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Surgery Partners, Inc. (SGRY)
Q3 2018 Earnings Conference Call
November 7, 2018 8:30 a.m. ET
Thomas Cowhey - CFO
Wayne DeVeydt - CEO
Ana Gupte - Leerink Partners
Kevin Fischbeck - Bank of America Merrill Lynch.
Chad Vanacore - Stifel Nicolaus
Brian Tanquilut - Jefferies
Bill Sutherland - The Benchmark Company
Previous Statements by SGRY
» Surgery Partners, Inc. (SGRY) CEO Wayne DeVeydt on Q2 2018 Results - Earnings Call Transcript
» Surgery Partners' (SGRY) CEO Wayne DeVeydt on Q1 2018 Results - Earnings Call Transcript
» Surgery Partners' (SGRY) CEO Wayne DeVeydt on Q4 2017 Results - Earnings Call Transcript
I would now like to turn the conference over to Tom Cowhey, Chief Financial Officer. Please go ahead.
Good morning, and welcome to Surgery Partners' third 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 Web site at surgerypartners.com and in our most recent quarterly report, when filed.
With that, I'll turn the call over to Wayne. Wayne?
Good morning. Thank you, Tom, and thank you all for joining us today. We have a lot to cover this morning. I would like to start by reviewing some highlights from the quarter and then provide an update regarding the progress we've been making in building our foundational platform and executing on our key strategic initiatives to position Surgery Partners for sustainable long-term growth. I will then turn the call over to Tom to discuss the financial results in greater detail.
Starting with the quarter, this morning we reported third quarter 2018 revenues, a $443.9 million and adjusted EBITDA of $59 million, each representing strong year-over-year growth, primarily as a result of the acquisition of National Surgical Healthcare in August of last year, along with early results from our strategic initiatives that continue to take hold. As we look deeper into the quarter, surgical case volume and revenue grew by 13.9% and 44.9%, respectively over the prior year period. Same-store revenue increased by 11.4% from the prior year quarter, sequentially, adjusted EBITDA margins improved by 80 basis points to 13.3%, and our private payer mix remains consistent with our prior quarter.
These trends continue to be encouraging, and I'm pleased with the progress that our team and organization have made this year across a wide array of high-value, but complicated initiatives. I'm especially encouraged that our positive trends in same-store growth, and accordingly, we are increasing our revenue guidance for the full year 2018 to a range of $1.75 billion to $1.8 billion. That being said, while our success to date has increased my confidence that we have the right people and assets to drive meaningful, long-term growth, we made the decision to take a more conservative posture on our full year profit outlook and modified our projection from greater than $240 million in adjusted EBITDA to a range of $230 million to $235 million.
This change in adjusted EBITDA outlook reflects two key areas. First, we are more cautiously forecasting our fourth quarter case and payer mix. We continue to see positive trends in both of these drivers, but given the significant seasonal ramp required to achieve our previous guidance, we felt it was prudent to plan more conservatively. Second, as I'll discuss next, we continue to prune underperforming and non-core assets, while we invest to drive future growth. These efforts better position us for growth in 2019 and beyond, but nonetheless, contribute to the change to our full year guidance.
Let me turn to our strategy and key growth initiatives and my reasons for continued optimism. Over the past nine months, we've been focused on building upon what we do best, operating high quality, short-stay surgical facilities. We believe we are uniquely positioned to capitalize on favorable industry trends as clinicians continue to shift more procedures to the high-quality, low-cost settings that our surgical facilities provide. As previously discussed, we've organized our efforts into three key buckets: pruning the asset base, consolidating our platforms, and investing in the business.
Starting with pruning the asset base, we've taken a data-driven approach in analyzing strategic opportunities and challenges across our portfolio and are divesting or closing those assets that are not aligned with our growth goals. As we discussed on our second quarter call, we initially focused on our ancillary and ASC asset base, and we're evaluating the best path forward for optical business. In the third quarter, we closed three additional physician practices and completed the sale of three additional ASCs, bringing our year-to-date total to 19 physician practices and five ASCs that have been closed or sold.
We also successfully executed on the sale of our Family Care Vision practice and our optical laboratory at favorable multiples relative to our development pipeline. While we are still exploring strategic options for our remaining optical business and a few of our ASCs that are not centered on our targeted-growth specialties, we believe we have made meaningful strides in repositioning our ancillary and ASC asset base. We're also evaluating our short-stay surgical hospitals to ensure that we are focused on assets that can meet our short- and long-term growth goals.