PHC: Roth Capital Conference Presentation Transcript

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PHC, Inc. (PIHC.OB)
Roth Capital Conference
February 22, 2007 12:30 pm ET

Executives

Bruce Shear - President and CEO

Presentation

Moderator

Okay, we’ll go and get started. The next company to present today is Pioneer Behavioral Health. The company provides psychiatric services to individuals who have behavioral health disorders, including alcohol and drug dependency, and to individuals in the gaming and transportation industries.

With us today and presenting on behalf of the company is Bruce Shear, President and CEO. Bruce?

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Bruce Shear

Thanks a lot. Thank you all for joining us. It's great to be here and it's been certainly a wonderful event for us and a momentous time for us to be out presenting to the investment community.

I’ll just move forward here, you have all read that too many times. There is a lot of stuff going on with Pioneer. I see a lot of familiar faces and a lot of new faces, lot of our current shareholders, and hopefully some people that I haven’t met that may be our shareholders or may join our team very, very soon. So, I thank you all for joining us.

I apologize in advance for my voice. I think I picked up something on the airplane while coming west on Monday and it's been downhill since then. For those of you that haven’t been following our press releases of recent, we just received listing on the AMEX and we started trading under a new symbol yesterday morning under the symbol PHC.

We are very excited to be an AMEX-listed company, and we will be in New York next week, ringing the opening bell on Tuesday morning. This is something that our investors have been asking us about for a number of years and it was great to have it all come together.

Pioneer Behavioral Health, we are a behavioral health provider. That means, we provide both inpatient and outpatient managed care services for alcohol, drug, and psychiatric care.

We are one of the leading providers of inpatient behavioral healthcare in the country. We are the largest provider of behavioral health services to both the gaming and the transportation industries in the country. We operate in a number of states; Massachusetts, Michigan, Nevada, Utah, Arizona, and Virginia. We will talk a little bit about the growth in every one of our markets, as we walk through the presentation.

The slides are coming up about as slow as I am acting today, so it's actually good. This is a growing market. Behavioral health is an industry that has come of its own and is a $100 billion plus industry. We have very strong regulatory environment today. Reimbursement is improving and we are on the verge of a national Parity Act that will pass finally, we expect, in the next 30 to 60 days. It's actually 75 to 80 days.

We require that all companies that provide health insurance in this country and all insurance companies and companies that have 50 or more employees, they are going to have to provide a quality and benefits. Meaning that, they are going to have to provide the same benefit level for all members. The same is for behavioral health issues, as they do for any other medical surgical issues.

There are 40 states now that have a Parity Act. It’s not quite as strong as the one we expect. This has been gaining more and more traction. I think with recent activity with some famous members of Congress that have come publicly, some of their illnesses got some more traction.

What we are seeing here in our industry is a very favorable regulatory environment. We believe that we are in the middle of an ever-ongoing, increasing mental health crisis in America. We think it started back with Columbine, back six years ago. September 11 was another catalyst.

What it has provided for us is a number of things. It has provided really a recognition that it’s okay to talk about mental illness. And with that, it has promoted better reimbursement. It has promoted willingness for many folks to seek treatment. And it has also put a lot of pressure on the government. It has put pressure on private industries to provide a good reimbursement level.

So, that’s really been a very positive-positive event for us. And with that broad exposure for our industry, we now have a well respected industry that’s profitable, that’s growing. We have industry [comps] that we can direct people to and it's really been very positive for our company and for the behavioral health industry as a whole and certainly for this nation.

We have three operating divisions and I will talk a little bit about each one; our Hospital and Clinical Services Division, our Integrated Delivery Services and Wellplace Division, and our Clinical Research Division.

This is our revenue breakdown for the first quarter of fiscal 2007. We are a 6/30 fiscal year. The predominant amount of our revenue is on the Hospital side and secondarily on our Wellplace side. What we're going to be seeing now is a higher percentage going in our alternate delivery.

That 11.4% number, we anticipate, will increase as a percentage of the pie and we anticipate that the pharmaceutical research will probably go down as a percentage of that pie. Especially in light of the large contract that we announced back in December with Sierra Health, it’s an $80 million contract, the largest in our company’s history. The contract was implemented in January of this year.

We have a cast of, I think, Fortune 100 firms that have great name recognition. We are the largest provider of behavioral health services to both the gaming and the transportation industries in the country today. Some of our large customers on the gaming side are the MGM, The Venetian, the Hilton, Excalibur, and Luxor.

On the transportation side; Union Pacific road is the largest road in the world, is one of our longest term customers and has been a client of ours for going on 17 years; CSX; Conrail; and Canadian Pacific. We do business with many of the largest union trust funds in the country.

This is our Hospital Division. We have a 41-bed psychiatric and chemical dependency hospital in Salt Lake City, Utah; 25-bed alcohol and drug treatment facility in Roanoke, Virginia; 64-bed acute psych hospital in New Baltimore, Michigan, which is just north of Detroit; and we have now operating two out three stages of a 114-bed hospital on the campus of the Detroit Medical Center, which is in downtown Detroit.

We are now operating a 20-bed girl's adjudicated program, 30-bed boy's adjudicated program, and we have another 55 to 60 beds that we anticipate we’ll be opening late in this calendar year.

Our biggest initiative to-date is a brand new 60-bed acute psychiatric hospital that will be opened in Henderson, Nevada. This is the first new psychiatric hospital in the Las Vegas area in over 20 years and perfectly fits in plans, really in sync with what our company has been doing and the contracts that we've signed recently and we will talk a little bit about it.

We are growing. We are growing at an accelerating rate. Starting in this current quarter, we will see consecutive growth in revenue rolling out through at least the next four or five quarters. The company did little bit short of $40 million in revenue last fiscal year. And based on what we publicly announced, we are seeing $65 million to $70 million in revenue in 24 months. So, you will see an accelerating growth rate, and we talked about our new hospital and our major contracts that we just initiated.

Bed count, apparently, I actually gave some one the wrong number. We have 180 beds operating right now. And with the 110 new beds, both the third phase in the Detroit operation and our Las Vegas hospital, we are going to see the significant ramp up in our inpatient bed capacity.

Our Integrated Delivery Services, Harmony Healthcare provides that services to the Sierra under the Sierra contract. That contract again is a 10-year, $80 million contract. It was initiated in January of this year. So, we are just beginning to rollout those services. We provide outpatient services and employee assistance programs. We talked a little bit about our customer base that I mentioned in the past.

We provide smoking cessation program to a large contract through the Department of Defense, through Lockheed Martin. It's a four-state pilot program and we are hopeful. We are in the second year of this contract. It was just renewed. And we are hopeful that they will expand it beyond the four-state pilot program. This is an $800,000 contract for just four states and we are hopeful that there is some potential for that to grow beyond where we are.

We talked about the contract, again, largest in our company's history. Prior to that, the largest contract in our company's history was back just in July with the Culinary Union, which was the second largest insurance company in Nevada. So, we now have, under exclusive contract, the three largest insurance companies in Las Vegas; Sierra, number one; Culinary, number two; and PacifiCare, number three.

So, we are servicing over 700,000 lives in the Las Vegas market, which really just will make the rollout of our inpatient hospital, a non-event in terms of reaching above breakeven and profitability.

We talked a little bit about smoking cessation and we talked about some of our other contracts. We have two large call centers and I want to say that everything we do is focused on the behavioral health space. So, that's what we do. That's what we do well. We talked about smoking cessation. It's in the behavioral health space. We talked about employee assistance in the behavioral health space. So, we are a very focused company, which is very integrated both up and down the food chain in terms of the behavioral health space.

Our third area and our third division is our clinical research company called Pivotal Research. This is a business we bought about three years ago. Previous to that, we operated a small clinical research division in Detroit and our decision really was to either get out of that business or find a company that had management in place and a track record.

We bought Pivotal. We have offices in Peoria and Mesa, Arizona, and Salt Lake City, Utah now. This is the business that did about $5 million in revenue last year and was profitable. We are in the process of adding a 15-bed inpatient Phase I unit, that we anticipate coming online probably April of this year.

In terms, of the clinical research, I have put up a couple of slides here. The phRMA spending obviously continues to grow. If you look at the slide here at the first amount, the drugs and development by therapeutics area, the number one drugs in development are in the central nervous system behavioral health area.

So, in terms of development projects, we certainly are in the sweet spot of the phRMA area and an area that we would anticipate continuing to grow.

One of the challenges that we've had with this division is that, pharmaceutical studies come and go. So, it’s very hard for us to have a perfect crystal ball in terms of projecting revenue, other than the fact that we feel year-over-year this company will get stronger and better. But we can't do a good job. We don’t do a good job projecting it quarter-to-quarter. But again, in the three years that we have owned it, it's been profitable every year; it's generated positive cash flow.

Second quarter revenue is about $10 million, 15% higher than last year. Income from operations is up. The second fiscal quarter for our company is our seasonally weak quarter. People just don’t come in and seek treatment in November and December. This quarter is followed by the third quarter and the fourth quarter, which is our seasonally strongest quarter.

So, right now February through May, we are experiencing very strong occupancy in our hospitals and pretty much at bed capacity as to where we are right now.

Last fiscal year, $38 million in revenue, reasonable top-line growth of 11.6%, reasonable bottom-line growth, and earnings per share growth. And again, as we say, it is based on the projects that we publicly announced. In 18 months to 24 months, we are anticipating that our revenue will be in the $60 million to $65 million range, just based on the programs and the projects that we publicly announced.

We had a great balance sheet. The good news is we have plenty of cash, we have no debt. Company debt is, in aggregate, less than $3 million, and we have an excellent current ratio and shareholders equity with money in the bank and an unused line of credit.

So, we are in a very good position for continued growth, where we are not leveraged at all, as some people would say. So, the balance sheet can support whatever growth initiatives that we may have coming down the pipe.

In summary, record 50-year revenues, record earnings, revenue growth was 14% for the second quarter. We believe we are in the middle of a mental health crisis, so our industry is well respected, well supported, and very profitable right now.

There are some good industry [comps] and number of companies that have research coverage that really talk about the depth of the industry and the potential future profitability of the industry going forward.

We just had an analyst report that came out yesterday morning. Matt Hayden's group can certainly get that if you leave your business card with him, 21st Century out of the Milwaukee area. This was an unpaid research and it was a very comprehensive report that took a look at the company going for the next couple of the years and I think set some pretty reasonable goals and pretty reasonable price pattern.

Management team, we have a senior management team that’s been with our company for a long time. We've not had a lot of turnover at the highest level. Our executive committee is made up of these five individuals. We meet as a group every single month in person and we review all of the financial statements of our company.

We have every one of our CEOs participating in a one-hour conference call with a report on key metrics of their company in terms of they are tracking based on budget, based on projections, based on quality measures.

We have a very active quality assurance program. We have a very active compliance program going on. We are also in the middle of an installation of a brand new billing and collection software package that we purchased from Meditech, which is one of the nation’s industry leaders in terms of healthcare software design and development.

We will have a soft launch at April or May of this year and a full launch by July of this year. So, what we've done is, we've sort of stepped up to the plate and taken all the initiatives to have a software program that will be state-of-the-art, that will be how to lead our company to the next level that we've already reported, and certainly take us out many, many years to come without having to have problems with their software.

That being said, that's the end of my formal presentation and we are happy to open it up to any questions you may have.

Question-and-Answer Session

Moderator

Thanks, Bruce. We have time for a couple of questions.

Unidentified Audience Member

Hi. On the Hospital side of your business, what percentage of patient base would you say are related to schizophrenia, people following after a typical regimen?

Bruce Shear

Schizophrenia is specifically a psychiatric in general. Our 64-bed psychiatric hospital is the primary psych hospital. Our 25-bed hospital in Roanoke is a primary substance abuse hospital and our 41-bed hospital in Salt Lake City is about 50% psychiatric and 50% substance abuse or rather inpatient adjudicated beds that are basically changeover issues of [New York].

Unidentified Audience Member

[Question Inaudible]

Bruce Shear

20% may be.

Unidentified Audience Member

[Question Inaudible]

Bruce Shear

Yeah. Schizophrenia I think is not as struggling as it was ten years ago. You don't see we are (inaudible) seeing different kinds of issues that we were seeing in the past. Other questions?

Unidentified Audience Member

On the psychiatric solutions, which is the leader in the industry, it's been consolidating, it looks like a pretty fragmented industry, can you just talk about may be the acquisition landscape and are you a target for them and etcetera?

Bruce Shear

We are a target for everyone right now. And I will give you the same answer that I have given really all of our larger shareholders is that, based on our growth initiatives that we have publicly announced our focus right now is to spend the next 24 months growing our company. And if we execute that we are going to have much higher shareholder value and we believe a much higher share price, we will be more attractive for our shareholders.

So, for the time being, we are coming to work, working our tail offs every single day, executing on the plan that we have announced to grow the company. And when we get to the next level, we will have the next conversation.

We are a very attractive company. We've been in business as long as anybody in the industry. We have the most diverse customer base as anybody in the industry, due to our client base, the way we are diversified throughout the behavioral health space. And we are not the largest provider, but we provide more different kinds of behavioral health services to more a larger customer base in the gaming and the transportation industry. So, we are a very attractive company in that regard.

But, again, my official answer is, we are going to work our tails off and we are going to build that company over the next couple of years and then we will see where it goes. One more question, I think, and that's it. And then we are here for breakouts.

Unidentified Audience Member

Good. You've done a great executing on the plan you made out two years other than the Sierra surprise, I was wondering, you can hit the end of that growth plan when you open Henderson at the end of the year. So, I was just wondering, do you expect at the end of the year to give us an updated growth plan as we head into '08 or are we going to see a little more like Sierras, that type of surprise, upside surprise?

Bruce Shear

Surprises are good when they are good. Obviously, this was one of the -- you don’t run across contracts like it's very, very often. But there’s growth in [browsing] in it. I think our focus is on two major markets, Nevada and Michigan. And what we want to be is the leading provider of behavioral health services in both of those markets. So, we are out there. I just came from Las Vegas.

For last couple of days, earlier in the week, we had many, many, many more opportunities. I can't tell you, there’s $80 million contract left out there. But our sweet spot really is the $1 million to $2 million to $3 million to $4 million contracts. And I think there is number of those and we hope that we can execute on in the next year or two, and we can provide good surprises. I think it will be great. It sounds certainly a nice one.

Moderator

Thanks, Bruce. The company will host a breakout in the breakout section. Thank you.

Bruce Shear

Thanks.

TRANSCRIPT SPONSOR Hayden Communications ("HC") is a premier information resource to institutions, hedge funds, independent portfolio mangers, buy-side and sell-side analysts, small to large retail brokerage firms and accredited individual investors. With integrity and knowledge, the team of investment professionals at HC draw from “Wall Street” and media backgrounds and continuously strive to maximize the ongoing corporate visibility and market capitalization of clients though a multi tier proactive program. Confidence is essential for a client to attract key investors, customers, and employees. Through a proven track record of exceptional performance, Hayden Communications has established confidence in the marketplace one investor at a time. Read all investor conference presentation transcripts here. To sponsor an investor conference presentation transcript please contact us.

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