Surgery Partners (NASDAQ:SGRY) Exceeds Q4 Expectations
Healthcare company Surgery Partners (NASDAQ:SGRY) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 17.5% year on year to $864.4 million. The company expects the full year’s revenue to be around $3.38 billion, close to analysts’ estimates. Its non-GAAP profit of $0.44 per share was 16.7% above analysts’ consensus estimates.
Revenue: $864.4 million vs analyst estimates of $828.7 million (17.5% year-on-year growth, 4.3% beat)
Adjusted EPS: $0.44 vs analyst estimates of $0.38 (16.7% beat)
Adjusted EBITDA: $163.8 million vs analyst estimates of $164 million (18.9% margin, in line)
Management’s revenue guidance for the upcoming financial year 2025 is $3.38 billion at the midpoint, in line with analyst expectations and implying 8.4% growth (vs 13.4% in FY2024)
EBITDA guidance for the upcoming financial year 2025 is $560 million at the midpoint, below analyst estimates of $568.9 million
Operating Margin: 14.7%, in line with the same quarter last year
Free Cash Flow Margin: 10.3%, up from 5.8% in the same quarter last year
Sales Volumes rose 5.1% year on year (1.4% in the same quarter last year)
Market Capitalization: $3.04 billion
Eric Evans, Chief Executive Officer, stated, “We are pleased to report another year of mid-teens growth, while continuing to expand margin. Our 2024 results are a continuation of the Company's consistent and predictable organic growth, with same-facility revenue growth of 8.0%. During 2024 we deployed nearly $400 million on accretive acquisitions and opened eight de novo facilities to further expand our portfolio of high quality, short-stay surgical facilities offering exceptional value to our patients, health plans, and the communities we serve. I would like to thank my colleagues as well as our physician partners for once again delivering excellent results and for positioning Surgery Partners for sustained success in 2025 and beyond.”
Company Overview
Founded in 2004, Surgery Partners (NASDAQ:SRGY) operates surgical facilities offering a range of outpatient procedures such as orthopedics, spine surgery, and pain management.
Outpatient & Specialty Care
The outpatient and specialty care industry delivers targeted medical services in non-hospital settings that are often cost-effective compared to inpatient alternatives. This means that they are more desired as rising healthcare costs and ways to combat them become more and more top-of-mind. Outpatient and specialty care providers boast revenue streams that are stable due to the recurring nature of treatment for chronic conditions and long-term patient relationships. However, their reliance on government reimbursement programs like Medicare means stroke-of-the-pen risk. Additionally, scaling a network of facilities can be capital-intensive with uneven return profiles amid competition from integrated healthcare systems. Looking ahead, the industry is positioned to grow as demand for outpatient services expands, driven by aging populations, a rising prevalence of chronic diseases, and a shift toward value-based care models. Tailwinds include advancements in medical technology that support more complex procedures in outpatient settings and the increasing focus on preventive care, which can be aided by data and AI. However, headwinds such as reimbursement rate cuts, labor shortages, and the financial strain of digitization may temper growth.
Sales Growth
Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, Surgery Partners grew its sales at a decent 11.2% compounded annual growth rate. Its growth was slightly above the average healthcare company and shows its offerings resonate with customers.
Surgery Partners Quarterly Revenue
We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Surgery Partners’s annualized revenue growth of 10.7% over the last two years aligns with its five-year trend, suggesting its demand was stable.
Surgery Partners Year-On-Year Revenue Growth
We can better understand the company’s revenue dynamics by analyzing its number of units sold. Over the last two years, Surgery Partners’s units sold averaged 3% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.
Surgery Partners Units Sold
This quarter, Surgery Partners reported year-on-year revenue growth of 17.5%, and its $864.4 million of revenue exceeded Wall Street’s estimates by 4.3%.
Looking ahead, sell-side analysts expect revenue to grow 9% over the next 12 months, a slight deceleration versus the last two years. Despite the slowdown, this projection is noteworthy and suggests the market is baking in success for its products and services.
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Operating Margin
Surgery Partners has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 12.1%, higher than the broader healthcare sector.
Analyzing the trend in its profitability, Surgery Partners’s operating margin rose by 1.4 percentage points over the last five years, as its sales growth gave it operating leverage. Zooming into its more recent performance, however, we can see the company’s margin has decreased by 2.4 percentage points on a two-year basis. If Surgery Partners wants to pass our bar, it must prove it can expand its profitability consistently.
Surgery Partners Trailing 12-Month Operating Margin (GAAP)
This quarter, Surgery Partners generated an operating profit margin of 14.7%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Surgery Partners’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.
Surgery Partners Trailing 12-Month EPS (Non-GAAP)
In Q4, Surgery Partners reported EPS at $0.44, in line with the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Surgery Partners’s full-year EPS of $0.94 to grow 11.1%.
Key Takeaways from Surgery Partners’s Q4 Results
We enjoyed seeing Surgery Partners beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its full-year EBITDA guidance missed and its full-year revenue guidance was in line with Wall Street’s estimates. Overall, this quarter was mixed but still had some key positives. The stock remained flat at $24.14 immediately following the results.
