William Brent Turner - President Joey A. Jacobs - Chairman and Chief Executive Officer David M. Duckworth - Chief Financial Officer, Chief Accounting Officer and Controller.

Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division Paula Torch - Avondale Partners, LLC, Research Division Josh Harakal - Susquehanna Financial Group, LLLP, Research Division Frank G.

Morgan - RBC Capital Markets, LLC, Research Division Brian Tanquilut - Jefferies LLC, Research Division Brandon Richard Fazio - UBS Investment Bank, Research Division Joanna Gajuk - BofA Merrill Lynch, Research Division Charles Haff - Craig-Hallum Capital Group LLC, Research Division Gary Lieberman - Wells Fargo Securities, LLC, Research Division Darren Perkin Lehrich - Deutsche Bank AG, Research Division Dana Hambly - Stephens Inc., Research Division Gary P.

Taylor - Citigroup Inc, Research Division.

Please stand by. We're about to begin. As a reminder, this call is being recorded. Please proceed..

Good morning. I'm Brent Turner, President of Acadia Healthcare, and I'd like you -- to welcome you to our Third Quarter 2014 Conference Call.

To the extent any non-GAAP financial measure is discussed in today's call, you may also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by following the Investor Relations link to Press Releases and viewing yesterday's news release.

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 2014 and beyond.

For this purpose, any statements made during the call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Acadia's filings with the Securities and Exchange Commission and in the company's third quarter news release.

And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

At this time, for opening remarks, I'll now turn the conference over to our Chairman and Chief Executive Officer, Joey Jacobs..

Good morning, and welcome to our third quarter call. In addition to Brent, I'm here today with our Chief Financial Officer, David Duckworth, and other members of our executive management team. David and I each have some brief remarks about the third quarter and our outlook for Acadia. Then we'll open the line for your questions.

The third quarter of 2014 was another strong quarter for Acadia, as revenue increased 59% and adjusted earnings per diluted share increased 53% despite there being an additional 18% shares outstanding due to our June equity offering. The share increase and much of our growth for the quarter reflects the completion of our acquisition of PiC on July 1.

But our domestic business also continues to produce strong profitable growth. For those of you new to Acadia, PiC is the U.K.'s second-largest independent behavioral health provider and brought 23 facilities and over 1,200 licensed beds to Acadia.

We are very pleased with PiC's performance for the quarter and with the progress made in integrating PiC into Acadia. We even added 7 new beds to PiC facilities during the quarter, which is just a start to the organic growth potential we see in the U.K. market.

Our domestic organic growth strategies were also in full gear during the third quarter, ending -- enabling us to generate high same facility revenue growth of 9.9%. This increase drove further expansion in our same facility margin for the quarter, which rose 130 basis points to 25.8%.

Our revenue growth for the quarter reflected the nearly 1,900 licensed beds we added for the 12 months ended September 30, 2014, to our base of approximately 3,700 beds at the start of that period. Of these 1,900 beds, more than 1,500 were added through 5 acquisitions, including the third quarter acquisition of PiC and McCallum Place.

We also added 410 beds organically for the last 12 months, primarily to existing facilities but also through 2 de novo facilities we opened in the fourth quarter of 2013. Adding a meaningful number of new beds to our same facility base again made a significant contribution to our same facility revenue growth and same facility margin expansion.

We continue to expect to add about 400 beds organically for all of 2014, and we currently expect to add another 400 beds in 2015 in the U.S. before counting the expected opening of 2 de novo facilities during the year. We also expect to add another 100 beds in the U.K. during 2015.

The organic growth in new beds is being driven by both steadily increasing demand for our behavioral health care and our commitment to proactively expand beds in our existing facilities before full utilization results in our having to turn patients away.

We also continue to see potential in our acquisition growth strategy, as our announcement yesterday of our new definitive agreement to acquire CRC makes clear. CRC is the largest specialty behavioral healthcare company, primarily providing substance abuse care and treatment through 120 facilities in 30 states.

Upon scheduled completion for the -- in the first quarter of 2015, we expect this accretive transaction to further diversify our operations from a service and payer standpoint while also establishing Acadia in a number of new states.

CRC is on track to produce revenues of -- for 2014 of approximately $450 million and adjusted EBITDA of approximately $115 million. Factoring in expected cost savings of $10 million to $15 million, the adjusted EBITDA would be between $125 million to $130 million.

We believe this transaction will represent another important step in our long-term strategy of building a national platform of comprehensive behavioral health services.

In summary, we continue to produce outstanding results at Acadia, even as we build momentum for future profitable growth through demonstrated organic growth and acquisition strategies. As a result, we've increased our financial guidance for 2014, which David will discuss further. Thank you for your interest in Acadia. And now here's David Duckworth..

Thanks, Joey, and good morning. Acadia's third quarter revenue increased 59.4% to $294.5 million from $184.7 million for the third quarter of 2013. Adjusted income from continuing operations per diluted share was $0.46, a 53.3% increase from $0.30 for the third quarter last year.

Our adjusted results exclude transaction-related expenses of $6.2 million and $1 million for the third quarters of 2014 and 2013, respectively. We also exclude a gain on foreign currency derivatives of $1.5 million for the third quarter of 2014 related to the PiC acquisition.

Acadia's third quarter tax rate on adjusted income from continuing operations before income taxes was 28% compared with 34.7% for the third quarter last year due to the impact of the U.K. acquisition. We expect our tax rate for the fourth quarter to be approximately 28%.

Same facility revenues increased 9.9% for the third quarter, reflecting an 11.2% increase in patient days and a 1.2% decrease in revenue per patient day. Same facility EBITDA increased 130 basis points to 25.8% of same facility revenue for the third quarter of 2014 from 24.5% for the same quarter last year.

Adjusted consolidated EBITDA increased 69.1% to $65.1 million from $38.5 million last year, while consolidated EBITDA margin increased to 22.1% from 20.8%.

Acadia completed the third quarter with $42.2 million in cash and cash equivalents, and we continue to produce significant cash flow from continuing operations at $39.8 million for the third quarter and $87.6 million for the trailing 12 months.

At the quarter's end, we had approximately $136 million of availability on our revolving credit facility, and our ratio of total net debt to trailing 12 months adjusted EBITDA is approximately 4.0 compared with 4.2 after the acquisition of PiC.

As discussed in yesterday's news release, total consideration for our planned acquisition of CRC is approximately $1.175 billion, consisting of up to 6.3 million shares of Acadia common stock and the assumption of CRC's debt.

Our pro forma ratio of total net debt to trailing 12 months adjusted EBITDA at the end of the third quarter, assuming the acquisition of CRC, is 5.1.

Based on our strong year-to-date financial and operating performance and our expectations for the remainder of the year, we have raised our 2014 guidance for adjusted earnings per diluted share to a range of $1.52 to $1.53 from the previous range of $1.44 to $1.46.

Our financial guidance excludes the impact from any future acquisitions and transaction-related expenses as well as the gain on foreign currency derivatives. This concludes our prepared remarks this morning, and thank you for being with us. I'll now ask Kelly Ann to open the floor for your questions..

[Operator Instructions] We'll go first to Whit Mayo with Robert W. Baird..

I wanted to start first just with CRC. Joey, how do you think about CRC as an asset today versus prior years? I mean, clearly, the Affordable Care Act will expand substance abuse benefits materially in the coming years, but is there anything else? Because clearly, this isn't the first time that you've looked at this..

It's not the first time we've looked at it. We've had discussions with CRC for the past several years, but the time was right now to make this acquisition, similar to when we thought the time was right to make the PiC acquisition. And the time is ripe. We think there's tremendous upside, from favorable regulatory environment to coverage.

And then we think that the team there, and with our capital and access to capital and with Ron and his team, I think it'll be a winning combination for us. And I think we can do great things with these facilities and what they have started at CRC.

They have been through a rough time, and I think we're in a position to move it forward in a very, very positive direction. And we're very excited about the opportunity. Jerry Rhodes and his team there, we look forward to working with them and with the employees at CRC. So we're very, very excited about this opportunity.

We think we're getting it at the right time and that there is significant upside to come from these assets and from our execution in this space of behavioral health..

Do you happen to know what percent of your inpatient psych discharges today actually get admitted to substance abuse programs after leaving your facilities? And is that kind of maybe an opportunity for you over time?.

No. We don't capture data after the patient has left, how many of those patients would actually be going to another specialized facility. We do have, internally, in Acadia today, we do have a handful of substance abuse facilities. A side benefit of CRC is that we're getting some very, very high-brand facilities that have national reputations.

So we're very excited about that. But we do not have the data about how many of our patients go to another specialty facility once they're discharged from us..

Okay. And if I recall, I think CRC probably wrote down the value of the Aspen deal years ago.

And is there an NOL that transfers to you with this transaction?.

Absolutely. I think the NOLs are going to be close. But the last information I received from our team was the NOLs are going to be approaching $100 million.

And that will turn into more than $30 million of cash for the company, which we're just now first talking about this to everyone, but that is something, during our due diligence and our modeling, we did know that we would be picking up cash of over $30 million from those NOLs..

Got it. And 2 last ones. Just maybe if you could give us what your expectation is for growth within CRC. And then just remind us, on pro forma, where your debt capacity will be and what the senior capacity is..

Okay. I will handle the first part of that. If we get off to a good start in -- with this transaction which we have, we think it will close in the first quarter. So we'll have some -- we'll be able to do some things before the actual transaction is completed. So we should be in a position to be ready to grow this company by the time it closes.

And hopefully, we're going to have mid-single-digit growth from this group of assets, too. And today, I think, the last numbers they gave me, they have about 1,700 patients on 2,400 beds.

So there's 700 beds there that, working with the CRC folks and their development people, we think we can help fill up those 700 beds and plus wherever they need new beds. I know, during the due diligence, there were a couple of facilities that I went to that actually could use expansions at their facilities because they were full..

And Whit, on the -- this is Brent. On the debt capacity, as David mentioned, we're going to be at 1.5x leverage through the -- post the CRC transaction. We have the fully committed financing for this transaction, and we -- it's going to be structured through a combination of senior debt as well as some additional notes.

Again, part of the benefit of how we finance the PiC transaction is that, even with the CRC transaction, we're going to be just inside 3x senior levered. And what you see from this most recent quarter is the strong cash flow dynamics. We delevered 2/10 of a turn in one quarter since the PiC closing.

So we're in very strong financial position and have a good amount of capacity beyond the financing of the CRC to continue to execute our growth plans..

We'll move next to Paula Torch with Avondale Partners..

So just staying on the CRC topic. What are some of your plans for the company near term in terms of management once you acquire the company? I mean, how should we be thinking about synergies there? You mentioned, I think, it was $10 million to $15 million in cost savings.

What are sort of some of the buckets that we're looking at for this?.

We think there's savings from the corporate side, like the elimination of professional fees that both companies would be incurring, where maybe just a small increase to us would cover theirs; the health purchasing group that we're in; our IT strategy.

So the senior management, there will be some senior management, but as far as on the operating side, we want Jerry and Joe and John and those guys to stay with us, and we're going to use their knowledge and their abilities to continue to grow the company. But we have a pretty detailed schedule about where the synergies would come in from.

But once again, our goal is to make sure we get off to a good start and when this transaction closes in the first quarter, and we have the synergies identified. But we also know the individuals that are key contributors, and we are relying upon Jerry and John and Joe to tell us. They helped us with the synergy list.

So we don't want to do any harm to CRC as we take these synergies out, but we're going to be able to get that $10 million to $15 million. But more importantly, we're going to position it to grow, and they will -- CRC will come across opportunities to add beds to their existing facilities.

But also, there'll be an opportunity for us to make some acquisitions that they know about. So very exciting times for us. And we're very excited about CRC and that team being a part of our family..

No, that's great.

And in terms of potential for expansions, obviously, in the current facilities, and how do you think about the growth in the revenue for this particular asset going forward? What percentage do you think is really going to come from de novos and potential bed expansions versus acquisitions? I realize that it's still early, but maybe any color that you can give us there in terms of the opportunity and what the pipeline is now for CRC..

Okay. There’s several one-off transactions we can make, and I'm not going to spend a lot of time there because you know we have been very successful on making acquisitions. What Ron and his team and Jerry and the folks there, what we want to do there is get good middle single-digit same-store growth.

And if that means adding some new beds to some of their facilities, we'll do that. And developing -- and if we need to put more resources to their business development, we will do that. So we're wanting CRC to grow like the current business of Acadia is growing today..

Okay, great. And then I'll just maybe throw in one last question. If you could update us on your long-term revenue goals. I know you're going to get to, by our estimates, complete your $1 billion revenue run rate goal by the end of this year, and you're well on your way for the next goal of $2 billion in revenue.

So are we still comfortable with that? What do we think the next 3 years or so is going to look like in terms of growth? And will it be about 1/3 residential, 1/3 IPF and 1/3 specialty? Is that sort of fair? Or how should we look at the layout in the next couple of years?.

Well, I appreciate your observation that we should be on the $1 billion run rate by the end of the year. I think, with this acquisition closing in the first quarter, that by the end of next year we're going to be approaching that $2 billion goal that we had set out there for the end of 2017.

I haven't given a lot of thought about, can we add another $1 billion to this company over the next 2 to 3 years after 2015? Absolutely. It's out there for us.

And I think, no, this is just -- at this moment in time, and this is very much a forward-looking statement, I think that you will -- I think the existing acute psych business will grow, and I think specialty facilities will continue to grow.

We've not talked about McCallum Place a lot today, but we're very, very pleased with that single-facility acquisition that we made that has operations in St. Louis and in Austin, Texas. And Dr. McCallum and what she's done with that program, we're very pleased. And so we will continue to add specialty facilities to our company.

And once again, please don't forget that the U.K., there will be acquisitions that we will be making in the U.K. next year. And we may even be able to squeeze one in this year.

So the future, I think, looks really good for us on the growth side, but once again, as -- when you see the 9.9% same-store revenue growth, that's a lot of hard work that does that. So if we'll execute and work hard, we'll continue to grow the company. And if I need to set another goal out there, I'll do that sometime next year..

We'll hear now from Chris Rigg with Susquehanna Financial Group..

Yes, this is Josh on for Chris. I'm kind of just looking at the third quarter. I -- you noted that EBITDA margin went up 130 bps in same facility.

Can you just kind of provide a little bit more color on the initiatives that are going on and what kind of drove that?.

Well, it's our basic strategy of Ron and his team finding -- meeting the needs of their local community and bringing new programs to their local community. So that part of our strategy will not change next year or for the next 5 years. Unfortunately for society, there's a demand for our services, and that demand we see -- do not see abating.

And that we will continue to build, as we've stated already. We think we'll build 400 -- around 400 beds next year to our same-store facilities here in the U.S. and 100 over in the U.K.

So the demand will -- we'll keep operating the same strategy we do today and meet the demand in our communities and add new programs for our communities and try to meet their needs. So that part is not changing at all..

And from RBC Capital Markets, we'll go to Frank Morgan..

Certainly, CRC brings a different revenue mix to it, more commercial than private pay, I understand.

I'm just curious, could you give us some -- a perspective on what the rate environment is like there? What are the rates? And what kind of a rate growth have you been experiencing of late? And then maybe just is this business segment maybe more economically incidents -- or more economically sensitive? And does it have -- how does its bad debt compare to your other businesses?.

Frank, that was a lot of -- that was a 10-part question. Let me just start from the beginning. We've just signed a definitive agreement, and we're going to close this in the first quarter. So I'm not as up to date on all those numbers as I would be for the existing facilities. We think the revenue payer mix is very strong for them.

We think their bad debts will be as good or better than our -- than the company's experience. They are -- we are getting rate increases, we know from our existing book of business, in the substance abuse area.

So -- and then as we've talked about earlier, the Affordable Care Act is very much a positive for this industry with more people having coverage. And we feel real good that -- as we did when we joined Acadia, our first goal was to diversify the Medicaid mix, and we did that.

And then after the PiC acquisition, we even diversified it further and strengthened the base and took exposure away. CRC will do that too. Our exposure to the U.K. market will actually drop under 20%, I think.

And so this will diversify our payer mix, and their bad debts today -- currently, today, run less than ours, is the latest information I have seen. And so we feel real good about it, about the payer mix and the demand and the opportunity in this space. And once again, CRC has some great, great assets that we're acquiring..

That's great. One more and I'll hop.

Understanding you're not giving guidance for '15, but just conceptually, I just want to make sure here, would it be appropriate to maybe strip out any external growth we had in our models for 2015 and just simply layer this on? Or should we leave growth assumptions in that we previously had for 2015 and put this on top of that?.

Okay, good. Your model is your model. If I was doing it, I would strip it out, add CRC in, and then I'd probably -- for you all that do put in acquisitions, I would go back and put in -- we will make some more acquisitions next year. But obviously, with CRC closing in the first quarter, that's a huge transaction for us.

But we will make some more acquisitions. But I would strip out the acquisitions for 2015, layer in CRC, and then add back whatever you think is reasonable..

And from Jefferies, we'll go to Brian Tanquilut..

Joey, you mentioned McCallum Place.

As we think about what's out in the market today, what does the opportunity set look like? I know, obviously, CRC will kind of hold you back from doing the big deals, but as we look at these tuck-in deals, what kind of pace should we be expecting? And how many more of these deals are out there?.

Everything is timing. Could we do the 4 to 8 transactions next year, single transaction, one-off transactions? I think that's very doable..

Okay, got it. And then in terms of the opportunity to add beds. So as we think about the U.K. and also your current baseline here in the U.S., I mean, you're adding 100 here, 100 there.

Is there still a lot of runway as you look, say, 2 to 3 years out to keep adding at 100 to 150, let's just say, over the next few years per year?.

Yes. This is forward-looking, always. But for the next 3 years, I think the demand to continue our trends of adding the number of beds we've been adding is there..

Okay. And then on the Medicaid side, in the past, we've discussed the opportunity to gain coverage for adults in the Medicaid world. I just want to see if you have any updates for us on that opportunity..

There's -- we get some of those as states put their -- this population in a managed care product. We then can get access to them, but we're really waiting on the demonstration project to get completed and then make our push. We very much appreciate Representative Tim Murphy in Pennsylvania and the bill he's introduced.

So that's more of a longer-term goal for us, but it's something we work on through our NAPHS activities..

Okay. And then last question for me for David. How should we think about the tax rate for 2015? I know you said 28% for Q4.

How should that look for 2015?.

Yes. So right now, we're at 28% and have that same expectation for the fourth quarter. But what you need to keep in mind is that, as we do acquisitions in the U.S., our tax rate should go up. We'll provide more guidance around that as we talk in more detail about 2015..

We'll hear next from A.J. Rice with UBS..

This is Brandon Fazio for A.J. I guess going to your PiC, the U.K. business here, you did a good $4 million or $5 million revenue above us, what we were looking for. I think there was some FX impact in there as well, so you still had a pretty good number.

Just to get a sense for what the run rate should like into the fourth quarter, is there any seasonality there? And just a general comment on how that performed relative to your expectations..

You came through just a little bit garbled.

I'm sorry, could you just repeat that one more time?.

Yes, sure. I was just trying to get a sense for what the revenues in the U.K. should look like in the fourth quarter. The revenues came in well above what we were looking for this quarter despite, I think, some currency headwinds. So I just wanted get a sense for any seasonality.

Or should we look for the business to have a similar revenue run rate in the fourth quarter? And just any general comment on how the U.K. business performed relative to your internal expectations..

[indiscernible] Okay. Okay. The U.K. performance was -- exceeded our expectations, and we see that trend in October. Now as far as the exchange rates, I'm going to have to -- we have good demand there. So that part is better, actually, than I think the third quarter was.

And I don't think there's going to -- this will be our first time through the holidays with them. So no one has really cautioned me about seasonality there, but we haven't been through the holidays with them. And then, David, you might talk about the exchange rates..

Yes. I mean, we're now looking at an exchange rate for the fourth quarter that, what we've seen so far in October, is around 1.60. So just keep in mind that, that could impact just the revenue in any revenue per day stats in the third quarter, when the exchange rate was 1.67, and then going into the fourth quarter..

Okay. And just one follow-up here. On the CRC side here, just maybe talk a little bit about the competitive landscape there and just sort of your thinking on the business overall. I know it's something you've looked at for years.

What's changed that you think you now want to get in, in a big way that's maybe different from what it was 5, 10 years ago in terms of just the landscape there?.

Okay. Well, I think their largest facility is Sierra Tucson, and actually, we tried to buy Sierra Tucson back in -- when we were at the former company. And so we've looked at this industry with Acadia. We have more substance abuse exposure -- I mean, not exposure, experience. And we like it, and we wanted to grow into this.

And we think, once again, Jerry Rhodes and his team and the CRC platform is the platform to make that happen.

And we're very fortunate that we know -- when you -- Chris Gordon at Bain Capital and that they see the future like we see it, and that's the reason they're taking about 6.3 million shares of Acadia stock so that they can continue to be in this industry. And if we do well, they will do better too.

So we think Bain's commitment of taking those shares is supporting us and supporting our strategy, and it also sends a signal to CRC that they continue to support CRC. So we think the family being larger positions us well. And we've looked at this from afar, and we have more experience now. So it was the right time to do this..

And we'll hear now from Kevin Fischbeck with Bank of America Merrill Lynch..

This is actually Joanna Gajuk filling in for Kevin today. Just going back quickly to CRC comments around the payer mix because, I guess, looking at some of the filings they have, it looks like they still have some government exposure.

So I'm just a little bit surprised where it's coming from, but I guess must be the youth business, right, where they are reimbursed at the state level..

Okay, sure. You....

But can you just confirm where the 25% comes in the government reimbursement for CRC?.

it would be -- commercial would be roughly 22%; Medicare would be roughly 14%; Medicaid would be 31%; other would be 1.9%; NHS, which is the U.K., would be 18.2%; and self-pay would be 13.5%. Now on the Medicaid and on the self-pay, a portion of that revenue is coming from their methadone clinics, which is kind of a cash and carry business.

So that is very, very stable revenue and payer mix there. So once again, as I mentioned earlier, this payer mix -- our payer mix actually gets stronger after CRC, and their bad debt for their payer mix today runs less than 3%.

So we feel real good about where they're at and where they are with their Medicaid or commercial payers or -- so we feel real good about where they're at. So hope that answers your question..

Great. And also, I don't -- I'm not sure whether you commented on the outlook for government rates in the U.K. and also here in the U.S. for Medicaid and Medicare..

Well, Medicare, we think we're going to -- on Medicare, we just got up 2 -- a little bit more than a 2% price increase. We think, this time next year, it's probably going to be in the same range of 2% to 3%. State budgets, if we can get a 0% to 2% increase from the U.S. states, that would be good for us.

We do not see any major cuts coming from the state programs. And then in NHS, they just now started their renegotiations. It could be flat to plus 2% there. It could be flat to a minus 2% there. We're optimistic and hope it'll be to the positive side there.

And our group there, Joy Chamberlain and her team, did a great job there in explaining the services they provide and the reimbursement that they need to operate their business..

Great. And just a last question.

Any sign that reform or, I guess, some Mental Health Parity or whatever impacted this quarter?.

We're not able to track the impact from Mental Health Parity, other than, globally, we know more lives are being covered by Mental Health Parity -- because of Mental Health Parity. So I think you see that present itself in that our patient days, the demand for our services, is so strong.

And I think a part of that is Mental Health Parity in the Affordable Care Act and the exchange networks where behavioral health is an essential benefit. So -- but we're not able to quantify to the percent that impact..

And from Craig-Hallum, we'll go to Charles Haff..

A follow-up to Frank's question on the CRC payer side.

Do you feel like the commercial part of their payer mix is optimized? Or do you see a lot of opportunity there?.

We -- there's opportunity there, but once again, we're not running that business yet, so I can't tell you how much of that opportunity is there. We know that their programs are nationally known. And if I needed that service, I could very well pick one of their facilities to go to, and I think insurance companies realize that.

And I think more than 95% of that business is covered by an insurance product. So there's not a lot of out-of-network revenue there for them. So we feel real good about that and that the insurance companies want this group of assets to be in their networks..

Okay.

And when you look at the margins, Joey, longer term for CRC, can you see them a few years out getting close to where Acadia is today? Or do you think they're going to be much less just kind of given the nature of the substance abuse part of their business?.

Actually, I think their margins are pretty close to where we are now. So obviously, we're constantly trying to improve the operations and to raise all margins. But I don't see that today as an issue with the CRC facilities..

Okay. And then last question. On the existing Acadia business today, I think commercial reimbursement was running about 5% previously.

Are you still at that level? Or has that changed at all this quarter?.

We -- are you talking about the rate sides? We expect....

Yes..

Rate increases to be in the 4% to 6% range as we go through our annual negotiations, yes..

And Gary Lieberman with Wells Fargo has our next question..

On the same-store business, revenue per patient day and also length of stay were both down in the quarter.

Could you give us some more detail behind that?.

Sure. The revenue per day decline for us was -- you can see we had a little bit higher bad debt. Our revenue deductions were just a little bit higher than what we had anticipated, and that's what caused that impact there. And then on the other part of the question is we -- the length of stay -- our residential length of stay stayed very steady.

The decline came from the acute side, and there's about 3 markets where we did major expansions. And those markets just happened to have a lower length of stay than the average for the company. And so when you work through the math, you get that number. And so we've analyzed it. We know where we've built those beds in those markets.

And they should -- they were absolutely good additions for us, but those markets, for whatever reasons, run a little bit lower length of stay, and it brought us -- the average down for us..

Okay.

I'm not sure if I saw it, but did you guys give an accretion range for where you thought the CRC would contribute next year?.

No, not yet. We'll probably wait until we close the transaction, when we'll give those numbers..

Okay. Any idea -- I'm sorry..

It is a preview..

Any sense, then, maybe on sort of where you would expect the blended financing rate to come out on the debt?.

Gary, if we were to finance that transaction today, I think it would be reasonable to think that the blended incremental cost of debt financing would be around 6%. So what....

Okay, and then as you think -- I'm sorry?.

I was just going to say, with the cost savings and the trailing EBITDA and the financing costs and the shares, I think everybody can -- the math is out there. We're just -- we just need to wait until it actually comes to conclusions so that we can give the actual update based on the timing of the close and the final financing rates that we receive..

Okay.

And then as you think about diversifying, are you now happy with sort of the mix of business for the company? Or are there other avenues or segments that you think would be attractive to diversify into?.

We are -- after the CRC transaction, we're going to be very comfortable with the mix, and we'll focus on those lines of business that we currently have. Now that doesn't mean, if we come across something that's in our space that we like that might be a new service line for us, we'll -- I'm sure we'll look at it.

But right now, 90% comfortable that we're going to be just operating in these service lines that we have once the CRC transaction closes..

And then maybe last question, just the timing of the deal so soon after the PiC acquisition.

Was there something that happened from a seller perspective that changed? Or was there any catalyst that caused it to just happen so quickly after PiC?.

No. We have -- Steve Davidson does a great job. And on this one, I didn't do a great job, but what we do is we keep in contact with the potential sellers. And so we called him once a quarter or once every 6 months. And the timing just happened to be right when Chris Gordon talked and worked through the process.

And he very much wanted to stay with us -- stay invested in this industry and be a part of Acadia. So all those things lined up, and so that's the reason the transaction -- but once it closes -- it's not going to close until first quarter of next year. So it's going to be 8 months away, I think, at the earliest for closing since PiC..

We'll hear now from Darren Lehrich with Deutsche Bank..

I want to just follow up on one thing related to CRC and just the revenue mix and just thinking about the split between the outpatient and the facility base side of things.

Is it safe to assume that it's about 1/3 outpatient? And just for modeling purposes, want to make sure that we have an understanding of how much of that is going to be driven off the bed base side..

Darren, I don't have that data in front of me. You can call back to David, and he'll give you that number..

Okay, great. And then I just -- I did want to ask a little bit more about the experience in the U.K. So first, you have 100 beds that you're committing to in terms of expansion.

How has it been working with the NHS? And if you could just maybe share with us some of the initial thoughts about how you think it's going to work going forward as you identify market opportunities there to expand with your existing operation?.

We, Acadia, through our team there in the U.K., they have a tremendous relationship with NHS. And our relationship with them, I think, couldn't be any stronger, and that before we add beds and sometimes even before we make an acquisition, confidentially, we'll run it by them and get their feedback.

And so far, on anything we wanted to do, we've gotten positive feedback from the NHS. I do think NHS will close more of their beds they run and look to the independent providers to provide those services. And I think PiC has a great relationship and a great reputation with NHS. And so it's been a pleasure.

That acquisition could not have gone smoother, and it's been a pleasure to work with our team there and also get to know the NHS and our relationship with NHS. So it's all working very nicely, and I expect that to continue..

Great. And then just one last thing relative to the U.K.

Do you think you may develop any private insurance or private market facilities there over the next year or 2? Is that in the cards still?.

Yes, absolutely. That is a goal of mine, is to have a facility that is more self-pay, I use it that way, or other-pay. But we'll find the right opportunity, and I would like to have that. It may be 2 years from now before that happens, but I sure would like to have that..

And from Stephens, we'll go to Dana Hambly..

Just a few quick ones for me.

On the deal synergies, the $10 million to $15 million, would that be expected in the first year? Or would that be over multiple years?.

In the first year..

First year. Okay. And then in talking about, Joey, the bed expansions for next year, I assume as we're modeling ratably is probably the way to think about it. And if I'm wrong on that, please correct me. But I think you mentioned a couple de novos for next year as well.

Do you have any more information on timing or size of those 2?.

On the same facility beds, ratably is how I would do it. On the de novo projects, first one could come open in first quarter of next year, and the other one would be in the last half. So we would have one in the first half and one in the second half..

Okay, easy enough.

And the 3 de novos opened in the last year or so, was there any drag on the quarter from that?.

No more drag. They're cash -- they're EBITDA earning positive, those 3 as a group, but we expect them to continue to improve quarter-to-quarter. They just went positive in the third quarter. And obviously, we want them to be more positive as we go through more quarters..

We'll go next to Gary Taylor with Citi..

Most of my questions answered. I had one and one quick follow-up. Just going back to the tax rate for a moment, I thought we were kind of thinking normalized U.S. tax rate around 38% and 20% in the U.K. And I actually thought you had guided more like a 33% combined tax rate.

So the 28% this quarter and next, did something just better than that? Or am I just not remembering correctly?.

Gary, this is David. We did, at the end of the second quarter, guide to a 32% tax rate for the second half of 2014. But during the quarter, as we completed the acquisition and then finalized the structure of the acquisition, we brought that rate down to 28%. And again, that does relate to the lower 20% tax rate in the U.K.

as well as to the structure of the acquisition and the financing that we put in place..

So that's likely, even as we go into '15, obviously, the consolidated rate will come up again given CRC, but some of that structural benefit should carry through into '15?.

Yes, it should. But you're right, the U.S. acquisitions still should be modeled at that 37% to 38% rate..

Okay, great. And then just my other broader question. I mean, if we look at the last several months here, we look at the PiC acquisition, we look at CRC, I mean, there's been a fairly sizable diversification away from your core U.S. IPF business, which you had always highlighted historically as your most attractive business.

So I guess just maybe a couple of thoughts on, is that an intentional diversification away from that core business? Or really, should we just look at this activity as just purely opportunistic?.

PiC, I think, would be under the category of opportunistic. CRC, we always wanted to expand the specialty facility business, and so we always wanted to do that. We didn't think it'd becoming that big a chunk. But we're glad that opportunity was out there.

But Steve, absolutely, is looking at the bread-and-butter facilities that we have bought, so you'll see that occur next year..

And we'll take a follow-up from Charles Haff..

One follow-up question.

On the 6.3 million shares that Bain Capital took for the CRC transaction, are there any lock-up provisions or any restrictions on selling that stock near term if they wanted to?.

Well, first, they don't have them yet. But once they get them, they can do whatever they want to with them..

And gentlemen, with no further questions, I'll turn the conference back to you all for closing remarks..

Thank you very much. Thanks for your interest in Acadia. Just a quick -- some acknowledgment here to our team over in U.K. Thanks for the great quarter. Thanks for all you're doing. Thanks for being a part of our family. To our McCallum family in St. Louis and Austin, absolutely, we're thrilled you're part of the company.

The CRC family to be, Jerry Rose and his team there, very excited about them joining in us. I must thank the senior management team for all of the hard work they've been doing this year. These large transactions and even the small ones don't just happen. During the quarter, I was able to go up and visit with Dr.

Selma Goldman [ph], who's a big supporter of ours, and also to our facility in Pittsburgh with Steve Quigley, and thanks for all you all are doing. And once again, thanks to our entire team and the ones out there in the field taking care of our patients. Thank you all very, very much, and always keep quality doing the right thing.

That's absolutely the first priority of this company, is doing that. So once again, see you at the end of the fourth quarter..

And that will conclude today's conference. Again, thank you all for joining us..