Surgery Partners, Inc. Announces Third Quarter 2017 Results

November 8, 2017

Integration with National Surgical Healthcare Progressing as Planned; Near-Term Initiatives Set to Drive Growth

NASHVILLE, Tenn., Nov. 08, 2017 (GLOBE NEWSWIRE) -- Surgery Partners, Inc. (NASDAQ:SGRY) ("Surgery Partners" or the "Company"), a leading provider of surgical services, today announced results for the third quarter ended September 30, 2017.

  • Revenues increased 8.4% compared to third quarter 2016 to $306.3 million
  • Normalized same-facility revenues increased 2.9% compared to third quarter 2016
  • Net loss before income taxes was $19.2 million compared to income before income taxes of $12.6 million in the third quarter 2016
  • Normalized Adjusted EBITDA was $43.1 million, compared to $44.7 million in the third quarter 2016
  • Diluted EPS of $(0.66) per share compared to $(0.05) per share in the third quarter 2016

“Although the quarter and near term outlook were impacted by certain industry headwinds and the recent hurricanes, with the integration of NSH we move towards 2018 with a larger, more diversified business focused on delivering high quality, cost effective surgical procedures to a growing number of patients, payors and providers.  While we were pleased to see normalized same-facility revenue growth over the prior year, we have launched specific initiatives to accelerate same-facility case growth, and improve margins including implementing procurement optimization programs. We are confident we will enter 2018 with a stronger business capable of delivering improved, sustainable long-term financial performance,” said Clifford Adlerz, Interim CEO of Surgery Partners.

Adlerz added, “We continue to believe that the trend in surgical procedures moving towards high quality, more cost-effective settings remains a long-term growth driver for Surgery Partners. The Company remains well capitalized to take advantage of the underlying trends in the industry and fund both organic growth initiatives and accretive acquisitions.  To further advance our leadership position in the industry, we will remain focused on providing high quality, cost effective solutions for surgical procedures and continue our focus on identifying opportunities to optimize our business.”

As of September 30, 2017, the Company owned or operated 124 surgical facilities primarily in partnership with physicians and, on a select basis, physicians and health systems, in addition to a network of 60 physician practices.

Third Quarter 2017 Results

Total revenues for the third quarter of 2017 increased 8.4% to $306.3 million from $282.7 million for the third quarter of 2016. On a normalized basis and including the pro forma effect of the NSH acquisition, same-facility revenues for the third quarter of 2017 increased 2.9% over the same period last year. Same facility revenue per case increased 3.3% and same facility cases decreased 0.3%.

For the third quarter of 2017, the Company’s net loss attributable to Surgery Partners was $13.6 million compared to $2.3 million for the same period last year. For the third quarter of 2017, the Company's Normalized Adjusted EBITDA was $43.1 million compared to $44.7 million for the same period last year.

Year to Date 2017 Results

Total revenues year to date 2017 increased 4.9% to $880.9 million from $839.4 million for the same period last year. On a normalized basis and including the pro forma effect of the NSH acquisition, same facility revenues increased 5.7% year to date. Year to date, same facility revenue per case increased 4.3% and same facility cases increased 1.3%.

.For year to date 2017, the Company’s net loss attributable to Surgery Partners was $20.8 million compared to $7.4 million for the same period last year. For year to date 2017, the Company's Normalized Adjusted EBITDA was $120.3 million compared to $129.2 million for the same period last year.

Liquidity

Surgery Partners had cash and cash equivalents of $199.7 million at September 30, 2017 and $75 million of undrawn revolver capacity. Net operating cash flow, including operating cash flow less distributions to non-controlling interests and adjusting for merger related and tax receivable payments of $15.2 million, was $5.3 million for the third quarter of 2017. The Company’s ratio of total debt to EBITDA at the end of the third quarter of 2017, as calculated under the Company’s credit agreement, was 6.8x.

Full Year 2017 Guidance

For 2017, as a result of the continuation of broader industry softness related to residual effects of the hurricanes as well as the ongoing impact of slower volumes and a less favorable payor mix, the Company’s 2017 guidance ranges for the year have been updated from the range issued in our second quarter earnings press release. Including the partial year impact of the NSH acquisition, which is performing as anticipated, revenue is now expected in the range of $1.30 billion to $1.33 billion and Adjusted EBITDA in the range of $178 million to $185 million which includes the normalization for the impact of hurricanes and the reserve adjustment.

Conference Call Information

Surgery Partners will hold its conference call tomorrow, November 9, 2017 at 8:30 a.m. (Eastern Time). The conference call can be accessed live over the phone by dialing 1-877-300-8521, or for international callers, 1-412-317-6026. 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 10114089. The replay will be available until November 23, 2017.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the Investor Relations section of the Company's website at www.surgerypartners.com. The on-line replay will remain available for a limited time beginning immediately following the call.

To learn more about Surgery Partners, please visit the Company's website at www.surgerypartners.com. Surgery Partners uses its website as a channel of distribution for material Company information. Financial and other material information regarding Surgery Partners is routinely posted on the Company's website and is readily accessible.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements, which have been included in reliance of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, involve risks and uncertainties and assumptions relating to our operations, financial condition, business, prospects, growth strategy and liquidity, which may cause our actual results to differ materially from those projected by such forward-looking statements, and the Company cannot give assurances that such statements will prove to be correct. You can identify forward-looking statements because they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of future operating or financial performance or other events.

The forward-looking statements appear in a number of places throughout this press release and include statements regarding our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties, including but not limited to those risks and uncertainties described in “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2017 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: 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.

About Surgery Partners

Headquartered in Nashville, Tennessee, Surgery Partners is a leading healthcare services company with a differentiated outpatient delivery model focused on providing high quality, cost effective solutions for surgical and related ancillary care in support of both patients and physicians. Founded in 2004, Surgery Partners is one of the largest and fastest growing surgical services businesses in the country, with more than 150 locations in 29 states, including ambulatory surgery centers, 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,
    2017   2016   2017   2016
                 
Revenues   $ 306,337     $ 282,682     $ 880,873     $ 839,437  
Operating expenses:                
Salaries and benefits   103,024     85,724     282,933     266,401  
Supplies   83,106     65,907     228,350     196,484  
Professional and medical fees   25,483     20,856     69,185     60,813  
Lease expense   16,061     13,204     43,361     38,712  
Other operating expenses   19,022     15,703     51,267     44,539  
Cost of revenues   246,696     201,394     675,096     606,949  
General and administrative expenses (1)   20,378     14,985     54,574     42,205  
Depreciation and amortization   10,929     9,713     33,454     28,984  
Provision for doubtful accounts   8,524     8,514     19,987     15,931  
Income from equity investments   (1,608 )   (1,167 )   (3,860 )   (3,007 )
Loss on disposal or impairment of long-lived assets, net   447     572     2,048     1,697  
Merger transaction and integration costs   5,326     1,864     8,567     6,361  
Loss on debt refinancing   18,211     3,595     18,211     11,876  
Gain on litigation settlement           (3,794 )    
Gain on acquisition escrow   (1,000 )       (1,000 )    
Electronic health records incentive expense (income)   4     364     (298 )   269  
Other (income) expense           (2 )   97  
Total operating expenses   307,907     239,834     802,983     711,362  
Operating income (loss)   (1,570 )   42,848     77,890     128,075  
Gain on amendment to tax receivable agreement   16,392         16,392      
Tax receivable agreement expense       (3,733 )       (3,733 )
Interest expense, net   (34,030 )   (26,475 )   (84,812 )   (74,863 )
(Loss) income before income taxes   (19,208 )   12,640     9,470     49,479  
Income tax (benefit) expense   (20,929 )   (1,694 )   (18,300 )   2,496  
Net (loss) income   1,721     14,334     27,770     46,983  
Less: Net income attributable to non-controlling interests   (15,305 )   (16,672 )   (48,579 )   (54,392 )
Net loss attributable to Surgery Partners, Inc.   $ (13,584 )   $ (2,338 )   $ (20,809 )   $ (7,409 )
                 
Net loss per share attributable to common stockholders (2)                
Basic   $ (0.66 )   $ (0.05 )   $ (0.81 )   $ (0.15 )
Diluted (3)   $ (0.66 )   $ (0.05 )   $ (0.81 )   $ (0.15 )
Weighted average common shares outstanding                
Basic   48,203,265     48,019,652     48,143,359     48,018,706  
Diluted (3)   48,203,265     48,019,652     48,143,359     48,018,706  

(1) Includes contingent acquisition compensation expense of $1.8 million and $1.5 million for the three months ended September 30, 2017 and 2016, respectively, and $5.7 million and $3.1 million for the nine months ended September 30, 2017 and 2016, respectively.

(2) Earnings per share reflects the reduction of net loss to common shareholders of a preferred dividend of $2.6 million and a redemption adjustment of $15.6 million allocated to the participating securities.

(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. 
Unaudited Selected Financial and Operating Data
(Amounts in thousands, except shares and per share amounts)
 
  September 30, 2017   December 31, 2016
       
Balance Sheet Data (at period end):      
Cash and cash equivalents $ 199,701     $ 69,699  
Total current assets 573,659     361,955  
Total assets 4,601,854     2,304,958  
       
Current maturities of long-term debt 48,472     27,822  
Total current liabilities 275,012     186,725  
Long-term debt, less current maturities 2,144,862     1,414,421  
Total liabilities 2,624,421     1,799,763  
       
Total Surgery Partners, Inc. stockholders' equity 695,402     9,677  
Non-controlling interests-non-redeemable 683,733     314,997  
Total stockholders' equity 1,379,135     324,674  

 

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2017   2016   2017   2016
               
Cash Flow Data:              
Net cash provided by (used in):              
Operating activities $ 10,025     $ 18,826     $ 66,496     $ 92,863  
Investing activities (718,364 )   (21,028 )   (747,559 )   (154,395 )
Capital expenditures (5,511 )   (8,027 )   (20,613 )   (28,377 )
Investments in new businesses (712,853 )   (13,001 )   (727,016 )   (126,018 )
Financing activities 851,006     5,812     811,065     58,808  
Distributions to non-controlling interests (19,946 )   (17,081 )   (56,787 )   (49,443 )

 

  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  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 109     93     109     93  
               
Revenues $ 306,337     $ 282,682     $ 880,873     $ 839,437  
Cases 111,674     106,821     332,261     315,508  
Revenue per case $ 2,743     $ 2,646     $ 2,651     $ 2,661  
Normalized Revenues $ 329,909     $ 282,682     $ 904,445     $ 839,437  
Adjusted EBITDA $ 23,244     $ 44,748     $ 100,406     $ 129,205  
Adjusted EBITDA as a % of revenues 7.6 %   15.8 %   11.4 %   15.4 %
Normalized Adjusted EBITDA $ 43,112     $ 44,748     $ 120,274     $ 129,205  
Normalized Adjusted EBITDA as a % of revenues 14.1 %   15.8 %   13.7 %   15.4 %
Adjusted EPS- Basic (0.02 )   0.21     0.01     0.48  
Adjusted EPS- Diluted (0.02 )   0.21     0.01     0.47  

 

SURGERY PARTNERS, INC. 
Supplemental Information
(Unaudited, in thousands, except cases and growth rates)
 
  Three Months Ended
September 30,
  Nine Months Ended
September 30,
  2017   2016   2017   2016
Same-facility Information:              
Cases (3) (4) 138,798     139,247     410,331     405,051  
Case growth (0.3 )%   N/A     1.3 %   N/A  
Revenue per case (3) (4) $ 3,245     $ 3,143     $ 3,263     $ 3,128  
Revenue per case growth 3.3 %   N/A     4.3 %   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 both the three and nine months ended September 30, 2017.

    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2017   2016   2017   2016
Segment Revenues:                
Surgical facility services   $ 293,360     $ 256,795     $ 814,320     $ 766,248  
Ancillary services   10,184     22,684     58,036     62,967  
Optical services   2,793     3,203     8,517     10,222  
Total revenues   $ 306,337     $ 282,682     $ 880,873     $ 839,437  
                                 

 

    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2017   2016   2017   2016
Adjusted EBITDA:                
Surgical facility services   $ 48,673     $ 53,347     $ 146,859     $ 153,318  
Ancillary services   (12,002 )   2,573     (7,791 )   9,141  
Optical services   748     1,276     2,407     3,004  
All other   (14,175 )   (12,448 )   (41,069 )   (36,258 )
Total adjusted EBITDA   23,244     44,748     100,406     129,205  
                         
                         

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
September 30,
  Nine Months Ended
September 30,
    2017   2016   2017   2016
Condensed Consolidated Statements of Operations Data:                
Revenues   $ 306,337     $ 282,682     $ 880,873     $ 839,437  
Hurricane estimated impact   8,000         8,000      
Reserve adjustment   15,572         15,572      
Normalized Revenues   $ 329,909     $ 282,682     $ 904,445     $ 839,437  
                                 

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
September 30,
  Nine Months Ended
September 30,
    2017   2016   2017   2016
                 
Normalized Adjusted EBITDA   $ 43,112     $ 44,748     $ 120,274     $ 129,205  
Hurricane estimated impact   (5,000 )       (5,000 )    
Reserve adjustment   (14,868 )       (14,868 )    
Adjusted EBITDA (5)   23,244     44,748     100,406     129,205  
                 
Net income attributable to non-controlling interests   15,305     16,672     48,579     54,392  
Depreciation and amortization   (10,929 )   (9,713 )   (33,454 )   (28,984 )
Interest expense, net   (34,030 )   (26,475 )   (84,812 )   (74,863 )
Non-cash stock compensation expense   (3,311 )   (691 )   (5,380 )   (1,326 )
Contingent acquisition compensation expense   (1,815 )   (1,530 )   (5,662 )   (3,060 )
Merger transaction, integration and practice acquisition costs (6)   (6,406 )   (2,471 )   (11,134 )   (8,579 )
Gain on litigation settlement           3,794      
Gain on acquisition escrow   1,000         1,000      
Loss on disposal or impairment of long-lived assets, net   (447 )   (572 )   (2,048 )   (1,697 )
Gain on amendment to tax receivable agreement   16,392         16,392      
Tax receivable agreement expense       (3,733 )       (3,733 )
Loss on debt refinancing   (18,211 )   (3,595 )   (18,211 )   (11,876 )
Income before income taxes   $ (19,208 )   $ 12,640     $ 9,470     $ 49,479  
                                 

(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, plus (h) loss on disposal or impairment of long-lived assets and (i) 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 its 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.

(6) This amount includes merger transaction and integration costs of $5.3 million and $1.9 million for the three months ended September 30, 2017 and 2016, respectively, and practice acquisition costs of $1.1 million and $607,000 for the three months ended September 30, 2017 and 2016, respectively.

This amount includes merger transaction and integration costs of $8.6 million and $6.4 million for the nine months ended September 30, 2017 and 2016, respectively, and practice acquisition costs of $2.6 million and $2.2 million for the nine months ended September 30, 2017 and 2016, respectively.

 

SURGERY PARTNERS, INC.
Reconciliation of Non-GAAP Financial Measures
(Unaudited, Amounts in thousands)

From time to time, the Company incurs certain non-recurring gains or losses that are normally nonoperational in nature and that it does not consider relevant in assessing its ongoing operating performance. When significant, Surgery Partners’ management and Board of Directors typically exclude these gains or losses when evaluating the Company’s operating performance and in certain instances when evaluating performance for incentive compensation purposes. Additionally, the Company believes that certain investors and equity analysts exclude these or similar items when evaluating the Company’s current or future operating performance and in making informed investment decisions regarding the Company. Accordingly, the Company provides adjusted net income per share attributable to Surgery Partners, Inc. stockholders as a supplement to its comparable GAAP measure of net income per share attributable to Surgery Partners, Inc. Adjusted net income per share attributable to Surgery Partners, Inc. stockholders should not be considered a measure of financial performance under GAAP, and the items excluded from adjusted net income per share attributable to Surgery Partners, Inc. stockholders are significant components in understanding and assessing financial performance. Adjusted net income per share attributable to Surgery Partners, Inc. stockholders should not be considered in isolation or as an alternative to net income per share attributable to Surgery Partners, Inc. stockholders as presented in the consolidated financial statements.

The following table reconciles net income as reflected in the consolidated statements of operations to adjusted net income used to calculate adjusted net income per share attributable to Surgery Partners, Inc. stockholders:

    Three Months Ended
September 30,
  Nine Months Ended
September 30,
    2017   2016   2017   2016
Consolidated Statements of Operations Data:                
Net Income   $ 1,721     $ 14,334     $ 27,770     $ 46,983  
Less:                
Net income attributable to non-controlling interests   15,305     16,672     48,579     54,392  
Plus:                
Non-cash stock compensation expense   3,311     691     5,380     1,326  
Contingent acquisition compensation expense   1,815     1,530     5,662     3,060  
Merger transaction, integration and practice acquisition costs   6,406     2,471     11,134     8,579  
Gain on litigation settlement           (3,794 )    
Gain on acquisition escrow   (1,000 )       (1,000 )    
Loss on disposal or impairment of long-lived assets, net   447     572     2,048     1,697  
Gain on amendment to tax receivable agreement   (16,392 )       (16,392 )    
Tax receivable agreement expense       3,733         3,733  
Loss on debt refinancing   18,211     3,595     18,211     11,876  
Adjusted net (loss) income   $ (786 )   $ 10,254     $ 440     $ 22,862  
                 
Adjusted net (loss) income per share (6)                
Basic   $ (0.02 )   $ 0.21     $ 0.01     $ 0.48  
Diluted (7)   $ (0.02 )   $ 0.21     $ 0.01     $ 0.47  
Weighted average common shares outstanding:                
Basic   48,203,265     48,019,652     48,143,359     48,018,706  
Diluted (7)   48,203,265     48,329,783     48,250,051     48,197,585  

(6) Adjusted net loss per share during the three and nine months ended September 30, 2017 excludes the impact of the preferred dividend of $2.6 million and a redemption adjustment of $15.6 million allocated to the participating securities.
(7) The impact of potentially dilutive securities for the three and nine months ended September 30, 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 condensed 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 November 9, 2017, 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 three and nine months ended September 30, 2017 presented above, to the Successor and Predecessor periods:

    Successor       Predecessor
    September 1
to September 30,
      July 1 to
August 31,
  January 1
to August 31,
    2017       2017   2017
                 
Revenues   $ 132,258         $ 174,079     $ 748,615  
Operating expenses:                
Salaries and benefits   41,784         61,240     241,149  
Supplies   35,028         48,078     193,322  
Professional and medical fees   11,254         14,229     57,931  
Lease expense   6,858         9,203     36,503  
Other operating expenses   8,000         11,022     43,267  
Cost of revenues   102,924         143,772     572,172  
General and administrative expenses (1)   7,777         12,601     46,797  
Depreciation and amortization   3,330         7,599     30,124  
Provision for doubtful accounts   3,690         4,834     16,297  
Income from equity investments   (712 )       (896 )   (3,148 )
Loss on disposal or impairment of long-lived assets, net   333         114     1,715  
Merger transaction and integration costs   2,983         2,343     5,584  
Loss on debt refinancing           18,211     18,211  
Gain on litigation settlement               (3,794 )
Gain on acquisition escrow release           (1,000 )   (1,000 )
Electronic health records incentive expense (income)   7         (3 )   (305 )
Other (income) expense               (2 )
Total operating expenses   120,332         187,575     682,651  
Operating income (loss)   11,926         (13,496 )   65,964  
Gain on amendment to tax receivable agreement   1,098         15,294     15,294  
Tax receivable agreement expense                
Interest expense, net   (15,883 )       (18,147 )   (68,929 )
(Loss) income before income taxes   (2,859 )       (16,349 )   12,329  
Income tax (benefit) expense   (211 )       (20,718 )   (18,089 )
Net (loss) income   (2,648 )       4,369     30,418  
Less: Net income attributable to non-controlling interests   (6,492 )       (8,813 )   (42,087 )
Net loss attributable to Surgery Partners, Inc.   $ (9,140 )       $ (4,444 )   $ (11,669 )
                 
Net loss per share attributable to common stockholders (2)                
Basic   $ (0.57 )       $ (0.09 )   $ (0.24 )
Diluted (3)   $ (0.57 )       $ (0.09 )   $ (0.24 )
Weighted average common shares outstanding                
Basic   48,314,746         48,146,611     48,121,404  
Diluted (3)   48,314,746         48,146,611     48,121,404  
                       

The following table reconciles the selected cash flow data for the three and nine months ended September 30, 2017 as presented above to the Successor and Predecessor periods:

    Successor       Predecessor
    September 1
to September 30,
      July 1 to
August 31,
  January 1
to August 31,
    2017       2017   2017
                 
Cash Flow Data:                
Net cash provided by (used in):                
Operating activities   $ (1,222 )       $ 11,247     $ 67,718  
Investing activities   (3,003 )       (715,361 )   (744,556 )
Capital expenditures   (1,840 )       (3,671 )   (18,773 )
Investments in new businesses   (1,163 )       (711,690 )   (725,853 )
Financing activities   (10,280 )       861,286     821,345  
Distributions to non-controlling interests   (6,444 )       (13,502 )   (50,343 )
                       

The following table reconciles the segment revenues for the three and nine months ended September 30, 2017 as presented above to the Successor and Predecessor periods:

    Successor       Predecessor
    September 1
to September 30,
      July 1 to
August 31,
  January 1
to August 31,
    2017       2017   2017
Revenues:                
Surgical facility services   $ 125,595         $ 167,765     $ 688,725  
Ancillary services   5,775         4,409     52,261  
Optical services   888         1,905     7,629  
Total revenues   $ 132,258         $ 174,079     $ 748,615  
 

The following table reconciles the segment Adjusted EBITDA table for the three and nine months ended September 30, 2017 as presented above to the Successor and Predecessor periods:

    Successor       Predecessor
    September 1
to September 30,
      July 1 to
August 31,
  January 1
to August 31,
    2017       2017   2017
Adjusted EBITDA:                
Surgical facility services   $ 20,947         $ 27,726     $ 125,912  
Ancillary services   (1,265 )       (10,737 )   (6,526 )
Optical services   193         555     2,214  
All other   (5,033 )       (9,142 )   (36,036 )
Total Adjusted EBITDA   14,842         8,402     85,564  
                 
Net income attributable to non-controlling interests   6,492         8,813     42,087  
Depreciation and amortization   (3,330 )       (7,599 )   (30,124 )
Interest expense, net   (15,883 )       (18,147 )   (68,929 )
Non-cash stock compensation expense   (1,683 )       (1,628 )   (3,697 )
Contingent acquisition compensation expense   (605 )       (1,210 )   (5,057 )
Merger transaction, integration and practice acquisition costs (1)   (3,457 )       (2,949 )   (7,677 )
Gain on litigation settlement               3,794  
Gain on acquisition escrow release           1,000     1,000  
Loss on disposal or impairment of long-lived assets, net   (333 )       (114 )   (1,715 )
Gain on amendment to tax receivable agreement   1,098         15,294     15,294  
Tax receivable agreement expense                
Loss on debt refinancing           (18,211 )   (18,211 )
(Loss) income before income taxes   $ (2,859 )       $ (16,349 )   $ 12,329  

(1) This amount includes merger transaction and integration costs of $3.0 million for the one month ended September 30, 2017 (Successor), $2.3 million and $5.6 million for the two and eight months ended August 31, 2017 (Predecessor), respectively.

This amount includes practice acquisition costs of $474,000 for the one month ended September 30, 2017 (Successor), $606,000 and $2.1 million for the two and eight months ended August 31, 2017 (Predecessor), respectively.

 

Contact

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

 

Source: Surgery Partners, Inc.