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01/10 19:01
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents mixed signals: strong revenue growth and positive Medicaid supplemental payments are offset by challenges with Medicaid payer dynamics and increased startup losses. The Q&A reveals cautious optimism for future growth but lacks clarity on critical financial metrics. Despite a reduction in CapEx indicating capital efficiency, the lack of specific guidance and payer challenges temper the outlook, suggesting a neutral stock price movement.
Revenue $851.6 million, representing a 4.4% increase over the third quarter of last year. The increase was driven by a 2.3% rise in revenue per patient day and a 1.3% growth in patient days.
Adjusted EBITDA $173 million, compared with $194.3 million in the prior year period, reflecting a decrease due to softer-than-expected volumes in the Medicaid book of business, increased employee health care costs, and higher professional and general liability expenses.
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.
Startup losses $13.3 million in the quarter, compared to $7.3 million in the third quarter of 2024, due to newly opened facilities.
Capital Expenditures (CapEx) $135.8 million in Q3, which is more than $20 million favorable to the Q3 plan.
Net leverage ratio Approximately 3.4x as of September 30, 2025.
Cash and cash equivalents $118.7 million as of September 30, 2025.
Revolving credit facility availability Approximately $790 million available under the $1 billion facility.
Costs related to government investigations $39 million in Q3, down 28% from Q2.
New Beds Added: Over 1,700 beds added across 2024 and 2025 year-to-date, with plans to add another 500 to 700 beds in 2026.
Joint Venture Facilities: New facilities developed in partnerships with Tufts Medicine and Orlando Health, contributing to volume and EBITDA growth.
Comprehensive Treatment Centers (CTCs): Added 3 CTCs in Q3, extending reach to 177 CTCs across 33 states, with 14 CTCs added in 2025.
Behavioral Health Demand: Structural demand remains strong due to rising acuity, greater awareness, and de-stigmatization of mental health.
Geographic Expansion: Focus on underserved geographies and markets with favorable reimbursement dynamics.
Operational Challenges: Faced softer-than-expected Medicaid volumes and increased employee healthcare costs.
Portfolio Optimization: Ceased operations at 5 underperforming facilities, including eating disorder facilities and acute care facilities.
Employee Retention: Achieved six consecutive quarters of improvement in employee retention, aiding labor cost management.
Capital Spending Realignment: Paused several development projects, reducing 2026 CapEx by at least $300 million compared to 2025.
Quality Initiatives: Implemented real-time quality dashboards and standardized clinical protocols to improve care delivery and payer engagement.
Focus on High-Return Investments: Prioritized growth in high-demand markets and projects with strong return potential.
Softer-than-expected volumes in Medicaid business: The company experienced lower-than-expected volumes in its Medicaid book of business, particularly in the acute care segment, which was approximately 100 basis points below internal expectations.
Increased employee health care costs and liability expenses: The company faced incremental headwinds from rates and benefit expenses related to employee health care costs, along with an anticipated increase in professional and general liability expenses.
Reduced adjusted EBITDA guidance: Due to the above challenges, the company reduced its adjusted EBITDA guidance for 2025 to $650 million to $660 million from the previously issued guidance of $675 million to $700 million.
Uncertainty in Medicaid funding: There is increased uncertainty regarding Medicaid funding at the state level, which adds pressure to the operating environment.
Rate pressure and bad debts: The company experienced rate pressure, including increased denials and bad debt expenses, which contributed to a $5 million shortfall in adjusted EBITDA for the quarter.
Facility closures: The company decided to cease operations at five facilities that were underperforming or no longer aligned with strategic priorities, reflecting challenges in maintaining a high-performing portfolio.
Incremental cost pressures in 2026: The company anticipates continued cost pressures related to professional and general liability expenses and ongoing payer-related pressures in 2026.
Paused development projects: Several development projects were paused due to unfavorable return projections, reflecting a more measured approach to capital deployment.
Startup losses from new facilities: The company incurred $13.3 million in startup losses in Q3 2025, with full-year startup losses expected to range between $60 million and $65 million.
Reimbursement environment challenges: Government payers are facing significant cost pressures, which could impact reimbursement rates and the company's financial performance.
Adjusted EBITDA Guidance for 2025: Reduced to $650 million to $660 million from the previously issued guidance of $675 million to $700 million due to softer-than-expected volumes in Medicaid and increased employee health care costs.
Bed Additions in 2026: Expected to add 500 to 700 beds, including new facilities developed in partnerships with Tufts Medicine and Orlando Health, contributing to same-facility volume and EBITDA growth over the next several years.
Capital Expenditures in 2026: Expected to be at least $300 million lower than the revised 2025 CapEx guidance of $610 million to $630 million, with further reductions anticipated in 2027.
Free Cash Flow in 2026: Expected to generate positive adjusted free cash flow for the full year 2026, a milestone previously expected to be reached on a run rate basis exiting 2026.
Facility Closures: Ceased operations at 5 facilities in Q3 2025 that no longer aligned with strategic priorities, with plans to continue optimizing the portfolio to enhance performance and returns.
2026 Financial Expectations: Key adjusted EBITDA tailwinds include reduced startup losses, ramping contributions from new bed additions, and modest uplift from facility closures. Headwinds include continued softness in acute care Medicaid volumes, payer-related pressures, and incremental cost pressures.
Supplemental Payment Programs: Tracking several programs awaiting CMS approvals, which could provide up to $22 million of additional adjusted EBITDA not included in the 2025 outlook.
The selected topic was not discussed during the call.
The earnings call presents mixed signals: strong revenue growth and positive Medicaid supplemental payments are offset by challenges with Medicaid payer dynamics and increased startup losses. The Q&A reveals cautious optimism for future growth but lacks clarity on critical financial metrics. Despite a reduction in CapEx indicating capital efficiency, the lack of specific guidance and payer challenges temper the outlook, suggesting a neutral stock price movement.
The earnings call reveals mixed signals: solid financial performance with revenue and EBITDA near the high end of guidance, but concerns over Medicaid issues and startup losses. Management's optimistic guidance is tempered by underperforming facilities and increased startup costs. The Q&A highlights potential risks, such as Medicaid challenges and unclear responses on strategic measures. However, the outlook for Q4 is positive with expected volume growth. The neutral sentiment reflects balanced positive and negative factors, with no clear catalyst for significant stock movement.
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