Acadia Healthcare Company Inc (ACHC) 2014 Q1 法說會逐字稿

Good morning, I'm Brent Turner, President of Acadia Healthcare, and I would like to welcome you to our first quarter 2014 conference call. To the extent any non-GAAP financial measure is discussed in today's call, you my also fine a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our 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 and 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 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 expresses 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 results of new information, future events or otherwise. At this time for opening remarks, I would now turn the conference over to our Chairman and Chief Executive Officer, Joey Jacobs.

Good morning and welcome to our first 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 first quarter and our outlook for Acadia. Then we will open the line for your questions.

We got off to a strong start for 2014 with our first quarter results. Revenue growth of 25% for the quarter from the first quarter of 2013 produced expanded profit margin and drove a 33% increase in adjusted income from continuing operations per diluted share. Our revenue growth again primarily reflected the addition of new licensed beds to our operations which totalled approximately 800 for the 12 month ending March 31st.

We added nearly 500 beds through acquisitions during this 12 month period and approximately 300 through organic growth. During the first quarter of 2014, we added 122 beds organically, and we completed the acquisition of a 68 bed facility in Riverside, California.

As I mentioned on our previous call, we experienced some expected earnings drag in the first quarter related to the ramp-up at the Novo facility to open in the fourth quarter as well as the converse for the Cascade facility from its previous status as a not-for-profit provider. These facilities cost us about $0.2 per diluted share for the first quarter.

Our revenue growth for the first quarter reflected 9.9% growth in same facility revenue versus the first quarter last year. Patient days increased 7.4% and revenue per patient day rose 2.3%. These increases were primarily due to the new beds added to the same facility base since the first quarter last year and included 108 beds added to the base during the first quarter of 2014. The Company same facility EBITDA margin increased to 26% for the first quarter of 2014, up 290 basis points from the first quarter of 2013. Consistent with our long-term performance, this expansion is primarily the result of greater revenue driven operating leverage.

The growth of same facility EBITDA contributed to a 29% increase in consolidated adjusted EBITDA. As we look forward to the rest of the year, we continue to see opportunities for growth organically as reflected in our plans to now add close to 350 beds to existing facilities during 2014. In addition, our pipeline of potential facility acquisitions remains very active although -- although the impact of any future acquisitions is not included in our guidance.

We also remain confident of our ability to produce further long-term growth in earnings and shareholder value. There is growing demand for high-quality inpatient behavioral care, and Acadia is the leading pure-play public provider with a proven business model, highly experienced Management Team, and continuing access to capital, we expect to continue increasing our market share in a highly fragmented industry. Thank you, and now here is David Duckworth to discuss our results in greater detail.

Thank you, Joey and good morning. Acadia's revenue for the first quarter of 2014 was $201.4 million, a 24.9% increase from $161.2 million for the first quarter of 2013.

Our adjusted income from continuing operations increased 32.5% to $14 million from $10.6 million. On a per diluted share basis, adjusted income from continuing operations grew 33.3% to $0.28 for thefirst quarter of 2014 from $0.21 the first quarter last year.

Our adjusted results exclude transaction-related expenses of $1.6 million for the first quarter this year and $1.5 million for the first quarter of 2013as well as debt extinguishment costs of $9.4 million for the first quarter last year.

As Joey mentioned, same facility revenues increased 9.9% for the first quarter with a 7.4% increase in patient days and a 2.3% increase in revenue per patient day.

Same facility EBITDA margin increased 290 basis points to 26% of same facility revenue for the first quarter of 2014 compared with 23.1% for the same quarter last year. Adjusted consolidated EBITDA increased 28.6% to $39.3 million which was 19.5% of revenue versus $30.5 million which was 18.9% of revenue for the first quarter of 2013.

Acadia's tax rate fort he first quarter of 2014 improved 240 basis points to 37.4% compared with 39.8% for the first quarter last year. For 2014, we continue to expect that our tax rate will be approximately 38%. As detailed in our news release, we affirm our 2014 guidance for adjusted earnings per diluted share in a range of $1.26 to $1.29.

Our financial guidance excludes the impact from any future acquisitions and transaction-related expenses. This concludes our prepared remarks this morning, and thank you for being with us. I will now ask Alicia to open the floor for your questions.

Thank you. (Operator Instructions). We will go first to Kevin Fichbeck of Bank of America Merrill Lynch.

Hi. This is Phil Kim actually on for Kevin Fischbeck. Two quick questions. First, did weather have and impact on the quarter?

It was a -- we did have a little impact. It was mainly in the states of Arkansas and Louisiana, but we did not actually spend any time trying to quantify it, but they did have some weather impacting their results.

Got it. And so from like a base point perspective, no real analysis was done there?

No.

Okay. And my second question. Do you guys see any signs of reform in the quarter?

It is still too early for us to see. Our payer mix basically was unchanged from our year end payer mix that we experienced in 2013. There was some slight movement there, but nothing that we directly relate back to the Affordable Care Act.

Got it. Thank you.

And we will go next to Whit Mayo of Robert Baird.

Hello. Thanks. Can you remind us where you are in terms of obtaining Medicare certification on the recent De Novos, and perhaps just comment op the pace and timing of the startup losses and when you think you can pick backup the $0.02 that was a drag in Q1?

Okay. Whit, we are missing one number oh, actually two - -we are missing two numbers. One is just a change of ownership in California that we will be getting for our facility that we bought the first of the year, and we expect la to happen any time soon. We are real close to having our number for Seattle. The other two facilities, we have our numbers there, and they are fully operational. All three of the De Novo facilities that I talked about monthly, they had improvement from the previous month. So in the second quarter, we expect that to continue and by the third quarter, hopefully, the drag will be gone, and they will be on their budget.

Okay. So we should still think about it being a modest drag in 2Q and then break even in 3Q? Is that - -

Correct.

Okay. Got it. That is helpful. And maybe just some color on the $16 million in real estate spend in the quarter. Is that a new market or is this and old market?

That is a good catch there. Whit, we spent $10 million. We bought a former charter facility in the state of Texas, 108 bed facility, that was being used more for an adult residential facility, and they are moving out. We are going to rehab the facility and bring back 108 bed acute hospital for the $10 million that we spent there. That should open sometime mid next year. Then we spent some more money, $3 million to $4 million in Las Vegas even though we opened up 36 beds there in the last 60 days, we probably need to expand it again at the end of 2015. So we acquired some land next to the facility and probably expanding that facility again next year. This will be its third expansion since our ownership.

Got it.

So that is where the real estate spend was at in the first quarter.

Got it, and I am just one quick one in for David. If he could just remind us on revolver availability, letters of credit, and any call opportunities on your bonds over the next year or so. Thank you

There is still some time before we will look at the bonds redemption opportunities at least to avoid what we think is a more expensive premium, but on the revolver, we have $204 million that is available - - actually $206 million at the end of the quarter.

Great. Okay. Thank you.

We will go next to Paula Torch of Avondale Partners.

Good morning. Thank you for taking my question. So if we think about your growth strategies as being a combination of De Novo's acquisitions and new bed exspanses, I am curious as to where you think your biggest opportunity lies in the next couple of years, and where you are going to be putting most of the focus. As a follow-up, has the M&A landscape changed at all in terms of the pipeline and visibility for you?

The pipeline looks very similar to what it has looked like for the past several years as far as activity there. Once again, the majority of our capital spend will be on acquisitions, but we will - - I will share this with you. We have already beginning our list for expansions for 2015. We have already reached 200 - - over 350 beds that we will be building next year to our facilities.

Great. Thank you.

We will go next to Charles Haff of Craig-Hallum.

Hello. Thank you for taking my questions. On the bed debt side at 2.3% of revenues that came in a little bit better than you have been trending the last three quarters. I am wondering if something happened this quarter or if this level is sustainable, and what your outlook is for doubtful accounts.?

Yes. We did see, Charles, a 40 basis points improvement over the first quarter of last year. This is really a lot of the collection policies and other initiatives we have been working on over the last year taking effect and driving some improvement on that line. Our outlook is still that it is going to be in that 2.5% to 3% range. But we did see some improvement that we hope can continue going forward.

Okay. Great. And then on the Las Vegas land purchase. That is a pretty sizable chunk of land relative to your existing facility that is next door. What do you think the capacity could be ultimately for that plot of land? How big could that facility grow to?

The facility -- if Las Vegas keeps growing. The growth there is coming back. It could be 150, 200 bed facility.

Okay. Great. Thank you a lot, guys.

We will go next to Gary Lieberman of Wells Fargo.

Olstead on for Gary. My question is on the drop in the length of stay. If there is any color you can provide on that. In the past, you have talked about there really being nothing in particular you would point to, but I was wondering if that changed.

We can give you a little bit more of a definitive answer there. It is actually just a mix of acute versus RTC patients. In the first quarter of this year, 53% of our patient days came from acute and the 47 -- 47 - - I mean 50% came - - well, no. that is not right. I am sorry. It is 53% of our patient days -- this is for all of us. 53% of our patient days were acute. The previous year it was 50%. We are seeing and increase in acute. That is where we have been building most of our beds are on the acute side. So it is just -- there is no pressure on the length of stay from utilization review that sort of stuff. It is just that we have more acute patient days versus the length of stay- - versus the RTC patients.

Okay. And have you been in contact with any agencies or any other payers that have maybe mentioned any sort of potential reduction in what they are going to permit for their.

No.

Beneficiaries?

No. We have not had any meaningful discussions with any of our payers about their concern about inappropriate length of stay or the length of stay needs to come down. The length of stay on the acute patients for the industry has been approximately 9.5 days for 15 years , and it is staying that, and then on the RTC side, fortunately for us, we have specialized in taking care of very difficult patients in our RTC facilities. Our national marketing group - - there is a lot of needs for those. In the states that refer to us, want their patients to get well. So they are not trying to shorten the length of stay or put pressure on that. They care more about making sure the patient improves . So that is what we are about, and the drop - - the small drop in the length of stay was just a mix of acute days versus RTC days.

Okay. Then maybe last one. Any sort of updated thoughts, we are expecting that the PPS roll out maybe I assume potentially today, any sort of views on that?

Sure, Ron. This is Brent Turner. We are expecting to see a rule update here sometime today.

Everything that we have heard from multiple industry thought leaders is it is very minimal tweaking of some of the provisions around the PPS rate. Just looking back, the perspective payment rate change for Medicare inpatient psyche was one of the most successful rate changes that the government ever implemented. 3% cost increase over the four year implementation period of that. So when you look at that, and combine it with the demographic continuing growth in needs for the Medicare beneficiaries, we just do not see a significant change anywhere it in that rule. That is validated by some of our industry guidance as well, but we will wait, and we will be available to address any of the comments or questions that come from the actual rules when we see them.

All right. Great. Thank you.

We will go next to Dana Hambly of Stephens.

Yes. Thank you. Good morning. Joe, just to clarify on the bed adds, I was a little confused. So where we were at 300 for this year, it is now 350 for 2014, and you are already planning 350 for 2015, is that right?

That is correct. Actually it is 356 for 2015.

356. Okay. Perfect. Thank you. And then, getting back to the cash flow statement, I think you said last quarter, we should think about kind of $20 million to $25 million in cash flow from ops. Is that still a good number? The first quarter tends to be a little bit lower.

That is right, Dana. You are going to see some acceleration in that. You got a lot of things at the first of the year that impacted the bonus pay outs for performance across the entire Company that had been accrued up until that point , and then also large semi annual interest payment on our notes occurring in the first quarter. On average the statement we made is applicable, but the first quarter is sort of the weakest from a cash flow from op standpoint.

Okay. That is helpful. And then just on the CapEx looks a little bit high. Routine CapEx is that still kind of running 2% to 3%, and then kind of what are your growth CapEx initiatives for the year?

Yes. On the maintenance CapEx, it does still run in that range. It was 2.22% for the quarter or $4.3 million, and the remainder of course related to our expansion products, Dana.

Okay. So the expansion falls in the CapEx?

It does.

Okay. Perfect. Thank you.

We will go next to Charles Haff of Craig-Hallum.

Hello. Thanks for taking my follow-up question. I wanted to ask you about the pricing outlook. Has there been any changes commercial? You are still expecting kind of a 4% to 6% pricing growth Medicare, Medicaid kind of 1% to 12%?

That is correct.

Okay. Great. Thank you.

We will go next to Darren Lehrich of Deutsche Bank.

Hello. Good morning. It is Dana Nentin in for Darren. Just to follow up on the question about capital structure. What sort of right mix of debt to equity for you guys, and where are you with your target leverage ratio?

Sure, Dana. We ended the quarter at about 58% debt-to-cap and just over four times debt-to-EBITDA from a leverage standpoint. Our business is very - - we can the leverage the cash flows, the minimal ongoing CapEx. We have comfort, well up to 5 and above if necessary, but we have been disciplined around keeping the leverage at about four times in order to be responsive and react to acquisition opportunities. It is very much a moving target, but with the right transactions, the right impact on returns and accretion, we could see the leverage going up, but at the same time we have got the ability to continue to generate the cash flows and continue to pay down debt going forward. We do not see the leverage going much below where we are now and have opportunities to put the revolver to use and increase it and then continue to keep the balance sheet positioned for growth.

Okay. Great. And then just one quick housekeeping item. Can you give us the number of same-store facilities and beds at the end of the quarter and total beds as well?

Sure. The number of same facilities out of our 52 is 44 facilities. And then there is 3,700 beds in that group out of our 4300 beds.

Okay of the great. Thank you a lot.

We will go next to Chris Rigg of Susquehanna International Group.

Good morning. Thank you for taking my questions, and a apologize. I got on a little bit late here, and I understand the comments about the mixed shift on the length of stay, but has there about been any change in the core length of stay. It is obviously hard to determine given the bet shift particularly on the acute side. It has been pretty stable ?

Yes, it has been stable.

Okay. And then just on the M&A front. Has there been any change in sort of the competitive dynamic? I understand the skew, but just in terms of pricing of deals or where you are seeing sort of transaction activity. Can you just give is a sense for how that may have changed in recent months?

It has not changed in recent months and it is - - the competitiveness of the acquisitions is consistent through the three plus years that we have been with Acadia. So sometimes some people show up, sometimes they do not. Sometimes there is one or two others looking, but it is - - but many times it is not. So it is pretty consistent over the past three years, the competitiveness for the acquisitions.

Understood. Thank you a lot.

At this time we have no further questions. I would like to turn the call back over to Mr. Jacobs for any additional or closing comments.

Thank you. Once again, thank you for listening in for our first quarter. We are off to a great start. I do want to thank Ron Fincher and his operations team the same-store numbers and margins improvements that we have seen through this press release and expect to continue through the year. Ron and his group are outstanding and very appreciative of their hard efforts. We have a great team here at Acadia. Once again thanks for being with us on the call, and we will talk to you again at the end of the second quarter.

That does conclude today' conference. We thank you for your participation.