Pediatrix Medical Group Inc (MD) 2014 Q3 法說會逐字稿

Ladies and gentlemen thank you for standing by. Welcome to the MEDNAX 2014 third quarter earnings conference call.

(Operator Instructions).

As a reminder this call is being recorded. I would now like to turn the conference over to our host Mr. Charles Lynch. Please go ahead.

Thank you. Good morning everyone, I want to read our forward-looking statement comment, then I will turn the call over to Roger and Vivian.

Certain statements and information during this conference call, may be deemed to be forward looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. 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 that they believe to be appropriate.

Any forward-looking statements made during this call are made as of today and MEDNAX takes 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 10-K and as quarterly reports on Form 10-Q including the sections entitled risk factors.

Now, I like to turn the call over to our Chief Executive Officer, Dr. Roger Medel.

Thank you good morning and thanks for joining our call today to discuss our 2014 third quarter results. I hope you were all able to see -- excuse me operator we seem to have an extra speaker on the line.

I hope you are all able to see our press release this morning because we had a lot talk about today including our quarterly results and the announcements we made related to an expanded share repurchase authorization and the new expanded credit facility.

I'll start with our results for the quarter which demonstrate a strong same-store growth continued contributions from our acquisition pipeline and also contributions from our broader long-term strategy. Our revenue for the quarter grew by just under 13% with the balance mix of contributions from acquisitions with same unit growth. Our acquired practices and businesses contributed 8% to that growth and same unit growth accelerated to 5%. Same units and ICU base were up year over year for the fourth quarter in a row and growth in NICU base and Anastasio volumes both accelerated from the first half of this year.

Our acquisition pipeline remains very active and during the quarter we completed two attractive transactions, one with the associated anesthesiologist of [Jodi], it was with our sixth anesthesia practice and seventh overall practice acquisition this year and the other was MedData which we completed in September. I want to go into a little detail about MedData since this was a non-practice acquisition. For some time, we been thinking through the idea of creating a platform to provide practice of management services to non-MEDNAX position as a way to create additional revenue growth and provide to independent physician groups the kind of value we provide to our own doctors.

As we looked into this, we came to the decision that in order to do it well we should acquire a platform that had very strong sales, our marketing expertise, and that could be our first step in this direction of building a management services organization within MEDNAX. This is where MedData comes in MedData is a leading revenue cycle management company that works with more than 3,000 physicians at 700 facilities in specialities like hospitalists, radiologists and emergency rooms. We have been a customer of MedData for a number of years and used them for the patients pay component of our billing, for hearing screens, and our office based practices. We were very impressed with the improvement they were able to make for us.

We are also impressed with the way this management team had built the company, not just in terms of how fast they've grown it but also the way they've done it; with a hands on approach to patient pay and also an offshore component that makes their commercial billing and collections very scalable. So, we decided that they would be a great fit and way to start moving forward on this strategy and we're very happy to have them as part of the MEDNAX team. MedData has been growing rapidly and we want that growth to continue. So we're delighted that the companies management team has joined MEDNAX will continue to operate MedData as an independent entity within our company.

We also think that our additional opportunities that come out of this, there are ways that MedData can compliant our own internal operations beyond how we've used them in the past. For example, and on a top of that, we think the addition of MedData gives us more scalability in revenue cycle management which is a great benefit given how much we continue to grow through practice acquisitions.

Overall, the thinking behind this acquisition is very similar to how we look at Surgical Directions which we acquired earlier this year. Both of these businesses MedData, for revenue cycle management, and Surgical Directions, for perioperative consulting services, were very opportunistic acquisitions that our operating teams brought to the company. In both cases because we saw firsthand the value they were bringing to their customers. We think they are real value-add propositions for our physician and hospital partners and we think they can grow very quickly on their own, as well as help us to improve our own business.

In terms of more recent practice acquisitions since the end of the third quarter, we've announced two additional transactions. Earlier this month we completed the acquisition of Houston Prenatal Associates, a very productive group of maternal field medicine physicians who provide services at Women's Hospital at Texas in Houston. Women's Hospital of Texas is an extremely active facility which is home to about 10,000 deliveries per year. We already provide a number of services at the hospital through pediatrics, including covering level II and level III NICUs and providing pediatric cardiology services.

So, the addition of Houston perinatal will help us to build more of a continuum of prenatal, newborn, and pediatric care into Houston markets alongside our hospital partner there. We also completed the acquisition of Nexus Medical Group and its subsidiary which employed 64 anesthesia providers and served Medical Center Madison Health, in Macon, Georgia. We have been providing neonatology services at Madison for almost 10 years and now we will be providing anesthesia services there as well.

In fact, in both of these recent acquisitions, we were already providing services through at least one of our specialities and now we have multiple touch points with our hospital partners. In both cases, we had already established a good relationship with the hospital through the quality of our services, and that definitely helped the conversation with the hospitals, as we work with them after signing LOIs with the practices. So overall, for the year to date, we completed 9 practice acquisitions and 2 non-practice acquisitions.

And I anticipate that, we will have additional successes in our pipeline before the end of this year. I also want to talk about the share repurchase authorization we announced today, we think now is a great time to be buying our stock. So we decided in talking with our Board of Directors, to add to our existing share repurchase program with an additional buyback authorization of up $600 million. Since we are also very busy on the acquisition side, we wanted to make sure we have as much financial flexibility as we may need. So I am happy that we were also able to almost double our credit facility to $1.5 billion.

I think this expanded share repurchase makes a lot of sense, as I said, we think it's a great time to be buying our stock. We also well aware of the EPS headwinds we may face in 2015 if the Medicaid (inaudible) program is not extended beyond this year; and we decided with our Board of Directors and that it would be a good use of our capital to fill that gap with a meaningful share repurchase. And we trust that with this extended authorization, we have the tools available to us to maintain what we believe is sustainable, double-digit, long-term EPS growth despite the parity headwinds.

Just be clear on the issue of parity, in no way does this mean that we stopped our efforts at both the federal and state level, to work with the legislators to extend the program. We continue to believe that the reduction of Medicaid payments to primary care physicians back into the old levels, will have a negative impact on access to care for all those new enrollees under the program. And we think that a lot of lawmakers we talk to share that concern. In fact, we've had some additional successes since the summer; the state of Colorado has extended his retention of parity payments from an original six months to an additional year and a half.

And the state of Florida, which it didn't extended parity, but increased its base Medicare rate for physicians by 10% has also extended that increase for an additional year and a half. So we will continue to work with a number of associations and lobbyists to try keep this an important issue for 2015. But in the meantime, we wanted to make sure that we also used all of the tools that we have available to us to maintain our growth, regardless of how parity unfolds.

Beyond that, this credit facility and share buyback program shows how we're thinking about uses of our capital. I think we demonstrated through this year that we can identify and complete acquisitions in multiple areas within pediatrics, within American anesthesiology, and within the non-practice areas. This diversified acquisition strategy has been very productive for us and based on the acquisitions that we've completed so far this year and our pipeline, I am confident that we will end up having a very successful year here in 2014 and that we can continue that success into next year.

And we can also consider additional uses of our capital to shareholder friendly actions. This is a great demonstration of our cash flow and balance sheet strength and our consequent ability to put capital to use in multiple areas, at the same time, and generate attractive sustainable EPS growth. So moving forward we'll continue to look at a broad diversified approach to capital use, which will add to what, I think, is already an attractive growth profile for MEDNAX.

And with that, I want to turn the call over to, at this point, to our Chief Financial Officer, Vivian Lopez-Blanco.

Thanks, Roger, good morning and thanks for joining our call. Want to add some brief details to Roger's comments on our third-quarter results and then add some color on our expanded credit facility and share repurchase program. As a topline our net revenue for the three months ended September 30, 2014 increased by 12.9% to $625 million. 7.9% of this growth came from recently acquired practices with American anesthesiology practices contributing 75% in Pediatrix medical group acquisitions the remaining 25%. (sic - see press release, "7.9%").

Same unit revenue grew by 5% with revenue attributable to net reimbursement related factors growing by 2.9% and volume increasing by 2.1%. On the reimbursement side, the increase in parity revenue we received, compared to last year, contribute 1.2% to pricing growth. The remainder of our same unit growth in net reimbursement factors was due to continued improvements in reimbursements received from third party commercial payers, slightly offset by a small negative shift in our pyramid, with a percentage of patients covered by commercial programs decreasing about 30 basis points compared to last year.

On the volume side as Roger mentioned, we saw good growth in both of our divisions. Our NICU days were up 2.3% which accelerated from the first half of the year. Anesthesia volumes were up by a similar amount. Our other pediatric services were positive as well, and while volumes were down pediatric cardiology and maternal-fetal medicine, overall volumes contributed more than 2% to growth. In Q3, we recorded roughly $17.2 million in parity revenue or about $0.05 per share after the impact from incentive compensation and income taxes.

This compares to about $10.5 million in parity revenue in Q3 of last year or about $0.03 per share. So you can see that we're now starting to last prior periods with more significant parity revenue. In terms of same unit growth, this will have less of an impact going forward, but even including the impact from parity in both periods our same unit revenue growth was just under 4% in Q3. Our profit after practice expense for the third quarter was $210 million up 11.5% year over year.

Profit after practice expense margin decreased slightly by 42 basis points which reflects the impact from the mix of acquisitions we completed over the past year. Our general and administrative expenses grew by 11% over the prior-year, slower than revenue, and G&A as a percent of revenue declined by 17 basis points versus last year to 9.7%. Overall, our operating income grew by 12% to $138 million and our operating income margin of 22% decreased only slightly by 18 basis points versus the prior year.

Finally, our Q3 net income grew by 2% -- 12% and diluted earnings per share grew by 13.2% as compared to the prior-year period. For quarter, weighted average shares were 1.1 million down 1 million shares from the prior year, due primarily to the repurchase activity we undertook early in the year.

Looking quickly at our balance sheet, we had cash and cash equivalents of $71.8 million at September 30 and accounts receivable was $345 million an increase of approximately $60 million as compared to December 31. Day sales outstanding were 51 and the end of Q3 up slightly from the end of Q2. The total amount outstanding on our revolving credit facility was $288 million at September 30 up from $179 million at the end of the second quarter.

Lastly, during the third quarter, we generated cash flow from operations of $159 million compared to $158 million last year. In terms of the expanded share repurchase, we announced this morning our board has authorized us to buy back up to $600 million of our common stock in addition to the previously authorized program to compensate for equity plan dilution. We intend to begin exercising this authorization in the near term, and are contemplating using both open market purchases and an accelerated share repurchase program.

Of course, the timing and magnitude of our purchases will depend on several factors including our very active acquisition pipeline. But to ensure that we have the financial flexibility to continue executing on that pipeline and simultaneously repurchasing our stock, we've replaced our previous $800 million credit facility with a $1.5 billion facility, composed of $1.3 billion revolver and a $200 million term loan.

We think this size is much more appropriate given how we're looking at capital use over the near or intermediate term, particularly with the opportunities available to us for acquisitions, buybacks, and also in comparison to our run rate EBITDA of well over $500 million. Finally, we think that the combination of our organic growth acquisitions expansion of our credit facility and share repurchase authorization gives us a tool to sustain long-term, double-digit EPS growth, despite the potential near-term headwind, we may face if parity is not extended.

Moving on to our 2014 fourth quarter outlook. As we announced in this morning's press release, we expect that our earnings per share for the three months ending December 31, 2014 will be in a range of $0.83 to $0.87; the range for our fourth quarter outlook assumes anticipated same revenue growth of 2% to 4% year over year. Our forecast estimates that this growth will be split evenly between volume and price.

Included in our fourth quarter is approximately $0.06 from Medicaid parity net of the impact of incentive compensation and income taxes. Compared to $0.05 in last year's fourth quarter.

Now, I'll turn the call back over to Roger.

Thank you Vivian. I very pleased with the progress we've made this quarter.

We saw improving same-store growth, particularly related to our patient volume, we continue to be successful in our practice acquisition pipeline. We've been able to identify additional acquisition opportunities that add growth and we're using our financial strength in the shareholder friendly way.

So with that, operator, let's go ahead and open the call for questions.

(Operator Instructions).

Kevin Fischbeck, Bank of America Merrill Lynch. Please go ahead.

Thanks. I definitely appreciate the share buyback. I think one of our reasons that your balance sheet has a very under leverage for some time. I just wanted a sense of how you guys are thinking about it.

Is this now if you think it's historically never went about one times leverage. Where do you think an appropriate leverage ratio is for you guys and then just want to understand how much of the move is related to the kind of a view about the right leverage and how much is a viewed towards filling the EPS whole for next year. Because I guess one way about might be if parity have been expanded last week legislatively which used to be doing this $600 million authorization.

Yes. I don't know if I want to get into that. It's not been extended and so we got together with our Board and decided that it would be a good time to utilize the strength of our balance sheet. So we're doing this and we're taking care of the parity issue while still at the same time negotiating our line of credit that we do have enough flexibility to do whatever we think we need to do.

There are some deals that we are looking at. I'd much rather put our money to work by acquiring other practices and generating not only the income from the practice but also the cash flow. We are going to continue to the our balance sheet in any way that makes sense to us. I don't know what the right amount of that debt is. It maybe two or three. I just depends on what the opportunities are and we'll deal with those is they come on.

Kevin good morning this is Vivian. To just to expand a little bit on Roger is saying. Obviously it's also -- it was a great time to raise capital and just shows that we are able to do it. I think that given the flexibility that we wanted to have in our capital structure it really made sense.

Our credit facility is allowing us to be levered about 3 1/2 times. And again and we feel that we needed to start putting some of this capital to use. I think that's it was just a great time for us to be able to give us an this flexibility. Raise this as additional capital and be able to take advantage of capital markets at this time.

So given what we're seeing with the acquisition markets and things that I don't want to have to be raising capital at time where it would be harder to do, think it's really great that we were able to do it now.

The just the second question would be -- but it's really interesting how you framed the non-practice acquisition in MedData specifically maybe in the first step towards the addition practice company or division within the company. I think that's those two acquisitions are probably the least of all understood of the story recently.

So can you just a expand a little bit more on what you envision we think about unofficial practice management company. What kind of margins, what kind of return. How big of an opportunity you see this being over time.

We look at that as a evolving opportunity. What they did for us was they helped us with our hearing screens and a little bit of our office based practices. Particularly on the patient pay side. As you know we go to the doctor you end up with part of the bill as being paid by the insurance company and part by the patient. With the new changes in healthcare the patient pay side becomes more and more important.

So they did a great job for us for the last two or three years on the patient pay side. We decided to take a look at what they were doing and saw an opportunity. Most of what they are doing on the revenue cycle management side up until now has a lot to do with the billing and collections etc. We think as we add our ability to do managing or contracting and coding, it presents an opportunity of that real revenue cycle management possibility to the market.

We see first of all there going to help us in addition to that on the anesthesia side which they have not played a role in at all. We think that as we grow into anesthesia, that they will help us integrate the practices quicker, as they are able to assume some of those responsibilities because they do have a number of functions that they do overseas. So they have scalability as I said.

So first of all, its a great business in and of its own they've been around for 30 years or $60 million in revenue company when we bought down and I think they'll continue to grow on their own. Number one.

Number two we I think they will help us as our own services both on a neonatology, the office space practices, hearing screen and now the anesthesia side.

Number three, we think that we can offer the services expanded as I talked about. To other physicians and hospitals across the country because what we see is a real opportunity here as hospitals acquire more physician practices and bring in more practices into their existing structure. We can offer the hospitals a service that we think will be very helpful to them and will be very attractive. And that in fact, we think it will be a fast-growing area for us and the MedData side.

Surgurical Directions is the company that we also had experience with as we were fulfilling our response abilities in anesthesia in different hospitals. We came across them a couple of times. And what they do is they sort of look at the whole perioperative experience from the pre-op, intra-op and post-op situations and is sort of determine where there are efficiencies that they can point out to the hospital whether it's on the scheduling side or a number of the OR staffing -- number of opportunities that they create for the hospital to improve their efficiency.

We were really impressed as well with the results that they were demonstrating to the hospitals. We decided that if we brought them on board, we can help out our hospital partners improve their efficiency and this could be another tool that we had to offer to our hospital partners. And in fact, that had turned to be the case since we brought them onboard a couple or more of our hospitals are now turning towards them to help them manage their whole operating room experience.

One point I will make as to why this is very attractive is it turns out that two thirds of the hospital experience or revenues and expenses come from the operating room. So anything we can help their to generate more revenue and to cut back on their expenses is a significant contribution that we can make to our hospital partners.

Ryan Daniels, William Blair.

Good morning and thanks for taking my question. Roger maybe another one on Medicaid parity. Based on your year-to-date results in Q4 guidance it's about a $0.20 EPS benefit this year to fill. But as you mentioned a lot of states have decided to move forward on their own.

Some I'm curious, number one, if you done some analysis based on your volume in the reimbursement rate to what the air pocket truly looks like because it won't be the $0.20.

And then number two, I guess it for either of you I'm curious if there's more flexibility on the commercial rate front to try to push through some rate increases across the book to try to offset some of that.

We think that so far we've got -- we'll make up about 25% give or take -- I'm getting signals from across the table here. But will be 20% to 25% of the parity revenue or contribution that will make up so far with existing number of space that has agreed to continue on the Medicaid side. And there are opportunities still left on the table for us.

It is our number one lobbying effort to grow and make a case that extending parity helps the access to care question which of course is the arguments that we're making that these patients -- they may be covered by Medicaid, but there really don't have too much access to care because physicians tend to not participate in Medicaid programs because the reimbursement is so low.

We continue to see opportunities to expand our rates on the managed care side. We think that that's an everyday sort of bread and butter issue for us and we put together our work plans at the beginning of the year and try to give increases from them. I don't know that specifically the argument that Medicaid parity is going way therefore we should get more from the managed care payers. I don't know that is an specifically an argument that we make.

And the argument is the same, prices are going up you are -- your rate increases every year and we need to get ours as well. That's the constant everyday battle that we fight.

I think Ryan the other thing, and I totally agree with Roger. It's not one for another here. I think some of the discussion with the providers on the commercial pay side which we think we're very good as you know is related to the quality measures that we can talk to them about.

Those are things that are becoming more relevant in the discussion these days. So I think there we have a lot more opportunities not only with the payors but also with hospital. So I think from that perspective that's what's good for us. But again on the parity side roughly you're going to be looking at about 20% as Roger said of what we think we have now known and again will continue to work with that.

But we're not anticipating that all the states would be covering that.

Okay and then as a quick follow up just on MedData more of a housekeeping question. You indicated that when you closed the deal, it would be accretive after non-cash amortization and interest expense, but given that you don't unlike HIT companies, report that, I'm curious on a gap basis will this be a neutral transaction or could actually be a little bit dilutive?

No, we'll have accretion. It will be accretive even after that. And right now were kind of finalizing that because as you know we have to get evaluation on that. We had roughly about 500,000 or so amortization among related to that.

Brian Tanquilut, Jefferies

Good morning guys. Roger thanks for the color on the buyback position. But as we think about your decision to buy stock versus making an acquisition was this also partly driven by evaluation expectations that sellers have out there and what is the message that you're trying to send to the market in terms of your willingness to pay up for deals at this point.

It's not an either/or. We want to reimburse our share and we want to continue to do deals. We think that we will continue to do deals. But I'm not interested in paying double-digit multiples.

If owners think that's a good long-term strategy we'll see in a few years. We have a number of LOIs in our pipeline, we have closed nine deals so far this year at reasonable multiples and we're happy with our strategy and our execution. I've been doing this for over 20 years, and I'm not competing with anyone to see who pays the most for these practices.

Are you not seeing an elevation in multiples artificially in light of more recent deals that we've seen which are sort of outrageous multiples?

We're seeing people paying outrageous multiples in practices. We're not in that game.

Kevin Ellich, Piper Jaffray.

Good morning. Just a couple of follow-up questions. Vivian starting off with the $213 million to you spent in Q3 I was wondering if you can gives us the split between what was spent on the acquisitions versus contingent payments because that seems like a lot for two deals.

Yes remember that we had in there the MedData deal also. Most of that is still acquisition. Its a very low amount related to contingent payments.

So for MedData it's safe to assume that that was a very large purchase price then.

I don't know about large purchase price but it was based on a reasonable valuation for their earnings. It was a big deal.

Okay. Got it. That's helpful. And then I guess following up on that just wondering how the pipeline looks at this point Roger.

You sound really confident. Obviously this is a good move in terms of the capital allocation in your flexibility with the reloading the credit facility. Should we see more of a balance between the repurchase and M&A? And then I guess kind of following up on that, is it still more heavily weighted to anesthesia.

Yes it definitely the pipeline is heavily weighted towards anesthesia. There are a couple of deals on the Pediatrics side in the pipeline but we have a number of LOIs still back in our pipeline that we execute and in fact within the last couple of weeks we've generated another two or three LOIs for our pipeline. So we're are going to continue to work on those and we do think that we will get couple of deals done before the end of the year.

Both of them probably on the anesthesia side or potentially is a pediatric deal that could be done as well. And we think that will just go straight into next year.

What I love about this extension of our credit facility is it gives us the flexibility to do exactly what we wanted to do which is both things. We want to do both things. We want to repurchase our shares and we want to continue to execute our acquisition strategy.

Darren Lehrich, Deutsche Bank

Thanks, good morning everybody. Really just two things. I did want to follow up on your commentary about parity and good to hear that you think it's the visibility for a portion of that continuing on. Vivian curious to hear from you about to the accounting and your accrual for that.

Would you wait until you get paid like we had last go around or do you think you have all of the information that you need to continue on a more ratable basis. That's the first part of the question here.

So Darren we started to accrue for parity last year in the fourth quarter and we do that based on seeing from the different payers consistent payment streams. So frankly we been accruing for a while now. Most of it is still cash coming in, but there is every quarter, there's a piece that's related to the accrual.

Okay. Guess the question though is would you expect to just continue based on information that you have similarly into next year for that 20% to 25%. I just wanted to confirm sort of the accounting philosophy around that.

Yes we definitely would continue the same methodology that we have this year for next year's continuation. Absolutely.

Okay great. And if I could just wanted to ask about birth trends. You give us obviously the patient days. Wanted to just hear from you a little bit more about volume and length of stay dynamics around the stronger trends that you saw versus the first half. Thanks very much.

Length of stay is all within normal numbers for the past. We see no real change. It may be down a couple of basis points but really nothing I can give you.

And so basically there both within the regular limits as Roger said. Length of stay might be slightly down but [admit] rates a slightly ups. So basically overall it just negates itself and we do see positive bursts at the hospital that we're in.

Ralph Giacobbe, Credit Suisse.

Thanks. First and on the 4Q guidance growth at the midpoint steps down a little bit. You done a number of accretive deals and obviously we saw nice improvements in the third quarter. So maybe just trying to reconcile that and then any updated thoughts on providing annual guidance into next year just given the size of the company at this point.

Ralph, good morning. This is Vivian, I am glad you asked the question on the fourth quarter because of been wanting to clarify that. Its really is no lay up because frankly the fourth quarter as I tried to say in my prepared comments is really going to be a quarter where basically the parity is not going to be up offsetting anymore because last year we recorded about $17.2 million of parity revenue in the fourth quarter and this year its about $18 million that we have estimated.

So that -- without that you're looking at a very respective 2% to 4%. If you look at what we did last year it was very high, 7.43%. But that basically took out parity, it was about 3.7%. Really you have a very comparable quarter and frankly we are continuing to positive trends that we believe we have both the volume and pricing.

Okay. That's helpful.

As far as annual guidance I would say no. Basically because again a lot of our numbers guys are driven as you guys know a lot about the timing of acquisitions. So it's really hard to predict in spite of the fact that we potentially are seeing more favorability in the other metrics related to volume and pricing, but it would've been really hard to do with parity, but nonetheless it's still pretty volatile quarter to quarter depending on what's happening with the business.

Okay. Fair enough. And then are you seeing any greater pressure on salary cost for physicians or any increased competition or turnover within your physician base? Thank you.

We are not. I know that others have been talking about that but our turnover remains still very low. I think I've talked to a number of you guys about it when I see you out there. It's still less than 5%. So we're really happy. Roger, don't if you want to.

No we're not seeing any of those issues. No. And let me just add for the sake of clarification, our second-quarter admit rate was 13.5% which is 68 basis points higher than the prior-year quarter while our average length of stay was 17.3 days which is down half a patient day from the third quarter of last year. They're all within historical limits patient days and admit rates.

Witt Mail, Robert Baird.

Hello thanks. Good morning. Roger maybe first as a Baird shareholder want to say I really like the MedData transaction.

I just I wanted to maybe first go back and can you elaborate on some of the comments made about the mix shift in commercial and was that's more pronounced in one segment or other. Just in any color would be helpful.

Honestly, Witt, we're really happy with that because it's really not a very big shift at all. And typically we see a shift from the second to the third quarter but even year-over-year the other thing I'd like to mention is that year-to-date were basically flat to slightly positive on P mix. So really we don't think that that's a significant it all. I'm pretty happy with that small shift.

Got you. And maybe just on the credit facility and the new term note. Did the terms change at all on the revolver and maybe just any update on the pricing on the term note.

So the pricing was good. Honestly I had slight improvements it to the grid as well as the undrawns because that's where the market is. We didn't really change the pricing much but some slight favorability in the un-drawns and the grid itself. But because we did increase as I mentioned to somebody else here the leverage ratios so we did move through the grid a little bit less quickly there. So we're very happy with the outcome of that. The facility was oversubscribed and we believe the pricing was very favorable.

Brooks O'Neil Dougherty & Company.

Good morning, congratulations on terrific results. I guess my first question is, do you think it's physically possible for Vivian to read her script faster.

She was excited about it.

I can see that. That's great. Actually my serious question Roger is for you. Obviously with the expansion of your acquisition strategy beyond the baby area and anesthesia, what are your thoughts about continuing to expand the national position group practice to additional new areas.

Yes thanks Brooks and good morning. We were looking at that as I said before. But we're not the kind that's is going to jump into something. We are looking at everything. We've got a lot of things on the table that we're analyzing. But nothing that I'm willing to talk about and we think we have a lot of room left to grow yet in anesthesia and that's what we're going to continue to be focused on.

Great, perfect. Thank you very much.

Gary Taylor, Citi.

Hello good morning.

Hello Gary.

Just a couple of questions. I just wanted to clarify. I thought I heard this correctly but had a couple of questions. I'll let you clarify. When you talked about double-digit long-term earnings growth that's what I wrote down. Long-term. But specifically for 2015 including the potential parity headwinds, you weren't per se commenting on 2015. Is that correct?

Well I mean do I think we are going to grow double digits into 2015 if that is your question. Yes I do.

Okay.

I think 2015 will be double digit growth.

Even with parity headwind.

Yes. Hopefully will take care of it with the share repurchase.

Great. Thank you. Second question is I don't know if I missed it, but did you comment on your updated thoughts on federal efforts around parity. I know you talk about specific states. Then you walked through a few of those and you spent time there.

What about it at the federal level. Anything changing there? Any reason to be more or less optimistic and particularly, I guess the next physician fee schedule 6 needs to take place by April 1. So maybe the flurry of federal activity is in March instead of December this time around. What are your thoughts there?

We continue yes the answer is we continue. We have some significant lobbyists at the federal level as well and that continues to be our number one priority going into next year. It's a little bit more difficult to do that at that level particularly given the fact that we got an election coming up.

And no one knows obviously what that's going to mean and one they do take office. So they longer-term it is as you know included in the President's budget for next year but nobody expects that budget can pass. So we think that if we -- we're continuing our efforts at the federal level if we're going to see results we believe that will happen at the state level.

Okay. And last question I think there's been -- I felt a little misperception in the market about actually how active you have been and the acquisition side. If there's some deals in the pipeline this could shape up to be your biggest revenue deal year ever, even excluding MedData in a number of anesthesia deals.

One question I have though. Some of the larger anesthesia trades you've missed and presumably those have been more auctioned and that's where you're seeing some of the higher multiples. So the question is, should we expect to just continue to see a lot of these $10 million, $20 million, $25 million anesthesia deals and some investors look at that and be totally please because your operating in a place where you're going to be paying more reasonable multiples versus the larger deals?

There are $10 million and $20 million deals. There is also deals that are -- that we've made that are a little bit larger that that. We do think that given the nine deals as you pointed out that we've done so far this year, we do think that it could end up being our largest deal. Our largest year in terms of the deals.

We're in this for the long term. We think it's wise to pay reasonable multiples for these practices. And there are a lot of practices that are available for reasonable multiples and we just don't see the need to pay larger multiples even if we end up missing on a deal that may have 100 physicians or a couple hundred physicians.

We just -- our own strategy tells us -- you still have to manage these practices. You still have to bring value to the physicians. You still to run the practices every single day. You have bills, you have to collect, you still have to execute on these practices. For us the risk of paying these extraordinary multiples for these kinds of practices is not a value proposition that is attractive.

Brian Zimmerman with Goldman Sachs.

Hello thanks and good morning. So in your prepared remarks you mentioned that anesthesia is on acceleration in growth and volumes in the quarter. I was hoping you give us a bit more additional information around this trend? And do have any visibility and what's driving this increase?

We saw in both inpatient and outpatient. Karl is here so I am going to let him answer if he thought he -- more specific trends among the hospitals. When I look at is basically both of those service types.

We did see growth in both inpatient and outpatient. Outpatient was a little bit more (inaudible) hospital outpatient facilities as well as outpatient surgical centers during the quarter that are free standing apart from the hospitals.

I don't know if there's anything unusual in the trends, there wasn't necessarily a particular specialty that we would say we saw a dramatic growth in during the quarter. It was pretty widespread throughout the practices that we have. Not a whole lot more color than that.

And then follow-up question is how should we be thinking about your acquired revenue rolling in to the fourth quarter. I guess based on the deals even announced so far.

Well again our forecast does reflect whatever deals that we had completed during the fourth quarter. And again MedData will ramp up. But right now does have some amortization as I mentioned to Ryan or someone else. But the forecast reflects that. I don't know what else -- were you trying to get another question there?

(inaudible) completed some acquisitions after the quarter and MedData wasn't completely reflected in the third quarter. So just try to get a better sense of what to the acquired revenue coming into Q4 might look like.

We don't typically break it out other than to give you the metrics that we have for the forecast so all of what we have acquired even since the fourth quarter. Since the beginning of the fourth quarter is reflected in our fourth quarter forecast.

Okay. Thanks.

Chris Rigg, Susquehanna Financial.

Good morning, thanks for taking my questions. I hear the comments on the payer mix and to the last question or one back on the volumes, but I was just wondering if you had taken a look, particularily on the anesthesia side, whether you're seeing any volume acceleration in the states that expanded medicaid under the ACA.

I'm going to let Karl answer that one also.

As I said we've seen widespread increases in our volumes in most of our states, not all of them. We have significant presence. We have not seen an increase in the Medicaid, expansion of Medicaid from the government's program is not expected from better states such as North Carolina. They did not expanded Medicaid, so we didn't see benefits than that, but we did see growth in North Carolina.

Okay. And I did get on a little bit late so I apologize if you talked about this. But just the way you described the $600 million of buyback and press release. I was wondering if you could give a sense of particularly since this is sort of a new direction for you guys, what sort of philosophically changes your opinion from sort of an accelerated program versus sort of a more steady yet still aggressive pace over the course of the year. Thanks.

We think are going to be in the markets pretty quickly as soon as we are allowed to do that by the regs, and that will just be and market kinds of share repurchase. And we think that at some point in the future -- in other words the number of shares of that we can repurchase etc. the number of things we can do within accelerating. But we do think that will put both plans into place before the end of the year.

We have in the past announced a share repurchase programs. We probably over time bought back $500 million, $600 million, $700 million worth of our own stock, and I'll just tell you that every time we announced a share repurchase program we completed it in the past.

Gary Lieberman, Wells Fargo.

Good morning and thanks for taking my question. Maybe just a little another question on the acquisitions. Other than size, is there anything -- any characteristics of the acquisitions that you tend to close rather than some of the ones you don't get in terms of geography or other feature?

There are a couple of states that we shy away from mostly because their non-competes are not valid in some of those states. And for us, that's a deal (inaudible). We do tend to stay away from states like Alabama and others where they don't have physician non-competes (inaudible).

So other than that we're looking at where the hospital partner is and how good the relationship is between the practice and the hospital. The quality of care. We go through a number of steps in our due diligence process to assess whether it's a practice and we want to bring on board or not.

Okay and that the concept of bundling services has gotten more attention over the last year. Can you comment on what you are seeing. Has that been a factor at all or an obstacle for you?

I would say no on both sides. It is not been ben a positive nor an obstacle for us. We haven't had anyone come to us and say if you can bundle this with that, we'll give you something else.

I'm assuming that's what you mean by bundling. So what is being seen between ER and hospitals perhaps in some instances we're not seeing that at all. And we have not lost any contracts.

Chad Vander Court, Stifel.

Good morning. Looks like you had really nice revenue growth and a lot of that was organic growth. However, margins seem a little bit depressed in the quarter. Can you put some color around that. It seems like salaries and benefits were up quite a bit

So overall, the margins I think I talked about that is little bit Chad in my prepared comments. It was really related to the mix of acquisitions there specifically on the anesthesia side. And then as far as salaries and benefits going up basically as we have a more parity revenue most of our same units what we would share that as you guys remember with the physicians. And so the bonus line has been up related to that.

Can you also give us some color on what you're seeing as far as commercial pricing trends.

Again commercial pricing continues to be challenging. As you know, we think we do a pretty good job on that. But it continues to be a challenging market out there. We continue to stay with our single-digit there. And then we have escalators in our contracts and so that's kind of what we're seeing.

Dana Hambly, Stephens.

Good morning thanks for getting me in. Roger could you just clarify for me on the complimentary services. Is the goal to buy specific tools that address specific problems or is it to create an end to end revenue cycle management platform that you could make commercially available.

It is that. We do believe that there are opportunities with other specialties that we may not want to necessarily bring in house as an acquisition, but we can offer these services to. So we're looking at couple of specialties in particular that we think could benefit from something like this. In addition to helping the hospitals with their physician component where the hospitals have acquired some of these specialists and are having trouble with the physician side of the revenue cycle management.

Okay that's helpful. And secondly just of the maternal fetal and pediatric cardiology, I know it's relatively small piece of the business. But it's been declining for several quarters now. Should we expect that to continue to decline or do think we'd lap that at some point.

We do think that it we're going to lap it. We have seen particularly because of the drop in echocardiogram reimbursements we've seen some losses there or decreases there. We do think are going to lap it and in fact one of those -- we did see a little bit of growth in one of the specialities.

Thanks very much.

We have no more questions in queue at this time. Please continue.

Thank you operator. If we have no more questions, let me just thank everyone for participating this morning, and we look forward to speaking with you next quarter.

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