MEDNAX, Inc. (formerly Pediatrix Medical Group) — FY2010 Form 10-K
Reporting period: Fiscal year ended December 31, 2010. The filing also reports fourth-quarter results. MEDNAX provides neonatal, maternal-fetal, pediatric subspecialty, anesthesia and pain-management physician services.
Financial performance
| Metric | FY2010 | FY2009 |
|---|---|---|
| Net patient service revenue | $1,401.6 million | $1,288.3 million |
| Income from operations | $312.9 million | $288.9 million |
| Operating margin | 22.3% | 22.4% |
| Net income | $202.7 million | $175.8 million |
| Diluted earnings per share | $4.26 | $3.78 |
| Cash from operating activities | $240.6 million | $241.4 million |
- Fourth-quarter revenue was $368.5 million versus $333.3 million a year earlier; net income was $53.8 million versus $50.4 million, and diluted EPS was $1.12 versus $1.07.
- FY2010 revenue increased 8.8%. Acquisitions contributed approximately $96.6 million of the $113.3 million increase; same-unit revenue rose 1.3%, reflecting pricing and reimbursement gains and modestly higher volume.
- Practice salaries and benefits rose 9.1% to $854.9 million, principally with acquired and growing practices. General and administrative costs declined to 11.0% of revenue from 11.4%; operating margin was nearly flat.
- Effective tax rate was 34.9%, versus 38.9%. A $10.9 million tax-provision reduction from resolution of tax matters lowered the 2010 rate; excluding that benefit, management reported a 38.4% rate.
- Cash from operations was nearly unchanged year over year. Investing activities used $361.6 million, including $338.6 million of acquisition payments and $12.1 million of capital expenditures.
Liquidity, debt and balance sheet
- At year-end, cash and cash equivalents were $26.3 million; short- and long-term investments totaled $44.8 million. Working capital was negative $24.8 million, improved from a $54.0 million deficit in 2009.
- Borrowings under the $350 million revolving credit facility were $146.5 million, with $197.5 million available after letters of credit. The facility matures in September 2013 and has financial covenants; the company reported compliance at year-end.
- Total assets were $2.04 billion, including $1.60 billion of goodwill. Total liabilities were $590.2 million. The company reported no off-balance-sheet arrangements.
- Professional-liability reserves were $111.7 million. Contractual obligations, including the credit facility and leases, totaled approximately $213.2 million; additional contingent acquisition payments of up to $43.3 million could be due through 2015.
Changes, outlook and principal risks
- MEDNAX acquired 15 physician practices in 2010 for total consideration of $339.3 million and ended the year with 1,675 affiliated physicians. Acquisitions drove most reported revenue growth; neonatal, maternal-fetal and other pediatric volume declined in some areas, while pediatric cardiology and anesthesia grew.
- Management said operating cash, cash on hand and available credit should fund working capital, planned acquisitions and capital expenditures for at least the next 12 months. It planned approximately $100 million of 2011 acquisitions in neonatal, maternal-fetal, pediatric cardiology and other pediatric specialties; the planned anesthesia acquisition investment was not specified.
- Key risks include lower Medicaid reimbursement or state funding, changes to healthcare regulation and reform, shifts from commercial to government payors, declining birth rates, billing and compliance investigations, and hospitals’ ability to terminate contracts. Approximately 55% of 2010 revenue came from the five largest states; Texas alone accounted for about 22%.
- The company was in the final year of a five-year Corporate Integrity Agreement related to a prior billing settlement and stated it was in compliance at December 31, 2010. It also disclosed routine malpractice claims and reliance on actuarial estimates for self-insured liability reserves.
- No cash dividends were paid in 2010 or 2009. Management did not provide numerical earnings or revenue guidance.
Important facts for investors to verify
- Whether same-unit growth and acquisition integration can support future growth, given acquisitions accounted for most of the 2010 revenue increase.
- How payor mix, Medicaid funding and reimbursement changes affect net revenue and collections; review the $603.4 million gross receivables balance and 45.3-day DSO.
- The return and financing implications of acquisition spending, contingent consideration, and goodwill that reached $1.60 billion.
- Whether professional-liability reserves and uncertain tax positions adequately reflect future claims, audits and settlements.
- The precise timing and terms of 2011 acquisitions and the company’s compliance with credit-facility covenants.