Zacks substantially raises target due to positive
surprises in revenues & EBITDA
By Steven Ralston, CFA
On November 15, 2012,
University General Health System
(
UGHS
)
reported financial results for the third quarter ending September
30, 2012.
Total
revenues advanced an impressive 74.4%
over the comparable quarter last year to $36.0 million, primarily
due to the 15% improvement in the average daily inpatient census
at University General Hospital from 40 to 46, which also drove
the hospital's average occupancy rate up to 66.7%. In addition,
the top-line benefited from the increase in the number of
patients from the acquisitions now classified as HOPDs, namely
Baytown Endoscopy Center, UGH Diagnostic Imaging and UGH Physical
Therapy. Overall, acquisitions this year contributed $5.9 million
of incremental revenues to the third quarter. Management
attributes the company's robust growth to the successful
execution of its physician-centric, integrated health delivery
system strategy.
Net patient revenue at University General Hospital increased
71.3% from $18.6 million to $31.9 million despite a significant
increase in the provision for bad debt from 1.9% to 9.9% of total
net patient revenue as management conservatively elected to
reserve a higher rate for bad debt in order mitigate the
potential for a year-end adjustment. Moreover, the company's
payer mix improved as the acquisitions were integrated into the
University General system as HOPDs. During the quarter, the
percentage of net patient revenue from commercial and managed
care providers increased year-over-year from 62.8% to 72.6% while
the proportion of revenue from Medicare and Medicaid
reimbursements declined from 34.0% to 26.6%.
Revenue from Trinity Senior Living increased 14.3% to $2.0
million as the overall occupancy rate expanded to 94.4% versus
87.0% in the comparable quarter last year. Support Services
contributed $703 thousand in revenue.
The operating margin expanded 2,023 basis points to 32.5% as
operating income increased 362% to $11.7 million compared to $2.5
million in the third quarter of 2011. The company achieved
significant operating leverage as management executed on the cost
containment strategy which was initially implemented during the
fourth quarter of 2011. As revenues advanced 74.4%, operating
expenses increased only 34.2%. Notably, salaries, wages and
benefits declined to 29.0% of total revenues versus 40% in the
comparable quarter of 2011. As a result,
EBITDA expanded dramatically by 205%
to $14.1 million versus $4.6 million in the third quarter of
2011, and the EBITDA margin increased 1,682 basis points to
39.3%. Below the operating line, the company recorded a noncash
charge of $5.7 million related to derivatives due to the
company's stock appreciating 91% from $0.22 to $0.42 during the
quarter. Net income attributable to common shareholders, which
was impacted by the Convertible Preferred C stock dividend for
the first time, was $1.96 million or $0.01 per share compared
with $1.05 million or $0.00 per share in the comparable quarter
last year.
We expect management to continue to pursue its accretive
acquisition strategy in Houston and at some point into other
metropolitan markets within Texas. The most recent acquisitions
(the three clinics at the Kingwood Diagnostic and Rehabilitation
Center and the Robert Horry Center for Sports and Physical
Rehabilitation Center) are expected to contribute $7.5 million in
incremental revenue and $2.6 million in EBITDA during the first
year within the University General system.
We reaffirm our Outperform rating, and substantially raise our
price target to $0.90, which incorporates the significant
positive revenue and EBITDA surprises into our valuation models,
which are based on the company attaining first quartile valuation
metrics of price-to-sales and enterprise value-to-EBITDA.
Please visit Steven Ralston's coverage page at
scr.zacks.com
to access a free copy of the full research report.
UNIVTY GEN HLTH (UGHS): Free Stock Analysis
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