Hi, good morning. Welcome back to day two of the Barclays Global Healthcare Conference. My name is Andrew Mok. I'm the Managed Care and Facilities Analyst here at Barclays, and with me on stage joining me here today is Christopher Hunter, CEO, and Heather Dixon, CFO of Acadia Healthcare. Welcome. Thanks, Andrew. Great to start. We can hit it on the top of it. It's top of mind for a lot of investors, and that's Change Healthcare. I just want to understand, what's been the impact to your business so far, and what are your first impressions of some of the plans to address these issues? Yeah, I'll take that. I mean, I would say we haven't seen, fortunately, a significant impact. There were some challenges that we had very early on with just checking benefit eligibility, and we were able to utilize a backup solution there pretty quickly. So we continue to monitor it closely, but just really haven't seen an impact. I would say overall, in terms of some of the flexibility and the provisions that HHS has put in place, I mean, we certainly applaud those. I think both on the provider and the payer side, clearly continue to hear that those are making a difference and just pleased that those are in place. Great. With that out of the way, let's start on the core demand trends in behavioral. I think CTC revenue was up close to 20% in 2023, a year where you actually pulled back on de novo openings. What does that tell you about the underlying demand in that business and the unmet need? Yeah, I would say overall that we just continue to see record demand for our CTC services. And if you kind of step back and just look at opioid use disorder, there's nine million Americans that are suffering right now from OUD, and only 10% of that nine million are actually in treatment for medication-assisted therapy, which is methadone, really the gold standard for treatment. So we have talked recently about this almost entering into a fourth wave for opioids, where the first wave was more prescription pills, and then it moved to heroin, and then to fentanyl, which is 50 times the potency of heroin. And now we're in this fourth wave, which we hear discussed around polysubstances, where someone in their urine that's presenting as a patient will have not only fentanyl but also frequently cocaine or methamphetamine a high percentage of the time. Just the complexity and the severity of these diagnoses continues to be more pronounced. Then the other thing that I would just point out is that there are estimates here recently that almost 8% of all hospital spend right now is attributable toward the direct care of patients with OUD. This just increasingly is becoming a problem for the broader healthcare ecosystem overall. Great. If we flip to the inpatient side of the business, you delivered 5% same-store admissions growth in 2023. Can you speak to how behavioral admissions are trending to start the year and what the outlook there is? Sure. I'd say for the first quarter, we've seen a little bit of a slower-than-expected return to normal volumes coming out of the holidays. In February and early March, we saw some improvements. We've seen some continued improvement in census trends. But because of a few factors and a strong comp from the last year, we're really expecting that this quarter's growth rate is going to come in just slightly below our recent volume at trends, which we very much expected and certainly layered into our quarterly guidance. But we do continue to have confidence that we're going to be able to deliver on our same-facility patient-day growth in the mid-single digits for the full year as we begin and this back half of the year to really ramp up the number of the bed additions and some of the JVs that we had put in place last year. I would just say overall, with respect to inpatient trends, I mean, we just continue to see record demand across the board. I mean, those with a serious mental illness last year increased 9%. This is for a U.S. population that's growing at 50 basis points a year, 9% growth in SMI from 14.1 million to 15.4 million Americans. And then when you layer in a SUD diagnosis on top of SMI, that's growing at 15%. So just the underlying demand overall, I think, speaks to just a lot of opportunity across the board. Great. Maybe on that moderation point a little bit, is there anything you can point to just within service lines specifically that's driving that, or do you think it's purely a seasonality factor? Say seasonality, but you want to think that, Heather? Yeah, I would say seasonality. I wouldn't point to any one particular service line. It's just as we're coming back from the holidays, just sort of the impact of the ramp overall. Nothing in particular. Great. And when we think about the bed additions that you're talking to this year, any color on just the season on the quarterly cadence of when those are likely to occur? Yeah. So I'll start, and you can jump in. So from our perspective, for 2024, we have new beds coming online, phased towards the back half of the year, certainly. And I'm sure Chris will go through in a minute what those are, but there'll be phasing for the back half of the new openings. But also remember, we opened beds heavily weighted to the back half of the year in 2023. So you'll see those start to contribute later in the year as well. Do you want to talk about that a little bit? Yeah, just in terms of the visibility that we have into the year, I'd start by saying I'm really excited about 3 JVs that will be standing up and opening this year with just 3 of our partners. And they have varying sizes, but from Ascension Seton in Austin, Texas, we're adding 100 beds to an inpatient facility in partnering with the University of Texas Dell Med School, to a really large facility that we're opening with Henry Ford just outside of Detroit that has just under 200 beds, to a facility that we're going to be opening within Intermountain Health just outside of Denver and Westminster, Colorado, which is a 144-bed facility. So as Heather said, these would be a little bit more weighted to the back half of the year in terms of when those openings will take place. We also have good visibility into a number of the de novos that we're opening. We have one in Mesa, Arizona, that we're opening, one in Madison, Wisconsin, and then another one that's close by in Tampa, Florida, as well. I think you couple all of that, the de novo growth, the JV growth, with also the visibility that we have into bed additions, where historically, at our Investor Day, we've always talked about roughly 300 beds that we've added a year to our existing facilities. We anticipate taking that up to 400. That's a really strong return on invested capital and something that we're really looking forward to this year as well. Just coming into the year with high visibility into our bed addition growth. Great. Moving on, one of the nuances of Acadia is that there's no corresponding patient day associated with the CTC business. As a result, I think both revenue per patient day and cost per patient day tend to be overstated. Can you share your thoughts on just underlying rate increases and cost per FTE in your business? Sure. So you're right. The CTC service line is one of the things that can contribute to the revenue or the cost per patient day without adding patient days. Outpatient is another piece of our business that I would put in that same category. On a like-for-like basis, all things being equal, you wouldn't see an outsized impact. During Q4, we did have some large growth in our CTC business that outpaced the growth rates in the other parts of the business. So you would have seen a bit of an impact from that. We're really pleased with the fourth quarter across the board rate and volume. But maybe if I just break those down individually, from a rate perspective, we saw really good performance, and we're pleased with where we ended the year. We're also projecting for 2024 mid-single-digit growth for those rates looking forward. If you think about how those rates are contributing across the board, I would say equally. We don't have any one particular business line where we expect outsized rate growth. But to your point, if we have outsized total growth, it could impact the per patient day amount. If you think about wage inflation, it's a very similar thought process. If you had outsized growth in any particular area, specifically CTC or outpatient, you could have that impact. But if things are consistently growing, which we would expect them to be, you wouldn't see an outsized impact. We did see last year, I think, as you know, as we talked about before, the base wage inflation, which is typically how we look at it, just to factor out some of those impacts that come into the SWB per patient day. We saw that base wage inflation come down over 300 basis points just during 2023. So we're very pleased with that progress. If you think about the difference between that base wage inflation progress and then what you see in sort of the SWB per patient day, there are some other things that impact it. Namely, it would be the corporate costs and some of the other investments that aren't in sort of your same-facility numbers or in your facility totals. But we are still expecting for 2024 our base wage inflation to moderate. We finished the year sort of in a really good place. We believe that that's going to be sort of our normalized rate of inflation going forward. Great. And rates have been particularly strong for a number of years now. What do you think is driving the durability of those rate increases, and how do you think those rates will develop as we look ahead to fiscal year 2025? Yeah, I would say probably too early to think about 2025. I'll give just some. Fiscal year 2025, I think, starts in 2025. We have to be fair. Yeah. Yeah, it's true. From a numerical perspective, we think we will see mid-single digit rate growth for 2024. I'll just point out one key differentiation as we think about the guidance that we're setting compared to the guidance that we set last year. When we put guidance out for 2023, we actually did that pretty early in December in 2022, whereas for 2024, we just released our guidance a few weeks ago. So all things being. Because we did our first-ever Investor Day in early December of 2022. That's right. Yes, there was a reason for that. So we have a few months more visibility into 2024 as we're putting out guidance for 2024. So as we think about what we know and what the cadence of sort of our rates have been, we're very pleased with where we ended 2023. We have a little bit more visibility into 2024 as we look forward, and we're still expecting those mid-single digits. But do you want to talk about your view? Yeah, I would just add a couple of things. I mean, I think the relationships that the company has built over many years with payers continue to be strong. I think we have obviously made a number of investments in our quality programs, not only putting an EMR in place in our acute facilities but also investing heavily in remote patient monitoring technology as well as patient safety. And I think these are all things that are very interesting and relevant to payers having conversations. And I think the conversation increasingly turns to their desired focus on quality measures in the future. And I think our ability to align with that, I think, sets us up well for the long term to make sure that we are increasingly aligned with what they want to measure and that we have the technology in place to be able to make that happen. I said at our Investor Day and say it again, that we increasingly want to compete on the strength of our clinical health outcomes. I think these investments are really enabling us to do that and enabling us to continue to have really robust conversations that are productive with our payer partners. Great. And going back to the CTCs for a minute, maybe we can talk about the economics here. On average, it looks like your CTCs are generating about $3.3 million of revenue per facility. One, I'm curious how much variation you see around that. And then two, on the margin side, what's the typical timeline to break that? What's the mature margin profile look like for a de novo facility? So you're right. If you strictly look at the math for revenue and number of facilities, that's about the right number. What I would say is there is definitely variation across the facilities for a couple of reasons. First is the footprint of the facility. There could be significant variation in the number of patients that we see at those facilities. The second would be just geographically based in the patient demand and sort of what we're seeing coming through and probably a little bit, to an extent, rate at those facilities as well. But then I think most importantly, getting to the second part of your question, is where they are in the lifecycle. So as we open a new facility, we will have a period where we are sort of ramping the census and we're growing the census and the patient count. And that's a perfectly normal part of the cadence of opening a facility. I would say that that usually takes about a year, 1.5 years for us to get to a break-even point at those facilities and then anywhere from two to three years to get to where we're at our target margins on the facilities. And then maybe the last thing I would say is after you are at a target mature margin, there is at times opportunity to continue to add census to the facilities by adding some incremental labor because these facilities are very, very few cost patterns that impact them. It's very different than an inpatient facility. You have the workforce. It's probably the main cost of the facility. And so as you add census, you can add workforce and so on. That is a long-winded way of saying, yes, there's a lot of variation across those clinics, but that's a good base level to think about. Great. Then Chris, when you laid out your long-term growth targets two years ago, market density and colocation was a big component of the underbedded growth opportunity. Can you give us an update on that initiative and maybe some color on where the new bed adds for 2024 are with respect to existing and new markets? Yeah. And I think Heather's done a really good job since she came in last year helping us to refine the process. But for us, it really starts with because we have so many attractive ways to deploy capital, we really start with looking at the geography. And there are a number of underlying components in terms of what's the competitive environment look like? What is the bed need in a given market? What's the construction environment? What is the rate and payer environment? What's the labor environment look like? What are occupancy rates? And I think we go from there to putting 20+ factors into a model and continuing to refine the geographic desirability of various markets. And from there, we really work through, does it make sense, potentially, to partner with a premier health system? And we have 21 joint ventures across the country. Sometimes there isn't a health system in place, or sometimes it just makes sense to do a de novo. Or occasionally, we want to get into a market more quickly, and M&A can also make sense. So there's always a number of factors that we're looking at on any given day. But I think the process that we've had that we now have in place, a very analytical process to look at the desirability of these geographies and then to tailor our investments accordingly, really enables us to flex. And I think that is a real difference than prior years. Great. Heather, Acadia recently increased its borrowing and borrowing capacity. I think that brings your leverage up closer to three times. Is this a temporary step up in leverage, or are you willing to operate at maybe slightly higher leverage ratios given the growth opportunity ahead of you? Yeah, I would say a couple of things. First, we exited 2023 with our leverage just under two. And then, of course, the borrowing that you're referring to in January took us back up to around 2.5 times. I think that's excluding the leases. I think there's a depending on how you calculate it. But if you think about that level, for me, it's just a really good position of strength for us. We have a really strong balance sheet. There is room in there, I think, for us to invest should we need to. But I would think of that as a stable base. Great. Let me go back to the rate side for a minute. Curious how conversations with state and local partners are evolving maybe over the last 18 months with respect to the opioid funding. Any updates there and anything that you can give us that provides some context for the evolution of these payments? Yeah, I would say the headline is that it continues to be slow, probably a little slower than we would like. But just a reminder that there were $56 billion in total opioid settlement dollars. And our estimate is that only about $4 billion of those have actually been distributed down to the individual states, and then they flow from the states down to the individual counties. So I think it's a dynamic situation. There are a few states that are leading, and I think we've done a good job of coming in and positioning ourselves with those states. It's interesting. There are only 16 states that have actually signed up right now to publicly report how they will be using the settlement dollars. And so but based on what we can track, we're certainly engaged with a number of the early movers. I think one of the things that gives me confidence that when this does settle out, I mean, the strong emphasis that we've had in that line of business around our clinical health outcomes, particularly on the quality side, I think is going to position us well. So CARF, the accrediting agency for MAT facilities, there's 13, I believe, different metrics that they use. I mean, our quality metrics are over 98%. And I think when you couple that with some of the real operational improvements that we've made in the last year around reducing wait times for our facilities to under five minutes, which is a real patient pain point. These patients want to get in. They want to get their dosing, and they want to leave relatively quickly. And then I think also just the patient satisfaction, part of which is tied to wait time but part of which is tied to a few other things that we've been very intentional on. We've improved our patient satisfaction by 20% just in the last year alone. So when you look at really strong clinical outcomes, making it easy for patients, and then obviously, you look on the horizon at the settlement dollars that are going to continue to flow through, when these RFPs begin coming out, I just really like the position that we're in. And I think we have a very strong team that will address it. But as of right now, I think this is really more of a 2025 and beyond situation where we're really going to see those disbursements first to the states and then ultimately to the individual counties within those states. Understood. That's helpful. Can you share what some of those early states are where you're seeing the most progress on those conversations? A few. I mean, North Carolina and Tennessee are two that I would call out that I think have been particularly progressive. But it's still very early days, and we're tracking all of the states currently. So I'm sure there will be a lot more to come here, and we'll have more to talk about a little further in the year. Great. Maybe shifting to the specialty business, the non-CTC specialty. It doesn't get as much attention as the CTC business, but it's actually the larger of the two. Anything you would note on trends or developments within that line? Yeah, I mean, our specialty business right now, we finished last year. It's 21% of revenue, and we have 35 facilities. So I would say just with respect to trends, I mean, I referenced earlier that some of the data that's more recently come out, that Americans that have co-occurring serious mental illness and an underlying SUD diagnosis, that grew by 15% in a single year over 1 million Americans last year alone. So this continues to be a real challenge and I think an opportunity for that line of business. I think we've also been much more intentional as a company in the last year of making sure that there's greater cross-referral potential for the benefit of these patients and emphasis. We know when someone presents as a specialty patient in one of our facilities that 70% of the time, they have an underlying OUD diagnosis as well. And so just ensuring that there is a handoff and that when they finish their treatment in a specialty facility, that we can continue to serve them where it would make sense and just continuing to focus on clinical outcomes. I think that continues to be just a real opportunity. But this is one where the specialty service line is one that continues to be a point of emphasis, and all of the demand characteristics, as with our other line of business, continue to be very steady. Great. Maybe in the last minute here, we can touch on M&A and the M&A pipeline. Where do you see the greatest growth opportunities to deploy capital here? Yeah, well, one of the benefits at Acadia is that we just have so many attractive ways to deploy capital. M&A is certainly one of them, and we'd like to be able to do more M&A. We actually acquired two small CTCs in the state of North Carolina within the last few weeks and really pleased to be able to do that. I think it's such a fragmented industry across service lines that I think they're particularly the industry that we have been able to make [audio distortion} across our lines of business and a rising interest rate environment for smaller players. It's been a challenging operating environment, but I think we're increasingly seen as an acquirer of choice. And we have a very robust pipeline across all of our lines of business. I think you will continue to see that M&A will be a focus for us in 2024 and beyond. Good. Partner of choice and acquirer of choice. Good place to be. I've ended on that note. Thank you, everyone, for attending, and please enjoy the rest of the conference. Thanks, Andrew.