Surgery Partners, Inc. Announces Third Quarter 2015 Results

November 12, 2015

Revenues Increase 214% Over Prior Year Period

NASHVILLE, Tenn., Nov. 12, 2015 (GLOBE NEWSWIRE) -- Surgery Partners, Inc. (NASDAQ:SGRY) (or the "Company"), a leading provider of surgical services, today announced results for the third quarter ended September 30, 2015.

  • Revenues increased 214% over third quarter 2014 to $239.6 million, reflecting the impact of the Symbion acquisition
  • Same-facility revenue increased 12.7% over third quarter 2014 to $252.7 million
  • Adjusted EBITDA increased 148% over third quarter 2014 to $39.9 million, reflecting the impact of the Symbion acquisition
  • Completed Initial Public Offering ("IPO") in October 2015 raising gross proceeds of $271.4 million


“We are pleased to report solid operating and financial results for Surgery Partners’ first quarterly earnings release as a public company. The company has had an extremely exciting year as we completed our IPO and delivered solid organic growth as we continue to successfully execute on our ancillary services strategy.  Our ancillary services strategy continues to drive our differentiated outpatient delivery model focused on providing high quality, cost effective solutions for surgical and related ancillary care in support of our patients and physicians,” said Michael Doyle, Chief Executive Officer of Surgery Partners.

"During the third quarter, we expanded our employed physician practice network through the completion of nine in-market practice transactions, including two denovos. For the year, we have completed 13 in-market practice transactions, including two denovos.  In addition, during the third quarter, we completed the acquisition of an anesthesia practice in an existing surgical facility market.  Our year to date acquisitions include one surgical facility in a new market, along with one surgical facility and two anesthesia practices in existing surgical facility markets.  Our pipeline is stronger than it has ever been with numerous opportunities to further expand our surgical and ancillary services. As of September 30, 2015, the Company owned or operated 99 surgical facilities primarily in partnership with physicians and, on a select basis, physicians and health systems, in addition to a network of 43 physician practices.”

“Thanks to our employees and physicians, the integration of the Symbion acquisition continues to be a great success as we complete our first year as a combined company.  We have realized synergies during the current year to date period ended September 30, 2015 of approximately $9.0 million, and are on track to achieve our targeted annual cost and revenue synergies over the next two to three years. With the proceeds from our IPO, we were able to pay down $243.5 million in debt and reduce our annual interest expense by approximately $21.0 million.  Subsequent to quarter end we amended our First Lien Credit Agreement by increasing the revolving commitment from $80.0 million to $150.0 million.  We remain well positioned financially for continued growth.”

Third Quarter 2015 Results

Total revenues for the third quarter of 2015 increased 214.0% to $239.6 million from $76.3 million for the third quarter of 2014, reflecting the impact of the Symbion acquisition. Our same-facility results include facilities owned and operated since July 1, 2014, including our non-consolidating facilities. Same-facility revenues for the third quarter of 2015 increased 12.7% to $252.7 million from $224.3 million in the same period last year.  Results were driven by increased same-facility cases of 6.1%.

For the third quarter of 2015, the Company’s Adjusted EBITDA was $39.9 million compared to Adjusted EBITDA of $16.1 million for the same period last year. On a pro forma basis for the Symbion acquisition, Adjusted EBITDA increased 15.1%.

Year to Date 2015 Results

Total revenues year to date 2015 increased 211.5% to $696.6 million from $223.6 million for the same period last year, reflecting the impact of the Symbion acquisition. Our same-facility results include facilities owned and operated since January 1, 2014, including our non-consolidating facilities. Same-facility revenues year to date 2015 increased 9.6% to $723.2 million from $659.7 million for the same period last year.  Results were driven by increased same-facility cases of 4.7%.

For year to date 2015, the Company’s Adjusted EBITDA was $114.3 million compared to Adjusted EBITDA of $46.1 million for the same period last year. On a pro forma basis for the Symbion acquisition, Adjusted EBITDA increased 11.1%.

Liquidity

Surgery Partners had cash and cash equivalents of $56.8 million at September 30, 2015 and availability of $41.6 million under its revolving credit facility prior to the amendment.  Net operating cash flow, including operating cash flow less distributions to non-controlling interests, was $10.5 million for the third quarter of 2015, an increase from the prior year.  The Company’s ratio of total net debt to EBITDA at the end of the third quarter of 2015, as calculated under the Company’s credit agreement, was 7.0x. After taking into effect the debt pay down in connection with the IPO, this ratio is 5.8x.

2015 Outlook

Surgery Partners expects Adjusted EBITDA for full year of 2015 to be between $156.0 million and $157.0 million.

Conference Call Information

Surgery Partners will hold its conference call tomorrow, November 13, 2015 at 8:30 a.m. (Eastern Time).  The conference call can be accessed live over the phone by dialing 1-877-407-0789, or for international callers, 1-201-689-8562.  A replay will be available two hours after the call and can be accessed by dialing 1-877-870-5176 or for international callers, 1-858-384-5517.  The passcode for the live call and the replay is 13622503. The replay will be available until November 27, 2015.

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.comSurgery 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 Prospectus filed with the SEC on October 2, 2015 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, Adjusted EBITDA and pro forma 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.

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 140 locations in 28 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 September
30,
  Nine Months Ended September
30,
    2015   2014   2015   2014
                 
Revenues   $ 239,599     $ 76,303     $ 696,569     $ 223,598  
Operating expenses:                
Salaries and benefits   66,072     18,743     188,405     55,390  
Supplies   60,377     17,129     176,550     50,068  
Professional and medical fees   17,233     2,320     48,144     6,770  
Lease expense   11,211     3,651     33,267     10,841  
Other operating expenses   13,928     3,534     39,786     10,522  
Cost of revenues   168,821     45,377     486,152     133,591  
General and administrative expenses   11,236     6,738     34,944     20,038  
Depreciation and amortization   8,611     2,834     25,538     8,557  
Provision for doubtful accounts   5,840     1,383     16,049     4,411  
Income from equity investments   (1,320 )       (2,866 )    
(Gain) loss on disposal or impairment of long-lived assets, net   1,161     (8 )   (1,522 )   110  
Loss on debt extinguishment               1,975  
Merger transaction and integration costs   1,249     325     14,897     442  
Electronic records incentives   57         107      
Other income   (330 )       (356 )    
Total operating expenses   195,325     56,649     572,943     169,124  
Operating income   44,274     19,654     123,626     54,474  
Interest expense, net   (26,573 )   (11,263 )   (78,507 )   (32,718 )
Income before income taxes   17,701     8,391     45,119     21,756  
Provision for income taxes   3,917     7,961     8,368     12,043  
Net income   13,784     430     36,751     9,713  
Less:  Net income attributable to non-controlling interests   (16,906 )   (7,338 )   (52,061 )   (21,346 )
Net loss attributable to Surgery Partners, Inc.   $ (3,122 )   $ (6,908 )   $ (15,310 )   $ (11,633 )
                 
Net loss per share attributable to common stockholders                
Basic   $ (0.10 )   $ (0.22 )   $ (0.48 )   $ (0.37 )
Diluted (1)   $ (0.10 )   $ (0.22 )   $ (0.48 )   $ (0.37 )
Weighted average common shares outstanding                
Basic   32,054,089     31,698,638     32,054,089     31,698,638  
Diluted (1)   32,054,089     31,698,638     32,054,089     31,698,638  

(1)The impact of potentially dilutive securities for the three and nine months ended September 30, 2015 and September 30, 2014 was not considered because the effect would be anti-dilutive in each of those periods.






SURGERY PARTNERS, INC.
Unaudited Selected Financial and Operating Data
(Amounts in thousands, except shares and per share amounts)
 
  September 30, 2015   December 31, 2014
       
Balance Sheet Data (at period end):      
Cash and cash equivalents $ 56,848     $ 74,920  
Total current assets 288,003     268,649  
Total assets 1,891,522     1,858,794  
       
Current maturities of long-term debt 27,678     22,088  
Total current liabilities 176,177     141,391  
Long-term debt, less current maturities 1,370,991     1,339,266  
Total liabilities 1,690,695     1,636,669  
       
Total Surgery Partners, Inc. stockholders' deficit (277,438 )   (264,082 )
Non-controlling interests--non-redeemable 294,684     293,618  
Total equity 17,246     29,536  


  Three Months Ended September 30,   Nine Months Ended September 30,
  2015   2014   2015   2014
               
Cash Flow Data:              
Net cash provided by (used in):              
Operating activities $ 29,306     $ 14,358     $ 60,292     $ 29,234  
Investing activities (26,742 )   (1,842 )   (39,484 )   (4,096 )
Capital Expenditures (6,569 )   (1,277 )   (18,115 )   (3,437 )
Investments in new businesses (20,499 )   (565 )   (32,562 )   (659 )
Financing activities 5,844     (14,069 )   (38,880 )   (33,778 )
Distributions to non-controlling interests (18,819 )   (7,859 )   (51,195 )   (21,408 )


  Three Months Ended September 30,   Nine Months Ended September 30,
  2015   2014   2015   2014
Other Data:              
Cases 97,902     41,517     286,961     122,193  
Revenue per case $ 2,447     $ 1,838     $ 2,427     $ 1,830  
Adjusted EBITDA $ 39,857     $ 16,081     $ 114,299     $ 46,054  
Adjusted EBITDA as a % of revenues 16.6 %   21.1 %   16.4 %   20.6 %
Number of surgical facilities as of the end of period 99     45     99     45  
Number of consolidated surgical facilities as of the end of period 88     45     88     45  






SURGERY PARTNERS, INC.
Supplemental Information
(Unaudited, in thousands, except cases and growth rates)
 
  Three Months Ended September 30,   Nine Months Ended September 30,
  2015   2014   2015   2014
Pro forma for Symbion Transaction:
             
Cases 97,902     94,901     286,961     281,318  
Revenue per case 2,447     2,265     2,427     2,249  
Adjusted EBITDA 39,857     34,614     114,299     102,856  
Adjusted EBITDA as a % of revenues 16.6 %   16.1 %   16.4 %   16.3 %
Number of surgical facilities as of the end of period 99     97     99     97  
Number of consolidated surgical facilities as of the end of period 88     87     88     87  


  Three Months Ended September 30,   Nine Months Ended September 30,
  2015   2014   2015   2014
Same-facility Information:              
Cases (2) 101,343     95,485     294,567     281,327  
Case growth 6.1 %     N/A     4.7 %     N/A  
Revenue per case (2) $ 2,494     $ 2,349     $ 2,455     $ 2,345  
Revenue per case growth 6.2 %     N/A     4.7 %     N/A  

(2) Includes non-consolidated joint ventures


  Three Months Ended September 30,   Nine Months Ended September 30,
  2015   2014   2015   2014
Segment Net Revenue:              
Surgical Facility Services (3) $ 219,631     $ 59,245     $ 643,900     $ 173,730  
Ancillary Services 16,347     13,512     41,557     39,051  
Optical Services 3,621     3,546     11,112     10,817  
Total $ 239,599     $ 76,303     $ 696,569     $ 223,598  

(3) Including the impact of the Symbion acquisition on a pro forma basis, amounts would be $201.5 million and $592.2 million for the three and nine months ended September 30, 2014, respectively.


  Three Months Ended September 30,   Nine Months Ended September 30,
  2015   2014   2015   2014
Segment Operating Income:              
Surgical Facility Services (4) $ 54,223     $ 21,509     $ 160,795     $ 61,647  
Ancillary Services 4,115     4,937     11,730     14,487  
Optical Services 525     525     1,900     1,726  
Total $ 58,863     $ 26,971     $ 174,425     $ 77,860  
               
General and administrative $ (12,179 )   $ (7,000 )   $ (37,424 )   $ (20,859 )
Gain (loss) on disposal or impairment of long-lived assets, net (1,161 )   8     1,522     (110 )
Loss on debt extinguishment             (1,975 )
Merger transaction and integration costs (1,249 )   (325 )   (14,897 )   (442 )
Operating income $ 44,274     $ 19,654     $ 123,626     $ 54,474  

(4) Including the impact of the Symbion acquisition on a pro forma basis, amounts would be $50.3 million and $147.4 million for the three and nine months ended September 30, 2014, respectively.




SURGERY PARTNERS, INC.
Reconciliation of Non-GAAP Financial Measures
(Unaudited, Amounts in thousands)
 
    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2015   2014   2015   2014
Consolidated Statements of Operations Data (in thousands):                
Net income   $ 13,784     $ 430     $ 36,751     $ 9,713  
(Minus):                
Net income attributable to non-controlling interests   16,906     7,338     52,061     21,346  
Plus (minus):                
Provision for income tax expense   3,917     7,961     8,368     12,043  
Interest and other expense, net   26,573     11,263     78,507     32,718  
Depreciation and amortization   8,611     2,834     25,538     8,557  
EBITDA   35,979     15,150     97,103     41,685  
Plus:                
Management fee(5)   750     500     2,250     1,500  
Merger transaction and practice acquisition costs   1,541     325     15,189     442  
Non-cash stock compensation expense   426     114     1,279     342  
Loss on debt extinguishment               1,975  
Loss (gain) on disposal of investments and long-lived assets, net   1,161     (8 )   (1,522 )   110  
Adjusted EBITDA   $ 39,857     $ 16,081     $ 114,299     $ 46,054  

(5)Fee payable pursuant the Management and Investment Advisory Services Agreement between the Company and Bayside Capital, Inc.

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2015   2014   2015   2014
               
Pro Forma for IPO              
Net income (loss) per share attributable to common stockholders(7)              
Basic $ 0.04       $ (0.22     $ 0.00       $ (0.37  
Diluted (6) $ 0.04       $ (0.22     $ 0.00       $ (0.37  
Weighted average common shares outstanding:              
Basic   47,971,715         31,698,638         47,971,715         31,698,638    
Diluted (6)   48,156,990         31,698,638         48,156,990         31,698,638    

(6) The impact of potentially dilutive securities for the three and nine months ended September 30, 2014 was not considered because the effect would be anti-dilutive in each of those periods.
(7) Net income for the three and nine months ended September 30, 2015 has been adjusted for the interest expense impact of $5.2 million and $15.5 million, respectively, after the debt pay down with the IPO proceeds.

Contact

Teresa Sparks, CFO
Surgery Partners, Inc.
(615) 234-8940
IR@surgerypartners.com

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Surgery Partners