Acadia Healthcare Company Inc (ACHC) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter Pioneer Behavioral Health Earnings Conference Call. At this time all participants are in listen-only mode. We will conduct a question and answer session towards the end of this conference.

(Operator Instructions)

I would now like to turn the conference call over to Mr. Michael Wax. Please proceed, sir.

Good morning and thank you for joining us today. I would like to welcome you to Pioneer Behavior Health's 2010 fiscal first quarter conference call.

Before I turn the call over to Bruce Shear, the Company's Chief Executive Officer and Paula Wurts, the Company's Chief Financial 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 plan 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 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 and Paula to discuss corporate developments, financial results and the business outlook. Paula?

Thank you, Michael. I assume most of you had an opportunity to review the press release we issued earlier today. I would like to discuss several of the highlights.

Total net revenues from continuing operations was $12.6 million for the three month ended September 30, 2009, compared to $11.7 million for the three months ended September 30, 2008. Revenue increased due to an 11.4% in net patient care revenue to $11.7 million for the three months ended September 30, 2009 and an 8.7% increase from 1$10.8 million for the quarter ended June 30, 2009.

Revenue grew despite the reduction in beds Harbor Oaks Hospital in Michigan to facilitate the remodeling of the adjudicated juvenile unit to accommodate the new chemical dependency unit which opened in September, 2009. The increase in revenue is due primarily to the increased census at SevenHills Hospital in Las Vegas and the increased beds and census at Capstone in Detroit.

This increase was partially offset by a 22.3% decline in contract support service revenue provided by Wellplace, which declined to $0.9 million for the three months ended September 30, 2009. The decrease is due to the expiration of the Company's smoking cessation contract with the government contractor.

Income from continuing operations improved $790,717 to $355,898 for the 2010 fiscal first quarter, compared to a loss of $434,819 in the same period a year ago. Net income before taxes was $357,035 for the period ended September 30, 2009, compared to a pretax loss of $434,338 in the year earlier period.

Net income applicable to common shareholders was $223,604, or $0.01 per diluted share, compared to a loss of $332,703, or $0.02 per share in the fiscal 2009 first quarter. The 2010 fiscal first quarter represented the Company's third consecutive quarter of profitability.

As of September 30, 2009, the Company's balance sheet was strong with cash and cash equivalents of $1.7 million. Stockholders' equity improved from $16 million to $16.4 million. Day sales outstanding were 64 days compared to the previous quarter of 55 days.

Our DSOs were impacted by a delay in the receipt of a payment under one of large contracts which we received early in October. Subsequent to the end of the quarter, the Company purchased 250,100 shares of stock in the open market as part of our stock buyback program, which was extended through the end of fiscal 2010.

Now I would like to turn the call over to Bruce to discuss the operating results in more detail and the business outlook. Bruce?

Thank you, Paula, and good morning everyone. As you can see from the results, the first quarter represented another quarter of improved operating results where the Company experienced solid top line bottom line growth and continued to manage expenses closely.

During fiscal 2009, we have made investments in several key facilities where we incurred startup expenses that adversely affected our results. During the first quarter, the facilities at both Capstone and SevenHills played a key role in the Company's improved results as they are no longer in the startup phase and our experience to increased census, we are quite excited by the prospects for each of them.

Just as the startup expenses reduced our profits in 2009, our first quarter results were positively impacted by the investments that we have made, and also, the investment in a new substance abuse unit that we opened recently at Harbor Oaks Hospital in Michigan. This facility should contribute to our results now that it is open. I am pleased to note that the 11.3% increase in net patient revenue occurred as a result of increased utilization of virtually all of our facilities.

Many investors ask me about the status of the CMS certification at SevenHills. Clearly, I have been too optimistic in my expectations. The process usually takes approximately a year from the time we receive the first communication from the agency.

Currently, our process has taken a bit longer. Most facilities do not get certification on their visit. There is a process that we closer to completing than starting. I would like to make predictions on time, but frankly, I am not sure. We will continue to respond to questions we receive as soon as we get them, and I am confident that we will be approved and we will be receiving patients due to this certification. The good news is that regardless of the timing associated with the receiving of the CMS certification, we expect our overall business to continue to grow.

One of the catalysts for our business next year could be the implementation of the Paul Wellstone and Pete Domenici Mental Health Parity and Addiction Equity Act of 2008. The Act requires most group health plans to provide more generous coverage for treatment of mental illnesses, comparable to what they provide for physical illnesses. We believe that as insurers look for ways to comply, that it will drive increased utilization of our facility as it will be easier for patients to get reimbursement and they will feel more comfortable in accessing care.

Now I also would like to discuss our business outlook. As you can see from our financial results, we continue to improve our operating results. We expect these trends to continue, regardless of the timing of the CMS certification.

Same store sales should continue to improve, driving both top line growth and improved profitability. Because we feel that our operations are stable, we will look for acquisition opportunities. We believe the best way to utilize our strong balance sheet is to find synergistic companies that will make PHC larger and better able to absorb the cost of being public.

There are many private companies today that are looking for an exit strategy and we are in touch with many of them. And we are eager to expand our targeted geographic area. Overall, I am very pleased with the results of the quarter, the continued good progress we are making both on the top line and bottom line and our business outlook going forward.

Now, at this point, I would like to turn the call over to questions that you may have, and we do have a number of attendees this morning, so I am happy to field any questions we have, operator.

Thank you. (Operator Instructions). Your first question comes from the line of Michael Potter with Monarch Capital. Please proceed with your question.

Hey, Bruce, just a few questions. The -- do we have any loss of corporate contracts during the quarter and can you give us a little bit more color of why that business has slipped?

No loss of corporate contracts at all. The smoking cessation contract through Wellplace did expire, so that is where the revenue drop was, and it was about a --

That was last year.

It was last year.

November, I believe.

And it was about a $700,000 contract. So, the Wellplace division is small on a revenue base, but one contract was significant.

Okay, so the -- in these third power graphs, the declining contract service revenue is on the Wellplace part of the business?

Only the Wellplace part of the business in that one contract that expired naturally.

Okay, and then with regards to the Wellplace division, when do you anticipate that this division is going to turn, and how is our pipeline of new contracts?

Well, first of all, the division is profitable and continues to be profitable, number one. And we are marketing our -- we are looking to try to expand it on the EAP side and also to get in to some other county and government kinds of contracts. There is a number in the pipeline. I cannot tell you when we will land one, but I feel that we have some good opportunities out there and hopefully, it will be in the next quarter or two.

Okay. And I know you touched upon the SevenHills and the CMS approval process. The third party auditor that CMS was using, do you know if they have submitted their report to CMS yet?

Well, their first report was submitted six or eight weeks ago and we have responded to that and we are waiting for the next revisit.

So there is going to be another visit to the facility?

We expect so.

Okay, and what is the current census of the SevenHills facility?

The census has been running in the mid-30s to high-40s pretty consistently and the focus, again, is on the non-capitated business. So the last quarter was the highest non-capitated business we have had since we opened the hospital. So we are continuing to make good traction in that regard.

Is it profitable without the CMS approval?

Not yet, but it's getting close.

Okay, and then maybe you could just refresh us, the investors, of once you do receive the CMS approval, what that will mean for the facility and our ability to go after additional business?

A number of government payers and related contracts that actually have higher revenue per day than our average patient we are anticipating a census increase in a pretty short order of five to 10 patients, which is a significant number at the facility.

Okay, thanks. I'll get back in the queue.

Thanks a lot.

Your next question comes from the line of Walter Schenker with Titan Capital. Please proceed with your question.

Hi, Bruce, just a follow up on the last question which was another thrust, with all the wings operating, SevenHills has what capacity beds?

55 beds.

And so, if we are running between 35 and 45, mid-30s, mid-40s, theoretically, there is about a 10 to 15 bed increment available.

On an average basis --

Right.

On an average basis, 15 plus beds.

And you would expect to take at least half of that off, using the average of five to 10, in government-funded Medicare, Medicaid type people fairly quickly?

Fairly quick, yes. Thank you.

And you would expect, though, that you should be able -- and I realize people come in and out, so it is never 100%, but you would think that that facility should be able to run with full approvals pretty close to, given the Las Vegas market, pretty close to full occupancy?

We think once everything is behind us, the facility is going to be running at close to full occupancy all the time.

Okay.

Our expectations are the same as they were a year ago, just the timing is off.

You previously -- the Company previously talked about the VA contract in Utah, an additional contracts and demands in Detroit. Those things that have been announced did not affect this quarter, when you reported, in any meaningful way?

It did not start until the second week in September.

That's Utah?

That's the Utah, right.

Okay, and that should, again, that's a million dollar plus contract?

Correct.

And, since no one knows what is going to happen in Congress and what health care bill comes out of this, but everyone is spending a lot of time speculating, I believe I saw that one of the things in the House bill was an elimination of co-pays on mental health. You have no read, at least, based on what has come out on the House bill as to how it might affect you, realizing no bill may come out and there is lots of potential variations?

Well, we do know quite a bit. We do know that it is tiered to the Parity Act. We do also know that TRICARE, which is a government payer, which is also sort of tracking, has a strong parity provision in it currently. So it is safe to assume that minimally, that co-pays will be reduced to a level that will be similar to medical, surgical co-pays. I think we are -- I think that's a given. And that will improve and will make accessibility to care much easier.

And --

I think net net, this is a positive event for our industry and our Company.

And if you have an agreement, either through capitation or with someone else for servicing and co-pays are reduced, that comes out of your pocket or they just reimburse you more on the other side? Are you getting paid $100 whether it is $20 co-pay and $80 or $10 co-pay and $90?

Depending on the contracts, we do have provisions to change the rates should the benefit design change. And we wrote that into our last renewal intentionally for this.

So, as a generalization, you should -- if co-pays go down, you will generally get the money back somewhere else or --

One way or the other we --

-- the ability to try and get the money back someplace else.

Yes, we see it as a positive. And in addition to that, we also see a positive increase in demand too.

And last question -- I apologize -- you have repeatedly over some period of time talked about a target of 10% operating margins. Could you just sort of review what you think needs to be done from here now that all the facilities are up and running and you have gotten some new contracts to get us there?

The last piece will be the full occupancy of SevenHills, and because we are seeing in our other businesses now, many of them actually above 10%. So that is sort of the last piece incentive to the high percentage of our revenue. That's the last piece I think that will take us into that double-digit range which we still believe is realistic.

Okay, thank you.

You're welcome, thank you. Operator, do we have any other questions?

There are no further questions at this time.

Great. Okay, I want to thank you all for joining us. Again, we are very pleased with our results. We are pleased with our progress, and more importantly, we are pleased with the fact that the Company is on the path that we have been talking about to improve both top line and bottom line and we are looking for very closely and selectively for some acquisitions. So I think now we are going to begin to see the continued good progress of our Company. And I do appreciate all your support and joining us and look forward to talking to you individually. Thank you all for joining us today.

Ladies and gentlemen, that concludes today's conference call. Thank you for your participation.