Greetings, and welcome to Surgery Partners, Inc.'s second quarter 2022 earnings call. At this time, all participants are in 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 then zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to CFO Dave Doherty. Please go ahead, sir. Good morning, and welcome to Surgery Partners' second quarter 2022 earnings call. This is Dave Doherty, Chief Financial Officer. Joining me today are Wayne DeVeydt, Surgery Partners' Executive Chairman, Eric Evans, Surgery Partners' Chief Executive Officer. As a reminder, during this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we file with the SEC. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, we will discuss certain non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in our earnings, which is posted on our website at surgerypartners.com and in our most recent quarterly report on Form 10-Q when filed. With that, I'll turn the call over to Wayne DeVeydt. Thank you, Dave. Good morning, and thank you all for joining us today. Before we begin the call, I would like to acknowledge and thank our colleagues and frontline caregivers for their relentless focus on providing the highest clinical care and quality to our patients and communities. You are at the core of our values as an organization, and on behalf of the board of directors and the executive management team, thank you for everything you do. Turning to our second quarter results, we are pleased to report second quarter 2022 adjusted EBITDA of $86.1 million, a 13% increase as compared to the prior year quarter and nearly 18% growth when excluding CARES Act grants. In the quarter, we performed just over 149,000 surgical cases, nearly 7% more than 2021, resulting in a 13% increase in net revenue. We are especially encouraged by these results as we have continued navigating the macroeconomic challenges, including the broader inflationary pressures and continuation of COVID-19 variants. As we have previously stated, we are not immune to such challenges, but our business model continues to demonstrate its durability and resilience. We ended the quarter with strong momentum and are optimistic that we can continue to navigate these areas through the balance of the year. We closely monitor and manage inflationary risk, whether in labor or supply costs. Year to date, the team has successfully managed these costs in line with our expectations and to pre-pandemic levels relative to net revenue. As previously stated, we believe we have a competitive advantage and consistent with our experience last quarter, our second quarter results again demonstrate and reinforce how our business model is uniquely positioned both now and for future growth. Dave will share more details regarding our financial results, but a few highlights. Same facilities increased almost 7% compared to the prior year quarter, with nearly 2% case growth and 5% higher net revenue per case. New physician recruiting efforts yielded 100 new recruits to our facilities in the second quarter, bringing our overall new recruits in the first half of the year to over 250, with recruits spanning all of our core high-growth specialties. Previously, we've shared with you the increasing contribution our newly recruited physicians bring to facilities. Our most recent 2022 cohorts are no exception to this trend, bringing more cases with a higher overall net revenue per case than our 2021 cohorts did in the same period last year. Finally, the transition of procedures out of traditional acute care inpatient settings continues to accelerate. Joint replacements in our ASCs were up 32% from last year, and our cardiac procedures have increased nearly 9%. Over the past three years, our total joint program had a compounded aggregate growth rate of approximately 90%, while our cardiac program rate of growth is over 27%. We will continue to focus on this significant shift in site of care in our recruiting efforts, acquisition, and de novo investments. We believe our strong financial results reflect the numerous macro tailwinds associated with the benefit of performing procedures in a high quality, lower cost patient and physician centric setting. With a total addressable market of over $150 billion, our company is well-positioned to capture its fair share of that market. Moving to capital deployment. Our M&A team continues its disciplined approach to sourcing and executing on strategically important acquisitions at attractive multiples. Our team is currently managing a robust pipeline of potential targets. In the second quarter, we acquired minority ownership positions in five ASCs through our relationship with ValueHealth and acquired a majority interest in a vascular-focused ASC. Combined, we deployed approximately $90 million for these six ASCs. In addition, as we discussed on our last call, we acquired four in-process de novos from ValueHealth for approximately $14 million. Eric will speak further to the continued execution on acquisition opportunities related to our ValueHealth partnership we announced on our last quarter's call. Our balance sheet remains strong, with limited exposure to interest rate changes and no material debt maturities until 2026. We believe our existing acquisition pipeline, coupled with a renewed focus on de novo development, further enhances our long-term trajectory. Based on our solid performance during the first half of the year and our outlook for the back half of the year, we are reaffirming our full year guidance for 2022 adjusted EBITDA to a range of $375 million-$385 million, and revenue in the range of $2.5 billion-$2.6 billion. With that, let me turn the call over to Eric. Eric? Thank you, Wayne, and good morning. I will focus my comments on a couple of areas that will explain my optimism for the company and our guidance for the year. First, I will provide a few additional highlights from our second quarter results, including statistics about our key organic growth initiatives. Then I will share more details about the continued execution of our M&A strategy. We are very pleased with our second quarter results. The company continues its positive trajectory as it emerges from the pandemic, with surgical case growth across specialties at level consistent with pre-pandemic levels. We continue to see stabilization of our case mix, which is another data point that we have resumed business as usual. While we continue to have impacts from COVID-19, after dealing with this pandemic for over two years, our facilities, physicians, and patients have learned how to navigate outbreaks with less disruption to normal life, and in most instances, cases get rescheduled within a few weeks rather than being canceled. To support this point, we performed over 149,000 surgical cases in the second quarter, which represents approximately 7% growth over the prior year quarter. On a same facility basis, net revenue grew 6.9%. Our organic growth initiatives, coupled with acquisitions completed over this past year, have translated into strong top-line growth of over 13%. Adjusted EBITDA came in at $86.1 million, with a 14% margin when you exclude the impact of CARES Act grants, delivering 50 basis points of margin expansion compared to the prior year period, which was in line with our expectations for the quarter. As we mentioned on our last call, we closely monitor inflationary impacts to our labor supply costs. Our enhanced reporting of labor and supply costs allows us to identify any new trends early and to react accordingly. While we have done well overall in mitigating the impacts of these pressures, we have seen elevated contract labor rates in certain markets, which can be explained by the enormous pressure the Omicron variants have had on our healthcare system. With improved data analysis, we can evaluate if the use of such labor is the best option for a particular facility versus other options, helping avoid some cost pressures. Premium labor as a percentage of our total salaries, wages, and benefits in the second quarter of 2022 continues to be consistent with this same ratio in pre-pandemic periods. We attribute our high retention of key talent and recruiting speed to our favorable workplace environment, allowing us to maintain the high clinical quality and exceptional patient experience we are known for in the communities we serve. We are also working with our GPO and key suppliers to understand inflationary factors that can impact our business. In the second quarter, supplies were approximately 28.2% of net revenue, 80 basis points lower than the second quarter of last year. Given the global environment and continued disruptions to the supply chain, we acknowledge the potential for increased costs moving forward. At this point, we are not seeing unusually large price increases in commodities, implant costs, or deliveries, but we remain vigilant in managing this risk and have active initiatives underway to proactively mitigate it. Moving on to our organic growth levers. We continue to benefit from our relentless focus on physician recruitment and targeted facility level and service line expansion. These efforts contribute to higher overall revenue per case rates as well as generate the highest contribution margin for our portfolio. Our physician recruiting team has been meeting the increased demand for new physicians for short-stay surgical facilities by targeting the highest quality physicians. In the second quarter, we added 100 new physicians spanning our key specialties, bringing our first half total to over 250 new surgeons using our facilities. As Wayne highlighted, each of our recruiting cohorts continue to drive strong year-over-year growth, and we are encouraged by the early strength of our current quarter recruiting class. As a point of reference, the average net revenue per physician in the 2022 cohort is already 55% more than the very strong 2021 cohort that we recruited last year. All of this has helped fuel our growth in MSK procedures, particularly total joint cases in our ASCs. We performed approximately 25,400 orthopedic procedures this quarter, 12% more than the prior year quarter. We do not see this growth slowing. As we have discussed, we are preparing for the next wave in cardiac procedures that we expect to migrate to outpatient settings. With an increasing share of orthopedic and cardiac procedures moving into lower cost, high-quality, short-stay surgical facilities, we are considering all options to capture our fair share, including the increased use of robotics, renovation of existing facilities, increasing our M&A pipeline, and developing de novo facilities. As Wayne mentioned, in the second quarter, we acquired ValueHealth minority equity stakes and management agreements in five ASCs. We also acquired interests in four ValueHealth de novos. We expect to help these facilities grow disproportionately over time, leveraging our different and specialized operating system. These transactions represent the continuation of our partnership with ValueHealth as we maximize our combined strengths and capitalize on the rapid migration of high acuity cases to the high-quality, short-stay facilities we own and operate. As we have discussed previously, in-market development of de novo facilities is a core strategic growth pillar for the company. The capital investment required for these facilities is low when compared to traditional M&A, but the time it takes to syndicate and build out the centers often exceeds 18 months. In addition to the initial syndicated projects acquired from ValueHealth, there are multiple other de novos in development across our portfolio. To summarize, our M&A capital deployment through the first half of the year, we have deployed over $125 million on existing facilities and have invested $14 million more on de novos. Well on our way to completing our commitment to deploy at least $200 million in capital in 2022. Given the results we reported this morning, along with our outlook for the remainder of the year, our Adjusted EBITDA guidance range of $375 million-$385 million. This guidance prudently considers that we are still in a pandemic environment and in a period of inflation that could pressure margins. As you can see from our first half results, we are confident we can manage through these risks. Our teams are highly aligned, and we are executing on our initiatives across business development, recruiting, managed care, procurement, revenue cycle, and operations to achieve our goals. In summary, I am very proud of the team's accomplishments this quarter. Our company provides a cost-efficient, high quality, and patient-centered environment in purpose-built, short-stay surgical facilities that provide meaningful value to all of our key stakeholders. I'm also excited about our continued partnership with ValueHealth and the strength of our de novo and M&A pipeline. With that said, I'll turn the call over to Dave, who will provide additional color on our financial results as well as our outlook. Dave? Thanks, Eric. I will first talk about our second quarter financial results and liquidity before providing additional perspective on our outlook for the remainder of the year. Starting with the top line, we performed over 149,000 surgical cases in the second quarter of 2022, 6.7% more than the same period last year, with strength across specialties, especially in orthopedics, where we grew by nearly 12.5% versus prior year. We believe our volumes are near normalized levels as we have effectively managed the continuing impact of the pandemic through enhanced visibility and proactive efforts to reschedule procedures canceled due to patient or physician illness. Largely attributed to this growth, we saw revenues rise 13.3% over last year to $615 million. This growth is a combination of the organic growth factors Eric described and contributions from our prior year acquisitions in consolidated facilities. As a reminder, many of our more recent acquisitions are in non-consolidating facilities that provide us the opportunity to enhance performance through operational excellence and to buy up over time. A highlight point as we are agnostic to the accounting treatment of the assets we acquire. Our focus is to acquire high-growth, high-quality assets aligned with our targeted specialties at the most favorable multiple possible. On a same-facility basis, which we report on a days adjusted basis, total revenue increased 6.9% in the second quarter, with case growth at 1.9%. Net revenue per case was approximately 4.9% higher than the prior year period, driven by solid growth in our high acuity cases, such as orthopedics. Adjusted EBITDA was $86.1 million in the second quarter, which included approximately $100,000 of benefit from the recognition of grant income from recent CARES Act grants. As a reminder, adjusted EBITDA for the second quarter of 2021 included $2.9 million of grant income recognition. Adjusted EBITDA margin, excluding the impact of the CARES Act grant, was 14%, a 50 basis points expansion from prior year. As I've mentioned before, we are diligently managing inflationary pressures affecting our labor and supply costs. Although we are not immune, these factors were not material to the results we are reporting this morning. Our salaries, wages, and benefit costs, as well as our medical supplies costs, were in line with prior year pre-pandemic levels and our expectations. Given the market dynamics, we will continue to carefully monitor these cost factors, proactively deploying cost mitigation tactics to help offset potential pressure. It does continue to represent a risk to future results that we are incorporating into our guidance for 2022. Moving on to cash flow and liquidity. We ended the quarter with approximately $227 million of cash, which includes approximately $17 million of Medicare advanced payments reported as deferred revenue on our balance sheet. Recoupment of these funds from future Medicare revenue will continue through the third quarter. We reported positive free cash flows in the second quarter, with $42 million of cash flow from operations, $61 million of distributions to our partners and CapEx, and $22 million of repayment of Medicare advanced payments. Year- to- date through July and excluding our de novo investment, we have deployed approximately $135 million on 10 ASC transactions at an average multiple of less than 7.5x on a trailing twelve-month basis. These centers are primarily focused on MSK procedures and are well-positioned to support and strengthen our same-store growth trend in future years. Our acquisition pipeline also positions us well to achieve our targeted $200 million of annual capital deployment. The company's ratio of total net debt to EBITDA at the end of the second quarter, as calculated under the company's credit agreement, was 6.0x, consistent with our expectation. We expect this leverage to float in the upper 5x-lower 6x range in the near term as we continue to deploy capital for accretive assets. As of June 30, 2022, we had total liquidity of $430 million, representing consolidated cash of $227 million and $203 million of undrawn revolver capacity. This solid liquidity position supports both our local facility working capital, investments, and capitalization, as well as our future M&A. On the debt front, we have approximately $2.4 billion in gross debt at the corporate level, of which $1.5 billion is floating. We previously entered interest rate swaps and caps that have significantly mitigated our exposure on 100% of this floating debt. At the end of the second quarter, we hit our interest rate caps. With the benefit of our interest rate swaps and caps, our exposure to incremental interest expense to fluctuations in the market is not material. In addition, we have no material debt maturities until 2026 and approximately 15% of our debt due by 2025. As a reminder, the company has an appropriately flexible capital structure with no financial covenants on the term loan or our senior note. When combined with proceeds from ongoing portfolio management activities, our current liquidity position allows us to approach the capital markets opportunistically. To be clear, we are confident in our ability to fund current and future M&A opportunities. With the second quarter results we released this morning, we are optimistic about 2022 and are reaffirming our 2022 guidance for total revenue in the range of $2.5 billion-$2.6 billion. In addition, we are reaffirming our 2022 guidance range for Adjusted EBITDA of $375 million-$385 million. We continue to believe this range is prudent given the macroeconomic environment we are facing. We anticipate the seasonal pattern of our financial results will be relatively consistent with pre-pandemic levels, with the third quarter earnings and net revenue representing between 24% and 25% of our projected full year performance, with our best estimate of the impact of known extended vacations in the third quarter. As we evaluate risks versus opportunities in 2022, we are confident in our annual outlook and continue to see strength and momentum across multiple product lines and geographies. With that, I'd like to turn the call back over to the operator for questions. Operator. Operator, if you could open the line for questions, please. Of course, sir. At this time, we will now begin the question and answer session. If you would like to ask a question, please press star and then one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and then two 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 the star key. The first question we have is from Kevin Fischbeck from Bank of America. Please go ahead. Hi. This is Nabil Gutierrez on for Kevin. Given this higher inflationary period, how are you thinking about commercial pricing? Can you hike rates, and how long will it take for them to catch up to the inflation? Hey, good morning, and I appreciate the question. First thing I would highlight, just as a reminder for all of our shareholders, is that about a third of our contracts renew each year when you think about commercial contracting. In some cases, they have inflationary bills already into them, as we've been going through the normal renewal process. If you think about it purely on a top-line pricing, you know, you generally are gonna get about a third each year that will run right into that. You know, that being said, we're clearly in a unique environment and we have our managed care teams actively working with the payers to see if we can accelerate certain provisions and especially around inflationary provisions that are in there. Thanks. Thank you. Ladies and gentlemen, just a reminder, if you would like to ask a question, please press star and then one. Participants are asked to ask one question and one follow-up at a time. The next question we have is from Brian Tanquilut from Jefferies. Please go ahead. Hey, good morning, guys, and congrats on the quarter. I guess, for Wayne or Dave, as I think about the capital structure and the guidance that you gave, that you're gonna spend $200 million in acquisitions, a lot of investors are thinking about, you know, just cash use, cash generation and how you're thinking about, you know, the sustainability of that $200 beyond 2022, you know, given the leverage profile that in the current market environment. Just any thoughts, from you guys to share on your ability to flex on the acquisition side, acquisition spend? Yeah. Thanks, Brian. First of all, good morning. I'm gonna have Dave in just a moment maybe just highlight again our current cash positions and kinda where we stand. Just talking about in general, though, kind of the cap structure. We generally target between 5x-6x leverage, where we have always said we'd probably be to the higher end of that simply because we can acquire assets at such attractive levels, it would make sense to that leverage point. That being said, we are generating positive operating cash flow now as an organization and expect to generate positive cash flow for the year. This is the last year that we have unique outflows, both around the taxes that we have as well as around the Medicare repayment. You know, as we move into next year, we expect to be in the $100+ million of operating cash flow that we will generate. Of course, that number will continue to grow. The real question becomes that if you're deploying $200 million a year, you know, what levers do you have available? I think one is, as Dave will highlight, not only the ample cash that we have available today on our balance sheet, but we're also going through a portfolio refresh that we do every so many years. As we started back in 2018 and 2019, we do that again. One of the things we find is that we have many assets that are in markets that we believe, while good markets, don't necessarily have the same growth trajectory as our other specialties have or other assets have. We also have unique opportunities to refresh the portfolio, and redeploy capital at a very high multiple that we would sell certain assets at and then redeploy at a very low multiple. Net-net, I would say feel very good about our forward-looking approach, and it really starts with the idea that we'll generate north of $100 million in free cash flow as we go in the next year. With that, Dave, maybe highlight again our capital position and some of the things that we've been thinking about around cash outflows, in particular, the interest environment we're in and why we're very comfortable with that. Yeah, thanks. Thanks, Brian. Not a whole lot to add to that. By the way, good morning, Brian. So I think, you know, in addition to the opportunities that we have to raise additional kinda capital funds through the portfolio management activity, which I just think is good hygiene for us as a company, you know, we also have done an effective job, I believe, in our kind of risk management from an interest rate perspective. You know this as a company, like we are forward-thinking when it comes to kind of how to manage those risks. A couple years ago, we did put hedges on our variable rate debt, our term loan, and as you know, that has done really well for us and kinda protected us in this rising interest rate environment. The fact that we don't have anything coming due until 2026 on a material nature, that exposure from a cash outlay perspective is really not there. We feel really comfortable about that. Now it's just about managing that conversion of earnings. Again, being in an earnings position gives us some degree, some high degree of confidence when it comes to that, coupled with the way our balance sheet and our revolver support is right now. At this point, not seeing reason to deviate from that long-term guidance. Yeah, I appreciate that. I guess, Dave, since I have you, my follow-up will just be on the G&A line as I look at it, you know, was down about 11% sequentially. Is that the right baseline to be using for the rest of the year? Or just any thoughts on the G&A line that we need to be thinking about? Yeah. So it's a great question. You know, the activity that we do constantly, just as part of our normal growth trajectory, is to kinda evaluate all of those line items on our G&A, continue to find those efficiencies. Clearly, we're navigating an interest environment or an interesting environment right now of inflation. So, you know, all of our energy is kinda spent, kinda continuing to look at those. We're not gonna give guidance inside the components of our balance sheet, but or our income statement rather, but I'll remind you, we are a seasonally adjusted company. So inside the quarters, you're gonna see higher overall revenue, as we go throughout the year, as we handle more commercial patients. On a range basis, you can imagine we are gonna continue to focus on all of those levers available to us. Yeah. Brian, on G&A, if you think about that's something we look at constantly as we grow to gain efficiencies, right? Our expectation is that should fall over time as a percent of our total revenues, and we manage to that very closely. Awesome. Thanks, guys. Thank you. The next question we have is from Jason Cassorla from Citi. Please go ahead. Great. Thanks. Good morning, guys. I just wanted to ask about the volume backdrop. I guess within the second quarter and as we look forward to the next couple of months, are you seeing any an elevated level of cancellations or procedures perhaps being pushed out because folks are perhaps reprioritizing their discretionary incomes, just given the high inflation backdrop? Or maybe just at a high level, how do you view the impact of this high inflation on procedure demand in your facilities? Would be helpful. Thanks. Thanks for the question. Good morning, this is Eric. So we are seeing some cancellations and rescheduling. It's based on a couple of things. One is some of the COVID variant that's out there. The second is just summer vacations. We talked about extended vacations a bit. Those get rescheduled. We track them very closely. We have no reason or indication to believe right now that people are making different decisions on what we call these elective procedures, but they're needed procedures. We haven't seen that change. You know, we'll be watching that closely. Clearly, we're humble enough to realize it's a different kind of economic environment than we've been in. Given our high value presents a need for these procedures to be done, you know, we don't see that. As a likely outcome, we're watching it closely. On the vacation side, though, and on kind of just summer stuff going on, you know, and the variant, we are seeing a few cancellations. Typically, we get those rescheduled within a matter of weeks, and we're continuing to track that very closely. You know, that's really all I can give you color-wise on that. This is Wayne. One thing I would also remind our investors is our model's pretty unique in that if you consider historical patterns, and while history is not necessarily an indicator of how the future will repeat, whether you're in the inflationary environment or whether you move into a recessionary environment, if you look back to even the kind of 2008, 2009 period, when we went through the Great Recession, the opposite actually occurred. What you actually saw was that these high acuity procedures, these elective procedures actually grew exponentially during that window of time. It was a combination of individuals where if they were losing their job, moving to COBRA, and we're essentially absorbing a lot of those costs for them. Them being in a position of recognizing that if there was a window to do elective procedures that they had deferred, that was the window to do it. Because they would be home and unemployed. It's a little bit of an unusual thing to think about, but our model seems to have some unique insulation if history is to repeat itself going forward. Got it. Okay. That's helpful. Then maybe just as my follow-up here, I guess on the guidance front, you know, we look back, you know, back in mid-January, you'd kinda given this expectation for at least $300 million of EBITDA for 2022. Today, you've maintained that $380 million midpoint, but you've executed on, I think, $135 million worth of transactions year- to- date, which gives something close to high single- to low double-digit EBITDA contribution, dollar contribution for 2022 based on my math. Maybe just in that context, do you see your business on an organic basis kind of coming in line with your expectations from this point? Or how would you frame maybe the pluses and minuses versus where we kinda started off at the beginning of the year? Thanks. Yeah, I would say organically, you know, being at around 7% same store is pretty strong in light of the environment. I think it's fair to say that we continue to see the impact of the variants. I mean, the reality is people are still getting COVID. People are still then canceling procedures. While those procedures get rescheduled, you do lose the days that they cancel. You're not exactly backfilling, you know, the day somebody calls in and says, "I tested positive for COVID." I think it's fair to say that it's clearly having somewhat of a headwind relative to our organic growth rate. At the 7% same store, we're very comfortable with that, especially in this environment. If anything, we only see those trends improving, not getting worse as we move forward. The last thing I would simply say is, you know, on the M&A front, as we think about the $200 million, we always recommend, you know, use kind of a mid-year convention. Think about it that way. You know, M&A can be lumpy, so sometimes it gets accelerated, sometimes it gets paid. Net-net, you know, it's kinda where you land the plane. Overall, relative to our expectations for the year, we're feeling pretty good. We raised guidance in Q1. I think it's no secret that the inflationary pressures are continuing for the industry broadly. I don't think it's any secret about the different variants, but we have a lot of confidence in that range, and we have a lot of reasons to believe, not only that we'll finish strong this year, but we don't see anything deviating from our mid-teens growth going into next year. Got it. Thank you. Thank you. The next question we have is from Lisa Gill from JP Morgan. Great. Good morning, and thanks for taking my question. I just really wanna go back to about commercial contracting. Wayne, I think you talked about a third of renewals each year. Last quarter, you talked about a new relationship with Privia on the MSO side. Can you really talk about what you're seeing around contracting as we think about value-based care? Are the managed care companies and the commercial market starting to talk about contracting around value-based care? I would think that your company is really well positioned as we think about this shift in site of care to, you know, better outcomes, lower cost. If you could just maybe more broadly talk about that, one, and then, two, where you are with the Privia relationship. Yeah. Lisa, I'm gonna ask Eric to comment on the Privia relationship as well as anything he wants to add color commentary on the managed care relationship. Let me first say, I know you can appreciate this as probably all of you on this call, that we've been talking about value-based care as an industry for about two decades now. It's, you know, I kinda laugh about everybody's talked about it, yet we're trying to figure out how to actually create the influence. You know, I always remind folks at the end of the day, you can build all the technology, and you can build all the process, but you actually have to move the care to a quality environment that actually has a lower cost. That, in many ways, was the piece that had been missing in the industry. It was always kinda shifting from one price point to a similar price point with something deteriorating either in quality or patient experience. In this case, we believe we have not only the assets to offer better quality, but clearly the patient experience is through the roof. Relative to value-based care, real discussions are happening. The payers are really embracing it. It's an easy sell for us because we tell them and say, Look, we move the volume for you. You don't have to worry about it. If we can enter into these type of VBC arrangements, we wanna participate in the upside. I'll let Eric expand a little bit on how that's progressing with the Privia relationship and what we're doing there. I think the key component is, as I've said in the last call, we are the value in value-based care, and now it's just connecting the dots with the payers that shows them that it translates. Yeah, Lisa, first of all, great questions, and thank you for the question. A couple of things I'd point out, starting with the commercial rate, three things to keep in mind. When we think about commercial contract negotiations, we think about a few levers. It's not just rate, right? We're never gonna lead the rate. We certainly wanna get paid fairly, but we actually work very closely. Mostly with the payers. There's been some big Blues across the country that have announced 50% professional fee bumps for the right side of care for, you know, independent ASCs, non-HOPD ASCs, and those are all to advantage. We work closely with payers to think about levers that not just get us, you know, additional revenue, but also get us additional volume. Yeah, I point that out. We clearly are talking about cost pressures, and we're clearly looking for above-market rates. You know, it's too early to say the amount of success we'll have in doing that. We wanna make sure we're locking in some of that mitigation in case we see more pressure going forward than we have to date. As a reminder, a lot of contracts in our industry aren't a percent of Medicare. You know, we saw yesterday, we're still reacting to Medicare's slight improvement on what they offered. Still not where the industry wanted it, but better than the initial. All of that kind of rolls through as well. I would just say, you know, when we think about those commercial relationships, it's more than just the unit price. We certainly wanna make sure we're getting paid as much as we can fairly in the market, but we also really, really think about how do we get that moving care. Because going back to what Wayne said, you know, we are value-based care in the fee-for-service world. Move to our site, dramatic reductions in cost. Going to your VBC question. Look, you know, we partner with Privia in Montana. We've talked to Privia as a company that is very aligned with what we're trying to do, which is to, you know, move patients to the right side of care. Their primary care docs are increasingly incentivized by value-based care contracts and/or some kind of capitated contract. Those type of groups, and there's more than just Privia, we're naturally aligned with. We're an independent provider. We're not tied to health systems. We don't bring a lot of conflicts. You know, we see that continuing to happen. We continue to talk with Privia about a broader relationship. You know, obviously, we've talked a lot about our ValueHealth partnership, and their whole model is about working with payers to create the incentives to allow cardiac, orthopedics, higher acuity procedures to move faster. We're seeing it move quite fast. You guys saw our growth numbers for the quarter in orthopedics were 12%. We feel pretty good about the speed of it. If we can accelerate that, and I think there's reasons to be optimistic based on the fact that payers can see that, you know, they've got five-figure discounts from what they're paying hospitals in many procedures, you know, that's a place we're gonna continue to lean in. Great. Thanks for the comment. Thank you. The next question we have is from Bill Sutherland from The Benchmark Company. Morning, Bill. Are you there? I am. I couldn't quite hear the operator. How are you guys doing? Good. Just a couple of updates on some data points you provided, or clarification. I noticed the mix of same-store revenue growth kind of flipped in terms of the case and revenue per case. Is this kind of the mix that you're looking at going forward more than the first quarter was? Bill, we've talked about the recovery, you know, kind of across specialties. I think, you know, as we start getting further and further away from the height of the pandemic, I think you will see more of a normal, you know, 2%-3% case growth. You know, we're really proud of our case growth in the environment. We think that it, you know, continues to be industry leading, and we still have opportunity there. In total, Bill, I do think you're gonna see some normalization. I know you saw a huge case growth in certain quarters where it was really about the recovery of some of that lower acuity business, whether it's GI, ENT, et cetera. Yeah, you were gonna get back to some normalized rate. We've talked for a long time, 2%-3% case rate and volume, so that gets you in the 4%-6% range. We've outrun that for quite some time. We expect we probably will for a while because of rate and because of our ability, you know, to recruit physicians and move stuff disproportionately. That case rate feels about right. Okay. I bet that's what I was sort of thinking about as well when I asked the question is the productivity you're getting out of the newer cohorts. Maybe a little color on where that, you know, where you see those productivity drivers kind of in. You know, where you know the source of those drivers in these cohorts that you're bringing on. I think, Hey, Bill, good morning. This is Wayne. I think one of the things I would highlight, though, is kind of the natural maturation, though, of how our ASCs evolved during the pandemic. The reality is our ability to onboard these physician recruiting quicker, the ability to get them the block times they're looking for, and the comfort levels that they're getting because of the number of peers of theirs that we're getting recruited over and how soon they come over. If you look back all the way back to 2018 when we first started this journey, you know, it was a really long maturation period to get a physician not only to join your facility, but you would actually see patterns of one or two cases a month that would eventually, after three months, go to four or six cases that would eventually get to, you know, 20, and then they would get to full run rate. That maturation window has compacted quite a bit in the last couple years. Again, I think that's really just a function of the idea that one, we've shown that you can do these procedures in a safe environment. Two, is their peer group, you know, they talk to one another, and they're seeing the value of it. Three, is we've really figured out the scheduling. I mean, we've really got that nailed in our facilities now, and how we can ebb and flow and getting people the block time they need right when we recruit them out of the gate, so that we can get that value creator in much sooner than before. I would say that's been the primary. Then finally, you know, these COVID variants continue to affect the acute care environment. You know, I think these doctors become equally frustrated in that environment when their surgeries continue to get canceled or impacted as well. That just creates even further trends for us that says, with us, you get stability and you get a window to work in. Got it. Thanks, Wayne. Appreciate it. Thanks, Bill. Thank you. The next question we have is from Whit Mayo with SVB Securities. Hey. Thanks. Good morning. Just a couple clarifications here. Wayne, I think you said earlier that you expect $100 million of cash flow next year. I just wanna make sure that we're defining that. Are you saying the internal expectations for $100 million of free cash flow after cash NCI, after CapEx? Just how are we defining that $100 million? Yeah, no, Whit, just as you said, we expect $100+ million even after CapEx and our core investments of free cash flow that can be deployed for M&A. Okay. Pure discretionary free cash flow. Okay, great. Dave, what was the bank defined EBITDA in the second quarter? I think you said leverage was 6x, but I may misheard you. No, you heard correctly. We are at 6.0 this quarter compared to, I think, in line with our guidance point that we have out there. Our calculation of credit agreement EBITDA, which we put in our press release, I think you can see. Oh, okay. in the back part about it was just under $440 million, a little bit higher up than what we had in the first quarter, all exclusively kind of related to the acquisitions that we've completed. Right. That makes sense. Can you maybe just update on some of the acquisitions in the last six months or so? It feels like, I mean, I totally get the organic numbers. I mean, you're comping off against a ridiculously high number from last, so I think people need to probably put that in perspective and look at the sequential growth. The M&A seems to be a little bit light of sort of where I thought they might be tracking. If you could just maybe update us there, and then also on, you know, Idaho Falls. Thanks. On the M&A front, actually, we're very pleased with that on the M&A front. What I would highlight, though, is that with the ValueHealth arrangement, one of the things that we find quite compelling is that we are able to selectively buy into facilities where we can take over management of the facility. They are minority interest initially, but we have the flexibility then of showing the value we bring, as SP and then buying up over time. What that does do, and that was the comment Dave made about being agnostic to the accounting treatment, is that in the short term, you won't get the revenue bump that you're usually used to seeing from M&A, because you don't consolidate. Nonetheless, the EBITDA is there, and I would tell you the multiples are highly attractive, even below our 7x multiples that we've been giving them at. As you think about that's a trailing 12, not a synergized basis. We are actually very encouraged about the pipeline. We're being a little more judicious though, because of that, because we actually have, you know, a large opportunity with the ValueHealth assets, and then we compare those as we look external to those assets we can take immediate control, but generally with immediate control, they require a higher multiple. I would say pace-wise, no concerns at all from our end. If anything, we have a LOI over $100+ million in right now under LOI as well. I would say confidence in getting the $200 million done is high this year, and having the ability to potentially flex up or down as we get into the last quarter as we move into the new year. It really just comes down to the quality of the assets we're looking at. I would say no delays from our end, and if anything, I'd say it's quite robust. On Idaho Falls, I would just say that, look, we still love that market. It's above our expectations this year from a hospital perspective. At the community hospital, we continue to see, you know, as we talked about, it was delayed opening during the pandemic, but we've now added a lot of those programs we expected to add. You know, trauma center, we've added NICU capabilities in the market. That's a market for us that's been quite compelling for a long time. It's above our expectations this year. We see it, you know, getting to that level we've talked about for a long time in our credit agreement, EBITDA, and that market in total is performing extremely well. Just going back to Wayne's point, I would just say, you know, you guys have talked about ValueHealth, but, you know, to date, we've done 7 existing, 7 de novo. You think about 14 transactions in the partnership so far. We're very, very pleased with the opportunity to grow together on that. It continues to be something, as Wayne said, that gives us a lot of confidence in our ability to meet and exceed what we expect to get done on the M&A front. Thanks, guys. Thank you. The next question we have is from Ben Hendrix from RBC Capital. Thank you very much, guys. I was wondering if you're staying on the M&A topic, if we could dive into ValueHealth acquisitions and the others and just how they fit on the overall acuity spectrum, and especially focus. Then specifically with vascular ASC, if you could talk about how if that is something that you expect to position you incrementally better for the growing cardio. Thanks. Yeah. On the ValueHealth front, you know, actually, their facilities are a little bit, in total, higher acuity when it comes to orthopedics than ours. The company's been very much built on orthopedics. When we think about what we're buying there, it actually matches up very well with our targeted specialties, particularly orthopedics and total joints. That's been, you know, a great part of this transaction is that we were highly aligned on the high-end specialty we're going after, which aligns with their model too, on trying to create these incentives for, you know, for all the stakeholders to move business out of acute care hospitals. It's kind of their bundled model. That has matched up extremely well. When it comes to your second part of your question was around moving past ValueHealth. Vascular. Vascular. Oh, yeah. Cardiology. Yes, we bought a vascular center in the last few months. We have some more cardiology in our pipeline. I will say this, cardiologists and vascular surgeons in general are extremely interested moving into the space. You know, there's a few more. You know, the reason this isn't going as fast as maybe some people would think is because there are a few more kind of obstacles. Meaning a lot of these docs haven't done this in the past and/or they're employed heavily throughout the country. If you look at the vascular center we picked up, that's a center that we're very excited about. We have cardiovascular synergies in that market, lots of capacity to expand. We do expect more of these kind of opportunities, because of the nature of these procedures, much like orthopedics, higher acuity, higher net revenue. We do expect to have, you know, more EBITDA per minute. We know we'll have more EBITDA per minute than these facilities do on average. It's gonna more closely mirror orthopedics. We're very excited about that center, and we have a number more in the pipeline that match it. Thank you. Yep. Thank you. Next question we have is from Tao Qiu from Stifel, go ahead. Hey, good morning. So the Medicare proposed rate growth was 2.7% in July, and we've seen that the finalized review for a lot of other providers were probably 1% better. How do you feel about that, you know, maybe high 3%, you know, ASC payment when the final rule came out? How does that compare to your outlook of cost growth for next year? This is Wayne. Good morning. One thing I would highlight is we never quite know where these rates will finally fall, so we always plan for more of the worst case scenario. Anytime we see the rates improve between the preliminary versus final, that is positive from our perspective as we think about how we build our plans for next year. That said, you know, we're still in a very unique inflationary environment, and we don't plan to take our foot off the pedal just because the rates have improved, 'cause we really do believe this has some sustainability to it in the near term, as we've seen some of our peers have to manage through. It's why we will continue to put a lot of aggressive behaviors on what is our care and custody, which is around how we control those costs, both around implant costs as well as just our broad G&A and then our labor costs. We're pleased to see the rates improve. We're always pleased with that, but we always prepare for more of the preliminary levels as being a more worst case scenario. Got you, Wayne. My second question is, you know, probably for Dave. You know, the capital market has changed decidedly in the second quarter, and we saw that some of the leverage names were kind of out of favor. You know, you mentioned earlier that you're still confident on your existing capital deployment plans. I remember that you raised some equity last year, maybe in the $30-ish level. You know, how do you feel about your leverage today? And, you know, would you be more comfortable coming to the market at some point? Thanks for the question. Yeah, again, I'll remind you kinda where we're from a strength of balance sheet perspective. I do agree with you. The market right now looks choppy. It's been choppy for a lot of us, not just Surgery Partners. You know, we are not in an environment right now that we need to go into the market. We can look at this market today as purely opportunistically. Strong cash position, strong support inside our revolver. As Wayne mentioned earlier, our ability to convert earnings into cash on a predictable basis gives us that confidence to be able to be there. Got you. The plan is due to deliver through growth. Remain in kind of that 5x-6x range, which we think we're comfortable with is if the disciplined approach to M&A that we have continues to deliver equity value compared to the price that we're paying, we will always look at those levers that are out there. Right now, we're not changing kind of our view of upper 5s, low 6s for that leverage rate. Got you. Sounds good. Thank you. Mm-hmm. Thank you. The last question we have is from Sarah James from Barclays. Please go ahead. Thank you. I wanted to go back to your earlier comments on the commitment to robotics purchases and how it fits into your strategy. Can you give us some comparison on how your robotics investments ROI compare to, like M&A or other uses of capital? When we look at your CapEx, how much of that is actually going towards robotics? Thanks for the question, Sarah. I'll let Dave give some specifics on kind of the way we arrange those. Well, a lot of those are funded locally, and we don't spend a lot of CapEx on these. The payoff and return on these is quite strong. The ROI, I would say, is probably internal investments in same store growth is better than anything else we can do. When we find those are the first things we're going to fund. I would point out for those cases, when we use robotics, and this is very different than when I was in the acute care world. Robotics in the acute care world is often a way to try to keep procedures, and you're transitioning stuff to robotics that we used to be open, et cetera, et cetera. For us, it's always an offensive play, meaning we've got a group of docs who wanna be in the ASC, and maybe they're already bringing us some cases, and they would bring us more if we had the right technology. We're always using this to play offense. Therefore, it's a net gain that's quite powerful for the model. We're not transitioning existing cases to a little bit higher cost technology. We are opening up the door to more technology. You know, I would say we've done it dramatically in orthopedics. We do have our first you know, center that has the Intuitive program at the ASC level. We expect that's gonna grow over time. I think payers are increasingly open to this idea that we should not be having first patient procedures at higher cost settings simply because of a piece of technology. We're working with payers and others to figure out how do we solve for that issue, so we get patients to the appropriate site of care for the best value. That's gonna be an ongoing investment opportunity for us. That's our first thing we do. We think about organic growth. Our focus on organic growth over the last couple of years, it's finding ways to grow within our existing facilities. That's the best return we can get. I don't know, Dave, if you wanna add anything on kinda how we approach it. Yeah, I mean, I'll say this, you know, from a return on investment perspective, what Eric described is spot on, right? We've continued to deploy this kind where necessary. Last year, bringing nine robots into our environment. This year, bringing an incremental four in there. You know, what gives us confidence when we do that ROI analysis is the advancements that we've made on our recruiting team. We have good, strong confidence both in the way we talk to recruited physicians as well as their history, which we have good visibility into. That gives us confidence in the ROI. The other is the advancements in robotics enables us to kinda bring these in a really rapid basis, at you know, at a leasing cost, again, it's at the facility level. Feel really good about that growth engine. Yeah, that's helpful. Just to go one level deeper, so you mentioned the da Vinci, but you also mentioned that there's other robotics that if you had them, surgeries could actually switch from inpatient acute to your centers. Can you give us view of what those are of what the specific specialties are or robotics that are allowing you to recruit new surgeons and surgeries? Sure. There's a number of systems out there, and we use most of them. If you think about in orthopedics, there's a number of different, you know, vendors that we use, and it's basically based on physician preference, how they were trained, et cetera. Those have all been cases where physicians were maybe doing total joints in the hospital setting. They were trained on the robot. They feel more comfortable coming to the ASC setting. Same thing with da Vinci. You know, da Vinci, if you can think about the service lines, it's gynecology, it's urology, it's general surgery. Those tend to be surgeons who have trained extensively on da Vinci. That may be the primary way they do procedures. When we think about this opportunity, the real. You know, what we think about is how do we give them the same comforts for those outpatient surgeries when they can be done in a facility that's a better value to the patient. You know, I mentioned three specialties. Beyond that, it's really orthopedics and cardiology, not so much cardio. Orthopedics and spine are really the ones beyond the three that I mentioned, GYN, general surgery and urology, when it comes to robotics. But we see that as a big opportunity 'cause there are big chunks of outpatient procedural business that right now are only in an inpatient setting because of a piece of technology, and we continue to focus on ways to empower physicians to take those patients to the right setting with high quality, great customer experience for their customers. Thank you. Thank you. I believe that was all. Yes. Yeah. I believe that was the last question, and we certainly appreciate everyone coming on this morning. Before we conclude, I would like to acknowledge the significant efforts and focus of our 11,000 colleagues in 4,800 positions across the country. Collectively, Surgery Partners takes to heart the responsibility for providing the absolute environment for our physicians to provide surgical care and an exceptional patient experience. We know that more than 600,000 patients annually place their trust in us in what is often one of their most vulnerable moments. I am privileged to work alongside these professionals as we work to more fully deliver on Surgery Partners' mission to enhance patient quality of life through partnership. Thank you all for joining our call this morning, and I hope you guys all have a great day. Thank you. Ladies and gentlemen, that concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation.