SEC Comment Letter for Surgery Partners, Inc. (SGRY) (CIK 0001638833) (SGRY) — May 20, 2015
Surgery Partners, Inc. (SGRY) (CIK 0001638833)
Date: May 20, 2015 · CIK: 0001638833 · Accession: 0000000000-15-027373
AI Filing Summary & Sentiment
Reasoning
Letter
May 19 , 2015 Via E -mail Michael Doyle Chief Executive Officer Surgery Partners, Inc. 40 Burton Hills Boulevard, Suite 500 Nashville, Tennessee 37215
Re: Surgery Partners, Inc. Draft Registration Statement on Form S -1 Submitted April 22, 2015 CIK No. 0001638833
Dear Mr. Doyle:
We have reviewed your draft registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure.
Please respond to this letter by providing the requested information and either submitting an amended draft registration statement or publicly filing your registration statement on EDGAR. If you do not believe our comments apply to your facts and circumstances or do not believe an amendment is appropriate, please tell us why in your response.
After reviewing the information you provide in response to these comments and your amended draft registration stateme nt or filed registration statement, we may have additional comments.
Market and Other Industry Data, page ii
1. We note your statements, “We have not independently verified any of the data from third -party sources nor have we ascertained the underlying ec onomic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research which we believe to be reliable based upon our management’s knowledge of the industry, have not been independently verified.” It is not appropriat e to infer that you are not liable for statements included in your registration statement. Please revise your disclosure to delete the statements referenced above.
Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 2
Prospectus Summary Patients, page 3
2. Please quantify how many patients participated in your internal surveys conducted in 2014, the degree of participation and how the patient satisfaction rate is measured allowing you to achieve a 94% patient satisfaction rate.
3. Please revise your disclosure to quantify the patient satisfaction rate indu stry average and describe how this rate is measured.
4. You state that according to internal survey’s conducted in 2014, your patients have expressed a 94% patient satisfaction rate, which exceeds the industry average. Please expand your disclosure to descr ibe these surveys and whether they are the same as ones used to gather industry data. If not, please explain why it is appropriate to compare a satisfaction rate achieved from your own internal surveys to an industry satisfaction rate that was achieved us ing different surveys.
5. Please expand your disclosure to briefly describe CMS’ Ambulatory Surgical Center Quality Reporting program’s six key core ASC quality measures when you first refer to them in this section.
6. We note the statement that surgeries in your facilities are less expensive than the same surgeries performed in a hospital outpatient department. Please expand the discussion to clarify whether you are referring solely to the cost of the use of the facility or whether the comparison includes su rgeon fees, anesthesiology fees, etc. In addition, please clarify whether your facility charge is the same whether the surgery is performed in one of your ASCs or surgical hospitals. We may have additional comments.
Summary Consolidated Historical and Pro Forma Condens ed Combined Financial… , page 15
7. Please tell us how you concluded it was appropriate to present pro forma cash flow information. Tell us the nature and amount of the adjustments that were used to calculate the pro forma cash flow amounts.
Risk Factors Risks Related to Our Business and Industry We may become involved in litigation which could negatively impact the value…, page 27
8. We note your disclosure that in certain instances former employees have brought claims against you. If you have had actions brought against you which caused a re duction in your revenues resulting in a material adverse effect on your business in the recent past, please discuss the claim and the consequences of the claim.
Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 3
Certain of our partnership and operati ng agreements contain termination dates…, page 30
9. We note that certain of your limited partnership, general partnership and limited liability company agreements have termination dates by which the agreement expires by its terms. Please expand your disclo sure to quantify the number of agreements which will expire within the next three years and whether the expiration of such agreement if not renewed will have a material adverse effect on your business.
Our variable rate indebtedness subject us to interest rate risk, which could cause…, page 36
10. Please expand your disclosure in this risk to provide the amounts currently outstanding under your Term Loans and Revolving Facility and to describe the interest rates to which your loans are subject.
Use of Proceeds, page 58
11. Please revise your disclosure to provide the amount of proceeds that will be used to repay a portion of the Second Lien Term Loan. Please make confirming revisions in the other areas of your prospectus where you provide a discussion of how proceeds from this offering will be used.
Capitalization, page 60
12. Please separate the line item cash and cash equivalents with a double underline to clearly separate it from your capitalization. Remove the line item ‘Total liabilities and stockholde rs’ equity (deficit)’ as not all liabilities from the balance sheet are included in the capitalization table. Please explain why you have not populated the historical amounts for stockholders’ equity (deficit), non -controlling interests and total historic al capitalization.
Long Term Debt Revolver, page 85
13. Please file the credit agreement that governs the Revolver as an exhibit.
Business One of the Nation’s Largest and Fastest Growing Surgical Services Platform…, page 95
14. In this section where you first discuss Certificate of Need (“CON”) laws and on page 116 where you provide further discussion of these laws, please explain why CON laws only apply to your competitors and present a competitive advantage to existing operators such as yourself.
Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 4
Our Operations Overview General, page 105
15. We note your typical leases are for 10 years with two five year renewal options. Please quantify the number of leases you have for your facilities and the number of those leases which are set to expire within the nex t three years.
Competition, page 111
16. Please disclose where you rank among the largest ASC operators listed in this section.
Executive Compensation Annual Cash Bonuses, page 137
17. We note that Mr. Doyle, Ms. Sparks and Mr. Crysel were eligible to earn target cash bonuses based on the achievement of specified EBITDA targets for the company as set forth in their employment agreements. Please expand your disclosure to describe these EBITDA targets in this section of your prospectus.
Incentive Plans, page 140
18. We note that in connection with this offering, you intend to adopt an equity incentive plan and a cash incentive plan. Please expand your disclosure to describe these plans. Also, please file the cash incentive plan as an exhibit.
Principal Stockh olders, page 148
19. Please revise your beneficial ownership table so that it is as of the most recent date practicable.
Index to Consolidated Financial Statements General
20. We note your disclosure on pages 15 and 66 that the prospectus does not include financial statements of Surgery Partners, Inc. as it has been incorporated solely for the purpose of effecting the offering and currently holds no material assets and does not engage in any operations. However, we do not believe this provides a sufficient bas is to omit the audited financial statements of the registrant. Please provide audited financial statements of the registrant Surgery Partners, Inc. as required by Rule 3 -01(a) of Regulation S -X, or tell us why you believe such financial statements are not required.
Consolidated Statements of Operations, page F -5
21. You have disclosed on page F -18 that the company does not believe earnings per share to be a meaningful presentation in the financial statements. Therefore please clarify when
Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 5
the line items for net income (loss) per share and weighted average common shares outstanding will be populated in the statement of operations and what they will represent. Please clarify how the 1,000 shares of outstanding common stock shown in the state ment of stockholders’ equity will be considered in these calculations.
Consolidated Statements of Stockholders’ Equity, page F -7
22. It appears based on your disclosure on page F -36 that all compensation expense relates to B-Units. Therefore, please exp lain why the line items in 2012 and 2013 are labeled stock -based compensation and the line item for 2014 is unit -based compensation.
Notes to Consolidated Financial Statements 12. Unit -Based Compensation, page F -36
23. You disclose on page F -17 that all opt ion pricing models require the input of highly subjective assumptions including the expected stock price volatility and the expected exercise patterns of the option holders. Please expand your disclosures to describe the specific methods used to determine fair value of the units. Please tell us your consideration of including this as a critical accounting policy.
24. We may have additional comments on your accounting for equity issuances including unit-based compensation and beneficial conversion features. Once you have an estimated offering price, please provide us an analysis explaining the reasons for the differences between recent valuations of your units leading up to the IPO and the estimated offering price.
Other Comments
25. We note that there are a n umber of additional exhibits that still need to be filed. Please provide these exhibits as promptly as possible. Please note that we may have comments on these materials once they are provided.
26. Please confirm that the graphics included in your registrat ion statement are the only graphics you will use in your prospectus. If those are not the only graphics, please provide any additional graphics prior to their use for our review.
27. Please supplementally provide us with copies of all written communications , as defined in Rule 405 under the Securities Act, that you , or anyone authorized to do so on your behalf , present to potential investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications.
If you intend to respond to these comments with an amended draft registration statement, please submit it and any associated correspondence in accordance with the guidance we provide in the Division’s October 11, 2012 announcement on the SEC website at http://www .sec.gov/divisions/corpfin/cfannouncements/drsfilingprocedures101512.htm.
Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 6
Please keep in mind that we may publicly post filing review correspondence in accordance with our December 1, 2011 policy (http://www.sec.gov/divisions/corpfin/cfannouncements/edgarcorrespondence.htm). If you intend to use Rule 83 (17 CFR 200.83) to reque st confidential treatment of information in the correspondence you submit on EDGAR, please properly mark that information in each of your confidential submissions to us so we do not repeat or refer to that information in our comment letters to you.
You may contact Vanessa Robertson at (202) 551 -3649 or Sharon Blume at (202) 551 - 3474 if you have questions regarding comments on the financial statements and related matters. Please contact Johnny Gharib at (202) 551 -3170, John Krug at (202) 551 -3862 or me a t (202) 551-3715 with any other questions.
Sincerely,
/s/ Daniel Greenspan for
Show Raw Text
May 19 , 2015 Via E -mail Michael Doyle Chief Executive Officer Surgery Partners, Inc. 40 Burton Hills Boulevard, Suite 500 Nashville, Tennessee 37215 Re: Surgery Partners, Inc. Draft Registration Statement on Form S -1 Submitted April 22, 2015 CIK No. 0001638833 Dear Mr. Doyle: We have reviewed your draft registration statement and have the following comments. In some of our comments, we may ask you to provide us with information so we may better understand your disclosure. Please respond to this letter by providing the requested information and either submitting an amended draft registration statement or publicly filing your registration statement on EDGAR. If you do not believe our comments apply to your facts and circumstances or do not believe an amendment is appropriate, please tell us why in your response. After reviewing the information you provide in response to these comments and your amended draft registration stateme nt or filed registration statement, we may have additional comments. Market and Other Industry Data, page ii 1. We note your statements, “We have not independently verified any of the data from third -party sources nor have we ascertained the underlying ec onomic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research which we believe to be reliable based upon our management’s knowledge of the industry, have not been independently verified.” It is not appropriat e to infer that you are not liable for statements included in your registration statement. Please revise your disclosure to delete the statements referenced above. Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 2 Prospectus Summary Patients, page 3 2. Please quantify how many patients participated in your internal surveys conducted in 2014, the degree of participation and how the patient satisfaction rate is measured allowing you to achieve a 94% patient satisfaction rate. 3. Please revise your disclosure to quantify the patient satisfaction rate indu stry average and describe how this rate is measured. 4. You state that according to internal survey’s conducted in 2014, your patients have expressed a 94% patient satisfaction rate, which exceeds the industry average. Please expand your disclosure to descr ibe these surveys and whether they are the same as ones used to gather industry data. If not, please explain why it is appropriate to compare a satisfaction rate achieved from your own internal surveys to an industry satisfaction rate that was achieved us ing different surveys. 5. Please expand your disclosure to briefly describe CMS’ Ambulatory Surgical Center Quality Reporting program’s six key core ASC quality measures when you first refer to them in this section. 6. We note the statement that surgeries in your facilities are less expensive than the same surgeries performed in a hospital outpatient department. Please expand the discussion to clarify whether you are referring solely to the cost of the use of the facility or whether the comparison includes su rgeon fees, anesthesiology fees, etc. In addition, please clarify whether your facility charge is the same whether the surgery is performed in one of your ASCs or surgical hospitals. We may have additional comments. Summary Consolidated Historical and Pro Forma Condens ed Combined Financial… , page 15 7. Please tell us how you concluded it was appropriate to present pro forma cash flow information. Tell us the nature and amount of the adjustments that were used to calculate the pro forma cash flow amounts. Risk Factors Risks Related to Our Business and Industry We may become involved in litigation which could negatively impact the value…, page 27 8. We note your disclosure that in certain instances former employees have brought claims against you. If you have had actions brought against you which caused a re duction in your revenues resulting in a material adverse effect on your business in the recent past, please discuss the claim and the consequences of the claim. Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 3 Certain of our partnership and operati ng agreements contain termination dates…, page 30 9. We note that certain of your limited partnership, general partnership and limited liability company agreements have termination dates by which the agreement expires by its terms. Please expand your disclo sure to quantify the number of agreements which will expire within the next three years and whether the expiration of such agreement if not renewed will have a material adverse effect on your business. Our variable rate indebtedness subject us to interest rate risk, which could cause…, page 36 10. Please expand your disclosure in this risk to provide the amounts currently outstanding under your Term Loans and Revolving Facility and to describe the interest rates to which your loans are subject. Use of Proceeds, page 58 11. Please revise your disclosure to provide the amount of proceeds that will be used to repay a portion of the Second Lien Term Loan. Please make confirming revisions in the other areas of your prospectus where you provide a discussion of how proceeds from this offering will be used. Capitalization, page 60 12. Please separate the line item cash and cash equivalents with a double underline to clearly separate it from your capitalization. Remove the line item ‘Total liabilities and stockholde rs’ equity (deficit)’ as not all liabilities from the balance sheet are included in the capitalization table. Please explain why you have not populated the historical amounts for stockholders’ equity (deficit), non -controlling interests and total historic al capitalization. Long Term Debt Revolver, page 85 13. Please file the credit agreement that governs the Revolver as an exhibit. Business One of the Nation’s Largest and Fastest Growing Surgical Services Platform…, page 95 14. In this section where you first discuss Certificate of Need (“CON”) laws and on page 116 where you provide further discussion of these laws, please explain why CON laws only apply to your competitors and present a competitive advantage to existing operators such as yourself. Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 4 Our Operations Overview General, page 105 15. We note your typical leases are for 10 years with two five year renewal options. Please quantify the number of leases you have for your facilities and the number of those leases which are set to expire within the nex t three years. Competition, page 111 16. Please disclose where you rank among the largest ASC operators listed in this section. Executive Compensation Annual Cash Bonuses, page 137 17. We note that Mr. Doyle, Ms. Sparks and Mr. Crysel were eligible to earn target cash bonuses based on the achievement of specified EBITDA targets for the company as set forth in their employment agreements. Please expand your disclosure to describe these EBITDA targets in this section of your prospectus. Incentive Plans, page 140 18. We note that in connection with this offering, you intend to adopt an equity incentive plan and a cash incentive plan. Please expand your disclosure to describe these plans. Also, please file the cash incentive plan as an exhibit. Principal Stockh olders, page 148 19. Please revise your beneficial ownership table so that it is as of the most recent date practicable. Index to Consolidated Financial Statements General 20. We note your disclosure on pages 15 and 66 that the prospectus does not include financial statements of Surgery Partners, Inc. as it has been incorporated solely for the purpose of effecting the offering and currently holds no material assets and does not engage in any operations. However, we do not believe this provides a sufficient bas is to omit the audited financial statements of the registrant. Please provide audited financial statements of the registrant Surgery Partners, Inc. as required by Rule 3 -01(a) of Regulation S -X, or tell us why you believe such financial statements are not required. Consolidated Statements of Operations, page F -5 21. You have disclosed on page F -18 that the company does not believe earnings per share to be a meaningful presentation in the financial statements. Therefore please clarify when Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 5 the line items for net income (loss) per share and weighted average common shares outstanding will be populated in the statement of operations and what they will represent. Please clarify how the 1,000 shares of outstanding common stock shown in the state ment of stockholders’ equity will be considered in these calculations. Consolidated Statements of Stockholders’ Equity, page F -7 22. It appears based on your disclosure on page F -36 that all compensation expense relates to B-Units. Therefore, please exp lain why the line items in 2012 and 2013 are labeled stock -based compensation and the line item for 2014 is unit -based compensation. Notes to Consolidated Financial Statements 12. Unit -Based Compensation, page F -36 23. You disclose on page F -17 that all opt ion pricing models require the input of highly subjective assumptions including the expected stock price volatility and the expected exercise patterns of the option holders. Please expand your disclosures to describe the specific methods used to determine fair value of the units. Please tell us your consideration of including this as a critical accounting policy. 24. We may have additional comments on your accounting for equity issuances including unit-based compensation and beneficial conversion features. Once you have an estimated offering price, please provide us an analysis explaining the reasons for the differences between recent valuations of your units leading up to the IPO and the estimated offering price. Other Comments 25. We note that there are a n umber of additional exhibits that still need to be filed. Please provide these exhibits as promptly as possible. Please note that we may have comments on these materials once they are provided. 26. Please confirm that the graphics included in your registrat ion statement are the only graphics you will use in your prospectus. If those are not the only graphics, please provide any additional graphics prior to their use for our review. 27. Please supplementally provide us with copies of all written communications , as defined in Rule 405 under the Securities Act, that you , or anyone authorized to do so on your behalf , present to potential investors in reliance on Section 5(d) of the Securities Act, whether or not they retain copies of the communications. If you intend to respond to these comments with an amended draft registration statement, please submit it and any associated correspondence in accordance with the guidance we provide in the Division’s October 11, 2012 announcement on the SEC website at http://www .sec.gov/divisions/corpfin/cfannouncements/drsfilingprocedures101512.htm. Michael Doyle Surgery Partners, Inc. May 19 , 2015 Page 6 Please keep in mind that we may publicly post filing review correspondence in accordance with our December 1, 2011 policy (http://www.sec.gov/divisions/corpfin/cfannouncements/edgarcorrespondence.htm). If you intend to use Rule 83 (17 CFR 200.83) to reque st confidential treatment of information in the correspondence you submit on EDGAR, please properly mark that information in each of your confidential submissions to us so we do not repeat or refer to that information in our comment letters to you. You may contact Vanessa Robertson at (202) 551 -3649 or Sharon Blume at (202) 551 - 3474 if you have questions regarding comments on the financial statements and related matters. Please contact Johnny Gharib at (202) 551 -3170, John Krug at (202) 551 -3862 or me a t (202) 551-3715 with any other questions. Sincerely, /s/ Daniel Greenspan for Jeffrey P. Riedler Assistant Director cc: Via E -mail Carl Marcellino, Esq. Ropes & Gray LLP