Earnings Call Transcript - SGRY Q3 2020

Operator, Operator

Greetings and welcome to the Surgery Partners' Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tom Cowhey, Chief Financial Officer for Surgery Partners. Thank you, you may begin.

Tom Cowhey, CFO

Good morning, and welcome to Surgery Partners' Third Quarter 2020 Earnings Call. This is Tom Cowhey, Chief Financial Officer. Joining me today are Wayne DeVeydt, Surgery Partners Executive Chairman; and Eric Evans, Surgery Partners' Chief Executive Officer. As a reminder, during this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we filed with the SEC. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, the company will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP. A reconciliation of these measures can be found in our earnings release, which is posted on our website at surgerypartners.com and in our most recent quarterly report when filed. With that, I'll turn the call over to Wayne.

Wayne DeVeydt, Executive Chairman

Thank you, Tom. Good morning, and thank you all for joining us today. Before we begin our call this morning, I would like to acknowledge and recognize our colleagues and physician partners that continue to support the healthcare system and the needs of our patients. These continue to be unique times, and we're humbled to be affiliated with the heroes who have embodied our mission of enhancing patient quality of life through partnership. We are grateful for your service and the sacrifices that you and your families are making each and every day. As we've previously discussed, our management team has built and is executing upon a framework for growth. We continue to take a data-driven approach to decision making, focusing on high growth specialties and capitalizing on anticipated tailwinds, such as the transition of many Medicare-related procedures from inpatient to outpatient. Our strategy was built to support sustainable long-term double-digit growth. Our results support our conviction in this view. The impact of the pandemic has pressure-tested our business model and management team. In the second quarter, our results proved both the flexibility and resiliency of our business model and the strength of the leadership team we've assembled. With that momentum going into the third quarter, we felt confident in our ability to execute and capitalize on today's environment, which has accelerated some of the longer-term tailwinds we've been anticipating. Our third quarter results have confirmed our optimism. Some notable highlights include the following: adjusted revenues increased to $503.9 million, nearly 10% over the prior year quarter. Our same-store adjusted revenue per case increased by nearly 12% compared to the prior year quarter, more than offsetting the slightly lower volumes as a result of the pandemic. And finally, the transition of procedures out of traditional acute care inpatient settings accelerated during the quarter. Joint replacements in our ASCs were up 115% as compared to the prior year quarter. For the year, even with the disruption of COVID, joint replacements in our ASCs have increased by almost 90%. As you can see, these uncertain times have further highlighted the value of our short-stay surgical facilities as patients, physicians, and health plans recognize the relative safety of our specialized surgical environment. CMS has also been accelerating this trend by allowing more procedures to be done safely on an outpatient basis and leaving it up to the physicians to determine when inpatient care is required. These trends, which are aligned with patient and physician preferences, emphasize the importance of care delivery migrating to lower-cost, high-quality, purpose-built settings like our short-stay surgical centers. Said differently, we do not believe our results reflect solely a COVID rebound, but rather, we believe there's a fundamental market shift underway, and we are marshaling resources to capitalize on these accelerating trends and gain market share. Before I turn the call over to Eric, I would like to highlight one last item. We've discussed the importance of pruning non-strategic assets to eliminate distractions and to focus our investment of time and resources into our purpose-built short-stay surgical facilities. Over the past several years, we've been intentional in eliminating these distractions. In the third quarter, we took an important step by removing two assets that were not core to our long-term growth strategy. Specifically, we closed our Logan lab facility and completed the sale of certain anesthesia assets to a partner that can help us to optimize these capabilities and further enhance efficiencies in our facilities. While Eric and Tom provide more details, the sales of such anesthesia assets coupled with our third quarter debt raise provide ample capital to further invest into our long-term growth strategy both organically and inorganically. With that, let me turn the call over to Eric.

Eric Evans, CEO

Thank you, Wayne, and good morning. Today, I will discuss three main areas: first, I will highlight some additional results; second, I will outline key initiatives and investments that have enabled us to manage this crisis while promoting long-term growth; and finally, I will provide a brief update on CARES Act guidance. Tom will then give a detailed overview of our third quarter financial results and the outlook for the full year, along with insights into 2021. Regarding the quarter, the strong momentum we saw in late second quarter persisted into the third quarter, marked by adjusted EBITDA growth, excluding grants, of around 7% compared to the previous year and same-facility revenue growth of 8.4%, driven by an 11.9% increase in net revenue per case. Our same-facility volumes for the quarter averaged 97% of the previous year, and in September, we achieved 99% of prior year volumes, which are our best results since the pandemic began. We continue to experience higher acuity cases, such as orthopedic and spine surgeries, exceeding previous levels, while the recovery of lower acuity cases, like GI procedures, is still slightly behind at about 90% of prior year volume. Our strong same-facility growth is directly linked to our investments in physician recruitment, retention, as well as targeted investments at the facility level and in specific service lines. For example, we have noted an uptick in demand from new physicians for our short-stay surgical facilities, and our recruitment strategy has prioritized attracting high-quality physicians. So far this year, we have successfully recruited over 400 new physicians, which represents about a 10% increase in our medical staff. Our average newly recruited physician is generating 21% more revenue and 25% more revenue per case than those recruited in 2019. The rise in higher acuity procedures is further underscored by a 62% increase in the number of physicians performing joint replacements in our facilities compared to last year. We are making strategic investments to enhance our engagement and outreach to potential physicians. Notably, we have introduced a robust digital outreach capability that aligns well with the changes in our recruitment process during the pandemic. We believe this data-driven and innovative approach will become a key differentiator in accelerating our physician growth. Additionally, our commitment to recruit new physicians and retain existing ones is demonstrated by our expansion of facilities and investments in robotics and other innovations aimed at improving the patient experience and enhancing our high acuity capabilities. We have consistently expanded our facilities to meet new growth opportunities while maintaining discipline in capital deployment to achieve attractive returns. Key ASC investments include relocating multiple ASCs, such as the Milenia facility in Orlando, Florida, and our Spine Center in St. Louis, expanding surgical hospital capabilities by adding operating rooms in Georgia, Idaho, North Carolina, Montana, and Texas, and constructing a state-of-the-art 88-bed acute care hospital in Idaho Falls to support COVID outbreak efforts. We have also increased our installed base of robotics by 24% in 2020, with plans for further expansion in 2021. Regarding patient experience, 11 of our 15 eligible surgical hospitals received a five-star designation in the July 2020 HCAHPS star rating by CMS, while the remainder received four stars. We are extremely proud of this achievement, which reflects the dedication of our colleagues, physicians, and facilities. Approximately 75% of our surgical hospitals now deliver a patient experience among the top decile in the nation, with all our hospitals ranking in the top third of all assessed. These investments, combined with our high-quality patient experience, have led to a 96% physician partner retention rate. We are also investing in new service lines, particularly cardiology, with three surgical hospitals and two ASCs performing cardio procedures. The ASC serves as an early-stage expansion pilot program showing promising results, while our surgical hospitals continue to enhance their capabilities in high acuity cardiology. Year-to-date, our cardio procedures have risen by 8% compared to 2019, and we plan to more than double the number of ASCs conducting cardio procedures in 2021, alongside evaluating surgical hospital expansion opportunities. In parallel with our growth initiatives, we are refining our operating system to become a leaner, more efficient organization. Our second quarter results highlighted the variability of our cost structure and the actions we could implement swiftly. Our third quarter results show that we continue to invest in our facilities while adhering to the spending discipline we established in the second quarter. Specifically, our third quarter salary and benefit expenses as a percentage of revenue were over 230 basis points lower than the same period last year. We will continue pursuing margin expansion efforts through consolidation and outsourcing opportunities while enhancing services for our facilities and physician partners. Before I update you on CARES Act guidance, I want to touch on our strategic plan for expanding our footprint through acquisitions. As Wayne mentioned, we have divested certain assets from our portfolio and are reinvesting the proceeds in our facilities to grow our platform. We aim to pursue high-growth facilities that offer patients and physicians more convenient and cost-effective care options. To this end, we've completed two transactions at the end of the third quarter and another in early October, expanding our orthopedic and multi-specialty presence. At the end of October, we finalized the acquisition of a majority interest in Bakersfield Heart Hospital in California, a physician-owned facility specializing in cardiology and orthopedic procedures, with three operating rooms and four cath labs. These transactions will help offset earnings lost from the sale of anesthesia assets and support our long-term growth goals. We believe we are well positioned to gain market share and expand our operations. Tom will provide additional insights regarding our liquidity for future investments. Finally, regarding CARES Act grants, we have received approximately $53 million in such funds year-to-date, recognizing about $33 million as other income due to lost revenues from the COVID outbreak. Following updated guidance in the quarter, we reversed $9.9 million of CARES Act grants on our income statement for the second quarter. The remaining grant amounts not recognized as revenue will now be classified as a deferred liability on our balance sheet. Based on new guidance from HHS in mid-October, we will revise our grant recognition methodology when reporting the fourth quarter. We acknowledge the ongoing uncertainties related to COVID as we approach winter and appreciate the government's flexibility in allowing frontline responders to retain these funds until the crisis lessens. If we cannot recognize these funds according to CMS guidelines, we will repay them by mid-2021. We believe that this crisis has fundamentally altered how patients, surgeons, and health plans view the role of purpose-built short-stay surgical facilities in healthcare delivery, reinforcing the ongoing shift of surgeries to our facilities. This is a key element of our company's differentiation strategy, and now more than ever, our value proposition resonates with stakeholders in the healthcare space. We are very confident in our long-term organic growth model and believe that scaled independent operators like Surgery Partners are uniquely positioned to thrive in this evolving marketplace. With that, I will hand the call over to Tom for further details on our financial results and outlook.

Tom Cowhey, CFO

Thanks, Eric. First, I will discuss our financial performance for the third quarter, then touch on liquidity and thoughts as we head into the fourth quarter and 2021. In terms of our top line, surgical cases fell by 2.6% to just under 127,000 this quarter, mainly due to a slower recovery in lower acuity procedures in our gastrointestinal and pain management services in the early part of the quarter. Our adjusted revenues for the quarter reached $504 million, nearly 10% higher than the same period last year, with about $17 million coming from our new community hospital in Idaho Falls. On a same-facility basis, total revenue grew by 8.4% in the third quarter. This increase was influenced by a 3% decline in case volume compared to the previous year, which was counterbalanced by an almost 12% rise in net revenue per case due to acuity mix and pricing. Concerning operating earnings, our adjusted EBITDA for the third quarter, not including grants, was $66.5 million, representing a 7% increase compared to the same period in 2019. As Eric mentioned, we reversed $9.9 million in CARES Act grants during the quarter, leading to a $5 million decline in adjusted EBITDA after accounting for non-controlling interest. So far this year, we have recognized approximately $33.2 million in CARES Act grants, translating to about $21.9 million in adjusted EBITDA impact. We plan to update this accrual again in the fourth quarter based on the new October guidance from HHS. During the quarter, we incurred $7.5 million in transaction integration and acquisition costs, which included about $2 million of EBITDA losses tied to our new hospital in Idaho Falls, as it continues to work towards profitability. Results from this facility will be reported separately throughout 2020. Moving to cash flow and liquidity, we ended the quarter with a robust cash position of $450 million, which includes around $120 million in Medicare advanced payments held as deferred revenue. The deadline for repaying these advances was extended by about 17 months to September 2022, with reduced interest rates after the repayment deadline set at 4%. We will start recouping these funds from upcoming Medicare revenue in the second quarter of 2021. As mentioned in the second quarter call, we secured an additional $115 million in gross proceeds through an add-on offering to our 2027 notes to focus on growth. Our liquidity is further supported by an undrawn revolver, with a capacity of approximately $113 million after taking into account outstanding letters of credit. Notably, during the third quarter, Surgery Partners recorded operating cash flows of around $27 million, raised $115 million through incremental senior notes due in 2027, completed the divestiture of select anesthesia assets for an undisclosed amount, and increased our stake in our surgical hospital in Post Falls for about $17 million, reflected in our financing cash flows due to our existing ownership. The company's total net debt to EBITDA ratio at the close of the third quarter was stable at approximately 7x, mainly due to higher cash reserves, offset by the impact of our anesthesia sale and lab closure. If we factor out the effect of Medicare advanced payment funds, the total net debt to EBITDA ratio would be around 7.4x. The company has a flexible capital structure with no financial covenants on its term loan or senior notes. The lenders under our revolving credit facility waived our leverage covenant for the remainder of 2020 and provided significant flexibility for 2021 calculations. On August 31, we decided to close Logan Laboratories, part of our ancillary services segment, which led to a $34 million goodwill impairment loss in our third-quarter financials. Our strategic focus is on our short-stay surgical business, and our actions in the third quarter underline our commitment to this goal. Throughout the third quarter, we have emphasized expanding key service lines, such as musculoskeletal and cardiology, targeting high-value physician recruits, and engaging in strategic rate negotiations, all contributing to our recovery and growth. Although the pandemic's evolution and economic improvements remain uncertain, we have not observed a significant change in payer mix due to rising unemployment rates. We project adjusted EBITDA between $250 million and $260 million for this year. This forecast assumes that the volume levels, specialty mix, payer mix, and net revenue per case metrics from the second and third quarters will continue to improve, consistent with previous years as we enter the typically busy fourth quarter. We do not anticipate widespread elective procedure restrictions or stay-at-home orders in our key regions, allowing us to advance our initiatives amid the pandemic and recognizing modest additional amounts of CARES Act grants in the fourth quarter based on the latest October 2020 guidance from HHS. As we aim to finish 2020 strongly, we are also looking ahead to 2021. We are optimistic about overcoming the short-term impacts of COVID and returning to the multi-year double-digit adjusted EBITDA growth and profit levels we had initially aimed for based on a pre-COVID baseline. Moving into 2021, we are carefully assessing key elements of our growth model and business. We maintain confidence in the value our facilities provide, and our recruiting teams are successfully attracting new doctors to sustain volume increases. On pricing, we are steadily addressing historical inequities towards fair market rates while considering opportunities for long-term value growth through incremental investments in select markets. Our strategic initiatives are yielding positive outcomes as we strive to standardize and enhance our procurement and revenue cycle operations and find efficiencies within our infrastructure. Despite short-term challenges from the lab closure and anesthesia sale, we expect these to be more than offset by the recent transactions and are focused on deploying more capital to meet our growth objectives in 2021. Finally, we are hopeful that our Idaho Falls community hospital will continue to progress towards EBITDA profitability in 2021, despite the challenges of opening a new facility during a pandemic. Although uncertainties persist in the current environment, we have shown the value of our business model by navigating through the pandemic's challenges and look forward to sharing our progress in 2021. Now, I will turn the call back over to the operator for questions.

Operator, Operator

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from the line of Frank Morgan with RBC Capital Markets. Please proceed with your question.

Frank Morgan, Analyst

Good morning. Appreciate the commentary about how the trends were during the quarter and certainly how they ended. But I'm curious if you have any early indications on, is that trend continuing into October and any maybe discussions around regional variations in the recovery? And then I guess the last part of that would just be obviously talking about a recent surge. Any color around how that's impacting your markets? And that's it.

Eric Evans, CEO

Good morning, Frank. This is Eric Evans. I appreciate the question. I would start with just looking at fourth quarter, it's obviously early, but it's been consistent with what we have laid out in our expectations when we talked about getting to a $250 million to $260 million range this year. The Q4 is continuing our trend. Clearly, there are hotspots around the country and we think about those, we've dealt with those already. You'll remember earlier in the year, obviously, we have a big footprint in Florida, California, Texas, places that were impacted. We managed through that quite well. The difference then, of course, was the PPE shortage, which we have addressed. So I think about our hotspots we have to deal with today, I visited many of these markets and certainly stay close to them. I think our purpose-built facilities and our ability to provide a safe haven for elective surgery positions us well to deal with them. Clearly, you can't control all the impacts, but we feel our ability to manage through those even in many states where we do face a surge is quite high. So I would say that our confidence continues in the fourth quarter, we continue our trend and we're monitoring closely COVID hotspots, but so far, we continue to manage them well.

Frank Morgan, Analyst

Appreciate the color and the reiteration of the $250 million to $260 million. In terms of cash flow from ops, obviously weaker this quarter, but how should we think about our cash flow from ops playing out for the year? And just to confirm, does the $250 million to $260 million include more CARES Act in the fourth quarter? Thank you.

Tom Cowhey, CFO

Hey, Frank, it's Tom. As you think about CARES Act, we took a big reversal this quarter and we're still reiterating the guidance of $250 million to $260 million. So I want to make sure that you appreciate that. The thing that's funny about the CARES Act in the October guidance is that it isn't necessarily designed to aid growth companies. So as you think about year-to-date same-store, we're looking at about a 3% decline in same-store revenues. So depending upon how much growth we see in the fourth quarter, that may impact our ability to have substantial recognition of the CARES Act grants in the fourth quarter. So we're watching that closely. I would say our current outlook doesn't anticipate that we're going to get back as much as we've reversed.

Wayne DeVeydt, Executive Chairman

Hey, Frank, just to add to Tom's comment about cash flow, you asked what in the quarter. It's an interesting dynamic because there's a lot of unique timing items in Q3. So for example, obviously, we hunkered down as did every company in Q2, not knowing what the future would look like. And so accounts payables did slowdown, AR continues to collect, but it's collecting from Q1. As you get into Q3, you have less AR on the books coming out of Q2 and you're accelerating your accounts payable outflow as you're ramping up your businesses and getting back to as you saw 97% prior year volumes in the quarter and 99% by September. So first and foremost, I would tell you the cash flow is purely a timing issue, very pandemic-focused and related in terms of how it's impacted that. And then the last thing I would just say, as Tom said, obviously we're optimistic coming out of Q3. Our run rate was strong. As Eric said, we like our volume that we can see in October. We're still closing the books, though, so we don't have the mix yet fully locked down, but the volume looks good and our scheduling for November looks good. So I think Tom's important point he's trying to make sure people understand is if you're a growth company like we are, the rules are not going to allow you to earn as much of CARES grants as others may be able to earn. And that's okay with us because we think one, we want to be socially responsible, return what we can; and two, we think growth companies are where we want to be. We'd rather be having that run rate going into next year and feeling good about the business model.

Unidentified Analyst, Analyst

Good morning. This is Joana filling in for Kevin. Thank you for taking my question. I want to continue the discussion that Frank started regarding next year. I appreciate your insights, and could you elaborate on some of the elements you highlighted? One point of interest is pricing. There are two aspects to consider; liquidity has been higher this year. How do you anticipate that affecting next year? Do you expect high acuity levels to remain consistent given your service line expansions and goals? Also, when patients return after deferring care, are they typically sicker? Additionally, I would like to know about the contract repricing you mentioned previously. Where do you stand in that process? How much more is left to be addressed, and what benefits should we expect next year and in the coming years? Thank you.

Wayne DeVeydt, Executive Chairman

Let me start by providing a broader perspective, as there are many questions and related aspects to discuss. First and foremost, as we look ahead to the next year, I want to emphasize that our double-digit growth is founded on three key principles. The first is our goal to achieve revenue growth of 4% to 6% on a same-store basis. We remain confident that due to our physician recruitment and managed care strategies, we can surpass that range, aiming for the higher end and potentially exceeding it. Our results continue to support this belief, even during challenging pandemic conditions. I'll have Eric share more about our recruitment efforts and the current status of our recruiting class shortly. The second aspect we aim for is a 3% to 5% improvement through operational efficiencies across the company. This includes optimizing procurement, revenue cycle management, and enhancing overall organizational efficiency. After attending yesterday's board meeting, my confidence in our team’s execution remains as strong as it has been over the past few years. They have clear visibility into their objectives, and I feel optimistic about our progress. The third element is mergers and acquisitions. We did pause M&A activities for some time, particularly during the height of COVID-19, as we were uncertain about its duration. However, we successfully navigated the quarter by eliminating distractions and quickly reallocating capital. As Tom mentioned regarding headwinds and tailwinds, any adverse impacts on EBITDA from divestitures or closures have been completely counterbalanced by recent transactions completed in late Q3 and Q4. Therefore, any capital we deploy going forward reinforces our strategy for double-digit growth. Next, I’d like Eric to briefly discuss physician recruitment and current trends, followed by Tom’s insights on the capital we may deploy over the next year.

Eric Evans, CEO

Thanks, Wayne. So just to your question, I think I'll start with acuity and this goes through recruiting. You asked whether we think acuity is going to stay high next year and we absolutely do for lots of reasons. We've kind of highlighted our growth in total joints, we've seen similar growth in spine cases, and clearly cardiac is a moving service line from hospitals to outpatient facilities. And so when we look at our growth opportunity, our recruitment is focused on those specialties. You could see that showing up in our net revenue per case numbers, and we believe that transition continues. Obviously, hips are getting added next year from a CMS standpoint, and the acuity opportunity for us remains quite large. So from that perspective, we're pretty excited about that. I would also say that on the commercial standpoint, as far as our rate goes, the commercial standpoint, we feel that there's still a lot of opportunity there. As we add higher acuity services, the one thing I would point out is our value proposition gets stronger, because that differentiation we offer from a value perspective on higher acuity surgeries allows us to work with payers to create value for both sides. And so we continue to see that as an opportunity that we have not fully taken advantage of. But we've made progress, and I'm really proud of the commercial rate progress we've made. So I would reiterate what Wayne said, we also feel really good about our acuity, position recruitment is backing that acuity because we're focused on those positions as we've talked about from a data-driven perspective, that they’re the highest quality and move those procedures to our facilities. And then lastly, we certainly feel like there's still a lot of opportunity for us to share more of the value we create with payers as we raise our high acuity services.

Wayne DeVeydt, Executive Chairman

And Tom, maybe just elaborate that now we're really in a position to start that third pillar more offensively now. And maybe you could talk about what's available from a liquidity perspective?

Tom Cowhey, CFO

Yes. There's obviously a lot of cash on the balance sheet at September 30, and some of that is obviously the advanced payments that we’ll start repaying in small part in the second quarter of next year. But as we think about the capital that we've recently deployed and we think about the liquidity that we have available, I'd say our goal, we've talked previously about wanting to deploy $100 million a year to try to build up that M&A pipeline and to build up that third leg of the stool. I think we still have the capability to deploy $100 million to $150 million over the course of the next 12 months to help generate incremental earnings.

Unidentified Analyst, Analyst

Great. This is great color. I'll go back to the queue. Thank you.

Operator, Operator

Our next question comes from line of Bill Sutherland with The Benchmark Company. Please proceed with your question.

Bill Sutherland, Analyst

Hey, good morning. Thanks for taking the questions. I have one question. How do you guys think about the likely impact of seasonality this year of being so unusual and copying against a more normal fourth quarter last year? Thanks.

Eric Evans, CEO

Hey, Bill, this is Eric. Appreciate the question. And it's a good one, right? I think that, this is the first, fourth quarter, we've had post a pandemic. So I have a little bit of a humbleness on our ability to predict this. I would say that early on, it looks like a normal fourth quarter, as we talked about. So we're seeing our trends year over year comparatively matching up with what we've been seeing in the third quarter, which makes us feel good. There are a couple of offsetting factors, as you might guess, you know, you think about, there may be less pressure or maybe less opportunity for people who've met deductibles. But there are also a fair number of people who may have waited. And so it's, as we see some of our lower acuity service lines like GI recover, we still think there is some of that fourth quarter push, we're seeing that obviously. And so until we have data to prove otherwise, it looks like a normal fourth quarter, but I will keep a little bit of a COVID unknown there that we just have to be aware of, but we're obviously planning as if it is and so far, so good.

Bill Sutherland, Analyst

Understood. And then if I could sneak one more in on as you guys think about the potential impact with the additional procedures that Medicare is now reimbursing. How much of a factor is that as you look into next year?

Eric Evans, CEO

Well, it clearly poses our competence as we think about our double-digit growth rate. And it's hard to know whenever CMS first puts out procedures, it takes a while for physicians to embrace it. It varies by market, how fast it's embraced. We do think the general sentiment among physicians to move higher acuity procedures to our facilities has increased dramatically during the COVID shutdown. So you know optimistic about it, it certainly gives us confidence in our ability to continue on our double digit growth platform. And we see it as an upside for sure.

Wayne DeVeydt, Executive Chairman

Hey, Phil, one thing I want to add and good morning, by the way, is one of the things we take pride in as a company is how we are data-driven in so many decision-making. And yesterday, we spent a decent amount of time as a board of directors, with our management team, talking about the splitter, as we refer to it, where we have individuals that are doing commercial business, in our facilities today, but have a fairly sizable book of Medicare business that historically could not be done in our facility. And I will tell you, the opportunity is quite vast, with physicians that are with us already. And so the concept that as Eric said, I think we have a whole new wave coming in of not just the positive recruiting efforts of what we are doing as a company. But the idea of really getting to the pain points for surgeons as to what will it take for you to move your Medicare, your splitter business, if you will, over to our facility, and a lot of it comes down to what we've said over the last two years, which is they want block time. And they want turnover time quickly in those rooms. And that is the one thing we excel at. And so I'm with Eric, I think the opportunity is vast, but I want to make sure you understand that the team is really at a granular level of data driven approach then on how to target not only what is available to us but what's really in our backyard today that we can now pursue with physicians that know our facilities already and know our nurses already.

Bill Sutherland, Analyst

Good. Thanks for the color, guys. Appreciate it.

Operator, Operator

Thank you. Our next question comes from line of Ralph Jacoby with Citi. Please proceed with your question.

Unidentified Analyst, Analyst

Thanks. Good morning. Just want to go to 2021? Sounds like you're comfortable with double-digit growth? You know, first, I don't know if you're willing to sort of narrow that at all. Is it sort of low double digit from this vantage point? You know, are you talking teams at this stage? And maybe if you can also help with sort of a baseline? Is it, do we consider that off the 250 to 260 or do we need to make adjustments and think of a different baseline?

Wayne DeVeydt, Executive Chairman

Hey, Ralph. First of all, good morning, and so this one's a tricky one that's easy to answer, though. It's not off the 250 to 260. It's what a pre-COVID baseline would look like. So clearly, we fully anticipated our year being stronger than 250 or 260 when we started this year. And so in the simplest math I can give you is, we're not going to commit to whether it's low double digits or teens or anything, what we will tell you is we've been very consistent in saying you can look at where we finished last year at. You can add 10% to that for this year, you can add another 10% to that for next year, and you can kind of do the math, and that ought to give you at least a baseline of what we see as our targeted growth rate. And so clearly based on the 250 or 260, that percentage of growth will be much higher than low double digit. So I want to give you the right baseline, but I think just take last take 19, add double digit to what would have been this year and add double digit to that. And that's what we went to spend for 2021.

Unidentified Analyst, Analyst

Okay, very, very helpful. And then, you know, I guess this quarter, you didn't see as much margin pull through and a pretty hefty top line print. Is that just the higher cost that comes with acuity? Did you have other costs in the quarter? Or does it reflect, you know, some of the sales or divestitures that you did? And maybe just how you're thinking about that kind of margin trajectory at this point? You know, obviously, expansion sounds like it given the growth that you put out there, but just any way to sort of frame how you're thinking about the margin expansion opportunity? Thanks.

Wayne DeVeydt, Executive Chairman

Yeah. I really appreciate that question, Ralph. That's something that we spent a lot of time, and let me first start by giving the simple answer the margins are actually strong. And it's exactly what you highlighted. If you were to look at three items, one is if you look at the mix, as you know, we focus on highest dollar contribution, dollar per minute, not margin. And because of our higher mix in total joints and how much we're growing those, as you know, the accounting for those puts the full cost of the implant both in the revenue and in the COGS. And as a result, it artificially creates what looks to be a lower margin, when in fact, if you were able to strip out those COGS components, you would see the margins are even much higher. Second thing is keep in mind that our highest margin business is very low acuity, which is GI and GI is the slowest to recover of all the factors out there. Now, we saw it get much stronger by September, those trends are continuing in October. So I think you'll start to see just a mix of the higher margin lower acuity businesses coming back in. And then finally, I don't want it to be lost some of the comments that Eric made in the opening remarks, but we are making a lot of investments in the business. We see a very unique opportunity to really accelerate certain investments to really drive further value and Q3 was a strong quarter and we chose to make those investments in this quarter. And, if Q4 continues as we've seen in Q3, we will probably make investments then as well.

Unidentified Analyst, Analyst

Okay, great. Very helpful. Thank you.

Operator, Operator

Thank you. Ladies and gentlemen, our final question today comes from the line of Brian Tanquilut with Jefferies. Please proceed with your question.

Brian Tanquilut, Analyst

Good morning and congrats on the quarter. So most of my questions have already been addressed but I guess I've got a couple. On robots, how are you thinking about the rollout of that? And how should we be thinking about the CapEx required for that, and if you can throw kind of like a number more or less that you're thinking in terms of the robot strategy, as part of the recruitment process for docs?

Wayne DeVeydt, Executive Chairman

So I'll let Tom talk a little bit about kind of the financing of it, I would say this, Brian, just to give you a little context. We have a lot of markets, where we have physicians who use our facilities today, who have additional cases, they would bring with the appropriate technology, often robots, and we look at each of those markets, you know, independently to decide if it's the right investment to earn that business. And we're finding more and more markets where that make sense. It's high acuity business, its new business; it's able to be done in our facility safely. And so it's about existing docs also, expanding their business, it's also a way to open our doors to procedures in a book of business that we just didn't have the opportunity to get in prior times. And so we're working closely with managed care companies and our partners at health plans, working closely with the local markets, to ensure that it's accretive. But ultimately, we see real opportunity to grow acuity, earn business, move it from a higher cost setting to a lower cost setting. And actually, you know, a lot of winners there. The healthiest is the winner, the patients, given our patient experience scores are winners, the physicians like it. And so market by market, we're making those investments you've seen this year, it's been a pretty dramatic increase there. And we actually do see big books of business when you think about how physicians are trained, big books of business in ortho and spine that are growing, but also when you think about Da Vinci, it's general surgery, it's basic GYN. And so we're going to be aggressive in finding ways to compete for that business and provide the value we can uniquely. So I don't know Tom, if you want to talk a little bit about the investment profile.

Tom Cowhey, CFO

The installed base of robots that we have is probably in the range of 25 to 30, across the portfolio, right? And it'll probably be close to that of that high end number by the end of the year. You know, as you think about that, we've been adding them into some of our ASCs. But in particular, because a lot of those are in the surgical hospitals today, we added a handful of Nico's, for example, this year. A, the vendors have been working with us and we obviously have financing capacity for these. The economics on the pilots that we've done at the ASCs have been quite promising. And so well, I don't see us putting a robot in every facility, we are going to think about every facility where it makes economic sense to drive EBITDA in those multi-specialty centers where this is going to have a good ROI. And so we're piloting it now, we're expanding it but the early read looks quite good.

Brian Tanquilut, Analyst

That makes sense. I guess, follow up to that to a question from earlier. In your prepared remarks about, salaries being down, year over year, how should we be thinking about the durability of the cost structure from this point on? I mean, from a modeling perspective, obviously, we're seeing organic growth, acceleration are picking up right and you've obviously flexed your cost structure during the pandemic, so how should we be thinking about the growth on the cost line, other than supplies going forward?

Eric Evans, CEO

You know, I'm hard pressed to say that I think we're going to keep all of it because I think a little bit of it as a function of how we manage the shifts in light of the lower volume. But I would say that I've been extremely impressed by our operators' ability to take a hard look at their cost structures in the midst of this pandemic. And I think that some of the changes that we've made are going to be durable. And so, you know, we're actually, obviously the mix that Wayne talked about with the higher acuity procedures passing through the cost of the implant, you know, lowers the percentage margin, but we continue to believe that we've got run rate cost efficiencies that are going to be durable but have come out of some of the restructurings that we've done across the portfolio over the course of the last six months. And we have other initiatives underway that we think will deliver additional G&A cost savings over the course of the next calendar year. So we continue to really go after those costs to try to provide a better service and be more efficient for our customers or our surgical facilities.

Wayne DeVeydt, Executive Chairman

Brian, one thing I want to add to. I think it sometimes gets overlooked but I'm really proud of what this team has done. The core infrastructure investments that had to be made when we started in 2018 with this journey, there was not a data warehouse. Today, we have over 97% of all of our facilities on a single data warehouse. So as we do acquisitions and expansions now, we are migrating them on day one. That's our priority. We did not have a single HRS system. So the fact is that today, over 95% of our facilities are on a single HRS system. What does that mean? We can flex up and down now, our nurses, our staffing models, et cetera, based on facilities and we can look at it real time. And that did not exist even six months ago. We have been doing all the heavy-lifting the last two years to do that migration, which we did in the first six months of this year and that's where we're at today. And so yesterday as a board, we got to actually see real data that gives us even more agility, flexing up and down. And then revenue cycle management, as Tom talked about, those investments are almost completely behind us now, and so we're finally at the stage now where we get to capitalize. We actually get to capitalize on those investments, and I think over the next year from a G&A perspective, there's tweaks on like, 'Oh, there might be a little more investment here, a little bit more here.' But that heavy-lifting investment and that kind of running dual systems, and processes and people running manual while we were also trying to build the platforms, that is now substantially behind us. And so as we go into next year, I actually think to Tom's point, I think there's a lot of sustainability in the G&A structure even with the growth platform coming and we ought to see even more value creation now having better data.

Brian Tanquilut, Analyst

Now, that makes a lot of sense and Wayne, it's actually a really good segue to my last question. It seems like everything's finally clicking. I mean you had to do a lot of heavy-lifting from 2018 through 2019, had to run through COVID and now, it's finally clicking. So you talked about that part of the strategy, talked about organic growth, picking up M&A, going back to that well. So we put all that together and it feels like we're getting ready to see an acceleration in overall growth to what, maybe a mid-teens level? Is that a good way to be thinking about overall EBITDA growth?

Wayne DeVeydt, Executive Chairman

First of all, Brian, I want to say that you expressed everything perfectly. Everything is coming together. As a management team, we feel that we’ve reached a sweet spot this quarter and eliminated the last distractions. However, COVID remains a significant unknown. I don't want to get ahead of ourselves because, in reality, our volume is still lower than last year. The question is whether we can recover faster than others, and we believe the answer is yes. We are equipped to achieve accelerated growth, but it depends on how behaviors evolve in this post-COVID environment and where we, as a country, land with those behaviors. Overall, I feel optimistic. We reviewed next year's prospects with management and are pleased with the number of initiatives ahead of us. I think it's wise for our management team to commit to double-digit growth and deliver on that, and if we can exceed the lower end, that's fantastic. Right now, we prefer to wait and see how COVID and the pandemic develop before making bold predictions.

Brian Tanquilut, Analyst

Now, it makes sense. Appreciate it. Thanks again.

Eric Evans, CEO

All right, appreciate everyone's time today. Before we conclude our call, I also want to take a moment to say thank you to our 10,000 plus colleagues and 4,000 plus physicians for their contributions. Surgery Partners collectively serves over 600,000 patients each year and thousands of patients each day and what are often their most vulnerable moments. We take that trust and faith that our physician partners and patients place in us incredibly seriously and our privilege to make a positive difference in so many people's lives. I am excited about and humbled by the opportunity to lead this company as we work to more fully deliver on our mission of enhancing patient quality of life through partnership. In our efforts we're clearly part of the solution to many of the challenges facing our nation's healthcare system and are extremely proud of the value we are creating for all of our stakeholders. As we execute against our goal to become the preferred partner for operating short-stay surgical facilities across the U.S., it is the daily efforts of each and every Surgery Partners' colleague and physician that will help us get there. Thank you for joining our call this morning and hope you all have a great day.

Operator, Operator

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