PSYS Psychiatric Solutions, Inc. (MM)

Psychiatric Solutions, Inc. (“PSI”) (NASDAQ: PSYS) today announced financial results for the third quarter ended September 30, 2010. Revenue increased 12.2% for the quarter to $508.5 million from $453.2 million for the third quarter of 2009. Income from continuing operations attributable to PSI stockholders increased 89.7% to $53.7 million for the third quarter of 2010 from $28.3 million for the third quarter last year and 88.0% per diluted share to $0.94 from $0.50. Results for the third quarter of 2010 included transaction costs of approximately $2.4 million, which were related to PSI’s previously announced definitive agreement providing for the acquisition of PSI by Universal Health Services, Inc.

PSI’s same-facility revenue for the third quarter of 2010 grew 10.4% from the third quarter of 2009, primarily due to a 4.0% increase in patient days and a 6.1% increase in revenue per patient day. The Company expanded its same-facility EBITDA margin to 27.3% for the third quarter from 20.7% for the third quarter of 2009. Consolidated adjusted EBITDA increased 51.6% to $121.5 million, or 23.9% of revenue, for the third quarter of 2010 from $80.2 million, or 17.7% of revenue, for the third quarter of 2009. A reconciliation of all GAAP and non-GAAP financial results in this release can be found on page 5.

Net cash from continuing operating activities for the third quarter of 2010 increased 85.5% from the third quarter of 2009 to $68.9 million. Capital expenditures, primarily for maintenance and the addition of beds to facilities, totaled $24.8 million for the quarter. PSI made $51.2 million of principal payments on long-term debt during the quarter, including a $50 million optional prepayment on its senior secured term loan. PSI’s ratio of debt to total capitalization improved to 48.2% at the end of the third quarter of 2010 from 50.6% at the end of the second quarter of 2010 and 56.2% at the end of the third quarter of 2009. In addition, the ratio of debt to adjusted EBITDA for the trailing 12 months improved to 2.8 at the end of the third quarter of 2010 from 3.3 at the end of the second quarter of 2010 and 4.0 at the end of the third quarter last year. PSI completed the third quarter of 2010 with $43.4 million in cash and cash equivalents and no borrowings under its $300 million revolving credit facility.

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 11,000 beds in 32 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, 2010 2009 2010 2009     Revenue $ 508,544 $ 453,187 $ 1,487,194 $ 1,342,404  

Salaries, wages and employee benefits (including share-based compensation of $4,946, $4,249, $12,738 and $13,525 for the respective three and nine month periods in 2010 and 2009)

256,713 252,617 779,486 746,807 Professional fees 46,921 42,040 142,567 124,332 Supplies 24,350 23,137 72,332 69,549 Rentals and leases 4,893 5,040 14,571 15,169 Other operating expenses 50,216 44,600 157,427 126,687 Provision for doubtful accounts 8,615 9,817 30,552 26,569 Depreciation and amortization 12,968 11,436 38,237 32,904 Interest expense   16,663     18,551     49,714     53,263     421,339     407,238     1,284,886     1,195,280   Income from continuing operations before income taxes 87,205 45,949 202,308 147,124 Provision for income taxes   33,277     17,651     77,572     56,380   Income from continuing operations 53,928 28,298 124,736 90,744 Loss from discontinued operations, net of taxes   (796 )   (153 )   (8,221 )   (464 ) Net income 53,132 28,145 116,515 90,280 Less: Net income attributable to noncontrolling interest   (247 )   7     (297 )   (338 ) Net income attributable to PSI stockholders $ 52,885   $ 28,152   $ 116,218   $ 89,942     Basic earnings per share: Income from continuing operations attributable to PSI stockholders $ 0.96 $ 0.51 $ 2.23 $ 1.63 Loss from discontinued operations, net of taxes   (0.01 )   -     (0.15 )   (0.01 ) Net income attributable to PSI stockholders $ 0.95   $ 0.51   $ 2.08   $ 1.62     Diluted earnings per share: Income from continuing operations attributable to PSI stockholders $ 0.94 $ 0.50 $ 2.19 $ 1.61 Loss from discontinued operations, net of taxes   (0.02 )   -     (0.15 )   (0.01 ) Net income attributable to PSI stockholders $ 0.92   $ 0.50   $ 2.04   $ 1.60     Shares used in computing per share amounts: Basic 55,945 55,579 55,850 55,545 Diluted 57,356 56,340 56,913 56,077   Amounts attributable to PSI stockholders: Income from continuing operations $ 53,681 $ 28,305 $ 124,439 $ 90,406 Loss from discontinued operations, net of taxes   (796 )   (153 )   (8,221 )   (464 ) Net income $ 52,885   $ 28,152   $ 116,218   $ 89,942             PSYCHIATRIC SOLUTIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited, in thousands)                 September 30, December 31, 2010 2009     ASSETS Current assets: Cash and cash equivalents $ 43,422 $ 6,815

Accounts receivable, less allowance for doubtful accounts of $53,710 and $51,894, respectively

258,822 249,439 Other current assets   94,155   105,166 Total current assets 396,399 361,420 Property and equipment, net of accumulated depreciation 977,250 931,730 Cost in excess of net assets acquired 1,153,111 1,153,111 Other assets   57,009   60,979 Total assets $ 2,583,769 $ 2,507,240   LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 35,709 $ 35,397 Salaries and benefits payable 97,930 81,129 Other accrued liabilities 91,871 62,036 Current portion of long-term debt   4,436   4,940 Total current liabilities 229,946 183,502 Long-term debt, less current portion 1,075,182 1,182,139 Deferred tax liability 81,786 81,137 Other liabilities   31,097   25,790 Total liabilities 1,418,011 1,472,568 Redeemable noncontrolling interest 4,583 4,337 Total stockholders' equity   1,161,175   1,030,335 Total liabilities and stockholders' equity $ 2,583,769 $ 2,507,240           PSYCHIATRIC SOLUTIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands)             Nine Months Ended September 30, 2010 2009   Operating activities: Net income $ 116,515 $ 90,280

Adjustments to reconcile net income to net cash provided by continuing operating activities:

Depreciation and amortization 38,237 32,904 Amortization of loan costs and bond discount 4,728 3,574 Share-based compensation 12,738 13,525 Change in income tax assets and liabilities 45,472 15,624 Loss from discontinued operations, net of taxes 8,221 464

Changes in operating assets and liabilities, net of effect of acquisitions:

Accounts receivable (9,383 ) (4,611 ) Prepaids and other current assets (7,527 ) 771 Accounts payable 3,606 (1,707 ) Salaries and benefits payable 16,801 3,421 Accrued liabilities and other liabilities   (5,364 )   995   Net cash provided by continuing operating activities 224,044 155,240 Net cash provided by (used in) discontinued operating activities   1,189     (252 ) Net cash provided by operating activities 225,233 154,988   Investing activities: Cash paid for acquisitions, net of cash acquired - (32,708 ) Cash paid for real estate acquisitions - (18,996 ) Capital purchases of property and equipment (82,371 ) (95,392 ) Other assets   35     389   Net cash used in continuing investing activities (82,336 ) (146,707 ) Net cash used in discontinued investing activities   (12 )   (221 ) Net cash used in investing activities (82,348 ) (146,928 )  

Financing activities:

Net decrease in revolving credit facility - (138,374 ) Borrowings on long-term debt - 106,500 Principal payments on long-term debt (109,176 ) (3,823 ) Payment of loan and issuance costs (27 ) (9,826 ) Distributions to noncontrolling interests (51 ) (723 ) Excess tax benefits from share-based payment arrangements - 208 Repurchase of common stock upon restricted stock vesting (490 ) (992 ) Proceeds from exercises of common stock options   3,466     1,065   Net cash used in financing activities   (106,278 )   (45,965 ) Net increase (decrease) in cash 36,607 (37,905 ) Cash and cash equivalents at beginning of the period   6,815     51,271   Cash and cash equivalents at end of the period $ 43,422   $ 13,366             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, 2010     2009 2010     2009     Income from continuing operations attributable to PSI stockholders $ 53,681 $ 28,305 $ 124,439 $ 90,406 Provision for income taxes 33,277 17,651 77,572 56,380 Interest expense 16,663 18,551 49,714 53,263 Depreciation and amortization   12,968   11,436   38,237   32,904 EBITDA(a) 116,589 75,943 289,962 232,953 Other expenses: Share-based compensation   4,946   4,249   12,738   13,525 Adjusted EBITDA(a) $ 121,535 $ 80,192 $ 302,700 $ 246,478   (a) EBITDA and adjusted EBITDA are non-GAAP financial measures. EBITDA is defined as income from continuing operations attributable to stockholders before interest expense (net of interest income), income taxes, depreciation and amortization. Adjusted EBITDA is defined as income from continuing operations attributable to stockholders 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,     % 2010     2009 Change Same-facility results: Revenue $ 464,021 $ 420,421 10.4% Admissions 48,491 44,799 8.2% Patient days 745,759 717,089 4.0% Average length of stay(a) 15.4 16.0 -3.8% Revenue per patient day(b) $ 622 $ 586 6.1% EBITDA margin 27.3 % 20.7 % 660 bps   Total facility results: Revenue $ 471,391 $ 420,421 12.1% Admissions 49,573 44,799 10.7% Patient days 755,277 717,089 5.3% Average length of stay(a) 15.2 16.0 -5.0% Revenue per patient day(b) $ 624 $ 586 6.5% EBITDA margin 27.2 % 20.7 % 650 bps     Nine Months Ended September 30, % 2010 2009 Change Same-facility results: Revenue $ 1,353,119 $ 1,248,314 8.4% Admissions 144,482 132,881 8.7% Patient days 2,246,412 2,145,861 4.7% Average length of stay(a) 15.5 16.1 -3.7% Revenue per patient day(b) $ 602 $ 582 3.4% EBITDA margin 24.4 % 21.5 % 290 bps   Total facility results: Revenue $ 1,381,279 $ 1,248,314 10.7% Admissions 148,248 132,881 11.6% Patient days 2,280,722 2,145,861 6.3% Average length of stay(a) 15.4 16.1 -4.3% Revenue per patient day(b) $ 606 $ 582 4.1% EBITDA margin 24.3 % 21.5 % 280 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.