the path to becoming free cash flow positive by pausing some capital spending [34][35] Question: What is the impact of underperforming facilities on patient volumes? - Underperforming facilities had a negative impact of about 80 basis points on same facility patient volume growth in Q2, with management monitoring the situation closely [42][43] Question: How is the company addressing referral sources for underperforming facilities? - The company is actively engaging with referral sources to highlight the quality of care and investments made in technology and patient outcomes [95][96]