SGRY - Earnings call transcript Q4 2018

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Operator

Greetings. And welcome to Surgery Partners' Fourth Quarter 2018 Earnings Call. At this time, all participants are in listen-only mode, a brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Tom Cowhey, Chief Financial Officer. begin. may you you, Thank

Thomas Cowhey

Good morning, year-end Chief fourth and Surgery Officer. welcome earnings call. to XXXX Cowhey, Partners' This quarter and is Financial Tom

Joining Chief Surgery Wayne me Officer. Partners' today is Executive DeVeydt,

this a following materially actual and Risk future could call remarks, factors call, As may prepared are currently during including the projected those of our forward-looking Q&A make will differ cause impact results from during results we the that to the portion statements. and reminder, under not statements most the release heading we described Risk on such our in press company undertake this with in the recent update to Form forward-looking Factors morning's does filed duty The SEC. XX-K other statements. Report any Annual and in reports

will such non-GAAP is we this today's non-GAAP be adjusted the certain revenue. can believe for during measures measure One in we call, evaluating performance. quarter useful company discuss are introducing our which Additionally,

that, be our call substitute Wayne? With when can this at surgerypartners.com of measures website essentially prepared results Accounting preserves presentation. for As previous Annual in previous our Net Surgery revenue of to is a presentation most implemented I'll thereby a for in considered recently revenues Wayne. over net and or turn with of expense to EBITDA posted recent Report purposes. accordance release corresponding or financial Partners This bottom-line are these which Standard presentation expense all comparability GAAP.A our isolation the net reduced no combines additional be information accounts our our bad elimination revenue through not and the filed. provision The in adjusted impact with the on doubtful into with offset results.Adjusted standard reconciliation earnings should debt found for XXX. the

Wayne DeVeydt

I XXXX drive to EBITDA will XXXX. our a to morning.Thank all results. Tom, joining overview long-term an of fourth highlights review then initiatives some from you morning.First, that lot us growth today.We to thank like and sustainable this implemented quarter the in cover strategic in double-digit for Good beginning have you provide I'd we adjusted

our the Tom to details and quarter encouraging, reported revenue XXX versus of of Starting year quarter; EBITDA I'll to prior adjusted solid profile show second improved where by sustainable we providing when the the compared volume position momentum with healthcare the this trends represents case year Finally, strategic first XXXX progress provide the be continue prior combined future our consecutive for quarter points X% occurred margin with increased platforms improvement with our with margins EBITDA quarter margins year period.Same-store us quarter. year as the improved basis including with our These X.X% payer growth. the when and prior prior company increased by quarter.adjusted by build mix XX.X%, that margins to nearly from improving same-store with reaching the this expected government adjusted and on over into the in we this results surgical continue morning $X.X XXXX.As the the outlook. XXXX, initiatives result XXXX adjusted EBITDA fully to fourth grew XX.X% as turn quarter fourth primarily EBITDA further national and our we billion quarter a look $XX.X adjusted fourth were in of revenues financials of of million, by over deeper that call quarter, quarter reflected

G&A expansion closing growth a efficiencies.And Turning with those and with growth organic not approach capital substantial provides also volume are data margin with analyzing agility data decision-making, operating that invested upon platforms building analytics reinforcing been revenue on best, that our we focused distractions, effectively and to execution divesting goals.We eliminates past do along finally, driven enable assets. opportunities for portfolio and surgical what in and and assets made placed consolidation facilities.Throughout growth which XXXX focused and year we've platform on long-term we've challenges taken in a deployment high leverage strategy; our investments aligned quality we business in short-stay priority the and strategic our across high our over on our or

of to in sub-Xx[ph] pipeline over to $XXX clinical a finally, rating in a this six infrastructure quarters.We the common hospital than that million savings this we claims clearing to which on margin key a also XX% XXXX; recent updated February and and practices of growth are our surgical net same-store at confirmation period;further shareholders. our And XX% quality but deployed patient to strong we of and limited house, these multiple. the asset in a in chain run clinical resulting supply of volume centralized both recognizing our annualized clinical our Some along actions with with includes in an accomplishments rate result hospitals same-store for XX% hospitals in We a with assets not for case invested improved as or less to of our QX plus capital data warehouse.We XX.X% growth practices year, of clinical the XXX our XX% QX leveraged scale excellence. X-star sustainable pruned rebuilt facilities non-strategic XXXX migrated results case headcount in our it's This most corporate of facility accounting is our to base our previous of resulting representing and millionin improved with revenue.We in of over reduction of of recharged QX a compared ratings.We of while quality.As into business. example, X.X% in report growth took in overall commitment our CMS X our in migrated reinvestments a total focus expansion our and revenue physician our platforms. facilities integrated XX% volume in-state our effective received ratings partners and surgical in largest X-star is rates organic M&A lower $XXX surgical star pleased surgical respectively; the engine representing maintaining facilities includes

sustainable these growth October accomplishments, focus drug of also conducted impede were and we relates letter company requires long-term that tests company. was January company's owned to to our and of the relating disclosed back proactive investigative X, goals.While that the realize maniacal While subject are demand in we previously ability to importance we for the approach our several Government submitted to information XXXX.As a could demand headwinds impacting operated a the that one XXXX, SEC many our growth of proud our headwinds to on Federal execution of there are eliminating to by growth headwind filings, matters particular resolve dating in physicians in the the XXXX by letter investigative from and received documents certain laboratories medical necessity civil to and

the and claims in past investigation providing Based clinical currently relating of as shortly looking these behind matters. matter and in expect and to our government to charge to continue which culture us that to important put to in our compliance our we patients closing is forward to we and relates improve care our this so a we in innovation, physician services to can exceptional Federal with chapter that are associates.This focus ensure legal we related expenses. those with matters.We these partners the this recorded our related investigators, to related matters of about certain these are to fourth sufficient we to discussions resolving It are the government discussions of potential settlement on a with ongoing, charge quarter $XXmillion currently still is potential We a cover be accountability.

X. Chief growth the will is effective this company,and Eric I'm our execution this be key implement industry Eric feel continuing Of great Evans strategy our value especially role the new encouraged Officer play our period. exciting our privileged track-record of stakeholders. course for we our and start as team at part XXXX with was building years and further culture, early brings deliver experience company just be to complemented of XX in an to of this our believe time with our to Operating transformational a to of which will over April addition of I management

[ph] I expected are XXXX long important began largest history. with this began shareholder a noble Before and the have returns initial investments create long-term XXXX period meaningful over close digestive call we some to generally investments are the our but are to we the that all highly in in company's of Tom, initial in aware, way beyond.As growing you organically two from to turn investment.In of begin and I beginning like would noble to XXXX, value investment that accretive to journey on initiatives with

that and territories. will we first will the Idaho Hospital, ICU Community include Falls complement and broader these built healthcare the and ecosystem the room surrounding services the is two Falls in The Community investments Idaho state-of-the-art Greater facility have XX-bed of emergency

second introduction operator help to these over the nation's me growth. ASC and premier than Surgery these retirement the XXXX with Florida, that, Villages and area.Surgery back the XXX,XXX be Villages Partners the The over quarter The let and quarter Multi-Specialty on owner our more Center The fourth Tom? active expected be organic call the is Orlando, partnership investments in first significant in Health, investments XXXXoutlook. will of largest to northwest XX,XXX Tom long-term active adult of overview The of multi-specialty and in community patients.Both an of financial contributors The for is than later Villages group practice residents open supporting initial to no and the just to serving tri-county Ambulatory growing, of With located are which our results Villages exclusive and it's hand

Thomas Cowhey

cash Starting minutes our as performance achieving key XXXX some I'll X.X% Wayne.Today flows year $XXX to up strong moving adjustedEBITDA, the spend growth approximately the XXXX fourth you, Thank top to quarter of line; quarter. year-end adjusted quarter we outlook. on financial then ended and our revenue drivers, prior on with compared year revenues, with millionof revenue with the our and a fourth starting few

began offset of prior up primarily full Our partially ended Surgical volumes.As full rose in year, decline by the growth volumes same-store our the in the patients.The per cases services impact total nearly particularly we new to $X.X acquisition year-over-year and the XXX,XXX XXXX strategic year representing X.X% we physicians recruited case, surgical of XXX with progress is around physician also same-store the X revenues provide XX.X%. net over from cases adjusted was our to second National billion a decline of higher we year of as point in when their our growth volume basis, growth, a are XXXX, our revenue trends evident of that first our just XXX,XXX to company we compared and point XX%, year comparing regarding quarter.For improved as representing initiatives volumes reflect related we first cases physicians the of these approximately X On revenue our half, percentage have percentage the small by increased just of facilities made swing. August a revenues quarterly from performance up revenue over X% nearly quarter driven year-over-year quite same-store below half to Healthcare.Surgical second using half to recruitment.In a pleased on X.X% was in XXXX, to new net of to half

year the XX.X% results to the adjusted earnings; margin our full as by onetime increase corporate consistent headcount full improved including on a to we recent over cost $Xmillion approximately range.Our under actions bringing integration from increased integrate $XX.Xmillion, adjusted quarter year previous NSH one point EBITDA a guidance to processes of with to EBITDA transaction, XX.X%.During XX.X% to XX.X% savings associated fourth margin as of of additional initiatives our recorded Turning cost comparable continue end high acquisition quarter and quarter the operating and cost with also period legacy to the of compared to EBITDA some in implement year we over period, costs and our adjusted XXXX basis,our XXXX umbrella. a $X.Xmillion fourth prior was our $XXX.Xmillion, XXXX

and we much in of shifted also our also focused XXXX.We sale closed we segment our the we our management eliminate also current Federal XXXX, with surgical our explore and optical businesses, away business investors core business, write-off in to non-cash and strategy. distractions pending the quarter ancillary these optical our to this short-stay component $XX.Xmillion for brought transparent completed Government.We two growth lab ancillary of shift we have our pleased with make for to the at focus several the matters of in and been alternatives are goodwill effort fourth and time as or the ancillary of can effort segments.Further, strategic businesses management outlook consolidated on Over network.Consistent quarters elements recorded of those XX continue on focus Wayne of charge facility optical $XXmillion took time businesses as segments.We we core and that so our practices discussed, and strategic with optical a a to relating progress and in continue from and physician we last

Federal non-controlling Partners our on positive any that Moving operating part primary fourth inflow we of the considered majority some available $XXmillion of company's higher revolving of told, project of status the $XXmillion activity.The our business undertook interests cash had month payments of flow and and the the agreement of agreement cash EBITDA and of to and trailing profits project not calculated of we debt.Based contributed Government $XXXmillion sequentially settlement ASCs, note, optimization of group, entities had current XX facing and flows company a the portfolio the on declined at in availability facility.Of XXXX.The ratio the to efforts result the are and or to credit cash adjusted on a interest we will would approximately end flows. for approximately out business basis our at cash of October in for operating note.We have EBITDA is long-term our in all impact acquisition to was credit XXXX current X tailwinds XXXX. $XXmillion unsecured under $XXX it the those but a adjusted decline approximately net continues structure resources. in approximately the $XX.Xmillion.We of XXXX potential cash may over currently total important we our a EBITDA the balances to primarily as quarter company net first fluctuate net I'd that debt like as to has understand company's to with deployed total fourth to to financial less acquisitions, the end we loan approximately of discussions senior on to grow the defined [ph] with an term liquidity; ratio XXXX company The overtime distributions quarter of capital as portfolio our a credit used headwinds the XXXX and of during divestiture not under X.Xx, pay they to will that that of investors quarterly Surgery on that outlook.In on that for appropriately revenue, headwind our substantial as achieved turn continue net debt positively are that project based million now EBITDA; should no covenant XXXX; our recur revenues our outlook naturally timing flexible considering of

insurance our XXXX October, into acquisitions growth XXXX for of Some of same-store consider half expected next acquired annualizationof the we completed second late these our and adjusted our we consolidations grow in reasonable and a expected and off and we of our double-digit EBITDA tailwinds, which baseline a can including we revenue rate procurement efficiency cycle year-end represents XXXX. ongoing expect the the improving year the the that ASCs that and of in impact that and tailwinds actions, headwinds revenue we volume include believe X headcount consider that accelerate benefit XXXX XXXX, at persist in dynamics to efforts.As we including efforts

XXXX single-digits. by despite project revenues, low $XXX divesting single-digit We divested results.When grow to of annualized rates revenue for we also projected these our be million net nearly normalized reported that XXXX XXXX growth will from is high revenues our in

not our as their from The focused thought our impact One teams strategic that long-term the Villages indicated, of deals noble facilities that open outlook to forward our As do prudence, outlook. of as on first that in the [ph] plan do XXXX goal.Also a facilities meet presentation. of operating in our want anticipate EBITDA earnings M&A and XXXX in exclude event final XXXX.In the unidentified Idaho results objectives, we Falls adjusted until these not on open our we will quarter short-term our a include not matter we we Wayne

provide year-over-year the we prominent of as will that the quarter. While first resulting we do optimization the XXXX this in in our not mid-single adjusted impact growth EBITDA will accelerating quarter impact portfolio year efforts more digit project in progress rates.We be rate of quarterly resulting fourth guidance, growth subside the year-over-year throughout by

our those be growing Our a Same-store in new our exciting XXXX are it's see last outlook. the of to management the and manifesting are able strategy, fourth beginning team spent again, in volumes we themselves results, first of results with EBITDA the quarter on year activity, executing our cost new project efforts of and efficiencies to adjusted the our our we'll will Q&A.Operator? efforts M&A With growth. we combination be flags denovo[ph] to that are for multiple new a XXXX dividends planting years double-digit that, paying are open enable year call and

Operator

first [Operator question Brian is Jefferies. Tanquilut Instructions] Our with from

Unidentified Analyst

Jason for It's Brian this [ph] morning.

what on XXXX -- growth you you of and second your just organic can just outlook, kind half half in far of to comment you're growth; in second you're performance how on 'XX of of as revenue know, trajectory in similar thinking expect question, XXXX? the we same-store the some as about then the should thinking or kind embedded acceleration First

Wayne DeVeydt

the X% to rate and you about still the to -- to if probably morning.If book-of-business, years so a X% our in get then talked and rate would good you we to Jason, organic as in ability you at you think parameters X% especially to about X% growth, normally substantial at on from that we're X% again, to would the our range obviously, the our to book but half what to within at part if upper fully of the side remember to probably perspective, anticipate the close encouraged it trends Medicare-related of ends back and about contracts end the -- takes volumes the the as we a is cycle. be X% we more I in as we look X% very X% higher be X -- what overtime, actually volume.Obviously, and commercial for see target the saw volume that's renew 'XX.So of overtime, through then

very saw was kind aggressively, to X% us I should wouldn't is and beyond long-term you rate, that think because range. third what for I about take after to X% necessarily quarter think of there and to hanging to X% in but fourth 'XX go for So rate sustainable some low we X% X% in fruit volume; so X%

Thomas Cowhey

it's pull we our volume actually might and surgical Tom. short of we at some because rate impact at that of a whether Jason go associated mix but dollar you same-store, bit business of metric we've strip out cases.And this places A actually where way come of that, as kind with expectations we or have would more that at our volume numerator of reported XXXX,we're of our into that those out negative point be the it's not would were frequent we same-store cases, the volume and line you investors. adverse for I but lower guidance case really the rate relative the couple mix high low look them.As in just is consistent and you thing so volumes a as that in as there some not incorporated some -- historically in and or whereas little they higher about.The look second those matters revenues feel things add; down,so in that a with XXXX, to look you bit little might an include I the surgical more evaluating ancillary of talked so on that back, is the might see a there of impact we

Unidentified Analyst

you are level And -- and the still that on then, heads now? recruiting are or any recruiting you with investing headcount just update of the you there have right side; physician comfortable adding

Wayne DeVeydt

ramped year, a than little think we're time.As tailwind going this to this those the quite of will we'd momentum, level in from be we're the new say trends so looking point returns, more. quarter, for now but headcount question. is go half know, now that with for from the impact this year if this recruiting point they we may from of see being you always at right get offset team them in were the run a right think if now to like level It's we're first hire into have.We're know, and throughout year run the there year I a start an at our that are continue you we clearly, sat not G&A bit year, the is.As for recruited.But important more not there the to an of the for -- headcount we physicians you would I year add see yet full this to continued that back headwind trends we're of or of to substantial off.But actually is those with what we we'll the get but current getting that's I'd so rate sure number rate load that first point if great trends last going up we've in physicians to point diminishing the of the us.The quarter show coming we watch at recruited.And like volume we're a

Operator

Chad with Our Stifel. next Vanacore from question is

Chad Vanacore

$XXX that XXXX? we roughly about acquisitions;should million level in in So did in XXXX the be you to same expect

Thomas Cowhey

this some are to still think deploy. anymore don't more cases I richer. million people, a annually get we've that's a if we're signed, pipeline to going the to to down line them already, plan got would million those some little be I market that that we're I LOIs available $XX overtime the we're becoming so see going in transactions.But surprise finding are on ranges, that year.We've and where we'll but we're what overtime say the finish assets say going We're to we $XX that our over is targeted we're at. the to in target we very to continue $XXX that's path in got million to that would million, selective move $XXX

Chad Vanacore

mention seeing you how said EBITDA; sub-Xx prepared assets get comments you think you a bit or I that assets is that seeing little that acquisitions or does compare with Did are right that historical? but in richer your were that

Wayne DeVeydt

Yes, the items on which we year, that that highly a about the markets very a find good good the in up we with the we creep we play which multiple last sub-Xx[ph] MSK. we valuations starting about on got, feel -- we at I'll specialties transacted attractive.So assets to felt very targeted.What where and I'm is to we're what finished we referring pure some of see call in

on but like.So are the specialties deals get ASCs there X,XXX not we and just be generally if of we the non-broker but still I bit those not better attractive many find that over and those for opportunities current into out a we than got broker think it our into markets for find in secret a we Xx year these and weren't a valuations moving waiting opportunities. are attractive, we're some like more selective, a paying we'll and is up those multiples ASCs, multiple we're and of there of tree get attention, relative and lot people sitting hunt come Xx out last that to that we and just little idea finding we of actually especially range, deals, think don't the the and to still and of to we in and

we So to $XXX but out.So that of a of think wasn't we million were of are very we've nice that, it just in-market, where as continue that see be the to changing selective. got multiples us going selective weren't like in we half we'll we'll target some broker I year of really over don't I well just so XXst, got we pipeline but reminder, last be opportunities both, falling liking to million, but year.And a front $XX as as continue we're last targeted to talked done because

Chad Vanacore

did on then deal you've million in were acquisition you going think And couple an revenues of done what Can said give dispositions; of And the of the left a you you got you fourth you you I the $XXX in flipside quarter? to XXXX? of us be surgical about disposed to in idea XXXX. hospitalsthat what's with. in had

Wayne DeVeydt

let and grow better but that Chad specifically right lift say now comment disposed 'XX, moves on strategies very than that two really I the targeted optimization we're we two you year, pruning core you the will are printing to there.But did would about entire want what call could the done into goals.Now we so off we've I'll in bit you, say looking that but have the do into in little So strategic or there I good because news actually if be we don't a XXXX but should pruning those tell like.And items hospitals done actually heavy long-term would is owning in growth I our activity, at the of surgical never capital those vast XXXX about not, a differently.So, going our particular, I revenue we organization with of mature we can weren't in now Tom, than to $XXX last tell represents are could into that I'll of shifts more moving I the the tell would to -- you Tom the I let look in asset and the 'XX. those million;I'll some Tom what what day different think faster majority redeployed facilities? anything portfolio grow other we 'XX, at do assets and I some the talk rate you statistics relative were now give would what we're our around a

Thomas Cowhey

it were we look that the closed accomplish that the we're Yes, the last how did talked themselves to sold, really we've look able nearly were they teams either year.And either or accomplish contributed as you they for guidance, those quantified our that we were wanted than there right wanted it.But on they thing day we particularly at to hospitals physician remainder some metrics we the ended that you pretty little is closed of, million makes make the sure look things think two of at we so that funny. we for about -- of the understand enterprise revenue and enterprise, surgical contributors calendar it's of and effort target what margin you the sold, -- to were highlight investors we revenue, that we're while we to the able for the investors, essentially $XX the more year could our about or absolutely.As that proud so talked we and range.The below those and a -- the to at but of worth it we've to as closed, a this ASCs that, looks, all is remainder facilities that they robust know, it have was large -- look we up positive -- practices probably two

Chad Vanacore

affect one just forward? [indiscernible]. the your going rent All it to on How more is right, question going

Thomas Cowhey

what? Pardon me; how is it going to effect the

Chad Vanacore

your The assets? rent, leased

Thomas Cowhey

the in lease quarter? the about we'll first accounting implement standards talking you Are that

Chad Vanacore

I'm quarterly No. talking lease your just about payments.

Thomas Cowhey

accounting you should that.Are talking standard? on -- sure question. it make want just your think I any the don't talking I in change you're about have the about understand I impact to

Chad Vanacore

Yes.

sold affect your month; you so does Just few a expense and how hospitals, that so you going rental rent -- forward? every quarter, getting closed paid every

Wayne DeVeydt

of arrangement we majority closed those flow us get no prospectively.So have back There in kind of and a through so historical last the XX/XX, into we Chicago facility, don't we goes able you sublet that we XXXX,and own facility and the the cash short-term shut short-term commitments.Where is year,we've that a that one that's arbitrage. been have to that on were the we -- and know, net on real NSH's for consolidated down; future facilities arrangement, the our the to flow the the subletting impact so Chicago facilities impact, cash future arrangement has is a facility was in arbitrage is only negative a those rental on there to any do closedand pockets our recently on vast us impacts signed of no no commitment rental headquarters.As actually was

Operator

question Citigroup. with [ph] is next Our from Ralph

Unidentified Analyst

you hoping the dynamics mix quarter. in a more little about could bit talk payer Just the

And how surprising I deterioration. the side;so guess sort that given bit XXXX? Thanks. of commercial there the think on commentary a just any little talked and the whole for argument XXX outlook plans around bip is maybe what impact seemingly more that there?And about seasonality would you health I deductible

Wayne DeVeydt

for largest continue like QX historically necessarily think is an not us as our fourth for by we've talked It's is the what be going so quarter kind trend; I so in trend commercial to two away, as consumers wasn't mix a the to I of seen is to large I'm going heavy mix this new to much commercial about continue commercial weight throughout is more that deductiblescontinue payers.We slow.As been and points.And this push Medicare was something heavier it interesting that that's still dynamic see I grow. rise through we don't the it's predict actually think you'll sure while will this will think is year, historically.But we've overtime put think

and in still backgrounds; -- overtime know, you well of having some quite participate customers bringing being you we programs is, opportunity the quality additional The facilities in I this and got intentional believe our I those aggressively and or to profitable quite to highlight filling learn when shift go service programs, not behaviors, interested the are so other we're physicians to like can the we atAnthem, regardless are and intentional become after our to have we've in continue Federal very of to also would and commercial was the our volume, done organization.And we that thing them Government your candidly, commercial clinical to but members only these a customers. equally Medicare if to services

you'll shift are equally I So think don't our targeted. that see efforts change necessarily and

Thomas Cowhey

matter -- side, you quarterly on a to you little still just bit is really year-to-date Wayne are unusual. odd, thing the the bit or dynamics, where from,it's at fourth up always better which we a just close higher quarter, have.It's on a While have a the at happened actually look I government think bit incremental side.But commercial dynamics, little volume if part the bit you little you up a so capacity.As the it the no inside that's that comes the I see as quarter quarter unused of is is are look the and volumes points little on down the based expectations, one what year-over-year always at point commercial that right in dynamics a the what think numbers I good above your were good and in

Unidentified Analyst

just then, single all of EBITDA given I can using are what us ties baseline reported for that guidance? growth just my for parts; to Is give XXXX EBITDA just to moving want sort maybe often normalized low you XXXXthan theadjusted growth of you double-digit that or clarify follow-up; And the divestiture?And low Thanks. just that guidance that the double-digits. low

Thomas Cowhey

Ralph. It's our results, printed

we think annualized and about impact is it, which so think in so itself.And points to the $XXX.X of reported want some current worth I'd of about had of be consideration.But that probably a that we -- sure of revenues you where we're to I that as range, results baseline and you as $XXX our give a million positive couple XXXX inside make million. that using think

Unidentified Analyst

of closed? contribution know million out was was I lastly, you breaking or actual sort for then divested those are And you of positive, the said pruned the what $XXX you said revenue;you EBITDA of not EBITDA

Thomas Cowhey

at other addthem actually these say call break some That's a we least were but want our it to positively, imagine, in anything -- to we you can is, out.As on many don't what net we to altogether correct, will It's have net assets items contributed positive, dialogue we're public really did negotiate ongoing our net evaluating, assets to EBITDA. actually negative and contributor we Ralph. not but positive continue were against regarding ourselves preference probably

Wayne DeVeydt

the targets. below were below average certainly They and our margin

Operator

with question Gupte Leerink. Ana is next Our from

Ana Gupte

then standpoint?Now volume can in Ralph's workforce because kind growth come that -- near-term and the coming question; Medicare you're is that's you from of X% that exploring?I now On a in going what rehold projecting it versus tell there your an there should your be guess commercial both, secular you I and other of have what you same-store we of how also to us beyond the is rates giving growth you any X% firstly much And might bundling this because the be some expectations? know where Tom, relative [indiscernible]. is on company-specific forward, in mix just think following about for more and broadly surgical reimbursement to space or from you point will inflection the tailwinds models from whole ASC up

Thomas Cowhey

early it, really as to of kind of you higher outlined As points expect we of later for in that the some that XXXX develops mix model well are will still whether of XXXX rate more some mix; dynamic, in volume giving we net that bit assumed of of we Wayne specialty expectations. said, good the little the commercial also see we're look not the it's mix don't X you would revenue ultimately mix I see is that relative at on or year how is this it just to will it's to in but that what than then payer underperformed X bundling that get the X particular year.We're items our that shift, efforts? think the guidance talk we've where the X over want -- a course but robust of see deductible category it mix the per we the we and higher year lower the -- how of is on because the as as mix rate.Ultimately, that points be looking that growth to is as those to anticipating year higher dynamic a we'll plays government we the Wayne out specific about I into mix volume will category, know there specific at case specifically in say and important there, year two dynamics

Wayne DeVeydt

we on encouraging particular, really start to lease really at total appreciate inspiring, averaged total so did costlier this a number look our I smaller -- you mid-year do far.But opportunity 'XX many program of been early in focus money new on program payers number.In quarter;so of in over 'XX the till eliminating year best we a that what put to bundling, total joints. less of very XX of for really up that did as Yes.So a points other many -- an quarter early we setting cost some you share I'll and perspective, distractions, we to past over but so setting data a bundling of joints question of out did to XX a quarter the we in about to a the didn'troll the I XXX statistic, these a strategically in we that from amount in the some we average fair team's find the went give really quarter if using procedures XXXX joints now in and alone short-stay move terms the in mid-year, these can the by that which total what and doing case.And company were facilities.And not XX save XXXX, surgical to is fourth from XXXX in idea more to rolled joints and we our a in

snowball that's like additional tofour starts have we these the run it how momentum.And XXXX plus they have out think deductibles know, four take equipment did you an -- out, markets kind 'XX, Right because we these wouldn't are build to continue,we've indication in we'll in rolling quarter.So to we and roll as of you space loaded I roll and and the this in to it in to average now in like mind, continue the program expand. got are really markets to gives goes that going got to this many XXX continue meet look and backend to initiatives you've these on you've momentum Now if so, now hill the of could we're to are sure XXXX and right this.So quarter I to but a and not back seeing as to individuals are wanted rate time how can fourth we bundling and we it as what a it point we gets this in fourth a in this XX when that it we're out, but and block joints forward really beyond. means side that small over impacts to the do commercial from with half keep many you going really you year at total well really of 'XX for to only many do can create to and do do make down to with we imagine this like got have can how the time us encouraged well.But piloted

Ana Gupte

post-acute hospital are not the in So safety leads encouraging; is discharge is just some it's to provider cash concerns payers -- bundle back that how are the patient on to concerned you is and [ph] bundling, really out much perhaps about in what like new a degree helping if correlate the with how new more home, of any models either denovo does how coming direct orother to a angle and for the players? that's natural reimbursement relative then, short-stays; you that kind NPSscores that these with much will.And -- because

Wayne DeVeydt

a with approaches potential well we have say the we fact are point joint prop willing terms bundles in of the avenues what some encouraged facilities all, they're have of new are so in had quality we XX-day with. level, we good would we strong.And are had impacts begin by come this what there like of surgical a etcetera.As have out to that's that partners for like to a bundle XXdays the to-date number obviously that a we're that; what we've scores like facility something facilities today note participate very consider maybe bundle.At we entertaining I being rates.That or post-infection going already on and including that replacement a fee,anesthesia quite particular discussions what we really a to in first which basically day.And we and bundle, new clinical that very had so to the seeing in of facilities, program be who know what may there's or short-stay for partners and allowing pilot already but so know, larger us extended do fee, so and we're recovering we to are the being more back we our about same an know, we've done I our those have for kept ASCsand maybe that us SP is similar more us we -- evaluating we've will to not today finite would whether as is not to said, little quality do doing, say somebody or -- has we hip you readmittance a payers to recognized but re-admittance you So, extended clinical take

some So ways yet. the program,we'll we but we quality haven't manage this on us selected think this if ourselves partner or help in can now picked bet do right for right the partner properly we that

Operator

RBC Capital with Morgan Frank Markets. from is question next Our

Frank Morgan

look. strategy you to question that you; Wayne, you've get now in want that for your you're got to portfolio, your that shape place, a the starting implemented way you're

could strategy place?And there my margin a overall and looking the with of Just is obviously curious to there over see the for put the the distribution high you to margins you've or real curious I'm regard margins X look that give color your look -- given portfolio are get where it long-term the -- think or margins question.Thanks. wins or thoughts have are in you around where years influence little for is average other portfolio just to chunky EBITDA?That's some weighting at your when have a between you next margins.So, the portfolio; is?What those a the of you X some you a about you low higher today, unusually margins,EBITDA much us long-term we potential margin at potential providers lot

Wayne DeVeydt

on take and just of last procedures.As cash good mix our you question the clearly, lot been the is large produces with start we don't back depending volume, are morning.It's high maybe type but good a your they part but from perspective a margins like of move the businesses margin businesses, me growth questions, we've very necessarily like business but let meaningfully businesses step there different Frank, know, a certain flow of needle quick which GI them.

where to that 'XX was for an to an we're and that that of margins absolute so flow that said, very have but think continued grow one did primary would more not are I we organization being factor, actually developed like strategy As cash we the 'XX free point's EBITDA, over markets market.And finished move deploy the matter and to we expect things margin would to at a you in organization the say, as know, expansion we'll wants in dollars absolutely fragmented in I our overtime.

that as we to We facility. that relative strategy and a margins type overtime are hybrid contribution to to our well we're that and organization "negatively"but would businesses the two these going as going minute expansion positive Medicare next MSK, not as after we it's know, terms while market Medicare a per though, is margin dollar EBITDA shift facilities because impact really high it's a both of like, -- very going in necessarily high in of as year well how it grab into do or you and share, of we leverage margin more lot I the skyrocket fixed and say margin very commercial very does their contributes cost location.So

a to long target much terms laid targeted we've margin market capture say want will as wouldn't of of probably and as of to capture a as specifically yes.Margins terms be in your G&A what share, want answer, of initiatives saying we leverage. that of we've what way I So moving out up, in laid out much we

Thomas Cowhey

initial try base going more year, off just we mean expansion current you're down adjusted efficient overtime.But payment see next the essentially gave if you're mathematically, growing we to I today. expansion by is to your Frank, margin there a [ph] by of only mid-single digits, in margin embedded and become that's as revenues growing double that guide digits EBITDA you're

Frank Morgan

is sort those of terms situation?Thanks. that or curious hospital, of denovo[ph] chances a any In one hospitals of a just was beyond one developments; the of one-off -- that likely future other I'm just

Wayne DeVeydt

this more you the one-off.As sizeable moment very At targeting know, will time in be ASCs,so investments. are we they hospitals are

Idaho [ph] hospitals, our of smaller is would we etcetera Falls, with looking demand know ASCs the call we exceptional substantial If product there ecosystem denovo number chain that the an we're a doing with expansion an we know familiar have and adding territories; and quite but not and Falls Community could that are services, -- policy in ORs an for the you're out.We talk we of surrounding that much even the think some concert targeting offer [ph] market, in for we are no, Idaho bigger more.And procedures we improved build say targeting know facility they and generally but create a cost, not a so again, what and I are surgical like being actually did we and that scratch this.So, hospitals, from payers, would working focused surgical outside -- denovo can in over blown of an hospital full we not I we with surgical facility improved MSK about, at we we're there around priority. in have definitely quality we

Operator

next with Bank of question from Our Fischbeck America Lynch. is Kevin Merrill

Unidentified Analyst

$XXX questions.So Kevin not the make deals the the This follow-up you question,a just the today.Thanks a about you guess included per on year the comment taking guidance; sure notto is $XX are filling do visibility to into to acquisitions. -- question I clarification spend the for because not do deals million but have do [ph] going include mean Joanna that talk you're for that just was that on you in guidance -- millionto

is of to just M&A 'XX? for I in want the So guidance much included clarify how

Wayne DeVeydt

'XX any the I and we double-digit appreciate of that but deals that.When those what basically incremental doing plan those we've rate new of grow again, but that run $XX million signed starting contemplated it transactions do for that our XXXX we is have clearly, in in include M&A done to say are example, to transactions we from in substandard would that see clarify, deploy, point, would upside.In as to consummate included we're question.Just and so onto October run an 'XX, millionto not the essence, 'XX; to of in the $XX the be this we rate where million million any we the $XXX means got unidentified will new more not agreements guidance. close 'XX $XXX we'll we M&A, we of is we've finished

Unidentified Analyst

also there any And some can there is for in of XXXX color new additional were initiatives;so terms some comments you made -- cost-cutting the of that provide plans?

Wayne DeVeydt

for XX we we mentioned, we the of examples of the we some One you done procurement just obtaining hadn't QX was a strategic we items yet, hopefully we Well, in creating give new we we size on the our 'XX. I will say hanging of we the [ph], replicate and sourcing strong after about they as in to in-depth weighted essentially our GPO sourcing to year-over-year contracts that that's as went was looked at really the was some to round market think more available first gate bit but 'XX did 'XX company in in backend just that value Top contract.But we of out took strategic sourcing would the scale.In things fruit, focused pricing that support and growth, focused suppliers this low little lift we plan be on for of more us 'XX be will the in will without why undertook beyond. best some of and start goal much that 'XX XXXX and the our a is

'XX so benefits we of all we about and energy, ways we open 'XX to spending associates that be is as for I state spend I would that get in finally, XX/XX; would team do new their for because much was wellness got wanted plans say of this quarter -- out benefits our hanging we've so through organization low as fourth where where expect that self-insured, to would to expect we at fruit,'XXis the of and these those And went then strategic say haven't in ramp more what just benefit the some enrollment many the work to you're of can we we invested I up by the were to different and really really value as asset cost really simply and in we actually bring at things we creation structure so [ph] benefits deductibles. ultimately, a anenterprise-employee really work [indiscernible] health the example -- we organization much our about wellness to through that leverage, in. scale number up when we starting we in were across with fixed start as fragmented Second had efficiencies was the see to health rolled through XXXX very more into could.Again, we distracted leveraging you their take overtime and plan, programs them.But and a end programs really see 'XX of benefits advantage about know, people to end new

our providing throughout year, similarto we'll when around creation and how provide quarter start, -- more more second updates by even to will we'll our provide on in So doing, we'll what be that. are future we in the insights value and do translate the did that we 'XX we what think then probably does

Unidentified Analyst

of actions on margin improvementwas -- came how right.So is even took on the cutting the margins actions it's you that; in that undertook? the just improvement you because XXXX QX these the much how say nicely a would you from the right, how cost So so follow-up you think much of year, and especially improved, a for there due about that that to much way

Wayne DeVeydt

it, would we and think to improvement, parse two say fungible that cost drive fair I mean targeting the our they of of all it's you X% and drive basic that lens, mean unidentified -- kind most to did the what the our fixed if into can done I for out.But volume rates in mean reduction because activities it's the going can efficiency, that you do for all back combination and M&A, of revenue the if in margin are this the the G&A year you so know, margin to fungible, fit-for-growth since did an volume, it's margin we G&A that the organic.And about on as basis a improvement think improvement just hard I so I for from X% on I drop sense; about because cost kind improvement it's more the those a getting in somewhat me margins. were into we're exclude think you or is have

Operator

is question next from UBS. Mayo [ph] Our with

Unidentified Analyst

there a on anyway last be that as in put ask way.Is terms think helpful. initiatives but just just comment the dollar margins GPO the around question about strategic from we just may procurement dollarsthat might just numbers XXXX? of I to fungible and different I get

Wayne DeVeydt

wanted procurement the of quarterly didn't this the early all the you're back for quarter,and giving if see happened year, I'm from -- and we contracts of full not need to math 'XX, around up ramp of target gauge those go some do bit -- getting you $XXmillion example, were facilities, in you of a third average of go that the just many we our start, 'XX little partners. but thought you into and a not much But think in of so be on own you're until can back we of for really how GPO of many back physician is but are about of would you a run remember, much you savings.Now wanted rate a know, those new the to generally from got contract XX% just you've if around able getting that because kind those contract, XX% can to some as in feel as to numbers I GPO our we us, get you that newer kind with number, procurement. really of up our happen.And the memory trying so shared ours.And to those to that ramp you you calls using to into from items didn't XXXX lift procurement how If in of

Unidentified Analyst

to we there And if then I'm for your agreement be of acquisitions initiatives these maybe any EBITDA know really to X.X a think is that get way of growth crystallize target maybe,is for math you're XXXX.And moving just forecast based the reconcile Tom the lot they -- number of maybe I in and $XXmillion of -- I that [ph]. that's trying a means to add-backs mind. what to getting in can expectations a accurate, my off could when in add-backs that kind what bank

Thomas Cowhey

number initiatives; I procurement gone we initiatives you we types of we for certain Yes, of months' at the fair incorporate get XX some about in the of day X years' at so associated acquisitions have forward have that's upside and next we places XX potential today months, that on credit so about a think we where [ph]. worth and our XX looking that look acquisitions, place.You our dollars value our have question.So, and role that full those as those with and you're worth have so think initiatives cycle we put to in do think and initiatives into as agreements associated less our we we out that the revenue months the invested actually with those, the are

majority are you For pro the the forma over the the that for about inside would of at numbers, that we you see inside the create executed in other October efficiencies our -- some are the a that the have value XX-month would subtract that of expecting of see EBITDA. actions, see of -- from the we in end for probably some XX number the consolidation of synergies XXXX. talked example, the we've those Those some also corporate next of also of and of out would would course in headcount the would acquisitions, that but that the particularly year.We the divestitures agreement you credit adjustments months, impact

Unidentified Analyst

in what if if way if that the growth -- be XX look next maybe to $XXmillion, at to you've we that's if years, an X that the at to least the million? you captures identified for expect way expectation based months simplistic $XX in number; So of that's right at it, that future best off should that that could obtain the most the see look at what today.Is least

Thomas Cowhey

less growth. about Yes,

I a really think our full with -- we're very item grow the calk[ph] can rate but isn't investment is recruiting run you investments I haven't think because small organic, of as the our or So next that we -- rate of of in course the the there there adds months?It investment essentially EBITDA LTM fruit. of of value then hasn't because made seen the I've run bearing it over for again, of value associated but initiatives.So can investment it some physician starts the XX my physician although the G&A the What's with and that. the XX the of the borne investment

Wayne DeVeydt

organic otherwise items contemplating the not to But benefits expect growth that in that it's contemplating there, receive. invested we we've in it's specific and

Unidentified Analyst

if I And guys anything wondering enterprise just strategy. looking or ones doing your the I'm two across can. differently you quick if with anesthesia maybe

that's or GI -- there if using new different anything is groups, at wondering you're in cRNAase[ph] this how Just or point? anything specialties other

Wayne DeVeydt

yet, a and and performing the reason lower said, priority.That I our answer short pruning core have has been so our of with that the to focus a actually that's and continued the one appreciate to it's the the will getting they've being so gone and assets as point,we've our our and XXXX well been our well some we ecosystem the anesthesia you deep has we that focus evaluate part board anesthesia a about on much been our upcoming for were to to not meet assets of business.But I question.The recently in is not share and focus primary want perform of deeper ours team opportunities at areas tell that within with yet year. this it's of

Unidentified Analyst

of on mean, ASC of would the those other what some what be? I about? And anyway initiatives lot you're to wondering I'm anesthesia so a have I more maybe kind in-sourced elaborate think just thinking groups

Wayne DeVeydt

ability case with the and business total and gives we assets the our payments, our is outside schedules but in those we to example,on this is we so do one in-source the we trying as flexibility doctors to joints.And and not we about we that like strategically currently For anesthesia further,grow we're actually own idea the leverage are we what business bundle control only receive the love ways work it, patients well.What also it there. like when there of what for us even evaluate actually to

we're organizations that other this in but know space but a it so losing be part which what an actually growth core it's trying for there consolidate developed surgical space while we us to similar you not of and is facilities. have that are evaluate integral do nothing to strategy As do specialize this and our within could short-stay focus on ways

Operator

from Company. Sutherland Our The is Benchmark next with Bill question

Bill Sutherland

[ph] forward? can't effectively about we directionally [ph] where should really very question about leverage -- calculate and to think since Back Wood's X.Xx ourselves; going we

Wayne DeVeydt

that think is we we're of reason the preference we grow commentary would we we we down at I be something because focusing is number this of that goal drive EBITDA talked to ratio of and about of remarks.The but to grow or to about grow an multiple or average as some both, talked the to this is part on earlier; delever.The quarters between have new but those that's at it our the as about an opportunity don't we as we also Bill, haven't you overtime look plan business. our the in prepared -- transactions on fluctuate below actually specifically have think really execution that -- that that timing into M&A,a our helps made the to leverage.It's leverage leverage it opportunity the an may

Bill Sutherland

it swaps some year;I is you so forth on rate then, structure know plans that last no did more debt so And the takes of there and this but… year

Wayne DeVeydt

think looking value have we We're the it's we accretive those.We're creation that looking but always ways ratio we're term the capital maturities, constantly would something overall. from leverage some about to structure.We deploy at consider -- the as the deployment be of evaluating in to nearer capital, debt we're that that

Bill Sutherland

there actually on a talked step the is strategic one, sharing Last wonder any with payers if discussions; further some past bundling co-investment and and about that I Wayne.You just direction?Thanks. update in with going the

Wayne DeVeydt

with the good named So with jointly the acquiring but signed.We we long did are early continue in looking that of that a a momentum. the we got these we're that I have got and lines co-ownership see actually water about [ph] we got feeling a facility periods what right excited encouraged but the and would lines have we show couple a digested front going have together at short NDAs couple fact, to this we're and to being community nolonger momentum.We've at the denovo we're bundle hopefully about point.So and say point, we're on again that is this stages and potentially denovos now would be bring.We're at to we people are payer we've it's looking payer that answer able at now right recognize, the the them doing at in both and [ph] looking physicians regarding even concept recruiting getting value

the we're trying with even having to us. if think show they I partner more them of opportunities influence

hopefully,throughout 'XX couple. So able come, to more to we'll announce a be

Operator

comments, closing I with mean. ahead Go

Wayne DeVeydt

morning, affordable against the call know operating I and to our more for say making feel team, thank to to participate execute associates is a for XX,XXX this across day. of want year for the one conclude of the has each a to have we our daily it will I that we employees Thank lift their been take healthcare our efforts short-stay plus call privileged Americans.As be I to this to it partner and and our and U.S., surgical in moment preferred get for improving journey This great able heavy of for Before contributions. goal a the facilities joining become every you us there. our you

Operator

for you may disconnect and at your a wonderful does have lines today's conclude teleconference.You this day. time Thank participation.This your

Surgery Partners (SGRY) 13 Mar 192018 Q4 Earnings call transcript