Surgery Partners (SGRY) 6 Aug 242024 Q2 Earnings call transcript

Good day, everyone, and welcome to today's program, Surgery Partners, Inc.

Second Quarter 2024 Earnings Call. [Operator Instructions] Please note, this call may be recorded. [Operator Instructions] It is now my pleasure to turn the conference over to CFO, Dave Doherty.

Good morning. Doherty, Surgery Dave is name CFO Partners. of My Evans, and Wayne joined today our CEO; Eric by I'm DeVeydt, our Executive Chairman.

does we surgerypartners.com. could with each available to press release During to risk statements. the factors are these SEC, call, will the The duty this statements. risk our not forward-looking update on this morning's in There statements. factors undertake These that are materially reports cause of forward-looking be results and company which described future any website, different from make are these we file

In prepared are not The should addition, be presentation we we useful reconciled accordance will measures Wayne. over non-GAAP, measure can information this in These Wayne? that, release. be GAAP applicable reference certain considered financial call results measures believe to most performance. of considered in that this will GAAP. in are morning's in press to I isolation our evaluating With as which or with substitute a the the turn for

you, for growth initial with a year. joining thank remarks. will balance highlight Eric the us you insights their I'll results consistency on long-term provide update the Dave. acquisition recent algorithm. refreshed our and outlook all of our for and then additional My will briefly our comments and brief today. Good activity of provide Thank second consolidated quarter morning, the Dave and

XX points representing $XXX quarter. $XXX.X just On to of We a Turning million, of grew prior surgical the net Adjusted net X%. just over million, as of basis, to revenues compared with growth under generating growth XX.X%, XX% case results. to margins the quarter our second year same-facility quarter volume in XX.X% grew revenue under XX%, the adjusted basis prior quarter. reported EBITDA expanding year EBITDA

XXXX. targeting period replacements XXXX to our the the into specializing total January comparable half higher joint produce insights of total additional increasing to procedures of and in first results will continue shoulder over year. acuity provide X our XX% surgeons Eric ASCs to procedures orthopedic Our starting in joint our strong success in covered moved efforts this our pursue in with of recruitment in total list ASC were physician expansion the programs, including which

be We same-facility sustainability line of expected to extremely pleased continue and goals. and the our organic growth expansion with our growth long-term margin top

our increased surgical previously facilities to have higher care purpose-built an the the stated, site for of quality clinical our both capture settings. high procedures of our short-stay acuity the We our results believe macro lower-cost, shift been As aging outpatient population reflect tailwinds in and into strength this and X,XXX surgical total addressable durability market, formed procedures coming outpatient be fragmented as an over the CMS-certified market, current years. pursue business and of and which estimated of $XXX ASCs model an to setting currently in both consists in expected billion we representing highly

proceeds level January with along closing $XXX reflects redeployment we XXXX. of targeted our the that the both the initially of targeted least in million our on nearly We includes quarter, activities. Through to and transaction maintained approach early acquisitions end second our deployment disciplined $XXX sourcing capital we of This in of had remaining quarter multiples. attractive at a fourth assets goal $XX in strategically Moving important annual the the deployed which at million, net million of divested to XXXX. executing deployment from

of a and and acquisitions business opportunities, novo team remain aspects achievable. growth of to investment capital believe the continues robust Our our algorithm pipeline de development source we deployment

of represents $XXX in are the recently me and first brief let greater organic provide adjusted at Eric, to over refreshed a $X.XXX revenue the strong EBITDA on on outlook our billion outlook call compared on the respectively, amount prior our least XXXX and completed update of of year our look increasing XXXX. and and forward EBITDA, turn conservatism. revenue for We outlook the timing for and to appropriate the the half year as than of full to remainder respectively. progress net highlights adjusted I Before and balances Based growth acquisitions, unfolds. of the we year This million, net me growth XX% additional the the to for in quarter. company's an XX% to let to updating Eric With over with you as the our optimism remainder Eric? provide our turn performance that, call

the of morning, all facilities. addition our release growth. Diving X.X% quarter team, of deeper growth management good are our of growth to line and On quarter, the portfolio line was Once and consistent net Thanks, results top purpose-built Same-facility of bottom of long-term X.X% contributed our organic algorithm into X.X% we second and proud rate double-digit Wayne, in and continued second X in growth elements demonstrate and entire volume again, surgical facilities results. comprised revenue growth to case our to improvement. surgical everyone. that the behalf our short-stay

continue higher both our a our mix benefit line increased put We business and case were recruitment volumes expectations, in with the and would lines. cases short-stay with experience XXX,XXX with an patient focus acuity associated on surgical with particular specialty consolidated that quarter, purpose-built acuity in our our facilities. higher to surgical consolidated basis, procedures on activities physician physician and enhanced focus from On

in the XXX recruited half half orthopedics, last from these to XXX. brings of physicians total performed as cohort. over This recruits The over have Continuing exceed first utilizing spine and the initial second new high just recruiting rate rates average the year's the volume areas and started and by just for in case volume recruiting, year specializing our newly per facilities such our positive with cardiology. the of quarter, acuity wave under physicians

of of revenue growth in the cohorts our half XXXX recruiting first to of drive As more a each to class year-over-year first compounding as reminder, our strong generating compared half XXXX the XXXX. XXX% continue with

the MSK XXXX, representing growth, our with in first continued XXX,XXX fuel and recruitment growth over to last musculoskeletal in novos of de growth acquisitions especially activities nearly and Our half performed XX% year. procedures in recent have related

increase site More slowing our ASCs shoulder case team setting. and prior in and capture hip in annual importantly, into in compound to procedures knee XX% and continue and in our shift first effectively total since in of mid- the a year care the as recruiting the a procedures. transition cases the growth our successes not disproportionate That do to total with year see this saw volume well XXXX. long innings, at to our in growth portfolio joint as of a this surgeons rate XX% rate, our setting we replacements continue the in recruiting as compared grow in We well very half in ASC which term total early is positioned specializing to early of shoulder facilities are to

to Moving XX both and our by that ongoing initiatives margins, previously continue cycle acquired on reflects scale, improved procurement over the which basis points prior-year the benefit in improvement achieved increasing This facilities. our from synergies operating revenue quarter with our to XX.X%. quarter to along

margins throughout the with the to improve expect consistent remainder year, historical of We earnings patterns.

Health. detail multi-specialty process are and into partners de team expected the higher X million and focus Finally, from our to acquiring deployment our $XXX acuity weighted ASC XX acquisitions XX primarily and portfolio. In quarter, under I'm proud interest fully de partnership on colleagues post include as in novo facilities to multi-specialty deployed heavily talented look that a These XXXX with synergies we a patient remain quality. with closing. developed Ohio physician with and We and orthopedic are pipeline second our orthopedics. meaningful nearly to novos and and second the additions consolidated deeper diving syndicated we additional There closing, early in high are facilities. for opened the In open become facilities partnerships, activities. months further we their towards these quarter, de forward our minority are to optimistic slated yield providing in and In earnings XXXX. first construction many delivering system superior of management XX to operating concentration in clinical novo capital experience These our about and X our relentless

operations, work as to said, updated XXXX collaboratively the call our updated as will over I turn development, additional that will to achieve managed we execute financial teams for color on revenue well procurement, that initiatives on provide Dave? us XXXX. confidence across cycle Dave to goals. With now business our giving outlook Our results recruiting, and our care, increased our

growth growth across Thanks, of X.X%, revenue an this procedures, all reflected acuity of managed in Eric. second X.X% total our million. On to acuity Starting surgical rate with case in specific and higher the impact over care increased spanned in also other growth revenue with surgical performed of continued quarter. procedures, and XXX,XXX double-digit same-facility was same-facility higher acquisitions a X.X%. consolidated the which specialties, we year top higher is growth supported total cases specialties, line, on Same-facility basis, quarter. contributed actions quarter. growth acuity cases last our surgical our of case orthopedic the which combined rates in These revenue near XX.X% to growth higher the The focus increasing second with in XXX,XXX and cases $XXX.X

same-facility range. growth with XXXX, revenue revenue finishing year exceed to of full the high algorithm growth X% our our forecast net single-digit in to to in continue X% We same-facility target

larger a on an and the in role smaller balanced and second rate of anticipates year. being a volume revenue forecast with Our the more net between playing rate playing basis, role half volume annualized

labor Adjusted abate XX.X%, of more margin related expansion. we second to with we EBITDA for natural as a giving costs provides was as continue rate expansion and Inflationary return revenue. our that margin to us grow in of continued to run $XXX.X supply a margin line the normalized quarter, expectations pressures million

margins in at line We our will with that will This over continued the we our disclosed in free goals total available with and million combined year improving full our improve year of capacity, achieve XX cash. with million When remain these $XX over ended factors quarter to cash in amount least quarter. our with in to portfolio expectations in liquidity. second is flow the the revolver XXXX. flows annualized continue in margins previously cash and $XXX across $XXX We reported by million had monitoring operating belief we expect XXXX. supports the throughout basis vigilant We points

to Moving balance sheet. the

$X.X such rate spread approximately billion SOFR We outstanding have rate the the interest the an XXX corporate $X.X loan, event effective XXXX. debt X% interest term corporate improvements. have rate interest XX March caps points. term limit carries reducing variable that, interest repriced in until loan loan favorable plus debt This in credit The XXXX. $X.X now we our with XX, our becomes basis our rate by In in basis on on points. In maturities rate June, component no of environment And through billion place the we the billion at of will that X%. we after fixed to capitalize future, more is

was Our quarter as ratio our agreement result completed of acquisitions second under the debt-to-EBITDA total X.Xx of a as in calculated the net second quarter. credit

power model to EBITDA billion continued algorithm. reminder, project company's growth Operator? and than to with this the in and we impacted represents consistency outlook consistent turn business the we a and implies our This are like the greater of acquisitions. over I'd raising back optimistic the expansion, the But our This of the for will be long-term and momentum leverage Carrying outlook our net ratio second million. below timing emphasizing call that, based remain of guidance XXXX margin this for and to X.Xx. greater guidance. time, quarter operator With demonstrating confident resiliency $XXX questions. to the long-term growth, As growth adjusted on ratio be the mid-teens our updated short results, $X.XXX the of over revenue be than term will about year-over-year

[Operator from first of Instructions] Tanquilut We'll Brian our take question Jefferies.

how the driving Congrats Obviously, the same-store volume with rate the that. the you Dave, curious, year. quarter. the acuity and back Maybe, contribution balanced be should just half has levels of your more to about in talked on strong rate been

even more or what shift are thinking back So the would seeing half X? the just that that are balance what in between you to you curious,

quarter. The going be biggest half to math that growth calculation behind we're question. And of the probably year. to driver second the same-store case the going is of Appreciate that see Brian. Thanks, the go sits of your your evaluation. in same-facility way in only at to X XX tends just only just a given operating there's It's to reminder, -- business calculation days days our the XX we quarter look because an inside a same-store beyond

by So can the you affected that being there. see sit days the of those inside week

you those we we both of surgical look are quarters surgical as at look cases quarter, So at quarter when where more and favorable year-over-year, third our fourth and when think. days the have in that we portfolio,

kind inside we of it third us. consistent up of as calculations. through the year expect greater this getting the the reporting and case our would happened about quarter give that been side algorithm third the And inside is past is talking growth quarter us, which over year and the balance same sit years. algorithm long-term growth we've somewhat of of add has timing of of side facility our been do the of for to as than what And Brian, can July we've last back to at Xth when best the we we I couple all example rate be year, been both with what anticipate, of for our But year, to the suggest,

obviously, think as Dave, you seasonality, but back where just said, I the understand, we just Xth follow of be then I up curious that, should I pattern about on And thinking the about July seasonality for mean half. it. how for fell, EBITDA Got like to maybe,

our predictable tend think seasonality of deductible happens I patients to fourth swing commercial their quarter rush and end by of to the be has use our tends quarter, result deductible balance that biggest been the the in that's that to as year. the the largely

our So see a as revenue well always year. quarter our from as an is don't EBITDA quarter We from that perspective. this strongest changing pattern perspective fourth

Qiu question We'll take our next of Macquarie. from Tao

organic is as the growth in bit How these? strong novos that to and and how volume that of of from little And acquisitions like much de revenue terms mature on break I'd is from of quarter? margin a based down much the increase this guidance. you

Thanks, Tao.

side our on We this bit our the through morning. have beat. a line of answer from revenue a to background little coming nice let me here But music attempt

for our at most the sorry, calculations the or above recent the expectations, come perhaps acquisitions. And expectations from get in our revenue I'm of we did revenue, Street. -- Our quarter slightly did contributions

we know, our year-to-date the capital met talked inside last As goals call, the the on second acquisitions you about year. completed we've sizable our quarter. And we deployment on basis, for

we're beat that coming total of So I facility well revenue close say, I conclusion, the the last to But to same of you getting as acquisitions majority as on or contributions growth leads the should XX%, have from to benefit a some from the growth you will rate from conclusion would year. side at definitely and our the focus lead those you or is organic business. the

how Yes. upside versus terms margin -- I was the much more interested and acquisitions? on de the of revenue in from organic of the is novo guidance raise, additional

that, with several the we've answer years. to what Tao, past done over it's very consistent

strong supplemented algorithm this of from timing be per to we're it M&A is ahead which going grow is majority to performance. little to Our continues coming a general, continues is in it by our But that M&A our we organic, organic, same-store on expect that, be forward. year. Certainly, expectations on algorithm, bit majority right like how

if Yes, the it revenue now year-to-date to to been back we've XX% at year, year how same-facility single maybe in expect growth a just end just And high we revenue go you about the for to talked emphasize digits. about the basis. has on that,

the an you. free question the collection is, generation don't updated cash during early what quarter? and DSO for during Any Got whether the talk view for second And XXXX? know you the my the XXXX was I on trend second about quarter, guys flow maybe cash read

Yes.

has for So us. been cash flow positive

be. we quarter. you it we think again with It's I expected for the what saw reported consistent where second to

the We seeing are feel still for cycle cash on that. not changing the our ability confident And our this equation. terms guidance. at on continued we not year to deliver generation. guidance of benefit investment point, of We're flow XXXX in in our revenue the We from giving side are

of our America. next question from take We'll Kevin Bank of Fischbeck

Just the volume wanted to of kind number. on focus

And seems I firming lot and your think simple some calendar, like quarter just a kind kind as how do of you or demand of a you Is of to little see this into be QX? whole after I for stronger. by QX, were QX competitor. of kind was fundamental a a it surprised volumes from as the weak then

Eric. for the question. This Kevin, thanks is

a Just I'd in answer couple that ways. of

that coming focus focus we not really to our number, range year, growth do a very year, last meaningful. try First it case not in count really but a net to end of of out It bit is that same-store of exceed calendar. into print very or consistent quarterly slightly this our at by basis. upper little It's that. on a the on even still below revenue, it when expect algorithm. is all, the had the We a by that year of algorithm, we by the we confident be We've business. said that affected came end at We're the

Our model is consistent.

from think those it's timing quite calendar-based, of quarter-to-quarter, to we lot there's on I a it's so that based. annual And honestly, reaction sometimes terms. about think And numbers. But

believe continue this to We going algorithm we're exceed year. our to again

I exceed then, -- of versus demand guess, that color cetera, And know company-specific great. to by you that this there? might doing That's don't driven think you're I the et any easily, when the if recruiting, can around core separate is you ability Okay. the some physician again, about call I things year, that

Yes.

grow the recruitment, the it's -- flowing year, we're to I business. acuity start physician the recruitment. through obviously procedures, on of strongest on confident see going our proud really first think So all, On of we're really, physician to that you higher start

point I X is growth. continues over last around might all consistent case to work of that the really had So It we've what But years, to well. quarter-to-quarter. would bounce

years. year, the very do than same expect end of this demand just and to to part past our in place. not it model, continue we much that up the it's strong We It's and see different

Mok from question Barclays. of Andrew is Our next

looks there in It pretty meaningful a fees professional quarter. in like was the increase

I think over per basis case it and was XXX year-over-year. XX% up points

little what's more on driving that increase. to want I So just color get bit a

Actually, yes, Yes. in the last year. divestitures mix follow-up give on But it's a Andrew, partly, you and through of like be going that think kind acquisitions from I have I'll increase that. business comes from what our sits to behind that of to

slightly business, reminder, side. to associated So high chain supply medical kind higher a had the with year you're that a mix coming that revenue and of professional as the a for costs be when on fees of on give profile kind our must I you see of But follow-up through the business, medical a different in of result that going on as book suspect later. margin divestitures, we But side. last talk I'll

on confident Great. free Okay. annual to around are for And I the cash year. targets It wanted up you just like there. this That's guys then flow, helpful. sounds follow the

free tracking around think is million. cash I year-to-date $XX flow

just driving So half second what's year? what's in the driving that acceleration? confidence full And that

line to what it's what second in directly is expected last we've -- the number is timing line flow of be. the year, we've bit internal we of in where wonky, inside collections. were. cash because our But with It seen with a free The as quarter is Yes. about it talked expectations

our So there. that book The confidence seasonally in us adjusted. of gives is business to kind increased hit ability of

to last that year by the is come affected of half year. First distributions be going from

the year bit, the generates a of second the and inside a little earnings first of distributions flow quarter half lot strong of increase the half book of year. of the do course, the goes year. more in the down cash So business trend That fourth for last

take our from next Cassorla of We'll Citi. question Jason

goals into to year. capital Great. you've this around remaining for to sounds Or It back capital deployment helpful. the deployment. in commentary go terms be we I capital like Just year your reading color the about are any deployment? Should deployment that be met for and forward just a back your how of around being incremental wanted the muted? more keeping open capital half deployment, thinking optionality you you're go incremental bit your would

in Yes, for that did quarter. of that, the first closed achieved remind full of the the it prior I year, January. Jason, $XX would much million We you year of week we've relate goals appreciated. our the year million, $XXX to while fourth

$XXX million year. dispensatories of goal remaining proceeds $XXX around million, cash was which you're So looking deploying our at targeted plus from last from

at is So this half back anything to the year going icing. the clearly point, we be in of do

continue We strong to a have pipeline.

of like We pipeline. optionality the that

items under are and have on a of of a We LOIs that LOI. number items number

if also So the is I of don't to the know, think say, acquisitions fickle. quality I timing and acquisitions the right would is there. we're be can going But asset these as postpone you very

having about year. if and themselves, we read always accordingly. stand to choice, partner continue we that take advantage so I a we opportunities where it's of can so be And pipeline half current But of robust like the a it we'll just in would relative present respond as the to of pipeline. And back the you them

opportunity move Helpful. shoulders, as the continue I opportunity And been into just the more complexity the any of They've benefit Just around color this of we then how total the Okay. think just to about side? Can us And shoulder we service total ASC? margin of should around ask And those on pretty just set? kind for about shoulder you year. like that how remind should margins kind wanted the sizable think of set kind Great. considerations given then shoulders. the to side?

amongst using thousands docs mean, procedures, us opportunity staff, total on The And the question. the of not in for current maybe thanks it's team's that's in on even weren't is that our focus I right? quite recruitment even the total counting large. the Jason, doctors past. shoulder the finding

So continue we opportunity to there grow good about really, really feel our to it.

higher a when acuity them, we time little first get them to get procedures, especially into prices the shoulder takes down. You it right, are

use scale really efficiencies procedures. we grow The our and on drive margin our to those profile we as will volume grow as time over

going going followed our that market higher there have expect starting on existing But by, could the who over and recruitment is with of share you're would grow cost bit that, we procedures then of procedures time. as margin bring, docs grow in they So think, a is those actually up really again, at innings to the dedicated we're pass-through had little that you beginning, we our than procedures see to and moving I markets. particular in over course, that early that

move We'll of Company. Bill to Benchmark next Sutherland

Wayne, or list, coming not little a was the think procedures coming just you sure. potential about Eric, you color I you maybe more and guys? think inpatient-only what's mentioned kind off of off us on I'm for how it about Can the give you the

Bill, it's of Eric. not a about There's year. list lot coming the now off right inpatient-only this news for of stuff

As read total you last and then end. was early got the know, year, there wasn't much we at coming added the off, shoulders

We our -- over room as procedures last year there. Certainly, be so years. the opportunities there's about acuity the is We technology and lot they've do we're billion have has feel still billion on going with to move a continue always about to what's a that better, every talk $XXX care of that $XXX stuff out us of we lot technology pushing stuff changes and out for every added We the higher more much to gets few good to TAM, procedures out. move acute of traditional year. setting,

setting. is just that the for going money because continue grow to We the what math big So It's it's to of cardiology think of incremental, look, to look, when you're off compelling. expect list like it in all ton save our COVID a continue. the rest it I procedures procedures, sometimes But comes they're that we during safely we too sometimes done got orthopedics. got March see did jumps and

watching that as going every year. as year total to There's nothing meaningful on we're always this so push continue specific at that we're that's list. shoulders point, but to And this

And then, Wayne, capital comment. to back your deployment

about mean, -- bigger, about greater we bigger think As an think you your $XXX target gets that's annual platform do than million? thinking you are guys should I and maybe

Bill, it's question. really good a

to our next we to X. to to create we're some goal leverage laid and we've in fair, think that continue out could though X committed for any sub-Xx million would a shareholder I I target we more base. $XXX year X Yes. mean, the little the But to do lumpiness? be the

could up where to long And in that's But in anticipate range. we X we're think goal, going $XXX Yes. over would to that so to ultimately go time, continuing Again, term year? that accomplish million any be we target. I

We'll take Partners. from our of Whit next Leerink Mayo question

Dave, this cash formal think I flow how we missed I around around have this year? any the know cash year thoughts and don't this but target should just maybe you flow, may have about a free like

Yes, you miss it. did

about we our same end are year. million as $XXX to target million of We talking $XXX the

Great. Okay. was be programs, anything aware That's a of supplemental On of should state year a or in Idaho bit last little for anything we that quarter year, just the kind tension, the benefit. of?

those mean, you very I material. as our Medicaid. nothing so No, programs, know, is probably business percentage a of very, low

not by we're it. impacted that So

around So I think X%. our total mix is

in So are year, rarely but material very like true. us, that's for those programs this holding

And we'll Cowen. take our final question from Ryan Langston of TD

This is Will Spivack on for Ryan.

just in the that accurate? going us divestiture Is to that averages. as was the acquisitions well, drop I let Was quarter. was half quarter. It in bit little quarterly of know the to year. in higher revenue that think And still Just the you headwind the quarter. could maybe what kind in if X related was of wondering about than the And a comp to stock the back

we revenue comp was first of that the of year. from the divestitures this. overcame half unusual The -- with is the completed quarter. really roll piece Nothing that The timing to the piece. last those happen just Will, activity the within kind divestitures take stock the just order. were comp Most Yes. as inside normal of rate our inside stock of in just would well vesting as minimal

a of as we call the right, look you're not material second us So out. marginal inside there quarter, the year. at that's considered And the not enough a was but kind headwind of impact for to us back for half

question-and-answer be closing happy I'd does to Eric the session. our Evans comments. This return call to for conclude

Thank you.

to today, on a Thank our call like on quality Before with our and the our of joining you day, thank XX,XXX-plus conclude of for great this partner physician and I'd to through management owners delivering every team, morning, patient partnership. day. teammates that we have life behalf mission entire our enhance

Partners, Inc. Surgery today's This does conclude

XXXX Quarter Earnings Second Call.

You may a great now everyone, And disconnect. have day.