Acadia Healthcare Company Inc (ACHC) 2005 Q4 法說會逐字稿

Good day ladies and gentlemen thank you for your patience and welcome to the fourth quarter 2005 Pioneer Behavioral Health Earnings Conference Call. My name is Bill and I will be your conference coordinator for today. (Operator Instructions). I would now like to turn the conference over to your host for today's presentation, Mr. Matt Hayden of Investor Relations. Please proceed sir.

Thank you very much. Good afternoon. We'd like to thank everybody for joining us today for the PHC Fiscal 2005 Fourth Quarter and Year-End Earnings Conference Call. Our earnings were released this afternoon just after the bell. If anyone needs a copy of the release please send over an email to Jennifer at Hayden, the letter I, the letter R dot com. (Jennifer@Haydenir.com)

Our call today will be hosted by Bruce Shear, President and Chief Executive Officer and Paula Wurtz, the company's Chief Financial Officer. As was mentioned, following management's discussion there will be a formal Q&A session open to those participants from the call. There will also be a playback available until September 27th. All playback information is available on the news release but to simplify all you need to do is dial 888-286-8010 and press the pass code 72912047.

Before we get started I'm going to review the safe harbor statement. Statements in this conference call that are not descriptions of historical facts are forward-looking statements that are subject to risks and uncertainties. Words such as expect, intends, believes, plans, anticipates, approximately and likely also identify forward-looking statements.

All forward-looking statements are based on current facts and analysis. Actual results may differ materially from those currently anticipated due to a number of factors, including, but not limited to, anticipated or unanticipated future losses, competition, future capital needs, the need for market acceptance, dependence upon third parties, disruption of vital infrastructure, disruption of services and any items due to natural disaster.

All forward-looking statements are made pursuant to the Securities Litigation Reform Act of 1995 and additional information and factors that could effect the business and financial results of PIHC can be found in the filings of the company's - with the SEC.

Bruce, congratulations on what can only be described as an excellent fiscal year with visible growth and profit across all three operating units. It's great to see the net result, no pun intended, of your whole company's hard work and dedication. At this time I'd like to turn the call over to you to provide a summary of the financials with the details surrounding the quarter and the fiscal year.

Thanks Matt. Good afternoon and thank you all for joining us. We have a great, great attendance on the call today. It's pages and I'm excited to have so many current shareholders and potential future shareholders join us. As Matt alluded to the fourth quarter was another record, $0.06 per share, and the strong end to the record. And yes, for those of you that ask all the time, I am smiling right now.

Both the fourth quarter and fiscal 2005 are visible evidence that our strategy is gaining traction, validating our business model by showing increasing leverage and positioning us for additional improvements in fiscal 2006 and beyond. Fiscal 2005 was a success on all fronts, with each quarter representing a record for the company in terms of profitability with sequential improvements in almost ever metric as we progressed through the year.

Total revenues increased 28% for the 2005 fiscal year, which drove more than $3 million in net income, or $0.18 per share, a clear record, compared to a net loss last year of 257,000, which you all recall included a $1 million one-time legal settlement.

Income was more than three times the net reported in fiscal 2003, the previous record high for profitability. Results benefited from the acquisition of Pivotal, it's related synergies with our existing pharmaceutical business and improved collections, higher occupancy, increased as available in association with our patient care operations. Improvements in net income and working capital increased our cash position to $917,000, up 54% from last year, with working capital totaling 3.8 million as of June 30th.

The increase in profitability and the subsequent strength of our balance sheet puts us in the best financial position we have been in for years and provides a solid foundation for consistent growth built on three complimentary and growing business segments.

Our patient care segment now consists of 160 total beds with planned expansion of 20 beds scheduled for fiscal 2006 and continued growth of our Detroit facility with Phase III consisting of an addition 54 beds and an additional 60 beds planned for fiscal 2007 with our previously announced Las Vegas 7 Hills Behavioral Health Institute.

Our pharmaceutical study statement driven by growth at prof(ph) at Pivotal which we acquired in April 2004 has become a strong growth component for the company, with revenues in this segment increasing more than 260%. Our contract support services segment which includes our well place operations grew at double digit pace and we maintained - and we remain optimistic about the opportunities in this area. We are now a diversified company with an exceptional competitive position, with each segment growing rapidly and profitability with continued synergies and efficiencies to have yet to be harvest.

Our industry is more respected than ever. While revenue grew 28% for the year versus last year, our operating expenses only grew by 15%, despite increased rent and higher patient care expenses due to an increase in patients days of more than 6500 days.

In comparison to 2004, on a year-over-year basis, excluding legal charges, arvent(ph) were up 19.6%, demonstrating our potential leverage with increased sales. As we continue to grow our revenues across all three divisions we are confident we can drive additional profitability by capitalizing on further enhancements in our competitive position and improvement in our operating margins. At this time I'm going to introduce Paula Wurtz, our company's CFO. This is her first time joining us live so I'd like to now turn the floor over to you, Paula. Thank you.

Thanks Bruce. Here are the specifics for the fourth quarter. Total revenue for the fourth quarter increased 22.3% to a record 9.3 million from 7.6 million in the fourth quarter fiscal 2004. This was also an increase of 5.8% sequentially compared to the 8.8 million reported in the third quarter of fiscal 2005. The increase is attributable to substantial improvements in revenues from all three of our operating segments, both from previously announced acquisitions and organic growth.

Net patient care revenue increased 17.9% to 7.2 million for the quarter from 6 million last year. This increase in revenue is due primarily to the addition of the 30 adjudicated juvenile beds at Detroit Behavioral Institute, or DBI, which helped to create an 18% increase in patient days for the quarter. We finished the quarter close to capacity at DBI and renovations are completed to open the next 20 beds contingent on permits and regulatory approvals, which we expect to occur in the next couple of weeks.

With continuing overall domestic economic strength we'll serve to increase patient's eligibility and able to pay for services allowing for improved collections. These factors combined will play a major role in increasing the addressable number of people we can treat.

Revenue from pharmaceutical studies increased 50.8% to 1.1 million from 746,000 for the fourth quarter last year, due to the increased study activity related to Pivotal research centers. The research division is currently engaged in 43 enrolling studies and providing care and a total of 96 studies with approximately 75 to 80% related to central nervous systems programs.

Contract support services revenue provided by our well place division increased 28.6% to 956,000 for the fourth quarter from 744,000 for the fourth quarter one year ago, due to the October 2004 increase in the Michigan call center contract, which expanded services and increased the monthly revenue on this contract from $156,000 to 240,000 per month.

Patient care expenses increased 11.9% to 3.8 million for the fourth quarter compared to 3.4 million for the fourth quarter last year. This increase is inexpensive -- it is due primarily to the increase in in patient days with the majority of the increases in expenses directly related to patient services.

Pharmaceutical studies accounted for approximately 27.3% of the increase in-patient care expenses for the quarter. Contract support services expenses decreased 16.9% to 602,000 for the fourth quarter from 725,000 for the fourth quarter last year. This decrease is a result of more efficient use of staff and the elimination of the smoking cessation contracts. This was labor intensive and carried high outside service costs.

The division for doubtful(ph) accounts decreased 3.4% to 1,956,000 for the fourth quarter 2005 from 2,025,000 for the fourth quarter last year due to the decrease in the age of the company's receivables, improved collections and patient mix and the company's policy to maintain reserves based on the age of those receivables. Days outstanding for the fourth quarter of 2005 were 89 days and were unchanged compared to last year.

We have discussed receivables and collections in previous calls and mentioned that this was a key metric and a significant challenge for the company. Our provision for doubtful accounts decreased 6.2% to 1.3 million for fiscal, for the fiscal year from 1.4 million last year. This decrease is the result of a decrease of the age of our outstanding receivables, which affects the required balance in allowance for doubtful accounts. We have made progress on reducing charge offs and we continue to reduce the time required to collect our receivables.

Administrative expenses increased 26.2% to 3.4 million for the fourth quarter from 2.7 million for the fourth quarter last year. Pharmaceutical studies accounted for approximately 33% of the increase in administrative expenses. All of this contributed to an increase in our total operating expenses of 17.2% to 8.2 million for the fourth quarter from 7 million reported in the same quarter last year.

Our income from operations for the fourth quarter was $1 million compared to income from operations of $561,000 last year. Net income applicable to common shareholders for the three months was a record $1.1 million or $0.06 for basic and fully diluted share, compared to net income of $532,000 or $0.03 for basic and diluted share for the fourth quarter last year.

Included in net income for the fourth quarter 2005 was a $209,000 tax benefit that positively impacted earnings for the quarter by $0.01 per share. Net income increased sequentially 23.9% compared to the $880,000 reported in our third quarter of fiscal 2005. Net income for the quarter was up 105% versus the fourth quarter of 2004, and up 66% on a comparative basis exclusive of the previously mentioned tax benefit. This year's fourth quarter included 18.9 million fully diluted shares outstanding compared to the fourth quarter of last year, which included 17.3 million fully diluted shares.

For the full year, the total net patient care revenue from all facilities increased 16.4% to 26.1 million for the year, compared to 22.4 million last year. The increase was due to an increase of more than 6,500 patient days for the fiscal year ended June 30, 2005 compared to the fiscal year 2004, as bed growth and improved payor mix contributed to the improved results. Net in-patient care revenues from in-patient psychiatric services increased 24.4% to 18.5 million for the fiscal year from 14.8 million last year.

Net partial hospitalization and outpatient care revenues increased 0.5% to 7.6 million for the fiscal year from 7.5 million last year. This minimal increase is partially a result of the high increase last year triggered by the utilization of step-down programs by managed care as a treatment alternative to in-patient care.

Pharmaceutical study revenue increased 261.9% to 4.5 million for the fiscal year from 1.2 million last year. Revenues also increased in our contract support services division Well Place by 16.2% to 3.5 million for the fiscal year from 3 million last year. This increase in revenue is primarily due to the increase in the Wayne County Call Center contract in October 2004. This resulted in record consolidated revenues of 34.1 million for the year, an increase of 27.8% compared to the previous record 26.6 million reported last year.

Patient care expenses excluding research increased by 11.5% to 12.9 million for the fiscal year from 11.6% last year due to the increase in available beds and the resulting increase in patient census at our in-patient facilities.

In-patient census increased by approximately 6,500 patient days, or 18%, for the year ended June 30, 2005 compared to the year ended June 30, 2004. This increased census resulted in an 8.5% increase in direct patient care payroll and payroll-related expenses; a 21% increase in food and dietary expenses; a 7 - a 6.7% increase in hospital supplies expense; a 5.9% increase in laboratory fees; a 7.5% increase in laundry expense; and a 233.7% increase in agency nursing expense.

Patient care expenses for the research division increased 98.4% to 1.7 million from 845,000 for the year ended June 30, 2004. This increases is due to the expansion of our research division to the acquisition of Pivotal Research Centers in April 2004. Our research related expenses are expected to increase in a direct relationship with the increases in related revenues going forward.

Cost of contract support services related to Well Place decreased 8.1% to 2.2 million for the year from 2.4 million last year. This decrease is due to the expiration of the smoking cessation contract for Nebraska and Kansas during last year. We expect expenses to increase as new contracts are added.

Our provision for doubtful accounts decreased 6.2% to 1.3 million for the fiscal year from 1.4 million last year. This decrease is a result of a decrease in the age of outstanding accounts receivable which affects the required balance and allowance for doubtful account.

Total administrative expenses excluding research was unchanged at 9.7 million for the year. Legal expense decreased 78.7% to $256,000 for the year from 1.2 million last year, which was a year with unusually high legal fees due to the litigation and settlement involving one of our subsidiaries, which was previously mentioned. Administrative salaries increased 16.9% to 3.1 million for the year from 2.6 million in the prior year. Insurance expense increased 37.9% to 588,000 for the year from 426,000 in fiscal 2004.

Rent expense increased 8.2% to 954,000 for the year from 881,000 last year. This increase is due to the opening of the 30 bed - residential beds at Detroit Behavioral Institute.

Total administrative expenses for the research division increased 332.2% to 2.8 million for the year from 638,000 last year. This increase is due to the expansion of our research division through the acquisition of Pivotal Research Centers in April 2004. Interest expense increased 23.2% to 655,000 for the year ended June 30, 2005 from $532,000 for the year ended June 30, 2004. Other income was down slightly on a year-over-year basis to $76,000 versus $95,600 last year.

The company showed a net tax benefit of $73,000, which includes tax expense for state taxes of approximately $136,000 during fiscal 2005, versus taxes paid of $11,000 for fiscal year ended June 30, 2004. We are significantly below the federal statutory rate of 34% primarily due to the availability of net operating loss carry-forward.

Total provision for income tax expense for fiscal 2005 and 2004 represents state income taxes for certain subsidiaries with no available operating - net operating loss carry-forward. We have provided a significant valuation allowance against our deferred tax assets and recognize the tax benefit of $209,000 based on the estimated taxable income for the fiscal year ending June 30, 2006. This was included in the fourth quarter results.

Currently the collective net operating loss carry-forwards are approximately $3 million. The company anticipates paying minimal taxes -- primarily state taxes -- of approximately $200,000 per year which would keep the effective tax rate low until we capture the total value of our net operating loss carry-forward. These should be in place for the majority of the fiscal 2006 based on our net income projections.

Our net income for the year was $3.2 million, or $0.18 per basic and $0.17 per fully diluted share, compared to net loss -- inclusive of the $1 million in legal settlement expense we talked about earlier -- of $257,000 or a $0.02 loss for basic and fully diluted share last year.

Turning to the balance sheet we show continued improvements and reported a current ratio of 1.5 to 1 as of June 30, 2005. Shareholders' equity increased 69.6% to 9.1 million on June 30, 2005, from 5.4 million on June 30, 2004. Our working capital position improved to 3.9 million from 241,000 as of the end of fiscal 2004. With that out of the way I'll now turn the floor back to Bruce.

Thanks Paula. Well, those are great numbers to listen to, from my standpoint -- I'm just used to reading them. Thanks Paula. I'd like to take a few moments and briefly discuss our initiative and focus going forward.

As I mentioned we are currently operating close to capacity in the Phase 1 of our new DBI facility. We expected to add the next 20 beds during July but delays in obtaining necessary permits has pushed forward this timeline and we now expect those beds to be officially added in early October. Our eventual target is still 114 acute and long-term psychiatric beds in this facility.

Clearly based on us being at full capacity there is significant demand in this region for our services and this remains a growth market for us. Given our strong relationships within the city of Detroit and their need for additional capacity we will continue to incrementally expand this facility.

Our next focus is on the roll out of both a further expansion of Detroit and the new recently announced Las Vegas hospital. This will expand our revenue opportunity and allow us to leverage the fixed costs already in place in Detroit and grow available beds dramatically with the addition of the Las Vegas hospital. As a reminder this combined expansion will significantly increase the number of beds we operated -- operate from 160 to 234 with an additional 20 beds coming online in the very near term.

The additional 60 beds in Las Vegas will increase the company's patient beds to approximately 300, almost double our current capacity. Total estimated capital expenses is 500,000 for the second and third phase in Detroit and approximately 500,000 for our 7 Hills Behavioral Institute in Las Vegas. By the way we'll be funding the capital expenditures at a positive cash flow that will start to contribute initially during late 2006 and once fully operational we estimate approximately 8.5 million in new additional annualized revenue.

As most of you know, Las Vegas is one of the fastest growing regions in the country with population growth and associated demographics extremely supportive of further expansion. There is significant demand for in-patient psychiatric and chemical dependency treatment facilities in this region and we expect to be one of the first to address these patient's needs. Once fully operational we expect Phase II in Detroit to contribute 2 million in new annualized incremental revenue. That's short term. Once the last phase is open we estimate that collectively these new beds will contribute $14 million in total annualized incremental revenue to Pioneer.

We're extremely excited about both of these opportunities that will significantly enhance our revenue base. On the research study side Pivotal is currently engaged in 43 enrolling studies, up from 24 at the end of the third quarter. They are providing care in a total of 96 studies up from 58 at the end of Q3. We continue to see consistent growth in the number of studies primarily in the central nervous system area.

Our Well Place division showed double digit revenue growth for the fourth quarter and margins in this division continue to improve as we generate revenues from our Michigan Call Center contract which required minimal expansion and additional expenses. We are currently looking at a number of new opportunities in both the public and private sectors. New contracts will allow us to leverage our existing call centers, excess capacity that was developed intentionally for this purpose.

Looking forward, clearly this is an exceptional year. The three segments of our business all performed at or better than even our expectations. Demonstrating the full potential of our business model, we continue to grow profitably across all three divisions and we have additional opportunity to expand our market share and our gross margins by leveraging our fixed infrastructure and services expertise across a broader revenue base.

Based on the expected contribution of the next 20 beds at the Detroit Behavioral Institute beginning in October and continued expansion of the company's Well Place and Pivotal Research segments the company expects revenues for fiscal 2006 to continue to increase substantially. This outlook excludes any potential acquisitions that are currently being presented to us and is of course subject to changes in the time lines for planned and previously announced expansion activity, which may be out of our immediate control.

I am proud to update you on our efforts to assist the victims of Katrina. As we previously announced we set up a toll free number at our Michigan Call Center and we've registered all of our available services with the national data banks. I'd like to thank you for joining the call today. These great numbers and our future opportunities certainly make this call very easy. At this point we'd like to open it up to some questions from the group.

Thank you again for joining us and I look forward to taking your questions and, more importantly, I look forward to talking with all of you individually in the future. Our information is available through Matt Hayden, also available through our company's Web site at www.PHC-inc.com going to Investor Relations.

Again, thank you for joining us and I look forward to taking a few questions. Thank you. And Bill -- Bill, are you there Bill?

The - for some reason our conference operator has lost access to the view queue. So you have the opportunity of calling the phone number again, or actually what I think -- I think may be easier is that its - and it may be hard to just, someone speak up and address the questions directly to me and I apologize for this technological glitch. So I guess at this point if someone has a question please speak up loud and just tell us your name and we'll go from there.

If the call - can someone speak up, just say hello if we know you're out there? Nope. Is there a question from anyone? The other option is to call back. I'm thinking that it isn't open because someone would be able to say yes I can hear you.

The phone number is 888-601-3217 or 617-847-8707. The phone number for questions is 888-601-3217 or 617-847-8707.I hear no one speaking which leads me to believe that we've lost the connection.

The speakers will have to dial back again on the 888-601-3217 or 617-847-8707 and I'm not sure they can even hear me. We'll wait a moment or two to see if we get any call backs, Bill please -