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Surgery Partners(SGRY) - 2024 Q4 - Annual Report
SGRYSurgery Partners(SGRY)2025-03-07 02:32
Transcript

Financial Performance - Surgery Partners, Inc. reported net losses of 168.1million,168.1 million, 11.9 million, and 54.6millionfortheyears2024,2023,and2022,respectively,indicatingongoingchallengesinachievingprofitability[137].−Thecompany’sabilitytogeneratecashflowiscriticalforservicingitsdebt,andanyfailuretodosomayadverselyaffectitsfinancialcondition[140].−Thecompany’sfinancialconditionmaybeadverselyaffectedifitfailstocomplywithrestrictivecovenantsinitsdebtinstruments[145].−ThecompanyisexposedtosignificantfinancialpenaltiesundertheFalseClaimsActforanyfalseclaimssubmitted,whichcouldleadtotrebledamages[181].−Thecompany′sinsurancecoveragemaynotadequatelyprotectagainstallclaims,potentiallyimpactingfinancialconditionandoperationalresults[191].DebtandIndebtedness−AsofDecember31,2024,thecompanyhadapproximately54.6 million for the years 2024, 2023, and 2022, respectively, indicating ongoing challenges in achieving profitability[137]. - The company’s ability to generate cash flow is critical for servicing its debt, and any failure to do so may adversely affect its financial condition[140]. - The company’s financial condition may be adversely affected if it fails to comply with restrictive covenants in its debt instruments[145]. - The company is exposed to significant financial penalties under the False Claims Act for any false claims submitted, which could lead to treble damages[181]. - The company's insurance coverage may not adequately protect against all claims, potentially impacting financial condition and operational results[191]. Debt and Indebtedness - As of December 31, 2024, the company had approximately 3.4 billion in total indebtedness, including 1.4billioninseniorsecuredtermloansand1.4 billion in senior secured term loans and 800 million in senior unsecured notes due 2032[139]. - The company had 192millioninoutstandingborrowingsunderits192 million in outstanding borrowings under its 703.8 million senior secured revolving credit facility, leaving 501.5millionavailableforadditionalborrowings[139].−Thecompanymayincuradditionalindebtednessinthefuture,whichcouldexacerbateexistingrisksassociatedwithitsleverage[147].−Thecompanyisexposedtointerestrateriskduetovariablerateindebtedness,whichcouldincreasedebtserviceobligationsifinterestratesrise[153].−Thecompany’ssubsidiariesaresubjecttovariousbusinessconsiderationsandstatutoryrestrictionsthatmaylimitthedistributionofearningsnecessarytomeetdebtobligations[149].RegulatoryandComplianceRisks−Thecompanyissubjecttovariousfederalandstatelawsandregulations,whichcouldresultinsignificantpenaltiesoroperationalchangesifnotcompliedwith[164].−TheAffordableCareActhaschangedhowhealthcareservicesarecoveredandreimbursed,potentiallyimpactingthecompany′sfinancialconditionandoperations[169].−Violationsofself−referrallawscouldleadtocivilorcriminalpenalties,includingupto501.5 million available for additional borrowings[139]. - The company may incur additional indebtedness in the future, which could exacerbate existing risks associated with its leverage[147]. - The company is exposed to interest rate risk due to variable rate indebtedness, which could increase debt service obligations if interest rates rise[153]. - The company’s subsidiaries are subject to various business considerations and statutory restrictions that may limit the distribution of earnings necessary to meet debt obligations[149]. Regulatory and Compliance Risks - The company is subject to various federal and state laws and regulations, which could result in significant penalties or operational changes if not complied with[164]. - The Affordable Care Act has changed how healthcare services are covered and reimbursed, potentially impacting the company's financial condition and operations[169]. - Violations of self-referral laws could lead to civil or criminal penalties, including up to 15,000 per prohibited service billed and exclusion from Medicare and Medicaid programs[178]. - The company’s surgical facilities do not meet the requirements for safe harbors under the federal Anti-Kickback Statute, which could expose it to penalties and loss of revenue[173]. - The company is regularly subject to federal and state audits, which could result in material repayments and penalties[186]. Legal and Operational Challenges - The company faces potential legal liabilities from ongoing lawsuits and investigations, which could divert resources and negatively impact its business[188]. - The company’s surgical hospitals are restricted from expanding capacity due to the Affordable Care Act, limiting growth opportunities[179]. - The company’s management agreements may not fully comply with the Anti-Kickback Statute, posing risks of legal challenges[174]. - The company faces potential legal claims from former employees alleging violations of labor regulations, which could result in significant financial liabilities[189]. - Increasing malpractice and legal claims against healthcare providers may lead to substantial damages that are not fully covered by insurance[190]. Medicare and Quality Metrics - Compliance with Medicare's conditions is critical, as failure to meet quality metrics could result in reduced payments and significant penalties[193]. - The company is at risk of decreased Medicare payments if it fails to report and meet various quality metrics, which could affect patient volumes[195]. Ownership and Governance - As of December 31, 2024, Bain Capital owns approximately 39.3% of the company's outstanding common stock, influencing key decisions[199]. - The company's charter provisions may deter beneficial takeover efforts, impacting stockholder value[200]. Cybersecurity - Cybersecurity remains a priority, with the company experiencing an immaterial cybersecurity incident in May 2023 that temporarily disrupted operations in Idaho[158]. Interest Rate Management - The company utilizes interest rate swap and cap agreements to manage exposure to interest rate fluctuations, with no expected material effect on net earnings in 2025[292].