Announces Multi-State, Unilateral Termination
by UnitedHealth Group
MEDNAX, Inc. (NYSE: MD), the national health solutions partner
specializing in neonatology, anesthesiology, radiology,
maternal-fetal medicine, and other pediatric services, today
reported earnings from continuing operations of $0.40 per share for
the three months ended December 31, 2019. On a non-GAAP basis,
MEDNAX reported Adjusted EPS from continuing operations of
$0.91.
For the 2019 fourth quarter, MEDNAX reported the following
results from continuing operations:
- Net revenue of $905 million;
- Net income of $33 million; and
- Adjusted EBITDA of $132 million.
“Our operating results for the fourth quarter were in line with
our expectations,” said Roger J. Medel, M.D., Chief Executive
Officer of MEDNAX. “2019 was a year of significant organizational
change, leadership restructuring and broad, aggressive
transformational activity. We believe that we enter 2020 with
distinct and effective operating plans for each of our core medical
groups, and that we have established a pathway to stabilizing our
financial results over the coming year and setting the stage for
growth in the years to follow. I am also tremendously proud of the
clinical achievements of our affiliated physicians, which reflect
significant investments in quality, safety and efficiency and
underscore our unchanging commitment to take great care of the
patient.”
Unilateral, Multi-State Termination by UnitedHealth Group
MEDNAX has received notification by entities affiliated with
UnitedHealth Group that contracts of the Company’s affiliated
practices across four states, covering all of the services that
MEDNAX affiliated physicians provide in those states, have been
unilaterally terminated, with effective dates ranging from March 1
to September 1, 2020. The total annual historical revenue under
these contracts represents approximately two percent of MEDNAX’s
consolidated annual 2019 revenue of $3.5 billion.
Given the unprecedented nature of these actions, MEDNAX cannot
estimate the impact of these surprise terminations, which eliminate
from United’s networks MEDNAX-affiliated physicians providing
anesthesia coverage, neonatology, and high-risk obstetrics in urban
and rural areas.
“We are disappointed that United would take such action to
unilaterally terminate our affiliated practices from its networks,
across multiple states and affecting access by its members to many
critical healthcare services,” said Dr. Medel. “It has always been
our practice to minimize exposure to out-of-network bills for our
patients, and to negotiate in good faith with our commercial payors
to achieve that goal. It is our hope that we can achieve an outcome
in this matter that is acceptable to all parties, including the
patients receiving critical healthcare services.”
Operating Results from Continuing Operations
MEDNAX’s net revenue for the three months ended December 31,
2019 was $905.4 million, compared to $888.4 million for the
prior-year period. MEDNAX’s same-unit revenue increased by 2.3
percent, while growth attributable to recent acquisitions was
offset by the non-renewal of certain contracts.
Same-unit revenue from net reimbursement-related factors
increased by 1.3 percent for the 2019 fourth 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.
The percentage of services reimbursed under government programs
increased by approximately 50 basis points for the 2019 fourth
quarter compared with the prior-year period.
Same-unit revenue attributable to patient volume increased by
1.0 percent for the 2019 fourth quarter as compared to the
prior-year period, driven by increases across almost all service
lines. For the quarter, neonatal intensive care unit (NICU) patient
days increased by 1.7 percent compared to the prior-year period,
which reflects unchanged births at the hospitals where
MEDNAX-affiliated practices provide neonatology services and slight
increases in average rate of admission and average length of
stay.
For the 2019 fourth quarter, practice salaries and benefits
expense was $648.0 million, compared to $630.0 million for the
prior-year period, an increase of $18.0 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
$8 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 fourth quarter, general and administrative expenses
were $96.9 million, as compared to $105.5 million for the
prior-year period. This decrease in general and administrative
expenses compared to the prior-year period primarily reflects net
staffing reductions.
As previously disclosed, MEDNAX has incurred, and anticipates
that it will continue to incur, certain expenses related to
transformational and restructuring activities. For the fourth
quarter of 2019, these expenses totaled $44.3 million, which
includes $32.5 million related to external consulting costs for
various process improvement and transformational activities,
primarily focused on enterprise replatforming and information
technology; $8.4 million related to position eliminations; and $3.4
million related to contract termination fees primarily related to
real-estate lease contract terminations.
Adjusted EBITDA from continuing operations, which is defined as
earnings from continuing operations before interest, taxes,
depreciation, amortization, and transformational and restructuring
related expenses, was $132.2 million for the 2019 fourth quarter,
compared to $130.2 million for the prior-year period. Adjusted
EBITDA from continuing operations for the prior year period
reflects approximately $8 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 $19.4 million for the
fourth quarter of 2019 compared to $21.4 million for the fourth
quarter of 2018, reflecting a decrease in amortization expense
underlying various intangible assets due to the expiration of
amortization periods.
Interest expense was $27.7 million for the fourth quarter of
2019 compared to $25.4 million for the fourth 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 income from continuing operations of $33.0
million for the 2019 fourth quarter, or $0.40 per diluted share
based on a weighted average 83.3 million shares outstanding. This
compares with income from continuing operations of $61.7 million,
or $0.70 per diluted share, for the 2018 fourth quarter, based on a
weighted average 88.3 million shares outstanding. The decrease in
weighted average shares outstanding is related to the impact of
shares repurchased during 2018 and 2019.
For the fourth quarter of 2019, MEDNAX reported Adjusted EPS
from continuing operations of $0.91, compared to $0.89 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, and other
discrete tax items. For the prior year period, Adjusted EPS from
continuing operations reflects approximately $0.07 in after-tax
expenses related to the continued employment of clinicians affected
by the previously noted non-renewal of a certain contract.
For the year ended December 31, 2019, MEDNAX generated revenue
from continuing operations of $3.51 billion, compared to $3.45
billion for the prior year. Adjusted EBITDA from continuing
operations for the year ended December 31, 2019 was $500.8 million,
compared to $527.7 million for the prior year. MEDNAX reported a
loss from continuing operations of $1.15 billion, or $13.78 per
share, for the year ended December 31, 2019, based on a weighted
average 83.5 million shares outstanding, which compares to income
from continuing operations of $258.6 million, or $2.82 per share,
based on a weighted average 91.6 million shares outstanding for the
prior year. For the year ended December 31, 2019, MEDNAX reported
Adjusted EPS from continuing operations of $3.38, compared to $3.55
in the same period of 2018.
Financial Position and Cash Flow – Continuing Operations
MEDNAX had cash and cash equivalents of $112.8 million at
December 31, 2019, and net accounts receivable were $498.9
million.
During the fourth quarter of 2019, MEDNAX generated cash from
continuing operations of $127.6 million, compared to $123.7 million
during the fourth quarter of 2018.
Additionally, effective October 31, 2019, MEDNAX completed the
previously announced sale of its MedData business to an affiliate
of Frazier Healthcare Partners, for cash consideration of
approximately $250 million at closing, 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 realized
certain cash tax benefits from the transaction during the fourth
quarter of 2019 and also anticipates incremental cash tax benefits
in the coming periods.
During the fourth quarter of 2019, MEDNAX used $209.8 million to
repay borrowings on its revolving line of credit and as of December
31, 2019, the Company had no borrowings under its revolving credit
facility. Also during the fourth quarter of 2019, MEDNAX also used
$82.6 million to fund acquisitions and to make contingent purchase
price payments for previously completed acquisitions and $6.9
million to fund capital expenditures.
At December 31, 2019, MEDNAX had total debt outstanding of $1.75
billion, consisting solely of senior notes.
“Our internally generated cash flow, combined with MedData sale
proceeds, enabled us to fund significant activity through 2019,”
said Stephen D. Farber, Executive Vice President and Chief
Financial Officer. “In addition to reducing our financial leverage,
we deployed capital across acquisitions, our transformational
expenses, and other shareholder-friendly uses. Moreover, we
generated meaningful prospective cash tax savings that we believe
will fund a significant portion of our ongoing transformational
investments in 2020 as we move through the most intensive period of
this program.”
2020 First Quarter Outlook
For the 2020 first quarter, MEDNAX expects Adjusted EPS will be
in a range of $0.55 to $0.63. 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 $0.22 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 March 31, 2020 will be in a range of two to four
percent, compared to the prior-year period.
This outlook also assumes an effective tax rate for the first
quarter of 2020 of 27.0 percent and average diluted shares
outstanding of 84.5 million.
Additionally, for the 2020 first quarter, MEDNAX expects that
Adjusted EBITDA will be $95 million at the midpoint, with a range
of between $90 million and $100 million. For the 2020 first
quarter, MEDNAX expects that Adjusted EBITDA from continuing
operations will exclude roughly $25 million in third-party costs
within transformational and restructuring expenses.
The Company’s outlook for the first quarter of 2020 does not
include any potential impact from the announced contract
terminations initiated by UnitedHealth. MEDNAX is not able to
forecast the outcome of this matter, nor estimate the potential
impact to its results.
Consistent with prior years, MEDNAX’s results from operations in
the 2020 first quarter, when compared on a sequential basis to the
2019 fourth quarter, will be affected by annual seasonality. These
recurring items reduce MEDNAX’s net income, Adjusted EBITDA and
earnings per share for the first quarter of each year, relative to
other quarters throughout the year.
These factors include the incurrence of a disproportionate share
of the annual expenses associated with Social Security payroll
taxes and 401(k) match. These seasonal factors also include impacts
on net revenue during the first quarter, on a sequential basis,
because there are fewer calendar days than in the fourth
quarter.
Preliminary 2020 Outlook
On a preliminary basis, MEDNAX anticipates that its 2020
Adjusted EBITDA, as defined above, will be $470 million at the
midpoint, with a range of between $450 million and $490 million.
Additionally, the Company anticipates an effective tax rate for the
full year 2020 will be 27 percent and that average diluted shares
for the full year will be approximately 85 million.
This outlook does not include any potential impact from the
announced contract terminations initiated by UnitedHealth. The
Company is not able to forecast the outcome of this matter, nor
estimate the potential impact to its results.
“Our preliminary outlook for 2020 Adjusted EBITDA contemplates a
moderation of the margin pressure we have experienced in the recent
past as we undertake aggressive operating plans within our medical
groups and our shared-services functions,” said Mr. Farber.
“Consistent with our previous outlook, we also anticipate that our
transformational investments will begin to decline later in the
year as projects are completed, and that we will both realize
increasing benefits from these projects and exit the majority of
our third-party engagements through 2021.”
Non-GAAP Measures
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 twelve months ended
December 31, 2019 and 2018 is provided in the financial tables of
this press release. Forward-looking information for Adjusted EBITDA
and Adjusted EPS is provided only on a non-GAAP basis because a
reconciliation to the most comparable GAAP financial measures, net
income and net income per share, is not available without
unreasonable effort due to the unpredictable nature of the
reconciling item for the non-third party consulting cost component
of transformational and restructuring related expenses. MEDNAX
believes that such item and, accordingly, the other items of the
reconciliation, would require an unreasonable effort to forecast.
MEDNAX believes that any such forecast would result in a broad
range of projected values that would not be meaningful to
investors.
Earnings Conference Call
MEDNAX, Inc., 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.mednax.com.
A telephone replay of the conference call will be available from
12:00 p.m. ET today through midnight ET March 6, 2020 by dialing
866.207.1041, access Code 6480165. The replay will also be
available at www.mednax.com.
ABOUT MEDNAX
MEDNAX, Inc. is a national health solutions partner comprised of
the nation's leading providers of physician services. Physicians
and advanced practitioners practicing as part of MEDNAX are
reshaping the delivery of care within their specialties and
subspecialties, using evidence-based tools, continuous quality
initiatives, consulting services, clinical research and
telemedicine to enhance patient outcomes and provide high-quality,
cost-effective care. The Company was founded in 1979, and today,
through its affiliated professional corporations, MEDNAX provides
services through a network of more than 4,325 physicians in all 50
states and Puerto Rico. Additional information is available at
www.mednax.com.
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, 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 our 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
MEDNAX’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 MEDNAX 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 MEDNAX’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 as
MEDNAX’s current reports on Form 8-K, filed with the Securities and
Exchange Commission, and include the effects of economic conditions
on MEDNAX’s business; the effects of the Affordable Care Act and
potential changes thereto or a repeal thereof; MEDNAX’s
relationships with government-sponsored or funded healthcare
programs, including Medicare and Medicaid, and with managed care
organizations and commercial health insurance payors; the timing
and contribution of future acquisitions; the effects of share
repurchases; and the effects of MEDNAX’s transformation and
restructuring initiatives.
MEDNAX, INC. Consolidated
Statements of Income (in thousands, except per share data)
(Unaudited)
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2019
2018
2019
2018
Net revenue
$
905,375
$
888,436
$
3,513,542
$
3,454,810
Operating expenses:
Practice salaries and benefits
647,968
630,048
2,508,778
2,426,376
Practice supplies and other operating
expenses
32,009
25,870
112,766
108,851
General and administrative expenses
96,926
105,532
404,643
403,934
Depreciation and amortization
19,410
21,433
78,860
83,832
Transformational and restructuring related
expenses
44,311
—
95,329
—
Goodwill impairment
—
—
1,449,215
—
Total operating expenses
840,624
782,883
4,649,591
3,022,993
Income (loss) from operations
64,751
105,553
(1,136,049
)
431,817
Investment and other income
1,429
981
5,671
5,211
Interest expense
(27,677
)
(25,448
)
(119,381
)
(88,789
)
Equity in earnings of unconsolidated
affiliates
2,304
2,277
7,779
6,825
Total non-operating expenses
(23,944
)
(22,190
)
(105,931
)
(76,753
)
Income (loss) from continuing operations
before income taxes
40,807
83,363
(1,241,980
)
355,064
Income tax (provision) benefit
(7,824
)
(21,701
)
91,886
(96,453
)
Income (loss) from continuing
operations
32,983
61,662
(1,150,094
)
258,611
(Loss) income from discontinued
operations, net of tax
(23,652
)
(1,448
)
(347,608
)
10,018
Net income (loss)
$
9,331
$
60,214
$
(1,497,702
)
$
268,629
Per common and common equivalent share
data (diluted):
Income (loss) from continuing
operations
$
0.40
$
0.70
$
(13.78
)
$
2.82
(Loss) income from discontinued
operations
$
(0.29
)
$
(0.02
)
$
(4.16
)
$
0.11
Net income (loss)
$
0.11
$
0.68
$
(17.94
)
$
2.93
Weighted average diluted shares
outstanding
83,288
88,258
83,495
91,606
MEDNAX, Inc. Reconciliation of
Income (Loss) from Continuing Operations to Adjusted EBITDA from
Continuing Operations (in thousands) (Unaudited)
Three Months Ended
December 31,
Twelve Months Ended
December 31,
2019
2018
2019
2018
Income (loss) from continuing
operations
$
32,983
$
61,662
$
(1,150,094
)
$
258,611
Interest expense
27,677
25,448
119,381
88,789
Income tax provision (benefit)
7,824
21,701
(91,886
)
96,453
Depreciation and amortization
19,410
21,433
78,860
83,832
Transformational and restructuring related
expenses
44,311
—
95,329
—
Goodwill impairment
—
—
1,449,215
—
Adjusted EBITDA from continuing
operations
$
132,205
$
130,244
$
500,805
$
527,685
MEDNAX, Inc. Reconciliation of
Diluted Income (Loss) from Continuing Operations per Share to
Adjusted Income from Continuing Operations per Diluted Share
(“Adjusted EPS”) (in thousands, except per share data)
(Unaudited)
Three Months Ended
December 31,
2019
2018
Weighted average diluted shares
outstanding
83,288
88,258
Income (loss) from continuing operations
and diluted income from continuing operations per share
$
32,983
$
0.40
$
61,662
$
0.70
Adjustments (1):
Amortization (net of tax of $3,033 and
$3,652)
8,411
0.10
10,395
0.12
Stock-based compensation (net of tax of
$1,676 and $2,381)
4,650
0.06
6,775
0.07
Transformational and restructuring related
expenses (net of tax of $11,742)
32,569
0.39
—
—
Net impact from discrete tax events
(3,331
)
(0.04
)
—
—
Adjusted income and diluted EPS from
continuing operations
$
75,282
$
0.91
$
78,832
$
0.89
(1) Tax rates of 26.5% and 26.0% were used
to calculate the tax effects of the adjustments for the three
months ended December 31, 2019 and 2018, respectively. The tax rate
used for the three months ended December 31, 2019 excludes the
impact of discrete tax events.
Twelve Months Ended
September 30,
2019
2018
Weighted average diluted shares
outstanding
83,495
91,606
(Loss) income from continuing operations
and diluted income from continuing operations per share
$
(1,150,094
)
$
(13.78
)
$
258,611
$
2.82
Adjustments (1):
Amortization (net of tax of $13,192 and
$14,793)
35,668
0.43
39,743
0.43
Stock-based compensation (net of tax of
$9,544 and $10,284)
25,807
0.31
27,626
0.30
Transformational and restructuring related
expenses (net of tax of 25,739)
69,590
0.83
—
—
Goodwill impairment (net of tax of
$147,215)
1,302,000
15.59
—
—
Net impact from discrete tax events
(773
)
—
—
—
Adjusted income and diluted EPS from
continuing operations
$
282,198
$
3.38
$
325,980
$
3.55
(1) Tax rates of 27.0% and 27.1% were used
to calculate the tax effects of the adjustments for the year ended
December 31, 2019 and 2018, respectively. The tax rate used for the
year ended December 31, 2019 excludes the impact of discrete tax
events.
MEDNAX, INC.
Balance Sheet
Highlights
(in thousands)
(Unaudited)
As of
As of
December 31, 2019
December 31, 2018
Assets:
Cash, cash equivalents and restricted
cash
$ 112,767
$ 45,491
Investments
74,510
91,622
Accounts receivable, net
498,869
506,723
Other current assets
45,361
34,289
Intangible assets, net
274,407
313,165
Operating lease right-of-use assets
82,824
—
Goodwill, other assets, property and
equipment
3,057,163
4,255,007
Assets held for sale
—
691,184
Total assets
$ 4,145,901
$ 5,937,481
Liabilities and shareholders’
equity:
Accounts payable and accrued expenses
$ 511,866
$ 448,567
Total debt, net
1,730,425
1,974,534
Operating lease liabilities
90,322
—
Other liabilities
314,292
367,067
Liabilities held for sale
—
59,429
Total liabilities
2,646,905
2,849,597
Total shareholders’ equity
1,498,996
3,087,884
Total liabilities and shareholders’
equity
$ 4,145,901
$ 5,937,481
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200220005189/en/
Charles Lynch Vice President, Strategy and Investor Relations
954-384-0175, x 5692 charles_lynch@mednax.com
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