Brent Turner - President Joey A. Jacobs - Chairman & Chief Executive Officer David M. Duckworth - Chief Financial Officer.

Brian Gil Tanquilut - Jefferies LLC Kevin Mark Fischbeck - Bank of America Merrill Lynch Gary Lieberman - Wells Fargo Securities LLC Paula Torch - Avondale Partners LLC Frank G. Morgan - RBC Capital Markets LLC John W. Ransom - Raymond James & Associates, Inc. A.J. Rice - UBS Securities LLC Frank Lee - Susquehanna Financial Group LLLP Dana R.

Hambly - Stephens, Inc. Ana A. Gupte - Leerink Partners LLC Jennifer M. Lynch - BMO Capital Markets (United States) Whit Mayo - Robert W. Baird & Co., Inc. (Broker).

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 to welcome you to our Third Quarter 2015 Conference Call.

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

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 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'd now like to turn the conference over to our Chairman and Chief Executive Officer, Joey Jacobs..

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

For the third quarter of 2015, I'm pleased to report that Acadia continues to produce profitable growth in the U.S. and the UK through both organic growth and acquisitions. July 1, 2015 marked the one-year anniversary of our acquisition of PiC in the UK and we are very pleased with their contribution to Acadia.

For the third quarter of 2015 we grew revenues, adjusted EBITDA and adjusted net income from continuing operations in excess of 60%. Our adjusted EPS increased nearly 35% to $0.62 for the third quarter. Our acquisition activity continues to be a significant driver of Acadia's growth.

Over the trailing 12 months ended with the third quarter we increased our beds by approximately 3,300 or 57% through 14 acquisitions that included 66 inpatient facilities and 88 CTCs. These totals include our five third quarter transactions that brought eight facilities and over 300 beds to Acadia.

As evidenced that our acquisition pipeline remains robust, we are pleased to announce four additional transactions today. Two of the acquisitions are in the United States and two in the UK. These combined to bring three inpatient facilities with 120 beds to the company and 19 CTCs. These are expected to be accretive to our financial results.

Acadia's organic growth for the third quarter also contributed significantly to our overall results. Our organic growth was primarily driven by the addition of new beds to existing facilities to meet increased market demand as well as by the opening of de novo facilities.

For the trailing 12 months we added about 630 new beds to existing facilities and two de novo facilities. We added 270 of these beds during the third quarter with 150 added to existing facilities and 120 in a de novo facility that opened in the quarter. For full year 2015 we plan to add 400 beds to existing U.S. facilities.

Additionally, we opened a 90-bed de novo facility in the first quarter and a 120-bed de novo facility in the third quarter. We also expect to add more than 100 new beds to our existing facilities in the UK for full year 2015. Primarily due to the addition of new beds, our same facility revenues increased 6.5% for the quarter.

The increased operating leverage and improved efficiency combined to produce a 40 basis points of expansion and same facility EBITDA margins to 25.7%. Our consolidated EBITDA margin also improved increasing 50 basis points to 22.6% for the third quarter.

Due to the strong operating results, the completion of additional acquisitions, and an improved tax rate, we have increased our guidance for adjusted EPS for 2015 to a range of $2.20 to $2.22, which implies growth of 42% to 43% compared with 2014. Thank you for your interest in Acadia, and now here is David Duckworth..

Thanks Joey, and good morning. Acadia's third quarter revenue increased 62.9% to $479.7 million from $294.5 million for the third quarter of 2014. Adjusted income from continuing operations rose 61% to $43.9 million from $27.3 million. Adjusted EPS for the third quarter of 2015 was $0.62, up 34.8% from $0.46 for the third quarter of 2014.

Our adjusted EPS excludes debt extinguishment cost of $10 million for the third quarter of 2015 related to the repayment of our 12.875% senior notes, transaction related expenses of $5.8 million and $6.2 million for the third quarters of 2015 and 2014 respectively and a $1 million currency loss for the latest quarter and $1.5 million currency gain for the third quarter of 2014.

Weighted average diluted shares outstanding increased 19.7% for the comparable quarters, primarily due to equity issued related to the CRC acquisition this year in February and to our public equity offering in May.

Acadia's tax rate on adjusted income from continuing operations before income taxes was 25.6% for the third quarter compared with 28% for the third quarter of 2014, and we expect our full year 2015 tax rate to be 29.2%.

The improvement in our consolidated tax rate primarily relates to continued growth in our UK earnings, as well as strategically lowering our state level income taxes. For the third quarter of 2015, Acadia's same-facility revenue increased 6.5%, while patient days rose 6.8% and revenue per patient day declined slightly by 0.2%.

Same-facility EBITDA margin increased 40 basis points to 25.7% for the latest quarter from 25.3% for the third quarter last year. Adjusted consolidated EBITDA was $108.5 million, which is a 66.7% increase from $65.1 million for the third quarter of 2014.

And adjusted consolidated EBITDA margin for the third quarter of 2015 increased 50 basis points to 22.6% from 22.1% for the comparable prior year period. As discussed in yesterday's news release, we raised our 2015 guidance for adjusted earnings per diluted share to a range of $2.20 to $2.22 from the prior range of $2.15 to $2.18.

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'll now ask Noah to open the floor for your questions..

Thank you. And we will take our first question from Brian Tanquilut with Jefferies..

Hey, good morning guys. Congratulations. So first question on the same-store performance for the quarter, 6.5%, Joey or Brent, how should we think about that relative to your usual kind of like long-term guidance of 8% to 10%, and I know you're up against a tough comp and obviously there is the breakdown between volumes and rates.

So if you don't mind just giving us more color on the moving parts there and how we should relate that to your expectations going forward..

Our expectations, Brian, going forward is that we will grow back to that 8% to 10% number. And that as you know because you follow us, we did not get enough of our beds built during the first six months, but you can see in the third quarter we had a great bed build at our existing facility and those beds are already ramping up.

So we had gotten into the low 80%s on occupancies in the United States and into the low 90%s in the UK and these bed builds are really important to us. So getting these beds built, which we think we're doing and can do is the key to this number.

So we're still very optimistic about growing the same-store numbers and the demand for the services out there and the beds to be built and we are already working on building and have started construction for 2016. So our bed build looks good, it was a little soft during the first six months, but it's come back strong in the third quarter.

And our patient day growth, I just happened to be looking at the U.S. patient day growth same-store growth for the month of October was coming back nicely over what we had experienced in the third quarter..

And Joey, what about the rate portion of organic growth for same-store?.

The rate portion is when you're looking at the combined same-store facilities, this is the UK weighting it down versus the U.S. The U.S. – we had actually increased the number of acute beds in the U.S. in the third quarter and our occupancy rate there. So there's not a lot of concern there for the U.S. same facility results on revenue per day.

We will be getting about a 1.6% to 1.8% increase from Medicare. And so the UK, our bed builds there and our acquisitions are more towards the bottom of the continuum of care, so the revenue per day is less than what it would be for an acute service.

So, it's just a matter of math there and then in the UK, we did have a slight reduction from the NHS back on April the 1. And quite frankly we've offset most of that reduction. So, we're pleased with where we are at. Obviously, our rate increases going forward, we've been getting some good rate increases here in the U.S.

and then we will know more about NHS as we get closer to April 1..

Got it. Thank you for that.

And then second question as we think about M&A, obviously four deals already quarter-to-date, one of the questions that's popped up as the credit markets tightened in the last few months was how does that impact your ability to do deals going forward and how does that impact your ability to do deals with a good return on invested capital.

So, how are you guys thinking through that as you look at your pipeline and what does the pipeline look like today looking into 2016?.

The pipeline looks similar to what we've done this year, except that there is probably a couple of larger transactions that could occur in 2016. So it looks a lot like 2015. As you know we did the CRC transaction this year and then there's quite a few one-off transactions that we're looking at.

And I wouldn't be surprised if we don't make another acquisition between now and the end of the year, and then our debt ratios are looking good and access to capital is there, and so we don't see any constraint there on us being able to execute our acquisition strategy..

And then Joey, last question for me. Do you have any updates into IMD? I know we were all waiting – we all have been waiting for that, but haven't really seen anything out of CMS..

It's going to be during the first six months when they come out with the final regs. It's a comment period now, they are working on them. I think something will happen in the first part of – hopefully in the first part of 2016, and then we'll know from there, but I don't see anything getting released this year..

Got it. All right. Thank you..

And we will take our next question from Kevin Fischbeck with Bank of America Merrill Lynch..

Great. Thanks. Just wanted to ask about – just given the little bit of a slowdown in revenue in Q3, some of your peers I think both UHS and Tenet talked about difficulty in recruiting psychiatric physicians, which held back their volume growth a little bit in Q3.

Did you see any of that pressure?.

Kevin, as you know psychiatrists are key to our organization and we have a full-time recruitment department working on recruiting physicians and then the last 60 days have been very successful in placing some of those physicians.

It's not – I would not mention it specifically as a reason for us not growing that 8% to 10% on patient days, I'm sure it hurts us in some locations, but we're working through that and have a good recruiting department and access to physicians. Is there a shortage of psychiatrists in this country? Absolutely.

And that's one of the reasons we were so excited about our Belmont acquisition in Philadelphia is that we keep and maintain the Einstein Medical program inside our psychiatric hospitals, and I think they usually have about a class of 13 physicians every year.

So we're hoping to be able to get physicians in that sort of way to that it's different and unique than what we've done in the past..

Okay.

So even dealing with all the bed builds that you are looking to do, you don't forecast any kind of difficultly in staffing those things up?.

No, we do not..

Okay. And then when you think about the M&A pipeline, the company has kind of broadened its core business over the last couple of years internationally and then addiction center.

Is there a pipeline – should we think about it as being kind of in the existing pool where you are now or are there other adjacencies that you might be looking at?.

No, I think our acquisitions for 2016 are going to look a lot like 2015. We will continue to make acquisitions in the UK, and we'll continue to acquire acute and addicted facilities here in the U.S. and we'll find a couple of CTC companies to roll into the company. So acquisitions for 2016 are going to look very similar to what we've done in 2015..

Okay. And then maybe just last question, as far as the bed additions I guess you're looking at 500 bed additions, a couple of hundred from de novos.

2016, we should be looking in that same ballpark?.

We should – absolutely we should look at the same if not slightly higher..

Okay.

And then is there a focus as to where those beds – or the types of beds that you are going to be building?.

Right now we're having more of a demand for the acute beds and we've built more acute beds this year and specialty beds this year than we have in the past. And I think that trend will continue next year. Will we build some residential beds? Sure. But once again, I think primarily, it will be the acute specialty beds for us..

Okay, great. Thanks..

Thanks..

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

Good morning. Thanks for taking the question.

Maybe on some of the other labor that you saw, number of acute care operators have discussed pressure on contract labor, are you seeing anything there either in your facilities or in the broader markets that you could share with us?.

Gary, it's isolated here in the country for us. There might be one city or two cities where the labor market might be a little bit tighter. But that is not being a – once again that is not a top three priority on our list. However, in the UK, finding nurses is more of a challenge. They have plenty of physicians, but have less nurses.

So we would like to take their physicians over here and take some of our nurses over there and we'd be in great shape. But the UK has a little tougher time for nurses, but here in the United States we may have an isolated market or two where that might be an issue, but it's nothing that makes to the top three of our list..

Okay. In the past, you've talked a little bit about the potential to do joint venture deals with larger U.S. health systems.

Could you update us there and discuss any change in the opportunity?.

Sure. Our list of those facilities, we have 10 projects underway I think with a total of 14 facilities. And I hope maybe by the end of the year no later than the first quarter of next year, you will hear several announcements about us partnering with the not-for-profits on freestanding psych hospitals. It's very, very busy.

We've got an individual that basically he's full-time working on these projects..

Okay. Great. Thanks very much..

We will take our next question from Paula Torch with Avondale Partners..

Great. Thank you, guys. Good morning. So let me start with just a follow-up on one of the earlier questions. You mentioned the UK more towards the bottom or the low end of the continuum of care versus acute and that's something that drove pricing there.

Should we expect that to continue or are your future beds going to be more weighted towards acute?.

Hey, Paula. This is Brent. Yes, within the U.K. operations, as we've added bolt-on acquisitions, those were very strategically added to meet the continuum where the NHS likes to keep the patient within the same organization throughout the state.

And so as we roll forward, we fully expect that revenue per day is going to be mix impacted and will have a slight decline, but again it's more oriented towards the different levels of care than just decreasing rates overall..

Okay. Great.

And do you think that just the mix might help that pick back up again in 2016?.

I think it is going to be more reflective of what we're seeing now because we just had a full year of the mix in 2016 versus where we are in 2015. Again, so that decline there is primarily mix adjusted as opposed to any surprise on our end from the rates being different than what we expected.

That revenue per day was right in target with where we knew things were going to end up..

Okay, great. Thank you, Brent. And then just on the U.S., I noticed that the same-facility revenue per patient day up slightly.

Can you give us any color on what's going on there? Any surprises or anything we should be aware of?.

No surprises there. We are actually getting some nice increases and some nice increases in the Medicaid book of business. So cautiously optimistic, but once again, here in the U.S. if we can get a 2% increase in our revenue per day through pricing or 3%, that would be fine for us..

Okay, thanks. And then just on average length of stay. I noticed it was down a little bit more than we had expected. Looks like that's being driven by the U.S.

Can you update us on that?.

That is just a function of the math of the number of acute patients that we're treating against the RTC base that we had.

And you can see year-to-date it's at 15.5% and we came in at 15.3%, so it's slight decrease, but it's all just math of we're treating more acute patients and our residential business is pretty full and we're not adding any more beds there..

Okay. Then maybe just last one for me.

We're hearing a lot more discussion around teleradiology and I just wonder what your thoughts are regarding teleradiology and behavioral? And as it relates to labor, do you have any initiatives here? Is there an opportunity for this going forward? Do you think that could help you with clinicians and/or physicians?.

Well, Paula, it might be able for our core facility to reach out into the more rural area around that facility where you might could put a tele site in a emergency room in a smaller rural hospital where you could triage the patient there through using that device.

But once again, there are still issues around states and where the psychiatrist needs to reside and the state licensing. So I think five years from now, it will be more acceptable. Right now it's just beginning and we do have a couple of facilities that have looked at it and have used it.

So, it's just beginning, and it's more of a rural play where there is not a psychiatrist in the rural area and you could put one in emergency room out in that area and have access..

Okay. Thank you for the color..

We'll take our next question from Frank Morgan with RBC Capital Markets..

Good morning. You touched on the labor issues, but I'm curious if you would go back and maybe comment a little bit about any change in the turnover rates. Forget about actual wage inflation, but just any change in those basic positions where you're seeing a increase in turnover activity..

Frank, no. I have not seen that, and no one during our monthly operating reviews has brought up the issue of turnover rate being an issue to operate through.

Obviously, we want our turnover rates to be as low as possible, but as you know in this industry, we have a turnover rate usually in the mid to high teens anyway, but we've had no facility that I've been through in the MOR that's mentioned turnover rate being an issue..

Okay.

And then on the length of stay, certainly the mix issue makes sense, but I'm curious if you – mix aside, have you seen any continued pressure on length of stay on the RTC side or is that finally starting to stabilize?.

No, the RTC side has always been pretty stable. So we ran about 180 days during the quarter and that's what we ran back in same quarter of last year, I think. So it's around 180 days on the RTC, and it's been very stable. As you know, Frank, we've never really had to mention the RTC decline in length of stay as being an issue, so very stable..

Okay. One last one and I'll hop. If you just go in looking at your – and reevaluating all your recent larger acquisitions, how would you kind of reflect on and rank the progress with getting those integrated and any incremental opportunities for additional synergies off those? Thanks..

Well, there is more synergies to come from the CRC transaction. We gave ourselves two years to get those synergies. So there is more synergies there, and we will be closing some offices out there in the next three to four months, so we'll get more synergies very shortly thereafter CRC transaction.

However, the PiC, the CRC transactions, the integration of those two companies into Acadia has gone extremely well. And we recently had a CEO meeting for the whole company a few weeks ago, and the culture, the morale I think is extremely high and they very much enjoyed being a part of the Acadia family..

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

Hi, good morning. I know the same-store margin was down a little bit in the U.K.

Is that a function of the rate issue that you mentioned in April or staffing or little bit of both? And do you think that's just a blip or is it something that is a permanent thing?.

I hope it's a blip and quite frankly we're building beds there and they're causing a little bit of drag there, John. And once we fill up those beds, the core CRC business is running about at 90% occupancy, and the acquisitions that we have made since then are running about a 70% occupancy.

So over the next 12 months, as we ramp up that occupancy, the incremental margin hopefully comes back to where it will grow and comes back. So that's how we see it today..

Great. And what is your updated thoughts just on a couple of your verticals, the addiction vertical – I hate that word – and anything notable in the U.K.

in the marketplace that you've seen over the last few months that's better, different or same than what you saw when you first made your move in there?.

One of acquisitions we made was Duffy's in California and we're very excited about that acquisition. That is an addiction treatment facility, and we think it will do very well and will grow.

The Discovery House transaction is the CTC facility that we acquired, and everyday just about you're seeing or you're reading about a story or on 60 Minutes or on the news media talking about the opiate/heroin addiction issue in the country, so we think that is positioned well.

In the U.K., the NHS continues to close beds, and expects the private side of the business to build that capacity. So I think that trend will continue and that's the most important trend for us. And then also I think the NHS we're beginning our rate negotiations.

I think the NHS realize how important we are to the system, and so we're cautiously optimistic about the rate increases and the rate structure going forward. So those are the two things in the U.S. and the UK..

And just lastly, you mentioned a nice Medicaid increase. Do you have final numbers for that or is there still some stuff in negotiation? And could you give us an idea, the acquisitions that you announced yesterday just the total revenue and EBITDA contribution? Thanks..

Okay. Well, you probably asked some information I don't have. We're careful about giving the states about where we're getting the Medicaid increases, so we're careful about that and I don't even have those specific states with me. The four acquisitions that we made, we have total revenue....

$50 million..

...$50 million in total revenue from the four acquisitions that we announced. And I would assume a EBITDA margin of what our base facilities have for that..

Great. Thanks a lot..

Thanks, John..

We'll take our next question from A.J. Rice with UBS..

Hi, everybody. Maybe just a couple questions. So as we think about moving from Q3 to Q4, your business mix has obviously changed quite a bit. Can you just comment on you got the benefit of these four acquisitions. It sounds like the tax rate is going to stay a little lower than maybe previously thought, maybe confirm that.

And then there's this issue of seasonality with some of the newer business lines.

Can you give us just some flavor for how to think about the move from third quarter to fourth quarter and make sure we're calibrating right?.

A.J., I think you went over the issues we look at. This will be our first time through the holiday season with the CRC transaction, so we believe they have budgeted accordingly and there is a little softness between Thanksgiving and New Years. But we think we have budgeted and projected that appropriately.

The tax rate I think will stay as per David's guidance. So I think that will be there, and these four acquisitions that we just made are accretive to the last two months of the year. So I think we're in a good position to have a good fourth quarter.

And we gave you the total guidance for the year of $2.22, so I guess you could take the third quarter year-to-date from the $2.22 and that'll be our fourth quarter guidance. And we feel at this time today after looking at October's demand that we're on track to meet our expectations in the fourth quarter..

Okay. Yes, I know we can back into it obviously, but I guess I'm just curious whether you've sort of felt like you've put in some seasonality there. Just to give....

We did put in seasonality, A.J..

All right. And I know we've had some questions about specific state updates and so forth. But if we just think about general rates in the U.S.

and UK, do you have sort of a range that you would say this is what we look for looking out to 2016 or even this is sort of a steady-state rate environment blended? What would be a right way to look on the U.S., UK, maybe government, commercial type thing?.

I'm going to say steady to up to 2%, A.J..

Okay..

I believe we can do 2% next year on rate increases. But we're getting to be a bigger company with a lot of mixes and it will also be impacted by the type of acquisitions that we make. But right now steady state I would hope we would get about 2% overall price increase..

And would that be more skewed to the U.S.

than the UK or would you think you might do that in both?.

It would probably be like 3% here and 1% there..

Got you. Then the last question is probably just sort of philosophical question. Supply/demand has been so good for a while now in the behavioral segment, particularly acute segment. I guess I'm surprised we haven't seen more de novo activities, either private equity money or whatever coming in.

And I'm just wondering why wouldn't you guys be building more de novo facilities given the supply/demand picture out there? What's your thoughts about that?.

It takes a large company to carry the operating losses of them, A.J., and we did two this year and we'll do two next year. And you will during the first 12 months before you get it to breakeven, it'll be a $0.02 to $0.04 drag on you during the year with these de novo facilities.

So I think it takes a large company like ourselves to be able to do that and we did that. We opened up South Coast in this quarter and we opened up a facility in Texas in the first quarter, and we've got a couple for next year. So we're doing those and we'll probably do two a year, but it takes some capital.

You have to work through those initial operating losses and you've got to have cash flow for that. So, it's more difficult for a smaller company or venture capital company to put together a business plan that would overcome the initial drag of the de novos. There is one out there, Springstone..

Right..

I think it was created all by de novos..

And we often asked you about your acquisition pipeline on the de novo pipeline, do you guys have sort of a sense of any large number of potential de novos that you could do on the drawing board, and you're just picking two a year or how does that surface?.

Right now, we're just picking two a year A.J., these two this year are – they're not our first ones, but we're learning how to do this and how to do it efficiently, and maybe three years or four years from now we'll do four or six a year, but right now we're just learning on the two a year. And the key part of this, A.J.

is you spend initial capital, but then you have to get the provider numbers. You have to get through Joint Commission; Medicare, you got to get your provider numbers. And you have to be playing your A game to do that. So, we're learning and doing that. So, we've done well, but right now, we'll just take two a year..

Okay. All right. Thanks a lot..

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

Hi. This is Frank Lee on for Chris. Thanks for taking my question.

Sorry, if this was discussed earlier, but could you provide an update on your thoughts around mental health legislation and the potential impact with the IMD exclusion?.

Sure. This is Brent. The managed Medicaid regulation changes, which gave access to about 75% of Medicaid having access to the IMD, would probably – is going to be finalized those regs sometime in 2016. And quite frankly the legislation that would hopefully move on the IMD issue is probably more likely in 2016.

Although, I will say that the Representative Tim Murphy bill is actually being edited and addressed, I think, today in session in Congress and committee. So there's absolutely some positive moment there. But I think if we were trying to sort of handicap when things happen, we're going to more likely see something in the early to mid 2016..

Okay. Thanks a lot..

And we'll take our next question from Dana Hambly with Stephens..

Hey, thanks. Good morning. Just on the same-store growth, you talked about getting back to the 8% to 10%, some of the sluggishness in this quarter was just not being able to build beds quickly enough in the first half.

So I'm just thinking for the fourth quarter should we kind of consider similar levels to what you did this quarter? Or is that ramping up already again?.

I think our same-store revenue numbers will be higher in the fourth quarter than they are this quarter. And we are scheduled to bring online another 213 beds in the fourth quarter. So and all of those are existing facility beds..

Okay. All right, that's helpful. And then on the footnote there was one bed that was – or one building excluded from the same facility results, and I guess you're converting that to an acute from an RTC.

How big is that bed and are there – how big is that unit and are there other opportunities to do that?.

I think it's approximately an 80-bed facility and we're converting 40 RTC beds into 40 acute beds. That would be roughly the size of this facility, and we did that probably three years ago to one facility. And so during that transition we found it better just to exclude that until we get the beds converted and then bring it back in..

Okay.

How long does that take typically?.

I think we're probably 90 days away on this one..

Okay, great.

And then last one for me, David, on the – sorry, if you went over it in the prepared comments, just your liquidity right now after completing the acquisitions announced yesterday?.

Yeah, sure. We did have some cash at the end of the third quarter, Dana, that we were able to use for those acquisitions. And then we also had a revolver borrowing, so we borrowed about $130 million after the end of the quarter related to those acquisitions..

Okay.

So what's the total capacity right now?.

The total capacity would be another $170 million on the revolver..

All right, great.

And what's the pro forma leverage right now?.

It's about 4.8 times total leverage ratio..

4.8 times, great. Thanks very much..

And we'll take a follow-up from Brian Tanquilut with Jefferies..

Hey, guys just a follow-up.

Brent, so actually to your comments on IMD, the CBO just put out their estimate of the IMD provision on the Murphy bill and they're saying between $40 billion and $60 billion over a 10-year period, so how should we think about that as it trickles down to you guys assuming that the CBO number is right? I mean how do we put numbers around the benefit for Acadia?.

This is Joey. We're not prepared to do that today, but it's a positive..

Yeah.

I guess I was just thinking that you – can you put numbers around market share or something like that that we can try to use?.

Now this is just purely my opinion. Okay? This could be a one-time increase of maybe 5% to the census..

Okay. Got it. And then just a question on the pilot program when they ran the pilot.

Do you guys remember what the net cost to Medicaid was when they ran the pilot, was it net neutral or did it actually generate savings for Medicaid in the pilot program?.

We do not. That would be a question for Mark Covall at NAPHS..

Got you. Okay, sounds good. But, yeah, $40 billion to $60 billion is the scoring, so I just thought I'd share that with you guys. Thank you..

Thanks..

We'll take our next question from Ana Gupte with Leerink Partners..

Yeah, thanks. Good morning. Sorry, again, here I got in a bit late. But did you offer any color on what the magnitude of the revenue and earnings potential is on a normalized basis for these four deals you did, and how that fits into your goal around the $2 billion-ish in 2016 going to $4 billion in 2018..

I had a hard time hearing all the questions. But the four acquisitions that we just made, we did give their annualized revenue at $50 million and we did say that if I was modeling I would use the total facility margin as a margin to apply against that revenue for their contribution to the company.

And obviously we expect to grow them, but that's what we previously had stated to someone that asked a similar question..

And then looking at the acquisition pipeline, Joey, would you be looking more again in just the acute behavioral markets in the U.S. and the UK, and how much does it skew in favor of that versus substance abuse in light of kind of the multiple that was paid for Foundation..

I would think 80% of our business next year is either will be towards the U.S., UK/acute business. Will we make some more addiction acquisitions? Sure. And some more CTC transactions? Sure. But I think 80% of our acquisitions will be more in the traditional space..

Okay. Thanks. And the final question, just on the salaries ratio, is there any plan to increase staffing per patient or anything that might cause pressure going forward or should we expect this to remain largely flattish..

We expect it to remain flattish. We believe our facilities are appropriately staffed today and so we expect this to be flat for next year..

Thanks. Appreciate the color..

We'll take our next question from Jennifer Lynch with BMO Capital Markets..

Hey, good morning. We've touched a little bit on the profitability in the UK, but I was just curious you guys have obviously created a nice lift to the overall enterprise margin.

So curious if you think there's still some additional runway for that? I'm working under the assumption the answer to that is yes, do you think the lion's share of that opportunity lies in bed adds or in mix shifts towards some of the higher profitability businesses? Thanks..

I think it's towards the bed adds, and if you were to look at our U.S. facility results, our EBITDA margin is 26.5% – I mean, our total facility results 26.5% year-to-date, could that be 27.5% sometime in the future? Yes..

Excellent. Thanks very much..

And we'll take our next question from Whit Mayo with Robert W. Baird..

Hey, thanks. I really only have one question.

It looks like you spent about $18.5 million on real estate in the quarter, just curious where that was, is this a new market, an existing market, your traditional acute business, addiction, just not sure where it is?.

Whit, this is David. We have had the opportunity within the CRC business to buy a lot of the real estate that was under leases previously, so we should see great opportunities to own that real estate, be able to grow those facilities by owning some of that real estate. So, almost all of that $18 million related to the CRC property..

Great. Thanks..

Thanks, Whit..

And with no further questions, I'd like to turn the call back over to Joey Jacobs for any additional or closing remarks..

Sure. I just want to give a shout out to our teams in Tucson. Last week we were able to go visit Sierra Tucson and Sonora and thank you very much for your hospitality and what you're doing there, and how you're growing the census. Sonora is going through a major bed addition.

We're nearly doubling the size of that facility and at Sierra Tucson; we're filling up the empty beds there. So, we had a great visit last week and thank you for all you're doing, taking care of those patients. And that concludes the call for us today and we'll talk to you after our fourth quarter results..

And that does conclude today's conference. Thank you for your participation..