SGRY Surgery Partners Inc

Surgery Partners, Inc. (NASDAQ:SGRY) ("Surgery Partners" or the "Company"), a leading short-stay surgical facility owner and operator, today announced results for the second quarter ended June 30, 2024.

• Revenues increased 14.2% to $762.1 million compared to the prior year period
  • Same-facility revenues increased 9.9%
  • Same-facility cases increased 3.9%
• Net loss attributable to Surgery Partners, Inc. was $15.5 million
  • Adjusted EBITDA was $118.3 million, representing 18.1% growth compared to the prior year period
• Adjusted EBITDA margin was 15.5%, expanding 50 basis points from the prior year period
• Full year guidance raised to greater than $3.075 billion in revenue and greater than $508 million in Adjusted EBITDA

Wayne DeVeydt, Executive Chairman of the Board of Surgery Partners, noted, "We are proud to report strong growth in Adjusted EBITDA and revenue, both ahead of our expectations. We achieved these results by continuing to focus on exceptional clinical quality and value, operational execution and the strategic impact of physician recruiting and acquisitions. Our same-facility revenue growth of 10% on a year-to-date basis continues to demonstrate the durability and strength of the macro tailwinds associated with our long-term growth algorithm."

Eric Evans, Chief Executive Officer, stated, "In addition to the strength of operational results for the quarter, we continued executing on our acquisition strategy by deploying nearly $220 million on several transactions. Our year-to-date acquisitions and robust de novo pipeline, coupled with execution on all of our key growth levers gives us confidence in our continued growth including an updated outlook for the remainder of 2024."

Dave Doherty, Chief Financial Officer, commented, "Over the last nine months, the Company has addressed its balance sheet exposure to refinancing and interest rates, having refinanced our term loan and unsecured bonds, increased the borrowing capacity of our revolver and lowered our overall interest rates. In the second quarter, we repriced the term loan to a more favorable rate and fully hedged those rates using interest rate caps. These actions position our balance sheet to fully support the Company’s continued long-term growth."

Second Quarter 2024 Results

Revenues for the second quarter of 2024 increased 14.2% to $762.1 million from $667.6 million for the second quarter of 2023. Same-facility revenues for the second quarter of 2024 increased 9.9% from the same period last year, with a 5.7% increase in revenue per case and a 3.9% increase in same-facility cases. For the second quarter of 2024, the Company’s Adjusted EBITDA was $118.3 million, compared to $100.2 million for the same period last year.

Year-to-Date 2024 Results

Revenues year-to-date 2024 increased 10.9% to $1,479.5 million from $1,333.8 million for the 2023 period. Same-facility revenues for year-to-date 2024 increased 10.0% from the same period last year, with a 7.1% increase in revenue per case and a 2.7% increase in same-facility cases. For year-to-date 2024, the Company’s Adjusted EBITDA was $215.8 million, compared to $190.3 million for the same period last year.

Liquidity

Surgery Partners had cash and cash equivalents of $213.5 million and $647.8 million of borrowing capacity under its revolving credit facility at June 30, 2024. Cash flows from operating activities was $82.8 million for the second quarter of 2024, compared to $52.1 million in the prior year quarter. The year-over-year change is due to the timing of receivable collections, the majority of which has been received in the second quarter of 2024.

Year-to-date, operating cash flows were $123.5 million compared to $126.6 million in the prior year period. Free Cash Flow, defined as operating cash flows less distributions to non-controlling interests and less maintenance-related capital expenditures, was $22.4 million for year-to-date 2024.

The Company’s ratio of total net debt to EBITDA, as calculated under the Company’s credit agreement, was approximately 3.8x at the end of the second quarter of 2024.

2024 Outlook

The Company raised its outlook for 2024 revenues to be greater than $3.075 billion and projects 2024 Adjusted EBITDA to be greater than $508 million.

Conference Call Information

Surgery Partners will hold a conference call today, August 6, 2024 at 8:30 a.m. (Eastern Time). The conference call can be accessed live over the phone by dialing 1-800-579-2543, or for international callers, 1-785-424-1789. The conference ID for the live call is SPI2Q24. A replay will be available three hours after the call and can be accessed by dialing 1-844-512-2921, or for international callers, 1-412-317-6671. The passcode for the replay is 11156615. The replay will be available until August 20, 2024.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the Investor Relations section of the Company's website at www.surgerypartners.com. The replay will also be available on this same website for a limited time following the call.

To learn more about Surgery Partners, please visit the Company's website at www.surgerypartners.com. Surgery Partners uses its website as a channel of distribution for material Company information. Financial and other material information regarding Surgery Partners is routinely posted on the Company's website and is readily accessible.

About Surgery Partners

Headquartered in Brentwood, Tennessee, Surgery Partners is a leading healthcare services company with a differentiated outpatient delivery model focused on providing high quality, cost effective solutions for surgical and related ancillary care in support of both patients and physicians. Founded in 2004, Surgery Partners is one of the largest and fastest growing surgical services businesses in the country, with more than 200 locations in 33 states, including ambulatory surgery centers, surgical hospitals, multi-specialty physician practices and urgent care facilities. For additional information, visit www.surgerypartners.com.

Forward-Looking Statements

This press release contains forward-looking statements, including those regarding growth, our anticipated operating results for future periods and other similar statements. These statements can be identified by the use of words such as "believes," "anticipates," "expects," "intends," "plans," "continues," "estimates," "predicts," "projects," "forecasts," "may," "could," and similar expressions. All forward-looking statements are based on current expectations and beliefs as of the date of this release and are subject to risks, uncertainties and other factors that may cause actual results to differ materially from the expectations discussed in, or implied by, the forward-looking statements. Many of these factors are beyond our ability to control or predict including, without limitation, reductions in payments from government health care programs and private insurance payors, such as health maintenance organizations, preferred provider organizations, and other managed care organizations and employers; our ability to contract with private insurance payors; changes in our payor mix or surgical case mix; failure to maintain or develop relationships with physicians on beneficial or favorable terms, or at all; the impact of payor controls designed to reduce the number of surgical procedures; our efforts to integrate operations of acquired businesses and surgical facilities, attract new physician partners, or acquire additional surgical facilities; supply chain issues, including shortages or quality control issues with surgery-related products, equipment and medical supplies; competition for physicians, nurses, strategic relationships, acquisitions and managed care contracts; our ability to attract and retain qualified health care professionals; our ability to enforce non-compete restrictions against our physicians; our ability to manage material liabilities whether known or unknown incurred as a result of acquiring surgical facilities; the impact of future legislation and other health care regulatory reform actions, and the effect of that legislation and other regulatory actions on our business; our ability to comply with current health care laws and regulations; the outcome of legal and regulatory proceedings that have been or may be brought against us; the impact of cybersecurity attacks or intrusions, changes in the regulatory, economic and other conditions of the states where our surgical facilities are located; our indebtedness; the social and economic impact of a pandemic, epidemic or outbreak of a contagious disease, such as COVID-19, on our business; and the risks and uncertainties identified and discussed from time to time in the Company’s reports filed with the SEC, including in Item 1A under the heading "Risk Factors" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 and other reports filed with the SEC. Except as required by law, the Company undertakes no obligation to revise or update publicly any forward-looking statements to reflect events or circumstances after the date of this report, or to reflect the occurrence of unanticipated events or circumstances.

Use of Non-GAAP Financial Measures

In addition to the results prepared in accordance with generally accepted accounting principles in the United States ("GAAP") provided throughout this press release, Surgery Partners has presented the following non-GAAP financial measures: Adjusted net income (loss) attributable to common stockholders, Adjusted net income (loss) per share attributable to common stockholders, Adjusted EBITDA, Adjusted EBITDA related to unconsolidated affiliates, and Free Cash Flow, which exclude various items detailed in the "Reconciliation of Non-GAAP Financial Measures" below.

These non-GAAP financial measures are not intended to replace financial performance measures determined in accordance with GAAP. Rather, they are presented as supplemental measures of the Company's performance that management believes may enhance the evaluation of the Company's ongoing operating results. These non-GAAP financial measures are not presented in accordance with GAAP, and the Company’s computation of these non-GAAP financial measures may vary from similar measures used by other companies. These measures have limitations as an analytical tool and should not be considered in isolation or as a substitute or alternative to revenue, net income or loss, operating income or loss, cash flows from operating activities, total indebtedness or any other measures of operating performance, liquidity or indebtedness derived in accordance with GAAP.

SURGERY PARTNERS, INC. Selected Consolidated Financial Data(Dollars in millions, except per share amounts, shares in thousands)(Unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
			2024				2023				2024				2023
Revenues		$	762.1			$	667.6			$	1,479.5			$	1,333.8
Operating expenses:
Salaries and benefits			223.2				195.2				438.4				397.4
Supplies			199.7				182.2				388.5				370.6
Professional and medical fees			92.4				72.9				175.0				147.5
Lease expense			22.2				21.8				43.6				43.2
Other operating expenses			45.4				41.4				99.5				87.0
Cost of revenues			582.9				513.5				1,145.0				1,045.7
General and administrative expenses			40.3				31.2				73.5				63.2
Depreciation and amortization			34.8				24.4				68.5				58.1
Transaction and integration costs			19.3				12.0				36.7				24.5
Net loss (gain) on disposals, consolidations and deconsolidations			5.3				(8.8	)			6.8				1.7
Equity in earnings of unconsolidated affiliates			(4.4	)			(2.6	)			(7.1	)			(5.9	)
Litigation settlement			0.5				1.5				(1.3	)			4.5
Loss on debt extinguishment			5.1				—				5.1				—
Other income, net			(6.5	)			(1.2	)			(8.5	)			(2.0	)
			677.3				570.0				1,318.7				1,189.8
Operating income			84.8				97.6				160.8				144.0
Interest expense, net			(51.5	)			(47.7	)			(98.8	)			(94.5	)
Income before income taxes			33.3				49.9				62.0				49.5
Income (expense) tax benefit			(4.9	)			7.8				(9.3	)			9.4
Net income			28.4				57.7				52.7				58.9
Less: Net income attributable to non-controlling interests			(43.9	)			(38.8	)			(80.6	)			(64.9	)
Net (loss) income attributable to Surgery Partners, Inc.		$	(15.5	)		$	18.9			$	(27.9	)		$	(6.0	)
Net (loss) income per share attributable to common stockholders
Basic		$	(0.12	)		$	0.15			$	(0.22	)		$	(0.05	)
Diluted (1)		$	(0.12	)		$	0.15			$	(0.22	)		$	(0.05	)
Weighted average common shares outstanding
Basic			126,134				125,718				126,053				125,463
Diluted (1)			126,134				127,370				126,053				125,463

(1) The impact of potentially dilutive securities for the three months ended June 30, 2024 and the six months ended June 30, 2024 and 2023 was not considered because the effect would be anti-dilutive.

SURGERY PARTNERS, INC. Selected Financial and Operating Data(Dollars in millions, except per case and per share amounts)(Unaudited)
		June 30,2024				December 31,2023
Balance Sheet Data (at period end):
Cash and cash equivalents		$	213.5			$	195.9
Total current assets			1,012.5				895.0
Total assets			7,488.6				6,876.7
Current maturities of long-term debt			92.4				73.3
Total current liabilities			551.8				523.0
Long-term debt, less current maturities			3,039.7				2,701.8
Total liabilities			3,870.2				3,514.8
Non-controlling interests—redeemable			442.1				327.4
Total Surgery Partners, Inc. stockholders' equity			1,952.4				1,987.2
Non-controlling interests—non-redeemable			1,223.9				1,047.3
Total stockholders' equity			3,176.3				3,034.5

		Three Months Ended June 30,								Six Months Ended June 30,
			2024				2023				2024				2023
Cash Flow Data:
Net cash provided by (used in):
Operating activities		$	82.8			$	52.1			$	123.5			$	126.6
Investing activities			(244.1	)			(71.2	)			(327.2	)			(141.9	)
Purchases of property and equipment			(26.9	)			(25.8	)			(47.9	)			(50.1	)
Payments for acquisitions, net of cash acquired			(210.0	)			(2.8	)			(264.6	)			(43.5	)
Purchases of equity investments			0.3				(38.8	)			(1.7	)			(48.4	)
Financing activities			189.6				(49.0	)			221.3				(90.2	)
Distributions to non-controlling interest holders			(40.2	)			(35.0	)			(80.7	)			(76.9	)

		Three Months Ended June 30,								Six Months Ended June 30,
			2024				2023				2024				2023
Other Data:
Number of surgical facilities as of the end of period			167				152				167				152
Number of consolidated surgical facilities as of the end of period			127				119				127				119
Cases			166,520				155,185				319,912				306,139
Revenue per case		$	4,577			$	4,302			$	4,625			$	4,357
Adjusted EBITDA (1)		$	118.3			$	100.2			$	215.8			$	190.3
Adjusted EBITDA margin (2)			15.5	%			15.0	%			14.6	%			14.3	%
Adjusted net income per share attributable to common stockholders - Basic (1)		$	0.21			$	0.29			$	0.31			$	0.37
Adjusted net income per share attributable to common stockholders - Diluted (1)		$	0.21			$	0.28			$	0.31			$	0.37
Free Cash Flow (1)		$	31.6			$	7.7			$	22.4			$	28.2

(1) A reconciliation of these non-GAAP financial measures appears below.(2) Defined as Adjusted EBITDA as a % of Revenues.

SURGERY PARTNERS, INC. Supplemental Information(Dollars in millions, except per case amounts)(Unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
			2024				2023				2024				2023
Same-facility Information (1):
Cases			178,366				171,631				344,532				335,446
Case growth			3.9	%			N/A				2.7	%			N/A
Revenue per case		$	4,349			$	4,114			$	4,451			$	4,155
Revenue per case growth			5.7	%			N/A				7.1	%			N/A
Number of work days in the period			64				64				128				128
Case growth (days adjusted)			3.9	%			N/A				2.7	%			N/A
Revenue growth (days adjusted)			9.9	%			N/A				10.0	%			N/A

(1) Same-facility information includes cases and revenues from our consolidated and non-consolidated surgical facilities (excluding facilities acquired in new markets or divested during the current and prior periods).

		Three Months Ended June 30,								Six Months Ended June 30,
			2024				2023				2024				2023
Segment Revenues:
Surgical Facility Services		$	730.4			$	650.2			$	1,423.1			$	1,299.2
Ancillary Services			31.7				17.4				56.4				34.6
Total revenues		$	762.1			$	667.6			$	1,479.5			$	1,333.8

		Three Months Ended June 30,								Six Months Ended June 30,
			2024				2023				2024				2023
Adjusted EBITDA:
Surgical Facility Services		$	143.0			$	126.7			$	269.7			$	245.5
Ancillary Services			0.1				(0.1	)			(1.3	)			(1.5	)
All other			(24.8	)			(26.4	)			(52.6	)			(53.7	)
Total Adjusted EBITDA		$	118.3			$	100.2			$	215.8			$	190.3

SURGERY PARTNERS, INC.Reconciliation of Non-GAAP Financial Measures(Dollars in millions, except per share amounts, shares in thousands)(Unaudited)
The following table reconciles Adjusted EBITDA to income before income taxes in the reported consolidated financial information, the most directly comparable GAAP financial measure:
		Three Months Ended June 30,								Six Months Ended June 30,
			2024				2023				2024				2023
Income before income taxes		$	33.3			$	49.9			$	62.0			$	49.5
Net income attributable to non-controlling interests			(43.9	)			(38.8	)			(80.6	)			(64.9	)
Interest expense, net			51.5				47.7				98.8				94.5
Depreciation and amortization			34.8				24.4				68.5				58.1
Equity-based compensation expense			15.1				4.6				20.0				8.8
Transaction, integration and acquisition costs (1)			20.8				13.0				39.7				25.8
Net loss (gain) on disposals, consolidations and deconsolidations			5.3				(8.8	)			6.8				1.7
Litigation settlements and regulatory change impact (2)			1.1				1.7				(0.1	)			9.7
Loss on debt extinguishment			5.1				—				5.1				—
Undesignated derivative activity			—				—				—				0.6
Other			(4.8	)			6.5				(4.4	)			6.5
Adjusted EBITDA (3)		$	118.3			$	100.2			$	215.8			$	190.3

(1) This amount includes transaction and integration costs of $19.3 million and $12.0 million for the three months ended June 30, 2024 and 2023, respectively. This amount further includes start-up costs related to de novo surgical facilities of $1.5 million and $1.0 million for the three months ended June 30, 2024 and 2023, respectively.

This amount includes transaction and integration costs of $36.7 million and $24.5 million for the six months ended June 30, 2024 and 2023, respectively. This amount further includes start-up costs related to de novo surgical facilities of $3.0 million and $1.3 million for the six months ended June 30, 2024 and 2023, respectively.

(2) This amount includes a litigation settlement loss of $0.5 million and $1.5 million for the three months ended June 30, 2024 and 2023, respectively. This amount also includes other litigation costs of $0.6 million and $0.2 million for the three months ended June 30, 2024 and 2023, respectively.

This amount includes litigation settlements gain of $1.3 million and a loss of $4.5 million for the six months ended June 30, 2024 and 2023, respectively. This amount also includes other litigation costs of $1.2 million and $0.8 million for the six months ended June 30, 2024 and 2023, respectively. Additionally, the six months ended June 30, 2023 includes $4.4 million related to the impact of recent changes in Florida law regarding the use of letters of protection.

(3) We use Adjusted EBITDA as a measure of financial performance. Adjusted EBITDA is a key measure used by management to assess operating performance, make business decisions and allocate resources. Non-controlling interests represent the interests of third parties, such as physicians, and in some cases, healthcare systems that own an interest in surgical facilities that we consolidate for financial reporting purposes. We believe that it is helpful to investors to present Adjusted EBITDA as defined above because it excludes the portion of net income attributable to these third-party interests and clarifies for investors our portion of Adjusted EBITDA generated by our surgical facilities and other operations. Adjusted EBITDA is not a measurement of financial performance under GAAP and should not be considered in isolation or as a substitute for net income, operating income or any other measure calculated in accordance with GAAP. The items excluded from Adjusted EBITDA are significant components in understanding and evaluating our financial performance. We believe such adjustments are appropriate, as the magnitude and frequency of such items can vary significantly and are not related to the assessment of normal operating performance. Our calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

The following table provides supplemental information for Adjusted EBITDA related to unconsolidated affiliates:

	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Adjusted EBITDA related to unconsolidated affiliates:
Management fee revenues (1)(2)	$	6.8			$	5.2			$	13.3			$	10.1
Equity in earnings of unconsolidated affiliates (2)		4.4				2.6				7.1				5.9
Plus:
Start-up costs related to unconsolidated de novo surgical facilities (3)		0.6				0.4				0.9				0.8
Adjusted EBITDA related to unconsolidated affiliates	$	11.8			$	8.2			$	21.3			$	16.8

(1) Includes management and administrative service fees derived from the non-consolidated facilities that the Company accounts for under the equity method and management of surgical facilities in which it does not own an interest. Management fee revenues are included in Revenues on the Consolidated Statements of Operations.

(2) Included as a component of income before income taxes in the Adjusted EBITDA reconciliation table above.

(3) Start-up costs related to de novo surgical facilities are included in Transaction, integration and acquisition costs in the Adjusted EBITDA reconciliation table above.

The following table reconciles Free Cash Flow to net cash provided by operating activities in the reported condensed consolidated financial information, the most directly comparable GAAP financial measure:

	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Net cash provided by operating activities	$	82.8			$	52.1			$	123.5			$	126.6
Less: Maintenance capital expenditures		(11.0	)			(9.4	)			(20.4	)			(21.5	)
Less: Distributions to non-controlling interest holders		(40.2	)			(35.0	)			(80.7	)			(76.9	)
Free Cash Flow (1)	$	31.6			$	7.7			$	22.4			$	28.2
Growth capital expenditures	$	(15.9	)		$	(16.4	)		$	(27.5	)		$	(28.6	)
Maintenance capital expenditures		(11.0	)			(9.4	)			(20.4	)			(21.5	)
Purchases of property and equipment	$	(26.9	)		$	(25.8	)		$	(47.9	)		$	(50.1	)

(1) Free Cash Flow is defined as cash flow provided by operating activities, less distributions to non-controlling interest holders and less maintenance capital expenditures, which are capital expenditures primarily to maintain our existing facilities. We use the non-GAAP measure of Free Cash Flow as a measure of liquidity to determine amounts we can reinvest in our core businesses, such as amounts available to make acquisitions and invest in growth projects. Our calculation of Free Cash Flow may not be comparable to similarly titled measures reported by other companies.

From time to time, the Company incurs certain non-recurring gains or losses that are normally non-operational in nature and management does not consider relevant in assessing its ongoing operating performance. When significant, Surgery Partners’ management and the Company's Board of Directors typically exclude these gains or losses when evaluating the Company’s operating performance and in certain instances when evaluating performance for incentive compensation purposes. Additionally, management believes that certain investors and equity analysts exclude these or similar items when evaluating the Company’s current or future operating performance and in making informed investment decisions regarding the Company. Accordingly, the Company provides adjusted net income attributable to common stockholders and adjusted net income per share attributable to common stockholders as supplements to the comparable GAAP financial measures. Adjusted net income attributable to common stockholders and adjusted net income per share attributable to common stockholders should not be considered measures of financial performance under GAAP, and the items excluded from such measures are significant components in understanding and assessing financial performance. These measures should not be considered in isolation or as an alternative to the comparable GAAP measures as presented in the consolidated financial statements.

The following table reconciles net income as reflected in the consolidated statements of operations to adjusted net income attributable to common stockholders used to calculate adjusted net income per share attributable to common stockholders:

	Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Consolidated Statements of Operations Data:
Net income	$	28.4			$	57.7			$	52.7			$	58.9
Plus (minus):
Net income attributable to non-controlling interests		(43.9	)			(38.8	)			(80.6	)			(64.9	)
Equity-based compensation expense		15.1				4.6				20.0				8.8
Transaction, integration and acquisition costs		20.8				13.0				39.7				25.8
Net loss (gain) on disposals, consolidations and deconsolidations		5.3				(8.8	)			6.8				1.7
Litigation settlements and regulatory change impact		1.1				1.7				(0.1	)			9.7
Loss on debt extinguishment		5.1				—				5.1				—
Other		(4.8	)			6.5				(4.4	)			6.5
Adjusted net income attributable to common stockholders	$	27.1			$	35.9			$	39.2			$	46.5
Adjusted net income per share attributable to common stockholders
Basic	$	0.21			$	0.29			$	0.31			$	0.37
Diluted	$	0.21			$	0.28			$	0.31			$	0.37
Weighted average common shares outstanding
Basic		126,134				125,718				126,053				125,463
Diluted		127,296				127,370				127,359				127,017

Contact

Surgery Partners Investor Relations (615) 234-8940 IR@surgerypartners.com