United Surgical Partners International Announces Third Quarter 2014 Results

DALLAS--(BUSINESS WIRE)--United Surgical Partners International, Inc. (“USPI” or the “Company”) today announced results for the third quarter and nine months ended September 30, 2014.

Third Quarter Financial Results

For the quarter ended September 30, 2014, consolidated net revenues increased 5% to $159.2 million compared with $151.0 million in the prior year period. Operating income for the third quarter increased 2% to $64.4 million, as compared with $63.1 million for the prior year period. EBITDA less noncontrolling interests increased 9% to $53.9 million in the third quarter of 2014 compared with $49.3 million for the prior year period.

Cash flows from operating activities for the third quarter of 2014 totaled $53.9 million compared with $50.7 million in the prior year period. During the third quarter of 2014, the Company and its consolidated subsidiaries invested $3.5 million in maintenance capital expenditures and an additional $0.3 million in the infrastructure of existing facilities.

Nine-Month Financial Results

For the nine months ended September 30, 2014, consolidated net revenues increased 3% to $466.1 million compared with $451.4 million in the prior year period. Operating income for the first nine months of 2014 was $183.7 million as compared with $181.9 million for the prior year period. EBITDA less noncontrolling interests was $151.7 million in the first nine months of 2014 as compared with $152.3 million for the first nine months of 2013.

Cash flows from operating activities for the nine months ended September 30, 2014, totaled $159.9 million compared with $128.1 million for the prior year period. During the first nine months of 2014, the Company and its consolidated subsidiaries invested $10.6 million in maintenance capital expenditures and an additional $2.2 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 the Company, 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, the Company calculates growth rates and operating margins for the facilities that were operational in both the current and prior year periods, a group the Company refers to as same-store or same-facility. This group also consists of both consolidated and unconsolidated facilities. At September 30, 2014, 155 of the 219 facilities the Company operated were not consolidated.

For the third quarter, the systemwide revenues of the facilities operated by the Company increased 11% on a year-over-year basis. On a same-store basis, systemwide net revenue increased 5% in the third quarter compared with the prior year period. For the first nine months of 2014, 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% for the first nine months of the year.

Development Activity

The Company acquired an interest in three facilities during the third quarter and one additional facility following quarter end. The Company expects to add two to four additional facilities in the remainder of 2014.

Conclusion

Commenting on the results, William H. Wilcox, USPI’s chief executive officer, said, “The third quarter represented our strongest same-store volume performance since 2012, and we are pleased with the sequential improvement in operating and financial performance. We also continue to add new, high quality facilities and health system partners to our portfolio and anticipate an active fourth quarter from a development perspective.”

The live broadcast of USPI’s third quarter conference call will begin at 5:00 p.m. Eastern Time on November 5, 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 220 facilities, of which 154 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 September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Revenues	$	159,190		$	151,009		$	466,107		$	451,352
Equity in earnings of unconsolidated affiliates		27,527			20,923			73,599			63,759
Operating expenses:
Salaries, benefits and other employee costs		44,383			40,991			129,878			120,425
Medical services and supplies		27,051			24,945			78,248			72,831
Other operating expenses		28,251			24,722			83,487			75,691
General and administrative expenses		11,718			10,396			34,958			30,793
Provision for doubtful accounts		2,918			1,599			7,526			7,781
Net (gain) loss on deconsolidations, disposals and impairments		1,419			(506	)		2,336			4,893
Depreciation and amortization		6,608			6,683			19,616			20,758
Total operating expenses		122,348			108,830			356,049			333,172
Operating income		64,369			63,102			183,657			181,939
Interest expense, net		(23,697	)		(23,710	)		(70,090	)		(76,226	)
Loss on early retirement of debt		–			–			–			(5,536	)
Other, net		(55	)		1			(80	)		(3	)
Income from continuing operations before income taxes		40,617			39,393			113,487			100,174
Income tax expense		(8,623	)		(7,462	)		(21,997	)		(17,903	)
Income from continuing operations		31,994			31,931			91,490			82,271
Discontinued operations, net of tax		–			–			(332	)		–
Net income		31,994			31,931			91,158			82,271
Less: Net income attributable to noncontrolling interests		(18,518	)		(20,009	)		(53,951	)		(55,338	)
Net income attributable to USPI’s common stockholder	$	13,476		$	11,922		$	37,207		$	26,933
Supplemental Data:
Facilities operated at period end		219			214			219			214

UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
	Sept. 30, 2014		Dec. 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	57,259	$	78,741
Available for sale securities		9,230		10,802
Accounts receivable, net of allowance for doubtful accounts of $10,902 and $10,236, respectively		49,667		51,608
Other receivables		24,146		24,191
Inventories of supplies		8,326		9,049
Deferred tax assets, net		22,382		22,333
Other		16,483		16,076
Total current assets		187,493		212,800
Property and equipment, net		128,496		132,474
Investments in unconsolidated affiliates		609,481		521,833
Goodwill and intangible assets, net		1,599,125		1,585,401
Other		32,459		28,176
Total assets	$	2,557,054	$	2,480,684
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable	$	18,588	$	17,407
Accrued expenses and other		273,255		278,876
Current portion of long-term debt		18,940		18,916
Total current liabilities		310,783		315,199
Long-term debt		1,481,701		1,454,692
Other liabilities		230,303		217,573
Total liabilities		2,022,787		1,987,464
Noncontrolling interests - redeemable		179,439		166,578
USPI stockholder’s equity		306,387		279,622
Noncontrolling interests - nonredeemable		48,441		47,020
Total equity		354,828		326,642
Total liabilities and equity	$	2,557,054	$	2,480,684

	UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
	Key Operating Statistics
	(in thousands, except for number of facilities, cases and percentages)
		Three Months Ended September 30,
		2014			2013			% Change
	Systemwide same-facility statistics^(1) (2):
	Facility cases		252,650			245,597		2.9%
	Net revenue/case	$	2,351		$	2,301		2.2%
	Net revenue	$	593,910		$	565,158		5.1%
	Facility operating income margin^(3)		24.9	%		24.4	%	50 bps
	Other:
	Total consolidated facilities		64			65
	EBITDA less noncontrolling interests^(4)
	GAAP operating income	$	64,369		$	63,102		2.0%
	Depreciation and amortization		6,608			6,683
	Net loss (gain) on deconsolidations, disposals and impairments		1,419			(506	)
	EBITDA		72,396			69,279
	Net income attributable to noncontrolling interests		(18,518	)		(20,009	)
	EBITDA less noncontrolling interests	$	53,878		$	49,270		9.4%
		Nine Months Ended September 30,
		2014			2013			% Change
	EBITDA less noncontrolling interests^(4)
	GAAP operating income	$	183,657		$	181,939		0.9%
	Depreciation and amortization		19,616			20,758
	Net loss on deconsolidations, disposals and impairments		2,336			4,893
	EBITDA		205,609			207,590
	Net income attributable to noncontrolling interests		(53,951	)		(55,338	)
	EBITDA less noncontrolling interests	$	151,658		$	152,252		(0.4%)
^(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 USPI may not be comparable to similarly titled measures of other companies.