Surgery Partners, Inc.

Greetings and welcome to the Surgery Partners Inc. Fourth 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 call, 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. Please go ahead, sir.

Good morning. Welcome to Surgery Partners' fourth quarter 2022 earnings call. I'm Dave Doherty, the company's CFO. With me today is Eric Evans, CEO, and Wayne DeVite, our executive chairman. 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 file 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 annual report on Form 10-K when filed. With that, I'll turn the call over to Wayne. Wayne?

Thank you, Dave. Good morning, and thank you all for joining us today. This morning, we are pleased to report full year 2022 adjusted EBITDA of $380.2 million, 12% higher than the prior year, and over 20% year-over-year growth when adjusting for the non-recurring benefit of grants. Including our non-consolidating joint ventures, we performed approximately 680,000 cases in 2022, nearly 12% more than 2021, with all specialties growing in line or in excess of our expectations despite the early 2022 impact from the Omicron variant. This strong case growth, combined with improved rates and contributions from our recent acquisitions, resulting in net revenue of $2.54 billion, 14% higher than 2021. The algorithm for our long-term double-digit adjusted EBITDA growth story relies on top-line growth, organic margin expansion, and targeted capital deployment, and each of these growth levers continue to contribute as expected in 2022. The combination of our top-line growth and focus on controllable costs allowed us to report an adjusted EBITDA margin of 15%, representing an 80 basis point improvement over 2021 when adjusting for grants. Dave will go into these results in greater detail in a few minutes. Our fourth quarter results continue to affirm the power of our business model and the value proposition we provide to our stakeholders. Net revenues increased 16% from the prior year to $707 million, with same facility revenues increasing nearly 11% compared to 2021. Physician recruiting efforts yielded over 150 new surgeons in the fourth quarter, bringing our overall new recruits in 2022 to almost 575. The 2022 recruiting class spans all of our core high-growth specialties and is bringing a higher volume of cases and generating more revenue than prior recruiting cohorts. For example, the first-year net revenue contribution from our 2022 cohort was 40% higher than the year one revenue contributions from last year's cohort. Based on our experience, as the recruiting cohorts mature, there is an earnings compounding effect for multiple years. As evidence, the class recruited in 2021 delivered 143% more cases and 156% more revenue growth in 2022. We have high confidence that both 2021 and 2022 cohorts will continue to grow in 2023. Finally, We continue to benefit from the transition of procedures out of the traditional acute care inpatient setting, and we are not seeing those cases return to the hospital setting as we exit the pandemic. Joint replacements in our ASCs for the fourth quarter were up 100% from the prior year and almost 80% for the full year 2022 compared to 2021. We will continue to focus on this significant shift in site of care in our recruiting efforts, acquisitions, and de novo investments. Our management team, which has a tenacious focus on execution, coupled with the infrastructure we've built over the past five years, has positioned us to capture the significant shift of care moving to the outpatient setting within the $150 billion total addressable market. Rounding out our growth story, our M&A team continues its disciplined approach to sourcing and executing on strategically important acquisitions at attractive multiples and finished 2022 deploying just shy of $250 million at a sub-eight times multiple. And our M&A engine isn't slowing down. Our team is currently managing a robust pipeline of potential targets in excess of $250 million. With the incredible support of existing and new investors, in November we raised over $850 million in a primary offering of our equity. Dave will provide greater detail on the use of proceeds from the offering, but by repaying a significant portion of our long-term debt, we've reduced our annual cash interest costs by north of $40 million. Combined with strong operational execution and cash flow conversion, we expect to generate over $140 million in free cash flow in 2023 and to exceed $200 million in annual free cash flow by 2025. In addition to our projected operating cash flow, we start 2023 with over $820 million in liquidity. This liquidity position gives us further conviction into the continued long-term growth of the company. On behalf of the Board, I'd like to emphasize that point. we have high confidence in the long-term growth prospects of surgery partners. This management team continues to demonstrate their ability to successfully navigate the challenges of our current macroeconomic environment as it executes on organic and inorganic growth strategies to provide significant year-over-year growth. Off the strength of our fourth quarter reported results and continued investments, we anticipate 2023 adjusted EBITDA to be greater than $425 million and with net revenue exceeding $2.75 billion. This outlook is inclusive of the anticipated headwinds and tailwinds that Dave will discuss in more detail. Let me conclude with an observation as to the journey the company's been on for the past five years. Despite a challenging macro backdrop, the company has experienced compound aggregate growth of 18% in adjusted EBITDA and improved margins by 270 basis points. The cultural shift that started in 2018 has demonstrated the results we believe our company was capable of achieving. More importantly, our team is brimming with confidence and with the grit and determination to continue this strong double-digit growth over the next five years. Our leadership team and our physician partners are all aligned on the opportunity that this industry shift presents for our business and remain prepared and excited for the future. With that, let me turn the call over to Eric. Eric?