SGRY - Earnings call transcript Q3 2019

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Operator

Greetings, and welcome to the Surgery Partners, Third Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

It is now my pleasure to introduce your host, Tom Cowhey, Chief Financial Officer. you. Thank begin. may you Sir,

Tom Cowhey

morning, and earnings Officer. third XXXX Surgery welcome This is to call. Financial Partners, Tom quarter Good Cowhey, Chief

Joining Operating DeVeydt, Eric me Wayne Executive today and Officer; our Evans, Officer. Chief Chief our is

file As the cause statements. impact factors the forward-looking undertake will in with Risk results results future morning's during reports to a release and from that this could are update company currently this projected reminder, The statements we does make duty call any those we such actual may and differ statements. press forward-looking SEC. materially described not to

should results during we with prepared on be is surgerypartners.com, or can isolation interim a company most believe Additionally, of be our release, these considered on will recent substitute in which reconciliation and useful as our measures for A be which filed. our non-GAAP website XX-Q at when information in evaluating earnings measures of our the not call can posted in presentation found performance. GAAP. in discuss today's in Form The certain accordance additional report this

over that, turn Wayne? With I'll Wayne. to call the

Wayne DeVeydt

for morning. and Good Tom, you us thank you, today. all Thank joining

sustainable some review and briefly strategic discuss results on from several adjusted growth margin expansion, For initiatives growth organic double-digit and our this EBITDA morning of that provide how an our call initiatives I’ll our quarter our then goals. third highlights and update support impact our those

Finally, I'll further to provide details on turn call the quarter. Tom the over to

adjusted EBITDA million. adjusted to third XXXX and of I'm revenues $XXX.X pleased quarter, million $XX.X the report with Starting of quarter

by guidance quarter XXXX, deeper targeted full and into consistent the with growth. grew X.X% the over third previous look of year As our double-digit our quarter, adjusted we EBITDA

net revenue same-facility from prior by increased and driven growth. quarter, strong per adjusted case volume by the revenue Days year X.X%

a testament over which are revenue to same-facility our is year, volume we and consecutive growth, case significant efforts. with the representing prior We quarter believe pleased the growth fifth of our

improvement over margins XX adjusted EBITDA year basis an were points XX.X%, Finally, of quarter. the prior

the closed have been over over for growth XX% adjusting been quarter. later, discuss impact will prior approximately divested facilities, revenue the would or Tom of EBITDA have X% growth and As would

strong any million which of Hurricane estimate reported in or to results impact reduced million in early for adjustment not the incorporate add-back quarter Our performance $X.X does Dorian and million revenue, by $X we $X.X approximately third September, adjusted EBITDA. our in over

safety which lost representing four surgical anywhere previously our the It our XX While fared by storm, days, of many over to our well patients along some facilities the of to scheduled the from cases, employees one calendar that year. facilities in of for volume end XXX of closed coast recapture can this is were of hope the higher we acuity. and the ensure our southeastern

as we As both to long Same revenues fourth prepare our X%. in by commercial rates. as driven These exceed pleased our with are targeted a range to the our continue efforts, year-to-date be continue solid quarter, progress of physician results well on the fronts. facility we end for our X% of recruiting high of term to variety improvements

and we impact importantly, our that in as compounding XXXX we our business a as a commercial More on there call, rates, surgeons continue to our to results. facilities, we longer-term ramp is compounding impact fourth new our discussed previous quarter but expect our on meaningfully concurrently up improving are

comparable points anchor over points of year-to-date the XXX facility on: A period an basis to basis, were few data same XXXX. in X.X%, up a revenues improvement On

and for than double we all fourth in their period, further of trends the typical quarter During of margin see already contribution this our to beginning with from consistent physicians XXXX, industry from are expect XXXX strength recruited the since the contribution our more sector.

driving XX% also and strong direct at is of a physician recruited XXXX doctors cases contribution year. last doctors those point date, results. year, performing equivalent cohort we've higher versus at are To Our number margin this an recruitment case last per

And has acuity specialties, cases. our targeted last in yielded double growing total including in finally, this done total joints at higher our programs surgery improvements our centers, our meaningful Year-to-date, XXX total to approximately ambulatory our year. which data-driven is focus joints we've point

pleased patients. a we As continue by you destination surgical both making facilities of see our and team's can choice our with our results, to in efforts for be physicians

efficient positive sharing and We them make momentum the to much payers with more at are the a with we continue their can enjoy equally pleased and facility. experience affordable with members

to our plans. the testament pilot in fourth that markets double These provide national XXXX. rate few digit were we of achieved where regional completed and our negotiations the increases value off-cycle recently early quarter commenced A negotiations health efforts relates due demonstrable successful we state, proposition to in a commercial

partners to country. them increasingly plan facility to independent forward with the look members. understand and dialog that are across actively payers can operator provide already health continuing their Our and engaged benefits this a surgical short-stay and other value in We the vibrant

look on we’ve year, the over last constructed are strong continue confident seven quarters. the to we can we foundation As to start we next to build

on toward facility Our motto X% bias on to of with the the X% end revenue to higher range. yielding We base the same same. growth volume, X% a our can and business X% grow that at rate, remains believe X% X% to

level results right focus the payment least value focus appropriate Our we growth. proof targeted date to and getting bring right our on that we specialties bringing achieve procedures doctors, system, to in for at on the are this doing of we the the can if

that top goals. support will EBITDA on X% of X% areas leverage. and additional we've this to margins three focused we of for growth procurement, contribute expand revenue G&A to expect On digit double include in additional These been adjusted an areas cycle of our growth, baseline growth

continue will areas we and bear each these further confident and seeds plant in XXXX in to We beyond. are fruit of they

we we these In opportunities. we in procurement, the being how progress leadership more these advantage as on to supplies, over discounts past functions rebate also see in XX initiatives as we broad continue in new as making optimize take that built our well contract, continue teams GPO purchase negotiating of have to creative opportunities. months We implants and are other to purchase and scale

On wide previous of revenue with and many exceed our using collection management on new G&A to operations we to of know starting optimize centralized members this of a several are data targets our management. cycle, team, And submissions from focus across consolidation business. we're maniacal begin to claims our denials your electronic experience management as portions you of from have

costs. top of our and initiatives and growth on new recently our These distinct have give implemented further We just our trajectory. tools monitor confidence digit base in policies us to manage double

open this tactical, Finally, as existing surgical hospital market stores our in and beyond Hospital we capabilities the multi-year new just look for Idaho days This in is now. from our acute care complement a slated expand Falls to very investment company. Community hospital our our will important

excited expect come. to are to We to a this material this be be with new able in contributed and serve better we community our a brand facility to years EBITDA to adjusted

broadly, long portfolio investments Idaho make growth. strategic willingness sustainable achieve term to More demonstrates our Falls accelerated to across our our effort

term predictably and and Surgery day building long growth be are near goals. consistently Partners positioned medium term, achieve every We to term

ambulatory I'd variety payment CMS outpatient XXXX regarding prospective announcement final the center and Medicare demonstrated pleased call commitment a to as fronts, their ASCs. the Before were from rule. felt spend Tom, hospital to announcement over we across I calendar system payment surgical moment We with to Friday's a year turn the system like CMS on of

than an finalized has CMS rates, increase. rate is overall XXXX the which X.X%, of to points respect higher in basis aggregate With rate XXXX aggregate increase XX

individual the rate While continuing ASC ways, in cells specific pleased ASCs CMS we will by different the industry. to commitment impact are

six and markets XXXX in be inpatient only XXXX. opening six intervention paid procedures the additional Medicare knees surgical to added third replacements, Medicare anesthesia the and hip exciting total making to first Medicare Another for addition finally, outpatient these is vast coronary in cover setting total eligible list, procedures up ASC setting for our time, were for And by that hospital were from facilities. procedures the list services to removed inpatient hospital the spinal new the in procedures development

list removed additional term better opportunities serve believe near we knees the only to As facilities with Medicare population. XXXX, our total inpatient the term for which move signal from could was long and this first in

what The continued favorable know to to demonstrate true. actions be we undertaken ASCs benefit by CMS

Our and quality general is in and particular cost effective Partners regulation continues of industry Government in right Surgery this. on side delivery. to reflect healthcare the

of over Tom me to call overview and an results third for Tom? With XXXX that, quarter our outlook. financial back hand let the

Tom Cowhey

outlook. Wayne. cash to I'll our with Thank few then revenue flows quarter drivers, some third of key on our on financial starting EBITDA, minutes adjusted XXXX our Today and a XXXX moving you, performance, spend

period, quarter. facilities the from Hurricane cases surgical up in line, top the in impacted cases X,XXX over of the despite current shy XXX,XXX cases prior loss which nearly by us that from contributed XXX the just Dorian the just with year X.X% impact divested or we quarter, of and of year in quarter, Starting cases were estimate the prior closed the year

the overcoming over in or in current million in of lost revenue with compared the We Hurricane revenue, quarter and estimated $XX adjusted million to third ended approximately million closed quarter, up from $XXX.X divested the year from year revenue quarter despite prior prior of the $X X.X% as facilities Dorian period.

year surgical company quarter, up volumes. X.X% primarily basis, by per same-facility but net the days a revenues case, driven higher On also from prior total revenue were same facility by adjusted

million. Of third $X EBITDA adjusted was from in over the we marginal of XXXX. in a operating that divested just X.X% $X.X EBITDA note, EBITDA current XXXX is comparable and contributed million period the Turning estimate million under earnings, quarter, our year facilities $X.X impact period the closed or Dorian to increase adjusted between prior in adjusted the million, quarter Hurricane and $XX.X

double hurricane adjusted result expected achieve with to us to Our continues impact, is well third quarterly growth. despite full and year, the quarter consistent EBITDA digit cadence, position our

integration costs million year-to-date than in During of XXXX novo note, costs our quarter $X.X $X.X guidance XXXX year-to-date our integration-related recorded included costs, half of less million Of quarter transaction, associated our our and would transaction, million, costs of that hospital costs $XX.X the de acquisition approximately bringing subside. Falls. to and with third consistent Idaho approximately integration and total we acquisition with

remainder throughout to outside these expect of XXXX adjusted of the record and XXXX. to EBITDA We continue for costs

a was ancillary year our prior segments and the businesses. slightly comments and relatively EBITDA and our from outlook prior these versus consistent for these revenues two net stable period, previous combined on were basis adjusted optical year down our quarter combined While versus with the about segments

cash be shareholders. our for strategy an is liquidity; deploy important to to to and our to generate optimize flow on of able returns cash and available Moving part flow our capital

for landscape organic been ensure to for inorganic I'm to a owner continue portfolio growth. that our evaluate and once with investment best this of our opportunities assets and the future pleased efforts the have treasury teams, We highlight particularly are quarter. the we development as again drive efforts to our we whose scour

of during availability. We Of Surgery the with approximately third million. for cash operating approximately an $XX.X various for related in and million, to and company our of facility At million approximately the $XX.X and Partners long-term that debt. flow million investment operating million approximately used defined of $XXX deployed credit of had revolving we in cash $XXX cash on end interests quarter, cash Montana, facility third balances had is the remains in the as accounted a flow cash existing less net sections in undrawn buy-up to statement our quarter payments $X related inflows note, the distributions of non-controlling

result EBITDA decreased of agreement of managed credit third ratio the debt trailing quarter net care to calculated greater approximately XXXX higher value at total some XX The of visibility a our month the of under the X.Xx of the adjusted as and EBITDA end initiatives. as company's to of into

flexible financial noted capital or unsecured has no on term loan covenant notes. As the company we the have appropriately an our senior with before, structure

EBITDA fluctuate to We continue may on based time continues debt quarterly total cash should grow, of that our ratio company's on a the timing to naturally net as business project flows. basis but over to decline

finance new we calculation, local needs. as we quarter increase leverage and Idaho $XXX and the will financing fourth incur by structure to new our community leases will capital in possession our in million million of debt also Falls, new of hospital our facility nearly expected to that respect take With $XX equipment we approximately project

next credit agreement to Consistent the with from facility term $XX when the expect long believe fourth EBITDA could agreement, begin we terms annually, credit this run be million to the our in years. the between and which we is over our contribution few $XX incorporate rate in million achieved of EBITDA quarter,

to wanted with we magnitude to of this of now. the Given adjustment impact start this socialize adjustment, the deleveraging investors

resources investment in and local move clinic. take the we an care, our excited this we discuss our of hospital we made moment Montana, position first Partners interest of quarter the in identified in managed to existing opportunity to and unlocking the better have non-traditional better in built a and purchasing Before to geography in time. Surgery cost surgical the by us some long-term remaining grow revenue like including synergies strategic this an local potential ASC a this are teams fully to market. allows I'd revenue the community, local cycle and associated investment This on, deploy we This will in unique over of market serve truly the and by myriad

growth remain progress double guidance of full EBITDA XXXX on and committed this the on year growth our and outlook, revenue or variety to fronts we low digit Moving to excluding single our excited by high digit adjusted of divested growth a baseline. this our from single revenues digit year quarter XXXX are

following same we Higher points commercial points forward we is mind As keep period look which investors basis the would year. the the push deductibles in year. government trends: our later to approximately to mix than last To quarter, earnings fourth in that business to to ask is our continue higher seasonally procedures XXX date, the largest quarter,

which the per to revenue We business continue net to commercial drive fourth expect profit improve higher mix in quarter, case. and should

savings two XXXX. newly strategic hospitals plan have are we were will key recur of in initiatives, rates we The late markets. the are from surgical of consolidation The several EBITDA effect this closed some negative values adjusted fourth losses negotiated to of XXXX the contributors weighted. quarter health that in in back-end in currently year. our our And including not Those

late we our business year guidance. seasonal achieve introduces well we positioned full believe are While nature year the always of our to risk,

believe achieve our to In our targets. results to continue summary, we XXXX year-to-date ability our demonstrate

see continued strong We take are as to expansion growth initiatives our pleased margin with same-facility hold. revenue

will We in existing that and facilities as Medicare continue to support to procedures invest for facilities our organic markets in preparations starting finalize growth XXXX. expand new new enter we

open call for Operator? With that, we will Q&A. the

Operator

you. Thank

the question-and-answer [Operator Instructions] of We from Please Kevin first conducting will with session. with be now Merrill a Our question. America Bank question of Lynch. line Fischbeck proceed comes your

Kevin Fischbeck

I the I guess heard but thanks. the guess what was. sure Great, exactly comment, Wayne, I I wasn't context

XX% mean are you that end the you same can kind you that range? said couple You just really given the years higher store have saying guys next revenue are bias I or XXXX be of growth reiterating that the it expectation. could your that for of to think high the you Was of end toward for of that.

Wayne DeVeydt

high years for just morning. should not we good Kevin, answer range. several year, at Hey for the is really think The current but the next that short we of the that be end

with think much the our opportunities to continue coupled meaningful X% efforts, rate rates of effect probably as you recruiting go get. X% typical that of that more deeper the should fact are than we on to think on the see I compounding volume our kind and I

range. So of the high would I bias the say end toward is that

Kevin Fischbeck

And it, of when think as it well? rate much of acute part kind you the is some you how the as that of versus kind talked mix dynamic of about shift commercially on about recontracted of

Wayne DeVeydt

we a – are is you markets. to and on the just part what entitled even below at started remarks able prepared getting level substantial off and rates would just say that average several what there. We've that the done we're and that range, had So as we've will time Since I so being the know our we're say markets care that to momentum programs, the first the well in full managed think I of foremost rates. of we've appropriate cycle more several the in it I in been mentioned been team, average have increases bring we've and double-digit more getting

That But could above say say could end would you factors a that, mix range, that does purely factor be would on being or that that at be play X% typical be X%. I on rate that the put said, above that the know of just I and us in but exceed mix get we mix rate, least the then be the high at let of to able should you delta. of end X% should negotiation high to

Tom Cowhey

this and it's Yes, isn’t Tom. a – Kevin, hey Good compound morning.

our physician economics attractive share know the to a especially in that bring how partners about well, are our as it's think actually more we you achieve You compounding more the incents to procedures effect through of facility their rates facilities. them ownership, able to as as

Kevin Fischbeck

and to we big it's versus Yes, build come a able before that this all more anniversary last go of this far you've and this going of couple we of kind I where they is year the do to how into about long their that up a this ramp you kind now recruiting that, physician mean ramp as year term trajectory? and growth been or as Do sustainable kind as much over just state have have steady I to of ramp. normalize years onboard, to of guess then next next year on maybe on kind point the of do to get

Wayne DeVeydt

think them start I internal to Let don't three least done as simply an at of for to term, to and best be out near the able me meaningful. not year think should going longer, opportunity if longer that I is inflection and the point five not the at that because is board, and years years so we've both we to two our believe by achieve the that hit we're for with there range first end shared no saying, own higher our projections reason

procedures avenue with new to will the up our shifts today. we're we have add whole there come the in new us seeing that costs going fixed that it's But for I to to open leverage CMS, our procedures, that with, a would

So the would afforded ignore if transition end us better. of to know three rules positive five I think at or on years look you at got the even finalized I runway Friday, that that I with CMS range opportunity – say that's to and the peer new of Kevin, were we've high

Kevin Fischbeck

Thanks. Alright, great.

Operator

Citigroup. next of Ralph Giacobbe with Our comes question the with your proceed from question. line Please

Ralph Giacobbe

morning. good Thanks,

of commercial any the understand what Can of And give guys bring, book understand will the know the the improvement the on of fourth premise payers’ just see the at all certainly sense the just the value of us percentage us boost? off-cycle kind beginning bumps. you help of You I giving wanted commercial rates in kind you quarter. to the you of but

where that off-cycle you that the process? higher increases, those give you know for that to to don't are how to guess of kind long of in baseline? I then get those kind You through get book And

Wayne DeVeydt

so start that's a an Yes, with let us first payer just off-cycle why would the increase; logical give me most question. strategically, think I

our that of it that with the value would to we quality payers. playbook Ralph I them tell value been market, that the our understanding play. at with is them things is with a you play One is the to our meeting have to we've be the gone coupled We've that and in the facilities, offer it preference

available be to in value the what versus the to not being in us value compensated do if that what shows alternatives the share at, think should so we that now And we're at the want market and are play. with we chooses what payer participate data to play where is them

our us, with first preference payer the if But that's know structure. so And know we partner available it's as always not differently, there's to of market on you to the well value said right to that out to in would we've like those systems providers at continue the as us play health there a partner to many market. try and with with that look partner we and being sort

payer increases we board increases. our and meaningful as pretty we or we health across system partner and But under have book can negotiations, meaningful rate with up, with the look as at partner can go will any the tell I through we’re rate scenario our and have rates going the these either you, much

said, a to in system we're And what looking are not to our value being payer a That we're and play want for not rates just then so as a said, market. the to is drives believe to would accomplishes I the greatest the our it a goal, goal. looking EBITDA, we to in model it business if health a partner necessarily longer player, are for participate, is we mission with be this we what sustainable in going get case the entitled market,

we it tell our necessarily I that the in facilities, commercial QX, so double just happen I that. with very just is, EBITDA you it we as you, started of though thing, other happen, reasonable while increase a won't year. but for contributors in were would when now, all you getting The what would you nine would so the early These tell of we're This know thought digit will pleased board. initiative percentage size to is things across was our they

inflationary have next this point meaningful I providers over that leverage in several years and kickers so of and leverage the market. like of prop to being the are value was our the idea starting the feel starting We

hospital looking comment since and brings has at He really surgical on is lot I'm to one surgical been the available us. Eric he is things a managed in just care The just of really facility sector let as here. things thing and he's even going other doing been that basic of to though know the experience, you

facilities. not under taking master or our For have been in us the opportunities afforded advantage charge that those example, of we've and whether

QX well beyond. in well that So Eric, start benefiting there as and your comment how maybe some on of work will as and us

Eric Evans

Ralph. approach. very payer we side points, just just do collaborative Sure. I much Good say also build one the on Wayne's would a take thing is to And morning, on

going reality to cost right. draw higher facilities and So increase, any the the patients be of that as potentially more about actually in from our situation time we settings, rate it is attractive think that's makes most a of

with is our market is another off-cycle here we to in reason actually do win-win’s clearly. to over increases, higher the us sustainable their with and make to payer us there for so settings, in would goal opportunity rate look what value the something a more the procedures So even total, draw

in have from Wayne been we as To where we point and a got one we market book well are know, charges around, to facility so rate as think we've win we market our appropriately as grown about some opportunities given we this on not as increases, there we could to realities as sit more be you about that consistent probably a sit. based that our should we've standpoint, make we're sure company, just looking the at, annual how to thinking managing reflect adjusting and where be and

discount because we we a feel that want deep and while alternative discount, offer our and don't sure of we're to creation an and conversations what's they about They solution, even us right. unwarranted. having value where out for all of we enough is these with these that cycle, in is payers us, want in want to some that as are said, us maybe know great that of and in payers, that they quality the make But markets, is make offer make a investments part reality I to bit to of investments services, make we want present of discussions you good so think in we it in a we the investments

Ralph Giacobbe

this switch very but somewhat helpful. sort to topics, I related. that's Okay, is wanted of

benefit changes sort in give and Thanks. us what your or us certainly Is markets it you knee frame of United announcement do Anthem, to the design for around site specifically know replacement sort and not noted XXXX? see you sense a your cardiac And overlap of and guys of to what Can give are to we of certain the any of driver opportunities those auth. how had are? way namely procedures some you there or CMS with guardrails payers the opportunity You either prior around and ASCs. of meaningful you payers, then pushed service maybe think moving a

Wayne DeVeydt

Ralph, I appreciate So the question.

meaningful the think both business trends start with is payers, me think this Let I saying, overdue. our start let – by model industry our and very Look, I specifically. are me for well

enough lower will the I is or in think debate I are now there cost data would nobody you has than say actually care or there they many and dispute so a well payers better would payers similar you meaningful the that and is cases quality generally equal in acute tell quality also in it the other that supported get XX% I that structure those add as and you that I would shows hospital been that what that markets are two and payers for overlap as mentioned, moves with making, our is considering processes. settings

bullish highlighting this know know this if know never you we gets knew of but happen, where year. that, fairly to that is top were spend On another you relative puck skating that this quite we year would past the didn't you idea the going, we delayed much time

be have we're of board, of board terms bit thoughts So sharing get and a board sizing on our our I of this in want week little as to with space. part going our to but ahead actually of don't it, it, we meeting this

is a tell on to know we've But simply the you're you year ORs opportunity, to do adding spent are if for you location I fairly expansions room last an facility. exactly what OR expanding would and existing multiple this as inexpensive

gives we our physicians the markets Medicare quality and we're idea, give I procedures to that's you new coming but that generally build those continue that we I X,XXX an names, are you of and with spent those time going this retirement well total with to on starting so specific it And in and but are have amount more looking not would believe but in XXX a year to physicians we're that physician won't way, in recruiting year, relationships from only fair relationships our I communities, on doing efforts, which we mostly this syndicating. to with. anywhere do at actually deeper past high facilities mean physicians while a joint have to are capable positioned, tell our areas windfall we we've also of bringing importantly want

would just tools the term view So us you our I toolbox, as to in growth. but come, more additional to these digit is confidence long double what tell I in should which give

Ralph Giacobbe

helpful, thank Okay. you. Very

Tom Cowhey

Hey know this even to the part of reason thing only already just this to you you on, is our I though trying other you I'm to dropped The Ralph, that ASCs, doing is that pile that we're want demonstrate right. for type I we've off. going of for highlight just procedures the been number in probably of

So of we more and our clients, the our well do it capabilities capability we're than we're actually ASCs to think for today short-term about of and over have types for have longer-term. But doing opportunity commercial positioned this a that. over we doing today these procedures are third really the this in the and and

Ralph Giacobbe

you. thank Okay,

Operator

comes question. next line from Our of your proceed Vanacore Chad the Please with with question Stifel.

Chad Vanacore

morning Hey, Wayne and Tom. good

Wayne DeVeydt

Good morning.

A - Tom Cowhey

Hey, Chad.

Chad Vanacore

to I hips. opportunity maybe like would even knees the question continue and with in Ralph's on

from So do or inpatient impact think to get to do that rather, in you'd if where think you how years of XXXX, migrates in you if quantify can initial you business you can't outpatient? five much

Wayne DeVeydt

going we don't because detail, somewhat in things board. question we it some, be are So I that you to you answer, outlook get I our year sharing of but these answering tell projections a next early me with it, will but answer to intention because we share be is year our ultimately want think will difficult helpful let hopefully five on anecdotal not maybe will some to to more a these some and it. give with

we more went ultimately into little to simply For facilities, number couldn't because rule our physicians procedures until would this a with like working having that into XXXX of start we've they been move a it's challenging effect. but

would lined is lot physicians I what So got we've tell you a of up.

We certain move have individuals of were those we is commitment actually a and but know and Friday the running lot until to with now reality will how that we that whether forward to was strong get individuals commit, us. for syndicate

until we really see where to comes along, that So you that's I know can have enrollment at. how see

at of know you are is patients have inpatient I that other things really have so setting. in to could to do look as least more target of keep setting mean what bias never an those an of candidates. surgeons to as been one and and The have we've they trying mind we thing in believe to the to some we certain that remain targeting we're course in outpatient at too they physicians, a

a these ramp recruiting up again, slower to late been So but lot year, lot a in moving a of just I be we're XXXX now. now think because docs of honest, is the we've parts,

the look, to go out there, push rules can scheduling going and say we it's you Now start time? be are to get full to back

recruiting in doctors. I you general, would and any If these physician just with different our Medicare take don't think patterns be

add And year progresses. five year then right. XXX, almost look to month, you and on you You last or those added to numbers, for the to getting the deliver to pattern them we'll new start procedures when facility, months two we to do, But next promise, month. think three year we XX at you're your procedures eventually they do do those then see, and a if to one as five, four this know the you is surgeons your XXX in about two do physicians three in first can generally will simply

But that I digestive time; it from takes a ramp-up to you nuts. year know really full want to soup

out it by the in XXXX, gate but end the think ramp be slow will I of up XXXX. of So

after trying that more that when a going new that. I is a think do XXXX into really we're physician start movement But purely this moved of run you to sustainable population. rate base of we're get them Medicare see to lot remember

to we to but example it times, know I'm wouldn't very as you should just of pull have another but at in digit many just necessarily double I come, very think that general you me, more – growth. why in we because confidence this start opportunity view just it, adding levers bullish to meaningful. as So is different there's the I

Chad Vanacore

that general the is topic, payments? an presumably I'm more which question impacts covered. Alright, ask hip how are and going most to about so even Medicare on Have knee you thought replacements government granular

Eric Evans

Yes.

certainly we very Eric. costs mean making is implant that So appropriately on reimbursement are pressure and that put those under sure lot for think and for focused a are this looking there we is fair covered clearly that at I revenue of prepared yes, Medicare what amount it growth, a good will so when about us margins. is the meaningful we've is because ASC setting, looks of opportunity efforts just on news like, you The that got in pretty acuity the way. very,

we mix clearly that. earn have business, feel but we and some it's confident make commercial accretive can to work, an with take do going that We some to

how earn really in that as idea so see fair it deep make something tremendous our right, make deals of is go job a But gain we efforts, very, here the to and very it got volume that we preference have physician as we you in as they you're these a and that a particularly and how and sense cost. know the our vendors our implants, opportunity. to manage you give items believe mix we be type on through is all of you with it’s we prepare deal we and lot all business for surgeons, And on total, your for the precise

Wayne DeVeydt

consistently reminder, pressure still very you years tell cash five margins, It You but business, would the flow we growth. return margin positive invested some from know put expansion that, so is very with margin perspective our over good will on even and and year. this every know a a next on very I expect strong well still business, EBITDA it's capital lower you

Chad Vanacore

rate compared double large X% rate know just to X% renegotiations to the I get then hear and of increase? right; the want for digit fourth why to rates you and quarter. Alright, say target your Did on such to then that you a got I

Tom Cowhey

play is, hear down you value So, really look yes, correctly. Two the first in answer to the did that is, came it a market.

and think as driven that prove as we'll team, available decision I I a of think to we're always been said, data our investors making. management to Eric data our very has and hopefully you continue the readily

we relative we show for out bearing them outpatient was data, we with the in setting, we being have went and to procedures where And done so the an can where get if – and available you ASC you go the and we as this know data, this as rates get, system sanitized, packing simply data health to met with out I market other pull order. the payers can stand it's is we even mean, that understand you can in data

then simply our We with programs, out the is And over maintain meaningful paid in we to create them been and us our markets, show time that for systems believe value. basically facility if of going give had also than many sustainable health it and we can't a steerage so part to alternative, rate. quality saying been meaningful our the us ability underpaid show programs through which model will and an certain years. we've get we’ll We partner grow we rates sustainable business has

to we where the costs So value moving setting, all those structure. to prepared is system health adding I of trends have into cost prefer the and we're for play, move key Their systems happening. them procedures go would a see then payers many we think and this, are have who an see outpatient not health that to are

two in those continue market we're space at to we to right And every use time in. very going happen and be just points, right the the to have in uniquely to leverageable so we're positioned

Eric Evans

of approach, of missed, of you're of facility regional value and managed negotiations individual just when to we that, the given can story side, One the might it’s national state simply or add thing are kind taking create and the market state, broader just telling we've in I region. think that a care we you on one about a a problems when more

negotiating us them local changes reach right, value, think that's payers geography and the move geography, about just that one that help than well how a just a but – positioning our our the place story, the location, also not to and approach do for in down and and ability unit help markets and is the the we're cost, create in more on, forward. help as as can how in of costs That think different realize broad us them we the kind drive I scale across certain we changes I of system about over actually but meaningfully course a

Chad Vanacore

Alright, I'm going more in to sneak question. one

growth digit implied FY double that by how be maintaining ramp much be much you from ramp expect XQ, strength this do by steep typical of for outlook revenue increase margin seasonal in driven is that to what So above how would improvement? 'XX, and

Tom Cowhey

the appreciate I So question.

level Just things some high to in keep mind.

very assets the in some divested last so that in course and seasonality those actually that's in of of our their QX. QX assets of year, lumpy divestitures had some year from this here and money in benefited we they were sense EBITDA not those as Just lost

you you the not start by losses just million So is me you've several what of simply that. seen by as adjust there a sense a historically recurred dollar little let far more just probably in if pickup as that for are not that QX, having seasonality saying patterns which gives off

you through the tell I meaningful not of QX. rate side, seasonality in revenue coming, that the and the we have it's meaningful your heavier engaged that a with we've doctors a only 'XX historically probably those earlier, in usually doctor ramp that from both gets seen would you negotiations, on know lift up pretty plus 'XX, mentioned the facilities, hired how but of as pretty patterns, all I those gets

coming benefits to changes day. made each plans leverage more is schedule said, physicians weighted commercial and look they our value positive we That generally somewhat G&A have and QX continue from RCM QX and we procedures in typically heavier and our their that. I many benefit the it's expect being would heavy around intentional health toward are so through a on how we design benefits say

but top I see improvement, So you'll both strong margin line. you'll see I think think

Chad Vanacore

Alright, that's it me. for Thanks.

Wayne DeVeydt

Thanks Chad.

Operator

of with Jefferies. comes the Please from with question next line proceed question. Tanquilut Our your Brian

Brian Tanquilut

about up just from you're or maybe Dorian alluded the you're Chad's is shifting last Hey, should QX, with at to we can guess my think with like least qualitatively good in or what expecting, on us just confident anything question there feel comfortable volume follow morning first I share of as I you terms with question, to? guys. you of QX revenue how that seeing, ramp because

Wayne DeVeydt

fourth I to trying again, have items year that there loaded quarter expected, saying insights were by think comfortable to get our with with. let so Yes, we the initiatives due benefits that that, start many we that last you of obviously me the one-time for are Brian that were coupled

when being said, that lose. you as That you Hurricane a know day Dorian happened, it's

days happened. know October to some but back And of to seems would be don’t recover is the the has you that at those just that to least that you'll indicating what I fourth get say schedule into quarter. rescheduled hope is, You have procedures, those

done our not books. Now we're closing

October We very facilities that have in those a strong budget. view would our all I on versus case be when we appeared were affected our expectations original generally well to built but and volume, performing say

pretty you I on of as the So think today good we feel know volume.

biggest You know our commercial it lift is know does mix occur, I book meaningful especially because in pretty like think board the shift commercial down comes we historically the we've thing the in we really mix, rate the had across and seen quarter. in the

the our was is say going commitment quarter. that felt and more I pull to we have be if come, could growth there it's any pressure still digit double to think there, So we I but levers to would many we in

Brian Tanquilut

a think shifting well. gears of the new to lot knee comment. debates I one a the what the this is of right of that as total mean as replacement opportunity, Wayne, the is key payers whole right. kind appreciate area reimbursement, obviously about I is for I

the the hospitals you averaging think are conversation replacements? as point guys as of about industry. that ASC starting is Is XX% knee an mentioned at the So economics what total cheaper you than of we

Wayne DeVeydt

look its So $X,XXX. if they proposed, what first of all, at I you think

Tom Cowhey

of North $X,XXX.

Wayne DeVeydt

is what $X,XXX of north proposed. Just they

innovative happens number can we've it in this out. what make all becomes can't as we that. a Keep years with a they somehow believed and heard for figures facilities know business, mind, fall-outs everybody Medicare, typically and we've money and think You return government environment the in Medicaid reasonable industry and is this as cries looked I on on our of at then earn

And actually so welcome of a at these that we I ways stake ground in you would the in just simply the tell rates. lot

and think was to and I like to Of we'll to we be model manage more? we of because Eric confidence have business would how tell our effort contracts team The around what and environment. procurement well but core we the to that can we're a our do would, is course, that's be fine. there, our costs, paid our structure, us where be cost this, in implant pretty issue and that you doing we built be going fixed Would continue gives just do like leverage efficient we substantial that

a or not to us. we're upside to a facility, market only nothing able particular if this, this we And particular in remember from lose is

in know feel how you I got spot right a the at optionality play. we're we've lot of like right want on So the time we to and

you to add? want anything Eric,

Eric Evans

Yes.

Brian The other there that I thing is I would what's add think interesting.

to So and they the large you on between pretty it's in they Medicare focusing today pay spend know it's what really and so in creation, and the our time obviously pay payers. value is we lower talk what typically one payers, our we interesting. what facilities gap is When commercial of could the

cover to outpatient ASC we and investment helps As are to rate making starting the make they that the probably pay the to ‘hey, sure implant on attract a look that payers an helps cover, docs this, realizing better are at side setting.’ they're

those investments Making is win for still huge a them.

the is rate while and on to and because do play they so over And is whether advantage the I right. pressure moves sustainable actually out expect, side, it Medicare of we gap, enough really think is yes, want there business, have take some what that kind huge it of time, will they

can well value as get the eventually trying to it paid that their large opportunity make will create, and I is, or our huge so capture $XX,XXX So see it's they see as tell some payer are large, a they job and number savings to $X,XXX we is sure we side, spot. of and the that find fairly on we that win. go to that whatever or whether they you so

these changes and you having the is what, saying would dialog. that a lot probably just should procedures a I Wayne know the with stake of the outpatient ground, place in agree be certainly

Wayne DeVeydt

to one on thing going that. just I'm to Brian, add

rates achieve we procedures, and we where the is of a bringing still about to lower got are are non-core utilize here, ramp You has make it. result. way that we we're think the you to about more know that's and the I end can this end has versus we right XXXX make cautious this positive the not and filling am an we in why actively to managing very that to money, otherwise simple This part making that right. might volume that's be that procedures want but or got marginal that and be dollars and reason to space think And about [ph], contribution I we sure as also believe thinking

Brian Tanquilut

Falls, lot remarks. That that I from about you sense. question, your makes that of How ramp the in about a should the Idaho as drag in XXXX think prepared My mentioned or Tom, I EBITDA? last on think

Tom Cowhey

in cost. drag highlighted XXXX is we've every to done for investors. excluded from we've going this year, EBITDA be that So as to going what a be adjusted as EBITDA quarter start-up And is

obviously XXXX it You at will be in could think the quarter. million be a $XX facility fourth hit as what the in look lot from zip as we will be of a we – and plus an that same that that with know EBITDA opens, I and code it occurring of drag lot just next year

Wayne DeVeydt

new a our hospitals, already, this in for a a hospital we market, has one that number has this every turnaround it's expect in to throw our never you drag a with through strong here hospital build while, goes new hospital position opened expect But in the of of ramp. it quick And period I that given strong thing I've in having we going I'll will our market to context time be hospital, new even obviously and given relatively to value position, it a the go a tell It's a be for year only the but positive. always, seen there, so.

Tom Cowhey

consciously going a quickly with want to in tell yeoman's see looks getting to want out being of in there, like get give want in right effort play whose to this see it like. know But variables done how to what when We to cautious what now it the real the could it's you like Brian, licensed projections stage. it right and look or it – lot now, this and quickly this a And I'm facility want work how there's what I we what for – team looks trajectory the see we you like we opens, and next looks to because ramp any before year. we baseline gets

Brian Tanquilut

Alright, thanks guys.

Operator

with comes question next line the Please Our Frank of with from your Morgan RBC. question. proceed

Frank Morgan

for a be those Falls think your calculations. that is get leverage with I two on leased, just second. of correct? does going losses regard you I'm is stick excluded Good start-up And I'll your calculations those to in but morning. facility terms with assuming that number the covenants, in from the – remind Idaho me, Would covenant to facilities,

you in terms market of what color second opportunity, the just the mentioned in that could capital little any just And you more a opportunity. as there Thanks. Montana how the I'd then question, think you XXXX? in deployment bit more required see color on that and contribute like in the detail EBITDA much

Tom Cowhey

when the Trust can. I we parking me start we building Montana with and and in to that be our take will for the construct essentially lease vast let as take the But estimate that as facility, $XXX the was on Yes, we but then the will it for about possession. or We Idaho, show or accounted can of current interest a Medical of possession Wayne is that and a majority that once be answer plus garage have debt enough minus. obviously payment, kind need Idaho, so yes, will calculations Properties will new in payment for schedule us to it up the million finalize financing that lease,

the in pretty of fourth facility very we drawn And quarter attractive will place in and fully we just that don't Idaho we forget, to have new mean, million then for so as you put to will close outfit for be in well. be equipment, facility the a that help I that know that facility. that that we $XX as do the have facility, shy expect

essentially The as and interpretation projections, we've when it; those debt to trying contribution losses, our you credit balance to a you're the – matching we that we're what on the in, how principle, you so given we're current type but having is, we excluded, sense the the better is losses next course from be trying is are agreement few years. to we're you the give you're sheet, to debt what put of taking as eligible because the quarter. it's benchmarks to opportunity that exactly to your as But the fourth expecting over finalize give a least at that sense the we'll of report of some the as

Wayne DeVeydt

And it will deleveraging. be

Tom Cowhey

Yes.

Wayne DeVeydt

system, XXX-year if a were we owner there. of to a a is And also just the the already, little a majority yes, the then a have there experience This it's hospital market. we you ASC so where bit Talk] little we a was in Idaho plus of were Relative an Falls bit and in of [Cross lot background history, clinic. already market physician in owner clinic the have

well market. very established a it's So

ecosystem, more some for the could going really There in saw building as that did Idaho one ownership what to broader start really so doctors you we that a to was lot unique syndicate. we saw so opportunities that similar a some market. that this syndicate thought we like a Falls, step we the would we could in we were in get hospitals, where opportunity we the us deploy, growth to probably of to and know And more especially

with then full allows get HOPD over ASC, Also to rates the took we which campus. is it since ownership the on us

to And synergies so would start able value. some, call, is will driving what there that hanging low I be

AC of Now, ramp do, meaningful up, some – different of in that rate different We requires facility the be run you'll the real value equipment we in HOPD the next EBITDA because of have to will XXXX. full-year preparing but to value the year will for see get the just growth, things start that obviously kind there's do.

capital the executing outlay think deploy improvements cash too, on our year, – plans and you'll being I think to that already so just It's much year. really next we're the and flow do capital don't and I we've more and we this see going. going and That into committed done already it's just we've rather so said, had where

don't get good bet plus low syndicate, got similar hospital available we’d outlay let's our some to you the Future cash for Idaho go some I fruit are syndicate. that that hanging the We've to the the like synergies good really and do good us. more we is, we if but be starting up, get in flow first strong Falls, rates think in would be got that something that We've and next start a will this know story of physicians we'll value think retain ramp to of pieces we both year, owning full that the a we market.

Frank Morgan

Okay, thank you.

Operator

of Please Our Whit final question your question. Mayo the with with line comes proceed from UBS.

Whit Mayo

three revenue cycle, Wayne wanted question. the I go to with stick just that strategic I'll procurement, to initiatives discussed; thanks. Hey, back one G&A.

have there I to cost are sure time. some make new maybe changed? I'm opportunities? opportunities? finding called specifically out just wondering areas opportunities want just been within I these think the initiatives that Are what's that these Are I'm for you appropriately? three processing

Wayne DeVeydt

in and would company start say and is we're this far right initiatives let Whit, opportunity. mean analogy of inning from baseball so are nine capable a Yes with give the first easiest three the we can the me inning is all game I I of of I third you what doing.

last procurement recognize despite that no facilities, XXX was year, reminder plus first team it's year joined, function. to just new when as a the management know the important You centralized there this

fruit, a a of all low to hanging what's moving so took rates, centralized establishing that's company happened. and of that contracted out And expect would new scale. so and time, giving you procurement facilities across our function, a size but just things the Rolling GPO,

to Now simply the we're leveraging We scale. better kind we even evolution, do very moving due preferred of were or is hadn't know to to implants pricing lack of we simplification okay, which – preferred you of just moved now pricing. getting a just how get

next hanging that would round in new of on that of are have XX And constantly say low short that so the fruit procurement us of kind we just I front, the are nothing after. of initiatives front we're going

that platforms. a had actually and so reminder different the On as RCM claims The in the submitting so consolidation systems, practices actually true divergent ability RCM many to completely by lack front, we're of hindered ways. was of out management we best many go put in

on warehouse, of and then platform, it. know Last the of take a then actions now and we this claims XX% you consistently actually last we our and with that through through the end year, year, clearinghouse processing year, over single data on got claims facilities, early can processing all

after. so year execution opportunities. hanging fruit investment very that opening you this execution, just it was year, but going the would the low starts tell the our we've year, And and more Last I year more even was again, on been to eyes

those through XX had a year. for imagine the right. plan. thing RCM, year it I if procurement the had we creations front, in was. value same And company curve the on that you last We made different then and can plans on Obviously was transition on maturity this read what benefit last was finally that we mean, no health year centralized G&A come self-insured, we

can Now we more get design. creative benefit and

in I innings. we're those in third early and two say this we're still evolution inning would in I'd is of to three so innings years in, but we're always there in the we now that opportunity, the go arenas. got say like six just still And very and another

Whit Mayo

helpful. Great, that was

Wayne DeVeydt

now. Thanks last for months, everybody's months for thanks this XX really know been question, and the interesting I today. almost an has journey, the XX time

take the So we've going been where of out company. were kind to we laying

a been Day, and plan about asset. year exciting a hosting you very at. we're of outlook we're progress an with building where We share about as next year. in the excited more team give excited things we've and know We're which I lot five management more to this even IR really information will publish platform regarding a doing

a though, be physicians Before I feel to for improving and X,XXX affordable of healthcare we more in I want to this plus their and call our able to moment participate privileged XX,XXX our contributions. conclude plus for associates thank take Americans. I making to our it do journey know

across physician for every there. employee each surgical against U.S., As of efforts and preferred to that our partner the we operating Partners become gets it really us execute facilities daily the goal the is stay short and Surgery

for Thanks call day. this and a joining our have morning great

Operator

teleconference. does Ladies and gentlemen, today’s this conclude

you You day! may your a lines time. your participation disconnect at and this wonderful for Thank have

Surgery Partners (SGRY) 6 Nov 192019 Q3 Earnings call transcript