Mednax, Inc. (now Pediatrix Medical Group) — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020; the filing also reports fourth-quarter results. The company’s continuing business focused on neonatal, maternal-fetal, pediatric cardiology and other pediatric subspecialty physician services. Anesthesiology and radiology were classified as discontinued operations following divestitures in 2020.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Continuing-operations revenue | $1.734 billion | $1.780 billion |
| Operating income / margin | $98.1 million / 5.7% | $171.8 million / 9.7% |
| Income (loss) from continuing operations | $(9.6) million | $42.2 million |
| Adjusted EBITDA from continuing operations | $219.9 million | $264.5 million |
| Adjusted EPS from continuing operations | $0.95 | $1.40 |
| Net loss, including discontinued operations | $(796.5) million | $(1.498) billion |
| Operating cash flow, continuing operations | $153.9 million | $74.1 million |
- Continuing-operations revenue fell 2.6%; same-unit revenue declined 3.8%, including a 5.1% volume decline, partly offset by reimbursement-related factors.
- Fourth-quarter revenue was $416.6 million, versus $458.6 million in Q4 2019; Q4 net loss was $64.3 million, versus net income of $9.3 million.
- Year-end cash was $1.124 billion and working capital was $1.105 billion. Cash and working capital benefited substantially from radiology-sale proceeds.
- Year-end principal debt was $1.75 billion, all fixed-rate senior notes; no revolver borrowings were outstanding, and approximately $899.9 million of revolving capacity was available. The company redeemed $750 million of 5.25% notes on January 7, 2021 using divestiture proceeds. The remaining $1.0 billion notes bear 6.25% interest and mature in 2027.
- Capital expenditures were $28.8 million. Administrative fees from hospitals were approximately 12.5% of net revenue. Government payors represented 27% of patient-service net revenue, up from 26% in 2019.
Material changes and unusual items
- COVID-19 reduced patient volumes and office-based appointments beginning in mid-March. Management said volumes normalized starting in May and substantially recovered from June through December, while warning that effects could persist.
- Continuing-operations revenue included approximately $22 million of CARES Act relief. The company used the CARES Act option to defer employer Social Security taxes, with deferred amounts due in 2021 and 2022.
- Mednax sold its anesthesiology group in May for $50 million cash plus a contingent economic interest valued from $0 to $250 million; it recorded a $663.7 million loss on sale. It sold radiology in December for approximately $865 million net proceeds at closing, recording a $47 million goodwill-related charge and an additional $36.4 million disposal loss. A closing working-capital adjustment remained pending.
- Discontinued operations produced a $786.9 million after-tax loss in 2020, including the divestiture losses. These items drove the much larger consolidated net loss; continuing operations alone reported a $9.6 million loss.
- Transformational and restructuring expenses rose to $73.8 million from $60.9 million, including consulting and executive/board restructuring costs. Practice salaries and benefits increased, while lower operating activity reduced some other practice expenses.
- The company recorded a $430 million valuation allowance against tax benefits associated with a large capital-loss carryforward from the anesthesiology sale, which management determined was more likely than not to go unrealized.
Outlook, risks and contingencies
- No specific earnings or revenue guidance is provided. Management expected modest acquisition activity in 2021 and stated that available cash, operating cash generation and credit capacity should cover obligations for at least 12 months.
- Management cautioned that COVID-19 could continue to materially affect results, and that future impacts were not reliably predictable. It also anticipated clinician compensation growth above historical averages.
- Key exposures include reimbursement and payor-mix changes, Medicaid funding and state concentration (Texas represented approximately 29% of revenue), birth-rate and patient-volume trends, hospital contract renewals, clinician recruitment and retention, and implementation of the No Surprises Act and telehealth rules.
- Healthcare billing, fraud-and-abuse, corporate-practice, privacy and cybersecurity regulation creates compliance and potential repayment, penalty and litigation risks. The company also faces malpractice exposure and actuarial uncertainty: accrued professional liabilities totaled $315.9 million, with $61.4 million of related insurance receivables.
- A derivative lawsuit concerning statements primarily about the former anesthesiology business remained pending; a motion to dismiss the second amended complaint was denied in December 2020. The company stated that ordinary-course proceedings were not expected to have a material adverse effect, but outcomes are uncertain.
- The company reported effective disclosure controls and effective internal control over financial reporting; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Reconcile the $796.5 million consolidated net loss to continuing results and the anesthesiology, radiology and MedData divestiture-related charges; assess whether any sale-price or working-capital adjustments remained after filing.
- Confirm the final value of the contingent anesthesiology-sale interest and the realizability and expiration treatment of the related capital-loss carryforwards and tax valuation allowance.
- Assess post-redemption debt, interest expense, covenant headroom and revolver availability, particularly after the temporary credit-agreement amendments.
- Track recovery in patient volumes, payer mix, collections and DSO; management reported DSO of 52.3 days at year-end, versus 51.0 days a year earlier.
- Evaluate the sustainability of adjusted EBITDA and cost reductions, given ongoing restructuring costs, clinician compensation pressures and COVID-related uncertainty.