Pediatrix Medical Group Inc (MD) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by.

Welcome to today's 2011 fourth-quarter earnings release conference call.

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

Later, we will conduct a question-and-answer session with instructions given at that time.

(Operator Instructions)

As a reminder, today's conference is being recorded, and I would now like to turn the conference over to our host today, Vice President of Investor Relations and Corporate Communications, Mr.

David Parker.

Please go ahead.

Thank you, and good morning to MEDNAX's 2011 fourth-quarter earnings call.

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's 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 statements 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 10K and its quarterly reports on form 10-Q, including the sections entitled Risk Factors.

In addition, during this call, we will discuss certain non-GAAP items.

This morning's press release contains a detailed GAAP reconciliation, and that is available on the investors page on our website, WWW.mednax.com.

With that, I'd like to turn the call over to our CEO, Dr.

Roger Medel.

Thanks, David.

Good morning, everyone, and thanks for joining our call this morning.

We recorded solid results from operations for MEDNAX during the 2011 fourth quarter and full year, results that continue to be driven largely by the successful execution of our long-term growth strategy.

As our results demonstrate, MEDNAX is a company that continues to grow.

We are a company that has the financial strength and flexibility to fund future growth through internal cash generation and our recently expanded revolving credit facility, while at the same time, building upon the solid foundation we have established to manage our existing operations.

What I'll focus on over next few minutes is the progress that we continue to make as we execute this proven long-term growth strategy.

On the acquisition front, we had a solid year in 2011, with a total of 10 group practices deciding that they would place themselves in a better position by practicing a [start-up] MEDNAX with our complement of clinical and administrative infrastructure rather than continuing to try to manage a full-time clinical load and manage the business and administrative side of their practice.

We invested more than $160 million to acquire these practices as well as to make contingent purchase price payments on previous acquisitions.

Of the 10 groups, 7 of them were on the pediatric side.

We acquired three maternofetal medicine groups, one neonatology group, one pediatric cardiology group, one other pediatric subspecialty group, and most recently in the fourth quarter, our first move into pediatric surgery, which we have previously discussed.

Focusing on recent additions and future growth prospects for American Anesthesiology, 3 of our 10 acquisitions were in anesthesia, with 2 coming in the fourth quarter.

In November, we added Austin Anesthesiology Group, the first Texas-based group to join American Anesthesiology.

This group practice employs 66 physicians and 71 CRNAs practicing as part of an anesthesia care team model with annual anesthesia volumes at the practice exceeding 85,000 cases.

In December, we also announced the acquisition of Burlington Anesthesia Associates in Mount Holly, New Jersey, the first New Jersey practice to join American Anesthesiology.

This practice consists of 17 anesthesiologists who practice, a start of an anesthesia care team model that employs 25 CRNAs.

Both of these groups, by joining MEDNAX, are seeking the stability and resources that come with our national group model, so that they can focus on doing what they do best, taking care of their patients.

With the addition of Texas and New Jersey anesthesia practices, we are expanding beyond the southeast to a national model as planned.

Both of these states are solid geographies for us in our historical pediatric business, and now they represent an expanded footprint and the advancement of the American Anesthesiology national model.

We plan to continue this path in 2012 as we expand into states in which we currently have pediatric business, while at the same time moving into states which represent the new footprint for American Anesthesiology.

Overall, we are not seeing anything that would suggest the level of acquisition activity we've experienced in the recent past will slow down.

We are managing a very full pipeline that includes practices within our historical, neonatal, maternofetal medicines and pediatric cardiology practices.

Additionally, we are confident that now is the time to take our foot off the brake a bit and that we have the right team in place to further grow our anesthesia operations.

As [importantly], we have taken the time, we have made the effort, and we have identified the right infrastructure and investments that will support the growth within this anesthesiology specialty.

In both recent anesthesia acquisitions, and frankly, in all nine anesthesia acquisitions we have made since 2007, these groups were looking to our proven model and resources to support their practices and growth prospects.

These resources can come in many different forms, whether at clinical quality initiatives, administrative support, research and education or simply, as a proven model in an uncertain health care environment.

While there are numerous examples to provide, one in particular that we initiated during the fourth quarter is expanding the Quantum Clinical Navigation System quality tool throughout our American Anesthesiology division.

The Quantum tool is a product that came with our acquisition of Southeast Anesthesia Consultants back in 2010.

As we grow American Anesthesiology, we believe that a rigorous quantitative, continuous quality improvement program can improve outcomes, patient satisfaction, and efficiencies.

In simple terms, Quantum is a data collection tool that achieves these benefits by following each patient through the continuum of care.

Via this tool, our clinicians use the data along with evidence-based medicine to develop and implement best practices and standard operating procedures.

We believe that the Quantum Clinical Navigation Systems CQI process will provide our anesthesia practices an opportunity to integrate a systems approach to clinical care with better outcomes for our patients.

It will also allow our physicians to demonstrate their value proposition to their various customers, consisting of patients, hospitals, surgeons, referring physicians, payers, and the community in which they practice.

While anesthesia care is far different from caring for babies in the NICU, we believe that the Quantum CQI process has the potential to become the complement in our American Anesthesiology division through our clinical data warehouse on the pediatric side of the business.

In this area, we also made advancements during the fourth quarter and full year on the pediatrics front that are worth noting.

Our clinical data warehouse helped contribute to some of the more than 70 research papers published during 2011 by MEDNAX physicians and also contributed to the formation of the MEDNAX Research Advisory Committee, which is an important new addition to our Center for Research, Education and Quality.

This group, made up of physicians and others, will help support our objective of performing research as the highest quality possible.

It will be a peer review group, independent of the concurrent institutional reviews performed at the hospital level and importantly, it further ensures the safety of patients while also assisting MEDNAX in getting appropriately funded for the trials that we run, whether from government agencies or private organizations.

Before I turn the call over to Vivian, I want to give my sense of the state of the states and specifically concerns over physician reimbursement rates.

It seems that for the past few years, most everyone in the healthcare sector has been trying to interpret the various reform proposals and healthcare headlines.

While I won't use this time to speculate on what may or may not happen, we are seeing a more favorable environment than last year.

Most state governments will continue to be under considerable budgetary pressures.

We look at this as a collective group of over 30 diverse payers, the various states in which we are providing care.

As an organization, we're actively involved in the process through a government relations program that includes participation from physician leadership across our group as well as a network of state and federal lobbyists.

As states plan their fiscal 2012 budget, they will again be under pressure to make cuts in services, and I suspect you'll hear of proposed cuts to Medicaid programs in many states.

It is important to drill down beyond the headline and understand where those cuts are likely to occur.

Historically, states have cut facilities, particularly hospitals, nursing and long-term care.

That is ultimately where the majority of Medicaid funds go, so it is not surprising that as states try to adjust their budgets, this is where cuts may occur.

Physician services are generally not a large part of a state budget in contrast.

Importantly, states must find a way to maintain an adequate network of physicians to ensure that Medicaid enrollees have access to care.

Historically, we have seen and believe that poor physician reimbursement results in fewer doctors accepting Medicaid patients.

States that preserve reimbursement at current levels are more likely to maintain an adequate network of primary and specialist physicians to provide care, typically in the lower cost setting of a physician's office.

The state pays either way because the care that is delayed becomes more complicated, often needing hospitalization.

We think this challenge of maintaining an adequate physician network in states across the country will once again cushion what could be a challenging legislative cycle.

Through the first half of the calendar year, we have good visibility into our Medicaid reimbursement rates since most of the state's fiscal years end June 30, and they are working under budgets already established in 2011.

We realize the [acceptive] care message is nothing new, but we firmly believe that state Medicaid directors are well aware of this issue.

Having said that, we're taking a conservative measured view towards Medicaid rate settings for the upcoming 2013 fiscal year which, for most states, will begin in July of this year.

The state of healthcare is the latest challenge that speaks to the strength of our model, and national group practice is better able to advocate on behalf of patients for appropriate levels of reimbursement.

As I said at the beginning of the call, we are a growth company that has the financial strength and flexibility to fund future growth through internal cash generation and our revolving credit facility, while at the same time building upon the solid foundation we have established to manage our existing operations and to acquire new practices.

We are disciplined in our approach, and we're confident that the value we bring to those practices that are becoming part of MEDNAX is more pronounced in today's healthcare environment than ever before.

At this time, I'll turn the call over to our CFO, Vivian Lopez-Blanco to review our financial results before we open up the call to take your questions.

Thanks, Roger.

Good morning, and thanks for joining our call.

With our 2011 fourth-quarter results, we're presenting a company that continues to grow with contributions from both the acquisitions completed since October 2010 as well as same unit practices.

We continue to be challenged by variability with some of the same unit drivers such as patient volume, and our results demonstrate that we continue to meet this challenge.

As we discuss the results for the 2011 fourth quarter, we would like to point out that the growth rate in the operating results for the quarter was impacted by the lapping effect of the significant acquisition activity in the 2010 fourth quarter.

For the three months ended December 31, 2011, revenue grew by 9.9% to $404.9 million.

Over 73% of our revenue growth came from acquisitions, while the remainder is from same-unit growth, which increased by 2.7% for the 2011 fourth quarter from the prior year.

Of this 2.7% same-unit growth, net reimbursement related factors grew by 2.3%, while 0.4% came from volume growth.

Our same-unit revenue growth from net reimbursement related factors was principally due to continued modest improvement in reimbursements received from third-party commercial payers as a result of the Company's ongoing contract renewal processes and an increase in the administrative fees received from our hospital partners due to the expansion of our services as a result of internal growth initiatives.

On a year-over-year comparison, the percentage of services reimbursed under government programs remained essentially flat during the 2011 fourth quarter.

The sequential shift in the percentage of our services reimbursed under government programs for the 2011 fourth quarter, relative to the 2011 third quarter, reflected a 20 basis points positive shift to commercial from government.

On the volume side, our anesthesiology, pediatric cardiology, maternofetal medicine, and other pediatric physician services grew, while revenue attributable to same-unit volume declined for our neonatal physician services.

The number of patient days at neonatal intensive care units included in our same-unit base decreased by 1.2%.

Our profit after practice expense for the 2011 fourth quarter was $141.6 million, up 7.9% from $131.2 million for the prior-year period.

Profit after practice expense margin declined by 63 basis points, which can be primarily attributed to the mix of practices acquired since October of 2010.

We generated operating income of $91.5 million for the 2011 fourth quarter, an increase of 6.6% from $85.9 million for the prior-year period.

G&A expenses grew by 8.5% for the 2011 fourth quarter to $42.8 million from the prior-year period.

As a percent of revenue, G&A expenses declined to 10.6% from 10.7% for the 2010 period as a result of our model at work, acquiring and effectively integrated practices into our existing administrative infrastructure.

Net income for the 2011 fourth quarter was $58.4 million, up 8.5% from $53.8 million for the 2010 period.

We reported earnings-per-share of $1.19 based on a weighted average 49.1 million shares outstanding, which compares with earnings-per-share of $1.12 based on a weighted average 48 million shares outstanding for the 2010 fourth quarter.

As we compare the 12 months ended December 31, 2011 to the 2010 period, we believe it more meaningful if the 2010 GAAP net income and earnings-per-share is presented on a non-GAAP basis by increasing the income tax provision and decreasing net income by $10.9 million to exclude the impact from the favorable resolution of certain tax matters that took place in the third quarter of 2010.

For all of 2011, our revenue grew by 13.3%, operating income grew by 13.6%, and net income grew by 13.7% on a non-GAAP basis.

Revenue for the 12 months ended December 31, 2011 was $1.6 billion, up $187 million from $1.4 billion for the prior year.

Same-unit revenue for 2011 grew by 3.5%, with reimbursement-related factors up 2.5% net.

Through 2011, this growth was primarily due to modest improvements in reimbursement from third-party commercial payers.

Same-unit volume increased by 1%, with volume growth coming from our same-unit, anesthesia, pediatric cardiology, neonatal and other pediatric subspecialties, while maternofetal medicine volume was flat.

Operating income grew to $355.4 million for 2011, up13.6% from $312.9 million for 2010.

Our annual tax rate for 2011 was 38.3%, pretty much in line with 2010 at 38.4%.

For 2011, net income grew by 13.7% to $218 million as compared to non-GAAP net income of $191.8 million for 2010.

Earnings per share were $4.47 for 2011, based on a weighted average 48.8 million shares outstanding, which compares with non-GAAP earnings per share of $4.03 for 2010 based on 47.6 million shares outstanding.

Looking at our balance sheet, we had cash and cash equivalents of $18.6 million at December 31, 2011.

Accounts receivable at December 31, 2011 were $230.4 million, an increase of approximately $50 million compared to December 31, 2010.

Our DSL increased to approximately 52 days from 45 days at December 31, 2010.

The growth of our accounts receivable is primarily related to the timing of cash collections related to integrating recently acquired practices and short-term impact facilitated with payment processing by one of our states.

The total amount outstanding on our $500 million revolving credit facility was $29 million at December 31, 2011.

We continue to generate solid cash flow from operations, which was $90.1 million for the 2011 fourth quarter.

As Roger said, on the acquisition front, we had a productive year, and we invested $161.4 million to complete 10 practice acquisitions.

That amount also includes continued purchase price payments for acquisitions made in previous periods.

For all of 2011, cash flow from operations was $271 million.

Consistent with our historical patterns, most of our cash flow from operations was available for investing back into the growth of our business.

Maintenance capital expenditures for all of 2011 were $31.3 million.

As a reminder, this number includes $18.5 million for the purchase of a building that will house some of the administrative departments which will expand over time to support our constantly growing physician base.

When backing out the purchase price of the building, our maintenance capital expenditures remain consistent with historical ranges.

As we announced in this morning's press release, we expect that our earnings per share for the 2012 first quarter will be in the range of $0.96 to $1.02.

Within this outlook, we assume that total same unit revenue for the three months ended March 31, 2012 will grow by 2.5% to 4.5% from the prior-year period, including the impact of the additional day for the leap year.

This same-unit growth forecast is expected to be evenly divided between patient volume growth across all MEDNAX physician specialties, and net reimbursement growth.

Including improvement from commercial contract rates as well as the variability in mix of services, reimbursed under commercial and government payer programs.

We are also expecting that our effective tax rate for the 2012 first quarter will be consistent with what we experience in the comparable 2011 period, which is higher than for the 2011 fourth quarter.

For the full year 2012, we expect the tax rate to be approximately in-line with 2011.

Throughout all of 2012, we expect to invest approximately $300 million to complete practice acquisitions across all MEDNAX's physician specialties, including one-third of which we expect to invest in the pediatrics medical group division and the remainder in our American Anesthesiology division.

As a reminder, the mix and timing of all practice acquisitions will impact our growth rate throughout 2012.

For those of you who have followed MEDNAX for some time, you'll remember that our results for the first quarter of every year are impacted by some timing issues that affect our results on a sequential basis.

For the first quarter of 2012, this impact is on the expense side, as our social security payroll taxes are higher at the start of every year when compared to the fourth quarter of the prior year.

An estimate for this recurring expense item which impacts our operating income, net income and earnings per share is included in our financial outlook for the 2012 first quarter.

It is also important to remember that we typically have negative cash flow from operations during the first quarter of every year, as we use cash in amounts under our revolving credit facility to pay bonuses that have accrued throughout the prior year.

With that, I will now turn the call back over to Roger.

Thank you, Vivian.

Let's just go ahead and open up the call to your questions.

(Operator Instructions)

Kevin Fischbeck, Bank of

I

thought the fact that you guys are providing an actual guidance number for anesthesiology acquisitions -- this is the first time I remember seeing you provide a specific target.

Can you talk a little bit about the visibility you have in that pipeline and why you felt comfortable doing that for the first time?

Yes, our anesthesia pipeline, I am going to say, is lower than it has ever been.

We have buckets where we are talking to practices and buckets where we are receiving confidentiality agreements and are in the process of analyzing their data, and other buckets where we made offers, and the offers have been accepted and we're going through the due diligence process.

And I'll tell you that every one of those buckets is fuller than it has been in the past and of course, we won't complete all of those views, but it is looking like there is just a lot of opportunity there, a lot of interest, and we continue to acquire the practices that we want to acquire, and things are looking like it is going to be a good acquisition year for us in anesthesia.

That is interesting that you have some letters of intent out there.

Would you say this is similar to how your pediatric pipeline is as far as having a mix of early stage, mid-stage, late stage transactions, and is there something about this year, or do you think that going forward you might have similar visibility in what that pipeline looks like going forward?

The pediatric pipeline is more mature, no doubt.

What you see are a number of different specialties.

The reality is you are dealing with neonatology, pediatric cardiology, maternofetal medicine.

So it's not just focused on neonatology.

We do have some neonatal deals in the pipeline that we expect to complete this year, but it is just -- the reality is, it is a different kind of a pipeline.

It still has a number of deals in it, and we expect a third of what we estimate we will spend in 2012 would be on the pediatric side, but it is not just neonatology deals.

Okay, and then shifting gears here, on the mix number, payer mix number was good.

But was that skewed at all because of the growth in the different business lines?

Would you have a same-store payer mix?

Yes.

This is Vivian.

The payer mix shift has not been so much because of the mix of practices.

My statement there on mix was more related to the operating income margin.

The mix overall, for the year, we are very happy with how it turned out.

As you know, there has been a lot of variability with that over the last couple of years.

2011 was a very good year as it related to lack of mix shift to government.

So it was more a statement on that.

So the same-store is pretty close to the reported number as far as payer mix goes?

That is basically the number, right.

I know, you might not know the answer to this, but as part of healthcare reform, there was provision that would increase Medicaid rates for certain primary care doctors up to where the Medicare rates are in 2013 in 2014.

And I know the language is pretty vague about whether you would be included in that are not.

Do you get a sense of when we would know the answer to that question and how would that be communicated?

Our sense is that we are going to get an answer pretty soon, probably before the end of this month.

The people that we talked to and the lobbyists we talked to tell us that it looks good, but it is not done, and until it is done, we're not going to tell you about it, but the early information we are getting is that it looks good for us.

How would that work?

Would that be similar to any normal revenue increase where you assume half of it goes to physician bonuses and half of it comes back to you, or would there be a different thought process about how that increase might be created in compensation?

It depends upon the profitability of the specific practices.

Our bonus program is based upon the profitability that we expect to generate from an acquisition, and anything above that original threshold, we share with them on a 50-50 basis.

So if a practice is over the threshold and they are in what we call in bonus, yes, we would share that with them as part of the overall profitability of the practices.

The practices not in bonus, obviously that would not be something that we would share with the physicians.

Okay, great.

Thanks.

Thank you very much and pardon me, I neglected to mention that you have been asked to please keep yourselves to one question and a follow-up, and then you can go ahead and re-queue.

Kevin Ellich, Piper Jaffray.

I was wondering if you could provide any color on the same unit NICU patient days.

Obviously you had a tough year-over-year comp, and looking at the annual stats you provided in your press release, the number of births increased 1.3% on a year-over-year basis and the NICU admissions picked up 4%.

I am just wondering what is driving that and where is the disconnect this quarter?

I think that you may have misread that.

The birth volume is down 1.3%.

--1.2%

Right, so both birth and admissions are down.

What we see is what I have been talking about for the last four years, which is a continued variability on a month-to-month, quarter-to-quarter, region-to-region basis.

This is exactly what we have been saying for the last four years, that we have not seen any consistent trend, either up or down across the states where one quarter, I will look at a state and it will be flat, and next quarter, that same will be up, and the next quarter, it will be down, regions, et cetera.

The magnitude of the variability has in fact slowed [down some] from what it was back in 2008, 2009, but the variability still continues, and so as you see during the third quarter, our same numbers were up by one point.

I don't have the numbers in front of me, but the same-store volume was up over 2% in the third quarter, and now in the fourth quarter, same-store volume is down 1%.

When I am giving you what I think this first quarter of 2012 looks like, all I can do is base it upon what the current numbers are.

It could be that, it could be more, it could be less.

That is why the range is the way that it is.

Actually, Roger, what I was talking about in terms of the1.3% increase and the 4% growth in the NICU admissions, that is for the full year.

You provided another operating data table in a press release.

Kevin, what that is is that, when we are referring to these numbers that Roger is talking about, those are on the same-unit basis.

The number that you are looking at, in other operating data on the press release, is all in, and so of course, every year it is higher because we are adding practices.

So we look at it from the same-unit comparison, which is the practices that have been in there for the full 12 months.

Got it, that makes more sense.

Okay.

Actually, just shifting gears back to the anesthesia side, more of a big picture question.

When the birth rate was growing dialing back five or 10 years ago, historically same-store growth had been in the range of 3% to 5% for the business when it was just pediatrics.

As you see more of a mix shift to anesthesia, and things start to normalize and come back in terms of volumes, do you think we could actually see some acceleration in same-store growth as things become more dependent on surgical volume?

We believe there are some numbers out there which show that it is expected that the number of surgical procedures this decade is expected to grow by some significant percent.

-- 29%, 30%.

-- 30%, so definitely we expect that -- and that's driven by the aging Boomer population, so we definitely expect that those numbers are going to grow based on the statistics of increased aging in the population, and again the numbers are 30%, 29% growth this decade in surgical procedures.

Got it.

Okay.

Thank you.

Darren Lehrich, Deutsche Bank.

Good morning, everybody.

I wanted to ask a question about margins.

It was nice to see that your practice salaries and benefits were in line -- certainly after seeing what your peers reported thus far.

I wanted to ask you about practice supplies expense and other operating expenses.

You break that out in your income statement.

That is where -- it looked like if there was a little bit of a miss relative to our model.

So what's changed there, how should we be thinking about that line given your mix of business?

And I do have a follow-up about margins more broadly.

Good morning, it is Vivian.

That basically fluctuates with the mix of practices that we have, and so depending if you have office space practices that you're buying on the pediatric side of the house and anesthesia practices, overall, as you know that supplies number is still in the 4% there.

So it can fluctuate a little bit in any given quarter, but it is more related to the mix of practices and related to pretty much on the acquisition side.

If you buy an office-based practice, whether cardiology or maternofetal medicine, that number is going to go up, whereas if the acquisition is more hospital-based practices, those expenses are, as you know, on the hospital side.

Sure, I understand that.

I guess it certainly has been closer to four, and now it is in the mid-fours.

So is the mid-fours now a better run rate, or do you think there is anything unusual beyond just mix of business in the quarter?

Just trying to square that.

No, I think it is more related to the mix of businesses, and so you're going to have a little fluctuation as you see there for the year.

It was still 4.2, so in that range, it could fluctuate, but it should not be big dollars.

Okay, that's helpful.

I guess my follow up here, just on margins is, as you think about your acquired practices and really anesthesia specifically, how should we be thinking about margins, both short-term and long-term as your activity picks up in M&A here?

Initially, when you started getting into the anesthesia business several years ago, we all thought that margins would be structurally lower and Roger, I just want to hear from you, an update on how you are thinking about it given the practices that you are looking at.

Is it still the case that they are slightly lower or were we looking about the same in terms of your base business?

We said all along we think that the margins will get to be reasonably comparable to what the neonatology margins are.

The interesting thing for us has been that, as we grow the anesthesia practices and we now have nine groups in our company that the margins just have not been affected that much.

So as we move forward here, we still think that the margins may fluctuate a little, it may be a little lower, but I don't think -- I think when we first got into this business, there was a lot of concern that the margins were going to erode significantly, and we certainly don't see that happening.

Let me expand on that a little bit because I think it is important.

I highlighted it in my section of the script.

In any given quarter, that changes because of the mix of practices and the one thing to note on anesthesia, as I talk to you guys, as we have been on the road, is that it does depend on the anesthesia care team model, whether the CRNAs are employed by the hospital or the whether the CRNAs are employed by the practice.

So that also has a varying degree of impact on the margin percentage, and depending on the size of that practice, in any given quarter and any given year, that causes some fluctuation.

Also, what causes fluctuation is what is happening on the [PDX] side of the house depending on how we are doing with volume and rate because as we said, on the pediatric side of the house, especially neo, there's a very big fixed component on the physician side.

So, hopefully that gives a little bit more color as to what to expect from a quarter-to-quarter basis.

My last follow-up, on margins again, can you tell us what the M&A related expense was in the fourth quarter?

I know you are having to expense a lot of that activity so I just want to get a sense for what it was in the period.

We don't break that out, but what I can say is that the M&A expense activity really hasn't changed that much from year to year.

We have been expensing that, as you know, when the accounting rules changed in the beginning of '09.

We took that last year as well, and last year we had some pretty big deal activity, as you know.

So it's not a big factor there.

Okay, thanks for taking my questions.

Thank you.

Brooks O'Neil, Dougherty.

I was just curious, to start off with, whose foot has been on the brake as it relates to the acquisition?

Roger's foot has been on the brake.

I know that.

If you can just talk to us a little bit about both the state of your business in anesthesia, and the infrastructure development, and all of that as well as your outlook for the anesthesia business going forward and help us understand just a little bit better why now?

Why you do you really believe now is the time to accelerate the growth of the business?

We think first of all that we have, over the last three or four years, made the necessary investments to manage the business.

We are careful about understanding it, convincing ourselves that we were in fact able to bring value to these practices.

At the end of the day, as I stated in the past, this business is about bringing value to physicians.

If they perceive that they are better off by being part of your company, they will stay and if not, they will walk.

So it doesn't matter if you pay a bunch of money for their practice if six months later, everybody forgot how much money they got, and the question is -- am I better off by being part of this group or not?

And so for us, it's about making sure that they have the resources necessary and they are not having to spend time doing all of the back-office functions and that they have opportunities to do research, that they're not worried about buying malpractice insurance and all that stuff.

And it takes time, it takes time to build your own back office, to get comfortable negotiating that in your contracts, to understand that you are doing the coding correctly and your collections programs are in place, and you have got CQI and you are looking at data, et cetera.

And so, rather than just coming out year-one and betting the farm that we would be able to do that, I picked the best people that I had on my team and gave them the keys to that division, and we are building it the right way.

We have been a publicly traded company for 17 years and you have followed us, Brooks, for those 17 years.

Don't say that.

And you know, our trend is for growth.

We like to do things the right way, and we like to grow.

I think that what has happened now, and we renegotiated our credit facility last year, and we are comfortable that we know what we are doing, that we are in the right business, that we have long-term growth opportunity, we have hired other people for our business development team and we are taking a bit our foot off the brake at this point in time -- my foot off the brake -- and going forward

We completed three acquisitions in anesthesia last year, and as I said a number of times, that I think we will do more than that this year.

And we have some good solid practices in our pipeline, and we think we are getting, we're bringing a lot of value to our physicians and we are getting those reports from our physicians on an ongoing basis.

Our anesthesiologists believe today they are getting value and they themselves are out there.

We just had an American Society of Anesthesiologists meeting, their annual meeting, and our physicians were our best sales persons.

A number of them were at that meeting, they were having meetings with other practices, friends of theirs, et cetera.

And it is nice and fun to see that your guys are out there doing your sales work for you.

I think you are doing it exactly right, and I am excited about -- all of these 17 years have been great.

Let me ask one last one on the anesthesia.

We saw the Texas acquisition and the New Jersey acquisition.

It looks like, in addition to doing more deals, you are spreading the wings on the deals.

Should we just expect it to be a national platform?

Are you going to try to grow it in more concentric circles away from Florida over time?

No, that we have a lot of opportunities in many different states.

Some we already have a presence in, and in many, we don't, and I think you can expect to see the national footprint continue to expand and at the same time, if there are opportunities within existing states that would fit nicely into those infrastructures, we will take advantage of those as well.

Thank you very much.

Gary Taylor, Citigroup.

Just a couple of questions.

I lost my train of thought momentarily.

The first one is, looking at the total revenue, this was the first sequential decline in total revenue since 2006 and is there anything to think about with respect to that outside of the fact that the NICU days were probably a little less than you were anticipating or hoping for?

There is nothing else other than that obviously, the acquisition activity, I don't know what you had modeled in there as far as the break out between same-unit and acquisition, because overall, the same-unit increased itself.

We were pretty happy with that fourth quarter at 2.7.

Obviously light on the NICU volume, but 2.7 was great growth there what is pretty much in line for the year.

As I said, in my piece of the presentation, I think it is related to some of the timing of the acquisition activity.

Typical 4Q seasonality would be for higher sequential revenue.

Is that fair or is that not necessarily true?

As you know, typically you have the same number of days in Q3 and Q4.

We typically look at quarter three and four similarly.

So, it is quarter one, as you know, and two that have some seasonality there, but three and four are typically in line.

My second question is, on the $300 million of contemplated acquisitions spend, is it unreasonable to think that the dollar amount of annualized revenues you would acquire would be in the $200 million range?

Is it unreasonable to think that?

Again, we try to steer away from that, as you know.

We don't tell you how to model that, and I know that some of you have tried to do a model based on a per physician count, which I'm sure you can take the average of what we have as far as the nine practices we have in anesthesia.

But we steer you away from that because we pay for practices, as you know, based on what we think the contribution is going to be for that practice, so if it is a practice that has a higher commercial mix, the dollars could be impacted, so I am not willing to talk about that.

Okay.

I was just trying.

Keep trying.

The first-quarter guidance, just remind us, is there any unannounced acquisition activity that is in that guidance?

No.

Right.

Thank you.

Ryan Daniels, William Blair.

Let me start on the same-store revenue growth, due to the reimbursement related factors.

You've typically talked about the mix shift and better commercial reimbursement, but this time, you also called on administrative fees and I don't recall seeing that before.

So a multi-pronged question being, can you give us a little bit more color on what those are, and number two, has that grown in importance as a percentage of the increase, or did you just mention in the press release, not meaning to intend it's of bigger importance?

There are a couple things, I do think -- Roger introduced that concept, I believe it was in the second or third quarter this year when he talked about that we typically don't really expand on it, but we do have initiatives at each one of our regions where hospitals come to us and want for us to expand our services there.

Those are typically related to some of the hospitalist programs we are doing, OB hospitalist programs, and we had several start up in several other regions.

It does impact the top line.

It also does -- obviously it has contributions, but there are expenses related to that because a lot of these things are related to coverage too.

So it is an ongoing initiative that we have.

It just happened to be that in this fourth quarter, Ryan, we did have several programs that started up.

That is helpful color, and I guess my follow-up on the M&A front and maybe state of the union as it relates to Medicare reimbursements, obviously a lot of noise continues around the sustainable growth rate formula and potentially fixing that.

And obviously that could spill over and impact the anesthesia division, and I realize you don't have a ton of exposure to Medicare there yet, but number one, I'm hoping to get any view you might have on that.

And then number two, if there is long-term clarity to the SGR fix, would that potentially open up your anesthesia pipeline even further because you would be more likely to look at those more Medicare-dependent practices with that increased visibility?

Thanks.

As far as the SGR is concerned, we do think that there is probably just going to be a patch fix here probably until the end of the year.

There is probably not a lot of appetite to doing anything in an election-year beyond just giving -- as you know, the latest fix was just to the end of February, and what our people are telling us is that we can really expect at the most a 10-month extension since nothing is typically accomplished in the election year.

Let me remind you, from a Medicare standpoint, though, the vast majority of our managed care contracts are negotiated, fixed on a specific Medicare year reimbursement so our reimbursement does not fluctuate with Medicare reimbursement.

When I negotiated a contract, it's based on the 2010 or whatever Medicare reimbursement rate, so it is not open to fluctuating from one year to another depending upon what happens in Washington.

So I don't think we have a lot of exposure to that.

As far as if there is a fix, if there will be more, if we will be more interested in looking at practices that are heavy Medicare -- Typically, that is not a variable that we look at when we are looking at practices.

Because if a Medicare -- it's the same thing as Medicaid.

If practice has a high Medicare or Medicaid component, they tend to be less profitable and so, that variable is taken care of during the evaluation process.

So, if we are paying whatever, four times forward-looking earnings for our neonatology practice and they have less earnings because it's highly Medicaid, it's just taken care of during the evaluation process and the same thing happens with Medicare.

It isn't really something we pay a lot of attention to.

If there are expected to be significant changes, if it is an inner-city kind of hospital where the potential is that there will be some changes, we will pay some attention to that, but in general terms, that isn't what drives what our appetite for practices is.

Great, that is helpful color.

Thanks, Roger.

Rob Mains, Morgan Keegan.

Vivian, one numbers question, can you explain the blip in D&A in the quarter?

That's just, again, related to the acquisitions and what we value there.

Pretty much for us, it's not so much on the depreciation side, it is more on the amortization side depending on the mix of acquisitions at any point, Rob, how much administrative fees contracts they might have, and those vary from deal to deal.

So that explains why it could jump into one quarter and then go back in the next?

Right, exactly, Rob.

Following up on this question of supplies expense and margins and everything, when you acquire a practice beyond -- some practices are at margins below where you can get them to and there would be some improvement, are there any expenses that come above the D&A, and the EBITDA line that you incur like buying supplies, anything like that that would suggest that the quarter in which an acquisition occurs, you take a little bit of a margin hit that might not be replicated in the following quarter?

It is not so much a build up of the expenses.

It's more what Roger said, if you get into an office based practice, they typically will have more expenses as you would imagine, than hospital-based practices.

So albeit, we obviously look at that.

It's just not a big line item, and so typically it's not really a big blip or decrease after we buy them.

It's just that those practices come with more office-type related expenses.

So there is not anything you are obligated to purchase in expense immediately?

No.

It's just like -- typically, when you go to a doctor's office, some of the expenses they will have from running an office.

That makes sense.

Okay, that is all I had.

Thank you.

Thank you.

Ralph Giacobbe, Credit Suisse.

Just to clarify, the 1.2 % decline in the NICU days was a function of admissions and no real change to length of stay, and just in terms of the top-line guidance for next quarter, it does assume a little bit of an uptick in growth.

And I guess, what gives you that comfort, just in the context of the NICU volume being under a little bit of pressure that we saw this quarter?

That is correct, we haven't seen any real difference in length of stay or percentage of admissions or anything like that.

So just lower volumes.

We see this constant variability, and we are looking at what the current numbers are and we are giving you our best guess as we move forward for what the first quarter is going to look like.

But there is constant variability and there isn't any trend that I can point to and tell you that in the western states or whatever, the numbers are up.

They're still up one quarter and down the next.

The other thing I would like to say on that is that, remember when we talk about same-unit, we are talking about all of our MEDNAX specialties and so, like I said for the quarter, when I gave my run down there of what was happening with volume, we did have a good volume in the other specialties, and so you have to look at the overall same-unit number for all of the MEDNAX specialties.

That is helpful.

In terms of the AR and DSOs being up, was that only related to acquisitions, or was there anything else that provided rationale for the uptick?

I did say, there is a piece of it that is related to same-unit, and it's pretty much because we had one of our state government payers that had a change in their system and so, they had an upgrade to how they were processing payments and group numbers, et cetera.

And so, because of that, they had a delay in processing, and we're working through that.

What state was that?

I don't want to get into the specific states.

Okay, thank you.

Art Henderson, Jefferies & Co.

Going back to Gary's last question, I want to make sure I heard this correctly.

Vivian, in the first quarter, you do not have anesthesiology acquisitions built into the guidance?

That is correct, Art.

Okay.

Good, thanks.

Going back to the margin question again, coming at this at a different angle, as far as the first quarter is concerned, when I look at the GNA expense for the fourth quarter, 42.8, is that a number that would be a run rate number that would be appropriate to use in Q1, or does it go up to any degree because of the acquisitions that you did late in the year?

As you know, it's driven by some of the acquisitions, and it's also driven just by overall increases that you could have on some typical line items and merits and things like that.

But the acquisition activity would also slightly impact that as well.

Okay.

But the bulk of the impact in terms of all the seasonal factors and stuff, does that hit you mostly in the practice salaries and benefits line?

Is that where most of it occurs?

A big chunk of it occurs there, but you do have some on the GNA line, but a big chunk of it is more related -- it's more prominent in the cost of service line because those are all of the physicians.

You have different types of people there.

Okay fine.

A couple of little ones here, back on the CapEx number, you described what the full-year was last year in terms of how we should think about CapEx spend for this year.

Is there any guidance you can give us on that just in terms of how we should look at that on a quarter-to-quarter basis?

It has not changed much, if you go back once -- like I said, once you back out the building that we bought, earlier in 2011, roughly, we are in the same range.

So the quarterly mix sometimes shifts, but we don't expect it to be outside of the range that we have had before, $13 million or so for the year.

Okay.

Last question for Roger, in your prepared remarks you talked about a conservative view for Medicaid in the back half of the year.

When you say conservative, are you thinking flat reimbursement rates on a Medicaid basis?

Yes, historically, that is how I think about Medicaid, ever since 2008.

There was a time when we were seeing increases for Medicaid, but we are not expecting that.

Okay thank you.

Matt Weight.

How much of the $200 million that you have pegged for anesthesia M&A would be for contingent payments for prior acquisitions?

When we give out the spends, it is pretty much for acquisition spend.

We are not including that.

When we give it in the guidance, obviously when we give it and what we have actually spent, we do need to put it in there because it is a GAAP issue.

Sounds good, perfect.

Just the last question here, in terms of your same-unit revenue guidance upticking a little bit, looking at the comparison -- especially it looks to be more challenging here in the first quarter, split evenly between price and volume, and volume is actually probably consistent with fourth quarter.

Is it just that you have more visibility on the other specialties outside of the NICU side that gives you the confidence there, or is there anything else you can shed on that?

We think we do have visibility, and also the trending is different in those practices than for neonatology.

So we can look at appointments made in those types of things, so it's a little bit different.

That is basically what it is.

Okay and a follow-up on that, I think you made a comment that you're taking a look at your current data that you have there.

Would it be safe to assume that current data here 2012 is more positive than what you had seen in the fourth quarter of fiscal '11?

I really don't want to comment on that.

We talked about that before, we don't want to be speculating on any monthly data that we have.

Frankly, we have not even closed -- we are in the process of closing the month of January, so even though we do have some visibility on NICU volume, we don't really have a visibility on all of our volume yet, so we really don't want to speculate on that at all.

Okay thanks.

Okay, operator, that is it.

Thank you all for listening this morning.

I appreciate your attention, and we look forward to speaking with you next quarter.

Ladies and gentlemen, that concludes your conference today.

We appreciate your participation and your using AT&T executive teleconference, and you may now disconnect.