Agiliti Health, Inc. - FORM 10-Q

Attached files

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EX-32.2 - EX-32.2 - Agiliti Health, Inc.	uhsi-20180331ex322bbd3c5.htm
EX-32.1 - EX-32.1 - Agiliti Health, Inc.	uhsi-20180331ex321034d36.htm
EX-31.2 - EX-31.2 - Agiliti Health, Inc.	uhsi-20180331ex3125f35a6.htm
EX-31.1 - EX-31.1 - Agiliti Health, Inc.	uhsi-20180331ex3113a0e43.htm
EX-10.2 - EX-10.2 - Agiliti Health, Inc.	uhsi-20180331ex102ac97ae.htm
EX-10.1 - EX-10.1 - Agiliti Health, Inc.	uhsi-20180331ex101c16237.htm

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2018


☐	Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from to

Commission File Number: 000-20086

UNIVERSAL HOSPITAL SERVICES, INC.

(Exact name of registrant as specified in its charter)


Delaware		41-0760940
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

6625 West 78th Street, Suite 300

Minneapolis, Minnesota 55439-2604

(Address of principal executive offices, including zip code)

(952) 893-3200

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☐
(Do not check if a smaller reporting company)		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Number of shares of common stock outstanding as of May 14, 2018: 1,000

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Universal Hospital Services, Inc. and Subsidiaries

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		Page
PART I - FINANCIAL INFORMATION

ITEM 1.	Consolidated Financial Statements (unaudited)

	Consolidated Balance Sheets — March 31, 2018 and December 31, 2017	2

	Consolidated Statements of Operations—Three months ended March 31, 2018 and 2017	3

	Consolidated Statements of Comprehensive Income (Loss) —Three months ended March 31, 2018 and 2017	4

	Consolidated Statements of Cash Flows — Three months ended March 31, 2018 and 2017	5

	Notes to Consolidated Financial Statements	6

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	32

ITEM 4.	Controls and Procedures	33

PART II - OTHER INFORMATION

ITEM 1.	Legal Proceedings	33

ITEM 1A.	Risk Factors	33

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33

ITEM 3.	Defaults Upon Senior Securities	33

ITEM 4.	Mine Safety Disclosures	33

ITEM 5.	Other Information	33

ITEM 6.	Exhibits	34

Signatures		35

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PART I - FINANCIAL INFORMATION

Item 1. Consolidated Financial Statements — Unaudited

Universal Hospital Services, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	March 31,		December 31,
	2018		2017
Assets
Current assets:
Accounts receivable, less allowance for doubtful accounts of $1,225 at March 31, 2018 and $1,234 at December 31, 2017	$	96,044	$	89,637
Inventories		10,244		9,760
Other current assets		6,992		6,836
Total current assets		113,280		106,233
Property and equipment:
Medical equipment		632,903		629,193
Property and office equipment		107,347		105,341
Accumulated depreciation		(548,834)		(536,520)
Total property and equipment, net		191,416		198,014
Other long-term assets:
Goodwill		346,168		346,168
Other intangibles, net		149,897		151,921
Other		9,564		3,109
Total assets	$	810,325	$	805,445
Liabilities and Deficit
Current liabilities:
Current portion of long-term debt	$	5,042	$	5,043
Book overdrafts		1,783		5,367
Accounts payable		31,416		36,689
Accrued compensation		14,067		21,498
Accrued interest		6,463		18,671
Other accrued expenses		18,201		17,763
Total current liabilities		76,972		105,031
Long-term debt, less current portion		719,039		698,065
Pension and other long-term liabilities		11,189		11,385
Deferred income taxes, net		35,429		35,342
Commitments and contingencies (Note 9)
Deficit
Common stock, $0.01 par value; 1,000 shares authorized, issued and outstanding at March 31, 2018 and December 31, 2017		—		—
Additional paid-in capital		251,041		250,018
Accumulated deficit		(277,123)		(287,998)
Accumulated other comprehensive loss		(6,428)		(6,638)
Total Universal Hospital Services, Inc. and Subsidiaries deficit		(32,510)		(44,618)
Noncontrolling interest		206		240
Total deficit		(32,304)		(44,378)
Total liabilities and deficit	$	810,325	$	805,445

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Universal Hospital Services, Inc. and Subsidiaries

Consolidated Statements of Operations

(in thousands)

(unaudited)


	Three Months Ended
	March 31,
	2018		2017
Revenues	$	142,355	$	130,652
Cost of revenues		90,862		84,885
Gross margin		51,493		45,767
Selling, general and administrative		33,041		33,957
Operating income		18,452		11,810
Interest expense		13,450		13,478
Income (loss) before income taxes and noncontrolling interest		5,002		(1,668)
Provision for income taxes		262		222
Consolidated net income (loss)		4,740		(1,890)
Net income attributable to noncontrolling interest		86		73
Net income (loss) attributable to Universal Hospital Services, Inc. and Subsidiaries	$	4,654	$	(1,963)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Universal Hospital Services, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended
	March 31,
	2018		2017
Consolidated net income (loss)	$	4,740	$	(1,890)
Other comprehensive income:
Gain on minimum pension liability, net of tax of $0		210		179
Total other comprehensive income		210		179
Comprehensive income (loss)		4,950		(1,711)
Comprehensive income attributable to noncontrolling interest		86		73
Comprehensive income (loss) attributable to Universal Hospital Services, Inc. and Subsidiaries	$	4,864	$	(1,784)

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Universal Hospital Services, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended
	March 31,
	2018		2017
Cash flows from operating activities:
Consolidated net income (loss)	$	4,740	$	(1,890)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation		16,571		17,894
Amortization of intangibles, contract costs, deferred financing costs and bond premium		2,524		3,107
Provision for doubtful accounts		222		220
Provision for inventory obsolescence		122		22
Non-cash share-based compensation expense		746		758
Gain on sales and disposals of equipment		(379)		(747)
Deferred income taxes		87		106
Interest on note receivable		(9)		(4)
Changes in operating assets and liabilities:
Accounts receivable		(6,629)		151
Inventories		(606)		472
Other operating assets		(809)		(123)
Accounts payable		4,046		(3,064)
Other operating liabilities		(19,187)		(22,206)
Net cash provided by (used in) operating activities		1,439		(5,304)
Cash flows from investing activities:
Medical equipment purchases		(16,838)		(17,476)
Property and office equipment purchases		(2,104)		(1,063)
Proceeds from disposition of property and equipment		785		1,402
Acquisition and refund of escrow		—		3,691
Net cash used in investing activities		(18,157)		(13,446)
Cash flows from financing activities:
Proceeds under senior secured credit facility		82,448		70,029
Payments under senior secured credit facility		(60,848)		(43,492)
Payments of principal under capital lease obligations		(1,455)		(1,667)
Distributions to noncontrolling interests		(120)		(77)
Proceeds from exercise of parent company stock options		277		22
Change in book overdrafts		(3,584)		(6,065)
Net cash provided by financing activities		16,718		18,750
Net change in cash and cash equivalents		—		—
Cash and cash equivalents at the beginning of period		—		—
Cash and cash equivalents at the end of period	$	—	$	—
Supplemental cash flow information:
Interest paid	$	25,396	$	25,435
Income taxes paid		87		14
Non-cash activities:
Medical equipment purchases included in accounts payable (at end of period)	$	4,071	$	3,299
Capital lease additions		756		1,827

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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Universal Hospital Services, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Basis of Presentation

The interim consolidated financial statements included in this Quarterly Report on Form 10-Q have been prepared by Universal Hospital Services, Inc. and Subsidiaries (“we”, “our”, “us”, the “Company”, or “UHS”) without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted, pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company’s 2017 Annual Report on Form 10-K filed with the SEC.

The interim consolidated financial statements presented herein as of March 31, 2018, reflect, in the opinion of management, all adjustments necessary for a fair presentation of the financial position and the results of operations and cash flows for the periods presented. These adjustments are all of a normal, recurring nature. The results of operations for any interim period are not necessarily indicative of results for the full year.

We are required to make estimates and assumptions about future events in preparing consolidated financial statements in conformity with GAAP. These estimates and assumptions affect the amounts of assets, liabilities, revenues and expenses at the date of the unaudited consolidated financial statements. While we believe that our past estimates and assumptions have been materially accurate, our current estimates are subject to change if different assumptions as to the outcome of future events are made. We evaluate our estimates and judgments on an ongoing basis and predicate those estimates and judgments on historical experience and on various other factors that we believe to be reasonable under the circumstances. We make adjustments to our assumptions and judgments when facts and circumstances dictate. Since future events and their effects cannot be determined with absolute certainty, actual results may differ from the estimates used in preparing the accompanying unaudited consolidated financial statements.

A description of our significant accounting policies is included in our 2017 Annual Report on Form 10-K. There have been no material changes to these policies for the quarter ended March 31, 2018, except for the adoption of ASU 2014-09, see Note 3, Revenue Recognition.

Historically, the Company reported under three segments. Medical Equipment Solutions included supplemental and peak needs usage solutions, customized equipment agreement solutions, 360 On-site managed solutions, specialty medical equipment sale, distribution and disposable sales. Clinical Engineering Solutions included supplemental maintenance, repair and remediation solutions, on-site biomed services, health care technology solutions, federal governmental services and clinical engineering capital sales. Surgical Services included on-demand and scheduled usage solutions, on-site solutions for hospital and multi-facility health systems and disposable only sales.

Effective January 1, 2018, the Company changed its segment reporting to report its financial information under one reporting segment. The change in reporting was made to conform to the way the Company is currently managing and executing the business. Specifically, the chief operating decision maker (“CODM”) is making operating decisions and assessing performance using discrete financial information from one reportable segment, as our resources and infrastructure are shared and our go to market strategy have evolved with our Equipment Value Management (“EVM”) strategy. The current financial information is based upon the transformation of the business model that has occurred and the development of the new commercial framework – EVM. EVM is an end to end approach to medical equipment management that helps hospitals recover cost and time that today are wasted through inefficient medical equipment processes. EVM integrates customers supply chain, patient care and clinical engineering teams, connecting these siloed groups to streamline processes to improve stakeholder productivity and satisfaction while optimizing equipment utilization and lowering the total cost of ownership. EVM provides the customer with the equipment they need, when they need it, with the assets serviced to the highest quality standards in the industry. EVM combines the capabilities of all service offerings. The EVM solution links all of our service offerings at UHS. The Company has a similar compliment of services, type of customer for the Company’s services, method of distribution for the Company’s services and the regulatory environment is similar across the United States. Accordingly, we concluded that we operate as one

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reporting segment. Finally, the Company analyzed its goodwill for potential impairment before and after the change in segments and concluded that there was no impairment.

Current year presentation of one reporting segment resulted in disaggregated revenue categories of Equipment Solutions which includes supplemental and peak needs usage solutions, surgical services on-demand and scheduled usage solutions, specialty medical equipment sale, distribution and disposable sales, clinical engineering capital sales and surgical disposable only sales. Clinical Engineering includes supplemental maintenance, repair and remediation solutions, on-site biomed services, health care technology solutions and federal governmental services. On-site Managed Services includes 360 On-site managed solutions and surgical services on-site solutions for hospital and multi-facility health systems.

The Company operates in one geographic region, the United States. As the Company is now reporting as one segment which equals the total Company’s results as reflected in the Consolidated Statement of Operations, restatement of prior periods was not necessary.

Principles of Consolidation

The consolidated financial statements include the accounts of Universal Hospital Services, Inc. and its 100%-owned subsidiaries, UHS Surgical Services, Inc. (“Surgical Services” or “SS”) and Radiographic Equipment Services, Inc. (“RES”). In addition, in accordance with guidance issued by the Financial Accounting Standards Board (“FASB”), we have accounted for our equity investments in entities in which we are the primary beneficiary under the full consolidation method. All significant intercompany transactions and balances have been eliminated through consolidation. As the primary beneficiary, we consolidate the limited liability companies (“LLCs”) referred to in Note 11, Limited Liability Companies, as we effectively receive the majority of the benefits from such entities and we provide equipment lease guarantees for such entities.

2.Recent Accounting Pronouncements

Standards Adopted

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (“ASU 2014-09”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaced most existing revenue recognition guidance in GAAP when it became effective. The new standard is effective beginning after December 15, 2017 and interim periods within those years as stated in ASU 2015-14. The standard permits the use of either the full retrospective or cumulative effect (modified retrospective) transition method. We adopted this guidance on January 1, 2018 and have selected a cumulative effect transition method.

We have performed a review of the requirements of the new guidance, codified by FASB in ASC Topic 606, and have applied the five-step model of the new standard to our contracts and have compared the results to our previous accounting practices under ASC Topic 605. Based on this analysis, the new standard did not have a material impact on the results of operations or cash flows of the Company. However, amendments to ASC Topic 340, Other Assets and Deferred Costs, require the capitalization of costs to obtain and fulfill customer contracts, which were previously expensed as incurred. The assets recognized for the costs to obtain and/or fulfill a contract will be amortized on a systematic basis that is consistent with the transfer of the services to which the asset relates. Accordingly, $6.2 million of prior year costs were capitalized as an asset upon adoption of this standard (effective January 1, 2018) and will be amortized over a period of five years.

In August 2016, the FASB issued ASU No. 2016-15 Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”). ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The ASU became effective for annual and interim periods for fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.

In January 2017, the FASB issued ASU No. 2017-01 Business Combination (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business with the objective of adding guidance to

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assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill and consolidation. The ASU became effective for annual and interim periods for fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.

In March 2017, the FASB issued ASU No. 2017-07 Compensation – Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (“ASU 2017-01”). ASU 2017-07 requires that a company present service cost separately from the other components of the net benefit cost. This ASU became effective for annual and interim periods for fiscal years beginning after December 15, 2017. We adopted ASU 2017-07 on January 1, 2018 and retrospectively applied this ASU to all periods presented. As a result, $0.2 million of pension costs were reclassified from selling, general and administrative to interest expense for the three months ended March 31, 2017.

In May 2017, the FASB issued ASU No. 2017-09 Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”). ASU 2017-09 clarifies what constitutes a modification of a share-based payment award. This ASU became effective for annual and interim periods for fiscal years beginning after December 15, 2017. The adoption of this standard did not have a material impact on our consolidated financial statements.

Standards Not Yet Adopted

In February 2016, the FASB issued ASU No. 2016-02 on Leases (ASC Topic 842) (“ASU 2016-02”). ASU 2016-02 was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liability on the balance sheet and disclosing key information about leasing arrangements. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted. We are evaluating the effect that ASU 2016-02 will have on our consolidated financial statements and related disclosures.

In February 2018, the FASB issued ASU No. 2018-02 Income Statement – Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. The ASU is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is permitted. The adoption of this standard is not expected to have a material impact on our consolidated financial statements due to valuation allowance.

In March 2018, the FASB issued ASU No. 2018-05 Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (“ASU 2018-05”). ASU 2018-05 adds various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118.

3.Revenue Recognition

The Company adopted ASU 2014-09, Revenue from Contracts with Customers, effective January 1, 2018, herein referred as ASC Topic 606. ASC Topic 606 is a comprehensive new revenue recognition model that requires a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration the company expects to receive in exchange for those goods or services. The Company adopted ASU 2014-09 using the cumulative effect (also known as the modified retrospective) method by recognizing the cumulative effect of initially applying the ASU as an adjustment to the opening balance of Accumulated Deficit at January 1, 2018. Therefore, the comparative information for the first quarter of our fiscal 2017 (the quarter ended March 31, 2017) has not been adjusted and continues to be reported under the previous accounting standards (ASC Topic 605). The details of the changes to our accounting policies and the quantitative impact of the changes are set out below.

Customer arrangements typically have multiple performance obligations to provide equipment solutions, clinical engineering and/or on-site equipment managed services on a per use and/or over time basis. Equipment Solutions primarily consists of supplemental, peak needs and surgical equipment usage solutions. Clinical Engineering consists of supplemental maintenance, repair and remediation solutions, health care technology solutions, and federal government services. On-site Managed Services consists of 360 on-site managed solutions in both our historical A360 program (using UHS-owned equipment) and our newer M360 program (managing customer-owned equipment). Consideration paid by the customer for each performance obligation is billed within the month the service is performed, and contractual prices

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are established within our customer arrangements that are representative of the stand-alone selling price. Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction, that are collected by the Company from a customer, are excluded from revenue. There are no differences between revenue being earned under Topic 606 and the previous standard (ASC Topic 605).

The Company reports only its portion of revenues earned under certain revenue share arrangements in accordance with ASC Topic 606-10-55-36 to 606-10-55-40 “Principal versus Agent Considerations,” because, among other factors, the equipment manufacturer retains title to the equipment, maintains general inventory and physical loss risk of equipment on rental and because we earn a fixed percentage of the billings to customers.

In the following table, revenue is disaggregated by major service type.


	March 31,
(in thousands)	2018		2017
Equipment Solutions	$	62,442	$	60,657
Clinical Engineering		39,745		33,340
On-Site Managed Services		40,168		36,655
	$	142,355	$	130,652

Concurrent with the adoption of Topic 606 on January 1, 2018, the Company also adopted amendments to ASC Topic 340, Other Assets and Deferred Costs, which requires the costs to obtain and fulfill customer contracts to be capitalized, which were previously expensed as incurred. The Company incurs costs related to obtaining new contracts. Management expects those costs attributable to new revenue production are recoverable and therefore the Company capitalized them as contract costs in accordance with ASC Topic 340 and will amortize them over the anticipated period of the new revenue production.

The Company capitalized the estimated costs to obtain a contract in the amount of $6.2 million at January 1, 2018 with a corresponding adjustment to accumulated deficit for the “Impact of Change in Accounting Policy”. The Contract Asset included in other long-term assets in the Consolidated Balance Sheet at March 31, 2018 is $6.5 million. Capitalized costs are amortized over the expected life of the related contracts which is estimated to be five years. Amortization is computed on a straight-line basis which coincides with the predominant expected life of the underlying contracts. Amortization costs are reflected in selling, general and administrative expenses. The amount of amortization was $0.4 million for the three months ended March 31, 2018. There was no impairment loss in relation to the costs capitalized during the three months ended March 31, 2018.

4.Fair Value Measurements

Financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2018 and December 31, 2017 are summarized in the following table by type of inputs applicable to the fair value measurements:


	Fair Value at March 31, 2018								Fair Value at December 31, 2017
(in thousands)	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Contingent Consideration	$	—	$	—	$	133	$	133	$	—	$	—	$	133	$	133

A description of the inputs used in the valuation of assets and liabilities is summarized as follows:

Level 1 — Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

Level 2 — Inputs include directly or indirectly observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that are considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves that are observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

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Level 3 — Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities or related observable inputs that can be corroborated at the measurement date. Measurements of non-exchange traded derivative contract assets and liabilities are primarily based on valuation models, discounted cash flow models or other valuation techniques that are believed to be used by market participants. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in pricing assets or liabilities.

During 2017, we recorded a contingent consideration liability, in the form of earn-out payment, related to our December 6, 2017 acquisition in the total amount of $0.1 million. The contingent consideration is based on achieving certain revenue results. The fair value of the liability was estimated using a discounted cash flow approach with significant inputs that are not observable in the market and thus represents a Level 3 fair value measurement. The significant inputs in the Level 3 measurement not supported by market activity included our assessments of expected future cash flows during the earn-out period related to the assets acquired, appropriately discounted considering the uncertainties associated with the obligation, and calculated based on estimated revenues in accordance with the terms of the agreement. There were no earn-out payments for the three months ended March 31, 2018.

The assumptions used in preparing the discounted cash flow analyses included estimates of interest rates and the timing and amount of incremental cash flows.

A reconciliation of the beginning and ending balance for the Level 3 measurement are as follows:


(in thousands)
Balance at December 31, 2017	$	133
Addition/payment		—
Balance at March 31, 2018	$	133

Fair Value of Other Financial Instruments

The Company considers that the carrying amount of financial instruments, including accounts receivable, accounts payable, accrued liabilities and senior secured credit facility, approximates fair value due to their short maturities. The fair value of our outstanding Original Notes and Add-on Notes (each as defined in Note 8, Long-Term Debt) as of March 31, 2018 and December 31, 2017, based on the quoted market price for the same or similar issues of debt, which represents a Level 2 fair value measurement, is approximately:


	March 31, 2018				December 31, 2017
	Carrying		Fair		Carrying		Fair
(in thousands)	Value		Value		Value		Value
Original Notes - 7.625% (1)	$	422,085	$	428,188	$	421,772	$	426,063
Add-on Notes - 7.625% (2)		223,967		221,650		224,338		220,550

(1)

The carrying value of the Original Notes - 7.625% is net of unamortized deferred financing costs of $2.9 and $3.2 million as of March 31, 2018 and December 31, 2017, respectively.

(2)

The carrying value of the Add-on Notes - 7.625% is net of unamortized deferred financing costs of $1.2 and $1.3 million as of March 31, 2018 and December 31, 2017, respectively, and includes unamortized bond premium of $5.2 and $5.7 million as of March 31, 2018 and December 31, 2017, respectively.

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5.Goodwill and Other Intangible Assets

Our reporting segment has a negative carrying amount at March 31, 2018 and December 31, 2017. There were no impairments recorded in the three months ended March 31, 2018 and 2017.

Our other intangible assets as of March 31, 2018 and December 31, 2017 consist of the following:


	March 31, 2018								December 31, 2017
			Accumulated								Accumulated
(in thousands)	Cost		Amortization		Impairment		Net		Cost		Amortization		Impairment		Net
Finite-life intangibles
Customer relationship	$	125,828	$	(107,842)	$	—	$	17,986	$	125,828	$	(105,911)	$	—	$	19,917
Non-compete agreements		2,101		(1,290)		—		811		2,101		(1,197)		—		904
Total finite-life intangibles		127,929		(109,132)		—		18,797		127,929		(107,108)		—		20,821
Indefinite-life intangibles
Trade names		166,000		—		(34,900)		131,100		166,000		—		(34,900)		131,100
Total intangible assets	$	293,929	$	(109,132)	$	(34,900)	$	149,897	$	293,929	$	(107,108)	$	(34,900)	$	151,921

Total amortization expense related to intangible assets were $2.0 and $3.0 million for the three months ended March 31, 2018 and 2017, respectively.

The estimated future amortization expense for identifiable intangible assets during the remainder of 2018 and the next five years is as follows:


(in thousands)
Remainder of 2018	$	5,571
2019		5,005
2020		2,765
2021		2,106
2022		1,376
2023		503

6.Deficit

The following tables represent changes in deficit that are attributable to our shareholder and noncontrolling interests for the three month periods ended March 31, 2018 and 2017.


					Accumulated
	Additional				Other
	Paid-in		Accumulated		Comprehensive		Noncontrolling		Total
(in thousands)	Capital		Deficit		Loss		Interests		Deficit
Balance at December 31, 2017	$	250,018	$	(287,998)	$	(6,638)	$	240	$	(44,378)
Impact of change in accounting policy		—		6,221		—		—		6,221
Net income		—		4,654		—		86		4,740
Other comprehensive income		—		—		210		—		210
Share-based compensation		746		—		—		—		746
Stock options exercised		277		—		—		—		277
Cash distributions to noncontrolling interests		—		—		—		(120)		(120)
Balance at March 31, 2018	$	251,041	$	(277,123)	$	(6,428)	$	206	$	(32,304)

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					Accumulated
	Additional				Other
	Paid-in		Accumulated		Comprehensive		Noncontrolling		Total
(in thousands)	Capital		Deficit		Loss		Interests		Deficit
Balance at December 31, 2016	$	244,986	$	(296,826)	$	(7,826)	$	181	$	(59,485)
Net (loss) income		—		(1,963)		—		73		(1,890)
Other comprehensive income		—		—		179		—		179
Share-based compensation		758		—		—		—		758
Stock options exercised		22		—		—		—		22
Cash distributions to noncontrolling interests		—		—		—		(77)		(77)
Balance at March 31, 2017	$	245,766	$	(298,789)	$	(7,647)	$	177	$	(60,493)

7.Share-Based Compensation

During the three months ended March 31, 2018, activity under the 2007 Stock Option Plan (the “2007 Stock Option Plan”), of UHS Holdco, Inc., our parent company (“Parent”), was as follows:


						Weighted
						average
		Weighted		Aggregate		remaining
	Number of	average		intrinsic		contractual
(in thousands, except exercise price and years)	options	exercise price		value		term (years)
Outstanding at December 31, 2017	37,673	$	0.79	$	40,875	6.8
Granted	500		1.87
Exercised	(390)		0.71	$	452
Forfeited or expired	(198)		0.77
Outstanding at March 31, 2018	37,585	$	0.80	$	40,204	6.6
Exercisable at March 31, 2018	20,303	$	0.75	$	22,639	6.6
Remaining authorized options available for issue	5,466

The exercise price of the stock option award is equal to the market value of Parent’s common stock on the grant date as determined reasonably and in good faith by Parent’s Board of Directors and compensation committee and based on an analysis of a variety of factors including peer group multiples, merger and acquisition multiples, and discounted cash flow analyses.

The intrinsic value of a stock award is the amount by which the market value of the underlying stock exceeds the exercise price of the award.

We determine the fair value of stock options using the Black-Scholes option pricing model. The estimated fair value of options, including the effect of estimated forfeitures, is recognized as an expense on a straight-line basis over the options’ expected vesting periods. The following assumptions were used in determining the fair value of stock options granted during the three months ended March 31, 2018 and 2017 under the Black-Scholes model.


	Three Months Ended
	March 31,
	2018			2017
Risk-free interest rate		1.45	%		1.51	%
Expected volatility		28.9	%		28.9	%
Dividend yield		N/A			N/A
Expected option life (years)		4.00			4.23
Black-Scholes Value of options	$	0.46		$	0.30

Expected volatility is based on an independent valuation of the stock of companies within our peer group. Given the lack of a true comparable company, the peer group consists of selected public health care companies representing our suppliers, customers and competitors within certain product lines. The risk free-interest rate is based on the U.S.

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Treasury yield curve in effect at the grant date based on the expected option life. The expected option life is estimated based on foreseeable trends.

At March 31, 2018, unearned non-cash share-based compensation that we expect to recognize as expense over a weighted average period of 1.8 years totals approximately $4.3 million, net of our estimated forfeiture rate of 2.0%. The expense could be accelerated upon the sale of Parent or the Company.

In April 2015, Parent granted the Company’s Chief Executive Officer 7.0 million restricted stock units which vest over four years. Total compensation expense related to this grant was $0.3 million and $0.3 million for the three months ended March 31, 2018 and 2017, respectively.

Although Parent grants stock options and restricted stock units, the Company recognizes compensation cost, primarily in Selling, General and Administrative expense, related to these options and units since the services are performed for its benefit.

8.Long-Term Debt

Long-term debt consists of the following:


	March 31,		December 31,
(in thousands)	2018		2017
Original Notes - 7.625% (1)	$	422,085	$	421,772
Add-on Notes - 7.625% (2)		223,967		224,338
Senior secured credit facility (3)		60,674		38,944
Capital lease obligations		17,355		18,054
		724,081		703,108
Less: Current portion of long-term debt		(5,042)		(5,043)
Total long-term debt	$	719,039	$	698,065

(1)

The carrying value of the Original Notes - 7.625% is net of unamortized deferred financing costs of $2.9 and $3.2 million as of March 31, 2018 and December 31, 2017, respectively.

(2)

(3)

The carrying value of the senior secured credit facility is net of unamortized deferred financing costs of $1.1 and $1.3 million as of March 31, 2018 and December 31, 2017, respectively.

Original Notes and Add-on Notes — 7.625%. On August 7, 2012, we issued $425.0 million in aggregate principal amount of 7.625% Second Lien Senior Secured Notes due 2020 (the “Original Notes”) under an indenture dated as of August 7, 2012 (the “2012 Indenture”). On February 12, 2013, we issued $220.0 million in aggregate principal amount of 7.625% Second Lien Senior Secured Notes due 2020 (the “Add-on Notes”, and along with the Original Notes, the “2012 Notes”) as “additional notes” pursuant to the 2012 Indenture. The 2012 Notes mature on August 15, 2020.

The 2012 Indenture provides that the 2012 Notes are our second lien senior secured obligations and are fully and unconditionally guaranteed on a second lien senior secured basis by our existing and certain of our future 100%-owned domestic subsidiaries.

Interest on the 2012 Notes is payable, entirely in cash, semiannually, in arrears, on February 15 and August 15 of each year, beginning on February 15, 2013. We may redeem some or all of the 2012 Notes at the redemption price of 101.906% before August 15, 2018, thereafter the redemption price is 100% as set forth in the 2012 Indenture (expressed as percentage of principal amount). If we sell certain assets or undergo certain kinds of changes of control, we must offer to repurchase the 2012 Notes.

Our 2012 Notes are subject to certain debt covenants which are described below under the heading “2012 Indenture”.

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Senior Secured Credit Facility. On November 24, 2015, we entered into a Third Amended and Restated Credit Agreement with Bank of America, N.A., as agent for the lenders, and the lenders party thereto (the “Third Amended Credit Agreement”), which amended our then-existing senior secured credit facility originally dated as of May 31, 2007 and amended and restated as of May 6, 2010 and as of July 31, 2012. We refer to the third amended and restated senior secured credit facility as the “senior secured credit facility.” The senior secured credit facility is a first lien senior secured asset based revolving credit facility that is available for working capital and general corporate purposes, including permitted investments, capital expenditures and debt repayments, on a fully revolving basis, subject to the terms and conditions set forth in the credit documents in the form of revolving loans, swing line loans and letters of credit. The Third Amended Credit Agreement extended the maturity date of the revolving loans to the earliest of (i) November 24, 2020 and (ii) 90 days prior to the maturity of the 2012 Notes, and reduced (i) the interest rate applicable to borrowings under the Third Amended Credit Agreement to a per annum rate, determined based on our usage of the credit facility as provided in the Third Amended Credit Agreement, ranging from 1.50% to 2.00% above the adjusted LIBOR rate used by the agent or, at our option, 0.50% to 1.00% above the Base Rate as defined in the Third Amended Credit Agreement and (ii) the unused line fee rate to 0.25%. Our obligations under the Third Amended Credit Agreement are secured by a first priority security interest in substantially all of the assets of the Company, Parent, Surgical Services and RES, excluding a pledge of the Company’s and its subsidiaries’ stock, any joint ventures and certain other exceptions. Our obligations under the Third Amended Credit Agreement are unconditionally guaranteed by Parent, Surgical Services and RES.

Our senior secured credit facility provides the aggregate amount we may borrow under revolving loans up to $235.0 million, subject to our borrowing base.

As of March 31, 2018, we had $102.6 million of availability under the senior secured credit facility based on a borrowing base of $169.2 million less borrowings of $61.8 million and after giving effect to $4.8 million used for letters of credit.

The senior secured credit facility requires our compliance with various affirmative and negative covenants. Pursuant to the affirmative covenants, we and Parent agreed to, among other things, deliver financial and other information to the administrative agent, provide notice of certain events (including events of default), pay our obligations, maintain our properties, maintain the security interest in the collateral for the benefit of the administrative agent and the lenders and maintain insurance.

Among other restrictions, and subject to certain definitions and exceptions, the senior secured credit facility restricts our ability to:

incur indebtedness;

create or permit liens;

declare or pay dividends and certain other restricted payments;

consolidate, merge or recapitalize;

acquire or sell assets;

make certain investments, loans or other advances;

enter into transactions with affiliates;

change our line of business; and

enter into hedging transactions.

The senior secured credit facility also contains a financial covenant that is triggered if our available borrowing capacity is less than $20.0 million for a certain period, which consists of a minimum ratio of trailing four-quarter Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) to cash interest expense, as such terms are defined in the senior secured credit facility.

The senior secured credit facility specifies certain events of default, including, among others, failure to pay principal, interest or fees, violation of covenants, inaccuracy of representations or warranties, bankruptcy events, certain ERISA-related events, cross-defaults to other material agreements, change of control events and invalidity of guarantees or security documents. Some events of default will be triggered only after certain cure periods have expired, or will provide for materiality thresholds. If such a default occurs, the lenders under the senior secured credit facility would be

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entitled to take various actions, including all actions permitted to be taken by a secured creditor and the acceleration of amounts due under the senior secured credit facility.

At March 31, 2018, we had $61.8 million of borrowings outstanding, of which $58.0 million was accruing interest at a rate of 3.6% and $3.8 million was accruing interest at a rate of 5.5%.

We were in compliance with all financial debt covenants for all periods presented.

2012 Indenture. Our 2012 Notes are guaranteed, jointly and severally, on a second priority senior secured basis, by Surgical Services and RES, and are also similarly guaranteed by certain of our future 100%-owned domestic subsidiaries. The 2012 Notes are our second priority senior secured obligations and rank (i) equal in right of payment with all of our existing and future unsubordinated indebtedness, and effectively senior to any such unsecured indebtedness to the extent of the value of collateral; (ii) senior in right of payment to all of our and our guarantors’ existing and future subordinated indebtedness; (iii) effectively junior to our senior secured credit facility; and (iv) structurally subordinated to any indebtedness and other liabilities (including trade payables) of any of our future subsidiaries that are not guarantors.

The 2012 Indenture governing the 2012 Notes contains covenants that limit our and our guarantors’ ability, subject to certain definitions and exceptions, and certain of our future subsidiaries’ ability to:

incur additional indebtedness;

pay cash dividends or distributions on our capital stock or repurchase our capital stock or subordinated debt;

issue redeemable stock or preferred stock;

issue stock of subsidiaries;

make certain investments;

transfer or sell assets;

create liens on our assets to secure debt;

enter into transactions with affiliates; and

merge or consolidate with another company.

The 2012 Indenture specifies certain events of default, including among others, failure to pay principal, interest or premium, violation of covenants and agreements, cross-defaults to other material agreements, bankruptcy events, invalidity of guarantees, and a default in the performance by us of the security documents relating to the 2012 Indenture. Some events of default will be triggered only after certain grace or cure periods have expired, or provide for materiality thresholds. In the event certain bankruptcy-related defaults occur, the 2012 Notes will become due and payable immediately. If any other default occurs, the Trustee (and in some cases the noteholders) would be entitled to take various actions, including acceleration of amounts due under the 2012 Indenture.

We were in compliance with all financial debt covenants for all periods presented.

9.Commitments and Contingencies

The Company, in the ordinary course of business, could be subject to liability claims related to employees and the equipment that it rents and services. Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable. Certain claims where the loss is probable, a provision is recorded based on the Company’s best estimate. While the ultimate resolution of these actions may have an impact on the Company’s financial results for a particular reporting period, management believes that any such resolution would not have a material adverse effect on the financial position, results of operations or cash flows of the Company and the chance of a negative outcome on outstanding litigation is considered remote.

On January 13, 2015, the Company filed suit in the Western District of Texas against Hill-Rom Holdings, Inc., Hill-Rom Company, Inc. and Hill-Rom Services, Inc. (the “Defendants”) alleging that the Defendants violated federal and state antitrust laws by willfully and unlawfully engaging in a pattern of exclusionary and predatory conduct in order to foreclose market competition and seeking actual damages, trebled damages and punitive damages. On March 7, 2018, the Company entered into a confidential settlement agreement resolving all disputes and legal claims of the parties associated with the suit filed by the Company against the Defendants. In consideration for this release, terms of the

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confidential settlement agreement call for the Company to receive legal title to certain medical equipment of the Defendants as specified in the agreement on May 1, 2018. No amounts have been recorded in the Company’s consolidated financial statements as of or for the three months ended March 31, 2018. The Company expects to record the equipment and corresponding gain during the second quarter based on the fair value of the equipment received.

10.Related Party Transactions

Management Agreement

On May 31, 2007, we and affiliates of Irving Place Capital (together with its affiliates, “IPC”) entered into a professional services agreement pursuant to which IPC provides general advisory and management services to us with respect to financial and operating matters. IPC is a principal owner of Parent, and each of Robert Juneja, Bret Bowerman and Keith Zadourian are members of our board of directors and are associated with IPC. The professional services agreement requires us to pay an annual fee for ongoing advisory and management services equal to the greater of $0.5 million or 0.75% of our Adjusted EBITDA (as defined in the professional services agreement) for the immediately preceding fiscal year, payable in quarterly installments. The professional services agreement provides that IPC will be reimbursed for its reasonable out-of-pocket expenses in connection with certain activities undertaken pursuant to the professional services agreement and will be indemnified for liabilities incurred in connection with its role under the professional services agreement, other than for liabilities resulting from its gross negligence or willful misconduct. The term of the professional services agreement commenced on May 31, 2007 and will remain in effect unless and until either party notifies the other of its desire to terminate, we are sold to a third-party purchaser or we consummate a qualified initial public offering, as defined in the professional services agreement. Total professional services fees incurred to IPC were $0.3 and $0.2 million for the three month periods ended March 31, 2018 and 2017, respectively.

In connection with the Restricted Stock Unit Award Agreement, dated as of April 13, 2015, between an officer and the Company, we entered into a promissory note agreement with the officer dated April 13, 2016 for a total amount of $1.0 million and dated April 13, 2017 for a total amount of $0.9 million which are included in other long-term assets in the Consolidated Balance Sheets. These notes receivable bear annual interest at 1.45% - 2.12%. The principal and accrued interest of these notes are due on the earliest of (i) the seventh anniversary of the date of this loan, (ii) any event with respect to borrower, which, in any such case of the loan were to remain outstanding on and after such date, would result in violation of Section 402 of the Sarbanes-Oxley Act of 2002, (iii) and certain events of default or (iv) a change in control. Interest income for these notes was $0.009 and $0.004 million for the three month periods ended March 31, 2018.

11.Limited Liability Companies

We participate with others in the formation of LLCs in which the Company becomes a partner and shares the financial interest with the other investors. the Company is the primary beneficiary of these LLCs. These LLCs acquire certain medical equipment for use in their respective business activities, which generally focus on surgical procedures. The LLCs will acquire medical equipment for rental purposes under equipment financing leases. At March 31, 2018, the LLCs had approximately $0.8 million of total assets. The third party investors in each respective LLC generally provide the lease financing company with individual proportionate lease guarantees based on their respective ownership percentages in the LLCs. In addition, the Company will provide such financing companies with its corporate guarantee based on its respective ownership interest in each LLC. In certain instances, the Company has provided such financing companies with an overall corporate guarantee in connection with equipment financing transactions. In such instances, the individual investors in each respective LLC will generally indemnify us against losses, if any, incurred in connection with its corporate guarantee. Additionally, we provide operational and administrative support to the LLCs in which it is a partner. As of March 31, 2018, we held interests in four active LLCs.

In accordance with guidance issued by the FASB, we account for equity investments in LLCs (in which we are the primary beneficiary) under the full consolidation method whereby transactions between the Company and the LLCs have been eliminated through consolidation.

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12.Income Taxes

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We evaluate the recoverability of our deferred tax assets by scheduling the expected reversals of deferred tax assets and liabilities in order to determine whether net operating loss carry forwards are recoverable prior to expiration and have established a valuation allowance in accordance with ASC Topic 740, “Income Taxes”. The tax expense for the three months ended March 31, 2018 and 2017 primarily relates to state minimum fees and tax amortization of indefinite-life intangibles. The expected tax expense from operating income during the three months ended March 31, 2018 was offset by the reduction of our valuation allowance. In future reporting periods, we will continue to assess the likelihood that deferred tax assets will be realizable.

In connection with our initial analysis of the impact of the Tax Cuts and Jobs Act, we recorded a provisional income tax benefit of approximately $18.3 million at December 31, 2017 for the revaluation of our net deferred tax liability. There were no changes recorded in the first quarter of 2018 to the provisional income tax benefit.

At March 31, 2018, the Company had available unused federal net operating loss carryforwards of approximately $198.9 million. The net operating loss carryforwards will expire at various dates from 2019 through 2038.

13.Consolidating Financial Statements

In accordance with the provisions of the 2012 Indenture, as 100%-owned subsidiaries of UHS, Surgical Services and RES have jointly and severally guaranteed all the Company’s Obligations (as defined in the 2012 Indenture) on a full and unconditional basis. Consolidating financial information of UHS and the guarantors is presented on the following pages.

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Universal Hospital Services, Inc. and Subsidiaries

Consolidating Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	March 31, 2018
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Assets
Current assets:
Accounts receivable, less allowance for doubtful accounts	$	83,433	$	12,611	$	—	$	96,044
Due from affiliates		29,561		—		(29,561)		—
Inventories		4,046		6,198		—		10,244
Other current assets		6,203		789		—		6,992
Total current assets		123,243		19,598		(29,561)		113,280
Property and equipment:
Medical equipment		567,284		65,619		—		632,903
Property and office equipment		94,547		12,800		—		107,347
Accumulated depreciation		(496,171)		(52,663)		—		(548,834)
Total property and equipment, net		165,660		25,756		—		191,416
Other long-term assets:
Goodwill		283,141		63,027		—		346,168
Investment in subsidiary		78,541		—		(78,541)		—
Other intangibles, net		135,738		14,159		—		149,897
Other		7,918		1,646		—		9,564
Total assets	$	794,241	$	124,186	$	(108,102)	$	810,325
Liabilities and (Deficit) Equity
Current liabilities:
Current portion of long-term debt	$	3,419	$	1,623	$	—	$	5,042
Book overdrafts		3,056		(1,273)		—		1,783
Due to affiliates		—		29,561		(29,561)		—
Accounts payable		24,744		6,672		—		31,416
Accrued compensation		11,990		2,077		—		14,067
Accrued interest		6,463		—		—		6,463
Other accrued expenses		16,111		2,090		—		18,201
Total current liabilities		65,783		40,750		(29,561)		76,972
Long-term debt, less current portion		715,518		3,521		—		719,039
Pension and other long-term liabilities		11,186		3		—		11,189
Deferred income taxes, net		34,249		1,180		—		35,429
Commitments and contingencies
(Deficit) Equity
Common stock		—		—		—		—
Additional paid-in capital		251,056		76,003		(76,018)		251,041
Accumulated deficit		(279,646)		2,523		—		(277,123)
Accumulated loss in subsidiary		2,523		—		(2,523)		—
Accumulated other comprehensive loss		(6,428)		—		—		(6,428)
Total Universal Hospital Services, Inc. and Subsidiaries (deficit) equity		(32,495)		78,526		(78,541)		(32,510)
Noncontrolling interest		—		206		—		206
Total (deficit) equity		(32,495)		78,732		(78,541)		(32,304)
Total liabilities and (deficit) equity	$	794,241	$	124,186	$	(108,102)	$	810,325

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Universal Hospital Services, Inc. and Subsidiaries

Consolidating Balance Sheets

(in thousands, except share and per share information)

(unaudited)


	December 31, 2017
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Assets
Current assets:
Accounts receivable, less allowance for doubtful accounts	$	76,093	$	13,544	$	—	$	89,637
Due from affiliates		31,590		—		(31,590)		—
Inventories		3,800		5,960		—		9,760
Other current assets		6,127		709		—		6,836
Total current assets		117,610		20,213		(31,590)		106,233
Property and equipment:
Medical equipment		564,316		64,877		—		629,193
Property and office equipment		92,414		12,927		—		105,341
Accumulated depreciation		(485,960)		(50,560)		—		(536,520)
Total property and equipment, net		170,770		27,244		—		198,014
Other long-term assets:
Goodwill		283,141		63,027		—		346,168
Investment in subsidiary		76,606		—		(76,606)		—
Other intangibles, net		136,563		15,358		—		151,921
Other		2,411		698		—		3,109
Total assets	$	787,101	$	126,540	$	(108,196)	$	805,445
Liabilities and (Deficit) Equity
Current liabilities:
Current portion of long-term debt	$	3,451	$	1,592	$	—	$	5,043
Book overdrafts		5,345		22		—		5,367
Due to affiliates		—		31,590		(31,590)		—
Accounts payable		29,842		6,847		—		36,689
Accrued compensation		18,696		2,802		—		21,498
Accrued interest		18,671		—		—		18,671
Other accrued expenses		16,018		1,745		—		17,763
Total current liabilities		92,023		44,598		(31,590)		105,031
Long-term debt, less current portion		694,171		3,894		—		698,065
Pension and other long-term liabilities		11,384		1		—		11,385
Deferred income taxes, net		34,126		1,216		—		35,342
Commitments and contingencies
(Deficit) Equity
Common stock		—		—		—		—
Additional paid-in capital		250,033		76,003		(76,018)		250,018
Accumulated deficit		(288,586)		588		—		(287,998)
Accumulated loss in subsidiary		588		—		(588)		—
Accumulated other comprehensive loss		(6,638)		—		—		(6,638)
Total Universal Hospital Services, Inc. and Subsidiaries (deficit) equity		(44,603)		76,591		(76,606)		(44,618)
Noncontrolling interest		—		240		—		240
Total (deficit) equity		(44,603)		76,831		(76,606)		(44,378)
Total liabilities and (deficit) equity	$	787,101	$	126,540	$	(108,196)	$	805,445

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Universal Hospital Services, Inc. and Subsidiaries

Consolidating Statements of Operations

(in thousands)

(unaudited)


	Three Months Ended March 31, 2018
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Revenues	$	117,197	$	25,158	$	—	$	142,355
Cost of revenues		74,195		16,667		—		90,862
Gross margin		43,002		8,491		—		51,493
Selling, general and administrative		26,720		6,321		—		33,041
Operating income		16,282		2,170		—		18,452
Equity in earnings of subsidiary		(1,119)		—		1,119		—
Interest expense		12,892		558		—		13,450
Income before income taxes and noncontrolling interest		4,509		1,612		(1,119)		5,002
(Benefit) provision for income taxes		(231)		493		—		262
Consolidated net income		4,740		1,119		(1,119)		4,740
Net income attributable to noncontrolling interest		—		86		—		86
Net income attributable to Universal Hospital Services, Inc. and Subsidiaries	$	4,740	$	1,033	$	(1,119)	$	4,654

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Universal Hospital Services, Inc. and Subsidiaries

Consolidating Statements of Operations

(in thousands)

(unaudited)


	Three Months Ended March 31, 2017
	Parent		Subsidiary
	Issuer		Guarantor		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Revenues	$	107,949	$	22,703	$	—	$	130,652
Cost of revenues		69,915		14,970		—		84,885
Gross margin		38,034		7,733		—		45,767
Selling, general and administrative		27,538		6,419		—		33,957
Operating income		10,496		1,314		—		11,810
Equity in earnings of subsidiary		(414)		—		414		—
Interest expense		12,933		545		—		13,478
(Loss) income before income taxes and noncontrolling interest		(2,023)		769		(414)		(1,668)
(Benefit) provision for income taxes		(133)		355		—		222
Consolidated net (loss) income		(1,890)		414		(414)		(1,890)
Net income attributable to noncontrolling interest		—		73		—		73
Net (loss) income attributable to Universal Hospital Services, Inc. and Subsidiaries	$	(1,890)	$	341	$	(414)	$	(1,963)

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Universal Hospital Services, Inc. and Subsidiaries

Consolidating Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)


	Three Months Ended March 31, 2018
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Consolidated net income	$	4,740	$	1,119	$	(1,119)	$	4,740
Other comprehensive income:
Gain on minimum pension liability, net of tax		210		—		—		210
Total other comprehensive income		210		—		—		210
Comprehensive income		4,950		1,119		(1,119)		4,950
Comprehensive income attributable to noncontrolling interest		—		86		—		86
Comprehensive income attributable to Universal Hospital Services, Inc. and Subsidiaries	$	4,950	$	1,033	$	(1,119)	$	4,864


	Three Months Ended March 31, 2017
	Parent		Subsidiary
	Issuer		Guarantor		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Consolidated net (loss) income	$	(1,890)	$	414	$	(414)	$	(1,890)
Other comprehensive income:
Gain on minimum pension liability, net of tax		179		—		—		179
Total other comprehensive income		179		—		—		179
Comprehensive (loss) income		(1,711)		414		(414)		(1,711)
Comprehensive income attributable to noncontrolling interest		—		73		—		73
Comprehensive (loss) income attributable to Universal Hospital Services, Inc. and Subsidiaries	$	(1,711)	$	341	$	(414)	$	(1,784)

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Universal Hospital Services, Inc. and Subsidiaries

Consolidating Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended March 31, 2018
	Parent		Subsidiary
	Issuer		Guarantors		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Cash flows from operating activities:
Consolidated net income	$	4,740	$	1,119	$	(1,119)	$	4,740
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation		14,199		2,372		—		16,571
Amortization of intangibles, contract costs, deferred financing costs and bond premium		1,274		1,250		—		2,524
Equity in earnings of subsidiary		(1,119)		—		1,119		—
Provision for doubtful accounts		200		22		—		222
Provision for inventory obsolescence		26		96		—		122
Non-cash share-based compensation expense		622		124		—		746
Gain on sales and disposals of equipment		(336)		(43)		—		(379)
Deferred income taxes		123		(36)		—		87
Interest on note receivable		(9)		—		—		(9)
Changes in operating assets and liabilities:
Accounts receivable		(7,540)		911		—		(6,629)
Due from affiliates		2,153		—		(2,153)		—
Inventories		(272)		(334)		—		(606)
Other operating assets		(632)		(177)		—		(809)
Accounts payable		1,633		2,413		—		4,046
Other operating liabilities		(18,809)		(378)		—		(19,187)
Net cash (used in) provided by operating activities		(3,747)		7,339		(2,153)		1,439
Cash flows from investing activities:
Medical equipment purchases		(13,508)		(3,330)		—		(16,838)
Property and office equipment purchases		(2,054)		(50)		—		(2,104)
Proceeds from disposition of property and equipment		630		155		—		785
Net cash used in investing activities		(14,932)		(3,225)		—		(18,157)
Cash flows from financing activities:
Proceeds under senior secured credit facility		82,448		—		—		82,448
Payments under senior secured credit facility		(60,848)		—		—		(60,848)
Payments of principal under capital lease obligations		(909)		(546)		—		(1,455)
Distributions to noncontrolling interests		—		(120)		—		(120)
Proceeds from exercise of parent company stock options		277		—		—		277
Due to affiliates		—		(2,153)		2,153		—
Change in book overdrafts		(2,289)		(1,295)		—		(3,584)
Net cash provided by (used in) financing activities		18,679		(4,114)		2,153		16,718
Net change in cash and cash equivalents		—		—		—		—
Cash and cash equivalents at the beginning of period		—		—		—		—
Cash and cash equivalents at the end of period	$	—	$	—	$	—	$	—

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Universal Hospital Services, Inc. and Subsidiaries

Consolidating Statements of Cash Flows

(in thousands)

(unaudited)


	Three Months Ended March 31, 2017
	Parent		Subsidiary
	Issuer		Guarantor		Consolidating
	UHS		SS & RES		Adjustments		Consolidated
Cash flows from operating activities:
Consolidated net (loss) income	$	(1,890)	$	414	$	(414)	$	(1,890)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Depreciation		15,899		1,995		—		17,894
Amortization of intangibles, deferred financing costs and bond premium		1,867		1,240		—		3,107
Equity in earnings of subsidiary		(414)		—		414		—
Provision for doubtful accounts		228		(8)		—		220
Provision for inventory obsolescence		23		(1)		—		22
Non-cash share-based compensation expense		638		120		—		758
Gain on sales and disposals of equipment		(712)		(35)		—		(747)
Deferred income taxes		308		(202)		—		106
Interest on note receivable		(4)		—		—		(4)
Changes in operating assets and liabilities:
Accounts receivable		(1,164)		1,315		—		151
Due from affiliates		(2,279)		—		2,279		—
Inventories		(31)		503		—		472
Other operating assets		168		(291)		—		(123)
Accounts payable		(1,768)		(1,296)		—		(3,064)
Other operating liabilities		(21,065)		(1,141)		—		(22,206)
Net cash (used in) provided by operating activities		(10,196)		2,613		2,279		(5,304)
Cash flows from investing activities:
Medical equipment purchases		(13,704)		(3,772)		—		(17,476)
Property and office equipment purchases		(1,004)		(59)		—		(1,063)
Proceeds from disposition of property and equipment		1,340		62		—		1,402
Acquisition and refund of escrow		3,691		—		—		3,691
Net cash used in investing activities		(9,677)		(3,769)		—		(13,446)
Cash flows from financing activities:
Proceeds under senior secured credit facility		70,029		—		—		70,029
Payments under senior secured credit facility		(43,492)		—		—		(43,492)
Payments of principal under capital lease obligations		(1,258)		(409)		—		(1,667)
Distributions to noncontrolling interests		—		(77)		—		(77)
Proceeds from exercise of parent company stock options		22		—		—		22
Due to affiliates		—		2,279		(2,279)		—
Change in book overdrafts		(5,428)		(637)		—		(6,065)
Net cash provided by financing activities		19,873		1,156		(2,279)		18,750
Net change in cash and cash equivalents		—		—		—		—
Cash and cash equivalents at the beginning of period		—		—		—		—
Cash and cash equivalents at the end of period	$	—	$	—	$	—	$	—

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14.Restructuring

We incurred no restructuring expense during the three months ended March 31, 2018 and 2017. As of December 31, 2016, we had $0.1 million of restructuring liability. For the three months ended March 31, 2017, $0.1 million in restructuring charges was paid.

15.Concentration

One customer, Memorial Hermann Health System, accounted for approximately 14% and 15% of total revenue for the three months ended March 31, 2018 and 2017, respectively.

16.Subsequent Event

On May 9, 2018, Parent adopted the 2018 Executive Management Stock Option Plan (the "2018 Plan"). Pursuant to the 2018 Plan, awards may be in the form of Non-Qualified Stock Options. 2,499,000 shares of common stock were issued to certain UHS executives, including Named Executive Officers other than the Chief Executive Officer pursuant to the 2018 Plan, as shown in the table below:


Name	Title	Options Granted
Kevin Ketzel	President	600,000
James Pekarek	EVP and CFO	600,000
Robert Creviston	Chief Human Resources Officer	233,000
Bettyann Bird	SVP Marketing	600,000

Options granted pursuant to the 2018 Plan may only be exercised within 30 days after the signing of a binding agreement for the Company to undergo a Change in Control (as defined in the 2018 Plan) event. Additionally, all awards of options granted pursuant to the 2018 Plan provide for a claw back of all proceeds of such options in the event an award recipient voluntarily terminates his or her employment with the Company without Good Reason or has his or her employment terminated by the Company for Cause (as such terms are defined in the Company’s Executive Severance Pay Plan) within one year following a Change in Control of the Company.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following should be read in conjunction with the accompanying consolidated financial statements and notes.

BUSINESS OVERVIEW

Our Company

Universal Hospital Services, Inc and Subsidiaries. (“we”, “our”, “us”, the “Company”, or “UHS”) is a leading nationwide provider of end-to-end health care technology management and service solutions to the United States health care industry. We provide our customers access to high quality health care technology and implement comprehensive medical equipment management and service solutions to reduce capital and operating expenses, increase medical equipment and staff productivity and support improved patient safety and outcomes.

Universal Hospital Services, Inc. commenced operations in 1939, originally incorporated in Minnesota in 1954 and reincorporated in Delaware in 2001. All of our outstanding capital stock is owned by UHS Holdco, Inc. (“Parent”), which acquired the Company in a recapitalization in May 2007. Parent is controlled by affiliates of Irving Place Capital (together with its affiliates, “IPC”).

As of March 31, 2018, we owned or managed more than 800,000 units of medical equipment consisting of over 350,000 units of owned medical equipment and over 450,000 units of customer-owned equipment. Our diverse customer base includes approximately 7,000 active national, regional and local acute care hospitals and alternate site providers (such as long-term acute care hospitals, skilled nursing facilities, surgery centers, specialty hospitals and home care providers). We also have relationships with more than 200 medical device manufacturers, many of the nation’s largest group purchasing organizations (“GPOs”) and many health system integrated delivery networks (“IDNs”). We deliver our solutions through our nationwide network of 86 service centers and five Centers of Excellence. Our fees are paid directly by our customers rather than by direct reimbursement from third-party payors, such as private insurers, Medicare or Medicaid.

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solutions, specialty medical equipment sale, distribution and disposable sales, clinical engineering capital sales and surgical disposable only sales. Clinical Engineering includes supplemental maintenance, repair and remediation solutions, on-site biomed services, health care technology solutions and federal governmental services. On-site Managed Services includes 360 On-site managed solutions and surgical services on-site solutions for hospital and multi-facility health systems.

Our service lines consist of Equipment Solutions, Clinical Engineering and On-site Managed Services.

Equipment Solutions primarily consists of providing supplemental, peak needs and surgical equipment usage solutions to approximately 7,000 acute care hospitals and alternate site providers in the United States, including some of the nation’s premier health care institutions. These solutions are provided primarily to hospitals and other acute care providers for use through their facilities, including the emergency room, operating room, critical care, intensive care, rehabilitation and general patient care areas.

Clinical Engineering consists of supplemental maintenance, repair and remediation solutions, health care technology solutions and the federal government services. We offer a broad range of inspection, preventive maintenance, repair, logistic and consulting services through our team of more than 400 technicians and professionals located throughout the United States in our nationwide network of service centers. We managed more than 400,000 units of customer owned equipment as of March 31, 2018.

On-site Managed Services provide solutions that allow our customers to fully outsource the responsibilities and costs of effectively managing categories of medical equipment at their facilities, with the added benefit of enhancing equipment utilization and clinical support. With our 360 solutions, medical equipment types and quantities are adjusted to meet changes in patient census and acuity. Our employees work at the customers’ sites to integrate our equipment management process and proprietary management software technology tools into the customers’ day-to-day operations. We assume full responsibility for having equipment where and when it is needed at the customer’s facility, removing equipment that is no longer in use and decontaminating, testing and repairing equipment as needed between each patient use. We also perform required training and ‘‘in service’’ sessions to keep our customers’ staffs fully-trained and knowledgeable about the use and operation of medical equipment covered by the 360 solutions. We provide 360 solutions in both our historical A360 program (using UHS-owned equipment) and our newer growing M360 program (managing customer owned equipment).

RESULTS OF OPERATIONS

The following discussion addresses:

our financial condition as of March 31, 2018 and

the results of operations for the three-month periods ended March 31, 2018 and 2017.

This discussion should be read in conjunction with the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q and the Management’s Discussion and Analysis of Financial Condition and Results of Operations section included in our 2017 Annual Report on Form 10-K, filed with the Securities and Exchange Commission.

The following table provides information on the percentages of certain items of selected financial data compared to total revenues for the three-month periods ended March 31, 2018 and 2017. As previously discussed in this Report, revenues, cost of revenues and selling, general and administrative expense for Q1 2018 were determined in accordance with ASC Topic 606, while comparative results for Q1 2017 were determined in accordance with ASC Topic 605. There are no differences for revenues and cost of revenues between ASC Topic 606 and the previous standard ASC Topic 605. For selling, general and administrative expense, the Company is now capitalizing certain contract costs that were previously expensed. See Note, 3 Revenue Recognition for discussion regarding contract costs.

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	Percent to Total Revenues
	Three Months Ended March 31,
	2018		2017
Revenues	100.0	%	100.0	%
Cost of revenues	63.8		65.0
Gross margin	36.2		35.0
Selling, general and administrative	23.2		26.0
Operating income	13.0		9.0
Interest expense	9.4		10.3
Income (loss) before income taxes and noncontrolling interest	3.6		(1.3)
Provision for income taxes	0.2		0.2
Consolidated net income (loss)	3.4	%	(1.5)	%

Consolidated Results of Operations for the three months ended March 31, 2018 compared to the three months ended March 31, 2017

Total Revenue

(in thousands)

The following table presents revenues by major service type for the three months ended March 31, 2018 and 2017.


	Three Months Ended
	March 31,
	2018		2017		% Change
Equipment Solutions	$	62,442	$	60,657		2.9	%
Clinical Engineering		39,745		33,340		19.2
On-Site Managed Services		40,168		36,655		9.6
Total Revenue	$	142,355	$	130,652		9.0	%

Total revenue for the three months ended March 31, 2018 was $142.4 million, compared to $130.7 million for the three months ended March 31, 2017, an increase of $11.7 million or 9.0%. The impact from acquisitions represented an increase in revenue of approximately $1.0 million. Organic revenue growth for the quarter totaled 8.2%. Equipment Solutions increased 2.9% for the quarter driven by favorable impact from a stronger flu season. Clinical Engineering increased 19.2% primarily due to strong growth in new contract signings. On-site Managed Services increased 9.6% as a result of the growth in our managed only programs in addition to the favorable impact from a stronger flu season.

Cost of Revenue

Total cost of revenue for the three months ended March 31, 2018 was $90.9 million compared to $84.9 million for the three months ended March 31, 2017, an increase of $6.0 million or 7.0%. The increase was primarily due to the increase in expenses to support the revenue growth. Technician labor and vendor expenses increased $5.3 million to support our new clinical engineering programs. Partially offsetting this expense was a decline of $1.4 million in depreciation expense resulting from our continued efforts to lower the level of capital expenditures as a percentage of revenue.

Gross Margin

Total gross margin for the three months ended March 31, 2018 was $51.5 million, or 36.2% of total revenues, compared to $45.8 million, or 35.0% of total revenues, for the three months ended March 31, 2017, an increase of $5.7 million or 12.5%. The increase in gross margin as a percent of revenue for the quarter was primarily impacted by positive leverage from volume growth in our three major service types as well as from a reduction in depreciation expense as a result of our continued efforts to lower the level of capital expenditures as a percentage of revenue as we shift the mix of business to a lower capital intensity.

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Selling, General and Administrative and Interest Expense

(in thousands)


	Three Months Ended
	March 31,
	2018		2017		Change		% Change
Selling, general and administrative	$	33,041	$	33,957	$	(916)	(2.7)	%
Interest expense		13,450		13,478		(28)	(0.2)

Selling, General and Administrative

Selling, general and administrative expense decreased $0.9 million, or 2.7%, to $33.0 million for the first quarter of 2018 as compared to the same period of 2017. The decrease was primarily related to the decrease in amortization expense of approximately $0.4 million as certain intangible assets were fully amortized in the second half of last year.

Selling, general and administrative expense as a percentage of total revenue was 23.2% and 26.0% for the quarters ended March 31, 2018 and 2017, respectively.

Interest Expense

Interest expense was flat at $13.5 million for the first quarter of 2018 as compared to the same period of 2017.

Income Taxes

Income taxes expense was $0.3 million and $0.2 million for the three months ended March 31, 2018 and 2017, respectively. The tax expense for the three months ended March 31, 2018 and 2017 primarily related to state minimum fees and tax amortization of indefinite-life intangibles. The expected tax expense from operating income during the three months ended March 31, 2018 was offset by the reduction of our valuation allowance. In future reporting periods, we will continue to assess the likelihood that deferred tax assets will be realizable. See Note 12, Income Taxes regarding impact of the Tax Cuts and Jobs Act.

Consolidated Net Income

Consolidated net income increased $6.6 million to $4.7 million in the first quarter of 2018 as compared to the same period of 2017. Net income was impacted primarily by the increase in revenues.

Adjusted EBITDA

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) was $39.9 and $34.8 million for the three months ended March 31, 2018 and 2017, respectively. Adjusted EBITDA for the three months ended March 31, 2018 was higher primarily due to the increase in revenue.

Adjusted EBITDA is defined as earnings attributable to UHS before interest expense, income taxes, depreciation and amortization and excludes non-cash share-based compensation expense, management, board and other nonrecurring gain, expenses or loss. In addition to using Adjusted EBITDA internally as a measure of operational performance, we disclose it externally to assist analysts, investors and lenders in their comparisons of operational performance, valuation and debt capacity across companies with differing capital, tax and legal structures. Adjusted EBITDA, however, is not a measure of financial performance under accounting principles generally accepted in the United States of America (“GAAP”) and should not be considered as an alternative to, or more meaningful than, net income as a measure of operating performance or to cash flows from operating, investing or financing activities or as a measure of liquidity. Since Adjusted EBITDA is not a measure determined in accordance with GAAP and is thus susceptible to varying interpretations and calculations, Adjusted EBITDA, as presented, may not be comparable to other similarly titled measures of other companies. Adjusted EBITDA does not represent an amount of funds that is available for management’s discretionary use. A reconciliation of net income (loss) attributable to UHS to Adjusted EBITDA is included below:

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	Three Months Ended
	March 31,
(in thousands)	2018		2017
Net income (loss) attributable to Universal Hospital Services, Inc. and Subsidiaries	$	4,654	$	(1,963)
Interest expense		13,450		13,478
Provision for income taxes		262		222
Depreciation and amortization of intangibles and contract costs		19,023		20,899
EBITDA		37,389		32,636
Non-cash share-based compensation expense		746		758
Management, board and other		1,749		1,434
Adjusted EBITDA	$	39,884	$	34,828


Other Financial Data:
Net cash provided by (used in) operating activities	$	1,439	$	(5,304)
Net cash used in investing activities		(18,157)		(13,446)
Net cash provided by financing activities		16,718		18,750

Other Operating Data (as of end of period):
Medical equipment (approximate number of owned outsourcing units)		235,000		242,000
District service centers		86		82
SS stand-alone service centers		—		4
Centers of Excellence		5		5

SEASONALITY

Quarterly operating results are typically affected by seasonal factors. Historically, our first and fourth quarters are the strongest, reflecting increased customer utilization during the fall and winter months.

LIQUIDITY AND CAPITAL RESOURCES

Our principal sources of liquidity are expected to be cash flows from operating activities and borrowings under our senior secured credit facility, which provides for loans in an amount of up to $235.0 million, subject to our borrowing base. See Note 8, Long-Term Debt, for details related to our senior secured credit facility. It is anticipated that our principal uses of liquidity will be to fund capital expenditures related to purchases of medical equipment, provide working capital, meet debt service requirements and finance our strategic plans.

We require substantial cash to operate our health care technology solutions and service our debt. Our health care technology solutions require us to invest a significant amount of cash in medical equipment purchases. To the extent that such expenditures cannot be funded from our operating cash flow, borrowing under our senior secured credit facility or other financing sources, we may not be able to conduct our business or grow as currently planned.

If we are unable to generate sufficient cash flow from operations in order to service our debt, we will be forced to take actions, such as reducing or delaying capital expenditures, selling assets, restructuring or refinancing our debt, or seeking additional equity capital. This, to a certain extent, is subject to general economic, financial, competitive, legislative,

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regulatory and other factors that are beyond our control. If we are unable to repay our debt at maturity, we may have to obtain alternative financing, which may not be available to us.

Net cash provided by (used in) operating activities was $1.4 and $(5.3) million for the three months ended March 31, 2018 and 2017, respectively. The increase in net cash provided by operating activities was primarily due to higher earnings and the timing of accounts payable payments in the first quarter of 2018 compared to the same period in 2017.

Net cash used in investing activities was $18.2 and $13.4 million for the three months ended March 31, 2018 and 2017, respectively. The increase in net cash used in investing activities was primarily due to collection of an escrow receivable in the first quarter of 2017.

Net cash provided by financing activities was $16.7 and $18.8 million for the three months ended March 31, 2018 and 2017, respectively. The decrease in net cash provided by financing activities was primarily due to lower net borrowings under the senior secured credit facility and a reduction in book overdrafts in the first quarter of 2018 compared to the same period in 2017.

Based on the level of operating performance expected in 2018, we believe our cash from operations and additional borrowings under our senior secured credit facility will meet our liquidity needs for the foreseeable future, exclusive of any borrowings that we may make to finance potential acquisitions. However, if during that period or thereafter we are not successful in generating sufficient cash flows from operations or in raising additional capital when required in sufficient amounts and on terms acceptable to us, our business could be adversely affected. As of March 31, 2018, we had $102.6 million of availability under the senior secured credit facility based on a borrowing base of $169.2 million less borrowings of $61.8 million and after giving effect to $4.8 million used for letters of credit. As of March 31, 2017, we had $90.0 million of availability under the senior secured credit facility based on a borrowing base of $166.7 million less borrowings of $72.2 million and after giving effect to $4.5 million used for letters of credit.

Our levels of borrowing are further restricted by the financial covenants set forth in our senior secured credit facility agreement and the 2012 Indenture governing our 2012 Notes, as described in Note 8, Long-Term Debt.

The Company was in compliance with all financial covenants for all periods presented.

RECENT ACCOUNTING PRONOUNCEMENT

See Item 1 of Part I, Note 2, Recent Accounting Pronouncements.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet arrangements.

SAFE HARBOR STATEMENT

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: We believe statements in this Quarterly Report on Form 10-Q looking forward in time involve risks and uncertainties. The following factors, among others, could adversely affect our business, operations and financial condition, causing our actual results to differ materially from those expressed in any forward-looking statements:

our competitors’ activities;

our customers’ patient census or service needs;

global economic conditions’ effect on our customers;

our ability to maintain existing contracts or contract terms and enter into new contracts with customers;

uncertainties as to the effect of non-renewal of existing contracts;

consolidation in the health care industry and its effect on prices;

our relationships with key suppliers;

our ability to change the manner in which health care providers procure medical equipment;

the absence of long-term commitments and cancellations by or disputes with customers;

our dependence on key personnel;

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our ability to identify and manage acquisitions;

increases in expenses related to our pension plan;

our cash flow fluctuation;

the increased credit risks associated with doing business with home care providers and nursing homes;

the risk of claims associated with medical equipment we outsource and service;

increased costs we cannot pass through;

the failure of any management information system;

the inherent limitations on internal controls of our financial reporting;

the uncertainty surrounding health care reform initiatives;

the federal Privacy law risks;

the federal Anti-Kickback law risks;

changes to third-party payor reimbursement for health care items and services;

potential other new health care laws or regulations;

our customers operate in a highly regulated environment;

our fleet’s risk of recalls or obsolescence;

our substantial debt service obligations;

our need for substantial cash to operate and expand our business as planned; and

our history of net losses and substantial interest expense.

For further information on risks applicable to us, please see the disclosure regarding the risk factors as set forth in Item 1A of Part II of this Quarterly Report on Form 10-Q.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to market risk arising from adverse changes in interest rates, fuel costs and pension valuation. We do not enter into derivatives or other financial instruments for speculative purposes.

Interest Rates

We use both fixed and variable rate debt as sources of financing. At March 31, 2018, we had approximately $729.4 million of total debt outstanding before netting with deferred financing costs, of which $61.8 million was bearing interest at variable rates. Based on variable debt levels at March 31, 2018, a 1.0 percentage point change in interest rates on variable rate debt would have resulted in annual interest expense fluctuating by approximately $0.6 million.

Fuel Costs

We are also exposed to market risks related to changes in the price of gasoline used to fuel our fleet of delivery and sales vehicles. A hypothetical 10% increase in the first three months of 2018 average price of unleaded gasoline, assuming gasoline usage levels for the three months ended March 31, 2018, would lead to an annual increase in fuel costs of approximately $0.4 million.

Pension

Our pension plan assets, which were approximately $22.2 million at December 31, 2017, are subject to volatility that can be caused by fluctuations in general economic conditions. Continued market volatility and disruption could cause further declines in asset values, and if this occurs, we may need to make additional pension plan contributions and our pension expense in future years may increase. A hypothetical 10% decrease in the fair value of plan assets at December 31, 2017 would lead to a decrease in the funded status of the plan of approximately $2.2 million.

Other Market Risk

As of March 31, 2018, we have no other material exposure to market risk.

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Item 4. Controls and Procedures

(a)

Evaluation of disclosure controls and procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2018.

(b)

Changes in internal control over financial reporting

Beginning January 1, 2018, we implemented ASU 2014-09. Although the adoption of the new revenue standard had no significant impact on our results of operations, cash flows, or financial position, we did implement changes to our controls related to revenue. These included the development of new policies based on the five-step model provided in the new revenue standard, enhanced contract review requirements and other ongoing monitoring activities. These controls were designed to provide assurance at a reasonable level of the fair presentation of our condensed consolidated financial statements and related disclosures. There was no other change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.Legal Proceedings

The Company, in the ordinary course of business, could be subject to liability claims related to employees and the equipment that it rents and services. Asserted claims are subject to many uncertainties and the outcome of individual matters is not predictable. While the ultimate resolution of these actions may have an impact on the Company’s financial results for a particular reporting period, management believes that any such resolution would not have a material adverse effect on the financial position, results of operations or cash flows of the Company and the chance of a negative outcome on outstanding litigation is considered remote. See the additional information in Item 1 of Part I, Note 9, Commitments and Contingencies.

Item 1A. Risk Factors

Our business is subject to various risks and uncertainties. Any of the risks discussed elsewhere in this Quarterly Report on Form 10-Q or our other filings with the Securities and Exchange Commission, including the risk factors set forth in our 2017 Annual Report on Form 10-K, could materially adversely affect our business, financial condition or results of operations.

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.Defaults upon Senior Securities

None.

Item 4.Mine Safety Disclosures

Not applicable.

Item 5.Other Information

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to certain UHS executives, including Named Executive Officers other than the Chief Executive Officer pursuant to the 2018 Plan, as shown in the table below:


Name	Title	Options Granted
Kevin Ketzel	President	600,000
James Pekarek	EVP and CFO	600,000
Robert Creviston	Chief Human Resources Officer	233,000
Bettyann Bird	SVP Marketing	600,000

The foregoing description of the 2018 Plan is a summary only and is qualified in its entirety by reference to the complete text of the 2018 Plan, a copy of which is attached as Exhibit 10.1 to this Quarterly Report on Form 10-Q and incorporated by reference herein.

Item 6.Exhibits


Number		Description

10.1		Executive Management Stock Option Plan dated May 9, 2018.
10.2		UHS Holdco, Inc. Executive Management Stock Option Agreement.

31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

32.2		Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *

101		Financial Statements from the Quarterly Report on Form 10-Q of the Company for the quarter ended March 31, 2018, formatted in Extensible Business Reporting Language: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Operations, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Cash Flows and (v) the Notes to Consolidated Financial Statements.

* Furnished, not filed

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: May 14, 2018


	Universal Hospital Services, Inc.

	By	/s/ Thomas J. Leonard
	Thomas J. Leonard
	Chief Executive Officer
	(Principal Executive Officer and Duly Authorized Officer)

	By	/s/ James B. Pekarek
	James B. Pekarek
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

Agiliti Health, Inc. - FORM 10-Q - May 14, 2018

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Agiliti Health, Inc. Reports