United Surgical Partners International Announces Fourth Quarter and Year-End 2012 Results

DALLAS --(Business Wire)--

United Surgical Partners International, Inc. ("USPI" or the "Company") today announced results for the fourth quarter and year ended December 31, 2012.

Fourth Quarter Financial Results

For the quarter ended December 31, 2012, consolidated net revenues increased 15% to $154.5 million compared with $134.4 million in the prior year period. Operating income for the fourth quarter, which was negatively impacted by an increase in acquisition and divestiture related expenses, increased to $69.2 million as compared with $67.2 million for the prior year period. EBITDA less noncontrolling interests increased 14% to $61.6 million versus $54.3 million in the prior year quarter.

The financial results for the fourth quarter were driven by systemwide revenue growth of 11%, consisting of 6% U.S. same-facility revenue growth and the remainder being due to acquisition activity.

Cash flows from operating activities for the fourth quarter totaled $50.5 million compared with $38.2 million for the prior year period. During the fourth quarter, the Company and its consolidated subsidiaries invested approximately $3.7 million in maintenance capital expenditures and an additional $3.3 million to develop new facilities and expand existing facilities.

Full Year Financial Results

For the year ended December 31, 2012, consolidated net revenues increased 8% to $540.2 million compared with $499.2 million in the prior year period. Operating income for 2012 increased 5% to $245.2 million as compared with $233.7 million for the prior year period. EBITDA less noncontrolling interests increased 11% to $204.1 million versus $183.4 million in the prior year period.

Cash flows from operating activities for the year ended December 31, 2012, totaled $180.3 million compared with $164.7 million for the prior year period. During 2012, the Company and its consolidated subsidiaries invested approximately $13.2 million in maintenance capital expenditures and an additional $17.5 million to develop new facilities and expand 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 and growing portion of the Company's overall earnings. To help analyze results of operations, management uses systemwide operating measures such as systemwide revenue growth, which include 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 December 31, 2012, 149 of the 213 facilities the Company operated were not consolidated.

For the fourth quarter, the systemwide revenues of the facilities operated by the Company increased 11% on a year-over-year basis, while consolidated revenues increased 15%. For the year ended December 31, 2012, the systemwide revenues of the facilities operated by the Company increased 12% on a year-over-year basis, while consolidated revenues increased 8%.

Development Activity

During 2012, the Company acquired 14 facilities and opened two de novo facilities. The Company expects similar development activity in 2013.

Financing Update

In December 2012, the Company borrowed an additional $150.0 million in new term loans, the proceeds of which were used to repay revolver debt, fund a dividend and pay transaction expenses. Also, this week, the Company amended its credit facility to borrow an additional $150.0 million to repay $144.4 million of its term debt that was to mature April 2014. The new $150.0 million loan matures April 2019. The amendment also reduced the LIBOR spread on the term loans by 100 basis points.

Reclassification of Prior Year Earnings Due to Refinancing and Spin-Out of the Company's United Kingdom Subsidiary

During the second quarter of 2012, the Company amended its senior secured credit facility, issued new senior unsecured notes, redeemed all validly tendered outstanding notes pursuant to the previously announced tender offer and consent solicitation, deposited funds with the trustee to redeem the remaining outstanding notes, and spun-off its U.K. subsidiary. As a result, the Company no longer has any ownership in the U.K. subsidiary, which was renamed European Surgical Partners, Ltd., and has classified its prior earnings as discontinued operations.

Conclusion

Commenting on the results, William H. Wilcox, USPI's chief executive officer, said, "2012 was a good year for USPI, from both an operations and development perspective. We also believe the Company is well positioned strategically, as various reform initiatives continue to unfold."

The live broadcast of USPI's fourth quarter conference call will begin at 10:00 a.m. Eastern Time today, February 22, 2013. 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 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.

USPI, headquartered in Dallas, Texas, currently has ownership interests in or operates 214 domestic facilities, of which 148 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 from payors; (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 Operations (in thousands, except number of facilities)

	Three Months Ended December 31,						Year Ended December 31,
		2012			2011			2012			2011
Revenues	$	154,516		$	134,378		$	540,235		$	499,178

Equity in earnings of unconsolidated affiliates		30,185			26,214			96,393			83,137

Operating expenses:
Salaries, benefits and other employee costs		38,371			32,606			138,020			125,143
Medical services and supplies		24,663			20,432			83,546			76,721
Other operating expenses		24,248			21,212			87,173			79,707
General and administrative expenses		11,426			9,069			41,434			38,028
Provision for doubtful accounts		3,365			2,667			9,678			9,409
Net loss (gain) on deconsolidations, disposals and impairments		6,928			2,221			7,588			(1,529	)
Depreciation and amortization		6,546			5,231			23,955			21,177
Total operating expenses		115,547			93,438			391,394			348,656
Operating income		69,154			67,154			245,234			233,659
Interest expense, net		(23,695	)		(15,093	)		(85,258	)		(63,021	)
Gain (loss) on early retirement of debt		531			-			(37,450	)		-
Other, net		135			41			(613	)		(73	)
Income from continuing operations before income taxes		46,125			52,102			121,913			170,565
Income tax expense		(11,160	)		(12,627	)		(21,502	)		(39,918	)
Income from continuing operations		34,965			39,475			100,411			130,647
Discontinued operations, net of tax		(360	)		(118,775	)		3,073			(111,562	)
Net income (loss)		34,605			(79,300	)		103,484			19,085
Less: Net income attributable to noncontrolling interests		(21,028	)		(20,337	)		(72,693	)		(69,929	)
Net income (loss) attributable to USPI's common stockholder	$	13,577		$	(99,637	)	$	30,791		$	(50,844	)

Supplemental Data:
Facilities operated at period end		213			206			213			206


UNITED SURGICAL PARTNERS INTERNATIONAL, INC. Unaudited Condensed Consolidated Balance Sheets (in thousands)

	Dec. 31, 2012		Dec. 31, 2011

ASSETS

Current assets:
Cash and cash equivalents	$	51,203	$	41,822
Available for sale securities		10,741		4,815
Accounts receivable, net of allowance for doubtful accounts of $9,904 and $8,576, respectively		50,108		58,057
Other receivables		14,611		10,499
Inventories		8,017		10,117
Deferred tax assets, net		20,687		14,704
Other		16,607		15,314
Total current assets		171,974		155,328

Property and equipment, net		126,526		235,321
Investments in unconsolidated affiliates		484,079		444,734
Goodwill and intangible assets, net		1,555,108		1,536,485
Other		23,062		21,630
Total assets	$	2,360,749	$	2,393,498

LIABILITIES AND EQUITY

Current liabilities:
Accounts payable	$	14,981	$	28,765
Accrued expenses and other		241,512		222,985
Current portion of long-term debt		17,913		25,487
Total current liabilities		274,406		277,237

Long-term debt		1,461,621		1,042,969
Other liabilities		199,336		198,753
Total liabilities		1,935,363		1,518,959

Noncontrolling interests - redeemable		153,399		106,668

USPI stockholder's equity		233,715		732,688
Noncontrolling interests - nonredeemable		38,272		35,183
Total equity		271,987		767,871
Total liabilities and equity	$	2,360,749	$	2,393,498


	UNITED SURGICAL PARTNERS INTERNATIONAL, INC. Key Operating Statistics (in thousands, except for number of facilities, cases and percentages)

		Three Months Ended December 31,
			2012			2011		% Change
	Systemwide same-facility statistics^{(1) (2)}:
	Facility cases		243,245			240,855		1.0	%
	Net revenue/case	$	2,419		$	2,300		5.2	%
	Net revenue	$	588,319		$	553,946		6.2	%
	Facility operating income margin⁽³⁾		28.9	%		28.8	%	10 bps

	Other:
	Total consolidated facilities		64			59

	EBITDA less noncontrolling interests⁽⁴⁾
	GAAP operating income	$	69,154		$	67,154		3.0	%
	Depreciation and amortization		6,546			5,231
	Net loss on deconsolidations, disposals and impairments		6,928			2,221
	EBITDA		82,628			74,606
	Net income attributable to noncontrolling interests		(21,028	)		(20,337	)
	EBITDA less noncontrolling interests	$	61,600		$	54,269		13.5	%

		Year Ended December 31,
			2012			2011		% Change
	EBITDA less noncontrolling interests⁽⁴⁾
	GAAP operating income	$	245,234		$	233,659		5.0	%
	Depreciation and amortization		23,955			21,177
	Net loss (gain) on deconsolidations, disposals and impairments		7,588			(1,529	)
	EBITDA		276,777			253,307
	Net income attributable to noncontrolling interests		(72,693	)		(69,929	)
	EBITDA less noncontrolling interests	$	204,084		$	183,378		11.3	%

⁽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.