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8-K - FORM 8-K - UNITED SURGICAL PARTNERS INTERNATIONAL INCd85455e8vk.htm
Exhibit 99.1
(LOGO)
Contact:   Mark A. Kopser
Executive Vice President and Chief Financial Officer
(972) 713-3500
UNITED SURGICAL PARTNERS INTERNATIONAL
ANNOUNCES THIRD QUARTER 2011 RESULTS
Dallas, Texas (November 2, 2011) — United Surgical Partners International, Inc. (“USPI” or the “Company”) today announced results for the third quarter and nine months ended September 30, 2011.
Third Quarter Financial Results
     For the quarter ended September 30, 2011, consolidated net revenues increased 6% to $149.5 million compared with $141.4 million in the prior year period. Operating income increased 14% for the third quarter and was $56.6 million as compared with $49.6 million for the prior year period. Operating income margin for the third quarter increased 280 basis points to 37.9% versus 35.1% in the prior year period. Both the current and prior year had de novo start-up losses, acquisition related costs, and certain non-facility operating expenses, which are explained in more detail in our 10Q filing. Adjusted EBITDA less noncontrolling interests increased to $49.4 million versus $48.7 million in the prior year quarter.
     The financial results for the third quarter were driven by systemwide revenue growth of 12%, consisting of 6% U.S. same-facility revenue growth and the remainder being due to acquisition activity.
     Cash flows from operating activities for the third quarter totaled $67.7 million compared with $61.4 million for the prior year period. During the third quarter, the Company and its consolidated subsidiaries invested approximately $2.8 million in maintenance capital expenditures and an additional $9.3 million to develop new facilities and expand existing facilities.
Nine-Month Financial Results
     For the nine months ended September 30, 2011, consolidated net revenues increased 6% to $447.6 million compared with $422.5 million in the prior year period. Operating income increased 13% for the first nine months of 2011 to $178.1 million as compared with $157.5 million for the prior year period. Operating income margin for the first nine months of 2011 increased 250 basis points to 39.8% versus 37.3% in the prior year period. Both the current and prior year had de novo start-up losses, acquisition related costs, and certain non-facility operating expenses, which are explained in more detail in our 10Q filing. Adjusted EBITDA less noncontrolling interests increased to $151.4 million from $144.3 million in the prior year period.
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United Surgical Partners Announces Third Quarter 2011 Results
Page 2
November 2, 2011
     Cash flows from operating activities for the nine months ended September 30, 2011, totaled $140.4 million compared with $137.8 million for the prior year period. This increase was due to the Company’s 19% growth in net income being mostly offset by increased federal tax payments. The Company’s federal tax payments in the first half of 2010 were lower due to its still having significant net operating loss carryforwards to apply. During the first nine months of 2011, the Company and its consolidated subsidiaries invested approximately $11.9 million in maintenance capital expenditures and an additional $15.4 million to develop new facilities and expand existing facilities.
Systemwide Financial Results
     Due to the Company’s partnerships with physicians and not-for-profit healthcare systems, the Company does not consolidate the financial results of the majority of its facilities. While revenues of the Company’s unconsolidated facilities are not recorded as revenues by USPI, equity in earnings of unconsolidated affiliates is a significant and growing portion of the Company’s overall earnings. To help analyze results of operations, management uses systemwide operating measures such as systemwide revenue growth, which include revenues of both consolidated and unconsolidated facilities. In addition to overall systemwide revenue growth, USPI calculates growth rates and operating margins for the facilities that were operational in both the current and prior year periods, a group the Company refers to as same-store or same-facility. This group also consists of both consolidated and unconsolidated facilities. At September 30, 2011, 143 of the 204 facilities the Company operated were not consolidated.
Revenue Analysis
     For the third quarter, the systemwide revenues of the facilities operated by the Company increased 12% on a year-over-year basis, while consolidated revenues increased 6%. For the first nine months of 2011, the systemwide revenues of the facilities operated by the Company increased 13% on a year-over-year basis, while consolidated revenues increased 6%. The table below lists the key drivers of year-over-year changes in revenues.
                                 
    Three Months Ended     Nine Months Ended  
    September 30, 2011     September 30, 2011  
    As Reported     Unconsolidated     As Reported     Unconsolidated  
    Under GAAP     Affiliates     Under GAAP     Affiliates  
Total revenues, period ended September 30, 2010
  $ 141,392     $ 329,882     $ 422,454     $ 951,420  
Add: Revenue from acquired facilities
    4,255       22,303       10,615       62,443  
Less: Revenue of deconsolidated facilities
    (3,411 )     3,411       (9,747 )     9,747  
Less: Revenue of disposed facilities
          (3,237 )           (6,628 )
Impact of exchange rate
    936             3,896        
 
                       
Adjusted base period
  $ 143,172     $ 352,359     $ 427,218     $ 1,016,982  
Increase from operations
    4,469       22,501       12,402       75,318  
Non-facility based revenue
    1,817       3,784       7,978       8,697  
 
                       
Total revenues, period ended September 30, 2011
  $ 149,458     $ 378,644     $ 447,598     $ 1,100,997  
 
                       
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United Surgical Partners Announces Third Quarter 2011 Results
Page 3
November 2, 2011
Development Activity
     During the quarter, the Company acquired 14 facilities through the acquisition of Titan Health Corporation. Year-to-date, USPI has acquired 16 facilities, opened four de novo facilities, and sold its interest in five facilities.
Summary
     Commenting on the results, William H. Wilcox, USPI’s chief executive officer, said, “We continue to see pressure on organic volume growth due to overall weakness in the economy. However, we still believe that the fundamentals of the surgical business are sound and therefore continue to invest in acquisitions.”
     The live broadcast of USPI’s third quarter conference call will begin at 5:00 p.m. Eastern Time on November 2, 2011. A 30-day online replay will be available approximately an hour following the conclusion of the live broadcast. A link to these events can be found on the Company’s website at www.uspi.com or at www.earnings.com. Additional financial information pertaining to United Surgical Partners International may be found by visiting the Investor Relations section of the Company’s website.
     USPI, headquartered in Dallas, Texas, currently has ownership interests in or operates 204 surgical facilities. Of the Company’s 199 domestic facilities, 138 are jointly owned with not-for-profit healthcare systems. The Company also operates five facilities in the United Kingdom.
     The above includes forward-looking statements based on current management expectations. Numerous factors exist that may cause results to differ from these expectations. Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict. These statements are subject to risks and uncertainties relating to the Company, including without limitation, (i) reduction in reimbursement from payors; (ii) the Company’s ability to attract physicians and retain qualified management and personnel; (iii) the Company’s significant leverage; (iv) geographic concentrations of certain of the Company’s operations; (v) risks associated with the Company’s acquisition and development strategies; (vi) the regulated nature of the healthcare industry; (vii) the highly competitive nature of the healthcare business; and (viii) those risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange Commission. Therefore, the Company’s actual results may differ materially. The Company undertakes no obligation to update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.
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United Surgical Partners Announces Third Quarter 2011 Results
Page 4
November 2, 2011
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Unaudited Condensed Consolidated Statements of Income

(in thousands, except number of facilities)
                                 
    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2011     2010     2011     2010  
Revenues
  $ 149,458     $ 141,392     $ 447,598     $ 422,454  
 
                               
Equity in earnings of unconsolidated affiliates
    18,684       17,247       56,718       49,754  
 
                               
Operating expenses:
                               
Salaries, benefits and other employee costs
    41,589       39,027       122,060       113,707  
Medical services and supplies
    24,680       23,571       73,857       71,878  
Other operating expenses
    24,694       27,568       72,405       72,847  
General and administrative expenses
    11,807       9,626       32,700       27,295  
Provision for doubtful accounts
    2,845       1,964       6,878       6,271  
Net (gain) loss on deconsolidations, disposals and impairments
    (1,271 )     (57 )     (3,749 )     536  
Depreciation and amortization
    7,169       7,342       22,042       22,128  
 
                       
Total operating expenses
    111,513       109,041       326,193       314,662  
 
                       
Operating income
    56,629       49,598       178,123       157,546  
Interest expense, net
    (15,507 )     (16,994 )     (49,284 )     (52,016 )
Other, net
    5       367       (114 )     723  
 
                       
Income from continuing operations before income taxes
    41,127       32,971       128,725       106,253  
Income tax expense
    (9,253 )     (7,095 )     (29,821 )     (24,238 )
 
                       
Income from continuing operations
    31,874       25,876       98,904       82,015  
Discontinued operations, net of tax
    10       281       (519 )     810  
 
                       
Net income
    31,884       26,157       98,385       82,825  
Less: Net income attributable to noncontrolling interests
    (16,598 )     (14,309 )     (49,592 )     (43,079 )
 
                       
Net income attributable to USPI’s common stockholder
  $ 15,286     $ 11,848     $ 48,793     $ 39,746  
 
                       
 
                               
Supplemental Data:
                               
Facilities operated at period end
    204       174       204       174  
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United Surgical Partners Announces Third Quarter 2011 Results
Page 5
November 2, 2011
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Unaudited Condensed Consolidated Balance Sheets

(in thousands)
                 
    Sept. 30,     Dec. 31,  
    2011     2010  
ASSETS
 
               
Current assets:
               
Cash and cash equivalents
  $ 55,926     $ 60,253  
Accounts receivable, net of allowance for doubtful accounts of $7,908 and $7,481, respectively
    48,336       50,082  
Other receivables
    15,177       15,242  
Inventories
    8,778       9,191  
Deferred tax assets, net
    11,050       14,961  
Other
    22,239       14,682  
 
           
Total current assets
    161,506       164,411  
 
               
Property and equipment, net
    203,132       202,260  
Investments in unconsolidated affiliates
    419,313       393,561  
Goodwill and intangible assets, net
    1,616,183       1,587,877  
Other
    21,436       24,630  
 
           
Total assets
  $ 2,421,570     $ 2,372,739  
 
           
 
               
LIABILITIES AND EQUITY
 
               
Current liabilities:
               
Accounts payable
  $ 24,887     $ 23,488  
Accrued expenses and other
    224,896       218,786  
Current portion of long-term debt
    23,840       22,386  
 
           
Total current liabilities
    273,623       264,660  
 
               
Long-term debt
    1,018,207       1,047,440  
Other liabilities
    168,482       157,820  
 
           
Total liabilities
    1,460,312       1,469,920  
 
               
Noncontrolling interests — redeemable
    98,838       81,668  
 
               
USPI stockholder’s equity
    827,752       786,757  
Noncontrolling interests — nonredeemable
    34,668       34,394  
 
           
Total equity
    862,420       821,151  
 
           
Total liabilities and equity
  $ 2,421,570     $ 2,372,739  
 
           
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United Surgical Partners Announces Third Quarter 2011 Results
Page 6
November 2, 2011
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Key Operating Statistics

(in thousands, except for number of facilities, cases and percentages)
                         
    Three Months Ended September 30,  
    2011     2010     % Change  
Systemwide same-facility statistics(1) (2):
                       
United States:
                       
Facility cases
    208,911       209,324       (0.2 )%
Net revenue/case
  $ 2,260     $ 2,132       6.0 %
Net revenue (in thousands)
  $ 472,075     $ 446,253       5.8 %
Facility operating income margin(3)
    26.7 %     26.3 %   40 bps
 
United Kingdom:
                       
Adjusted admissions
    5,218       5,226       (0.2 )%
Net revenue/adjusted admission
  $ 5,185     $ 4,787       8.3 %
Net revenue/adjusted admission (at constant currency translation rates)(4)
  $ 5,185     $ 4,967       4.4 %
Net revenue (in thousands)
  $ 27,056     $ 25,016       8.2 %
Facility operating income margin(3)
    16.9 %     21.7 %   (480) bps
Other:
                       
Total consolidated facilities
    61       60          
 
EBITDA less noncontrolling interests(5)
                       
GAAP operating income
  $ 56,629     $ 49,598       14.2 %
Depreciation and amortization
    7,169       7,342          
Net (gain) loss on deconsolidations, disposals and impairments
    (1,271 )     (57 )        
 
                   
EBITDA
    62,527       56,883          
Net income attributable to noncontrolling interests
    (16,598 )     (14,309 )        
 
                   
EBITDA less noncontrolling interests
  $ 45,929     $ 42,574       7.9 %
De novo start-up losses
    1,817       133          
Titan acquisition costs
    1,611                
Expense related to previous acquisitions
          6,000          
 
                   
Adjusted EBITDA
  $ 49,357     $ 48,707       1.3 %
 
                   
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United Surgical Partners Announces Third Quarter 2011 Results
Page 7
November 2, 2011
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Key Operating Statistics (Continued)

(in thousands, except for number of facilities, cases and percentages)
                         
    Nine Months Ended September 30,  
    2011     2010     % Change  
EBITDA less noncontrolling interests(5)
                       
GAAP operating income
  $ 178,123     $ 157,546       13.1 %
Depreciation and amortization
    22,042       22,128          
Net (gain) loss on deconsolidations, disposals and impairments
    (3,749 )     536          
 
                   
EBITDA
    196,416       180,210          
Net income attributable to noncontrolling interests
    (49,592 )     (43,079 )        
 
                   
EBITDA less noncontrolling interests
  $ 146,824     $ 137,131       7.1 %
De novo start-up losses
    2,889       147          
Titan acquisition costs
    1,734                
Expense related to prior acquisition
          6,000          
VAT assessment
          1,000          
 
                   
Adjusted EBITDA
  $ 151,447     $ 144,278       5.0 %
 
                   
 
(1)   Excludes facilities in their first year of operations. Includes facilities accounted for under the equity method as well as consolidated facilities.
 
(2)   Statistics are included in both periods for current year acquisitions.
 
(3)   Calculated as operating income divided by net revenue.
 
(4)   Calculated using third quarter 2011 exchange rates. The Company believes net revenue per adjusted admission is an important measure of the United Kingdom operations and that using a constant currency translation rate more accurately reflects the trend of the business.
 
(5)   EBITDA and EBITDA less noncontrolling interests are not measures defined under generally accepted accounting principles (GAAP). The Company believes EBITDA and EBITDA less noncontrolling interests are important measures for purposes of allocating resources and assessing performance. EBITDA, which is computed by adding operating income plus depreciation and amortization, net (gain) loss on deconsolidations, disposals and impairments, is commonly used as an analytical indicator within the healthcare industry and also serves as a measure of leverage capacity and debt service ability. EBITDA less noncontrolling interests, which is computed by subtracting net income attributable to noncontrolling interests from EBITDA, adjusts both years’ EBITDA to reflect that the Company does not own 100% of each facility. EBITDA and EBITDA less noncontrolling interests should not be considered as measures of financial performance under GAAP, and the items excluded from EBITDA and EBITDA less noncontrolling interests are significant components in understanding and assessing financial performance. Because EBITDA and EBITDA less noncontrolling interests are not measurements determined in accordance with GAAP and are thus susceptible to varying calculation methods, EBITDA and EBITDA less noncontrolling interests as presented by United Surgical Partners International may not be comparable to similarly titled measures of other companies.
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