Pediatrix Medical Group, Inc. (MD) Q4 2007 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you very much for standing by. Welcome to the Pediatrix Medical Group Investor Conference. At this time, all participation lines are in a listen-only mode. Later there will be an opportunity for questions with instructions given at that time. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the conference over to the Director of Public Relations, Mr. Bob Kneeley. Please go ahead.

Good morning. Thank you Ron, good morning everyone for joining the call this morning. We gave our fourth quarter results out this morning. I do want to read our forward-looking statement. Certain statements and information during this conference call maybe deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Forward-looking statements may include, but are not limited to, statement relating to objectives, plans and strategies, and all statements other than statements of historical facts that address activities, events, or developments that we intend, expect, project, believe, or anticipate, will or may occur in the future, are forward-looking statements. These statements are often categorized by terminologies such as believe, hope, may, anticipate, should, intend, plan, will, expect, estimate, project, position, strategy, and similar expressions, and are based on assumptions and assessments made by Pediatrix management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors they believe to be made as of the date hereof. And Pediatrix undertakes no duty to update or revise any such statements whether as a result of new information, future events, or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in Pediatrix's most recent annual report on Form 10-K, including the section titled risk factors. Additional factors include, but are not limited to uncertainties related to the possible discovery of additional facts beyond those reviewed by the audit committee, in connection with its stock option review, litigation related to the matters investigated by the Pediatrix's audit committee or the restatements to Pediatrix's financial statements and other historical disclosures, and any regulatory actions of the SEC or the U.S. attorney related to such matters. With that, I am pleased to turn the call over to our Chief Executive Officer, Roger Medel.

Thank you, Bob. Thanks and good morning. Thanks for joining our call this morning to discuss the very strong results for the 2007 fourth quarter and for the full year that we issued in today's press release. Highlights for the 2007 fourth quarter include a 20% increase in our revenue and a 22% improvement in non-GAAP operating income year-over-year indicating that we continue to successfully grow our business while at the same time manage it more efficiently. These results also include earnings per share, but exceeded our most recent guidance even after adjusting our tax rate higher to make it comparable with the prior year. I am very pleased with how we are managing our business and with our prospects; we continue to expand our national group. Of course the greatest area of investor interest today is our anesthesia opportunity, since we have only one practice in this specialty, the interest really is about the opportunity within this specialties. At this time, we now have five months of experience in anesthesia physician services, and we are right about where we expected to be. We felt confident that Fairfax anesthesia was a good; practice [ph] were up for us and those feelings have been reinforced as we have been working with the group on integration and establishing a foundation for this specialty that will support future growth. Let me set your expectations proper. When I said we are right where we want to be, we are still assessing, still monitoring the operations at Fairfax. We said we make very few changes during the first few months and that's exactly what we have done. We have decided to extend the relationship with Fairfax outside the billing company for a little while longer as we evaluate our options for an integrated anesthesia information systems that we expect will drive clinical operational and financial report if persist and other anesthesia practices. We remain committed to bring in the billing and collection functions in house; it is one of our core administrative competencies. But we would rather be patient and identify the right system rather than try to unwind something later on down the road. The information technology profit is running parallel to our business development efforts and in fact it will not slow down our timetable for adding another anesthesia practice. We are moving forward with due diligence on several anesthesia practices in our pipeline and hope to compete the transaction within this specialty over the later part of the 2008 second quarter. Of course this is an estimate and there are a lot of deal specific factors that can impact as you know the timing of acquisitions. Obviously the size of the opportunity within the anesthesia is one of the reasons we were attracted to this specialty in the first place. And it is that very size of the opportunity that causes us to be very deliberate, very methodical during this period. At the same time, we continue to grow our base neonatal maternal-fetal medicines and pediatric cardiology business and in fact completed three group practice acquisitions during the 2007 fourth quarter in addition to two practices acquired on the last date of the third quarter. For all of 2007, we have spent more than $119 million on acquisition adding 10 physician groups to our organization including neonatal pediatric cardiology, maternal-fetal medicine and anesthesiology. We have good visibility to our short and medium term growth prospects with the business development pipeline that remains full. Shipping gears I want to point out a number that I take great pride in. during 2007, our physicians earned total bonuses of approximately $109 million and most of that will paid out during the next several months. This compares with physician bonuses earned during 2006 of about $95 million. This bonus programs helped to keep the interest of our physicians and Pediatrix in alignment rewarding doctors for their efforts to grow their practice and generating incremental growth in our practices. Overall this was a very solid quarter. One in which we've continued to generate operating margin expansion through general and administrative efficiencies even as we are growing in a brand new specialty. I am going to ask Karl to take over the call at this point and provide you with the detailed look on our financial performance for the 2007 fourth quarter and for the full year. Karl?

Thanks Roger. Good morning everyone. As Roger discussed and as we reported in our press release this morning, we had strong revenue growth for the 2007 fourth quarter driven by a combination of same unit growth of our physician group practices and contributions from acquired practices including our first full quarter reporting results for Fairfax Anesthesia. We continue to see good operating margin growth on a true comparable basis, which is the productive strong similar revenue growth. Including growth from reimbursement related factors and patient volume as well as our ongoing general and administrative expense management. Our results reported this morning include the results of our metabolic screen laboratory as discontinued operations. In December 2007, we announced that we had entered a definitive agreement to sell the lab to Perkin-Elmer requiring us to present the lab's financial results and discontinued operations. I want to be clear that the results for the lab were including our guidance for the 2007 fourth quarter, and are included in the first part of our 2008 guidance. So it's important to look at our net EPS, which includes both continuing and discontinued operation in assessing our business. As I discussed detailed income statement items, I will be presenting information on a non-GAAP basis for purposes of more meaningful comparisons. This information is adjusted according to the items identified on this call and in our press release unless specifically noted. We focus on these adjusted numbers, because it makes it easier to understand our core business is performing relative to prior periods. A detailed GAAP reconciliation table is included in this morning's press release, which is available on our website at www.pediatrix.com. For the fourth quarter of 2007 and 2006, those adjustments include a reduction of our net income...our income tax provision by $800,000 for the 2007 fourth quarter as a result of a reduction in our call for uncertain tax positions. And for the 2006 fourth quarter were excluding $3.1 million related to the stock option review. These adjustments should allow you to make a better comparison of year-over-year operating performance. Revenue grew by 20.4% to $250.4 million for the three months ended December 31st, 07 compared to the prior year. Same unit revenue growth of 12.9% accounted for almost two-thirds of the overall revenue growth and included a combination of strong volume and reimbursement related growth. On the reimbursement side, this is the first full quarter, which we are seeing the benefit from the physician fee schedule increase from Texas Medicaid, which resulted in about 2 percentage points of incremental same unit revenue growth for the period. Improvements in contracted managed care contribute about 2 percentage points to same unit growth for the 07 fourth quarter versus the prior year, we saw some improvements in reimbursement as a result of our annual fee schedule increase. Same unit volume increased by 4.6% for our business in the 2007 fourth quarter compared to the prior year, this consist of higher patient volume at neonatal intensive care units, start by our physicians in the mid range of our guidance at 4% growth for the fourth quarter, compared to the prior year as well as volume growth at our office-based practices and in our hearing screen programs. This is the first full quarter in which we are including the operations of our anesthesia group practice. And as a result, practice salaries and benefits increased at a pace slightly faster than revenue growth for the periods. Practice salary benefits expense grew by 21.2% for 2007 fourth quarter or with the comparable prior year period, were slightly ahead of revenue. And as a percent of revenue, we are about 37 basis points higher for the 2007 fourth quarter versus the same period in 2006. When we exclude the anesthesia services for our results, practice salaries and benefits as a percent of revenue were essentially unchanged. Profit after practice expense was $95.3 million for the fourth quarter, up 19.2% from $80 million for the same period in 2006. Our income from operations were $64.4 million for the most recent quarter, up 22.3% from $52.6 million for the 2006 fourth quarter. Operating margin improved by 40 basis points on a quarter...year-over-year comparison of these quarters. Operating margin expansion is directly related to better leverage of general, administrative expenses, which were down 90 basis points as a percent of revenue to 11.2% for the fourth quarter and 12.1% for the same period in 2006. Continued income statement, our net investment income declined by 30% during the 2007 fourth quarter when compared to same period in 2006 as we used our cash to complete acquisitions and we purchased our shares. As result we had lower average cash and investment balances for the 2007 quarter when compared to the prior period. In the fourth quarter, our income tax provision was reduced as we reversed some accrued liability in our provision for uncertain tax position. The statue limitations on certain filed tax returns expired during the period. And as a result, the accrual we had established for those uncertain positions on those filed tax return when we adopted FIN 48 at the beginning of the year was reversed. This close for the income statement has a reduction in our income tax provision. While we realized the reduction this quarter going forward, we still expect that our effective tax rate will be 39.25%. And like many companies, we expect we will continue to see variability in our tax rate going forward because of FIN 48. Our net income for the 2007 fourth quarter was $40.5 million, which is 17% higher than the comparable net income for the 2006 fourth quarter, which was $34.6 million. On a per share basis, net income grew by 17%, $0.82 for the fourth quarter compared to $0.70 for the same period in 2006. For the three months ended December 31st, 2007, our weighted average shares outstanding was 49.3 million, approximately 400,000 shares less than for the 2006 period. This reduction in shares outstanding is related to shares repurchase during 2007. We have a strong balance sheet with the $102.8 million in cash and cash equivalents at the end of the year and virtually no debt. Accounts receivable were 145.5 million and the base in accounts receivable remain consistent with about 53. On our liability side, accounts payable and accrued expenses were $243.1 million and consist largely of accrued bonuses in 401-K matching contributions that will be paid out over the next few weeks as well as in our practice liability and tax related to our reserves. We generated $89.4 million of cash flow from operations during the fourth quarter, which was a quarterly record. Acquisitions payments for the period were $17 million, which included the acquisition of neonatal practices in Nashville, Tennessee; Palm Springs, California; and Seattle, Washington and maternal-fetal medicine practice in San Luis Obispo California. And a pediatric cardiology practice in Albuquerque, New Mexico. During the fourth quarter, we also used $32.6 million of cash to complete the share repurchase program that had been authorized in August of 07. Looking at our results for the full year on a GAAP basis, our net patient service revenue for continued operations increased by 14% and $917.6 million for the year ended December 31st 07, compared with the same period in 2006. Same unit growth was 9.3% and included NICU volume growth, 4.2%. Operating income was $220.9 million during 2007 and net income was $142.7 million. We earned $2.86 per share for the full year of 2007 based on a weighted average 49.9 million shares outstanding. This compares with operating income of $194.4 million, net income of $124.5 million and earnings per share $2.52 for 2006 based on a weighted average 49.4 million shares outstanding. For all the 2007, we had cash flow from operations of $188.5 million. We invested a $119.1 million in physician group practice acquisitions, buying 10 group practices throughout the year including Fairfax Anesthesiology. We also completed $100 million share repurchase during the second half of last year. As you know, we announced another $100 million share repurchase authorization in late December. But we determined that we would not begin repurchasing our shares prior to announcing our results for the 2007 fourth quarter. In this morning's press release, we also provided detailed quarterly guidance estimates for 2008. As a reminder, we expect first quarter EPS to be in the range of $0.67 to $0.69; second quarter of $0.85 to $0.87; third quarter of $0.92 to $0.95; in the fourth quarter, we expect to earn $0.91 to $0.94 per share. For the full year, we expect earnings per share of $3.35 to $3.45. Our guidance assumptions include estimated investments of $70 million to $75 million in acquisition within our historical neonatal, maternal-fetal, and pediatric cardiology subspecialties, which is basically on track with the initial guidance issued in November. If you recall, at that time we anticipated acquisition spending of $80 million to $85 million from the beginning of November through the end of 2008. With acquisitions completed late last year, we are on track to meet our business development goals. This guidance also includes contribution for our metabolic screening lab during the first part of this year, as well as the impact for putting the net proceed from that transaction to work following the closing. Our 2008 guidance does not include contributions from additional acquisitions within the anesthesia specialty. Since it's difficult at this time to predict the timing of our next acquisition with operating metrics of a particular anesthesia practice. We are also assuming net contributions of about 2% to 4% same unit revenue growth from reimbursement related factors and another 3% to 5% same unit NICU volume growth. A quarterly progression for our 2008 guidance reflects the usual seasonality of our revenue and expenses. As you may know, our neonatal billing is based on patient days and there are few of calendar days in the first and second quarters than the third and fourth quarters. In addition, for many of our employees, including physicians, source of security taxes and 401-K matching contributions, we set at the begin of the year, leading to higher expenses in the first half and particularly the first quarter of the year when compared to the second half of this year. With that, I would like to turn the call back over to Roger.

Thank you, Karl. Operator at this time, let's open up the call for questions please. Question And Answer

[Operator Instructions]. We'll first go to the line of Bill Bonello with Wachovia. Please go ahead; your line is open.

Hey good morning. Just a couple of questions that maybe little bit more long-term oriented in terms of the business environment. But we have seen managed care rate compression over the past year in some sectors that have historically been pretty immune to pricing pressure and like the labs and dialysis. And I am curious how you would assess the pricing environment and risk on the commercial side for Pediatrix going forward. Have you seen commercial payers taking a tougher stand than they have been in the past?

Good morning, Bill.

Good morning.

As you know, we are renegotiating contracts. And as we said in the past, clearly there are hotspots throughout the year one payer or another in one market or another market. But we haven't really seen anything different in the total picture that we are seeing in the managed care contract and then what we've seen over the years. So clearly there is always some level of pricing pressure, but nothing anymore than what we have seen in the past. So right now our expectations are to continue with what we have seen historically.

Okay. And then just the second piece of the pricing picture from a Medicaid standpoint; are there any state initiatives the Florida cut proposals or California cut proposals or whatever that you are particularly concerned about at this point in time?

At this point and looking at the landscape, I think one: we have seen some increases over the last two year in different states. I don't think we expect to see any of that going forward based upon the state budgets that are out there at this point. So from that standpoint, we are not going to expect to see any increases beyond what we expect to get this year and flow through of the Texas increase from last year. As for changes, I think the one that we are watching the closest at this point is California has a significant proposal out there to reduce Medicaid by 10%. We are watching that pretty closely. But that's the one I'd say we have any concern, that we would have a little bit concern if that might go through.

Okay. Is there a proposal in Florida too like a 3% kind or something or is that...am I off on that?

We haven't seen anything related to our business in that. The only thing that we've seen is there has been some pilot projects I've done with some managed Medicaid, but they are not looking to expand at this point to tweak it a little bit. So I don't think that we expect much beyond seeing that, which we don't think will affect us anyway.

I think the Governor here in Florida within the last couple of days has proposed some Medicaid cut, but those were related to hospital facility.

Okay, that's very helpful. That was actually my only two questions. Thanks a lot.

Thanks, Bill.

Thank you. And next we'll go to the line of Kevin Ellich with RBC Capital Markets. Please go ahead.

Good morning. Thanks for taking the question. Thinking about your guidance, Karl, you stated that it does not include the metabolic lab business?

It does include the metabolic lab business for the first couple of months of the year, and it is still just putting in the net proceeds of the sale to work go forward.

Okay.

Go ahead.

I was just kind of figuring out if there is any way to kind of think about the lab contribution to guidance, and you guys keeping guidance the same. If you are actually kind of raising guidance a little bit.

Well, we have included. And as we said, when we did the...we announced the sale of the lab that we didn't expect it would have an impact on our overall guidance, because what we are giving up from an earnings standpoint, we are making a significant portion of that back on the use of our cash on that. As we have talked doing a share repurchase and using some of those proceeds for that. We were looking to make that back from a guidance standpoint. So that's why we didn't adjust our guidance at that point.

Okay.

We are pushing the guidance up.

Okay. And then on the same store growth of 12.9%, very strong, your stated 2% came from the Texas Medicaid improvements, 2% from contracted commercial growth, 4.6 came from volume, so that least 4.1%, is that coming from just contract escalators?

Yes. I mean, it would be contract escalators. There will be a lot of different components of that, but it's just part of a normal growth. Then we have going forward and in our guidance for the year, we said 2% to 4%, that includes Texas, which will be 2% until it lasts, and there will be no impact and that in the latter part of the year, in our growth guidance there. So, we are looking forward to receiving that increase, and we continue to do manage care. But we do have the escalators like we talked about in the past; we are doing multi year escalators in our contracts.

Right, okay. And then I am going to ask about...I have it you say, [ph] can we get any color as to what type of contribution you received this quarter from Fairfax?

When we completed the Fairfax acquisition, we said we expected it was about $0.02 for the whole year, net when you consider the cost, the interest lost on the cash which we used, I think we are right on track with what our expectations.

Any possibility for any improvements in the billing collections, any upside from that you think?

I think, we are pretty confident, as we moved down this road of eventually bringing in the billing collections there and get our systems in place. We do think that there is opportunity to improve the billing collection, but we are moving slowly to be sure we make the right decision and very deliberate in the decisions that we make moving forward. So, we are really building into our guidance, improvements from managed care contracting or ability in collecting through that practices. We want to be able to prove that we can do it before we start running to our numbers.

Okay. And then last question; can we just get CapEx for the quarter's maintenance?

Yes, it's going to take me a second. It could be a year, it was a little under $9 million and for the quarter it was some $3.6 million.

Okay, that's a little bit higher than last quarter. Is that primarily due to Fairfax?

No, really it fluctuate it. The predominant use of our CapEx is for IT infrastructure or there will be here in the practices as well as for ultrasound equipment at our office-based practices.

Okay.

And then some payment of receiving that replacement.

Okay, excellent thank you.

Thank you. And next we will move to the line of Sandeep Singh with Deutsche Bank. Please go ahead your line is open.

Hi, thanks for taking the call. I just wanted to focus again on the practice salaries line item. Obviously it was up on a percentage of revenue basis and just wanted to get a sense for as you integrate Fairfax how that will influence that line and just the interplay between that line and leverage that you are gaining on the G&A line item as a percentage of revenue?

Yes, as we have said...as we have gone through the last couple of years talking about anesthesia, one of the things from our expectations are that since we are not going to get the improvements that we have seen in the neonatal business as quickly, because we have a lot to learn and have to move deliberately in it. But their margin starting out will be lower and will impact our margin after practice expenses. So we are seeing that; the size of a transaction like that had a pretty quick impact on that number. So if we exclude the anesthesia acquisition, it was right in line with what we would have expected. We don't expect to get leverage on the income after practice, so as in expenses. So we are pretty comfortable where we are at. On a go-forward basis, we are hopeful if we get the revenue growth that will see the leverage in that on and a strategic practice going forward. As far as G&A, it's just continuing the story. I was trying to make sure we don't growth G&A rate quicker than revenue that we grow it at a much slower rate and be very deliberate on the ads we make there. We have been making infrastructure investments in anesthesia, but we are doing that overtime. It's not like we closed one deal and we would add 20 people. But I would say in the fourth quarter, late third quarter we did add several people because of that infrastructure, but still we are able to grow our G&A at a slower rate than revenue.

And with respect to the billing vendor that you are using with Fairfax, can we assume that that's an expense that's being embedded into G&A or is that more of a top line accounting? I am just trying to get a sense for how the accounting works there.

That would be accounted for G&A.

Okay, great. Thanks very much.

And next we'll go to the line of John Ransom with Raymond James. Please go ahead. John Ransom - Raymond James & Associates, Inc.: Hi, good morning. As you look at the anesthesia opportunity longer-term, I mean I think we can maybe, I'll agree you paid a pretty sporty multiple for Fairfax, but where do you expect multiples to settle in over the longer cycle, and I guess the indelicate question I have is there is a multiple you pay for Fairfax, is that complicating any discussions that you are having down the road, because double digit multiples of EBITDA, probably in where you want to be longer-term. I was just trying to figure out how to model had going forward.

I actually agree with you, we don't want to be a double digit multiples of EBITDA, so...on the transactions that we do. We have really seen it impact and I think it's hard for us to say exactly where we want it to be. I don't think that we are of the expectation it will be where we add on neo business, the hard part for us is that's a average of about a four times multiple on our core business and based upon what we bring to the table and what we know we are going to get from our managed care contracting billing collection improvements. So it's really hard for us to say exactly where that's going to be. So from a multiple stand point, I think the first few deals will be more expensive fairly I think we paid a higher price for the first deal than we would expect to pay down the road for us to get in to that. Although there are some nice dynamics for that practice in our ability to grow outside the hospital and the growth opportunities there, made us willing to do that. So I wouldn't expect to stay at that level. It's really hard for us to say exactly where they are going up down the road. John Ransom - Raymond James & Associates, Inc.: Great. My second question would be, is there...should we think about any meaningful upside to the pipeline in the pediatric cardiology side? Now that you cleared up the ECHO reimbursement issue. Is that something they could be a nice little surprise this year in terms of the volume and transactions?

Clearly that's an area we are focusing on and we are getting that pipeline back up and running, we had been keeping contact, but hadn't been moving down any due diligence or going very follows any acquisition once we found out about the potential to lose that. So, now we are moving that pipeline back up and talking to a lot of groups. So, that's clearly an area that had been good growth from us from an acquisition standpoint for last several years, and we are hopeful we will see that pickup at a pretty good rate this year. John Ransom - Raymond James & Associates, Inc.: Right, thanks. And then just one or two other things; the...I don't know I guess we guys always liked your sports analogies, but where are you in terms of your comfort level. I mean you obviously do a terrific one; you are one on the payer side with your core neonate in terms of reducing the denials and improving the kind of net collection rate; how much work have you been able to do to see how translatable that skill is going to be in the physiology. And how are the discussions with the payers going on that front.

As we said in our last call, the second part of that question first. We are all taking to a payer; we are going back and forth of negotiations. I would say it's going slower than we would have anticipated when looking at our neo history, but that's because we need to learn and not make mistakes as we go through this discussion, so we probably have more people involved in the decision on the back and forth that we typically would have in a core business transaction negotiation. But we are moving forward with that, so we are hopeful that will yield or prove that we are expecting from that as we go forward. As far as the ability in collecting, I think we are learning something. I think when you talk to our patient accounts people. They clearly think there are some opportunities to improve this in some areas. They have been learning a lot of the detail pieces of anesthesia. And as Roger mentioned, we all are looking at the system as we want to be sure we make the right selection going forward. We are getting pretty close on narrowing that down and start negotiations on a system, but so little different and where we were when we report to the acquisition. But I think we are making the right decisions there, and I think we do see opportunities to improve that reduce that higher rates and improve the collection rates. John Ransom - Raymond James & Associates, Inc.: Okay, thanks a lot.

And next we will go to the line of Dawn Brock with JP Morgan. Please go ahead.

Good morning. Very quickly, I think I am going to try one more time. I mean I know you guys are reluctant to provide specific financial details for competitive reasons on FAA, but would you be willing to provide your expectations for organic offers a base that we don't know, but still an organic growth outlook either for in total or I think more importantly than pricing since I think most of us came back into the impact there based on the doc fix for volume.

At this point, I know you're trying. But I don't think there is a whole lot we are going to say on that front at this point. As I said before as far as your expectations for Fairfax, we are not building in any dramatic growth. We do have some growth expectations for their Horizon business, which is their office-based or physician office-based and surgery center-based anesthesia services. We do have some growth there. They are going up as you would expect. But we haven't built any dramatic growth there. We are still learning this business. So your expectations for this year are...it's basically achieved the model that we have built for the practice and make sure we get our growth initiatives and our infrastructure in place for this practicing go forward.

Karl, is it fair to say or to ask you whether or not the fourth quarter regardless of how we look outward into 2008 that the fourth quarter and the way that FAA operated and integrated in the fourth quarter was on track exceeded expectations fits into that $0.02 or maybe there are some quarterly volatility that maybe put it below or above, could you give us a little bit of color around that?

Yes, the results for Fairfax for the quarter were right in our expectations at this point time, which we are very happy with. There were no surprises in the numbers and the volumes that we received as we went forward, so we are comfortable on where we are at this point.

Okay, great. Thank you.

Thank you. And next we'll move to the line of Austin Karen [ph] with Jeffries and Company. Please go ahead.

Hi, thanks for taking my question. A few quick questions here; one, does the guidance that you provided for 08, does that include the stock buyback program you announced in December?

The guidance that we have given includes just putting the money to work from the slabs, we said when we issued the share buyback in the fourth quarter, it would be pretty deliberate. So, it's whether we put that money to work in a share buyback or put that money to work just from an investment standpoint, although where returns are going right now and huge opportunities are there. So, one way or the other, that money is going to get put to work, so I guess you can look at that part of the point of the share buyback?

Okay, great. And as we think about anesthesiology, and I know you provided us that, the $0.02 EPS number; have you guys start about the Medicare reimbursement increase that we saw began January 1st, I mean is that factored into the number or how should we think about that 23% [ph] bump in Medicare reimbursement rate?

Yes, we have factored that into our guidance, I just want to caution you at Fairfax, their Medicare business is not huge component of their business in that market at that hospital. It does have a nice benefit to us. So, that's...but it's not a huge number for that practice as you might expect in some practice or so.

Okay. And then last question with medical, obviously they are talking about the 10% reduction; have you guys thought about what kind of impact that would...what that impact would have on your business, I mean if you, we try to quantify or what...how should we sort of go about thinking about that cut?

Yes, it would have an impact, but it wouldn't be significant as in we would change guidance on. At this point, we looked at that, if we got the...if that whole 10% cut came through, it wouldn't change during and we are looking at this point.

Okay. And then if the cut were to get it through, would it change your strategy at all or would it change anything that you are currently doing in this state?

Clearly with this cut spending, it will curtail us as far as what we are looking at from an acquisition standpoint and making sure that we are building in that cut. And our willingness and what will pay in that market for an acquisition. It really doesn't change where we are at and the services we are providing that market, we will continue to provide it. I don't think it will change it, but we won't take patients, we take all the patients to come to the unit. I think that's one of the big issues that they have currently with the state and has been brought, before the state when they try to give cut in the past with access to there. And they may see a reduction and people wiling to provide services mostly on the outpatient side from our standpoint we will all the patients, but I think that's something that will be played out legislatively to see whether they can stop that going through. So it really doesn't change our strategy. As I said, it's not from a company standpoint or something that's going to have change our guidance, it's not that significant.

Okay, great. Thanks a lot guys. I appreciate it.

Thank you. [Operator Instructions]. And we'll go to the line of Rob Mains with Morgan Keegan. Please go ahead. Rob Mains - Morgan Keegan & Co.: Yes, good morning. Can I get back to the pricing guidance, Karl? You said you got 2% from Texas and that's going to anniversary. The managed care increases I assume don't...and then you got the rest of you've got escalators. It would seem that there that your guidance that you are providing is a little concerned of given where you were in the fourth quarter. Is there anything else going on relative to mix or anything like that that we should be aware of?

No, actually our payer mix for the quarter and for all of last year was essentially flat, so there is no big change that we are seeing in our payer mix, that's impacting that. As I said, a lot of part of the year, Texas is going to last. So we won't get any real impact from that Texas increase. We are continuing to see managed care increase. But as we talked about, the government is a big part of our business. So that will hold back the pricing to some extent throughout the whole year. I would expect in the first part of the year, because of Texas first coming through that will be potentially put us at the high side of that range, but in the latter part of the year, we will be at a lower point, because of the tax we are lacking out of Texas improvement. Rob Mains - Morgan Keegan & Co.: Okay. And then given what you are saying about Fairfax, obviously there is an impact Fairfax on the margins in this quarter. It sounds like you are not suggesting that we should assume significant operating improvements that would drive up margins for the first half of the year subject to usual seasonal variation.

Right, I wouldn't expect anything from Fairfax to change the dynamic we saw in the fourth quarter. I would expect it will continue to manage our G&A cost, so we would expect to see some improvement at a slower growth in G&A than in revenue. But not...at the growth margin, that's not something that we are looking to see leverage from and without any significant changes in the Fairfax, I would expect that they will have a slightly negative impact on the margin at a gross standpoint. Rob Mains - Morgan Keegan & Co.: Okay. And then this metabolic screening sale, do you have a sense as to where that stands in terms of when it gets done?

Right, we are working through some closing conditions on that, and it's our expectation at this point that some time during the first quarter that will be completed. Rob Mains - Morgan Keegan & Co.: Okay. Now if we wanted to develop earnings similar to what you presented in this quarter that exclude the scopes, we would effectively exclude the contribution of Fairfax...of the metabolic screening up until the point where the sale is completed, but any of the benefit of the cash?

That's correct Rob Mains - Morgan Keegan & Co.: Okay, thanks a lot.

Thank you.

[Operator Instructions]. And we'll go to the line of Bill Bonello for follow-up call. He's from Wachovia. Please go ahead.

Hey just a strategic question; are you still very much committed to only moving forward through sort of individual practice acquisitions or are you at a point, where you would also consider a larger acquisition of some other consolidator if you could sort of get the right pricing?

Hi, it's Roger. I assume you are talking about anesthesiology, because there really aren't any consolidators anywhere else with neonatology or cardiology or any size. We are not at a point yet, where we would consider a consolidator in anesthesia. We think that we have a have a lot to learn and a lot of great opportunities out there as I said. Earlier we are talking to a number of anesthesiology groups that are very excited and one interesting thing happened at our anesthesiology conference in a couple of weeks ago, where we had some groups actually come to us asking for meetings et cetera. So, it's not something that we are used to seeing happening in the core business side, so that was a very exciting event for us to see develop.

Okay and then just a completely switching gears back to Karl's comment on medical, we're sort of historically thought about California is being maybe 20% or so of your business, maybe medical being 30% or so of that California business. So, are those roughly on track?

I wouldn't have put California as 20% of our business. I think if you look at our top 5 states, which include sectors; it was about 26% from Texas. I think it's about 58% in total for the next four states would have been about...what's that? 32%. So California would not be 20% of our business.

Sure, Yes, actually I misspoke on that, but...okay. So, I mean can you give us...put it simpler, can you give us a sense of what your total medical exposure there is?

Yes, we have a broken up that specifically. It's not a huge number. It's smaller than you would expect primarily because of the reimbursement rates in California are extremely low. So even though we do a fair amount of business on a medical standpoint, the reimbursement is very low in that...

Okay. Which is the problem Bill that they have with the active supervision, which is that if they continue to cut position and we take all patients, but people who are often say as you know have the option to opt out of Medicaid and if they, it's a big problem already today having physicians to go through when you are sick if you are under Medicaid and if you continue to cut the reimbursement then that's only going to get worse.

Okay, great. Thank you.

And at this time, there are no further questions in queue. Please continue.

All right, if there no further questions, then let's just wind down the call, operator. Thank you.

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