Q1 2024 Surgery Partners Inc Earnings Call

May 7, 2024

Greetings and welcome to surgery partners first quarter 'twenty 'twenty four earnings call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star two.

Operator: Greetings. Welcome to Surgery Partners' First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Dave Doherty, CFO. Thank you. You may begin. Good morning.

Zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Dave Doherty CFO. Thank you you may begin.

David T. Doherty: Good morning. My name is Dave Doherty, CFO of Surgery Partners. I am joined today by Eric Evans, our CEO, and Wayne DeVeyt, our Executive Chairman. During this call, we will make forward-looking statements. There are risk factors that can cause future results to be materially different from these statements. These risk factors are described in this morning's press release and the reports we filed with the SEC, each of which is available on our website, surgerypartners.com.

David T. Doherty: Good morning, My name is Dave Doherty CFO of surgery partners I am joined today by Eric Evans, our CEO and Wayne <unk>, our executive Chairman.

David T. Doherty: During this call we will make forward looking statements there are risk factors that could cause future results to be materially different from these statements. These risk factors are described in this morning's press release and the reports we filed with the SEC each of which are available on our website surgery partners dotcom.

David T. Doherty: The company does not undertake any duty to update these forward-looking statements. In addition, we will reference certain financial measures that are considered non-GAAP, which we believe can be useful in evaluating our performance. The presentation of this information should not be considered in isolation or as a substitute for results prepared in accordance with CAHPS. These measures are reconciled to the most applicable gap measure in this morning's press release. With that, I will turn the call over to Wayne.

David T. Doherty: The company does not undertake any duty to update these forward looking statements.

David T. Doherty: In addition, we will reference certain financial measures that are considered non-GAAP, which we believe can be useful in evaluating our performance. The presentation of this information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

David T. Doherty: These measures are reconciled to the most applicable GAAP measure in this morning's press release with that I will turn the call over to Wayne Wayne.

Wayne: Thank you Dave Good morning, and thank you all for joining us today.

Wayne Scott DeVeydt: Thank you Dave, good morning, and thank you all for joining us today. My initial comments will briefly highlight our consolidated first quarter results and the strength we continue to see in our long-term growth algorithm as it relates to both our organic and capital deployment initiatives. I will then provide a brief update on our recent acquisition activity and refreshed outlook for the remainder of the year before I hand over the call to Eric and Dave.

Wayne: My initial comments will briefly highlight our consolidated first quarter results and the strength, we continue to see in our long term growth algorithm as it relates to both our organic and capital deployment initiatives I.

Wayne: I will then provide a brief update on our recent acquisition activity and refreshed outlook for the remainder of the year before I hand over the call to Eric and Dave.

Wayne Scott DeVeydt: They'll provide additional insights into our operating and financial performance for the quarter, along with recent activities to further strengthen our balance sheet and support our long-term mid-teens growth goals. Now, turning to our first quarter results. We reported net revenue of approximately $717 million, representing growth of 7.7% over the prior year quarter. On a same-facility basis, net revenues grew 10.2% as compared to the comparable period, representing a combination of both case and net revenue per case growth. Adjusted EBITDA was $97.5 million, representing 8.2% growth over the prior year quarter, with adjusted EBITDA margins improving in the quarter by 10 basis points to 13.6%.

Speaker Change: They will provide additional insights into our operating and financial performance for the quarter along with recent activities to further strengthen our balance sheet and support our long term mid teens growth goals.

Speaker Change: Turning to our first quarter results were.

Speaker Change: We reported net revenue of approximately $717 million representing growth of seven 7% over the prior year quarter.

Speaker Change: On a same facility basis net revenues grew 10, 2% as compared to the comparable period, representing a combination of both case and net revenue per case growth.

Speaker Change: Adjusted EBITDA was $97 $5 million, representing eight 2% growth over the prior year quarter with adjusted EBITDA margins improving in the quarter by 10 basis points to 13, 6%.

Wayne Scott DeVeydt: Finally, our efforts to pursue higher-acuity procedures continue to produce strong results, with total joint replacements increasing by 54% over the first quarter of 2023. Eric will provide additional insights into our physician recruitment and total joint expansion programs, along with our early success in targeting orthopedic surgeons specializing in total shoulder procedures, which were removed from the inpatient only list starting January 1st of this year. We continue to be extremely pleased with our same facility growth and the expected long-term sustainability of our organic top line and margin expanse and growth goals. As previously stated, our short-stay surgical facilities have been purpose-built to capture the macro tailwinds of both an aging population and the increased movement of higher acuity procedures into a purpose-built outpatient setting.

Speaker Change: Finally, our efforts to pursue higher acuity procedures continued to produce strong results with total joint replacements, increasing by 54% over the first quarter of 2023.

Speaker Change: Eric will provide additional insights into our physician recruitment and total joint expansion programs along with our early success in targeting orthopedic surgeons specializing in total shoulder procedures, which were removed from the inpatient only list starting January 1st of this year.

Speaker Change: We continue to be extremely pleased with our same facility growth and the expected long term sustainability of our organic top line and margin expansion growth goals. As previously stated our short stay surgical facilities have been purpose built to capture the macro tailwind of both an aging population and the increased movement of higher acuity.

Speaker Change: Procedures into a purpose built outpatient setting.

Wayne Scott DeVeydt: We believe our results reflect the strength and durability of our business model as we pursue this highly fragmented segment, which currently consists of over 6,000 ambulatory surgical facilities and an estimated $150 billion total addressable market, representing both current and expected surgical procedures to be performed in an outpatient setting in the coming years. Moving to our capital deployment activities, We maintained our disciplined approach to sourcing and executing on strategically important acquisitions at Attractive Multi.

Speaker Change: We believe our results reflect the strength and durability of our business model as we pursue this highly fragmented segment, which currently consists of over 6000 ambulatory surgical facilities and an estimated $150 billion total addressable market, representing both current and expected surgical procedures to be performed in an outpatient.

Speaker Change: <unk> setting in the coming years.

Speaker Change: Moving to our capital deployment activities.

Speaker Change: We maintained our disciplined approach to sourcing and executing on strategically important acquisitions at attractive multiples as.

Wayne Scott DeVeydt: As a reminder, we previously completed a $60 million transaction in early January that we had initially targeted closing in the fourth quarter of 2023. Since that time, we've maintained a robust pipeline and anticipate closing an additional $200 to $250 million in acquisitions in the second quarter of this year, with the low end of that range having closed on April 30th. This level of deployment reflects both an annual targeted goal of at least $200 million, along with the redeployment of the remaining net proceeds from assets divested in 2023.

Speaker Change: As a reminder, we previously completed a 60 million dollar transaction in early January that we had initially targeted closing in the fourth quarter of 2023 since that time, we've maintained a robust pipeline and anticipate closing an additional $200 million to $250 million in acquisitions in the second quarter of this year with the <unk>.

Speaker Change: Low end of that range, having closed on April 30th.

Speaker Change: This level of deployment reflects bolt in annual targeted goal of at least $200 million along with the redeployment of the remaining net proceeds from assets divested in 2023.

Speaker Change: Our business development team continues to source, a robust pipeline of acquisition and de Novo investment opportunities and we believe the capital deployment aspects of our growth algorithm remains predictable and executable.

Wayne Scott DeVeydt: Our business development team continues to source a robust pipeline of acquisition and de novo investment opportunities, and we believe the capital deployment aspects of our growth algorithm remain predictable and executable. Before I turn the call over to Eric, let me provide a brief update on our outlook for the remainder of 2024. Based on our strong organic performance in the first quarter and the timing of our recently completed acquisitions, we are increasing our full-year net revenue and adjusted EBITDA outlook to at least $3.05 billion and $505 million, respectively.

Speaker Change: Before I turn the call over to Eric Let me provide a brief update on our outlook for the remainder of 2024.

Speaker Change: Based on our strong organic performance in the first quarter and the timing of our recently completed acquisitions, we are increasing full year net revenue and adjusted EBITDA outlook to at least $3.05 billion and $505 million respectively.

Wayne Scott DeVeydt: This refreshed outlook represents at least 11% and 15% growth in net revenue and adjusted EBITDA, respectively, as compared to the prior year, and balances our optimism for the company's growth with an appropriate amount of conservatism. We look forward to updating you on our progress as the year unfolds. With that, let me turn the call over to Eric to provide additional insights for the quarter.

Speaker Change: This refreshed outlook represents at least 11% and 15% growth in net revenue and adjusted EBITDA, respectively as compared to the prior year and balances our optimism for the company's growth with an appropriate amount of conservatism.

Speaker Change: We look forward to updating you on our progress as the year unfolds with that let me turn the call over to Eric to provide additional insights for the quarter Eric.

Eric Evans: Thanks, Dwayne and good morning, everyone. The startup 'twenty 'twenty four for surgery partners has been productive and our results continue to demonstrate the outsized demand for purpose built short stay surgical facilities that offer a safe high quality and high value experience for both patients and physicians importantly for our investors and based on <unk>.

Eric Evans: Thanks, Wayne, and good morning, everyone. The start of 2024 for Surgery Partners has been productive, and our results continue to demonstrate the outsized demand for purpose-built, short-stay surgical facilities that offer a safe, high-quality, and high-value experience for both patients and physicians. Importantly for our investors and based on current and past performance, our growth remains consistent and predictable, in line or better than our internal expectations. As Wayne mentioned, all aspects of our mid-teens growth algorithm continue to deliver. Diving deeper into our results,

Eric Evans: Same facility net revenue growth was 10.2% in the first quarter and represented both case and net revenue per case growth of 1.3% and 8.8%, respectively. We continue to put increased focus on both physician recruitment activities and higher acuity procedures that would benefit from an enhanced patient and physician experience associated with our purpose-built short-stay surgical facilities. On the physician recruitment front, we added over 200 positions in the quarter, slightly higher than our historic run rate, and our 2024 recruitment class has revenue per case that is 25% higher than the class of 2023.

Eric Evans: Current and past performance, our growth remains consistent and predictable inline or better than our internal expectations.

Speaker Change: As Wayne mentioned, all aspects of our mid teens growth algorithm continued to deliver.

Speaker Change: Diving deeper into our results same facility net revenue growth was 10, 2% in the first quarter and represented both case and net revenue per case growth of 1.3% and eight 8% respectively.

Speaker Change: Continue to put increased focus on both physician recruitment activities and higher acuity procedures that would benefit from an enhanced patient and physician experience associated with our purpose build short stay surgical facilities.

Speaker Change: On the physician recruitment, Brian we added over 200 positions in the quarter slightly higher than our historic run rate and our 'twenty 'twenty four recruitment class has a revenue per case that is 25% higher than the class of 2023.

Eric Evans: That is partially impacted by the growth of orthopedic surgeons that specialize in higher-acuity total joints, including shoulder procedures, which represented approximately one third of our first quarter recruitment class. Additionally, as we have previously stated, each of our recruiting cohorts continue to drive strong, compounding year-over-year growth, with our 2023 class performing 134% more cases in the first quarter of 2024 as compared to their initial quarter in 2023. Our recruitment activities have continued to fuel our growth, especially in musculoskeletal, with over 61,000 MSK-related procedures performed in the first quarter of 2024, representing 14% growth over the prior year quarter.

Speaker Change: That is partially impacted by the growth of orthopedic surgeons that specialize in higher acuity total joints, including shoulder procedures, which represented approximately one third of our first quarter recruitment class.

Speaker Change: Additionally, as we have previously stated each of our recruiting cohorts continue to drive strong compounding year over year growth with our 2023 class performing 134% more cases in the first quarter of 2024 as compared to their initial quarter in 2023.

Speaker Change: Our recruitment activities have continued to fuel our growth, especially in musculoskeletal with over 61000 M. S. K related procedures performed in the first quarter of 2024, representing 14% growth over the prior year quarter.

Eric Evans: More importantly, total joint cases in our ASCs continue to grow at a disproportionate rate, which saw a 54% increase in case volume as compared to the prior year quarter and a 90% compound annual growth rate since 2019. On a consolidated basis, our specialty case mix and volumes were in line with our expectations, with over 153,000 consolidated surgical cases in the quarter, with particular focus on our high-acuity business.

Speaker Change: More importantly, total joint bases in our ASC has continued to grow at a disproportionate rate, which saw a 54% increase in case volume as compared to the prior year quarter, and a 90% compound annual growth rate since 2019 on a consolidated basis, our specialty case mix and volumes were in line with our expectations with over 100 and.

Speaker Change: 53000, consolidated surgical cases in the quarter with particular focus in our high acuity business lines.

Eric Evans: To put a finer point on this, while all our specialties have recovered from the pandemic with strong growth rates, in aggregate, our first quarter case volume has a compound annual growth rate since 2019 of just over 4%, with growth of over 6% in orthopedics. Our unique partnership model and our approach to enabling our physician partners' independence and strong community reputation allows us to naturally benefit from the continued shift of care to our safe, high-quality, and cost-effective facilities.

Speaker Change: To put a finer point on this well all of our specialties have recovered from the pandemic with strong growth rates in aggregate. Our first quarter case volume has account compound annual growth rate since 2019 of just over 4% with growth of over 6% in orthopedics.

Speaker Change: Our unique partnership model and our approach to enabling our physician partners independence and strong community reputation allows us to naturally benefit from the continued side of care shipped to our safe high quality and cost effective facilities we.

Eric Evans: We work every day to bring the benefits of a professional-scale management company while keeping the invaluable local feel and connection that differentiates our surgical facility. This approach preserves the strong reputation that our partners have earned, allowing them to focus on their patients, knowing their preferences and input will remain an integral part of the facility that they have helped build.

Speaker Change: We work every day to bring the benefits of the professionals scaled management company, while keeping the invaluable local appeal in connection that differentiate our surgical facilities.

Speaker Change: This approach preserves the strong reputation of our partners have earned allowing them to focus on their patients knowing their preferences and input will remain an integral part of the facility that they have helped build.

Eric Evans: Together, our partners win, our payers win, and most importantly, our patients get the best care possible for their surgical care needs. When this happens, we deliver consistent, high-quality results, as we have done over the past five-plus years, despite managing through a global pandemic and a challenging inflationary macro environment. Moving to operating. As Wayne mentioned, our operating margins improved in the quarter by 10 basis points to 13.6%. Our operating margin improvements reflect both our ongoing procurement and revenue cycle initiatives that continue to benefit from our increasing scale, along with synergies achieved on our previously acquired facilities. We expect margins to improve throughout the remainder of the year, consistent with historical earning patterns.

Speaker Change: Together, our partners win are payers win and most importantly, our patients get the best care possible for their surgical care needs. When this happens we deliver consistent high quality results as we have done over the past five plus years, despite managing through a global pandemic and a challenging inflationary macro environment.

Speaker Change: Moving to operating margins as Wayne mentioned, our operating margins improved in the quarter by 10 basis points to 13, 6%.

Speaker Change: Our operating margin improvements reflect both our ongoing procurement and revenue cycle initiatives that continue to benefit from our increasing scale along with synergies achieved on our previously acquired facilities, we expect margins to improve throughout the remainder of the year consistent with historical earning patterns.

Eric Evans: Finally, diving deeper into our Capital Deployment. As Wayne discussed, we continue to have a robust pipeline of opportunities and expect to deploy over $200 million in the second quarter of 2024. We closed on the majority of our targeted acquisitions on April 30th, representing five different transactions, including a large system acquisition that includes a specialty surgical hospital, ambulatory surgical center, and related physician practices.

Speaker Change: Finally diving deeper into our capital deployment activities as Wayne discussed we continue to have a robust pipeline of opportunities and expect to deploy over $200 million in the second quarter of 'twenty 'twenty four we.

Speaker Change: We closed on the majority of our targeted acquisitions on April 30th representing five different transactions, including a large system acquisition that includes a specialty surgical hospital ambulatory surgical center and related physician practices. We are excited about partnering with the physicians in this market, which is in a region, we know quite well these.

Eric Evans: We are excited about partnering with the physicians in this market, which is in a region we know quite well. These acquisitions, which increase our multi-specialty capacity, are rapidly being integrated into our operations and are expected to yield further earnings from our operating system synergies in the first 12 to 18 months post-closing. I'm the DeNoble.

Speaker Change: These acquisitions, which increased our multi specialty capacity are rapidly being integrated into our operations and are expected to yield further earnings from our operating system synergies in the first 12 months to 18 months post closing.

Speaker Change: On the de Novo front since 2019, we have opened 11, new ASC facilities and have 11 fully syndicated de novo's under construction. Many of these projects are slated to open in 2024 and early 2025. These facilities include consolidated and minority interests Ownerships and are primarily multi specialty with a concentration in orthopedics.

Eric Evans: Since 2019, we have opened 11 new ASC facilities and have 11 fully syndicated DeNovo's under construction. Many of these projects are slated to open in 2024 and early 2025. These facilities include consolidated and minority interest ownership and are primarily multi-specialty with a concentration in orthopedics.

Speaker Change: In closing I'm proud of our management team and our many talented physician partners and colleagues for effectively managing through inflationary labor and supply pressures over the past few years, while delivering a superior patient experience with high clinical quality.

David T. Doherty: In closing, I'm proud of our management team and our many talented physician partners and colleagues for effectively managing through inflationary labor and supply pressures over the past few years while delivering a superior patient experience with high clinical quality. With inflationary pressures largely abated, coupled with how well our teams are effectively executing on our initiatives across business development, recruiting, managed care, procurement, revenue cycle, and operations, we are confident that we will achieve our updated 2024 goals.

Speaker Change: Inflationary pressures largely abated, coupled with how well our teams are effectively executing on our initiatives across the business development recruiting managed care procurement revenue cycle and operations. We are confident that we will achieve our updated 2024 goals.

David T. Doherty: More than ever, our company provides a cost-efficient, high-quality, patient-centered environment and purpose-built short-stay surgical facilities that provide meaningful value to all of our key stakeholders. The desire and need to move more procedures to our care setting have never been greater, and our company is positioned to deliver industry-leading growth associated with these tailwinds. This, coupled with an existing and growing pipeline and a talented, deep, and experienced leadership team, provides further optimism for long-term sustainable mid-teens adjusted to EBITDA growth. With that, I will now turn the call over to Dave to provide additional color on our financial results, as well as our updated outlook for 2024. Dave?

Speaker Change: More than ever our company provide a cost efficient high quality and patient centered environment and purpose built short stay surgical facilities that provide meaningful value to all of our key stakeholders, the desire and need to move more procedures to our care setting has never been greater and our company is positioned to deliver industry leading growth associated with these tailwind.

Speaker Change: This coupled with an existing and growing even in a pipeline and a talented deep and experienced leadership team provides further optimism for long term sustainable mid teens adjusted EBIT growth.

Speaker Change: With that I will now turn the call over to Dave to provide additional color on our financial results as well as our updated outlook for 2024 days.

David T. Doherty: Thanks, Eric.

David T. Doherty: Starting with the top line, we performed 153,000 consolidated surgical cases and 178,000 total surgical cases in the first quarter. These cases spanned across all our specialties, with an increasing focus on higher-acuity procedures, which is reflected in our double-digit double-facility revenue growth district. The combined case growth in higher acuity specialties, specific managed care actions, and the continued impact of acquisitions supported revenue growth of 7.7% over last year to $717.4 million, which is overcoming approximately $36 million of revenue headwinds associated with facilities divested in 2023. On a same facility basis, total revenue increased 10.2% in the first quarter. The sustained fertility rate growth was 8.8%.

David T. Doherty: Starting with the top line, we performed 153000 consolidated surgical cases, and 178000 total surgical cases in the first quarter. These cases spanned across all our specialties with an increasing focus on higher acuity procedures, which is reflected in our double digit same facility revenue growth this quarter.

David T. Doherty: The combined case growth in higher acuity specialties specific managed care actions and a continued impact of acquisition supported revenue growth of seven 7% over last year to $717 $4 million.

David T. Doherty: She is overcoming approximately $36 million of revenue headwinds associated with facilities divested in 2023.

David T. Doherty: On a same facility basis total revenue increased 10, 2% in the first quarter.

David T. Doherty: Fatality rate growth was eight 8%.

David T. Doherty: We have seen especially strong rate growth in the back half of 2023 and continuing into 2024, primarily driven by higher acuity procedures, specifically orthopedics and spine. We continue to forecast our SANE facility net revenue growth to exceed our algorithm target of 46% in 2024, with full year SANE facility revenue finishing in the high single-digit range. Our forecast anticipates net revenue being more balanced between rate and volume on an annualized basis, with rate playing a smaller role and volume playing a larger role in the second half of the year.

David T. Doherty: We have seen especially strong rate growth in the back half of 2023 and continuing into 2024, primarily driven by higher acuity procedures.

Speaker Change: Pacific Li Orthopedics and spine.

Speaker Change: We continue to forecast our same facility net revenue growth to exceed our algorithm target of 4% to 6% in 2024 with full year same facility revenue, finishing in the high single digit range, our forecast anticipates net revenue being more balanced between rate and volume on an annual.

Speaker Change: <unk> basis with rate playing a smaller role in volume playing a larger role in the second half of the year.

Speaker Change: Adjusted EBITDA was $97 $5 million for the first quarter, giving us a margin of 13, 6% in line with our expectations of continued margin expansion.

David T. Doherty: Adjusted EBITDA was $97.5 million for the first quarter, giving us a margin of 13.6%, in line with our expectations of continued margin expansion. Inflationary pressures related to labor and supply costs continue to abate as we return to a more normalized run rate that provides natural margin expansion as we grow volume.

Speaker Change: Inflationary pressures related to labor and supply cost continue to abate as we returned to a more normalized run rate that provides natural margin expansion as we grow volume.

David T. Doherty: We will remain vigilant in monitoring these factors across our portfolio and expect margins to continue to improve throughout the year with annualized margins improving by at least 50 basis points over a full year of 2020. We ended the quarter with $185 million in cash. When combined with the untapped revolver capacity, we had nearly $800 million in total liquidity. We reported operating cash flows of $40 million in the quarter, which was in line with our expectations. This amount differs somewhat from last year due to the timing of certain events.

Speaker Change: We will remain vigilant in monitoring these factors across our portfolio and expect margins to continue to improve throughout the year with annualized margins improving by at least 50 basis points over full year 2023.

Speaker Change: We ended the quarter with $185 million in cash when combined with the untapped revolver capacity, we had nearly $800 million in total liquidity.

Speaker Change: We reported operating cash flows of $40 million in the quarter, which was in line with our expectation.

Speaker Change: This amount there for somewhat from last year due to the timing of certain events. However, it is in line with our expectations of lower cash generation in the first quarter and supports our continued belief that we will achieve our previously discussed free cash flow goals in 2024.

David T. Doherty: However, it is in line with our expectations of lower cash generation in the first quarter and supports our continued belief that we will achieve our previously discussed free cash flow goals in 2024. The effective interest rate on our corporate debt is 6.3%, fixed through the first quarter of 2025. The company was able to effectively redeem our senior unsecured debt at favorable terms and prices, extending the maturity to 2032. As a result, we now have no debt maturities until 2030.

Speaker Change: The effective interest rate on our corporate debt is six 3% fixed through the first quarter of 2025.

Speaker Change: The company was able to effectively redeem our senior unsecured debt at favorable terms and pricing extending the maturity to 2032.

Speaker Change: We now have no debt maturities until 2030.

David T. Doherty: We also recently entered into interest rate caps that will cap the variable component of our $1.4 billion term loan at 5% starting in the second quarter of 2025. Thus, over the past six months, we have addressed all exposures we had related to financing and interest rate risk through the end of the decade. Accordingly, we have predictability in our interest costs and are not exposed to significant interest rate risks, which are key factors giving us confidence in our free cash flow growth.

Speaker Change: We also recently entered into interest rate caps that will cap the variable component of our $1 $4 billion term loan at 5% starting in the second quarter of 2025.

Speaker Change: Over the past six months, we have addressed all exposures, we had related to financing and interest rate risk through the end of the decade.

Speaker Change: Accordingly, we have predictability in our interest costs and are not exposed to significant interest rate risks, which are key factors, giving us confidence in our free cash flow growth.

David T. Doherty: In the event that the interest rate environment becomes more favorable in the future, we will have an opportunity to capitalize on such improvements. For example, our first quarter ratio of total net debt to EBITDA as calculated under our credit agreement was 3.5%. As a reminder, this ratio will be impacted in the short term based on the timing of acquisitions, but we remain committed to our long-term target of under 3.5 times. In the first quarter, we deployed just over $70 million in acquisitions, including $60 million associated with the previously discussed transaction closed earlier in January.

Speaker Change: In the event that the interest rate environment becomes more favorable in the future. We will have an opportunity to capitalize on such improvements.

Speaker Change: Our first quarter, our ratio of total net debt to EBITDA as calculated under our credit agreement was three five times.

Speaker Change: As a reminder, this ratio will be impacted in the short term based on the timing of acquisitions, but we remain committed to our long term target of sub three five times.

Speaker Change: In the first quarter, we deployed just over $70 million in acquisitions, including $16 million associated with the previously discussed transaction closed earlier in January.

Speaker Change: We also completed additional acquisitions on April 30 of this year, which represented our targeted goal of $200 million in annual capital deployment.

David T. Doherty: We also completed additional acquisitions on April 30th of this year, which represented our targeted goal of $200 million in annual capital deployment. The facilities we invested in are primarily focused on MSK procedures and are well positioned to support and strengthen our same facility growth trends in future years. Carrying the momentum of our first quarter results, we remain optimistic and confident about the company's growth and are raising our outlook for 2024 net revenue to at least $3.05 billion and Adjusted EBITDA to at least $505 million, representing at least 11 and 15 percent growth, respectively, compared to 2023.

Speaker Change: The facilities, we invested in are primarily focused on MSA procedures and are well positioned to support and strengthen our same facility growth trends in future years.

Speaker Change: Carrying the momentum of our first quarter results, we remain optimistic and confident about the companys growth and are raising our outlook for 2024 net revenue to at least $3 <unk> $5 billion.

Speaker Change: And adjusted EBITDA to at least $505 million, representing at least 11% and 15% growth respectively compared to 2023.

David T. Doherty: This guidance implies continued year-over-year margin expansion consistent with our long-term guidance. This updated outlook represents greater than a 14% compound annual growth rate since 2019, emphasizing the resiliency of the business model and demonstrating the power of our long-term growth. Our business has a natural seasonal pattern, largely driven by the number of surgical days and annual deductibles resetting for commercial payers that tend to skew our results lower in the first quarter and higher in the fourth.

Speaker Change: This guidance implies continued year over year margin expansion consistent with our long term guidance.

Speaker Change: This updated outlook represents greater than a 14% compound annual growth rate since 2019, emphasizing the resiliency of the business model and demonstrating the power of our long term growth.

Speaker Change: Our business has a natural seasonal pattern largely driven by the number of surgical Bay and annual deductibles resetting for commercial payers that tend to skew our results lower in the first quarter and higher than the four relatively speaking.

David T. Doherty: We continue to anticipate the seasonal pattern of our results will be consistent with 2020, with second quarter adjusted EBITDA to be approximately 23% and revenue to be approximately 24% of our full-year guidance. Our first-quarter results speak to the strength of our operations and our business model, and we believe that the balance of the year should continue to capitalize on that momentum. With that, I'd like to turn the call back over to the operator for questions.

Speaker Change: We continue to anticipate the seasonal pattern of our results will be consistent with 2023 with second quarter adjusted EBITDA to be approximately 23% and.

Speaker Change: And revenue to be approximately 24% of our full year guidance.

Speaker Change: Our first quarter results speak to the strength of our operations and our business model and we believe that the balance of the year should continue to capitalize on that momentum.

Speaker Change: With that I'd like to turn the call back over to the operator for questions.

Speaker Change: Operator.

Operator: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing your star keys.

Speaker Change: Yeah, I think I would like to ask a question. Please press star one on your telephone keypad.

Operator: We ask that you please limit yourself to one question and one follow-up question. Please wait while we poll for questions. Our first question is from Brian Tanquilut with Jeffries. Please proceed.

Speaker Change: Information tone will indicate your line is in the question Kim You May Press Star two if he would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing their psyches. We ask that you. Please limit to one question and one follow up question one moment, while we.

Speaker Change: Poll for questions.

Speaker Change: Our first question is from Brian <unk> with Jefferies. Please proceed.

Brian Gil Tanquilut: Hey, good morning, guys, and congrats on a solid quarter and the acquisition. I guess my first question, maybe for Eric or Wayne, as we think about this bolus of deals coming in the second quarter, number one, you know, is there something in the market, or are there assets that are just coming up for sale because this is a big chunk of deals that you're announcing? And then maybe second, I know Dave mentioned MSK, but just anything you can share with us in terms of the margin profile for these assets or the seasonality factor for these assets as it compares to yours. Thanks.

Brian: Hey, good morning, guys and congrats on a solid quarter in the acquisition.

Brian: I guess my first question, maybe for Eric or Wayne as we think about this bolus of deals coming in the second quarter number one.

Brian: Is there something in the market or are there assets that are just coming up for sale. Because this is a big chunk of deal that you're announcing and then maybe second I know David version of SK, but just anything you can share with us in terms of the margin profile for these assets or the seasonality factor for these assets as it compares to yours. Thanks.

Brian: Brian Good morning, let me start with the M&A and then I'll ask Eric to talk a little bit about the M. S. K because I think as we look at the increases in total joints, coupled with the new activities around shoulders, I think youll get a better feel of why we're having such a positive impact on same store starting on the M&A front, just a reminder for.

Wayne Scott DeVeydt: Brian, good morning. Let me start with the M&A and then I'll actually have Eric talk a little bit about the MSK because I think as we look at the increases in total joints coupled with the new activities around the shoulders, I think you'll get a better feel of why we're having such a positive impact on the same store. Starting on the M&A front, just a reminder for all those listening that our base algorithm assumes that we will achieve 4% to 6% growth by deploying somewhere between $150 million and $200 million a year for M&A.

Brian: For all those listening that are our base our algorithm assumes that we will achieve 4% to 6% growth through deploying somewhere between $150 million and $200 million a year for M&A and we continue to target 200 million is our preferred goal.

Wayne Scott DeVeydt: And we continue to target $200 million as our preferred goal for the year. As we mentioned in prior years, we always have this robust pipeline, but, as you know, M&A can be fickle. So a lot of the timing of what you're seeing in 2Q was really a function of a lot of the grassroots efforts that were made last year in building these relationships with a number of facilities and physician partners, and it really just came to a head in the second quarter of this year.

Brian: For the year as we mentioned in prior years, we always have this robust pipeline, but as you know M&A can be fickle.

Brian: So a lot of the timing of what you're seeing in <unk> was really a function of a lot of the grassroots efforts that were done last year in building. These relationships with a number of facilities and physician partners and really just came to a head in the second quarter of this year, we were somewhat optimistic we might've gotten those done in the first quarter, but they pushed into April 30th at the second quarter.

Wayne Scott DeVeydt: We were somewhat optimistic that we might have gotten those done in the first quarter, but they pushed into April 30th of the second quarter. That being said, with those transactions closed on April 30th, we have already accomplished our entire $200 million targeted goal for the year. I will remind you, though, that the algorithm assumed we would deploy 200 and use a generally a mid-year convention, assuming a high single-digit multiple. So you'll get an incremental value, though, due to the timing for the current year, and then you get, of course, the full run rate effect as we move into next year. Last thing I would say is we continue to have a robust pipeline, and I don't anticipate that slowing down. It's nothing new, though, Brian.

Speaker Change: That being said.

Brian: With those transactions closed on April 30th we've already accomplished our entire $200 million targeted goal for the year I would remind you though that the algorithm assumed we would deploy 200 and he was generally a mid year convention, assuming a high single digit multiple so you'll you'll get an incremental value, though due to the timing for the current year and then.

Brian: You get of course full run rate effect as we move into next year last thing I would say is we continue to have a robust pipeline and I don't anticipate that slowing down it's nothing new though Brian we're not necessarily seeing the pipeline growing because of any kind of macro situation. It really is though the importance of a partnership and I think many of these organizations are realizing the value we can.

Eric Evans: We're not necessarily seeing the pipeline growing because of any kind of macro situation. It really is, though, the importance of partnership, and I think many of these organizations are realizing the value we can bring. Word of mouth gets out there over time as we continue to do this, and these partners have an opportunity to get some liquidity for themselves, but also have an opportunity to remain owners in something that they built. With that, Eric, maybe I could highlight a little bit just on the higher acuity stuff and what we're doing in that space.

Brian: Brain and word of mouth gets out there over time as we continue to do this and these partners have an opportunity to get some liquidity for themselves, but also have an opportunity to remain owners and something that they that they built.

Brian: Eric maybe highlight a little bit just on the higher acuity stuff and what we're doing in that space. Yeah. I guess, it's related is it related to the M&A I would just comment that these are M. S K heavy or transactions and so your question on margin seasonality, it's going to match our portfolio overall, though it leans M. S. K heavy I think to Wayne's point, you know one of the things you saw.

Eric Evans: Yeah, I guess it's related to the M&A, I would just comment that these are MSK heavy, our transactions, and so your question on margin seasonality, it's going to match our portfolio overall, though it leans MSK heavy. I think to Wayne's point, you know, one of the things you saw this quarter, and we're glad it's MSK heavy, there's a lot of growth opportunity within that service line So, you know, one of the changes this year was CMS took the total shoulders off of the inpatient only list and put them on the ASC list.

Speaker Change: This quarter and we're glad to some SK abbvie, there's a lot of growth opportunity within that service line. So you know what are the changes this year was CMS.

Speaker Change: The total shoulders off the inpatient only list and put them on the ASC list, we've since that time.

Eric Evans: Since that time, you know, in Q1, we've performed over 500 total shoulders, really strong growth, with the vast majority of that being in ASCs. Certainly, this new acquisition gives us the opportunity to grow that, along with bringing our synergies to a really, really exciting market. So we couldn't be more pleased with the transactions we just completed.

Speaker Change: In Q1 that performed over 500 total soldiers really strong growth with the vast majority of that being in <unk>. Certainly this new acquisition gives us the opportunity to grow that along with bringing our synergies to a really really exciting market. So we couldn't be more pleased with the transactions. We just completed.

Brian Gil Tanquilut: That's awesome. And then maybe my second question for Dave, we've got a lot of questions about the Idaho payments last year and how that affects comps and growth rates this year. And I know you gave sort of guidance and key to even that, but maybe if you could just share some color on how we should be thinking about those comps from a growth rate perspective, given the lumpiness of those payments. Yeah, Brian, thanks.

Speaker Change: That's awesome and then maybe my second question for Dave and we've got a lot of questions about the Idaho payments last year and how that affects us.

David T. Doherty: And growth rates this year and I know you gave sort of guidance in Q2, EBITDA, but maybe if you can share some color on how we should be thinking about those comps from a growth rate perspective, given the lumpiness of those payments.

David T. Doherty: Yeah, Brian Thanks for the question I'm not jumping on this one but I know there was some confusion coming out of the end of the year last year and want to make sure I clarify a few things so I'd make three points, but one point that I think you should all here is this is not a material.

David T. Doherty: Yeah, Brian, thanks for the question. I'm going to jump in on this one.

David T. Doherty: And I know there was some confusion coming out of the end of the year last year, and I want to make sure I clarify a few things. So I'd make three points, but one point that I think you should all hear is that this is not a material issue for the company. As you think about our total Medicaid business is 4% of our cases, the net revenue is roughly comparable to that 4%. So you have 4% of our cases, I want to make sure you hear this, it's immaterial, and that 4% revenue includes all the different programs that go into it. So it's not a big part of our business. I'll start there and make sure everyone hears that.

Speaker Change: Issue for the company as you think about our total Medicaid business is 4% of our cases.

Speaker Change: The net revenue is roughly comparable to that 4%. So you have 4% of our cases I want to hear it make sure you hear it's immaterial in that 4% revenue that includes all of the different programs that go into it.

Speaker Change: So it's not a big part of our business I'll start there and make sure everyone hears that on the second point. These programs that are in multiple states, whether it's upper payment limit or.

David T. Doherty: On the second point, these programs that are in multiple states, whether it's the upper payment limit, or cost payments, or across different states, there are different programs that wrap around Medicaid. Those programs are sustainable and expanding, but they will still be immaterial to our business for the foreseeable future. Just don't see that as a big thing for us.

Speaker Change: Payments or across different states, there is different programs that wrap around Medicaid.

Speaker Change: Those programs are sustainable and expanding but will still be immaterial to our business for the foreseeable future just don't see that as a as a big thing for US now what I would say the last point is the timing of reimbursement and in state tax policy and the way payments come in that is really hard to predict so that's kind of what you saw a little bit of last year, but the key message.

David T. Doherty: Now, what I would say, the last point, is the timing of reimbursement and state tax policy and the way payments come in. That is really hard to predict. So that's kind of what you saw a little bit of last year, but the key message here is that we don't do a lot of Medicaid business. It's a small portion of our business. The vast majority of the payment for Medicaid is fee-for-service. There are some programs that help make Medicaid sustainable, and those programs, again, are still insignificant in the grand scheme of things.

Speaker Change: Here is we don't do a lot of Medicaid business small portion of our business. The vast majority of the payment for Medicaid is fee for service. There are some of these programs that help make Medicaid you know sustainable and those programs you know again still insignificant in the Grand scheme of things.

Speaker Change: Awesome. Thank you Eric.

Speaker Change: Our next question is from Whit Mayo with SCB.

Operator: Our next question is from Whit Mayo with SVB Leering. Please proceed.

Whit Mayo: Please proceed.

Whit Mayo: Hey, thanks. Good morning.

Whit Mayo: Hey, Thanks. Good morning, maybe just remind me guys just on the revenue cycle initiatives now that you're on the one.

Whit Mayo: Maybe just remind me guys just on the revenue cycle initiatives now that you're on the one. Clearing House, just the anticipated impact this year. I think it's expected to be a larger driver of growth. I think there's been a big focus on this internally.

Whit Mayo: Clearinghouse just the anticipated impact this year I think it's expected to be a larger driver of growth I think that's been a big big focus on this internally any color would be helpful.

Whit Mayo: Any color would be helpful.

Speaker Change: Yeah. Good morning, with thank you for the question our Rev cycle initiatives are definitely a component part of our growth. They have been now for several years as we enter into 2024, we've become a lot more mature in our Rev cycle process.

Eric Evans: Yeah, good morning, Whit. Thank you for the question. Our RevCycle initiatives are definitely a component part of our growth, and they have been for several years now. As we enter into 2024, we've become a lot more mature in our RevCycle process, but we do expect continued contributions from there. Our first quarter results in this area are reflected somewhat in our revenue and in our cash flows that we reported from an operating perspective, and gives us confidence that the value is going to continue to show up in our results for 2024.

Speaker Change: But we do expect continued contributions from there our first quarter results in this area are reflected somewhat in our our revenue.

Speaker Change: And in our cash flows that we reported from an operating perspective and gives us confidence that the value is going to continue to.

Speaker Change: Show through in our results for 2024.

Eric Evans: One thing I would highlight for our listeners on the call is that our growth algorithm of 3-5% of EBITDA growth through margin expansion really is reflective of the opportunities we have in the REV cycle, coupled with the opportunities we have in procurement, coupled with the synergies we get from the additional M&A. And so to Dave's comment, you know, the REV cycle. I personally think we're in maybe the third inning of what we are capable of doing as an organization around the REV cycle.

Speaker Change: One thing I would highlight for our listeners on the call is that our growth algorithm of 3% to 5% of EBITDA growth through margin expansion really is reflective of the opportunities. We have in the Rev cycle, coupled with the opportunities we have in procurement coupled with the synergies we get from the additional M&A and so today's.

Speaker Change: Comment on the Rev cycle I personally think we're in maybe the third inning of what we are capable of doing as an organization around Rev cycle and as we continue to grow our company, we continue to get new and unique talent into the organization Thats worked on a larger scale and that talent, then is bringing really new ideas to us around opportunities that we are losing.

Eric Evans: And as we continue to grow our company, we continue to get new and unique talent into the organization who have worked on a larger scale. And that talent then is bringing really new ideas to us around opportunities that we are losing to be able to collect more for the services we're actually performing. And in many cases, things that get denied that we really shouldn't have denied based on the procedures that were done.

Speaker Change: To to be able to collect more for the services, we're actually performing and in many cases are things that get denied that we really shouldn't have them based on the procedures that were done so long and short of it is I don't expect this going away in the near term.

Eric Evans: So the long and short of it is, I don't expect this to go away in the near term or in the midterm or in the long term. I think this is something that's another five-year-plus journey for us. And every time we plug and play a new entity, those opportunities repeat.

Speaker Change: Or in the mid term or in the long term I think this is something thats. Another five year plus journey for us and every time, we plug and play a new entity those opportunities repeat.

Whit Mayo: Okay, so it's safe to say that some element of the rate that you're getting in the quarter is coming from increased yield from some of these initiatives. Just want to make sure that I'm clear on that.

Speaker Change: Okay. So is it safe to say some element of the the.

Speaker Change: The rate that youre getting in the quarter is coming from increased yield from some of these initiatives I just want to make sure that I'm unclear on that.

Eric Evans: There is definitely an element to that, and again, as Wayne mentioned, it's part of the way this company operates as we integrate new companies.

Speaker Change: There's definitely an element.

Speaker Change: To that and again as Wayne mentioned it is part of the way. This company operates as we integrate new companies.

Whit Mayo: Okay, got it. And the $19 million, or roughly $19 million in transaction integration M&A costs, can you maybe put some of those costs into context? I did step up, I know you were more active in M&A, I just want to make sure that that's you know, is this the right number to sort of think about on a go-forward basis? Any help would be helpful. Yeah.

Speaker Change: Okay got it and the $19 million or roughly 19 million in transaction integration M&A costs can you maybe put some of those costs into context did step up I know you were.

Speaker Change: More active in M&A I, just want to make sure that that's.

Speaker Change: Is this the right number to sort of think about on a go forward basis, just any any help would be helpful. Thanks.

David T. Doherty: I think it will go down. I mean, I think that's kind of the bolus of the pig in the python of all these deals that we just got closed on April 30th. So you kind of have all these things happening at once, and everything's flowing through the quarter as we're getting to the end. And that includes a combination of, you know, legal advisors, you know, evaluation work we do, etc. So I think that will come down over time.

Speaker Change: Yes, I think it will go down with I mean, I think that's kind of the bolus of the pig in the Python of all these deals that we just got closed on April 30th. So you kind of have the all of these things happening at once and all of that is flowing through the quarters, we're getting to the yen and that includes a combination of you know of legal.

Speaker Change: Pfizer as you know valuation work, we do etcetera, So I think that will come down over time.

Speaker Change: Got it thanks guys.

Speaker Change: Our next question is from Kevin Fischbeck with Bank of America. Please proceed.

Operator: Our next question is from Kevin Fischbeck with Bank of America. Please proceed.

Kevin Mark Fischbeck: Great. Thanks can you just talk a little bit about the volume number in the quarter I know that.

Kevin Mark Fischbeck: Great, thanks. Can you talk a little bit about the volume number in the quarter? I know that there's certainly some concern about the quarter and I think a little bit of confusion about, you know, what Q1 should look like based upon leap year and calendar. Talk a little bit about how you feel like the calendar impacted that number because it was below the two to three that you guys normally, you know, target for the year. Thanks.

Kevin Mark Fischbeck: Great, thanks. Can you talk a little bit about the volume numbers for the quarter? I know that there's certainly some concern about the quarter and I think a little bit of confusion about, you know, what Q1 should look like based on leap year and calendar. Talk a little bit about how you feel like the calendar impacted that number because it was below the two to three that you guys normally target for the year. Thanks.

Kevin Mark Fischbeck: There's certainly some concern about the quarter and I think a little bit of confusion about you know what Q1 should look like based upon leap year calendar, just talk a little bit about how you feel like the calendar in front of that number because it was below the two to three that you guys normally a target for the year. Thanks.

Eric Evans: Yeah, thank you, Kevin. I appreciate the question.

Speaker Change: Yeah. Thanks, Kevin I appreciate the question.

Speaker Change: Obviously last year, we had five 3% case growth felt really good about that if you look at the two years combined still feel good about our growth in the quarter.

Eric Evans: So, obviously, last year we had 5.3% case growth. I felt really good about that. If you look at the two years combined, I still feel good about our growth in the quarter. There certainly were weather impacts. There were days of the week impacts.

Speaker Change: There are certainly where weather impacts there were days of the week impacts. We just we have to manage through that right. The reality of it is when we look at our case volume for the year, we still expect to finish the year at the upper end or above our guidance and so as you know first first quarter really really pleased with the high acuity growth, which again you know one of the problems with case count is theres a lot of movement between where we want.

Eric Evans: We just have to manage through that, right? The reality of it is that when we look at our case volume for the year, we still expect to finish the year at the upper end or above our guidance. And so, you know, first quarter, really, really pleased with the high QE growth. Which again, one of the problems with case count is that there's a lot of movement between where we want and what procedures we're really going after.

Speaker Change: So we're really going after so we were really pleased with where we landed with was in all right within our expectations given given the comparables and quite honestly just reemphasize, we expect to be at the high end or above our algorithm, but Kevin.

Eric Evans: So, we were really pleased with where we landed within our expectations, given the comparables, and quite honestly, just to reemphasize, we expect to be at the high end or above our algorithm by the end of the year.

David T. Doherty: Kevin, on your question about a leap year, it's an important one because in the current year, as a reminder, we don't benefit from it unless we get an extra Monday through Friday. And so if you actually look at the days we were open this year, it's comparable to the days that were there last year despite the leap year. That being said, we will pick up a day in the third quarter and the fourth quarter of this year versus last year due to the leap year and due to when the number of Mondays through Fridays fall on the calendar. So there is no inherent benefit to us for the day in the quarter, but it will be beneficial to us as the year progresses.

Speaker Change: Kevin on your question of the leap year, it's an important one because in the current year as a reminder, we don't benefit from it unless we get an extra Monday through Friday, and so if you actually look at the days. We were opened this year its comparable to the days that were there last year. Despite the leap year that being said, we will pick up a day in the third quarter and the fourth.

Speaker Change: <unk> of this year versus last year due to the leap year end due to when the number of Mondays through Fridays fall on the calendar. So no no inherent benefit to us for the day in the quarter, but it will a new which for us as the year progresses.

Speaker Change: Okay.

Speaker Change: Alright, great. Thanks, and then just a little color on the deals that you were doing I guess consolidated versus unconsolidated I mean is the revenue boost related to the deal then it would be I was a little bit confused.

Kevin Mark Fischbeck: All right, great, thanks. And then just a little color on the deal that you were doing, you know, I guess, consolidated versus unconsolidated. I mean, is the revenue boost related to the deals? I know I was a little bit confused, as you pointed out in your earlier response, that you assume a certain amount of deals with a mid-year convention, so is the guidance raised due to just the timing impact of those deals coming in a little bit earlier? Or, you know, how should we think about how much of that revenue guidance raises this kind of run rate, if you will, versus just kind of accelerated timing? Thanks. Yeah, Kevin, and Dave here.

Speaker Change: You pointed out in your earlier response that you assume a certain amount of deals in the midyear convention so that the guidance raise.

Speaker Change: Due to just the timing impact of those deals coming in a little bit earlier or how should we think about how much of that revenue guidance raises his kind of run rate of older. If you will versus just kind of accelerated timing. Thanks.

David T. Doherty: Yeah, Kevin, and Dave here. And again, thanks for that follow-up question, because it is a little bit, perhaps a little bit, confusing. Our guidance, as we talked about at the beginning of the year, does assume $150 to $200 million of M&A at mid-year convention. And I think we mentioned on our fourth quarter call that our pipeline at that point in time was all or predominantly consolidated. So you could assume a revenue in your calculations kind of associated with that.

David T. Doherty: Kevin It's Dave here.

Kevin Mark Fischbeck: And again, thanks for that follow up question, because it is a little bit perhaps a little bit confusing our guidance as we talked about at the beginning of the year. It does assume a $150 million to $200 million of M&A, a mid year Convention and I think we mentioned on our fourth quarter call that our pipeline at that point in time was.

Kevin Mark Fischbeck: All are predominantly consolidated so you can assume a revenue.

Kevin Mark Fischbeck: In your calculations kind of associated with that fast.

David T. Doherty: Fast forward to today, we have now approximately $200 million that we're going to do inside the second quarter, a majority of which was done in April, the end of April. Most of those are going to be in consolidated assets. There was one ASC inside that, inside that portfolio that will be non-consolidated. So it is definitely a component of our increased guidance for the year. The other component, of course, is increased confidence in our underlying revenue growth for the organization.

David T. Doherty: Fast forward to today; we now have approximately $200 million that we're going to do in the second quarter, a majority of which was done in April, the end of April. Most of that is going to be in consolidated assets. There was one ASC inside that, inside that portfolio, that will be non-consolidated. So it is definitely a component of our increased guidance for the year. The other component, of course, is increased confidence in our underlying revenue growth for the organization.

Kevin Mark Fischbeck: Fast forward to today, we have now approximately $200 million that we're gonna do inside of the second quarter, a majority of which was done in April the end of April.

Kevin Mark Fischbeck: Are most of those are going to be in consolidated assets. There was one a S C inside that.

Kevin Mark Fischbeck: Inside that portfolio that will be non consolidated.

Kevin Mark Fischbeck: So it is definitely a component of our increased guidance for the year are the other component of course is increased confidence in our underlying revenue growth for the organization.

Speaker Change: Great. Thanks.

Speaker Change: Our next question is from Andrew Mok with Barclays. Please proceed.

Operator: Our next question is from Andrew Rock with Barclays. Please proceed.

Andrew Mok: Hi, Good morning, just wanted to follow up on the professional fees and other opex. It looked like that was up double digits sequentially in your year over year can you elaborate on what's driving those cost higher and whether we should expect some moderation in any of those categories for the balance of the year. Thanks.

Andrew Rock: Hi, good morning. Just wanted to follow up on the professional fees and other op-ecs. It looked like that was up double digits sequentially year over year. Can you elaborate on what's driving those costs higher and whether we should expect some moderation in any of those categories for the balance of the year? Thanks.

Andrew Rock: Hi, good morning. I just wanted to follow up on the professional fees and other op-ecs. It looked like that was up double digits sequentially year over year. Can you elaborate on what's driving those costs higher and whether we should expect some moderation in any of those categories for the balance of the year? Thanks.

David T. Doherty: Yeah, thanks, Andrew. I appreciate the question there.

Speaker Change: Yeah. Thanks, Andrew I appreciate the question there. So first off you know managing the margin in a company that does require us to look at and evaluate all of the costs kind of sitting inside.

David T. Doherty: So first off, you know, managing the margin in the company does require us to look at and evaluate all of the costs kind of sitting inside these categories. And as Eric mentioned a little bit earlier, our state-based reimbursement programs do have a degree of estimation associated with provider taxes as a component of that, and provider taxes can be a pretty material part. So as we true those up, those may be reflected in there in the first quarter. What you're seeing inside those other operating expenses is that true of provider taxes.

Speaker Change: These categories and as Eric mentioned, a little bit earlier.

Speaker Change: Our state based reimbursement programs do have a degree of estimation associated with a provider taxes is a component of that and provider taxes as it can be a pretty material part. So as we true those up those may be reflected in there in the first quarter, what you're seeing.

Speaker Change: Inside there was other operating expenses is that trip or provider taxes.

Speaker Change: Got it that's helpful and then just one.

Andrew Rock: Got it. That's helpful. And then, I just wanted to follow up on the free cash flow. How did that trend relative to your internal expectations? And it seems like there's still some seasonal elements here that are impacting that, or timing elements. Can we get a refreshed view on expectations and cadence for the balance of the year? Thanks. Yeah, for sure. As you know, uh, 2020.

Speaker Change: To follow up on the free cash flow, how did that trend relative to your internal expectations and it seems like there's still some seasonal elements here that are impacting that our timing elements can you can we get a refreshed view on expectations on cadence for the balance of the year. Thanks.

David T. Doherty: Yeah, for sure. As you know, 2023 we generated positive operating cash flow and free cash flows for the first time in the company's history. And we continue to expect that operating and free cash flow will exceed prior year amounts for the full year. Prior year and current year quarter is purely impacted by timing related items, which we expect to normalize on a full year basis.

David T. Doherty: Yeah, for sure. As you know, in 2023, we generated positive operating cash flow and free cash flows for the first time in the company's history. And we continue to expect that operating and free cash flow will exceed prior year amounts for the full year. Prior year and current year quarters are purely impacted by timing-related items, which we expect to normalize on a full year basis.

Speaker Change: Yeah for sure as you know a 2023 we generated positive operating cash flow and free cash flows for the first time in the company's history, and we continue to expect that operating and free cash flow will exceed prior year amounts.

Speaker Change: For the full year prior.

Speaker Change: Prior year and current year quarters purely impacted by timing related items, which we expect to normalize on a full year basis.

Speaker Change: Our next question is from Sarah James with Cantor Fitzgerald. Please proceed.

Operator: Our next question is from Sarah James with Cantor Fitzgerald. Please proceed.

Sarah Elizabeth James: Thank you.

Sarah Elizabeth James: Thank you. You talked about the back half of the year being more driven by volume than revenue per case, but it also sounded like strong revenue per case was related to acuity, including hiring mix, so things that would continue. Just wondering if you can clarify why you would expect revenue per case to normalize down, and if there was any kind of one-time benefit that inflated revenue per case in one queue like DPP or anything else?

Sarah Elizabeth James: You talked about the back half of the year being more driven by volume and revenue per case, but it also sounded like a strong revenue per cases related to acuity, including hiring next settings that would would continue.

Sarah Elizabeth James: Just wondering if you can clarify.

Sarah Elizabeth James: Why you would expect revenue per case to normalize down and if there was any kind of onetime benefit that.

Sarah Elizabeth James: That inflated revenue per case, and once you like D P P or anything else.

Sarah Elizabeth James: Okay.

Speaker Change: Hey, Good morning, just a reminder, as I mentioned earlier I think first and foremost it's important to recognize that as we get closer towards the end of the year. We will have obviously the same level of higher acuity cases, we haven't many situations, but we do have extra business days and the number of Mondays and Tuesdays again do affect a lot of procedures.

David T. Doherty: Thanks.

Speaker Change: Specifically, Gi and ophthalmology and Theres a lot more volume on those days and again, the number of Mondays and Tuesdays in will disproportionately affect that mathematical calculation in any one quarter. The second thing I would just remind you is as we continue to grow in these high acuity procedures, just the math of it if we grow quite a bit in the fourth quarter as we did last year.

Sarah Elizabeth James: Sarah, good morning. Just a reminder, as I mentioned earlier, I think first and foremost, it's important to recognize that as we get closer towards the end of the year, we will have, obviously, the same level of higher acuity cases we have in many situations, but we do have extra business days, and the number of Mondays and Tuesdays, again, do affect a lot of procedures, specifically GI and ophthalmology, and there's a lot more volume on those days, and, again, the number of Mondays and Tuesdays will disproportionately affect that mathematical calculation in any one quarter.

Speaker Change: And then you move to the fourth quarter of this year, we will continue to grow on those but the incremental growth in terms of how the math of that calculation works gets somewhat abated. So the way I would look at it is not to look at any one quarter, but to look at the algorithm for the full year and as Eric mentioned earlier, we expect to exceed or at least be at the high end of that 2% to 3% on volume for the full year.

Sarah Elizabeth James: The second thing I would just remind you is, as we continue to grow in these high-acuity procedures, just the math of it, if we grow quite a bit in the fourth quarter, as we did last year, and then you move to the fourth quarter of this year, we'll continue to grow on those, but the incremental growth, in terms of how the math of that calculation works, gets somewhat abated. So, the way I would look at it is, not to look at any one quarter, but to look at the algorithm for the full year, and as Eric mentioned earlier, we expect to exceed, or at least be at the high end of that 2% to 3% on volume for the full year, biased towards exceeding that in the back half of the year due to the extra days, and then I would also say that relative to the rate, I definitely believe we'll be well above the 2% to 3% targeted rate, so same store is probably going to finish closer to high single digit for the year, but a little more balanced as we get to the full annualized basis.

Speaker Change: S bias towards exceeding that in the back half of the year due to the extra days and then I would also say that relative to the rate I definitely believe we will be well above the 2% to 3% targeted rate. So same store is probably going to finish closer to high single digit for the year about a little more balanced as we get to the full annualized basis.

Speaker Change: That's helpful and just on thinking about.

Eric Evans: That's helpful. And just on thinking about the calendar, given we did have that calendar pressure in one cue for planned procedures with spring break and Easter, did you see that come back in April? Have you already seen it come back into the system?

Speaker Change: The calendar given we did have that counter pressure and <unk> for planned procedures with spring break and Easter did you see that come back in April.

Speaker Change: <unk>.

Speaker Change: Have you already seen it come back into the system.

Speaker Change: Hmm.

Eric Evans: Look, I don't want to get ahead of ourselves. It's one month, but we are not disappointed with April.

Eric Evans: Look, I don't want to get ahead of ourselves. It's only been one month, but we are not disappointed with April.

Speaker Change: I want to get ahead of ourselves, it's one month, but we are not disappointed with April.

Speaker Change: Okay. Thank you.

Speaker Change: Our next question is from Gary Taylor with TD Cowen. Please proceed.

Operator: Our next question is from Gary Taylor with TD Cowen. Please proceed.

Speaker Change: Okay.

Gary Paul Taylor: Hi, good morning. Most of my good questions asked, so just a few detailed ones. Just first, on supplies, really good performance there. I think flat dollars. Supply cost per case down 1.4%, year-over-year best result. I think anything you'd need to call out on supply expense.

Gary Paul Taylor: Hi, good morning. Most of my good questions have been asked, so just a few detailed ones. Just first, on supplies, really good performance there. I think flat dollars. Supply cost per case down 1.4%, year-over-year best result. I think anything you'd need to call out on supply expense.

Gary Paul Taylor: Hi, Good morning, most of my good questions asked so just a few detailed ones just first on supplies really good performance, there I think flat dollars and.

Gary Paul Taylor: Supply cost per case down one 4% year over year Best result.

Gary Paul Taylor: A few years I think anything unique to call out on supply expense.

Speaker Change: No nothing unusual.

David T. Doherty: No, nothing unusual.

Speaker Change: But I wouldn't want to I mean would we be modeling. This that's good for the rest of the year our.

Gary Paul Taylor: But I wouldn't I mean would we be modeling this this good for the rest of the year or think about having some modest level of.., inflationary growth or mixed growth in that.

Gary Paul Taylor: But I wouldn't, I mean, would we be modeling this this good for the rest of the year or think about having some modest level of inflationary growth or mixed growth in that?

Gary Paul Taylor: Think about having some modest level of inflationary growth or mix growth in that I would think.

David T. Doherty: Now our inflationary growth factors that we built into our guidance would be marginal and well contained within our revenue growth.

Gary Paul Taylor: Now our our inflationary growth factors that we built into our guidance would be would be marginal and well contained within our revenue growth.

Gary Paul Taylor: But mixed growth mixed growth will be the factor if we if we see that right.

Gary Paul Taylor: But mixed growth, mixed growth would be the factor if we see that, right?

Gary Paul Taylor: But mixed growth; mixed growth would be the factor if we saw that, right?

David T. Doherty: As a percent of revenue, it should be zero.

Gary Paul Taylor: As a percent of revenue it should be it should be neutral.

Gary Paul Taylor: Okay.

Gary Paul Taylor: And then, can you just elaborate for a second on the AR growth in the quarter? I think you highlighted that in the release. Anything related to change, or is it state program accruals that aren't yet paid? Any comments there?

Speaker Change: And then can you just elaborate for a second on a a R growth in the quarter I think you highlighted that in the release anything related to change or is it state program accruals that arent yet paid like.

Speaker Change: Any comments there.

David T. Doherty: Yeah, thanks for pointing that out. That is not specifically related to the items that you mentioned. It's almost purely related to the growth in the organization, both from recent acquisitions and from growth in revenue, and then typical seasonal patterns with first quarter billing cycles.

Speaker Change: Yes, thanks for pointing that out that that is not specifically related to the items that you mentioned, it's almost purely related to the growth in the organization both from our recent acquisitions and from the growth in revenue and then typical seasonal patterns with the first quarter billing cycles.

Speaker Change: Last one for me on the acquired practice as part of this system deal is that orthopedic practices or any detail you can provide there.

Eric Evans: Last one for me, on the acquired practice as part of this system deal, is that orthopedic practice or any detail you can provide there? Yeah, so it is, yes.

Eric Evans: Yes, it's orthopedic-related practices. As you know, we are primarily an enabler of independent physicians, and even when we do this type of arrangement, we do it in partnership, even at the practice level, and it's tied to our surgical facilities. But yes, those are MSK-related practices. Thank you. Of course, thank you for the question.

Speaker Change: Yes. So it is yes. It is orthopedic related practices as you know I mean, we we were primarily an enabler of independent physicians and even when we do this type of arrangement, we do it in partnership even at the practice level and it's tied to our surgical facilities, but yes, those are emmis capability right.

Speaker Change: Got it thank you.

Speaker Change: Of course, thank you for the question.

Operator: Our next question is from Bill Sutherland with the Benchmark Company. Please proceed.

Speaker Change: Our next question is from Bill Sutherland with Benchmark Company. Please proceed.

William Sutherland: Thank you. Good morning, everybody. I'm curious, Dave, if given you've gotten to the target already in April for the capital deployment for the year, clearly you may close a little bit more, you said 200, 250, but kind of how are you thinking about it at this point from an opportunistic perspective or is this really kind of it for the year?

William Sutherland: Good morning, everybody.

William Sutherland: Curious Dave if.

William Sutherland: Given you've gotten to the.

William Sutherland: [noise] target.

William Sutherland: Already.

William Sutherland: In April for capital deployment for the year.

William Sutherland:

William Sutherland: Clearly you would be close a little bit more you said 200 and 250, but.

William Sutherland: Kind of how are you thinking about at this point from an opportunistic perspective or is this just really kind of it for the year.

Speaker Change: No. The short answer is I I'm optimistic it won't be the last acquisitions for the year as Steve mentioned earlier, you know at the end of the quarter, we have over $800 million.

Wayne Scott DeVeydt: You know, the short answer is I'm optimistic it won't be the last acquisitions for the year. As Dave mentioned earlier, you know, at the end of the quarter, we have over $800 million available at the consolidated level plus the undrawn revolver. And as Dave mentioned, we plan to grow into our free cash flow as the year progresses. And so, the pipeline is robust, it's despite the number of acquisitions we completed, it continues to be in that high 200 plus million still of many transactions.

Wayne Scott DeVeydt: You know, the short answer is I'm optimistic it won't be the last acquisitions for the year. As Dave mentioned earlier, you know, at the end of the quarter, we have over $800 million available at the consolidated level plus the undrawn revolver. And as Dave mentioned, we plan to grow into our free cash flow as the year progresses. And so, the pipeline is robust, despite the number of acquisitions we completed; it continues to be in that high 200 plus million still of many transactions.

Speaker Change: Available at the consolidated level, plus the Undrawn revolver and as Dave mentioned, we plan to grow into our free cash flow as the year progresses and so.

Speaker Change: The pipeline is robust it's.

Speaker Change: Despite the number of acquisitions, we completed it continues to be.

Speaker Change: And that's a 200 plus million still many transactions and I would anticipate we have an opportunity to get a few more done this year, but we haven't baked any of that into our outlook because again it can be fickle and these things can change as the year progresses, but right now.

Wayne Scott DeVeydt: And I would anticipate we have an opportunity to get a few more done this year. But we haven't baked any of that into our outlook because, again, it can be fickle and these things can change as the year progresses. But right now, I think there's a very reasonable chance we'll do better than the 200.

Wayne Scott DeVeydt: And I would anticipate we have an opportunity to get a few more done this year. But we haven't baked any of that into our outlook because, again, it can be fickle, and these things can change as the year progresses. But right now, I think there's a very reasonable chance we'll do better than the 200.

Speaker Change: I think theres, a very reasonable chance, we will do better than the 200.

Speaker Change: That's good.

Eric Evans: That's good. Eric, can you kind of go through the de novo progression? I mean, you hit it during the prepared comments, but and perhaps how it will flow through to the income statement as these get developed.

Eric Evans: That's good. Eric, can you kind of go through the de novo progression? I mean, you hit it during the prepared comments, but perhaps how it will flow through to the income statement as things get developed?

Speaker Change: Eric can you kind of go through that did no go.

Speaker Change: Progression.

Eric Evans: I mean, you hit during the prepared comments, but.

Speaker Change: Hum.

Eric Evans: And perhaps how it will flow through to.

Eric Evans: To the income statement as these get developed.

Speaker Change: Sure. So we're excited about our de novo capabilities growing and you've seen that over the past couple of years, we expect to be.

Eric Evans: Sure. So, you know, we're excited about our DeNovo capabilities growing, and you've seen that over the past couple of years. You know, we expect to be, you know, have double-digit in process at any given moment. Those facilities, you know, there's a lot of startup kind of delays as we think through those, but in general, we spend the first several months getting them open post-syndication, getting contracted, getting started. Obviously, highly accretive investments. If we could do all of DeNovo, we would, although there'd be a delay, obviously.

Eric Evans: Sure. So, you know, we're excited about our DeNovo capabilities growing, and you've seen that over the past couple of years. You know, we expect to be, you know, have double-digit in process at any given moment. Those facilities, there's a lot of startup kind of delays as we think through those, but in general, we spend the first several months getting them open post-syndication, getting contracted, getting started. Obviously, highly accretive investments. If we could do all of DeNovo, we would, although there'd be a delay, obviously.

Eric Evans: Double digit in process at any any given moment those facilities you know theres a lot of startup.

Eric Evans: Kind of delays as we think through those but in general we.

Eric Evans: We spend the first several months getting them open post syndications.

Eric Evans: Getting contracted getting started obviously highly accretive investments if we can we can do all of those we would although there'll be a delay obviously.

Eric Evans: So, we like the investment profile. You know, typically by the end of the first year, they're cash-flowing and have a positive EBITDA, but there is a ramp-up those first six months, you know, can be a little bit bumpy with just new contracts, to getting doctors comfortable, changing habits, all that stuff. But by the end of the year, the first year, we expect them to be contributing to our financial performance. By the end of year two, we would expect them to be close to run rate and then just getting into our organic profile.

Eric Evans: So, we like the investment profile. You know, typically, by the end of the first year, they're cash-flowing and have a positive EBITDA, but there is a ramp-up in those first six months, which can be a little bit bumpy with just new contracts, getting doctors comfortable, changing habits, all that stuff. But by the end of the year, the first year, we expect them to be contributing to our financial performance. By the end of year two, we would expect them to be close to run rate, and then they would just be getting into our organic profile.

Eric Evans: So we like the investment profile typically by the end of the first year, they're cash flowing and have a positive EBITDA, but there is a ramp up those first six months you know it can be a little bit bumpy with just new contracts.

Eric Evans: She getting doctors comfortable changing habits, all that stuff, but nobody by year by the end of the year that first year, we expect them to be contributing to our financial performance by your end of year. Two we would expect them to be close to run rate and then just getting into our organic profile. So again from an it from a capital investment standpoint. These are our best investments along with end market M&A and so.

Eric Evans: So again, from a capital investment standpoint, these are our best investments along with in-market M&A. And so we're really excited about how much it's growing. Those opportunities continue actually to be at a higher level than we've ever seen. So we're really pleased with the progress.

Eric Evans: So again, from a capital investment standpoint, these are our best investments along with in-market M&A. And so we're really excited about how much it's growing. Those opportunities actually continue to be at a higher level than we've ever seen. So we're really pleased with the progress.

Eric Evans: We're really excited about how much its growing those opportunities continue actually to be at a higher level than we've ever seen. So we're we're really pleased with the progress there.

Eric Evans: So you would you've.

William Sutherland: So you mentioned 11 fully syndicated under construction. That would be for next year's P&L. Yeah.

William Sutherland: So you mentioned 11 fully syndicated stations under construction. That would be for next year's P&L. Yeah.

Eric Evans: You've mentioned 11, probably syndicated under construction that would be.

Eric Evans: For next year's P&L.

Eric Evans: Yeah, so you think about it, we said, you know, a portion of those will be opening later this year, another portion in early 25. So again, probably, probably not a huge contribution when you think about 25, really start to hit us in 26. But, you know, obviously planning seats for the future that give us increased confidence in that mid-teens set growth we've committed to.

Eric Evans: Yeah. So you think about it we said you know a portion of those will be opening later this year. Another portion in early 'twenty five.

Eric Evans: So again, probably probably not a huge contribution when you think about 25 really start to hit us in 'twenty six but you know obviously you plead planting seeds for the future that give us increased confidence in that mid teens growth we've committed to.

Eric Evans: Great.

William Sutherland: Thanks for all the color.

Speaker Change: Thanks for all the color.

Speaker Change: Got it.

Speaker Change: Of course, thank you Bill.

Speaker Change: Our next question is from Chi Tsang casserole that with Citi. Please proceed.

Operator: Our next question is from Jason Cassorla with Citi. Please proceed.

Jason Cassorla: Great, thanks and congrats on the quarter. I just wanted to ask about the 2.7 million of unconsolidated minority earnings in the quarter.

Chi Tsang: Great. Thanks, and congrats on the quarter I just wanted to ask about the two points of a million of unconsolidated minority earnings in the quarter. It's not a major driver of EBITDA. It was down a little bit year over year, obviously, the number of ramping on consolidated facilities. Maybe can you just help bifurcate how that $2 7 million balances between you know the new.

Jason Cassorla: It's not a major driver of every bit of trend. It was down a little bit year over year. Obviously, the number of ramping unconsolidated facilities, maybe you could just help bifurcate how that 2.7 million balances between, you know, the newer investments on their maturity curve that could be a drag in that against the more mature assets with positive contribution included in that as well.

Speaker Change: Investments on their maturity curve it could be a drag in that against the more mature assets with positive contribution included in that as well.

David T. Doherty: Yeah, I'll make this real simple, ID. The number of de novo's that Eric just talked about, including those that are opening up, that may operate in a somewhat of a lost position are considered to be the investments that we make in those. We back those out of that number, and you can see this in our press release. There's a tabular disclosure in the back. There's around eight hundred thousand dollars. You strip that out, you can see kind of the growth in the total contributions that come from those. The other part of our contributions, just as a reminder Jason, is the management fees that are reflected in revenue associated with those transactions. So you can see that level of detail in our press release.

David T. Doherty: Yeah, I'll make this real simple, ID. The number of de novos that Eric just talked about, including those that are opening up, that may operate in a somewhat of a lost position, are considered to be the investments that we make in them. We back those out of that number, and you can see this in our press release. There's a tabular disclosure in the back. There are around eight hundred thousand dollars. If you strip that out, you can see kind of the growth in the total contributions that come from those. The other part of our contributions, just as a reminder, Jason, is the management fees that are reflected in revenue associated with those transactions. So you can see that level of detail in our press release.

Speaker Change: Yeah, Yeah, I'll make this a real simple I D. The number of de Novo said, Eric just talked about including those that are opening up that may operate in a in a somewhat of a loss position are considered to be the investments that we're making those when we back those out of that.

Speaker Change: That number and you can see this in our press release Theres, a footnotes I'm sorry, there's a tabular disclosure yeah in the back there was around $800000. So you strip that out you can see kind of the growth in.

Speaker Change: And the total contributions that come from those the other part of our contributions just as a reminder, Jason is the management fees that are reflected in revenue associated with those transactions. So you can see that level of detail in our press release.

Speaker Change: Okay. Thanks, and maybe just a follow up you know you've highlighted it for a while now that the major driver of revenue per case growth has been the high acuity focus certainly, but I guess I'm just curious on any updates on the managed care contracting side, how those conversations are going if there's anything from a cycle perspective to highlight our areas, where we see opportunity including on the value based.

Jason Cassorla: Okay, thanks. And maybe just to follow up, you've highlighted for a while now that the major driver of revenue per case growth has been the high acuity focus, certainly, but I guess just curious about any updates on the managed care contracting side, how those conversations are going. If there's anything, you know, from a cycle perspective to highlight or areas where you see opportunity, including on the value-based care side of the flag, just any thoughts around that would be helpful.

Speaker Change: Her side of fly just just any thoughts around that would be helpful. Thanks.

Eric Evans: Thanks. Yeah, thanks for the question, Jason. We continue.

Eric Evans: Thanks. Yeah, thanks for the question, Jason. We'll continue.

Eric Evans: Yeah, thanks for the question, Jason. We continue to make progress in our managed care negotiations. You know, I'd say the national payers are increasingly interested in the value, obviously, our facilities can provide. And so we look for a balanced approach there. You've heard us talk about this for quite some time, which is we want to make sure we're paid fairly. We also really want steerage, and we want to make sure our doctors are paid fairly.

Speaker Change: Yeah. Thanks for the question, Jason we continue to make progress.

Speaker Change: You hear negotiations you know I'd say just the national payers are increasingly interested in the value obviously our facilities can provide it. So we look for a balanced approach there you've heard us talk about this for quite some time, which is we want to make sure. We're paid fairly we also really want steerage and we want to make sure. Our doctors are paid fairly so there's you know there's a balance in how we think about those negotiations we continue to be pleased with our rate lift there.

Eric Evans: So there's, you know, there's a balance in how we think about those negotiations. We continue to be pleased with our rate lift there. Now, again, the majority of our rate lift is going to be still be acuity.

Speaker Change: Now again, the majority of our rate lift is going to be still be acuity are but we are making progress in those conversations and you know when it comes to value based care I would say this you know, we always kind of start with where 50% cheaper on average than some of our peers and so we always say, let's say past before we take any risk, but we're happy to enter into a value based care array.

Eric Evans: But, you know, we are making progress in those conversations. And, you know, when it comes to value-based care, I'd say this, you know, we always kind of start with, you know, we're 50% cheaper on average than some of our peers. And so we always say, let's save half before we take any risk. But we're happy to do enter into value-based care arrangements in the markets where they make sense. You know, we do that periodically.

Speaker Change: <unk> in the markets, where they make sense.

Speaker Change: Do that periodically and I expect that over time that will become a bigger part of the story, but I think in the fee for service World payers see yesterday value care player and they are increasingly having conversations with us about how to take advantage of our independent portfolio.

Eric Evans: And I expect that over time, that will become a bigger part of the story. But I think in the fee-for-service world, payers see us as a value-care player. And they're increasingly having conversations with us about how to take advantage of our independent portfolio. Great, thank you. Thank you. Our next question is from Lisa Gill with J.P. Morgan. Hey, good morning. It's Cal on for

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question is from Lisa Gill with J P. Morgan Chase. Please proceed.

Operator: Our next question is from Lisa Gill with JPMorgan Chase. Please proceed. Hey, good morning. It's Katalon.

Speaker Change: Hey, good morning, it's Cal on for Lisa a couple of quick questions here I guess on recruitment it sounded like that was a little bit better than you guys expected can you talk about what drove the strength there in the quarter and how youre thinking about that over the remainder of the year and then I guess second you know I know you don't have much Medicaid exposure, but just wondering if you saw.

Speaker Change: Any impact from Redetermination on volumes in the quarter and how you think about that as you move into the back half. Thanks.

Speaker Change: Okay I appreciate the question.

Lisa Christine Gill: Hey, Cal, appreciate the question. From the recruitment side, yeah, we were really pleased with the first quarter. I think we have a, you know, we have a veteran team that is very targeted based on data, and very targeted on a few specific service lines. Now, as you know, those service lines continue to expand every year with technology. So they've got a little wider hunting ground, we've got new markets, but we feel really good about that trajectory.

Speaker Change: The recruitment side, Yeah, we were really pleased with the first quarter I think we have a you know look we have a veteran team that is very targeted based on data and very targeted on a few specific service lines now as you know those service lines continue to expand every year with technology. So they've got a little brighter hunter hunting ground, we've got new markets, but we feel really good about that trajectory expect that to remain a little.

Speaker Change: We continue to be above where we've been the rest of the year. So we've got a really nice pipeline on recruitment again, just a veteran team is very focused on data and executing well on the Redetermination. As you know look as I mentioned earlier Medicaid is a very small part of our business. So I think even if there were an impact we'd be unlikely to feel it but we definitely have not seen an impact in that area at all.

Lisa Christine Gill: We expect that to remain a little, continue to be above where we've been the rest of the year. So we've got a really nice pipeline on recruitment. Again, just a veteran team that's very focused on data, and executing well. On the redeterminations, you know, look, as I mentioned earlier, Medicaid's a very small part of our business. So I think even if there were an impact, we'd be unlikely to feel it, but we definitely have not seen an impact in that area at all.

Speaker Change: Alright. Thanks.

Speaker Change: Our final question is from Ben Hendrix with RBC capital markets. Please proceed.

Eric Evans: Our final question is from Ben Hendrix with RBC Capital Markets. Please.

Benjamin Hendrix: Yeah, just a quick follow-up on the redetermination issue. We've heard some of the hospitals talk about health exchange pickup, you know, post, you know, after the, at the tail end of redeterminations, and that there could potentially be some delay in that volume just because of higher co-pays and deductibles. Is there a potential for health exchange volume to kind of increase your typical 4Q seasonality?

Benjamin Hendrix: Yeah, just a quick follow up on the Redetermination issue. We've heard some of the hospitals talk about health exchange pick up you know post.

Benjamin Hendrix: After the at the tail end of Redetermination and that there could potentially be some delay in that volume just because of higher co pays and deductibles is there a potential for health exchange volume to kind of increase your typical <unk> seasonality and.

Speaker Change: Maybe some upside there I think.

Speaker Change: I appreciate the question Ben what I would say is there is potential but it's small right I'm going to go back to like the book of business is so small for us that even if there were some pick up there it's likely to be a immaterial.

Benjamin Hendrix: Maybe some upside there? Appreciate the question, Ben. What I would say is, there is potential, but it's small, right? I'm going to go back to like, the book of business is so small for us that even if there were some pickup there, it's likely to be immaterial. But you know, we'll keep an eye on that. I would go back to compared to other businesses that are broader in healthcare services. It's just such a small portion of our business, it's unlikely to be worth spending much time on. Great, thank you.

Speaker Change: But you know well, we'll keep an eye on that I would go back to compared to other businesses that are broader than health care services. It's just such a small portion of our business, it's unlikely would be worth spending much time on it.

Speaker Change: Great. Thank you and also just one more question about cash flow guidance. So we still thinking kind of I think you'd talked pointing to $1 40 to $1 60 for the year is that still the right number to think about.

Benjamin Hendrix: And also, just one more question about cash flow guidance. Are we still thinking kind of, I think you're going to 140 to 160 for the year? Is that still the right number to think about?

Speaker Change: Yes, it has been.

Speaker Change: Thank you.

Speaker Change: We have reached the end of our question and answer session I will now turn the call over to Eric Evans for closing remarks.

Operator: We have reached the end of our question and answer session. I will now turn the call over to Eric Evans for closing remarks.

Eric Evans: Great. Thank you so much.

Eric Evans: Great. Thank you so much before we conclude today I'd like to reiterate how proud I am of my colleagues and our physician partners, who collaborate to deliver on our mission to enhance patient quality of life through partnership their work and contributions to allow us to deliver consistent and predictable results and drive sustained growth for all of our stakeholders. Most importantly, they also continue.

Eric Evans: Before we conclude today, I'd like to reiterate how proud I am of my colleagues and our physician partners who collaborate to deliver on our mission to enhance patient quality of life through partnership. Their work and contributions allow us to deliver consistent and predictable results and drive sustained growth for all of our stakeholders. Most importantly, they also continue to serve our communities with the highest clinical care in a lower cost setting with the convenience and professionalism our facilities are known for. Thank you for joining our call this morning and have a great day.

Speaker Change: To serve our communities with the highest clinical care in a lower cost setting with the convenience and professionalism. Our facilities are known for thank you for joining our call. This morning and have a great day.

Operator: Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your participation.

Speaker Change: Thank you. This will conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

Speaker Change: Mhm.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Hum.

Speaker Change:

Speaker Change: Hum.

Speaker Change: [music].

Speaker Change: Hum.

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