使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Ladies and gentlemen, thank you very much for standing by.
Welcome to the Pediatrix Medical Group investor conference.
At this time, all participation lines are in a listen-only mode.
Later, there will be an opportunity for questions with instructions given at that time.
Should you require assistance during the call, please press star followed by zero, and a conference specialist will assist you offline.
As a reminder, today's conference is being recorded.
I would now like to turn the conference over to the Director of Public Relations, Mr.
Bob Kneeley.
Please go ahead.
Bob Kneeley - Director of PR
Good morning.
Thank you, Ron.
Good morning, everyone, for joining the call this morning.
We do have our fourth quarter results out this morning.
I want to read our forward-looking statements.
Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1995.
Forward-looking statements may include, but are not limited to statements relating to objectives, plans and strategies and all statements other than statements of historical fact that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future, are forward-looking statements.
These statements are often characterized by terminology such as believe, hope, may, anticipate, should, intend, plan, will, expect, estimate, project, position, strategy, and similar expressions and are based on assumptions and assessments made by Pediatrix management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors they believe to be made as of the date hereof.
And Pediatrix undertakes no duty to update or revise any such statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties.
Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in Pediatrix's most recent annual report on Form 10-K, including the section entitled Risk Factors.
Additional factors include, but are not limited to, uncertainties related to the possible discovery of additional facts beyond those reviewed by the audit committee in connection with its stock option review, litigation related to the matters investigated by Pediatrix's audit committee or the restatements to Pediatrix's financial statements and other historical disclosures, and any regulatory actions of the SEC or the U.S.
Attorney related to such matters.
With that, I'm pleased to turn the call over to our Chief Executive Officer, Roger Medel.
Roger Medel - CEO
Thank you, Bob.
Thanks, and good morning.
Thanks for joining our call this morning to discuss the very strong results for the 2007 fourth quarter and for the full year that we issued in today's press release.
Highlights for the 2007 fourth quarter include a 20% increase in our revenue and a 22% improvement in non-GAAP operating income year-over-year, indicating that we continue to successfully grow our business while at the same time manage it more efficiently.
These results also include earnings per share that exceeded our most recent guidance, even after adjusting our tax rate higher to make it comparable with the prior year.
I'm very pleased with how we're managing our business and with our prospects to continue to expand our national group.
Of course the greatest area of investor interest today is our anesthesia opportunity.
Since we have only one practice in this specialty, the interest really is about the opportunity within this specialty.
At this time, we now have five months of experience in anesthesia physician services and we are right about where we expected to be.
We felt confident that Fairfax Anesthesia was a good first practice for us and those feelings have been reinforced as we've been working with the group on integration and establishing a foundation for this specialty that will support future growth.
But let me set your expectations properly.
When I said we are right where we want to be, we are still assessing, still monitoring the operations at Fairfax.
We said we would make very few changes during the first few months and that's exactly what we have done.
We have decided to extend the relationship with Fairfax outside billing company for a little while longer, as we evaluate our options for an integrated anesthesia information system that we expect will drive clinical, operational and financial reporting for this and other anesthesia practices.
We remain committed to bringing the billing and collection functions in house, but it is one of our core administrative competencies.
But we would rather be patient and identify the right system rather than try to unwind something later on down the road.
The information technology process is running parallel to our business development efforts and in fact, it will not slow down our timetable for adding another anesthesia practice.
We are moving forward with due diligence on several anesthesia practices in our pipeline and hope to complete a transaction within this specialty over the later part of the 2008 second quarter.
Of course this is an estimate and there are a lot of deal-specific factors that can impact, as you know, the timing of acquisitions.
Obviously, the size of the opportunity within anesthesia is one of the reasons we were attracted to this specialty in the first place, and it is that very size of the opportunity that causes us to be very deliberate, very methodical during this period.
At the same time, we continue to grow our base neonatal maternal fetal medicine and pediatric cardiology business and in fact, completed three group practice acquisitions during the 2007 fourth quarter in addition to two practices acquired on the last day of the third quarter.
For all of 2007, we have spent more than $119 million on acquisitions, adding 10 physician groups to our organization, including neonatal pediatric cardiology, maternal fetal medicine and anesthesiology.
We have good visibility to our short and medium-term growth prospects, with a business development pipeline that remains full.
Shifting gears, I want to point out a number that I take great pride in.
During 2007, our physicians earned total bonuses of approximately $109 million and most of that will be paid out during the next several months.
This compares with physician bonuses earned during 2006 of about $95 million.
These bonus programs help to keep the interest of our physicians and pediatrics in alignment, rewarding doctors for their efforts to grow their practice and generating incremental growth in our practices.
Overall, this was a very solid quarter, one in which we've continued to generate operating margin expansion through general and administrative efficiencies, even as we're growing in a brand-new specialty.
I'm going to ask Karl to take over the call at this point and provide you with a detailed look at our financial performance for the 2007 fourth quarter and for the full year.
Karl?
Karl Wagner - CFO
Thanks, Roger.
Good morning, everyone.
As Roger discussed, and as we reported in our press release this morning, we had strong revenue growth for the 2007 fourth quarter, driven by a combination of same unit growth of our physician group practices and contributions from acquired practices, including our first full quarter reporting results for Fairfax anesthesia.
We continue to see good operating margin growth on a true comparable basis, which is the product of strong same-unit revenue growth, including growth from reimbursement-related factors and patient volume, as well as our ongoing general and administrative expense management.
Our results reported this morning include the results of our metabolic screening laboratory, as discontinued operations.
In December 2007, we announced that we had entered a definitive agreement to sell the lab to Perkin-Elmer, requiring us to present the lab's financial results as discontinued operations.
I want to be clear that the results for the lab were included in our guidance for the 2007 fourth quarter and are included in the first part of our 2008 guidance.
So it's important to look at our net EPS, which includes both continuing and discontinued operations in assessing our business.
As I discuss detailed income statement items, I will be presenting information on a non-GAAP basis for purposes of more meaningful comparisons.
This information is adjusted according to the items identified on this call and in our press release, unless specifically noted.
We focus on these adjusted numbers because it makes it easier to understand how our core business is performing relative to prior periods.
A detailed GAAP reconciliation table is included in this morning's press release, which is available on our website at www.Pediatrix.com.
For the fourth quarters of 2007 and 2006, those adjustments include a reduction of our net -- our income tax provision by $800,000 for the 2007 fourth quarter as a result of a reduction in our accrual for uncertain tax positions.
And for the 2006 fourth quarter, we are excluding $3.1 million related to the stock option review.
These adjustments should allow you to make a better comparison of our year-over-year operating performance.
Revenue grew by 20.4% to $250.4 million for the three months ended December 31, '07 and compared to the prior year.
Same-unit revenue growth of 12.9% accounted for almost two-thirds of the overall revenue growth, and included a combination of strong volume and reimbursement-related growth.
On the reimbursement side, this was the first full quarter in which we're seeing the benefit from the physician fee schedule increase from Texas Medicaid, which resulted in about 2 percentage points of incremental same-unit revenue growth for the period.
Improvements in contracted managed care contributed about 2 percentage points to same unit growth for the '07 fourth quarter versus the prior year, and we saw some improvements in reimbursements as a result of our annual fee schedule increase.
Same-unit volume increased by 4.6% for our business in the 2007 fourth quarter compared to the prior year.
This consists of higher patient volume at neonatal and intensive care units staffed by our physicians in the midrange of our guidance at 4% growth for the fourth quarter compared to the prior year, as well as volume growth at our office-based practices and in our hearing screen programs.
This is the first full quarter in which we're including the operations of our anesthesia group practice.
And as a result, practice salaries and benefits increased at a pace slightly faster than revenue growth for the period.
Practice salary and benefits expense grew by 21.2% for the 2007 fourth quarter over the comparable prior year period or slightly ahead of revenue.
And as a percent of revenue, we're about 37 basis points higher than the 2007 fourth quarter versus the same period in 2006.
When we exclude the anesthesia services for our results, practice salaries and benefits as a percent of revenue were essentially unchanged.
Profit after practice expense was $95.3 million for the fourth quarter, up 19.2% from $80 million for the same period in 2006.
Our income from operations were $64.4 million for the most recent quarter, up 22.3% from $52.6 million for the 2006 fourth quarter.
Operating margin improved by 40 basis points on a quarter -- year-over-year comparison of these quarters.
Operating margin expansion is directly related to better leverage of general administrative expenses, which were down 90 basis points as a percent of revenue to 11.2% for the fourth quarter and 12.1% for the same period in 2006.
Continuing with the income statement, our net investment income declined by 30% during the 2007 fourth quarter when compared to the same period in 2006, as we used our cash to complete acquisitions and repurchase our shares.
As a result, we had lower average cash and investment balances for the 2007 quarter, when compared to the prior period.
In the fourth quarter, our income tax provision was reduced, as we reversed some accrued liability in our provision for uncertain tax position.
The statute of limitations on certain filed tax returns expired during the period.
And as a result, the accrual we had established for those uncertain positions on those filed tax returns when we adopted FIN 48 at the beginning of the year was reversed.
This [flows through] the income statement as a reduction in our income tax provision.
While we realized a reduction this quarter, going forward, we still expect that our effective tax rate will be 39.25%.
And like many companies, we expect that we will continue to see variability in our tax rate going forward because of FIN 48.
Our net income for the 2007 fourth quarter was $40.5 million.
This is 17% higher than the comparable net income for the 2006 fourth quarter, which was $34.6 million.
On a per share basis, net income grew by 17% to $0.82 for the fourth quarter compared to $0.70 for the same period in 2006.
For the three months ended December 31, 2007, our weighted average shares outstanding was $49.3 million, approximately $400,000 shares less than for the 2006 period.
This reduction in shares outstanding is related to shares repurchased during 2007.
We have a strong balance sheet with $102.8 million in cash and cash equivalents at the end of the year and virtually no debt.
Accounts receivable were $145.5 million, and days and accounts receivable remain consistent at about 53.
On the liability side, accounts payable and accrued expenses were $243.1 million and consist largely of accrued bonuses and 401(k) matching contributions that will be paid out over the next few weeks, as well as malpractice liabilities and tax related to our reserves.
We generated $89.4 million in cash flow from operations during the fourth quarter, which was a quarterly record.
Acquisitions payments for the period were $17 million, which included the acquisition of neonatal practices in Nashville, Tennessee, Palm Springs, California and Seattle, Washington, a maternal fetal medicine practice in San Luis Obispo, California and a pediatric cardiology practice in Albuquerque, New Mexico.
During the fourth quarter, we also used $32.6 million of cash to complete the share repurchase program that had been authorized in August of '07.
Looking at our results for the full year on a GAAP basis, our net patient service revenue from continuing operations increased by 14%, to $917.6 million for the year ended December 31, '07 compared with the same period in 2006.
Same unit growth was 9.3% and included NICU volume growth of 4.2%.
Operating income was $220.9 million during 2007 and net income was $142.7 million.
We earned $2.86 per share for the full year of 2007 based on a weighted average 49.9 million shares outstanding.
This compares to operating income of $194.4 million, net income of $124.5 million, and earnings per share of $2.52 for 2006 based on a weighted average 49.4 million shares outstanding.
For all of 2007, we had cash flow from operations of $188.5 million.
We invested $119.1 million in physician group practice acquisitions, buying 10 group practices throughout the year including Fairfax Anesthesiology.
We also completed a $100 million share repurchase during the second half of last year.
As you know, we announced another $100 million share repurchase authorization in late December, but we determined that we would not begin repurchasing our shares prior to announcing our results for the 2007 fourth quarter.
In this morning's press release, we also provided detailed quarterly guidance estimates for 2008.
As a reminder, we expect first quarter EPS to be in the range of $0.67 to $0.69, second quarter of $0.85 to $0.87, third quarter of $0.92 to $0.95, and the fourth quarter we expect to earn $0.91 to $0.94 per share.
For the full year, we expect earnings per share of $3.35 to $3.45.
Our guidance assumptions include estimated investments of 70 to $75 million in acquisitions within our historical neonatal, maternal fetal and pediatric cardiology subspecialties, which is basically on track with the initial guidance issued in November.
If you recall, at that time we anticipated acquisition spending of $80 to $85 million from the beginning of November through the end of 2008.
With acquisitions completed late last year, we're on track to meet our business development goals.
This guidance also includes contributions for our metabolic screening lab during the first part of this year, as well as the impact for putting the net proceeds from that transaction to work following the closing.
Our 2008 guidance does not include contributions from additional acquisitions within the anesthesia specialty.
Since it's difficult at this time to predict either the timing of our next acquisition with operating metrics of a particular anesthesia practice.
We are also assuming net contributions of about 2% to 4% same-unit revenue growth from reimbursement-related factors and another 3% to 5% same-unit NICU volume growth.
The quarterly progression for our 2008 guidance reflects the usual seasonality of our revenue and expenses.
As you may know, our neonatal billing is based on patient days and there are fewer calendar days in the first and second quarters than in the third and fourth quarters.
In addition, for many of our employees including physicians, Social Security taxes and 401(k) matching contributions reset at the beginning of the year, leading to higher expenses in the first half and particularly the first quarter of the year when compared to the second half of this year.
With that, I would like to turn the call back over to Roger.
Roger Medel - CEO
Thank you, Karl.
Operator, at this time, let's open up the call for questions, please.
Operator
(OPERATOR INSTRUCTIONS) We'll first go to the line of Bill Bonello with Wachovia.
Please go ahead.
Your line is open.
Bill Bonello - Analyst
Good morning.
Just a couple of questions.
Maybe a little bit more long-term oriented in terms of the business environment, but we have seen managed care rate compression over the past year in some sectors that have historically been pretty immune to pricing pressure, like the labs and dialysis.
And I'm just curious how you would assess the pricing environment and risk on the commercial side for Pediatrix going forward.
Have you seen commercial payers taking a tougher stand than they have been in the past?
Karl Wagner - CFO
Good morning, Bill.
Bill Bonello - Analyst
Good morning.
Karl Wagner - CFO
As you know, we're constantly renegotiating contracts.
And as we said in the past, clearly there are hot spots throughout the year, one payer or another, in one market or another market, but we haven't really seen anything different in the total picture that we're seeing in managed care contracts and what we've seen over the year.
So clearly, there's always some level of pricing pressure, but nothing anymore than what we have seen in the past.
So right now our expectations are to continue with what we've seen historically.
Bill Bonello - Analyst
Okay, and then just the second piece of the pricing picture, from a Medicaid standpoint, are there any state initiatives, the Florida cut proposals, or California cut proposals, or whatever that you're particularly concerned about at this point in time?
Karl Wagner - CFO
You know, at this point in looking at the landscape, I think, one, we've seen some increases over the last few years in different states.
I don't think we expect to see any of that going forward based upon the state budgets that are out there at this point.
So from that standpoint, we're not going to expect to see any increases beyond what we expect to get this year, no flow-through of the Texas increase from last year.
As for changes, I think the one that we're watching the closest at this point is California.
California has a significant proposal out there to reduce Medicaid -- Medical by 10% and we're watching that pretty closely.
But that's the one I would say if we have any concern that we would have a little bit of concern that that might go through.
Bill Bonello - Analyst
Okay.
Is there a proposal in Florida, too, like a 3% cut or something, or is that -- am I off on that?
Karl Wagner - CFO
We haven't seen anything related to our business in that.
The only thing that we've seen is there has been some pilot projects they have done with some managed Medicaid that they are not looking to expand at this point or tweak it a little bit.
So I don't think that we expect much beyond seeing that, which we don't think will effect us anyway.
Roger Medel - CEO
I think the governor here in Florida within the last couple of days has proposed some Medicaid cuts, but those were related to hospital facilities.
Bill Bonello - Analyst
Okay.
That's very helpful.
That was actually my only two questions.
Thanks a lot.
Karl Wagner - CFO
Thanks, Bill.
Operator
Thank you.
And next, we'll go to the line of Kevin Ellich with RBC Capital Markets.
Please go ahead.
Kevin Ellich - Analyst
Good morning.
Thanks for taking the question.
Thinking about your guidance, Karl, you stated that it does not include the metabolic lab business?
Karl Wagner - CFO
It does include the metabolic lab business for the first couple of months of the year and it includes us putting the net proceeds of the sale to work, go forward.
Kevin Ellich - Analyst
Okay, so--
Karl Wagner - CFO
Go ahead.
Kevin Ellich - Analyst
I was just trying to figure out if there was any way to kind of think about the lab contribution to guidance and you guys keeping guidance the same, if you are actually kind of raising guidance a little bit.
Karl Wagner - CFO
Well, we've included it, as we said, when we did the -- we announced the sale of the lab, that we didn't expect it would have an impact on our overall guidance because what we're giving up from an earnings standpoint, we're making a significant portion of that back on the use of our cash, as we had talked about doing a share repurchase and using some of those proceeds for that.
You know, we were looking to make that back from a guidance standpoint.
So that's why we didn't adjust our guidance at that point.
(multiple speakers) pushing the guidance up.
Kevin Ellich - Analyst
Okay.
And then on the same-store growth of 12.9%, very strong, you stated 2% came from the Texas Medicaid improvements, 2% from contracted commercial growth, 4.6% came from volume, so that leaves 4.1%, is that coming from just contract escalators?
Karl Wagner - CFO
Yes, it would be contract escalators.
There would be a lot of different components of that.
But it's just part of the normal growth that we have going forward.
And in our guidance for the year, we said 2% to 4%.
That includes Texas, which will be 2% until it laps, and there will be no impact from that in the latter part of the year in our growth guidance there.
So, we're looking forward to receiving that increase and we continue to do managed care.
But we do have the escalators like we talked about in the past, so we're doing multi year escalators in our contracts.
Kevin Ellich - Analyst
Right, okay.
And then, I'm going to ask, but I have a hunch you won't say, can we get any color as to what type of contribution you received this quarter from Fairfax?
Karl Wagner - CFO
When we completed the Fairfax acquisition, we said we expected it was about $0.02 for the whole year net, when you consider the cost, the interest lost on the cash that we use.
I think we're right on track with what our expectations are.
Kevin Ellich - Analyst
Any possibility for any, any improvements in the billing and collections, any upside from that, do you think?
Karl Wagner - CFO
I think we're pretty confident as we move down this road of eventually bringing in the billing and collections there and getting our systems in place.
We do think that there's opportunity to improve the billing and collections.
But we're moving slowly to be sure we make the right decision and very deliberate in the decisions that we make moving forward.
So, we're really not building into our guidance improvements from managed care contracting or billing and collecting through that practices.
We want to be able to prove that we can do it before we start running them through our numbers.
Kevin Ellich - Analyst
Okay, and then last question, could we just get CapEx for the quarter, maintenance?
Karl Wagner - CFO
Yes.
It's going to take me a second.
For the year, it was a little under $9 million and for the quarter, it was $3.6 million.
Kevin Ellich - Analyst
Okay.
That's a little bit higher than last quarter.
Is that primarily due to the Fairfax?
Karl Wagner - CFO
No, really there's fluctuations.
The predominant use of our CapEx is for IT infrastructure, whether it be here or in the practices, as well as for ultrasound equipment at our office-based practices.
Kevin Ellich - Analyst
Okay.
Karl Wagner - CFO
And then, sometime in receiving that replacement.
Kevin Ellich - Analyst
Okay, excellent.
Thank you.
Operator
Thank you.
And next, we'll move to the line of Sudeep Singh with Deutsche Bank.
Please go ahead.
Your line is open.
Sudeep Singh - Analyst
All right.
Thanks for taking the call.
I just wanted to focus again on the practice salaries line item.
Obviously, it was up on a percentage of revenue basis.
And just wanted to get a sense for as you integrate Fairfax, how that will influence that line and just the interplay between that line and the leverage that you're gaining on the G&A line item as a percentage of revenue?
Karl Wagner - CFO
Yes, as we have said, as we've gone through the last couple of years talking about anesthesia, one of the things from our expectations are that since we're not going to get the improvements that we've seen in the neonatal business as quickly, because we have a lot to learn and we have to move more deliberately and that their margins starting out will be lower and will impact our margin after practice expenses.
So we are seeing that, the size of a transaction like that had a pretty quick impact on that number.
So, you know, if we exclude the anesthesia acquisition, it was right in line with what we would have expected.
We don't expect to get leverage on the income after practice, salaries and expenses.
So, we're pretty comfortable with where we're at on a go-forward basis.
We're hopeful if we get the revenue growth that we'll see the leverage in that element, the anesthesia practice going forward.
As far as G&A, it's just continuing the story of us, trying to make sure we don't grow G&A rate quicker than revenue.
That we grow at a much slower rate and be very deliberate on the adds we make there.
We have been making infrastructure investments in anesthesia, but we're doing that over time.
It's not like we closed one deal and need to add 20 people.
But I would say in the fourth quarter, late third quarter, we did add several people because of that infrastructure.
But still, we're able to grow our G&A at a slower rate than revenue.
Sudeep Singh - Analyst
And with respect to the billing vendor that you're using with Fairfax, can we assume that that's an expense that's being embedded into G&A or is that more of a top line accounting?
I'm just trying to get a sense for how the accounting works there.
Karl Wagner - CFO
That would be accounted for G&A.
Sudeep Singh - Analyst
Okay, great.
Thanks very much.
Operator
And next, we'll go to the line of John Ransom with Raymond James.
Please go ahead.
John Ransom - Analyst
Hi, good morning.
As you look at the anesthesia opportunity longer term, I mean I think we can maybe all agree you pay a pretty sporty multiple for Fairfax, but where do you expect multiples to settle in over the longer cycle?
And I guess the indelicate question I have is does the multiple you paid for Fairfax, is that complicating any discussions that you're having down the road because I assume double-digit multiples of EBITDA, probably isn't where you want to be longer term.
I was just trying to figure out how to model that going forward.
Karl Wagner - CFO
I absolutely agree with you.
We don't want to be in double-digit multiples of EBITDA on the transactions that we do.
We haven't really seen it impacting it, and I think it's hard for us to say exactly where we want it to be.
I don't think that we are of the expectation it will be where we're at on a neo business.
The hard part for us is that the average of about a four times multiple on our core business is based upon what we bring to the table and what we know we're going to get from a managed care contracting billing collection improvement, so it's really hard for us to say exactly where that's going to be.
So from a multiple standpoint, I think the first few deals will be more expensive.
Clearly, I think, we paid a higher price for the first deal than we would expect to pay down the road for us to get into that.
Although, there are some nice dynamics with that practice and their ability to grow outside the hospital and the growth opportunities there that made us willing to do that.
So, I wouldn't expect it to stay at that level.
It's really hard for us to say exactly where they will end up down the road.
John Ransom - Analyst
Great.
My second question would be is the, is there -- should we think about any meaningful upside to the pipeline in the pediatric cardiology side?
Now that you've cleared up the echo reimbursement issue, is that something that could be a nice little surprise this year in terms of the volume and transactions?
Karl Wagner - CFO
Clearly that's an area we're focusing on and we're getting that pipeline back up and running.
We had been keeping contact, but hadn't been moving down any due diligence or going very far with any acquisitions once we found out about the potential to lose that.
So now, we are building that pipeline back up and talking to a lot of groups.
So, that's clearly an area that has been good growth from us from an acquisition standpoint the last several years and we're hopeful we'll see that kick up at a pretty good rate this year.
John Ransom - Analyst
Right.
Thanks.
And then, I just want -- two other things, the -- I don't know, I guess we guys always like to use sports analogies, but where are you in terms of your comfort level?
I mean you obviously do a terrific job year one on the payer side, with your core neonate and in terms of reducing the denials and improving the kind of net collection rate.
How much work have you been able to do to see how translatable that skill is going to be to anesthesiology, and how are the discussions with the payers going on that front?
Karl Wagner - CFO
As we said in our last call, there's the second part of that question first, we are talking to a payer.
We're going back and forth in negotiations.
I would say it's going slower than we would have anticipated when looking at our neo history.
But that's -- because we need to learn and not make mistakes as we go through this discussion, so we probably have more people involved in the decisions on the back and forth than we typically would have in a core business transaction negotiation.
But we are moving forward with that.
So, we're hopeful that that will yield the fruit we're expecting from that as we go forward.
As far as the billing and collecting, I think we're learning some things.
I think when you talk to our patient accounts people, they clearly think there are some opportunities to improve this in some areas.
They have been learning a lot of the detail pieces of anesthesia.
And as Roger mentioned, we are looking at a system as we want to be sure we make the right selections going forward.
We're getting pretty close on narrowing that down to start negotiations on a system, which is a little different than where we were when we first did the acquisition.
But I think we're making the right decisions there and I think we do see opportunities to improve the -- reduce the denial rates and improve the collection rates.
John Ransom - Analyst
Okay.
Thanks a lot.
Operator
And next, we'll go to the line of Dawn Brock with J.P.
Morgan.
Please go ahead.
Dawn Brock - Analyst
Good morning.
Very quickly, I think that I'm going to try one more time.
I mean I know you guys are reluctant to provide specific financial details for competitive reasons on FAA, but would you be willing to provide your expectations for organic growth off of, off of a base that we don't know, but still an organic growth outlook, either for in total or, I think, more importantly than pricing, since I think most of us can back into the impact there based on the doc fix for volume.
Karl Wagner - CFO
You know, at this point, I know you're trying, but I don't think there's a whole lot we're going to say on that front at this point.
As I said before, as far as our expectations for Fairfax, we're not building in any dramatic growth.
We do have some growth expectations for their horizon business, which is their office space, or physician office space and surgery center base, anesthesia services, so we do have some growth there.
They are in the growing areas, as you could expect.
But we haven't built in dramatic growth there because we are still learning this business.
So, our expectations for this year are to basically achieve the model that we had built for the practice and make sure we get our growth initiatives and our infrastructure in place for this practice and go forward.
Dawn Brock - Analyst
Karl, is it fair to say or to ask you whether or not the fourth quarter, you know, regardless of how we look outward and into 2008, that the fourth quarter and the way that FAA operated and integrated in the fourth quarter was on track, exceeded expectations, fits into that $0.02 or maybe there's some quarterly volatility that maybe put it below or above, could you give us a little bit of color around that?
Karl Wagner - CFO
Yes.
The results for Fairfax for the quarter were right at our expectations at this point in time, which we're very happy with.
There were no surprises in the numbers and the volumes that we received as we went forward.
So, we're real comfortable with where we're at at this point.
Dawn Brock - Analyst
Okay, great.
Thank you.
Operator
Thank you.
And next, we'll move to the line of [Austin Cragan] with Jefferies & Company.
Please go ahead.
Austin Cragan - Analyst
Hi, thanks for taking my question.
A few quick questions here.
One, does the, does the guidance that you provided for '08, does that include the stock buyback program you announced in December?
Karl Wagner - CFO
The guidance that we've given includes just putting the money to work from the lab sale.
Now, as we said when we issued the share buyback in the fourth quarter, that we'll be pretty deliberate.
So, it's whether we put that money to work in a share buyback or put that money to work just from an investment standpoint.
Although, the way returns are going right now, there's not huge opportunity there.
So, so one way or the other that money's going to get put to work.
I guess you could look at that part of it going to the share buyback.
Austin Cragan - Analyst
Okay, great, and as we think about anesthesiology, and I know you have provided us the $0.02 EPS number, have you guys thought about the Medicare reimbursement increase that we saw begin January 1?
I mean is that factored into the number, or how should we think about that 23% bump in Medicare reimbursement rates?
Karl Wagner - CFO
Yes, we factored that into our guidance.
I want to caution you at Fairfax, their Medicare business is not a huge component of their business in that market, at that hospital.
It does have a nice benefit to us, so that's in there but it's not a huge number for that practice, as you might expect in some practices.
Austin Cragan - Analyst
Okay.
And then last question, with Medical, obviously they are talking about the 10% reduction.
Have you guys thought about, what you know, what kind of impact that would, what that impact would have on your business?
I mean have you tried to quantify it or what?
How should we sort of go about thinking about that cut?
Karl Wagner - CFO
Yes.
It would have an impact, but it wouldn't be significant, nothing that we would change guidance on at this point.
We looked at that.
If the whole 10% cut came through, it wouldn't change anything that we're looking at at this point.
Austin Cragan - Analyst
Okay.
And if the cut were to go through, would it change your strategy at all, or would it change anything that you're currently doing in the state?
Karl Wagner - CFO
You know, clearly with this cut pending, it will curtail us as far as what we're looking at from an acquisition standpoint in making sure that we're building in that cut and our willingness of what we'll pay in that market for an acquisition.
It really doesn't change where we're at and the services we're providing in that market.
We'll continue to provide it.
I don't think we'll change it, that we won't take patients.
We take all the patients to come to the unit.
I think that's one of the big issues that they have currently with the state and it's been brought up before with the state when they tried to do cuts in the past, with access to care.
And that they may see a reduction in people willing to provide services, mostly on the outpatient side.
From our standpoint, we'll take all the patients.
But I think that that's something that will be played out legislatively to see whether they can stop that cut from going through.
So it really doesn't change our strategy.
As I said, it's not from a company standpoint something that's going to have -- would change our guidance.
It's not that significant.
Austin Cragan - Analyst
Okay, great.
Thanks a lot, guys.
I appreciate it.
Operator
Thank you.
(OPERATOR INSTRUCTIONS).
And we'll go to the line of Rob Mains with Morgan Keegan.
Please go ahead.
Rob Mains - Analyst
Yes, good morning.
Karl Wagner - CFO
Good morning.
Rob Mains - Analyst
Could I get back to the pricing guidance, Karl?
You said you got 2% from Texas and that's going to anniversary.
The managed care increases, I assume, don't -- and then you got the rest you've got escalators.
It would seem that there -- that your guidance that you're providing is a little conservative given where you were in the fourth quarter.
Is there anything else going on relative to mix or anything like that, that we should be aware of?
Karl Wagner - CFO
No, actually our payer mix for the quarter and for all of last year was essentially flat, so there's no big change that we're seeing in our payer mix that's impacting that.
As I said, in the latter part of the year, Texas is going to lapse.
So, we won't get any real impact from that Texas increase.
We are continuing to see managed care increase.
But as we've talked about, government is a big part of our business, so that will hold back the pricing to some extent throughout the whole year.
I would expect in the first part of the year, because of Texas first coming through, that we'll be potentially put us at the high side of that range.
But in the latter part of the year, we'll be at a lower point because of the back where lapping all the Texas improvements.
Rob Mains - Analyst
Okay.
And given what you're seeing about Fairfax, obviously there's an impact to Fairfax on the margins in this quarter.
It sounds like you're not suggesting that we should assume significant operating improvements that would drive up margins for the first half of the year, subject to usual seasonal variation.
Karl Wagner - CFO
Right, I wouldn't expect anything from Fairfax to change the dynamic we saw in the fourth quarter.
I would expect it will continue to manage our G&A costs, so we would expect to see some improvements at a slower growth rate in G&A than in revenue, but not at the gross margin.
That's not something that we're looking to see leverage from and without any significant changes in Fairfax.
I would expect that they will have a slightly negative impact on the margin, at a growth standpoint.
Rob Mains - Analyst
Okay, and then this metabolic screening sale, do you have a sense as to where that stands in terms of when it gets done?
Karl Wagner - CFO
Right.
We're working through some closing conditions on that and it's our expectation at this point that sometime during the first quarter that will be completed.
Rob Mains - Analyst
Okay.
Now, if we wanted to develop earnings relative or similar to what you presented in this quarter, that exclude disc ops, we would effectively exclude the contribution of Fairfax -- of the metabolic screening up until the point where the sale's completed, but then you have the benefit of the cash?
Karl Wagner - CFO
That's correct.
Rob Mains - Analyst
Okay.
Thanks a lot.
Karl Wagner - CFO
Thank you.
Operator
(OPERATOR INSTRUCTIONS) And we'll go to the line of Bill Bonello for follow-up call.
He is from Wachovia.
Please go ahead.
Bill Bonello - Analyst
Okay, yes.
Hey, just a strategic question, are you still very much committed to only moving forward through, you know, sort of individual practice acquisitions, or are you at a point where you would also consider a larger acquisition of some other consolidator, if you could sort of get the right pricing?
Roger Medel - CEO
This is Roger.
I assume you're talking about anesthesiology, because there really aren't any consolidators anywhere else, with [immunocology] or cardiology of any size.
We're not at a point yet where we would consider a consolidator in anesthesia.
We think that we have a lot to learn and a lot of great opportunities out there, as I said earlier.
We're talking to a number of anesthesiology groups that are very excited.
And one interesting thing happened at an anesthesiology conference a couple of weeks ago where we had some groups actually come to us asking for meetings, et cetera.
So, it's not something that we're used to seeing happening in the core business side.
So that was a very exciting event for us to see develop.
Bill Bonello - Analyst
Okay, and then just completely switching gears back to Karl's comment on Medical.
We've sort of historically thought about California as being maybe 20% or so of your business and maybe Medical being 30% or so of that California business.
I mean, are those roughly on track?
Karl Wagner - CFO
I wouldn't have put California as 20% of our business.
You know, I think if you look at our top five states, which includes Texas, it was 50 -- well, it was about 26% from Texas.
I think it was about 58% in total.
So the next four states would have been about, what's that, 32%.
So, California would not be 20% of our business.
Bill Bonello - Analyst
Sure, yes.
Actually, I misspoke on that, but, okay.
So can you give us, put it simpler, can you give us a sense of what your total Medical exposure kind of is?
Karl Wagner - CFO
You know, we haven't broken out that specifically.
It's, it's not a huge number.
It's smaller than you would expect, primarily because the reimbursement rates in California are extremely low.
So even though we do a fair amount of business on the Medical standpoint, the reimbursement is very low.
Bill Bonello - Analyst
Okay.
Roger Medel - CEO
Okay.
Which is the problem, Bill, that they have with the active two physicians, which is if they continue to cut physicians, I mean we take all patients.
But people who are office spaced, as you know, have the option to opt out of Medicaid.
And if they -- it's a big problem already today, having physicians to go to when you're sick.
If you're under Medicaid and if you continue to cut the reimbursement then that's only going to get worse.
Bill Bonello - Analyst
Okay, great.
Thank you.
Operator
And at this time, there are no further questions in queue.
Please continue.
Roger Medel - CEO
All right.
Well, if there are no further questions, then, let's just wind down the call, operator.
Thank you.
Operator
Thank you.
Ladies and gentlemen, this conference will be made available for replay beginning today at noon Eastern Standard Time, continuing through Wednesday, the 20th of February at midnight.
You may access the AT&T executive playback service at any time by dialing 1-800-475-6701 or from international locations, area code 320-365-3844, and entering the access code of 907442.
Those numbers again, 800-475-6701, or internationally, 320-365-3844 and enter the access code 907442.
That does conclude the call for today.
Thank you for your participation and for using the AT&T executive teleconference service.
You may now disconnect.