Mednax, Inc. — Q3 2021 Form 10-Q
Filing identity: The provided filing identifies the registrant as Mednax, Inc. (NYSE: MD), although the request metadata names Pediatrix Medical Group, Inc. The reporting period ended September 30, 2021; comparisons cover the three and nine months ended that date.
Business context
Mednax provides physician services in newborn, maternal-fetal, pediatric cardiology and other pediatric specialties across 39 states and Puerto Rico. It divested its anesthesiology and radiology medical groups in 2020; their results are reported as discontinued operations. During the first nine months of 2021, it acquired five pediatric and women’s health practices for total consideration of $24.6 million, including $19.6 million paid at closing.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $492.9 million | $460.6 million | $1,412.7 million | $1,317.3 million |
| Operating income | $58.8 million | $20.5 million | $134.9 million | $65.8 million |
| Operating margin | 11.9% | 4.4% | 9.6% | 5.0% |
| Income (loss) from continuing operations attributable to Mednax | $31.8 million | $(2.7) million | $67.7 million | $(14.1) million |
| Adjusted EBITDA from continuing operations | $73.4 million | $72.8 million | $184.4 million | $161.6 million |
| Adjusted EPS from continuing operations | $0.46 | $0.37 | $1.11 | $0.70 |
| Net income (loss) attributable to Mednax | $30.8 million | $(41.0) million | $83.4 million | $(732.2) million |
Revenue increased 7.0% in Q3 and 7.2% year to date. Q3 same-unit revenue rose 5.9%, primarily from 6.5% growth in patient-service volumes, partly offset by lower reimbursement-related revenue. For nine months, same-unit revenue rose 7.3%, reflecting both higher volumes and improved reimbursement-related factors. Adjusted EBITDA and adjusted EPS are non-GAAP measures.
For the nine months, operating cash flow from continuing operations was $38.7 million, down from $71.6 million; investing cash outflow was $39.8 million and financing cash outflow was $760.9 million. Cash and cash equivalents were $357.9 million at September 30, versus $1.124 billion at December 31, 2020. Working capital was $390.5 million. The filing reports DSO of 49.9 days, compared with 52.3 days at year-end.
At September 30, debt and finance lease liabilities included $1.003 billion of long-term balances; the principal debt was $1.0 billion of 6.25% senior notes due 2027. The company redeemed $750 million principal of 5.25% notes due 2023 in January 2021, paying $759.8 million including the call premium, and recorded a $14.5 million extinguishment loss. It had no borrowings on its revolving credit facility and reported $299.9 million available after a permanent reduction in facility size to $600 million.
Changes, outlook and risks
- Q3 operating income improved as revenue grew and transformational and restructuring costs fell to $4.2 million from $34.3 million. The prior-year quarter included $14.2 million of CARES Act relief; no such relief was recorded in Q3 2021.
- For the nine months, restructuring-related costs declined to $19.0 million from $60.8 million. Results also included a $7.3 million gain on sale of a corporate building and a $14.5 million debt-extinguishment loss.
- Discontinued operations contributed a $15.7 million gain for the nine months of 2021, versus a $718.1 million loss in 2020. The 2021 result included adjustments to prior divestitures, including a $19.0 million reduction in the anesthesiology divestiture loss and a $3.3 million increase in the radiology divestiture loss.
- Management said patient volumes substantially recovered through 2020 and 2021, but COVID-19 could continue to affect volumes and demand. It stated that cash, operating funds and available credit should be sufficient for obligations over at least the next 12 months; it gave no quantified earnings or revenue guidance.
- Risks include changes in patient volumes and payor mix, lower government-program reimbursement, healthcare policy changes, and the No Surprises Act taking effect January 1, 2022. Management noted uncertainty about out-of-network payment outcomes under the Act’s dispute-resolution process.
- The company reported $306.6 million in professional-liability obligations, including $40.2 million classified as current, and a related $58.9 million insurance receivable. It self-insures a portion of professional-liability risk; government audits, investigations and legal claims could have material adverse effects, and outcomes cannot be assured.
- Management stated that the company was in material compliance with debt covenants at September 30 and expected to remain compliant through 2021. The filing reported no material changes to risk factors from the 2020 Form 10-K.
Most important facts to verify
- Confirm the issuer identity: the supplied 10-Q is filed by Mednax, Inc., not under the Pediatrix name in the request metadata.
- Review revenue recovery and same-unit volume trends, including the impact of COVID-19 and changes in payor mix.
- Assess cash generation against the reduced cash balance, the $1.0 billion 2027 notes, and the $299.9 million reported revolver availability.
- Separate GAAP results from adjusted EBITDA and adjusted EPS, and evaluate the effects of divestiture adjustments, restructuring costs, CARES Act relief and other unusual items.
- Track implementation and reimbursement effects of the No Surprises Act, pending relief applications, professional-liability exposure and any final radiology divestiture working-capital adjustment.