Acadia Healthcare Company Inc (ACHC) 2008 Q1 法說會逐字稿

Good afternoon. My name is Lenny and thank you for joining us today for the PHC First Quarter Fiscal 2008 Conference Call. Joining us today is Bruce Shear, PHC's President and Chief Executive Officer, and Paula Wurts, the Company's Chief Financial Officer. Following their comments, we will open the call for your questions.

I'd like to remind everyone that this call will be available for replay through December 8, 2007 starting this evening at 730 p.m. Eastern standard time. I would now like to turn the call over to the President and CEO of PHC, Mr. Bruce Shear.

Thank you very much and good afternoon, everyone. Thanks for joining us on a tough market week. I'm glad I can deliver great news. And for joining us for PHC's results for the first quarter of 2008. We're glad to have this opportunity to address you.

I'd like to begin this call with a brief overview of the recent quarter and then discuss some of our significant achievements and important events since our last call. Then our CFO, Paula Wurts, will walk you through a detailed review of our financial results for the quarter. Finally, we'll open the call for questions and answers.

Today, as you saw at the market close, we issued a press release announcing the results of the first quarter of fiscal 2008 which ended September 30th. In opening, I must say our management team is very pleased with these results. And now I'd like to spend a few moments talking about them and look forward to fielding questions after our formal presentation.

Starting with the first quarter, we saw total net revenue increase 26% over the same quarter last year, to $12.7 million, which exceeded our expectations. This quarter represented our greatest revenue results ever reported for a first fiscal quarter. It was also nearly equal with the previous quarter, which represented our highest quarter ever in terms of revenue.

These first quarter results were primarily attributed to an increase in net revenue of the Company's patient care segment, which increased 29% to $10.1 million from $7.9 million last year. This record top-line growth resulted in income from operations from the quarter totaling $1.4 million, 151% over the first quarter of fiscal 2007. Net income for the first quarter came in at over $800,000, or $0.04 per basic and fully diluted share. This is an increase of 182% from last year's first quarter. Income before tax is increased 180% to $1.3 million from $466,000 in fiscal 2007.

The increase in our net profit versus the same quarter last year once again demonstrates the return of our investment in our Las Vegas market. This occurred despite assuming -- incurring an additional $100,000 of pre-opening expenses that we pretty much targeted for our future growth. We expect to sustain this income growth trend, especially as our new Seven Hills facility comes on line in 2008.

Given these factors and with our improving DSOs -- our day sales outstanding, and our debt balances declining, we've begun fiscal 2008 in a very strong position for growth across the board. I'd also like to take a moment to highlight a number of important items. The Seven Hills construction is progressing well and is still on track for an early 2008 opening. As a matter of fact, they are working diligently inside the building now and working on the finishes.

We're finalizing our search for a new building in Michigan to house our downtown Detroit behavioral operation. This will allow us to implement our Phase III expansion program which, when completed, will more than double our inpatient capacity and add new programs over and above our inpatient beds. We also, during this recent quarter, added six additional residential beds to our Harbor Oaks Hospital. We continued to methodically review potential strategic acquisitions throughout our corporate business units.

Now I would like to invite Paula to drill down on the quarter numbers, then we'll open it up to questions. Paula?

Thank you, Bruce. Good afternoon, everyone, and thanks again for joining us today. Let's turn to the financial results for the first quarter fiscal 2008. For the three months ended September 30, 2007, total net revenue from operations increased 26% to $12.7 million as compared to $10.1 million a year ago. As Bruce mentioned, the increase is primarily attributable to an increase in net revenue of the Company's patient care segment, which was up 29% to $10.1 million from $7.9 million last year.

Pharmaceutical studies segment revenue was up 35% from last year, at $1.4 million as compared to $1.1 million a year ago. Contract support services revenue provided by PHC's Wellplace subsidiary remains stable at $1.1 million.

Income from operations for the quarter totaled $1.4 million, an increase of 151% from $554,000 reported a year ago. Net income before taxes increased 180%, to a record $1.3 million, up from $466,000 a year ago. Net income was $800,000, or $0.04 per fully diluted share, based on 20.6 million fully diluted shares, an increase of 182% compared to net income of $283,000, or $0.01 per fully diluted share, based on 19.3 million shares.

Total operating expenses for the quarter increased 19% to $11.3 million from $9.5 million last year. Included in this increase were expenses related to personnel and contract services expenses associated with the new contracts and the Seven Hills Behavioral Health Institute.

The Company's provision for doubtful accounts decreased to $422,000 in the quarter from $452,000 a year ago. The percentage of bad debt expense to net patient care revenue for the quarter was 4%, as compared to 6% for the same period last year.

Patient care operating expenses increased 31% as compared to the same period a year ago, reflecting the cost relating to major contracts in hospital construction. Pharmaceutical patient care expenses increased 25%, and contract support expenses decreased 4%. The increase in patient care expenses reflects the Company's investments in its Las Vegas market initiatives, including the Seven Hills project, and this company's 10-year $80 million agreement with the Health Plan of Nevada's behavior health care options network agreement announced in December of 2006.

The Company's cash and cash equivalents totaled $2.8 million at September 30, 2007, which decreased from $3.4 million at the end of the previous fiscal year. Total net receivables from patient care at September 30, 2007, was $6.7 million, which increased 3% from $6.5 million at previous year end.

The balance sheet current ratio was 2 to 1 at September 30, 2007. Stockholder's equity increased 3% to a record $18.7 million at September 30, 2007, from $18.3 million at the end of the previous year.

Our balance sheet continued to strengthen. Total liabilities reduced by $1.5 million versus the same period a year ago, primarily due to the revolving credit reduction which also repurchased -- we also repurchased 150,000 Treasury shares in the open market, thus reducing the shares outstanding.

This completes our financial presentation. I hope that you found this information helpful. I look forward to reporting back to you at the end of the second quarter with our continued progress. I will now turn the call back to Bruce. Bruce?

Thanks, Paula, and it's great to report great numbers. It certainly makes the presentation a little bit more fun. I think I'm just repeating here, but before I continue, I want to note that the Company did purchase 150,000 shares of PHC Treasury stock in the open market. This is a certain indication of our confidence in the future of PHC as well as our belief that significant unrealized valuation exists for our shareholders, which we hope to bring to fruition over the course of the new fiscal year.

This is our second straight breakout quarter and further reinforces our optimism for the future. As the numbers speak for themselves, again, in summary, we're very pleased with our performance. We continue to show that this Company is moving in the direction that we've been talking about for a number of years. We have a number of plans for the future, both for the new potential site in the Michigan area, the opening of our Seven Hills Hospital, and also the potential that we're looking at, strategic acquisitions, now that we're beginning to selectively look at that.

At this time, I'd like to open the call to address your questions. Operator, if you can provide the appropriate instructions, we'd be happy to field your calls.

Thank you. (OPERATOR INSTRUCTIONS). Your first question is coming from Darren Lehrich of Deutsche Bank.

Hi, it's actually Prabhdeep Singh calling in for Darren. Bruce, I just had a question on the acquisition front. I was wondering if you could maybe talk a little bit about what you're seeing there and maybe comment a little bit about the acquisition environment as you see it.

I think the important thing to say is that, being in this market for a long time, we've always been presented with just about every acquisition opportunity. And, as we've said in the past, we've been focused on our growth of our Company and we've had plenty of opportunities on our plate and we've sort of just looked the other way. But now, we're taking the calls.

We're beginning to sign MDNAs and we're finding a number of interesting opportunities. Nothing concrete yet but they are everywhere from on the behavioral health side, on the managed care side, and also the potential of a few inpatient facilities, some on the substance abuse side, and on the psych side.

So, again, when it comes to an acquisition, we're ultra conservative and we'll remain that way. But with an unleveraged balance sheet and available lines of credit, we're in a position now to really jump on an opportunity if it's the right one for our Company. And so we are beginning to spend some time on that.

Okay. And just on the revenue side, is there any way you can break out of the revenue growth you reported in the patient care segment, how much of that is attributable to organic?

Well, it's actually all organic.

Okay. And then, would you have maybe in - a same store kind of volume percentage growth number?

We don't have that number but we can provide that to you. I actually, as I was reading another report, I realized that's something that I think we are going to provide some color on in the future.

Okay. And then I just had a couple of housekeeping questions for Paula. Would you happen to have the D&A number in the quarter?

The depreciation and amortization number?

Yes.

Actually I do have the number. The total is $240,000 for the quarter.

Okay. And then, the census for the patient care segment?

I don't have that number with me right now. I can get that to you.

Okay, that's all I had.

Thanks a lot for your question.

Thank you.

(OPERATOR INSTRUCTIONS). Our next question is coming from Rob Damron of 21st.

Hi, Bruce. Great quarter. I wanted to ask a few questions. First of all, you mentioned in the press release 20 additional beds versus last year. Where were those 20 beds added and when were those 20 beds added over that 12 month period.

Well the 20 beds were the new adjudicated girls unit. The timing -- it might have been a little bit sooner than that. We're just finalizing the date. But it was the 20 bed girls unit.

Okay. So that was about a year ago, is what you're -

Yes.

We're still at 180 beds, is that correct?

186 now with the six that we just added at Harbor Oaks.

Okay, that's good. And then I wanted to talk a little bit about the Detroit opportunity. You know you said you're looking at several different buildings. Now would this be lease or would this be buy, and if it was buy, I guess how would you plan to finance it?

It would most likely be a real estate partnership that we would be a partner and similar to what we've done in Las Vegas. And it would be a much larger facility that we would be able to control and not have to be in someone else's house. The need there is huge and it's long term in nature, so we felt that rather than spending the CapEx to renovate lease space that if we were in a building that had a long term relationship and some equity that we'd be better off. And also would afford us additional expansion plans to our inpatient programs, we would be able to offer some outpatient programs and some partial programs.

Okay, but this would be an existing building that just would be renovated so therefore you could turn this around more quickly than what is occurring in Vegas?

Absolutely.

Okay.

Both buildings that we are very close on are existing buildings that need renovations but not total reconfiguration.

So at this point, when will you expect to start generating some incremental revenue in Detroit as a result of that?

Not until late calendar '08, at the earliest.

Okay.

Yes, we're looking at a nine to 12 month period of time.

Okay. And a couple of other questions. Your expenses, for the most part, were held under control very nicely, but there was one line that kind of jumped out at me -- the administrative expenses, at least on a sequential basis, increased. Just what was in that line that caused the sequential increase?

Paula?

It was -- the primary piece of it is the payroll, because we had additional payroll for not only the [VHO] contract with the number of additional people we put on, and contract expense for that also, but we also had administrative people for that and we have people that are being, that are on our payroll already for the new facility, for Seven Hills.

We have two employees, two full time employees on the payroll now and, actually --

Three now.

-- three, a third one. We brought on our HR director too.

Okay, that's helpful. And then if we look into the December quarter, is there any one time issues that maybe we should be aware of or any seasonality as we look into the December quarter versus the September quarter? Maybe just kind of a little guidance from that perspective?

Well there's always seasonality in the December quarter on the inpatient bed side. It's less and less of a factor now because we're -- we have so much of a diversification in our revenue base, but we know historically that the second fiscal quarter is always our weakest. It's attributed to lower inpatient census and it has been forever. The number, the weaker number is not as weak as it has been in the past because more of our revenue is fixed and we have more of the capitated contracts and non-specific inpatient day revenue.

Okay. And then, in terms of the pharmaceutical study, what's the outlook for that over the next three to six months?

Well we had a pretty good quarter in September and, as I've said all along, addressing the fact that we had a good quarter and revenue was up and it was profitable, this still is a lumpy business. And October was a pretty good month. Historically, November and December are a little bit weaker and then it gets stronger as the new year comes down with the new studies and their budgets coming on line.

Okay. And then my last question is -- maybe you can just give us an update on what you're seeing in that mental health parity legislation? Where does that stand at this point?

Well, the Senate version has passed. The House version has gotten through two committees now and it's in caucus. And we're hopeful that the House version, which has a little bit more teeth than the Senate version -- we're hopeful that they'll come to sort of a meeting of the minds there.

We're hearing from our association that passage and signing by the President is imminent. I mean, hopefully weeks away. I think as we start to understand this a little bit more, the biggest impact on our business will be in our outpatient area, and because it will eliminate some of the large co-pays that we're seeing under some of our contracts. So we're hopeful that that will help us. It also will help control the bad debts because the co-pays go down and the insurance reimbursement will be higher.

So I think that's where the major impact will be. And sort of the global impact, really, is just the recognition, as I said in the past, the recognition that behavioral health issues are real. What we're doing is validated by everybody now and it's more and more okay to talk about these kinds of issues.

Employers are providing better coverage. The government already has a Parity Act under the Federal programs and we're hoping that this will come close to mirroring that. So it's all good news. And, but again, for the pioneer piece, we're feeling like the immediate impact or the immediate -- certainly when the teeth stick in, is going to be in the outpatient side.

Okay, that's all I have. Thank you.

Thank you, Rob.

At this time, this concludes our question and answer session. I would like to turn the call back over to Mr. Shear. Mr. Shear, please proceed.

Thank you, Leonard, for sponsoring this call and as I've said before, we have the largest audience we've ever had on our call, which we're very pleased. We're very pleased with our numbers and we're just pleased and excited about the future of our Company as things begin to come together -- not begin to things are coming together. So we do have a number of investor meetings scheduled over the next few weeks and I'll be seeing a lot of you in person.

Thanks again for your support, and as always, feel free to call us directly with any questions you may have. Thanks again for joining us on a tough market day. At least we delivered some great news.

Thank you. Before we conclude today's call, I'd like to take a moment to read the Company Safe Harbor statement. The Company's remarks made during this call and answer to your questions may include forward-looking statements that are subject to the Safe Harbor provision of the Private Litigation Reform Act of 1995.

These forward-looking statements include, among other things, statements regarding future events and the future financial performance of PHC that involve risks and uncertainties. Readers are cautioned that these forward-looking statements are only predictions and may differ materially from actual future events or results.

Listeners are referred to the documents filed by PHC with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, each as it may be amended from time to time, which identify important risk factors that could cause actual results to differ from those that are contained in the forward-looking statement.

These forward-looking statements represent the Company's judgment as of the date of this conference call. Thank you, ladies and gentlemen, for joining us today for our presentation. You may now disconnect.