Acadia Healthcare Company Inc

NASDAQ:ACHC

Earnings Call Transcript 2022-Q1

[Operator]

Good morning. And welcome to Acadia Healthcare's first quarter 2022 earnings call. All participants will be in listen-only mode. Should you need assistance [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. To ask a question [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Gretchen Hommrich. Please go ahead.

[Gretchen Hommrich, Vice President, Investor Relations]

Good morning. And welcome to Acadia's first-quarter 2022 conference call. I'm Gretchen Hommrich, Vice President of Investor Relations for Acadia. I'll first provide you with our safe harbor before turning the call over to our Chief Executive Officer, Christopher H. Hunter. To the extent any non-GAAP financial measure is discussed in today's call, you'll also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by viewing yesterday's news release under the Investors link. 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 2022 and beyond.

For this purpose, any statements made during this call, that are not statements of historical fact, may be deemed to be forward-looking statements without limiting the foregoing the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that 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 first quarter news release.

And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. At this time for opening remarks, I would like to turn the conference call over to Chief Executive Officer Christopher H. Hunter.

[Christopher H. Hunter, Chief Executive Officer and Director]

Thank you, Gretchen. Good morning, everyone, and thank you for being with us today for our first quarter 2022 conference call. I'm here today with Chief Financial Officer David Duckworth and other members of our executive management team. David and I will provide some remarks about our business and financial and operating results for the first quarter of 2022. Following our comments, we will open the line for your questions. But before we get into the results, I just want to start by saying what an honor it is to be with you today as the new CEO. Acadia is a strong, respected organization, and I look forward to building on the successful trajectory set by Debra Osteen and the Acadia leadership team.

I want to personally thank Debra for her leadership, for the solid foundation she leaves in place, for her time since I joined the company, and for the future work ahead as we continue our CEO transition plan. I'm grateful that Debra is continuing her role on our board of directors, and know we will benefit from her expertise. Some quick background on me. I'm passionate about healthcare and the difference our industry makes in people's lives. I've worked in the healthcare industry now for over two decades and managed care and healthcare IT. For the past eight years, I've worked at Humana in two different roles.

First, as Humana's Chief Strategy Officer with the responsibility for corporate strategy and mergers and acquisitions, and most recently as the President of a business unit that together served the combined 20 million members in 45 states. Prior to the Humana, I ran the provider business at TriZetto corporation. And from these multiple vantage points, I have witnessed firsthand the critical need for effective behavioral health solutions. As we may finally be emerging from the height of the COVID-19 pandemic, there's clear evidence that the challenges around mental health are only increasing.

Recent studies reported that approximately 1/3 of Americans experienced elevated depressive symptoms in 2021 compared to only 8.5% prior to the pandemic. While more than 55% of adults with the mental illness received no treatment for their condition. As the leading pure-play provider of behavioral health care services, Acadia has a significant opportunity to meet this critical societal need in our country. We take this responsibility seriously. And across our operations, we have a shared commitment to ensure that Acadia is well-positioned to address this growing need. Since I joined three weeks ago, I have been encouraged by our team's disciplined and ability to execute in a tough environment with COVID and labor challenges while continuing to meet the growing demand across all of our service lines.

I'm also very impressed with our diversified offering of comprehensive services within behavioral health, which are focused on real patient needs that continue to be undertreated in the strong growth pathways across our businesses to serve those patients. Moving to an update on the first quarter, we continued to build on our solid foundation and proven operating model through Acadia's four strategic growth pathways. First, our facility expansion efforts continue to address the unmet demand for behavioral healthcare services and reach more patients in new and existing markets.

We added 28 beds to current facilities in the first quarter and expect to add approximately 300 beds through facility expansions this calendar year. Our second growth avenue is to identify under-served markets for behavioral health treatment and develop wholly-owned de novo facilities that help fill this gap. At the end of 2021, Acadia completed the purchase of three non-operational facilities in Chicago. We have since commenced work on the plant improvements for a 60-bed children's hospital that we expect to open next month. In addition, both 101-bed adult hospital and an outpatient facility are slated to begin Chicago operations in 2023 and will operate as Montrose Behavioral Health hospitals.

Additionally, we continued to expand our network of Comprehensive Treatment Centers or CTCs, which are designed to address the growing and critical need for medication-assisted treatment for patients dealing with opioid use disorder. In the first quarter of 2022, we opened one new CTC in Virginia. And we plan to open at least five more CTCs in 2022. Our third lever for Acadia's continued growth is through joint venture partnerships. We announced six new partnerships with health systems in 2021 and plan to open a new facility in partnership with Covenant Health in Knoxville, Tennessee this summer and expect to launch operations in a new facility in partnership with the Lutheran Health Network in Fort Wayne, Indiana later in 2022.

Working together with these partners, we can combine our expertise and resources with a shared commitment to expand access to quality behavioral healthcare. Finally, for our fourth growth pathway we will continue to look for acquisition opportunities and high-growth markets that meet the criteria of our disciplined capital allocation framework. Acadia has a proven operating model and our strategy is to identify facilities and programs where we can leverage our scale and expertise, make necessary investments for expansion, and add service offerings to further enhance the continuum of care.

So to recap these for growth avenues in 2022, we expect to add over 600 beds in total through approximately 300 beds additions to existing facilities, opening two inpatient [Indiscernible], two facilities with JV partners, and at least six CTC locations. As we witness the significant need for more effective treatment, we have also seen a greater public acceptance of mental health at parity with other health issues, as well as a reduction in the stigma that is often prevented patients from seeking the help they need. My goal is to build upon our strong momentum and extend our market reach to more patients and communities.

We will continue to execute on our strategic growth plans, as we address the unmet needs that exist across all service lines. I plan to conduct ongoing reviews of each of our businesses in order to identify incremental opportunities to create long-term value and determine how we can best position Acadia to lead the industry into the future. I look forward to sharing this perspective in the coming months and also to conducting our first Acadia Investor Day in New York later this year. I would like to address some of our industry headwinds. As with many other healthcare providers and other industries across the country, we are currently dealing with a tight labor market.

At the same time, I've been impressed with our team's ability to manage through this environment with an unwavering focus on treating our patients. We continue to be intentional in recruiting and retaining our clinical staff in line with patient needs. And we believe we have the tools to effectively manage through potential challenges. We continue to be successful with recruiting new employees through robust local efforts and utilizing our centralized recruiting function to support our facilities. While we have focused on market competitive pay for our valuable employees, our wage inflation is manageable, and our premium pay is stable and continues to account for a low percentage of our labor cost.

As always, our primary mission is to support the patients and communities we serve. We will continue to focus on providing high-quality patient care, while extending our market reach and advancing our position as a leading behavioral healthcare provider that our country is counting on to grow and serve more families in need. At this time, I will now turn the call over to David Duckworth to discuss our financial results for the quarter and our 2022 guidance in more detail.

[David Duckworth, Chief Financial Officer]

Thanks, Christopher. And good morning. Looking at the first quarter, we delivered a solid financial and operating performance marking a strong start to 2022. While we faced some early challenges in January related to the surge of the Omicron variant of COVID-19, our operating trends recovered quickly with meaningful improvement in February and March. Our facilities have managed well through each stage of the pandemic with strict protocols in place to ensure high standards of safety for our patients with minimal disruption to our operations. We successfully delivered on our key performance metrics in the first quarter demonstrating consistent execution of our strategy.

Revenue for the first quarter increased 11.9% to $616.7 million compared with $551.2 million for the first quarter of 2021. Acadia's adjusted EBITDA for the first quarter of 2022 was 100 -- $135.5 million compared with $119.5 million for the same period last year. And adjusted EBITDA margin was 22% compared with 21.7% in the prior year. Adjusted income attributable to Acadia stockholders per diluted share was $0.67. For the current period presented in our earnings release, adjusted income excludes transaction-related expenses and income tax effects.

For the first quarter of 2022, our same-facility revenue increased 8.6% compared with the first quarter of 2021, including an increase in revenue per patient day of 6.2% and an increase in patient days of 2.2%. We have experienced robust demand for our Behavioral Health Care Services, and our dedicated team of employees and clinicians across our operations have continued to support our patients with high-quality patient care. Our balance sheet remains strong with ample liquidity, flexibility, and capital to support our growth strategy and future investments.

As of March 31, Acadia had a $140.4 million in cash and cash equivalents, and $440 million available under our $600 million revolving credit facility. Our net leverage ratio at the end of the quarter was approximately 2.3 times. During the first quarter, the company continued its repayment of amounts received pursuant to the Medicare Accelerated and Advanced Payment Program under the CARES Act. Of the $45 million of advanced payments received in 2020, the company repaid $25 million in 2021, and made additional payments of $8 million in the first quarter of 2022. We will continue to repay the remaining balance throughout 2022.

We will also repay the remaining half of the approximately $39 million of 2020 payroll tax deferrals in the second half of 2022. Now turning to our guidance as noted in our press release, we are affirming our previously stated guidance for 2022, which includes revenue in a range of $2.55 billion to $2.6 billion, adjusted EBITDA in a range of $575 million to $610 million, and adjusted earnings per diluted share in a range of $2.85 billion to $3.15 billion. As a reminder, this guidance does not include the impact of any future acquisitions, divestitures, or transaction-related expenses. With that, Joe, we are ready to open the call for questions.

[Operator]

We will now begin the question-and-answer session. [Operator Instructions]. At this time, we will pause momentarily to assemble the roster. Our first question will come from Brian Tanquilut from Jefferies & Company, Inc. Please go ahead.

[Brian Tanquilut, Jefferies & Company, Inc.]

Hey, good morning, guys. And, Christopher, welcome to the call. Nice to meet you here. I guess my first question for you, obviously, new to the job, but I'm sure you've done a lot of diligence on the company before you took this position. Just curious how you're seeing or how you're thinking about the strategy. I know you laid out the growth goals earlier, but as you look at Acadia, anything you can see where you can enhance the strategy or where there are opportunities to improve. And then I guess maybe conversations with the Board in terms of your mandate as CEO as you step into the role.

[Christopher H. Hunter, Chief Executive Officer and Director]

Thank you, Brian. I really appreciate the question. A few things that I'd start with from the outset. I really like the diversification across all areas of behavioral health from those with psychiatric needs to substance use disorder and [Indiscernible] disorders and even serving patients of all ages. We have diversification across all lines of business, payer mix, geography. And I've started into the role. I'm particularly impressed with the strong execution of the team. I think, particularly as we discussed in the prepared remarks during a very difficult stretch with industry headwinds around COVID and the tight labor market.

But I think with the strong balance sheet, the levers of growth that we discussed earlier, there's a lot that excites me around our future prospects. I would say that I would like to see the behavioral sector, overall, probably embraced technology and digitization and take advantage of cost, benefits, and efficiencies and even revenue enhancements, and other ways to just further and enhance our platform. But it's really building off a base of foundational strength.

And I think we just have will continue to have significant opportunity ahead of us. In terms of the board mandate, I am in Week Three and haven't had my first board meeting yet. But I'm very excited. And I spoken to the board about the ability to grow the company, the strategic levers that we clearly have in front of us, and just how positioned we are with real tailwinds from a demand standpoint across all four of our lines of business.

[Brian Tanquilut, Jefferies & Company, Inc.]

And I appreciate that. And then, David, just my follow-up question. Revenue per patient day was pretty strong. Is there anything to call out there, then how do you think about the sustainability of that level of growth in that metric?

[David Duckworth, Chief Financial Officer]

We have seen a strong revenue per day performance, which we saw throughout 2021 and continued into the first quarter, and we would say that the most significant component of that is rate increases that we are seeing broadly across many of our payers and many of our service lines. We have a team that maintains close and collaborative relationship with our commercial and our other managed care payers, and have worked with them very well at a local level and at a corporate level on those rate increases. Payer mix for the company is part of our strong revenue per day this quarter, we saw our commercial volumes at just over 30%, but most of that 6.2% increase that we saw on a same facility basis is rate increases that we are getting from our payers.

[Brian Tanquilut, Jefferies & Company, Inc.]

Awesome thank you.

[Operator]

Our next question comes from Whit Mayo with SVB Securities LLC. Please go ahead.

[Whit Mayo, SVB Securities LLC]

Hey, thanks. Maybe, David, given the increased level of activity that you have on the development front all these joint ventures, all the new construction projects, are there any changes in strategy talent process or just anything as you refine the resources around the construction side? It just feels that there should be some opportunities to drive enhanced scale across some of these construction costs with all this activity.

[David Duckworth, Chief Financial Officer]

We are, of course, planning for a significant amount of growth in bed additions over the next several years. And we continually focus on the resources that we need to execute on the plan. We have a strong team already but we will continue to look at the right team as we bring new facilities online. Many of those are joint venture relationships where we've already built strong relationships with those partners for those facilities that we have planned. We will continue to look at resources that we need as we've always done. From a construction perspective, we have added resources to our construction department over the last year and are looking at a number of initiatives.

Many of those are to open the beds as quickly as we can, where can we shorten certain parts of the process for opening and building those beds? But many of them are also focused on the cost and the efficiencies that we might be able to find within construction. So we stay focused on our growth. We want to open all these beds as quickly and as efficiently as we can and we have built the team and we'll continue to build the team around those initiatives.

[Whit Mayo, SVB Securities LLC]

That's helpful. And just maybe one follow-up on just the CTC business, and I guess I mean this in the context of labor. We get a lot of questions around maybe how that labor or the staff model has evolved in the pandemic. And maybe if you could just talk about some of the trends in that business as you compare and contrast it to acute psych or residential treatment. Thanks.

[David Duckworth, Chief Financial Officer]

Yeah, Whit. That business has grown and we've opened new clinics and continue to see a strong performance from our CTC service line, and reimbursement has improved as many states have added Medicaid coverage and have been focused at a state level on more treatment options and more locations for the opiate use treatment. And so we have grown along with that and continue to look for opportunities to open new locations and grow the ones that we already have. From a staffing perspective, the model does look different for our CTCs compared to our other service lines.

The nursing is a significant component of that service line at around a third of our clinical employees, but we do have a higher utilization there of the LPNs relative to the acute business that would have more RNs, and then the other significant category would just be counselors and therapist, and we remain focused on recruiting and retaining the counselors and therapists within that service line, but the staffing model there does have a much higher mix of both the counselors and therapists, and a greater ability to utilize LPNs versus our other service lines.

[Whit Mayo, SVB Securities LLC]

Great. Thanks a lot.

[David Duckworth, Chief Financial Officer]

Thanks Whit.

[Operator]

Our next question comes from Kevin Fischbeck with Bank of America Merrill Lynch International Limited. Please go ahead.

[Kevin Fischbeck]

Great. Thanks. Maybe, Christopher, I just want to go back to your comments. In your prepared remarks you talked about doing ongoing business reviews and driving incremental value. I think the market always wonders what the new CEO might bring with them. It sounds to me like you're basically re-validating the four pillars of growth and the long-term growth outlook of the company, but you see additional opportunities for upside. Am I interpreting that correctly or is there some other nuance we should be taking away from this kind of business review process you are going through?

[Christopher H. Hunter, Chief Executive Officer and Director]

Yeah. And thank you for the question, Kevin. I would start just by saying that the company has four very strong levers of growth between the facility expansions, to the De Novos, the JVs, and obviously M&A. And we'll continue to want to build upon this really strong core foundation that we have. I do think that there will be some opportunities. I will see them as enhancements along the way. We will certainly look at partnerships, and we'll look at things that we can do to continue to accelerate growth.

But I just want to reinforce and had an opportunity to spend some time with our top operators last week that we really need to continue to execute on doing a great job to produce the strong quarter that we have the privilege of talking about right now. And we will be looking for every opportunity to continue to enhance that as we go. And clearly, we'll be drawing on my background and really look forward to trying to bring some innovation to the business where it makes sense. But in a prudent way and over a period of time.

[Kevin Fischbeck]

That's helpful. And then just on labor costs, which is obviously a big focus, some of your peers have struggled, but even broadly speaking, a number of companies this quarter have struggled with labor costs. I guess, what would you attribute overall your ability to manage through this? Because is it the rate updates that you've been getting that give you a little bit more cover to raise wages or is there something else you would point to? Because I wouldn't think about behavioral necessarily as being an easy place to recruit into, generally speaking. So when labor is a little bit tight, it's pretty impressive what you've done. So any additional color there would be helpful. Thanks.

[David Duckworth, Chief Financial Officer]

Kevin, we have been navigating in our view a tight labor market overall for the last several quarters. And the team continues to do a fantastic job navigating the market. We are in 40 states plus Puerto Rico, and we continue to believe that each market has a different challenge and not all markets do see a challenge. And it is helpful that we have different service lines and different types of employees within each service line. That's not to say that we don't have challenges across the different categories and across our markets, but it does look different from one market and one job category to another.

And I will just have to give credit to our facility leadership teams and our recruiting team that's at the facility, but also supported by centralized recruiting resources that we have at the corporate level. We keep a proactive approach to staffing. We're always planning to have staff available, so it does not impact our volume. We want to make sure that if staffing does impact our volume, it's only temporary and we bring the right resources to fix the situation and continue to support the strong inquiries and demand that we're seeing across our service lines and markets.

And so it -- to us, it's all about just the proactive approach, having the tools in place, having to focus on managing the staff, recruiting, using premium pay if we need to, and all of that has made it manageable. You mentioned rates. We have seen improvement year-over-year in our salaries and wages as a percentage of our revenue, which actually declined year-over-year. We have seen wage inflation, but we have been able to cover that wage inflation with strong volume and with rate increases that we are seeing from our payers. So the labor costs in total have been manageable and have allowed us to continue to see volume growth.

[Kevin Fischbeck]

Great. Thanks.

[Operator]

Our next question comes from Andrew Mok with UBS Securities. Please go ahead.

[Andrew Mok, UBS Securities]

Hi, good morning. Wanted to follow-up on the strong pricing trends. When we think about the strong commercial price increases that you cited, can you give us a bit more color on the drivers of that demand. Are there specific types of employers or payers that are driving that increase, and any service lines that you would call out that drive a differentiated behavioral offering that resonates with that commercial base? Thanks.

[David Duckworth, Chief Financial Officer]

Andrew, we would say, as we look at our different service lines, that we have seen strong reimbursement increases this quarter across those service lines. Of course, the timing of rate increases and the process that we go through with our payers can look different from one payer category to another. We are with our commercial payers, talking to them in advance of an annual rate increase. And we do stay focused at a local level and a corporate level on receiving those annual rate increases.

And as we do that, we're talking to them about the value that we bring, the programs that we design for their members, and the investments that we make and the cost increases that we've seen in the services we provide. So commercial has been -- and we're over 90% in network across our commercial payers where we have long-standing collaborative relationships and commercial has been a source of good rate increases. Our view is that it may take longer across all of our Medicaid and certainly Medicare to receive appropriate rate increases.

We've certainly seen a good environment for Medicaid in general, but the process can look different from one state to another. And then Medicare tends to be very much a lagged increase in terms of using cost data that several years prior in setting each rate increase. But it's been a stable, consistent payer. And there's another proposed rate increase this October that's in line and actually slightly better than what we've received historically. So broadly across our service lines and across our different types of payers, we are seeing positive rate increase trends.

[Andrew Mok, UBS Securities]

Great, just as a follow-up. Can you remind us how the CTC business impacts the patient day revenue and volume metrics? Does that all flow through the revenue per patient day and is there a corresponding volume capture there? Thanks.

[David Duckworth, Chief Financial Officer]

That's a good question, Andrew. It does all flow through our revenue per day metric, because that service line does not have patient days included in that metric. And so usually, we are talking about the growth rate for our CTC business in total. And to the extent that it's different from our same-facility total revenue growth, then it would impact our revenue per day metric. For this particular quarter and in general, looking back at the last several years, the CTC growth that we are seeing is in line with the overall same-facility revenue growth. And so it has not had a significant either positive or negative impact on our revenue per day, but that is how it, in some quarters, could have an impact. But any CTC related either volume or per visit trends have not had an impact on our revenue per day this particular quarter.

[Andrew Mok, UBS Securities]

Great. Thanks for the color.

[David Duckworth, Chief Financial Officer]

Thanks.

[Operator]

Our next question comes from Pito Chickering with Deutsche Bank. Please go ahead.

[Pito Chickering, Deutsche Bank]

Hey, good morning, guys. Thanks for taking my questions. Christopher, it's good to meet you so via telephone. You talked about revenue opportunities in digitization. We've seen demand for telemedicine behavioral continue to grow. Is that an area that you think that Acadia could be successful in?

[Christopher H. Hunter, Chief Executive Officer and Director]

Thanks, Pito, I think it's a good question. I think the company today is already using telehealth quite successfully and has done so throughout the pandemic, particularly with our outpatient programs and individual and group counseling sessions. We also have used it successfully when we need positions for a market, and we're able to use it as an alternative to locum coverage. That said, I think that there will continue to be opportunity just as the world continues to evolve into virtual offerings, and while we don't think it will ultimately be a replacement for our inpatient care, I think there will be opportunity for us to continue to look at innovation and to potentially even think through whether it makes sense to partner in certain instances as well. But any opportunity to leverage technology for the benefit of improving our health outcomes is something we would take a look at.

[Pito Chickering, Deutsche Bank]

And then follow-up question to David on the CDC question again. What percent of revenues in the first quarter of '21, first quarter of '22 came from CDC?

[David Duckworth, Chief Financial Officer]

Pito, I think it was around 15% or 16% for the first quarter.

[Pito Chickering, Deutsche Bank]

Okay. So just mathematically, it's about a $130 million sort of growth to revenue per patient day come from CTC. It's relative to if you'd have to CTC involved?

[David Duckworth, Chief Financial Officer]

Yeah, that's right. It's about a $100 million for the quarter.

[Pito Chickering, Deutsche Bank]

Got it. Okay. And then on the cost side, is CTC a more profitable segment as that grows even in line the overall revenue growth? I guess this help quantify what type of margin tailwinds that gives you to offset the overall macro inflationary pressure. And also on the cost side, is CTC more of a 60, 40 labor versus supplies versus standard 90, 10 [Indiscernible] just to understand more on cost side?

[David Duckworth, Chief Financial Officer]

Well, the CTC margin that we see overall is similar to our same facility business. Of course, we're making investments in new CTC facilities and they don't go through the exact process that an inpatient facility goes through in terms of the ramp up and the licensing, but they do go through a period of time where they ramp up their operations and build their census and other aspects of their business. And so we've made investments in that, and as it does on the inpatient side, affects the margin that we see for that service line. But for the mature CTC facilities, it depends on the market.

And that's true across our company and across our service lines, that one market to another, our margin can be different. And the CTC business, just like our other businesses, is seeing a strong volume growth, reimbursement growth, and is managing their cost. And we're seeing strong margins there, but we're also seeing that in our other service lines. We don't manage the business to say that improved margins on one side will help us offset costs that we are seeing grow in another service line.

We are focused on each of our service lines, capturing the demand and the volume opportunities that they have, and managing their costs. I think you also asked about the CTC mix and the operating expenses that we have. It is labor intensive just like our other service lines. The majority of the costs that we see on the CTC side is similar. In general, we say that 70% of our operating cost is staffing or staffing related and that looks the same on the CTC side as it does on the inpatient side.

[Pito Chickering, Deutsche Bank]

Just to clarify, on a mature CTC facility verse a mature key facility, do they have the same margins?

[David Duckworth, Chief Financial Officer]

Well, it -- not every facility has the same margin within any of our service lines. So it can look different, but when we talk about averages for a service line in total, yes, we see similar margins across our service lines.

[Pito Chickering, Deutsche Bank]

Great. Thanks so much, guys.

[David Duckworth, Chief Financial Officer]

Thanks, Pito.

[Christopher H. Hunter, Chief Executive Officer and Director]

Thank you.

[Operator]

Our next question comes from John Ransom with Raymond James Financial, Inc. Please go ahead.

[John Ransom, Raymond James Financial, Inc.]

Hey, good morning. This is one for Christopher. I guess the impression of Acadia is that relative to say other providers paper-based medical records and don't track outcomes data once patients are discharged. So from your purchase, the payer level, do you think this is something that will change over the past -- over the next couple of years, and is it something that you -- might be a focus for you?

[Christopher H. Hunter, Chief Executive Officer and Director]

Yes. Thank you for the question, John, I think it's a good one. I think it's something that has to change over time. At the end of the day, having come from and having worked in numerous payers, payers want quality care and they clearly are looking for superior outcomes, and I think that's why we've been able to see the rate increases that David was talking about earlier. I think they also are looking for solutions that are going to enable patients to be identified even earlier further upstream, and I think that's going to continue to require technology and advanced analytics to make that happen.

So obviously, the behavioral health sector, as you well know, missed out on some of the meaningful use investment years ago, but there is legislation out there right now that would provide funding for the sector to effectively catch up on investment in EHRs which are overdue, and I do think that that's something that will create a significant amount of value in the system. I think that payers will continue to want to contract with the providers that are showcasing the best outcomes. And that's something that we're going to continue to be very focused on in the days ahead.

[John Ransom, Raymond James Financial, Inc.]

Great. And my follow-up would be the company has cycled through a few M&A. And the external growth, especially relative to your peers is very impressive. But I guess if I would say that if anything has been missing, we don't see a lot of what I'd call kind of [Indiscernible] M&A of existing facilities. Do you see opportunity in M&A to widen the aperture beyond what the company has already done? And would you agree that maybe an area of opportunity?

[Christopher H. Hunter, Chief Executive Officer and Director]

Yes, I would -- John, I would say that I do think it's an area of opportunity. I have not had an opportunity to do a thorough review of our entire pipeline and want to clearly spend more time with our team on that front. But I've been very impressed with the work that they have done to date. I think our pipeline, since David Keys has come in, is much more robust. And we are very proactive in being out there and looking for opportunities that meet our criteria around our disciplined capital allocation framework. And so we will continue to do that. And I will need a little bit more time, but that's something that I will certainly keep you updated on as we go.

[John Ransom, Raymond James Financial, Inc.]

Sure. Thanks so much.

[Operator]

Our next question comes from Matthew Borsch with BMO Capital Markets. Please go ahead.

[Benjamin Rossi, BMO Capital Markets]

Good morning. Thanks for taking my question. Actually, it's Benjamin Rossi filling in for Matthew here. Regarding patient acuity and the uptick in length of stay compared to previous years, you reported an increase year-over-year in average length of stay. Just curious if that is a reflection on the type of acuity case you saw this quarter and how you anticipate the cadence looks for the remainder of the year? And then do you see length of stay continuing to increase as the year goes on?

[David Duckworth, Chief Financial Officer]

We would attribute the increase length of stay to a couple of factors for the first quarter. One, the impact of the Omicron variant in January did have an impact on that metric. In January, we did see a greater impact on our acute service line and even our specialty service line, where our longer length of stay services, RTCs, stayed a little more consistent and stable. The impact of that is that there was a disproportionate impact on admissions, relative to patient days which then impacted that length of state metric. But separate from that, we are seeing a longer length of stay within a couple of our service lines.

And it's still within the range that we expect. But what we've seen is that our service mix within a service line can depend on the programs that we have, the demographics and age of our patients. And you mentioned acuity, even the acuity of our patients. And so we have seen some of our services that have a different type of program and a more specialized program. And the demographics and higher acuity. We have seen a greater mix in some of those programs and programs that have been added that are to treat certain patients that need a longer length of stay.

So the service mix within our service lines have been part of that increase in the length of stay. In terms of what it will look like for the rest of the year, we may continue to see some of those trends. Certainly, I don't think the impact of the Omicron variant. While there is still COVID out there in certain markets, I don't think that that's going to have the impact it did in January. But we may still see service mix have an impact on our length of stay in the remainder of the year.

[Benjamin Rossi, BMO Capital Markets]

Great. And then I just have a follow-up. Your guidance on those six CTCs is actually in the lower end of the initial guidance of [Indiscernible] times from last quarter's release. Just curious if that's just due to higher standup costs or maybe reflective of other conditions such as labor?

[David Duckworth, Chief Financial Officer]

No, we actually -- we may still be at the higher end of that range. We talked about in this morning's comments, at least six CTCs. So we still have a strong pipeline of new CTC locations. We just are talking about it as at least six. And we'll continue to keep everyone updated on what that looks like for the year, but continue to have a strong pipeline for new CTCs.

[Benjamin Rossi, BMO Capital Markets]

Okay. Great, thanks for that clarification.

[David Duckworth, Chief Financial Officer]

Thank you.

[Operator]

Our next question comes from Sarah James of Barclays. Please go ahead.

[Sarah James, Barclays]

Thank you. One of the divergences we've noticed coming out this quarter is on the LPN versus RN mix due to staffing availability. Some companies are shifting that mix from where their goal would be, and I'm wondering what that looks like for you guys. Are you finding shortages being more intense in either of those categories, and is it changing how you see the progression to moving labor to work at the highest end of their license?

[David Duckworth, Chief Financial Officer]

We've had initiatives in place for several quarters now focused on the mix and where we can leverage different types of employees to do certain task and I know our operations team has been focused on letting our RNs and other clinical employees focus on providing patient care and taking away as much as possible any clerical duties as they may have. So looking at our model for staffing has been part of our initiative. In terms of availability of one type of nurse from another, it can depend on the market. But we have different service lines where we have a different nursing mix within each service line.

Acute is where we see a higher percentage of RNs and where we're focused on potentially leveraging different types of nurses within our acute facilities. But we already have a higher LPN mix as we think about our other service lines, RTC, Specialty and then CTC, as I mentioned earlier, has a very high percentage of LPNs. And so I know recruiting and retention is a focus across all job categories and it can depend on the market. But we already have a mix and we've already had initiatives in place to really look at letting each job category focus on their skill set and be able to work in their skill set within our facilities.

[Operator]

And with that, this concludes our question-and-answer session. I would like to turn the conference back over to the Chief Executive Officer, Christopher H. Hunter, for any closing remarks.

[Christopher H. Hunter, Chief Executive Officer and Director]

Thank you. So before we end the call, I do want to acknowledge Acadia's committed facility leaders, clinicians, and over 22,000 dedicated employees across the country, who just continue to provide quality patient care for those seeking treatment for mental health and substance use issues. I really look forward to meeting with more of our employees and to visiting additional facilities in the coming months. Our employees truly are the backbone in this organization and their strength is one of the main reasons that I joined Acadia. With the strong first-quarter performance, we have an opportunity to now build on our momentum.

We are well-positioned to meet the growing demand for our services with a proven operating model and expansive network of 238 facilities and diversified service lines across the continuum of care. I look forward to working with Acadia's management team and board as we pursue a strategic direction that continues to provide positive outcomes for the patients under our care and deliver greater value for all of our stakeholders. Thank you for being with us this morning for your interest in Acadia. As a public company, it is vitally important that I get to know our investors, and I look forward to the opportunities ahead to speak and meet in person. If you have additional questions today, please do not hesitate to contact us directly. Thank you. And have a good day, everyone.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.