Detailed Narrative
Operational Execution and New Facility Ramps
Acadia has made significant advances in operational execution, with new facilities from the 2023-2026 cohorts ramping ahead of expectations in terms of revenue, volume, and facility-level EBITDA. This success is attributed to a heightened sense of urgency, accelerated timelines for licensing, accreditation, and payer contracting, disciplined expense control, and strong referral partnerships. The Coachella Valley facility, a 2024 de novo, is now above 90% occupancy, leading to plans for additional bed capacity.
Financial Performance and Capital Deployment
The company delivered Q2 FY26 revenue above the high end of guidance, and adjusted EBITDA and adjusted EPS near the high end. Strong free cash flow of $124 million was generated, contributing to a $113 million reduction in debt and a net leverage ratio of 4.1x adjusted EBITDA. Management is taking a disciplined approach to capital deployment, including CapEx, and expects continued positive free cash flow in the second half of the year.
Service Line Performance
The Acute business saw continued progress in ramping occupancy and revenue at new facilities, with 6% growth after normalizing for supplemental payments. The Specialty business delivered solid performance with a $5 million sequential revenue increase, mitigating some impact from New York Medicaid changes. The RTC service line showed strong 12% year-over-year revenue growth driven by volume and capacity expansions. The CTC service line's revenue was flat year-over-year, performing slightly behind expectations despite opening two new clinics.
Labor and Staffing Environment
Acadia continues to experience a stable and positive labor environment, with strong recruiting and retention of employees. The company has successfully staffed new facilities, including bringing on new leadership teams. Wage cost growth has been trending around 3% year-over-year. The partnership model with JVs provides an advantage by allowing staff from partner units/hospitals to transition to new facilities.
Revenue Cycle Management Progress
The company reported stability in bad debt and denials sequentially from Q1 to Q2, with a year-over-year improvement in the headwind from $9 million to $7 million. This progress is driven by a three-pronged approach: strengthening processes with revenue cycle leaders, leveraging technology for proactive intervention, and a strategic appeals process to learn from and apply across markets.
Professional and General Liability (PLGL) Reserves
Acadia made a proactive decision to conduct mid-year actuarial reviews in 2026. A $28.6 million adjustment was made to increase PLGL reserves in Q2, primarily driven by progress in settling certain prior-year cases from the 2025 policy year. While this adjustment impacted Q2 adjusted EBITDA, the forecast for current year (2026) reserves remains in line with expectations at $100 million to $110 million, with the total for the year now trending around $135 million including the prior-year adjustment.
Medicaid Work Requirements Impact
Management believes that new Medicaid work requirements, set to be implemented in January for states with expanded Medicaid, will not have a material impact on Acadia. The company anticipates that its patients, particularly those with severe mental illness and substance use disorders, will qualify for the exemptions laid out in the requirements, which were thoughtfully designed to cover such populations.