Surgery Partners(US:SGRY)2019-08-09 13:03Financial Data and Key Metrics Changes - The company reported adjusted revenues of $452.8 million for Q2 2019, reflecting a 2% increase compared to the prior year quarter [26] - Adjusted EBITDA for the quarter was $61.2 million, representing a 10.5% increase over Q2 2018, with adjusted EBITDA margins improving to 13.5%, a 100-basis point increase year-over-year [28][8] - Same facility revenue increased by 7.9% from the prior year quarter, driven by strong net revenue per case and volume growth [6][27] Business Line Data and Key Metrics Changes - Surgical cases totaled just over 133,000 in the quarter, up 1.2% from the prior year period, despite losses from closed or divested facilities [27] - The ancillary and optical segments showed slight revenue growth, but combined adjusted EBITDA from these segments remained stable compared to the prior year quarter [30] Market Data and Key Metrics Changes - The proposed 2020 Medicare fee schedule indicates increases for musculoskeletal procedures by approximately 2%, ophthalmology by approximately 3%, and gastrointestinal codes by approximately 1% [20] - The company anticipates a net increase of at least 2% based on its case mix if the proposed rates are finalized [20] Company Strategy and Development Direction - The company is focused on organic growth through physician recruitment, facility expansion, and innovative partnerships, aiming for sustainable double-digit adjusted EBITDA growth [5][9] - A notable partnership was established with UCLA and the Southern California Orthopedic Institute, enhancing the company's footprint in Southern California [17][18] - The company is strategically positioned to leverage its existing infrastructure for accelerated organic growth and margin expansion [15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving double-digit adjusted EBITDA growth for 2019 and beyond, citing strong performance in same facility growth and margin improvement [36][8] - The company is optimistic about the potential for new market opportunities arising from changes in Medicare coverage for high-acuity procedures [22][24] Other Important Information - The company ended Q2 2019 with cash balances of approximately $117 million and an undrawn revolving credit facility of nearly $116 million [31] - The total net debt to EBITDA ratio was approximately 7.8 times, slightly up due to higher debt from refinancing [33] Q&A Session Summary Question: What is the expected impact of seasonality on Q4 earnings? - Management indicated that approximately one-third of adjusted EBITDA is expected in Q4, influenced by seasonal volume and cost initiatives [38][39] Question: Why is the volume growth at the low end of long-term expectations despite physician recruitment efforts? - Management noted a compounding effect in volume growth and emphasized a focus on recruiting high-value specialties, which may result in fewer procedures but higher revenue per case [40][41][46] Question: What is the long-term target for same-store topline growth? - Management targets 4% to 6% growth, with a focus on achieving higher margins through improved acuity and specialty mix [86][88][90] Question: How does the company plan to address the elevated interest expense? - Management explained that the increase in interest expense is due to refinancing and provided an annualized estimate for principal and interest payments [61][62] Question: What is the company's strategy regarding commercial reimbursement? - Management is pursuing a multi-pronged strategy to improve reimbursement rates while maintaining independence from large health systems [102][104]