Psychiatric Solutions Reports Second Quarter Earnings of $0.52 per Diluted Share

Share Name	Share Symbol	Market	Type
Psychiatric Solutions, Inc. (MM)	NASDAQ:PSYS	NASDAQ	Common Stock

Psychiatric Solutions, Inc. (MM) (NASDAQ:PSYS)
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Psychiatric Solutions, Inc. (�PSI�) (NASDAQ: PSYS) today announced financial results for the second quarter ended June 30, 2008. Revenue was a record $451.0 million for the quarter, up 28.4% from $351.2 million for the second quarter of 2007. Income from continuing operations increased 40.5% to $0.52 per diluted share for the second quarter of 2008 from adjusted income from continuing operations of $0.37 per diluted share for the second quarter last year, which excluded a loss on debt refinancing of $0.09 per diluted share after tax. A reconciliation of all GAAP and non-GAAP financial results in this release can be found on pages 6 and 7. Same-facility revenue increased 7.8% for the second quarter of 2008, driven by same-facility growth in net revenue per patient day of 5.1% and growth in patient days of 2.7%. Same-facility EBITDA margin expanded 170 basis points to 21.8% compared with the second quarter of 2007, and EBITDA margin for all facilities increased 130 basis points to 21.1%. Consolidated adjusted EBITDA grew 34.7% to a record $81.5 million, or 18.1% of revenue, for the second quarter of 2008 from the same quarter of 2007. Cash flow from continuing operations for the second quarter of 2008 was more than $41.5�million. �PSI produced strong profitable growth for the second quarter of 2008,� commented Joey Jacobs, Chairman, President and Chief Executive Officer of PSI. �Demand for high quality inpatient psychiatric care has continued to increase in our fragmented, capacity-constrained industry, driving substantial growth in our same-facility revenue. In addition, we have expanded PSI�s capacity to meet increased demand through both accretive facility acquisitions and the addition of more than 300 beds to existing and new inpatient psychiatric facilities during the first half of 2008. As expected, this volume growth and continuing initiatives to enhance productivity in each facility have generated significant operating leverage, expanding our profit margins. �We expect to continue benefiting from strong industry growth trends in 2008 and beyond. In this environment, we remain highly focused on executing a proven business model that has enabled us to build a long-term record of outstanding performance, while also becoming the leading provider in the inpatient psychiatric care industry. We are confident we have the opportunities, the resources and the expertise to further strengthen our leadership position and enhance stockholder value.� Based on the Company�s results for the second quarter and first half of 2008 and its outlook for the remainder of the year, PSI today updated its guidance range for earnings from continuing operations per diluted share for 2008 to $2.02 to $2.03, reflecting growth of 36% compared to 2007. The Company�s guidance does not include the impact from any future acquisitions. PSI will hold a conference call to discuss its second quarter financial results at 10:00 a.m. Eastern time on Thursday, July 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 August 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 June 30, Six Months Ended June 30, 2008 2007 2008 2007 � � Revenue $ 450,965 $ 351,223 $ 877,744 $ 670,791 � Salaries, wages and employee benefits (including share-based compensation of $4,517, $3,910, $10,077 and $7,583 for the respective three and six month periods in 2008 and 2007) 246,231 193,364 483,118 371,797 Professional fees 46,385 35,000 89,724 65,643 Supplies 24,773 19,398 48,358 37,571 Rentals and leases 6,112 4,951 12,296 9,531 Other operating expenses 41,833 34,631 80,641 65,839 Provision for doubtful accounts 8,623 7,275 15,782 13,939 Depreciation and amortization 10,069 7,245 19,478 13,484 Interest expense 19,765 17,029 40,103 31,414 Loss on refinancing long-term debt � - � � 8,179 � � - � � 8,179 � � 403,791 � � 327,072 � � 789,500 � � 617,397 � Income from continuing operations before income taxes 47,174 24,151 88,244 53,394 Provision for income taxes � 17,844 � � 8,961 � � 33,533 � � 20,198 � Income from continuing operations 29,330 15,190 54,711 33,196 Loss from discontinued operations, net of income tax benefit of $39, $64, $23 and $51 for the respective three and six month periods in 2008 and 2007 � (271 ) � (583 ) � (156 ) � (464 ) Net income $ 29,059 � $ 14,607 � $ 54,555 � $ 32,732 � � Basic earnings per share: Income from continuing operations $ 0.53 $ 0.28 $ 0.99 $ 0.62 Loss from discontinued operations, net of taxes � - � � (0.01 ) � - � � (0.01 ) Net income $ 0.53 � $ 0.27 � $ 0.99 � $ 0.61 � � Diluted earnings per share: Income from continuing operations $ 0.52 $ 0.27 $ 0.98 $ 0.60 Loss from discontinued operations, net of taxes � - � � (0.01 ) � (0.01 ) � (0.01 ) Net income $ 0.52 � $ 0.26 � $ 0.97 � $ 0.59 � � Shares used in computing per share amounts: Basic 55,279 54,104 55,211 53,955 Diluted 56,233 55,372 56,016 55,305 � � PSYCHIATRIC SOLUTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands) � � � June 30, December 31, 2008 2007 � � ASSETS Current assets: Cash and cash equivalents $ 18,780 $ 39,970 Accounts receivable, less allowance for doubtful accounts of $44,678 and $35,587 for 2008 and 2007, respectively 263,552 231,993 Prepaids and other � 78,467 � 67,382 Total current assets 360,799 339,345 Property and equipment, net of accumulated depreciation 760,065 693,677 Cost in excess of net assets acquired 1,198,598 1,073,583 Other assets � 65,755 � 72,039 Total assets $ 2,385,217 $ 2,178,644 � LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 29,656 $ 31,246 Salaries and benefits payable 86,688 82,458 Other accrued liabilities 60,640 61,794 Current portion of long-term debt � 6,052 � 6,016 Total current liabilities 183,036 181,514 Long-term debt, less current portion 1,294,909 1,166,008 Deferred tax liability 56,418 49,131 Other liabilities � 22,667 � 23,090 Total liabilities 1,557,030 1,419,743 Minority interest 4,606 4,159 Total stockholders' equity � 823,581 � 754,742 Total liabilities and stockholders' equity $ 2,385,217 $ 2,178,644 � � PSYCHIATRIC SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) � � Six Months Ended June 30, 2008 2007 � Operating activities: Net income $ 54,555 $ 32,732 Adjustments to reconcile net income to net cash provided by continuing operating activities: Depreciation and amortization 19,478 13,484 Amortization of loan costs and bond premium 1,105 1,038 Share-based compensation 10,077 7,583 Loss on refinancing long-term debt - 8,179 Change in income tax assets and liabilities 432 (716 ) Loss from discontinued operations, net of taxes 156 464 Changes in operating assets and liabilities, net of effect of acquisitions: Accounts receivable (30,529 ) (16,365 ) Prepaids and other current assets 379 (1,253 ) Accounts payable (1,453 ) (5,437 ) Salaries and benefits payable 2,604 (4,693 ) Accrued liabilities and other liabilities � (3,133 ) � 6,311 � Net cash provided by continuing operating activities 53,671 41,327 Net cash (used in) provided by discontinued operating activities � (1,468 ) � 824 � Net cash provided by operating activities 52,203 42,151 � Investing activities: Cash paid for acquisitions, net of cash acquired (157,953 ) (452,361 ) Capital purchases of property and equipment (48,769 ) (28,929 ) Other assets � (481 ) � (744 ) Net cash used in continuing investing activities (207,203 ) (482,034 ) Net cash provided by discontinued investing activities � 1,276 � � - � Net cash used in investing activities (205,927 ) (482,034 ) � Financing activities: Net increase in revolving credit facility 130,000 9,000 Borrowings on long-term debt - 481,875 Principal payments on long-term debt (2,487 ) (39,918 ) Payment of loan and issuance costs (30 ) (6,173 ) Refinancing long-term debt - (7,127 ) Excess tax benefits from share-based payment arrangements 815 3,566 Proceeds from exercises of common stock options � 4,236 � � 7,850 � Net cash provided by financing activities � 132,534 � � 449,073 � Net (decrease) increase in cash (21,190 ) 9,190 Cash and cash equivalents at beginning of the period � 39,970 � � 18,520 � Cash and cash equivalents at end of the period $ 18,780 � $ 27,710 � � Effect of Acquisitions: Assets acquired, net of cash acquired $ 164,558 $ 513,674 Liabilities assumed (6,605 ) (43,609 ) Common stock issued - (9,000 ) Long-term debt assumed � - � � (8,704 ) Cash paid for acquisitions, net of cash acquired $ 157,953 � $ 452,361 � � PSYCHIATRIC SOLUTIONS, INC. RECONCILIATION OF NET INCOME TO ADJUSTED INCOME FROM CONTINUING OPERATIONS (Unaudited, in thousands, except for per share amounts) � � � � � Three Months Ended June 30, Six Months Ended June 30, 2008 2007 2008 2007 � Net income $ 29,059 $ 14,607 $ 54,555 $ 32,732 Plus reconciling items: Discontinued operations, net of taxes 271 583 156 464 Provision for income taxes 17,844 8,961 33,533 20,198 Income from continuing operations before income taxes 47,174 24,151 88,244 53,394 Loss on refinancing long-term debt - 8,179 - 8,179 Adjusted income from continuing operations before income taxes 47,174 32,330 88,244 61,573 Adjusted provision for income taxes 17,844 11,996 33,533 23,292 Adjusted income from continuing operations(a) $ 29,330 $ 20,334 $ 54,711 $ 38,281 � Income from continuing operations per diluted share $ 0.52 $ 0.27 $ 0.98 $ 0.60 Adjusted income from continuing operations per diluted share $ 0.52 $ 0.37 $ 0.98 $ 0.69 � Diluted shares used in computing per share amounts 56,233 55,372 56,016 55,305 � (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 June 30, Six Months Ended June 30, 2008 2007 2008 2007 � Income from continuing operations $ 29,330 $ 15,190 $ 54,711 $ 33,196 Provision for income taxes 17,844 8,961 33,533 20,198 Interest expense 19,765 17,029 40,103 31,414 Depreciation and amortization � 10,069 � 7,245 � 19,478 � 13,484 EBITDA(a) 77,008 48,425 147,825 98,292 Other expenses: Share-based compensation 4,517 3,910 10,077 7,583 Loss on refinancing long-term debt � - � 8,179 � - � 8,179 Adjusted EBITDA(a) $ 81,525 $ 60,514 $ 157,902 $ 114,054 � (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 June 30, � % Change 2008 2007 Same-facility results: Revenue $ 349,169 $ 323,812 7.8% Admissions 35,568 34,121 4.2% Patient days 601,436 585,344 2.7% Average length of stay(a) 16.9 17.2 -1.7% Net revenue per patient day(b) $ 581 $ 553 5.1% EBITDA margin 21.8% 20.1% 170 bps � Total facility results: Revenue $ 405,687 $ 325,651 24.6% Admissions 42,633 34,394 24.0% Patient days 707,076 588,880 20.1% Average length of stay(a) 16.6 17.1 -2.9% Net revenue per patient day(b) $ 574 $ 553 3.8% EBITDA margin 21.1% 19.8% 130 bps � Six Months Ended June 30, %Change 2008 2007 Same-facility results: Revenue $ 672,835 $ 624,230 7.8% Admissions 68,490 66,189 3.5% Patient days 1,158,367 1,128,354 2.7% Average length of stay(a) 16.9 17.0 -0.6% Net revenue per patient day(b) $ 581 $ 553 5.1% EBITDA margin 21.9% 20.2% 170 bps � Total facility results: Revenue $ 791,083 $ 629,643 25.6% Admissions 83,234 66,839 24.5% Patient days 1,381,918 1,138,975 21.3% Average length of stay(a) 16.6 17.0 -2.4% Net revenue per patient day(b) $ 572 $ 553 3.4% EBITDA margin 21.0% 19.9% 110 bps � (a) Average length of stay is defined as patient days divided by admissions. (b) Net revenue per patient day is defined as owned facility revenue divided by patient days.

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PSYS Psychiatric Solutions, Inc. (MM)