Surgery Partners, Inc.

Greetings and welcome to the Surgery Partners Inc. Third Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star and then zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dave Doherty. Thank you, Mr. Doherty. You may begin.

Good morning, and welcome to Surgery Partners' third quarter 2022 earnings call. I'm Dave Doherty, the company's CFO. Joining me today is our Executive Chairman, Wayne Devite, and our CEO, Eric Evans. During this call, we will make forward-looking statements, risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we filed with the SEC. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in this morning's press release, which is posted on our website at surgerypartners.com, and in our most recent quarterly report on Form 10-Q when filed. With that, I'll turn the call over to Wayne. Wayne?

Thanks, Dave. Good morning, and thank you all for joining us today. This morning, we're pleased to report third quarter 2022 adjusted EBITDA of $96.2 million, a 26% increase as compared to the prior year quarter. Net revenue grew 11% to $621 million from a combination of case growth and an increase in net revenue per case from higher acuity procedures and rate improvements, as well as our continued execution on deploying capital for high-value acquisitions. As we've experienced in prior quarters, we've managed the rate of supply cost inflation and premium labor cost pressures at levels consistent with our historical trend, The combination of our top line growth and focus on controllable costs allowed us to report an adjusted EBITDA margin of 15.5%, 180 basis points above the prior year, and 150 basis points above our second quarter margin. Each of these results is within the expectations we set internally and those that we guided to in our second quarter call. Dave will go into these results in greater detail in a few minutes. As you know, We operate in a sector of the healthcare landscape that has many immediate and long-term tailwinds. These tailwinds and the team's execution has allowed us to effectively manage the macro environment challenges that both our country and others in healthcare are experiencing. As we've discussed in the past, this team has been monitoring many of these pressure points and reacted with structural controls, aligned incentives, and rapid responses. Today's reported results are continued evidence that this business model is durable and resilient, and we have the management team engaged in the right areas to capitalize on core growth opportunities. Although the impact of COVID-19 is still being felt across our country, we did not experience any material direct impact related to the virus in the third quarter. We continue to proactively address the tertiary effects of the pandemic, as we did in the third quarter when we experienced atypical elevated levels of physician, clinical, and support staff vacations this summer, as many individuals took some well-earned time with their families and friends after two years of restrictions. You may recall that we noted the expected impact of these known extended vacations when we reported our Q2 earnings and factored that into our Q3 guidance range for revenue and adjusted EBITDA. Despite the headwind of Hurricane Ian, We are very pleased that the outcome of the third quarter was in line with our expectations, with revenue at the midpoint of our guidance we shared on our last quarterly earnings call. Eric and Dave will go into slightly more detail, but let me share a few highlights. Same facility revenues increased over 5% compared to the prior year quarter, with over 3% case growth and nearly 2% higher net revenue per case. New physician recruiting efforts yielded over 155 new recruits to our facilities in the third quarter, bringing our overall new recruits in the first nine months of the year to nearly 430, consistent with last year at this time, with recruits spanning all of our core high growth specialties. As our recruiting and onboarding efforts become more refined, we are benefiting from positions that bring more cases and more revenue than prior recruiting cohorts. For example, The first year net revenue contribution from the nearly 430 physicians recruited this year is 56% higher than the initial revenue contributions from last year's cohort. The 2022 cohort is bringing more cases with higher overall net revenue per case than the prior year class did. And as we've discussed in the past, as our recruiting cohorts mature, there's a compounding effect for multiple years as it relates to our organic growth. And finally, The transition of procedures out of traditional acute care inpatient settings continues to accelerate. Joint replacements in our ASCs for the third quarter were up approximately 91% from the prior year. Over the past three years, our total joint program has had a compounded aggregate growth rate of approximately 114%, while our cardiac program rate of growth is over 24%. We will continue to focus on this significant shift in site of care in our recruiting efforts, acquisition, and de novo investments. We believe our strong financial results reflect the numerous macro tailwinds associated with the benefit of performing procedures in a high-quality, lower-cost, patient- and physician-centric setting. With a total addressable market of over $150 billion, our company is very well positioned to capture the significant shift of care to the outpatient setting. Our M&A team continues its disciplined approach to sourcing and executing on strategically important acquisitions at attractive multiples. Our team is currently managing a robust pipeline of potential targets. Late in the third quarter, we added another short-stay surgical hospital to our portfolio with the acquisition of Kansas Spine and Specialty Hospital and acquired minority interest positions in two ASCs from Value Health. The effective multiple on these acquired facilities was under eight times. In addition, we purchased a minority interest position in three de novo ASCs from Value Health in the quarter. Eric will speak further to the continued execution on acquisition opportunities related to our Value Health partnership in a moment. Our balance sheet remains strong with no exposure to interest rate changes until 2025 and no material debt maturities until 2026. We believe our existing acquisition pipeline, our transition to generating positive free cash flow to support execution on that pipeline, along with an accelerated focus on de novo development further enhances our long-term growth trajectory. Based on our solid performance during the first three quarters of the year and our Q4 outlook, we are reaffirming our full-year guidance for 2022 adjusted EBITDA to a range of $375 million to $385 million, and we anticipate full-year 2022 revenue in the range of $2.5 to $2.55 billion. Dave will discuss in more detail our outlook for the remainder of the year. With that, let me turn the call over to Eric. Eric?