Surgery Partners, Inc.

Greetings and welcome to Surgery Partners' first quarter 2025 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. It is now my pleasure to introduce your host, Dave Daugherty, CFO. Thank you. You may begin.

Good morning, and thank you for joining Surgery Partners' first quarter 2025 earnings call. My name is Dave Doherty, CFO of Surgery Partners. I am joined today by Eric Evans, our CEO. 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 that are described in this morning's press release and the reports we filed with the SEC, each of which are available on our corporate website. The company does not undertake any duty to update these forward-looking statements. In addition, we reference certain financial measures that are non-GAAP, which we believe can be useful in evaluating our performance. We reconciled these measures to the most applicable GAAP measure in this morning's press release. With that, I will turn the call over to Eric Evans, our CEO. Eric?

Thank you, Dave. Good morning, and thank you all for joining us today. My opening comments will briefly highlight our first quarter results and the consistency of our long-term growth algorithm. Then I will provide additional color on the strong business execution and underpinning of each of the three pillars of our growth algorithm, organic growth, margin improvement, and deploying capital for M&A. I will also provide our views on how our business is positioned in the current regulatory environment, as well as our outlook for the remainder of the year. We are pleased to report Surgery Partners' first quarter net revenue of $776 million and adjusted EBITDA of $103.9 million, both in line with our expectations. The financial results announced this morning are a testament to the focus of our colleagues and physician partners who serve our communities with valuable, high-quality, and convenient care. Our team continues to deliver on our mission to enhance patient quality of life through partnership. Compared to the prior year's first quarter, adjusted EBITDA grew nearly 7%. and net revenue grew 8%, with contributions from each pillar of our long-term growth algorithm. Our growth in 2025 is attributed to continued strong organic results, including same-facility revenue growth of over 5%. Revenue growth was comprised of 6.5% surgical case growth, offset by a decline in rates of approximately 1%, driven primarily by robust growth and lower acuity specialties in the quarter, including growth from recently opened de novos as well as a very strong prior year comp. These components of our same facility revenue growth are consistent with our internal expectations that we shared on our fourth quarter earnings call in March. We continue to expect full year 2025 same facility growth to be at or above the high end of our growth algorithm target of 6% with a more balanced growth between volume and rate as the year progresses. Dave will elaborate on our financial results next, but these results give us increased confidence about the company's growth trajectory and in more near-term basis, our guidance for 2025. Let me touch on some of the initiatives that are critical to our sustained long-term growth, starting with our organic growth activities. In the facilities that we consolidate, we performed over 160,000 surgical cases in the first quarter of 2025, compared to 153,000 in 2024. In the first quarter, we experienced growth across all of our core specialties. The volume growth in GI procedures was relatively higher, and because these procedures bill at a relatively lower reimbursement rates when compared to the blended company average, that slight shift in business mix mathematically resulted in rate pressure in our same facility rate metric. Having said that, we are still experiencing growth in our orthopedic cases driven by an increase in total joint surgeries. To illustrate this, we performed over 29,000 orthopedic cases in the first quarter of 2025, 3.4% more than 2024. Most of this growth in orthopedic procedures is driven by total joint procedures, which grew 22% in the first quarter compared to the prior year. As a reminder, 80% of our surgical facilities have the capability to perform higher acuity orthopedic procedures, and currently 48% of our facilities perform total joint procedures. This capability provides significant additional growth as we continue to position our assets to meet the expanding orthopedic demand with targeted recruitment and investments in additional equipment, including robotics. Within our portfolio, we have invested in 68 surgical robots that enable our physician partners to perform increasingly more complex and higher acuity procedures. These investments also help support our strong physician recruitment process. In the first quarter, we added nearly 150 new physicians to our facilities, many of which we expect to eventually become partners. This recruiting class includes all our specialties, but skews towards orthopedic-focused physicians. It's early in the year, but so far, these newly recruited physicians are bringing surgical cases with higher overall acuity compared to the 2024 cohort. Based on our experience with prior recruiting classes, we fully expect 2025 recruits to continue to grow and have a meaningful impact in 2025 and beyond. As I mentioned in our last call, in 2024, we opened eight de novo facilities. Since 2022, we've opened 20 de novo facilities, and we currently have 10 under construction as well as a robust pipeline of future de novos we expect to begin development soon. De novos represent an exciting growth prospect for surgery partners, given the low cost of entry and opportunity to bring the scale of our operations to growth-oriented partners. As a reminder, those under development are heavily weighted towards higher acuity specialties, such as orthopedics. Although they take time to develop and construct, the effective multiples on these assets are a fraction of traditional acquisition multiples. Moving to our second pillar, margin expansion. During the quarter, we saw slight margin pressure primarily due to the mix of business that will improve throughout the year. When we consider our continued growth, ongoing procurement, operating efficiency initiatives, and synergy achieved on previously acquired facilities, we have high confidence to deliver margin expansion annually as our guidance implies for 2025. The third and final leg of our long-term growth algorithm is acquiring and integrating accretive surgical facilities into our platform. I'm immensely proud of our dedicated development team that manages and maintains a robust pipeline of attractive partnership opportunities. To date in 2025, we deployed $55 million and have added five surgical facilities at an effective multiple under eight times adjusted EBITDA. Acquisitions are an important part of our growth algorithm, not only because of the immediate earnings they may contribute, but also the margin expansion we experience as we integrate these facilities into our platform. The pipeline of attractive assets is robust and supportive of our 2025 guidance. And, as Dave will discuss, we have sufficient liquidity to fund this growth in the short and long term without having to tap the capital markets. The level of activity supporting our comprehensive M&A strategy requires incremental variable costs in terms of due diligence, transaction costs, integration costs, and de novo working capital investments. As we discussed in our last call, transaction and integration efforts were higher than typical given the level and complexity of acquisitions completed in 2024, but we expect this level of spend to significantly diminish in the second half of 2025 based on a more normalized volume of expected M&A. Next, I would like to briefly comment on how Surgery Partners is positioned given the current significant regulatory uncertainty. I'll start with Taros and their potential impact on Surgery Partners. Like many of our peers, our primary purchasing organization is Health Trust. Nearly 70% of our purchase goods go through this GPO. Health Trust has been a great partner for several reasons, but in this case, the significant contracting transparency they provide gives us confidence in estimating our exposure to global trade. For example, working with Health Trust, we know the country of origin for our spend, our contract renewal risks, as well as our mitigation options available. Similarly, through our dedicated professional supply chain team, we have visibility to where we have tariff exposure. We can confidently report that we don't have material exposure in the near to mid-term to any tariff-related price increases, nor do we believe there is a substantial risk to our supply chains. Regarding potential legislative changes to Medicaid and exchange-based reimbursement programs, I would like to remind listeners that our exposure to these payer groups is less than 5% of our revenue, and we do not consider prospective changes to either program as a risk to our short- or long-term growth prospects. We will continue to closely monitor ongoing regulatory developments and remain prepared to adjust our approach as needed to ensure continued growth. Before I turn it over to Dave, I would like to briefly update you on the non-binding acquisition proposal that Bain Capital sent to our board of directors in late January. Bain has been a longstanding investor in Surgery Partners and a valued partner to us over the years with representation on our board. As we noted in our press release on January 28 in our fourth quarter earnings call, our board formed a special committee comprised of independent directors that are not affiliated with Bain Capital to consider this proposal with the help of leading independent financial and legal advisors. Out of respect for the process underway with the special committee, our executive chair Wayne DeVites, who serves as a managing director at Bain, continues to remove himself from many of his normal activities with surgery partners, including this call. We will not be commenting further on this matter unless or until there is a material update. Overall, I am pleased with the start of 2025 as the company continues to deliver growth that is consistent with our long-term algorithm. Our continued focus on maximizing the performance of our portfolio, robust M&A pipeline, steady improvements in enabling greater operating efficiencies, and bullish outlook on surgical trends and the regulatory landscape have positioned us to continue to deliver industry-leading earnings growth in 2025 and beyond. With that, I will now turn the call over to Dave to provide more color on our financial results. Dave?