Mednax, Inc. Form 10-Q — quarter ended June 30, 2021
Entity note: The supplied filing identifies the registrant as Mednax, Inc. (NYSE: MD), not Pediatrix Medical Group, Inc. The filing covers the second quarter and first six months of 2021; financial amounts below are in millions unless otherwise stated.
Business context and reporting period
Mednax provides physician services in newborn, maternal-fetal, pediatric cardiology, and other pediatric subspecialties across 39 states and Puerto Rico. Anesthesiology and radiology operations previously divested are reported as discontinued operations. The filing is unaudited and compares continuing operations with periods materially affected by COVID-19.
Financial results and liquidity
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $473.0 | $415.4 | $919.7 | $856.7 |
| Operating income | $50.0 | $34.6 | $76.1 | $45.4 |
| Operating margin | 10.6% | 8.3% | 8.3% | 5.3% |
| Continuing-operations income attributable to Mednax | $30.5 | $7.1 | $35.9 | Loss of $11.4 |
| Adjusted EBITDA from continuing operations | $65.5 | $55.7 | $111.0 | $88.8 |
| Adjusted EPS from continuing operations | $0.41 | $0.26 | $0.65 | $0.32 |
Q2 net income attributable to Mednax was $35.0 million, including $4.5 million from discontinued operations. First-half net income was $52.7 million, including $16.8 million from discontinued operations; the prior-year comparisons include large discontinued-operations losses. Q2 diluted EPS from continuing operations was $0.36; first-half diluted EPS was $0.42.
- Revenue increased 13.9% in Q2 and 7.4% in the first half year over year. Q2 same-unit revenue rose 13.4%, reflecting higher patient volumes and reimbursement-related factors.
- First-half cash used in operating activities from continuing operations was $28.5 million, versus $55.5 million used in 2020. Capital expenditures were $18.5 million. Company-wide cash and cash equivalents fell to $338.2 million from $1.124 billion at year-end; the decline principally reflected redemption of the 2023 Notes.
- At June 30, total debt included $1.0 billion principal of 6.25% notes due 2027; there was no balance on the $1.2 billion revolving credit facility. Reported availability was $899.9 million after facility limitations and an outstanding letter of credit.
- Working capital was $401.2 million, down $703.8 million from year-end, primarily because the 2023 Notes were redeemed. Days sales outstanding improved to 48.0 days from 52.3 days at December 31, 2020.
Material changes and unusual items
- Mednax redeemed $750 million principal of 5.25% notes due 2023 in January 2021, paying $759.8 million including the call premium and recording a $14.5 million extinguishment loss. Interest expense declined year over year.
- A $7.3 million gain was recorded on the sale of a secondary corporate office building.
- Transformational and restructuring costs were $9.9 million in Q2 and $14.8 million in the first half, down from $10.5 million and $26.6 million, respectively, in the prior-year periods. The company cited contract termination and consulting costs, including transition of revenue-cycle activities to a third party.
- First-half 2021 discontinued-operations results included a $19.1 million reduction in the loss on sale of the anesthesiology business, partly offset by a $2.3 million increase in the radiology divestiture loss. A radiology working-capital true-up remained pending.
- The company acquired three pediatric practices for total consideration of $12.2 million, including $7.2 million paid at closing.
Outlook, commentary, and risks
Management said patient volumes had substantially recovered through June 30, 2021 after COVID-19-related disruption beginning in March 2020, while cautioning that further effects on NICU volumes and the business remain uncertain. No specific revenue or earnings guidance was provided. Management expected cash, operating funds, and revolver availability to cover working capital, planned acquisitions and capital expenditures, restructuring costs, and contractual obligations for at least the next 12 months, and expected covenant compliance through 2021.
- COVID-19 may again affect service demand, patient volumes, and payor mix. Commercial insurance coverage losses or shifts to government programs could reduce reimbursement.
- The No Surprises Act takes effect January 1, 2022; limits on out-of-network billing and payment disputes could affect collections, contracting, and revenue.
- Healthcare policy, Medicaid reimbursement and eligibility changes, and payor network decisions pose risks.
- Government audits and investigations, malpractice claims, and other litigation may create material exposure. The company self-insures part of professional-liability risk; related liabilities were $303.8 million, with a $58.6 million insurance receivable for certain covered claims.
- The filing reports effective disclosure controls as of June 30, 2021. A new financial ERP module was implemented during the quarter, with related control changes.
Important facts for investors to verify
- Confirm that this Mednax, Inc. filing is the intended filing for Pediatrix Medical Group, Inc., given the company-name and ticker difference in the supplied metadata.
- Assess how much of the reported growth reflects recovery from COVID-affected 2020 comparisons versus sustainable volume and reimbursement gains.
- Track operating cash generation, the cash balance after debt redemption, and compliance with credit-facility covenants and availability restrictions.
- Check the final radiology divestiture working-capital adjustment, pending CARES Act relief applications, and any subsequent changes in tax estimates or legal and professional-liability exposures.
- Review the effects of the No Surprises Act and other reimbursement or payor-mix changes on future collections and margins.