America Service Group Inc. (ASGR)
Q1 2010 Earnings Conference Call
April 28, 2010 11:00 AM ET
Rich Hallworth – President and CEO
Mike Taylor – EVP and CFO
Jon Walker – SVP, Business Development
Wes Huffman – Avondale Partners
Mike Lamb – Wealth Monitors
Kevin Campbell – Avondale Partners
Previous Statements by ASGR
» America Service Group Inc. Q4 2009 Earnings Call Transcript
» America Service Group Inc. Q3 2009 Earnings Call Transcript
» America Service Group Inc. Q2 2009 Earnings Call Transcript
Ladies and gentlemen, thank you for standing by. Welcome to the America Service Group first quarter 2010 conference call. During the presentation all participants will be in a listen-only mode. Afterwards we will conduct a question-and-answer session. (Operator Instructions)
As a reminder, this conference is being recorded Wednesday, April 28, 2010 and I would now like to turn the conference over to Rich Hallworth, President and Chief Executive Officer. Please go ahead.
Good morning. Welcome to our Q1 2010 earnings conference call. A copy of our press release addressing our first quarter results can be found on our website, www.asgr.com. Before asking Mike Taylor to discuss our specific financial performance for the quarter and our financial position and guidance, I'd like to make a few remarks. My comments will be brief and succinct.
We had a great first quarter beating our internal expectations leading us to increase our full year guidance. Our contract portfolio is performing well. We did not experience any significant unexpected medical expenses or malpractice costs in this quarter.
Our balance sheet continues to be very strong with $41.5 million of cash on hand at the end of the quarter up from $37.7 million at December 31, 2009 and we still have no debt. Our day sales outstanding crept up slightly from 25 days at year end to 28 days at the end of Q1.
Our management team has been and will continue to devote substantial efforts this year preparing and submitting proposals responsive to the robust pipeline of new business opportunities. We have new bids pending or in process in excess of $370 million of annual revenue potential, the largest of which are the Maryland DOC and the Greenfield RFP to serve the Arizona DOC.
For current clients last week we submitted our proposal to continue to serve Rikers Island in New York City upon the December 31, 2010 expiration of our current contract. This is our only material contract with a contractual expiration in the next 12 months.
In addition to this act of proposal pipeline, we are still expecting several more opportunities in the near future. Over the next 12 months we anticipate additional request for proposals with over $300 million in additional annual revenue potential including the Georgia and Mississippi DOCs among others. There is, of course, no guarantee that all of these RFPs will be issued or awarded, nor can we assure that we will bid on each of them.
In yesterday's press release we also provided increased earnings guidance for 2010. We are now guiding to adjusted EBITDA of $24.5 million up from our earlier target of $23 million. Our new adjusted EBITDA target represents a 26% increase over our actual 2009 performance. Consistent with past practice this guidance does not include any potential contracts with new customers.
We understand that some of you might expect higher earnings potential than our upgraded guidance based upon our recent performance. We are hesitant to annualize our good first quarter. There are unknown but likely costs, which might arise in the last nine months of the year. We believe that our guidance sets realistic expectations for the full 2010 fiscal year.
As announced in yesterday’s press release, our Board of Directors has again declared a $0.06 per share dividend for the quarter. On behalf of the management team, we are pleased with the progress we are making to continuously improve this company making us the right choice for state and local governments seeking a partner in the delivery of cost effective quality healthcare services to their incarcerated population.
I now like to ask Mike Taylor, our Executive Vice President and Chief Financial Officer to speak in more detail about financial matters. Following Mike's remarks, Jon Walker, our Senior Vice President in Business Development who is joining us today by phone from the West Coast will also be available for questions. Mike?
Thank you, Rich, good morning everyone. Almost every measure the first quarter produced a very successful start financially to 2010. The contract portfolio continues to produce results above expectations with gross margins on continuing contracts at 9.5% in the quarter.
Adjusted EBITDA of $6.8 million in the first quarter was well above our expectations as such we've increased our full year of 2010 expectations for this measure to $24.5 million from $23 million.
Net income of $3.2 million in the first quarter of 2010 nearly matched the $3.3 million we produced for all of 2009. We've now increased our guidance for full year net income for 2010 to $10.8 million.
Cash flows and accounts receivable management remained strong in the quarter resulting in the company having $41.5 million of cash and no debt at the end of the first quarter.
Let’s review some of the financial details related to the first quarter results. Healthcare revenues were $162.5 million in the first quarter, an increase of 30.6% over the prior year quarter. As a reminder, healthcare revenues only included those revenues from healthcare service contracts that continue to operate subsequent to the end of the first quarter of 2010 due to the accounting requirements related to discontinued operations. U.S. GAAP requires us to present expired healthcare service contracts as discontinued operation and collapsed the revenues and direct expenses of those contracts and there's a line item on our income statement that is titled income or loss from discontinued operations net of taxes.