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, 2018.
- Revenues increased 45.8% to $417.4
million
- Surgical cases increased 14.7% to
124,858
- Net loss attributable to common
stockholders of $25.3 million
- Adjusted EBITDA increased 17.4% to
$47.1 million
- Diluted net loss per share of
$(0.53)
- Reiterates full-year 2018 guidance
Wayne DeVeydt, Chief Executive Officer of Surgery Partners,
stated, “I am pleased to report a solid first quarter highlighted
by strong year over year revenue and surgical case growth. During
the quarter, we made excellent progress in strengthening our
management team with several key hires and prioritized efforts to
better align our organizational structure and improve our
operational efficiency, which has begun to create a culture of
discipline, focus, and accountability across the Company. We remain
focused on executing on our growth strategies as we assess our
assets and opportunities with an eye towards improved
performance.”
Mr. DeVeydt continued, “Looking ahead to the balance of 2018, we
remain focused on growing our service offering through physician
recruitment, revenue cycle management, and procurement initiatives,
all of which are areas where we have made early strides this year.
I am encouraged by the strength of our business and believe we have
the right team in place to capitalize on the significant
opportunities in front of us and create value for all our
stakeholders.”
First Quarter 2018 Results
Total revenues for the first quarter of 2018 increased 45.8%
to $417.4 million from $286.2 million for the
first quarter of 2017. Same-facility revenues for the first quarter
of 2018 decreased 0.5% from the same period last year, with a 3.8%
increase in revenue per case offset by a 4.1% decrease in same
facility cases. For the first quarter of 2018, the Company’s net
loss attributable to common stockholders was $25.3
million compared to $2.8 million for the same period last
year. For the first quarter of 2018, the Company’s Adjusted EBITDA
increased 17.4% to $47.1 million compared to $40.1
million for the same period last year.
Liquidity
Surgery Partners had cash and cash equivalents
of $112.8 million at March 31, 2018 and availability
of approximately $72 million under its revolving credit
facility. Net operating cash outflow, including operating cash flow
less distributions to non-controlling interests, was $0.9
million for the first quarter of 2018. The Company’s ratio of total
net debt to EBITDA, as calculated under the Company’s credit
agreement, at the end of the first quarter of 2018, was 7.7x.
Tom Cowhey, Chief Financial Officer of Surgery Partners,
commented, “I am excited to be a part of the team at Surgery
Partners as we integrate our operations and execute on our growth
agenda. As the largest independent operator of short stay
surgical facilities, I continue to believe that Surgery Partners
has a unique opportunity to improve the efficiency and quality of
the health care system and create value for all of our
stakeholders.”
Guidance
The Company is maintaining the full-year 2018 guidance range
issued on the fourth quarter 2017 earnings call of revenue and
Adjusted EBITDA in excess of $1.75 billion and $240 million,
respectively. The Company continues to expect to deploy $80-100
million in capital for acquisitions in FY’18.
Conference Call Information
Surgery Partners will hold a conference call today, May 9,
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 13679393. The replay
will be available until May 23, 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 2018 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
Annual Report on Form 10-K for the year ended
December 31, 2017. 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: EBITDA, Adjusted EBITDA and adjusted net (loss) income,
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.
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 condensed consolidated financial
statements and the accompanying notes therein to be filed on May
10, 2018, periods prior to the change of control are identified as
"Predecessor" and periods after the change of control are
identified as "Successor."
SURGERY PARTNERS,
INC.SELECTED CONSOLIDATED FINANCIAL
DATA(Amounts in thousands, except shares and per
share amounts)
|
|
Three Months Ended March 31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
Revenues |
|
$ |
417,369 |
|
|
$ |
286,183 |
|
Operating
expenses: |
|
|
|
|
Salaries
and benefits |
|
129,735 |
|
|
89,887 |
|
Supplies |
|
114,430 |
|
|
71,160 |
|
Professional and medical fees |
|
35,679 |
|
|
21,125 |
|
Lease
expense |
|
21,361 |
|
|
13,626 |
|
Other
operating expenses |
|
26,107 |
|
|
16,150 |
|
Cost of
revenues |
|
327,312 |
|
|
211,948 |
|
General
and administrative expenses (1) |
|
24,152 |
|
|
15,541 |
|
Depreciation and amortization |
|
15,749 |
|
|
11,108 |
|
Provision
for doubtful accounts |
|
6,037 |
|
|
5,675 |
|
Income
from equity investments |
|
(1,862 |
) |
|
(1,200 |
) |
Loss on
disposal or impairment of long-lived assets, net |
|
47 |
|
|
1,196 |
|
Merger
transaction and integration costs |
|
5,033 |
|
|
337 |
|
Other
income |
|
(262 |
) |
|
(143 |
) |
Total
operating expenses |
|
376,206 |
|
|
244,462 |
|
Operating
income |
|
41,163 |
|
|
41,721 |
|
Interest expense,
net |
|
(34,276 |
) |
|
(25,182 |
) |
Income
before income taxes |
|
6,887 |
|
|
16,539 |
|
Income tax expense |
|
1,762 |
|
|
2,117 |
|
Net
income |
|
5,125 |
|
|
14,422 |
|
Less: Net income
attributable to non-controlling interests |
|
(22,646 |
) |
|
(17,176 |
) |
Net loss
attributable to Surgery Partners, Inc. |
|
(17,521 |
) |
|
(2,754 |
) |
Less: Amounts
attributable to participating securities (2) |
|
(7,772 |
) |
|
— |
|
Net loss
attributable to common stockholders |
|
$ |
(25,293 |
) |
|
$ |
(2,754 |
) |
|
|
|
|
|
Net loss per share
attributable to common stockholders |
|
|
|
|
Basic |
|
$ |
(0.53 |
) |
|
$ |
(0.06 |
) |
Diluted
(3) |
|
$ |
(0.53 |
) |
|
$ |
(0.06 |
) |
Weighted average common
shares outstanding |
|
|
|
|
Basic |
|
48,006,870 |
|
|
48,019,652 |
|
Diluted
(3) |
|
48,006,870 |
|
|
48,019,652 |
|
(1) Includes contingent acquisition compensation
expense of $0.5 million and $2.0 million for the three months ended
March 31, 2018 (Successor) and 2017 (Predecessor),
respectively.
(2) Includes accrued dividends and undistributed
earnings allocated to participating securities for the Series A
Preferred Stock. There were no participating securities during the
Predecessor period.
(3) The impact of potentially dilutive
securities for all periods presented 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)
|
|
March 31, 2018 |
|
December 31, 2017 |
|
|
|
|
|
Balance Sheet
Data (at period end): |
|
|
|
|
Cash and cash
equivalents |
|
$ |
112,816 |
|
|
$ |
174,914 |
|
Total current
assets |
|
490,579 |
|
|
563,225 |
|
Total assets |
|
4,594,884 |
|
|
4,622,773 |
|
|
|
|
|
|
Current maturities of
long-term debt |
|
54,386 |
|
|
58,726 |
|
Total current
liabilities |
|
285,752 |
|
|
303,005 |
|
Long-term debt, less
current maturities |
|
2,122,447 |
|
|
2,130,556 |
|
Total liabilities |
|
2,641,723 |
|
|
2,656,041 |
|
|
|
|
|
|
Non-controlling
interests—redeemable |
|
313,643 |
|
|
299,316 |
|
Redeemable preferred
stock |
|
334,692 |
|
|
330,806 |
|
|
|
|
|
|
Total Surgery Partners,
Inc. stockholders' equity |
|
630,664 |
|
|
654,731 |
|
Non-controlling
interests—non-redeemable |
|
674,162 |
|
|
681,879 |
|
Total stockholders'
equity |
|
1,304,826 |
|
|
1,336,610 |
|
|
|
Three Months Ended March
31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
Cash Flow
Data: |
|
|
|
|
Net cash provided by
(used in): |
|
|
|
|
Operating
activities |
|
$ |
30,056 |
|
|
$ |
34,870 |
|
Investing
activities |
|
(36,414 |
) |
|
(6,625 |
) |
Capital
expenditures |
|
(9,983 |
) |
|
(6,350 |
) |
Payments
for acquisitions, net of cash acquired |
|
(25,589 |
) |
|
(275 |
) |
Financing
activities |
|
(55,740 |
) |
|
(41,978 |
) |
Distributions to non-controlling interests |
|
(30,919 |
) |
|
(19,262 |
) |
|
|
Three Months Ended March
31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
Other
Data: |
|
|
|
|
Number of surgical
facilities as of the end of period |
|
125 |
|
|
104 |
|
Number of consolidated
surgical facilities as of the end of period |
|
108 |
|
|
94 |
|
|
|
|
|
|
Cases |
|
124,858 |
|
|
108,829 |
|
Revenue per case |
|
$ |
3,343 |
|
|
$ |
2,630 |
|
Adjusted EBITDA |
|
$ |
47,077 |
|
|
$ |
40,107 |
|
Adjusted EBITDA as a %
of revenues |
|
11.3 |
% |
|
14.0 |
% |
Adjusted EPS-
Basic |
|
$ |
(0.26 |
) |
|
$ |
0.04 |
|
Adjusted EPS-
Diluted |
|
$ |
(0.26 |
) |
|
$ |
0.04 |
|
SURGERY PARTNERS,
INC.Supplemental
Information(Amounts in thousands, except cases and
growth rates)
|
|
Three Months Ended March
31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
Same-facility
Information: |
|
|
|
|
Cases (4) |
|
135,904 |
|
|
141,758 |
|
Case growth |
|
(4.1 |
)% |
|
|
N/A |
|
Revenue per case
(4) |
|
$ |
3,318 |
|
|
$ |
3,196 |
|
Revenue per case
growth |
|
3.8 |
% |
|
|
N/A |
|
(4) 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, |
|
|
2018 |
|
2017 |
|
|
|
|
|
Segment
Revenues: |
|
|
|
|
Surgical facility
services |
|
$ |
394,066 |
|
|
$ |
258,149 |
|
Ancillary services |
|
20,344 |
|
|
25,212 |
|
Optical services |
|
2,959 |
|
|
2,822 |
|
Total
revenues |
|
$ |
417,369 |
|
|
$ |
286,183 |
|
|
|
Three Months Ended March
31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
Adjusted
EBITDA: |
|
|
|
|
Surgical facility
services |
|
$ |
66,467 |
|
|
$ |
48,241 |
|
Ancillary services |
|
1,054 |
|
|
3,782 |
|
Optical services |
|
825 |
|
|
776 |
|
All other |
|
(21,269 |
) |
|
(12,692 |
) |
Total
adjusted EBITDA |
|
$ |
47,077 |
|
|
$ |
40,107 |
|
SURGERY PARTNERS,
INC.Reconciliation of Non-GAAP Financial
Measures(Amounts in thousands)
The following table reconciles 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 March 31, |
|
|
2018 |
|
2017 |
Condensed
Consolidated Statements of Operations Data (5): |
|
|
|
|
Income before
income taxes |
|
$ |
6,887 |
|
|
$ |
16,539 |
|
(Minus): |
|
|
|
|
Net
income attributable to non-controlling interests |
|
22,646 |
|
|
17,176 |
|
Plus: |
|
|
|
|
Interest
expense, net |
|
34,276 |
|
|
25,182 |
|
Depreciation and amortization |
|
15,749 |
|
|
11,108 |
|
EBITDA |
|
34,266 |
|
|
35,653 |
|
Plus: |
|
|
|
|
Non-cash
stock compensation expense |
|
1,997 |
|
|
634 |
|
Merger
transaction, integration and practice acquisition costs (6) |
|
5,485 |
|
|
591 |
|
Reserve
adjustments (7) |
|
4,779 |
|
|
— |
|
Loss on
disposal or impairment of long-lived assets, net |
|
47 |
|
|
1,196 |
|
Contingent acquisition compensation expense |
|
503 |
|
|
2,033 |
|
Adjusted
EBITDA |
|
$ |
47,077 |
|
|
$ |
40,107 |
|
(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, (g) reserve adjustments, (h) loss on
disposal or impairment of long-lived assets, net. 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 $5.0 million and $0.3 million for the three months ended
March 31, 2018 and 2017, respectively, and practice
acquisition costs of $0.5 million and $0.3 million for the three
months ended March 31, 2018 and 2017, respectively.
(7) This amount represents adjustments to
revenue in connection with applying consistent policies across the
combined company as a result of the integration of Surgery Partners
and NSH.
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 (loss) income per share
attributable to common stockholders as a supplement to its
comparable GAAP measure of net (loss) income per share attributable
to common stockholders. Adjusted net (loss) 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 (loss) income per share attributable to common
stockholders are significant components in understanding and
assessing financial performance. Adjusted net (loss) 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 (loss) income
used to calculate adjusted net (loss) income per share attributable
to common stockholders:
|
|
Three Months Ended March
31, |
|
|
2018 |
|
2017 |
|
|
|
|
|
Consolidated
Statements of Operations Data: |
|
|
|
|
Net Income |
|
$ |
5,125 |
|
|
$ |
14,422 |
|
Less: |
|
|
|
|
Net
income attributable to non-controlling interests |
|
22,646 |
|
|
17,176 |
|
Amounts
attributable to participating securities (8) |
|
7,772 |
|
|
— |
|
Plus: |
|
|
|
|
Non-cash
stock compensation expense |
|
1,997 |
|
|
634 |
|
Contingent acquisition compensation expense |
|
503 |
|
|
2,033 |
|
Merger
transaction, integration and practice acquisition costs |
|
5,485 |
|
|
591 |
|
Reserve
adjustments (7) |
|
4,779 |
|
|
— |
|
Loss on
disposal or impairment of long-lived assets, net |
|
47 |
|
|
1,196 |
|
Adjusted net (loss)
income attributable to common stockholders |
|
$ |
(12,482 |
) |
|
$ |
1,700 |
|
|
|
|
|
|
Adjusted net (loss)
income per share attributable to common stockholders |
|
|
|
|
Basic |
|
$ |
(0.26 |
) |
|
$ |
0.04 |
|
Diluted
(9) |
|
$ |
(0.26 |
) |
|
$ |
0.04 |
|
Weighted average common
shares outstanding |
|
|
|
|
Basic |
|
48,006,870 |
|
|
48,019,652 |
|
Diluted
(9) |
|
48,006,870 |
|
|
48,152,988 |
|
(8) Includes dividends accrued during the three months ended
March 31, 2018 for the Series A Preferred Stock. The Series A
Preferred Stock does not participate in undistributed losses. There
were no participating securities during the 2017 period.
(9) The impact of potentially dilutive securities for the three
months ended March 31, 2018 was not considered because the effect
would be anti-dilutive.
Contact
Thomas F. Cowhey, Chief Financial OfficerSurgery Partners,
Inc.(615) 234-8940IR@surgerypartners.com
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