Core Insights - The company has faced challenges in maintaining its market access point for Medicare Advantage (MA) contracts, leading to a need for improved coordination with physician partners and primary care bases [1][2] - The company has consistently earned and taken commercial market share, indicating a strong competitive position despite recent challenges [3] - There has been a notable growth in high-acuity procedures by 18%, which is a positive indicator for the company's performance in a leading market share position for orthopedics [4] Summary by Categories Market Access and Coordination - The company has recognized the need to enhance coordination with independent surgical facilities and primary care providers, as they are not directly employed by the company [2] - There is an acknowledgment that the company did not react quickly enough to changes in the market dynamics regarding MA access [1] Market Performance - The company has a strong expectation of recovering its market position over time, particularly in areas where it has historically taken commercial market share [3] - Despite the challenges, the company has maintained a competitive edge with its value product offerings [3] High-Acuity Procedures - The company reported an 18% growth in high-acuity procedures, which is a significant achievement in the current market context [4] - This growth reflects the company's strong position in the orthopedic market, despite the overall market challenges [4]

Core Insights - Ziegler served as the exclusive financial advisor to Preferred Vascular Group (PVG) in its acquisition by Surgery Partners, a leading operator of surgical facilities and ancillary services [1] - PVG specializes in dialysis access procedures and operates eight Ambulatory Surgical Centers (ASCs) in Georgia and Ohio, providing cost-efficient outpatient options for dialysis care [1] - The acquisition allows Surgery Partners to enter the $6 billion dialysis access market, which sees over two million procedures annually [1] Company Overview - Preferred Vascular Group was founded in 2005 by Don Holton to address gaps in dialysis access care, focusing on high-quality outpatient services [1] - PVG employs a team of 16 physicians and over 160 staff members dedicated to delivering exceptional clinical outcomes [1] - Surgery Partners aims to leverage PVG's expertise to enhance its presence in the broader vascular market [1] Strategic Implications - The partnership with Surgery Partners is expected to enable PVG to scale its services nationally, addressing critical needs in the dialysis care ecosystem [1] - The acquisition represents a strategic move for Surgery Partners to enhance its portfolio of surgical centers with specialized vascular expertise [1] - Ziegler's involvement was highlighted as integral to the successful outcome of the acquisition process [1]

Core Viewpoint - Irenic Capital Management has significantly reduced its stake in Surgery Partners, indicating a shift in investment strategy despite the company's operational growth and revenue increase [2][10]. Company Overview - Surgery Partners operates a national network of surgical centers, focusing on outpatient procedures across various medical specialties, including gastroenterology, orthopedics, and ophthalmology [6][9]. - The company reported a total revenue of $3.29 billion and a net income of -$171.40 million for the trailing twelve months (TTM) [4]. - As of February 17, 2026, the market capitalization of Surgery Partners was $2.02 billion, with shares priced at $15.60, reflecting a 39.7% decline over the past year [4][8]. Financial Performance - In the third quarter, Surgery Partners experienced a revenue increase of 6.6% to $821.5 million, with same facility revenues up 6.3% and Adjusted EBITDA rising 6.1% to $136.4 million [11]. - The company anticipates full-year revenue guidance of up to $3.30 billion and Adjusted EBITDA of as much as $540 million [11]. Investment Implications - The recent sale by Irenic Capital Management reduced its position in Surgery Partners to just 0.09% of its $1.49 billion U.S. equity assets under management, indicating a re-prioritization of investment focus [8][10]. - The company's net debt to EBITDA ratio is approximately 4.2x under its credit agreement, which raises concerns in a higher interest rate environment [12]. - For long-term investors, the balance sheet discipline is crucial, as the outpatient model has structural advantages, but high leverage could lead to increased volatility [13].

Financial Data and Key Metrics Changes - Surgery Partners reported first quarter net revenue of $776 million and adjusted EBITDA of $103.9 million, reflecting an 8% increase in net revenue and nearly 7% growth in adjusted EBITDA compared to the prior year's first quarter [5][18][24] - Same facility revenue growth was over 5%, driven by 6.5% surgical case growth, although there was a slight decline in rates of approximately 1% due to a shift towards lower acuity specialties [6][18] - The company ended the quarter with $229 million in cash and over $615 million in total liquidity, with a net debt to EBITDA ratio of 4.1 times [19][22][23] Business Line Data and Key Metrics Changes - The company performed over 160,000 surgical cases in the first quarter, a 4.5% increase from 2024, with notable growth in gastrointestinal (GI) and orthopedic procedures [18][7] - Orthopedic cases grew by 3.4% year-over-year, with total joint procedures increasing by 22% [8][9] - The company added nearly 50 new physicians in the first quarter, with a focus on orthopedic specialties, which are expected to contribute to higher acuity surgical cases [9][56] Market Data and Key Metrics Changes - The company continues to experience strong growth in Medicare and commercial payer segments, with no significant changes in payer mix reported [40][43] - The company has a robust pipeline of de novo facilities, with 10 currently under construction and a target of 10 new openings each year [10][108] Company Strategy and Development Direction - Surgery Partners focuses on three pillars for growth: organic growth, margin improvement, and capital deployment for mergers and acquisitions (M&A) [4][11] - The company is committed to margin expansion through operational efficiencies and integration of acquired facilities, with a target of maintaining a leverage ratio below 3 times [12][82] - The company is actively monitoring regulatory changes and has minimal exposure to tariff-related price increases, ensuring a stable operational environment [15][70] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, expecting same facility growth to be at or above the high end of the 6% target for 2025 [6][17] - The company anticipates continued improvements in cash flow generation as the year progresses, despite some headwinds from interest costs [32][36] - Management remains optimistic about the impact of new physician recruits and de novo facilities on future performance [9][56] Other Important Information - Surgery Partners is currently evaluating a nonbinding acquisition proposal from Bain Capital, with a special committee formed to consider the proposal [16] - The company has invested $55 million in five surgical facilities in 2025, with an effective multiple under eight times adjusted EBITDA [12] Q&A Session Summary Question: Current utilization trends and sustainability - Management noted that first quarter same store revenue growth was in line with expectations, with case growth driven by stronger de novos and MSK growth [26][28] Question: Seasonality of free cash flow generation - Management expects overall improvement in operating cash flows as earnings grow, with the second and fourth quarters typically being stronger [31][32] Question: Changes in payer mix and commercial rates - Management confirmed no significant changes in payer mix, with strong commercial growth and constructive negotiations with payers [40][43] Question: Labor dynamics and specialty areas - Management indicated that professional fees were in line with expectations, driven by recent acquisitions, and that anesthesia costs were not a major headwind [51][53] Question: Impact of GI mix on revenue per case - Management acknowledged growth in the GI portfolio but noted that its impact on revenue per case was marginal [60][62] Question: Confidence in tariff exposure - Management expressed confidence in minimal tariff exposure due to strong relationships with suppliers and contract protections [69][72] Question: Free cash flow expectations - Management expects free cash flow to grow alongside business growth, despite some timing issues in the first quarter [91] Question: Margin expansion efforts - Management highlighted ongoing improvements in revenue cycle management and operational efficiencies as key drivers for margin expansion [94][96]

Financial Data and Key Metrics Changes - Surgery Partners reported first quarter net revenue of $776 million and adjusted EBITDA of $103.9 million, both meeting expectations. Adjusted EBITDA grew nearly 7% and net revenue grew 8% compared to the prior year's first quarter [4][16] - The company experienced same facility revenue growth of over 5%, driven by 6.5% surgical case growth, although there was a decline in rates of approximately 1% due to a shift towards lower acuity specialties [5][6] - The adjusted EBITDA margin for the first quarter was 13.4%, with total net debt to EBITDA ratio at 4.1 times, consistent with expectations [17][20] Business Line Data and Key Metrics Changes - The company performed over 160,000 surgical cases in the first quarter, a 4.5% increase from 2024, with significant growth in gastrointestinal (GI) and musculoskeletal (MSK) procedures [16][6] - Orthopedic cases grew by 3.4% year-over-year, with total joint procedures increasing by 22% [7][6] - The company added nearly 50 new physicians in the first quarter, with a focus on orthopedic specialties, which are expected to contribute to higher acuity surgical cases [8][56] Market Data and Key Metrics Changes - The company reported strong growth across all core specialties, particularly in GI and orthopedic procedures, which are expected to continue throughout the year [6][67] - The company has a robust pipeline of de novo facilities, with 10 currently under construction and a target of 10 new facilities each year [9][108] Company Strategy and Development Direction - Surgery Partners focuses on three pillars for growth: organic growth, margin improvement, and capital deployment for mergers and acquisitions (M&A) [3][10] - The company is committed to margin expansion through operational efficiencies and integration of acquired facilities, with a target of maintaining a leverage ratio below 3 times [20][84] - The company is actively monitoring regulatory changes and has minimal exposure to tariff-related price increases, with less than 5% of revenue coming from Medicaid and exchange-based reimbursement programs [13][12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory and reaffirmed guidance for full-year 2025 revenue and adjusted EBITDA in the range of $3.3 billion to $3.45 billion and $555 million to $565 million, respectively [21][22] - The management noted that the first quarter's results align with internal expectations and highlighted the importance of physician recruitment and operational efficiencies in driving future growth [15][35] Other Important Information - Surgery Partners has sufficient liquidity, with $229 million in cash and over $615 million in total liquidity, to support growth without needing to access capital markets [17][20] - The company is currently evaluating a nonbinding acquisition proposal from Bain Capital, with a special committee formed to consider the proposal [14] Q&A Session Summary Question: Current utilization trends and sustainability - Management acknowledged tough comparisons due to pricing but noted that first quarter same store revenue growth was in line with expectations, driven by strong growth in de novos and MSK procedures [24][25] Question: Free cash flow generation seasonality - Management indicated that free cash flow is expected to improve as the year progresses, with the second and fourth quarters typically being stronger for cash flow generation [30][31] Question: Changes in payer mix and commercial rates - Management confirmed no significant changes in payer mix and expressed confidence in ongoing constructive negotiations with commercial payers [40][43] Question: Impact of professional fees and labor dynamics - Management clarified that professional fees were in line with expectations, primarily due to recent acquisitions, and noted no significant labor pressures affecting operations [51][52] Question: Physician recruiting and acuity service lines - Management reported a diverse recruiting class with a focus on higher acuity service lines, indicating a 14% increase in net revenue per physician compared to the previous year [56][57] Question: Impact of GI mix on revenue per case - Management noted slight growth in the GI portfolio, with a marginal impact on revenue per case, and emphasized the importance of calendar effects on same store metrics [61][62] Question: Confidence in tariff exposure - Management reiterated confidence in minimal tariff exposure due to strong relationships with suppliers and effective procurement strategies [70][74] Question: Timing of NCI payouts - Management explained that the increase in NCI payouts was due to timing issues related to the holiday calendar, which should normalize throughout the year [75][78]

Financial Data and Key Metrics Changes - Surgery Partners reported full-year adjusted EBITDA growth of 16% and net revenue growth of 13.5%, resulting in margin expansion of 30 basis points [7][39] - The company achieved revenue over $3 billion and adjusted EBITDA over $500 million for the first time [8] - Adjusted EBITDA for Q4 was $163.8 million, with a margin of 18.9%, while full-year adjusted EBITDA was $508.2 million, reflecting a 16% increase over 2023 [40][41] Business Line Data and Key Metrics Changes - The company performed over 656,000 surgical cases in 2024, an increase from 605,000 cases in 2023, with significant growth in orthopedic procedures, particularly total joint procedures, which grew by 50% [12][13] - Same facility revenue growth was 8% for the year, with Q4 same facility total revenue increasing by 5.6% [39] Market Data and Key Metrics Changes - Approximately 90% of the company's revenue was generated from commercial payers and Medicare in 2024 [18] - The company expects Medicare rate increases of approximately 3% for 2025, contributing to revenue growth [19] Company Strategy and Development Direction - The company focuses on organic growth, margin improvement, and capital deployment for M&A as part of its long-term growth algorithm [6][11] - Surgery Partners plans to continue investing in acquisitions, facility expansions, and service line expansions, with a target of at least 10 de novo facilities annually [16][24] - The company aims to maintain a robust pipeline of attractive partnership opportunities, having added seven surgical facilities in 2024 [21] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's positioning relative to the current regulatory environment, noting minimal exposure to Medicaid and site neutrality legislation [30][32] - The company anticipates continued margin expansion and double-digit adjusted EBITDA growth in 2025, with initial guidance for net revenue between $3.3 billion and $3.45 billion [27][49] Other Important Information - Surgery Partners has a strong liquidity position with $270 million in cash and over $770 million in total liquidity [40] - The company incurred approximately $11 million in costs related to strategic alternatives considered by the Board in 2024, with expectations for similar costs in 2025 [45][134] Q&A Session Summary Question: Impact of potential legislation on revenue - Management indicated that the worst-case scenario from site neutrality legislation could impact revenue by approximately 1%, but they expect a net positive effect as procedures may shift from acute care to their facilities [55][60] Question: Guidance for Q1 considering weather impacts - Management noted that while unusual weather conditions may cause some rescheduling, it has been factored into their guidance, expecting Q1 to contribute about 23% of the annual revenue midpoint [64][66] Question: Changes in M&A approach due to Bain Capital's proposal - Management stated that the M&A pipeline remains strong and has not been impacted by the proposal, with three facilities already closed in Q1 2025 [71][74] Question: Revenue contribution from divested assets - Management clarified that less than 2% of the projected revenue growth is related to divestitures, emphasizing a focus on portfolio optimization [88][89] Question: Visibility on reducing transaction and integration costs - Management expressed confidence in reducing transaction and integration costs in 2025, with expectations for free cash flow improvement as these costs normalize [131][132]