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MEDNAX Reports Third Quarter Results
Completes Sale of MedData Business to Frazier Healthcare Partners
FORT LAUDERDALE, Fla., November 1, 2019 - MEDNAX, Inc. (NYSE: MD), the national health solutions partner specializing in
neonatology, anesthesiology, radiology, maternal-fetal medicine, and other pediatric services, today reported results from continuing operations for the three months ended September 30, 2019.
During the third quarter, the Company completed its annual goodwill impairment analysis and determined, based on various factors, that the
fair value of certain of the Company s reporting units tested was below their carrying value. As a result, the Company recorded a non-cash impairment charge of $1.4 billion to lower the carrying
amount of goodwill. This analysis reflects the previously announced realignment during the third quarter of the Company s leadership structure, and nearly all of this charge relates to its anesthesiology services reporting unit.
On a GAAP basis, MEDNAX generated a loss from continuing operations of $15.29 per diluted share. On a
non-GAAP basis, MEDNAX reported Adjusted EPS from continuing operations of $0.91.
For the 2019 third quarter,
MEDNAX reported the following results from continuing operations:
Our operating results for the third quarter were in line with our expectations,
said Roger J. Medel, M.D., Chief Executive Officer of MEDNAX. Revenue growth reflected strong patient volumes across our core medical groups, while clinical and non-clinical labor expenses were
consistent with our expectations. Following the steps we have taken this year to flatten and enhance our organizational structure, the leaders of each of our medical groups are moving aggressively to address their operational priorities. As a
broader organization, we have also continued to progress our transformational and restructuring initiatives. Finally, we reached an important milestone following the end of the quarter in completing the previously announced sale of our MedData
business to Frazier Healthcare Partners. This transaction, combined with our strong cash generation during the quarter, meaningfully enhances our financial strength and provides us with significant capital to invest in our transformational
initiatives and pursue strategic acquisitions. We believe the steps we have taken thus far in 2019 position us well to generate enhanced shareholder value while enabling us to continue to take great care of our patients.
Operating Results from Continuing Operations
MEDNAX s net revenue for the three months ended September 30, 2019 was $888.7 million, an increase of 4.7 percent compared
to $848.8 million for the prior-year period.
MEDNAX s same-unit revenue for the three months ended September 30, 2019
increased by 4.2 percent compared to the prior-year period. Same-unit revenue attributable to patient volume increased by 3.2 percent for the 2019 third quarter as compared to the prior-year period. For the 2019 third quarter, MEDNAX had
one additional weekday compared to the 2018 third quarter, which impacted same-unit volume growth favorably by 0.6 percent. Volumes increased across almost all service lines driven by growth in anesthesiology, neonatology and other pediatric
services, including newborn nursery, and radiology. For the quarter, neonatal intensive care unit (NICU) patient days increased by 3.4 percent compared to the prior-year period, which reflects an increase in total births at the hospitals where
MEDNAX-affiliated practices provide neonatology services and a modest increase in length of stay.
Same-unit revenue from net
reimbursement-related factors increased by 1.0 percent for the 2019 third quarter as compared to the prior-year period. The net increase in revenue was primarily due to modest improvements in managed care contracting and hospital contract
administrative fees, as well as an increase in revenue from a slight overall increase in the percentage of our patients enrolled in non-government programs.
The percentage of services reimbursed under non-government programs increased by approximately 20
basis points for the 2019 third quarter compared with the prior-year period, reflecting a slightly favorable comparison for neonatology and other pediatric services, partially offset by a slightly unfavorable comparison for anesthesiology services.
For the 2019 third quarter, practice salaries and benefits expense was $630.3 million, compared to $599.3 million for the
prior-year period, an increase of $31.0 million. Of this increase, approximately $10 million reflects growth in medical malpractice and other non-salary expenses, while the remainder was attributable
to growth in clinical compensation expense.
During the prior-year period, the Company incurred approximately $10 million in salary
and benefit expense related to the continued employment of clinicians affected by the non-renewal of a contract, for which the affected practice was no longer billing for service effective July 1, 2018.
For the 2019 third quarter, general and administrative expenses were $102.4 million, as
compared to $95.8 million for the prior-year period. The increase in general and administrative expenses compared to the prior-year period reflects increases in legal, information technology and revenue cycle costs.
As previously disclosed, MEDNAX has incurred, and anticipates that it will continue to incur, certain expenses related to transformational and
restructuring activities. For the third quarter of 2019, these expenses totaled $20.0 million, which includes $18.5 million related to external consulting costs for various process improvement and transformational activities and
$1.5 million related to position eliminations.
Adjusted EBITDA from continuing operations, which is defined as earnings from
continuing operations before interest, taxes, depreciation, amortization, transformational and restructuring related expenses, and goodwill impairment was $132.7 million for the 2019 third quarter, compared to $129.7 million for the
prior-year period. Adjusted EBITDA from continuing operations for the prior year period reflects approximately $10 million in expense related to the continued employment of clinicians affected by the
non-renewal of a contract, for which the affected practice was no longer billing for service effective July 1, 2018.
Depreciation and amortization expense was $19.6 million for the third quarter of 2019 compared to $22.2 million for the third
quarter of 2018, reflecting a decrease in amortization expense underlying various intangible assets due to the expiration of amortization periods.
Interest expense was $29.9 million for the third quarter of 2019 compared to $21.8 million for the third quarter of 2018, due
primarily to a higher effective interest rate on borrowings between the two periods. The increase in effective interest rate specifically reflects the impact of the Company s issuance of senior notes in November of 2018 and February of 2019.
MEDNAX generated a loss from continuing operations of $1.26 billion for the 2019 third quarter, or $15.29 per diluted share based on
a weighted average 82.4 million shares outstanding. This compares with income from continuing operations of $62.2 million, or $0.68 per diluted share, for the 2018 third quarter, based on a weighted average 91.4 million shares
outstanding. The decrease in weighted average shares outstanding is related to the impact of shares repurchased under an accelerated repurchase program completed in the fourth quarter of 2018, as well as through open market repurchase activity
conducted during both 2018 and 2019.
For the third quarter of 2019, MEDNAX reported Adjusted EPS from continuing operations of $0.91,
compared to $0.86 for the third quarter of 2018. 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, goodwill impairment and other discrete tax items. For the prior year period, Adjusted EPS
from continuing operations reflects roughly $0.08 in aftertax expenses related to the continued employment of clinicians affected by the previously noted non-renewal of a certain contract.
For the nine months ended September 30, 2019, MEDNAX generated revenue from continuing
operations of $2.61 billion, compared to $2.57 billion for the prior year. Adjusted EBITDA from continuing operations for the nine months ended September 30, 2019 was $368.6 million, compared to $397.4 million for the prior
year. MEDNAX reported a loss from continuing operations of $1.18 billion, or $14.11 per share, for the nine months ended September 30, 2019, based on a weighted average 83.8 million shares outstanding, which compares to income from
continuing operations of $196.9 million, or $2.13 per share, based on a weighted average 92.8 million shares outstanding for the first nine months of 2018. For the nine months ended September 30, 2019, MEDNAX reported Adjusted EPS
from continuing operations of $2.45, compared to $2.67 in the same period of 2018.
Financial Position and Cash Flow Continuing Operations
MEDNAX had cash and cash equivalents of $28.9 million at September 30, 2019, and net accounts receivable were $494.7 million.
During the third quarter of 2019, MEDNAX generated cash from continuing operations of $155.9 million, compared to
$135.2 million during the third quarter of 2018. MEDNAX used $141.7 million during the third quarter of 2019 to repay borrowings on its revolving line of credit. The Company also used $23.7 million to fund acquisitions and to make
contingent purchase price payments for previously completed acquisitions and $8.5 million to fund capital expenditures.
September 30, 2019, MEDNAX had total debt outstanding of $1.9 billion, consisting of $1.7 billion in senior notes and approximately $210 million in borrowings under its revolving credit facility.
Effective October 31,
2019, MEDNAX completed the previously announced sale of its MedData business to Frazier Healthcare Partners. In November 2018, MEDNAX announced the initiation of a process to divest MedData to allow the Company to focus on its core physician
services business. In connection with the divestment, the Company classified MedData as discontinued operations beginning in the first quarter of 2019.
Under the terms of the purchase agreement, MEDNAX received cash consideration of approximately $250 million at closing, net of
transaction related expenses, as well as economic consideration with a value of up to $50 million that is contingent on both short and long-term performance of MedData. MEDNAX also anticipates certain cash tax benefits from the transaction in
the coming quarters. Finally, in connection with the transaction, MEDNAX has entered into a long-term services agreement with MedData.
MEDNAX used most of the cash proceeds of the transaction to repay the remaining borrowings under its revolving credit facility. Pro forma for
this transaction, the Company s net leverage is approximately 3.4 times.
Year to date, we have committed nearly
$500 million in capital toward reduction of our total borrowings, share repurchases, strategic acquisitions, transformational investments, and
capital expenditures, said Stephen D. Farber, Executive Vice President and Chief Financial Officer. Additionally, the completion of our sale of MedData better positions MEDNAX,
both financially and strategically, for long-term shareholder value creation by allowing it to focus on its core physician services business and significantly reducing the Company s future capital expenditures. Our strong cash generation thus
far in 2019 demonstrates our ability to undertake meaningful activities simultaneously to invest in our organization, pursue acquisitive growth and return capital to shareholders, all while retaining significant financial flexibility.
2019 Fourth Quarter Outlook
quarter, MEDNAX expects Adjusted EPS from continuing operations will be in a range of $0.87 to $0.95. The Adjusted EPS from continuing operations range excludes $0.11 per diluted share of estimated amortization expense, $0.07 per diluted share of
estimated stock-based compensation expense and $0.23 per diluted share of third-party costs within transformational and restructuring related expenses.
This outlook assumes that total same-unit revenue growth for the three months ended December 31, 2019 will be in a range of one to three
percent, compared to the prior-year period.
This outlook also assumes an effective tax rate for the fourth quarter of 2019 of
26.5 percent and average diluted shares outstanding of 83.4 million.
Additionally, for the 2019 fourth quarter, MEDNAX expects
that Adjusted EBITDA from continuing operations will be between $125 million and $135 million. For the 2019 fourth quarter, MEDNAX expects that Adjusted EBITDA from continuing operations will exclude roughly $25 million in third-party
costs within transformational and restructuring expenses.
Based on our operating results for the third quarter of 2019, and our
outlook for the fourth quarter, we now expect our Adjusted EBITDA for the full year to be approximately $500 million, which reflects a margin for the year in the range of 14 to 14.5 percent, said Stephen D. Farber, Executive Vice
President and Chief Financial Officer. We continue to address the margin challenges inherent in our business through our internal resources and an expanded scope of activities alongside our consulting partners. As has been the case thus far in
2019, we believe our strong cash flow profile will enable us to fund all of these transformational initiatives while also undertaking growth investments and shareholder-friendly 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, 2019 and 2018 is provided in the financial tables of this press release. Forward-looking information for Adjusted EBITDA and Adjusted EPS from continuing operations is provided only on