Acadia Healthcare Company, Inc. (ACHC) Q3 2025 Earnings Report, Transcript and Summary

Hello, and thank you for standing by. My name is Lacey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Acadia Healthcare Third Quarter 2025 Earnings Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Brian Farley. You may begin.

Thank you, and good morning. Yesterday after the market closed, we issued a press release announcing our third quarter 2025 financial results. This press release can be found in the Investor Relations section of the acadiahealthcare.com website. Here with me today to discuss the results are Chris Hunter, Chief Executive Officer; and Todd Young, Chief Financial Officer. 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 in the press release that is posted on our website. 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 2025 and beyond. 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 third quarter news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. At this time, I would like to turn the conference call over to Chris.

Good morning, everyone, and thank you for joining Acadia's Third Quarter 2025 Earnings Call. I'm pleased to be joined today by Todd Young, who recently joined Acadia as our Chief Financial Officer. Todd brings nearly a decade of public company CFO experience, most recently serving as CFO of Elanco Animal Health where he helped shape the company's strategic direction following its spinoff from Eli Lilly. Prior to that, he served as CFO of Acadia Pharmaceuticals. Todd's deep experience in health care finance, capital allocation and operational transformation will be instrumental as we continue executing our growth strategy and enhancing shareholder value. I also want to thank Tim Sides for his leadership as Interim CFO over the last few months. Tim will now resume his role as Senior Vice President of Operations, Finance. Likewise, I would like to take a moment to thank Dr. Nasser Khan for his many contributions to Acadia Healthcare over the past 3 years, including most recently as our Chief Operating Officer. Nasser is stepping down from the role of COO and will continue to serve as an executive advisor to the company through the end of the year to help facilitate a seamless transition. Turning to our third quarter results. We reported revenue of $851.6 million, representing a 4.4% increase over the third quarter of last year. Adjusted EBITDA was $173 million, compared with $194.3 million in the prior year period. As previously disclosed, these results reflect softer-than-expected volumes in our Medicaid book of business, particularly in our acute care segment. Same-facility volume growth was 1.3% in the quarter, which was consistent with the preliminary commentary we shared at the Jefferies Healthcare Services Conference in late September. This was approximately 100 basis points below our internal expectations. In addition to this increased pressure on our volumes since our Q2 earnings call in August, we have also faced incremental headwinds from rates and benefit expense related to employee health care costs, along with an anticipated increase in professional and general liability expense, or PLGL. These items are causing us to reduce our adjusted EBITDA guidance for 2025 to $650 million to $660 million from our previously issued guidance of $675 million to $700 million. Todd will take you through the specifics in more detail later in the call. Stepping back, we recognize that our operating environment has faced increasing headwinds as we moved through 2025, particularly with regard to pressures on managed care companies and increased uncertainty on Medicaid funding at the state level. Accordingly, we have taken decisive steps to optimize both our growth investments and our existing portfolio in order to position our company for improved financial performance in a more uncertain environment, particularly due to ongoing headwinds that we believe will ultimately be transitory in nature. As a result of these steps, as we finish 2025 and move into 2026, our company is in a better position to serve more vulnerable patients in our communities while sustaining both top and bottom line growth and unlocking the free cash flow generating power of the business. We are doing this in 3 primary ways. First, capturing the growth opportunity currently embedded in the business. Second, realigning our capital spending priorities. Third, optimizing our portfolio of existing facilities. First, let me expand on how we are focused on capturing the inherent growth opportunity that currently exists in the business. Having added over 1,700 beds across 2024 and 2025 year-to-date, we have increased our capacity to serve more patients in need. And we expect to add another 500 to 700 beds in 2026, including new facilities developed in partnerships with our marquee joint venture partners such as Tufts Medicine and Orlando Health. These additions are expected to contribute meaningfully to both same-facility volume and EBITDA as they ramp over the next several years and reach their full performance potential. As we continue to optimize the impact from beds added in 2024 and 2025, we are also driving execution across all of our facilities in order to provide high-quality and effective health care to our patients. To support these efforts, we've implemented a series of targeted initiatives focused on acute care referral sources. For context, approximately 80% of acute admissions originate from professional referral sources such as emergency departments, police departments and schools. We've developed referral source level action plans at underperforming facilities with senior operator ownership and weekly executive team updates. We've repositioned key clinical roles, introduced more data-driven planning and allocated dedicated resources to support execution. Our execution across these initiatives drove over 3% same-facility admissions growth in Q3 compared to last year, which is an acceleration from trends in the first and second quarters. In parallel, we are closely engaging with our payer partners, particularly in Medicaid, to demonstrate how our unique investments in technology and process position us to be part of the solution to the cost pressures facing government and other payers. Over the past several years, we've made meaningful investments in our quality platform, including standardized clinical protocols, enhanced data systems and outcome tracking, all of which are becoming increasingly important to both our payer partners and to accrediting agencies. These investments are designed to strengthen care delivery and demonstrate the value of our services, and we expect them to drive long-term benefits for patients, payers and our business, which I will talk more about momentarily. Second, we are realigning our capital spending priorities. As a backdrop, the demand environment for behavioral health services remains structurally strong. We continue to see rising acuity across patient populations, greater awareness and de-stigmatization of mental health, and a persistent supply-demand imbalance, particularly in underserved geographies. These trends are durable and support a long-term runway for growth. That said, we're taking a more measured approach to capital deployment in the near term. We've recently completed a comprehensive portfolio and capital allocation review, and we're prioritizing growth in markets with favorable reimbursement dynamics and strong demand fundamentals. As a result, we are pausing several development projects that no longer project an acceptable return. And as previously disclosed, we now expect our capital expenditures in 2026 to be at least $300 million lower than our revised 2025 CapEx guidance of $610 million to $630 million. This discipline allows us to focus on projects with the highest return potential and ensures a more linear path to EBITDA growth. And importantly, it positions us to generate positive adjusted free cash flow for the full year 2026, a milestone we previously expected to reach on a run rate basis exiting 2026. Looking ahead to 2027, we anticipate further reductions in CapEx as we concentrate our resources on high-performing markets and ramping facilities, while maintaining flexibility to pursue targeted opportunities that align with our long-term strategy. Third and finally, our goal is to ensure we have a portfolio built to serve patient demand and help address the persistent supply challenges in behavioral health. This means investing prudently to grow the business, but also actively managing our existing portfolio to ensure we meet demand, maximize the returns on our investments and best position us to deliver sustainable, value-accretive growth. As part of our ongoing portfolio optimization, during the third quarter we made the decision to cease operations at 5 facilities that no longer aligned with our strategic priorities or demonstrated persistent underperformance relative to our expectations. Two of the closures are in the previously discussed group of underperforming facilities: 1 acute care facility and 1 specialty facility. The others are eating disorder facilities that do not fit with our broader portfolio. We make a decision to close a facility only after careful review and analysis of a variety of factors, such as community needs, demographic trends and existing health care resources within a region. When community needs evolve, we work with local regulators, community leaders and other behavioral health providers to adjust our service offerings and facility locations accordingly. These decisions are never taken lightly, but they reflect our commitment to maintaining an optimized, high-performing portfolio that supports long-term growth and operational excellence. By concentrating our resources on markets and service lines with the strongest demand fundamentals and reimbursement dynamics, we're positioning Acadia to deliver stronger, more consistent results. We will continue to assess our footprint with rigor and make thoughtful adjustments where appropriate, always with the goal of enhancing performance, improving returns and creating long-term shareholder value. One of Todd's immediate priorities is to thoroughly review the more stringent lens we have been applying to capital deployment to ensure that every investment, whether in facilities, technology or partnerships, meets our threshold for return and supports our long-term objectives. Before turning the call over to Todd, I want to discuss our continued focus on quality. I've spoken about this topic on numerous calls because it's the key to our mission and critical to our long-term success. Our integrated quality dashboard now provides real-time visibility into more than 50 key performance indicators to our field operators and senior management, supporting our commitment to operational excellence and payer engagement. These initiatives have helped us attract and retain talent, and we're seeing more favorable labor trends in 2025 supported by centralized recruitment, employee engagement and targeted training. These efforts have demonstrated real results as Q3 reflected Acadia's sixth consecutive quarter of improvement to employee retention, a key factor in helping us manage labor costs. It's also worth noting that the broader health care provider industry is seeing an expected increase in rigor on surveys in the new post-COVID normal. CMS has publicly directed accrediting organizations and state survey agencies to significantly increase the diligence and thoroughness in how they survey all hospitals, not just behavioral health. And we are pleased with how we are performing. Across the industry, surveyors are spending more time on the units, with the patients, directly interviewing and observing staff. We welcome these interactions as we are increasingly able to capture proof points on the tremendous work that our teams and our facilities are doing every day. The positive clinical outcomes we have been able to achieve at a recently opened JV facility are an excellent example of how process improvements along with our investments in technology and, by extension, our overall ability to demonstrate clinical and quality outcomes are allowing us to deliver value to the patient community. At this facility which opened earlier this year, we have been able to serve more than 1,700 patients through the end of the third quarter. Furthermore, outcomes data at this facility shows significant improvement in psychiatric symptoms, including a 47% reduction in depressive symptoms, 47% reduction in anxiety symptoms and a 34% improvement in quality of life, a testament to the quality and consistency of care our teams deliver every day. These results are representative of how we are positioning our business to meet the evolving demands of the behavioral health environment. And even more importantly, they speak to the dedication of our caregivers, clinicians and support teams who are advancing patient recovery every day. We're excited to begin sharing more examples like this in 2026 across service lines and with more transparency into clinical outcomes. In short, we remain confident that these investments and initiatives will remain a key differentiator for Acadia in a health care sector that has historically seen underinvestment in technology. And with that, I'll now turn the call over to Todd Young.

Thanks, Chris, and good morning, everyone. I'm honored to join Acadia Healthcare and excited to be part of a company that is leading the way in behavioral health. Throughout my career, I've had the opportunity to help organizations navigate complex transitions, optimize capital allocation and unlock long-term value. I look forward to bringing that experience to Acadia as we continue executing on our strategic priorities and delivering sustainable growth. In my short time since joining, I've been deeply impressed by the strength of the team, the mission-driven culture and the scale of opportunity ahead. I'm particularly focused on ensuring that our financial strategy supports disciplined expansion, operational excellence and shareholder value creation. That includes a rigorous approach to capital deployment, a clear framework for evaluating growth investments, and a commitment to transparency and how we communicate our performance and outlook. Turning to our third quarter results. We reported revenue of $851.6 million, representing a 4.4% increase over the third quarter of last year. Same-facility revenue grew 3.7% year-over-year, driven by a 2.3% increase in revenue per patient day and a 1.3% growth in patient days. Adjusted EBITDA for the quarter was $173 million. Adjusted EBITDA came in at approximately $5 million below our internal expectations, driven primarily by lower volumes and an increase in bad debts and denials. Supplemental payments served as a partial offset to these headwinds. These results include $13.3 million in startup losses related to newly opened facilities, compared to $7.3 million in the third quarter of 2024. We continue to expect full year 2025 startup losses to come in at the prior outlook range of $60 million to $65 million. We expect startup losses for the full year 2026 to decrease modestly from 2025 levels, with a more material step-down expected in 2027. As a reminder, though CapEx will step down meaningfully next year, startup costs will decline less on a relative basis due to the large number of new beds coming online in 2025. On a same-facility basis, adjusted EBITDA was $224.7 million in the quarter. We invested $135.8 million in CapEx in Q3, which is more than $20 million favorable to our Q3 plan. From a balance sheet perspective, we remain in a strong financial position. As of September 30, 2025, we had $118.7 million in cash and cash equivalents and approximately $790 million available under our $1 billion revolving credit facility. Our net leverage ratio stood at approximately 3.4x. Costs related to managing the government investigations were $39 million in the third quarter, down 28% from the high watermark in Q2. We expect this spend to continue to moderate in Q4. Let me now turn to development activity. During the third quarter, we added 83 beds to existing facilities, bringing our year-to-date total to 274 beds added through expansions. We also commenced operations at 3 previously announced joint venture hospitals, including a 96-bed hospital in Danville, Pennsylvania, which is our second joint venture with Geisinger Health; a 106-bed expansion in Austin, Texas with Ascension Seton, which is also our second joint venture with Ascension; and a 144-bed hospital in St. Paul, Minnesota, developed through a joint venture with Fairview Health Services. We have added 908 beds through the end of the third quarter. We have 3 projects that may still open through the end of the year, and thus, we expect to add 945 to 1,076 total beds in 2025. Our comprehensive treatment centers, CTCs, offer scalable, capital-efficient solutions to meet a pressing public health need. In addition to our hospital development, we added 3 CTCs for opioid use disorder in the third quarter, extending our reach to 177 CTCs across 33 states. We've now added 14 CTCs in 2025, and we continue to see strong demand for medication-assisted treatment as the opioid epidemic persists. Turning to our outlook for the remainder of 2025. We have revised the range for revenue to be between $3.28 billion and $3.3 billion, from our prior range of $3.3 billion to $3.35 billion. We now expect adjusted EBITDA of $650 million to $660 million versus the prior outlook range of $675 million to $700 million. The revised outlook incorporates incremental volume softness and rate pressure. This rate pressure includes increased denials and bad debt expense, along with rate updates that came in modestly below prior expectations. In the fourth quarter, we also expect to record an incremental $4 million to $6 million charge related to our professional and general liability expense to reflect the evolving legal environment facing our industry. We now anticipate full year same-facility volume growth to land at the low end of the prior outlook range of 2% to 3%. For the full year, we continue to expect low single-digit growth in the same-facility revenue per patient day, though we now expect to be towards the lower end of this range. We expect net Medicaid supplemental payments to be at the high end of our prior estimate of $30 million to $40 million, reflecting payments recorded in the third quarter from already approved programs. We now expect adjusted EPS of $2.35 to $2.45, versus the prior outlook range of $2.45 to $2.65, reflecting similar dynamics as the revised adjusted EBITDA range. As Chris mentioned, we're tracking several supplemental payment programs that currently are awaiting CMS approvals. These payments could provide up to $22 million of additional adjusted EBITDA that is not included in our 2025 outlook given the uncertainty surrounding their timing and magnitude. I will now turn the call back over to Chris to provide some color on 2026.

While we will provide formal guidance on our earnings call in February, I did want to take this opportunity to provide some color on our financial expectations for 2026. Overall, we remain confident in the strategy we are executing across the company to provide strong clinical outcomes for our patients and the communities we serve. And we see the following headwinds and tailwinds as we enter 2026. On the positive side, key adjusted EBITDA tailwinds include: A reduction in startup losses due to our more focused growth investments next year. Ramping contributions from the meaningful number of bed additions over the past several quarters, with 632 new beds entering the same facility calculation in the first quarter of 2026. And a modest EBITDA uplift from targeted facility closures. These benefits will be partially offset by several headwinds: Continued softness in acute care Medicaid volumes along with continued payer-related pressures, consistent with trends observed throughout 2025. Incremental cost pressure related to PLGL expenses. And the absence of the nonrecurring $28.5 million benefit from Tennessee's 2024 supplemental payment program, which was recorded in the second quarter of this year. We are also closely monitoring the reimbursement environment, which continues to evolve as government payers face significant cost pressures. We remain a committed partner to our payers, and we believe we can play a meaningful role in improving outcomes for the patients we serve. With that, we're ready to open the call for questions.

[Operator Instructions] Your first question comes from the line of A.J. Rice with UBS.

It sounds like the situation with the payers is still challenging. I want to just maybe see if we can get a little more color on exactly what is happening there. This sounds like it's primarily in Medicaid, and it sounds like there's some denials and some challenges on getting referrals. Do you have a sense, is this specifically in the markets where you had some of those adverse publicity over the last year or so? Or is it across the board? And the denials, are those tending to happen after you've treated the patient, or is it denial of extra days of stay? Maybe just flesh out a little more of what you're seeing. And has it indeed gotten worse over the last quarter or 2?

Great. Thank you for the question, A.J. This is Chris. I'll go ahead and take that. I would say, first of all, we know that we can be a highly critical partner to these payers that are clearly under significant cost pressure, I think, particularly on the Medicaid side. And we're doing that by delivering really high-quality, evidence-based care, with better outcomes, which they need. That said, we are seeing some, what I would call, payer friction manifest across both rate dynamics and volume. And while it's not universal, it's more concentrated, we would say, in certain areas, particularly in Medicaid. So on the volume side, the most notable pressure has been around length of stay, where we've observed a more frequent utilization review, especially from Medicaid managed care plans, which are increasingly scrutinizing discharge criteria. And let's say this is a trend that we're seeing across the industry, but the impact, to your question, is just most pronounced in Medicaid-heavy markets. On the rate side, we're seeing some incremental pressure as we've moved through Q3 and into Q4. Many of our recent negotiations have resulted in low to mid-single-digit rate increases, but -- which is pretty consistent with our historical norms. But there's definitely a handful of states and payers where rate updates have been a little bit more challenging. And we're trying to approach those situations very constructively and remain highly focused on aligning around value in outcomes, which I think we're continuing to have some real success with. I think just to your question on adverse media, we really are not seeing that and I would not use that as a factor at all. On the bad debt front, the pressure that we're seeing is primarily driven by reimbursement for fewer days than maybe the full length of care that we've provided. And this can happen during a patient's stay or even post discharge, where a payer can determine that a portion of the stay doesn't meet criteria for coverage. And so that would flow through as a denial expense. So thank you for the question. I hope that helps.

Your next question comes from the line of Pito Chickering with Deutsche Bank.

I guess the biggest question I've been getting sort of all night this morning is just thinking about fourth quarter as a run rate as we sort of think about 2026, so -- just as a launch pad. So how should we be thinking about sort of the durability of these bad debt, sort of denials, pressure on length of stay and professional liability that we're seeing in the fourth quarter as we think about 2026? Should these be durable? Are these going to be more one-timers? Just any color on the durability of those headwinds?

Pito, it's Todd. Thanks for the question. Let me step back a little bit on just Q4, just seasonally, is our slowest quarter of the year. So we wouldn't want folks to run-rate volumes based off the Q4 reality just given the nature of how our services get used. There are a few items that aren't going to repeat at the same level going forward. As we called out, we've added a lot of beds in Q3, adding less here in Q4. So startup losses are going to get to the high end of the year here in Q4, $18 million to $20 million based off our $60 million to $65 million full year guidance. So that will step down in 2026, as we mentioned. It'll step down even more in 2027 just given the number of beds we brought on this year and the ramping of those facilities. There's also some closure costs here in Q4 that won't repeat, in the low single-digit millions. And then as you called out, the professional and legal insurance costs. We're really happy with the investments we've made on quality and how that's going to continue to improve our overall clinical results. We've talked with that with our insurance carriers, and they understand it. But there's still just this industry-wide pressure, and that's why we've added this incremental expense expectation into Q4. So again, as Chris called out, there's a number of tailwinds for next year. And then the other big one that's in play is we've got up to $22 million of EBITDA contribution from supplemental payments that are under review at CMS. Clearly, the government shutdown is having an impact on the timing of those, and that may fall into Q4 or it could be falling into next year. So overall, I wouldn't just run-rate Q4. That would be overly conservative as we continue to have the seasonally low quarter for the year.

Great. And then a quick follow-up. Just looking at the DSOs, which spiked in the quarter, just curious to what led to that increase. And as you're looking at your change in denials and bad debt, is there any concern about collecting some of the AR that you booked this quarter?

Yes, it's the right focus. Those are what's driving out the DSO. We've also got some slower payments from some federal plans that we do expect to collect. But overall, the team is doing a great job of following up and really working to make sure we collect all the payments that are due to us.

Your next question comes from the line of Brian Tanquilut with Jefferies.

Chris, maybe as I think about the CapEx commentary in your release, that you're reducing CapEx by $300 million next year and you're looking at 500 to 700 beds. Just trying to reconcile, what does that mean from a dollar CapEx perspective when you're still opening 500 to 700 beds? Or maybe the opposite way of thinking about it, were you essentially planning like 1,200, like reducing $300 million of CapEx? So just curious how we should be thinking about the cash flow outlook for next year.

Yes. Let me start and see if Todd wants to chime in, but thank you for the question, Brian. I would say going back to the visibility that we provided at the end of September at the Jefferies Conference, we did make the decision to reduce '26 CapEx by at least $300 million. And that was a very deliberate shift towards more disciplined growth and capital efficiency, and it was informed by a comprehensive, literally facility-by-facility review of everything in our development pipeline, taking into account volume trends, reimbursement dynamics, really a number of factors across the board. And so we will be opening multiple large acute care facilities in 2026. And actually, the majority of the capital spend associated with those facilities has already been spent in '25. So on average, we're going to end the year around 85% complete from a development standpoint in '25, which really allows us to have a meaningful step-down in capital spend in '26. I think one other thing I would just point out, as part of the review, we did pause a combination of new facility developments and expansion projects that just did not meet our threshold for return or strategic fit. And we're just really concentrating on -- all of our resources on markets with strong demand fundamentals, really strong reimbursement. And we expect this emphasis moving forward on both margin expansion, but also free cash flow generation, as we head into '26 to be the real focus. So I hope that answers your question.

Yes, Brian, just to weigh in on the numbers. Our new guide here is $610 million to $630 million for CapEx in 2025, and then dropping that by more than $300 million in '26.

Your next question comes from the line of Whit Mayo with Leerink Partners.

Maybe just a follow-up on that. For the de novos that you're pausing, I mean, it sounds like the returns aren't that good. I mean can you and would you walk away from those? Or do you have contractual obligations to see those projects through? And if you could comment on CapEx for 2027. And then also given the opening of these facilities in '26, how much will D&A be going up year-over-year?

Yes. Whit, this is Chris. Thanks for the question. Why don't I just go ahead and start on that? I would say for the joint ventures that we've done, I mean, these are contractual obligations, and we would not walk away from those. There are situations across the board, including de novos that we have done, where we have either purchased land or we have not launched construction. And those were relatively easy decisions in markets where we didn't think there was favorable reimbursement over time, or we just -- one of the criteria just didn't make sense as we looked at everything in totality. So we're going to continue to be very aggressive there on all fronts. But just joint ventures is going to continue to be a strong use of capital and really a strategic imperative for us to grow the business. Todd, do you want to take the...

Yes. We'll obviously get to '27 later on as we exit '25 here. I'm not going to comment on the depreciation and whatnot as I'm digging in to everything from a budget and expectations for next year. I will say, we would expect CapEx in '27 to continue to be lower than in '26 as we commented that, in '27, we'd expect to bring on 150 to 250 beds versus the 500 to 700 that we'd bring on in '26.

Your next question comes from the line of Ryan Langston with TD Cowen.

On the legal expense, around $40 million this quarter. Certainly, I know you expect it to come down as we move here through the next few quarters, and it came down from the second quarter. But should we sort of expect that to be sort of a gradual ramp-down or maybe more of a material step-down in the near term?

Yes. Thanks for the question. Legal expenses in Q3 did step down about 28% from the prior quarter. So we do continue to expect another material step-down in spend as the majority of the work that we've been doing with respect to ongoing litigation and some of these government investigations was completed in Q2 and ended in Q3. So it's something that we're obviously super focused on. But we do think that we've hit the high watermark and you're going to see a consistent step-down from here.

Your next question comes from the line of Jason Cassorla with Guggenheim.

Great. Maybe can you just give us a sense of the runout costs for the 5 facility closures as we think about 2026? I know it sounds like you're anticipating some EBITDA uplift from the closures on a year-over-year basis. But maybe also just triangulate what the EBITDA headwind from those facilities were this year. And maybe broadly, just to follow up on that. As you look at your facility footprint, can you talk about the balance of further facility closures or how you're weighing that against any divestiture opportunity at this juncture?

Jason, thanks for the question. I mean the -- we have had expenses from the closure side with some runout costs. We expect that to flip into kind of a mid-single-digit tailwind in 2026. Overall we continue to look at the footprint. We will continue to do that. But overall, we've got a number of facilities, and we've ring-fenced this down to 5 to 7 that we've been talking about, that we're continuing to see improvements on and green shoots. But we're going to take a stringent lens to make sure we're getting the right return on those as we go forward. As Chris mentioned in the prepared remarks, that's one of the things I'm turning to, once we get through the earnings, is looking at the returns on the facilities across the footprint. Overall the team has done a great job of already having done that work and concluding. And we've got these that we've closed this year. And we're not looking to see significant closures going forward. That being said, we'll be rigorous in our evaluation, and if that makes the right thing to do from a return on capital, then we'll make those tough calls.

Maybe one thing I would just add is -- to answer your question just on the select asset sales. We have been very successful in generating cash and doing that, and we'll continue to look for opportunities just on that front. Even considering land, but also, in the event that it makes sense and there's greater value creation, selling a license along with the underlying real estate. That's something that we're always considering as well; anything to maximize value.

Your next question comes from the line of Andrew Mok with Barclays.

You noted 3Q EBITDA came in $5 million below internal expectations, which implies a $28 million cut to fourth quarter EBITDA. Outside of the $5 million professional liability, can you help break apart the headwind on the remaining $23 million between payer issues and bad debt? And secondly, given the mounting pressures building into year-end, do you think you're in a position where you can grow earnings next year?

With respect to the bridge to Q4, it's split pretty evenly between the rate side with bad debts and some of the challenges we've seen on rates, as well as in the volume declines that we called out at the Jefferies Conference that are then continuing into Q4, plus the PLGL expense that you noted. As we look, I'm digging in on the business, trying to get my full understanding. We called out a lot of the tailwinds we have going into '26 with all the bed additions and the ramping and the execution of the facilities we've brought online. There's obviously some headwinds as there always are. But we look forward to giving full guidance on in February. But we're excited and do believe that this is going to be a growing business as we move into '26 and '27 overall.

Your next question comes from the line of Matthew Gillmor with KeyBanc.

For the $22 million in Medicaid supplemental benefits that could come through for '25, can you give us a sense for what the annualized benefit would be into '26? And just give us a sense for the key states that are underneath that $22 million.

Yes, I think the 1 key state there is Florida. We've got 3 others that are in the mix that we're also working through. Certainly, the $22 million would be an incremental here in Q4 and it would provide a pretty nice incremental run rate going forward. But we're not getting into the specifics of those at this time with the '26 guidance to come in February.

Your final question comes from the line of Joanna Gajuk with Bank of America.

So I guess most of the questions were answered here. But just coming back to -- I know you don't want to give us specific numbers for '26 and you said Q4 not a good starting point thinking about into the next year. Is the better starting point, say, second half, third quarter and Q4, and then adjust for startup losses and some of these other items maybe? So is that a better way to think about next year?

Joanna, there's a lot of moving pieces in the business, and we will get into greater detail with full guidance in February. I think we are excited about all the new beds going on, the ramping. The team is really focused on continuing to get the most out of every one of our facilities. Excited by the growth in the CTC business as we've added more opportunities to treat patients there in a really high-demand space. And all of these things are items that are still coming together. We're in rate negotiations with a number of states. And we're looking to get the government back reopened. That will also be a helpful item with respect to supplemental payments as well as continued work on some of the federal programs. That being said, there are risks out there of different states and the like that we're making sure we're capturing appropriately so that as we give guidance going forward, it's very well informed with our expectations for our business. So I'll leave it at that with a big picture and turn it over to Chris.

Yes. I would just add that we really do look forward to working constructively with payers. I think we have made so many investments on the quality front and have very, very strong clinical health outcomes that I began to allude to in my prepared remarks. We look forward to sharing more of that. But I think that data is going to be extremely relevant for payers here going forward, and we really look forward to partnering with them to make that happen. And I think just one other thing I would point out is that when you just look at the way we're launching into Q1, 632 new beds will be entering the new store -- new same-store calculation in the first quarter of the year. And again, I think that just sets us up so well to partner closely with the payers moving forward. Thank you.

This concludes today's question-and-answer session. I would now like to turn it over to Chris Hunter for closing remarks.

Thank you. In closing, I just want to thank once more our committed facility leaders, clinicians and nearly 26,000 dedicated employees across the country who have continued to work tirelessly to meet the needs of our patients in a safe and effective manner. As the leading pure-play behavioral health provider in the U.S., we continue to be so proud of the important work that we're doing every day to address a critical societal need in our nation, and we remain focused on our purpose to lead care with light. Thank you all for being with us this morning and for your interest in Acadia. Have a great day.

This concludes today's call. You may disconnect.