Q3 2019 Earnings Call

Good morning, and welcome to the American addiction centers third quarter 2019 earnings Conference call.

Yes, Ben will be in listen only mode should you need assistance, we signaled conference specialist by pressing the star <unk> followed by zero. Please note. This event is being recorded.

I'd now like turn the conference over to Andrew Mcwilliams CFO . Please go ahead.

Good morning, and walk into earnings call for the third quarter 2019, I'm, Andrew Mcwilliams, Chief Financial Officer Basi Holdings.

To the extent any non-GAAP financial measures used in today's call you'll find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP on our website by following the Investor Relations linked to this morning News release. This conference call may contain forward looking statements within the meeting of the private Securities Litigation Reform Act of 1995 good.

These statements among others regarding 18th expected annual performance for 2019 for this purpose any statements made during this call but are not statements of historical facts may be deemed to be board lookingstatements without limiting that they're going to words believes anticipates plans expects and similar expressions are intended to identify forward looking statements.

You are hereby cautioned that these statements may be affected by the important factors among others set forth in age these filings with the Securities and Exchange Commission and the company's third quarter 2019 earnings release, and consequently, actual operations. It operations and results may differ materially from the results discussed in the forward looking statements.

Company undertakes no obligation to update publicly any forward looking statements. When there was a result of new information future events or otherwise.

I would now like turn the call over to our chairman and Chief Executive Officer, Michael Cart right.

Thank you Andrew and good morning, everyone before we start their earnings discussion I'd like to make a few comments about veterans day.

Studies indicate that Washington veterans have been diagnosed with substance abuse disorder. However, we believe there maybe even more of our nation's heroes and take care.

Sure in American addiction centers, we've made it on an annual tradition to provide free care on veterans day, as our way of getting back to those who have sacrificed for our nation's freedom.

Absolutely and absorbing veterans day AC provided 30 days of free inpatient care to 10 members of the armed forces, we opened a dedicated heartland for better.

However, our commitment to veterans year round.

These include our subject to recovery treatment program Desert Hope and recovery first which is a dedicated treatment program to military veterans in first responders and our corporate initiatives to establish a sample across the company comprised 25%.

On today's call I'll be discussing a recent operational highlights before turning the call to enter to walk through our financial results.

But we still have a lot of work to do I am pleased with the sequential progress we've been making this year.

For the third consecutive quarter, we continue to see positive momentum in 29.

The expense saving initiatives implemented in late 2018 and into 2019 are continuing to have positive impact.

Operating expenses have decreased by 23 million or 28% kinda third quarter of 2019 compared to the third quarter 28.

Representing over 100 million an annualized savings.

<unk> expense saving initiatives included the consolidations and our Las Vegas, Southern California, Southern Florida markets celebrate towns and operations in Louisiana consolidation of our lab operations and corresponding reductions in our corporate expenses.

Well these cost saving initiatives began in late 2018, they are continuing throughout the remainder of 2019 as we continue to optimize our existing infrastructure to deliver high quality care and efficient manner.

There are several additional vendor cost savings initiatives that we have been working on that will result in further expense reductions in our corporate expenses beginning in 2020.

As previously announced we have added three independent board members, who bring extensive expertise to the company.

I'm very excited to add their expertise to the board. The Newman burst include Michael Logan.

Bob Nash and Scott vocal.

The new <unk>, the new members joined myself carry Bosselmann Lucius Birch on the board of Directors I would also like to make a few comments about our listing on the New York stock.

As we've shared at our recent sexy filings, we're transitioning from the New York Stock Exchange 20 of extraction, we're finalizing our plans to be listed on the new exchange. The stock is currently traded on the LTC under the ticker symbol a C. H, we remain a publicly traded company and still follow all the same 60 reporting requirement that we have historically followed.

Turning to the balance sheet. We're pleased to have recently reached a mutual agreement with our senior secured lenders that provided the company with 5 billion of additional liquidity and gives the company through March 31, 2020 to improve the balance sheet and reduce our cost of cap.

We remain committed to our strategic initiatives to improve the balance sheet and enhanced valued all stakeholders as we've discussed on previous calls we launched a process to evaluate our strategic alternatives related to our balance sheet and we're currently engaged in discussions with multiple third parties and I look forward to sharing more to you on future calls.

I'll now turn the call over to Andrew to discuss our financial results.

Thank you Michael for the third quarter of 2019 total revenue decreased by approximately 4 million or 7% to 59 million from 63 million in second quarter. This year revenue during the third quarter of 2019 was negatively impacted by additional reserves recorded against Dale can outstanding accounts receivable related you closed facilities.

One other changes in estimates, which totaled approximately $2 million.

The remaining 2 million decrease in revenues primarily related to decline in our non client related revenue, which includes criminal justice programs in the new England area and declines in inpatient average daily revenue as result of changes and payer mix.

Average daily in patient census remain materially consistent at 791 in the third quarter 2019, compared to 802 in the second quarter of 2019.

Average daily inpatient revenue in the second quarter 2019 decreased to $704 per day from $790 per day in the second quarter 2019.

Of the $86 per day decline in the average daily revenue, approximately 20% or $16 that decrease related to additional reserves reporting third quarter of 2019 related to the closed facilities and other changes in estimates that I noted a few moments ago.

The remainder of the decrease in average daily inpatient revenue was due to unfavorable payer mix. However, it is worth noting that on a year over year basis, our average daily patient revenue remained materially consistent with the third quarter 2018.

The $4.1 million decrease in diagnostic services revenue was directly related to additional reserves reported in the second quarter 2019 that were more onetime in nature and did not reoccur to the same level in the current quarter overall, our volume for diagnostic services revenue remained materially consistent on sequential basis.

The cost savings initiatives that we've discussed on prior calls related to consolidation of bed facility combined with improvements in our corporate as Sanjay SGN I have resulted in a reduction of operating expenses of 23 million or 12% down to 61.1 million in the third quarter from 69.1 million in second quarter of 2019.

On a year over year basis operating expenses are produced by 23 million or 28% compared to the third quarter of 2018.

These improvements in operating expenses had a positive impact on adjusted EBITDA on a sequential basis. Adjusted EBITDA went from a loss of 12 million in the fourth quarter of 2018 to a loss of 7 million in the first quarter of 2019 to positive adjusted EBITDA of 3 million in the second quarter of 2019 and into positive adjusted EBITDA of 6 million.

In the third quarter 2019.

This represents an 18 million or 150% improvement in quarterly adjusted EBITDA since the fourth quarter of 2018 overall as Michael mentioned early on this call. While we still have a lot of work to do I'm pleased with sequential momentum that we've had so far in 2019.

We continue to remain focused on improving both the topline revenue and our operating expenses assure that we're delivering high quality care as efficient as possible. In addition, we remain committed to improving the balance sheet and reducing our cost of capital through the strategic alternatives that my goal discussed earlier.

Turning to our 2019 guidance our full year guidance has revenue in the range of 230 to 240 million in adjusted EBITDA in the range of six to 8 million I will now turn the call over to Michael for a few closing remarks.

Thank you Andrew.

I would like to take this time to think our doctors clinicians and staff for their incredible dedication and professionalism and the labs, they're saving every day.

Just in the first nine months of this year, we have treat 15000 new out inpatient.

And there.

Just.

The first nine months of this year, we have treated 15000, new patients in our inpatient facilities that delivered over 113000 outpatient visits at our outpatient centers, we receive countless stories from our patients and their families on how we saved and impacted their lives I would like to take a moment to briefly share one of these stories.

It's an exact X or from a letter from a patient at our greenhouse treating facility in Texas.

I'd like to personally thank you for hoping to get me in this fine facility never have I've met such carrying individuals.

This establishment, there's nothing short of absolutely amazing.

Hi, genuinely feel like greenhouse has given me a new lease on life and it's literally save my life.

These people don't just work racy they save lives.

Please recommend this facility to any and every person suffering from this marks the study.

Thank you and God Bless every single person affiliated with this beautiful program.

Again. This is just one example of the impact we're having one thousands of lives and families across America.

I again want to say, thank you to our board of directors our staff, it's been a very very tough year, but as you can tell we're still treating 15000, new patients 113000 outpatient visits so far just this year.

I ought to be the CEO and chairman of Board American mixing centers I. Appreciate your interest in our company and look forward to talking to you on the next call have a good day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.