Acadia Healthcare Company Inc (ACHC) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 and fiscal year 2009 Pioneer Behavioral Health earnings conference call. My name is Glen and I will be your coordinator for today. At this time, all participants are in listen only mode. We will be facilitating a question and answer session towards the end of today's conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Michael Wax with the Company's investor relations firm. Please proceed, Mr. Wax.

Good morning and thank you for joining us today. I would like to welcome you to Pioneer Behavioral Health's fourth quarter and year-end conference call. Before I turn the call over to Bruce Shear, the Company's Chief Executive Officer, I would like to read the following statement.

On this conference call the Company may make forward-looking statements that are subject to risks and uncertainties. Forward-looking statements include information about possible or assumed future results of the operations or the performance of the Company and its future plans and objectives. Various future events or factors may cause the actual results to vary materially from those expressed in any forward-looking statements made today.

For a discussion of these factors and risks, see the Company's annual report on Form 10-K filed with the Securities and Exchange Commission. PHC is under no obligation to update statements made today for subsequent developments. Now I would like to turn the call over to Bruce Shear to discuss corporate developments, financial results and the business outlook. Bruce?

Thanks, Michael. Normally, Paula Wurts, the Company's CFO, would discuss the financial results. She had an appendicitis attack earlier this week, so she was unavailable for the call. The good news is she's recovering well and I expect her to be back to work on Monday morning.

Before I discuss the financial result I wanted to share with you some of my thoughts on the business. As many of you saw, we reported another sequentially profitable quarter. During fiscal 2008 and the first half of fiscal 2009, we incurred significant startup costs at our Seven Hills and Capstone facilities. In the third quarter we reported improved results, reflecting the transition from startup to revenue generation at these two locations.

In the fourth quarter, this trend continued, with particular strength at Capstone, which is currently at capacity with a waiting list. We also experienced higher census at Seven Hills, reflecting increased utilization of that facility. However, these are not the only two facilities that will contribute to the improved operating results. Excluding Capstone and Seven Hills, our income from operations for the quarter improved 80% to $712,661. This week we opened our new substance abuse unit at Harbor Oaks Hospital in Michigan, which should also enhance our profitability going forward.

Many of our other facilities are seeing significant utilization increases during this quarter. They are also improving profitability due to contracts such as the one we recently announced with the Salt Lake City Veterans Administration's Medical Center to provide behavioral health services at PHC's Highland Ridge Hospital in Salt Lake City, Utah. We have had a longstanding relationship with the VA, and opportunities such as this reflect our ability to perform under our current contracts as well as the growing need to provide veterans with behavioral support services. In addition to the new business, we also renewed many existing contracts with improved rates.

Now I'd like to discuss the quarter's financial results and then our business outlook. Net patient care revenue increased to $10.8 million for the three months ended June 30, 2009 from $10.4 million for the three months ended June 30, 2008. The increase in revenue is due primarily to the increase in capitated contract rates, increased utilization of our new step-down program in Virginia, the opening of Seven Hills, and the continued ramp-up in census at Capstone Academy.

Contract support services revenue provided by Wellplace declined to $0.9 million for the three months ended June 30, 2009 compared to $1.1 million in the year earlier period. The decrease is due to the expiration of the Company's smoking cessation contract with a government contractor. The Company currently has a bid to continue and expand the contract and should the contractor decide to continue the program, he expects -- if the contractor decides to continue the program. PHC expects to offset the decrease in revenue through new contracts for employee assistance programs and smoking cessation programs.

Income from operations was $381,661 for the 2009 fiscal fourth quarter compared to $97,540 for the 2009 fiscal third quarter and $394,571 for the fiscal 2008 fourth quarter. Fiscal 2008 operating income excludes a $1.8 million impairment loss of Pivotal. Net income before taxes for the 2009 fiscal fourth quarter improved approximately $305,000 sequentially to $317,086.

Income from operations included a loss of $743,000 associated with Capstone and Seven Hills compared to a loss of $412,000 associated with these same facilities in the same period a year earlier. As a result, Capstone generated an operating loss for the 2009 fiscal fourth quarter of $166,000 as a result of these additional expenses compared to the Academy generating pretax income of $239,000 in the 2008 fiscal fourth quarter. It's significant to note that capstone continues to run at a high occupancy level and is very profitable.

The net loss was $253,000, or $0.01 per share, based on 20 million basic and fully diluted shares, which compares to a net loss of $1,113,150, or $0.05 per share, based on 20.2 million basic and fully diluted shares in the year earlier period.

The fiscal 2008 loss included a $1.8 million impairment to reflect the decreased value of the intangible assets of Pivotal. The net loss was impacted by higher GAAP income tax expenses, a noncash item in the fiscal 2009 fourth quarter due to previous sale of Pivotal. Excluding the impact of the tax change, the Company would have been profitable again for the fourth quarter. As of June 30, 2009, the Company had cash and cash equivalents of $3.2 million. Our days sales outstanding declined again from 57 days at the end of fiscal 2008 to 55 days at the end of 2009.

Now I would like to discuss our business outlook. We know that many of you are focused on the Company getting CMS certification, which could significantly increase the census at Seven Hills Behavioral Institute. I'm pleased to report that they completed their second plan inspection 30 days ago and we are waiting for their next report, which we hope will be the final report. We are making progress but I'm hesitant to predict when we'll achieve this certification. We will continue to respond to information requests as soon as we receive them.

While the CMS certification would be a big plus, we also believe there are many other opportunities to grow our business and our profitability. Our same store revenue continues to grow year-over-year at our existing facilities, excluding Capstone and Seven Hills, indicating that our business remains healthy and growing. We will continue to closely manage expenses and focus on driving revenue through new services such as the one we announced today at our facility in Michigan.

While we are confident that we will get CMS certification, we believe that the business will continue to grow regardless. Our results to date in fiscal 2010 first quarter support this, as we are seeing the same trends from third and fourth quarters of fiscal 2009 continue.

As a result of our improved operating results and strong balance sheet, we are now in a position for the first time in a few years to selectively pursue accretive acquisitions, which would allow the Company to expand in key markets. We believe we have the necessary management structure and support systems in place to accommodate a much larger company.

We are pleased that we were able to report our financial results ten days ahead of the statutory reporting requirements. This is the earliest in the Company's history and reflects the investments we have made in our people and our systems, which will support a much larger, more profitable company. With limited additional infrastructure investments, the Company will be able to grow.

In summary, we are confident about the future prospects for the Company and believe we are well positioned for growth in 2010. Now I'd like to open the call up for questions. I apologize if I don't have all the financial information at my fingertips, as we haven't filed the 10-K yet, and a little bit short without Paula being here. Operator, if we can turn the floor over to questions and I'd be happy to field them.

(Operator Instructions)

Your first question comes from Walter Schenker from Titan Capital. Please proceed.

Hi, Bruce. I'm just trying to go over again, there's some breakouts talking about both Capstone and Seven Hills quarter-over-quarter, if I am looking at the -- there's just the fourth quarters for fourth quarters. If you could put a little more color on Capstone, which lost money this year versus making money last year, and would appear that Seven Hills continues to lose in this quarter north of $0.5 million. Some sense as to what's happening with census there awaiting CMS, it would be helpful.

Sure, Walter. Thank you. Well, first of all, Capstone, as you know, we moved to a new, larger building in January of this year. And so prior to that we had a reduced census because of the move and sort of some restrictions and we've had to ramp up bed capacity license approvals. So the Capstone facility last year was in a different facility that was smaller, that was basically running at high occupancy.

So that accounts for the fact that in the last quarter that Capstone did lose money because we were still sort of in the ramp-up stage. But again, as I mentioned and I'll sort of -- I think it's an important point, Capstone now is profitable. It turned to profitability in June, was more profitable in July and more profitable in August, and is at capacity with a waiting list.

In regard to Seven Hills, we are still waiting, as I mentioned, the CMS certification. We're feeling like we're getting closer and closer, but I've been saying that for a while. We're expecting a final report from them any day. The fee-for-service paying patients, other than our capitated contracts patients, has increased significantly over the last 60 days, meaning in July -- or actually meaning in really August and September.

But that just has started to kick in the last couple of months. We continue to drive new business there. We continue to drive new contracts. And we have actually all of our contracts in place. So we are getting closer and closer to profitability there over and above what will happen when we're able to take the government payors.

And one additional question. I know you got some substantial improvement in the capitated agreements in Nevada, Las Vegas, earlier this year. Your costs there are reasonably stable, despite what's going on in the economy?

Yes, I think our costs are stable. And remember what we have going for us is if there's a utilization bump, we're able to treat those patients at Seven Hills. The economy in Las Vegas, we believe, is actually improving. I was out there a couple of weeks ago and I met with actually the largest employer in the market and we had exactly that conversation. And he said for the first time in over a year the number of hours worked by his union members is increasing as opposed to decreasing. And he thought that was a very positive sign that, at minimum, the economy is stabilized and maybe even a little bit better improving again.

Okay. And I'll get back in. I have one more question, will get back in.

Thank you.

(Operator Instructions)

Your next question comes from Michael Potter from Monarch Capital. Please proceed.

Hey, Bruce. Just have a couple of questions. I know the insurance parity legislation goes into effect, I believe, January 1, 2010. What kind of effect do you anticipate this is going to have for the Company?

I think the major effect for the Company and really our industry is continued more positive recognition of -- that it's okay to be -- to talk about behavioral health issues and family and seek treatment. In terms of our company, and I think the industry feels that there will be increased demand from that.

It's very hard to quantify that until it actually happens. We know for a fact that we will see increased demand in our outpatient clinics because the amount of the copay the patients will have to make will go down and we believe the high copay limits on some insurance plans have prohibited folks from seeking outpatient care. So I think we'll see a pretty quick impact on outpatient.

And it'll be hard to measure sort of the impact of the inpatient improvement. But I think net, net, it is positive. Again, it's January 2010 for all insurance plans that start after then. So I think there will be a positive impact. We just can't quantify it yet.

Okay, so, we're just not in a position to really know how the effect is going to be on our P&L.

No, not until we see it. And I think a lot of folks -- I think the analysts are saying the same thing, too.

Okay. I'm not sure if you went over this, but on Seven Hills, what's the current census?

The census right now of Seven Hills is in the mid 30s.

Can --

I mean it goes up to 40 and it goes down to 25.

And where's our breakeven point?

Well, our breakeven point, depending upon the breakdown between the capitated and the non-capitated business, our breakeven is approximately 22 or 23 non-capitated patients. That's the number that we focus on. The non-capitated census continues to rise. We've been running now anywhere between 15 and 20 non-capitated patients. So we are getting close. And that's in the last couple of months.

Okay. Thanks. I'll get back in the queue.

All right. Thank you.

Your next question comes from [Simon Barrows], private investor. Please proceed.

Good morning. The new substance abuse unit at Harbor Oaks, is that inpatient, outpatient, how many beds, et cetera?

It's an inpatient unit and it's 24 beds.

Okay. Any guess as to how quickly it might ramp up?

Whenever I make a projection like that, I'm usually wrong. I know we have a couple of patients in today. We admitted our first patient, I believe, yesterday.

Okay. And what's the total bed count for the Company, including these new 24 beds?

I'll add that up and comment later. And actually maybe I could even get back to you on that. I don't have all the spreadsheets in front of me.

Okay, no problem. And the effective date of the Salt Lake City VA contract, please.

It was September the 1st.

Okay, thank you.

You're welcome.

Your next question is a follow-up from Walter Schenker from Titan Capital. Please proceed.

Just to make sure I understand as we look to improving profitability during the year, going back to Capstone, last year in June Capstone earned $200,000-plus in operating profit with smaller capacity. With the addition in ramping up, it turned to a loss. It has now got greater capacity and is running at capacity with a backlog, whatever the right term is -- waiting list is the right term, sorry. Therefore, it would be reasonable to expect the expanded Capstone running at capacity should be more profitable at capacity than the smaller Capstone was?

Yes, sir.

Okay. And we should see that going forward if we remain at capacity?

Right. We'll start to see those numbers in the September 30 quarter.

Okay, thank you.

Thanks a lot.

Your next question comes from Dan Rambert from Camden Partners. Please proceed.

Hey, Bruce. I apologize. Gene actually had to hop on a flight here so otherwise he'd be on the call with me. Just going back to the CMS issue, you'd mentioned that they had their second visit, that they finished up 30 days ago. Any guesstimates as to timing and when that might start to flow through, even on a rough basis?

You know, Dan, whenever I project it, I'm wrong. It could be tomorrow or it could be another week or so. But I think we're very close.

Okay, so, you'd expect it -- you'd expect to hear back from them this quarter or next quarter?

I expect to be completed and certified by the end of next quarter, absolutely.

Okay. Okay. That's it for me. Thanks much.

Operator, do we have any further questions?

There are no further questions. I would now like to turn the call over to management for closing remarks.

Okay. Well, again, I thank you all for joining us. We continue to show great, positive progress in our company and sequential improvements in profitability, great progress at Capstone where we can sort of take that one off our new development list, focusing now on completing Seven Hills, looking at some potential acquisitions and starting to build the acquisition queue. So we're -- everything is moving as planned and as scheduled and I appreciate your support and I look forward to talking with you all later.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.