Same Store Volume and Revenue Growth,
Along with Expanding Margins, Highlight Progress of Strategic
Growth Initiatives
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, 2018.
Highlights for the Fourth Quarter 2018:
- Revenues increased 6.7% to $491.2 million and adjusted revenues
increased 8.5% to $499.7 million
- Same-facility revenues increased 7.4% to $513.3 million
- Net loss attributable to common shareholders of $156.2 million
in the fourth quarter 2018, inclusive of non-cash goodwill
impairment and litigation charges of $74.4 million and $46.0
million, respectively, resulting in a net loss per share of
$3.25
- Adjusted EBITDA increased 14.7% to $73.3 million
Highlights for 2018:
- Revenues increased 32.1% to $1.8 billion and adjusted revenues
increased 34.6% to $1.8 billion
- Same-facility revenues increased 5.0% over 2017 to $1.8
billion
- Net loss attributable to common shareholders of $238.1 million
inclusive of non-cash goodwill impairment and litigation charges of
$74.4 million and $46.0 million, respectively, resulting in a net
loss per share of $4.96
- Adjusted EBITDA increased 42.9% to $234.8 million
2019 Outlook:
- Revenues projected to grow low single digit percentage; when
normalized for revenues divested in 2018, growth is projected to be
mid-to-high single digits
- Adjusted EBITDA to grow low double digit percentage
- Outlook does not include impact of unidentified merger and
acquisition activity
Adjusted revenues and Adjusted EBITDA are non-GAAP financial
measures. A definition and reconciliation of these measures
appears beginning on page 7.
Wayne DeVeydt, Chief Executive Officer of Surgery Partners,
stated, “Our fourth quarter results were highlighted by strong
Adjusted EBITDA growth, as well as our second consecutive quarter
of same store volume growth. We continue to advance our agenda both
operationally and strategically, as we remain focused on
repositioning our portfolio for growth, investing in our platforms
and processes, and deploying capital to continue to execute on
organic and inorganic growth opportunities.”
Mr. DeVeydt continued, “Looking ahead to 2019, we are excited to
provide investors an outlook for double-digit Adjusted EBITDA
growth. As our growth strategy continues to gain traction,
our goal is to make 2019 the first of many years of double-digit
Adjusted EBITDA growth.”
Tom Cowhey, Chief Financial Officer of Surgery Partners,
commented, “Fourth quarter results demonstrated good progress as we
reposition the company for growth in 2019. We are quite pleased to
close 2018 at the high end or above our revised guidance ranges for
Adjusted EBITDA and Adjusted Revenues, respectively, and in a sound
liquidity position. Further, with the charge we took today on
our outstanding investigation by the federal government, we are
excited to continue to reduce distractions and focus additional
management time on our core short-stay surgical facilities
business.”
Fourth Quarter 2018 Results
Revenues increased 6.7% to $491.2 million and adjusted revenues
(refer to footnote 3 on page 7) for the fourth quarter of 2018
increased 8.5% to $499.7 million from $460.3
million for the fourth quarter of 2017. Same-facility revenues
for the fourth quarter of 2018 increased 7.4% from the same period
last year as a result of a 1.1% increase in same facility cases and
a 6.3% increase in revenue per case. For the fourth quarter of
2018, the Company’s net loss attributable to common shareholders
was $156.2 million compared to a net loss attributable to
common shareholders of $40.0 million for the same period last
year. For the fourth quarter of 2018, the Company’s Adjusted EBITDA
increased 14.7% to $73.3 million compared to $63.9
million for the same period last year, primarily as a result
of executing against our strategic growth initiatives.
Results for the fourth quarter of 2018 include a non-cash
goodwill impairment charge of $74.4 million related to the
Company's Ancillary and Optical reporting units and a litigation
charge of $46.0 million related to the civil investigative demand
letter received from the federal government in October 2017, as
disclosed in our previous SEC filings.
Full Year 2018 Results
Total revenues for 2018 increased 32.1% to $1.8 billion and
adjusted revenues for 2018 increased 34.6% to $1.8
billion from $1.3 billion for 2017.
Same-facility revenues for 2018 increased 5.0% from 2017. The
increase was driven by a 5.8% increase in revenue per case offset
by a decline in case growth of 0.8%. For the full year 2018, the
Company’s net loss attributable to common shareholders
was $238.1 million compared to a net loss
attributable to common shareholders of $79.0 million for the
same period last year. For 2018, the Company’s Adjusted EBITDA
increased 42.9% to $234.8 million compared to $164.3
million for 2017.
Net loss attributable to common shareholders for 2018 includes
the non-cash goodwill impairment and litigation related charges as
described above.
Liquidity
Surgery Partners had cash and cash equivalents
of $184.3 million and availability of
approximately $71.2 million under its revolving credit
facility at December 31, 2018. Net operating cash flow, including
operating cash flow less distributions to non-controlling
interests, was $16.6 million for the fourth quarter of 2018.
For the full year, net operating cash flow was $35.6 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
2018, was 7.7x. During 2018, the Company acquired a controlling
interest in five surgical facilities in new markets, two surgical
facilities in existing markets (one of which was merged into an
existing facility) and multiple physician practices for a combined
cash purchase price of $106.8 million, net of cash acquired.
2019 Outlook
The Company projects that it will be able to grow revenues at a
low single-digit percentage rate in 2019; when the 2018 baseline is
adjusted for divested revenues, 2019 revenue growth is projected to
be high single digits. The Company also projects that it will be
able to grow Adjusted EBITDA at a double-digit percentage rate in
2019, which is expected to be weighted more towards the back half
of the year. The Company’s outlook does not incorporate the
impact of unidentified merger and acquisition activity.
Conference Call Information
Surgery Partners will hold a conference call today, March
13, 2019 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 13688435. The replay
will be available until March 27, 2019.
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
31 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, our anticipated operating results
for 2019, our expectations regarding resolving the previously
disclosed government investigation into our practices 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, our ability to execute on
our operational and strategic initiatives, the timing and impact of
our portfolio optimization efforts, our ability to continue to
improve same store volume and revenue growth on the timeline
anticipated, if at all, our ability to successfully integrate
acquisitions, the anticipated impact and timing of our ongoing
efficiency efforts, including insurance consolidations and
completed headcount actions, as well as our ongoing procurement and
revenue cycle efforts, the impact of adverse weather conditions and
other events outside of our control, whether or not a settlement is
reached with the government relating to the previously
disclosed investigation, the terms of any such settlement and the
ongoing cost of complying with the terms of any such settlement, as
well as the risks 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 most recent Annual
Report on Form 10-K. 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 Revenues 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
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(Amounts in thousands, except shares and per
share amounts)
|
|
Three Months Ended
December 31, |
|
Year Ended December
31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
491,168 |
|
|
$ |
460,346 |
|
|
$ |
1,771,456 |
|
|
$ |
1,341,219 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
Salaries and benefits |
|
139,544 |
|
|
133,619 |
|
|
534,740 |
|
|
416,552 |
|
Supplies |
|
134,550 |
|
|
125,987 |
|
|
490,251 |
|
|
354,337 |
|
Professional and medical fees |
|
38,167 |
|
|
33,807 |
|
|
145,461 |
|
|
102,992 |
|
Lease expense |
|
21,763 |
|
|
21,010 |
|
|
86,673 |
|
|
64,371 |
|
Other operating expenses |
|
25,716 |
|
|
24,281 |
|
|
104,306 |
|
|
75,548 |
|
Cost of revenues |
|
359,740 |
|
|
338,704 |
|
|
1,361,431 |
|
|
1,013,800 |
|
General and administrative expenses |
|
23,829 |
|
|
21,376 |
|
|
93,558 |
|
|
75,950 |
|
Depreciation and amortization |
|
18,061 |
|
|
18,474 |
|
|
67,440 |
|
|
51,928 |
|
Provision for doubtful accounts |
|
— |
|
|
8,765 |
|
|
— |
|
|
28,752 |
|
Income from equity investments |
|
(2,615 |
) |
|
(2,607 |
) |
|
(8,898 |
) |
|
(6,467 |
) |
Loss (gain) on disposal and deconsolidations,
net |
|
15,947 |
|
|
(328 |
) |
|
31,822 |
|
|
1,720 |
|
Transaction and integration costs |
|
7,894 |
|
|
4,487 |
|
|
31,665 |
|
|
13,054 |
|
Impairment charges |
|
74,359 |
|
|
— |
|
|
74,359 |
|
|
— |
|
Loss on debt refinancing |
|
— |
|
|
— |
|
|
— |
|
|
18,211 |
|
Loss (gain) on litigation settlements |
|
46,009 |
|
|
(8,740 |
) |
|
46,009 |
|
|
(12,534 |
) |
Gain on acquisition escrow release |
|
— |
|
|
(167 |
) |
|
— |
|
|
(1,167 |
) |
Other (income) expense |
|
(167 |
) |
|
38 |
|
|
(3,768 |
) |
|
(262 |
) |
Total operating expenses |
|
543,057 |
|
|
380,002 |
|
|
1,693,618 |
|
|
1,182,985 |
|
Operating (loss) income |
|
(51,889 |
) |
|
80,344 |
|
|
77,838 |
|
|
158,234 |
|
Gain on amendment to tax receivable
agreement |
|
— |
|
|
— |
|
|
— |
|
|
16,392 |
|
Tax receivable agreement benefit |
|
— |
|
|
25,329 |
|
|
— |
|
|
25,329 |
|
Interest expense, net |
|
(39,635 |
) |
|
(32,857 |
) |
|
(147,003 |
) |
|
(117,669 |
) |
(Loss) income before income taxes |
|
(91,524 |
) |
|
72,816 |
|
|
(69,165 |
) |
|
82,286 |
|
Income tax expense (benefit) |
|
15,556 |
|
|
71,850 |
|
|
26,461 |
|
|
53,550 |
|
Net (loss) income |
|
(107,080 |
) |
|
966 |
|
|
(95,626 |
) |
|
28,736 |
|
Less: Net income attributable to non-controlling
interests |
|
(40,662 |
) |
|
(33,142 |
) |
|
(110,080 |
) |
|
(81,721 |
) |
Net loss attributable to Surgery Partners,
Inc. |
|
(147,742 |
) |
|
(32,176 |
) |
|
(205,706 |
) |
|
(52,985 |
) |
Less: Amounts attributable to participating
securities |
|
(8,453 |
) |
|
(7,848 |
) |
|
(32,426 |
) |
|
(26,047 |
) |
Net loss attributable to common stockholders |
|
$ |
(156,195 |
) |
|
$ |
(40,024 |
) |
|
$ |
(238,132 |
) |
|
$ |
(79,032 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share attributable to common
stockholders |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(3.25 |
) |
|
$ |
(0.83 |
) |
|
$ |
(4.96 |
) |
|
$ |
(1.64 |
) |
Diluted (1) |
|
$ |
(3.25 |
) |
|
$ |
(0.83 |
) |
|
$ |
(4.96 |
) |
|
$ |
(1.64 |
) |
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
48,047,192 |
|
|
48,319,851 |
|
|
48,027,875 |
|
|
48,187,844 |
|
Diluted (1) |
|
48,047,192 |
|
|
48,319,851 |
|
|
48,027,875 |
|
|
48,187,844 |
|
(1) The impact of potentially dilutive securities for all
periods was not considered because the effect would be
anti-dilutive in each periods.
SURGERY PARTNERS,
INC.Selected Financial and Operating
Data(Amounts in thousands, except shares and per
share amounts)
|
|
December 31,
2018 |
|
December 31,
2017 |
|
|
|
|
|
Balance Sheet Data (at period
end): |
|
|
|
|
Cash and cash equivalents |
|
$ |
184,308 |
|
|
$ |
174,914 |
|
Total current assets |
|
588,322 |
|
|
563,225 |
|
Total assets |
|
4,676,267 |
|
|
4,622,773 |
|
|
|
|
|
|
Current maturities of long-term debt |
|
55,552 |
|
|
58,726 |
|
Total current liabilities |
|
349,299 |
|
|
303,005 |
|
Long-term debt, less current maturities |
|
2,270,898 |
|
|
2,130,556 |
|
Total liabilities |
|
2,891,384 |
|
|
2,656,041 |
|
|
|
|
|
|
Total Surgery Partners, Inc. stockholders'
equity |
|
404,640 |
|
|
654,731 |
|
Non-controlling interests—non-redeemable |
|
694,305 |
|
|
681,879 |
|
Total stockholders' equity |
|
1,098,945 |
|
|
1,336,610 |
|
|
|
Three Months Ended
December 31, |
|
Year Ended December
31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Cash Flow Data: |
|
|
|
|
|
|
|
|
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
Operating activities |
|
$ |
45,546 |
|
|
$ |
54,447 |
|
|
$ |
144,600 |
|
|
$ |
120,943 |
|
Investing activities |
|
(62,251 |
) |
|
(35,890 |
) |
|
(128,862 |
) |
|
(783,449 |
) |
Purchases of property and equipment, net |
|
(13,187 |
) |
|
(8,987 |
) |
|
(39,805 |
) |
|
(29,600 |
) |
Payments for acquisitions, net of cash
acquired |
|
(51,559 |
) |
|
(28,086 |
) |
|
(106,772 |
) |
|
(755,102 |
) |
Financing activities |
|
121,890 |
|
|
(43,344 |
) |
|
(6,344 |
) |
|
767,721 |
|
Distributions to non-controlling interest
holders |
|
(28,933 |
) |
|
(27,046 |
) |
|
(109,024 |
) |
|
(83,833 |
) |
|
|
Three Months Ended
December 31, |
|
Year Ended December
31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Other Data: |
|
|
|
|
|
|
|
|
Number of surgical facilities at the end of
period |
|
123 |
|
|
124 |
|
|
123 |
|
|
124 |
|
Number of consolidated surgical facilities as of
the end of period |
|
106 |
|
|
108 |
|
|
106 |
|
|
108 |
|
|
|
|
|
|
|
|
|
|
Cases |
|
137,028 |
|
|
136,108 |
|
|
520,741 |
|
|
468,443 |
|
Revenue per case |
|
$ |
3,584 |
|
|
$ |
3,382 |
|
|
$ |
3,402 |
|
|
$ |
2,863 |
|
Adjusted EBITDA |
|
$ |
73,303 |
|
|
$ |
63,895 |
|
|
$ |
234,768 |
|
|
$ |
164,301 |
|
Adjusted EBITDA as a % of revenues |
|
14.9 |
% |
|
13.9 |
% |
|
13.3 |
% |
|
12.3 |
% |
SURGERY PARTNERS,
INC.Supplemental
Information(Unaudited, in thousands, except cases
and growth rates)
|
|
Three Months Ended
December 31, |
|
Year Ended December
31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Same-facility Information: |
|
|
|
|
|
|
|
|
Cases |
|
143,007 |
|
|
141,444 |
|
|
542,335 |
|
|
546,719 |
|
Case growth |
|
1.1 |
% |
|
N/A |
|
|
(0.8 |
)% |
|
N/A |
|
Revenue per case (2) |
|
$ |
3,589 |
|
|
$ |
3,378 |
|
|
$ |
3,408 |
|
|
$ |
3,220 |
|
Revenue per case growth |
|
6.3 |
% |
|
N/A |
|
|
5.8 |
% |
|
N/A |
|
(2) Same-facility revenue per case reflects 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
December 31, |
|
Year Ended December
31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Segment Revenues: |
|
|
|
|
|
|
|
|
Surgical facility services |
|
$ |
470,816 |
|
|
$ |
438,863 |
|
|
$ |
1,682,278 |
|
|
$ |
1,253,183 |
|
Ancillary services |
|
19,321 |
|
|
18,885 |
|
|
79,633 |
|
|
76,921 |
|
Optical services |
|
1,031 |
|
|
2,598 |
|
|
9,545 |
|
|
11,115 |
|
Total revenues |
|
$ |
491,168 |
|
|
$ |
460,346 |
|
|
$ |
1,771,456 |
|
|
$ |
1,341,219 |
|
|
|
Three Months Ended
December 31, |
|
Year Ended December
31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
Surgical facility services |
|
$ |
92,974 |
|
|
$ |
82,813 |
|
|
$ |
309,513 |
|
|
$ |
229,672 |
|
Ancillary services |
|
83 |
|
|
(990 |
) |
|
3,008 |
|
|
(8,781 |
) |
Optical services |
|
413 |
|
|
543 |
|
|
2,500 |
|
|
2,950 |
|
All other |
|
(20,167 |
) |
|
(18,471 |
) |
|
(80,253 |
) |
|
(59,540 |
) |
Total |
|
$ |
73,303 |
|
|
$ |
63,895 |
|
|
$ |
234,768 |
|
|
$ |
164,301 |
|
SURGERY PARTNERS,
INC.Reconciliation of Non-GAAP Financial
Measures(Unaudited, Amounts in
thousands)
The following table reconciles adjusted revenues to revenues in
the selected consolidated financial information, the most directly
comparable U.S. GAAP measure:
|
|
2018 |
|
|
Q1 |
|
Q2 |
|
Q3 |
|
Q4 |
|
Full-Year |
Adjusted Revenues (3): |
|
|
|
|
|
|
|
|
|
|
Revenues prior to provision for doubtful accounts
reclassification |
|
$ |
411,332 |
|
|
$ |
436,579 |
|
|
$ |
432,377 |
|
|
$ |
491,168 |
|
|
$ |
1,771,456 |
|
Add: provision for doubtful accounts |
|
6,037 |
|
|
8,196 |
|
|
11,555 |
|
|
8,482 |
|
|
34,270 |
|
Total adjusted revenues |
|
$ |
417,369 |
|
|
$ |
444,775 |
|
|
$ |
443,932 |
|
|
$ |
499,650 |
|
|
$ |
1,805,726 |
|
(3) In accordance with a new accounting standard that was
effective prospectively beginning January 1, 2018, we reflected our
estimated provision for doubtful accounts net of revenues rather
than as an operating expense, as it had historically been
presented. Adjusted revenues add back the estimated provision for
doubtful accounts. We believe such an adjustment is appropriate, as
the new standard did not affect prior year results, which impacts
comparability. Our calculation of adjusted revenues may not be
comparable to similarly titled measures reported by other
companies. Further, we are presenting a comparative reconciliation
of each quarter in 2018, as prior quarterly presentation did not
classify our provision for doubtful accounts as a component of
revenues.
The following table reconciles Adjusted EBITDA
to (loss) income before income taxes in the reported consolidated
financial information, the most directly comparable U.S. GAAP
financial measure:
|
|
Three Months Ended
December 31, |
|
Year Ended December
31, |
|
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (4) |
|
73,303 |
|
|
63,895 |
|
|
234,768 |
|
|
164,301 |
|
|
|
|
|
|
|
|
|
|
Net income attributable to non-controlling
interests |
|
40,662 |
|
|
33,142 |
|
|
110,080 |
|
|
81,721 |
|
Depreciation and amortization |
|
(18,061 |
) |
|
(18,474 |
) |
|
(67,440 |
) |
|
(51,928 |
) |
Interest expense, net |
|
(39,635 |
) |
|
(32,857 |
) |
|
(147,003 |
) |
|
(117,669 |
) |
Non-cash stock compensation expense |
|
(3,041 |
) |
|
(204 |
) |
|
(9,344 |
) |
|
(5,584 |
) |
Contingent acquisition compensation expense |
|
— |
|
|
(1,377 |
) |
|
(1,510 |
) |
|
(7,039 |
) |
Transaction, integration and practice acquisition
costs (5) |
|
(8,437 |
) |
|
(5,873 |
) |
|
(33,856 |
) |
|
(17,007 |
) |
(Loss) gain on litigation settlement |
|
(46,009 |
) |
|
8,740 |
|
|
(46,009 |
) |
|
12,534 |
|
Gain on acquisition escrow |
|
— |
|
|
167 |
|
|
— |
|
|
1,167 |
|
(Loss) gain on disposal or impairment of
long-lived assets, net |
|
(15,947 |
) |
|
328 |
|
|
(31,822 |
) |
|
(1,720 |
) |
Reserve adjustments |
|
— |
|
|
— |
|
|
(2,670 |
) |
|
— |
|
Impairment charges |
|
(74,359 |
) |
|
— |
|
|
(74,359 |
) |
|
— |
|
Gain on amendment to tax receivable
agreement |
|
— |
|
|
— |
|
|
— |
|
|
16,392 |
|
Tax receivable agreement benefit |
|
— |
|
|
25,329 |
|
|
— |
|
|
25,329 |
|
Loss on debt refinancing |
|
— |
|
|
— |
|
|
— |
|
|
(18,211 |
) |
(Loss) income before income taxes |
|
$ |
(91,524 |
) |
|
$ |
72,816 |
|
|
$ |
(69,165 |
) |
|
$ |
82,286 |
|
(4) 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 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. Surgery Partners is not able to project the items
excluded from Adjusted EBITDA and therefore cannot reconcile
projected Adjusted EBITDA to projected net income for 2019.
(5) This amount includes merger transaction and integration
costs of $7.9 million and $4.5 million for the three months ended
December 31, 2018 and 2017, respectively, and practice acquisition
costs of $0.5 million and $1.4 million for the three months ended
December 31, 2018 and 2017, respectively.
This amount includes merger transaction and
integration costs of $31.7 million and $13.1 million for the years
ended December 31, 2018 and 2017, respectively, and practice
acquisition costs of $2.2 million and $3.9 million for the years
ended December 31, 2018 and 2017, respectively.
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 no later than March 18,
2019, 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 (6) |
|
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 |
) |
Loss on disposals and deconsolidations, net |
|
5 |
|
|
|
|
1,715 |
|
Transaction and integration costs |
|
7,470 |
|
|
|
|
5,584 |
|
Loss on debt refinancing |
|
— |
|
|
|
|
18,211 |
|
Gain on litigation settlements |
|
(8,740 |
) |
|
|
|
(3,794 |
) |
Gain on acquisition escrow release |
|
(167 |
) |
|
|
|
(1,000 |
) |
Other expense (income) |
|
45 |
|
|
|
|
(307 |
) |
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 expense (benefit) |
|
71,639 |
|
|
|
|
(18,089 |
) |
Net (loss) 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 (7) |
|
(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 (8) |
|
$ |
(1.39 |
) |
|
|
|
$ |
(0.24 |
) |
Weighted average common shares outstanding |
|
|
|
|
|
|
Basic |
|
48,319,193 |
|
|
|
|
48,121,404 |
|
Diluted (8) |
|
48,319,193 |
|
|
|
|
48,121,404 |
|
(6) Includes contingent acquisition compensation
expense of $1.9 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).(7) Includes accrued dividends of $10.4 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.(8) 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 |
) |
Transaction, integration and practice acquisition
costs (9) |
|
(9,330 |
) |
|
|
|
(7,677 |
) |
Gain on litigation settlement |
|
8,740 |
|
|
|
|
3,794 |
|
Gain on acquisition escrow release |
|
167 |
|
|
|
|
1,000 |
|
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 |
|
(9) 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 $1.8 million for the four months ended December 31, 2017
(Successor) and $2.1 million for the eight months ended
August 31, 2017 (Predecessor).
Contact
Thomas F. Cowhey, Chief Financial OfficerSurgery Partners,
Inc.(615) 234-8940IR@surgerypartners.com
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