Pediatrix Medical Group, Inc. (formerly Mednax, Inc.) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. The filing was submitted under the name Mednax, Inc. It reports continuing operations after the 2020 divestitures of the anesthesiology and radiology medical groups.
Financial results and liquidity
- Revenue: $446.8 million, up 1.3% from $441.2 million. Same-unit revenue increased 2.5%; higher reimbursement-related revenue more than offset lower patient-service volumes.
- Profitability: Operating income was $26.1 million versus $10.8 million; operating margin was 5.8% versus 2.4%. Continuing-operations income attributable to Mednax was $5.4 million, compared with a loss of $18.5 million. Adjusted EBITDA from continuing operations was $45.5 million versus $33.1 million; adjusted EPS was $0.24 versus $0.06.
- Net income: $17.6 million, or $0.21 per diluted share, versus a net loss of $18.7 million, or $0.22 per share. Q1 2021 included $12.3 million of income from discontinued operations, principally an adjustment reducing the loss on the anesthesiology divestiture.
- Cash flow: Continuing operations used $98.9 million of operating cash, versus $153.0 million used a year earlier. Total company operating cash use, including discontinued operations, was $82.2 million. Capital expenditures were $9.1 million.
- Cash and liquidity: Cash and equivalents were $269.6 million at quarter-end, down from $1.12 billion at December 31, 2020, primarily following debt redemption. Short-term investments were $100.8 million. Working capital was $338.4 million. The company reported no revolver borrowings and $899.9 million available under its credit facility.
- Debt: The company redeemed $750 million principal amount of 5.25% notes due 2023 for $759.8 million, including the call premium, and recorded a $14.5 million extinguishment loss. It had $1.0 billion principal outstanding on 6.25% notes due 2027. Management reported covenant compliance and expected to remain compliant through 2021.
Changes and management commentary
- Same-unit revenue rose $10.9 million: reimbursement-related factors added $21.5 million, while patient-service volumes reduced revenue by $10.6 million. Management attributed the volume decline mainly to hospital-based women’s and children’s services, partly offset by office-based growth.
- Revenue growth also reflected $7.7 million of CARES Act relief and higher hospital administrative fees. The share of patients covered by government-sponsored programs declined year over year in Q1, after rising in late 2020.
- Transformational and restructuring expenses declined to $4.9 million from $16.1 million. Interest expense fell to $17.6 million from $27.7 million, partly due to the 2023 notes redemption; the redemption also generated the extinguishment loss.
- Management said patient volumes had substantially recovered through 2020 and early 2021, but could not predict the ultimate COVID-19 impact. It expected available cash, operating cash generation and credit-facility capacity to meet obligations for at least 12 months.
Outlook, risks and contingencies
- The filing provides no specific revenue, earnings or other numerical guidance. Management expected to pay deferred employer Social Security taxes in Q2 2021 and had pending applications for additional CARES Act relief.
- COVID-19 may again affect office-practice demand, NICU volumes and patient mix. A shift toward government-sponsored payors, which generally reimburse less than commercial payors, could pressure revenue. The filing also discusses healthcare-policy and reimbursement uncertainty, including the No Surprises Act, effective January 1, 2022.
- The anesthesiology divestiture’s contingent economic consideration valuation and the radiology divestiture’s final working-capital adjustment were pending and could change the recorded loss on sale. Tax effects of the anesthesiology sale adjustment were estimates subject to revision.
- Risks include malpractice and other litigation, government audits and investigations, and potential insurance shortfalls. Professional-liability obligations totaled $316.1 million, partly offset by a $60.8 million insurance receivable. A derivative lawsuit concerning statements about the former anesthesiology business remained active; the company stated that outcomes of legal matters could not be predicted with certainty.
Most important facts for investors to verify
- Whether patient volumes and payer mix continued to recover, and how much reported growth depended on CARES Act relief and reimbursement changes.
- Final outcomes of the pending divestiture adjustments and related tax estimates.
- Cash generation after the large Q1 debt repayment, including payment of deferred payroll taxes, and continued covenant compliance.
- Remaining exposure from COVID-19, reimbursement and surprise-billing changes, professional-liability claims, and litigation.