SOURCE: University General Health System, Inc.

University General Health System, Inc.

November 15, 2011 06:04 ET

University General Health System, Inc. Reports 40% Increase in Third Quarter Total Revenue

EBITDA Increases 58%, Operating Income Improves 117%, Company Attains Profitability

HOUSTON, TX--(Marketwire - Nov 15, 2011) - University General Health System, Inc. (OTCQB: UGHS) (PINKSHEETS: UGHS), a diversified, integrated multi-specialty health delivery system, today announced improved financial results for the third quarter of 2011, during which total revenue increased 40% to $21.0 million, net patient revenue rose 26% to $19.0 million, operating income improved 117% to $2.5 million and EBITDA totaled $4.6 million, an improvement of 58%.

University General Health System, Inc. attributes its success to the strong organic growth generated by the Company's vertically integrated health systems business model, combined with contributions from the Company's strategic acquisitions. During the first nine months of 2011, the Company has aggressively expanded its portfolio of health care facilities to include freestanding emergency rooms, senior living communities, an ambulatory surgery center, and a revenue-cycle management company. Implementation of this strategy, when coupled with a physician-centric operating philosophy, creates an integrated referral system that enhances and complements the Company's flagship University General Hospital in Houston.

Highlights for the quarter ended September 30, 2011:

  • Net patient revenue increased 26% to $19.0 million, compared with $15.0 million in the year-earlier quarter, while average daily inpatient census at the Company's general acute care hospital increased by 32% relative to the third quarter of 2010.
  • Resident revenue for the senior living business segment totaled $1.7 million, and revenue from the Autimis revenue-cycle management system approximated $168,000. As both of these segments were acquired during the third quarter of 2011, there are no comparable figures for the 2010 third quarter.
  • Total revenue rose approximately 40% to $21.0 million, compared with $15.0 million in the third quarter of 2010. Total revenue in the most recent quarter includes revenue from the senior living and revenue-cycle management operations, which the Company did not own during the third quarter of 2010.
  • Net patient revenue from Medicare and Medicaid accounted for approximately 38% and 31% of total net patient revenue, and revenue from managed care contracts and other third party payors accounted for approximately 57% and 62% of net patient revenue in the third quarters of 2011 and 2010, respectively.
  • Assets increased to $118.1 million, representing a $48.1 million, or 69%, increase since December 31, 2010.
  • Operating income more than doubled (a 117% increase) to $2.5 million in the third quarter of 2011, compared with $1.2 million in the year-ago quarter.
  • Net income for the quarter increased to $1.1 million, or $0.00 per diluted share, compared with a net loss of approximately $81,000, or $0.00 per share during last year's third quarter.
  • EBITDA for the quarter totaled $4.6 million, versus $2.9 million in the third quarter of 2010, reflecting a 58% increase.

Highlights for the nine months ended September 30, 2011:

  • Net patient service revenue increased 31% to $52.9 million, compared with $40.3 million in the corresponding period of the previous year.
  • Total revenue rose approximately 36% to $55.0 million, compared with $40.3 million in the first nine months of 2010. Year-to-date total revenue in 2011 includes revenue from the senior living and revenue-cycle management operations, which were not owned by the Company during the first nine months of 2010.
  • Net patient revenue from Medicare and Medicaid accounted for approximately 36% and 31% of total net patient revenue, while net patient revenue from managed care contracts and other third party payors approximated 58% and 62% of net patient revenue, during the 2011 and 2010 nine-month periods, respectively.
  • Operating income improved 192% to $4.3 million, compared with $1.5 million in the 2011 nine-month period.
  • Net income for the first nine months of 2011 totaled $377,946, or $0.00 per diluted share, compared with a net loss of $2.6 million, or $0.03 per share, in the year-earlier nine-month period.
  • EBITDA improved to $9.8 million in the nine months ended September 30, 2011, compared with $6.7 million in the prior-year period.

"Our 40% increase in total revenue represented the sixth out of the previous seven quarters during which we recorded year-over-year revenue growth, and we are very pleased by the improvements in EBITDA and operating income, along with the attainment of profitability," said Dr. Hassan Chahadeh, M.D., Chairman and Chief Executive Officer of University General Health System, Inc. "Revenue growth during the most recent quarter was primarily driven by improved inpatient volumes, including a record average daily census at our flagship University General Hospital in Houston. The average daily census increased approximately 23% when compared with the second quarter of 2011 and was 32% higher than the same quarter in 2010. The opening of our new emergency centers, our recently acquired senior living communities and the acquisition of our revenue-cycle management business also contributed to revenue growth in the third quarter. Our physician-owned model has been extremely well-received and is proving to be an integral component of the Company's success, resulting in an increased number of admitting physicians and patient referrals at University General Hospital."

"During the most recent quarter, we continued to focus on our multi-pronged growth strategy, which includes the prospective acquisition of hospitals that were unsuccessful in completing the requirements necessary to qualify for the Whole Hospital Exemption that modified the Stark Law under the Affordable Health Care for America Act," continued Dr. Chahadeh. "We have identified several hospitals that meet our acquisition criteria and can benefit from our multi-specialty integration strategy. I am also pleased to note that we are moving ahead with plans to expand into new markets, in order to build additional vertically integrated regional healthcare networks that provide diversified health care centered around a general acute care host hospital."

"We remain optimistic about the strength of our business model and expect to report continued favorable trends in revenue, EBITDA and profitability during the fourth quarter and beyond," Dr. Chahadeh concluded.

Use of Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss), income from operations or cash flows provided by or used in operations, as determined in accordance with GAAP. Adjusted EBITDA is a key measure of the Company's operating performance used by management to focus on operating performance and management without mixing in items of income and expense that relate to the financing and capitalization of the business. The Company defines Adjusted EBITDA as net income (loss) before provision (benefit) for income taxes, non-operating (income) expense items, (gain) loss on sale of assets, depreciation and amortization (including non-cash impairment charges), amortization of deferred gain, non-cash stock-based compensation expense.

The Company believes Adjusted EBITDA is useful to investors in evaluating our performance, results of operations and financial position for the following reasons:

  • It is helpful in identifying trends in day-to-day performance because the items excluded have little or no significance to day-to-day operations;
  • It provides an assessment of controllable expenses and affords management the ability to make decisions that are expected to facilitate meeting current financial goals and achieve optimal financial performance; and
  • It is an indication of whether adjustments to current spending decisions are necessary.

About University General Health System, Inc.
University General Health System, Inc. ("University General") is a diversified, integrated multi-specialty health care provider that delivers concierge physician- and patient-oriented services by providing timely, innovative health solutions that are uniquely competitive, efficient, and adaptive in today's health care delivery environment. The Company currently operates one hospital, two freestanding emergency rooms, and one ambulatory surgical center in the Houston area. Also, University General owns three senior living facilities and manages six senior living facilities, and it plans to complete multiple additional developments in the near future in Houston and other strategic markets.

Forward-Looking Statements
The information in this news release includes certain forward-looking statements that are based upon assumptions that in the future may prove not to have been accurate and are subject to significant risks and uncertainties, including statements related to the future financial performance of the Company. Although the Company believes that the expectations reflected in the forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct. Factors that could cause results to differ include, but are not limited to, successful execution of growth strategies, product development and acceptance, the impact of competitive services and pricing, general economic conditions, and other risks and uncertainties described in the Company's periodic filings with the Securities and Exchange Commission.

UNIVERSITY GENERAL HEALTH SYSTEM, INC.
Consolidated Balance Sheets
September 30, December 31,
2011 2010
(Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 622,959 $ 2,291,754
Accounts receivables, net 16,373,762 11,812,184
Inventories 2,070,087 1,765,735
Receivables from related parties 476,379 633,678
Prepaid expenses and other assets 592,103 52,790
Total current assets 20,135,290 16,556,141
Investments in unconsolidated affiliates 115,000 -
Property and equipment, net 78,294,372 53,224,152
Intangible assets 1,200,000 -
Goodwill 16,457,447 -
Other assets 1,933,385 266,603
Total assets $ 118,135,494 $ 70,046,896
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Accounts payable $ 12,735,052 $ 14,823,508
Payables to related parties 2,237,165 4,714,951
Accrued expenses 7,774,265 7,984,109
Accrued acquisition cost 1,407,546 -
Taxes Payable 4,361,799 5,436,041
Deferred revenue 401,515 -
Lines of credit 8,451,025 -
Notes payable, current portion 18,314,509 8,321,298
Notes payable to related parties, current portion 3,461,831 4,027,650
Capital lease obligations, current portion 8,340,357 11,591,999
Capital lease obligation to related party, current portion 235,443 137,076
Total current liabilities 67,720,507 57,036,632
Lines of credit - 8,450,000
Notes payable, less current portion 12,968,377 5,487,939
Notes payable to related parties, less current portion 2,029,297 2,087,241
Capital lease obligations, less current portion 50,815 532,805
Capital lease obligation payable to related party, less current portion 30,867,634 31,042,859
Total liabilities 113,636,630 104,637,476
Commitments and contingencies - -
Shareholders' equity (deficit)
Preferred stock, $0.001 par value, 20,000,000 shares authorized, 3,000 shares issued and outstanding 3 3
Common stock, $0.001 par value, 480,000,000 shares authorized; 276,395,895 and 151,498,884 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively 276,396 151,499
Additional paid in capital 47,600,953 12,069,750
Shareholders' receivables (2,130,000 ) -
Accumulated deficit (46,433,886 ) (46,811,832 )
Total shareholders' deficit (686,534 ) (34,590,580 )
Noncontrolling interest 5,185,398 -
Total equity (deficit) 4,498,864 (34,590,580 )
Total liabilities and shareholders' equity (deficit) $ 118,135,494 $ 70,046,896

UNIVERSITY GENERAL HEALTH SYSTEM, INC.
Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2011 2010 2011 2010
Revenues
Net patient service revenues, net of contractual
adjustments
$ 18,966,579 $ 15,003,647 $ 52,919,032 $ 40,298,340
Resident revenues 1,723,571 - 1,723,571 -
Revenue cycle revenues 168,279 - 168,279 -
Other revenues 161,996 3,691 170,949 33,915
Total revenues 21,020,425 15,007,338 54,981,831 40,332,255
Operating expenses
Salaries, benefits, and other employee costs 8,263,837 5,202,667 21,211,247 14,222,012
Medical supplies 3,399,612 2,980,805 9,663,453 8,699,673
Management fees for third party 1,412,385 701,441 4,105,767 1,861,188
General and administrative expenses 4,886,019 2,566,839 12,542,252 8,375,657
Bad debt expense 369,469 707,445 994,619 2,276,856
Gain on extinguishment of liabilities (1,947,134 ) (57,595 ) (3,411,479 ) (1,780,731 )
Depreciation and amortization 2,104,016 1,739,935 5,624,132 5,222,159
Total operating expenses 18,488,204 13,841,537 50,729,991 38,876,814
Operating income 2,532,221 1,165,801 4,251,840 1,455,441
Interest expense 1,349,023 1,186,778 3,574,146 3,822,084
Income (loss) before income tax 1,183,198 (20,977 ) 677, 694 (2,366,643 )
State income tax expense 99,000 60,000 261,000 235,000
Income (loss) before noncontrolling interest 1,084,198 (80,977 ) 416,694 (2,601,643 )
Net income attributable to noncontrolling interests (38,748 ) - (38,748 ) -
Net income (loss) attributable to Company $ 1,045,450 $ (80,977 ) $ 377,946 $ (2,601,643 )
Basic and diluted earnings (loss) per share data:
Basic and diluted earnings (loss) per share $ 0.00 $ (0.00 ) $ 0.00 $ (0.03 )
Basic and diluted weighted average shares outstanding 276,379,591 91,132,160 235,075,067 91,132,160

UNIVERSITY GENERAL HEALTH SYSTEM, INC.
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
2011 2010
Operating activities
Net income (loss) $ 416,694 $ (2,601,643 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Bad debt expense 994,619 2,276,856
Depreciation and amortization 5,624,132 5,222,159
Gain on extinguishment of liabilities (3,411,479 ) (1,780,731 )
Net changes in other operating assets and liabilities:
Accounts receivable (5,390,952 ) (2,142,743 )
Related party receivables and payables 222,513 (1,082,151 )
Inventories (304,352 ) 9,523
Prepaid expenses and other assets (46,793 ) (86,839 )
Accounts payable, accrued expenses, and payable to Internal Revenue Service (1,465,474 ) 3,736,282
Deferred revenue 133,940 -
Net cash (used in) provided by operating activities (3,227,152 ) 3,550,713
Investing activities
Purchase of property and equipment (598,960 ) (143,811 )
Business acquisitions, net of cash acquired 397,755
Investments in unconsolidated affiliates (115,000 ) -
Net cash used in investing activities (316,205 ) (143,811 )
Financing activities
Redemption of common stock (50,000 ) -
Issuance of common stock 7,120,000 -
Dividends paid (3,496 ) -
Borrowings under notes payable 3,500 100,000
Payments on notes payable (3,481,189 ) (600,410 )
Borrowings under notes payable to related party 3,944,633 5,367,300
Payments on notes payable to related party (1,848,396 ) (6,000,991 )
Proceeds from capital leases - 547,924
Repayment of capital lease obligation (3,733,632 ) (2,714,356 )
Payments on capital lease obligation to related party (76,858 ) (46,447 )
Net cash provided by (used in) financing activities 1,874,562 (3,346,980 )
Net (decrease) increase in cash and cash equivalents (1,668,795 ) 59,922
Cash and cash equivalents at beginning of period 2,291,754 1,640
Cash and cash equivalents at end of period $ 622,959 $ 61,562
Supplemental disclosure of cash flow information
Interest paid $ 1,360,017 $ 2,783,764
Taxes paid $ 5,443,470 $ 1,800,025
Supplemental noncash financing activities
Exchange of debt for common stock on February 2011 $ 3,500,000 $ -
Issuance of common stock on February 2011 $ 2,130,000 $ -
Issuance of common stock to affiliate for termination of service agreement $ 1,000,000 $ -
Noncash consideration paid for acquisitions $ 24,753,735 $ -

UNIVERSITY GENERAL HEALTH SYSTEM, INC.
Adjusted EBITDA Calculation
Three Months Ended September 30, Nine Months Ended September 30,
2011(1) 2010 2011(1) 2010
Net income (loss) $ 1,045,450 (80,977 ) $ 377,946 (2,601,641 )
Provision (benefit) for income taxes 99,000 60,000 261,000 235,000
Other non-operating expense (income) - - - -
Interest expense:
Debt and lease obligations 1,349,023 1,186,778 3,574,146 3,822,084
Interest income - - - -
Depreciation and amortization 2,104,016 1,739,935 5,624,132 5,222,159
Adjusted EBITDA 4,597,489 2,905,736 9,837,224 6,677,602

Contact Information

  • For Additional Information, Please Contact:

    Donald Sapaugh
    President
    (713) 375-7557

    R. Jerry Falkner, CFA
    RJ Falkner & Company, Inc.
    Investor Relations Counsel
    (830) 693-4400
    info@rjfalkner.com

    Michael Porter
    President, Porter, LeVay & Rose
    Investor Relations
    212-564-4700
    Michael@plrinvest.com