Surgery Partners, Inc.

The Surgery Partners fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Dave Dougherty, Chief Financial Officer of Surgery Partners. Thank you. You may begin.

Good morning. My name is Dave Doherty, CFO of Surgery Partners. I'm joined today by Eric Evans, CEO, and Wayne DeVite, 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. These 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 reference certain financial measures that are considered non-GAAP, which we believe can be useful in evaluating our performance. The presentation of 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.

Wayne? Thank you, Dave. Good morning, and thank you all for joining us today. My remarks this morning will focus on our full year 2023 results and the positive catalysts we see as we head into 2024. I'll then turn the call over to Eric to provide further insights into our operating environment, along with details for the quarter. Finally, Dave will conclude with additional color on the quarter and an updated view related to the strength of our balance sheet and full year guidance associated with calendar year 2024. Starting with our 2023 results, we are extremely pleased with substantial progress we achieved related to our strategic initiatives and how these initiatives further catalyze our growth engine as we enter into 2024. Specifically, our growth algorithm continues to deliver mid-teens growth with full-year adjusted EBITDA exceeding $438 million, representing 15% growth over the previous year. Despite the macro headwinds faced by our industry over the past four years, including the inflationary impact on labor and supply costs and the global pandemic, the company has grown adjusted EBITDA at a compound annual growth rate of over 14% per annum and expanded margins by 210 basis points. These headwinds have slowly abated throughout 2023. Digging deeper into our results, the combination of our consolidated and unconsolidated facilities performed approximately 707,000 cases in 2023 4% more than 2022, with all specialties growing in line or in excess of our expectations. When combined with our targeted increased acuity and contributions from recent acquisitions, net revenue grew 8% to $2.74 billion, inclusive of approximately $100 million of revenue divested early in the year, and adjusted EBITDA margins improved by 100 basis points, reflecting our cost discipline acuity mixed, and enhanced rates. We anticipate our 2023 cost initiatives and pricing to represent tailwinds for 2024 as we continue to recognize the run rate benefits associated with our scale. Our 2023 growth was balanced, with same facility revenue growing more than 11%, representing case volume of approximately 4%, and rate improvement of 7%, driven by acuity mixed and enhanced managed care rates. Rounding out our growth story, we continued our disciplined approach to sourcing and executing on strategically important acquisitions at attractive multiples. In 2023, we deployed approximately $165 million associated with 15 transactions at an aggregate sub-eight times multiple on a pre-synergized basis. While this number is below our targeted goal of at least $200 million per year, We also closed an additional $60 million in transactions in early January that we had anticipated closing in the fourth quarter. The timing of our acquisitions had a nominal impact on our 2023 results, as Dave will discuss and serve as a tailwind to 2024 earnings. Our business development team continues to manage a robust pipeline of attractive opportunities, and we remain committed to deploying at least $200 million annually. As of this morning's call, Our team has a strong pipeline of transactions under LOI, and we continue to source new deals. Similar to 2023, the timing of acquisitions and related activity can be difficult to predict, and we continue to use a mid-year convention when providing our outlook for 2024. All in, we are pleased with the balanced approach to growth with all pillars of our long-term growth algorithm either meeting or exceeding our expectations. Before I turn the call over to Eric, I want to highlight some additional accomplishments related to our balance sheet. The company was able to effectively refinance our term loan late in the year at favorable terms and pricing, extending the maturity on the majority of our outstanding debt to 2030. Associated with this refinancing, with support from our banking syndicate, we were also able to increase our revolving credit facility to $700 million, reflecting the continued strength of our business model and confidence in our growth algorithms. Dave will elaborate further, but with this new term loan, our credit agreement defined leverage was 3.5 times at the end of the year. Together with my fellow board members, we are encouraged by the continued focus of this management team to capture the benefits of the strong industry and company-specific tailwinds. Based on the recently completed 2024 budgeting process, we expect net revenue, adjusted EBITDA, and margin growth in line with our long-term growth algorithm. Specifically, We are providing initial guidance for net revenue of at least $3 billion and are reaffirming our previously provided adjusted EBITDA of greater than $495 million. We strive to provide you with guidance that 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 year unfolds. With that, let me turn the call over to Eric to highlight some of our operational initiatives, industry trends, and recent investment activities.