Q4 2020 Surgery Partners Inc Earnings Call
Greetings and welcome to surgery partners fourth quarter and year end 2020 earnings conference call.
At this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Tom Kelly Chief Financial Officer. Thank you Sir you may begin.
Morning, and welcome to surgery partners fourth quarter and year end 2020 earnings call. This is Tom Cow eat Chief Financial Officer. Joining me today are Wayne device 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 of 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 the surgery partners Dot Com and our most recent annual report when filed with that I'll turn the call over to Wayne Wayne.
Thank you Tom Good morning, and thank you all for joining us today.
And we begin our call. This morning, I would like to take a moment to reflect on the unique times we're living in today.
The year ago, we held our year and earnings call, having delivered double digit adjusted EBITDA growth over the prior year, and we were well on our way to delivering similar growth in 2020, having achieved over 9% same facility revenue growth and the first two months of the year.
COVID-19 was something we were all watching from afar, primarily out of concern over the impact on global supply chains for items, such as personal protective equipment.
Did we know that for short weeks later, we would be seeing and 80% reduction and the same facility volumes and facing a global pandemic.
I'm humbled by the efforts of our colleagues and physician partners. The supported the health care system and the needs of our patients during this crisis.
When we could not know what the future held these brave individuals who are on the frontline serving the critical needs of the heavily burdened health care system, while supporting our patients and communities.
As a company surgery partners was and continues to be uniquely positioned during the pandemic, where our freestanding purpose built facilities are more than ever before a safe haven for patients and providers, who are seeking surgical care.
We saw surgical volumes quickly rebound and mid 'twenty, and 'twenty and even exceed prior year volumes and select higher acuity specialties.
Our business model was pressure tested and 2020 and has proven to be resilient.
Our results and this challenging environment give us confidence that the company, we built should support sustainable long term double digit growth and 2021 and beyond.
Specifically as we look at the fourth quarter results were impacted by a surge in COVID-19 cases across the U S. Infection is up nearly two times and hospitalizations up over three times over the course of the fourth quarter.
Despite these pressures on the health care system. Our results continue to affirm the power of our business model and the value proposition. We provide some notable highlights include the following.
Adjusted revenues increased to $565 million, approximately eight 5% growth over the prior year quarter.
Same facility revenues increased by nearly 6% compared to the prior year quarter with higher net revenue per case more than offsetting slightly lower volumes as a result of the pandemic and.
And finally, the transition of procedures out of traditional acute care inpatient settings continues to accelerate.
Joint replacements, and our Asps were up 110% as compared to the prior year quarter and for the year, even with the disruption of Covid joint replacements, and our afcs of increased by approximately 96%.
We have been positioning our company over the past three years for this moment in time as we've continually highlighted significant management time and resources have been focused on pruning non strategic assets to eliminate distractions and focus our resources into our core purpose built the short stay surgical facilities.
As mentioned and the third quarter call, we closed our Logan lab facility and completed the sale of certain anesthesia assets and the fourth quarter. We also sold our optical G. P O.
Since 2018, we have been reallocating dollars from lower growth non core assets into core surgical facilities with higher growth opportunities.
And 2021, we are now ready to move on the offensive and capitalize on the 150 billion total addressable market that we believe we are uniquely positioned to capture.
Current market conditions, along with our solid operating results afforded us the opportunity to access the capital markets with an equity offering in January of 2021, raising over $260 million of gross proceeds through the sale of over eight 6 million shares two of long term focus shareholder base the complements our existing holders.
This dry powder gives us the ability to aggressively pursue our growth agenda, while maintaining our disciplined approach to capital deployment that Eric will speak to and more detail.
Before I turn the call over to Eric I wanted to emphasize the confidence we have and our long term growth prospects. The pandemic has created many obstacles, but it has also accelerated some of the tailwind we've been anticipating and repositioning the company to capitalize upon.
Our management team has a proven track record of execution that our 2020 results only emphasize we are a trusted partner of choice and we believe we are the right space with the right product at the right time setting up the runway for both near and mid and long term double digit growth with that let me turn the call over to Eric Eric.
Thank you Wayne and good morning.
Today I will focus my comments on three areas first I'll provide a few additional highlights of our fourth quarter results.
I'll spend a moment on our 2021 guidance and third I will dive a little deeper into how we plan to deploy capital in 2021.
We were very pleased with our fourth quarter results highlighted by same facility revenue growth of nearly 6% and by total company adjusted revenue growth of approximately eight five per cent.
These increases were driven by revenue growth at our new hospital, and Idaho falls, which achieved revenues approaching $20 million and the quarter.
And increased mix of higher acuity cases, such as the orthopedic and spine surgeries.
Also of note, we saw a rebound of Gi cases, and the fourth quarter nearly equaling. The total cases from the same period and 2019.
We are quite encouraged by the continued strength of our recovery, which allowed us to end 2020 with $256 $6 million of adjusted EBITDA, placing us in the upper half of our guided range.
Our ability to continue to drive strong same facility growth is a direct result of our investments and physician recruitment and targeted facility level and service line expansions that enhance our ability to earn those procedures that generate the highest contribution margin for our portfolio.
Let's walk through each of them starting with physician recruitment.
We continue to see increased demand for new positions for our short stay surgical facilities and our targeted physician recruitment and approach has focused our efforts on the highest quality physicians.
Year to date, we've recruited over 560, new physicians, who generated 15% more revenue per case as compared to the 2019 cohort.
But the success of our recruiting program, it's not just the function of our most recent additions as we look back to the contributions of those physicians. We recruited in 2019, they generated 22% more revenue than in the prior year inclusive of the impact of Covid.
This highlights the compounding benefit of our physician recruitment efforts and we believe our data driven approach and digital innovation will be a differentiator to continue to accelerate our physician driven growth and 2021.
Over multiple years, we have also been making investments and expanding our musculoskeletal footprint and more recently and expanding our presence and cardiology as we think about longer term opportunities.
We have invested in these areas because of their large and growing addressable markets. Specifically, we estimate that there is over $60 billion of cases that will shift from inpatient to outpatient over the next several years and we estimate that over 60% of those procedures are and muscular skeletal and cardiology.
Currently 80% of our facilities have the capability to perform musculoskeletal procedures and the number of physicians performing joint replacement and our facilities is up 34% year over year.
We have expanded facilities added operating and procedure rooms, and invested in new equipment to capitalize on this opportunity.
For example, and 2020, we increased our installed base of robotics, and our <unk> by almost 60% to enhance MCA growth and have plans to further expand and 2021.
As we noted these investments have led to 96% increase and total joint procedures performed and our ASC and 2020, despite the pandemic.
And other service line and we are particularly excited about is cardiology.
We now have five surgical hospitals, and two afcs that perform cardio procedures.
The ASC is our early stage expansion and pilot programs, which are showing promising returns, while our surgical hospitals, including our newly acquired Bakersfield Heart Hospital continue to mature and expand their high acuity high acuity cardiology capabilities.
We are planning to more than double the number of ASC that perform cardio procedures and 2021 and continue to evaluate surgical hospital expansion opportunities as well.
Moving onto guidance.
As we think about the momentum we have as an organization the performance of our business allowed us to guide to a range of $250 million to $260 million of adjusted EBITDA on our second half of second quarter of 2020 call.
The predictability of our model allowed us to achieve full year results and the upper half of that range with the results we announced this morning.
And January of this year, we first introduced 2021, adjusted EBITDA guidance of approximately $315 million.
We maintain our conviction that we will achieve these results and 2021, but recognize that seasonal patterns of earnings from our core operations are likely to be more weighted towards the back half and thats been typical over the last few years as patient sentiment reacts to lower infection and hospitalization rates as well as increased vaccination percentages and deductible coverage.
And our teams are aligned and we are executing on our initiatives across recruiting managed care procurement revenue cycle and expense management to achieve our goals.
We also expect that our new community Hospital, and Idaho falls will contribute positively to results and the second half of 2021, a milestone for that important project and a testament to the relentless efforts of our Idaho teams to achieve profitability in the midst of the pandemic.
One final item that I would like to address relates to our strategic efforts to expand our footprint through acquisitions.
As Wayne mentioned, we have pruned additional assets from the portfolio and have been using the proceeds to reinvest in our facilities and to grow our platform.
Specifically, we plan to continue to pursue high growth facilities that provide physicians and patients with more convenient cost effective options for care.
As mentioned on the third quarter call. We completed the acquisition of the majority interest and Bakersfield Hospital Heart Hospital in California and October.
We also acquired two other facilities that help us expand our footprint and Idaho and California.
These transactions are expected to more than offset the earnings from the sale of our anesthesia assets and other portfolio optimization efforts.
As we take a step back our sector remains highly fragmented.
There are approximately 240 physician owned hospitals and the United States, a number that will not grow due to restrictions and the ACI.
Further we estimate that over 70% or over 4200, Medicare certified asc's or either independent or are only affiliated with a hospital and our targets for further consolidation.
We believe we are and a strong position to further expand our portfolio and 2021, and we have the financial capacity to execute on over $400 million of transactions.
Over the last three years, we have deployed nearly $300 million on acquisitions at a weighted average multiple of approximately seven times adjusted EBITDA.
The discipline with which we will deploy capital is not changing because we have more capital to deploy our teams are patient and diligent and we believe that we can effectively deploy proceeds over time at multiples that will create substantial value for our shareholders.
To summarize our position we believe that the pandemic has fundamentally changed the way patients surgeons and health plans will think about the role that purpose built short stay surgical facilities will play and healthcare delivery, which continues to drive the shift of surgeries to our facilities. This has been our company's differentiation strategy and now more than ever our value proposition is resonating with.
Key stakeholders and the health care environment.
We remain very confident and our long term organic growth model and believe that scaled independent operators such as surgery partners are uniquely positioned to grow and this new marketplace with that I will turn the call over to Tom who will provide additional color on our financial results and outlook Tom.
Thanks, Eric first and I'll spend a few minutes on our fourth quarter financial performance before moving on to liquidity and some considerations as we move into 2021.
Starting with the top line surgical cases declined by just over 2% and the fourth quarter to just under 135000, primarily due to the impact of increased COVID-19 infection rates in certain geographies.
Adjusted revenues for the quarter were $565 million approximately eight 5% higher than the prior year period as Eric mentioned reported results included approximately $19 million of contribution from our new community Hospital and Idaho Falls.
On a same facility basis total revenue increased nearly 6% and the fourth quarter looking at the components of this increase our case volume was approximately 3% lower than the prior year period offset by higher net revenue per case that increased over 9% driven by acuity mix and pricing.
Turning to operating earnings our fourth quarter 2020, adjusted EBITDA was $98 million of seven 6% increase from the comparable period in 2019.
Using the December guidance from the Covid relief Bill, we recognized an additional $13 million and the fourth quarter as grant income, which increased adjusted EBITDA by $9 2 million after accounting for non controlling interests year.
Year to date, we have recognized approximately $46 million of cares Act grant as grant income out of $59 million of cares ex funds received in 2020 translating to approximately $31 1 million of adjusted EBITDA impact.
The remaining $13 million of cares Act grant money has not been recognized that revenue as revenue at year end and will now be treated as of deferred liability on our balance sheet. We continue to monitor updates to federal revenue recognition guidance and 2021 and plan to reevaluate and update our accruals during the first half of 2020 one.
Based on current guidance the high rates of Covid at the start of the year and continued investments and qualifying expenses to protect and prepare for COVID-19 patients. We believe it is possible that we will be able to recognize the vast majority of the remaining cares act rents on our balance sheet in the first half of 2021.
In the unlikely event that we are unable to recognize these funds in accordance with CMS guidelines, we expect to repay them to the government in mid 2021.
During the quarter, we recorded $8 million of transaction integration and acquisition costs with a meaningful amount of this overall expense related to our acquisition and divestiture activity and the fourth quarter.
Of note fourth quarter, 2020 transaction integration and acquisition costs excluded or included approximately 0.6 million of EBITDA losses associated with our de Novo Hospital, and Idaho falls as that facility continues to make progress towards achieving profitability.
We expect to report results from this facility separately through 2021 and the <unk>.
Until the facility becomes profitable and the second half of the year.
Moving onto cash flow and liquidity, we ended the quarter with a strong cash position of $318 million, which includes approximately $120 million of Medicare advanced payment with.
We have held these advance payments as deferred revenue and our financial statements Recoupment of these funds from the future Medicare revenue will commence and the second quarter of 2021 and continue into 2022.
Our revolver was undrawn as of December 31, 2020.
As Wayne mentioned on February one 2021, we closed on an equity offering for just over eight 6 million shares sold at a price of $30 and 25 per share.
Net proceeds from the offering were approximately 249 million after underwriting fees and expenses.
Current with the equity raise we amended our revolving credit facility to renew the term for an additional five years and increase the capacity by $50 million to $170 million and total availability, which is then reduced by outstanding letters of credit.
And not reflected in our year end financial statements. The proceeds from our equity offering will meaningfully reduce our leverage ratios and 2021 and have the potential to reduce leverage further as we deploy proceeds towards accretive uses.
Moving back to the fourth quarter surgery partners had operating cash flows of approximately $9 million made of $17 million payment on the our tax receivable agreement sold our optical GPO for an undisclosed price and purchased two surgery centers, and Idaho, and California, and the Bakersfield Heart Hospital in California for just over <unk>.
And 90 million.
The company's ratio of total net debt to EBITDA at the end of the fourth quarter as calculated under the company's credit agreement remained stable at seven times.
Normalizing for the impact of the Medicare advanced payment funds the ratio of total net debt to EBITDA would have been seven four times net.
Net proceeds from the equity offering with lower leverage by approximately 0.7 times as of December 31 2020.
The company has and appropriately flexible capital structure with no financial covenants on the term loan or our senior notes as mentioned on our prior calls the company's lenders under its revolving credit facility provided substantial flexibility for this calculation in 2021.
Three of the fourth quarter, our continued emphasis on expanding key service lines, such as musculoskeletal and cardiology targeting high value physician recruits and engaging and strategic rate negotiations have all continued to fuel our growth trajectory.
This core growth coupled with the capital we have available to deploy enables us to go on the offensive heading into 2021.
As Eric mentioned, we continue to project adjusted EBITDA of approximately 315 million for fiscal year 2021, the vast majority of our 2021 adjusted EBITDA guidance is projected to come from organic initiatives and would represent nearly 23% growth over our 2020 COVID-19 impacted baseline.
On the top line, we believe we can achieve 18% to 20% revenue growth over the 2020 baseline driven by strong case growth as we remain of destination for high acuity procedures and as the lower acuity procedures return and Ernest.
We are confident and our organic growth model due to our consistent historical same facility revenue growth the opportunity to maintain and capture new share and high acuity procedures and our ability to leverage our scale through procurement revenue cycle and overall overall workflow efficiency.
As we look deeper at our preliminary 2021 outlook, we believe that our typical seasonal progression may vary as compared to recent history due to COVID-19, and continuing to impact behaviors and delay procedures in the early part of 2021 the.
And the impact of winter weather and power outages and Texas in February.
The prospects for improved seasonal performance in the second half of 2021 as deferred care related to Covid returns and as our new community Hospital, and Idaho Falls achieved profitability and has brought into earnings.
While we do not provide quarterly guidance based on the factors I. Just noted first quarter underlying results may represent less than 20% of our projected full year performance prior to any recognition of care of that ground.
Risks of our annual outlook remain the potential for more extended COVID-19 impacts and we are currently contemplating potentially offset by our ability to recognize cares act grants that were deferred at the at year end and our ability to deploy capital.
Our business continued to rebound as projected and as we have previously discussed incremental M&A would represent upside opportunities for our outlook.
As we evaluate risk versus opportunities in 2020, one we remain confident and our annual outlook and continue to see strength and momentum across multiple product lines and geographies.
We have of collaborative veteran management team, coupled with facilities that offer outstanding clinical quality and stellar patient satisfaction stores.
The fundamentals of our business are incredibly strong with $150 billion total addressable market. After navigating through the uncertainties of 2020. We have entered 2021 is a stronger leaner and more resilient company that is well positioned for accelerated growth in the near mid and long term.
With that I'd like to turn the call back over to the operator for questions operator.
Thank you we will now be conducting a question and answer session.
We'd like to ask the question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue.
You May press star two of he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Thank you. Our first question comes from the line of Brian and correlate with Jefferies. Please proceed with your question.
Hey, good morning, guys, and congratulations and a good quarter and a good year.
I guess my first question way and you know, we've obviously as you've been talking a lot about cardio as an emerging opportunity along with MSA.
How different is the push into cardio and going to be versus ortho and in terms of recruitment and maybe facility investments that you need to make and in terms of what kinds of procedures are you guys anticipating to emerge and the ASC say two to three years from now.
Got it Hey, Brian first thanks for the question and good morning.
Let me let me first just highlight what is probably obvious to all of us as debt.
The EMS key kind of playbook that we ran will be the same playbook that we run for cardio.
The <unk> opportunity is.
Top of the first inning of a nine inning.
At this point and is really exploding that being said, we actually think the same dynamic will be happening with cardio probably in the next two to three years is where I would I'd position and we're looking at kind of more of the or mid 2000, twenty's when that really starts to accelerate and so the idea would be capitalize on the massive <unk> opportunity in front of us today.
And position ourselves to basically allow that run rate to continue for the next decade, because in five years from now will be will be at the high watermark of of cardio moving over a couple of things of that that are in some ways uniquely different but not all on familiar right as we prepared and the and the MSA environment. There was a lot that we had to do around <unk>.
<unk> repositioning our facilities, how we staff those and scheduled those et cetera, those same dynamics have to be run and the cardio playbook. So I'm going to ask Eric maybe the highlight a little bit more of how we're phasing this year and I think with MSA, we knew the way it was coming the pace. We had the move was much quicker to position the company of the last three years, but I think with cardio we have a chance.
To be a lot more strategic and how we position the Eric Yes, Hey, Brian Good morning, and thanks for the comments.
Yes, we're really excited about cardio. It is it is a new space with PCI is getting approved just this year from the Medicare standpoint, there is a lot of interest I would say this from a physician recruitment standpoint, <unk> got a number of physicians across the country cardiologists, who now have an opportunity to do something to potentially take ownership to get more involved and the ambulatory.
<unk> and we're seeing a lot of interest and that when you think about where you start.
Over over 60% I think about 60% of our facilities today have floro capacity, which is basically what you need to be able to do the basics of cardiology, So think about pace pacemaker implants.
The basic cardiac rhythm management procedures those are areas, where we can step in today with little capital investment.
Some of SaaS training clearly working with those docs gives us a chance to partner with local docs, who maybe haven't had this opportunity before so we're quite excited about that and.
<unk> been able to do that commercially but so much of cardiology is Medicare of that this really has opened the door for us to do that so.
And what Youll think about this from a step wise is that you've got that 60% of our facilities today, where we can talk to and market cardiologists about starting their cardiac rhythm management work with us they have a great experience they realized that they can do more on the outpatient side, then clearly the investments get higher when you talk about adding of Cath lab.
A multi specialty facility theres more training involved with that but quite honestly, there was more training and equipment evolved with total joints and so it'll be a maturation process clearly it's a we see it after after of SK is the next big wave of stuff that can come out of the hospitals. If you think about from a clinical quality of standpoint.
And the technology is certainly advance of the point, where these can be done safely on a same day facility on the same facility same day basis on top of that we continue to grow of acuity and our and our surgical hospitals. We have two dedicated heart hospitals, one in Lubbock, one and Bakersfield, we're growing our heart program and our and our hospital and Montana, we're growing our.
Program, and Idaho falls, and so we see cardio as an opportunity and both both sides of our short stay surgical facilities, but clearly on the ASC side. It gives us an opening to a brand new group of Docs, who are excited about the opportunity and it's one of those things that we're going to take our time to do right, but we see us starting this year.
And I appreciate that and then I guess second question from me, obviously pretty good equity offering.
Earlier this year the cash balance is huge so it sounds like you have a very good pipeline, but I guess for Wayne and Tom how are we thinking about leverage targets going forward or longer term and just maybe another incremental insights and the pipeline that youre seeing on the M&A front.
So I'll start with a little bit around the M&A front, and what we're seeing and where that's going and then I'll, let Tom talk about leverage and how we continue to drive that down over time, and where we think it can go longer term.
Let me just first start by stating logo of Tom said, if you look at our prepared remarks, and we of about $400 million of powder to put to work, so and enviable position to be in and.
And in an environment, where you have over for 200 individually owned and operated our single affiliation.
Ambulatory surgery centers out there and the north of 200 surgical hospital physician owned surgical hospitals. So we like the fact that we have the powder of more importantly, we like the fact that we've got a large of.
A large landscape to to work with them.
We're targeting and three buckets, so think about it as there is the kind of single ASC facility.
And that really would benefit from scale and whether that be through of tuck in and an existing market or just leveraging our national scale through a new market that we would enter into and so that is part of the pipeline and the second one is we are of very very specific surgical hospital.
Targeted program right and Thats why we did Bakersfield Heart hospital things that are very focused on MSA and cardio. We will we will be aggressively pursuing and then finally there are some smaller platform assets out there and so we have kind of all three buckets and those are all in addition to what we're trying to do around the three way JV with large hospital systems. So.
<unk> I don't see a problem I am looking at Eric and he is nodding and we've talked about this we really think reasonably we ought to be able to put.
Two of $300 million of work this year.
All of that for it could be a little bit more could be a little bit light, but big picture. We think we can put that to work we've got a lot under LOI today.
We have a fair amount debt LOI is our outstanding where we've put an offer and now and hoping to get selected.
And we're going to be prudent with our capital because we can be and we want to be and we think we've got a track record of showing that so Tom maybe maybe you can highlight a little bit, though about our current leverage position and how the equity offering impacted it but where we see this going yeah, absolutely. So Brian as we said today, we look at the leverage ratio we're at about seven times on.
Credit agreement EBITDA.
Take the equity offering and tack it onto that is cash and the calculation and you take about seven off of that calculation. So you wind up and kind of the low sixes.
And I think we've got a tremendous amount of of growth that we think we could see we think we've got good accretive uses of that capital that should be at least neutral to the overall leverage ratio.
And the only thing that I would just highlight for you is that the there is a little bit of nuance here with respect to the Medicare advance payments and so we'll have to restart repaying them in the second quarter, and so that will put a little bit of pressure on the overall ratio, but I think that mid to low six area is where we're going to.
B for the course of the next several quarters and that's that's a good target for us we'd ultimately like to see it go lower and we'd like to see of go lower with growth.
And as we look out at this year, we think we're going to have.
And opportunity to start to generate free deployable cash and that can also accelerate our M&A outlook the.
TRA payments of started to level off they'll start to decline after the next two years.
After 2022, Theres a lot of positive things, particularly in this rate environment as we look at the balance sheet that we can and will continue to do to try to accelerate our cash flow generation going forward.
And I appreciate that last quick question from me, Tom just whats the right share count to be using for Q1 and it.
M&A incremental M&A of embedded and the guidance.
The I said this in the prepared remarks, the vast majority of what our $3 15 as organic in nature and so.
M&A is a potential upside to our outlook, depending upon how COVID-19 goes for the rest of the year.
As you all have to follow up with you on the share count, but it is going to be.
Just over $8 6 million shares I am expecting that the K is going to be filed and the next 24 hours and so you'll have all of that details I think youre looking at a number on a fully diluted basis, its and the low eighty's assuming conversion of the of the Bain preferred and all of the dilutive securities, but I'll follow up with you I just don't have that among fingertip.
Right now.
Also of congrats again and thank you guys. Thank you Brian.
Our next question comes from the line of Kevin Fischbeck with Bank of America. Please proceed with your question.
Okay, great. Thanks.
Wanted to get a little color on the.
The rate dynamic I guess, obviously, we've seen the.
The rate growth was strong, but it still has decelerated I guess as the year has gone on the night I guess, that's just largely a function of kind of lower acuity volume coming back into the system, but just wanted to get a sense of given all of the investments youre, making and cardio ortho.
Where should we think about that rate per case kind of normalizing going forward.
Hey, Kevin first of all good morning, and I'll, let Eric and Tom chime in here as well, but yes, you obviously.
The identified one of the points, which was our Gi got almost back to where it was the previous year and Q4. So the clearly that's a debt that impacts a mathematical metric, but its something that we are fine having an impact right. We obviously want to see our Gi come back along with our.
With our <unk> that we're doing today. The one thing that's going to be interesting, though will be how do volumes continue to get impacted in this current year, but how does the MSA and and of itself and more than offset that on the right. So just to give you. An example of one.
Last year, and 2020 and January and February there was obviously no COVID-19 impact of any consequence really it wasn't until March that COVID-19 became and impact issue for our country and for our company yet.
Yet you know from a lot of public information we've stated how strong our total joints were last year looking at this January and February.
Regarding <unk> and how that can impact revenue and rates.
We are impacted this year by Covid January being a very high month for Covid. When you look at January and December.
And clearly February has impacted by the storms that you saw down in Texas in particular and more importantly, the impact it had on power, which impacted a lot of facilities, even with those headwinds I. Just described to you. Our total joints are up 100%. This January February and terms of the number of procedures over the <unk>.
Last year that had no headwinds and them. So I actually think you are going to continue to see acceleration on the revenue front and I think it's why you saw in Tom's prepared remarks, where we where we've put kind of and initial revenue marker.
And we'll see how that progresses over time, but we can of upside on that.
I think.
And while we will continue to have these lower dollar procedures kind of migrate back and as the backlog start to to correct themselves and especially as the country becomes vaccinated or <unk> that we're going to continue to see those lower dollar items come back in.
Our optimism is really grounded and the fact that these higher dollar items too or are not slowing down and in any way shape or form of Eric anything you want to add to that.
No I think just to be clear on the kind of the three buckets and we think about.
The managed care commercial relationships that we're working on and we've made a lot of progress there and getting to fair market value. We still lot of ways to go to make sure we're paid fairly and every market and so that's been and ongoing ongoing discussions and thats the balance between.
Partnering with payers to both make sure we're paid fairly but also to make sure of that where we can we have incentives and steerage of patients who go to the right location, both with our positions and and for the patients benefit.
The second bucket, there I'd say, it's Medicare and as you know this year Medicare has had a better lift for ASC and we've had historically and so that certainly helps and then to the last bucket is the security growth and I think Wayne talked about this book with whether it's ortho spine certain cardiac procedures I do think that we're going to continue to gain on that and and the real question then becomes.
How much how much of that mitigated by the backlog that we do expect to come back on the lower acuity stuff as the year progresses and as Wayne mentioned is as people get their vaccines. That's the business that we do think there is some pent up demand and so that will have some effect, but in total we feel really good we talk a lot about between volume and rate debt.
The 4% to 6% kind of bucket for us and we've been talking about being at the high end of the outperforming that for quite some time and we feel very confident that we can do that again in 2021.
Okay, that's helpful and I guess.
When you talked about the the equity raise and I think Hugh you mentioned that some of that capital will be going towards.
Expanding cardio, etc.
And I guess, you've made some comments here about.
It's been a number of.
How much capital does it take to the.
Spanned the number of sites that can do cardio is that going to be a big part of kind of internal investment could be the part of that cash or.
And that also.
<unk> focused on those types of areas.
Yes, so initially and I'll, let Tom talk to this I mean, you usually it's not going to be a lot of our capital number one but number two initially for cardio with the starting point, that's going to be pretty small over time, there will be more capital required but the business case will certainly support that once you start thinking about adding cath labs et cetera, but initially very little capital outlay, there and the other capital that we're putting to work and whether you think about.
We mentioned our robotics program growing we've been doing that very capital efficiently from how we work with vendors to make that happen clearly we do have situations, where we have to retrofit of our facilities expand rooms add on that that will continue to be something we do every year, but that's kind of built into our baseline. So there is nothing I would say and the short term that's going to change kind of that debt.
And capital run rate and a big way, but we are very focused though on growing acuity and all the time, if you'd add anything and just as you think about those equity offering proceeds I would think of them as dry powder for M&A. The capital that we're going to need and the near term is going to be a de minimis portion relative to the proceeds that we would like to deploy toward.
Towards M&A.
I would think about that.
Capital as the first use there is probably for deploying on development and.
And to the extent that there is local activity that we can't otherwise finance through our local financing partners that where we see great organic opportunity, we would absolutely use those dollars.
For those purposes, because of the ROI and our internal investments tends to be.
Even better than some of the things that we see on our acquisitions, which are already great.
But.
I would think about most of those dollars is going for development.
Okay, great. Thanks.
Our next question comes from the line of Frank Morgan with RBC. Please proceed with your question.
Good morning, one of them back to the guidance once again I think you touched on some of these and the and the follow up comments, but just curious about.
The.
Actual.
The inclusion of cares grant money and those results would be number one and then.
Thank you for any color about how you obviously mentioned the from a cadence standpoint, Q1 would probably be the lowest and you mentioned and the west and 20% of just to confirm that was at the 20% with us for EBITDA contribution you were talking about.
Yes, that's correct.
Oh go ahead finish your question and then I'll touch on the other stuff.
Yeah, and I'll just make sure.
There was sort of of nuance to the answer of out organic versus some acquisition and the in those numbers. So just.
Hoping you could maybe flesh that out just a little bit and a little bit more detail and then also is there any early signs of where you can you could talk about how first quarter results of actually proceeded and maybe in January and February as as we move through the quarter.
Sure Frank Let me, let me start with your last question first right. Let me let me just make sure that we're all on the same page and.
January is always a and interesting month to start with after December which tends to be of very large one for us and this year in particular, you've got to we're a business that operates primarily Monday through Friday, and you've got two less business days in the month of January versus your prior.
Year, and so comparisons off of January are just challenging.
And then you look at February you know that we've got a big chunk.
<unk> business down in Texas, we had the power outages and the snow that impacted a number of facilities.
The southeast for particularly in Texas.
Over the over the middle part of that month and.
So as we just recognize that reality, we feel really good about what we're seeing in scheduling for March and the trajectory looks good we think that we're going to get a lot of those cases back on the books and they just do.
And now that we're going to get them, all and and the first quarter right and so as we look at the trajectory. We think about the back half, we think about Idaho falls coming in line or online and contributing probably.
It's about a push for the third quarter and really what the contribution then in the fourth.
We think that our results as you just look at the typical seasonality that you might see out of our business you look at 2019 and say what percentage of the $3 15 occurred and the first quarter it might be slightly less and that now with respect to cares grant cares grants or a natural hedge against.
Against Covid and.
And we've got a fair portion that we carried over from last year, we got about $13 million to $14 million that we carried over and we actually received a little bit more money a few million dollars in the in the early part of the year from some applications that we had made back in 2020, and so to the extent that we could recognize some of them inside the first quarter or <unk>.
The first half we're going to do so and to the extent that that's just the natural hedge against kind of COVID-19, having a little bit more impact and the first half.
We view that as fair so hopefully that addresses your question.
Sure and this is Bakersfield I mean, you mentioned that a couple of times today, which I think of closed back in October but will that be a meaningful contributor I mean, obviously out of a policy of the second half of the year, but is Bakersfield. One of these things it's going to contribute immediately or does it have a ramp to it as well.
Bakersfield is contributing and it did contribute immediately I would say that.
I would be remiss, if I said that they werent impacted by Covid.
They are a surgical hospital that does have an emergency department in southern California, where COVID-19 rates have been exceptionally high.
Loved and maybe Eric I don't know if you want to talk about the overall opportunity. There. We think that's a fabulous asset we are pleased to be and owner of it but I think it's got a little bit of a slow start.
Yes.
Clearly one of those markets that.
If you want to talk about and one of the most impacted places. This is the and the country certainly Bakersfield was high on that list, but the asset itself. It's of high high high Cardio, obviously hospital, but also as of beginning and growing orthopedics.
We're working with a lot of orthopedic surgeons and that market to grow that service line, we and California.
Hospitals are rare right and so having a physician owned hospital in the market.
And it can be a cost where it can be a value leader and partnered with physicians and a unique way we feel like its net asset position for really nice contributions this year and even more going into the future, but yes, no clearly that market was impacted by COVID-19, but we're very optimistic and happy to have it as part of our portfolio.
Yes, I guess.
This is Wayne and I guess, Frank maybe the way to kind of tie all of this up and of BOE at the end is.
I think were stating the obvious of what the whole world's seeing and January and February and we're really optimistic about what we know the business is doing and where it's going to go. So we continue to feel good we think again, a little bit of timing on transition between Q1, and Q4, but nothing that is and alarm bell for us and in fact of anything.
We think it gives us more optimism around the how strong the businesses and as I mentioned on the total joints and I think it kind of shared with you a little bit about why we continue to be optimistic that well.
And while the strong year.
That's great and maybe just one more and I'll hop.
This was quite of bit obviously of thin as an investor and they've been around and I guess coming up on for years now, but at the same time, they're all of these great growth opportunities the market and more receptive of your shares.
And what do you state of investors, who asked about that debt.
Kind of where his veins.
And their head right now and in terms of how long their position to remain part of the company.
Thanks Frank.
And I guess, maybe I'm being a little cheeky and when I say, there has been not intending to but.
And as an investor like any of other long shareholder investors and so I guess as a management team. Our focus has been just do our job right focus on driving long term growth focusing on positioning this company to be the best and our industry.
And.
And I would simply say beans, a very happy shareholder and I think as you can see and the follow on we did it was all primary secondary and I think that just shows kind of beans, bullishness on where the company is going and I and I think the power of the equity offering and how well the stock perform since then I think shows the fact that there's a lot of investors that share of their same sentiment. So.
And I guess my comment to investors would just simply be viewed them no different than any other shareholder that believes and the business model.
Okay. Thank you very much.
Thank you. Our final question comes from the line of Ralph Giacobbe with Citi. Please proceed with your question.
Great. Thanks, good morning.
And just the 18% to 20% revenue growth was better than we had maybe if you can help on how much is coming from completed deals and I know you mentioned net nothing's assumed and M&A on the EBITDA I just want to confirm that that's also the case on revenue and then also if you could just give us a sense of the same facility revenue growth embedded in guidance and.
Split between volume and pricing just given the unusual dynamic of base from 2020.
So Frank there's a couple of different questions and there I'm going to I'm, sorry, Ralph Theres, a couple of different questions and I'm going to unbundle, the first one and and let Tom kind.
Kind of come through on the other ones. So.
So the first thing of that I would simply highlight is that while there is some M&A that we closed in late 2020 that does impact revenue I do want to remind everybody that we had to replenish the revenue that we divested of in selling certain anesthesia assets closing the lab as well as of finalizing the sale of our optical GPO.
And so all of those headwinds are and their and M&A from last year and a lot of ways of simply overcoming those headwinds so as Thomas highlighted a big chunk of the revenue that youre going to see this year is a combination of organic growth with some M&A, but the majority of the EBITDA growth is really being driven organically now clearly to the extent, we can get M&A done sooner and the.
Year that will improve that revenue outlook.
And could have a positive impact on adjusted EBITDA as well as the year progresses, but.
But I'm going to turn it over to policy of Tom If you want to go a little bit deeper on what portion is what yes.
And then Rob we haven't typically guided on same store I just in Covid is such a funny 2020 of the baseline is is kind of a little funny, given where what the comparisons are going to start to look like after March 15th and so theyre going to make all of the numbers here a little bit inflated I would say as we think about some of the.
Portfolio work that we did and the end of the fourth quarter of the revenue growth is clearly benefiting a little bit from that as you think about the comment about M&A.
This is for the most part on the organic plan that we've provided to you all right and so I think that there is a little bit of development.
Activity and some markets for some tuck ins that is already embedded in there, but it's de Minimis and.
So the vast majority of what it is that we think that we're going to do is organic.
And so but I think that the revenue based on some of the things that we acquired versus the revenue based on some of the things that we've recently pruned I do think that there is a little bit of of pickup there but.
But.
It's not substantial I think of lot of this and as we had of low baseline and 2020, we've got a we've got expect we're expecting strong case growth.
And we're expecting higher acuity and the combination of those leads to a top line that probably a little bit ahead of you guys. So.
I don't think it has a lot more than that.
Okay, Alright, and then you.
<unk> been clear on the M&A opportunity and your focus there obviously, what about de Novo is that at all part of the growth story and the opportunities there and then I guess separately, but also related to investments.
<unk> talked about spending and robotics, maybe just give us a sense or an idea around that and what our expectations should be for this year.
Yes, so I'll take the US the first question, we do de Novo's regularly. So we're always looking for those opportunities actually typically great returns are obviously take a longer time, we have several of those underway. We have several expansion and replacement facilities that are and our portfolio that will continue to happen every year. So the answer is it's certainly part of it we don't.
I mean, it's not a huge part of that M&A plan, just because it takes a long long tail, but we haven't we do a lot there and typically again relatively cash light, we don't own the facilities, we partner locally and so there is a portion of our money Thats certainly goes to de novo's and we like those we will do a lot of those have great returns and we take advantage of opportunities.
Whenever they do come up as far as robotics, though we talked about and the ASC sector. We increased our robotic platform I think the installed base by about 60% last year. We have several that we're looking at this year I don't know if it will be quite as aggressive of growth. This year, but we will continue to add robotic technology to to meet our local physicians and.
And actually to make our high value facility is more accessible to patients and we're going to continue that this year I would expect we're going to add a number of robots I don't know think it'll be quite as probably as many as in 2020.
Those tend to be pretty capital light.
The financing on that Tom has been able to work through with the vendors that's not been of big use of capital and we continue to deploy those wherever it makes sense to actually gain market share.
Okay got it and then one more if I can squeeze in there was there was a little bit of and increase in bad debt in the fourth quarter.
Whats driving that and I guess any concerns or one of the assumptions for that and 2021.
No I'd say, the <unk> was up a little bit right and a lot of that has to do with we've got a brand new facility.
And I.
Wouldn't say that that I thought that there were anything about bad debt that we had any concerns about.
From.
From a and the fourth quarter.
We have as you can well imagine we have armies of folks that do nothing but look at those and go after collections. We have a cadre of vendors that we use and places where we need specialized attention for that.
There is there is nothing about bad debt and the fourth quarter that I had any concerns about.
Okay alright, thank you.
Alright, well everyone before we conclude our call I I don't want to Miss this opportunity to say, thank you to our over 10000 colleagues and over 4000 and physicians for their contributions in 2020, and obviously going forward surgery partners collectively serves thousands of patients each day and more each day and water often their most vulnerable moments, we take the trust and faith.
And of our physician partners and our patients and our patients place and is incredibly seriously and we are privileged to make a positive difference and so many people's lives.
I am excited about and humbled by the opportunity to lead surgery partners as we work to more fully deliver on our mission of enhancing patient quality of life through partnership.
And our efforts, we believe and we clearly are part of the solution to many of the challenges facing our nation's health system and we're extremely proud of the value we are creating for all of our stakeholders.
As we execute against our goal to become the preferred partner for short stay.
The surgical facilities across the U of at U S. It is the daily efforts of each and every one of our surgery partners colleagues and physicians that get us there. So when I think of them again and thank you all for joining our call. This morning have a great day.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.