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Psychiatric Solutions Reports 43% Growth in First Quarter Earnings Per Diluted Share on 34% Increase in Revenue

Posted on: Friday, 27 April 2007, 00:00 CDT

Psychiatric Solutions, Inc. ("PSI") (NASDAQ: PSYS) today announced financial results for the first quarter ended March 31, 2007. Revenue increased 33.6% to a record $323,718,000 from $242,312,000 for the first quarter of 2006. Income from continuing operations rose 46.3% to $18,144,000 from $12,398,000. Earnings per diluted share from continuing operations were $0.33 for the first quarter of 2007, up 43.5% from $0.23 for the first quarter of 2006.

Joey Jacobs, Chairman, President and Chief Executive Officer of PSI, commented, "PSI continued its historic earnings momentum into 2007, with strong revenue growth and increased profit margins driving a substantial increase in earnings per diluted share. Our complementary organic growth and acquisition strategies each contributed to our taking a significant first step toward achieving our financial and operating goals for 2007.

"We primarily attribute our revenue growth for the first quarter to the increase in our inpatient psychiatric beds to over 8,000 at the end of the quarter from over 6,500 at the same time in 2006. A large majority of the additional beds are in the 17 inpatient facilities PSI acquired since the end of the first quarter of 2006. Based on our ongoing evaluation of other potential transactions, we continue to target the acquisition of at least six additional inpatient facilities during the next 12 months, not including our previously announced agreement to purchase Horizon Health Corporation. Horizon Health owns or leases 15 inpatient facilities with over 1,500 beds and generated revenue of $275 million during its 2006 fiscal year. We expect to complete this transaction, which has been approved by Horizon Health's stockholders, during the second quarter, subject to customary closing conditions, including regulatory approvals and clearance under the Hart-Scott-Rodino Act.

"We also attribute our profitable growth for the first quarter of 2007 to an increase in same-facility revenue of 5.7% against a strong comparable-quarter performance in the prior year for which same-facility revenue rose 11.0%. Our same-facility revenue growth for the first quarter reflected a 1.0% increase in patient days and a 4.7% increase in revenue per patient day. We remain confident of both our ability and the opportunity to achieve our targeted range of growth in patient days of 3% to 5% for 2007, as well as our targeted range of annual growth in same-facility revenue of 7% to 9%.

"Due to the operating leverage produced by growth in our same-facility revenue and to our ongoing efforts to enhance operating efficiency and productivity, we produced an increase in same-facility EBITDA as a percentage of same-facility revenue to 20.4% for the first quarter of 2007 from 19.5% for the first quarter last year. This increase contributed to the 33.8% growth in consolidated adjusted EBITDA to $53.8 million for the first quarter of 2007 from $40.2 million for the first quarter of 2006, both of which were 16.6% of revenue." Please see page 7 for a reconciliation of GAAP and non-GAAP financial results.

Based primarily on the Company's operating and financial results for the first quarter of 2007 and its outlook for the remainder of the year, 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 continues to expect 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 added, "We are confident that the near-term growth opportunity inherent in our guidance is complemented by a compelling long-term opportunity, which is based on strong industry dynamics and our proven growth strategies. Demand for high quality inpatient psychiatric care continues to rise, along with an increasing recognition that mental illness is one of the country's leading diseases. At the same time, little new industry capacity is being added to meet this increased demand, although PSI continues to expand capacity at its existing facilities. As a result of this supply/demand dynamic in an industry that remains highly fragmented, we expect our ability to acquire and operate high quality facilities that are leading providers in their markets will enable us to extend PSI's record of long-term profitable growth for the foreseeable future."

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 May 11, 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 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 March 31,

2007 

2006 

Revenue

$ 323,718 

$ 242,312 

Salaries, wages and employee benefits (including

share-based compensation of $3,673 and $6,254

for 2007 and 2006, respectively)

180,999 

139,798 

Professional fees

31,035 

22,715 

Supplies

18,477 

14,015 

Rentals and leases

4,637 

3,347 

Other operating expenses

31,774 

23,722 

Provision for doubtful accounts

6,706 

4,766 

Depreciation and amortization

6,298 

4,744 

Interest expense

14,386 

9,208 

294,312 

222,315 

Income from continuing operations

before income taxes

29,406 

19,997 

Provision for income taxes

11,262 

7,599 

Income from continuing operations

18,144 

12,398 

Loss from discontinued operations, net of

income tax benefit of $12 and $126

for 2007 and 2006, respectively

(19)

(206)

Net income

$ 18,125 

$ 12,192 

Basic earnings per share:

Income from continuing operations

$ 0.34 

$ 0.24 

Loss from discontinued operations,

net of taxes

- 

(0.01)

Net income

$ 0.34 

$ 0.23 

Diluted earnings per share:

Income from continuing operations

$ 0.33 

$ 0.23 

Loss from discontinued operations,

net of taxes

- 

- 

Net income

$ 0.33 

$ 0.23 

Shares used in computing per share amounts:

Basic

53,804 

52,514 

Diluted

55,237 

53,890 

PSYCHIATRIC SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in thousands)

March 31,

December 31,

2007 

2006 

ASSETS

Current assets:

Cash and cash equivalents

$ 15,669 

$ 18,541 

Accounts receivable, less allowance for doubtful accounts of

$19,940 and $18,903, respectively

190,748 

180,137 

Prepaids and other

44,620 

44,582 

Total current assets

251,037 

243,260 

Property and equipment, net of accumulated depreciation

562,473 

543,806 

Cost in excess of net assets acquired

776,395 

761,026 

Other assets

33,592 

33,104 

Total assets

$ 1,623,497 

$ 1,581,196 

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:

Accounts payable

$ 25,411 

$ 25,294 

Salaries and benefits payable

59,219 

66,438 

Other accrued liabilities

42,953 

45,855 

Current portion of long-term debt

2,836 

2,386 

Total current liabilities

130,419 

139,973 

Long-term debt, less current portion

760,842 

740,921 

Deferred tax liability

37,331 

44,924 

Other liabilities

28,633 

27,599 

Total liabilities

957,225 

953,417 

Stockholders' equity:

Common stock, $0.01 par value, 125,000 shares authorized;

54,239 and 53,421 issued and outstanding, respectively

542 

534 

Additional paid-in capital

544,086 

523,193 

Accumulated earnings

121,644 

104,052 

Total stockholders' equity

666,272 

627,779 

Total liabilities and stockholders' equity

$ 1,623,497 

$ 1,581,196 

PSYCHIATRIC SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in thousands)

Three Months Ended March 31,

2007 

2006 

Operating activities:

Net income

$ 18,125 

$ 12,192 

Adjustments to reconcile net income to

net cash provided by continuing

operating activities:

Depreciation and amortization

6,298 

4,744 

Share-based compensation

3,673 

6,254 

Amortization of loan costs

517 

405 

Loss from discontinued operations

19 

206 

Change in income tax assets and liabilities

(1,798)

4,202 

Changes in operating assets and liabilities,

net of effect of acquisitions:

Accounts receivable

(9,305)

(8,297)

Prepaids and other current assets

(924)

(1,891)

Accounts payable

(831)

(2,617)

Salaries and benefits payable

(9,432)

(5,248)

Accrued liabilities and other liabilities

(1,064)

(701)

Net cash provided by continuing operating activities

5,278 

9,249 

Net cash (used in) provided by discontinued operating activities

(145)

1,306 

Net cash provided by operating activities

5,133 

10,555 

Investing activities:

Cash paid for acquisitions, net of cash acquired

(25,241)

(38,300)

Capital purchases of leasehold improvements,

equipment and software

(9,872)

(5,513)

Other assets

233 

239 

Net cash used in investing activities

(34,880)

(43,574)

Financing activities:

Principal payments on long-term debt

(315)

(93)

Net increase in revolving credit facility

19,000 

- 

Payment of loan and issuance costs

(85)

(22)

Excess tax benefits from share-based payment arrangements

2,569 

2,446 

Proceeds from issuance of common stock upon exercise

of stock options

5,706 

1,644 

Net cash provided by financing activities

26,875 

3,975 

Net decrease in cash

(2,872)

(29,044)

Cash and cash equivalents at beginning of the period

18,541 

54,700 

Cash and cash equivalents at end of the period

$ 15,669 

$ 25,656 

Effect of Acquisitions:

Assets acquired, net of cash acquired

$ 35,928 

$ 43,372 

Cash paid for prior year acquisitions

2,081 

- 

Liabilities assumed

(2,064)

(1,109)

Long-term debt assumed

(1,704)

(3,963)

Common stock issued

(9,000)

- 

Cash paid for acquisitions, net of cash acquired

$ 25,241 

$ 38,300 

Psychiatric Solutions, Inc.

      Reconciliation of Income from Continuing Operations to EBITDA and Adjusted EBITDA

      (Unaudited)

            (In thousands, except per share amounts)

Three Months Ended

March 31,

2007 

2006 

Income from continuing operations

$ 18,144 

$ 12,398 

Provision for income taxes

11,262 

7,599 

Interest expense

14,386 

9,208 

Depreciation and amortization

6,298 

4,744 

EBITDA(a)

50,090 

33,949 

Other expenses:

Stock compensation

3,673 

6,254 

Adjusted EBITDA(a)

$ 53,763 

$ 40,203 

(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

March 31,

%

2007 

2006 

Chg.

Same-facility results:

Revenue

$ 241,306 

$ 228,376 

5.7%

Admissions

27,370 

26,887 

1.8%

Patient days

447,082 

442,595 

1.0%

Average length of stay(a)

16.3 

16.5 

(1.2)%

Revenue per patient day(b)

$ 540 

$ 516 

4.7%

EBITDA margin

20.4%

19.5%

90 bps

Total facility results:

Revenue

$ 306,445 

$ 229,756 

33.4%

Admissions

32,571 

26,937 

20.9%

Patient days

556,911 

446,054 

24.9%

Average length of stay(a)

17.1 

16.6 

3.0%

Revenue per patient day(b)

$ 550 

$ 515 

6.8%

EBITDA margin

19.9%

19.5%

40 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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