Surgery Partners Inc. Earnings Call: Mixed Results and Revised Guidance

Surgery Partners Inc. ((SGRY)) has held its Q3 earnings call. Read on for the main highlights of the call.

The recent earnings call of Surgery Partners Inc. painted a mixed picture, reflecting both achievements and challenges. On the positive side, the company reported solid revenue and EBITDA growth, alongside strong performance in surgical cases and significant capital deployment in growth areas. However, the call also highlighted challenges such as softer than expected volume growth, unfavorable payer mix changes, delayed capital deployment, and regulatory delays impacting new facilities. These issues have led to a revision in the full-year guidance.

Revenue and EBITDA Growth

Surgery Partners Inc. reported net revenue of $821.5 million, marking a 6.6% increase year over year. The adjusted EBITDA was $136.4 million, a 6.1% rise compared to the previous year, with an adjusted EBITDA margin of 16.6%. This growth underscores the company’s ability to enhance its financial performance despite facing market challenges.

Strong Surgical Case Growth

The company performed over 166,000 surgical cases in the third quarter, representing a 2.1% growth. Notably, there was significant growth in orthopedic procedures, with total joint surgeries in Ambulatory Surgery Center (ASC) facilities growing 16% in the third quarter and 23% year-to-date. This indicates a robust demand for surgical services, particularly in higher acuity specialties.

Capital Deployment in Growth

Surgery Partners deployed approximately $71 million for acquisitions and maintained a robust M&A pipeline with over $300 million in opportunities under active evaluation. This strategic capital deployment is aimed at expanding the company’s footprint and enhancing its service offerings.

De Novo Facility Expansion

Two new de novo facilities were opened in the third quarter, with nine under construction and more than a dozen in the development pipeline. These facilities are primarily focused on higher acuity specialties like orthopedics, which aligns with the company’s growth strategy.

Cost Management and Efficiency

The company achieved a reduction in supply costs by 70 basis points and decreased G&A expenses, reflecting lower stock-based and incentive-based compensation. This focus on cost management is crucial for maintaining profitability amidst external pressures.

Softer Than Expected Volume Growth

Same facility volume growth trailed internal expectations, prompting a revision of the fourth quarter outlook. This softer volume growth is a concern as it impacts the company’s ability to meet its financial targets.

Payer Mix Challenges

The earnings call highlighted a shift in payer mix, with commercial payers representing 50.6% of revenues, down 160 basis points year over year, while governmental sources increased by 120 basis points. This shift poses a challenge to revenue streams and profitability.

Delayed Capital Deployment

Year-to-date capital deployment for acquisitions is below the target, impacting in-year earnings contributions. This delay in capital deployment could hinder the company’s growth initiatives and financial performance.

Regulatory Delays in De Novo Facilities

Some newly opened de novo facilities have not reached breakeven due to construction and regulatory approval delays, creating near-term pressure on earnings. These delays are a critical concern for the company’s expansion plans.

Revised Full-Year Guidance

Surgery Partners revised its full-year revenue guidance to $3.275 to $3.3 billion and adjusted EBITDA to $535 million to $540 million. This revision is due to timing-related impacts of capital activity and a cautious outlook on commercial payer mix and volume.

In conclusion, the earnings call of Surgery Partners Inc. reflected a mixed sentiment, with notable achievements in revenue and surgical case growth, but also significant challenges in volume growth and payer mix. The company’s strategic focus on capital deployment and facility expansion is evident, yet regulatory and market pressures necessitate a cautious outlook moving forward.