Acadia Healthcare Company Inc (ACHC) 2012 Q1 法說會逐字稿

Please stand by. As a reminder, this conference is being recorded. Mr. Turner, please go ahead, sir.

Thank you and good morning. I'm Brent Turner, President of Acadia Healthcare, and I would like to welcome you to our first-quarter 2012 conference call. To the extent any non-GAAP financial measure is discussed in today's call, 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 today's news release.

This conference call may contain forward-looking statements within the meaning they Private Securities Litigation Reform Act of 1995, including statements among others regarding Acadia's expected quarterly and annual financial performance for 2012 and beyond. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, participates, 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 the Securities and Exchange Commission and in the Company's first-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 their conference call over to our Chairman and Chief Executive Officer, Joey Jacobs.

Good morning. Welcome to Acadia's first-quarter conference call. I'm here today with Jack Polson, our Chief Financial Officer, and other members of our executive management team. Jack and I will make some brief remarks about our recent and expected performance. Then we will open the line for your questions.

Our first-quarter results show that we got off to a great start in 2012. We had strong revenues that were consistent with our expectations for the quarter, and our adjusted earnings of $0.11 per diluted share for the quarter was $0.01 above our guidance. Based on this performance, we are today affirming our established guidance for all of 2012, which Jack will review shortly.

As detailed in our press release, same-facility revenues increased 13.8%, producing a strong same-facility EBITDA margin of 24.6%. We were also pleased with the EBITDA margin for all our facilities, which was 20.7% for the quarter. We believe we have additional capacity for our improvement in the same-facility margin, and the total facility margin shows we have an even greater improvement opportunity over time with the acquired facilities.

We continue to expand the number of beds within our existing facilities. During the first quarter, we added 119 new beds, and we expect to add approximately 140 new beds to existing facilities during the last three quarters of the year. The revenue growth we produced in these facilities generates operating leverage in a high fixed cost business. Our programs to build efficiency and productivity in each facility enhance this operating leverage contributing to margin expansion. Based on -- because of favorable industry dynamics and our extensive operating experience, we are confident our existing facilities represent a significant and long-term opportunity for producing organic growth and revenue and profit contribution.

The Company will also continue to pursue select accretive acquisitions with a focus on acute psychiatric facilities. In addition to geographic diversification, this focus will diversify our revenue stream and improve revenue per day across our facility network. Our goal over the next 18 months is to reach approximately an even split between acute and RTC beds.

In closing, we are in a great segment of the healthcare industry, which has consistent and attractive growth dynamics. Our management team has a strong record of success both in driving organic growth in the behavioral health market and in completing and integrating accretive acquisitions. We look forward to updating you on our progress after our second quarter, and now here is Jack Polson to discuss our numbers.

Thank you, Joey, and good morning. Acadia's revenue for the first quarter of 2012 was $91.3 million compared with $16.8 million for the first quarter of 2011. Adjusted net income from continuing operations for the first quarter was $3.5 million or $0.11 per diluted share compared with $1.3 million or $0.07 per diluted share last year. These adjusted results exclude transaction expenses and an immaterial amount of sponsor fees in the first quarter of last year.

On a GAAP basis, income from continuing operations for the first quarter of 2012 was $3.4 million or $0.10 per diluted share compared with a small loss in 2011. Our same-facility revenue for the first quarter increased 13.8% due to strong growth in patient days. The same-facility EBITDA margin rose 30 basis points to 24.6% compared with the first quarter of 2011. The addition of 27 acquired facilities during the latest 12 months accounted for a comparable quarter decline in total facility EBITDA margin to 20.7%.

I will also note that the decline in revenue per patient day on a total facility basis reflects the changing mix of beds due primarily to the YFCS acquisition in April of 2011.

Acadia's consolidated adjusted EBITDA for the first quarter was $15.2 million or 16.7% of total revenue. For 2012 we established financial guidance for earnings per diluted share in the range of $0.65 to $0.67 for the full year. Our financial guidance does not include the impact from any future acquisition.

This concludes our prepared remarks this morning, and thank you for being with us. I will now ask the operator to open the floor for any of your questions.

(Operator Instructions). Art Henderson, Jefferies & Co.

Very nice quarter. Joey, could you first talk a little bit about the opportunities for margin expansion internally, where you think that same-facility number could conceivably go, and I guess what you are doing internally to rationalize costs? If there is anything you can give us on that, that would be helpful.

Well, as stated in our press release, I want to focus on our consolidated EBITDA margin of 16.7%. I think that margin, the opportunity there is still between 400 to 500 basis points for us. We are off to a great start by adding the beds in the first quarter and the remaining part of this year, and with that leverage, you will see the improvement in the margin. And, as compared to the same quarter last quarter, it was 15.4%, so 130 basis points improvement from 15.4% to 16.7%.

I think you will just continue to see good improvement there and, on the expense side, the ability to spread our IT costs. None of our facilities have been in a group purchasing organization, and we are -- our ability to leverage the purchase of benefits for our employees, our insurances across all lines, so on the expense side there. And but, as we have said before, 80% to 90% of our margin improvement will be coming from that incremental patient day growth and holding expenses and then letting that fall to the bottom line. But they are expense areas that we are also focused on.

Can you touch on the M&A pipeline right now and where you stand as far as -- obviously I'm not asking for specific acquisition prospects, but just where you stand in those that you are really getting close to closing or announcing something.

As you know, we purchased three facilities March 1 from Haven, so we very much have enjoyed that transaction. It is well on its way to being integrated into the Company, and quite frankly, two of the three facilities have already started work on their expansions, and the third one I think by July 1 will be kicking off an opportunity there to expand at that facility, too. So we are very pleased with those.

Our pipeline is very active. We are into double-digit opportunities for the Company. I am very pleased in the press release to announce that Steve Davidson has joined the team as Chief Development Officer, and Steve with his reputation for finding facilities and closing the transactions just gives us more confidence that we will be able to grow the Company through strategic acquisitions that are very accretive to us, and we are very excited about having Steve on board with us. He is already here. He is actually here on the call today, so I'm very excited about that.

So the pipeline is active and has depth to it, and we are very busy looking at potential acquisitions. I don't think there will be any acquisitions in the second quarter. I think we have a lot to work on. I think during the last two quarters of this year you will see us make some more acquisitions.

John Ransom, Raymond James.

I just had a picky little question that I know you love, Joey. Just as you add the historical revenues -- or maybe this is for Jack -- as you add the historical revenues into your base on a same-store basis as we move through the year, could you help us maybe think about how the same-store numbers might look 2Q, 3Q, 4Q, or I mean are those numbers sustainable?

Well, it is not going to be -- well, we are going to have great same-store growth, but you cannot expect to have the growth on -- that we had in the first quarter on these six facilities. Ron and operations team, you cannot grow a patient day at 15.1%. But could we grow patient days good strong single digits as the base gets larger? Yes. I have strong expectations that we can grow patient days and admissions and have the right people in place at the facility level and at the corporate level to make that happen.

I have been very pleased with the -- we are going to do better this year in adding new beds. So I'm very pleased about that to grow patient days. And if you are turning patients away, you need new beds, and we are bringing those online rather quickly.

So the 119 plus 140, how many conversions can we add to the mix? And should we assume these are all adult beds that you are either adding or converting?

You can assume 90% of these are going to be acute beds. I haven't the quite ratio yet, but it is probably 80% to 90% are going to be acute beds. There will be a few RTC beds sprinkled in.

And how many conversions are you doing in addition to the beds?

Right now those are smaller in number. You know, the biggest one we did was in Indiana in the last quarter, which was 42 beds, and those acute beds are ramping up nicely. I think we have been -- the census lately has been in the 20s for that facility. So they are ramping up nicely.

We will do some small eight-, 10-bed conversions during the year, but I don't have a grand total for those yet.

So just to state the obvious, that 259 plus 42, so you have added roughly 300 beds. So that is 15% conversion to adults probably inside of a year? Just to restate the obvious on a base of you started with 2000 and you made the -- (multiple speakers).

That would be close. Yes, that would be close, to state the obvious.

Frank Morgan, RBC Capital Markets.

A couple of questions. Going back to the deal backlog, how would you characterize in terms of the most active deals right now the mix between RTCs and acute site? And then secondarily, just any kind of updates on your thoughts on Medicaid pricing or state funding in the second half of the year.

Okay, on the mix of beds, we are looking at for acquisitions, 95% of these beds that we are looking at really right now are acute beds. But if someone was to bring us a good facility that is RTC, we would look at it. But right now we are focusing on acute psychiatric beds. So 95% of what we are looking at now is acute psychiatric beds, which also would include substance abuse beds.

On the Medicaid side, Frank, there really hasn't been any movement since our last call. We are basically -- we are basically neutral for that flat, knowing that we will get a few increases and a few decreases, and that is our best read today is that since our last call, nothing really materially has changed anywhere in our facilities across 19 states. So we still expect it to be flat on revenue per day.

Kevin Campbell, Avondale Partners.

Just, first, congratulations, Brent, on the promotion, and I was hoping maybe you could just comment on Trey Carter. Is he still was the firm or has he left? Or (multiple speakers)

Trey has resigned, and just on a personal note, Trey has five children that are in high school and elementary. And Trey lives in Carrollton, Georgia, and wants to be closer to his family. And Trey did a wonderful job for Acadia. I did not want -- I hated to get his resignation. It was bittersweet, but when he sits down and talks to you about his five kids with his oldest one being a senior in high school, it is perfectly understandable that he needs to be there with his kids. And I am very pleased that Trey has been very successful with us and with Acadia and has that opportunity to do that. So we are very pleased with the way the transition has gone, and Trey is a super guy and did a super job for us. And it is bittersweet, but changes happen.

Now what they did do was allow us to go out and get Steve to be our Chief Development Officer. Trey was filling that role, and Steve, as many of you all know, was on the original team at PSI. He, myself and Jack were there in practically the beginning of the Company in the late 90s, and we are glad to have Steve on board with his contacts. So he has had time to recharges batteries and look forward to the success we will have with Steve in making acquisitions.

Are there any severance costs in the quarter related to Trey's departure or in guidance?

No. It was a resignation, and there is no severance costs.

Okay. And then just a couple of modeling questions. Obviously with Haven coming into the mix, it will throw things off modeling. So can you give us some sense in terms of what the average length of stay maybe should be in the second quarter revenue per patient day? Obviously those are going to change rather significantly with the addition of more acute beds.

We usually don't give those kind of details. The length of stay will go down because those were acute facilities. I do not have that and Jack does not have that data with him. But it's the three acute facilities. The length of stay there is approximately 10 days on average for us in the industry. So the length of stay will come down. It is adding $45 million roughly of revenue, $47 million of revenue to -- in it. So that is most of the detail we have got right now that I can give you. We don't have the other detail with us.

Okay. And then just remind us sort of the seasonality of the business, how it should play out over the course of the year in terms of volumes and schools and etc.?

The seasonality, I'm just going off from the Psychiatric Solutions history, the seasonality for us was when school was out mainly in July and August and then around holidays, which, you know, is soft for everybody. Whether you are in the MedSurg business or the psychiatric business, the holidays people want to take vacations and take time off. So it is usually in the July/August or softer months and holidays at the end of the year.

And then the last question, in terms of the availability of capital, I think maybe you said in the press release, if I recall correctly, had about $68 million available on your revolver. Do you still have an accordion feature on top of that that you could tap into if you needed and remind us of the size of that?

We do. It is $50 million, and that accordion is still in place.

Darren Lehrich, Deutsche Bank.

This is Dana Vartabedian in for Darren. Just a quick question. I just wanted to get a sense for how significant non-facility management contract revenue was in Q1.

It is immaterial. It is less than $50,000.

Less than $50,000?

Yes, it is immaterial. It is just getting started.

Okay, great. That is all. Thank you.

[Michael Teledano], Gilder, Gagnon, Howe & Co.

So I'm just trying to work it out for modeling purposes. But so I would imagine with length of stay coming down a little bit just from the more acute facilities you are buying or you bought, so shouldn't revenue per patient fall a little bit? And then so I guess the follow-up question would be, do you expect margin improvement to be a straight-line pattern, or do you think that it will be lumpier?

First, the acute facilities that we bought from Haven should actually raise the revenue per day because, prior to the Haven transaction, we had more RTC beds. So these are all acute beds with higher revenue per day. So we would expect our revenue per day to increase because of that transaction.

The margin improvement, I actually look at it that we will get 400 to 500 basis points over the next three years. And you can nearly take -- to work that out, you could take nearly a -- you can divide it by 3 and we will get there or you could load up -- that is probably high. I would not model it myself personally. So maybe a little bit faster this year and next year, but the 400 to 500 basis points over the next three years is what we are shooting for. So you can model it however you want to see fit there.

Perfect.

I don't think it will be lumpy.

That is all the time we have for questions today. I would like to turn it back to Mr. Jacobs for any closing or additional remarks.

Sure. Once again, it is good to be with you on this conference call. We got off to a great start in 2012. Thank you very much for your interest in Acadia. Absolutely we are very pleased with Steve Davidson joining us as our Chief Development Officer and with Brent Turner assuming the position of President. So two great announcements there.

I also want to thank all of our family in our Acadia facilities out there that are taking care of our patients. They are the heroes in this Company, and we very much appreciate what they are doing.

We recently had the CEOs in for an annual meeting, and once again, being around them just energizes me and the rest of the Company on what a great job they are doing and executing at the local level. We have two great division presidents that are leading these facilities. So, once again, the family is strong and doing well, and I want to thank them for all their efforts. And, once again, we will see you on the next conference call, and thank you for your interest.

This does conclude our conference call for today. We would like to thank you for your participation.