MD - Earnings call transcript Q3 2017 | Pediatrix Medical Group, Inc.

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Operator

Ladies and gentlemen, thank you for standing by, and welcome to the MEDNAX 2017 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time.

As a reminder, your conference is being recorded. to conference like host, to now Mr. would turn over the our I President Investor Strategy Lynch, of Charles Vice and Relations. Please go ahead.

Charles W. Lynch

made CEO, of morning's located future information, I'll Important to assumptions Thank be call over section report and to XX-Q its I'll discussing information this on trends, non-GAAP future release, management, of believe report decisions or Securities cause as today's revise comparable the within are you, our results, With read of of other we at press most the our forward-looking from measures measures events otherwise. no new assessments to call Form Federal Medel. in Private our the made forward-looking management conference experience mednax.com. that, in their these annual on statement, company's are A GAAP of be a or forward-looking reconciliation statements and reports by financial going such of financial including Investors XX-Q, on Act on operator. in to light result may earnings call entitled metrics. Form any they section our Risk could most non-GAAP forward-looking the Factors. call can business based Any Roger statements statements during be as XX-K found Litigation differ materially by website in turn the this recent turn of over developments XXXX. undertakes Form to quarterly current Certain duty are quarterly Vivian. factors the MEDNAX's Roger actual forward-looking the remarks described today statements to to and and assessment and statements this that MEDNAX whether statements and or In will made to factors developments meaning These be update historical be the appropriate. I'm deemed and expected Reform of during conditions, and and

Roger J. Medel, M.D.

not process. our whom MEDNAX open like associates clinicians, difficult days at these for Hurricane our morning and call a Good Hurricane MEDNAX after and the Florida, after want in Puerto only We've events. been in who them been hurricanes and in would the for patients Harvey, In and California. also stayed and and who Outreach as their of the Charlie. will today, discuss who Texas, wildfires in Houston, got Rico Harvey the which terrible we family. during the in joining clinicians be Rico third the Las particularly and our to to recovery went to great affected Puerto during caring our a This Medical during continue to discuss events with devastating by Center, lengths Bayshore some you, associates start near clinicians to but long and recognition for Georgia for will assist patients. hospital of support I thank Thank Texas, personally those personally remained but bit thanks part our incidents have our to to quarter of lost Cardon whom quite the XXXX. includes impacted have results employees were These for at for also the Vegas homes I of

in to Cook newborns, for Medical received at who be Center Christi. Worth Children's Fort evacuated Our Corpus practice had

of California fires tremendous Regional part throughout Our our am Hospital neonatologists in physician were for provided every challenging of our victims involved I for take the events and care to Sunrise Las These particularly and destroyed. for there, was of at in clinicians horrible medical everyone dedication great the way. one Vegas newborns Rosa Sutter at day own home were Hospital cared Center his that the & patients our proud physicians event, even in support of to Medical and when every Santa of

In quarter at for July. declined our less The were our anesthesia than related was than during compared volumes financial year the at And meaningful. quarter. first we payor impact also our In to quarter. half. expectations half. neonatology, where but provided payor the neonatal mix we the volumes increased half during in to extent challenging the hospitals the during we high turning financial And Now of a mix unfavorable less revenues to to anesthesia, provide moderate and revenue a end experienced lesser first third first services last our ICU the Results to headwinds degree our this were to the thus, neonatology more births slightly. the was,

to We totaling progress radiology and almost group whether the an and in additional it's in during XXX trends practices highly mix also a our during of Thus development large done made acquiring in changes or far, two external significant in more four in summer seeing XXXX, address utilization the quarter the respected strategy, ways practices time those October. our the in that time which excited truly differentiated and is this fall generally early the joined national radiology very of today transform challenges to facing, as I providers What about of need we but general. and on we not a today to the has MEDNAX, we talked company. have We're MEDNAX wanted the creating MEDNAX our accelerate work me have spend physicians we in group. long practice makes healthcare impact our part are happening medical healthcare. for just changes payor that adapt

quarter, observations number or have into we will few developed already third I'll a high initiatives during either that of put action a we about the strategic plans. So, make our implement. level

face to to some with continue with that persistent we premise level or the hospital our the of revenue to in births, First, have it's future. while mix, difficult we volumes that payor headwinds started extremely predict will manage expectation the

operational on business. and clinical focus our plans both aspects the we've of Second, the developed

for a our reduction have transformational the initiatives long-term, a from these for range Third, timeframes short-term and beyond simple our plan goal well but plans to go cost organization.

we've communicated entire ownership initiative functional the each also we by senior designated direct the have areas. leaders supported our of across relevant Lastly, organization, who all plans have and

a use simplistic the focused our and cost Yes, our corporate of initiatives long-term Our are to success. they level, I redeploy initiatives impact those at reduction have a this and will goals are and results directly more resources first plans, broad Instead, excellence. is the year. we cost here. a service that operating of group the component best-in-class meaningful can be common this clear of our areas but where not of it's to response our efficiently could to areas resources set costs identify

practice and have goal in more G&A corporate our in realize we we all we The of utilize by identified timeframes reducing million $XX for reviewed these that can expense So XX%. scale initiatives dollar of and support areas part which our functions that as other of improve the And vary, a reduction of but to XXXX. our expect operations. processes, report technology have IT ways cost of all and longer-term effectively goal, use solutions enhance and I a of our we our can that in

for and level. the or for that the initiatives measuring of we short-term, action developed facing include focuses external more practices plans formal plans these In the a challenges. practice at set internal second executing Our process

those modest reimbursement, at plans state of our at renegotiation costs Our more services hospital appropriate, the facilities. the involve steps also also already and Medicaid as appropriate amount have reflect as including made services stipends our payments are in for advocacy ongoing headway better where level, we well XXXX. for of of to These

models, Over officers, our the well and include leadership, our as divisional value-based more programs and level medical consulting practices the of across accelerating reviewing development Surgical longer-term, in to on they our greater engaging support chief medical officers practices will transformative initiatives our practice organization, clinical a fostering collaboration the Directions (XX:XX). take (XX:XX) as staffing

In our in others of of many target are improvements, some terms initiatives, of the while near-term practice these longer-term level nature. impact

provide it's forward, for definition we will think we of financial we to So move But premature our initiatives. these targets establish progress. more as

Our third our focus of growth. investments initiatives set on in

that added very we and since Acquisitions to out those provide I'll In are we clinical we women groups the place across addition in have point our have services and the in completed also they already like we physician that radiology lines children's practice new acquisitions hospital these to us have in six this well. strengthen attractive service typically care. as complement markets the relationships year,

a nonetheless, to pace anesthesia be presence. already is this in markets that have year, in we, deliberate in focused we have where continue interested opportunities our this presence on in While growing to certainly to and we're taking our grow approach specialty. be will The methodical acquisition and we slowed

Of an our be and I'm grow this I year I significant joined about of year. to into our very year. M&A of of we practices pace but MEDNAX, To go at the far intend and groups growth cornerstone deployment don't respected details We that we've through I of MEDNAX. in and us who and support strategy focused beyond very expectations progress, the happy the radiology we radiology have can and so course, pursue some call acquisition beyond our highly in and component structure our the acquisitions organically for radiology, and envision of of this to attract acquisitions vRad growth much and for tuck-in for our built line a MEDNAX. at the don't development that which also selected service what to to this been groups deployment have we've a do specialty, want individuals practices the includes guideline too this to that remainder advisory our with very ways largest that initiatives, deliberate joined Alongside us give want XXXX. we accelerating end, country many able to is larger those gone this

considered we opportunities come across also review that in the can as our company, we many ways. the growth Lastly, fact they

sales-driven existing acquisitions, growth as addition as opportunities organizations well we MEDNAX service our clinical for and very in to So, lines. vRad MedData in have within

changes sales-focused have ensure the same today be we want complementary all gone we're enhance that With for health that structure leadership and changing meant existing the to We differentiated is MEDNAX initiatives true the improve provider public a those relationships. philosophy in that over ensure to to these and for that take of our are The for has initiatives great to ups With be company, as I've the a steps markets partners. power common solutions turn regardless to what adapt that, services followed goal. patients stay through the patients. to ability And and truly that a our our our CFO, have will philosophy. that that our areas decades, we healthcare today, we're to help call and downs Lopez-Blanco. long-term pursuing our to care our of of earnings a control. can want to optimize cannot created in we Vivian the I our taking So hospital

Vivian Lopez-Blanco

a thanks we results Roger. operating the Thanks, and our morning reported this you've for call. chance Good to review Hopefully, all joining had morning.

season quarter. First, that this topic I know hurricane is this an important fall's

financial to our related million For impacted in MEDNAX, revenues minor. or were $X days the that negatively impact EPS. estimate procedures roughly We $X.XX office fairly either equating to in disruption was canceled by roughly

revenue with acquisitions up consolidated rest. of XX growth included basis growth Our the same-unit of points X% making

remainder from growth other the and related about acquisitions. this and anesthesia, half growth In over third services related to little radiology related acquisitions, pediatric terms neonatology to of a to and of acquisitions, a

growth points a pricing in basis was growth volumes. same-unit had what of of partially with basis point points, we forecasted XX by revenue than XX-basis decline offset better Our XX

modest and contracting the improvement the in pricing from fees managed administrative hospital side, growth received increase care drivers our were of On partners. in same-unit

of anesthesia As the headwind, a than continued during payor year. what degree Roger be but half we mix mentioned, this in lesser to experienced to a first

and half we quarter, points mix XX during revenue factors terms shifted same-unit first by commercial year declines In mix reduced modest to payor XX shift points. of the the growth of volumes unfavorably, saw the which volumes. in Medicare what For basis in in by similar basis anesthesia, reflects

the points. modest Within which less The from a hurricanes On XX impacted of same-unit offset quarter and negative volume office day NICU second less declined XX the points basis we the XXXX, day days basis points. volume in less points. in by growth one growth basis the in basis roughly impact was radiology anesthesia versus we one also had by year. Same-unit by unfavorable and anesthesia. an our this under of births declines basis volume XX in XX by than have same-unit XX disruptions the experienced decline recorded volumes just quarter We side, neonatology, neonatology X.X% unfavorably with points, increased did

half $XXX XX.X% of year. and growth of practice to expense the what compared similar revenue million was On side, as revenue behind XX% million this benefits salary were we last with cost dynamics or eligibility. to the $XXX or in There saw lesser than growth higher to XXXX for flow-through and below during the in a being amount being of of first bonus established past compensation clinicians' due threshold years practices

year. expense Our the lower than XX.X% modestly higher reported revenue. percentage half for same of was This the of is somewhat period but what first G&A last we than XXXX

the developed a $XX expected of we XXXX goal million that a targeted improvements are our to to and longer-term As we reduction. G&A have mentioned, expense in Roger initiatives of realize expect XX% impact with

XXXX. $XXX decline to in better margin forecast. the the than of million cost of reflects was $XXX same-unit revenue compared This in Lastly, trends slightly third the last we or year XX.X% our and EBITDA equates provided EBITDA quarter was for growth. compared our range this XX.X% XX.X% impact versus primarily to quarter to decline a the million that same-unit

Turning to our sheet. now balance

release, billion million loan. to our that of revolver expanding morning's from credit facility is credit press billion. $X completed facility This refinancing our contained it term facility, amount to compared a As in a we entirely billion revolving $XXX we $X.X announced $X.X composed unsecured this a and prior an of

can an the Our certain increased new to be $X.X basis of on facility subject to billion conditions. unsecured satisfaction further

total we to XX debt sales completed end the increase was the previous days facility. September $XXX including outstanding of of As September, our $X.X acquisitions XX had related of an quarter. our billion credit million outstanding, of under borrowings we Separately, the at quarter during third from primarily with

to quarter. the this flow Finally, the over used we cash the third acquisition year. outlays increase We our generated of primarily majority quarter, operating $XXX a the fund of million slight during cash prior flow during

outlook the for quarter. fourth our to Turning

to press morning's expect that this anticipated earnings range a range be a our $X.XX be in announced revenue and The our $X.XX $X.XX. will per that flat fourth per $X.XX the will in X% quarter for in the we As for year-over-year. share same-unit release, of earnings share growth of outlook we will to our quarter to adjusted be range assumes

effective to for of also outlook decrease fourth For by the quarter XX% XXXX of fourth quarter, XX%. XXXX. tax EBITDA our to rate we the quarter XX% approximately compared of expect will that This the fourth assumes an

modeling. XXXX, Finally, not for building think while we're blocks do providing guidance few about for I want to provide to a how

and First, to but starting the year headwinds this rather in initiatives, are forecast that developing of our will revenue corporate acknowledgment a persist. that isn't same-unit to be growth with some market that we This as potential meant premise faced this an we the The factors address when it's developed difficult are to that volumes payor been those and have to these year. headwinds. multiple can initiatives are been mix, implementing factors the impact as they've we've predict meant particularly volatile

intend of be deliberate terms growth opportunities. in practice acquisitions, cornerstone strategy, and deployment for do tuck-in targeting focused in our acquisitions we to capital and selected our Second,

decade, we other have typically has decline year average past in To and to following in roughly with compared year, M&A ranged EBITDA, over first more in Between So, additional XX% an And aren't taxes to reflecting activity of I fourth this incur decline the typically our we be the seasonal completed XX%. specific, the payroll between quarter of quarter we the our third, this related acceleration point, our to anticipating of want thus the EBITDA this results. experienced a deployment an operating and items. to of dynamics in the far expenses early reinforce the X% the and we've year. XXXX

reasons, quarter For our calendar been those historically weakest same also first has our period. seasonal

quarter course hope over of ordinary decade, the EBITDA in helpful year With will XX% observations the be has full results. now a purposes. XX% turn guidance providing operating that, averaging the Roger. I'll back quarter from EBITDA, first up modeling the year our Over first quarter anticipate the to XX% made last than XX%. for and full to these call We less of ranging and between the I

Roger J. Medel, M.D.

Thank let's questions. to up you, that, open the with operator, Vivian. And call

Operator

Lynch. Our Bank ahead. Merrill of first question America is from Kevin Please from Fischbeck go

Kevin Mark Fischbeck

you Or versus going trends do is the year. to that think Great. anything into the that you sounds I and – Thanks. makes to relative continue in I seeing improvement about you are little QX industry next in than guess, bit year. the assuming first a QX continue? half like a was think how you reacting about XH? ask the this wanted pressures guys that of But better, bit little Are

Roger J. Medel, M.D.

No, we're that feeling worse. worse anything being present us are there's We're think the not seeing ahead. headwinds we about seeing getting just not how things the us cautious We're makes anything – like that that information. makes

Kevin Mark Fischbeck

there But get think a these you is I to is it it? view way guess, that do a the continuation to is trends actually starting forecast of kind of better? Or

Roger J. Medel, M.D.

know, on We that this slight Well, side, trend and particularly in the better. hopeful we see but that volumes, I getting hopeful neonatology we're are slightly that quarter, our will a continue. improvement here don't are did

So volumes headed. guess, optimistic cautiously, where about we're just I are

Kevin Mark Fischbeck

Okay.

maybe far anesthetists coming you about similar a at as of on payor side described from? quarter, as the kind decline, anesthesia last think with volumes the problem as the that is that then half NICU anesthesia where changed costs. think I headwinds nursing to kind When maybe about QX think way Or that has of it? and mix half and you pressure that then being year-over-year is all

Roger J. Medel, M.D.

Well, is we alleviating anesthetists problem the think somewhat. nurse that

a anesthetists. hopefully nurse – The it third better numbers don't and we better the payor same fourth quarter hoping the mix impact the the little true quite a we're fourth same in have So where is the gets for volumes. got shift in our little into quarter quarter, for

So fourth going I the has the tell issue better that and gotten can quarter. in you what third anesthetists is nurse into the

Kevin Mark Fischbeck

a the to can trying this talking rationale a color those then And give as is make that more Is start hospital is administrative the those you little you've go back number about Or of what that to to the improve fees? is the separate from of And been Okay. issue? quarter, in on the you exactly highlighted to the kind forward? payments? going hospital what

Vivian Lopez-Blanco

So, Vivian. yes, this is Kevin,

quarters, And and those about is part in able our yes, to what the prior it make ends mean, part of really, So, need to we initiatives. just progress made talking be about talked really, to we've that. of that's and in coverage that. really I with them meet we

And also expansion well. really that also as provided so, there's of has we've given services organic part been a our of initiatives that, that growth

those some things are flow-through as so, And seen P&L. they yes, of the being

Roger J. Medel, M.D.

neonatal reimbursements the practice. push year we our or for buttons states to three intend Also the our see whole this states I'll Medicaid have four can for different I where continue to the impact And those an we the We that we'll of good in very million this government active $X that other about didn't see in Medicaid program services on of pretty Medicaid with year, has country states side, you practice. the Medicaid. tell next generated XXXX. year, increase for in it a far we but so where states the we've relationships we most programs the for in say across that of some in relations that And

Kevin Mark Fischbeck

to at be generally about going does prevalent other the were call actually maybe increase you hospital, was weren't subsidies, when staff the as some guess, mean, And back I to I impression much talk hospital, the as paid in spending get the do case? services, my to with that of extent I that And in in end all? it for obviously, that just services. it kind right how Is a the helpful. of is risk subsidies subsidy I NICU some it. the cases? contract they very you guess, you'd you guess, turnover to it of, But up That's cost Okay. that

Roger J. Medel, M.D.

level at that walking I dollars difficult think pay makes in a have a it in continue to happened make the doubt and payor that remain for risk. check. services have, our not and this the writing to conversation okay. what's have happened generated what's you case with there. a clients. us it But a aren't eager It's have you they to contracts second with fact, of we it subsidy, of they they're half And hospitals volumes so no they we to million subsidies like puts There's if that mix your want have understand probably you don't about And with the you're within or additional in year. couple that or then you

just it's So, conversations again, business-like having hospitals a matter your of with administrators.

Kevin Mark Fischbeck

you. All That's right. Great. helpful. Thank

Operator

you. Thank

from from question Tejus Goldman is ahead. go next Sachs. Our Ujjani Please

Tejus Ujjani

Can versus Thanks for color normalized just radiology, you how EBITDA question. think the share versus about anesthesia we neonatology like Hi. margins directionally? on taking for of kind

Vivian Lopez-Blanco

good so morning. Yeah,

radiology. obviously, So, said and volumes anesthesia a we've neonatology exceed long time for

Roger J. Medel, M.D.

Margins.

Vivian Lopez-Blanco

Yeah, margins, yeah.

volume north has So seen do that perspective, them quarter. to the gotten from of impact much, obviously were normal anesthesia payor third that much again, ones the the that a radiology that's had. being with And in tell, just And right the to we the it the margins year a see anesthesia lower this of this in and course soon were now, the is mix plays which specialties really it's then volatility But out. we've impact neonatology, again, generally, because anesthesia. given some but how to trending better little we

Tejus Ujjani

started how of margins Okay. I to being And like, you environment your of to really hospitals and talking just guess, subsidies, range neonatology you do to subsidies right about, share to question make hospitals you margins we to around kind be pretty that that for level you And I make you the given last would tough that I that, at like it's are there kind the mean, this we're of the look anesthesia, XX-ish close secondly, that percent. EBITDA and you're neonate? color as pressure the going that's paying the to well? is margin then volume paying extent a mean, about margin the can of under of thinking if helpful. of do expanding argument to that then just how thinking the is that like, back Any before higher right are still is level things be

Roger J. Medel, M.D.

wouldn't go have hospital where We to a XX% a we margin.

Vivian Lopez-Blanco

Right.

Roger J. Medel, M.D.

In to talking them that contract services. about where the asking the financials – or going there no to the the so that across not local very (XX:XX) margin the small. going obviously them go margin – hospitals We're we're is is showing showing We're financials we're company. impact not

Tejus Ujjani

over Okay. versus longer-term? sorry, And modeling. question, of we terms EBITDA should line – last just of in top then just growth kind of think How the

Vivian Lopez-Blanco

Yeah, higher. of and you the shared slightly X% growth been needed that and it's same-unit more to And to again, say has have that in maintain I've the with to past volatile guys used that margins. we north so this be you so year again,

of be pressures lack somewhat of you And non-clinician that margin this and some why given top created so And of year, line the seen the to seen cost then because of side the flow-through bonus has really higher. have degradation then on that's the lack of the you've that some growth.

what can that's really that. about So I say

Tejus Ujjani

much. very Thanks Great.

Operator

Please ahead. And you. go William from from our Blair. Thank is next Daniels question Ryan

Ryan S. Daniels

the taking lobbying you question. to for Yeah, thanks the rates. states increase efforts talked your to about your neonatal Roger,

that's up federal Just there? to population. aging this a anesthesia curious about on difficult Medicare. to any the thought thoughts mix if given anesthesia continue impact for effort just kind in I'm given there's for lobbying the too if you the payor have of think mix we Or stepping I on underpayment long-term as that well-known physicians side, a do? larger even shift

Roger J. Medel, M.D.

we well. no, Yeah, that have as

and in Washington are two a that in for long that have they place lobbyists been senior have We time.

may – you HHS not know, HHS Secretary, Secretary Donna - ex old Shalala, As old the

Vivian Lopez-Blanco

Former.

Roger J. Medel, M.D.

instrumental she our getting to meetings times, people. us very of recommended getting with different of and conversations us number a part in us board. is – And the she's has

Board definite that have our of a that's on Directors. we advantage So

as well. focused we're that on So, yes,

Ryan S. Daniels

Okay. some that And I earlier there just and obviously, appears into want there noise whole there on you on Great. follow-up But radiology, have strategy said year track. a know then to the dive was lot. vRad you to your a in gotten back don't

to demand is what of So site particular, going, now state about just teleradiology hoping will, on seeing just And a maybe growth union, (XX:XX) you're new you're in update the from what pipeline, balance, off. a that how the if seeing an business there I'll get base you supply from radiology. in hop

Roger J. Medel, M.D.

Thanks the for is vRad question. growing.

are company. excited We think own to is for offer very they solution opportunity technology that We significant a us. that the

coverage, seen, acquired practices these together quarter, one a already have hours component that in others putting can being the are we on our that and about pursued ground a working of They strategy point example, for you with theoretical that practices together those We local after the vRad coverage. three the to this with that tell the with that's provides during teleradiology the I business. daytime of contract provides leads more hospital happened second where already time. small practice in vRad. were able a to at get There's

for is out it, in be to turning this So had originally that think correct. that fact, practice, in theory we we the strategy,

grow again hospital-based They that see the not see at to acquired and opportunity. that summer. this quickly The Houston. with excited had reasonably occur into opportunity already lot our acquired last manpower expanded did practice an all year a Our had there potential situation very large opportunity. we Arizona, they we've about that vRad practices, very this practices for we of in practice are the That them, growth particularly

You That happen. demand. we did did have they might demand their remember, not for had summer, to not not enough last their meet radiologists increased services because to that able we were service

everything All worked of the else – our well. turnaround times and

to call vRad able on-the-ground So viable acquisition. coverage think practices We combination a that we're we're solution healthcare with presents XX-hour to the because with the teleradiology provide very now a very hospital happy all with radiology of be hospital and to them on hours and pediatric of et a of having or the day. neuroradiology, cetera, all subspecialists group employ XX radiology those local have subspecialties, without the the

Ryan S. Daniels

that for you Thank Okay. update. Great.

Operator

you. Thank

next from Please call Our go from is ahead. JPMorgan. Taylor Gary

Gary P. Taylor

good Hi, morning.

Roger J. Medel, M.D.

Gary. Hi,

Gary P. Taylor

questions. floating models, when guarantees or compensation that itself on hospitals mean, clinical the you longer-term thinking the stuff so responding physician of direction own the the They've pools, is business longer-term physician labor, volumes this but certainly, there flex transformational some their when staffing fixed. tremendous real-time the leverage you move guess, flex couple I the modestly really what clinical because, some where staffing have in just of in issue evolve A about versus amount transformationally, very labor of models floors, because really the levels last I hospitals labor, et there's we've could to cetera. talking staffing is about et to model one, cetera. of operating over that near-term, kind started opportunity we very non-physician Roger, in of internal weaker created your their where census think staffing they this the in and is and comp seen physician have an decade then guess I'm be have the first I long-term multi-year nature, negative intraday revenue some to

direction there down lead to a that is So of way that makes you? to kind sense

Roger J. Medel, M.D.

one to to out how dependent I every in not to a you cetera, model accepted been which want our well that, And a has will we're would come we're piece guaranteed a our get but group the upon the with is, additional is fact, by I is I that to like times One compensation practice et model their that is and component that, there. beyond It along cetera, we cetera. does issues shifts, we into of that across utilizing in tell this really don't can model. it, physicians way it model. tell have with incentivizes as salary rollout it well and up radiology you grows, going obviously teleradiology cover is grow in our new single well. et their as radiology And that believe night two there's doing grow their them. is to go a and et eventually practices Yeah, practice income that as But business. different vacations, the we

now. started have We

they or acquired, Those get example, XXXX. five-, we anesthesia, – have contract. so And contract, seven-year contracts started acquire we when six-, a a typically for they that we – practice, as in employment typically practices will in

of are renewal. those up now number for a coming contracts So

As plan occasion that as time one have those the our is new renew to we their are to and due, contracts are compensation practices planning offering in it offered contracts. we – employment

And of to are plan, convert up is XXXX. the longer-term that compensation what a we about plan, have so longer-term and talking the this we practices and new coming and that's different those number into for XXXX in and renewals were

have an revamp The contracts, we about. to bonus we So, yes, here that that. more in neonatology talked opportunity think the they're plan I

up As the we practices well. renewal the come those convert see what is as into to that opportunity volume does for year so, same there next over or that model

Gary P. Taylor

ambulatory that. those like facing to issues might environment for that whatever I seems change and in would question. risk the facing in of also wanted how That's and to those to to from other some to optimistic. and maybe few competitive move question, ambulatory? latest the positioned I feel into updated outpatient and – industry direction. you is I to your now themes know risk structurally outpatient your (XX:XX) volume remind there moving of an seems whole pretty is outpatient, get Envision look One do Can issues about possible what really thinking for be some there not the over just years anesthesia over more practice needing and sounds outpatient limit That inpatient to moving turnover just on, guess, similar volumes from have weakness settings. a new it's the two It maybe maybe kind and headwinds attempting good. where we've just about heard that I you we of thought inpatient things, away itself, an anesthesia seem not when mean, facing there, for thought limited a us be shifting to but you at

Roger J. Medel, M.D.

phenomena that that mean, Yeah, think happening. is well, I we

our is XX% XX% to – are hospital, it's settings. have our XX% – that have a some than or – say hospital than practices a our a where our Most ambulatory have XX% I happening. or our then outpatient from more percentage exactly, but has in We revenue contract is them most I already that's of of of the of don't our already anesthesia of want revenue, that in coming significant area. more those physicians of and what facilities, are But revenue. Vivian, know, practices

Vivian Lopez-Blanco

Yes.

Roger J. Medel, M.D.

In anesthesia coming from... already

Vivian Lopez-Blanco

Yeah, centers that it's surgery are related the to hospitals.

that's ones So primarily hospitals, Gary. to are as well, don't related we there's hospitals to have that where But as moved that we as the much where that have yes, stand-alone of some the have ASCs.

that number And is the so, in yes, range. roughly

Roger J. Medel, M.D.

to change less Gary, just remind offer haven't just and getting or that about come case. that expensively to out always we lost The and anyone has other and would it. money to we than amount to mean, for single of that felt contract offering it's for to in somebody to that turned something be hospitals very the idea with wasn't we're do I'll contracts. a concerned coming anesthesiologists, felt providers. employment something were in I to less their you change question that difficult we back renegotiate we trying that doing prior it

Gary P. Taylor

Your that. view consistent has very on been

Okay. Thank you much. very

Roger J. Medel, M.D.

Yeah.

Vivian Lopez-Blanco

Thanks.

Operator

Our next Citi. from line question from Please Ralph Giacobbe ahead. the of is go

Ralph Giacobbe

XX%? I that that that'd get Thanks. you cut and of by did million think can $XX XXXX, is Roger, you you can G&A, Good about say $XX thought savings, you you give morning. million of right? about in

Roger J. Medel, M.D.

(XX:XX). similar Yes,

Vivian Lopez-Blanco

Yes.

Ralph Giacobbe

Okay.

XX.X% XQ, point? and margins range, kind lower, about basis year this range, think I lower kind with seasonality. quarter looks XXX in right to bit in of maybe And in kind is that it of implies little that XX% look quarter that that going kind this about range so it when Looks exit the of last of we're at your points even at baseline a like to the like

Vivian Lopez-Blanco

Yes.

Roger J. Medel, M.D.

right. that's Yes,

Vivian Lopez-Blanco

right. that's Yes,

Ralph Giacobbe

Okay.

that's if margin at points like of already on $XX So, of I'm sort basis something just of the G&A, EBITDA I the flat, assume and XX looking improvement. sort million

of there's but assuming that, and lot I'm puts of takes to in math? Just simple of there's sort that a of understanding sort obviously a vacuum, nothing wrong sort with

Vivian Lopez-Blanco

that perspective, you year. the et cetera, were acquisitions and just in from be some growth perspective you to there on regular if bring to have you'll a that that will also stand-alone have because then with we this that a go at else G&A. obviously from math would G&A that changed, and the will same-unit knew at away, a agree simple I to math. then But salary that's nothing just There basis, right increases, if yes. from look you look in of were base offsets going guys Well, to is but it I

Ralph Giacobbe

big exactly All back enough. could or fees don't Fair up a of Okay. percentage the they make going a what right. And subsidies, administrative just you today? I then revenue have give feel of to just the sense,

Vivian Lopez-Blanco

It's between So and it's X%. not a number. X% material

Ralph Giacobbe

of X% and X% sorry, I'm revenue? total

Vivian Lopez-Blanco

That's right.

Ralph Giacobbe

revenue. total Of

Vivian Lopez-Blanco

Yes, revenue. of total

Ralph Giacobbe

Okay. All right.

That's some of past? your up what you're book have within and out-of-network a than are with maybe of whether sort that little then shifting seeing point? can of how sort And this to piece rate book, if just I different peers importantly, that's pressure trying payors in-network, more faced I a And in maybe you're your but negotiations going in-network Okay. what helpful. of at small get understanding revenue think out-of-network an us you you've on been the even guess, total of bit of remind makes is to

Vivian Lopez-Blanco

Yes, so you...

Roger J. Medel, M.D.

don't any we issues. mean, have I out-of-network

been in-network, patients, don't doesn't that's any the a doesn't out-of-network, help of when part payor has the negotiating and I theory and so number hospital, help but in that certainly is, know doesn't what and be to the time... we negotiation it it a doctors, just very we've the our help always the point out-of-network. to had at be wanted It's or small contract something. you're But strategy Our never typically a a strategy, and with it percentage, out-of-network, when you're

Vivian Lopez-Blanco

net, Less yes. X% than

Roger J. Medel, M.D.

couple points. Yeah, maybe percentage of a

Vivian Lopez-Blanco

Gross total (XX:XX). in

Roger J. Medel, M.D.

negotiating that's the bread your far them. last mean XX right. with payors, day go listen, years, payors you Every I into as to butter, the have with for and negotiate as and

wouldn't And we everyday negotiating and I the of it's so tell of blocking it's across just teams part it's have in getting I tackling It's we the It that different any much. don't But care harder. the – any you regions country. know it's that I'll and think to tackling And I say, isn't we just blocking why set do. that up managed part do. have that easier

Ralph Giacobbe

Fair Thank you. Okay. enough.

Roger J. Medel, M.D.

Yeah.

Operator

And from the line question John James. Raymond from go ahead. is Please next of Ransom the

John W. Ransom

Hey, good morning.

much of year question, what would that say versus you to in next pricing of apples-to-apples? how your is managed to be how contracted? at needs contracted book terms kind your back same Going care of contracted book is much And

Vivian Lopez-Blanco

year. that for say our roughly we a third typically, contracts a come renewals So, about of up

Roger J. Medel, M.D.

third. mean contracts don't in three-year I can know I and Typically, general – built them a you terms, escalators into with but say so exactly,

Vivian Lopez-Blanco

are book from It's in Yeah, have no, John, typically kind of for past. talked what three-year that renewal like usually that comes hasn't up of in about that because contracts them. we changed, a escalators about the third they the some

John W. Ransom

about way And the escalators it? is mid single-digit, that of right to those kind think

Roger J. Medel, M.D.

Yeah.

Vivian Lopez-Blanco

Yeah.

John W. Ransom

Texas other my question in those what's Florida I exchanges with sense, markets? then problems and in rolling general geographic your about a in just to hear exposure is mean, And broad over. XXXX, we After two peaking

Vivian Lopez-Blanco

of we those in we think really have – don't don't I that markets. two yet have So much

Roger J. Medel, M.D.

about say and Florida you Did Georgia?

John W. Ransom

states? those kind No, revenue your revenue, Florida of your roughly and Texas. What's two in

Vivian Lopez-Blanco

(XX:XX)

Roger J. Medel, M.D.

about exposure... anesthesia you little in I talk very it's mean, specific, if

Vivian Lopez-Blanco

exchange. the On

Roger J. Medel, M.D.

it's and think Florida don't for ...for you're Texas, but what talking obviously, large, I very neonatology, right? about, that's

John W. Ransom

Yeah.

Okay. No, that's all. That's you. it. Thank

Roger J. Medel, M.D.

Yeah.

Operator

Brian Jefferies. from ahead. comes Please go question Tanquilut next from The

Brian Gil Tanquilut

good the the going physicians the with Hey, to contract. Roger, morning. question back on earlier just on Gary's negotiation

to that the gets So to then about new earlier? And as a structure? compensation example has laid I Vivian adapt appreciate in you to for the the what to the margins who that But gave. is, follow-up docs how convince leverage that, we situation the you you do that that specialty and think out long-term is that the

Roger J. Medel, M.D.

way increase their I think to you is them what growth. is most for likely the Well, gets to conversation that through it the compensation

go out immediately. and to up some impact compensation your pick opportunity and an here's so growth And have it

is, let's practice, you're And harder of. you and threshold drop go bonus you out threshold amount and in not services a we not you're if a looking below if we $X when small to that bonus. how you our that is think significant join the any this is, we that, have immediately I you're get acquire practices know when the to – hospitals that, problem your and because additional bonus. But you're it's historically to think in provide or so about not the conversation. And practice. you're getting million have below that practices, expect you not whatever Anything from that some the that what much changes just above existing you contribution get going you Changing get a work local compensated XX-XX of

make And we progress some so that's how we there. think

Brian Gil Tanquilut

And or M&A less should be like appreciate think it shouldn't more I XXXX, look look about then that we or XXXX. less mentioned more – you for as that. –

and radiology, and I procedures we Now, how have to about hear move payors you there? of mean, about as was are hot the the think we thinking a pressures and are the capital deployment started anesthesiology thought volumes And coming about radiology the initiatives down. hospital, then hospitals from out we strategy hitting space.

three radiology, out payor is in with perspective look years to these So, what as initiatives we five of that? your

Roger J. Medel, M.D.

are cover owned, have just so number Well, some a hospital. those and they're acquired the of do facilities. groups the cover part hospital of we the They that we – of

service strategy, us the provides on use the the able that we provide advantage. hospitals, the sub-specialists, speaking they gives of XX-hour are to fact competitive as to per for and – basis is hospital outside a is and to with provide all vRad that grow coverage coverage Our a them, that

about we to that so of And vRad think coverage on It's basis. that because we're the exactly only able use we're part a excited per that is with immediately. strategy provide

per study to have hours radiology radiologist to local have the present, on-the-ground pay practices. we're There be day our provide a of able to interventional all particularly radiologists side. access need that will with So the you you some And sub-specialists. some XX and

we're that change. in we positioned So well do with that we it's pretty think for direction, agree you headed but that

Brian Gil Tanquilut

last then And for question you, Viv. it. Got

the the with same-store As of the sharing on versus your don't we if just think about volume you QX mind guidance? in assumptions us or rate guide, views mix

Vivian Lopez-Blanco

to did hurricane some the quarter will rate some will saw because fourth continue we this we're that somewhat hopefully, the in slightly think we not quarter. we And like tick third things expecting volume so have and of favorable up Yeah, days. the the related in

So, outlook. basically – that's so the

Brian Gil Tanquilut

I'm good. guys. Thanks, All right.

Roger J. Medel, M.D.

Okay.

Operator

you. Thank

question next Please go is Chad Stifel. from ahead. from Vanacore Our

Chad Christopher Vanacore

good all. morning, Hey,

Roger J. Medel, M.D.

Good morning.

Chad Christopher Vanacore

Okay.

of So that that's Is is most cost reduce you're sounds initiatives there direct too? just like the G&A. right that given there on expenses, the long-term improvements expecting to or some

Vivian Lopez-Blanco

will we So certainly, Roger hold think impact we talked is execute. initiatives, piece certainly on those we did modeling are a say are that ones this call, that that grab I little for a side basis. the longer-term us the right the of have throughout on can away. clinical G&A longer-term we bit that like shorter-term, about the But But longer to as mentioned,

things G&A, not all of but the albeit reductions They're cost a technology shorter-term certain that, to related So well. feel the could hold more ones some easy to that in per initiatives of on basis. not efficiently, on use get and our operating to do, of as impact those areas related functional a They're are really ones we se. can productivity the like we

Chad Christopher Vanacore

All right.

one an can So just or you example, two, of given the maybe scale? economies give mentioned initiatives, leveraging investments IT you

Vivian Lopez-Blanco

saying You're the on side? G&A

Chad Christopher Vanacore

there's you and mention. things side overall, initiative cost did the a on few Just

Vivian Lopez-Blanco

on it's some so manual. initiative, really to technology using Yes, now cost the automate are processes that

And so we'll that. more get productivity I think from

Chad Christopher Vanacore

system? the side? that on more How does Is collections into billings of the and taking that care that Is quality metrics? patient flow

Vivian Lopez-Blanco

collection. it of Some will billing and

our the be will accounting that do some just it stuff with of other Some areas, manually. of even we in in

it's is of the you on that the side. data collection to we the throughout stuff. on area do that on on stuff But because always and technology the even the use pervasive generally of some we're one the organization working billing go automating – even in So

Chad Christopher Vanacore

practices? and model helped your have And practices to with All thinking practice right. does the night that that just the integrating new with shift? Then vRad day you're new radiology main Is the shift practice, about has same to, goal radiology pointed vRad. the recruiting does physician-based that you

Roger J. Medel, M.D.

specialists imaging XX or have there's service. provide musculoskeletal radiologists, There's a read of hospital to say cardiac I radiology to or or the coverage pediatric a that's whether sick right, and you again, kind a pay for I'll to of don't these of if that Yeah, terms, day, available have In but opportunity breast number imagine I'll of vacation imaging x-rays course. – about, sub-specialists, XX by or X XX-hour that for days. there there's There's say can the or wants of the coverage kind or probably X, are know, hours general they'd coverage. with the body to it's neuro all – hospital subsidies

our having offers local so that our practices, make to hospitals without local same that vRad service And expenditure.

of radiologists. lot the the it those getting combination of easier makes have new a because things for it's the where backup all So local a vRad contracts group they

Chad Christopher Vanacore

right. All

one So, you in Roger, more, be just moderating. anesthesia labor mentioned seem pressures to

been year? had a in good the there drag because changed, early what's pretty So

Roger J. Medel, M.D.

the renegotiated the contract we parts country. the different pressure and Well, change of there's is less in

number practices schools nurse number large where small et practices, from material nurse putting where that is So and significant. of saw is which out, But practices the of a cetera, are we there where pressure or less that anesthetists of pressure, number trying anesthetist reflects typically some practitioner a the the other practice. there a to the steal nurse are

other pressure have And just practices those quieted down. seeing that's less we're so because what is

Chad Christopher Vanacore

right. the for Thanks All taking questions.

Roger J. Medel, M.D.

Yeah.

Operator

Thank you.

ahead. go next Matt is Our question Please Markets. Capital BMO from Borsch from

Matt Borsch

asking but had sort I the got reduction. right. that going how things that Conversely, up, year to making best is and guess, to Yes, you if wanted maybe at this environment we for is I'm that you you and scramble you're done pick cost me new then of to that if some into the happen this just to you're accomplish? don't decisions I growth I thanks know that to would terms what that wish is, assume the saying influence it's will assumption looking for in about here the end. does of normal, there ask probably question volume squeezing coming us the this in are of volumes at need next, what's

Roger J. Medel, M.D.

births statistical me tea – information that but who of there's have point off this while just Well, the at cetera. demographics, is me personal having makes they some my where opinion own normal personally, babies leaves, people et It's we're do decision. that will to make because new and I assuming yes, the the improve that feel is put reading is a that that that now are a we back

personally And of of the pretty a terms, general that those so staffed care, two. fluctuation remain units, expect we'll year in our able some over without or in see much in births But units take improvement I not can neonatal us to full care they our the to because level being next the unit where patients. have

also, three the have community, cetera. We to switch around two the also units opportunity et having to A B, from and hospital hospital same we within physicians or by coverage

wrong, very think that about I get volumes don't we're easier. it back, – think I So and makes think if we're I a back, don't little bit to that come it. we unhappy volumes going be

deal in problem that we way to. think we'll with I whatever have

Matt Borsch

it. it, got got Yeah, I

Okay.

about past you as HCA talked the in reported? think as I had that with they – is half we were is, births which And you How engagements. NICU X.X%. flat. square that many growth your representing one, last my one Just the down was of question do

Roger J. Medel, M.D.

cover HCA We doesn't of it's half Yeah, our other units. HCA's. the half represent way around. about of

Matt Borsch

Thank you.

Roger J. Medel, M.D.

But smaller number.

Matt Borsch

Okay.

Roger J. Medel, M.D.

a risk hospitals, I bigger that the number than that tend go that point across hospitals, country community less births because other in in the or their to they're a large about you number to fluctuate their the you their NICU that smaller of births Births births hospitals anyway. in overall then make talking tend hear a in high hospitals. system, number, like And there hear is always across when the

down that units. so be points larger across they X% neonatal even births be intensive country, And have down XX hospitals something though basis or within or these care might the X% may only

Matt Borsch

Fantastic.

Okay. Thank you.

Operator

you. Thank

Our is Please next question go from ahead. from Stephens. Dana Hambly

Dana Hambly

Thanks for Yeah, good getting morning. in. me

of questions. a Just couple

a blend is mid year, was double-digits I single-digit the first sure to On Is next the and couple contribution understand because numbers? think was should it the to growth X% number external I more of it just year Vivian, it next quarters those we of I it a make then this target? growth like more Or quarter. in the for want like low

Vivian Lopez-Blanco

I guidance Well, given yet, haven't XXXX but... for

Dana Hambly

Well, kind thinking next for you did about make of contribution year. you comments about

Vivian Lopez-Blanco

that's people But, the comments out made of looking mean of so to I trajectory quarter yeah, I operating start – I folks results vary. the the our for because Well, first at consensus of there guidance. last wanted I top is trending remind to kind mean, quarter the how I the make think That line as not quarter, conscious off. is because normally, do talked was significantly you're the going I a mentioned I we impacted about move to be think when to guidance, did this not that we anesthesia... yes, on

Dana Hambly

Right.

Okay.

Vivian Lopez-Blanco

same the rate. in ...acquisitions

So that impacted was what this.

So, quarter, see, goes XX% just as you the fourth can in average X% guidance back range. the it from number in even to to a more the

Dana Hambly

Okay.

– bigger of now. terms then, I'm of the reimbursement? That's want down how right on commercial lastly, payor down I'm could and as model, anesthesiology pie, that in kind you as update Medicare helpful. got same Okay. because anesthesiology wondering just path the the becomes I'm And I just different it. we're of radiology mix a from just or go could going why familiar differences – not that me piece structurally with to we you is between

Vivian Lopez-Blanco

Yeah, does to so don't practice. it have experience really right vary it. now, practice with much from that we But

it's each more to anything I else going I be But So to think be going changes. believe like how practice on don't regional than it's anesthesia. that

Roger J. Medel, M.D.

I the the follow practices to of would that to remainder be. Well, Medicaid, half be the terms, and the going a add probably in to whatever remainder managed might hospital would it in terms, that, mix Medicare, say And local is percentage hospital-based just for and be payor general small general care.

comes practice et our contracts from cetera. weekend that their groups their contract, – reads, other their is different. that with which the very groups vRad have vRad that A to groups night-time percentage Now vRad not are do – hospital a are reads, good but compensation is of

that's so from direct group. just the payment a And

same the provide which services. Another percentage with third of comes for the is to methodology business with hospitals, of the from those vRad contracting payors. vRad payment contracts kinds then that And direct

a – there. it's a of So mix different payor bit it's little different a

Dana Hambly

Okay. very Thank you much.

Roger J. Medel, M.D.

Yeah.

Operator

this queue. time, no are at further And continue. Please questions in there

Roger J. Medel, M.D.

quarter, Okay. Thank and me I thank further there Well, let participating operator. next if forward with speaking to questions, you for again any this look aren't you, everyone quarter.

Operator

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Pediatrix Medical (MD) 1 Nov 172017 Q3 Earnings call transcript