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Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Pediatrix Medical Group 2005 fourth quarter earnings conference call.
As a reminder, today's conference call is being recorded.
Before I open up the call to the Pediatrix 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, events, or developments that Pediatrix believes, anticipates, intends, expects, or projects and similar expressions are forward-looking statements.
Forward-looking statements are based on assumptions and assessments made by Pediatrix management, based on factors they believe to be appropriate in light of their experience.
Forward-looking statements are subject to risks and uncertainties that could cause actual results, developments, and business decisions to differ materially from those contemplated by these statements.
Pediatrix describes uncertainties, risks and assumptions in its most recent annual report on Form 10-K filed with the U.S.
Securities and Exchange Commission.
Please see the section entitled risk factors in that report.
Pediatrix undertakes no duty to update or revise any forward-looking statements made during this call.
Whether as the result of new information, future events, or otherwise.
At this point, I would like to remind you that the following remarks by Dr. Roger Medel, Pediatrix Chief Executive Officer and Mr. Karl Wagner, Pediatrix Chief Financial Officer management will host a brief question and answer session.
I would now like to turn the conference over to Dr. Medel.
Please go ahead, sir.
- CEO
Thank you, and thanks for joining our conference call today.
We have a lot of good news this morning and we want to provide an update on our strong operating results and our ongoing acquisitions program.
This morning, Karl and I will touch on each of these issues in our formal comments before opening the call for your questions.
As we announced this morning, we've reached an agreement in principal on our financial settlement with the U.S.
Department of Justice on our national Medicaid and Tricare investigation.
This agreement is a significant step towards moving this issue to final conclusion.
We have cooperated with the Department of Justice since this investigation began.
The proposed payment is related to services provided for all of 1996 through 1999.
Completion of this settlement will include all pending governmental investigations of the Company's billing for neonatal services.
Claims for the years 2000 to 2002 were reviewed as part of the investigation and Pediatrix is not making any payments for these periods.
While we developed the systems that were in place from 1996 through 1999 to be in compliance with all state and federal regulations, the results of this investigation suggest that I could have done a better job at that time.
Those of you who know the history of Pediatrix will also know that we have done better.
Neonatal coding has been a dynamic area over the past few years as the American Academy of Pediatrics has worked with physicians, including many employed by us, as well as the American Medical Association to implement changes to this area.
During that time, our systems have evolved as well.
Pediatrix has continued to build our neonatal physician coding system and it's applied consistently across our national group.
Coding education is a subject of constant attention for our medical directors and associate physicians and we have invested in a rigorous compliance program.
We continue to work on this matter as it moves towards its final resolution and of course we're not able to predict the timing of that resolution, given the need, among other things, to complete a final settlement agreement and obtain the approval of the relevant federal and state governmental authorities, including the Department of Justice and the Office of the Inspector General.
Next, I want to talk about the strong results of operations for the most recent quarter and 12 months of operations.
These results speak to the effective management of our core business, as well as our ability to continue to attract physician groups to our national group practice model.
Some of the highlights behind the numbers contained in this morning's release include the continued success of our acquisitions efforts.
We invested more than $90 million last year to complete 13 physician group practice acquisitions.
Most of those practices were neonatal physician groups and through our acquisition efforts alone, we added more than 93,000 annualized neonatal intensive care unit patient days.
We're also continuing to build our pediatric cardiology practice, with acquisitions last year of three practices.
One in Miami, one in Dallas, and one serving the Virginia and Maryland communities surrounding the District of Columbia.
In the past three years, we've grown this practice area from just a few doctors based in south Florida to a group with almost 50 physicians.
We continue to see opportunities to grow our core business.
In fact, our 2006 guidance assumptions includes target acquisitions spending of 90 to $100 million in capital.
We also announced this morning the completion of a $50 million share repurchase program, which was started late last year.
In addition to our financial results, we also announced this morning that we've completed the acquisition of Atlanta-based Neonatology Associates, a practice of 31 physicians and 17 advanced practitioners who serve hospitals across the metropolitan Atlanta area.
This practice has annual neonatal intensive care unit patient volume of 58,000 patient days, plus a strong pediatric intensive care practice with 7000 patient days, and a well baby nursery that generates approximately 17,000 annual patient days.
This is a significant transaction within our core clinical subspecialties.
Obviously this transaction should provide considerable comfort in our ability to meet our acquisition goals for 2006.
And now I would like to spend some time talking about other growth opportunities that are available to us.
It's something that we discussed last year in this forum and I want to provide a little bit more color on this topic.
We have been successful for a variety of reasons that can be categorized into two broad groups.
First, we built the clinical infrastructure that attracts physicians within our subspecialty and second, we effectively manage the back office function of those practices.
There's been greater awareness of our clinical competency lately as a result of our ability to tap our robust patient outcomes database to identify areas for clinical advancement.
Last month, the Journal of Pediatrics published a review from our database in which we were able to identify meaningful differences between two common antibiotic combinations that previously had been thought to be equivalent.
Babies treated with one of these combinations have a significantly lower rate of mortality than babies treated with the other combination.
Through the resources of our national group practice, we're able to both identify these differences, comparing outcomes across more than 128,000 patient records and also to quickly disseminate our findings to our doctors and the neonatal community as a whole.
This is one example of the clinical power of our national group.
Our financial results continue to speak to our ability to effectively manage physician group practices.
This is the competency that we believe is transferable to other physician specialty.
During the past several years, we've been exploring ways in which this core competency can be applied to other specialties.
We have focused our synergies on clinical areas that make sense and our work is increasingly pointing towards opportunities within other hospital-based specialties, such as anesthesiology.
There are many similarities between this specialty and neonatal medicine.
For example, these physicians deal with a specific patient episode and as a result, there's more of a physician to physician referral stream and loyalty than there is a patient to physician loyalty.
Neonatologists support strategic areas within a hospital, the labor and delivery services, obviously anesthesiologists are key to a hospital support for community-based physicians.
While we understand there are similarities, we are also aware of differences.
Therefore, we will continue to be deliberate in assessing both the upside and the risks of this opportunity.
While we're very excited about the prospects of transferring our model to a new clinical platform, I want to be clear that the motivation behind this is tied to long-term opportunity.
We believe that the recent pace of acquisitions is strong and sustainable and that's reflected in our earnings guidance for 2006.
That guidance implies a growth rate in the mid teens and it's built on acquisition assumptions that are specific to our core specialty.
The point is we're not looking at diversification in order to satisfy short-term growth objectives.
Instead, we are looking at the long-term opportunity.
I have discussed a number of very important issues effecting Pediatrix.
At this point, I'd like to turn the call over to Karl Wagner, our Chief Financial Officer, for a review of the quarterly and year end financial results, as well as an update on our earnings guidance.
Karl?
- CFO
Thanks, Roger.
Good morning, everyone.
We're very pleased with our results of operations for the fourth quarter.
When you adjust these results to exclude equity-based compensation expense, and the increase to our Medicaid and Tricare reserve, we exceeded our earnings guidance for the period.
As I'll discuss cash flow from operations remained strong and our balance sheet is clean, leaving us with significant flexibility to continue to execute our growth strategy.
We have a lot to present this morning, so I'll move quickly to provide an overview of our fourth quarter and full year results, as well as an update of our earnings guidance for 2006.
For purposes of this call, I want to discuss our fourth quarter results in a way that provides a true comparison with our results for the same period of 2004.
In order to make these comparisons, I will be discussing adjusted or non-GAAP results that reflect the exclusion of pretax equity-based compensation expense of $5.5 million, as well as a $14.9 million pretax increase to existing reserves related to the Medicaid and Tricare investigation settlements.
Please refer to this morning's press release, which is available on our website at Pediatrix.com for a reconciliation of GAAP and non-GAAP items.
For the three months ended December 31, 2005, our revenue of $177.7 million was up about 10% from 161 million for the same period in 2004.
Revenue growth was a result of contributions from acquisitions completed during 2005, as well as same-unit revenue growth of 3.5% for the quarter.
Some of the components of our same unit revenue growth were patient volume growth of 1.7% at neonatal intensive care units staffed by our physicians, as well as revenue growth from other physician subspecialties.
We're pleased by the growth of our pediatric cardiology and maternal fetal medicine practices during the past year and particularly during the 2005 fourth quarter.
Reimbursement-related factors also contributed positively to same unit growth for the 2005 fourth quarter.
While the 1.7% same-unit NICU patient volume growth was below our annual historical range of 3 to 5%, we routinely see quarterly fluctuations in that number.
As we said in this morning's release, same unit patient volume grew by 4% for all of last year.
Our same-unit revenue growth was impacted by slightly -- slight shift in our payor mix from commercial to government payors.
This shift occurred during the 2005 third quarter and it continued during the fourth quarter.
As many of you know, we receive a considerably lower rate of reimbursement for services provided to patients covered by government payors than we do for patients covered by commercial payors.
We continue to monitor activities at the state level, but we believe that the factors behind the payor mix shift are related to macroeconomic issues, including the quality of jobs, personal income, and changes that employers have made to shift the costs of healthcare to employees, and particularly for covering dependents.
Profit after practice expense was 73.2 million for the fourth quarter on a non-GAAP or adjusted basis.
That's an increase of 17% from the prior year period.
Margin after practice expense increased to 41.2% from 38.8%, largely due to margins that have been suppressed in the second half of 2004.
Looking at this sequentially, margin after practice expense for the fourth quarter was up about 17 basis points from the 2005 third quarter.
Adjusted operating income was $50 million for the fourth quarter, up 25% from the 2004 period.
Adjusted operating margins increased by 319 basis points, reflected the combination of higher margin after practice expense and a continuation of our strong general and administrative expense management.
For the fourth quarter, adjusted general and administrative expenses grew by only 4% year-over-year in terms of absolute dollars, so we continue to see this line item as a leverage point on our income statement.
Adjusted G&A expense of 20.8 million for the fourth quarter were 11.7% of revenue, or 73 basis points lower than for the 2004 fourth quarter.
On an adjusted basis, our effective tax rate remains at 37.25%.
For the 2005 fourth quarter on a GAAP basis, our effective tax rate was much higher because a portion of the charge related to the Medicaid investigation settlement will not be tax deductible.
Adjusted for non-GAAP net income of 31.6 million for the fourth quarter was up 23% from 25.8 million for the same period in '04.
Adjusted earnings per share grew by 18% to $1.30 based on a weighted average of 24.4 million shares outstanding for the fourth quarter, from $1.10 based on 23.5 million shares outstanding for the 2004 fourth quarter.
While we did complete a $50 million share repurchase during the fourth quarter, most of the shares were purchased toward the end of the quarter, so there was minimal impact on our weighted average share count.
As I said a few minutes ago, cash flow from operations was strong, at 47.8 million for the fourth quarter, up from 43.4 million in a comparable period of 2004.
We invested approximately 6.2 million in acquisitions during the fourth quarter and had capital expenditures of approximately 2.3 million.
Our balance sheet remains very clean.
Even after purchasing $50 million of our stock during the fourth quarter, we had 11.2 million in cash at the end of the period and no amounts outstanding under our $225 million revolving credit facility.
We remain virtually debt-free with just about 1.5 million in capital leases and other long-term debt.
Accounts receivable at the end of the year were 111.7 million and our day sales outstanding remain at less than 60.
On the liability side, accounts payable and accrued liabilities consist largely of bonuses that accrued during 2005 and will be paid out during the first quarter of this year.
Our reserves for the Medicaid and Tricare investigation and our accrual for malpractice claims.
To quickly summarize our results for the year, revenue was $693.7 million, up 12% from 2004, adjusted operating income of 178.8 million increased by 14%, largely the result of our focused general and administrative expense management.
Non-GAAP net income of 111.5 million was up 13% and non-GAAP earnings per share growth of 17% exceeded net income growth, largely as a result of the impact of share repurchase completed late in 2004.
For all of 2005, we reported record cash flow from operations of 162.4 million.
We invested almost $92 million in practice acquisitions, $50 million to repurchase our shares, and we retired outstanding balances on our line of credit.
During 2005, we did see cash flow improvement because of reductions in day sales outstanding when compared to the end of 2004.
If you remember, the 2004 hurricane season had disrupted our collections activity here in Florida and in Richmond, leading to an increase in our DSO at the end of 2004.
As we worked these accounts during the early part of 2005, we saw a reduction in day sales outstanding and a corresponding increase in cash flow from operations.
As you might expect this is not expected to recur in 2006.
With this morning's press release, we've increased our previous earnings per share guidance for 2006 to include the impact of the share repurchase program completed in the fourth quarter of last year.
In addition, we've provided a quarterly breakdown of our estimated earnings per share during the year.
These numbers are presented on both a GAAP basis and on an adjusted basis to eliminate equity-based compensation expense.
For 2006, we now expect to earn between $4.83 and $4.93 per share on a GAAP basis, or $5.42 to $5.52 per share on an adjusted basis.
Quarterly adjusted or non-GAAP earnings per share estimates are as follows. $1.08 to $1.10 for the first quarter. $1.36 to $1.38 for the second quarter. $1.49 to $1.52 for the third quarter.
And $1.49 to $1.52 for the fourth quarter.
As a reminder this guidance assumes same unit NICU patient volume growth of 3 to 5% for the year, which is consistent with our long-term trend.
We also include contributions from acquisitions with a spending target of 90 to $100 million throughout the year, which includes the Atlanta Group Practice acquisition that we announced this morning.
The acquisition assumptions are within our core newborn, maternal fetal, and pediatric subspecialty core business.
Finally, I want to remind investors of the seasonality of our business, both on a revenue and expense side.
Most neonatal billing is based on bundled per diem charges and there are fewer calendar days in the first quarter.
In addition, our largest expense is payroll and with the start of each year, we also begin to match the FICA or Social Security payroll tax on the first $94,000 of payroll.
On a sequential basis, we expect that FICA taxes and other payroll-related taxes will increase by more than $8 million in the 2006 first quarter as compared to the 2005 fourth quarter.
These two items, fewer billing days and the FICA tax expense have a direct impact on the distribution of our net income in earnings per share across the year.
In fact, as we grow, the sequential reduction in net income between the fourth and first quarter becomes more pronounced.
To conclude the discussion on guidance, we expect that cash flow from operations will be in excess of $170 million for 2006.
This amount would exclude any payment that might be made in connection with the final settlement of the national Medicaid and Tricare investigation.
Our cash flow projection is more than adequate to meet our estimates for acquisition spending, as well as our minimal capital expenditures during 2006.
As a reminder on the fluctuation in our quarterly cash flows, we accrue for bonuses during the course of the year and pay those amounts during the first quarter.
As a result, we typically expect negative cash flow from operations during the first quarter of every year, which cash flow is ramping up throughout the year.
That's a look at our guidance for 2006.
And the financial results for the fourth quarter and 12 months ended December 31.
We continue to generate very solid results with our margins expanding.
At this point, I'll turn you back to Roger.
- CEO
Thanks, Karl.
Obviously there's a lot of activity here at Pediatrix at this point in time.
We continue to enjoy success with our acquisitions program and even with today's announced acquisition in Atlanta, our pipeline remains very strong.
We have the capital and the access to capital to continue to execute our growth strategy, and with today's progress on the Medicaid and Tricare investigation, our management team is looking forward to moving towards its eventual conclusion.
At this time, I would like to open up the call to investors.
Operator?
Operator
[OPERATOR INSTRUCTIONS] Our first question is from Anton Hie from Jefferies.
Please go ahead.
- Analyst
Yes, good morning.
Quick housekeeping question.
The share count at December 31?
- CFO
On the actual shares outstanding?
- Analyst
Yes.
- CFO
At the end of the year, just under 23.6 million shares outstanding.
- Analyst
23.6, okay.
And is there any way to get that kind of where it is, where it stands now or the most recent count?
- CFO
Actually haven't looked at an updated share count since year end until now, but that would include the impact of the share repurchase, because we did complete that in the fourth quarter.
- Analyst
That does-- okay, okay.
All right.
Obviously you made a pretty sizable acquisition in Atlanta and congrats on that.
Do you see any other large single practice acquisitions in your core business out there, and if so, kind of are there others in large cities, like Atlanta that you're targeting?
- CEO
Hi, Anton, yes, good morning.
Yes, there are other large practices spread throughout the country of this magnitude or maybe a little bit smaller than this magnitude, but there certainly are other practices out there that we're in constant communication with.
- Analyst
And I know you didn't give the, give any specifics on the nature of that transaction, but can we assume that it was kind of in your typical four times EBITDA range, or was it a little higher given the size?
- CEO
Given the size of the operations, we went outside our typical boundary this time and it was a little bit higher.
- Analyst
Okay.
Obviously you have been talking about anesthesiology as a target market.
Could you talk a little bit about the overall size of that market, maybe even comparing it to the NICU market?
How big?
Some of the typical acquisition targets that you might be looking at are, if they are independent practices or larger chains?
And then obviously the profitability of those practices as it may compare to your core businesses.
- CEO
Okay.
I don't have a lot of information in front of me on that, but working from memory, the market for neonatal -- for anesthesiologists is much larger than neonatology.
They're probably somewhere north of 30 at the 33, 35,000 anesthesiologists in the country as opposed to 3 to 4000 neonatologists.
The groups, there clearly are all kinds of groups, but one thing that is different for the anesthesiology market is there are some sizable group practices out there.
So we know that there are groups practices, or groups that comprise 100 or even 200 or more physicians in one single groups.
There are groups that tend to practice within regions that are not specifically isolated to one state.
So that -- and that's obviously part of the attraction for us, that it's not as affirmistic or as spread out as the neonatology practices are.
All of these are not four, five or ten-physician neonatology practices.
It would be a relatively large practice.
So from that standpoint, that is a difference.
When we look at the overall margins, they look reasonably comparable.
There are a number of similarities in the practice patterns that we lag at the hospital base practice.
Obviously we're comfortable within that environment.
The patient referral patterns are physician to physician and that's very similar to what we see in neonatology.
We get most of our patients in neonatology from the obstetrician.
The anesthesiologist clearly gets most of their patients come from surgeons.
If a -- one of the things that is very attractive to us about the hospital-based services is that there is no prebuilt-in loyalty between the patient and the physician and although that sounds strange when you first hear of it, if you're buying physician practices, we see that as a plus because nobody goes to the hospital to see any of the hospital-based physicians.
You go to the hospital to be taken care of.
So if you break an arm, you don't go to the emergency room to see Dr. Smith.
You just go to the emergency room.
If you have to have surgery, your surgeon brings you to the hospital, but you don't go there to see Jones, the anesthesiologist.
If you have a premature baby, your obstetrician brings you to the hospital, but you don't go there because Smith is the neonatologist.
For us, the advantage that that represents is that if you buy a hospital-based practice and one of the physicians leaves, you don't lose any of the revenue, any of the expected revenue from the patient.
The patient will still come to the hospital, brought there by the surgeon or the obstetrician.
That's very different from an office-based practice where there may be a lot of loyalty.
If you think about people like cardiologists or oncologists, office-based guys, there's a lot of loyalty between the patients and the physicians.
If you buy one of those practices and the physician leaves, then the patient's not coming back, so there are some significant similarities that make us be pretty comfortable with the specialty.
- Analyst
Would what you actually buy be similar to a NICU practice where it's mostly goodwill and you're basically buying an arrangement with the hospital?
- CFO
Yes, I would expect that the transaction would be similar from a structure standpoint and from the accounting to be mostly a goodwill.
They won't have a lot of equipment like others.
I just want to be clear.
We're still looking at this, there's still a lot of evaluation for us to go on.
We're still looking at this.
We haven't talked about multiples in the past because we're not sure that's going to come out.
We're still looking at what we're bringing to the table with these as far as improvements that we expect to get.
So we're still evaluating these groups and as Roger said, there's a pretty big variety in the size of these groups and what steps we take and what type of group we acquire, we haven't made any decision, even if -- we haven't even determined absolutely that there is going to be a viable market for that because while we may want to do an acquisition, the anesthesiologist don't want to us do the acquisition, but we are pretty positive on the marketplace.
- Analyst
Would these guys be able to sort of free-lance off campus from a, from the acute hospital?
- CEO
Yes, I mean one of the things that we like about this -- the specialty is that the opportunities for same-store growth are much bigger than they ever are in neonatology.
You cannot practice neonatology outside of the hospital period.
But in anesthesia, with the pain centers, ambulatory surgical centers there are, there's a lot more opportunities to -- for same-store growth.
It doesn't all have to be driven by acquisitions.
- Analyst
Okay, thank you.
- CEO
Thanks, Anton.
Operator
Our next question is from the line of Bill Bonello from Wachovia.
Please go ahead.
- Analyst
Good morning.
First of all, congratulations on getting the Medicaid situation resolved.
Questions on the acquisition, I'm sorry if I missed it.
Did you say what the revenue and EBITDA contribution might be from this acquisition?
- CFO
We have not said that.
As in the past, we don't give our expectations on our individual acquisitions.
- Analyst
This one being so big you're not going to make an exception?
- CFO
No.
- Analyst
Okay, and Roger mentioned that you paid outside the typical range.
Can you be more specific on that?
- CEO
We paid a little bit of a premium.
It wasn't an outrageous premium, but we paid a little bit of a premium for it.
- Analyst
Okay, but I mean you're not going to tell us whether It's not--?
- CEO
It's not twice.
It wasn't twice or three times our multiple, no.
- Analyst
Okay.
- CFO
Because of this deal, our historical multiple has been 3 to 4 -- it's actually inched up, it was just under 4 in '04, it was a little over 4 for '05 actually when we ended the year, so it has gone up a little bit over time.
This one will bring it above where that has been for the year this year.
- Analyst
Okay, and then the -- is this practice similar to most pediatrics practices in terms of its payor mix and its patient acuity?
Anything unusual about this practice?
- CEO
It's -- there, isn't anything unusual about it.
They have been growing their practice.
They started I believe in 1978 and have grown their practice.
They added a couple of hospitals.
They have more of a regional presence within the Atlanta region.
- Analyst
Okay.
- CEO
And they have taken pediatric intensive care and added that and regular newborn, but, no, it's a very comparable to all of our interests.
- Analyst
Can you talk a little about what the opportunity beyond their normal growth, what the opportunity for Pediatrix to sort of create economic value here, given that it's kind of a large established practice?
Is it similar to what it would be in a normal acquisition, or are there still those same kind of opportunities to improve contracting and billing and collection, et cetera?
- CFO
From our -- from the history, I mean there is opportunity to improve that, being such a large group they had a little more sophistication in what they had done in the past.
So I would say the growth in opportunity isn't as significant as we might see in other practices because they had -- had more sophistication because they were able to bring people in place with the size of their practice.
That being said, that's part of the reason you end up having to pay a higher multiple on it is because they have gotten some of the efficiencies and the improvements that we would bring.
But we do still expect to see additional growth as they come on board with us through some other things, through our billing and collection process.
We think we can still improve on what they had in place.
- CEO
I would probably break that down into two different areas.
There's sort of a northern part of the group, which I think, what Karl has said, applies to that.
Then they have a southern part where I think the opportunities for same-store growth are pretty significant because there's just a lot of growth in that area.
There are a lot of hospitals that are going up and I think our plan is for us to obtain some of those hospital contracts as they come online.
So I think there's also some same-store growth opportunities.
- Analyst
Okay, and as I understand it, there's not a lot of overlap, if any, with the existing Pediatrix contracts or -- not contracts so much, but regionally, how present are you in Atlanta right now, I guess?
- CEO
Yes, that's right.
There really isn't a lot of overlap.
We have a couple of practices in Atlanta, but there's the university, there's Emory, there's a number of other -- and we do also have a Perry natology practice in Atlanta.
But there's an even a larger Perry natology practice there that we're not associated with.
So there is not a lot of overlap.
- Analyst
Okay.
And then just what is a [PICU]?
- CEO
It's a technical -- it's not -- it's a technical, it's for kids who are dependent upon technology.
So these are kids who may be long-term ventilator dependent or may be long-term on a monitor or may have, pacemakers, this is just for kids -- they have separated -- normally you see all of the kids in the newborn intensive care unit no matter what their needs are.
They have separated.
They have a separate physical plant for kids that are long-term chronically dependent on technology.
- Analyst
Okay, and then just a final question, nothing on the acquisition, but the volume growth being a little bit low this quarter, and I know that's a number that you just seems to bounce around somewhat randomly quarter to quarter.
Is it kind of an anomaly, or is there anything we need to be concerned about in that number?
- CFO
We've seen it bounce inside and outside of that range.
Typically what we've seen is when we have a very large same-unit growth quarter, the next year that quarter isn't as large and if you look at our same-unit growth on volumes in the fourth quarter '04, it was very high.
It was outside our range on the high side.
- Analyst
Yes.
- CFO
I think it was 8%.
- Analyst
Yes.
- CFO
So it's not unusual that the next year we see that quarter being a little bit lighter.
I don't know any specific reasons why that is.
It's just -- as we've looked back in history, that has occurred.
We are not concerned by.
The year did come in at the 4% that we have annually and as we've said before, we fluctuate in and out of that range on a quarterly basis, but for the year, we expect to be in that range.
- Analyst
Sure, so no issues, no contract issues or anything like that, doctor issues, anything?
- CFO
No.
- Analyst
Okay.
Great.
That's all.
Thank you very much.
- CFO
Thanks, Bill.
Operator
Thank you. [OPERATOR INSTRUCTIONS] We'll go to the line of Robert Mains from Ryan Beck.
Please go ahead.
- Analyst
Thanks, good morning.
Question on the income statement.
Hard to find much to question here, but supplies, expense, and other operating costs up a little bit sequentially as a percentage of revenues, anything particular going on there?
- CFO
There's really nothing unusual going on in there in that line item.
I mean as we continue to grow with more office base, we'll see that continue to tick up.
- Analyst
Okay.
- CFO
So as that business grows, as our hearing screen business grows, we see more supplies.
- Analyst
All right.
I notice that that number was also kind of sequentially higher last year fourth quarter.
Is there anything seasonal that happens in the fourth quarter that would cause that to happen?
- CFO
In the fourth quarter, we do get some expenses in all the year end, physicians like to get things done.
They have holiday parties and the like.
We do see a slight tick up because of those types of things in the fourth quarter every year.
But as a percent of our total cost, it's not a big number, but we do see some tick up in that.
- Analyst
All right.
Fair enough.
Similar to the last question, the sequential decline pretty slight in revenue, that's largely attributed to the slowdown in the same-store growth?
- CFO
The revenues--?
- Analyst
Top line was off a little bit from Q3 to Q4.
- CFO
Yes, and that's not unusual for us Q3 to Q4.
Typically, especially when we don't have a lot of acquisitions in that time period, Q4 is a little bit slower.
- Analyst
Okay, and then speaking of acquisition, I want to get back to Atlanta with one other question.
I'm assuming that this is a practice that you have been speaking with for some time and kind of curious as to your thoughts on their thought process.
What got them to make the move at this point?
- CEO
We are, we're always talking to all these practices.
I think that this practice just came to a realization that it was time.
They had obtained the sort of growth level that they thought -- they would get the valuation basically that would make them happy, so it was really a matter of valuation.
- Analyst
Okay, and the concern being obviously when you acquire a really good practice, kind of what do you do with it next.
You're comfortable that you can, despite it sounds like one of your -- this will now be your biggest practice, is that correct?
- CEO
Yes, that's correct.
- Analyst
And despite that, you think it can sustain the same type of growth rates as the company as a whole?
- CFO
I mean we have growth rates across practices that vary practice to practice.
We are excited about some of the opportunities that Roger talked about in Atlanta, as they are looking at potential expansion in some high growth areas in addition to their major hospitals that they are in.
So we're excited about the potential growth of this practice.
- Analyst
Okay.
Fair enough.
Thank you very much.
- CEO
Thanks.
Operator
Our next question is from the line of Andreas Dirnagl from JP Morgan.
Please go ahead.
- Analyst
Actually this is Dawn Brock.
Good morning, guys.
Karl, could you give us a little bit more color on pricing?
I know you said there was a slight shift toward Medicaid, but it looks like other pricing, i.e. commercial, is more than offsetting that.
Could you talk to that and maybe also some of the geographies and/or payor mixes you are seeing in the newer acquisitions?
Thank you.
- CFO
Yes.
When you look at pricing and I guess we didn't say it, but in the fourth quarter, pricing probably amounted to about 1% of our growth in the quarter.
We did have some negatives because of the payor mix change, so that did hurt us, but we continue to see improvements as we renegotiate contracts across the country in different markets, so we continue to see those improvements that have offset that over the last year.
So that's been positive for us.
As far as the payor mix, it's really kind of happening across the country, it's different markets at different times and we see there's no real continuity to it at this point.
When we first talked about a year ago, it looked like it was mostly Texas at that point.
We've seen it now occur in other markets.
So there's no one market that's contributing to that.
When we look at our acquisitions, it's really all over the place.
It depends on the market specifics they are in.
We have some that are lower than our payor mix and there are some that we acquire that are higher than the payor mix that we see on a company-wide.
So there's no specific profile of our acquisitions at this point.
- Analyst
Okay.
Maybe -- I mean one of the reasons that I'm asking for the granularity is just that we're hearing out of the hospitals that eligibility requirements are getting tighter for Medicaid, and I just wanted to know whether or not you guys are actually seeing that in your markets yet or whether or not you're hearing the same rumblings.
- CFO
We're following the states pretty closely.
We haven't seen anything that would lead us to believe that the eligibility requirements for newborns are really changing from a multiple of the federal poverty level on a state by state basis.
So we haven't seen anything that's tightening that eligibility.
- Analyst
Okay.
Thank you.
Operator
We have a follow-up question from Anton Hie from Jefferies.
Please go ahead.
- Analyst
Just a quick housekeeping question.
I noticed in the press release you provided the NICU patient days of 1.35 million for the full year of '05 and I wonder if you could talk about any specific trends from Q1, Q2, Q3, and Q4, as far as how those patient days were spread out through the year?
- CFO
In general we said, and I don't have -- we don't typically give what the quarterly days are, but our volume across, just from a same-unit basis would be the third quarter would be our highest volume quarter.
Then it would be the fourth, then the second, and then the first.
Part of that is number of days.
But part of it is just a little bit of seasonality in the business.
So the third quarter is typically the strongest quarter from a patient base standpoint.
- Analyst
Okay, thank you.
Operator
[OPERATOR INSTRUCTIONS] We have a follow-up from Robert Mains from Ryan Beck.
Please go ahead.
- Analyst
Yes, the last question jogged my memory, this being year end you usually give out payor mix.
Have you got that now, or are you going to wait for the K?
- CFO
No, we'll file that with the 10-K.
- Analyst
Okay, thanks.
Operator
We have no other questions in queue at this time.
Please continue.
- CEO
Well, if there are no further questions, we thank you for listening this morning.
Thank you, operator.
Operator
You're very welcome.
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