UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2021
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-12111
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of |
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(I.R.S. Employer |
| Incorporation or organization) |
Identification No.) |
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(Address of principal executive offices) |
(Zip Code) |
(954 ) 384-0175
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol |
Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☒ No ☐
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2
of the Exchange Act. | ☒ | Accelerated filer | ☐ | ||||
| Non-accelerated filer | ☐ | Smaller reporting company | ||||
| Emerging growth company | ||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐ No
On April 30, 2021, the registrant had outstanding
Mednax, Inc.
INDEX
Page |
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| PART I - FINANCIAL INFORMATION |
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| Item 1. |
Financial Statements |
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3 |
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7 |
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| Item 2. |
13 |
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| Item 3. |
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| Item 4. |
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| Item 1. |
21 |
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| Item 1A. |
21 |
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| Item 2. |
21 |
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| Item 6. |
22 |
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23 |
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2
Mednax, Inc.
Consolidated Balance Sheets
(in thousands)
(Unaudited)
March 31, 2021 |
December 31, 2020 |
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ASSETS |
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| Current assets: |
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| Cash and cash equivalents |
$ | $ | ||||||
| Short-term investments |
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| Accounts receivable, net |
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| Prepaid expenses |
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| Income taxes receivable |
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| Other current assets |
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| Total current assets |
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| Property and equipment, net |
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| Goodwill |
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| Intangible assets, net |
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| Operating and finance lease right-of-use |
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| Deferred income tax assets |
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| Other assets |
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| Total assets |
$ | $ | ||||||
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LIABILITIES AND EQUITY |
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| Current liabilities: |
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| Accounts payable and accrued expenses |
$ | $ | ||||||
| Current portion of finance lease liabilities |
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| Current portion of operating lease liabilities |
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| Total current liabilities |
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| Long-term debt and finance lease liabilities, net |
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| Long-term operating lease liabilities |
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| Long-term professional liabilities |
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| Deferred income tax liabilities |
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| Other liabilities |
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| Total liabilities |
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| Commitments and contingencies |
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| Shareholders’ equity: |
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| Preferred stock; $ par value; |
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| Common stock; $ par value; |
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| Additional paid-in capital |
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| Accumulated other comprehensive income |
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| Retained deficit |
( |
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| Total Mednax, Inc. shareholders’ equity |
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| Noncontrolling interest |
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| Total equity |
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| Total liabilities and equity |
$ | $ | ||||||
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The accompanying notes are an integral part of these Consolidated Financial Statements.
3
Mednax, Inc.
Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
Three Months Ended March 31, |
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2021 |
2020 |
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| Net revenue |
$ | $ | ||||||
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| Operating expenses: |
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| Practice salaries and benefits |
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| Practice supplies and other operating expenses |
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| General and administrative expenses |
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| Depreciation and amortization |
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| Transformational and restructuring related expenses |
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| Total operating expenses |
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| Income from operations |
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| Investment and other income (expense) |
( |
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| Interest expense |
( |
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| Loss on early extinguishment of debt |
( |
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| Equity in earnings of unconsolidated affiliate |
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| Total non-operating expenses |
( |
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| Income (loss) from continuing operations before income taxes |
( |
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| Income tax benefit (provision) |
( |
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| Income (loss) from continuing operations |
( |
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| Income (loss) from discontinued operations, net of tax |
( |
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| Net income (loss) |
( |
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| Net loss attributable to noncontrolling interest |
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— | ||||||
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| Net income (loss) attributable to Mednax, Inc. |
$ | $ | ( |
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| Per common and common equivalent share data: |
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| Income (loss) from continuing operations: |
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| Basic |
$ | $ | ( |
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| Diluted |
$ | $ | ( |
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| Income from discontinued operations: |
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| Basic |
$ | $ | — | |||||
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| Diluted |
$ | $ | — | |||||
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| Net income (loss) attributable to Mednax, Inc.: |
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| Basic |
$ | $ | ( |
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| Diluted |
$ | $ | ( |
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| Weighted average common shares: |
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| Basic |
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| Diluted |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
4
Mednax, Inc.
Consolidated Statements of Equity
(in thousands)
Common Stock |
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Number of |
Additional Paid-in |
Accumulated Other Comprehensive |
Retained |
Total |
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Shares |
Amount |
Capital |
Income (Loss) |
Deficit 1 |
Equity |
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| 2021 |
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| Balance at January 1, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
| Net incom e |
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— |
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— |
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— |
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— |
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| Contribution from noncontrolling interests, net of loss (1) |
— | — | — | — | ( |
) | ( |
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| Unrealized holding loss on investments, net of tax |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan |
— | — | — | |||||||||||||||||||||
| Issuance of restricted stock |
( |
) | — | — | — | |||||||||||||||||||
| Forfeitures of restricted stock |
( |
) | — | — | — | — | — | |||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Repurchased common stock |
( |
) | ( |
) | ( |
) | — | — | ( |
) | ||||||||||||||
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| Balance at March 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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| 2020 |
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| Balance at January 1, 2020 |
$ | $ | $ | $ | $ | |||||||||||||||||||
| Net loss |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||
| Unrealized holding loss on investments, net of tax |
— | — | — | ( |
) | — | ( |
) | ||||||||||||||||
| Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan |
— | — | ||||||||||||||||||||||
| Issuance of restricted stock |
( |
) | — | — | — | |||||||||||||||||||
| Forfeitures of restricted stock |
( |
) | — | — | — | — | — | |||||||||||||||||
| Stock-based compensation expense |
— | — | — | — | ||||||||||||||||||||
| Repurchased common stock |
( |
) | ( |
) | ( |
) | — | — | ( |
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| Balance at March 31, 2020 |
$ | $ | $ | ( |
) | $ | $ | |||||||||||||||||
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(1) |
Noncontrolling interest in 2021 is presented within retained deficit as the balance is immaterial. |
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
Mednax, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Three Months Ended March 31, |
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2021 |
2020 |
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| Cash flows from operating activities: |
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| Net income (loss) |
$ | $ | ( |
) | ||||
| (Income) loss from discontinued operations |
( |
) | ||||||
| Adjustments to reconcile net income (loss) to net cash from operating activities: |
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| Depreciation and amortization |
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| Amortization of premiums, discounts and issuance costs |
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| Loss on early extinguishment of debt |
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| Stock-based compensation expense |
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| Deferred income taxes |
( |
) | ||||||
| Other |
( |
) | ( |
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| Changes in assets and liabilities: |
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| Accounts receivable |
( |
) | ||||||
| Prepaid expenses and other current assets |
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| Other long-term assets |
( |
) | ||||||
| Accounts payable and accrued expenses |
( |
) | ( |
) | ||||
| Income taxes receivable |
( |
) | ( |
) | ||||
| Long-term professional liabilities |
( |
) | ||||||
| Other liabilities |
( |
) | ( |
) | ||||
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| Net cash used in operating activities – continuing operations |
( |
) | ( |
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| Net cash provided by operating activities - discontinued operations |
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| Net cash used in operating activities |
( |
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| Cash flows from investing activities: |
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| Acquisition payments, net of cash acquired |
( |
) | ( |
) | ||||
| Purchases of investments |
( |
) | ( |
) | ||||
| Proceeds from maturities or sales of investments |
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| Purchases of property and equipment |
( |
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| Net cash used in investing activities – continuing operations |
( |
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| Net cash used in investing activities - discontinued operations |
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| Net cash used in investing activities |
( |
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| Cash flows from financing activities: |
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| Borrowings on credit agreement |
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| Payments on credit agreement |
( |
) | ||||||
| Redemption of senior notes, including call premium |
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( |
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| Payments for credit facility amendment |
( |
) | ||||||
| Payments of contingent consideration liabilities |
( |
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| Payments on finance lease obligations |
( |
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| Proceeds from issuance of common stock |
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| Repurchases of common stock |
( |
) | ( |
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| Net cash provided from financing activities – continuing operations |
( |
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| Net cash provided from financing activities - discontinued operations |
( |
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| Net cash provided from financing activities |
( |
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| Net increase in cash and cash equivalents |
( |
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| Cash and cash equivalents at beginning of period |
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| Cash and cash equivalents at end of period |
$ | $ | ||||||
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The accompanying notes are an integral part of these Consolidated Financial Statements.
6
Mednax, Inc.
Notes to Consolidated Financial Statements
March 31, 2021
(Unaudited)
1. |
Basis of Presentation and New Accounting Pronouncements: |
The accompanying unaudited Consolidated Financial Statements of the Company and the notes thereto presented in this Form
10-Q
have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) applicable to interim financial statements, and do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of interim periods. The financial statements include all the accounts of Mednax, Inc. and its consolidated subsidiaries (collectively, “MDX”) together with the accounts of MDX’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (the “affiliated professional contractors”). Certain subsidiaries of MDX have contractual management arrangements with its affiliated professional contractors, which are separate legal entities that provide physician services in certain states and Puerto Rico. The terms “Mednax” and the “Company” refer collectively to Mednax Inc., its subsidiaries and the affiliated professional contractors. The Company is a party to a joint venture in which it owns a 37.5 % economic interest. The Company accounts for this joint venture under the equity method of accounting because the Company exercises significant influence over, but does not control, this entity. The Company is also a party to a joint venture in which it owns a 51 % economic interest and for which it is deemed the primary beneficiary. The equity interest of the outside investor in the equity of this consolidated entity is accounted for and presented as noncontrolling interest on the Company’s Consolidated Balance Sheets. The results from operations attributable to the noncontrolling interest are presented separately on the Company’s Consolidated Statements of Income.
The Company divested its anesthesiology services and radiology services medical groups in May 2020 and December 2020, respectively. The operating results of these medical groups are reported as discontinued operations in the Company’s Consolidated Statements of Income for the three months ended March 31, 2020.
The consolidated results of operations for the interim periods presented are not necessarily indicative of the results to be experienced for the entire fiscal year. In addition, the accompanying unaudited Consolidated Financial Statements and the notes thereto should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company’s most recent Annual Report on Form
10-K
(the “Form 10-K”).
New Accounting Pronouncements
In December 2019, accounting guidance related to income taxes was issued with the goal of enhancing and simplifying various aspects of the income tax accounting guidance, including requirements related to hybrid tax regimes, deferred taxes on loss limitations. The guidance became effective for us on January 1, 2021. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.
step-up
in tax basis of goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, deferred tax liabilities on outside basis differences, and interim-period accounting for enacted changes in tax law and certain year-to-date
2. |
Coronavirus Pandemic (“COVID-19”): |
COVID-19
has had a continued impact on the demand for medical services provided by the Company’s affiliated clinicians. Beginning in mid-March
2020, the Company’s affiliated office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, experienced a significant elevation of appointment cancellations compared to historical normal levels. The Company believes COVID-19,
either directly or indirectly, has also had an impact on its neonatology intensive care unit (“NICU”) patient volumes, and there is no assurance that impacts from COVID-19
will not further adversely affect its NICU patient volumes or otherwise adversely affect its NICU and related neonatology business. Further, in late 2020, the Company saw a shift in the mix of patients reimbursed under government-sponsored healthcare programs, but that shift reversed during the three months ended March 31, 2021. Overall, the Company’s operating results were significantly impacted by COVID-19
beginning in mid-March
2020, but volumes began to normalize in mid-2020
and substantially recovered throughout 2020 and early 2021. During 2020, the Company implemented a number of ac50 % reductions in salaries for its named executive officers during the second quarter of 2020; (ii) the Board of Directors agreed to forego their annual cash retainer and cash meeting payments, also during the second quarter of 2020; (iii) the Company enacted a combination of salary reductions and furloughs for
t
ions to preserve financial flexibility and partially mitigate the significant anticipated impact of COVID-19.
These steps included a suspension of most activities related to the Company’s transformational and restructuring programs, limiting these expenditures to those that provide essential support for the Company’s response to COVID-19.
In addition, (i) the Company temporarily reduced executive and key management base salaries, including non-clinical
employees; (iv) the Company enacted significant operational and practice-specific expense reduction plans across its clinical operations; and (v) amended and restated its Credit Agreement.
7
Due to the continued uncertainties surrounding the timeline of and impacts from
COVID-19,
the Company is unable to predict the ultimate impact on its business, financial condition, results of operations and cash flows. The Company, however, believes it will be able to generate sufficient liquidity to satisfy its obligations for the next twelve months. CARES Act
In March 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act is a relief package intended to assist many aspects of the American economy, including providing up to $100 billion in aid to the healthcare industry to reimburse healthcare providers for lost revenue and expenses attributable to 70 billion in aid is intended to focus on providers in areas particularly impacted by 22.0 million during the year ended December 31, 2020 and $7.7
COVID-19.
The remaining $COVID-19,
rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans. It is unknown what, if any, portion of the remaining healthcare industry funding of
the CARES Act the Company and its affiliated physician practices will qualify for and receive. The Department of Health and Human Services (“HHS”) is administering this program and began disbursing funds in April 2020, of which the Company’s affiliated physician practices within continuing operations received an aggregate of $million during the three months ended March 31, 2021. The Company has applications pending for certain affiliated physician practices for incremental relief beyond what has been received.
In addition, the CARES Act also provided for deferred payment of the employer portion of social security taxes through the end of 2020, and while the Company utilized this deferral option throughout 2020, it expects to pay the deferred amounts during the second quarter of 2021.
Under current tax law, net operating losses can be carried forward indefinitely. The CARES Act enacted rules allowing net operating losses arising in 2020 to be carried back five taxab35 % corporate tax rate.
l
e years. The Company currently expects to generate a net operating loss for the 2020 tax year which it intends to carry back to the 2015 tax year under these provisions to obtain a refund of income tax at the prior 3. |
Cash Equivalents and Investments: |
As of March 31, 2021 and December 31, 2020, the Company’s cash equivalents consisted entirely of money market funds totaling $1.3 million and $1.0 million, respectively. Investments consisted of corporate securities, municipal debt securities, federal home loan securities and certificates of deposit. All investments are classified as current.
Investments held at March 31, 2021 and December 31, 2020 are summarized as follows (in thousands):
March 31, 2021 |
December 31, 2020 |
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Corporate securities |
$ | $ | ||||||
Municipal debt securities |
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Federal home loan securities |
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Certificates of deposit |
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U.S. Treasury securities |
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| $ | $ | |||||||
4. |
Fair Value Measurements: |
The accounting guidance establishes a fair value hierarchy that prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels:
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
8
The following table presents information about the Company’s financial instruments that are accounted for at fair value on a recurring basis at March 31, 2021 and December 31, 2020 (in thousands):
Fair Value |
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Fair Value Category |
March 31, 2021 |
December 31, 2020 |
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Assets: |
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Money market funds |
Level 1 | $ | $ | |||||||||
Short-term investments |
Level 2 | |||||||||||
Mutual funds |
Level 1 | |||||||||||
The following table presents information about the Company’s financial instruments that are not carried at fair value at March 31, 2021 and December 31, 2020 (in thousands):
March 31, 2021 |
December 31, 2020 |
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Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value |
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Liabilities: |
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2023 Notes |
— | — | ||||||||||||||
2027 Notes |
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The Company redeemed the full principal balance of its 5.25 %
senior unsecured notes due 2023 (the “2023 Notes”) in January 2021.The carrying amounts of cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value due to the short maturities of the respective instruments
.
5. |
Accounts Receivable and Net Revenue: |
Accounts receivable, net consists of the following (in thousands):
March 31, 2021 |
December 31, 2020 |
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Gross accounts receivable |
$ | $ | ||||||
Allowance for contractual adjustments and uncollectibles |
( |
) | ( |
) | ||||
| $ | $ | |||||||
Patient service revenue is recognized at the time services are provided by the Company’s affiliated physicians. The Company’s performance obligations related to the delivery of services to patients are satisfied at the time of service. Accordingly, there are no performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period with respect to patient service revenue. Almost all of the Company’s patient service revenue is reimbursed by government-sponsored healthcare programs (“GHC Programs”) and third-party insurance payors. Payments for services rendered to the Company’s patients are generally less than billed charges. The Company monitors its revenue and receivables from these sources and records an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.
Accordingly, patient service revenue is presented net of an estimated provision for contractual adjustments and uncollectibles. The Company estimates allowances for contractual adjustments and uncollectibles on accounts receivable based upon historical experience and other factors, including days sales outstanding (“DSO”) for accounts receivable, evaluation of expected adjustments and delinquency rates, past adjustments and collection experience in relation to amounts billed, an aging of accounts receivable, current contract and reimbursement terms, changes in payor mix and other relevant information. Contractual adjustments result from the difference between the physician rates for services performed and the reimbursements by GHC Programs and third-party insurance payors for such services.
Collection of patient service revenue the Company expects to receive is normally a function of providing complete and correct billing information to the GHC Programs and third-party insurance payors within the various filing deadlines and typically occurs within 30 to 60 days of billing.
Some of the Company’s hospital agreements require hospitals to pay the Company administrative fees. Some agreements provide for fees if the hospital does not generate sufficient patient volume in order to guarantee that the Company receives a specified minimum revenue level. The Company also receives fees from hospitals for administrative services performed by its affiliated physicians providing medical director or other services at the hospital.
9
The following table summarizes the Company’s net revenue by category (in thousands):
Three Months Ended March 31, |
||||||||
2021 |
2020 |
|||||||
Net patient service revenue |
$ | $ | ||||||
Hospital contract administrative fees |
||||||||
Other revenue |
||||||||
| $ | |
$ | |
|||||
The approximate percentage of net patient service revenue by type of payor was as follows:
Three Months Ended March 31, |
||||||||
2021 |
2020 |
|||||||
Contracted managed care |
% | % | ||||||
Government |
||||||||
Other third-parties |
||||||||
Private-pay patients |
||||||||
| % | % | |||||||
6. |
Business Combinations and Discontinued Operations: |
Business Combinations
During the three months ended March 31, 2021, the Company completed the acquisition of one pediatric orthopedic practice and one multi-location pediatric urgent care practice for total cash consideration of $6.0 million. These acquisitions expanded the Company’s national network of physician practices across women’s and children’s services. In connection with these acquisitions, the Company recorded tax deductible goodwill of $5.0 million, other intangible assets consisting primarily of physician and hospital agreements of $0.9 million and fixed assets of $0.1 million.
Discontinued Operations – Anesthesiology Services Medical Group
The Company divested its anesthesiology services medical group in May 2020. During the three months ended March 31, 2021, the Company recorded a net decrease to the loss on sale of $12.3 million,
primarily related to an adjustment to the sales proceeds and book values of net assets sold resulting from a mutual agreement between the buyer and seller reached during the three months ended March 31, 2021 to treat a portion of the divestiture as an asset sale for tax purposes and the disposal of the single anesthesia practice that remained after the divestiture of the anesthesiology medical group in May 2020. The net decrease to the loss on sale is reflected as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the three months ended March 31, 2021. A valuation for the contingent economic consideration component of the transaction is expected to be completed during the three months ended June 30, 2021 and may result in an incremental change to the loss on sale. The operating results of the anesthesiology services medical group were reported as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the three months ended March 31, 2020.The Company’s continuing operations financial statements for the three months ended March 31, 2021 reflect the Company’s best estimate of the income tax effects associated with the asset sale change. These estimates include an increase in income tax receivable of $18 million, of which $7 million is related to loss carryback provisions enacted under the CARES Act, an increase in deferred tax assets of $13 million and a reduction to capital loss carryforwards and offsetting valuation allowance of $65 million. The Company will adjust these income tax effects as necessary during subsequent periods in 2021 as additional information becomes available.
Discontinued Operations – Radiology Services Medical Group
The Company divested its radiology services medical group in December 2020. During the three months ended March 31, 2021, the Company recorded nominal changes to the loss on sale, primarily for the finalization of certain transaction related expenses. A final working capital true up is pending and is expected to be completed during the three months ended June 30, 2021 and may result in an incremental change to the loss on sale. The operating results of the radiology services medical group were reported as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the three months ended March 31, 2020.
10
7. |
Accounts Payable and Accrued Expenses: |
Accounts payable and accrued expenses consist of the following (in thousands):
March 31, 2021 |
December 31, 2020 |
|||||||
Accounts payable |
$ | $ | ||||||
Accrued salaries and incentive compensation |
||||||||
Accrued payroll taxes and benefits |
||||||||
Accrued professional liabilities |
||||||||
Accrued interest |
||||||||
Other accrued expenses |
||||||||
| $ | $ | |||||||
The net decrease in accrued salaries and incentive compensation of $108.0 million, from December 31, 2020 to March 31, 2021, is primarily due to the payment of performance-based incentive compensation, principally to the Company’s affiliated physicians, partially offset by performance-based incentive compensation accrued during the three months ended March 31, 2021. A majority of the Company’s payments for performance-based incentive compensation is paid annually during the first quarter.
8. |
Common an d Common Equivalent Shares: |
Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is calculated by dividing net income by the weighted average number of common and potential common shares outstanding during the period. Potential common shares consist of outstanding restricted stock, deferred stock and stock options and is calculated using the treasury stock method
.
The calculation of shares used in the basic and diluted net income per common share calculation for the three months ended March 31, 2021 and 2020 is as follows (in thousands):
Three Months Ended March 31, |
||||||||
2021 |
2020 |
|||||||
| Weighted average number of common shares outstanding |
||||||||
| Weighted average number of dilutive common share equivalents |
||||||||
| |
|
|
|
|||||
| Weighted average number of common and common equivalent shares outstanding (a) |
||||||||
| |
|
|
|
|||||
| Antidilutive securities not included in the diluted net income per common share calculation |
||||||||
| |
|
|
|
|||||
(a) |
Due to a loss from continuing operations for the three months ended March 31, 2020, no incremental shares are included because the effect would be antidilutive. |
9. |
Stock Incentive Plans and Stock Purchase Plans: |
The Company’s A
m
ended and Restated 2008 Incentive Compensation Plan (the “Amended and Restated 2008 Incentive Plan”) provides for grants of stock options, stock appreciation rights, restricted stock, deferred stock, and other stock-related awards and performance awards that may be settled in cash, stock or other property. Under the Amended and Restated 2008 Incentive Plan, options to purchase shares of common stock may be granted at a price not less than the fair market value of the shares on the date of grant. The options must be exercised within 10 years from the date of grant and generally become exercisable on a pro rata basis over a three-year period from the date of grant. The Company issues new shares of its common stock upon exercise of its stock options. Restricted stock awards generally vest over periods of three years upon the fulfillment of specified service-based conditions and in certain instances performance-based conditions. Deferred stock awards generally vest upon the satisfaction of specified performance-based conditions and service-based conditions. The Company recognizes compensation expense related to its restricted stock and deferred stock awards ratably over the corresponding vesting periods. During the three months ended March 31, 2021, the Company granted 659,786 shares of restricted stock to its employees under the Amended and Restated 2008 Incentive Plan. At March 31, 2021, the Company had 3.7 million shares available for future grants and awards under the Amended and Restated 2008 Incentive Plan.
Under the Company’s 1996 85 % of market value on January 1st, April 1st, July 1st and October 1st of each year. Under the Company’s 2015 90 % of market value on January 1st, April 1st, July 1st and October 1st of each year.
Non-Qualified
Employee Stock Purchase Plan, as amended (the “ESPP”), employees are permitted to purchase the Company’s common stock at Non-Qualified
Stock Purchase Plan (the “SPP”), certain eligible non-employee
service providers are permitted to purchase the Company’s common stock at Each of the ESPP and the SPP provide for the issuance of an aggregate of 2.6 million shares of the Company’s common stock less the
number of shares of common stock purchased under the other plan. The Company recognizes stock-based compensation expense for the discount received by participating employees and 51,000 shares were issued under the ESPP, and no shares were issued under the SPP.
non-employee
service providers. During the three months ended March 31, 2021, approximately At March 31, 2021, the Company had approximately 432,000 and 61,500 shares reserved for issuance under the ESPP and SPP, respectively.
During the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation expense of $3.7 million and $7.3 million, respectively.
11
10. |
Common Stock Repurchase Programs: |
In July 2013, t based on general economic and market conditions and trading restrictions. The repurchase program also allows for the repurchase of shares of the Company’s common stock to offset the dilutive impact from the issuance of shares, if any, related to the Company’s acquisition program. No shares were purchased under this program during the three months ended March 31, 2021.
h
e
Compa
ny’s Board of Directors authorized the repurchase of shares of the Company’s common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under the Company’s equity compensation programs. The share repurchase program allows the Company to make open market purchases from time-to-time
In August 2018, the Company announced that its Board of Directors had authorized the repurchase of up to $500.0 million of the Company’s common stock in addition to its existing share repurchase program, of which $98.7 million remained available for repurchase as of December 31, 2020. Under this share repurchase program, during the three months ended March 31, 2021, the Company withheld 81,625 shares of its common stock to satisfy minimum statutory withholding obligations of $2.0 million in connection with the vesting of restricted stock.
The Company intends to utilize various methods to effect any future share repurchases, including, among others, open market purchases and accelerated share repurchase programs. The amount and timing of repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.
11. |
Commitments and Contingencies: |
The Company expects that audits, inquiries and investigations from government authorities and agencies will occur in the ordinary course of business. Such audits, inquiries and investigations and their ultimate resolutions, individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and the trading price of its securities. The Company has not included an accrual for these matters as of March 31, 2021 in its Consolidated Financial Statements, as the variables affecting any potential eventual liability depend on the currently unknown facts and circumstances that arise out of, and are specific to, any particular future audit, inquiry and investigation and cannot be reasonably estimated at this time.
In the ordinary course of business, the Company becomes involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by the Company’s affiliated physicians. The Company’s contracts with hospitals generally require the Company to indemnify them and their affiliates for losses resulting from the negligence of the Company’s affiliated physicians. The Company may also become subject to other lawsuits which could involve large claims and significant costs. The Company believes, based upon a review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on its business, financial condition, results of operations, cash flows and the trading price of its securities. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and the trading price of its securities.
Although the Company currently maintains liability insurance coverage intended to cover professional liability and certain other claims, the Company cannot assure that its insurance coverage will be adequate to cover liabilities arising out of claims asserted against it in the future where the outcomes of such claims are unfavorable. With respect to professional liability risk, the Company generally self-insures a portion of this risk through its wholly owned captive insurance subsidiary. Liabilities in excess of the Company’s insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and the trading price of its securities.
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion highlights the principal factors that have affected our financial condition and results of operations, as well as our liquidity and capital resources, for the periods described. This discussion should be read in conjunction with the unaudited Consolidated Financial Statements and the notes thereto included in this Quarterly Report. In addition, reference is made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2020, filed with the Securities and Exchange Commission on February 18, 2021 (the “2020 Form 10-K”).
As used in this Quarterly Report, the terms “Mednax”, the “Company”, “we”, “us” and “our” refer to the parent company, Mednax, Inc., a Florida corporation, and the consolidated subsidiaries through which its businesses are actually conducted (collectively, “MDX”), together with MDX’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (“affiliated professional contractors”). Certain subsidiaries of MDX have contracts with our affiliated professional contractors, which are separate legal entities that provide physician services in certain states and Puerto Rico. The following discussion contains forward-looking statements. Please see the Company’s 2020 Form 10-K,
including Item 1A, Risk Factors, for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. In addition, please see “Caution Concerning Forward-Looking Statements” below. Overview
Mednax is a leading provider of physician services including newborn, maternal-fetal, pediatric cardiology and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in 39 states and Puerto Rico. Our affiliated physicians provide neonatal clinical care, primarily within hospital-based neonatal intensive care units (“NICUs”), to babies born prematurely or with medical complications; and maternal-fetal and obstetrical medical care to expectant mothers experiencing complicated pregnancies primarily in areas where our affiliated neonatal physicians practice. Our network also includes other pediatric subspecialists, including those who provide pediatric intensive care, pediatric cardiology care, hospital-based pediatric care, pediatric surgical care, pediatric ear, nose and throat, pediatric ophthalmology, pediatric urology services and pediatric urgent care.
Coronavirus Pandemic
(COVID-19)
COVID-19
has had a continued impact on the demand for medical services provided by our affiliated clinicians. Beginning in mid-March
2020, our affiliated office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, experienced a significant elevation of appointment cancellations compared to historical normal levels. We believe COVID-19,
either directly or indirectly, also had an impact on our NICU patient volumes, and there is no assurance that impacts from COVID-19
will not further adversely affect our NICU patient volumes or otherwise adversely affect our NICU and related neonatology business. Further, in late 2020, we saw a shift in the mix of patients reimbursed under government-sponsored healthcare programs, but that shift reversed during the three months ended March 31, 2021. Overall, our operating results were significantly impacted by COVID-19
beginning in mid-March
2020, but volumes began to normalize in mid-2020
and substantially recovered throughout 2020 and early 2021. During 2020, we implemented a number of actions to preserve financial flexibility and partially mitigate the significant anticipated impact of
COVID-19.
These steps included a suspension of most activities related to our transformational and restructuring programs, limiting these expenditures to those that provide essential support for our response to COVID-19.
In addition, (i) we temporarily reduced executive and key management base salaries, including 50% reductions in salaries for our named executive officers during the second quarter of 2020; (ii) the board of directors agreed to forego their annual cash retainer and cash meeting payments, also during the second quarter of 2020; (iii) we enacted a combination of salary reductions and furloughs for non-clinical
employees; (iv) we enacted significant operational and practice-specific expense reduction plans across its clinical operations; and (v) amended and restated our credit agreement. Due to the continued uncertainties surrounding the timeline of and impacts from
COVID-19,
we are unable to predict the ultimate impact on our business, financial condition, results of operations, cash flows and the trading price of our securities at this time. CARES Act
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act is a relief package intended to assist many aspects of the American economy, including providing up to $100 billion in aid to the healthcare industry to reimburse healthcare providers for lost revenue and expenses attributable to
COVID-19.
The remaining $70 billion in aid is intended to focus on providers in areas particularly impacted by COVID-19,
rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans. It is unknown what, if any, portion of the remaining healthcare industry funding on the CARES Act our affiliated physician practices will qualify for and receive. The Department of Health and Human Services (“HHS”) is administering this program, and our affiliated physician practices within continuing operations received an aggregate of $22.0 million in relief payments during the year ended December 31, 2020 and $7.7 million during the three months ended March 31, 2021. We have applications pending for certain affiliated physician practices for incremental relief beyond what has been received. In addition, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, and we utilized this deferral option throughout 2020. We expect to make these payments during the second quarter of 2021.
Under current tax law, net operating losses can be carried forward indefinitely. The CARES Act enacted rules allowing net operating losses arising in 2020 to be carried back five taxable years. We currently expect to generate a net operating loss for the 2020 tax year which we intend to carry back to the 2015 tax year under these provisions to obtain a refund of income tax at the prior 35% corporate tax rate.
13
General Economic Conditions and Other Factors
Our operations and performance depend significantly on economic conditions. Economic conditions in the United States (“U.S.”) have deteriorated, primarily as a result of
COVID-19,
and patient volumes have been impacted. During the three months ended March 31, 2021, the percentage of our patient service revenue being reimbursed under government-sponsored healthcare programs (“GHC Programs”) decreased as compared to the three months ended March 31, 2020. We could, however, experience shifts toward GHC Programs if changes occur in economic behaviors or population demographics within geographic locations in which we provide services, including an increase in unemployment and underemployment as well as losses of commercial health insurance. For example, during the three months ended December 31, 2020, we experienced significant shifts to GHC programs. Payments received from GHC Programs are substantially less for equivalent services than payments received from commercial insurance payors. In addition, due to the rising costs of managed care premiums and patient responsibility amounts, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services. Healthcare Reform
The Patient Protection and Affordable Care Act (the “ACA”) contains a number of provisions that have affected us and, absent amendment or repeal, may continue to affect us over the next several years. These provisions include the establishment of health insurance exchanges to facilitate the purchase of qualified health plans, expanded Medicaid eligibility, subsidized insurance premiums and additional requirements and incentives for businesses to provide healthcare benefits. Other provisions have expanded the scope and reach of the Federal Civil False Claims Act and other healthcare fraud and abuse laws. Moreover, we could be affected by potential changes to various aspects of the ACA, including changes to subsidies, healthcare insurance marketplaces and Medicaid expansion.
Despite the ACA going into effect over a decade ago, continuous legal and Congressional challenges to the law’s provisions and persisting uncertainty with respect to the scope and effect of certain provisions have made compliance costly. In 2017, Congress unsuccessfully sought to replace substantial parts of the ACA with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets. Congress may again attempt to enact substantial or target changes to the ACA in the future. Additionally, Centers for Medicare & Medicaid Services (“CMS”) has administratively revised a number of provisions and may seek to advance additional significant changes through regulation, guidance and enforcement in the future.
At the end of 2017, Congress repealed the part of the ACA that required most individuals to purchase and maintain health insurance or face a tax penalty, known as the individual mandate. In light of these changes, in December 2018, a federal district court in Texas declared that key portions of the ACA were inconsistent with the U.S. Constitution and that the entire ACA is invalid as a result. Several states appealed this decision, and in December 2019, a federal court of appeals upheld the district court’s conclusion that part of the ACA is unconstitutional but remanded for further evaluation whether in light of this defect the entire ACA must be invalidated. Democratic attorneys general and the House appealed the Fifth Circuit’s decision to the Supreme Court. On March 2, 2020, the Supreme Court agreed to hear the case, styled , during the
California v. Texas
2020-21
term. Oral arguments took place on November 2, 2020 and while the Court has yet to issue its opinion, it is predicted that the Supreme Court will find that even if the individual mandate is struck down, that the rest of the ACA can continue. Nevertheless, we cannot say for certain what the Supreme Court’s decision will be or what impact, if any, it may have on our business. Changes resulting from these proceedings could have a material impact on our business. In the meantime, it also is possible that as a result of these actions, enrollment in healthcare exchanges could decline. In late 2020 and early 2021, the results of the federal and state elections have changed which persons and parties occupy the Office of the President of the United States and the U.S. Senate and many states’ governors and legislatures. The new Administration may propose sweeping changes to the U.S. healthcare system, including expanding government-funded health insurance options and replacing current healthcare financing mechanisms with systems that would be entirely administered by the federal government. Any legislative or administrative change to the current healthcare financing system could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.
In addition to the potential impacts to the ACA, there could be changes to other GHC Programs, such as a change to the structure of Medicaid. Congress and the Administration have sought to convert Medicaid into a block grant or to institute per capita spending caps, among other things. These changes, if implemented, could eliminate the guarantee that everyone who is eligible and applies for benefits would receive them and could potentially give states new authority to restrict eligibility, cut benefits and make it more difficult for people to enroll. Additionally, several states are considering and pursuing changes to their Medicaid programs, such as requiring recipients to engage in employment or education activities as a condition of eligibility for most adults, disenrolling recipients for failure to pay a premium, or adjusting premium amounts based on income. Many states have recently shifted a majority or all of their Medicaid program beneficiaries into Managed Medicaid Plans. Managed Medicaid Plans have some flexibility to set rates for providers, but many states require minimum provider rates in their contracts with such plans. In July of each year, CMS releases the annual Medicaid Managed Care Rate Development Guide which provides federal baseline rules for setting reimbursement rates in managed care plans. We could be affected by lower reimbursement rates in some of all of the Managed Medicaid Plans with which we participate. We could also be materially impacted if we are dropped from the provider network in one or more of the Managed Medicaid Plans with which we currently participate. In Florida, more than 75% of the Medicaid population participates in a Managed Medicaid Plan, with even higher participation rates for children.
We cannot predict with any assurance the ultimate effect of these laws and resulting changes to payments under GHC Programs, nor can we provide any assurance that they will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Further, any fiscal tightening impacting GHC Programs or changes to the structure of any GHC Programs could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.
14
The Medicare Access and CHIP Reauthorization Act
The Medicare Access and CHIP Reauthorization Act (“MACRA”) requires Medicare providers to choose to participate in one of two payment formulas, Merit-Based Incentive Payment System (“MIPS”) or Alternative Payment Models (“APMs”). Beginning in 2020, MIPS allowed eligible physicians to receive incentive payments based on the achievement of certain quality and cost metrics, among other measures, and be reduced for those who are underperforming against those same metrics and measures. As an alternative, physicians can choose to participate in an advanced APM, and physicians who are meaningful participants in APMs will receive bonus payments from Medicare pursuant to the law. MACRA also remains subject to review and potential modification by Congress, as well as shifting regulatory requirements established by CMS. We currently anticipate that our affiliated physicians who are eligible to participate in the MIPS program will continue to be eligible to receive MIPS bonus payments, although the amounts of such bonus payments are not expected to be material. We will continue to operationalize the provisions of MACRA and assess any further changes to the law or additional regulations enacted pursuant to the law.
We cannot predict the ultimate effect that these changes will have on us, nor can we provide any assurance that its provisions will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
Medicaid Expansion
The ACA also allows states to expand their Medicaid programs through federal payments that fund most of the cost of increasing the Medicaid eligibility income limit from a state’s historic eligibility levels to 133% of the federal poverty level. To date, 38 states and the District of Columbia have expanded Medicaid eligibility to cover this additional
low-income
patient population, and other states are considering expansion. All of the states in which we operate, however, already cover children in the first year of life and pregnant women if their household income is at or below 133% of the federal poverty level. “Surprise” Billing Legislation
In late 2020, Congress enacted legislation intended to protect patients from “surprise” medical bills when services are furnished by providers who are not subject to contractual arrangements and payment limitations with the patient’s insurer. Effective January 1, 2022, patients will be protected from unexpected or “surprise” medical bills that could arise from emergency care provided at an facility or at providers and nonemergency care provided at
out-of-network
out-of-network
in-network
facilities by out-of-network
out-of-network
in-network
facilities without the patient’s informed consent. Many states have passed similar legislation, but the federal government has been working to enact a ban on surprise billing for quite some time. Under the “No Surprises Act,” patients are only required to pay the cost-sharing limits. Providers will generally not be permitted to balance bill patients beyond this cost-sharing amount. An provider will only be permitted to bill a patient more than the
in-network
cost-sharing amount, which will be determined through an established formula and will count toward the patient’s health plan deductible and out-of-pocket
out-of-network
in-network
cost-sharing amount for care if the provider gives the patient notice of the provider’s network status and delivers to the patient or their health plan an estimate of charges within certain specified timeframes, and obtains the patient’s written consent prior to the delivery of care. Providers that violate these surprise billing prohibitions may be subject to state enforcement action or federal civil monetary penalties. These measures could limit the amount we can charge and recover for services we furnish where we have not contracted with the patient’s insurer, and therefore could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Moreover, these measures could affect our ability to contract with certain payors and under historically similar terms and may cause, and the prospect of these changes may have caused, payors to terminate their contracts with us and our affiliated practices, further affecting our business, financial condition, results of operations, cash flows and the trading price of our securities. Should any relationships with payors continue on an basis, the No Surprises Act requires that rate disputes be resolved through binding arbitration, in which both the payor and provider submit a requested rate and the arbitrator selects one submission without hearing or modification of the selected request. These unpredictable results will bind both the provider and payor for a
out-of-network
90-day
period. Non-GAAP
Measures In our analysis of our results of operations, we use certain
non-GAAP
financial measures. We report adjusted earnings before interest, taxes and depreciation and amortization from continuing operations, which is defined as income (loss) from continuing operations before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses. We also report adjusted earnings per share (“Adjusted EPS”) from continuing operations which consists of diluted income (loss) from continuing operations per common and common equivalent share adjusted for amortization expense, stock-based compensation expense, transformational and restructuring related expenses and any impacts from discrete tax events. For the three months ended March 31, 2021, both Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude the impacts from the loss on the early extinguishment of debt during the quarter. We believe these measures, in addition to income (loss) from continuing operations, net income (loss) and diluted net income (loss) from continuing operations per common and common equivalent share, provide investors with useful supplemental information to compare and understand our underlying business trends and performance across reporting periods on a consistent basis. These measures should be considered a supplement to, and not a substitute for, financial performance measures determined in accordance with GAAP. In addition, since these
non-GAAP
measures are not determined in accordance with GAAP, they are susceptible to varying calculations and may not be comparable to other similarly titled measures of other companies. For a reconciliation of each 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, 2021 and 2020, refer to the tables below (in thousands, except per share data).
15
Three Months Ended March 31, |
||||||||
2021 |
2020 |
|||||||
| Income (loss) from continuing operations attributable to Mednax, Inc. |
$ | 5,352 | $ | (18,499 | ) | |||
| Interest expense |
17,645 | 27,665 | ||||||
| Loss on early extinguishment of debt |
14,532 | — | ||||||
| Income tax (benefit) provision |
(4,955 | ) | 1,085 | |||||
| Depreciation and amortization expense |
8,031 | 6,803 | ||||||
| Transformational and restructuring related expenses |
4,878 | 16,076 | ||||||
| |
|
|
|
|||||
| Adjusted EBITDA from continuing operations attributable to Mednax, Inc. |
$ | 45,483 | $ | 33,130 | ||||
| |
|
|
|
|||||
Three Months Ended March 31, |
||||||||||||||||
2021 |
2020 |
|||||||||||||||
| Weighted average diluted shares outstanding |
85,491 | 82,799 | ||||||||||||||
| Income (loss) from continuing operations and diluted income from continuing operations per share attributable to Mednax, Inc. |
$ | 5,352 | $ | 0.06 | $ | (18,499 | ) | $ | (0.22 | ) | ||||||
| Adjustments (1) : |
||||||||||||||||
| Amortization (net of tax of $890 and $512) |
2,672 | 0.03 | 1,535 | 0.02 | ||||||||||||
| Stock-based compensation (net of tax of $929 and $1,813) |
2,788 | 0.03 | 5,442 | 0.07 | ||||||||||||
| Transformational and restructuring expenses (net of tax of $1,219 and $4,019) |
3,659 | 0.04 | 12,057 | 0.15 | ||||||||||||
| Loss on early extinguishment of debt (net of tax of $3,633) |
10,899 | 0.13 | — | — | ||||||||||||
| Net impact from discrete tax events |
(5,067 | ) | (0.05 | ) | 4,834 | 0.04 | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Adjusted income and diluted EPS from continuing operations attributable to Mednax, Inc. |
$ | 20,303 | $ | 0.24 | $ | 5,369 | $ | 0.06 | ||||||||
| |
|
|
|
|
|
|
|
|||||||||
(1) |
A blended statutory rate of 25.0% was used to calculate the tax effects of the adjustments for the three months ended March 31, 2021 and 2020. |
Results of Operations
Three Months Ended March 31, 2021 as Compared to Three Months Ended March 31, 2020
Our net revenue attributable to continuing operations was $446.8 million for the three months ended March 31, 2021, as compared to $441.2 million for the same period in 2020. The increase in revenue of $5.6 million, or 1.3%, was primarily attributable to an increase in same-unit revenue, partially offset by decreases in revenue from net acquisitions. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue increased by $10.9 million, or 2.5%. The increase in same-unit net revenue was comprised of an increase of $21.5 million, or 5.0%, from net reimbursement-related factors, partially offset by a net decrease of $10.6 million, or 2.5%, related to patient service volumes. The decrease in revenue from patient service volumes was primarily related to a decline in our hospital-based women’s and children’s services, partially offset by increases in our office-based services. The net increase in revenue related to net reimbursement-related factors was primarily due to $7.7 million in CARES Act relief, increases in administrative fees from our hospital partners and an increase in revenue resulting from a decrease in the percentage of our patients being enrolled in GHC Programs. Excluding the additional calendar day in February 2020 for the 2020 leap year, the increase in same-unit net patient service revenue was 3.6% for the three months ended March 31, 2021, and the decline in same-unit volume growth adjusted to 1.4%. Net reimbursement-related growth was unaffected by the additional day in 2020.
Practice salaries and benefits attributable to continuing operations increased $2.7 million, or 0.9%, to $319.0 million for the three months ended March 31, 2021, as compared to $316.3 million for the same period in 2020. Of the $2.7 million increase, $1.6 million was related to benefits and incentive compensation, with the increase to incentive compensation driven by improved results, partially offset by a decrease in malpractice expense, and $1.1 million was related to salaries which primarily reflected increases in clinician compensation expense.
Practice supplies and other operating expenses attributable to continuing operations decreased $1.6 million, or 6.8%, to $22.2 million for the three months ended March 31, 2021, as compared to $23.8 million for the same period in 2020. The decrease was primarily attributable to net decreases in other practice operating expenses, such as office expenses and travel as well as lower expenses related to net acquisitions, as compared to the prior year.
General and administrative expenses attributable to continuing operations primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically related to the operations of our affiliated physician practices and services. General and administrative expenses were $66.5 million for the three months ended March 31, 2021, as compared to $67.4 million for the same period in 2020. The net decrease of $0.9 million is primarily related to decreases in compensation expense from net staffing reductions primarily resulting from cost mitigation initiatives, partially offset by increases in computer expenses and other professional services. General and administrative expenses as a percentage of net revenue was 14.9% for the three months ended March 31, 2021, as
day-to-day
16
compared to 15.3% for the same period in 2020. Certain general and administrative expenses related to corporate overhead represent various support services provided across the company, including approximately $5 million in costs related to support for the buyers of the anesthesiology services medical group and the radiology services medical group through transition services agreements. Therefore, general and administrative expenses do not reflect potential general and administrative cost savings that may be achieved in future periods.
Transformational and restructuring related expenses attributable to continuing operations were $4.9 million for the three months ended March 31, 2021, as compared to $16.1 million for the same period in 2020. The decrease of $11.2 million reflects the reduction in the scope of activities limiting them to initiatives critical to our business operations with the expenses during the first quarter of 2021 primarily for external consulting costs for various process improvement and restructuring initiatives.
Depreciation and amortization expense attributable to continuing operations was $8.0 million for the three months ended March 31, 2021, as compared to $6.8 million for the same period in 2020. The increase of $1.2 million was primarily related to an increase in amortization expense related to the acceleration of amortization resulting from the cessation of a contract.
Income from operations attributable to continuing operations increased $15.3 million, or 141.6%, to $26.1 million for the three months ended March 31, 2021, as compared to $10.8 million for the same period in 2020. Our operating margin was 5.8% for the three months ended March 31, 2021, as compared to 2.4% for the same period in 2020. The increase in our operating margin was primarily due to higher revenue growth, decreases in transformation and restructuring related expenses, and net decreases in overall operating expenses. Excluding the transformation and restructuring related expenses, our income from operations attributable to continuing operations was $31.0 million and $26.9 million, and our operating margin was 6.9% and 6.1% for the three months ended March 31, 2021 and 2020, respectively. We believe excluding the impacts from the transformational and restructuring related activity provides a more comparable view of our operating income and operating margin from continuing operations.
Total
non-operating
expenses attributable to continuing operations were $25.7 million for the three months ended March 31, 2021, as compared to $28.2 million for the same period in 2020. The net decrease in non-operating
expenses was primarily related to the decrease in interest expense resulting from the redemption of our 5.25% senior unsecured notes due 2023 (the “2023 Notes”) in January 2021 and an increase in other income related to the transition services being provided to the buyers of our divested medical groups, partially offset by the loss on the early redemption of our 2023 Notes. The three months ended March 31, 2020 also included the unfavorable impact from the settlement of a litigation matter within investment and other expense. Our effective income tax rate attributable to continuing operations (“tax rate”) was not meaningful for the three months ended March 31, 2021 as compared to (6.2)% for the three months ended March 31, 2020. The first quarter 2021 tax rate was impacted primarily by a discrete tax benefit of $7.1 million related to a change in estimate for the 2020 net operating loss carryback as allowed under the CARES Act for refund at the 35% federal rate. Income taxes for the first quarter of 2020 were calculated by applying the actual effective rate to our
year-to-date
pre-tax
loss. After excluding discrete tax impacts, during the three months ended March 31, 2021 and 2020, our effective income tax rate was 28.2% and 21.5%, respectively. The difference is primarily attributable to the pre-tax
loss generated during the three months ended March 31, 2020. We believe excluding discrete tax impacts provides a more comparable view of our tax rate.Income from continuing operations attributable to Mednax, Inc. was $5.4 million for the three months ended March 31, 2021, as compared to a loss of $18.5 million for the same period in 2020. Adjusted EBITDA from continuing operations attributable to Mednax, Inc. was $45.5 million for the three months ended March 31, 2021, as compared to $33.1 million for the same period in 2020.
Diluted earnings from continuing operations per common and common equivalent share attributable to Mednax, Inc. was $0.06 on weighted average shares outstanding of 85.5 million for the three months ended March 31, 2021, as compared to diluted loss of $0.22 on weighted average shares outstanding of 82.8 million for the same period in 2020. Adjusted EPS from continuing operations was $0.24 for the three months ended March 31, 2021, as compared to $0.06 for the same period in 2020. The increase of 2.7 million in our weighted average shares outstanding is primarily due to the impact of shares issued in 2020 and early 2021 through various equity programs.
Income from discontinued operations, net of tax, was $12.3 million for the three months ended March 31, 2021, as compared to a loss of $0.2 million for the same period in 2020. Diluted income from discontinued operations per common and common equivalent share was $0.15 for the three months ended March 31, 2021 and was negligible for the three months ended March 31, 2020.
Net income attributable to Mednax, Inc. was $17.6 million for the three months ended March 31, 2021, as compared to a loss of $18.7 million for the same period in 2020. Diluted net income per common and common equivalent share attributable to Mednax, Inc. was $0.21 for the three months ended March 31, 2021, as compared to a diluted loss per share of $0.22 for the same period in 2020.
Liquidity and Capital Resources
As of March 31, 2021, we had $269.6 million of cash and cash equivalents attributable to continuing operations as compared to $1.12 billion at December 31, 2020. Additionally, we had working capital attributable to continuing operations of $338.4 million at March 31, 2021, a decrease of $766.6 million from working capital of $1.11 billion at December 31, 2020. The net decrease in working capital is primarily due to the redemption of the 2023 Notes during the three months ended March 31, 2021.
17
Cash Flows from Continuing Operations
Cash (used in) provided by operating, investing and financing activities from continuing operations is summarized as follows (in thousands):
Three Months Ended March 31, |
||||||||
2021 |
2020 |
|||||||
| Operating activities |
$ | (98,926 | ) | $ | (153,045 | ) | ||
| Investing activities |
(12,714 | ) | (21,059 | ) | ||||
| Financing activities |
(761,661 | ) | 367,290 | |||||
Operating Activities from Continuing Operations
During the three months ended March 31, 2021, our net cash used in operating activities for continuing operations was $98.9 million, compared to $153.0 million for the same period in 2020. The net decrease in cash used of $54.1 million was primarily due to increase in cash flow from higher earnings, changes in prepaid expenses and other assets and changes in accounts payable and accrued expenses, primarily incentive compensation payments, partially offset by decreases in cash flow from deferred income taxes, other liabilities and accounts receivable.
During the three months ended March 31, 2021, cash flow from accounts receivable for continuing operations decreased by $11.6 million, as compared to an increase of $1.6 million for the same period in 2020. The decrease in cash flow from accounts receivable for the three months ended March 31, 2021 was primarily due to increases in ending accounts receivable balances at existing units due to higher revenue.
Days sales outstanding (“DSO”) is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Our DSO for continuing operations was 49.1 days at March 31, 2021 as compared to 52.3 days at December 31, 2020. The decrease in our DSO primarily related to the timing of cash collections at our existing units.
Investing Activities from Continuing Operations
During the three months ended March 31, 2021, our net cash used in investing activities for continuing operations of $12.7 million consisted of capital expenditures of $9.1 million and acquisitions payments of $6.0 million, partially offset by net proceeds from maturities or sale of investments of $2.3 million.
Financing Activities from Continuing Operations
During the three months ended March 31, 2021, our net cash used in financing activities for continuing operations of $761.7 million primarily consisted of $759.8 million related to the redemption of the 2023 Notes, including the call premium, and the repurchase of $2.0 million of our common stock.
Liquidity
On March 25, 2020, we amended and restated our Credit Agreement to, among other things, (i) establish a deemed Consolidated EBITDA of $139.2 million for the second and third quarters of 2020, reflecting average Adjusted EBITDA from continuing operations for the prior eight quarters (calculated for purposes of the Credit Agreement), which will be used in the calculation of rolling four consecutive quarter Consolidated EBITDA under the Credit Agreement, (ii) temporarily increase the maximum consolidated net leverage ratio required to be maintained by us from 4.50:1:00 to 5.00:1:00 for the second and third quarters of 2020 and 4.75:1:00 for the fourth quarter of 2020, before returning to 4.50:1:00 for the first quarter of 2021 and beyond, (iii) require that we maintain minimum availability under the Credit Agreement of $300.0 million through the third quarter of 2021, (iv) provide for a weekly repayment of borrowings under the Credit Agreement through the second quarter of 2021 using unrestricted cash on hand in excess of $300.0 million, plus a reserve for certain payables, and (v) temporarily restricted our ability to make restricted payments under the Credit Agreement for the remainder of 2020, subject to certain exceptions.
The Credit Agreement provides for a $1.2 billion unsecured revolving credit facility, subject to the limitations discussed above, and includes a $37.5 million
sub-facility
for the issuance of letters of credit. The Credit Agreement matures on March 28, 2024 and is guaranteed by substantially all of our subsidiaries and affiliated professional contractors. At our option, borrowings under the Credit Agreement will bear interest at (i) the alternate base rate (defined as the higher of (a) the prime rate, (b) the Federal Funds Rate plus 1/2 of 1.00% and (c) LIBOR for an interest period of one month plus 1.00%) plus an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated leverage ratio or (ii) the LIBOR rate plus an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated leverage ratio. The Credit Agreement also calls for other customary fees and charges, including an unused commitment fee ranging from 0.150% to 0.200% of the unused lending commitments, based on our consolidated leverage ratio. The Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest charge ratio, not to exceed a specified consolidated leverage ratio and to comply with laws, and restrictions on the ability to pay dividends and make certain other distributions, as specified therein. Failure to comply with these covenants would constitute an event of default under the Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Credit Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Credit Agreement. At March 31, 2021, we had no outstanding principal balance on our Credit Agreement. We had one outstanding letter of credit of $0.1 million which reduced the amount available on our Credit Agreement to $899.9 million at March 31, 2021, after giving effect to the temporary reduction of the capacity of our Credit Agreement described above through September 30, 2021.
18
During the three months ended March 31, 2021, we redeemed the outstanding principal balance of $750.0 million on the 2023 Notes. We recognized a loss on debt extinguishment of $14.5 million during the three months ended March 31, 2021, which primarily included cash premiums and accelerated amortization of deferred financing costs.
At March 31, 2021, we had an outstanding principal balance of $1.0 billion on our 6.25% senior unsecured notes due 2027 (the “2027 Notes”). Our obligations under the 2027 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee our Credit Agreement. Interest on the 2027 Notes accrues at the rate of 6.25% per annum, or $62.5 million, and is payable semi-annually in arrears on January 15 and July 15.
The indenture under which the 2027 Notes are issued, among other things, limits our ability to (1) incur liens and (2) enter into sale and lease-back transactions, and also limits our ability to merge or dispose of all or substantially all of our assets, in all cases, subject to a number of customary exceptions. Although we are not required to make mandatory redemption or sinking fund payments with respect to the 2027 Notes, upon the occurrence of a change in control of Mednax, we may be required to repurchase the 2027 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2027 Notes repurchased plus accrued and unpaid interest.
At March 31, 2021, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Credit Agreement and the 2027 Notes. We believe we will be in compliance with these covenants throughout 2021.
We maintain professional liability insurance policies with third-party insurers, subject to self-insured retention, exclusions and other restrictions. We self-insure our liabilities to pay self-insured retention amounts under our professional liability insurance coverage through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Our total liability related to professional liability risks at March 31, 2021 was $316.1 million, of which $48.9 million is classified as a current liability within accounts payable and accrued expenses in the Consolidated Balance Sheet. In addition, there is a corresponding insurance receivable of $60.8 million recorded as a component of other assets for certain professional liability claims that are covered by insurance policies.
We anticipate that funds generated from operations, together with our current cash on hand and funds available under our Credit Agreement, will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, fund expenses related to our transformational and restructuring activities, fund our share repurchase programs and meet our contractual obligations for at least the next 12 months from the date of issuance of this Quarterly Report on Form
10-Q.
Caution Concerning Forward-Looking Statements
Certain information included or incorporated by reference in this Quarterly Report may be deemed to be “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 (the “Exchange Act”). 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 are forward-looking statements. 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 our 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 Quarterly Report are made as of the date hereof, and we undertake 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 2020 Form
10-K,
including the section entitled “Risk Factors.” 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risk primarily from exposure to changes in interest rates based on our financing, investing and cash management activities. We intend to manage interest rate risk through the use of a combination of fixed rate and variable rate debt. We borrow under our Credit Agreement at various interest rate options based on the Alternate Base Rate or LIBOR rate depending on certain financial ratios. At March 31, 2021, we had no outstanding principal balance on our Credit Agreement.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules
13a-15(e)
and 15d-15(e)
under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021.
Changes in Internal Controls Over Financial Reporting
No changes in our internal control over financial reporting occurred during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
20
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We expect that audits, inquiries and investigations from government authorities and agencies will occur in the ordinary course of business. Such audits, inquiries and investigations and their ultimate resolutions, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
In the ordinary course of our business, we become involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by our affiliated physicians. Our contracts with hospitals generally require us to indemnify them and their affiliates for losses resulting from the negligence of our affiliated physicians and other clinicians. We may also become subject to other lawsuits, including with payors or other counterparties that could involve large claims and significant defense costs. We believe, based upon a review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
On March 20, 2019, a derivative action was filed by plaintiff Beverly Jackson on behalf of Mednax, Inc. against Mednax, Inc. and certain of its officers and directors in the Seventeenth Judicial Circuit in and for Broward County, Florida (Case Number The plaintiff purported to bring suit derivatively on behalf of our company against certain of our officers and directors for breach of fiduciary duties and unjust enrichment claiming alleged violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule
CACE-19-006253).
10b-5
thereunder, based on statements made by the defendants primarily concerning our former anesthesiology business. The complaint seeks unspecified damages, interest, attorneys’ fees and other costs. We filed a motion to dismiss in December 2019, and on March 16, 2020, an order granting our motion to dismiss without prejudice was issued. On April 6, 2020, the plaintiff filed an amended complaint, and on April 30, 2020, we filed a motion to dismiss the amended complaint. On September 24, 2020, our motion to dismiss was granted, but the plaintiff was granted 20 days to amend their complaint, and on October 14, 2020, the plaintiff filed a second amended complaint. We filed our motion to dismiss the second amended complaint on October 26, 2020. On December 18, 2020 an Order was entered summarily denying our motion to dismiss the second amended complaint, and our answer to the second amended complaint was filed on May 3, 2021. Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot ensure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where the outcomes of such claims are unfavorable to us. With respect to professional liability risk, we self-insure a significant portion of this risk through our wholly owned captive insurance subsidiary. Liabilities in excess of our insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
Item 1A. Risk Factors
There have been no material changes to the risk factors previously disclosed in our 2020 Form
10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended March 31, 2021, we repurchased 81,625 shares of our common stock that were withheld to satisfy minimum statutory withholding obligations in connection with the vesting of restricted stock and deferred stock.
| Period |
Total Number of Shares Repurchased |
Average Price Paid per Share |
Total Number of Shares Purchased as part of the Repurchase Program |
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Repurchase Programs (a) |
||||||||||||
| January 1 – January 31, 2021 |
— | — | — | (a | ) | |||||||||||
| February 1 – February 28, 2021 |
— | — | — | (a | ) | |||||||||||
| March 1 – March 31, 2021 |
81,625 | (b) | 24.43 | — | (a | ) | ||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
81,625 | $ | 24.43 | — | (a | ) | ||||||||||
| (a) | We have two active repurchase programs. Our July 2013 program allows us to repurchase shares of our common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under our equity compensation programs, which is estimated to be approximately 1.0 million shares for 2021. Our August 2018 repurchase program allows us to repurchase up to an additional $500.0 million of shares of our common stock, of which we repurchased $403.3 million as of March 31, 2021. |
| (b) | Represents shares withheld to satisfy minimum statutory withholding obligations of an aggregate of $2.0 million in connection with the vesting of restricted stock. |
The amount and timing of any future repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.
21
Item 6. |
Exhibits |
| Exhibit No. |
Description | |
| 31.1+ | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2+ | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 32.1* | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 101.1+ | Interactive Data File | |
| 101.INS+ | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
| 101.SCH+ | XBRL Schema Document. | |
| 101.CAL+ | XBRL Calculation Linkbase Document. | |
| 101.DEF+ | XBRL Definition Linkbase Document. | |
| 101.LAB+ | XBRL Label Linkbase Document. | |
| 101.PRE+ | XBRL Presentation Linkbase Document. | |
| 104+ | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). | |
| + | Filed herewith. |
| * | Furnished herewith. |
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Mednax, Inc. | ||||||
| Date: May 7, 2021 | By: | /s/ Mark S. Ordan | ||||
| Mark S. Ordan. | ||||||
| Chief Executive Officer | ||||||
| (Principal Executive Officer) | ||||||
| Date: May 7, 2021 | By: | /s/ C. Marc Richards | ||||
| C. Marc Richards | ||||||
| Chief Financial Officer | ||||||
| (Principal Financial Officer) | ||||||
| Date: May 7, 2021 | By: | /s/ John C. Pepia | ||||
| John C. Pepia | ||||||
| Chief Accounting Officer | ||||||
| (Principal Accounting Officer) | ||||||
23
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark S. Ordan, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Mednax, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 7, 2021
| By: | /s/ Mark S. Ordan | |
| Mark S. Ordan | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, C. Marc Richards, certify that:
| 1. | I have reviewed this quarterly report on Form 10-Q of Mednax, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 7, 2021
| By: | /s/ C. Marc Richards | |
| C. Marc Richards | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) |
Exhibit 32.1
Certification Pursuant to 18 U.S.C Section 1350
(Adopted by Section 906 of the Sarbanes-Oxley Act of 2002)
In connection with the Quarterly Report of Mednax, Inc. on Form 10-Q for the quarter ended March 31, 2021 (the “Report”), each of the undersigned hereby certifies, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that (i) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Mednax, Inc.
A signed original of this written statement required by Section 906 has been provided to Mednax, Inc. and will be retained by Mednax, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
May 7, 2021
| By: | /s/ Mark S. Ordan | |
| Mark S. Ordan | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| By: | /s/ C. Marc Richards | |
| C. Marc Richards | ||
| Chief Financial Officer | ||
| (Principal Financial Officer) | ||