UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from ______ to ______
Commission File Number:
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of Incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(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 |
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Trading Symbol |
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Name of each exchange on which registered |
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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.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation 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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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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 October 25, 2024, the registrant had outstanding
Pediatrix Medical Group, Inc.
INDEX
2
Pediatrix Medical Group, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
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September 30, 2024 |
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December 31, 2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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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 assets |
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Deferred income tax assets |
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Other assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
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$ |
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Current portion of debt and finance lease liabilities, net |
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Current portion of operating lease liabilities |
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Income taxes payable |
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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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Shareholders’ equity: |
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Preferred stock; $ |
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Common stock; $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Retained deficit |
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Total shareholders’ equity |
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Total liabilities and shareholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
3
Pediatrix Medical Group, Inc.
Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share data)
(Unaudited)
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Three Months Ended |
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Nine Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Net revenue |
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$ |
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$ |
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$ |
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$ |
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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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Goodwill impairment |
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Fixed assets impairments |
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Intangible assets impairments |
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Loss on disposal of businesses |
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Total operating expenses |
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Income (loss) from operations |
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Investment and other income |
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Interest expense |
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( |
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Equity in earnings of unconsolidated affiliate |
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Total non-operating expenses |
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( |
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( |
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Income (loss) before income taxes |
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( |
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Income tax (provision) benefit |
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( |
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( |
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( |
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Net income (loss) |
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$ |
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$ |
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$ |
( |
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$ |
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Other comprehensive income (loss), net of tax |
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Unrealized holding gain on investments, net of tax of $ |
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Total comprehensive income (loss) |
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$ |
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$ |
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$ |
( |
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$ |
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Per common and common equivalent share data: |
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Net income (loss): |
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Basic |
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$ |
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$ |
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$ |
( |
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$ |
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Diluted |
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$ |
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$ |
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$ |
( |
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$ |
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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
Pediatrix Medical Group, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
(Unaudited)
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Common Stock |
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Number of |
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Additional |
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Accumulated |
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Retained |
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Total |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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2024 |
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Balance at January 1, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Unrealized holding gain on investments, net of tax |
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— |
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— |
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— |
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— |
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Common stock issued under employee stock purchase plan |
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— |
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— |
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Forfeitures of restricted stock |
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( |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Repurchased common stock |
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( |
) |
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( |
) |
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( |
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— |
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— |
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( |
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Balance at March 31, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Unrealized holding gain on investments, net of tax |
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— |
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— |
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— |
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— |
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Common stock issued under employee stock purchase plan |
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— |
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— |
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Issuance of restricted stock |
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( |
) |
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— |
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— |
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— |
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Forfeitures of restricted stock |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Repurchased common stock |
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( |
) |
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— |
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( |
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— |
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— |
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( |
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Balance at June 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Unrealized holding gain on investments, net of tax |
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— |
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— |
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— |
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— |
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Common stock issued under employee stock purchase plan |
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— |
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— |
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Forfeitures of restricted stock |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Repurchased common stock |
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( |
) |
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— |
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( |
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— |
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— |
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( |
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Balance at September 30, 2024 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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2023 |
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Balance at January 1, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Unrealized holding gain on investments, net of tax |
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— |
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— |
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— |
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— |
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Common stock issued under employee stock option, |
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— |
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— |
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— |
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Issuance of restricted stock |
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( |
) |
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— |
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— |
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— |
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Forfeitures of restricted stock |
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( |
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( |
) |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Repurchased common stock |
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( |
) |
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— |
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( |
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— |
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— |
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( |
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Balance at March 31, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Unrealized holding loss on investments, net of tax |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Common stock issued under employee stock option, |
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— |
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— |
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Issuance of restricted stock |
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( |
) |
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— |
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— |
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— |
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Forfeitures of restricted stock |
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( |
) |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Repurchased common stock |
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( |
) |
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— |
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( |
) |
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— |
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— |
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( |
) |
Balance at June 30, 2023 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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— |
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Unrealized holding gain on investments, net of tax |
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— |
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— |
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— |
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— |
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Common stock issued under employee stock option, |
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— |
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— |
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Forfeitures of restricted stock |
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( |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Repurchased common stock |
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( |
) |
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— |
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( |
) |
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— |
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— |
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( |
) |
Balance at September 30, 2023 |
|
|
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|
$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
|
$ |
|
||||
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
Pediatrix Medical Group, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
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2023 |
|
||
Cash flows from operating activities: |
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Net (loss) income |
|
$ |
( |
) |
|
$ |
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Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
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Depreciation and amortization |
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Amortization of premiums, discounts and issuance costs |
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Goodwill impairment |
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Fixed assets impairments |
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Intangible assets impairments |
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Loss on disposal of businesses |
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Stock-based compensation expense |
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||
Deferred income taxes |
|
|
( |
) |
|
|
|
|
Other |
|
|
( |
) |
|
|
( |
) |
Changes in assets and liabilities: |
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|
||
Accounts receivable |
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|
||
Prepaid expenses and other current assets |
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Other long-term assets |
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||
Accounts payable and accrued expenses |
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|
( |
) |
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|
( |
) |
Income taxes payable |
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|
|
|
( |
) |
|
Long-term professional liabilities |
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|
||
Other liabilities |
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|
( |
) |
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|
( |
) |
Net cash provided by operating activities – continuing operations |
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||
Net cash used in operating activities - discontinued operations |
|
|
( |
) |
|
|
( |
) |
Net cash provided by 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 |
|
|
|
|
|
|
||
Purchases of property and equipment |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
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|
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|
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|
||
Borrowings on line of credit |
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|
||
Payments on line of credit |
|
|
( |
) |
|
|
( |
) |
Payments on term loan |
|
|
( |
) |
|
|
( |
) |
Payments on finance lease obligations |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock |
|
|
|
|
|
|
||
Repurchases of common stock |
|
|
( |
) |
|
|
( |
) |
Other |
|
|
|
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net increase in cash and cash equivalents |
|
|
|
|
|
|
||
Cash and cash equivalents at beginning of period |
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these Consolidated Financial Statements.
6
Pediatrix Medical Group, Inc.
Notes to Consolidated Financial Statements
September 30, 2024
(Unaudited)
1. Basis of Presentation:
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 Pediatrix Medical Group, Inc. and its consolidated subsidiaries (collectively, “PMG”) together with the accounts of PMG’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (the “affiliated professional contractors”). Certain subsidiaries of PMG have contractual management arrangements with its affiliated professional contractors, which are separate legal entities that provide physician services in certain states. The terms “Pediatrix” and the “Company” refer collectively to Pediatrix Medical Group Inc., its subsidiaries and the affiliated professional contractors.
The Company is a party to a joint venture in which it owns a
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”).
2. Cash Equivalents and Investments:
As of September 30, 2024 and December 31, 2023, the Company's cash equivalents consisted entirely of money market funds totaling $
Investments held are all classified as current and at September 30, 2024 and December 31, 2023 are summarized as follows (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Corporate securities |
|
$ |
|
|
$ |
|
||
U.S. Treasury securities |
|
|
|
|
|
|
||
Municipal debt securities |
|
|
|
|
|
|
||
Federal home loan securities |
|
|
|
|
|
|
||
Certificates of deposit |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
3. 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.
The following table presents information about the Company’s financial instruments that are accounted for at fair value on a recurring basis at September 30, 2024 and December 31, 2023 (in thousands):
7
|
|
|
|
Fair Value |
|
|||||
|
|
Fair Value |
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
Assets: |
|
|
|
|
|
|
|
|
||
Money market funds |
|
Level 1 |
|
$ |
|
|
$ |
|
||
Short-term investments |
|
Level 2 |
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|
|
|
|
|
||
Mutual Funds |
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Level 1 |
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|
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|
||
The following table presents information about the Company’s financial instruments that are not carried at fair value at September 30, 2024 and December 31, 2023 (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Carrying |
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Fair |
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Carrying |
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Fair |
|
||||
Liabilities: |
|
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|
|
|
|
|
|
|
|
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|
||||
2030 Notes |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
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.
4. Accounts Receivable and Net Revenue:
Accounts receivable, net consists of the following (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||
|
|
|
|
|
|
|
||
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.
The following table summarizes the Company’s net revenue by category (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net patient service revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Hospital contract administrative fees |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other revenue |
|
|
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|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
8
The approximate percentage of net patient service revenue by type of payor was as follows:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Contracted managed care |
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
Government |
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|
|
|
|
|
|
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|
||||
Other third-parties |
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|
||||
Private-pay patients |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
% |
|
|
% |
|
|
% |
|
|
% |
||||
5. Business Combinations:
During the nine months ended September 30, 2024, the Company completed the acquisition of
6. Goodwill, Long-Lived Asset Impairments and Loss on Disposal of Businesses:
During the second quarter of 2024, the Company formalized its practice portfolio management plans, resulting in a decision to exit almost all of its affiliated office-based practices, other than maternal-fetal medicine. The practice exits are expected to be completed by December 31, 2024. Accordingly, a recoverability assessment for each individual physician practice was performed, and the estimated future cash flows related to the physician practices did not support the carrying value of the specifically identified individual long-lived assets. As a result, during the nine months ended September 30, 2024, the Company recorded fixed asset impairments of $
During the second quarter of 2024, the Company made the decision to exit its primary and urgent care service line based on a review of the cost and time that would be required to build the platform to scale. The Company divested one of its two previously acquired primary and urgent care practices during the second quarter and divested the second practice during the third quarter. The total loss on disposal of these two businesses was $
During the second quarter of 2024, the Company experienced a triggering event, due to a sustained decline in its stock price and a market capitalization below the Company's book equity value. As the Company consists of only one reporting unit, and is publicly traded, management estimates the fair value of its reporting unit utilizing the Company’s market capitalization, multiplying the number of actual shares of common stock outstanding on June 30, 2024 by its stock price on June 30, 2024 and applying an additional premium to give effect to the Company’s best estimate of a control premium. With respect to the estimated control premium used in its analysis, the Company believes that it is reasonable to expect that a market participant would pay a premium to obtain a controlling interest in the Company. The Company considered information from the public markets for premiums on acquisitions in its industry and also considered other factors, such as the value that may arise from the ability to take advantage of synergies and other benefits that flow from control over another entity.
This assessment resulted in a non-cash impairment charge of $
Recognition of this non-cash charge against goodwill resulted in a tax benefit which generated an additional deferred tax asset of $
7. Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consist of the following (in thousands):
9
|
|
September 30, 2024 |
|
December 31, 2023 |
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 $
8. Line of Credit and Long-Term Debt:
On February 11, 2022, the Company issued $
Interest on the 2030 Notes accrues at the rate of
Also in connection with the Redemption, the Company amended its credit agreement (the “Credit Agreement”, and such amendment, the "Credit Agreement Amendment"), concurrently with the issuance of the 2030 Notes. The Credit Agreement Amendment, among other things, (i) refinanced the prior unsecured revolving credit facility with a $
The Credit Agreement, as amended by the Credit Agreement Amendment (the “Amended Credit Agreement”) matures on February 11, 2027 and is guaranteed on an unsecured basis by substantially all of the Company's subsidiaries and affiliated professional contractors. At the Company's option, borrowings under the Amended Credit Agreement bear interest at
The Amended Credit Agreement contains customary covenants and restrictions, including covenants that require the Company to maintain a minimum interest coverage ratio, a maximum consolidated net leverage ratio and to comply with laws, and restrictions on the ability to pay dividends, incur indebtedness or liens and make certain other distributions subject to baskets and exceptions, in each case, as specified therein. Failure to comply with these covenants would constitute an event of default under the Amended Credit Agreement, notwithstanding the ability of the Company to meet its debt service obligations. The Amended Credit Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Amended Credit Agreement. In addition, the Company may increase the principal amount of the Revolving Credit Line or incur additional term loans under the Amended Credit Agreement in an aggregate principal amount such that on a pro forma basis after
10
giving effect to such increase or additional term loans, the Company would be in compliance with the financial covenants, subject to the satisfaction of specified conditions and additional caps in the event that the Amended Credit Agreement is secured.
At September 30, 2024, the Company had an outstanding principal balance on the Amended Credit Agreement of $
At September 30, 2024, the Company had an outstanding principal balance of $
9. Common and 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 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 and nine months ended September 30, 2024 and 2023 is as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of dilutive common share |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average number of common and common |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Antidilutive securities (restricted stock and stock options) not included in the diluted net income per common share calculation |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(a)
10. Stock Incentive Plans and Stock Purchase Plans:
The Company’s Amended 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
Under the Company’s Amended and Restated 1996 Non-Qualified Employee Stock Purchase Plan, as amended (the “ESPP”), employees are permitted to purchase the Company's common stock at
The Company recognizes stock-based compensation expense for the discount received by participating employees and non-employee service providers. During the nine months ended September 30, 2024, approximately
During the three and nine months ended September 30, 2024 and 2023, the Company recognized stock-based compensation expense of $
11
11. Common Stock Repurchase Programs:
In July 2013, the Company’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 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.
In August 2018, the Company announced that its Board of Directors had authorized the repurchase of up to $
12. 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 September 30, 2024 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, 2023, filed with the Securities and Exchange Commission on February 20, 2024 (the “2023 Form 10-K”). As used in this Quarterly Report, the terms “Pediatrix”, the “Company”, “we”, “us” and “our” refer to the parent company, Pediatrix Medical Group, Inc., a Florida corporation, and the consolidated subsidiaries through which its businesses are actually conducted (collectively, “PMG”), together with PMG’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (“affiliated professional contractors”). Certain subsidiaries of PMG have contracts with our affiliated professional contractors, which are separate legal entities that provide physician services in certain states. The following discussion contains forward-looking statements. Please see the Company’s 2023 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
Pediatrix is a leading provider of physician services including newborn, maternal-fetal, and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in 37 states. 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. We also provide services across multiple other pediatric subspecialties.
General Economic Conditions and Other Factors
Our operations and performance depend significantly on economic conditions. During the three months ended September 30, 2024, the percentage of our patient service revenue being reimbursed under government-sponsored healthcare programs (“GHC Programs”) decreased as compared to the three months ended September 30, 2023. However, we could 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. Payments received from GHC Programs are substantially less for equivalent services than payments received from commercial insurance payors. In addition, costs of managed care premiums and patient responsibility amounts continue to rise, and accordingly, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services.
Practice Portfolio Management Plan and Impairment of Long-Lived Assets
During the second quarter of 2024, we formalized our physician practice optimization plans, resulting in a decision to exit almost all of our affiliated office-based practices, other than maternal-fetal medicine. Over the course of many years, we expanded our pediatric service lines and footprint to provide specialized care to more patients, including through our office-based portfolio of practices. This added complexity to our operations over time and, accordingly, increased costs that resulted in operating challenges primarily for our office-based portfolio of practices. Recognizing this and our need to adapt to the current healthcare climate, during the second quarter, we made the decision to return to a hospital-based and maternal-fetal medicine-focused organization. The exits of our pediatric office-based practices are expected to be completed by December 31, 2024. Accordingly, a recoverability assessment for each impacted individual physician practice was performed, and the estimated future cash flows related to the physician practices did not support the carrying value of the specifically identified individual long-lived assets. As a result, during the nine months ended September 30, 2024, we recorded fixed asset impairments of $20.1 million, intangible asset impairments of $7.7 million and operating lease right-of-use asset impairments of $10.6 million. The operating lease right-of-use impairments are recorded within the transformational and restructuring related expenses line item.
Loss on Disposal of Businesses
During the second quarter of 2024, we made the decision to exit our primary and urgent care service line based on a review of the cost and time that would be required to build the platform to scale. We divested one of our two previously acquired primary and urgent care practices during the second quarter and divested the second practice in the third quarter. The total loss on disposal of these two businesses was $10.6 million.
Goodwill Impairment
Goodwill is tested for impairment on at least an annual basis, in accordance with the subsequent measurement provisions of the accounting guidance for goodwill. During the second quarter of 2024, we experienced a triggering event resulting from a sustained decline in our stock price that resulted in our market capitalization being lower than the book value of our equity. This impairment assessment resulted in a non-cash impairment charge of $130.0 million. Recognition of this non-cash charge against goodwill resulted in a tax benefit which generated an additional deferred tax asset of $24.2 million that increased the book value of our equity. An incremental non-cash charge was required to reduce the book value of our equity to our previously determined fair value. Accordingly, we recorded the incremental non-cash charge of $24.2 million for a total non-cash charge of $154.2 million.
“Surprise” Billing Legislation
13
In late 2020, Congress enacted the No Surprises Act (“NSA”) legislation intended to protect patients from “surprise” medical bills when certain services are furnished by providers who are not in-network with the patient’s insurer. Effective January 1, 2022, if the patient’s insurance plan or coverage is subject to the NSA, providers are not permitted to send patients an unexpected or “surprise” medical bill that arises from out-of-network emergency care provided at certain out-of-network facilities or at certain in-network facilities by out-of-network emergency providers, as well as nonemergency care provided at certain in-network facilities by out-of-network providers without the patient’s informed consent (as defined by the NSA). Many states have legislation on this topic and will continue to modify and review their laws pertaining to surprise billing.
For claims subject to the NSA, insurers are required to calculate the patient’s total cost-sharing amount pursuant to rules set forth in the NSA and its implementing regulations which, in some cases, can be calculated by reference to the applicable qualifying payment amount for the items or services received. The patient’s cost-sharing amount for out-of-network services covered by the NSA must be no more than the patient’s in-network cost-sharing amounts. Patient cost-sharing amounts for items and services subject to the NSA count toward the patient’s health plan deductible and out-of-pocket cost-sharing limits. For claims subject to the NSA, providers are generally not permitted to balance bill patients beyond this cost-sharing amount. An out-of-network provider is only permitted to bill a patient more than the cost-sharing amount allowed under the NSA for certain types of services if the provider satisfies all aspects of an informed consent process set forth in the NSA’s implementing regulations. Providers that violate these surprise billing prohibitions may be subject to state enforcement action or federal civil monetary penalties.
For claims subject to the NSA, including many emergency care services, out-of-network providers will be paid an amount determined by the patient’s insurer; if a provider is not satisfied with the initial amount paid for the services, the provider can pursue recourse through an independent dispute resolution process. The outcome of each IDR dispute is generally binding on both the provider and payor with respect to the particular claims at issue in that dispute but may not affect an insurer’s future offers of payment. Accordingly, we cannot predict how these IDR results will compare to the rates that our affiliated physicians customarily receive for their services. 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.
Healthcare Reform
The Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively the “ACA”) has altered how health care is delivered and reimbursed in the U.S. and contain various provisions, including 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 FCA and other healthcare fraud and abuse laws. The status of the ACA may be subject to change as a result of political, legislative, regulatory, and administrative developments, as well as judicial proceedings. As a result, we could be affected by potential changes to various aspects of the ACA, including changes to subsidies, healthcare insurance marketplaces and Medicaid expansion. We cannot say for certain whether there will be additional future challenges to the ACA or what impact, if any, such challenges may have on our business. Changes resulting from various legal proceedings, and any legislative or administrative change to the current healthcare financing system, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
In addition to the ACA, there could be changes to other GHC Programs, such as a change to the Medicaid program design or Medicaid coverage and reimbursement rates set forth under federal or state law. These changes, if implemented, could eliminate the guarantee that everyone who is eligible and applies for Medicaid benefits would receive them and could potentially give states new authority to restrict eligibility, cut benefits and/or make it more difficult for people to enroll. Moreover, the expiration of the COVID-19 national emergency and public health emergency declarations in May 2023 may impact the coverage for and access to certain services for Medicaid patients. Expiration of the national emergency and public health emergency declarations will also end waivers for the provision of certain services, and returning our services to a pre-pandemic regulatory state similarly may increase our exposure to legal, regulatory, compliance and clinical risks.
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. 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. Recently, Democrats in Congress have sought to expand Medicaid or Medicaid-like coverage in states that have not yet expanded Medicaid. They also have sought to reduce payments to certain hospitals in some of these states. Should any of these changes take effect, we cannot predict with any assurance the ultimate effect on reimbursements for our services.
Non-GAAP Measures
In our analysis of our results of operations, we use various GAAP and certain non-GAAP financial measures. We have incurred certain expenses that we do not consider representative of our underlying operations, including transformational and restructuring related expenses. Accordingly, we report adjusted earnings before interest, taxes and depreciation and amortization (“Adjusted EBITDA”), defined as net income (loss) before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses. Earnings per share has also been adjusted (“Adjusted EPS”) and consists of diluted net income (loss) per common and common equivalent share adjusted for amortization expense, stock-based compensation expense, transformational and restructuring related expenses and impacts from discrete tax events. For the three months ended September 30, 2024, Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude loss
14
on disposal of businesses and tax effects of goodwill impairment. For the nine months ended September 30, 2024, both Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude loss on disposal of businesses and impairment losses.
We believe these measures, in addition to income from operations, net income and diluted net income 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. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.
For a reconciliation of each of Adjusted EBITDA and Adjusted EPS to the most directly comparable GAAP measures for the three and nine months ended September 30, 2024 and 2023, refer to the tables below (in thousands, except per share data).
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Net income (loss) |
|
$ |
19,441 |
|
|
$ |
21,391 |
|
|
$ |
(129,549 |
) |
|
$ |
63,879 |
|
Interest expense |
|
|
10,126 |
|
|
|
10,374 |
|
|
|
31,033 |
|
|
|
31,994 |
|
Income tax provision (benefit) |
|
|
5,794 |
|
|
|
9,441 |
|
|
|
(5,120 |
) |
|
|
26,612 |
|
Depreciation and amortization expense |
|
|
6,254 |
|
|
|
9,211 |
|
|
|
25,353 |
|
|
|
27,109 |
|
Transformational and restructuring related expenses |
|
|
18,560 |
|
|
|
— |
|
|
|
40,619 |
|
|
|
— |
|
Goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
154,243 |
|
|
|
— |
|
Fixed assets impairments |
|
|
— |
|
|
|
— |
|
|
|
20,112 |
|
|
|
— |
|
Intangible assets impairments |
|
|
— |
|
|
|
— |
|
|
|
7,679 |
|
|
|
— |
|
Loss on disposal of businesses |
|
|
59 |
|
|
|
— |
|
|
|
10,932 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
60,234 |
|
|
$ |
50,417 |
|
|
$ |
155,302 |
|
|
$ |
149,594 |
|
|
|
Three Months Ended |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
Weighted average diluted shares outstanding |
|
84,523 |
|
|
82,950 |
|
||||||||||
Net income and diluted net income per share |
|
$ |
19,441 |
|
|
$ |
0.23 |
|
|
$ |
21,391 |
|
|
$ |
0.26 |
|
Adjustments (1): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization (net of tax of $446 and $498) |
|
|
1,338 |
|
|
|
0.02 |
|
|
|
1,493 |
|
|
|
0.02 |
|
Stock-based compensation (net of tax of $656 and $791) |
|
|
1,969 |
|
|
|
0.02 |
|
|
|
2,373 |
|
|
|
0.03 |
|
Transformational and restructuring expenses (net of tax of $4,640) |
|
|
13,920 |
|
|
|
0.16 |
|
|
|
— |
|
|
|
— |
|
Tax effects of goodwill impairment |
|
|
(6,135 |
) |
|
|
(0.07 |
) |
|
|
— |
|
|
|
— |
|
Loss on disposal of businesses (net of tax of $15) |
|
|
44 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net impact from discrete tax events |
|
|
6,452 |
|
|
|
0.08 |
|
|
|
1,114 |
|
|
|
0.01 |
|
Adjusted income and diluted EPS |
|
$ |
37,029 |
|
|
$ |
0.44 |
|
|
$ |
26,371 |
|
|
$ |
0.32 |
|
|
|
Nine Months Ended |
|
|||||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||||
Weighted average diluted shares outstanding |
|
83,223 |
|
|
82,492 |
|
||||||||||
Net (loss) income and diluted net (loss) income per share |
|
$ |
(129,549 |
) |
|
$ |
(1.56 |
) |
|
$ |
63,879 |
|
|
$ |
0.77 |
|
Adjustments (1): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Amortization (net of tax of $1,842 and $1,508) |
|
|
5,526 |
|
|
|
0.07 |
|
|
|
4,522 |
|
|
|
0.06 |
|
Stock-based compensation (net of tax of $1,872 and $2,325) |
|
|
5,616 |
|
|
|
0.07 |
|
|
|
6,974 |
|
|
|
0.09 |
|
Transformational and restructuring expenses (net of tax of $10,155) |
|
|
30,464 |
|
|
|
0.37 |
|
|
|
— |
|
|
|
— |
|
Goodwill impairment (net of tax of $21,625) |
|
|
132,618 |
|
|
|
1.59 |
|
|
|
— |
|
|
|
— |
|
Fixed assets impairments (net of tax of $5,028) |
|
|
15,084 |
|
|
|
0.18 |
|
|
|
— |
|
|
|
— |
|
Intangible assets impairments (net of tax of $1,920) |
|
|
5,759 |
|
|
|
0.07 |
|
|
|
— |
|
|
|
— |
|
Loss on disposal of businesses (net of tax of $2,733) |
|
|
8,199 |
|
|
|
0.10 |
|
|
|
— |
|
|
|
— |
|
Net impact from discrete tax events |
|
|
8,456 |
|
|
|
0.10 |
|
|
|
1,984 |
|
|
|
0.02 |
|
Adjusted income and diluted EPS |
|
$ |
82,173 |
|
|
$ |
0.99 |
|
|
$ |
77,359 |
|
|
$ |
0.94 |
|
15
Results of Operations
Three Months Ended September 30, 2024 as Compared to Three Months Ended September 30, 2023
Our net revenue was $511.2 million for the three months ended September 30, 2024, as compared to $506.6 million for the same period in 2023. The increase in net revenue of $4.6 million, or 0.9%, was primarily attributable to an increase in same-unit revenue, partially offset by a decrease in revenue from non-same unit activity, primarily resulting from practice dispositions. 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 $24.6 million, or 5.2%. The increase in same-unit revenue was comprised of an increase of $15.9 million, or 3.4%, from net reimbursement-related factors and $8.7 million, or 1.8%, related to patient service volumes. The net increase in revenue related to net reimbursement-related factors was primarily due to an increase in revenue resulting from a favorable shift in payor mix and an increase in administrative fees from our hospital partners. The increase in revenue from patient service volumes was related to increases across all of our service lines.
Practice salaries and benefits decreased $3.5 million, or 1.0%, to $364.9 million for the three months ended September 30, 2024, as compared to $368.4 million for the same period in 2023. The $3.5 million decrease was primarily attributable to non-same unit activity, primarily resulting from practice dispositions, partially offset by an increase in clinical compensation expense, including benefits and incentive compensation, all at our existing units.
Practice supplies and other operating expenses decreased $1.9 million, or 6.0%, to $29.4 million for the three months ended September 30, 2024, as compared to $31.3 million for the same period in 2023. The decrease was primarily attributable to non-same unit activity, primarily resulting from practice dispositions, partially offset by a net increase in practice supply and other costs related to our existing units, with increases in professional services, travel and medical supply costs partially offset by a decrease in insurance expense.
General and administrative expenses primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically related to the day-to-day operations of our affiliated physician practices and services. General and administrative expenses were $58.1 million for the three months ended September 30, 2024, as compared to $57.4 million for the same period in 2023. The net increase of $0.7 million was primarily related to increases in incentive compensation based on financial results and salary expense for enhancement of revenue cycle management staffing, partially offset by decreases in overall staffing levels. General and administrative expenses as a percentage of net revenue was 11.4% for the three months ended September 30, 2024, as compared to 11.3% for the same period in 2023.
Depreciation and amortization expense was $6.3 million for the three months ended September 30, 2024, as compared to $9.2 million for the same period in 2023. The decrease of $2.9 million was primarily related to a decrease in depreciation expense related to non-same unit activity, primarily practice dispositions.
Transformational and restructuring related expenses were $18.6 million for the three months ended September 30, 2024 and primarily related to revenue cycle management transition activities, position eliminations across various shared services and operations departments and impairment of various right-of-use lease assets resulting from practice dispositions.
Loss on disposal of businesses was $0.1 million for the three months ended September 30, 2024.
Income from operations was $33.8 million for the three months ended September 30, 2024, as compared to $40.3 million for the same period in 2023. Our operating margin was 6.6% for the three months ended September 30, 2024, as compared to 7.9% for the same period in 2023. The decrease in our operating margin was primarily due to transformational and restructuring related activity, partially offset by net favorable impacts from our same-unit results driven by higher revenue and from non-same unit activity due to practice dispositions. Excluding transformational and restructuring related expenses for the three months ended September 30, 2024, our income from operations was $52.4 million and our operating margin was 10.3% for such period. We believe excluding the impacts from transformational and restructuring related activity provides a more comparable view of our operating income and operating margin.
Total non-operating expenses were $8.6 million for the three months ended September 30, 2024, as compared to $9.4 million for the same period in 2023. The net decrease in non-operating expenses was primarily related to an increase in investment income on higher cash balances.
Our effective income tax rate (“tax rate”) was 23.0% for the three months ended September 30, 2024 as compared to 30.6% for the three months ended September 30, 2023. The tax rates for the three months ended September 30, 2024 and 2023 include net discrete tax expense of $6.5 million and $1.1 million, respectively. Net discrete tax expense for the three months ended September 30, 2024 primarily relates to a reduction in the carrying value of deferred tax assets due to practice portfolio management activities. After excluding discrete tax impacts, during the three months ended September 30, 2024 and 2023, our tax rate was (2.6)% and 27.0%, respectively. We believe excluding discrete tax impacts provides a more comparable view of our tax rate. The decrease in our tax rate from 27.0% to (2.6)% for the three months ended September 30, 2024 as compared to the prior year period primarily relates to the tax effects of the non-cash goodwill impairment charge.
Net income was $19.4 million for the three months ended September 30, 2024, as compared to $21.4 million for the same period in 2023. Adjusted EBITDA was $60.2 million for the three months ended September 30, 2024, as compared to $50.4 million for the same period in 2023. The increase in our Adjusted EBITDA was primarily due to net favorable impacts from our same-unit results and practice disposition activity.
16
Diluted net income per common and common equivalent share was $0.23 on weighted average shares outstanding of 84.5 million for the three months ended September 30, 2024, as compared to $0.26 on weighted average shares outstanding of 83.0 million for the same period in 2023. Adjusted EPS was $0.44 for the three months ended September 30, 2024, as compared to $0.32 for the same period in 2023.
Nine Months Ended September 30, 2024 as Compared to Nine Months Ended September 30, 2023
Our net revenue was $1.51 billion for the nine months ended September 30, 2024, as compared to $1.50 billion for the same period in 2023. The increase in revenue of $12.4 million, or 0.8%, was primarily attributable to increases in same-unit revenue, partially offset by a decrease in revenue from non-same unit activity, primarily resulting from practice dispositions. 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 $51.5 million, or 3.7%. The increase in same-unit net revenue was comprised of an increase of $29.1 million, or 2.1%, from net reimbursement-related factors and an increase of $22.4 million, or 1.6%, related to patient service volumes. The net increase in revenue related to net reimbursement-related factors was primarily due to an increase in revenue resulting from a favorable shift in payor mix and an increase in administrative fees from our hospital partners. The increase in revenue from patient service volumes was related to increases across all of our service lines.
Practice salaries and benefits increased $7.2 million, or 0.7%, to $1.09 billion for the nine months ended September 30, 2024, as compared to $1.08 billion for the same period in 2023. The $7.2 million increase was primarily attributable to an increase in clinical compensation expense and benefits at our existing units, partially offset by decreases in non-same unit activity, primarily practice dispositions.
Practice supplies and other operating expenses decreased $0.2 million, or 0.2%, to $92.9 million for the nine months ended September 30, 2024, as compared to $93.1 million for the same period in 2023. The decrease was primarily attributable to non-same unit activity, primarily practice dispositions, partially offset by a net increase in practice supply and other expenses. The net increase at our existing units was driven by increases in professional services, rent and travel expenses, partially offset by a decrease in insurance expense.
General and administrative expenses primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically identifiable to the day-to-day operations of our physician practices and services. General and administrative expenses were $174.9 million for the nine months ended September 30, 2024, as compared to $174.5 million for the same period in 2023. The net increase of $0.4 million is primarily related to increases in salary expense for enhancement of revenue cycle management staffing and incentive compensation based on financial results, partially offset by lower expenses from net staffing reductions, professional services fees, travel expenses, and information technology expenses. General and administrative expenses as a percentage of net revenue were 11.6% for the nine months ended September 30, 2024 and 2023.
Depreciation and amortization expense was $25.4 million for the nine months ended September 30, 2024, as compared to $27.1 million for the same period in 2023. The decrease of $1.7 million was primarily related to lower depreciation resulting from fixed asset impairments recognized in the second quarter of 2024.
Transformational and restructuring related expenses were $40.6 million for the nine months ended September 30, 2024 and primarily related to the impairment of various right-of-use lease assets resulting from our practice portfolio management activities, position eliminations across various shared services and operations departments and revenue cycle management transition activities.
Goodwill impairment was $154.2 million for the nine months ended September 30, 2024, resulting from the triggering event during the second quarter based on a sustained stock price decline.
Fixed assets impairments were $20.1 million for the nine months ended September 30, 2024, resulting from the practice portfolio management activities.
Intangible assets impairments were $7.7 million for the nine months ended September 30, 2024, resulting from the practice portfolio management activities.
Loss on disposal of businesses was $10.9 million for the nine months ended September 30, 2024, resulting from the disposals of the primary and urgent care practices.
Loss from operations was $108.0 million for the nine months ended September 30, 2024, as compared to income from operations of $118.8 million for the same period in 2023. Our operating margin was (7.1)% for the nine months ended September 30, 2024, as compared to 7.9% for the same period in 2023. The decrease in our operating margin was primarily due to the impairment activity recorded during the second quarter and transformational and restructuring related activity, partially offset by net favorable impacts from non-same unit activity. Excluding impairment activity and transformational and restructuring related expenses for the nine months ended September 30, 2024, our income from operations was $125.5 million and our operating margin was 8.3% for such period. We believe excluding the impacts from the impairment and transformational and restructuring related activity provides a more comparable view of our operating income and operating margin.
Total non-operating expenses were $26.7 million for the nine months ended September 30, 2024, as compared to $28.3 million for the same period in 2023. The net decrease in non-operating expenses was primarily related to an increase in investment income and lower interest expense due to lower debt balances.
Our tax rate was 3.8% for the nine months ended September 30, 2024 compared to 29.4% for the nine months ended September 30, 2023. The tax rates for the nine months ended September 30, 2024 and 2023 include net discrete tax expense of $8.5 million and $2.0 million,
17
respectively. After excluding discrete tax impacts, during the nine months ended September 30, 2024 and 2023, our tax rate was 10.1% and 27.2%, respectively. We believe excluding discrete tax impacts on our tax rate provides a more comparable view of our effective income tax rate. The decrease in our tax rate from 27.2% to 10.1% for the nine months ended September 30, 2024 as compared to the prior year period primarily relates to the effects of the non-cash goodwill impairment charge.
Net loss was $129.5 million for the nine months ended September 30, 2024, as compared to net income of $63.9 million for the nine months ended September 30, 2023. Adjusted EBITDA was $155.3 million for the nine months ended September 30, 2024, as compared to $149.6 million for the same period in 2023. The increase in our Adjusted EBITDA was primarily due to net favorable impacts in our same-unit results, primarily from an increase in revenue.
Diluted net loss per common and common equivalent share was $1.56 on weighted average shares outstanding of 83.2 million for the nine months ended September 30, 2024, as compared to diluted net income per common and common equivalent share of $0.77 on weighted average shares outstanding of 82.5 million for the same period in 2023. Adjusted EPS was $0.99 for the nine months ended September 30, 2024, as compared to $0.94 for the same period in 2023.
Liquidity and Capital Resources
As of September 30, 2024, we had $103.8 million of cash and cash equivalents as compared to $73.3 million at December 31, 2023. Additionally, we had working capital of $155.1 million at September 30, 2024, an increase of $60.6 million from working capital of $94.5 million at December 31, 2023. The increase in working capital is primarily due to net favorable impacts in our same-unit results, primarily from an increase in revenue.
Cash Flows from Continuing Operations
Cash provided by (used in) operating, investing and financing activities is summarized as follows (in thousands):
|
|
Nine Months Ended |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Operating activities |
|
$ |
82,445 |
|
|
$ |
73,078 |
|
Investing activities |
|
|
(33,468 |
) |
|
|
(35,752 |
) |
Financing activities |
|
|
(9,522 |
) |
|
|
(20,968 |
) |
Operating Activities
During the nine months ended September 30, 2024, our net cash provided by operating activities for continuing operations was $82.4 million, compared to $73.1 million for the same period in 2023. The net increase in cash provided of $9.3 million was primarily due to increases in cash flow from accounts payable and accrued expenses, partially offset by decreases in cash flow from accounts receivable.
During the nine months ended September 30, 2024, cash inflow from accounts receivable was $0.6 million, as compared to $22.1 million for the same period in 2023. The decrease in cash flow from accounts receivable for the nine months ended September 30, 2024 as compared to the prior year period was primarily due to the prior year period reflecting a significant improvement in cash collections.
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 51.6 days at September 30, 2024 as compared to 50.5 days at December 31, 2023 and 50.4 days at September 30, 2023. The change in our DSO was primarily related to revenue cycle management transition activity.
Investing Activities
During the nine months ended September 30, 2024, our net cash used in investing activities of $33.5 million consisted primarily of capital expenditures of $18.6 million, net purchases of investments of $9.1 million and acquisition payments of $8.2 million.
Financing Activities
During the nine months ended September 30, 2024, our net cash used in financing activities of $9.5 million primarily consisted of payments on our Term A Loan (as defined below).
Liquidity
On February 11, 2022, we issued $400.0 million of 5.375% unsecured senior notes due 2030 (the “2030 Notes”). We used the net proceeds from the issuance of the 2030 Notes, together with $100.0 million drawn under our Revolving Credit Line (as defined below), $250.0 million of Term A Loan and approximately $308.0 million of cash on hand, to redeem (the “Redemption”) the 2027 Notes, which had an outstanding principal balance of $1.0 billion, and to pay costs, fees and expenses associated with the Redemption and the Credit Agreement Amendment (as defined below).
18
Also in connection with the Redemption, we amended and restated the Credit Agreement (the "Credit Agreement"), and such amendment and restatement (the “Credit Agreement Amendment”), concurrently with the issuance of the 2030 Notes. The Credit Agreement, as amended by the Credit Agreement Amendment (the “Amended Credit Agreement”), among other things, (i) refinanced the prior unsecured revolving credit facility with a $450.0 million unsecured revolving credit facility, including a $37.5 million sub-facility for the issuance of letters of credit (the “Revolving Credit Line”), and a new $250.0 million term A loan facility (“Term A Loan”) and (ii) removed JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement and appointed Bank of America, N.A. as the administrative agent for the lenders under the Amended Credit Agreement.
The Amended Credit Agreement matures on February 11, 2027 and is guaranteed on an unsecured basis by substantially all of our subsidiaries and affiliated professional contractors. At our option, borrowings under the Amended Credit Agreement bear interest at (i) the Alternate Base Rate (defined as the highest of (a) the prime rate as announced by Bank of America, N.A., (b) the Federal Funds Rate plus 0.50% and (c) Term Secured Overnight Financing Rate ("SOFR") for an interest period of one month plus 1.00% with a 1.00% floor) plus an applicable margin rate of 0.50% for the first two fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated net leverage ratio or (ii) Term SOFR rate (calculated as the Secured Overnight Financing Rate published on the applicable Reuters screen page plus a spread adjustment of 0.10%, 0.15% or 0.25% depending on if we select a one-month, three-month or six-month interest period, respectively, for the applicable loan with a 0% floor), plus an applicable margin rate of 1.50% for the first two full fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated net leverage ratio. The Amended Credit Agreement also provides for other customary fees and charges, including an unused commitment fee with respect to the Revolving Credit Line ranging from 0.150% to 0.200% of the unused lending commitments under the Revolving Credit Line, based on our consolidated net leverage ratio.
The Amended Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest coverage ratio, a maximum consolidated net leverage ratio and to comply with laws, and restrictions on the ability to pay dividends, incur indebtedness or liens and make certain other distributions subject to baskets and exceptions, in each case, as specified therein. Failure to comply with these covenants would constitute an event of default under the Amended Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Amended Credit Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Amended Credit Agreement. In addition, we may increase the principal amount of the Revolving Credit Line or incur additional term loans under the Amended Credit Agreement in an aggregate principal amount such that on a pro forma basis after giving effect to such increase or additional term loans, we are in compliance with the financial covenants, subject to the satisfaction of specified conditions and additional caps in the event that the Amended Credit Agreement is secured.
At September 30, 2024, we had an outstanding principal balance on the Amended Credit Agreement of $218.8 million, composed of the Term A Loan. There was no balance outstanding under the Revolving Credit Line. We had $450.0 million available on our Amended Credit Agreement at September 30, 2024.
At September 30, 2024, we had an outstanding principal balance of $400.0 million on the 2030 Notes. Our obligations under the 2030 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee our Amended Credit Agreement. Interest on the 2030 Notes accrues at the rate of 5.375% per annum, or $21.5 million, and is payable semi-annually in arrears on February 15 and August 15, beginning on August 15, 2022.
The indenture under which the 2030 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 2030 Notes, upon the occurrence of a change in control, we may be required to repurchase the 2030 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2030 Notes repurchased plus accrued and unpaid interest.
At September 30, 2024, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Amended Credit Agreement and the 2030 Notes. We believe we will be in compliance with these covenants throughout 2024.
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 September 30, 2024 was $284.2 million, of which $29.0 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 $28.3 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 Amended 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
19
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 2023 Form 10-K, including the section entitled “Risk Factors.”
20
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 Amended Credit Agreement at various interest rate options based on the Alternate Base Rate or SOFR rate depending on certain financial ratios. At September 30, 2024, we had an outstanding principal balance of $218.8 million on our Amended Credit Agreement under our Term A Loan. Considering the total outstanding balance, a 1% change in interest rates would result in an impact to income before taxes of approximately $2.2 million per year.
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 September 30, 2024.
Changes in Internal Controls Over Financial Reporting
No changes in our internal control over financial reporting occurred during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
21
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 or 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.
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 2023 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2024, we withheld 22,821 shares of our common stock to satisfy minimum statutory withholding obligations in connection with the vesting of restricted stock.
Period |
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Total Number |
|
|
Average Price |
|
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Total Number of |
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|
Approximate Dollar |
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July 1 – July 31, 2024 |
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22,821 (b) |
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|
$ |
7.10 |
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|
|
— |
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(a) |
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August 1 – August 31, 2024 |
|
|
— |
|
|
|
— |
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|
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— |
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(a) |
September 1 – September 30, 2024 |
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— |
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— |
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— |
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(a) |
Total |
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22,821 |
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|
$ |
7.10 |
|
|
|
— |
|
|
(a) |
The amount and timing of any future repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the three months ended September 30, 2024, none of the Company’s directors or officers
22
Item 6. Exhibits
Exhibit No. Description
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10.1+ |
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31.1+ |
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31.2+ |
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32.1++ |
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101.1+ |
Interactive Data File
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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.
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101.SCH+ |
XBRL Schema Document.
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101.CAL+ |
XBRL Calculation Linkbase Document.
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101.DEF+ |
XBRL Definition Linkbase Document.
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101.LAB+ |
XBRL Label Linkbase Document.
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101.PRE+ |
XBRL Presentation Linkbase Document.
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104+ |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
|
+ Filed herewith.
++ Furnished herewith.
23
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.
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Pediatrix Medical Group, Inc. |
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Date: November 1, 2024 |
By: /s/ James D. Swift, M.D. |
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James D. Swift, M.D. |
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Chief Executive Officer |
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(Principal Executive Officer) |
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Date: November 1, 2024 |
By: /s/ Kasandra H. Rossi |
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Kasandra H. Rossi |
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Chief Financial Officer |
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(Principal Financial Officer and Principal Accounting Officer) |
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24
Exhibit 10.1
THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS THIRD AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into by and between PMG SERVICES, INC. (f/k/a Mednax Services, Inc.), a Florida corporation (“Employer”), and KASANDRA ROSSI (“Employee”) on September 30, 2024.
RECITALS
WHEREAS, Employer is presently engaged in “Employer’s Business” as defined on Exhibit A hereto;
WHEREAS, Employer desires to continue employing Employee and benefit from Employee’s contributions to Employer; and
WHEREAS, Employer and Employee previously entered in a Second Amended and Restated Employment Agreement dated April 26, 2023, which will be superseded in its entirety upon the execution of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and premises set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Employer and Employee hereby agree as follows:
2
3
4
5
6
7
Therefore, Employee agrees that, except with respect to services performed under this Agreement on behalf of Employer, Employee shall not, at any time during the Restricted Period (as defined below), for Employee or on behalf of any other person, persons, firm, partnership, corporation or employer, intentionally, knowingly, or willingly participate or engage in or own an interest in, directly or indirectly, any individual proprietorship, partnership, corporation, joint venture, trust or other form of business entity, whether as an individual proprietor, partner, joint venturer, officer, director, member, employee, consultant, independent contractor, stockholder, lender, landlord, finder, agent, broker, trustee, or in any manner whatsoever, if such entity or its affiliates is engaged in, directly or indirectly, “Employer’s Business,” as defined on Exhibit A hereto. Employee acknowledges that, as of the date hereof, Employee’s responsibilities will include matters affecting the businesses of Employer listed on Exhibit A. For purposes of this Section 8, the “Restricted Period” shall mean the Employment Period plus (i) eighteen (18) months in the event this Agreement is terminated pursuant to Section 4.1 hereof, and (ii) twenty-four (24) months in the event the Agreement is terminated for any other reason.
8
9
Notwithstanding the foregoing, Confidential Information shall not include any information that (i) was known by Employee from a third party source before disclosure by or on behalf of Employer, (ii) becomes available to Employee from a source other than Employer that is not, to Employee’s knowledge, bound by a duty of confidentiality to Employer, (iii) becomes generally available or known in the industry other than as a result of its disclosure by Employee, or (iv) has been independently developed by Employee and may be disclosed by Employee without breach of this Agreement, provided, in each case, that Employee shall bear the burden of demonstrating that the information falls under one of the above-described exceptions. Pursuant to the Defend Trade Secrets Act of 2016, Employee acknowledges that Employee shall not have criminal or civil liability under any federal or state trade secret law for the disclosure of a trade secret that (A) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (B) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal. In addition, if Employee files a lawsuit for retaliation by Employer for reporting a suspected violation of law, Employee may disclose the trade secret to Employee’s attorney and may use the trade secret information in the court proceeding, if Employee (X) files any document containing the trade secret under seal and (Y) does not disclose the trade secret, except pursuant to court order.
Additionally, notwithstanding anything herein to the contrary, nothing in this Agreement or any other agreement between Employer and Employee shall prevent Employee from filing a charge, sharing information and communicating in good faith, without prior notice to Employer, with any federal government agency having jurisdiction over Employer or its operations, and cooperating in any investigation by any such federal government agency.
Unless disclosure is otherwise required by applicable law or stock exchange rules, Employee agrees that the terms of this Agreement shall be deemed Confidential Information for purposes of this Section. Employee shall keep the terms of this Agreement strictly confidential and will not, without the prior written consent of Employer, disclose the details of this Agreement to any third party in any manner whatsoever in whole or in part, with the exception of Employee’s representatives (such as tax advisors and attorneys) who need to know such information.
Employee agrees that Employee will not at any time, whether during or subsequent to the term of Employee’s employment with Employer, in any fashion, form or manner, unless specifically consented to in writing by Employer, either directly or indirectly, use or divulge, disclose, or communicate to any person, firm or corporation, in any manner whatsoever, any Confidential Information of any kind, nature, or description, subject to applicable law. The parties agree that any breach by Employee of any term of this Section 8.4 resulting in material harm to Pediatrix or Employer is a material breach of this Agreement and shall constitute “Cause” for the termination of Employee’s employment hereunder pursuant to Section 4.1 hereof. In the event that Employee is ordered to disclose any Confidential Information, whether in a legal or a regulatory proceeding or otherwise, Employee shall provide Employer with prompt written notice of such request or order so that Employer may seek to prevent disclosure or, if that cannot be achieved, the entry of a protective order or other appropriate protective device or procedure in order to assure, to the extent practicable, compliance with the provisions of this Agreement. In the case of any disclosure required by law, Employee shall disclose only that portion of the
10
Confidential Information that Employee is ordered to disclose in a legally binding subpoena, demand or similar order issued pursuant to a legal or regulatory proceeding.
All Confidential Information, and all equipment, notebooks, documents, memoranda, reports, files, samples, books, correspondence, lists, other written and graphic records, in any media (including electronic or video) containing Confidential Information or relating to the business of Employer, which Employee shall prepare, use, construct, observe, possess, or control shall be and remain Employer’s sole property (collectively “Employer Property”). Upon termination or expiration of this Agreement, or earlier upon Employer’s request, Employee shall promptly deliver to Employer all Employer Property, retaining none.
11
12
The provisions of this Section 8 shall survive the termination of this Agreement and Employee’s employment with Employer. In the event of a breach of this Section 8 by Employee, as finally determined pursuant to Section 11 hereof, Employer retains the right to terminate any continuing payments to Employee provided for in Section 4 hereof. In the event of a breach of any provisions of this Section 8 by Employee, as finally determined pursuant to Section 11 hereof, the period for which those provisions would remain in effect shall be extended for a period of time equal to that period beginning when such breach commenced and ending when the activities constituting such breach shall have been finally terminated, in each case as finally determined pursuant to Section 11 hereof. The provisions of this Section 8 are expressly intended to benefit and be enforceable by other affiliated entities of Employer, who are express third party beneficiaries hereof. Employee shall not assist others in engaging in any of the activities described in the foregoing restrictive covenants.
13
14
15
Employer shall bear all costs associated with such mediation and, if necessary, arbitration, including but not limited to all costs of the mediator and arbitrator, and shall reimburse Employee on a monthly basis for Employee’s reasonable legal and other expenses, including all fees, incurred in connection with any such mediation and, if necessary, arbitration, provided, however, that if Employer ultimately prevails in any arbitration (as determined by the arbitrator), the arbitrator shall have the power to require Employee to reimburse Employer for all or a portion of the advanced legal fees and other expenses as determined by the arbitrator (and, if the arbitrator finds that Employer prevailed on certain claims and Employee prevailed on others, the arbitrator shall have the power to require Employee to reimburse Employer for a portion of the advanced legal fees and other expenses determined by the arbitrator based on those claims on which Employer prevailed). The mediation and, if necessary, arbitration proceedings shall be held in Sunrise, Florida, unless otherwise mutually agreed by the parties, and shall be conducted in accordance with the American Arbitration Association National Rules for the Resolution of Employment Disputes then in effect. Judgment on any award rendered by the arbitrator may be entered and enforced by any court having jurisdiction thereof. Any such mediation and, if necessary, arbitration shall be treated as confidential by all parties thereto, except as otherwise provided by law or as otherwise necessary to enforce any judgment or order issued by the arbitrator.
Notwithstanding anything herein to the contrary, if Employer or Employee shall require immediate injunctive relief, then the party shall be entitled to seek such relief in any court having jurisdiction, and if the party elects to do so, the other party hereby consents to the jurisdiction of the state and federal courts sitting in the State of Florida and to the applicable service of process. Employee and Employer hereby waive and agree not to assert, to the fullest extent permitted by applicable law, any claim that (i) they are not subject to the jurisdiction of such courts, (ii) they are immune from any legal process issued by such courts and (iii) any litigation or other proceeding commenced in such courts is brought in an inconvenient forum. In the event that Employer brings suit against Employee seeking injunctive relief, Employer agrees to advance all of Employee’s reasonable legal and other expenses, including all fees, incurred by Employee in connection with such action, provided, however, that if Employer ultimately prevails in seeking injunctive relief, Employee shall reimburse Employer all such advanced legal fees and other expenses.
16
If to Employer:
PMG Services, Inc. 1301 Concord Terrace Sunrise, FL 33323 Attention: General Counsel Email: maryann.moore@pediatrix.com |
If to Employee:
Kasandra Rossi c/o PMG Services, Inc. 1301 Concord Terrace Sunrise, FL 33323 Email: kasandra.rossi@pediatrix.com |
or to such other addresses as either party hereto may from time to time give notice of to the other in the aforesaid manner.
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The remainder of this page has been left blank intentionally.
18
IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the Effective Date.
EMPLOYER:
PMG SERVICES, INC.
|
EMPLOYEE: |
By: /s/ Mary Ann E. Moore Mary Ann E. Moore Executive Vice President, General Counsel, Chief Administrative Officer & Secretary
|
By: /s/ Kasandra Rossi Kasandra Rossi |
PEDIATRIX MEDICAL GROUP, INC.
By: /s/ Shirley A. Weis Shirley A. Weis Chair, Compensation and Talent Committee |
|
Signature Page to Third Amended and Restated Employment Agreement
EXHIBIT A
BUSINESS OF EMPLOYER
As of the date hereof, Employer, directly or through its affiliates, provides professional medical services and all aspects of practice management services in medical practice areas that include, but are not limited to, the following (collectively referred to herein as “Employer’s Business”):
(1) Neonatology, including hospital well baby care;
(2) Maternal‑Fetal Medicine, including general obstetrics services;
(3) Pediatric Intensive Care, including Pediatric Hospitalist Care;
(4) Newborn hearing screening services;
(5) Pediatric Surgery; and
(6) Pediatric Emergency Medicine; and
References to Employer’s Business in this Agreement shall include such other medical service lines, practice management services and other businesses in which Employer is engaged during the Employment Period; provided, that to be considered a part of Employer’s Business, Employer must have engaged in such other service line, practice management service or other business at least six (6) months prior to the termination date of this Agreement. For purposes of this Exhibit A, businesses of Employer shall include the businesses conducted by Employer’s subsidiaries, entities under common control and affiliates as defined under Rule 144 of the Securities Act of 1933, as amended. Such affiliates shall include the professional corporations and associations whose operating results are consolidated with Employer for financial reporting purposes.
Notwithstanding the foregoing, Employer acknowledges and agrees to the following exceptions and clarifications regarding the scope of Employer’s Business.
A. Hospital Services. Employer and Employee acknowledge that, as of the date hereof, Employer does not currently operate hospitals, hospital systems or universities. Nevertheless, the businesses of hospitals, hospital systems and universities would be the same as Employer’s Business where such hospitals, hospital systems or universities provide or contract with others to provide some or all of the medical services included in Employer’s Business. Therefore, the parties desire to clarify their intent with respect to the limitations on Employee’s ability to work for or contract with others to provide services for a hospital, hospital system or university during the Employment Period and during the Restricted Period. Section 8.1 shall not be deemed to restrict Employee’s ability to work for a hospital, hospital system or university if the hospital, hospital system or university does not provide any of the medical services included in Employer’s Business. Furthermore, even if a hospital, hospital system or university provides medical services that are included in Employer’s Business, Employee may work for such hospital, hospital system or university if Employee has no direct supervisory responsibility for or involvement in the hospital’s, hospital system’s or university’s provision of medical services that are Employer’s Business. For the avoidance of doubt, Employer and Employee agree that if Employee becomes the Chief Operating Officer, Chief Legal Officer, Chief Compliance Officer, General Counsel or Chief Executive Officer of a hospital system or health system, or other
A‑1
executive officer of similar level to the foregoing, that Employee shall not be in breach of the provisions of this Agreement. Finally, Employer agrees that Employee may hold direct supervisory responsibility for or be involved in the medical services of a hospital, hospital system or university that are included in Employer’s Business so long as such hospital, hospital system or university is located at least ten (10) miles from a medical practice owned or operated by Employer or its affiliate. Subject to paragraph B below, the provisions of this paragraph shall not apply to the extent that, after the date hereof, Employer enters into the business of operating a hospital or hospital system.
B. De Minimus Exception. Employer agrees that a medical service line (other than those listed in items (1) through (8) above), practice management service or other business in which Employer is engaged shall not be considered to be a part of Employer’s Business if such medical service line, practice management service or other business constitutes less than three percent (3%) of Employer’s annual revenues.
C. Divested Lines of Service. Employer agrees that any medical service line (including those listed in items (1) through (8) above), practice management, or other business in which Employer is engaged that is divested pursuant to a disposition, sale of assets or equity, or otherwise after the Effective Date shall not be considered to be a part of Employer’s Business effective as of the effective date of such divestiture.
D. Certain Ownership Interests. It shall not be deemed to be a violation of Section 8.1 for Employee to: (i) own, directly or indirectly, one percent (1%) or less of a publicly‑traded entity that has a market capitalization of $1 billion or more; (ii) own, directly or indirectly, five percent (5%) or less of a publicly‑traded entity that has a market capitalization of less than $1 billion; or (iii) own, directly or indirectly, less than ten percent (10%) of a privately‑held business or company, if Employee is at all times a passive investor with no board representation, management authority or other special rights to control operations of such business or company.
A‑2
EXHIBIT B
FORM OF RELEASE
GENERAL RELEASE OF CLAIMS
B-1
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[DO NOT SIGN]
, 20 |
B-2
Exhibit 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James D. Swift, M.D., certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pediatrix Medical Group, 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: November 1, 2024
By: /s/ James D. Swift, M.D.
James D. Swift, M.D.
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kasandra H. Rossi, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Pediatrix Medical Group, 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: November 1, 2024
By: /s/ Kasandra H. Rossi
Kasandra H. Rossi
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting 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 Pediatrix Medical Group, Inc. on Form 10-Q for the quarter ended September 30, 2024 (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 Pediatrix Medical Group, Inc.
A signed original of this written statement required by Section 906 has been provided to Pediatrix Medical Group, Inc. and will be retained by Pediatrix Medical Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
November 1, 2024
By: /s/ James D. Swift, M.D.
James D. Swift, M.D.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Kasandra H. Rossi
Kasandra H. Rossi
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)