What happened
Shares of Surgery Partners Inc. (SGRY 1.75%), a provider of surgical care services, tanked 52% shortly after the opening bell this morning in response to an earnings miss on the top and bottom lines. The stock recovered somewhat and was off by about 34.7% as of 11:00 a.m. EDT during Wednesday's session.
So what
Surgery Partners Inc.'s rapidly expanding business appears to be experiencing growing pains. Second-quarter revenue fell just 0.5%, but total operating expenses grew 4.9% compared to the same period last year. The company's operations turned a $37.7 million profit that was 25.9% lower than the year-ago period.
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The slim operating profit was gobbled up by $25.6 million spent servicing a $1.80 billion debt burden, and a loss of $16.1 million attributable to the company's non-controlling interests sent the bottom line into the red. Altogether, the company reported a $4.5 million loss for the three-month period.
Now what
Clearly, getting bigger hasn't helped the company reach sustainable positive cash flows. Citing "recent softness in healthcare utilization" and a "payor mix shift," management revised its full-year outlook downward. Instead of 9% to 11% revenue growth forecast a few months ago, the company now expects revenue to fall between $1.18 billion and $1.20 billion. Hitting the top end of the provided range would represent a 4.7% increase over 2016 revenue.
Closer to the bottom line, adjusted earnings before interest, taxes, depreciation, and amortization are expected to land between $174 million and $181 million this year. Hitting the top end of the new expected range would work out to a meager 1% gain over $179.3 million in adjusted EBITDA reported in 2016. That's a big disappointment considering the year-to-year 10% to 15% growth range management issued three months ago.
