Pediatrix Medical Group Inc (MD) 2002 Q2 法說會逐字稿

Ladies and gentleman, thank you for standing by and welcome to the Pediatrix Medical Group 2002, Second Quarter Investor Conference Call.

At this time our participants are in a listen-only mode.

As a remainder today's conference call is being recorded.

Before I open up the call to Pediatrix Senior Executive I want to read a forward-looking advisory statement.

Matters discussed during this conference call include forward-looking statements.

All statements other than statements of historical facts that address activities or events that Pediatrix intends, believes or anticipates our forward-looking statements.

Forward-looking statements are based on management's current beliefs and expectations and our subject to various risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements.

Pediatrix describes these and other risk factors in its annual report on Form 10-K for the year ended December 31, 2001 filed with the US Securities and Exchange Commission.

Pediatrix has no obligation to update any forward-looking statements made during this call.

At this point I would like to remind you that following remarks by Dr. Medel and Mr. Wagner, Pediatrix management will host a brief question and answer session.

I would now like to turn the conference call over to the host Dr. Roger Medel.

Please go ahead sir.

Thank you operator and thank you for joining our Investor Relations conference call this morning.

Once again I am very pleased to present to our shareholders financial results that reflects continued improvement in our physician group practice and our operations.

This morning I am away from the office in one location while [indiscernible] call are also traveling in a different location.

Meanwhile the call is being initiated from our headquarters in Fort Lauderdale.

So if at times we sound somewhat uncoordinated it's for that reason.

We achieved a record same unit revenue growth of 18 percent largely attributable to the several components that affects pricing including improved collections, better contracting, and the positive impact of our fee schedule increase made last year.

We also made excellent progress in expanding our general and administrative efficiencies and continued to enjoy contributions from our acquisitions program.

As a remainder of our conference call format our CFO Karl Wager will provide a detailed analysis of our financial performance.

Following Karl's remarks we will open the call for questions from you.

Kris Bratberg, our President will join Karl in the - for the question and answer session.

I want to spend a few minutes discussing the recent announcement of an investigation by the Federal Trade Commission that is related to our merger with Magella Healthcare Corporation.

Unfortunately, it appears that investigation has created significant uncertainty within the investment community.

We are in the very early stages of working with the commission.

So there is not a lot of detail that we can share at this point and we are not in a position to speculate on several of the matters that are important to you including how and when this matter will be resolved.

The Federal Trade Commission is clearly looking at the impact of last year's merger between Pediatrix and Magella Healthcare Corporation on competition from neonatal physician services in certain markets.

That merger brought together the two largest national practices of neonatal and maternal-fetal medicine physicians specialists.

The Federal Trade Commission has requested that we provide information on several of the markets that we serve including the three overlap markets in which both Pediatrix and Magella provided neonatal services.

We are currently accumulating the information that was requested by the commission in its letter to us.

Once we deliver this information to the FTC we should expect that it will take some time for them to review the materials and to formulate a recommendation of what their next step if any would be.

Since so much of this process will be out of our control once the information is compiled and sent to the FTC we don't want to engage in speculation on the timing or any possible outcome of their request.

I am certain there will be a number of questions on this topic in a few minutes, though I am not sure there is much more that we will be able to add to the discussion at that point.

This investigation has created uncertainty within the investment community but I want to assure you that we will not be distracted from our core business of providing value added services to our practices and their patient's and remaining focused on achieving continued growth and operational improvements.

We have been advised by counsel to continue running our business in the ordinary course and that's we were doing.

As a remainder, our model continues to be a significant draw for neonatal and maternal-fetal medicines decisions subspecialists across the country.

Our model enables us to integrate physician groups and support and grow their clinical practices.

Let me talk a little about the benefits of that integration.

Specifically, initiatives in the clinical quality improvement research including clinical trials and continuing medical education are part of what defines Pediatrix as a national group practice.

Physicians, many of whom joined as a result of acquisition including several from Magella are actively engaged in expanding the knowledge base within neonatal care.

What I mean by that is that physicians have a thirst for knowledge that will help them take better care of their patients.

We have just recently completed enrollment for a clinical trail that tests whether the nutritional substance glutamine will help to ward off hospital borne infections.

We are analyzing those results now and intend to make them available by the end of this year.

In this study we enrolled more than 600 babies each weighing less than 3 pounds.

There was no pharmaceutical industry sponsor for this study.

Pediatrix sponsored it because was the right thing to do for babies not only across the country but also around the world.

If our hypotheses proves correct the administration of this substance will help the tiniest babies to grow stronger and faster by protecting their immune system.

In theory there is the potential that the length of stay would actually be reduced.

That's because faster growing babies tend to go home sooner.

That lowers the cost of the hospital stay.

Additionally faster growing babies also tend to have fewer developmental problems.

So the total cost of care over that child's life should be reduced as well.

That's just one example of how we are using our integrated model to improve the way medicine is practiced.

Another way is through our clinical improvement initiatives.

We have adopted the best-demonstrated processes in our review program.

One study has led the discovery of a number of the contributing factors for babies in some NIC used to grow faster than babies in other NIC use.

By identifying specific processes at the best performing units and sharing those outcomes with all of our practices we are improving care for all of our patients.

These examples demonstrate how we are able to improve outcomes, improve the quality of care provided and have an impact on short-term and long-term costs associated with that care.

Having said that let me now turn to the call over to our CFO Karl Wagner for a review for what was an excellent quarter, Karl.

Thanks Roger and good morning everyone.

I am pleased to report another strong quarter that reflex a fundamental improvement that were taking place in Pediatrix over the last several years.

The reported record quarterly revenue and significant growth in both net income and earnings per share for the second quarter of this year.

We continue to generate operating leverage from acquired practices including those practices brought on to the Magella acquisition.

Turning to finance review I wanted to remind everyone that are 2002 operating results were positively impacted by the change in accounting to eliminate goodwill amortization.

For comparison purposes, all references to the 2001 results we made as if the accounting changes and the corresponding tax impact has been in effect in 2001.

For 2002-second quarter net patient's service revenue was $116.2 million an increase of 40 percent from a year ago.

Revenue growth was due to the contribution of Magella, other acquisitions completed during the past 12 months and a record 18 percent same unit revenue growth.

Our same unit revenue growth is primarily the result of continued pricing improvements more specifically better contracting, improved collections on noncontracted sales and the impact of a fee increase in the second half of last year.

This growth came from practices throughout the country.

We received a lot of questions about the fee increase and I want to shed some light on that subject.

Our strategy last year was to review our schedule with the knowledge that in general Magella's fees were higher than what Pediatrix had charged for the same services.

Additionally, it's been several years since Pediatrix had instituted a price increase.

In the markets where both Pediatrix and Magella had practices we adjusted our fee schedule to be in line with Magella's fees prior to the merger.

In addition we reviewed our fees in other markets and made appropriate changes.

As a remainder this price increase was instituted on June 1 of last year and the improvements begin this anniversary in the second half of this year. [Indiscernible] significant component of same unit growth, we also obtained growth and improved fair contracts in improved collections on existing contracts.

Profit after practice expenses was $47.1 million up 42 percent from the prior year.

Our margin was 40.5 percent, slightly up from 39.9 percent in the second quarter of 2001.

EBIDITA for the most recent quarter was 29.3 million up 67 percent from 17.6 million a year ago.

The EBIDITA margin was 25.2 percent for the most recent period, up 411 basis points from the 2001-second quarter numbers.

The improved margin reflects our [indiscernible] G&A costs as we continue to grow.

For the quarter, G&A expenses as percent of revenue were down 347 basis points when compared to the second quarter of 2001.

For the 2002 second quarter operating income was 27.9 million up approximately 70 percent from 16.4 million for the 2001 second quarter.

Operating margin was 24 percent for the second quarter of 2002 up 427 basis points in the second quarter of 2001.

Net income of [17 million] for the 2002 second quarter increased by 77 percent from 9.69 million in 2001 second quarter results.

Earnings per share was 62 cents based on weighted average of 27.4 million shares outstanding.

This compared to the jump of EPF of 45 cents based on 21.3 million shares outstanding for 2001 second quarter.

Our income statement reflects the very focused and very effective management of our business.

We are seeing significant efficiencies in our back office activities and that's driven margin expansion that we expect to continue to see in the future.

At this time I would like to move to the presentation of our balance sheet, which remains very strong.

We continued to generate significant cash [indiscernible] in the second quarter [indiscernible] with approximately $64.7 million in cash. [indiscernible].

We have been using by cash to buy shares.

In fact at the close of business yesterday we have used about $30.8 million of our cash to buy back approximately 1.1 million shares.

We are confident that after we have completed our share repurchase program we will have sufficient capital to continue to execute our growth plans.

In addition to our remaining cash we have a $100 million line up credit facility, which currently has no outstanding balance.

Cash receivable is 68.2 million increased slightly during the quarter, but the growth was significantly less than revenue growth.

Our day [indiscernible] is upstanding improved slightly and remained below 60 days.

We continued to do an excellent job of good billing and collecting for our patient care.

I have mentioned the income statement impact of the change in goodwill accounting.

We have also completed the review of our intangible assets as required under FAS 142 and please report to you that there is no impairment of our goodwill.

On a liability side, today, we remain [differentially] debt free with total long-term debt of approximately $3 million.

As we expected cash flow from operations was very strong during the quarter at 26.9 million keeping us on track to be our cash flow estimates of approximately $80 million for this year.

This compared to 20.4 million generated in the second quarter of 2001.

During this quarter, we spent approximately 17.3 million to purchase four physician group practices.

In addition capital expenditures were approximately $1.3 million.

Before discussing our updated guidance, I would like to revise assurance on [indiscernible] enjoying a lot of national attention.

We successfully renegotiated our mal practice insurance coverage with a new policy that became effective May 01, 2002.

Well we did see a substantial increase in our total mal practice cause.

This increase was anticipated and was included in our original estimates for 2002 earnings issued last year.

At this point, I want to turn your attention to review our earnings guidance.

I want to remind you that these statements should be considered forward looking.

As Roger said and our numbers indicate our fundamental business remains very solid.

Based upon the strength of our business and repurchase of shares, we have increased our earnings per share guidance for the year between 246 and 250.

This equals with an after cash charge of about 3 cents per share incurred during the first quarter to settle the Colorado Medicaid investigation.

In our updated EPS guidance, there is an increase from our most recent guidance of $2.40 to $2.47 for 2002.

As per our quarterly breakout we expect Q3 earnings to be between 66 and 68 cents per share and Q4 to be between 67 and 69 cents per share.

While in turn, we remain confident on our ability to sustain EPS gross rates of 20 to 25 percent, which include a combination of volume growth, contribution from acquisitions, and continued [indiscernible] operating efficiency and margin expansion. [Indiscernible] it has been a pleasure talking with you about this very strong quarter.

At this point, I would like to turn the call back to Roger.

Thanks [Cob].

Let's now open up the call for the questions from analysts and shareholders.

As I said earlier, in addition to Karl, Kris Bratberg is available to respond to your questions.

So [Larry] if you please open up the call.

Ladies and gentleman, if you wish to ask a question please press the 1 on your touchtone phone.

You will hear a tone indicating you have been placed in queue.

You may remove yourself from the queue at any time by pressing the pound key.

If you are using a speakerphone, please take up your handset.

Before pressing the 1, one moment please for the first question.

Our first question is from the line of [Bill Banelo] with [indiscernible] securities.

Please go ahead.

Yes.

Just a couple of followup questions.

Karl, can you tell us, were there any nonrecurring expenses in the G&A light item this quarter due to either wrapping up Colorado or to the cost of complying with the FTC for request for information?

[Indiscernible] is really unusual.

We have [indiscernible] A higher legal expense than we may have anticipated once we wrapped the Colorado with the beginning of the FTC, but that was just towards the end of the quarter that that started.

So there is rolling up [indiscernible] unusual in those numbers.

That a big number.

Okay and then in terms of use of cash billing forward obviously you could complete your acquisition targets for the year and still have a lot of cash on your books and that number growing.

Can you give us some thought about whether you would expand the share repurchase program or what some alternative uses of cash besides earning interest might be?

This is Roger, we have not spoken with the board about expanding the repurchase program obviously that has gone well and we bought back over a million shares in a short period of time.

We will discuss that possibility with the board at our next board meeting, but as at this point there is no plan to increase the repurchase.

What else might you use your cash for then.

Would you give more than $50 to $60 millions of acquisitions?

Would you look at something else, some other kind of strategic acquisition?

Well.

Our first priority will be to remain focused on our core business and hopefully you know, thus we will do, we will work hard to complete as many neonatal and perinatal acquisitions as we can.

Ok, Thanks and just one final housekeeping question just want to make sure I heard you right Carl your guidance includes the one-time charges in Q1.

That is correct, the guidance does include that charge of [indiscernible], in fact in the first quarter by three cents.

Ok, thanks.

Mr. [Banelo] does that conclude that your question?

It does.

Ok, thank you.

Our next question is from the line of Angie [Sampilipo] with Piper Jaffrey, please go ahead.

Good morning.

On your operating cash flow, which was up nicely year over year I am wondering if there is anything in there that was one-time in nature.

In cash flow there was nothing that was unusual, just standard as you probably recall significantly high than our first quarter in both the years actually.

Primarily because their first quarter is down due to the significant payroll, taxes, 41K match, and bonuses, but there was nothing unusual in this quarter's cash flow that would have made it higher than last year.

Ok, and could do give us a breakout of the volume and the price growth for the same unit, just like that you gave us.

It is 18 percent same-year growth was primarily from pricing.

Volume growth was actually lower than our guidance expectation, about only a half percent growth in volume.

The growth in pricing came from several components.

I guess that was all pricing, there was a little bit of growth from new services that we provided for new born hearing screens and new born nursery services.

And as far as price goes, about a half the growth came from the price increase, but the other half came from better collections and better contracting.

Ok, and was there is something unusual that occurred during the quarter that would cause volume to be a little lower than you had thought.

In looking at the quarter really it was the last year second quarter was little unusual volume and the 2001 second quarter was higher than what we could possibly expect, we saw a spike I guess in about in May of 2001 as compared to the rest of the year which was kind of anomaly for 2001.

Ok, so then your volume guidance going forward remains intact?

Yes, we expect 3-5 percent same unit volume growth.

Ok, thank you.

Our next question is from the line of Mathew [Riperg] with J. P. Morgan.

Please go ahead.

Thank you very much, this is actually [Gee Dow of Mat Reposes Team].

I have three questions, my first question is can you think about your acquisition pipeline for the second half of 2002.

And then my second question is have you think increasing out sourcing trend from teaching hospitals or neonatal physician services.

And my third question is you gave the cash from operations outlook for 2002 of 80 million.

Can you talk about the CapEx and the acquisitions outlook for 2002.

Cris you want to address the pipeline question?

Sure, you know the acquisition pipeline you know remains strong we continue to see we have a very strong demography across the country.

You first talk many times in the past about the number of private practices across the country that was founded you know about 20 years ago and the senior people are working to retire or sell their practices and we think that an obvious choice for many of them will be sell their practice and currently then we believe in future there will be just Pediatrix as acquirer of those practices.

So we remain very optimistic that we will continue to grow with our acquisition program and we are very focused on acquiring deals.

We are in discussion, there are number of groups right now.

Having said that we are bit disappointed that we haven't acquired as many deals due to date even though we have announced a couple of them this morning.

We have done some very attractive deals so far this year the range of multiples that were seen is not inflating the fact you know in terms of putting the capital to work this year 50-60 million more even further along in terms of adding EBITDA which is obviously you know more important to us than actually spending the money.

So we are very busy you know in acquisition program.

You know we would like to be doing more deals we like to be putting the cash to work faster than we are, but you know there is not much we can do to speed it up.

And so you know at this time, we are sticking with our current balance for the year of you know adding about 15 million or so on annual run rate of EBITDA by putting $50 to $60 million in capital [indiscernible].

As far as out sourcing - [universities] out sourcing the neonatal intensive care units you know as I have said in the past that is one of my priorities going forward.

I do have a team composed of two individuals that are currently focussing specifically on that and I can report that although it's very early on.

We do see some I would call significant interest in the part of some universities in developing closer relationships with Pediatrix.

So, although I'm not prepared to announce any breakthrough agreements with universities, I have been presently surprised by the reception that we have received in the last couple of months as we have gone out and tried to establish communication and better relationships with universities and I am confident that at some point in the future that we will lead to some Pediatrix assuming the management of some neonatal intensive care units that are currently run by universities.

And I am sorry what was your-- what was the third question.

At the last question I was, it is the CapEx, which is [indiscernible]?

Our CapEx, yeah.

Karl, you want to address that.

Yeah, through this point we spent about $3 million in capital expenditures on have half way through the year.

Our large expectation for the year is to spend about 7.5 to 10 million I think we will probably in a lower end in that range for sure, but I think we will be in that range.

Okay, thank you.

Our next question is from the line of [Canvy Gree] with [UBS World Bank].

Please go ahead.

Good morning this is [indiscernible].

Most of our questions have been answered.

One [indiscernible] question, I think at the exact amount of dollars that you would expect on the 1.1 million shares?

I think, it's 30.8, Karl.

30.89 on the 1.1 million shares.

Thank you very much, gentlemen.

Okay.

Our next question is from the line of [Ken Heller] with [Kenum Capital].

Please go ahead.

Good morning, could you give any other [indiscernible] regarding why you felt that volume growth was lower than anticipated and why you anticipate that the line growth was still be in line with your 3 to 5 percent expectation?

Karl.

You want address it?

Yeah, as I said before I think this quarter had been light because of -- we [indiscernible] normally last year we had an unusually strong second quarter especially May 2001, so for my comparative basis it was difficult.

We have seen the timing there is little bit of a [indiscernible] nature in the patient days.

Well, it is not few there is some and it was just on a normally last year that we had more in May than we would have typically had expected so that it [indiscernible] on comparative standpoint.

We are seeing growth in our practices and we still think that we will end up in that range, especially on the growth that we have seen I do want to remind you everyone that starting next quarter Magella practices will roll into our [indiscernible] calculations as well.

Great, thank you.

Thank you, our next question from the line of [Leo Murphy] who is a private investor.

Please go ahead.

Good morning, How are you Roger.

Fine Leo, how are you.

Good, got a couple of questions.

In the markets that you overlap was Magella what was the rate increase in those markets when you brought up your own fee schedule?

You know, it was different in different markets but you know the point that I think we wanted to make is that we did not raise fees higher than they already were in those markets.

Okay, you give me some idea at a range of?

Karl, can you?

Yeah, Leo, I mean, we are really have been going into what our fees are or what upto increases where in a market-by-market basis.

You know I think what Roger's point is, is the point we want to make and I think it is important is that we did not come together as Pediatrix and Magella and raise rates to a new higher level we just said what was in the market already and brought our fees upto market rates but we really don't want to go into specific on what rate changes where market-by-market.

Just as an extension of that with regards as a FTC.

Does it -- do you get any points, do they really give a damn or doesn't make any difference as you go in and tell them or show them basically that you know you are doing your outcome studies but what we talked - what you talked about on the call in terms of improving the healthcare.

As prior to it most of the justification for you know hauling these three units together most [relevant] just getting some pricing power do they care?

Well, that is a big part of what our argument will be to the FTC that we are more than just, you know, two groups coming together to get some pricing power and the fact that we integrate the groups and then we utilize our group to do these cancer studies etc., is a big part of what we intend to present to them.

Our lawyers, you know, tell us that the FVC does care about those things and so, you know, when the time comes, we will be making those points.

Okay, the only other question I have was [Eddy] can you give me some range again either on EBITDA or operating margins in terms of, you know, we are anticipating couple of years down the road?

[indiscernible], that is a crystal ball Carl.

You know we had been from a EBITDA standpoint in the low 30s at one point in the future.

You know, I don't -- we have said consistently that we don't expect that we can get back to that level at this point.

But we do expect that we will continue to see marginal expansion that we can end up, you know, [indiscernible] as far as knowing the number, it's very difficult to do it.

But we do expect to continue margin expansion the rest of this year and year-over-year going forward.

Thank you and I have one other question for Roger, if I could.

Roger, one of the issues you have talked about in the past, just came to me, and that's possible doing something outside the United States.

Is anything going on there?

Does FTC issue kind of -- keep you busy right now?

Well, you know, the FVC issue is really been handled by our lawyers and as I said earlier you know, we are pretty focussed on the stuff what we are doing and I think the results for this quarter demonstrates that.

You know, the international market is something that is very attractive that and the University market if you would recall are the areas that I will be focussing on, you know, going forward, and you know, I have not taken any steps on the international arena.

I did put together a set of small group of people who are working on the University practice side.

But I will, at the end of this year --, I will focus on the international markets and I will spend, you know, significant efforts in pursuing those markets because I think there are some good opportunities for us there.

I have not done anything in that respect.

Thank you.

Ladies and gentlemen, as a remainder if you do have any questions at this time, you may press one on your phone keypad.

Our next question is from the line of [John Grace] with [Rockefeller] and Company.

Please go ahead.

Thanks, good morning folks.

Could you -- this is a fundamental question and then I have a follow-up.

Could you talk a bit about your physician retention history?

After you have acquired these practices, how many have left?

You know, I can't give you specific number but I can tell you that the number is incredibly small and in fact, you know, -- I will venture to say that there are some physicians who have left but probably none of the senior physicians in the groups have left, may be one, you know, some have retired.

They do tell us ahead of time when we negotiate our deal with them, you know, they will stick around for a year or two or three and then, as that we know ahead of time that's going to happen.

But our retention rate without being unable to give a specific point at this point I would say it is excellent.

With economic incentives do they have to stay?

You know, the economic incentives are basically, you know, guaranteed salaries and bonuses.

A good bonus program going forward that they can share significantly after a level of profit has been accomplished.

They share significantly in the profitability of the practices.

You know, the fact that they have, you know, better benefits than they had originally, which is because as a larger group we can provide them the fact, you know, that they participate in education and research initiatives that were not be available to them.

So I mean there is a host of reasons, you know, they have more time, more patient time because the back office functions and may be they spend a lot of time working on in the past.

They are not being taken care of by the group.

So, I mean -- I think these are the whole host to of reasons why they stick around.

And do the majority of them hold stock?

Now all of our deals, you know, with the - the answers I don't know, but all of our deals, with the exception of the Maggela acquisition, you know, we offer cash.

We don't use our stock as a currency to acquire physician practices.

So, you know, whether they go our course, which they are free to do independently and buy any Pediatrix stock in the market, you know, -- I don't know and they don't tell.

Okay.

I have just one followup then, you mentioned three markets where the FTCs identified the overlap with Magella.

What markets are those?

Have we [met] them?

We have talked about that in the past, I mean it's [Austin], Dallas and Las Vegas.

Okay.

Thank you very much.

Our next question is from the line of John [Sado] with CIBC World Market, please go ahead.

Good morning.

I had a question about the FTC review and how that maybe impacting your acquisition strategy, [you know], you announced these deals today, but of course I think [he] also said that you made be a little bit behind where you thought you would be has that contributed at all to what you are trying to do in that side?.

Good morning, John.

Not really had any [indiscernible] evidence of the FTC investigation is going to slow down the acquisition program.

Unlike the Medicaid investigations where it is really easy to see why doctor might hesitate joining Pediatrics why we are being you know investigated by a Medicaid Program for [indiscernible] this is very different it is a much more benign process from this physician's point of view, certainly, and we are [indiscernible] as this has the acquisition program will be slowed down as we go through the FTC investigation.

Now [turning] to as Roger said earlier, now [indiscernible] are telling us that we that we absolutely should be running our business in the ordinary course, which is clearly means that the acquisition program is moving ahead and being pushed as seen from our side.

One of those acquisitions was in [Fort Worth] right?.

Yes.

I do not know my geography that well, but to me it seems like if I am [selling] my practice and I'm at [Fort Worth] and I'm looking at Dallas I'm mean that would be a pretty strong statement that -- well with those doctors where they are probably not too worried about it, right, I mean if there was any area that would be most at risk, would be someone at Dallas [Fort Worth] area.

At Dallas [Fort Worth] as I mentioned one of the overlap markets I mean it is clear if [Fort Worth] would be considered a separate market from Dallas, but that [indiscernible] either way you kind of - we have a very significant market share in Pediatrix --though pediatrics had, you know very large presence in Fort Worth you know now for six years and we added a relatively small practice, a few weeks ago in Fort Worth we did talk to the council about doing an acquisition in Fort Worth with the investigation, you know FTC thing going on and their advice was clear, you know, just keep doing your business the same way you always did, you know we had a big presence in Fort Worth before, we have a marginally larger one today, but it really did not change the market all that much in the [indiscernible] by adding that small practice.

Yes.

Here is a [slight] recall, have you actually stated exquisitely what your expectations are for acquisitions in either dollar amounts EBITDA for next year?.

[indiscernible].

Yeah.

No we have not. [indiscernible] we have given that guidance on our third quarter earnings call, in the calendar year and that's what we have planned to do this year..

Okay.

Just a little bit of housekeeping item on the share count, it increased -- if I am looking at this right, it increased a little bit sequentially while the stock price was down -- I am [indiscernible] on that maybe 10 bucks from the end of the period.

Does that suggest that there were some options, grants or [indiscernible] what was that and also if you had the end of the period share count it would be helpful well.

As far as the increase in this share count really was a function of a number of option exercises during the quarter after converting from these options, which you can assume you buy that shares and [indiscernible] share and calculation per earnings per share and [would there an] outstanding [indiscernible] share for the period that was really the driving factor to push it up.

But those options were in the [money share] shouldn't they have been in the diluted share count anyway.

[indiscernible] diluted share count except under the treasury stock method for earnings per share count, you assume the cash received [indiscernible] you are to build a market and buy that share [indiscernible].

Okay, got it.

And, I do not have an updated share count number for the end of the quarter, as far as what was outstanding with me I must get back to you on that and that would be -- and our most recent number would be in our Q when we file that.

Right, okay thanks.

Our next question will be from the line of [Dill Banelo] with Wachovia Securities.

Please go ahead.

[Dill Banelo]: Yeah, Karl did you say that you spent $17 million in the quarter for acquisitions?

Yes.

Can you, which acquisitions did that incorporated, did that incorporate the two you announced today?

[indiscernible] corporate four [indiscernible] small one and we did typically [indiscernible] small acquisitions by themselves, that is why that announcement came today, did not include Florence, it did include Charlotte, North Carolina, Columbia, South Carolina, and [indiscernible] Kentucky as well as the Fort Worth transaction, and then in the first quarter we did an acquisition in Memphis.

Okay, so South Carolina and North Carolina and Kentucky and Fort Worth.

Correct.

Okay.

Great, that is [indiscernible] in the acquisition pricing, how does that compare with what it has been historically.

[indiscernible].

Okay.

Great.

Thank you.

Thank you, and at this time, Dr. Medel, I'll turn the call back over to you.

Okay.

Thank you Lorie if there are no further questions, I appreciate your help, this morning and we will look forward in speaking with our investors in next quarter.

Thank you.

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You may now disconnect.