Acadia (ACHC) Q3 2025 Earnings Call Transcript

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Date

Thursday, Nov. 6, 2025 at 9 a.m. ET

Call participants

- Chief Executive Officer — Christopher Hunter

- Chief Financial Officer — Todd Young

Full Conference Call Transcript

Christopher Hunter: Good morning, everyone, and thank you for joining Acadia's Third Quarter 2025 Earnings Call. I'm pleased to be joined today by Todd Young, who recently joined Acadia as our Chief Financial Officer. Todd brings nearly a decade of public company CFO experience, most recently serving as CFO of Elanco Animal Health where he helped shape the company's strategic direction following its spinoff from Eli Lilly. Prior to that, he served as CFO of Acadia Pharmaceuticals. Todd's deep experience in health care finance, capital allocation and operational transformation will be instrumental as we continue executing our growth strategy and enhancing shareholder value. I also want to thank Tim Sides for his leadership as Interim CFO over the last few months.

Tim will now resume his role as Senior Vice President of Operations, Finance. Likewise, I would like to take a moment to thank Dr. Nasser Khan for his many contributions to Acadia Healthcare over the past 3 years, including most recently as our Chief Operating Officer. Nasser is stepping down from the role of COO and will continue to serve as an executive advisor to the company through the end of the year to help facilitate a seamless transition. Turning to our third quarter results. We reported revenue of $851.6 million, representing a 4.4% increase over the third quarter of last year. Adjusted EBITDA was $173 million, compared with $194.3 million in the prior year period.

As previously disclosed, these results reflect softer-than-expected volumes in our Medicaid book of business, particularly in our acute care segment. Same-facility volume growth was 1.3% in the quarter, which was consistent with the preliminary commentary we shared at the Jefferies Healthcare Services Conference in late September. This was approximately 100 basis points below our internal expectations. In addition to this increased pressure on our volumes since our Q2 earnings call in August, we have also faced incremental headwinds from rates and benefit expense related to employee health care costs, along with an anticipated increase in professional and general liability expense, or PLGL.

These items are causing us to reduce our adjusted EBITDA guidance for 2025 to $650 million to $660 million from our previously issued guidance of $675 million to $700 million. Todd will take you through the specifics in more detail later in the call. Stepping back, we recognize that our operating environment has faced increasing headwinds as we moved through 2025, particularly with regard to pressures on managed care companies and increased uncertainty on Medicaid funding at the state level.

Accordingly, we have taken decisive steps to optimize both our growth investments and our existing portfolio in order to position our company for improved financial performance in a more uncertain environment, particularly due to ongoing headwinds that we believe will ultimately be transitory in nature. As a result of these steps, as we finish 2025 and move into 2026, our company is in a better position to serve more vulnerable patients in our communities while sustaining both top and bottom line growth and unlocking the free cash flow generating power of the business. We are doing this in 3 primary ways. First, capturing the growth opportunity currently embedded in the business. Second, realigning our capital spending priorities.

Third, optimizing our portfolio of existing facilities. First, let me expand on how we are focused on capturing the inherent growth opportunity that currently exists in the business. Having added over 1,700 beds across 2024 and 2025 year-to-date, we have increased our capacity to serve more patients in need. And we expect to add another 500 to 700 beds in 2026, including new facilities developed in partnerships with our marquee joint venture partners such as Tufts Medicine and Orlando Health. These additions are expected to contribute meaningfully to both same-facility volume and EBITDA as they ramp over the next several years and reach their full performance potential.

As we continue to optimize the impact from beds added in 2024 and 2025, we are also driving execution across all of our facilities in order to provide high-quality and effective health care to our patients. To support these efforts, we've implemented a series of targeted initiatives focused on acute care referral sources. For context, approximately 80% of acute admissions originate from professional referral sources such as emergency departments, police departments and schools. We've developed referral source level action plans at underperforming facilities with senior operator ownership and weekly executive team updates. We've repositioned key clinical roles, introduced more data-driven planning and allocated dedicated resources to support execution.

Our execution across these initiatives drove over 3% same-facility admissions growth in Q3 compared to last year, which is an acceleration from trends in the first and second quarters. In parallel, we are closely engaging with our payer partners, particularly in Medicaid, to demonstrate how our unique investments in technology and process position us to be part of the solution to the cost pressures facing government and other payers. Over the past several years, we've made meaningful investments in our quality platform, including standardized clinical protocols, enhanced data systems and outcome tracking, all of which are becoming increasingly important to both our payer partners and to accrediting agencies.

These investments are designed to strengthen care delivery and demonstrate the value of our services, and we expect them to drive long-term benefits for patients, payers and our business, which I will talk more about momentarily. Second, we are realigning our capital spending priorities. As a backdrop, the demand environment for behavioral health services remains structurally strong. We continue to see rising acuity across patient populations, greater awareness and de-stigmatization of mental health, and a persistent supply-demand imbalance, particularly in underserved geographies. These trends are durable and support a long-term runway for growth. That said, we're taking a more measured approach to capital deployment in the near term.

We've recently completed a comprehensive portfolio and capital allocation review, and we're prioritizing growth in markets with favorable reimbursement dynamics and strong demand fundamentals. As a result, we are pausing several development projects that no longer project an acceptable return. And as previously disclosed, we now expect our capital expenditures in 2026 to be at least $300 million lower than our revised 2025 CapEx guidance of $610 million to $630 million. This discipline allows us to focus on projects with the highest return potential and ensures a more linear path to EBITDA growth.

And importantly, it positions us to generate positive adjusted free cash flow for the full year 2026, a milestone we previously expected to reach on a run rate basis exiting 2026. Looking ahead to 2027, we anticipate further reductions in CapEx as we concentrate our resources on high-performing markets and ramping facilities, while maintaining flexibility to pursue targeted opportunities that align with our long-term strategy. Third and finally, our goal is to ensure we have a portfolio built to serve patient demand and help address the persistent supply challenges in behavioral health.

This means investing prudently to grow the business, but also actively managing our existing portfolio to ensure we meet demand, maximize the returns on our investments and best position us to deliver sustainable, value-accretive growth. As part of our ongoing portfolio optimization, during the third quarter we made the decision to cease operations at 5 facilities that no longer aligned with our strategic priorities or demonstrated persistent underperformance relative to our expectations. Two of the closures are in the previously discussed group of underperforming facilities: 1 acute care facility and 1 specialty facility. The others are eating disorder facilities that do not fit with our broader portfolio.

We make a decision to close a facility only after careful review and analysis of a variety of factors, such as community needs, demographic trends and existing health care resources within a region. When community needs evolve, we work with local regulators, community leaders and other behavioral health providers to adjust our service offerings and facility locations accordingly. These decisions are never taken lightly, but they reflect our commitment to maintaining an optimized, high-performing portfolio that supports long-term growth and operational excellence. By concentrating our resources on markets and service lines with the strongest demand fundamentals and reimbursement dynamics, we're positioning Acadia to deliver stronger, more consistent results.

We will continue to assess our footprint with rigor and make thoughtful adjustments where appropriate, always with the goal of enhancing performance, improving returns and creating long-term shareholder value. One of Todd's immediate priorities is to thoroughly review the more stringent lens we have been applying to capital deployment to ensure that every investment, whether in facilities, technology or partnerships, meets our threshold for return and supports our long-term objectives. Before turning the call over to Todd, I want to discuss our continued focus on quality. I've spoken about this topic on numerous calls because it's the key to our mission and critical to our long-term success.

Our integrated quality dashboard now provides real-time visibility into more than 50 key performance indicators to our field operators and senior management, supporting our commitment to operational excellence and payer engagement. These initiatives have helped us attract and retain talent, and we're seeing more favorable labor trends in 2025 supported by centralized recruitment, employee engagement and targeted training. These efforts have demonstrated real results as Q3 reflected Acadia's sixth consecutive quarter of improvement to employee retention, a key factor in helping us manage labor costs. It's also worth noting that the broader health care provider industry is seeing an expected increase in rigor on surveys in the new post-COVID normal.

CMS has publicly directed accrediting organizations and state survey agencies to significantly increase the diligence and thoroughness in how they survey all hospitals, not just behavioral health. And we are pleased with how we are performing. Across the industry, surveyors are spending more time on the units, with the patients, directly interviewing and observing staff. We welcome these interactions as we are increasingly able to capture proof points on the tremendous work that our teams and our facilities are doing every day.

The positive clinical outcomes we have been able to achieve at a recently opened JV facility are an excellent example of how process improvements along with our investments in technology and, by extension, our overall ability to demonstrate clinical and quality outcomes are allowing us to deliver value to the patient community. At this facility which opened earlier this year, we have been able to serve more than 1,700 patients through the end of the third quarter.

Furthermore, outcomes data at this facility shows significant improvement in psychiatric symptoms, including a 47% reduction in depressive symptoms, 47% reduction in anxiety symptoms and a 34% improvement in quality of life, a testament to the quality and consistency of care our teams deliver every day. These results are representative of how we are positioning our business to meet the evolving demands of the behavioral health environment. And even more importantly, they speak to the dedication of our caregivers, clinicians and support teams who are advancing patient recovery every day. We're excited to begin sharing more examples like this in 2026 across service lines and with more transparency into clinical outcomes.

In short, we remain confident that these investments and initiatives will remain a key differentiator for Acadia in a health care sector that has historically seen underinvestment in technology. And with that, I'll now turn the call over to Todd Young.

Todd Young: Thanks, Chris, and good morning, everyone. I'm honored to join Acadia Healthcare and excited to be part of a company that is leading the way in behavioral health. Throughout my career, I've had the opportunity to help organizations navigate complex transitions, optimize capital allocation and unlock long-term value. I look forward to bringing that experience to Acadia as we continue executing on our strategic priorities and delivering sustainable growth. In my short time since joining, I've been deeply impressed by the strength of the team, the mission-driven culture and the scale of opportunity ahead. I'm particularly focused on ensuring that our financial strategy supports disciplined expansion, operational excellence and shareholder value creation.

That includes a rigorous approach to capital deployment, a clear framework for evaluating growth investments, and a commitment to transparency and how we communicate our performance and outlook. Turning to our third quarter results. We reported revenue of $851.6 million, representing a 4.4% increase over the third quarter of last year. Same-facility revenue grew 3.7% year-over-year, driven by a 2.3% increase in revenue per patient day and a 1.3% growth in patient days. Adjusted EBITDA for the quarter was $173 million. Adjusted EBITDA came in at approximately $5 million below our internal expectations, driven primarily by lower volumes and an increase in bad debts and denials. Supplemental payments served as a partial offset to these headwinds.

These results include $13.3 million in startup losses related to newly opened facilities, compared to $7.3 million in the third quarter of 2024. We continue to expect full year 2025 startup losses to come in at the prior outlook range of $60 million to $65 million. We expect startup losses for the full year 2026 to decrease modestly from 2025 levels, with a more material step-down expected in 2027. As a reminder, though CapEx will step down meaningfully next year, startup costs will decline less on a relative basis due to the large number of new beds coming online in 2025. On a same-facility basis, adjusted EBITDA was $224.7 million in the quarter.

We invested $135.8 million in CapEx in Q3, which is more than $20 million favorable to our Q3 plan. From a balance sheet perspective,