Q4 2023 Pediatrix Medical Group Inc Earnings Call

February 20, 2024

At a time if you should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded I would now like to turn the conference over to your host Charles Lynch. Please go ahead.

Thank you operator, and good morning, everyone I'll quickly read our forward looking statements and then turn the call over to Jim.

Certain statements and information during this conference call maybe deemed to be forward looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1095.

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

Any forward looking statements made during this call are made as of today and pediatrics undertakes no duty to update or revise any such statements whether as a result of new information future events or otherwise important factors that could cause actual results developments and business decisions to differ materially from forward. Looking statements are described in the company's filings with the SEC.

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, our quarterly reports on Form 10-Q, and our annual report on Form 10-K.

Our web site at Www Dot pediatrics dot com with.

With that I'll turn the call over to our CEO Dr. Jim Smith.

You Charlie and good morning, everyone also with me today is Mark Richards, our Chief Financial Officer.

Our fourth quarter results were within the revised expectations. We provided in November our overall same unit volumes reflected strength within our office space maternal field medicine services, partially offset by lower volumes at our hospital based services, notably these comparisons are against very strong volumes in the prior year quarter.

Okay.

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the 2023 fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct an answer session; instructions will be given at that time. If you should require assistance during the call, please press star then zero.

Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the 2023 fourth quarter earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded.

Our underlying same unit pricing was also stable absent certain distortions from last year's fourth quarter that Mark will detail.

Operator: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Charles Lynch. Please go ahead. Thank you, operator. And good morning, everyone.

Speaker Change: I would now like to turn the conference over to your host Charles Lynch. Please go ahead.

Turning to 2024, we provided this morning, our preliminary outlook for adjusted EBITDA of between 200 and $220 million.

Charles W. Lynch: Thank you operator, and good morning, everyone I'll quickly read our forward looking statements and then turn the call over to Jim.

Charles W. Lynch: I'll quickly read our forward-looking statements and then turn the call over to Jim. These forward-looking statements are based on assumptions and assessments made by Pediatrix's management in light of their experience and assessment of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Any forward-looking statements made during this call are made as of today, and Pediatrix undertakes no duty to update or revise any such statements, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in the company's filings with the SEC, including the sections entitled Risk Factors.

Charles W. Lynch: Certain statements and information during this conference call may be deemed to be forward looking statements within the meaning of the federal private Securities Litigation Reform Act of 1095.

This outlook reflects clear progress in three priorities Ifs.

Effectively transitioning to a strong sustainable revenue cycle management program.

These forward looking statements are based on assumptions.

Jim: Made by Pediatrics as management in light of their experience and assessment of historical trends current conditions expected future developments and other factors they believe to be appropriate.

<unk> generating continued efficiencies across our support structure and maintaining strong payer relationships and a high in network status.

It assumes also stabilizing our practice level margin profile against the headwinds we face.

Give details on each of these priorities.

First we have moved forward with our transition to a hybrid RCM model. We've continued the expansion of our internal team and expect that we will soon be fully staffed and we have worked closely with a new vendor under an interim transition engagement that we intend shortly to shift to a long term relationship.

Jim: DC, including the sections entitled Risk factors.

Charles W. Lynch: 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, our quarterly reports on Form 10-Q and our annual report on Form 10-K, and our website at www.pediatrics.com. With that, I'll turn the call over to our CEO, Dr. Jim Swift. Thank you, Charlie, and good morning, everyone.

Thanks to this combination of robust resources, we have not encountered any significant disruptions to our RCM activities for the fourth quarter and to date in 2024.

Jim: Our web site at Www Dot pediatrics Dot com.

Second while this hybrid RCM model does necessitate additional internal staffing within our G&A line, we continue to identify efficiencies within our non clinical infrastructure such that in 2024 are expected to total G&A expense will remain at a comparable percent of revenue as compared.

Jim: With that I'll turn the call over to our CEO Dr. Jim Smith.

Jim Smith: Thank you Charlie and good morning, everyone also with me today is Mark Richards, our Chief Financial Officer.

Jim Swift: Also with me today is Mark Richards, our Chief Financial Officer. Our fourth quarter results were within the revised expectations we provided in November. Our overall same unit volumes reflected strength within our office-based maternal field medicine services, partially offset by lower volumes in our hospital-based services.

Speaker Change: Our fourth quarter results were within the revised expectations. We provided in November our overall same unit volumes reflected strength within our office space maternal field medicine services, partially offset by lower volumes at our hospital based services, notably these comparisons are against very strong volumes in the prior year quarter.

2023 third.

Third although our in network status has typically been above 95%. We entered this year with an even higher in network position. Following successful negotiations with two payers in three states, where we previously had been out of network.

Jim Swift: Notably, these comparisons are against very strong volumes in the prior year quarter. Our underlying same unit pricing was also stable, absent certain distortions from last year's fourth quarter that Mark will detail. Turning to 2024, we provided this morning our preliminary outlook for adjusted EBITDA of between $200 and $220 million. This outlook reflects clear progress on three priorities, effectively transitioning to a strong, sustainable revenue cycle management program, generating continued efficiencies across our support structure, and maintaining strong payer relationships and a high in-network status. It also assumes stabilizing our practice level margin profile against the headwinds we face. I'll give details on each of these priorities.

Speaker Change: Our underlying same unit pricing was also stable absent certain distortions from last year's fourth quarter that Mark will detail.

As we've discussed in the past we believe that these renegotiations were made possible by our ability to effectively navigate the arbitration process for out of network claims.

Speaker Change: Turning to 2024, we provided this morning, our preliminary outlook for adjusted EBITDA of between 200 and $220 million.

This outlook reflects clear progress in three priorities Ifs.

The no surprises act through which we've been able to demonstrate the value of the critical services our affiliated clinicians provide to their patients.

Speaker Change: Effectively transitioning to a strong sustainable revenue cycle management program.

We are very pleased that patients and their families now have in network access to these services and we are gratified to have a broad recognition by payers of our essential role in the market.

Speaker Change: <unk> generating continued efficiencies across our support structure and maintaining strong payer relationships and a high in network status.

Speaker Change: It assumes also stabilizing our practice level margin profile against the headwinds we face.

Finally, as I noted last quarter. We are also focusing on narrowing the range of financial performance across individual practices in our organization. We have identified and initiated specific plans for a wide range of affiliated practices and these plans themselves encompass an array of strategies.

Speaker Change: Give details on each of these priorities.

Jim Swift: First, we have moved forward with our transition to a hybrid RCM model. We've continued the expansion of our internal team and expect that we will soon be fully staffed, and we have worked closely with a new vendor under an interim transition engagement that we intend shortly to shift to a long-term relationship. Thanks to this combination of robust resources, we have not encountered any significant disruptions to our RCM activities through the fourth quarter and to date in 2024. Additionally, while this hybrid RCM model does necessitate additional internal staffing within our GNA line, we continue to identify efficiencies within our non-clinical infrastructure such that, in 2024, our expected total GNA expense will remain at a comparable percent of revenue as compared to 2023.

Speaker Change: First we have moved forward with our transition to a hybrid RCM model. We've continued the expansion of our internal team and expect that we will soon be fully staffed and we have worked closely with a new vendor under an interim transition engagement that we intend shortly to shift to a long term relationship.

<unk> tactical and strategic steps.

As we have been executing on these plans, we expect that activity will accelerate through the year. As a result, we believe that the financial impact of these improvements will build cumulatively through 2024.

Speaker Change: Thanks to this combination of robust resources, we have not encountered any significant disruptions to our RCM activities through the fourth quarter and to date in 2024.

Overall, I am confident that our focus on the operating priorities that are critical critical to our success will benefit all stakeholders.

Speaker Change: Second while this hybrid <unk> model does necessitate additional internal staffing within our G&A line, we continue to identify efficiencies within our non clinical infrastructure such that in 2024 are expected to total G&A expense will remain at a comparable percent of revenue as compared.

And I firmly believe that this focus is in no way detracts from our mission to take great care of the patient we look forward to executing on these priorities throughout the remainder of the year.

Before turning the call over to Mark I want to emphasize that above all else. We are a clinically focused organization and we take very seriously. The critical role we play in the improvement in quality of patient care for the most fragile patients. This week pediatrics will be hosting two concurrent.

Speaker Change: 2023 third.

Third although our in network status has typically been above 95%. We enter this year with an even higher in network position. Following successful negotiations with two payers in three states, where we previously had been out of network.

Our 12 month annual specialty review at Neonatology at our 45th annual Neo The conference for Neonatology is a testament to our mission that we have hosted these important events for so long with strong attendance that goes well beyond pediatrics affiliated clinicians.

Speaker Change: As we've discussed in the past we believe that these renegotiations were made possible by our ability to effectively navigate the arbitration process for out of network claims.

Speaker Change: The no surprises act through which we've been able to demonstrate the value of the critical services our affiliated clinicians provide to their patients.

With that I'll turn the call over to Mark Richards.

Thank you Jim Good morning, everyone I'll provide some details for the quarter. Our same unit volumes were mixed in the quarter with hospital based volumes declining somewhat offset by strong office base volumes, specifically maternal fetal medicine.

Speaker Change: We are very pleased that patients and their families now have in network access to these services and we are gratified to have a broad recognition by payers of our essential role in the market.

Jim Swift: And we are gratified to have broad recognition by payers of our essential role in the market. Finally, as I noted last quarter, we are also focusing on narrowing the range of financial performance across individual practices in our organization. We have identified and initiated specific plans for a wide range of affiliated practices, and these plans themselves encompass an array of structural, tactical, and strategic steps.

Speaker Change: Finally, as I noted last quarter. We are also focusing on narrowing the range of financial performance across individual practices in our organization. We have identified and initiated specific plans for a wide range of affiliated practices and these plans themselves encompass an array of structural.

Notably these comparisons were against strong volumes in the prior year fourth quarter.

On the pricing side, there are two key items to call out for you to make an appropriate year to year comparison <unk>.

In the fourth quarter of 'twenty, two we recorded revenue from our prior RCM vendor for financial support related to age receivables, which did not recur in the 2023 fourth quarter.

Speaker Change: <unk> tactical and strategic steps.

Speaker Change: As we have been executing on these plans, we expect that activity will accelerate through the year. As a result, we believe that the financial impact of these improvements will build cumulatively through 2024.

This reduced our same unit pricing growth by roughly 2% in Q4 of 'twenty three.

Speaker Change: Overall, I am confident that our focus on the operating priorities that are critical critical to our success will benefit all stakeholders.

Jim Swift: As we have been executing on these plans, we expect that activity will accelerate through the year. As a result, we believe that the financial impact of these improvements will build cumulatively through 2024. Overall, I'm confident that our focus on the operating priorities that are critical to our success will benefit all stakeholders. And I firmly believe that this focus in no way detracts from our mission to take great care of the patient.

Additionally, we recorded a modest amount of cares dollars in Q4 of 'twenty, two which also did not recur.

Speaker Change: And I firmly believe that this focus is in no way detracts from our mission to take great care of the patient we look forward to executing on these priorities throughout the remainder of the year.

Reducing our same unit pricing growth in Q4 of 23 by an additional 40 basis points.

Speaker Change: Before turning the call over to Mark I want to emphasize that above all else. We are a clinically focused organization and we take very seriously. The critical role we play in the improvement in quality of patient care for the most fragile patients. This week pediatrics will be hosting two concurrent.

These items clouded, what we view as a stable and positive pricing comparison, which included favorable payer mix and growth in contract and administrative fees.

On the cost side, our practice level expenses declined slightly year over year, largely reflecting lower incentive compensation and malpractice expense.

Jim Swift: We look forward to executing on these priorities throughout the remainder of the year. Before turning the call over to Mark, I want to emphasize that, above all else, we are a clinically focused organization, and we take very seriously the critical role we play in the improvement and quality of patient care for the most fragile patients. This week, Pediatrix will be hosting two concurrent conferences, our 12th Annual Specialty Review in Neonatology and our 45th Annual NEO, the Conference for Neonatology.

Speaker Change: <unk>, our <unk> annual specialty review at Neonatology at our 45th annual Neo the conference for Neonatology. It is a testament to our mission that we have hosted these important events for so long with strong attendance that goes well beyond pediatrics affiliated clinicians.

Partially offset by increases in salaries and group insurance expenses.

As Jim noted underlying pricing level salary growth remained elevated in the mid single digits.

Lastly, G&A increased slightly year over year, partially reflecting staffing increases as we continue to build our internal Rcmp.

With that I'll turn the call over to Mark Richards.

Mark Richards: Thank you Jim Good morning, everyone I'll provide some details for the quarter. Our same unit volumes were mixed in the quarter with hospital base volumes declining somewhat offset by strong office base volumes, specifically maternal fetal medicine.

We generated $73 million in operating cash flow for the fourth quarter, resulting in full year operating cash flow of $146 million.

Jim Swift: It is a testament to our mission that we have hosted these important events for so long with strong attendance that goes well beyond pediatrics-affiliated clinicians. With that, I'll turn the call over to Mark Richards. Thank you, Jim. Good morning, everyone.

As Jim noted, we're pleased that our RCM transition did not cause any material disruptions in billing and collections in the fourth quarter.

Mark Richards: Notably these comparisons were against strong volumes in the prior year fourth quarter.

Mark Richards: On the pricing side, there are two key items to call out for you to make an appropriate year to year comparison <unk>.

And our Dsos were basically flat at year end compared to the end of Q3.

Mark Richards: In the fourth quarter of 'twenty, two we recorded revenue from our prior RCM vendor for financial support related to age receivables, which did not recur in the 2023 fourth quarter.

Mark Richards: I'll provide some details for the quarter. Our same unit volumes were mixed in the quarter, with hospital-based volumes declining somewhat offset by strong office-based volumes, specifically maternal-fetal medicine. Notably, these comparisons were against strong volumes in the prior year fourth quarter. On the pricing side, there are two key items to call out for you to make an appropriate year-to-year comparison. First, in the fourth quarter of 2022, we recorded revenue from our prior RCM vendor for financial support related to age receivables, which did not recur in the 2023 fourth quarter. This reduced our same unit pricing growth by roughly 2% in Q4 of 2023. Additionally, we recorded a modest amount of CARES dollars in Q4 of 22, which also did not recur, reducing our same unit pricing growth in Q4 of 23 by an additional 40 basis points. These items clouded what we view as a stable and positive price and comparison, which included favorable payer mix and a growth in contract and administrative fees. On the cost side, our practice level expenses declined slightly year over year, largely reflecting lower incentive compensation and malpractice expenses, partially offset by increases in salaries and group insurance expenses.

We ended the year with total borrowings of $628 million in cash of $73 million for net leverage at year end of just under two eight times.

Mark Richards: This reduced our same unit pricing growth by roughly 2% in Q4 of 'twenty three.

As a reminder, we are a user of cash in the first quarter of each year as we pay out incentive compensation and other benefits and this cash balance will reduce any potentially borrowings needed before we turn to expected free cash flow generation in Q2 and beyond.

Mark Richards: Additionally, we recorded a modest amount of cares dollars in Q4 of 'twenty, two which also did not recur.

Mark Richards: Reducing our same unit pricing growth in Q4 of 23 by an additional 40 basis points.

I'll add some details to our 24 outlook, we expect net revenue of two to $2 1 billion or modest growth over 2003.

Mark Richards: These items clouded, what we view as a stable and positive pricing comparison, which included favorable payer mix and growth in contract and administrative fees.

And as Jim touched on we anticipate that our G&A expense as a percentage of revenue will be comparable in 24 versus 23 with additions to our RCM team offset by continued efficiencies across our corporate infrastructure.

Mark Richards: On the cost side, our practice level expenses declined slightly year over year, largely reflecting lower incentive compensation and malpractice expense.

Mark Richards: Partially offset by increases in salaries and group insurance expenses.

Finally in terms of quarterly earnings progression, we anticipate that our first quarter adjusted EBITDA will represent 17% to 19% of full year adjusted EBITDA, largely reflecting the normal seasonality of our financial results.

Mark Richards: As Jim noted underlying pricing level salary growth remained elevated in the mid single digits.

Mark Richards: Lastly, G&A increased slightly year over year, partially reflecting staffing increases as we continue to build our internal Rcmp.

With that I'll turn the call back over to Jim.

Thank you Marc operator, let's now open the call for questions.

Mark Richards: We generated $73 million in operating cash flow for the fourth quarter, resulting in full year operating cash flow of $146 million.

Ladies and gentlemen, if you'd like to ask a question. Please press one and then zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command if youre using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one zero at this time and one moment. Please for your first question.

Mark Richards: As Jim noted, we're pleased that our RCM transition did not cause any material disruptions in billing and collections in the fourth quarter and our Dsos were basically flat at year end compared to the end of Q3.

Your first question comes from the line of Brian 10, Quillet from Jefferies. Please go ahead.

Mark Richards: As Jim noted, underlying pricing level salary growth remained elevated in the mid-single digits. Lastly, G&A increased slightly year over year, partially reflecting staffing increases as we continue to build our internal RCM team. We generated $73 million in operating cash flow for the fourth quarter, resulting in full year operating cash flow of $146 million.

Mark Richards: We ended the year with total borrowings of $628 million in cash of $73 million for net leverage at year end of just under two eight times.

Brian <unk> from Jefferies. Your line is open.

Please check your mute button.

Mark Richards: As a reminder, we are a user of cash in the first quarter of each year as we pay out incentive compensation and other benefits and this cash balance will reduce any potentially borrowings needed before we turn to expected free cash flow generation in Q2 and beyond.

Okay. We will move on we'll go to a J rice from UBS. Please go ahead.

Hi, this is <unk>.

Hey, Jay.

The company previously side around a $50 million RCM headwind in the first half of 2003 would that be a tailwind in 2000 and for pricing in the first half.

Speaker Change: I'll add some details to our 24 outlook, we expect net revenue of two to $2 1 billion were modest growth over 23.

Mark Richards: As Jim noted, we're pleased that our RCM transition did not cause any material disruptions in billing and collections in the fourth quarter, and our DSOs were basically flat at year end compared to the end of Q3. We ended the year with total borrowings of $628 million and cash of $73 million for net leverage at year-end of just under 2.8 times. As a reminder, we are a user of cash in the first quarter of each year as we pay out incentive compensation and other benefits, and this cash balance will reduce any potential borrowings needed before we turn to expected free cash flow generation in Q2 and beyond. I'll add some details to our 24-hour outlook. We expect net revenue of $2 to $2.1 billion, or modest growth over 23.

I don't think so.

Speaker Change: And as Jim touched on we anticipate that our G&A expense as a percentage of revenue will be comparable in 24 versus 23 with additions to our RCM team offset by continued efficiencies across our corporate infrastructure.

We are in the midst of a transition from an end to end vendor to a hybrid solution I would say as we progress through this transition which is staged in various components throughout 'twenty four we back to maintain stable pricing through this transition.

Speaker Change: Finally in terms of quarterly earnings progression, we anticipate that our first quarter adjusted EBITDA will represent 17% to 19% of full year adjusted EBITDA, largely reflecting the normal seasonality of our financial results.

E a continuance.

What we saw the fourth quarter of 'twenty three.

Got it thanks, and a quick question on arbitration.

MS reopened the arbitration portal in December the company had previously talked about having around the 75% success rate and arbitration cases versus the industry average of 71%.

Speaker Change: With that I'll turn the call back over to Jim.

Jim Smith: Thank you Marc operator, let's now open the call for questions.

Marc: Okay, ladies and gentlemen, if you'd like to ask a question. Please press. One then zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command if youre using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one zero at this time and one moment. Please for your first question.

Any updates on this win rate.

Seeing more cases go to arbitration.

Jim Swift: And as Jim touched on, we anticipate that our G&A expense as a percentage of revenue will be comparable in 24 versus 23, with additions to our RCM team offset by continued efficiencies across our corporate infrastructure. Finally, in terms of quarterly earnings progression, we anticipate that our first quarter adjusted EBITDA will represent 17% to 19% of full-year adjusted EBITDA, largely reflecting the normal seasonality of our financial results. With that, I'll turn the call back over to Jim. Thank you, Mark.

Thanks.

Well I'll.

Ill just start since we're back in network now with a number of the payers that we were having to contemplate arbitration.

We haven't seen an increase related to our creation cases.

Speaker Change: Your first question comes from the line of Brian Tim Quillin from Jefferies. Please go ahead.

I would say that the process and our internal process for this we've continued to refine by having much of that capability in house.

Speaker Change: Brian <unk> from Jefferies. Your line is open.

Yes, and yes.

Our win rate has improved through the course of the last.

Several months were approaching at least on our most recent data or approaching almost 90% win rate when we are going to arbitration.

Speaker Change: Please check your mute button.

Speaker Change: Okay, we'll move on we'll go to a J rice from UBS. Please go ahead.

Great. Thanks, Thanks, a lot.

Your next question comes from the line of Ryan Daniels from William Blair. Please go ahead.

J Rice: Hi, this is <unk>.

J Rice: Jay on the <unk>.

J Rice: Company previous slides around 50 million RCM headwind in the first half of 'twenty three would that be a tailwind in 2000 and for pricing in the first half.

Hey, Good morning, guys. This is Jack on for Ryan Daniels. Thanks for taking my question.

First the adjusted EBITDA Guide was admittedly wider for the first quarter was admittedly wider than what you've guided to in the past can you just talk about the rationale for this and maybe the puts and takes that get you to the low end of the range versus the high end of the range.

Operator: Operator, I'll now open the call for questions. Okay, ladies and gentlemen, if you'd like to ask a question, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers.

J Rice: I don't think so.

J Rice: We are in the midst of a transition from an end to end vendor to a hybrid solution I would say as we progress through this transition which is staged in various components throughout 'twenty four we back to maintain stable pricing through this.

Can you clarify.

Didn't catch it right related to the first quarter of the full year.

Sorry, the first quarter.

The guide was a 20 million range versus what you've done in the past of about $10 million.

J Rice: <unk> I E a continuance.

I think.

For the full year, we provided a $20 million range, which.

J Rice: What we saw the fourth quarter of 'twenty three.

Give or take.

Operator: Once again, if you have a question, please press 1 then 0 at this time. And one moment, please, for your first question. Your first question comes from the line of Brian Tanquilut from Jeffries. Please go ahead.

Speaker Change: Got it thanks, and a quick question on arbitration.

10% range around the midpoint of where we're at.

For the first quarter, if you do the math on what Mark provided of 17 to 19, 19% of full year EBITDA.

Speaker Change: We opened the arbitration portal in December the company had previously talked about having around the 75% success rate and arbitration cases versus the industry average of 71% are there any updates on this win rate.

But narrower than $20 million.

Alright, yes, I definitely bespoke amendment before year, sorry about that.

Speaker Change: Are you seeing more cases go to arbitration previously thanks.

Operator: Thank you. Thank you. Brian from Jefferies, your line is open. Please check your mute button.

And then a quick follow up here last quarter too I know you mentioned that youre planning to tackle the labor cost challenges and growth in clinician comp I'm curious if you can just given any additional color here and kind of what you've done or at least plan to do heading into 2024.

Speaker Change: Well.

Speaker Change: I will just start since we're back in network now with a number of the payers that we were having to contemplate arbitration.

Speaker Change: We haven't seen an increase related to our creation cases.

Operator: Okay, we'll move on. We'll go to A.J. Rice from UBS.

And then can you just maybe if we can just get your expectations here for 2024 at this initiative as well.

Speaker Change: I would say that the process and our internal process for this we've continued to refine by having much of that capability in house.

I'll start.

Jim Swift: Please go ahead. Hi, this is MJ on behalf of AJ. The company previously flies around a 15 million RCM headwind in the first half of 2023. Would that be a tailwind in 2024 for pricing in the first half? Thank you. You know, I don't think so.

I can I can start off and let Jim add some color.

Speaker Change: Yes, and yes.

Speaker Change: Our win rate has improved through the course of the last.

Within our expectations for the full year EBITDA is similarly, an expectation of some moderation and underlying practice level of expense growth.

Speaker Change: Several months were approaching at least on our most recent data or approaching almost 90% win rate when we are going to arbitration.

As we discussed in the previous quarter and Jim referenced this morning, we.

Speaker Change: Great. Thanks, Thanks, a lot.

We have fairly specific plans across a pretty broad spectrum of practices.

Speaker Change: Your next question comes from the line of Ryan Daniels from William Blair. Please go ahead.

Speaker Change: Hey, Good morning, guys. This is Jack on for Ryan Daniels. Thanks for taking my question.

That had any number of different focal points to them and a lot of that is geared toward stabilization of gross margin.

Jim Swift: We are in the midst of a transition from an end-to-end vendor to a hybrid solution. I would say as we progress through this transition, which is staged in various components throughout 24, we expect to maintain stable pricing through this transition, i.e., a continuance of what we saw in the fourth quarter of 23. Got it, thanks. And a quick question on arbitration. CMS reopened the arbitration portal in December.

Jack: The adjusted EBITDA Guide was admittedly wider for the first quarter was admittedly wider than what you've guided to in the past can you just talk about the rationale for this and maybe the puts and takes that get you to the low end of the range versus the high end of the range.

Across our practice spectrum and within that.

Obviously within our guidance for this year is some moderation in overall.

Speaker Change: Can you clarify.

Practice level expense growth versus what we experienced over the past year, Jim do you want to.

Speaker Change: Didn't catch it right related to the first quarter of the full year.

Jim Swift: The company previously talked about having around a 75 percent success rate in arbitration cases versus the industry average of 71 percent. Are there any updates on this win rate, and are we seeing more cases go through arbitration than before? Thank you. Since we're back in network now with a number of the payers that we were having to contemplate arbitration, we haven't seen an increase related to arbitration cases.

We're looking at really what we're doing on the variable and fixed comp side to have more stability around that additionally.

Speaker Change: Sorry, the first quarter.

Speaker Change: The guide was a 20 million range versus what you've done in the past of about $10 million.

Additionally, I think what we've seen along the way and starting up new practices is that be some of the.

Speaker Change: I think.

Speaker Change: For the full year that we provided a $20 million range, which is give or take.

Specialties, the harder challenge to recruit in.

Those physicians I think we'll still see some of that but I think in some of the specialties.

Speaker Change: 10% range around the midpoint of where we're at.

Speaker Change: For the first quarter, if you do the math on what Mark provided of 17 to 19, 19% of full year EBITDA, that's a little bit narrower than $20 million.

We've largely had to use locums.

I think that Theres, a expanding pool of clinicians, where we are not going to have the really the contract labor is a headwind.

Speaker Change: Alright, yes, I definitely misspoke I meant the full year sorry about that.

Yeah.

Your next question comes from the line of <unk> Chickering from Deutsche Bank. Please go ahead.

Jim Swift: I would say that the process and our internal process for this have continued to refine by having much of that capability in-house. Yeah, and our win rate has improved for the course of the last several months. We're approaching, at least on our most recent data, approaching almost 90% win rate when we are going to arbitration. Great. Thanks. Thanks a lot.

Speaker Change: And then just a quick follow up here last quarter or two I know you mentioned that youre planning to tackle the labor cost challenges and growth in clinician comp I'm curious if you can just given any additional color here and kind of what you've done or at least plan to do heading into 2024.

Hey, good morning, guys.

On the revenue growth guidance or two to put 1 billion what are the components of the revenue growth split between volume and price.

Speaker Change: And then can you just maybe if we can just get your expectations here for 2024 at this initiative as well.

Yes.

Hey.

Operator: Your next question comes from the line of Ryan Daniels from William Blair. Please go ahead. Hey, good morning, guys. This is Jack Thampton for Ryan Daniels.

Good morning.

Sure.

I will start.

I would take out a couple of pieces, we're expecting stable volume throughout 'twenty, four and our guidance.

Speaker Change: I can I can start off and let Jim add some color.

Speaker Change: Within our expectations for the full year EBITDA is similarly, an expectation of some moderation and underlying practice level of expense growth and as we discussed in the previous quarter and Jim referenced this morning.

Volume of course is a contributing factor to our top line range that we provided I would say also as we indicated we expect through our RCM transition, we're right to remain somewhat stable through 'twenty four certainly as we are.

Operator: First, the adjusted EBITDA guide was admittedly wider for the first quarter than what you've guided to in the past. Can you just talk about the rationale for this and maybe the puts and takes that get you to the low end of the range versus the high end of the range?

Speaker Change: We have a fairly specific plans across a pretty broad spectrum of practices.

Complete the various stages of the transition.

Speaker Change: <unk>.

Speaker Change: Any number of different focal points to them and a lot of that is geared toward stabilization.

And we move over to our complete hybrid solution. There is opportunity for rate improvement as we approach the end of the year.

Speaker Change: Gross margin.

Speaker Change: Across our practice spectrum and within that.

Okay, So basically stable volumes stable rates.

Speaker Change: Obviously within our guidance for this year is some moderation in overall.

Jim Swift: Thanks. Can you clarify, didn't catch it right, related to the first quarter or the full year? Sorry, the first quarter, because I think the guide was a $20 million range versus what you've done in the past with about $10 million. I think.

So I mean as you brought on those I don't know where contracts into in network.

Speaker Change: Practice level expense growth versus what we experienced over the past year, Jim do you want to and we're looking at really what we're doing on the variable and fixed comp side to have more stability around that additionally.

At a rate tailwind or rate headwinds.

<unk>.

That's generally if we're going to move from an out of network to in network position that that's generally favorable for us Peter Alright, and then the last component.

Jim Smith: Additionally, I think what we've seen along the way and starting up new practices is that b and some of the.

Peter the last component of that topline revenue estimate is around organic growth and the opportunities there.

Jim Smith: Specialties, the harder challenge to recruit in.

Jim Swift: For the full year, we provided a $20 million dollar range, which if you were to take a 10% range around the midpoint of where we're at. For the first quarter, if you do the math on what Mark provided of 17% to 19% of full year EBITDA, that's a little bit narrower than $20 million. Sorry, yeah, I definitely misspoke. I meant the full year. Sorry about that.

Jim Smith: Pay those physicians I think we'll still see some of that but I think in some of the specialties.

Okay.

<unk> is a great segue.

Jim Smith: We've largely had to use locums.

We're looking at.

Guidance ranges.

Jim Smith: I think that there is a expanding pool of clinicians where we are not going to have the really the contract labor is a headwind.

With with contracting for pricing basically set in contracting with your doctors basically said is the only variable between the high and the low end simply with the volumes of doubt or.

Jim Smith: Yeah.

Jim Smith: Your next question comes from the line of Peter Chickering from Deutsche Bank. Please go ahead.

The components are there between given our high end guidance.

I mean I.

Pito Chickering: Hey, good morning, guys.

I'd say that is certainly a component of that range.

Pito Chickering: On the revenue growth guidance or two to put 1 billion what are the components of other revenue growth split between volume and price.

Jim Swift: And then just a quick follow up here. Last quarter, too, I know you mentioned that you're planning to tackle the labor cost challenges, growth, and clinician comp. Curious if you can just give any additional color here and kind of what you've done or at least plan to do heading into 2024. And then, too, maybe we can just get your expectations here for 2024 with this initiative as well. Thanks. I can start off and let Jim add some color.

I want to be clear, though we have a lot of activity on the operational side be it in the RCM transition and our practice level plans.

Pito Chickering: Hey.

Pito Chickering: Good morning.

And our corporate plans. So there is an execution component in each of those that we wanted to take into account within that guidance range.

Pito Chickering: I would take out a couple of pieces, we're expecting stable volume throughout 'twenty, four and our guidance.

Pito Chickering: Volume of course is a contributing factor to our top line range that we provided I would say also as we indicated we expect through our RCM transition.

Okay fair enough two more quick ones here.

With your.

Contracting with your physicians has there been any change to sort of turnover as those contracts come up for renewal is there any.

Speaker Change: Great to remain somewhat stable through 'twenty four certainly as we.

Any change to the turnover of those docs on those contracts or is that pretty stable.

Mark Richards: Within our expectations for the full year, EBITDA is similarly an expectation of some moderation and underlying practice level of expense growth. And, as we discussed in the previous quarter and Jim referenced this morning, we have fairly specific plans across a pretty broad spectrum of practices that have any number of different focal points to them. And a lot of that is geared toward a stabilization of gross margin across our practice spectrum. And within that, and obviously within our guidance for this year, is some moderation and overall practice level expense growth versus what we experienced over the past year. Jim, do you want to go?

Speaker Change: Complete the various stages of the transition.

Yes.

It's been pretty stable our turnover is very very low as we've commented before.

Speaker Change: We move over to our complete hybrid solution there is opportunity for rate improvement as we approach the end of the year.

And with most of these contracts again some of them are renewed over three year period and in an especially as we're in we really are the medical home for a lot of these specialties. So I think that really breeds confidence within the clinician pool to remain a part of the organization alright.

Speaker Change: Okay, So basically stable volume stable rates.

Speaker Change: So I mean as you brought on those I don't know where contracts into in network was at a rate tailwind or rate headwinds.

Alright, It makes complete sense and then last quick one of your free cash flow conversion for 'twenty four should be pretty similar for as it wasn't 23 now that another rcm's pretty stable. Thanks, so much.

Speaker Change: <unk>.

Speaker Change: That's generally if we're going to move from an out of network to in network position that that's generally favorable for us Peter Alright, and the last component.

Yeah.

I would think so if you look at 'twenty three it was all over 70% from adjusted EBITDA to operating cash flow.

Speaker Change: Pete over the last component of that topline revenue estimate is around organic growth and the opportunities there.

Our general rule of thumb rule of thumb has been in the range of maybe two thirds of adjusted EBITDA into operating cash flow. So thats a kind of a good baseline for you to think about.

Speaker Change: Okay, which which actually is a great segue.

Speaker Change: Looking at <unk>.

Speaker Change: Guidance ranges.

Speaker Change: With with contracting for pricing basically set in contracting with your doctors basically said is the only variable between the high and the low end is simply with the volumes of doubt or.

Great. Thanks, so much.

Your next question comes from the line of Brian <unk> from Jefferies. Please go ahead.

Jim Swift: Yeah, and we're really looking at what we're doing on the variable and fixed comp side to have more stability around that. Additionally, I think, you know, what we've seen along the way in starting up new practices is that in some of the specialties, the harder challenge to recruit in and pay those physicians, I think we'll still see some of that, but I think in some of the specialties where we've largely had to use locums, we think that there's an expanding pool of clinicians where we are not going to have contract labor as a headwind Your next question comes from the line of Pito Chickering from Deutsche Bank. Please go ahead.

Hey, good morning, guys, sorry about the technical difficulties earlier.

Speaker Change: The components are there between the high and low end of guidance.

Jim I guess my first question in your prepared remarks, you talked about structural tactical and strategic changes that youre, making to the business. Maybe if you can share with us what falls into each of those three buckets for you.

Speaker Change: I mean, I would say that is certainly a component of that.

Speaker Change: That range.

Speaker Change: I want to be clear, though we have a lot of activity on the operational side be it in the RCM transition and our practice level plans and our corporate plans. So there is an execution component in each of those that we wanted to take into account within that guidance range.

You alluded to.

I suppose when we look at it at face value one is and we've talked about volume in the past, we're looking at staffing associated with the practices to make sure that we have the right staffing mix in terms of personnel and within that is really a reusing clinic physicians versus other clinicians such as nurse practitioners.

Yes.

Speaker Change: Okay fair enough.

Speaker Change: Quick ones here.

Speaker Change: With your.

That's one piece too we know that we have contract revenue in our relationship with some of our hospital partners and certainly that becomes an element in terms of right sizing the support for those practices and making sure that we.

Speaker Change: Contracting with your physicians has there been any change to sort of turnover as those contracts come up for renewal.

Operator: Hey, good morning, guys. On revenue growth, Scott, the answers are 2 to 2.1 billion. What are the components of revenue growth split between volume and price? Hey, Pito, good morning.

Speaker Change: Any change to the turnover of those docs on those contracts or is it pretty stable.

Yes.

Really are executing with our hospital partners in that regard and we've had some favorable results, thus far and I think as well as the issue that we've seen about being back in network in the case of our ambulatory practices that have been adversely affected because as opposed to the inpatient services, where the patients do make it to the service largely.

Speaker Change: It's been pretty stable our turnover is very very low as we've commented before.

Speaker Change: And with most of these contracts again some of them are renewed over three year period and in an especially as we're in we really are the medical home for a lot of these specialties. So I think that really breeds confidence within the clinician pool to remain a part of the organization alright.

Mark Richards: We, You know, I would, I would take out a couple of pieces. You know, we're expecting stable volume throughout 24 in our guidance. You know, volume, of course, is a contributing factor to our top line range that we provided. I would also say, as we indicated, we expect through our RCM transition for rates to remain somewhat stable through 24. Certainly, as we complete the various stages of the transition and we move over to our complete hybrid solution, there's opportunity for rate improvement as we approach the end of the year. Okay, so basically stable volumes and stable rates. So, I mean, as you brought on those out-of-network contracts into the in-network, was that a rate tailwind or a rate headwind?

<unk>.

Other areas. We are really those patients are directed elsewhere. So we feel that theres going to be a benefit as we get more of our marketing and execution around patient volumes from <unk>.

Speaker Change: Alright, It makes complete sense and then last quick one of your free cash flow conversion for 24 should be pretty similar for <unk>.

Speaker Change: It wasn't 23 now that RCM is pretty stable. Thanks, so much.

Inventory standpoint.

Speaker Change: Yeah.

Speaker Change: I would think so if you look at 'twenty three it was all over 70% from adjusted EBITDA to operating cash flow.

Got it Okay and then maybe since you talked about inpatient is there anything youre seeing in the hospital other than a tough comp from last year that.

Speaker Change: Our general rule of thumb rule of thumb has been in the range of maybe two thirds of adjusted EBITDA into operating cash flow. So thats a kind of a good baseline for you to think about.

Kind of like.

And there is the ability to drive growth is it your hospitals, losing market share or is it just the birth rate altogether, just curious how youre thinking about volumes.

I think that part of the volume issue is.

Speaker Change: Great. Thanks, so much.

Speaker Change: Your next question comes from the line of Brian <unk> from Jefferies. Please go ahead.

Take the NICU out for a moment, we did not see the large amount of volume this year as last year that we saw in 22 related to the other inpatient services such as pediatric Hospitalists pediatric Dr and pediatric ICU I think from the standpoint of our inpatient NICU services people talk a little bit about.

Brian Gil Tanquilut: Hey, good morning, guys, sorry about the technical difficulties earlier.

Mark Richards: That's generally, if we're going to move from an out-of-network to an in-network position, that's generally favorable for us, Pito. And the last component of Pito, the last component of that top-line revenue estimate, is around organic growth and the opportunities there. Okay, which actually is a great segue, you know, looking at your sort of, you know, guidance ranges, you know, with contracting for pricing basically set, and contracting with your doctor basically set, is the only variable between the high and the low end simply where the volumes end out or, you know, what are the components there between getting the high end versus the low end? I mean, Pito, I would say that that is certainly a component of that range.

Brian Gil Tanquilut: Jim I guess my first question in your prepared remarks, you talked about structural tactical and strategic changes that youre, making to the business. Maybe if you can share with us what falls into each of those three buckets.

A higher degree of severe prematurely and increasing length of stays and we've certainly seen that.

Brian Gil Tanquilut: You alluded to.

Jim Smith: I suppose when we look at it at face value one is and we've talked about volume in the past, we're looking at staffing associated with the practices to make sure that we have the right staffing mix in terms of personnel and within that is really a reusing clinic physicians versus other conditions such as nurse practitioners.

Some of the bread and butter.

Round admissions into the NICU have been variable across the country. So but again, we anticipate volumes will remain kind of where we are for the time being but we don't see any indication of volumes decelerating.

Jim Smith: I think that's one piece too we know that we have contract revenue in our relationship with some of our hospital partners and certainly that becomes an element in terms of right sizing the support for those practices and making sure that we really are executing with our hospital partners in that regard and we've had some favorable results thus far.

Going forward, yes.

And Brian just as a quick note on that.

We did highlight the <unk>.

Fourth quarter had some pretty strong comps that we went against when we look at our NICU days over a two year stack. They were actually slightly positive versus two years ago. So in our view looking across as many states and practices.

Pito Chickering: I want to be clear, though, we have a lot of activity on the operational side, be it in the RCM transition, in our practice-level plans, and in our corporate plans. So there is an execution component to each of those that we wanted to take into account within that guidance range. Okay, fair enough. Two more quick ones here.

Jim Smith: And I think as well as the issue that we've seen about being back in network in the case of our ambulatory practices that have been adversely affected because as opposed to the inpatient services, where the patients do make it to the service largely in those other areas. We are really those patients are directed elsewhere. So we.

Where we are providing neonatology services.

We usually viewed as more appropriate to look at a longer term.

Timeframe to get a better sense of where things are going and as a result, as we look into 'twenty four.

Jim Smith: Feel that theres going to be a benefit as we get more of our marketing and execution around patient volumes from <unk>.

We're not anticipating within our within our outlook for the year.

Jim Swift: With your... Contracting with your physicians, has there been any change to sort of turnover, you know, as those contracts come up for renewal, has there been any change to turnover of those docs on those contracts, or is it pretty stable? It's been pretty stable. Our turnover is very low, as we've commented before, and with most of these contracts, again, some of them are, you know, renewed over a three-year period, and in the specialties we're in, we really are the medical home for a lot of these specialties, so I think that really breeds confidence within the clinician pool to remain a part of the organization. Alright, makes complete sense. And then last quick one here, precautionary conversion for 24 should be pretty similar to, you know, as it was in 23. Now that that RCM is pretty stable now, thanks, www.larryweaver.com, I would think so.

Any meaningful movement in inpatient volumes.

Jim Smith: Inventory standpoint.

Speaker Change: Got it Okay and then maybe since you talked about inpatient is there anything youre seeing in the hospital other than a tough comp from last year that.

And then maybe last question for me you guys talked about in network, how much out of network is going to be left in the business, let's just say as we exit the.

Speaker Change: Kelly.

Kelly: And there is the ability to drive growth is it your hospitals, losing market share or is it just the birth rate altogether, just curious how youre thinking about volumes.

For the year.

It's a good question because you are asking things that we don't know about how this year will unfold, but where we stand right now.

Kelly: I think that part of the volume issue is.

Kelly: Take the NICU out for a moment, we did not see the large amount of volume this year as last year that we saw in 22 related to the other inpatient services such as pediatric Hospitalists pediatrics and pediatric ICU I think from the standpoint of our inpatient NICU services people talk a little bit about.

Our historical experiences and our fiber.

Five or less than 5% out of network position and were lower that as we mentioned we're lower than that as we entered this year. Thanks to some of the re contracting was done.

Got it okay. Thank you.

If there are any additional questions. Please press one zero.

Kelly: A higher degree of severe prematurely and increasing length of stays and we've certainly seen that.

Pito Chickering: Pito, if you look at 23, it was a little over 70% from adjusted EBITDA to operating cash flow. Our general rule of thumb has been in the range of maybe two-thirds of adjusted EBITDA to operating cash flow. So that's kind of a good baseline for you to think about. Great, thanks so much.

And you have a question from the line of Kevin Fischbeck from Bank of America. Please go ahead.

Kelly: Some of the bread and butter.

Kelly: Route admissions into the NICU havent been variable across the country. So but again, we anticipate volumes will remain kind of where we are for the time being but we don't see any indication of volumes decelerating.

Great. Thanks.

I guess a couple of follow up questions.

When you said that the.

They are building a network was usually a positive for the company we are talking about.

<unk>.

Operator: Your next question comes from the line of Brian Tanquilut from Jeffries. Please go ahead. Hey, good morning, guys. And sorry about the technical difficulties earlier. Jim, I guess my first question, you know, in your prepared remarks, you talked about structural, tactical, and strategic changes that you're making to the business. Maybe if you could share with us what falls into each of those three buckets that you alluded to?

On a rate perspective or are you talking about this dynamic with the with the outpatient.

Going forward, yes.

Kelly: And Brian just as a quick note on that.

Volumes, usually getting a boost once you go in network.

Brian Gil Tanquilut: We did highlight that the <unk>.

I was referencing the rate or.

Brian Gil Tanquilut: Fourth quarter had some pretty strong comps that we went against when we look at our NICU days over a two year stack. They were actually slightly positive versus two years ago. So in our view looking across as many states and practices.

Our experience over the last several years is that we're in and when we are in and out of network position.

The reimbursement, we're receiving from payers tends to be quite low.

Brian Gil Tanquilut: Where we are providing neonatology services.

The arbitration processes that we that we enter.

Brian Gil Tanquilut: We usually viewed as more appropriate to look at a longer term.

So were generally unfavorable position when we are out of network from that from a rate standpoint or Jim.

Brian Gil Tanquilut: Timeframe to get a better sense of where things are going and as a result, as we look into 'twenty four.

Kevin It is volume to write it as volume on the ambulatory services, particularly in although we had.

Jim Swift: I suppose, you know, when we look at it at face value, one is, and we've talked about volume in the past, we're looking at staffing associated with the practices to make sure that we have the right staffing mix in terms of personnel. And within that, are we using physicians versus other clinicians such as nurse practitioners or PAs? I mean, that's one piece.

<unk> numbers on our maternal fetal medicine practices, but if you think about it when that is impacted and that outpatient setting that doesn't impact that does impact some of the inpatient if that is a mother, who is directed away from one of our practices that might not deliver at one of our facilities. So again that captures that volume back which which were.

Brian Gil Tanquilut: We're not anticipating within our within our outlook for the year.

Brian Gil Tanquilut: Any meaningful movement in inpatient volumes.

Speaker Change: And then maybe last question for me you guys talked about in network, how much out of network is going to be left in the business, let's just say as we exit the year.

Very pleased with.

Jim Swift: Two, we know that we have contract revenue in our relationship with some of our hospital partners, and certainly that becomes an element in terms of right sizing the support for those practices and making sure that we, you know, really are executing with our hospital partners in that regard. And we've had some favorable results thus far. And I think as well is the issue that we've seen about being back in network in the case of our ambulatory practices that have been adversely affected because, as opposed to the inpatient services where the patients do make it to the service largely, in those other areas, we are really, those patients are directed elsewhere. So we feel that there's going to be a benefit as we get, you know, more of our marketing and execution around, you know, patient volumes from an elective ambulatory standpoint, got it okay and then maybe since you talked about inpatient is there anything you're seeing in the hospital other than a tough comp from last year that um you know kind of like hinders the ability to drive growth is it is it your hospital losing market share or is it just the birth rate all together just curious how you're thinking about volume, You know, I think that part of the volume issue is, you know, take the NICU out for a moment.

Brian Gil Tanquilut: Year.

Okay, and then if I just want to make sure I got that.

Speaker Change: It's a good question because you are asking things that we don't know about how this year will unfold, but where we stand right now.

Right I think I think the reported same store pricing in the quarter was minus 50 basis points and you are saying add back 2% and then another 40 basis points you kind of look at overall pricing in the quarter as like a positive one nine on a normalized basis is that the right way to think about it.

Speaker Change: Our historical experiences.

Speaker Change: Five or less than 5% out of network position and were lower that as we entered it we're lower than that as we enter this year. Thanks to some of the re contracting was done.

That's right that's right that's right okay.

Walker.

Walk through the pieces same unit revenue quarter over quarters down about one 5%.

Speaker Change: Got it okay. Thank you.

Speaker Change: If there are any additional questions. Please press one zero.

About 1% of that is attributed to volume, which bring same unit rate down to about a 50 basis point decline.

Speaker Change: And you have a question from the line of Kevin Fischbeck from Bank of America. Please go ahead.

We've got some cares in there and then of course, you referenced the other component related to the guaranty last year.

Kevin Mark Fischbeck: Great. Thanks.

Kevin Mark Fischbeck: I guess a couple of follow up questions.

Okay. So when you said that your revenue guidance assumes stable volumes and stable pricing.

Kevin Mark Fischbeck: When you said that the.

That building a network that's usually a positive for the company. We are talking about positive on a rate perspective or are you talking about this dynamic with the with the outpatient.

When you say stable, you mean flat year over year or stable as in like still about 2% pricing.

No.

Kevin Mark Fischbeck: Volumes, usually getting a boost once you go in network.

When I say stable I mean, effectively flat continuing off of the end of 'twenty three so effectively.

Kevin Mark Fischbeck: I was referencing the rate.

Kevin Mark Fischbeck: Our experience over the last several years is that we're in and when we are in and out of network position.

The rate the.

The exit rate in 'twenty three is what we anticipate driving 24.

Kevin Mark Fischbeck: The reimbursement, we're receiving from payers tends to be quite low.

Okay is there a reason why youre not getting rate update that you are in network.

Kevin Mark Fischbeck: The arbitration processes that we that we enter.

Kevin Mark Fischbeck: So were generally unfavorable position when we are out of network from a from a rate standpoint and Jim.

I would think that you should be getting some sort of.

Cost of living is there something else about payer mix assumptions or anything else that youre assuming in there.

Kevin Mark Fischbeck: Kevin It is volume to write it as volume on the ambulatory services, particularly in although we had strong numbers on our maternal fetal medicine practices, but if you think about it when that is impacted and that outpatient setting that doesn't impact that does impact some of the inpatient if that is a mother, who is directed away from one of our practices.

No.

Jim Swift: You know, we did not see the large amount of volume this year as last year related to other inpatient services such as pediatric hospitals, pediatric ER, and pediatric ICU. I think from the standpoint of our inpatient NICU services, people talk a little bit about, you know, a higher degree of severe prematurity and increasing length of stays. And we've certainly seen that.

We assume our payer mix has been relatively flat year over year. If you look back in the 10-K, we're assuming that as well.

There are of course puts and takes in rate.

Of course.

Despite the fact that we're anticipating a stable rate through 24 in a flat volume.

Kevin Mark Fischbeck: That might not deliver at one of our facilities. So again that captures that volume back, which which we're very pleased with.

There is a little bit of growth in the top line the timing of that I'd say is counter balanced with both.

Jim Swift: Some of the bread and butter around admissions into the NICU has been variable across the country. So, again, we anticipate volumes will remain kind of where we are for the time being. But we don't see any indication of volumes decelerating, you know, going forward.

Kevin Mark Fischbeck: Okay, and then if I just want to make sure I got that.

Kevin Mark Fischbeck: Right I think I think the reported same store pricing in the quarter was minus 50 basis points and you are saying add back 2% and then another 40 basis points you kind of look at.

Our CEO transition and the like.

Okay, and then I guess as far as.

Overall pricing in the quarter as like a positive one nine on a normalized basis is that the right way to think about it.

Yes.

The guidance it doesn't sound like that's assuming anything from a capital deployment perspective, or do you expect to be active on that front.

Jim Swift: And Brian, just as a quick note on that, you know, we did highlight that the fourth quarter had some pretty strong comps that we went against. We looked at our NICU days over a two-year stack, and they were actually slightly positive versus two years ago.

Speaker Change: That's right that's right.

Speaker Change: Right, Okay, and so if you walk the walk.

But we still we still are looking at and I think there was.

Speaker Change: Walk through the pieces same unit revenue quarter over quarter is down about one 5%.

We had a certain amount of caution while we were out of network, but now being back in network largely in our bigger markets. We do have the opportunity to deploy capital in terms of acquisitions the practices and we're certainly identifying in the core.

Speaker Change: Sure.

Speaker Change: About 1% of that is attributed to volume, which bring same unit rate down to about a 50 basis point decline.

Mark Richards: So, in our view, looking across as many states and practices where we are providing neonatology services, we usually view it as more appropriate to look at a longer term timeframe to get a better sense of where things are going. And as a result, as we look into 24, you know, we're not anticipating within our outlook for the year any meaningful movement in patient volumes. And then maybe last question for me, since you guys talked about in-network, how much out of network is going to be left in the business, you know, let's just say as we exit? The Year.

Practices and it would make sense for us to acquire so yes, we still have an attitude of deploying capital in that regard.

Speaker Change: We've got some cares in there and then of course, you referenced the other component related to the guaranty last year.

Speaker Change: Okay. So when you said that your revenue guidance assumes stable volumes and stable pricing.

Alright, great. Thank you.

Next we'll go back to the line of Peter Chickering from Deutsche Bank. Please go ahead.

Speaker Change: When you say stable, you mean flat year over year or do you mean stable than like still about 2% pricing.

Hey, guys. Thanks for let me come back and just a quick modeling question.

Speaker Change: No.

Speaker Change: When I say stable I mean, effectively flat continuing off of the end of 'twenty three so effectively.

So looking at the guidance for modeling salaries and benefits as a 30 basis point sort of.

Headwind is that generally how we should be thinking about 2024.

Speaker Change: The rate.

Speaker Change: The exit rate in 'twenty three is what we anticipate driving 24.

Were you referencing that 30 basis points, Peter sorry, sorry.

Speaker Change: Okay is there a reason why youre not getting rate update that you are in network.

Looking at looking at your guidance from from revenue, you're saying that G&A is going to be flat.

Speaker Change: Think that you should be getting some sort of.

Jim Swift: It's a good question, because you're asking things that we don't know about how this year will unfold, but where we stand right now, our historical experience is less than 5% out-of-network position, and we're lower than that as we enter this year, thanks to some of the recontracting we've done. Thank you. If there are any additional questions, please press 1 and 0. And you have a question from the line of Kevin Fischbeck from Bank of America. Please go ahead.

Speaker Change: Cost of living is there something else about payer mix assumptions or anything else that youre assuming in there.

I mean just.

I guess, let me ask it differently, how do you view it obviously benefits as a percent of revenue and 24 versus 23.

Speaker Change: No I mean, we assume our payer mix has been relatively flat year over year. If you look back in the 10-K, we're assuming that as well.

Yes, I think you can partially solve for that and I think I think you have within the range. We provided on revenue and adjusted EBITDA at a high level, our view and our goal is that 24 represents a stabilization of our margin profile as compared to 2023 following some of the <unk>.

Speaker Change: There are of course puts and takes in rate.

Speaker Change: Of course.

Speaker Change: Despite the fact that we are anticipating a stable rate through 24 in a flat volume.

Speaker Change: There is a little bit of growth in the top line the timing of that I'd say is counter balanced with both.

Headwinds, we faced over the last year or two.

So that's.

By and large how we have formulated that outlook.

Speaker Change: Our CEO transition and the like.

Jim Swift: Great, thanks. Um, I guess I have a couple of follow-up questions. Um, when you said that going in network was usually a positive for the company, were you talking about positive on the rate perspective? Are we talking about this dynamic with outpatient volumes usually getting a boost once you go in network? I was referencing the rate, you know, our experience over the last several years is that when we are in an out-of-network position, the reimbursement we're receiving from payers tends to be quite low, hence the arbitration processes that we enter into. So, we're generally unfavorably positioned when we are out-of-network from a rate standpoint. Jim, you... Yeah, and Kevin, it is volume, too, right?

That's helpful to you.

Speaker Change: Okay, and then I guess as far as.

And then.

Which is I think last for 25 and beyond.

Speaker Change: Sure.

Speaker Change: The guidance it doesn't sound like it's assuming anything from a capital deployment perspective, or do you expect to be active on that front.

What.

I understand your G&A levers you guys have done a good job with that.

Speaker Change: Well, we still we still are looking at and I think there was.

Excellent jobs youre dealing with the RCM issues.

Speaker Change: We had a certain amount of caution while we were out of network, but now being back in network largely in our bigger markets. We do have the opportunity to deploy capital in terms of acquisitions the practices and we're certainly identifying in the core.

That occurred, but as I think about sort of two or three years down the road.

Is there an ability to stabilize SNB from turning from a.

A headwind into a tailwind or just sort of a permanent for headwind.

Speaker Change: Practice, and then it would make sense for us to acquire so yes, we still have an attitude of deploying capital in that regard.

These were offset with G&A leverage thank you so much.

Yes.

<unk>.

I think our goal and what we see is.

Speaker Change: Alright, great. Thank you.

The second half of the year is where we would look hopefully we start to see improvement and then looking into 'twenty five really it would be a different story, we think in terms of the overall cost structure both.

Speaker Change: Next we'll go back to the line of Peter Chickering from Deutsche Bank. Please go ahead.

Pito Chickering: Hey, guys. Thanks for let me come back and just a quick modeling question.

Jim Swift: It is volume on the ambulatory services, particularly, and although we had, you know, strong numbers in our maternal-fetal medicine practices, but if you think about it, when that is impacted in that outpatient setting, that doesn't impact, that does impact some of the inpatient if that is a mother who's directed away from one of our practices that might not deliver, you know, at one of our facilities. So, again, that brings that volume back, which we're very pleased with. Okay, and then if I just want to make sure I got the numbers right, I think the reported same store pricing in the quarter was minus 50 basis points, and you're saying to add back 2% and then another 40 basis points, so you kind of look at overall pricing in the quarter as like a positive 1.9 on a normalized basis. Is that the right way to think about it? That's right. That's right.

At the practice level on labor, but also again I think what we've referenced.

Pito Chickering: So looking at the guidance for modeling salaries and benefits as a 30 basis point sort of.

Is that we're looking at all the practice in terms of the efficiencies and those practices that will be benefit.

Pito Chickering: Headwind is that generally how we should be thinking about 2024.

The organization and on top of that is obviously, what we're doing structurally with our overhead at the corporate level.

Pito Chickering: Were you referencing that 30 basis points Vito sorry, sorry, just.

Pito Chickering: Looking at looking at your guidance from from revenue, you're saying that G&A is going to be flat.

Alright, great. Thanks, so much.

Thanks, guys.

And at this time there are no further questions.

Pito Chickering: I mean just.

Pito Chickering: I guess, let me ask it differently, how do you view it obviously benefits as a percent of revenue in 24 versus 23.

Thank you operator, and thank everyone for joining our call today.

Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T Executive teleconference. You may now disconnect.

Pito Chickering: Yes, I think you can partially solve for that and I think I think you have within the range. We provided on revenue and adjusted EBITDA at a high level. Our view on our goal is that the 24 represents a stabilization of our margin profile as compared to 2023 following some of that.

Sure.

Mark Richards: If you walk through the pieces, you know, same unit revenue, quarter over quarter down about one and a half percent. About 1% of that is attributed to volume, which brings the same unit rate down to about a 50 basis point decline. We've got some concerns in there.

Pito Chickering: Headwinds, we faced over the last year or two.

Pito Chickering: So that's.

Pito Chickering: By and large how we have formulated that outlook.

Speaker Change: That's helpful to you and then.

Speaker Change: Which is I think last for 25 and beyond.

Mark Richards: And then, of course, you referenced the other component related to the guarantee last year. Okay, so when you said that your revenue guidance assumes stable volumes and stable pricing, when you say stable, do you mean flat year over year, or do you mean stable as in, still about 2%? No.

Speaker Change: Got it.

Speaker Change: I understand your G&A levers you guys have done a good job with that.

Speaker Change: Excellent jobs youre dealing with the RCM issues.

Speaker Change: That have occurred but as I think about sort of two or three years down the road.

Speaker Change: Is there an ability to stabilize SNB from turning from a.

Mark Richards: When I say stable, I mean effectively flat, continuing off of the end of 23. So effectively, the rate... The exit rate at 23 is what we anticipate driving at 24. Okay, is there a reason why you're not getting rate updates while you're in that work? You know, I would think that you should be getting some sort of cost of living. Is there something else about pay or mixed assumptions or anything else that you're assuming? No.

A headwind into a tailwind or just sort of a permanent for headwind.

Speaker Change: These were offset with G&A leverage thank you so much.

Speaker Change: Yes.

Speaker Change: <unk>.

Speaker Change: Our goal and what we see is.

Speaker Change: The second half of the year is where we would look hopefully we start to see improvement and then looking into 'twenty five really it would be a different story, we think in terms of the overall cost structure both.

At the practice level on labor, but also again I think what we've referenced.

Mark Richards: I mean, we assume our payer mix has been relatively flat year over year. If you look back in the 10K, we're assuming that as well. There are, of course, puts and takes in rates. Of course, you know, despite the fact that we're anticipating a stable rate through 24 and a flat volume, there is a little bit of growth in the top line. The timing of that, I'd say, is counterbalanced with both, you know, our RCM transition and the like. Okay, and then, I guess, as far as...

Speaker Change: Is that we're looking at all the practice in terms of the efficiencies and those practices that will be benefit to.

Speaker Change: The organization and on top of that is obviously, what we're doing structurally with our overhead at the corporate level.

Speaker Change: Alright, great. Thanks, so much.

Speaker Change: Thanks, Steve.

Speaker Change: And at this time there are no further questions.

Speaker Change: Thank you operator, and thank everyone for joining our call today.

Speaker Change: Ladies and gentlemen that does conclude your conference for today. Thank you for your participation and for using AT&T Executive teleconference. You may now disconnect.

Jim Swift: The guidance doesn't sound like it's assuming anything from a topical appointment perspective, or do you expect to be active on that front? Well, we still, you know, we still are looking at, and I think there was, we had a certain amount of caution, you know, while we were out of network, but now being back on network largely, in our bigger markets, we do have the opportunity to deploy capital in terms of acquisitions of practices. And we're certainly identifying, at the core, those practices that would make sense for us to acquire. So yes, we still have an attitude of deploying capital in that regard. All right, great.

Speaker Change: Yeah.

Speaker Change: We're sorry your conferences ending now please hang up.

Speaker Change: Yes.

[music].

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change:

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: [music].

Operator: Thank you. Thank you. Next, we'll go back to the line with Pito Chickering from Deutsche Bank. Please go ahead. Hey guys, thanks for letting me come back in. Just a quick modeling question.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Operator: So we're looking at the guidance, you know, for modeling. Size and benefits are a 30 basis point sort of headwind. Is that generally how we should be thinking about 2024? Where are you referencing the 30 basis points, Pito? Sorry. Sorry, just, you know, looking at for guidance, you know, from revenue, you're saying that gene A is going to be flat. I mean, just, you know, I guess I'll ask you differently.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Okay.

Speaker Change: <unk>.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Mark Richards: Like, how do you view thousand benefits as a percent of revenue in 24 versus 23? Yeah, I think you can partially solve for that. And I think you have within the range we provided for revenue and adjusted EBITDA at a high level. Our view and our goal is that 24 represents a stabilization of our margin profile as compared to 2023, following some of the headwinds we faced over the last year or two. So that's, by and large, how we have formulated that outlook, if that's helpful. Yeah, and then, as I think that's for 25 and beyond, you know, what, you know, I understand your GNA levers, and you guys have done a good job with that.

Speaker Change: Yes.

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: [music].

Mark Richards: And, you know, excellent jobs for dealing with the RCM issues that have occurred. But as I think about sort of two, three years down the road, is there an ability to stabilize S&B from turning from a headwind into a tailwind, or is this sort of a permanent headwind that needs to be offset with GNA leverage? No, I think that our goal and what we see is the second half of the year. I hope we start to see improvement.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Jim Swift: And then looking into 25, really, it would be a different story, we think, in terms of the overall cost structure, both at the practice level in terms of labor, but also, again, I think what we've referenced is that we're looking at all practices in terms of the efficiencies in those practices that will be a benefit to the organization. And on top of that, obviously, what we're doing structurally with our overhead at a corporate level. All right, great. Thanks so much, and a lot more.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Alright.

Speaker Change: Sure.

Speaker Change: Okay.

Speaker Change: Sure.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Operator: Thank you. And at this time, there are no further questions. Thank you, operator, and thank everyone for joining our call today. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect...

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Yes.

Operator: We're sorry, your conference is ending now. Please hang up. ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? www.thevenusproject.com ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?? ?? ?? Ladies and gentlemen, thank you for standing by. Welcome to the 2023 fourth quarter earnings conference call. At this time, all participants are in a listen only mode.

Okay.

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Sure.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Operator: 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.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Yes.

Charles W. Lynch: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Charles Lynch. Please go ahead.

Speaker Change: Yes.

Speaker Change: [music].

Yes.

Speaker Change: Yes.

Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Sure.

Charles W. Lynch: Thank you, operator, and good morning, everyone. I'll quickly read our forward-looking statements and then turn the call over to Jim. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on assumptions and assessments made by Pediatrix's management in light of their experience and assessment of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Any forward-looking statements made during this call are made as of today, and Pediatrix undertakes no duty to update or revise any such statements, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in the company's filings with the SEC, including the sections entitled Risk Factors.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: Uh huh.

Speaker Change: Okay.

Speaker Change: [music].

Okay.

Speaker Change: Yes.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Yes.

Speaker Change: Okay.

Speaker Change: You should require assistance during the call. Please press Star then zero as a reminder, this conference is being recorded I would now like to turn the conference over to your host Charles Lynch. Please go ahead.

Charles W. Lynch: Thank you operator, and good morning, everyone quickly read our forward looking statements and then turn the call over to Jim.

Charles W. Lynch: Certain statements and information during this conference call maybe deemed to be forward looking statements within the meaning of the federal Private Securities Litigation Reform Act of 1095.

Charles W. Lynch: These forward looking statements are based on assumptions and assessments made by pediatrics as management in light of their experience and assessment of historical trends current conditions expected future developments and other factors they believe to be appropriate.

Charles W. Lynch: Any forward looking statements made during this call are made as of today and pediatrics undertakes no duty to update or revise any such statements whether as a result of new information future events or otherwise.

Charles W. Lynch: Factors that could cause actual results developments and business decisions to differ materially from forward. Looking statements are described in the company's filings with the SEC, including the sections entitled risk factors.

Charles W. Lynch: 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, our quarterly reports on Form 10-Q, and our annual report on Form 10-K.

Speaker Change: On our website at Www Dot pediatrics dot com with that I'll turn the call over to our CEO Dr. Jim Smith. Thank you Charlie and good morning, everyone. Also with me today is Mark Richards, our Chief Financial Officer our.

Speaker Change: Our underlying same unit pricing was also stable absent certain distortions from last year's fourth quarter that Mark will detail.

Speaker Change: Turning to 2024, we provided this morning, our preliminary outlook for adjusted EBITDA of between 200 and $220 million.

Speaker Change: This outlook reflects clear progress in three priorities Ifs.

Speaker Change: Effectively transitioning to a strong sustainable revenue cycle management program.

<unk> generating continued efficiencies across our support structure and maintaining strong payer relationships and a high in network status.

Speaker Change: It assumes also stabilizing our practice level margin profile against the headwinds we face.

Speaker Change: Give details on each of these priorities.

Speaker Change: Thanks to this combination of robust resources, we have not encountered any significant disruptions to our RCM activities through the fourth quarter and to date in 2024.

Jim Swift: Third, although our in-network status has typically been above 95%, we entered this year with an even higher in-network position following successful negotiations with two payers in three states where we previously had been out of network. As we've discussed in the past, we believe that these renegotiations were made possible by our ability to effectively navigate the arbitration process for out-of-network claims under the No Surprises Act, through which we've been able to demonstrate the value of the critical services our affiliated clinicians provide to their patients. We are very pleased that patients and their families now have in-network access to these services, and we are gratified to have broad recognition by payers of our essential role in the market. Finally, as I noted last quarter, we are also focusing on narrowing the range of financial performance across individual practices in our organization. We have identified and initiated specific plans for a wide range of affiliated practices. And these plans themselves encompass an array of structural, tactical, and strategic steps.

Speaker Change: Second while this hybrid RCM model does necessitate additional internal staffing within our G&A line, we continue to identify efficiencies within our non clinical infrastructure such that in 2024 are expected to total G&A expense will remain at a comparable percent of revenue as compared.

Speaker Change: 2023 third.

Speaker Change: Third although our in network status has typically been above 95%. We enter this year with an even higher in network position. Following successful negotiations with two payers in three states, where we previously had been out of network as we've discussed in the past we believe that these re.

Speaker Change: Negotiations were made possible by our ability to effectively navigate the arbitration process for out of network claims under the no surprises act through which we've been able to demonstrate the value of the critical services our affiliated clinicians provide to their patients.

Speaker Change: Actual tactical and strategic steps.

Speaker Change: Overall, I am confident that our focus on the operating priorities that are critical critical to our success will benefit all stakeholders and I firmly believe that this focus is in no way detracts from our mission to take great care of the patient we look forward to executing on these priorities throughout the remainder of the year before turning the call over to Mark.

Mark Richards: I want to emphasize that above all else. We are a clinically focused organization and we take very seriously. The critical role we play in the improvement in quality of patient care for the most fragile patients. This week pediatrics will be hosting two concurrent conferences our <unk>.

Mark Richards: <unk> annual specialty review at Neonatology at our 45th annual Neo the conference for Neonatology is a testament to our mission that we have hosted these important events for so long with strong attendance that goes well beyond pediatrics affiliated clinicians with that I'll turn the call over to Mark.

Mark Richards: Richard Thank.

Mark Richards: Thank you Jim Good morning, everyone I'll provide some details for the quarter. Our same unit volumes were mixed in the quarter with hospital based volumes declining somewhat offset by strong office space volumes, specifically maternal fetal medicine.

Mark Richards: I'll provide some details for the quarter. Our same unit volumes were mixed in the quarter, with hospital-based volumes declining somewhat offset by strong office-based volumes, specifically maternal-fetal medicine. Notably, these comparisons were against strong volumes in the prior year fourth quarter. On the pricing side, there are two key items to call out for you to make an appropriate year-to-year comparison. First, in the fourth quarter of 22, we recorded revenue from our prior RCM vendor for financial support related to age receivables, which did not recur in the 2023 fourth quarter. This reduced our same unit pricing growth by roughly 2% in Q4 of 23. Additionally, we recorded a modest amount of CARES dollars in Q4 of 22, which also did not recur, reducing our same unit pricing growth in Q4 of 23 by an additional 40 basis points. These items clouded what we view as a stable and positive price and comparison, which included favorable payer mix and a growth in contract and administrative fees. On the cost side, our practice level expenses declined slightly year over year, largely reflecting lower incentive compensation and malpractice expenses, partially offset by increases in salaries and group insurance expenses.

Mark Richards: Notably these comparisons were against strong volumes in the prior year fourth quarter.

Mark Richards: On the pricing side, there are two key items to call out for you to make an appropriate year to year comparison first and the fourth quarter of 'twenty. Two we recorded revenue from our prior RCM vendor for financial support related to aged receivables, which did not recur in the <unk>.

Mark Richards: 2023 fourth quarter.

Mark Richards: This reduced our same unit pricing growth by roughly 2% in Q4 of 'twenty three.

Additionally, we recorded a modest amount of cares dollars in Q4 of 'twenty, two which also did not recur.

Mark Richards: Reducing our same unit pricing growth in Q4 of 23 by an additional 40 basis points.

These items clouded, what we view as a stable and positive pricing comparison, which included favorable payer mix and our growth in contract and administrative fees.

Mark Richards: On the cost side, our practice level expenses declined slightly year over year, largely reflecting lower incentive compensation and malpractice expense.

Mark Richards: Partially offset by increases in salaries and group insurance expenses.

Mark Richards: As Jim noted underlying pricing level salary growth remained elevated in the mid single digits.

Mark Richards: Lastly, G&A increased slightly year over year, partially reflecting staffing increases as we continue to build our internal Rcmp.

Mark Richards: We generated $73 million in operating cash flow for the fourth quarter, resulting in full year operating cash flow of $146 million.

Mark Richards: As Jim noted, we're pleased that our RCM transition did not cause any material disruptions in billing and collections in the fourth quarter, and our DSOs were basically flat at year-end compared to the end of Q3. We ended the year with total borrowings of $628 million and cash of $73 million for net leverage at year-end of just under 2.8 times. As a reminder, we are a user of cash in the first quarter of each year as we pay out incentive compensation and other benefits, and this cash balance will reduce any potential borrowings needed before we turn to expected free cash flow generation in Q2 and beyond. I'll add some details to our 24-hour outlook. We expect net revenue of $2 to $2.1 billion, or modest growth over 23.

Mark Richards: We ended the year with total borrowings of $628 million and cash of $73 million for net leverage at year end of just under two eight times.

I'll add some details to our 24 outlook, we expect net revenue of two to $2 1 billion were modest growth over 23.

Mark Richards: And as Jim touched on, we anticipate that our G&A expense as a percentage of revenue will be comparable in 2024 versus 2023, with additions to our RCM team offset by continued efficiencies across our corporate infrastructure. Finally, in terms of quarterly earnings progression, we anticipate that our first quarter adjusted EBITDA will represent 17% to 19% of full-year adjusted EBITDA, largely reflecting the normal seasonality of our financial results. With that, I'll turn the call back over to Jim. Thank you, Mark.

Mark Richards: And as Jim touched on we anticipate that our G&A expense as a percentage of revenue will be comparable in 24 versus 23 with additions to our RCM team offset by continued efficiencies across our corporate infrastructure.

Mark Richards: Finally in terms of quarterly earnings progression, we anticipate that our first quarter adjusted EBITDA will represent 17% to 19% of full year adjusted EBITDA, largely reflecting the normal seasonality of our financial results.

Mark Richards: With that I'll turn the call back over to Jim.

Jim Swift: Operator, I'll now open the call for questions. Okay, ladies and gentlemen, if you'd like to ask a question, please press 1 then 0 on your telephone keypad. You may withdraw your question at any time by repeating the 1-0 command. If you're using a speakerphone, please pick up the handset before pressing the numbers.

Jim Smith: Thank you Marc operator, let's now open the call for questions.

Marc: Ladies and gentlemen, if you'd like to ask a question. Please press one and then zero on your telephone keypad you may withdraw your question at any time by repeating the one zero command if youre using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question. Please press one zero at this time and one moment. Please for your first question.

Marc: Your first question comes from the line of Brian <unk> from Jefferies. Please go ahead.

Marc: Yes.

Brian Gil Tanquilut: Bryan from Jefferies. Your line is open.

Brian Gil Tanquilut: Please check your mute button.

Brian Gil Tanquilut: Yeah.

Operator: Okay, we'll move on. We'll go to A.J. Rice from UBS.

Brian Gil Tanquilut: Okay, we'll move on we'll go to a J rice from UBS. Please go ahead.

Operator: Please go ahead. Hi, this is Enja on behalf of AJ. The company previously sized around a 15 million RCM headwind in the first half of 2023. Would that be a tailwind in 2024 for pricing in the first half? Thank you. You know, I don't think so.

J Rice: Hi, this is <unk>.

J Rice: Hey, Jay.

J Rice: The company previously slides around a $50 million RCM headwind in the first half of 2003 would that be a tailwind in 2000 and for pricing in the first half.

J Rice: I don't think so.

We are in the midst of a transition from an end to end vendor to a hybrid solution.

J Rice: I'd say as we progress through this transition which is staged in various components throughout 'twenty four we back to maintain stable pricing through this transition I E a continuance.

J Rice: What we saw in the fourth quarter of 'twenty three.

Jim Swift: Thanks. And then a quick question on arbitration. CMS reopened the arbitration portal in December.

Speaker Change: Got it thanks, and a quick question on arbitration.

Speaker Change: We opened the arbitration portal in December the <unk>.

Jim Swift: The company previously talked about having around a 75% success rate in arbitration cases versus the industry average of 71%. Are there any updates on this win rate? And are we seeing more cases go through arbitration than before? Thanks. Since we're back in network now with a number of the payers that we were having to contemplate arbitration, we haven't seen an increase related to arbitration cases.

Speaker Change: Company previously talked about having around a 75% success rate and arbitration cases versus the industry average of 71% are there any updates on this win rate and are you seeing more cases go to arbitration previously.

Speaker Change: Well said.

I will just start since we're back in network now with a number of the payers that we were having to contemplate arbitration.

Speaker Change: We haven't seen an increase related to our creation cases.

Jim Swift: I would say that the process and our internal process for this have continued to refine by having much of that capability in-house. Yeah, and our win rate has improved over the course of the last several months. We're approaching, at least on our most recent data, approaching almost 90% win rate when we are going to arbitration. Great. Thanks. Thanks a lot.

Speaker Change: I would say that the process and our internal process for this we've continued to refine by having much of that capability in house.

Speaker Change: Yes, and yes.

Speaker Change: Our win rate has improved through the course of the last.

Speaker Change: Several months were approaching at least on our most recent data are approaching almost 90% win rate when we are going to arbitration.

Speaker Change: Great. Thanks, Thanks, a lot.

Operator: Your next question comes from the line of Ryan Daniels from William Blair. Please go ahead. Hey, good morning, guys. This is Jack Thampton for Ryan Daniels.

Speaker Change: Your next question comes from the line of Ryan Daniels from William Blair. Please go ahead.

Hey, Good morning, guys. This is Jack on for Ryan Daniels. Thanks for taking my question.

Operator: Thanks for taking my question. First, the adjusted EBITDA guide was admittedly wider for the first quarter than what you've guided to in the past. Can you just talk about the rationale for this and maybe the puts and takes that get you to the low end of the range versus the high end of the range?

Operator: Thanks. Can you clarify? I didn't catch it right, related to the first quarter or the full year? Sorry, the first quarter.

Speaker Change: Can you clarify.

Speaker Change: Didn't catch it right related to the first quarter of the full year.

Speaker Change: Sorry, the first quarter.

Jim Swift: I think the guide was a 20 million range versus what you've done in the past with about 10 million. For the full year, we provided a $20 million dollar range, which, if you ever take a... 10% range around the midpoint of where we're at. For the first quarter, if you do the math on what Mark provided of 17 to 19% of full year EBITDA, that's a little bit narrower than $20 million. Sorry, yeah, I definitely misspoke. I meant the full year. Sorry about that.

Speaker Change: The guide was a 20 million range versus what you've done in the past of about $10 million.

Speaker Change: I think.

Speaker Change: For the full year that we provided a $20 million range, which is.

Speaker Change: Give or take.

Speaker Change: 10% range around the midpoint of where we're at.

Speaker Change: The first quarter, if you do the math on what Mark provided.

17 to 19, 19% of full year, EBITDA, that's a little bit narrower than $20 million.

Speaker Change: Alright, yes, I definitely thats, okay, I meant the full year sorry about that.

Speaker Change: And then a quick follow up here last quarter or two I know you mentioned that youre planning to tackle the labor cost challenges and growth in clinician comp curious if you can just given any additional color here and kind of what you've done or at least plan to do heading into 2024.

Speaker Change: And then can you just maybe if we can just get your expectations here for 2024 at this initiative as well thanks.

Speaker Change: I'll start.

Speaker Change: I can I can start off and let Jim add some color.

Mark Richards: Within our expectations for the full year, EBITDA is similarly expected to show some moderation and underlying practice level expense growth. And, as we discussed in the previous quarter and Jim referenced this morning, we have fairly specific plans across a pretty broad spectrum of practices that have any number of different focal points to them. And a lot of that is geared toward a stabilization of gross margin across our practice spectrum. And within that, and obviously within our guidance for this year, is some moderation and overall practice level expense growth versus what we experienced over the past year. Jim, do you want to... Yeah, and we're really looking at what we're doing on the variable and fixed comp side to have more stability around that.

Speaker Change: We have a fairly specific plans across a pretty broad spectrum of practices.

Speaker Change: That had any number of different focal points to them and a lot of that is geared toward stabilization.

Speaker Change: Gross margin.

Speaker Change: Across our practice spectrum and within that.

Obviously within our guidance for this year is some moderation in overall.

Speaker Change: Practice level expense growth versus what we experienced over the past year, Jim do you want to.

Jim Smith: We're looking at really what we're doing on the variable and fixed comp side to have more stability around that.

Mark Richards: Additionally, I think, you know, what we've seen along the way in starting up new practices is that in some of the specialties, the harder challenge to recruit in and pay those physicians, I think we'll still see some of that, but I think in some of the specialties where we've largely had to use locums, we think that there's an expanding pool of clinicians where we are not going to have contract labor as a headwind Your next question comes from the line of Pito Chickering from Deutsche Bank. Please go ahead.

Speaker Change: Additionally, I think what we've seen along the way and starting up new practices is that b and some of the.

Speaker Change: Specialties, the harder challenge to recruit in.

Those physicians I think we'll still see some of that but I think in some of the specialties.

Speaker Change: We've largely had to use locums.

Speaker Change: I think that there is a expanding pool of clinicians where we are not going to have the really the contract labor is a headwind.

Speaker Change: Yeah.

Your next question comes from the line of Peter Chickering from Deutsche Bank. Please go ahead.

Operator: Hey, good morning, guys. On revenue growth, Scott, answers are 2 to 2.1 billion. What are the components of the revenue growth split between volume and price? Hey, Pito, good morning. We, You know, I would, I would take out a couple of pieces.

Pito Chickering: Hey, good morning, guys.

On the revenue growth guidance are 2% to put 1 billion what are the components of the revenue growth split between volume and price.

Pito Chickering: Yes.

Pito Chickering: Hey.

Speaker Change: Good morning.

Speaker Change: I would take out a couple of pieces.

Mark Richards: You know, we're expecting stable volume throughout 24 in our guidance. Volume, of course, is a contributing factor to our top line range that we provided. I would also say, as we indicated, we expect through our RCM transition for rates to remain somewhat stable through 24, and certainly, as we complete the various stages of the transition and we move over to our complete hybrid solution, there's opportunity for rate improvement as we approach the end of the year. Okay, so, you know, basic stable volumes and stable rates. So I mean, as you brought on those out-of-network contracts into in-network, was that That's generally, if we're going to move from an out-of-network to an in-network position, that's generally favorable for us, Pito.

Speaker Change: Factoring stable volume throughout 'twenty, four and our guidance.

Speaker Change: Volume of course is a contributing factor to our top line range that we've provided I would say also as we indicated we expect through our RCM transition for rate to remain somewhat stable through 'twenty four certainly as we.

Speaker Change: Complete the various stages of the transition.

Speaker Change: And we move over to our complete hybrid solution. There is opportunity for rate improvement as we approach the end of the year.

Speaker Change: Okay. So basically stable volumes is stable rates.

Speaker Change: So I mean as you brought on those I don't know where contracts into in network was at a rate tailwind or rate headwinds.

Speaker Change: <unk>.

Speaker Change: That's generally if we're going to move from an out of network to in network position that that's generally favorable for us Peter Alright, and the last component.

Mark Richards: And the last component of Pito, the last component of that top-line revenue estimate, is around organic growth and the opportunities there. Okay, which actually is a great segue, you know, looking at your sort of, you know, guidance ranges, you know, with contracting for pricing basically set, and contracting with your doctor basically set, is the only variable between the high and the low end simply where the volumes end out or you know what the components are that are between the high end versus the low end? I mean, Pito, I would say that that is certainly a component of I want to be clear, though; we have a lot of activity on the operational side, be it in the RCM transition, in our practice level plans, and in our corporate plans. So there is an execution component to each of those that we wanted to take into account within that guidance range. Thank you. Thank you. Okay, fair enough. Two more quick ones here. With your...

Peter the last component of that topline revenue estimate is around organic growth and the opportunities there.

Speaker Change: Okay, which which actually is a great segue.

Speaker Change: Looking at <unk>.

Speaker Change: Guidance ranges.

Speaker Change: With with contracting for pricing basically set in contracting with your doctors basically reset is the only variable between the high and the low end is simply where the volumes of doubt or.

Speaker Change: The components are there between the high and low end of guidance.

Speaker Change: I mean, I would say that is certainly a component of that.

Speaker Change: That range.

Speaker Change: Yes.

Speaker Change: Okay fair enough.

Quick ones here.

Jim Swift: Contracting with your physicians, has there been any change to sort of turnover, you know, as those contracts come up for renewal, has there been any change to turnover of those docs on those contracts, or is it pretty stable? It's been pretty stable so far. Our turnover is very low, as we've commented before, and with most of these contracts, again, some of them are, you know, renewed over a three-year period, and in the specialties we're in, we really are the medical home for a lot of these specialties, so I think that really breeds confidence within the clinician pool to remain a part of the organization. Alright, complete the answer and then the last quick one here: precautionary conversion for 24 should be pretty similar to, you know, as it was in 23.

Speaker Change: With your.

Speaker Change: Contracting with your physicians has there been any change to sort of turnover as those contracts come up for renewal.

Speaker Change: Any change to the turnover of those docs on those contracts or is it pretty stable.

Speaker Change: Yes.

Speaker Change: It's been pretty stable our turnover is very very low as we've commented before.

And with most of these contracts again some of them are renewed over three year period, and especially as we're in we really are the medical home for a lot of these specialties. So I think that really breeds confidence within the clinician pool to remain a part of the organization alright.

Speaker Change: Alright makes complete sense and then last quick one of your free cash flow conversion for 24 should be pretty similar for us.

Speaker Change: It wasn't.

Q4 2023 Pediatrix Medical Group Inc Earnings Call

Request a DemoDemo

Pediatrix

Earnings