Brent Turner - President Joey Jacobs - Chairman & CEO David Duckworth - CFO.

Brian Tanquilut - Jefferies A. J.

Rice - UBS Securities Whit Mayo - Robert Baird John Ransom - Raymond James Frank Morgan - RBC Capital Markets Chris Rigg - Susquehanna Financial Group Gary Lieberman - Wells Fargo Ann Hynes - Mizuho Securities Kevin Fischbeck - Bank of America Merrill Lynch Charles Haff - Craig-Hallum Paula Torch - Avondale Partners Dana Hambly - Stephens Ana Gupte - Leerink Partners.

Please stand by, we're about to begin. Thank you for standing by. 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 Second Quarter 2016 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 this morning’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 2016 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 second 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 like to turn the conference over to our Chairman and Chief Executive Officer, Joey Jacobs..

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

Before we discuss the quarter, let me briefly touch on the announcement yesterday by the Competition and Markets Authority in the United Kingdom that in lieu of a phase 2 investigation, we have offered undertaking to address CMA’s concern.

Our undertakings provide for the sale of 19 of our Priory and PiC [ph] healthcare facilities with approximately 750 beds. These facilities produce aggregate annual revenue of approximately $132 million and adjusted EBITDA of $39 million. Before any overhead allocations, I’m assuming an exchange rate of $1.30 for British pound sterling.

We expect the CMA to accept our undertaking and approve the Priory acquisition in the next two to four months. Turning now to our second quarter results. We achieved another quarter of profitable growth.

Our revenue increased 67% for the quarter versus the second quarter last year, which is the sixth consecutive quarter our revenue has grown at a rate of more than 60%. Adjusted earnings also rose 60% for the quarter. Our adjusted earnings per diluted share of $0.73 increased 28.1% on a 26.4% increase in shares outstanding.

We attribute this growth to the strong continuing execution of our acquisition and organic growth strategy, through which we are expanding Acadia’s ability to meet increasing demand for our services.

These strategies have enabled us to expand our beds over the last 12 months by almost 100% to approximately 17,800 beds, while acquisitions and specifically the Priory acquisition accounted for the great majority of our bed expansion. We also added over 940 beds during the last 12 months.

Approximately 680 of these beds were additions to existing facilities and 260 were added that through the opening of three de novo facilities. During the second quarter, we added 125 new beds to facilities in the U.S. and the U.K., and opened a de novo facility with 60 beds.

This brings the number of beds additions to 515 in the first half of 2016, and we expect to add more than 800 beds for the year. Bed additions to existing facilities drive our overall organic growth, including our same facility revenue, which increased 8.1% for the quarter.

We have continued to benefit from the operating leverage at this same facility revenue growth generate and with the same facility EBITDA margin increasing to 28.1% for the second quarter. We have also remained active on the acquisition front during the second quarter. We completed four acquisitions in the U.S.

with approximately 240 beds including an acute psychiatrist inpatient facility, two residential addiction treatment facilities and a comprehensive treatment facility RCDP. We continued to evaluate additional transactions in a robust top line of potential transactions and we are confident of our ability to turn appropriate transactions.

In summary, we have been very pleased with Acadia’s execution of its growth strategy and we are optimistic about our potential for producing continued long-term profitable growth. We are diversified behavioral healthcare provider and a leader in markets with growing demand and limited capacity.

This increasing demand has been driven by strong demographic, as well as changing regulations that increase parity and access. We are developing an outstanding record of investing expansions to meet the demands of our local community which drive our organic growth.

We also have a long history of growth through successfully acquiring and integrating transaction, in an industry that remains highly fragmented. Thank you for your interest in Acadia, and now I'll turn it over to David Duckworth..

Thanks, Joey, and good morning. Acadia’s revenue for the second quarter of 2016 increased 66.8% to $756.5 million from $453.7 million for the second quarter of 2015. Adjusted income from continuing operations attributable to Acadia’s stockholders was $63.2 million, up 60% from $39.5 million.

Adjusted EPS for the second quarter of 2016 was $0.73, up 28.1% from $0.57 for the second quarter of 2015. For the second quarter of 2016, our adjusted EPS excludes transaction-related expenses of $6.1 million, and a gain on foreign currency derivatives of approximately $100,000.

For the second quarter of 2015, adjusted EPS excludes transaction-related expenses or $7.2 million and a loss on foreign currency derivatives of approximately $960,000.

Weighted average diluted shares outstanding increased 26.4% for the comparable quarters, primarily due to the equity that we issued in May of 2015 that was principally related to acquisitions, and in January and February of 2016 related to the acquisition of Priory.

Acadia’s tax rate on adjusted income from continuing operations before income taxes was 21.7% for the second quarter of 2016 compared with 31.3% for the second quarter of last year. Acadia’s same facility revenue increased 8.1% from the second quarter of 2015 with a 7.7% increase in patient days and 0.4% increase in revenue per patient day.

Same facility EBITDA margin was 28.1% for the latest quarter versus 27.4% for the second quarter of 2015. Consolidated adjusted EBITDA increased 62.8% to $172.2 million, which was 22.8% of consolidated revenue from $105.8 million or 23.3% of consolidated revenue for the second quarter of 2015.

Our operating cash flow increased 74.6% to $126.5 million in the second quarter of 2016, which is a quarterly record for operating cash flow. Finally, as announced in this morning's news release, we have updated our guidance for 2016 adjusted earnings per diluted share to a range of $2.63 to $2.65.

This adjustment is primarily a result of the decline in the U.S. dollar to British pound sterling exchange rate as well as the delay in realizing cost synergies due to the CMA’s approval process. Our guidance assumes an exchange rate of $1.30 per British pound sterling for the second half of 2016 and a tax rate of 23%.

Our financial guidance does not include any cost synergies in 2016 from the Priory transaction, the impact from any future acquisitions or transaction-related expenses. This concludes our prepared remarks this morning, and thank you for being with us. I'll now ask, Mia, to open the floor for your questions..

Thank you, sir. [Operator Instructions] And we’ll go first to Brian Tanquilut with Jefferies..

Hey, good morning, guys, and congratulations. First question for David or Brent.

As we think about guidance in the adjustment that you made, what have you pulled out in terms of the synergy for 2016, and then also as we think about 2017 with the $39 million of EBITDA that’s swapping off, how should we think about your synergy expectations that you have previously given?.

Okay, Brian, good morning. The synergies are completely out of the guidance for the balance of ‘16 and that's roughly in the $0.08 to $0.09 range that we had previously anticipated. The outlook for consolidated cost savings, once that divestiture and the integrations occur is no different.

It will be at least $20 million of synergies identified and realized, but the more reasonable expectation would be for that to occur in 2017..

Got it. And then, Joey, as we think about the IMD, you’ve seen one month’s worth of IMD in the system. Just wanted to get your feedback on that, and also as we think about new bed additions related either to prepare for IMD or as we think about the outlook going forward, it seems like you had continued success in staffing and building capacity.

So is that a sustainable view, and why is it that you're able to build at 8% versus the rest of the industry, which is coming at a lower base?.

Okay, Brian. First on the IMD. July is not closed out yet, so I don't have any numbers to give you on the IMD and what we are seeing there, as I mentioned on the last conference call, give us until the end of the third quarter and then we'll be able to talk more about the impact of the IMD beginning July 1 for the management.

As far as building beds, we are reacting to our market and the needs for beds and services there. And once again, I think I’ve shared this with many of you. We have a very disciplined approach here as a company. Our monthly room - we review the anticipated bed needs of our facilities.

And as you can see, we have consistently built several hundred beds every year and with other record builds this year of over 800. But due to the fact that the company, I think, 800 could be the number you would see us do for next year and we have demand for the patients and services.

And so our strategy, Ron Fincher and that division president are doing a great job meeting the needs at the local level. I'll just give you one example.

Our acquisition that we made in May here in Tennessee with Trust Point, within 45 days of acquiring that facility, we had already filed to double the size of the facility that they were turning away enough patients that we believe that we could build another 100 beds there.

So we just happen to be in markets where the demand is rising and we have the balance sheet and the team and the urgency in action to build the beds..

And Joey, what about clinician supply just to match the build out?.

As I mentioned on previous conference calls, we several years ago started beefing up our recruitment department and that has paid dividends for us in today’s environment and that we are able to find the clinicians we need and that is not have been an issue to us growing..

Got it. Thank you and I'll jump back in the queue..

We’ll go next to A. J. Rice with UBS..

Yes, hello everybody. Maybe just first to clarify on when you can start to integrate. So you've got to go out now and identify buyers I assume for these 19 facilities. Does the CMA approve you're beginning to move forward with integration when you’ve identified the buyers? You actually have to close the transaction.

What’s sort of the timeline from here?.

Once we enter into a definitive agreement with the buyer, I think the CMA process allows us to start working on the cost efficiencies.

So I think many times, a definitive and closing are the same time but once we find the buyer reach through the process to sign a definitive agreement, I think at that time the CMA will allow us to work on the cost efficiency..

Right. And, I guess, you're giving yourself to the end of the year to do that, but is there any reason to think it would take that long? You've obviously got the information on it. I'm just curious, is there any unusual approvals that would take that long to get that deal done or...

No, I think that we do have to go through the system, regulatory approval process, but I think four months on the outside I think we will be inside the four months number and so it won't be the end of the year that's more like a November. I think we can have it done..

Okay. And then just maybe last one, another follow-up on what you see in pricing-wise discussions in the U.S. about, I know a lot of states have fiscal years that roll over midyear. Anything to report there? And I think on the U.K., you were down year-to-year in revenue per patient day about 1.9%.

Is that largely mix or is there - what’s going on in the U.K.

pricing as well?.

U.K. is mix. We did get rate increases there that we expected slightly more than 1%. But what you see is the mix going on with the patient mix going on in the U.K. Here in the U.S., we do expect to get between 1% to 2% for Medicaid.

You may have seen the good news that we got this morning on Medicare that they are going to be give us an a rate increase of a net of 2.2% beginning October 1. So once again we think Medicaid 1% to 2% range and Medicare now is at 2.2%. We still expect commercial to give us 4% to 6%..

Okay, great. All right, thanks a lot guys..

We’ll go next to Whit Mayo with Robert Baird..

Hi, thanks.

Just a couple of questions here, maybe just first for David, if you could just remind us what your bank-defined leverage and revolver capacity was at quarter end?.

Sure, Whit. Our leverage at the end of the quarter was right at 5.3. That does include the cross currency swap that we entered into and the effect that that had on our debt at the end of the quarter. And then our availability on the revolver is $150 million of the $300 million is available..

Great. And I think you have some senior notes callable later this year.

Just any updated thoughts around some future debt financing opportunities?.

Not at this time, Whit..

Okay.

And maybe one last one, just an update around some of the activity around your not-for-profit joint venture strategy and how these conversations are progressing and maybe a range for the number of partnerships you think you can going to potentially now sort of put on the board in the next 12 months or so?.

The number and discussions are numerous. I think we could put 4% to 6% on the board between now and the end of 2017. You saw our announcement on Ochsner, so we are very active in this arena and have a full page of opportunities on our top line..

Maybe just remind us what the structure of some of these joint ventures look like? Presumably you're going to have the controlling ownership interest in the governance, so just kind of curious..

Yes, absolutely. The first criteria for us is we need to be able to consolidate the operation, so that means we are going to own more than 50% of the partnership. We prefer to have like an 80/20, 75/25 split, with us being the 75 and 80, but it’s flexible per partner. And it seems to be receptive to the not-for-profit systems that we're working with.

And I think they will - that will be the template going forward that you will see with our joint ventures..

Great. Thanks guys..

Thanks..

Thanks Whit..

We’ll go next to John Ransom with Raymond James..

Hey, good morning.

On your divestitures, is there any early read on what kind of multiple you might expect to get for that EBITDA?.

These are great assets and very solid EBITDA, and we think it will be a very attractive sale. And so we would be expecting to see multiples at the higher end of ranges that have been pegged..

Great. And my second question is just to reset, I heard you, but I just want to make sure I got this. Other providers have complained of some NHS cuts in May and June. Can you just reset what's happening with you with U.K.

government pricing on a forward basis?.

Our government pricing, we are through that process and we got more than 1% for both companies. And to my knowledge no one has - from the U.K. has given us a heads up here that the NHS was cutting or trying to do something with the rate. We just negotiated ours, John, so we were not having that..

Okay. That's all I have. Thank you..

Thanks John..

We’ll go next to Frank Morgan with RBC Capital Markets..

Good morning. The reference to the hedges relate to the debt reminding me of this. Have you had any change in your hedging policy? I know you got us contemplate the current exchange ratio but has there been any new change above and beyond there going forward? Thanks..

No, there has been no change from our original hedging..

And I believe that was roughly 40% hedged in U.K.

Is that correct?.

That is correct..

Okay, thanks..

We’ll go next to Chris Rigg with Susquehanna International Group..

Good morning. Actually just wanted to follow-up on that last question.

So what is the negative cash flow headwind because of the drop in the pound for the year?.

For the year - if you're just thinking about the second half of the year, it would roughly be in line with the effect that it has on our EBITDA. So I think that's about $10 million or so if we think about the second half of the year..

Okay. And I guess just bigger picture.

When we think about the growth in the U.K., does the Priory experience sort of change the way you think about the market, or it's still a very strategic area and you should be able to acquire Priory’s assets going forward?.

We think the U.K. market is still very attractive and if there is areas of acquisitions or expansions that we can make to assist the NHS and not put us in any issue with the CMA which I think we can do, absolutely we would make acquisitions. We won't see any this year, but absolutely the U.K.

market is still a market of opportunity I think and there is areas in the U.K. where we could go and do things that would not be a CMA issue..

Great. And then I heard about the bed additions for 2016, but you have a sort of a preliminary estimate for bed additions in 2017? Thanks..

I think right now - Chris, I think right now we are already have booked more than 300 beds at this time for that we're working on for next year and it will be building during the third quarter, and I'll have a better number to give you for what we are expecting in 2017 at that time..

That’s great. Thanks so much..

We’ll go next to Gary Lieberman with Wells Fargo..

Good morning. Thanks for taking the question.

What's your expectation for the use of any capital that you raise from the sale of the Priory assets?.

Our top line and the activity there both with joint ventures and with multi-facility opportunities, we think we will be able to redeploy that cash right back into the business and so we're very excited about being able to do that..

Okay. And then you had some time to think about any impact from Brexit. Can you just give us your updated thoughts on what, if any, impact you think that's going to have on your U.K.

business?.

Well I think it’s - I think everyone would agree it's kind of stabilized right now. We were over - four of our management team members were over in the July 1 and the U.K.

was very, very busy and that’s just from us observing and our facilities are very busy, so now that they've named a new Prime Minister I think things are settling down and I do know that the U.K. want to keep all their businesses and recruit new business as to the U.K. so they are very much I think in a crow business mentality at the Parliament.

So maybe we've hit the low mark there and that we've come back a little but I see it as being stable as of right now..

Okay, great. Thanks very much..

We’ll go next to Ann Hynes with Mizuho Securities..

Hi, thanks. I guess first off CMA decision hasn’t been made public. Can you provide some detail on what the CMA's main issue was versus maybe your initial expectation? And then just a little bit more detail on the potential sale, as you read the CMA announcement yesterday, it implies that there is only going to be one buyer.

I guess is that what you pose with the CMA and just maybe the process they said they need to approve it? I know in the U.S. part of the process is that you have to find real buyers at competitive pricing. Do you think that’s going to be a problem? Thanks..

We don't think it's going to be a problem. We will run a process. We will get qualified buyers. We will sign a definitive agreement in the next two to four months. I think it will be sold as one transaction. It's a very good group of assets, so I think it's going to be very attractive.

And so that's kind of the process that we are going through is running the process for these 19 facilities. We will over time give more detail, but right now that's all the details we will give on this. It’s $130 million of revenue and it's good group of assets..

Okay, thanks. And just on the - I guess a follow up on the CMA decision.

Can you provide more detail on that?.

The decision is - two weeks ago, when they published their decisions that we may be heading to a phase 2. There was that two-week period. I think we had five business days were to work with the CMA on a remedy and we did that and then continue to work with them during the next five days and you saw the announcement yesterday.

So there was a lot of work doing that two-week period. We did know areas of concern that they had. And as we work through the process, it was a very open exchange they are concerned. Our feedback to them and then our proposal to them within the five-day. And they did their announcement yesterday and that's the process..

All right. And I just have one more follow-up on the NHS. I think you are getting a lot of questions on it today because they [indiscernible] by 6%. And I know you confirmed you’re getting a 1% price increase this year.

But can you just describe the process of how the NHS determines funding over the Hagel [ph] services because it’s my understanding it’s on sector that gets like draconian cuts that eats individual, negotiates separately, quality plays lot in the process, so maybe you won't be exposed to just across the board cut like other sectors?.

Well, we hope we won't be across the board cut like other sectors. There is - during the process, there is the local drug and the commissioners that get involved. And so NHS does control the money, but then they also rely upon the local areas to work with their providers in the areas during the negotiation of the rates.

So quality does come into play in the discussion about rates, and so this is our, I guess, our second time that we've been through it with PiC.

When we bought PiC, they just went through it and now we've done two more since then and the first one here was Priory and it's a very cordial process in give and take and they very much appreciate our quality of care and what we're doing in the U.K. facility.

So that is the reason our rates have just been negotiated and it was a good process and that's been our experience for the past two years..

Okay, thanks..

We’ll go next to Kevin Fischbeck with Bank of America..

Okay, great. Thanks. I guess just want to go back to the psychiatrist shortage question. [Indiscernible] talk about seeing that.

Is it your view that in your markets, the market for psychiatrist is pretty consistent with what’s been in last few years, or are you seeing somewhat of a shortages just that you - the investments you’ve made are allowing you to manage through it?.

Our investment is allowing us to address the needs of our ability. We've got a top-notch recruitment department and working with our division presidents and local CEOs. We are able to meet their needs, find the psychiatrist, get them signed up, get them relocated to the facilities where we need them.

We're working closer and closer with residency programs on new graduates and stuff like that. So we are managing our way through this, Kevin. We identified this as a basic business strategy that we needed to do probably three years ago and that put the resources behind that..

Okay.

And then as far as the guidance reduction, is it as simple as saying $0.08 to $0.09 was from the synergies delay and then the other $0.11 to $0.12 was from the currency, or were there any other moving parts on the core business in there?.

That is that simple is all the currency and the synergies..

Okay. And I appreciate it’s being early in IMD, but is there any way to frame for us any of the kind of potential gating factor as far as being able to see a benefit from IMD, like I guess I was at a Ohio Hospital Association meeting. It sounds like Ohio is not going to be able to do the IMD for January 1.

I don’t know if you have any stats like that with what percent of your debt might be in the states that are not going to July 1 necessarily move in. Just trying to think about how much we should reasonably expect Q3 to show, my guess, is kind of starts off pretty slow and then ramps in 2017 as more of a full impact.

I’m not sure if there is any gating factor like that that you might be able to provide color on if you think about the ramp from IMD?.

I think the ramp does start off slow and picks up pace and I do think January 1 as you mentioned will be a murky date than July 1 of this year was. However we won't know that until we close out the third quarter and see our numbers. It’s unfortunate the dates aren’t moving faster on that.

That will be six months where people will not have access to care, but if they need to wait till January 1, that’s okay too. We’re in a position to be ready for that also..

Okay, then just - when you think about your guidance from before, you were saying change in the core business.

Actually I can't remember - I don’t remember that IMD has been finalized when you provided guidance last time, so do you see the guidance is really happening?.

Our guidance has no IMD impact..

Okay, all right. So there is anything that would be - okay, perfect. Thanks..

We’ll go next to Charles Haff with Craig-Hallum..

Hi, thanks. Following up on Kevin’s question earlier, the 185 beds that you added in the second quarter was a little bit lighter than I was expecting.

Is that a function of the state action that you’re seeing and maybe you’re adding new beds at a little bit slower pace than you thought you would a few months ago?.

No, not at all. That is just the completion dates of the projects and we were fortunate to have a good first quarter and had more than 300 beds added during the first quarter. So we’re very pleased I think with the 515, and we’ll hit more than 800 by the end of the year. So you should read nothing into the second quarter.

It was just completion date of the beds..

Okay. And then my last question is regarding the CMA process. Were there any other undertakings that Acadia offered besides the 19 divestitures, maybe investments in facilities over there.

Any other undertaking besides the divestitures?.

No..

Okay, thank you..

We’ll go to Paula Torch with Avondale Partners..

Great. Thank you. I have a couple of questions. Just wanted to follow-up on the labor and psychiatrists and maybe the capacity constraints. I wonder given that hospitals in some of your other competitors are having these capacity constraints and you’re adding 800 beds this year potential to maybe do similar amount next year.

Do you think that gives you an opportunity to take share from your competitors or even just the hospitals that have behavioral beds within them given that you are able to be hiring these psychiatrists and clinicians where it seems like there is a lot of other companies having problems with this?.

We just execute our strategy, Paula. And if it ends up taking market share from somebody or just being there ready for the beds and the clinicians when those patients are looking for care, either way we are glad to be there. It will be a combination of both of those.

So we're very pleased that consistently in the history of Acadia that we've been able to build the appropriate number of beds each year to find the clinicians to stack those rates and to meet the needs of these local community..

Okay. And then maybe just a follow-up to that. Is it possible for you to give us a little bit more color on just some of the resources that you started to put behind this three years ago? Is it just sort of higher wages or just variations to your recruiting process? I’m wondering if you could be a little bit more specific..

Well, you wouldn’t want us to give away our trade secrets, would you? So the biggest thing is the number of people we have in our recruitment department and the tools that we have given them. And so that is the biggest addition of resources that we have done at the corporate office.

Now we do believe that we operate in an attractive market and that our facilities look very, very good and that if you were a clinician and you were wanting to practice at the facility that you would see our facilities as a facility that you would want to practice in and that - so all those things work together and so we are just very pleased with where we are at today..

Great. And just one last question from me, I wanted to maybe ask on CRC.

How is that business running? What are your expectations for the substance use business, and are you seeing any pressure at all on reimbursement or collections from payers on that side of the business?.

The CRC business is doing extremely well, both the substance abuse facilities, the addiction facilities and the CTC centers. And they have great growth opportunities in both areas. As I mentioned earlier, we did buy two residential addiction facilities in the second quarter and we did buy a CTC center and I think we opened up a de novo too.

So they are doing extremely well. Joe Procopio and John Peloquin who heads up those two divisions for us are doing a great job..

And anything on the reimbursement side?.

No, not really. No. Now we are mostly in network, so that avoids a lot of issues..

Okay. Thank you very much..

We’ll go next to Dana Hambly with Stephens..

Hey, thanks. Good morning. Really good cash flow quarter. Over the last few years most of your cash flow has gone towards CapEx and just trying to get a sense, obviously a big bed add opportunity.

As we look forward next few years, will that continue to be the case or might you deploy some cash flow maybe to delevering?.

I think you're going to see both. Obviously we are going to - the most accretive and the highest return on investment we can make is on our expansion beds. But at the same time we are very cognizant of our leverage and we are using the cash right now for a combination of reinvestment in our facilities as well as incremental debt pay down..

Okay..

That will be the same going forward..

Great.

The 240 beds you added in the quarter, is that neutral to EPS?.

Say that one more time, Dana?.

The acquisitions you made in the quarter, the 240 beds, I think it was four facilities.

That’s basically neutral for EPS?.

Yes..

Okay, all right. And then last is, you’ve talked about some of the legislation pending before I think it made it through the House pretty easily.

What's your outlook? Any chance that makes it to the President this year or is that a post-election issue?.

Dana, it absolutely could be attached to a bill. I mean, we - there is some good components of that legislation. Obviously it didn’t fully address the Medicaid IMD from a fee-for-service, the traditional Medicaid, but obviously we've benefited on the managed Medicaid front.

So I think it's imminent in my opinion that that's going to happen and I think it's got a good chance to happen in late 2016, but certainly if not, early ‘17 would be the point where that would go through..

It probably got lost in the noise yesterday, Dana, but I think President Obama did sign the Addiction Bill yesterday..

Okay. Great, thank you..

We’ll go next to Ana Gupte with Leerink Partners..

Yes, hi. Thanks. Good morning. Just following up again on the Priory acquisition, you may have said this.

When you guided assuming that there would not be a delay, did you already include the 19 facilities in that 750 beds in the guidance for 2016, or is this on top of what you had originally thought?.

The earnings for the 19 facilities this year until they are sold, they will be in our numbers and they are in the guidance..

Okay, but assuming - when you guided for the year and assuming this had not been delayed, were you contemplating these 19 facility divestitures or is this….

No..

No? Okay.

So for next year when we think about it that that's something we need to factor in on top of what was originally contemplated then?.

Yes..

Okay..

Yes..

And what would….

There will be 19 less facilities. Now as I mentioned earlier, we - our top line is very active. So the funds we receive from the sale of 19 facilities, we think we can quickly within 90 days have that money reinvested. So we're very optimistic about being able to redeploy that capital into other acquisition..

Sorry, okay.

So you can capture quickly? And on the synergies - sorry, on the cost side, what is the milestone on September 23 relative to November? Are you in discussions beyond the divestitures on FTE [ph] reductions or anything that you might have to also given on a bit?.

No. What's happening right now until we get install, this is business as usual. We can't do anything on the cost efficiency until we get CMA’s clearance and that will come when we sign the definitive agreement to sale the 19 facility..

And on your PiC business, have you now - where are you on your trajectory to the margin expansion? Is all of that done at this point and how does that factor into the negotiation of anything?.

There is factoring other than some of the PiC facilities will be or part of the 19 to solve the concerns and issues of the CMA. PiC is doing very well. Their same-store builds that they have been doing have done very well. And so there is still margin opportunity there but PiC is doing very well..

Okay.

And then similarly on the CRC Health, is there more opportunity on that side of it as well?.

On the CRC side? Only on the new acquisitions that we bought. Ron and his team are doing a very good job of running those facilities..

Got it. Okay. Thank you. Appreciate it..

Thank you..

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

Hey, guys, thanks for taking the follow-up. David on the P&L, professional fees were up about roughly $11 million sequentially or $10 million sequentially.

Is there any reason for that that we should be aware of?.

Yes, Brian, what we see there - and this is true for a few other lines as well is just the effect of having Priory for book order. We see certain line items, increasing rent maybe another one that you may notice. But that's for the most part driving the change that you see..

Are you backing out the incremental or kind of like non-recurring expenses related to the CMA review in terms of like lawyer’s fees and things like that?.

Yes, those types of items would be included in our transaction-related expenses..

Got it.

And then free cash flow strong as we've seen than sort of other companies, so how should we think about that in terms of the sustainability taking out impact of FX beginning in Q3?.

Yes, we expect the number to be similar to what we reported for the second quarter. We do see the timing of interest payments having about $20 million impact in the third quarter that we should benefit from in the fourth quarter. And just one clarification on the FX impact, we do have 40% of our cash flows from the U.K.

hedged through the cross currency swaps, and so we have flexibility of when we complete those transfers and we do have some protection and fixed transfers setup already at about 1.45 rate. So we expect operating cash flows to continue to be strong above $100 million a quarter..

Okay, got it. All right, thanks guys..

And we’ll take our final question from John Ransom with Raymond James..

Hey, Joey, just back on your pipeline. You’ve mentioned before U.S. site deals.

How many - just approximately how many deals are above or around that might be more than say five facilities that you're looking at actively?.

There is probably three to five..

Great, thanks..

Thanks..

And with no additional questions, I'll turn the call back to Joey Jacobs for closing comments..

Thank you everyone for their interest in Acadia. I know we spent most of the time talking about financial and processes that we do on the business side, but I do want to thank all our employees and clinicians in the field for their dedication to our patient and getting them better and working with their families.

That's what makes Acadia successful is delivering quality care to our patients and the families and we now have over 35,000 employees now and it takes a lot of effort and very much recognize every day the work you all do in the field taking care of patients. So once again thank you for what you're doing.

Thank you all for your interest in Acadia and we'll talk to you at the next quarter..

Thank you, sir. And again that does conclude today’s conference. Thank you to everyone for participating. You may disconnect at this time..