Surgery Partners(SGRY) - 2024 Q1 - Quarterly Results

First Quarter 2024 Financial Highlights and Outlook This report details Surgery Partners' strong Q1 2024 financial and operational performance, including revenue and Adjusted EBITDA growth, improved liquidity, and an increased full-year outlook, supported by strategic acquisitions and capital market activities Management Commentary Executive leadership highlighted strong Q1 2024 growth in revenue and Adjusted EBITDA, surpassing internal expectations due to clinical quality, operational execution, physician recruitment, and strategic acquisitions - Strong Q1 growth was driven by a combination of operational execution, physician recruiting, and strategic acquisitions, with same-facility revenue growth exceeding 10%[2] - The company recently closed on several acquisitions, including a large system with a specialty surgery hospital, which supports the decision to raise 2024 guidance[2] - Multiple capital market transactions were completed to enhance the balance sheet, resulting in no material debt maturities until 2030 and capped interest rate exposure[2] First Quarter 2024 Performance Surgery Partners reported a 7.7% increase in total revenues to $717.4 million and an 8.2% growth in Adjusted EBITDA to $97.5 million for Q1 2024, driven by strong same-facility revenue growth of 10.2% Overall Financial Results In Q1 2024, Surgery Partners achieved revenues of $717.4 million, up 7.7% year-over-year, with Adjusted EBITDA growing 8.2% to $97.5 million and a net loss attributable to Surgery Partners, Inc. of $12.4 million Q1 2024 Key Financial Metrics | Metric | Q1 2024 | Q1 2023 | Change | | :--- | :--- | :--- | :--- | | Revenues | $717.4M | $666.2M | +7.7% | | Adjusted EBITDA | $97.5M | $90.1M | +8.2% | | Adjusted EBITDA Margin | 13.6% | 13.5% | +0.1 p.p. | | Net Loss Attributable to SGRY | ($12.4M) | ($24.9M) | Improvement | Operational Metrics Same-facility revenue grew robustly by 10.2% year-over-year, primarily fueled by an 8.8% increase in revenue per case, with total cases rising to 153,392 Q1 2024 Same-Facility Performance vs. Q1 2023 | Metric | Growth Rate | | :--- | :--- | | Same-Facility Revenues | 10.2% | | Same-Facility Revenue per Case | 8.8% | | Same-Facility Cases | 1.3% | Segment Performance The Surgical Facility Services segment was the primary driver of growth, with revenues increasing to $692.7 million and Adjusted EBITDA rising to $126.7 million, while Ancillary Services also showed strong revenue growth Segment Revenues (Q1 2024 vs Q1 2023, $ in millions) | Segment | Q1 2024 Revenue | Q1 2023 Revenue | | :--- | :--- | :--- | | Surgical Facility Services | $692.7M | $649.0M | | Ancillary Services | $24.7M | $17.2M | Segment Adjusted EBITDA (Q1 2024 vs Q1 2023, $ in millions) | Segment | Q1 2024 Adj. EBITDA | Q1 2023 Adj. EBITDA | | :--- | :--- | :--- | | Surgical Facility Services | $126.7M | $118.8M | | Ancillary Services | ($1.4M) | ($1.4M) | Financial Position and Liquidity As of March 31, 2024, Surgery Partners maintained a solid liquidity position with $185.2 million in cash and cash equivalents and $607.3 million available under its revolving credit facility, with a net leverage ratio of approximately 3.5x - At the end of Q1 2024, the company had cash and cash equivalents of $185.2 million and a borrowing capacity of $607.3 million under its revolver[4] - Cash flow from operating activities was $40.7 million, compared to $74.5 million in Q1 2023, with the decrease due to the timing of collections expected to be received in Q2/Q3 2024[4] - The ratio of total net debt to EBITDA, per the company's credit agreement, was approximately 3.5x[5] Full Year 2024 Outlook Following a strong start to the year, Surgery Partners raised its full-year 2024 financial guidance, projecting revenues of at least $3.05 billion and Adjusted EBITDA of at least $505 million Raised Full Year 2024 Guidance | Metric | Updated 2024 Guidance | | :--- | :--- | | Revenues | At least $3.05 billion | | Adjusted EBITDA | At least $505 million | Consolidated Financial Statements This section presents the unaudited consolidated financial statements for the three months ended March 31, 2024, including the statement of operations, selected balance sheet data, and the statement of cash flows Consolidated Statements of Operations For the first quarter of 2024, the company reported operating income of $76.0 million, a substantial increase from $46.4 million in the prior-year period, resulting in a net loss attributable to Surgery Partners, Inc. of $12.4 million Q1 2024 Income Statement Highlights ($ in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Revenues | $717.4 | $666.2 | | Operating Income | $76.0 | $46.4 | | Net Income | $24.3 | $1.2 | | Net Loss Attributable to SGRY | ($12.4) | ($24.9) | | Diluted EPS | ($0.10) | ($0.20) | Selected Balance Sheet Data As of March 31, 2024, Surgery Partners' balance sheet showed total assets of nearly $7.0 billion and total liabilities of $3.6 billion, with total stockholders' equity of approximately $3.0 billion Balance Sheet Data as of March 31, 2024 ($ in millions) | Account | Amount | | :--- | :--- | | Cash and cash equivalents | $185.2 | | Total assets | $6,975.6 | | Long-term debt, less current maturities | $2,793.8 | | Total liabilities | $3,614.0 | | Total Surgery Partners, Inc. stockholders' equity | $1,967.3 | Consolidated Statements of Cash Flows For the first quarter of 2024, net cash provided by operating activities was $40.7 million, while the company used $83.1 million in investing activities and generated $31.7 million from financing activities Q1 2024 Cash Flow Summary ($ in millions) | Activity | Cash Flow | | :--- | :--- | | Net cash from Operating activities | $40.7 | | Net cash used in Investing activities | ($83.1) | | Net cash from Financing activities | $31.7 | Reconciliation of Non-GAAP Financial Measures This section provides detailed reconciliations of the company's non-GAAP financial measures to their most directly comparable GAAP counterparts, clarifying adjustments for key metrics like Adjusted EBITDA, Free Cash Flow, and Adjusted Net Income Reconciliation of Adjusted EBITDA Adjusted EBITDA for Q1 2024 was calculated to be $97.5 million, derived from GAAP income before income taxes with adjustments for interest expense, depreciation, amortization, transaction costs, and non-controlling interests Reconciliation to Adjusted EBITDA (Q1 2024, $ in millions) | Line Item | Amount | | :--- | :--- | | Income before income taxes | $28.7 | | Net income attributable to NCI | ($36.7) | | Interest expense, net | $47.3 | | Depreciation and amortization | $33.7 | | Transaction, integration and acquisition costs | $18.9 | | Adjusted EBITDA | $97.5 | Reconciliation of Free Cash Flow Free Cash Flow for Q1 2024 was negative $9.2 million, a notable decrease from the prior-year quarter, calculated by subtracting distributions to non-controlling interest holders and maintenance capital expenditures from net cash from operating activities Reconciliation to Free Cash Flow (Q1 2024, $ in millions) | Line Item | Amount | | :--- | :--- | | Net cash provided by operating activities | $40.7 | | Less: Maintenance capital expenditures | ($9.4) | | Less: Distributions to non-controlling interest holders | ($40.5) | | Free Cash Flow | ($9.2) | Reconciliation of Adjusted Net Income For Q1 2024, adjusted net income attributable to common stockholders was $12.1 million, resulting in an adjusted diluted EPS of $0.10, derived from GAAP net income by adjusting for non-controlling interests, equity-based compensation, and transaction costs Reconciliation to Adjusted Net Income (Q1 2024, $ in millions) | Line Item | Amount | | :--- | :--- | | Net income | $24.3 | | Net income attributable to NCI | ($36.7) | | Transaction, integration and acquisition costs | $18.9 | | Equity-based compensation expense | $4.9 | | Adjusted net income attributable to common stockholders | $12.1 | | Adjusted diluted EPS | $0.10 |