Business context and reporting period
The supplied filing identifies the registrant as MEDNAX, Inc. (the request metadata names Pediatrix Medical Group, Inc.). This unaudited Form 10-Q covers the quarter and six months ended June 30, 2013. MEDNAX provides physician services in neonatal, maternal-fetal, pediatric subspecialty, and anesthesia care.
Financial performance and position
Amounts below are in millions, except per-share data and percentages.
| Metric | Q2 2013 | Q2 2012 | First half 2013 | First half 2012 |
|---|---|---|---|---|
| Net patient service revenue | $529.2 | $449.5 | $1,031.9 | $872.1 |
| Income from operations | $113.4 | $99.7 | $204.9 | $179.1 |
| Operating margin | 21.4% | 22.2% | 19.9% | 20.5% |
| Net income | $69.2 | $60.5 | $124.6 | $108.9 |
| Diluted EPS | $1.37 | $1.22 | $2.47 | $2.20 |
- Q2 revenue rose 17.7% and net income 14.3%; first-half revenue rose 18.3% and net income 14.4%. Acquisition-related revenue accounted for 90.4% of Q2 revenue growth and 89.1% of first-half growth. Same-unit revenue grew 1.7% in Q2 and 2.0% in the first half.
- Operating margins contracted by 77 basis points in Q2 and 68 basis points in the first half. Management attributed the decline mainly to the mix of acquired practices. Salaries and benefits grew faster than revenue; G&A as a share of revenue improved year over year.
- First-half operating cash flow was $108.8, compared with $85.0 a year earlier. Investing cash use was $139.0, primarily for acquisitions; financing provided $22.0. Cash declined to $13.2 from $21.3 at year-end 2012.
- At June 30, cash and short-term investments totaled $20.2; working capital was $154.9. The company reported $153.8 outstanding on its $800.0 revolving credit facility, with $640.9 available after letters of credit. Total liabilities were $696.2, including $131.5 in long-term professional liabilities. A 1% interest-rate change was estimated to affect annual pretax income by about $1.5.
- Accounts receivable, net, was $269.8; days sales outstanding improved to 46.4 from 48.4 at year-end. The company recorded $150.3 of total professional-liability exposure, including $18.8 classified as current.
Material changes, outlook, risks, and unusual items
- MEDNAX acquired five physician practices in the first half (three anesthesiology and two neonatology) for total consideration of $120.8, including $115.7 in cash and $3.8 contingent consideration. The acquisitions added approximately $108.1 of goodwill and $19.4 of intangible assets.
- Q2 included approximately $2.5 of revenue from Medicaid-to-Medicare parity payments, contributing about $0.02 to diluted EPS. Payments had begun in a few states, but management said future timing and amounts were uncertain.
- Management expected cash generated from operations, cash on hand, and available credit to fund working capital, anticipated acquisitions, capital expenditures, the share-repurchase program, and obligations for at least 12 months. The board authorized repurchases sufficient to offset equity-plan dilution on July 26, 2013. No specific earnings or revenue guidance was provided.
- Risks discussed include shifts toward lower-reimbursing government programs, potential patient-volume declines, state Medicaid funding and reimbursement uncertainty, healthcare-law implementation, and malpractice claims. The 2% Medicare sequestration reduction began April 1, 2013; management did not expect a material effect. Government audits and investigations could be material, but no accrual was recorded because potential losses could not be reasonably estimated. The company self-insures part of professional-liability risk; insurance may not cover all claims.
- The company said it was in material compliance with credit-facility covenants and expected continued compliance through 2013. It reported effective disclosure controls and no material changes in internal control over financial reporting; no material risk-factor changes from the latest Form 10-K were reported.
Most important facts for investors to verify
- Whether acquisition-led growth can translate into stronger same-unit revenue and margins, given modest same-unit growth and margin contraction.
- Collections, receivables, and the sustainability of the reported improvement in DSO as acquired practices are integrated.
- Timing and scale of Medicaid parity payments, state Medicaid reimbursement, and any further shifts in payer mix or patient volumes.
- Acquisition spending, contingent consideration, credit-facility borrowing, covenant headroom, and the capacity to fund planned acquisitions and repurchases.
- Developments in government audits, malpractice claims, and the adequacy of professional-liability reserves and insurance.