Brent Turner - Acadia Healthcare Co., Inc. Joey A. Jacobs - Acadia Healthcare Co., Inc. David M. Duckworth - Acadia Healthcare Co., Inc..

A.J. Rice - UBS Securities LLC John W. Ransom - Raymond James & Associates, Inc. Brian Gil Tanquilut - Jefferies LLC Whit Mayo - Robert W. Baird & Co., Inc. Kevin Mark Fischbeck - Bank of America Merrill Lynch Ralph Giacobbe - Citigroup Global Markets, Inc.

Gary Lieberman - Wells Fargo Securities LLC Charles Edward Haff - Craig-Hallum Capital Group LLC Dana Hambly - Stephens, Inc. Gary P. Taylor - JPMorgan Securities LLC Ana A. Gupte - Leerink Partners LLC Paula Torch - Avondale Partners LLC.

Good morning. I'm Brent Turner, President of Acadia Healthcare, and I'd like to welcome you to our Fourth Quarter 2016 Conference Call.

To the extent any non-GAAP financial measure is discussed in today's call, you will 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 2017 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'll now 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 remarks about the fourth quarter and our outlook for Acadia. Then, we'll open the line for your questions.

Acadia performed well for the fourth quarter of 2016, which capped a strong year for the company. Our financial results for the quarter and the year reflected the impact of a couple of significant headwinds in the second half of 2016. The first was the decline in the U.S.

dollar to British pound sterling exchange rate, following the Brexit vote in June. Second, we experienced a delay in receiving regulatory approval of our acquisition of Priory, and the related integration with our existing Partnerships in Care operations.

Finally, we did successfully complete the divestiture of the 22 facilities that was required to obtain regulatory approval from the CMA. As a result of this divestiture on November 30, we were only then able to begin our work to fully integrate Priory into Acadia and to capture approximately $20 million in anticipated cost synergies.

As expected, we generated about half of the synergy subsequent to the divestiture, with the transfer of a management team and some support functions to the new company. We expect to recognize the remainder of the cost synergies by the fourth quarter of the current year.

The Priory acquisition was the primary driver of the 42% growth in our fourth quarter revenues. Even with the divestiture, Priory brought nearly 6,200 beds to Acadia, in a year in which we expanded our total beds by more than 7,100 or 72% from the end of 2015.

This increase included the 967 beds we added to existing facilities and two de novo facilities in 2016, compared with 670 beds added in 2015.

The new beds that we added to existing facilities in our same facility base contributed to a 6.3% increase in same facility revenue for the fourth quarter, which drove a 30-basis point increase in the same facility EBITDA margin.

We plan to add over 800 new beds during 2017, primarily to existing acute facilities and through two acute de novo facilities scheduled for opening in the second half of 2017.

We also remain actively engaged with our acquisition pipeline and we continue to believe that our 2017 acquisition and joint venture activity will be heavily weighted to acute facilities in the U.S.

We are very well positioned to fund our new bed development and acquisition activity with $57 million in cash at year end and full availability under our $500 million revolving credit facility. We further expect substantial ongoing cash flow from continuing operations, which totaled over $370 million for 2016.

We currently expect to deploy the net proceeds from the Priory divestiture of approximately $370 million into new acquisitions by summer's end. We also plan to apply excess cash primarily to reduce debt during 2017. Despite the headwinds encountered in 2016, we entered 2017 in a compelling position as the leader in nearly a $50 billion market.

Strong industry demographic and regulatory trends are driving increasing market demand, while constrained capacity, a fragmented base of facility operators and rising consolidation pressures continue to create organic growth and acquisition opportunities for Acadia.

We have a long and clear track record that demonstrates our ability to leverage these opportunities to create long-term growth and shareholder value. As David will discuss in greater detail, our guidance for 2017 indicates that we are also confident of expanding this record in the coming year.

Thanks for your time this morning and your interest in Acadia. Now, here is David Duckworth, take you through the financials..

Thanks, Joey, and good morning. Acadia's revenue for the fourth quarter of 2016 increased 41.9% to $702.9 million from $495.3 million for the fourth quarter of 2015.

Adjusted income from continuing operations attributable to Acadia increased 21.4% to $51.3 million for the fourth quarter of 2016, and was $0.59 per diluted share for both, the fourth quarter of 2016 and 2015 on a 22.1% increase in weighted average diluted shares outstanding.

Shares outstanding increased primarily due to the equity that we issued in January and February of 2016 related to the acquisition of Priory. Adjusted diluted EPS for the latest quarter excludes debt extinguishment costs of $842 million, a loss on divestiture of $4.1 million and transaction related expenses of $14.8 million.

For the fourth quarter of 2015, adjusted diluted EPS excludes debt extinguishment cost of $839 million and transaction-related expenses of $5.2 million. On a constant currency basis, Acadia's revenue for the fourth quarter of 2016 increased 54.2% compared with the fourth quarter of 2015.

Adjusted income from continuing operations attributable to Acadia's stockholders increased 42.3%, while also increasing 16.9% on a per diluted share basis. Acadia's tax rate on adjusted income from continuing operations before income taxes was 18% for the fourth quarter of 2016 compared with 28.5% for the fourth quarter of the prior year.

As Joey mentioned, Acadia's same facility revenue increased 6.3% from the fourth quarter of 2015, with a 6.1% increase in patient days and a 0.1% increase in revenue per patient day. Same facility EBITDA margin was 26.3%, up from 26.0% for the fourth quarter of 2015.

Comparable quarter consolidated adjusted EBITDA grew 33.7% to $149.5 million, which was 21.3% of consolidated revenue. Acadia's operating cash flow from continuing operations increased 8.1% for the fourth quarter to $106.6 million, and for the full year, increased 53.5% to $371.7 million.

Turning to our financial guidance for 2017, and as announced in yesterday afternoon's news release, our 2017 financial guidance includes the following, revenue in a range of $2.85 billion to $2.9 billion, adjusted EBITDA in a range of $625 million to $640 million and adjusted diluted EPS in a range of $2.40 to $2.50.

In addition, our guidance for adjusted diluted EPS for the first quarter of 2017 is in the range of $0.45 to $0.47. As compared to the fourth quarter of 2016, the first quarter reflects two additional months without the facilities divested in the UK, higher payroll taxes in the U.S. and two fewer calendar days in the quarter.

This guidance assumes an exchange rate of $1.25 per British pound sterling and a tax rate of approximately 25%. Our financial guidance does not include 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 will now ask Carrie to open the floor for your questions..

Thank you. In fairness to others, we ask that you ask only one question and one follow-up question before returning to the queue. And we'll take our first question from A.J. Rice with UBS..

Thanks. Hi, everybody. I know in the guidance you don't have acquisitions baked in there, but you do have the proceeds from the Priory related antitrust divestitures.

Any thoughts on how quick you might be able to deploy that capital and what kind of discussions you're having in general out there?.

A.J., This is Joey. I think, we'll be able to deploy it in the third quarter, this summer and that various discussions are going on with transactions that have multiple facilities. So, we look good about that.

And then, we also look very good – I think in my last count, we have about 16 discussions with joint ventures, with large not-for-profit systems and a joint venture hospital will cost about $25 million to $30 million in construction cost. So, we have plenty of opportunities to deploy the proceeds to acquisitions or through our joint ventures..

Okay. And, doesn't seem like little softness in the organic growth that we saw on the third quarter, seems like you're on the path to rebounding a bit. And it doesn't seem like there is any fallout from some of the negative publicity that one of your competitors saw in the fourth quarter in one article that was written.

When you shake out everything, where do you think you are in terms of organic growth going forward? I don't know if you're making a separation between the UK and the U.S.

now on that, but just any thoughts on embedded organic growth and how we should think about that going forward?.

A.J., we're off to a very good start, I think through the first 20-day – I mean through the first 50 days of this year. The U.S. same-store is above 7% and the UK is tracking in at around 3%. So, overall, we're about 6%. So far through this year, including the UK and UK will grow a little bit slower in the beginning.

Because, as you know, we didn't start working really on the integration and the development plans until December the 1, and the team's off to a good start there. But the U.S. same-store growth was unbelievable during January and the first part of February. Now, we must keep in mind that this last year was a leap year.

So, until we get through the first quarter, we'll lose 110 basis points of that number, because of that one extra day last year and not this year..

Okay. All right. Thanks a lot..

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

Hey, good morning. There's a big Welsh Carson portfolio out there as you know and there's that Aurora in California.

Do you think those deals will trade this year, Joey?.

We really don't comment on individual names like that. There is another larger one out – there is one similar size that actually might trade sooner. So, we do believe long-term that those type of assets belong inside Acadia, but there's some other transactions that we're working on that are not the ones you mentioned..

Okay. And my second question is, I think the last time we spoke you mentioned you've had a dozen JVs, so now that's up to 16..

I think, last time I counted we had 16 potentials, yes..

Right. I'm saying December it was 12, now it's 16. So, I'm saying, it looks like you keep adding to that total. So, if we're talking 15 – let's say that shakes out to 10. So that's $250 million, if 10 out of 15 work out. How do you – maybe it's a question for David.

How do we start modeling this and what's the trajectory of profit and revenue and margin and how much gets shared to the partner hospital? And when should we start putting these things in our model other than just the capital spend?.

John, it's a great question. We're working internally. We may add – somewhere in the second quarter – actually put in our investor presentation an example of a de novo project. But, basically, if you were to spend $25 million and your joint venture partner took 20% of that, you would invest $20 million.

We think after 24 months, it should be turning over into the profitable range. And then ramp-up quickly after that, but we saw improvement in our de novos in the fourth quarter. And so, those are some of the general parameters of that, but we are internally strategizing and kicking around maybe giving an example of case study on a de novo..

And if I could make an unsolicited suggestion that, to the extent these things aren't ramping, you want to breakout in my opinion the start-up losses and guide to that. That will confuse people like me..

Yes. And we've used you as the example as we've gone through this and said what would be....

If somebody who is equally confused – it's somebody who is equally confused. That's the example I used that somebody equally confused..

Exactly..

Oh! God, all right..

But we thought about breaking them out too..

Yeah. All right. Thanks so much. I'll jump back in queue..

We'll take our next question from Brian Tanquilut with Jefferies..

Hey. Good morning, guys. Joey or Brent, thinking about the same-store, obviously, it got better in Q4. But, I think, earlier this year, you gave us 6% to 8% guidance on same-store globally. So, how should we think about the breakdown between the U.S.

and the UK on that one? And also what drives your confidence in getting to that 6% to 8% number? And how does the new bed adds we saw in Q4, and the new bed adds you're planning for the year – how do all these things factor into the confidence in getting to that 6% to 8% range..

Well, I think, Brian, that the bed adds really add to your confidence and we were able to increase the number of beds that we were able to bring online in the fourth quarter by moving some of the ones in the first quarter of this year. We're getting them done early, so we're off to a good start there.

We do have the first 50 days of this year and we're seeing how the same-store is ramping up. So, those things give us the great confidence. The 6% to 8% that we've given, that would be for the total company. The UK could come in a little bit less than that. U.S.

could be a little bit towards the higher end of that, but we've got some great additions coming online. We approved right at 100 beds last week to existing facilities that, unfortunately, we now have waiting lists at those facilities.

So, it's those kind of examples that give us confidence that if we'll continue to do the blocking and tackling and execution, that the opportunity to hit those same-store numbers is there..

I appreciate the color, Joey. Follow-up for me, margins were strong in Q4. So, how should we think about the margin progression for this year? Number one, just as we think about the synergies flowing through. And then, number two, the de novos improving.

And then, lastly, how do you tie that into kind of like staffing, because there were obviously concerns that it's getting harder to staff in the behavioral space.

So, how should we read into your margin performance as it relates to your ability to staff all these facilities?.

My expectation is that we will have margin improvement this year, whether that 25 basis points to 50 basis points to 100 basis points, the expectation is that we will have margin improvement.

So far, Ron Fincher and his recruitment team have been able to find the necessary staff, so that we're confident that when we build the 967 beds that we're able to staff those beds. And then, that won't be an issue to keep us from hitting (20:41) numbers.

I guess the only other comment I would say, since the last call we've had is that the labor market is a little tighter. But, once again, we've been able to recruit and find the staff to work through that. So, once again, blocking and tackling our recruitment department are doing what it needs to do, hitting its target.

I think, we signed three positions this week. So, if we can keep doing that and so – we should be okay there..

Yeah. Yeah. Thanks, Joey..

Thank you..

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

Hey, thanks. Just want to see if there is any more color you can provide on the UK performance in the quarter. Obviously, there was a lot going on, lot of distraction with the divestures et cetera.

So, just wanted to see if there is anything you can share to put into context, how we should look at the performance and maybe if you could just comment on sort of the cadence of the expected synergies as 2017 plays out?.

Sure, Whit. This is Brent.

I mean, again, I don't think we – that the facts are mid – two-thirds through the fourth quarter was when we closed the divested transaction, but there was a tremendous amount of focus by the leadership in the UK on both, separately run companies over there to help make that happen – in multi-tasking call it what you want, there was a lot of distraction and it weighed on the operations.

Now that's behind us, we've gotten the roughly half of the synergies are out of the run rate cause they did the removal of the redundancy management team going over to the new company. And now we're – the UK is focused, integrating and getting back on track, but it doesn't happen overnight.

Remember, the benefit we get in the UK is a very healthy and long length of stay, but the admissions activity is much more slower than you see in the U.S. So, we're on a path, I just think people should expect the UK to improve ratably each quarter throughout 2017..

Now that's helpful.

And, maybe just I'm curious about how the payor mix is trending now and maybe this is a question in the context of the IMD, have you seen anything noticeable in terms of Medicaid or Medicaid managed care? I know it's really early just – but any color would be helpful and just maybe anything to note about payor mix shifts in the U.S.? Thanks..

Sure. I think, we have seen even in the fourth quarter an increase in our managed Medicaid revenue as it relates to fourth quarter of 2016 back to fourth quarter of 2015. We haven't been able to absolutely quantify, how many of those are Medicaid adults due to the managed Medicaid expansion.

But what we do know is, is that legislation or – excuse me, in this case, that regulation is a significant tailwind and really just a huge statement for our industry. CMS stepped-in and changed something that's been a law for 50 years to allow these patients to be covered in freestanding psych hospitals in the managed Medicaid markets.

The most recent thing we know is that through Kaiser study that's been out for a couple of weeks, it looks like 80-plus percent of the affected states, their Medicaid leadership is same, we're moving forward, we are put it in place effective in this fiscal year. So, that's a positive.

And, again, should just be another tailwind to support our organic growth plans..

Okay. And maybe just one quick-one just CapEx this year, is there a good number that you can point us to and I'll hop-off? Thanks..

Yeah. Whit, this is David. CapEx, looking back on 2016, $76 million or 2.7% of our revenue was towards maintenance CapEx, with the remaining $232 million on expansion.

We think for 2017, the numbers maybe very similar, similar in terms of the percentage of revenue and the maintenance spend as well as what we see going towards our expansion activities and bed additions..

Great. Thanks, guys..

Thanks, Whit..

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

Great. Thanks. Can you talk a bit about – you said that the de novos that were pressuring results last quarter improved this quarter.

I was wondering if you had any color on kind of how that ramps up?.

I think, three of the four that we have classified there are our positive EBITDA contributions now. And, the one that was giving us – that gave us the longest delay, the one in California.

We've gotten through the Medicaid process there and can take Medicaid patients – or Medicare patients out there and there since has ramped up nicely and actually in January they went positive on the EBITDA line. So, we cut the operating loss from the previous quarter. I think we cut it by roughly 70%, if I remember correctly.

So, we're doing well there. And, once again as I mentioned earlier, we're thinking about including something in the second quarter that would be a case example or maybe some actual numbers on our de novos..

Okay. And then I think you said that you plan to use Priory proceeds on acquisitions, but used the free cash flow to de-lever. I just wanted to see if there was anything to read into that.

Are you guys now focused on reaching a certain leverage target, does the deal pipeline look to be the size of the Priory proceeds, so you don't expect more deals through year-end beyond that amount? How should we think about that comment?.

I think, you should – I think, we want to do both. We want to make the acquisitions that this company needs to continue its growth and then the excess cash would be used to pay down the debt. I think the leverage will be roughly around the five times. I think, it's 5.3 times now or something like that.

So, hopefully, we can get a little improvement there and make our acquisitions. We have $500 million available under the revolver and over $50 million sitting in cash on the balance sheet. So we're in a pretty good position to execute on the acquisition strategy and maybe bring down the debt ratio slightly..

Okay. Great. Thanks..

We'll take our next question from Ralph Giacobbe with Citi..

Thanks, good morning. I guess, first, just wanted to ask about the same-store.

The EBITDA margin down in UK, was there certain costs that maybe won't repeat and more related to some distraction that you talked about that you can help us reconcile, plus, obviously with any synergy capture to give you sort of visibility on the improvement there?.

Yeah. I mean, the main thing, obviously, UK, they were down somewhat on a census perspective, Ralph. What we also saw just on the cost affecting the margins is just around the labor cost and the labor management cost in the UK. Just with this census, there would be a focus on managing your labor.

And with some of the distraction that didn't happen to where we thought it would, and I think that's where we'll see as the census recovers and as we're able to move forward the integration, put the new management structure in place. We'll see both, the census rebound and the growth rebound as well as the margin improvement in the UK..

Okay. And then in UK, I'm sorry, I missed it.

What did you say the growth was through the first 50 days?.

Around 3%..

3%. Is that....

And, again, Ralph, inside that number, also you have the elderly care numbers, which is a much slower growth. So, people – one thing you would have – the people are going to have to kind of absorb is just the overall mix of the business in the UK. We got healthcare, we got education, children services and adult care.

And then, finally, the elderly care business over there and there's a little bit different growth rates amongst all of those, but that's probably something for offline to clarify..

Okay. All right, sounds good. And then, is there anything built in the guidance for IMD exclusion and maybe just any updated thoughts there? Thanks..

Our guidance reflects our view of the growth drivers. Again, we don't isolate the IMD by payor group or population group, nor do – we just have the view of what's the market's absorption rate and our bed builds.

And so, there's nothing specific with IMD, but we do continue to see that being a going forward tailwind, but probably something that plays out over multiple years..

Okay. Thank you..

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

Good morning. Thanks for taking the question. Your guidance for the first quarter and the full year implies a pretty nice ramp up in the EPS over the course of the year.

Can you just maybe help either quantify or just kind of put in order what are the drivers of that step up?.

You're talking about just the way the effective quarterly performance looks, Gary?.

Exactly. Yeah. Exactly, Brent..

I think, couple of things. Obviously, just coming off of a challenging back half of 2016, we're trying to make sure we've got reasonable expectations out in the external world. And then, you couple that with the company always has a higher burden for withholding taxes, which is a significant impact in the first quarter.

Once these various state and local withholdings cap out, obviously, that's a big impact going forward. And then you have the culmination, the bed build effect ramping up throughout second quarter, third quarter and fourth quarter.

So, I think, the consistency area is that our first quarter is always a little off of what – it's never one-fourth of the year. It's usually in the 19% to 20% range – proportion of the year and I think that's what you see for 2017..

Okay. That's helpful. And then maybe just a follow-up, one of the things that I guess you had mentioned in terms of holding back benefit from the IMD exclusion was being included in – as a provider in the appropriate plans.

Do you feel like you're in the appropriate plan, so you could benefit from that?.

I think all of our facilities are positioned well with their payors in their plan. So, I don't – there will be an isolated example, where we're going to have to do some extra work to get into plans, but that's the exception versus the vast, vast majority. We're okay with the plans and we're already in the plans..

Okay.

But incrementally more so than last year or you were already there last year?.

We were a little bit better this year. We are a little bit better this year, but we had most of them last year anyway, but we have taken some steps and gotten a few more plans in..

Got it. Okay. Thanks a lot..

Thanks, Gary..

And we will take our next question from Charles Haff with Craig-Hallum..

Hi. Thanks for taking my question. Congratulations on terrific occupancy here. That was outstanding. I am wondering if you could talk about the UK management team that you have in place now, the former Priory management team.

And what competencies or skills that they bring to the table versus your prior PiC management team that you had in the UK?.

That's a tough question. What we see in the team we have there today is some great leaders, lots of energy, tremendous expertise over there, a can-do attitude. And, so the Priory was the bigger of the transactions as everyone knows. And their depth there was stronger.

And so, fortunately for us, Ron and David were able to pick the best of – what they thought were the best. And so, just a great group, that's not taking any shots at the groups that left. The group that left with the acquisitions, we wish them well and hope they do well. And Tom Riall was going off to other things. So, we have a good team there.

We have the team that we think we need there. And, so far it's going well, and they are doing a good job working through. There's distractions that they have and they are very good operators..

Okay. And then a follow-up question on the UK, the back office and kind of the back-of-the-house-management and staff, I understand is located in a lower wage cost geography in England.

Can you talk about that a little bit? And maybe what impacts that could have on your UK synergy targets?.

Sure. Charles. Yeah. The offices that we have in the UK, we have three different centralized offices that support all of the facilities. We have a finance office in the North, in Darlington. We also have HR and IT offices, and I do think that that provides us with the ability to perform those functions at a lower cost.

What we also get excited about in those offices is the retention that we have and just the teams that are there have been with the company for a long time, do great work and we don't tend to see the same types of turnover that we might see in other parts of the country.

So, definitely a lower cost and we also have a great team that's been with the company for a long time..

Okay. Great. Thanks for taking my questions..

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

Thanks. Good morning. Clarification on the synergies, it's $20 million in the UK.

I'm trying to understand, are you saying you've recognized half of those already since the November closing and then there is about $10 million in this year's guidance?.

That's – well, yes, on a run rate basis. Obviously, when you take the management out for the month of December, you only realized one month of that annual run rate, but we're on a run rate.

And, I think, so your question and Charles's question, it's important to recognize here, if we're still talking about $20 million in synergies out of the UK today, that's actually better than what we originally said a year ago, because $20 million takes more pounds than it did a year ago, because the exchange declined.

So, we're basically halfway with the divestiture. And then, we'll get the remainder benefit of the synergies throughout the 2017, such that when we get to the year – end the year $20 million of annualized savings on a run rate basis..

Okay. That's helpful. Thanks. And then, Brent, just on the Hill, I think you are on the board of the National Association.

Just kind of what are your priorities for the industry just from an advocacy standpoint this year?.

Sure. Great question, Dana, and obviously, we're – most – foremost it's just protecting a lot of the things that we've been so – the industry has had such success in getting access, getting coverage, parity, essential health benefits.

We didn't, as an industry, receive tremendous impact from ACA, but we want to be very careful that we have a seat at the table. And when they adjust, they repeal and replace or whatever happens that we don't lose things that we never really benefited from. And so, our industry association has great leadership, we're much more recognized.

We do get the face time and feedback. We have an annual meeting coming up in the spring and there'll be a lot of grassroots effort.

So, again, our industry is positioned well, knowing that the critical care, the importance of what we do, but we are spending time just making sure that as – lots of discussions around changes happen that we don't have anything negative occur to our space..

Okay. That's helpful. Thank you..

And we'll take our next question from Gary Taylor with JPMorgan..

Hi. Good morning, couple of housekeeping items.

First, on the EBITDA guidance for 2017, what's the assessment of stock comps that you're excluding from that?.

Hey, Gary. Our estimate for next year is just under $31 million for stock comp..

And at this point, there's probably not any identified transaction expense, right?.

That's correct. We do not include transaction expense in our guidance. We will see some – just related to the ongoing divestiture cost as we realize the remaining synergies and have some employee termination costs. That should not be significant, but will plan to see that and that is excluded from our guidance..

Okay. And then just on tax rate. So, the guidance for 2017 is 25%. Should we be straight-lining then or would we have – would you anticipate the kind of seasonality or 4Q true-up with the lower 4Q tax rate like we saw in 2016..

I think you just allocate it by quarter 25%. Is it going to be a little off of that? Periodically, it could be. Taxes are very precise, but it's going to be a lot closer on average to the 25% throughout each of the quarters..

Okay. Thank you..

Thanks, Gary..

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

Hi. Thanks. Good morning.

The first question, just on the scrutiny of some of the clinical practices that one of your peers is facing, might that change or impact how you look at length of stay or staffing and might you have the change that in any way?.

Ana, you know, length of stay in our industry has been on the acute side, in the 9-day to 10-day range for 25 years now. This is an industry statistic. We just don't see – that is not an area that there has been longer lengths of stay. The UK, by contrast, is months/years, not days.

And so, we don't see a change on overall length of stay to the negative. We think it – I mean, most providers and professionals in our space are concerned that it's too short now, which really leads to a higher likelihood that the patient comes back into our facility versus the small savings of the one or two fewer days that might be garnered..

Okay, all right. Then the next question would be on the pricing environment in the U.S., it seems to have slowed down a little. Is that more mix related or in terms of contracting.

Can you give us some thoughts or color on the trends there?.

Sure. What you see in our – sort of same facility profile of the revenue per day is really heavily impacted by just the mix of patient. It's not the same every quarter over the prior quarter. I think if you look at our payor mix and think about roughly in the U.S., 16% revenues from Medicare.

We get a consistent annual cost of living increase on the PPS rate there of something in the 1.5% to 2.5% range. And then, Medicaid, obviously, our largest total payor group at 40%, but coming from over 44 states.

Each state's different, but in positive economic times when the state revenues are doing well, we're going to see small cost of living adjustments there, call it 1%. And then our commercial book of business roughly in the 30%, 35% range.

We focus on local negotiations and with those payors and generally focus in on trying to get 5-plus percent revenue, per diem increase each year from those payors..

Okay. And the final question will be on interest rates and fixed versus floating debt.

Can you just give us any color on swaps or other mechanisms that you're using?.

Sure. We roughly have 55% of our debt floats and 45% is fixed. I think it's important to note, we've saved well over $10 million of annual interest expense last year through a couple of different re-pricings of our term debt, so we in effect built in some cushion against these increasing rates and the latest pricing change didn't occur until December.

So, some of that benefit will flow through in 2017. We have talked – we have the $650 million of cross-currency hedge on our – it helps protect some of the cash flows on the UK. We do not have currently any fixed or floating to fixed rate swaps in place right now.

But, as the market indicates, we continuously look at what's the best fixed to floating structure given the rate environment. But, right now, we're very comfortable with our interest expense and debt profile..

Great. Thanks for the color. I appreciate it..

Thanks, Ana..

And we'll take our next question from Paula Torch with Avondale Partners..

Thank you. Good morning. I just wanted to ask about the 21st Century Cures Act. That was past, and I think it was expected to add some funding for medication-assisted treatment.

So, how are you benefiting from this, either by reimbursement or volumes? And how much growth should we expect to see from this part of the business in 2017?.

Hey, Paula, obviously that's – once again, it's another tailwind positive headline, $1 billion allocated to the states for medically-assisted treatment. As in a lot of things, that has to sort of figure its way through the states and local areas. We are very committed to the medically-assisted treatment business and have a great team there.

And they are growing that business. So, obviously, it's a positive. It's hard to quantify though how much and when, but it's absolutely better than having something cut. So, that's a tremendous need. You see more and more just awful stories about the impact of the opioid, epidemics and the impact of that abuse.

So, we're optimistic, but we just don't have the specifics on how that's going to play out for us..

Got it. Thank you.

And then, just growth there is that more geared to de novo versus acquisitions or how should we think about that?.

Acquisitions will still be larger than the number of de novo beds that we would be adding to the company..

Okay.

And then just one last one from me, what does reimbursement look like in the UK for 2017?.

We're going through that negotiation process right now. Around the 2% range, but we are negotiating that as we speak..

Okay. Thank you..

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

This one's for David. Your 25% tax rate, maybe I missed this, but did you provide a kind of compare and contrast between the U.S.

tax rate and the UK tax rate?.

No, John. We don't. That 25% represents the consolidated company. The corporate tax rate in the UK has gone down. It's below 20%. The tax rate in the U.S. is 35%, but the consolidated rate is just that what represents the consolidated company and all the other items that impact our tax rate..

So, let's assume that we get – just makeup a number in the U.S., a 20% tax rate. And, as you own your real estate, maybe you get a mortgage exemption.

What would you – what do you think that would do to your tax rate kind of ballpark?.

John, repeat that question?.

Let's say the U.S. tax rate went from 39% to 20%, or let's say your U.S. – I'm just making up – let's say U.S.

corporate tax rate federal went to 20%, what would that do to your pro forma tax rate roughly?.

Okay. Okay. Yeah. And you're thinking about tax reform here. Yeah. The impact in the U.S. would be that the tax rate, we would have about $25 million of tax savings just based on our U.S. taxable income....

Okay..

...so that would be 5% to the consolidated rate..

Okay. Perfect. And just remind me, I think I know this number, but just to make sure our calculator is not broken here in Florida, but what's now with the divestiture and where the pound is now? What's the rough breakout kind of EBITDA mix between U.S.

and UK?.

It's 35% in UK, 65% U.S..

Okay. Great. And I know you've got some non-core assets in the UK that you got as a part of the deal.

Joe, is there a better than 50-50 chance you might look to move some of those assets in the next, say, 12 months or so?.

Nothing in the next 12 months. Nothing in the next 12 months, however, if somebody wanted – no, nothing in the next 12 months..

Okay..

We have some....

Thanks. That's all for me..

Okay. Good..

Oh. I'm sorry. I didn't mean to interrupt.

Say again?.

No, no, no, no. You know....

I messed up. You were going to say something and I interrupt – I messed up. I feel bad..

Well, don't – but you just confused us John, because you've asked six follow-up questions..

Yeah..

You messed up the (49:54) applied to the original basket..

Yeah..

We've just created another John-ism..

All right. I'll be quiet now. I'll be quiet now..

That concludes today's question-and-answer session. Mr. Jacobs, at this time, I will turn the conference back to you for any additional or closing remarks..

Thank you very much. Thank you, everyone, for listening in and your questions. The year is beginning, we got a lot of hard work to do, but we got the team that can make that happen. And I want to thank all the employees of the company and the people we work with. And we're entrusted with those patients and we want to do a great job for them.

So, well, once again, thank you for your questions and we'll talk to you on the next call..

That concludes today's call. Thank you for your participation. You may now disconnect..