Surgery Partners, Inc. Q4 FY2024 earnings call

• Organic Growth: Performed over 656,000 surgical cases in consolidated facilities in 2024, with strong growth in core specialties. Recruited over 750 new physicians in 2024, with expectation of doubled impact in 2025. Opened 8 de novo facilities in 2024, with 12 in pipeline for 2025, aiming for 10 de novos annually.
• Margin Improvement: 2024 adjusted EBITDA margin was 16.3%, improved by 30 basis points. Managed care team secured over 99% of 2025 contractual rates, with Medicare rate increases of ~3% for 2025.
• M&A: Added 7 surgical facilities in 2024, deployed ~$400 million in capital. Expect to deploy ~$200 million in 2025, with pipeline of attractive assets robust.

In the fourth quarter of 2024, Surgery Partners reported revenue of $864 million, a 17.5% increase from the prior year. Full-year 2024 net revenue grew 13.5% to $3.1 billion. Adjusted EBITDA for the full year was $508.2 million, a 16% increase from 2023. Same facility total revenue increased 8% in the full year. Across 161 surgical facilities, over 657,000 surgical cases were performed in 2024, an 8.4% increase from 2023. Orthopedic cases saw significant growth, with over 117,000 orthopedic cases in 2024, 11% more than 2023, including a 50% growth in total joint procedures.

2025 Net Revenue: $3.3 billion to $3.45 billion. 2025 Adjusted EBITDA: $555 million to $565 million, reflecting double-digit growth over 2024. Expect margin expansion in line with long-term growth algorithm, driven by organic growth, margin improvement, and M&A. Expect to deploy at least $200 million in capital for M&A in 2025.

• Regulatory: Site neutrality legislation could impact up to 1% of revenue in worst case, but company sees potential upside. Medicaid and state-based programs account for less than 5% of revenue, with minimal impact. - M&A/Integration: Higher transaction and integration costs in 2024 due to complex acquisitions, but expected to abate in 2025 as integrations from 2024 acquisitions complete in first half of 2025.

Q: Brian Tanquilut asks about site neutrality impact on ASP vs short-stay facilities.

A: Eric Evans and Dave Doherty discuss upside potential and detailed analysis of procedure impact.

Q: Benjamin Rossi asks about de novos and ramp-up.

A: Eric Evans and Dave Doherty talk about de novo progress and cost/return.

Q: Joanna Gajuk asks about impact of site neutral reforms on bottom line.

A: Dave Doherty and Eric Evans explain negligible impact.

Q: A.J. Rice asks about time frame for special committee review.

A: Eric Evans states no further comment on timeline.

Q: Tao Qiu asks about revenue growth guidance and labor environment.

A: Dave Doherty and Eric Evans discuss revenue guidance and positive physician recruiting trends.

Q: Andrew Mok asks about operating costs and free cash flow.

A: Dave Doherty and Eric Evans explain cost abatement in 2025 and free cash flow expectations.

Q: Whit Mayo asks about revenue cycle and procurement.

A: Dave Doherty discusses ongoing opportunities in revenue cycle and procurement.

Q: Sarah James asks about net debt-to-EBITDA.

A: Eric Evans and Dave Doherty explain focus on deleveraging and mid-3s goal for net debt-to-EBITDA