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Psychiatric Solutions Exceeds Expectations With Fourth Quarter Income From Continuing Operations Per Diluted Share of $0.33

Posted on: Thursday, 15 February 2007, 18:01 CST

Psychiatric Solutions, Inc. ("PSI") (NASDAQ: PSYS) today announced financial results for the fourth quarter and year ended December 31, 2006. Revenue increased 27.1% to a record $280,960,000 for the fourth quarter of 2006 from $221,108,000 for the fourth quarter of 2005. Income from continuing operations was $18,044,000, or $0.33 per diluted share, for the fourth quarter of 2006, up from $13,800,000, or $0.26 per diluted share, for the fourth quarter of 2005. Adjusted income from continuing operations per diluted share, which excludes stock compensation expense of $0.02 for the fourth quarter of 2006, increased 34.6% to $0.35 from $0.26. All results in this release have been adjusted to reflect the 2-for-1 stock split effected in January 2006. Please see pages 7 and 8 for a reconciliation of GAAP and non-GAAP financial results.

Revenue for 2006 was $1.026 billion, an increase of 43.5% from $715,324,000 for 2005. Income from continuing operations was $61,881,000, or $1.14 per diluted share, up from $26,818,000 or $0.58 per diluted share. Adjusted income from continuing operations per diluted share, which excludes stock compensation expense of $0.15 for 2006 and loss on refinancing of long-term debt of $0.29 for 2005, increased 48.3% to $1.29 from $0.87, on a 17.0% increase in diluted shares used in computing per share amounts.

Joey Jacobs, Chairman, President and Chief Executive Officer of PSI, said, "As our results demonstrate, PSI continued to achieve strong profitable growth for the fourth quarter, as well as for the fiscal year. We are especially pleased with our substantial organic growth evidenced by the increase in same-facility revenue of 9.6% for the fourth quarter. The operating leverage we gained from this revenue growth, combined with our ongoing focus on enhancing productivity and operating efficiencies, accounted for the 80 basis point expansion of our same-facility EBITDA margin to 20.6% of same-facility revenue from 19.8% for the fourth quarter of 2005. Our same-facility revenue growth was comprised of a 4.5% increase in patient days and a 5.0% increase in revenue per patient day, and our full year same-facility revenue growth was 9.0%, the high end of our continuing annual target range of 7% to 9%.

"Over the last four years, we have averaged same-facility revenue growth of 8.75%, and we are optimistic about our ability to continue producing same-facility revenue growth within our target range, primarily by expanding patient days and revenue per patient day, each in a range of 3% to 5% annually.

"We have also continued to build the foundation for our future organic growth by expanding the number of our inpatient beds, to more than 8,000 at year end from over 6,400 at the end of 2005. We contributed to this total during the fourth quarter with the completion of the Alternative Behavioral Services transaction, through which we added nine inpatient facilities with over 1,000 beds. As a result, we acquired a total of 19 inpatient facilities during 2006, well above our annual target to acquire a minimum of six facilities.

"Furthermore, we are already well positioned to expand our inpatient beds during 2007. In December, we signed a definitive agreement to acquire Horizon Health Corporation, which, among other assets, owns or leases 15 inpatient facilities with over 1,500 beds and provides services under 115 behavioral health and physical rehabilitation program management contracts in acute care hospitals. Horizon Health produced revenue of $275 million for its fiscal year ended in August 2006. We expect to complete this transaction in the second quarter of 2007, subject to customary closing conditions, including regulatory approvals, clearance under the Hart-Scott-Rodino Act and approval by Horizon Health's stockholders. We also acquired Three Rivers Behavioral Health in January, an 86-bed inpatient facility, which was recently awarded a Certificate of Need for an additional 32 beds that we expect to complete in the second half of 2007. In addition to acquisitions, we plan to expand existing facilities with new inpatient beds totaling approximately 1% to 2% of our total base at the beginning of the year."

Based primarily on the Company's operating and financial results for 2006, PSI affirms its guidance for earnings per diluted share for 2007 in a range of $1.42 to $1.46. The Company's guidance does not include the impact from any future acquisitions, including Horizon Health. PSI expects the acquisition of Horizon Health to be accretive to its earnings per diluted share for the 12 months following the completion of the transaction by an amount in the range of $0.17 to $0.20.

Mr. Jacobs concluded, "In addition to the strong record of performance PSI has created, our confidence in our prospects for further profitable growth rests on the opportunities we see for organic growth and acquisitions and on the resources we can focus on accomplishing our goals. Chief among these resources, we have a team of skilled and dedicated colleagues numbering more than 18,000, who either work directly with our patients or who support those who do. The high quality of care these individuals provide is the essence of our continuing ability to serve our patients and their families, our shareholders and all our other stakeholders."

PSI will hold a conference call to discuss this release tomorrow at 10:00 a.m. Eastern time. Participants will have the opportunity to listen to the conference call over the Internet by going to www.psysolutions.com and clicking Investor Relations or by going to www.earnings.com. Participants are encouraged to go to the selected web sites at least 15 minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, a replay will be available at these sites shortly after the call through the end of business on March 2, 2007.

This press release contains forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements other than those made solely with respect to historical fact and are based on the intent, belief or current expectations of PSI and its management. PSI's business and operations are subject to a variety of risks and uncertainties that might cause actual results to differ materially from those projected by any forward-looking statements. Factors that could cause such differences include, but are not limited to: (1) PSI's ability to complete the acquisition of Horizon Health Corporation and to successfully integrate the Horizon Health operations; (2) potential competition which alters or impedes PSI's acquisition strategy by decreasing PSI's ability to acquire additional inpatient facilities on favorable terms; (3) the ability of PSI to integrate and improve the operations of acquired inpatient facilities; (4) the ability to maintain favorable and continuing relationships with physicians who use PSI's facilities; (5) the ability to receive timely additional financing on terms acceptable to PSI to fund PSI's acquisition strategy and capital expenditure needs, including financing for the acquisition of Horizon Health; (6) risks inherent to the health care industry, including the impact of unforeseen changes in regulation, reimbursement rates from federal and state health care programs or managed care companies and exposure to claims and legal actions by patients and others; and (7) PSI's ability to comply with applicable licensure and accreditation requirements. The forward-looking statements herein are qualified in their entirety by the risk factors set forth in PSI's filings with the Securities and Exchange Commission. PSI undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Readers should not place undue reliance on forward-looking statements, which reflect management's views only as of the date hereof.

PSI offers an extensive continuum of behavioral health programs to critically ill children, adolescents and adults through its operation of 75 owned or leased freestanding psychiatric inpatient facilities with more than 8,000 beds in 29 states, Puerto Rico and the U.S. Virgin Islands. PSI also manages freestanding psychiatric inpatient facilities for government agencies and psychiatric inpatient units within medical/surgical hospitals owned by others.

PSYCHIATRIC SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited, in thousands except for per share amounts)

Three Months Ended December 31,

Year EndedDecember 31,

2006 

2005 

2006 

2005 

Revenue

$ 280,960 

$ 221,108 

$ 1,026,490 

$ 715,324 

Salaries, wages and employee benefits (including share-based compensation of $2,086 and $12,535 for the three months and year ended December 31, 2006, respectively)

157,576 

122,707 

580,223 

392,309 

Professional fees

26,403 

22,051 

97,613 

73,177 

Supplies

16,302 

12,856 

59,310 

42,993 

Rentals and leases

3,762 

3,408 

13,685 

11,450 

Other operating expenses

24,876 

21,250 

95,759 

74,609 

Provision for doubtful accounts

5,815 

3,231 

19,586 

13,498 

Depreciation and amortization

5,773 

4,459 

20,619 

14,738 

Interest expense

11,770 

8,864 

40,307 

27,056 

Loss on refinancing long-term debt

- 

- 

- 

21,871 

252,277 

198,826 

927,102 

671,701 

Income from continuing operations before income taxes

28,683 

22,282 

99,388 

43,623 

Provision for income taxes

10,639 

8,482 

37,507 

16,805 

Income from continuing operations

18,044 

13,800 

61,881 

26,818 

(Loss) income from discontinued operations, net of income tax benefit (provision) of $258, $(86), $724 and $(211) for the respective three and twelve month periods in 2006 and 2005

(489)

140 

(1,249)

336 

Net income

$ 17,555 

$ 13,940 

$ 60,632 

$ 27,154 

Basic earnings per share:

Income from continuing operations

$ 0.34 

$ 0.27 

$ 1.17 

$ 0.60 

(Loss) income from discontinued operations, net of taxes

(0.01)

- 

(0.02)

0.01 

Net income

$ 0.33 

$ 0.27 

$ 1.15 

$ 0.61 

Diluted earnings per share:

Income from continuing operations

$ 0.33 

$ 0.26 

$ 1.14 

$ 0.58 

(Loss) income from discontinued operations, net of taxes

(0.01)

- 

(0.02)

0.01 

Net income

$ 0.32 

$ 0.26 

$ 1.12 

$ 0.59 

Shares used in computing per share amounts:

Basic

53,259 

52,233 

52,953 

44,792 

Diluted

54,440 

53,852 

54,169 

46,296 

PSYCHIATRIC SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

December 31,

2006 

2005 

ASSETS

Current assets:

Cash and cash equivalents

$ 18,541 

$ 54,700 

Accounts receivable, less allowance for doubtful accounts of $18,903 and $15,355, respectively

180,137 

132,288 

Prepaids and other

44,582 

52,142 

Total current assets

243,260 

239,130 

Property and equipment, net of accumulated depreciation

543,806 

378,162 

Cost in excess of net assets acquired

761,026 

526,536 

Other assets

33,104 

31,203 

Total assets

$ 1,581,196 

$ 1,175,031 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$ 25,294 

$ 18,726 

Salaries and benefits payable

66,438 

46,872 

Other accrued liabilities

45,855 

34,363 

Current portion of long-term debt

2,386 

325 

Total current liabilities

139,973 

100,286 

Long-term debt, less current portion

740,921 

482,064 

Deferred tax liability

44,924 

32,151 

Other liabilities

27,599 

20,818 

Total liabilities

953,417 

635,319 

Stockholders' equity:

Common stock, $0.01 par value, 125,000 shares authorized; 53,421 and 52,430 issued and outstanding, respectively

534 

524 

Additional paid-in capital

523,193 

495,768 

Retained earnings

104,052 

43,420 

Total stockholders' equity

627,779 

539,712 

Total liabilities and stockholders' equity

$ 1,581,196 

$ 1,175,031 

PSYCHIATRIC SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Year Ended December 31,

2006 

2005 

Operating activities:

Net income

$

60,632 

$

27,154 

Adjustments to reconcile net income to net cash provided by continuing operating activities:

Depreciation and amortization

20,619 

14,738 

Share-based compensation

12,535 

- 

Amortization of loan costs

1,672 

1,187 

Loss on refinancing long-term debt

- 

21,871 

Change in income tax assets and liabilities

35,322 

9,494 

Loss (income) from discontinued operations, net of taxes

1,249 

(336)

Changes in operating assets and liabilities, net of effect of acquisitions:

Accounts receivable

(12,723)

(9,399)

Prepaids and other current assets

(9,243)

(3,673)

Accounts payable

312 

2,116 

Salaries and benefits payable

5,786 

2,598 

Accrued liabilities and other liabilities

5,839 

13,340 

Other

- 

463 

Net cash provided by continuing operating activities

122,000 

79,553 

Net cash provided by discontinued operating activities

1,707 

222 

Net cash provided by operating activities

123,707 

79,775 

Investing activities:

Cash paid for acquisitions, net of cash acquired

(385,078)

(514,525)

Capital purchases of leasehold improvements,

equipment and software

(33,816)

(21,750)

Purchases of short-term investments

- 

(29,400)

Sales of short-term investments

- 

29,400 

Cash paid for investments in equity method investees

- 

(1,340)

Other assets

(594)

1,219 

Net cash used in investing activities

(419,488)

(536,396)

Financing activities:

Net increase in revolving credit facility

$

101,000 

$

- 

Borrowings on long-term debt

150,000 

545,000 

Principal payments on long-term debt

(465)

(236,822)

Payment of loan and issuance costs

(1,576)

(13,932)

Refinancing of long-term debt

- 

(15,398)

Excess tax benefits from share-based payment arrangements

4,354 

- 

Proceeds from public offering of common stock

- 

192,637 

Proceeds from exercises of common stock options

6,309 

6,385 

Net cash provided by financing activities

259,622 

477,870 

Net (decrease) increase in cash

(36,159)

21,249 

Cash and cash equivalents at beginning of the period

54,700 

33,451 

Cash and cash equivalents at end of the period

$

18,541 

$

54,700 

Effect of Acquisitions:

Assets acquired, net of cash acquired

$

432,533 

$

624,821 

Cash paid for prior year acquisitions

- 

5,793 

Liabilities assumed

(32,819)

(51,324)

Common stock issued

(4,277)

(64,765)

Long-term debt assumed

(10,359)

Cash paid for acquisitions, net of cash acquired

$

385,078 

$

514,525 

Psychiatric Solutions, Inc.

Reconciliation of Net Income to

Adjusted Income From Continuing Operations

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

Year Ended

December 31,

December 31,

2006 

2005 

2006 

2005 

Net income

$17,555 

$13,940 

$60,632 

$27,154 

Plus reconciling items:

Discontinued operations, net of taxes

489 

(140)

1,249 

(336)

Provision for income taxes

10,639 

8,482 

37,507 

16,805 

Income from continuing operations before income taxes

28,683 

22,282 

99,388 

43,623 

Stock compensation

2,086 

- 

12,535 

- 

Loss on refinancing long-term debt

- 

- 

- 

21,871 

Adjusted income from continuing operations before income taxes

30,769 

22,282 

111,923 

65,494 

Adjusted provision for income taxes

11,612 

8,482 

42,244 

25,230 

Adjusted income from continuing operations(a)

$19,157 

$13,800 

$69,679 

$40,264 

Income from continuing operations per diluted share

$0.33 

$0.26 

$1.14 

$0.58 

Adjusted income from continuing operations per diluted share(a)

$0.35 

$0.26 

$1.29 

$0.87 

Diluted shares used in computing per share amounts:

54,440 

53,852 

54,169 

46,296 

(a) PSI believes its calculation of adjusted income from continuing operations per diluted share provides a better measure of the Company's ongoing performance and provides better comparability to prior periods because it excludes items not related to the Company's core business operations. Adjusted income from continuing operations per diluted share should not be considered as a measure of financial performance under accounting principles generally accepted in the United States, and the items excluded from it are significant components in understanding and assessing financial performance. Because adjusted income from continuing operations per diluted share is not a measurement determined in accordance with accounting principles generally accepted in the United States and is thus susceptible to varying calculations, it may not be comparable as presented to other similarly titled measures of other companies.

Psychiatric Solutions, Inc.

Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA

(Unaudited)

(In thousands, except per share amounts)

Three Months Ended

Year Ended

December 31,

December 31,

2006 

2005 

2006 

2005 

Income from continuing operations

$18,044 

$13,800 

$61,881 

$26,818 

Provision for income taxes

10,639 

8,482 

37,507 

16,805 

Interest expense

11,770 

8,864 

40,307 

27,056 

Depreciation and amortization

5,773 

4,459 

20,619 

14,738 

EBITDA(a)

46,226 

35,605 

160,314 

85,417 

Other expenses:

Stock compensation

2,086 

- 

12,535 

- 

Loss on refinancing long-term debt

- 

- 

- 

21,871 

Adjusted EBITDA(a)

$48,312 

$35,605 

$172,849 

$107,288 

(a) EBITDA and adjusted EBITDA are non-GAAP financial measures. EBITDA is defined as income from continuing operations before interest expense (net of interest income), income taxes, depreciation and amortization. Adjusted EBITDA is defined as income from continuing operations before interest expense (net of interest income), income taxes, depreciation, amortization, stock compensation and other items included in the caption above labeled "Other expenses". These other expenses may occur in future periods but the amounts recognized can vary significantly from period to period and do not directly relate to the ongoing operations of our health care facilities. PSI's management relies on EBITDA and adjusted EBITDA as the primary measures to review and assess operating performance of its facilities and their management teams. PSI believes it is useful to investors to provide disclosures of its operating results on the same basis as that used by management. Management and investors also review EBITDA and adjusted EBITDA to evaluate PSI's overall performance and to compare PSI's current operating results with corresponding periods and with other companies in the health care industry. You should not consider EBITDA and adjusted EBITDA in isolation or as a substitute for net income, operating cash flows or other cash flow statement data determined in accordance with accounting principles generally accepted in the United States. Because EBITDA and adjusted EBITDA are not measures of financial performance under accounting principles generally accepted in the United States and are susceptible to varying calculations, they may not be comparable to similarly titled measures of other companies.

Psychiatric Solutions, Inc.

Operating Statistics - Owned Facilities

(Unaudited)

(Revenue in thousands)

Three Months Ended

Year Ended

December 31,

%

December 31,

%

2006 

2005 

Chg.

2006 

2005 

Chg.

Same-facility results:

Revenue

$228,045 

$207,981 

9.6%

$722,750 

$663,236 

9.0%

Admissions

24,459 

23,376 

4.6%

78,961 

77,097 

2.4%

Patient days

434,687 

416,125 

4.5%

1,442,570 

1,392,877 

3.6%

Average length of stay(a)

17.8 

17.8 

0.0%

18.3 

18.1 

1.1%

Revenue per patient day(b)

$525 

$500 

5.0%

$501 

$476 

5.3%

EBITDA margin

20.6%

19.8%

80 bps

20.0%

18.2%

180 bps

Total facility results:

Revenue

$266,257 

$207,981 

28.0%

$973,535 

$663,236 

46.8%

Admissions

27,544 

23,376 

17.8%

107,199 

77,097 

39.0%

Patient days

506,297 

416,125 

21.7%

1,871,244 

1,392,877 

34.3%

Average length of stay(a)

18.4 

17.8 

3.4%

17.5 

18.1 

(3.3)%

Revenue per patient day(b)

$526 

$500 

5.2%

$520 

$476 

9.2%

EBITDA margin

20.0%

19.8%

20 bps

19.8%

18.2%

160 bps

(a) Average length of stay is defined as patient days divided by admissions.

(b) Revenue per patient day is defined as owned facility revenue divided by patient days.

Source: Business Wire

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