Psychiatric Solutions, Inc. (MM) (NASDAQ:PSYS)
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Psychiatric Solutions, Inc. (“PSI”)
(NASDAQ: PSYS) today announced financial results for the third quarter
ended September 30, 2008. Revenue was $448.0 million for the quarter, an
increase of 13.0% from $396.4 million for the third quarter of 2007.
Income from continuing operations rose 39.1% to $28.6 million for the
quarter from $20.6 million for the third quarter of 2007. Income from
continuing operations per diluted share increased 37.8% to $0.51 for the
third quarter of 2008 from $0.37 for the third quarter of 2007.
Same-facility revenue increased 8.7% for the third quarter of 2008
compared with the third quarter last year. This increase reflected
same-facility growth in net revenue per patient day of 4.8% and growth
in patient days of 3.7%. Same-facility EBITDA margin was 20.6% for the
latest quarter, up 60 basis points from 20.0% for the third quarter of
2007, while the EBITDA margin for all facilities also increased 60 basis
points to 20.5%. PSI produced a comparable-quarter increase of 18.1% in
consolidated adjusted EBITDA to $80.6 million, which increased as a
percentage of revenue to 18.0% from 17.2%. A reconciliation of all GAAP
and non-GAAP financial results in this release can be found on pages 6
and 7.
“PSI performed well for the third quarter,
with strong same-facility revenue growth driving expanded profit margins,”
said Joey Jacobs, Chairman, President and Chief Executive Officer of
PSI. “The addition of new beds throughout the
year has contributed to the increasing rate of comparable-quarter growth
in same-facility patient days for three consecutive quarters.
“The market demand for our high quality
inpatient psychiatric care remains strong and has historically
intensified in difficult economic environments. We plan to continue
expanding our ability to serve this demand, both through the addition of
new beds in our facilities and the ongoing execution of our proven
acquisition strategy in a fragmented, capacity-constrained industry. We
are well positioned to fund our anticipated growth over the next year
through substantial cash flow from operations, our existing cash and the
availability under our credit facility.”
Based on the Company’s results for the third
quarter and first nine months of 2008 and its outlook for the remainder
of the year, PSI today affirmed its guidance for earnings from
continuing operations per diluted share for 2008 in a range of $2.02 to
$2.03, reflecting growth of 36% compared with 2007. In addition, PSI
also today established its guidance for earnings per diluted share for
2009 in a range of $2.40 to $2.44, reflecting growth of 18% to 21%. The
Company’s guidance does not include the impact
from any future acquisitions or reflect any change in interest rates
associated with refinancing the Company’s
revolving credit facility that matures in December 2009, as the timing
and impact of this refinancing are difficult to estimate at this time.
PSI will hold a conference call to discuss its third quarter financial
results at 10:00 a.m. Eastern time on Friday, October 31, 2008. A live
webcast of the conference call will be available at www.psysolutions.com
in the “Investors”
section of the site or at www.earnings.com.
The webcast will be available through the end of business on November
15, 2008.
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 successfully integrate recently acquired 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;
(6) risks inherent to the health care industry, including the impact of
unforeseen changes in regulation, decreases in 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 and is the largest
operator of owned or leased freestanding psychiatric inpatient
facilities with over 10,000 beds in 31 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 September 30,
Nine Months Ended September 30,
2008
2007
2008
2007
Revenue
$
448,015
$
396,419
$
1,320,114
$
1,062,565
Salaries, wages and employee benefits (including share-based
compensation of $4,935, $4,423, $15,013 and $12,006 for the
respective three and nine month periods in 2008 and 2007)
245,578
220,853
725,775
590,071
Professional fees
45,022
39,868
133,803
104,530
Supplies
24,323
21,317
71,769
58,185
Rentals and leases
5,708
5,486
17,653
14,561
Other operating expenses
41,484
38,062
121,849
103,627
Provision for doubtful accounts
10,254
7,003
25,976
20,871
Depreciation and amortization
10,171
8,472
29,570
21,888
Interest expense
19,337
22,252
59,440
53,666
Loss on refinancing long-term debt
-
-
-
8,179
401,877
363,313
1,185,835
975,578
Income from continuing operations before income taxes
46,138
33,106
134,279
86,987
Provision for income taxes
17,533
12,537
51,026
32,783
Income from continuing operations
28,605
20,569
83,253
54,204
Loss from discontinued operations, net of taxes
(2,228
)
(244
)
(2,321
)
(1,147
)
Net income
$
26,377
$
20,325
$
80,932
$
53,057
Basic earnings per share:
Income from continuing operations
$
0.52
$
0.38
$
1.50
$
1.00
Loss from discontinued operations, net of taxes
(0.04
)
(0.01
)
(0.04
)
(0.02
)
Net income
$
0.48
$
0.37
$
1.46
$
0.98
Diluted earnings per share:
Income from continuing operations
$
0.51
$
0.37
$
1.48
$
0.98
Loss from discontinued operations, net of taxes
(0.04
)
-
(0.04
)
(0.02
)
Net income
$
0.47
$
0.37
$
1.44
$
0.96
Shares used in computing per share amounts:
Basic
55,529
54,278
55,318
54,064
Diluted
56,604
55,415
56,213
55,343
PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands)
September 30,
December 31,
2008
2007
ASSETS
Current assets:
Cash and cash equivalents
$
44,960
$
39,970
Accounts receivable, less allowance for doubtful accounts of
$49,514 and $35,398 for 2008 and 2007, respectively
261,531
230,600
Prepaids and other
79,968
68,235
Total current assets
386,459
338,805
Property and equipment, net of accumulated depreciation
802,479
692,135
Cost in excess of net assets acquired
1,202,646
1,071,275
Other assets
65,740
75,889
Total assets
$
2,457,324
$
2,178,104
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
36,044
$
30,996
Salaries and benefits payable
88,478
82,101
Other accrued liabilities
67,495
61,861
Current portion of long-term debt
6,008
6,016
Total current liabilities
198,025
180,974
Long-term debt, less current portion
1,312,438
1,166,008
Deferred tax liability
57,503
49,131
Other liabilities
22,010
23,090
Total liabilities
1,589,976
1,419,203
Minority interest
4,996
4,159
Total stockholders' equity
862,352
754,742
Total liabilities and stockholders' equity
$
2,457,324
$
2,178,104
PSYCHIATRIC SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended September 30,
2008
2007
Operating activities:
Net income
$
80,932
$
53,057
Adjustments to reconcile net income to net cash provided by
continuing operating activities:
Depreciation and amortization
29,570
21,888
Amortization of loan costs and bond premium
1,660
1,591
Share-based compensation
15,013
12,006
Loss on refinancing long-term debt
-
8,179
Change in income tax assets and liabilities
(1,611
)
8,219
Loss from discontinued operations, net of taxes
2,321
1,147
Changes in operating assets and liabilities, net of effect of
acquisitions:
Accounts receivable
(30,331
)
(20,803
)
Prepaids and other current assets
(1,017
)
1,966
Accounts payable
5,116
(6,913
)
Salaries and benefits payable
4,638
(457
)
Accrued liabilities and other liabilities
(16,183
)
353
Net cash provided by continuing operating activities
90,108
80,233
Net cash (used in) provided by discontinued operating activities
(2,186
)
504
Net cash provided by operating activities
87,922
80,737
Investing activities:
Cash paid for acquisitions, net of cash acquired
(163,238
)
(462,729
)
Capital purchases of property and equipment
(81,773
)
(48,361
)
Other assets
280
(750
)
Net cash used in continuing investing activities
(244,731
)
(511,840
)
Net cash provided by discontinued investing activities
5,244
-
Net cash used in investing activities
(239,487
)
(511,840
)
Financing activities:
Net increase (decrease) in revolving credit facility
149,333
(11,000
)
Borrowings on long-term debt
-
481,875
Principal payments on long-term debt
(3,963
)
(40,220
)
Payment of loan and issuance costs
(39
)
(6,603
)
Refinancing of long-term debt
-
(7,127
)
Excess tax benefits from share-based payment arrangements
1,902
4,072
Proceeds from exercises of common stock options
9,322
13,935
Net cash provided by financing activities
156,555
434,932
Net increase in cash
4,990
3,829
Cash and cash equivalents at beginning of the period
39,970
18,520
Cash and cash equivalents at end of the period
$
44,960
$
22,349
Effect of Acquisitions:
Assets acquired, net of cash acquired
$
171,145
$
533,084
Liabilities assumed
(6,907
)
(52,653
)
Common stock issued
(1,000
)
(9,000
)
Long-term debt assumed
-
(8,702
)
Cash paid for acquisitions, net of cash acquired
$
163,238
$
462,729
PSYCHIATRIC SOLUTIONS, INC.
RECONCILIATION OF NET INCOME TO ADJUSTED INCOME FROM CONTINUING
OPERATIONS
(Unaudited, in thousands except for per share amounts)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2008
2007
2008
2007
Net income
$
26,377
$
20,325
$
80,932
$
53,057
Plus reconciling items:
Discontinued operations, net of taxes
2,228
244
2,321
1,147
Provision for income taxes
17,533
12,537
51,026
32,783
Income from continuing operations before income taxes
46,138
33,106
134,279
86,987
Loss on refinancing long-term debt
-
-
-
8,179
Adjusted income from continuing operations before income taxes
46,138
33,106
134,279
95,166
Adjusted provision for income taxes
17,533
12,537
51,026
35,865
Adjusted income from continuing operations (a)
$
28,605
$
20,569
$
83,253
$
59,301
Income from continuing operations per diluted share
$
0.51
$
0.37
$
1.48
$
0.98
Adjusted income from continuing operations per diluted share
$
0.51
$
0.37
$
1.48
$
1.07
Diluted shares used in computing per share amounts
56,604
55,415
56,213
55,343
(a) PSI believes its
calculation of adjusted income from continuing operations 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 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 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)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2008
2007
2008
2007
Income from continuing operations
$
28,605
$
20,569
$
83,253
$
54,204
Provision for income taxes
17,533
12,537
51,026
32,783
Interest expense
19,337
22,252
59,440
53,666
Depreciation and amortization
10,171
8,472
29,570
21,888
EBITDA(a)
75,646
63,830
223,289
162,541
Other expenses:
Share-based compensation
4,935
4,423
15,013
12,006
Loss on refinancing long-term debt
-
-
-
8,179
Adjusted EBITDA(a)
$
80,581
$
68,253
$
238,302
$
182,726
(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, 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
September 30,
%
2008
2007
Change
Same-facility results:
Revenue
$
386,443
$
355,425
8.7%
Admissions
39,555
36,634
8.0%
Patient days
660,703
637,318
3.7%
Average length of stay(a)
16.7
17.4
-4.0%
Revenue per patient day(b)
$
585
$
558
4.8%
EBITDA margin
20.6%
20.0%
60 bps
Total facility results:
Revenue
$
403,936
$
355,425
13.6%
Admissions
41,816
36,634
14.1%
Patient days
691,147
637,318
8.4%
Average length of stay(a)
16.5
17.4
-5.2%
Revenue per patient day(b)
$
584
$
558
4.7%
EBITDA margin
20.5%
19.9%
60 bps
Nine Months Ended
September 30,
%
2008
2007
Change
Same-facility results:
Revenue
$
1,053,632
$
975,010
8.1%
Admissions
107,832
102,606
5.1%
Patient days
1,814,171
1,760,748
3.0%
Average length of stay(a)
16.8
17.2
-2.3%
Revenue per patient day(b)
$
581
$
554
4.9%
EBITDA margin
21.5%
20.2%
130 bps
Total facility results:
Revenue
$
1,189,374
$
980,423
21.3%
Admissions
124,837
103,256
20.9%
Patient days
2,068,166
1,771,369
16.8%
Average length of stay(a)
16.6
17.2
-3.5%
Revenue per patient day(b)
$
575
$
553
4.0%
EBITDA margin
20.8%
20.0%
80 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.