Acadia Healthcare Company Inc (ACHC) 2010 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the PHC Incorporated fiscal fourth quarter of 2010 and full-year earnings conference call. During today's presentation, all parties will be placed in a listen-only mode. Following the presentation, the conference will be opened for questions. (Operator Instructions). This conference is being recorded today, Wednesday, September 22, 2010. I would now like to turn the conference over to your host for today, Mr. Brett Maas of Hayden IR.

Thank you and welcome. This conference call may include 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 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 in this conference call. For a discussion of these factors and risks, please see the Company's annual report on Form 10-K for the most recently ended fiscal year.

Joining us today on the call are Bruce Shear, PHC Inc.'s Chief Executive Officer and Paula Wurts, Chief Financial Officer.

Before we begin, let me remind you this call is being broadcast over the Internet and then a recording of the call and text of our prepared remarks will be available on our website.

I would also like to direct listeners' attention to the Safe Harbor statement contained in our press release issued today and posted with these prepared remarks, both of which apply to the content of this call. Bruce, the floor is yours. Congratulations on a strong end to an impressive year.

Thank you and welcome. Joining us today on the call -- I am sorry. Thank you, Brett. Good morning, everyone and thank you for joining us again. As Brett indicated, this was a year of progress for PHC. We reported sequential revenue growth every quarter this year, significantly increasing our profitability. The 20% quarter-over-quarter revenue growth, the sequential growth during all fiscal 2010 quarters and the 14.4% total year-over-year growth demonstrates that we are benefiting from initiatives developed over the last 18 months, which positioned PHC for long-term, sustainable growth and increasing profits.

In addition, during fiscal 2010, we experienced great progress related to our Seven Hills Behavioral Hospital in Henderson, Nevada, which will help us continue our growth in the future.

We saw improvement across the board in all the metrics we track to measure the health of our business. For the 2010 fiscal year, net revenues per patient day increased 9% to $477 per day from $438 per day compared to fiscal 2009. Average occupancy rates increased to 75.7% from 69.7% for fiscal 2010. We continue to experience growing census across our facilities and believe there will be additional opportunities for organic expansion.

In addition, we are beginning to experience economies of scale as we leverage our infrastructure more efficiently. This is reflected in the decrease in administrative expenses as a percentage of revenues to 36% in fiscal 2010 from 40.3% in fiscal 2009. As we continue to grow, this progress will result in further improvement in our profitability and improved margins.

These positive trends, continued increases in census and patient treatment revenue, higher gross margin for patient care and more favorable patient mix, continued focus on controlling expenses and leveraging our infrastructure have resulted in steady improvements and increasing profitability for the last six consecutive quarters.

Our balance sheet continues to improve as well. We increased cash and cash equivalents, working capital, total assets and shareholders' equity while decreasing long-term debt. Our strengthened balance sheet positions us well for future and potential acquisitions.

As a result of our continuing financial improvement, our Board of Directors authorized the repurchase of up to 1 million additional shares of our Class A common stock for the one-year period commencing July 1, 2010. Our previous stock buyback program was also successful and it was scheduled to expire at the end of last fiscal year. For the fourth quarter of our last fiscal year, we repurchased 143,794 shares in the open market and for the full fiscal year, we repurchased 414,000 shares.

Subsequent to the end of the fiscal year, we obtained census from Medicare and Medicaid services approval for the Seven Hills Behavioral Institute facility located in Henderson, Nevada. This was long-awaited as you are all aware and a major milestone event for us as this certification enables us to immediately accept patients enrolled in the Medicare program. This removed the last regulatory requirement to take all patients that the market will support and will help fuel our organic growth in future quarters.

We continue to look for accretive acquisitions and ongoing consolidation in the industry, create some unique opportunities for us to accelerate growth through acquisitions. Our goal is to find synergistic entities that will allow us to more effectively leverage our treatment facilities, as well as our administrative sales and marketing infrastructure. We are moving cautiously to make sure that any potential acquisition will be a good fit for the Company.

All in all, the fourth quarter of the fiscal 2010 year was solid and capped a strong 2010 fiscal year during which we strengthened our fundamentals and began more effectively leveraging our infrastructure as initiatives began to gain traction. We have been building momentum over the last several quarters and expect to take this momentum into fiscal 2011 to generate new and expanding business with greater revenue and continued profitability. Now I would like to turn this call over to Paula who will walk you through the financial results. Paula?

Thank you, Bruce. For the quarter ended June 30, 2010, revenues increased to $14 million, which is up 20% from $11.7 million in the same period last year. For the quarter ended June 30, 2010, net patient care revenues increased 21.9% to $13.2 million from $10.8 million for the same period in fiscal 2009. This increase is primarily a result of continued increases in censuses at Seven Hills, increased beds and census at Detroit Behavioral Institute's Capstone Academy and increased census at the chemical dependency unit at Harbor Oaks Hospital in Michigan, which opened in September 2009.

Total operating expenses for the quarter ended June 30, 2010 were $13.1 million as compared to $11.3 million in the same fiscal quarter last year. This reflects an increase in patient care expenses due to the increase in available beds contributing to the increase in patient census at our inpatient facilities, and includes increased payroll and service-related consulting expenses, including agency nursing, food and dietary expense increases and other direct expense increases. All of these increases were the result of increased patient census.

Income from operations improved 142% to $922,000 for the 2010 fourth quarter compared to $382,000 in the same period last year. Income before income taxes was $874,000 for the quarter ended June 30, 2010 compared to $317,000 in the same period last year.

Net income applicable to common shareholders was $439,000 for fiscal 2010 fourth quarter, or $0.02 per diluted share, compared to a net loss of $254,000, or a $0.01 loss per diluted share in fiscal 2009 fourth quarter, which included a loss from continuing operations of $250,000 and a loss from discontinued operations of $3500. For the fiscal year ended June 30, 2010, total net revenues increased 14.4% to $53.1 million compared to $46.4 million in the prior fiscal year.

Net patient care revenues increased 16.5% to $49.6 million for the fiscal year ended June 30, 2010 compared to $42.6 million for the prior year. While we experienced continued increases in census and patient treatment revenue for the full fiscal year of 2010, contract support services revenue decreased 10% to $3.4 million from $3.8 million in the prior fiscal year due to changes in contracts and covered lives.

Net patient care gross margins were 47% for fiscal 2010 compared to 44% for fiscal 2009. Total operating expenses for the fiscal year ended June 30, 2010 were $50.5 million as compared to $47.2 million in fiscal 2009 due to increased expenses related to increased patient census for the fiscal year. Administrative expenses were $19.1 million, or 36% of total revenue for fiscal 2010 compared to $18.7 million, or 40.3% of total revenues for fiscal 2009, demonstrating, as Bruce mentioned, greater operating leverage of our infrastructure.

For the fiscal year ended 2010, income from operations was $2.6 million compared to a loss of $799,000 in fiscal 2009. Income from continuing operations for the fiscal year ended June 30, 2010 increased $1.4 million from a loss from continuing operations of $1 million in fiscal 2009. Net income applicable to common shareholders was $1.4 million for the fiscal year ended June 30, 2010, or $0.07 per diluted share, compared to a net loss of $2.5 million, or a $0.12 loss per diluted share for the prior year, which includes a net loss of $1 million, or $0.05 per diluted share from continuing operations, and a net loss from discontinued operations of $1.4 million net of tax benefit, or a $0.07 loss per diluted share associated with the sale of Pivotal and related discontinued operations.

We generated $2.2 million in cash flow from operations for fiscal 2010 compared to net cash used in operations of $508,000 for fiscal 2009. As of June 30, 2010, we had cash and cash equivalents of $4.5 million compared to $3.2 million in the year-ago period. Working capital increased 35% to $8.2 million from $6.1 million as of June 30, 2009 and long-term debt, less current maturities decreased 40%. Stockholders' equity increased 7.6% to $17.3 million as of June 30, 2010 from $16 million for the same period last year. With that, I would like to turn the call back over to Bruce for additional comments.

Thank you, Paula. Our financial results demonstrate that we are now at a point where we are able to show notable growth and profitability based upon organic growth strategies that we have initiated. We are confident that these initiatives will help us maintain our momentum in fiscal 2011. We have achieved a compelling strategic position in an emerging industry and we are situated to benefit from the enactment of the healthcare reform legislation as more individuals will have access and a means for reimbursement of our programs.

The previous administration put forth proposals to mandate a quality in the benefits available to those individuals suffering from mental illness, the Parity Act. This act is now law and its implementation started to roll out in January of this year. This legislation will improve access to our programs, but its total effect on behavioral health providers cannot yet be assessed since the implementation is not fully complete.

However, there is a critical government need for behavioral healthcare services that we provide. For example, due to mental illness of the returning combat troops and family members, there is no current government delivery system to meet this need. As a result, the private sector, including Pioneer, is beginning to benefit by filling the void and we expect to generate additional revenue and contracts from defense-related programs this fiscal year and beyond.

Finally, we are developing plans to increase bed capacity in Michigan to capitalize on the increased demand for Pioneer programs. We very much appreciate the support of our investor base, and we look forward to updating you on our next conference call or anytime prior to that. Thank you very much for joining us today and operator, please open it up for questions.

(Operator Instructions). [Walter Schenker], [MAZ Partners].

Hi, Bruce.

Good morning, Walter.

I guess what I would like to do is get a better sense of Seven Hills, how it performed last year now that the year is open and what our expectations are to be given that we are sort of like waiting for Santa Claus or something like that. I'm not sure what it's like waiting for. And the question is what we might expect the coming year now that we have the full certification.

Well, Santa Claus took a long time to get to Las Vegas this year; there is no question about it and last, probably because there was no snow. Maybe that was the reason why there was such a delay in the certification. But in any case, I mean the good news is that the event is over. We are now fully certified. In mid-August or somewhere in that vicinity, we began to accept patients eligible for reimbursement under the Medicare program.

So our last fiscal year did not have any revenue from that, and as we began this fiscal year, we have had a slow sort of uptick in CMS patients. I can say positively that we have had periods of time that we have had five to six Medicare patients already in treatment at one time, and I think the word is just beginning to get out because, previously, the word was that we were not eligible to take those patients. So it is a matter of us getting to every potential referral, so it is every emergency room shift, every triage worker in the Valley so that they are aware that they can refer all patients to us. I mean we obviously made great progress when we opened our kids unit.

So the long and the short of it is that we are up and running, we are full speed, all patients can be admitted and in the last week, we have had fabulous occupancy at Seven Hills. We have actually had a couple of days that we have turned patients away.

So I think we are beginning to make traction. Last fiscal year, we lost money at Seven Hills, as reported in all the quarters. So the turnaround will be drastic and dramatic, and you will see the full impact of that in the October through December quarter because it will be a full quarter of open and operating with CMS patients. And also the certification opened up a couple of other government-related programs that we were not eligible for, and we have those contracts in place now. So we, like I said, we feel no differently about the need and the demand and the potential for profitability from Seven Hills and we are excited that we're finally at that point.

Okay, let me ask it more specifically. How much did we lose at Seven Hills last year?

I don't have those numbers in front of me, but I will be happy to get them to you once we issue the K on Friday.

Okay. And you would expect Seven Hills for the full year to be profitable this year?

For the full current fiscal year-end, I would more than expect -- it will be profitable for this fiscal year, yes.

Okay, so that is likely, excluding any external event in organic growth. That is likely to be the most significant swing factor year over year?

Absolutely.

Okay. And secondly, then I will get off, in the past, you have indicated a profitability target going for the -- that you had hoped this business would get to. That is still achievable once Seven Hills is fully up and performing as you expect?

We are still very confident in a 10% pretax margin when our business is fully rolled out and I have no hesitation in reaffirming that.

Okay, thanks a lot.

Michael Epstein, Northeast Securities.

Bruce, it has been awhile, but nice going for the year and looking forward to the new year. Capital expenditures for the new year, could you give us some sort of picture on that?

Not significant. We are doing some IT upgrades in some of our systems that will result in some increased capital expenditures. We continue to sort of spruce up our buildings each quarter and we will continue that. But nothing of the realm that we have seen when we built out Capstone initially and when we built out Seven Hills Behavioral Institute. So not a significant number.

Could you just give a quantitative number?

Probably $1 million.

Okay. And your cash at the end of the year is $4.5 million?

We are in a very strong cash position. We are generating good free cash flow. Our balance sheet continues to improve. We have unused lines of credit and cash in the bank.

Acquisition programs, do you have things in mind or is it too early in the cycle?

It is not too early. We have a full-time acquisition specialist. We are continuing to look at deals. We are very conservative, and it needs to be synergistic to our Company and accretive to earnings the first quarter out after the acquisition. So we are not taking acquisition risk, but at the same time, we do want to grow the Company.

Thank you, Bruce.

Thanks, Michael. Good to have you back.

(Operator Instructions). Michael Potter, Monarch Capital Group.

Hey, Bruce, how are you?

Michael, how are you?

Good, thanks. Another nice improvement. On Seven Hills, Bruce, I know on prior conference calls, you -- once Seven Hills was fully ramped and we have got the CMS approval that you thought it could be accretive by about $0.05 per share. Do you still anticipate that that is the case?

Yes, the swing will be at least $0.05 a share.

Okay, that's great. And you also mentioned that once we had the approval that there was an opportunity, and you brushed upon it in your comments on government contracts, I know we are extremely close to Nellis Air Force Base out there. Where does that opportunity stand?

It does allow us to have the TRICARE contract, which we were not able to have in the past, which opens us up to the employees and government dependents based at Nellis. So yes, it is -- I think it's the second or third largest base in the country and growing. So there is a good flow of potential admissions at a very high reimbursement rate from there.

What steps do we need in order to take in those people?

We have executed a contract. We are just waiting for the signed contract back from whatever the appropriate agency is. So there is nothing else we need to do.

So okay. So that is something that should hopefully be a fairly imminent catalyst?

Absolutely. Not huge volume, but again increased volume at good reimbursement rates. That, coupled with the CMS patients, which are also at good reimbursement rates. And also there is the Southern Utah market that we were not eligible for in the past that has a very high percentage of retired government employees that also will be eligible through the TRICARE program that we were not able to accept previously to that.

And where does that stand?

It is the same contract, so I think -- I mean it could be in the mail today, it could be in the mail next week, so it is imminent.

So the TRICARE contract gives us kind of a blanket approval to work with all government agencies?

Well, all government agencies that have employees insured short by TRICARE --

Got you.

-- which is generally the dependents of the military and a lot of retired military. So it is a big population, especially in Nevada and southern Utah.

Okay, all right. I know we didn't break out the fourth quarter, but I'm trying to back into an EBITDA number. Do you have the depreciation and amortization and perhaps the stock expense for the quarter?

I don't know if Paula has that in front of her. The net income before taxes for the fourth quarter was $873,000 for June 30, 2010 compared to $317,000 for June 30, 2009, a nice increase. Revenue was up 20% and I don't know if Paula has the stock expense or the depreciation -- she is looking while I am talking actually. If not, we can get it to you very quickly.

Depreciation and amortization for the quarter was $293,500.

$293,500 for the quarter.

Okay.

So we can add that back to the $873,000 (multiple speakers).

I'm sorry. Stock expense?

And the stock expense, it is probably insignificant for the quarter because it wouldn't be the stock purchase expense. It is insignificant, I think.

For the year -- you are talking about --

We will get you that number in the next day once we get the K filed.

Just one other question. For Q4, Bruce, was Seven Hills profitable?

No, it was not.

Okay. So we are going to have a significant swing then?

Absolutely.

All right. Terrific.

We didn't get the CMS approval until after the fiscal year was over.

Yes, I know, but I'm just remembering back from Q3, you were close at that time.

We had periods of time that we had profitable days and/or weeks, but aggregately, it was not. So yes, the swing will be dramatic for the full fiscal year.

Terrific. Thanks, guys.

Thanks a lot for joining us. Operator, it doesn't look like we have any other questions.

No, sir. That's correct.

Well, thank you all for joining us and again, if you have any questions, feel free to call us directly once we get the K filed, which will be in the next 48 hours or so. Thank you so much for your support. Again, we are very enthusiastic about the year that we are in and the future for Pioneer. Thanks and have a wonderful day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.