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Pediatrix Medical Group Reports Third Quarter Results
FORT LAUDERDALE, Fla., November 2, 2023 - Pediatrix Medical Group, Inc. (NYSE: MD), the nation's leading provider of highly specialized health care for women, children and babies, today reported earnings from continuing operations of $0.26 per share for the three months ended September 30, 2023. On a non-GAAP basis, Pediatrix reported Adjusted EPS from continuing operations of $0.32.
For the 2023 third quarter, Pediatrix reported the following results from continuing operations:
-Net revenue of $507 million;
-Income from continuing operations of $21 million; and
-Adjusted EBITDA of $50 million.
We believe the underlying fundamentals of our business remain strong, however, the third quarter was more challenged than expected with relatively soft patient volumes and persistent practice-level cost growth, said James D. Swift, M.D., Chief Executive Officer of Pediatrix Medical Group. We are moving with speed and agility to take actions designed to enhance operating effectiveness, support and bolster our core business and generate a stable gross-margin profile.
Operating Results from Continuing Operations Three Months Ended September 30, 2023
Pediatrix's net revenue for the three months ended September 30, 2023 was $506.6 million, compared to $489.9 million for the prior-year period. Pediatrix's overall same-unit revenue increased by 4.1 percent, slightly offset by the impact of net non-same unit activity.
Same-unit revenue from net reimbursement-related factors increased by 5.3 percent for the 2023 third quarter as compared to the prior-year period. This primarily reflects improvements in cash collection rates in the current period as compared to those rates in the prior year period, which prior year rates were significantly impacted by unfavorable revenue cycle management performance, and a 150 basis-point increase in the percentage of services reimbursed by commercial and other non-government payors compared to the prior-year period.
Same-unit revenue attributable to patient volume declined by 1.2 percent for the 2023 third quarter as compared to the prior-year period. Shown below are year-over-year percentage changes in certain same-unit volume statistics for the three and nine months ended September 30, 2023. (Note: figures in the below table reflect contributions only to net patient service revenue and exclude other contributions to total same-unit revenue, including contract and administrative fees.)
| Three Months Ended September 30, 2023 | Six Months Ended September 30, 2023 | |||
| Hospital-based patient services | (1.8)% | (0.3)% | ||
| Office-based patient services | 0.0% | 0.7% | ||
| Neonatology services (within hospital-based services): | ||||
| Neonatal intensive care unit (NICU) days | (0.7)% | (0.2)% |
For the 2023 third quarter, practice salaries and benefits expense was $368.4 million, compared to $342.9 million for the prior-year period. This increase primarily reflects same-unit clinical compensation increases, increases in incentive compensation based on practice results, as well as increases in malpractice expense and group health insurance costs.
For the 2023 third quarter, general and administrative expenses were $57.4 million, as compared to $57.9 million for the prior-year period.
For the third quarter of 2023, the Company did not incur any transformational and restructuring related expenses, compared to $1.0 million for the third quarter of 2022.
Adjusted EBITDA from continuing operations, which is defined as earnings from continuing operations before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses, was $50.4 million for the 2023 third quarter, compared to $58.3 million for the prior-year period.
Depreciation and amortization expense was $9.2 million for the third quarter of 2023, compared to $9.0 million for the third quarter of 2022.
Investment and other income was $0.3 million for the third quarter of 2023, compared to $0.6 million for the third quarter of 2022.
Interest expense was $10.4 million for the third quarter of 2023, compared to $9.5 million for the third quarter of 2022. This increase primarily reflects higher interest rates on the Company's adjustable-rate borrowings, partially offset by lower total borrowings.
Pediatrix generated income from continuing operations of $21.4 million, or $0.26 per diluted share, for the 2023 third quarter, based on a weighted average 83.0 million shares outstanding. This compares with income from continuing operations of $28.8 million, or $0.35 per diluted share, for the 2022 third quarter, based on a weighted average 82.8 million shares outstanding.
For the third quarter of 2023, Pediatrix reported Adjusted EPS from continuing operations of $0.32, compared to $0.40 for the third quarter of 2022. For these periods, Adjusted EPS from continuing operations is defined as diluted income from continuing operations per common and common equivalent share excluding non-cash amortization expense, stock-based compensation expense, transformational and restructuring related expenses, and discrete tax events.
Operating Results from Continuing Operations Nine Months Ended September 30, 2023
For the nine months ended September 30, 2023, Pediatrix generated revenue from continuing operations of $1.50 billion, compared to $1.46 billion for the prior-year period. Adjusted EBITDA from continuing operations for the nine months ended September 30, 2023 was $149.6 million, compared to $174.5 million for the prior year. Pediatrix generated income from continuing operations of $63.9 million, or $0.77 per share, for the nine months ended September 30, 2023, based on a weighted average 82.5 million shares outstanding, which compares to income from continuing operations of $38.6 million, or $0.45 per share, based on a weighted average 84.8 million shares outstanding for the first nine months of 2022. For the nine months ended September 30, 2023, Pediatrix reported Adjusted EPS from continuing operations of $0.94, compared to $1.20 in the same period of 2022.
Financial Position and Cash Flow Continuing Operations
Pediatrix had cash and cash equivalents of $21.2 million at September 30, 2023, compared to $9.8 million at December 31, 2022, and net accounts receivable was $277.4 million.
For the third quarter of 2023, Pediatrix generated cash from continuing operations of $81.1 million, compared to $88.4 million for the third quarter of 2022. During the third quarter of 2023, the Company used $9.2 million to fund capital expenditures.
At September 30, 2023, Pediatrix had total debt outstanding of $631 million, consisting of its $400 million in 5.375% Senior Notes due 2030 and $231 million in borrowings under its Term A Loan. There were no borrowings under the Company's revolving line of credit at September 30, 2023.
Pediatrix anticipates that its 2023 Adjusted EBITDA, as defined above, will be in a range of $200 million to $210 million. This outlook reflects Adjusted EBITDA for the first nine months of 2023 of $149.6 million.
Revenue Cycle Management (RCM) Vendor Transition
On October 30, 2023, Pediatrix notified R1 RCM, its enterprise RCM services vendor, that it is terminating its services agreement, effective December 15, 2023, for service level metrics related to performance. In connection with the termination, Pediatrix anticipates incurring certain immaterial early termination fees.
Following the termination of the services agreement, Pediatrix plans to utilize a hybrid revenue cycle management function that utilizes both the Company's corporate personnel as well as one or more third-party service providers that Pediatrix intends to engage to support these activities.
A reconciliation of Adjusted EBITDA from continuing operations and Adjusted EPS from continuing operations to the most directly comparable GAAP measures for the three and nine months ended September 30, 2023 and 2022 and of forward looking Adjusted EBITDA from continuing operations to the most directly comparable GAAP measure for the year ending December 31, 2023 is provided in the financial tables of this press release.
Earnings Conference Call
Pediatrix will host an investor conference call to discuss the quarterly results at 9 a.m., ET today. The conference call Webcast may be accessed from the Company's Website, www.pediatrix.com. A telephone replay of the conference call will be available from 12:45 p.m. ET today through midnight ET November 16, 2023 by dialing 1-866-207-1041, access Code 1823424. The replay will also be available at www.pediatrix.com.
ABOUT PEDIATRIX MEDICAL GROUP
Certain statements and information in this press release may be deemed to contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the Securities Act ), and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may include, but
are not limited to, statements relating to the Company's objectives, plans and strategies, and all statements, other than statements of historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future. These statements are often characterized by terminology such as believe, hope, may, anticipate, should, intend, plan, will, expect, estimate, project, positioned, strategy and similar expressions, and are based on assumptions and assessments made by the Company's management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements in this press release are made as of the date hereof, and the Company undertakes no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in the Company's most recent Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q, including the sections entitled Risk Factors , as well the Company's current reports on Form 8-K, filed with the Securities and Exchange Commission, and include the impact of the Company's termination of its current third-party revenue cycle management provider and transition to a hybrid revenue cycle management model with one or more new third-party service providers, including any transition costs associated therewith; the impact of surprise billing legislation; the effects of economic conditions on the Company's business; the effects of the Affordable Care Act and potential healthcare reform; the Company's relationships with government-sponsored or funded healthcare programs, including Medicare and Medicaid, and with managed care organizations and commercial health insurance payors; the Company's ability to comply with the terms of its debt financing arrangements; the impact of the COVID-19 pandemic on the Company and its financial condition and results of operations; the impact of the divestiture of the Company's anesthesiology and radiology medical groups; the impact of management transitions; the timing and contribution of future acquisitions or organic growth initiatives; the effects of share repurchases; and the effects of the Company's transformation initiatives, including its reorientation on, and growth strategy for, its pediatrics and obstetrics business.
Pediatrix Medical Group, Inc.
Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share data)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Net revenue | $ | 506,612 | $ | 489,915 | $ | 1,498,197 | $ | 1,458,177 | ||||||||
| Operating expenses: | ||||||||||||||||
| Practice salaries and benefits | 368,404 | 342,850 | 1,084,671 | 1,016,762 | ||||||||||||
| Practice supplies and other operating expenses | 31,319 | 31,857 | 93,128 | 90,189 | ||||||||||||
| General and administrative expenses | 57,406 | 57,888 | 174,478 | 180,340 | ||||||||||||
| Depreciation and amortization | 9,211 | 8,956 | 27,109 | 26,500 | ||||||||||||
| Transformational and restructuring related expenses | 977 | 7,736 | ||||||||||||||
| Total operating expenses | 466,340 | 442,528 | 1,379,386 | 1,321,527 | ||||||||||||
| Income from operations | 40,272 | 47,387 | 118,811 | 136,650 | ||||||||||||
| Investment and other income | 273 | 617 | 2,096 | 2,336 | ||||||||||||
| Interest expense | (10,374 | ) | (9,516 | ) | (31,994 | ) | (29,743 | ) | ||||||||
| Loss on early extinguishment of debt | (57,016 | ) | ||||||||||||||
| Equity in earnings of unconsolidated affiliate | 661 | 371 | 1,578 | 1,319 | ||||||||||||
| Total non-operating expenses | (9,440 | ) | (8,528 | ) | (28,320 | ) | (83,104 | ) | ||||||||
| Income from continuing operations before income taxes | 30,832 | 38,859 | 90,491 | 53,546 | ||||||||||||
| Income tax provision | (9,441 | ) | (10,051 | ) | (26,612 | ) | (14,982 | ) | ||||||||
| Income from continuing operations | 21,391 | 28,808 | 63,879 | 38,564 | ||||||||||||
| Income (loss) from discontinued operations, net of tax | 1,920 | (1,892 | ) | |||||||||||||
| Net income | 21,391 | 30,728 | 63,879 | 36,672 | ||||||||||||
| Net loss attributable to noncontrolling interest | 4 | |||||||||||||||
| Net income attributable to Pediatrix Medical Group, Inc. | $ | 21,391 | $ | 30,728 | $ | 63,879 | $ | 36,676 | ||||||||
| Other comprehensive income (loss), net of tax | ||||||||||||||||
| Unrealized holding gain (loss) on investments, net of tax of $ -, $508, $100 and $1,816 | 1 | (1,515 | ) | 218 | (5,417 | ) | ||||||||||
| Total comprehensive income attributable to Pediatrix Medical Group, Inc. | $ | 21,392 | $ | 29,213 | $ | 64,097 | $ | 31,259 | ||||||||
| Per common and common equivalent share data (diluted): | ||||||||||||||||
| Net income attributable to Pediatrix Medical Group, Inc.: | $ | 0.26 | $ | 0.37 | $ | 0.77 | $ | 0.43 | ||||||||
| Weighted average common shares | 82,950 | 82,776 | 82,492 | 84,821 |
Pediatrix Medical Group, Inc.
Reconciliation of Income from Continuing Operations
to Adjusted EBITDA from Continuing Operations Attributable to
Pediatrix Medical Group, Inc.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Income from continuing operations attributable to Pediatrix Medical Group, Inc. | $ | 21,391 | $ | 28,808 | $ | 63,879 | $ | 38,568 | ||||||||
| Interest expense | 10,374 | 9,516 | 31,994 | 29,743 | ||||||||||||
| Loss on early extinguishment of debt | 57,016 | |||||||||||||||
| Income tax provision | 9,441 | 10,051 | 26,612 | 14,982 | ||||||||||||
| Depreciation and amortization expense | 9,211 | 8,956 | 27,109 | 26,500 | ||||||||||||
| Transformational and restructuring related expenses | 977 | 7,736 | ||||||||||||||
| Adjusted EBITDA from continuing operations attributable to Pediatrix Medical Group, Inc. | $ | 50,417 | $ | 58,308 | $ | 149,594 | $ | 174,545 |
Pediatrix Medical Group, Inc.
Reconciliation of Diluted Income from Continuing Operations per Share
to Adjusted Income from Continuing Operations per Diluted Share ( Adjusted EPS )
(in thousands, except per share data)
| Three Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Weighted average diluted shares outstanding | 82,950 | 82,776 | ||||||||||||||
| Income from continuing operations and diluted income from continuing operations per share attributable to Pediatrix Medical Group, Inc. | $ | 21,391 | $ | 0.26 | $ | 28,808 | $ | 0.35 | ||||||||
| Adjustments (1) : | ||||||||||||||||
| Amortization (net of tax of $498 and $554) | 1,493 | 0.02 | 1,662 | 0.02 | ||||||||||||
| Stock-based compensation (net of tax of $791 and $1,030) | 2,373 | 0.03 | 3,090 | 0.03 | ||||||||||||
| Transformational and restructuring expenses (net of tax of $244) | 733 | 0.01 | ||||||||||||||
| Net impact from discrete tax events | 1,114 | 0.01 | (1,083 | ) | (0.01 | ) | ||||||||||
| Adjusted income and diluted EPS from continuing operations attributable to Pediatrix Medical Group, Inc. | $ | 26,371 | $ | 0.32 | $ | 33,210 | $ | 0.40 |
(1) A blended tax rate of 25% was used to calculate the tax effects of the adjustments for the three months ended September 30, 2023 and 2022.
| Nine Months Ended September 30, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Weighted average diluted shares outstanding | 82,492 | 84,821 | ||||||||||||||
| Income from continuing operations and diluted income from continuing operations per share attributable to Pediatrix Medical Group, Inc. | $ | 63,879 | $ | 0.77 | $ | 38,568 | $ | 0.45 | ||||||||
| Adjustments (1) : | ||||||||||||||||
| Amortization (net of tax of $1,508 and $1,635) | 4,522 | 0.06 | 4,907 | 0.06 | ||||||||||||
| Stock-based compensation (net of tax of $2,325 and $3,223) | 6,974 | 0.09 | 9,668 | 0.12 | ||||||||||||
| Transformational and restructuring expenses (net of tax of $1,934) | 5,802 | 0.07 | ||||||||||||||
| Loss on early extinguishment of debt (net of tax of $14,254) | 42,762 | 0.50 | ||||||||||||||
| Net impact from discrete tax events | 1,984 | 0.02 | (297 | ) | ||||||||||||
| Adjusted income and diluted EPS from continuing operations attributable to Pediatrix Medical Group, Inc. | $ | 77,359 | $ | 0.94 | $ | 101,410 | $ | 1.20 |
(1) A blended tax rate of 25% was used to calculate the tax effects of the adjustments for the nine months ended September 30, 2023 and 2022.
Pediatrix Medical Group, Inc.
Balance Sheet Highlights
| As of September 30, 2023 | As of December 31, 2022 | |||||||
| Assets: | ||||||||
| Cash and cash equivalents | $ | 21,179 | $ | 9,824 | ||||
| Investments | 103,541 | 93,239 | ||||||
| Accounts receivable, net | 277,352 | 296,787 | ||||||
| Other current assets | 18,452 | 28,139 | ||||||
| Intangible assets, net | 15,486 | 18,491 | ||||||
| Operating and finance lease right-of-use assets | 72,443 | 66,924 | ||||||
| Goodwill, other assets, property and equipment | 1,817,886 | 1,834,483 | ||||||
| Total assets | $ | 2,326,339 | $ | 2,347,887 | ||||
| Liabilities and shareholders' equity: | ||||||||
| Accounts payable and accrued expenses | $ | 302,583 | $ | 374,225 | ||||
| Total debt, including finance leases, net | 636,620 | 651,279 | ||||||
| Operating lease liabilities | 70,303 | 65,802 | ||||||
| Other liabilities | 348,848 | 364,949 | ||||||
| Total liabilities | 1,358,354 | 1,456,255 | ||||||
| Total shareholders' equity | 967,985 | 891,632 | ||||||
| Total liabilities and shareholders' equity | $ | 2,326,339 | $ | 2,347,887 |
Pediatrix Medical Group, Inc.
Reconciliation of Income from Continuing Operations
to Forward-Looking Adjusted EBITDA from Continuing Operations Attributable to
Pediatrix Medical Group, Inc.
| Year Ended December 31, 2023 | ||||||||
| Income from continuing operations attributable to Pediatrix Medical Group, Inc. | $ | 86,000 | $ | 94,000 | ||||
| Interest expense | 42,300 | 41,300 | ||||||
| Income tax provision | 34,700 | 37,700 | ||||||
| Depreciation and amortization expense | 37,000 | 37,000 | ||||||
| Adjusted EBITDA from continuing operations attributable to Pediatrix Medical Group, Inc. | $ | 200,000 | $ | 210,000 |