pediatrix(MD) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements Financial statements show decreased cash and assets from debt refinancing, and lower net income due to debt extinguishment - On July 1, 2022, the company changed its corporate name from "Mednax, Inc." to Pediatrix Medical Group, Inc. to reflect its core focus on care for women, babies, and children[19] Consolidated Balance Sheets Total assets decreased to $2.37 billion from $2.72 billion, driven by reduced cash for debt refinancing Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $14,088 | $387,391 | | Total current assets | $459,301 | $840,564 | | Goodwill | $1,532,092 | $1,505,430 | | Total assets | $2,369,616 | $2,722,546 | | Liabilities & Equity | | | | Total current liabilities | $329,415 | $427,366 | | Line of credit | $153,500 | $0 | | Long-term debt and finance lease liabilities, net | $639,754 | $1,002,258 | | Total liabilities | $1,524,186 | $1,825,854 | | Total equity | $845,430 | $896,692 | Consolidated Statements of Income Net revenue increased in Q2 and H1 2022, but net income sharply decreased due to a $57.0 million debt extinguishment loss Key Income Statement Data (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Net revenue | $486,033 | $472,959 | $968,262 | $919,712 | | Income from operations | $50,155 | $50,016 | $89,263 | $76,120 | | Loss on early extinguishment of debt | $0 | $0 | $(57,016) | $(14,532) | | Net income attributable to Pediatrix | $27,136 | $35,011 | $5,948 | $52,653 | | Diluted EPS | $0.32 | $0.41 | $0.07 | $0.61 | Consolidated Statements of Equity Total equity decreased to $845.4 million from $896.7 million, primarily due to common stock repurchases - The company repurchased 3.3 million shares of its common stock for $64.4 million during the second quarter of 2022[13] - Retained deficit improved from $(155.4) million at year-end 2021 to $(149.5) million at June 30, 2022, reflecting the net income generated during the period[8][13] Consolidated Statements of Cash Flows Net cash used in operating activities was $15.1 million, with a $373.3 million net decrease in cash due to debt redemption Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(15,075) | $(28,601) | | Net cash (used in) provided by investing activities | $(39,625) | $3,725 | | Net cash used in financing activities | $(318,603) | $(760,810) | | Net decrease in cash and cash equivalents | $(373,303) | $(785,686) | | Cash and cash equivalents at end of period | $14,088 | $338,157 | Notes to Consolidated Financial Statements The notes detail key accounting policies and financial activities, including $31.3 million in acquisitions and a major debt restructuring - The company completed the acquisition of one multi-location pediatric urgent care practice and one pediatric gastroenterology and gynecology practice for total consideration of $31.3 million, recording $26.7 million in goodwill[36] - In February 2022, the company issued $400.0 million of 5.375% senior notes due 2030 and amended its credit agreement to include a $450 million revolving credit line and a new $250 million term loan, with proceeds used to redeem the $1.0 billion 6.25% senior notes due 2027[42][44] - During the six months ended June 30, 2022, the company repurchased 3.3 million shares of its common stock for $65.6 million[58] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting revenue growth from acquisitions, same-unit declines, and debt refinancing impacts - The company's operating results have not been materially impacted by COVID-19 or its variants in 2021 or thus far in 2022, though uncertainty remains[66] - The company is monitoring the impact of the "No Surprises Act," effective January 1, 2022, which could limit amounts recovered for out-of-network services and affect payor contract negotiations[77][78][79] Reconciliation to Adjusted EBITDA (in thousands) | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Income from continuing operations | $30,701 | $30,533 | $9,760 | $35,885 | | Adjusted EBITDA from continuing operations | $65,555 | $65,533 | $116,237 | $111,016 | Reconciliation to Adjusted EPS | Metric | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Diluted EPS from continuing operations | $0.36 | $0.36 | $0.11 | $0.42 | | Adjusted Diluted EPS from continuing operations | $0.47 | $0.41 | $0.79 | $0.65 | Results of Operations Net revenue increased in Q2 and H1 2022 from acquisitions, despite same-unit declines, with operating income improving due to lower G&A - Q2 2022 vs Q2 2021: - Net revenue increased by $13.0 million (2.8%), primarily from acquisitions - Same-unit net revenue decreased by $6.1 million (1.3%), driven by a $8.6 million decrease from reimbursement factors, partially offset by a $2.5 million increase from volume[88] - H1 2022 vs H1 2021: - Net revenue increased by $48.6 million (5.3%), primarily from acquisitions - Same-unit net revenue decreased by $2.8 million (0.3%), driven by a $20.4 million decrease from reimbursement factors, partially offset by a $17.6 million increase from volume[103][104] - General and administrative expenses decreased by $9.8 million in Q2 and $15.0 million in H1 2022 compared to the prior year, primarily due to lower professional fees and net savings in revenue cycle management expenses[91][107] Liquidity and Capital Resources Liquidity decreased significantly due to debt refinancing, including new notes and credit agreements, resulting in a $57.0 million loss - Working capital decreased by $283.3 million from Dec 31, 2021, to $129.9 million at June 30, 2022, primarily due to the use of cash for the redemption of the 2027 Notes[118] - Days sales outstanding (DSO) for continuing operations increased to 58.2 days at June 30, 2022, from 55.2 days at December 31, 2021, due to the timing of cash collections[122] - At June 30, 2022, the company had an outstanding principal balance of $400.4 million on its Amended Credit Agreement ($153.5 million revolver, $246.9 million term loan) and $400.0 million on its 2030 Notes[131][132] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate exposure on its $400.4 million variable-rate debt - The company is exposed to interest rate risk on its Amended Credit Agreement, which had a $400.4 million balance at June 30, 2022[139] - A 1% change in interest rates would result in an approximate annual impact of $4.0 million to income before taxes[139] Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2022[141] - No changes occurred during Q2 2022 that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[142] PART II - OTHER INFORMATION Legal Proceedings The company faces ordinary course legal actions, primarily medical malpractice claims, with risk largely self-insured - The company faces legal actions and government inquiries in the ordinary course of business, with most claims related to medical malpractice[145][146] - A significant portion of professional liability risk is self-insured through a wholly owned captive insurance subsidiary[147] Risk Factors No material changes to risk factors were reported since the company's 2021 Annual Report on Form 10-K - No material changes to risk factors were reported since the 2021 Form 10-K[148] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased 3.3 million shares of common stock for approximately $64.4 million Share Repurchases for Q2 2022 | Period | Total Number Repurchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 1 – April 30, 2022 | — | $ — | | May 1 – May 31, 2022 | 637,000 | $19.04 | | June 1 – June 30, 2022 | 2,637,802 | $19.79 | | Total | 3,274,802 | $19.65 | Other Information A new employment agreement for EVP and COO James D. Swift, M.D. was executed, detailing salary, bonus, and severance terms - A new employment agreement for EVP and COO James D. Swift, M.D. was executed on August 1, 2022[153] - Key terms include a $450,000 base salary, a 100% target bonus, and specified severance benefits[153] Exhibits This section lists exhibits filed with the Form 10-Q, including amended articles, employment agreements, and certifications Signatures