Q4 2023 Surgery Partners Inc Earnings Call

Greetings and welcome to the surgery partners fourth quarter 2023 earnings call. At this time all participants are in a listen only mode. A 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.

Operator: Greetings, and welcome to Surgery Partners' fourth quarter 2023 earnings call. At this time, all participants are in a listen-only mode.

Operator: A 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. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Dave Daugherty, Chief Financial Officer of Surgery Partners. Thank you. Good morning.

As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr. Dave Doherty Chief Financial Officer of surgery partners. Thank you you may begin.

Dave Doherty: Good morning, My name is Dave Doherty CFO of surgery partners I'm joined today by Eric I've been CEO and Wayne Dubai Executive Chairman.

Dave Doherty: My name is Dave Doherty, CFO of Surgery Partners. I'm joined today by Eric Evans, CEO, and Wayne DeVeyt, Executive Chairman. During this call, we will make forward-looking statements. There are risk factors that could cause future results to be materially different from these statements. These risk factors are described in this morning's press release and the reports we filed with the FCC, each of which is available on our website, surgerypartners.com. The company does not undertake any duty to update these forward-looking statements.

Speaker Change: During this call we will make forward looking statements there are risk factors that could cause future results to be materially different from these statements. These risk factors are described in this morning's press release and the reports we filed with the SEC each of which are available on our website surgery partners' Dot com. The company does not undertake any duty to update these forward.

Speaker Change: Looking statements.

Dave Doherty: In addition, we will reference certain financial measures that are considered non-GAAP, which we believe can be useful in evaluating our performance. The presentation of this information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. These measures are reconciled to the most applicable GAAP measure in this morning's press release. With that, I will turn the call over to Wayne.

Speaker Change: In addition, we will reference certain financial measures that are considered non-GAAP, which we believe can be useful in evaluating our performance. The presentation of this information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. These measures are reconciled to the most applicable GAAP measure in this morning's press release.

Wayne S. DeVeydt: With that I will turn the call over to Wayne Wayne.

Wayne S. DeVeydt: Alright, Thank you Dave Good morning, and thank you all for joining us today.

Wayne S. DeVeydt: Thank you, Dave. Good morning, and thank you all for joining us. My remarks this morning will focus on our full year 2023 results and the positive catalysts we see as we head into 2024. I'll then turn the call over to Eric to provide further insights into our operating environment, along with details for the. Finally, Dave will conclude with additional color on the quarter and an updated view related to the strength of our balance sheet and full year guidance associated with calendar year 2024, starting with our 2023 results. We are extremely pleased with the substantial progress we have achieved related to our strategic initiatives and how these initiatives further catalyze our growth engine as we enter into 2024. Specifically, our growth algorithm continues to deliver mid-teens growth. The full year adjusted revenue exceeded $438 million, representing 15% growth over the previous year.

Wayne S. DeVeydt: Remarks. This morning will focus on our full year 2023 results and the positive catalysts, we see as we head into 2024, I'll, then turn the call over to Eric to provide further insights into our operating environment, along with details for the quarter.

Wayne S. DeVeydt: Finally, Dave will conclude with additional color on the quarter and an updated view related to the strength of our balance sheet and full year guidance associated with calendar year 'twenty 'twenty four.

Eric: Starting with our 2023 results. We are extremely pleased with the substantial progress we achieved related to our strategic initiatives and how these initiatives further catalyze our growth engine as we enter into 2024.

Eric: Specifically, our gross order rhythm continue to deliver mid teens growth with full year, adjusted EBITDA exceeding $438 million, representing 15% growth over the previous year.

Wayne S. DeVeydt: Despite the macro headwinds faced by our industry over the past four years, including the inflationary impact on labor and supply costs and the global pandemic, the company has grown Adjusted EBITDA at a compound annual growth rate of over 14% per annum and expanded margins by 210 basis points. These headwinds have slowly abated throughout 2023, digging deeper into our results, and a combination of our consolidated and unconsolidated facilities performed approximately 707,000 cases in 2020.

Eric: Despite the macro headwinds faced by our industry over the past four years, including the inflationary impact on labor and supply cost and the global pandemic. The company has grown adjusted EBITDA at a compound annual growth rate of over 14% per annum and expanded margins by 210 basis points. These headwinds has.

Eric: We abated throughout 2023.

Eric: Digging deeper into our results.

Eric: The combination of our consolidated and unconsolidated facilities performed approximately 707000 cases in 2023, 4% more than 2022 with all specialty is growing in line or in excess of our expectations.

Wayne S. DeVeydt: 4% more than 2022, with all specialties growing in line or in excess of our expectations. When combined with our targeted increased acuity and contributions from recent acquisitions, net revenue grew 8% to $2.74 billion, inclusive of approximately $100 million of revenue divested early in the year, and adjusted even on a 100 basis, reflecting our cost discipline, acuity mix, and enhanced rates. We anticipate our 2023 cost initiative and pricing to represent tailwinds for 2024 as we continue to recognize the run rate benefits associated with our scale. Our 2023 growth was balanced.

Eric: When combined with our targeted increased acuity and contributions from recent acquisitions net revenue grew 8% to $2 $74 billion inclusive of approximately $100 million of revenue divested early in the year and adjusted EBITDA margins improved by 100 basis points, reflecting our cost discipline.

Eric: Acuity mix and enhanced rates.

Eric: We anticipate our 2023 cost initiatives and pricing to represent a tailwind for 'twenty 'twenty four as we continue to recognize the run rate benefits associated with our scale.

Eric: Our 2023 growth was balanced with same facility revenue growing more than 11% representing case volume up approximately 4% and rate improvement of 7% driven by acuity mix and enhanced managed care rates.

Wayne S. DeVeydt: The same facility revenue growing more than 11%, representing case volume of approximately 4%, and rate improvement of 7%, driven by AcuityMix and Enhanced Managed Care. Rounding out our growth story. We continue our disciplined approach to sourcing and executing on strategically important acquisitions at Attractive Multimedia. In 2023, we deployed approximately $165 million associated with 15 transactions at an aggregate sub-8 times multiple on a pre-synergized basis. While this number is below our targeted goal of at least $200 million per year, we also closed an additional $60 million in transactions in early January that we had anticipated closing in the fourth quarter.

Eric: Rounding out our growth story, we continued our disciplined approach to sourcing and executing on strategically important acquisitions at attractive multiples and.

Eric: In 2023, we deployed approximately $165 million associated with 15 transaction at an aggregate sometimes sub eight times multiple on a pre synergize basis.

Eric: While this number is below our targeted goal of at least 200 million per year. We also closed an additional $60 million in transactions in early January that we had anticipated closing in the fourth quarter.

Wayne S. DeVeydt: Timing of our acquisitions had a nominal impact on our 2023 results, and as Dave will discuss, will serve as a tailwind to 2024. Our business development team continues to manage a robust pipeline of attractive, and we remain committed to deploying at least $200 million annually. As of this morning's call, our team has a strong pipeline of transactions under LOI, and we continue to source new deals. Similar to 2023, the timing of acquisitions and related activity can be difficult to predict, and we continue to use a mid-year convention when providing our outlook for 2024.

Eric: Many of our acquisitions had a nominal impact on our 2023 results as David will discuss and serve as a tailwind to 2020 for earnings.

Eric: Our business development team continues to manage a robust pipeline of attractive opportunities and we remain committed to deploying at least $200 million annually.

Eric: As of this morning's call. Our team has a strong pipeline of transactions under LOI and we continue to source new deals.

Eric: Similar to 2023, the timing of acquisitions and related activity. It can be difficult to predict and we continue to use a mid year convention when providing our outlook for 'twenty 'twenty four.

Wayne S. DeVeydt: All in all, we are pleased with the balanced approach to growth, with all pillars of our long-term growth algorithm either meeting or exceeding our expectations. Before I turn the call over to Eric, I want to highlight some additional accomplishments related to our balance. The company was able to effectively refinance our term loan late in the year at favorable terms and prices, extending the maturity of the majority of our outstanding debt to 2030 associated with this refinery to support more banking syndicates. We were also able to increase our revolving credit facility to $700 million, reflecting the continued strength of our business model and confidence in our growth algorithm. Dave will elaborate further, but with this new term loan, our credit agreement defined leverage was 3.5 times at the end of the year.

Eric: All in we're pleased with the balanced approach to growth with all pillars of our long term growth algorithm, either meeting or exceeding our expectations.

Speaker Change: Before I turn the call over to Eric I want to highlight some additional accomplishments related to our balance sheet.

Speaker Change: Company was able to effectively refinanced our term loan, leaving the year at favorable terms and pricing extending the maturity of the majority of our outstanding debt to 2030.

Eric: Associated with this refinancing with support from our banking Syndicate. We were also able to increase our revolving credit facility to $700 million, reflecting the continued strength of our business model and confidence in our growth algorithm.

Eric: Dave will elaborate further but with this new term loan our credit agreement to find leverage was three five times at the end of the year.

Eric: Together with my fellow Board members. We are encouraged by the continued focus of this management team to capture the benefits of the strong industry and company specific tailwind.

Wayne S. DeVeydt: Together with my fellow board members, we are encouraged by the continued focus on this to capture the benefits of strong industry and company-specific tailoring, based on the recently completed 2024 budgeting process. We expect net revenue, adjusted EBITDA, and margin growth in line with our long-term growth algorithm. Specifically, we are providing initial guidance for net revenue of at least $3 billion and are reaffirming our previously provided adjusted EBITDA of greater than $495 million.

Eric: Based on the recently completed 'twenty 'twenty four budgeting process, we expect net revenue adjusted EBITDA and margin growth in line with our long term growth algorithm.

Eric: Specifically, we are providing initial guidance for net revenue of at least $3 billion and are reaffirming our previously provided adjusted EBITDA of greater than $495 million we.

Eric Evans: We strive to provide you with guidance that balances our optimism for the company's growth with an appropriate amount of conservatism. We look forward to updating you on our progress as the year unfolds. With that, let me turn the call over to Eric to highlight some of our operational initiatives. Industry Trends and Recent Investment Activity.

Eric: We strive to provide you with guidance it balances our optimism for the company's growth with an appropriate amount of conservatism. We look forward to updating you on our progress as the year unfolds.

Eric: With that let me turn the call over to Eric to highlight some of our operational initiatives industry trends and recent investment activities.

Eric: Eric.

Eric: Thanks, Wayne and good morning, everyone I will echo Wayne's cried and results for 2023, and our initial outlook for 2024.

Eric Evans: Thanks, Wayne. And good morning, everyone. I will echo Wayne's pride and and our initial, Importantly for our investors, and per my past comments, our performance... Our unique partnership model and our approach to enabling our physician partners' independence and strong community reputation allows us to naturally benefit from the continued shift of care to our safe, high-quality, and cost-effective facilities. We work every day to bring the benefits of a professional, scaled management while keeping the invaluable local feel and connection that differentiates www. SurgicalScience.com This approach preserves the strong reputation of our partners, allowing them to focus on their patients, knowing their preferences and input will remain an integral part of the facility they helped build. Together, our partners win, our payers win, and, most importantly, our patients get the best care possible here.

Eric: Fortunately for our investors and per my past comments, our performance remains consistent and predictable are.

Eric: Our unique partnership model and our approach to enabling our physician partners independence and strong community reputation allows us to naturally benefit from the continued site of care shifts to our safe high quality and cost effective facilities.

Eric: We work every day to bring the benefits of a professional scaled management company, while keeping the invaluable local feeling connection that differentiate our surgical facilities.

Eric: This approach preserves the strong reputation of our partners have earned allowing them to focus on their patients knowing their preferences and input will remain an integral part of the facility. They helped built together our partners win are payers win and most importantly, our patients get the best care possible for their surgical care needs. When this happens we deliver consistent high quality results as.

Eric Evans: When this happens, we deliver consistent, high-quality results, as we have done over the past... Despite managing through a global pandemic and a challenging COVID-19 pandemic, and an inflationary macro environment. As we finish 2023 and begin 2024, let me provide some highlights. Our organic growth initiatives translated into a strong full year 2023 top line same facility growth of just over 11. Our same facility cases grew 3.9% in 2023 and rates grew 7.1%. As we've consistently demonstrated, the rate improvements we are seeing in our existing facilities are benefiting from the strategic focus on recruiting physicians specializing in higher acuity, such as Total Joint. We now perform orthopedic procedures in over 70% of our short-stay surgical facilities and total joint procedures in over 35% of our A&I.

Eric: We have done over the past four years, despite managing through a global pandemic and a challenging in place in all inflationary macro environment.

Speaker Change: As we finished 2023 and begin 2024, let me provide some highlights.

Speaker Change: Our organic growth initiatives translated into a strong full year 2023 topline same facility growth of just over 11%.

Speaker Change: Our same facility cases grew three 9% in 2023 and rates grew seven 1%.

Speaker Change: As we consistently demonstrated the rate improvements we are seeing in our existing facilities are benefiting from the strategic focus on recruiting positions specializing in higher acuity procedures, such as total joints.

Speaker Change: We now perform orthopedic procedures and over 70% of our short stay surgical facilities and total joint procedures and over 35% of our ASC.

Eric Evans: In our ASD facilities alone, we saw a 50% increase in total joint procedures in 2023, which is a contributing factor in our same facility rate. As recent acquisitions and de novos are fully integrated into our portfolio, the majority of which are orthopedic, we expect to see this rate improvement remain at or above our long-term goals in 2024.

Speaker Change: E S. P facilities alone we've seen a 50% increase in total joint procedures in 2023, which is a contributing factor in our same facility rate growth.

Speaker Change: As recent acquisitions and de Novo's are fully integrated into our portfolio. The majority of which are what the PD based we expect to see this rate improvement remain at or above our long term growth assumptions in 2024.

Speaker Change: Net revenue up $2.74 billion grew 8% in 2023 with our organic same facility growth de novo's and consolidating acquisitions combining to overcome the impact of divestitures.

Eric Evans: Net revenue of $2.74 billion grew 8% in 2023, with our Organic Sane Facility Growth, DeNovos, and Consolidating Acquisitions combining to overcome the impact of divestiture. In addition, in 2023, nearly half of our acquisitions were in facilities that do not consolidate under accounting rules but generate significant revenue on a deconsolidated basis. Revenue growth in our non-consolidated business exceeded 60% in 2023 as compared to the prior year. For more information, visit www.

Speaker Change: In addition in 2023 nearly half of our acquisitions were in facilities that do not consolidate under accounting rules, but generate significant revenue on a deconsolidation basis revenue growth in our non consolidated entities exceeded 60% in 2023 as compared to the prior year and we expect continued growth in 2020 four.

Eric Evans: FEMA.gov, is underlying growth, and we continue to position our portfolio of assets to earn market share in each of our core specialties. Moving to Physician Recruiting, our recruiting team had another banner year and increased focus on physicians that perform MSK-related procedures. Their efforts are a core, helping our facilities create long-term value by recruiting positions that are interested in a long-term relationship with our facilities and those that bring strategically important capabilities to our portfolio. We added nearly 700 new positions.

Speaker Change: Our underlying growth story remains consistent and we continue to position our portfolio of assets to earn market share in each of our core specialties.

Speaker Change: Moving to our physician recruiting efforts our recruiting team had another banner year of new recruits with an increased focus on physicians that perform M. S K related procedures.

Speaker Change: Their efforts are a core competency, helping our facilities create long term value by recruiting physicians that are interested in a long term relationship with our facilities and those that bring strategically important capabilities to our portfolio.

Speaker Change: Added nearly 700, new positions in 2023 across all specialties and the average net revenue per case of these recruited physicians is 27% higher than those physicians recruited in the prior year and 44% higher than 'twenty 2021 recruiting class.

Eric Evans: And the average net revenue per case of these recruited positions is 27% higher than the prior year and 44% higher than 2021. Based on our experience, there is a compounding multi-year growth factor that recently recruited physicians bring, giving us increased confidence in our 2024 growth. As you know, we are in the early innings regarding migration of total joints into the highest value settings, our short-stay surgical facility. Such cases initially started with the transition of total knees in 2020 and total hips in 2021. Since being removed from the inpatient-only list, these procedures have experienced a three-year CAGR of 77.

Speaker Change: Based on our experience there is a compounding multiyear growth factor that recently recruited physicians spring, giving us increased confidence in our 'twenty 'twenty four growth.

Speaker Change: As you know we are in the early innings regarding migration of total joins into the highest value settings are short stay surgical facilities.

Speaker Change: Such cases initially started with the transition of total knees in 2020 and total hips in 2021 since.

Speaker Change: Since being removed from the inpatient only list. These procedures have experienced a three year CAGR of 77%.

Eric Evans: We do not see this growth slowing, nor are we seeing cases returning to the inpatient setting. In 2024, we're working with our orthopedic surgeons, who are excited to bring additional joint programs to our ASU, with a new focus on Medicare total shoulder and ankle surgeries that are now created to be done in an ASC setting for the first time. These procedures have been done safely in our ASCs for commercial patients for a number of years, and we're excited about the growth opportunities in both the near and future term as additional procedures continue to be removed from the inpatient only setting.

Speaker Change: We do not see this growth slowing nor are we seeing cases, returning to the inpatient setting.

Speaker Change: And 'twenty 'twenty four we're working with our orthopedic surgeons, who are excited to bring additional joint programs to our asses with new focus on Medicare total shoulder and ankle surgeries that are now ready to be done in ASC setting for the first time.

Speaker Change: These procedures have been done safely in our a S eats for commercial patients for a number of years and we're excited about the growth opportunities in both the near and future term as additional procedures continued to be removed from the inpatient only list.

Speaker Change: Moving to the business development front, we are excited about our fast growing de novo portfolio of which eight opened in 2023 and 12 are syndicated and currently under development schedule for openings in 'twenty 'twenty four and early 2025.

Eric Evans: Moving to business development. We are excited about our fast-growing DeNovo portfolio, of which 8 opened in 2023, and 12 are syndicated and currently under development, scheduled for openings in 2024 and early 2025. We remain selective in partnership opportunities with other healthcare providers. While multiple opportunities exist, we are focused on forming long-term, highly aligned partnerships with like-minded organizations that deliver high quality at a sustainable cost to the system and are accretive to our Last week, we announced a partnership with Parkview Health, a premier community-based health system, as we look to expand our capabilities in my home state of Indiana. This partnership joins similar partnerships we announced last year as we accelerate our de novo capabilities with like-minded partners who will share in the development efforts with us.

Speaker Change: We remained selective in partnership opportunities with other health systems, while multiple opportunities exist. We are focused on forming long term highly aligned partnerships with like minded organizations that deliver high quality at a sustainable cost of the system.

Speaker Change: And are accretive to our earnings.

Speaker Change: Last week, we announced a partnership with Parkview health, a premier community based health system as we look to expand our capabilities in my home state of Indiana.

Speaker Change: Partnership joined similar partnerships, we announced last year as we accelerate our de novo capabilities with like minded partners, who will share in the development efforts with us.

Eric Evans: In a similar vein, our integration with Intermountain Health's managed-only facilities in Utah is progressing as..., and we are actively working with them on syndicated denotes. Although these won't be a material contributor to our 2024, the long-term prospects are incredibly attractive. As we expand our focus on DeNovo opportunities, we are positioning our team to manage at least 10 DeNovo centers in development annually. In addition to our DeNovo development, as Wayne mentioned, we have deployed approximately $225 million on 16 transactions in the past 13 years. These transactions were bought at Attractive Mall, averaging less than 8 times the historical learn.

Speaker Change: In a similar vein our integration with Intermountain health managed only facilities in Utah is progressing as planned and we are actively working with them on syndicated to notice.

Speaker Change: Although these won't be a material contributor to our 2020 for growth.

Speaker Change: Our long term prospects are incredibly attractive.

Speaker Change: As we expand our focus on de Novo opportunities, we are positioning our team to manage at least 10 de novo centers and development annually.

In addition to our de Novo development as Wayne mentioned, we deployed approximately $225 million on 16 transactions in the past 13 months.

Speaker Change: These transactions were bought at attractive multiples, averaging less than eight times historical earnings.

Eric Evans: We continue to rapidly integrate our acquisitions into core operations. The full benefit of our Revenue Cycle, Procurement, Managed Care, and Physician Recruiting teams will yield significant synergies within the first 18 months of ownership. We remain committed to our annual capital deployment goal of at least $200 million, which will be in addition to the $60 million deployed in January. In closing, I'm proud of our management team and our many talented position partners and colleagues for effectively managing through inflationary labor and supply conditions over the past few years. Additionally, we have effectively managed challenges related to anesthesia, which, as a reminder, is not a material.

Speaker Change: We continue to rapidly integrate our acquisitions into core operations, bringing the full benefit of our revenue cycle procurement managed care and physician recruiting teams to yield significant synergies within the first thing first 18 months of ownership.

Speaker Change: We remain committed to our annual capital deployment goal of at least $200 million, which will be in addition to the $60 million supported in January of this year.

Speaker Change: In closing I'm proud of our management team and our many talented physician partners and colleagues for effectively managing through inflationary labor and supply pressures over the past few years. Additionally, we have effectively managed challenges related to anesthesia costs, which as a reminder is not immaterial expense within our structure.

Eric Evans: Inflationary pressure, coupled with how well our teams are effectively executing on our initiatives across business development, recruiting, managed care, procurement, revenue cycle, and operations, we are confident that we will achieve our 2024 goal. I've never been more optimistic regarding our future and the number of tailwinds impacting it. The desire and need to move more procedures to purpose-built, short-stay surgical facilities has never been greater, and our company is positioned to deliver industry-leading growth associated with these tailwinds. This, coupled with an existing and growing M&A pipeline, and a talented, deep, and experienced leader, provides further optimism for long-term, sustainable, mid-teen With that, I will now turn the call over to Dave Doherty to provide additional color on our financial results, as well as the 2024 outlook. Dave.

Speaker Change: But then patient inflationary pressures abating, coupled with how well our teams are effectively executing on our initiatives Cross business development recruiting managed care procurement revenue cycle and operations. We are confident that we will achieve our 2024 goals.

Speaker Change: I've never been more optimistic regarding our future and the number of tailwind is impacting our business.

Speaker Change: The desire and need to move more procedures to purpose built short stay surgical facilities, that's never been greater and our company is positioned to deliver industry leading growth associated with these tail winds.

Speaker Change: This coupled with an existing and growing them at a pipeline and a talented deep and experienced leadership team provides further optimism for long term sustainable mid teens adjusted EBIT growth.

Speaker Change: With that I will now turn the call over to Dave Doherty to provide additional color on our financial results as well as the 'twenty 'twenty four outlook Dave.

Thanks, Eric I will first talk about our 2023 financial results and liquidity before providing detail on our outlook for 2024.

Dave Doherty: Thanks, Eric. I will first talk about our 2023 financial results and liquidity before providing detail on our outlook for 2024. Starting with the top line, we performed nearly 606,000 surgical cases in our consolidated facilities and over 153,000 in the fourth quarter alone. On a same-facility basis, we grew revenue 1.4% in the quarter and 3.9% for the full year. This marks the 12th consecutive quarter of same-facility case growth and the 3rd consecutive year this growth has been above our long-term target growth. The combined case growth in higher acuity specialties, specific managed care actions, and the continued impact of acquisition. We have reported consolidated revenue growth of 4% in the fourth quarter and 8% for the year, inclusive of approximately $100 million of revenue headwinds associated with facilities we divested in early 2020. On a same facility basis, total revenue increased 8.1% in the fourth quarter and 11.3% for the year. The same facility rate growth was 6.7% and 7.1% for these periods, respectively.

Dave Doherty: Starting with the topline we performed nearly 606000 surgical cases in our consolidated facilities and over 153000 in the fourth quarter alone.

Dave Doherty: On a same facility basis, we grew cases, one 4% in the quarter and three 9% for the full year. This marks the 12th consecutive quarter of same facility case growth and the third consecutive year. This growth has been above our long term target growth rate.

Dave Doherty: The combined case growth in higher acuity specialties specific managed care actions and the continued impact of acquisitions supported consolidated revenue growth of 4% in the fourth quarter and 8% for the year inclusive of approximately $100 million of revenue headwinds associated with facilities, we divested in early 2023.

Dave Doherty: On a same facility basis total revenue increased eight 1% in the fourth quarter and 11, 3% for the year same facility rate growth was six 7% and seven 1% for these periods respectively.

Dave Doherty: You have seen this rate growth all year, primarily driven by higher acuity procedures.

Dave Doherty: Our strong revenue growth was equally reflected in our adjusted EBITDA growth, which was $142 $3 million in the fourth quarter $17, 8% higher than last year.

Dave Doherty: We have seen this rate growth all year, primarily driven by higher acuity. Our strong revenue growth was equally reflected in our adjusted EBITDA growth, which was $142.3 million in the fourth quarter, 17.8% higher than last year. This gives us a margin of 19.4%, 230 basis points higher than 2022. As Wayne and Eric mentioned, our full-year adjusted EBITDA was $438.1 million, marking another year of mid-teens growth at just over 15 percent, with a margin that has expanded 100 basis points to 16.0%. Margins benefited from revenue growth, effective cost management, and contributions from our equity method, which we sometimes refer to as minority partners. Moving to our balance sheet, as Wayne mentioned, we completed a significant refinancing of our term loan in December, extending the maturity to 2030 with more favorable terms. Concurrent with this refinancing, we increased and extended our revolving credit. We are fortunate to have a strong banking syndicate supporting a revolver that has a borrowing capacity in excess of $700 million.

Dave Doherty: This gives us a margin of 19, 4% 230 basis points higher than 2022.

Dave Doherty: As Wayne and Eric mentioned, our full year, adjusted EBITDA was $438 $1 million, marking another year of mid teens growth at just over 15%.

Dave Doherty: With a margin that has expanded 100 basis points to 16.0 per cent.

Dave Doherty: Margins benefited from revenue growth effective cost management and contributions from our equity method investments, which we sometimes reference has minority partnerships.

Dave Doherty: Moving to our balance sheet as Wayne mentioned, we completed a significant refinancing of our term loan in December extending the maturity to 2030 with more favorable terms concurrent with this refinancing we increased and extended our revolving credit facility.

Dave Doherty: We are fortunate to have a strong banking syndicate supporting a revolver that has a borrowing capacity in excess of $700 million.

Dave Doherty: As we have demonstrated we will be opportunistic in approaching the capital markets. We will have that same discipline as we manage the two relatively smaller notes that come due over the next three years and look to hedge future interest rate exposures.

Dave Doherty: As we have demonstrated, we will be opportunistic in approaching the capital market. We will have that same discipline as we manage the two relatively smaller notes that come due over the next three years and look to hedge future interest rate exposure. I look forward to sharing more about our opportunities here in the coming quarter. Our corporate debt at the end of 2023 was approximately $1.9 billion, with an average fixed interest rate of 6.7%. Our full year 2023 ratio of total net debt to EBITDA as calculated under our new credit agreement was 3.5 times. However, under the terms of the new credit agreement, there was a change in the definition of net debt used in that calculation. With asset-backed finance leases now treated consistently with other asset-backed operating leases and excluded from the calculation of net debt.

Dave Doherty: I look forward to sharing more about our opportunities here in the coming quarters.

Dave Doherty: Our corporate debt at the end of 2023 was approximately $1 $9 billion with an average fixed interest rate of 6.7%.

Dave Doherty: Our full year 2023 ratio of total net debt to EBITDA as calculated under our new credit agreement was three five times.

Dave Doherty: Under the terms of the new credit agreement there was a change in the definition of net debt used in that calculation.

Dave Doherty: With asset backed finance leases now treated consistently with other asset backed operating leases and excluded from the calculation of net debt.

Dave Doherty: This revised calculation is more reflective of the fundamental nature of assets and liabilities and conforms to market practice and definition.

Dave Doherty: This revised calculation is more reflective of the fundamental nature of assets and liabilities and conforms to market practice and Epi, as the prior language dated back to documents constructed over six years ago. Relative to the former term loan definition, this change benefited the calculation by approximately 0.4 terms. With the earnings growth we expect, we are confident this ratio will continue to decline, although the timing of acquisitions could temporarily pressure this calculation. In the fourth quarter, we generated free cash flow of approximately $19 million, giving us full-year free cash flow of $110 million. Although we are incredibly proud to have turned this company into a positive cash flow position, I must acknowledge that this amount is lower than we previously measured.

Dave Doherty: As the prior language dating back to documents constructed over six years ago.

Dave Doherty: Relative to the former term loan definition. This change benefited the calculation by approximately <unk> four turns.

Dave Doherty: But the earnings growth. We expect we are confident that this ratio will continue to decline, although the timing of acquisitions could temporarily pressure this calculation.

Dave Doherty: In the fourth quarter, we generated free cash flow of approximately $19 million, giving us full year free cash flow of $110 million.

Speaker Change: Although we are incredibly proud to have turned this company into a positive cash flow position I must acknowledge that this amount is lower than we previously message.

Dave Doherty: The difference is primarily due to two timing-related matters. The first was the timing of collections for paper-based billings and related insurance recoveries associated with the cyber threat we experienced in Idaho in 2023, and the second being amounts we earned in 2023 related to certain new state-based government programs that will settle in 2024. Neither of these factors affect the positive trajectory that we are experiencing.

Speaker Change: The difference is primarily due to two timing related matters. The first was the timing of collections for paper based billings and related insurance recoveries associated with the cyber threat, we experienced in Idaho in 2023.

Speaker Change: And the second being amounts we earned in 2023 related to certain new state based government programs that will settle in 2024.

Speaker Change: Neither of these factors affect the positive trajectory that we are experiencing but our original projections did not reflect the delayed collections on these items.

Dave Doherty: But our original projections did not reflect the delayed collections on these items. Having said that, our pride comes from the fact that this is the company's first year turning our free cash flow positive in a sustainable way. This growth in free cash flow is closely linked to the growth in our adjusted EBITDA, a trend we expect to continue to meaningfully enhance the company's liquidity position. Our updated view for 2024 free cash flow is in the range of $140 million to $160 million. This view reflects a more conservative view to reflect our core value of setting and exceeding expectations. We ended the quarter with $195.9 million in consolidated cash and an untapped revolver of $704 million.

Having said that our pride comes from the fact that this is the company's first year, turning our free cash flow positive in a sustainable way.

Speaker Change: This growth in free cash flow was closely linked to the growth in our adjusted EBITDA a trend we expect to continue meaning to meaningfully enhance the company's liquidity position.

Speaker Change: Our updated view for 2024 of free cash flow was in the range of 140 million to $160 million. This view reflects a more conservative view to reflect our core value upsetting and exceeding expectations.

Speaker Change: We ended the quarter with $195 $9 million in consolidated cash and an untapped revolver of $704 million.

Dave Doherty: When combined with the free cash flow we are projecting, we believe our current and future liquidity positions are strong, while giving us flexibility to maintain our long-term acquisition posture of deploying at least $200 million annually for M&A. We are carrying the momentum of the strong finish to 2023 into 2024, with all of our growth engines operating effectively. As a result, we are reaffirming our guidance for 2024 adjusted EBITDA of greater than $495 million, representing at least a 13% growth over 2023. Additionally, we are setting 2024 revenue guidance of greater than $3 billion. We expect to deploy at least $200 million of capital on M&A in addition to the $60 million we deployed in January, with additional spend depending on the timing of any portfolio management opportunities underway.

Speaker Change: When combined with the free cash flow, we are projecting we believe our current and future liquidity positions us well, while giving us flexibility to maintain our long term acquisition posture of deploying at least $200 million annually for M&A.

Speaker Change: We are carrying the momentum of the strong finish to 2023 into 2024 with all of our growth engines operating effectively.

Speaker Change: As a result, we are reaffirming our guidance for 2024, adjusted EBITDA to greater than $495 million, representing at least a 13% growth over 2023.

Speaker Change: Additionally, we are setting 2020 for revenue guidance to be greater than $3 billion.

Speaker Change: We expect to deploy at least $200 million of capital in M&A. In addition to the $60 million we deployed in January.

Speaker Change: With additional spend depending on the timing of any portfolio management opportunities underway.

Dave Doherty: There are always puts and takes to our early guidance with risks we track and opportunities we pursue. Generally, we feel we have built a conservative outlook for 2024, subject to the timing of our capital deployment. As Wayne mentioned, the pipeline is strong, with over $200 million already under LOI, with the majority of the transactions representing consolidation, and, As a reminder, we are agnostic to the accounting treatment if the deal is right for the company and our shareholders.

Speaker Change: There are always puts and takes to our early guidance with risks we track in opportunities. We pursue generally we feel we have built a conservative outlook for 2024 subject to the timing of our capital deployment.

Speaker Change: As Wayne mentioned, our pipeline is strong with over $200 million already under LOI with the majority of the transactions representing consolidating entities as.

Speaker Change: As a reminder, we are agnostic to the accounting treatment. If the deal is right for the company and our shareholders.

Speaker Change: Our guidance implies continued margin expansion, reflecting our ongoing and accretive progress in procurement and revenue cycle as well as the integration benefits from recent acquisitions and contributions from de Novo's, We expect to open this year.

Dave Doherty: Our guidance implies continued margin expansion, reflecting our ongoing and accretive progress in procurement and the revenue cycle, as well as the integration benefits from recent acquisitions and contributions from de novos we expect to open this year. We have high confidence in these growth levers based on our historical experience and the compounding effect of activity that has already occurred in areas like physician recruiting and managed care contracting. Once again, our well-established and proven growth algorithm is firing on all cylinders and enables the company to confidently guide to double-digit adjusted EBITDA growth and margin expansion in 2024 and beyond. With that, I would like to turn the call back over to the operator for questions. Operator.

Speaker Change: We have high confidence in these growth levers based on our historical experience and the compounding effect of activity that has already occurred in areas like physician recruiting in managed care contracting.

Speaker Change: Once again, our well established and proven growth algorithm is firing on all cylinders and enables the company to confidently guide to double digit adjusted EBITDA growth and margin expansion in 2024 and beyond.

Speaker Change: With that I would like to turn the call back over to the operator for questions.

Speaker Change: Operator.

Speaker Change: Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your hand.

Operator: Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in question. You may press star two if you'd like to remove your question from the list. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key.

Speaker Change: That's before pressing the star keys in the interest of time, we ask that you each keep to one question and one follow up thank you.

Brian Gil Tanquilut: In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question. Hey, good morning, guys, and congrats on a solid year. I guess my first question, maybe Wayne or Eric, you know, the comment you made about ankles and shoulders, anything you can share with us in terms of understanding the economics of that business and also the relative sizing of that opportunity? Because obviously, you know, when you added knees and hips, it was a little different from the legacy businesses in terms of the margin profile and the contribution to the P&L. So I'm just curious what you can share with us on ankles and shoulders. Hey, Brian, good morning.

Speaker Change: Our first question comes from the line of Brian. Thank you it with Jefferies. Please proceed with your question.

Brian: Hey, good morning, guys and congrats on a solid year I guess my first question, maybe winter Eric Yeah that that comment you made about the ankle and shoulder.

Brian: Any thing you can share with us in terms of understanding the economics of that business and also the relative sizing of that opportunity because obviously.

Brian: We added knees and hips it was a little different from the legacy businesses and terrorists or the margin profile in <unk> and the contribution to the P&L, but just curious what you can share with us on ankles and children.

Speaker Change: Hey, Brian Good morning, I'm going to have Eric give a few more details on this the one thing I do want to highlight for all of our investors.

Wayne S. DeVeydt: I'm going to have Eric give a few more details on this. One thing I do want to highlight for all of our investors, and one of the reasons we enjoy seeing these continued programs expand from the inpatient only list, is while we consistently talk about the total joint programs, and, in this case, the total joints that we will get from ankles and shoulders, what it's important to recognize is that it also expands the kind of ecosystem of other procedures that we get to capitalize on. So as an example, if you were just to look at total orthopedic growth, so ignore joints, or include joints, but what other growth comes with those surgeons that bring their joints over?

Eric: And one of the reasons, we enjoy seeing these continued programs expand from the inpatient only list is well we consistently talk about the total joint programs and in this case. The total joints that we will get from ankles and shoulders. What it's important to recognize is that it also expands the ecosystem other procedures in which we get to capitalize on it so.

Eric: As an example, if you were just to look at total orthopedic growth. So ignore joints I conclude jones, but but what other growth comes with those surgeons that bring their joints over.

Eric: We've got over the last three years of CAGR of over 8% and just absolute orthopedic procedures and so from our perspective first and foremost the joints are going to obviously bring a great economic value to us and Eric can talk about that but what's even more important as it actually opens up our facilities to additional surgeons that historically may not have even considered us due to the lack of the.

Wayne S. DeVeydt: We've got over the last three years a CAGR of over 8% in just absolute orthopedic procedures. And so from our perspective, first and foremost, the joints are going to obviously bring great economic value to us, and Eric can talk about that. But what's even more important is it actually opens up our facilities to additional surgeons that historically may not have even considered us due to the lack of the ability to do the total joints. But Eric, anything you want to elaborate on regarding, Sure.

Eric: Ability of doing the total joints, but Eric anything you want to elaborate on regarding that.

Sure and thanks for the question Brian in that in the comments, Yeah, we're really excited about ingalls and shoulders, taking getting taken off the inpatient only list as you probably remember we talked about this during COVID-19, we had a hospital without walls ASC is that we're able to safely do these procedures and so the evidence has been apparent for a while that we're the best place to do these are there are.

Eric: Wins of cases, amongst our existing surgeons they can't bring today, so it's a meaningful opportunity as.

Eric Evans: And thanks for the question, Brian, and for the comments. You know, we're really excited about ankles and shoulders getting taken off the inpatient-only list. As you probably remember, we talked about this during COVID. We had hospitals without walls, ASCs, that were able to safely do these procedures.

Eric: As Wayne mentioned, two when surgeons have to schedule those cases at a hospital they tend to take their day, alright, and so that's we see that as a real opportunity just for convenience and again, our existing doctors, who use us have had a lot of cases, we know exactly where those cases are going we're already working to move those over in January and.

Eric Evans: And so the evidence has been apparent for a while that we're the best place to do these. There are thousands of cases amongst our existing surgeons that they can't bring today. So it's a meaningful opportunity. As Wayne mentioned, too, when surgeons have to schedule those cases at a hospital, they tend to take their day off, right?

Eric: In February we been working hard on that and then there's obviously shoulder specialists in our markets that now fall right into our recruitment pipeline. So we were excited about the opportunity and certainly reinforces our confidence in total joint growth and just one more example is as things get added to the ASC list you know the opportunity to create value for the system to create value for sure.

Eric Evans: And so we see that as a real opportunity just for convenience. And again, our existing doctors who use us have a lot of cases. We know exactly where those cases are going.

Eric Evans: We're already working to move those over in January and February. We've been working hard on that. And then there are obviously shoulder specialists in our markets that now fall right into our recruitment pipeline.

Eric: Surgery partners shareholders is tremendous.

Speaker Change: That's awesome and then maybe my follow up Eric Eric So far it for Dave as I think about you know the remaining debt pieces out there that are you can either call a refinance.

Eric Evans: So we were excited about the opportunity. It certainly reinforces our confidence in total joint growth. And just one more example is, as things get added to the ASC list, the opportunity to create value for the system and to create value for surgery partner shareholders is tremendous. That's awesome.

Eric: As I think about the opportunities there and then in terms of what that does to your cash flow outlook for 2025, I know in the past you've talked about a goal of hitting $300 million free cash in 'twenty five.

Eric: Just maybe anything any thoughts you can share with us in those things.

Speaker Change: Yeah, Yeah. Thanks, Brian.

Eric Evans: Then maybe my follow-up, Eric, or so for Dave, as I think about, you know, the remaining debt pieces out there that you can either call or refinance, as I think about the opportunities there, and then in terms of what that does to your cash flow outlook for 2025. I know in the past, you've talked about a goal of getting $200 million of free cash in 2025. Just maybe anything, any thoughts you can share with us on those things.

Speaker Change: You're right and I'll just give you a reminder of kind of where we sit on our balance sheet first off we did mentioned the term loan refinance in December at which which took that debt out to 2030 and as you can see with our leverage gave us some pretty favorable terms as we modernize that fault.

Speaker Change: Situations.

Speaker Change:

Speaker Change: The rates I think we're we're also pretty well, but as you know we do have to address the interest rate that was that's currently protected by the hedges at which we'll do over the course of this year. We also have.

Dave Doherty: Thanks. Yeah, thanks, Brian. You're right.

Dave Doherty: I'll just give you a reminder of kind of where we sit on our balance sheet. First off, you know, we did mention the term loan refinance in December, which took that debt out to 2030. And as you can see, with our leverage, it gave us some pretty favorable terms as we modernized it for current situations. The rates, I think, were also pretty good. But, as you know, we do have to address the interest rate that's currently protected by the hedges, which we'll do over the course of this year. We also have two senior notes that sit out there. They're both small.

Speaker Change: To senior notes that sit out there they're both small one is a about $180 million due in 2025 carries a very favorable coupon rate of $6 75 per cent. So that one it looks better than rates you can get in the market right now.

Speaker Change: And you're probably going to hold on to that until we until it makes sense for us to look at that again. The other is a $320 million related to at 2027 note carries a coupon of 10% that one steps down to par in middle of April.

Dave Doherty: One is about $180 million due in 2025, and it carries a very favorable coupon rate of 6.75%. So that one looks better than rates you can get in the market right now. So you're probably going to hold on to that until it makes sense for us to look at it again. The other is $320 million related to a 2027 note that carries a coupon of 10%. That one steps down to par in the middle of April.

Speaker Change: That does represent a fantastic opportunity for us to create interest savings on that but you know in both of those two things are relatively small on our balance sheet easy for us to kind of address so we will remain opportunistic when we address both the interest rate hedge Uh huh.

Dave Doherty: That does represent a fantastic opportunity for us to create interest savings on that. But, you know, both of those two things are relatively small on our balance sheet, easy for us to kind of address. So we will remain opportunistic when we address both the interest rate hedge for the term loan and the refinancing of that 10% coupon note.

Speaker Change: For the term loan and the refinancing of that 10% coupon note and I think as you've seen us do over the past several years Hi, Brian you know, we will be judicious about when we enter the market and really try to take advantage of the best the best environment that we possibly can but that'll be an area of focus that I look forward to talk to.

Dave Doherty: And I think, as you've seen us do over the past several years, Brian, we'll be judicious about when we enter the market and really try to take advantage of the best environment that we possibly can. But that'll be an area of focus that I look forward to talking to you about as we go through the year. Thanks.

Brian: To you about as we go through the year.

Brian: Awesome. Thank you.

Brian: Thank you. Our next question comes from the line of Kevin Fischbeck with Bank of America. Please proceed with your question.

Great. Thanks, I wanted to focus on the the revenue per case in the quarter, which was strong again.

Kevin Mark Fischbeck: Thank you. Our next question comes from the line of Kevin Fischbeck with Bank of America. I wanted to focus on the revenue per case in the quarter, which was strong again. I think you mentioned, as far as a cash flow dynamic, the state supplemental payments. Flush out how much that was as far as benefit. www.surgicalscience.com and, um..., as far as a cash flow drag.

Kevin Mark Fischbeck: I think you mentioned as far as our cash flow dynamic the state supplemental payments I'm wondering if you could.

Kevin Mark Fischbeck: Maybe flesh out how much that was as far as a revenue.

Kevin Mark Fischbeck: No benefit in the quarter and then I guess also as far as the cash flow drag for.

Kevin Mark Fischbeck: For the year and then just trying to understand if you think about breaking out that revenue per case, how much is mix versus rate.

Wayne S. DeVeydt: I'm trying to understand, if you think about breaking out that revenue per case, how much is mixed? Thanks for the question. I'm going to let Dave and Eric go a little bit deeper on the specifics, but just at a very high level, I want to remind everyone that these upper payment limit programs are fairly de minimis to our operating earnings as a whole and happen throughout the year. But we've got more and more state programs that are actually expanding these, and we continue to try to capture them. So, in terms of specifics for the quarter, not an overall material impact, but rather a reflection of many of the initiatives that the company has been doing throughout the year to continue to just expand.

Speaker Change: Yeah, maybe I'll take that exactly.

Speaker Change: Thanks for the question I'm going to let Dave and Erika a little bit deeper on the specifics, but just to be here.

Speaker Change: Three high level I want to remind everyone that these are these upper payment limit programs are fairly de minimis to our operating earnings as a whole and it happened throughout the year, but we've got more and more state programs that are actually expanding into these and we continue to try to capture these so in terms of the specifics for the quarter not an overall material impact, but rather a reflection.

Speaker Change: <unk> of many of the initiatives that the company has been doing throughout the year to continue to just expand and as you know fourth quarters are very heavy commercial quarter for us typically do deductibles. So you continue to get that and then the last thing I would highlight is that we had these are these are investments we've made in these non.

Wayne S. DeVeydt: And as you know, the fourth quarter is a very heavy commercial quarter for us, typically due to deductibles, so you continue to get that. And then the last thing I would highlight is that we have these investments we've made in these non-majority-owned, non-consolidating facilities, and if we get the run rate of those and those start to ramp up, we get more of an impact of that in the fourth quarter. You'll start to see that smooth out more, though, as we go into the new year because now we'll start getting the run rate impact of that in Q1 and Q2 as well. Dave or Eric, anything you want to elaborate on?

Speaker Change: The majority owned consolidated facilities and if we get the run rate as those start to ramp up we get more of an impact of that in the fourth quarter, you'll start to see that smooth out more of those as we go into the new year, because now we'll start getting the run rate impact of that in Q1 Q2 as well.

Speaker Change: Dave or Eric anything you want to elaborate on.

Eric: Yeah before I hand, it over to Dave to kind of talk about that.

Eric: A little more specifically I would just on the mix and rate question. Its primarily mix like we've we've had success obviously in rate, but most of what drives that is our increased acuity and focus around recruitment and higher higher acuity service lines, but but Dave I'll turn it over to you on this specific question, yes, yes, and yes.

Eric Evans: Yeah, before I hand it over to Dave to kind of talk about that program a little more specifically, I would just, on the mix and rate question, it's primarily mixed. Like, we've had success, obviously, in rate, but most of what drives that is our increased acuity and focus around recruitment and higher acuity service lines. Dave, I'll turn it over to you on his specific question. Yeah, yeah, and thank you. First off, again, it is good to reiterate that point on the rate growth really coming from the change in acuity, and that's what we've seen all year. Kevin, I know we've talked about this before, and the impact of those not-consolidating is pretty significant as we've been really focusing that de novo engine on those high-acuity procedures, which is going to obviously be a big benefit to us as we go through that going forward. So that is by far the biggest driver that kind of sits inside there.

Dave Doherty: Thank you.

Dave Doherty: The that first off again it is good to reiterate that point on the rate growth really coming from the change in acuity and that's what we've seen all year, Kevin I know, we've talked about this before and the impact of those non consolidating is pretty significant as we've been really focusing.

Dave Doherty: Got to Novo engine on those high acuity procedures, which is going to obviously.

Dave Doherty: Obviously be a big benefit to us as we go through that going forward. So that that is by far the biggest driver that kind of sits inside there as Wayne mentioned the state based programs. It's something that we have a we've always kind of had in our portfolio that was hey, yeah. There was a new program that it came through in one of the states that we operate in this year.

Dave Doherty: As Wayne mentioned, the state-based programs are something that we've always kind of had in our portfolio. There was a new program that came through in one of the states that we operated in this year. That one did create some issues for us in terms of projecting cash flow, the reimbursement rates, and the timing of when those reimbursements happened was more in 24 and a little bit in 25, and it wasn't what we expected. We expected that to come through, I think, a little bit earlier in the process. As Wayne mentioned, though, the driver of rate was not coming through exclusively from there.

Dave Doherty: That one did create.

Dave Doherty: Some issues with us in terms of projecting cash flow.

Dave Doherty: Their reimbursement rates in windows, the timing of when those reimbursements happened.

Dave Doherty: Was more in 'twenty, four and little bit in 'twenty five.

Dave Doherty: But and you know it wasn't what we expected and we expect that to come through or I think a little bit earlier in the process as Wayne mentioned, though the driver of that the driver of rate was not coming through are exclusively from there in fact, we've seen those rate based programs over the course of the year.

Dave Doherty: In fact, we've seen those rate-based programs over the course of the year. We're only talking about that because of the pressure it created for us on the cash flow piece. How much was it?

Dave Doherty: We're only talking about that because of the pressure it created for us on the on.

Dave Doherty: On the cash flow piece.

Dave Doherty: Do you know how much was that in the cash flow.

Dave Doherty: About half of the mess, maybe a little bit somewhere around half of that miss versus the 140, we'd been talking about before.

Dave Doherty: About half of the miss, maybe a little bit, somewhere around half of that miss versus the 140 we've been talking about before. And again, just to reiterate, I don't want to leave any doubt about this. This is just the timing of when those cash flows are coming in. There's no concern about the recovery of that. Maybe just a second.

Dave Doherty: And again just to reiterate I don't want to I don't want to leave any doubt on this this is just timing of when those cash flows are coming in there's no no concern about the recovery of that.

Speaker Change: Okay, and then maybe just a second question I'm sure you guys I've seen some margin expansion looking for margin expansion again. This year can you just talk a little bit about <unk>.

Dave Doherty: You guys have seen some margin expansion. Transcription by CastingWords, talk a little bit about where exactly you think that's coming from and then you just remind us about the growth in orthopedics. Is that a headwind to margin that you're overcoming, or is that a tailwind to margin, part of the reason why we should be seeing more... Thanks for having me.

Speaker Change: You know where exactly do you think that's coming from and then could you just remind us what the growth in orthopedics and is that is that a headwind to margin that you're overcoming or is that a tailwind to margin and part of that part of the reason why we should be seeing margin expansion. Thanks.

Kevin Mark Fischbeck: Hey, Kevin.

Kevin Mark Fischbeck: Yeah go ahead.

Dave Doherty: Let me elaborate. Yeah, go ahead. Yep, thank you. The so margin expansion is going to come naturally to us for a couple of key reasons. One, if we're doing our job right on the rate side of the equation, that should naturally create a margin as we really try to focus on cost control, which we've done pretty effectively over the past couple of years. You can look at those kind of high-level metrics that we've continued to improve upon. So, if you look back over this past year, plus 50 basis points of improvement on both the supply, and I'm sorry, and We get margin expansion also from the acquisitions that we've done and being able to take a turn off of those things as we integrate those into our facilities. And importantly, the equity method investments, those minority interest holdings, don't come with revenue.

Kevin Mark Fischbeck: Yep. Thank you.

Speaker Change: The so margin expansion is going to come naturally to us for a couple of kind of key reasons. One if we're doing our job right on the <unk> on the right side of the equation.

Kevin Mark Fischbeck: That should naturally create a barge and as we really try to focus on cost control, which we've done pretty effectively over the past couple of years you can look at those kind of high level metrics that we've continued to improve upon so if you look back over this past year, plus 50 basis points of improvement on both the supply.

Kevin Mark Fischbeck: And S G I'm, sorry, and on the SW be salaries wages and benefits. So youre going to get a are a driver of that which is what you should which you should count on we get margin expansion also from the acquisitions that we've done and and being able to.

Kevin Mark Fischbeck: Take a turn off of those things as we integrate those into our facilities.

Kevin Mark Fischbeck: And importantly, the equity method investments those minority interest holding don't come with revenue so.

Dave Doherty: So, a lot of that growth will just come through as pure margin for us. And when you look at the rate on the change in acuity, you're going to see some of that acuity coming through those minority interest holders. So, you're not actually going to see the pressure on margin that you were referring to.

Kevin Mark Fischbeck: A lot of that growth will just come through as that's pure margin for us and when you look at the rate on the <unk> on the changing acuity, you're going to see some of that acuity coming through those minority interest holders. So.

Kevin Mark Fischbeck: So you're not actually going to see the pressure on margin that you were referring to but where those come through on our consolidated cases, you're 100% right.

Dave Doherty: But where those come through on our consolidated cases, you're 100% right. There is margin pressure, and the margin pressure is not as bad as you would think. It really just arrests the rate of growth a little bit.

Kevin Mark Fischbeck: There is a margin pressure and the margin pressure is not as you would think it really just arrest the rate of growth a little bit it doesn't take our margins backwards.

Dave Doherty: It doesn't take our margins backwards as we have modeled them as this mix of changes. So, we're still able to outgrow that with the revenue growth that we see and the contributions from our minority interest partners. Great, thanks.

Kevin Mark Fischbeck: As we have modeled them as this mix kind of changes so we're still able to outgrow that with the revenue growth.

Kevin Mark Fischbeck: That we see and the contributions from our minority interest partners.

Speaker Change: Great. Thanks.

Jason Plagman: Thank you. Our next question comes from the line of Jason Casorla with Citi. Great. Thanks. Good morning.

Speaker Change: Thank you. Our next question comes from the line of Jason cause for that with Citi. Please proceed with your question.

Jason Plagman: Great. Thanks, Good morning, I, just wanted to follow up on the free cash flow commentary, Dave just to be clear on this the total dollar value of those two items you flagged the paper insurance plus the state program with the two Miss there was that the 30 million difference between your 104.

Dave Doherty: I just wanted to follow up on the free cash flow commentary. Dave, just to be clear on this, the total dollar value of those two items that you flagged, the paper insurance plus the state program, the two missed there, was that the $30 million difference between your $140 million free cash flow target? And would you expect to recoup those two items completely in 2024? And then maybe, just kind of, from that point, help us bridge to that $150 million midpoint for free cash flow in 2024? Just any more color there would be great to start.

Jason Plagman: Millions of free cash flow target and would you expect to recoup those two items kind of completely in 'twenty four.

Jason Plagman: And then maybe just kind of from that point to help us bridge to that $1 50 midpoint for free cash flow for 'twenty for us.

Jason Plagman: Just any more color that'd be great to start thanks.

Dave Doherty: Yes, happy to. So first off, let me just say this company, it's worth noting, this company has never generated free cash flow before. This is our first year doing so, and we went from negative last year to $110 million. The year-over-year change that we see is remarkable, kind of worth a pause as we look through this. Most of that comes from, hey, the lack of some unusual items and just pure growth of the underlying operations of the company. So this is a strong, repeatable foundation that we have out there. But I must acknowledge, as you pointed out, that we missed how collections were going to come through, particularly in this fourth quarter revenue that was there, and as a result of the cyber event that took place at the beginning of the year, and just the complexity of doing paper-based billings and how that impacts our payers as we go through those. We attribute a large majority, the predominant majority, of that miss to those two items.

Speaker Change: Yes happy to.

So first off let me let me just say this company. It's worth noting this company has never generated free cash flow before right. This is our first year doing so and we went from a negative last year, a $210 million, that's a year over year change that we.

Speaker Change: See is remarkable kind of worth a pause hum as we look through this most of that comes from hey, the lack of some unusual items and just pure growth of the underlying operations of the company.

Speaker Change: So this is a a strong repeatable foundation that we have out there, but I must acknowledge as you pointed out.

Speaker Change: That we missed how collections, we're gonna come through particularly in this fourth quarter revenue.

Speaker Change: That was there and as a result of Oh, the cyber event that took place in the beginning of the year and just the complexity of doing paper based billings and and how that impacts our payers as we go through those.

Speaker Change: We attribute a large majority a predominant majority of that Miss to the 140 that we had talked about before to those two items are we do expect the majority of that to come back within 'twenty 'twenty four but some of those state programs could take as long as 25 again, we're trying to be prudent as we gave our guidance.

Dave Doherty: We do expect the majority of that to come back within 2024, but some of those state programs could take as long as 25. Again, we're trying to be prudent as we give our guidance going into next year. So certainly, you're going to see a benefit from those collections going through, but as we mentioned earlier, those state-based programs continue for us. They're part of just the natural underlying source of business that we have. So those cash flows won't come in.

Speaker Change: I'm going into next year, so certainly youre going to see a benefit from those collections going through but you know as we mentioned earlier those state based programs continue for us they're part of just the natural.

Speaker Change: Underlying source of business that we have so those cash flows wont come in so there'll be some natural offsetting that happens oh on that piece of the pie and.

Dave Doherty: So there'll be some natural offsetting that happens on that piece of the pie. And, hey, listen. For the first time doing that metric last year, we're going to be prudent in what we include in our outlook for 2024. And so I look forward to kind of giving updated guidance as we go through the year. I would say, in answer to your question most specifically on what's driving that year-over-year growth, it's the growth in the underlying operations of the organization implied in our guide of $495 million. This company will now have a predictable path of converting earnings into cash flows. Great, thanks for all the clarity on that. And maybe you just want to hop over to the hospital partnerships, right? Could you just delve in a bit more on those partnerships? You pointed out that those would be kind of a minimal contribution for 24.

Speaker Change: Hey, listen.

Speaker Change: First time doing that metric last year, we're going to be prudent in what we.

Speaker Change: Well we include in our outlook for <unk>.

Speaker Change: For 2024, and so I look forward to kind of giving an updated guidance as we go through the year I would say in answer to your question more specifically on what's driving that year over year growth. It's the growth in the underlying operations of the organization that implied in our guide.

Speaker Change: $495 million right. This company will now have a predictable path on converting earnings into cash flows.

Speaker Change: Great. Thanks for all the clarity on that and maybe I'm just wanted to hop over to the hospital partnerships right could you just delve in a bit more on those partnerships you fly, but those would be kind of a minimal contribution for 'twenty four but maybe just how you're thinking about the timing of development and attribution if theres any way to help.

Eric Evans: But maybe just how you're thinking about the timing of development and attribution, if there's any way to help size or frame the opportunity within these partnerships, would be helpful. Hey, Eric, do you want to elaborate on that? I know you recently just finished the fourth partnership with Parkview last week, but this would probably be a good way to highlight kind of how you see the maturity of these partnerships evolving, some of which I know, like Intermountain, which are occurring rapidly in terms of us taking over the management of existing facilities, but other of these that are more of the de novo focus. Sure.

Speaker Change: Size or or frame the opportunity within these partnerships would be helpful. Thanks.

Speaker Change: Hey, Eric do you want to elaborate on that I know you recently just finished the fourth partnership with Park view last week, but this would probably be a good way to highlight kind of how you see the maturity of these partnerships evolving some which I know like inner mountain, which are occurring rapidly in terms of us taking over the management of existing facilities.

Eric: Other than these that are more of a de novo focus.

Eric Evans: We're happy to talk about that, and we're excited about our health system partners. I should reiterate, you know, we have a lot of inbound requests for health system partnerships. We're very selective in choosing like-minded partners or choosing markets where otherwise our entry has either been constrained or it's been states that have been hard to enter.

Eric: Sure I'm happy to talk about that and we're excited about our health system partners I should reiterate we we have a lot of inbounds on health system partnerships. We're very selective on choosing Likeminded partners are choosing markets, where otherwise our entry has either been constrained or it's been states that have been hard to enter all of those partnerships are actually moving along quite nicely when we think about.

Eric Evans: All of those partnerships are actually moving along quite nicely. When we think about the partnerships that we have entered into, we're looking for partners that will allow us to get to double-digit ASCs over a three- to five-year period. So these are meaningful partnerships. You know, the timing of that, we obviously have within our guidance this year the timing we expect for 2024. But because so much of this is de novo, there will be some acquisitions. I think it's hard to say when exactly this timing will happen over a three- to five-year period, but I think you should be thinking when we sign a health system partner, our goal is to get to double-digit centers with that partner within a three- to five-year window. And we're super excited about each of our four partners we've announced, and they are long-term strategic partners who are like-minded with us on the transition of surgical cases to the right side of care to create value.

Eric: The partnerships that we have entered we're looking first for partners that will allow us to get to double digit ASC is over a three to five year period. So these are meaningful partnerships.

Eric: The timing of that and we've got we obviously have within our guidance. This year. The timing, we expect for 2024 Ah, but because so much of this is de Novo I'm sure. There will be some acquisitions I think it's it it's hard to say when exactly this time it will happen over a three to five year period, but I think you should be thinking when we sign a health system partner our goal is to get to double digit centers with that.

Eric: Partner within a three to five year window, and we're super excited about each of our four partners, we've announced and they are long term strategic partners, who are like minded with us on the transition of surgical cases to the right side of care to create value for the system.

Speaker Change: Great. Thanks.

Speaker Change: Thank you. Our next question comes from the line of Lisa Gill with Jpmorgan. Please proceed with your question.

Lisa Christine Gill: Thank you. Our next question comes from the line of Lisa Gill with J.P. Morgan. Thanks very much, and good morning.

Lisa Christine Gill: Alright, thanks, very much good morning, I just want to go back to your 2020 I don't see I'm. Just wondering if you can maybe just give us a little more color on what you're expecting for her case growth from 2024, and you start with the first question talking about ankle and shoulder I'm. Just also wondering if maybe you can talk about the type of cases that you're expecting is as we think about 'twenty.

Wayne S. DeVeydt: I just want to go back to your 2024 guidance. I'm just wondering if you can maybe just give us a little more color on what you're expecting for case growth in 2024. And you start with the first question talking about ankles and shoulders.

Wayne S. DeVeydt: I'm just also wondering if maybe you can talk about the type of cases that you're expecting as we think about it 24. Hey Lisa, let me start with, as the team builds the plan annually, we generally target our base growth algorithm, which is the 2-3% in volume that we believe is kind of table stakes. From our perspective, if you just look at the normal growth that you should be able to expect at GI, ophthalmology, and, of course, what we've seen with orthopedics, we generally create baselines of 2-3.

Speaker Change: Sure.

Speaker Change: Hey, Lisa let me start with as the team builds the plan annually, we generally target our base growth algorithm, which is the 2% to 3% in volume that we believe is kind of table stakes like from our perspective. If you just look at the normal growth that you should be able to expect a gi ophthalmology.

Speaker Change: And of course, what we've seen with orthopedics, we generally create baselines are two to three and we do it at the facility level. So that we really understand if theres any unique changes in the markets or its demographics that being shed then we obviously then we'll pursue these higher acuity procedures first as you know due to the higher acuity. These procedures in many cases had happened.

Wayne S. DeVeydt: And we do it at the facility level so that we really understand if there are any unique changes in the markets or its demographics. That being said, then, obviously, we will pursue these higher-acuity procedures first. As you know, due to the higher acuity, these procedures, in many cases, have a great rate with them, but they require a little more of the OR time that's there.

Speaker Change: Right with them, but they require a little more of the or time. That's there of course, there are still a better converter per minute of our time in terms of cash flow, but what I would say is at an aggregate level think about the volume up we still target two to three the goal is always to kind of outperform the high end of that range as we've done in the last several years and so on.

Wayne S. DeVeydt: Of course, they're still a better converter per minute of OR time in terms of cash flow. But what I would say is, at an aggregate level, think about the volume. We still target 2-3. The goal is always to kind of outperform the high end of that range, as we've done the last several years. And so, ultimately, the budget says we ought to be able to do at least the high end, maybe slightly better than that. Dave, anything you want to add to that in terms of how we're building our outlook? Yeah, I mean, I reiterate everything that you said, right, that the budget is built at the facility level.

Speaker Change: It's really the budget says we ought to be able to do at least the high end, maybe slightly better than that Dave anything you want to add to that in terms of how we're building our outlook.

Dave Doherty: Yeah, I mean, I would reiterate everything that you said rights of the budget is built at the facility level. So we have good line of sight as we kind of sit through their.

Dave Doherty: So we have a good line of sight as we kind of sit through their case. Growth is fairly predictable for us for a couple reasons. One, as we saw all year and as we've been talking about, quite frankly, for the past two solid years, the business doesn't change rapidly. So there's no, you know, unless you have a COVID pandemic, which we've long since passed in our business. Our relationships with our physicians are long standing, their block time, their doctor or their, their practices are very strong.

Dave Doherty: Our case growth is is fairly predictable for a couple of reasons first one as we saw all year and as we've been talking about quite frankly for the past two solid years the business doesn't change rapidly. So there's no you know unless you have a COVID-19 pandemic, which we've long since passed and our business.

Dave Doherty: Our relationships with our physicians is long standing.

Dave Doherty: They're block time their physician or there are there practices are very strong. So we have an underlying base that we think is fairly predictable.

Dave Doherty: So we have an underlying base that we think is fairly predictable. Our recruiting pipeline for 2023 has been really strong, as you guys know, and that compounds in a very predictable pattern for us. And so you will see confidence in that underlying rate growth, I'm sorry, case growth, that's at least in line with that guide that Wayne mentioned. It will be across all of our, all of our specialties, because we focus very hard on those. However, you will see us try to take advantage of ankles and shoulders, particularly in those where we already have relationships.

Dave Doherty: Our recruiting pipeline from 'twenty to 'twenty three has been fairly strong as you guys know that compounds in a very predictable pattern for us and so you will see.

Dave Doherty: Our confidence in that underlying rate growth I'm, sorry case growth that's at least in line.

Dave Doherty: With that Guy that that Wayne mentioned, it will be across all of our all of our specialties are because we focus.

Dave Doherty: Very hard on those however, you will see us try to take advantage of ankles and shoulders, particularly in those where we already have relationships and as our minority interest partnerships continue to mature you'll see kind of a continued upward pressure.

Dave Doherty: And as our minority interest partnerships continue to mature, you'll see kind of a continued upward pressure on the there. So those, those cases should continue to be positive. Those are a relatively small number of cases that have a very large impact on revenue.

Dave Doherty: On there. So those are those cases should continue to be positive. Those are relatively small number of cases that have a very large impact on revenue.

Wayne S. DeVeydt: So we're pretty bullish on how that's going to look for next year. Lisa, the only thing I was going to say, and to the extent, as has been our track record, that we exceed those expectations, then we'll raise guidance as we move throughout the year. So I think we'd like to try to create a conservative, thoughtful baseline, but then again, as we've done historically, if we continue to outperform that baseline, you'll see that reflected in our outlook each quarter. That's very helpful.

Dave Doherty: So we're pretty bullish on how that's going to look for next year.

Dave Doherty: And then you can at least.

Speaker Change: Sorry go ahead.

Speaker Change: So the only thing I was going to say and then to the extent as has been our track record that we exceed those expectations. Then we'll raise guidance as we move throughout the year. So I think we'd like to try to create a conservative thoughtful baseline, but but then as again as we've done historically, if we continue to outperform that baseline youll see that reflected in our in our outlook each quarter.

Speaker Change: That's very helpful.

Wayne S. DeVeydt: Just staying on the 2024 guidance just for one more minute, I just want to make sure I also understand what you have in there as far as acquisitions go. I think, Dave, in your comment, you talked about some flipping from 2023 into 2024, but could you talk about how much you have in the revenue guidance for acquisitions? Yeah, so it was... Dave, I'm sorry, let me just start with this, and I want to flip this to you.

Speaker Change: Just staying on the 'twenty 'twenty four guidance just for one more minute I just wanted to make sure I also understand what you have in there as far as acquisitions go I think David in your comments you talked about some slipping from twenty-three into 'twenty four but if you can talk about how much you have in the revenue guidance for acquisition.

David: Yeah, So let me tell where it goes.

Speaker Change: Dave I'm, sorry, let me just start with this and I'm going to flip a few.

Wayne S. DeVeydt: Just a reminder, the $60 million that we got done in early January, we view that as just finalizing what we were doing in 2023, and so that is going to move forward. So everything that Dave is going to talk about is the incremental $200 million we believe we would get done this year. I'm sorry, Dave. Go ahead.

Speaker Change: Just a reminder, the 60 million that we got done in early January we view that as just finalizing what we were doing in 'twenty three and so that is going to move forward. So everything that Dave's going to talk about is the incremental $200 million. We believe we would get done this year I'm sorry, David go ahead, Okay, Yeah yeah.

Dave Doherty: Okay. Yeah, so our guide right now implies that we're going to do another $200 million, just as we've talked about before, using a mid-year convention. That is exclusive of the $60 million that Wayne just mentioned that we completed in early January. The lesson learned from the past, and I would just encourage us all to think about this as we do our models, is how much of that is going to come through and consolidate it as that converts to revenue versus non-consolidated. Now, as we look at the pipeline right now, a majority of those are in consolidated facilities, but we manage a very strong pipeline that goes deeper than the $200 million that's currently under LOI, and so we'll look to see how those ultimately manifest.

David: So our guide right now implies that we're going to do another $200 million just as we've talked about before using a mid year convention that is exclusive of the 60 million that that Wayne just mentioned that we completed in early January.

David: The lesson learned from the past and I would just encourage us all to think about this as we do our models is how much of that is going to come through and consolidated is that converts to revenue versus a non consolidated now as we look at the pipeline right now a majority of those are in consolidated facility.

David: But we manage a very strong pipeline that goes deeper than the $200 million. That's currently under LOI and so we'll look to see how those ultimately manifest that's what we will we'll continue to kind of guide to as we look through the year as we're looking at the divestiture side, which the other point that gave us some pressure points.

Dave Doherty: That's what we will continue to kind of guide to as we look through the year. As we're looking at the divestiture side, which is the other point that gave us some pressure points last year, we're not looking at anything as significant as we did last year that will create that type of headwind, at least as we're talking at our portfolio level at this point. Thanks for the comments.

David: Last year, we're not looking at anything significant.

David: Significant tests, we did last year that will create that type of headwind.

David: At least as we're talking about our portfolio level at this point.

Speaker Change: Okay, great. Thanks for the comment.

Bill Sutherland: Mm-hmm. Thank you. Our next question comes from the line of Bill Sutherland with The Benchmark Company. Please proceed with your question. Thanks very much. Good morning, everybody.

Speaker Change: Mhm.

Speaker Change: Thank you. Our next question comes from the line of Bill Sutherland with Benchmark Company. Please proceed with your question.

Bill Sutherland: Thanks, very much good morning, everybody.

Bill Sutherland: Well it does look a little bit harder case growth in the quarter I'm, assuming that's just a matter of the mix into the higher acuity procedures, taking more of our time.

Wayne S. DeVeydt: I wanted to look a little bit harder at case growth in the quarter, but I'm assuming that's just a matter of the mix into the higher acuity procedures taking more OR time. Is that why it was below 2%? No, Bill, actually. I'm really glad you asked this question, and I want to provide a little clarity. So, first and foremost, remember that in the last two fourth quarters, we generated 4% case volume growth. So, we can continue to compound off of a very large growth rate in Q4. And the reason that's important to note is that the fourth quarter of this year, which was aligned with our expectations, had a very unique anomaly occur, which was that Christmas fell on a Monday. And as you know, for the vast majority of our procedures, while we are open Monday through Friday, the majority of them actually occur on Mondays and Tuesdays. And so, in this particular year, many of our facilities were not only closed for the Monday but were actually closed for the Tuesday as well.

Bill Sutherland: That why it was below 2%.

Bill Sutherland: No Bill actually I'm really glad you asked this question and I want to provide a little clarity. So first and foremost remember that the last two fourth quarters, we generated 4% case volume growth. So we can continue to compound off of a very large growth rate in Q4.

Bill Sutherland: And the reason that's important to note is that the fourth quarter of this year, which was aligned with our expectations had a very unique anomaly occur which was a Christmas fell on a Monday and as you know for the vast majority of our procedures.

Bill Sutherland: Well, while we are open Monday through Friday, the majority of them actually occur on Mondays and Tuesdays and so in this particular year. Many of our facilities were not only closer to the Monday, but were actually closed for the Tuesday, as well and so you get this year over year unique comp dynamic as we move into 2024, it actually becomes a tailwind for us.

Wayne S. DeVeydt: And so, you get this unique year-over-year comp dynamic. As we move into 2024, it actually becomes a tailwind for us because we have a leap year. Christmas is actually getting pushed to a Wednesday, which means we'll get the Monday-Tuesday back.

Bill Sutherland: Because we have a leap year Christmas was actually getting pushed to a Wednesday, which means we'll get the Monday Tuesday back and in addition to that we have one additional day in the fourth quarter of this upcoming year. So it creates a little bit of an odd anomaly in terms of comps of last year and the year before versus this year, but no concerns in terms of what we think is the basic algorithm.

Wayne S. DeVeydt: And in addition to that, we have one additional day in the fourth quarter of this upcoming year. So, it creates a little bit of an odd anomaly in terms of comps of last year and the year before versus this year, but no concerns in terms of what we think is the basic algorithm in achieving that 2% to 3% plus. Got it. Thanks for that. And then I was also curious.

Bill Sutherland: And achieving that 2% to 3% plus.

Speaker Change: Got it thanks for that.

Speaker Change: And then I was also curious.

Speaker Change: If you could look at looking at the didn't help us.

Dave Doherty: If you could look at the de Novos, and what's the cadence of them impacting the top line as they come on? Dave, do you want to highlight that? Yeah, yeah, happy to. And it's a great question, Bill, because again, something could be somewhat confusing. Most de novos, as they kind of start up in their process, are going to come through as minority interest partnerships, especially those that are coming through with our new partners that we've announced over the past year. And at some point in time, we'll look for the opportunity to kind of buy up to a consolidating level. So the impact on revenue should be somewhat muted in the short run. But that's not an exclusive statement.

Speaker Change: And what's the cadence of them impacting the top line as they come on.

Speaker Change: Dave do you want do you want to highlight that yeah.

Dave Doherty: Yep Yep happy to and it's a great question Bill because again.

Dave Doherty: Something could be somewhat confusing most de novo's as they kind of start up in their process are going to come through as minority interest.

Dave Doherty: Our partnerships Hum, especially those that are coming through with our new partners that we've been asked over the past year and Ah at some point in time, we'll look for the opportunity to kind of buy up to a consolidated level. So the impact on revenue should be somewhat muted.

Dave Doherty: In a short right now that's not an exclusive a statement there are some of our de novo's that we look at that out of the gate, we will be consolidating them and in that case, you won't see a huge impact in 2024, when it becomes something that's a material contributor to our revenue guide, we'll probably give you.

Dave Doherty: There are some of our de novos that we look at that, out of the gate, we will be consolidating. And in that case, you won't see a huge impact in 2024. When it becomes something that's a material contributor to our revenue guide, we'll probably give you a heads up on that. But the gestation period for de novos is a relatively long ramp.

Dave Doherty: A heads up on that but the the gestation period for de Novo's has a relatively long ramp.

Dave Doherty: So the seeds we planted last year and the seeds we're planting this year will take another year or two before you start to see them provide the meaningful growth that we'll be talking about. As we sit here today, we're just excited about managing about 10 or so per year. Okay, great. Thanks guys.

Dave Doherty: So the the seeds, we planted last year and the seeds. We're planting this year will take another year or two before you start to see them provide the meaningful growth that we'll be talking about as we sit here today, we're just excited about.

Dave Doherty: Managing about 10 or so a year.

Speaker Change: Okay great.

Speaker Change: Thanks, Dan.

Speaker Change: Mhm.

Speaker Change: Yeah.

Sarah James: Mm-hmm. Thank you. Our next question comes from the line of Sarah James with Cantor Fitzgerald. Please proceed with your question. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Sarah James with Cantor Fitzgerald. Please proceed with your question.

Sarah James: Thank you I wanted to go back to margins I appreciate the mechanics of the minority interest assets lifting margins, but can you clarify if 24 you would also be.

Wayne S. DeVeydt: I appreciate the mechanics of the minority interest assets lifting margins, but can you clarify if 24 you would also be guiding to margin expansion on your core book? And then on the drivers of that, you've been talking about improving RCM for a while. How much runway is left on that? And also, GNA came in well below consensus, so anything you can point to as the driver there in the quarter and if that would continue into 24. Hey Sarah, good morning.

Sarah James: Guiding to margin expansion on your core book and then on the drivers of that you've been talking about improving RCM for a while how much runway is left on that and also G&A came in.

Sarah James: Well below consensus so anything you can point to is the driver there in the quarter and if that would continue into 'twenty four.

Speaker Change: Hey, Sarah Good morning, first and foremost our core book will be expanding margins as well as the minority interest so no changes from that perspective.

Dave Doherty: First and foremost, a core book will be expanding margins as well as the minority interest. So there will be no changes from that perspective. I think we continue to get the benefits of scale. And in many cases, you know, we are overcoming headwinds that the industry has suffered over the last couple of years, both around labor and cost supply. And while we've effectively managed it well, we've also been able to maintain a cost structure, which means we'll get the benefits of that as we kind of return to a more normal environment. So I feel very good from that perspective.

Speaker Change: We continue to get the benefits of scale and in many cases, you know we were overcoming headwinds that the industry was suffering over the last couple of years.

Speaker Change: [noise] around labor and cost supply and while we effectively managed it well. We've also been able to maintain a cost structure that means we'll get the benefits of that is that as we kind of returned to a more normal environment. So feel very good from that perspective on the RCM front I am continually amazed at the work that Dave and the team has done and what are the opportunities continue to exist Dave do you want to.

Wayne S. DeVeydt: On the RCM front, I am continually amazed at the work that Dave and the team have done and where the opportunities continue to exist. Dave, do you want to elaborate on a bit more of what we see as the runway? And I don't think we see this slowing down anytime soon.

Dave Doherty: Library on a bit more of what we see as runway and I don't think we see this slowing down anytime soon.

Dave Doherty: That's right yeah. Thank you Rev cycle is something that's probably a multiyear journey for us as we continue to get better in that front and it happens both from bringing in kind of the right teams in continuing to standardize across the portfolio as well as our recent integrations as we bring the benefit.

Eric Evans: Yeah, thank you. RevCycle is something that's probably a multi-year journey for us as we continue to get better on that front. And that happens both from bringing in kind of the right teams and continuing to standardize across the portfolio, as well as recent integrations as we bring the benefit of our RevCycle approach across the organization. So I think that there's still a long runway that kind of sits in there that will be a contributing factor for both cash conversion as well as enhanced revenue uptake. And your question on G&A, Sarah, it's really just the flexibility of the business as we kind of go through the ups and downs of the quarter. Again, on that particular line, I would encourage folks to look at that on a longer-term basis. So, you know, the six-month to 12-month view will help you smooth out the impact of kind of some of the flexing that sits underneath that G&A line item. As you can imagine, probably the biggest piece inside there is your incentive comp viewpoint. Got it. Thank you.

Dave Doherty: Hum our Rev cycle approach across the organization. So I think that there's still a long runway that kind of sits in there that will be a contributing factor for both cash conversion as well as.

Dave Doherty: Enhanced revenue uptake and your question on G&A.

Dave Doherty: Sara It is really just the flex of the business as we kind of go through the ups and downs of the quarter again on that particular line I would encourage folks to look at that on a longer term basis.

Dave Doherty: So you know six months to 12 months view will help to smooth out the impact of kind of some of the flexing that sits underneath that G&A line item as you can imagine probably the biggest piece inside there is on your incentive comp viewpoints.

Speaker Change: Got it thank you.

Dave Doherty: Mm-hmm. Thank you. Our next question comes from the line of Gary Taylor with TD Kellogg. Please proceed with your question.

Speaker Change: Mhm.

Speaker Change: Thank you. Our next question comes from the line of Gary Taylor with TD Cowen. Please proceed with your question.

Gary Paul Taylor: Hi, Good morning, most of my questions answered I did have a couple questions just on the expense side, but maybe just following up on that G&A point.

Gary Paul Taylor: Most of my questions were answered. I did have a couple questions just on the expense side, but maybe just following up on that GNA point. I guess given how strong the fourth quarter usually is, particularly with commercial, I guess it wasn't my sense that it would be a quarter you'd be looking for or needing to flex.

Gary Paul Taylor: I guess, given how strong the fourth quarter, usually is particularly with commercial I guess it wasn't my sense that it would be a quarter you'd be looking or needing to flex.

Dave Doherty: G&A is lower, so I just wanted to understand that comment just a little bit better. And then the other question was on other operating expenses, which went the other way, so that seasonally it doesn't tend to increase as much.

Gary Paul Taylor: G&A lower so I just wanted to understand that comment just a little bit better and then the other question was on other operating expense.

Gary Paul Taylor: Went the other way that seasonally doesn't tend to increase as much. It was up a fair amount. So maybe there's a little bit of you know offset in terms of the impact between those two line items, but a little more color would be helpful.

Dave Doherty: It was up a fair amount. So maybe there's a little bit of, you know, offset in terms of the impact between those two line items, but a little more color would be helpful. Yeah, Gary. I'm going to let Dave dive in.

Speaker Change: Yeah, Gary I'm Gonna look Dave a couple of things, though to keep in mind that as we divested certain fully consolidated facilities early in the year, obviously youll start seeing the full impact of comparing Q4 this year versus last year in the fourth quarter.

Wayne S. DeVeydt: A couple things, though, to keep in mind that as we divested certain fully consolidated facilities early in the year, obviously, you'll start seeing the full impact of comparing Q4 this year versus last year in the fourth quarter. It's also important to recognize that for non-consolidated entities of which we started making those investments throughout the year, those are obviously going to show up in a single line, but you're not going to necessarily see the consolidated growth associated with them on the G&A front. But Dave, do you want to elaborate a little bit further as well on any other anomalies or anything to point out?

Speaker Change: Also important to recognize that our non consolidated entities, which we started making those investments throughout the year. Those are obviously going to show up in a single line on but youre not going necessarily see the consolidated growth associated with those on the G&A front, but Dave do you want elaborate a little bit further as well on any other anomalies or anything to point out.

Dave Doherty: Yeah, Yeah happy to.

Dave Doherty: So so you're right on kind of how you flex up and down the business based on kind of the overall strength inside.

Dave Doherty: Yeah, yeah, happy to. So you're right on kind of how you flex up and down the business based on kind of overall strength. Inside, on the corporate G&A side, you'll look at how this organization kind of thinks about incentivizing our teams and driving kind of strong performance. We have very, very high internal expectations. And so as a result of that, you'll see some movement inside that in any given quarter. Again, you got to look at that particular line item on a, on a multi-quarter basis. The other operating expense question you have is a great one relating to provider taxes, for the most part. So taxes on some of the some of the programs that exist at a state level in some of the states that we experienced in during the latter part of the year.

Dave Doherty: Ah corporate G&A side, you'll look at how this this organization kind of thinks about incentivizing, our our teams and driving kind of strong performance, we have very very high internal expectations and so as a result of that you'll see some movement.

Dave Doherty: Inside that in any given quarter again.

<unk> got to look at that that particular line item on a hum on a multi quarter basis. The other operating expense question. You have is a great one relates to provider taxes for the most part so taxes on some of the some of the programs that exist at a state level and some of the states.

Dave Doherty: Oh that we experienced in.

Dave Doherty: In the latter part of the year.

Dave Doherty: Thanks.

Dave Doherty: Mhm.

Dave Doherty: Thank you ladies and gentlemen, our final question comes from the line of Ben Hendrix with RBC capital markets. Please proceed with your question.

Dave Doherty: Thanks. Mm-hmm. Thank you. Hey guys, thanks for squeezing me in. Just a quick question.

Ben Hendrix: Hey, guys. Thanks for squeezing me in just a quick question, we're hearing a lot of momentum.

Unnamed Speaker: We're hearing a lot of, Thanks for the question. Eric, do you want to highlight how you're seeing robotics continue to evolve, and then Dave, provide a little clarity around the numbers? Sure, yeah, happy to.

Ben Hendrix: No man them around on the Med Tech side about the robotics geared towards the shoulder opportunity just wanted to see kind of how that factors into your capex plans for the next couple of years and I kind of just in general how youre thinking about capex as we kind of look towards the 140 to 160 in the ER and the 200 for.

Eric Evans: You know, we've grown our robotics portfolio a lot. We've added quite a few in 2023. We're at nearly 50 robots.

Speaker Change: Between 25 thanks.

Speaker Change: Eric do you want to highlight how youre seeing the robotics continued evolving and Dave I'll provide a little clarity around the numbers.

Eric: Sure Yeah happy to yeah, we've grown our robotics platform our portfolio a lot.

Eric Evans: I would say this, that related just to shoulders and ankles, there might be a little bit of demand for robotics. We have a lot of those well covered. I would also say that when we add robotics, I remind you, those are financed locally. So not a huge CapEx impact.

Eric: We've added quite a few in 2023, we're at nearly 50 robots I would say this that related just the shoulders and angles, there might be a little bit of demand for robotics, we have a lot of those well covered I would also say that when we add robotics I remind you those are finance locally so not a huge capex in fact and actually the ROI on those have been incredibly strong.

Eric Evans: And actually, the ROI on those has been incredibly strong. And so, you know, we agree with the med tech enthusiasm on the opportunity to get to grow robotics in our facilities. We do that aggressively, though.

Eric: So you know we we we agree with the med tech enthusiasm on the opportunity to continue to grow robotics in our facilities, we do that offensive Lee, though so you think about this this is really to attract new opportunities and to go into new service lines will do that it's a little bit different than some of our peers, who often often are upgrading robotics Justin.

Eric Evans: So you think about this, this is really to attract new opportunities and to go into new service lines. We'll do that. It's a little bit different than some of our peers who often, often are upgrading robotics just to kind of keep up with technology for the same book of business. For us, it's really a great offensive move.

Eric: To keep up with technology for the same book of business for US, It's really a great offensive play and we would we would sure med techs enthusiasm on that.

Dave Doherty: And we would; we would share the med tech's enthusiasm. Yeah, I'll just say one thing. What we've been able to kind of see on the procurement side of the world is a stronger partnership with very like-minded med-tech suppliers out there who see the same opportunity that we do. And so we've seen this since Knees and Hips came out, where they're working with us to kind of capture this market shift. They see the growth in the ASCs kind of following closely behind the availability of the right equipment. And so you're finding those favorable kinds of financing or more opportunistic financing opportunities. Now, financing will eventually come around to paying cash. But for the most part, we only enter into those if they're properly asset-backed and the ROI is strong.

Speaker Change: Yeah. He got off the only add anything yeah, I'll, just say I'll, just say one thing right that the what we've been able to kind of see on the procurement side of the world is usually stronger partnership with a very like minded med tech suppliers out there who see the same opportunity that we see so we've seen this since.

Speaker Change: Knees and hips came out.

Speaker Change: Were there, they're working with us to kind of capture this this market shift they see.

Speaker Change: The growth in ASC is kind of following closely behind the availability of the right equipment and so you're finding those favorable kind of financing or more opportunistic financing opportunities not financing eventually will come around to paying cash but for the most part.

Speaker Change: We only answer those if they're if they're properly asset backed and the ROI is strong.

Eric Evans: Thank you. Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. Evans for a final comment.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Evans for final comments.

Eric Evans: Thank you. Before we wrap up, I would like to reiterate how proud I am of my colleagues and physician partners who collaborate to deliver on our mission to enhance patient quality of life through partnership. Their work and contributions allow us to deliver consistent and predictable results and drive sustained growth for all of our stakeholders. Most importantly, they also continue to serve our communities with the highest clinical care in a low-cost setting with the convenience and professionalism all our facilities are known to provide. Thank you all for joining our call this morning, and have a great day. Thank you. This concludes today's conference call. You may disconnect your lines at this time.

Evans: Sure. Thank you before we wrap up I would like to reiterate how proud I am of my colleagues and physician partners, who collaborate to deliver on our mission to enhance patient quality of life through partnership their work and contributions to allow us to deliver consistent and predictable results and drive sustained growth for all of our stakeholders. Most importantly, they also continue to.

Evans: Serve our communities with the highest clinical care in a low cost setting with the convenience and professionalism. All our facilities are known to provide thank you all for joining our call. This morning and have a great day.

Speaker Change: Thank you. This concludes today's conference call you may disconnect. Your lines at this time. Thank you for your participation.