NASDAQ:SGRY Surgery Partners Q3 2023 Earnings Report $23.08 +0.65 (+2.90%) Closing price 05/2/2025 04:00 PM EasternExtended Trading$22.93 -0.15 (-0.65%) As of 04:16 AM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Surgery Partners EPS ResultsActual EPS$0.15Consensus EPS $0.10Beat/MissBeat by +$0.05One Year Ago EPSN/ASurgery Partners Revenue ResultsActual Revenue$674.10 millionExpected Revenue$670.74 millionBeat/MissBeat by +$3.36 millionYoY Revenue GrowthN/ASurgery Partners Announcement DetailsQuarterQ3 2023Date11/7/2023TimeN/AConference Call DateTuesday, November 7, 2023Conference Call Time8:30AM ETUpcoming EarningsSurgery Partners' Q1 2025 earnings is scheduled for Monday, May 12, 2025, with a conference call scheduled at 8:30 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Q1 2025 Earnings ReportConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Surgery Partners Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 7, 2023 ShareLink copied to clipboard.There are 13 speakers on the call. Operator00:00:00Morning, ladies and gentlemen, and welcome to Surgery Partners Third Quarter of 2023 Earnings Call. Currently, all participants are in listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. It is now my pleasure to hand you over to Chief Financial Officer, Dave Laugherty. Operator00:00:31Please go ahead, sir. Speaker 100:00:37Good morning. My name is Dave Dougherty, CFO of Surgery Partners, and I'm here with our CEO, Eric Evans and our Executive Chairman, Wayne DeVeydt. Thank you for joining us for our Q3 2023 earnings announcement. During our call, we will make forward looking statements. There are risk factors that could cause future results to be materially different from these statements. Speaker 100:00:58These risk factors are described in this morning's press release and the reports we filed with the SEC, each of which are available on our website at surgerypartners.com. The company does not undertake any duty to update these forward looking statements. In addition, we will reference certain or as a substitute for results prepared in accordance with GAAP. These measures are reconciled to the most applicable GAAP measure in this morning's press release. With that, I'll turn the call over to Wayne. Speaker 100:01:37Wayne? Speaker 200:01:39Thank you, Dave. Good morning and thank you all for joining us today. We are pleased to report another quarter of consistent growth in revenue and adjusted EBITDA exceeding our prior guidance. Including our non consolidating facilities, we performed over 172,000 surgical cases this quarter. When adjusted for divested facilities and factoring in one less business day, this was nearly 6% more than 2022. Speaker 200:02:06Other than the impact of Hurricane Idalia, which marginally impacted our Florida and Georgia facilities mid quarter, we did not experience any pressure from external factors as we continue to produce steady predictable growth in our key growth areas. This strong case growth combined with increased acuity Contribution from recent acquisitions generated $674,100,000 of net revenue and $105,500,000 of adjusted EBITDA resulting in a 15.7% margin. Dave will share more details regarding our financial results, But let me highlight a few. Net revenue of $674,100,000 was almost 9% more than the prior year with same facility revenue growth in excess of 14% in the quarter. On a year to date basis, same facility revenue growth was nearly 11%. Speaker 200:02:59Adjusted EBITDA was $105,500,000 representing nearly 10% growth over the prior year quarter and a 14% on a year to date basis. Adjusted EBITDA margins improved 70 basis points sequentially to 15.7% as compared to the prior quarter. Finally, we completed the acquisition 2 additional short stay surgical facilities in the quarter and have deployed approximately $135,000,000 year to date. The pipeline of future acquisitions is robust, which allows us to be highly selective and remain disciplined in our acquisition strategy. Specifically, we have well over $200,000,000 currently under LOI and a significant number of additional opportunities in early conversations. Speaker 200:03:46We continue to be pleased with our balanced approach to growth with all pillars of our long term growth algorithm either meeting or exceeding our expectations. Based on the strength of our Q3 results and our continued positive outlook on our numerous investments in the business, we are raising our full year adjusted EBITDA guidance to a range of $436,000,000 to $440,000,000 with approximately $2,750,000,000 in consolidated revenue. Dave will discuss our guidance in more detail later in the call. With that, let me turn the call over to Eric to highlight some of our operational initiatives and recent investment activities. Eric? Speaker 300:04:24Thanks, Wayne, and good morning, everyone. We are pleased with our 3rd quarter results, which represent another quarter of consistent and predictable growth across all of our core service lines and consistent with our company's growth algorithm. From an operational perspective, our specialty case mix is right where we expected and volume was in line with our expectations with over 146,000 consolidated surgical Our non consolidated facilities, which are an increasing part of our portfolio, exceeded our expectations with almost 26,000 cases. In the quarter, our same facility case growth was 2.9% when compared to the Q3 of 2022 and net revenue growth per case was 11%. We expect to continue to see both volume and rate growth with rate growth in excess of our long term guidance throughout 2023 due to the strength of our physician recruiting and case mix acuity. Speaker 300:05:18On the recruiting front, our various initiatives continue to drive strong year over year growth, fueling growth in MSK procedures, particularly total joint cases in our ASCs. Year to date, we have recruited nearly 500 new physicians to our short stay surgical facilities With approximately 40% representing MSK Specialties and we remain on pace to recruit more physicians than last year with an increasing focus on higher acuity procedures. To provide some context, we continue to see strong growth in total joint procedures performed at RESCs, which have increased approximately 60% year to date compared to 2022. As Wayne mentioned, we have deployed $135,000,000 year to date on 15 transactions, which includes 3 additional facilities closed in October. We continue to rapidly integrate acquisitions into our operations, bringing the full benefit of our revenue cycle, procurement, managed care and physician recruiting teams to yield significant synergies within the 1st 18 months of ownership. Speaker 300:06:18We remain committed to our annual capital deployment goal of at least $200,000,000 As it relates to divestitures, we have divested our interest in 7 facilities as part of our disciplined portfolio management process. As previously discussed, the timing of these divestitures has an ongoing impact on our revenue as we redeploy the capital. Moving to our de novo activity, We have been intentionally focused on syndicating with surgeons that recognize the importance of moving high cost procedures to a lower cost, high quality purpose built surgical facility. Based on deals we have under syndication, we have 17 short stay surgical facilities in various stages of our pipeline, many of which are slated to open in 2024. These facilities include both consolidated majority owned partnerships as well as minority interest unconsolidated partnerships. Speaker 300:07:07They include a mixture of 2 way partnerships under development between us and physician partners and three way partnerships with our new health system partners. We expect this pipeline to grow significantly over the next 2 years and to provide us with future buy up opportunities. Dave will share how we think about the financial performance of these unconsolidated facilities in his remarks, but our growth in this area further enhances confidence in our long term mid teens growth expectations. Before I turn the call over to Dave, I'd like to take a moment to address the current environment as it relates to anesthesia providers as well as some Starting with anesthesia, I would like to point out that anesthesia availability and cost pressures are not new, but rather something that we have been managing for a few years. It's widely known that the current supply of anesthesia providers from MDs to cRNA is constrained and that recent reimbursement changes for their services has impacted their Other than the limited number of providers that we employ, the anesthesiologist or CRNA is responsible for billing and for their services performed in our facilities. Speaker 300:08:19These providers have chosen to work with us in our facilities for the same reason our surgeons And other stakeholders do for the convenience, efficiency and clinical quality we are known for. In other words, They generally prefer working with our surgeons in our facilities. With the pressures facing the service line, we have been working with our anesthesia providers to ensure they remain engaged and We have many opportunities to assist them, including realigning surgical schedules to maximize their OR time, working with our managed care teams on improved payer interactions, or in some cases offering a revenue guarantee or stipend. Speaker 100:08:55These standard practices have been Speaker 300:08:56in place in certain markets for several years and the financial impact is not material to the company's results. Despite the increased focus on this subject, we have not experienced any delays or canceled cases because of this issue, nor do we expect to see material changes to our operations or financial results in the future. We are, however, taking the opportunity To reiterate, this has not been a material issue for us and I do not expect this will be a material issue for us in 2024. Moving on to GLP-1s. We are proponents of a healthier population and have high hopes for success in pharmaceutical and behavioral changes that benefit individuals affected by diabetes And obesity. Speaker 300:09:43While we are encouraged by the promise of these drugs, there is much to be learned about the overall effectiveness, long term side effects and other factors, including reimbursement. While we do not know the ultimate impact of these drugs, it is believed that such drugs will lead to fewer comorbidities and a healthier, more active lifestyle, which generally bodes well for our short stay surgical facilities. In short, we do not expect a change in our long term growth algorithm due to the expected impact of GLP-1s and related treatments and would bias to more upside for purpose built short stay surgical facilities due to the continued shift of procedures from the inpatient to the outpatient setting, particularly for healthier populations. In closing, I've been in this role for almost 4 years And I've never been more optimistic regarding our future and the number of tailwinds impacting our business. The desire and need to move more procedures to purpose built The combination of investments in both our existing facilities and new de novos coupled with our entry into three way joint ventures with high quality health systems Gives me increased confidence in our ability to grow high single to low double digit organically. Speaker 300:10:57This growth coupled with an existing and growing M and A pipeline And a talented, deep and experienced leadership team provides further optimism for long term sustainable mid teens adjusted EBITDA growth. With that, I will now turn the call over to Dave to provide additional color on our financial results as well as the outlook for the remainder of the year. Dave? Speaker 100:11:19Thanks, Eric. I will focus on our Q3 financial results, key metrics for our unconsolidated and managed facilities and our outlook for the remainder of the year. Starting with the top line, we performed over 146,000 surgical cases at the facilities we consolidated in the 3rd quarter. When combined with facilities we don't consolidate, we performed over 172,000 cases, representing a slight increase over last year. Adjusting for divested facilities and one less business day in the quarter, total cases grew nearly 6%. Speaker 100:11:53These cases spanned across all our specialties with an increasing focus on higher acuity procedures, which is reflected in our double digit same facility growth The combined case growth in higher acuity specialties, specific managed care actions and the continued impact of acquisitions supported consolidated revenue growth of 8.6% over the prior year. This growth was accomplished despite revenue headwinds associated with On a same facility basis, total revenue increased 14.2% in the 3rd quarter with case growth at 2.9%. Net revenue per case was 11.0% higher than last year, primarily driven by There were no unusual events that affected the 3rd quarters of both 20222023. Adjusted EBITDA was $105,500,000 for the 3rd quarter, giving us a margin of 15.7% in line with our expectations of continued margin expansion. Inflationary pressures related to labor and supply costs have moderated this year, but we remain vigilant in monitoring these factors across our portfolio. Speaker 100:13:12Consistent with prior quarters this year, the 3rd quarter labor and supply costs are a lower percentage of revenue than the prior year. As we mentioned in prior comments, we have increased investments in facilities that are not consolidated, including both de novos and acquisitions. Because they are not consolidated, the earnings of these facilities are reflected in equity earnings of unconsolidated affiliates and management fee revenue, a component of revenue in our income statement. To provide some context on our non consolidated activities, We have ownership interest in 23 facilities that are not consolidated. Revenue from these unconsolidated facilities grew 71 in the Q3 over last year, representing growth of over $66,000,000 This revenue growth is a combination of acquired minority interests and the value proposition we bring to these partnerships. Speaker 100:14:11We benefit from this growth in 2 ways, Management fees, which are based on revenue and our share of the income generated at the facility. The adjusted EBITDA contribution from the unconsolidated and managed only facilities was $10,200,000 in the 3rd quarter, which is approximately 30% higher than last year. In addition to our existing facilities, we have 17 de novos in various stages development with 10 that are expected to open over the next 18 months. Based on our robust de novo pipeline and momentum, we would Opening double digit de novo facilities annually for the foreseeable future. The development costs for de novos are not material to the company. Speaker 100:14:59In the quarter, we incurred approximately $200,000 of development costs associated with de novos. Moving to cash flow and our balance sheet. As we've noted in the past, we expect to produce at least $140,000,000 of free cash flow in 2023. In the Q3, we generated free cash flow of $63,200,000 and on a year to date basis, we have generated $91,400,000 We remain confident in the ability to meet our target of at least $140,000,000 of free cash flow in 2023. Based on our current growth algorithm, we anticipate free cash flow to receive $200,000,000 annually by 2025. Speaker 100:15:43We ended the quarter with $236,000,000 in consolidated cash and an untapped revolver of $545,000,000 When combined with the free cash flow we are projecting, we believe our current and future liquidity position does well in this macroeconomic environment, while giving us flexibility to maintain our long term acquisition posture of deploying at least $200,000,000 per year for M and A. As a reminder, our corporate debt is less than $1,900,000,000 with an average fixed interest rate of 6.7% with no material debt maturing until 2026. We are continually reviewing our debt stack opportunities to extend our maturities well past 2026 while minimizing the impact on our projected free cash flow. We are monitoring the rate environment and forward interest rate curve as we consider both factors for any potential refinancing and the ability to limit interest through an appropriate hedging strategy. Our 3rd quarter ratio of total net debt to EBITDA as Calculated under our credit agreement was 4.1 times. Speaker 100:16:57With the earnings growth we expect, we are confident this ratio will continue to decline. Airing the momentum of our Q3 results, we remain optimistic and confident about the company's growth and are raising our outlook for 2023 adjusted EBITDA to a range of $436,000,000 to $440,000,000 with the midpoint representing over 15% growth compared to 2022. Further, our outlook Consolidated revenue is approximately $2,750,000,000 representing over 8% growth from 2022 and is inclusive of overcoming more than $100,000,000 of divested revenue. As we've discussed previously, our revenue and adjusted EBITDA guidance is impacted by the timing of acquisitions and divestitures. We are currently in the midst of our planning process for 2024, but wanted to provide investors with Some thoughts on the factors we are considering for our 2024 growth goals with our senior leadership team and Board of Directors. Speaker 100:18:07At this time, we do not foresee any material headwinds as we head into 2024. We believe the consistent momentum of our business that have been experiencing will continue in 2024. Specifically, we expect organic growth above our long term growth algorithm, supported by continued surgical case migration from higher cost settings and efficiency initiatives leading to top line growth and continued margin expansion. Our margin expansion reflects ongoing investments in procurement and revenue cycle as well as the integration benefits from recent acquisitions and de novos. Additionally, our 2024 contracted Managed care rates are already 90% negotiated and we will continue to benefit from the compounding effect of physician recruiting as we answer 2024. Speaker 100:18:57Finally, our ongoing acquisition strategy supported by a robust pipeline of potential acquisitions Combined with contributions from de novo facilities we expect to open in 2024 provide further tailwinds in support of our growth algorithm. At this early stage in our process, we remain confident in our ability to deliver mid teen adjusted EBITDA growth. We look forward to providing greater visibility into our 2024 projections for revenue, adjusted EBITDA, free cash flow and capital deployment in a future presentation. With that, I'd like to turn the call back over to the operator for questions. Operator? Operator00:20:03It may be necessary to pick up your handset before pressing the star keys. Our first question comes from Kevin Fischbeck of Bank of America. Please go ahead. Speaker 400:20:16Great. Thank you. I guess, maybe to start off, the pricing number Really strong in the quarter. Can you just remind us kind of where the actual core pricing is versus kind of the acuity benefits and payer mix shifts that might happen Year over year, was there anything unusual in the quarter on the revenue per case side? Speaker 200:20:38Hey, Kevin, good morning. I'd start by saying nothing unusual other than we continue to bias towards the higher acuity cases. As you saw in the prepared remarks, the total hips and joints done in our outpatient settings were up over 60% against the prior year Which as you know had strong growth that year as well. So, I put it more in the fifty-fifty bucket of how much is acuity mix impacting the revenue component versus how much is really just the core growth and managed care rates that we're getting along the way. Speaker 400:21:09And then I guess in your prepared remarks, you guys made a comment that the consolidated cases were basically as expected, but the unconsolidated cases came in better than expected. Is there something behind that? Is there a point that you're making there about the kind of the power of having maybe a 3 way joint venture or syndication? Or is there anything else to that? Speaker 200:21:30Well, I think it's fair to say that part of the reason we've been biasing to this additional growth lever We think it's an untapped opportunity for employee doctors that are part of systems and it gives us unique way of bringing kind of our chassis and our playbook to it. I wouldn't say we're over indexing on that, but I think ultimately we wanted our investors to understand the strategies working out and it's slightly better than we had expected so far. And we don't really see those trends diminishing at this point. I think the key thing is, as you know, Kevin, because they're not consolidated, those metrics do not end up in our same store Either, in terms of the volume component. And so ultimately, just feel very good about how we're of running into the new year with the M and A pipeline as well as with the same store metrics. Speaker 300:22:16Yes. And Kevin, I'd just add to that differential. I mean, we are pointing out the strong growth there, but part of that is We bring things on when they're new, we bring a lot of synergies. And so we expect there'll be kind of outsized growth early on. We've been pleased with how those have taken off. Speaker 300:22:28And certainly, it's a big part of the growth story. Speaker 400:22:31All right, great. And then maybe just last question. I appreciate the commentary on the professional fee that seems to be a hot topic. Is it can you help just size that for us? Like what is where was the Professional fee spending in the quarter. Speaker 300:22:44Yes. So I'll let Dave size that in a second. Just to readdress kind of when you think about Physician services, in our business, again, because we're not a traditional acute care company, we're short to say surgical, the only exposure we have is on anesthesia. We don't have hospitals, we don't have VR docs per se. So, we have exposure on anesthesia. Speaker 300:23:02We've had exposure for a number of years, but quite honestly, our side of care is a preferred side of care for anesthesiologists. When I lived in the traditional acute care world, I used ASCs and surgical facilities, short surgical facilities as a way to try to lower subsidies or try get a good deal with anesthesiologists. So we're in a preferred setting. We have a few places where there's pressure, but it is really immaterial. We talked about managing this. Speaker 300:23:27I mean, we're certainly proactively managing the pressures that anesthesiologists feel by helping with scheduling, getting more efficient, being really proactive and being a good partner with them. But the size is immaterial. Maybe you can give them just a rough size of the risk we see next year. Speaker 500:23:42Yes, sure. So first off, and You can see this in our P and L, which is in our press release this morning. We'll give more details obviously in the Q. But in the quarter, Just over $70,000,000 of total professional fees, we get recorded in there and those professional fees Speaker 200:24:02include Speaker 500:24:04a number of different activities including I mean, the medical supply costs that we have, the malpractice insurance and all of those other things. The component that relates to anesthesia, which has been talked about a lot, Most recently, of that is relatively small, Like less than $10,000,000 for the year that we look at. So inside the quarter was really small. And as we've kind of modeled out And look towards next year, although it's still early and we're putting together the budget process, that variance that we're looking at is no more than a few $1,000,000 So easily something that we can absorb as we go into it. I think one of the things just to reiterate a point that Eric mentioned earlier, Because we've gotten this question a couple of times. Speaker 500:24:56Anesthesia has this pressure that you that we cite on Cost side and profitability for them has not impacted in any way our cases. We've not had to cancel one case due to anesthesia related matters This past year. So we don't believe that this is a problem area for us as we've seen elsewhere in the services industry. Speaker 400:25:20All right, perfect. Thank you. Speaker 200:25:22Thanks, Kevin. Operator00:25:26The next question comes from Jason Casola Of Citi, please go ahead. Speaker 600:25:33Great. Thanks. Good morning. I just wanted to go back to the same facility revenue per case in the quarter. That include any benefit from insurance proceeds related to cyber impact? Speaker 600:25:41And then I guess, with that level of growth, it would imply perhaps a bit more margin expansion just given the flow through of rates at the bottom line. You said that 50% of that growth was related to acuity, but maybe can you just help On the pricing flow through, and then the likely kind of margin offset that would come with the focus of higher acuity cases? Just any more color would be helpful. Thanks. Speaker 200:26:05Yes. So first, the short answer is no. The same store did not benefit from any unusual items and did not have any cyber recoveries in it. In terms of the margin expansion, I would say that we're actually very pleased because sequentially it's up 70 basis points. I understand you're probably the math you're applying. Speaker 200:26:22I think you'll see further expansion going into Q4. We did make more additional investments in the quarter. We see strength in the quarter. We're going to take advantage of that to make additional investments. And candidly, our compensation structure is reflective of Our team continues to outperform expectations and so there's additional accruals in the quarter related to bonus etcetera. Speaker 200:26:42But no concerns on our end and I think you'll see margins Not only in Q4, but you'll continue to see that expansion as we go into 2024. Speaker 700:26:51And Kevin, one point of Speaker 300:26:52a little additional clarification. I think Wayne answered that question fifty-fifty. I think you're roughly right, probably more on the side of acuity than rates. I want to be clear on this. This is We have a really strong beat that's been based on really nice acuity growth this quarter. Speaker 300:27:05We've had some nice managed care rates, but I wouldn't say that Half that 14 is managed care. So we've got some rates. We're certainly working on that. But the majority of this is finding and attracting the right high end cases and driving into our facilities. Speaker 600:27:19Great. Awesome. Thank you for the clarity. And then just a follow-up, I wanted to ask on capital deployment, I guess, relative to your 200,000,000 Plus for the redeployment of divestiture activity target. I guess given year to date spend at $135,000,000 and your comments on your pipeline, just curious on the Timing of that spend, it seemed to slow a bit in the Q3. Speaker 600:27:39Is that just kind of timing related? And I guess just broadly any commentary Incremental commentary on the capital deployment environment would be helpful. Thanks. Speaker 200:27:50Great, great. Let me start by saying in the 6 years that this team has been together. The current pipeline of opportunity and what we have under LOI is greater than we've seen in any single year. And we don't see that slowing down as we head into the New Year. Regarding timing, we actually anticipate with the over $200,000,000 under LOI that Some of these will get closed in the Q4 and still feel pretty confident about our targeted $200,000,000 goal for the year. Speaker 200:28:18If it was to Slip, we're really talking about slipping into the first half of next year, which we don't really see as a deterrent towards our long term growth algorithm. But absolutely no concerns on our end. We continue to apply appropriate due diligence on all facilities. And Eric and Dave continue to remind the teams that we don't manage to the quarter, we manage the long term growth algorithm. And so we're not necessarily going to accelerate a close to achieve a near term goal, but I would tell you no concerns at all On the kind of run rate of $200 plus 1,000,000 and if anything, I would argue we're probably going to jump out of the gate even stronger next year. Speaker 200:28:56Great. Thank you. Operator00:29:01Our next question comes from Matt Mayo of Leerink Partners. Speaker 800:29:08Dave, can you go back and maybe just unpack the comments on the managed care actions That you undertook in the quarter. And I guess the corollary to this question is really just maybe an update on the revenue cycle initiatives, The focus on revenue conversion now that you're I think all in one clearinghouse, my sense is these numbers aren't small. So maybe just any update around those would be helpful. Thanks. Speaker 300:29:30Hey, good morning, Glenn. I'm going to jump into the managed care question. I'll turn it to Dave over for revenue cycle. There was no specific managed care action in the quarter. I mean, better than our normal contracting, We clearly continue to develop strong relationship with payers explaining and using math to show them our value proposition. Speaker 300:29:49I think we're getting increased traction with that over time as they see the benefit of what's primarily an independent model us and docs, the benefit we bring to them from a cost perspective. And So as Dave mentioned, we do have 90% of that of our planned increases for next year already in place But there's always negotiations happening there. As we add new service lines and procedures, it's always a chance to go back and say, hey, we're going to create a bunch more value for you. How do we work together for a win win? So I'm really, really proud of our managed care team. Speaker 300:30:17They've made a lot of gains, but I also think some of the gains they've made is being proactive in getting us set up to take on those higher acuity cases. And so some of this is just access to the right payers with the right incentives for physicians And some of it is ongoing rate negotiations, but there was nothing particularly different Speaker 500:30:33in this quarter. With that, maybe talk about revenue side. Yes, maybe One additional point of context as to why I said what I said 90% in there like we're in the middle of doing our budget process. And so Eric and I had the pleasure of talking to our Board about kind of progress and our confidence that we have going into 2024. And Some of what you see, as Eric was mentioning, managed care is an ongoing effort that we do, right? Speaker 500:30:58Day in and day out, our dedicated team kind of focuses on this. And what gives us some degree of confidence when you look at the contributions on the top line side is how much work that team has done and contracted going into next year. So When we give guidance and as we give visibility into 2024, our confidence is driven by the fact that we've already got 90% of Our contracting baked in this space. So that's why it's there. And it is again, when you go back to What we have built over the past several years is a consistent plan that allows us to have some degree of predictability to it. Speaker 500:31:36And I'm glad you asked on the revenue cycle front. We have talked about this in the past. Revenue cycle represents 2 opportunities for us. 1 is cash flow generation on a faster basis. It also allows us to get greater yield through our results. Speaker 500:31:53And In rev cycle kind of the it's a difficult job as you know in the healthcare Services sector for us, we deal with payers that are constantly trying to find the right way to move business into our facilities. And so we're always dealing with the managed care providers, making sure that we're following their Protocols appropriately and making sure that we do the right things on the front end to make sure that we Increased denials on the back end and then when we do have denials on the back end that we're actively managing those in accordance with our contracts with the payers. When you do that properly, you get increased yield opportunities. We've done a pretty good job of that in the build that we have done over the years. We get to apply that logic every time we do an acquisition. Speaker 500:32:46So this is one of the values that we provide when we do M and A. So When we often talk about buying companies and then taking a turn off of those effective multiples in the 2nd year and a half of ownership, Part of that is applying our rev cycle approach, getting better yield and accelerating cash. Speaker 800:33:08That's helpful. One just follow-up. Can you just the 7 divestitures that you've made year to date, can you just maybe size kind of how you're tracking relative to that $100,000,000 target? Thanks guys. Speaker 500:33:21Yes. So in the quarter, we estimate roughly $35,000,000 plus or minus of revenue that we're jumping over this year from revenue that we incurred last year in the Q3 that we don't have this year from the 7 acquisitions. So we don't spike that out separately. We do that intentionally because I think we're proud of the growth that we have. But I think we're proud of the growth that we have, but that's the business that we would have disposed of earlier this year. Speaker 800:33:49Thanks. Appreciate it. Operator00:33:55Our next question comes from Brian Tanquilut of Jefferies. Please go ahead. Speaker 700:34:01Hey, good morning guys and congrats on the quarter. Maybe Wayne or Eric, as I think about your comments on GLPs, Maybe if you can just walk us through maybe a little more detail on how you think that is a positive and if there's a near term benefit from Procedures getting done just because people are healthier. Just maybe if you can help us think through the modeling of that impact at least near term and medium term? Thank you. Speaker 300:34:27Hey, Brian. Thanks for the question. And look, there's not a ton of information out here, right? We have done our research on the best we can based What we think the uptake could be, what the potential impact could be, there are puts and takes. As you can imagine, there are patients that are ineligible for surgery today because of weight that will become eligible. Speaker 300:34:45There are patients who are overweight, who might lose weight and become more active. And when you look at the types of procedures we do, which Tend to lead towards things that are less affected by comorbidities if you look at the overall patients we have. For us, we see definitely impacts of people that will become eligible. We understand there might be some people who are healthier longer, but they also become more active. We have a lot of stuff that is based on activity and wear and tear. Speaker 300:35:11We think about things like GI doesn't affected by this in particular as far as risk of what we can tell. Ophthalmology, obviously, a lot of that is some of that can be diet related, a lot of it's not. We look at the pros and cons. We looked at the relative size of the market. And the reality for us is we don't see this as material to our business. Speaker 300:35:28And so maybe there'll be data that comes out in the future that changes that opinion. But at this point, Brian, like if anything, it allows more patients fewer comorbidities to be taken care of in our sites of service, we think that's a net benefit. But we still See the relative impact on an overall population of procedures as being relatively small. So that's as much as we can tell you right now. And I think that's if anybody's telling you more than that, they have data that I've not seen. Speaker 300:35:53So I think that's kind of where we all sit. Speaker 700:35:55No, I appreciate that. And then maybe Dave, As I think about your swaps, just I know you said fixed rate in your debt, just any color you can share on your swaps? And then maybe also how we should be thinking about funding the $200,000,000 of deals in the pipeline? Speaker 500:36:13Yes, yes. I appreciate you asking this question, because we obviously do look at this and we're aware Of how this is kind of viewed from the outside. So let me start with free cash flow generation. I mentioned it earlier in my prepared remarks, but Hopefully, the results that we printed this morning demonstrate the confidence that we have been having all year in our ability to generate free cash flow this year Of north of $140,000,000 And I can assure you our modeling still shows us kind of progressing nicely up to $200,000,000 plus of Free cash flow in 2025. So from a cash flow generation, you get to that year And you can see that the business is generating sufficient free cash flow to support its operations. Speaker 500:37:04So what we're really talking about Here from an exposure area is the GAAP year of 2024, where you're going to be generating between the $140,000,000 and the $200,000,000 Free cash flow again. We're not going to give that guidance just yet. We'll give it in upcoming calls. And that's when you look at our balance sheet. And our balance sheet right now It sits with $236,000,000 of cash and an untapped revolver of nearly $550,000,000 So When management says and when I say that we have confidence we'll be able to support the growth that we've committed to of at least $200,000,000 of capital deployment, That's why we have that confidence. Speaker 500:37:44Now we do to your point, we do have a debt stack that we look at that There's no material debt coming due until 2026. To your point, we have interest rate swaps and caps in place, Mostly swaps at this point, that fix our current term loan variable rate to just under 6%. Think we're at 5.9 percent effective interest rate. We'll have that all the way through March of 2025. And then at that point in time, obviously, I hope that we have done a refinancing opportunity and we'll be close to that at that point in time. Speaker 500:38:25So that we'll time the market in the most favorable environment that we can see And then we'll go after the market and of course reestablish our hedging strategy in what's going to make sense I think what we have valued and I think our investors have valued is the predictability of our free cash flow. So a hedging strategy will always be important to us. In today's environment, that means we have to look at the forward interest rate curve and see what kind of makes sense for us. But as we sit here today, Fully hedged in a position of strength because of that predictability that we have over the next several years. Speaker 700:39:08Appreciate that. Wayne, maybe one more question, if I may. I know there we've been asked a lot about site neutrality. How are you thinking about the proposals that are out there, whether it's from MedPAC or whatever is going around in D. C. Speaker 700:39:21Right now? Thank you. Speaker 200:39:24Hey, Brian, thanks for the question. I'm going to let Eric actually expand on this since he just provided the Board an update along with some of our long term outlook views. The short answer is, we actually think this is a net positive to us. But Eric, maybe expand on kind of what we disclosed to the Board and Speaker 300:39:41Yes, Brent, let me start with the whole thesis of our business is the savings we create in the system by driving patient care to the right That is absolutely why this company I think exists. It's why we create a lot of value. It's why we are part of the So for us, any legislation that actually encourages patients to get their care done in the right place is something we fully support. So Let me set it up there. Let me secondly say, we don't own and operate traditional acute care hospitals, right? Speaker 300:40:09We have surgical hospitals that do take care of Extended stay scheduled patients, many of them don't have ERs, right? So you think about a given market and how we think about the world, We like the opportunity in a given specialty, whether that's orthopedics or cardiology to provide the whole spectrum of care to our physician partners. So if you think about our surgical facilities, where there may be something would move to an ASC, we're already doing that. If you look at our surgical Hospitals, we have ASC strategies, many of them have ASCs and many of them multiple ASCs. So the idea is we think it's a unique opportunity in our Short stay surgical facilities, again, very different than traditional acute care. Speaker 300:40:47They're purpose built for higher acuity scheduled procedures. As we think about that world, we love that opportunity with our partners To cover the entire gamut of acuity in a value based way that allows the patient go to the right side of care. So that's addressing any risk we might have. The bigger issue is our bigger On the ASC side, we have 130 plus today. We're adding a bunch of de novos. Speaker 300:41:08As you know, we see that number growing on its way to 200 over the next few years. All of those sites benefit from anybody leaving the HOPD hospital site. So we feel like we're very Positioned and been proactive on moving into the right side of care end markets where we have the higher acuity capabilities. And in the other cases, we see that as a net positive. So it's again, Core to our business, we believe in it. Speaker 300:41:30We're excited about it. We think it's the right answer for the health system. And so net net, we think definitely not a risk and we really think there's some opportunity there. Dave, maybe you want to add something? Speaker 500:41:40Yes. So, of course, you can expect that we're tracking what's going on up in DC and Kind of following the conversation, as Eric mentioned, this is the company's thesis. So it logically makes sense for us. As we've looked at The closest proposal that we've kind of seen with some degree of specificity, there are There's this concept that stuff might move out of our larger acuity centers into our ASC environments. If you take just a bearish case and assume that those types of cases in the environment that they've kind of set up, again, very worst case scenario. Speaker 500:42:23In 2026 and beyond, what we're talking about in our calculations is less than 1% of our business. And I say when you look at just the bearish case, that's purely the bearish case, right? Assuming that there is no further Improvement opportunities inside our ASCs and no replacement of those cases outside of our larger facilities, which is unrealistic. This company, as you know, is very strategically focused. And if you have an effective date of 2026 or beyond, Overcoming a 1% headwind is not something that intimidates us in any way. Speaker 400:43:02Thank you. Operator00:43:14Thank you. Our next question comes from Sarah James of Cantor Fitzgerald. Please go ahead. Speaker 900:43:22Thank you. I just wanted to follow-up on the train of thought from that last question. So as you think about where You're investing to capitalize on the new regulatory environment. Does that have a link to Your case mix, so I noticed the 40% of hiring that's coming in the MSK space is above your current case mix. So do you see Evolving into that being a more dominant part of your business? Speaker 300:43:52Yes, Sarah, great question. I mean, look, I think we have been talking for quite some time that we are focused on growing in areas. First of all, Higher acuity areas in our ASCs and surgical facilities, it is the highest contribution dollar per minute. And so it makes logical sense we're focused there. We also know it's what matters most to the health system, to payers, to CMS. Speaker 300:44:11The amount of savings we can drive For those procedures, often 10,000 plus a case. And that's why, yes, absolutely, you should see that mix continue to change. Now that doesn't take away the fact We love our GI business. We love our ophthalmology business. They're great businesses. Speaker 300:44:25But when you think about our ASCs, so if you think about our de novos, for example, almost all of them Our ortho or cardio based. So like we are very, very focused on moving where we can add the most value and that certainly provides Protection against lower acuity stuff that maybe does change spaces. And look, we don't talk about that, but on the lower end of things, things leave our facilities. And that's okay because it's the right answer Overall, I would like to point out too, this is a recent CMS announcement. They added shoulders and ankles, in particular, total shoulders. Speaker 300:44:53We were really pleased during COVID That we had some facilities that were accepted and able to do total shoulders. We had fantastic clinical results. We saved patients a lot of money. Initially, they weren't included Coming off the inpatient only list, we were certainly pleased to see that. And we see those kind of opportunities to continue to push higher acuity patients safely into our space with Better experience, better outcomes and really just ultimately the best answer for the healthcare system as a tremendous opportunity. Speaker 300:45:20One little stat I'd throw out too going back to this site transition. It's still 3 to 1, the number of total joints that are in the HOPD versus the ASC environment. So we're in the early innings of a lot of this stuff. You will see us continue to change that mix to higher acuity over time just because Speaker 900:45:37Great. And then can you provide any color on your case mix Volume by specialty this quarter? Speaker 100:45:50Yes, Speaker 200:45:53Dave is just looking at it now just so we can give you the exact specifications. Speaker 500:45:57Yes. And this information will be in our queue a little bit later today just so you have it. So, the Nearly 3% same facility growth that we saw in cases this year, in the quarter Speaker 100:46:14Our top Speaker 500:46:183 kind of target areas, ophthalmology, GI And MSK, particularly the ortho component of MSK are all north of 4% same facility growth. So Those are all growing very nicely for us. It's not going to change the overall mix of the business, but that's where you can see that higher acuity come through in our same facility Calculations. So I think it's fair to say much like we've seen all year, Sarah, that the our growth Engine is kind of running along all of our specialty. So we're seeing kind of nice growth in every single one of those areas. Speaker 900:46:55Thank you. Operator00:46:59Our next question comes from Ann Haynes, Otjonshu Securities, please go ahead. Speaker 1000:47:07Hi, good morning. In the past, you have talked about your revenue algorithm as 2% to 3% case growth, 2% to 3% revenue per case growth. But I feel like that's a little stale given, especially this quarter with revenue per case up 11%. How should we think about that going forward just given the mix of higher acuity is changing? That would be my first question. Speaker 1000:47:29And my second question is just on Q4 seasonality, the EBITDA ramp going into Q4 seems like a little higher than normal. Is there anything that you would call out for Q4? That would be great. Thanks. Speaker 200:47:42Ann, good morning. I'll take the first question, then I'll have Dave talk about seasonality. But The Speaker 300:47:50growth algorithm. Speaker 200:47:51Yes, on the growth algorithm, let me remind everybody that the 3 components of the growth algorithm, I'm just going to focus on the one that you've highlighted, which is the 2% to 3% volume And then the 2% to 3% rate. And is that starting to become somewhat stale in light of what we continue to produce? I'll start by answering this Which is we fully expect going into next year to be north of the high end of that range, right, which is clearly 6%. We have no indication that that should slow. So I think that's a Fair question you're asking and it appears that we ought to be able to outperform that on a same store basis. Speaker 200:48:21We continue target the 2% to 3% on volume because we want the team to be focused on the right procedures and the high acuity procedures. And so if you were to look at it last year, we had a very strong year last year with 3.8% Volume growth on a year to date basis, you look at it this year, we're at 3.5% on top of that strong growth last year. So I still think that 2% to 3% is the right algorithm target, But we would bias towards the high end of that range, if not slightly better. Clearly, where you're going to see this differentiated approach is going to be on the 2% to 3% that we talk about for the revenue component. I think the combination of the acuity mix we were going after, the combination of the new rev cycle initiatives, the days put forward, etcetera, Yes, we clearly will be north of that. Speaker 200:49:03And again, to give you an exact percentage, we don't want to get ahead of our Board as a team is coming forward with the final plan for next year. But all in, we should easily exceed our 6% top line algorithm that we've laid out for you. Speaker 500:49:15Yes. And Anne, let me just address that seasonality question because I've And maybe you can show me the numbers that you're looking at. But if you take the midpoint of our guidance, what would imply is our 4th quarter results Come in somewhere around the low 30s, around 32% of our full year guidance at that midpoint. That's consistent with what we have seen in the past, with the exception of the COVID year. If you go back to 2019, 2018, you go back to last year, we have a higher proportion of our business in the Q4. Speaker 500:49:48It's as a CFO, that's what makes it I always sweat Christmas because I'm trying to see how those cases come in, but that's all a result of our patients Kind of chasing after the deductible before it resets at the beginning of the year. So you see a higher preponderance of commercial business and higher Volume, both of those things typically come through starting in late November and going all the way through the end of the year. And That's just how the business kind of runs. It's predictable enough for us to kind of put that in there, but nonetheless it still does. It contributes to that higher average growth rate that you see inside the 4th quarter. Speaker 1000:50:30All right, great. Thank you. Operator00:50:35Thank you. Please go ahead. Speaker 1100:50:51Good morning, guys. Most of mine have been asked, but hey, Eric, I'm kind of curious on the non consolidated deals. Are you I mean, directionally, is it moving in the same direction as the consolidated deals in terms of the mix of specialty? And are you and second add on is, are you all looking a little increasingly at multi specialty centers as you particularly do three way deals? Speaker 300:51:18Yes. So great questions. Let me start with the first question. So the non consolidated deals are actually even higher acuity in totality than our Current book of business, so we've used it as a way to expand into those procedures that matter most. So the answer there is from a directional mix perspective, that's true. Speaker 300:51:34We've also, like I said, been very pleased with the early growth we're driving in those facilities. Both proves our value and it also is taking advantage Synergies we bring to those facilities. So as we've talked about before, we forgetting accounting for a second, we're going to make the best earnings decision for the company And then figure out the best way to talk to you guys about it. So that's been something we've been very, very pleased with overall. And your second question, sorry. Speaker 300:51:59Multi specialty. Multi specialty. Oh, yes. So multi specialty, so you should know the vast majority of our SCs today are multi specialty. And we do still have some single specialty SCs in Both ophthalmology and GI, but yes, the vast majority are multi specialty wherever we can, which we turn the single specialty into multi specialty. Speaker 300:52:16And if you look forward, would say what's interesting about our de novos, I think they will ultimately be multi specialty, if many of them are ortho focused. What that allows you though is bigger rooms, You're building for more complex cases, which does allow you to fill in any gaps with other specialties over time. So you might see some of those come out of the gate really, really specialized in taking off on those areas, but we see opportunities there over time to add service lines like we always do. And our bias is definitely towards multi specialty because it allows us to use all of our different growth tactics and levers, allows us to really, really leverage our recruitment team. And so, over time, we would expect that continues to be the direction. Speaker 1100:52:54And so your de novos are more tilted towards MSK than Cardio? Speaker 300:53:00Yes. That's a little bit more towards MSK than anything else for sure. And like I said, we're still in the early innings of that. We're excited about that. There is obviously some And look, cardio is one of those ones that it's going to be again, it's going to be a big growth number over the next several years on a small end. Speaker 300:53:15Guessing when it reaches its Full potential is a little bit like guessing when orthopedics finally came over the hump, but we do expect to continue to see that take off in the coming years. Speaker 1100:53:25Okay, great. Thanks very much. Speaker 300:53:27Of course. Operator00:53:31Our final question comes from Ben Hendricks of RBC Capital Markets. Please go ahead. Speaker 1200:53:39Hey, thank you. Just a quick follow-up question. Most My questions have been answered, but you'd appreciate the commentary, early commentary on 2024 and the commentary about the strong Rate growth being fifty-fifty core growth and mix with maybe a little bit of bias towards acuity. But any thoughts on how that migrates into your early Speaker 500:54:04Yes. So it is too early, Ben, for us to talk about 2024. So, all we're going to tell you at this stage is that we are we do see our growth algorithm continuing. And again, We've talked about this theme of consistency, right? That is what we want to be known for. Speaker 500:54:23It is Also just generally the way this business operates right there, we generally do not have kind of unusual events that cause spikes one way or another. So There's a degree of predictability that you can assume from what we have accomplished so far this year and that ought to continue into next year. But at this stage, I don't think we're going to give I know we're not going to give guidance on 2024. We just got to finish doing the work and then making sure we get through our Board Before we talk publicly about Speaker 300:54:54that. Then what I would reiterate and we continue to say this, we're a mid teens growth company. That's the expectation. We have opportunity to do that, we don't see that changing. There's nothing as I said in my prepared remarks, having sat in this seat for 4 years, I've got more opportunities and more levers and more tailwinds than I've ever had. Speaker 300:55:10And so when we talk about that long term mid teens growth, we've got as much confidence in that as we've ever had more so. And I'm super excited going into 2024. We'll share more of that with you obviously in the coming months. Speaker 1200:55:23I appreciate that. And just very last one and apologies if I Within that double digit de novo growth, any thoughts on how the mix of that pans out between kind of your consolidated, non consolidated equity method Mix going forward? Thanks. Speaker 300:55:39Yes. A lot of the de novos especially early on are going to be non consolidated. So some of them will be non consolidated because we have a health Partner which has unique advantages and probably won't give us the opportunity to buy up. Some of them are us and docs where we will have distinct opportunities Buy up and so but initially those will be non consolidated facilities in general. Speaker 100:55:58Thanks. Speaker 300:56:00Yes, absolutely. Operator00:56:03Thank you. Ladies and gentlemen, it appears we've reached the end of the question and answer session. I will now hand over to management for closing remarks. Speaker 300:56:12Thank you, and I want to appreciate really appreciate everyone's engagement today. Before we conclude, I would like to reiterate just how proud I am of our team of professionals and surgeon partners We work so closely together to deliver on our mission, which is to enhance patient quality of life through partnership. Their working contributions allow us in low cost settings with the convenience and professionalism our facilities are known for. Thank you so much for joining our call today and hope you have a great day. Thanks. Operator00:56:48Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending and you may now disconnect your line.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSurgery Partners Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Surgery Partners Earnings Headlines3 Healthcare Stocks with Mounting ChallengesApril 24, 2025 | finance.yahoo.comSurgery Partners, Inc. Announces First Quarter 2025 Earnings Release Date and Conference Call ...April 19, 2025 | gurufocus.comHere’s How to Claim Your Stake in Elon’s Private Company, xAIEven though xAI is a private company, tech legend and angel investor Jeff Brown found a way for everyday folks like you… To partner with Elon on what he believes will be the biggest AI project of the century… Starting with as little as $500.May 5, 2025 | Brownstone Research (Ad)Surgery Partners, Inc. Announces First Quarter 2025 Earnings Release Date and Conference Call ...April 19, 2025 | gurufocus.comSurgery Partners, Inc. Announces First Quarter 2025 Earnings Release Date and Conference Call DetailsApril 18, 2025 | globenewswire.comSurgery Partners (SGRY) Receives a Hold from BarclaysApril 10, 2025 | markets.businessinsider.comSee More Surgery Partners Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Surgery Partners? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Surgery Partners and other key companies, straight to your email. Email Address About Surgery PartnersSurgery Partners (NASDAQ:SGRY), together with its subsidiaries, owns and operates a network of surgical facilities and ancillary services in the United States. The company provides ambulatory surgery centers and surgical hospitals that offer non-emergency surgical procedures in various specialties, including orthopedics and pain management, ophthalmology, gastroenterology, and general surgery. It offers diagnostic imaging, laboratory, obstetrics, oncology, pharmacy, physical therapy, and wound care; and ancillary services, including multi-specialty physician practices, urgent care facilities, and anesthesia services. In addition, it offers single- and multi-specialty facilities. 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There are 13 speakers on the call. Operator00:00:00Morning, ladies and gentlemen, and welcome to Surgery Partners Third Quarter of 2023 Earnings Call. Currently, all participants are in listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. It is now my pleasure to hand you over to Chief Financial Officer, Dave Laugherty. Operator00:00:31Please go ahead, sir. Speaker 100:00:37Good morning. My name is Dave Dougherty, CFO of Surgery Partners, and I'm here with our CEO, Eric Evans and our Executive Chairman, Wayne DeVeydt. Thank you for joining us for our Q3 2023 earnings announcement. During our call, we will make forward looking statements. There are risk factors that could cause future results to be materially different from these statements. Speaker 100:00:58These risk factors are described in this morning's press release and the reports we filed with the SEC, each of which are available on our website at surgerypartners.com. The company does not undertake any duty to update these forward looking statements. In addition, we will reference certain or as a substitute for results prepared in accordance with GAAP. These measures are reconciled to the most applicable GAAP measure in this morning's press release. With that, I'll turn the call over to Wayne. Speaker 100:01:37Wayne? Speaker 200:01:39Thank you, Dave. Good morning and thank you all for joining us today. We are pleased to report another quarter of consistent growth in revenue and adjusted EBITDA exceeding our prior guidance. Including our non consolidating facilities, we performed over 172,000 surgical cases this quarter. When adjusted for divested facilities and factoring in one less business day, this was nearly 6% more than 2022. Speaker 200:02:06Other than the impact of Hurricane Idalia, which marginally impacted our Florida and Georgia facilities mid quarter, we did not experience any pressure from external factors as we continue to produce steady predictable growth in our key growth areas. This strong case growth combined with increased acuity Contribution from recent acquisitions generated $674,100,000 of net revenue and $105,500,000 of adjusted EBITDA resulting in a 15.7% margin. Dave will share more details regarding our financial results, But let me highlight a few. Net revenue of $674,100,000 was almost 9% more than the prior year with same facility revenue growth in excess of 14% in the quarter. On a year to date basis, same facility revenue growth was nearly 11%. Speaker 200:02:59Adjusted EBITDA was $105,500,000 representing nearly 10% growth over the prior year quarter and a 14% on a year to date basis. Adjusted EBITDA margins improved 70 basis points sequentially to 15.7% as compared to the prior quarter. Finally, we completed the acquisition 2 additional short stay surgical facilities in the quarter and have deployed approximately $135,000,000 year to date. The pipeline of future acquisitions is robust, which allows us to be highly selective and remain disciplined in our acquisition strategy. Specifically, we have well over $200,000,000 currently under LOI and a significant number of additional opportunities in early conversations. Speaker 200:03:46We continue to be pleased with our balanced approach to growth with all pillars of our long term growth algorithm either meeting or exceeding our expectations. Based on the strength of our Q3 results and our continued positive outlook on our numerous investments in the business, we are raising our full year adjusted EBITDA guidance to a range of $436,000,000 to $440,000,000 with approximately $2,750,000,000 in consolidated revenue. Dave will discuss our guidance in more detail later in the call. With that, let me turn the call over to Eric to highlight some of our operational initiatives and recent investment activities. Eric? Speaker 300:04:24Thanks, Wayne, and good morning, everyone. We are pleased with our 3rd quarter results, which represent another quarter of consistent and predictable growth across all of our core service lines and consistent with our company's growth algorithm. From an operational perspective, our specialty case mix is right where we expected and volume was in line with our expectations with over 146,000 consolidated surgical Our non consolidated facilities, which are an increasing part of our portfolio, exceeded our expectations with almost 26,000 cases. In the quarter, our same facility case growth was 2.9% when compared to the Q3 of 2022 and net revenue growth per case was 11%. We expect to continue to see both volume and rate growth with rate growth in excess of our long term guidance throughout 2023 due to the strength of our physician recruiting and case mix acuity. Speaker 300:05:18On the recruiting front, our various initiatives continue to drive strong year over year growth, fueling growth in MSK procedures, particularly total joint cases in our ASCs. Year to date, we have recruited nearly 500 new physicians to our short stay surgical facilities With approximately 40% representing MSK Specialties and we remain on pace to recruit more physicians than last year with an increasing focus on higher acuity procedures. To provide some context, we continue to see strong growth in total joint procedures performed at RESCs, which have increased approximately 60% year to date compared to 2022. As Wayne mentioned, we have deployed $135,000,000 year to date on 15 transactions, which includes 3 additional facilities closed in October. We continue to rapidly integrate acquisitions into our operations, bringing the full benefit of our revenue cycle, procurement, managed care and physician recruiting teams to yield significant synergies within the 1st 18 months of ownership. Speaker 300:06:18We remain committed to our annual capital deployment goal of at least $200,000,000 As it relates to divestitures, we have divested our interest in 7 facilities as part of our disciplined portfolio management process. As previously discussed, the timing of these divestitures has an ongoing impact on our revenue as we redeploy the capital. Moving to our de novo activity, We have been intentionally focused on syndicating with surgeons that recognize the importance of moving high cost procedures to a lower cost, high quality purpose built surgical facility. Based on deals we have under syndication, we have 17 short stay surgical facilities in various stages of our pipeline, many of which are slated to open in 2024. These facilities include both consolidated majority owned partnerships as well as minority interest unconsolidated partnerships. Speaker 300:07:07They include a mixture of 2 way partnerships under development between us and physician partners and three way partnerships with our new health system partners. We expect this pipeline to grow significantly over the next 2 years and to provide us with future buy up opportunities. Dave will share how we think about the financial performance of these unconsolidated facilities in his remarks, but our growth in this area further enhances confidence in our long term mid teens growth expectations. Before I turn the call over to Dave, I'd like to take a moment to address the current environment as it relates to anesthesia providers as well as some Starting with anesthesia, I would like to point out that anesthesia availability and cost pressures are not new, but rather something that we have been managing for a few years. It's widely known that the current supply of anesthesia providers from MDs to cRNA is constrained and that recent reimbursement changes for their services has impacted their Other than the limited number of providers that we employ, the anesthesiologist or CRNA is responsible for billing and for their services performed in our facilities. Speaker 300:08:19These providers have chosen to work with us in our facilities for the same reason our surgeons And other stakeholders do for the convenience, efficiency and clinical quality we are known for. In other words, They generally prefer working with our surgeons in our facilities. With the pressures facing the service line, we have been working with our anesthesia providers to ensure they remain engaged and We have many opportunities to assist them, including realigning surgical schedules to maximize their OR time, working with our managed care teams on improved payer interactions, or in some cases offering a revenue guarantee or stipend. Speaker 100:08:55These standard practices have been Speaker 300:08:56in place in certain markets for several years and the financial impact is not material to the company's results. Despite the increased focus on this subject, we have not experienced any delays or canceled cases because of this issue, nor do we expect to see material changes to our operations or financial results in the future. We are, however, taking the opportunity To reiterate, this has not been a material issue for us and I do not expect this will be a material issue for us in 2024. Moving on to GLP-1s. We are proponents of a healthier population and have high hopes for success in pharmaceutical and behavioral changes that benefit individuals affected by diabetes And obesity. Speaker 300:09:43While we are encouraged by the promise of these drugs, there is much to be learned about the overall effectiveness, long term side effects and other factors, including reimbursement. While we do not know the ultimate impact of these drugs, it is believed that such drugs will lead to fewer comorbidities and a healthier, more active lifestyle, which generally bodes well for our short stay surgical facilities. In short, we do not expect a change in our long term growth algorithm due to the expected impact of GLP-1s and related treatments and would bias to more upside for purpose built short stay surgical facilities due to the continued shift of procedures from the inpatient to the outpatient setting, particularly for healthier populations. In closing, I've been in this role for almost 4 years And I've never been more optimistic regarding our future and the number of tailwinds impacting our business. The desire and need to move more procedures to purpose built The combination of investments in both our existing facilities and new de novos coupled with our entry into three way joint ventures with high quality health systems Gives me increased confidence in our ability to grow high single to low double digit organically. Speaker 300:10:57This growth coupled with an existing and growing M and A pipeline And a talented, deep and experienced leadership team provides further optimism for long term sustainable mid teens adjusted EBITDA growth. With that, I will now turn the call over to Dave to provide additional color on our financial results as well as the outlook for the remainder of the year. Dave? Speaker 100:11:19Thanks, Eric. I will focus on our Q3 financial results, key metrics for our unconsolidated and managed facilities and our outlook for the remainder of the year. Starting with the top line, we performed over 146,000 surgical cases at the facilities we consolidated in the 3rd quarter. When combined with facilities we don't consolidate, we performed over 172,000 cases, representing a slight increase over last year. Adjusting for divested facilities and one less business day in the quarter, total cases grew nearly 6%. Speaker 100:11:53These cases spanned across all our specialties with an increasing focus on higher acuity procedures, which is reflected in our double digit same facility growth The combined case growth in higher acuity specialties, specific managed care actions and the continued impact of acquisitions supported consolidated revenue growth of 8.6% over the prior year. This growth was accomplished despite revenue headwinds associated with On a same facility basis, total revenue increased 14.2% in the 3rd quarter with case growth at 2.9%. Net revenue per case was 11.0% higher than last year, primarily driven by There were no unusual events that affected the 3rd quarters of both 20222023. Adjusted EBITDA was $105,500,000 for the 3rd quarter, giving us a margin of 15.7% in line with our expectations of continued margin expansion. Inflationary pressures related to labor and supply costs have moderated this year, but we remain vigilant in monitoring these factors across our portfolio. Speaker 100:13:12Consistent with prior quarters this year, the 3rd quarter labor and supply costs are a lower percentage of revenue than the prior year. As we mentioned in prior comments, we have increased investments in facilities that are not consolidated, including both de novos and acquisitions. Because they are not consolidated, the earnings of these facilities are reflected in equity earnings of unconsolidated affiliates and management fee revenue, a component of revenue in our income statement. To provide some context on our non consolidated activities, We have ownership interest in 23 facilities that are not consolidated. Revenue from these unconsolidated facilities grew 71 in the Q3 over last year, representing growth of over $66,000,000 This revenue growth is a combination of acquired minority interests and the value proposition we bring to these partnerships. Speaker 100:14:11We benefit from this growth in 2 ways, Management fees, which are based on revenue and our share of the income generated at the facility. The adjusted EBITDA contribution from the unconsolidated and managed only facilities was $10,200,000 in the 3rd quarter, which is approximately 30% higher than last year. In addition to our existing facilities, we have 17 de novos in various stages development with 10 that are expected to open over the next 18 months. Based on our robust de novo pipeline and momentum, we would Opening double digit de novo facilities annually for the foreseeable future. The development costs for de novos are not material to the company. Speaker 100:14:59In the quarter, we incurred approximately $200,000 of development costs associated with de novos. Moving to cash flow and our balance sheet. As we've noted in the past, we expect to produce at least $140,000,000 of free cash flow in 2023. In the Q3, we generated free cash flow of $63,200,000 and on a year to date basis, we have generated $91,400,000 We remain confident in the ability to meet our target of at least $140,000,000 of free cash flow in 2023. Based on our current growth algorithm, we anticipate free cash flow to receive $200,000,000 annually by 2025. Speaker 100:15:43We ended the quarter with $236,000,000 in consolidated cash and an untapped revolver of $545,000,000 When combined with the free cash flow we are projecting, we believe our current and future liquidity position does well in this macroeconomic environment, while giving us flexibility to maintain our long term acquisition posture of deploying at least $200,000,000 per year for M and A. As a reminder, our corporate debt is less than $1,900,000,000 with an average fixed interest rate of 6.7% with no material debt maturing until 2026. We are continually reviewing our debt stack opportunities to extend our maturities well past 2026 while minimizing the impact on our projected free cash flow. We are monitoring the rate environment and forward interest rate curve as we consider both factors for any potential refinancing and the ability to limit interest through an appropriate hedging strategy. Our 3rd quarter ratio of total net debt to EBITDA as Calculated under our credit agreement was 4.1 times. Speaker 100:16:57With the earnings growth we expect, we are confident this ratio will continue to decline. Airing the momentum of our Q3 results, we remain optimistic and confident about the company's growth and are raising our outlook for 2023 adjusted EBITDA to a range of $436,000,000 to $440,000,000 with the midpoint representing over 15% growth compared to 2022. Further, our outlook Consolidated revenue is approximately $2,750,000,000 representing over 8% growth from 2022 and is inclusive of overcoming more than $100,000,000 of divested revenue. As we've discussed previously, our revenue and adjusted EBITDA guidance is impacted by the timing of acquisitions and divestitures. We are currently in the midst of our planning process for 2024, but wanted to provide investors with Some thoughts on the factors we are considering for our 2024 growth goals with our senior leadership team and Board of Directors. Speaker 100:18:07At this time, we do not foresee any material headwinds as we head into 2024. We believe the consistent momentum of our business that have been experiencing will continue in 2024. Specifically, we expect organic growth above our long term growth algorithm, supported by continued surgical case migration from higher cost settings and efficiency initiatives leading to top line growth and continued margin expansion. Our margin expansion reflects ongoing investments in procurement and revenue cycle as well as the integration benefits from recent acquisitions and de novos. Additionally, our 2024 contracted Managed care rates are already 90% negotiated and we will continue to benefit from the compounding effect of physician recruiting as we answer 2024. Speaker 100:18:57Finally, our ongoing acquisition strategy supported by a robust pipeline of potential acquisitions Combined with contributions from de novo facilities we expect to open in 2024 provide further tailwinds in support of our growth algorithm. At this early stage in our process, we remain confident in our ability to deliver mid teen adjusted EBITDA growth. We look forward to providing greater visibility into our 2024 projections for revenue, adjusted EBITDA, free cash flow and capital deployment in a future presentation. With that, I'd like to turn the call back over to the operator for questions. Operator? Operator00:20:03It may be necessary to pick up your handset before pressing the star keys. Our first question comes from Kevin Fischbeck of Bank of America. Please go ahead. Speaker 400:20:16Great. Thank you. I guess, maybe to start off, the pricing number Really strong in the quarter. Can you just remind us kind of where the actual core pricing is versus kind of the acuity benefits and payer mix shifts that might happen Year over year, was there anything unusual in the quarter on the revenue per case side? Speaker 200:20:38Hey, Kevin, good morning. I'd start by saying nothing unusual other than we continue to bias towards the higher acuity cases. As you saw in the prepared remarks, the total hips and joints done in our outpatient settings were up over 60% against the prior year Which as you know had strong growth that year as well. So, I put it more in the fifty-fifty bucket of how much is acuity mix impacting the revenue component versus how much is really just the core growth and managed care rates that we're getting along the way. Speaker 400:21:09And then I guess in your prepared remarks, you guys made a comment that the consolidated cases were basically as expected, but the unconsolidated cases came in better than expected. Is there something behind that? Is there a point that you're making there about the kind of the power of having maybe a 3 way joint venture or syndication? Or is there anything else to that? Speaker 200:21:30Well, I think it's fair to say that part of the reason we've been biasing to this additional growth lever We think it's an untapped opportunity for employee doctors that are part of systems and it gives us unique way of bringing kind of our chassis and our playbook to it. I wouldn't say we're over indexing on that, but I think ultimately we wanted our investors to understand the strategies working out and it's slightly better than we had expected so far. And we don't really see those trends diminishing at this point. I think the key thing is, as you know, Kevin, because they're not consolidated, those metrics do not end up in our same store Either, in terms of the volume component. And so ultimately, just feel very good about how we're of running into the new year with the M and A pipeline as well as with the same store metrics. Speaker 300:22:16Yes. And Kevin, I'd just add to that differential. I mean, we are pointing out the strong growth there, but part of that is We bring things on when they're new, we bring a lot of synergies. And so we expect there'll be kind of outsized growth early on. We've been pleased with how those have taken off. Speaker 300:22:28And certainly, it's a big part of the growth story. Speaker 400:22:31All right, great. And then maybe just last question. I appreciate the commentary on the professional fee that seems to be a hot topic. Is it can you help just size that for us? Like what is where was the Professional fee spending in the quarter. Speaker 300:22:44Yes. So I'll let Dave size that in a second. Just to readdress kind of when you think about Physician services, in our business, again, because we're not a traditional acute care company, we're short to say surgical, the only exposure we have is on anesthesia. We don't have hospitals, we don't have VR docs per se. So, we have exposure on anesthesia. Speaker 300:23:02We've had exposure for a number of years, but quite honestly, our side of care is a preferred side of care for anesthesiologists. When I lived in the traditional acute care world, I used ASCs and surgical facilities, short surgical facilities as a way to try to lower subsidies or try get a good deal with anesthesiologists. So we're in a preferred setting. We have a few places where there's pressure, but it is really immaterial. We talked about managing this. Speaker 300:23:27I mean, we're certainly proactively managing the pressures that anesthesiologists feel by helping with scheduling, getting more efficient, being really proactive and being a good partner with them. But the size is immaterial. Maybe you can give them just a rough size of the risk we see next year. Speaker 500:23:42Yes, sure. So first off, and You can see this in our P and L, which is in our press release this morning. We'll give more details obviously in the Q. But in the quarter, Just over $70,000,000 of total professional fees, we get recorded in there and those professional fees Speaker 200:24:02include Speaker 500:24:04a number of different activities including I mean, the medical supply costs that we have, the malpractice insurance and all of those other things. The component that relates to anesthesia, which has been talked about a lot, Most recently, of that is relatively small, Like less than $10,000,000 for the year that we look at. So inside the quarter was really small. And as we've kind of modeled out And look towards next year, although it's still early and we're putting together the budget process, that variance that we're looking at is no more than a few $1,000,000 So easily something that we can absorb as we go into it. I think one of the things just to reiterate a point that Eric mentioned earlier, Because we've gotten this question a couple of times. Speaker 500:24:56Anesthesia has this pressure that you that we cite on Cost side and profitability for them has not impacted in any way our cases. We've not had to cancel one case due to anesthesia related matters This past year. So we don't believe that this is a problem area for us as we've seen elsewhere in the services industry. Speaker 400:25:20All right, perfect. Thank you. Speaker 200:25:22Thanks, Kevin. Operator00:25:26The next question comes from Jason Casola Of Citi, please go ahead. Speaker 600:25:33Great. Thanks. Good morning. I just wanted to go back to the same facility revenue per case in the quarter. That include any benefit from insurance proceeds related to cyber impact? Speaker 600:25:41And then I guess, with that level of growth, it would imply perhaps a bit more margin expansion just given the flow through of rates at the bottom line. You said that 50% of that growth was related to acuity, but maybe can you just help On the pricing flow through, and then the likely kind of margin offset that would come with the focus of higher acuity cases? Just any more color would be helpful. Thanks. Speaker 200:26:05Yes. So first, the short answer is no. The same store did not benefit from any unusual items and did not have any cyber recoveries in it. In terms of the margin expansion, I would say that we're actually very pleased because sequentially it's up 70 basis points. I understand you're probably the math you're applying. Speaker 200:26:22I think you'll see further expansion going into Q4. We did make more additional investments in the quarter. We see strength in the quarter. We're going to take advantage of that to make additional investments. And candidly, our compensation structure is reflective of Our team continues to outperform expectations and so there's additional accruals in the quarter related to bonus etcetera. Speaker 200:26:42But no concerns on our end and I think you'll see margins Not only in Q4, but you'll continue to see that expansion as we go into 2024. Speaker 700:26:51And Kevin, one point of Speaker 300:26:52a little additional clarification. I think Wayne answered that question fifty-fifty. I think you're roughly right, probably more on the side of acuity than rates. I want to be clear on this. This is We have a really strong beat that's been based on really nice acuity growth this quarter. Speaker 300:27:05We've had some nice managed care rates, but I wouldn't say that Half that 14 is managed care. So we've got some rates. We're certainly working on that. But the majority of this is finding and attracting the right high end cases and driving into our facilities. Speaker 600:27:19Great. Awesome. Thank you for the clarity. And then just a follow-up, I wanted to ask on capital deployment, I guess, relative to your 200,000,000 Plus for the redeployment of divestiture activity target. I guess given year to date spend at $135,000,000 and your comments on your pipeline, just curious on the Timing of that spend, it seemed to slow a bit in the Q3. Speaker 600:27:39Is that just kind of timing related? And I guess just broadly any commentary Incremental commentary on the capital deployment environment would be helpful. Thanks. Speaker 200:27:50Great, great. Let me start by saying in the 6 years that this team has been together. The current pipeline of opportunity and what we have under LOI is greater than we've seen in any single year. And we don't see that slowing down as we head into the New Year. Regarding timing, we actually anticipate with the over $200,000,000 under LOI that Some of these will get closed in the Q4 and still feel pretty confident about our targeted $200,000,000 goal for the year. Speaker 200:28:18If it was to Slip, we're really talking about slipping into the first half of next year, which we don't really see as a deterrent towards our long term growth algorithm. But absolutely no concerns on our end. We continue to apply appropriate due diligence on all facilities. And Eric and Dave continue to remind the teams that we don't manage to the quarter, we manage the long term growth algorithm. And so we're not necessarily going to accelerate a close to achieve a near term goal, but I would tell you no concerns at all On the kind of run rate of $200 plus 1,000,000 and if anything, I would argue we're probably going to jump out of the gate even stronger next year. Speaker 200:28:56Great. Thank you. Operator00:29:01Our next question comes from Matt Mayo of Leerink Partners. Speaker 800:29:08Dave, can you go back and maybe just unpack the comments on the managed care actions That you undertook in the quarter. And I guess the corollary to this question is really just maybe an update on the revenue cycle initiatives, The focus on revenue conversion now that you're I think all in one clearinghouse, my sense is these numbers aren't small. So maybe just any update around those would be helpful. Thanks. Speaker 300:29:30Hey, good morning, Glenn. I'm going to jump into the managed care question. I'll turn it to Dave over for revenue cycle. There was no specific managed care action in the quarter. I mean, better than our normal contracting, We clearly continue to develop strong relationship with payers explaining and using math to show them our value proposition. Speaker 300:29:49I think we're getting increased traction with that over time as they see the benefit of what's primarily an independent model us and docs, the benefit we bring to them from a cost perspective. And So as Dave mentioned, we do have 90% of that of our planned increases for next year already in place But there's always negotiations happening there. As we add new service lines and procedures, it's always a chance to go back and say, hey, we're going to create a bunch more value for you. How do we work together for a win win? So I'm really, really proud of our managed care team. Speaker 300:30:17They've made a lot of gains, but I also think some of the gains they've made is being proactive in getting us set up to take on those higher acuity cases. And so some of this is just access to the right payers with the right incentives for physicians And some of it is ongoing rate negotiations, but there was nothing particularly different Speaker 500:30:33in this quarter. With that, maybe talk about revenue side. Yes, maybe One additional point of context as to why I said what I said 90% in there like we're in the middle of doing our budget process. And so Eric and I had the pleasure of talking to our Board about kind of progress and our confidence that we have going into 2024. And Some of what you see, as Eric was mentioning, managed care is an ongoing effort that we do, right? Speaker 500:30:58Day in and day out, our dedicated team kind of focuses on this. And what gives us some degree of confidence when you look at the contributions on the top line side is how much work that team has done and contracted going into next year. So When we give guidance and as we give visibility into 2024, our confidence is driven by the fact that we've already got 90% of Our contracting baked in this space. So that's why it's there. And it is again, when you go back to What we have built over the past several years is a consistent plan that allows us to have some degree of predictability to it. Speaker 500:31:36And I'm glad you asked on the revenue cycle front. We have talked about this in the past. Revenue cycle represents 2 opportunities for us. 1 is cash flow generation on a faster basis. It also allows us to get greater yield through our results. Speaker 500:31:53And In rev cycle kind of the it's a difficult job as you know in the healthcare Services sector for us, we deal with payers that are constantly trying to find the right way to move business into our facilities. And so we're always dealing with the managed care providers, making sure that we're following their Protocols appropriately and making sure that we do the right things on the front end to make sure that we Increased denials on the back end and then when we do have denials on the back end that we're actively managing those in accordance with our contracts with the payers. When you do that properly, you get increased yield opportunities. We've done a pretty good job of that in the build that we have done over the years. We get to apply that logic every time we do an acquisition. Speaker 500:32:46So this is one of the values that we provide when we do M and A. So When we often talk about buying companies and then taking a turn off of those effective multiples in the 2nd year and a half of ownership, Part of that is applying our rev cycle approach, getting better yield and accelerating cash. Speaker 800:33:08That's helpful. One just follow-up. Can you just the 7 divestitures that you've made year to date, can you just maybe size kind of how you're tracking relative to that $100,000,000 target? Thanks guys. Speaker 500:33:21Yes. So in the quarter, we estimate roughly $35,000,000 plus or minus of revenue that we're jumping over this year from revenue that we incurred last year in the Q3 that we don't have this year from the 7 acquisitions. So we don't spike that out separately. We do that intentionally because I think we're proud of the growth that we have. But I think we're proud of the growth that we have, but that's the business that we would have disposed of earlier this year. Speaker 800:33:49Thanks. Appreciate it. Operator00:33:55Our next question comes from Brian Tanquilut of Jefferies. Please go ahead. Speaker 700:34:01Hey, good morning guys and congrats on the quarter. Maybe Wayne or Eric, as I think about your comments on GLPs, Maybe if you can just walk us through maybe a little more detail on how you think that is a positive and if there's a near term benefit from Procedures getting done just because people are healthier. Just maybe if you can help us think through the modeling of that impact at least near term and medium term? Thank you. Speaker 300:34:27Hey, Brian. Thanks for the question. And look, there's not a ton of information out here, right? We have done our research on the best we can based What we think the uptake could be, what the potential impact could be, there are puts and takes. As you can imagine, there are patients that are ineligible for surgery today because of weight that will become eligible. Speaker 300:34:45There are patients who are overweight, who might lose weight and become more active. And when you look at the types of procedures we do, which Tend to lead towards things that are less affected by comorbidities if you look at the overall patients we have. For us, we see definitely impacts of people that will become eligible. We understand there might be some people who are healthier longer, but they also become more active. We have a lot of stuff that is based on activity and wear and tear. Speaker 300:35:11We think about things like GI doesn't affected by this in particular as far as risk of what we can tell. Ophthalmology, obviously, a lot of that is some of that can be diet related, a lot of it's not. We look at the pros and cons. We looked at the relative size of the market. And the reality for us is we don't see this as material to our business. Speaker 300:35:28And so maybe there'll be data that comes out in the future that changes that opinion. But at this point, Brian, like if anything, it allows more patients fewer comorbidities to be taken care of in our sites of service, we think that's a net benefit. But we still See the relative impact on an overall population of procedures as being relatively small. So that's as much as we can tell you right now. And I think that's if anybody's telling you more than that, they have data that I've not seen. Speaker 300:35:53So I think that's kind of where we all sit. Speaker 700:35:55No, I appreciate that. And then maybe Dave, As I think about your swaps, just I know you said fixed rate in your debt, just any color you can share on your swaps? And then maybe also how we should be thinking about funding the $200,000,000 of deals in the pipeline? Speaker 500:36:13Yes, yes. I appreciate you asking this question, because we obviously do look at this and we're aware Of how this is kind of viewed from the outside. So let me start with free cash flow generation. I mentioned it earlier in my prepared remarks, but Hopefully, the results that we printed this morning demonstrate the confidence that we have been having all year in our ability to generate free cash flow this year Of north of $140,000,000 And I can assure you our modeling still shows us kind of progressing nicely up to $200,000,000 plus of Free cash flow in 2025. So from a cash flow generation, you get to that year And you can see that the business is generating sufficient free cash flow to support its operations. Speaker 500:37:04So what we're really talking about Here from an exposure area is the GAAP year of 2024, where you're going to be generating between the $140,000,000 and the $200,000,000 Free cash flow again. We're not going to give that guidance just yet. We'll give it in upcoming calls. And that's when you look at our balance sheet. And our balance sheet right now It sits with $236,000,000 of cash and an untapped revolver of nearly $550,000,000 So When management says and when I say that we have confidence we'll be able to support the growth that we've committed to of at least $200,000,000 of capital deployment, That's why we have that confidence. Speaker 500:37:44Now we do to your point, we do have a debt stack that we look at that There's no material debt coming due until 2026. To your point, we have interest rate swaps and caps in place, Mostly swaps at this point, that fix our current term loan variable rate to just under 6%. Think we're at 5.9 percent effective interest rate. We'll have that all the way through March of 2025. And then at that point in time, obviously, I hope that we have done a refinancing opportunity and we'll be close to that at that point in time. Speaker 500:38:25So that we'll time the market in the most favorable environment that we can see And then we'll go after the market and of course reestablish our hedging strategy in what's going to make sense I think what we have valued and I think our investors have valued is the predictability of our free cash flow. So a hedging strategy will always be important to us. In today's environment, that means we have to look at the forward interest rate curve and see what kind of makes sense for us. But as we sit here today, Fully hedged in a position of strength because of that predictability that we have over the next several years. Speaker 700:39:08Appreciate that. Wayne, maybe one more question, if I may. I know there we've been asked a lot about site neutrality. How are you thinking about the proposals that are out there, whether it's from MedPAC or whatever is going around in D. C. Speaker 700:39:21Right now? Thank you. Speaker 200:39:24Hey, Brian, thanks for the question. I'm going to let Eric actually expand on this since he just provided the Board an update along with some of our long term outlook views. The short answer is, we actually think this is a net positive to us. But Eric, maybe expand on kind of what we disclosed to the Board and Speaker 300:39:41Yes, Brent, let me start with the whole thesis of our business is the savings we create in the system by driving patient care to the right That is absolutely why this company I think exists. It's why we create a lot of value. It's why we are part of the So for us, any legislation that actually encourages patients to get their care done in the right place is something we fully support. So Let me set it up there. Let me secondly say, we don't own and operate traditional acute care hospitals, right? Speaker 300:40:09We have surgical hospitals that do take care of Extended stay scheduled patients, many of them don't have ERs, right? So you think about a given market and how we think about the world, We like the opportunity in a given specialty, whether that's orthopedics or cardiology to provide the whole spectrum of care to our physician partners. So if you think about our surgical facilities, where there may be something would move to an ASC, we're already doing that. If you look at our surgical Hospitals, we have ASC strategies, many of them have ASCs and many of them multiple ASCs. So the idea is we think it's a unique opportunity in our Short stay surgical facilities, again, very different than traditional acute care. Speaker 300:40:47They're purpose built for higher acuity scheduled procedures. As we think about that world, we love that opportunity with our partners To cover the entire gamut of acuity in a value based way that allows the patient go to the right side of care. So that's addressing any risk we might have. The bigger issue is our bigger On the ASC side, we have 130 plus today. We're adding a bunch of de novos. Speaker 300:41:08As you know, we see that number growing on its way to 200 over the next few years. All of those sites benefit from anybody leaving the HOPD hospital site. So we feel like we're very Positioned and been proactive on moving into the right side of care end markets where we have the higher acuity capabilities. And in the other cases, we see that as a net positive. So it's again, Core to our business, we believe in it. Speaker 300:41:30We're excited about it. We think it's the right answer for the health system. And so net net, we think definitely not a risk and we really think there's some opportunity there. Dave, maybe you want to add something? Speaker 500:41:40Yes. So, of course, you can expect that we're tracking what's going on up in DC and Kind of following the conversation, as Eric mentioned, this is the company's thesis. So it logically makes sense for us. As we've looked at The closest proposal that we've kind of seen with some degree of specificity, there are There's this concept that stuff might move out of our larger acuity centers into our ASC environments. If you take just a bearish case and assume that those types of cases in the environment that they've kind of set up, again, very worst case scenario. Speaker 500:42:23In 2026 and beyond, what we're talking about in our calculations is less than 1% of our business. And I say when you look at just the bearish case, that's purely the bearish case, right? Assuming that there is no further Improvement opportunities inside our ASCs and no replacement of those cases outside of our larger facilities, which is unrealistic. This company, as you know, is very strategically focused. And if you have an effective date of 2026 or beyond, Overcoming a 1% headwind is not something that intimidates us in any way. Speaker 400:43:02Thank you. Operator00:43:14Thank you. Our next question comes from Sarah James of Cantor Fitzgerald. Please go ahead. Speaker 900:43:22Thank you. I just wanted to follow-up on the train of thought from that last question. So as you think about where You're investing to capitalize on the new regulatory environment. Does that have a link to Your case mix, so I noticed the 40% of hiring that's coming in the MSK space is above your current case mix. So do you see Evolving into that being a more dominant part of your business? Speaker 300:43:52Yes, Sarah, great question. I mean, look, I think we have been talking for quite some time that we are focused on growing in areas. First of all, Higher acuity areas in our ASCs and surgical facilities, it is the highest contribution dollar per minute. And so it makes logical sense we're focused there. We also know it's what matters most to the health system, to payers, to CMS. Speaker 300:44:11The amount of savings we can drive For those procedures, often 10,000 plus a case. And that's why, yes, absolutely, you should see that mix continue to change. Now that doesn't take away the fact We love our GI business. We love our ophthalmology business. They're great businesses. Speaker 300:44:25But when you think about our ASCs, so if you think about our de novos, for example, almost all of them Our ortho or cardio based. So like we are very, very focused on moving where we can add the most value and that certainly provides Protection against lower acuity stuff that maybe does change spaces. And look, we don't talk about that, but on the lower end of things, things leave our facilities. And that's okay because it's the right answer Overall, I would like to point out too, this is a recent CMS announcement. They added shoulders and ankles, in particular, total shoulders. Speaker 300:44:53We were really pleased during COVID That we had some facilities that were accepted and able to do total shoulders. We had fantastic clinical results. We saved patients a lot of money. Initially, they weren't included Coming off the inpatient only list, we were certainly pleased to see that. And we see those kind of opportunities to continue to push higher acuity patients safely into our space with Better experience, better outcomes and really just ultimately the best answer for the healthcare system as a tremendous opportunity. Speaker 300:45:20One little stat I'd throw out too going back to this site transition. It's still 3 to 1, the number of total joints that are in the HOPD versus the ASC environment. So we're in the early innings of a lot of this stuff. You will see us continue to change that mix to higher acuity over time just because Speaker 900:45:37Great. And then can you provide any color on your case mix Volume by specialty this quarter? Speaker 100:45:50Yes, Speaker 200:45:53Dave is just looking at it now just so we can give you the exact specifications. Speaker 500:45:57Yes. And this information will be in our queue a little bit later today just so you have it. So, the Nearly 3% same facility growth that we saw in cases this year, in the quarter Speaker 100:46:14Our top Speaker 500:46:183 kind of target areas, ophthalmology, GI And MSK, particularly the ortho component of MSK are all north of 4% same facility growth. So Those are all growing very nicely for us. It's not going to change the overall mix of the business, but that's where you can see that higher acuity come through in our same facility Calculations. So I think it's fair to say much like we've seen all year, Sarah, that the our growth Engine is kind of running along all of our specialty. So we're seeing kind of nice growth in every single one of those areas. Speaker 900:46:55Thank you. Operator00:46:59Our next question comes from Ann Haynes, Otjonshu Securities, please go ahead. Speaker 1000:47:07Hi, good morning. In the past, you have talked about your revenue algorithm as 2% to 3% case growth, 2% to 3% revenue per case growth. But I feel like that's a little stale given, especially this quarter with revenue per case up 11%. How should we think about that going forward just given the mix of higher acuity is changing? That would be my first question. Speaker 1000:47:29And my second question is just on Q4 seasonality, the EBITDA ramp going into Q4 seems like a little higher than normal. Is there anything that you would call out for Q4? That would be great. Thanks. Speaker 200:47:42Ann, good morning. I'll take the first question, then I'll have Dave talk about seasonality. But The Speaker 300:47:50growth algorithm. Speaker 200:47:51Yes, on the growth algorithm, let me remind everybody that the 3 components of the growth algorithm, I'm just going to focus on the one that you've highlighted, which is the 2% to 3% volume And then the 2% to 3% rate. And is that starting to become somewhat stale in light of what we continue to produce? I'll start by answering this Which is we fully expect going into next year to be north of the high end of that range, right, which is clearly 6%. We have no indication that that should slow. So I think that's a Fair question you're asking and it appears that we ought to be able to outperform that on a same store basis. Speaker 200:48:21We continue target the 2% to 3% on volume because we want the team to be focused on the right procedures and the high acuity procedures. And so if you were to look at it last year, we had a very strong year last year with 3.8% Volume growth on a year to date basis, you look at it this year, we're at 3.5% on top of that strong growth last year. So I still think that 2% to 3% is the right algorithm target, But we would bias towards the high end of that range, if not slightly better. Clearly, where you're going to see this differentiated approach is going to be on the 2% to 3% that we talk about for the revenue component. I think the combination of the acuity mix we were going after, the combination of the new rev cycle initiatives, the days put forward, etcetera, Yes, we clearly will be north of that. Speaker 200:49:03And again, to give you an exact percentage, we don't want to get ahead of our Board as a team is coming forward with the final plan for next year. But all in, we should easily exceed our 6% top line algorithm that we've laid out for you. Speaker 500:49:15Yes. And Anne, let me just address that seasonality question because I've And maybe you can show me the numbers that you're looking at. But if you take the midpoint of our guidance, what would imply is our 4th quarter results Come in somewhere around the low 30s, around 32% of our full year guidance at that midpoint. That's consistent with what we have seen in the past, with the exception of the COVID year. If you go back to 2019, 2018, you go back to last year, we have a higher proportion of our business in the Q4. Speaker 500:49:48It's as a CFO, that's what makes it I always sweat Christmas because I'm trying to see how those cases come in, but that's all a result of our patients Kind of chasing after the deductible before it resets at the beginning of the year. So you see a higher preponderance of commercial business and higher Volume, both of those things typically come through starting in late November and going all the way through the end of the year. And That's just how the business kind of runs. It's predictable enough for us to kind of put that in there, but nonetheless it still does. It contributes to that higher average growth rate that you see inside the 4th quarter. Speaker 1000:50:30All right, great. Thank you. Operator00:50:35Thank you. Please go ahead. Speaker 1100:50:51Good morning, guys. Most of mine have been asked, but hey, Eric, I'm kind of curious on the non consolidated deals. Are you I mean, directionally, is it moving in the same direction as the consolidated deals in terms of the mix of specialty? And are you and second add on is, are you all looking a little increasingly at multi specialty centers as you particularly do three way deals? Speaker 300:51:18Yes. So great questions. Let me start with the first question. So the non consolidated deals are actually even higher acuity in totality than our Current book of business, so we've used it as a way to expand into those procedures that matter most. So the answer there is from a directional mix perspective, that's true. Speaker 300:51:34We've also, like I said, been very pleased with the early growth we're driving in those facilities. Both proves our value and it also is taking advantage Synergies we bring to those facilities. So as we've talked about before, we forgetting accounting for a second, we're going to make the best earnings decision for the company And then figure out the best way to talk to you guys about it. So that's been something we've been very, very pleased with overall. And your second question, sorry. Speaker 300:51:59Multi specialty. Multi specialty. Oh, yes. So multi specialty, so you should know the vast majority of our SCs today are multi specialty. And we do still have some single specialty SCs in Both ophthalmology and GI, but yes, the vast majority are multi specialty wherever we can, which we turn the single specialty into multi specialty. Speaker 300:52:16And if you look forward, would say what's interesting about our de novos, I think they will ultimately be multi specialty, if many of them are ortho focused. What that allows you though is bigger rooms, You're building for more complex cases, which does allow you to fill in any gaps with other specialties over time. So you might see some of those come out of the gate really, really specialized in taking off on those areas, but we see opportunities there over time to add service lines like we always do. And our bias is definitely towards multi specialty because it allows us to use all of our different growth tactics and levers, allows us to really, really leverage our recruitment team. And so, over time, we would expect that continues to be the direction. Speaker 1100:52:54And so your de novos are more tilted towards MSK than Cardio? Speaker 300:53:00Yes. That's a little bit more towards MSK than anything else for sure. And like I said, we're still in the early innings of that. We're excited about that. There is obviously some And look, cardio is one of those ones that it's going to be again, it's going to be a big growth number over the next several years on a small end. Speaker 300:53:15Guessing when it reaches its Full potential is a little bit like guessing when orthopedics finally came over the hump, but we do expect to continue to see that take off in the coming years. Speaker 1100:53:25Okay, great. Thanks very much. Speaker 300:53:27Of course. Operator00:53:31Our final question comes from Ben Hendricks of RBC Capital Markets. Please go ahead. Speaker 1200:53:39Hey, thank you. Just a quick follow-up question. Most My questions have been answered, but you'd appreciate the commentary, early commentary on 2024 and the commentary about the strong Rate growth being fifty-fifty core growth and mix with maybe a little bit of bias towards acuity. But any thoughts on how that migrates into your early Speaker 500:54:04Yes. So it is too early, Ben, for us to talk about 2024. So, all we're going to tell you at this stage is that we are we do see our growth algorithm continuing. And again, We've talked about this theme of consistency, right? That is what we want to be known for. Speaker 500:54:23It is Also just generally the way this business operates right there, we generally do not have kind of unusual events that cause spikes one way or another. So There's a degree of predictability that you can assume from what we have accomplished so far this year and that ought to continue into next year. But at this stage, I don't think we're going to give I know we're not going to give guidance on 2024. We just got to finish doing the work and then making sure we get through our Board Before we talk publicly about Speaker 300:54:54that. Then what I would reiterate and we continue to say this, we're a mid teens growth company. That's the expectation. We have opportunity to do that, we don't see that changing. There's nothing as I said in my prepared remarks, having sat in this seat for 4 years, I've got more opportunities and more levers and more tailwinds than I've ever had. Speaker 300:55:10And so when we talk about that long term mid teens growth, we've got as much confidence in that as we've ever had more so. And I'm super excited going into 2024. We'll share more of that with you obviously in the coming months. Speaker 1200:55:23I appreciate that. And just very last one and apologies if I Within that double digit de novo growth, any thoughts on how the mix of that pans out between kind of your consolidated, non consolidated equity method Mix going forward? Thanks. Speaker 300:55:39Yes. A lot of the de novos especially early on are going to be non consolidated. So some of them will be non consolidated because we have a health Partner which has unique advantages and probably won't give us the opportunity to buy up. Some of them are us and docs where we will have distinct opportunities Buy up and so but initially those will be non consolidated facilities in general. Speaker 100:55:58Thanks. Speaker 300:56:00Yes, absolutely. Operator00:56:03Thank you. Ladies and gentlemen, it appears we've reached the end of the question and answer session. I will now hand over to management for closing remarks. Speaker 300:56:12Thank you, and I want to appreciate really appreciate everyone's engagement today. Before we conclude, I would like to reiterate just how proud I am of our team of professionals and surgeon partners We work so closely together to deliver on our mission, which is to enhance patient quality of life through partnership. Their working contributions allow us in low cost settings with the convenience and professionalism our facilities are known for. Thank you so much for joining our call today and hope you have a great day. Thanks. Operator00:56:48Thank you. Ladies and gentlemen, that concludes today's event. Thank you for attending and you may now disconnect your line.Read morePowered by