Surgery Partners, Inc. (NASDAQ:SGRY) ("Surgery Partners" or
the "Company"), a leading provider of surgical services, today
announced results for the first quarter ended March 31,
2017.
- Revenues increased 7.2% over first quarter 2016 to $286.2
million
- Same-facility revenue increased 7.8% over first quarter 2016 to
$289.6 million
- Net loss attributable to Surgery Partners of $2.8 million
improved from $7.19 million in the first quarter 2016
- Adjusted EBITDA increased 4.4% over first quarter 2016 to $40.1
million
- Diluted net loss per share of $(0.06) vs. $(0.15) in the first
quarter 2016
“Surgery Partners recorded solid revenue growth again for the
first quarter of 2017,” said Mike Doyle, Chief Executive
Officer. “During the quarter, we were pleased to see more
high-acuity cases at many established facilities and the initial
contributions from acquisitions closed during 2016.”
“We believe our model of partnership with independent
physicians, physician group practices, health systems and payors
offers a superior strategy to deliver value based care. We thank
our physicians and staff for their ongoing efforts in this
mission.”
As of March 31, 2017, the Company owned or operated 104
surgical facilities primarily in partnership with physicians and,
on a select basis, physicians and health systems, in addition to a
network of 56 physician practices.
First Quarter 2017 Results
Total revenues for the first quarter of 2017 increased 7.2% to
$286.2 million from $267.1 million for the first quarter of 2016.
Same-facility revenues for the first quarter of 2017 increased 7.8%
to $289.6 million from $268.6 million in the same period last year.
Results were driven by increased same-facility revenue per case of
5.6% and same-facility case growth of 2.1%.
For the first quarter of 2017, the Company’s net loss
attributable to Surgery Partners improved to $2.8 million compared
to a net loss of $7.2 million for the same period last year. For
the first quarter of 2017, the quarterly contribution of Adjusted
EBITDA was in line with the Company's expectation of $40.1 million
compared to Adjusted EBITDA of $38.4 million for the same period
last year.
Liquidity
Surgery Partners had cash and cash equivalents of $56.0 million
at March 31, 2017 and availability of $77.9 million under its
revolving credit facility. Net operating cash flow, including
operating cash flow less distributions to non-controlling
interests, was $15.6 million for the first quarter of 2017. The
Company’s ratio of total debt to EBITDA at the end of the first
quarter of 2017, as calculated under the Company’s credit
agreement, was 6.46x.
Full Year 2017 Guidance
For 2017, the Company reiterates the guidance provided on our
conference call in March of this year. The Company continues to
expect revenue growth of 9% to 11% and Adjusted EBITDA growth in
the range of 10% to 15% over 2016.
Conference Call Information
Surgery Partners will hold its conference call tomorrow, May 10,
2017 at 8:30 a.m. (Eastern Time). The conference call can be
accessed live over the phone by dialing 1-877-407-0792, or for
international callers, 1-201-689-8263. A replay will be available
two 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 live call and the replay is 13660687.
The replay will be available until May 24, 2017.
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 on-line replay will remain available
for a limited time beginning immediately 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.
Forward-Looking Statements
This press release contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These statements, which have been included in reliance of
the "safe harbor" provisions of the Private Securities Litigation
Reform Act of 1995, involve risks and uncertainties and assumptions
relating to our operations, financial condition, business,
prospects, growth strategy and liquidity, which may cause our
actual results to differ materially from those projected by such
forward-looking statements, and the Company cannot give assurances
that such statements will prove to be correct. You can identify
forward-looking statements because they do not relate strictly to
historical or current facts. These statements may include words
such as “aim,” “anticipate,” “believe,” “estimate,” “expect,”
“forecast,” “outlook,” “potential,” “project,” “projection,”
“plan,” “intend,” “seek,” “may,” “could,” “would,” “will,”
“should,” “can,” “can have,” “likely,” the negatives thereof and
other words and terms of similar meaning in connection with any
discussion of the timing or nature of future operating or financial
performance or other events.
The forward-looking statements appear in a number of places
throughout this press release and include statements regarding our
intentions, beliefs or current expectations concerning, among other
things, our results of operations, financial condition, liquidity,
prospects, growth, strategies and the industry in which we operate.
All forward-looking statements are subject to risks and
uncertainties, including but not limited to those risks and
uncertainties described in “Risk Factors” in our Annual Report on
form 10-K for the year ended December 31, 2016 that may cause
actual results to differ materially from those that we
expected.
The forward-looking statements made in this press release are
made only as of the date of the hereof. Except as required by law,
we undertake no obligation to update any forward-looking statement,
whether as a result of new information or otherwise. More
information about potential factors that could affect our business
and financial results is included in our filings with
the Securities and Exchange Commission.
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: EBITDA and Adjusted EBITDA, which exclude various items
detailed in the attached "Reconciliation of Non-GAAP Financial
Measures".
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 those 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 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.
About Surgery Partners
Headquartered in Nashville, 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 150 locations in
29 states, including ambulatory surgical facilities, surgical
hospitals, a diagnostic laboratory, multi-specialty physician
practices and urgent care facilities.
|
SURGERY PARTNERS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS(Amounts in thousands, except shares and
per share amounts)(Unaudited) |
|
|
|
Three Months Ended March 31, |
|
|
2017 |
|
2016 |
|
|
|
|
|
Revenues |
|
$ |
286,183 |
|
|
$ |
267,074 |
|
Operating
expenses: |
|
|
|
|
Salaries
and benefits |
|
89,887 |
|
|
86,886 |
|
Supplies |
|
71,160 |
|
|
63,662 |
|
Professional and medical fees |
|
21,125 |
|
|
19,654 |
|
Lease
expense |
|
13,626 |
|
|
12,434 |
|
Other
operating expenses |
|
16,150 |
|
|
14,067 |
|
Cost of
revenues |
|
211,948 |
|
|
196,703 |
|
General
and administrative expenses (includes contingent acquisition
compensation expense of $2,033 for the quarter ended March 31,
2017) |
|
15,541 |
|
|
12,197 |
|
Depreciation and amortization |
|
11,108 |
|
|
9,568 |
|
Provision
for doubtful accounts |
|
5,675 |
|
|
3,873 |
|
Income
from equity investments |
|
(1,200 |
) |
|
(758 |
) |
Loss
(gain) on disposal or impairment of long-lived assets, net |
|
1,196 |
|
|
(206 |
) |
Loss on
debt refinancing |
|
— |
|
|
8,281 |
|
Merger
transaction and integration costs |
|
337 |
|
|
3,172 |
|
Electronic health records incentive income |
|
(141 |
) |
|
(93 |
) |
Other
(income) expense |
|
(2 |
) |
|
57 |
|
Total
operating expenses |
|
244,462 |
|
|
232,794 |
|
Operating
income |
|
41,721 |
|
|
34,280 |
|
Interest expense,
net |
|
(25,182 |
) |
|
(22,153 |
) |
Income
before income taxes |
|
16,539 |
|
|
12,127 |
|
Income tax expense |
|
2,117 |
|
|
1,770 |
|
Net
income |
|
14,422 |
|
|
10,357 |
|
Less: Net income
attributable to non-controlling interests |
|
(17,176 |
) |
|
(17,547 |
) |
Net loss
attributable to Surgery Partners, Inc. |
|
$ |
(2,754 |
) |
|
$ |
(7,190 |
) |
|
|
|
|
|
Net loss per share
attributable to common stockholders |
|
|
|
|
Basic |
|
$ |
(0.06 |
) |
|
$ |
(0.15 |
) |
Diluted
(1) |
|
$ |
(0.06 |
) |
|
$ |
(0.15 |
) |
Weighted average common
shares outstanding |
|
|
|
|
Basic |
|
48,019,652 |
|
|
48,017,226 |
|
Diluted
(1) |
|
48,019,652 |
|
|
48,017,226 |
|
(1) |
The impact
of potentially dilutive securities for the three months ended
March 31, 2017 and 2016 was not considered because the effect
would be anti-dilutive in those periods. |
|
SURGERY PARTNERS, INC.
Unaudited Selected Financial and Operating
Data(Amounts in thousands, except shares and per
share amounts) |
|
|
|
March 31, 2017 |
|
December 31, 2016 |
|
|
|
|
|
Balance Sheet
Data (at period end): |
|
|
|
|
Cash and cash
equivalents |
|
$ |
55,966 |
|
|
$ |
69,699 |
|
Total current
assets |
|
350,077 |
|
|
361,955 |
|
Total assets |
|
2,289,733 |
|
|
2,304,958 |
|
|
|
|
|
|
Current maturities of
long-term debt |
|
28,722 |
|
|
27,822 |
|
Total current
liabilities |
|
196,456 |
|
|
186,725 |
|
Long-term debt, less
current maturities |
|
1,396,042 |
|
|
1,414,421 |
|
Total liabilities |
|
1,790,738 |
|
|
1,799,763 |
|
|
|
|
|
|
Total Surgery Partners,
Inc. stockholders' equity |
|
8,203 |
|
|
9,677 |
|
Non-controlling
interests-non-redeemable |
|
311,403 |
|
|
314,997 |
|
Total stockholders'
equity |
|
319,606 |
|
|
324,674 |
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
2017 |
|
2016 |
|
|
|
|
|
Cash Flow
Data: |
|
|
|
|
Net cash provided by
(used in): |
|
|
|
|
Operating
activities |
|
$ |
34,870 |
|
|
$ |
25,244 |
|
Investing
activities |
|
(6,625 |
) |
|
(18,853 |
) |
Capital
expenditures |
|
(6,350 |
) |
|
(11,804 |
) |
Investments in new businesses |
|
(275 |
) |
|
(7,049 |
) |
Financing
activities |
|
(41,978 |
) |
|
70,723 |
|
Distributions to non-controlling interests |
|
(19,262 |
) |
|
(17,513 |
) |
|
|
|
|
|
Three Months Ended March 31, |
|
|
2017 |
|
2016 |
Other
Data: |
|
|
|
|
Number of surgical
facilities as of the end of period |
|
104 |
|
|
101 |
|
Number of consolidated
surgical facilities as of the end of period |
|
94 |
|
|
90 |
|
Cases |
|
108,829 |
|
|
100,756 |
|
Revenue per case |
|
$ |
2,630 |
|
|
$ |
2,651 |
|
Adjusted EBITDA |
|
$ |
40,107 |
|
|
$ |
38,426 |
|
Adjusted EBITDA as a %
of revenues |
|
14.0 |
% |
|
14.4 |
% |
Adjusted EPS-
Basic |
|
0.04 |
|
|
0.10 |
|
Adjusted EPS-
Diluted |
|
0.04 |
|
|
0.10 |
|
|
SURGERY PARTNERS, INC.
Supplemental Information(Unaudited, in
thousands, except cases and growth rates) |
|
|
|
Three Months Ended March 31, |
|
|
2017 |
|
2016 |
Same-facility
Information: |
|
|
|
|
Cases (2) |
|
107,733 |
|
|
105,502 |
|
Case growth |
|
2.1 |
% |
|
N/A |
|
Revenue per case
(2) |
|
$ |
2,688 |
|
|
$ |
2,546 |
|
Revenue per case
growth |
|
5.6 |
% |
|
N/A |
|
(2) |
Same-facility revenues include revenues from our consolidated and
non-consolidated surgical facilities (excluding facilities acquired
in new markets or divested during the current and prior periods)
along with the revenues from our ancillary services comprised of a
diagnostic laboratory, multi-specialty physician practices, urgent
care facilities, anesthesia services, optical services and
specialty pharmacy services that complement our surgical facilities
in our existing markets. |
|
|
Three Months Ended March 31, |
|
|
2017 |
|
2016 |
Segment
Revenues: |
|
|
|
|
Surgical facility
services |
|
$ |
258,149 |
|
|
$ |
245,670 |
|
Ancillary services |
|
25,212 |
|
|
17,780 |
|
Optical services |
|
2,822 |
|
|
3,624 |
|
Total
revenues |
|
$ |
286,183 |
|
|
$ |
267,074 |
|
|
|
|
|
|
|
|
|
|
During 2016, the Company reassessed its segment reporting and
realigned the disclosures to reflect the review and decision making
made by the Chief Operating Decision Maker (“CODM”). The purpose of
these changes was to replace operating income with adjusted EBITDA
as the primary profit/loss metric reviewed by the CODM in making
key business decisions and on allocation of resources. The Company
has revised the segment disclosures below to replace operating
income with adjusted EBITDA and has provided a reconciliation from
adjusted EBITDA back to net income in the reported consolidated
financial information. These changes had no effect on the Company’s
reportable segments, which are presented consistent with prior
periods.
|
|
|
|
|
Three Months Ended March 31, |
|
|
2017 |
|
2016 |
Segment
Adjusted EBITDA: |
|
|
|
|
Surgical facility
services |
|
$ |
48,241 |
|
|
$ |
45,661 |
|
Ancillary services |
|
3,782 |
|
|
3,500 |
|
Optical services |
|
776 |
|
|
879 |
|
Total segment
adjusted EBITDA (3) |
|
$ |
52,799 |
|
|
$ |
50,040 |
|
|
|
|
|
|
General and
administrative expenses |
|
$ |
(15,541 |
) |
|
$ |
(12,197 |
) |
Non-cash stock
compensation expense |
|
634 |
|
|
133 |
|
Contingent acquisition
compensation expense |
|
2,033 |
|
|
— |
|
Acquisition related
costs |
|
182 |
|
|
450 |
|
|
|
|
|
|
Total adjusted EBITDA
(3) |
|
$ |
40,107 |
|
|
$ |
38,426 |
|
|
|
|
|
|
Net income attributable
to non-controlling interests |
|
$ |
17,176 |
|
|
$ |
17,547 |
|
Depreciation and
amortization |
|
(11,108 |
) |
|
(9,568 |
) |
Interest and other
expense, net |
|
(25,182 |
) |
|
(22,153 |
) |
Income tax expense |
|
(2,117 |
) |
|
(1,770 |
) |
Non-cash stock
compensation expense |
|
(634 |
) |
|
(133 |
) |
Contingent acquisition
compensation expense |
|
(2,033 |
) |
|
— |
|
Merger transaction,
integration and practice acquisition costs (4) |
|
(591 |
) |
|
(3,917 |
) |
Gain on litigation
settlement |
|
— |
|
|
— |
|
(Loss) gain on disposal
or impairment of long-lived assets, net |
|
(1,196 |
) |
|
206 |
|
Loss on debt
refinancing |
|
— |
|
|
(8,281 |
) |
Total net
income |
|
$ |
14,422 |
|
|
$ |
10,357 |
|
(3) |
The above
table reconciles adjusted EBITDA by segment to net income as
reflected in the unaudited condensed consolidated statements of
operations. |
When we use the term “Adjusted EBITDA,” it is referring to net
income minus (a) net income attributable to non-controlling
interests plus (b) depreciation and amortization, (c) interest
and other expense, net, (d) income tax expense, (e) non-cash
stock compensation expense, (f) contingent acquisition compensation
expense, (g) merger transaction, integration and practice
acquisition costs, (h) (loss) gain on disposal or impairment of
long-lived assets and (i) loss on debt refinancing. 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. Our operating strategy is to apply a
market-based approach in structuring its partnerships with
individual market dynamics driving the structure. 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.
We use Adjusted EBITDA as a measure of liquidity. It is included
because we believe that it provides investors with additional
information about its ability to incur and service debt and make
capital expenditures.
Adjusted EBITDA is not a measurement of financial performance or
liquidity under GAAP. It should not be considered in
isolation or as a substitute for net income, operating income, cash
flows from operating, investing or financing activities, or any
other measure calculated in accordance with generally accepted
accounting principles. The items excluded from Adjusted
EBITDA are significant components in understanding and evaluating
financial performance and liquidity. Our calculation of Adjusted
EBITDA may not be comparable to similarly titled measures reported
by other companies.
(4) |
This amount
includes merger transaction and integration costs of $337,000 and
$3.2 million for the three months ended March 31, 2017 and
2016, respectively, and practice acquisition costs of $254,000 and
$745,000 for the three months ended March 31, 2017 and 2016,
respectively. |
SURGERY PARTNERS, INC.
Reconciliation of Non-GAAP Financial
Measures(Unaudited, Amounts in
thousands)
From time to time, the Company incurs certain non-recurring
gains or losses that are normally nonoperational in nature and that
it does not consider relevant in assessing its ongoing operating
performance. When significant, Surgery Partners’ management and
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, the Company 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 per share attributable to
Surgery Partners, Inc. stockholders as a supplement to its
comparable GAAP measure of net income per share attributable to
Surgery Partners, Inc. Adjusted net income per share attributable
to Surgery Partners, Inc. stockholders should not be considered a
measure of financial performance under GAAP, and the items excluded
from adjusted net income per share attributable to Surgery
Partners, Inc. stockholders are significant components in
understanding and assessing financial performance. Adjusted net
income per share attributable to Surgery Partners, Inc.
stockholders should not be considered in isolation or as an
alternative to net income per share attributable to Surgery
Partners, Inc. stockholders 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 used
to calculate adjusted net income per share attributable to Surgery
Partners, Inc. stockholders:
|
|
Three Months Ended March 31, |
|
|
2017 |
|
2016 |
Consolidated
Statements of Operations Data: |
|
|
|
|
Net
Income |
|
$ |
14,422 |
|
|
$ |
10,357 |
|
Less: |
|
|
|
|
Net
income attributable to non-controlling interests |
|
17,176 |
|
|
17,547 |
|
Plus: |
|
|
|
|
Merger
transaction, integration and practice acquisition costs |
|
591 |
|
|
3,917 |
|
Non-cash
stock compensation expense |
|
634 |
|
|
133 |
|
Contingent acquisition compensation expense |
|
2,033 |
|
|
— |
|
Loss on
debt refinancing |
|
— |
|
|
8,281 |
|
Loss
(gain) on disposal or impairment of long-lived assets, net |
|
1,196 |
|
|
(206 |
) |
Adjusted net
income |
|
$ |
1,700 |
|
|
$ |
4,935 |
|
|
|
|
|
|
Adjusted net
income per share |
|
|
|
|
Basic |
|
$ |
0.04 |
|
|
$ |
0.10 |
|
Diluted |
|
$ |
0.04 |
|
|
$ |
0.10 |
|
Weighted
average common shares outstanding: |
|
|
|
|
Basic |
|
48,019,652 |
|
|
48,017,226 |
|
Diluted |
|
48,152,988 |
|
|
48,230,151 |
|
Contact
Teresa Sparks, CFO
Surgery Partners, Inc.
(615) 234-8940
IR@surgerypartners.com
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