Acadia Healthcare Company, Inc. (NASDAQ:ACHC) Q4 2022 Earnings Call Transcript

Whit Mayo: Hey. Thanks. Maybe for David or actually more for Chris. When you guys look at the capital that you’re deploying have you changed at all or refined how you measure returns on capital? I’m just wondering how the returns have changed on these deals and what your minimum hurdle rates are today? And it might just be more helpful to frame from like a cohort perspective how capital returns are tracking?

David Duckworth: We always refine how we think about allocating capital across our growth pathways, across our service lines and haven’t necessarily changed how we think about our targets. Certainly like a lot of companies would say our weighted average cost of capital and the cost of debt has increased slightly. But from our perspective, we’ve always built in a higher threshold that we target in our transactions such that we haven’t had to significantly change how we think about that capital allocation. We continue to think that our existing facility expansions are our most attractive opportunity. And then as we think about de novos and as we think about joint ventures and even M&A opportunities, we have a deal specific analysis that we look at.

But across those growth pathways, we’re still seeing good opportunities that exceed the hurdles that we have in place across a number of different metrics, IRR. We look at ROIC. We look at our EBITDA multiple not only at the time that we make an investment. But over the course of the investment as we hope to grow earnings whether that’s an M&A deal or a de novo or a joint venture facility. So no major changes, of course, as we projected out in December. There are many joint venture projects that we think will be tremendous for the company that we’re working hard to bring online and bring good EBITDA growth for the company at strong returns. But we think all pathways will have activity that is going to be attractive.

Whit Mayo: We get the question a lot around redeterminations, and I presume that most of your Medicaid is in the adolescent population and many of those that would lose traditional Medicaid coverage may just flip into chip. It might just be helpful to hear some of the work that you guys have done internally and how you might be thinking about how that plays out over the course of 2023? Thanks.

David Duckworth: Yeah, Whit we’ve been focused on this topic as it’s certainly been out there and now is I guess closer to being implemented across the different states than it was as we thought about the potential of it happening over the course of last year. But we’ve had a lot of time to plan. As we’ve talked about previously, we really view mental health coverage as essential and think that many states and payers would intend to continue to provide coverage. But, of course, we want to help all of our Medicaid patients navigate what that means for them whether it’s an administrative process that they go through to reenroll in their Medicaid plans or find some other product. Our focus has been on educating our patients, our facilities, our operations leaders, our revenue cycle leaders have done a tremendous job just planning for that and communicating what to expect as we move into the second quarter.

We’ll continue to monitor the potential impact. Of course there are patient populations as you mentioned, the child and adolescent population that I think is less likely to have a disruption and will have a longer period of time where they can stay enrolled in Medicaid. But we want to help all of our patients just navigate what it means for their coverage through the year and the team has done a nice job preparing.

Whit Mayo: Okay. Thanks guys.

Operator: Our next question will come from Kevin Fischbeck with Bank of America. Please go ahead.