Of course, they’re still a better converter per minute of OR time in terms of cash flow. But what I would say is at an aggregate level, think about the volume of we still target 2% to 3%. The goal is always to kind of outperform the high end of that range as we’ve done the last several years. And so ultimately, the budget says we ought to be able to do at least the high end, maybe slightly better than that. Dave, anything you want to add to that in terms of how we’re building our outlook?
Dave Doherty: Yeah. I mean, I would reiterate everything that you said, right? The budget is built at the facility level. So, we have good line of sight as we kind of sit through there. Case growth is fairly predictable for a couple of reasons for us. One, as we saw all year and as we’ve been talking about quite frankly for the past two solid years, the business doesn’t change rapidly. So, there’s no unless you have a COVID pandemic, which we’ve long since passed in our business, our relationships with our physicians is longstanding, their block time, their practices are very strong. So, we have an underlying base that we think is fairly predictable. Our recruiting pipeline from 2023 has been really strong, as you guys know, that compounds in a very predictable pattern for us.
And so, you will see confidence in that underlying rate growth — I’m sorry, case growth that’s at least in line with that guide that Wayne mentioned. It will be across all of our specialties, because we focus very hard on those. However, you will see us try to take advantage of ankles and shoulders, particularly in those where we already have relationships. And as our minority interest partnerships continue to mature, you’ll see kind of continued upward pressure on there. So, those cases should continue to be positive. Those are relatively small number of cases that have a very large impact on revenue. So, we’re pretty bullish on how that’s going to look for next year.
Lisa Gill: And then…
Wayne DeVeydt: And then, Lisa…
Lisa Gill: I’m sorry, go ahead.
Wayne DeVeydt: No, Lisa, the only thing I was going to say, and to the extent as has been our track record that we exceed those expectations, then we’ll raise guidance as we move throughout the year. So, I think we’d like to try to create a conservative thoughtful baseline. But then, as again as we’ve done historically, if we continue to outperform that baseline, you’ll see that reflected in our outlook each quarter.
Lisa Gill: That’s very helpful. Just staying on the 2024 guidance just for one more minute, I just want to make sure I also understand what you have in there as far as acquisitions go. I think Dave in your comment, you talked about some slipping from ’23 into ’24, but if you can talk about how much you have in the revenue guidance for acquisitions?
Dave Doherty: Yes. So…
Wayne DeVeydt: So, let me — Dave, I’m sorry, let me just start with this and I want to flip this to you. Just a reminder, the $60 million that we done in early January, we view that as just finalizing what we were doing in ’23. And so that is going to move forward. So, everything that Dave is going to talk about is the incremental $200 million we believe we would get done this year. I’m sorry, Dave, go ahead.
Lisa Gill: Okay.
Dave Doherty: Yeah. So, our guide right now implies that we’re going to do another $200 million just as we’ve talked about before using a midyear convention that is exclusive of the $60 million that Wayne just mentioned that we completed in early January. The lesson learned from the past and I would just encourage us all to think about this as we do our models, is how much of that is going to come through and consolidated as that converts to revenue versus non-consolidated. Now, as we look at the pipeline right now, majority of those are in consolidated facilities. But we manage a very strong pipeline that goes deeper than the $200 million that’s currently under LOI. And so, we’ll look to see how those ultimately manifest. That’s what we will continue to kind of guide to as we look through the year.
As we’re looking at the divestiture side, which the other point that gave us some pressure points last year, we’re not looking at anything as significant as we did last year that will create that type of headwind, at least as we’re talking at our portfolio level at this point.
Lisa Gill: Okay, great. Thanks for the comments.
Operator: Thank you. Our next question comes from the line of Bill Sutherland with The Benchmark Company. Please proceed with your question.
Bill Sutherland: Thanks very much. Good morning, everybody. I wanted to look a little bit harder at case growth in the quarter. I’m assuming that’s just a matter of the mix into the higher acuity procedures taking more OR time. Is that why it was below 2%?
Wayne DeVeydt: No, Bill. Actually, I’m really glad you asked this question, and I want to provide a little clarity. So, first and foremost, remember that the last two fourth quarters, we generated 4% case volume growth. So, we continue to compound off of a very large growth rate in Q4. And the reason that’s important to note is that the fourth quarter of this year, which was aligned with our expectations, had a very unique anomaly occur, which was that Christmas fell on a Monday. And as you know for the vast majority of our procedures, while we are open Monday through Friday, the majority of them actually occur on Mondays and Tuesdays. And so, in this particular year, many of our facilities were not only closed for the Monday, but we’re actually closed for the Tuesday as well.
And so, you get this year-over-year unique comp dynamic. As we move into 2024, it actually becomes a tailwind for us, because we have a leap year, Christmas is actually getting pushed to a Wednesday, which means we’ll get the Monday, Tuesday back. And in addition to that, we have one additional day in the fourth quarter of this upcoming year. So, it creates a little bit of an odd anomaly in terms of comps of last year and the year before versus this year, but no concerns in terms of what we think is the basic algorithm and achieving that 2% to 3% plus.
Bill Sutherland: Got it. Thanks for that. And then, I was also curious if you could look at — looking at the de novos and what’s the cadence of them impacting the top-line as they come on?
Wayne DeVeydt: Dave, do you want to highlight that?
Dave Doherty: Yeah, happy to. And it’s a great question, Bill, because again, something could be somewhat confusing. Most de novos as they kind of start up in their process are going to come through as minority interest partnerships, especially those that are coming through with our new partners that we’ve announced over the past year. And at some point in time, we’ll look for the opportunity to kind of buy up to a consolidating level. So, the impact on revenue should be somewhat muted in the short run. Now that’s not an exclusive statement. There are some of our de novos that we look at that out of the gate we will be consolidating. And in that case, you won’t see a huge impact in 2024. When it becomes something that’s a material contributor to our revenue guide, we’ll probably give you a heads up on that.
But the gestation period for de novos is a relatively long ramp. So, the seeds we planted last year and the seeds we’re planting this year will take another year or two before we start to see them provide the meaningful growth that we’ll be talking about. As we sit here today, we’re just excited about managing about 10 or so a year.
Bill Sutherland: Okay. Great. Thanks, guys.
Operator: Thank you. Our next question comes from the line of Sarah James with Cantor Fitzgerald. Please proceed with your question.
Sarah James: Thank you. I wanted to go back to margins. I appreciate the mechanics of the minority interest assets lifting margins. But can you clarify if ’24 you would also be guiding to margin expansion on your core book? And then, on the drivers of that, you’ve been talking about improving RCM for a while. How much runway is left on that? And also G&A came in well below consensus. So, anything you can point to as the driver there in the quarter and if that would continue into ’24?
Wayne DeVeydt: Hey, Sarah. Good morning. First and foremost, core book will be expanding margins as well as the minority interest. So, no changes from that perspective. I think we continue to get the benefits of scale. And in many cases, we were overcoming headwinds that the industry was suffering over the last couple of years, both around labor and cost supply. And while we effectively managed it well, we’ve also been able to maintain a cost structure. That means we’ll get the benefits of that as we kind of return to a more normal environment. So, feel very good from that perspective. On the RCM front, I am continually amazed at the work that Dave and the team have done and where the opportunities continue to exist. Dave, do you want to elaborate on a bit more of what we see as runway? And I don’t think we see this slowing down anytime soon.
Dave Doherty: That’s right. Yeah, thank you. Rev cycle is something that’s probably a multi-year journey for us as we continue to get better in that front. And it happens both from bringing in kind of the right teams and continuing to standardize across the portfolio, as well as recent integrations as we bring the benefit of our rev cycle approach across the organization. So, I think that there’s still a long runway that kind of sits in there that will be a contributing factor for both cash conversion, as well as enhanced revenue uptake. And your question on G&A, Sarah, it’s really just the flex of the business as we kind of go through the ups and downs of the quarter. Again, on that particular line, I would encourage folks to look at that on a longer term basis.
So, six months to 12 months view will help to smooth out the impact kind of some of the flexing that sits underneath that G&A line item. As you can imagine, probably the biggest piece inside there is on your incentive comp viewpoints.
Sarah James: Got it. Thank you.
Operator: Thank you. Our next question comes from the line of Gary Taylor with TD Cowen. Please proceed with your question.
Gary Taylor: Hi, good morning. Most of my questions has been answered. I did have a couple of questions just on the expense side. But maybe just following up on that G&A point, I guess given how strong the fourth quarter usually is, particularly with commercial, I guess it wasn’t my sense that it would be a quarter you’d be looking or needing to flex G&A lower. So, I just wanted to understand that comment just a little bit better. And then, the other question was on other operating expense, went the other way that seasonally doesn’t tend to increase as much. It was up a fair amount. So, maybe there’s a little bit of offset in terms of the impact between those two line items, but a little more color would be helpful.
Wayne DeVeydt: Yes, Gary, I’m going to let Dave dive in. A couple of things though to keep in mind that as we divested certain fully consolidated facilities early in the year, obviously, you’ll start seeing the full impact comparing Q4 this year versus last year in the fourth quarter. It’s also important to recognize that our non-consolidated entities of which we started making those investments throughout the year, those are obviously going to show up in a single line item, but you’re not going to necessarily see the consolidated growth associated with those on the G&A front. But Dave, do you want to elaborate a little bit further as well on any other anomalies or anything to point out?
Dave Doherty: Yeah, happy to. So, you’re right on kind of how you flex up and down the business based on kind of the overall strength. Inside the corporate G&A side, you will look at how this organization kind of thinks about incentivizing our teams and driving kind of strong performance. We have very, very high internal expectations. And so, as a result of that, you’ll see some movement inside that in any given quarter again. You got to look at that particular line item on a multi-quarter basis. The other operating expense question you have is a great one, relates to provider taxes for the most part. So, taxes on some of the programs that exist at a state level and some of the states that we experienced in the latter part of the year.
Gary Taylor: Thanks.
Operator: Thank you. Ladies and gentlemen, our final question comes from the line of Ben Hendrix with RBC Capital Markets. Please proceed with your question.
