Pediatrix Medical Group, Inc. (MD) Q4 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

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

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

Thanks, and good morning. I want to quickly turn over the call to Roger and Vivian but first read our forward-looking statements. 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 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. And with that, I'd like to turn the call over to our CEO, Dr. Roger Medel.

Thank you, Charlie. Good morning, and thanks for joining the call today to discuss our results for the fourth quarter and full year 2014. We had a great quarter to end the year. Our revenue was up by almost 15%, bringing our full year growth to 13%, and our total revenue to just over $2.4 billion. For the fourth quarter, our top line operating income and EPS all grew by double digits, in line with our long-term expectations. I think it's important to note that we achieved this growth in Q4 without any year-over-year increase in parity payments, which we will talk about later in some more detail. Our same unit revenue growth continued to accelerate in the quarter to just under 5%, with strength in same unit volumes across anesthesiology, neonatology and other pediatric services. We also wrapped up our most active acquisition year ever. During the fourth quarter, we completed 4 practice acquisitions. I discussed 2 of these on our last earnings call, but we also completed a small pediatric cardiology acquisition in December, and then we finished the year with the purchase of Metropolitan Anesthesia Alliance, which is based in Memphis, Tennessee. Including these deals, we were able to put close to $0.5 billion to work for 13 acquisitions last year, 11 of which were practices, and 2 of which were strategic nonpractice businesses. We complemented these acquisitions with an additional $490 million in share buybacks, including over $360 million completed during the fourth quarter under our new $600 million authorization that we announced at the end of October. So overall, we were able to utilize nearly $1 billion of our capital in 2014. We also positioned ourselves very favorably for the future. Despite our level of capital used during 2014, we start this year with very modest leverage and ample financial flexibility. And in intermediate terms, while the subset of Medicaid parity payments would have resulted in a modest headwind to EPS growth in 2015, we are filling this gap with share repurchases and the contributions from acquisitions that we completed in 2014. So I hope this provides you with a good visibility into how we're looking at the coming year from a financial perspective. More fundamentally though, we entered 2015 better positioned to address the needs of our hospital partners. It's becoming clear that the challenges of health care reform are getting more and more real, whether it's through the implementation of the Affordable Care Act; the focus on the institute of health care improvements; Triple Aim, which is to improve the patient experience; improve the health of populations and provide cost-effective care or as we saw this week, CMS's intent to move more Medicare and Medicaid reimbursement towards value-based structures. As for our [indiscernible] last year, we continue to invest in our clinical research, education and quality program. Our ability to improve outcomes through the analysis of extensive patient data continues to advance. As most of you are aware, last year, we reached a milestone of over 1 million patient records in our neonatology data warehouse, and we also surpassed 600,000 audited cases in our Quantum Clinical Navigation System that supports our anesthesiology practice. Our ability to collect this data creates benchmarking tools for our physicians and develop quality improvement protocols which helps us in the mission we've had for 35 years, to take great care of our patients. But it also brings significant value to our hospital partners through the ability to reduce complications, highlight and address variations in care processes, improve physician and patient satisfaction and ultimately, enhance cost-effectiveness. The nonpractice acquisitions we completed last year serve the same ends, with our acquisition of Surgical Directions adding perioperative consulting capabilities and the acquisition of MedData bringing great solutions for improving physician and patient satisfaction to the revenue cycle management process. With all this in mind, I anticipate that we will continue to expand the conversations that we're having with our health system partners to generate both organic and nonorganic growth. Throughout last year, I discussed a handful of these opportunities, such as our joint venture with Phoenix Children's Hospital, the service line extensions we brought into the market for the TriStar systems in Nashville and the additional services we brought on board for both Women's Hospital of Texas and Navicent Health in Macon, Georgia. In the past year, we also created a new position of Chief Development Officer, which is held by Dr. Jim Swift, who joined MEDNAX about 7 years ago. Under Jim's leadership, we're having substantial conversations with many of our hospital partners, focused on our ability to add new services in their facilities, whether this is through an RFP process, the assumption of employee physicians or broader system-wide initiatives and our company will also continue to evolve toward a market focused, rather than an individual-specialty focused, in order to bring all of our capabilities to the table for all of our hospital partners. Finally, in terms of our positioning for the future. As I mentioned before, we put nearly $1 billion to work in 2014 to both grow our company and buy back our stock. We will continue to evaluate ways we can allocate our capital and resources with a goal of becoming a more valuable partner to our hospitals and further enhancing shareholder value. We enter 2015 with a strong pipeline of practice acquisition opportunities and signed letters of intent, which should continue the successes we had in 2014. We will evaluate possible add-on services to our MedData platform. As that business continues to grow they've identified a number of opportunities to expand their service capability, and we will support them in those efforts. Additionally, we will continue to evaluate opportunities to grow beyond our existing specialty in ways that can broaden our service capabilities and enhance our ability to provide patient care and to add value for our hospital partners. Lastly, we have shown that we view share repurchases as an additional avenue to add shareholder value, and we will continue to consider additional buybacks. So overall, I'm extremely happy with how we ended 2014 and how we position ourselves for continued growth in the future, and I am very excited about this year ahead. With that, let me turn the call over to our CFO, Vivian Lopez-Blanco.

Good morning, and thanks for joining our call. I want to add some brief details to Roger's comments on our fourth quarter results. At the top line, our net revenue for the fourth quarter of 2014 increased by 14.7% to $651 million. 10% of this growth came from recent acquisitions with anesthesiology practices contributing roughly 2/3 of that growth and the remainder coming from neonatology and related pediatric sub-specialties and nonpractice acquisitions. Same unit revenue grew by 4.6% with volume increasing by 3.2% and revenue attributable to net reimbursement related factors growing by 1.4%. On the volume side, we saw good growth across most of our services. Our NICU days were up 3%, an acceleration from the third quarter, and anesthesia volumes were up more than that. Our other pediatric services and maternal-fetal medicine volumes were positive as well, partially offset by a slight decline in pediatric cardiology. On the reimbursement side, as Roger mentioned earlier, parity revenue didn't have a year-over-year benefit for us in the fourth quarter. The 1.4% decrease from net reimbursement-related factors was principally due to continued improvement in reimbursements received third-party commercial payers. In terms of payer mix, our percentage of patients covered by commercial programs improved by about 30 basis points compared to last year's quarter. We reported roughly $17 million in parity revenue or about $0.05 per share after the impacts from incentive compensation and income taxes in the fourth quarters of both 2014 and '13. So in terms of same unit revenue growth, the 4.6% growth we reported for the quarter represent a true apples-to-apples comparison. It also compares favorably to the 4% same unit growth we reported in the third quarter, excluding the impact of parity. Our profit after practice expense for the fourth quarter was $223 million, up 17.2% year-over-year. Profit after practice expense margin improved by 73 basis points, which reflects the positive impact from our same unit growth. Our general and administrative expenses grew by 22% over the prior year, which reflects increases due to the mix of acquisitions primarily those of nonpractice businesses. Our depreciation and amortization expense also increased year-over-year related to acquisitions. Overall, our operating income grew by 13.9% to $141 million, and our operating income margin of 21.7% decreased slightly by 15 basis points versus the prior year period. Finally, our fourth quarter net income grew by 11.9% and diluted earnings per share of $0.89 grew by 14.1% as compared to the prior year period. For the quarter, weighted average diluted shares were 99.1 million, down about 2 million shares from the prior year due primarily to the repurchase activity we undertook early in the year and during the fourth quarter. Looking at our balance sheet. We had cash and cash equivalents of $48 million at December 31, and accounts receivable were $352 million, an increase of approximately $67 million as compared to December 31, 2013. Days sales outstanding were 50 at the end of the year, down about 1 day from the end of the third quarter. Our total outstanding debt under our new credit facility was $568 million at December 31, up from $288 million at the end of the third quarter. We finished the year with a total leverage of only 1x based on a full year 2014 EBITDA of $559 million and with roughly $930 million available under our credit facility. Lastly, during the fourth quarter, we generated cash flow from operations of $179 million compared to $139 million last year. For the full year, we generated cash flow from operations of $423 million compared to $405 million in 2013. As we announced in December, through open market purchases and an accelerated share repurchase program, we completed $361 million in share repurchases during the fourth quarter under the $600 million authorization we announced in October. As of December 31, '14, we had 96 million shares outstanding compared to 101 million shares at December 31, 2013. Moving on to our outlook for the 2015 first quarter. As we announced in this morning's press release, we expect that our diluted earnings per share for the 3 months ending March 31, 2015, will be in a range of $0.68 to $0.72. The range for our first quarter outlook assumes anticipated same unit revenue growth of 1% to 3% year-over-year, including approximately 1% unfavorable impact on pricing from the decrease in parity revenue from the 2014 first quarter. Included in our first quarter is approximately $0.02 of Medicaid parity, net of the impacts from incentive compensation expense and income taxes compared to $0.04 in last year's first quarter. As a reminder, our results for the quarter of -- for the first quarter of every year are impacted by some timing issues that affect our results on a sequential basis. For the first quarter of 2015, these factors include impacts on that revenue because there are fewer calendar days than in the fourth quarter, as well as the significant increase in expenses associated with Social Security payroll taxes that are higher at the start of each year when compared to the fourth quarter of the prior year. These recurring items impact our operating income -- net income and earnings per share and are included in our financial outlook for the 2015 first quarter. It's also important to remember that we typically have negative cash flow from operations during the first quarter of every year as we use cash and amounts under our credit facility to pay bonuses primarily to our physicians and 401(k) plan matching contributions that accrued throughout the prior year. Now I'll turn the call back over to Roger.

Thank you, Vivian. As I said before, I'm very pleased with the progress we made through 2014 and, in particular, with the improved -- the continued improvement in same unit revenue growth we saw during the second half of the year. I also think we positioned ourselves very favorably for continued growth with an active acquisition pipeline, opportunities to build new hospital relationships and deepen our relationship with our existing hospital partners, and most importantly, our ability to provide high-quality, cost-effective care to our patients. I'm excited about the future and I look forward to the progress we can make in 2015. Operator, let's go ahead and open up the call for questions.

[Operator Instructions] And we have a question already from Kevin Fischbeck of Bank of America.

This is actually Joanna Gajuk filling in for Kevin today. So just in terms of volumes, this definitely was something we were waiting for to see, same-store volumes about 3% I guess, in the past you guys talked about, at this levels, sort of driving -- pace through margin expansion. I just want to confirm that this actually occurred. And on that front, can you talk about the underlying trends there? What do you expect, going forward, for the mid-Q volumes and anesthesia -- in particular, for anesthesia, whether there's anything, any read through you get from just improving hospital volumes overall?

So good morning Joanna, this is Vivian. So yes, we did see -- we're very happy to see these volumes in the fourth quarter, and they're basically throughout all of our specialties. Anesthesia did very well as well, and so yes, it did have, as I mentioned in my prepared comments, a positive impact on the operating income margin. And so as far as continuing, we certainly hope that they do, they've been trending upward since last quarter. And so as it relates to anesthesia, I don't know of anything that has impacted it that we believe it wouldn't continue. So I don't know. Karl is here, so I'll ask. Karl, is there anything that you're seeing, Karl, from an added perspective here?

No, and we had a very strong fourth quarter. Typically, you see a strong fourth quarter from a volume standpoint, but the growth year-over-year was very strong, we were real happy with that. We are seeing that has been playing out as we've seen some of our hospitals investing, from a construction standpoint, investing in growth. So we're hopeful that, that trend will continue. But as you know, we -- servicing at the hospital, it's really up to the hospital to see that growth. We have seen that growth be in both outpatient surgery centers as well as in the hospital inpatient side of the business as well.

Do you attribute that to reform, to economy or anything else?

I don't have anything specifically that would say that it meets with...

Yes, I think, we haven't -- we're not able to tell. I mean, obviously there's a lot of discussion on the reform. But I think, as we've said before, we're in centers that have high acuity businesses -- I mean, services and all of that. So it'd be hard for us to pinpoint that.

And then just kind of coming back briefly to the NICU volumes. So can you talk about the birth trends you've seen in your hospitals?

Yes, we always predicted that NICU volumes will come back both as a result of the economy and also the result of just the demographics. And so the fact that there were more -- if you look at a 15-year time period, from 1975 through 1990, the number of births occurring annually was about 3 million babies per year. Starting in 1990, that number had gone up to 4 million, and that has remained more or less along that 4 million baby number per year. So babies that were born in 1990 are now getting to be 25 years old, and because half of that were boys and half of them are girls, we have an additional 0.5 million women now that are of childbearing age and starting to come online, starting to be 25 years old and beyond every year. So we expected, because of that demographic, that we will start to see an increase in births, and hopefully this is what that means in combination with maybe some improvement from the economy and if families have decided to withhold the idea of having child for the time being, maybe we're seeing some of that as well.

Okay, and then just, if I can, lastly, on the commentary, Roger, you made [ph] around looking at other specialties or rather, not limiting yourself to individual specialty. So is there any additional color you could give us in terms of which types of specialties you're looking at? Or is it too broad to kind of talk about at this point or is there any additional color?

Yes, well, we're not really going to talk about which specialty we're looking at. We continue to evaluate the possibility of entering a new specialty and hope to have some decisions made before the end of the year. But keep in mind that we understand that there's a major anesthesia asset that is coming to market this year, and we will be very interested in looking at that when that happens. And additionally, we continue to have success in signing our LOIs for anesthesia. And we feel like our pipeline is really outperforming, and we expect to continue going down that path. So there is no pressure from lack of deals to enter into a third specialty. If we do it, it would be strictly because we see an opportunity to expand our strategic positioning, to bring value to the specialty, to our partners, and to our shareholders. But there's plenty of opportunity to grow within our existing specialty.

[Operator Instructions] We do have a question from Ralph Giacobbe with Crédit Suisse. Ralph Giacobbe - Crédit Suisse AG, Research Division: I guess, first, Roger, your sort of bullishness is clear in terms of the opportunities ahead. So I guess, if you could help us reconcile, it's a little bit of a step-down in the organic growth rate that you sort of suggest for the first quarter, the 1% to 3%. I know you mentioned parity and there is some seasonality. But is there anything else we need to consider on why that would sort of step-down, kind of a couple of few hundred basis points? And then typically, you guys provide the split between volume and pricing in the fourth quarter guidance. I didn't see it in the release. How should we think about that for 1Q?

Yes, so, Ralph, good morning, this is Vivian. So again, it's really basically 2 to 4, and so we don't think that, that's sluggish at all. Again, we had a great fourth quarter and I hope that those volumes continue, but I can't really declare that a trend. And so I think that the 2% to 4% is relatively in line with what we would expect. And so as it relates to volume and pricing, typically, it's been a little bit more weighted to pricing because of the fact that we had parity. We still have, as you see from the notes, we do have some parity that is still seeping over from last year as well as the continued pieces for the states that have said they're going to continue that. So we are expecting that to impact in the first and possibly, the second quarter. So basically, you could look at that half -- about half and half. Ralph Giacobbe - Crédit Suisse AG, Research Division: And then just on the parity. I just want to make sure. The $0.02 benefit in 1Q, I'm assuming that's all from the states continuing the program and not any sort of lingering payments related to kind of 2013 and 2014. And then is $0.02 the quarterly run rate? And then any update you can give on additional states or if you think there could be additional states that come on board and extend the program?

Yes. So the $0.02 is not all from states that are extending. It this basically because there is still some runoff on really programs that had not started to pay. And so we do expect still to get money from '14. And so the rest of it is from extension. And so the $0.02 run rate, I really don't see that as being the rate for the rest of the year. Potentially, we'll see run rate in the first and the second quarter maybe. But certainly, hopefully by the third quarter, everything will be cut up from the prior payments and what we'll have is more on the extension. As it relates to the states, there's still -- some of them have made changes to extending the programs throughout. Some of them have come in, like Washington now has it in the proposed bill. I don't know if that will continue, but then Michigan pulled out neonatology. So there's still fluxes up and down on it. But we're still -- it'll still play out until they go through their legislative sessions, but we're still okay, with basically roughly between 10% and 20% of what we feel that the total parity was, but we'll see -- we'll see how that plays out.

Our next question is from Kevin Ellich of Piper Jaffray.

Just a couple of questions. Roger, in your prepared remarks, you talked about HHS's initiative that came out a few days ago with the shift to value-based reimbursement. Just wondering if you could give us maybe a little bit of your thoughts on how this might affect your business over the next couple of years? And then do you also think some of the other commercial payers are going to jump on the ship?

Yes, well, we don't have any details, of course. But we are very excited about it because we have been making investments in quality and measurements and outcomes and databases for more than a decade. And it's about time that, that investment paid off not just for our patients, as it has over the years, but also for our shareholders. And so we are very excited about it. We are having meetings with payers about quality, about our programs, about our database and our statistics. Outcomes, complications, all of those things that are now, all of a sudden, of real and significant interest with the payers, and not just Medicaid and Medicare. Some of the major payers we are having meetings with here, in the next couple of weeks actually, to talk about exactly this thing. So yes, we're excited about it.

Great. And just to clarify. This would really only affect your -- the American anesthesia business, or is there any spillover to your pediatrics?

Well, there is always Medicaid, sometimes takes their lead as to what they do from the Medicare side. Obviously, different from us on a state-by-state basis. But there's always some spillover into that. And the prior payers care about it as well. They're just not focused on anesthesia.

Great, great. And then going back to the volume growth that we saw this quarter. Vivian, you said that anesthesia volumes were up more than 3%, if I heard that correctly? And I know Karl gave some nice detail, but do you think maybe there was any seasonality towards the end of the year, with deductibles resetting and whatnot?

Well, clearly, we see the fourth quarter always being a strong quarter. There is nothing in the dynamic of that, that would have made the '14 fourth quarter any stronger than '13 as a result of that, we have always seen, especially December, has always been a very strong month, even with the holidays we get very strong volumes. So that really would be consistent from a theme year-to-year, but we did have -- we didn't see any change in that dynamic in the 1 year that would have caused it to be more pronounced in 2014.

Got it, okay. That's helpful. And then lastly, Vivian, some moving parts on the operating cost side. Salaries, benefits, supplies were a little bit lower than historically, I guess, what's in our model. But then depreciation and amortization jumped up sequentially and year-over-year, pretty significantly. Just wondering what's going on there, and is 14 million a good run rate for the year?

Yes, so good morning, Kevin. Yes, so you're going to see that because we did, as I mentioned in my prepared comments, talk about that, that is related to amortization of practices we acquire and certainly practices that -- the nonpractice acquisitions. And so you will see that in 2015 as well.

Our next question is from Brian Zimmerman of Goldman Sachs.

This is Ambarish filling in for Brian. My question to you is, did you see any disparity in the growth across your geography, especially in the anesthesia business? Or was it pretty stable across all geographies?

Yes, so I think we did see it pretty much across most of the areas. I don't see that we have a big disparity in any of that, but I'll let Karl comment more details on that.

Yes, I mean, clearly, there were some hospitals were better than others, but in general, we saw positive trends across all the different states that we were in.

Anything in specific between Medicaid expansion states and non-Medicaid expansion states?

No, that was not the case.

Okay. And my second question would be about the M&A pipeline on the valuation multiples. Do you see the multiples rising? And if yes, do you think -- what do you think is going to be the outlook for the year?

Well, our multiples -- the multiples that we agreed to pay for these practices are what we believe are the right multiples to pay for the practices. Others feel differently and have their own guidelines as to what they're paying. So our guidelines have not changed. We do have -- we do go into this year with a number of LOIs in place, and we expect to complete most, if not all of those. And we are constantly adding new businesses to that pipeline and new LOIs. And so we had a great year last year. We expect we're going to have another great year this year. And hopefully, some of the rumors that we have heard about others indicating that maybe they're not going to be pushing multiples up as much as they have been in the past, hopefully, those rumors will be true, and there'll be more sanity in the valuations.

Our next question is from Chris Rigg of Susquehanna Financial.

Just on wanted to check some of the below the line -- below-the-EBITDA line items. We already touched on D&A, but with regard to the interest expense, I just want to get a sense, for the $30.3 million in the quarter, is that the -- about the right level for Q1 or do you expect that to go up a little bit?

Yes. So it'll slightly go up depending on if we decide to do another share buyback as well as the acquisition activity that we'll have in Q1, so that will have an impact on it.

Okay. And then just with the share count, is that going to be about $94 million, $95 million for the first quarter, fully diluted?

Yes, right. Because I think you're doing the math well, that most of the impact of what we got in the fourth quarter will be in -- certainly impacted from a weighted average perspective in Q1. But -- so it will be on the higher end of what you just said.

Got you. And so what I'm really trying to get at here, if I reverse engineer from sort of EPS upward, it looks like -- again, it looks like, tell me if I'm wrong, that the year-to-year EBITDA margin's going to come down by about 100-or-so basis points, including the parity payments, if you exclude it a little bit less. But is there something with the mix of business right now that's sort of pressuring the margin or am I just completely off base?

Yes. We don't really expect the EBITDA margins to go down that much. You have it overstated.

Okay, but if it does come down, is it just the mix of new business that might be pushing it down a little bit? Or is there more of the sort of first quarter cost now than there was a year ago?

Well, it's definitely that, because on a dollar-for-dollar basis, it does grow and then you have -- so you do have less parity as well.

And the next question is from Ryan Daniels with William Blair. Ryan Daniels - William Blair & Company L.L.C., Research Division: Roger, one for you, you talked about your IT platforms and all that data you've accumulated. I'm curious if you've thought about commercializing any of those, maybe Baby Steps in selling that to the market under a hosted or license model? I guess especially as you move more into a revenue cycle, it seems like a natural lead potentially to get more of that business as well? So any thoughts there?

Yes, we talked about it on and off. We always end up thinking Baby Steps gives us a competitive advantage over some of the other groups. And if you want to have access to it -- it's more than just a database, it's a coding program, guidelines, statistics, et cetera. So we always felt, in the end, we always end up thinking, well we have a competitive advantage and we really -- if you want to have access to this, you need to be part of what we're doing at pediatrics. So for the time being, the last time we talked about this, which may have been 6 months ago, once again, that's where we ended up. And I think it's the right position. Ryan Daniels - William Blair & Company L.L.C., Research Division: Okay, that makes sense. And then as follow up, just any insight you have on MedData, on Surgical Directions and the integration, I guess, both from an internal standpoint and how you're leveraging those assets to improve your operations? And then maybe externally, how the acquisition has been received and how you're pushing that in the market?

Yes. Well, what -- thanks. We're excited about both. MedData, for us, there were a number of reasons. Number one, in and of itself, it was a fine company. It's freestanding, $60 million in revenue and something that was interesting to begin with. But in addition to that, what MedData -- the 2 other reasons we wanted to get at MedData where, number one, MedData had the capacity. So as we acquire some of these anesthesia practices, it's easier for us to put them under the MedData system until we get them integrated. So it allows us to save us -- it allows us to save some time and effort as we bring some of these new practices on board. Additionally, MedData is in other specialties that we're not in right now. And so again, if we were to go into a different specialty, we could telescope a lot of time and effort because they've already figured out how to do the revenue cycle management for some of these other specialties that we're looking at. So those were the reasons we got into MedData. We're very excited about them. We think they are going down the path exactly that we thought they would be going down, not only with us internally -- and we have given them more of our own business internally, but they're growing on their own externally, and we expect that they will meet their budget for the year. Surgical Directions is also an awesome company. We're very happy with them. They are helping us, as it turns out, we have been able to really get value from them by introducing them to our existing hospital partners. So when we go to a hospital, we see that they have issues with their OR, their staffing, their scheduling, whatever, and we say, we can bring in these guys, and they can help you. And that's been extremely successful in a couple of particular hospitals that are big clients of ours. So we're very happy with both of those acquisitions.

We have a question from Brooks O'Neil with Dougherty & Company. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: I guess I just have 1question then. If looked to me, if I was paying attention like maybe you only deployed about half of the amount you had earmarked for accelerated repurchasing. Can you just tell us a little bit about what you're thinking was in taking that step?

Yes, so we wanted to make sure that we addressed the parity issue first, and that's done. We have an additional $200 million authorized that we haven't pulled the trigger on yet. And we're evaluating whether, given the assets that are now on the market and given some of our other strategic initiatives that we're thinking about, we're evaluating whether it makes more sense for us to go ahead and pull the trigger on that other $200 million that we have authorized in share repurchases, or invest -- see what the investment opportunities are in some of these larger assets that apparently are coming to market. But in any event, at the end of the year, if we don't pull the trigger now it doesn't mean that we won't pull it at the end of the year. What we will do at the end of the year is what we used to do in the past with Pediatrix, which is, as you remember before we got into anesthesia was we looked at whatever money we had spent and if we have money left over, we go ahead and repurchase some of our shares. And at that point in time, we had already bought back over $0.5 billion worth of our shares. So if we don't pull the trigger now in February or March, it doesn't mean we wouldn't pull it in October or November or December. Brooks G. O'Neil - Dougherty & Company LLC, Research Division: Nice to have that flexibility.

Yes, we'll go through that exercise with our board, during every board meeting.

Our next question is from Darren Lehrich of Deutsche Bank.

I wanted to just come back to your commentary with regard to valuating other specialties. And I guess the question I have is, is this something that you're hospital clients are asking you to take on? Just when you think about the strategy to continue to grow out your offerings, do you think it's because the clients are wanting you to do this, or do you think your capabilities have reached the point where it just makes sense to have more offerings? I'm curious to get your thoughts on why you're pushing into new areas potentially over the next year or 2?

Okay. Well, the answer is both. On the one side, if you look at our Pediatric business, over the years, we have expanded our Pediatrix subspecialties into cardiology and hearing screening and pediatric ICU, and we're probably the largest group of pediatric hospitalists in the country right now. So all of those have been mostly opportunities that we -- and now pedantic surgery, we are -- we have 3 pediatric surgery practices, and we expect that we will own more pediatric surgery practices before the end of this year. And that is driven mostly by hospitals asking for our help in dealing with their patient population. One of the things that we are doing is we're going -- we're changing our structure a little bit and we're going more from a specialty-based structure, where this is our neonatology business, this is our anesthesia business, this is our office-based business. We're going to a more market-driven structure where we have a market -- whatever. In Atlanta, and within Atlanta, we have maternal-fetal medicine, neonatology and anesthesia. And so trying to be less silo-ed and more inclusive in the markets of the needs of the hospitals. And so you'll see that growth as we address the needs of the hospitals in the specific markets. But in addition to that, we have, over the last 18, 24 months, spent time looking at what other specialty might make sense for us, what else is out there that, given our expertise and given the state of the market, might present us with an opportunity to add a third leg to our stool. And so that we're looking at, and we may or may not, like I said, there are -- the other thing to consider is like everybody else, we have limited resources, right. And so if we have a large anesthesia market that's -- anesthesia business that's coming to the market this year, and we are able to successfully play a role in that, then we may decide -- even though we like the other specialty, we may decide to not pull the trigger on that for another year or 2 until we feel more comfortable. So there's a lot of factors at play here, but to answer your question, the answer is both. At the local level, we are going to grow and we're going to add specialty, mostly on the pediatric side, but we're looking at a specific third leg of the stool that we may or may not enter before the end of the year.

That's helpful. And then just my follow-up question was really just going back to the volume strength. And I didn't hear you say what the births were, either for the year and the quarter, I'd like to get that number if you can comment. And then I guess the real question is, around the use of extenders, and can you just comment on how that may be impacting your productivity levels or your ability to actually grow volumes any differently or if this is just more about the underlying improvement in demand?

Yes, I'm looking at some numbers here. Give me a second. I think it looks to me like births in our hospitals for the year were pretty much flat. I'm not seeing significant growth in the births that occurred within our hospitals.

That's correct, yes.

As far as physician extenders, we think that -- we like them, we think that they have a role to play and we think that help us to be more efficient in our patient care and within our hospitals. I'm not sure I'm answering your question, Darren. What exactly was your...

Well I'm just -- I'm curious if that's allowed you to grow volumes any differentially versus improving demand? I guess, it's just a question of your extenders growing faster than your physician base.

I wouldn't say that. I mean, obviously, when we acquire a group, as we said in the past, there's 3 -- on the anesthesia side, there really are 3 different models. There's a group -- there's a model where the group has always used physician extenders, nurse anesthetists, and they employ their nurse anesthetists and we're happy with that. There's the model where they don't, and they just say, we're not going to use nurse anesthetists, and it's a physician-only model, and that's what they use. And then there's a third model, which is interesting to us, which is the one where the nurse anesthetists are actually employed by the hospital. So the physicians use get the benefit of having the nurse anesthetists, but they are employees of the hospital. It just depends on what model the group that we're acquiring has utilized.

We have a question from Brian Tanquilut of Jefferies.

Roger, just a follow-up on Darren's question and Kevin's. So as we think about the value-based purchasing decision or the announcement from CMS the other day, do you think you need to get into a third practice category to fully take advantage of that opportunity when it comes?

No, that's not why we're doing this. I don't think that, that plays any role at all in our thinking. I mean, we don't even know what the details of that are going to be, how they're going to look at putting plans together or anything. So that is not the reason why we're looking at another specialty.

Okay, all right. Got it. And then Vivian, what's your view on optimal leverage? And I know you talked -- Roger just talked how we'll reevaluate based on how much you're spending on acquisition. But where do you think MEDNAX can be levered up to given all the acquisition opportunities coming up, there's a big anesthesiology deal and potentially a third category on your specialties?

Well, for the right reasons, I'm happy to put debt on our books. I'm just not going to do it for financial engineering stuff. We have historically been fortunate enough that, given our earnings and our cash flow and our line of credit, we've had more than sufficient access to the cash that we've needed without having to put significant long-term growth. But as some of these assets become available and the opportunities are there, for the right reasons we will absolutely put more debt in our books. What am I comfortable with? I mean, just off the top of my head, I'd say 3x. If we have -- that doesn't sound extremely excessive in today's world. But anything beyond that, we definitely have a real good reason and get very comfortable on why we would be doing that.

So I thought you guys are going to compliment us because we have one. Which is a lot more than that we've had in the past.

Our next question comes from Chad Vanacore of Stifel. Chad Vanacore - Stifel, Nicolaus & Company, Incorporated, Research Division: So as Tim [ph] pointed out earlier, you guys did a great job at keeping direct expenses pretty low. But on the flip side of that, it looks like G&A ran higher than it has in the past several years. Is that related to the MedData acquisition or is there something else going on? And should we expect higher G&A as a percent of revenue going forward?

Yes, so good morning, and that's accurate. There's an impact on the G&A related to MedData. And so again, it will continue. As it relates to how much, it just depends on what happens with the other part of the business which obviously, as we bring on a lot more acquisitions that has an offset to that, but I do expect it to be ticking up in the 30 or 40 basis points because of that. Chad Vanacore - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay. And then just we -- as far as share count goes, I think, Vivian, you mentioned that 96 million shares as of December 31, is that right?

Yes. Chad Vanacore - Stifel, Nicolaus & Company, Incorporated, Research Division: And then the assumptions for first Q is 94 million to 95 million?

No, I didn't say that. I think someone else said it on the call. What I said was is that it'll be closer to the higher end of that, certainly not in the 94 million range. Chad Vanacore - Stifel, Nicolaus & Company, Incorporated, Research Division: Okay, but have you already baked in share repurchases into that guidance?

Not really. Again, as Roger mentioned, if we decide to do another accelerated share repurchase, potentially when you do the weighted average share calculation, it doesn't really have much of an impact in that quarter, which is really what happened as you saw in the fourth quarter. Most of that share repurchase is going to fall into the first quarter because we did it later in the fourth quarter.

And we have a question from Gary Taylor from Citi.

I guess, just a counter to the recent question you just had on G&A was, since we began kind of the anesthesia odyssey, we've seen the gross margins coming down just because those practices aren't as profitable. Obviously, gross margin significantly better year-over-year this quarter. So I guess that's just a counter to the G&A, these non-practice specialty surgical direction and MedData having higher gross margins, is that primarily what we're seeing there?

No, I think -- I was directing the question more on the operating income line, not so much on the gross margin, Gary. So the gross margin was definitely, very positively affected by the fact that we had great volumes, which is what I've said to you guys in the past, when you get such a good same unit growth, that that'll impact that gross margin, obviously. The operating margin was slightly negative, I think I said 15 basis points or so because of the fact that we did have higher G&A.

Okay, so this is the first full quarter of MedData and the gross margin jumped, so maybe I wrongly thought of...

Correct.

But you're saying that, that wasn't the biggest contributor. It was really just the underlying performance...

Correct. Correct, Gary, yes.

Okay. And then Roger, I just want to go back to this risk payment question that's come up a little bit, just ask a couple of other quick ones. The first one is, are you still -- particularly on NICU, is that still per diem reimbursements everywhere for you or are there any places where you've moved to at least experimenting with the episode bundle or anything like that?

No, it's all per diem.

Okay. And having lived through the whole PPM cycle back in the '90s, which was mostly primary care, some specialists taking risk, taking capitated risk, is there ever a situation -- you guys have done this for a long time, you have so much data that you could see taking some financial risk for a population of childbearing age females, and you feel like you could actually manage that? Or is that sort of last thing you'd want to touch unless you were forced to?

Well, we see a lot of opportunities, and definitely, that is one of them. But having access to the data, gives us, as I've said before, a significant competitive advantage, right? So if you have a narrow network that you're putting together and you're going to add neonatologists your network, and I can tell you what the complication rates are, what the death rates are, what the admission rate, discharge, length of stay. If I can give you that information broken down on a per gestational age basis, every baby that's born at 34 weeks and for gestational, for birth weight, every baby born at 800 grams, if I can give you that information, I think I have a lot better shot to be in your narrow network than if I just show up there and tell you what a great doctor I am or what a great group of physicians we have. And so we've got it broken down by -- I mean, I can show you, for example, if you are a hospital that is delivering X number of babies, and has X number of admissions to the NICU, I can show you the rate of complications can you expect. How many of those babies are going to have pneumothoraces or develop necrotizing enterocolitis or retinopathy or prematurity. I think we have a significant competitive advantage, and we believe that we could utilize that data to get into different kinds of reimbursement methodologies.

My last follow-up on that, and then I'll let you go. We know the length of stay for you on average in NICU is somewhere between 17 and 18 days. I don’t know if I've ever seen or heard you talk about what the standard deviation is on that. And I certainly know there's some outlier cases where a baby might be in the NICU for 6 months, 3 months, 6 months. But when you look at that length of stay, what's kind of one standard deviation around that 17 to 18 days? Is it something that's very wide, or is it, is it...

I have to really get that information for you. I can tell you that we have babies that stay in the NICU for months. And so -- but you want better information than that, and I have to go back and ask Alan and the other people to pull that information for us.

Our next question is from Gary Lieberman of Wells Fargo.

Maybe as a follow on to that topic, I think you said that your births in your same-store hospitals were flat year-over-year, but the NICU days are up 3%. Is there some reason for that? Is there a dynamic, is there a change in the demographic of mothers? What -- is there anything that you can give us that explains that?

It's within the historical ranges of both of the length of stay. Actually, length of stay is down a little bit, I think 4 or 5 -- 40, 50 basis points year-over-year, while admission rates went up. But it's on any given quarter, there's nothing that I could point to specifically that could -- that would account for that.

Okay, so if birthrates were flat into '15, it might go up, it might go down, there's a sort of a variation around that. Is that how we should think about it?

Yes, yes, yes.

And then one follow-up. Just in terms of the decision, acquisition versus share repurchases, it would seem like with -- I guess, what we've heard on acquisition prices compared with the multiple of where the stock is trading that the -- there's still must be a pretty wide disparity in that the acquisition is much -- must be significantly cheaper than where the stock is trading. So I guess, give us some insight into your thinking about why it's not just a much easier decision to do the acquisition? And if it is, why are there still some thought about repurchasing more shares?

Yes. Well, our -- we try to be -- we try to stick to what our plans are for multiples that we pay for these practices. And we, of course, would much rather put the money to work by buying practices than repurchasing our shares. We're not only buying earnings, we're buying a lot of cash flow with these practices. And so for us, all day long, we'd rather buy practices than repurchase our shares. But there's a point where the practices just get to be too expensive. And I could have taken the money, $0.5 billion, an additional $0.5 billion last year and spent it on buying practices, but it just -- it doesn't seem to me like I want to be buying practices in 11x, 12x, 13x multiples. And so that -- to me, I'd say I'd rather buy practices all day long. We -- they provide us with opportunities within the hospitals, other opportunities for growth. They're bringing earnings and cash flow and all that, but it has to be at a reasonable price.

But in addition to that, it's really kind of bifurcated strategy. As Roger said, we'd prefer to do acquisitions all day long, but sometimes it just comes to timing, right. Because we have certain cash flow and we want to put capital to use. So it's not necessarily all the time one or another, and so we're always gauging that with our board as to what makes sense. So that's why, as I think Brooks O'Neil asked us before, we haven't really exercised all of the share repurchase that our board has authorized us to do because there's a potential acquisition opportunities that we want to explore. And so the timing of this sometimes is what drives it.

And the next question is from Whit Mayo of Robert Baird. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: I've really got just one last question. Vivian, can you just remind us what your revolver availability is right now? And as you look at your pipeline for deals and the desire to potentially get more active in the stock and the second half, do you need to revisit that at any point of this year? Or do you think about another term note, or is the facility enough to get the job done for now?

So first of all, I'd be happy to go out and get more money, if we needed it. I always tell Roger that, that shouldn't be the limiting factor here for anybody. So but we do have about 900 -- north of $900 million available on our facility. But as you guys know, the capital markets are really good, and so I could go out and get more funding, but we'll certainly look at that as these things develop. But we got a large amount now. Remember, that we basically doubled it, we had an $800 million facility, and we added $700 million to it, so we have $1.5 billion in total, of which $200 million-or-so is a term loan. Whit Mayo - Robert W. Baird & Co. Incorporated, Research Division: Got it. I lied actually, I had 1 other question. No, just back to sort of ask a question around parity, but I'm just curious, when you look at the states that have actually extended those programs. Is that something that legislatively, we're going to have to come back to every year and they have to continue to extend that? I guess I'm just trying to get a sense of how recurring those payments will be into perpetuity?

I would think that they would have to go back every year because they have to go back and figure out what the funding is for all these programs.

And we have a question from John Ransom of Raymond James.

This is [indiscernible] for John Ransom. Just a couple of quick questions on pricing. Can you just tell me what the net Medicare pricing increase you guys expect in fiscal 1H would be ex-parity?

Yes. I mean, we don't really break that out like that. So no, we don't break it out. I mean, as far as the payer mix goes, we did see some favorability overall on our movement of our patients to commercial more than government. So that looks favorable.

Okay. And just a quick follow up. So I think you guys you may have mentioned that were some better commercial pricing in the quarter. Can you just speak about what drove that?

Well, it's on ongoing process for us. Every year, we know that there are certain contracts that come up for renewal, certain ones that have escalators in them. And so every quarter, you'll see some impact from what is favorable pricing because we've renegotiated agreements that have come up for renewal in addition to the escalators from prior negotiations.

And there are no further questions in queue.

Okay. Well, if there aren't any further questions, then let me just thank everyone for participating this morning, and I look forward to speaking with all of you next month -- next quarter.

Ladies and gentlemen, that does conclude our conference today. Thank you for participating and using AT&T Teleconference. You may now disconnect.