Financial Data and Key Metrics Changes - Surgery Partners reported first quarter net revenue of $776 million and adjusted EBITDA of $103.9 million, both meeting expectations. Adjusted EBITDA grew nearly 7% and net revenue grew 8% compared to the prior year's first quarter [4][16] - The company experienced same facility revenue growth of over 5%, driven by 6.5% surgical case growth, although there was a decline in rates of approximately 1% due to a shift towards lower acuity specialties [5][6] - The adjusted EBITDA margin for the first quarter was 13.4%, with total net debt to EBITDA ratio at 4.1 times, consistent with expectations [17][20] Business Line Data and Key Metrics Changes - The company performed over 160,000 surgical cases in the first quarter, a 4.5% increase from 2024, with significant growth in gastrointestinal (GI) and musculoskeletal (MSK) procedures [16][6] - Orthopedic cases grew by 3.4% year-over-year, with total joint procedures increasing by 22% [7][6] - The company added nearly 50 new physicians in the first quarter, with a focus on orthopedic specialties, which are expected to contribute to higher acuity surgical cases [8][56] Market Data and Key Metrics Changes - The company reported strong growth across all core specialties, particularly in GI and orthopedic procedures, which are expected to continue throughout the year [6][67] - The company has a robust pipeline of de novo facilities, with 10 currently under construction and a target of 10 new facilities each year [9][108] Company Strategy and Development Direction - Surgery Partners focuses on three pillars for growth: organic growth, margin improvement, and capital deployment for mergers and acquisitions (M&A) [3][10] - The company is committed to margin expansion through operational efficiencies and integration of acquired facilities, with a target of maintaining a leverage ratio below 3 times [20][84] - The company is actively monitoring regulatory changes and has minimal exposure to tariff-related price increases, with less than 5% of revenue coming from Medicaid and exchange-based reimbursement programs [13][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory and reaffirmed guidance for full-year 2025 revenue and adjusted EBITDA in the range of $3.3 billion to $3.45 billion and $555 million to $565 million, respectively [21][22] - The management noted that the first quarter's results align with internal expectations and highlighted the importance of physician recruitment and operational efficiencies in driving future growth [15][35] Other Important Information - Surgery Partners has sufficient liquidity, with $229 million in cash and over $615 million in total liquidity, to support growth without needing to access capital markets [17][20] - The company is currently evaluating a nonbinding acquisition proposal from Bain Capital, with a special committee formed to consider the proposal [14] Q&A Session Summary Question: Current utilization trends and sustainability - Management acknowledged tough comparisons due to pricing but noted that first quarter same store revenue growth was in line with expectations, driven by strong growth in de novos and MSK procedures [24][25] Question: Free cash flow generation seasonality - Management indicated that free cash flow is expected to improve as the year progresses, with the second and fourth quarters typically being stronger for cash flow generation [30][31] Question: Changes in payer mix and commercial rates - Management confirmed no significant changes in payer mix and expressed confidence in ongoing constructive negotiations with commercial payers [40][43] Question: Impact of professional fees and labor dynamics - Management clarified that professional fees were in line with expectations, primarily due to recent acquisitions, and noted no significant labor pressures affecting operations [51][52] Question: Physician recruiting and acuity service lines - Management reported a diverse recruiting class with a focus on higher acuity service lines, indicating a 14% increase in net revenue per physician compared to the previous year [56][57] Question: Impact of GI mix on revenue per case - Management noted slight growth in the GI portfolio, with a marginal impact on revenue per case, and emphasized the importance of calendar effects on same store metrics [61][62] Question: Confidence in tariff exposure - Management reiterated confidence in minimal tariff exposure due to strong relationships with suppliers and effective procurement strategies [70][74] Question: Timing of NCI payouts - Management explained that the increase in NCI payouts was due to timing issues related to the holiday calendar, which should normalize throughout the year [75][78]
Surgery Partners(SGRY) - 2025 Q1 - Earnings Call Transcript