PHC Announces Fiscal 2009 Fourth Quarter and Year-end Results and Continued Profitability

Net Income Before Taxes Improves $305,000 Sequentially

Company Reports Second Consecutive Quarter of Operating Profit

• Press Release
• Source: PHC, Inc.
• On 7:30 am EDT, Thursday September 17, 2009

PEABODY, Mass.--(BUSINESS WIRE)--PHC, Inc., d/b/a Pioneer Behavioral Health (NYSE Amex: PHC), a leading provider of inpatient and outpatient behavioral health services, reported financial results for the company's fourth fiscal quarter and year ended June 30, 2009. The results exclude the operations of the company`s research division, Pivotal Research Centers, Inc. ("Pivotal"), which was sold during the 2009 third fiscal quarter and was classified as a discontinued operation.

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Total net revenue from continuing operations was $11.7 million for the three months ended June 30, 2009 compared to $11.5 million for the three months ended June 30, 2008. Revenue increased due to higher net patient care revenue, which was partially offset by a decline in contract services revenue.

Net patient care revenue increased to $10.8 million for the three months ended June 30, 2009 from $10.4 million for the three months ended June 30, 2008. The increase in revenue is due primarily to the increase in capitated contract rates, increased utilization of step down programs and the opening of Seven Hills Behavioral Institute and Capstone Academy. Contract support services revenue provided by Wellplace declined to $0.9 million for the three months ended June 30, 2009 compared to $1.1 million in the year earlier period. The decrease is due to the expiration of the company's smoking cessation contract with a government contractor. The company currently has a bid to continue and expand the contract should the contractor decide to continue the program. PHC expects to offset the decrease in revenue through new contracts for EAP (Employee Assistance Programs) and Smoking Cessation programs.

Income from operations was $381,661 for the 2009 fiscal fourth quarter compared to $97,540 for the 2009 fiscal third quarter, and $394,571 for the fiscal 2008 fourth quarter. Fiscal 2008 operating income excludes a $1.8 million impairment loss at Pivotal. Net income before taxes for the 2009 fiscal fourth quarter improved approximately $305,000 sequentially to $317,086. Income from operations included a loss of ($743,000) associated with the Capstone Academy and Seven Hills compared to a loss of ($412,000) associated with the above facilities in the same period a year earlier. As a result, Capstone generated an operating loss for the 2009 fiscal fourth quarter of ($166,000) as a result of these additional expenses, compared to the Academy generating pre-tax income of $239,000 in the 2008 fiscal fourth quarter. Capstone is currently profitable.

The net loss was $253,589 or $(0.01) per share (based on 20.0 million basic and fully diluted shares), which compares to a net loss of $1,113,150 or $(0.05) per share (based on 20.2 million basic and fully diluted shares) in the year-earlier period. The fiscal 2008 loss included a $1.8 million impairment to reflect the decreased value of the intangible assets of Pivotal.

As of June 30, 2009, the company had cash and cash equivalents of $3.2 million. Our days sales outstanding declined from 57 days at the end of fiscal 2008 to 55 days at the end of the 2009 fiscal year.

"We continue to generate improved operating results reflecting strong demand at Capstone and Seven Hills," said Bruce A. Shear, Pioneer's president and CEO. "Capstone, which became profitable mid-way during the fourth quarter, is currently at capacity with a waiting list for beds, while Seven Hills has experienced higher census. In addition, we have seen significant utilization increases at many of our other facilities. We believe that utilization rates will continue to grow in the coming months, particularly in Seven Hills once we receive CMS Medicare certification. We have also improved profitability due to contracts such as the one we recently announced with the Salt Lake City Veteran’s Administration Medical Center (“the VA”) to provide behavioral health services at PHC’s Highland Ridge Hospital in Salt Lake City, Utah and the renewal of existing contracts at improved margins. We also today opened a new substance abuse unit at our Harbor Oaks Hospital in Michigan, which should enhance profitability there. As a result of our improved operating results and stronger balance sheet, we are now in position, for the first time in several years, to selectively pursue accretive acquisitions which would allow the company to expand in key markets. We expect our 2010 fiscal first quarter to be stronger than the 2009 fourth quarter, and expect increasing profitability during the balance of calendar 2009 and 2010.”

Some of the recent and fiscal 2009 highlights include:

• Opened Seven Hills Behavioral Institute. Seven Hills Behavioral Institute, the company`s facility that provides adult inpatient and partial hospitalization programs for mental health and substance abuse issues in Henderson, Nevada officially opened in May, 2008. PHC is currently awaiting CMS Medicare certification which will allow it to gain government reimbursement for many of the services it provides. The company that this certification, when obtained, will significantly increase census at the facility.
• Opened Capstone Academy. The facility, located in Detroit, Michigan, opened in January. Capstone represents the next phase of PHC's efforts to provide expanded residential treatment services to adjudicated youth in the Detroit metropolitan area.
• New Contract with the VA. PHC was awarded a contract by the VA to provide behavioral health services at the Company’s Highland Ridge Hospital in Salt Lake City, Utah. The initial term of the contract is nine months, with six-month renewal periods. PHC is guaranteed a minimum of $1.24 million under the initial term. Revenue for each six-month contract extension would be $792,000. Highland Ridge will provide the VA with eight psychiatric and detoxification beds. PHC also has the opportunity to receive additional revenue for providing care for patients beyond the allocated beds on a fee-for-service basis.
• Improved profitability on contractual services. PHC reported profitability for the second consecutive quarter as a result of significant rate increases from two major renegotiated contracts which became effective January 1, 2009 and higher utilization at many of its facilities.
• Completed divestiture of Pivotal. The Company completed the sale of Pivotal to Premier Research Group PLC for total consideration of up to $5.0 million, including a $2.0 million earn-out. The divestiture of this business allows Pioneer to focus on its core business of delivering behavioral health programs and services.

Total revenue increased to $46.4 million for the year ended June 30, 2009 from $45.4 million for the year ended June 30, 2008. The company’s net income from continuing operations decreased to $(1.1) million for the fiscal year ended June 30, 2009 compared to net income from continuing operations of $2.4 million for the fiscal year ended June 30, 2008 due to startup costs associated with the Seven Hills and Capstone facilities. Net income decreased to $(2.5) million for the fiscal year ended June 30, 2009 compared to net income of $0.3 million for the fiscal year ended June 30, 2008.

The Company will hold a conference call at 10:00 a.m. eastern time today to discuss the results. Interested participants may dial 888-713-4215 (domestically) or 617-213-4867 (internationally). Please use passcode 89917647. A replay of the call will be available beginning at 1 p.m. eastern time. To access the replay, interested parties should dial 888-286-8010 (domestically) or 617-801-6888 (internationally). Please use passcode 12684616. The conference call will also be broadcast simultaneously on the Company's web site at www.phc-inc.com.

About PHC d/b/a Pioneer Behavioral Health

PHC, Inc., d/b/a Pioneer Behavioral Health, is a national healthcare company providing behavioral health services in five states, including substance abuse treatment facilities in Utah and Virginia, and inpatient and outpatient psychiatric facilities in Michigan, Pennsylvania, and Nevada. The company also offers internet and telephonic-based referral services that includes employee assistance programs and critical incident services. Contracted services with government agencies, national insurance companies, and major transportation and gaming companies cover more than one million individuals. Pioneer helps people gain and maintain physical, spiritual and emotional health through delivering the highest quality, most culturally responsive and compassionate behavioral health care programs and services. For more information, visit www.phc-inc.com.

Statement under the Private Securities Litigation Reform Act of 1995

This press release may include "forward-looking statements" that are subject to risks and uncertainties. Forward-looking statements include information about possible or assumed future results of the operations or the performance of the Company and its future plans and objectives. Various future events or factors may cause the actual results to vary materially from those expressed in any forward-looking statements made in this press release. For a discussion of these factors and risks, see the company's annual report on Form 10-K for the most recently ended fiscal year.

PHC, Inc.
Bruce A. Shear, 978-536-2777
President & CEO
or
Investor Relations:
CEOcast, Inc.
Dan Schustack, 212-732-4300