• Net Revenue: $770 million, growth of over 14% year-over-year.
• Same-Facility Net Revenue Growth: 4.2% in the third quarter.
• Surgical Case Volume Growth: 3.7% in the quarter.
• Adjusted EBITDA: $128.6 million, 22% growth, with margins at 16.7%.
• Total Joint Replacements Growth: 53% increase in ASCs during the quarter.
• Cash Position: $222 million at the end of the quarter.
• Operating Cash Flows: $65 million in the third quarter.
• Corporate Debt: $2.2 billion, with no maturities until 2030.
• Interest Rate: Fixed at approximately 6% through March 31, 2025.
• Net Debt-to-EBITDA Ratio: 3.8 times as per credit agreement.
• Full Year Revenue and EBITDA Outlook: Greater than $3.075 billion and $508 million, respectively.

• Warning! GuruFocus has detected 5 Warning Signs with SGRY.

Release Date: November 12, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Surgery Partners Inc (NASDAQ:SGRY) reported a net revenue of $770 million for the third quarter, representing a growth of over 14% compared to the previous year.
• Adjusted EBITDA grew by 22% to $128.6 million, with margins expanding by 100 basis points to 16.7%.
• The company experienced a significant increase in total joint replacements in their ASCs, with a 53% growth in the quarter.
• Surgery Partners Inc (NASDAQ:SGRY) successfully completed acquisitions in high-growth markets, including two multi-specialty orthopedic ASCs in Chicago.
• The company recruited over 230 new physicians in the third quarter, focusing on high acuity areas such as orthopedics, spine, and cardiology.

Negative Points

• Hurricane Helene and Hurricane Milton impacted several facilities, causing scheduling disruptions and some facility damage.
• Operating cash flows were affected by the timing of routine transactions and marginal impacts from the hurricanes.
• The company has a high level of corporate debt, totaling $2.2 billion, although there are no maturities until 2030.
• There was a decrease in operating cash flow compared to the previous year, attributed to increased transaction-related costs.
• The company noted challenges in the payer dynamics, although the impact was muted due to the nature of their business.

Q & A Highlights

Q: Can you elaborate on the factors affecting free cash flow this quarter and expectations for future cash generation? A: Wayne DeVeydt, Executive Chairman, explained that cash flow modeling is based on a static environment, including anticipated diligence and integration costs. The variability in cash flow is due to the pace and size of acquisitions, which can impact cash flow from quarter to quarter. David Doherty, CFO, added that operating cash flow was impacted by transaction-related costs and working capital fluctuations, including the timing of payroll and payer dynamics.

Q: How does the surgical hospital strategy fit into your overall business model? A: J. Eric Evans, CEO, clarified that their surgical hospitals are elective-focused facilities with minimal ER visits, serving as a basis for an ecosystem that supports ASCs. These hospitals allow physicians to partner across the acuity spectrum, enhancing their ability to treat patients within the partnership.

Q: Was there any impact on volumes due to the hurricanes in the third and fourth quarters? A: David Doherty, CFO, noted that the hurricanes had a marginal impact, affecting the Southeast region in the last week of the quarter. While one facility sustained damage, most have reopened, with only a minor impact on revenue and cases.

Q: How does the shift to higher acuity procedures like joint replacements affect volume and pricing trends? A: Wayne DeVeydt, Executive Chairman, stated that higher acuity procedures require more OR time but yield higher revenues. The growth algorithm remains at 2-3% for both volume and rate, with consistent outperformance historically. The shift to higher acuity settings is expected to continue without affecting long-term growth metrics.

Q: Can you clarify expectations around free cash flow for the year? A: Wayne DeVeydt, Executive Chairman, explained that the static nature of cash flow modeling does not reflect the dynamic nature of capital deployment. The company has moved away from providing a specific free cash flow target due to the variability in M&A activity and integration costs.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.