Pediatrix Medical Group, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Mednax Inc. Third Quarter 2021 Earnings Conference. At this time, our lines are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given to you at that time. If you need assistance during the call, press star and then zero, and an operator will assist you offline. And as a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr. Charles Lynch, Senior Vice President, Finance and Strategy. Please go ahead.

Thank you, Cynthia, and good morning, everyone. I'll quickly read our forward-looking statements, and then we'll get into the call. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Security's 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 METNAX 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, its quarterly reports on Form 10-Q, and its current reports on Form 8K, including 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 metrics to the most comparable GAAP measures can be found in this morning's earnings press release, our quarterly reports on Form 10Q, and our annual report on Form 10K, and on our website at www.mednax.com. With that, I'll turn the call over to our CEO, Mark Borden.

Thanks, Carly. Good morning, everyone. Also joining me on today's call are Mark Richards, our CFO, Dr. Mack Hinson, neonatologist and head of our pediatrics and obstetrics medical groups, and Dr. Jim Swift, pediatric intensivist and our chief development officer. You'll see our strong third quarter results in this morning's final. Total births at the hospitals where we provide NICU services were up 2.8% on a same-unit basis, and our NICU days were up 5.6%. Key metrics, such as payer mix, and rate of admission continue to be favorable compared to last year. In fact, for MedNet as a whole, our patient volumes, revenue, and adjusted EBITDA were all ahead of the same period in 2019, which suggests that at this time our business has more than recovered from the significant negative impact of the COVID-19 pandemic that we experienced in 2020 and earlier this year. Mark will get some details of our comparisons to pre-pandemic levels. As a result of volumes exceeding pre-COVID levels, as well as stable cost trends at the practice level and improvements in our G&A infrastructure that we'll detail this morning. Our revenue for the quarter of $493 million was above our internal expectations, as was our adjusted EBITDA of $73 million. Based on our results, we now expect that our 2021 adjusted EBITDA will exceed our prior internal expectation of being above $240 million, and we now expect 2021 adjusted EBITDA of at least $250 million. We also fully expect adjusted EBITDA next year to exceed $270 million, absent any major external events. This is still a preliminary view into 2022, and we'll be in a better position to provide a more specific outlook after we finish our budgeting process, but I believe we're building momentum in our business. Demand for the critical services that our affiliated clinicians provide not only recovered from last year's disruptions, but continues to grow. We also estimate that the broader growth efforts we have in place have supplemented this demand so far in 2021. I'll give some detail here as we see our growth concentrated in several areas. First, we target opportunities to expand practices or add practices that enhance our hospital relationships and also directly improve care through the coordination of different subspecialties that many patients need to access. Second, in our daily operations, we strive to provide the best 24-7 support possible to our which combines in our patient service access initiatives, improving technology support, improving revenue cycle management efficiency, recruiting the best talent, and old-fashioned focused managerial actions. And third, we look for acquisition opportunities where we see a clear combination of bolstering hospital relationships, adding to our patient care and support, and a demonstrable growth path within that acquisition. Acquisitions haven't been a major part of our activities so far this year, but they can play just as important a role as organic growth when we do see them strategically. The sum of these efforts is continuing to ramp up post-COVID, and importantly, after all of our reorganization activities pre-COVID. For the 2021 year to date, we estimate that we have added approximately three percentage points to our adjusted EBITDA growth versus 2020, over and above pure same-store growth that our affiliated practices have experienced. In addition to all this activity, we recently announced our investment in BraveCare, and I want to explain why this is actually a very key piece of our growth plan. We, again, believe that we are totally uniquely positioned to grow in the combined pediatric and primary urgent care space. In our major markets, MedMath, under our pediatrics brand, alone has the concentration of pediatrician population density, hospital relationships and partnerships, and an enormous and growing base of vital patient relationships and our market managerial support that's already in place in our major markets. With our nightlight acquisition in place, and in fact thriving, we have a nucleus from which we can grow. But for this to grow, we needed the engine and additional talent to enable building something really meaningful. GraveCare brings scalable internal controls and patient-facing technology systems and protocols that would otherwise take us years to create. The proprietary technology systems and operating platform that Brave's team has built over a two-plus year period gives patients and their parents a truly seamless experience when they visit. It also gives great remote connectivity to clinicians through an extremely user-friendly remote mobile app, so parents always have a resource at their fingertips. Braves care systems are integrated with all facets of clinical operations. And my view of the power of the Braves system is not theoretical. It's proven and up and running in their existing clinics in the Northwest. Our investment in Braves is accompanied by an operating partnership agreement that provides Braves a long-term incentive to help us plan, develop, equip, and open pediatrics clinics over the coming years. The clinic will be ours and will be led and managed by our team working alongside the BRAVE team. At a high level, looking at our geography of existing services, we believe that there's an opportunity for us to open more than 100 pediatrics clinics across our footprint within a few years. And as we move forward, we'll share with you how this will materialize. We believe that our growth will include both de novo development and acquisitions, and we're already in discussions with certain existing platforms that we think overlap well with us and that can integrate into our strategic growth. In summary, looking at all these factors, strengthen our core of amazing patient relationships served by our sector's leading clinicians, strengthen our balance sheet, our growth efforts, efficiency, and a smart strategic expansion into primary urgent care that together gives me confidence in our diversified growth potential in 22 and beyond. Now, Mark will provide additional details on our third quarter activities.

Thanks, Mark, and good morning, everyone. I'll begin by providing some detailed volume comparisons to 2019 to flesh out Mark's earlier comments. I'll then walk through where we stand on the number of projects we've discussed so far this year and how they flowed through the income statement and finish with our financial position as it stands today and how we're looking at our capital structure as we look forward. Compared to 2019 on a same-unit basis for the quarter, our hospital volumes were up 4.4%, and office-based volumes were up 2.8%. Within hospital-based services, our NICU days were up 1.4%, pediatric intensive care was up 42%, and pediatric hospitalist volumes were up 14%. On the office-based side, maternal fetal medicine volume was up 8.6%, while pediatric cardiology was down 9%, with this decline likely reflecting some deferrals of appointments during the quarter due to the surge in Delta cases. Turning to G&A, our overall spend in Q3 was down about $4 million sequentially. This primarily reflects sequential reductions and certain operating and legal expenses, as well as RCM savings related to our agreement with R1, which should increase further in Q4. In terms of the transition of our revenue cycle activities to R1, to date, our metrics reflect that there hasn't been any disruption in service to our practice DSOs and cash collection activity in the third quarter were in line with our expectations and with the prior quarter. I'll also reiterate that under the terms of our agreement, we realize near-term G&A savings, which are reflected in our current P&L, and we also expect to benefit over time from future improvements in RCM performance, yield, and revenue enhancements. During the third quarter, We also completed the support services related to the TSA arrangement attached to last year's sale of our anesthesia organization. Our Q3 G&A still reflects a comparable run rate of cost to what we were incurring previously, and we'll refine our views on an appropriate G&A level as we finish up our budgeting for 22. But you'll see that our reimbursement for those costs in Q3, which we record in our investment and other income line, declined substantially. It was a half a million dollars this quarter versus about $9 million in the year-ago period. However, the strength of our core operations more than offset this decline and, in fact, enabled both year-over-year and sequential growth and adjusted EBITDA. Our transformational and restructuring expense in Q3 was $4.2 million, which predominantly reflects the cost of terminating other third-party agreements as part of the R1 transition. All told, within our updated internal expectation of 2021 adjusted EBITDA, we expect our fourth quarter G&A expense to be flat to down compared to third quarter, based largely on our expectation of RCM cost savings. This reinforces our prior view that the second half G&A will be lower than the $137 million we incurred in the first half of the year. Turning to our capital structure, we continued to improve our leverage position in the third quarter. We generated $67 million of operating cash flow, which exceeded the investments we made in CapEx, acquisitions, and our BraveCare transaction. Based on 930 debt of 642 million in our 2021 adjusted EBITDA expectation, net leverage stands at about 2.5 times. And we would anticipate that to decline by year end based on fourth quarter cash flows. During the quarter, We also reduced our revolving credit facility capacity from $1.2 billion to $600 million, all of which is currently available to us with no remaining covenant restrictions. As most of you know, we have $1 billion in outstanding six-and-a-quarter coupon senior notes due 2027, making our debt structure fairly inefficient given our cash position and current net leverage. Given that our notes are callable in January of 22, we will be reviewing the best debt structure for our size, profitability, and growth in capital plans. While we haven't made any determinations yet, I anticipate that we'll be able to achieve meaningful savings and interest expense once we determine the most appropriate capital stack for our business as it exists today and in the foreseeable future. With that, now we'll turn the call back over to Mark. Thanks, Mark.

I'm right over here, now ready for questions.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press 1 and then 0 on your touchtone phone. You will hear a tone indicating that you've been placed in queue. If you wish to remove yourself from queue, you may press the same 1-0 command. So once again, 1 and then 0 for your questions or comments. Our first question will come from the line of Pito Chicory with Deutsche Bank, and your line is open.

Hey, good morning, guys. Thanks for taking my questions. The first one is for you on margins. So far, you guys have done an excellent job managing costs through a very volatile time period. And I'm not asking for 2022 guidance at this point, but conceptually, can you give us some color on margin expansion? The top line grows, you know, 3%, 4%, 5%, 6%. How much leverage can you get on different revenue growth?

Hey, Peter, how are you? It's Mark Richards. You know, you'll see some very nominal margin expansion, particularly in adjusted EBITDA, quarter over quarter sequentially. I'd point out a couple of things in that. I think we've done a relatively impressive job in maintaining our overall labor costs, which obviously is a concern across the industry at this point in time, with a lot of focus specifically on our local contract labor and variable costs. If you kind of dig into where we stand on that, we're basically flat year over year, both sequentially and looking back into 2019. So with respect to that margin expansion and the concerns relative to labor growth, I think we've done a really good job of managing that, particularly the variable component. And with continued rate growth on the top line, we'd expect that mild incremental increase as we continue to manage our labor pool.

Great. And then sort of same question, just, you know, again, as revenues keep growing here from a SG&A perspective, like you talked about RCM savings in the fourth quarter, you know, how much G&A leverage can we get sort of in the out years? Kind of what percent of your G&A is fixed versus variable? Just want to get a sense for how much margin leverage we can get as revenues continue to grow.

Well, as part of our RCM outsourcing arrangement, we have effectively flip a fixed cost structure in our revenue collection cycle to a variable cost structure. So that significant component of our overhead, you know, as of this quarter has effectively turned from a fixed component to a variable component. However, that that variable component is specific to RCM and the rest of our G&A, as I've touched on, some of our initiative throughout the year will continue to bleed into our overall G&A costs, but most of that continues to remain relatively fixed. And it's Mark or Dan.

I would say, aside from RCM, we think that we are largely a fixed cost operation and we're looking at ways in continuing to chip away at our cost. So I think that there will be leverage as our revenue grows.

Perfect. And then just one more question on wage inflation. This has obviously been a hot topic sort of, you know, this quarter for health care service companies. Can you refresh us sort of, you know, what percentage of your contracts with doctors are up each year? What are you seeing on renewals from those? And just, you know, is it fair to think that Med-Nac should face very little wage inflation going forward versus, you know, a lot of your peers simply because of the timing of those contracts? Thanks so much.

Yeah, I think it is partly. You know, I'll just give one observation there for you to keep in mind. You know, within the pediatrics organization exists probably a good several hundred individual group practices. And that makes our unit size fairly small related to any incidents of contract renewals and the like. And additionally, given that many of the practices within pediatrics have been affiliated with the organization for a very long period of time, that kind of makes the renewal cycle more of an evergreen cycle. And by the same token, Within that organization, particularly for longer-standing practices, there exists a fairly meaningful variable compensation component within the bonus pool. So we really look at less a function of a renewal cycle and more a function of the underlying financial performance of individual practices as

Thank you. Next, we'll go to the line of Kevin Fishbeck with Bank of America. One moment.

And your line is open. Great. Thanks. I was wondering if you could comment a little bit on the surprise billing regulation that came out. Wanted to, I guess, understand your views about whether it would have any impact when it goes into effect against initially, if there's any out-of-network revenue that might see compression, or then two, whether there's any concerns about whether it impacts the long-term negotiating dynamic between you and managed care and your ability to get sufficient rate updates.

Sure. This is Mark. I'll make a few comments about that. First, I'd remind people that we have publicly spoken against the practice of surprise billing, and we were fully supportive of the legislation for which was very bipartisan in a not-so-bipartisan world. The ruling that came out of September 30th is an interim rule, and I know that there's an enormous amount of pushback against it, which I think will inform a lot of people's opinions before it's final. I'd comment that the The biggest effect that this ruling would have if it goes into effect, it'll take direct aim at rural care and people who are already traditionally underserved. So in our view, it'll have the perverse effect of targeting the very patients that the surprise billing legislation sought to protect. So we think that's very unfortunate. As far as we're concerned, look, we're in a strong position. We are overwhelmingly in network. We have very good relationships with our... with our payers, and if we have to make adjustments because of a legislative change or a ruling change, then we'll adjust as necessary. But I'm not projecting any long-term effect from this, and I hope that the problems with the ruling are ironed out before there's a final ruling.

Okay, so you don't see any reason why this reg, if it goes into effect January 1, has written would impact your guidance for 270-plus next year? Well, again, no.

I'm confident in our 270-plus number, or I wouldn't have said it. I think that it's hard for me to speculate either what the ruling will finally be and what the effect of it will be. So I'm confident that in 2022 we'll be fine, and if we have to make adjustments for the future, we'll make adjustments for the future.

All right, great. really helpful. And then you guys put out a press release, you know, a few weeks ago about how COVID was impacting, you know, the birth rate and mothers are coming down with COVID. I wanted to see if you could maybe spike out for us what impact, if any, that had in the quarter and how you think about, you know, as COVID wanes, is that how that might have an impact on your business over the next few quarters?

Hey, Kevin, it's Charlie. I'll give a couple of thoughts and maybe Matt can weigh in as well. You know, our clinicians, and I shouldn't be the one speaking for them, but nonetheless, our clinicians have voiced a lot of concerns throughout this year related to the potential impact to children and expecting mothers based on COVID, particularly because on the pediatric side, children do not have the vaccine available to them. And as we talked about last quarter, we had already seen an impact to patient volumes more related to children coming out of isolation and contracting respiratory ailments and the like and needing to go in. And as you can see in our numbers for the quarter, those areas that would be impacted were impacted in the PICU, on the PEEPS floor and the like. It's harder to tease out on the maternal fetal medicine side the rationale for referrals to an MFM. That's always a very difficult thing to tease out. Wouldn't be too surprised if there was some increased referral pattern into MFMs related to expecting mothers with COVID. And lastly, we believe that some of the softness in pediatric cardiology volumes probably reflects the deferral of appointments that are regular appointments, but people chose to put off.

Okay. Maybe just to add that point there, I guess we're always trying to figure out, you know, you mentioned, you know, that revenue was back about 2019. Do you feel like core volumes excluded any benefit? Sounds like some businesses benefited, some businesses got impacted negatively. Do you believe that core volume, if COVID wasn't there, and core revenue, Was it about 2019 or was there a net positive or negative?

I mean, I'll answer it very simply. And the simple answer is that the predominant impact to our patient volumes through 2020 related to COVID was negative. And as we look where we are today, it looks like that has largely passed.

And look, we see... across the board in each of our lines improvement. We also, at the same time, we've changed so many facets of our operating protocols in the company that it's hard to tease out where the gains are from. I think as we've discussed, the strong drive for increased patient access, our focus, our managerial focus, I think has made everything much more cohesive. coordination amongst subspecialties that I referred to earlier is greatly improved over where it was. So that, along with an improving environment, I think all contribute to what we've seen, which is why we're not going to break out, because we think it's impossible, what the sole driver is.

Okay, great. Thank you.

Thank you. Our next question will come from the line of Matt Borsch with BMO Capital Markets. And your line is open.

Good morning. This is Ariana Brady on for Matt Borsch. Could you provide us with potential headwinds and tailwinds that you're anticipating in 2022? And can we expect to receive any formal guidance from you in the near future in addition to that 270-plus EBITDA figure you provided us with today?

Well, headwinds and tailwinds are probably – Nothing more than we've seen in the past. Somebody asked about surprise legislation. That could enter into the mix. We don't know that now. If there's a change in the birth rate or something else happens, something external happens. But, look, I think we are today very focused on expanding company and focused on women's and children's health, which is a vital area to be in. We enjoy good relationships with our payers. We have great relationships with our hospital system, so we feel comfortable with how we're working and how we're running. Mark, we discussed changes like in RCN to make us more efficient and better at what we do internally. So we're operating optimistically and carefully. So no change there. As for guidance, as I mentioned in my comments, as we go through the budgeting process and we can be more precise about where we'll be in 2022, we'll share that with you just the same way we've updated our thoughts quarter by quarter this year.

Great. Thank you. Thank you. Our next question comes from the line of Ryan Daniels with William Blair. And your line is open.

Hey guys, Nick Spigotta for Ryan. Thanks for taking my questions. I guess so, you know, you mentioned it too, but the tightness in the labor market has been a pretty big trend kind of for providers in the space. I was wondering, and for a couple of other providers we've seen, you know, kind of things like turnover kind of increasing, earlier retirements happening. I'm wondering if you guys have experienced any sort of that pressure or if you kind of, you know, expect that at all to take place in the future.

Well, I'm responsible for the good things. Matt's responsible for the turnover, so I'll let him talk about that. So why don't you describe what it's like day-to-day these days?

Sure. You know, I think for the specialties we're in, there's always a limited number of clinicians available for that. That being said, and Mark referred to our contract labor, if you look at our need for external contract labor, that's decreased sequentially over the last three years. And I think it speaks to the focus we have on recruiting the clinicians that we need. So it is a tight labor market, but it always is. And I think we're being successful in recruiting the physicians that we need to staff the programs that we have that are ongoing and to step our growth.

Okay, great. Thanks. And then kind of as a follow-up, like for your 270 EBITDA target for 2022, is that assuming – kind of sign-on bonuses and salaries and benefits for new hires, kind of all those assumptions stay the same as they are now for the most part?

Yeah, it assumes everything we're aware of.

Okay, great. Thanks. And then I guess just last one, the uptick in salaries and benefits quarter over quarter, is that effectively just a function of more NICU days and then a little bit higher variable pay or I guess what's the main driver there?

That is the main driver, yeah.

Okay, thanks for taking the question. Have a good one.

Thank you. Our next question comes from the line of Whit Mayo with SVB Lyric, and your line is open.

First question, just the increase in AR in the quarter, it's up about 20 million sequentially a couple days. I heard you say that it was in line with your your internal expectations, but what is that increase attributed to? Is this just the, the, the RCM conversion?

Yeah. I mean, a lot of this, Hey, Hey, when it's Mark Richards, a lot of this really is just timing from period to period. Our, our focus through this RCM transition has been to make sure our revenue cycle, both on the billing and the class collect cash collection side is doesn't miss a beat. And that's really where we are with a modest uptick of $20 million in AR. Some of it's just timing-related that will turn around. And, of course, with a significant transition like we're going through right now, there will be a little bit of noise. But we view that all, once again, as just timing.

Keep in mind we've got a sequential increase in total revenue and activity from Q3 to Q3 normally.

I get it. Maybe just back to the surprise billing for a second. We see the movement in the market where payers are proactively terminating contracts. I just want to be clear that have you seen any disruption with contract terminations? Is there anything that we should kind of be aware of and just maybe internally, how do you manage something like this in the event that there is a unilateral termination from any individual payer?

Well, it's sort of par for the course that we negotiate with payers, and when contracts are coming up, there will be discussions about rates. So it's not surprising for us for people to say, You know, we want to adjust rates and that leads to negotiation. Have we seen any major change in that? No, you know, we have. You know, also the interim final rule is not in effect and it may not be in effect. So a lot of the answer to your question, you know, remains to be seen. How do we adjust? Like any company, you adjust to external factors, the history of healthcare, includes periodic legislative changes that affect the way you do business. And if you're a good manager and you have the strength to pivot, you pivot. So, you know, if something, you know, pun intended surprising comes at us, I'm very confident that we'll adjust accordingly. My concern is mostly for the patients we serve because, you know, I can brag We take care of patients regardless of their ability to pay, and this is really going to hit hard in areas that have already been underserved. And so I think I'm sure payers and legislators and the executive branch will recognize that there could be unintended consequences to patients from it. But look, I think it's par for the course. Payers would always like to pay less, I suppose. We provide a vital service, and we're a leader in that service. We are the largest research organization in neonatology, and it's publicly available research. We don't embargo it for our own purposes. We do it because it elevates health care. So I think that most payers would want us in their network and want us to be robust. We have the best clinicians out there, and two of them are sitting with me today. So that's my answer.

Okay. No, that's helpful. Thanks, guys. Nice job.

Thanks very much. Thank you. Next we'll go to the line of A.J. Rice with Credit Suisse. and your line is open.

Hi, everybody. A couple quick questions here. First, just to put a finer point on the labor questions and comments, I mean, it seems like to me that the tightness in labor pool is mainly in the nursing side and not so much on the doctor's side. Would you agree with that? And do you have much exposure to nursing? I don't really think you do.

We have a fairly sizable population of advanced practitioners, particularly within our and supporting our neonatology practices. So there is, in that sense, a nursing component, although they are advanced practitioners or neonatal nurse practitioners. In some of the comments that Mark Richard provided around variable expense being fairly significant, essentially flat over the last three years. That includes any definition we would have of agency labor, locums for positions or temporary practitioners, as well as on-call and other variable components. So it is captured in what we referenced before, Adrian.

Okay. On the brave care and the rollout of pediatric urgent care centers, can you comment a little bit on – how much upfront startup costs there are associated with that, and then time to break even, time to mature margins on those clinics, if you have a view at this early juncture, just trying to figure out is this something we should factor in as a drag in the next few years as you roll this 100 targeted facilities out, or is it something that's sort of de minimis?

Well, if you think about the opening of a clinic, say, if you have roughly a couple million dollar startup costs, including early losses, and then you have a strong return on that investment, it's a very high return on investment vehicle for us because of the overhead structure that we have in place and the relationships that we already have. So I think it fits with what we do. Probably wouldn't recommend it to others. We will detail this as we go forward, but I think what you should expect is a clustered rollout in cities where we are so that that will minimize the additional overhead that's required to do this. As I said, now importantly we have the people to do it, the systems to do it, and the relationships in our overall business. So we think it's going to be a very strong return vehicle, not a sidelight to what we do.

Okay. And then my last question is a reference to, you know, as you think about the potential to refinance some outstanding debt, other things, talk about an appropriate capital structure. I guess as you're evaluating what the appropriate capital structure is, I just want to make sure I understand what are the moving parts or variables that are still open in your mind as you're trying to formulate what the appropriate capital structure would be for the company?

Well, I mean, naturally we have outstanding debt so you look at the cost of that debt and say well you know what what can we do about it as mark noted and as you know uh we have the debt callable in 2022 so that's a factor for us thinking about the expansion plan that we just outlined if uh if we are gonna If we are going to be making acquisitions, are we also going to be opening 100 clinics over a few years, the cash flow need for that? So I think we're evaluating all the things that we're doing and trying to keep our controllable costs down. So I think early in the year we'll come back with more specificity about that.

Any update on the share repurchase as part of that option?

No update. We would have mentioned that. But obviously, I think we're good stewards of our financial capital. As you see us being quarter by quarter steady state, that can enable, I think, smart choices. So we're on.

Okay, great. Thanks a lot. Thank you.

Thank you. Our next question comes from the line of Ralph Giggleby with Citi, and your line is open.

Great, thanks. This is Jason Castarola for Ralph Jacoby this morning. I just want to go back to your comments around the 2021, the new 250 floor. So I guess, you know, if we looked at the implied 4Q EBITDA with that new floor, it looks like a sequential drop in EBITDA. I guess, did you discuss what's driving that? And relative to the 2022 discussion around the 290 or 274, it looks like if we were to run rate 3Q EBITDA, it'd be more of like a 290 number. So just trying to understand if you have thoughts around that, and maybe if the 4Q implied EBITDA is a more correct run rate on a go-forward basis.

Yeah, I do have thoughts about that. First of all, I don't think it's analytically right to annualize our third quarter numbers. to necessarily get to that 294, which I saw you guys had put out there. We were confident that we would do above 240. The business has improved more than we expected for all the reasons that we discussed before, and that gives us confidence that in the year we'll end up above 250, and we think that's a right number. Our expectations were different, I would say. As far as next year is concerned, I think we have said that we think we have the earnings power to get to 270, and now what we're saying is we think our confidence level is very high that we will not only get to it, but we'll exceed it. But I don't see today the analytical grounding to call out a number above that. As I mentioned in my remarks, we We're in the middle of our budgeting process. We'll look at the components of that, how quickly we think acquisitions will fall into place and what we'll do with our other financial costs, financing costs rather, and then we'll update you.

And just one observation, Jason. Keep in mind, just from a seasonal standpoint, our third quarter, based on our business, tends to be our strongest quarter for both revenue and EBITDAs based on large antecedentality for a trend. So, you know, as we look at the third quarter in a vacuum, transitioning to Q4, we would normally expect something slightly lower from Q3 to Q4.

Got it. Okay, thanks. That's really helpful. I guess just a pair mix in the quarter, I mean, year to date, actually. You've seen improvement, I guess, over 2020 each of the three quarters, but Is there any way to discuss payer-mix trends, I guess, relative to 2019 at this point? And then, you know, should we think about that as an improvement in how we're thinking about improvements in payer-mix in the 2022 and in the go-forward basis? Thanks.

Yeah, I'll take a shot, and Charlie can add. Look, I think we're seeing a trend in our payer-mix related directly to 2019 we think is a little bit difficult. It came out of 2020. We saw the changes in 2020 as COVID has subsided. Our business has changed. We've grown in a lot of ways. So I think, you know, I think the most instructive is to look at our current trend and not, it'd be hard to go back to 2019 and assume something different.

Yeah, you know, I think, you know, our pair mix is largely binary on the government side. It's predominantly Medicaid. and the rest remains on the managed care and commercial side. You know, as such, over a fairly long period of time, leaving aside quarter to quarter, our payments by volume tend to be fairly stable, and over longer periods of time may be impacted by economic trends and employment trends more than anything else related to aging or demographics or things you might look at on a Medicare side. So it tends to be stable. It had been gradually improving prior to 2020, largely probably based on overall employment growth. And what we're seeing so far in 2021 is really a reversion to that pre-2020 trend. So we're pleased with that, and it does suggest to us that we continue to have a fairly stable mix.

Got it. All right. Thank you.

Thank you. And at this time, I'm showing no further questions in queue. Please continue.

Great. Well, thank you, operator. Thank you, everybody, for joining us this morning. And we appreciate your continued support. Have a great day.

Thank you. And ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.