In this article I would like to provide an update to my previous article on University General Health Services (UGHS.OB). In the first article I suggested that issues in getting audited and filing a 10-K/Q with the SEC were troubling. While I still believe that these issues are pertinent, I would like to provide an update to my first article.
This is the business model as described by the company.
A diversified, integrated, multi-specialty health care provider that delivers concierge physician and patient oriented services providing timely and innovative health solutions that are competitive, efficient and adaptive in today's health care delivery environment. The UGHS business model anticipates the acquisition of acute care "host" hospitals and the development and operation of regional health networks within a defined radius of each host hospital that can provide services under the Company's acute care licenses. Such regional health networks and ancillary services will reflect a vertically integrated, diversified system, which will include provider-based "Hospital Outpatient Departments" (HOPDs) of the host hospitals and may consist of Ambulatory Surgical Centers, Free-Standing Emergency Rooms, Free-Standing Procedure Facilities, Diagnostic Imaging Treatment Facilities, HBOT/Wound Care Centers, and/or other ancillary service provider."
UGHS went public in 2011 by a reverse merger. On March 10, 2011 UGH Partnerships was acquired by SeaBridge Freight Corp., which was a Nevada corporation. At the same time SeaBridge changed its name to University General Health Systems, Inc. The newly named UGHS immediately divested itself of the freight transport service between Port Manatee in Tampa, Florida and Brownsville, Texas.
UGHS has not filed a 2012 annual report (10-K) and has not filed 10-Qs for the first and second quarter this year. UGHS has had problems getting an audit after switching auditors and has since returned to its original auditor. The information from UGHS we have currently is this presentation from the company website posted this June. The next slides are from this presentation.
The occupancy rates are well above the industry average and the unique and profitable business model has higher margin than more traditional models as well as lower operating costs.
The ecosystem provided by the three separate business segments. The hospital segment, the senior living segment, and the support services segment.
Red Flags Remain
I still have concerns about this company, and due to the limited amount of publicly available information is a concern. Obviously the company needs the auditors blessing before it can file 10-K and 10-Q. Still, the company has made some moves recently that should be concerning. UGHS has paid NBT Equities Research to promote the stock. Granted there have been no hard mailers, but you can see the sponsored research here. Here is the disclaimer from the research article.
In my first article on of the biggest red flags for me was the quote in the OTC Journal article in which Larry Isen, the author of OTC Journal, claimed that he had spoken with the CEO.
"I've interviewed the CEO, and he assured me all their filings would be brought up to date by the Q2 deadline. This means the company has to file its 2012 annual 10k, Q1'13 March quarterly numbers, and Q2'13 June quarterly numbers- all by August 15th."
When I saw that no filings came on the Q2 deadline, this raised a red flag for me. I have since spoken with several people at the company, and they do not believe the quote to be accurate. As such, part of the basis for my argument against UGHS is now invalid, I believe.
The company released a market update for the second quarter today by this press release. It announced certain preliminary information regarding the quarter ended June 30, 2013. The company reported that Average Daily Census ("ADC") levels at its flagship hospital in Houston increased by approximately 20%, when compared with the prior-year quarter, while occupancy rates continued to improve at University General Hospital - Dallas, which was acquired in December 14, 2012. Surgical volumes at University General Hospital in Houston rose approximately 28% relative to the second quarter of 2012, while the Dallas hospital reported approximately 53% increase in surgical volumes relative to the month of December 2012.
"We are very pleased to announce that ADC levels and surgery volumes at our flagship Houston hospital have continued to post consistent growth, year-over-year and quarter-over-quarter, for ten consecutive quarters," stated Hassan Chahadeh, M.D., Chairman and Chief Executive Officer of University General Health System, Inc. "We would expect this to be evident in our financial performance for the second quarter and first half of 2013."
UGHS also said that they are planning to file with the SEC as soon as possible. Given that I cannot verify if the quote regarding Q2 filing in the OTC Journal is accurate, it no longer plays into my short thesis and therefore I have changed my view. While I still have concerns about the 10-Q/K filings, I would no longer recommend a short.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.