Greetings. And welcome to the Surgery Partners, Inc. Second Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tom Cowhey, Chief Financial Officer, for Surgery Partners. Thank you. You may begin.

Good morning. And welcome to Surgery Partners second quarter 2020 earnings call. This is Tom Cowhey, Chief Financial Officer. Joining me today are Wayne DeVeydt, Surgery Partners’ Executive Chairman; and 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, the company 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 release, which is posted on our website at surgerypartners.com and in our most recent quarterly report when filed. With that, I will turn the call over to Wayne. Wayne?

Thank you, Tom. Good morning and thank you all for joining us today. Before we begin our call this morning, I would like to acknowledge and recognize our 10,000 plus associates and physician partners that continue to support the healthcare system and the needs of their patients. These are clearly unprecedented times, and we are proud to be affiliated with these heroes, who have embodied our mission of enhancing patient quality of life through partnership during this public health crisis. On behalf of Surgery Partners Board of Directors and management, thank you for your service and the sacrifices that you and your families are making each and every day. Turning to our second quarter results, over the past two plus years we built our company for growth and applied a data driven approach to decision making. We forged our strategy based on key data points, including but not limited to specialties expected to grow at a disproportionate rate versus industry averages, contribution margin per minute based on specialty types and anticipated tailwinds such as the transition of many Medicare related procedures from a higher cost inpatient setting to a lower cost high quality outpatient settings. We also use data to support our physician recruiting efforts and to hold ourselves accountable for execution. Our strategy was built to support sustainable long-term double-digit growth. However, a data-driven approach can only answer so many questions, including how a business model and team may perform during an unanticipated and unprecedented crisis like COVID-19. More importantly, with the growth engine we established to be able to survive and continue to thrive given our differentiated strategy and assets. As you can see from our second quarter results, despite the unique environment impacting both our country and company, our business model has proven to be quite resilient.…

Thank you, Wayne, and good morning. Today I’d like to review highlights of our most recent results, provide an update on our COVID-19 response and outline our plans to navigate this crisis throughout the second half of 2020. Tom will then close our prepared remarks with greater detail on second quarter financial results before we take questions. From March 14th, when the Surgeon General of CMS and some states started to recommend suspension of elective surgeries to help preserve critical resources, we saw a wide variety of impacts to our facilities, with both regional differences, as well as differences based on specialties. In general, our short-stay at surgical hospitals proved more resilient in the initial downturn than our ASCs and higher acuity cases were slightly less impacted than lower acuity cases such as GI procedures. Encouragingly, each month from April through June experienced larger increases in volumes than we had projected and these trends appear to be continuing through July and our current August scheduling. For the quarter, the temporary suspension of elective procedures depressed overall volumes. But we remain cautiously optimistic as we look into the second half of the year based on our most recent results and the outstanding efforts of all of our team members. As disclosed in our 8-K on July 22nd, our same-store cases volumes as a percentage of prior year totals increased from 19% to 93% from April to June. Today, we announced that our second quarter 2020 adjusted EBITDA was $58.2 million, inclusive of $27 million in CARES Act grants. Tom will go into more detail on the financials, but we are quite pleased to be able to demonstrate such strong performance in these difficult times. Such solid financial results would not have been possible without the efforts of lawmakers, local officials, and…

Thanks, Eric. First, I will spend a few minutes on our second quarter financial performance before moving on to liquidity and some considerations as we move into the second half of 2020. Starting with the topline, surgical cases declined to just under 83,000 in the quarter, primarily caused by COVID-19-related restrictions. Adjusted revenues for the quarter were $383 million, 16% lower than the prior year period. Reported results included approximately $12 million of contribution from our new Community Hospital in Idaho Falls. On a same-facility basis, total revenue declined approximately 18.6% in the second quarter. Looking at the components of this decline, our case volume was 39% lower than the prior year period, offset by higher net revenue per case that increased by over 32% driven by acuity mix and pricing. Turning to operating earnings, our second quarter 2020 adjusted EBITDA was $58.2 million, just under a 5% decrease as compared to the comparable period in 2019. During the second quarter, we received approximately $48 million in CARES Act funds, of which we recognized approximately $43 million as other income based on lost revenue since the COVID outbreak. After non-controlling interest, the grants we recognized in the second quarter contributed approximately $27 million to our adjusted EBITDA. During the quarter, we recorded $10.1 million of transaction, integration and acquisition costs. Of note, second quarter 2020 transaction integration and acquisition costs included approximately $5 million of EBITDA losses associated with our de novo hospital in Idaho Falls. As I have noted before, we expect to report results from this facility separately throughout 2020, and although, this new hospital experienced lower volume in the second quarter associated with COVID-19, the underlying momentum remains very positive. Moving on to cash flow and liquidity, we ended the quarter with a strong cash position of…

Thank you. [Operator Instructions] Our first question comes from the line of Kevin Fischbeck with Bank of America. Please proceed with your question.

Hi. [Inaudible] Just to make sure that I understand the last comment correctly [inaudible]…

Hey, Kevin. You are not coming through well. I don’t know if you are on a mobile line. Could you maybe try to ask the question again? I am sorry Kevin, but unfortunately, we can’t hear you. Operator, can you still hear us?

Yes. I can hear you. His line is breaking up. Mr. Fischbeck, perhaps, if you dial back in on a landline, we can take your questions. I am sorry. Your next question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

Hey. Good morning, guys. Congrats. I guess my first question, Wayne, as I think about MSK, obviously, a big opportunity. Just what do you think from an acceleration perspective, in terms of shifting volumes from hospital settings to yours? What are the things that you still need to do to get this going and then how do you make this sticky so that even post-COVID it doesn’t move back into the hospitals?

Hey, Brian. Good morning. Thanks for the question.

Hey. Yeah. Thanks. And I meant joint replacement surgery, sorry about that.

Yeah. So, a couple of things that I would respond to regarding your questions, first and foremost, what’s been interesting, as you know, isn’t just the shift that we have been pursuing in terms of recruiting physicians and what we have been getting is kind of regular momentum. As we have mentioned historically, there’s really several factors we have to go after to get these things not only to move but them to become sticky. One is, you have got to actively recruit docs into your facilities and you have got to show them that not only you have the quality to support that. But you even have the technology and as you heard Eric in the prepared remarks comment that we are doubling down on our investments in robotics, we know that will actually help us not only recruit even more physicians in the facilities, but the level of technology that we can bring, which would be similar to what they could get in an inpatient setting will enable that to become more sticky. Two is, clearly, the advantage we have with our facilities is the flexibility and scheduling, and that is something that many inpatient organizations cannot offer to docs. And so, we don’t generally find that stickiness is the concern. In fact, we think during this environment, COVID-19 is actually giving us an opportunity to showcase our facilities to even more doctors in MSK, and show them that we can not only accommodate their needs but we can be highly flexible with their schedules. And so similar to what you heard from Eric and my comments, we actually believe that not only will these procedures come over but they will actually become sticky and we are actually seeing that as we looked at May, June, July, and even early scheduling now for August that those are in fact trends we are seeing. And then the last thing I would simply say is this…

Okay.

…the more that CMS continues to move procedures off the inpatient-only list and the over 300 MSK procedures that as of yesterday now are being recommended to transition over the next three years, is just another example and another sign of what we think will encourage doctors to move these procedures over. And candidly, patients prefer it, so all-in-all, Brian I would just say we have got really all tailwinds going in our favor right now. I don’t know Eric anything else you want to add, you have been on boots on the ground out visiting with our docs who we have been recruiting and others.

Yeah. Brian. Good morning.

Good morning.

I appreciate the question. I do think that one of the really interesting things for us is as more and more procedures are moved into our setting or able to be done in our setting, it’s easier for physicians to think about moving their practice, making an investment, right? They don’t have to split business and so every time we add one of these procedures, it makes their life easier. They get it come to a place where they have a consistent schedule. They know that it’s going to move on time. They are going to be able to get back to their office and now they can bring more and more cases. So it’s not just that they would now bring the Medicare hip, but I think, they can bring their whole line up on a Wednesday and so we see that as an incremental positive. Clearly, one of the other things that we have to continue to do, which we have been quite successful at over the last couple of years is make more and more of our centers capable of doing total joints and spine cases. And so we continue to add every year the number of centers where we have invested in the space, the technology, the adequate capacity to allow those procedures to be added and so that’s one of those things that we are excited about. And then the last thing, and Wayne mentioned this, I mean, there are certain places where we have either existing partners or physicians that, say, if it weren’t for a robot or a piece of technology, we would do it in the ASC space and we are solving those problems actively. So we do feel like all this net-net continues to add to this natural transition that we only see accelerating.

Yeah. I appreciate that. And I guess my follow-up, Wayne, you are obviously sitting on a lot of cash on the balance sheet, successful debt raise and I know you are very active in the M&A world. But how should we be thinking about the pace of deals, the makeup of deals, are you looking at bigger transactions given the amount of capital that you have in front of you or is this still the same kind of strategy where you are rolling up relatively smaller one-off transactions?

Brian, thanks for the question. A couple of things I would highlight, first and foremost, the M&A pipeline is as robust as we have ever seen it. I think that is both a function of the value creation that SP is able to show to potential partners, the independence of our value creation, and candidly, COVID has really put a spotlight on those standalone facilities that are struggling in this environment, and they can see what we can do to actually help them during this time. And so when you think about that, I would tell you that, a couple of things to hone in on. One is, we are very focused on those facilities that are heavy MSK and cardiovascular. We think cardiovascular is the next wave and we don’t want to wait two years or three years to start hitting that wave. In fact, we have got a number of facilities now that are doing that. We think MSK has got a good five-year to 10-year run in it still and it’s just starting the growth trajectory, but we actually want to start the next run as well. I would tell you that our pipeline has several transactions under LOI currently that we could close between now and the end of the year, subject to our due diligence and final procedures. And in terms of size and scale, I think, they take on kind of all shapes and forms. We will not do a bet the farm transaction. There’s no need to bet the farm. Things are going well. Our process works well. We are able to plug-and-play these things inefficiently. But we are looking at some slightly larger transactions than maybe we have done over the last couple of years, but focused on a multispecialty of cardiovascular and MSK. But, again, not much bigger than what you have seen historically but things that will really drive value creation to where we see the growth trajectory going.

You get that right, Wayne.

Okay.

Just one quick addition, clearly, we -- the pipeline has been fantastic, but we remain focused on those end market and de novo opportunities, they are extremely attractive. So we kind of have both going for us now. But I would just reiterate we certainly love the in-market de novo and roll up transactions and those continue to be very accretive, and they continue to be available to us.

Okay. Got it. Thanks. Congrats again.

Thanks.

Thank you. [Operator Instructions] This concludes our question-and-answer session. I will turn the floor back to Mr. Evans for any final comments.

Thank you. And we realize this is a busy morning of calls and so we -- there maybe a fewer questions than normal. I just want to wrap up and conclude by saying thank you on behalf of Tom, Wayne and myself to all of our colleagues across the country who have been contributing during this very difficult period and who are absolutely committed to delivering on our mission of improving patient quality of life through partnership. We are humbled by the efforts of our physicians, our nurses and other first responders across the nation as we all deal with this pandemic and certainly just want to say thanks for all they do. With that, thank you for joining the call today and we hope that you all remain safe and healthy.

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.