Mike Doyle - Chief Executive Officer Teresa Sparks - Chief Financial Officer.

Ralph Giacobbe - Citi Frank Morgan - RBC Capital Markets Brian Tanquilut - Jefferies Kevin Fischbeck - Bank of America John Ransom - Raymond James Josh Raskin - Barclays Chad Vanacore - Stifel.

Greetings. And welcome to the Surgery Partners' First Quarter 2017 Conference Call. At this time, all participants are in a listen-only mode. A questions-and-answer session will follow the formal presentation. [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 statements..

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 will 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 the agreement that Surgery Partners has entered into to acquire National Surgical Healthcare.

We believe this a strong combination of two leading outpatient surgical assets, as a combined company create diversified outpatient surgical provider that is well-positioned to be the partner of choice for physicians.

This transaction combines two 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 investment in leading healthcare businesses including HCA Healthcare. Their experience across the healthcare value chain, resources and support will be welcomed as we begin to execute a 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 at our Board to our exciting path together. With that, I would like to welcome to our first quarter results. I'm pleased to report that the year is starting off in line with our expectations.

Trends continue to be favorable for surgical services in our market and demand for consumer focus alternatives remains robust. We are optimistic that our multi-specialty 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 have 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 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 goal of providing quality surgical services and superior facilities for patient, physicians and payors.

For the quarter, we reported an 8% increase in total case volume and 2.1% increase in same facility cases. Our four 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.

The same facility revenue growth up 7.8%, we're starting the year off on a strong holding from an organic perspective. We're 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 continue to ramp newly added services at several of our surgical hospitals as we focus on collaborating with payors 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're mindful of the near-term effect on margins, related to ramping up new service lines and we expect our growth to accelerate as these new programs reach maturity.

Second, we have seen progress in our integration with the platform transactions we discussed at 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 down and hold significant long-term growth potential, the near-term results and optimally 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 solidify the expansion of our strategic relationship with the provider in the Southern California market as a preferred partner for near-term revenue expansion. We are excited about this opportunity for continued growth in the 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 transaction both 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 continued to be focused on deleveraging in America consistent with our peers and balance with opportunities to grow.

As you will know, we plan to close the NSH transaction in a leverage neutral manner. So on that note, I would like to move on to the NSH transaction. Teresa will discuss the acquisition financing, but I wanted to hit on the few operational highlights.

As you may know, NSH was the largest standalone private surgical services company remaining in the industry and an attractive asset for us given their focus on musculoskeletal procedures which consist of approximately 75% of their revenue mix.

Today, NSH consist of 21 surgical facilities across 15 markets with a mix of ASE and physician-owned surgical hospitals. With over 1000 affiliated physicians, this brings our physician network to over 5,000 physicians across 32 states.

The acquisition open up not only a large wide space opportunity for our ancillary services platform but also create what we believe to be the nation's premier musculoskeletal program covering all acuity types, as well as platform to extend our pre and post-op protocol.

In doing so, we are partnered with a recognized leader in quality, NSH hospital consistent rank in the top optimal quality and 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 Equity investment and their commitment in the combination of surgeon partners in National Surgical Healthcare, we are also thankful to have had the opportunity to grow the company with HIG capital over the past seven years and we thank the entire HIG team for their support of our company and management team along the way.

I would like to thank our dedicated employee 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 will 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%, $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 the 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 the 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 a recent quarters with approximately 20% contribution for the year, our results point to the midpoint of the annual guidance range.

While we can’t expenses in check during the quarter we did experience an increase in supply 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 the focus on longer term growth opportunities in our surgical hospitals and in the 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 6.48 times and as Mike mentioned, we have structured the NSH transaction in a leverage neutral manner with the assistance of Bain as our thinking on this topic a balancing leverage with growth has not changed.

The acquisition positions us well for growth and continue to focus on deleveraging over time with the range of 5 times 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 comment on the pending transaction.

The NSH portfolio is a complementary extension of our multispecialty portfolio that diversifies our footprint and expand 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 that we feel very confident about our ability to execute on the integration of the NSH and Surgery Partners’ team. From the structural standpoint, we are acquiring NSH for $760 million which is approximately 10 times LTM adjusted EBITDA before synergy.

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 have no impact on shares outstanding Bain Capital has also agreed to acquire all outstanding common stock held by H.I.G. Capital, represented approximately 54% of the outstanding common stock of the company. With that, I'll turn the call back over to Mike..

Thanks, Teresa. We have exciting start to the year with the continued confirmation of our strategy, with enhanced payor engagement in industry, an increased role of consumers in choosing their healthcare 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 payors. Our network of services is an example of how integrated care and 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 specialist continue to advance a complexity of the procedures they performed at our outpatient surgical facilities.

We have a 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 one to meet the needs of our patients in the markets we serve. In summary, we appreciate the support of our physicians and employees and investors.

We are excited about the prospect for 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 ’17 and beyond. I would now like to turn the call back over to the operator to begin the question-and-answer session..

Thank you. [Operator Instructions] Our first question today is coming from Ralph Giacobbe from Citi. Please proceed with your question..

Thanks. Good morning.

Teresa, did you say you paid 10 times EBITDA for NSH and is that pro forma inclusive of synergy?.

So the 10 times exclude synergy..

Okay.

Is it pro forma sort of for an annual forward look or is it trial?.

Yeah. That’s based -- 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 synergy is driven by that piece of the equation?.

Yes. I think, again, for the standalone company we are right at that 14% to 15% of revenues coming from our ancillary services.

And as far as the opportunity as we go forward we can say, obviously, that the platform with NSH, the like-minded management teams and calls for continue to look at the opportunities that implemented ancillary services and spend time in evaluating those opportunities across the platform or facility.

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 the expectation, so do you think this is seasonality thing that basically got in this model maybe and I guess what factor sort of give you the comfort in the ramp for the remainder of the year to kind of hit back that guidance range?.

Yeah. We had mentioned kind of the cadence to the quarters when we introduce guidance for ’17, of course, on the standalone basis is what we are referring to here and so the 20% we had expected to be in that range for the first quarter.

So that close to the fourth quarter continue to be more pronounced with just say obvious changes in the healthcare environment, so we feel comfortable based on historical results and the continued growth pointing to the fourth quarter to keep in line with that the guidance we have provided..

Okay. Great. That’s fair.

And then just last one for me, essentially revenue growth outpace total revenue growth, I know in your prepared you comment on the shift of moving, I guess, practice out of consolidated, is that what cause that sort of discrepancy between two or is there something else between thinking sort of same store versus total revenue growth?.

Yeah. So we were -- first of all pleased with our same facility revenue being at the high end of guidance 7.8%.

From a total revenue perspective, we had two things really that you can point to on topline revenue, one was in 2016 our acquisitions were focused on lower acuity cases, GI and pain were the two specialties we were focused on from our acquisitions last year.

And the second is related to, I mentioned just briefly, we had 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..

Okay. Thanks you..

Yeah. Thanks, Ralph..

Thank you. Our next question today is coming from Frank Morgan from RBC Capital Markets. Please proceed with your question..

Good morning.

Just curious you mentioned the synergy of $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 are really looking at the bucket of duplicated corporate cost and these are more not necessarily in our operational piece of it combined support departments and again, not that’s been evaluated and we will continue to progress on that piece of it.

There is also significant focus on supply cost, high-acuity cases and as we combine the companies into a significant platform at the musculoskeletal basis, it really has an opportunity for cost savings across the entire acuity specialties and continued to focus on that that cost. So that’s really the focus.

From a revenue synergy perspective, there is continue to be significant opportunities to implement ancillary services across this portfolio and again as we've learned in previous transactions there is 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 -- to more exciting things that will develop with the company that we have higher volumes of these high-acuity cases and getting into the joint in heavier spine type cases, we will have other opportunities for new lines of ancillary services.

So, I think, from our perspective, because of the nature of whether you are going to acquire a small new service line and grow it, are you going to acquire physician practice in the existing market or are you going to start de novo practices in each of these markets how to count them as the revenue synergies, although, they will be and there is significant opportunity there.

We've not outline those or given any direction on those or how we will accomplish that, but those are into the go-forward growth..

Got you. And I know you mentioned, this deal will be accretive and this leverage neutral.

But any color that you might be able to share with regard to any -- some of your basic assumptions on what was the convertible preferred coupon, the conversion premium, how much minority interest you think you will have if there is any, you will be incremental in amount that you will be adding here?.

Well, as we mentioned, yeah, Frank, that leverage neutral we will have opportunity to refinance the exciting first lean term loan extent to maturity and it’s like more bond on the balance sheet for sure of 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 say at that level..

Okay. Let me just ask more and I will hop off, if you can answer, just any maybe give us just a little bit of background on this deal, how it came together, was it competitively bad and just kind of how all came together and I will hop off? Thank you..

Yeah. Thanks, Frank. From a -- I think from NSH perspective, we've had a long-standing relationship there and have had a great relationship with the management team over many years.

Surgery Partners stand alone as a private company, spend some time back in 2010 in a competitive process where we look 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 that company.

So I get 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 facility that have an integrated approach and a focus on musculoskeletal.

Combined company being about 59% of our revenues will be coming from musculoskeletal type cases and a significant increase in the higher acuity mix.

So that just give us a really nice entryway in portfolio of facilities and national platform of facilities that can participate and work with payors to implement unique opportunities to capitalize on the trend of these type of procedures coming to the SCL patient facility.

And I think to keep in mind that even though there is a mix of physician-owned hospitals and ASCs and the combined company continues to have that mix. Over 85% of the volumes that comes to these facilities are outpatient, so that’s an important thing to keep in mind..

Thank you. [Operator Instructions] Our next question is coming from Brian Tanquilut from Jefferies. Please proceed with your question..

Hey. Good morning, guys. Congrats on the deal.

So, Mike, as I see about NSH, do you want to share with us the structure of their partnership, two way reverse, three way, how many of those to have? And the level of physician ownership, I know you can only own 51, 49 structure, so what is that look at this stage and also Teresa if you want share with us the revenue base for NSH LTM? Thanks..

So, I will start off, I think, the unique thing here and our success in the past has been continuing to partner with management teams and company platform that have much the same culture and strategy that we have had.

So with NSH mostly a two-way joint venture, mostly and pretty much with the exception of some single specialty orthopedic, our multispecialty approach or multispecialty capability at their facilities.

So a very common -- lots of common denominators between the two companies and management teams that have known each other in the past and have been around the industry for quite some time.

So, a pretty easy fir from that perspective from a strategy perspective, again a continued look at three-way joint ventures with our 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 two organizations..

So, Brian, from a revenue perspective, there are revenue on a trailing basis over $500 million to $530 million range, so we will be combined company roughly $1.7 billion on a trailing basis..

Got you.

And then just a quick follow-up on leverage, Teresa, can you talk about leverage neutral, is that assuming the $20 million in synergies or is that pre-synergy for clarification?.

That’s including the $20 million in synergy..

Okay. And then my last follow-up….

Brian….

Mike as I think about..

… roughly, Brian, just to clarify that brings it down slightly from our current leverage point where roughly in that $6.3 million range when you include synergies..

Got it. Okay. And then, Mike, in terms of, as I think about, Teresa said earlier in margin expectations for the rest of the year and then mix with your comments on picking up more high-acuity cases.

How should we be thinking about the flow through of spine and new procedures and how that’s driving obviously the same store revenue per procedure and you come back with the margin comment, because I know that is generally margin dilutive for you guys, and how should we think about what NSH brings to table in terms of spine, their ability to do spine and joint replace?.

Yeah. So I mean it brings some great capabilities.

Both companies have been on a very separately, but on a very active path and have very focus programs, I know, we spent the lot of time at the end of last year really putting together a standardized program with our physician and our advisory committee to really put the out of 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 in facilities last year, about four new facilities began doing total joints last year. They have never done that 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 the vendor and have some leverage and now you can begin to take a look at the physicians we have on plan had begin to consolidate your stand and work with your vendors to get better pricing, so that -- on both spine and joint we continue to have a pretty significant opportunity there..

All right. Got it..

Thank you. Our next question is from Kevin Fischbeck from Bank of America. Please proceed with your question..

Great. Thanks.

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 this all be incremental?.

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

Okay. When you said that this deal going to be accretive in 2018, I think, it sound like you are 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 maturity? Thanks..

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

And 15% accretive over what time period, how long it take to get the cost synergies and everything you are looking for?.

Yeah. So we have a couple of timeframe here as we are thinking about this but just synergy realization, those type of things will happen over the next two years, but as far as the accretion analysis 2018, so year one post close..

Okay. And then just last question, on the physician integration side, I think, on the core business.

I mean, can you give a little more color about what's going on there, I guess, what’s been causing things to come in a bit more slowly than what you initially anticipated?.

Yeah. I think we spent some time talking on that on the last quarter, what we have done in our large platform acquisitions that we’re in, neighboring geographies as we took two large platform acquisitions and combine them into one large practice that that works throughout the region.

With that process is obviously converting systems, relocations, combining the geographies and taking a look at owning physicians and physicians that need to be replace, it was just a little bit of a longer process then we expect it.

So having two larger 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 -- that we've replaced management team and integrate the management team at the 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 are engaged. We have continue to reach out the community and show up the referral sources and become involved in the community where we practice and these physicians work.

And we will see in the beginning in the first quarter of this working very well and we are very confident that by the end of the year we will be at the run rate that we expected..

Okay.

So Q1 is improving the way you would have thought out off of Q4, it is not any different than that?.

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

All right. Great. Thank you..

Thank you. Our next question today is coming from John Ransom from Raymond James. Please proceed with your question..

Hey. Good morning.

Teresa when you talk about 15% accretion, how do we think about the convertible preferred on the calculus?.

That’s on as converted basis..

So, I am sorry, if I missed this, but was the kind of, I think you, I heard the question now, I forget the answer, so do we know the terms of this convert, I am sorry, if I missed that?.

We haven’t disclosed those yet. We will be working on the filing and providing that information, but in general as a five-year term, roughly a 10%, rather 10% coupon, so we have the ability to pay cash and capital component and so as we consider all those elements of the instruments in 2018, it would be accretive roughly 15%..

But there is stock price conversion as well or is it just like a partner?.

No. It converts at the stock price and it’s a $19 stock price where the transaction I would say..

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 improved largely on the fixed components. We are still roughly 38% of the balance sheet is fixed and the remainder variable. So we have made some improvement there, improved maturities and some pricing, so address the balance sheet from that standpoint..

Right. So, I guess, my question is, my real question is, is that step back and look at the fact, I mean, it sounds like a new deal but why not try to fix some of your capital structure deficiencies around leverage and exposure to floating rate.

So just have more of a plain vanilla equity component versus something that looks a little complicated, frankly?.

While, 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 phase and this -- to benefit from that existing structure, so that was the overall through..

Is that because of repayment currently on your existing debt or you somewhat paid the new debt price?.

Correct. On the new the prepayment I will say..

Okay. Got you.

And is there, can you give us comparison of the organic growth of what you are buying as compared to your organic growth is that, I assume it’s probably little bit lower because you are just been higher than normal?.

Yeah.

I mean, it’s a pretty similar profile in terms of growth, about 6% organic, so we are -- as we look at, we will -- as this close day firms up and we will provide some over -- some additional guidance on the combined company, we love to have our targets very similar in terms of total revenue growth 9% to 11% remain in that same facility of 5% to 7%.

I mean, there is a lot of characteristic between their growth profile and our EBITDA we would expect as these numbers true-up and we get some more clarity around closing but we will still be in that 10%, 15% range from EBITDA growth..

Okay. So I think that’s one of….

It’s actually. Go ahead, sorry..

I think, that’s one of the things you are attracted I think from this perspective is that 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 have grown in the past is very similar companies..

Thank you. Our next question today is coming from Josh Raskin from Barclays. Please proceed with your question..

Hi. Thanks. Good morning.

Maybe sticking with NSH here, just want to understand a little bit more, I think, Teresa, just mentioned 6% organic growth, but maybe give us just a look at sort of EBITDA growth sort of how do they get to that $76 million as you guys are reporting? And I guess, I am curious in the context that we are paying 10 times, that seems like almost a discounts where some of the ASC transactions since then and 8 times of synergies, you said it was competitive process.

So I am just curious what are some of the counterbalancing forces that that kept that multiple from creeping even higher?.

Not good negotiating..

There we go..

Okay. No.

I mean, the business as we mentioned, has very similar, I guess, we can’t stress on enough, very similar profile to our existing business, the growth profile, the culture, the structure of their partnership, they had three acquisitions since 2013, I think, they have had a focus on other strategic alternatives in areas of focus as we have discussed.

But we think their pipeline has pulled in nicely to ours.

We expect to continue to be able to fund our M&A activity with free cash flow and hopefully with this audience 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 then our pipeline as well..

I think the other thing to keep in mind is just the fact that we are 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 standalone private equity firms bringing on a surgical platform and the capabilities of a strategic coming into the state 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 said and I think we have 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 that the multispecialty focus and the higher acuity cases and the willingness to continue to progress to work with payors on this.

We have lot of those things as you get into that, the blow-by-blow from the deal perspective that that’s very intriguing for all of us..

Okay.

And then, I guess, did you guys contemplate issuing equity to straighten equity or did Irving that the buyers not want equity or was it just because of the competitive nature that you have to pay cash, I am just curious, again, going back to deleveraging the opportunity that that arose that could have led to deleveraging?.

Well, that transaction as we talk 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 am sorry..

Preferred versus common..

Yeah..

We look 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, again, there is 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 have a clear through process, strategy on growth going forward and we just want certainty around what this is going to look like as we come to close..

Okay. And then just last one on the remaining M&A, you guys targeted $60 million to $70 million this year, I certainly understand why not it was put the 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 got this announced you feel like the pipeline strong that maybe we see some shorter-term closings on sort of the normal M&A that we are used to?.

Yeah.

I think you should not think that the first thing taken off the gas, it 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 still very active and our goal and thought process and near-term opportunities reflect exactly what we were able to -- what we said earlier and from our guidance to the year has not changed..

Okay. Got you. Perfect. Thanks..

Thank you. [Operator Instructions] Our next question is coming from Chad Vanacore from Stifel. Please proceed with your question..

Hi. Good morning..

Hi, Chad. Good morning..

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

Yeah. There is really very limited overlap from a market perspective, really two markets that overlap and even though they overlap we are probably be in generous in the word overlap. There are a significant number of miles between facilities and specialty differences.

So both the facilities overlap where we have single specialty eye centers and we will be able added three new three new states and 13 new MSAs. So, again, not heavy on the overlap and extending our opportunities into new markets is another thing that was just very, very attractive as we evaluate 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 partner perspective you get it there, but as you think about the other transactions we have done whether that was NovaMed, whether that was Symbion and combining those companies.

We have -- when you think about your Vice President levels and your facility operators we have never claimed and never execute upon synergies from that perspective. So those are the key physician relationships.

That’s what drive our business and that we are very sensitive to and as you at our transactions we have realized synergies on a larger transaction both NovaMed and with Symbion. We have never anticipated that direct operational synergy any of those transactions either..

Okay.

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

It’s G&A and yeah, including supply costs..

Okay.

And then just thinking about, did I hear Teresa say that they're expecting leverage target 5 times by the end of 2019 now, because I thought it was 2018 in prior calls?.

Yeah. We had talked about 5 times by the end of ’18 and just with the integration time that we will take -- we will need until that stand with the transaction. We just push that in 2019 and the first half 2019..

All right.

Then just one my question on the quarter, it looked like volumes were little bit lighter than I guess most of us had assumed, was there anything that changed in the case volume or case mix?.

No. I mean, we have strong topline case growth 8% and from the same facility perspective as we have talked about sometime that mix between low-acuity cases and high-acuity cases will vary from quarter-to-quarter as you are aware.

And so from a same facility perspective we had 2.1% case growth that -- the net revenue per case of 5.6% highlight the higher acuity cases on a same facility basis and 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 two together you can see that focus on the higher acuity cases with the impact of last year's acquisitions..

All right. Thanks for taking the questions..

Yeah. Thank you, Chad..

Thank you. We reach end of our question-and-answer session. I would like to turn the floor back over to Mr. Doyle for any further 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 continue to work with you guys and have a conversations around this.

So we look forward to catching up next quarter and keeping up to speed on what’s happening with that. Thanks..

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..