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Surgery Partners, Inc. (SGRY)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 delivered strong top-line growth: revenue rose 17.5% to $864.4M and same‑facility revenue grew 5.6%; Adjusted EBITDA increased 15.1% to $163.8M with an 18.9% margin, while GAAP diluted EPS was a loss of $0.86 due to a non‑cash deferred tax valuation allowance .
  • Full-year 2024 marked record scale: revenue topped $3.114B and Adjusted EBITDA reached $508.2M; full-year Adjusted EBITDA margin expanded 30 bps to 16.3% .
  • Initial 2025 guidance: revenue $3.30–$3.45B and Adjusted EBITDA $555–$565M; liquidity >$770M supports ~$200M M&A without accessing capital markets; capex (maintenance) $40–$50M; no federal cash taxes expected until 2029 .
  • Stock reaction catalysts: special committee review of Bain Capital’s non‑binding $25.75/share proposal; management sees site‑neutral proposals as neutral-to-positive with worst‑case revenue impact ~1% .

What Went Well and What Went Wrong

What Went Well

  • Double-digit Q4 growth and solid same-facility performance: revenue +17.5% YoY to $864.4M; same‑facility revenue +5.6% with case growth +5.1% .
  • Orthopedics momentum: total joint procedures grew ~50% in 2024; 14 surgical robots added; >750 physicians recruited in 2024, expected to more than double impact in 2025 .
  • Strong rate visibility and margin execution: 99% of 2025 managed-care rates already secured; Medicare rate increase ~3%; full-year margin +30 bps to 16.3% .
  • Quote (CEO): “This is the first time Surgery Partners has recorded revenue over $3 billion and adjusted EBITDA over $0.5 billion.”

What Went Wrong

  • GAAP net loss in Q4 driven by technical accounting: non‑cash $99.5M valuation allowance on deferred tax assets; diluted EPS −$0.86; company does not expect federal income taxes until 2029 .
  • Limited operating leverage in Q4 despite revenue beat: higher operating costs including corporate bonus accruals and slight payer‑mix pressure muted EBITDA vs revenue; management called several increases “temporary” .
  • Elevated transaction/integration costs weighed on free cash flow in 2024 (~$100.1M for the year), expected to abate as integration completes and M&A normalizes in 2025 .

Financial Results

Quarterly trajectory (oldest → newest)

MetricQ2 2024Q3 2024Q4 2024
Revenue ($USD Millions)$762.1 $770.4 $864.4
Adjusted EBITDA ($USD Millions)$118.3 $128.6 $163.8
Adjusted EBITDA Margin %15.5% 16.7% 18.9%
Net (Loss) Attributable to SGRY ($USD Millions)N/A$(31.7) $(108.5)
GAAP Diluted EPS ($)N/A$(0.25) $(0.86)
Adjusted Diluted EPS ($)N/A$0.19 $0.44
Consolidated Cases (count)166,500 162,635 174,185
Revenue per Case ($)N/A$4,737 $4,963

Year-over-year Q4 comparison

MetricQ4 2023Q4 2024
Revenue ($USD Millions)$735.4 $864.4
Adjusted EBITDA ($USD Millions)$142.3 $163.8
Adjusted EBITDA Margin %19.4% 18.9%
Net (Loss) Attributable to SGRY ($USD Millions)$(1.0) $(108.5)
GAAP Diluted EPS ($)$(0.01) $(0.86)
Adjusted Diluted EPS ($)$0.44 $0.44
Consolidated Cases (count)153,193 174,185
Revenue per Case ($)$4,800 $4,963

Same-facility KPIs and mix

KPIQ2 2024Q3 2024Q4 2024
Same-facility Revenue Growth (days adjusted)9.9% 4.2% 5.6%
Same-facility Case Growth (days adjusted)3.9% 3.7% 5.1%
Same-facility Revenue per Case Growth (days adjusted)5.7% 0.5% 0.5%

Segment breakdown (data available for Q3)

SegmentQ3 2024 Revenue ($USD Millions)Q3 2024 Adjusted EBITDA ($USD Millions)
Surgical Facility Services$735.4 $149.6
Ancillary Services$35.0 $0.7
All OtherN/A$(21.7)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($USD Billions)FY2025N/A$3.30–$3.45 Initial
Adjusted EBITDA ($USD Millions)FY2025N/A$555–$565 Initial
Adjusted EBITDA impact of late‑Q4 2024 divestituresFY2025N/A~$11 Initial
M&A Capital Deployment ($USD Millions)FY2025N/A~$200 (target) Initial
Operating Cash FlowFY2025N/AIncrease expected (no range) Initial
Maintenance Capex ($USD Millions)FY2025N/A$40–$50 Initial
Tax (Federal)FY2025–2029N/ANo federal cash taxes expected until 2029 Initial
Managed Care ContractingCY2025N/A>99% of expected rates secured Initial
Revenue ($USD Billions)FY2024>$3.075 $3.114 Exceeded (Revenue)
Adjusted EBITDA ($USD Millions)FY2024>$508 $508.2 Met

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Orthopedics/Total JointsTotal shoulders added; 46% H1 total joints growth Total joints +50% YoY in Q3; strong MSK growth Total joints +50% in 2024; 14 robots; >750 new physicians Strengthening
Rate/Managed CareRate growth 5.7%; margin +50 bps Margin +100 bps; continued procurement/revenue cycle execution 99% 2025 rates secured; ~3% Medicare increase; margin confidence Improving visibility
Supply Chain/TariffsNot highlightedBaxter IV liquids issue managed; no case cancellations Tariff exposure ~1% worst case embedded in 2025 guide Managed headwind
Regulatory/Site NeutralityIPO list context; ASC covered list Limited Medicaid/exchange exposure; elective focus Worst‑case revenue impact ~1%; likely net tailwind Neutral to positive
Weather/MacroSeasonality commentary Hurricanes marginally impacted collections January weather causes rescheduling; Q1 pattern ~23% revenue, ~18.5% adj. earnings Transient
Labor/SWBInflation moderating Operating margins improving SWB pressure moderated; 180 bps better QoQ vs revenue Normalizing
M&A cadence~$280M YTD by Q2; pipeline robust Additions in Chicago; leverage 3.8x ~$400M in 2024; ~$200M target in 2025; $53M closed YTD Normalizing in 2025
De novos10+ in pipeline; OhioHealth opening 5 opened YTD; plan 10 per year 8 opened in 2024; 12 in pipeline; plan ≥10/year Expanding

Management Commentary

  • Strategy and scale: “We reported full year adjusted EBITDA growth of 16% and net revenue growth of 13.5%… This is the first time Surgery Partners has recorded revenue over $3 billion and adjusted EBITDA over $0.5 billion.” (Eric Evans, CEO) .
  • Rate visibility: “Our managed care team… has already secured over 99% of our expected contractual rates for 2025. When combined with Medicare rate increases, which were approximately 3% for 2025, we have high confidence in… rate growth.” (Eric Evans) .
  • Liquidity and capital markets: “We ended the quarter with $270 million in cash… over $770 million in total liquidity.” (Dave Doherty, CFO) . “We will have sufficient liquidity… to support future M&A… without having to access incremental capital… over the next 5 years.” (Dave Doherty) .
  • Regulatory stance: “We believe none [site-neutral frameworks]… will have a material impact… worst‑case scenario would be limited to 1% of our net revenue.” (Eric Evans) .
  • Taxes: “The net loss… includes a non-cash valuation allowance… The Company is not expected to pay federal income taxes until 2029.” (Press release) .

Q&A Highlights

  • Site neutrality impact sizing: Worst‑case ~1% revenue exposure; ~2/3 in larger facilities and ~1/3 in ASCs; management expects likely neutral-to-positive as procedures shift to SGRY sites .
  • Q1 cadence: January weather impacts largely rescheduled; modeling suggests ~23% of annual revenue and ~18.5% of adjusted earnings in Q1 .
  • Divestitures in guidance: ~$11M Adjusted EBITDA headwind considered; less than ~2% revenue growth drag within FY2025 guide .
  • Operating leverage: Q4 operating costs elevated by corporate bonus accruals and minor payer-mix pressure; viewed as temporary .
  • Transaction/integration costs: ~$100.1M in 2024; expected to significantly abate in 2025 as integration complexity wanes; M&A target ~$200M .
  • Deferred tax valuation allowance: Technical accounting driver; cash tax remains minimal (~$2M/year across states; no federal) .

Estimates Context

  • S&P Global consensus for Q4 EPS and revenue was unavailable at the time of analysis due to data limits; therefore, we cannot quantify the beat/miss vs consensus. One analyst noted revenue “beat by more than 4%” while EBITDA was roughly in line, citing operating cost factors .
  • If consensus becomes available, re-run comparisons to update beat/miss characterization. Values would be retrieved from S&P Global.

Key Takeaways for Investors

  • Revenue growth and same-facility momentum remained robust in Q4; orthopedics (especially total joints) is a durable growth engine, supported by physician recruitment and robotics investments .
  • Non-GAAP adjustments matter: GAAP loss reflects non‑cash DTA valuation allowance; Adjusted Diluted EPS of $0.44 indicates underlying performance; expect no federal cash taxes until 2029, aiding cash generation .
  • 2025 setup is constructive: high rate visibility (>99% contracted), margin expansion drivers (procurement, revenue cycle), normalized M&A ($~200M), and integration cost abatement should support double-digit Adjusted EBITDA growth .
  • Liquidity and leverage framework: >$770M liquidity and 3.7x credit‑agreement net debt/EBITDA; management plans deleveraging over medium term without accessing capital markets .
  • Regulatory risk appears contained: management sizes site‑neutral worst‑case at ~1% of revenue and sees potential for tailwinds as cases shift to lower‑cost settings .
  • Near-term trading: Special committee review of Bain’s $25.75 proposal is a headline catalyst; watch for 8‑K updates and Q1 cadence given weather rescheduling .
  • Medium-term thesis: Scale advantages in procurement/revenue cycle, continued MSK mix shift, and de novo expansion (≥10/year) provide multi-year compounding opportunities .