NASDAQ:SGRY Surgery Partners Q2 2024 Earnings Report $23.48 +0.41 (+1.75%) As of 01:14 PM Eastern This is a fair market value price provided by Polygon.io. Learn more. Earnings HistoryForecast Surgery Partners EPS ResultsActual EPS$0.21Consensus EPS $0.20Beat/MissBeat by +$0.01One Year Ago EPS$0.25Surgery Partners Revenue ResultsActual Revenue$762.10 millionExpected Revenue$735.94 millionBeat/MissBeat by +$26.16 millionYoY Revenue Growth+14.20%Surgery Partners Announcement DetailsQuarterQ2 2024Date8/6/2024TimeBefore Market OpensConference Call DateTuesday, August 6, 2024Conference 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 Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 6, 2024 ShareLink copied to clipboard.There are 11 speakers on the call. Operator00:00:00Good day, everyone, and welcome to today's program, Surgery Partners Incorporated 2nd Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call may be recorded. I'll be standing by should you need any assistance. Operator00:00:31It is now my pleasure to turn the conference over to CFO, Dave Dougherty. Speaker 100:00:36Good morning. My name is Dave Dougherty, CFO of Surgery Partners. I'm joined today by Eric Evans, our CEO and Wayne Debit, our Executive Chairman. During this call, we will make forward looking statements. There are risk factors that could cause future results to be materially different from these statements. Speaker 100:00:53These 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, surgerypartners.com. The company does not undertake any duty to update these forward looking statements. In addition, we will this information should not be considered in isolation 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 will turn the call over to Wayne. Speaker 100:01:32Wayne? Thank you, Dave. Good morning and thank you all for joining us today. Speaker 200:01:37My initial comments will briefly highlight our consolidated second quarter results and the consistency of our long term growth algorithm. I'll then provide a brief update on our recent acquisition activity and refreshed outlook for the balance of the year. Eric and Dave will provide additional insights with their remarks. Turning to our 2nd quarter results. We reported net revenue of $762,000,000 representing growth of 14.2 percent over the prior year quarter. Speaker 200:02:05On a same facility basis, net revenues grew just under 10% with surgical case volume growth in the quarter just under 4%. Adjusted EBITDA grew 18% to $118,300,000 generating adjusted EBITDA margins of 15.5 percent, expanding 50 basis points as compared to the prior year quarter. Our efforts to pursue higher acuity procedures continue to produce strong results with total joint replacements in our ASCs increasing 46% in the first half of twenty twenty four over the comparable period in 2023. Eric will provide additional insights into our physician recruitment and expansion of our total joint programs, including our success in targeting orthopedic surgeons specializing in total shoulder procedures, which were moved to the ASC covered list starting January 1 this year. We continue to be extremely pleased with our same facility growth and the expected long term sustainability of our organic top line and margin expansion growth goals. Speaker 200:03:07As previously stated, our short stay surgical facilities have been purpose built to capture the macro tailwinds of both an aging population and the increased shift in site of care for higher acuity procedures into our lower cost, high clinical quality outpatient settings. We believe our results reflect the strength and durability of our business model as we pursue this highly fragmented market, which currently consists of over 6 1,000 CMS certified ASCs and an estimated $150,000,000,000 total addressable market representing both current and expected capital deployment activities. We maintained our disciplined approach to sourcing and executing on strategically important acquisitions at attractive multiples. Through the end of the second quarter, we deployed nearly $280,000,000 which includes a $60,000,000 transaction in early January that we had initially targeted closing in the Q4 of 2023. This level of deployment reflects both our annual targeted goal of at least $200,000,000 along with the redeployment of the remaining net proceeds from assets divested in 2023. Speaker 200:04:19Our business development team continues to source a robust pipeline of acquisitions and de novo investment opportunities and we believe the capital deployment aspects of our growth algorithm remain achievable. Before I turn the call over to Eric, let me provide a brief update on our outlook for the remainder of 2024. Based on our strong organic performance in the first half of 2024 and the timing of our recently completed acquisitions, we are increasing full year net revenue and adjusted EBITDA outlook to greater than $3,075,000,000 $508,000,000 respectively. This refreshed outlook represents at least 13% and 16% growth in net revenue and adjusted EBITDA respectively as compared to the prior year and balances our optimism for the company's growth with an appropriate amount of conservatism. We look forward to updating you on our progress as the remainder of the year unfolds. Speaker 200:05:12With that, let me turn Speaker 300:05:13the call over to Eric to provide additional highlights for the quarter. Eric? Thanks, Wayne, and good morning, everyone. On behalf of the entire management team, we are proud to release 2nd quarter results that demonstrate our continued and consistent organic growth and the addition of 5 facilities to our portfolio of purpose built short stay surgical facilities. Once again, all elements of our long term growth algorithm contributed to double digit top line and bottom line growth. Speaker 300:05:41Diving deeper into our results. Same facility net revenue growth was 9.9% in the 2nd quarter comprised of 3.9% growth in our surgical case volume and 5.7% rate improvement. We continue to put increased focus on both physician recruitment activities and higher acuity procedures that would benefit from an enhanced patient and physician experience associated with our purpose built short stay surgical facilities. On a consolidated basis, our specialty case mix and volumes were in line with our expectations with 166,500 consolidated surgical cases in the quarter, with particular focus in our higher acuity business lines. Continuing the wave of positive recruiting, over 200 new physicians have started utilizing our facilities in the 2nd quarter with just under half specializing in high acuity areas such as orthopedics, spine and cardiology. Speaker 300:06:33This brings our total recruits for the first half of the year to just over 400. The initial volume and average rate per case performed by these newly recruited physicians exceed the volume and rates from last year's recruiting cohort. As a reminder, each of our recruiting cohorts continue to drive strong compounding year over year growth with our 2023 class generating 164% more revenue in the first half of twenty twenty four as compared to the first half of twenty twenty three. Our recruitment activities and growth in recent de novos the first in the first half of twenty twenty four, representing 19% growth over last year. More importantly, total joint cases in our ASCs continue to grow at a disproportionate rate, which saw 46% increase in case volume in the first half of this year compared to the prior year and a 90% compound annual growth rate since 2019. Speaker 300:07:31We do not see this growth slowing in the mid to long term as hip and knee replacements continue to transition into the ASC setting as well as our early successes in effectively recruiting surgeons specializing in total shoulder procedures. That shift inside of care is in the very early innings and we are well positioned with our recruiting team and our portfolio facilities to capture total shoulder procedures in our setting. Moving to operating margins, which improved in the quarter by 50 basis points over the prior year quarter to 15.5%. This improvement reflects both our ongoing procurement and revenue cycle initiatives that continue to benefit from our increasing scale along with synergies achieved on our previously acquired facilities. We expect margins to improve throughout the remainder of the year consistent with historical earnings patterns. Speaker 300:08:16Finally, diving deeper into our capital deployment activities. In the Q2, we deployed nearly $220,000,000 acquiring 5 facilities. These acquisitions are heavily weighted towards multi specialty and higher acuity orthopedic facilities and are expected to yield further earnings from our operating system synergies in the 1st 12 to 18 months post closing. In the Q2, we opened 1 de novo ASC that we developed in partnership with Ohio Health. There are 10 fully syndicated de novos under construction slated to open in 2024 early 2025. Speaker 300:08:50These facilities include consolidated and minority interest partnerships and are primarily multi specialty with a concentration in orthopedics. We remain optimistic about our de novo process and pipeline and look forward to providing additional detail as these become meaningful additions to our portfolio. In closing, I'm proud of our management team and our many talented physician partners and colleagues for their relentless focus on delivering a superior patient experience with high clinical quality. Our teams work collaboratively to execute on our initiatives across business development, recruiting, managed care, procurement, revenue cycle and operations, giving us increased confidence that we will achieve our updated 2024 goals. With that said, I will now turn the call over to Dave to provide additional color on our financial results as well as our updated outlook for 2024. Speaker 300:09:42Dave? Speaker 100:09:43Thanks, Eric. Starting with the top line, we performed 166 1,500 consolidated surgical cases and 194,000 total surgical cases in the 2nd quarter. These cases spanned across all our specialties, with an increasing focus on higher acuity procedures, which is reflected in our near double digit same facility revenue growth this quarter. The combined case growth in higher acuity specialties, specific managed care actions and the continued impact of acquisitions supported revenue growth of 14.2% over last year to 700 and $62,100,000 On a same facility basis, total revenue increased 9.9% in the 2nd quarter. Same facility surgical case growth was 3.9% with higher rates of growth in our orthopedic and other higher acuity procedures, which also contributed to rate growth of 5.7%. Speaker 100:10:43We continue to forecast our same facility net revenue growth to exceed our growth algorithm target of 4% to 6% in 2024, with full year same facility revenue finishing in the high single digit range. Our forecast anticipates net revenue being more balanced between rate and volume on an annualized basis, with rate playing a smaller role and volume playing a larger role in the second half of the year. Adjusted EBITDA was $118,300,000 for the 2nd quarter, giving us a margin of 15.5%, in line with our expectations of continued margin expansion. Inflationary pressures related to labor and supply costs continue to abate as we return to a more normalized run rate that provides natural margin expansion as we grow revenue. We will remain vigilant in monitoring these factors across our portfolio and expect margins to continue to improve throughout the year with annualized margins improving by at least 50 basis points over full year 2023. Speaker 100:11:50We ended the quarter with $214,000,000 in cash. When combined with the available revolver capacity, we had over $860,000,000 in total liquidity. We reported operating cash flows of $83,000,000 in the 2nd quarter. This amount is in line with our expectations and supports our continued belief that we will achieve our previously disclosed free cash flow goals in 2024. Moving to the balance sheet. Speaker 100:12:20We have $2,200,000,000 in outstanding corporate debt with no maturities until 2,030. In June, we repriced our $1,400,000,000 term loan, reducing the credit spread by 75 basis points. This loan now carries an interest rate of SOFR plus 2 75 basis points. The effective interest rate on our corporate debt is fixed at approximately 6% through March 31, 2025. And after that, we have interest rate caps in place that limit the variable rate component of our $1,400,000,000 term loan to 5%. Speaker 100:12:57In the event the interest rate environment becomes more favorable will capitalize on such improvements. Our 2nd quarter ratio of total net debt to EBITDA as calculated under our credit agreement was 3.8 times as a result of the acquisitions completed in the Q2. As a reminder, this ratio will be impacted in the short term based on the timing of acquisitions. But over time, we project this leverage ratio will be below 3.0x. Carrying the momentum of our 2nd quarter results, we remain optimistic and confident about the company's growth and are raising our outlook 2024 net revenue to be greater than $3,075,000,000 and adjusted EBITDA to greater than $508,000,000 This guidance implies continued year over year margin expansion consistent with our long term guidance. Speaker 100:13:54This updated outlook represents mid teens growth, emphasizing the resiliency and consistency of the business model and demonstrating the power of our long term growth algorithm. With that, I'd like to turn the call back over to the operator for questions. Operator? Operator00:14:13Thank We'll take our first question from Brian Tanquilut of Jefferies. Your line is open. Speaker 400:14:33Hey, good morning guys and congrats on the quarter. Maybe Dave, just curious, you talked about how the rate and the volume contribution to same store should be more balanced in the back half of the year. Obviously, rate has been strong with acuity levels driving that. So just curious, what are you seeing or what are you thinking in the back half that would shift that balance to more even between the 2? Speaker 100:14:57Thanks, Brian. Appreciate the question. The math is the math that sits behind the same store calculation is probably going to be your biggest driver of your same facility case growth that we're going to see in the second half of the year. And just a reminder, the way we look at our same store calculation tends to go beyond just 1 quarter of a evaluation. It's only because there's only 60 to 62 days business operating days inside any given quarter. Speaker 100:15:27So, you can see those being affected by the days of the week that sit inside there. So when we look at year over year, Q3 and Q4, the surgical days that we have in both of those quarters are more favorable. As when you look at our portfolio of surgical cases and where we think. And the best example I can kind of give to that is the timing of when the 4th July happened for us inside the Q3 of last year and inside the Q3 of this year for us. But what we do anticipate as we've been talking about all year, Brian, is getting back to our growth algorithm as we sit through both case side and rate side of our same facility calculation. Speaker 100:16:13And at that balance of the year, we expect it to add up to be somewhat greater than our long term growth algorithm would suggest, which has been consistent with what we've been reporting over the past couple of years. Speaker 400:16:26Got it. And then maybe Dave just to follow-up on that as I think about seasonality, I mean, I understand obviously like you said we're 4th July fell. But just curious how should we be thinking about the seasonality pattern for EBITDA for the back half? Speaker 100:16:41I think our seasonality has been largely I think our seasonality has been largely Speaker 500:16:47predictable in that the 4th quarter Speaker 100:16:48tends to be our biggest quarter and that's the result of the deductible swing that happens as commercial patients tend to rush to use their deductible balance by the end of the year. So our 4th quarter always is our strongest quarter from an EBITDA perspective as well as from a revenue perspective. We don't see that pattern changing this year. Awesome. Thank you. Operator00:17:13We'll take our next question from Tal Kew of Macquarie. Speaker 600:17:19Hey, good morning. I'd like to break down a little bit the revenue and margin increase in terms of the guidance. How much of that is from organic growth based on strong volume this quarter? And how much of that is from acquisitions and renewals as you mature these? Speaker 300:17:39Thanks. Speaker 100:17:42Yes. Thanks, Kyle. We have a little bit of nice background music coming through on our side here from the line this morning. But let me attempt to answer our revenue beat. Like our revenue calculations for the quarter or revenue, I'm sorry, did come in at our expectations, perhaps slightly above the expectations of The Street. Speaker 100:18:08And we did get contributions from our most recent acquisitions. As you know, we talked about on our last call, we completed sizable acquisitions inside the Q2 and on a year to date basis, we've met our capital deployment goals for the year. So we're definitely getting some benefit from those acquisitions as well as the contributions from last year. But I will say and I would have you focus on the same facility rate growth or revenue total growth at close to 10%, leads you to the conclusion or should lead you to the conclusion that a majority of our beat is coming from the organic side of the business. Speaker 600:18:50Yes. I was more interested on the in terms of the guidance rates, how much of the additional revenue and margin upside is from organic versus the Noble's acquisitions? Thanks. Speaker 700:19:01Yes. Todd, to answer that, Speaker 300:19:02I'd say it's very consistent with what we've done over the past several years. Our algorithm is majority same store organic. It continues to be that going forward. Certainly, our timing is a little bit ahead on M and A this year. But in general, like we're right on expectations of how we expect to grow per our algorithm, which is majority coming from organic supplemented by strong M and A performance. Speaker 100:19:25And maybe just to emphasize that, if you go back to how we've talked about same facility revenue growth for the year, it has been at just about 10% now on a year to date basis and we expect revenue to end the year in the high single digits. Speaker 600:19:44Got you. And my second question is, I don't know whether you guys talk about the cash collection trend during the quarter. What was the DSO during the Q2? Any updated view on free cash flow generation for 2024 and maybe early read for 2025? Thank you. Speaker 100:20:03Yes. So, cash flow has been positive for us. I think you saw what we reported for the Q2. It's again consistent with where we expected it to be. We are seeing continued benefit from our investment terms of cash flow generation. Speaker 100:20:22We still feel confident in our ability to deliver on that. And at this point, we are not giving 2025 guidance. Speaker 600:20:32Got it. Thank you. You're welcome. Operator00:20:36We'll take our next question from Kevin Fischbeck of Bank of America. Speaker 800:20:43Thanks. Just wanted to kind of focus on the volume number. I think after Q1, there was kind of a little surprise by how weak some of the volumes were for you and your competitor. And then this quarter seems to be a whole lot stronger. Is it just as simple as kind of a calendar or do you see like kind of firming fundamental demand from Q1 into Q2? Speaker 300:21:09Hey, Kevin, thanks for the question. This is Eric. I'd answer that in a couple of ways. First of all, we really try not to focus on case counts by a quarterly basis. It really is not that meaningful. Speaker 300:21:18We do focus on that net revenue same store growth number, but it is very affected by the calendar. We've said even at the end of last year coming into this year when we had a little bit of a print that came out slightly below our algorithm that by the end of the year we expect it to be at the upper range or exceed our algorithm. We're still very confident in that. It's a consistent business. Our model is consistent. Speaker 300:21:37And so I think from quarter to quarter, there's a lot of reaction sometimes to those numbers, but it's calendar based, it's timing based. And quite honestly, we think about that on annual terms. We continue to believe we're going to exceed our algorithm again this year. Speaker 800:21:50Okay, that's great. And then I guess, when you think about the ability to exceed that this year, is that driven by, I don't know if you can separate easily, again, what I might call core demand versus some of the company specific things that you're doing around the recruiting, etcetera? Any color there? Speaker 300:22:10Yes. So I think it's first of all, we're obviously constantly working to grow the business on higher acuity procedures. You see that flowing through on physician recruitment, really, really proud of the start to the year, our strongest start on physician recruitment. So all of that continues to work well. But what I would point to is over the last 5 years, we've had really consistent case growth. Speaker 300:22:26It might bounce around quarter to quarter. We continue to see that strong demand this year and it's not different than past years. It's just part of our model and we do expect it to end up in the very much the same place. Speaker 800:22:37All right, great. Thanks. Operator00:22:41Our next question is from Andrew Muk of Barclays. Speaker 900:22:47Hi, good morning. Looks like there was a pretty meaningful increase in professional fees in the quarter. I think it was up 10% per case and over 100 basis points year over year. So I just want to get a little bit more color on what's driving that increase. Thanks. Speaker 100:23:03Yes. Actually Andrew, like I'll have to give you a follow-up on what sits behind that increase in that. But I think it's going to be partly yes, the mix of business that kind of comes through from our acquisitions and divestitures from last year. So our divestitures as a reminder for last year had high revenue kind of associated with it, higher medical costs on the supply chain side. But as a result of that mix in business, you're going to see kind of a slightly different margin profile on that book of business and I suspect that must be coming through on the professional medical fees side. Speaker 100:23:49But I'll give you a follow-up when we talk later. Speaker 900:23:52Okay, great. That's helpful. And then on the free cash flow, I just want to follow-up there. It sounds like you guys are confident around the annual targets for this year. I think year to date free cash flow is tracking around $22,000,000 So just what's driving that confidence in the full year? Speaker 900:24:06And what's driving that second half acceleration? Thanks. Speaker 100:24:10Yes. The free cash flow number is in line with where we expected it to be. It is a bit it's wonky as we've talked about last year because of the timing of collections. But what we've seen inside the Q2 is directly in line with what our internal expectations were. So that gives us increased confidence in our ability to kind of hit there. Speaker 100:24:34The book of business is seasonally adjusted. First half of the year is going to be affected by distributions that come from last year. So the strong earnings inside the Q4 of last year do increase distributions for the first half of the year. That trend goes down a little bit and of course the book of business generates a lot more cash flow in the second half of the year. Speaker 900:24:58Great. Thanks for the color. Operator00:25:02We'll take our next question from Jason Casorla of Citi. Speaker 500:25:10Great. Thanks. Good morning. I just wanted to go back to your commentary around capital deployment. It sounds like you've met your capital deployment goals this year. Speaker 500:25:20Should we be reading into that in terms of your remaining deployment for the year being a bit more muted? Or are you keeping optionality open for incremental capital deployment? Just any incremental color around capital deployment, how you're thinking about the back half and the go forward would be helpful. Speaker 200:25:37Hey, Jason, much appreciated. While we've achieved our full year goals for the year, I would remind you that of the $280,000,000 $60,000,000 of that did relate to the prior year Q4. We closed it in the 1st week of January. So you're looking around $220,000,000 which was deploying our targeted goal of $200,000,000 plus remaining cash proceeds from divestitures from last year. So at this point, anything we do in the back half of the year is clearly going to be icing. Speaker 200:26:00We continue to have a strong pipeline. We like the optionality of that pipeline. We have LOIs on a number of items and a number of items that are under LOI. So I don't think we're going to postpone acquisitions if the timing is right and the quality of Speaker 600:26:16the asset is there. Speaker 200:26:17But I would also say, as you know, these acquisitions can be very fickle. And so it's always about having a robust pipeline so that you can respond accordingly. But I would just read it as we continue to be a partner of choice and we like where we stand relative to the current pipeline and if opportunities present themselves, we'll take advantage of them in the back half of the year. Speaker 500:26:39Okay, great. Thanks. Helpful. And then, I just wanted to ask around total shoulders. They've been a pretty sizable benefit this year. Speaker 500:26:46Can you just remind us the opportunity set on the shoulder side? And then just kind of given the complexity of total shoulders, how we should think about kind of like the margin considerations as those continue to move into the ASV? Just any more color around the shoulder opportunity set and how we should think about margins for that service line? Speaker 300:27:06Thanks. Hey Jason, it's Eric. Thanks for the question. The total opportunity is quite large. I mean, even amongst current doctors on our staff, it's in the thousands of procedures, right? Speaker 300:27:14And that's not accounting the recruitment team's focus on finding total shoulder docs that maybe weren't using us in the past. So we feel really, really good about our opportunity there to continue to grow it. You are right, higher acuity procedures, especially when we first get into them, it takes a little time to the shoulder prices down. The margin profile will grow over time as we grow our volume and as we use our scale to really drive efficiencies on those procedures. At the beginning that pass through cost is a little bit higher than you would have over time. Speaker 300:27:44But as we grow with market share in that, I expect that you're going to see that the margin is going to grow and that we actually think again we're early innings there of moving procedures over starting with our existing docs who had procedures they could bring and then followed up by of course really dedicated recruitment on those particular procedures in our markets. Speaker 500:28:06Okay, great. Thank you. Operator00:28:14We'll move next to Bill Sutherland of Benchmark Company. Speaker 700:28:19Hey, thanks. Good morning, everybody. Wayne, I think you mentioned about the procedures coming off the inpatient only list or maybe it was Eric, I'm not sure. Can you just give us a little more color on what's coming off and kind of how you think about the potential for you guys? Speaker 300:28:37Hey, Bill, it's Eric. There's not a lot of news right now about stuff coming off the inpatient line list for this year. As you know, last year, the early read was there wasn't much coming off and then we got total shoulders added at the end. We continue to be we have so much room on the stuff they've added over the last few years. We feel good about what's out there. Speaker 300:28:55Certainly, we're always pushing every year as technology gets better, there's more opportunities for us to move procedures out. We talk a lot about our $150,000,000,000 TAM, dollars one 110,000,000,000 of that stuff is still going to move out of the traditional acute care setting and a lot of that has to do with technology changes and higher acuity procedures every year. So look, we expect that March to continue. It's sometimes incremental, sometimes it's got big jumps like it did during COVID when we got all the cardiology procedures and the rest of orthopedics. But look, I think you're going to continue to see it grow what comes off that list just because the math is too compelling. Speaker 300:29:28We save a ton of money for procedures. They're safely done in our setting. And so we're going to continue to push on that every year. There's nothing specific this year that's as meaningful as total shoulders at this point, but we're always watching that list. Speaker 700:29:41And then Wayne, back to your capital deployment comment. As your platform gets bigger and bigger, do you think we should think about some I mean, are you guys thinking about maybe an annual target that's greater than 200,000,000 Speaker 200:29:57Hey, Bill. It's a really good question. I think we would continue to target the 200,000,000 though for the next 3 to 5. I mean to be fair, could we do a little more in any 1 year and create some lumpiness? Yes. Speaker 200:30:09But we're committed to the sub three times leverage goal that we laid out to our shareholder base. And so to ultimately accomplish that goal, we're going to be in that 200 range. Again, could we go up in any 1 year? Yes. But long term over time, that's where I think we would anticipate continuing to target. Speaker 700:30:26Great. Thanks everybody. Operator00:30:31Thank you. We'll take our next question from Whit Mayo of Leerink Partners. Your line is open. Speaker 800:30:38Hey, thanks. Dave, I may have missed this. I know you don't have a formal target this year around free cash flow, but just any thoughts around like how we should maybe think about the cash flow this year? Speaker 100:30:52Yes. Good morning, Whit. Yes, you did miss it. We are talking about our same target of $140,000,000 to $160,000,000 as we end the year. Speaker 800:31:03Okay, great. On state supplemental programs, last year, Idaho was a benefit. That's kind of a little bit of attention. Just any anything in the quarter or anything for the year that we should be aware of? Speaker 300:31:18No, nothing material. I mean, those programs, as you probably know, so a very, very low percentage of our business is Medicaid. So we're not that impacted by it. So I think our total mix is around 5%. So like those programs are very rarely material for us, but in this year that's holding true. Speaker 800:31:37Okay. Thanks Operator00:31:40guys. And we'll take our final question from Ryan Langston of TD Cowen. Speaker 1000:31:47Hey, there. This is Will Cevak on for Ryan. Just kind of wondering about stock comp in the quarter. It was a little bit higher than quarterly average. Is that related to the acquisitions on the quarter? Speaker 1000:31:59And as well if you could maybe just let us know what the revenue divestiture headwind was in the quarter? Speaker 200:32:06And I think that was going Speaker 1000:32:07to drop to 0 in the back half of the year. Is that still accurate? Thank you. Speaker 100:32:12Yes, Will. I'd just take those in order. The stock comp piece is really just timing of vesting activity as well as just the kind of the normal roll rate that would happen with those, nothing unusual inside the stock comp piece. The revenue that we overcame inside the Q2, but not material enough for us to kind of call out. And you're right, that's not considered a headwind for us as we look at the back half of the year. Speaker 600:32:58Thank you. Operator00:33:01This does conclude our question and answer session. I'd be happy to return the call to Eric Evans for closing comments. Speaker 300:33:08Thank you. Before we conclude today and on behalf of the entire management team, I'd like to thank our 13,500 plus teammates that partner with our physician owners every day delivering on our mission to enhance patient quality of life through partnership. Thank you for joining our call this morning and have a great day. Operator00:33:26This does conclude today's Surgery Partners Incorporated 2nd quarter 2024 earnings call. You may now disconnect and everyone have a great day.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallSurgery Partners Q2 202400:00 / 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.comThink NVDA’s run was epic? You ain’t seen nothin’ yetAsk most investors and they’ll probably tell you Nvidia is the undisputed AI stock of the decade. In 2023, it surged 239%. And in 2024, it soared another 171% on the year… But what if I told you there was a way to target those types of “peak Nvidia” profit opportunities in 24 hours or less?May 5, 2025 | Timothy Sykes (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. Surgery Partners, Inc. was founded in 2004 and is headquartered in Brentwood, Tennessee.View Surgery Partners ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2Palantir Earnings: 1 Bullish Signal and 1 Area of ConcernVisa Q2 Earnings Top Forecasts, Adds $30B Buyback Plan Upcoming Earnings American Electric Power (5/6/2025)Advanced Micro Devices (5/6/2025)Marriott International (5/6/2025)Constellation Energy (5/6/2025)Arista Networks (5/6/2025)Brookfield Asset Management (5/6/2025)Duke Energy (5/6/2025)Energy Transfer (5/6/2025)Mplx (5/6/2025)Ferrari (5/6/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 11 speakers on the call. Operator00:00:00Good day, everyone, and welcome to today's program, Surgery Partners Incorporated 2nd Quarter 2024 Earnings Call. At this time, all participants are in a listen only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note this call may be recorded. I'll be standing by should you need any assistance. Operator00:00:31It is now my pleasure to turn the conference over to CFO, Dave Dougherty. Speaker 100:00:36Good morning. My name is Dave Dougherty, CFO of Surgery Partners. I'm joined today by Eric Evans, our CEO and Wayne Debit, our Executive Chairman. During this call, we will make forward looking statements. There are risk factors that could cause future results to be materially different from these statements. Speaker 100:00:53These 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, surgerypartners.com. The company does not undertake any duty to update these forward looking statements. In addition, we will this information should not be considered in isolation 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 will turn the call over to Wayne. Speaker 100:01:32Wayne? Thank you, Dave. Good morning and thank you all for joining us today. Speaker 200:01:37My initial comments will briefly highlight our consolidated second quarter results and the consistency of our long term growth algorithm. I'll then provide a brief update on our recent acquisition activity and refreshed outlook for the balance of the year. Eric and Dave will provide additional insights with their remarks. Turning to our 2nd quarter results. We reported net revenue of $762,000,000 representing growth of 14.2 percent over the prior year quarter. Speaker 200:02:05On a same facility basis, net revenues grew just under 10% with surgical case volume growth in the quarter just under 4%. Adjusted EBITDA grew 18% to $118,300,000 generating adjusted EBITDA margins of 15.5 percent, expanding 50 basis points as compared to the prior year quarter. Our efforts to pursue higher acuity procedures continue to produce strong results with total joint replacements in our ASCs increasing 46% in the first half of twenty twenty four over the comparable period in 2023. Eric will provide additional insights into our physician recruitment and expansion of our total joint programs, including our success in targeting orthopedic surgeons specializing in total shoulder procedures, which were moved to the ASC covered list starting January 1 this year. We continue to be extremely pleased with our same facility growth and the expected long term sustainability of our organic top line and margin expansion growth goals. Speaker 200:03:07As previously stated, our short stay surgical facilities have been purpose built to capture the macro tailwinds of both an aging population and the increased shift in site of care for higher acuity procedures into our lower cost, high clinical quality outpatient settings. We believe our results reflect the strength and durability of our business model as we pursue this highly fragmented market, which currently consists of over 6 1,000 CMS certified ASCs and an estimated $150,000,000,000 total addressable market representing both current and expected capital deployment activities. We maintained our disciplined approach to sourcing and executing on strategically important acquisitions at attractive multiples. Through the end of the second quarter, we deployed nearly $280,000,000 which includes a $60,000,000 transaction in early January that we had initially targeted closing in the Q4 of 2023. This level of deployment reflects both our annual targeted goal of at least $200,000,000 along with the redeployment of the remaining net proceeds from assets divested in 2023. Speaker 200:04:19Our business development team continues to source a robust pipeline of acquisitions and de novo investment opportunities and we believe the capital deployment aspects of our growth algorithm remain achievable. Before I turn the call over to Eric, let me provide a brief update on our outlook for the remainder of 2024. Based on our strong organic performance in the first half of 2024 and the timing of our recently completed acquisitions, we are increasing full year net revenue and adjusted EBITDA outlook to greater than $3,075,000,000 $508,000,000 respectively. This refreshed outlook represents at least 13% and 16% growth in net revenue and adjusted EBITDA respectively as compared to the prior year and balances our optimism for the company's growth with an appropriate amount of conservatism. We look forward to updating you on our progress as the remainder of the year unfolds. Speaker 200:05:12With that, let me turn Speaker 300:05:13the call over to Eric to provide additional highlights for the quarter. Eric? Thanks, Wayne, and good morning, everyone. On behalf of the entire management team, we are proud to release 2nd quarter results that demonstrate our continued and consistent organic growth and the addition of 5 facilities to our portfolio of purpose built short stay surgical facilities. Once again, all elements of our long term growth algorithm contributed to double digit top line and bottom line growth. Speaker 300:05:41Diving deeper into our results. Same facility net revenue growth was 9.9% in the 2nd quarter comprised of 3.9% growth in our surgical case volume and 5.7% rate improvement. We continue to put increased focus on both physician recruitment activities and higher acuity procedures that would benefit from an enhanced patient and physician experience associated with our purpose built short stay surgical facilities. On a consolidated basis, our specialty case mix and volumes were in line with our expectations with 166,500 consolidated surgical cases in the quarter, with particular focus in our higher acuity business lines. Continuing the wave of positive recruiting, over 200 new physicians have started utilizing our facilities in the 2nd quarter with just under half specializing in high acuity areas such as orthopedics, spine and cardiology. Speaker 300:06:33This brings our total recruits for the first half of the year to just over 400. The initial volume and average rate per case performed by these newly recruited physicians exceed the volume and rates from last year's recruiting cohort. As a reminder, each of our recruiting cohorts continue to drive strong compounding year over year growth with our 2023 class generating 164% more revenue in the first half of twenty twenty four as compared to the first half of twenty twenty three. Our recruitment activities and growth in recent de novos the first in the first half of twenty twenty four, representing 19% growth over last year. More importantly, total joint cases in our ASCs continue to grow at a disproportionate rate, which saw 46% increase in case volume in the first half of this year compared to the prior year and a 90% compound annual growth rate since 2019. Speaker 300:07:31We do not see this growth slowing in the mid to long term as hip and knee replacements continue to transition into the ASC setting as well as our early successes in effectively recruiting surgeons specializing in total shoulder procedures. That shift inside of care is in the very early innings and we are well positioned with our recruiting team and our portfolio facilities to capture total shoulder procedures in our setting. Moving to operating margins, which improved in the quarter by 50 basis points over the prior year quarter to 15.5%. This improvement reflects both our ongoing procurement and revenue cycle initiatives that continue to benefit from our increasing scale along with synergies achieved on our previously acquired facilities. We expect margins to improve throughout the remainder of the year consistent with historical earnings patterns. Speaker 300:08:16Finally, diving deeper into our capital deployment activities. In the Q2, we deployed nearly $220,000,000 acquiring 5 facilities. These acquisitions are heavily weighted towards multi specialty and higher acuity orthopedic facilities and are expected to yield further earnings from our operating system synergies in the 1st 12 to 18 months post closing. In the Q2, we opened 1 de novo ASC that we developed in partnership with Ohio Health. There are 10 fully syndicated de novos under construction slated to open in 2024 early 2025. Speaker 300:08:50These facilities include consolidated and minority interest partnerships and are primarily multi specialty with a concentration in orthopedics. We remain optimistic about our de novo process and pipeline and look forward to providing additional detail as these become meaningful additions to our portfolio. In closing, I'm proud of our management team and our many talented physician partners and colleagues for their relentless focus on delivering a superior patient experience with high clinical quality. Our teams work collaboratively to execute on our initiatives across business development, recruiting, managed care, procurement, revenue cycle and operations, giving us increased confidence that we will achieve our updated 2024 goals. With that said, I will now turn the call over to Dave to provide additional color on our financial results as well as our updated outlook for 2024. Speaker 300:09:42Dave? Speaker 100:09:43Thanks, Eric. Starting with the top line, we performed 166 1,500 consolidated surgical cases and 194,000 total surgical cases in the 2nd quarter. These cases spanned across all our specialties, with an increasing focus on higher acuity procedures, which is reflected in our near double digit same facility revenue growth this quarter. The combined case growth in higher acuity specialties, specific managed care actions and the continued impact of acquisitions supported revenue growth of 14.2% over last year to 700 and $62,100,000 On a same facility basis, total revenue increased 9.9% in the 2nd quarter. Same facility surgical case growth was 3.9% with higher rates of growth in our orthopedic and other higher acuity procedures, which also contributed to rate growth of 5.7%. Speaker 100:10:43We continue to forecast our same facility net revenue growth to exceed our growth algorithm target of 4% to 6% in 2024, with full year same facility revenue finishing in the high single digit range. Our forecast anticipates net revenue being more balanced between rate and volume on an annualized basis, with rate playing a smaller role and volume playing a larger role in the second half of the year. Adjusted EBITDA was $118,300,000 for the 2nd quarter, giving us a margin of 15.5%, in line with our expectations of continued margin expansion. Inflationary pressures related to labor and supply costs continue to abate as we return to a more normalized run rate that provides natural margin expansion as we grow revenue. We will remain vigilant in monitoring these factors across our portfolio and expect margins to continue to improve throughout the year with annualized margins improving by at least 50 basis points over full year 2023. Speaker 100:11:50We ended the quarter with $214,000,000 in cash. When combined with the available revolver capacity, we had over $860,000,000 in total liquidity. We reported operating cash flows of $83,000,000 in the 2nd quarter. This amount is in line with our expectations and supports our continued belief that we will achieve our previously disclosed free cash flow goals in 2024. Moving to the balance sheet. Speaker 100:12:20We have $2,200,000,000 in outstanding corporate debt with no maturities until 2,030. In June, we repriced our $1,400,000,000 term loan, reducing the credit spread by 75 basis points. This loan now carries an interest rate of SOFR plus 2 75 basis points. The effective interest rate on our corporate debt is fixed at approximately 6% through March 31, 2025. And after that, we have interest rate caps in place that limit the variable rate component of our $1,400,000,000 term loan to 5%. Speaker 100:12:57In the event the interest rate environment becomes more favorable will capitalize on such improvements. Our 2nd quarter ratio of total net debt to EBITDA as calculated under our credit agreement was 3.8 times as a result of the acquisitions completed in the Q2. As a reminder, this ratio will be impacted in the short term based on the timing of acquisitions. But over time, we project this leverage ratio will be below 3.0x. Carrying the momentum of our 2nd quarter results, we remain optimistic and confident about the company's growth and are raising our outlook 2024 net revenue to be greater than $3,075,000,000 and adjusted EBITDA to greater than $508,000,000 This guidance implies continued year over year margin expansion consistent with our long term guidance. Speaker 100:13:54This updated outlook represents mid teens growth, emphasizing the resiliency and consistency of the business model and demonstrating the power of our long term growth algorithm. With that, I'd like to turn the call back over to the operator for questions. Operator? Operator00:14:13Thank We'll take our first question from Brian Tanquilut of Jefferies. Your line is open. Speaker 400:14:33Hey, good morning guys and congrats on the quarter. Maybe Dave, just curious, you talked about how the rate and the volume contribution to same store should be more balanced in the back half of the year. Obviously, rate has been strong with acuity levels driving that. So just curious, what are you seeing or what are you thinking in the back half that would shift that balance to more even between the 2? Speaker 100:14:57Thanks, Brian. Appreciate the question. The math is the math that sits behind the same store calculation is probably going to be your biggest driver of your same facility case growth that we're going to see in the second half of the year. And just a reminder, the way we look at our same store calculation tends to go beyond just 1 quarter of a evaluation. It's only because there's only 60 to 62 days business operating days inside any given quarter. Speaker 100:15:27So, you can see those being affected by the days of the week that sit inside there. So when we look at year over year, Q3 and Q4, the surgical days that we have in both of those quarters are more favorable. As when you look at our portfolio of surgical cases and where we think. And the best example I can kind of give to that is the timing of when the 4th July happened for us inside the Q3 of last year and inside the Q3 of this year for us. But what we do anticipate as we've been talking about all year, Brian, is getting back to our growth algorithm as we sit through both case side and rate side of our same facility calculation. Speaker 100:16:13And at that balance of the year, we expect it to add up to be somewhat greater than our long term growth algorithm would suggest, which has been consistent with what we've been reporting over the past couple of years. Speaker 400:16:26Got it. And then maybe Dave just to follow-up on that as I think about seasonality, I mean, I understand obviously like you said we're 4th July fell. But just curious how should we be thinking about the seasonality pattern for EBITDA for the back half? Speaker 100:16:41I think our seasonality has been largely I think our seasonality has been largely Speaker 500:16:47predictable in that the 4th quarter Speaker 100:16:48tends to be our biggest quarter and that's the result of the deductible swing that happens as commercial patients tend to rush to use their deductible balance by the end of the year. So our 4th quarter always is our strongest quarter from an EBITDA perspective as well as from a revenue perspective. We don't see that pattern changing this year. Awesome. Thank you. Operator00:17:13We'll take our next question from Tal Kew of Macquarie. Speaker 600:17:19Hey, good morning. I'd like to break down a little bit the revenue and margin increase in terms of the guidance. How much of that is from organic growth based on strong volume this quarter? And how much of that is from acquisitions and renewals as you mature these? Speaker 300:17:39Thanks. Speaker 100:17:42Yes. Thanks, Kyle. We have a little bit of nice background music coming through on our side here from the line this morning. But let me attempt to answer our revenue beat. Like our revenue calculations for the quarter or revenue, I'm sorry, did come in at our expectations, perhaps slightly above the expectations of The Street. Speaker 100:18:08And we did get contributions from our most recent acquisitions. As you know, we talked about on our last call, we completed sizable acquisitions inside the Q2 and on a year to date basis, we've met our capital deployment goals for the year. So we're definitely getting some benefit from those acquisitions as well as the contributions from last year. But I will say and I would have you focus on the same facility rate growth or revenue total growth at close to 10%, leads you to the conclusion or should lead you to the conclusion that a majority of our beat is coming from the organic side of the business. Speaker 600:18:50Yes. I was more interested on the in terms of the guidance rates, how much of the additional revenue and margin upside is from organic versus the Noble's acquisitions? Thanks. Speaker 700:19:01Yes. Todd, to answer that, Speaker 300:19:02I'd say it's very consistent with what we've done over the past several years. Our algorithm is majority same store organic. It continues to be that going forward. Certainly, our timing is a little bit ahead on M and A this year. But in general, like we're right on expectations of how we expect to grow per our algorithm, which is majority coming from organic supplemented by strong M and A performance. Speaker 100:19:25And maybe just to emphasize that, if you go back to how we've talked about same facility revenue growth for the year, it has been at just about 10% now on a year to date basis and we expect revenue to end the year in the high single digits. Speaker 600:19:44Got you. And my second question is, I don't know whether you guys talk about the cash collection trend during the quarter. What was the DSO during the Q2? Any updated view on free cash flow generation for 2024 and maybe early read for 2025? Thank you. Speaker 100:20:03Yes. So, cash flow has been positive for us. I think you saw what we reported for the Q2. It's again consistent with where we expected it to be. We are seeing continued benefit from our investment terms of cash flow generation. Speaker 100:20:22We still feel confident in our ability to deliver on that. And at this point, we are not giving 2025 guidance. Speaker 600:20:32Got it. Thank you. You're welcome. Operator00:20:36We'll take our next question from Kevin Fischbeck of Bank of America. Speaker 800:20:43Thanks. Just wanted to kind of focus on the volume number. I think after Q1, there was kind of a little surprise by how weak some of the volumes were for you and your competitor. And then this quarter seems to be a whole lot stronger. Is it just as simple as kind of a calendar or do you see like kind of firming fundamental demand from Q1 into Q2? Speaker 300:21:09Hey, Kevin, thanks for the question. This is Eric. I'd answer that in a couple of ways. First of all, we really try not to focus on case counts by a quarterly basis. It really is not that meaningful. Speaker 300:21:18We do focus on that net revenue same store growth number, but it is very affected by the calendar. We've said even at the end of last year coming into this year when we had a little bit of a print that came out slightly below our algorithm that by the end of the year we expect it to be at the upper range or exceed our algorithm. We're still very confident in that. It's a consistent business. Our model is consistent. Speaker 300:21:37And so I think from quarter to quarter, there's a lot of reaction sometimes to those numbers, but it's calendar based, it's timing based. And quite honestly, we think about that on annual terms. We continue to believe we're going to exceed our algorithm again this year. Speaker 800:21:50Okay, that's great. And then I guess, when you think about the ability to exceed that this year, is that driven by, I don't know if you can separate easily, again, what I might call core demand versus some of the company specific things that you're doing around the recruiting, etcetera? Any color there? Speaker 300:22:10Yes. So I think it's first of all, we're obviously constantly working to grow the business on higher acuity procedures. You see that flowing through on physician recruitment, really, really proud of the start to the year, our strongest start on physician recruitment. So all of that continues to work well. But what I would point to is over the last 5 years, we've had really consistent case growth. Speaker 300:22:26It might bounce around quarter to quarter. We continue to see that strong demand this year and it's not different than past years. It's just part of our model and we do expect it to end up in the very much the same place. Speaker 800:22:37All right, great. Thanks. Operator00:22:41Our next question is from Andrew Muk of Barclays. Speaker 900:22:47Hi, good morning. Looks like there was a pretty meaningful increase in professional fees in the quarter. I think it was up 10% per case and over 100 basis points year over year. So I just want to get a little bit more color on what's driving that increase. Thanks. Speaker 100:23:03Yes. Actually Andrew, like I'll have to give you a follow-up on what sits behind that increase in that. But I think it's going to be partly yes, the mix of business that kind of comes through from our acquisitions and divestitures from last year. So our divestitures as a reminder for last year had high revenue kind of associated with it, higher medical costs on the supply chain side. But as a result of that mix in business, you're going to see kind of a slightly different margin profile on that book of business and I suspect that must be coming through on the professional medical fees side. Speaker 100:23:49But I'll give you a follow-up when we talk later. Speaker 900:23:52Okay, great. That's helpful. And then on the free cash flow, I just want to follow-up there. It sounds like you guys are confident around the annual targets for this year. I think year to date free cash flow is tracking around $22,000,000 So just what's driving that confidence in the full year? Speaker 900:24:06And what's driving that second half acceleration? Thanks. Speaker 100:24:10Yes. The free cash flow number is in line with where we expected it to be. It is a bit it's wonky as we've talked about last year because of the timing of collections. But what we've seen inside the Q2 is directly in line with what our internal expectations were. So that gives us increased confidence in our ability to kind of hit there. Speaker 100:24:34The book of business is seasonally adjusted. First half of the year is going to be affected by distributions that come from last year. So the strong earnings inside the Q4 of last year do increase distributions for the first half of the year. That trend goes down a little bit and of course the book of business generates a lot more cash flow in the second half of the year. Speaker 900:24:58Great. Thanks for the color. Operator00:25:02We'll take our next question from Jason Casorla of Citi. Speaker 500:25:10Great. Thanks. Good morning. I just wanted to go back to your commentary around capital deployment. It sounds like you've met your capital deployment goals this year. Speaker 500:25:20Should we be reading into that in terms of your remaining deployment for the year being a bit more muted? Or are you keeping optionality open for incremental capital deployment? Just any incremental color around capital deployment, how you're thinking about the back half and the go forward would be helpful. Speaker 200:25:37Hey, Jason, much appreciated. While we've achieved our full year goals for the year, I would remind you that of the $280,000,000 $60,000,000 of that did relate to the prior year Q4. We closed it in the 1st week of January. So you're looking around $220,000,000 which was deploying our targeted goal of $200,000,000 plus remaining cash proceeds from divestitures from last year. So at this point, anything we do in the back half of the year is clearly going to be icing. Speaker 200:26:00We continue to have a strong pipeline. We like the optionality of that pipeline. We have LOIs on a number of items and a number of items that are under LOI. So I don't think we're going to postpone acquisitions if the timing is right and the quality of Speaker 600:26:16the asset is there. Speaker 200:26:17But I would also say, as you know, these acquisitions can be very fickle. And so it's always about having a robust pipeline so that you can respond accordingly. But I would just read it as we continue to be a partner of choice and we like where we stand relative to the current pipeline and if opportunities present themselves, we'll take advantage of them in the back half of the year. Speaker 500:26:39Okay, great. Thanks. Helpful. And then, I just wanted to ask around total shoulders. They've been a pretty sizable benefit this year. Speaker 500:26:46Can you just remind us the opportunity set on the shoulder side? And then just kind of given the complexity of total shoulders, how we should think about kind of like the margin considerations as those continue to move into the ASV? Just any more color around the shoulder opportunity set and how we should think about margins for that service line? Speaker 300:27:06Thanks. Hey Jason, it's Eric. Thanks for the question. The total opportunity is quite large. I mean, even amongst current doctors on our staff, it's in the thousands of procedures, right? Speaker 300:27:14And that's not accounting the recruitment team's focus on finding total shoulder docs that maybe weren't using us in the past. So we feel really, really good about our opportunity there to continue to grow it. You are right, higher acuity procedures, especially when we first get into them, it takes a little time to the shoulder prices down. The margin profile will grow over time as we grow our volume and as we use our scale to really drive efficiencies on those procedures. At the beginning that pass through cost is a little bit higher than you would have over time. Speaker 300:27:44But as we grow with market share in that, I expect that you're going to see that the margin is going to grow and that we actually think again we're early innings there of moving procedures over starting with our existing docs who had procedures they could bring and then followed up by of course really dedicated recruitment on those particular procedures in our markets. Speaker 500:28:06Okay, great. Thank you. Operator00:28:14We'll move next to Bill Sutherland of Benchmark Company. Speaker 700:28:19Hey, thanks. Good morning, everybody. Wayne, I think you mentioned about the procedures coming off the inpatient only list or maybe it was Eric, I'm not sure. Can you just give us a little more color on what's coming off and kind of how you think about the potential for you guys? Speaker 300:28:37Hey, Bill, it's Eric. There's not a lot of news right now about stuff coming off the inpatient line list for this year. As you know, last year, the early read was there wasn't much coming off and then we got total shoulders added at the end. We continue to be we have so much room on the stuff they've added over the last few years. We feel good about what's out there. Speaker 300:28:55Certainly, we're always pushing every year as technology gets better, there's more opportunities for us to move procedures out. We talk a lot about our $150,000,000,000 TAM, dollars one 110,000,000,000 of that stuff is still going to move out of the traditional acute care setting and a lot of that has to do with technology changes and higher acuity procedures every year. So look, we expect that March to continue. It's sometimes incremental, sometimes it's got big jumps like it did during COVID when we got all the cardiology procedures and the rest of orthopedics. But look, I think you're going to continue to see it grow what comes off that list just because the math is too compelling. Speaker 300:29:28We save a ton of money for procedures. They're safely done in our setting. And so we're going to continue to push on that every year. There's nothing specific this year that's as meaningful as total shoulders at this point, but we're always watching that list. Speaker 700:29:41And then Wayne, back to your capital deployment comment. As your platform gets bigger and bigger, do you think we should think about some I mean, are you guys thinking about maybe an annual target that's greater than 200,000,000 Speaker 200:29:57Hey, Bill. It's a really good question. I think we would continue to target the 200,000,000 though for the next 3 to 5. I mean to be fair, could we do a little more in any 1 year and create some lumpiness? Yes. Speaker 200:30:09But we're committed to the sub three times leverage goal that we laid out to our shareholder base. And so to ultimately accomplish that goal, we're going to be in that 200 range. Again, could we go up in any 1 year? Yes. But long term over time, that's where I think we would anticipate continuing to target. Speaker 700:30:26Great. Thanks everybody. Operator00:30:31Thank you. We'll take our next question from Whit Mayo of Leerink Partners. Your line is open. Speaker 800:30:38Hey, thanks. Dave, I may have missed this. I know you don't have a formal target this year around free cash flow, but just any thoughts around like how we should maybe think about the cash flow this year? Speaker 100:30:52Yes. Good morning, Whit. Yes, you did miss it. We are talking about our same target of $140,000,000 to $160,000,000 as we end the year. Speaker 800:31:03Okay, great. On state supplemental programs, last year, Idaho was a benefit. That's kind of a little bit of attention. Just any anything in the quarter or anything for the year that we should be aware of? Speaker 300:31:18No, nothing material. I mean, those programs, as you probably know, so a very, very low percentage of our business is Medicaid. So we're not that impacted by it. So I think our total mix is around 5%. So like those programs are very rarely material for us, but in this year that's holding true. Speaker 800:31:37Okay. Thanks Operator00:31:40guys. And we'll take our final question from Ryan Langston of TD Cowen. Speaker 1000:31:47Hey, there. This is Will Cevak on for Ryan. Just kind of wondering about stock comp in the quarter. It was a little bit higher than quarterly average. Is that related to the acquisitions on the quarter? Speaker 1000:31:59And as well if you could maybe just let us know what the revenue divestiture headwind was in the quarter? Speaker 200:32:06And I think that was going Speaker 1000:32:07to drop to 0 in the back half of the year. Is that still accurate? Thank you. Speaker 100:32:12Yes, Will. I'd just take those in order. The stock comp piece is really just timing of vesting activity as well as just the kind of the normal roll rate that would happen with those, nothing unusual inside the stock comp piece. The revenue that we overcame inside the Q2, but not material enough for us to kind of call out. And you're right, that's not considered a headwind for us as we look at the back half of the year. Speaker 600:32:58Thank you. Operator00:33:01This does conclude our question and answer session. I'd be happy to return the call to Eric Evans for closing comments. Speaker 300:33:08Thank you. Before we conclude today and on behalf of the entire management team, I'd like to thank our 13,500 plus teammates that partner with our physician owners every day delivering on our mission to enhance patient quality of life through partnership. Thank you for joining our call this morning and have a great day. Operator00:33:26This does conclude today's Surgery Partners Incorporated 2nd quarter 2024 earnings call. You may now disconnect and everyone have a great day.Read morePowered by