Acadia Healthcare Company Inc (ACHC) 2011 Q4 法說會逐字稿

Good morning. I'm Brent Turner, Co-President of Acadia Healthcare. I'd like to welcome you to our fourth quarter 2011 conference call. To the extent (inaudible) [GAAP] measures discussed in (inaudible), you may also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on the Company's website by following the Investor Relations link to Press Releases and viewing yesterday's news release.

This conference call may contain Forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others, regarding Acadia's expected quarterly and annual performance for 2012 and beyond. For this purpose, any statements made during the call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify Forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Acadia's filings with Securities and Exchange Commission and in the Company's fourth quarter news release and consequently, actual operations and results may differ materially from the results discussed in the Forward-looking statements. The Company undertakes no obligation to update publicly any Forward-looking statements whether as a result of new information, future events, or otherwise.

At this time for opening remarks, I will now turn the conference over to our Chairman and Chief Executive Officer, Joey Jacobs.

Thank you and good morning. Welcome to Acadia's first conference call since we became a public Company on November 1. It's great to have our team back together again in a public Company focused on providing high quality behavioral health services. We believe the growth trends of this segment of the healthcare industry are very attractive for a young Company like Acadia, especially with the experienced team we've assembled. We've already taken significant first steps to leverage the opportunities before us. I'm here today with some of our executive management team, Brent Turner, Jack Polson, Ron Fincher, Trey Carter, and Chris Howard. Bruce Shear is joining us by phone. I've got some brief remarks about our recent and expected performance and I'll ask Jack Polson, our Chief Financial Officer, to review our fourth quarter numbers and our financial guidance in more detail. Then we will take your questions.

The fourth quarter 2011 was a momentous period for Acadia. We completed the acquisition of PHC during the quarter, became a public Company listed on NASDAQ, and initiated and closed a 150 million senior notes offering and an equity offering that raised net proceeds of about $68 million. With only 2 months of the PHC acquisition in our fourth quarter results, our total revenue was nearly 5 times the size of our revenue for the fourth quarter of 2010. Looking back, Acadia started 2011 with 6 inpatient psychiatric facilities and about 400 beds. At year end, we had grown to 29 facilities with about 1,950 beds. Acadia's revenue was $64 million for 2010. Pro forma revenue for 2011 was $337.6 million.

Our primary focus going forward is organic growth and revenue and profit contribution from our existing facilities. Our ability to drive top-line growth is supported by very favorable industry dynamics including demographics, improved access, pricing trends, barriers to entry, and long-term industry shortage and capacity. We combined the positive effects of these dynamics through our own initiatives at each facility. Our ability to expand the number of beds within a facility is very important. Since the end of June last year, we have added approximately 124 new beds of which 112 are acute beds. We also take advantage of opportunities to convert existing underutilized RTC beds to acute psychiatric beds and completed 42 such conversions in the second half last year. Through this focus on acute beds we are not only supporting increased revenue per patient day across our facility network, but we were also steadily diversifying our revenue streams to provide better balance to the revenue contribution from our RTC business which is primarily reimbursed by Medicaid.

In addition to the operating leverage we gained through revenue growth, we focused on initiatives to build efficiency and productivity in each facility. Based on our extensive experience in improving the operations of inpatient facilities, we expect to see long-term progression in facility EBITDA margin to above 20% of revenue. Complementing our strategic focus on organic growth, we will also continue to pursue select accretive acquisitions. We have the experience and expertise to take advantage of the market opportunities and the ability to successfully fund acquisitions of facilities with leading market share and attractive growth potential. Consistent with the acquisition we closed on March 1, a transaction of 3 high quality acute inpatient psychiatric facilities with 166 beds, we are focusing this strategy primarily on the acute inpatient business. We expect these acquisitions will diversify our revenues geographically, just as this latest transaction did by taking us into Oklahoma, our 19th state.

In addition, consistent with our initiatives to add and convert beds in existing facilities, we expect these acquisitions to better balance revenues between our acute and RTC businesses, further diversifying our revenue streams. Our expectation is that our mix of acute beds and RTC beds will be approximately 50/50 within the next 18 months. As we implement our growth strategy, we expect to build a behavioral healthcare platform providing the highest quality patient services to patients and their families.

Now I will ask Jack Polson to review our financial results for the fourth quarter and discuss our guidance for 2012.

Thanks, Joey, and good morning. Acadia's revenue for the fourth quarter of 2012 was $77 million. Adjusted net income from continuing operations for the quarter was $3 million or $0.13 per diluted share. These adjusted results exclude pre-tax costs of $28.1 million primarily related to the acquisition of PHC during the quarter. On a GAAP basis, we had a loss from continuing operations for the quarter of $14.6 million or $0.66 per diluted share. Adjusted EBITDA for the quarter totaled $13 million. As far as operating metrics, our [same] facility group, which represented 6 facilities in 2011, showed solid increases in revenues and patient days up 14.4% and 22%, respectively, for the fourth quarter of 2011.

For 2012, we've established financial guidance for earnings per diluted share in a range of $0.66 to $0.69 for the full year. Our guidance for the first quarter earnings per diluted share is in a range of $0.10. Our financial guidance does not include the impact of any future acquisitions. This concludes our prepared remarks this morning and thank you for being with us.

I will now ask our operator to open the floor for your questions.

(Operator Instructions)

Kevin Campbell, Avondale Partners.

Good morning, guys. This is Ryan Warren in for Kevin. I have a couple of questions, the first of which is, what were the revenues associated with discontinued operations in the quarter?

I don't have the disc op detail with us now. That's information we can get you, but it wasn't very significant. They were primarily operations that had ceased to continue.

And then also on the pricing side, same-store pricing looks like it was down 8%. Can you speak to and give us a little bit more color as to what's driving that change as you shift to acute?

Kevin -- I mean, Ryan, this is Joey. What happened there is, the number of RTC patient days during the last six months of last year we completed two projects. One was a 48-bed renovations and openings of RTC beds that were already in the works. So those beds, those patient days caused the mix and the revenue per day in those numbers that you see, and it was just a mix of the patients.

Okay, okay. Thanks a bunch.

(Operator Instructions)

Dana Vartabedian, Deutsche Bank.

Hi, how's it going? Just a quick question. Can you describe qualitatively how YFCS performed in 2011 versus 2010, and I guess give your expectations for Medicaid pricing this year?

Sure, the first is -- I'll take the Medicaid pricing. We have internally budgeted Medicaid pricing to be flat. There will be a few states that will have small decreases, and we think there will be a few states that will have small increases, so internally we have used the assumption that Medicaid pricing will be flat for the Company. Now, we do have our national referral center that helps our payer mix a little bit by placing patients from other states in our facilities that would have a little bit higher reimbursement. So there are some things we can do to help change the revenue per day from the Medicaid population that we serve.

The other question on YFCS, we do not give that kind of individual data. I do not even have it with me today. We do have expectations that YFCS, the things that we've been doing in 2011, that they will do better in 2012. Quite frankly, one of the facilities we've got, we've already expanded it once, and they're already going through another expansion. So, we've got a lot of activities going on with those facilities, and we expect them to perform much better in 2012 than they had previously, but we do not give the individual details.

Okay, thank you.

Nicholas Jansen, Raymond James.

Hi, guys, obviously a lot of moving parts for the fourth quarter, but just, I know you gave, when you were -- during the [offering] you had pro forma numbers out there so maybe if you just give us the annual 2011 pro forma if everything was in for revenue in your definition of adjusted EBITDA, that would be helpful.

Sure, Nick. For 2011, revenue was $337.6 million. That's pro forma for all the operations for the year and that's before bad debt. We have adopted the -- netting bad debt off of revenue so if you take that down, it would net down at $330.4 million for the year. I will give you the same numbers for the fourth quarter because again, Pioneer was only in for two months. Revenue before bad debt would have been $85.4 million, and revenue would have been $83.4 million. And then the adjusted EBITDA is what's reflected in the release, which is the $13 million for the fourth quarter and the $53.7 million for the year.

Okay. Thanks a lot. That's very helpful. If you think about 2012, with your expectations, is that EPS number that you give, is that with or without stock options? Just want to get a sense that we're making sure we're modeling this correctly.

Sure. That is inclusive of stock option expense.

Do you have a number for that you think for '12?

For the dollar amount of stock option expense?

Yes.

It will be less than $2 million. It's what we're modeling out.

All right. Very helpful, guys. Thanks for all the color.

Kyle Smith, Jefferies.

Good morning. Congratulations on a pretty active 2011. Joey, I think you've said that your personal goal is to get the Company to about a $1 billion revenue run rate by the end of 2014 which is fairly close to the growth trajectory that you had at PSI from ['03, '06]. Do you think there's an opportunity to go even faster as you have over the past year, or should we expect something similar to that pattern that you had back there eight years ago?

I think my statement of trying to be at a $1 billion run rate by the end of 2014, I don't think we can do another year like 2011, 5 times the revenue. We don't expect that. But if we can take this $330 million at the end of the year, add $40 million for the Haven transaction, and then just grow same store and make acquisitions, I think it's very doable to get to the $1 billion by then. That would be a nice growth for us, and a great goal for us to achieve, so that's our goal. As you know, we are opportunistic, but right now that's my personal goal is to be at $1 billion run rate by the end of 2014 for revenue. So I think we have a great chance of doing that, and with just good execution on growing organic growth and making good acquisitions, we can get there.

Okay. Where you sit today, is management bandwidth pretty well tied up on the [RTC to acute] conversions and the integrations of [facilities] you've acquired, or do you still have room to go out and look at new opportunistic transactions over the next weeks and months?

We're always looking at new transactions. We're busy convert -- doing bed conversions and bed [growths] within the existing facilities, but we are looking, and we have an aggressive pipeline that Trey Carter heads up for us. We're looking at quite a few opportunities.

Fantastic. Thanks again, and congratulations again.

Gary Taylor, Citigroup.

I jumped on four minutes late and we're already into the Q&A so I guess the opening remarks must have been short. I apologize if I missed this. I wanted you to walk through, for 2012, cash from ops, CapEx, you've already said the maintenance 2%, and then [de novo room] conversion, but if you've already done that and I missed that, I will just go back and look at the transcript.

No, we haven't, Gary. So, again, you want cash from ops from 2012 --

And then break down the CapEx between maintenance, de novo beds, conversion beds, maybe put those in the same category. Put --

Gary, I think could you use 1.5% for maintenance, would be a good number there. I think on the conversions of the -- right now I'm looking at about -- we're looking at 150 beds that we'll be doing or bringing on-line. Some of the money we've already spent on those beds. That's probably another $10 million, something there, $10 million to $12 million for those beds.

Got it. And then on -- is there just some pure new bed growth, or is it primarily just conversion of RTC to [acute] --

No, what I just gave you, those 150 beds I just talked about is just pure bed growth.

Okay. Those are all acute?

Yes.

I think at one time a few months ago, I think we had a rough schedule of the expectation for the timing of those openings. So when you think about '12, is there any particular quarter where there's a bolus of those 150 beds that would open, or should we just assume fairly [ratable] or back half or --

We have a little bit better look at visibility into it now. I would put 45 beds in each of the second and third quarter, and then I would put 60 beds in the fourth quarter, is how I'm looking at the 150 beds.

Got it. My one other question, just on the same-store occupancy, which I know is a minority of the business and just the legacy assets, it looked like that number was in the mid-70%. I know it was impacted a little bit by some bed conversions, et cetera. Where do you think that same-store occupancy number on the legacy assets moves over the next 12 months? Should we be thinking that number goes -- ought to go to 80%?

I think it has a great chance to go to 80%. We have one facility, Gary, and I don't have the details with me, but we have one facility that's probably has 30 more licensed beds than we'll ever use. So that hurts that number a little bit when you are looking at it. So those six legacy facilities absolutely could get to the 80% occupancy, and maybe even a little bit higher.

So those 30, that's not even a staffed bed number --?

No, no.

(multiple speakers) licensed number?

Yes.

Okay, that's all I had. Thank you.

Frank Morgan, RBC Capital Markets.

Yes, let me go back to one of Gary's. That cash flow from ops number, I think you talked about all the CapEx but not the actual cash flow from ops number for '12 so let me get that first?

Sure, Frank. That's going to be in the $27 million to $30 million cash flow from ops.

Okay, thanks. Other question for Joey and everybody, as you look at your growing backlog of acquisition opportunities, is there any way you can characterize that in terms of -- is it new stuff you're seeing that you've never seen before? Or are these some opportunities that were in the backlog coming from your days in the past, or -- just any characterization you can give about how that backlog is building and has anything changed in the opportunities? Thanks.

Frank, because we have so much knowledge of the industry, 80% of the acquisitions that we're looking at, we know about. Do we ever take a deep dive and look at them? Probably half of them we did, half of them we didn't. There is between -- there is roughly 20%, maybe even a little bit higher, as we get more traction this year, that we're going to do some that are brand-new to our list, and are very exciting opportunities. Trey's got probably at least five transactions that are new to us and are very, very exciting, but once again, we know about them, we're working them. Do they close this year? Do they close next year? We'll just have to wait and see. But we do have -- probably 20% of the opportunities, if I was to look at the list right now, are just things we didn't know about or didn't think would be able to be a part of Acadia.

Any different buyers or potential competing buyers you see out in the marketplace today versus the past, and do you see as much out of UHS these days? Thanks, and I'll hop off.

We really don't see any new really aggressive buyers in the market. So it's basically us and the other company, so, looking at transactions.

Okay.

Brendan Strong, Barclays Capital.

Hi, good morning. Maybe, Joey, first starting off, what's the -- you mentioned getting to a 50/50 mix of RTC, acute over the next 18 months. Where does that stand today?

Right now, I think after the Haven transaction, we're right at 60%.

Okay. And what's driving that? Is it -- or, actually you know what? Let me step back. When you are looking at acquisitions, are you seeing more RTC or more acute?

We're seeing more acute.

Okay, okay. And then, in terms of diversifying the mix of business towards the acute business, is it more driven by trying to lower exposure to Medicaid, or is there something else that you just [see] the economics is better on the acute side?

We think having as diverse a revenue as you can, from as many different payers is a benefit to us and a benefit to this industry. We saw that at the former company, that the 50/50 gave us very stable revenues from very stable payers, a broad base of payers. So, based upon our prior experience, we think the best position for Acadia and its exposures to Medicaid or states' Medicaid or to Medicare or commercial payers is when you have a 50/50 blend of beds. So, it's just our past experience driving that -- wanting to get to that great diversification of revenues.

Okay. Then maybe just two other questions. On the acquisition side, are you guys -- it almost sounds like you guys are out there prospecting and trying to get people that aren't sellers to be sellers. Is that part of the strategy here?

We're just -- [people] that have psychiatric assets. We're just making them aware that we're out here, that if they wanted to divest, or whatever with those assets, that there is someone that would work with them on trying to make that happen. So there is still stress out there. Some of these are Med/Surg hospital companies that have some psych facilities, and maybe that's not the real business they want to be in, and there's an opportunity now to sell those facilities. So, Trey and -- he has a couple of individuals that work for him. They're doing a great job of prospecting, as you say, and just making people aware of Acadia and what our strategy is, see if there's something we could do to make it work.

Yes, I'm just wondering, does that result in you guys seeing some deals that you guys are only seeing and no one else is seeing, or you guys just want to make sure that you're in the mix?

I think in the next 24 months, we will do deals that no one else saw.

Okay, great. My last question, and I apologize, I don't even know how much exposure you have to it these days, but on psych PPS, is there anything you're expecting in the upcoming rule? Do you think there are some changes next year or do you think it's more likely that CMS is just happy with the outcome of psych PPS and isn't going to make any changes to it? Thanks.

Sure, Brendan. This is Brent. I think a couple points on the psych PPS. I think it's clear that, that conversion to prospective payment was very successful overall. Expenditures in that four-year phase-in period in total only went up 3%, and some of the items that MedPAC reported out, those dynamics were the same before the conversion, when the Medical/Surgical hospitals having higher cost basis than a larger freestanding operator. So [because] our view, we did not anticipate any changes in 2012 around PPS, and then we'll obviously just stay attuned going forward, but we would think it would be more on the margin at best, any tweaks to the system, because again, it's been very successful. That Medicare population is growing each and every year going forward. So, that's our view as we sit here today.

All right, thanks a lot, guys.

At this time, I will turn the conference back over to Mr. Joey Jacobs to offer any additional or closing remarks.

Thank you. I know there's some Acadia employees listening in to this call, and I just want to thank them for all their hard work and taking care of our facilities and our patients and their families. We'll be talking to you at the end of this first quarter. Thank you.

That concludes today's conference. Thank you for your participation.