University General Health System Reports 51% Increase in Revenue for First Nine Months of 2013

Company Files Forms 10-Q for First Three Quarters of 2013 With SEC and Expects Timely Filings in 2014

Marketwired

HOUSTON, TX--(Marketwired - Feb 3, 2014) - University General Health System, Inc. (OTCQB: UGHS) a diversified, integrated multi-specialty health delivery system, today announced significantly improved revenue for the third quarter and first nine months of 2013. The Company will host an investor conference call at 11:15 a.m. Eastern Time on Tuesday, February 4, 2014 to discuss third quarter and nine-month operating results and other topics of interest (see details below).

Highlights for the quarter ended September 30, 2013:

  • Total revenue rose 38% to $49.6 million, compared with $36 million in the third quarter of 2012.

  • Net patient revenue increased 35% to approximately $43.1 million, compared with approximately $31.9 million in the quarter ended September 30, 2012. Average daily inpatient census at University General Hospital - Houston (UGH-Houston) remained stable relative to prior-year levels, reflecting an average occupancy rate of 65.0% versus 66.7% for the same period in 2012. The increase in net patient revenue was primarily attributable to the ongoing execution of the Company's physician-centric, integrated health delivery system strategy and an increase in Hospital Outpatient Revenues. University General Hospital - Dallas (UGH-Dallas) recorded an average occupancy rate of 21% of available beds. Through acquisitions, continued implementation of the integrated multi-specialty health delivery strategy, and initiatives designed to increase occupancy levels at University General Hospital - Dallas, management believes that improvement in net patient revenues will continue in 2014.

  • Resident revenue for the senior living business segment approximated $2.0 million, support services revenue totaled $2.1 million, and other revenue totaled $2.4 million in the third quarter of 2013. The senior living properties reported continued stable utilization, with an overall occupancy rate in excess of 92% for the three months ended September 30, 2012.

  • Net patient revenue from Medicare and Medicaid, excluding a provision for doubtful accounts, accounted for approximately 26.0 % of total net patient revenue, and revenue from commercial and managed care providers accounted for approximately 70.1% of net patient revenue, during the quarter ended September 30, 2013. This compared with 26.6% of total net patient revenue from Medicare and Medicaid and 72.6% from commercial and managed care providers in the prior-year period. Self-pay revenue increased from 0.8% of total net patient revenue in the quarter ended September 30, 2012 to 3.9% in the quarter ended September 30, 2013. The provision for doubtful accounts increased to 27.0% of patient revenue in the third quarter of 2013, versus 9.9% in the comparable 2012 period.

  • Operating income approximated $2.8 million in the third quarter of 2013, versus approximately $11.7 million in the prior-year quarter. The decrease was primarily due to losses attributable to UGH-Dallas, along with investments in marketing initiatives and management and development services.

  • The Company recorded net income attributable to common shareholders of $1.0 million, or $0.00 per share, in the third quarter of 2013, compared with net income attributable to common shareholders of $2.0 million, or $0.01 per share, in the comparable quarter of 2012.

  • Adjusted EBITDA for the quarter totaled approximately $5.5 million in the quarter ended September 30, 2013, versus approximately $14.1 million in the third quarter of 2012. (Note: Adjusted EBITDA is a non-GAAP measure that is reconciled with GAAP results in a table at the end of this press release).

"This was a much better quarter for the Company than the previous quarters of 2013, and we are working diligently to improve our financial reporting systems as well as our ongoing commitment to the development of our physician-centric health delivery system in Dallas," commented Dr. Hassan Chahadeh, M.D., Chairman and Chief Executive Officer of University General Health System, Inc. "Financially, our net revenue increased by 38% relative to the third quarter of 2012, yet our operating income decreased from prior-year levels. While our UGH Houston hospital continues to perform well, our UGH Dallas hospital has struggled to achieve expected results and we have implemented a strategic plan to improve results in the upcoming quarters."

Highlights for the nine months ended September 30, 2013:

  • Total revenue rose 51% to $127.2 million, compared with $84.2 million in the first nine months of 2012.

  • Net patient revenue increased 48% to approximately $111 million, compared with approximately $75 million in the nine months ended September 30, 2012. The year-to-date increase resulted from growth in outpatient revenues and a stabilized occupancy rate of 62.0% at our Houston hospital. The Dallas hospital reflected an overall occupancy rate, based upon available beds, of 24.0% for the first nine months of 2013.

  • Resident revenue for the senior living business segment approximated $5.9 million, support services revenue totaled $5.0 million, and other revenue totaled $5.7 million in the first nine months of 2013. The senior living properties reported continued stable utilization, with an overall occupancy rate in excess of 93% for the most recent nine-month period.

  • Net patient revenue from Medicare and Medicaid, excluding a provision for doubtful accounts, accounted for approximately 30.4% of total net patient revenue, and revenue from commercial and managed care providers accounted for approximately 65.5% of net patient revenue, during the nine months ended September 30, 2013. This compared with 29.2% of total net patient revenue from Medicare and Medicaid and 65.1% from commercial and managed care providers, in the corresponding period of the previous year. Self-pay revenue decreased from 5.7% of total net patient revenue in the nine months ended September 30, 2012 to 4.1% in the nine months ended September 30, 2013. The provision for doubtful accounts increased to 20% of patient revenue in the first nine months of 2013, versus 9.3% in the comparable 2012 period. This significant increase is primarily due to the growth in revenues attributable to out-of-network benefits as well as a deterioration in accounts receivable aging. The Company is developing a strategic plan to reverse this trend in 2014. The Company also expects to announce that it will go in-network with two of the largest out-of-network insurance providers in early 2014, which should contribute to improvement in doubtful accounts in the current year.

  • An operating loss of ($1.8 million) was posted in the first nine months of 2013, versus operating income of approximately $23.6 million in the prior-year period.

  • Primarily due to an increase in the Company's stock price since April 2012, a non-cash derivative expense and change in the fair market value of the derivatives totaling $7.0 million was recorded in the first nine months of 2013, versus $9.8 million in derivative expense for the corresponding prior-year period.

  • The Company recorded a net loss attributable to common shareholders of ($15 million), or ($0.04) per share, in the nine months ended September 30, 2013, compared with net income attributable to common shareholders of $3.6 million, or $0.01 per share, in the comparable period of 2012.

  • Adjusted EBITDA for the nine months ended September 30, 2013 approximated $10.7 million, versus approximately $29.5 million in the first nine months of 2012. (Note: Adjusted EBITDA is a non-GAAP measure that is reconciled with GAAP results in a table at the end of this press release).

  • Total shareholders' equity improved to $16.8 million at September 30, 2013, from $10.7 million at December 31, 2012.

"We are very pleased that we have now filed our three quarterly reports and believe the hiring of additional financial staff, including a Chief Accounting Officer, two controllers at our hospitals, a controller for our Hospitality Management Company and a controller for our physician management services group, as well as a number of other support staff, will contribute to our ability to file on a timely basis in the future," noted Dr. Chahadeh. "We invested nearly $15 million during the first nine months of 2013 on marketing initiatives, financial auditing and accounting, legal, management retention, and future development costs. These were reflected as non-capitalized expenses, and we expect at least half of these costs to be non-recurring in 2014. We expect to realize significant benefits from these investments in the current and future years."

Use of Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is a measure of operating performance that is not calculated in accordance with U.S. generally accepted accounting principles ("GAAP"). Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss), income from operations or cash flows provided by or used in operations, as determined in accordance with GAAP. Adjusted EBITDA represents a key measure of the Company's operating performance that is used by management to evaluate operating performance by excluding certain items of income and expense that relate to the financing and capitalization of the business. The Company defines Adjusted EBITDA as net income (loss) before provision (benefit) for income taxes, non-operating (income) expense items, (gain) loss on sale of assets, depreciation and amortization (including non-cash impairment charges), amortization of deferred gain, and non-cash employee stock grant expense.

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

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

About University General Health System, Inc.

University General Health System, Inc. ("University General") is a diversified, integrated multi-specialty health care provider that delivers concierge physician and patient-oriented services by providing timely, innovative health solutions that are uniquely competitive, efficient, and adaptive in today's health care delivery environment. The Company currently operates two hospitals in Houston and Dallas, Texas, ambulatory surgical centers, a number of diagnostic imaging and physical therapy clinics, sleep clinics, sports and rehab clinics, poli-clinics, and a hyperbaric wound care center. Also, University General owns three senior living facilities, manages six senior living facilities, and owns a Support Services company that provides revenue cycle and luxury facilities management services.

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

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Forward-Looking Statements

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

(Financial Highlights Follow)

             
University General Health System, Inc.  
Consolidated Balance Sheets  
             
             
    September 30,     December 31,  
    2013     2012  
ASSETS   (Unaudited)        
Current Assets                
Cash and cash equivalents   $ 1,471,292     $ 1,188,230  
Accounts receivable, less allowance for doubtful accounts of $47,343,827 and $21,422,475     28,617,887       20,941,005  
Inventories     2,392,581       1,458,089  
Prepaid expenses and other assets     4,253,796       3,986,378  
Current deferred taxes     2,187,792       1,729,150  
  Total Current Assets     38,923,348       29,302,852  
                 
Long-Term Assets                
Property, equipment and leasehold improvements, net     98,839,623       96,965,889  
Intangible assets, net     4,848,153       5,919,000  
Goodwill     41,831,642       39,271,829  
Deferred tax assets     2,853,551       659,405  
Other non-current assets, net     2,159,371       2,721,587  
  Total Long-Term Assets     150,532,340       145,537,710  
                 
  Total Assets   $ 189,455,688     $ 174,840,562  
                 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)                
Current Liabilities                
Accounts payable   $ 18,260,258     $ 9,699,411  
Payables to related parties     2,154,739       2,133,053  
Accrued expenses     13,405,037       11,938,589  
Payroll taxes payable     3,185,898       1,610,836  
Income tax payable     14,896,483       11,813,198  
Deferred revenue     1,385,592       238,846  
Notes payable, current portion     21,510,306       26,089,305  
Notes payable to related parties, current portion     1,329,375       1,853,380  
Capital lease obligations, current portion     835,385       826,800  
Derivative liability     564,824       4,897,053  
  Total Current Liabilities     77,527,897       71,100,471  
                 
Long-Term Liabilities                
Lines of credit, less current portion     18,613,293       12,579,933  
Notes payable, less current portion     42,198,002       46,947,860  
Capital lease obligations, less current portion     31,211,290       30,928,491  
  Total Long-Term Liabilities     92,022,585       90,456,284  
                 
Total Liabilities     169,550,482       161,556,755  
                 
Commitments and contingencies                
                 
Series C, convertible preferred stock, $0.001 par value, 20,000,000 shares authorized, 3,626 and 3,379 shares issued and outstanding, respectively ($1,000 stated value)     3,079,292
      2,566,308
 
                 
Shareholders' Equity and (Deficiency)                
Preferred, par value $0.001, 20,000,000 shares authorized, Preferred stock Series B - 3,000 shares issued and outstanding    
3
     
3
 
Common stock, par value $0.001, 480,000,000 shares authorized,376,803,299 and 343,459,294 shares issued and outstanding, respectively    
376,803
     
343,459
 
Additional paid-in-capital     86,525,014       65,419,774  
Shareholders' receivables     (2,518,569 )     (2,828,251 )
Accumulated deficit     (72,321,878 )     (57,186,915 )
  Total shareholders' equity     12,061,373       5,748,070  
Noncontrolling interest     4,764,541       4,969,429  
  Total equity     16,825,914       10,717,499  
  Total Liabilities and Shareholders' Equity   $ 189,455,688     $ 174,840,562  
                 
                 
                 
University General Health System, Inc.  
Consolidated Statements of Operations  
(Unaudited)  
   
    Three Months Ended
September 30,
    Nine Months Ended
September 30,
 
    2013     2012     2013     2012  
Revenues                                
  Patient service revenues, net of contractual adjustments   $ 58,957,696     $ 35,351,438     $ 138,091,078     $ 82,675,939  
  Provision for doubtful accounts     (15,882,706 )     (3,494,644 )     (27,516,589 )     (7,682,475 )
  Net patient service revenue less provision for doubful accounts     43,074,990       31,856,794       110,574,489       74,993,464  
  Senior living revenues     1,952,308       1,969,785       5,937,310       5,746,643  
  Support services revenues     2,084,213       702,542       5,011,325       1,581,606  
  Other revenues     2,440,186       1,491,270       5,719,737       1,858,810  
    Total revenues     49,551,697       36,020,391       127,242,861       84,180,523  
                                 
Operating expenses                                
  Salaries, wages and benefits     20,074,367       10,448,799       58,204,402       27,466,450  
  Medical supplies     8,183,573       4,820,777       20,195,617       11,612,638  
  General and administrative expenses (includes related party expenses of $144,600 and $372,697 for the three months ended and $605,026 and $1,054,340 for the nine months ended, respectively)     15,775,004       7,222,741       41,887,838       19,117,554  
  Gain on extinguishment of liabilities     -       (618,353 )     (64,517 )     (3,521,879 )
  Depreciation and amortization (includes related party expenses of $0 and $171,290 for three months ended and $0 and $513,870 for nine months ended, respectively)     2,677,210       2,443,747       8,812,874       5,938,840  
    Total operating expenses     46,710,154       24,317,711       129,036,214       60,613,603  
Operating income (loss)     2,841,543       11,702,680       (1,793,353 )     23,566,920  
Other income (expense)                                
Interest expense, net of interest income of $21,500 and $20,000 for three months ended and $64,500 and $60,000 for nine months ended (includes related party interest expense $29,614 and $571,394 for the three months ended and $104,286 and $1,734,144 for the nine months ended)     (1,858,474 )     (1,363,821 )     (5,494,145 )     (4,187,121 )
Other income (expense)             (252,970 )     510,707       (381,026 )
Direct investor expense     -       (857,674 )     (4,918,121 )     (5,558,963 )
Change in fair market value derivatives     302,500       (5,173,513 )     (2,067,251 )     (4,256,980 )
Income (loss) before income tax     1,285,569       4,054,702       (13,762,163 )     9,182,830  
  Income tax expense     143,499       2,271,631       430,497       5,777,762  
Income (loss) before noncontrolling interest     1,142,070       1,783,071       (14,192,660 )     3,405,068  
Net income attributable to noncontrolling interests     72,893       212,131       204,888       239,966  
Net income (loss) attributable to the Company   $ 1,214,963     $ 1,995,202     $ (13,987,772 )   $ 3,645,034  
                                 
Less: Cash dividend-Convertible Preferred C Stock     6,359       (53,387 )     (43,949 )     (53,387 )
Less: Accretion non-cash dividend-Convertible Preferred C Stock     (241,023 )     (145,562 )     (897,860 )     (236,879 )
                                 
Net income (loss) attributable to common shareholders   $ 980,299     $ 1,796,253     $ (14,929,581 )   $ 3,354,768  
                                 
Basic and diluted income (loss) per share data:                                
                                 
  Basic earnings (loss) per common share   $ 0.00     $ 0.01     $ (0.04 )   $ 0.01  
                                 
  Basic weighted average shares outstanding     372,809,534       325,144,781       364,568,843       306,101,581  
                                 
  Diluted earnings (loss) per common share   $ 0.00     $ 0.01     $ (0.04 )   $ 0.01  
                                 
  Diluted weighted average shares outstanding     399,102,442       346,557,557       364,568,843       325,967,397  
                                   
                                   
                                   
University General Health System, Inc.  
Consolidated Statements of Cash Flows  
(Unaudited)  
             
    Nine Months Ended
September 30,
 
    2013     2012  
Cash flows from operating activities:                
  Net income (loss)   $ (14,192,660 )   $ 3,405,068  
  Adjustments to reconcile net income (loss) to net cash provided by operating activities:                
    Depreciation and amortization     8,812,874       5,938,840  
    Provision for doubtful accounts     27,516,589       7,682,475  
    Gain on sales of assets     -       (11,583 )
    Gain on extinguishment of liabilities     (64,517 )     (3,521,879 )
    Deferred income taxes benefits     (2,652,788 )     -  
    Compensation expense     3,636,000       -  
    Direct investor expense     4,918,122       5,558,963  
    Change in fair market value of derivatives     2,067,251       4,256,980  
    Other     675,412       392,609  
  Net changes in operating assets and liabilities:                
    Accounts receivable     (35,193,471 )     (20,212,013 )
    Related party receivables and payables     21,686       321,621  
    Inventories     (934,492 )     415,081  
    Prepaid expenses and other assets     (737,029 )     (2,033,897 )
    Accounts payable, accrued expenses and taxes payable     14,472,255       2,750,062  
    Deferred revenues     1,146,746       (50,171 )
      Net cash provided by operating activities     9,491,978       4,892,156  
Cash flows from investing activities:                
  Additions to property, equipment and leasehold improvements     (5,860,463 )     (2,009,359 )
  Business acquisitions, net of cash acquired     (1,733,562 )     (222,594 )
  Investments in unconsolidated affiliates     60,000       (160,000 )
    Net cash used in investing activities     (7,534,025 )     (2,391,953 )
Cash flows from financing activities:                
  Proceeds from revolving credit facility borrowings     88,693,593       12,269,000  
  Payments of revolving credit facility borrowings     (82,660,233 )     (8,451,025 )
  Distribution to noncontrolling interests     -       (172,762 )
  Issuance of common stock     2,200,000       5,195,827  
  Issuance of Preferred Series C Convertible Stock, net issuance costs     2,974,181       3,344,669  
  Dividend paid on Preferred C Convertible Stock     (205,382 )     (76,160 )
  Borrowings under notes payable     1,389,042       8,122,781  
  Payments on notes payable     (12,804,493 )     (13,155,873 )
  Payments on debt issuance costs     -       (798,251 )
  Borrowings under notes payable to related party     144,081       43,685  
  Payments on notes payable to related party     (668,087 )     (145,003 )
  Payments on capital leases     (737,593 )     (3,873,037 )
    Net cash used in financing activities     (1,674,891 )     2,303,851  
                 
Net increase in cash and cash equivalents     283,062       4,804,054  
Cash and cash equivalents:                
  Beginning of period     1,188,230       538,018  
  End of period   $ 1,471,292     $ 5,342,072  
Supplemental disclosures of cash flow information:                
  Interest paid   $ 4,789,838     $ 4,690,494  
  Income taxes paid   $ -     $ 383,434  
Supplemental noncash investing activities:                
  Property and equipment additions financed   $ 1,028,978     $ 819,236  
Supplemental noncash financing activities:                
  Issuance of common stock   $ 4,638,772     $ 670,000  
  Transfer of related party debt to third party debt   $ -     $ 2,510,836  
  Noncash consideration paid for acquisitions   $ 2,113,069     $ 7,789,624  
  Dividend on Preferred C Convertible Stock   $ 43,949     $ 53,387  
  Derivative ceases to exist   $ 11,637,078     $ -  
                   
                   
                   
UNIVERSITY GENERAL HEALTH SYSTEM, INC.  
Adjusted EBITDA Calculation  
   
Adjusted EBITDA 2013            
    Three Months Ended September 30,  
    2013     2012  
Net income (loss) attributable to the Company   $ 1,214,963     $ 1,995,202  
(Income) loss attributable to noncontrolling interests   $ (72,893 )   $ (212,131 )
Provision (benefit) for income taxes     143,499       2,271,631  
Other non-operating expense (income)     -       252,970  
Interest expense:                
  Debt and lease obligations     1,879,974       1,383,821  
Interest (income)     (21,500 )     (20,000 )
Direct investor expense     -       857,674  
Change in fair value of derivatives     (302,500 )     5,173,513  
Depreciation and amortization     2,677,210       2,443,747  
Adjusted EBITDA   $ 5,518,753     $ 14,146,427  
                 
                 
    Nine Months Ended September 30,  
    2013     2012  
Net income (loss) attributable to the Company   $ (13,987,772 )   $ 3,645,034  
(Income) loss attributable to noncontrolling interests   $ (204,888 )   $ (239,966 )
Employee stock grant expense     3,636,000       -  
Provision (benefit) for income taxes     430,497       5,777,762  
Other non-operating expense (income)     (510,707 )     381,026  
Interest expense:                
  Debt and lease obligations     5,558,645       4,247,121  
Interest (income)     (64,500 )     (60,000 )
Direct investor expense     4,918,121       5,558,963  
Change in fair value of derivatives     2,067,251       4,256,980  
Depreciation and amortization     8,812,874       5,938,840  
Adjusted EBITDA   $ 10,655,521     $ 29,505,760  
                 
Contact:

Donald Sapaugh
President
University General Health System, Inc.
(713) 375-7557
dsapaugh@ughs.net

R. Jerry Falkner, CFA
RJ Falkner & Company, Inc.
(800) 377-9893
info@rjfalkner.com

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