Acadia Healthcare’s second quarter saw revenue and adjusted profit beat Wall Street expectations, but market reaction was sharply negative due to declining margins and cautious management commentary on Medicaid volumes. CEO Christopher Hunter cited weaker Medicaid volumes in acute care and ongoing challenges at underperforming facilities as key headwinds. He explained, “The primary driver of volume coming in below our expectations really was the weaker Medicaid volumes in our acute care business.” Management acknowledged that local market pressures and evolving utilization patterns among managed Medicaid plans contributed to the softness.
Is now the time to buy ACHC? Find out in our full research report (it’s free).
Acadia Healthcare (ACHC) Q2 CY2025 Highlights:
- Revenue: $869.2 million vs analyst estimates of $842.2 million (9.2% year-on-year growth, 3.2% beat)
- Adjusted EPS: $0.83 vs analyst estimates of $0.71 (17.4% beat)
- Adjusted EBITDA: $201.8 million vs analyst estimates of $177.2 million (23.2% margin, 13.9% beat)
- The company dropped its revenue guidance for the full year to $3.33 billion at the midpoint from $3.35 billion, a 0.7% decrease
- Management lowered its full-year Adjusted EPS guidance to $2.55 at the midpoint, a 3.8% decrease
- EBITDA guidance for the full year is $687.5 million at the midpoint, in line with analyst expectations
- Operating Margin: 9.8%, down from 17% in the same quarter last year
- Sales Volumes rose 2.8% year on year (1% in the same quarter last year)
- Market Capitalization: $1.88 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Acadia Healthcare’s Q2 Earnings Call
- A.J. Rice (UBS) asked whether Medicaid volume shortfalls were due to payer denials or referral issues. CEO Christopher Hunter said evolving utilization patterns and increased cost pressures at managed Medicaid plans were contributing factors, but there were no clear statistics to pinpoint the primary cause.
- John Ransom (Raymond James) inquired about accelerating free cash flow generation. Hunter responded that pausing expansion capital spending could unlock more free cash flow and reduce start-up costs, with two projects already paused for over $100 million in capex savings.
- Whit Mayo (Leerink Partners) queried the impact of underperforming facilities on volumes and EBITDA. Hunter explained these facilities reduced same-facility patient volume growth by about 80 basis points, and Dixon added the negative EBITDA impact is now $3 million worse than expected, mainly due to one problematic facility.
- Brian Tanquilut (Jefferies) probed labor cost trends and legal expenses. Dixon reported labor costs were stabilizing, with premium costs down to 3.5% of total labor, and clarified that government investigation costs did not include settlement expenses.
- Andrew Mok (Barclays) sought clarity on Medicaid volume weakness and cash flow adjustments. Hunter reiterated payer behavior differences as a key factor, while Dixon outlined that nonrecurring legal costs and capex should be deducted from reported cash flow for a true free cash flow view.
Catalysts in Upcoming Quarters
In the coming quarters, our analysts will focus on (1) the trajectory of Medicaid volumes and any further changes in payer authorization practices, (2) the pace and profitability of newly added beds as they ramp up, and (3) the impact of policy-driven supplemental payments, including potential adjustments stemming from the One Big Beautiful Bill Act. Progress on capital allocation discipline and cost management will also be key signposts for Acadia’s operational resilience.
Acadia Healthcare currently trades at $20.40, down from $21.79 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).
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