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Acadia Healthcare (NASDAQ:ACHC)
Q4 2018 Earnings Conference Call
March 1, 2019 9:00 a.m. ET

Contents:

Prepared Remarks:

Operator

As a reminder, this call is being recorded. Please proceed.

Gretchen Hommrich -- Director, Investor Relations

Good morning, and welcome to Acadia's fourth-quarter 2018 conference call. 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 2019 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 fourth-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 publically 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 Debbie Osteen. Please go ahead.

Debbie Osteen -- Chief Executive Officer

Good morning, and thank you for being with us today for our fourth-quarter conference call. I'm very pleased to have this opportunity to speak with you in my first investor call as chief executive officer of Acadia. Since arriving at Acadia in late December, I've had the opportunity to talk with many of our employees, referral sources and other key stakeholders, and I am impressed with the strong platform that is in place. We are providing excellent patient care, and our business remains highly relevant in the rapidly evolving healthcare market.

I'm here today with our President Brent Turner, Chief Financial Officer David Duckworth, and other members of our executive management team. David and I each have some remarks about the fourth quarter. I will then close with some additional comments and open the line for your questions. Our results for the fourth quarter reflect a consistent revenue improvement we achieved throughout 2018, in spite of some operational challenges, primarily in the U.K.

For the fourth quarter of 2018, revenue increased 2.6% and was up 6.2% for 2018. We have continued to drive organic growth within our existing facilities by expanding our services and adding more bed capacity. Same facility revenue was up 3.8% for the fourth quarter and 5.2% for the full year. Our 3.8% total same facility revenue growth for the fourth quarter included a 2.6% increase in patient days and a 1.2% increase in revenue per patient day.

In 2018, we continue to look for opportunities to acquire new facilities and enter into strategic partnerships and joint ventures to develop additional behavioral healthcare facilities. During the fourth quarter, we added 243 beds to existing facilities and 651 total beds for the full year, increasing our size and geographic scale and further enhancing our position as a leading provider of behavioral healthcare services. U.S. same facility revenue increased 3.5% for the quarter, with a 3.5% increase in patient days.

Revenue per patient day was flat compared with the prior-year period. U.S. same facility EBITDA margin decreased 130 basis points to 24.9%. We had an accounts receivable adjustment in the fourth quarter that affected these results, and David will provide more detail in his comments.

For our operations in the U.K., same facility revenue was up 4.4%, consisting of a 1.5% increase in patient days and a 2.8% increase in revenue per patient day. Same facility EBITDA margin declined 460 basis points to 16.4% for the quarter, consistent with the third quarter and with our expectations for the fourth quarter. Our U.K. results continue to be impacted by increased operating costs, primarily due to the ongoing nursing and clinical staff shortage and our dependence on higher-cost agency labor.

While we expect continued challenges related to the nursing and clinical staff shortage, we remain focused on identifying ways to improve our U.K. operation. Finally, as noted in our press release, we closed two previously announced acquisitions in February, Mission Treatment and The Whittier Pavilion. Mission Treatment operates nine comprehensive treatment centers that provide medication-assisted treatment and counseling for people struggling with opioid addiction in California, Nevada, Arizona and Oklahoma.

The Whittier Pavilion is a 71-bed inpatient psychiatric hospital located in Haverhill, Massachusetts. Additionally, we opened two de novo facilities in February: Mount Caramel Behavioral Health, a joint venture with 80 beds located in Columbus, Ohio; and Rio Vista Behavioral Health, an 80 bed de novo facility located in El Paso, Texas. Now I will turn the call over to David Duckworth to discuss our financial results and guidance in more detail.

David Duckworth -- Chief Financial Officer

Thanks, Debbie and good morning. Revenue for the fourth quarter was $743.5 million, an increase of 2.6%, compared with $724.5 million for the fourth quarter of 2017. Net loss attributable to Acadia stockholders was $331.6 million or $3.80 per diluted share for the fourth quarter of 2018, compared with net income of $69.6 million or $0.80 per diluted share for the fourth quarter of 2017. In the fourth quarter of 2018, the company completed its goodwill impairment test and recorded a noncash loss on impairment of $337.9 million related to our U.K.

operations. This impairment was based on the market challenges, the recent financial performance and revised financial forecast for our U.K. operations. Our fourth-quarter results also include legal settlements expense of $22.1 million, which primarily relates to the company's billing for lab services in our seven CTC locations in West Virginia.

We were notified of the government's investigation during the third quarter and concluded from our internal review completed in the fourth quarter that our clinics were not following the West Virginia billing requirements. The West Virginia regulations do not permit clinics to bill for lab services performed by a third-party lab. Our clinics utilized the third-party lab according to the billing methodology that was in place prior to Acadia's acquisition of the clinics in 2015. The settlement relates to claim submitted for lab services from 2012 to 2018.

We expect the settlement to be finalized in the second quarter. Adjusted income attributable to Acadia stockholders for the fourth quarter of 2018 was $40.8 million or $0.47 per diluted share, excluding transaction-related expenses of $24.5 million, debt extinguishment cost of $0.9 million, legal settlements expense of $22.1 million and the loss on impairment of $337.9 million. The company's consolidated adjusted EBITDA for the fourth quarter of 2018 was $133.9 million or 18% of revenue. U.S.

same facility revenue was impacted by a fourth-quarter 2018 accounts receivable adjustment of approximately $8 million, primarily related to the CTCs and state Medicaid programs in Wisconsin. More specifically, starting in 2016, Wisconsin Medicaid moved from its traditional state Medicaid program, covering medication-assisted treatment services to contracting with 18 managed Medicaid payers. Neither the state, the managed care organizations nor our clinics were prepared for the different billing requirements implemented by each payer. For 2018, we have successfully implemented processes, under which we billed and collected for our services on a current basis.

However, we've been working with the state to review claims that accumulated during the first two years of the transition in 2016 and 2017. While the review and collection are ongoing, we determined during the fourth quarter that an $8 million adjustment was appropriate based on the status of the discussions. Excluding this adjustment, U.S. same facility revenue increased 5.3% with a 1.7% increase in revenue per patient day, and U.S.

same facility EBITDA margin stayed consistent at 26.2%. Acadia's operating cash flows from continuing operations were $416.6 million for 2018, compared with $401.3 million last year, an increase of 3.8%. We recently amended our senior secured credit facility to modify certain definitions and provide increased flexibility in terms of our financial covenants. As of December 31 2018, the company had significant availability under our $500 million revolving credit facility, and our leverage ratio was approximately 5.3.

Turning to our financial guidance. And as announced in our news release, our guidance for the full-year 2019 and for the first quarter of 2019 is as follows: revenue for 2019 in a range of $3.15 billion to $3.2 billion; adjusted EBITDA for 2019 in a range of $610 million to $630 million; adjusted earnings per diluted share for 2019 in a range of $2.15 to $2.30; and adjusted earnings per diluted share for the first quarter of 2019 in a range of $0.35 to $0.36. Our guidance includes the following forecast for nonoperating cost for 2019: interest expense of approximately $195 million; depreciation expense of approximately $170 million; stock compensation expense of approximately $26 million; an exchange rate of $1.30 per British pound sterling; and an effective tax rate of approximately 16%. This concludes my prepared remarks this morning, I'll turn it back over to Debbie for some final comments.

Debbie Osteen -- Chief Executive Officer

Thanks, David. Now that we have covered the results, and before we take your questions, I would like to take some time this morning to talk about some initial impressions and my plans to address our future strategy. I joined the company in December because I saw the opportunity to lead a company with a history of driving shareholder value and delivering the highest levels of patient quality. Since joining, I've been working to better understand the opportunities and challenges ahead for Acadia.

I'm very impressed with the team at the corporate level as well as the operations team supporting the facilities. Though my conversations with employees and stakeholders have reinforced my belief in Acadia's strong position, I recognize that there is more work for our team to do. I have heard candid feedback and take it seriously. I am closely evaluating all aspects of our business to see where we have opportunities, and I'm also looking for improvements we can make to deliver better performance.

My highest priority is to drive a significant increase in shareholder value over time by developing and executing strategies that will leverage our strength and provide excellent care to the many patients that come to Acadia facilities for help. Although, as you would expect, I'm still working on evaluating our business, I expect to provide my views on strategy and future direction in May. In the meantime, I look forward to engaging with you over the coming weeks. I will now ask April to open the floor for your questions. 

Questions and Answers:

Operator

Thank you. [Operator instructions] And we'll take our first question from A.J. Rice with Credit Suisse. Please go ahead.

A.J. Rice -- Credit Suisse -- Analyst

Thanks, everybody. Best wishes, Debbie, on the new role. First, the -- first question, I don't know if you've had a chance to develop an opinion about this yet, but Acadia is consistently, in the U.S. operations, delivered mid- to sometimes even high single-digit comparable facility revenue growth.

I know that seems not to be able to be what the other public peers have done, as you know. A little lower than that. If you have developed a view, is it a service mix thing? Is it a geographic mix? Is it maybe the labor pipeline? Have you been able to develop a view as to they've been able to do that, and you did it this quarter of 5.3% same-store growth? And do you think that sort of mid-single-digit type of growth rate on the U.S. operations is a reasonable long-term target, realizing quarter to quarter could fluctuate?

Debbie Osteen -- Chief Executive Officer

A.J., I think you've missed in the couple of the key things that I've been able to see since I joined the company. I think there's a very strong growth platform here. There's a real diversification of services across geography that, I think, has been very helpful and very strong to generate the growth. I think the team that I've met and the processes I've seen have really shown the ability to respond to opportunities.

And I think that's just the way the facilities are laid out and configured, I think they really have very good relationships with their payers, and that's helped, as well as doing a good job, frankly, with the staffing and physician challenges that the industry faces.

A.J. Rice -- Credit Suisse -- Analyst

OK. And then my follow-up question, I guess -- or my other question would be that I know there was discussion in the fourth quarter about there being potentially 20 or 30 facilities in the U.K. that were operating around breakeven, plus or minus, a little bit. And then maybe, the performance over there could be significantly enhanced.

And there was a more focused look at either repositioning those, eliminating those, closing those even for real estate value. I know you took a big charge related to the U.K. operations with the fourth quarter. Is that a prelude to doing something on those targeted facilities? Any comment about how much taking that charge might help the operating margins in the U.K.

going forward?

Debbie Osteen -- Chief Executive Officer

Well, A.J., nine sites in the U.K. closed in 2018. There wasn't a lot of financial impact. But I recently visited there, and I think the team is looking closely at the facilities that might be appropriate for closure.

But I think they're also looking at the possibility of facilities that are closed being retooled into higher-revenue services and changing the service mix. So I think that evaluation has been ongoing and it continues.

A.J. Rice -- Credit Suisse -- Analyst

All right. I appreciate that. Thanks a lot. And again, best wishes.

Thank you.

Operator

And we'll take our next question from Brian Tanquilut with Jefferies. Please go ahead.

Brian Tanquilut -- Jefferies -- Analyst

Hi. Good morning, guys. And Deb, welcome to Acadia. So I guess, my first question is just from a guidance perspective, maybe for David or Brent.

Can you guys walk us through how you would bridge from the Q4 numbers, or think about it as a run rate, to the guidance for 2019 and then the ramp that you would assume given the Q1 guidance that you've given? Thank you.

David Duckworth -- Chief Financial Officer

Good morning, Brian. This is David. We do see a number of factors that are impacting our guidance for the first quarter. And then as you look at the rest of the year, these factors also play a role in the improvement that we see in our U.S.

and U.K. operations. So let me walk through those factors. First, in the U.K., we do have an EBITDA margin in the second half of 2018 of just under 15%.

We do see that continuing in the first quarter, but think with the number of initiatives that, that will improve. The occupancy as well as rate increases and other initiatives, we think, will play a role in the improvement in the U.K. operations. But in the first quarter, and really the first part of the year, we do see a lower run rate for our U.K.

operations in terms of the margin. And then in the U.S., we have number of beds that have been brought online, six de novo facilities going back to the fourth quarter of 2017, all the way through the two that have opened in February. So we have a number of beds in de novo facilities that have been ramping. We're very optimistic about the contribution from those facilities, but we do see a first quarter impact from those facilities, especially with the two that have opened this quarter.

So we do have around $2.5 million of losses that are affecting the first quarter number from the de novo facilities, but see at the end of the year that there's going to be positive EBITDA contribution from those facilities. Additionally, in the U.S., we had two facilities that closed in the fourth quarter. In addition, we had one facility closing in the first quarter of this year. There are some losses incurred at those facilities in the fourth quarter as well as the first quarter and that's about $1.5 million per quarter of losses.

We think that the wind down of those operations will be complete and, as we move past the first quarter, that there will be contribution from those facilities. So in terms of the operating contribution, the new beds in the U.S. will improve and will be more reflective of the improvement in the last nine months of the year. And then from a nonoperating cost, we did provide the guidance around interest and depreciation and the stock comp.

There is about a $0.07 impact or so just year over year in the first quarter that's impacting the results, and that also moderates and has less of an impact throughout the year.

Brian Tanquilut -- Jefferies -- Analyst

All right. Got it. And then my follow-up, I'd like to hear about growth initiatives. I noticed that you've stepped down the target number of bed openings for this year.

And obviously, you came in the 600 range for 2018. So Deb, is that sort of the new way we should be thinking about growth? And what's your perspective on ratching us down a little bit from the previous targets of about 800 or so?

Debbie Osteen -- Chief Executive Officer

I'd think, Brian, that we really try to identify what we think makes sense as far as bed additions to our existing facilities. So a lot of the bed growth that we are projecting in 2019 relates to existing facilities. We aren't planning to open any additional de novos for the year. We, I think, just look and preview where we think those beds can be added.

We're going to take each year really independently and look at what we think those opportunities look like. So I don't think we've really guided those down that -- in a way that's going to continue, but really just try to project what we think makes sense for this coming year.

Brian Tanquilut -- Jefferies -- Analyst

I appreciate that. Thank you.

Operator

And we'll take our next question from John Ransom with Raymond James. Please go ahead.

John Ransom -- Raymond James -- Analyst

Good morning, and a warm welcome, Deb. A number of people who watch your company question whether the U.K. asset is, long term, a strategic asset for the company. So in your strategic review process, is potentially divesting the U.K.

part of something that you're still thinking about? Or have you ruled that out at this point?

Debbie Osteen -- Chief Executive Officer

Well, John, I think we haven't really ruled anything out because we really want to do a thorough and thoughtful assessment. And part of that will be for the U.S. as well as the U.K. So we're going to evaluate all aspects of the business as well as potential strategies for the U.S.

and the U.K. And I will be talking hopefully more about, I think, the strategy in a more concrete way in May.

John Ransom -- Raymond James -- Analyst

OK. And secondly, it's not clear, at least to me, if we assume labor shortages are structural in the U.K. and the state's going to pay what the state's going to pay, what are the levers that you guys are going to pull this year to try to improve the margin, which, as you guided, was down almost 500 bps year over year. So what can you do other than just shutting down facilities that don't make money?

Debbie Osteen -- Chief Executive Officer

I think the team in the U.K. is really focused on a few areas. One is improving the occupancy at the facilities that are open now. They brought a number of beds that were retooled last year in offline back online.

Another area, obviously, that needs focus, and I think they've got some plans around, is really reducing the agency spend by bringing in more permanent employees, nurses and workers. And then the other area is just around the fees and trying to work in collaboration with NHS to present the increased costs that are part of the environment there with the national living wage and other areas. And so I think their idea and plan is to focus around those and really trying to improve capacity rather than adding a lot of additional beds, really improving the pipeline of patients coming into the existing facilities.

John Ransom -- Raymond James -- Analyst

OK. That's it for me. Thank you.

Operator

And we'll take our next question from Ralph Giacobbe with Citi. Please go ahead.

Ralph Giacobbe -- Citi -- Analyst

Great. Thanks. Good morning. The business has obviously faced margin pressure for a while now and, in some cases, even despite mid- or high-single digit revenue growth.

So I guess, the question is, do you have any sense of sort of margin targets in the U.S. and in the U.K.? And what kind of organic top line you think is needed to sort of sustain a baseline level?

David Duckworth -- Chief Financial Officer

Yes. Ralph, this is David. We do have a targeted margin improvement in the U.K. and that's compared to the second half of 2018.

There is top-line revenue growth of between 3% and 5% that will support some margin improvement. That's just as occupancy improves in the U.K., the beds that have been retooled come back online, we see that 3.5% revenue growth driving some margin improvement with a target of around 16% for the U.K. on the margin. In the revenue -- for revenue in the U.S., we do have a 5% to 6% revenue growth target that should support some margin improvement in our U.S.

operations as well. So we -- we're optimistic about the beds that have come online. The number of beds coming online in 2019 is also a strong number that, we think, supports continued U.S. revenue growth.

Ralph Giacobbe -- Citi -- Analyst

OK. Great. That's very really helpful. And then just a follow-up.

Can you maybe help me on sort of the amendment in the credit facility and how much flexibility it gives you? And then you mentioned deals in 1Q. How active will you be versus managing leverage and if there is any update on the leverage target at this point as well? Thanks.

David Duckworth -- Chief Financial Officer

Sure. We continue to have a leverage target of 5x. I think that we'd get there at the end-of-the-year just from the earnings growth that we expect. We did -- as we look at the step-downs that were in our existing credit agreement, we did want to take out some of the -- just risk there and create a better cushion for us throughout the year and add more flexibility to what -- how we can access our credit.

And so we did add about half a turn. The covenants were stepping down on a total leverage basis to 5.75 and then to 5.5 at the end of the year. And we've added about a half a turn to that and now stepped down within our covenants to six times at the end of 2019. There's a similar cushion that was added for the remaining term of the credit facility.

There were also some definitional adjustments that were made that are positive for us, mainly around an add-back to EBITDA for any noncash items, such as an impairment, whereas in the past agreement, that was unlimited, noncash add-back. So I'm feeling positive about the amendments that were made to the credit facility and the support from our debt lenders there.

Ralph Giacobbe -- Citi -- Analyst

OK. Thank you.

Operator

And we'll take our next question from Whit Mayo with UBS. Please go ahead.

Whit Mayo -- UBS--Analyst

Thanks. Good morning. Debbie, maybe not a terribly fair question, but once we get to May and you have a better sense of what the go-forward strategy is going to be, do you envision the implementation of that strategy to be terribly different? Do we need to be prepared for an investment period? Is there a major pivot in strategy, no pivot in strategy? And then maybe what do you see as the clear, like, two areas today as an opportunity for improvement within the organization?

Debbie Osteen -- Chief Executive Officer

Well, I think I want to complete our assessment and I want to be very thoughtful about it before I start talking about changes and direction. As I said earlier, I think there's a very strong platform here, but I do think there's opportunity for improvement in both the U.S. and, certainly, the U.K. So I'll be able to discuss more about that in May.

Whit Mayo -- UBS--Analyst

OK. I had to try. David, of the AR writedown, can you maybe give a little more color around how much was really out of period dating back to 2016? I think we have an understanding of what happened. Did you write off everything? Is there anything left that is at risk going forward? And is there an opportunity, potentially, to pick up some more of that as the year plays out? I'm just trying to think about the right jumping off point for the year.

David Duckworth -- Chief Financial Officer

Right. We do attribute all of the $8 million adjustment to prior years into 2016 and 2017, specifically. We do think the reserve that we've put in place is appropriate and, therefore, not really reflecting any opportunity, in our view, for there to be much upside there. We -- we're going through the final discussions around the amount that we expect to collect for those two years, but feel like the reserve we established was appropriate.

Whit Mayo -- UBS--Analyst

OK. Maybe one last one just back to the start-up losses. I think you said, David, you expect maybe $2.5 million of losses in the first quarter. Looking at your disclosures, it looks like you may have had about $12 million in the past 12 months.

So I'm just trying to get a sense of how quickly that $2.5 million reverses itself in the first quarter and what you're expecting for the full-year contribution in 2019.

David Duckworth -- Chief Financial Officer

Right. We do expect $2.5 million of losses in the first quarter. And keep in mind, we have two facilities that are currently brand new. Going through the licensing survey process will take the next two to three months just to focus on that.

And we have a number of other facilities that have now been opened more than a year in that six to nine-month period, where we expect to get very close to breakeven and positive results. And so the way we see it playing out throughout the year is probably another $1 million or so of losses in the second quarter, but expect a breakeven and even some positive contribution in the second half of the year. And hopefully, EBITDA in the second half of the year from those six facilities will be around $2 million in those six months. So on a year-over-year basis, with the negative impact in 2018, we expect to be about $1 million to $2 million loss in 2019.

Operator

We'll take our next question from Frank Morgan with RBC Capital Markets. Please go ahead.

Frank Morgan -- RBC Capital Markets -- Analyst

Good morning. I'd like to go back to the -- A.J.'s original question, looking and comparing and contrasting your company to your former employer. There's always been a lot of discussion around some glaring differences in what is otherwise seems to be a -- the same business. But could you give us some knowledge and some insight into what you're seeing specifically in your labor markets, and that labor has always been called out a shortage issue more for your neighbors.

And then also on the payer mix side, are you seeing as much of this shift from traditional Medicare to managed -- I'm sorry, traditional Medicaid to managed Medicaid? And then the third point, it always seems to come up as a difference related to this differential you're seeing in length of stay. Are you seeing -- what would you attribute the difference is to -- in terms of link to stay pressure? That's my first question.

Debbie Osteen -- Chief Executive Officer

OK. I'll take the salary wage piece first, Frank. I think that the distribution of the Acadia facilities is geographically different than my neighbor, UHS. I think that when you look at where the facilities are and also some of the more competitive markets that -- where a lot of beds have been built, a lot of competition for staff and physicians, Acadia is not in some of those markets.

They clearly have a few that they're in, but I think it's really a different distribution. And also the service lines that Acadia has are different than UHS. I think they are more evenly distributed across substance use, the acute behavioral, certainly with the CTC portfolio as well and the RTC. So it's really not a direct comparison that can be made because it's different geography and in different service lines in the business.

As far as the Medicaid movement, we really haven't seen that movement in the markets in states that Acadia is in. We don't have an overly concentrated presence in any of the states that, I think, have been called out by UHS. And so that puts us in a different position. The length of stay for Acadia is very stable.

It's 9.1 days, and it's consistent from '17 to '18. So there's not been that pressure from the managed Medicaid in any meaningful way. We have pockets where, clearly, we see that, but not in a meaningful way to Acadia. I think that answered everything, Frank.

Frank Morgan -- RBC Capital Markets -- Analyst

Yes. And maybe just one more as my follow-up. On that topic of managed Medicaid, would you, by chance, of your Medicaid book, would you know the percentage that's actually in managed Medicaid today?

David Duckworth -- Chief Financial Officer

Yes. Frank, this is David. I'll take that one. We do already see managed Medicaid within what we report as Medicaid.

The last time we looked, I think it was around two-thirds of our Medicaid was with a managed Medicaid payer in the U.S.

Debbie Osteen -- Chief Executive Officer

And I'll just add, Frank, I think one difference here, too, is that Acadia is in states that have already gone managed. And so there hasn't been as much of the conversion that's taking place, moving from straight Medicaid to managed as there has been in some of the states that UHS is in.

Frank Morgan -- RBC Capital Markets -- Analyst

OK. Thank you. That's very helpful.

Operator

We'll take our next question from Kevin Fischbeck with Bank of America. Please go ahead.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. Just want to clarify, I think you said 5% to 6% growth in the U.S. Obviously, you did some deals there.

Is that a same store number? Or is that a total revenue number?

David Duckworth -- Chief Financial Officer

Kevin, that is a -- that's an organic number, the 5% to 6%. There would be some additional contribution from the de novo facilities and as well as the two acquisitions that we announced, but also some impact from the facility closures. So 5% to 6% organic revenue growth and another 1% or so of growth just from what was outside of that same facility group.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

OK. That's helpful. And I guess, when you think about that 5% to 6% number, is that kind of the right way to think about the growth over the -- at least the next several years given where the demand drivers are? Or is there a reason to think that number could be higher or lower in the near term?

David Duckworth -- Chief Financial Officer

I think, from an organic perspective, that's our expectation going forward. And then any M&A activity, any joint ventures would provide an enhancement to that number.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

OK. Great. I just wanted to confirm that we had a lot of discussion about UHS versus Acadia. Just want to make sure that we were going -- talking about it going forward as much as we're talking about historical relative growth.

Or do you still feel like that's a good number going forward? Thank you.

David Duckworth -- Chief Financial Officer

Yes, we do.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Thanks again.

Operator

We will take our next question from Pito Chickering with Deutsche Bank. Please go ahead.

Pito Chickering -- Deutsche Bank -- Analyst

Thank you. And I'll join the rest of my colleagues in welcoming you to Acadia, Debbie. Looking at the U.K., what is the ideal customer mix in that market? And I asked because you talked about the possibility of reopening facilities focused on new modalities. I just want to make sure I understand what the opportunity is.

Debbie Osteen -- Chief Executive Officer

Well, the business -- Priory's business is divided into sections there with the hospital section, they have an education, they have the elderly care and then they have the adult. I think that what Priory management and the team has been focused on is making sure that we have facilities that can treat the high acuity because those are the patients that NHS frequently sends to the private sector. So I think the opportunity, as we look at those retooled beds and the beds that have come back online, are more in some of the specialty areas as well as the acute, so like child and adolescent, which they call CAMHS in the U.K., as well as eating disorder. Those are specialty areas that Priory really leads the market in.

And so -- and those are also areas where NHS looks to the private sector. So those are a focus for management to try and, first of all, had beds available, but also then to improve occupancy through those specialty services.

Pito Chickering -- Deutsche Bank -- Analyst

Got it. On the substance, like, abuse markets in the U.S., there have been some losses recently about managed care sending checks directly to patients enforcing behavioral facilities to collect. Have you guys seen any impact from that?

David Duckworth -- Chief Financial Officer

This is David. We have seen that. It's pretty minimal in terms of what we see there. It's mainly with one or two substance abuse facilities.

But again, where we see any activity there is pretty minimal.

Pito Chickering -- Deutsche Bank -- Analyst

Got it. And then last question for me. Just to be very clear, from an M&A perspective, is it fair to say that you'll be putting the brakes on new announced deals until we talk again in May?

Debbie Osteen -- Chief Executive Officer

I don't know whether -- I wouldn't characterize it like that. I think we continue to look at opportunities, but we do want a full plan that we can roll out for the remainder of this year and next year. But we still get calls for acquisitions. But anything we do is going to be carefully evaluated.

And hopefully, we'll have a very solid plan in May that will incorporate the various growth areas that we think we want to move in.

Operator

And we'll take our next question from Ana Gupte with SVB Leerink. Please go ahead.

Ana Gupte -- SVB Leerink -- Analyst

Thanks. Good morning. And congrats, Debbie, and welcome to Acadia again. Just to follow up a little on some of the questions -- line of questioning before.

It's helpful to hear your view of the challenges that UHS was facing and you helped address relative to where Acadia is. More broadly, would you say that as you commented this asset that your focus will be on squeezing out more value from the assets that Acadia has right now relative to the various ways of capital deployment that's been the history of this company, de novos, adding beds and M&A, where would you kind of lean here?

Debbie Osteen -- Chief Executive Officer

Ana, I think it's going to be more appropriate and, hopefully, I'll have a lot more thorough assessment in May on those various areas. I happen to believe that there's always an ability to improve operations. I think the team here shares that view. So we're going to focus in the U.S.

and the U.K. on how to improve. But also as far as strategy and areas of growth, I think I'll be better able to talk about that in May.

Ana Gupte -- SVB Leerink -- Analyst

OK. All right. So again, just a follow-up again to the degree you can offer any color. Acadia is, as you say, pretty differentiated compared to UHS on more of a focus on substance abuse than an outpatient asset base and the like.

I mean, do you see that as being better able to overcome challenges that has hit -- secularly hit the industry on payer mix, length of stay, staffing, all of that because they've already invested in CRC Health than build out some of those capabilities?

Debbie Osteen -- Chief Executive Officer

Well, I mean, I think -- before I joined Acadia and now that I'm here, I think there's a real strong track record around being able to handle the challenges around staffing and certainly with the way the portfolio and the service lines are configured across the various states. I think that we've got a lot of stability here in length of stay. And the team does a very good job, really, in all the service lines. Substance use has been very strong for Acadia.

And I've been very pleased with just seeing the growth platform and the sales and marketing. I think they do some innovative things and I think it's a strong support for growth across the company.

Ana Gupte -- SVB Leerink -- Analyst

Thanks. Thanks, Debbie. Appreciate it. Good luck.

Operator

We'll take our next question from Gary Taylor with JP Morgan. Please go ahead

Gary Taylor -- J.P. Morgan -- Analyst

Hey, good morning. Just a couple of quick clarifications. On the 700 beds, I presume majority of those are U.S., but do you have a breakdown for us on the 2019 bed addition?

David Duckworth -- Chief Financial Officer

Yes. Gary, this is David. More than 600 of those beds are in the U.S. The opportunity in the U.K.

is, of course, mostly related to the occupancy. We will still add just under 100 beds in the U.K., but think the occupancy is the key for the U.K. for this year. And it's a great number for the U.S.

The more than 600 beds does include the two that we have already opened in the first quarter. But it's a great number for the remainder of the year to our existing facilities.

Gary Taylor -- J.P. Morgan -- Analyst

Gotcha. And the 16% U.K. margin target, is that for the full year or the second half of '19?

David Duckworth -- Chief Financial Officer

That's for the second half of 2019, Gary.

Gary Taylor -- J.P. Morgan -- Analyst

Gotcha. And then I was just hoping for -- I was hoping for cash from ops and CAPEX guidance, but if you can't give that, maybe just talk qualitatively or directionally about CAPEX with the bed growth coming down a little bit and none of that being new facility building. I would imagine the CAPEX would come down year over year. But any help on those two metrics?

David Duckworth -- Chief Financial Officer

Sure. We are forecasting 2019 to be similar to 2018. And the operating cash flows, we do see in a range of $400 million to $425 million. The maintenance CAPEX should be similar to 2018 as well.

It's around $74 million in 2018. We see that at that same level in 2019. And the expansion CAPEX is similar to 2018 as well. We spent $286 million in 2018 and see a range of $275 million to $300 million in 2019.

You can't exactly look at the number of beds that are added in a year and predict the expansion CAPEX just because a lot of the activity starts well in advance of opening a bed. And so a lot of what we would be spending in 2019 would not only relate to 2019 beds, but also to what's in the works for 2020. So it's a very similar year in terms of the cash flows and the use of the cash flows as -- in '19 as it was in '18.

Gary Taylor -- J.P. Morgan -- Analyst

Got you. And then just a last quick one for Deb. When we think about this review that you're doing and going to present the conclusions of in May, can you -- is that characterized primarily as an operational and strategic review? Or is it as broad as including strategic alternatives? Obviously, there was a lot of rumors in the fall that the company was considering a potential buyout. I don't think ever publicly, Acadia had commented on it.

But is this -- does this review you're doing potentially is why it is including strategic alternatives or it would be more operational in nature or not care to refine the characterization?

Debbie Osteen -- Chief Executive Officer

I think I would say that it's going to be very comprehensive.

Gary Taylor -- J.P. Morgan -- Analyst

OK. Fair enough. Thank you.

Operator

And we'll take our next question from Peter Costa with Wells Fargo. Please go ahead.

Peter Costa -- Wells Fargo -- Analyst

Good morning, and congrats on the new role. Two questions here. The first one, really, Acadia had a number of issues over the last couple of years and bad press. And presumably, you saw all that before you came aboard.

And presumably, one of the first things you did was look at the operational controls and compliance that the company has. And how do you feel about that compared to where you came from?

Debbie Osteen -- Chief Executive Officer

I think it's very strong here, the compliance and quality effort. Acadia has a corporate medical director who's very focused on supporting quality at the facility. There's a very robust team that supports the facilities. So I've been very pleased with what I've seen.

I think there's always room for improvement. We treat very ill patients that are acute. And what I've seen at -- on the Acadia side is we're working really hard to make sure we're proactive and that we evaluate the facilities and make sure that we keep any incidents to a minimum. But I think the compliance and quality team is strong.

Peter Costa -- Wells Fargo -- Analyst

So we shouldn't be thinking about a big spend on that going forward after your review is done. Is that the way for me to think about that answer?

Debbie Osteen -- Chief Executive Officer

I think -- again, I'm assessing everything, so I don't really want to comment on where we're going to end up with that. But I do think that it's a very solid process in place now. But one of the things I will look at is if there are other things we need to be doing.

Peter Costa -- Wells Fargo -- Analyst

OK. And then my second question is just, really, last year, we saw a couple of spending bills to increase opioid funding. It's not clearly seen a lot of that come through, although perhaps we have if we look at your performance relative to Universal. You're a star on the same sort of growth.

And perhaps, it's from your more outpatient, more substance abuse focus than they have. Is it the opioid spending money that's keeping your growth rate a little bit higher? Or is that still yet to come? Can you kind of comment on where that opioid money is today?

Brent Turner -- President -- Analyst

Yes. Peter, this is Brent Turner. I'd say a couple of things. Again as David pointed out earlier, the bed additions and the service line diversity have really fueled the Acadia same facility growth along with our comprehensive treatment centers.

I'd say the demand has continued to outpace supply in the opioid treatment market. There's been recent bills over the last few years, most recently in the fall, the SUPPORT Act, which will continue to bring benefit to the outpatient treatment, but also inpatient needs of substance abuse disorders that Medicaid will cover that, where they haven't been covering it under the IMD limitation. So what I'd say is there is good demand, but there's definitely future funding that will benefit providers. In fact, the bill I just referenced doesn't go effective until October 1 of this year.

So we're continuing to focus on trying to make sure that the headline positivity around opioid coverage, the money actually finds its way to the patients. That's the ultimate goal here. So I think we got some positives there.

Peter Costa -- Wells Fargo -- Analyst

Have you able to track that many ways, so you can sort of share with us some progress on that?

Brent Turner -- President -- Analyst

Well you might remember, over the last 12 months, we've seen a couple of states that historically did not cover the outpatient opioid treatment for their Medicaid population due to some of the Cures monies that came to the state. They actually moved and began to cover that. And again, this is just a huge position change because Medicaid beneficiary has financial challenges, and these individuals were having to pay for that treatment themselves. And it was unbelievably impressive that they were doing that.

Now they're able to access their treatment through the Medicaid plans. So I think those are a couple of examples and I think we will see more of that as we go forward.

Operator

We will take our next question -- follow-up from John Ransom with Raymond James. Please go ahead.

John Ransom -- Raymond James -- Analyst

This is taking in after all these good strategic questions. But David, I was just looking for a little bit of help as we think about the EBITDA progression through the year. And also could you -- you mentioned a number of things. Is there any way you could maybe more precisely size some of the contributors of the 1Q run rate followed into the next three quarters? Thanks.

David Duckworth -- Chief Financial Officer

Yes. Sure, John. The items I mentioned earlier around the U.K. run rate, the improvement in the U.S.

operations from the bed growth as well as the non-operating expenses, happy to clarify and provide more detail there around some of those items. The -- in the U.S., we do see the first quarter EBITDA number reflecting the de novo losses as well as the facility closures. Does call to the U.S. EBITDA to be somewhat flat year over year.

And then as we move ahead into the remainder of the year, there's significant build in the EBITDA, and we see EBITDA growth there of around $15 million coming off of the first quarter into the run rate in for the last nine months of the year. In the U.K., the year-over-year impact of the margin comparing the first quarter of '19 to the first quarter of 2018 has about a $7 million to $8 million year-over-year impact just on the first quarter number. And that's where, as we see some of the initiatives, the retooling beds, the occupancy improvement, the pricing increases and other matters, we think that by the second quarter, the year over year will be somewhat flat with the growth opportunity in the U.K. in the second half of the year.

John Ransom -- Raymond James -- Analyst

So if you had to say one, two, three, what are the top three EBITDA contributors if you look at the 4Q versus, say, the 1Q? What are the three biggest things that will change?

David Duckworth -- Chief Financial Officer

Well, going from the fourth quarter to the first quarter, of course, you have -- just every year, we have the resetting of payroll taxes, the fewer days in the first quarter, that has an impact, fourth quarter to first quarter. And that's about an $8 million or $9 million impact that we see every first quarter. So that would be the key factor just going from the fourth quarter to the first quarter.

John Ransom -- Raymond James -- Analyst

So -- I'm sorry, I was saying, like, first quarter '19 to fourth-quarter '19, what are -- in your model, if you look at 4Q EBITDA, what's the -- is it the -- I guess, just the improvement in the U.S. as the biggest factor and just an improved census. Is that really the biggest as you fill up the de novo beds? Is that really the No. 1 driver?

David Duckworth -- Chief Financial Officer

Yes, No. 1 factor, I'm sorry, first quarter of '19 to the run rate by the end of the '19, absolutely, the U.S. filling up the beds that have been added in 2018. Seeing the improvement in the de novo beds.

And then also the contribution from 2019 new beds, the U.S. improvement would be #1. And secondly, just in the U.K., we do see -- while it's a headwind in the first quarter, we do see that improvement opportunity in the second half of the year.

John Ransom -- Raymond James -- Analyst

And how much of the U.K. is just the pricing?

David Duckworth -- Chief Financial Officer

Well, we don't really provide that detail on the pricing. The pricing does happen for the most part for much of the revenue in April, so that's why it will be a positive in the second quarter. Some -- a lot of the cost increases do happen more throughout the year. So that's one reason why the second quarter does get a little bit better.

John Ransom -- Raymond James -- Analyst

And then lastly, for Deb, when you kind of wrap up your review, how do you guys plan to roll this message out to the market? Is there going to be a call, a presentation? What are you planning on? And is it going to be later in the month, middle of the month or we're not just down the road and have to -- have that figured out?

Debbie Osteen -- Chief Executive Officer

I don't think we're down the road enough to have a detail about how and when, but I'm working as -- very diligently and as quickly as we can, so we can get a plan to articulate to investors and also to direct the team around our strategies.

Operator

And we'll take our final question from Whit Mayo.

Whit Mayo -- UBS--Analyst

I just need to go back to the U.K. just for a second. When looking at the last two years, the same store EBITDA on a constant currency basis has declined for 9% -- has declined about 9%. It's fell 18% in the second half of the year.

I think you stated you believe the margins are expected to be around 15% in the first quarter, which implies another decline of 15% on a same store basis. And then I'm just really struggling to visualize how we get an abrupt reversal in this trend line to flatten out and turn positive. So David, is there anything else to say to give us increased confidence that given that trajectory that it's been on that it can actually reverse itself from some of these initiatives?

David Duckworth -- Chief Financial Officer

Yes. And Whit, maybe I'll start by just saying it's not necessarily a reversal back to the previous margins, but the decline that we saw starting in the third quarter will anniversary in the second half of 2019. And we do see improvement in the margin from some of the initiatives that we've mentioned. The -- there's a number of items that affected the margin decline where we saw employee -- labor cost increases, the impact of the beds that have been offline for retooling, the cost increases haven't always been covered by the pricing increases.

And we're more positive on that for this year. So I think that just the progress that we see and the beds that have been retooled, seeing a stronger occupancy and margin from those facilities, the pricing increases that, hopefully, will be more appropriate based on the cost increases and just getting past the first half comparison from 2018.

Whit Mayo -- UBS--Analyst

OK. And then I'm sorry, two quick clarification questions. On the acquisitions, I think you said there was $40 million of annualized EBITDA you thought in the first quarter. Any way to put up a margin and an EBITDA number on that just so we understand the tailwinds this year? And then are there any other implications about the lab business in West Virginia? Anything to sort of consider headwinds or tailwinds?

David Duckworth -- Chief Financial Officer

Yes. Let me clarify for the acquisitions. The combined purchase price for those two acquisitions was approximately $40 million. The revenue and EBITDA associated with those, around $20 million of revenue and $3.5 million to $4 million of trailing EBITDA.

The -- with respect to your question on the lab, we do think West Virginia was unique. The -- most of our payers and states pay a bundled rate for the medication-assisted treatment. And so West Virginia was a pretty unique situation in terms of there being a separate billing for the lab services.

Operator

At this time, I would like to turn the conference back to Debbie for any closing or additional remarks.

Debbie Osteen -- Chief Executive Officer

Thank you. Thanks again for being with us today and for the welcome. As the new leader of Acadia Healthcare, I'm very pleased with what I've seen these past few months. The company has dedicated employees and clinicians and also quality treatment programs, which, I believe, will be a solid foundation for the future growth and success of Acadia.

If you have additional questions today, please do not hesitate to contact directly -- us directly, and have a good day. Thank you.

Operator

[Operator signoff]

Duration: 67 minutes

Call Participants:

Gretchen Hommrich -- Director, Investor Relations

Debbie Osteen -- Chief Executive Officer

David Duckworth -- Chief Financial Officer

A.J. Rice -- Credit Suisse -- Analyst

Brian Tanquilut -- Jefferies -- Analyst

John Ransom -- Raymond James -- Analyst

Ralph Giacobbe -- Citi -- Analyst

Whit Mayo -- UBS--Analyst

Frank Morgan -- RBC Capital Markets -- Analyst

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Pito Chickering -- Deutsche Bank -- Analyst

Ana Gupte -- SVB Leerink -- Analyst

Gary Taylor -- J.P. Morgan -- Analyst

Peter Costa -- Wells Fargo -- Analyst

Brent Turner -- President -- Analyst

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