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Pediatrix Medical Group, Inc. (MD)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 net revenue was $504.3M; GAAP EPS was -$1.84 due to $192.9M non-cash goodwill and long-lived asset impairments; Adjusted EPS was $0.34 and Adjusted EBITDA was $57.9M; management said results exceeded internal expectations, aided by stronger payer mix and operating efficiencies .
  • Same-unit revenue rose 2.8% YoY, driven by reimbursement-related factors (+2.4%) from payer mix improvement (+230 bps shift to commercial/non-government payors) and modest hospital contract admin fee gains; volumes were stable overall (hospital-based +1.0%, office-based -1.2%; NICU days -0.8%) .
  • Portfolio restructuring accelerated: exits of nearly all office-based practices (except maternal-fetal medicine) and completed divestiture of ~two dozen primary/urgent care clinics; these exited businesses generated ~$200M revenue in 2023; expected annualized Adjusted EBITDA uplift is ~$30M when complete .
  • FY24 Adjusted EBITDA guidance maintained at $200–$220M; CFO noted Q3 and Q4 EBITDA should be fairly ratable, with capex expected to decline to $16–$20M annually post-restructuring and net leverage around ~3x based on outlook .
  • Key potential catalysts: execution of practice exits and Guidehouse RCM transition (3/4 of practices transitioned, targeting Q3 completion), sustained payer mix tailwind, and clarity on FY25 growth pivot after portfolio refocus .

What Went Well and What Went Wrong

  • What Went Well

    • Same-unit revenue growth (+2.8%) with a favorable payer mix shift (+230 bps) and modest hospital admin fee improvements; management: “operating results exceeded our expectations… improved payor mix, and operating efficiencies” .
    • Cash generation improved: cash from operations of $109.3M in Q2 (vs $92.6M in Q2’23) and DSOs fell from 52 to 49.5 days by quarter-end; revolver fully repaid with $19.4M cash on balance sheet at 6/30 .
    • RCM transition progressing smoothly (roughly 3/4 practices transitioned to Guidehouse), with no material disruptions and expectation for enhanced future performance .

  • What Went Wrong

    • Large non-cash impairment ($192.9M) associated with portfolio plan drove GAAP net loss of $153.0M (-$1.84 EPS), overshadowing Adjusted EPS of $0.34; adjusted EBITDA slightly below prior year ($57.9M vs $59.1M) .
    • Office-based volumes declined (-1.2% YoY), and NICU days fell (-0.8%), offsetting hospital-based volume growth (+1.0%) .
    • Estimated restructuring/exit costs increased to about $40M (from ~$20–25M), timing to complete by year-end; benefits largely a 2025 story per CFO .

Financial Results

MetricQ2 2023Q4 2023Q1 2024Q2 2024
Net Revenue ($USD Millions)$500.6 $496.4 $495.1 $504.3
GAAP EPS ($)$0.34 -$1.50 $0.05 -$1.84
Adjusted EPS ($)$0.39 $0.32 $0.20 $0.34
Adjusted EBITDA ($USD Millions)$59.1 $50.8 $37.2 $57.9
Adjusted EBITDA Margin (%)11.8% 10.2% 7.5% 11.5%

Segment/Volume KPIs:

KPI (YoY same-unit)Q4 2023Q1 2024Q2 2024
Hospital-based patient services-3.0% +2.5% +1.0%
Office-based patient services+3.9% -0.9% -1.2%
NICU days-2.0% +2.5% -0.8%

Cash, Debt, and Payer Mix:

MetricQ4 2023Q1 2024Q2 2024
Cash and Equivalents ($USD Millions)$73.3 $8.0 $19.4
Total Debt Outstanding ($USD Millions)$628 $705 $622
CapEx ($USD Millions)$9.0 $5.3 $7.0
Cash from Operations ($USD Millions)$72.1 -$122.6 $109.3
Commercial/Non-Govt Payor Mix change (bps)+40 +130 +230

Notes:

  • Q2’24 Adjusted EBITDA includes ~$3M one-time payer settlement; management does not expect recurrence .
  • DSOs improved to 49.5 days at 6/30 from 52 days at 3/31 .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EBITDAFY 2024$200–$220M $200–$220M Maintained
RevenueFY 2024$2.0–$2.1B (prelim provided Feb call) Not reiterated in Q2 materials N/A
CapExAnnualHistorical average ~$30M (context) $16–$20M (preliminary post-restructuring) Lowered
G&A expenseFY 2024Comparable % of revenue vs 2023 Comparable to or lower than 2023 dollars Maintained/Improved
EBITDA cadenceH2 2024Q2 expected 24–25% of full-year (from May call) Q3 and Q4 fairly ratable; Q3 Street consensus “looks appropriate” Updated cadence commentary

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23 and Q1’24)Current Period (Q2’24)Trend
Revenue Cycle Management (RCM)Hybrid model build-out; in-network progress; no material disruptions; DSOs stable exiting FY23 ~3/4 practices transitioned to Guidehouse; remaining targeted for Q3; no material disruptions Execution progressing; completion imminent
Portfolio restructuring/exitsAccelerated plan to exit underperforming office-based practices, primary/urgent care Exiting almost all office-based (except MFM); divested ~two dozen primary/urgent care clinics; $200M 2023 revenue exited; +$30M annualized EBITDA benefit expected Ramp-up in H2’24; benefits weighted to FY25
Payer mix and in-networkIn-network >95%; arbitration win rate approaching ~90% +230 bps mix shift to commercial/non-government; contracting landscape stable Favorable mix tailwind sustained
Maternal-Fetal Medicine (MFM) volumesStrength in office-based MFM; +3% Q1 Strong H1 same-unit volume growth approaching mid-single digits; structurally well-positioned Persistently strong
NICU days2-year stack slightly positive; Q4’23 down 2.0% -0.8% YoY in Q2; rate/LOS stable YoY Near stable
Hospital contract admin fees/stipendsRenegotiations support margin; in-network benefits volumes/rates Modest admin fee improvement; continued renegotiations; limited stipends generally Incremental tailwind
CapEx and leverageFY23 op cash flow ~70% of EBITDA; Q4 op cash $72.1M; net leverage <2.8x CapEx targeted $16–$20M; net debt ~ $600M, ~3x leverage on outlook Lower capex; de-leveraging stance

Management Commentary

  • “Our second quarter operating results exceeded our expectations driven by same unit revenue growth and operating efficiencies… While patient volumes remained stable overall… we are maintaining our full year 2024 outlook for adjusted EBITDA of between $200 million and $220 million.” – CEO Dr. Jim Swift .
  • “We will be exiting almost all of our office-based practices other than maternal fetal medicine during 2024… the favorable impact… will be approximately $30 million of annualized adjusted EBITDA.” – CEO Dr. Jim Swift .
  • “We generated $109 million in operating cash flow in the second quarter… DSOs… declined… to 49.5 days… net debt… roughly $600 million at or below 3x leverage… annual CapEx… $16 million to $20 million.” – CFO C. Marc Richards .
  • “Payer mix improvement… does not include a significant amount of the settlement… landscape… stable.” – SVP Charles Lynch .

Q&A Highlights

  • Restructuring/exit costs increased to about $40M from ~$20–25M as scope expanded; costs to be incurred through year-end .
  • EBITDA cadence: despite a strong Q2 (incl. ~$3M one-time payer settlement), FY outlook unchanged; Q3 consensus “looks appropriate”; Q3/Q4 EBITDA expected to be fairly comparable .
  • Office exits impact: majority in H2’24; Q3/Q4 to be consistent with Q2; full positive financial impact realized in 2025 .
  • Pricing drivers: payer mix had slightly greater role than contract/admin fees; successful hospital renegotiations late ’23–H1’24; limited stipend reliance .
  • NICU days: decline driven neither by admissions nor LOS changes; broadly stable YoY .

Estimates Context

  • Wall Street consensus from S&P Global for Q2 2024 revenue and EPS was unavailable at the time of analysis due to API rate limits. Values could not be retrieved; therefore, we do not present beat/miss vs consensus. Values retrieved from S&P Global would be presented here if available.*

Where estimates may need to adjust:

  • Given maintained FY24 EBITDA guidance with ratable H2 and a ~$3M one-time item in Q2, models should reflect flattish Q3/Q4 EBITDA and reduced annual capex ($16–$20M) post-restructuring .
  • Portfolio exits remove $200M of 2023 revenue but increase margin profile; incorporate timing of exits and higher restructuring costs ($40M) through FY24 .

Key Takeaways for Investors

  • The quarter’s GAAP loss is driven by non-cash impairments; operating performance improved on payer mix and efficiencies, with Adjusted EPS $0.34 and EBITDA margin ~11.5% .
  • Execution on portfolio restructuring (exiting office-based practices, divesting primary/urgent care) is the core driver of margin uplift (~$30M annualized) with benefits primarily in FY25; monitor exit cadence through Q3/Q4 .
  • RCM transition to Guidehouse is nearing completion and has not disrupted collections; DSOs improved and cash generation was strong; this supports deleveraging and lower capex .
  • MFM volumes remain a bright spot with persistent strength; hospital-based volumes modestly positive; NICU days broadly stable despite -0.8% YoY .
  • Pricing tailwinds from payer mix (+230 bps) and admin fees should be modeled conservatively (management avoids forecasting mix changes); watch for continuation into H2 .
  • Guidance discipline: FY24 EBITDA $200–$220M maintained; Q3 and Q4 expected to be fairly similar; one-time Q2 settlement should be stripped from run-rate .
  • Leadership transition: new CFO effective ~Oct 1 may signal continuity in transformation agenda; no expected operational disruption .