Surgery Partners, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; the provided text does not give a standalone fourth-quarter financial summary. Surgery Partners operates outpatient surgical facilities and related services across 33 states. At year-end, it owned or operated 162 surgical facilities—144 ambulatory surgery centers and 18 surgical hospitals—and consolidated 123 for financial reporting.
Key financial results
| Metric | FY 2023 | FY 2022 | Change / context |
|---|---|---|---|
| Revenue | $2,743.3 million | $2,539.3 million | Up 8.0% |
| Operating income | $328.0 million | $345.2 million | Down 5.0%; operating margin about 12.0% versus 13.6% |
| Net income | $135.3 million | $87.0 million | Consolidated result, before attribution to non-controlling interests |
| Net loss attributable to Surgery Partners | $(11.9) million | $(54.6) million | Loss narrowed; basic and diluted loss per share were $(0.09) versus $(0.59) |
| Adjusted EBITDA | $438.1 million | $380.2 million | Up 15.2%; non-GAAP measure |
| Cash from operating activities | $293.8 million | $158.8 million | Up $135.0 million |
| Cash and cash equivalents | $195.9 million | $282.9 million | Down $87.0 million |
Revenue and operating performance: Days-adjusted same-facility revenue increased 11.3%, driven by 3.9% higher same-facility case volume and 7.1% higher revenue per case. Growth also reflected acquisitions, partly offset by divestitures. Cost of revenues declined to 76.4% of revenue from 77.4%; general and administrative expense rose to 4.4% from 4.0%. Adjusted EBITDA margin was approximately 16.0%, compared with 15.0% in 2022. Surgical Facility Services generated $2,675.8 million of revenue and $544.0 million of segment Adjusted EBITDA; Ancillary Services generated $67.5 million and negative $3.9 million of segment Adjusted EBITDA.
Cash flow and investment: Net cash used in investing activities was $225.6 million, including $88.8 million of property and equipment purchases and $80.0 million for acquisitions, net of cash acquired. Net cash used in financing activities was $155.2 million. Operating cash flow less distributions to non-controlling interests was $147.7 million, compared with $12.0 million in 2022.
Debt and liquidity: Total debt carrying value was $2,775.1 million at year-end, including $1.4 billion of secured term-loan principal, $185 million of 6.75% notes due 2025, $320 million of 10.0% notes due 2027, $205.2 million of other secured loans, and $693.6 million of finance lease obligations. Net interest expense was $193.0 million, down from $234.9 million. The company had $694.3 million of available revolver capacity after letters of credit. Net working capital was $372.0 million, down from $427.6 million. Management stated that cash, operating cash flow, revolver capacity, and anticipated capital-markets access should meet short- and long-term liquidity needs.
Material changes, outlook, and notable items
- In December 2023, the company refinanced its prior secured facilities with a $1.4 billion term loan maturing in 2030 and a $703.8 million revolver maturing in 2028. The term loan is floating-rate; its stated year-end rate was 8.86%. The company reported compliance with debt covenants at year-end.
- During 2023, the company acquired controlling interests in surgical facilities and physician practices, bought additional non-controlling interests, and sold interests in six facilities. It reported $80.0 million of acquisition cash consideration, net of cash acquired, and $30.4 million of net cash proceeds from facility sales. In January 2024, it acquired a controlling interest in two ASCs and nine physician practices for $58.6 million.
- Idaho’s revised Upper Payment Limit calculation contributed recognized revenue of $17.2 million for a prior cost-report year and $34.4 million for 2022 and 2023 cost-report years, with corresponding provider taxes. These supplemental reimbursement amounts contributed to same-facility revenue growth; their timing and continuation merit attention.
- A May 2023 cybersecurity incident temporarily disrupted certain Idaho facilities. The company estimated an adverse pre-tax impact of approximately $8 million and had recognized no insurance recovery by year-end.
- Transaction and integration costs increased to $61.7 million from $47.5 million. The company also recorded a $15.5 million debt-extinguishment loss and a $10.6 million litigation-settlement expense in 2023. No goodwill impairment was recorded.
- No specific financial guidance was provided in the supplied filing text. Management emphasized same-facility improvement, selective acquisitions, de novo development, physician engagement, and operational efficiency. It identified reimbursement and payor-contract pressure, labor costs and staffing, supply availability, regulation, cybersecurity, and leverage as important risks.
- Operations are concentrated in certain states: Idaho facilities represented approximately 28% of FY 2023 revenue and Texas facilities approximately 11%. Bain Capital affiliates owned approximately 39.5% of common stock at December 31, 2023.
Important facts for investors to verify
- Reconcile GAAP earnings and cash flow with Adjusted EBITDA, including the adjustments excluded from this non-GAAP measure and the share of earnings attributable to non-controlling interests.
- Assess the sustainability and cash-collection timing of Idaho supplemental reimbursement revenue, including related provider taxes and receivables.
- Review floating-rate exposure, hedge coverage, debt maturities—including the 2025 notes—and the effect of the new credit agreement’s covenants and required payments.
- Track same-facility volume and revenue per case, payor and case mix, labor costs, and the returns and integration progress of acquisitions.
- Monitor the Idaho cyber incident’s final financial impact and any insurance recovery, as well as regulatory, billing, physician-relationship, and litigation contingencies.
- Note that the filing reported an unqualified audit opinion and effective internal control over financial reporting; accounts receivable estimates at surgical hospitals were identified as a critical audit matter.