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

Albert J. Rice - UBS Investment Bank, Research Division Dana Syrune Nentin - Deutsche Bank AG, Research Division Joshua Ryan Harakal - Susquehanna Financial Group, LLLP, Research Division Stephen Baxter - BofA Merrill Lynch, Research Division John W.

Ransom - Raymond James & Associates, Inc., Research Division Antonella Paula Torch - Avondale Partners, LLC, Research Division Gary Lieberman - Wells Fargo Securities, LLC, Research Division Jason Plagman - Jefferies LLC, Research Division Charles Haff - Craig-Hallum Capital Group LLC, Research Division.

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

Thank you. Good morning. I'm Brent Turner, President of Acadia Healthcare, and I'd like to welcome you to our fourth 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 2015 and beyond.

For this purpose, any statements made during this 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 fourth 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 would like to turn the conference over to our Chairman and Chief Executive Officer, Joey Jacobs..

Good morning, and welcome to our fourth quarter conference 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 fourth quarter and our outlook for Acadia. Then we'll open the line for your questions.

Acadia's strong growth momentum was evidenced by 55% growth in revenue and 88% increase in adjusted income from continuing operations for the fourth quarter of 2014, and revenue and adjusted income grew 41% and 59% for the full year.

Even with the additional shares outstanding, primarily from our June equity offering, adjusted EPS increased 59% and 44% for the quarter and for all of 2014. This substantial profitable growth reflected our continued strong execution of our organic growth and acquisition strategies.

Our same facility revenue increased 12.2% for the fourth quarter, while same facility EBITDA margin expanded 160 basis points to 26.2%. Much of this revenue growth was due to the addition of 378 beds to our existing facility base.

Our same facility revenue also benefited from our ongoing work to grow the top line at each facility by improving our local and national referral networks and expanding services and professional staff as appropriate. The strong revenue growth generated operating leverage, which was primarily accountable for the expanded same facility margin.

In addition, we constantly focus within each facility on initiatives to expand productivity and efficiency. Our acquisition strategy was also very successful during the fourth quarter and 2014. We completed 5 transactions during the year, which brought 27 facilities and approximately 1,400 beds to Acadia. The largest of these transactions, U.K.

based PiC, enabled Acadia to enter its first international market. And we are very pleased with PiC's performance and prospects since the completion of that transaction in the third quarter.

During fourth quarter, we also signed a definitive agreement for the acquisition of CRC, which is our largest transaction, and which we announced that it was completed and closed yesterday. The closing of this transaction early in 2015 positions Acadia well to achieve further significant profitable growth for the year.

CRC brings approximately 2,400 beds and 35 inpatient facilities to Acadia in addition to the treatment of approximately 42,000 patients daily through its 81 comprehensive treatment facilities. CRC will diversify our payers, our services and our geographic concentration.

With drug rehab being one of the most fragmented segments of the behavioral health care industry, we expect to expand CRC's business through acquisition as well as the steady addition of new beds to existing facilities. CRC's revenue for 2014 totaled approximately $450 million, with adjusted EBITDA of approximately $115 million.

We continue to expect to capture $15 million in annual expense synergies by the end of the first 24 months following the closing of the acquisition. Despite the larger-than-normal size of the CRC transaction, we continue to evaluate additional acquisitions domestically and in the U.K. and expect to complete several transactions in 2015.

We also expect to add approximately 400 beds to existing facilities in the U.S. during 2015, not including the scheduled opening of several de novo facilities during the year. Furthermore, we plan to add approximately 100 beds to our existing U.K. facilities during 2015.

In summary, during 2014 we continued to produce outstanding results at Acadia, even as we build momentum for future profitable growth through our demonstrated organic growth and acquisition strategies. With the acquisition of CRC, we've made a good start to 2015, and we are confident that we will build on this early success.

Thank you for your interest in Acadia, and now here's David Duckworth..

Thanks, Joey, and good morning. Acadia's fourth quarter revenue increased 55.2% to $294.9 million from $190 million for the fourth quarter of 2013. Adjusted income from continuing operations per diluted share increased 58.6% to $0.46 from $0.29 for the fourth quarter last year.

Our adjusted results include transaction-related expenses of $2.8 million and $3.3 million for the fourth quarters of 2014 and 2013, respectively. Weighted average shares outstanding increased 18.1% for the latest quarter compared with the fourth quarter of 2013, primarily due to our public equity offering in June of 2014.

Acadia's fourth quarter tax rate on adjusted income from continuing operations before income taxes was 27.9% compared with 37.8% for the fourth quarter of 2013, primarily due to the impact of our U.K. acquisition.

Same facility revenues increased 12.2% for the fourth quarter, reflecting an 11.5% increase in patient days and a 0.7% increase in revenue per patient day. Same facility EBITDA increased 160 basis points to 26.2% of same facility revenue for the fourth quarter of 2014 from 24.6% for the same quarter the prior year.

Adjusted consolidated EBITDA increased 69.5% to $66.4 million from $39.2 million, while consolidated EBITDA margin increased to 22.5% from 20.6%. Acadia completed 2014 with $94 million in cash and cash equivalents, and our cash flow from continuing operations totaled $46 million for the fourth quarter and over $115 million for 2014.

As discussed in yesterday's news release, we established our 2015 guidance for adjusted earnings per diluted share in a range of $2.03 to $2.10.

Our full year guidance includes the impact of start-up costs at several de novo facilities coming online in 2015 and an assumed exchange rate of $1.52 per British pound, which is approximately 7% lower than where it was in the second half of 2014. We expect noncash stock compensation expense of approximately $19 million for 2015.

And given the completion of the CRC transaction, a consolidated tax rate of 32%. Our guidance for adjusted earnings per diluted share for the first quarter is in a range of $0.40 to $0.41.

And this guidance includes the normal first quarter impact of higher payroll taxes at the beginning of each year, which has a $0.03 impact compared to the fourth quarter of 2014 as well as the impact of the first quarter having 2 fewer days than the fourth quarter, which impacts EPS by approximately $0.02.

In addition, there's a $0.02 impact from de novo development and another $0.01 impact from the lower foreign exchange rate. As always, our financial guidance excludes the impact from any future acquisitions and transaction-related expenses. This concludes our prepared remarks this morning, and thank you for being with us.

I will now ask Taylor to open the floor for your questions..

[Operator Instructions] And we'll take our first question from A.J. Rice with UBS..

First of all, I just wanted to ask quickly about CRC and the ongoing integration there.

What do you need to do to get those synergies, or have those steps pretty much already been taken? And then as you look longer term, are there 1 or 2 or 3 things that could be business opportunities that you haven't included in the synergies that we should focus on?.

A.J., this is Joey. First, the integration, we've been working on that since we announced the signing of the agreement to acquire this back at the end of 2014. The team, the senior management team has done a great job.

We think we were going to get at least $7 million during 2015 of the synergies, and then by the fourth quarter run rate, it will be at about a $10 million run rate. And that by the end of 2016, we will fully have the $15 million of synergies that we have -- that we told you all about and that we have in our model. So that's going very, very well.

David Duckworth, Brent Turner and Ron Fincher have done a good job working on that -- on getting the synergies and the integration into the company. So that's going very, very well.

I guess, the things that I'm really excited about are the -- our ability -- we have about 600 to 700 empty beds that we can grow into and we've got our marketing efforts already underway, and we've made a couple of employee changes there in some of the facilities. So we're looking good there.

We've reorganized the company, we think everybody is focused there. I think there is going to be more growth on the CTC facility side than what we thought. And then -- so the growth opportunities, we knew they were there, but I probably am more excited about those than I was when we started our heavy due diligence and integration process.

So once again, we're going to get our synergies, the $15 million. And second, there are some upsides that we'll be able to get over the next 24 months too on the revenue..

Okay. Great. And then just maybe one follow-up. On PiC in the U.K., I know you had ongoing discussions with the NHS about whether, potentially, even giving more beds.

What's the status of that? How's that interaction going?.

The interaction is going very well. We have targeted 100 new beds for PiC this year, same-store beds. And then -- and many of those same-store beds are being built and brought online because the NHS are needing those services at our facilities and in new locations.

And A.J., we will make -- we're going to make some acquisitions over there to round out our network over in the U.K. So our opportunities, we'll be working with the NHS. Joy Chamberlain, who heads up that division for us, her and her team have done a great job, have great relationships with NHS, and we are very, very excited about that.

Ron Fincher and I will be going over Sunday to the U.K. to visit with them. And so very excited about the growth opportunities in the U.K., both on the same facility level and on the acquisitions..

And we'll take our next question from Darren Lehrich with Deutsche Bank..

It's Dana Nentin in for Darren. Just first on the de novos.

Can you talk about the timing of the start-up costs and the ramp of those de novo openings in '15?.

Sure, Dana. We have 7 de novos for this coming year that's on the board. Three of those are inpatient facility, 4 of those are our CTC clinics that will be new -- de novo projects for us. Pretax income impact on the 3 inpatient facilities that -- we'll spend about $4.3 million there bringing those online.

You have to bring them online, get the provider number, just bringing them online, getting them up, getting them ramped up. One of those will be profitable this year. The other 2 come on in the last 6 months of this year, so they will not be profitable. Overall, they're about a little over -- about a $4 million, $4.5 million drag to us.

And then on the CTCs they're about a $1.2 million drag on us for 2015, is what we estimate right today. So it's about $6.5 million that we'll be absorbing this year for these absolutely terrific de novo projects, which are going to be terrific franchises going forward from 2016 onward.

And that's about a $0.07 -- it could be anywhere between $0.06 to $0.08 drag on the EPS for us for these de novo projects, but absolutely great projects and very excited about getting them started. And so very, very, very excited about all these projects..

Okay. Got it.

And then I guess as it relates to CapEx, how would that break down between, I guess, sort of routine CapEx, some of the expansion projects you're doing and the de novos?.

Dana, this is David. We continue to expect maintenance CapEx around 3% of our revenue, and that's for the consolidated company with a little less than 3% in the U.S., a little bit more in the U.K.

So I think for the year, that's about $50 million of CapEx going forward, consistent with where it's been in the past, with the remainder of what you see around CapEx related to our expansion..

And we'll take our next question from Chris Rigg with Susquehanna Financial Group..

This is Josh on for Chris. Just to go back to the de novos quick, you said $6.5 million in 2015.

What was that for -- how much drag did you have in 2014?.

These projects had very little drag in 2014. The de novos we did start last year. I think, by the end of the year they were breakeven. So they will be a positive this year. But I don't have that detail, Josh, with me. I just have that the pretax income loss for these de novo projects in 2015 is about $6.5 million..

Okay. All right. And then it looks like same facility revenue per patient day was up about 70 bps. It was down in the third quarter.

Kind of could you provide a little bit more color on what the improvement was sequentially?.

The improvement is -- just a little word of caution here, Medicare did give us a 2% rate increase on the 1st of October, and we're getting rate increases from the commercial payers. Medicaid is about flat. But our mix of patients, we're continuing to add more acute beds to the company. So we -- so you have to be careful.

We were glad to see the 0.7 bps increase, I think, in our per revenue per day. And that is -- we're up 6 bps for the year. So that's about what we expected. We thought the third quarter probably had a little bit mix change to it that impacted that. We didn't overreact to that.

We know we've got the patient day growth there and that we're getting our rate increases, and we're continuing -- sometimes it's just the mix of the patients that we got for that quarter..

And we'll take our next question from Kevin Fischbeck with Bank of America..

This is Steve Baxter on for Kevin. Just to come back to a couple of the drag conversations.

Did you say it was about $0.01 from FX in Q1?.

Yes. $0.01 to $0.02, yes..

$0.01 to $0.02.

So I guess, on the full year then, is there any reason it would be any different throughout the course of the year? Do you think it's going to come in somewhere in that $0.04 to $0.06 drag range?.

It's going to come in about the 6% to 7% -- a $0.06 to $0.07 drag for the year..

Okay. And then -- I'm sorry if I missed this, but then it sounds like the start-up costs, just because the 2 facilities are coming into the back half of the year, and that's the bulk of the cost are the inpatient facilities.

Fair to think that the start-up costs are evenly spread, too? Or is there kind of a cadence from quarter to quarter that we should be thinking about?.

This is for example. If you're planning on a July 1 opening of a de novo facility, you will incur some losses in the first and second quarter, but they will be less than what happens when you open up July 1. On July 1, you would start getting -- admitting patients.

You would have to get a base of patients and then go through the process of Joint Commission and getting your Medicare number and your Medicaid number. So while you have patients more staffed, the third and fourth quarters are going to incur more drag than the beginning 2 quarters would have.

And we have de novos that have just opened up in the first quarter. And then we have some that will open up in the third quarter. Third quarter is our projections today. So it's evenly spread for us throughout the year because of the timing of the openings..

And we'll take our next question from John Ransom with Raymond James..

This is John Ransom for John Ransom. The Partners in Care (sic) [Partnership in Care], looking at our notes, was about USD 75 million EBITDA when you bought it.

If you think about the growth in the synergies less the FX, can you give us a range of EBITDA for '15 that you're thinking about embedded in your guidance? I'm just trying to triangulate all this..

John, I think we would have seen that -- if you neutralized the currency impact, we would have expected the $75 million to grow with the added beds, with filling the beds, with -- if you look at the growth in volumes you're seeing there in the $80 million plus range.

But then you got to pull back the 7% impact of what we're saying is, this is just the currency. So the $1.52 exchange rate pulls that down by 7%. And the good news is, is that it doesn't affect our cash, because we're not pulling those proceeds back from the U.K. We're reinvesting that money and growing our business over there.

So the impact of this foreign exchange is strictly on the financial statement presentations as we see that impact of the stronger dollar..

Okay. And then, secondly, just to challenge you, I guess, a little bit on CRC. 700 empty beds, you've addressed the marketing. It looks like your guidance assumes pretty flat EBITDA this year plus the synergies.

Is there a reason why EBITDA wouldn't grow at CRC this year?.

John, this is a large transaction, and I think we're being conservative here, and that's the way it should be, because this is a large transaction, and the integration is going very, very well. And you're right, we put in our model. They've been running about $115 million of EBITDA plus what we think the synergies will be.

So your logic is pretty good on that. And the thing [ph] is that we're just trying to be -- we're wanting to deliver that at a minimum..

Great. And have you -- I'm sure you have, but I'm curious what -- obviously, when you have that many empty beds, there's a -- to put it maybe glibly there's a marketing problem.

Have you been able to put your finger on what that marketing problem might be? And could you talk in a little more detail about what steps you're taking to fix that?.

Sure. First, the CRC, we're getting a great group of facilities, but we're getting a great group of employees. And the leadership and the reorganization that Ron has put in place we think is going to really work for us. We are making a couple of CEO changes at some of those facilities, and that will be part of the solution to growing the census.

We believe that each facility should have a dedicated marketing staff and that they shouldn't be cross-selling other facilities. So it appears that CRC may have tried to cross-sell a bit more than what we would have done. And we think the marketing people need to be focused on their facilities and outselling and marketing in those facilities.

And that's how we do it, and we think that is going to pay off big for us in the next 12 months. So there are some things on the marketing side that we're doing differently than what they were doing. And so we're very excited. Ron and the 2 new division presidents that we have there, Joe and John, they're all excited.

And so -- anyway -- and we will -- another thing, we will spend more money on the Internet, and we think we might be a little bit more effective there. So we got a plan to fill those empty beds..

And is -- given that you're in network, is it more of a local marketing than somebody who may be is out of network and look at nationally for out-of-state plans?.

It's a combination of both. We do still -- you can still be in network or be through a network even if it's national marketing. So -- but our facilities, the CRC -- many of those CRC facilities have national brands, and they will be bringing patients from all over the country..

We'll take our next question from Paula Torch from Avondale Partners..

So a lot of what I was going to ask you answered in John's question.

But just in terms of CRC, could you maybe give us a little bit more color around the seasonality in the business versus your core business now? And other than the first quarter, how is it going to impact the model? Or if it will in any way, any sort of nuances we should be aware of when we're building this out for the year?.

I think the seasonality only occurs around the holidays. So we always worry about January coming off the New Year's, the Christmas, the Thanksgiving holidays. We will always worry in January, does the census -- how fast the census comes back. And then, I guess, at the other side, we worry about once Thanksgiving gets here, the census will soften some.

So for CRC, that's where, I think, the seasonality is at. And that is not something -- we really only worry about it in January and see how fast it comes back after the holidays..

Okay. Great. Sounds good. And in terms of -- we talked about some of the empty beds and your plans to fill those. But I recall back in October when we were talking about CRC that you talked a little bit about some facilities that actually need expanding.

So could you give us a little bit more color on that? Do you still feel the same way? And is it going to be a balance between making the changes and marketing that you discussed? And then also, expanding some of the other facilities that might be at full capacity right now?.

Yes. We will be expanding some of their inpatient facilities. Yes, they still have that need, absolutely..

And do you know what the ratio is in beds, I guess, that you think that you could get from that?.

I do not have that. I don't -- Paula, I'm sorry, I don't have that schedule with me today..

Okay. No problem. And just my last question, I just wanted to talk a little about the favorable regulatory environment for substance abuse and how it might be impacting your growth expectations for 2015 and beyond? I think it's clearly a benefit, but I think it's hard to quantify in the numbers.

So could you help us think about that in your various service lines?.

Paula, this is Brent. I think, unfortunately, what you said is -- was what we know. There is a lot of positive momentum around coverage enhancements for all levels of mental health, and that's great.

The patients that have needs, whether it's psychiatric issues or addiction disorders now have a much better avenue and a much better payer access than they ever had before. We've got some very, very important legislative and regulatory movements that impact the industry.

And all we can say is that those things are going to probably be positive to our business across all the service lines. It's just impossible to quantify it on the front end or the back end. But I think we take comfort that the actions that are happening are for, ultimately, for the benefit of the patients. And so it's a win-win from our perspective..

Okay. Great. And just, if I may, follow up on that. We've got the King versus Burwell Supreme Court case coming up. We don't really talk about it that much and how it impacts behavioral.

Could you maybe give us some comments on that? And if you think it could impact your business with the subsidies one way or another?.

Well, again, the inpatient behavioral health providers on a freestanding, like Acadia, we are not benefiting from the expanded Medicaid population because we're, through the IMD exclusion, we're prohibited from getting reimbursed from those -- for those Medicaid adults in our facilities. So that case, that outcome has no impact on our business..

Well, it's subsidies on the exchanges. Okay. No problem..

Yes..

And we'll take our next question from Gary Lieberman with Wells Fargo..

Maybe to stay on the ACA topic.

Can you give us some detail or your thoughts on how, if at all, the company benefited from health care reform in 2014? And will there be an incremental benefit next year?.

Sure. Gary, Brent again. I think where we saw a benefit is in regard to the private exchanges that when the small employers or the individuals went to those exchanges, and they are eligible to get reimbursed in freestanding psych, those plans were required to meet the essential health benefits.

And as you know, there's about 4 of the 13 bullet points where the essential health benefits covers behavioral health and several of which are inpatient behavioral health.

So we definitely probably had some impact from that private exchange group and enrolling into 2015 those same essential health benefit requirements apply to self-insured commercial plans. And so we should continue to see some benefit from that implementation.

But again, it's just almost impossible to quantify, but I think when you look at our 12.2% revenue growth in the [indiscernible] quarter and 11.5% patient day growth, somewhere in there, we're getting a little lift from the exchange impact..

Okay. And then, I guess, going back to Joey, it sounded like you were close to closing something in the U.K. I think you had mentioned last quarter as well, discussing that.

So is this -- do you think this wraps up or you can close a deal in the near term or is this something that probably takes longer to get done?.

We actually made a small acquisition in the fourth quarter in the U.K., and it's very possible that we make an acquisition in the -- or a couple of acquisitions in the first 6 months of this year in the U.K..

Okay. And then finally, just refresh our memory or give us an update on how the CTC margins compare with the behavioral inpatient margins..

They're slightly higher. They have a -- they're a little bit more efficient than acute hospital would be. But then our specialty facilities would have margins that would be close to theirs, too. So they have good margins, but they're very, very efficient, too..

We'll take our next question from Jason Plagman with Jefferies..

Just wondered on the margins in the U.K., it looked like they ticked down a little bit sequentially.

Just how should we think about the margin trajectory in that business in '15 and beyond?.

The EBITDA margin is going to stay in the 26% to 27% range is my expectation. And slight downtick in the fourth quarter, I think, was a mix issue. Well, it's not an issue, it's just a mix of the patients that we had there..

Okay. That's helpful. And as far as the pace of bed adds in the U.K., you've talked about 100 in 2015.

Should we expect that to ramp up anymore in later years? Or how should we think about the pace of bed adds in the U.K.?.

100 beds -- for the next 3 or 5 years, actually, it could grow faster. Especially in the next 3 years, it could grow faster..

[Operator Instructions] And we'll go next to Charles Haff with Craig-Hallum..

I had a question for you on the organic bed additions. I think your last conference call about 3.5 months ago, you were expecting for 2015, you might add 400 beds and do 2 de novos, and now you're saying that you expect to do 7 de novos in '15. I'm wondering what changed there.

Was that just part of your capital budgeting process? Or did you see some opportunities? Any color there would be kind of helpful..

Okay. Sure, Charles. Let me be clear on the de novos. Three of those are inpatient facilities. And at the time we were talking, we did not know about CRC. So when we talked about a couple of de novos, there's actually 3 of those. And then when we got CRC, they had in the queue, 4 de novos for the CTC clinics. And we want to do those, so we'll do those.

So that's how -- that's the 7 de novos, there's 3 inpatient facilities and 4 CTC clinics..

Okay. Yes, that makes sense. And then you broke out some of the price increases that you had for Medicare and Medicaid.

I'm wondering if you could give us the price changes that you saw in commercial or private pay in the fourth quarter?.

We're still seeing in the 4% to 6% range..

For both of those?.

Yes..

And we have no further questions. And I would now like to turn the conference back over to Mr. Joey Jacobs for any additional or closing remarks..

Thanks, everyone, for dialing in. I want to give a shout out to our folks over in Puerto Rico. The management team went over there 2 weeks ago and visited. And they've got a 40 bed expansion coming online this year. And things are great there. And Martha and her team, just a terrific job there. I do want to welcome all the CRC folks.

As we've gotten to go through the due diligence in the integration plan, they're a great group, hardworking group, very talented, and we're just excited about having them part of our family and working with them. So -- and then we will see you on our next call..

And this concludes today's conference. Thank you for your participation..