Completes Sale of American Anesthesiology to
North American Partners in Anesthesia
MEDNAX, Inc. (NYSE: MD), the national health solutions partner
specializing in prenatal, neonatal, pediatric, and radiology
services, today reported a loss from continuing operations of $0.20
per share for the three months ended March 31, 2020. On a non-GAAP
basis, MEDNAX reported Adjusted EPS from continuing operations of
$0.32.
For the 2020 first quarter, MEDNAX reported the following
results from continuing operations:
- Net revenue of $846 million;
- Loss of $16 million; and
- Adjusted EBITDA of $63 million.
“Our operating results for the quarter, and following the
quarter, have been significantly impacted by the COVID-19
pandemic,” said Roger J. Medel, M.D., Chief Executive Officer of
MEDNAX. “I am immensely proud of our organization’s commitment to
take great care of the patient, and the steps we have taken to put
that commitment into action in such an unprecedented environment.
In turn, we are committed to working collaboratively, across our
medical groups and with our hospital partners, to ensure clinician
and patient safety and to provide access to the critical services
provided by our affiliated physicians and non-physician
clinicians.”
On May 6, 2020, subsequent to the end of the quarter, MEDNAX
completed the sale of American Anesthesiology, a MEDNAX medical
group, to North American Partners in Anesthesia (NAPA), creating
one of the most comprehensive anesthesia, pain management, and
perioperative care companies in the United States. Further details
of the transaction, including financial terms, can be found in a
Current Report on Form 8-K filed by MEDNAX on May 6, 2020 with the
Securities and Exchange Commission. The Company’s discussion of its
results from continuing operations for the three months ended March
31, 2020 and the prior year quarter includes the operating results
from American Anesthesiology.
Operating Results from Continuing Operations
MEDNAX’s net revenue for the three months ended March 31, 2020
was $845.9 million, compared to $851.2 million for the prior-year
period. MEDNAX’s same-unit revenue declined by 1.0 percent,
slightly offset by growth attributable to recent acquisitions.
Same-unit revenue from net reimbursement-related factors
increased by 1.0 percent for the 2020 first quarter as compared to
the prior-year period. The net increase in revenue was primarily
due to hospital contract administrative fees and modest
improvements in managed care contracting.
The percentage of services reimbursed under government programs
increased by approximately 25 basis points for the 2020 first
quarter compared with the prior-year period.
Same-unit revenue attributable to patient volume decreased by
2.0 percent for the 2020 first quarter as compared to the
prior-year period, driven by declines across all service lines
except for neonatology. For the quarter, neonatal intensive care
unit (NICU) patient days increased by 0.3 percent compared to the
prior-year period, which reflects slightly lower births at the
hospitals where MEDNAX-affiliated practices provide neonatology
services, offset by a modest increase in average length of
stay.
For the 2020 first quarter, practice salaries and benefits
expense was $652.7 million, compared to $621.5 million for the
prior-year period, an increase of $31.2 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.
For the 2020 first quarter, general and administrative expenses
were $105.2 million, as compared to $101.8 million for the
prior-year period. This increase in general and administrative
expenses compared to the prior-year period primarily reflects
increases in legal and other non-labor expenses, partially offset
by net staffing reductions.
As previously disclosed, MEDNAX has incurred certain expenses
related to transformational and restructuring activities. For the
first quarter of 2020, these expenses totaled $30.9 million, which
includes $28.0 million related to external consulting costs for
various process improvement and transformational activities,
primarily focused on enterprise replatforming and information
technology, and $2.9 million related to position eliminations,
contract termination fees and portfolio management activities.
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 $63.4 million for the 2020 first quarter,
compared to $104.9 million for the prior-year period.
Depreciation and amortization expense was $18.7 million for the
first quarter of 2020 compared to $20.0 million for the first
quarter of 2019, reflecting a decrease in amortization expense
underlying various intangible assets due to the expiration of
amortization periods.
Interest expense was $27.6 million for the first quarter of 2020
compared to $30.7 million for the first quarter of 2019. This
decline primarily reflects lower borrowing amounts compared to the
prior period.
MEDNAX generated a net loss from continuing operations of $16.1
million for the 2020 first quarter, or a loss of $0.20 per diluted
share based on a weighted average 82.8 million shares outstanding.
This compares with net income from continuing operations of $41.7
million, or $0.48 per diluted share, for the 2019 first quarter,
based on a weighted average 86.5 million shares outstanding. The
decrease in weighted average shares outstanding is primarily
related to the impact of shares repurchased during 2019.
For the first quarter of 2020, MEDNAX reported Adjusted EPS from
continuing operations of $0.32, compared to $0.65 for the first
quarter of 2019. 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.
Operational Response to Coronavirus Pandemic
MEDNAX’s operating results for the first quarter were
significantly impacted by reductions in patient volumes and
revenue, which reduced consolidated revenue by approximately $40
million, compared to the Company’s forecasted revenue. Subsequent
to the first quarter, the Company’s operating results have
continued to a experience significant impact from the Coronavirus
pandemic. On a preliminary basis, MEDNAX estimates that, as
compared to the prior year, patient volumes in its anesthesia,
radiology, and office-based womens’ and child services medical
groups declined by approximate ranges of 60 to 70 percent; 50 to 60
percent; and 20 to 40 percent, respectively, during the month of
April. MEDNAX’s neonatology and neonatology related services have
not experienced any measurable impact to date. In total, the
Company estimates that the reduction to consolidated revenues as a
result of these declines in patient volume during the month of
April, as compared to the prior year, was in the range of 30 to 35
percent.
As previously announced, MEDNAX has implemented a number of
actions to preserve its financial flexibility and partially
mitigate the significant impact of COVID-19 on the Company, in
collaborative efforts including both its affiliated clinicians and
non-clinical workforce. Following the end of the first quarter,
MEDNAX implemented a combination of salary reductions and furloughs
for non-clinical employees, including 50% reductions in salaries
for its most senior executive officers; significant operational and
practice-specific expense reduction plans across the Company’s
clinical operations; significant reductions in third-party
expenditures, including the Company’s transformational and
restructuring programs; and agreement by the Company’s Board of
Directors to forego their annual cash retainer and cash meeting
payments until further notice.
The Company and its affiliated physician practices have also
received, and expect to receive, certain funds available to
healthcare providers through the federal Coronavirus Aid, Relief,
and Economic Security Act (the “CARES Act”). To date, these funds
have been in the form of direct grants based on Medicare payments,
and MEDNAX and its affiliated physician practices have neither
requested nor received accelerated payments or loans made available
through the CARES Act.
Additionally, effective March 25, 2020, MEDNAX amended its
revolving credit facility to provide additional interim financial
flexibility during this challenging period. Following that
amendment, and as of March 31, 2020, MEDNAX had total borrowings on
its revolving line of credit of $368.5 million and total debt
outstanding of $2.10 billion, consisting primarily of senior notes
and these revolver borrowings. MEDNAX had cash and cash equivalents
of $312.2 million at March 31, 2020, and net accounts receivable
were $477.0 million.
“In addition to our robust clinical responses to the COVID-19
pandemic, we enacted a multi-pronged approach to enhance our
financial flexibility through this challenging period,” said
Stephen D. Farber, Executive Vice President and Chief Financial
Officer. “We believe that our actions related to operating
expenses, cash outflows, and our revolving line of credit will help
to ensure that MEDNAX can meet its commitments to its patients and
its hospital partners long into the future.”
Cash Flow – Continuing Operations
During the first quarter of 2020, MEDNAX used cash of $146.4
million to fund continuing operations, compared to a use of $60.4
million during the first quarter of 2019. MEDNAX typically uses
cash during the first quarter of each year as it pays incentive
compensation, principally to its affiliated physicians, and
employee benefit plan matching contributions that were accrued
during the prior year. Additionally, during the first quarter of
2020, the Company used $13.7 million to fund capital
expenditures.
Withdrawal of Preliminary Full Year Outlook for 2020 Due to
COVID-19 Impact
On March 25, 2020, MEDNAX withdrew its previously announced
quarterly and full year outlook for 2020. Due to the rapidly
evolving environment and continued uncertainties surrounding the
impact of COVID-19 and the likelihood that this impact may
materially affect the Company’s near-term performance, the Company
is not providing any outlook for its performance for the second
quarter of 2020 or for the full year 2020.
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 months ended March 31, 2020
and 2019 is provided in the financial tables of this press
release.
Earnings Conference Call
MEDNAX, Inc., will host an investor conference call to discuss
the quarterly results at 10 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 May 21, 2020 by dialing
866.207.1041, access Code 7672706. 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 3,000 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 (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
and include the impact of the COVID-19 outbreak on the Company and
its financial condition and results of operations; 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 impact of the divestiture of the Company’s anesthesiology
medical group; 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 March
31,
2020
2019
Net revenue
$
845,918
$
851,183
Operating expenses:
Practice salaries and benefits
652,721
621,539
Practice supplies and other operating
expenses
25,264
25,791
General and administrative expenses
105,235
101,821
Depreciation and amortization
18,673
20,033
Transformational and restructuring related
expenses
30,907
3,544
Total operating expenses
832,800
772,728
Income from operations
13,118
78,455
Investment and other (expense) income
(679)
1,647
Interest expense
(27,608)
(30,723)
Equity in earnings of unconsolidated
affiliates
1,345
1,236
Total non-operating expenses
(26,942)
(27,840)
(Loss) income from continuing operations
before income taxes
(13,824)
50,615
Income tax provision
(2,286)
(8,962)
(Loss) income from continuing
operations
(16,110)
41,653
Loss from discontinued operations, net of
tax
(2,602)
(284,525)
Net loss
$
(18,712)
$
(242,872)
Per common and common equivalent share
data (diluted):
(Loss) income from continuing
operations
$
(0.20)
$
0.48
Loss from discontinued operations
$
(0.03)
$
(3.29)
Net loss
$
(0.23)
$
(2.81)
Weighted average diluted shares
outstanding
82,799
86,545
MEDNAX, Inc.
Reconciliation of (Loss)
Income from Continuing Operations
to Adjusted EBITDA from
Continuing Operations
(in thousands)
(Unaudited)
Three Months Ended
March 31,
2020
2019
(Loss) income from continuing
operations
$
(16,110
)
$
41,653
Interest expense
27,608
30,723
Income tax provision
2,286
8,962
Depreciation and amortization
18,673
20,033
Transformational and restructuring related
expenses
30,907
3,544
Adjusted EBITDA from continuing
operations
$
63,364
$
104,915
MEDNAX, Inc.
Reconciliation of Diluted
(Loss) Income 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
March 31,
2020
2019
Weighted average diluted shares
outstanding
82,799
86,545
(Loss) income from continuing operations
and diluted income from continuing operations per share
$
(16,110)
$ (0.20)
$
41,653
$ 0.48
Adjustments (1):
Amortization (net of tax of $2,740 and
$3,449)
8,220
0.10
9,325
0.11
Stock-based compensation (net of tax of
$1,962 and $2,967)
5,885
0.07
8,022
0.09
Transformational and restructuring related
expenses (net of tax
of $7,727 and $957)
23,180
0.28
2,587
0.03
Net impact from discrete tax events
5,077
0.07
(4,791)
(0.06)
Adjusted income and diluted EPS from
continuing operations
$
26,252
$ 0.32
$
56,796
$ 0.65
(1) Effective tax rates of 25.0% and 27.0% were used to
calculate the tax effects of the adjustments in March 31, 2020 and
2019, respectively. The effective rates used for the three months
ended March 31, 2020 and 2019, respectively, exclude the impacts
from discrete tax items.
MEDNAX, INC.
Balance Sheet
Highlights
(in thousands)
(Unaudited)
As of
As of
March 31, 2020
December 31, 2019
Assets:
Cash and cash equivalents
$
312,155
$
112,767
Investments
85,041
74,510
Accounts receivable, net
476,991
498,869
Other current assets
66,709
45,361
Intangible assets, net
263,308
274,407
Operating lease right-of-use assets
79,810
82,824
Goodwill, other assets, property and
equipment
3,035,648
3,057,163
Total assets
$
4,319,662
$
4,145,901
Liabilities and shareholders’
equity:
Accounts payable and accrued expenses
$
323,363
$
511,866
Total debt, net
2,102,666
1,730,425
Operating lease liabilities
84,578
90,322
Other liabilities
321,659
314,292
Total liabilities
2,832,266
2,646,905
Total shareholders’ equity
1,487,396
1,498,996
Total liabilities and
shareholders’equity
$
4,319,662
$
4,145,901
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200507005162/en/
Charles Lynch Vice President, Strategy and Investor Relations
954-384-0175, x 5692 charles_lynch@mednax.com
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