Kieran Ryan

Kieran Ryan, on for Philip Chickering, asked for clarification on the events between late February and the current report that led to the Q1 miss and the significant guidance revision. He also requested details on the expected revenue and EBITDA ramp for the Payer & Provider vertical.

Answer

CEO Lee Bienstock stated the guidance change was a strategic decision to remove uncertain Government Population Health revenue due to policy-driven delays and stalled contracts, while core businesses remain on track. CFO Norman Rosenberg added that the Q1 revenue miss was contained within the government vertical. Regarding the Payer vertical, Bienstock confirmed the $50 million revenue target is unchanged, with margins expected to approach 40% next year as utilization improves. Rosenberg noted that while the business currently drags on margins, clinician utilization rates are trending up significantly.

Kieran Ryan, on for Pito Chickering, asked about the potential business impact from proposed changes to Medicaid and ACA exchange subsidies.

Answer

Chairman and CEO Adam Schechter noted that Medicare and Medicaid combined represent about 10% of Diagnostics revenue. He stated that the company manages shifts between different government and private plans well. The primary concern would be a significant rise in the number of uninsured individuals, which he views as an unlikely scenario. As long as patients maintain coverage, he believes the financial impact of plan shifts is manageable.

Kieran Ryan of Deutsche Bank asked for confirmation on the underlying EBITDA margin expansion for 2025 after excluding one-time items and sought reasons for the slower growth in Home Health & Hospice in Q4.

Answer

CFO Matt Buckhalter confirmed the underlying margin expansion analysis was correct, clarifying that it would primarily be driven by SG&A leverage as rate gains are passed to caregivers to drive volume. CEO Jeff Shaner attributed the Q4 HHH slowdown to temporary open sales positions, noting trends have already improved. He stated a willingness to trade some of the high 76% episodic mix for more organic growth, targeting 1-3% in 2025.

Kieran Ryan, on behalf of Deutsche Bank AG, asked about the ongoing impact of pricing pressure in the Diabetes segment from shifts to the pharmacy channel and inquired about the growth outlook for the Sleep segment in 2025.

Answer

CFO Jason Clemens stated that the impact from payers shifting to pharmacy reimbursement for diabetes is expected to be "muted" in 2025 compared to the prior year, viewing the environment as stable. While not providing specific segment guidance, he indicated that the Sleep segment is expected to provide the growth needed to offset anticipated compression in Diabetes and achieve the overall company guidance.

Kieran Ryan from Deutsche Bank asked if Pediatrix has seen an improved ability to secure additional funding or subsidies from hospitals. He also questioned the company's plans for returning to M&A activity given its strong cash flow and lower leverage, and asked for commentary on the M&A pipeline.

Answer

CEO James Swift stated that Pediatrix's relationships with hospitals are stable and that necessary contract increases were largely secured in late 2022 and early 2023. He does not see the same need for subsidies as some adult service lines. On M&A, Swift confirmed the company sees a 'real opportunity' for acquisitions in its core services in late 2024 and into 2025, supported by a strong pipeline and improved operational stability.

Kieran Ryan, on for Pito Chickering, questioned the implied Q4 EBITDA margin decline, asking if it was solely due to opening costs and hurricane impacts. He also asked about free cash flow dynamics.

Answer

CFO Douglas Coltharp confirmed the Q4 margin outlook is shaped by several year-over-year factors outlined in his prepared remarks, including a prior-year bad debt reserve, insurance adjustments, and current-year preopening costs. Regarding cash flow, he attributed the quarter's strength to robust accounts receivable collections, particularly the resolution of claims that were under TPE review in Q2.