Acadia Healthcare Company Inc (ACHC) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2010 Pioneer Behavioral Health earnings call. My name is Melanie and I'll be your coordinator today. At this time, all participants are in listen only mode.

(Operator Instructions)

We will accept your questions at the end of this conference. As a reminder, today's call is being recorded. I would now like to turn the call over to Mr. Michael Wachs. Please proceed.

Good afternoon and thank you for joining us today. I would like to welcome you to Pioneer Behavioral Health's 2010 fiscal third 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 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 and quarterly reports on Form 10-Q 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 revenue from continuing operations increased 12.7% to $13.5 million for the three months ended March 31, 2010 compared to $12 million for the three months ended March 31, 2009. Net patient care revenue increased 14.3% to $12.7 million for the three months ended March 31, 2010 from $11.1 million for the three months ended March 31, 2009.

The increase in revenue was due primarily to increased census across the Company's facilities, including higher census at Seven Hills Hospital in Las Vegas and the Company's new chemical dependency unit at Harbor Oaks Hospital in Michigan, which opened in September 2009. Contract support services revenue provided by Wellplace declined 6.7% to $839,000 for the three months ended March 31, 2010 compared to $899,000 in the earlier year period. The decrease was due to a decrease in the covered lives under our employee assistance program contracts.

Income from operations improved to $781,000 for the 2010 fiscal third quarter compared to $97,000 in the same period a year ago. Income before taxes was $758,000 for the three-month period ended March 31, 2010 compared to $12,000 for the year-earlier period.

Net income applicable to common shareholders was $469,000 for fiscal 2010 third quarter, or $0.02 per diluted share, compared to a net loss of $152,000, or a loss of $0.01 per share, in the fiscal 2009 third quarter. The fiscal 2009 third quarter results included an expense of $159,000 associated with Pivotal Research Centers. The 2010 fiscal third quarter represented the Company's fifth consecutive quarter of profitability.

For the nine months ended March 31, 2010, total net revenue from continuing operations was $31 million compared to $34.7 million in the year-earlier period. Net patient care revenue was $36.5 million for the nine months ended March 31, 2010 compared to $31.8 million in the previous year period. In the same nine-month period, income from operations was $1.7 million compared to a loss of $1.2 million in the nine months in fiscal 2009.

Net income applicable to common shareholders was $0.9 million for the nine months ended March 31, 2010, or $0.05 per diluted share, compared to a net loss of $2.2 million, or a loss of $0.11 per share, for the previous year period. The net loss included a $1.4 million charge associated with the sale of Pivotal. As of March 31, 2010, the Company's balance sheet was strong, with cash and cash equivalents of $3.3 million. Stockholders' equity improved from $16 million as of June 30, 2009 to $16.9 million as of March 31, 2010, reflecting the increased profitability. 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 thank you all for joining us this afternoon. As you can see from the results, the third quarter represented another consecutive quarter of profitability, with another solid quarter of both year-over-year and sequential revenue growth. We're all so pleased with the quality of our revenues, as gross margin improved as a result of a favorable patient mix.

The strong revenue growth and margin expansion helped drive improved profitability. We believe these results validate the investments that we have made more than one year ago at both Capstone and Seven Hills, along with the development of the Company's new chemical dependency unit opened in September at Harbor Oaks Hospital in Michigan.

I wanted to update you on the status of the CMS certification at Seven Hills. While the progress in gaining certification has been slower than we all want and anticipate, we continue to press for a prompt survey. Unfortunately, we're not in control of the timing, but we believe we are much closer to the end of the process than the beginning.

We will continue to do everything possible to accelerate this process. Although we are not in control, however, based on what we have learned from others, we have gone through -- who have gone through the process, we believe we are close to completion. In the meantime, Harbor -- Seven Hills Behavioral Institute continues to grow both from a revenue -- from a patient day standpoint and has actually obtained a profitability.

As many of you know, Psychiatric Solutions announced recently that it had received a takeover letter. We believe that there are -- that their offer reflects an understanding of the potential that the industry has, particularly since parity between mental and physical reimbursement became a reality this year for payers. We recognize that these development highlight the need for PHC to become acquisitive or to be acquired by a larger company.

At this point, we do not believe it makes sense for us to sell our company, as we believe it is highly undervalued. However, we are actively pursuing acquisitions and expect to complete at least one such transaction this year. There are a number of small or private companies that would benefit from such a transaction, which would help PHC further expand within its target markets. We are only seeking acquisitions that would be immediately accretive to earnings the day after the acquisition is completed.

Now I'd like to discuss the business outlook. As you can see from our financial results, we continue to improve our operating results. We expect these trends to continue throughout this year and next at an accelerating basis. Same store sales should continue to improve, driving both top line growth and bottom line profitability. We're also seek additional ways to grow organically, such as selectively opening new units such as the one that we successfully opened the adolescent unit at Seven Hills Behavioral Institute and also the substance abuse program at Harbor Oaks Hospital.

Having said all that, we're pleased with the results of the quarter. We're very pleased with the progress that we continue to make, both on top line growth, sequential growth, sequential profitability growth. At this point I'd be happy to open it up to any questions that you may have and look forward to talking with you, if not on this call, in the future. I'm off -- after today, actually, we have a presentation, an investor presentation out in Dallas with one of our major investors. So I'll be leaving shortly after this call and be pretty much out of pocket tomorrow. Operator, if we can open it up to questions.

Yes, sir. (Operator Instructions)

And our first question comes from the line of Walter Schenker with Titan Capital. Go ahead.

Hi, Bruce.

Hi, Walter. How are you today?

Good. Probably two related questions. In respect to Seven Hills, you said it's profitable. What was the impact in the quarter that ended March as opposed to currently in May on Seven Hills? Did it -- was it profitable but what sort of loss did it have? And secondly, you have previously talked about a 10% target for operating margins. We're up to, I guess, about 6%. What is needed to get us from 6% to 10%?

Well, first of all, in terms of the Seven Hills turnaround, that was an April issue. So none of the positive impact from the significant increase in Seven -- revenue at Seven Hills was in the quarter that we just reported. It will be reported in the June 30th quarter.

In terms of margin, you're right. We're beginning to show good progress in terms of economies of scale, and our net margin before taxes is moving in the direction that we like to see it go. I think the biggest change that will take us up to or above the double digits is the final turnaround of Seven Hills. And so as we see some of the early numbers, which obviously just very, very preliminary in May and late April, we do see a path to bring us to that double digit net income before tax margin.

And just one last comment on Seven Hills. The benefit of the expanded -- having the CMS survey completed and accepting those patients is we get to upgrade the mix from the people -- some of the people who are currently there? Is that really the main benefit there since we're not at capacity?

Walter, you're beginning to know our business very well. That's exactly it. There will be a higher revenue per day resulting from those patients, not necessarily -- now, as long as we can continue our census, not necessarily a higher census but a higher revenue per day, which will have a dramatic increase on improving the margins.

Okay. And again, since you sort of said it but didn't give it specifically, I should expect in the June quarter a meaningful improvement within the context of what it has in the incremental contribution from Seven Hills in the June quarter versus the March quarter?

Absolutely.

Okay. Thanks a lot.

Thank you.

(Operator Instructions)

Our next question comes from the line of [Jeff Plesser] with Chapin Davis. Go ahead.

Hey, Bruce. It's Jeff Plesser, Chapin Davis. How are you?

Hi, Jeff. How are you?

Doing good, thanks. And congratulations.

Thank you very much. Thanks for calling in.

Listen, with the nursing, I don't know what sort of licensed practitioners you have at your facilities, but a few years ago I remember when you guys came out and saw us, a number of years ago, there was a nursing shortage and nurses were at a premium. I don't believe that that is the case anymore, at least out here it isn't. Is that going to affect your bottom line, being able to have, like, new grads not being able to find work? Will you be able to place any of those people with you and save some money that way? Will that affect your bottom line, so to speak?

Well, there's still a shortage of nurses in the markets that we're in. And I don't think new grads are having problems getting their first job. We are making good progress in filling the majority of our positions, as evidenced by the fact that our agency costs continue to go down and our overtime costs go down. Those are sort of the two metrics that we look at. I think the nursing shortage is not as acute as it was two years ago, but I don't want to say that it's still not an issue. Not in all of our facilities. We're seeing it in Las Vegas primarily, not as much in our other markets.

Very good. Well, anyways, congratulations; looks good. The numbers look like we should go forward.

We're moving in the right directions. Thanks, Jeff.

Take care, Paula. Good to see you, Bruce.

Bye-bye.

(Operator instructions). And I show no questions at this time. I'd like to turn the call back over to Mr. Shear for closing remarks. Please proceed, sir.

Thank you so much, Operator, and thank you all for joining. We have quite a large crowd. I guess the numbers just speak for themselves. In summary, we're very pleased with the quarter's progress, both sequentially and cumulatively. And we're more pleased with sort of the future and I think we have a very high comfort level that we're going to continue to see this kind of growth going forward. Appreciate you all joining us. And I appreciate your support as shareholders and we look forward to talking with you on an individual basis in the future. Thanks so much.

Ladies and gentlemen, thank you for your participation in today's conference. That does conclude the presentation. You may disconnect. Have a wonderful day.