Q2 2020 MEDNAX Inc Earnings Call

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Yeah.

[noise] [noise], ladies and gentlemen, thank you for standing by welcome to the Mednax Inc. second quarter 2020 earnings call. At this time, all participants are in I'll listen only mode.

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

If you should require assistance during the call. Please press Star then zero and as a reminder, this conference is being recorded.

I would now like to turn the conference over tower host Charles Lynch. Please go ahead.

Thank you operator, and good morning, everyone.

Joining me today for all our Chief Executive Officer or Dan.

Financial Officer, Steve, However, and president theatrical sectors medical groups Dr., Matt.

Ill quickly read our forward looking statements Oliver.

Certain statements and information during this conference call on anything to the forward looking statements within the meeting of the Federal Private Securities Litigation Reform Act at night.

These forward looking statements are based on assumptions.

Made by Minacs as management in light of their experience.

Historical trend current condition expected future development and other factors they believe the appropriate.

Any forward looking statements made during this call or may as of today and then next undertakes no duty to update or revise any such statements whether as a result of new information future events or otherwise.

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 quarterly reports on form 10-Q, and its current reports on form 8-K, including the sections entitled risk factors.

In today's remarks by management, we will be discussing non-GAAP financial metrics.

A reconciliation of these non-GAAP financial measures for the most comparable GAAP measures can be.

Down in this morning's earnings press release or annual report on form 10, K. any investor section of our website located at <unk> Dot com.

Now I'll turn the call over to Mark.

Thanks, Charlie Good morning, everyone and thanks for joining our call.

Brian joined Mednax into support was great National Medical and healthcare group over the past several weeks.

I mean people across the organization, including practice groups in both pediatric and radiology.

So impressed with indication in clearly had its companies decade long mission to take great care that page.

As you know Mednax has always been position, but at the top of the organization.

That will continue and that's why that's the Mac is here with us today.

In particular I want to thank Roger Madelle.

Well it was basis introduction to the mid teens and helping me get up to speed.

From a Dallas natives physician and patient that's good color and that has been key mednax.

Mmm doesn't.

And strong mission and Sperry sprint document Dell determination and care.

I want to story as Mednax mission will not change.

Even as we continue to address.

Yes, it has done them across the company the candidate clinicians across organization right. Every day is important is up.

And a focus at midnight has already shown over the years.

Feeling qubec here.

Research.

Indication quality and safety will remain as important as it has ever been.

Today, I want to reaffirm our previously announced intends to divest Mednax radiology solutions.

And we are actively engaged in a comprehensive process in order to realize the value that recognizes this group strength resilient and growth potential.

Well radiology slows depot up in the spring to the coated.

So a very impressive bounce back in the early weeks of summer.

Even will provide more color about.

Total itself. This sale if it does have only for strategic fit Angeles'.

It is a very strong business that will be there will be very additive and the right now.

This bill will help accelerate our focus on our core pediatrics.

Medical groups in terms of both continuing the trend as well as growth.

Along with the sale and if approved by shareholders, we will change running to pediatric medical to a test well focused commitment going forward.

Stephen will provide details regarding my second quarter results, but I'd like to comment briefly that the strengthened results during an incredibly challenging time in history demonstrates just how critical it necessary our national medical groups service desire to where patients.

In my view this is a hallmark with his organization I'm tremendously proud to begin working alongside the clinicians and then on clinician associates is important to help ensure that our patients have access to that care every step of the way.

Im most excited about the opportunity to amendments as we look forward.

Our entire board, including me of course believe that a concerted focus on our core will enable us to operate very efficiently and grow very effectively.

Look forward to updating you over the coming on our progress I'll be working closely with onboard the leadership of the company and our clinicians and operate is to ensure that mednax can succeed grow and continue to invest in the foundation of great patient care.

I firmly believe that collectively these will prove to be the bases to strong value creation for all the stakeholders with that I'll turn the call this either.

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Mark and good morning, Thanks for joining our call I'll start with some high level observations of the quarter Im going to go in some detail first and foremost we have been positively surprised by our operating results for the quarter, which demonstrated the resiliency of underlying demand for the services are under since provide.

And our ability to mobilize an effective timely comprehensive response against an unprecedented and highly unpredictable environment.

This was obviously a tremendously challenging period for our organization has been for all health care providers.

In a very short time, beginning in late March we mobilized multiple workstreams fruit, which we identified an executed on cost mitigation efforts across our corporate and support infrastructure additional mitigation steps with many affiliated practices and actions to strengthen our supply chain for protective personal equipment are telling.

Health capabilities and virtual support groups within all of our clinical specialties. We also took steps to ensure that we maintain significant financial liquidity and meaningfully curtailment of third party spend as part of our transformational and restructuring activity.

Lastly, as we announced in early May we divested our enemies allergy service line, which has impacted by the pandemic too far greater degree than our ongoing business as well as or in our view being part of a much larger dedicated anesthesiology organization.

As a result of these steps we were able to ensure that our clinicians received to support that they needed to fulfill all of their commitments to their patients to or hospital and health system partners.

Turning to our results for the quarter, our consolidated revenue from continuing ops. The 509 volume was down 52 million or just over 9% compared to last year.

This comparison includes just under 12 million in revenue that we received through stimulus programs during the quarter, which was divided about evenly between pediatrics radiology, our cost mitigation efforts during the quarter provided a meaningful offsets as a decline in revenue such that our adjusted EBITDA was down 29 million or only about half of.

Our dollar decline in revenue.

I'll also point out that the lions share of the Pandemics impact to our operating result occurred in April and we've been very pleased with the rapid return towards normalization of patient volumes and revenue in May and June as we noted in our press release, our overall volumes fell to roughly 70, 580% of pre cobot levels during.

April.

But had recovered to roughly 90% to 95% of normalized levels by the after the quarter.

On a preliminary basis. This recovery has persisted during the month of July with some geographic variation.

We believe this rapid snap back and volumes reflect the nature serves as our clinicians provider, which are highly critical and acute in nature and often times lifesaving and showed a strong resiliency and demand as a result.

We did provide additional color in our press release tougher as volume trends in what we view as the three primary components of our continuing operations.

Hospital base women and children's office space women and children's and radiology.

Won't repeat those here, but to give some color on the relative weighting of these segments Hospital based services, which were the least affected component of our business represent about 60% of our revenue from continuing operations and primarily reflect neonatology services.

The impact of patient volumes in the net you was only about 5% in the quarter and trended up towards the end of June.

Elsewhere within hospital base pediatric Ifyou in general pediatric services weren't impacted more significantly, but patient volume down roughly by half in April but these volumes recover to about 85% of the so a pretty focused levels over the course of June.

These are also relatively small component of our overall hospital based revenue compared to the next year.

Our office space women, and children's services, and radiology services, which were more significantly impacted each make up about 20% of revenue from continuing operations in both of these areas that we saw this strong recovery and volumes in May and June ending the quarter in the 85% to 9% of pre coated range.

As a couple of additional knows our payer mix remains stable and was actually slightly positive in the second quarter with non government volumes, increasing by about 65 basis points as a percentage of total volumes compared to last year.

Our IR days, we're also very stable in fact, we actually picked up a day coming down by just over one day versus the end of March.

As I mentioned, we undertook meaningful expense activities in response to the revenue disruption we experienced during the quarter. These are evident in the reductions in practice salaries and benefits as well as you know in our reported results. Those reductions also reflected the clinical compensation structure within Mednax radiology, where each of our.

The ground practices operates under a revenue share model and V. Rad affiliated radiologists are compensated based on volume.

New Tom these cost structures functioned very effectively and all node that all but one of our individual practices as well as Brad had positive EBITDA for the quarter.

Within our DNA expense all provide free observations for those of you keeping models on the comp firsts for the second quarter or DNA was roughly 15% of revenue.

I'll point out that DNA for radiology is structurally higher as a percentage of revenue and GSK or pediatrics.

And rate with radiology being closer to 20%.

This predominantly related to be Rad, which has a fairly different you know watson versus our practices based on the expenses incurred of its fairly spent by its fairly extensive operations and IP infrastructure second our piano reflects the accounting treatment for transitional services.

Which we have in place with Napa following the sale of American Anesthesiology.

Within that agreement, we're providing certain ongoing services as Napa works to integrate AA, most of which are non labor, but that flow through our own GNS expense line. We are reimbursed for those expenses and that reimbursement as reported with and investments in other income further down in our and now for the second quarter.

<unk> expenses and our reimbursement for them totaled $2.8 million. These items are a watch and our calculation of adjusted EBITDA. So they don't impact that metric, but they will temporarily inflate our reported Jay for the time that we provided a services.

Lastly, as I indicated in our update all in early June in in the weeks following the sale of American Anesthesiology, we had identified and completed roughly $10 million and annualized expense paid out we continue to press hard to reshape our DNA infrastructure to match the size and scale of our ongoing enterprise and.

I anticipate that those efforts will benefit our overall gionee percentage as we made further progress.

As a last comment on expenses, we meaningfully reduced our third party other outlays related to our transformational restructuring activity.

Total expenses for the third quarter was 11.5 million down about 40% from what we reported in the first quarter. This year.

Turning to cash flow and liquidity, we are very pleased with how the quarter progress in total we generated $193 million and cash flow from continuing operations, which is significantly higher than the prior year. There are a handful of moving parts in the quarter related to either the sale of America NCR.

Algae taxes or both and there are significant additional cash inflows into a blessing so I want to spend time here.

First as a meaningful part of the consideration for American Anesthesiology, we retained all of the working capital from that business, which as we disclosed in may totaled about 100 million.

And consisted primarily of accounts receivable net of current liabilities. While the retained they are is recorded as part of our continuing off our balance sheet. Our collection of those receivables are not part of our cash flow from continuing operations, but rather are reported separately as part of disc ops.

So our continuing on cash flow for the quarter is not inflated by those collections.

Second we were non cash taxpayer during the quarter compared to cash taxes paid in last year's second quarter of $68 million in fact, but what's happening here last year, our cash taxes or 71 million. This year. The first half our cash taxes were 1 million.

Third we were able to defer payroll taxes during the quarter as part of their care stimulus that this was a smaller amounts and totaled about $12 million during Q2, and we expect additional similar amounts over the balance of the year.

Thanks to these sources of cash we meaningfully improved our net debt profile during the quarter. We ended the quarter with cash on hand of $132 million, which is up about 40 million from what we reported for the end of May.

We have no borrowings on our $1.2 billion revolver. Our dollar amount dead consists solely of our senior notes and our net debt as of June Thirtyth was about 1.6 billion compared to about 1.8 billion at the end of March.

I will tell you as well that our cash projections for July for which we have one more day would add another $40 million to $50 million of cash to where we ended June.

In addition, there are ongoing a one time cash benefits, we expect to realized in the back half of this year that totaled more than $100 million first in terms of our retained a are going to anesthesia sale as of June we still had 58 million remaining.

Which we expect to receive mostly during the third quarter second you'll see in our balance sheet details that we have recorded $64 million in income taxes receivable.

About half of this is a refund overpayment of 2019 estimated tax and the remainder of the current tax benefit on our year to date operating loss that will be used to offset any future taxes payable for the remainder of 2020.

We anticipate that these additional non recurring sources of cash when combined with our ongoing cash flow from continuing ops will enable us to further reduce our net debt, perhaps by 200 million or more over the balance of the year. If you do that math says well over $2 per share incremental value.

I'll wrap up with just one more high level comments on our ongoing operations based on a review of the impact to our business from focused from the Cobot 19 pandemic, we anticipate a full recovery of demand across our women's and children's and radiology service line pending the pandemic.

Put more simply at this time that we do not believe that there has any structural or permanent impact to that demand and all reiterate that we believe strongly this reflects the nature of our services. So our ability of our affiliated clinicians to provide.

Which are highly critical and necessary in nature.

As it relates to our discussion in early June regarding the outlook for the financial profile of the pediatric medical group at this point, we are not changing that outlook more specifically, we've previously indicated that this business on a normalized basis should generate roughly 1.8 billion an annual revenue.

From a margin standpoint, we view pediatrics and obstetrics as beginning with a mid teens EBITDA margin profile, which they've done a normalized annual revenue with but EBITDA in the 270 million dollar area.

From this initial margin profile that we believe there is a highly viable path.

To move pediatrics margins from mid teens, so high teens, driven by continued reshaping of our support infrastructure and by operating leverage as revenue increases.

This would move dollar EBITDA into the 300 million dollar range or higher from our preliminary range, which we believe is fully achievable over the next couple of years with that I'll now turn the call back over to Mark.

Thanks, Stephen Please go to questions I want to share some observations I need a few weeks at this company.

First everyone here is tremendously proud of how the entire team responsible and Dennis it's clearly been giant testimony excuse me to mobilize a nationwide organization to care for patients safely to protect our frontline characters and to manage our costs I want to recognize and thank everyone for their efforts and contribution.

Second I know from my past its oil about people I'm impressed by the medication on team has mission to take great care in the patient. The results. We reported this morning simply wouldn't be possible without education, and I intend to my job.

The same commitments in this company admission.

I've already spoken with and heard from physicians and clinicians from throughout our organization.

So I can speak to the spirit and determination firsthand.

Third I view this as an absolutely incredible franchise and again as close as demonstrated we are resilient even worse at times, we occupy they usually important and you need space and health care ecosystem, we came from others babies and children when they are at their most vulnerable.

The trust in our patients plays and their position as a trusted or hospital partner in place an honest has been earned over a decade and that makes us truly unique.

And last the position we hold in healthcare industry and gives us a terrific opportunities to grow.

In each of our service line and any number of adjacent one there are exciting tend to take to build on where we are today and to make this company more and more efficient and more and more successful.

Im looking forward to working with the team to make that happen I'm looking forward to telling you what we're doing as we go from here.

With that operator, we're ready for questions.

Ladies and gentlemen, if you wish to ask a question. Please press one and then zero you may remove yourself from Q it anytime by pressing one than zero again.

If you're on speakerphone, please pick up the handset before pressing the numbers once again, if you'd like to ask a question.

[noise] prints, one than zero and one moment. Please for first quick.

And our first question comes from the line of AJ Rice with Credit Suisse. Please go ahead.

Hi, everybody and welcome on board.

I appreciate the comments there just a couple of questions that you know one discussion over the last year about the transformational initiatives that.

Stephen you provided an update on what the spending level is how much of that.

Ill.

Relevant given the focus on pediatrics going forward and and what is sort of the run rate of expected spending it and what are some of the opportunities that you think you might realize from that.

Look forward.

Sure Hey, Jay Good morning, Thanks for the question.

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You know were.

I can give you a little bit of color on that we are continuing to work through our plan.

As you May recall, a significant portion of our transformation spend was in and around the anesthesia business and now with that business. So.

That really has provided us with a good opportunity to reshape our investments in efforts there.

You know the.

C D pediatrics business had a relatively modest portion of that spend I'd say, probably about a quarter of it or so and then we had some general infrastructure company as a whole with a number of projects that that were underway and some of which are still underway. So for example, I know we did spoken before.

Or that we were migrating our ERP to Oracle in the cloud that project is continuing should be.

Largely done around the ended the year, Ivan and we had some IP infrastructure and other sorts of things that are ongoing we're continuing to refine those plans we kept the little bit going for things that network nor mission critical during this period, but you had to some extent allied stopping staring in aircraft carrier. So does it does take.

A little time I can't give you a precise sort of anticipated spend levels going forward, but I can say it should be.

Very modest relative to what staffing levels have been historically and should be extremely focused on things that are either necessary critical infrastructure upgrades or things that will enhance the physician experience in patient experience of costing part of and working with this company.

Hey, Jay and the only thing it tomorrow and you'll see on background to that is.

In my past that usually only use third party.

Advisors.

Our IP and related projects, though so.

Certainly have a strong bias going forward to operate and make decisions within our four walls.

Our team and with our board.

Okay. No that's great maybe about the follow up question would be around the care snack funding I think you've reported about $11.7 billion. This quarter. If I got the number right I know at one point you at applied for significantly more or.

I thought you might be significantly more than that what sort of the current thinking of where you stand that cares that money.

It would you might record some of that in the back half of your there is indeed incremental dollars to be had.

Yeah, Hey, Jay as Charlie Yeah, when we made that comment in early in early may.

It would recall it was reflective of all the services, we had including on pages, so a meaningful amount or the monies.

Or related to.

Yeah, allergy and not relative relevant to our continuing ops. So the so that just under 12 million. We received during the month during the quarter relates to pediatrics and.

Radiology, we do have some additional amounts.

That we would anticipate in the third quarter, they're not meaningful probably somewhere in the single digit millions.

And so that's built that still pending but that but the amount that you see for the quarter is specific to our ongoing operations.

Okay, all right. Thanks, a lot.

Thanks good.

And our next question I come from Ralph Jacoby with Citi. Please go ahead.

Thanks, Good morning, I'm, hoping you could talk a little bit more about that Nick you trends in the decline there I guess, a little bit surprising given especially and I think the commentary last quarter, you had a more stable results, but obviously, we've seen lower birth rate in the past to some degree but the commentary I think in your real.

Lease talked about lower mission rate can you just delve into that a bit and help us understand sort of the level of acuity insensitivity to that trend kinda goal posts.

Sure, Yes, Hey, Rob this is makinson.

Hi, there was a little bit of decreases as we reported a into in terms of numbers I think.

Personally related to co bid I think it's difficult to clearly relate to any of this cove it.

Whether it's cyclical not we've seen some.

Consolidation of Nicky's, we've seen some diversion of DQ beds to allow for koby patients, but that's really been a minority.

Very very sporadic and not I think contributing significantly to the numbers.

Clearly you know I think everybody has seen over time and even recently concern about Burke rates I.

I think I would remind everybody that the markets. We are in tend to have relatively less bad than the over overarching national market and.

Some of the year over year decrease that we've seen is well within cyclicity that we've seen over time so.

We're hearing anecdotal.

Reports that some of our need to start busier over the last month. So the in some of our major market. So I would be very hard pressed to say that is is that a downward trend that's something that we're going to see this persistent and I think we'll wait and see how this plays out but certainly we have some indicate.

Asian markets that were what we are busier.

And we seem to the first part of the year.

I would also add what Ralph.

Rob I would just that one quick comment on top of that when we actually looks sort of month to month from week by week, because we have obviously internal indicators that we look at.

What we did see a trend that is pretty similar to the other businesses and two and two others out there that we know a lot of the hospital systems have reported were essentially April was a lot softer and then it came back somewhat man and came back even more in June and then trends is pretty strong week to week throughout in June, which we tend to.

A case along with what dogs.

I'm, a master said it really does indicate that does.

Was almost more of an exaggerated as type.

Item over the quarter as opposed to.

Something that we especially for system and I'd just add one other comment we have looked at the mix of the type of patients that we're seeing in the Nikki and you know there had been over quarter to about their less premature babies. For example, we're not seeing any mixed up the type of degreed prematurity or the acuity of the babies that word knitting so across.

Our system, we're certainly not see any evidence to date about half.

Okay, all right that's a that's helpful.

Well, if I had just on payer mix to improve during the quarter certainly encouraging.

And somewhat confusing I guess, given the backdrop any thought on why that was the case or or more importantly, sort of how you see mix playing out into the back half of EUR.

20 to our into the back half a 2020 and into 2021, and then is it your expectation that the pandemic, including economic consequences.

An impact birthrates, one way or any other going forward or how do you think about those considerations looking ahead. Thanks.

Hey, Ralph is Charlie you know on your second question.

I think we we don't have any specific answer to that I mean, that's just purely an unknown related to any kind of as you'd expect I mean behavioral response to see what the kind of anything going through so that's going to be something that we'll have to dislodge is everything unfolds.

Related to the payer mix.

What I would say is.

Our our payer mix dynamic today.

When.

We don't have the anesthesiology organization in the mix.

Our predominantly focused around pediatrics, concentrix and just to remind you, which I think you know route.

So it's kind of a binary pair mix between non government and Medicaid. So what we've generally seen over the past number here is a fairly good degree of stability in that mix with modest variations quarter to quarter like we saw this quarter. So when we see a quarter with with pediatrics mix going up or down 50, bips or something like that.

We haven't seen that reflected in many trends, we'll obviously keep an eye on it because that's going to be something that needs to be closely watched the go forward, but that said our observation for the quarter was that that mix was relatively stable and didnt reflect any kind of anything outside there outside of the trend line. We've seen the last few years.

Okay.

Okay. Thank you.

And our next question comes from Kevin Fischbeck with Bank of America. Please go ahead.

Great. Thank.

You want to build on that last question you guys.

I have outlined a you know kind of an accelerating top line growth profile over the next couple of years with improving margins and what is your assumption about.

FERC rates and payer mix in that I guess, there are lot of forecasting that the birth rate maybe down it obviously.

Limited by pair mix would be down or are these are these targets you can get too in that kind of scenario where are you assuming a more steady state to when you think about that.

Our next two years.

Sure Hey.

Good morning.

Steven.

You know, we've we've thought about all those factors and we have gained it out a bit as as Matt was just saying and Charlie we haven't really seen haven't really seen again right on our payer mix improves a little bit during the quarter.

The we really didn't see anything dramatically different in terms of birth rates and in fact in some of our in some of our practices you know over the over the past several weeks that that that take care of of pregnant women, there actually busier than normal.

So you know I I don't think anyone from really call and yet, but I do think there's there are folks out there who are writing articles that are extrapolating off of really small sample size, where I'm not sure. We're comfortable that there's any statistical validity to it it's really more anecdotal.

The open in terms of our in terms of our modeling look I think I think 52 main drivers.

Our thoughts about the prospective future performance or for pediatrics and obstetric are are reshaping our cost structure, which is you know mirror not completely within our control arm and doesn't rely on any exhaustion of soccer is and we see signal.

Again, the opportunities to continue to reshape our cost structure and change the fundamental margin of the business and the second one in the second most important factor is the ability to drive growth, whether it's organic growth you know through land landing new contracts iron ore or due to our providing adjacent services.

Two off to the hospitals that that we serve on or through some M&A related.

Non non heroic assumptions.

For M&A opportunities.

Really across the whole national platform.

You know what we do expect some level of birth rate volatility on or but I think add basket will be on some sort of a regional basis, and we think there supplies that they could be busier as well as it does the slower so it's probably too early to make a hard cost decided to what that's going to localize, but it's not keeping us up.

Correct.

Uh huh.

So not sure you guys have anything incremental that now.

The new Guy the only thing I'd add is.

Is this organization.

Obviously went through a lot over the last several quarters and has transformed itself into a very different kind of company than it was.

And I think it was that focus that he was talking about just now it's a very different outlook. So while we don't assume I would decline or any please firstly as part of our modeling we assume that seems to be fairly steady. We do think this is going to be a dramatically more focused and streamlined company than it has been in the past and we do believe.

Does that will really bear fruit that that's going to attract many more practices.

In adjacent services to want to be part of our organization within a we're going to redouble our efforts to reach out to the organization to provide the kind of support.

That they need we will increase our.

Improve our relationships really really work on our relationships with other payors. So that so they've been working hand in hand, So I think I think a lot of this.

There's a little bit hard to quantify but I think surely organization has a very strong resilient core business focus is 24 seven on just that tends to outperform.

<unk>.

Thanks and marketing.

Mutes the follow up on that point, because I get oftentimes you see new.

CEO come in and then there's kind of.

You know new strategic review of the business than yeah, I get the fact that you're reiterating all of these dynamics mean that you've done that work and and come to the theme conclusion to the prior management team. So just just hey make sure I have that correct. The been be we'd just love to get your prospects as someone who is.

What's coming in with fresh eyes, and being able to kind of look under the hood, a little bit more that we get from the outside just what gives you the confidence and in that growth opportunity and and and the cost cutting.

Well in no particular order I would say that that first.

The board I think was was very careful before in dealing with the issues that it had to navigate around.

We then added a group of New Board members, we could see are highly qualified really terrific group. So in total we have a group of 10 people plus me.

I think we're very attracted to continuing to move this company forward because they see incredibly strong position we have in this vital niche in medical services.

So I think we will all attracted to the fact that the company was already moving in the direction to focus on its on its core operations and again I'll remind you that the radiology practices here is very strong and as Steve detailed bounce back incredibly for the depth of coatings. So.

It's really important that end strategic initiative to say it could be better off and other hands and we could use that money.

To enhance sort of core business.

But it's certainly not the not selling from a position we so when I go back to the core business and they yet I think everybody is determined to go in that direction.

We as a border obviously knew any any changes that we make it won't be because it made them because to me working with my board and <unk> and our senior management team and will but I don't anticipate anything different than than ER and what we described them this call and what what Dr. Fidel and everybody had Intel.

Moving forward.

Compared to things I've done in the past I would say that that.

The dedication level to succeeding in this core business here is higher than it could have a mad.

The spirit in the organization is greater I think people have gone through a turbulent time and our so eager to put that turbulence behind it and to move into really focus on spend a lot of time with with Roger an understanding the importance of other support that we do and can provide the importance of research and other intend.

To build to suit to really.

Make sure that we're doing what we say we're going to do that we're always a leader will always up front.

So.

I've seen organizations before that that kind of last epicentral print business central drive enough not to pay issue.

So it gives me a great deal of confidence.

And I know from people, who are onboard before and people who have joined the board they had that.

They have that enthusiasm to this is a that this is a great opportunity to to follow on a lot of hard work that that the team did before I arrived.

Okay, and then maybe speak supermarket, that's one and I get that the volume numbers I understand that.

Worsen.

Berlin and better as we exited the month right through the quarter, but it's still a little bit strange because you know we think about Nick you volumes being you know given nine months I get the six or seven month.

Before the patient actually comes in so does it seem like the demand side.

Side of it would have been impacted by cobot and your so yeah. It sounds like you're saying you think it's just normal fluctuations I didn't know if there's anything else like are there more home birds are there anything anything.

What's that might somehow explain why maybe the birth rate was lower as far as what you saw when again all else equal you would think that demand would have been although it was like quarters like other subsectors.

Yeah, almost not impacting it seemed to have been impacted some degree.

Yes, the this Mac again.

I think I think.

Based on the evidence we have today, but you're absolutely right about the timeline babies, who were born in April May and June obviously were conceived earlier. So what we're seeing is not a direct result.

Okay, I think we 10 over the years to see some cycling.

Admissions.

Generally are busier time of year Tuesday July through the rest of the year certainly are anecdotal evidence from some of our Peaker units are that they are busier over the last four weeks or so.

In one of our major markets one of those neat Ob very large ob groups and relate to us they've had a record number of pregnancy and say new pregnancy and takes in the last month. So.

I think the jury is out over over what this looks like in terms of long term trends right now I think the evidence is just cyclical.

I don't think we should make anything more of it at this point the only other thing I'd say, it which is important not none of us here would be to wish for a downturn in the birth rate, but but if there is in any business that is focused and addition to grow and during the week times, it's an opportunity it's an M&A on.

It's usually a better time to be acquiring and large and win win what news when there's some sort of temporary or cyclical weakness. So if if in fact, you started to see trends that we don't see is.

Got to Ensign said.

We'll take advantage of.

Does that sort of.

Unless you think because of a permanent permanent change, which we had no. We believe we will we will be strong and Steven outlined our financial position, which is improving financial position, which is a strong financial position for the sale radiology, who will be an even stronger financial position will take care of it is weakness little little thatll.

We announced anything.

Yeah, we have enough mismatch.

I'm going to kind of one last comment not to pile on.

Everyone around the table was does provide part of the response, but they are just to build on what Mark was just saying we end up getting a a significant amount of essentially development pipeline referrals through our existing physicians and connection they have someone they work with they have.

I'm going at the hospital someone else's at the hospital at the hospital down the Street, who added in who has had a hard times. There are a lot of physicians and clinicians in small groups, who have had a really hard time financially. During this open period and number of them or sort of taken for the brand of of okay.

Liability.

And we have we have received a very significant amounts of reverse inquiry and direct referral from these folks who are more interested now than they have ever been in being part of a financially strong national Medical group. So I think you know the.

The ultimate proof will be borne out over time, but we are really pleased with what we're seeing and believe that we're going to over the next several quarters achieved some momentum with exactly what Mark was just talk.

Okay, great. Thank you.

And our next question comes from Ryan Daniels with William Blair. Please go ahead.

Hey, guys speak out and for Ryan Welcome Mark.

<unk> kind of for you.

Yes.

So it seems like you're kind of continuing on it towards the strategy that was basically in place.

Before you came out I guess I was just wondering.

How you are going to define or how you define youre really going forward and I guess what would be.

Yes.

On your end.

Well my responsibility than on the CEO, So I think.

A bunch of stuff I'm responsible for.

Foremost all kidding aside is working with the team knowing who who's around me and how we're going to March altogether too.

Achieved great results.

And that's what those great with those look like I would say that number one we have to be the absolute best in care. We are core strengths cannot be dilutive one that.

So all the them referred this before but all the little intangibles that make up a great company are what is going to be but I think about all the time.

Then we're going to make sure there will always strong financially. So we can take advantage of opportunity, we can invest where it makes sense, becoming changes when we need to make changes and we can grow.

Very responsibly and careful.

And then there's a scorecard out there, which is our share price, which I think over time will go up meaningfully if we do the things that we described with the pair that said, we will employing but I would simply say.

May be sound old but.

I've done this several times and I have always done at the same way you take something that's complicated you make it simple you have everybody focus you make sure that you are doing the best job you can add to your core.

You are very transparent with everybody all the stakeholders you you deal with problems and secondly come up which again in a simpler organizations are easier to do that in a more complicated organization and that is what gives me confidence. That's what gave me the confidence to want to do this I'm sure. That's the game I Fellow board members the console.

Since that they like to be part of this and I think it's only been a few weeks, but I think the team has a collective confidence level, but this is like correction and are excited to be part.

Great that's a good to hear.

And then I guess with one or even.

He that salary and benefits expenses kind of like tick down as a percentage of revenue this quarter, assuming kind of going on on your cost reduction benefit just wondering how variable that's going to be to improvements kind of a normalization and volume should we expect.

Got to pick up a bit as volumes kind of 15 to normalize going forward.

Hey, this is Charlie yeah.

I think we referenced both and that really [noise].

I should be for.

One of the components of cost response to that revenue in fact, we saw a quarter was built within a number of our different rapid structures. So for example, if you have a radiology group you know who's physicians are compensated based off of the revenue of the practice theres going to be in Macau.

Panicle adjustment.

On to the clinical compensation within that practices revenues go down and it would be an adjustment.

Firstly as revenues improved and grow so.

I wouldn't call that a lock step, but that was a very useful mechanism as we went through the drop of demand earlier this quarter and we see some normalization.

And practice level compensation should we see continued recovery and volumes and revenue. So I would not call that variable in under our control, but it's certainly flexed accordingly, as we as we saw the impact we saw during this quarter.

More things that are under our control or some of the other operating and support structure within you know the medical group and more importantly, within our DNA, which is obviously more.

The business.

<unk> expense and running above over which we have greater control and on top of that we are in the midst of reshaping that she and I infrastructure. Following the Divesture American anesthesiology and that I think will give us additional capabilities to to flex our DNA as we go forward.

Got it. Thanks, that's helpful. Appreciate taking the questions.

Yeah.

And our next question come from Peto Chickering with Deutsche Bank. Please go ahead.

Good morning, guys think taking my questions and welcome to the team Mark I'm going back to be targeted and margin improvement for pediatrics.

Move the mid teens into the high teens, what's the margin comes from operating leverage from revenues versus cost cutting measures and on the cost cutting it can you walk us through the lowest hanging fruit and how fast things that can occur.

Hello.

Sure.

No it's Steven anymore.

I mean, the answer I can give you an answer that you noted directional you know we we are as we've spoken about now for a couple of months. Yeah. We are making a lot of progress with reshaping our DNA, we had that call. The first week of June where we indicated.

You know in a couple of weeks proceeding that we had completed a $10 million takeout, we have we have other reshaping.

Meaningful additional reshaping that that is ongoing but a lot of which requires you know a couple of quarters or whatever to get in place because its technology enabled.

Variable as Asian or costs.

That will bring both efficiencies and lower overall tonnage of expense.

So the Jamie if he is a big piece.

But the operating leverage is there's also a big piece problem from scale add as Ed.

Talked about we haven't really quantify but we think were to be able to drive a bunch top line I'm.

Particularly from adding practices and if it and not just M&A driven that we think there is a very decent amount of opportunity.

Simply just picking up new contracts as you know, there's there's not a there's not that much costs involved in building up until the not new agreements I mean, you have a little bit of you know you all have to hire a little ahead, obviously, you've got some startup costs, but as it is clearly you know substantially less.

At Santana multiple for some or somebody's existing business I I do thing and we need you, saying that the whole cobot experience for the general health care ecosystem in four hospitals is going to.

Really bringing more more business or way in terms of what we do is generally super highly specialized and we'd do it and more locations than anybody by a master long shot and so we think playing planes.

To our strengths really will give us a number of of opportunities to grow.

And with the amount focus we're going to place on it you know way more than I think we've we've generated in the last few years in our core business. So it's hard for me to break down specifically for you what percentage you know of each is going to drive us from mid teens to high teams, but however, we pencil it out we got we have multiple ways to get there.

And that's really where my focus is I mean, we have multiple ways to get there and that gives us comfort while no. One you know we don't have we reported Intel up exactly what pass all the elements are going to date, but we do have a high degree of confidence that it's going to get us or trying to go.

Okay. So the only thing.

I think I'd add to that.

Just real quickly is when we talk about the growth opportunity talk about what we're going to do this is not all prospective we have a lot of activity that didn't play we laid out a lot of details in June when we when we had a broader discussion of pediatrics medical group and the growth activities that we've been investing in an undertaking. So there is there's a pretty meaningful amount of Newton.

Element activity that is in place today and gives us a fair degree of confidence in the position that we've got so just wanted to be clear on that.

Okay. So I cannot can be down on a 50 50 is that at least a ballpark and then and a follow up question on accounts receivable.

It sounds like you had some collections since the quarter, obviously, there's issues with Napa, but can you just confirm the aren't having any us using collections, we of course with payers on a core business.

Yes, sure I look out I on your on your 50 50 comment I'm going to stand by the comments that I just make it a lot. There is no one on this call it would like more to be able to give you a precision answer.

But I think one is just not possible, but we're comfortable because we've got a lot of went together, it's going to clearly going to be a blanket. Both those elements I laid out all that is the new values. The news item is limited basis tell you that now.

Since since other board members. This board was reconstituted and I ride three weeks ago, I think that's something that we're going a little get back to you on where where we're we're learning and rather than try to precise number you hear our determination you care our competence a lot of things that are underway by that but but I I don't think.

Two.

To answer that data will be fully transparent or we can.

Thanks, Mark on the M&A, our comment or and there are questions. You know you know, it's actually been kind of nice to see over the past few months that in some cases, we've had collection acceleration as opposed to delay and we really have not seen much of anything in terms of.

Categories that are are causing concern we we've had some some minor minor.

A negative in certain areas certain geographies by certain payers, but we've also had meaningful positives from others and they've all kind of watch out when we surprisingly pole older day out of Dsos over the course of this quarter, which you know if you ask me that quite.

And in April I noticed that yeah, a little nervous about it that that will likely to do some pressure effects on the other way.

Great. Thanks, so much goes.

And as a reminder, if you would like to ask a question today. Please press one and then zero and our next question comes from the line of frying Pan Quello with Jefferies. Please go ahead.

Hey, good morning, Mark welcome to the company I'm used to have.

Seen what you've done with other companies over the last few years.

You know coming in and like you said earlier, you're not really want to use a lot of external consultants and whatnot. So is there more I think more concrete things that you can identify other than obviously divesting radiology.

This is radiata radiology practices more concrete stuff when you know pelinka low hanging fruit.

We talked a lot of about that we talked about a lot to think today, but do we need to focus on like physician contract.

And then you know maybe like SRIO business development things like that as a way to get to the goals on growth that you laid out.

And I won't I won't comment further I hope you understand that that there are myriad things in the organization that we're looking at and a lot of this for me to give an intelligent answer to you and to myself into our board required we really knowing the people in the organization that other than I do.

That has been my.

Priority and that's what I've been working hard to so before I can talk about specifics I want to learn more and and also get together with my board. So I apologize you know how to become a few weeks earlier. They can give you a better answer.

But but I think I'm getting my arms around all facets of our operations I'd rather not.

Rather not comment further until it doesn't look what Uh huh.

Yeah, No understandable I guess my follow up to that you know two given what you just.

Not to the comments from that earlier about how they probably cyclicality in Nick you are birth trends and you look at Nic cute trends for you guys over the last few quarters mean, we haven't really get that 3%.

Goal for same store that you reiterated today so.

Does the guidance, what's the might that you know you're coming in with the clean late the why not.

Let's take the guidance out and really did that are really analyze before coming out the day in maintaining that locked in guidance range. It yeah, a lot of people are questioning anyway.

Oh, well, we have no reason I think we had no reason to did nothing.

No evidence that would suggest that we should change what we've done that doesn't stop us.

Shortly from from Big from a different comment, but given the activity that they have happened the company's doesn't start up given the passes the company has been on there's no evidence to suggest changing that number. So I think I think it made sense to maintain as we as we move forward and we.

We shape the organization, we think about where were the best M&A an add on opportunities are I think that's going to give us a more informed number and if it changes we love and we'll update I think we also didn't want to make it seemed like if we won't couldn't pull back the number there.

As a reason behind that we didn't want to to send an unintended signal when there's no signal to Stan.

I appreciate it thank you and good luck.

Thank you.

And our next question comes from Rishi Parekh with Barclays. Please go ahead.

Hi, Thanks for taking my questions. My first I apologize. If you will you mentioned this but I was hoping that you could just Oh provide me youre radiology volumes in Q2, and then also.

Provide unique you've only for July what your radiology lanes, where in July and can you update us on your negotiations with you in age and I've a follow up to that.

Yeah, Hi ratio as Charlie.

Thank you are asking just about the rad volumes for the quarter in coming out, but it's only release.

We're heavily impacted in April down by about half recovered fairly strongly through through May and June you know getting getting much closer to normalize pretty good volumes 80, 595% 85, 9%.

By the end of a month and have persisted in that range as we've done a preliminary basis as we've come through.

In July.

Related to the United as we mentioned a couple of months ago. We were very pleased with how constructed the conversations have been going.

Such that we had extended any effect the termination dates we have more time to talk as they stand today, we've progressed further with United and related to the practices potential.

In question within Pediatrics Medical group.

We have agreed to extend those contracts well into 2021.

With no change to terms. So we're very pleased with that it gives us plenty of time that work really constructively with United.

And it's something that worth or kind of happy the way things have progressed.

And then and as a follow up you know I know you started the radiology sales process Pico bid, but since you officially announced in June has there been any significant momentum in the process. It was on the whole due to the current environment.

It's Mark I think it's not on a hold its an ongoing process.

I think that will be I think given the strength of the.

It's a business I think there'll be a lot of people interested in it and we'll report back to as we move vote, but we don't have additional.

The additional report to make today.

Thank you.

Thanks.

[noise] enter next question comes from Whit Mayo with you be at least go ahead.

Hey, Thanks, even though the 10 million of takeout expenses, I think issue or to what I'm a couple of times is that.

On an annualized number and that's on top of the GE any savings in the prior year restructuring and cost saving programs. This is something that's.

Do an incremental one I guess I'm, just trying to understand a little bit better where there was cost really came from.

Yeah sure that was all incremental with basically.

Exited anesthesia and over the few weeks that followed the exit of anesthesia, we you know.

Figured out here and executed on index and going out to take out and it was primarily a need I think it was almost completely FTC related from the from the DNA side by side of the house and I believe we indicated at that time that we've hired we had visibility on it.

Significant amount of incremental.

Similar sort of work and that's what we have that the contact for our comments today that we're continuing to drive towards that go very good about the ability to reshape our our cost structure for the go forward business.

Okay. So just just to be clear that wasn't like eliminating stranded cost associated with the sale of.

Anaesthesia that was actually working down the remainco costs is that fair.

I'm actually not I mean, I I think.

Another Guy I guess, we could get get Definitionally here, but but the reality is we we had some costs.

We're not necessary going that were there historically, but they were not necessary going forward. Once we exited anesthesiology. So I I think it is probably.

It's a little hard to kind of tease out how many dollars were stranded versus some other category, but you know.

There are probably more.

It was simply.

Simply cost that we didnt need going forward following that exit okay. Okay. So a portion of that comes clearly eliminating some stranded cost at some might be tied to.

The core business just hard to to tease that out okay. That's that's helpful and my follow up I just want to make sure that I get this number right. The revenue in the recorder front in the quarter from American Anaesthesia I'm not sure if you.

I have that and if I take the of restated prior year revenue and backed that out from what you reported it looks like last year anaesthesia had about 307 million of revenue I just want to confirm that's the right number in that nothing else is.

Influencing that thanks.

There shouldn't be anything else influencing that you know in our and our reported results today and we did restate last year, you can see a full apples to apples without any influence from anesthesiology was solid disc ops that that helps.

Okay. So there isn't any I thought that there would be revenue at least for maybe April and part of me from American I know that was valid entirely stripped out I moved down to disc ops. So there's there there is there a zero contribution for and okay.

Reported results.

Okay.

Thats helpful. Thanks.

Sure.

And there are no further questions on the phone line at this time.

Great. Thank you all.

Great day, we look forward to begin again.

And that does conclude or conference for today. Thank you for your participation and for you in 18 team event conferencing you may now disconnect.

We're sorry your conference is ending now please hang on.

[music].

[music].

Ladies and gentlemen, thank you for standing by welcome to the Mednax Inc. second quarter 2020 earnings call.

At this time, all participants are not west and only mode.

Later, we welcome Dr. question answer session.

Instructions will be given at that time.

If you should require assistance during the call. Please press Star then zero and as a reminder, this conference is being recorded.

I would now like to turn the conference over a tower host.

Charles Lynch. Please go ahead.

Thank you operator, and good morning, everyone.

Joining me today for our call, our chief Executive officer or or Dan.

And that blocks that are being a borrower and president pediatric satisfactory medical groups dr. not inside of what they read our forward looking statements answer all over more.

Certain statements and information during this conference call maybe deemed to be forward looking statements within the meeting of the Federal Private Securities Litigation Reform Act that 1995.

These forward looking statements are based on assumptions that assessment.

The bottom and active management in light of their experience and assessment of historical trends current conditions expected future development and other factors they believed the appropriate.

Any forward looking statements made during this call I mean as of today and then next undertakes no duty to update or revise any such statements whether as a result that new information future events or otherwise important factors that could cause actual results development business decisions to differ materially from forward looking statements are described in the company's most raised.

Annual report on form 10-K, its quarterly reports on form 10-Q, and its current reports on form 8-K, including the sections entitled risk factors.

In today's remarks by management, we will be discussing non-GAAP financial metrics.

A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in this morning's earnings press release or annual report on form 10, K. any investor section of our website located at <unk> Dot com about trying to call over to Mark.

It's probably good morning, everyone and thanks for joining our call.

That's the joined Mednax into support is great National Medical and healthcare group over the past several weeks I spend my time meeting new people across the organization, including practice groups in both pediatric and radiology and I've been impressed with dedication and clearly had to this company decade long mission to take great care the patient.

As you know Mednax has always been position, but at the top of the organization.

That will continue and that's why Dr. makinson here with us today.

In particular I want to Macroclimate, though.

Well it was bases introduction to the bed that team and helping me get up to speed.

From a doubt natives physician and patient that's good color and that has been key mednax.

I'm I'm definitely.

And that strong mission ENSPIRIT sprint I'm talking about Dell determination and care.

I want to assure you that Mednax mission will not change.

Even as we continue to address.

And that has done them across the country. They care the clinicians across our organization right every day is as important as though.

Focused at midnight has already shown over the year continually improve deckchair clinical research.

Patient quality and safety will remain as important as it has ever been.

Hey, I want to reaffirm our previously announced intends to divest Mednax radiology solutions.

And we are actively engaged in a comprehensive process in order to realize value that recognizes this group's strength resilient and growth potential.

Well radiology saw the fall off in the Sprenger Covance, it's sort of very impressive bounce back in the early weeks of summer.

Even will provide more color about them.

Oh, that's though that's sale if it does happen only fiscal <unk> financial lease.

It is a very strong business.

We'll be very well that will be very additive to the right now.

This sale will help accelerate our focus on our core pediatrics, that's <unk> medical groups in terms of both continuing the trend as well as growth.

Along with the sale and if approved by shareholders, we will change running to pediatric medical two at TEP, who are focused commitment going forward.

Stephen will provide details regarding my second quarter results.

I'd like to comment briefly that the Stratton results during an incredibly challenging time in history demonstrates just how critical it necessary our national Medical group services art or Asian.

And my view this is a hallmark with this organization I'm tremendously proud to begin working alongside the clinicians and then on clinician associates is important to help ensure that our patients have access to that care every step of the way.

I'm most excited about the opportunities of methods, we look forward.

Our entire board excuse me of course believe that a concerted focus on our core will enable us to operate very efficiently and grow very effectively.

As opposed to update you over the coming on our progress I'll be working closely with onboard leadership of the company and our clinicians and operated as to ensure that mednax consistently grow and continue to invest in the foundation of great patient care.

I firmly believe that collectively these little proved to be the basis, the strong value creation for all the stakeholders with that I'll turn the call this either.

Thanks, Mark good morning, Thanks for joining our call I'll start with some high level observations of the quarter and doesn't go in some detail first and foremost we have been positive we surprised by our operating results for the quarter, which demonstrate the resiliency of underlying demand for the service.

As our clinicians right.

Our ability to mobilize an effective timely comprehensive response, yes, unprecedented and highly unpredictable environment.

This was obviously a tremendously challenging period or organization has been for all health care providers.

Very short time, beginning in late March Remobilize, multiple Workstreams group, which we identified an executed on cost mitigation efforts across our corporate and support infrastructure additional mitigation steps with many affiliated practices and actions to strengthen our supply chain or attempt to personal equipment, our tele health.

Capabilities and virtual support groups within all of our clinical specialty.

We also took steps to ensure that we maintain significant financial liquidity and meaningfully curtailed our third parties band as part of our transformational and restructuring activity.

Lastly, as we announced in early May we divested our anesthesiology service line, which has impacted by the end data so far greater degree than our ongoing business as well as or in our view.

Part of a much larger dedicated anesthesiology organization.

As a result of these steps we were able to ensure that our clinicians proceeds to support that they needed to fulfill all of their commitment to their patients to our hospital and health system partners.

Turning to our results for the quarter, our consolidated revenue from continuing ops. The 509 volume was down 52 million or just over 9% compared to last year.

This comparison includes just under 12 million in revenue that we received through stimulus programs during the quarter, which was divided about evenly between pediatrics radiology, our cost mitigation efforts during the quarter provided a meaningful offsets to the decline in revenue such that our adjusted EBITDA was down 29 million or only about half the.

Our dollar decline in revenue.

Ill also point out that the lions share of the Pandemics impact to our operating results occurred in April and we've been very pleased with the rapid return for its normalization of patient volumes and revenue in May and June as I noted in our press release, our overall volumes fell to roughly 75% to 8% a pretty cobot levels during.

April.

Recover to roughly 90% to 95% normalized levels by the after the quarter.

On a preliminary basis. This recovery has persisted during the month of July with some geographic variation.

We believe that rapid snap back in volumes reflect the nature of services or additions provide which are highly critical and acute in nature and often times lifesaving and showed a strong resiliency end demand as a result.

We did provide additional color in our press release covers volume trends and what we view as a three primary component of our continuing operation.

Hospital based women and children.

Office based women and children and radiology.

I will repeat here, but to give some color on the relative weighting of these segments hospital based services, which worthy least affected component of our business.

Represent about 60% of our revenue from continuing operations and primarily reflects neonatology services.

The impact of patient volumes in the next you was only about 5% in the quarter and trended up towards the end of June.

Elsewhere within hospital base pediatric I view and general pediatric services were impacted more significantly, but patient volume down roughly by half in April but these volumes recover to about 85% of the so refocus levels over the course of June.

These are also relatively small component of our overall hospital based revenue compared to the next year.

Our office space women and children's services, and radiology services, which are more significantly impacted each make up about 20% of revenue from continuing operations in both of these areas. We saw strong recovery and volumes in May and June ending the quarter and the 85% to 9% to pre coded range.

As a couple of additional notes our payer mix remains stable and was actually slightly positive in the second quarter.

Non government volumes, increasing by about 65 basis points as a percentage of total volumes compared to last year.

All right. Our days, we're also very stable in fact, we actually picked up a day coming down by just over one day versus the end of March.

As I mentioned, we undertook meaningful expense activities in response to the revenue disruption we experienced during the quarter. These are evident in the reductions in practice salary and benefits as well as you know.

Reported results those reductions also replied visit clinical compensation structure within Mednax radiology, where each of our underground practices operates under a revenue share model and V. Radically added radiologists are compensated based on volume.

It's Tom these cost structures and functioned very effectively at all node that all but one or individual practices as well as Brad had positive EBITDA for the quarter.

Within our DNA expense all provided three observations for those of you keep models on some first for the second quarter or DNA with roughly 15% of revenue.

I'll point out that DNA for radiology is structurally higher as a percentage of revenue and GA for pediatrics.

Rate with radiology being closer to 20%.

This predominantly relates to be Rad, which has a fairly different watson versus our practices based on the expenses incurred of its fairly and spent by its fairly extensive operations and IP infrastructure second our plan, our but the accounting treatment for transitional services.

We have in place with Napa following the sale of American Anesthesiology.

Within that agreement, we're providing certain ongoing services as an Apple works to integrate and most of which are non flavor, but that flow through our own GA expense line. We are reimbursed for those expenses that reimbursement as reported with and investments in other income further down on our and now for the second quarter.

These expenses and our reimbursement for them totaled $2.8 million. These items are a watch and our calculation of adjusted EBITDA. So they don't impact that metric, but they will temporarily inflate our order Jay for the time that we provide those services.

Lastly, as I indicated in our update all in early June.

The weeks following the sale of American Anesthesiology, we had identified and completed roughly $10 million an annualized expense payback.

We continue to press hard to reshape our DNA infrastructure to match the size and scale of our ongoing enterprise.

And anticipate that those efforts will benefit our overall as you had a percentage as we made further progress.

At the last comment on expenses, we meaningfully reduced our third party other outlays related to our transformational and restructuring activity.

Total expenses for the third quarter was 11.5 million down about 40% from what we reported in the first quarter. This year.

Turning to cash flow and liquidity, we are very pleased with how the order progress in total we generated $193 million and cash flow.

Operations, which is significantly higher than the prior year. There are a handful of moving part for the quarter related to either the sale of American anesthesiology taxes, or both and there are significant additional cash inflows.

Let me so I want to spend time here.

First as a meaningful part of the consideration for American Anesthesiology, we retained all of the working capital from that business, which as we disclosed in may totaled about 100 million.

And consisted primarily of accounts receivable net of current liabilities. While the retained they are is recorded as part of our continuing off our balance sheet. Our collection of receivables are not part of our cash flow from continuing operations, but rather are reported separately as part of desktops.

So our continuing on cash flow for the quarter is not inflated by those collections.

Second we were not a cash taxpayer during the quarter compared to cash taxes paid in last year's second quarter of $68 million in fact for the first half of the here last year, our cash taxes or 71 million.

This year, the first half our cash taxes were 1 million.

Third we were elevated for payroll taxes during the quarter as part of the care stimulus that this was a smaller amounts and totaled about $12 million during Q2, and we expect additional similar amounts over the balance of the year.

Thanks to the sources of cash we meaningfully improved our net debt profile during the quarter. We ended the quarter with cash on hand at $132 million, which is up about 40 million from what we reported for the end of May.

We have no borrowings on our $1.2 billion revolver. Our dollar amount that consists solely of our senior notes and our net debt as of June Thirtyth was about 1.6 billion compared to about 1.8 billion at the end of March.

I will tell you as well that our cash projection for July for which we have one more day would add another $40 million to $50 million of cash to where we ended June.

In addition, there are ongoing a onetime cost benefits, we expect to realized in the back half of this year that total more than $100 million first in terms of our retained they are from the anesthesia sale as of June we still had 58 million remaining.

With respect to receive mostly during the third quarter.

Second you'll see in our balance sheet details that we have reported $64 million in income taxes receivable.

Half of this as a refund overpayment of 2019 estimated tax and the remainder of the current tax benefit on our year to date operating loss there will be used to offset any future taxes payable for the remainder of 2020.

We anticipate that these additional non recurring sources of cash when combined with our ongoing cash flow from continuing ops will enable us to further reduce our net debt, perhaps by 200 million or more over the balance of the year. If you do that math.

Well over $2 per share incremental value.

I'll wrap up with just one more high level comments on our ongoing operations based on a review of the impact to our business from both from the co packing pandemic, we anticipate a full recovery of demand across our women's and children's and radiology service line pending the pandemic.

More assembly at this time, we do not believe that there any structural or permanent impact to that demand and ill reiterate that we believe strongly this reflects the nature of our services. So our ability of our affiliated clinicians to provide.

There are highly critical and necessary at nature.

As it relates to our discussion in early June regarding the outlook for the financial profile of the Pediatrics Medical group at this point, we are not changing that outlook more specifically, we've previously indicated that this business on a normalized basis should generate roughly 1.8 billion annual revenue.

From a margin standpoint, we viewed pediatrics and obstetrics at the beginning with a mid teens EBITDA margin profile, which based on normalized annual revenue with but EBITDA in the 270 million dollar area.

From this initial margin profile that we believe there is a highly viable path.

It's a move pediatrics margins from mid teens to high teens.

Driven by continued reshaping of our support infrastructure and by operating leverage as revenue increases.

This would move dollar EBITDA into the 300 million dollar range or higher from our preliminary range, which we believe is fully achievable over the next couple of years with that I'll now turn the call back over to Mark.

Thanks, Steven deployment of questions I want to share some observations I've made a few weeks that business.

Brent everyone here is tremendously proud of how the entire team responded and it's clearly been giant testimony mono excuse me to mobilize a nationwide organization to care for patients lately to protect our front line care that was and to manage our costs I want to recognize and thank everyone for their efforts and contribution.

Second I know from my past its all about people I'm impressed by the dedication our team has mission and take great care. The patient. The results. We reported this morning simply wouldn't be possible without their dedication and I intended to my job for the same commitment to this company's mission.

I've already spoken with and heard from physicians and clinicians from throughout our organization.

So I can speak to the spirit and the termination firsthand.

Third I view this as an absolutely incredible franchise and again.

So the demonstrated we are resilient even worth the time.

We occupy the usually important and you need space and health care ecosystem.

For mothers babies and children when they are at their most vulnerable.

The trust that our patients plays and their position.

Trusted or hospital partner in place an honest has been earned over a decade and that makes us truly unique.

And last the position we hold in the healthcare industry and gives us a terrific opportunities to grow.

In each of our service line and any number of adjacent one there are exciting path.

Thanks to build on where we are today and to make this company more and more efficient and more and more successful.

I'm looking forward to working with the team to make that happen Burlington, telling you what we're doing as we go from here.

With that operator, we're ready for questions.

Ladies and gentlemen, if you wish to ask a question. Please press one and then zero you may remove yourself from Q at any time by pressing one than zero again, if you're on speakerphone. Please pick up the handset before pressing the numbers once again, if you'd like to ask the question. Please press one then.

Hero and one moment please for sequential.

And our first question comes from the line of AJ Rice with Credit Suisse. Please go ahead.

Hi, everybody and welcome on board.

I appreciate the comments there just a couple of questions that London discussion over the last year about the transformational initiatives.

David you provided an update on what the spending level is how much of that it's still.

Relevant given the.

Just on pediatric going forward and and what is sort of the run rate of expected spending at and what are some of the opportunities that you think you might realize from that as you move forward.

Sure Hey, Jay Good morning, Thanks for the question.

[music].

You know were.

I can give you a little bit of color on that we are continuing to work through our plan.

As you may recall that significant portion of our transformation spend was in and around the anesthesia business and now with that business. So.

Really has provided us with a good opportunity to reshape our investments in effort there.

You know the the pediatric business had a relatively modest portion of that spans I'd say, probably about a quarter of it or so and then we had some general infrastructure company as a whole with a number of projects that that were underway and some of which are still underway.

So for example, I know we did spoken before that we were migrating our ERP to Oracle in the cloud that project is continuing should be.

Largely done around the ended a year.

And we had some IP infrastructure other sorts of things that are ongoing we're continuing to refine those plans we kept the little bit going for things that were more mission critical during this period, but you had to some extent allied stopping staring in aircraft carrier. So does it does take a little time I can't give you a person.

Side sort of anticipated spend level going forward, but I can say it should be.

Very modest relative to was found levels have been historically and should be extremely focused on things that are either necessary critical infrastructure upgrades or things that will enhance the physician experience and patient experience of being part of and working with this company.

Hey, Jay the only thing.

Going on across to that is.

In my past five usually only use third party advisers.

Our IP and related projects, though so.

Certainly have a strong biased going forward to operate it makes decisions within our four walls.

Our team and with our board.

Okay. No that's great maybe about the follow up question would be around the cares that funding I think you've reported about a 1.7 billion this quarter back out the number right.

No at one point, you had applied for significantly more than or.

I thought you might be significantly more than that would sort of the current thinking of where you stand and cares that money.

When you might record some of that in the back half of your there is indeed incremental dollars to be had.

Yes, Hey, Jay that it's Charlie.

Yeah, when we made that comment in early in early May.

It would recall it was reflective of all the services, we had including on Asia, So a meaningful amount of the monies.

We are related to.

I think yodlee and not relative relevant to our anything off so the so that just under 12 million. We received during the month during the quarter relates to theatrical and.

Radiology, we do have some additional amounts.

We would anticipate in the third quarter, they're not meaningful probably somewhere in the single digit millions.

So that's built that still pending but that but the amount that you see for the quarter is specific to our ongoing operations.

Okay, all right. Thanks, a lot.

Thanks.

And our next question or come from Ralph Jacoby with Citi. Please go ahead.

Thanks, Good morning, hoping you could talk a little bit more about that Nick you trends in the decline there I.

I guess, a little bit surprising given especially and I think the commentary last quarter the had a more stable results but.

Obviously, we are seeing lower birth rate in the past to some degree but the commentary I think in your release talked about lower mission rate can you just delve into that a bit and help us understand sort of the level of acuity insensitivity to that trend kind of going forward.

Sure, Yes, Hey, Rob this is makinson.

You know, there's a little bit of decreases as we reported into in terms of numbers I think.

Personally related to co, but I think it's difficult to clearly relate to any of this cope it whether it's cyclical not we've seen some.

Consolidation of Nikitas, we've seen some diversion in Q beds to allow for covered patients, but thats really been a minority.

Very very sporadic and not I think contributing significantly to the numbers.

Surely you know I think everybody has seen over time and even recently concern about birth rates.

I think I would remind everybody that the markets. We are in tend to have relatively less bad than the over overarching national market.

And.

Some of the year over year decrease that we've seen is well within the publicity that we've seen over time so.

We are hearing anecdotal.

Reports that some of our did you start busier over the last month. So in some of our major market. So I would be very hard pressed to say that this is a downward trend that's something that we're going to see this persist.

And.

I think we'll wait and see how this plays out but certainly we have some indication markets that were we are busier.

And we see the first part of the year.

I would also and the growth.

Rob I would just that one quick comment on top of that when we actually looks at a month to month and week by week, because we have obviously internal indicators that we book at.

We did see a trend that is pretty similar to the other businesses and two and two others out there that we know a hospital systems have reported were essentially April or the loss softer and then and came back somewhat may and came back even more in June and then trend is pretty strong or weak throughout June waste.

Which indicates along with what Doug.

Back to said it really does indicate that this.

Was almost more of an exhaustion as tight.

Them over the quarter as opposed to.

Something that we expect to be persistent and I'd just add one other comment we have looked at the mix of the type of patients that we're seeing in the Nick you and there had been over quarter to about their less premature babies. For example, we're not seeing any nixed the type of degree of prematurity or the acuity of the babies that were admitting so across.

Our system, we're certainly not see any evidence to date of that.

Okay. All right. That's a that's helpful. The follow up I had I'm just on payer mix to improve during the quarter certainly encouraging.

And somewhat confusing I guess, given the backdrop any thought on why that was the case or or more importantly, sort of how you see mix playing out into the back half of EUR.

20 to our into the back half of 2020 and into 2021, and then is it your expectation that the pandemic, including economic consequences.

In the impact birthrates, one way or any other going forward or how do you think about those considerations looking ahead. Thanks.

Hey, Ralph is Charlie on your second question.

I think where we don't have any specific answer to that I mean, thats just purely an unknown related to any kind of as you'd expect any behavior or response to.

And going through so that's going to be something that we'll have to dislodge as everything unfolds.

Related to the payer mix.

What I would say is.

Our our payer mix dynamic today.

When.

We don't have the anesthesiology organization in the mix.

Our predominantly focused around pediatrics, obstetrics and just to remind you, which I think you know Ralph.

It's kind of a binary pair mix between non government and Medicaid. So what we've generally seen over the past number here is a fairly good degree of stability in that mix with modest variations quarter to quarter like we saw this quarter. So when we see a quarter with with pediatrics mix going up or down 50, bips or something like that.

We haven't seen that reflected as any trend, we'll obviously keep an eye on it because that's going to be something that needs to be closely watched the go forward, but that said our observation for the quarter was that.

Mix was relatively stable and didn't reflect any kind of anything outside of their outside of the trend line. We've seen the last few years.

Okay. Thank you.

And our next question come from Kevin Fischbeck with Bank of America. Please go ahead.

Great. Thank.

You want to build on that last question you guys.

As outlined a.

Kind of accelerating top line growth profile over the next couple of years with improving margins and what is your assumption about birth rates and payer mix in that I guess, there are lot of forecasting that the birth rate may be down it obviously.

Limited by pair mix would be down or are these are these targets you can get too in that kind of scenario where are you assuming a more.

He stated when you think about that.

Our next two year.

Sure Hey.

Good morning.

Steven.

You know, we've we've thought about all those factors and we have gained it out a bit as as Matt was just saying and Charlie we haven't really seen haven't really seen again right on our better mix improves a little bit during the quarter.

The we really didnt see anything dramatically different in terms of birth rates and in fact in some of our and some of our practices over the over the past several weeks that that is that take care of pregnant women, there actually busier than normal.

So you know I I don't think anyone really call it yet, but I do think there's there are folks out there who are writing articles that are extrapolating off of really small sample size, where I'm not sure. We're comfortable that there's any statistical validity to it it's really more anecdotal.

The open in terms of our in terms of our modeling look I think I think that the two main drivers.

Our thoughts about the prospective future performance or for pediatrics and et cetera are are reshaping our cost structure, which is.

Nearer not completely within our control.

And doesn't rely on any exhaustion in soccer is and we see significant opportunities to continue to reshape our cost structure and change the fundamental margin of the business and the second one in the second most important factor is the ability to drive growth, whether it's organic growth through land landing new contracts iron ore.

Or providing adjacent services.

Two off to the hospitals that that we serve.

Or through some M&A related.

Non non heroic assumptions.

Or M&A opportunities.

Really across the whole national platform.

Yes, what we do expect some level of birth rate volatility on our but I think at best it'll be on some sort of a regional basis, and we think there supplies that we build your results on what that would be slower those products early to make a hard cost decided to what that's going to localize, but it's not keeping our topic.

Hi.

Uh huh.

So not sure you guys have anything incremental that out.

The new Guy the only thing I'd add is.

Is this organization.

Obviously went through a lot over the last several quarters and that has transformed itself into a very different kind of company that was.

And I think that would that focus that he was talking about just now it's a very different outlook. So while we don't assume I would decline or any please firstly as part of our modeling we assume that seems to be fairly steady. We do think that this is going to be a dramatically more focused and streamlined company than it has been the path and we do believe.

That will really bear fruit that that's going to attract many more practices.

In adjacent services to want to be part of our organization.

We're going to redouble, our efforts to reach out to the organization to provide the kind of support.

That they need we will increase our and improve our relationships were really work on our relationships with our payers. So that so they were working hand in hand, the though so I think I think a lot of this.

There's a little bit harder to quantify but surely organization has a very strong resilient core business focus in 24, seven on just that tends to outperform.

Okay, Thanks, and that marketing maybe doing.

Routes the follow up on that point, because I guess oftentimes you see a new.

Yocum, Ed and then there's kind of.

You have new strategic review of the business than.

The fact that you're reiterating all of these dynamics mean that you've done that work and and come to the same conclusions as the prior management team. So just just to make sure I have that correct. The been B, which would love to get your prospects as someone who is.

Coming in with fresh eyes.

To kind of look under the hood, a little bit more than we kept from the outside just what gives you the confidence in that growth opportunity and and and the cost cutting.

Well in no particular order I would say that that first.

The board I think was was there in capital before in dealing with the issues that had to navigate around.

We then added a group of New Board members you can see a highly qualified really terrific group. So in total we have a group of 10 people plus me.

I think we're very attracted to continuing to move this company forward because they see the incredibly strong position we have in this violent niche in medical services.

So I think we were all attracted to the fact that the company was already moving in the direction to focus on its on its core operations and again I'll remind you that the radiology practices here is very strong and SDN detailed bounce back incredibly for the depth of code is so.

It's really important that end strategic initiative to say it could be better off and other Hanson and we could use that money.

To enhance our core business.

But it's certainly not the not selling from a position wheat. So when I go back to the core business into yet I think everybody is determined to go in that direction, we as a border obviously knew any any changes that we make won't be because it made only because it may be working with my board and our and our senior management.

And we'll but I don't anticipate anything different than than.

And we'll be described on this call and what what Dr. Fidel and everybody had intended moving folk.

Compared to things I've done in the past I would say that said.

That said the dedication level to succeeding in this core business here is higher than it could have imagined.

The spirit in the organization is greater I think people have gone through a turbulent time and of so eager to put that turbulent behind it and to move into really focus.

Spent a lot of time was with Roger an understanding the importance of of the support the we do and can provide the importance of research and other intangible Institute to really.

Sure that we're doing what we say we're going to do that we're always a leader we're always up front.

So.

I've seen organizations before that that kind of lack of central purpose in the central drive and Thats not the pace of.

So it gives me a great deal of confidence and I know from people, who are onboard before and people who have joined the board. They had that the they have that enthusiasm to this is a that this is a great opportunities to to follow on a lot of hardware that that the team did for Iraq.

Okay, and then maybe isn't right, that's one and I guess that the volume numbers I understand that.

Worse than.

April and better as you exit the month after the quarter, but it's still a little bit strange because you know we think about Nick you volumes being.

Gribbin nine months, I guess, maybe six or seven month.

Before the patient actually comes in so does it seem like the demand side.

Side of it would have been impacted by phobic and your so yeah. It sounds like you're saying you think it's just normal fluctuations I don't know if there's anything else like are there more holmberg are there anything anything.

That might somehow explain why maybe the birth rate was lower as far as what you saw.

When again all else equal you would think that demand would have been although it was like what is they've done if subsectors.

Almost not impacted yet seem to have been impacted some degree.

Yes.

This Mac again.

I think.

Based on the evidence we have today, but you're absolutely right about the timeline.

Babies, who were born in April May and June obviously were conceived earlier. So what we're seeing is not a direct result.

I think we 10 over the years to see some cycling.

Admissions.

Generally are busier time of year Tuesday July through the rest of the year certainly are anecdotal evidence from some of our Peaker units are that they are busier over the last four weeks or so.

One of our major markets one of the main Ob.

Very large ob groups.

Relate to us they've had a record number of pregnancy and say new pregnancy and takes in the last month. So.

I think the jury is out over over what this looks like in terms of long term trends right now I think the evidence is just cyclical.

And I don't think we should make anything more of it at this point the only other thing I'd say, it which is important and none of US here, we don't wish for a downturn in the birth rate, but but if there is in any business that has spoken and positions and grow.

During the week times.

It's an opportunity it's an M&A opportunity is usually a better time to be acquiring and large and when Quinn.

It is when there's some sort of temporary of a cyclical weakness. So if if in fact, you start to see trends that we don't see is.

Got to Ensign said.

We'll take advantage of.

That's a.

Unless you think because of a permanent permanent change, which we have no. These leave we will we will be strong and Steven outlined our financial position, which is improving financial position, which is a strong financial position for the sale radiology, who will be an even stronger than physician will take care of it is weakness will build.

That will be an opportunity.

Yeah, Matt I'm, just kind of one last comment not to pile on.

Everyone around the table was part of the response.

Let me.

Just to build on what Mark was just saying we end up getting a a significant amounts of essentially development pipeline referrals through our existing positions and connection.

They have someone they work with they have someone at the hospital someone else's at the hospital or the hospital down the Street, who added in who has had a hard time there are a lot of physicians and clinicians and small groups, who have had a really hard time financially. During this focus area and number of down or sort of taken to that.

Great.

Viability.

And we have we have received a very significant amounts of reverse inquiry and direct referral from these folks who are more interested now than they have ever been and being part of a financially strong national Medical group. So I think you know the.

Ultimate proof will be borne out over time, but we are really pleased with what we're seeing and believe that we're going to over the next several quarters achieved some momentum with exactly what mark was a soft.

Okay, great. Thank you.

And our next question comes from Ryan Daniels with William Blair. Please go ahead.

Hey, guys and Nick speak out I'm in for Ryan Welcome Mark.

Kind of for you I guess.

It seems like you're kind of continuing on it towards the strategy that was basically please.

For you came out I guess I was just wondering.

How you are going to buy or how you define youre really going forward and I guess what would be.

So when youre.

Well my responsibility that on the CEO, So I think.

[music].

A bunch of stuff I'm responsible before.

Foremost all kidding aside is working with the team knowing who who's around me and how we're going to March altogether to.

Achieved great results.

And as to what those great with look like I would say that number one we have to be the absolute best in care. We are core strengths cannot be dilutive one that so all the reported this before but all the little intangibles that make up a great company are what is going to be but I think about all the time.

Huh.

Then we're going to make sure there will always strong financially. So we can take advantage of opportunity, we can invest where it makes sense, becoming changes when we need to make changes and we can grow.

Very responsibly and careful.

And then there's a scorecard out there, which is our share price, which I think over time will go up meaningfully if we do the things that we described with impair that said that we will employing.

But I would simply say.

They could be sound old but.

I have done this several times and I have always done at the same way you take something that's complicated you make it simple look you have everybody focus you make sure that you are doing the best job you can actually a core.

You have very transparent with everybody all the stakeholders.

You deal with problems the second they come up which again in a simpler organizations are easier to do that in a more complicated organization.

And that is what gives me confidence Asquith gave me the confidence to want to do this I'm sure that's the game.

The board members the confidence that they like to be part of this and I think it's only been a few weeks, but I think the team has a collective confidence level, but this has led correction and are excited to be part.

Great that's good to hear.

I guess with one or you've been I see that salary and benefits expenses kind of like tick down as a percentage of revenue this quarter, assuming kind of going on on your cost reduction benefit just wondering how variable that going to be to improvements kind of a normalization of volume should we back.

I'm not to pick up a bit as volumes kind of continuing to normalize going forward.

Hey, guys Charlie.

Yeah.

I think we referenced both innovating.

And before.

One of the components of cost response to the revenue in that mix on a quarter was built within a number of our demographic structures. So for example, if you have a radiology group.

You know who's physicians are compensated based off of the revenue at the practice theres going to be mechanical adjustment.

On to the clinical compensation within that practices revenues go down and it would be an adjustment.

Conversely, as revenues improved and grow so.

I wouldn't call that a lock step, but that was a very useful mechanism that we went through the drop of demand earlier this quarter and we see some normalization.

And practice level compensation should we see continued recovery and volumes and revenue so I would not call that variable and under our control, but it's certainly flexed accordingly, as we as we saw the impact we saw during this quarter.

More things that are under our control or some of the other operating and support structure within.

You know the medical group and more importantly, within our DNA wishes, obviously more of a business.

<unk> expense and timing of over which we have greater control and on top of that we are in the midst of reshaping that she and I infrastructure. Following the Divesture guard geology and that I think will give us additional capabilities to to flex our DNA as we go forward.

Got it. Thanks, that's helpful. Appreciate taking the questions.

And our next question come from Peto Chickering with Deutsche Bank. Please go ahead.

Good morning, guys. Thank for taking my questions and welcome to the team Mark I'm going back to the targeted margin improvement for pediatrics and move the mid teens into the high teens, what's the margin comes from operating leverage from revenues versus cost cutting measures and on the cost cutting can you walk us through the.

The lowest hanging fruit and out past things that can occur.

Sure.

Good morning.

I mean to answer I can give you an answer that.

Directional you know we we are as we've spoken about now for a couple of months on yeah. We are making a lot of progress with reshaping our DNA, we had that call. The first week of June where we indicated you know and a couple of weeks proceeding that we had completed a 10 million.

Dollar takeout, we have we have other reshaping.

Meaningful additional reshaping that that is ongoing but a lot of which requires you know a couple quarters or whatever to get in place because its technology enabled.

Our variable occasional costs.

That will bring both efficiencies and lower overall upon at Joe's back.

So the Jamie if he is a big piece.

But the operating leverage is there's also.

The problem from scale ad.

As.

We've talked about we haven't really quantify but we think were to be able to drive a bunch topline.

Rob, particularly from adding practices and in food and not just M&A driven that we think theres, a very decent amount of opportunity.

Simply just picking up new contracts.

And you know, there's there's not there's not that much costs involved in tilting up until the not new agreements I mean, you have a little bit of you know you did all at the higher a little ahead.

They've got some startup cost, but as clearly as you know substantially less than half multiple for some or somebody's existing business I do thing and we do think that the whole cobot experience for the general health care ecosystem and four hospitals is going to grow.

Really bringing more more business our way in terms of what we do is generally super highly specialized and we'd do it and more locations than anybody by a master long shot and so we've been playing playing to.

Our strength really will give us a number of of opportunities to grow on them with the amount of focus we're going to place on it you know way more I think we've we've generated in the last few years in our core business. So it's hard for me to break down specifically for you what percentage you know of each is going to draw.

Those from mid teens, the high teams, but however, we pencil it out we got we have multiple ways to get there and that's really where my focus is I mean, we have multiple ways to get there and that gives us comfort while no. One we don't have we'd be board Intel up exactly what path. All the elements are going to date, but we do have.

Hi, there were confident that it's going to get us or trying to go.

Okay. So the only thing.

I think I'd add to that.

Just real quickly is when we talk about the growth opportunity to talk about what we want to do this is not all prospective we have a lot of activity that didn't play we laid out a lot of details in June when we when we had a broader discussion of pediatrics medical group and the growth activities that we've been investing in an undertaking. So there is there's a pretty meaningful amount of Newton.

Element activity that is in place today and gives us a fair degree of confidence in the physician that we've got so just wanted to be clear on that.

Okay. So I cannot can you down on a 50 50 is that at least a ballpark and then and a follow up question on accounts receivable.

It sounds like you had some collections since the quarter, obviously, there's issues with Napa, but can you just confirm the aren't having any us using collections. We of course, all payers on a core business.

Yes, Sir.

Hi on your on your 50, 50 comment I'm going to stand by the dominant but I just made it a lot. There is no one on the call. It was like more to be able to give you a precision answer.

But I think one so it's not possible, but we're comfortable because we've got a lot of wins together as going clearly won't be a blanket both those elements by the way up all that is the new value. The news I ask is limited days until he is it now.

Since then or other board members going forward with reconstituted and I arrive three weeks ago, I think thats something that we're going to we'll get back to you on where where we're we're learning and rather than try to precise number you hear our determination and are confident a lot of things that are underway, but but.

But I don't think we're prepared to.

To answer that data will be fully transparent or we can.

Thanks, Mark on M&A, our comment or on and they are question Theato. You noted, it's actually been kind of.

Nice to see over the past few months that in some cases, we've had flushing acceleration as opposed to delay and we really have not seen much of anything in terms of categories that are are causing concern. We we've had some some minor minor.

A negative in certain areas certain geographies by certain payers, but we've also had meaningful positives from others and they've all kind of wash out when we surprisingly pull older day out of Dsos.

Over the course of this quarter, which you know because you asked me that question in April I noticed that yeah, a little nervous about it that we're likely to pressure effects on the other way.

Great, Thanks, and what trends.

And as a reminder, if you would like to ask a question today. Please press one then zero and our next question comes from the line of frying Pan Quello with Jefferies. Please go ahead.

Hey, good morning.

Welcome to the company.

I've seen what you've done with other companies over the last few years. So you know coming in and like you said earlier, you're not really want to use a lot of external consultants and whatnot. So is there more I think more concrete things that you can identify other than obviously divesting radiology.

Does the radiata radiology practices more concrete stuff.

I think a low hanging fruit <unk>, we talked a lot about about that we talked about a lot of things today, but do we need to focus on like physician contract.

And then you know maybe like SRIO business development and things like that as a way to get to the goals on growth that you laid out.

I won't I won't comment further.

Help you understand that that there are myriad things in the organization that we're looking at and a lot of this for me to give an intelligent answer to you and myself into our board.

Required me really knowing that people in the organization that other than I do.

That has been might find priority that's why hasn't worked in March so.

So before I can talk about specifics I want to learn more ash and also get together with my board So I apologize.

A few weeks earlier, they they can give you a better answer.

But but I think I'm getting my arms around all facets of our operations, but I'd rather not.

I'd, rather not comment further until it doesn't look like.

No no understandable I got my follow up to that.

Given what you just.

And also the comments from that earlier about how they probably cyclicality in Nick you are birth trends and you look at the acute trends for you guys over the last few quarters mean, we haven't really hit that 3% goal for same store that you reiterated today. So that's embedded in the guidance. So what's the might that you know you're coming in with a clean.

Right so why not.

Take the guidance out and really did it or re analyze the four.

Coming out today, and maintaining that locked in guidance range. It yeah, a lot of people are questioning anyway.

Oh, well, we have no reason I think we had no reason to nothing.

No evidence that would suggest that we should change what we've done that doesn't stop us.

Shortly from from baked in a different comment, but given the activity that they the path at the company's doesn't start up given the patent the company has been on there's no evidence to suggest changing that number. So I think I think it made sense to maintain it as we as we move forward and.

We we shape the organization, we think about where we added the best.

M&A and add on opportunities are I think thats going to give us a more informed number and if it changes we love and we'll update I think we also didnt want to make it seemed like if we also had pulled back the number that there was a reason behind that we didn't want to to send an unintended said.

No when there's no signals et cetera.

I appreciate it thank you and good luck.

Thank you.

And our next question comes from Rishi Parekh with Barclays. Please go ahead.

They doing thanks for taking my questions. My first I apologize if you already mentioned this but I was hoping that you could just to provide me youre radiology volumes in Q2, and then also.

Provide unique you've only shore July what your radiology plans, where in July and can you update us on your negotiations with you in age and I've a follow up to that.

Yeah, Hey rate is Charlie.

Thank you are asking just about the rad volumes for the quarter in coming out, but it's all a relief.

They were heavily impacted in April down by about half recovered fairly strongly through May and June you know getting getting much closer to normalize pick up in volumes 80, 595% 85, 9%.

By the end of a month and have persisted in that range as we've done a preliminary bases as we've come through.

July.

Related to United.

As we mentioned a couple of months ago, we were very pleased with how constructed the conversation testing going.

Such that we had extended any effect of termination dates we've had more time to talk as they stand today, we've progressed further with United and related to the practices potential in question within Pediatrics Medical group.

We have agreed to extend those contracts well into 2021.

With no change to terms. So we're very pleased with that it gives us plenty of time that were really constructively with United.

And it's something that worth or kind of happy the way things have progressed.

And then.

As a follow up you know I know you started the radiology sales process Pico bid, but since you officially announced in June has there been any significant momentum in the process that was on the whole due to the current environment.

It's mark.

I think it's not on hold its an ongoing process.

I think they will be I think given the strength of the.

Oh, the business I think there'll be a lot of people interested in it and we'll report back to as we move forward, but we don't have an additional any additional reports make today.

Thank you.

And our next question come from Whit Mayo with you'd be at least go ahead.

Hey, Thanks, even to the 10 million of of the takeout expenses I think issue or two but a couple of times is that.

An annualized number and that's on top of the GE in a savings and the prior year restructuring and cost saving programs. This is something thats.

Do an incremental one I guess I'm, just trying to understand a little bit better where there was cost really came from.

Yes, sure that was all incremental with basically we.

Exited anesthesia and over the few weeks that followed the exit of anesthesia we.

[noise] figured out here and executed on international paranoia takeout.

On early absolutely I think it was almost completely empty related from the from the genus guidance side of the house and I believe we indicated at that time that we hired we had visibility on a significant amount of incremental.

Similar sort of work and that's what we have asked the contact for our comments today that we're continuing to drive towards that goal very good about the ability to reshape our our cost structure for the go forward business.

Okay. So just to be clear that wasn't like eliminating stranded cost associated with the sale of.

Anaesthesia that was actually working down the remainco cost is that fair.

I'm actually not I mean I think.

Okay, I guess, we did get get Definitionally here, but but the reality is we we had some costs that were not necessary gone that were there historically, but they were not necessary going forward. Once we exited anesthesiology. So I I think it is probably.

It's a little hard to kind of tease out how many dollars were stranded versus some other category, but yeah.

They are probably more.

It was simply.

It was simply cost that we didnt need going for following about exit okay. Okay. So a portion of that clearly eliminating some stranded cost at some might be tied to.

The core business, just hard to to tease that out okay.

That's helpful and my follow up I, just want to make sure that I get this number right. The revenue in the recorder fraud in the quarter from American Anaesthesia I'm not sure if you.

Have that and if I take the of restated prior year revenue and backed that out from what you reported looks like last year anaesthesia had about 307 million of revenue I just want to confirm that's the right number in that nothing else is.

Influencing that thanks.

Are there shouldn't be anything else influencing that you know in our and our reported results today and we did restate last year, you can see a full apples to apples without any influence from anesthesiology, which is all in disc ops that that helps.

Okay. So there isn't any I thought that there would be revenue at least from maybe April in part of me from American No that was no. The entire was stripped out and moved down to disc ops. So there's there there is there a zero contribution for and okay.

Reported results.

Okay.

That's helpful. Thanks.

Sure but.

And there are no further questions on the phone line at this time.

Great. Thank you all.

Great day, we look forward to begin again.

And that does conclude or conference for today. Thank you for your participation and for using the ATM T. event conferencing you may now disconnect.