Comprehensive Business Overview and History
Surgery Partners Inc. (SGRY) is a leading owner and operator of short-stay surgical facilities in the United States. The company has established a strong foothold in the rapidly evolving healthcare landscape, leveraging its expertise and innovative approach to deliver high-quality surgical services to patients across the country.
Surgery Partners was founded in 2008 as a small operator of ambulatory surgery centers (ASCs) and surgical hospitals. The company started by acquiring a handful of facilities in select markets across the United States. Over the next several years, Surgery Partners continued to expand its footprint through strategic acquisitions, growing to operate 123 consolidated surgical facilities by the end of 2023.
In 2015, Surgery Partners underwent a major transformation when it acquired Symbion, Inc., a larger operator of ASCs and surgical hospitals. This transformative acquisition doubled the size of Surgery Partners' portfolio and expanded its geographic reach. However, the integration of Symbion presented significant operational challenges for the company as it worked to consolidate back-office functions and align clinical and operational best practices across the combined organization.
Despite the integration challenges, Surgery Partners continued to grow through additional acquisitions in the following years. In 2018, the company acquired National Surgical Healthcare, further increasing its scale and diversifying its service offerings. This acquisition added 16 surgical facilities to Surgery Partners' network.
Over the past decade, Surgery Partners has faced various other challenges, including increased competition, regulatory changes, and the COVID-19 pandemic. The company had to navigate through these obstacles while continuing to integrate new acquisitions and drive operational efficiencies across its growing platform. Through these challenges, Surgery Partners has evolved into one of the largest independent operators of short-stay surgical facilities in the United States, owning or operating 166 surgical facilities across 33 states as of the end of 2023.
Financial Performance and Operational Efficiency
Surgery Partners' financial performance has been characterized by steady growth and operational efficiency. For the fiscal year 2023, the company reported revenue of $2.74 billion, with a net loss of $11.9 million. Operating cash flow stood at $293.8 million, while free cash flow was $205.0 million.
As of the latest reported quarter (Q3 2024), the company's revenue stood at $770.4 million, representing a 14.3% increase compared to the same period in the previous year. This top-line growth was driven by a 4.2% increase in same-facility revenues, with a 3.7% increase in same-facility case volumes and a 0.5% increase in same-facility revenue per case. However, the company reported a net loss attributable to Surgery Partners, Inc. of $31.7 million for Q3 2024. Operating cash flow for the quarter was $65.0 million, with free cash flow of $45.0 million.
The company's focus on operational efficiency is reflected in its Adjusted EBITDA margin, which expanded by 100 basis points year-over-year to reach 16.7% in Q3 2024. This margin expansion was achieved through a combination of cost management initiatives and the realization of synergies from previous acquisitions.
Diversified Revenue Streams and Strategic Initiatives
Surgery Partners operates in two main business segments: Surgical Facility Services and Ancillary Services. The Surgical Facility Services segment, which includes the operation of ambulatory surgery centers, surgical hospitals, and anesthesia services, is the primary driver of the company's financial performance. In Q3 2024, this segment accounted for 93.3% of total patient service revenues, generating $735.4 million in revenue, a 13.7% increase from Q3 2023. The segment's Adjusted EBITDA rose by 8.0% to $149.6 million.
The Ancillary Services segment, consisting of multi-specialty physician practices, accounted for 4.4% of total patient service revenues in Q3 2024. This segment saw significant growth, with revenues increasing 108.3% to $35.0 million, primarily due to acquisitions. However, the segment's Adjusted EBITDA decreased slightly to $0.7 million from $1.2 million in Q3 2023.
The company also generates a small portion of its revenues, around 2-3%, from other service revenues which include management and administrative service fees.
Surgery Partners' strategic initiatives have been focused on expanding its geographic footprint, enhancing its service offerings, and strengthening its physician partnerships. In 2024, Surgery Partners completed several acquisitions, including the addition of two leading multi-specialty orthopedic-focused ASCs in the Chicago market, in partnership with Duly Health, the largest independent multispecialty physician-directed medical group in the nation.
These strategic moves have enabled Surgery Partners to deepen its presence in high-growth markets, solidify its position as a leading provider of short-stay surgical services, and enhance its ability to serve the evolving needs of patients and healthcare providers.
Liquidity and Debt Profile
As of September 30, 2024, Surgery Partners maintained a strong liquidity position, with $221.8 million in cash and cash equivalents and $595.8 million in available borrowing capacity under its revolving credit facility. The company's total debt stood at $3.19 billion, with no maturities until 2030.
Surgery Partners' debt profile is characterized by a fixed interest rate of approximately 6% through March 31, 2025, and the implementation of interest rate caps that limit the variable rate component of its term loan to 5% thereafter. This strategic approach to debt management helps the company mitigate the impact of interest rate fluctuations and maintain a stable financial footing.
The company's debt-to-equity ratio stands at 1.83, while its current ratio is 1.80 and quick ratio is 1.66, indicating a relatively stable short-term liquidity position.
Guidance and Future Outlook
For the full year 2024, Surgery Partners has reaffirmed its guidance, projecting net revenue of greater than $3.075 billion and Adjusted EBITDA of greater than $508 million. This guidance represents at least 13% growth in net revenue and 16% growth in adjusted EBITDA compared to the prior year, reflecting the company's confidence in its ability to continue delivering strong operational and financial performance.
Surgery Partners reported that their same-facility net revenue growth was 8.7% year-to-date, exceeding their long-term growth algorithm target of 4-6%. The company continues to forecast their same-facility net revenue growth to exceed their growth algorithm target in 2024, with full-year same-facility revenue expected to finish in the high single-digit range.
This guidance reflects the company's confidence in its ability to continue delivering strong operational and financial performance, driven by its robust growth initiatives, strategic acquisitions, and focus on operational efficiency.
Industry Trends and Market Position
Surgery Partners operates primarily in the United States, with no significant international operations. The ambulatory surgery center (ASC) and short-stay surgical facility industry has seen strong growth, with Surgery Partners achieving a 5-year revenue CAGR of over 8%. A key driver of this growth has been the shift of higher acuity procedures, such as total joint replacements, to the ASC setting.
The company's focus on expanding its presence in high-growth markets and diversifying its service offerings has positioned it well to capitalize on these industry trends. As the healthcare landscape continues to evolve, with an increasing emphasis on cost-effective, high-quality care delivery models, Surgery Partners' network of ASCs and surgical hospitals is well-positioned to meet the changing needs of patients and healthcare providers.
Risks and Challenges
While Surgery Partners has demonstrated resilience and adaptability in the face of industry challenges, the company remains exposed to various risks, including regulatory changes, healthcare reform, competition from other surgical providers, and potential disruptions in the supply chain or labor market. The company's ability to navigate these risks and capitalize on emerging opportunities will be crucial in sustaining its long-term growth and profitability.
Additionally, the company's significant debt load, while manageable in the current interest rate environment, could pose challenges if interest rates were to rise substantially or if the company's operational performance were to deteriorate.
Conclusion
Surgery Partners Inc. has established itself as a leader in the short-stay surgical facility market, leveraging its extensive network, diversified service offerings, and strategic initiatives to drive consistent growth and operational efficiency. With a strong financial profile, a focus on liquidity management, and a clear vision for the future, Surgery Partners is well-positioned to continue its expansion and solidify its position as a premier provider of high-quality surgical services in the United States.
The company's ability to exceed its own growth targets and maintain strong same-facility revenue growth demonstrates the effectiveness of its business model and strategic initiatives. As Surgery Partners continues to navigate the evolving healthcare landscape, its focus on operational efficiency, strategic acquisitions, and expansion into high-growth markets should enable it to capitalize on the ongoing shift towards outpatient care settings and drive long-term value for its stakeholders.