Pediatrix Medical Group, Inc. — Q2 2022 Form 10-Q
Business context and period. This unaudited quarterly filing covers the three and six months ended June 30, 2022. Pediatrix provides physician services focused on newborn, maternal-fetal and pediatric care. On July 1, 2022, the company changed its name from Mednax, Inc.; its ticker remained MD.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $486.0m | $473.0m | $968.3m | $919.7m |
| Operating income | $50.2m | $50.0m | $89.3m | $76.1m |
| Operating margin | 10.3% | 10.6% | 9.2% | 8.3% |
| Income from continuing operations | $30.7m | $30.5m | $9.8m | $35.9m |
| Net income attributable to Pediatrix | $27.1m | $35.0m | $5.9m | $52.7m |
| Diluted EPS | $0.32 | $0.41 | $0.07 | $0.61 |
| Adjusted EBITDA from continuing operations | $65.6m | $65.5m | $116.2m | $111.0m |
| Adjusted EPS from continuing operations | $0.47 | $0.41 | $0.79 | $0.65 |
Adjusted EBITDA and Adjusted EPS are company-defined non-GAAP measures. Q2 revenue grew 2.8%; six-month revenue grew 5.3%, mainly from acquisitions. Same-unit revenue declined 1.3% in Q2 and 0.3% for the six months, as reimbursement headwinds partly offset higher service volumes. Practice salaries and benefits and operating costs increased, while lower general and administrative costs supported operating results. G&A was 12.6% of revenue in both 2022 periods, versus 15.0% in the comparable 2021 periods.
Six-month continuing income and EPS were weighed down by a $57.0m loss on early debt extinguishment. Net income also reflected discontinued-operation losses of $3.8m in the first half of 2022, compared with discontinued-operation income of $16.8m in 2021. The prior-year comparison included a $7.3m building-sale gain in operating results. Q2 2022 operating results included $5.3m of transformational and restructuring expenses; first-half costs were $6.8m.
Cash flow, debt and liquidity
- Cash and cash equivalents were $14.1m at June 30, 2022, compared with $387.4m at December 31, 2021; short-term investments were $93.4m. Working capital was $129.9m, down from $413.2m.
- Cash used in operating activities was $15.1m for the first half, including $8.3m from continuing operations, an improvement from $28.6m and $28.5m, respectively, in 2021. The company cited timing of payments, including annual incentive compensation, and working-capital movements. Continuing-operations DSO rose to 58.2 days from 55.2 at year-end.
- Investing activities used $39.6m, including $28.2m for acquisitions and $13.7m for capital expenditures. Financing activities used $318.6m, primarily reflecting the debt refinancing and $65.6m of share repurchases.
- In February 2022, the company redeemed $1.0bn of 6.25% notes due 2027, funding the transaction with $400m of 5.375% notes due 2030, a new $250m term loan, revolving-credit borrowings and cash. At quarter-end, principal outstanding was $400.0m on the 2030 notes and $400.4m under the credit agreement; $296.5m remained available under the agreement.
- Management said it was in material compliance with debt covenants and expected to remain compliant through 2022. It expected operating funds, cash and credit availability to cover working capital, anticipated acquisitions and capital expenditures, restructuring costs, repurchases and contractual obligations for at least 12 months.
Outlook, commentary and risks
The filing provides no quantified revenue or earnings guidance. Management reported no material COVID-19 impact in 2021 or through the first half of 2022, but said future effects remain uncertain. The company received $11.1m in CARES Act provider relief during the first half of 2022.
Key risks include changes in government-program reimbursement and patient payer mix; the effect of the No Surprises Act and related payment disputes; rising patient responsibility and collection risk; regulatory or healthcare-reform changes; and malpractice claims, for which the company self-insures a portion. Professional liability reserves were $300.6m, with a corresponding $54.1m insurance receivable for certain covered claims. Government audits and legal outcomes cannot be predicted with certainty. The company reported no material changes to the risk factors in its 2021 Form 10-K.
For variable-rate borrowings, management estimated that a 1 percentage-point interest-rate change would affect annual pretax income by approximately $4.0m. Disclosure controls and procedures were deemed effective as of June 30, 2022.
Investor verification priorities
- Check whether same-unit revenue and reimbursement trends improve, including the effects of government-program mix and revenue-cycle transition activities.
- Track cash conversion, DSO, incentive-compensation payments and the use of available revolver capacity.
- Review debt costs, covenant headroom and the company’s ability to meet its stated 12-month liquidity expectations.
- Separate recurring operating performance from debt-extinguishment charges, restructuring costs, discontinued-operation adjustments and other non-GAAP exclusions.
- Monitor No Surprises Act payment outcomes, professional-liability claims and the resolution of government audits or other contingencies.