Surgery Partners, Inc. (NASDAQ:SGRY) ("Surgery Partners" or
the "Company"), a leading provider of surgical services, today
announced results for the fourth quarter and full year
ended December 31, 2017.
Highlights for the Fourth Quarter 2017:
- Revenues increased 50.4% to $460.3 million
- Same-facility revenues increased 1.6% to $492.8 million
- Net loss of $(40.0) million in the fourth quarter 2017,
inclusive of net non-cash charges of $38.7 million related to the
estimated impact of the Tax Cuts and Jobs Act
- Adjusted EBITDA increased 27.5% to $63.9 million
- Diluted net loss per share of $(0.83), including a net impact
of $(0.80) per share related to the aforementioned impact of the
Tax Cuts and Jobs Act
Highlights for 2017:
- Revenues increased 17.1% to $1.3 billion
- Same-facility revenues increased 4.7% over 2016 to $1.8
billion
- Net loss of $(79.0) million inclusive of net non-cash charges
of $38.7 million related to the estimated impact of the Tax Cuts
and Jobs Act
- Adjusted EBITDA decreased 8.4% over 2016 to $164.3 million
- Normalized Adjusted EBITDA increased 2.7% to $184.2
- Diluted net loss per share of $(1.64), including a net impact
of $(0.80) per share related to the aforementioned impact of the
Tax Cuts and Jobs Act
Wayne DeVeydt, Chief Executive Officer of Surgery Partners,
stated, “I am excited to have joined Surgery Partners at this
critical juncture for our Company. At a time when the industry is
focused on combating the increased cost of healthcare through more
affordable, high quality solutions, our unique business model has
the Company positioned on the right side of the cost equation and
fully aligned with the goals and objectives of consumers,
physicians, and payors.”
Mr. DeVeydt continued, “As we look to build upon our solid
fourth quarter results, in the near-term we are focused on payor
alignment, physician recruitment to fuel our growth objectives, and
leveraging our national scale with the assets from NSH in the fold.
We anticipate these efforts to have a positive contribution to the
business in 2018, with more material increases in 2019 as we begin
to recognize the full benefit of these efforts. We remain committed
to playing a critical role to lower costs and improve patient
outcomes across the healthcare landscape with a focus on the areas
where we can win as we seek to enhance the value proposition for
all of our stakeholders.”
Fourth Quarter 2017 Results
Total revenues for the fourth quarter of 2017 increased 50.4%
to $460.3 million from $306.0 million for the
fourth quarter of 2016. Same-facility revenues for the fourth
quarter of 2017 increased 1.6% from the same period last year, with
0.5% decrease in same facility cases more than offset by 2.1%
increase in revenue per case. For the fourth quarter of 2017, the
Company’s net loss was $40.0 million compared to net
income of $16.9 million for the same period last year. For the
fourth quarter of 2017, the Company’s Adjusted EBITDA increased
27.5% to $63.9 million compared to $50.1
million for the same period last year.
Results for the fourth quarter of 2017 include a net non-cash
charge of $38.7 million related to the estimated impact of the Tax
Cuts and Jobs Act on our deferred tax assets and liabilities.
This estimate may be refined as further information becomes
available.
Full Year 2017 Results
Total revenues for 2017 increased 17.1% to $1.3
billion from $1.1 billion for 2016. Same-facility
revenues for 2017 increased 4.7% from 2016. The increase was driven
by 0.9% case growth and 3.8% increase in revenue per case. For the
full year 2017, the Company’s net loss was $79.0
million compared to net income of $9.5 million for
the same period last year. For the year 2017, the Company’s
Adjusted EBITDA decreased 8.4% to $164.3 million compared
to $179.3 million for 2016.
Liquidity
Surgery Partners had cash and cash equivalents of $175
million at December 31, 2017 and availability of
approximately $72 million under its revolving credit
facility. Net operating cash flow, including operating cash flow
less distributions to non-controlling interests, was $27.4
million for the fourth quarter of 2017. For the full year, net
operating cash flow was $37.1 million. The Company’s ratio of total
net debt to EBITDA, as calculated under the Company’s credit
agreement, at the end of the fourth quarter of 2017, was 7.2x.
David Kretschmer, Interim CFO of Surgery Partners, commented,
“Having recently assumed both the interim CFO role as well as my
long-term appointment as Chief Strategy and Transformation officer,
I am impressed by the strength of our team and the many assets we
have in place at Surgery Partners. I firmly believe that our strong
balance sheet, favorable market opportunities, and competitive
positioning will provide an ideal foundation to evolve our business
towards the next level of growth. I look forward to leading the
Company’s finance organization in the near-term while also working
with the rest of the leadership team to further develop and execute
a long-term strategy that drives growth and value across all of our
various stakeholders during this important time for the
organization.”
Guidance
The Company expects to provide 2018 guidance on the fourth
quarter and full year 2017 conference call.
Conference Call Information
Surgery Partners will hold a conference call today, March
1, 2018 at 8:30 a.m. (Eastern Time). The conference call
can be accessed live over the phone by dialing 1-877-451-6152, or
for international callers, 1-201-389-0879. 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 13676851. The replay
will be available until March 15, 2018.
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.
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 180 locations in
32 states, including ambulatory surgery centers, surgical
hospitals, a diagnostic laboratory, 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 and our anticipated operating
results for 2017 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,” 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 assumptions that could
cause actual results to differ materially from those discussed in,
or implied by, the forward-looking statements, including but not
limited to, the risks identified and discussed from time to time in
the Company’s reports filed with the SEC, including the Company’s
Quarterly Reports on Form 10-Q for the quarterly periods ended
September 30, 2017 and June 30, 2017, filed on
November 9, 2017 and August 9, 2017, respectively. 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. In
addition, the financial information for the fiscal year ended
December 31, 2017 is unaudited and subject to quarter-end and
year-end adjustments in connection with the completion of our
customary financial closing procedures. Such changes could be
material.
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: Normalized Revenues, EBITDA, Adjusted EBITDA and
Normalized 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.
SURGERY PARTNERS,
INC.SELECTED CONSOLIDATED FINANCIAL
DATA(Amounts in thousands, except shares and per
share amounts)
|
|
|
|
|
|
|
Three Months Ended December
31, |
|
Year Ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
460,346 |
|
|
$ |
306,001 |
|
|
$ |
1,341,219 |
|
|
$ |
1,145,438 |
|
Operating
expenses: |
|
|
|
|
|
|
|
|
Salaries
and benefits |
|
133,619 |
|
|
90,774 |
|
|
416,552 |
|
|
357,175 |
|
Supplies |
|
125,987 |
|
|
72,755 |
|
|
354,337 |
|
|
269,239 |
|
Professional and medical fees |
|
33,807 |
|
|
20,372 |
|
|
102,992 |
|
|
81,185 |
|
Lease
expense |
|
21,010 |
|
|
13,435 |
|
|
64,371 |
|
|
52,147 |
|
Other
operating expenses |
|
24,281 |
|
|
16,911 |
|
|
75,548 |
|
|
61,450 |
|
Cost of
revenues |
|
338,704 |
|
|
214,247 |
|
|
1,013,800 |
|
|
821,196 |
|
General
and administrative expenses (1) |
|
21,376 |
|
|
18,041 |
|
|
75,950 |
|
|
60,246 |
|
Depreciation and amortization |
|
18,474 |
|
|
10,567 |
|
|
51,928 |
|
|
39,551 |
|
Provision
for doubtful accounts |
|
8,765 |
|
|
8,281 |
|
|
28,752 |
|
|
24,212 |
|
Income
from equity investments |
|
(2,607 |
) |
|
(1,757 |
) |
|
(6,467 |
) |
|
(4,764 |
) |
(Gain)
loss on disposal or impairment of long-lived assets, net |
|
(328 |
) |
|
658 |
|
|
1,720 |
|
|
2,355 |
|
Merger
transaction and integration costs |
|
4,487 |
|
|
2,377 |
|
|
13,054 |
|
|
8,738 |
|
Loss on
debt refinancing |
|
— |
|
|
— |
|
|
18,211 |
|
|
11,876 |
|
Gain on
litigation settlement |
|
(8,740 |
) |
|
(14,101 |
) |
|
(12,534 |
) |
|
(14,101 |
) |
Gain on
acquisition escrow release |
|
(167 |
) |
|
— |
|
|
(1,167 |
) |
|
— |
|
Electronic health records incentive expense (income) |
|
38 |
|
|
(677 |
) |
|
(260 |
) |
|
(408 |
) |
Other
(income) expense |
|
— |
|
|
(42 |
) |
|
(2 |
) |
|
55 |
|
Total
operating expenses |
|
380,002 |
|
|
237,594 |
|
|
1,182,985 |
|
|
948,956 |
|
Operating
income |
|
80,344 |
|
|
68,407 |
|
|
158,234 |
|
|
196,482 |
|
Gain on amendment to
tax receivable agreement |
|
— |
|
|
— |
|
|
16,392 |
|
|
— |
|
Tax receivable
agreement benefit (expense) |
|
25,329 |
|
|
— |
|
|
25,329 |
|
|
(3,733 |
) |
Interest expense,
net |
|
(32,857 |
) |
|
(25,708 |
) |
|
(117,669 |
) |
|
(100,571 |
) |
Income
before income taxes |
|
72,816 |
|
|
42,699 |
|
|
82,286 |
|
|
92,178 |
|
Income tax expense |
|
71,850 |
|
|
4,599 |
|
|
53,550 |
|
|
7,095 |
|
Net
income |
|
966 |
|
|
38,100 |
|
|
28,736 |
|
|
85,083 |
|
Less: Net income
attributable to non-controlling interests |
|
(33,142 |
) |
|
(21,238 |
) |
|
(81,721 |
) |
|
(75,630 |
) |
Net
(loss) income attributable to Surgery Partners, Inc. |
|
(32,176 |
) |
|
16,862 |
|
|
(52,985 |
) |
|
9,453 |
|
Less: Amounts
attributable to participating securities (2) |
|
(7,848 |
) |
|
— |
|
|
(26,047 |
) |
|
— |
|
Net
(loss) income attributable to common stockholders |
|
$ |
(40,024 |
) |
|
$ |
16,862 |
|
|
$ |
(79,032 |
) |
|
$ |
9,453 |
|
|
|
|
|
|
|
|
|
|
Net (loss) income per
share attributable to common stockholders |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.83 |
) |
|
$ |
0.35 |
|
|
$ |
(1.64 |
) |
|
$ |
0.20 |
|
Diluted
(3) |
|
$ |
(0.83 |
) |
|
$ |
0.35 |
|
|
$ |
(1.64 |
) |
|
$ |
0.20 |
|
Weighted average common
shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
48,319,851 |
|
|
48,019,652 |
|
|
48,187,844 |
|
|
48,018,944 |
|
Diluted
(3) |
|
48,319,851 |
|
|
48,217,454 |
|
|
48,187,844 |
|
|
48,190,738 |
|
(1) Includes contingent acquisition compensation expense of $1.4
million and $2.0 million for the three months ended December 31,
2017 and 2016, respectively. Includes contingent acquisition
compensation expense of $7.1 million and $5.1 million for the years
ended December 31, 2017 and 2016, respectively.
(2) Includes accrued dividends of $7.8 million for the three
months ended December 31, 2017. Includes accrued dividends of $10.4
million and a mark to redemption adjustment of $15.6 million for
the Series A Preferred Stock for the year ended December 31. 2017.
There were no participating securities during the 2016 periods.
(3) The impact of potentially dilutive securities for three
months and year ended December 31, 2017 was not considered because
the effect would be anti-dilutive in those periods.
SURGERY PARTNERS,
INC.Selected Financial and Operating
Data(Amounts in thousands, except shares and per
share amounts)
|
|
|
December 31, 2017 |
|
December 31, 2016 |
|
|
|
|
|
Balance Sheet
Data (at period end): |
|
|
|
|
Cash and cash
equivalents |
|
$ |
174,914 |
|
|
$ |
69,699 |
|
Total current
assets |
|
563,225 |
|
|
361,955 |
|
Total assets |
|
4,622,773 |
|
|
2,304,958 |
|
|
|
|
|
|
Current maturities of
long-term debt |
|
58,726 |
|
|
27,822 |
|
Total current
liabilities |
|
303,005 |
|
|
186,725 |
|
Long-term debt, less
current maturities |
|
2,130,556 |
|
|
1,414,421 |
|
Total liabilities |
|
2,656,041 |
|
|
1,799,763 |
|
|
|
|
|
|
Total Surgery Partners,
Inc. stockholders' equity |
|
654,731 |
|
|
9,677 |
|
Non-controlling
interests—non-redeemable |
|
681,879 |
|
|
314,997 |
|
Total stockholders'
equity |
|
1,336,610 |
|
|
324,674 |
|
|
|
|
|
|
|
|
|
|
Three Months Ended December
31, |
|
Year Ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Cash Flow
Data: |
|
|
|
|
|
|
|
|
Net cash provided by
(used in): |
|
|
|
|
|
|
|
|
Operating
activities |
|
$ |
54,447 |
|
|
$ |
32,376 |
|
|
$ |
120,943 |
|
|
$ |
125,239 |
|
Investing
activities |
|
(35,890 |
) |
|
(30,354 |
) |
|
(783,449 |
) |
|
(184,749 |
) |
Capital
expenditures |
|
(8,987 |
) |
|
(10,732 |
) |
|
(29,600 |
) |
|
(39,109 |
) |
Investments in new businesses |
|
(28,086 |
) |
|
(20,387 |
) |
|
(755,102 |
) |
|
(146,405 |
) |
Financing
activities |
|
(43,344 |
) |
|
12,468 |
|
|
767,721 |
|
|
71,276 |
|
Distributions to non-controlling interests |
|
(27,046 |
) |
|
(16,335 |
) |
|
(83,833 |
) |
|
(65,778 |
) |
|
|
Three Months Ended December
31, |
|
Year Ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Other
Data: |
|
|
|
|
|
|
|
|
Number of surgical
facilities as of the end of period |
|
124 |
|
|
104 |
|
|
124 |
|
|
104 |
|
Number of consolidated
surgical facilities as of the end of period |
|
108 |
|
|
94 |
|
|
108 |
|
|
94 |
|
|
|
|
|
|
|
|
|
|
Cases |
|
136,108 |
|
|
113,234 |
|
|
468,443 |
|
|
428,742 |
|
Revenue per case |
|
$ |
3,382 |
|
|
$ |
2,702 |
|
|
$ |
2,863 |
|
|
$ |
2,672 |
|
Normalized
Revenues |
|
$ |
460,346 |
|
|
$ |
306,001 |
|
|
$ |
1,364,791 |
|
|
$ |
1,145,438 |
|
Adjusted EBITDA |
|
$ |
63,895 |
|
|
$ |
50,058 |
|
|
$ |
164,301 |
|
|
$ |
179,263 |
|
Adjusted EBITDA as a %
of revenues |
|
13.9 |
% |
|
16.4 |
% |
|
12.3 |
% |
|
15.7 |
% |
Normalized Adjusted
EBITDA |
|
$ |
63,895 |
|
|
$ |
50,058 |
|
|
$ |
184,169 |
|
|
$ |
179,263 |
|
Normalized Adjusted
EBITDA as a % of normalized revenues |
|
13.9 |
% |
|
16.4 |
% |
|
13.5 |
% |
|
15.7 |
% |
Adjusted EPS-
Basic |
|
$ |
(1.39 |
) |
|
$ |
0.19 |
|
|
$ |
(1.76 |
) |
|
$ |
0.67 |
|
Adjusted EPS-
Diluted |
|
$ |
(1.39 |
) |
|
$ |
0.19 |
|
|
$ |
(1.76 |
) |
|
$ |
0.66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SURGERY PARTNERS,
INC.Supplemental
Information(Unaudited, in thousands, except cases
and growth rates)
|
|
Three Months Ended December
31, |
|
Year Ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Same-facility
Information: |
|
|
|
|
|
|
|
|
Cases (3) (4) |
|
146,786 |
|
|
147,519 |
|
|
550,405 |
|
|
545,718 |
|
Case growth |
|
(0.5 |
)% |
|
N/A |
|
|
0.9 |
% |
|
N/A |
|
Revenue per case (3)
(4) |
|
$ |
3,357 |
|
|
$ |
3,287 |
|
|
$ |
3,309 |
|
|
$ |
3,189 |
|
Revenue per case
growth |
|
2.1 |
% |
|
N/A |
|
|
3.8 |
% |
|
N/A |
|
(3) 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.
(4) The normalization impact of the hurricanes and the
non-recurring adjustment to revenue on the same-facility
information above was $23.6 million in revenues and 2,828 cases for
the year ended December 31, 2017.
|
|
Three Months Ended December
31, |
|
Year Ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Segment
Revenues: |
|
|
|
|
|
|
|
|
Surgical facility
services |
|
$ |
438,863 |
|
|
$ |
275,849 |
|
|
$ |
1,253,183 |
|
|
$ |
1,042,097 |
|
Ancillary services |
|
18,885 |
|
|
27,869 |
|
|
76,921 |
|
|
90,836 |
|
Optical services |
|
2,598 |
|
|
2,283 |
|
|
11,115 |
|
|
12,505 |
|
Total
revenues |
|
$ |
460,346 |
|
|
$ |
306,001 |
|
|
$ |
1,341,219 |
|
|
$ |
1,145,438 |
|
|
|
|
|
|
|
|
Three Months Ended December
31, |
|
Year Ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA: |
|
|
|
|
|
|
|
|
Surgical facility
services |
|
$ |
82,813 |
|
|
$ |
60,900 |
|
|
$ |
229,672 |
|
|
$ |
214,218 |
|
Ancillary services |
|
(990 |
) |
|
3,544 |
|
|
(8,781 |
) |
|
12,685 |
|
Optical services |
|
543 |
|
|
304 |
|
|
2,950 |
|
|
3,308 |
|
All other |
|
(18,471 |
) |
|
(14,690 |
) |
|
(59,540 |
) |
|
(50,948 |
) |
Total
adjusted EBITDA |
|
63,895 |
|
|
50,058 |
|
|
164,301 |
|
|
179,263 |
|
|
|
|
SURGERY PARTNERS,
INC.Reconciliation of Non-GAAP Financial
Measures(Unaudited, Amounts in
thousands)
The following table reconciles normalized
revenues to revenues, the most directly comparable U.S. GAAP
financial measure:
|
|
|
|
|
|
|
Three Months Ended December
31, |
|
Year Ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Condensed
Consolidated Statements of Operations Data: |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
460,346 |
|
|
$ |
306,001 |
|
|
$ |
1,341,219 |
|
|
$ |
1,145,438 |
|
Hurricane
estimated impact |
|
— |
|
|
— |
|
|
8,000 |
|
|
— |
|
Reserve
adjustment |
|
— |
|
|
— |
|
|
15,572 |
|
|
— |
|
Normalized
Revenues |
|
$ |
460,346 |
|
|
$ |
306,001 |
|
|
$ |
1,364,791 |
|
|
$ |
1,145,438 |
|
|
|
The following table reconciles Normalized
Adjusted EBITDA and Adjusted EBITDA to income before income taxes
in the reported condensed consolidated financial information, the
most directly comparable U.S. GAAP financial measure:
|
|
|
|
|
|
|
Three Months Ended December
31, |
|
Year Ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Normalized Adjusted
EBITDA |
|
$ |
63,895 |
|
|
$ |
50,058 |
|
|
$ |
184,169 |
|
|
$ |
179,263 |
|
Hurricane
estimated impact |
|
— |
|
|
— |
|
|
(5,000 |
) |
|
— |
|
Reserve
adjustment |
|
— |
|
|
— |
|
|
(14,868 |
) |
|
— |
|
Adjusted EBITDA
(5) |
|
63,895 |
|
|
50,058 |
|
|
164,301 |
|
|
179,263 |
|
|
|
|
|
|
|
|
|
|
Net
income attributable to non-controlling interests |
|
33,142 |
|
|
21,238 |
|
|
81,721 |
|
|
75,630 |
|
Depreciation and amortization |
|
(18,474 |
) |
|
(10,567 |
) |
|
(51,928 |
) |
|
(39,551 |
) |
Interest
expense, net |
|
(32,857 |
) |
|
(25,708 |
) |
|
(117,669 |
) |
|
(100,571 |
) |
Non-cash
stock compensation expense |
|
(204 |
) |
|
(695 |
) |
|
(5,584 |
) |
|
(2,021 |
) |
Contingent acquisition compensation expense |
|
(1,377 |
) |
|
(2,032 |
) |
|
(7,039 |
) |
|
(5,092 |
) |
Merger
transaction, integration and practice acquisition costs (6) |
|
(5,873 |
) |
|
(3,038 |
) |
|
(17,007 |
) |
|
(11,617 |
) |
Gain on
litigation settlement |
|
8,740 |
|
|
14,101 |
|
|
12,534 |
|
|
14,101 |
|
Gain on
acquisition escrow |
|
167 |
|
|
— |
|
|
1,167 |
|
|
— |
|
Gain
(loss) on disposal or impairment of long-lived assets, net |
|
328 |
|
|
(658 |
) |
|
(1,720 |
) |
|
(2,355 |
) |
Gain on
amendment to tax receivable agreement |
|
— |
|
|
— |
|
|
16,392 |
|
|
— |
|
Tax
receivable agreement benefit (expense) |
|
25,329 |
|
|
— |
|
|
25,329 |
|
|
(3,733 |
) |
Loss on
debt refinancing |
|
— |
|
|
— |
|
|
(18,211 |
) |
|
(11,876 |
) |
Income before income
taxes |
|
$ |
72,816 |
|
|
$ |
42,699 |
|
|
$ |
82,286 |
|
|
$ |
92,178 |
|
(5) The above table reconciles Adjusted EBITDA to income before
income taxes as reflected in the unaudited condensed consolidated
statements of operations.
When we use the term “Adjusted EBITDA,” it is
referring to income before income taxes minus (a) net income
attributable to non-controlling interests plus
(b) depreciation and amortization, (c) interest expense, net,
(d) non-cash stock compensation expense, (e) contingent acquisition
compensation expense, (f) merger transaction, integration and
practice acquisition costs, minus (g) gain on litigation
settlement, (h) gain on acquisition escrow release, (plus)/minus
(i) (loss)/gain on disposal or impairment of long-lived assets,
net, minus (j) gain on amendment to tax receivable agreement,
(plus)/minus (k) tax receivable agreement (expense)/benefit and
plus (l) loss on debt refinancing. 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 generally accepted
accounting principles. The items excluded from Adjusted EBITDA are
significant components in understanding and evaluating our
financial performance. We believes 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.
(6) This amount includes merger transaction and integration
costs of $4.5 million and $2.4 million for the three months ended
December 31, 2017 and 2016, respectively, and practice acquisition
costs of $1.4 million and $0.6 million for the three months ended
December 31, 2017 and 2016, respectively.
This amount includes merger transaction and
integration costs of $13.1 million and $8.7 million for the years
ended December 31, 2017 and 2016, respectively, and practice
acquisition costs of $3.9 million and $2.9 million for the years
ended December 31, 2017 and 2016, respectively.
SURGERY PARTNERS,
INC.Reconciliation of Non-GAAP Financial
Measures(Amounts in thousands, except shares and
per share amounts)
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
common stockholders as a supplement to its comparable GAAP measure
of net income per share attributable to common stockholders.
Adjusted net income per share attributable to common stockholders
should not be considered a measure of financial performance under
GAAP, and the items excluded from adjusted net income per share
attributable to common stockholders are significant components in
understanding and assessing financial performance. Adjusted net
income per share attributable to common stockholders should not be
considered in isolation or as an alternative to net income per
share attributable to common 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 common
stockholders:
|
|
|
|
|
|
|
Three Months Ended December
31, |
|
Year Ended December 31, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
Consolidated
Statements of Operations Data: |
|
|
|
|
|
|
|
|
Net Income |
|
$ |
966 |
|
|
$ |
38,100 |
|
|
$ |
28,736 |
|
|
$ |
85,083 |
|
Less: |
|
|
|
|
|
|
|
|
Net
income attributable to non-controlling interests |
|
33,142 |
|
|
21,238 |
|
|
81,721 |
|
|
75,630 |
|
Amounts
attributable to participating securities (6) |
|
7,848 |
|
|
— |
|
|
26,047 |
|
|
— |
|
Plus: |
|
|
|
|
|
|
|
|
Non-cash
stock compensation expense |
|
204 |
|
|
695 |
|
|
5,584 |
|
|
2,021 |
|
Contingent acquisition compensation expense |
|
1,377 |
|
|
2,032 |
|
|
7,039 |
|
|
5,092 |
|
Merger
transaction, integration and practice acquisition costs |
|
5,873 |
|
|
3,038 |
|
|
17,007 |
|
|
11,617 |
|
Gain on
litigation settlement |
|
(8,740 |
) |
|
(14,101 |
) |
|
(12,534 |
) |
|
(14,101 |
) |
Gain on
acquisition escrow |
|
(167 |
) |
|
— |
|
|
(1,167 |
) |
|
— |
|
(Gain)
loss on disposal or impairment of long-lived assets, net |
|
(328 |
) |
|
658 |
|
|
1,720 |
|
|
2,355 |
|
Gain on
amendment to tax receivable agreement |
|
— |
|
|
— |
|
|
(16,392 |
) |
|
|
Tax
receivable agreement (benefit) expense |
|
(25,329 |
) |
|
— |
|
|
(25,329 |
) |
|
3,733 |
|
Loss on
debt refinancing |
|
— |
|
|
— |
|
|
18,211 |
|
|
11,876 |
|
Adjusted net (loss)
income attributable to common stockholders |
|
$ |
(67,134 |
) |
|
$ |
9,184 |
|
|
$ |
(84,893 |
) |
|
$ |
32,046 |
|
|
|
|
|
|
|
|
|
|
Adjusted net (loss)
income per share attributable to common stockholders |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(1.39 |
) |
|
$ |
0.19 |
|
|
$ |
(1.76 |
) |
|
$ |
0.67 |
|
Diluted
(7) |
|
$ |
(1.39 |
) |
|
$ |
0.19 |
|
|
$ |
(1.76 |
) |
|
$ |
0.66 |
|
Weighted average common
shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
48,319,851 |
|
|
48,019,652 |
|
|
48,187,844 |
|
|
48,018,944 |
|
Diluted
(7) |
|
48,319,851 |
|
|
48,217,454 |
|
|
48,187,844 |
|
|
48,190,738 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6) Includes accrued dividends of $7.8 million for the three
months ended December 31, 2017. Includes accrued dividends of $10.5
million and a mark to redemption adjustment of $15.6 million for
the Series A Preferred Stock for the year ended December 31. 2017.
There were no participating securities during the 2016 periods.
(7) The impact of potentially dilutive securities for the three
months and year ended December 31, 2017 was not considered because
the effect would be anti-dilutive in each of those periods.
In connection with the Preferred Private
Placement and the Private Sale, as previously disclosed on Form 8-K
filed with the Securities and Exchange Commission on September 1,
2017, the Company elected to apply “pushdown” accounting with the
change of control effective August 31, 2017, by applying the
guidance in Accounting Standards Codification Topic ("ASC") 805,
Business Combinations. Accordingly, the consolidated financial
statements of the Company for periods before and after August 31,
2017 will reflect different bases of accounting, and the financial
positions and results of operations of those periods are not
comparable. Throughout the Company's consolidated financial
statements and the accompanying notes therein to be filed on or
before March 16, 2018, periods prior to the change of control are
identified as "Predecessor" and periods after the change of control
are identified as "Successor."
The following table reconciles the consolidated statement of
operations for the year ended December 31, 2017 presented above, to
the Successor and Predecessor periods:
|
|
|
Successor |
|
|
|
Predecessor |
|
|
September 1 to December 31, |
|
|
|
January 1 to August 31, |
|
|
2017 |
|
|
|
2017 |
|
|
|
|
|
|
|
Revenues |
|
$ |
592,604 |
|
|
|
|
$ |
748,615 |
|
Operating
expenses: |
|
|
|
|
|
|
Salaries
and benefits |
|
175,403 |
|
|
|
|
241,149 |
|
Supplies |
|
161,015 |
|
|
|
|
193,322 |
|
Professional and medical fees |
|
45,061 |
|
|
|
|
57,931 |
|
Lease
expense |
|
27,868 |
|
|
|
|
36,503 |
|
Other
operating expenses |
|
32,281 |
|
|
|
|
43,267 |
|
Cost of
revenues |
|
441,628 |
|
|
|
|
572,172 |
|
General
and administrative expenses (8) |
|
29,153 |
|
|
|
|
46,797 |
|
Depreciation and amortization |
|
21,804 |
|
|
|
|
30,124 |
|
Provision
for doubtful accounts |
|
12,455 |
|
|
|
|
16,297 |
|
Income
from equity investments |
|
(3,319 |
) |
|
|
|
(3,148 |
) |
(Gain)
loss on disposal or impairment of long-lived assets, net |
|
5 |
|
|
|
|
1,715 |
|
Merger
transaction and integration costs |
|
7,470 |
|
|
|
|
5,584 |
|
Loss on
debt refinancing |
|
— |
|
|
|
|
18,211 |
|
Gain on
litigation settlement |
|
(8,740 |
) |
|
|
|
(3,794 |
) |
Gain on
acquisition escrow release |
|
(167 |
) |
|
|
|
(1,000 |
) |
Electronic health records incentive expense (income) |
|
45 |
|
|
|
|
(305 |
) |
Other
income |
|
— |
|
|
|
|
(2 |
) |
Total
operating expenses |
|
500,334 |
|
|
|
|
682,651 |
|
Operating
income |
|
92,270 |
|
|
|
|
65,964 |
|
Gain on amendment to
tax receivable agreement |
|
1,098 |
|
|
|
|
15,294 |
|
Tax receivable
agreement benefit |
|
25,329 |
|
|
|
|
— |
|
Interest expense,
net |
|
(48,740 |
) |
|
|
|
(68,929 |
) |
Income
before income taxes |
|
69,957 |
|
|
|
|
12,329 |
|
Income tax (benefit)
expense |
|
71,639 |
|
|
|
|
(18,089 |
) |
Net
income |
|
(1,682 |
) |
|
|
|
30,418 |
|
Less: Net income
attributable to non-controlling interests |
|
(39,634 |
) |
|
|
|
(42,087 |
) |
Net loss
attributable to Surgery Partners, Inc. |
|
(41,316 |
) |
|
|
|
(11,669 |
) |
Less: Amounts
attributable to participating securities (9) |
|
(26,047 |
) |
|
|
|
— |
|
Net loss
attributable to common stockholders |
|
$ |
(67,363 |
) |
|
|
|
$ |
(11,669 |
) |
|
|
|
|
|
|
|
Net loss per share
attributable to common stockholders |
|
|
|
|
|
|
Basic |
|
$ |
(1.39 |
) |
|
|
|
$ |
(0.24 |
) |
Diluted
(10) |
|
$ |
(1.39 |
) |
|
|
|
$ |
(0.24 |
) |
Weighted average common
shares outstanding |
|
|
|
|
|
|
Basic |
|
48,319,193 |
|
|
|
|
48,121,404 |
|
Diluted
(10) |
|
48,319,193 |
|
|
|
|
48,121,404 |
|
(8) Includes contingent acquisition compensation
expense of $2.0 million for the four months ended December 31,
2017 (Successor), and contingent acquisition compensation expense
of $5.1 million for the eight months ended August 31, 2017
(Predecessor).(9) Includes accrued dividends of $10.5 million and
the mark to redemption adjustment of $15.6 million for the Series A
Preferred Stock for the four months ended December 31, 2017
(Successor). There were no participating securities during the
Predecessor period.(10) The impact of potentially dilutive
securities for both periods presented was not considered because
the effect would be anti-dilutive.
The following table reconciles the selected cash flow data for
the year ended December 31, 2017 as presented above to the
Successor and Predecessor periods:
|
|
Successor |
|
|
|
Predecessor |
|
|
September 1 to December 31, |
|
|
|
January 1 to August 31, |
|
|
2017 |
|
|
|
2017 |
|
|
|
|
|
|
|
Cash Flow
Data: |
|
|
|
|
|
|
Net cash provided by
(used in): |
|
|
|
|
|
|
Operating
activities |
|
$ |
53,225 |
|
|
|
|
$ |
67,718 |
|
Investing
activities |
|
(38,893 |
) |
|
|
|
(744,556 |
) |
Capital
expenditures |
|
(10,827 |
) |
|
|
|
(18,773 |
) |
Investments in new businesses |
|
(29,249 |
) |
|
|
|
(725,853 |
) |
Financing
activities |
|
(53,624 |
) |
|
|
|
821,345 |
|
Distributions to non-controlling interests |
|
(33,490 |
) |
|
|
|
(50,343 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles the revenues by segment for the
year ended December 31, 2017 as presented above to the Successor
and Predecessor periods:
|
|
Successor |
|
|
|
Predecessor |
|
|
September 1 to December 31, |
|
|
|
January 1 to August 31, |
|
|
2017 |
|
|
|
2017 |
|
|
|
|
|
|
|
Revenues: |
|
|
|
|
|
|
Surgical facility
services |
|
$ |
564,458 |
|
|
|
|
$ |
688,725 |
|
Ancillary services |
|
24,660 |
|
|
|
|
52,261 |
|
Optical services |
|
3,486 |
|
|
|
|
7,629 |
|
Total
revenues |
|
$ |
592,604 |
|
|
|
|
$ |
748,615 |
|
The following table reconciles the Adjusted EBITDA tables for
the year ended December 31, 2017 as presented above to the
Successor and Predecessor periods:
|
|
Successor |
|
|
|
Predecessor |
|
|
September 1 to December 31, |
|
|
|
January 1 to August 31, |
|
|
2017 |
|
|
|
2017 |
|
|
|
|
|
|
|
Adjusted
EBITDA: |
|
|
|
|
|
|
Surgical facility
services |
|
$ |
103,760 |
|
|
|
|
$ |
125,912 |
|
Ancillary services |
|
(2,255 |
) |
|
|
|
(6,526 |
) |
Optical services |
|
736 |
|
|
|
|
2,214 |
|
All other |
|
(23,504 |
) |
|
|
|
(36,036 |
) |
Total Adjusted
EBITDA |
|
78,737 |
|
|
|
|
85,564 |
|
|
|
|
|
|
|
|
Net income attributable
to non-controlling interests |
|
39,634 |
|
|
|
|
42,087 |
|
Depreciation and
amortization |
|
(21,804 |
) |
|
|
|
(30,124 |
) |
Interest expense,
net |
|
(48,740 |
) |
|
|
|
(68,929 |
) |
Non-cash stock
compensation expense |
|
(1,887 |
) |
|
|
|
(3,697 |
) |
Contingent acquisition
compensation expense |
|
(1,982 |
) |
|
|
|
(5,057 |
) |
Merger transaction,
integration and practice acquisition costs (11) |
|
(9,330 |
) |
|
|
|
(7,677 |
) |
Gain on litigation
settlement |
|
8,740 |
|
|
|
|
3,794 |
|
Gain on acquisition
escrow release |
|
167 |
|
|
|
|
1,000 |
|
Gain (loss) on disposal
or impairment of long-lived assets, net |
|
(5 |
) |
|
|
|
(1,715 |
) |
Gain on amendment to
tax receivable agreement |
|
1,098 |
|
|
|
|
15,294 |
|
Tax receivable
agreement benefit |
|
25,329 |
|
|
|
|
— |
|
Loss on debt
refinancing |
|
— |
|
|
|
|
(18,211 |
) |
Income
before income taxes |
|
$ |
69,957 |
|
|
|
|
$ |
12,329 |
|
(11) This amount includes merger transaction and
integration costs of $7.5 million for the four months ended
December 31, 2017 (Successor) and $5.6 million for the eight months
ended August 31, 2017 (Predecessor).
This amount includes practice acquisition costs
of $1.9 million for the four months ended December 31, 2017
(Successor) and $2.1 million for the eight months ended
August 31, 2017 (Predecessor).
Contact
R. David Kretschmer, CSTO and Interim CFOSurgery Partners,
Inc.(615) 234-8940IR@surgerypartners.com
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