MEDNAX, Inc. (formerly Pediatrix Medical Group, Inc.) — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone fourth-quarter report. MEDNAX provides physician services in neonatal, anesthesia, maternal-fetal, pediatric and radiology specialties, alongside revenue-cycle and consulting services.
Business context and notable developments
At year-end, MEDNAX had more than 3,240 affiliated physicians in 35 states and Puerto Rico; its vRad teleradiology network served clients nationwide. The company completed 12 acquisitions during 2015, including 10 physician practices, vRad and a third-party receivables business. Acquisition-date consideration totaled approximately $853.3 million. Management described acquisitions, expansion of services to existing hospital partners and growth in telemedicine as key parts of its strategy.
Financial and operating performance
| Metric | 2015 | 2014 | Change or context |
|---|---|---|---|
| Net revenue | $2,780.0 million | $2,438.9 million | Up 14.0%; acquisitions contributed $345.7 million, while same-unit revenue decreased $4.6 million. |
| Income from operations | $557.9 million | $513.0 million | Up 8.8%. |
| Operating margin | 20.1% | 21.0% | Down 96 basis points, primarily reflecting acquisition mix and lower parity revenue. |
| Net income attributable to MEDNAX | $336.3 million | $317.3 million | Up 6.0%. |
| Diluted EPS | $3.58 | $3.18 | Up 12.6%; fewer weighted-average shares contributed to per-share growth. |
| Adjusted EPS | $4.07 | $3.56 | Up 14.3%; non-GAAP measure. |
| EBITDA | $622.7 million | $559.1 million | Up 11.4%; non-GAAP measure. |
| Cash from operating activities | $368.7 million | $422.6 million | Down $53.9 million, mainly from changes in accrued expenses and incentive compensation payments. |
| Cash and working capital at year-end | $51.6 million; $99.0 million | $47.9 million; $50.8 million | Working capital comparison is affected by the 2015 prospective reclassification of deferred taxes as long-term. |
For 2015, practice salaries and benefits were 63.1% of revenue, general and administrative expenses were 11.0%, and net income margin was 12.1%, versus 13.0% in 2014. The same-unit revenue decrease reflected a $39.6 million adverse reimbursement-related impact, partly offset by $35.0 million of higher service volumes. Medicaid-to-Medicare parity revenue fell to $12.0 million from $65.0 million, a $53.0 million year-over-year decline. Excluding that decline, same-unit revenue grew 2.1%.
Fourth-quarter snapshot: Revenue was $741.7 million, compared with $650.5 million in Q4 2014; income attributable to MEDNAX was $92.7 million versus $88.4 million; diluted EPS was $0.99 versus $0.89.
Debt, liquidity and capital allocation
Year-end principal debt was approximately $1.28 billion: $750 million of 5.25% senior notes due 2023 and $533.5 million outstanding under the credit agreement, including a $190 million term loan. The credit facility had $1.4 billion of available capacity and matures in October 2019. The notes’ net proceeds were used to repay credit-agreement borrowings. Management reported compliance in all material respects with debt covenants and expected operating cash, cash on hand and available credit to cover working capital, anticipated acquisitions and capital spending, share repurchases and contractual obligations for at least 12 months. A 1% interest-rate change on credit-facility borrowings would affect pretax income by approximately $5.3 million annually.
Operating cash flow was below acquisition and investment outlays: 2015 investing cash use was $848.0 million, including $818.9 million of acquisition payments and $27.1 million of capital expenditures. Financing cash inflow was $482.9 million, including senior-note proceeds, partly offset by $235.1 million of share repurchases and net credit-facility payments. The company paid no common dividends in 2015 or 2014 and said it did not currently intend to pay dividends.
Changes, outlook, risks and contingencies
- Growth and mix: Revenue growth was acquisition-led; same-unit revenue declined slightly, and operating margin contracted. Anesthesia increased to 37% of revenue from 36%; neonatal and other pediatric specialties decreased to 44% from 50%, reflecting business mix and acquisitions.
- Reimbursement and payor exposure: Government payors were 23% of net patient-service revenue, down from 25%, while management reported a higher government-program share of patient-service revenue overall. Lower government reimbursement, Medicaid funding constraints, ACA changes, patient bad debt and further parity-payment changes could pressure revenue and collections.
- Collections: Days sales outstanding increased to 55.2 days from 49.8 days, with management citing acquisition-related receivables and short-term coding-staff shortages that increased unbilled charges. The filing estimates that a 0.5%–1.5% change in collection estimates could affect revenue by approximately $7.9–$23.6 million.
- Acquisition and execution risks: Integration, acquisition pricing, goodwill and intangible-asset values, contingent payments, and the ability to deliver expected growth or cost savings are material uncertainties. Goodwill was $3.37 billion at year-end; no impairment was identified in the 2015 annual test.
- Other principal risks: Hospital contracts are commonly terminable without cause on notice; physician recruitment and retention, competition, regulatory compliance, billing audits, privacy and cybersecurity, and concentration in five states (54% of 2015 revenue; Texas alone 20%) could affect results. Professional-liability reserves totaled $202.5 million, substantially self-insured through a captive; reserve estimates are actuarial and actual claims may differ.
- Contingencies: The company expects government audits and investigations in the ordinary course but had not accrued amounts for future matters it could not reasonably estimate. It said pending legal actions were not expected to have a material adverse effect, while noting outcomes and insurance adequacy cannot be assured. Uncertain tax positions were $18.4 million, excluding accrued interest and penalties; management said a $7–$9 million decrease was reasonably possible over the next 12 months.
- Outlook: No numerical revenue, earnings or margin guidance is provided in the supplied filing text. Management’s stated plans emphasize acquisitions, organic growth, broader hospital partnerships and telemedicine; actual results remain subject to reimbursement, integration, volume and regulatory uncertainties.
Most important facts for investors to verify
- How much future growth is organic versus acquired, and whether acquisitions deliver expected returns without further margin dilution.
- Whether same-unit growth can offset the loss of Medicaid parity revenue and any adverse changes in payor mix or reimbursement.
- Whether receivables, coding capacity and DSO improve, and whether collection assumptions remain supportable.
- Debt-service capacity, variable-rate exposure, covenant headroom and the impact of further acquisition or repurchase spending.
- Developments in professional-liability reserves, tax examinations, government audits, hospital-contract renewals and cybersecurity controls.