Surgery Partners Inc (SGRY) 2020 Q4 法說會逐字稿

Greetings, and welcome to Surgery Partners Fourth Quarter and Year-end 2020 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Tom Cowhey, Chief Financial Officer. Sir, you may begin.

Good morning, and welcome to Surgery Partners Fourth Quarter and Year-end 2020 Earnings Call. This is Tom Cowhey, Chief Financial Officer. Joining me today are Wayne DeVeydt, Surgery Partners' Executive Chairman; and Eric Evans, Surgery Partners' Chief Executive Officer.

As a reminder, during this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we file with the SEC. The company does not undertake any duty to update such forward-looking statements.

Additionally, during today's call, the company will discuss certain non-GAAP measures which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in our earnings release, which is posted on our website at surgerypartners.com, and in our most recent annual report when filed.

With that, I'll turn the call over to Wayne. Wayne?

Thank you, Tom. Good morning, and thank you all for joining us today. As we begin our call this morning, I would like to take a moment to reflect on the unique times we're living in today.

A year ago, we held our year-end earnings call, having delivered double-digit adjusted EBITDA growth over the prior year, and we were well on our way to delivering similar growth in 2020, having achieved over 9% same-facility revenue growth in the first 2 months of the year. COVID-19 was something we were all watching from afar, primarily out of concern over the impact on global supply chains for items such as personal protective equipment. Little did we know that 4 short weeks later, we would be seeing an 80% reduction in same-facility volumes and facing a global pandemic. I'm humbled by the efforts of our colleagues and physician partners that supported the health care system and the needs of our patients during this crisis. When we could not know what the future held, these brave individuals were on the front line serving the critical needs of a heavily burdened health care system while supporting our patients and communities.

As a company, Surgery Partners was and continues to be uniquely positioned during the pandemic, where our freestanding purpose-built facilities are, more than ever before, a safe haven for patients and providers who were seeking surgical care. We saw surgical volumes quickly rebound in mid-2020 and even exceed prior year volumes in select higher-acuity specialties. Our business model was pressure-tested in 2020 and has proven to be resilient. Our results in this challenging environment give us confidence that the company we built should support sustainable long-term double-digit growth in 2021 and beyond.

Specifically, as we look at the fourth quarter, results were impacted by a surge in COVID-19 cases across the U.S. Infection is up nearly 2x and hospitalization is up over 3x over the course of the fourth quarter. Despite these pressures on the health care system, our results continued to affirm the power of our business model and the value proposition we provide.

Some notable highlights include the following. Adjusted revenues increased to $565 million, approximately 8.5% growth over the prior year quarter. Same-facility revenues increased by nearly 6% compared to the prior year quarter with higher net revenue per case more than offsetting slightly lower volumes as a result of the pandemic. And finally, the transition of procedures out of traditional acute care inpatient settings continues to accelerate. Joint replacements in our ASCs were up 110% as compared to the prior year quarter and for the year. Even with the disruption of COVID, joint replacements in our ASCs have increased by approximately 96%. We have been positioning our company over the past 3 years for this moment in time.

As we've continually highlighted, significant management time and resources have been focused on pruning nonstrategic assets to eliminate distractions and focus our resources into our core purpose-built, short-stay surgical facilities. As mentioned in the third quarter call, we closed our Logan lab facility and completed the sale of certain anesthesia assets. In the fourth quarter, we also sold our optical GPO. Since 2018, we have been reallocating dollars from lower-growth noncore assets into core surgical facilities with higher growth opportunities. In 2021, we are now ready to move on the offensive and capitalize on the $150 billion total addressable market that we believe we are uniquely positioned to capture.

Current market conditions, along with our solid operating results, afforded us the opportunity to access the capital markets with an equity offering in January of 2021, raising over $260 million of gross proceeds through the sale of over 8.6 million shares to a long-term-focused shareholder base that complements our existing holders. This dry powder gives us the ability to aggressively pursue our growth agenda while maintaining our disciplined approach to capital deployment that Eric will speak to in more detail.

Before I turn the call over to Eric, I wanted to emphasize the confidence we have in our long-term growth prospects. The pandemic has created many obstacles but it has also accelerated some of the tailwinds we've been anticipating and repositioning the company to capitalize upon. Our management team has a proven track record of execution that our 2020 results only emphasize. We are a trusted partner of choice, and we believe we are in the right space with the right product at the right time, setting up the runway for both near-, mid- and long-term double-digit growth.

With that, let me turn the call over to Eric. Eric?

Thank you, Wayne, and good morning. Today, I will focus my comments on 3 areas. First, I will provide a few additional highlights of our fourth quarter results. Second, I'll spend a moment on our 2021 guidance. And third, I will dive a little deeper into how we plan to deploy capital in 2021.

We were very pleased with our fourth quarter results, highlighted by same-facility revenue growth of nearly 6% and by total company adjusted revenue growth of approximately 8.5%. These increases were driven by revenue growth at our new hospital in Idaho Falls, which achieved revenues approaching $20 million in the quarter; and increased mix of higher-acuity cases such as orthopedic and spine surgeries. Also of note, we saw a rebound in GI cases in the fourth quarter, nearly equaling the total cases from the same period in 2019. We are quite encouraged by the continued strength of our recovery, which allowed us to end 2020 with $256.6 million of adjusted EBITDA, placing us in the upper half of our guided range.

Our ability to continue to drive strong same-facility growth is a direct result of our investment in physician recruitment and targeted facility-level and service line expansions that enhance our ability to earn those procedures that generate the highest contribution margin for our portfolio. Let's walk through each of them, starting with physician recruitment. We continue to see increased demand for new physicians for our short-stay surgical facilities, and our targeted physician recruitment approach has focused our efforts on the highest quality physicians. Year-to-date, we've recruited over 560 new physicians who generated 15% more revenue per case as compared to the 2019 cohort.

But the success of our recruiting program is not just a function of our most recent additions. As we look back to the contributions of those physicians we recruited in 2019, they generated 22% more revenue than in the prior year, inclusive of the impact of COVID. This highlights the compounding benefit of our physician recruitment efforts, and we believe our data-driven approach and digital innovation will be a differentiator to continue to accelerate our physician-driven growth in 2021.

Over multiple years, we have also been making investments in expanding our musculoskeletal footprint and more recently, in expanding our presence in cardiology as we think about longer-term opportunities. We have invested in these areas because of their large and growing addressable markets. Specifically, we estimate that there is over $60 billion of cases that will shift from inpatient to outpatient over the next several years, and we estimate that over 60% of those procedures are in musculoskeletal and cardiology.

Currently, 80% of our facilities have the capability to perform musculoskeletal procedures, and the number of physicians performing joint replacements in our facilities is up 34% year-over-year. We have expanded facilities, added operating and procedure rooms and invested in new equipment to capitalize on this opportunity. For example, in 2020, we increased our installed base of robotics in our ASCs by almost 60% to enhance MSK growth and have plans to further expand in 2021. As Wayne noted, these investments have led to 96% increase in total joint procedures performed in our ASCs in 2020 despite the pandemic.

Another service line we are particularly excited about is cardiology. We now have 5 surgical hospitals and 2 ASCs that perform cardio procedures. The ASCs are early-stage expansion and pilot programs, which are showing promising returns, while our surgical hospitals, including our newly acquired Bakersfield Heart Hospital, continue to mature and expand their high-acuity cardiology capabilities. We are planning to more than double the number of ASCs that perform cardio procedures in 2021 and continue to evaluate surgical hospital expansion opportunities as well.

Moving on to guidance. As we think about the momentum we have as an organization, the performance of our business allowed us to guide to a range of $250 million to $260 million of adjusted EBITDA on our second half -- second quarter 2020 call. The predictability of our model allowed us to achieve full year results in the upper half of that range with the results we announced this morning.

In January of this year, we first introduced 2021 adjusted EBITDA guidance of approximately $315 million. We maintain our conviction that we will achieve these results in 2021 but recognize that seasonal patterns of earnings from our core operations are likely to be more weighted towards the back half than has been typical over the last few years as patient sentiment reacts to lower infection and hospitalization rates as well as increased vaccination percentages and deductible coverage. Our teams are aligned, and we are executing on our initiatives across recruiting, managed care, procurement, revenue cycle and expense management to achieve our goals. We also expect that our new community hospital in Idaho Falls will contribute positively to results in the second half of 2021, a milestone for that important project and a testament to the relentless efforts of our Idaho teams to achieve profitability in the midst of the pandemic.

One final item that I would like to address relates to our strategic efforts to expand our footprint through acquisitions. As Wayne mentioned, we have pruned additional assets from the portfolio and have been using the proceeds to reinvest in our facilities and to grow our platform. Specifically, we plan to continue to pursue high-growth facilities that provide physicians and patients with more convenient, cost-effective options for care.

As mentioned on the third quarter call, we completed the acquisition of a majority interest in Bakersfield hospital -- Heart Hospital in California in October. We also acquired 2 other facilities that help us expand our footprint in Idaho and California. These transactions are expected to more than offset the earnings from the sale of our anesthesia assets and other portfolio optimization efforts.

As we take a step back, our sector remains highly fragmented. There are approximately 240 physician-owned hospitals in the United States, a number that will not grow due to restrictions in the ACA. Further, we estimate that over 70% or over 4,200 Medicare-certified ASCs are either independent or are only affiliated with a hospital and are targets for further consolidation.

We believe we are in a strong position to further expand our portfolio in 2021, and we have the financial capacity to execute on over $400 million of transactions. Over the last 3 years, we have deployed nearly $300 million on acquisitions at a weighted average multiple of approximately 7x adjusted EBITDA. The discipline with which we will deploy capital is not changing because we have more capital to deploy. Our teams are patient and diligent, and we believe that we can effectively deploy proceeds over time at multiples that will create substantial value for our shareholders.

To summarize our position, we believe that the pandemic has fundamentally changed the way patients, surgeons and health plans will think about the role that purpose-built, short-stay surgical facilities will play in health care delivery, which continues to drive the shift of surgeries to our facilities. This has been our company's differentiation strategy, and now more than ever, our value proposition is resonating with key stakeholders in the health care environment. We remain very confident in our long-term organic growth model and believe that scaled independent operators such as Surgery Partners are uniquely positioned to grow in this new marketplace.

With that, I will turn the call over to Tom, who will provide additional color on our financial results and outlook. Tom?

Thanks, Eric. First, I'll spend a few minutes on our fourth quarter financial performance before moving on to liquidity and some considerations as we move into 2021. Starting with the top line.

Surgical cases declined by just over 2% in the fourth quarter to just under 135,000 primarily due to the impact of increased COVID infection rates in certain geographies. Adjusted revenues for the quarter were $565 million, approximately 8.5% higher than the prior year period. As Eric mentioned, reported results included approximately $19 million of contribution from our new community hospital in Idaho Falls.

On a same-facility basis, total revenue increased nearly 6% in the fourth quarter. Looking at the components of this increase, our case volume was approximately 3% lower than the prior year period, offset by higher net revenue per case that increased over 9%, driven by acuity mix and pricing.

Turning to operating earnings. Our fourth quarter 2020 adjusted EBITDA was $90.8 million, a 7.6% increase from the comparable period in 2019. Using the December guidance from the COVID relief bill, we recognized an additional $13 million in the fourth quarter as grant income, which increased adjusted EBITDA by $9.2 million after accounting for noncontrolling interests.

Year-to-date, we have recognized approximately $46 million of CARES Act grants as grant income out of $59 million of CARES Act funds received in 2020, translating to approximately $31.1 million of adjusted EBITDA impact. The remaining $13 million of CARES Act grant money has not been recognized as revenue at year-end and will now be treated as a deferred liability on our balance sheet.

We continue to monitor updates to federal revenue recognition guidance in 2021 and plan to reevaluate and update our accruals during the first half of 2021. Based on current guidance, the high rates of COVID at the start of the year and continued investments in qualifying expenses to protect and prepare for COVID-19 patients, we believe it is possible that we will be able to recognize the vast majority of the remaining CARES Act grants on our balance sheet in the first half of 2021. In the unlikely event that we are unable to recognize these funds in accordance with CMS guidelines, we expect to repay them to the government in mid-2021.

During the quarter, we recorded $8 million of transaction, integration and acquisition costs, with a meaningful amount of this overall expense related to our acquisition and divestiture activity in the fourth quarter. Of note, fourth quarter 2020 transaction, integration and acquisition costs included approximately $0.6 million of EBITDA losses associated with our de novo hospital in Idaho Falls as that facility continues to make progress towards achieving profitability. We expect to report results from this facility separately through 2021 until the facility becomes profitable in the second half of the year.

Moving on to cash flow and liquidity. We ended the quarter with a strong cash position of $318 million, which includes approximately $120 million of Medicare advance payments. We have held these advance payments as deferred revenue in our financial statements. Recoupment of these funds from future Medicare revenue will commence in the second quarter of 2021 and continue into 2022. Our revolver was undrawn as of December 31, 2020.

As Wayne mentioned, on February 1, 2021, we closed on an equity offering for just over 8.6 million shares sold at a price of $30.25 per share. Net proceeds from the offering were approximately $249 million after underwriting fees and expenses. Concurrent with the equity raise, we amended our revolving credit facility to renew the term for an additional 5 years and increase the capacity by $50 million to $170 million in total availability, which is then reduced by outstanding letters of credit. While not reflected in our year-end financial statements, the proceeds from our equity offering will meaningfully reduce our leverage ratios in 2021 and have the potential to reduce leverage further as we deploy proceeds towards accretive uses.

Moving back to the fourth quarter. Surgery Partners had operating cash flows of approximately $9 million, made a $17 million payment on our tax receivable agreement, sold our optical GPO for an undisclosed price and purchased 2 surgery centers in Idaho and California and the Bakersfield Heart Hospital in California for just over $90 million. The company's ratio of total net debt to EBITDA at the end of the fourth quarter as calculated under the company's credit agreement remains stable at 7x. Normalizing for the impact of the Medicare advance payment funds, the ratio of total net debt to EBITDA would have been 7.4x. Net proceeds from the equity offering would lower leverage by approximately 0.7x as of December 31, 2020.

The company has an appropriately flexible capital structure with no financial covenants on the term loan or our senior notes. As mentioned on our prior calls, the company's lenders under its revolving credit facility provided substantial flexibility for this calculation in 2021.

Through the fourth quarter, our continued emphasis on expanding key service lines such as musculoskeletal and cardiology, targeting high-value physician recruits and engaging in strategic rate negotiations have all continued to fuel our growth trajectory. This core growth, coupled with the capital we have available to deploy, enables us to go on the offensive heading into 2021. As Eric mentioned, we continue to project adjusted EBITDA of approximately $315 million for fiscal year 2021. The vast majority of our 2021 adjusted EBITDA guidance is projected to come from organic initiatives and would represent nearly 23% growth over our 2020 COVID-impacted baseline. On the top line, we believe we can achieve 18% to 20% revenue growth over the 2020 baseline driven by strong case growth as we remain a destination for high-acuity procedures and as lower-acuity procedures return in earnest. We are confident in our organic growth model due to our consistent historical same-facility revenue growth, the opportunity to maintain and capture new share in high-acuity procedures and our ability to leverage our scale through procurement, revenue cycle and overall workflow efficiency.

As we look deeper at our preliminary 2021 outlook, we believe that our typical seasonal progression may vary as compared to recent history due to COVID-19 continuing to impact behaviors and delay procedures in the early part of 2021, the impact of winter weather and power outages in Texas in February, the prospects for improved seasonal performance in the second half of 2021 as deferred care related to COVID returns and as our new community hospital in Idaho Falls achieves profitability and is brought into earnings. While we do not provide quarterly guidance, based on the factors I just noted, first quarter underlying results may represent less than 20% of our projected full year performance prior to any recognition of CARES Act grants. Risk to our annual outlook remain the potential for more extended COVID-19 impacts than we are currently contemplating, potentially offset by our ability to recognize CARES Act grants that were deferred at the -- at year-end and our ability to deploy capital. Should our business continue to rebound as projected and as we have previously discussed, incremental M&A would represent upside opportunities for our outlook.

As we evaluate risk versus opportunities in 2021, we remain confident in our annual outlook and continue to see strength and momentum across multiple product lines and geographies. We have a collaborative, veteran management team, coupled with facilities that offer outstanding clinical quality and stellar patient satisfaction scores. The fundamentals of our business are incredibly strong with $150 billion total addressable market. After navigating through the uncertainties of 2020, we have entered 2021 as a stronger, leaner, more resilient company that is well positioned for accelerated growth in the near, mid- and long term.

With that, I'd like to turn the call back over to the operator for questions. Operator?

(Operator Instructions) Our first question comes from the line of Brian Tanquilut with Jefferies.

Congratulations on a good quarter and a good year. I guess my first question, Wayne, we've obviously been talking a lot about cardio as an emerging opportunity along with MSK. So how different is the push into cardio going to be versus ortho in terms of recruitment and maybe facility investments that you need to make? And in terms of -- what kinds of procedures are you guys anticipating to emerge into ASC, say, 2 to 3 years from now?

Got it. Brian, first, thanks for the question. Let me first just highlight what is probably obvious to all of us, is that the MSK kind of playbook that we ran will be the same playbook that we run for cardio. But the MSK opportunity is top of the first inning, right, of a 9-inning game at this point and is really exploding.

That being said, we actually think the same dynamic will be happening with cardio probably in the next 2 to 3 years, is where I would -- I'd position it. We're looking at kind of more the -- more mid-2020s when that really starts to accelerate. And so the idea would be capitalize on the massive MSK opportunity in front of us today and position ourselves to basically allow that run rate to continue for the next decade because 5 years from now, we'll be at the high watermark of cardio, moving over.

A couple of things that are, in some ways, uniquely different but not all unfamiliar, right? As we prepared in the MSK environment, there was a lot that we had to do around robotics, repositioning our facilities, how we staff those and schedule those, et cetera. Those same dynamics have to be run in the cardio playbook.

So I'm going to ask Eric maybe to highlight a little bit more of how we're phasing this in. Now I think with MSK, we knew the wave was coming. The pace we had to move was much quicker to position the company the last 3 years. But I think with cardio, we have a chance to be a lot more strategic in how we position. Eric?

Yes. Brian, thanks for the comments. We're really excited about cardio. It is a new space. With PCIs getting approved just this year from a Medicare standpoint, there's a lot of interest. I will -- I'd say this. From a physician recruitment standpoint, you've got a number of physicians across the country, cardiologists who now have an opportunity to do something to potentially take ownership, to get more involved in an ambulatory facility, and we're seeing a lot of interest in that.

When you think about where you start, over 60% -- I think around 60% of our facilities today have fluoro capacity, which is basically what you need to be able to do the basics of cardiology. So think about pacemaker implants, basic cardiac rhythm management procedures. Those are areas where we can step in today with little capital investment, some staff training. Clearly, working with those docs gives us a chance to partner with local docs who maybe haven't had this opportunity before. So we're quite excited about that. And they've been able to do that commercially, but so much of cardiology is Medicare that this really has opened the door for us to do that.

So we're -- the way you'll think about this from a stepwise is that you've got that 60% of our facilities today where we can talk to in-market cardiologists about starting their cardiac rhythm management work with us. They have a great experience. They realize that they can do more on the outpatient side. And clearly, the investments get higher when you talk about adding a cath lab to a multi-specialty facility.

There's more training involved with that. But quite honestly, there was more training and equipment involved with total joints. And so it will be a maturation process. Clearly, it's a -- we see it after MSK as the next big wave of stuff that can come out of the hospitals. So if you think about it from a clinical quality standpoint, the technology is certainly advanced to the point where these can be done safely on a same-day -- same-facility, same-day basis.

On top of that, we continue to grow acuity in our surgical hospitals. We have 2 dedicated heart hospitals, 1 in Lubbock, 1 in Bakersfield. We're growing our heart program in our hospital in Montana. We're growing our heart program in Idaho Falls. And so we see cardio as an opportunity in both sides of our short-stay surgical facilities. But clearly, on the ASC side, it gives us an opening to a brand-new group of docs who are excited about the opportunity. And it's one of those things that we're going to take our time to do right, but we see as starting this year.

I appreciate that. And then, I guess, second question for me. Obviously, pretty good equity offering earlier this year. The cash balance is huge, so it sounds like you have a very good pipeline.

But I guess for Wayne and Tom, how are we thinking about leverage targets going forward or longer term? And just maybe another -- incremental insights from the pipeline that you're seeing on the M&A front.

So I'll start with a little bit around the M&A front and what we're seeing and where that's going, and then I'll let Tom talk about leverage and how we continue to drive that down over time and where we think it can go longer term. Let me just first start by stating a little bit what Tom said.

If you look at our prepared remarks, we have about $400 million of powder to put to work. So an enviable position to be in, in an environment where you have over 4,200 individually owned and operated or single-affiliation ambulatory surgery centers out there and north of 200 surgical hospital -- physician-owned surgical hospitals. So we like the fact that we have the powder. More importantly, we like the fact that we've got a large landscape to work within.

We're targeting it in 3 buckets. So think about it as there's the kind of single ASC facility that really would benefit from scale and whether that be through a tuck-in in an existing market or just leveraging our national scale through a new market that we would enter into. And so that is part of the pipeline.

The second one is we have a very specific surgical hospital-targeted program, right? And that's why we did Bakersfield Heart Hospital. Things that are very focused on MSK and cardio, we will be aggressively pursuing.

And then finally, there are some smaller platform assets out there. And so we have kind of all 3 buckets. And those are all in addition to what we're trying to do around the 3-way JVs with large hospital systems. So ultimately, I don't see a problem. I'm looking at Eric, and he's nodding.

We've talked about this. We really think, reasonably, we ought to be able to put $200 million, $300 million to work this year of that $400 million. It could be a little bit more, it could be a little bit less. But big picture, we think we can put that to work.

We've got a lot under LOI today. We have a fair amount that LOIs are outstanding, where we've put an offer in now and hoping to get selected. We're going to be prudent with our capital because we can be and we want to be, and we think we've got a track record of showing that.

So Tom, maybe you can highlight a little bit though about our current leverage position, how the equity offering impacted it, but where we see this going.

Yes, absolutely. So Brian, as we said today, we look at the leverage ratio, we're at about 7x on credit-agreement EBITDA. You just take the equity offering and tack it onto that as cash in the calculation, and you take about 0.7 off of that calculation. So you wind up in kind of the low 6s. And I think we've got a tremendous amount of growth that we think we could see. We think we've got good accretive uses of that capital that should be at least neutral to the overall leverage ratio.

The only thing that I would just highlight for you is that the -- there is a little bit of nuance here with respect to the Medicare advance payments. And so we'll have to start repaying them in the second quarter, and so that will put a little bit of pressure on the overall ratio. But I think that mid- to low-6 area is where we're going to be for the course of the next several quarters, and that's a good target for us.

We'd ultimately like to see it go lower. We'd like to see it go lower with growth. And as we look out this year, we think we're going to have an opportunity to start to generate free deployable cash that could also accelerate our M&A outlook. The TRA payments have started to level off. They'll start to decline after the next 2 years, after 2022. There's a lot of positive things particularly in this rate environment as we look at the balance sheet that we can and will continue to do to try to accelerate our cash flow generation going forward.

I appreciate that. Last quick question for me, Tom. Just what's the right share count to be using for Q1? And is M&A incremental -- or incremental M&A embedded in the guidance?

The -- I said this in the prepared remarks. The vast majority of what our $315 million is, is organic in nature. And so M&A is a potential upside to our outlook, depending upon how COVID goes for the rest of the year.

As you -- I'll have to follow up with you on the share count, but it's going to be -- it's just over 8.6 million shares. I'm expecting that the K is going to be filed in the next 24 hours, and so you'll have all that details. I think you're looking at a number on a fully diluted basis that's in the low 80s, assuming conversion of the Bain preferred and all of the dilutive securities. But I'll follow up with you. I just don't have that at my fingertips right now.

Our next question comes from the line of Kevin Fischbeck with Bank of America.

Just wanted to get a little color on the rate dynamic. I guess obviously, we've seen the rate growth be strong, but it still has decelerated, I guess, as the year has gone on. And I guess that's just largely a function of kind of lower-acuity volume coming back into the system. But just wanted to get a sense of -- given all the investments you're making in cardio, ortho, where should we think about that rate per case kind of normalizing going forward?

Kevin, I'll let Eric and Tom chime in here as well. But yes, you obviously identified one of the points, which was our GI got almost back to where it was the previous year in Q4. So clearly, that's a -- that impacts a mathematical metric but it's something that we are fine having an impact, right? We obviously want to see our GI come back along with our MSK that we're doing today.

The one thing that's going to be interesting though will be how do volumes continue to get impacted in this current year, but how does MSK in and of itself more than offset that on the rate. So just to give you an example of one. Last year, in 2020, in January and February, there was obviously no COVID impact of any consequence. Really, it wasn't until March that COVID became an impact issue for our country and for our company. Yet, you know from a lot of public information we've stated how strong our total joints were last year.

Looking at this January and February regarding MSK and how that can impact revenue and rates, clearly, we are impacted this year by COVID, January being a very high month for COVID when you look at January and December. And clearly, February is impacted by the storms that you saw down in Texas in particular and more importantly, the impact it had on power, which impacted a lot of facilities. Even with those headwinds I just described to you, our total joints are up 100% this January, February in terms of number of procedures over last year that had no headwinds in them.

So I actually think you're going to continue to see acceleration on the revenue front. I think it's why -- you saw in Tom's prepared remarks where we've put kind of an initial revenue marker. And we'll see how that progresses over time, but we can have upside on that. So I think while we'll continue to have these lower-dollar procedures kind of migrate back in as the backlogs start to correct themselves and especially as the country becomes vaccinated or inoculated, that we're going to continue to see those lower-dollar items come back in, our optimism is really grounded in the fact that these higher-dollar items, too, are not slowing down in any way, shape or form.

Eric, anything you want to add to that?

No. I think just to be clear on kind of the 3 buckets we think about. There's the managed care commercial relationships that we're working on, and we've made a lot of progress there in getting to fair market value. We still have a ways to go to make sure we're paid fairly in every market. And so that's been an ongoing discussion, and that's a balance between partnering with payers to both make sure we're paid fairly but also to make sure that where we can, we have incentives and steerage to patients that go to the right location, both with our physicians and for the patient's benefit.

Second bucket there, I'd say, is Medicare. And as you know, this year, Medicare has had a better lift for ASCs than we've had historically, and so that certainly helps. And then sort of last bucket is acuity growth, and I think Wayne talked about this. Both with -- whether it's ortho, spine, certain cardiac procedures, I do think that we're going to continue to gain on that end.

And the real question then becomes how much is that mitigated by the backlog that we do expect to come back on the lower-acuity stuff as the year progresses. And as Wayne mentioned, as people get their vaccines, that's a business that we do think there's some pent-up demand in. So that will have some effect.

But in total, we feel really good. We talk a lot about, between volume and rate, that's like a 4% to 6% kind of bucket for us, and we've been talking about being at the high end or outperforming that for quite some time. And we feel very confident that we can do that again in 2021.

Okay. That's helpful. And I guess when you talked about the equity raise, I think you mentioned that some of that capital will be going towards expanding cardio, et cetera. And I guess you made some comments here about the number of sites.

I guess how much capital does it take to expand the number of sites that can do cardio? Is that going to be a big part? Like kind of internal investment could be a big part of that cash? Or is that also [external] deals focused on those types of areas?

Yes. So initially -- and I'll let Tom talk to this. I mean usually, it's not going to be a lot of our capital, number one. But number two, initially for cardio, with the starting point, it's going to be pretty small. Over time, there will be more capital required, but the business case will certainly support that once you start thinking about adding cath labs, et cetera. But initially, very little capital outlay there.

And the other capital that we're putting to work, whether you think about -- we mentioned our robotics program growing. We've been doing that very capital efficiently from how we work with vendors to make that happen. Clearly, we do have situations where we have to retrofit our facilities, expand rooms, add on that. That will continue to be something we do every year, but that's kind of built into our baseline. So there's nothing, I would say, in the short term that's going to change kind of that capital run rate in a big way, but we are very focused though on growing acuity.

I don't know, Tom, if you'd add anything.

I just -- as you think about those equity offering proceeds, I would think of them as dry powder for M&A. The capital that we're going to need in the near term is going to be a de minimis portion relative to the proceeds that we would like to deploy towards M&A.

I would think about that capital as -- the first use there is probably for deploying on development. And to the extent that there's local activity that we can't otherwise finance through our local financing partners that -- where we see great organic opportunity, we would absolutely use those dollars for those purposes because the ROI in our internal investments tends to be even better than some of the things that we see on our acquisitions, which are already great. But I would think about most of those dollars is going for development.

Our next question comes from the line of Frank Morgan with RBC.

I want to go back to the guidance once again. I think you touched on some of these in the follow-up comments. But just curious about the actual inclusion of CARES grant money in those results, would be number one.

And then maybe any color about how -- you obviously mentioned that from a cadence standpoint, Q1 would probably be your lowest, and you mentioned less than 20%. Just to confirm that, was that -- the 20%, was that your EBITDA contribution you were talking about? That's first.

Yes, that's correct. As you -- go ahead. Finish your question, and then I'll touch on the other stuff.

Yes. And I just want to make sure -- there was sort of a nuance to the answer about organic versus some acquisition in those numbers. So just hoping you could maybe flesh that out just a little bit, in a little bit more detail. And then also, is there any early signs of where you can talk about how first quarter results have actually proceeded maybe in January and February as we move through the quarter?

Sure. Frank, let me start with your last question first, right? Let me just make sure that we're all on the same page. January is always an interesting month to start with after December, which tends to be a very large one for us. And this year, in particular, you've got 2 -- we're a business that operates primarily Monday through Friday, and you've got 2 less business days in the month of January versus your prior year. And so comparisons off of January are just challenging.

And then you look at February. You know that we've got a big chunk business down in Texas. We had the power outages and the snow that impacted a number of facilities across the Southeast, but particularly in Texas, over the middle part of that month.

And so as we just recognize that reality, we feel really good about what we're seeing in scheduling for March. The trajectory looks good. We think that we're going to get a lot of those cases back on the books. And I just don't know that we're going to get them all in, in the first quarter, right?

And so as we look at the trajectory, we think about the back half, we think about Idaho Falls coming in line -- or online and contributing probably -- it's about a push for the third quarter and really with the contribution then in the fourth. We think that our results, as you just look at the typical seasonality that you might see out of our business, you look at 2019 and say what percentage of the $315 million occurred in the first quarter, it might be slightly less than that.

Now with respect to CARES grants, CARES grants are a natural hedge against COVID, and we've got a fair portion that we carried over from last year. We got about $13 million, $14 million that we carried over. We actually received a little bit more money, a few million dollars in the early part of the year from some applications that we had made back in 2020. And so to the extent that we could recognize some of them inside the first quarter or inside the first half, we're going to do so. And to the extent that, that's just a natural hedge against kind of COVID having a little bit more impact in the first half, we view that as fair. So hopefully, that addresses your question.

Sure. And is bakers -- you mentioned that a couple of times today, which I think it closed back in October. But I mean will that be a meaningful contributor? I mean obviously, Idaho Falls is the second half of the year, but is Bakersfield one of these things that's going to contribute immediately? Or does it have a ramp to it as well?

Bakersfield is contributing, and it did contribute immediately. I would say that I would be remiss if I said that they weren't impacted by COVID. They are a surgical hospital that does have an emergency department in Southern California where COVID rates have been exceptionally high.

We love -- and maybe, Eric, I don't know if you want to talk about the overall opportunity there. We think that's a fabulous asset. We are pleased to be an owner of it, but I think it's got a little bit of a slow start.

Yes. No, this is clearly one of those markets that -- if you want to talk about one of the most impacted places in the country, certainly, Bakersfield was high on that list. But the asset itself, it's a high-cardio, obviously, hospital but also is beginning and growing orthopedics. We're working with a lot of orthopedic surgeons in that market to grow that service line.

We -- in California, new hospitals are rare, right? And so having a physician-owned hospital in a market where it can be a cost -- where it can be a value leader and partnered with physicians in a unique way, we feel like it's -- that asset's positioned for really nice contributions this year and even more going into the future. But yes, clearly, that market was impacted by COVID, but we're very optimistic and happy to have it as part of our portfolio.

Yes. I guess -- this is Wayne. I guess Frank, maybe the way to kind of tie all this up in a bow at the end is I think we're stating the obvious of what the whole world is seeing in January and February. And we're really optimistic about what we know the business is doing and where it's going to go.

So we continue to feel good. We think, again, a little bit of timing on transition between Q1 and Q4, but nothing that is an alarm bell for us. And in fact, if anything, we think it gives us more optimism around how strong the business is. And as I mentioned on the total joints, I think it kind of shares with you a little bit about why we continue to be optimistic that we'll have a strong year.

That's great. Maybe just one more and I'll hop. I get asked this one quite a bit. Obviously, Bain is an investor. They've been around, I guess, coming up on 4 years now, but at the same time, there are all these great growth opportunities. The market is more receptive of your shares. What do you say to investors who ask about that? Kind of where is Bain's -- where is their head right now in terms of how long they're positioned to remain part of the company?

Thanks, Frank. I guess maybe I'm being a little cheeky when I say this but not intending to, but Bain is an investor like any of other long-shareholder investors. And so I guess as a management team, our focus has been just do our job, right, focus on driving long-term growth, focusing on positioning this company to be the best in our industry.

And I would simply say Bain is a very happy shareholder. And I think as you can see in the follow-on we did, it was all primary, no secondary. And I think that just shows kind of Bain's bullishness on where the company is going. And I think the power of the equity offering and how well the stock's performed since then, I think, shows the fact that there's a lot of investors that share their same sentiment. So I guess my comment to investors would just simply be view them no different than any other shareholder that believes in the business model.

Our final question comes from the line of Ralph Giacobbe with Citi.

Just the 18% to 20% revenue growth was better than we had. Maybe if you could help on how much is coming from completed deals. And I know you mentioned that nothing is assumed in M&A on EBITDA. I just want to confirm that that's also the case on revenue. And then also, if you could just give us a sense of the same-facility revenue growth embedded in guidance and split between volume and pricing just given the unusual dynamic of the base from 2020.

So Frank, there's a couple of different questions in there. I'm going to -- I'm sorry, Ralph, there's a couple of different questions. I'm going to unbundle the first one, and then let Tom kind of come through on the other ones.

So the first thing that I would simply highlight is that while there's some M&A that we closed in late 2020 that does impact revenue, I do want to remind everybody that we had to replenish the revenue that we divested of in selling certain anesthesia assets, closing the lab as well as finalizing the sale of our optical GPO. And so all those headwinds are in there. And M&A from last year, in a lot of ways, is simply overcoming those headwinds.

So as Tom has highlighted, a big chunk of the revenue that you're going to see this year is a combination of organic growth with some M&A, but the majority of the EBITDA growth is really being driven organically. Now clearly, to the extent we can get M&A done sooner in the year, that will improve that revenue outlook and could have a positive impact on adjusted EBITDA as well as the year progresses.

But I'm going to turn it over to Tom to see -- Tom, if you want to go a little bit deeper on what portion is what.

Yes. Ralph, we haven't typically guided on same store. I just -- and COVID is such a funny -- 2020, the baseline, is kind of a little funny given where -- what the comparisons are going to start to look like after March 15. And so they're going to make all the numbers here a little bit inflated.

I would say, as we think about some of the portfolio work that we did in the end of the fourth quarter, the revenue growth is clearly benefiting a little bit from that. As you think about the comment about M&A, this is, for the most part, an organic plan that we've provided to you all, right? And so I think that there's a little bit of development activity in some markets for some tuck-ins that is already embedded in there, but it's de minimis. And so the vast majority of what it is that we think that we're going to do is organic.

And so -- but I think that the revenue base on some of the things that we acquired versus the revenue base on some of the things that we recently pruned, I do think that there is a little bit of a pickup there, but it's not substantial. I think a lot of this is we had a low baseline in 2020. We've got -- we're expecting strong case growth, and we're expecting higher acuity. And the combination of those leads to a top line that's probably a little bit ahead of you guys. So I don't think it's a lot more than that.

Okay. Fair enough. And then you've been clear on the M&A opportunity and your focus there obviously. What about de novo? Is that at all part of the growth story? Are there opportunities there?

And then, I guess, separately but also related to investments, you talked about spending in robotics. Maybe just give us a sense or an idea around that and what our expectations should be for this year.

Yes. So I'll take the first question. We do de novos regularly, so we're always looking for those opportunities. They're actually typically great returns. They obviously take a longer time. We have several of those underway. We have several expansion and replacement facilities that are in our portfolio that will continue to happen every year.

So the answer is it's certainly part of it. We don't typically -- I mean it's not a huge part of that M&A plan just because it takes -- it's a long tail. But we have a -- we do a lot there. And typically, again, relatively cash-light. We don't own the facilities. We partner locally.

And so there is a portion of our money that certainly goes to de novos, and we like those. We'll do a lot of those. They have great returns, and we take advantage of the opportunities whenever they do come up.

As far as robotics go, we talked about, in the ASC sector, we increased our robotic platform, I think, installed base by about 60% last year. We have several that we're looking at this year. I don't know if it'll be quite as aggressive a growth this year, but we'll continue to add robotic technology to meet our local physicians' needs and actually to make our high-value facilities more accessible to patients. And we're going to continue to do that this year.

I would expect we're going to add a number of robots. I don't know, I think it will be quite -- probably as many as in 2020. Those tend to be pretty capital-light. The financing on that, Tom has been able to work through with the vendors. That's not been a big use of capital, and we continue to deploy those wherever it makes sense to actually gain market share.

Okay. Got it. And then one more, if I can squeeze in. There was a little bit of an increase in bad debt in the fourth quarter. What's driving that? And I guess any concerns? Or what are the assumptions for that in 2021?

No, I would say the AR was up a little bit, right? And a lot of that has to do with we've got a brand-new facility. In -- I wouldn't say that I thought that there were anything about bad debt that we had any concerns about from a -- in the fourth quarter.

Now I mean we have -- as you can well imagine, we have armies of folks that do nothing but look at those and go after collections. We have a cadre of vendors that we use in places where we need specialized attention for that. There's nothing about bad debt in the fourth quarter that I had any concerns about.

All right. Well, everyone, before we conclude our call, I don't want to miss this opportunity to say thank you to our over 10,000 colleagues and over 4,000 physicians for their contributions in 2020 and obviously, going forward.

Surgery Partners collectively serves thousands of patients each day and more each day in what are often their most vulnerable moments. We take the trust and faith of our physician partners and our patients place in us incredibly seriously, and we are privileged to make a positive difference in so many people's lives. I am excited about and humbled by the opportunity to lead Surgery Partners as we work to more fully deliver on our mission of enhancing patient quality of life through partnership.

In our efforts, we believe and we clearly are part of the solution to many of the challenges facing our nation's health system, and we're extremely proud of the value we are creating for all of our stakeholders. As we execute against our goal to become the preferred partner for short-stay surgical facilities across the U.S., it is the daily efforts of each and every one of our Surgery Partners colleagues and physicians that get us there. So I want to thank them again.

And thank you all for joining our call this morning. Have a great day.

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