SOURCE: University General Health System, Inc.

University General Health System, Inc.

November 15, 2012 09:00 ET

University General Health System Reports Third Quarter Operating Income of $11.7 Million on 74% Increase in Revenue

Nine-Month Operating Income Rises 454% to $23.6 Million

HOUSTON, TX--(Marketwire - Nov 15, 2012) - University General Health System, Inc. (OTCQB: UGHS), a diversified, integrated multi-specialty health delivery system, today announced significantly improved operating results for the third quarter and first nine months of 2012. The Company will host an investor conference call at 11:15 a.m. Eastern Time Thursday, November 15, 2012 to discuss third quarter and nine-month operating results and other topics of interest (see details below).

Highlights for the quarter ended September 30, 2012:

  • Net patient revenue increased 71.3% to approximately $31.9 million, compared with approximately $18.6 million in the quarter ended September 30, 2011. Average daily inpatient census at University General Hospital increased by 15.0% relative to prior-year levels, reflecting an average occupancy rate of 66.7%. The increase in net patient revenue was primarily attributable to the ongoing execution of the Company's physician-centric, integrated health delivery system strategy.

  • Resident revenue for the senior living business segment approximated $2.0 million, support services revenue totaled $0.7 million, and other revenue totaled $1.5 million in the most recent quarter. The senior living properties reported continued stable utilization, with an overall occupancy rate in excess of 94% for the quarter ended September 30, 2012.

  • Total revenue rose 74% to $36.0 million, compared with $20.6 million in the third quarter of 2011. Total revenue in the third quarter of 2011 did not include revenue from acquired hospital outpatient departments (HOPDs), which are now reported in the Company's hospital business segment.

  • Net patient revenue from Medicare and Medicaid, excluding a provision for doubtful accounts, accounted for approximately 26.6% of total net patient revenue, and revenue from commercial and managed care providers accounted for approximately 72.6% of net patient revenue, during the quarter ended September 30, 2012. This compared with 34.0% of total net patient revenue from Medicare and Medicaid and 62.8% from commercial and managed care providers in the prior-year quarter. Self-pay revenue decreased from 3.2% of total net patient revenue in the quarter ended September 30, 2011 to 0.8% in the quarter ended September 30, 2012. The provision for doubtful accounts increased to 9.9% of patient revenue in the most recent quarter, versus 1.9% in the comparable 2011 period.

  • Operating income improved 362% to approximately $11.7 million in the third quarter of 2012, versus approximately $2.5 million in the prior-year quarter, primarily due to the increase in revenue, along with the success of cost-containment measures implemented in the fourth quarter of 2011.

  • In connection with the issuance of preferred stock in a private placement in April 2012, wherein the Company received approximately $3.7 million from accredited investors and institutions, the Company also issued warrants at an original issue discount. After deducting fees and expenses, the net proceeds from this capital raise approximated $3.1 million. Primarily due to an increase in the Company's stock price since April 2012, the Company recorded a non-cash derivative expense and change in the fair market value of the derivatives totaling $5.7 million in the most recent quarter.

  • The Company recorded net income attributable to common shareholders of $2.0 million, or $0.01 per share, in the most recent quarter, compared with net income attributable to common shareholders of $1.0 million, or $0.00 per share, in the comparable quarter of 2011.

  • Adjusted EBITDA for the quarter increased 212% to approximately $14.4 million in the most recent quarter, versus approximately $4.6 million in the first quarter of 2011 (EBITDA is a non-GAAP measure that is reconciled with GAAP results in a table at the end of this press release).

  • Total shareholders' equity improved to $8.5 million at September 30, 2012, from ($573,472) at December 31, 2011.

"This was a great quarter for the Company, and we are pleased that our financial results reflect management's ongoing commitment to the development of our physician-centric health delivery system," commented Dr. Hassan Chahadeh, M.D., Chairman and Chief Executive Officer of University General Health System, Inc. "Financially, our revenues grew by 74% relative to the third quarter of 2011, and our operating income increased more than 360% from prior-year levels. In addition we have made great progress with our lenders and have significantly improved our balance sheet, thereby positioning the Company for greater growth in 2013."

Highlights for the nine months ended September 30, 2012:

  • Net patient revenue increased 44.4% to approximately $75.0 million, compared with approximately $51.9 million in the nine months ended September 30, 2011.

  • Resident revenue for the senior living business segment approximated $5.7 million, support services revenue totaled $1.6 million, and other revenue totaled $1.9 million in the first nine months of 2012. The senior living properties reported continued stable utilization, with an overall occupancy rate in excess of 93% for the most recent nine-month period.

  • Total revenue rose 56% to $84.2 million, compared with $54.0 million in the first nine months of 2011. Year-to-date total revenue in 2011 did not include a full year of revenue from acquired senior living segment, support services; nor did it include revenues from acquired hospital outpatient departments (HOPDs), which are now reported in the Company's hospital business segment.

  • Net patient revenue from Medicare and Medicaid, excluding a provision for doubtful accounts, accounted for approximately 29.2% of total net patient revenue, and revenue from commercial and managed care providers accounted for approximately 65.1% of net patient revenue, during the nine months ended September 30, 2012. This compared with 34.7% of total net patient revenue from Medicare and Medicaid and 61.2% from commercial and managed care providers in the corresponding period of the previous year. Self-pay revenue increased from 4.1% of total net patient revenue in the nine months ended September 30, 2011 to 5.7% in the nine months ended September 30, 2012. The provision for doubtful accounts increased to 9.3% of patient revenue in the first nine months of 2012, versus 1.9% in the comparable 2011 period.

  • Operating income improved 454% to approximately $23.6 million in the first nine months of 2012, versus approximately $4.3 million in the prior-year period.

  • Primarily due to an increase in the Company's stock price since April 2012, the Company recorded a non-cash derivative expense and change in the fair market value of the derivatives totaling $6.0 million in the first nine months of 2012.

  • The Company recorded net income attributable to common shareholders of $3.3 million, or $0.01 per share, in the nine months ended September 30, 2012, compared with net income attributable to common shareholders of $0.4 million, or $0.00 per share, in the comparable period of 2011.

  • Adjusted EBITDA for the nine months ended September 30, 2012 increased 203% to approximately $29.7 million, versus approximately $9.8 million in the first nine months of 2011 (EBITDA is a non-GAAP measure that is reconciled with GAAP results in a table at the end of this press release).

"The Company's improvement in operating efficiencies during 2012 is clearly evident in EBITDA margins, which improved from 22.3% of total revenue in the third quarter of 2011 to 39.9% of total revenue in the most recent quarter," noted Donald W. Sapaugh, President of University General Health System, Inc. "EBITDA margin for the nine months ended September 30, 2012 increased to 35.3% of total revenue, compared with 18.2% in the prior-year period."

"The third quarter reflects continued positive quarter-on-quarter growth, which we believe validates our physician-centric, integrated, diversified regional delivery system and lays a foundation for further expansion in the Houston area and replication in other markets," concluded Sapaugh.

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 represents a key measure of the Company's operating performance that is used by management to evaluate operating performance by excluding certain 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, and non-cash stock-based compensation expense.

The Company believes Adjusted EBITDA is useful to investors in evaluating its 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 the achievement of current financial goals and optimal financial performance; and
  • It is an indication of whether adjustments to current spending decisions are necessary.

Investor Conference Call

Management of University General Health System will host a conference call Thursday, November 15, 2012 at 11:15 am EST. Shareholders and other interested parties may participate in the conference call by dialing 877-374-8416 (international participants dial 412-317-6716) and requesting participation in the "University General Health System Conference Call" at least five minutes before 11:15 am EST.

A replay of the conference call will be available one hour after the call through November 23, 2012 at 9:00 am EST by dialing 877-344-7529 (international participants dial 412-317-0088) and entering the conference ID# 10021216. A transcript will also be posted on the investor section of the Company's website at http://www.ughs.net.

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 ambulatory surgical centers, a number of diagnostic imaging and physical therapy clinics, a sleep clinic, and a hyperbaric wound care center in the Houston area. Also, University General owns three senior living facilities, manages six senior living facilities, and owns a Support Services company that provides revenue cycle and luxury facilities management services.

The Company is headquartered in Houston, Texas, and its common stock trades on the OTCQB under the symbol "UGHS".

Make sure you are first to receive timely information on University General Health System, Inc. when it crosses the newswire. Sign up for UGHS's email news alert system today at http://ir.stockpr.com/ughsystem/email-alerts.

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.

(Financial Highlights Follow)

             
University General Health System, Inc.  
Consolidated Balance Sheets  
             
    September 30, 2012     December 31, 2011  
    (Unaudited)        
ASSETS                
Current Assets                
Cash and cash equivalents   $ 5,342,072     $ 538,018  
Accounts receivable, less allowance for doubtful accounts of $13,692,865 and $7,070,327     23,442,899       10,913,361  
Inventories     1,493,096       1,908,177  
Receivables from related parties     -       658,764  
Prepaid expenses and other assets     3,997,465       1,275,104  
  Total Current Assets     34,275,532       15,293,424  
                 
Long-Term Assets                
Investments in unconsolidated affiliates     847,323       687,323  
Property, equipment and leasehold improvements, net     67,993,247       66,437,316  
Intangible assets, net     6,282,500       7,649,000  
Goodwill     28,974,185       22,199,874  
Other non-current assets, net     2,304,228       2,234,985  
  Total Long-Term Assets     106,401,483       99,208,498  
                 
  Total Assets   $ 140,677,015     $ 114,501,922  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                
Current Liabilities                
Accounts payable   $ 10,032,820     $ 11,874,720  
Payables to related parties     2,155,945       2,493,088  
Accrued expenses     4,226,512       7,516,940  
Accrued acquisition cost     521,401       1,007,380  
Taxes payable     3,640,381       4,171,826  
Income tax payable     6,112,440       -  
Deferred revenue     264,705       314,876  
Lines of credit     -       8,451,025  
Notes payable, current portion     21,483,002       28,982,331  
Notes payable to related parties, current portion     2,170,143       2,798,783  
Capital lease obligations, current portion     2,491,850       5,943,685  
Capital lease obligations to related party, current portion     257,713       239,409  
Derivative liability     10,569,206       -  
  Total Current Liabilities     63,926,118       73,794,063  
                 
Long-Term Liabilities                
Lines of credit, less current portion     12,269,000       -  
Notes payable, less current portion     21,342,197       8,459,474  
Notes payable to related parties, less current portion     -       1,983,514  
Capital lease obligations, less current portion     240,945       34,893  
Capital lease obligations to related party, less current portion     30,609,920       30,803,450  
  Total Long-Term Liabilities     64,462,062       41,281,331  
                 
Total Liabilities     128,388,180       115,075,394  
                 
Commitments and contingencies                
                 
Series C, convertible preferred stock, $0.001 par value, 20,000,000 shares authorized, 4,200 and 0 shares issued and outstanding, respectively ($1,000 stated value)     3,797,633       -  
                 
Shareholders' Equity and (Deficit)                
Preferred, par value $0.001, 20,000,000 shares authorized, Preferred stock Series B - 3,000 shares issued and outstanding     3       3  
Common stock, par value $0.001, 480,000,000 shares authorized, 325,654,031 and 283,440,226 shares issued and outstanding     325,653       283,440  
Additional paid-in-capital     55,178,809       49,078,223  
Shareholders' receivables     (2,429,069 )     (2,219,068 )
Accumulated deficit     (49,677,189 )     (53,049,030 )
  Total shareholders' equity (deficit)     3,398,207       (5,906,432 )
Noncontrolling interest     5,092,995       5,332,960  
  Total equity (deficit)     8,491,202       (573,472 )
  Total Liabilities and Shareholders' Equity (Deficit)   $ 140,677,015     $ 114,501,922  
                 
                 
                         
University General Health System, Inc.  
Consolidated Statements of Income  
(Unaudited)  
   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2012     2011     2012     2011  
Revenues                                
  Patient service revenues, net of contractual adjustments   $ 35,351,438     $ 18,966,579     $ 82,675,939     $ 52,919,032  
  Provision for doubtful accounts     (3,494,644 )     (369,469 )     (7,682,475 )     (994,619 )
  Net patient service revenue less provision for bad debts     31,856,794       18,597,110       74,993,464       51,924,413  
  Senior living revenues     1,969,785       1,723,571       5,746,643       1,723,571  
  Support services revenues     702,542       168,279       1,581,606       168,279  
  Other revenues     1,491,270       161,996       1,858,810       170,949  
    Total revenues     36,020,391       20,650,956       84,180,523       53,987,212  
                                 
Operating expenses                                
  Salaries, wages and benefits     10,448,799       8,263,837       27,466,450       21,211,247  
  Medical supplies     4,820,777       3,399,612       11,612,638       9,663,453  
  Management fees (includes related party fees of $0 for each of the three months ended and $0 and $461,814 for the nine months ended)     -       1,412,385       -       4,105,767  
  General and administrative expenses (includes related party expenses of $372,697 and $1,434,662 for the three months ended and $1,054,340 and $4,129,789 for the nine months ended)     7,222,741       4,886,019       19,117,554       12,542,252  
  Gain on extinguishment of liabilities     (618,353 )     (1,947,134 )     (3,521,879 )     (3,411,479 )
  Depreciation and amortization (includes related party expenses of $171,290 for each of the three months ended and $513,870 for each of the nine months ended)     2,443,747       2,104,016       5,938,840       5,624,132  
    Total operating expenses     24,317,711       18,118,735       60,613,603       49,735,372  
                                     
Operating income     11,702,680       2,532,221       23,566,920       4,251,840  
                                 
Other income (expense)                                
Interest expense, net of interest income of $20,000 each of the three months ended and $60,000 each for the nine months ended (includes related party interest expense $571,394 and $641,293 for the three months ended and $1,734,144 and $1,815,568 for the nine months ended)     (1,363,821 )     (1,349,023 )     (4,187,121 )     (3,574,146 )
Other income     -       -       11,583       -  
Derivative expense     (508,681 )             (1,770,787 )        
Change in fair value of derivatives     (5,173,513 )     -       (4,256,980 )     -  
Income before income tax     4,656,665       1,183,198       13,363,615       677,694  
  Income tax expense     2,271,631       99,000       5,777,762       261,000  
Income before noncontrolling interest     2,385,034       1,084,198       7,585,853       416,694  
Net income (loss) attributable to noncontrolling interests     212,131       (38,748 )     239,966       (38,748 )
Net income attributable to the Company   $ 2,597,165     $ 1,045,450     $ 7,825,819     $ 377,946  
                                 
Less: Dividend-Convertible Preferred C Stock     (129,547 )     -       (129,547 )     -  
Less: Deemed dividend-Convertible Preferred C Stock     (4,349,980 )     -       (4,349,980 )     -  
                                 
Net income attributable to common shareholders   $ (1,882,362 )   $ 1,045,450     $ 3,346,292     $ 377,946  
                                 
Basic and diluted income per share data:                                
                                 
  Basic earnings per common share   $ (0.01 )   $ 0.00     $ 0.01     $ 0.00  
                                 
  Basic weighted average shares outstanding     325,144,781       276,379,591       306,101,581       235,075,067  
                                 
  Diluted earnings per common share   $ (0.01 )   $ 0.00     $ 0.01     $ 0.00  
                                 
  Diluted weighted average shares outstanding     364,932,417       276,379,591       345,889,217       235,075,067  
                                 
                                 
             
University General Health System, Inc.  
Consolidated Statements of Cash Flows  
 (Unaudited)  
             
    Nine Months Ended
September 30,
 
    2012     2011  
Cash flows from operating activities:                
  Net income   $ 7,585,853     $ 416,694  
  Adjustments to reconcile net income to net cash provided by (used in ) operating activities:                
    Depreciation and amortization     5,938,840       5,624,132  
    Provision for doubtful accounts     7,682,475       994,619  
    Gain on sales of assets     (11,583 )     -  
    Gain on extinguishment of liabilities     (3,521,879 )     (3,411,479 )
    Derivative expense     1,770,787       -  
    Change in fair value of derivative liabilities     4,256,980       -  
  Net changes in operating assets and liabilities:                
    Accounts receivable     (20,212,013 )     (5,390,952 )
    Related party receivables and payables     321,621       222,513  
    Inventories     415,081       (304,352 )
    Prepaid expenses and other assets     (2,033,897 )     (46,793 )
    Accounts payable, accrued expenses and taxes payable     2,750,062       (1,465,474 )
    Deferred revenues     (50,171 )     133,940  
      Net cash provided by (used in) operating activities     4,892,156       (3,227,152 )
Cash flows from investing activities:                
  Additions to property, equipment and leasehold improvements     (2,009,359 )     (598,960 )
  Cash (used in) acquired in connection with acquisition     (222,594 )     397,755  
  Investments in unconsolidated affiliates     (160,000 )     (115,000 )
      Net cash used in investing activities     (2,391,953 )     (316,205 )
Cash flows from financing activities:                
  Redemption of common stock     -       (50,000 )
  Distribution to noncontrolling interests     (172,762 )     -  
  Issuance of common stock     5,195,827       7,120,000  
  Cash dividends paid     (76,160 )     (3,496 )
  Issuance of Series C convertible preferred stock, net issuance costs     3,344,669       -  
  Proceeds from revolving credit facility borrowings     12,269,000       -  
  Payments of revolving credit facility borrowings     (8,451,025 )     -  
  Borrowings under notes payable     8,122,781       3,500  
  Payments on notes payable     (13,155,873 )     (3,481,189 )
  Payment on debt issuance costs     (798,251 )     -  
  Borrowings under notes payable to related party     43,685       3,944,633  
  Payments on notes payable to related party     (145,003 )     (1,848,396 )
  Payments on capital leases     (3,697,810 )     (3,733,632 )
  Payments on capital leases obligation to related party     (175,227 )     (76,858 )
      Net cash provided by financing activities     2,303,851       1,874,562  
                 
Net increase (decrease) in cash and cash equivalents     4,804,054       (1,668,795 )
Cash and cash equivalents:                
  Beginning of period     538,018       2,291,754  
  End of period   $ 5,342,072     $ 622,959  
Supplemental disclosures of cash flow information:                
  Interest paid   $ 4,690,494     $ 1,360,017  
  Income taxes paid   $ 383,434     $ 5,443,470  
Supplemental noncash investing activities:                
  Property and equipment additions financed   $ 819,236     $ -  
Supplemental noncash financing activities:                
  Exchange of debt for common stock   $ -     $ 3,500,000  
  Issuance of common stock   $ 670,000     $ 2,130,000  
  Issuance of common stock to affiliate for termination of service agreement   $ -     $ 1,000,000  
  Transfer of related party debt to third party debt   $ 2,510,836     $ -  
  Noncash consideration paid for acquisitions   $ 7,789,624     $ 24,753,735  
                   
                   
 
UNIVERSITY GENERAL HEALTH SYSTEM, INC.
Adjusted EBITDA Calculation
             
    Three Months Ended September 30,  
    2012     2011  
Net income (loss) attributable to the Company   $ 2,597,165     $ 1,045,450  
Provision (benefit) for income taxes     2,271,631       99,000  
Other non-operating expense (income)     -       -  
Interest expense:                
  Debt and lease obligations     1,383,821       1,369,023  
Interest (income)     (20,000 )     (20,000 )
Derivative expense     508,681       -  
Change in fair value of derivatives     5,173,513       -  
Depreciation and amortization     2,443,737       2,104,016  
Adjusted EBITDA   $ 14,358,548     $ 4,597,489  
                 
                 
    Nine Months Ended September 30,  
    2012     2011  
Net income (loss) attributable to the Company   $ 7,825,819     $ 377,946  
Provision (benefit) for income taxes     5,777,762       261,000  
Other non-operating expense (income)     (11,583 )     -  
Interest expense:                
  Debt and lease obligations     4,247,121       3,574,146  
Interest (income)     (60,000 )     (60,000 )
Derivative expense     1,770,787       -  
Change in fair value of derivatives     4,256,980       -  
Depreciation and amortization     5,938,840       5,624,132  
Adjusted EBITDA   $ 29,745,726     $ 9,777,224  
                 
                 

Contact Information