United Surgical Partners International Announces Second Quarter 2014 Results

DALLAS--()--United Surgical Partners International, Inc. (“USPI” or the “Company”) today announced results for the second quarter and six months ended June 30, 2014.

Second Quarter Financial Results

For the quarter ended June 30, 2014, consolidated net revenues increased 4% to $161.6 million compared with $155.2 million in the prior year period. Operating income for the second quarter increased 18% to $71.7 million, as compared with $60.6 million for the prior year period. EBITDA less noncontrolling interests increased 5% to $58.1 million in the second quarter of 2014 compared with $55.2 million for the prior year period.

Cash flows from operating activities for the second quarter of 2014 totaled $44.9 million compared with $38.9 million in the prior year period. During the second quarter of 2014, the Company and its consolidated subsidiaries invested $4.9 million in maintenance capital expenditures and an additional $1.0 million in the infrastructure of existing facilities.

Six-Month Financial Results

For the six months ended June 30, 2014, consolidated net revenues increased 2% to $306.9 million compared with $300.3 million in the prior year period. Operating income for the first half of 2014 was $119.3 million as compared with $118.8 million for the prior year period. EBITDA less noncontrolling interests decreased 5% to $97.8 million in the first half of 2014 compared with $103.0 million for the first half of 2013.

Cash flows from operating activities for the six months ended June 30, 2014, totaled $105.9 million compared with $77.4 million for the prior year period. During the first half of 2014, the Company and its consolidated subsidiaries invested $7.0 million in maintenance capital expenditures and an additional $1.9 million in the infrastructure of existing facilities.

Systemwide Financial Results

Due to the Company’s partnerships with physicians and prominent healthcare systems, the Company does not consolidate the financial results of the majority of its facilities. While revenues of the Company’s unconsolidated facilities are not recorded as revenues by USPI, equity in earnings of unconsolidated affiliates is a significant portion of the Company’s overall earnings. To help analyze results of operations, management uses systemwide operating measures such as systemwide revenue growth, which includes revenues of both consolidated and unconsolidated facilities. In addition to overall systemwide revenue growth, USPI calculates growth rates and operating margins for the facilities that were operational in both the current and prior year periods, a group the Company refers to as same-store or same-facility. This group also consists of both consolidated and unconsolidated facilities. At June 30, 2014, 154 of the 218 facilities the Company operated were not consolidated.

For the second quarter, the systemwide revenues of the facilities operated by the Company increased 5% on a year-over-year basis. On a same-store basis, systemwide net revenue increased 3% in the second quarter compared with the prior year period. For the first half of 2014, the systemwide revenues of the facilities operated by the Company increased 3% on a year-over-year basis. On a same-store basis, systemwide net revenue increased 2% for the first half of the year.

Development Activity

The Company acquired an interest in three facilities during the quarter and two more facilities following quarter end. The Company expects to add five to ten additional facilities in the remainder of 2014.

Conclusion

Commenting on the results, William H. Wilcox, USPI’s chief executive officer, said, “The second quarter represented a welcome improvement in our operations and financial performance compared with the first quarter. While some volume weakness remains, the sequential trend is encouraging. In addition, we have had a very successful year so far from a development perspective, and we remain optimistic that this success will continue in the second half of the year.”

The live broadcast of USPI’s second quarter conference call will begin at 10:00 a.m. Eastern Time on August 7, 2014. A 30-day online replay will be available approximately an hour following the conclusion of the live broadcast. A link to these events can be found on the Company’s website at www.uspi.com. Additional financial information pertaining to United Surgical Partners International may be found by visiting the Investor Relations section of the Company’s website.

USPI, headquartered in Dallas, Texas, currently has ownership interests in or operates 219 facilities, of which 152 are jointly owned with not-for-profit healthcare systems.

The above includes forward-looking statements based on current management expectations. Numerous factors exist that may cause results to differ from these expectations. Many of the factors that will determine the Company’s future results are beyond the ability of the Company to control or predict. These statements are subject to risks and uncertainties relating to the Company, including without limitation, (i) reduction in reimbursement; (ii) the Company’s ability to attract physicians and retain qualified management and personnel; (iii) the Company’s significant leverage; (iv) geographic concentrations of certain of the Company’s operations; (v) risks associated with the Company’s acquisition and development strategies; (vi) the regulated nature of the healthcare industry; (vii) the highly competitive nature of the healthcare business; and (viii) those risks and uncertainties described from time to time in the Company’s filings with the Securities and Exchange Commission. Therefore, the Company’s actual results may differ materially. The Company undertakes no obligation to update any forward-looking statements or to make any other forward-looking statements, whether as a result of new information, future events or otherwise.

       

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

Unaudited Condensed Consolidated Statements of Income

(in thousands, except number of facilities)

 

Three Months Ended
June 30,

Six Months Ended

June 30,

2014     2013 2014     2013
Revenues $ 161,616 $ 155,236 $ 306,917 $ 300,343
 
Equity in earnings of unconsolidated affiliates 28,190 23,512 46,072 42,837
 
Operating expenses:
Salaries, benefits and other employee costs 43,599 40,420 85,495 79,433
Medical services and supplies 26,642 25,049 51,197 47,886
Other operating expenses 27,350 26,378 55,236 50,969
General and administrative expenses 11,455 10,493 23,240 20,397
Provision for doubtful accounts 2,621 3,139 4,609 6,182

Net (gain) loss on deconsolidations, disposals and impairments

(97 ) 5,501 917 5,399
Depreciation and amortization   6,522     7,172     13,007     14,075  
Total operating expenses   118,092     118,152     233,701     224,341  
Operating income 71,714 60,596 119,288 118,839
Interest expense, net (23,294 ) (23,957 ) (46,393 ) (52,517 )
Loss on early retirement of debt (5,535 ) (5,535 )
Other, net   (25 )   (4 )   (25 )   (4 )
Income from continuing operations before income taxes 48,395 31,100 72,870 60,783
Income tax expense   (9,873 )   (5,585 )   (13,374 )   (10,442 )
Income from continuing operations 38,522 25,515 59,496 50,341
Discontinued operations, net of tax           (332 )    
Net income 38,522 25,515 59,164 50,341
Less: Net income attributable to noncontrolling interests   (20,021 )   (18,090 )   (35,433 )   (35,330 )
Net income attributable to USPI’s common stockholder $ 18,501   $ 7,425   $ 23,731   $ 15,011  
 
Supplemental Data:
Facilities operated at period end 218 215 218 215
 
       

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

Unaudited Condensed Consolidated Balance Sheets

(in thousands)

 
June 30,

2014

Dec. 31,

2013

 
ASSETS
 
Current assets:
Cash and cash equivalents $ 68,294 $ 78,741
Available for sale securities 10,253 10,802

Accounts receivable, net of allowance for doubtful accounts of $9,657 and $10,236, respectively

48,361 51,608
Other receivables 28,996 24,191
Inventories of supplies 8,542 9,049
Deferred tax assets, net 22,626 22,333
Other   17,715   16,076
Total current assets 204,787 212,800
 
Property and equipment, net 130,190 132,474
Investments in unconsolidated affiliates 533,584 521,833
Goodwill and intangible assets, net 1,591,304 1,585,401
Other   30,780   28,176
Total assets $ 2,490,645 $ 2,480,684
 
LIABILITIES AND EQUITY
 
Current liabilities:
Accounts payable $ 22,240 $ 17,407
Accrued expenses and other 259,292 278,876
Current portion of long-term debt   18,790   18,916
Total current liabilities 300,322 315,199
 
Long-term debt 1,448,730 1,454,692
Other liabilities   224,284   217,573
Total liabilities 1,973,336 1,987,464
 
Noncontrolling interests - redeemable 173,504 166,578
 
USPI stockholder’s equity 296,482 279,622
Noncontrolling interests - nonredeemable   47,323   47,020
Total equity   343,805   326,642
Total liabilities and equity $ 2,490,645 $ 2,480,684
 
   

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.

Key Operating Statistics

(in thousands, except for number of facilities, cases and percentages)

 
Three Months Ended June 30,
2014     2013     % Change

Systemwide same-facility statistics(1) (2):

Facility cases

246,663 247,754 (0.4 %)
Net revenue/case $ 2,328 $ 2,248 3.5 %
Net revenue $ 574,153 $ 557,050 3.1 %
Facility operating income margin(3) 26.0 % 25.0 % 100 bps
 

Other:

Total consolidated facilities 64 66
 
EBITDA less noncontrolling interests(4)
GAAP operating income $ 71,714 $ 60,596 18.3 %
Depreciation and amortization 6,522 7,172
Net (gain) on deconsolidations, disposals

and impairments

  (97 )   5,501  
EBITDA 78,139 73,269
Net income attributable to noncontrolling interests   (20,021 )   (18,090 )
EBITDA less noncontrolling interests $ 58,118   $ 55,179   5.3 %
 
 
Six Months Ended June 30,
2014 2013 % Change
EBITDA less noncontrolling interests(4)
GAAP operating income $ 119,288 $ 118,839 0.4 %
Depreciation and amortization 13,007 14,075

Net loss on deconsolidations, disposals and impairments

  917     5,399  
EBITDA 133,212 138,313
Net income attributable to noncontrolling interests   (35,433 )   (35,330 )
EBITDA less noncontrolling interests $ 97,779   $ 102,983   (5.1 %)
 
(1) Excludes de novo facilities in their first year of operations. Includes facilities accounted for under the equity method as well as consolidated facilities.
(2) Statistics for acquired facilities are included in both periods.
(3) Calculated as operating income divided by net revenue.
(4) EBITDA and EBITDA less noncontrolling interests are not measures defined under generally accepted accounting principles (GAAP). The Company believes EBITDA and EBITDA less noncontrolling interests are important measures for purposes of allocating resources and assessing performance. EBITDA, which is computed by adding operating income, depreciation and amortization, and net loss (gain) on deconsolidations, disposals and impairments, is commonly used as an analytical indicator within the healthcare industry and also serves as a measure of leverage capacity and debt service ability. EBITDA less noncontrolling interests, which is computed by subtracting net income attributable to noncontrolling interests from EBITDA, adjusts both years’ EBITDA to reflect that the Company does not own 100% of each facility. EBITDA and EBITDA less noncontrolling interests should not be considered as measures of financial performance under GAAP, and the items excluded from EBITDA and EBITDA less noncontrolling interests are significant components in understanding and assessing financial performance. Because EBITDA and EBITDA less noncontrolling interests are not measurements determined in accordance with GAAP and are thus susceptible to varying calculation methods, EBITDA and EBITDA less noncontrolling interests as presented by United Surgical Partners International may not be comparable to similarly titled measures of other companies.

Contacts

United Surgical Partners International, Inc.
Jason B. Cagle, 972-713-3500
Chief Financial Officer

Contacts

United Surgical Partners International, Inc.
Jason B. Cagle, 972-713-3500
Chief Financial Officer