Acadia Healthcare Company, Inc. (ACHC) Earnings Call Transcript & Summary

Good day, and welcome to Acadia Healthcare's First Quarter 2025 Earnings Call. [Operator Instructions]. Also, please be aware that today's call is being recorded. I would now like to turn the call over to Brian Farley, General Counsel. Please go ahead.

Thank you, and good morning. Yesterday, after the market closed, we issued a press release announcing our first quarter 2025 financial results. This press release can be found in the Investor Relations section of the acadiahealthcare.com website. Here with me today to discuss the results are Chris Hunter, Chief Executive Officer; and Heather Dickson, Chief Financial Officer. To the extent any non-GAAP financial measures is discussed in today's call, you will find in the press release that is posted on our website, a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP. 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 2025 and beyond. 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. At this time, I would like to turn the conference call over to Chris.

Thank you, Brian, and good morning, everyone. Thank you for being with us for Acadia's first quarter 2025 conference call. We are pleased with our start to 2025 with both first quarter revenue and EBITDA landing in line with our expectations, while we made continued progress against our strategic growth initiatives. First quarter revenue of $770.5 million came in just above the midpoint of our outlook range of $765 million to $775 million, while adjusted EBITDA of $134.2 million was near the high end of our outlook range of $130 million to $135 million. We also reaffirmed our previously issued full year financial guidance ranges for both revenue and adjusted EBITDA, which Heather will provide further detail on later in the call. Moving to volumes. Same-facility patient days grew 2.2% in the first quarter, which included an unfavorable leap year impact of roughly 110 basis points over the first quarter of 2024. The strong relationships we've built with our referral sources and our 21 joint venture partners continue to be an important part of our strategy for success. Acadia continues to be the preferred partner for leading health systems with both local and national brand recognition across the country to better serve patients by bridging the gap between physical and behavioral health care. Along those lines, I'd like to provide a progress update on our strategic initiatives. In the first quarter, we added 378 new beds comprised of 90 beds to existing facilities and 288 beds from two new facilities that were opened in the quarter, which includes a joint venture hospital in partnership with Henry Ford Health, in West Bloomfield, Michigan and de novo facility in North Port, Florida. In addition, Acadia added 7 new comprehensive treatment centers in the first quarter, extending the company's market reach to 170 CTCs across 33 states. For the full year 2025, we expect to add between 800 and 1,000 total beds. Looking forward, we have a solid pipeline of potential opportunities in attractive markets and expect to add between 600 and 800 beds annually over 2026, and to 2028. Before I turn the call over to Heather, I would like to spend a few minutes discussing the numerous efforts this company continues undertaking to support our quality initiatives and share a few thoughts on the policy landscape. At Acadia, our commitment to quality and safety is a foundational element of our strategy. Our facilities are licensed, accredited and regularly inspected to uphold high regulatory and quality standards, including rigorous requirements for employee training and patient safety. We employ a multilayered approach to patient protection that often exceeds industry and regulatory standards. These measures such as 24/7 patient monitoring systems, mandatory de-escalation training and regular safety rounds are designed to meet the specific needs of the patients and staff at each Acadia facility. Our ability to use data has continued to advance significantly. Our hospital CEOs and leadership teams also use a variety of sophisticated cloud-based systems with deep data capabilities to monitor care quality. Further, our integrated quality dashboard now provides real-time visibility into over 50 distinct safety patient experience and regulatory compliance-related key performance indicators. At the corporate level, our team supports this work with weekly, monthly and quarterly operational and quality performance reviews. We believe the supportive multidisciplinary relationship between the field and the corporate teams ensures we find and eliminate sources of operational and clinical variation and helps us translate behavioral science to practice with consistency. Behavioral health is complex, but it is clear the need has never been greater for high-quality behavioral health care, given the severe mental health crisis that our nation faces. Our strategy at Acadia remains centered on high-quality care and clinical health outcomes and we will continue to prioritize our quality initiatives and expand them when necessary. Turning to labor. We believe our differentiated quality initiatives are having a positive impact on our ability to recruit and retain our staff. These efforts are directly connected to our emphasis on employee engagement and talent acquisition ensuring we have appropriately staffed facilities with trained employees, which have improved underlying labor trends for our company. This is further reinforced by our premium pay, which declined on both a sequential and year-over-year basis in the first quarter. We are extremely proud of the commitment of Acadia's nearly 26,000 employees that have chosen to join our mission to provide compassionate care that improves the lives of patients and their families. Now I would like to briefly touch on the policy landscape. First, let me say that we believe government policy has an important role to play in continuing to strengthen the behavioral health care system, and we remain highly engaged on the policy front, so we can continue advocating strongly on behalf a patient's in need. While the situation in Washington is fluid, we believe that the essential care we provide to underserved and vulnerable patient populations will continue to be recognized and supported. To cite one example, supplemental payment programs have been a key enabling force behind not only our ability to serve high-acuity behavioral health patients, but also patients and many other essential parts of the health care system, including rural hospitals, children's hospitals and nursing homes. With this in mind, we expect these programs to remain an important funding mechanism for Medicaid populations. We remain focused on providing programs and facilities that provide these patients with the best possible care, and we'll provide updates to the investment community as we receive clarity on any potential policy related impacts to our business. With that, I would now like to turn the call over to Heather to discuss our financial results for the quarter.

Thanks, Chris, and good morning, everyone. Our first quarter financial performance for both revenue and adjusted EBITDA fell within our guidance ranges with adjusted EBITDA performing at the high end of the range. We reported $770.5 million in revenue for the quarter, representing a slight increase over the first quarter of last year. Recall, we had expected Medicaid supplemental payments to be down $10 million to $15 million year-over-year in Q1, and these came in near the midpoint of that range. Same facility revenue grew 2.1% compared with the first quarter of 2024, driven by patient day growth of 2.2%. As Chris mentioned, both same-facility revenue and patient day growth included an unfavorable impact of approximately 110 basis points from the leap year. Q1 same-facility revenue per patient day growth was roughly flat on a year-on-year basis, primarily due to the timing of supplemental payments. Adjusted EBITDA for the first quarter of 2025 was $134.2 million, reflecting an adjusted EBITDA margin of 17.4%. As reflected in our prior guidance, these quarterly results included an approximate $5 million year-on-year EBITDA impact due to the decision to close the facility in the first quarter as a part of our ongoing portfolio management efforts. Also included in our results were startup losses related to new facilities, which were higher on both a year-over-year basis and a sequential basis, reflecting a step-up in the number of newly constructed facilities. On a same-facility basis, adjusted EBITDA was $191.6 million, and adjusted EBITDA margin was 25.2% in the first quarter of this year. Our same facility results continued to be affected by a small group of underperforming facilities that you will recall, started to have a material impact on our results near the end of the third quarter of 2024. To date, these facilities have performed in line with our expectations. While we continue to work diligently to improve performance at these facilities, we acknowledge that it will take time and our 2025 guidance continues to reflect no material improvement at these underperforming facilities as we move throughout the year. We continue to maintain a strong financial position, providing us the ability to make the right strategic investments to enhance our operations and support our growth strategy. As of March 31, 2025, we had $91.2 million in cash and cash equivalents and approximately $900 million under our $1 billion revolving credit facility, with a net leverage ratio of approximately 3.2x. The company repurchased approximately 1.6 million shares during the first quarter for a total of $47.3 million. Moving on to our outlook for 2025. As noted in our press release, we are reaffirming our full year guidance ranges for revenue, adjusted EBITDA and adjusted earnings per share. As a reminder, our 2025 guidance includes the following considerations. For 2025, we expect to add between 800 and 1,000 total beds. As I just mentioned, we expected that a small subset of underperforming facilities would result in an approximate $20 million year-over-year headwind to our 2025 adjusted EBITDA. As I mentioned, to date, these facilities have performed in line with our expectations and negatively impacted our same facility patient day growth by approximately 90 basis points in the first quarter. We expect to begin to comp over this headwind to volumes in the fourth quarter of 2025. We continue to expect Medicaid supplemental payments to be flat to up $15 million in 2025 on a net basis. Inclusive of the new Tennessee programs once approved. We continue to expect $50 million to $55 million in startup losses for full year 2025, of which we anticipate approximately $15 million in the second quarter. Before we move to Q&A, I would like to offer some additional color on our bed additions and growth plan. Since last quarter, some of you have asked us questions about our long-term EBITDA growth guidance. So we want to take a moment to clarify some of the assumptions that are contemplated in that guidance range. The previously announced expected revenue growth of 7% to 9% and EBITDA growth of 8% to 10% over 2026 to 2028 is underpinned by annual bed additions of 600 to 800 beds beginning in 2026. As well as the roughly 1,600 to 1,800 beds being added over 2024 and 2025. First, we want to highlight that most of these bed additions come in the form of brand new facilities which, on average, typically ramp to run rate occupancy and EBITDA margin within a 5-year period. As a result, we expect to recognize incremental EBITDA for a majority of this cohort beyond 2028 as these beds continue to ramp to mature occupancy and margin levels. Keep in mind, our 3-year outlook also contemplates the inherent uncertainty that always exists with regards to construction timing, licensing timing and time to rent and we will remain cognizant of this uncertainty as we continue to execute on the largest expansion of bed capacity in our company's history over the next several years. Accordingly, our 3-year outlook assumes that the occupancy and EBITDA ramp for new hospitals will trend towards a 5-year ramp period, which is at the upper end of our historical ramp model and leads a significant amount of inherent earnings power beyond 2028. Second, with regards to payer rates, we included an element of conservatism in our assumptions, as it relates to revenue per patient day and rate growth, given some of the uncertainty surrounding the policy and macro environment. We see embedded upside in these projections if the next few years updates from government and commercial payers more closely resembled that of the last few years versus what is currently contemplated in our 3-year outlook. This base of new behavioral health hospitals we are currently building will provide a multiyear runway for growth, not only as occupancy ramps over the next few years, but also as we're able to add expansion beds to these facilities over time. As we decrease the accelerated pace of bed additions in 2026 to a rate of 600 to 800 per year, we expect startup losses to ease in the back half of 2026. Helping to fuel strong and self-sustaining free cash flow generation as we exit 2026. Note this bed growth is still well above the historical pace prior to 2024, which will contribute meaningfully to our performance in the outer years, including in 2028 and beyond. With that, we're ready to open the call for questions.

[Operator Instructions]. Our first question here will come from A.J. Rice with UBS.

Just maybe first, there are a lot of moving parts in this year's numbers. I know you got the supplemental -- timing on different supplemental payment programs. You've got the pacing of start-up losses on the bed additions and then the annualizing of the Q4 challenges from last year start to make the comps easier later in the year. Can you just give us some perspective on how you see the progression of EBITDA from here? Maybe a little bit of more color on how to think about the seasonality of the business this year given some of those dynamics.

Yes, sure. Thanks for the question. So I'll just kind of walk through a little bit of the phasing. If we think about Q1 versus the rest of the year, you're right, there are several moving parts, and we had talked about a few things that will specifically impact Q1 a little bit more predominantly. And if you factor those in or normalize then, then you can see the normal cadence that we would expect. The first thing I would say is nothing has changed since we talked last time and where we set our guidance and all of the multiple factors we went through. And I think the most obvious piece is that from a timing perspective, the Tennessee DPP is clearly going to be the biggest swing factor thinking about the cadence throughout the balance of the year, A.J., as we look at it, depending on which quarter that will be recorded in. I mean beyond that, there's just a couple of other things that I would talk about that would really lead to the improved EBITDA performance as we move throughout the year. I mean first, Q1 had the highest level of start-up costs and the lowest contribution from the new beds, just because of the timing of when we added them. So that alone implies a steeper ramp as we work our way through the year. And then as we assumed in our guidance, supplemental payments were down year-over-year in Q1. We had said those would be down $10 million to $15 million, and we landed sort of right in the middle of that for Q1. But we expect that those supplemental payments will actually be flat to up $15 million on a net basis for the full year. So that's a pretty big swing between Q1 and the balance of the year. And as I mentioned, obviously, Tennessee is the largest piece of that. If I think about the other swing factors from a volume perspective, we will have a growing contribution from the new beds as we move throughout the year. And then we're also going to comp over a headwind that we started to see from some of those underperforming facilities as we move into the fourth quarter of the year. So that's another piece as you think about comping last year's fourth quarter. Maybe just one more thing to point out is rates. Again, the timing of the supplemental payments and Medicaid mix shift in the specialty business were impacting Q1 and those should start to moderate as we head into Q2 and then further on throughout the year, and that means that low single-digit rate growth for the full year really moves throughout the year. And it's there where we expect it to be for the full year versus where it was for Q1, where it was slightly down. So I think that covers the highlights. The big points, again, I pointed out a lot of different moving parts for the full year guide for EBITDA on the year-end call. But I think those are the highlights and hopefully that helps.

Yes. No, that's very helpful. Maybe just my follow-up question is, I know you've got a cautious view on rates this year. But technically, what are you actually seeing in your Medicaid rate updates, I assume a lot of states updated January 1, and you'll have some more update July 1. And then you probably also got your Medicare rate update, which we pretty much know, but if there's any variance there for you specifically? And then any comment on commercial and what you're seeing there?

A.J., this is Chris. I'll go ahead and take that one. I would just say, overall, that we continue to have very good discussions with our payer partners, and we remain very optimistic that they're going to continue to recognize our focus on providing high-quality care. I wouldn't call anything out with respect to Medicaid versus commercial or Medicare. Our outlook as Heather has discussed, always assumed a low single-digit same facility revenue per day growth. And historically, we've talked about that in kind of a low to mid-single-digit range. We decided, just given the noise on the policy front that it was prudent to just incorporate a more conservative approach in our thinking about rates just given the broader environment. But there's nothing specific on the horizon that we see is concerning, and I would say underlying rate growth has been relatively stable and in line with our expectation as we've gotten into the year.

And our next question will come from Brian Tanquilut with Jefferies.

Chris, maybe take a step back as I think about, obviously, 2% same-store volume performance in the quarter despite some of the headwinds you're facing with the units that are dealing with the headlines. How are you thinking about what the broader demand environment looks like right now? I mean, obviously, you're one of our data points and your peer that's public. But outside of that, if you can share with us what's the demand environment looks like for behavioral health today.

Yes. I would say -- Brian, thanks for the question and that our expectation is that it just continues to be consistent with what we're seeing. I mean, I think particularly given our strategy of focusing on the higher acuity patients. When you look across our various lines of business, whether it's on the acute front, CTC, specialty RTC, we just continue to see increasing demand. And I think we've done a very good job of pointing out our commitment to quality. We have obviously invested heavily in being able to quantify outcomes, and we've shared that with our payer partners. And I think all of that has led to a consistent demand environment. I mean, Heather, anything that you would want to add?

No, I think that's right. I think the demand environment remains and we are doing our part to meet that demand and we're working hard to look at new facilities and bed additions where those are necessary. So nothing to add there.

I appreciate that. And maybe, Heather, thank you for all the color on the 5-year ramp to maturity. So just curious, as you think about the cohort of beds added in '24 and '25, maybe even into '26, has your view on the path to breakeven changed? Or is it still the same kind of laying out that 5-year kind of ramp-up to kind of mature levels of margins and occupancy.

Yes. Thanks for the question. Our view has not changed. Let me just walk through a little bit of how we're thinking about it and specifically how we thought about it whenever we thought about the long term, kind of the 3-year guide that we put out. I mean, first of all, you mentioned the 3- to 5-year ramp period that we've experienced historically. That is -- that's our average. Now keep in mind, there's multiple factors that impact how those ramp, and we've seen some really good success in recent facilities, as they've been ramping. One of the factors that impacts it pretty significantly is whether it's a bed addition to an existing facility or whether it's a newly constructed bed. Obviously, those take much longer to ramp. In our longer-term guide, we have assumed a higher mix of new facilities constructed and new beds from construction than what has historically over the last few years, been contemplated and what's actually played out. And so that shifts a bit towards the higher end between the 3% to 5% range. Those obviously will be at the higher end of that range versus others. So that's part of it. And what that means actually is that there's incremental EBITDA that's beyond 2028. Because those beds, you just mentioned the years that are ramping, all of those would continue to be ramping and really hitting their stride and what we've modeled out post 2028. There's a couple of other things that I would think about. There's always uncertainty with construction timing and that's not just construction, construction, licensing timing, how long does it take to ramp all of those different things, and we're just very cognizant of all that uncertainty. So as we're executing and continuing to execute on what's clearly the largest expansion that the company has had. We've been in that position for the past several years, and we're going to continue. We're just very cognizant of that, and we want to make sure that we factor that uncertainty in appropriately into the guide. If I think about how far our outlook goes, we think about 4 years from now, effectively, will be when that outlook when those things are actually happening. And that means the EBITDA growth that's included in the sort of the longer tail of that '28. We haven't even started construction on those bids yet. So we feel like it's more prudent to just assume the higher end of the ramp range between that 3 to 5 years just because it's further out into the future. And so I talked about on the prior call that, that's some conservatism that's built in. So hopefully, that helps you understand a little bit of what we're thinking about with conservatism whenever I say that. I mean again, what that points to is that the occupancy and the EBITDA ramp for those hospitals, there will be certainly incremental amounts of inherent earnings that are again showing up beyond 2028 there. So that -- all that said, we are still experiencing strong performance. I just mentioned that we had some in our recent cohorts, 2023 cohort specifically that we're watching because of where it is now and sort of the ramp. And we're seeing some really good outcome and results. But we just thought it was more prudent for the reasons I just walked to assume sort of the higher end of that ramp period. But back to your -- that was a long-winded answer to your question, but back to your original point, our view hasn't shifted. We've just factored in some conservatism. And hopefully, that helps you understand why and how we factored it in.

And our next question will come from Whit Mayo with Leerink Partners.

Anything -- when you just look at the first quarter and your performance, was there anything better or worse in the quarter versus your original expectations? Just wondering if there was any favorability on any of the key assumptions or expense items.

Whit, sure. Let me -- I'll talk about 2 things. I mean the first thing I would talk about is labor. We saw the continuation of those favorable labor trends that we have been seeing and our base wage inflation continued to trend lower. Contract and premium labor expenses both fell year-over-year and sequentially. So that's the first thing that I would point to. The second thing I would point to our startup losses, those came in a couple of million dollars better than our expectations for the first quarter, and that's just timing. That's just all things I just went through in regards to construction and some of the uncertainty, that's just some timing differential. And we still expect that those will continue to be in the range of 50% to 55% for the full year, just to be clear. But they were around $16 million in Q1, and that's a little lower than what our expectations were. But that's really the -- I think, the only 2 things that I would point out from a quarterly perspective.

Okay. So a couple of million dollars of favorability on the expense side and you were still within the range that you targeted. Is that I mean is that the way that you're looking at the performance? I'm just trying to figure out like how you perform versus the internal plan versus the guidance that you provided?

Yes. I mean we were up towards the higher end of our guide with, and that is very -- the things I just walked through, I think specifically the startup losses, those were what contributed to us being at the high end of the guide, but we were performing right in line with our internal plan.

I know this isn't a metric that you talk about. But when I look at the revenue per average CTC, it's been declining for several quarters now and just trying to maybe better understand why that metric would look like that?

I'll start, and Chris, you may want to jump in. But from a revenue perspective for CTC, I mean, as you know, the CTC business has experienced just significant growth. I'm very, very pleased with the growth over the past few years. There was a lot that we could do to apply some muscle behind it and really get the most out of that business. The other thing that I would point out is if you look at the CTC business, we have found a very capital-friendly way to add facilities to the lineup and those are effectively acquiring subscale sort of ramping CTC facilities that we can buy for a very good price. And then we can put those in, apply the Acadia methodology for running the operations and really ramp those pretty quickly. So as we add those in, and they are in -- similarly in the ramp position, you'll see that those will kind of pull down the average overall as we're ramping them. In the first quarter, we opened 3 new CTCs then we acquired an additional 4 that would fall into that category that I just mentioned. And so when you think about that, that really is part of the timing of what you're seeing impact the revenue to clinic. I think just generally speaking, the revenue can clearly vary based on the size of the clinic, maturity, all those things. But I think what you're seeing with and to your question is those different nuances I just walked through.

Yes. I would just add one thing, Heather, and I think that's, that so frequently, the CTC market continues to be highly fragmented. And so as a result, when we do find these subscale acquisition opportunities that we can tuck in, they have frequently underinvested across the board, and they very frequently have a limited digital presence frequently don't even have a website, and they certainly have not invested in the capabilities that we're able to bring in. So all of that enables us to buy these subscale assets and ramp them more quickly. And I think that ties into your question in terms of the revenue per average CTC.

And our next question will come from John Ransom with Raymond James.

I am just wondering on the new facilities, not to bed as to the new facilities, what sort of return targets do you look at once the facility is fully ramped? And maybe it would be helpful to kind of put that as an EBITDA as a numerator and total investment as a denominator. And kind of as a corollary, are you sharpening your pencil on new opportunities to try to drive higher returns? Or are you still kind of sticking with the historical?

John, thanks for the question. If I think about -- just in general, the first part of your question, what do we do? We look at typically a couple of things. First, as you can imagine, we look at our cost of capital, and we make sure that we understand all the moving parts. We also then ensure that we are applying sort of margin or a cushion on top of that to make sure that we have returns that are well above that cost of capital. And that one of the primary measures, obviously, that we use is return on invested capital, and we typically look at that on a very detailed basis for every project consistently, whether it's a bed addition, an M&A potential transaction, et cetera. So we look at all those in the same way and just sort of apply a very disciplined approach across the board from a capital perspective. And so that is certainly something that we look at sort of to the second part of your question, what are we doing now and sort of -- I think you asked for rethinking what we have done. I'll just a little bit of detail on the process. First, we have multiple check-in points as we go throughout any project. As you can imagine, it's quite a large undertaking to make sure that we have all of the right pieces in place before we move forward with the decision. We check in multiple times before we ultimately move forward as we gather more information. And so those checkpoints have always been there, very disciplined approach we have. Second, we've gone through a couple of pieces. First, everything that we had currently had in our pipeline, we've gone back and we have made sure that when we rerun sensitivities and we look at any perspectives that we think we need to have a different lens on that those still meet the thresholds that we originally set out to meet whenever we think about capital deployment and ensure that those are still sort of all viable projects that we would like to do. Unfortunately, we have a lot of different opportunities to deploy capital. And so if we find something that no longer meets what we think we should have as a required return, then we can move to the next thing. Maybe the other thing that I would point out is for future projects, we have obviously incorporated some sensitivity analysis, both on a rate and a construction cost side, so that we can ensure we have a flexible view and we can sensitize those and ensure that we have the right perspective as we move forward. So maybe if I just sum all that up, I think we would say very, very disciplined approach. We're very careful with how we select investments. We have a very thorough conversation over multiple periods.

Second question is when we think about the future, you had a pretty sizable legal accrual in the first quarter. How do we think about -- is that the high watermark? Or how should we think about that number for the rest of the year?

Yes. I would -- I think you're referring to the legal costs and not a legal accrual, I'm assuming.

Yes.

Okay. Great. I just want to make sure I'm answering the right question. So if I think about that, we have -- obviously, we're working through multiple things right now. We have both the DOJ and the SEC that we are working very cooperatively and diligently with. We have engaged an excellent law firm to help us with this, so that we can continue to work and participate with them. We've undertaken significant efforts to respond as quickly as possible to all of the inquiries that we have. And what you're seeing, I think, John, is the bolus of work that's being done in order to respond to and participate with all of those questions. So that is really what's driving that. From a cadence perspective, it's hard to say and to predict the future. But certainly, what I would say is at the earlier stages of the investigation, certainly, there is a lot of preliminary work to do and certainly a large amount of work that needs to get done and again, working as quickly as we possibly can. So hopefully, that's helpful.

And our next question will come from Pito Chickering with Deutsche Bank.

I can confirm that the webcast is down getting about a dozen reports of that right now as people are unable to join right now. It follows to A.J's question, just can you give us sort of guidance on how we should think about sort of 2Q as a percentage of annual guidance and bridge sort of how that you can get to that number. I believe that you talked about a $50 million beneficial supplement payment coming in 2Q, but any bridge would be helpful as you think about the ramp from the first quarter results.

Yes, sure. Pito, I'll start by saying I'm not going to get into Q2 guidance, but let me just point out a couple of things. I mean, very clearly, the biggest swing factor is the supplemental payments and specifically the Tennessee program. So that is certainly one that we're watching and thinking about timing. To the extent that, that is approved, there would be a significant impact to whichever quarter that, that is approved in. From our perspective, we have -- we pointed this out in the fourth quarter call. And just to reiterate for our perspective, we've assumed that, that comes in the second half of the year. And so to the extent that, that comes in earlier in Q2, that would be a swing factor for what we have thought through. The rest of the things that I talked through a little bit earlier in regards to how you can think about the ramping, there's the bed additions and the new beds. Those are going to continue to steadily improve. Again, supplemental, very much the largest swing factor here. And just thinking about how we move throughout the balance of the year, Q4 is when we're going to lap things. And so if you think about the balance of Q1 versus Q2, Q3, Q4, there will be some significant differences between Q4 and the rest of the year. That's probably the best guidance I can give you. I talked about a little bit earlier that we expect start-up losses still to be in the 50% to 55% range for the full year. I think Q2 will look fairly similar to Q1, maybe a little bit less, but that's probably about the only things that I could point to.

Okay. Fair enough. And then a follow-up to which question on CDC, but ask a different direction. CDC revenues were flat sequentially, but number of patients grew I think 2,000 or almost sort of 3%. So can you talk about what you're seeing on CDC from a pricing perspective? Just I'm trying to sort of look at the flat revenues while patients are growing to figure out, is pricing under pressure or what are you seeing there?

Yes, Pito, this is Chris. Let me take that one. I would say CTC revenue grew 3.6% year-over-year in Q1, and that was generally in line with the growth rate that we reported in the second half of '24. The service line as we've discussed before, it's stepping over some pretty tough comps in the first half of '24. And there was also some modest unfavorable impact from weather that we also saw in Q1. But as we discussed in the first quarter, we opened the 3 new facilities, the 3 new CTCs. We acquired an additional 4, as Heather said earlier, and those are progressing well. There isn't anything that we would call out with respect to pricing though on CTC.

So I mean, just to follow up there, because you're disclosing the patients in CTC, at the end of December, 72,000, now it's 74,000. That implies you have 2,000 more patients, but revenues are flat sequentially. So I guess, how would growing census by 2,000 from 4Q to 1Q not impact revenues increasing sequentially?

Let me understand your question. You're saying how -- if we grew the volume of patients, why did revenue not grow sequentially? Is that your question?

Correct.

I think there's some timing factors in there from a payment perspective. They're not nearly to the extent of the acute side of the business, but there can be some supplemental payment streams much, much smaller that can really impact some of the timing of the revenue. We have different rates in different states. And as those rate updates come through, that can add a little bit of what seems like supplemental lumpiness, but that's really just rate changes that come through. We closed a few facilities as well. And so that will affect -- those are obviously -- we're not going to close them if they're high volume facilities, but they could have been facilities that were contributing some revenue, but really on a scale basis, weren't the right mix for our business on an EBITDA contribution perspective. And so that can certainly affect the revenue and the top line, but would not impact the EBITDA contribution. So that's probably only a couple of things that I would point to. Hopefully, that helps a little bit.

And our next question will come from Matthew Gillmor with KeyBanc.

I wanted to follow up on some of the policy comments and ask about work requirements. I know there's normally exceptions for people with substance abuse and psychiatric issues. But I just wanted to get your thinking in terms of that proposal and if that would have any impact on Acadia.

Yes. Thanks, Matt. This is Chris. I'll take that one. I would say, overall, we're still far from having a clear view of what potential Medicaid adjustments will be. Obviously, the Energy and Commerce draft, we have been scrutinizing and it's over 100 pages and a lot of nuanced language in there. But overall, I think we continue to believe that the patient populations that we serve, including some of the highest acuity mental health issues in the country are going to be relatively less impacted in terms of the risk of losing Medicaid access. I would say as it refers to work requirements specifically, I would just iterate that while the language may change, we remain really optimistic that a good portion of our population could be exempt both based on existing structures that are in place and based on our initial interpretation of what we're seeing there. We have just seen in the past that if you remove access to high acuity mental health care for these populations, you tend to get exploding costs in other parts of the system. And we've seen examples of that in the past where the populations have been carved out things like work requirements. And I think what you're seeing in the bill appears to have some significant carve-outs related, but we're just going to have to continue to work through it and obviously continue to lobby with the broader NABH and broader industry groups.

Got it. And then I wanted to see if Heather had any comments on the cash flow from operations in the quarter. I think the legal expenses probably had an impact there, but were there any other sort of timing, things to think through and when those would normalize?

Yes. The only thing I would point to is, obviously, as we've talked about, we are clearly at the peak from a CapEx perspective as we are in the middle of the highest number of new beds that the company has experienced, both with the end of last year, the significant number of beds coming on. Some of those costs continue to flow through related to those in Q1. CapEx and cash is obviously cash basis, it's not accrual. So even though we opened the beds in Q4, the costs are still going to come through in Q1. So that's part of it. And incrementally, just to add on to that, obviously, we have added a large number of beds already this year. With Q1, we've added almost 400 new beds already. So that's a piece of it as well. Keep in mind that startup losses are also part of that, and those are clearly at a peak in Q1 of what we expect for the full year, as we've talked about as we move through the year, $50 million to $55 million for the year, but there was a predominance in Q1. And so that's also a piece of what you're seeing. You're correct. Obviously, the legal costs, those come through, and that's part of what is coming through from a legal perspective and impacting cash flow. I think those are the primary moving parts. Hopefully, that's helpful and answers your question.

And our next question will come from Andrew Mok with Barclays.

There's been a year-over-year decline in specialty revenue, it looks like for 5 quarters in a row now, which has contributed to the broader deceleration in same-store revenue. Can you help us understand what's going on with that line specifically and when you expect to get back on track for growth?

Yes. Yes, I'll jump in, Andrew. So a couple of things I would point to. First is we have closed some specialty facilities over the past several quarters. Obviously, we closed one in Q1 of this year, and then there were a few others that we've closed over the past handful of quarters. And so that's part of what is contributing to that. It was about 5% down in the first quarter, and that's really mostly driven by the facility closures. Over the past, I would say, 1.5 years, we've wind down 4 specialty facilities, and that includes the one that I just mentioned in the fourth quarter. So that's part of it. The other part is if you think about just from a revenue perspective, we have seen some nice growth in the Medicaid specialty inpatient business. Obviously, that has a differential from just a year-over-year perspective on the overall revenue contribution for that depending on the type of treatment that those patients need. But really, I think it's mostly driven by the closures.

And as we contemplate the recognition of state supplementals, supplemental payments from Tennessee, is that mostly an acute inpatient item, it would hit that revenue line?

Yes.

And our next question will come from Sarah James with Cantor Fitzgerald.

This is Gabie on for Sarah. I just have a quick one. Could you elaborate if there was any weather impact on your facilities in the Southeastern states, one of your peers had seen that? And then maybe if you could just elaborate on how trends are going on some of the underperforming facilities spoken to last quarter.

Yes, I'll start. And then, Chris, if you -- I'm sure you want to say some things about some of the operations of the facilities. From a weather perspective, nothing material for us to call out. Obviously, it's seasonal and every year, we see some sorts of weather in different parts of the business, but nothing I would really call out and point to. Chris, you want to give some color on those facilities, the underperforming facilities?

Sure. And thanks for the question, Sarah. As we discussed in the prepared remarks, our '25 guidance had assumed a roughly $20 million EBITDA headwind for the full year from this group of underperforming facilities that we had first called out in the fourth quarter, which you're asking about. And so I would say those facilities have performed overall in line with our expectations. They had a negative impact on our same-facility patient growth of about 90 basis points in the first quarter, and we'd expect to begin to comp over that headwind to volumes in the fourth quarter of '25. So the underperformance has tended to be correlated more with local media coverage that's more intensive. Health care is obviously local rather than any news at the national level. And it's just -- it's difficult to put an estimate on the timing. But we continue, as we had said at the outset, to be prudent and taking a more conservative approach when we set guidance. And I think this is an example of that. We continue to execute and just feel very good about the path that we're on, but nothing additional that I would call out.

And our next question will come from Joanna Gajuk with Bank of America.

So I guess first follow-up on the Tennessee DPP, did I miss it? I know you said that you assume second half of this year, but did you say how much you expect from that program?

No, we did not say how much we expect from that program in particular. We have said historically -- since our earnings call for Q4, we said that we expect total supplemental payments on a net basis to be flat to up $15 million for the full year, inclusive of Tennessee, but we haven't called out any numbers for Tennessee specifically or for any other states for that matter.

Okay. And I guess, would you remind us, was there any out-of-period payments last year in '24? So when we think about the numbers flat to up $15 million, is there something we should adjust out from last year?

Yes. No, that's a great question, and thanks for the reminder. We did call out last year $10 million -- approximately $10 million in payments that we saw predominantly in Q1, about $7 million of those were in Q1 and then the rest were in the balance of the year. But yes, we did.

All right. And if I may, another follow-up on a different topic on these handful problem facilities. So I understand you're saying things performing in line there. But is there anything you continue to do there to try to improve the situation? Can you give us an update on these referral sources outreach that you've had and any traction, I guess, you're getting there?

Yes. I would say there is a number of things and we can continue to do. I mean obviously we have been very deliberate about meeting with our referral sources, particularly in person and also inviting them to these facilities as well, which we do all the time that we tried to be even more happened since the fourth quarter. We've obviously done everything from talent reviews and taking a look at the existing staffing, making sure that we don't have key positions that are unfilled working with our talent acquisition team very closely on that. And then obviously working with our other corporate functions, including our quality team to make sure that we have everything in place that we need to continue to provide high-quality services. And so we're just -- we're looking at a range of things in any given facility. There isn't one step that I would call out. But just in totality, we're just very, very much cognizant of making sure that we're continuing to deliver high-quality care and that we have the right staffing in place and that we're continuing to focus on the right referral sources and that we're able to provide a great patient experience when the opportunity avails itself, and we'll continue executing on that plan.

This concludes our question-and-answer session. I'd like to turn the conference back over to Chris Hunter for any closing remarks.

Thank you. In closing, I just want to again thank our committed facility leaders, clinicians and approximately 26,000 dedicated employees across the country who have continued to work tirelessly to meet the needs of our patients in a safe and effective manner. We are together doing incredibly important work for our patients across the country and remain committed to serving them with care, compassion, and excellence. Thank you all for being with us this morning and for your interest in Acadia. Have a great day.

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