Surgery Partners reported several challenges in the third quarter with slower than expected revenue growth, and the company anticipates a loss before income taxes of around $21.9 million, up significantly from $12.6 million over the same period last year.
"While we experienced some unique challenges in the quarter, our normalized same facility revenue growth demonstrates the underlying market demand for outpatient surgical procedures at our facilities," said Interim CEO Clifford Adlerz. "Additionally, the integration of NSH is going well and we are focused on achieving synergies and the scale benefits of a larger organization."
Here are six things to know:
1. Surgery Partners anticipates reporting $306.3 million, lower than expected due to expenses related to hurricanes Harvey and Irma, primarily driven by electrical outages at Surgery Partners facilities, as well as temporary closures. The company estimates total impact from the hurricanes will result in a $7 million to $9 million decrease in expected revenue, primarily in the third quarter.
2. Bain Capital made an investment in Surgery Partners earlier this year to support the company's long-term growth objectives. As part of a review of operations after the investment, Surgery Partners incurred a non-recurring adjustment to revenue of $15.6 million as well as a corresponding reduction to adjusted EBITDA of $14.9 million due to an increase in reserves for certain accounts receivable.
3. Same facility revenues, on a normalized basis including the pro forma effect of Surgery Partners' acquisition of NSH, are expected to increase 2.9 percent over the same period last year. Same facility revenues are up 5.7 percent year-to-date.
4. Same facility revenue per case is up 3.3 percent even though same facility cases were down 0.3 percent. Year-to-date, same facility cases are up 4.3 percent and facility case volume increased 1.3 percent.
5. Adjusted EBITDA for the quarter is expected to be $43.1 million, down from $44.7 million during the third quarter of 2016. Regardless, the company is optimistic about the future.
"The company remains well capitalized to fund both internal and acquisition-driven growth initiatives," said CFO Teresa Sparks. "Our future growth initiatives are supported with cash on the balance sheet of approximately $200 million, in addition to $75 million of undrawn revolver capacity and no financial covenants on the term loan or senior unsecured notes."
6. Surgery Partners updated the company's full year guidance to $1.3 billion to $1.33 billion in revenue and $178 million to $185 million in adjusted EBITDA, taking the impact of the hurricanes, ongoing slow volume and unfavorable payer mix into consideration.
"Our leadership is dedicated to quickly addressing and resolving any near-term issues that have impacted the company's performance and have launched specific initiatives to accelerate same facility cases, act on accretive surgical facility tuck-in acquisitions and implement procurement optimization initiative to improve margins," said Mr. Adlerz. "We are moving forward with a stronger, more diversified platform to support our short stay surgical procedure growth objectives, and delivering significant value to patients, providers and payers."