Surgery Partners Inc (SGRY) 2017 Q1 法說會逐字稿

Greetings, and welcome to the Surgery Partners First Quarter 2017 Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mike Doyle. Please go ahead.

Thank you, operator. I'd like to welcome everyone to Surgery Partners' First Quarter 2017 Earnings Call. Joining me on the call today is Teresa Sparks, our Executive Vice President and Chief Financial Officer.

I'll now turn it over to Teresa to review the safe harbor statement.

Thanks, Mike. Before we begin, let me remind everyone that during this call Surgery Partners' management may make certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, anticipations, beliefs, estimates, plans and prospects.

Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in the company's earnings release posted on the website and provided in our Form 10-K as filed with the Securities and Exchange Commission. The company does not undertake any duty to update such forward-looking statements.

Additionally, during today's call, the company will discuss 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 adjusted EBITDA and adjusted net income to net earnings calculated under GAAP can be found in our earnings release, which is posted on our website at surgerypartners.com and in our most recent Form 10-Q.

With that, I'll turn the call back over to Mike.

Thanks, Teresa. Thank you for joining us this morning to discuss Surgery Partners' first quarter results.

Before we get into discussing our first quarter results, I want to spend some time on the agreement that Surgery Partners has entered into to acquire National Surgical Healthcare. We believe this is a strong combination of 2 leading outpatient surgical assets as the combined company creates a diversified outpatient surgical provider that is well positioned to be the partner of choice for physicians. This transaction combines 2 best-in-class organizations with a portfolio of 125 surgical facilities, 58 physician practices and complementary ancillary services.

Our goal will continue to be to deliver better patient outcomes at lower cost. Together, we will have a presence in 32 states with a network of over 5,000 affiliated physicians. The funding for Surgery Partners' acquisition of NSH will be provided in part by Bain Capital Private Equity, a leading global private investment firm, who, as part of the transaction, is injecting a preferred security in the company. Bain Capital Private Equity has a long history of successful investments in leading healthcare business, including HCA Healthcare. Their experience across the healthcare value chain, resources and support will be welcomed as we begin to execute on many growth opportunities this transaction will bring.

From a financial standpoint, the acquisition is accretive with an attractive return on invested capital and neutral to leverage. The combination of Surgery Partners and NSH will further strengthen our orthopedic program, increasing our exposure to this growing specialty. I would like to welcome the NSH team and physicians. I look forward to our exciting path together.

With that, I would like to walk you through our first quarter results. I am pleased to report that the year has started off in line with our expectations. Trends continue to be favorable for surgical services, and our markets and demand for consumer-focused alternatives remains robust. We are optimistic that our multispecialty facilities continue to perform higher-acuity cases, and utilization is in line with our expectations.

In the first quarter, we continue to focus on the fundamentals of the business, including physician recruitment and new service line expansion while generating solid growth. We've made progress on several fronts, including integrating our acquisitions and expanding the number of facilities focused on higher-acuity procedures. We expect that the operational objectives we've put forth in 2017 will be seen in our financial performance throughout the year. We believe our physician-centric model continues to deliver on its goals of providing quality surgical services and superior facilities for patients, physicians and payers.

For the quarter, we reported an 8% increase in total case volume and 2.1% increase in same-facility cases. Our core facilities continue to experience a favorable revenue impact from high-acuity cases, as reflected in the 5.6% increase in same-facility net revenue per case. With same-facility revenue growth up 7.8%, we are starting the year off on a strong footing from an organic perspective. We are particularly pleased given the tough year-over-year comparisons combined with first quarter seasonality.

Teresa will review the numbers in more detail, but let me highlight some of the operational progress since our last quarterly report. First, we have continued to ramp newly added services at several of our surgical hospitals as we focus on collaborating with payers in these markets, partnering on long-term strategic growth initiatives. These ramping services include a robotic surgical suite, providing expanded capabilities for our general surgeons and our newly recruited GYN group. We are mindful of the near-term effects of -- on margins related to ramping up new service lines, and we expect our growth to accelerate as these new programs reach maturity.

Second, we've seen progress in our integration of the platform transactions we discussed in our last call. We have continued to align with physicians in these markets with a focus on achieving expected results on a run rate basis by end of year. While the strategy of adding platform physician practices remains sound and holds significant long-term growth potential, the near-term results can often be challenging during the initial phase of integration. As a result, we have introduced a joint venture model, and these practices have been performing as expected during the first quarter.

Last, we solidified the expansion of our strategic relationship with a provider in the southern California market as a preferred partner for near-term market expansion. We are excited about this opportunity for continued growth in a proven market. As we discussed in the fourth quarter call, we are scaling back our individual facility and practice acquisition activity in 2017 as we focus on integrating transactions closed in 2016 and on the NSH transaction.

As expected, while we did not complete any other acquisitions this quarter while focusing on NSH, we are still on track and plan to spend close to $60 million to $70 million this year. We continue to be focused on deleveraging in a manner consistent with our peers and balanced with opportunities for growth. As you'll note, we plan to close the NSH transaction in a leverage-neutral manner.

So on that note, I'd like to move on to the NSH transaction. Teresa will discuss the acquisition financing, but I wanted to hit on a few operational highlights. As you may know, NSH was the largest stand-alone private surgical services company remaining in the industry and an attractive asset for us given their focus on musculoskeletal procedures, which consists of approximately 75% of their revenue mix.

Today, NSH consists of 21 surgical facilities across 15 markets with a mix of ASCs and physician-owned surgical hospitals. With over 1,000 affiliated physicians, this brings our physician network to over 5,000 physicians across 32 states. The acquisition opens up not only a large whitespace opportunity for our ancillary services platform, but also creates what we believe to be the nation's premier musculoskeletal program covering all acuity types as well as a platform to expand our pre and post-op protocols. And in doing so, we're partnered with a recognized leader in quality. NSH hospitals consistently rank in the top quality in patient satisfaction surveys. We are happy to bring on a new partner with the clinical performance and platform in place to meet the need of solving for cost for higher-acuity cases.

Lastly, while we are very excited about Bain Capital Private Equities' investment and their commitment in the combination of Surgery Partners and National Surgical Healthcare, we are also thankful to have had the opportunity to grow the company with H.I.G. Capital over the past 7 years, and we thank the entire H.I.G. team for their support of our company and management team along the way. I would like to thank our dedicated employees and physicians as they work hard to help us execute on our strategies.

With that, let me turn the call over to Teresa.

Thanks, Mike. First, I'll touch on the current quarter. We are pleased to report our quarterly results were in line with expectations. Specifically for the quarter, revenues increased 7.2% to $286.2 million from $267.1 million last year. Total cases increased 8% while revenue per case declined by less than 1%. This revenue per case decline reflected the impact of acquisitions last year, which were focused on lower-acuity procedures such as GI and pain. In addition, on a year-over-year basis, total revenue reflects the anticipated lapse of a breakeven anesthesia contract to an unaffiliated provider. The contract was neutral to EBITDA but dilutive to revenue by approximately $20 million for 2017, which is already incorporated in our full year guidance.

On a same-facility basis, cases increased 2.1% while revenue per case increased 5.6%, reflecting higher-acuity cases during the quarter. Our same-facility revenues increased 7.8% compared to the first quarter of 2016 and exceeding the high end of our annual guidance range of 5% to 7%. As we've noted before, the balance of case growth and revenue per case can shift from quarter-to-quarter, depending on our specialty mix.

Adjusted EBITDA increased 4.4% year-over-year to $40.1 million. And while this gain is lighter than in recent quarters, with approximately 20% contribution for the year, our results point to the midpoint of the annual guidance range. While we kept expenses in check during the quarter, we did experience an increase in supplies as a percentage of net revenue resulting from the focus on higher-acuity cases, which have a lower overall profit margin. We expect margin expansion to emerge as we continue throughout the year with a focus on longer-term growth opportunities in our surgical hospitals and an extended integration period in our integrated physician practices. We remain committed to our physician-centric model for the delivery of our surgical services.

Turning to the balance sheet. We ended the quarter with cash and equivalents of $56 million and availability of approximately $78 million under our revolving credit facility. Net operating cash flow less distributions to noncontrolling interest was $15.6 million. As expected, our ratio of total debt to EBITDA, as calculated under the company's credit agreement, was 6.48x. And as Mike mentioned, we've structured the NSH transaction in a leverage-neutral manner with the assistance of Bain, as our thinking on this topic of balancing leverage with growth has not changed. The acquisition positions us well for growth and continues to focus on deleveraging over time with a target range of 5x during the first half of 2019.

As Mike mentioned, our guidance for the full year remains unchanged. We expect revenue growth of 9% to 11%, with 5% to 7% growth from same-facility and adjusted EBITDA growth in the range of 10% to 15% over 2016. As we noted last quarter, we expect the usual seasonal pattern, with the first quarter accounting for roughly 20% of EBITDA for the full year and the fourth quarter accounting for about 27% to 28% with the second and third quarters around 25% to 26%.

I would like to expand on Mike's comments on the pending transaction. The NSH portfolio is a complementary extension of our multispecialty portfolio that diversifies our footprint and expands the breadth and depth of our offerings. As we have done in the past with the Symbion and NovaMed transactions, we carefully evaluated this opportunity. We have the same management team on the ground today, so we feel very confident about our ability to execute on the integration of the NSH and Surgery Partners teams.

From a structural standpoint, we are acquiring NSH for $760 million, which is approximately 10x LTM adjusted EBITDA before synergies. We estimate approximately $20 million of cost synergies to be realized from the transaction, supported by our work today with the NSH management team as well as our prior experience with NovaMed and Symbion.

From a financing perspective, as I mentioned earlier, this transaction is structured in a leverage-neutral manner. We have committed financing in place to support the transaction and refinance our existing debt. This includes an approximate $300 million convertible preferred note from Bain Capital. In addition, while this is not related directly to the NSH transaction and has no impact on shares outstanding, Bain Capital has also agreed to acquire all outstanding common stock held by H.I.G. Capital, representing approximately 54% of the outstanding common stock of the company.

With that, I'll turn the call back over to Mike.

Thanks, Teresa. We had an exciting start to the year with the continued confirmation of our strategy with enhanced payer engagement in the industry, an increased role of consumers in choosing their health care providers, and obviously, announcing the NSH transaction. Surgery Partners remains uniquely positioned as we have a network of services designed to meet the needs of consumers, physicians and payers. Our network of services is an example of how integrated care in an outpatient setting continues to evolve. Our business model incorporates a healthy balance of diversified services, which gives us a substantial, flexible approach as we expand.

Approximately 80% of our ambulatory surgery centers are multispecialty. Orthopedics and spine specialists continue to advance the complexity of the procedures they perform in our outpatient surgical facilities. We have the flexibility to address pre and post-op services related to our core surgical services, and the company is well positioned to expand our existing ancillary service line and add new ones to meet the needs of our patients in the markets we serve.

In summary, we appreciate the support of our physicians, employees and investors. We are excited about the prospects of the remainder of the year and look forward to our next update. Once again, we would like to welcome the NSH team. We look forward to meeting and working together towards a successful 2017 and beyond.

I would now like to turn the call back over to the operator to begin the question-and-answer session.

(Operator Instructions) Our first question today is coming from Ralph Giacobbe from Citi.

I'm curious, I missed it, did you say you paid 10x EBITDA for NSH? And is that pro forma inclusive of synergy?

So the 10x excludes synergy.

Okay. But is it pro forma sort of for an annual forward look or is it trail?

Yes, that's -- well, that's based on 2016, so LTM as of 2016.

Okay, that's helpful. And then maybe just remind us where you are in terms of penetration on the ancillary services today and what that opportunity is in NSH? And sort of how much synergy is driven by that piece of the equation?

Yes, so I think, again, from a stand-alone company, we are right at that 14% to 15% of revenues coming from our ancillary services. As far as the opportunity as we go forward, we continue -- obviously, the platform with NSH, the like-minded management teams and culture continue to look at the opportunities to implement ancillary services, will spend time in evaluating those opportunities across the platform of facilities. And from a synergy perspective, we do not have any inclusion in those synergies of that activity. So these are truly cost and cost synergies, not any contemplation of revenue synergies included in that $20 million.

Okay. That's helpful. And then I guess, in the release and in your prepared remarks, you commented that EBITDA came in line with your expectations. So do you think it was just seasonality thing that basically got mis-modeled, maybe? And I guess, what factors sort of give you the comfort in the ramp for the remainder of the year to kind of hit that guidance range?

Yes, we had mentioned kind of the cadence to the quarters when we introduced guidance for '17. Of course, on a stand-alone basis is what we're referring to here. And so the 20%, we had expected to be in that range for the first quarter. So that push to the fourth quarter continues to be more pronounced with just the obvious changes in the healthcare environment, so we feel comfortable based on historical results and that continued growth pointing to the fourth quarter to keep in line with that -- the guidance we provided.

Okay. All right, that's fair. And then just last one for me. Same-facility revenue growth outpaced total revenue growth. I know in your prepared, you commented on the shift of moving, I guess, practice out of consolidated. Is that what caused that sort of discrepancy between the 2? Or is there something else between thinking about sort of same-store versus total revenue growth?

Yes, so we were, first of all, pleased with our same-facility revenue being at the high end of the guidance at 7.8%. From a total revenue perspective, we had 2 things really that you can point to on top line revenue. One was, in 2016, our acquisitions were focused on lower-acuity cases. GI and pain were the 2 specialties we were focused on from our acquisitions last year. And then second is related to -- I mentioned just briefly, we had an anesthesia contract that we opted not to renew. That was to an unaffiliated provider, so not to our own network, and it was -- impacted revenue, but had no impact on EBITDA. It was EBITDA-neutral.

Our next question today is coming from Frank Morgan from RBC Capital Markets.

Just curious, you'd mentioned the synergies, I think $20 million. Are there any -- could you break out any more details on those synergies? And then any expected revenue synergies?

So from a cost perspective, we're really looking at the bucket of duplicative corporate costs, and these are more -- not necessarily intraoperational pieces of it but combined support departments. And again, that's been evaluated, and we'll continue to progress in that piece of it. There's also significant focus on supply cost, higher-acuity cases. And as we combine the companies into a significant platform on a musculoskeletal basis, it is really -- has an opportunity for cost savings across these higher-acuity specialties, and we continue to focus on that cost. So that's really the focus. From a revenue-synergy perspective, there continues to be significant opportunities to implement ancillary services across this portfolio. And again, as we've learned in previous transactions, there's multiple ways to get there. So we may end up having those revenue synergies through one-off physician practices in existing markets, adding other ancillary services and more -- some more exciting things that we'll develop with the company as we have higher volumes of these -- the higher-acuity cases and getting into the joints and the heavier spine-type cases, we're have other opportunities for new lines of ancillary services. So I think, from our perspective, because of the nature of whether you're going to acquire a small, new service line and grow it, are you going to acquire physician practice in existing market, or are you going to start de novo practices in each of these markets, how to count them as the revenue synergy, although they will be, and there is significant opportunity there. We have not outlined those or given any direction on those on how we will accomplish that, but they'll built it into the go-forward growth.

Got you. And I know you mentioned this deal will be accretive, and it's leverage-neutral. But any color that you might be able to share with regard to maybe some of your basic assumptions on what would convertible preferred coupon be, conversion premium, how much minority interest you think you'll have, if there is any, that you'll be -- incremental MI that you'll be adding here?

Well, as we mentioned, yes, Frank, the leverage-neutral, we were -- had the opportunity to refinance the existing first lien term loan, to extend some maturities and then place some more bonds on the balance sheet to shore up that fixed component, continue to focus on that. And then the Bain capital, the convertible preferred equity, we haven't disclosed those terms at this point, and -- but again, we expect this to be leverage-neutral and are excited about the opportunity for growth to stay at that level.

Okay. Let me just ask one more, and I'll hop off. You can answer just any -- maybe give us just a little bit of background on this deal, how it came together? Was it competitively bid? And just kind of how it all came together and I'll hop off.

Yes. Thanks, Frank. For me, I think from NSH perspective, we've had a long-standing relationship there. I have had a great relationship with the management team over many years. Surgery Partners stand-alone as a private company spent some time back in 2010 in a competitive process, where we looked at NSH and NovaMed, and Irving Place won that one from us. And again, disappointment then, but the management team continued on and did a great job on growing that company. So again, a chance to revisit late last year. And obviously, a competitive process to get to this point and be able to announce the deal.

So a unique opportunity on just being able to expand the surgical facility network by another 21 facilities that have an integrated approach and a focus on musculoskeletal. Combined company being in -- about 59% of our revenues will be coming from musculoskeletal-type cases and a significant increase in the higher-acuity mix. So that just gives us a really nice entryway and portfolio of facilities and a national platform of facilities that can participate and work with payers to implement unique opportunities to capitalize on the trend of these types of procedures coming to the outpatient facilities. And I think to keep in mind that even though there's a mix of physician-owned hospitals and ASCs and the combined company continues to have that mix, over 85% of the volumes that come to these facilities are outpatient. So just an important thing to keep in mind.

(Operator Instructions) Our next question is coming from Brian Tanquilut from Jefferies.

Congrats on the deal. So Mike, as I think about NSH, do you mind just sharing with us the structure of their partnerships, 2-way versus 3-way? I mean, how many of those they have? And then the level of physician ownership. I know you generally run a 51-49 structure, so what does that look for NSH? And also Teresa, if you don't mind, just sharing with us the revenue pace for NSH LTM?

So I'll start off. I think the unique thing here in and our success in the past has been continuing to partner with management teams and company platforms that have much the same culture and strategy that we have had. So with NSH, mostly a 2-way joint venture. Mostly and pretty much with the exception of some single specialty orthopedics, a multispecialty approach or multispecialty capabilities at their facilities. So a very common -- lots of common denominators between the 2 companies, and management teams have known each other in the past and have been around the industry for quite some time. So a pretty easy fit from that perspective, from a strategy perspective. Again, a continued look at 3-way joint ventures with health systems, not as a core growth strategy but as an opportunity on a market-by-market basis to make an impact and do the right thing for the physician partners and the communities that they operate in. So we love the fact that we don't have to do a lot of work on putting together the strategy and bringing people across the line to have a common strategy. That's in place already, which is just a huge help when you combine 2 organizations.

Now so, Brian, from a revenue perspective, their revenue on a trailing basis, over $500 million round to $530 million range. So we'll be a combined company roughly $1.7 billion on a trailing basis.

Got you. And then just a quick follow-up on leverage. Teresa, when you talk about leverage-neutral, is that assuming the $20 million in synergies? Or is that pre-synergies? Just a clarification.

Yes, that's including the $20 million in synergies.

And then my last follow-up, Mike, as I think about...

Brian, just to clarify, that brings it down slightly from our current leverage point. We're roughly in that 6.3 range when you include synergies.

Got it. Okay. And then Mike, just as I think about Teresa's comments earlier in margin expectations for the rest of the year and then mixing that with your comments on picking up more high-acuity cases, now how should we be thinking about the flow-through of spine and knee procedures? And how that's driving obviously the same-store revenue per procedure up and mixing that with the margin comment? Because I know that is generally margin-dilutive for you guys. Then how should we think about what NSH brings to the table in terms of spine -- their ability to do spine and joint replacement?

Yes. So I mean, they bring some great capabilities, and both companies have been on a very -- separately, been on a very active path and have very focused programs. I know we've spent the -- a lot of time at the end of last year really putting together a standardized program with our physicians and our advisory committee to really put together that program that offers facilities the pre-op, the post-op protocols and, really, the whole patient experience of having an outpatient joint. And our teams have done a great job.

From the NSH perspective, the very same focus, and they added joints and facilities last year. About 4 new facilities began doing total joints last year that had never done them before. So that focus and capability to execute has been very interesting. With any new program, as you begin to gain volume and learn your way around, and not from a surgical perspective, but just working with the vendors, being able to get volumes of these procedures where you have a meaningful place with a vendor that has some leverage and now can begin to take a look at these physician preference items and implants and begin to consolidate your spend and work with your vendors to get better pricing. So that -- on both spine and joints will continue to have a pretty significant opportunity there.

Our next question is from Kevin Fischbeck from Bank of America.

Great. I guess, if you could provide a little bit of color about the ancillary service opportunity? Does NSH do any of that internally right now? Or will this all be incremental?

About 3% of their revenue is from similar as we consider our ancillary services, so there's a lot of opportunity there with the combined network and the platform expanded. There's a significant opportunity to expand our ancillary services.

Okay. When you said that this deal is going to be accretive in 2018, I think it sounded like you were going to be doing a lot of things around the balance sheet: refinancing, adding bonds and things like that. Is that accretion kind of inclusive of all of that? Or is that kind of a separate transaction to, in your mind, to deal with maturities and things?

No. That's based on where we are today and the financing that's been committed. The preferred equity that Bain has placed as part of the capital structure, accretion will be around the 15% range on an as-converted basis as we think about adjusted cash, EPS. And we work to that number. It's accretive in that range.

And at 15% accretive, over what time period? How long does it take to get the cost synergies and everything that you're looking for?

Yes. So we have a couple of time frames here as we're thinking about this. But just synergy realization, those types things will happen over the next 2 years. But as far as the accretion analysis, 2018, so year 1 post close.

Okay, great. And then just last question. On the physician integration side, on the core business, can you give a little more color about what's going on there? I guess what's been causing things to come in a little bit more slowly than what you initially anticipated?

Yes, I think we spent some time talking about on the last quarter. What we had done in our large platform acquisitions that were in neighboring geographies is we took 2 large platform acquisitions and combined them into 1 large practice that works throughout a region. With that, that process is obviously converting of systems, relocations, combining the geographies and taking a look at owning physicians and physicians that need to be replaced. It was just a little bit of a longer process than we expected. So having 2 large practices with obviously, at some point, somebody has to be the boss. One has to take the dominant position. And we have had, obviously, a noisy integration, but our core volumes remain intact. Our core referral sources remain intact.

And as we continue to replace -- as we've replaced management team and integrated the management team at those locations, it's been a little bit noisy. One owner -- previously owning physician departing and being replaced. But I think, from our perspective, where we sit today, is that the physicians are in place, they're engaged. We've continued to reach out to the community and shore up the referral sources and become involved in the communities where we practice and these physicians work. And we've seen the beginnings in the first quarter of this working very well, and we're very confident that by the end of the year we'll be to the run rate that we expected.

Okay. So Q1 is improving the way you would have thought of off of Q4? It's not any different than that?

Yes, it improved as expected, and we did have the expectations for a quick turn there. So hats off to the team and our physicians on the ground there.

Our next question today is coming from John Ransom from Raymond James.

Teresa, when you talked about 15% accretion, how do we think about this convertible preferred in the calculation?

That's on an as-converted basis.

So I'm sorry if I missed it, but what was the kind of -- thank you. I heard the question, but I don't think I got the answers. So do we know the terms of this convert? And I'm sorry if I missed that.

We haven't disclosed those yet. We'll be working on the filing and providing that information. But in general, it has a 5-year term, roughly a 10% -- around a 10% coupon. So we have the ability to pay cash and to have a PIK component. And so as we consider all those elements of the instrument in 2018, it would be accretive roughly 15%.

But there is a stock price conversion as well? Or is it just a coupon note?

No, it converts at a stock price, and it's the $19 stock price, where the transaction occurs today.

I see. Okay. And what's going to be your fixed floating mix of interest expense pro forma?

So the balance sheet remains. Still, we've improved slightly on the fixed component. We're still roughly 38% of the balance sheet is fixed and the remainder variable. So we've made some improvements there and improved maturities and some pricing, so addressed the balance sheet from that standpoint.

Right. So I guess my question is, my real question is, as I step back and look at this, I mean this sounds like a neat deal, but why not try to fix some of your capital structure deficiencies around leverage and exposure to floating rates? And just have more of a plain vanilla equity component versus something that looks a little convoluted, frankly.

Well, the thought was, from a capital financing perspective, that we were trying to keep as much of our existing facility in place to be sensitive in terms of fees and just to benefit from that existing structure. So that was the overall thought.

Is that because there's prepayment penalties on your existing debt? Or you just didn't want to pay to put new debt in place?

Correct. On the new -- the prepayment penalties.

Okay. Got you. And is there a -- can you give us a comparison of the organic growth of what you're buying as compared to your organic growth? Is it -- I assume it's probably a little bit lower because yours has been higher than normal?

Yes, I mean, it's a pretty similar profile in terms of growth, about 6% organic. So we're -- as we look at -- as this close date firms up and we'll provide some over -- some additional guidance on the combined company, we would like to have our targets very similar in terms of total revenue growth, 9% to 11%, remain in that same-facility at 5% to 7%. I mean, there's a lot of characteristics between their growth profile and ours. EBITDA, we would expect, as these numbers true up, and we get some more clarity around closing. But we'll still be in that 10%, 15% range from EBITDA growth.

I think that's one of things that were attractive from this perspective, is that a very similar growth profile and long-term growth profile, lots of running room. So again, from a growth and culture and the way that they've grown in the past, very similar companies.

Our next question today is coming from Josh Raskin from Barclays.

Maybe sticking with NSH here. Just want to understand a little bit more. I think, Teresa, you just mentioned 6% organic growth. But maybe give us just a look at sort of EBITDA growth, sort of how did they get up to that $76 million that you guys are reporting? And I guess, I'm just curious in the context of you're paying 10x, that seems like almost a discount to where some of the ASC transactions have been and 8x with synergies. You said it was competitive process. I'm just curious what are some of the counterbalancing forces that kept that multiple from creeping even higher?

It's good negotiating.

There we go.

No, I mean, the business, as we've mentioned, has very similar -- I guess, we can't stress that enough, very similar profile to our existing business, where the growth profile, the culture, the structure of their partnerships. They've had 3 acquisitions since 2013. I think they've had a focus on other strategic alternatives and areas of focus as we've discussed, but we think their pipeline folds in nicely to ours. We expect to continue to be able to fund our M&A activity with free cash flow. And hopefully, with the thought is that when we look at -- we take a look at the combined pipeline, that we would be able to continue to grow in that manner to delever over time. And we're excited about the things they have in process and in our pipeline as well.

I think the other thing to keep in mind is just the fact with having the combined company and having an infrastructure, a like-minded growth approach and the go-forward focus also played a role in this part of the -- in getting the deal across the finish line through that competitive process. I think as you take a look at what the competition would be between stand-alone private equity firms bringing on a surgical platform and the capabilities of a strategic coming into the space, and the advantages of that on a go-forward basis were all considered in the process. And again, there's a piece to that, that's set. And I think we've got a lot of excitement from the team at NSH to move forward. Our focus on musculoskeletal and understanding that piece of it and the excitement around the multispecialty focus and the higher-acuity cases and the willingness to continue to progress to work with payers on this, were a lot of those things as you get into the blow-by-blow from a deal perspective that's very intriguing for all of us.

Okay. And then I guess, did you guys contemplate issuing equity, just straight out equity? Or did Irving -- did the buyers not want equity? Or was it just because of the competitive nature that you had to pay cash? I'm just curious, again, going back to the deleveraging or the opportunity that arose that could have led to a deleveraging.

Well, that transaction, as we talked about in our prepared remarks, that was between H.I.G. and Bain. That was -- really, they were driving that decision and negotiated that with Bain directly.

No, I'm sorry (multiple speakers).

On preferred versus common, we looked at the opportunities. And again, the competitive nature of the transaction and the certainty of outcome from our perspective and from the other side's perspective or -- again, there's a lot of things that come into play, and it was a pretty complicated process with, as you take a look at us bringing in a new long-term partner in Bain Capital Private Equity, replacing H.I.G., putting in a preferred and acquiring a company. A lot of things to consider, a lot of moving pieces. And from our perspective, we had a clear thought process, strategy on growth going forward. And we just wanted certainty around what this is going to look like as we come to close.

Okay. And just last one on the remaining M&A. You guys targeted $60 million to $70 million this year. I certainly understand why none was put to work in the first quarter. But we thought there was sort of $5 million to $6 million of acquired EBITDA within the guidance for this year. Should we think about any risk to that? Or now that you've got this announced, do you feel like the pipeline's strong that maybe we see some shorter term closings on sort of the normal M&A that we're used to?

Yes. I think you should not think that the foot's been taken off the gas. It's really -- as you think about doing these larger-type transactions and the team that is working on our one-offs and looking at the existing markets, that's still been very active. And our goal and thought process and near-term opportunities reflect exactly what we were able to -- what we said at -- earlier and from our guidance for the year, that has not changed.

(Operator Instructions) Our next question is coming from Chad Vanacore from Stifel.

So one of the things we didn't talk about was what's the geographic overlap between your current business and NSH? And what percentage of markets are new versus current? And then we can go from there.

Yes. I think there's really very limited overlap from a market perspective. Really, 2 markets that overlap. And even though they overlap, we're probably being generous in the word overlap. There's a significant number of miles between facilities and specialty differences. So both the facilities overlap where we have single specialty eye centers. And we've added 3 new states and 13 new MSAs. So again, not heavy on the overlap, and expanding our opportunities into new markets is another thing that was just very, very attractive as we evaluated the deal.

All right. So presumably, because there's no overlap in markets, really, none of the synergies are coming from combining businesses at all?

Well, from a corporate perspective, you get it there. But as you think about the other transactions we've done, whether that was NovaMed, whether that was Symbion, and combining those companies, we've had -- when you think about your Vice President levels and your facility operators, we've never claimed and never executed upon synergies from that perspective. So those are the key physician relationships, that's what drives our business and that we're very sensitive to. And as you look at our transactions, where we've realized synergies on a larger transaction, both with NovaMed and with Symbion, we've never anticipated that direct operational synergy in any of those transactions either.

Okay. So really the synergies are not based on any operating synergies but really on G&A?

It's G&A. And yes, including supply costs.

Okay. And then just thinking about -- did I hear Teresa say that they expect a leverage target of 5x by the end of 2019 now? Because I thought it was 2018 in prior calls.

Yes. We had talked about 5x by the end of '18. And just with the integration times that we'll think we'll need to invest in with the transaction, we just pushed that in 2019, in the first half of 2019.

All right. And then just one question on the quarter. It looked like volumes were a little bit lighter than I guess most of us had assumed. Was there anything that changed the case volume or case mix?

No. I mean we had strong top line case growth, 8%. And from a same-facility perspective, as we've talked about, sometimes that mix between lower-acuity cases and higher-acuity cases will vary from quarter to quarter, as you're aware. And so from a same-facility perspective, we had 2.1% case growth. But the net revenue per case at 5.6% highlights the higher-acuity cases on a same-facility basis. And then the acquisitions we completed in 2016 were largely focused on lower-acuity cases, such as GI and pain. So I think when you look at the 2 together, you can see that focus on the higher-acuity cases with the impact of last year's acquisitions.

We have reached the end of our question-and-answer session. I'd like to turn the floor back over to Mr. Doyle for any further or closing comments.

Thanks, Kevin. Everyone, appreciate you taking the time and walking through not only our quarter, but our exciting transaction that we have -- that we announced yesterday. And look forward to continuing to work with you guys and have the conversations around this. So we look forward to catching up next quarter and keeping you up to speed on what's happening with that.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.