William Brent Turner - President Joey A. Jacobs - Chairman and Chief Executive Officer David M.

Duckworth - Chief Financial Officer, Chief Accounting Officer and Controller

Anton Hie - RBC Capital Markets, LLC, Research Division Whit Mayo - Robert W. Baird & Co.

Incorporated, Research Division Charles Haff - Craig-Hallum Capital Group LLC, Research Division Dana Nentin Kevin Campbell - Avondale Partners, LLC, Research Division Brian Tanquilut - Jefferies & Company, Inc., Research Division

Good morning. I'm Brent Turner, President of Acadia Healthcare, and I'd like to welcome you to our first quarter 2013 conference call.

To the extent any non-GAAP financial measures discussed in today's call, you may also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by following the Investor Relations link to Press Releases and viewing yesterday's news release. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Acadia's expected quarterly and annual financial performance for 2013 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 first 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 thanks for being with us today. In addition to Brent, I'm here 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 first quarter and our outlook for Acadia, then we'll open the line for your question. Acadia begins 2013 with very strong growth in revenues and adjusted earnings for the first quarter.

Our growth was driven mainly by our 2012 acquisitions, as well as the nearly 300 beds added to existing facilities in 2012. These combined to produce an 80% increase in our first quarter revenues.

The operating leverage generated by this revenue growth helped produce a 179% increase in adjusted income from continuing operations. Even with a higher share count as a result of our equity financing, our earnings per diluted share from continuing operations increased 75% to $0.21 for the first quarter.

Our same facility results have continued at a strong pace for the first quarter. Same facility revenues increased 8.8%.

This increase reflects the impact of the new beds added to these facilities last year, as well as our ongoing efforts in every facility to build revenues. We also added 65 beds to existing facilities during the first quarter, most of which were added to the same facility base.

Our same facility revenue growth continued to drive significant margin expansion, with same facility EBITDA margin increasing to 25% of same facility revenue, up 390 basis points from the first quarter last year. This improvement contributed to 101% increase in our consolidated adjusted EBITDA to $30.5 million for the first quarter and a 200 basis point increase in the margin to 18.9%.

Our increased guidance includes the accretive impact of our latest 2 acquisitions that have brought us our first facility in Puerto Rico and a new facility under construction in Tampa. To date, in 2013, we have completed 4 facility acquisitions, with approximately 475 beds.

These facilities produced annualized revenues of approximately $75 million. Our pipeline of potential acquisitions remain strong, and we are confident of our ability to fund transactions that meet our strategic profile and are accretive to our operations.

We will also support future growth through the remainder of 2013 by adding new beds to existing facilities, with a total of approximately 300 beds planned for the year. We will continue to excess capacity at all our facilities, with the goal of adding new beds before they are needed.

To achieve this goal, we expect to increase beds in existing facilities by at least 5% on an annual basis. In conclusion, our confidence in Acadia's potential for a sustainable, profitable growth and increased shareholder value is based on the strength of our organic growth and acquisition strategies in a highly fragmented industry experiencing increasing demand and limited capacity.

We have a highly experienced management team with a long-term record, demonstrating its ability to execute our time-tested business model. We have an organization that is deeply committed to supporting our outstanding teams of health care professionals in each of our facilities and providing high-quality care to our patients and their families.

Thank you again for being with us today. And now here's David Duckworth to discuss our numbers.

Thanks, Joey, and good morning. Acadia's revenue increased 80% for the first quarter of 2013 to $161.2 million from $89.6 million for the first quarter of 2012.

As Joey mentioned, adjusted income from continuing operations for the first quarter grew 179% to $10.6 million from $3.8 million for the first quarter last year. Our adjusted results for the first quarter of 2013 exclude debt extinguishment costs of $9.4 million and transaction-related expenses of $1.5 million, while the first quarter last year excludes transaction-related expenses of $0.7 million.

Adjusted earnings per diluted share increased 75% to $0.21 for the first quarter of 2013 from $0.12 for the first quarter of 2012. Same facility revenue for the first quarter increased 8.8% from the first quarter of 2012 on an 8.8% increase in patient days.

Same facility EBITDA margin increased 390 basis points to 25% for the first quarter from 21.1% for the first quarter of 2012. Total facility EBITDA margin increased 200 basis points to 23.1% for the first quarter of 2013.

Our consolidated adjusted EBITDA for the first quarter more than doubled to $30.5 million, which is 18.9% of total revenue compared with $15.2 million or 16.9% of total revenue for the first quarter of 2012. As detailed in our news release, we have increased our 2013 guidance for adjusted earnings per diluted share to a range of $1 to $1.03 from the previously issued range of $0.96 to $1, compared with adjusted earnings per diluted share of $0.66 for 2012.

Our financial guidance excludes transaction-related expenses and does not include the impact from any future acquisitions. This concludes our prepared remarks this morning, and thank you for being with us.

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

This is Anton Hie for Frank. Could you guys give us a little kind of characterization of the pipeline that you're looking at, kind of single facility versus the medium- to larger-sized chains that are out there?

Sure. This is Joey.

Our pipeline is very strong. The majority of the projects that we're looking at are just one-off transactions.

However, we do have some multi-facility transactions that we're aware of and look at. So it's a combination of both, but the vast majority is single facility acquisitions.

Okay. And can you give us a quick kind of rundown on the Medicaid outlook for the year?

The state budgets are in the best position they've been in the last 3 to 4 years. One of our largest states has given us a good increase this year.

We expect increases somewhere around 1% to 2% from the Medicaid payer for the year. So that's what we're -- that's the best look we have today and looking back at the experience that we've just had and what we like to see going forward.

Joey, just maybe if you could comment a little bit on the volume growth in the quarter. It was pretty strong.

Just any sense of how to parse that out between the new 66 beds you added and maybe just some comments around acute versus RTC and update us on the construction projects for the rest of the year.

Okay. We had -- the 66 beds we added this -- the first quarter this year, they really didn't really impact the same-store revenue growth numbers significantly.

Basically, it's the beds we built at the end of 2011 and all the beds we built last year in 2012, which were approximately 300 beds. That's what's meaningful to the same-store revenue growth.

We're on track again this year. I think by the end of the year, it looks like we'll build another -- approximately 300 beds this year.

So -- and we are already looking at 2014 projects. So the key to our same-store growth is that we have real good franchises with terrific CEOs, meeting the needs in their communities.

And our group, our team knows how to get the construction projects going, bring them online and then meet the needs of the community. So that's just good execution by Ron Fincher and his team on getting these beds built and getting them open and getting the patients in the beds.

Okay, just to clarify. The 66 is included in that 300 million -- or sorry, the 300 number, right?

Yes.

Okay. Last year, you acquired over $50 million of real estate.

And I know some of that was part of how you structured some of your transactions. But any construction projects on any of those properties that you acquired last year?

Oh, I'm sure there are. I don't have the list in front of me, but an example, Whit, is our facility in Illinois.

It's that we've already added 18 beds to that facility and got another 24 beds that we'll be adding this summer to that facility. And that facility doesn't come into the same-store numbers until September 1 of this year.

So that's just an example of one of those another acquisition. I'm sure there's been more beds added.

I know Park Royal were looking at expanding it and we just bought it at the end of the year last year. So, yes, we're adding beds with those purchases.

Okay, maybe just one last one. Just looking at the Tampa de novo, I'm just trying to kind of see how this will impact the model.

Can you update us on kind of when you expect that facility to actually open and take patients and kind of the process of Medicare accreditation and kind of the pace of the ramp for that facility and actually cash flow positive?

Okay. It will be cash flow positive in 2014.

Right now, the original target date was for the construction to be completed in the fourth quarter. I think it will be in the third quarter, maybe towards the end of the third quarter.

Then we'll have to go through the licensure, getting the Medicare number and that sort of process. We probably will have a soft opening during the fourth quarter but really try to ramp it up once we get past the holidays, the 1st of January.

So our best thinking right now is that construction gets completed sometime at the end of the third quarter. We'll take the next 90 days, getting everything in place, the beginning employees there.

And then opening full time right at the first of the year is our best thinking today.

My first question is on the secular kind of overall landscape for psychiatric services. There's a lot of focus on mental health awareness with some of these recent tragedies, Obama's gun laws and so forth, Mental Health Parity.

I was wondering if you could help us quantify at all the impacts either maybe on same-store volume growth or how you kind of see this overall secular trend impacting your business.

Well, it's unfortunate that tragedies are positive for our industry, but it demonstrates the importance of being able to recognize potential issues earlier. What I think is going to happen is that -- and what should happen, I think, is that the schools should have more resources about identifying the potential student that might be going to do something and get them help sooner and -- which could lead into consuming in-patient services or outpatient services for us.

Also, we think that there will be broad-based continuing education opportunities for the school systems throughout the country to make them more aware. So obviously, there will be some resources.

We really don't know how many -- much resources are going to come out of Washington to address this issue. But all these things, Mental Health Parity, the Affordable Care Act, additional resources to respond to these tragedies are all positive for us for the industry.

It's just real hard to quantify how many of -- how those individuals turn into patients. But it's a positive that society is accepting that you should be seeking access for care just like you would for a medical issue.

And it's a positive, but we can't quantify how much of an impact it will be other than it is a positive.

Okay. And then on the referral side, have you always had referral plans in place for getting referrals from school districts or -- and universities?

Or is -- are you kind of stepping on the gas in terms of allocating resources to increasing referrals from academic institutions?

We've always tried to have a good relationship on our local market with the school systems, the universities, letting the health care professionals, the social workers, the school nurses know that they need us, how to access us. That's a responsibility that each of our CEOs take very seriously at the local level.

And we do reach out in that local community to let them know how to access us. But as a word of precaution here, anytime anyone feels like they needed to get somebody to a service, absolutely, take them to the nearest emergency room.

And then that patient will get to us through the process. But we do have good relationships.

We also are a big supporter of The Jason Foundation, which works on teen suicide prevention and awareness. And I think at last count, I think we had trained more than 250,000 teachers in the country to be looking for the early signs of teen suicide.

Okay. And then one question on Puerto Rico.

Obviously, you have a CON for 100 beds down there. I'm wondering if you can kind of describe that market to us a little bit and how you see the growth of the Puerto Rican market and what the competitive landscape looks like.

There is basically 2 large freestanding psych hospital that take care of the island. What we're so excited about with this acquisition is that it brings with us 100 beds CON, and we've got plans to immediately add 40 beds to the existing campus there.

And then we may go out and build -- with the other 60 beds, build a new facility somewhere else on the island to meet the needs. So there's a growing demand there.

The band, that's not met there. And we're very excited about having these 100 beds through the CON process that we can start working with.

And once again, we're going to try to build in the next 12 months 40 beds to the existing campus, which is about a 40% increase in capacity for that facility. So it's a great opportunity for us.

And is the Medicare environment -- Medicaid environment for Puerto Rico, is that pretty consistent with what you're seeing in the other areas?

It is consistent with what you see in the state. Yes, it is.

This is Dana Nentin in for Darren. Just a follow-up on the bed expansions from earlier, could you talk about the pacing of those beds and the services they're focused on?

And I guess of the license that you've bought in the Memphis hospital, how many of those are currently in service? And sort of what's the expected ramp of that?

Okay. I do not have the detail on the Memphis other than I know they're expanding in the new beds as we speak.

But let me just give you some overall. This is our best look as of this moment, which -- it's always subject to change.

We've built about 65 beds in the first quarter of this year. We think we can build another 230-plus beds for the remaining 3 quarters, with our second quarter probably being the quarter where more beds will come online.

And then the third quarter will be the last number of beds. And then the fourth quarter has a large number of beds coming online on our preliminary schedule here.

This is all just very prelim here. It's going to be about 85% acute beds expansion and about 15% residential expansion.

So 85-15 would be the split on the beds. And we're going to build about 300, with the second quarter right now appearing to be the big quarter for the beds coming online and then the fourth quarter will be the next largest quarter.

But right now, that's how our bed expansions look for this year.

Okay, great. And then on CapEx, could you talk about how much you're expecting to spend for the remaining build-out at the Tampa hospital?

And then in terms of CapEx as a percent of revenues, what are your expectations for the rest of this year versus on a more normalized basis? And are there any other de novos that you're working on that might cause that number to be elevated?

Well, that's a lot of information you just asked for. I'll just start by saying, I think there's probably another $10 million to $12 million for the Tampa project to bring it online.

And it's somewhere in the low double-digits there on construction cost there. As far as the 300 beds that we're going to be adding this year, I think you could use roughly $100,000 to $125,000 per bed number for that to come up with the capital expenditures there.

So that's the best look at capital spend for the Tampa project and the 300 beds that we will build this year.

Okay, great. One more if I could, a quick one.

Given the growth of your acute business, can you provide any more color as to why same store length of stay went up this quarter?

I think that's just a settling in of all the acquisitions and our national referral marketing group ahead. I think it's the best quarter ever during the first quarter of this year.

So that probably impacted it a little, too. That will make it just tick up a little bit.

It's about to become very stable, I think, without a lot of movement. And so -- but in the first quarter, I do know our national referral team had its best quarter since we've had that department.

Just real quickly on Florida. What sort of start-up expenses should we expect in 3Q and 4Q?

And can you break those out and do sort of an adjusted EPS excess numbers or...

I think, Kevin, what's probably the best on the Tampa project is it let us get our second quarter behind us. And then we'll report our numbers at the end of July.

And then we will be able to give you a much better picture of when Tampa will be online and what the start-up cost will be. We'll be able to tell you much better at the end of July than I can right now.

So just give us 90 more days to work on that project, and we'll give you those details at -- when we report out the second quarter.

And does your guidance at this point assume some start-up expenses?

Yes, some. But once again, we haven't made the decision about how -- if they were to complete this project really early, we might -- can get it open more aggressively this year.

So we really need to get to July so that we can give you a better answer to that question.

Okay. And your operating cash flows were basically flat versus $5 million last year.

Was there -- is that related to some of the acquisitions you made? Or is there something else that's driving that?

Kevin, this is Brent. There's a couple of things in the first quarter that impacted that.

One, when we did our redemption of the old note, we had to bring the interest payment current on that 35%. So that was an out-of-quarter interest payment as well.

As the company performed well, we had a payout of bonuses that were accrued in last year. So you see a big swing in accrued salaries and so forth.

So that -- those were really the more impactful things there. We would expect to have positive, a more healthier cash flow from operations in the subsequent quarters.

Okay, great. And then just sort of lastly, maybe a little bit more color on the pipeline of not-for-profit versus for-profit and what you're looking at RTC versus acute versus maybe substance abuse?

We're looking at acute facilities. And there is 3 to 5 of those that are -- that we're working very hard on.

And so discussions continue there. We're still very bullish on this area.

And so their acute facilities, they're going to be a little bit larger than the freestanding facilities that we've been buying for beds and revenue, it looks like. So Steve and his team are doing a great job, working those leads.

And hopefully, we'll be able to get some letter of intent signed and be announcing some good news there.

Is there any more sort of interest in the not-for-profit world divesting some of their acute facilities?

Yes. Just in the last 30 days, we went to a new opportunity where we made a presentation, where they kind of saw this out and wanted us to come out and talk to them about their freestanding facility and what we could do there for them.

So actually, they're reaching out to us.

Sorry, I jumped a little later in the call described to. And I apologize if you already answered this.

But I just want to hear your thoughts on the doubtful account spike, 2.8%, during the quarter. Is that sort of the new normal that we should be thinking about?

Brian, this is David. Yes, of course, you know we've added more acute business not only in our same facility group, but also in our acquisitions.

So we expected that. With our acute facilities, there tends to be, although not higher than the 3% of revenue range, more in the upper 2% threshold on allowance for doubtful accounts.

Got it. And then you guys have done a really good job ramping up margins on a same-store basis.

And obviously, you've been very acquisitive. So as we think about a lot of these acquisitions that you're doing, what do you think is the appropriate sort of benchmark to think about in terms of how long it will take for these deals to get to sort of the core margin run rate in terms of like months or years or however long it takes?

We've always said that this is all the acquisitions together as a group. We're buying them at 15% EBITDA margins.

It will take us 24 to 36 months to get them at that 25%, 26% level, with a little bit more of it ramping up in the first year versus the second and third year. Obviously, Ron's team does a good job there.

And many times, it's quicker than that. But on average, we say 2, 3 years once we acquired it, it should be at the 25%, 26% EBITDA margin before overhead.

Thank you very much. In closing, I just wanted to give a shout-out to our folks in Arkansas, Mississippi and Georgia.

I happened to visit our 6 facilities during the past 30 days, and they've just done a terrific job. And it's very exciting to be out there with you all.

One of those was a new start-up facility for us. And it was great to see.

They've cut the ribbon and opened that facility up. And then I'll see all the expansion plans going on at the other 5 facilities.

So thanks for all you're doing. Thanks to the whole team.

Thanks for your interest in Acadia on the call today. And we'll be back with you after the second quarter.

Thank you.