Pediatrix Medical Group Inc (MD) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Pediatrix Medical Group 2003 First Quarter Investor Conference Call.

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

As a reminder, today's conference call is being recorded.

Before I open up the call to Pediatrix's management team, 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 fact that address activities or events that Pediatrix intends, expects, believes, or anticipates, are forward-looking statements.

Forward-looking statements are based on management's current beliefs and expectations, and are 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 10K for the year ending December 31st, 2002, filed with the U.S.

Securities and Exchange Commission.

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

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

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

Please go ahead, sir.

Thank you.

Good morning, and thank you for joining this call to discuss the operating and financial highlights for the three months ended March 31st, 2003, a period where we continued to demonstrate strong revenue and earnings growth and continued operating efficiencies.

I am pleased to be here to talk with you as the Chief Executive Officer of Pediatrix.

As many of you know, I resumed the duties of CEO at the end of the 2003 First Quarter, following the departure of Kris Bratberg, President and Chief Executive Officer, for personal reasons.

Kris made many significant contributions to Pediatrix during his seven years here, and we wish him well in the future.

As the issues around Kris's departure were being handled, I was very pleased to have received the board's support to return to this familiar role, as CEO, a position that I held from 1979, when this group was founded, through December, 2002.

Let me assure that I'm an active, fully engaged CEO.

I have entered into a new three-year agreement and hope for that not to be my last contract as CEO.

This has been a very smooth transition, for a number of reasons that have to do with our approach toward management at Pediatrix.

First, during the brief period that I served as Executive Chairman, I remained involved in the activities of Pediatrix, with a focus on new platforms for growth.

Second, and as important, we have developed the management depth here at Pediatrix that makes it possible for us to generate the significant operating efficiencies that have flowed through to our shareholders over the past several years, while simultaneously developing those new growth opportunities.

We have a strong headquarters team, and I'm proud to be a part of that group.

In addition, there's another level of management, an important level of managers, because they have oversight of both our physician structure and our day to day operations that have been functioning with little external fanfare for several years.

I want to call to your attention that group of managers today.

Over the past few years, we've used this forum to talk about the development of our regional offices, now numbering six across the country.

As part of that structure, our regional medical officers assumed new roles as regional presidents, and they report to our Chief Operating Officer, Joe Calabro.

Almost all of those physicians also have completed MBAs, an effort that we have encouraged throughout our history.

In fact, I was the first MD/MBA in our group.

These executives have responsibilities for both clinical and business activities within their geographic region, and each is supported by a talented Regional Vice President.

This structure of pairing clinical and business management operations allows us to integrate new practices easily, encourages better clinical efficiencies, improves contracting and collections, and promotes some good regional competition.

As important, relationships between our practicing physicians and hospital partners have improved as a result of the development of this strong regional network.

My point is that while a few members of our management team have been visible to investors, there are several important layers that have been adding responsibilities for our clinical and business activities over the past several years.

Our management structure has been dynamic, evolving as our business has grown, and it is one of the reasons that our core operations have improved so dramatically over the past several years.

With the development of this management structure, we are able to support our current operations, expand our core business, and look at new growth opportunities.

Last month, we announced that we were awarded a contract to provide neonatal services at Driscoll Children's Hospital, a Level III neonatal intensive care unit in Corpus Christi, Texas.

This is an unusual pick-up for us, in that we won a bid process.

In essence, we acquired 13,000 neonatal intensive care unit patient days without the capital investment that comes with traditional acquisitions.

During the first quarter, we also added a pediatric cardiology practice, based in West Palm Beach, Florida.

While we remain very confident in our ability to continue to grow through accretive acquisitions, we are disappointed in the current pace of those acquisitions.

Our pipeline remains healthy, and we're optimistic that the pace of acquisitions will accelerate.

We have learned, however, that we cannot control the timing of those acquisitions.

During the brief period when I served as Executive Chairman of Pediatrix, I had the opportunity to look at new avenues for the growth of Pediatrix.

I return to the CEO's post more energized because I have seen the opportunities that exist beyond our current platform of physicians providing maternal, fetal, and newborn care.

We staff more than 200 neonatal intensive care units across the country.

This provides us with a significant footprint for other services, either in the hospital, or around the maternal fetal newborn experience.

One example of our ability to strengthen our relationship with our hospital partners, while generating an attractive return, is our newborn hearing screen program.

We performed more than 200,000 hearing screens on babies born at about 100 of our hospitals last year.

These were both babies who were admitted into the newborn intensive care units that we manage, and healthy newborns in the normal nursery.

These hearing screens are performed in compliance with regulations that exist in many states, and we refer identified cases on to an audiologist for further evaluation.

While we screen 5% of the four million babies born last year in the United States, we are the largest newborn hearing screening program in the country.

This business is an example of the kinds of natural diversification that can occur from our existing platform.

The value for our hospital partner is that we are a reliable outsource provider of a service that has tremendous value to families across the country.

We have built a database to manage outcomes of those babies screened, as well as to track follow-on activities for those patients referred for additional care.

That database is also used to help hospitals comply with state reporting requirements.

This has been a very quiet but fast-growing service area for us.

We have used this model for one screen, hearing, but we are beginning to explore the possibility of additional newborn screening opportunities, including vision screening and metabolic screening.

We believe that our footprint in so many hospitals, coupled with our reputation, earned by providing care to approximately 20% of the nation's tiniest and sickest newborns, creates some opportunities for us to extend our business in a way that adds value to patients and strengthens our ties with our existing hospital partners.

We are optimistic that new growth opportunities will open for us in the not-too-distant future.

This is a brief look at where we're going.

Today's financial report card gives you a sense of the progress that we continue to make in improving patient care while generating operating efficiencies.

I've taken a lot of time to identify a strategic vision, so let me now turn this call over to Karl Wagner, our Chief Financial Officer, for a detailed review of our first quarter results.

Karl?

Thanks, Roger.

Good morning, everyone.

As Roger mentioned, we had another great quarter, with strong, year-over-year revenue and net income growth, and continued operating efficiencies.

As is our standard format for these calls, I'm going to spend some time this morning providing an overview of the first quarter, as well as some expanded details of our existing 2003 earnings guidance.

For the 2003 first quarter, net patient service revenue increased by 17.6%, to $126.2m.

That increase was principally the result of strong same-unit revenue growth of 14.2% for the quarter.

This growth consists of 5.6% neonatal intensive care unit patient volume growth, volume growth in para-natal services, and continued growth from other services, including hearing screenings and newborn nursery patients.

Additionally, we realized revenue growth from pricing, including better payer contracting, and some impact from a modest fee increase that was put in place in January.

Profit after practice expenses was $47.5m, up 15.2% from the prior year.

Our margin of 37.7% declined 80 basis points from the first quarter of 2002.

This [inaudible] decline is due to an increase in payroll taxes in the first quarter, as a result of the significant bonus payments to our physicians.

Each year, we see an increase in payroll expenses as a result of payroll tax obligations that we incur at the beginning of each year.

This tax is up to a specific threshold and once that threshold is met, our employer match goes away.

This year, with the success of our bonus program in 2002, which is paid out in the first quarter of the year, we realized an acceleration of those tax payments in the most recent period, as more of our physicians are hitting their threshold.

As a percent of revenue, these expenses should decline during the second quarter, and the remainder of this year, having the effect of expanding margins for the remainder of the year.

We also see higher medical malpractice expenses in this quarter, as compared to the first quarter of 2002, as a significant increase we realized last year occurred in the second quarter.

EBITDA for the most recent quarter was $29.2m, up 23.4%, from EBITDA of $23.7m a year ago.

The 2002 first quarter included pre-tax expenses of $1.3m related to the settlement of a Medicaid investigation in Colorado.

Backing out these settlement expenses, EBITDA growth was approximately 17%.

We continue to generate financial leverage through better management of our general and administrative expenses, which declined as a percent of revenue to 14.5% from 15.2% a year ago, after adjusting for the expenses related to the Colorado settlement.

For the 2003 first quarter, operating income was $27.6m, up approximately 24.1%, from $22.2m for the 2002 first quarter.

Operating margin was 21.8% for the first quarter of 2003, up 110 basis points, from adjusted operating margins for the first quarter of 2002.

Our effective tax rate improved to 38%, as compared to 39% in the first quarter of last year.

Net income of $17m for the 2003 first quarter increased by 26.1%, from a net income of $13.5m for the 2002 first quarter.

Earnings per share were 68 cents, based on a weighted average of 25.1 million shares outstanding.

This was positively impacted by approximately three cents per share due to our 2003 first quarter share repurchase program.

This benefit had not been included in our most recent guidance.

EPS of 68 cents compared with EPS of 51 cents, based on 26.6 million shares outstanding in the 2002 first quarter.

The EPS impact of the Colorado settlement in 2002 was three cents, so comparable earnings per share would have been 54 cents.

Our balance sheet remains very clean.

We have virtually no debt, and during the 2003 first quarter, we used approximately $50m to complete a share repurchase program that had been authorized last year.

At March 31st, we had a cash balance of $13.5m.

Accounts receivable were up slightly, to $83.4m, and our day sales outstanding remains below 60 days.

On the liability side, accounts payable decreased significantly from December 31, 2002, as a result of paying out approximately $30m in physician bonuses that had been accrued in 2002, as well as a result of the employer match of the 401k plan.

We remain un-levered, with total debt and capital lease obligations of less than $2.5m.

Because of all the large first quarter payments, operating capital for the first quarter was a negative $6.5m.

We had expected negative cash flow, and in fact, I mentioned that on our last earnings conference call.

But the actual amount was significantly less than the expectation of the $10m to $15m negative cash flow for the period.

Additionally, we spent approximately $2.7m on a practice acquisition, $1.3m in capital expenditures, and as I said before, $50m to repurchase approximately 1.6 million shares of Pediatrix common stock on the open market.

Since the beginning of the second quarter, we've announced the authorization to purchase up to an additional $50m of common stock, as conditions warrant.

At this time, I want to spend a few minutes on earnings and cash flow guidance for 2003.

I do remind you that these statements should be considered forward-looking.

For 2003, as we stated in this morning's press release, we expect earnings per share of between $3.20 and $3.26.

Our previous guidance was EPS of $3.10 to $3.20.

The increasing guidance is tied directly to the reduction in shares outstanding, as a result of the share repurchase program that was completed during the first quarter of this year.

Our guidance for cash flow from operations remains at approximately $100m for 2003.

With this new guidance, we expect second quarter earnings per share of 78 to 80 cents, and for each of the third and fourth quarters, earnings per share of 87 to 89 cents.

The assumptions behind our guidance are 3% to 5% expected same unit growth in neonatal intensive care unit patient volume, and another 3% to 5% same unit revenue growth from better reimbursement, including better contracting and better collections.

Included in this is a slight impact for a modest price increase that was implemented on January 1st of this year.

As we discussed in our last call, our guidance includes an increase in medical malpractice costs.

In fact, we signed a new medical malpractice insurance policy last week, which was roughly in line with our expectations.

As I'm sure you've noticed, this revised guidance does include contributions from acquisitions for the remainder of 2003.

While we remain confident that we will complete accretive acquisitions during 2003, we are extremely pleased with both the quality and quantity of the pipeline, it is not possible for us to control the timing of, and therefore the earnings impact, of these physician group practice acquisitions.

While impact from the share repurchase increased expectations for the second quarter, its impact on both the third and fourth quarters is offset by the removal of acquisitions from our guidance.

I'm sure there's a great deal of interest in the expected impact from the changes in CPT codes used by neonatal physicians.

As you may know, the American Medical Association made some significant revisions to the CPT codes for neonatal services.

These changes include the elimination of one code and the addition of three new codes specific to neonatal services.

While we began the implementation of these changes in March, we are currently not able to project the financial impact on our operations, due to several unknowns.

Not all payers, including several state Medicaid programs, have implemented these changes.

In addition, with the introduction of several new codes, we are unsure of the ultimate payment rates for these services.

At this time, with effectively one month's data under the new coding system, and very limited collections experience, we do not have enough history with these changes to accurately predict their impact on our operations.

Although they do appear to be an overall net positive and any impact would be accretive to our earnings.

At this point, I'd like to turn the call back to Roger for additional comments.

Thanks, Karl.

As you can see, this was another very solid quarter.

We've taken a lot of time with the formal remarks, so let's open up this call to questions from analysts and shareholders.

Operator?

Thank you, sir.

Ladies and gentlemen, if you wish to ask a question, please press the one on your touch tone phone.

If you did press one prior to this announcement, please do so again at this time.

You will hear a tone indicating that you've been placed in queue.

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

If you are using a speakerphone, please pick up your handset before pressing the numbers.

One moment, please, for the first question.

Sir, at this time, we have no one queuing up.

Would you like to continue?

Well, that's a surprise, I guess.

OK, we do have a question.

One moment, please.

Our first question comes from the line of Zack McPherson from Pioneer Investment Management.

Please go ahead.

Hi, guys, thank you very much.

I just wanted to ask about those CPT codes.

You said there was one that was eliminated and three others that were added.

How many total codes are there in the system, and maybe what percentage of your procedures would be impacted by these?

Well, from a-- Zack, hi, good morning.

From a neonatology standpoint, you know, codes-- for every single procedure, there's a code.

So, codes in the system, there are, you know, hundreds, if not thousands.

Codes that are specific to neonatal intensive care units are the 95, 96, 98, 99, so four specific to the neonatal intensive care unit, and then three or four other specific hospital codes that are not specific to the neonatal intensive care unit.

OK.

And it's affecting basically two codes, 96 and 97 got folded into one, and two additional codes, 94 and 98, that have been-- I'm sorry, 94 and 99, that have been instituted.

So again, so basically, this is everything that you do has just been reclassified?

Yeah, I wouldn't say everything, but a lot of what we do has been reclassified.

Yeah, a substantial portion of what we do will move around amongst codes.

OK.

All right, thank you very much.

OK.

Once again, ladies and gentlemen, if you do have a question, please press the one on your touch tone phone.

Our next question comes from the line of Angela Samfilippo of Piper Jaffray.

Please go ahead.

Good morning.

I just had a clarification question on your guidance, where you said that you've raised the guidance.

However, you've pulled acquisitions out and the decline in EPS due to taking acquisitions out, that was offset by the share repurchase.

So apparently, I'm just confused, then, in terms of what's actually causing your earnings guidance to go up.

Well, when you look at our earnings guidance for the first quarter, we exceeded the earnings guidance we had given, so that raised our guidance for the year.

We raised our guidance in the second quarter because of the share repurchase having an impact on what our expectations were.

In the third and fourth quarters, we tightened that range, as we're getting closer and getting better visibility on that, and we removed the acquisitions, and the acquisition piece is pretty much offset.

So, it really-- part of it was tightening the range, and there was the increase in some of the ranges, because of the first quarter results, and now second quarter increases in [inaudible].

OK, thank you.

And then I'm wondering if you could give me an update on the Medicaid outlook, just an update there?

What you're seeing -- if there's any particular state that you're worried about, if you proceeded untouched thus far, or if there's anything that's concerning you on that front?

As far as the Medicaid programs go, I mean, we are watching it.

There are still a lot of state budgets out there, being reviewed.

You know, at this point, there's no one that we're incredibly concerned about.

We have been, for a long time, concerned about California.

What we've been hearing lately is that the physicians will not-- if the Senate had passed a budget, did not include a cut for physician services in California, whether that holds up in the ultimate budget, we don't know.

But that was positive, as we had expected that we would see a cut there.

We had heard that there's some discussion in Texas about a cut in Medicaid, and we don't know to what extent that will be.

We do believe that that's going to be more on a hospital basis, or long-term care, than on the physician side, but we don't have the ultimate answer on that.

Other than that, I think we basically see across the country, you know, flat Medicaid funding, and we don't really have any concern.

We are watching, you know, every state that's going through this, at this point.

OK, and then my last question is- actually, that is all for me.

Thank you very much.

And our next question comes from the line of John Szabo of CIBC World Markets.

Please go ahead, sir.

Good morning.

Thanks.

I had two questions.

First was on the price increases you mentioned.

Was this a change in strategy for the company?

Was this sort of an across-the-board price increase for January 1?

I thought that you kind of did it sort of pair by pair, contract by contract.

Has there been any change there?

Well, John, there's a difference, I guess, between the negotiations, which is payer by payer, contract by contract, and what our fee schedule is.

We do have some contracts that are based upon our fee schedule, we do have some payers that are not under contract, and their payment is based upon a fee schedule.

We did do, you know, an increase on January 1st to our base fee schedule, and it really-- we've made a decision, going forward, that we will probably look at our fees on a very routine basis and make a decision on an annual basis whether we should be doing an increase or not.

OK.

What percentage of your, well, I don't know how you want to look at it, patient days or revenue, is out of network and would be subject to that fee schedule increase?

About 21% of our business is not contracted; it's either out of network or with, you know, indemnity payers.

Mostly out of network.

I'm sorry, what was the percentage?

About 21%.

21%?

OK.

OK, and then the second question was really on volume.

You know, the number for this quarter was above your range.

Was that just a snap back from a weak quarter in the fourth quarter, or, you know, was there something unusual that you could point to?

Well, the fourth quarter wasn't a weak quarter, year-over-year growth on patient days.

I think the number was 7% on a volume standpoint.

So we had a very strong quarter over quarter in the fourth quarter.

I think, you know, people have thought that it was a poor quarter because it was down from the third quarter, on an actual day basis, but that's typical for us.

We do see a drop off in the fourth quarter in our [inaudible] days, third to fourth.

But year-over-year, it was very strong.

You know, we have seen periods when we do go outside that range on an annual basis.

We do expect to stay in that 3% to 5% range.

We have had times in our history where we've been under the 3%, and we've had times where we're over the 5%.

But over the long term, we typically average out into that 3% to 5% range.

So we don't see anything specifically that's creating a dynamic-- is going to create-- has pushed that range up.

OK, thanks.

But you know, just one more point of clarification on the price -- so if you raised your fee schedule, that would have also had a positive impact on your in-network as well, to the extent that your contracts are fixed discounts off of fees, or no?

A portion of those; a small portion of those.

OK.

All right, thank you.

And our next question comes from the line of Matthew Ripperger from J.P. Morgan.

Please go ahead.

Hi, thanks very much.

I have a question related to the medical malpractice contract that you signed last week.

Can you give any color as to the length of the contract, and I recall that on the last call, you were guiding people to roughly a 20% increase in accruals, year-over-year.

Did the contract come in, in line with your expectations?

Thank you.

Good morning, Matt.

Our medical malpractice is a one-year policy, and at this point in time, it's a really difficult period to try and get a longer policy than that, and we don't know what's going to happen with pricing next year.

But as far as the cost of it, it was roughly in line with what we had expected, on that 20% increase.

And was there any change in the retention level that the company is keeping?

No, there was no change in our retention levels.

Great.

Thank you.

The form of the policy is pretty much the same as it was last year.

OK, thank you.

Our next question comes from the line of [Tom Merliner] of [Buttenfield Associates].

Please go ahead.

Yeah, I did not press the poll for a question.

Thank you.

And we do have a follow-up question from the line of Angela Samfilippo of Piper Jaffray.

Please go ahead.

Thank you very much.

My last question, that I couldn't remember before, has to do with the current share repurchase.

Could you update us where you are with the most recently announced $50m share repurchase?

Certainly.

We have not bought back many shares.

I think we've bought back about 250,000 shares under that repurchase program, and it'll be as market allows, based upon the price, whether we'll be buying back or not.

Perfect.

Thank you.

Once again, ladies and gentlemen, if you do wish to ask a question or have a comment, please press the one on your touch tone phone at this time.

One moment for the next question.

Our next question comes from the line of William Bonello of Wachovia Securities.

Please go ahead.

OK, thanks.

Actually have a couple of questions.

I think I know the answer to this, but I want to be perfectly clear -- your guidance does not include additional share repurchases?

That is correct, Bill.

OK.

And then secondly, can you give us some sense of how your pipeline compares to where it may have been a year ago?

I know you took acquisitions out of the guidance, but I'm trying to get some sense of what your outlook for acquisitions might actually be, independent of timing?

Hi, Bill, it's Roger.

You know, I get a pipeline report that has different buckets in it, and different deals in those buckets.

And you know, the buckets are, you know, offers that have been accepted, and you know, we're in the process of doing due diligence, offers that have been submitted and in the process of being negotiated.

Offers, or deals, that are in the valuation process, where we're getting ready to make an offer, and then, you know, key leads of deals that are, you know, are important to us and it looks like there's interest on both sides.

You know, I have deals in all of those buckets, which is why, you know, I talk about our pipeline, you know, being healthy.

I have deals in every one of those buckets and more than one deal in each of those buckets.

So you know, without getting into a lot more detail than that, because as you know, it's just hard to-- stuff, you know falls in and out of these buckets with some relative frequency.

I am encouraged by the overall level of activity in the pipeline, and the fact that we've got, you know, deals not only in the top buckets, but also bubbling up from the bottom buckets.

So, that's probably as much as I want to say about the pipeline.

I understand.

Let me just ask one other thing, and then you can say you won't answer, but does that-- does that level of sort of, you know, deals in the buckets, I mean, is that comparable to what you've seen in the past?

In other words, is the pipeline just as full as it typically is?

It's comparable to what I have seen in other periods in the past.

It's probably more active than it was a year ago at this time.

OK.

Perfect.

And then can you just-- this is a naive question, I guess, but can you explain the difference between better payer contracting and fee increases?

Yeah.

I mean, better payer contracting is just a function of going out and re-negotiating a contract.

You know, we might go out to, you know, a local HMO and renegotiate the fee schedule that we have with them for an increase in the fee schedule on that, versus a price increase, whereby if we have patients who we have out of network payers, where they pay- they base their fee based upon what our charges are, a fee increase would get some impact for us from that.

OK.

That's helpful.

And just one last question -- the Corpus Christi model, is that replicable?

Should we expect that there could be other management contracts in the future?

You know, Bill, for the first ten years or so of Pediatrix, that was the model.

The model was to, you know, either start new units or assume care in units that the hospital administration, for whatever reason, was unhappy with their current group of neonatologists.

The problem with that growth model is that it's a very slow model.

You basically are sitting around, waiting for-- first of all, there are not too many hospitals now that are developing neonatal intensive care units.

Hospitals that are going to have NICUs already have them.

There are, you know, some opportunities.

For example, in Vegas, there are a couple of hospitals that are, you know, opening up there, and we do have an agreement to manage, you know, one of those new units that's coming up.

But by and large, you know, it's not a great growth opportunity.

Or we've got to sit around and wait, you know, for a hospital administrator somewhere to say, ``I'm not happy with my neonatologist,'' and therefore, you know, I want to make a change and send out an RFP.

The switching costs are high, there's a lot of relationships between neonatologists and obstetricians and you know, and other physicians in the hospital, which is one of the reasons why, you know, our stable of contracts is- our, you know, our book of contracts is stable.

So, you know, while we do get contracts, you know, in this kind of growth, we probably average no more than one a year, something, like that.

It's not a-- you know, it wouldn't be a great growth opportunity for us, so we grew that way, you know, from-- through the 80s.

You know, the reason we did the IPO was to have access to the cash so that we could go out and acquire these practices, which has, you know, accelerated our growth dramatically.

But, you know, we expect every year to get, you know, one or maybe two of these kinds of internal growth contracts.

OK, great.

Hey, thanks a lot.

Thanks, Bill.

We do have a follow-up question from the line of John Szabo from CIBC World Markets.

Please go ahead.

Thanks.

Just a question about the screening on the hearing -- do you have an idea of how fully penetrated that is?

And could you also comment about the profitability of that?

Would that be a high margin business, seeing as you're basically taking advantage of physician down time?

Yeah, hi, John.

You know, we are the largest provider, by far.

You know, we did 200,000 screens.

The market here in the United States is four million.

So you can see we've got a lot of room to grow yet.

We do screen in about half of the hospitals that we're in, and we also provide screening in some hospitals where we don't have the neonatal intensive care unit contract, which we like as an opportunity to develop some relationships with the hospital and possibly, you know, moving on to manage or run their neonatal ICU at some point.

So, you know, it's an area that's very attractive to us.

We are, you know, the newborn experts in our hospitals, so the hospital administration and other people, clinical people, look to us for advice and it's a competitive advantage that we have.

We have a presence in all these hospitals.

Our physicians look at the, you know, the screening is done by a technical person, and then the reports are seen by the physicians, who then you know, decide what to do, if there is an abnormal one, and then what to do with the abnormal results.

So, you know, it is a pretty interesting utilization of their time, and they can do it- you know, they don't have to do it under any kind of time constraint.

They just kind of do it when they have the time to do it.

Margins are pretty good.

You know, it's obviously not a big-ticket item, but the margins are in line with the margins for the rest of our business.

So, it's an interesting business for us.

OK, thanks, and then just one follow-up on the financial- on the guidance, actually.

Your cash flow from operations was a little bit better than expected in the quarter, but your guidance for the year remained the same.

Why was the cash flow better, and was that just conservatism, in terms of keeping the guidance the same?

As far as the first quarter, we had a very strong collection quarter, in our receivables-- resulted in a very strong quarter compared to what we had expected.

As far as the rest of the year, you know, pulling out acquisitions is going to have some impact on the cash flow for the year, and we want to be conservative on where we're going to be on cash flow for-- we think $100m is right in the range.

OK, thanks.

Just to talk about that cash flow, to reiterate something we said in the prior quarter, the timing of the payments, because of the new coding changes, may result in us seeing a delay in some of the payments in our accounts receivable during the second quarter, because of those coding changes.

As I said, some payers haven't recognized those, so in working through that, we may see some changes in that in the second quarter, although we expect in the second half of the year, we'll be able to make up for that slight decrease in cash flow, because of the A/R issue.

Ladies and gentlemen, please take this final opportunity to ask a question or make a comment in regards to the presentation.

Sir, we have no one in queue.

Please continue.

OK, well, if there are no further questions, then let me just thank everyone for listening and participating this morning, and thank you, operator, for helping us through this process.

Ladies and gentlemen, this conference will be available for replay at any time, beginning today at 2:30 p.m. through Tuesday, May 13th, at 11:59 p.m.

You may access the AT&T Executive Playback Service by dialing 1-800-475-6701, and entering the access code of 683546.

International participants dial 320-365-3844, and use the access code of 683546.

Those numbers once again are 1-800-475-6701, access code of 683546, and 320-365-3844, access code 683546.

That does conclude our conference for today.

Thank you for your participation, and for using AT&T Executive Teleconference Services.

You may now disconnect.