Acadia Healthcare Company Inc (ACHC) 2013 Q4 法說會逐字稿

Good morning, I am Brent Turner president of Acadia Healthcare, and I would like to welcome you to our fourth quarter 2013 conference call. To the extent any non-GAAP financial measures 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 our website by following the Investor Relation's 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 financial performance for 2014 and beyond. For this purpose, any statements made during this call in a are not statements of historical fact may be deemed to be Forward-looking statements. Without limiting the foregoing the words believes, anticipations, plans, expects, and similar expressions are intended to identify Forward-looking statements.

You are hereby cautioned that these statements may be effected by the important factors among others set forth in Acadia's filings with the 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 would like to turn the conference over to our Chairman and Chief Executive Officer, Joey Jacobs.

Good morning and welcome to our fourth quarter call. In addition to Brent, I am here today with our Chief Financial Officer, David Duckworth, and other members of our Executive Management team. David and I each have some brief remarks about the fourth quarter and our outlook for Acadia.

Then we will open the line for your questions. Acadia continued to produce exceptional results during the fourth quarter of 2013. Our revenues increased 66% compared with the fourth quarter last year.

Our adjusted income from continuing operations 79%, and per share results increased 53%. We are very pleased with our results for the full year with growth of 75% in revenues, 109% in adjusted income from a continuing operations, and 62% in adjusted income from continuing operations per diluted share. Our growth for both the quarter and the year was primarily the result of our adding more than 1,000 licensed beds to our operations during 2013to complete the year with approximately 4200 licensed beds in 51 facilities. More than 700 of the beds added in 2013 came from seven acquisitions completed during the year.

These transactions included the fourth quarter purchases of Longleaf facility in Alexandria, Louisiana and Cascade facility in the state of Washington. We also opened the 75 bed North Tampa facility in the fourth quarter which was under construction when we acquired it in May 2013. The remainder of the 300 beds was added to existing facilities and through the opening of two Denovo facilities. The fourth quarter new bed additions included 28 beds added to existing facilities and the opening of a 48 bed Denovo facility in Lancaster, South Carolina.

The addition of new beds to facilities in our same facility base was again the primary driver of our strong growth and same facility revenue which increased 8.5% for the fourth quarter and 10% for the full year. For the quarter, this increased reflected a 7.3% increase in patient days, and a 1.1% increase in revenue per patient day.

Our same facility revenue growth contributed to our maintaining same facility EBITDA margin above 27% for the quarter at 27.1% versus 27.3% for the fourth quarter of 2012. Our consolidated EBITDA increased 61% for the fourth quarter to $39.2 million, and for the year increased 80% to $145.3 million.

As we look into 2014, we continue - - we expect to continue producing solid profitable growth. We have discussed with you before our intention to add new beds to existing our Denovo facilities on an annual basis of at least 5% of our licensed beds at the beginning of any given year. Our current plans for 2014 call for more than 300 beds to be added. We also expect to continue to add beds through acquisitions.

Although our earnings guidance does not include the impact of any future acquisitions, our guidance does include the impact of the acquisition we already completed of the 68 bed Riverside facility in California, which closed on January 1, 2014. To summarize, Acadia had a great 2013, and we are well positioned to produce further profitable growth in 2014. There is growing market demand for high quality inpatient behavioral healthcare and our team has a well established record of growing successfully to meet this demand. Thank you again for being with us today, and now here is David Duckworth to discuss our results in greater detail.

Thank you, Joey and good morning. Acadia's revenue increased 66.3% to $190 million for the fourth quarter of 2013 from $114.3 million for the fourth quarter of 2012.

Adjusted income from continuing operations increased 79%, to $14.5 million from $8.1 million, while also increasing 52.6% on a per share basis, to $0.29 from $0.19.

Our adjusted results exclude transaction related expenses of $3.3 million for the fourth quarter of 2013, and $6 million for the fourth quarter of 2012. Acadia's weighted average shares outstanding increased 15.4% on a comparable quarter basis primarily due to its common stock offering in December of 2012.

Acadia's same facility revenue increased 8.5% for the fourth quarter with a 7.3% increase in patient days and a 1.1% increase in revenue per patient days.

Same facility EBITDA was 27.1% of same facility revenue, for the fourth quarter of 2013compared with 27.3% for the fourth quarter of 2012.

As we discussed last quarter, the slight margin decline is primarily attributable to lower same facility bed debt expense for the fourth quarter of 2012 of 0.8% compared with 2% for the fourth quarter of 2013. For the full year, same facility bed debt expense was 2% for 2013, compared to 1.6% for 2012.

Adjusted consolidated EBITDA increased 61.1% for the comparable quarters to $39.2 millionwhich was 20.6% of revenue, versus 21.3% for the fourth quarter of 2012.

Acadia's tax rate for the fourth quarter of 2013 improved 140 basis points to 37.8%, compared with 40.2% for the fourth quarter last year. For 2014, we expect our tax rate to be approximately 38%.

As reported in our news release yesterday, we recently expanded our senior secured credit facility and extended its maturity date. The facility now includes a $300 million term loan and revolving credit facility of $300 millionwhich was increased from $100 million previously. The facility matures in February of 2019, and we lowered the interest rate for the entire facility by 50 basis points.

We currently have approximately $232 million of availability under the revolver, and this will be used primarily to fund future acquisitions. Finally, we have established our 2014 guidance for adjusted earnings per diluted share in a range of $1.26 to $1.29. Included in our 2014 guidance is a $3.5 million increase in stock compensation expense to approximately $8.7 million related to our third year as a public company.

For the first quarter of 2014, our guidance for adjusted earnings per diluted share is in a range of $0.27 to $0.28. Our first quarter guidance is impacted by the ramp up at our recently opened Denovo facility as well as the recently acquired Cascade facility in Washington. Our financial guidance excludes the impact from any future acquisitions as well as transaction-related expenses. 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 your questions.

Thank you. (Operator Instructions). And we will take our first question from Brian Tanquilut with Jefferies.

Good morning, guys. Joey just hitting the acquisition question right away, has anything changed in terms of your target on hitting your $1 billion and $2 billion revenue run rate targets by end of 2014 and end of 2017?

Brian, no it does not. I was out yesterday with Steve Davidson working on an acquisition opportunity, and we are very busy going through the process of finding our next acquisitions and closing those transactions, and the opportunity to grow the $2 billion company by the end of 2017 is still there for us. We just got to work hard. Have just a little luck.

Got it. And then to follow up on that. If you look back to this time -- this same time last year, would you say that your pipeline today is bigger or smaller than what it was this same time last year?

The actual number of possible acquisitions is basically the same size. We have a page and a half that Steve reviews every Monday with us at our E team meeting. The number of facilities stays about the same even though we make acquisitions, and they go off and new ones come on, but there are a couple of large transactions that are on the list that probably are more active today than they might have been a year ago.

Got it. And then for David. As we think about your guidance for the year, what sort of same store organic growth have you baked into that projection?

Well, we expect the same facility margin to improve by about 100 basis points. And of course we do have the start up facilities that are ramping up. We also have a number of facilities that are moving next year into our same facility groups, and we do expect to see improvement within that group.

Got it. And last one, on the organic growth, David, just in terms of like organic revenue growth, how should we be thinking about that?

Brian, I will step in and answer that one.

Thank you Joey.

As you know, we ended the year at 10%. It is going to be hard to do double-digits again, but as I stated before during other presentations, we expect to lead the industry in same store revenue growth, and we expect it to be a very solid, strong single digit numberif we get our beds built. We have more than 300 beds on our schedule for this year. We got a few that came over from the end of last year that will be coming on in the first quarter. So if we get our beds built and get them online, we should have very strong industry leading same store revenue growth again.

Got it. Thank you, guys.

And we will take our next question from Frank Morgan with RBC Capital Markets.

Good morning. I was hoping you could give us an update on just the pricing outlook by your different payer classes between Medicaid and particularly on the commercial side.

Well, Frank -- our pay metrics is about 25% commercial, and we are hoping there to get a 4% to 6% price increase. Medicare we think is going to be hopefully between the 1% to 2% range, and then on Medicaid we kind of factored in a 1% increase there. So once again, I think it is going to be in the 2% range like we have seen this past year. So anywhere from 1.5% to 2.5% overall revenue per day increase is what we are shooting for.

Any implied change in mix of your overall business in the guidance? I know you had last quarter commented about your national marketing group, how it had been successful at driving volume mostly more so on the Medicaid side than the commercial side. Are there any kind of conceptual thoughts about how mix is embedded into the guidance?

No, I think the mix, Frank, I will give you a few more numbers here. We expect commercial to stay around 25% range. We think Medicare is going to stay about 22% of our revenue. Medicaid is going to be in the 47%, 48% range. And then other payers/self pay is going to be in the 4% or 5% range.

That is how we ended the year, and I think that will probably hold this year unless we were to buy a specialty facility that would have more commercial pay or if we were to buy a residential facility or larger residential facility that would be more Medicaid. Those would be the only thing that would change the numbers. But we are nearly so large now, Frank that it is kind of hard to change those numbers with just one acquisition.

Okay. One last, and I will hop off. What would be your implied cash flow from ops for 2014 based on the guidance you gave? Thank you, and I will hop off.

Frank, this is David. Cash flow from operations was strong number this year. We did $20 million in the fourth quarter. We expect that to increase to $25 or so million on a normal quarter basis with of course first quarter tends to be lower cash flow from ops, but $25 or so million a quarter is our expectations.

Okay. Thank you.

Thank you, Frank.

And we'll take our next question from Gary Lieberman with Wells Fargo.

Thank you, good morning.

Hello, Gary.

Can you talk about healthcare reform. It doesn't sound like you have any benefit baked into the numbers, but what you view the potential upside as and maybe what you are seeing in some of the markets?

Gary, we do not have that baked in. It is still too much of a moving number for us, and with various states where they are and exchanges. So it is a -- we did not -- we took more of a status quo and knowing that it should be positive to us. So once it gets fully implemented. So we do not see it as a negative, at all. We see it as a positive.

It is still just a little bit too hard for us to quantify. It is just too hard for us to quantify, but it is a positive. Could it be 1% to 2% increasein revenues for us? Or whatever. We still do not know that number yet, but we are keeping a close eye on it.

We are watching the states as they do their exchanges and just like everybody else in the healthcare industry. How is it going out there, and -- but we are very fortunate that on the essential benefits, mental health was put in there. So we know it is a positive for us. We just cannot quantify it at this time.

Okay. In terms of the 300 beds that you plan on adding, how good do you feel about that? Is there potential for that to change or is that number pretty much set in stone?

That is a minimum number, David. I mean Gary. That is a minimum number. We would only expect it to grow. Those are hard projects that we have identified with actual opening dates during 2014. And so that number as we go through the year I would expect it to grow. So we are very pleased that we have over 300 beds with opening dates scheduled for the year knowing that the number will only get larger.

Okay. Great. Thank you very much.

We will take our next question from Kevin Fischbeck with Bank of America, Merrill Lynch.

Good morning, guys. I guess I wanted to understand a little bit the I guess the trajectory though the year implied in your guidance because Q1 is a little bit below what we are looking for. Just wanted to understand how - -is it this year playing out like last year? Last year you kind of say hey maybe the street didn't model in Q1 seasonality a little bit the way it should have and some deals you had done at the end of 2011 were kind of ramping up, and maybe losing money at the beginning of the year, becoming break even as the year went on and be more added in the back half of the year. Is that the way you are kind of looking at your guidance right now?

This is how I am looking at it, Kevin, this first quarter we are ramping up North Tampa, Rebound, and Cascade. With North Tampa being early out of the gate and ramping up nicely in this quarter. Rebound is behind it, and Cascade is -- the Rebound and Cascade are about the same pace and ramping up. I think by the end of the first quarter, North Tampa will be there. That good, positive numbers will be coming out of Cascade and Rebound.

So I am hoping that the start of April -- the second quarter, that those three -- the ramp up has been mitigated mostly. And then that -- the earnings from the next three quarters are going to be about the same earnings per share contribution to us. With just slight -- when I say slight, $0.01 to $0.02 change in the quarters. So we expect the second, third, and fourth quarter to be close to the same actual numbers.

Now, obviously that is with no more acquisitions. That is just with the book of business that we started this year with. So that is how we get to the dollar to our guidance.

Okay. That makes sense. I guess you know, some of the deals that you have done more recently are these kind of assets where maybe there is a little bit more of a ramp upfront but there is a longer term growth opportunity behind them. Is that the type of deal profile that you are seeing more often today? Or you know, were these kind of unusual and the math around the deals is going to be more buying, more fully ramped up and profitable assets?

As I think we said, we will do one or two Denovo projects each year. Now, the timing of these projects, - - we got North Tampa through the acquisition in May of last year. And it is going to be a terrific facility, and it is tracking very similar to our facility that we bought in Naples, Fort Meyers area when we bought that facility and how it is now ramped up and doing very, very well. We see North Tampa doing the very same thing there.

Rebound actually we have been working on that thing for more than two years, and had to get through the CON and licensing and whatever. So it is a small facility, but we have -- I recently visited Rebound, and it is a tremendous facility. All we got to do now is just execute on a daily basis and fill it up. So feel good there. Cascade facility, I hope will be more of what we traditionally see.

We do like to buy facilities that already have a provider number. The Cascade facility was inside a med/surg hospital. So we are having to get that provider number. So that is what is taking us a little bit longer that with that transaction. But we will have a couple of those every year. But maybe not three at the same time in the same quarter trying to ramp up. But Ron and his team have done a great job, and we firmly believe all three of these facilities will be home runs for us in the outer years.

Okay. Great. And just one last quick question, the $3.5 million stock comp headwind for this year,. I think normally when you have companies go public it takes about four years for that to be fully -- is there another $3.5 million next year? How should we think about that?

Well, we like to think of the vesting periods associated with our stock grants . So we do have some three years vesting periods and some that are four years. So the increase next year although that will be our fourth year may be less significant since we do have a mix of three-year vesting awards, but yes, we do expect to see one more year of increase and then it should even out more.

Okay. All right. Great. Thank you.

Thank you Kevin.

And we will take our next question from Whit Mayo with Robert Baird.

Thank you. Good morning. Excuse me. Maybe just to tag on to Kevin's question earlier on the progression of earnings and thinking about the impact from the Denovos, but you know have you hit the 20 discharges for each of those facilities to get the provider, the Medicare numbers, and where are you in terms of in network contracting with managed care?

North Tampa has everything in their full speed ahead. Rebound is close and got their number. They are just getting in the tie-in notices and really getting the contracts signed. Cascade had joint commission this week.

We expect to get Dean status next week. And then it will take a little while to get that number. Hopefully within the next 60 days after that we will have that number, and they will be off to the races. So two of the three have already have been through the process and completed just waiting on Cascade. And it had its joint commission inspection this week.

Got it. In terms of managed care contracting are they in network at this point or do you have to wait for the licenses to do that?

Well you have to wait really to get your Medicare number, but what you can do is out of network case rate, and we do those.

Okay. Okay. So you established some referral sources there?

Yes.

Is there any way to perhaps, and maybe you do not want to do this, but quantify the drag from those Denovo assets in the fourth quarter and maybe how you see that progressing into the first quarter? I guess maybe said another way is the drag larger in 1 Q as you incur more costs than the fourth quarter ?

It is going to be larger in the first quarter because we did not buy Cascade until December 1.

Okay.

We are going to have it for the full quarter.

Got it.

So the first quarter is going to have more of a drag than the fourth quarter did.

Yes.

Once again, by April 1, Whit, I am hoping two of the three are way behind us, and the one remaining will not be the drag on us.

Got it. And you also have like another $1 dollars of incremental stock accounts that you are accruing versus the prior year in the first quarter?

Correct.

Ball park. Okay. And BCA and AmiCare hoping maybe you can comment on how those have progressed. They are going to be rolling into the same shore count in the first quarter, so any commentary would be helpful.

We have been very pleased with those acquisitions, Whit, and very pleased, and we have now got all our teams. We had to put in a couple CEOs but those are -- those have been done. So we are very pleased with both of those acquisitions.

Got it. And when I look at the -- your non-same store assets and sort of back into the margins, it looks like you know sort of exiting the year that group was running a same store EBITDA margin around 20% versus your same store count near 27%. So any reason that number cannot move higher over time, any structural reasons?

Yes, I think David mentioned early, in his comments, that we do have more than 100 basis margin improvement once those facilities come into the same facility numbers, that we expect more than 100% margin improvement from those facilities.

Got it. That is helpful. Maybe just one last one, just the length of stay was up, and I don't know if that is a real trend, just something optical. There's so many moving pieces with acquisitions coming in and out and bed additions maybe you could help flush that out for us a little bit.

We have seen no issues with the length of stay, and it is just the math of all the different types of acquisitions that we have made. So it is still very, very stable both on the specialty business, the traditional acute type business, and on the RTC business.

Got it.

We have not seen any changes there.

Thank you Joey. Buy.

Thank you.

And we will take our next question from Kevin Campbell with Avondale Partners.

Good morning. Thank you for taking my questions. Really just wanted to see what the multiples are looking like on deals right now. If that has changed at all? If there is any increase or decrease in valuation?

It really has not changed. It is in the 8 to 10 times, whether it is single facility or a multi-facility transaction. We still do come across the facility where we pay a percent of revenue, and usually it is less than one times revenue. So those have not changed, Kevin. They have been pretty stable for the past two years.

Okay. And when we look at your cash flow statement from last year, you spent about $160 million on acquisitions. Given sort of where the pipeline is today, would you expect sort of spend similar amount more or less? Can you give us any sense there?

I think it is going to be close. Obviously, if we come across a big transaction, it will be more, but I think $160 million for acquisitions, getting us 7 to 8 one off transactions, is probably a good number.

Okay. Great. That is all I have. Thank you.

Thank you, Kevin.

And we will take our next question from Dana Hambly with Stephens.

Good morning thank you. Joey, just on the -- going back to Kevin's question on the multiples when you say eight to ten times, that is the acquired EBITDA . What do you think you are getting over time? What kind of multiple do you feel you are paying over time? Is it six to eight times with synergies you can bring?

Oh, no, I think by the end of the third year, say we bought something at eight, I would think by the end of the third year, we are looking close to five.

Okay. Okay .

So Ron and his team do a great job of growing the programs. You see the same store patient days. When you do that you get the margins up into the mid to high 20s and quickly that pays down the multiple that you acquired.

Okay. That is helpful. It dove tails into my next question. You talk in the pressure press release about ongoing revenue generation initiatives in each facility. Could you give some examples of what you are doing uniform throughout the portfolio or you know every facility have something unique going on?

Well, if it is a core or acute hospital, you are looking to make sure they have child adolescent, adults , and geriatric programs. So when we make the acquisition, we see if one of those programs are missing or if there is a program maybe around substance abuse that they might could add to that facility. On our specialty facilities , whether the eating disorders or substance abuse, ye are fortunate that we have an excess demand for those services. So it is just basically expanding them. Now what is occurring at some of those facilities is we are putting more outpatient programs around them, partials and ROP program. On the RTC side of the business, you would want to make sure that you had a -- you could add specialty programs for certain groups. Might be adolescent boys, might be girls, something - - some sort of special program where we see a lot of inquiries into our national marketing for that type of service, and we might node to build a 20 bed unit or create a specialty unit in one of our RTC facilities.

Okay. That is helpful. And last one for me, on the new covenant flexibility, David could you tell us where the leverage ratios were or the covenants were and what they have been taken to now?

Yes, they were stepping down, Dana, over the next two years to the lower four times total leverage, and we reset those back up to 5.5 to stepping down to more like 5 over the next year.

Okay. Thank you .

Thank you Kevin.

And we will take our next question from Darren Lehrich with Deutsch Bank.

Hello, good morning this is Dana Nentin in for Darren. Given the clarity on the mental health parity, are you seeing any notable impact on the business at this point, any increase in your RPC business, any step down on level of care, anything like that?

No, Dana, it is-- our patients do not come to us, and the disclosure upfront is I am coming because of mental health parity. So it is hard for us to know that. What we do know is that we are needing to build 300 beds to existing facilities to handle the demand. And is that part of that demand coming from mental health parity? Probably. But we just cannot quantify it.

Okay. Thank you. And then just a couple of housekeeping items. Can you give us the number of your same store facilities and beds at the end of the quarter?

Yes, so we enter our same facility group at the end of the fourth quarter we had 34 facilities, and about just under 2700 beds in that group.

Okay. Great. Thank you a lot.

And we will take our next question from Charles Half with Craig Hallum.

Hello, thank you. Good morning. Can you hear me okay?

Yes, Charles. How you doing?

Good, thanks. Couple questions here, on 2014 acquisitions, I heard your comments earlier about the pipeline. I know it is hard to kind of quantify the timing of how these things roll out, but if you had to put them into big chunks of 2014 would you expect more of these acquisitions in the first half or the second half, any color there would be appreciated .

Right now looking at the pipeline, it is probably would be equal split.

Okay.

The third quarter may -- this is just -- this is just coming from -- this is just me now. The third quarter might be our big quarter this year.

Okay.

But we expect acquisitions in every quarter.

Okay. That is great. Thanks for the color there. And then my last question is on BCA and AmiCare. I think when you bought those facilities in December of 2012, the operating metrics were a little weaker than your -- than the rest of your portfolio I guess that was one of the opportunities that you saw. I was wondering how those facilities have tracked now that you owned them for a year or so relative to the rest of the portfolio regarding occupancy or margins, any kind of color there would be appreciated .

Sure, Charles. I think we have had expansions in both of those groups of acquisitions. I would think BCA does the transaction there, may be slightly ahead of the AmiCare acquisitions, but we are pleased with both of them. And we are pleased with the teams that we have in those facilities. But we are expanding both groups, and -- but I do think the BCA is slightly ahead of the AmiCare. But they are both doing very well.

Okay. And the expansions you are talking about I assume those are organic bed expansions, is that right?

Yes.

And is that organic bed expansion for BCA and AmiCare is that kind of in line with your 5% of the total portfolio or would you say you are adding more aggressively to those facilities?

No, this is across the board, and quite frankly we have got some facilities that have been expanded two or three times on this list, and they are being expanded again.

That sounds great. Thank you a lot for the help.

That is all the time we have for the question-and-answer session. I would now like to turn the conference back to Mr. Jacobs for closing remarks.

Thank you everyone for listening today. I do want to thank our employees out in the field and the great job they are doing. They made -- they had a great 2013, and we look for similar results in 2014. They are very, very dedicated to taking care of our patients and improving the lives there. So we are very pleased, very thankful for what we did in 2013, and how 2014 is looking.

I did happen to recently visit the Village in Knoxville, Tennessee, and Rebound, and our new facility in South Carolina, and I had great visits there, and very pleased with what we are doing there. So once again, thanks for all your hard work. Thanks for your interest in Acadia Healthcare. If you happen to have any more additional questions, please feel free to contact us directly, and have a good day and thank you .

This now concludes the conference. Thank you for your participation.