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Acadia Healthcare Company Inc
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Please standby, we are about to begin. As a reminder, this call is being recorded. Please proceed.
Good morning and welcome to Acadia's Third Quarter 2020 Conference Call. I'm Gretchen Hommrich, Director of Investor Relations for Acadia. I'll provide you with our Safe Harbor before turning the call over to our Chief Executive Officer, Debbie Osteen.
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 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 2020 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're 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 third 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'd like to turn the conference call over to Chief Executive Officer, Debbie Osteen.
Good morning and thank you for being with us today for our third quarter 2020 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 financial and operating results for the third quarter and year. We will then open the call for your questions.
We were very pleased with our solid financial and operating performance for the third quarter. Before we get into the results, I want to thank all of the Acadia's dedicated employees and clinicians, for their continued support and relentless focus on providing the highest quality care to our patients and their family, especially during these challenging times.
We are fortunate to have an experienced team across our operations, who continue to work tirelessly to execute on our growth strategy and effectively manage cost. As the global pandemic continues to affect all our lives, we are mindful of our critical role as a leading provider of behavioral healthcare services.
The ongoing uncertainties and economic and societal concern continue to contribute to the demand for our services, especially for those already struggling with behavioral health and addiction concern. And the added isolation and anxiety caused by pandemic.
Above all, our top priority remains supporting our patients with quality care provided in a safe and accessible manner. As such we continue to execute our strategy with solid results. And importantly, we are optimistic about the opportunities ahead for Acadia.
Across both the U.S. and U.K. operation we thought strong results driven by solid volumes. In addition, our revenue per day return to our normal expected range. During the third quarter we experienced strong topline growth with revenues up 7.2% over the prior year, reflecting robust demand for our behavioral health services.
We believe this result is indicative of the intrinsic strength and demand for our services. We have a resilient business model that can response to a rapidly changing environment. Acadia is well-positioned to address the needs of those seeking treatment for mental health and sub-confuse issues. And we expect that demand for our services will continue to increase.
In the U.S. this robust demand is demonstrated by our increase is same facility patient days of 4.2% compared to the prior year. Within our acute service line, we have seen solid volume attributable to our deep network of referral sources. This has remain consistent despite the current environment.
Our teams were closely with our patients, their care family and referral sources to reinforce the message that we have the expertise and capacity to help. In order to reach our patients, we continue to use additional access points, telehealth capabilities, wellness checks, and our crisis hotline.
For our specialty service line, we were pleased to see stabilization in our volumes. By shifting our marketing strategies to focus on local and regional markets, we were able to reach those that need the very specialized services that we provide.
During the quarter, we also saw sequential improvement in our out-of-state referrals due to patients being more willing to travel. However, we've not yet seen our referrals returned to prior year levels.
Volumes in our RTC service line remained solid in the quarter. These facilities leverage relationships with state referring agencies to serve children and adolescents with behavioral conditions. As a result, we had solid patient day, year-over-year growth throughout the third quarter, and we expect that to continue.
In our CTC service line, we also continue to experience strong patient volumes, as both demand and coverage trends remain solid. In the U.S., our same facility revenue per day increased 3.1% in the third quarter, as compared to the prior year. This reflects annual rate increases in our expected range of 2% to 3%. As well as normalized CTC reimbursement and improvement in our outpatient revenue.
Excluding the impact from the reversal of the CARES Act income of $18.1 million. Our same facility EBITDA margin improved 380 basis points to 29%. We are realizing measurable improvement in our cost management efforts and operating efficiencies that we've implemented in 2019 and 2020.
We continue to proactively manage staffing and other costs. Our team did a great job making timely decisions to reduce FTEs in response to the declines in volume. And as our patients returned at higher volume to our facilities, we utilize tools implemented last year to monitor FTE at the facility level.
Our team is very focused on evaluating every position and determining what expenses are essential. We have implemented a balanced approach to ensure we have appropriate resources to support our patients.
In the U.K., same facility revenue increased 2.7% from the third quarter last year, reflecting a 2.8% increase in revenue per patient day and flat year-over-year patient day volumes. We saw a monthly sequential improvement throughout the third quarter, and our volumes surpassed pre COVID levels in early July, which we were pleased with.
We expect to see continued growth in demand from individuals in the U.K., requiring mental health and addiction treatment. We continue to work with the NHS and other referral sources to align our services with expected demand. And we are well-positioned to meet this need across our service lines.
We were also pleased to see sequential improvement in our third quarter labor costs in the U.K. Total labor costs as a percent of total revenue improved 240 basis points to 68.2% for the third quarter of 2020 from 70.6% in the second quarter, and was flat as compared to the third quarter of 2019.
Agency labor as a percentage of total labor cost improved from 13.5% in the third quarter of 2019 to 12.7% in the third quarter of 2020. During the quarter, we also finalized negotiations with the NHS and local payers for our rate increases for the fiscal year. We received an average rate increase of 2.8% across all of our service lines. We believe this demonstrates support for the important care that we are providing their patients.
As we recently disclosed, we have relaunched the formal process regarding the potential sale of our U.K. business. Our objective continues to be maximizing value for our shareholders. Consistent with market practice for U.K. transactions of this nature, and in conjunction with our advisors, we have solicited and have now received non-binding offers to acquire our U.K. business from multiple bidders.
As we continue to work with our financial and legal advisors, we will update the market on the sales process when and as we determined it is appropriate. We continue to make strategic investments in our future growth in the U.S., expanding our market reach to bed expansions, and additional service opportunities.
For the first three quarters of 2020, we have added 206 beds to our existing facilities in the U.S., and we expect to add approximately 100 beds in the fourth quarter. As part of our strategy, we have continued our strong track record of partnering with health systems and hospitals across the country, which has created important growth opportunities for Acadia.
Along with our joint venture partner Tower Health, we opened 144 bed behavioral health facility in Reading, Pennsylvania in July. We expect to open a new joint venture hospital with Ascension Saint Thomas in Nashville during the fourth quarter. Together our bed expansions, de novo facilities and joint ventures provide many growth opportunities for Acadia to reach more patients in new and existing markets, and further advance our position in the market as well as the growth of our business.
Going forward, we believe Acadia will play a critical role in meeting the needs of many people who are struggling with the uncertainties related to the pandemic. We will continue to focus on our primary objective to deliver the highest quality of patient care as we extend our market reach and advance our position as a leading behavioral health care facilities operator.
Now, I will turn the call over to David Duckworth to discuss our financial results in more detail.
Thanks, Debbie and good morning. Revenue for the third quarter was $833.3 million, compared with $777.3 million for the third quarter of 2019. Results for the third quarter of 2020 include a reversal of $18.1 million in other income recorded in the second quarter of 2020 related to the Provider Relief Fund established by the CARES Act.
The Company's decision to reverse this income was based on additional guidance issued by HHS. The company received $12.8 million of additional general distributions from the Provider Relief Fund in the third quarter of 2020 and has now received cumulative total distributions of approximately $32.5 million.
These distributions are recorded in other accrued liabilities on the Company's balance sheet at September 30, 2020, pending the Company's final review of HHS guidance. Excluding the impact from the reversal of the CARES act income of $18.1 million, the Company's consolidated adjusted EBITDA for the third quarter of 2020 was $177.5 million, or 21.3% of revenue.
Net income attributable to Acadia stockholders was $37 million or $0.42 per diluted share for the third quarter of 2020, compared with net income of $42.6 million, or $0.48 cents per diluted share for the third quarter of 2019.
Adjusted income attributable to Acadia stockholders for the third quarter of 2020 was $60.3 million or $0.68 per diluted share, excluding a loss on impairment of $20.2 million, transaction related expenses of $8.5 million and an income tax effect of adjustments to income of $5.4 million.
I'd like to give you some additional perspective into our strategic focus on managing costs and improving margins. As Debbie said, we are pleased with the steps we have taken the past 18 months to streamline our operations, while continuing to make strategic investments.
Our cost savings initiatives implemented following our strategic review last year are on track, as evidenced by our results for the third quarter. We recognize $4.6 million of savings in the third quarter relating to the 2019 cost savings initiatives. And we are on track to achieve a run rate of $20 million by the end of the year.
Turning to our balance sheet, our balance sheet remains strong with ample liquidity and capital to invest in and continue to grow our business. At September 30, 2020, we had approximately $339 million in cash and cash equivalents and full availability under our $500 million revolving credit facility. Our cash position reflects a third quarter with robust operating cash flows of $207 million.
Our increase in cash was driven by our strong earnings growth, positive working capital trends and benefits from the CARES Act. From a capital structure perspective, we improved our debt maturity profile with two recent transactions. As mentioned on the second quarter call, we issued $450 million, a 5.5% senior notes due 2028, and the net proceeds from this offering were used to redeem the senior notes that were due in 2021, and 2022.
In October, we finalize the issuance of $475 million, a 5% Senior notes due in 2029, and use the net proceeds to prepay outstanding borrowings under our existing term loan be facility due 2022. Together, these initiatives relating to expense and cash management and our capital structure have put us in a strong financial position for 2020 and beyond. We will continue to make strategic investments in the business while aligning our costs to meet the ongoing needs of our patients.
Turning to our financial guidance, as noted in our press release, we are providing guidance for the fourth quarter as follows; revenue in a range of $810 million to $835 million, adjusted EBITDA in a range of and $160 million to $165 million and adjusted earnings per diluted share in a range of $0.68 to $0.72.
While we remain cautious regarding factors that could impact our November and December results. Our fourth quarter guidance represents management's expectations given the positive revenue and cost trends we are seeing in our U.S. and our U.K. operations. We believe the essential nature of the services we provide, combined with strong demand will drive growth for the remainder of the year and beyond.
This concludes our prepared remarks this morning. I will now ask Lauren to open the floor for your questions.
Thank you. [Operator Instructions]. We'll take our first question from Brian Tanquilut with Jefferies.
Hey, good morning. Congrats on the very good quarter. I guess Debbie, my first question is just on the recovery of volumes. It sounds like you've seen a good bit of recovery, but we're not quite back to pre COVID levels yet and there's still some disruption. So is it right to think that the strong growth trends you saw in Q3 should carry over into Q4 and into 2021. And how are you thinking about just the market share gains and secular growth that the industry is going to see as we go into next year?
Well, Brian, we did have very strong volumes across all of our service lines. And I think my comment about pre-COVID really relates more to those patients than travel for our specialty services. But overall, in the acute area, we saw very robust volume and is far exceeding where we were last year, and certainly pre-COVID. We also, I think, throughout this have maintained very consistent volumes in the RTC business, as well as CTC, which is continuing to grow in volume, and also has some favorable payer trends, which I mentioned in my remarks.
But I think overall, our visibility is -- we are now almost through October and we've continued to see improvement in the census in both, the U.S. and the U.K. And I think we actually hit the highest census in the history of Acadia in October. So we believe that because of this strong demand trends, and really just the fact that we have such diversity in the service lines that this is going to continue into 2021. I think as we read about individuals that are suffering from anxiety and depression and other suicide attempts, I mean, it's just exploding. And I think that, we're seeing those trends now. But I do think they're going to continue to be into 2021 as people cope with this. And in with the resurgence, I think that just added to the demand. And so, we feel good that all of our service lines are really seeing this demand. And I think that's what's reflected in the third quarter.
Now, that makes sense. And then just on the U.K. sale process, thanks for the color you gave us. I guess the question that I have is, what else is left to do in the process? And is there anything you can share with us with timing?
Well, we're going to move as quickly as possible. And as I mentioned in our remarks, we do have initial events that have been submitted. We're not going to be commenting on detail around that. But I will say that, there is continuing to be a lot of interest in Priory, and certainly, we have buyer interest that remain strong. And so, we'll be giving more detail as it's appropriate around timing, and also just how this is progressing.
Alright. Awesome. Thank you.
Thank you.
Our next question comes from Ralph Jacobi with Citi.
Thanks. Good morning. Just hoping you can give a little more of the underlying assumptions, I guess for the fourth quarter guidance at this point, both in terms of sort of the maybe the volume and pricing side of the equation. And then, if you're willing at all to give sort of early thoughts on 2021. Sounds like a pretty optimistic around some of the growth opportunities. So how do we frame that or think about that from a modeling perspective off of either the 2020 baseline or maybe 2019? Thanks.
Yes. Ralph, first of all, on our fourth quarter guidance, we are projecting mid single digit, revenue growth and EBITDA growth of more than 10% on a consolidated level on a year-over-year basis. And the key trends underlying this guidance include a continuation of the revenue trends we're seeing in our U.S. segment, with volumes increasing 3% to 4%, but obviously, potentially even stronger, but we do have some seasonality that we deal with in the fourth quarter, and just cautious approach that we are taking around the resurgence.
And we see revenue per day trends continuing to be positive and have a range of around two to 3% for revenue per day growth. In the U.S., we also expect to see an ongoing contribution from both the cost savings initiatives identified in 2019, as well as the cost management actions that we've implemented in 2020. So, believe that our margin will reflect all of those initiatives. And in the U.K. segment, expect to continue to see sequential improvement, which we've seen recently in both the census and the pricing, as well as the labor costs strands over the past several months, all of those metrics in the U.K. have improved. And we expect to continue to see that. As I mentioned, our guidance does reflect seasonality that we typically see in the fourth quarter. But we do have a very positive outlook for the quarter. We will provide more thoughts around 2021 in February, as we typically do, but we -- as Debbie mentioned a minute ago, we think that the trends, the demand, the volume growth opportunities that we have going into next year will continue.
Okay. Alright. Fair, fair enough. And then just follow-up. I guess, how are you finding the labor backdrop at this point, maybe specifically in the U.S. Any staffing challenges, and maybe wage rate increases? You're having to give kind of this environment? Thanks.
Sure. I mean, we really have not had any significant disruption or change in the availability or really the cost of our staffing. I think that, certainly we are closely monitoring the health of our employees. And we want to ensure we have the right staff available. But we haven't had an issue around that. I think that, certainly in the U.K., the number of the self isolating employees there is peaked at the end of March, early April. So we've continued to see a lot lower levels of that. And I think they've been able to manage the staffing there. And we certainly have here in the U.S.
We do think that the -- I think just general economic environment in the U.S. and U.K. might provide some opportunities for us to access, perhaps staff that had not been in the industry. I know, in the U.K., they have started a preceptor program for staff that are not trained in health care, but come from other industries, their turnover is down. And we have the same, I think focus here in the U.S. It just to really utilize those individuals that might seek employment in our industry and make sure that we're using them appropriately. But overall, we really haven't seen disruption there.
Okay. Very helpful. Thank you.
Our next question comes from Pito Chickering with Deutsche Bank.
Good morning, guys. Thanks for taking my questions. A couple questions for you here. On U.S. demand, you talk about seeing strong demand across all segments. Can you talk about what you're seeing on geographic areas? If you're seeing spikes or weaknesses in areas that are -- that have COVID or don't have COVID? I'm just curious how COVID is impacting your core business?
I think that we've been through this now for several months. And I think that the staff out in the field, and the leadership in the field have really done an amazing job of just handling areas like hotspots that have seen more COVID, but also making sure that individuals are able to access our care. So we did have some facilities that have been more impacted than others. But what we've done is we have very, very solid procedures around individuals that might come in if we suspect that they have COVID, we isolate them. And then, we are putting them on another unit if they're diagnosed with a positive test. But they are continuing treatment. And I think certainly if their medical symptoms become more severe, we would move them out of our settings.
But overall, we've continued to see a flow of patients. We haven't stopped admissions. There may be -- I know, there are a few of our higher volume substance use facilities that saw more COVID. And so there was a little slowing of admissions, but no one was stopped from coming into the hospital. We just wanted to make sure we were very cautious and careful about how we handled those patients. And it varies really right now with some of just the resurgence and there may be a market that has resurgence and then that seems to ease. But we're being very focused on just making sure we're keeping access to our services, because we feel like that's more important than ever now.
Okay. And then on the U.K., revenue per pricing was strong. It looks as though it could have been some higher admissions due to the lower length of stays. I guess, how we think about how higher short-term emissions in the U.K. and its impact on margins? And at the same time, on the NHS pricing comments, you said 2.8%. Is that for 2021. And then also on the U.K., anything you want to share with the highest bid you've gotten so far for that business?
Good try there.
Yes. I'll start with the first part of that question. The U.K. revenue per day, we talked earlier in the year about given the pandemic. There being some interim rate increases with our payers there. So it has been a process to work through the negotiations for what we typically receive in April. And that 2.8% that we have now received on an average basis across our payers, that is the 2020 rate increase. That is around the level of our 2019 rate increase. And it is really in the range of the 2.5% to 3% expectation that we have going forward. But that does represent our 2020 increase.
From a volume perspective, we did see a strong recovery in our shorter length of stay services. That is reflected in our commentary around getting back to our pre-COVID volumes early in the third quarter. And that's reflected in strong year over year patient days, considering, managing through the pandemic the impact that we saw in the second quarter. We are very pleased with the U.K. volumes really across all of the service bonds, and think we're well-positioned for the continuing demand in the U.K.
And Pito, I'll take your last question. We're not going to provide an update on any detail around the initial bids. But I'll just again say that, our objective is to maximize value. And that's what we're focused on. But we will provide additional updates when it's appropriate.
Okay. And then because you only answer that one, let me ask one more follow-up one. Fourth quarter margins looks to be a step down versus a we saw in third quarter excluding return on the CARES act. It looks to be about 160 basis points, if my math is right, sort of sequential decline. I guess curious, from a margin perspective, what do you guys have assuming different in fourth quarter than you saw in the third quarter again, excluding the CARES act?
Yes. We do project a strong margin in the fourth quarter. If you think about our U.S. business, we see a 200 basis point type improvement over the fourth quarter of 2019. And a step down from the third quarter mainly relates to seasonality that we see. We do typically see a lower occupancy, especially in between the Thanksgiving Christmas Holidays, right at the end of the year. And so the margin reflects that as it does in many years for certain service lines that experience some seasonality. And we have just a little bit of caution, thinking about potential resurgence and the effect it may have in different markets. We want to be somewhat cautious. But the trends that we've seen so far in October, as we mentioned have been very positive. We think that'll be reflected in the volume and a strong margin for the quarter. So that's the margin, Pito, does continue to show the year-over-year improvement that we reported in the third quarter.
Great. Thanks so much, guys this quarter.
Thank you.
And our next question comes from Kevin Fischbeck with Bank of America.
Good morning. This is Joanna Gajuk filling for Kevin today. Thanks for taking the question. So first one, actually quick one on a follow up. So did I hear right you talk about outpatient bonds also coming back, right?
Yes.
Okay.
We did see an increase in outpatient, Joanna. It's not at the level that we have been, but it's much better than it was in the second quarter.
Okay. That makes sense. Because I clearly heard you saying that it was across business lines. I just want to confirm that. And then on the -- I guess on another piece of the pricing outlook. So I know the last quarter call you mentioned that you have not seen anything on the Medicaid rate pressure, but anything change is there? Anything that you're watching any particular states?
We are not aware of at this point any changes or rate cuts from the States. There was one state that we have one facility and which was Nevada. And they recently cut their rates by 6%. But we were excluded from those cuts as a mental health provider. And I think this really demonstrates the support from the state and also just their recognition of the value of the services, especially right now. We are monitoring each state that we're in. We're in 40 states. And -- but we believe that, with our diversity and just the climate in general, and then -- I think the increased demand that we believe payers are going to be supportive of our services and the payments.
Okay. And also, if I can follow-up on our commentary about the strength you see in October. And also, the question about labor, you saying, you're not seeing any pressure. But if you're talking about the outlook of increased demand given the results of the pandemic and people struggling with that. Are you anticipating you will have enough labor to serve this demand? Or are you preparing for some sort of spiking in the cost because of kind of the increased demand?
We have a lot of experience and a strong track record, just adding beds, opening new facilities and being able to appropriately add staff based on the volume growth that we see. So we are not anticipating any challenges there. It is a focus of the team, and we have a strong record on just being able to recruit and staff for our growth.
Okay. That's great. And then the last question on the U.K., which you've said it, you still also seeing pretty positive trends there. And in the past, you talk about the retooling of bed. So I don't know if there's anything that's happening there, or it's been logic complete, and I suspect with the pandemic there's probably some disruption maybe to the process. So any kind of update on that? Thank you.
We are continuing with our retooling. And we're on track to reopen the majority of our beds that we talked about by the end of the year. I think these beds that we have opened throughout the year are being used. And I think that, we're going to continue to see the positive contribution from those retool beds. I think that as NHS is starting to see this surge and more demand, we are utilizing the retool beds as well as certainly the existing beds that we have. But I think one of the I think strong messages that NHS has given is they are willing to actually back those beds with block contracts.
So they are paying for beds without regard to whether a patient is in them. And I think part of that is really insurance and really comfort for them that as demand is growing. And it certainly is in the U.K. that they have a bed available. So we think our retooling is very timely. And we're on track for what we said we were going to do.
Great Thank you so much.
Our next question comes from John Ransom with Raymond James.
Hey. Can you hear me?
Yes. Good morning.
Good morning.
Alright. I've got these fancy new wireless headset things and I'm terrible at operating them. So was a little nervous. I'm not going to go, Pito, and ask you something you want to answer. But maybe if I could ask on the U.K. Are you finished soliciting beds? And as this -- should we understand your comments as you've gotten pulmonary beds. And now we're into kind of data and due diligence face?
We have received the non-binding offers and are moving forward through the process and don't really have much of an update other than that, John, regarding timing and where we stand on valuation.
You don't expect to receive any more offers. So you've got any offers you expect to get just working through that process. So that that way think about what you said?
We're not providing more specific updates than what we commented on earlier.
Alright. Taking about 2021, if we adjust for seasonality for 4Q, what other things should we think about in terms of a jumping off point for next year? I think guess you've had 20 million a cost cuts. So should we say maybe $10 million kind of net new in 2021. Anything else that we should look at for 4Q as we think about 2021 just as we get our pulmonary numbers out there?
John, I think that assumption around the savings realized this year $10 million is there. And we think that will be reflected in the first half of next year, because we have achieved a lot of that by the second half of 2020. Other than that, it will obviously be an interesting comparison as we move to next year. But I think the positive trends will continue, as we said earlier.
Right. So as we think about your short stay U.S. acute business, traditionally ER, Emergency Rooms were big sources of referrals, and ER visits are down some 20%. And yet your numbers are up? So is it that the mental health cases are still presenting at the ER? Or have you diversified your referral sources? Because obviously, your numbers of ERs down, and I'm just trying to square the circle about where these patients might be coming from?
Sure. I mean, we have seen really our ER referrals return to normal. So, I guess, if we, think about that there are patients that are needing mental health and substance use services going to the ER. But we've also diversified our referral sources in markets that we think have served as well through this. But on the other hand, we've really seen a return to normal of most of the referral patterns. And I think individuals that might have been afraid or during this stay at home orders did not seek care. They are they are seeking care. And they are going to the ERs and we are getting referrals at a normal level.
Great. Last one from me. David, again, as we think about 2021, is there any reason to think that your capital expenditure, cadence or rhythm would be changed at all because of COVID or other factors? So should we still kind of layer on the same amount of growth CapEx that you've been doing over the past few years?
Yes. We do think you should layer in a similar number. We are going through our detailed project by project projection right now in connection with our budget. And we'll have more guidance around that in February. We do see a growing opportunity around our joint ventures and partnerships. And so that's one thing that we will be looking at that potentially could grow. But for the most part, it is a similar level of investment as what we've seen this year.
Thanks so much.
Thanks, John.
Thank you.
We'll take our next question from Gary Taylor with JPMorgan.
Hi, good morning. Great quarter. Any CARES Act assumption in your fourth quarter guidance?
No, Gary. We have received -- as we mentioned in our press release, 32.5 million of cumulative distributions. All of that is on our balance sheet. And was not included in our fourth quarter earnings projections as something we would recognize in the quarter. We are finalizing our review of the guidance that has been issued in September and October. But we do not have an assumption in the fourth quarter that any of that would be recognized.
And then just thinking about the 4Q seasonality, you're talking about. I know it's been asked about a little bit. There is a bigger step down sequentially than we've typically seen in your EBITDA. And I think EBITDA margins up 330 or 300 basis points this quarter, your midpoint for 4Q implies up about half of that year-over-year. Is there anything else you can explicitly call out? Is it just the thought? It looks like you're looking for 5% to 7% same store revenue growth, so potentially a little softer. Is that just the primary driver of that margin performance step down for 4Q?
Well, we did have a very strong third quarter and expect the fourth quarter in that 5% to 7% range to continue to be very strong. It's mostly seasonality. And as we commented on earlier, us taking a cautious approach, knowing that we do have facilities and markets that could see some disruption from a resurgence and so we want to be cautious around the volumes and other projections as we think about November and December. But obviously, we've seen strong trends in recent months. And we do expect that to continue. So it is seasonality and some elements of us being cautious around the resurgence.
If I can just add one more quick one. It seems over the last few years as revenue growth has been slower, margins had had declined for four years or so in a row. Is there a level just rule of thumb level on same store U.S. revenue growth that you need to be at to drive margin improvement? So 4% or 5%, you're pretty or higher. You're pretty comfortable, you're driving margin improvement, is there any rule of thumb you would throw at us?
Well, we think that just the revenue per day growth being in the 2% to 3% range helps us maintain the margins. And then the volume growth that we see is a significant factor in margin improvement opportunities as we realize efficiencies, and are able to leverage the fixed cost structure as we grow our volumes. And so really only need revenue growth to be in that 2% to 3% range. And above that, we do expect margin improvement. And we've seen that obviously in the third quarter, as the revenue growth has been stronger, we have seen strong margin improvement from that volume growth.
Thank you.
Thanks, Gary.
Our next question comes from A.J. Rice with Credit Suisse.
Hi, everybody. Just first. I know, there's been discussion over time about what the long term targets are for capital structure. Any updated thoughts on the amount of leverage that you're comfortable with long term?
Well, I think we've turned in this quarter. Yes, we've seen this quarter, something we've talked about before, around just the investments that we've made over the last several years contributing to earnings growth, and that helping us lower our leverage. We saw that in the third quarter. And then obviously, anything above and beyond that relates to a more strategic transaction, like the U.K.transaction, we are not providing a specific target yet, relating to that. We do have a goal of lowering our leverage through the earnings growth and other potential opportunities. But are not sharing a target yet, A.J.
Okay. Obviously, there's been a lot of discussion about telehealth deploying that in the behavioral area. You guys, as you talk about it sounds like it's to support the existing services in some ways that you provide. But I wonder, are you looking at anything where that might be a growth avenue to pursue outpatient more? Are you getting any discussions with third party telehealth companies that are interested in working with you. Anything to share along those lines?
Sure. I mean, we, as you said, we see telehealth is not a replacement for the inpatient part of what we do. It is a good access point. And we've used it for that with patient engagement. I think that the regulatory changes and reimbursement changes that have been made and look like they're going to at least be in place to the end of this year, I think have been favorable. So we have looked at how we can expand the use of telehealth, A.J., with our partial and our outpatient programs. And we're doing that now. I do -- we are already collaborating with some outside vendors for telehealth. We also have internal capabilities around that which we've expanded certainly with the pandemic. But I think that as practitioners as well as patients get more comfortable, and I think they have -- we see that as a growth area for what we're doing and primarily for the partial and outpatient, but also for assessments. And then even we're using it right now for visitation of those that can't come into the facility. But I think it is an area that can -- is now that reimbursement changes have started to reflect the importance of it. We plan to use that and we're open to collaboration. We're already doing that now and we think it makes sense.
Okay. Maybe I'll slip one more and if I could, because it's sort of falls on some of the other questions. You're in 40 states. So you've seen clearly COVID surges and then COVID easing and obviously how communities responding to those surges has evolved over the last six or seven months. Do you see at this point when there's a surge in a community, because you're sort of using that as one of the cautionary comments about the fourth quarter. Do you see surges in a community really impact the business? Or is it now people are sort of just back to at least healthcare utilization as usual, and then really, when there's a mini surge in a community, you really don't see that much impact anymore? Could you just give us a little flavor for giving you got a pretty wide view?
Well, I think A.J., that is we have had markets that have seen more cases that our patients are still coming to our facilities for treatment. I think where we have really focused on this is how we manage them when they are in the facility. And making sure that we are appropriate with isolating patients as necessary, having the right unit for COVID patients, as opposed to those that don't have COVID. But I do think, when we talk about resurgence and caution, I would say that's more around just the referral networks. We don't anticipate that happening. But we also want to make sure that we're being conservative, because we don't have control over that. We done a lot of things. And I think we've learned a lot.
The facilities know what to expect. I think they're focused on very quickly adapting the referral outreach. And also just how the sales and marketing approach is working. We've got that platform that we've used. It's given us a lot of visibility. So I think overall, as we see, cases go up, we haven't seen that really interrupt our business, other than just managing within the facility.
Interesting. Okay. All right. Thanks a lot.
Thank you.
And as reminder, please limit yourself to one question with one follow up. Our next question comes from Whit Mayo with UBS.
Hey, thanks. Good morning. We've seen this interesting trend begin to develop for maybe a quarter and a half now where COVID is beginning to actually drive tailwinds for certain providers, so that you have no T&E expense. Your malpractice is probably down. Workers comp down. Self insured costs down. Then there's the offset with increased PPE supplies to support your field. And I guess, I'm just wondering, do you think that COVID was, you know, a tailwind for you in the in the third quarter? What do you net those two together? And then we also have the sequester. So I'm just wondering if the COVID tailwind is actually offset that the headwinds at this point? And should we be thinking that maybe some of those expenses leak back into the business next year?
We do not believe on a net basis. There are a lot of moving pieces and some savings and some incremental cost as you mentioned. On a net basis, we do not think there's a significant tailwind that we're seeing here. I mean, obviously, the volume and the demand, we do think will continue partially, because of what people have been through. But from a cost perspective, there's nothing significant that we would highlight. We are seeing a lower level of travel, a lower level of employee medical and some other costs this year. But have also seen, as you mentioned, a higher level of the incremental PPE cost. And, and we will be looking at just how that changes. What is essential for us to add back from a travel perspective, for example, as we think about next year. But I don't think there's any significant amount that we would highlight for you at this point.
And I'll just add with it. I think a lot of our efforts around the expense management have been focused on making sure we're matching volume with our staffing and primarily in the non-clinical areas. But we have taken the opportunity through this to really step back and say, what is essential? Do we need some of the travel costs that previously we had done in marketing and even through some of the travel to our advance and looked at virtual solutions. So, I do think going forward that we will be changing some of the way we do things. And there will be I think some return of perhaps health claims. And I think that as we get back to normal, which I'm not sure when that will be. But I think that most of our impact on expenses has been around just managing the flow of patients and making sure that we're being very careful and prudent about our staffing.
Now, that's super helpful. And just one follow up is, are you seeing any notable changes and how the payers are responding to you guys, just, I'm curious around denials, pre off. Anything that may have impacted length of stay, the adjudication process. Just curious on any observations you have with you have with any headwinds or tailwinds, you feel like you're seeing from a payer perspective? Thanks.
I mean, I think that we really haven't seen much of a change there, Whit.. I mean, they're still requiring medical necessity. We make sure that that's in place as we admit patients. But as I look at payer behavior, I don't see any big difference there. And I think that our length of stay increase. As we looked at it, there wasn't any one factor there. It's been pretty stable across all of our service lines. And so I think that certainly they've been very collaborative with us as we've gone through the pandemic, and they're trying to make sure their patients that are part of their plans get taken care of. But I wouldn't identify anything that's changed. They're still focused on making sure that patients are getting appropriate care for the appropriate length of stay.
I figured. Thank you.
Our next question comes from Matthew Gilmore with Baird.
Hey, thanks. I just had a quick clarification. I think Debbie made a comment about record census levels in October. Did that mean that was the best ever census level for the company during October or just a record for an October month?
Its actually the best census that Acadia has had in the U.S. So it's a record that was set for highest census for the company.
And would you -- you just have to follow up on that. But is that unusual in the sense that, yes, maybe September is normally a better month than October? Or is that generally kind of what you'd expect sequentially, maybe with the bed adds to perhaps contributing to that?
You're right. The bed additions have helped us and our operations team has done a great job bringing beds online this year, new facility online in July. October does typically have a strong census month. And so, it's a month as you think about other months of the year where we expect a strong census. And we're very pleased to achieve that high number during the month, and I've seen strong performance from across the service lines to help us achieve that.
And I'll just add that. With our de novos that we have put in place. And also, just as David said, bed additions. We have been pleased that those beds have been ramping at our expectation and some above our expectations. So I think all those factors go together with just where we were able to actually end up. We still got a few days left in October. Not many one. But I think across the service lines, we've certainly seen some very -- I think strong numbers around at cube [ph], as well as specialty returning to kind of normal ranges. So all that adds up with the RTCs as well certainly to the strong number that we saw in October.
Okay, great. Thanks a lot.
And we'll take our next question from Ryan Daniels with William Blair.
Hey guys, Nick, speak out for Ryan. Thanks for squeezing me in. You mentioned in the U.S. that referral kind of distribution is basically back to normal at this point. Is that similar in the U.K? And then as any of the strength kind of as a result of backlog filling? Or do you think most of those basically shake it out at this point?
Well, I think in the U.K., there was a dynamic in the in March and April and even into May where the commissioners were redeployed for med surge services. And I think as that happened, there were also case managers in the UK that were also redeployed for med surge. And I think that that had some interruption, as well as the stay at home orders which were in place in the U.K. We have seen the commissioning process return to normal. And as they have returned to normal, there are patients that are being sent, obviously to our facilities in the U.K. I think that there's a combination of individuals that that need this care that perhaps might is delayed, but I also believe that just there's a strong demand, even without the pandemic, that we've talked about before.
If you add then the pandemic and the anxiety and depression, I think they both kind of -- I guess, have impacted us not just in the U.K. but the U.S. where people are coming in that perhaps wouldn't have had an issue prior to the pandemic. But then we're also seeing patients that have had long standing issues. And frankly, they become more acute as they've gone through this pandemic.
Great. That makes sense. And then you talked about kind of CapEx for 2021 kind of looking at 2020 being a good estimate. Would that be the case two for kind of bad ads for 2021 kind of like a similar level to 2020?
Yes. We'll provide more detail there. But we have consistently had bed additions at the level that we're seeing in 2020. So it's not just this year. It's been consistent over the last several years. And we think that will continue. But we'll provide more guidance around that in February.
Got you. Great. All right. Thanks, guys. Congrats on the quarter.
Okay. Thank you.
Thank you.
And there are no further questions. At this time. I'd like to turn the conference back to Debbie Osteen for any additional or closing remarks.
Well, thank you again for being with us today and for your interest in Acadia Healthcare. I am very grateful to our field and corporate leaders for their resiliency, and also their commitment to keeping our key growth and operational initiatives moving forward, while responding to this unprecedented crisis. I think they are one of the main reasons that I stand here today optimistic about our Company's future. If you have any additional questions today, please do not hesitate to contact us directly. And have a good day.
That does conclude today's conference. We thank you for your participation. You may now disconnect.