Acadia Healthcare Company, Inc. (ACHC) Q4 2025 Earnings Report, Transcript and Summary

Good day, and welcome to the Acadia Healthcare's Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. Patrick Feeley, Senior Vice President, Head of Investor Relations. Please go ahead, sir.

Thank you, and good morning. This morning, we issued a press release announcing our fourth 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 Debbie Osteen, 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 2026 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 fourth 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 Debbie.

Good morning, everyone, and thank you for joining us. I'm pleased to be with you today on my first earnings call since returning as CEO. I want to begin by recognizing our clinicians and employees across the country. The work you do every day makes a meaningful difference for patients, families and communities, and I am grateful for your dedication. I also want to thank our leadership team, partners and Board for their support during this transition. Our mission remains unchanged, and my focus is on stability, execution and clear communication. Since returning, I've spent time assessing the current operations at Acadia. I know this industry. I know many of our teams and I understand what drives quality and performance in behavioral health care. My approach is grounded in focus and accountability. I am committed to supporting our teams in the field to drive strong fundamentals and consistent execution across the organization. With that context, I want to briefly reflect on the leadership transition and how I'm approaching this role. My intention is to bring steady leadership, reinforce operational discipline and help position the company for success in both the near term and the long term. I have great confidence in our teams and in the long-term direction of the company. And I am fully committed to supporting Acadia through this next phase of improvement. Let me now outline the most important priorities that are guiding our work. The first area of focus is the quality of management at all levels. I believe that performance in our business starts with having the right people in the right positions, both at corporate and in the field. I'm reviewing leadership depth and the layers of operational supervision with the goal of ensuring our teams in the field are supported. We are returning to fundamentals. This includes a tighter operating focus and faster escalation when issues arise. Many operational misses result from miss details rather than flawed strategy. The need for behavioral health services remains strong. Our focus is on ensuring we consistently meet that need. We will continue to maintain strong relationships with our partners, align staffing and provider coverage with patient needs and remove internal barriers that slow problem solving. Our priorities translate directly into what we need to achieve at the facility level. Some of our newer facilities have not ramped as quickly as expected. There is no single cause. We are evaluating each facility individually and we will be building a clear, standardized approach to our new hospital openings. We are focused on the 2026 openings and have adjusted our planning process to ensure successful execution. Alongside this work, we continued to expand our presence through joint ventures with leading health systems. In 2025, we opened new joint venture facilities with Henry Ford in Michigan, Geisinger in Pennsylvania, Ascension in Texas, ECU Health in North Carolina, and Fairview in Minnesota. Each partnership is tailored to the needs of the local system and community. And we work closely with our partners to ensure alignment of mission, priorities and values. We are excited about these opportunities to better serve the needs of the local community and advance our position as a leading provider of behavioral health services. As I look across the business, I am encouraged by the significant opportunity. The company has added more than 2,500 beds over the past 3 years and is on track to add an additional 400 to 600 beds in 2026. After a period of record expansion, the priority now is to shift our focus toward operational excellence and execution. The environment is not without challenges, but there is a large opportunity to unlock the EBITDA and free cash flow potential within our existing facilities. Relative to the start-up losses included in our 2025 results, the incremental EBITDA opportunity represented by the new facilities opened from 2023 through 2026 exceeds $200 million. Given my history in this industry and with Acadia, I am confident that we are well positioned to deliver on this opportunity. Our operational and clinical priorities also guide how we deploy capital. We intend to allocate capital with discipline. Each project must stand on its own merits, supported by clear market fundamentals and patient needs. In parallel, we are evaluating our service lines in a comprehensive manner, always with a focus on long-term value creation. At the same time, quality and patient safety are the foundation of everything we do. That's what drives our mission and our results. We keep it simple. We measure what matters. We look at it every day and we act fast when something doesn't look right. Our quality dashboard gives leaders real-time visibility into more than 50 measures so we can spot issues early and share what's working across our facilities. And building on the data that was shared last quarter, we're expanding outcomes tracking across more programs in 2026, so we can be more transparent about patient progress over time. The early results are encouraging, and we've began to share them on our website. The industry is also operating in a more active survey environment, and I'm pleased with how our teams have performed, including strong accreditation survey results. Surveyors are spending more time on units, talking with patients and directly observing care and we welcome that accountability. At the same time, we're moving faster on prevention. Because of the investments we've made in technology, we are able to identify patterns that may signal safety risk earlier, so we can intervene sooner and prevent harm. Finally, regarding regulatory matters, we are cooperating fully. I will not comment on timing. My focus is on the recruitment and retention of highly qualified leadership and staff that deliver high-quality care to our patients. These are factors we control, and they are critical to reducing risk and maintaining consistency across the business. As we look ahead, the operational priorities we have in place provide us with a solid foundation. We are aligning our teams, sharpening our focus and reinforcing the execution discipline to support more consistent results. With that, I will turn it over to Todd to review the financial details and our expectations for the year.

Thanks, Debbie, and good morning, everyone. Turning to our fourth quarter results. We reported revenue of $821.5 million, representing a 6.1% increase over the fourth quarter of last year. Adjusted EBITDA for the quarter was $99.8 million. Fourth quarter results included a $52.7 million adjustment to the company's reserve for professional and general liability, in line with the updated guidance that was provided on December 2, 2025. For the full year 2025, we generated revenue of $3.31 billion, an increase of 5% over the prior year and slightly above the upper end of our guidance range of $3.28 billion to $3.3 billion, a reflection of improved volume. Adjusted EBITDA was $608.9 million, near the upper end of our guidance range of $601 million to $611 million. In the fourth quarter, same-facility revenue grew 4.4% year-over-year, driven by a 1.3% increase in revenue per patient day and a 3.1% increase in patient days, an improvement over recent quarters. Included in fourth quarter results was $12.8 million in start-up losses related to newly opened facilities compared to $11.2 million in the fourth quarter of 2024 and $3.6 million in net operating costs associated with closed facilities. On a same-facility basis, adjusted EBITDA was $152 million in the fourth quarter. We invested $93 million in CapEx in Q4 and a total of $572 million for the full year of 2025, nearly $50 million favorable to our prior guidance. Costs related to managing the government investigation were $12 million in the fourth quarter, down 69% sequentially. From a balance sheet perspective, we remain in a solid financial position. As of December 31, 2025, we had $133.2 million in cash and cash equivalents and approximately $595 million available under our $1 billion revolving credit facility. Our net leverage ratio stood at approximately 4x adjusted EBITDA. Moving to development activity. During the fourth quarter, we added 181 beds, including 144 beds from opening of a new joint venture facility in North Carolina. For the full year 2025, we added 1,089 beds, exceeding the high end of our guidance range. This includes 778 beds from opening 6 new facilities. As previously discussed, over the course of 2025, we made the decision to close 5 facilities, including 4 specialty facilities and 1 acute care hospital. These closed facilities totaled 382 beds. Looking forward to 2026, we expect to add between 400 and 600 new beds, primarily through the opening of new facilities nearing completion. This includes 3 facilities with joint venture partners, including new hospitals with Tufts Medicine, Methodist Health and Orlando Health. During the fourth quarter, we also opened a new de novo in our CTC line of business, bringing the total to 15 new CTCs added to the full year 2025. De novos in our CTC line of business continue to be capital-efficient way to expand our footprint into new markets that are underserved. Turning to our 2026 outlook. We expect full year 2026 revenue to be between $3.37 billion and $3.45 billion and adjusted EBITDA of $575 million to $610 million. We expect adjusted EPS of $1.30 to $1.55. Full year guidance includes the following assumptions: we anticipate full year same-facility volume growth between 0% and 1%. This growth is driven by the incremental contribution from ramping beds, including approximately 630 beds that will be added to the same-store bucket in Q1. That is partially offset by an approximate 350 basis point headwind to the same facility growth from changes in the New York Medicaid program, which I will discuss further in a moment. Moving to pricing. For the full year, we expect a 2% to 3% increase in same-facility revenue per patient day. This includes a decrease in Medicaid supplemental payment revenue for the full year 2026. As a reminder, our fiscal year 2025 results included a nonrecurring $34 million revenue benefit from Tennessee's supplemental payment program, which was recorded in the second quarter of 2025. We also expect to recognize $11 million of out-of-period supplemental payments in the first quarter of 2026. Guidance does not include any programs that have not yet been approved. We estimate certain programs currently awaiting regulatory approval, represent at least a $22 million EBITDA benefit if approved this year. Start-up losses are expected in the range of $47 million to $53 million compared to $56 million in the prior year. Guidance assumes start-up losses will be weighted or towards the early part of the year with approximately 60% coming in the first half of the year. 2025 consolidated results include approximately $40 million of revenue from closed facilities. The closure of those facilities is expected to create an approximate $9 million tailwind to 2026 adjusted EBITDA. As we previewed in January, the State of New York has decided that it will no longer allow Medicaid patients to receive care in out-of-state facilities. We continue to estimate a $25 million to $30 million annual EBITDA impact. As a result of this change, we are consolidating our footprint in that market and have closed 2 leased specialty facilities. We are actively working to backfill the remaining occupancy in the market. For 2026, PLGL expense is expected to range between $100 million and $110 million, in line with our prior guidance. We anticipate generating positive free cash flow this year as we expect to see CapEx decline to a range of $255 million to $280 million. Moving to our outlook for the first quarter of 2026. Revenue is expected to fall between $820 million and $830 million. Adjusted EBITDA is expected to be between $130 million and $137 million. This outlook reflects the following assumptions: start-up losses of approximately $14 million, the recognition of $11 million in supplemental payments related to the prior year and the impact from severe weather of approximately $3.7 million. I will now turn the call back over to Debbie for closing remarks.

Thank you. As I look across the business, I am encouraged by the strength of demand and the need for our services as well as the significant opportunity across all of Acadia's service lines. Over the last several years, we have expanded our footprint to over 12,500 beds, taking care of 84,000 patients per day. The focus now is on delivering quality care for patients and consistent operational performance. We have the right mission, the right markets and the right foundation to deliver improved results. This work will take discipline and consistency. We remain focused on providing care with the highest standards for our patients and the communities we serve. We are fortunate to have an experienced and dedicated team who provide quality patient care for those seeking treatment for mental health and substance use issues. I am confident in the value we can unlock through focused execution. With that, we are ready to take your questions.

[Operator Instructions] And the first question will come from A.J. Rice with UBS.

Welcome back to Debbie. First, I just wanted to ask, I know last year, the company had embarked upon a -- I think, what was described as a value creation review with some outside advisers. That wasn't mentioned in the prepared remarks. I wondered, can you just update us on the status of that? Is that still ongoing? Or now that you're back, has that been put on hold?

Thank you, A.J., for welcoming me back. It's not on hold. I think that what we are focused on right now is really what's in front of us, which is 2026 and making sure that we perform and that we're able to address some of the issues from last year in 2025. We're always looking for opportunities to create value. So that's really an ongoing process. We didn't mention it, but it's important that we look at short-term and long-term value. And so that's continuing. We are -- as I mentioned in the remarks, we are looking at our service lines to make sure they're aligned that they will create the value that our shareholders expect. So I think there's more to come there. There is a real focus right now, though, on immediate progress. And then, as I said, looking at the long-term value as well.

Okay. Great. And let me -- for my follow-up. Just as you've had a chance, I know it's still early in your assessment of things. But I think we've always thought about this industry, at least in recent years, in a normal environment can generate low to mid-single-digit organic volume growth, low to mid-single-digit pricing gains. And then with the de novos to have some opportunity for margin improvement over time. Is there anything you're seeing? I know there's noise in what's been happening in the last 18 months. But as you come out the other end of this and this year is probably getting back to normalcy year, is there any reason to think that, that growth algorithm is different as you reassess the landscape?

No, I don't think it's different, A.J. I do think the demand continues to be very strong. And I certainly don't see anything that would impact that either short term or long term.

A.J., overall, we feel good about where it is and how we're playing out this year. A lot of noise in the numbers over the last couple of years that we think as we get stable here and add to our beds with less closures, we should get back to more of a normal course on the growth side.

Next question will come from Whit Mayo with Leerink.

Obviously, there's a lot of embedded earnings inside the organization from all this development activity. I think you framed it as $200 million of incremental EBITDA, Debbie. What's the time frame that you think you could realize those earnings? Is it 2 years, 3 years, 5 years? Just how do we think about the pace of that?

Yes, Whit, it's Todd. I think we have not defined the pace of it. But clearly, we think it's inside 5 years. We're going to keep doing this based off increasing occupancy. We've added a number of beds since 2023, and we'll add an additional 400 to 600 beds this year. As we look at that on a facility-by-facility basis and looking at it based off occupancy rates, that's how we've calculated out that performance improvement and do think it's inside 5 years. We're not committing, is it 3 years? Is it 4 years? But certainly, it's in this 5-year window as we drive occupancy at all of these new facilities we've brought online.

And I'll just add with -- we built these beds because there was a market need. And we entered into the joint venture partnerships because of the market need. And in many cases, they had beds that were folded into our operations. So we're going to move with a sense of urgency here. We want to eliminate the barriers and really start to see our investment be realized. And as you said, there's a lot of opportunity embedded there. And I know the team is committed to move quickly and to work in collaboration with not just our partners, but in the markets where we put beds in as de novo as well as expansions.

Okay. Maybe just my follow-up, Debbie, I'd just be curious on any of the obvious areas that you see for improvement, whether it's change in the divisional or reporting structure, maybe just more specific details around what you're doing to address. I think you said like removing internal barriers to slow problem solving.

Operator, next question.

The next question will come from Brian Tanquilut with Jefferies.

Debbie, nice to hear back from you here. I guess I was thinking question-wise, as we think through the challenges that the company faced, especially towards the last year at the end of the previous regime, one of the things that got called out was the pressure from managed Medicaid on average length of stay, where approvals on approved days for patients, especially in acute were being pressured. So I'm just curious, how do you foresee pushing against that pressure from managed Medicaid to sort of maintain stability in that length of stay metric?

I've been in the business a long time, as everyone knows. And I think there's always going to be a natural push and pull in the reimbursement environment, not just with managed Medicaid. I don't think it's a new development. I think that some states and payers are more challenging than others. But -- and we address those situations individually. We really have a very stable length of stay. It's obviously on a same-store basis, we're going to see that, I think, stay stable. However, there is an impact this year on length of stay with respect to the New York Medicaid, which I think everyone is very well aware of. Those patients tended to stay longer. So you'll see an impact on that. But just generally, we consistently advocate for patients when there are concerns about getting authorizations or medical necessity. And we really try and work with our payers. We want to make sure the patients are in the right setting. But overall, I think that we have very strong relationships. And I think this is just part of the behavioral health business, and I don't see a big change there or see -- we're not anticipating a change this year. We're both doing what we need to do. Ours is to advocate for the patient. And they have their concerns, but we really want to work in collaboration with them.

I appreciate that. And then maybe my follow-up, Debbie, as I think through just the bed adds that Todd laid out for us earlier, I mean, obviously, very exciting. But as we think about, again, the previous regime, there were offsets to the bed adds with bed closures. So just philosophically, as you look through the portfolio today, how are you thinking about the opportunity to grow net beds or kind of like maintaining or maybe even avoiding bed closures at this point?

Well, we -- I think as I was here at prior time, we always looked at our portfolio to evaluate what makes sense. But in my mind, that accelerated pace that you've seen over the last couple of years in closures is behind us. And I think that we would only consider closing beds if there's no clear path to viability. And our focus right now is really on operating and improving the existing portfolio. So we're not talking about closures at this point and don't anticipate being in that situation.

Yes. The only caveat on that is we did close 2 leased facilities in Pennsylvania as a result of New York's decision driving more efficiency by consolidating in bigger locations. And because the leases were up, it just made logical time to close. But otherwise, very aligned with Debbie. The opportunity in front of us is to treat the demand that's out there and look forward to operating all of our facilities.

Next question will come from Pito Chickering with Deutsche Bank.

Welcome back, Debbie. Talked a little about this, but can you give us more details on exactly how you plan to rebuild trust with the referral sources and how you'll change how Acadia operates at the facility level in order to rebuild that trust?

Well, I think we have good referral relationships, Pito. I do think that it has to be consistent, and it's got to be a focus every day to make sure that we are delivering the high-quality care that our referral sources expect. And I think that we are doing that. As far as some of the issues in the last year in particular, with just beds ramping, I don't think it was really related to a disconnect with our referral sources, but there were other issues involved around getting these hospitals open. But I feel good about our relationships. And we have -- as you know, a team of people that really want to connect with them and they do that every day to make sure that we understand what they need in services, but then also that they're satisfied and the patient is getting what they need. Our outcome data, I think, is going to be very helpful with referral relations because it is -- we are in a very good place with those outcomes. So it's our job to show our referral sources what we can do and that builds trust. And it's a track record of really treating their patients with the excellent care they expect and then also being able to demonstrate that through outcome data.

Okay. Then for the follow-up here, what is sort of your goal on the first 90 to 180 days? Is at the facility level going into each hospital individually? Is it at the divisional level? And as you think about the current utilization of dashboard systems and processes, kind of where do you want to focus on most in the next 90 to 180 days?

Well, my priorities are improving our volume, which we just talked about with particular focus on the same-store growth, but also on the 1,200 beds that we've added over the past 2 years. And I think that when I think about the team, I want to make sure that we have the right people, and I mentioned that in the remarks. I think that's key. I do think that we need to improve our operational discipline. We do have a lot of visibility now, and I've been very impressed, certainly with the quality dashboards. But there -- we also have benchmarking around some of the other areas with respect to the financial key factors that our facilities need to use to operate. So what I'm really trying to convey to the team and they're embracing this is use the data, use it for problem solving, but make decisions and take action. So if we see something that is not in line we need to act. And I think that started day 1 here as I rejoined the team.

The next question will come from John Ransom with Raymond James.

Welcome back. I'll add my salutation as well. Thinking about the long-term CapEx, how should we think about the cadence of that beyond 2026? And then what's the -- are we going to commit to maybe a moratorium on building new hospitals and focus on bed adds? Or what's the capital discipline to look like from here?

John, we appreciate that question. I think you see a significant reduction in CapEx in 2026, which is going to lead back to free cash flow growth. We will continue to evaluate opportunities in markets that have high demand and meet our threshold for bed adds, understanding that the cost of construction has increased a lot over the last few years. So that bar has changed versus where it was 3 years ago. With that lens, we'll also look for continued expansion opportunities within existing facilities and the possibility that M&A may be a better option than building depending on what that cost multiple is. But fundamentally, right now, we're focused on delivering in '26, ramping the new facilities we put in the ground and then being very disciplined on CapEx in the years after that as we get back to generating free cash and really showing off the cash-generating power the underlying business has now that we have these beds available and as we fill them.

And I'll just add to that, John. We really are focusing on the improved performance at our existing facilities. In terms of at least how I look at capital, it has to stand on its own merits, which I mentioned. But we always have said, and I think it's still accurate that bed expansions to existing facilities,are the best use of our capital. You have the demand there and you already have built in the overhead and other elements. So we're going to be very careful this year about what we do with capital. And Todd mentioned M&A, that's -- we're looking at that really not as a short term unless there's just some great opportunity there. But we're looking really more focused on what we're going to do with the beds that we've added and what we're going to do with the beds that we plan to add this year.

Okay. And my follow-up is med mal. I know it's a lagging indicator, but that's -- the industry has been in a long -- in a cycle where they're chasing experience with increased reserves. So where do you think we are in that? Is there any leading indicators to suggest maybe that's going to crest at some point in the foreseeable future?

It's a fair question, John. Obviously, the PLGL expense was a significant headwind to 2025. We've continued to analyze our claims coming in, and they are consistent with where we were in December relative to that expectation, which is why we held guidance for 2026. As we look out, we're making a lot of investments at the facilities and really focused on the training. It's our people that make the difference. And we think they will continue to provide really quality care. And that will be the driver, understanding that this is part of our industry and we're never going to get incidents to 0. But certainly, our goal is to continue to provide quality care and reduce the opportunities for more lawsuits in the future.

The next question will come from Ryan Langston with TD Cowen.

DSO was up, I think, 6 days year-over-year. Was there a particular payer, maybe group of payers driving this? And is this related to the higher denials rates you've talked about recently? Or just, I guess, anything else to call out there would be helpful.

Yes, Ryan. It's a good call. We did see some slower payments on a couple of things. A couple of these were nuanced. There were 2 states that had different programs that needed to get finalized, including the supplementals we saw here in Q1 of this year that meant we had to wait for the payments on previous services until those came in. So those monies have started to come in such that I wouldn't be concerned about the DSO. But we did see denials in line with what we expected for Q4, but cash collection is certainly a focus of the team and do expect it will be better in 2026.

Great. And then just following up. Debbie, welcome back. On the New York and Pennsylvania issue, I guess, are there any other sort of geographies in the portfolio that you could maybe potentially see a similar dynamic where one state limits sort of out of state care to another?

I think New York is an outlier. I do think that we have opportunity there to diversify our payer mix. So we were very dependent, as you can see from the impact of it on New York Medicaid in a few of our facilities up in Pennsylvania. But I don't see that as -- it would not be a risk that I would list. I think that states oftentimes don't have the resources available to adequately treat the needs of the patients. So they do send out of state. In this case, there was a policy in place, and they made a decision to enforce that. We're advocating because we don't believe there are sufficient resources in New York, understanding that we had to recognize the impact of this. But we're also working very diligently to really find new payer sources. And we're starting to see some early results from that. And we'll continue to do that to ensure that the hospitals that we had there continue to be viable, but with a different payer mix.

The Next question will come from Andrew Mok with Barclays.

This is Thomas Walsh on for Andrew. The core EBITDA growth in the bridge seems to outpace the underlying components of rate and volume. Can you help us understand what else is contributing to the 6% to 7% core growth potentially on the cost side?

Certainly, Thomas. The big driver of the core growth is the ramping facilities opened in '23 to '25. So you're getting an occupancy benefit and just getting the greater leverage in the EBITDA than what you would have at facilities that are already at a high occupancy level. And so that's a big driver of the core growth in the bridge and why we're very confident that the initiatives we're putting in place in these facilities and as they get longer tenured in the markets are getting that traction and driving the growth.

Great. And following up, could you help us understand how you're preparing for the changes in California's staffing requirements expected to phase in midyear? And what's embedded in guidance for this?

Sure. Now as everyone is aware, California has some new guidelines regarding nursing staffing ratios. The team was working very diligently to be ready for this for January 31. It's been pushed back to June 1. We expected to have about a $4 million EBITDA impact that's embedded in our guidance. Overall, it's really not about us needing more people because we were very well staffed to take care of patients across California, but rather, we now need a higher level of nurse in many cases, which is just an incrementally higher cost to us versus a full FTE, it's at the margin. So that's our expectation for the impact in 2026.

And I'll just add that we're obviously not the only company that's being impacted in California. And we're working very closely with the California Hospital Association, their position, and we certainly agree that if a new regulatory requirement comes in, that there should be an offset in funding for that. I don't want to say that, that's been set, but I do know that there are discussions with the state about putting in new regulatory requirements and the practice and what we believe to be their responsibility to fund that regulation.

The next question will come from Ben Hendrix with RBC.

Welcome back, Debbie. I wanted to talk a little bit about the ramp of new facilities, and I appreciate that you're in the process of assessing those on a facility-by-facility basis. But it does sound like some of the top line outperformance versus the high end of guidance for 4Q was driven by that new capacity. I'm just wondering if there's any early observations on the puts and takes of the ramp pacing? Are there some new projects that are gaining better traction than others? Any high-level thoughts on what might be working, what might be lagging in those new projects in a high level?

Well, as we think about the 2025 issues around the ramp of our new facilities, we have identified common themes. And it's really in getting the facilities open. And there's a lot of detail that go into getting our new hospitals open. We have construction, we have to hire staff. But I think what we have seen as probably a common theme is that we need licensure obviously, and then we need billing tie-in to be able to build for the patients within the facility. When we get that, it's not a matter of need. It's not a matter of patient demand. It's really more through these processes that we have to work through in each state, and they vary with respect to licensure. And then also, as I mentioned, just being able to bill for the patients that are coming to us. So we have a plan around that because I think that we recognize that we can work earlier on some of the areas, and we plan to do that. But as our hospitals open, we are pretty confident that we're going to see those patients come in. And again, back to what I said earlier, there was a need in the market. And we just need to make sure we get our hospitals open as we expect. And not all of them were opened on the time line that I think the team thought was going to happen. So we're going to do -- we're changing our processes for this year, and I'm hopeful that we'll see a difference in the ramp and the issues that we saw in 2025.

Great. And I wanted a quick follow-up on the Pennsylvania facilities. You mentioned that some of the -- you consolidated those and maybe repositioning those for a change in payer mix and maybe repositioning towards in-state volume. What is the kind of the timing of a shift like that, given the magnitude of this headwind? And then could these be slated for a potential exit or strategic review in the near future?

Ben, great question. I think overall, we have closed the 2 facilities that I mentioned to consolidate from essentially 8 facilities that were impacted by this down to 6. We've opened up 1 new state, New Jersey that we're excited to start trying to source patients from -- for these facilities as well as in the Pennsylvania market. And so we've given the $25 million to $30 million EBITDA impact for '26. That is our expectation. At the same time, we're very much looking to change that mix and deliver better results than that over the course of the year as we find new referral sources and look for ways to fill up these really good facilities that take care of our patients extremely well.

The next question will come from Matthew Gillmor with KeyBanc.

Let me echo that, welcome back to Debbie. Maybe following up on the operational discipline discussion. Debbie, you had mentioned a comment about looking at operational layers. I was hoping you could just help us sort of unpack that and sort of understand maybe how the team is organized today and what changes you're contemplating and how that might benefit the organization?

Yes. I mean we are taking a look not only at the corporate structure, but also the leadership structure that supports those in the field. And over my years in behavioral health and being in a public company, I have a strong belief that whatever we do here at corporate has to support what happens in the field. And that, that principle is -- really should guide what everyone does here in this office. So I have started in the process of looking at scope of each of our leaders, how the geography is set up and also just what their experience level is and do they have the right experience. And we have some new leaders, and we have those that really have been here. And I've seen a lot of familiar faces as I've rejoined. But my focus is on what do we absolutely need and what do we need to support the growth because we've had a lot of that. And what does that look like from a corporate point of view as well as a field point of view. And I think that it will be an ongoing process, but we've already started to make some changes, which I won't go into detail on this call. But I do think that the team is eager to make sure that we are rightsized, both here at corporate and in the field. So that's going to be a continuing process over the next few months.

Understood. And then on the fourth quarter volume performance, particularly on patient days, it seems like that came in a little bit better than recent trends and the length of stay improved a little bit and that then drove the upside to revenue or was at least part of it. I was curious how the volumes performed relative to your expectations? And were there any areas of sort of notable strength to call out in terms of the fourth quarter volumes?

No. We're very pleased with the team's delivery in Q4, as you noted, slightly better than expectations. And that was really pretty broad-based with strength in both acute and specialty.

The next question will come from Ann Hynes with Mizuho Securities.

Welcome back, Debbie. I want to focus my question on cash flow and leverage. So you said earlier on the call that it could take 5 years to unlock the EBITDA. And I'm assuming that's the same timetable for cash flow. I guess that would be my first question. But my real question is, I know you don't want to discuss the outstanding lawsuits. But how do you think about leverage with the potential upcoming settlements with the timing of unlocking the EBITDA and cash flow? Do you have any maybe short-term, intermediate and long-term leverage goals that you could share with us?

Thanks, Ann, for your question. As I said, it's certainly inside 5 years to unlock that $200 million opportunity. We're looking to be cash flow positive this year. And so we've brought down the CapEx significantly. We expect our legal costs to be -- and transactional costs to be lower than last year. And as I said, expect for some working capital improvements as well. All of that should lead to a positive on reducing debt. As we think about our outstanding legal challenges and the like, we are taking that into account as we look at leverage over both the short and the near term. But fundamentally, we do expect to grow EBITDA and to improve free cash flow in '26 and in '27 and '28. All of which then drives improvement in leverage, understanding that there may be some additional cash required to pay for a settlement or otherwise that can exist. But fundamentally, we do think our leverage will stay in a reasonable range, maybe not as low as it has been in the last few years because of these draws on cash, but not in a way that will create any risk to the enterprise.

Great. And the de novos that are not performing to your expectations, what's the drag on EBITDA in 2026? And do you expect that to continue like have these start-up losses in 2027 and 2028?

No, we expect start-up losses to improve. We're improving modestly in 2026 versus 2025. And as I mentioned earlier, a big part of our core growth is the ramping of facilities opened in '23 to '25, and that continued ramping of these facilities will be the driver of improved EBITDA and cash flow performance in the next few years. So we would expect in '27 given we don't have substantial beds or new facilities opening that those start-up losses would decline more than they are here in '26 versus '25.

The next question will come from Jason Cassorla with Guggenheim.

Welcome back, Debbie. I wanted to hit on 2026 volume quickly. You've got flat to up 1% total same facility, 350 basis point impact from the New York Medicaid dynamic. You've got facility closures and you've got over 600 beds coming into the same facility stat. I guess could you help maybe bifurcate what the volume growth expectation would be on like a non-Pennsylvania, non-new bed same-facility basis? I'm just kind of like relative to like the over like the 2% to 3% longer term. Just curious on what you're seeing on that front would be helpful.

Sure, Jason. And as you just rattled off there, we've got a lot of moving pieces that does make this a more complicated baseline than normal. As we called out, we think underlying core growth is in the 1% to 2% range, and then we're going to get a 1% to 2% benefit from our ramping facilities on the '23 to '25 basis. And so again, that ramping facility is going to be a big driver going forward. We've added a lot of new beds to our facilities and to new facilities and JVs over the last couple of years. But again, this drag on the 3.5% roughly from New York Medicaid is the big negative this year that we don't expect will repeat in future years, and then we'll get back to this growth as we ramp our facilities and exit the start-up losses and really drive that EBITDA growth from just getting a higher utilization of the fixed costs of each of the new facilities.

Great. Very helpful. And maybe just as a follow-up, I just wanted to ask quickly on the first quarter '26 guidance. If you net out the $11 million of out-of-period DPP benefit that you're expecting to book, it looks like first quarter EBITDA is down about high single digits. '26 guidance, if you net the out-of-periods, it's pretty flat on a dollar basis. Maybe it's the run rate PLGL, maybe it's the maturation of new beds, start-up cost timing and seasonality. But is there anything to call out in the first quarter '26 specifically that might be impacting the guide? Or is it just conservatism given some of the moving pieces?

No, a very fair question. I think we do have a weather impact here in Q1 that the big storm that really knocked out the team here in Nashville. We had a lot of folks without power for a week. That hit a lot of our facilities because it just hit so many states and so we called out about a $3.7 million headwind there. We do expect that the facilities ramping will create a greater EBITDA benefit in the back half of the year than in the first half of the year. So that also is different than the Q1 run rate would suggest. And then finally, we expect supplementals from just the normal course of already approved programs also has a bigger second half benefit than it does first half. So those are the number of pieces that allows for us to feel good about the acceleration in the EBITDA run rate relative to Q1.

The next question will come from Joanna Gajuk with Bank of America.

Debbie, great to have you back for sure. So you mentioned in your prepared remarks also a review of service lines. So can you give us a little bit more color on kind of what metrics you're looking at to kind of make these decisions and maybe early indications which of these service lines you were referring to, were thinking they might require divestiture?

Thank you for welcoming me back. I really wasn't trying to infer that we're going to be taking any action on any of our service lines. What I meant by those remarks is we are wanting to make sure that all of our service lines are performing at the highest level that they can. And I think that certainly, most of the new beds that we've added have been in the acute area. So we're looking at that as a separate focus. But with regarding CTC, we really feel like that's a very important and strategic part of the company. It actually has some very attractive characteristics. When you think about it, it's low capital intensity, it's low labor intensity and we really have just very, very strong predictable demand. So when I reference looking at all of our service lines, what I'm looking at is just where are they performing now, how can we improve that performance? And do we have the right leadership and the right teams in place to see that happen.

If I may, a follow-up on the commentary around new hospital ramp-up. It sounds like it could be construction delays or just approvals. But you also mentioned staff. So can you kind of maybe double down on that topic in terms of are there any markets with some shortages or just issues around staffing? And in particular, also as it relates to some other questions about management or other referral sources, are there any trust issues maybe with local health care workers that it's creating issues staffing new beds?

No. Staffing, we always have staffing as a focus to make sure that we have -- especially with the new hospital, as you can imagine. But no, it's not about trust of our referral sources. The ramping issues that happened in 2025 really have to do with getting all of the regulatory approvals in place to open. And then as I said earlier, to build for those services, I think we entered into these relationships with our partners because they were very strong in their market. We've learned that we need to leverage that strength even more than we have in the past and do it earlier. But there -- we're focused on really collaborating and meeting their needs and making sure their patients can access the new facility. So I wouldn't see it as a staffing issue that's been a barrier really or a lack of trust by referral sources. I've met with several of our partners since I've come back, and they're very excited about being able to meet the mental health needs, but do it with us and the strength that we bring. So that, I think, is in a very good position. And I don't think that we have issues going forward. Really, as we think even about the new facilities ramping, we've got some really strong partners that will be opening facilities with this year.

Next question will come from Sarah James with Cantor Fitzgerald.

Debbie, it's great to have you back. I'm wondering, does your expansion of the quality dashboards include new investments in recognizing and responding to patterns in clinical outcome measures like readmissions or relapse rates? And could those metrics factor into payer negotiations or claims approval rates?

Well, the 50 measures that we are looking at, some of them have to do with on the unit and how our clinicians are performing. Certainly, the performance and the -- of our patients and how they improve within our facilities, I do think can be a key part of our discussions with the payers. We're aligned in that. They would like to see these patients improve as we would as well. So we are using those -- that data. I think we can do it even more than we have because now we have some published information that we can -- and we're putting it on our website, as I mentioned. So it's very clear that our patients are coming in and they are improving from admission to discharge. So we do plan to use that more to demonstrate the difference that we make as they consider what they intend to reimburse us and we want alignment with that. And the dashboards give a lot of visibility and it's visibility that is immediate so that you can look at a particular hospital and a particular measure and know for that day what is happening, which I think is a great tool.

Great. And just one follow-up on the referral channels. Can you provide us with a framework of what the referral channel mix looks like now? How that's different from 2 years ago? And as you're making these investments on building relationships, where that mix could go in the next few years?

Yes. As I've come back, I don't see a big difference in the referral patterns. They do differ by service line. As you know, Sarah, just from following us, I think that we still get business from the emergency rooms who are in need of placing patients and might be boarded there for a period of time. We also have many professional referral relationships with those out not only practicing in psychiatry, but also other physicians. In each state, it's going to differ as to who is sending patients. But I don't really see a big shift there. I think that it's the same group of individuals that are referring. But our job, and I think we're very focused on this is making sure we're connecting with them and that we are being proactive with them to talk about what we can offer to their patients as well as the outcome measures, which we've talked about.

This will conclude our question-and-answer session as well as our conference call for today. Thank you for your participation. You may now disconnect.