Image by Larry White from PixabaySurgery Partners Inc. (Nasdaq: SGRY) continues to benefit from the shift toward higher-acuity procedures being performed in lower-cost outpatient settings and surgical technology advancements.
The increased demand for services linked to America’s rapidly aging population is likewise driving growth for the ambulatory surgery center (ASC) operator.
“We expect that March [toward higher-acuity procedures] to continue,” Surgery Partners CEO Eric Evans said Tuesday during the company’s Q2 2024 earnings call. “It’s sometimes incremental; sometimes it has got big jumps like it did during COVID, when we got all the cardiology procedures and the rest of orthopedics.”
Founded in 2004, the Brentwood, Tennessee-based Surgery Partners has over 200 locations in 33 states, including ASCs, surgical hospitals, multi-specialty physician practices and urgent care facilities.
In particular, Surgery Partners is seeing growth in its orthopedics operations, Evans said.
The company reported a 46% increase in total joint replacements performed in ASCs during the first half of 2024 compared to the same period in 2023.
“We do not see this growth slowing in the mid-to long-term, as hip and knee replacements continue to transition into the ASC setting as well as our early successes in effectively recruiting surgeons specializing in total shoulder procedures,” Evans said. “That shift in site of care is in the very early innings, and we are well positioned with our recruiting team and our portfolio of facilities to capture total shoulder procedures in our setting.”
Surgery Partners’ leadership team likewise touted its M&A progress in 2024 on Tuesday’s call, describing it as well ahead of schedule, in addition to its de novo pipeline.
Expansion, expansion, expansion
Through the end of the second quarter, Surgery Partners deployed nearly $280 million on strategic acquisitions, including a $60 million deal in January.
The ASC company targets about $200 million a year in M&A, meaning any other transactions Surgery Partners announced in 2024 will be “icing” on the cake, according to Executive Chairman Wayne DeVeydt.
“We continue to have a strong pipeline,” DeVeydt said. “We like the optionality of that pipeline. We have LOIs on a number of items, and a number of items that are under LOI. So I don’t think we’re going to postpone acquisitions if the timing is right and the quality of the asset is there.”
In total, Surgery Partners added five new facilities to its portfolio, with those additions located across the Southeast, Midwest, West Coast, Northeast and South Central regions. The new facilities are primarily focused on multi-specialty and high-acuity orthopedic procedures, which Evans said are expected to drive significant growth in case volume and revenue moving forward.
“We continue to be a partner of choice, and we like where we stand relative to the current pipeline,” DeVeydt added. “And if opportunities present themselves, we’ll take advantage of them in the back half of the year.”
Meanwhile, in terms of recruitment efforts, Surgery Partners is targeting orthopedic surgeons, especially those specializing in total shoulder procedures, which were added to the ASC covered list at the beginning of the year.
“Our efforts to pursue higher-acuity procedures continue to produce strong results, particularly with total joint replacements increasing significantly,” Evans said.
In addition to the five new acquired facilities, the Surgery Partners opened a new de novo ASC in partnership with OhioHealth and has 10 fully syndicated de novos under construction, slated to open by early 2025.
These facilities are primarily multi-specialty with a concentration in orthopedics.
“We remain optimistic about our de novo process and pipeline and look forward to providing additional detail as these become meaningful additions to our portfolio,” Evans said.
Strong financial performance
Surgery Partners reported a significant increase in net revenue for Q2 2024, reaching $762 million, a 14.2% growth over the previous year.
This was driven by a 9.9% increase in same-facility net revenue, which included a 3.9% growth in surgical case volume.
Surgery Partners reported 166,500 consolidated surgical cases in the quarter.
“We believe our results reflect the strength and durability of our business model as we pursue this highly fragmented market, which currently consists of over 6,000 CMS-certified ASCs and an estimated $150 billion total addressable market, representing both current and expected surgical procedures to be formed in an outpatient setting in the coming years,” DeVeydt said during the call.
The company added over 200 new physicians in Q2 2024, nearly half of whom specialize in high-acuity areas such as orthopedics, spine and cardiology. This brings the total recruits for the first half of the year to over 400, surpassing the previous year’s recruitment numbers, Evans said.
“Our recruitment activities and growth in recent de novos and acquisitions have continued to fuel our growth, especially in musculoskeletal procedures, which saw a 19% increase over last year,” Evans said.
Recently, Bloomberg reported that Surgery Partners was exploring a sale. Executives did not comment on that news during the call.
