First Physicians Capital Group, Inc. (“FPCG” or the “Company”)
(OTCBB: FPCG), an operator of healthcare services firms primarily
in rural and suburban markets in the U.S., reported results for the
Company’s first fiscal quarter ended December 31, 2009 and
delivered today the following update to shareholders from FPCG’s
CEO, David Hirschhorn.
Highlights for the first fiscal quarter were:
- Achieved Net Revenue from
Services of $10.3 million and Adjusted EBITDA from Operations
before corporate overhead of $0.8 million in the first quarter of
Fiscal 2010.
- Completed the recapitalization
of our Southern Plains Medical Center (SPMC) clinic through a
sale-leaseback financing in January 2010.
- Retired short-term debt of $3.7
million associated with SPMC real estate with proceeds from SPMC
recapitalization. SPMC received net cash proceeds of $0.7 million
after closing costs. $1.5 million of restricted cash pledged as
collateral was released and returned to us.
- Continued to receive strong
financial support from our investor base with extension of
maturities for 18-36 months on our convertible bridge loans issued
between February and April 2009.
- Reduced total short-term debt by
88% post-SPMC recapitalization and convertible bridge loan maturity
extensions.
- Continued reductions in
operating expenses and corporate overhead at our Southern Plains
Medical Group (SPMG) facilities in Oklahoma as well as at the
holding company level.
To Our Shareholders:
A worldwide economic recession that created the most difficult
business environment since the Great Depression made Fiscal 2009
(the fiscal year ending September 30, 2009) and the first quarter
of Fiscal 2010 a challenging one for FPCG. The global recession had
a major impact on the financial performance of companies around the
world in virtually every industry, and FPCG was no exception. In
addition to a very weak economy and extremely tight credit markets,
we were uniquely affected by the uncertainty surrounding the entire
healthcare sector as legislators in Washington, D.C. worked toward
passage of a reform bill with far-reaching consequences.
Our response to all of this was to adopt a very cautious
approach to managing our business. We slowed our growth, continued
to implement aggressive cost control initiatives, and focused on
enhancing the long-term stability of our balance sheet, with the
ultimate goal of positioning ourselves for strong, sustainable
growth in Fiscal 2010 and beyond. FPCG, along with the entire
healthcare sector, faced a significant amount of uncertainty over
the outcome of healthcare reform efforts in Washington. This had a
significant impact on our discussions with several acquisition
targets and their ability to decide on a course of action. While we
believe the government will eventually resolve the current deadlock
on healthcare reform, we expect the ongoing uncertainty will
continue to make the deal process with our acquisition targets a
complicated one.
Despite the challenges, we achieved a significant number of
milestones during Fiscal 2009 and the first quarter of Fiscal
2010:
- Achieved Net Revenue from
Services of $10.3 million and Adjusted EBITDA from Operations
before corporate overhead of $0.8 million in the first quarter of
Fiscal 2010.
- Achieved record Net Revenue from
Services of $39.1 million in Fiscal 2009, a 32% year-over-year
increase over $29.6 million in Fiscal 2008.
- Achieved $4.4 million in
Adjusted EBITDA from Operations before corporate overhead in Fiscal
2009, a 40% year-over-year increase over $3.2 million in Fiscal
2008.
- Concluded Fiscal 2009 with total
assets of $29.5 million, an 11% year-over-year increase over $26.5
million at the end of Fiscal 2008.
- Completed the buyout of the
remaining 49% minority partner interest in our SPMG subsidiary in
Oklahoma in December 2008.
- Closed on $8.4 million in bank
financing under the USDA Loan Guaranty Program in December 2008,
proceeds of which were primarily used to refinance acquisition debt
related to the initial majority purchase of our SPMG
subsidiary.
- Assembled a new management team
at our SPMG subsidiary in November 2008 with a deep bench of
experience and strong reputation in the Oklahoma market.
- Continued to receive strong
financial support from our investor base evidenced by high
participation rates in warrant exercises during the year and the
closing of a convertible bridge loan from investors issued between
February and April 2009, which maturity was extended for another 18
to 36 months into Fiscal 2011. The maturity extensions effectively
reduced our short-term debt by $1.5 million.
- Completed the acquisition of The
Chandler Clinic located near Stroud Regional Medical Center (one of
SPMG’s 3 critical access hospitals) in May 2009.
- Began managing Liberty-Dayton
Community Hospital in Liberty, Texas in October 2009.
- Secured $4.7 million in
sale-leaseback financing under the USDA Loan Guaranty Program on
our Southern Plains Medical Center (SPMC) clinic real estate in
January 2010. Our wholly-owned First Physicians Realty Group
subsidiary was the purchaser of the real estate along with a
minority partner group of local Oklahoma investors.
- Proceeds from the SPMC
sale-leaseback were used to pay-off short-term debt of $3.7 million
associated with SPMC real estate. SPMC received net cash proceeds
of $0.7 million after retirement of the debt and closing costs.
$1.5 million of restricted cash pledged as security on the
refinanced SPMC debt was released and returned to us. After the
SPMC recapitalization and convertible bridge loan maturity
extensions, we have reduced total short-term debt by 88%.
- Added an experienced financial
services executive and banking veteran to our Board of
Directors.
- Renamed our company to First
Physicians Capital Group, Inc. and began trading with our new
ticker symbol FPCG.OB on the OTC Bulletin Board.
While we did not achieve all of our strategic and financial
goals in Fiscal 2009, we finished the year with positive momentum
and a sound balance sheet. With the most recent financing related
to the sale-leaseback of SPMC, we have completed the restructuring
of our balance sheet from one that was heavily dependent on
short-term maturities to one that is almost entirely comprised of
long-term maturities at very attractive rates. In Fiscal 2010, as
part of the next phase of our capital and operating plan, we expect
to focus on working capital ratios and bringing them in line with
target goals.
We believe the key to our long-term profitability is growth. As
discussed in previous updates, we have built our platform with a
focus on growth. While we continue to make our operations as
efficient as possible, growth will ultimately drive our near term
and long term profitability and return on capital. As of October
2009, we have reduced operating expenses outside of professional
fees (e.g., accounting, legal and SOX compliance) by over $2.5
million per annum. We believe we are conservatively positioned from
a cost structure standpoint for Fiscal 2010.
While we slowed our investment and acquisition activities to
“let the dust settle” on healthcare reform and waited for capital
costs to become reasonable and attractive again during Fiscal 2009,
we are optimistic that Fiscal 2010 will present us with a number of
attractive growth opportunities in the sector and in our markets.
The rest of this letter will outline in more detail our major
accomplishments in Fiscal 2009 and our strategic efforts to
position ourselves for a strong Fiscal 2010.
Corporate Strategy Update
During the past three years, we have grown our business from net
revenue of $2.5 million in Fiscal 2007 to $39.1 million in Fiscal
2009. (Note: Fiscal 2007 was a shorter eight-month transition
period.) Over the same period, we have also accumulated a valuable
real estate portfolio at attractive prices and with attractive
financing. While we continue to aggressively reduce corporate
overhead and implement cost savings throughout the organization, we
are positioning ourselves to pursue several significant
acquisitions and JV opportunities during this current and next
fiscal year. Assuming we identify the right partner, we believe
these potential transactions would allow us to fulfill our
long-term strategy of using the “hub-and-spoke” model to develop a
comprehensive integrated health system by providing a value-added
referral base for larger health system partners in core urban areas
near our facilities.
During the current and next fiscal year, we expect to continue
to pursue our strategy of:
- Acquiring two to four businesses
per year with a focus on the rural healthcare market;
- Enhancing the operational
efficiency of our existing healthcare facilities; and,
- Securing attractive financing,
including real estate-based solutions as appropriate, for our
operating partners.
Operations
As previously announced, we have made very significant
investments in assembling our management team and developing our
operating infrastructure. We have also made significant investments
in our dealmaking resources, including systems in place to perform
transaction due diligence and execution. We believe that we can
increase our healthcare facility business volumes both organically
and through acquisitions without any significant further increases
in our corporate overhead. We have put in place a platform capable
of assimilating the future growth we are anticipating for the
Company and expect future growth via internal operating
improvements or the completion of new transactions to add
positively to our bottom line without commensurate increases in
expenses.
To measure our progress and growth, we have tracked the
following general key metrics:
- Physicians in our Network – The
current number of FPCG physician employee partners is 36 and has
not seen a net change since the end of Fiscal 2008. We believe the
number of our physicians will be a key indicator of our future
success because each partner represents reliable, high-value
long-term revenue for FPCG.
- Healthcare Facilities – We
currently own and operate 7 facilities (1 in San Diego and 6 in
Oklahoma), compared to 6 facilities at the end of Fiscal 2008.
- Number of Employees – We
currently have 420 employees in California and Oklahoma compared to
442 at the end of December 2008. We expect our reported employment
figures to drop for our existing operations going forward as a
result of our ongoing cost reduction efforts.
- Admissions and Patient Days –
Our hospitals admitted 1,555 patients over 7,215 total patient days
in Fiscal 2009. This compares to 1,512 patients admitted over 6,767
total patient days in Fiscal 2008.
- Average Daily Census – Our
hospitals saw average daily census of 20 patients in Fiscal 2009
versus 19 patients in Fiscal 2008.
- Patient Visits / Cases – Our
medical clinics and surgery centers saw 77,633 patient visits and
1,857 cases, respectively, in Fiscal 2009.
Fiscal 2010 Outlook
While we have accomplished a great deal in the past 3 years, we
remain cautiously optimistic given current economic conditions and
ongoing uncertainty surrounding healthcare reform. Over the current
and next fiscal year, as the investment environment continues to
improve, we anticipate accelerating our investment program. FPCG
continues to receive strong support from existing shareholders as
we explore alternative financing strategies to create liquidity and
fund future growth.
As always, we appreciate the support of our long-term
shareholders, directors, advisors, partners and employees. Despite
a challenging economic environment, we will continue to work
aggressively to increase shareholder value.
David HirschhornChairman and CEOFirst Physicians Capital Group,
Inc.
Important Notice
It should be noted that EBITDA and Adjusted EBITDA from
Operations are financial measures that are not recognized under
accounting principles generally accepted in the United States of
America (GAAP). Adjusted EBITDA from Operations should not be
considered as an alternative to, or more meaningful than, net
income, operating income, cash flows from operations or other
traditional indications of a company’s operating performance or
liquidity that are derived in accordance with GAAP. In addition,
the Company’s calculations of Adjusted EBITDA from Operations may
not be comparable to similarly titled measures being disclosed by
other companies, limiting their usefulness as comparative measures.
The Company discloses Adjusted EBITDA from Operations as it is a
commonly referred to financial metric used in the investing
community to evaluate the performance of companies in our industry.
The Company believes that disclosure of Adjusted EBITDA from
Operations is helpful to those reviewing its performance, as
Adjusted EBITDA from Operations provides information on the
Company’s ability to meet debt service, capital expenditure and
working capital requirements and management believes that Adjusted
EBITDA from Operations is also a useful indicator of the Company’s
operating performance.
To better facilitate comparisons from reporting period to
reporting period on the productivity of our healthcare facilities
operations, a non-GAAP supplemental chart is provided below. These
financials reconcile to our GAAP SEC filed results. We highlight
for investors and partners:
- Net Revenue from Services
- Healthcare facilities EBITDA
before Bad Debt expense
- Bad Debt expense
- Adjusted EBITDA from Operations
before Corporate Overhead
- SPMG Corporate Expense, our
overhead expense at the SPMG operating subsidiary headquartered in
Oklahoma City, OK
- FPCG Corporate Expense, our
overhead expense at the corporate holding company
Fiscal Quarter Ended 12/31/2009
12/31/2008 Net
Revenue From Services $ 10,327,789
$ 10,821,194
Healthcare facilities EBITDA before Bad Debt Expense $ 2,446,070 $
3,341,123 Bad Debt expense (1,683,142 )
(1,002,797 )
Adjusted EBITDA from Operations before
Corporate Overhead 762,928 2,338,326 SPMG
Corporate Expense - operating company (925,502 ) (1,467,212 ) FPCG
Corporate Expense (790,088 )
(765,814 )
Adjusted EBITDA from Operations (952,662
) 105,300 Non-Cash Charges and Other Items
to Reconcile to Net Income Interest Income and Other 6,662
38,688 Interest Expense (705,771 ) (171,692 ) Depreciation &
Amortization (319,416 ) (231,259 ) Amort. of Stock Based Comp
(278,104 ) (307,681 ) Preferred Dividend - BCF (46,880 ) -
Restructure (Severance) - (154,479 ) Noncontrolling interests
(180,416 ) (93,699 ) One-time charges (40,000 ) - Insurance
proceeds 429,105 - Payments to physicians related to purchase
agreement (66,249 ) (81,250 ) Other closed facility expense
(10,496 ) (21,511 ) Total Non-Cash
Charges and Other Items to Reconcile to Net Income (1,211,565 )
(1,022,883 )
Net Income (Loss) $
(2,164,227 ) $
(917,583 )
Fiscal Year Ended 9/30/2009
9/30/2008 Net Revenue From
Services $ 39,089,808
$ 29,641,204 Healthcare
facilities EBITDA before Bad Debt Expense $ 9,003,134 $ 6,968,932
Bad Debt expense (4,561,112 )
(3,792,437 )
Adjusted EBITDA from Operations before Corporate
Overhead 4,442,022 3,176,495 SPMG Corporate
Expense - operating company (4,997,934 ) (3,537,860 ) FPCG
Corporate Expense (3,606,948 )
(2,245,258 )
Adjusted EBITDA from Operations
(4,162,860 ) (2,606,623 )
Non-Cash Charges and Other Items to Reconcile to Net Income
Interest Income 41,851 319,713 Interest Expense (2,094,766 )
(872,380 ) Depreciation & Amortization (1,101,974 ) (706,230 )
Amort. of Stock Based Comp (1,245,252 ) (339,190 ) Preferred
Dividend - BCF (316,877 ) (2,877,654 ) Restructure (Severance)
(429,641 ) - Noncontrolling interests (176,604 ) 1,367,890
Impairment expense (208,942 ) (308,022 ) (Gain) Loss on Sale of
Investments (280,614 ) - One-time charges - (50,000 ) Payments to
physicians related to purchase agreement (337,990 ) (81,250 ) Other
closed facility expense (54,391 )
(957,150 ) Total Non-Cash Charges and Other Items to
Reconcile to Net Income (6,205,200 ) (4,504,273 )
Net
Income (Loss) $ (10,368,060 )
$ (7,110,896 )
About First Physicians Capital Group, Inc.
First Physicians Capital Group, Inc. provides financial and
managerial services to physicians, physician groups, and healthcare
delivery centers in rural and suburban markets in the U.S. The
Company is building a portfolio of interests in healthcare services
operations outside the traditional urban hospital setting. FPCG
promotes quality medical care by offering improved access and
breadth of services. It unlocks the value of its investments by
developing strong, long-term and mutually beneficial relationships
with their physicians and the communities they serve. For more
information, please visit
http://www.firstphysicianscapitalgroup.com.
Safe-Harbor Statement under the Private Securities Litigation
Reform Act of 1995: This press release may contain forward-looking
information within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), including
all statements that are not statements of historical fact regarding
the intent, belief or current expectations of the Company, its
directors or its officers with respect to, among other things: (i)
the Company’s financing plans; (ii) trends affecting the Company’s
financial condition or results of operations; (iii) the Company’s
growth strategy and operating strategy; and (iv) the declaration
and payment of dividends. The words “may,” “would,” “will,”
“expect,” “estimate,” “anticipate,” “believe,” “intend” and similar
expressions and variations thereof are intended to identify
forward-looking statements. Investors are cautioned that any such
forward-looking statements are not guarantees of future performance
and involve risks and uncertainties, many of which are beyond the
Company’s ability to control, and that actual results may differ
materially from those projected in the forward-looking statements
as a result of various factors including the risks disclosed in the
Company’s Forms 10-K and 10-Q filed with the Securities Exchange
Commission.
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