PSYS Psychiatric Solutions, Inc. (MM)

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.