Q4 2023 Surgery Partners Inc Earnings Call
Participants
David Doherty; Chief Financial Officer, Executive Vice President; Surgery Partners Inc
Wayne DeVeydt; Executive Chairman of the Board; Surgery Partners Inc
Eric Evans; Chief Executive Officer, Director; Surgery Partners Inc
Brian Tanquilut; Analyst; Jefferies
Kevin Fischbeck; Analyst; BofA Global Research
Jason Cassorla; Analyst; Citi
Lisa Gill; Analyst; J.P. Morgan
Bill Sutherland; Analyst; The Benchmark Company
Sarah James; Analyst; Cantor Fitzgerald
Gary Taylor; Analyst; TD Cowen
Ben Hendrix; Analyst; RBC Capital Markets
Presentation
Operator
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. As 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.
David Doherty
Good morning. My name is Dave Doherty, CFO of Surgery Partners. I'm joined today by Eric Kevin, CEO., and Wayne DeVeydt, 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 file with the SEC, each of which are available on our website Surgery Partners.com. The Company does not undertake any duty to update these forward-looking statements.
In addition, we will reference certain financial measures that are considered non-GAAP, which we believe can be useful in evaluating our performance 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 plain.
Wayne DeVeydt
Thank you, Dave. Good morning, and thank you all for joining us today on 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 quarter. 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 substantial progress we achieved related to our strategic initiatives and how these initiatives further catalyze our growth engine as we enter into 2024. Specifically, our growth algorithm continued to deliver mid 10s growth with full year adjusted EBITDA exceeding $438 million, representing 15% growth over the previous year. 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. The combination of our consolidated and unconsolidated facilities performed approximately 770,000 cases in 2023, 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 EBITDA margins improved by 100 basis points, reflecting our cost discipline, acuity mix and enhanced rates. We anticipate our 2023 cost initiatives 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 with same-facility revenue growing more than 11%, representing case volume of approximately 4% and rate improvement of 7%, driven by acuity mix and enhanced managed care rates.
Rounding out our growth story. We continued our disciplined approach to sourcing and executing on strategically important acquisitions at attractive multiples. In 2023, we deployed approximately $165 million associated with 15 transactions at an aggregate, sometimes sub eight 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. The timing of our acquisitions had a nominal impact on our 2023 results, as Dave will discuss and serve as a tailwind to 2024 earnings. Our business development team continues to manage a robust pipeline of attractive opportunities, 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 midyear convention when providing our outlook for 2020 for all, and 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 sheet company was able to effectively refinance our term loan late in the year at favorable terms and pricing, extending the maturity of the majority of our outstanding debt to 2030 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. 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. 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 tailwinds. 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. 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 activities.
Eric?
Eric Evans
Thanks, Wayne, and good morning, everyone. I will echo Wayne's pride in the results for 2023 and our initial outlook for 2024. Importantly, for our investors and Per my past comments, our performance remains consistent and predictable. 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 shift to our safe, high-quality and cost-effective facilities. We work every day to bring the benefits of a professional scaled management company while keeping the invaluable local fueling connection that differentiate our surgical facilities. This approach preserves the strong reputation 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 help build together. Our partners win our 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 we have done over the past four years despite managing through a global pandemic and a challenging inflation or inflationary macro environment. As we finished 2023 and begin 2024.
Let me provide some highlights. Our organic growth initiatives translated into a strong full year 20 top23 line same-facility growth of just over 11% our same-facility cases grew 3.9% in 2023 and rates grew 7.1% as we 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 procedures such as total joints. We now perform orthopedic procedures in over 70% of our short-stay surgical facilities and total joint procedures in over 35% of our ASCs. In our ESC 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 as recent acquisitions and de novos are fully integrated into our portfolio, the majority of which are orthopedic based. We expect to see this rate improvement remain at or above our long-term growth assumptions in 2024, net revenue of $2.74 billion grew 8% in 2023 with our organic same facility growth, denovos and consolidating acquisitions combining to overcome the impact of divestitures. In addition, in 2023, nearly half of our acquisitions were facilities that do not consolidate under accounting rules, but generate significant revenue on a deconsolidated basis. Revenue growth in our non-consolidated entities exceeded 60% in 2023 as compared to the prior year and we expect continued growth in 2024. 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.
Moving to our physician recruiting efforts, our recruiting team had another banner year of new recruits with an increased focus on physicians that perform in MSK. related procedures. 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. We added nearly 700 new positions in 2023 across all specialties. And the average net revenue per case of these recruited positions is 27% higher than those physicians recruited in the prior year and 44% higher than 2020 21 recruiting. Based on our experience, there is a compounding multiyear 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 facilities. Such cases initially started with the transition of total knees in 2020 and total hips in 2021 since being removed from the inpatient only with these procedures have experienced a three-year kegger of 77%. 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 ASCs with new focus on Medicare, total shoulder and ankle surgeries that are now operated 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.
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 scheduled for openings in 2024 in early 2025 we remain 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 to the system and are accretive to our earnings.
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 join similar partnerships we announced last year as we accelerate our denovo capabilities with like-minded partners who will share in the development efforts within 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 denovos, although these won't be much of a material contributor to our 2024 growth. The long-term prospects are incredibly attractive as we expand our focus on de novo opportunities, we are positioning our team to manage at least 10 denovo centers in 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, these transactions were bought at attractive multiples, averaging less than eight times historic learnings. 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 in a 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 support in January of this year.
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 a material expense within our structure with inflation, inflationary pressures abating, 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 goals. I've never been more optimistic regarding our future and the number of tailwinds impacting our business, 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 leadership team, provides further optimism for long term sustainable mid-teens adjusted EBITDA growth.
With that I will now turn the call over to Dave Jordi to provide additional color on our financial results as well as the 2024 outlook.
David Doherty
Dave, I think there 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 cases 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 third consecutive year. This growth has been above our long-term target growth rate 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. On a same-facility basis, total revenue increased 8.1% in the fourth quarter and 11.3% for the year. Same facility rate growth was 6.7% and 7.1% for these periods, respectively. We have seen this rate growth all year, primarily driven by higher acuity procedures. 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 10s growth at just over 15% 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 investments, which we sometimes reference as minority partnerships.
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. We are fortunate to have a strong banking syndicate supporting a revolver that has a borrowing capacity in excess of $700 million. 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. I look forward to sharing more about our opportunities here in the coming quarters.
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 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. This revised calculation is more reflective of the fundamental nature of assets and liabilities and conforms to market practice and definition 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 turns. 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 messaged. 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 this 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, but our original projections did not reflect the delayed collections on these items.
Having said that our pride comes from the fact that business the company's 1st year turning our free cash flow positive in a sustainable way as growth in free cash flow is closely linked to the growth in our adjusted EBITDA, a trend we expect to continue, meaning to meaningfully enhance the Company's liquidity position. Our updated view for 2024 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 of setting and exceeding expectations we ended the quarter with $195.9 million in consolidated cash and an untapped revolver of $704 million. 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, we are carrying the momentum of a strong finish to 2023 into 2024 with all of our growth engines operating effectively. As a result, we are reaffirming our guidance for 2020 for adjusted EBITDA to greater than $495 million, representing at least 13% growth over 2023. Additionally, we are setting 2024 revenue guidance to be greater than $3 billion. We expect to deploy at least $200 million of capital and 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. 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 consolidating entities. As a reminder, we are agnostic to the accounting treatment if the deal is right for the Company and our shareholders. 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 denovos. 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?
Question and Answer Session
Operator
Thank you, and 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 queue. 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 handset before pressing the star in the interest of time. We ask that you need to 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.
Brian Tanquilut
Hey, good morning, guys, and congrats on the solid year. I guess my first question, maybe Wayne or Eric the comment you made about the ankles and shoulders, 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 we 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 just curious what you can share with us on ankles and children.
Wayne DeVeydt
Hey, Brian, good morning. I'm going to have Eric give a few more details on this, but 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 kind of the ecosystem of other procedures in which we get to capitalize on. So as an example, if you were just to look at total orthopedic growth, so ignore joints like include joints, but what other growth comes with those surgeons that bring their joints over. We've got over the last three years, a cadre of over 8% in 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 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 of doing the total joints. But Eric, anything you want to elaborate on regarding that.
Eric Evans
Sure. And thanks for the question, Brian and the comments on. We're really excited about angles and builders getting taken off the inpatient only list as you probably remember, we talked about this during COVID. We had a hospital without walls, ASCs that were able to safely do these procedures. And so the evidence has been apparent for a while that we're the best place to do this. There are thousands of cases amongst our existing surgeons they can't bring today. So it is a meaningful opportunity, as Wayne mentioned to when surgeons have to schedule those cases at a hospital, they tend to take their day rate. And so that's we see that as a real opportunity, just for convenience and again, our existing of doctors who use us have us have a lot of cases. We know exactly where those cases are growing. We're already working to move those over in January and 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. It certainly reinforces our confidence in total joint growth into 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 sure, see it of Surgery Partner shareholders is tremendous, no thoughts.
Brian Tanquilut
And then maybe my follow-up, Eric or so for Dave. As I think about the remaining debt pieces out there that are 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 hitting $200 million of free cash in 25. Just maybe anything any thoughts you can share with us and those things. Thanks.
David Doherty
Yes, yes. Thanks, Brent. You're right. It does just give you a reminder of kind of where we sit on our balance sheet. First off, Tom, we did mention the term loan refinance in December, 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 for current situations. The rates I think we were also pretty well. But as you know, we do have to address the interest rate that was that's currently protected by the hedges, which we'll do over the course of this year. We also have and two senior notes that sit out there, they're both small. One is about $180 million due that in 2025 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 onto that until we until it makes sense for us to look at that.
Again, the other is $320 million related to a 2027 note that carries a coupon of 10% on that one steps down to par in middle of April, and that does represent a fantastic opportunity for us to create interest savings on that. But in both of those two things, the 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. 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 tried to take advantage of the best the best environment that we possibly can. But that will be an area of focus that I look forward to talking to you about as we go through the year.
Brian Tanquilut
Awesome. Thank you.
Operator
Thank you. Our next question comes from the line of Kevin Fischbeck with Bank of America. Please proceed with your question.
Kevin Fischbeck
Great, thanks. And I wanted to focus on the on the revenue per case in the quarter, which was strong again. And I think you mentioned as far as a cash flow dynamic, the state supplemental payments was wondering if you could maybe flesh out how much that was as far as revenue some benefit in the quarter? And then I guess also as far as the cash flow drag for the year, and then just trying to understand if you think about breaking out that revenue per case, how much is mix versus right it, Kevin, maybe I'll think when things are going to everybody.
Wayne DeVeydt
Thanks for the question. I'm going to let Dave and Eric, a little bit deeper on the specifics, but just at a very, very high level, I want to remind everyone that these are these upper payment limit programs are fairly de minimus to our operating earnings as a whole and happened throughout the year. But we've got more and more state programs that are actually expanding these and we continue to tried to capture the.
So in terms of the specifics of 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 just expand. And as you know, Q4 is a very heavy commercial quarter for us typically do the deductibles. So you continue to get that and then the last thing I would highlight is that we have these of these investments we've made in these non majority owned nonconsolidated facilities. And if we get the run rate of those now 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. But Dave or Eric, anything you want to elaborate on?
Eric Evans
Yes, before I hand 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 mix like we 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 Dave, I'll turn it over to you on his specific question.
David Doherty
Yes. And I think you see from the 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 have. And I know you've we've talked about this before, and the impact of those non consolidating is pretty significant as we've been really focusing that de novo engine on those high acuity procedures, which is going up obviously be a big benefit to us as we go through that going forward. So that term that is by far the biggest driver there kind of sits inside there. As Wayne mentioned, the state-based programs, it's something that we have we've always kind of had in our portfolio. There was a there was a new program that that that came through in one of the states that we operate in this year. And that one did create some issues with us in terms of projecting cash flow, Tom feet of the reimbursement rates. And when those the timing of when those reimbursements happened, it was more in '24 and a little bit in 25. But and it wasn't what we expected. And we expect that to come through or I think a little bit earlier in the process.
Tom, as we mentioned, the driver of that, the driver of rate was not coming through exclusively from there. In fact, we've seen those rate base programs over the course of the year. We're only talking about that because of the pressure it created for us on the on the cash flow piece and how much was that in the cash flow, about half of the miss, maybe a little bit of 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 I don't want to leave any doubt on this. This is just timing of when those cash flows are coming and there's no no concern about the recovery of that.
Kevin Fischbeck
Okay. And then maybe just a second question, and you guys have seen some margin expansion looking for margin expansion again this year. If you just talk a little bit about and you know where exactly you think that's coming from. And then just remind us with 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 for the reason why we should be seeing margin expansion? Thanks.
Wayne DeVeydt
We haven't I mean if we elaborate. Yes, go ahead, Dave.
David Doherty
Yes, thank you. And the 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 on the rate side of the equation, and that should naturally create margin as we really tried 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 SG&A, I'm sorry, and on the SWB salaries, wages and benefits. So you're going to get a driver of that, which is what you should have, which you should count on. We get margin expansion also from the acquisitions that we've done and and being able to I'll take a turn off of those things as we integrate those into our facilities and importantly, from the equity method investments, those minority interest holding don't come with revenue. So a lot of that growth will just come through as pure margin for us. And when you look at the rate on the 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. But where those come through on our consolidated cases, you're 100%, right? And there is margin pressure and the margin pressure is not as you would think of it really just arrests the rate of growth a little bit. It doesn't take our margins backwards as we have modeled them as this mix kind 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.
Kevin Fischbeck
Great. Thanks.
Operator
Thank you. Our next question comes from the line of Jason Bazinet with Citi. Please proceed with your question.
Jason Cassorla
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 people insurance plus the state program was the two miss there. Was that a $30 million difference between your arm $140 million free cash flow target? And would you expect to recoup those two items kind of completely in '24? And then maybe just kind of from that point and help us bridge to that one 50 midpoint for free cash flow for '24? Just anymore color there would be great to start things.
David Doherty
Yes, happy to. And so first off, let me let me just say from this company. It's worth noting this company has neve r generated free cash flow before, but this is our 1st year doing so. And we went from a negative last year, $210 million. But 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 from that was there and as a result of and the cyber event that took place in 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 predominant majority of that miss to the one 40 that we had talked about before to those two items. 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. So there will be some natural offsetting that happens on that piece of the pie in a listen first time doing that metric last year, we're going to be prudent in what we come out, what we include in our outlook for 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 implied in our guide of $495 million. With this company will now have a predictable path I'm converting earnings into cash flows.
Jason Cassorla
Great.
Thanks for all the clarity on that. And maybe Tom, just want to hop over to the hospital partnerships, right. Could you just delve in a bit more on those partnerships. You flagged that those would be kind of minimal contribution for '24. 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 to them. 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, which I know like Intermountain, which are occurring rapidly in terms of us taking over the management of existing facilities, but other these that are more of the de novo focus.
Eric Evans
Sure. Happy to talk about that, and we're excited about our health system partners. I should reiterate, we have a lot of inbounds on health system partnerships. We're very selective on 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. All of those partnerships are actually moving along quite nicely when we think about the partnerships that we have entered, 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 on the timing of that we've got we obviously have within our guidance this year, the timing we expect for 2024. But because so much of this is denovo and there will be some acquisitions. I think it's hard to say when exactly what 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 for the system.
Jason Cassorla
Great. Thanks.
Operator
Thank you. Our next question comes from the line of Lisa Gill with JPMorgan. Please proceed with your question.
Lisa Gill
Thanks very much and good morning. I just want to go back to your 2024 guidance. I'm just wondering if you could 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 ankle and shoulders. I'm just also wondering if maybe you can talk about the type of cases that that you're expecting as we think about '24?
Wayne DeVeydt
Hey, Lisa, let me start with some 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 in GI. ophthalmology. And of course, what we see with orthopedics, we generally create baselines of two to three, and we do it at the facility level so that we really understand if there's any unique changes in the market or its demographics. That being said, then we obviously will pursue these higher acuity procedures. First, as you know, due to the higher acuity procedures, in many cases, have a great rate with them, but they require a little more of the OR time. And they're, of course, they're still 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 of we still target two to three. 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?
David Doherty
Yes. I mean, to reiterate everything that you said, right, that the budget is built at the facility level. So we have good line of sight as we kind of said through their case, growth is fairly predictable for a couple of reasons for us. 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 P&L unless you have it. Covid pandemic, which we've long since passed in our business with our power relationships with our physicians is long-standing their block time, their physician or their their practices are very strong. So we have an underlying base that we think is fairly predictable.
Our recruiting pipeline from 2023 has been really strong as you guys know that compounds in a very predictable pattern for us. And so you will see that confidence in that underlying rate growth sorry, case growth, and that's at least in line with that guide that that Wayne mentioned, it will be across all of our and all of our specialties because we focus very hard on those. However, you will see us trying to take advantage of ankles and shoulders, particularly in those that where we already have relationships and and as our minority interest partnerships continue to mature, you'll see kind of a continued upward pressure on 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 down. So we're pretty bullish on how that's going to look for next year and then at least I'm sorry, go ahead, Lisa.
Wayne DeVeydt
The only thing I was going to say and then to the extent is as has been our track record. If we exceed those expectations, then we'll raise guidance as we move throughout the year. So I think we'd like to tried to create a conservative, thoughtful baseline. But but then as again as we've done historically, if we continue to outperform that baseline, you'll see that reflected then in our in our outlook each quarter, that's very helpful.
Lisa Gill
And just that 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 comments you talked about some slipping from '23 into ''24, but if you can talk about how much you have in the revenue guidance for acquisitions.
Wayne DeVeydt
So let me talk a little bit, Dave, I'm sorry, let me just start with this and I want to put this to you on just a reminder, the $60 million that we got done in early January, we view that as just finalizing what we were doing in '23. 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.
David Doherty
Okay. Yes, yes. So I'm so our guide right now implies that we're going to do another $200 million this, as we've talked about before, using a midyear convention that is exclusive of the $60 million that Wayne just mentioned that we completed in early January. And that's the lesson learned from the past. And I would just encourage us all to think about this as we do our models, it is how much of that is going to come through and consolidated 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. 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 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 on our portfolio level at this point.
Lisa Gill
Okay. Thanks for the comments.
Operator
And our next question comes from the line of Bill Sutherland with The Benchmark Company. Please proceed with your question.
Bill Sutherland
Thanks very much. Good morning, everybody. I'm when does look a little bit harder at case growth in the quarter. 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%?
Wayne DeVeydt
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 fourth quarters, we generated 4% case volume growth. So we 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 closer to the Monday, but were actually closed for the Tuesday as well. And so you get this year over year unique comp dynamics 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. 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 and achieving that 2% to 3% plus.
Bill Sutherland
Got it. Thanks for that. And then I was also curious if you could look at looking at the denovos? And what's the cadence of them impacting the top line as they come on?
Wayne DeVeydt
Dave, do you want to be able to highlight that?
David Doherty
Yes. Yes, happy to. And it's a great question because again, something could be somewhat confusing. Most denovos as a kind of startup in their process are going to come through as minority interest and 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?
No, that's not an exclusive statement. There are some of our denovos that we look at that out of the gate, we will be consolidating. 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 denovos is a relatively long ramp SAP. So the seeds we planted last year and the seeds reflecting 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 year now.
Bill Sutherland
Okay, great.
Operator
Thank you. 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 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 well below consensus there. Anything you can point to as the driver there in the quarter and if that would continue into '24?
Wayne DeVeydt
Good morning. First, and foremost, a core book will be expanding margins as well as the minority interest. So no changes from that perspective. I think we continue to get the benefits of scale and in many cases, we were overcoming headwinds that the industry was suffering over the last couple of years, both 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 as I think as we kind of return 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 have done and where the opportunities continue to exist. Dave, do you want to elaborate on a bit more of what we see as runway. And I don't think we see this slowing down anytime soon.
David Doherty
That's right. Yes, thank you. And 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 and continuing to standardize across the portfolio as well as recent integrations as we bring the benefit of 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 enhance revenue uptake.
And your question on G&A, et cetera, it's really just that 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. And so up to six months to 12 months view will help to smooth out the impact of kind of some of the flexing out that sits underneath that G&A line item, as you can imagine, probably the biggest piece inside there is on your incentive comp viewpoint.
Sarah James
Got it. Thank you.
Operator
Thank you. Our next question comes from the line of Gary Taylor with TV Cowen. Please proceed with your question.
Gary Taylor
Hey, 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, 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 G&A lower. So just wanted to understand that comment just a little bit better.
And then the other question was on other operating expense with 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 offset in terms of the impact between those two line items, but a little more color would be helpful.
Wayne DeVeydt
Gary, I'm going to let Dave dive in a couple of things to keep in mind that as we divested certain fully consolidated facilities early in the year. Obviously, you'll start seeing the full impact to be comparing Q4 this year versus last year in the fourth quarter. It's also fair to recognize that our non-consolidated entities of which we started making those investments throughout the year. Those are obviously going to show up in a in a single line on, but you're not going to necessarily see the consolidated growth associated with those on the G&A front. But Dave, you want to elaborate a little bit further as well as on any other anomalies or anything to point out?
David Doherty
Yes, yes, happy to. So you're right on kind of how you flex up and down the business based on kind of the overall strength inside the corporate G&A side, you will 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 inside that in any given quarter. Again, you got to look at that, that particular line item on a on a multi-quarter basis.
The other operating expense question you have is a great one as it relates to provider taxes for the most part, that's the taxes on some of the some of the programs that exist at a state level in some of the states, Tom, that we experienced in and in the latter part of the year.
Gary Taylor
Thanks.
Operator
Yes, thank you. Ladies and gentlemen, our final question comes from the line of Dan Hendrix with RBC Capital Markets. Please proceed with your question.
Ben Hendrix
Hey, guys, thanks for squeezing me. And just a quick question we're hearing a lot of momentum around on the medtech side about the robotics geared towards the Ascend shoulder opportunity.
Wayne DeVeydt
Just wanted to see kind of how that factors into your CapEx plans for the next couple of years. And I kind of in general how you're thinking about CapEx as we kind of look towards the one 41, 60 in the in the two hundreds for for 2025.
Thanks, Eric, do you want to highlight how you're seeing the robotics continue to evolve and Dave provide a little clarity around the numbers Yes.
David Doherty
Yes, happy to you. We've grown our robotics platform, our portfolio a lot. We've added quite a few in 2023 where nearly 50 robots.
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. And I would also say that when we add robots to remind you, those are financed locally. So not a huge CapEx impact. And actually the ROI on those have been incredibly strong. And so we agree with the medtech enthusiasm on the opportunity to continue to grow robotics in our facilities. We do that ostensibly though. So you think about this is really to attract new opportunities and to go into new service lines. We'll do that. It's up a little bit different than some of our peers who often often are upgrading our product set just to kind of keep our technology for the same book of business for us. It's really a great offense at play and we would we would share my enthusiasm on that.
Dave, I don't know if you want to add anything?
David Doherty
Yes. 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 a stronger partnership with very like minded medtech suppliers out there who see the same opportunity that we see. So we've seen this since that knees and hips came out where they are they're working with us to kind of capture this this market shift. They see the growth in ASCs kind of following closely behind the availability of the right equipment. And so you're finding of those favorable kind of financing or more opportunistic financing opportunities. Now financing eventually will come round to paying cash some. But for the most part, we only enter those if they're if they're properly asset backed and the ROI is strong.
Ben Hendrix
Yes.
David Doherty
Thank you.
Operator
Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Evans for final call.
Eric Evans
Yes, thank you. Before we wrap up, I would like to really 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 and 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.
Operator
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.
