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Mednax Inc  (NYSE:MD)
Q4 2018 Earnings Conference Call
Feb. 07, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the MEDNAX 2018 Fourth Quarter Earnings Conference Call. All participants are in listen-only mode. Later we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

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

Charles W. Lynch -- Vice President of Strategy & Investor Realtions

Thanks, operator, and good morning, everyone. I'm going to quickly read our forward-looking statements and then I'll turn the call over to Roger Medel. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal -- Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by MEDNAX'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 MEDNAX 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 most recent Annual Report on Form 10-K and its quarterly reports on Form 10-Q, 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 Annual Report on Form 10-K and in the Investors section of our website located at mednax.com.

With that, I'll turn the call over to Roger Medel, our CEO.

Roger J. Medel -- Chief Executive Officer

Thank you, Charlie. Good morning and thanks for joining our call. I am happy to report that our EBITDA and EPS results were within the ranges that we provided previously, as well same unit revenue growth improved compared to the third quarter with volume increases across all of our service lines, except for neonatology. Finally, we also met the 2018 targets that we established for our corporate and operating initiatives. And during the fourth quarter, we also completed a $250 million share repurchase program.

Looking across our service lines, our women and children services were affected by continuing softness in birth volumes, with total deliveries at the hospitals where we cover the neonatal ICU declining modestly for the quarter. Our other specialties within this service line, including maternal-fetal medicine and pediatric cardiology saw modest volume growth while newborn nursery growth was strong. This has been a focus area for us, as I have discussed in the past, and we will continue to pursue growth opportunities in this area.

Our payor mix was also favorable compared to the prior year, which is similar to what we saw during the third quarter. In anesthesia, our results were largely in line with our own expectations. Volume growth was modestly positive and while payor mix remained unfavorable, the practice level operational initiatives that we have developed have been effective to date in helping to offset this headwind.

Operating result in anesthesiology remained distorted during the quarter due to the non-renewal of a contract that we have discussed in the past. But as of January of this year, a significant part of that impact is now behind us. Finally, our radiology services line finished a strong 2018 in terms of both organic revenue growth and our strategic expansion. In 2018, we added five groups through acquisitions, representing both tuck-in additions to our existing practices and geographic expansion.

Our radiology organization now totals more than 785 physicians, either affiliated with our on-the-ground practices or reading from vRad and reads nearly 12 million studies annually. I am excited about the opportunities ahead for us, both in the growth of the organization and the clinical innovations which we are pursuing.

This morning we also announced our preliminary expectations of 2019 adjusted EBITDA. Given the many moving parts in our 2018 results, we believe this can give you a better picture of how we're looking at the year ahead and I would like to take some time this morning to discuss our thoughts behind those expectations and the priorities we have established. In terms of market trends at a high level, we're operating with the expectation that the headwinds that we experienced in 2018 will persist. These include clinical compensation growth, a payor mix migration toward Medicare in our anesthesiology services and soft birth trends at the hospitals where we cover the neonatal ICU.

To varying degrees, these have been the key external drivers of volatility in our results over the past couple of years and our strategic plans revolve around addressing these factors through all of the aspects of our businesses that we can control. For that reason, we anticipate that 2019 will be a year of intense internal focus for us as we continue to execute on our operational and corporate initiatives. Above all else, the priorities that we have established within these initiatives have the common goals of stability of our business, consistency in our operating results and visibility of the trends that we see in the marketplace and across our organization.

From a financial standpoint, our goal remains unchanged to realize the $120 million in annualized improvements by the end of 2019. Based on what we achieved in 2018, we remain on track to achieve the target, but the steps we will take need to become more transformative in comparison to the more tactical steps we took in the early stages of these initiatives.

We have identified areas where we intend to invest further, utilizing resources outside of our organization in order to either accelerate our plans or to expand them. We expect that these steps will be focused, both on our practices and on our infrastructure supporting the practices through the management services we provide. The first of the steps that we're taking is focused within anesthesiology. This is an area where a lot of our activity from 2018 was very practice-centered and focused on specific areas where we could make improvements for individual groups.

As we move through the year, our plan to increasingly engage not just operations teams, but also our clinical leadership, our consulting organization, surgical directions and our information technology resources. Through this involvement we have been able to identify opportunities that aren't just practice-specific, but that can be targeted across our complete anesthesia organization.

In terms of incremental investments, we had initially committed to the rollout of additional IT capabilities to improve our practices clinical scheduling systems and process efficiency. This should yield a better experience for our clinicians by reducing the amount of their time spent on non-clinically oriented tasks. In addition, this will allow our clinical leaders and operators to better measure, benchmark and manage their clinical teams, which we expect will ultimately result in enhanced productivity and reduced premium and agency labor costs. Finally, using a common platform and metrics will enable the sharing of best practices among all groups.

I think this first investment we're making is a good example of the transformative steps we're taking through our operational initiatives. To the extent that we're managing against the expectation that certain headwinds will persist in our business, we also need to establish pathways for continuous improvement in processes, inefficiencies and in the productive use of our clinicians' time. As we move forward, there will most likely be additional areas where we focus and consider investments and we will continue to discuss these initiatives throughout the year as we progress.

I hope walking through this specific rollout can give you a sense of how we will identify similar projects and what we are looking to achieve. While our operational initiatives will be a key priority for us in 2019, the deployment of our capital will also be a focus area. A hallmark of our organization has been our cash flow generation, which we believe provides us the opportunity to generate value to our stakeholders even in an environment as we anticipate for 2019 that may present headwinds to EBITDA growth.

During 2018, we devoted more than $420 million toward a combination of acquisitions and share repurchases, a significant portion of which was funded by our free cash flow. In the year ahead, our intent is to commit capital toward both repurchases and practice acquisitions. On the acquisition side, our pipeline has a similar profile to what we achieved in 2018, including attractive small-to-mid size potential acquisitions across radiology and women's and children's services. While we haven't included any larger more strategic acquisitions in our outlook for the year, we will certainly pursue any such opportunity if we see it as having a significant benefit to our organization, both competitively and financially.

With that in mind, we do expect to be buyers of our own shares during 2019, utilizing our own free cash flow and to the extent our ongoing process to identify a capital partner for MedData results in a successful transaction, some portion of the proceeds of that sale. In the near-term, we do intend to repurchase our stock through open market transactions during the first quarter of this year.

Lastly, I want to give a brief update on our ongoing search for candidates for our Board of Directors. That search has progressed well since we announced it last quarter and as of today, we've developed a shortlist of candidates that our nominating committee is in the process of review. Based on this progress, we expect that we will make decisions over the next couple of months.

To reiterate what I said earlier, above all else, our priorities for the coming year has the common goals of maintaining stability and consistency in our operating results. The initiatives we have been undertaking and we'll continue to undertake follow those priorities and are designed to enhance the effectiveness of the supports that we provide to our physicians, as well as the differentiation of the services we provide to our patients and our hospital partners as a true national medical group.

We believe the plans we have in place for 2019 represents a strong and balanced approach to address both the headwinds and opportunities across our business. We also believe they reflect that the continued transformation of our organization, enhancing our adaptability, our value of health solutions provider and similarly our ability to add value to our stakeholders.

With that, I'll turn the call over to our Chief Financial Officer, Stephen Farber. Stephen?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Thanks, Roger, and good morning, and thank you for joining our call. I'd like to touch on a couple of items within our fourth quarter results and then I'll walk through our first quarter guidance and preliminary outlook for the year, including our sources and uses of capital and finally I'll add to Roger's comments on our focus areas in 2019.

Looking first at the fourth quarter, our results were in line with our expectation, in some places slightly ahead, but there are a few moving parts to call out. On the positive side, same unit revenue growth was modestly higher than our zero to 2% forecast, primarily on the pricing side. Our managed care rate growth was relatively good during the quarter and we also did not experience any negative impact from payor mix, with an unfavorable comparison in anesthesiology offset by unfavorable comparison in women's and children's services.

Related to the non-renewal of the Southeast anesthesiology contract, our salary expense for the physicians affected by that non-renewal was $8 million or roughly $1 million less than we had forecast, since there were a number of physicians who took positions elsewhere and thus were not on our pay roll. As a result, the overall impact to our EBITDA compared to 2017 was roughly $14 million in the quarter, consisting of this salary expense and the last EBITDA contribution from that contract.

Separately, MEDNAX's EBITDA results were modestly below our expectations. This was primarily due to a combination of revenue and expense items during the fourth quarter. Finally, as Roger indicated, we did hit our targets for operational in G&A improvements for the year, which totaled $35 million and $25 million, respectively.

Below the EBITDA line, we completed our $250 million accelerated share repurchase late in the fourth quarter with the final settlement of the shares we received occurring earlier than we had forecast, (inaudible) EPS by roughly $0.005. A slightly lower-than-expected tax rate also benefited our EPS by roughly $0.01. Partially offsetting these items, we issued $500 million of 6.25% senior notes during the quarter and higher cost of these notes as compared to the revolver borrowings we repaid impacted EPS negatively by roughly a $0.01.

Turning to cash flow, we generated $128 million in operating cash flow in the fourth quarter, bringing our operating cash flow for full-year 2018 to $290 million. This full year amount understates our true underlying cash flow generation since it includes $62 million of cash tax payments we made in the first quarter of 2018 that were deferred from the second half of 2017. So I think adding them back gives a better reflection of our operating cash flow and a good reference point for your own expectations for 2019. I'll touch on this in a few moments when I talk more about the year ahead.

Finally, turning to our balance sheet, we ended the quarter with total borrowings of $2 billion, consisting of our revolver borrowings and senior notes. This represents leverage at year-end of roughly 3.5 times debt-to-EBITDA.

Now I'd like to turn to our guidance for the first quarter and our preliminary outlook for the year. I'm going to start with our view of the year as a whole in order to put our Q1 guide in context. As we reported this morning, we expect our adjusted EBITDA for 2019 to be in the range of $550 million to $580 million. That range encompasses a number of the different scenarios in terms of volume, pricing, mix and operating costs, as well as our own operational and shared services initiatives. It also takes into account our experience through 2018 in terms of our end markets, in particular payor mix anesthesia and birth trends across the country. And as a side note, our guide does include MedData for the full year. We will adjust for that when and if we complete the transaction.

Our views on payor mix dynamics and anesthesia are relatively unchanged and we do anticipate a continued migration toward Medicare based on demographic trends across our footprints of practices. To put it in some context, for the full-year 2018 our anesthesia payor mix by volume shifted roughly 85 basis points toward government. All else being equal, that payor migration impacted our EBITDA in 2018 by roughly $15 million. Should last year's trends continue, we would anticipate a similar headwind in 2019 and that is incorporated into our guidance.

On the neonatology side, while our own NICU volumes have varied quarter-to-quarter, that's been against a persistently difficult backdrop as roughly 400 hospitals where we managed in NICU, total delivery volumes have been down to roughly 1% to 2% in eight of the last 10 quarters. Unless and until we see some inflection point in that key driver of our volumes, we're incorporating a continuation of that trend into our outlook. Again, to put this in context, every 1% change in our same unit NICU volumes equates to a roughly $5 million impact in annual EBITDA.

Our outlook also contemplates our trends in labor cost inflation. As you can see in our P&L, our annual labor expense is more than $2.5 billion and the vast majority of this expense is clinical. Moreover, this is far from a homogeneous labor pool. It encompasses highly skilled and in many cases, highly specialized clinicians across multiple specialties and varied geographies. As a provider of the services we focus on, it is our highest priority to ensure we can recruit and retain physicians and clinicians that care for patients in critical situations. And against the backdrop of relatively full employment across the country, we are not immune to inflation.

This is not a new phenomenon for us nor should you view it as a new phenomenon, but I do think it's important to put our clinical compensation costs in the right context. The very diverse nature of our clinical workforce doesn't create broad levers that lend themselves toward universal efficiency measures and at more than $2.5 billion a year, it does not take a significant amount of inflation to create pressures for us, particularly if it's coupled as it has been in the past few years with additional headwinds to revenue growth in the form of volumes, payor mix and challenging reimbursement environment.

It also makes sense for us to anticipate that there will be pockets of more significant pressure such as we've experienced in the past. I want to emphasize that we have identified a number of areas where we can deploy resources to bend as curve and we're in motion to do just that. I'll touch on some of these specific areas in a moment. But related to our 2019 outlook, I want to highlight some of the key pressure points we've been focusing on, particularly against the existing financial goals we have for operational and shared services initiatives.

Lastly, our outlook contemplates on moderate level of acquisitions spend in the range of roughly $100 million. It's similar to our acquisition activity in 2018 and at this point we would expect the profile or pipeline activity to be similar with a focus on smaller to mid-sized deals within radiology and within women's and children's care. While there is always the potential for some larger, more strategic deals, we're not incorporating any such deals into our outlook. So, those are the big drivers of our outlook for 2019 and obviously we'll revisit each quarter based on our experience as the year unfolds.

I'll also make a couple of comments related to our first quarter guidance, the details of which we provided in our earnings release this morning. I know that the modeling the progression of our EBITDA from the fourth quarter to the first quarter can be challenging to begin with and likely even more so this year, given all the moving parts within our results over 2018. To that end, we provided additional detail in our press release this morning about the seasonal factors that typically impact our Q1 results. The greatest of these is the disproportionate share of our annual social security payroll taxes and 401(k) match that we incurred in the first quarter.

Historically, we have taken about 40% of these expenses in Q1, which impacted adjusted EBITDA by about $25 million, all else being equal, compared to if they were distributed evenly throughout the year. We expect that impact to be similar in the first quarter of 2019. Second, the first quarter of this year has one fewer week day than last year, which equates to roughly $4 million in reduced EBITDA. This adds to the expected seasonality of our earnings this year in terms of the expected contributions in Q1 to our forecast full year results.

As you will be able to see, our Q1 guidance range equates to roughly 20% of our full year outlook, which is at the low end of the range of that contribution over the past number of years. This day count also impacts the comparison of our expected first quarter results to last year. In addition, as we've disclosed in the past, the EBITDA contribution from the Southeast contract was roughly $11 million in the first half of 2018 and more specifically about $5 million in the first quarter 2018.

Now turning to our focused areas for 2019, Roger provided a broad perspective on the operating plan that we have in place. I want to add some detail of those plans in order to give you some color on what kind of activities we're targeting. Since joining MEDNAX I've been heavily focused on our costs. I've also spent a considerable amount of time with our operating leadership to get a better understanding of the dynamics between -- behind the cost trends as well as our ongoing operational and shared services initiative. These have been very effective so far, but we've also discussed over the past couple of quarters that as we move forward our initiatives begin to move away from tactical steps and toward more transformational ones.

The primary reason for this is that while our clinical cost structure does not lend itself to uniform measures to offset inflation, there are in fact a number of areas where we believe we can drive more consistency and more efficiency. From my own perspective, I believe there are significant opportunities to harness data, analytics and technology to drive performance across the enterprise. I also believe this will require meaningful IT and operational investments in areas like technology-enabled process change, shared service expansion and improvement and also a meaningful deployment of administrative tools and technology directly into our practices.

To that end, we've been contemplating different areas where we intend to supplement our own internal resources with external resources in order to accelerate the rollout of new technology and tools along with support for the implementation of these tools as well as analytics. The first commitment we've made is to support the rollout of a robust scheduling and clinical resource management tool across our anesthesia organization, which Roger referenced in his prepared remarks. We anticipate that the cost we will incur for this rollout will be roughly $15 million to $20 million and we intend to complete it over the coming four to six quarters. That's a significant acceleration from what we might achieve across more than 40 different practices without outside resources. So there's a distinct time benefit right there.

But to put the dollar cost in a different perspective, our total clinical compensation expense in anesthesia alone is north of three quarters of a billion dollars. It doesn't take a significant percentage change in the trajectory of that cost trend to pay back our $15 million to $20 million investment in very short order. And that's how we're thinking about initiatives like these, compressing the time to value from implementation to completion and accelerating the timeline on ROI.

As we indicated in our release this morning, we will be breaking out the cost of transformational investments like this one as we move forward. I think this will help clarify which investments we're making proactively and our decision-making process behind this heavily dependent on the returns we expect to achieve. I think it's little bit premature to (inaudible) hard dollar figure on what we will commit during 2019, but a good way for you to think about it is that we expect to move forward on two or three additional similar investments through the course of 2019 and quite likely several more in 2020, and we are committed to providing you with details on our areas of focus and the rationale for out decisions.

Lastly, I want to touch on our cash flow and our plans for uses of capital in 2019. Since I joined MEDNAX, one aspect of this organization that has continually impressed me is our cash flow profile. Adjusting for various timing issues such as the tax payments we deferred for 2017 into 2018, we generally convert between 60% and two-thirds of our EBITDA into operating cash flow. In 2019, we would expect a similar conversion of EBITDA to cash flow.

Against that, our CapEx requirements are fairly minimal. 2018 capital spending was only roughly $50 million, that included roughly $20 million from MedData. Our current outlook for acquisition activity this year is fairly modest, given our internal focus such that our expected capital deployment for deals as part of our 2019 forecast would utilized only about a third of our free cash flow with the remainder available for share repurchases activity we intend to undertake and other uses. So overall, we believe that we can fund both a modest acquisition pipeline and a meaningful return of capital to our shareholders through internally generated capital. And as we indicated in our release this morning, we intend to utilize some portion of our share repurchase authorization via open market purchases during the first quarter this year.

Finally, in addition to our free cash flow, we do intend to utilize any proceeds from our previously announced plan to sell MedData toward a combination of debt repayment, share repurchases and acquisitions. We remain relatively early in that process but so far I'm pleased with the level of interest we've seen in MedData, which I believe validates our views that it would represent an attractive platform to the right capital partner. From a modeling perspective, we expect that MedData would be moved to discontinued operations when we reach an agreement for sale. And for modeling purposes, MedData's EBITDA for 2018 was $42 million and we have budgeted $45 million for 2019. I'll also point out that a significant portion of our historic CapEx has been related to MedData so the potential sale of that business would have a fairly nominal impact on our ongoing free cash flow.

Overall, we believe our cash flow profile supplemented by the potential proceeds from the MedData sale that will be available for a combination of debt repayment, share repurchases and acquisitions will enable us to pursue significant value-additive activities through 2019 and moving forward.

And with that, I'll turn it back to Roger.

Roger J. Medel -- Chief Executive Officer

Thank you, Stephen. With that, operator, let's open up the call for questions.

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Ralph Giacobbe with Citigroup. Please go ahead.

Ralph Giacobbe -- Citigroup -- Analyst

Thanks, good morning. Details were helpful, but hoping you could help bridge a little bit more in terms of embedded core growth expectations in the guidance, both in terms of revenue and EBITDA?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Sure, Ralph. Good morning. Other than the key assumptions that we've outlined, I'm not exactly sure what it is that you are looking for. I mean, when you put all of the different pieces together, essentially if you look at the midpoint of our guidance, it's essentially fairly consistent with the results that we reported for 2018. Charlie, do you have anything you'd like to add to that?

Ralph Giacobbe -- Citigroup -- Analyst

No, that's helpful. I guess there's obviously a lot of moving parts with some of the contracts coming off and some of the pressures you saw and I understand the continuation of pressure, but some of those pressure also continued in the fourth quarter and the results were better than seemingly the guidance looking ahead, so that's what I was trying to bridge in terms of just core growth when you look at the business and say, when we strip out some of the call one-time items, what's the baseline growing core?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Sure. Yes, there is -- we did add a lot of detail in our disclosure in our written comments and in our release this morning. I guess really the only thing additive to that I'll say is when you look at the various buckets of headwinds and you look at all of our activities that we have under way and additional activities that we are working on, I think the goal for the year is to try and have them largely offset each other and to focus on a year of stable and consistent results.

Ralph Giacobbe -- Citigroup -- Analyst

Okay, all right. Fair enough. And then if I could, you talked a lot about the strong cash flow the Company generates, any thoughts or update on how you approach or think about a dividend. I mean, we talked a lot about repo and M&A and maybe debt pay downs, but given the stability of that cash flow and sort of where you are in the maturity cycle, is there any increased thoughts or discussion around a dividend?

Roger J. Medel -- Chief Executive Officer

Hi, Ralph. Good morning. We haven't really spent a lot discussing the possibility of a dividend. I think that we made it pretty clear that we intend to be buyers of our own stock going into the year and into the quarter. We've got a Board Meeting coming up and I'm sure that's a topic that will come up again. But as of this point I don't really have anything else to talk -- to say about the dividend.

Ralph Giacobbe -- Citigroup -- Analyst

Okay. And then just real quick, I just want to clarify, the non-renewal of certain contracts that you mentioned in the press release, there's nothing incremental, that's just related to the SAC contract, is that correct?

Stephen Farber -- Executive Vice President and Chief Financial Officer

That's right.

Ralph Giacobbe -- Citigroup -- Analyst

Okay, all right. Thank you.

Operator

Next we will go to the line of Brian Tanquilut with Jefferies. Please go ahead.

Jason Plagman -- Jefferies -- Analyst

Hi, this is Jason Plagman. A question on the G&A spend. In Q4 it stepped up a little bit more than people were expecting. Given the cost initiatives there, should we expect that to trend down throughout 2019 or where do you think we will end 2019 from a G&A dollar perspective?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Yes, Jay, good mooring. We haven't really fracked out at that level of detail in terms of our guide. Our primary goal was to extend from a one quarter forward guidance to a full year guidance so you can have a sense of what we're working toward and also really there is a lot of moving parts over 2018. So we're just trying to make it easier for you to get an overall sense of 2019. So, hopefully that was helpful and constructive.

In terms of G&A, more qualitatively, I'd say you should expect that number to bounce around a little bit because there are so many different parts in that. I'll give you couple of examples. Our revenue cycle operation is in that, our IT is in that, our rent expense is in that, there is just a significant number of items that comprise it and to just try and delve into that is fairly complicated. I'm not sure how useful it would be in terms of understanding our overall outlook.

Jason Plagman -- Jefferies -- Analyst

Okay. Yes, that's fair. And then just thinking about from a margin perspective, so if I back out the Charlotte salaries from the Q4 results, I get an EBITDA margin of 15.5% approximately. Should we expect that to be where you end next year, for Q4 '19 as well or what's kind of -- given the cost savings that you're driving, is that the way you're thinking about it with the savings offsetting the headwinds that you've mentioned?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Jay, the way that I would think about it probably is that we are not as margin focused as we are EBITDA focused. And so we provided our guide for 2019 on adjusted EBITDA because that is precisely what we are looking at from a financial perspective as our primary objective. And so there is bunch of parts that sort of move around that, which impact margins up and down. And if you think of 2019 as a largely stable consistent year in terms of our expectations relative to our reported performance for 2018, I'm not sure that focusing too hard on all the different puts and takes is really going to get you to a better place because all those elements have been baked into the $550 million to $585 million that we provided.

Jason Plagman -- Jefferies -- Analyst

Okay, thanks for the questions.

Operator

Next we'll go to A.J. Rice with Credit Suisse. Please go ahead.

A.J. Rice -- Credit Suisse -- Analyst

Thanks. Hi, good morning. A couple of questions if I could. First I appreciate the comments on the Q1 outlook. I was wondering, you had comparable growth of 2.8% in the fourth quarter but you're guiding for zero to 2% in the first quarter. I know you got the one less day and it looks like it was probably a tough comp a year ago that you're dealing with. Is there any other change relative to what you saw on the fourth quarter in trends that you are incorporating in your first quarter outlook within the business lines or is it pretty much accounted for with those two things?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Those are baked (inaudible) into, AJ. Good morning.

A.J. Rice -- Credit Suisse -- Analyst

Okay. And now, Steve, (inaudible) little time to get your legs under you there, the 3.5% debt-to-EBITDA that you guys are at now, what's your thought about -- comfort with that or would you like to see that move in one direction, do you guys have an updated target you're looking at?

Roger J. Medel -- Chief Executive Officer

AJ, I'm fine at 3.5%. I think we historically described our comfort in the sort of 3%, 3.5% sort of range moving up and down. I think clearly for a little while we're probably going to be at the higher end or little above what we view is our longer-term range and I think over the next couple of years, you should see us as we get incremental traction on all these initiatives that we have in flight and all the new ones we expect the launch, I think our expectation is, you know, some combination of debt reduction and EBITDA growth over time. We'll bring that ratio back to a more normalized level within that sort of lower half of 3% to 3.5% type range.

A.J. Rice -- Credit Suisse -- Analyst

Okay. And then in the press release this time and I think last quarter as well, it referenced the the payor mix, the language was slightly different, basically the payor mix was steady year-to-year in some form or fashion as it was described. I know you made the comments about the overall impact on 2018 of payor mix pressures in anesthesia, but has it more steady down in the last two quarters that that's less of an issue as you move into '19 or do you think that's still a bit of a headwind for you?

Roger J. Medel -- Chief Executive Officer

AJ, we did speak a lot about payor mix in our prepared remarks on purpose. I guess I'd think about it this way. In Q4 we did pretty much have a wash, right, the beneficial payor mix in women's and children's basically offset the anesthesia mix and frankly our anesthesia mix in Q4 was a little less than we had seen in other quarters and women and children little better than we had seen. So our view on anesthesia mix is that it's probably a -- we view that as a persistent headwind and that's one of the reasons why we talked about it separately. It's simply demographics-driven. And so we view that as slightly more persistent. In women's and children's, we've had some good impact and we've had some good benefits but it's really based on a number of other factors. And I think we probability weighted while we've enjoyed it of late. If you probability weighted, it's likely to move around a bit more than the anesthesia mix. So we've incorporated in outlooks sort of along those lines as part of our 2019 guide.

A.J. Rice -- Credit Suisse -- Analyst

Okay, all right, thanks a lot.

Operator

Next we'll go to the line of Kevin Fischbeck with Bank of America. Please go ahead.

Kevin Fischbeck -- Bank of America -- Analyst

Great, thanks. So I guess when we think about the guidance, is it right to kind of think about $60 million of cost saves this year, you got $60 (ph) million last year. I'm not sure if there is any (inaudible) about run rate of $120 million versus actual realized synergies this year?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Yeah, I think Kevin our goal is to get to the $120 million by the end of the year and we do have that baked into our guidance, but it is not $120 million run rate during the course of the year. There is ramping over the course of time.

Kevin Fischbeck -- Bank of America -- Analyst

Okay. So, it could something less than $60 million realized in the year, kind of what to think about?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Yes.

Kevin Fischbeck -- Bank of America -- Analyst

Okay. So when I look at the guidance, it looks like you're talking about up 2%, down 3% that's kind of the number and if you assume, I don't know, half of the $60 million realized this year, it kind of says that the core business is down 3% to 9% on an organic EBITDA basis, even though you're going some deals in there too. Is that the right way to to think about it and it sounds to me a little bit like what you're doing on the cost side, kind of it says that you're always (inaudible) save $30 million, $60 million every year going forward, but just want to understand what you think the core business is and whether you're setting yourselves up to be able to announce and deliver another round of cost savings next year to kind of keep a similar growth profile in 2019 into two to three years?

Stephen Farber -- Executive Vice President and Chief Financial Officer

So let me sort of try and address that in a couple different pieces. I think pretty much every healthcare provider has a similar dynamics to MEDNAX. I don't really think we're all that unique where everybody's got reimbursement pressure, everybody has cost inflation, particularly on the labor side. I think in some areas we have a little less cost inflation than say hospital company might because we don't have a bunch of pharmaceutical spend, for example. The flip side is 70% of revenue is labor for us and most of that labor is relatively high cost specialized clinicians.

And so we probably have a bit more labor cost pressure than others then might have, but we have other cost pressures that may serve to offset that a little bit. So I do think it is fair to say and it would be for just about any healthcare company that it is really just part of the business that every year you are always looking for ways to be more efficient. Now, I guess I would add to that, there are some unique benefits to the fact that we have this remarkably heterogeneous and geographically distributed $2.5 billion workforce. In that there are a significant number of opportunities to every year create incremental efficiencies, whether it's through technology or analytics or all the other stuff that we've talked about.

It will be very different to give you some monolithic cost and we (inaudible), so you know, which we of course are not doing. So I think from a general mindset, that is the case. In terms of specifically quantifying how much of the drag is that we need to offset, I think there will be varying views on that from a general dynamic. I mean, I just -- that's just the life of healthcare provider.

Kevin Fischbeck -- Bank of America -- Analyst

Okay, now that does make sense. And then I guess when you think about the issues that you kind of outlined, these are the headwind in 2018, we think they are likely going to persist in 2019, the payor mix headwind of $15 (ph) million, I guess that's happening during a period of generally strong economy. So that feels like, you know, it's about as good as it's going to be. Birth one, recently we've heard (inaudible) at some point birth will improve, but to your point actually it's better to be cautious there and labor cost, I guess I'd love to hear your thought about, if you think (inaudible) anesthesia stays this way is like when you think about it long-term or does it get better, worse, do they get better, worse than labor pressure, do they get better or worse over time. I appreciate that you can't provide 2020 guidance for the Company, over the long period of time, how do these things done bear out?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Yeah, Kevin, far be it from me to try and project more than one year into the future. But in a general sense, I would say you definitely called it right, Kevin, in that each of these areas is kind of in the extremities, right. We have full and full take away, we've got full employment across the contrary, right, we've got three-point whatever percent unemployment rate. Healthcare is a decent amount, like depending on what study you read, who's saying what, it seems like these are national estimates for labor inflation, some of the mid-twos to low-threes and that's before you talk about the subset which is healthcare, which is usually more challenged. And then there's another subset within that is the fact that we have some highly specialized people where scarcity of those people is an incremental factor. And then you look at some of the state that we do business in where they are even more competitive in terms of certain specialized healthcare providers.

So -- but it does seem to be in extremities. If you believe that there is full employment environment until the end of time, then that is one view. I don't think we really share that view. So I think these factors are all -- we had to take the call at (inaudible) storm, but I guess that with it -- (inaudible) all these pieces are somewhat in extremities and that the likelihood of everything staying like this on a persistent seems to us to be pretty well. At some point there has to be reversion to the (inaudible) which would be a benefit for us in terms of our earnings.

Roger J. Medel -- Chief Executive Officer

And let me just add that the payor mix shift that we're seeing in anesthesia is probably, in my opinion, it's probably as bad as it's going to get simply because that is being driven by the elderly population. And so most of what we're seeing there is really based on semi-elective procedures, right. So if you need a coronary artery bypass, you're not going to wait and you're 63 years old, you're not going to wait to have it done.

On the other hand, if you need a hip replaced or a knee replaced, you might walk around with the cane for a couple of years until you reach that age. And so I think that that is, I believe and I think we believe that that is most of what we're seeing, you know, the increase in volume, which is good being driven by the elderly population needing more procedures, but at the same time with the payor mix that reverses you less for those procedures. So I really -- my own personal opinion is, I don't see where that's going to get any worse. I think that is where it is for the time being as we cycle through this elderly population.

Kevin Fischbeck -- Bank of America -- Analyst

Great, that's very helpful. Thanks.

Operator

Next we will go to Ana Gupte with SVB Leerink. Please go ahead.

Ana Gupte -- SVB Leerink -- Analyst

Thanks, good morning. Following up on the cost efficiencies which this year more, it looks like backloaded. What type of assumptions are you building into that for the recontracting that you're doing with anesthesia practices in a risk-sharing on revenue and cost metrics like maybe a five-year period rather than seven you talked about. And then what is kind of the progress that is being made on changing those contracts for additional groups?

Stephen Farber -- Executive Vice President and Chief Financial Officer

Sure. Good morning, Ana. I think probably the simplest answer is that we have -- our forecast is based on a detailed budget process, which goes down to the practice level and it does include our assumptions for each of the recontracting situations that are scheduled for this year. So I would say those are baked in. And Charlie, I'm not sure if you have anything you'd like to add to that.

Charles W. Lynch -- Vice President of Strategy & Investor Realtions

Hi, Ana. I would just add that when we're looking at that kind of a transition in comp structure for our practices, I would just keep in mind that the underlying goal we have in that kind of a transition is to reengage the physicians in the practice to have them retain some autonomy over what they're doing, an engagement in their own productivity, promising growth. It's not designed to reduce the compensation. In fact as we go into those discussions without getting into too much detail, we're still looking to solve for the appropriate level of compensation that they deserve.

On a go-forward basis the goal is to have an equitable sharing up and downside between the corporate entity and the practices -- of the success of that practice. And that's what we've achieved so far in the early stages of some of these recontracting. We have other discussions that are ongoing, we will update as we go through the year. But that's the real goal, is to have that engagement of the practices to have them share in a first-dollar benefit when they are identifying ways to grow, ways to enhance our own productivity.

Ana Gupte -- SVB Leerink -- Analyst

Okay, thanks for that color. Yeah, I would love to hear more updates as you move through other practices. Another piece on the guidance, I think you had some tailwinds on the managed care, tailwinds in the managed care contracting in the second half of last year. Is that -- in there, is there any incremental to go and is there any upside or is that at the higher end of your guidance, there may be some upside I guess.

Stephen Farber -- Executive Vice President and Chief Financial Officer

I think, again, probably the easiest way to answer it is we made assumptions in our forecast that are specific to most of the contracts that are significant enough to move the needle within our overall results. So the guidance would effectively bake in our aggregate expectations.

Ana Gupte -- SVB Leerink -- Analyst

Okay, thank you. Then a final one on the NICU and the growth rates, you've talked about cross-selling to -- cross-selling other services to hospitals and the well-baby care, with the pediatricians that are kind of more hospitals-based bringing them on board. What point would you feel that your own efforts to offset some of the secular pressures would get you to a point where you don't have to bake in this 1%, for every 1% NICU you have this potential $5 million headwind, but it's becomes flat -- even flattish (inaudible).

Roger J. Medel -- Chief Executive Officer

Hi, Ana, good morning. I think that it's fair to say that we're making some good progress there. I think that it is an area of focus for us that is producing some good results. If you look at our press release, every area within women and children services group during this quarter, with the exception of neonatal intensive care, so that's really a reflection of the effort that we're making. When you think about the services that are tied in or built around neonatology, you have maternal-fetal medicine, which is a very hard to come by group of specialists, there maybe a couple of thousand of them across the country and these are high-risk obstetricians which everybody wants because they drive business into the hospital but they are hard to get. We're talking about well babies which is an area again that we have placed specific emphasis on and which is growing for us because that's an obvious area of growth for us.

We're talking about OB hospitalists which is our fastest growing area right now where we are providing the hospital with obstetricians to be in the hospital around the clock, ready to handle any emergency that might come up. We're talking about pediatric cardiology. We're the largest group of pediatric cardiologists in the country, we're talking about pediatric intensive care. So, there's a host of these services, which is why we can focus on that and tell you that we -- if you look at neonatology, that's more than 50% of our revenue and the impact on births has had obviously a material impact on our results.

And yet we've been able to overcome that and that is the goal that this is the year of stabilization for us. This is the year where we want to make sure that we are providing the stability in our performance that our stakeholders want and that is one main area of focus for us, it's not just the cost savings on the side of anesthesia and its growth on the maternal-fetal side and its growth on the radiology side, which is also growing as well and we haven't talked very much about that. So that's what we're focused on.

Ana Gupte -- SVB Leerink -- Analyst

And that's kind of right now in the midpoint of your EBITDA guidance for the full year?

Roger J. Medel -- Chief Executive Officer

I'd say it's less than that. I think we have a lot of room to grow. If I understood your question correctly, I think we have a lot of room to grow, particularly again in well babies and OB hospitalists; yeah.

Ana Gupte -- SVB Leerink -- Analyst

Okay. Good to hear. Thanks, Roger.

Charles W. Lynch -- Vice President of Strategy & Investor Realtions

Operator, I understand that we have a number of questions still line up in the queue, but in the interest of time I think we'll take few more questions.

Operator

Okay. We'll next go to Gary Taylor with JP Morgan. Please go ahead.

Gary Taylor -- JP Morgan -- Analyst

Hi, good morning. Does that mean I can ask 10 questions or -- I just have three quick ones. The first one, I just want to go to Steve and make sure understood what you are saying about some of the transformational expenses that you said $15 million to $20 million over four to six quarters related to the IT scheduling and clinical management. But then you said two to three other similar initiatives and maybe several more in 2020. So similar in terms of size of spend or is -- so are we saying it could be two or three times the $15 million to $20 million. I just want to get a sense of what you think that total amount is for 2019 and it sounds like 2020 is going to be an investment year as well.

Stephen Farber -- Executive Vice President and Chief Financial Officer

Yeah. Gary, I -- the way we're thinking about is that these projects are all likely to have some scale to them. We are not really intending to separately break out or separately report ordinary run of the mill -- $1 million, $2 million, $3 million type of projects. We are intending to break out larger ones that we expect to have larger impact. So I don't think they will all be $15 million to $20 million. You could have some better $5 million or $10 million or $12 million or $8 million. I think it's unlikely that we will have any of them that are really over $20 million individually.

And we have a whole lot of things that we're looking at. So the one of the ones specifically that we've talked about today is the one that's pretty fully baked, it's in play. We've got people working on it, we've engaged consulting firms that are working with our people to make them happen. And so, we were able to quantify it. We've got a bunch of others, where you should think of it almost like we will make the number of little seed investments, right, spend a few hundred thousand dollars, scoping the opportunities, prioritizing the opportunities and some of them we move forward with, some of them we won't. So I'm not suggesting that in 2019 you will see us do three or four projects that are $15 million to $20 million of spend all of which occurs in a year.

I think you'll see staggered starts of projects in the, call it, $5.9 million range, several over this year, several over next year. And honestly, with the sorts of ROI that we are finding with some of the things that we're looking at, these are exactly the sorts of ways we would imagine, you and our investors, would want us to be spending our money because they are quite meaningful.

Gary Taylor -- JP Morgan -- Analyst

Got you. Two more quick ones. I'm not sure this was exactly covered in it, but just thinking about conceptually your fourth quarter same-store revenue and volume against the comparison you had was surprisingly strong yet the EBITDA performance, I think third quarter EBITDA was down 11 $million, fourth quarter was down $18 million. Even though you meet the high end of your same-store revenue guidance and meet what we were expecting, so as we're all sort of trying to attempting to model, but the sensitivity of the same-store revenue and some of the inflationary factors you called out, is there a single one or two items that impacted the fourth quarter EBITDA performance versus 3Q?

Charles W. Lynch -- Vice President of Strategy & Investor Realtions

Hi, Gary, this is Charlie. I don't think there's anything I would call out specifically. As we go and you look over more than just one quarter over the previous or even one quarter over the last two previous, there's always moving parts and related to that we always have a lot of changes at least historically whether it's deal contribution in any given quarter or not and as we look at fourth quarter in particular of 2018, one thing is notable is that in the prior year we did have the addition of a couple of fairly sizable radiology practices at the end of the year, all annualizing out as you move through 2018. So I think that's one reason among many others that we're trying to provide a pretty robust view in total of our '19 outlook because there will be instances like that where looking at one quarter in itself may not be the best gauge of all those pieces you are talking about.

Gary Taylor -- JP Morgan -- Analyst

Last one, maybe just 30 seconds from Roger. I did want to talk about radiology a little bit, you had alluded to the fact we haven't talked about it much, but as you look at still for you a relatively restrained acquisition spending target for 2019 and then what you'd laid out for us on goals in terms of building out radiology, does that suggest radiology is a larger percentage of that 2019 expected acquisition spend, or is there anything else to update us on the terms of the build-out ?

Roger J. Medel -- Chief Executive Officer

Well, I can tell you that -- good morning, Gary. I can tell you that we have been pretty successful in obtaining growth within radiology from our local on-the-ground practices growing into -- with the assistance from vRad growing into local hospitals. So a lot of that is working exactly how I would have predicted. I do expect that there will be more growth coming from our Houston practice. I think there is opportunities for growth there as well.

We just can't overpay for these practices. And so with the way the acquisition market for these larger radiology practices is right now, it's pretty -- the multiples that are being paid for those practices are higher than we would like to pay. So I don't think you will see any significant investments from us in radiology. There are a couple of larger practices that we are interested in and that would be very nice and important for us to have, but it's going to be a matter of negotiations and whether they elect to come with us or not.

But having said everything that we said, I mean I wouldn't be surprised if you saw that at some point during the year there was a larger radiology practice that we invest in.

Operator

And our final question comes from the line of John Ransom with Raymond James. Please go ahead.

John Ransom -- Raymond James -- Analyst

Hi, just on the subject of radiology, if you look at 2019 over 2018 at a practice level, EBITDA basis, is it up, down or sideways?

Roger J. Medel -- Chief Executive Officer

I don't know that we want to tell you that answer. We've got a lot of competition in radiology and (inaudible).

John Ransom -- Raymond James -- Analyst

Okay. I mean, at a more high level, is the business trending, I mean you know it's tricky, blending that would be (inaudible), is it trending like you thought certainly?

Roger J. Medel -- Chief Executive Officer

Yes. And I'll just answer your question, it's up. Yes, it's trending; it's actually doing pretty well.

John Ransom -- Raymond James -- Analyst

Got you. Okay, that's all I had. Thank you.

Roger J. Medel -- Chief Executive Officer

Thanks, John.

Operator

Did you want to take another question?

Charles W. Lynch -- Vice President of Strategy & Investor Realtions

Sure.

Operator

Okay. We'll go to Pito Chickering with Deutsche Bank. Please go ahead.

Pito Chickering -- Deutsche Bank -- Analyst

Good morning, guys. Thanks for squeezing me in after the last two callers. I appreciate that very much. Just to step back a second on the guidance, to make it apples-to-apples comparison, what would EBITDA guidance have been in 2019 if we didn't adjust new adjustments, is it just putting the $15 million, $20 million of IT sort of pulling out of that number?

Charles W. Lynch -- Vice President of Strategy & Investor Realtions

Good morning. I mean, that's how (inaudible) question to answer because it's unclear if the spend on that projects, you know, where it's going to land is between $15 million and $20 million and where it's going to land between four and six quarters. So I think (inaudible) of course free to make your own assumptions, but I'll intend to focus people on the sort of the $555 (ph) million midpoint of our guidance, $550 million and $580 million range.

And if you want to layer some of that on that, you are more welcome. I do think, my own personal view and the reason why we are fracking out going forward a line, separate P&L line to include those costs is because I think of them no different really when I would think about integration costs or restructuring costs or as we've been calling, transformational costs.

But it's a -- we view these as sort of step function type project-oriented investments that really to include them in our reported results would somewhat (inaudible) the underlying true cash generation -- cash generating capacity of this enterprise.

Pito Chickering -- Deutsche Bank -- Analyst

It makes all sense, but then I understand you guys are focusing on EBITDA dollars versus margins, and I acknowledge there's definitely structural headwinds that are impacting some of your revenues. But I still want to get a little better feeling for gives and takes on EBITDA margins. So if you sort of back into 2019 revenue the 2% acquisitions, 1% same-store, and uses that 550 million just to do a comparison '18 versus '19, it looks as though that would result in EBITDA margin of 14.5% or about 100 basis points lower than last year.

Is that the right margin compression to think about with same-store revenues are growing 1% and it gives a feeling for how we should think about same-store revenues versus (inaudible) achieve to get margin stability, that'd be great? Thanks.

Stephen Farber -- Executive Vice President and Chief Financial Officer

That's a mouthful for the last question. (multiple speakers) Two things, first, we're more than happy to talk to you later in a bit more detail in terms of making sure we really understand what it is that that you're asking.

But in general, we're just not going to make commentary around margins for all the reasons that I've already said on this call and kind of point people back to our EBITDA. That said, our goal is to be constructive and helpful, and to try and make sure that everyone has a consistently full -- complete understanding of our thoughts about where we stand and where we think we are going.

So, I would just suggest that you think about other lending large -- the individual distortions in 2018 that we've sort of discussed ad nauseam over the past couple of quarters. I would suggest that maybe the best way to think about 2019 is with a focus on adjusted EBITDA and in a general context of essentially consistent, stable type performance as an overall goal relative to the prior year, acknowledging that there will be a decent amount of quarter-to-quarter noise on a reported basis given the events last year.

Pito Chickering -- Deutsche Bank -- Analyst

Fair enough. Thank you very much.

Charles W. Lynch -- Vice President of Strategy & Investor Realtions

Okay. Operator, thank you for helping us this morning and thanks to everyone for being on the call, and we're going to go to work and look forward to speaking with you next quarter.

Operator

Ladies and gentlemen, this conference will be available for replay after 12:00 PM today through February 21, 2019 ET midnight. You may access the AT&T teleconference replay system at any time by dialing 1-800-475-6701 and entering the access code 463023. International participants, dial 320-365-3844. Those numbers again are 1-800-475-6701 and 320-365-3844, access code 463023. That concludes our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

Duration: 72 minutes

Call participants:

Charles W. Lynch -- Vice President of Strategy & Investor Realtions

Roger J. Medel -- Chief Executive Officer

Stephen Farber -- Executive Vice President and Chief Financial Officer

Ralph Giacobbe -- Citigroup -- Analyst

Jason Plagman -- Jefferies -- Analyst

A.J. Rice -- Credit Suisse -- Analyst

Kevin Fischbeck -- Bank of America -- Analyst

Ana Gupte -- SVB Leerink -- Analyst

Gary Taylor -- JP Morgan -- Analyst

John Ransom -- Raymond James -- Analyst

Pito Chickering -- Deutsche Bank -- Analyst

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