Pediatrix Medical Group Inc (MD) 2009 Q1 法說會逐字稿

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  • Operator

  • Ladies and gentlemen.

  • we'd like to thank you for standing by and welcome to the 2009 first quarter earnings call teleconference.

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

  • Later we'll conduct a question-and-answer session, and instructions will be given at that time.

  • (Operator Instructions).

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

  • I would now like to turn the conference over to your host, Mr.

  • Bob Kneeley.

  • Please go ahead, sir.

  • Bob Kneeley - Director of IR

  • Thanks, David, and good morning, everyone.

  • Welcome to our earnings conference call.

  • Before I open this call over I want to read the forward-looking statement.

  • Certain statements and information during this conference call may contain forward-looking statements.

  • These forward-looking statements are based on assumptions and assessments made by MEDNAX management in light of their experience and their perception of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate.

  • Any forward-looking statements made during this call are made as of today and MEDNAX undertakes no duty to update or revise any such statement, whether as a result of new information, future events, or otherwise.

  • Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in the Company's most-recent annual report on Form 10-K and its quarterly reports on Form 10-Q, including the section entitled "Risk Factors."

  • Now with that let me turn the call over to our Chief Executive Officer, Roger Medel.

  • Roger Medel - CEO

  • Thank you.

  • Good morning.

  • If you've read our press releases this morning you know that in addition to our results for the quarter reporting good growth from acquisitions and same-unit volume and reimbursement we announced an important transition of our management team.

  • Karl Wagner, our Chief Financial Officer, is being promoted to President of our American Anesthesiology Operating division.

  • That's a new position for us, one that represents the development of our current anesthesia operations and should be interpreted as a marker for the level of enthusiasm we have that anesthesia physician services will propel our growth for many years to come.

  • Our transition plan also includes the promotion of Vivian LopezBlanco, our treasurer, to Chief Financial Officer.

  • She has worked closely with Karl since joining us last May, and she and Karl will continue to work closely to ensure a smooth transfer of responsibilities.

  • We expect to complete this transition by the end of year and I'm confident this will solidify the leadership of our organization for many years.

  • I can't emphasize enough how pleased I am to be able to recruit someone like Karl from our existing management resources to fill this strategically most important position.

  • He's been with our organization since 1997, a time when we had about 250 physicians.

  • He's been CFO for almost eleven years and has been an integral part of the executive leadership of our organization.

  • That will continue.

  • We're excited that we'll be able to capitalize on Karl's understanding of our approach to growth and forward managing our business more efficiently as we grow our national anesthesiology practice.

  • Vivian has been part of our organization for almost a year.

  • Since joining she's led our efforts to negotiate the expansion of our revolving credit facility, which was completed in early September of last year at rates that would not have been available to us shortly after that facility was completed.

  • Vivian also managed the team that oversaw the myriad details associated with the development of our holding company structure, which included our name change from Pediatric Medical Group to MEDNAX.

  • Vivian has an extensive financial background in public company environments.

  • Prior to joining us Vivian was CFO for the Hispanic Restaurants Division of Carrols Corporation, which includes Pollo Tropical and Taco Cabana She joined Pollo Tropical in 1997 as controller and was promoted to CFO the following year.

  • Vivian led the company through its acquisition by Carrols.

  • She also was the public -- in the public accounting firm of Arthur Andersen.

  • We're looking forward to her continued contributions here at MEDNAX.

  • This morning we reported earnings from continued operations of $0.74 per share, which was well in excess of the guidance we had issued in February.

  • Most of our 24% revenue growth was from acquisitions, particularly anesthesia practices acquired during the second half of last year.

  • Overall same-unit revenue growth of 4.1% was better than we had expected.

  • Same-unit revenue growth included neonatal patient volume growth for the first time since the 2008 first quarter, and our payer mix was essentially unchanged year over year, which is to say that it improved from both the 2008 third and fourth quarters.

  • When we look deeper into the numbers we're reporting, the key variables that affect our NICU practices resulted in positive contributions for the 2009 first quarter.

  • Births at our hospitals continued to be down slightly when looked at on a same-unit, same-day basis.

  • This was offset by slight increases in both the NICU admissions rate and our average length of stays.

  • We're seeing variability in the data that affects our neonatal volume, and I suspect that we will continue to see variability going forward.

  • On payer mix we've seen pleasantly -- we've been pleasantly surprised by the improvement for this first quarter.

  • This data suggests that there is no rush from commercial insurance options to government-sponsored healthcare programs.

  • Since we're reluctant to call trends based on very short-term data, the limited visibility we have on both neonatal volume trends and payer mix means that we're going to maintain relatively short-term guidance at this point.

  • Those are some of the highlights for the quarter and Karl Wagner will provide a more detailed review of our financials in a few minutes, but first I want to update you on our perspective of the various public policy initiatives affecting healthcare services.

  • The day before the last quarter's call the SCHIP expansion was signed by President Obama.

  • The federal governmental allowed states to expand their SCHIP program up to 300% of federal poverty level.

  • It does not obligate states to do so.

  • In order for SCHIP to expand the states must also identify a funding source for the portion of SCHIP that they must match.

  • In an environment in which most states are struggling just to maintain their services, we're not seeing many proposals that incorporate significant program expansions, including SCHIP.

  • The stimulus bill contains several provisions that directly affect us and those are the COBRA benefit subsidies and the health IT investment incentives for physicians.

  • Looking first at the COBRA subsidies it's hard for us to quantify any impact because we can't identify a patient as being on COBRA.

  • From our perspective for the patient who is unemployed and using COBRA benefits, the payer is the employer's plan.

  • We would expect, however, that the most likely person to choose COBRA benefits is going to be someone who anticipates using the healthcare system while unemployed; someone with either a chronic condition or who is pregnant at the time she loses her job.

  • It is hard for to us make a direct connection between the COBRA benefit options available to the unemployed with the improvement we've seen in our payer mix.

  • We expect this benefit would cushion our payer mix, with or without the stimulus package subsidy, and we continue to believe this is a positive for us.

  • The other provision in the stimulus package that we're watching is the incentive for physicians to adopt electronic health records starting in 2011.

  • As many of you know we have a mature electronic health record for our neonatal practices, and we're rolling out electronic health record systems for our office-based practices.

  • We expect these systems will meet the certification standards contemplated by Congress.

  • In the meantime we're watching this issue and waiting for regulations to see how incentive pays will work.

  • There's also considerable discussion around a possible public plan for healthcare coverage.

  • It's our hope that any bill that's focused on increasing coverage will also address ways to improve access to the healthcare system.

  • To step away from MEDNAX specifically and (inaudible) the broad physician sector there are numerous media reports that indicate it's more difficult for patients to find physicians who are willing to accept Medicare.

  • When you look at Medicare physician rates over time they've been flat to up by 1% or 2% per year.

  • Medicare rates have not kept pace with rising physician practice costs.

  • Not surprisingly physicians who are able to opt out of the program are doing so.

  • The access to care issue that's rearing its head in Medicare is nothing new in the Medicaid arena, Medicaid physician reimbursement rates are roughly 70% of Medicare reimbursements and many office-based practices are reluctant to participate in the Medicaid program.

  • We hope that the policy discussion moves beyond coverage and that it includes measures to ensure adequate access to care.

  • One thing that is being discussed is an implied goal of moving physician services away from volume-incentivized fee-for-service and forward incentives based on clinical outcomes.

  • This is not new and given our long track record of capturing clinical outcomes and using that data to improve care through research, continuing education, and clinical quality initiatives I think we'll be in a good position to benefit from performance-based incentives.

  • At this point we don't have a sense of how a public plan might be structured to accommodate the various constituents within the healthcare delivery system.

  • This will be a topic of particular attention over the next few months, as policy statements turn into legislative language.

  • What is certain is that this environment should help us with our business development efforts.

  • For the independent group practice that has far more limited resources than we do the proposed changes could be daunting.

  • During the 2009 first quarter we acquired three practices; two neonatal and one pediatric cardiology.

  • We're continuing to work a robust deal pipeline in our historical neonatal maternal field and pediatric cardiology practices.

  • We're confident in our ability to continue to grow our business by adding value to these groups and part of that value proposition is the considerable infrastructure that we have in place to respond to this changing environment.

  • I think this is a good time for me to turn the call over to Karl Wagner for our review of our first quarter results.

  • Karl?

  • Karl Wagner - CFO

  • Thanks, Roger, and good morning.

  • As Roger said earlier, this is a good quarter for MEDNAX.

  • We exceeded our guidance because we continued to manage our business effectively, with acquisitions growth and the benefits that accrue to us from improved payer mix as compared to the fourth quarter of last year and higher patient volume flowing through our income statement.

  • Our revenue for the 2009 first quarter exceeded the $300 million mark at $303.9 million.

  • This is a 24% increase from $245.6 million for the 2008 first quarter and was principally from acquisitions completed during the previous 12 months.

  • Our resute -- results include same-unit revenue growth of 4.1%, volume-related growth across all of our physician specialties was 2.3%.

  • This includes office-based practices, anesthesia, and neonatal services.

  • Our NICU patient volume growth was 0.2%, but since our neonatal business is based on calendar days the right way to look at this number is to back out the extra day from leap year last year.

  • On that basis our NICU patient volume grew by 1.3% for the 2009 first quarter.

  • Same-unit revenue from reimbursement-related factors grew by 1.8%, largely attributable to growth from third-party commercial payers.

  • As we've said, our payer mix is essentially unchanged from last year's first quarter, which is an improvement from the most two recent quarters.

  • On the expense side practice salaries and benefits grew by 28%, or more than revenue growth, and that's largely a function of the mix of our acquisitions.

  • We added two anesthesia practices during the second half of last year, as well as several office-based practices.

  • These practices have higher salaries and benefits expense than our neonatal practices.

  • Profit after practice expense was $97.2 million for the 2009 first quarter, up 15.1% from $84.5 million for the 2008 period.

  • Profit margin after practice expense was 32% for the first quarter, down 241 basis points from last year's comparable period.

  • This margin decline is consistent with what we experienced throughout 2008 as a combination of several practice related factors.

  • First, as we've discussed in the past, our neonatal practices typically grow and then add staff to ensure appropriate care is maintained.

  • We have continued to fill these positions throughout 2008 and into this year.

  • Second, our office-based maternal, fetal and pediatric cardiology groups have become a larger component of our business over the last several years as a result of acquisitions.

  • These practices have higher levels of clinical and administrative support staff.

  • Third, the addition of our anesthesia practices, which have different staffing requirements than neonatal practices, has also resulted in lower margins overall for the Company.

  • Our income from operations of $56.6 million for the 2009 first quarter increased by 9% from $51.9 million for the comparable prior-year period.

  • The rate of growth of our general and administrative expenses continued to be less than revenue growth for the 2009 first quarter.

  • As a percent of revenue G&A expense declined by approximately 6 basis points year-over-year.

  • Operating margin was 18.6% for the 2009 first quarter, down 251 basis points from the prior-year period, principally due to the practice level issues I just discussed.

  • Income from continuing operations was affected by higher interest expense as we carried larger amounts out standing on our line of credit relative to last year.

  • For the 2009 first quarter, both income from continuing operations and net income was $34.1 million.

  • Income from continuing operations grew by 6% from the 2009 first quarter from $32.1 million for the prior year.

  • On a per share basis income from continuing operations was up 12% to $0.74, based on our weighted average 45.9 million shares outstanding, from $0.66, based on our weighted average 48.9 million shares outstanding.

  • Net income for the 2008 first quarter included income from discontinued operations of $23.7 million related to the gain on the sale of our metabolic screening lab, and it was $55.8, million or $1.14 per share.

  • To summarize, our earnings per share of $0.74 for the 2009 first quarter relative to our guidance range was primarily the result of higher revenue working through our income statement.

  • Looking at our balance sheet, at March 31st we had approximately $21.3 million in cash and cash equivalents, accounts receivable were $165.2 million, and our DSO for the 2009 first quarter were less than 50 days, which is the lowest we've ever seen.

  • During the 2009 first quarter we saw good cash collections across all of our physician services.

  • We ended the quarter with $181 million outstanding on our $350 million revolving line of credit.

  • This is up from $139.5 million at December 31st as a result of the normal timing of incentive payments, as well as practice acquisitions.

  • During the first quarter we used $22 million of our cash to fund operations.

  • First quarter cash flow was typically negative, as we make payments on accrued prior year incentive compensation, principally physician bonuses, as well as matching contributions to employee benefit plans.

  • We also used $11.5 million of our cash for practice acquisitions and contingent purchase price payments.

  • During the quarter we acquired neonatal groups in Arlington, Texas, and Hampton Roads, Virginia, and a pediatric cardiology practice in El Paso, Texas.

  • For the remainder of 2009 we expect our operations to generate significant positive cash flow, which we'll use to fund practice acquisitions and to reduce amounts outstanding on our line of credit.

  • In this morning's earnings press release we also announced that we expect earnings per share for the 2009 second quarter will be in the range from $0.84 to $0.90.

  • This range anticipates same-unit NICU patient volume relative to last year will be flat to up 2%.

  • This incorporates what we already know for the month of April, which is that same-unit NICU volume was up by approximately 2%.

  • Our second quarter outlook also allows for some variability in our same-unit payer mix, with a range that includes a higher percentage of our volume coming from government payers of up to 2 percentage points from the 2009 first-quarter levels, two levels that are unchanged from that period.

  • We're also including contributions from acquisitions completed, as well as some contributions for acquisitions we anticipate to complete during the second quarter.

  • We expect to invest $70 million to $75 million of capital in non-anesthesia practice acquisitions this year.

  • Separate from our outlook there's one more update I want to provide that's related to our anesthesia operations.

  • During the second quarter we migrated the billing and collections for our Fairfax anesthesia practice through an outsourced billing company to our Raleigh anesthesia administrative office, which was part of the practice acquisition we completed last September.

  • Our plan is to move the Atlanta anesthesia billing to Raleigh later this year and that means we'll also be replacing the outsource billing company that used for this practice.

  • It's our goal to improve collected revenue and to manage the billing function more effectively through our infrastructure and through outsourced services.

  • That's been the key to our model and we've used this approach with our other physician specialties for years.

  • With the integration of our Raleigh acquisition we're now comfortable moving forward with this proven approach to our anesthesia practices.

  • With that I'd like to turn the call back over to Roger.

  • Roger Medel - CEO

  • Thanks, Karl.

  • Operator, let's go ahead and open up the call for questions at this time.

  • Operator

  • (Operator Instructions).

  • Our first question will come from the line of Arthur Henderson of Jefferies & Company.

  • Please go ahead.

  • Arthur Henderson - Analyst

  • Hi, good morning.

  • Very nice quarter.

  • Couple questions.

  • Karl, I know you'd mentioned that April volumes were again strong and I'm wondering, you've had -- looks like you've had four pretty good months here.

  • At what point do you feel comfortable enough in giving a full-year outlook?

  • How much do you need to gauge that?

  • Karl Wagner - CFO

  • Well, I think there are a few things we've got to consider.

  • One is the volume variability we saw throughout all of last year with the ups and downs.

  • There wasn't a consistent level, so until we have enough history to say that we're at a consistent point I don't think we're going to be comfortable with that as we go through this year.

  • The other question is, on giving guidance throughout the year it's also going to be a function of happens to payer mix.

  • As we talked about, it was a surprise to us, as I am sure to several people out there, that our payer mix actually got better in the first quarter.

  • We didn't anticipate that.

  • We anticipated it staying flat with the fourth quarter, and that's something we're going to have to watch.

  • And we can't ignore the headline news about unemployment rates and the like to consider that there may be more variability in that as we move forward.

  • So at this point we're not comfortable saying that we can see beyond the next quarter and what we expect to happen.

  • April, we were happy with the results for the month of April, but that's just one month.

  • And April was better than the whole first quarter, so I don't know that we have a trend that we'd say we can rely on at this point.

  • Arthur Henderson - Analyst

  • Okay, that's fair.

  • Just kind of two related questions.

  • You've focused a lot more, I know, on neonatology and practice-based acquisitions as of late.

  • The valuations, as I recall, had come down there.

  • Are you still seeing more opportunity in the neonatology side than you are maybe in the anesthesiology side at the moment?

  • And then as a follow-on question, just in terms of, Karl, you moving over into this new role, what was the thought process that led you to decide to do that in terms of -- are these businesses on the anesthesiology side needing a different kind of management, oversight, or could you just walk us through how that came to be?

  • Roger Medel - CEO

  • Hey, Art, this is Roger.

  • Arthur Henderson - Analyst

  • Hey, Roger.

  • Roger Medel - CEO

  • How are you.

  • Arthur Henderson - Analyst

  • Good, thank you.

  • Roger Medel - CEO

  • I'll tackle the second question first actually.

  • It's my decision to move Karl into that American Anesthesiology position, and the message here is that things are going well in anesthesia, we're happy with the progress that we have made there, and it's just a commitment that we're making here to put our best person in charge of the area that is going to provide us with growth over the next ten years, if not more.

  • I think that -- if you think about what is needed to head that division there's a lot of financial things going on here.

  • These are bigger practices, the need to identify how we're going to finance these acquisitions, the billing processes all of the business issues here in one way or another touch the financial side.

  • And the clinical side, as important as that is, I feel a lot more comfortable because of our experience with the neonatology practices and the other pediatric subspecialties, so what I'm doing is I'm putting the best mind that I have in charge of the area that I believe is going to provide us with the significant growth that we're looking for over the next decade.

  • In addition to that, it accomplishes a couple of other objectives for me.

  • It gives Karl some operating experience, which I think is going to be good overall in Karl's formation as we go forward, and finally it puts Karl into a pocket -- a small pocket of people that I am considering as I looked at my succession plan going forward, As Karl becomes more involved in the operations side of the business it also gives him that experience which puts him in that role, So those are all the things that were considered as we looked at who was going to assume the presidency of our American Anesthesia division.

  • As far as the business development, we do continue to see significant opportunities in our base business -- core business acquisitions.

  • The pipeline is very full that the -- we do see some ability to push down a little bit some of the multiples that we're paying for these practices, and I'm very confident that we will meet or exceed our stated goal of spending $70 million to $75 million in core acquisitions this year.

  • Arthur Henderson - Analyst

  • Okay.

  • That's very helpful.

  • Congratulations, Karl, on a new opportunity by the way.

  • Karl Wagner - CFO

  • Thank you.

  • Operator

  • Thank you, Mr.

  • Henderson.

  • Our next question comes from the line of Ryan Daniels of William Blair.

  • Please go ahead.

  • Ryan Daniels - Analyst

  • Good morning, guys.

  • I was hoping to just go through a couple big picture questions, Roger, related to some of your comments up front.

  • I know you mentioned that the births were actually down at the hospitals you track, but the admissions into the NICU were up and the length of stay was also up, and I'm curious if you've seen that before, maybe seen both of those elements operating in tandem, or if there's anything unique about that?

  • And then follow up on that would be, if that is what's also continuing into April to drive the NICU volumes up 2%?

  • Roger Medel - CEO

  • We do see variability in all of those different areas on a -- and it's hard to say.

  • Some months length of stay will be up and some months it'll be down, and some months percentages will be up, there's no consistency to that.

  • It's just that we see that occasionally where sometimes it just kind of drives you crazy.

  • Births are up and yet admission percentages are down, and it works both ways.

  • Karl Wagner - CFO

  • As far as the rates they're within historical range, it's just we wanted to be clear we saw births were down slightly, that was offset by a slight increase in those, but they weren't abnormal in a range of what we see in a fluctuation, as Roger mentioned.

  • So there wasn't any real big driver of that, it's just to show why we had growth when we were seeing births down.

  • Ryan Daniels - Analyst

  • Okay, that's help --

  • Karl Wagner - CFO

  • As far as the month of April, which you asked about, birth data we get from our hospitals lags a little bit so we don't have complete birth data on the month of April at this point.

  • We're still gathering all that information because that's not a statistic that we track in our systems.

  • It's something we get from every hospital and we have to go and gather it so it takes a little bit long to her get that information.

  • Roger Medel - CEO

  • And remember, this data is just from the hospitals where we practice at.

  • We don't have data on hospitals that are outside our system.

  • Ryan Daniels - Analyst

  • Okay, fair enough.

  • That's helpful.

  • And then given the mix, as you mentioned it was a surprise to you -- I think it's a surprise to most people --, and you indicated the stimulus and COBRA packages.

  • I know the stimulus per se wasn't even passed until mid-February.

  • I don't think the COBRA subsidies went into play much in the first quarter.

  • Is there anything else -- and maybe this is an unanswerable question, but anything else you think may have driven mix suddenly back to normal levels after four, five months of seeing more government payers?

  • Roger Medel - CEO

  • We can't really pinpoint it either.

  • The way we're thinking about it now is that if we -- if you think about our population, half of the population -- a little over half the population is already Medicaid, so we're really only talking about the other half that is not Medicaid, and when I look at that population, our belief is that because of the age group that we're dealing with, the women who are having babies, say somewhere between 20s and 30s, the majority of the people who are in that population, probably both husband and wife are working, and so we believe that we're being favorably impacted by the population that we care for, which is not necessarily an older population, which means that for us what we're thinking is that it's unlikely that both members of a family are going to lose their job.

  • While it may be possible that either mom or dad lose their jobs we think we're being helped by the fact that if one of the members loses their job then there's still private healthcare insurance being provided by the other member of the family.

  • Ryan Daniels - Analyst

  • Okay, that makes a lot of sense and that's helpful color.

  • And then one real quick one for Karl, Just on the interest expense, looks like it dropped a bit, which, I guess, is a little surprising considering that the debt level was higher.

  • Is that just timing of cash flows during the period and when you had payouts and how you manage that revolver, or anything unique there?

  • Karl Wagner - CFO

  • The balances fluctuate throughout the quarter, so that would have an impact rates being really low this quarter.

  • We use primarily a LIBOR-based borrowing rate so it's LIBOR plus 100 basis points, which is at a really low rate, and we don't have a LIBOR floor set on our line of credit.

  • Ryan Daniels - Analyst

  • Okay, no floor.

  • Roger Medel - CEO

  • So I think those contributed to lower interest expense than we might have expected.

  • Ryan Daniels - Analyst

  • Okay, perfect.

  • Thanks.

  • Good quarter and congrats, Karl.

  • Roger Medel - CEO

  • Thank you, Ryan.

  • Operator

  • Thank you, Mr.

  • Daniels.

  • Our next question is from the line of Sudeep Singh of Deutsche Bank.

  • Please go ahead.

  • Sudeep Singh - Analyst

  • Hi, good morning, guys.

  • Roger Medel - CEO

  • Good morning.

  • Sudeep Singh - Analyst

  • I guess going back to the NICU volume question, I'm just curious if there's anything that you guys are doing differently today than versus a year ago?

  • I know in prior calls you've talked about some initiatives that you have in place, whether it is through referral sources or volume that's coming from transport, so maybe if you could just refresh us on how some of those initiatives have tracked over the last year?

  • Roger Medel - CEO

  • I'll say nothing different, just more of the same.

  • I think that we continue to provide hearing screens within our systems, we continue to provide well-baby care within our units, we continue to put together outreach programs in the community to attract patient referrals from hospitals that is may not have a level of care available that is available in our hospitals, but it is all a combination of those programs.

  • I don't think we're doing -- I'd say we're not doing anything different, it's just doing -- sticking to what we've done in the past and just doing more of the same.

  • Karl Wagner - CFO

  • Yes, and specifically to that, I think when you look at the neonatal practices out there and you look at the growth I don't think there's a lot that translates to more NICU patient days, but we've seen the other services provided by the groups providing NICU services growing, as Roger said, the newborn nursery work has increased.

  • The hearing screen programs we have in place has continued to increase.

  • So that growth are initiatives that we're working on in the hospitals where we have these practices to expand our growth and see growth in those areas as well.

  • But that doesn't translate to NICU patient days.

  • Sudeep Singh - Analyst

  • Okay, great.

  • That's helpful.

  • Just looking at volumes for your non-NICU businesses, could you maybe give us a sense for what the extra business day, how that contributed to the growth in the quarter?

  • Karl Wagner - CFO

  • During the quarter we did not have an extra day as compared to last year during the quarter.

  • The leap year last year I think actually made last year a little bit better.

  • But we did have good growth in the other businesses when we look at that across the quarter.

  • Sudeep Singh - Analyst

  • Okay, my understanding was -- I understand the leap year effect, but my understanding was in the first quarter, even though the leap year effect would have affected the neonatal side but on the non-neonatal, like anesthesiology, there was actually an extra business day, which is non-calendar based?

  • But I could also take that off line.

  • Karl Wagner - CFO

  • Well, let's deal with that off line.

  • Sudeep Singh - Analyst

  • Okay.

  • And then just my -- the last question for me here is, you've talked a little bit about the pipeline that you have in place, and just wondering if you can maybe give us a sense for ,at this time, perhaps how many practices are you in active negotiations with for potential deals, whether it's anesthesiology, or maybe if you can just do it by business line?

  • Karl Wagner - CFO

  • We're not going to speak specifically to how many we have going on.

  • I think what we've said is we're very comfortable with what we have out there of $70 million to $75 million, don't have anything that concerns us about that number.

  • We have a lot in the pipeline in all different specialties -- pediatric cardiology, maternal fetal medicine, neonatology, and in the anesthesia side -- so we have practices we're talking to across all of those businesses, and we are excited about the opportunities that we see.

  • As Roger mentioned, there's been a lot of interest in the core specialties that we've been doing for years and that's what we see as an opportunity to go forward to do that, but there's also continuing interest on the anesthesia side.

  • We talk to a lot of groups as we go forward and work on that.

  • Sudeep Singh - Analyst

  • Okay, great.

  • Thanks a lot, guys.

  • Karl Wagner - CFO

  • Thanks.

  • Operator

  • Our next question will come from the line of Brooks O'Neil of Dougherty & Company.

  • Please go ahead.

  • Brooks O'Neil - Analyst

  • I start off with just a comment.

  • First, congratulations to Karl.

  • I think it's a great opportunity.

  • And secondly, if Vivian is responsible for the MEDNAX name, I think we're going to take a pause and wait and see how she does.

  • Roger Medel - CEO

  • No, you can't blame her for that.

  • I'm going to take responsibility for that one.

  • Brooks O'Neil - Analyst

  • All right.

  • I'm just curious --

  • Roger Medel - CEO

  • She's got better taste than that.

  • Brooks O'Neil - Analyst

  • Obviously anesthesia is going to represent your most significant growth opportunity going forward, so I was hoping you could give us some color on the individual practices, how they're doing in light of the economy, any impact you see from proposals being bantered about with health reform, and what perhaps your appetite might be for additional anesthesia acquisitions this year?

  • Thank you very much.

  • Roger Medel - CEO

  • Thanks, Brooks.

  • Well, we -- clearly as you read our press release and listen to our comments, we're very bullish on the anesthesia opportunity we have now, moved -- have accepted the practice in Raleigh as our first business office for anesthesia.

  • They're using a billing system which was the one that we had selected as being the one that we were going to use, and we felt comfortable enough that we brought in, now, our Fairfax billing into that office, and as you heard, we're planning on bringing the billing from our other Georgia practice into that office, as well.

  • That means -- I would interpret that to mean that we're happy with what we're doing.

  • It's working according to how we had planned.

  • Our practices are growing, continue to grow.

  • We've seen -- even in this last year we've seen some same-unit growth from our anesthesia practices, so we continue to believe that this is the area that we want to be in.

  • The opportunities for anesthesia acquisitions are there.

  • There is a significant amount of interest in American Anesthesiology from other anesthesia practices.

  • I continue to be surprised by the number of inbound calls that we get from other anesthesiologists.

  • It's not something that typically happens with our core business.

  • I think there's just a lot of interest in American Anesthesiology and I think that's driven by the quality of the practices that we have brought in as our core practices in anesthesia, as well as some of the other pressures, either financial or perhaps political, that are going on today.

  • But having said all of that, anesthesia is our long-term growth engine.

  • The fact that we're focusing a little more on our core business acquisitions this year is only a reflection of the fact that we see opportunities to bring in practices that we haven't had an opportunity to bring in in the past, but it doesn't mean that we won't see any anesthesia acquisitions this year either.

  • I would expect that we'll see at least one additional anesthesia acquisition before the end of the year.

  • Brooks O'Neil - Analyst

  • That is all very, very helpful.

  • I'm just curious, my sense historically has been you were comfortable with a debt to EBITDA in the range of 1% to 1.5% which I assume this year will accommodate the type of acquisition activity you've talked about, as well as your cash needs from operations, but am I correct in assuming that's in general the range at which you would continue to be comfortable?

  • Karl Wagner - CFO

  • Clearly that range we don't have any discomfort with having that range from a debt to EBITDA multiple, but I think we're just going to look at what the opportunities are ahead of us as we go forward.

  • Right now we have the constraints of what we have out there for debt, and we haven't considered going out and running to get more debt at this point to do something that would have to have us renegotiate what we have in place at this point, But if the opportunities are there and we see the significant opportunity for growth, that's something we would have to look at and make decisions on that point.

  • But I think you're right.

  • Some people have thought we were adverse to debt, but I think the one thing here at MEDNAX that we've always been focused on is that we want to be sure if we're putting debt on it's a result of us acquiring earnings and cash flow to sustain us in the future and sustain our continuing growth.

  • And we're really excited about the pipeline in anesthesia, as well.

  • I don't want to discount what we've talked about the great pipeline in our core business and pipeline, as Roger mentioned, the interest we have out there in anesthesiology.

  • I'd say it's one of the reasons that I'm so excited about the opportunity that we have out there, working with the people we have in place in anesthesia.

  • Just to follow up on one other point I think you were asking on the anesthesia operations.

  • I think one of the things that we've seen through the economy is a little bit weakness in some of the elective surgeries, the truly elective stuff, the plastic surgery type of services, but in general our hospitals have been pretty busy and we're really happy with the volume we've seen in surgical cases in the hospitals that we're in and facil -- all the facilities we're providing services at.

  • Brooks O'Neil - Analyst

  • That's great, thank you very much.

  • Congratulations on a great quarter.

  • Karl Wagner - CFO

  • Thank you, Brooks.

  • Operator

  • Thank you, Mr.

  • O'Neil.

  • Our next question comes from the line of Kevin Ellich of RBC Capital Markets.

  • Please go ahead.

  • Kevin Ellich - Analyst

  • Hey, guys, thanks for taking my questions and congratulations on the nice quarter.

  • Also, congratulations to Karl and Vivian on the promotions.

  • Karl Wagner - CFO

  • Thank you.

  • Kevin Ellich - Analyst

  • Roger, in your prepared remarks you mentioned the slight increase in NICU admissions and length of stay.

  • I don't know if you had answered this in one of the previous questions, but what's driving that and do you think that's a short-term anomaly or is it something you expect to -- is it a trend that should continue?

  • Roger Medel - CEO

  • No, Kevin.

  • I was saying earlier that we see normal fluctuations in volume and admissions, and in length of stay, and although we did see that this quarter it's not outside of the range where we see percentages of admissions or length of stay.

  • So, yes, we did see it this quarter.

  • We see variability on a quarter-to-quarter basis either on percentages of admissions or length of stay and we -- it's not unusual for us to see variability, but nothing outside ranges that we have seen in the past.

  • Kevin Ellich - Analyst

  • Okay.

  • That's helpful.

  • Karl Wagner - CFO

  • Just to be clear, that's not something we typically would have talked about because it wasn't really that significant, but the fact that we were saying we were seeing negative birth data to not say what caused positive volume growth left the question out there, so we wanted to answer it.

  • This isn't something we typically would talk about because it really wasn't significant enough for us to think it's really moving the needle in significant ways.

  • But based upon the negative birth data we thought it was worth discussing.

  • So it's clearly within the range, though it's nothing unusual or surprising because it is in the range that we typically see.

  • It was just a little higher than last year.

  • Kevin Ellich - Analyst

  • Okay.

  • And actually that leads into the next question, Karl, is, could you break down the monthly progression in the first quarter?

  • We know you guys said January was up two when you reported the fourth quarter, just wondering how February and March came in?

  • Karl Wagner - CFO

  • I don't think we're going to get into a monthly statement on how our volumes have been [throughout it].

  • We give you the updates when we do the calls as to what the fourth month was to give you the reason why we were using the guidance that we have going forward.

  • For instance, in April we said 2% and that's why 2% is the high end of our range, but I don't think we really want to get into us talking about each month's results.

  • Kevin Ellich - Analyst

  • Okay.

  • I guess then another way of asking it is, is there any take away that we can look at the birth data and see how that relates to NICU admissions, is there any correlation whatsoever?

  • Karl Wagner - CFO

  • Yes, I think birth data -- to the extent you have other birth data you may have gathered on a monthly basis we should expect -- in our facilities we would expect to see a relationship.

  • If admission rate moves slightly -- and that's what happened this quarter -- then you might see an offset on that.

  • But typically it stays in a range, so it should be fairly correlated with birth data for the hospitals we're providing services in.

  • Kevin Ellich - Analyst

  • Okay, but more at the hospital level versus the state level.

  • Okay, I understand.

  • Then going back to your guidance for Q2, you said that it includes some acquisition contribution, just wondering if you could give us any more details as to how much?

  • And that isn't something that you have included in the past, is it?

  • Karl Wagner - CFO

  • We have always included acquisitions for our core business in our guidance as we go forward, so we just want to be clear, it included some guidance for acquisitions in the quarter.

  • As you can expect, we wouldn't expect more than the next month-and-a-half or so of income for anything we do from this point forward.

  • We haven't closed an acquisition to this point during the quarter, but we clearly anticipate that we're going to do acquisitions throughout this quarter and there's a little bit built in there.

  • It's not a significant number.

  • Also, we've included the contributions from the acquisitions we have completed, as you would expect.

  • Kevin Ellich - Analyst

  • Right, okay.

  • And then last question -- sorry for all the questions -- the DSO improvement, very nice job, just wondering is it really just improved cash collections or is there anything else going on there?

  • And also, as you move the Atlanta anesthesia practice onto the Raleigh system could that also help drive improved collections?

  • Karl Wagner - CFO

  • Our collections overall were very strong during the quarter and that's what drove the DSO down a little bit this quarter.

  • It was across all specialties, so it wasn't specific to any one specialty that we saw.

  • For instance, some people have asked us is anesthesia driving it down, if we exclude anesthesia could it move down?

  • It moved down without anesthesia, and I think, as we move Fairfax and Atlanta into the Raleigh practice, I think we may see opportunities for improved collections.

  • We expect to get higher collection rates as we work through our typical process with the process that Raleigh has in place, as well, which has been very strong, and we're looking for opportunities to improve collections in those areas.

  • But we also hope to see a little improvement in DSO as we go forward with a more integrated process internally.

  • Kevin Ellich - Analyst

  • Okay.

  • Thanks for the answers, and nice quarter again.

  • Thanks.

  • Karl Wagner - CFO

  • Thank you.

  • Operator

  • Our next question comes from the line of Gary Taylor of Citigroup.

  • Please go ahead.

  • Gary Taylor - Analyst

  • Hi, good morning.

  • Good to see things trending better.

  • I know last year was frustrating to explain what was happening.

  • A couple questions.

  • First, I want to go back to a comment I think Karl made about the range for the second quarter guidance of $0.84 to $0.90 including a possibility that mix could be potentially two points worse, and I didn't understand if he meant year over year or sequentially?

  • Karl Wagner - CFO

  • That would be sequentially from first quarter to second quarter is what we built in.

  • And we've really looked at the headlines that have been out there about what's gone on in the economy over the last several months, what unemployment rate did, and felt we had to have some level of potential movement to government payers.

  • So we want to be sure that was built in our guidance so if it does happen as we go through this quarter it's already built into our numbers and we're not having a concern out there.

  • Gary Taylor - Analyst

  • So a 2 point -- if that did happen, if you slipped 2 points sequentially, that would take you pack to 3Q, 4Q levels and down year over year, I guess?

  • Would that make sense?

  • Karl Wagner - CFO

  • Yes, it would be a higher payer mix year over year clearly.

  • Gary Taylor - Analyst

  • Am I right that a 2 point move on mix would be in the $0.07 to $0.08 range in terms of impact?

  • Karl Wagner - CFO

  • No, that's not the impact for our quarter.

  • Gary Taylor - Analyst

  • That's not the impact?

  • Karl Wagner - CFO

  • I think -- a 1 point move is roughly $10 million to $11 million in revenue on an annual basis and that needs to be adjusted for bonus impact to the practices, most of which are on our 50/50 bonus plan, so there would be less of a flow through on that as you go forward.

  • So when you run those numbers it's not anywhere near that kind of size.

  • Gary Taylor - Analyst

  • Okay.

  • Then going to the margin discussion that you had and some of the acquisitions and the change in mix obviously weighing on margin a bit, can you talk about maybe sequentially -- since I know you don't disclose it -- but if you look at same-practice neonatal what do those margins look like year over year?

  • Are they pretty stable given that the payer mix was stable year over year?

  • Roger Medel - CEO

  • Well, same-practice neonatal, as we talked about as I went through my comments, we do have places where we've been adding physicians, so if we have flat volume in same-payer mix we may be adding physicians because we've seen growth over the years.

  • We needed to support that practice in its growth to make sure we're maintaining the quality of care that's provided by the physicians in that practice.

  • And we've continued to put those physicians in there to be sure we have the same level of care and meet the requirements to staff it for the practice and maintaining long-term viability of the physicians in that practice.

  • So we have continued to do that, so we will see some reduction in the margin in some of those practices year over year.

  • Gary Taylor - Analyst

  • Okay.

  • On terms of total mix of business -- I know this isn't disclosed either -- but where you do disclose in the K the total number of NICU days, is it fair to say that neonatal days are still driving 85% plus of the total revenue of the Company?

  • Is that in about the right ballpark?

  • Karl Wagner - CFO

  • I would have said that's probably a little high.

  • I think one of the things to look at to get an idea is probably physician counts in part of totality, so we have about 850 neonatologists in our about 1,300 physicians.

  • Gary Taylor - Analyst

  • You think that's more comparable?

  • Karl Wagner - CFO

  • It will give you a rough estimate as to that breakout.

  • Gary Taylor - Analyst

  • Okay, final question.

  • Last year when the volumes were weakening I know it was very difficult to isolate any particular geography that seemed to be different than others.

  • Now the volume is more stable.

  • Is there any comment on geography in terms of places that have maybe picked up more than others or just nothing material to be said there?

  • Roger Medel - CEO

  • We've seen growth in a lot of places.

  • I wouldn't say it is every where.

  • We seen some places with really strong growth.

  • We see times it's moved week to week from one region to another.

  • We still some weaknesses in some places that haven't turned around in some areas, so it's something we're watching closely and really want to watch the variability in that as we go forward.

  • Gary Taylor - Analyst

  • But you don't want to comment on what still is lagging geographically just from a state perspective or --?

  • Roger Medel - CEO

  • No, I don't really want to get into it specifically as to where it is.

  • We wouldn't -- I'll say a lot of people have speculated it's California, Nevada, Florida, and I wouldn't say -- surprisingly you might expect that based upon what's been going on.

  • I think there is too much variabil -- there continues to be too much variability on a month-to-month basis to be able to make any meaningful statements.

  • We do see -- as Karl has said, we do see weaknesses, but you might turn around the following week and see improvement there.

  • So I don't think we have anything meaningful to say on -- other than we continue to see variability on a region-by-region basis.

  • Gary Taylor - Analyst

  • Okay.

  • Great.

  • Thank you.

  • Roger Medel - CEO

  • Thank you.

  • Operator

  • (Operator Instructions).

  • Our next question will come from the line of John Ransom of Raymond James.

  • Please go ahead, sir.

  • John Ransom - Analyst

  • Hi, good morning.

  • Nice job and congratulations, all.

  • The question -- on your anesthesiology IT, have you been able -- one of the impressive things you do on the neonate side is the revenue cycle management, year one post acquisition.

  • What would you say has been the track record, albeit limited, on anesthesiology and is that something that you see a similar opportunity?

  • Roger Medel - CEO

  • On the anesthesia side I would say right now with the practices that we have our key goal was to bring in the billing, which we've just done on the Fairfax, so effective April 1st that transition, so we expect to see from a collection standpoint that improve.

  • As we've talked about in the past, we've seen some improvements on the managed care side in the Fairfax anesthesia practice, which is the one we've had the longest.

  • It's not what we necessarily see in our core business, and we wouldn't have expected that in these practices specifically because we bought large, strong practices that had built an infrastructure and had done a good job in their contracting to make sure we have the right base and the right group of people.

  • While we see opportunities and have seen opportunities in Fairfax to grow that, it's not the same level we may see in the neonatal practice.

  • That being said, we do believe there's opportunity in other practices to see growth in the revenue line from bringing them on, and that's something we'll be looking at as we go forward with other acquisitions.

  • John Ransom - Analyst

  • And one other thing.

  • There was a highly arcane adjustment in the conversion factor for Medicare on anesthesiology, how much did that help you last year and is that helping you at all this year, and is there any kind of commercial plan follow-through for the plans that fell off Medicare?

  • And then what's the outlook for that conversion factor going forward?

  • Karl Wagner - CFO

  • We had a significant increase last year going into the year for the change in the Medicare rates a year ago.

  • John Ransom - Analyst

  • So '08 over '07, correct?

  • Karl Wagner - CFO

  • Right, that's correct.

  • That was in our '08 numbers and really wouldn't have had an impact on us going through this year.

  • As far as going forward, I think everything's up in the air as far as what's going to happen for reimbursement.

  • We don't see any concerns from a Medicare standpoint on the rates for anesthesia.

  • Actually we're hopeful, like a lot of physicians are, that we'll continue to see some improvement.

  • But we're watching it pretty closely on the Medicare side as far as what's going to happen, but it's hard for us to project where that's going to go in the future.

  • John Ransom - Analyst

  • How much would it have helped the typical '08 over '07 -- the conversion factor change, how much did that help '08 over '07 typically?

  • Karl Wagner - CFO

  • It's really hard for to us say how we deal with each practice because every practice their contract rates are different.

  • Usually it's -- for instance, the contracts we do is just a straight conversion factor rate that we're using (inaudible), but not a percent of Medicare on our contracts or a commercial payer so there wasn't much impact there.

  • So it's going to vary practice to practice based upon the percent of Medicare business that they have.

  • John Ransom - Analyst

  • Just remind.

  • how much did that conversion factor go up in '08, do you recall?

  • Karl Wagner - CFO

  • I believe it was close to 20%.

  • John Ransom - Analyst

  • Yes, that's what I remember.

  • So this was just a technical RBRVS-type calculation where they assign more resources to the work?

  • Karl Wagner - CFO

  • This was a change in the conversion factor, I believe, was the direct change for.

  • John Ransom - Analyst

  • And what drives that?

  • Is just they see more work inputs, a higher value of the work inputs?

  • It's not clear to me.

  • Karl Wagner - CFO

  • Well, one of the things in anesthesia is that they had -- going through the review of specialties that anesthesia was significantly under reimbursed for the services they provide, so they made a change for that.

  • John Ransom - Analyst

  • Okay, that's what I -- you said it another way, but that's what I meant.

  • Okay.

  • They just assigned a higher value to what they did?

  • Not necessarily they were doing more, they just assigned a higher value to it?

  • Karl Wagner - CFO

  • That's correct.

  • John Ransom - Analyst

  • All right.

  • Thank you.

  • Operator

  • Thank you, Mr.

  • Ransom.

  • We have a follow up from the line of Kevin Ellich of RBC Capital Markets.

  • Please go ahead.

  • Kevin Ellich - Analyst

  • Hey, guys, just a couple follow ups.

  • I was wondering when do you think you guys will start breaking out anesthesia or providing more details in terms of the contribution to revenue and earnings?

  • Roger Medel - CEO

  • Going to hold out as much as we -- as far as we can until our accountants make us do that.

  • Kevin Ellich - Analyst

  • Is there a magical threshold that you guys have -- once it becomes 10% of revenue or is it that already?

  • Karl Wagner - CFO

  • There's not a specific number that says that we have to do it at this point, so we're watching that.

  • We have specific reasons.

  • As we've talked about before the competitors that are out there, the information that we -- we don't really want to give a lot of information that gives information exactly what we're doing to competitors that we have out there as we move forward, so we haven't specifically and we don't have a decision data point at which we're going to break that out in the future.

  • Kevin Ellich - Analyst

  • Okay.

  • No, that makes sense.

  • And I guess since you've done those three deals and you've had time to digest Fairfax, have you been able to drive the margin improvement and squeeze out some of the cost synergies that -- or synergies out of the deals that you thought you were going to see going into the deals?

  • Karl Wagner - CFO

  • I'd say right now we're happy with what we're seeing from an improvement from a reimbursement standpoint in Fairfax being the first one.

  • And we haven't even had the Georgia practice for a year at this point, as to being our second acquisition, and Raleigh, as you know, wasn't until the end of September last year.

  • We're happy with the way they're working.

  • We are seeing some improvements as we go forward, and as I think we bring more of the systems in-house and do more of our own billing, collections, and processing go forward we'll continue to see improvements.

  • But we're still very excited what's going on in anesthesia and look forward to the opportunity going forward in that area.

  • Kevin Ellich - Analyst

  • Okay.

  • Roger, I think you mentioned that you plan on doing maybe at least one anesthesia deal, I think last quarter you guys said maybe two small ones.

  • Any reason for the change or are you just -- the neonatal pipeline's just more attractive at this point?

  • Roger Medel - CEO

  • As we look at the opportunities out there, we're constantly fine tuning what makes most sense -- more sense for us, particularly as we look at our cash availability on our line of credit and so we're having to play around with that, as well.

  • And so we're looking at some small acquisition and we're looking at some large ones, so I would say you'll see either a couple of smaller ones or a large one depending on how we think it best fits with our existing structure.

  • Kevin Ellich - Analyst

  • Okay.

  • And then just following up on that question, once you -- with your cash flow -- because you guys generate a significant amount, once you pay down debt could we look -- could we see you guys maybe buy back stock or do you plan to stock piling cash for the pipeline?

  • Roger Medel - CEO

  • Although we have historically bought back shares with any excess cash that we've had on an annual basis I wouldn't foresee that continuing into the future because the opportunities for growth here between the core and the anesthesia practices are so attractive that I wouldn't foresee us doing any more share repurchases for the foreseeable future.

  • Kevin Ellich - Analyst

  • Okay.

  • And then just wanted to clarify what was the payer mix shift that you saw in Q1?

  • Was it down 2%?

  • Karl Wagner - CFO

  • It wasn't down quite that much.

  • The first quarter of last year had a little bit higher as compared to '07, but it was down about close to a point-and-a-half, or less than a point-and-a-half from the fourth quarter.

  • Kevin Ellich - Analyst

  • So down about 50 basis points sequentially, is that what you said?

  • Karl Wagner - CFO

  • No, 150.

  • Kevin Ellich - Analyst

  • 150 sequentially.

  • Okay.

  • Got it.

  • Thanks, guys, and nice job again.

  • Karl Wagner - CFO

  • Thank you.

  • Operator

  • The last question in queue is a follow up from the line of Sudeep Singh of Deutsche Bank.

  • Please go ahead.

  • Sudeep Singh - Analyst

  • Hi.

  • Sorry, guys, just one last question.

  • Karl, can you just provide how much expense was incurred in the quarter as a result of the FICA?

  • Karl Wagner - CFO

  • Oh, as far as the FICA expense that we had in the quarter?

  • I don't have that number right here.

  • I would say as a percent of salaries it's pretty consistent, so one of the big things that we have in the first quarter is because of the big bonus payments we run that out, but we don't typically specifically break that number out.

  • Sudeep Singh - Analyst

  • All right.

  • So -- but it's still roughly 6% or so of salaries per -- and obviously that would run for the first and second quarter?

  • Karl Wagner - CFO

  • I would expect it would be higher than that in the first quarter because we pay the incentive compensation number, which isn't built into that salary number.

  • So while we have the match level on that it's on a higher number than the salaries for the quarter.

  • Sudeep Singh - Analyst

  • Okay.

  • All right.

  • Great.

  • Thank you.

  • Karl Wagner - CFO

  • Thanks.

  • Operator

  • We have another follow up from the line of Kevin Ellich.

  • Please go ahead.

  • Kevin Ellich - Analyst

  • Hey, guys, sorry about that.

  • That just reminded me of one more question.

  • With the operating cash flow down $22 million is there any way you could help us back into what bonus payments look like this year versus last?

  • Obviously it was down year over year, but just wondering if you could provide any help?

  • Karl Wagner - CFO

  • When you look at bonus payments in totality for the physicians, in the first quarter we paid about $103 million for physicians this year versus in the first quarter of '08, it was actually about $102 million, so pretty flat year over year from a bonus perspective for the physicians.

  • Total bonuses were down slightly year over year ,as other bonuses were cut back for 2008 year.

  • Kevin Ellich - Analyst

  • And then -- but would we have to take into consideration the number of -- obviously you have more physicians with the Company this year versus last, right?

  • Karl Wagner - CFO

  • Yes, that's correct.

  • Kevin Ellich - Analyst

  • So that's the difference, would you say?

  • Or contributing factor to why even though it's flat on a dollar basis it's still down?

  • Roger Medel - CEO

  • It's still down on a per physician per practice basis.

  • It's up -- it's flat because there are more physicians participating in the plan.

  • Kevin Ellich - Analyst

  • Right.

  • Okay.

  • Thanks.

  • Operator

  • There are no further questions in queue at this time.

  • Please continue, Mr.

  • Kneeley.

  • Roger Medel - CEO

  • Okay, if there aren't further questions then thank you all for participating this morning and thank you, operator.

  • Operator

  • Not a problem, sir.

  • Ladies and gentlemen, it does conclude our conference call.

  • On behalf of today's panel I'd like to thank you for your participation and thank you for using AT&T.

  • Have a wonderful day.

  • You may now disconnect.