Surgical procedure Companions, Inc. (NASDAQ:SGRY)
This fall 2020 Earnings Name
Mar 10, 2021, 8:30 a.m. ET

Contents:

• Ready Remarks
• Questions and Solutions
• Name Contributors

Ready Remarks:

Operator

Greetings and welcome to Surgical procedure Companions’ Fourth Quarter and Yr Finish 2020 Earnings Convention Name. [Operator Instructions] It’s now my pleasure to introduce your host, Tom Cowhey, Chief Monetary Officer. Thanks, sir. You might start.

Tom Cowhey — Govt Vice President and Chief Monetary Officer

Good morning and welcome to Surgical procedure Companions’ fourth quarter and year-end 2020 earnings name. That is Tom Cowhey, Chief Monetary Officer. Becoming a member of me at this time are Wayne DeVeydt, Surgical procedure Companions’ Govt Chairman; and Eric Evans, Surgical procedure Companions’ Chief Govt Officer.

As a reminder, throughout this name, we’ll make forward-looking statements. Danger components which will influence these statements and will trigger precise future outcomes to vary materially from at the moment projected outcomes are described on this morning’s press launch and the reviews we file with the SEC. The Firm doesn’t undertake any obligation to replace such forward-looking statements.

Moreover, throughout at this time’s name, the Firm will talk about sure non-GAAP measures, which we consider might be helpful in evaluating our efficiency. The presentation of this extra info shouldn’t be thought of in isolation or as an alternative to outcomes ready in accordance with GAAP. A reconciliation of those measures might be present in our earnings launch, which is posted on our web site at surgerypartners.com, in our most up-to-date annual report when filed.

With that, I will flip the decision over to Wayne. Wayne?

Wayne S. DeVeydt — Govt Chairman of the Board

Thanks, Tom. Good morning and thanks all for becoming a member of us at this time. As we start our name this morning, I wish to take a second to mirror on the distinctive occasions we’re residing in at this time. A yr in the past, we held our year-end earnings name having delivered double-digit adjusted EBITDA progress over the prior yr. And we have been nicely on our method to delivering comparable progress in 2020, having achieved over 9% same-facility income progress within the first two months of the yr.

COVID-19 was one thing we have been all watching from afar, primarily out of concern over the influence on world provide chains for gadgets, akin to private protecting tools. Little did we all know that 4 brief weeks later, we’d be seeing an 80% discount in same-facility volumes and dealing with a world pandemic.

I am humbled by the efforts of our colleagues and doctor companions that supported the healthcare system and the wants of our sufferers throughout this disaster. After we couldn’t know what the longer term held, these courageous people have been on the frontline, serving the crucial wants of the closely burdened healthcare system, whereas supporting our sufferers and communities. As an organization, Surgical procedure Companions was and continues to be uniquely positioned in the course of the pandemic, the place our freestanding, purpose-built amenities are greater than ever earlier than a secure haven for sufferers and suppliers, who have been in search of surgical care. We noticed surgical volumes shortly rebound in mid 2020 and even exceed prior yr volumes in choose increased acuity specialties.

Our enterprise mannequin was pressure-tested in 2020 and has confirmed to be resilient. Our outcomes on this difficult atmosphere give us confidence that the Firm we constructed ought to assist sustainable, long-term double-digit progress in 2021 and past. Particularly, as we take a look at the fourth quarter, outcomes have been impacted by a surge in COVID-19 circumstances throughout the U.S., infections up almost two occasions and hospitalizations up over thrice over the course of the fourth quarter. Regardless of these pressures on the healthcare system, our outcomes proceed to affirm the ability of our enterprise mannequin and the worth proposition we offer.

Some notable highlights embrace the next. Adjusted revenues elevated to $565 million, roughly 8.5% progress over the prior yr quarter. Identical facility revenues elevated by almost 6% in comparison with the prior yr quarter with increased web income per case greater than offsetting barely decrease volumes because of the pandemic. And eventually, the transition of procedures out of conventional acute care inpatient settings continues to speed up. Joint replacements in our ASCs have been up 110% as in comparison with the prior yr quarter and for the yr. Even with the disruption of COVID, joint replacements in our ASCs have elevated by roughly 96%.

We have now been positioning our Firm over the previous three years for this second in time. As we’ve got regularly highlighted, important administration time and assets have been targeted on pruning non-strategic belongings to remove distractions and focus our assets into our core purpose-built short-stay surgical amenities. As talked about within the third quarter name, we closed our Logan Lab facility and accomplished the sale of sure anesthesia belongings. Within the fourth quarter, we additionally bought our optical GPO.

Since 2018, we’ve got been reallocating {dollars} from decrease progress non-core belongings into core surgical amenities with increased progress alternatives. In 2021, we are actually prepared to maneuver on the offensive and capitalize on the $150 billion whole addressable market that we consider we’re uniquely positioned to seize. Present market circumstances, together with our strong working outcomes, afforded us the chance to entry the capital markets with an fairness providing in January of 2021, elevating over $260 million of gross proceeds via the sale of over 8.6 million shares to a long-term targeted shareholder-base that enhances our current holders. This dry powder provides us the flexibility to aggressively pursue our progress agenda, whereas sustaining our disciplined method to capital deployment that Eric will converse to in additional element.

Earlier than I flip the decision over to Eric, I wished to emphasise the boldness we’ve got in our long-term progress prospects. The pandemic has created many obstacles, but it surely has additionally accelerated a few of the tailwinds we have been anticipating and repositioning the Firm to capitalize upon. Our administration staff has a confirmed observe report of execution that our 2020 outcomes solely emphasize. We’re a trusted associate of selection and we consider we’re the fitting area, with the fitting product, on the proper time, establishing the runway for each near-, mid-, and long-term double-digit progress.

With that, let me flip the decision over to Eric. Eric?

Eric Evans — Chief Govt Officer

Thanks, Wayne, and good morning. At present, I’ll focus my feedback on three areas. First, I will present just a few extra highlights of our fourth quarter outcomes. Second, I will spend a second on our 2021 steering. And third, I’ll dive just a little deeper into how we plan to deploy capital in 2021. We have been very happy with our fourth quarter outcomes, highlighted by same-facility income progress of almost 6% and by whole Firm adjusted income progress of roughly 8.5%. These will increase have been pushed by income progress at our new hospital in Idaho Falls, which achieved revenues approaching $20 million within the quarter and elevated combine of upper acuity circumstances, akin to orthopedic and backbone surgical procedures.

Additionally of notice, we noticed a rebound a GI circumstances within the fourth quarter, almost equaling the entire circumstances from the identical interval in 2019. We’re fairly inspired by the continued energy of our restoration, which allowed us to finish 2020 with $256.6 million of adjusted EBITDA, inserting us within the higher half of our guided vary. Our skill to proceed to drive robust similar facility progress is a direct results of our investments in doctor recruitment and focused facility stage and repair line expansions that improve our skill to earn these procedures that generate the very best contribution margin for our portfolio.

Let’s stroll via every of them, beginning with doctor recruitment. We proceed to see elevated demand for brand new physicians for our short-stay surgical amenities and our focused doctor recruitment method has targeted our efforts on the very best high quality physicians. Yr-to-date, we have recruited over 560 new physicians who generated 15% extra income per case as in comparison with the 2019 cohort. However, the success of our recruiting program isn’t just a perform of our most up-to-date additions.

As we glance again to the contributions of these physicians we recruited in 2019, they generated 22% extra income than within the prior yr, inclusive of the influence of COVID. This highlights the compounding advantage of our doctor recruitment efforts and we consider our data-driven method and digital innovation shall be a differentiator to proceed to speed up our physician-driven progress in 2021.

Over a number of years, we’ve got additionally been making investments in increasing our musculoskeletal footprint and extra just lately in increasing our presence in cardiology, as we take into consideration longer-term alternatives. We have now invested in these areas due to their massive and rising addressable markets. Particularly, we estimate that there’s over $60 billion of circumstances that can shift from inpatient to outpatient over the following a number of years. And, we estimate that over 60% of these procedures are in musculoskeletal and cardiology.

Presently 80% of our amenities have the potential to carry out musculoskeletal procedures and the variety of physicians performing joint replacements in our amenities is up 34% year-over-year. We have now expanded amenities, added working and process rooms, and invested in new tools to capitalize on this chance. For instance, in 2020, we elevated our put in base of robotics in our ASCs by virtually 60% to reinforce MSK progress and have plans to additional develop in 2021. As we famous, these investments have led to 96% improve in whole joint procedures carried out in our ASCs in 2020, regardless of the pandemic.

One other service line we’re significantly enthusiastic about is, cardiology. We now have 5 surgical hospitals and two ASCs that carry out cardio procedures. The ASCs are early stage enlargement and pilot packages, that are exhibiting promising returns whereas our surgical hospitals, together with our newly acquired Bakersfield Coronary heart Hospital proceed to mature and develop their excessive acuity cardiology capabilities. We’re planning to greater than double the variety of ASCs that carry out cardio procedures in 2021 and proceed to judge surgical hospital enlargement alternatives as nicely.

Transferring on to steering. As we take into consideration the momentum we’ve got as a corporation, the efficiency of our enterprise allowed us to information to a variety of $250 million to $260 million of adjusted EBITDA on our second quarter 2020 name. The predictability of our mannequin allowed us to realize full yr ends in the higher half of that vary with the outcomes we introduced this morning. In January of this yr, we first launched 2021 adjusted EBITDA steering of roughly $315 million.

We preserve our conviction that we are going to obtain these ends in 2021, however acknowledge that seasonal patterns of earnings from our core operations are more likely to be extra weighted towards the again half than has been typical over the previous few years, as affected person sentiment reacts to decrease an infection and hospitalization charges, in addition to elevated vaccination percentages and deductible protection. Our groups are aligned and we’re executing on our initiatives throughout recruiting, managed care, procurement, income cycle, and expense administration to realize our targets. We additionally anticipate that our new neighborhood hospital in Idaho Falls will contribute positively to end result within the second half of 2021, a milestone for that vital venture and a testomony to the relentless efforts of our Idaho groups to realize profitability within the midst of the pandemic.

One ultimate merchandise that I wish to deal with pertains to our strategic efforts to develop our footprint via acquisitions. As Wayne talked about, we’ve got pruned extra belongings from the portfolio and have been utilizing the proceeds to reinvest in our amenities and to develop our platform. Particularly, we plan to proceed to pursue excessive progress amenities that present physicians and sufferers with extra handy, value efficient choices for care.

As talked about on the third quarter name, we accomplished the acquisition of a majority curiosity in Bakersfield Hospital — Coronary heart Hospital in California in October. We additionally acquired two different amenities that assist us develop our footprint in Idaho and California. These transactions are anticipated to greater than offset the earnings from the sale of our anesthesia belongings and different portfolio optimization efforts. As we take a step again, our sector stays extremely fragmented. There are roughly 240 physician-owned hospitals in the US, a quantity that won’t develop resulting from restrictions within the ACA. Additional, we estimate that over 70% or over 4,200 Medicare-certified ASCs, are both impartial or are solely affiliated with a hospital and are targets for additional consolidation.

We consider we’re in a robust place to additional develop our portfolio in 2021 and we’ve got the monetary capability to execute on over $400 million of transactions. Over the past three years, we’ve got deployed almost $300 million on acquisitions at a weighted common a number of of roughly seven occasions adjusted EBITDA. The self-discipline with which we’ll deploy capital isn’t altering as a result of we’ve got extra capital to deploy. Our groups are affected person and diligent. And we consider that we are able to successfully deploy proceeds over time at multiples that can create substantial worth for our shareholders.

To summarize our place, we consider that the pandemic has basically modified the way in which sufferers, surgeons, and well being plans will take into consideration the position that purpose-built short-stay surgical amenities will play in healthcare supply, which continues to drive the shift of surgical procedures to our amenities. This has been our Firm’s differentiation technique and now greater than ever, our price proposition is resonating with key stakeholders within the healthcare atmosphere. We stay very assured in our long-term natural progress mannequin and consider that scaled impartial operators, akin to Surgical procedure Companions, are uniquely positioned to develop on this new market.

With that, I’ll flip the decision over to Tom, who will present extra coloration on our monetary outcomes and outlook. Tom?

Tom Cowhey — Govt Vice President and Chief Monetary Officer

Thanks, Eric. First, I will spend a couple of minutes on our fourth quarter monetary efficiency earlier than transferring on to liquidity and a few issues as we transfer into 2021.

Beginning with the highest line. Surgical circumstances declined by simply over 2% within the fourth quarter to simply below $135,000, primarily because of the influence of elevated COVID-infection charges in sure geographies. Adjusted revenues for the quarter have been $565 million, roughly 8.5% increased than the prior-year interval. As Eric talked about, reported outcomes included roughly $19 million of contribution from our new neighborhood hospital in Idaho Falls. On a same-facility foundation, whole income elevated almost 6% within the fourth quarter. Wanting on the elements of this improve, our case quantity was roughly 3% decrease than the prior yr interval, offset by increased web income per case that elevated over 9%, pushed by acuity combine and pricing.

Turning to working earnings. Our fourth quarter 2020 adjusted EBITDA was $90.8 million, a 7.6% improve from the comparable interval in 2019. Utilizing the December steering from the COVID aid invoice, we acknowledged an extra $13 million within the fourth quarter as grant earnings, which elevated adjusted EBITDA by $9.2 million, after accounting for non-controlling pursuits. Yr-to-date, we’ve got acknowledged roughly $46 million of CARES Act grants as grant earnings out of $59 million of CARES Act’s funds obtained in 2020, translating to roughly $31.1 million of adjusted EBITDA influence.

The remaining $13 million of CARES Act grant cash has not been acknowledged at income — as income at year-end and can now be handled as a deferred legal responsibility on our steadiness sheet. We proceed to observe updates to federal income recognition steering in 2021 and plan to reevaluate and replace our accruals in the course of the first half of 2021.

Based mostly on present steering, the excessive charges of COVID firstly of the yr and continued investments in qualifying bills to guard and put together for COVID-19 sufferers, we consider it’s attainable that we can acknowledge the overwhelming majority of the remaining CARES Act grants on our steadiness sheet within the first half of 2021. Within the unlikely occasion that we’re unable to acknowledge these funds in accordance with CMS pointers, we anticipate to repay them to the federal government in mid 2021.

Throughout the quarter, we recorded $8 million of transaction, integration and acquisition prices, with a significant quantity of this total expense associated to our acquisition and divestiture exercise within the fourth quarter. Of notice, fourth quarter 2020 transaction, integration and acquisition prices, included roughly $0.6 million of EBITDA losses, related to our de novo hospital in Idaho Falls, as that facility continues to make progress towards attaining profitability. We anticipate to report outcomes from this facility individually via 2021, till the power turns into worthwhile within the second half of the yr.

Transferring on to money circulate and liquidity. We ended the quarter with a robust money place of $318 million, which incorporates roughly $120 million of Medicare Advance Fee. We have now held these advance funds as deferred income in our monetary assertion. Recoupment of those funds from future Medicare income will begin within the second quarter of 2021 and proceed into 2022. Our revolver, it was undrawn as of December 31, 2020.

As Wayne talked about, on February 1, 2021, we closed on an fairness providing for simply over 8.6 million shares bought at a value of $30.25 per share. Internet proceeds from the providing have been roughly $249 million after underwriting charges and bills. Concurrent with the fairness increase, we amended our revolving credit score facility to resume the time period for an extra 5 years and elevated the capability by $50 million to $170 million in whole availability, which is then decreased by excellent letters of credit score. Whereas not mirrored in our year-end monetary statements, the proceeds from our fairness providing will meaningfully cut back our leverage ratios in 2021 and have the potential to cut back leverage additional as we deploy proceeds towards accretive makes use of.

Transferring again to the fourth quarter, Surgical procedure Companions had working money flows of roughly $9 million, made a $17 million cost on our tax receivable settlement, bought our optical GPO for an undisclosed value, and bought two surgical procedure facilities in Idaho and California, and the Bakersfield Coronary heart Hospital in California, for simply over $90 million.

The Firm’s ratio of whole web debt to EBITDA on the finish of the fourth quarter, as calculated below the Firm’s credit score settlement, stays secure at 7 occasions. Normalizing for the influence of the Medicare Advance Fee funds, the ratio of whole web debt to EBITDA would have been 7.4 occasions. Internet proceeds from the fairness providing would decrease leverage by roughly 0.7 occasions as of December 31, 2020.

The Firm has an appropriately versatile capital construction with no monetary covenants on the time period same day loans or our senior notes. As talked about on our prior calls, the Firm’s lenders below its revolving credit score facility, offered substantial flexibility for this calculation in 2021. By the fourth quarter, our continued emphasis on increasing key service line akin to musculoskeletal and cardiology, focusing on excessive worth doctor recruits and fascinating in strategic fee negotiation have all continued to gasoline our progress trajectory. This core progress coupled with the capital we’ve got obtainable to deploy, permits us to go on the offensive heading into 2021.

As Eric talked about, we proceed to venture adjusted EBITDA of roughly $315 million for fiscal yr 2021. The overwhelming majority of our 2021 adjusted EBITDA steering is projected to return from natural initiatives and would characterize almost 23% progress over our 2020 COVID-impacted baseline. On the highest line, we consider we are able to obtain 18% to twenty% income progress over the 2020 baseline, pushed by robust case progress as we stay a definition for prime acuity procedures and as decrease acuity procedures return in earnest. We’re assured in our natural progress mannequin resulting from our constant historic same-facility income progress, the chance to take care of and seize new share in excessive acuity procedures, and our skill to leverage our scale via procurement, income cycle and total workflow effectivity.

As we glance deeper at our preliminary 2021 outlook, we consider that our typical seasonal development could range as in comparison with current historical past. Resulting from COVID-19 persevering with to influence behaviors and delay procedures within the early a part of 2021, the influence of winter climate empower outages in Texas in February, the prospects for improved seasonal efficiency within the second half of 2021, as deferred care associated to COVID-returns, and as our new neighborhood hospital in Idaho Falls achieves profitability and is introduced into earnings.

Whereas we don’t present quarterly steering primarily based on the components I simply famous, first quarter underlying outcomes could characterize lower than 20% of our full — projected full yr efficiency previous to any recognition of CARES Act grants. Danger to our annual outlook stay the potential for extra prolonged COVID-19 impacts than we’re at the moment considering, probably offset by our skill to acknowledge CARES Act grants that have been deferred on the year-end, and our skill to deploy capital. Ought to our enterprise proceed to rebound as projected, and as we’ve got beforehand mentioned, incremental M&A would characterize upside alternatives for our outlook.

As we consider dangers versus alternatives in 2021, we stay assured in our annual outlook and proceed to see energy and momentum throughout a number of product strains and geographies. We have now a collaborative veteran administration staff, coupled with amenities that supply excellent medical high quality and stellar affected person satisfaction shops. The basics of our enterprise are extremely robust with $150 billion whole addressable market. After navigating via the uncertainties of 2020, we’ve got entered 2021 as a stronger, leaner, extra resilient firm that’s well-positioned for accelerated progress within the close to, mid, and long run.

With that, I might like to show the decision again over to the operator for questions. Operator?

Questions and Solutions:

Operator

Thanks. We’ll now be conducting a question-and-answer session. [Operator Instructions] Our first query comes from the road of Brian Tanquilut with Jefferies. Please proceed along with your query.

Brian Tanquilut — Jefferies — Analyst

Hey, good morning guys and congratulations on an excellent quarter and an excellent yr. I suppose my first query, Wayne, we have — clearly, you’ve got been speaking quite a bit about cardio as an rising alternative together with MSK. So, how completely different is the push into cardio going to be versus ortho when it comes to recruitment? And possibly, facility investments that that you must make? And when it comes to what sorts of procedures are you guys anticipating to emerge within the ASC, say, two to 3 years from now?

Wayne S. DeVeydt — Govt Chairman of the Board

Received it. Hey, Brian. First, thanks for the query and good morning. Let me first simply spotlight what might be apparent to all of us, is that the MSK form of playbook that we ran can be the identical playbook that we run for cardio. However the MSK alternative is high of the primary inning, proper, of a nine-inning recreation at this level and is admittedly exploding.

That being mentioned, we truly assume the identical dynamic shall be taking place with cardio, in all probability within the subsequent two to 3 years is the place I’d place it. We’re taking a look at form of extra of the — extra mid-2020 is when that actually begins to speed up and so the thought can be capitalize on the large MSK alternative in entrance of us at this time and place ourselves to mainly enable that run fee to proceed for the following decade as a result of in 5 years from now, we’ll be on the high-water mark of cardio transferring over.

A few issues which are in some methods uniquely completely different, however not all unfamiliar, proper? As we ready within the MSK atmosphere, there was quite a bit that we needed to do round robotics, repositioning our amenities, how we employees these, and schedule these, and so on. Those self same dynamics need to be run within the cardio playbook. So, I’ll ask Eric, possibly, to focus on just a little bit extra of how we’re dealing with this. I believe with MSK, we knew the way in which it was coming, the tempo we needed to transfer was a lot faster to place the Firm within the final three years. However I believe with cardio, we’ve got an opportunity to be much more strategic in how we place. Eric?

Eric Evans — Chief Govt Officer

Yeah. Hey, Brian. Good morning and thanks for the feedback. We’re actually enthusiastic about cardio. It’s a new area with PCIs getting permitted simply this yr from a Medicare standpoint, there may be a whole lot of curiosity. I might say this, from a doctor recruitment standpoint, you’ve got received plenty of physicians throughout the nation, cardiologists who now have a chance to do one thing, to probably take possession, to get extra concerned in an ambulatory facility and we’re seeing a whole lot of curiosity in that.

When you concentrate on the place you begin, over 60% — I take into consideration 60% of our amenities at this time have flooring capability, which is mainly what you want to have the ability to do the fundamentals of cardiology. So, take into consideration pacemaker implants, fundamental cardiac rhythm administration procedures, these are areas the place we are able to step in at this time with little capital funding. Some employees coaching, clearly working with these docs, provides us an opportunity to associate with native docs who possibly have not had this chance earlier than. So, we’re fairly enthusiastic about that and — they have been in a position to do this commercially, however a lot of cardiology is Medicare, that this actually has opened the door for us to do this.

So, what you’ll take into consideration this from a step-wise is that you have that 60% of our amenities at this time the place we are able to speak to end-market cardiologists about beginning their cardiac rhythm administration work with us. They’ve a fantastic expertise. They notice that they’ll do extra on the outpatient aspect. Then clearly, the investments get increased, while you speak about including a cath lab to a multi-specialty facility, there may be extra coaching concerned with that. However fairly truthfully, there was extra coaching and tools concerned with whole joints and so, will probably be a maturation course of. Clearly, it is a — if — we see it after MSK as the following massive wave of stuff that may come out of the hospitals.

So, if you concentrate on from a medical high quality standpoint, the know-how is actually superior to the purpose the place these might be finished safely on a same-day — same-facility same-day foundation. On high of that, we proceed to develop acuity in our surgical — our hospitals. We have now two devoted coronary heart hospitals, one in Lubbock, one in Bakersfield. We’re rising a coronary heart program in our hospital in Montana. We’re rising our coronary heart program in Idaho Falls. And so, we see cardio as a chance in either side of our short-stay surgical amenities, however clearly on the ASC aspect it provides us a gap to a model new group of docs who’re excited concerning the alternative. And it is a kind of issues that we will take our time to do proper, however we see as beginning this yr.

Brian Tanquilut — Jefferies — Analyst

I admire that. After which, I suppose second query for me. Clearly, fairly good fairness providing earlier this yr. The money steadiness is big. So, it feels like you have got an excellent pipeline. However I suppose for Wayne and Tom, how are we desirous about leverage targets going ahead or long run? And, simply — possibly one other — incremental insights within the pipeline that you just’re seeing on the M&A entrance?

Wayne S. DeVeydt — Govt Chairman of the Board

So, I will begin with just a little bit across the M&A entrance and what we’re seeing and the place that is going, after which I will let Tom speak about leverage and the way we proceed to drive that down over time and the place we predict it will possibly go long run. Let me simply first begin by stating just a little little bit of what Tom mentioned. In case you take a look at our ready remarks, and we’ve got about $400 million of powder to place to work. So, an enviable place to be in. in an atmosphere the place you have got over 4,200 individually owned and operated or single affiliation, ambulatory surgical procedure facilities on the market and north of 200 surgical hospital — physician-owned surgical hospitals.

So, we like the truth that we’ve got the powder. Extra importantly, we like the truth that we have a big panorama to work inside. We’re focusing on in three buckets. So, give it some thought as there may be the form of single ASC facility that actually would profit from scale and whether or not that’d be via a tuck-in in an current market or simply leveraging our nationwide scale via a brand new market that we’d enter into. And so, that’s a part of the pipeline.

The second is, we’ve got a really particular surgical hospital-targeted program, proper? And that is why we did Bakersfield Coronary heart Hospital. Issues which are very targeted on MSK and cardio, we shall be aggressively pursuing. After which lastly, there are some smaller platform belongings on the market. And so we’ve got form of all three buckets. And people are all, along with what we’re making an attempt to do across the three-way JVs with massive hospital techniques.

So, finally, I do not see an issue. I am taking a look at, Eric and he’s nodding. We have talked about this. We actually assume fairly. We ought to have the ability to put $200 million to $300 million to work this yr of that $400 million, might be just a little bit extra, might be just a little bit much less. However massive image, we predict we are able to put that to work. We have got quite a bit below LOI at this time. We have now a good quantity that LOIs are excellent. We have put an providing [Phonetic] now and hoping to get chosen. We will be prudent with our capital as a result of we might be and we need to be and we predict we have a observe report of exhibiting that. So, Tom, possibly you may spotlight just a little bit although about our present leverage place, how the fairness providing impacted it, however the place we see this going.

Tom Cowhey — Govt Vice President and Chief Monetary Officer

Yeah, completely. So, Brian, as we mentioned at this time, we take a look at the leverage ratio. We’re at about 7 occasions on credit score settlement EBITDA. You simply take the fairness providing and tack it on to that as money within the calculation and you’re taking about 0.7 off of that calculation, so that you wind up in form of the low-6s. And I believe, we have an amazing quantity of progress that we predict we may see. We predict, we have good accretive makes use of of that capital that ought to be not less than impartial to the general leverage ratio. The one factor that I’d simply spotlight for you is that the — there’s a little little bit of a nuance right here with respect to the Medicare Advance Funds. And so, we’ll need to restart repaying them within the second quarter and so that can put just a little little bit of stress on the general ratio.

However, I believe that mid- to low-6 space is the place we will be for the course of the following a number of quarters. And that is an excellent goal for us. We would finally prefer to see it go decrease. We would prefer to see it go decrease with progress. And, as we glance out at this yr, we predict we will have a chance to begin to generate free deployable money that would additionally speed up our M&A outlook. The TRA [Phonetic] funds have began to stage off, they will begin to decline after the following two years, after 2022. There may be a whole lot of constructive issues significantly on this fee atmosphere as we take a look at the steadiness sheet that we are able to and can proceed to do to attempt to speed up our money circulate era going ahead.

Brian Tanquilut — Jefferies — Analyst

I admire that. Final fast query from me, Tom. Simply what’s the fitting share depend to be utilizing for Q1? And M&A incremental — or incremental M&A of that within the steering?

Tom Cowhey — Govt Vice President and Chief Monetary Officer

I mentioned this within the ready remarks. The overwhelming majority of what our 315 [Phonetic] is natural in nature. And so, M&A is a possible upside to our outlook, relying upon how COVID goes for the remainder of the yr. As you — I will need to comply with up with you on the share depend, however it should be — it is simply over 8.6 million shares. I am anticipating that the Okay goes to be filed within the subsequent 24 hours and so you may have all that particulars. I believe you are taking a look at a quantity on a completely diluted foundation. It is within the low-80s assuming conversion of the Bain most well-liked and all the dilutive securities. However, I will comply with up with you. I simply haven’t got that at my fingertips proper now.

Brian Tanquilut — Jefferies — Analyst

Superior. Congrats once more. Thanks, guys.

Wayne S. DeVeydt — Govt Chairman of the Board

Thanks, Brian.

Tom Cowhey — Govt Vice President and Chief Monetary Officer

Thanks.

Operator

Our subsequent query comes from the road of Kevin Fischbeck with Financial institution of America. Please proceed along with your query.

Kevin Fischbeck — Financial institution of America — Analyst

Okay, nice. Thanks. Simply wished to get just a little coloration on the speed dynamic. I suppose, clearly, we have seen the speed progress be robust, but it surely nonetheless has decelerated, I suppose, because the years gone on. And, I suppose, that is simply largely a perform of form of decrease acuity quantity coming again into the system. However simply wished to get a way of, given all of the investments you are making in cardio, ortho, the place ought to we take into consideration that fee per case form of normalizing going ahead?

Wayne S. DeVeydt — Govt Chairman of the Board

Hey, Kevin. To begin with, good morning, and I will let Eric and Tom chime in right here as nicely. However yeah, you, clearly, recognized one of many factors, which was our GI received virtually again to the place it was the earlier yr in This fall. So clearly, that is a — that impacts a mathematical metric, but it surely’s one thing that we’re fantastic having an influence, proper? We clearly need to see our GI come again together with our MSK that we’re doing at this time.

The one factor that is going to be attention-grabbing although shall be, how do volumes proceed to get impacted on this present yr, however how does MSK in and of itself that greater than offset that on the speed. So simply to provide you an instance of 1, final yr in 2020 in January and February, there was clearly no COVID influence of any consequence. Actually, it wasn’t till March that COVID turned an influence difficulty for our nation and for our Firm.

But, from a whole lot of public info we have acknowledged how robust our whole joints have been final yr. this January and February, concerning MSK and the way that may influence income and charges. Clearly, we’re impacted this yr by COVID. January being a really excessive month for COVID, while you take a look at January and December. And clearly February is impacted by the storms that you just noticed down in Texas, specifically, and extra importantly, the influence it had on energy, which impacted a whole lot of amenities.

Even with these headwinds I simply described to you, our whole joints are up 100% this January and February, when it comes to variety of procedures, over the past yr that had no headwinds in them. So, I truly assume you are going to proceed to see acceleration on the income entrance. I believe it is why you noticed in Tom’s ready remarks the place we have put form of an preliminary income marker. And, we’ll see how that progresses over time, however we may have upside on that. So I believe, whereas we’ll proceed to have these decrease greenback procedures form of migrate again in as a backlog begin to appropriate themselves and particularly because the nation turns into vaccinated or inoculated that we will proceed to see these decrease greenback gadgets come again in. Our optimism is admittedly grounded in the truth that these increased greenback gadgets too will not be slowing down in any approach, form or type.

Eric, something you need to add to that?

Eric Evans — Chief Govt Officer

No, I believe simply to be clear on form of the three buckets we take into consideration, there may be the managed care industrial relationships that we’re engaged on, and we have made a whole lot of progress there in attending to honest market worth. We nonetheless have methods to go to ensure we’re paid pretty in each market. And so, that is been an ongoing discussions and that is a steadiness between partnering with payers to each make sure that we’re paid pretty, but in addition to ensure that the place we are able to. We have now incentives [Indecipherable] to sufferers who go to the fitting location, work with our physicians, and for the sufferers profit.

Second bucket there, I might say, is Medicare. And as , this yr Medicare has had a greater raise for ASCs than we have had traditionally. And in order that’s — that actually helps. After which to the final bucket, it is acuity progress. And I believe Wayne talked about this each with, whether or not it is ortho-spine, sure cardiac procedures, I do assume that we will proceed to achieve on that finish. And the true query then turns into how a lot of that mitigated by the backlog that we do anticipate to return again on the decrease acuity stuff because the yr progresses.

And as Wayne talked about, as folks get their vaccines, that is a enterprise that we do assume there may be some pent-up demand. And so, that can have some impact, however in whole, we really feel actually good. We speak quite a bit about between quantity and fee that it is like a 4% to six% form of bucket for us and we have been speaking about being on the high-end or outperforming that for fairly a while. And we really feel very assured that we are able to try this once more in 2021.

Kevin Fischbeck — Financial institution of America — Analyst

Okay, that is useful. And I suppose, while you talked concerning the fairness increase, I believe you talked about that a few of that capital shall be going towards increasing cardio, and so on. And I suppose, you made some feedback right here about increasing plenty of websites. I suppose, how a lot capital does it take to develop the variety of websites that may do cardio? Is that going to be a giant half? Like form of inner funding to be a part of that money or that additionally [Technical Issues] yields targeted on these kinds of areas?

Eric Evans — Chief Govt Officer

Yeah, so initially — and I will let Tom speak to this. I imply, normally it is not going to be a whole lot of our capital, primary. However quantity two, initially for cardio with the start line, it should be fairly small. Over time, there shall be extra capital required, however the enterprise case will definitely assist that when you begin desirous about including cath labs, and so on. However, initially, little or no capital outlay there.

And the opposite capital that we’re placing to work, whether or not you concentrate on, we talked about our robotics program rising. We have been doing that very capital effectively from how we work with distributors to make that occur. Clearly, we do have conditions the place we’ve got to retrofit our amenities, develop rooms, add on, that can proceed to be one thing we do yearly, however that is form of constructed into our baseline. So, there may be nothing, I’d say, within the short-term that is going to vary form of that capital run fee in a giant approach, however we’re very targeted although on rising acuity.

I do not know, Tom, should you’d add something?

Tom Cowhey — Govt Vice President and Chief Monetary Officer

I’d simply — as you concentrate on these fairness providing proceeds, I’d consider them as dry powder for M&A. The capital that we will want within the close to time period goes to be a de minimis portion relative to the proceeds that we wish to deploy towards M&A. I’d take into consideration that capital as the primary use there. It is in all probability for deploying on improvement and to the extent that there’s native exercise that we will not in any other case finance via our native financing companions that the place we see nice natural alternative. We’d completely use these {dollars} for these functions, as a result of the ROI on our inner investments tends to be even higher than a few of the issues that we see on our acquisitions, that are already nice. However, I’d take into consideration most of these {dollars} as going for improvement.

Kevin Fischbeck — Financial institution of America — Analyst

That is nice, thanks.

Operator

Our subsequent query comes from the road of Frank Morgan with RBC. Please proceed along with your query.

Frank Morgan — RBC Capital Markets — Analyst

Good morning. I need to return to the steering as soon as once more. I believe you touched on a few of these within the comply with up feedback, however simply curious concerning the precise inclusion of CARES grant cash in these outcomes can be primary. After which, possibly any coloration about how — you clearly talked about that from a cadence standpoint, Q1 would in all probability be your lowest. And also you talked about, lower than 20%. Simply to verify that. Was that — the 20% was simply your EBITDA contribution you have been speaking about? That is first.

Wayne S. DeVeydt — Govt Chairman of the Board

Sure, that is appropriate. As you — nicely, go forward, end your query after which I will contact on the opposite stuff.

Frank Morgan — RBC Capital Markets — Analyst

Yeah. And I simply need to make sure that, there was type of a nuance to the reply about natural versus some acquisition in these numbers. So, simply hoping you can possibly flesh that out just a bit bit — in little bit extra element? After which, additionally, is there any early indicators of the place you may speak about how first quarter outcomes have truly proceeded, possibly in January and February as we transfer via the quarter?

Wayne S. DeVeydt — Govt Chairman of the Board

Positive. Frank, let me begin along with your final query first, proper? Let me simply ensure that we’re all on the identical web page. January is all the time an attention-grabbing month to start out with after December, which tends to be a really massive one for us. And this yr specifically, you’ve got received two — we’re a enterprise that operates primarily Monday via Friday and you have two much less enterprise days within the month of January versus your prior yr. And so, comparisons off of January are simply difficult.

After which, you take a look at February, that we have got a giant chunk of enterprise down in Texas. We have now the ability outages and the snow that impacted plenty of amenities throughout the southeast, however significantly in Texas, over the center a part of that month. And so, as we simply acknowledge that actuality, we really feel actually good about what we’re seeing in scheduling for March. The trajectory seems good. We predict that we will get a whole lot of these circumstances again on the books. I simply do not know that we will get all of them in within the first quarter, proper?

And so, as we take a look at the trajectory, we take into consideration the again half, we take into consideration Idaho Falls coming in line or on-line and contributing, in all probability, it is a few push for the third quarter and actually with a contribution finished within the fourth. We predict that our outcomes as you simply take a look at the standard seasonality that you just may see out of our enterprise, you take a look at 2019 and say, what proportion of the 315 [Phonetic] occurred within the first quarter, it is perhaps barely lower than that.

Now, with respect to CARES grants. CARES grants are a pure hedge in opposition to COVID. And we have a good portion that we carried over from final yr. We received about $13 million to $14 million that we carried over. We truly obtained just a little bit more cash. A couple of million {dollars} within the early a part of the yr from some functions that we had made again in 2020. And so, to the extent that we may acknowledge a few of them inside the primary quarter or inside the primary half, we’re going to take action. And to the extent that that is only a pure hedge in opposition to form of COVID having just a little bit extra influence within the first half, we view that’s honest. So, hopefully that addresses your query?

Frank Morgan — RBC Capital Markets — Analyst

Positive. And, simply — is Bakersfield, I do know you talked about that a few occasions at this time that which I believe it closed again in October. However I imply, will that be a significant contributor? I imply, clearly, Idaho Falls within the second half of the yr. However is Bakersfield certainly one of these items? It’ll contribute instantly? Or does it have a ramp to it as nicely?

Wayne S. DeVeydt — Govt Chairman of the Board

Bakersfield is contributing and it did contribute instantly. I’d say that — I’d be remiss if I mentioned that they weren’t impacted by COVID. They’re a surgical hospital that does have an emergency division in Southern California the place COVID charges have been exceptionally excessive. We love — and possibly, Eric, I do not know if you wish to speak concerning the total alternative there. We predict that is a wonderful asset. We’re happy to be an proprietor of it, however I believe it is received just a little little bit of a gradual begin.

Eric Evans — Chief Govt Officer

Yeah. That is clearly a kind of markets that — if you wish to speak about some of the impacted locations, which is — within the nation, actually Bakersfield was excessive on that listing. However, the asset itself, it is a excessive cardio, clearly, hospital, but in addition is starting and rising orthopedics. We’re working with a whole lot of orthopedic surgeons in that market to develop that service line. We — in California, new hospitals are uncommon, proper? And so, having a physician-owned hospital out there, the place it may be a price — the place it may be a price chief and partnered with physicians in a singular approach, we really feel like that asset is positioned for very nice contributions this yr and much more going into the longer term.

However, clearly that market was impacted by COVID, however we’re very optimistic and completely happy to have it as a part of our portfolio.

Wayne S. DeVeydt — Govt Chairman of the Board

Yeah. I suppose — that is Wayne. I suppose, Frank, possibly the way in which to form of tie all this up in a bow on the finish is, I believe we’re stating the apparent of what the entire world seeing in January and February, and we’re actually optimistic about what we all know the enterprise is doing and the place it should go. So, we proceed to really feel good. We predict once more just a little little bit of timing on transition between Q1 and This fall, however nothing that’s an alarm bell for us. And actually, if something, we predict it provides us extra optimism round how robust the enterprise is. And as I discussed on the entire joints, I believe it form of shares with you just a little bit about why we proceed to be optimistic that — whereas the robust yr.

Frank Morgan — RBC Capital Markets — Analyst

That is nice. Perhaps only one extra and I will hop. I may ask this one fairly a bit, clearly, Bain is an investor. They have been round, I suppose, arising on 4 years now. However on the similar time, they’re all these nice progress alternatives. The market is extra receptive to your shares. What do you say to traders who ask about that? Sort of the place is Bain’s? The place is their head proper now when it comes to how lengthy they’re positioned to stay a part of the Firm? Thanks.

Wayne S. DeVeydt — Govt Chairman of the Board

Thanks, Frank. I suppose possibly I am being just a little cheeky once I say this, however not aspiring to. However, Bain is an investor like some other lengthy shareholder investor. And so, I suppose as a administration staff, our focus has been simply do our job, proper? Deal with driving long-term progress, deal with positioning this Firm, be the perfect in our business, and I’d merely say Bain is a really completely happy shareholder. And I believe as you may see within the follow-on we did, it was all main, no secondary. And I believe that simply exhibits form of Bain’s bullishness on the place the Firm goes. And I believe the ability of the fairness providing and the way nicely the shares carried out since then, I believe, exhibits the truth that there’s a whole lot of traders that share their similar sentiment. So, I suppose my remark to traders would simply merely be view them no completely different than some other shareholder that believes within the enterprise mannequin.

Frank Morgan — RBC Capital Markets — Analyst

Okay, thanks very a lot.

Operator

Thanks. Our ultimate query comes from the road of Ralph Giacobbe with Citi. Please proceed along with your query.

Ralph Giacobbe — Citi — Analyst

Hey, thanks, good morning. I simply — the 18% to twenty% income progress was higher than we had. Perhaps should you may assistance on how a lot is coming from accomplished offers? And I do know you talked about that nothing’s assumed in M&A on EBITDA. I simply need to verify that that is additionally the case on income? After which, additionally should you may simply give us a way of the same-facility income progress embedded in steering and cut up between quantity and pricing simply given the bizarre dynamic of the bottom from 2020? Thanks.

Wayne S. DeVeydt — Govt Chairman of the Board

So, Frank, there’s a couple completely different questions in there. I’ll — I am sorry, Ralph. There’s a few completely different questions in there. I am gonna unbundle the primary one after which let Tom form of come via on the opposite ones. So the very first thing, Ralph, that I’d merely spotlight is that, whereas there’s some M&A that we closed in late 2020, that does influence income, I do need to remind all people that we needed to replenish the income that we divested of in promoting sure anesthesia belongings, closing the lab, in addition to finalizing the sale of our optical GPO. And so, all these headwinds are in there. And M&A from final yr in a whole lot of methods is solely overcoming these headwinds.

So, as Tom has highlighted, a giant chunk of the income that you’ll see this yr is a mixture of natural progress with some M&A, however the majority of the EBITDA progress is admittedly being pushed organically. Now clearly, to the extent we are able to get M&A finished sooner within the yr, that can enhance that income outlook and will have a constructive influence on adjusted EBITDA in addition to the yr progresses.

However, I’ll flip it over to Tom to see — Tom, if you wish to go just a little bit deeper on what portion is what? Yeah. I imply, Ralph, we’ve not sometimes guided on same-store. I simply in — COVID is such a humorous — 2020 is — the baseline is form of just a little humorous given the place — what the comparisons are going to begin to seem like after March 15. And so, they’ll make all of the numbers right here just a little bit inflated. I’d say, as we take into consideration a few of the portfolio work that we did in the long run of the fourth quarter, the income progress is clearly benefiting just a little bit from that. As you concentrate on, the remark about M&A, that is for probably the most half an natural plan that we offered to you all, proper? And so, I believe that there’s a little little bit of improvement exercise in some markets for some tuck-ins that’s already embedded in there, but it surely’s de minimis. And so, the overwhelming majority of what it’s that we predict that we will do is natural. And so — however I believe that the income primarily based on a few of the issues that we acquired versus the income primarily based on a few of the issues that we have just lately pruned, I do assume that there’s a little little bit of a pickup there. However, it is not substantial. I believe a whole lot of that is, we had a low baseline in 2020. We have got — we’re anticipating robust case progress. And we’re anticipating increased acuity. And the mixture of these results in a high line that is in all probability just a little bit forward of you guys. So, I do not assume it is much more than that.

Ralph Giacobbe — Citi — Analyst

Okay, all proper, honest sufficient. After which, you’ve got been clear on the M&A chance and your focus there, clearly. What about de novo? Is that in any respect a part of the expansion story or are there alternatives there? After which, I suppose individually, but in addition associated to investments, you talked about spending in robotics. Perhaps simply give us a way or an thought round that and what our expectation ought to be for this yr? Thanks.

Eric Evans — Chief Govt Officer

Sure. So, I will take the primary query. We do de novos repeatedly. So we’re all the time in search of these alternatives. They’re truly sometimes nice returns. They clearly take an extended time. We have now a number of of these below approach. We have now a number of enlargement alternative amenities which are in our portfolio that can proceed to occur yearly. So the reply is, it is actually a part of it. We do not sometimes — I imply, it is not an enormous a part of that M&A plan simply because it takes — it is a lengthy, lengthy story. However we’ve got a — we do quite a bit there. And sometimes once more, comparatively money gentle. We do not personal the amenities. We associate regionally and so there’s a portion of our cash that actually goes to de novos. And we like these. We’ll do a whole lot of these, have nice returns, and we make the most of alternatives at any time when they do come up.

So far as robotics although, we talked about within the ASC sector, we elevated our robotic platform. I believe it is all primarily based by about 60% final yr. We have now a number of that we’re taking a look at this yr. I do not know if that shall be fairly as aggressive of progress this yr. However we’ll proceed so as to add robotic know-how to satisfy our native physicians wants and to — truly to make our excessive worth amenities extra accessible to sufferers and we will proceed that this yr. I’d anticipate, we will add plenty of robots. I do not know, I believe will probably be fairly as in all probability as many as in 2020. These are usually fairly capital gentle. The financing on that Tom has been capable of work via with the distributors, that is not been a giant use of capital. And we proceed to deploy these wherever it is smart to truly acquire market share.

Ralph Giacobbe — Citi — Analyst

Okay, received it. After which yet one more if I can squeeze in. There was just a little little bit of a rise in unhealthy debt within the fourth quarter. What’s driving that? And I suppose any considerations or what are the assumptions for that in 2021?

Wayne S. DeVeydt — Govt Chairman of the Board

No. I mentioned the AR was up just a little bit, proper? And a whole lot of that has to do with, we have a model new facility in. I would not say that I believed that, that there have been something about unhealthy debt that we had any considerations about from a — within the fourth quarter. No, I imply we’ve got — as you may nicely think about, we’ve got armies of parents that do nothing however take a look at these and go after collections. We have now a cadre of distributors that we use in locations the place we’d like specialised consideration for that. There may be nothing about unhealthy debt within the fourth quarter that I had any considerations about.

Ralph Giacobbe — Citi — Analyst

Okay. All proper, thanks.

Eric Evans — Chief Govt Officer

All proper, nicely, everybody, earlier than we conclude our name, I do not need to miss this chance to say thanks to our over 10,000 colleagues and over 4,000 physicians for his or her contributions in 2020 and clearly, going ahead. Surgical procedure Companions collectively serves 1000’s of sufferers every day and extra every day in what are sometimes their most susceptible moments. We take the belief and religion of our doctor companions and our sufferers place and as extremely critically. And we’re privileged to make a constructive distinction in so many individuals’s lives. I’m enthusiastic about and humbled by the chance to guide Surgical procedure Companions as we work to extra absolutely ship on our mission of enhancing affected person high quality of life via partnership.

In our efforts, we consider and we clearly are a part of the answer to most of the challenges dealing with our nation’s well being system and we’re extraordinarily happy with the worth we’re creating for all of our stakeholders. As we execute in opposition to our objective to develop into the popular associate for short-stay surgical amenities throughout the U.S., it’s the every day efforts of each certainly one of our Surgical procedure Companions’ colleagues and physicians that get us there. So I need to thank them once more. And thanks all for becoming a member of our name this morning. Have a fantastic day.

Operator

[Operator Closing Remarks]

Period: 53 minutes

Name individuals:

Tom Cowhey — Govt Vice President and Chief Monetary Officer

Wayne S. DeVeydt — Govt Chairman of the Board

Eric Evans — Chief Govt Officer

Brian Tanquilut — Jefferies — Analyst

Kevin Fischbeck — Financial institution of America — Analyst

Frank Morgan — RBC Capital Markets — Analyst

Ralph Giacobbe — Citi — Analyst

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