Acadia Healthcare Company Inc (ACHC) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the First Quarter 2011 Pioneer Behavioral Health Earnings Conference Call. My name is Regina, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session.

(Operator Instructions)

As a reminder today's conference is being recorded. I would now like to turn the conference over to your host for today, Mr. Cameron Donahue with Hayden IR. You may proceed, sir.

Thank you, and good morning. 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 that this call is being broadcast over the internet and that a recording of the call and a text of our prepared remarks will be available on our website.

I would also like to direct the listeners' attention to the Safe Harbor statements contained in our press release issued today and posted with these prepared remarks, both of which apply to the content of this call.

I'd now like to turn the call over to Mr. Bruce Shear, PHC Inc.'s President and CEO, to provide opening remarks. Bruce, congratulations on a strong start to fiscal 2011.

Thank you, Cameron, and after I speak and before Paula comes on, Cameron will come back on and read the Safe Harbor statement, which we'll get started, Cameron. Anyways, thank you and welcome. Thank you. Good morning, everyone, and thank you so much for joining us today.

We reported our seventh consecutive profitable quarter this morning and continued our positive momentum, as demonstrated by the financial results for the quarter. We grew sequentially and year-over-year in all relevant metrics, revenues, gross margins, operating income and net income. Sequential revenue growth for our first fiscal quarter of 2011 increased by 6.9%.

Sequential and year-over-year profitability was even more impressive. Sequentially we grew income from operations by 25.5% and sequential net income increased by 35.4%. Paula will provide more details of our year-over-year increases later in the call.

In addition, we continue to experience economies of scale as we leverage our infrastructure more efficiently. This is reflected in the decrease in total expenses as a percentage of revenues by 5.4% to 91.8% in fiscal first quarter 2011 from 97.2% in the fiscal first quarter of 2010.

During fiscal first quarter 2011 we experienced great progress related to our state-of-the-art Seven Hills Behavioral Institute in Henderson, Nevada, which will help us continue our growth in the future. The Company obtained Centers for Medicare and Medicaid Services approval for Seven Hills, which enabled us to immediately begin to accept patients enrolled in the Medicare program.

In fact, Seven Hills achieved profitability in September, the first full month of profitability for this facility since it started. And we expect this profitability to continue to grow. We are beginning to get the word out to the emergency rooms and the triage facilities locally that Seven Hills is now accepting patients eligible for Medicare.

As a matter of fact, in September we had to turn patients away on a number of occasions. This eligibility has opened up several new programs that we couldn't participate in before that will further add to our census and improve our improve our mix at Seven Hills. Seven Hills facility is expected to be a key revenue driver projected at approximately $12 million annually.

For the 2011 fiscal first quarter, net revenues per patient day increased 18.9% to $545 a day from $458 a day in the same period in fiscal 2010. We continue to experience strong census growth across our facilities and believe there will be additional opportunities for organic expansion. We currently have the infrastructure in place to generate significant additional revenue without an increase in the number of beds.

Our balance sheet continues to improve as well. We increased working capital and shareholders equity while decreasing long term debt. Our strengthened balance sheet positions us well for any potential acquisitions that may come across. As a result of our continued financial improvement, our Board of Directors have authorized the repurchase of up to one million shares of our Class A common stock for a one-year period commencing July 1st, 2010.

Our previous stock buyback program was successful and it was scheduled to expire at the end of the fiscal year on June 30, 2010. For the first quarter of this fiscal year ended September 30th, 2010, we purchased -- we repurchased -- or purchased approximately 100,000 additional shares at an average price of $1.11 per share. All in all, the first quarter of fiscal 2011 was excellent.

It continued the outstanding results we generated latter in 2010, during which we strengthened our fundamentals and began to more effectively and efficiently leverage our infrastructure.

Now I'd like to turn the call over to Paula, who will take you through some of the financial results. Paula?

Thank you, Bruce. For the three months ended September 30, 2010, total revenues increased $15.1 million, which is up 19.2% from $12.6 million in the first quarter of the prior fiscal year. For the first fiscal quarter of 2011 ended September 30, 2010, net patient care revenues increased 21% to $14.2 million from $11.8 million for the same period in fiscal 2010.

This increase in revenue is due primarily to increased census at Seven Hills Hospital in Las Vegas, a retroactive increase from a large payer at Harbor Oaks Hospital, and a state Medicaid rate adjustment.

Total operating expenses for the quarter ended September 30, 2010 were $13.8 million as compared to $12.3 million in the same fiscal quarter last year, primarily due to increased census at Seven Hills Hospital Las Vegas and higher utilization under our capitated contracts, with the majority of the increases in expenses directly related to patient care.

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 expenses, hospital supplies expense, housekeeping expense and lab fees.

Income from operations improved 247.4% to $1.2 million for the 2011 fiscal first quarter compared to $356,000 in the year-ago period. Income before taxes was $1.2 million for the three-month period ended September 30, 2010 compared to $357,000 in the year earlier period.

Net income applicable to common shareholders was $679,000 for the fiscal 2011 first quarter, or $0.03 per basic and diluted share, compared to net income of $224,000, or $0.01 per basic and diluted share, in fiscal 2010 first quarter.

As of September 30, 2010, we had cash and cash equivalents of $3.1 million compared to $4.5 million as of June 30, 2010. Working capital increased 5.9% to $8.6 million as of September 30, 2010 from $8.2 million as of June 30, 2010. And long term debt less current maturities decreased $205,000 as of September 30, 2010 from $292,000 as of June 30, 2010.

Stockholders equity improved 3.6% to $17.9 million as of September 30, 2010 from $17.3 million as of June 30, 2010.

With that, I'd like to turn it back over to Bruce for additional comments. Bruce?

Thanks, Paula. Our quarterly numbers and statistics are strong, providing further evidence that our business plan is taking hold. Our focus for the remaining quarters of this fiscal year is to continue to improve our bottom line and strengthen our balance sheet. Our company has a number of additional opportunities that will help drive revenue, profit and growth.

These opportunities are spread across all of our business units and include the government sector, Indian Health Services, the Veterans Administration and a number of other state and privately funded opportunities. As I previously mentioned, there'll be over two million military personnel who have served overseas.

As they return stateside, the need for behavioral health services will continue to grow, providing more opportunities for company's such as Pioneer. We will continue to focus our energies on these new revenue sources, as well as opportunities to improve our current margins.

Prior to turning the call over for questions, Cameron would please read our Safe Harbor statement and then, Operator, you can queue the audience for questions.

Thank you, Bruce. I'll just go over the Safe Harbor. This conference call contains 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 in this conference call. For a discussion of these factors and risks, see the Company's annual report on Form 10-K for the most recently ended fiscal year.

Thank you. operator, you can now open the call for questions.

Perfect. (Operator Instructions). Your first question today comes from the line of Walter Schenker with [Moss Partners].

Hi, Bruce. Can you hear me?

I actually can hear you, Walter. Good morning.

Oh, good. Good morning to you. Two things. First, do you want to at least address, I may have missed it because I'm on a cell phone, the reserve against receivables in the quarter.

And secondly, can you sort of walk us through what's necessary to get what you referred to that's the 10% margin over the next two or three, one, two, three quarters in the second half of the fiscal year, just what steps are required to get us there?

Okay. Well, first of all, in terms of the accounts receivable, as you can see, we had an increase in bad debt expense over the quarter. It was related to three items, primarily onetime events.

The first one is the new Medicare program that we have not been able to bill for at Seven Hills Behavioral Hospital. So that amount is aging out. We do have a window of plenty of opportunity once we get the final billing numbers, which we actually just received, to collect on those receivables. So those are not an issue.

The second -- the second issue is that we made a determination as a company to be a little bit more conservative on our reserve. And we bumped up some of the earlier periods up to 100%, so sort of a onetime catch-up. And I think we just wanted to be as conservative as possible, so that did impact the bad debt expense.

And there's one payer in Michigan that we're still working with that we don't really have -- we anticipate that we'll be paid in full, but it went outside of the Q. So I guess the good news on the bad debt expense issue is that even with the higher bad debt expense for the quarter, the numbers were still very strong.

And number two, we're not too concerned about those two longer payers that they [ultimately will be pay]. But we have to continue to stick to our formula based on an aging.

To answer your second question in regards to how do we get to 10%, I think this was a very good -- this quarter was a very good indication as to how we're going to get there. The first impact is the turnaround of Seven Hills Behavioral Institute. And that will have a dramatic impact on our company.

As I mentioned both in the press release and the conference call, we do have a high degree of fixed costs, so as we generate new revenue, it does continue to improve our margins. So I think you're going to continue to see that with the turnaround at Seven Hills. Now, remember, this quarter only had one month of profitability in Seven Hills, so Seven Hills did still lose money for the quarter ending September 30th. And we don't anticipate that going forward.

And we're always looking for new business. We have a number of opportunities that we think will add increased margins to our book of business.

I'm sorry, and just to follow up on the first part of the answer, therefore it would be reasonable to expect something lower on a proportional basis on the receivable reserves going forward?

Absolutely. As a -- as bad debt is a percentage --

[inaudible - microphone inaccessible]

-- of net revenue. Yes.

Okay. My final comment, which is not a question, you got a great price, but it would have been nice if you'd bought more stock.

We're trying our best. It's hard -- it's hard for a company to buy stock in the open market. That's for sure.

Okay. Good job, Bruce. Thank you.

Thank you so much for your support.

Your next question comes from the line of Eric Stephens with Renn Capital.

Hi, Bruce. I'm not sure what terminology you use to describe it, but can you speak to your percent vacancy or utilization, however you see it, how many beds are in use at any given time and how much room you have to grow just within your existing facilities?

I don't have the exact numbers in front of me, Eric. But we call it occupancy.

Okay.

And we define occupancy by the number of occupied beds on a given day based on the number of available beds. We do have room for growth in most of our facilities. So without adding new additional beds, those incremental patient days is the highest margin of our business because our fixed costs are pretty much set. So adding one or two patients to any given facility has a huge increase to our margin contribution.

Okay. Can you talk a little bit about your marketing and where your new business comes from? Do you receive referrals from other hospitals? Can you give us just a little flavor for where the business comes from?

Sure. Our primary referral sources are made up of major corporations that we have national contracts with. As we've mentioned in the past, we are the largest provider of behavioral health services to both the gaming and the transportation industries in the country. We have under contract well over a million employees that we have a relationship with their companies that prefer to use a Pioneer Behavioral Health facility.

Secondarily, we do receive (inaudible)

Hello?

I apologize. There must be an issue. Hold on one second while we get Bruce's line active again.

It appears that he dropped. Ladies and gentlemen, one moment. Ladies and gentlemen, you're going to hear music for just a moment while we try to get Mr. Shear back on the line.

Ladies and gentlemen, thank you for your patience. We're experiencing some technical difficulties at this time. We should have our speaker back on the line in just one moment.

Ladies and gentlemen, thank you for your patience. Your conference call will begin in just a few more moments. Mr. Shear?

Yes?

Excellent. Ladies and gentlemen, Mr. Shear has rejoined us. Let me --

Okay, Eric, it wasn't your question. Something went dead here. I believe I answered Eric's question, Operator. And if I didn't, Eric, please ask further. Or if we have another question, let's put them on the line. And again, sorry for the inconvenience as to what happened here.

Operator, do we have other questions?

Your next question comes from the line of John Evans with Edmunds White Partners. And your line is open, sir.

Thank you.

Hey, Bruce. You talked about that you were profitable for one month in your Seven Hills. I guess can you help us understand maybe how much you lost in that facility for the quarter, and then can you help us understand kind of the outlook for the fourth quarter? I assume it should be accelerating now that you've gotten approvals.

Yes, John. We lost $148,000 for the September quarter at Seven Hills compared to a loss of $443,000 for the September '09 quarter. So we'll continue to see an up-tick turnaround in the current quarter that we're in.

Got it. Do you -- I guess have you seen your number of beds continue to increase? Can you give us any thoughts there? And do you think you'll be profitable or at least breakeven for the quarter at Seven Hills?

Yes, we think we'll be at least breakeven and most likely profitable. The only thing that we don't have, the December quarter is seasonally the weakest quarter on inpatient hospitalizations. So, but we were profitable and we anticipate that we were profitable for the month of October, and we're moving in the right direction.

And then one last question. Can you just give me your outlook or your thoughts on the contract support services, that is the one piece of your business was down a little bit year-over-year. How do you see that kind of trending this year?

Well, actually, we have a couple of irons in the fire in that regard. And some of those contracts, actually one of them was related to covered lives of an employee assistance contract that we had. But we have a couple of strong possibilities that when they come home will actually increase that latter half of this fiscal year.

Got it. And I'm sorry, I apologize, one last question. Just from a census standpoint, the December quarter tends to be your weakest and then you build momentum in March and then the June quarter continues to be robust?

Correct.

Great. Thank you.

Thank you.

And as we have no further questions at this time, I'd like to turn the call back over to management for closing remarks.

Thank you very much. And we're sorry about the technical difficulties there. If I missed any questions, please feel free to call us directly at the office and I'll be happy to respond. We appreciate your support and the support of our investor base and we look forward to updating you in the next conference call and reporting a continued strong result. Have a wonderful day.

Ladies and gentlemen, thank you so much for your participation in today's conference. This concludes the presentation and you may now disconnect. Have a wonderful day.