Acadia Healthcare Co., Inc. (Nasdaq: ACHC) is making strategic adjustments that are likely to have long-term impacts on its operations and revenue trajectory. Recently, Acadia announced the closure of five underperforming facilities, marking a clear shift in how the company manages its portfolio of behavioral health services. CEO Chris Hunter explained that these closures are part of the company’s ongoing strategy to optimize its facilities and focus on profitable operations. This approach is a critical element of the Acadia Healthcare growth strategy, reflecting Hunter’s push to streamline the company’s operations while pursuing greater revenue growth in the coming years.
A Strategic Shift: Portfolio Optimization
Acadia Healthcare has made a deliberate decision to close underperforming facilities, with five such closures happening in just one month. As part of its focus on improving efficiency, CEO Chris Hunter emphasized that this process is a key component of Acadia Healthcare’s growth strategy. “If we’re seeing facilities that are underperforming and don’t see a path to improvement, we’re going to take action,” Hunter stated. By making these decisions now, Acadia aims to better position itself for future profitability and growth, aligning its portfolio with its long-term goals.
In total, these closures resulted in a revenue drag of between $12 million and $15 million, but the company believes that this approach is necessary to free up resources for more lucrative opportunities. As part of Acadia Healthcare’s growth strategy, the company is focusing on expanding its higher-performing facilities and leveraging joint ventures to expand its reach without overextending its resources.
Expansion Plans: The Road to Growth
Despite these closures, Acadia Healthcare remains committed to its ambitious growth strategy. Hunter, who took over as CEO in 2022, has set an aggressive goal for the company to double its revenue by 2028. To meet this goal, Acadia is prioritizing a five-pronged growth strategy that focuses on joint ventures, de novo expansions, and increasing bed capacity at existing facilities.
Acadia Healthcare’s growth strategy includes opening 1,200 new beds by the end of 2024, with 400 of those beds added to existing facilities. The expansion of bed capacity at current locations is seen as one of the best uses of capital, according to Hunter. As of mid-2024, Acadia has already opened 64 new beds, with 37 of them added in the second quarter. These new beds will help meet the growing demand for behavioral health services while minimizing capital expenditure and financial risk.
In addition to expanding existing facilities, Acadia also opened the Agave Ridge Behavioral Hospital in Mesa, Arizona, a 100-bed facility for all ages. The company plans to open more inpatient facilities by the end of 2024, including two through joint ventures. This focus on joint ventures aligns with Acadia Healthcare’s growth strategy, which relies on strategic partnerships to reduce financial exposure and accelerate market expansion.
Financial Growth Amid Challenges
Acadia Healthcare’s financial performance reflects the dual impact of portfolio optimization and strategic expansion. For the second quarter of 2024, Acadia reported a 9% year-over-year revenue increase to $796 million. This growth was driven by a 5.6% increase in revenue per patient day and a 2.6% increase in patient days. These positive results highlight the success of Acadia Healthcare’s growth strategy, even as the company faces challenges related to closures and legal matters.
While the growth rate in 2024 is slightly slower than in 2022 and 2023, when quarterly revenue increases averaged 12.5%, the company’s performance remains solid. Net income in the second quarter increased by 10% to $80.8 million, and adjusted EBITDA reached $187.6 million, a 7.6% increase. These figures demonstrate that Acadia Healthcare’s growth strategy is working, allowing the company to generate profits despite the challenges it faces.
Legal and Staffing Challenges: Impact on Operations
Staffing issues and legal challenges continue to affect Acadia’s ability to fully execute its growth strategy. One of the factors contributing to recent facility closures was the company’s inability to recruit qualified staff for a wilderness program in Western North Carolina. Such programs, once popular in the behavioral health space, have faced increased scrutiny due to concerns about safety and abuse. In some cases, these programs have faced legal action, making them increasingly unfeasible for companies like Acadia.
The scrutiny on Acadia is not limited to staffing and program closures. In recent years, the company has faced legal challenges related to incidents of abuse at its facilities. In 2023, Acadia was ordered to pay $405 million in a civil lawsuit involving the sexual abuse of a minor at a now-defunct facility. Additionally, the company agreed to a $400 million settlement in October 2023 to resolve three related cases. These legal costs have had a significant impact on Acadia’s bottom line, but the company remains focused on overcoming these obstacles while executing its Acadia Healthcare growth strategy.
Political Scrutiny and Its Limited Impact
Acadia Healthcare has also been under scrutiny by lawmakers, particularly after a U.S. Senate hearing highlighted issues of abuse within the residential treatment sector. While these hearings attracted significant media attention, CEO Chris Hunter downplayed their impact on Acadia. “We just haven’t seen any real impact from the Senate hearing and the report,” he stated. He emphasized that Acadia’s facilities continue to provide high-quality care to the populations they serve, and that regulatory bodies and referral sources understand the challenges involved in treating at-risk youth.
Hunter believes that Acadia Healthcare’s growth strategy is not fundamentally threatened by political pressure, as the company’s focus on high-quality care and its positive patient outcomes speak for themselves. Acadia’s leadership is confident that the company can continue to navigate these pressures while maintaining its growth trajectory and meeting the needs of its diverse patient base.
Conclusion: Optimizing the Future
In summary, Acadia Healthcare is navigating a complex landscape of portfolio optimization, expansion, legal hurdles, and political scrutiny. The company’s growth strategy is centered around reducing underperforming facilities, expanding bed capacity, and leveraging joint ventures to drive market expansion. Despite short-term setbacks, such as closures and legal challenges, Acadia remains committed to its goal of doubling revenue by 2028.
Acadia Healthcare’s growth strategy reflects a disciplined approach to navigating the evolving behavioral health market. By focusing on higher-performing assets and strategic expansions, the company is positioning itself for long-term success. As Acadia continues to grow and adapt to changing industry dynamics, it is poised to remain a key player in the behavioral healthcare sector.
