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Surgery Partners, Inc. (SGRY)

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Surgery Partners, Inc. (SGRY)

Q2 2018 Earnings Conference Call

August 09, 2018, 08:30 ET

Executives

Thomas Cowhey - EVP & CFO

Wayne DeVeydt - CEO & Director

Analysts

Joanna Gajuk - Bank of America Merrill Lynch

Ralph Giacobbe - Citigroup

Chad Vanacore - Stifel, Nicolaus & Company

Brian Tanquilut - Jefferies

Frank Morgan - RBC Capital Markets

William Sutherland - The Benchmark Company

Presentation

Operator

Greetings, and welcome to Surgery Partners Second Quarter 2018 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Tom Cowhey, Chief Financial Officer. Thank you, you may begin.

Thomas Cowhey

Good morning, and welcome to Surgery Partners Second Quarter 2018 Earnings Call. This is Tom Cowhey, Chief Financial Officer. Joining me today is Wayne DeVeydt, Surgery Partners' Chief Executive Officer. As a reminder, during this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we filed with the SEC. The company does not undertake any duty to update such forward-looking statements.

Additionally, during today's call, the company will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

A reconciliation of these measures can be found in our earnings release, which is posted on our website at surgerypartners.com and in our most recent quarterly report when filed.

With that, I'll turn the call over to Wayne. Wayne?

Wayne DeVeydt

Good morning. And thank you tom. And thank you all for joining us. To start this morning, I would like to review some highlights from the quarter, then provide an update regarding the progress we have made in refining our strategy and the actions we've taken to drive us towards our strategic goals. And finally, I'll turn the call over to Tom to discuss the financial results in greater detail.

Starting with the quarter. This morning, we reported second quarter 2018 revenues of $444.8 million and adjusted EBITDA of $55.4 million, each representing strong year-over-year growth, primarily as a result of the acquisition of National Surgical Healthcare in August of last year.

As we look deeper into the quarter, surgical case volume grew by 17.8% over the prior year period. Same-store revenue increased 3% from the prior year quarter. Sequentially, surgical case volume increased by 5.4%. Adjusted EBITDA margins improved by 120 basis points to 12.5% and our private payer mix improved by nearly 2%. And also note that our adjusted EBITDA margins includes the negative impact of our run rate investments.

These sequential trends are encouraging, providing us with positive momentum as we build sustainable platforms and position our company for future growth. We continue to make key investments across our business to drive operational efficiencies, and we see our strategic initiatives beginning to pay dividend and accelerate in the second half of the year.

Accordingly, we are maintaining our revenue and adjusted EBITDA guidance at greater than $1.75 billion and $240 million, respectively. Turning to our strategy and key initiatives. Having recently completed my first six months with Surgery Partners, I thought it would be appropriate to reflect on what I learned since my arrival and how those learnings have impacted our strategic thinking and tactics to drive meaningful shareholder value creation. Having visited with many of our surgical facility employees and affiliated physician partners, a few key themes have become abundantly clear. Specifically, our 10,000 plus associates that support our patients and physician partners each and every day are appropriately focused on what matters most: Clinical quality, patient satisfaction and physician engagement.

To provide some context, we believe in measuring everything we do. These measurements provide a frame of reference as we strive to achieve the best-in-class metrics we know we are capable of delivering. As we looked at our clinical quality metrics and specifically, how we benchmarked against the ASC quality cooperative outcome data for those who self-report, we have achieved best-in-class outcomes across our facilities.

Additionally, when we benchmark our average deficiencies per survey as reported by the Accreditation Association for Ambulatory Healthcare, we experienced over 40% fewer deficiencies when compared to all other ASCs combined. These are exceptional results that we are proud of, but we will continue to push to improve further. Clinical quality and safety is paramount in what we do each and every day but it is also important to ensure that our patients are satisfied with their experience and that our physician partners are engaged.

We're pleased to report that Surgery Partners has achieved best-in-class net promoter scores in both patient and physician satisfaction, achieving scores of 91 and 81, respectively. These scores place Surgery Partners in the upper echelon of NPS scores as compared to some of the best consumer brands in the world. When you combine our industry-leading clinical metrics with our best-in-class promoter scores, it further emphasizes the value proposition of short-stay surgical facilities and how our industry and Surgery Partners specifically play such an important role in transforming the health care landscape.

Regarding our strategy, we spent much of our energy around the work necessary to return to long-term, sustainable growth by leveraging what we already do well within our operations. Broadly speaking, the foundational elements of our strategy are anchored across 3 dimensions. First, we need to focus on what we do best, short-stay surgical facilities. This is our core competency and we are uniquely positioned, as clinicians continue to shift more procedures to the high-quality, low-cost settings that our surgical facilities provide. Furthermore, favorable industry trends such as an aging demographic, a shift to higher acuity procedures, recent CMS proposals to increase reimbursement and cover procedures at ASCs and payer alignment have positioned our industry for outsized future growth.

Read the rest of this transcript on seekingalpha.com