Surgery Partners, Inc. Q1 FY2023 Earnings Call

Greetings, and welcome to the Surgery Partners First Quarter 2023 Earnings Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dave Doherty, Chief Financial Officer. Thank you, Dave. You may begin.

Good afternoon. My name is Dave Doherty, CFO of Surgery Partners, and I am here with our CEO, Eric Evans, and our Executive Chairman, Wayne DeVeydt. We appreciate you joining us to discuss our financial results for the first quarter of 2023. Today, we will make forward-looking statements. There are risk factors that may impact those statements and could cause actual future results to be materially different from them. These risk factors are described in this afternoon's press release and the reports we file with the SEC, which are available on our website at surgerypartners.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. The presentation of this information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. These measures are reconciled to the most applicable GAAP measure in this afternoon's press release. With that, I'll turn the call over to Wayne.

Thank you, Dave. Good afternoon and thank you all for joining us today. I'm pleased to report Surgery Partners' first quarter adjusted EBITDA of $90.1 million, 17% higher than last year's first quarter, which generated an adjusted EBITDA margin that grew 60 basis points to 13.5%. Including our non-consolidated facilities, we performed approximately 176,000 surgical cases in the first quarter, 12% more than 2022, with contributions from all our core specialties, consistent with our expectations. This strong case growth combined with increased acuity and contributions from recent acquisitions generated net revenue of $666 million. Consistent with our prior quarters, our first quarter results demonstrate top line growth, organic margin expansion, and contributions from recent acquisitions, which are the cornerstone of our long-term growth algorithm. Dave will share more details regarding our financial results, but let me highlight a few. Net revenue of $666 million represents nearly 12% growth from the prior year with same facility revenue growth of 10.3%. This organic growth rate was a combination of case growth of 5.3% and net revenue growth of 4.8% per case. As we pointed out in prior quarters, the case mix of our business has been stable since early 2022, with all specialties growing at rates consistent with our expectations. Physician recruiting efforts yielded nearly 150 new surgeons in the first quarter, representing all of our core high growth specialties. As we start the year, we continue to be encouraged by the quality of physicians that choose our high-quality surgical facilities. We anticipate recruiting approximately 500 to 600 new physicians annually. Our prior year recruiting cohorts continue to demonstrate strong year-over-year growth, with first quarter recruits from our 2022 cohort generating 78% more revenue in the current year quarter as compared to the same period last year. Finally, joint replacements in our ASCs increased 84% since the first quarter of 2022 as we continue to focus on the significant shift in site of care in our recruiting efforts, acquisitions, and de novo investments. Our M&A team continues its disciplined approach to sourcing and executing on strategically aligned acquisitions at attractive multiples, and we finished the first quarter deploying $60 million at a sub-eight times multiple. Our M&A pipeline is robust and our balance sheet remains strong, giving us continued confidence in our ability to meet or exceed the annual goal of deploying at least $200 million through acquisitions. As Dave will discuss in a few minutes, we also unlocked additional capital for redeployment by executing on components of our asset portfolio refresh. We'll be redeploying this capital in higher growth short-stay surgical facilities. Together with the board, I'm optimistic and have high confidence in both the near-term and the long-term growth prospects of Surgery Partners.

Thanks, Wayne, and good afternoon, everyone. The start of 2023 for Surgery Partners has been productive as the company again delivered on its commitment for double-digit growth and continued to position the company for long-term growth by completing five acquisitions and four divestitures and by signing two strategic partnerships with Marquee Health Systems. Combined, these actions position us well to not only deliver on our updated outlook for 2023, but also on our long-term double-digit adjusted EBITDA growth trajectory. Dave will discuss the details of our financial results and the drivers of our increased guidance, and I will dive deeper into our operations and the portfolio changes we are making this year. From an operational perspective, our specialty case mix is right where we want it to be, and volume was in line with our expectations with over 151,000 consolidated surgical cases in the quarter, 6.1% more than last year. Let me reiterate what we shared throughout 2022. The effect of the pandemic on our results is completely in the rear view mirror. Since 2019, each of our specialties and subspecialties have experienced growth consistent with or exceeding our long-term growth. To put a finer point on this, since early 2022, all our specialties recovered from the pandemic with strong growth rates throughout the year. In aggregate, our quarter one case volume inclusive of 2023 has a four-year CAGR of 4.9%. In the quarter, our same facility growth exceeded 5% when compared to the first quarter of 2022, continuing our consistently strong growth trajectory. As Wayne mentioned, this case growth included contributions from higher acuity cases, which helped our same facility net revenue per case increase almost 5% and combined to provide a double-digit same facility revenue increase in the quarter. We expect to continue to see both volumes and rate growth in excess of our long-term guidance ranges throughout 2023. Labor and supply costs remain well under control, allowing our adjusted EBITDA up $90.1 million to generate 13.5% adjusted EBITDA margin, 60 basis points of expansion compared to last year. Physician recruiting, which targets the highest quality physicians, added approximately 150 physicians in the quarter. As Wayne highlighted, each of our recruiting cohorts continues to drive strong year-over-year growth, and we are encouraged by the early strength of the 2023 recruiting class. All of this has continued to fuel our growth in MSK procedures, particularly total joint cases in our ASCs. We performed over 26,000 orthopedic procedures this quarter, and the volume of total joint surgeries that shifted into our ASCs increased by 84%, and as we have discussed, we are preparing for the next wave in cardiac procedures that we expect to migrate to outpatient settings, starting in earnest over the next three to five years. We do not expect the shift of these orthopedic and cardiac procedures to slow down, and we continue to position our portfolio to take advantage of this high growth opportunity. In the first quarter, we deployed $60 million acquiring two new ASCs and increasing our ownership position in three other facilities, including two from a prior year minority interest acquisitions from Value Health. These acquisitions, which increased our multi-specialty capacity, have an average purchase price multiple of less than eight times trailing 12-month earnings. We are rapidly integrating these acquisitions into our operations and expect to yield further earnings from our operating system synergies in the first 12 to 18 months post acquisition. On the de novo front, since 2019, we have opened four new ASC facilities and have 10 fully syndicated de novos under construction. Many of these projects are slated to open in late 2023 or early 2024. These facilities include consolidated and minority interest ownerships, and our multi-specialty with a concentration in orthopedics. In addition, as we mentioned in prior calls, we consistently evaluate our portfolio of approximately 150 short stay surgical facilities to ensure we are the best owner of the assets and they meet our high expectations for both growth and margin performance. Although each of our facilities generate revenue and earnings, in certain cases, the monetization and redeployment of the proceeds of our portfolio management efforts will be net accretive to the company's earnings. Year to date, we have divested our interest in four facilities and expect to divest another four to six facilities by mid-year. The aggregate proceeds from these divestitures will be redeployed at a lower multiple and will be accretive to future earnings. Our pipeline of new acquisition opportunities remains strong and supportive of our commitment to deploy at least $200 million plus the incremental proceeds from divestitures this year. Finally, I'm pleased to announce new strategic partnerships with two prominent health systems, Intermountain Health and Ohio Health. While decades of growth remain in our core business of two-way joint ventures with surgeons, Surgery Partners has emerged as a partner of choice for hospital systems revisiting their outpatient strategy. We are winning in this area because we are differentiated in our ability to consistently drive same site growth through data-enabled physician recruiting. We bring a rigorous and disciplined approach to facility management, including on labor and supply costs, and more recently, our proven de novo capabilities at scale. Our deep operational excellence stands out. Accordingly, Intermountain and Ohio Health are like-minded health systems that are joining with us on a long-term growth strategy, supporting the country's migration of procedures into the highest value settings. Through these partnerships, we will combine Surgery Partners' industry-leading management expertise with the strong market reputation Intermountain Health has earned throughout the Mountain region, spanning Nevada to Montana, and equally strong reputation Ohio Health has earned in Ohio to create regional ASC networks. Specifically in partnership with Intermountain, we will provide management services for 19 current and future ASCs in the Utah and Idaho markets. We will also partner with Intermountain to co-develop additional ASCs throughout their regional footprint in the years to come. Surgery Partners is now also the partner of choice with Ohio Health as it accelerates its plans to create a statewide ASC network in Ohio. In this partnership, we will provide management services to ASCs that we jointly acquire or develop in the coming years. These partnerships with like-minded health systems represent significant opportunities to serve these growing communities and to expand our scale. Although they will provide minimal earnings in 2023, we expect rapid and material contributions to our growth story over the next several years. We look forward to sharing more details about these developing ASC networks throughout the year. In summary, I am very proud of the team's accomplishments this quarter. Not only have we continued to excel within our core operations, as evidenced by our consistent financial results, we are executing on our commitment to position the company's footprint for long-term growth and success. More than ever, our company provides a cost-efficient, high-quality, and patient-centered environment in purpose-built short-stay surgical facilities that provide meaningful value to all of our key stakeholders.

With that said, I'm going to turn the call over now to Dave to provide additional color on our financial results as well as our 2023 outlook. Thanks, Eric. My initial remarks will focus on our first quarter financial results before providing additional perspective on our outlook for the remainder of the year. Starting with the top line, we performed 151,000 surgical cases in the first quarter, which is 6.1% more than the prior year, first quarter. These are only cases that are included in our consolidated revenue. If I include cases performed at non-consolidated facilities, we performed 176,000 cases. These cases spanned across all our specialties, with an increasing focus on higher acuity procedures, which is reflected in our double-digit same facility revenue growth this quarter. The combined case growth in higher acuity specialties, specific managed care actions, and the continued impact of acquisitions supported revenue growth of 11.7% over last year to $666 million. I will reiterate that an increasing share of recent acquisitions include minority interest investments. For these acquisitions, revenue is not included in our consolidated financials. We will continue to be agnostic to the accounting treatment of the assets we acquire. Our focus remains to acquire high growth, high-quality assets aligned with our targeted specialties at the most favorable multiple possible. This may affect how some of our stakeholders model revenue expectations, so it is worth reiterating this point for you. From a financial planning perspective, we focus primarily on growing our adjusted EBITDA and managing the core operations to grow market share. On a same facility basis, total revenue increased 10.3% in the first quarter, with case growth at 5.3%. Net revenue per case was 4.8% higher than last year, primarily driven by higher acuity procedures. As we reported throughout 2022, our prior year results were largely unaffected by the pandemic and the inflationary pressures that affected prior years. Hence, the first quarter of 2022 is a stable comparable period for this year. Adjusted EBITDA was $90.1 million for the first quarter, giving us a margin of 13.5%, a 60 basis point improvement over last year, and in line with our expectations of continued margin expansion. Inflationary pressures related to labor and supply costs have almost completely moderated in the first quarter, but we will remain vigilant in monitoring these factors across our portfolio. The costs of salaries, wages, and benefits, as well as our medical supply costs were consistent with prior periods as a percentage of revenue. As we noted in the past, we expect to produce at least $140 million of free cash flow in 2023. We defined free cash flow as the operating cash flow we report in the statement of cash flow, which is net of our cash interest expense, less the distributions paid to our partners and capital expenditures at our facility. In the first quarter, we generated free cash flow in excess of $20 million, which is in line with our expectations. There were no unusual items that affected this metric. We remain confident in the ability to meet our target of at least $140 million in 2023. We ended the quarter with $246 million in cash and an untapped revolver of $553 million. When combined with the free cash flow we are generating, we believe our current and future liquidity positions us well in this macroeconomic environment, while giving us flexibility to maintain our long-term acquisition posture of deploying at least $200 million per year for M&A. As a reminder, our corporate debt is less than $1.9 billion. As a part of our consistent proactive approach to managing our balance sheet, including future interest rate exposure and long-term liquidity, prior to the current macro environment, we entered into a number of interest rate swaps and fully hedged the interest cost of this debt, which averages at a fixed rate of 6.7%. Accordingly, we are not exposed to significant rate risks, which is another factor giving us confidence in our free cash flow growth. Our first quarter ratio of total net debt to EBITDA, as calculated under our credit agreement, was 4.3 times. With the earnings growth we expect, we are confident this ratio will decline over the year. In the first quarter, we deployed $60 million on five transactions at a sub-eight times multiple. The facilities we invested in are primarily focused on MSK procedures and are well positioned to support and strengthen our same facility growth trends in future years. Additionally, as mentioned in prior calls, we continually refresh our asset portfolio to align with long-term market growth trends. Year-to-date, we have divested four lower-performing facilities and expect to conclude another four to six by the middle of the year. Proceeds from these divestitures will be redeployed as incremental M&A at comparatively lower multiples with stronger future growth prospects. Combined, these divestitures will create a revenue headwind of over $100 million to 2023, prior to any redeployment of proceeds received. That being said, based on the strength of our first quarter results and our refreshed outlook for the remainder of the year, we expect to more than cover this divestiture headwind and are reaffirming our full-year revenue guide of greater than $2.75 billion. From an adjusted EBITDA perspective, we expect to more than overcome this headwind due to the strength of our top line revenue growth and continued margin improvement throughout the year. While the timing of divestiture and related M&A activity is a challenge to predict, we believe our 2023 full-year outlook reflects a conservative view. Carrying the momentum of our first quarter results, we remain optimistic and confident about the company's growth and are raising our outlook for 2023 adjusted EBITDA to greater than $430 million, representing at least 13% growth compared to 2022. Our financial guidance is informed by the continuation of strong organic case and rate growth, the annualization of prior acquisitions, and the timing of future M&A and divestiture activity, contributions from our in-process de novos, including the continued maturation of the community hospital we opened in Idaho during the pandemic. Regarding the exciting new health system partnerships that Eric mentioned, we expect marginal benefit to our results this year, with more significant growth in adjusted EBITDA in 2024 and 2025. Given the nature of these partnerships, most of these earnings will be earned through management fees and minority interest earnings. As a reminder, our business has a natural seasonal pattern, largely driven by annual deductibles resetting for commercial payers that tend to skew our results lower in the first quarter and higher in the fourth relative to each other. We continue to anticipate the seasonal pattern of our results will be consistent with 2022, with second quarter adjusted EBITDA to be approximately 23% and revenue to be approximately 24% of our full year guidance. Our first quarter results speak to the strength of our operations and our business model, and we believe that the balance of the year should continue to capitalize on that momentum. With that, I'd like to turn the call back over to the operator for questions.

Thank you. We'll now be conducting a question-and-answer session. Our first question is from Jason Cassorla with Citi. Please press proceed with your question.

Great. Thanks for taking my questions. Just on the volume front, certainly a solid number in the corner of 5.3, but I was hoping you could give us a flavor of how payer mix trended and then just given a macro backdrop, if any portion of that volume was perhaps pulled forward ahead of potential coverage changes later this year, or if you think, underlying the demand was just more broad based in that sense.

Hey, Jason, thanks for the question and good afternoon. I would say from our perspective, we don't believe anything was pulled forward. This is the core run rate that we had anticipated. I think we're feeling fairly optimistic for the full year, continue to believe that we'll see similar patterns as this year progresses, and I think, as we said in our prepared remarks, we are fully expecting to exceed our typical algorithm in terms of growth.

Yeah, and I guess I'd say today across all specialties, certainly you saw the acuity growth was strong. We talked a little bit about our joint growth being 84% year-over-year. Continue to see that acuity come through. From a mixed perspective, very consistent with what we expected. So, I would just say like fully meeting expectations as far as the overall growth, and we liked how evenly spread it was across all of our service lines with specifically strong growth in the higher acuity procedures, which clearly showed up in our same-store net revenue per case.

Got it. Okay, thanks. Helpful. And then just maybe the follow up, I wanted to ask about labor costs in the quarter. You talked about the inflationary impact being generally moderated in Q1, but if we isolate as adjusted volume, it looks like it was up about 6.5% year-over-year. That's been growing in that mid to high single-digit range for the past few quarters. Maybe just helped bifurcate the impact between underlying wage growth trend for '23 and the impact that the shift towards higher acuity procedures has on the intensity of labor per case.

Yeah, I'll dive in there. So Jason, that's a great question. We continue to see very moderate impact of premium labor. As we've talked about kind of throughout the pandemic, it's been a low percentage of our total labor. Certainly at points in the pandemic, we saw some excessive rates in that in some markets, but in general, didn't have a huge impact in prior years. We continue, we think to manage that cost quite well. From a per case perspective, I think you do point out something which is good to point out. In higher acuity cases, obviously more higher acuity cases, there certainly is some length of stay difference in cases, and it can be a different labor mix. But in total, we feel good about where labor came in. It still remains well controlled, and we think it's actually, if anything, it's moderating and continuing to look better as the year moves forward.

Thank you. Our next question is from Kevin Fischbeck with Bank of America. Please proceed with your question.

This is Nabil Gutierrez on for Kevin. Thanks for taking the question. Can you talk about how volumes trended throughout the quarter? Was the growth consistent each month?

I would say relative to our expectations, yes. We obviously build our January, February, and March differently each year. We look at a number of days. But if you look at a year-over-year basis, the number of days for us was consistent for 2022 versus Q1 of 2023. So no surprises from that. We saw a pretty consistent volume each month. So we have nothing weird to report.

And then my follow-up is, what type of procedures grew the fastest?

So as we called out, we called out total joints this quarter, growing up 84% in our ASCs. We clearly see orthopedics being a strong grower. But to be honest with you, all specialties were up, so consistent with our expectations. We're seeing our core service lines show strength and continued market share gains. I think across the board, it was quite good, but I would definitely note, and you can see it in our obviously in our same per case, our per case revenue increases, same facility that we had pretty strong acuity growth, particularly at MSK.

Our next question is from Brian Tanquilut with Jefferies. Please proceed with your question.

Good afternoon, guys and congrats. I guess, Wayne, obviously, congrats on the Intermountain deal. As I think about the surgery part of your strategy, historically, this was a two-way approach to running surgery centers, right? And now obviously, you have a big partnership with the marquee hospital name. So maybe a couple of things. Just thinking about the strategy, I don't want to say shift but expansion there, like how you're thinking about that? And maybe if you can remind us what the advantage is of partnering with the hospital as well versus your legacy two-way model?

So let me just start off by saying that one of the things that Eric brought when he came in and then took over as CEO was this idea that we really thought we could make the algorithm even more additive if we would be open to some of these three-way JV partnerships. The core to that was, will they be like-minded, similar to the way we see the world and who we want to align with and how we want to align. So first and foremost, I'm super excited because this is now another growth lever for us. I'm going to ask Eric to comment, though, since this was a big part of his brainchild as we were thinking about the strategy of where we wanted to take this over time. And more importantly, maybe use Intermountain as an example of how this like-mindedness works.

Yes, Brian, first of all, thanks for the kind words. We were excited about the quarter and excited about the start of the year, the Intermountain partnership and the OhioHealth partnership, both are quite exciting for us. Obviously, two really well thought of systems. You keyed in on Intermountain. One thing that makes that partnership so aligned with the way we see the world is Intermountain also has a large payer arm. And when you have a payer arm like that, they see the world from a highest value, highest use case as well. And so we naturally align with their thinking on how they want to move in the world and really help this transition to higher-value cases. Clearly, they have choices when they choose a partner. We feel like we bring best-in-class operational capabilities, the ability to grow their facilities. And so we're excited initially starting with helping them manage their already strong position in the State of Utah, but more importantly, investing together to grow across the Mountain West. So as Wayne mentioned, this is additive to our growth algorithm. We're going to continue to be a very strong two-way partnership company as we always have been. But these three-way partnerships, we do think expedite our ability to grow in certain markets where we have not been as quick to grow. And they also, we think, unlock a lot of potential to continue the acuity increases in those regions. So super excited about it, Intermountain, again, like-minded in the way that what they really believe is they want to deliver the best quality, lowest cost, high-value procedures and care in general to their patients, and we're a natural partner when that's their mission.

Appreciate that. And then, I guess, maybe for Dave, as I think about revenue per procedure, obviously pretty strong, and I know some of that is mix. Is this the right sound like level of growth in a route for procedure that we should be thinking about going forward, considering that you're obviously seeing a lot of growth in MSK or joint replacements?

Yes. Brian, it's a great question. And I think it goes back to the baseline that you've set for 2022 going into 2023. The premise there is that we were hitting on all cylinders last year and the growth that we're seeing as we start the year is going to be consistent with that. So I think it's a fair assumption that we're going to be at the upper end of that long-term guidance range as we go throughout the year. There's nothing indicating that we had an odd year in any of the quarters last year, and certainly, as we look forward into this year, we seem pretty solid.

Thank you. Our next question is from Bill Hendrix with RBC. Please proceed with your question.

Thank you very much. Just wanted to follow up on that last one again, with the 4.8% revenue per case on a same-store basis, clearly above the regular 2% to 3% algorithm, and you talked about acuity, but you'd also mentioned last quarter some upside from kind of holding some of your newer acquisitions into your managed care relationships in some of your markets. I wondered to know if maybe that had some influence too and how can we think about that, especially with some of the new acquisitions and partnerships you formed this quarter?

Hey, Bill, this is Wayne. First and foremost, we require all acquisitions to lap an entire year before we even evaluate them for same store. From our perspective, we think that gives you the purest view of how we're doing. And so we actually don't benefit from M&A until we show the value we can actually bring a year later. So the good news is this is a real pure view of same-store, and we would expect these trends to continue. At least based on our forecast for the year and how we see things, I think we're going to consistently outperform both on the volume and on the rate side. So as you think about historically, the upper end would have been that 6% same-store kind of revenue, we think you're going to continue to see us outperform that throughout the year, and we're going to finish much higher than that for the full year.

Our next question is from Lisa Gill with JPMorgan. Please proceed with your question.

Good afternoon. I also just want to focus for a minute on the partnership. One of the things that stood out to me is that OhioHealth also has the relationship with Privia. You announced last year a relationship with Privia. So my first question is, do you see incremental opportunities to partner alongside Privia as they continue to sign on these physician groups? And then secondly, I know you said not much contribution here in '23, but ramping into '24 and '25. Is there any way, Dave, to maybe give us an idea of how to think about how that ramps? And are there any implementation or start-up costs that will be in '23?

So, Lisa, I'll begin by addressing your first question and then pass it over to Dave to discuss future aspects. While I can't guarantee how much guidance we'll provide, we can share some directional insights. Regarding our relationship with Privia, we've previously mentioned that Privia and similar companies in the payvider space align well with our objectives. It's not unexpected that a partner we select would also choose to collaborate with value-based primary care groups, as this alignment supports our mutual growth. We see significant potential for synergy in numerous markets, not just with Privia, but also with VillageMD and other primary care groups that operate on a capitated or value-based model. We view this as a substantial advantage. OhioHealth's partnerships on the primary care front further emphasize their role as a like-minded partner focused on driving value, ensuring patients receive appropriate care, and advancing the health care system thoughtfully.

Yeah, Lisa, I think your question on kind of how you're going to see this coming through our results this year, it is a ramp that we're going into these facilities kind of on a very deliberate basis. So as we migrate into these relationships, we're being very thoughtful about that. So first and foremost, that's how the ramp-up kind of happens for us. We do expect this to be slightly positive to the company's earnings this year, inclusive of any of the start-up costs that are inside there. So there is a slight positive benefit that we baked into our updated outlook for the year.

Our next question is from Whit Mayo with SVB Securities. Please proceed with your question.

Good afternoon. Just want to make sure I get this right on the hospital partnerships. I think this is correct. But OhioHealth is not contributing any of their existing ASCs into a joint venture with you initially, correct?

Hey, Whit, that's correct. I do think one of the things that we try to do with any partner as we show our value, we think there could be opportunities in the future to earn that business as we show what we can do across the state, but that is correct from the start. We will be looking at new offensive opportunities together.

And Dave, you mentioned that you spent $60 million on acquisitions. The cash flow statement has $40 million net of cash. I presume that that's just net of the divestitures. Do I have that correct? And is it safe to say that you received $20 million roughly for those asset sales?

Yes. No, I don't think that's a safe assumption, Whit. I think that cash flow statement is net of the cash acquired as we go into that as well as any assumption of debt, the mechanics, I think, of just how that shows through. I can walk you through that a little bit later.

No, no. That's fine. You spent $60 million, okay, I got it. One last one, just want to make sure, from a modeling perspective, I get this right. I think you said you plan on selling $100 million of revenue, and I presume a portion of that has already closed. There's more to come. Is all of that consolidated today? Is any of it coming through equity earnings? I just want to make sure that we get our models right.

Hey, Whit, it is all consolidated today. When we initially modeled, we assumed a midyear convention in terms of when we would sell these, very similar to how we assume on acquisitions. So it does create a headwind for us. The full headwind is not the $100 million; think about it being about half of that is the actual headwind versus our original guide. But based on the strength in the quarter, we're more than lapping there.

Okay. But $100 million annual, but $50 million when considering a mid-year convention relative to the guidance. And then one last question. As you examine the development pipeline and the acquisitions that you will finalize, should we anticipate any of those to be consolidated?

Hey, Whit, yes, absolutely. I mean, we'll continue to look at any and all models, right? We said this, we're pretty agnostic to the structure as long as we manage it. We have to feel good about the growth prospects and what we can bring to it. But yes, we will continue certainly to buy consolidated positions. What I would say is with the health system partnerships, you're more likely to have nonconsolidated positions, certainly with those going forward. Typically, with de novos, you'll often start in a nonconsolidated position, but we'll buy up over time. And so I think it's going to be a healthy mix with and we'll continue to get really good guidance to you guys. You guys can think about the revenue impacts. As we've said before, we're agnostic to structure. Our job is to grow EBITDA, grow market share, grow cases, and whatever structure makes the most sense for us to expedite that, we're going to take.

Our next question is from Bill Sutherland with The Benchmark Company.

Can you go back and just in the quarter, you said four de novos, I think, and 10 Value Health consolidation. Was that?

We recently completed four de novos, and we've got 10 that are underway that are fully syndicated. We have a lot more than that in the pipeline. I'm glad you asked about this. I will say this is another additive opportunity for our growth algorithm. When you think about how we think about the business, there is no reason we shouldn't be double-digit syndicated new de novos annually moving forward, a really strong pipeline, and we're excited about those partnerships, in particular because they're really heavy ortho.

Yes. And could you update us on the Value Health relationship kind of where you stand with facilities and development plans?

So Value Health, we've had a number of facilities. I don't have the full numbers in front of me, but Bill, we'll follow up with that. We've acquired a fair amount of facilities that have been added into our portfolio, some of which we've actually bought up to a consolidated position already. We continue to work with them on new de novos. Many of those 10 we just talked about are Value Health partnerships that we've worked on together. So certainly, that's been a really impressive part of our partnership. And they continue to work on their bundled health model and their value-based care pricing for hyper-specialties in orthopedics and cardiology bariatrics. We are pursuing opportunities in those multiple areas, and we're going to continue to push forward on that. As you can imagine, that's part of the value-based world that is pretty nascent, but there's real opportunities we're seeing in certain of our centers already, and we hope to see that grow in the future.

And then you got a lot on your plate, but are you potentially in discussion or are you in discussions with potentially other health system relationships?

We've been having discussions for the past couple of years and have numerous health systems interested in partnering with us. Some of these potential partnerships may be more beneficial for them than for us, so we have to be selective about our choices. However, I believe you can expect additional health system partnerships in the future. Moving forward, we will be very disciplined in our selections to ensure that the partners we choose can significantly contribute to our value-based objectives and enhance value within healthcare. I appreciate your question, Bill, and this represents an exciting new growth opportunity that we plan to pursue.

Our next question is from Stephen Valiquette with Barclays.

You mentioned the $60 million in acquisitions completed in the first quarter at an average multiple of just under 8x, primarily focused on MSK procedures. Could you remind us how this sub-8x multiple compares to recent acquisition multiples? Additionally, with the ASC industry appearing to have a strong year potentially accelerating growth in 2023, do you think this industry strength will influence acquisition multiples as the year goes on, based on the pipeline of additional deals you are currently evaluating?

Hey, Stephen, let me first start by saying we have not seen multiples change. What's encouraging is that we're seeing on our current pipeline, are we seeing them change in this environment. I would also highlight that when we discuss multiples, we are using actual trailing 12-month EBITDA. So we do not give you synergized multiples. So if you look at our sub-8, that's been our track record for the last five years. If you look at even last year, the multiples for the entire year remained sub-8 as we aggregate them, and for the current year. I don't see those trends changing. So from our perspective, as we've always said, M&A is lumpy, and we're going to be very disciplined in what we approach and how we approach it. But we're super encouraged, and the pipeline is strong, and I would expect us to continue to announce more acquisitions throughout the year and potentially exceed our $200 million.

Yes. Stephen, I would like to add a couple of things. Just a reminder, we not only buy at sub-8 trailing 12, but in the first 12 to 18 months, our operating systems aim to reduce that by one to one and a half turns. So that’s our starting point. Regarding the strength of the industry, we are all excited about that, and it's not surprising to us. There are many excellent companies in our sector, and we are seeing growth return because it is such a strong marketplace. While I don't think this will change the multiples, we believe high-quality assets will remain in that range. As Wayne mentioned, it has been quite stable, and we are enthusiastic about the outlook for our pipeline. Great. Well, listen, as we conclude, I would like to recognize the significant efforts and commitment to excellence of our over 12,000 colleagues in nearly 5,000 physicians. We take to heart the responsibility for providing the best environment for our physicians to perform exceptional procedures of the highest clinical quality and the privilege that we have to serve over 600,000 patients in what are often their most vulnerable moments. I'm very, very proud to work alongside my many talented colleagues and professionals as we work to deliver on our mission more fully, which is to enhance patient quality of life through partnership. Thank you for joining our call this afternoon, and I hope you all have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.