Q1 2024 Pediatrix Medical Group Inc Earnings Call

May 7, 2024

Ladies and gentlemen, thank you for standing by your conference will be underway. Shortly please continue to hold.

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Operator: Ladies and gentlemen, thank you for standing by. Your conference will be underway shortly. Please continue to hold. Your conference will begin momentarily. Please continue to hold. Ladies and gentlemen, thank you for standing by. Welcome to the Pediatrix Medical Group 2024 First Quarter Earnings Conference Call. At this time, all participant lines are in a listen-only mode.

Speaker Change: Ladies and gentlemen, thank you for standing by welcome to the Pediatrics Medical Group 2024 first quarter earnings Conference call.

At this time all participant lines are in a listen only mode. Later, there will be an opportunity for your questions instructions will be given at that time. As a reminder, this conference is being recorded for digitized replay I would now like to turn the conference over to Charles Lynch. Please go ahead.

Operator: Later, there will be an opportunity for your questions, and instructions will be given at that time. As a reminder, this conference is being recorded for digitized replay. I would now like to turn the conference over to Charles Lynch. Please do so.

Charles W. Lynch: Thank you operator, and good morning, everyone and welcome to our call I'll quickly read through our forward looking statements and then we'll get into our content.

Charles W. Lynch: Thank you, operator. And good morning, everyone.

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: Welcome to our call. I'll quickly read through our forward-looking statements, and then we'll get into our content. 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 pediatrics management in light of their experience and assessment of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate.

These forward looking statements are based on assumptions and assessments made by pediatrics its 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 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. In today's Remarks by Management, we will be discussing non-GAAP financial metrics.

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 discussing non-GAAP financial metrics.

Charles W. Lynch: A reconciliation of these non-gap financial measures to the most comparable gap 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 on our website at www.pediatrics.com. With that, I'll turn the call over to our CEO, Dr. Jim Swift.

Speaker Change: 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 on our website at Www Dot pediatrics dot com with that I'll turn the call over to our CEO Dr. Jim Swift. Thank you Charlie Good morning, everyone also with me today.

James D. Swift: Thank you, Charlie. Good morning, everyone. Also with me today is Mark Richards, our Chief Financial Officer. Our first quarter results were in line with our expectations. Our same unit revenue growth reflected positive volumes in our hospital-based services, with NICU days increasing 2.5%. On the office-based side, we saw ongoing volume strength in maternal-fetal medicine, offset by declines in our primary and urgent care clinics, which I will touch on in my remarks this morning.

Speaker Change: As Mark Richards, our Chief Financial Officer.

Speaker Change: Our fourth quarter results were in line with our expectations. Our same unit revenue growth reflected positive volumes in our hospital based services with at ICU days, increasing two 5% on the office based side, we saw ongoing volume strength in maternal fetal medicine offset by declines in our primary urgent care clinics, which I will touch on.

Speaker Change: In my remarks. This morning are practice level operating expenses continue to reflect modestly elevated salary and group health insurance trends, partially offset by lower benefit and incentive compensation.

James D. Swift: Our practice-level operating expenses continue to reflect modestly elevated salary and group health insurance trends, partially offset by lower benefit and incentive compensation. Finally, G&A expense was largely unchanged year over year despite the additional staffing we have added related to our internal front-end revenue cycle management.

Speaker Change: Finally, G&A expense was largely unchanged year over year. Despite the additional staffing we have added related to our internal front end revenue cycle management team. We are reaffirming our full full year 2024 outlook of adjusted EBITDA between 200 $220 million.

James D. Swift: We are reaffirming our full year 2024 outlook with adjusted EBITDA between $200 and $220 million. And I will focus on this since we believe we are well on our way to enacting changes that will stabilize our margins as compared to 2023 and enable a lower cost structure going forward. First and foremost, while we have historically undertaken regular portfolio management decisions leading to certain practice exits, we have now shifted and are in the process of an accelerated portfolio restructuring plan under which we are exiting a meaningful number of underperforming office-based practices now and at the end of 2024.

Speaker Change: And I will focus on this since we believe we are well on our way to enacting changes that will stabilize our margins as compared to 2023 and enable a lower cost structure going forward.

Speaker Change: First and foremost while we have historically undertaking regular portfolio management decisions, leading to certain practice exits we have now pivoted and are in the process of an accelerated portfolio restructuring plan under which we are exiting a meaningful number of underperforming office based practices now and before the end of 2024.

James D. Swift: This is in addition to steps we are taking toward performance improvement across our portfolio of practices, including restructuring and stipend renegotiations, which we believe will result in increased profitability for the organization. We've also made the strategic decision to exit our primary and urgent care clinic platform, which represents roughly two dozen clinics in Florida, Texas, and Colorado.

Speaker Change: This is in addition to steps we are taking towards performance improvement across our portfolio of practices, including restructuring and stipend renegotiations, which we believe will result in increased profitability for the organization.

Speaker Change: We've also made the strategic decision to exit our primary an urgent care clinic platform, which represents roughly two dozen clinics in Florida, Texas and Colorado. This decision was based on our review of the cost and time.

James D. Swift: This decision was based on our review of the cost and time required to build this platform to scale, an undertaking that no longer fits at a time when we are focused on stabilizing our margin profile. We intend to complete this exit during the second quarter of this year. All of this portfolio restructuring activity is targeted to address the components of our practice portfolio that have diluted or consolidated operating margins with the goal of either removing or remediating that dilution over the coming quarter.

Speaker Change: Required to build this platform to scale and undertaking that no longer fits at a time when we are focused on stabilization of our margin profile, we intend to complete this exit during the second quarter of this year.

Speaker Change: All of this portfolio restructuring activity is targeted to address the components of our practice portfolio that have diluted our consolidated operating margins with a goal of either removing or remediated net dilution over the coming quarters. Importantly, we have created significant oversight of this restructuring through a strong inter.

James D. Swift: Importantly, we have created significant oversight of this restructuring through a strong internal project management team with designated responsibilities, and our leadership is in a cadence of regular, frequent updates, all focused on execution. Second, the transition of our RCM function to a hybrid model is going well. As you may have seen in our recent filing, we finalized a contract with GuideHouse, under which that organization will be our third-party RCM provider. We have been working with GuideHouse since late 2023 and have been very pleased with the resources dedicated to pediatrics, the quality of work, and the collaboration with our internal team, which we expect will be fully staffed over the coming several months.

Speaker Change: <unk> project management team and with designated responsibilities and our leadership is in a cadence of regular frequent updates all focused on execution.

Speaker Change: Second the transition of our RCM function to a hybrid model is going well as you may have seen in our recent filing we finalized the contract with gatehouse under which that organization will be our third party RCM provider.

Speaker Change: We have been working with guide house since late 2023 and have been very pleased with the resources dedicated to pediatrics the quality of work and the collaboration with our internal team, which we expect will be fully staffed over the coming several months.

James D. Swift: As Mark will detail, our RCM performance has not been negatively impacted by this transition, and we believe our hybrid structure is the most cost-effective way to fully support our practice. Finally, we remain intensely focused on efficiency.

Speaker Change: As Mark will detail our RCM performance has not been negatively impacted by this transition and we believe our hybrid structure is the most cost effective way to fully support our practices.

Mark Richards: We believe that our portfolio restructuring activity will enable more effective non-clinical support in the future by emphasizing markets where we have significant infrastructure and system relationships. During the quarter, we also affected a number of position eliminations across operations and GNA, such that we are confident that we can maintain a GNA expense level in 2024 that is comparable to or lower than 2023 as a percent of revenue, despite the internal additions we have made to our RCM, From a timing perspective, much of the impact of our portfolio restructuring will be felt as we move through the second half of the year, and Mark will give some comments about our expected cadence of quarterly adjusted EBITDA.

Speaker Change: Finally, we remain intensely focused on efficiency, we believe that our portfolio restructuring activity will enable more effective non clinical support in the future by emphasizing markets, where we have significant infrastructure and system relationships during.

Speaker Change: During the quarter, we also affected a number of position eliminations across operations and G&A.

Speaker Change: Such that we are confident that we can maintain a G&A expense level in 2020 core that is comparable to or lower than 2023 as a percent of revenue. Despite the internal additions we have made to our RCM team.

Speaker Change: From a timing perspective much of the impact of our portfolio restructuring will be felt as we move through the second half of the year and Mark will give some comments about our expected cadence of quarterly adjusted EBITDA.

Mark Richards: We do believe that, taken as a whole, these operating plans will put pediatrics in a position of far greater margin stability and operational efficiency, in addition to enhanced support of our practices and affiliated clinicians. I want to thank all of the Pediatrix associates, both clinical and non-clinical, for their hard work and dedication to this organization. We are confident that the operating plans we have in motion will benefit all stakeholders and will enable Pediatrix to effectively continue its mission to take great care of the patient. And with that, I'll turn the call over to Mark Ritchie. Thank you, Jim. Good morning, everyone.

Speaker Change: We do believe that taken as a whole. These operating plans will put pediatrics and a position of far greater margin stability and operational efficiency. In addition to enhanced support of our practices affiliated clinicians.

Speaker Change: Want to thank all of the pediatric associates, both clinical and non clinical for their hard work and dedication to this organization. We are confident that the operating plans. We have in motion will benefit all stakeholders and will enable pediatrics to effectively continuous mission to take great care of the patient and with that I'll turn the call over to Mark Richards.

Mark Richards: Thank you Jim good morning, everyone.

Mark Richards: I'll provide some additional details on a few areas. I'll start with cash flow. 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. During Q1, we used $123 million in operating cash flow compared to $101 million in Q1 of 2023.

Mark Richards: I'll provide some additional details in a few areas I'll start with cash flow. As a reminder, we are a user of cash in the first quarter of each year as we payout incentive compensation and other benefits.

Mark Richards: During Q1, we used $123 million in operating cash flow compared to $101 million in Q1 of 'twenty three.

Mark Richards: This differential largely relates to accounts receivable, where our DSOs declined in the first quarter of 23. For Q1 of 24, our counts receivable DSO rose roughly a day and a half from 1231, reflecting a slight impact from the change healthcare incident and, to a lesser degree, our RCM transition process. As related to change, we expect this impact to be just a cash deferral.

Mark Richards: This differential largely relates to accounts receivable, where our dsos declined in the first quarter of 'twenty three.

Mark Richards: For Q1 of 'twenty for our accounts receivable DSO rose roughly a day and a half from 12 31, reflecting a slight impact from the change healthcare incident.

Mark Richards: And to a lesser degree our RCM transition process.

Mark Richards: Related to the change we expect this impact to be just the cash deferral, we utilized change primarily for insurance verification.

James D. Swift: We utilize change primarily for insurance verification, and we were able to quickly pivot to two other vendors with minimal disruption. While this did have a slight timing effect on us during the first quarter, thus far in Q2, we believe that the disruption is behind us based on cash receipts. Secondly, Jim noted that we have now finalized our contract with GuideHouse as our RCM provider, and we have been fully engaged in transitioning from our former vendor.

Mark Richards: And we were able to quickly pivot to two other vendors with minimal disruption.

Mark Richards: While this did have a slight timing effect for us during the first quarter. Thus far in Q2, we believe that disruption is behind us based on cash receipts.

Mark Richards: Secondly, Jim noted that we have now finalized our contract with guide house as our RCM provider and we have been fully engaged in transitioning from our former vendor.

James D. Swift: We are undertaking this transition in stages, which will continue in a deliberate fashion over the coming months. As of today, we have transitioned roughly one-third of our affiliated practices to GuideHow, with the expectation of completion by the end of the third quarter. Finally, I'll touch on our 24 outlook and our view of the quarterly progression of our adjusted EBIT. As Jim noted, while our portfolio restructuring activity is already well underway, we anticipate that its financial impact will be largely weighted towards the second half of this year. As a result, we expect that adjusted EBITDA for the second quarter will contribute 24 to 25% of our full-year outlook of $200 to $220 million.

Mark Richards: We are undertaking this transition in stages, which will continue in a deliberate fashion over the coming months.

Mark Richards: As of today, we have transitioned roughly one third of our affiliated practices to guide house with the expectation of completion by the end of the third quarter.

Mark Richards: Finally, I'll touch on our 24 outlook and our view of the quarterly progression of our adjusted EBITDA.

Mark Richards: As Jim noted, while our portfolio restructuring activity is already well underway, we anticipate that its financial impact will be largely weighted towards the second half of this year.

Mark Richards: As a result, we expect that adjusted EBITDA for the second quarter will contribute 24% to 25% of our full year outlook of $200 million to $220 million.

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

Operator: With that, I'll turn the call back over to Jim. Thank you, Mark. Operator, let's open up the call for questions now.

James D. Swift: Thank you Marc operator, let's now open up the call for questions certainly ladies and gentlemen, if you would like to ask a question you May press. One then zero on your telephone keypad.

Operator: Certainly. Ladies and gentlemen, if you would like to ask a question, you may press 1 then 0 on your telephone keypad. You will hear a tone indicating that you have been placed in queue. And one moment, please, for the first question. We have a question from the line of Pedo Chickering with Deutsche Bank. Please go ahead.

James D. Swift: You will hear a tone, indicating that you had been placed in Q.

James D. Swift: And one moment please for the first question.

James D. Swift: We have a question from the line of <unk> Chickering with Deutsche Bank. Please go ahead.

Philip Chickering: Hey, good morning. So I'm trying to do the math there. And so, apologies.

Chickering: Hey, good morning, So I'm trying to do the math, there so apologies but.

Chickering: I guess and looking at all the.

Chickering: The practice disposition.

Philip Chickering: But, you know, I guess I'm looking at all the practice dispositions. You know, for what percent of the annual EBITDA should we be modeling for the fourth quarter? I'm just trying to figure out what the exit rate we should be modeling on core growth for 2025.

Chickering: So what percent of the annual EBITDA should we be modeling on the fourth quarter I'm, just trying to figure out what the exit rate, we should be modeling on a core growth for 2025.

Chickering: Yes.

Charles W. Lynch: I think Peter, it's Charlie, you know, we wanted to be clear on our expectations for the first half of this year. And if you think about the math we've provided, given the first quarter adjusted EBITDA of 37 against that 200 to 220. I think it is in the range of 18 or so percent of the full year. And with the second quarter, as Mark laid out, between 24 and 25 percent. I can give you a sense of the contribution from the first half of this year, as we expected.

Charlie: Peter It's Charlie.

Charlie: We wanted to be.

Charlie: Clear on our expectations through the first half of this year and if you think about the <unk>.

Charlie: And Matt we've provided given the first quarter adjusted EBITDA of 37 against that 200 to 220.

Chickering: I think is in the range of 18 or so percent of the full year.

Speaker Change: And with the second quarter as Mark laid out between 24, and 25% I can give you a sense of the contribution from the first half of this year is as we expected.

Charles W. Lynch: For the second half, keep in mind that our normal seasonal pattern of adjusted EBITDA, all else being equal, would yield our third quarter being the strongest contributor of the year, followed by the fourth quarter. However, based on the timing of our activity... Some of that might be affected by that activity as it continues to contribute, but that's the baseline you should be thinking about. You know, the normal seasonal pattern is such that the third quarter tends to be the strongest.

Chickering: For the second half keep in mind that our normal seasonal pattern of adjusted EBITDA, all else being equal would yield our third quarter being the strongest contributor of the year followed by the fourth quarter.

Chickering: Based on the timing of our activity.

Chickering: Some of that might be.

Chickering: Affected by that activity as it continues to contribute but that's the baseline you should be thinking about that.

Chickering: The normal seasonal pattern.

Chickering: The third quarter tends to be the strongest.

Speaker Change: Okay and on the practice disposition I guess looking at the both the office and urgent primary care or are these projects that are coming up for renewal or are used for exiting these contracts sort of mid mid I guess contracting cycle, just because of the margins and then do you have assumed success rate.

Philip Chickering: Okay, and on the practice disposition, I guess, you know, looking into both the office and urgent primary care, are these practices that are coming up for renewal? Or are you sort of exiting the contract, sort of?

unknown: Transcription by https://otter.ai

James D. Swift: Michael Fischbeck, Unknown Executive, Philip Chickering, Kevin Fischbeck, James Swift, This is Jim. Yeah, I don't think that there's anything related to, you know, contractual requirements. You know, we do have some of these practices may have some call contracts with some of our affiliated health systems. So there's some work around that, but we didn't anticipate the restructuring would coincide with any contracts, either employment agreements or service coverage obligations. We did this because these were practices that we felt were really negative in terms of their even their contribution and, in the past, we've had some remediation we've done with them, but it was time to look at these effectively and dispose of them.

Speaker Change: On reduced on renewing practices today as you've historically had I just wanted to understand more about why now is the time to do it.

Speaker Change: As assets.

James D. Swift: This is Jim.

Speaker Change: If there is anything related to contractual requirements. We do have some of these practices may have some call contracts with some of our affiliated health systems.

James D. Swift: Some work around that but we didn't envision that restructuring to coincide with any contract size of employment agreements or service coverage obligations. We did this because these were practices that we felt.

James D. Swift: We're really negative in terms of their EBITDA contribution.

James D. Swift: In the past we've had some remediation we've done with them, but it was time to look at these.

James D. Swift: Secondly, and and dispose of them.

Philip Chickering: Okay, and then this last question. I'm going to get a couple inbound on this one.

Speaker Change: Okay, and then just last question them again, getting a couple of them down in this one.

Philip Chickering: on this one, you know, with the additions this year and the fuller guidance you're reiterating, do you think you guys can grow in 2025 with the revised asset base? Bye.

Speaker Change: With the dispositions this year and our full year guidance, you're reiterating do you think you guys can grow 25 with sort of the revised asset base.

James D. Swift: I think it's a little bit premature to think into 2025. The only thing I would comment, you know, is that the financial impact that we anticipate from this activity, while it will affect our results, it should affect our results in the second half of this year, which would not reflect the full year impact of this restructuring activity. I think that's about as far as we're going to go related to 2025.

Speaker Change: I think it said.

Speaker Change: Little bit premature to think into 2025, the only thing I would I would comment is that the the financial impact.

Speaker Change: That we anticipate from this activity while it will affect our results it should affect our results in the second half of this year that would not reflect the full year impact of this restructuring activity I think thats about as far as we're gonna go related to 2025.

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

Operator: Next, we have a question from Brian Tanquilut with Jeffries. Please go ahead.

Speaker Change: Next we have a question from Brian <unk> with Jefferies. Please go ahead.

Nor Roble: Hi, this is nor roble in for Brian I. Appreciate you taking my question just curious to know your outlook on the volume and rate side of the business. Just curious if theres anything we should know in terms of the cadence for those two kpis for this year.

Noor Roble: Hi, this is Noor Roble and for Brian, I appreciate you taking my question. I'm just curious to know your outlook on the volume and rate side of the business. Just curious if there's anything we should know in terms of the cadence for those two KPIs.

Mark Richards: I'll give a quick comment and I'll turn it over to Jim just related to the first quarter, and this might give you a little bit of detail. Our office-based patient volumes, you know; we saw real strength in our maternal-fetal medicine volumes. They were up about 3% for the first quarter, keeping in mind that there was no leap year impact on our office-based services, effectively the same number of office days. So that's a solid number.

Nor Roble: As Charlie I'll give a quick comment and I'll turn it over to Jim.

Charlie: Related to the first quarter and this might provide you a little bit of.

Speaker Change: Detail.

Charlie: And our office based patient volumes.

Charlie: We saw real strength in our maternal fetal medicine volumes.

James D. Swift: We're up about 3% for the first quarter keeping in mind that there was no leap year impact on our office based services effectively the same number of office days. So thats a solid number the real offset on the office based side and volumes was primary in urgent care. So for the rest of our business things that looked fairly stable.

James D. Swift: The real offset on the office-based side in volumes was primary and urgent care. So for the rest of our business, things looked fairly stable. On the hospital-based side, our NICU days were up about 2.5%. The lead day effect is about a percentage point on that. So still, growth in our NICU days, underlying births were relatively stable, I would say, roughly flat with..., rate of admission and like to stay up slightly, which is a phenomenon we have seen relatively consistently over the last couple of years.

Charlie: In the hospital based side, our NICU days were up about two 5% the leap the leap day effect is about a percentage point on that but still.

Charlie: Growth in our NICU days underlying births were relatively stable I would say roughly flat with.

Charlie: Rate of admission and length of stay up slightly which is a phenomenon. We have seen relatively consistently the last the last couple of years.

James D. Swift: So to put that together, I would say that, as we developed our budget and our forecast, our outlook for 2024 was for a stable volume profile across our business lines and stable demand. And I would say that, Jim, that's effectively what we experienced in the first quarter. Yeah, that's exactly what we saw. And I think, you know, we remain encouraged by the volumes that we've seen in maternal fetal medicine, which really carries over from the end of last year. So not that that's necessarily a leading indicator in terms of neonatal volume, but it is encouraging to us that that is a platform that is very important to the organization.

Charlie: So to put that together I would say that our outlook for 2024, as we developed our budget and our forecast was for a stable volume profile across our business line and stable demand and I would say that Jim that's effectively what we experienced in the first quarter. That's exactly what we saw and I think we remain encouraged by the volumes that we've seen in <unk>.

Charlie: Hurdle people medicine, which really carries over from the end of last year. So not that that's necessarily a leading indicator in terms of neonatal volume, but it is encouraging to us that that is a platform that's very important to the organization.

Speaker Change: Got it. Thank you very much for that clarity and then I guess, just pivoting to W. B line.

Noor Roble: Got it. Thank you very much for that clarification.

Noor Roble: And then I guess just pivoting to the SWB line. Curious to know how you all think that's going to progress throughout the year. I know Q1 is usually high from a seasonal perspective, but curious if you could provide any color on that front.

Speaker Change: To know how you all think that's going to progress throughout the year I know Q1, usually.

Speaker Change: Hi from a seasonal perspective, but curious if you could provide any color on that front.

Mark Richards: I would say that there are a couple of components in it. As Jim mentioned, our underlying salary trend remains, you know, a little bit elevated versus our historical experience with salary inflation. Offset, you know, this quarter by, you know, some lesser growth, and the other components of that have to be, indeed, particularly incentive compensation. The second point I would make is that as we affect our operating plans and the portfolio restructuring, that would necessarily have an impact, on paper, on our SWB percent of revenue because the, you know, the basket of practices and sites that are in our plans, as you would imagine, have a meaningfully higher percent of unaligned SWB as a percent of revenue.

Speaker Change: I would say that there are a couple of components in there as Jim mentioned, our underlying salary trend remains a little bit elevated versus our historical experience and salary inflation.

Speaker Change: <unk>.

Speaker Change: Offset this quarter by some some lesser growth in the other components of that SWM, particularly incentive compensation.

Speaker Change: The second point I would make is that as we effect, our operating plans and the portfolio restructuring that would necessarily have an impact.

Speaker Change: On paper on our <unk> as a percent of revenue because the.

Speaker Change: The basket of practices in sites that are in our in our plans.

Speaker Change: As you would imagine have a meaningfully higher percent of underlying SWM as a percent of revenue.

Speaker Change: Got it thank you.

Operator: And next, we have a question from Kevin Fischbeck with Bank of America. Please go ahead.

Speaker Change: And next we have a question from Kevin Fischbeck with Bank of America. Please go ahead.

Kevin Mark Fischbeck: Great. Thanks can you help size from a revenue perspective.

Kevin Mark Fischbeck: Great, thanks. Can you help size, from a revenue perspective, what the assets that you're looking to exit would represent? And just to be 100% clear, it sounds like you're saying that they have an absolute negative EBITDA margin. I just wanted to confirm that as well.

Kevin Mark Fischbeck: What the assets that Youre looking to.

Kevin Mark Fischbeck: Exit would represent that and just to be 100% clear it sounds like you're saying that they have an absolute negative.

Kevin Mark Fischbeck: EBITDA margins.

Kevin Fischbeck: From that as well.

Mark Richards: Yeah, Kevin, in terms of the The total asset count, I would would point you to a couple other pieces here, you know, with respect to call it some of the disposition activity that we're going through. If you look at kind of non same unit revenue for the quarter, it's down about six point eight million dollars. The bulk of.

Speaker Change: Yes, Ken.

Speaker Change: Kevin in terms of the.

Speaker Change: The total asset count I would point you to a couple of other pieces here with respect to call. It some of the disposition activity.

Speaker Change: We're going through if you look at kind of non same unit revenue for the quarter, it's down about $6 $8 million.

Speaker Change: The bulk of.

Speaker Change: Our disposition functions right now are reflected in that non same unit line item. So some of the components related to kind of the way.

Mark Richards: [inaudible] Disposition functions right now are reflected in that non-same unit line item. So some of the components related to kind of the winding down of the losses, you'll see coming through the same unit in the coming quarters. You know, in terms of all the pieces there, this effort remains fluid. So nailing down the various components right now is a little premature, but we'll be able to provide additional details in the coming quarters as these practices are unwound.

Speaker Change: Wine down of the losses.

Speaker Change: You will see coming through non same unit in the coming quarters in terms of all the pieces there.

Speaker Change: Effort remains fluid.

Speaker Change: So nailing down the various components right now, it's a little premature, but we will be able to.

Speaker Change: I'll provide additional details in the coming quarters as these practices.

Speaker Change: Practices are unwound.

Speaker Change: I guess, maybe just make sure I understand that comment so you're saying that Q1.

Kevin Mark Fischbeck: I guess maybe just to make sure I understand that comment. So you're saying that in Q1, you know, 7 million, so that would run right to 28 million, but it sounds like this is going to build as the year goes on. So it's going to be more than 28 million annualized, and we can track that number through the year. That's the way to think about it.

Speaker Change: $7 million, so that would run rate of $28 million, but it sounds like that's going to build as the year goes on so it's going to be more than $28 million annualized and we can track.

Speaker Change: That pace. So that's why I use that number through the year, that's the way to think about it.

Kevin Mark Fischbeck: That's right. That's correct, Kevin. That number right now reflects in-process dispositions and will continue to grow as we continue to execute on our plan.

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

Speaker Change: That number right now reflects in process dispositions that it will continue to grow as we continue to execute on our plan.

Kevin Mark Fischbeck: Okay, but there's no target for the run rate.

Speaker Change: Okay, but there is no target for run rate.

Speaker Change: Number at this point.

Speaker Change: Still to be determined at this point I would say.

Kevin Mark Fischbeck: It is still to be determined at this point, I'd say.

Kevin Mark Fischbeck: Okay, and then there was a second part of this, and I missed it. It sounded like you were doing something about redoing stipends or something. What was the other area of margin improvement?

Speaker Change: Okay, and then there was a second part of this.

Speaker Change: And I missed it it sounds like you said you were doing something about redoing stipend or something what was the other area of margin improvement.

James D. Swift: No, I think in that setting, Kevin, we're, you know, obviously, always in discussions with our health system partners, to the extent that there are services, whether those be ambulatory services or inpatient services, if there's a requirement for us to provide coverage, we want to make sure that our services are adequately reflected in terms of the stipend support. So, it's part of the discussion we have year over year with our health system partners, and that's just with regard to the coverage requirements of those ambulatory practices.

Speaker Change: No I think in that setting Kevin.

Speaker Change: Obviously, we're always in discussions with our health system partners to the extent that there are services, whether those be ambulatory services.

Speaker Change: Or inpatient services. If there is a requirement for us to provide coverage we want to make sure that our services are adequately.

Speaker Change: Selected in terms of the stipend support so it's part of the discussion we have year over year.

Speaker Change: With our <unk> partners and Thats, just with regard to the coverage requirements of those.

Speaker Change: Inventory practices.

Speaker Change: Okay, and then maybe just my last one.

Kevin Mark Fischbeck: Okay, then maybe just my last one. You know, I think that you guys got into this kind of urgent care business with the view that it was going to add a leg of growth, you know, to the company. How do you guys think about when you're done with this portfolio restructuring? Like what, what is the right growth algorithm for pediatrics from a top line perspective? Yeah, I think it's for primary and urgent care.

Speaker Change: I think that you guys had gone into this kind of the urgent care business with a view that it was going to add a leg of growth.

Speaker Change: Due to the company.

Speaker Change: How do you guys think about when you're done with this portfolio restructuring like what what is the right growth algorithm for pediatrics.

Speaker Change: Topline perspective thanks.

James D. Swift: Yeah, I think for primary and urgent care, it is probably twofold. One, we acquired, you know, we acquired a couple of assets in primary and urgent care, and they're very good practices. The problem is that there were not a larger number of attractive acquisitions to do in primary and urgent care. And obviously, then it becomes a heavy lift in terms of rolling out these independent practices, you know, in that portfolio across the country.

Speaker Change: I think for primary urgent care is probably twofold. One we acquired we acquired a couple of assets in primary urgent care.

Speaker Change: And Theyre very good practices department that there were not a larger number of attractive acquisitions to do on primary urgent care and obviously then it becomes a heavy lift in terms of.

Speaker Change: Rolling out these independent practices in that portfolio across the country. So we just thought that the time to do that with distracting from what we need to do are focused though on growth would be in the core services that we continue to perform.

James D. Swift: So we just thought that the time to do that was distracting from what we needed to do. Our focus, though, on growth would be on the core services that we continue to perform. If you look at it, you know, from a standpoint, we didn't announce it specifically in a press release, we did acquire an MFM practice in California that has been a great addition to our portfolio of MFM services. So you'll see more of that activity, both on our core and long-standing ambulatory services that fit with our inpatient services and our ability to execute on both organic and inorganic growth on the inpatient side.

Speaker Change: Look at it from standpoint, we didn't announce it specifically.

Speaker Change: On our press release, we did acquire and MSM practiced in California that has been a great addition to our portfolio of MFN. So youll see more of that activity both on our core and long standing ambulatory services that fit with our inpatient services and our ability to execute on both organic and <unk>.

Speaker Change: Inorganic growth on the inpatient side.

Speaker Change: Alright. Thanks.

Operator: And ladies and gentlemen, for any additional questions, please press 1, then 0 on your telephone keypad. We have no other questions. You may continue.

Speaker Change: And ladies and gentlemen for any additional questions. Please press one then zero on your telephone keypad.

Speaker Change: And we have no other questions you may continue.

Speaker Change: Thank you all for joining the call today, we will talk to you next quarter.

James D. Swift: Thank you all for joining the call today. We'll talk to you next quarter. Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect. We're sorry, your conference is ending now. Please hang up.

Speaker Change: Ladies and gentlemen that does conclude your conference for today. Thank you for your participation you may now disconnect.

Operator: Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation. You may now disconnect. We're sorry, your conference is ending now. Please hang up.

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

Speaker Change: [music].

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