United Surgical Partners International, Inc. (“USPI”):
Highlights:
Added five facilities
Same-facility revenue growth of 8%
Revenues under management grew 17%
United Surgical Partners International, Inc. (“USPI”)
today announced results for the quarter ended March 31, 2008.
Background –
Going Private Transaction
On April 19, 2007, USPI consummated a merger pursuant to which USPI
became a wholly owned subsidiary of an investor group led by Welsh,
Carson, Anderson & Stowe X, L.P. (“WCAS”)
and members of USPI’s senior management. As a
result of the merger, USPI’s assets and
liabilities were adjusted to their fair value as of the closing date,
resulting in higher amortization expense in periods following the
merger. USPI also experienced a significant increase in aggregate
outstanding indebtedness (increase of approximately $800 million) due to
financing associated with the merger, resulting in higher interest
expense in periods following the merger. Additionally, certain costs
associated with the merger are reflected in the 2007 statement of
income. Therefore, the financial statements for the periods before and
after the merger are not comparable. Because the merger took place on
April 19, 2007, USPI’s results are split
between Predecessor Company (dates prior to April 19, 2007) and
Successor Company (dates on or after April 19, 2007).
Financial Results –
Revenue & Operating Income
For the quarter ended March 31, 2008, net revenues were $167.2 million,
up 3% from $161.8 million in the prior year period. Operating income
from continuing operations for the first quarter was $50.9 million, up
25% from $ 40.8 million for the prior year period. Operating income
increased 11% after adjusting for unusual items in both periods.
Company-wide same-facility net revenue for the first quarter increased
8% over the prior year period. This increase was a result of net revenue
per case growth of 7% with only slight case growth for the quarter.
Same-facility revenue growth exceeded company-wide revenue growth due to
the success of the Company’s facilities in
joint ventures with health systems that are generally not consolidated.
Operating income margin increased from 25.2% in the prior year period to
30.4% in the first quarter of 2008. The table below normalizes 2008 and
2007 operating income and operating income margins for unusual
year-over-year items.
First Quarter
%
($ in 000s)
2008
2007
Change
Revenue
$
167,172
$
161,770
3
%
Operating income
$
50,897
$
40,841
As a percent of revenue
30.4
%
25.2
%
Unusual Items:
WCAS deal costs
$
(2
)
$
3,468
WCAS management fee
499
-
Equity compensation
986
2,818
Operating income, as adjusted
$
52,380
$
47,127
11
%
As a percent of revenue
31.3
%
29.1
%
Company-wide operating margins were up primarily due to improvement in
margins in the U.K. hospitals (U.K. hospital margins were up 220 basis
points). U.S. same-facility margins were lower by 240 basis points,
primarily because the Company’s U.S. hospital
margins were lower by 900 basis points. This decrease was a result of
expansion projects that reduced margins at three U.S. hospitals and the
remaining hospitals experiencing lower case volumes in the first quarter
as compared with the prior year. Margins at the Company’s
ambulatory surgery centers increased 20 basis points.
Cash Flow
Cash flows from operating activities for the first quarter totaled $19.6
million, compared with $34.3 million for the prior year period. The
decline in cash flows from operating activities compared with the first
quarter of 2007 was primarily due to timing differences in both cash
advances and cash distributions from unconsolidated centers. The
combined effect of these timing differences was $15 million. During the
first quarter, the Company and its consolidated subsidiaries invested
approximately $3.1 million in maintenance capital expenditures,
$8.1 million to acquire land adjacent to a U.K. hospital, and an
additional $1.1 million to develop new facilities and expand existing
facilities.
Acquisitions & Development
The Company added five facilities in the first quarter; three de novo
facilities and two acquisitions. In addition, the Company acquired
additional ownership in three facilities in St. Louis and sold its
interest in one facility. In 2008, the Company expects to add 12 to 15
facilities.
Commenting on the results, William H. Wilcox, United Surgical Partners
International’s chief executive officer,
said, “I am pleased that we increased
revenues under management by 17% and have been able to increase
company-wide operating income and operating income margins, in spite of
flat case growth in the U.S.”
The live broadcast of United Surgical Partners International’s
first quarter conference call will begin at 10:00 a.m. Eastern Time on
May 6, 2008. 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.unitedsurgical.com or
at www.earnings.com. Additional
financial information pertaining to United Surgical Partners
International may be found by visiting the Investor Relations section of
the Company’s website.
United Surgical Partners International, headquartered in Dallas, Texas,
currently has ownership interests in or operates 158 surgical
facilities. Of the Company’s 155 domestic
facilities, 94 are jointly owned with not-for-profit healthcare systems.
The Company also operates three facilities in London, England.
The above includes forward-looking statements based on current
management expectations. Numerous factors exist that may cause
results to differ from these expectations. Many of the factors
that will determine the Company’s future
results are beyond the ability of the Company to control or predict. These
statements are subject to risks and uncertainties relating to the
Company, including without limitation, (i) reduction in reimbursement
from payors to healthcare providers; (ii) the Company’s
ability to attract physicians and retain qualified management and
personnel; (iii) geographic concentrations of certain of the Company’s
operations; (iv) risks associated with the Company’s
acquisition and development strategies; (v) the regulated nature of the
healthcare industry; (vi) the highly competitive nature of the
healthcare business; (vii) the Company’s
significant leverage; 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
March 31,
2008
2007
Successor(1)
Predecessor
Revenues
$
167,172
$
161,770
Equity in earnings of unconsolidated affiliates
11,048
8,504
Operating expenses:
Salaries, benefits and other employee costs
47,874
45,421
Medical services and supplies
29,481
29,050
Other operating expenses
28,264
27,055
General and administrative expenses
10,430
11,508
Transaction costs
(2
)
3,468
Provision for doubtful accounts
1,852
2,697
Depreciation and amortization
9,424
10,234
Total operating expenses
127,323
129,433
Operating income
50,897
40,841
Interest expense, net
(21,310
)
(7,182
)
Other
1,068
55
Income before minority interests
30,655
33,714
Minority interests in income of consolidated subsidiaries
(15,406
)
(15,772
)
Income from continuing operations before income taxes
15,249
17,942
Income tax expense
(7,577
)
(9,046
)
Income from continuing operations
7,672
8,896
Discontinued operations, net of tax
49
(236
)
Net income
$
7,721
$
8,660
Supplemental Data:
Facilities operated at period end
159
148
(1) On April 19, 2007, USPI merged with a
subsidiary of USPI Group Holdings, Inc. (“Parent”)
and became a wholly owned subsidiary of Parent, which in turn is owned
by a group of investors led by Welsh Carson and members of USPI’s
senior management. USPI’s financial position
and results of operations prior to the merger are presented separately
in the consolidated financial statements as “Predecessor”
financial statements. Due to the revaluation of assets and liabilities
as a result of purchase accounting associated with the merger, the
pre-merger financial statements are not comparable with those after the
merger.
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Unaudited Condensed Consolidated Balance Sheets
(in thousands)
March 31,
Dec. 31,
2008
2007
ASSETS
Current assets:
Cash and cash equivalents
$
105,751
$
76,758
Accounts receivable, net of allowance for doubtful accounts of
$11,526 and $12,721, respectively
58,825
59,557
Other receivables
13,618
8,974
Inventories
9,568
9,495
Other
20,524
20,056
Total current assets
208,286
174,840
Property and equipment, net
230,915
229,039
Investments in affiliates
281,330
267,357
Intangible assets, net
1,587,462
1,590,820
Other
26,677
15,337
Total assets
$
2,334,670
$
2,277,393
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable
$
20,837
$
22,982
Accrued expenses and other
173,254
139,116
Current portion of long-term debt
27,480
25,311
Total current liabilities
221,571
187,409
Long-term debt
1,070,416
1,072,751
Other liabilities
141,390
127,364
Total liabilities
1,433,377
1,387,524
Minority interests
85,580
83,063
Common stockholders' equity
815,713
806,806
Total liabilities and stockholders' equity
$
2,334,670
$
2,277,393
UNITED SURGICAL PARTNERS INTERNATIONAL, INC.
Key Operating Statistics
Three Months Ended
March 31,
%
2008
2007
Change
Successor
Predecessor
Same-facility statistics:(1)
United States(2)
Unconsolidated facilities cases
97,144
92,575
4.9
%
Consolidated facilities cases
62,525
66,402
(5.8
%)
Total facility cases
159,669
158,977
0.4
%
Unconsolidated net revenue/case
$
2,183
$
1,987
9.9
%
Consolidated net revenue/case
$
1,756
$
1,721
2.0
%
Total net revenue/case
$
2,015
$
1,876
7.4
%
Unconsolidated net revenue (in 000s)
$
212,042
$
183,971
15.3
%
Consolidated net revenue
109,768
114,284
(4.0
%)
Total net revenue
$
321,810
$
298,255
7.9
%
Facility operating income margin
24.8
%
27.2
%
(240
)
United Kingdom
Adjusted admissions
5,897
5,269
11.9
%
Net revenue/adjusted admission
$
5,507
$
5,359
2.8
%
Net revenue/adjusted admission (at constant currency translation
rates)(3)
$
5,507
$
5,428
1.5
%
Net revenue (in 000s)
$
32,475
$
28,239
15.0
%
Facility operating income margin(4)
27.0
%
24.8
%
220
Other:
Total revenues under management
$
396,496
$
338,827
17.0
%
Total consolidated facilities
60
64
(1) Excludes facilities in their first year of
operations. Except where noted, includes facilities accounted for under
the equity method as well as consolidated facilities.
(2) Statistics are included in both periods for
current year acquisitions.
(3) Calculated using first quarter 2008
exchange rates. The Company believes net revenue per adjusted admission
is an important measure of the United Kingdom operations and that using
a constant currency translation rate more accurately reflects the trend
of the business.
(4) Calculated as operating income divided by
net revenue.
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