Brent Turner - President Joey Jacobs - Chairman of the Board, Chief Executive Officer David Duckworth - Chief Financial Officer.

Brian Tanquilut - Jefferies Frank Morgan - RBC Capital Markets Ralph Jacobi - Citi Whit Mayo - Robert W.

Baird Ryan Daniels - William Blair Ann Hynes - Mizuho Securities John Ransom - Raymond James Kevin Fischbeck - Bank of America-Merrill Lynch Chris Rigg - Deutsche Bank Dana Hambly - Stephens Charles Haff - Craig-Hallum Matt Borsch - BMO Capital Markets Ana Gupte - Leerink Partners.

Please stand by. We are about to begin. As a reminder, this call is being recorded. Please go ahead..

Good morning. I am Brent Turner, President of Acadia Healthcare and I would like to welcome you to our third quarter 2017 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 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 would now like to turn the conference over to our Chairman and Chief Executive Officer, Joey Jacobs..

Good morning and thank you for being us today for our third quarter conference call. In addition to Brent, I am 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 third quarter and our outlook for Acadia.

Then, we will open the line for your questions. Despite facing challenges in the third quarter, we expanded revenue by 4.8% for the quarter on a pro forma basis and grew pro forma diluted EPS by 18.4%. However we underperformed our expectations for the third quarter. Let me begin with a discussion of the results for our U.K.

operations, which produced same facility revenue growth of 3.8% for the quarter and 2.4% total revenue growth. In addition, same facility EBITDA margin declined 120 basis points to 21.4% and total EBITDA margin fell 170 basis points to 19.3%. The results in the U.K. were significantly below our expectations. We faced two unexpected issues in the U.K.

that are primarily accountable for a $0.09 unfavorable impact on EPS. The first is that the normal seasonality affecting census in the U.K. did not occur as expected for the third quarter. The typical seasonal rebound in business in September was much weaker than historical experience led us to expect.

Occupancy for the third quarter was just below 87% compared to our expectation of additional growth and occupancy of 89% to 90%. As a result, we believe the lower occupancy had a $0.04 impact to earnings per share. Additionally census in the U.K. still has not recovered thus far in October and this is reflected in our updated guidance.

We continue to analyze and closely monitor the issue. We see no reason to believe this is anything other than a short-term issue, but we have little visibility into the timing for a rebound to normal census level which factors into our decision to reduce our 2017 financial guidance.

Because we are confident in the long-term demand trends, we are continuing our new bed expansion as scheduled, with 42 expected beds in the fourth quarter. The second issue is one we have discussed on these call before although it had more of an impact on our financial results this quarter compared to previous quarters.

Due to the tightening labor market in the U.K. for nurses and other clinical staff, we saw a higher labor expense than expected, which unfavorably impacted EPS by $0.05. We believe that uncertainty around Brexit is deterring healthcare workers from coming into the U.K., therefore we are having to rely more on agency labor to fill our open positions.

We expect our cost arise in August as our employees take vacations but it was compounded as we had to fill vacant positions with agency labor. Labor cost continued to increase in September and we believe this trend will continue for the remainder of the year. Now let's turn to our operations in the U.S.

Our same facility revenue growth for the quarter was 6.3%, which falls within our expected same facility range for the year. However this growth rate was lower than our expectation. We experienced some softness in the quarter and the census did not rebound in August and September as expected.

We were also affected by hurricanes Irma and Maria's arrival in September, which significantly affected our operations in Florida, Georgia and Puerto Rico. Of course, when dealing with these natural disasters, our primary focus is always protecting the safety of our patient and employees.

We appreciate all of our doctors, nurses and staff who worked tirelessly to protect their patients and to provide quality care during this difficult time. Nonetheless from a financial perspective, we estimate $0.02 impact on diluted earnings per share for the third quarter and a 60 basis points impact on U.S. same facility revenue.

We feel fortunate the impact of the storms on our operations wasn't greater. However, as you have seen in the news, the infrastructure in Puerto Rico is still in the process of rebuilding and our facility continues to run on a generator for power.

During the third quarter, we added 179 new beds to existing facilities and we are on track to add approximately 800 new beds to existing and de novo facilities in 2017.

Our pipeline of potential joint ventures is robust and our experience continues to indicate that given our scale, operation expertise and independence, we are an attractive behavioral joint venture partner for acute care hospital. To conclude my remarks, we are highly focused on addressing the issues that surface in the third quarter in the U.K.

and the U.S. and on completing the recovery of our facilities damaged by the hurricane. While the impact of these issues is meaningful to our third quarter results and our anticipated fourth quarter results, we do not believe that it meaningfully changed our long-term growth trajectory or opportunity.

To the contrary, we remain optimistic about our ongoing prospects for long-term profitable growth. Thanks for your time this morning and your interest in Acadia. Now, here is David Duckworth to take you through the financials..

Thanks Joey and good morning. On a pro forma basis, adjusting for the impact of the U.K. divestiture, other discontinued operations and the decrease in exchange rate, the company's third quarter revenue increased 4.8% from revenue of $684.2 million for the third quarter of 2016.

Adjusted earnings per diluted share was $0.58 for the third quarter of 2017, which includes the negative impact from the hurricanes of $0.02. As detailed in the press release, adjusted EPS increased 18.4% for the third quarter of 2017 from pro forma adjusted EPS of $0.49 for the third quarter of 2016.

Acadia's third quarter same facility revenue increased 5.5% from the third quarter of 2016 with a 3.5% increase in patient days and a 1.9% increase in revenue per patient day. Same facility revenue for our U.S.

facility increased 6.3% from the third quarter of 2016 with a 4.2% increase in patient days and a 2% increase in revenue per patient day while in the U.K., same facility revenue increased 3.8%, patient days increased 2.5% and revenue per patient day increased 1.2%. Same facility EBITDA margin was 24.9% compared with 25% for the third quarter of 2016.

Acadia's tax rate on adjusted income from continuing operations before income taxes was 25.3% for the third quarter of 2017 compared with 21.8% for the third quarter of 2016. Acadia's operating cash flow from continuing operations was $84.3 million for the third quarter of 2017. Turning to our financial guidance.

And as announced in yesterday afternoon's news release, we adjusted our 2017 financial guidance based on our results for the third quarter and first nine-months of the year and our outlook for the fourth quarter.

Our full year guidance now includes revenue in a range of $2.82 billion to $2.83 billion, adjusted EBITDA in a range of $600 million to $605 million, adjusted diluted EPS in a range of $2.23 to $2.25 and an exchange rate of $1.28 per British Pound Sterling and a tax rate of approximately 25%.

This implies guidance for the fourth quarter revenue in a range of $708 million to $718 million, adjusted EBITDA in a range of $149 million to $154 million, adjusted diluted EPS in a range of $0.54 to $0.56 and an exchange rate of $1.30 per British Pound Sterling and a tax rate of approximately 25%.

Our financial guidance does not include the impact from any future acquisitions and transaction related expenses. This concludes our prepared remarks this morning and thank you for being with us. I will now ask Dana to open the floor for your questions..

[Operator Instructions]. And we will go first to Brian Tanquilut with Jefferies..

Hi. Good morning guys. Joey and Brent, as I think about the U.K.

issues that you highlighted, how should we think about the fundamental drivers there? Do you think that there is anything with NHS that is changing or Brexit, for that matter? And then, what is your ability to flex your staffing and your cost structure in the U.K.? Or how quickly can you do that? And what visibility do you have into the moving parts of that business on a real-time basis?.

Thanks Brian and that was more than one question in it. So let me talk about the U.K. on the labor side.

The Brexit is having more of an impact on us on being able to recruit and find and get nurses and nurses are turning to being employed by agencies which when they go through the agency, you end up paying between the 30%, around 30% premium for those nurses.

In our daily operations, based upon the staffing, the first thing you can control is the nurse agency expense. And if you don't have the patients, hopefully you are not calling in that agency nurse and expending that money.

Second is that, what they call bank employees is what we here in the states would know as part-time employees utilizing them more effectively than what we have in the past. And those are a couple of the actions that the U.K.

team is implementing and working on to improve as we speak as how to monitor and utilize agency nurses to reduce that expense and then on the part-time employees, use them more efficiently in the staffing of our facilities. Now long-term, we need to recruit more nurses, clinical staff that are our employee.

And we do that through the traditional ways that we do here in the U.S. through job fairs, through sign-on bonuses, those types of things to attract the employees to us.

So that's what we are doing real-time is working on matching the labor cost to the census and being more real-time in recruiting and some more measuring and monitoring of the real-time and many of our individual facilities may have had their own agency management we are trying to centralize and improve that process to limit and control access and spending that money.

So that's what's going on real-time. I think around November 8, the U.K. people and us will be together and they will give us an update on what's happening in October and how they did in October, not only for the month, but how they are doing on this labor cost, nurse agency expense item that hurt the third quarter results..

And then Joey, on the revenue side.

I mean anything out of the NHS to call out?.

On the revenue side, it is still going through the transition of moving money from the NHS to the local trust and negotiating at the local level. This will be, I think, our second time going through that process.

Also we think that or it's possible that during the normal month of vacation over there, which is August that we have seen in the past that a buildup of patients needing service would occur and they would enter back into the system more quickly in September. That didn't occur this year. The NHS, the government in the U.K.

is trying to build, we know more so on the med surg side an extension or a waiting list before you get care there. Our patients really that is more limited on what they can do there, we believe. But it may be one of the reasons why the census was slower in September and didn't rebound as fast as we thought it would.

And it caught us not managing our nurse agency expense and our manpower to the best that we could. So those are two things going on there. The revenue per day, we think it's going to be in the 1% the 1.5% range.

And we have got a couple of negotiation issues that we want to help us on both the labor cost and generating the funds necessary to provide the great care that they do over there. And that many times the NHS is requesting us to have one-on-one care or in some cases even two-on-one care, two employees to one patient.

And right now we get limited extra reimbursement for that where it should be more fully reimbursed. So that is going to be one of the negotiation items on our list and actually we are going go back early and bring this to their attention to see if we can't get some relief on that staffing requirement of one-on-one to two-on-one.

So there is a lot of things going on in the U.K. that we are working on around labor cost and revenue and hopefully we will start seeing that. But it will be a longer process in the U.K. than it is here in the U.S.

But if we will take one step at a time, hopefully by the end of the year we are in the much, much better position than we are today, both on revenue and on managing the labor cost..

Got it. Joey my follow-up, just as we look at 2018, how do you think about the growth outlook for the U.S.? I know you have some tailwinds from cures and your outlook on joint ventures and bed adds, so if you don't mid just giving us some color on how you are thinking about 2018? Thanks..

We still think with all the things we can do for our same-store facilities and our de novo facilities that we are expecting revenue to grow in that 6% to 8% range. And you notice that even during the hurricane, we came in at about 6.3% same-store revenue growth. And if you gave us the 60 basis points for the hurricanes, we were at 6.9%.

So right now, I think we are going to have good single digit same-store growth and we are building the beds and we are actually building beds in the U.K. We have over 200 beds that we targeted for the U.K. for facilities that need additional capacity to take more patients. And we will be building more than 600 right now, it looks like, here in the U.S.

again next year for our needs. So the growth part of the U.S. looks good. And I think it will be in that 6% to 8% range..

All right. Thanks Joey..

And we will take our next question from Frank Morgan with RBC Capital Markets..

Good morning. I want to go back, I thought early on I heard you say you were expecting this to be a short-term issue and I just want to clarify. It seemed like in Brian's answer, it seemed like this may play out over a longer period of time. So just want to make sure I understand your perspective on the recovery in the U.K.

from a timing standpoint?.

I think our goal is, Frank, that we will build improvement throughout the quarter so that we would be in a position for the first quarter to be back to, the U.K. is always going to grow slower than the U.S., but be back to what we think their budgets will be for 2018.

And we are still in that process of doing their 2018 budgets and we are close to finalizing them. So we will have that goal put to bed here soon. So we just want to take one good step a day for the remainder of the year and be in position for 2018 when it gets started..

Okay.

And then does this in anyway, I know you mentioned you have 200 expansion beds lined up coming from the U.K., but the fact that your census is softer, does this make you actually rethink your bed expansion strategy in the U.K.?.

No, not at all. What we did, Frank, was we went back to the bed build and we went back through the list of the facilities where these beds are being added and they have a strong enough census or occupancy that they need these beds. So we have done what you just asked. We went back. We looked to make sure we should be building these beds.

And we came back with this number of bed builds for next year for the U.K..

Okay. And then, so I guess as a follow-up that is there any geography within the U.K.

where this was more noticeable than other spots? Or was it just general census weakness across the board?.

Always censuses, well some places we will have more of an impact than others. I have no data here about what cities, what markets were impacted the most. All I have in front of me, Frank, is the grand total..

Okay..

But I just know from experience that censuses can be with programs or it can be with geographic locations or whatever, but I just don't have that data with me..

Okay. Maybe one final and I will hop off here. In terms of, until you get these issues resolved, obviously you have plenty of capital and I think there was a belief that you could see some significant M&A activity in the U.S. Is this in anyway pause your time line on when you might go back into the M&A market? And I will hop off. Thank you..

No. Our acquisition pipeline was always geared towards the U.S. and we made an offer this week on a single facility and we lost out on a facility that we bid $200 million for that it was a double digit multiple on a forward-looking for 2018 that we priced it off of and we didn't get it.

So we are being disciplined in our pricing and we are not going to chase some of these other bidders, mainly private equity firms that are trying to get a platform. So we can be very patient and be selective with our joint venture partners and with single acquisitions and quite frankly with some smaller multi facility acquisitions..

And we will take our next question from Ralph Jacobi with Citi..

Thanks. Good morning.

I was hoping you can go back just around the timing of the labor cost pressures? And any thoughts or opinions on why it didn't materialize at all in the first half? Or if there were any indications that that was going to mount to be a pressure? And why it all came through in this third quarter fairly quickly and obviously with disproportionate impact?.

Well, first if you go back, we have always when we would get the question about the U.S. labor market, I would talk about it, but then I would follow-up most of the time with a comment on the U.K. market that their nursing shortage and clinical staff shortage is much more acute than it is here in the U.S.

and that's been the case for the past many quarters. What we found out was when the census didn't come back in September after the vacation holiday, we could have done a better job managing agency expense and we didn't. So it compounded each other, a lower census not meeting our expectations and then with a higher labor cost.

And that's what caused the issue and that's what we are working on. We are working on both of those items today. How can we get more patients, more revenue through the facility and how can we do a better job with our agency expense and staffing ratios in the U.K.

So that's exactly what we are doing and it compounded itself in September when we didn't see the census come back from the vacation month..

Okay. And then just on the on the guidance, you missed by about $11 million or so. You noted $2 million from the hurricanes. So effectively a $9 million miss. You took down guidance by €27 million.

Can you help us on, if there is a thought around something perhaps getting worse versus just a full quarter impact of what you saw in the third quarter? And then, if you could even split that out between how much just your little guide reflecting the U.K. versus the U.S. where it sounds like even in the U.S.

while the numbers were healthy, it sounds like that's still and did come in lower than your, I guess, accelerated expectations?.

The fourth quarter, 90% of that is tied to the U.K. Now we do not mentioning this, but we will. They did occur. We will probably have another $0.01 hurricane. Our facility in Puerto Rico is now, I think starting its sixth week on emergency generation. We won't have electricity there. The best estimate on electricity is four weeks away.

So we are worried about that. Our specialty facilities in the state of Florida, it takes them a while to ramp their census back up because their length of stay is much longer there. So we discharged quite a few of those patients and then maybe in one facility we took them all out. So we are having to build back there.

So we are missing some revenue from that. And then unfortunately, this is a year for natural disasters. We had a specialty facility out in Napa Valley that had to be evacuated and I think we were down like two weeks because of the fire. We are back. Our census is ramping back up.

So there is a little bit of the natural disaster in the fourth quarter, but 90% of it is the U.K. And so as we look through the first nine months and then think about the things that are occurring in the fourth quarter, it was our best judgment to the guidance that we did..

Okay. Thank you..

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

Hi. Thanks. Can you elaborate a little bit on the cost differential on the agency versus the employed staff? And are there any numbers that you can put around that in terms of the percentage of FTEs in the U.K.

that are agency versus employed and where that is now versus a year ago?.

Really, whit, the only number I can give you and that number was given to me verbally, was that there is a 30% premium to the existing rate for these positions that go through a nurse agency or a staffing agency. So that is the only number I have. I don't know how many we used last year this time. I am sure they have got it in the U.K.

but I haven't seen those numbers..

Yes. Presumably much larger than it was a year ago..

Yes..

And maybe just to be clear, do you plan on at this point putting any growth in your internal plan for the U.K.

in 2018?.

It is very small..

Okay. And maybe just on the U.S.

business, can you maybe frame up for us how each one of the different businesses are performing versus plan?.

Well, we usually don't say that. We are proud of all the facilities that we have. Right now I would say, the acute, the CTC centers, the non-addiction specialty facilities and then the addiction facilities, they would be ranked in that order as far as pro forma, is how we would rank those services..

Okay. And the $120.8 million of same-store EBITDA in the U.S.

segment, just be clear, that does include about a $3 million hurricane headwind? Correct?.

Yes. That's about right. For the third quarter, that EBITDA related to the hurricane would be the $0.02 of EPS in that..

Yes. Got it. So if I exclude that, it seems to imply that the same-store EBITDA would have actually increased about 11% year-over-year, which is the fastest growth rate in five to six quarters. So I just want make sure that we are all reading this right..

You are in the range there. And we have had a great fundamental year inside the U.S. and especially in the third quarter. We generated 7% same-store revenue once you factor out the hurricanes and held the margin. So we had a good fundamental quarter here in the U.S..

Got it. And maybe just one last one on the elderly business in the U.K. I know it's a small piece of the overall portfolio, but it seems to have about $100 million of revenues with very little margin on it. I know it's running totally at full capacity.

But just any thoughts operationally changes you can make there? Or just interested in maybe looking for to sell that asset?.

I think we have some opportunity to maybe, Whit, on the revenue raising the rate a little bit there, more than maybe we have in the past, but it is a non-core assets and with non-core assets we want to quota review those to see if they should be divested.

So if someone was to approach to us about their interest in this subsidiary, we would entertain that. It's not our core strategy..

Yes. I got it. Thanks guys..

And we will take our next question from Ryan Daniels with William Blair..

Hi guys. Thanks for taking the question. A follow-up on the U.K.

You talked a little bit about managing census versus staffing and I am hopeful you can give us some insights on what type of systems from a information technology standpoint perhaps you have in place to give you real-time census data or data on referrals and then how that can be used for staffing? Or is it the fact that you simply need to book some of these agency nurses out in advance such that even if you get real-time data, it's kind of hard to adjust on the fly because you have already booked that labor?.

Well, we are wanting to just more to real-time or on the fly. We think that was part of the issue in the third quarter. We have a pretty good handle on how the census is trending on a daily basis.

The key is making sure the operators at the local level are matching their staffing to that census and that they have not prematurely engaged agency nurses or agency staff when they didn't need to. And that is the, it's not the number one goal, but it's in the top three goals of the staff, of the management team over there in the U.K.

That's what they are working or putting a lot of resources on that with our operations and with our financial IT department to give us more real-time matching of the census to what we need from the part-time pool and from the agency staffing..

Okay. That's helpful color. And then as a follow up, again I appreciate the U.S. was actually quite strong, but as you said, it didn't bounce back as much. And then when you rank the performance, I think you said addiction facilities were ranked fourth.

So any more color on what's going on in that asset group that might be seeing a little bit slowing growth than you anticipated there specifically? Thanks..

They did well. They could have done better. There's a lot of people, a lot of business plans trying to get started in that area and as we have told you about, when we look at acquisitions, we want to see a company that we are acquiring have more than a five-year history so that we know it's been through good times and bad times.

And right now, there is a lot of money being put out there. It may be hurting us a little in certain markets. And then that, to my mind, is the number one thing going on in this industry across the country is that there's more new entrants into the business than there was..

Okay. Great. Thank you for the color. I will hop back in the queue..

And we will take our next question from Ann Hynes with Mizuho Securities..

Hi. So I guess I am still not really clear why census was down on in the U.K.? It means that versus your internal guidance, it's a 200 to 300 basis points delta which seems like a lot to me.

I know you might have just answered this, are you seeing increased competition? Is it NIH driven because of maybe the tightening admission referrals because of Brexit? Just any clarity you can give us on would be helpful. Thanks..

I believe it's more of an NHS issue. It may be very small, less than 10% on the competition side. I think it's more of an NHS issue now. What we would look forward to or hope does occur is that they continue to close beds and have a need to outsource those patients to the private providers.

So it's more of an NHS and it's more of the transition, I think, also from the NHS to these local trust that's occurring that the local trust have a lot of input now on the admissions. So it's more a NHS, local trust transitioning and we think we are optimistic that if NHS closes more beds and outsources those, we would be the big winner there..

So I actually need to ask, I mean how committed are you to this business since you acquired it in early 2006? It's kind of been a roller coaster ride and Brexit's not going away. Is this maybe a business you would consider spinning off and just focusing on the U.S.

business because trends there are positive and this is really dragging down your stock?.

No. We fundamentally like the business that we have in the U.K. We have tremendous facility. Have we had a couple of bumps? Yes. Brexit being one and the CMA being the other. But both of them are behind us. We are still feeling some of the impact of what occurred with Brexit.

But it is a fundamental right for the citizens over there to have mental health benefits and we want to be the leading provider of those services and we have that opportunity and platform to make that happen. So am I glad we are in the U.K.? Absolutely. Do I think it's going to be a great business? It is a great business, but will it be greater? Yes.

But that doesn't mean that if somebody came by and wanted to make an unsolicited offer for it, we would entertain it. But it's not for sale. I am not advocating selling it at all. Actually I am advocating that it's going to be positioned correctly that three years from now, everybody will go, wow, what a great deal they did.

They had some rough times in the beginning, but they did a good job with it..

Okay. Fair enough. And just one last question. I am sorry if I missed this. But you did say in your prepared remarks that the U.S. had some softness in the quarter and did not rebound in August and September.

Is that the addiction business that did now rebound? Or is not the acute behavioral?.

The last time I looked at the numbers there, Ann, it was more on the addiction side..

Okay.

And what do you think is happening there?.

As I mentioned earlier, I think there is some more competitors in the market and I think even though there is mental health parity out there, maybe they are not as ease of access to the services as there should be. But there is more competitors, more money going into this space. Everybody wants to be Acadia. That's a backward compliment, I guess.

Everybody wants to be Acadia, but there is only one Acadia and there is only one network of substance abuse facilities or addiction facilities and we have those..

Okay. Thanks..

And we will take the next question from John Ransom with Raymond James..

Hi. Good morning.

Just to go back to the U.K., when do you think is reasonable to expect you would have the staffing situation back to a more normal mix of temps?.

Boy, John, you are making me look way out in the future. I want to be in position by the first quarter. Could it take until the second quarter? Sure. But there is a lot of focus and attention on this as we speak and hopefully from this action positive results are going to be occurring.

So once again, reusing this fourth quarter to take actions and hopefully those actions are going to produce results for us next year..

So just to do some simple math, if half of the miss was labor and you solved that, then I mean there is about $60 million shortfall implied in the fourth quarter.

Are you clawing back roughly half the miss that you can solve the labor issues, just to put in context?.

Say that one more time, John..

So if you look at the implied guidance for 4Q, EBITDA is about $15 million below street model..

Yes..

So if we are assuming 90% of that's U.K.

and half of that 90% is staffing, half is census, by solving the staffing, could you just maybe plug half that $60 million shortfall some time first half of next year?.

Yes..

Okay..

If I understand you correctly, yes. If we were to improve, if we were to fix the staffing issue, would half of it come back next year? Yes..

Okay. And my other question, maybe you can't answer this, we all know there is a there's a big Welsh Carson portfolio that's going to come to market.

Do you expect that to come to market this year?.

No..

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

Okay..

And we will go next to Kevin Fischbeck with Bank of America-Merrill Lynch..

Okay. Great. Thanks. So I guess when we think about the U.K. business, it sounds like from your perspective the reduction in guidance this year is not something necessarily annualized into next year. It will be a headwind for next year, but you think you are going to be able to recapture most of it.

I wasn't sure when you talked before in answering an earlier question about modest organic growth. I think you were saying a little organic growth in 2018 in the U.K. That's a revenue number, right? I guess if you improve margin, you should be able to show some EBITDA growth nest year.

Is that the way to think about it?.

Yes. That is the way to think about it, yes..

Okay. And then I guess shifting to the U.S., which seems like a better quarter. Obviously there has been competitors talking about length of stay pressure. It didn't seem like there was any of that this quarter.

But just wanted to see if you are seeing anything on the length of stay side or the Medicaid rate side?.

As you can see from our stats that we put out, the length of stay is basically flat. It's very stable and continues to be there. The payor mix is very similar to what it was in the previous quarter. So that thing is stable too. So both of those are staying reasonably stable. And we don't see anyone of those moving significantly one way or the other..

Okay. And I think you had a couple de novos that you are opening up here in the back half of 2017.

Any color on how those are going?.

The color is that we have three. We have one in Louisiana that's going through the state licensing process. We have one in Arkansas that's going through the state licensing process. And we have one in Virginia that's going through the state licensing process.

And the key to that is that basically construction is complete and we are just getting through that process. So if we can get all three of those done by the end of the year that will be more than 250 beds, I think, just in those three projects. So we are working very hard to get them open. But once again, it's now at the hands of state.

So we are working with them. We have got our legal team working with them. We have got our quality team working with them. And it's just getting through the system to get our license..

All right. Actually one last question.

As far as the labor management goes in the U.K., is there anything, I guess I am not familiar exactly the labor laws is there, is there anything there around hiring people or firing people that would make it more difficult to adjust staff in real-time when census like this comes down? Or is there pretty similar to the U.S.

market?.

Well, I don't think there is anything holding us back from adjusting the agency. I think the part-time employees probably have less rights. The full-time employees, that would be a process that you would have to go through. But in most states here in the U.S., you have to go through that process. So it would be a little bit longer in the U.K.

versus the U.S..

Okay. But since it's mostly agencies, that's less of an issue..

Yes..

Okay. All right. Great. Thank you..

And we will take our next question from Chris Rigg with Deutsche Bank..

Hi. Good morning. So I am going to throw out some numbers here, so hopefully I don't confuse you too much. But you have reduced the guidance for the second half of the year by about $27.5 million for just the second half. So anyways that's is about $54 million. If you were to say that's 90% in U.K., call it $48 million-ish. Does that mean the U.K.

business EBITDA right now is running about 20% to 25% below where you thought it would be when you came into 2017?.

Chris, I think what we saw in the third quarter, you would not annualize that. The fourth quarter, we expect to see some modest improvement there. But we have absolutely would not take the third quarter trend and apply it to the first half of the year or to 2018. So there is a miss there. It's larger in the third quarter.

It may continue into the fourth quarter. But we are not thinking about a miss or a full annualized impact that would be that significant..

Okay.

Can you give us a sense for maybe how it's deviating relative to guidance overall for the year?.

I think that miss in the third and fourth quarter would be roughly double what we would expect for the first half of the year..

Okay. And then a technical question on the agency labor that you are using.

Are these per diem nurses? Are these travel nurses that you are getting from overseas somewhere?.

They are per diem nurses now. Traveling to them, you could be in France or Germany or whatever and that's a commute. That would not be like coming from the Philippine. So that would be the difference..

And then just last high-level one. When you think about sort of how you are managing the U.K. business right now, do you think you need to implement some changes there, not necessarily people but just the overall span of control and how you see sort of the results there from Nashville? Or do you think you are well-positioned right now? Thanks..

Actually, we are doing a combination of that in both the U.S. and the U.K. So we are constantly looking at how can we be better and how we can be more efficient and what is the appropriate span of control. So we are constantly doing that and we have made changes in both the U.K. and the U.S..

Great. Thanks a lot..

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

Hi. Good morning. Thanks for getting me in. A couple of questions. Just wanted, Joey, the Brexit you mentioned that having an impact on the U.K. staffing. And I just wonder, how big of an impact you think that is? Because it seems like that would be less out of your control and take a longer process. It sounds like it's probably not a huge impact.

But if you could just clarify that for me?.

Well, it's pretty big. I read somebody's report where they talk about the unemployment in London and even I was astounded about the number of opening that the NHS has. So it's bigger than people think. But it's something I think we can work through..

Okay. All right. And then secondly, given the dramatic move in the stock price.

I wonder if it makes you rethink and maybe it's too early about your capital structure and the employment of leverage? Or do you still feel comfortable and the long-term view of 4.5 to 5.5 times?.

Right now it's business as usual to hit our guidance and we constantly are looking at the balance sheet. So that's nothing unusual. But it's basically keeping our head down, doing our job, blocking and tackling. And the one thing that lets me sleep good at night is I know we have the right team and they are motivated and they are focused.

So we will get through this..

All right. Thanks very much..

And we will go next to Charles Haff with Craig-Hallum..

Hi. Thanks for taking my questions. One thing I was trying to do on the U.K. side was reconcile your comments on occupancy this quarter for the U.K. with the nurse staffing issue and I realized you have fixed and variable cost in terms of nurse staffing levels.

So the 87% occupancy that you did in the quarter when you are expecting 89% to 90%, did that actually ease the nurse staffing problem that you saw this quarter? And if you would have done 89% to 90% occupancy, we may have seen even a worse impact on the same store EBITDA margins?.

If we would have done 89% to 90% or 88% to 90% occupancy, the margins, all of the numbers there would have been positive. There would be incremental margins coming from those patients and that would be a positive.

At the 87% or 86% occupancy, when it dropped to that level, what we did is, we did not respond quick enough to adjust the nurse staffing or the clinical staffing to offset the drop in the revenue. That's fundamentally what we have got to do better, grow our revenues, manage our expenses.

And unfortunately, in September, it went over those but the wrong way. The occupancy was lower and the nurse agency was higher. And that's a bad on us and that's a bad on the U.K. team, but everybody's got a great attitude about fixing that..

Okay. And then I understand when you divested the assets of some of the U.K. assets in December, you also divested the prior U.K. management team that you had for a few years and primarily picked up or kept the Priory management team in the U.K.

Have you been making some tweaks around that? Or do you anticipate making some tweaks? Do you think that the Priory team was may be less familiar with some of the legacy Acadia and CRC assets? Do you think that complicated the issue in any way or not really?.

I am going with not really. We pick the best people to be our management team. I am confident in that. Now has our best management team made tweaks to that team? Yes. So that's what's occurred.

We pick the best ones and they have tweaked their management team and I am confident that if they needed to make changes there one way or the other that they would make them and we would be very supportive..

Okay. Thanks for taking my questions..

And we will take our next question from Matt Borsch with BMO Capital Markets..

Thank you for squeezing me in. Is it fair to say here that really this boils down to, as you look forward, getting on top of labor cost timing issues, it boils down to question about the volume outlook for the U.K. market.

And I guess what can you do to better understand what impacted, if anything, what impacted the volumes this quarter and is continuing to, to some degree, going into the fourth quarter and get any insight on when that might turn around?.

Well, we get a daily census every day. So we know when we have had good days and when we have soft days. So we are beginning to see good days. There are things like, some of these beds build, there are some of these bed builds where we could have patients in them tomorrow if the beds were built.

I wished we had some of those beds ready to come online tomorrow so we could fill them up and increase our occupancy and patient days. They will be working with the local trust more. They have worked with them in the past.

But we will step up our efforts there with the local health trust about sending patients our way and our program needs and what they need for programming. So we are doing all the basic blocking and tackling to get the census to grow in the U.K. And so I am very optimistic that Trevor and his team there and Ron here can make that happen..

And as a follow up question, maybe I am getting too much in the weeds here, although this is kind of the key issue.

What is it that the trust might be doing differently than NHS has done in terms of sending referrals to your facilities? Do you think they are going to other facilities? Or are they just not going at all? And why might that be, if you have any insight on that?.

Well, what has occurred over there is that the NHS has pushed funding of patients more to the local health trust. So the local health community has more impact on funding and moving the patients into the appropriate level of care.

So that's a transition that is going on there and I think we can help the local trust meet their needs and also work with us through like one-on-one care that we are giving to some of those patients or the two-on-one care that there is places where we can now go to and tell our story better and present our case.

So that's what's going on as this transition of the NHS to the local health trust, the movement of money and the movement of patient. And so that's where we are working..

All right. Thank you. And thank you for squeezing me in..

And we will go next to Ana Gupte with Leerink Partners..

Yes. Hi. Thanks for squeezing me in as well. Good morning. I wanted to switch gears to the reimbursement policy changes that we are seeing under this administration.

And first on the volumes on exchanges there, did you see pressure on exchanges because of the premium increases from defunding of CSRs have been partially subsidized, people coupled with the executive order on barebones plans.

Can you give us a sense for what type of headwind that might be for 2018? And then in the commercial group market, should this barebones plans direction weaken essential health benefits? To what degree is that going to impact the commercial employer market on enforcement of mental health parity as well?.

Well, first, we don't want any plan to reduce their level of benefits or commitment to us. The high deductible plans that they may be pushing more, if mental health parity truly exists, those high deductible plans apply to the med surg and psych industry the same. So we don't know.

Once again, we don't see any action being taken between now and the end of the year on healthcare. We see, as you see in the press, they have now focused on these tax cuts. And we think they will stay there. Now we are very much in line with what the med surg hospitals are wanting. I think the last time I talked to them, they do not want block grants.

They want to benefit structures to stay the same. They do not support these high deductibles, low prize plans. But once again, it's probably better than booking at all as that. So we are in agreement with the med surg industry on these issues.

And once again, we don't see a lot of action here or change in behavior this year and we will just have to wait and see what happens when they come back from the Christmas holiday recess back into session in mid-January and see what's going to be on the list for next year now.

Now that I have said that, as unpredictable as Washington is, who knows what we are going to do today or what tweet is coming out. But I think the tweets are going to be about taxes. And so that's what we are rooting for..

Okay. No, I hear you about legislative action unlikely this year, but I was talking more about Trump executive order which has already gone through. I am assuming no legislative action, CSRs will likely just be funded through rate hikes and by the state which will put pressure on the last steps that I spoke.

But I don't know if you have contemplated that at all. But let's leave that aside. I had another question on the length of stay issue. There is a little bit of pressure. And I grant you that it is not huge sequentially and your comps for 3Q2016 were probably a bit easier. You had some pressure last year as well.

Can you give us a sense for why you may not be seeing anything when your peer UHS is talking quite stridently about managed Medicaid putting pressure? We are hearing that the panel has set out a guide from privates and not-for-profit hospitals as well.

Is it something to do with you mix versus acute residential or substance abuse, mental health in your peer mix that's causing it to be better?.

I think we are more diverse in our services that we are offering. And with that we have benefited from a more stable length of stay. And as you can see, the global numbers here, the length of stay is very stable. I can tell you that specialty, our specialty facilities are slightly up. So that offsets the acute being slightly down.

So our residential services are slightly up. So I think it's just the mix of services that we have. We are very diversified here in the U.S. and where other people may be running into the length of stay issues, our diversity keeps Acadia protected from that..

Okay. And then final question on the acute JVs. You had talked about getting very close to a large national kind of non-for-profit founded players.

Is that happening anytime soon?.

Yes. We had a meeting yesterday. And it's moving forward nicely. They move a little bit slower than, say, Acadia does or probably last point or HBA. But they are moving. We had a very positive meeting yesterday. And so hopefully that happen..

Okay. Good stuff. Good luck with that. Thank you..

Thank you..

And we will go next to John Ransom with Raymond James..

Hi. Thanks. My questions just got asked. Thanks..

Thank you..

And with no further questions, I will turn the call back to Joey Jacobs for any closing remarks..

Sure. In closing, I want you to know that the third quarter was a tough quarter, but we are motivated and upbeat about things that we can do and executing in this area. We are also very optimistic about our joint ventures and acquisition opportunities for the year.

But as positive as all those are, what really has made me proud in the third quarter was how our facilities responded to the hurricane and especially how Puerto Rico is continuing to do, respond to that hurricane, our facility there. I think it is over 170 beds. So it's a major facility.

We are the only place that had air-conditioning from the time the electricity went down to now and water service and we became the home to our employees and patients and doctors and their families. And there was a lot of hard work and a lot of overnight shifts and taking care of our patients.

Also to our folks out in California who has been through this nasty fire. I never thought I would be worried about the fires in California. But when we had to evacuate one of our facilities and they did a great job of doing that in keeping the patient safe.

And so to all of our employees, but especially those that have been impacted by these natural disasters, we are very, very appreciative of their efforts. If the U.K. market is listening in, you got more work to do. I will be talking to you all soon. Thanks for the call..

Thank you. And that does conclude today's conference. Thank you for your participation. You may now disconnect..