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8-K - 8-K - Surgery Partners, Inc.a17-15150_28k.htm

Exhibit 99.1

 

SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

The following summary pro forma financial data has been derived from our historical financial statements and the historical financial statements of National Surgical Healthcare included elsewhere in this offering memorandum. The assumptions underlying the pro forma adjustments are described in the section entitled “Unaudited Pro Forma Condensed Combined Financial Information.”

 

The unaudited pro forma condensed combined balance sheet of Surgery Partners as of March 31, 2017 gives effect to the Transactions as if they occurred on March 31, 2017 and combines the unaudited condensed consolidated historical balance sheets of each of the Parent and National Surgical Healthcare as of March 31, 2017.

 

The unaudited pro forma condensed combined statement of operations of Surgery Partners for the LTM Period ended March 31, 2017 gives effect to the Transactions as if they occurred on January 1, 2016. The unaudited pro forma condensed combined statement of operations of Surgery Partners for the year ended December 31, 2016 and for the three month periods ended March 31, 2017 and 2016 give effect to the Transactions as if they occurred on January 1, 2016.

 

The unaudited pro forma condensed combined financial statements have been prepared by our management for illustrative purposes only and are not necessarily indicative of the consolidated financial position or results of operations that would have been realized had the Transactions occurred on the dates indicated, nor is it meant to be indicative of any future consolidated financial position or future results of operations that the combined company will experience. The pro forma adjustments are based on the preliminary assumptions and information available that management believes are reasonable under the circumstances and give pro forma effect to events that are (1) directly attributable to the Transactions on a pro forma basis, (2) factually supportable and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results. The unaudited pro forma condensed combined statements of operations exclude certain non-recurring charges that have been or will be incurred in connection with the Transactions, including certain expenses related to the Transactions, including acquisition-related investment banker and professional fees of both Surgery Partners and NSH and the write-off of bridge commitment fees that we will incur in connection with the closing of the Transactions. Upon the closing of the Transactions, we expect to record an expense to reflect these charges, which, in the aggregate, we estimate will be approximately $48.6 million. Such amounts have been reflected in the unaudited pro forma condensed combined balance sheet.

 

The consolidated financial statements and accounting records of National Surgical Healthcare used to derive the unaudited pro forma condensed combined financial information have been adjusted to remove the impact of Casper, which will not be acquired by us as part of the NSH Acquisition. National Surgical Healthcare is a subsidiary of NSH (the company being acquired in the NSH Acquisition). As a result of applicable SEC and public company financial reporting requirements, we will publicly report the consolidated financial statements of NSH Holdco, Inc. (which National Surgical Healthcare has not historically prepared and which are not currently available), rather than the National Surgical Healthcare consolidated financial statements included in this offering memorandum. These publicly reported NSH financial statements will differ from the National Surgical Healthcare financial statements included in this offering memorandum on account of such applicable financial reporting requirements and we cannot assure you that any such difference will not be material.

 

The summary unaudited pro forma financial data should be read in conjunction with the information contained in “Capitalization,” “Unaudited Pro Forma Condensed Combined Financial Information,” “Selected Consolidated Historical Financial and Other Information,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included herein, and the historical audited consolidated financial statements and the accompanying notes and the audited and unaudited condensed

 

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consolidated financial statements and the accompanying notes of Surgery Partners and National Surgical Healthcare, respectively, included herein. The unaudited pro forma condensed combined financial statements do not purport to represent what our results of operations, balance sheet data or financial

 

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information would have been if the Transactions had occurred as of the dates indicated or what such results will be for any future periods.

 

 

 

Unaudited Pro Forma Financial Information for the Transactions

 

 

 

Year Ended
December 31,

 

Three Months
Ended
March 31,

 

LTM Period
Ended
March 31,

 

(in thousands, except shares and per share amounts)

 

2016

 

2017

 

2016

 

2017

 

Consolidated Statements of Operations Data

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,679,678

 

$

422,902

 

$

391,078

 

$

1,711,502

 

Operating expenses:

 

 

 

 

 

 

 

 

 

Total cost of revenues

 

1,213,703

 

313,839

 

289,543

 

1,237,999

 

General and administrative expenses

 

79,586

 

21,681

 

17,720

 

83,547

 

Depreciation and amortization

 

65,898

 

17,457

 

16,253

 

67,102

 

Provision for doubtful accounts

 

38,179

 

9,587

 

7,651

 

40,115

 

Income on equity investments

 

(7,560

)

(1,973

)

(1,286

)

(8,247

)

Loss (gain) on disposal of investments and long-lived assets, net

 

2,946

 

1,198

 

(289

)

4,433

 

Merger transaction costs

 

8,038

 

(1,531

)

3,172

 

3,335

 

Loss on debt extinguishment

 

11,876

 

 

8,281

 

3,595

 

Gain on litigation

 

(14,101

)

 

 

(14,101

)

Electronic health records incentives

 

(3,327

)

(135

)

(93

)

(3,369

)

Other (income) expense

 

55

 

(2

)

57

 

(4

)

Total operating expenses

 

1,395,293

 

360,121

 

341,009

 

1,414,405

 

Operating income

 

284,385

 

62,781

 

50,069

 

297,097

 

Tax receivable agreement expense

 

(3,733

)

 

 

(3,733

)

Interest expense, net

 

(153,674

)

(38,265

)

(34,898

)

(157,041

)

Income before income taxes and discontinued operations

 

126,978

 

24,516

 

15,171

 

136,323

 

Provision for income taxes

 

7,759

 

2,631

 

1,222

 

9,168

 

Income from continuing operations

 

119,219

 

21,885

 

13,949

 

127,155

 

(Less) Net income attributable to noncontrolling interests

 

(112,124

)

(25,405

)

(23,645

)

(113,884

)

Net loss attributable to Surgery Partners

 

7,095

 

(3,520

)

(9,696

)

13,271

 

Less: Preferred Dividends

 

(30,604

)

(7,370

)

(7,370

)

(30,604

)

Net (loss) income attributable to Common Shareholders

 

(23,509

)

(10,890

)

(17,066

)

(17,333

)

Net income (Loss) Per Share:

 

 

 

 

 

 

 

 

 

Net income (loss) per share attributable to common stockholders:

 

 

 

 

 

 

 

 

 

Basic

 

(0.49

)

(0.23

)

(0.36

)

(0.36

)

Diluted(1)

 

(0.49

)

(0.23

)

(0.36

)

(0.36

)

Weighted average common shares outstanding

 

 

 

 

 

 

 

 

 

Basic

 

48,018,944

 

48,019,652

 

48,017,226

 

48,019,652

 

Diluted(1)

 

48,018,944

 

48,019,652

 

48,017,226

 

48,019,652

 

Other Data:

 

 

 

 

 

 

 

 

 

Adjusted EBITDA(2)

 

256,308

 

58,006

 

55,009

 

259,305

 

Adjusted EBITDA as a % of revenues(2)

 

15.3

%

13.7

%

14.1

%

15.2

%

Credit Agreement EBITDA(2)

 

317,074

 

 

 

 

 

311,321

 

Consolidated Balance Sheet Data (as of end of period):

 

 

 

 

 

 

 

 

 

Working capital

 

 

 

 

 

 

 

301,514

 

Total assets

 

 

 

 

 

 

 

3,567,438

 

Long-term debt, less current maturities

 

 

 

 

 

 

 

2,034,174

 

Total equity

 

 

 

 

 

 

 

456,882

 

 

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(1)         The impact of potentially dilutive securities for the periods presented was not considered because the effect would be anti-dilutive in those periods.

 

(2)         Credit Agreement EBITDA, Adjusted EBITDA and EBITDA are non-GAAP financial measures. These measures should not be viewed as an alternative to GAAP measures of performance. The presentation of Credit Agreement EBITDA, Adjusted EBITDA and EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Surgery Partners — Credit Agreement EBITDA, Adjusted EBITDA and EBITDA.”

 

When we use the term “Adjusted EBITDA,” it is referring to net income minus (a) net income attributable to non-controlling interests plus (b) income tax (benefit) expense, (c) interest and other expense, net, (d) depreciation and amortization, (e) management fee, (f) merger transaction, integration and practice acquisition costs, (g) non-cash stock compensation expense, (h) loss on debt refinancing, (i) contingent acquisition compensation expense, (j) tax receivable agreement expense, (k) gain on litigation settlement, (l) loss (gain) on disposal or impairment of long-lived assets and (m) adjustments related to the NSH Acquisition. Non-controlling interests represent the interests of third parties, such as physicians, and in some cases, healthcare systems that own an interest in surgical facilities that we consolidate for financial reporting purposes. Our operating strategy is to apply a market-based approach in structuring its partnerships with individual market dynamics driving the structure. We believe that it is helpful to investors to present Adjusted EBITDA as defined above because it excludes the portion of net income attributable to these third-party interests and clarifies for investors our portion of Adjusted EBITDA generated by its surgical facilities and other operations.

 

We use Adjusted EBITDA as a measure of liquidity. It is included because we believe that it provides investors with additional information about its ability to incur and service debt and make capital expenditures.

 

Adjusted EBITDA is not a measurement of financial performance or liquidity under generally accepted accounting principles (“GAAP”). It should not be considered in isolation or as a substitute for net income, operating income, cash flows from operating, investing or financing activities, or any other measure calculated in accordance with generally accepted accounting principles. The items excluded from Adjusted EBITDA are significant components in understanding and evaluating financial performance and liquidity. The Company’s calculation of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.

 

When we use the term “Credit Agreement EBITDA,” we are referring to Adjusted EBITDA, as defined above, further adjusted for (a) synergies, (b) acquisitions, (c) non-cash expenses and (d) de novo start-up losses. These adjustments do not relate to our historical financial performance and instead relate to estimates compiled by our management and calculated in conformance with the definition of “Consolidated EBITDA” used in our Existing Credit Agreement.

 

We have included Credit Agreement EBITDA, Adjusted EBITDA and EBITDA in this offering memorandum because we believe it is useful to investors in evaluating our operating performance compared to that of other companies in our industry, as its calculation eliminates the effects of financing, income taxes and the accounting effects of capital spending, as these items may vary for different companies for reasons unrelated to overall operating performance. When analyzing our operating performance, investors should not consider Credit Agreement EBITDA, Adjusted EBITDA or EBITDA in isolation or as a substitute for net loss, cash flows from operating activities or other operation statement or cash flow statement data prepared in accordance with GAAP. Our calculation of EBITDA is not necessarily comparable to those of other similarly titled measures reported by other companies. The following table

 

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represents the reconciliation of Credit Agreement EBITDA, Adjusted EBITDA and EBITDA to net income (loss) attributable to Surgery Partners for the periods indicated below:

 

 

 

Unaudited Pro Forma for the Transactions

 

 

 

 

 

Three Months

 

LTM Period

 

 

 

Year Ended

 

Ended

 

Ended

 

 

 

December 31,

 

March 31,

 

March 31,

 

(in thousands)

 

2016

 

2017

 

2016

 

2017

 

Consolidated Statements of Operations Data

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

119,219

 

21,885

 

13,949

 

127,155

 

(Minus):

 

 

 

 

 

 

 

 

 

Net income attributable to non-controlling interests

 

112,124

 

25,405

 

23,645

 

113,884

 

Plus (minus):

 

 

 

 

 

 

 

 

 

Income tax expense (benefit)

 

7,759

 

2,631

 

1,222

 

9,168

 

Interest expense, net

 

153,674

 

38,265

 

34,898

 

157,041

 

Depreciation and amortization

 

65,898

 

17,457

 

16,253

 

67,102

 

EBITDA

 

234,426

 

54,833

 

42,677

 

246,582

 

Plus:

 

 

 

 

 

 

 

 

 

Merger transaction, integration and practice acquisition costs

 

10,917

 

(1,277

)

3,917

 

5,723

 

Tax receivable agreement expense

 

3,733

 

 

 

3,733

 

Non-cash stock compensation expense

 

2,021

 

634

 

133

 

2,522

 

Loss on debt refinancing

 

11,876

 

 

8,281

 

3,595

 

Contingent acquisition compensation expense

 

5,092

 

2,033

 

 

7,125

 

Gain on litigation settlement

 

(14,101

)

 

 

(14,101

)

Loss (gain) on disposal of investments and long-lived assets, net

 

2,355

 

1,196

 

(206

)

3,757

 

NSH Acquisition adjustment

 

(11

)

587

 

207

 

369

 

Adjusted EBITDA

 

256,308

 

58,006

 

55,009

 

259,305

 

Plus:

 

 

 

 

 

 

 

 

 

Acquisitions(a)

 

33,257

 

 

 

 

 

26,107

 

Non-cash expenses

 

1,596

 

 

 

 

 

1,596

 

De novo start-up losses(b)

 

913

 

 

 

 

 

552

 

NSH pro forma adjustment(c)

 

5,000

 

 

 

 

 

3,761

 

NSH Acquisition cost synergies(d)

 

20,000

 

 

 

 

 

20,000

 

Credit Agreement EBITDA

 

317,074

 

 

 

 

 

311,321

 

 


(a)         Represents impact of acquired anesthesia entities, physician practices and surgical facilities as if each acquisition had occurred on January 1, 2016, including cost savings from reductions in corporate overhead, supply chain rationalization, enhanced physician engagement, improved payor contracting and revenue synergies associated with rolling out our suite of ancillary services throughout both the acquired entities and Symbion portfolio. For the avoidance of doubt, this does not represent or include any potential or actual impact of the NSH Acquisition. For purposes of this pro forma presentation, revenue synergies of $7.5 million from other business initiatives (unrelated to the NSH Acquisition) as defined in the Existing Credit Agreement have not been included in Credit Agreement EBITDA.

 

(b)         Relates to the losses associated with de novo in-market physician practices opened during the LTM Period ended March 31, 2017.

 

(c)          Represents the estimated pro forma impact of various NSH facility expansions and acquisitions, as well as the total joint program, calculated in conformance with the definition of “Consolidated EBITDA” used in the credit agreements governing our credit facilities.

 

(d)         Represents the impact of the supplies and corporate synergies anticipated in connection with the NSH Acquisition, including, with respect to supplies, cost savings related to consolidation and renegotiation of supply vendor contracts and with respect to corporate, cost savings related to the consolidation of the corporate offices and related staff, systems and services.

 

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