Surgery Partners, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; it does not provide a clear standalone Q4 income statement or cash-flow summary. The company operates surgical facilities and ancillary healthcare services. At year-end it owned or operated 146 facilities across 31 states (127 ASCs and 19 surgical hospitals), consolidated 118 facilities, and held majority interests in 93.
Key financial metrics
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $2,539.3 million | $2,225.1 million |
| Operating income | $345.2 million | $302.2 million |
| Operating margin | 13.6% | 13.6% |
| Net income (loss) attributable to Surgery Partners | $(54.6) million | $(70.9) million |
| Net loss attributable to common stockholders | $(54.6) million | $(81.2) million |
| Adjusted EBITDA, non-GAAP | $380.2 million | $339.6 million |
| Operating cash flow | $158.8 million | $87.1 million |
| Cash and cash equivalents at year-end | $282.9 million | $389.9 million |
| Total debt carrying value | $2,621.8 million | $2,938.8 million |
| Net working capital | $427.6 million | $409.3 million |
Revenue rose 14.1%; days-adjusted same-facility revenue increased 7.7%, driven by 3.9% higher same-facility case volume and 3.6% higher revenue per case. Adjusted EBITDA excluding grant funds, a non-GAAP measure, was $378.5 million versus $314.3 million. The filing cautions that non-GAAP measures are not substitutes for GAAP results and may not be comparable across companies.
Cost of revenues was 77.4% of revenue versus 77.9% in 2021; general and administrative expense was 4.0% versus 4.7%. Net interest expense increased to $234.9 million from $221.0 million. The company reported $80.6 million of cash purchases of property and equipment. Operating cash flow less those purchases was approximately $78.2 million, before acquisitions, debt payments and distributions.
Material changes versus prior year
- Revenue and Adjusted EBITDA increased, reflecting same-facility growth and acquisitions completed in 2022 and 2021.
- Net loss attributable to the company narrowed to $54.6 million from $70.9 million. GAAP net income was $87.0 million, but $141.6 million was attributable to non-controlling interests.
- Year-end cash declined by $107.0 million. Cash flow from operations improved, while investing activities used $307.9 million and financing activities provided $42.1 million.
- Net debt reduction included repayments and redemptions funded in part by an equity offering and concurrent private placement. The company sold 36.0 million shares in 2022 and reported $857.7 million net proceeds; it used a portion to repay $560.0 million of debt.
- The company redeemed $185.0 million of 6.75% notes due 2025 and $225.0 million of 10.0% notes due 2027, and prepaid $150.0 million of term loans. The 2027-note redemption contributed to a $14.9 million debt-extinguishment loss for the year.
Outlook, commentary and risks
- Outlook: No specific forward-year revenue, earnings or cash-flow guidance is provided. Management said available cash, operating cash flows, revolver capacity and anticipated capital-market access should meet short- and long-term liquidity needs, while noting the assessment depends on future conditions.
- Growth plans: Management emphasizes organic growth, physician recruitment, service-line expansion, acquisitions, de novo facilities, and operational integration. It cites industry estimates of growth in outpatient procedures, not company guidance.
- Liquidity and leverage: The company had $342.0 million of revolver availability at year-end, after $8.0 million of letters of credit. Variable-rate term-loan debt and substantial interest costs expose it to rate and refinancing risk. A January 2023 amendment subsequently increased revolver commitments by $203.8 million.
- Costs and operations: Management reported inflation, supply-chain disruption, and a competitive labor market, with increased labor and supply expenses that may not be fully offset. The company employed approximately 12,200 people.
- Payors and regulation: Consolidated surgical-facility patient-service revenue was 51.5% private insurance and 42.3% government payors. Reimbursement reductions, contract negotiations, payor or case-mix shifts, and healthcare regulation could pressure revenue and margins. The expected May 2023 end of the COVID-19 public health emergency could also end certain waivers and flexibilities.
- Legal and compliance exposure: The filing describes substantial healthcare regulation and anti-kickback, physician-referral, billing, privacy and audit risks. Management reported no proceedings it believed would have a material adverse effect; it also disclosed a $32.8 million stockholder-litigation recovery received in 2022. The company had paid $30.7 million plus interest to resolve a DOJ investigation in 2021.
- Other notable items: 2022 grant-fund recognition was $2.4 million, compared with $37.9 million in 2021. No goodwill impairment was recorded in 2022. The independent auditor issued an unqualified opinion on the financial statements and internal controls; management and the auditor assessed internal control over financial reporting as effective.
Most important facts for investors to verify
- Review the audited statements and cash-flow detail, particularly the distinction between GAAP losses, net income before non-controlling interests and Adjusted EBITDA.
- Assess debt maturities, variable-rate exposure, interest-rate hedges, covenant terms and the impact of the 2022 debt transactions and subsequent revolver increase.
- Examine acquisition returns, integration costs, goodwill valuation assumptions and the effect of continued physician and other non-controlling interests.
- Track same-facility cases and revenue per case, payor mix, labor and supply costs, and collections; hospital accounts-receivable estimates were identified as a critical audit matter.
- Evaluate regulatory and litigation exposures, and the company’s ability to maintain physician relationships, reimbursement contracts and compliance across its markets.
- Consider ownership and dilution: Bain Capital affiliates held approximately 46.2% of common stock at December 31, 2022, following the equity issuance.