Surgery Partners, Inc. Q3 FY2024 earnings call

• Financial results: Net revenue of $770 million, up over 14% y-o-y; same-facility net revenues grew 4.2% with 3.7% surgical case volume growth; adjusted EBITDA $128.6 million, up 22% with 16.7% margin. • Hurricane impact: Affected facilities in Florida, Georgia, North Carolina; all facilities reopened but some have limited volume. • M&A: Deployed $24 million on five end market transactions in Q3; completed acquisition of two leading multi-specialty orthopedic focused ASCs in Chicago with Duly Health. • Recruitment: Over 230 new physicians started utilizing facilities in Q3; total recruits for first three quarters of year over 640. • Operating margins: Improved 100 basis points to 16.7% due to procurement and operating efficiency initiatives.

Net revenue for the third quarter was $770 million, representing growth of greater than 14% over the prior year quarter. On a same-facility basis, net revenues grew 4.2% with surgical case volume growth in the quarter at 3.7%. Adjusted EBITDA grew 22% to $128.6 million, generating adjusted EBITDA margins of 16.7%, expanding 100 basis points as compared to the prior year quarter. Total joint replacements in our ASCs increased 53% in the third quarter. Year-to-date, nearly 194,000 MSK-related procedures were performed, representing 21% growth over last year.

• Project full year net revenue and adjusted EBITDA outlook of greater than $3.075 billion and $508 million, respectively. • Represents at least 13% and 16% growth in net revenue and adjusted EBITDA, respectively, as compared to the prior year.

• Hurricane Helene and Milton impacted scheduling of cases and caused some facility damage. • Supply chain issues like IV bags, but mitigated by inventory and partnerships. • Potential payer dynamics and regulatory changes, including those related to Medicare ASC payments and acute care hospital exchanges.

Q: From Brian Tanquilut with Jefferies on free cash flow.

A: Dave and Wayne discuss cash flow generation, M&A deployment impact, and working capital components.

Q: From Joanna Gajuk with Bank of America on hurricane impact on volumes.

A: Dave notes marginal impact on Q3 and Q4 volumes due to hurricanes.

Q: From A.J. Rice with UBS on volume and pricing shift to higher acuity.

A: Wayne and Eric discuss higher acuity procedures having more OR time and higher dollar contribution.

Q: From Andrew Mok with Barclays on free cash flow expectations.

A: Wayne explains dynamic nature of cash flow modeling due to M&A deployment.

Q: From Tao Qiu with Stifel on Medicare ASC payment rule.

A: Eric comments on Medicare update and minimal changes to procedure list.

Q: From Unidentified Analyst on physician recruitment.

A: Eric discusses recruitment momentum and compounding growth of recruited physicians.

Q: From Sarah James with Cantor Fitzgerald on revenue per case.

A: Dave explains same-facility rate growth and normalization over longer term.

Q: From Bill Sutherland with The Benchmark Company on cardio procedures.

A: Eric talks about growth potential of cardio procedures in ASCs.

Q: From Benjamin Rossi with JPMorgan on M&A capital deployment.

A: Eric discusses opportunistic approach to M&A and buy-up opportunities.

Q: From Will Spivack on physician recruitment preferences.

A: Eric notes stable physician interest due to efficiency and independence benefits