Pediatrix Medical Group, Inc. (MD) Q3 2014 Earnings Report, Transcript and Summary

Charles W. Lynch - Vice President of Strategy & Investor Relations Roger J. Medel - Co-Founder, Chief Executive Officer, Director and Chairman of Executive Committee Vivian Lopez-Blanco - Chief Financial Officer, Principal Accounting Officer, Vice President and Treasurer Karl B. Wagner - President of American Anesthesiology

Kevin M. Fischbeck - BofA Merrill Lynch, Research Division Ryan Daniels - William Blair & Company L.L.C., Research Division Brian Tanquilut - Jefferies LLC, Research Division Kevin K. Ellich - Piper Jaffray Companies, Research Division Darren Perkin Lehrich - Deutsche Bank AG, Research Division Ralph Giacobbe - Crédit Suisse AG, Research Division Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division Brooks G. O'Neil - Dougherty & Company LLC, Research Division Gary P. Taylor - Citigroup Inc, Research Division Brian Zimmerman - Goldman Sachs Group Inc., Research Division Christian Rigg - Susquehanna Financial Group, LLLP, Research Division Gary Lieberman - Wells Fargo Securities, LLC, Research Division Chad Vanacore - Stifel, Nicolaus & Company, Incorporated, Research Division Dana Hambly - Stephens Inc., Research Division

Ladies and gentlemen, thank you for standing by. Welcome to the MEDNAX 2014 Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to turn the conference over to our host, Mr. Charles Lynch. Please go ahead.

Thank you. Good morning, everyone. I'm going to read our forward-looking statements, comment, and then I'll turn the call over to Roger and Vivian. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by MEDNAX's management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors that they believe to be appropriate. Any forward-looking statements made during this call are made as of today, and MEDNAX undertakes no duty to update or revise any such statements whether as a result of new information, future events or otherwise. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in the company's most recent annual report on Form 10-K and its quarterly reports on Form 10-Q, including the section entitled Risk Factors. Now I'd like to turn the call over to our Chief Executive Officer, Dr. Roger Medel.

Thank you, good morning, and thanks for joining our call today to discuss our 2014 third quarter results. I hope you were all able to see our press release this morning because we have a lot to talk about today, including our quarterly results and the announcements we made related to an expanded share repurchase authorization and the new expanded credit facility. I'll start with our results for the quarter which demonstrated strong same-store growth, continued contributions from our acquisition pipeline and also contributions from our broader long-term strategy. Our revenue for the quarter grew by just under 13% with a balanced mix of contributions from acquisitions and same-unit growth. Our acquired practices and businesses contributed 8% to that growth, and same-unit growth accelerated to 5%. Same-unit NICU days were up year-over-year for the fourth quarter in a row, and growth in NICU days and anesthesia volumes both accelerated from the first half of this year. Our acquisition pipeline remains very active, and during the quarter, we completed 2 attractive transactions. One with Associated Anesthesiologists of Joliet, which was our sixth anesthesia practice and seventh overall practice acquisition this year; and the other was MedData, which we completed in September. I want to go into a little detail about MedData since this was a non-practice acquisition. For some time, we've been thinking through the idea of creating a platform to provide practice management services to non-MEDNAX physicians as a way to create additional revenue growth and provide to independent physician groups the kind of value we provide to our own doctors. As we look into this, we came to the decision that in order to do it well, we should acquire a platform that had very strong sales, our marketing expertise, and that could be our first step in this direction of building a management services organization within MEDNAX. And this is where MedData comes in. MedData is a leading revenue cycle management company that works with more than 3,000 physicians at 700 facilities in specialties like hospitalists, radiologists and emergency rooms. We have been a customer of MedData for a number of years and used them for the patient stay component of our billing, for hearing screens and our office-based practices, and we were very impressed with the improvement they were able to make for us. We were also impressed with the way this management team had built the company, not just in terms of how fast they've grown it, but also the way they've done it, with a hands-on approach to patient pay and also an offshore component that makes their commercial billing and collections very scalable. So we decided that they would be a great fit and a way to start moving forward on this strategy, and we're very happy to have them as part of the MEDNAX team. MedData has been growing rapidly, and we want that growth to continue. So we're delighted that the company's full management team has joined MEDNAX and will continue to operate MedData as an independent entity within our company. But we also think there are additional opportunities that come out of this. There are ways that MedData can complement our own internal operations beyond how we've used them in the past. For example, and on top of that, we think the addition of MedData gives us more scalability in revenue cycle management, which is a great benefit given how much we continue to grow through practice acquisitions. Overall, the thinking behind this acquisition is very similar to how we look at Surgical Directions, which we acquired earlier this year. Both of these businesses, MedData for revenue cycle management and Surgical Directions for perioperative consulting services, were very opportunistic acquisitions that our operating teams brought to the company in both cases because we saw, firsthand, the value they were bringing to their customers. We think they are real value-add propositions for our physician and hospital partners, and we think they can grow very quickly on their own as well as help us to improve our own businesses. In terms of more recent practice acquisitions since the end of the third quarter, we've announced 2 additional transactions. Earlier this month, we completed the acquisition of Houston Perinatal Associates, a very productive group of maternal-fetal medicine physicians who provide services at Woman's Hospital of Texas in Houston. Woman's Hospital of Texas is an extremely active facility which is home to about 10,000 deliveries per year. We already provide a number of services at the hospital through Pediatrix including [indiscernible] Level 2 and Level 3 NICUs and providing pediatric cardiology services. So the addition of Houston Perinatal will help us to build more of a continuum of prenatal, newborn and pediatric care in the Houston market, alongside our hospital partner there. We also completed the acquisition of NEXus Medical Group and its subsidiary, which employs 64 anesthesia providers and serve medical center Navicent Health in Macon, Georgia. We have been providing neonatology services in Navicent for almost 10 years, and now, we will be providing anesthesia services there as well. In fact, in both of these recent acquisitions, we were already providing services through at least one of our specialties, and now, we have multiple touch points with our hospital partners. In both cases, we had already established a good relationship with the hospital through the quality of our services, and that definitely helped the conversation with the hospitals as we worked with them after signing LOIs with the practices. So overall, for the year-to-date, we've completed 9 practice acquisitions and 2 non-practice acquisitions, and I anticipate that we will have additional successes in our pipeline before the end of this year. I also want to talk about the share repurchase authorization we announced today. We think now is a great time to be buying our stock. So we've decided, in talking with our Board of Directors, to add to our existing share repurchase program with an additional buyback authorization of up to $600 million. Since we are also very busy on the acquisition side, we wanted to make sure we have as much financial flexibility as we may need, so I am happy that we were also able to almost double our credit facility to $1.5 billion. I think this expanded share repurchase makes a lot of sense. As I've said, we think it's a great time to buying our stock. We're also well aware of the EPS headwinds we may face in 2015 if the Medicaid parity program is not extended beyond this year, and we decided with our Board of Directors that it would be a good use of our capital to fill that gap with a meaningful share repurchase. And we trust that with this expanded authorization, we have the tools available to us to maintain what we believe is sustainable, double-digit, long-term EPS growth despite the parity headwinds. Just to be clear on the issue of parity, in no way does this mean that we've stopped our efforts at both the federal and state level to work with the legislators to extend the program. We continue to believe that a reduction of Medicaid payments to primary care physicians back to the old levels will have a negative impact on access to care for all those new enrollees under the program. And we think that a lot of lawmakers we've talked to share that concern. And in fact, we've had some additional successes since the summer. The State of Colorado has now extended its retention of parity payments from an original 6 months to an additional 1.5 years. And the State of Florida, which didn't extend parity, but increased its base Medicaid rates for physicians by 10%, has also extended that increase for an additional 1.5 years. So we will continue to work with a number of associations and lobbyists to try and keep this an important issue for 2015. But in the meantime, we wanted to make sure that we also use all of the tools that we have available to us to maintain our growth regardless of how parity unfolds. Beyond that, this credit facility and share buyback program shows how we're thinking about uses of our capital. I think we've demonstrated through this year that we can identify and complete acquisitions in multiple areas within Pediatrix, within American Anesthesiology and within the non-practice areas. This diversified acquisition strategy has been very productive for us, and based on the acquisitions we've completed so far this year and our pipeline, I am confident that we will end up having a very successful year here in 2014 and that we can continue that success into next year. And we can also consider additional uses of our capital towards shareholder friendly actions. I think this is a great demonstration of our cash flow and balance sheet strength and our consequent ability to put capital to use in multiple areas at the same time and generate attractive, sustainable EPS growth. So moving forward, we'll continue to look at a broad diversified approach to capital use, which will add to what I think is already an attractive growth profile for MEDNAX. And with that, I want to turn the call over at this point to our Chief Financial Officer, Vivian Lopez-Blanco.

Thanks, Roger. Good morning, and thanks for joining our call. I want to add some brief details to Roger's comments on our third quarter results, and then add some color on our expanded credit facility and share repurchase program. At the top line, our net revenue for the 3 months ending September 30, 2014, increased by 12.9% to $627 million. 7.9% of this growth came from recently-acquired practices with American Anesthesiology Practices contributing 75% and Pediatrix Medical Group acquisitions the remaining 25%. Same-unit revenue grew by 5%, with revenue attributable to net reimbursement-related factors growing by 2.9% and volume increasing by 2.1%. On the reimbursement side, the increase in parity revenue we received compared to last year contributed 1.2% to pricing growth. The remainder of our same-unit growth net reimbursement factors was due to continued improvement in reimbursements received from third-party commercial payers, slightly offset by a small negative shift in our payer mix with the percentage of patients covered by commercial programs decreasing by about 30 basis points compared to last year. On the volume side, as Roger mentioned, we saw good growth in both of our divisions. Our NICU days were up 2.3%, which accelerated from the first half of the year. Anesthesia volumes were up by a similar amount. Our other pediatric services were positive as well and while volumes were down in pediatric cardiology and maternal-fetal medicine, overall volumes contributed more than 2% to growth. In Q3, we recorded roughly $17.2 million in parity revenue or about $0.05 per share after the impact from incentive compensation and income taxes. This compares to about $10.5 million in parity revenue in Q3 of last year or about $0.03 per share. So you can see that we're now starting to lapse prior periods with more significant parity revenue. In terms of same-unit growth, this will have less of an impact going forward, but even excluding the impact from parity in both periods, our same-unit revenue growth was just under 4% in Q3. Our profit after practice expense for the third quarter was $210 million, up 11.5% year-over-year. Profit after practice expense margin decreased slightly by 42 basis points, which reflects the impact from the mix of acquisitions we completed over the past year. Our general and administrative expenses grew by 11% over the prior year, slower than revenue, and G&A as a percent of revenue declined by 17 basis points versus last year to 9.7%. Overall, our operating income grew by 12% to $138 million, and our operating income margin of 22% decreased only slightly by 18 basis points versus the prior year. Finally, our Q3 net income grew by 2% -- 12%, I'm sorry, and diluted earnings per share grew by 13.2% as compared to the prior year period. For the quarter, weighted average shares were 100.1 million, down 1 million shares from the prior year, due primarily to the repurchase activity we undertook early in the year. Looking quickly at our balance sheet. We had cash and cash equivalents of $71.8 million at September 30, and accounts receivable were $345 million, an increase of approximately $60 million as compared to December 31. Days sales outstanding were 51 at the end of Q3, up slightly from the end of Q2. The total amount outstanding on our revolving credit facility was $288 million at September 30, up from $179 million at the end of the second quarter. Lastly, during the third quarter, we generated cash flow from operations of $159 million compared to $158 million last year. In terms of the expanded share repurchase we announced this morning, our board has authorized us to buy back up to $600 million of our common stock in addition to the previously authorized program to compensate for equity plan dilution. We intend to begin exercising this authorization in the near term, and we're contemplating using both open market purchases and an accelerated share repurchase program. Of course, the timing and magnitude of our purchases will depend on several factors, including our very active acquisition pipeline. But to ensure that we have the financial flexibly to continue executing on that pipeline and simultaneously repurchasing our stock, we've replaced our previous $800 million credit facility with a $1.5 billion facility composed of a $1.3 billion revolver and $200 million term loan. We think this size is much more appropriate given how we're looking at capital use over the near or intermediate term, particularly with the opportunities available to us for acquisitions, buybacks and also in comparison to our run rate EBITDA of well over $500 million. And finally, we think that the combination of our organic growth, acquisitions, expansion of our credit facility and share repurchase authorization gives us a tool to sustain long-term double-digit EPS growth despite the potential near-term headwind we may face if parity is not extended. Moving on to our 2014 fourth quarter outlook. As we announced in this morning's press release, we expect that our earnings per share for the 3 months ending December 31, 2014, will be in a range of $0.83 to $0.87. The range for our fourth quarter outlook assumes anticipated same-unit revenue growth of 2% to 4% year-over-year. Our forecast estimates that this growth will be split evenly between volume and price. Included in our fourth quarter is approximately $0.06 for Medicaid parity, net of the impacts of incentive compensation and income taxes, compared to $0.05 in last year's fourth quarter. Now I'll turn the call back over to Roger.

Thank you, Vivian. I'm very pleased with the progress we've made this quarter. We saw improving same-store growth, particularly related to our patient volumes. We continue to be successful in our practice acquisition pipeline. We've been able to identify additional acquisition opportunities that add growth, and we're using our financial strength in a shareholder-friendly way. So with that, operator, let's go ahead and open the call for questions, please.

[Operator Instructions] And it comes from Kevin Fischbeck with Bank of America Merrill Lynch.

I definitely appreciate the share buyback. I think one of our views is that your balance sheet has been under-levered for some time. But just wanted to get a sense of how you guys are thinking about it. Is this now a view -- I think it's historically never really went above 1x leverage. Where do you think an appropriate leverage ratio is for you guys? And then I just wanted to understand how much of the move is related to that kind of review about the right leverage and how much is it a view towards filling the EPS hole for next year because I guess, one way of asking it might be, if parity had been expanded last week legislatively, would you still be doing this $600 million authorization?

Yes, I don't know that I want to get into that speculation. It's not been extended, and so we got together with our board and decided that it would be a good time to utilize the strength of our balance sheet. And so we're doing this and we're taking care of the parity issue, while still at the same time, renegotiating our line of credit so that we do have enough flexibility to do whatever we think we need to do. There are some deals that we're looking at. I'd much rather put our money to work by acquiring other practices and generating not only the income from the practice but also the cash flow. So we're going to continue to use our balance sheet in any way that makes sense to us. I don't know what the right amount of debt is. It may be 2, it may be 3, it just depends upon what the opportunities are, and we'll deal with those as they come along.

Kevin, this is Vivian. So just to expand a little bit on what Roger is saying. I mean, obviously it's also -- it was a great time to raise capital, and it just shows that we're able to do it. I think that given the flexibility that we wanted to have in our capital structure, it really made sense. Our credit facility is allowing us to be levered up 3.5x. And again, we feel that we needed to start putting some of this capital to use. So I think that it was just a great time for us to be able to give us this flexibility, raise this additional capital and be able to take advantage of capital markets at this time. So given what we're seeing with the acquisition markets and things that I don't want to have to be raising capital of time where it'll be harder to do, I think it's really great that we were able to do it now.

The second question would be on -- I think it's really interesting how you frame the non-practice acquisition to -- if my data is -- specifically maybe in the first step towards a division practice company or division within the company. And I think that those 2 acquisitions are probably the least well understood part of the story recently. So can you just expand a little bit more about what you envision when you think about an efficient practice management company? What kind of margins? What kind of return? How big of an opportunity you see this being over time?

Well, we look at that as an evolving opportunity. What they did for us was they helped us with our hearing screens and a little bit of our office-based practices, particularly on the patient pay side. As you know, when you go to the doctor, you end up with part of the bill is being paid by the insurance company and part by the patients. With the new changes in health care, the patient pay side becomes more and more important. And so they did a great job for us for the last 2 or 3 years on the patient pay side. We decided to take a look at what they were doing and saw an opportunity. The -- most of what they're doing on the revenue cycle management side up to now has had a lot to do with billing and collections, et cetera. We think as we add our abilities to do managed care contracting and coding, it presents an opportunity to add a real revenue cycle management possibility to the market. We see, first of all, they're going to help us, in addition to that, on the anesthesia side, which they have not played a role in at all. We think that as we grow into anesthesia, that they will help us integrate the practices quicker as they're able to assume some of those responsibilities because they do have a number of functions that they do overseas, and so they have scalability, as I've said. And so we think, first of all, it's a great business in and of its own. They've been around for 30 years, they're a $60 million revenue company when we bought them, and I think they'll continue to grow on their own, number one. Number two, we think they'll help us with our own services, both on the neonatology, the office-based practices, hearing screen and now the anesthesia side. And number three, we think that we can offer the services expanded as I talked about to other physicians and hospitals across the country because what we see is a real opportunity here as hospitals acquire more physician practices and bring in more practices into their existing structure, we can offer the hospitals a service that we think will be very helpful to them and will be very attractive. And that, in fact, we think it will be a fast-growing area for us on the MedData side. Surgical Directions is a company that we also had experience with as we were fulfilling our responsibilities in anesthesia in different hospitals. We came across them a couple of times. And what they do is they sort of look at the whole perioperative experience from the pre-op, intra-op and post-op situations and sort of determine where there are efficiencies that they can point out to the hospital, whether it's on the scheduling side or a number of the OR staffing, a number of opportunities that they create for the hospital to improve their efficiency. And we were very impressed as well with the results that they were demonstrating to the hospitals. And we decided that if we brought them on board, we could help our hospital partners improve their efficiency and we -- this could be another tool that we had to offer to our hospital partners. And in fact, that has turned to be the case. Since we brought them on board, a couple or more of our hospitals are now turning towards them to help them manage their whole operating room experience. One point I'll make as to why this is very attractive is it turns out that 2/3 of the hospitals' experience -- or revenue and expenses come from the operating room. And so anything we can help there to generate more revenue and to cut back on their expenses is a significant contribution that we can make to our hospital partners.

And next, we have Mr. Ryan Daniels with William Blair. Ryan Daniels - William Blair & Company L.L.C., Research Division: Roger, maybe another one on Medicaid parity. Based on your year-to-date results in Q4 guidance with about a $0.20 EPS benefit this year to fill, but as you mentioned, a lot of states have decided to move forward on their own. So I'm curious, number one, if you've done some analysis based on your volume and the reimbursement rates of what the air pocket truly look like because it won't be the $0.20. And then number two, I guess for either of you, I'm curious if there's more flexibility on the commercial rate front to try to push through some rate increases across the book to help offset some of that.

Okay, so we think that so far, we've got-- we'll make up about 25% of the -- give or take, I'm getting signals from across the table here, but it'll be 20% to 25% of the parity revenue contribution that will make up, so far, with the existing number of states that have agreed to continue on the Medicaid side. And we are -- there are opportunities still left on the table for us. It is our #1 lobbying effort to grow and make the case that extending parity helps the access to care question, which, of course, is the argument that we're making, that these patients -- they may be covered by Medicaid, but they really don't have too much access to care because physicians tend to not participate in Medicaid programs because the reimbursement is so low. We continue to see opportunities to expand our rates on the managed care side. We think that, that's an everyday sort of bread-and-butter issue for us, and we put together our work plans at the beginning of the year and try to get the increases from them. So I don't know that specifically the argument that, hey, Medicaid parity is going away, therefore, we should get more from the managed care payers. I don't know that, that's specifically an argument that we'd make. But the argument is the same. As prices are going up, you guys are getting your rate increases every year, and we need to get ours as well, and that's the constant everyday battle that we fight with them. Vivian, do you want to add to that?

Yes, I mean I think, Ryan, the other thing, and I totally agree with Roger, it's not one for another here. I think some of the discussion with the providers on the commercial pay side, which we think we're very good at, as you know, is related to the quality measures that we can talk to them about. And so those are things that are becoming more relevant in the discussion these days, and so I think there, we have a lot more opportunities not only with the payers but also with the hospitals. So I think from that perspective that, that's what's good for us. But again, on the parity side, roughly, you're going to be looking at about 20%, as Roger says, of what we think we have now known. And again, we'll continue to work with that. But we are not anticipating that all the states will be covering that. Ryan Daniels - William Blair & Company L.L.C., Research Division: Okay, and then as a quick follow-up, just on MedData, more of a housekeeping question. You indicated when you closed the deal, it will be accretive after noncash amortization and interest expense. But given that you don't -- unlike HCIT companies that report that, I'm curious on a GAAP basis, will this be kind of a neutral transaction? Could it actually be a little bit dilutive?

No. I mean, we'll have accretion. Yes, we'll -- it'll be accretive even after that. And right now, we're kind of finalizing that because as you can -- as you know, we have to get a valuation on that. But we had roughly about $500,000-or-so amortization a month related to that.

And our next question comes from the line of Brian Tanquilut with Jefferies.

Roger, thanks for the color on the buyback decision. But as we think about your decision to buy stock versus, say, making an acquisition, I mean, was this also partly driven by valuation expectations the sellers have out there? And sort of what's the message that you're trying to send to the market in terms of your willingness to pay up for deals at this point?

Well, it's not an either, or. I mean, we want to repurchase our shares, and we want to continue to do deals, and we think that we will continue to do deals. But I'm not interested in paying double-digit multiples. If others think that's a good long-term strategy, we'll see in a few years. We have a number of LOIs in our pipeline. We have closed 9 deals so far this year at reasonable multiples, and we're happy with our strategy and our execution. I've been doing this for over 20 years, and I'm not competing with anyone to see who pays the most for these [indiscernible].

So you're not -- are you not seeing an elevation in multiples artificially in light of more recent deals that we've seen which are at sort of outrageous multiples?

We're seeing people paying outrageous multiples for the practices. We are not in that game.

Our next question comes from the line of Kevin Ellich with Piper Jaffray.

Just a couple of follow-up questions here. So Vivian, starting off with the $213 million that you spent in Q3, I was wondering if you could give us a split between what was spent on the acquisitions versus contingent payments because that seems like a lot for 2 deals.

Yes, well, remember that we had in there the MedData deal also, and so most of that is still acquisition. It's a very low amount related to contingent payments.

So for MedData, it's safe to assume that, that was a very large purchase price then?

I don't know about large purchase price, but it was based on a reasonable valuation for their earnings, and so it was a big deal.

Okay, got it. That's helpful. And then I guess following up on that. Just wondering how the pipeline looks at this point, Roger. You sound really confident. Obviously, this is a good move in terms of the capital allocation and your flexibility with kind of reloading the credit facility. Should we see more of a balance between the repurchase and M&A? And then, I guess, kind of following up on that, is it still more heavily weighted to anesthesia?

Yes, definitely the pipeline is heavily weighted towards anesthesia. There are a couple of deals on the pediatric side in the pipeline, but we have a number of LOIs still left in our pipeline that we execute. And in fact, within the last couple of weeks, we've generated another 2 or 3 LOIs for our pipeline. And so we're going to continue to work on those, and we do think that they'll get -- that we'll get a couple of deals done before the end of the year, both of them probably on the anesthesia side or the -- potentially there's a pediatric deal that could be done as well. And we think we'll just go straight into next year. What I love about this extension of our credit facility is it gives us the flexibility to do exactly what we want to do, which is both things. We want to do both things. We want to repurchase our shares and we want to continue to execute our acquisition strategy.

And our next question comes from the line of Darren Lehrich with Deutsche Bank.

Really just 2 things. I did want to follow up on your commentary about parity and good to hear that you think you have some visibility for a portion of that continuing on. I guess, Vivian, just curious to hear from you about the accounting and your accrual for that. Would you wait until you get paid like we had last go around? Or do you think you have all the information you need to continue on a more ratable basis? So that's the first part of the question here.

So Darren, we started to accrue for parity last year in the fourth quarter. And we do that based on us seeing from the different payers, consistent payment streams. So frankly, we've been accruing for a while now. So there's -- I mean most of it is still cash coming in, but there is every quarter, there's a piece that's related to the accrual.

Okay. But I guess the question though is would you expect to just continue based on the information you have similarly into next year for that 20% to 25%? I just want to confirm sort of the accounting philosophy around that.

Yes, I mean we would -- yes, we would definitely continue the same methodology that we have this year for next year's continuation. Absolutely.

Okay, great. And then if I could, just wanted to ask about birth trends. You gave us obviously the patient days. I wanted to just hear from you a bit more about volume and length of stay dynamics around the stronger trends that you saw versus the first half.

Yes, length of stay is all within normal numbers for the past. We see no real change. I mean, it may be down a couple of basis points, but really nothing I can give you.

Yes, and I mean, so basically they're both within the regular limits, as Roger said. Length of stay might be slightly down, but admit rates is slightly up. So basically overall, it just negates itself, and we do see positive births at the hospitals that we're in.

Your next question comes from the line of Ralph Giacobbe with Crédit Suisse. Ralph Giacobbe - Crédit Suisse AG, Research Division: I guess first on the 4Q guidance. Growth at the midpoint steps down a little bit. You've done a number of accretive deals and obviously we saw nice improvement in the third quarter. So maybe just trying to reconcile that. And then any updated thoughts on providing annual guidance into next year, just given the size of the company at this point?

Okay, so, Ralph, this is Vivian. I'm glad you asked the question on the fourth quarter because I've been wanting to clarify that because it really is no lay-up because, frankly, the fourth quarter, as I've tried to say in my prepared comments, is really going to be a quarter where basically the parity is not going to be offsetting anymore. Because last year we recorded about $17.2 million of parity revenue in the fourth quarter, and this year, it's about $18 million that we have estimated. And so that -- without that, you're looking at a very respectable 2% to 4%. If you look at what we did last year, it was very high, right, 7.43%, but that basically, if you took out parity, it was about 3.7%. So really, you have a very comparable quarter, and frankly, we are continuing the positive trends that we believe we have both in volume and pricing. Ralph Giacobbe - Crédit Suisse AG, Research Division: Okay, that's helpful. And then...

So as far as annual guidance, I would say, no. Basically, because, again, a lot of our numbers guys are driven, as you guys know, a lot about the timing of the acquisition. So it's really hard to predict it in spite of the fact that we potentially are seeing more favorability in the other metrics related to volume and pricing. But it would've been really hard to do with parity, but nonetheless, it's still pretty volatile quarter-to-quarter, depending on what's happening with the business. Ralph Giacobbe - Crédit Suisse AG, Research Division: Okay, fair enough. And then are you seeing any greater pressure on salary cost for physicians? Or any increased competition or turnover within your physician base?

Yes, I mean we -- so we are not. I know that others have been talking about that, but our turnover remains -- still remains very low. And I think I've talked to a number of you guys about it when I see you out there, and it's still less than 5%. And so we're really happy. Roger, I don't know if you want...

No, no. We're not seeing any of those issues, no. And let me just add, for the sake of clarification, our second quarter admit rate was 13.5%, which is 68 basis points higher than the prior year quarter, while our average length of stay was 17.3 days, which is down half a patient day from the third quarter of last year. So they're all within historical limits, patient days and admit rates.

Our next question comes from the line of Whit Mayo with Robert Baird. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: I guess, Roger, maybe, first, as a Baird shareholder, I wanted to say I really like the MedData transaction. But I guess, I wanted to maybe first go back and can you elaborate on some of the comments you made about the mix shift in commercial? And was that more pronounced in one segment or other? Just any color could be -- would be helpful.

Yes. No, honestly, Whit, we're really happy with that because it's really not a very big shift at all. And typically, we see a shift from the second to the third quarter. But even year-over-year. The other thing I'd like to mention is that year-to-date, we're basically flat, slightly positive on P mix. So really, we don't think that, that's significant at all. I'm pretty happy with that small shift. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Got you. And maybe just on the credit facility and the new term note. Did the terms change at all on the revolver? And maybe just any update on the pricing on the term note.

Yes. So the pricing was good. Honestly, I didn't -- I had slight improvements to the grid as well as the undrawns because that's where the market is. But I didn't really -- we didn't really change the pricing much, but some slight favorability in the undrawns and in the grid itself. But because we did increase, as I mentioned to somebody else here, the leverage ratio, so we did move through the grid a little bit less quickly there. So we're very happy with the outcome of that. The facility was oversubscribed, and we believe the pricing was very favorable.

And next we have Brooks O'Neil with Dougherty & Company. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Actually, my serious question, Roger, is for you. Obviously with the expansion of your acquisition strategy beyond the baby area and anesthesia, what are your thoughts about continuing to expand the National Physician Group practice to additional new areas?

Yes, thanks, Brooks. We're looking at that, as I said before, but we're not eager to -- we're not the kind that's just going to jump into something. We are looking at everything. We've got a lot of things on the table that we are analyzing, but nothing that I'm willing to talk about, and we think we have a lot of room left to grow yet in anesthesia, and that's what we're going to continue to be focused on.

And our next question comes from the line of Gary Taylor with Citi.

Just a couple questions. One, I just wanted to clarify. I thought I heard this correctly, but I've had a couple questions, so I'll let you clarify. When you talk about double-digit long-term earnings growth, that's what I wrote down, long-term, but specifically for '15, including the potential parity headwinds, you weren't, per se, commenting on '15, is that correct?

Well, I mean, do I think we're going to grow double-digit into '15, if that's your question, yes, I do. Yes. I think '15 will be double-digit, yes, growth.

Even with parity headwinds?

Yes. Well, we -- hopefully, we'll take care of it with the share repurchase.

Great. Second question is, I don't know if I missed it, but did you comment on just kind of your updated thoughts on federal efforts around parity? I know you talked about specific states and you walked through a few of those and you spent time there. What about at the federal level? Anything changing there? Any reason to be more or less optimistic? And particularly, I guess, the next physician fee schedule fix needs to take place by April 1, so maybe the flurry of federal activity is in March instead of December, this time around. What are your thoughts there?

Well, we continue, yes. The answer is we continue. We have some significant lobbyist at the federal level as well, and again, that continues to be our #1 priority going into next year. It's a little bit more difficult to do that at that level, particularly given the fact that we've got an election coming up here and no one knows, obviously, what that's going to mean, and when they do take office. So it's a longer term. It is, as you know, included in the President's budget for next year, but nobody expects that, that budget can pass. So we think that if we -- we're continuing our efforts at the federal level. If we're going to see results, we believe that, that'll happen at the state level.

And last question. I think there's been -- I've just felt a little misperception in the market about actually how active you have been on the acquisition side. If there's some more deals in the pipeline that could shape up to be your biggest revenue deals you're ever -- even excluding MedData and a number of anesthesia deals. The one question I have though, some of the larger anesthesia trades you've missed, and presumably those have been more auctioned, and that's where you're seeing some of the higher multiples. So the question is, should we expect to just continue to see a lot of these $10 million, $20 million, $25 million anesthesia deals? And should investors look at that and be totally pleased because you're operating in a place where you're going to be paying more reasonable multiples versus the larger deals?

Well, there are $10 million and $20 million deals. There's also deals that are -- that we've made that are a little bit larger than that. We do think that given the 9 deals, as you pointed out, that we've done so far this year, we do think that it could end up being our largest deal -- our largest year in terms of deals. We're in this for the long-term. We think it's wise to pay reasonable multiples for these practices. And there are a lot of practices that are available for reasonable multiples, and we just don't see the need to pay larger multiples even if we end up missing on a deal that may have 100 physicians or a couple of hundred physicians. We just -- our own strategy tells us you still have to manage these practices, you still have to bring value to the physicians. You still have to run the practices every single day. You got to bill, you got to collect. You still have to execute on these practices. And for us, the risk of paying these extraordinary multiples for these kinds of practices is not a value proposition that is attractive.

Next we have Brian Zimmerman with Goldman Sachs.

So in your prepared remarks you mentioned that anesthesia saw an acceleration in growth in volumes in the quarter. I was hoping you could give us a bit more additional information around this trend. And do you have any visibility in what's driving this increase?

Yes, well, I mean we saw in both inpatient and outpatient -- Karl is here, so I'm going to let him answer if he saw any more specific trends amongst the hospitals, but what I look at was basically both of those service types.

Yes, we did see growth both inpatient and outpatient, although outpatient was a little bit more growth, both hospital outpatient facilities as well as outpatient surgical centers during the quarter that are freestanding apart from the hospitals. I don't know if there's any unusual in the trends. There wasn’t necessarily a particular specialty that we would say we saw dramatic growth in during the quarter. It was pretty widespread throughout the practices that we have. So there's not a whole lot more color than that [indiscernible].

Okay. And then follow-up question is, how should we be thinking about your acquired revenue rolling into the fourth quarter, I guess, based on the deals you've announced so far?

Well, again, our forecast does reflect whatever deals that we have completed during this fourth quarter. And again, MedData will ramp up, but right now, it does have some amortization as I mentioned, I think, to Ryan or someone else, but -- so the forecast reflects that. I don't know what else -- were you trying to get another question there?

You've completed some acquisitions. After the quarter, and MedData wasn't completely reflected in the third quarter, so I'm just trying to get a better sense of what the acquired revenue coming into Q4 might look like.

I mean, we don't typically break it out other than to give you the metrics that we have for the forecast. So I mean all of what we have acquired, even since the fourth quarter, since the beginning of the fourth quarter, is reflected in our fourth quarter forecast.

And our next question comes from the line of Chris Rigg with Susquehanna Financial.

I hear the comments on the payer mix and to the last question or one back on the volumes, but was just wondering if you had taken a look, particularly on the anesthesia side, whether you're seeing any volume acceleration in the states that expanded Medicaid under the ACA.

I'm going to let Karl answer that one, too.

Yes, as I said, we have seen widespread increases in our volumes in most of our states, not all of them, but where we have seen [indiscernible] have not seen an increase in the Medicaid -- expansion of Medicaid from the government's program. They have not accepted [indiscernible] various states such as North Carolina, they did not expand Medicaid. So we haven't pulled [ph] any benefit from that, but we did see growth in North Carolina.

Okay. And then I did get on a little bit late, so I apologize if you talked about this. But just the way you described the $600 million of buybacks in the press release. I was wondering if you could give us a sense, particularly since this is sort of a new direction for you guys, what sort of philosophically changes your opinion from sort of an accelerated program versus sort of a more steady, yet still aggressive, pace over the course of the year?

Yes. So we think we're going to be in the market pretty quickly as soon as we're allowed to do that by the regs. And that will just be in market kinds of share repurchase. And we think that, at some point in the future -- we're limited the number of shares that we can repurchase, et cetera, et cetera, the number of things we can do we can do with an accelerated. But we do think that we'll put both plans into place before the end of the year. We have, in the past, announced share repurchase programs. We've probably, over time, bought back $500 million, $600 million, $700 million worth of our own stock. And I'll just tell you that every time we announce a share repurchase program, we've completed it in the past.

Our next question comes from the line of Gary Lieberman with Wells Fargo.

Maybe just another question on the acquisitions. Other than size, is there anything that -- any characteristics of the acquisition that you tend to close rather than some of the ones that you don't get in terms of geography or other feature?

Well, there are a couple of states that we shy away from mostly because they have -- their non-competes are not valid in some of those states. And for us, that's a deal breaker [ph]. But we do tend to stay away from states like Alabama and others where they don't have physician non-competes that are probably not -- are not valid. So other than that, we're looking at where the hospital partner is and how good the relationship is between the practice and the hospital, the quality of care. But we go through a number of steps in our due diligence process to assess whether it's a practice that we want to bring on board or not.

Okay. And then the concept of bundling services has gotten more attention over the last year. Can you comment on what you're seeing? Has that been a factor at all or been an obstacle for you?

I would say, no, on both sides. It has not been neither positive nor an obstacle for us. We haven't had anyone come to us and say, if you can bundle this with that, we'll give you something else. We -- that -- I'm assuming that's what you mean by bundling. So what is being seen between ER and hospital is perhaps, in some instances, we're not seeing that at all, and we haven't lost any contracts.

Our next question comes from the line of Chad Vanacore from Stifel. Chad Vanacore - Stifel, Nicolaus & Company, Incorporated, Research Division: It looks like you had really nice revenue growth, and a lot of that was organic growth. However, margins seemed a little bit depressed in the quarter. Can you put some color around that? It seems like salaries and benefits were up quite a bit.

Yes. So overall, the margins, I think -- I talked about that a little bit, Chad, in my prepared comments. It was really related to the mix of acquisitions there, specifically on the anesthesia side. And then as far as salaries and benefits going up, basically, as we have more parity revenue, most of our same units, we would share that, as you guys remember, with the physicians, and so the bonus line has been up related to that. Chad Vanacore - Stifel, Nicolaus & Company, Incorporated, Research Division: All right. And then can you also give us some color on what you're seeing as far as commercial pricing trends?

Yes, I mean, again, commercial pricing continues to be challenging, albeit, as you know, we do -- we think we do a pretty good job on that, but it continues to be a challenging market out there. So we continue to stay with our single-digit there, and then we have escalators in our contracts, and so that's kind of what we're seeing.

And next we have Dana Hambly with Stephens.

Roger, could you just clarify for me on the complementary services, is the goal to buy specific tools that address specific problems? Or is it to create kind of an end-to-end revenue cycle management platform that you could make commercially available?

It is that. We do believe that there are opportunities with other specialties that we may not want to necessarily bring in-house as an acquisition but that we can offer these services to. And so we are looking at a couple of specialties in particular that we think could benefit from something like this. In addition to helping the hospitals with their physician component where the hospitals have acquired some of these specialist and are having trouble with the physician side of the revenue cycle management.

Okay, that's helpful. And then secondly, just on the maternal-fetal and the pediatric cardiology, I know it's a relatively small piece of the business, but it's been declining for several quarters now. Should we expect that to continue to decline? Or do you think we'd lap that at some point?

Well, yes. We do think that we are going to lap it. We have seen -- particularly because of the drop in echocardiogram reimbursement, so we have seen some losses there or decreases there, but we do think we're going to lap it. And in fact, one of those -- we did see a little bit of growth in one of those specialties.

And we have no more questions in queue at this time. Please continue.

Thank you, operator. If we have no more questions, let me just thank everyone for participating this morning, and we look forward to speaking with you next quarter.

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