MEDNAX, INC.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

(Unaudited)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Net revenue
$
888,675
$
848,759
$
2,608,167
$
2,566,374

Operating expenses:

Practice salaries and benefits

630,309

599,326

1,860,810

1,796,328

Practice supplies and other operating expenses

26,950

27,249

80,757

82,981

General and administrative expenses

102,356

95,771

307,717

298,402

Depreciation and amortization

19,608

22,205

59,450

62,399

Transformational and restructuring related expenses

19,992

—

51,018

—

Goodwill impairment

1,449,215

—

1,449,215

—

Total operating expenses

2,248,430

744,551

3,808,967

2,240,110

(Loss) income from operations

(1,359,755
)
104,208

(1,200,800
)
326,264

Investment and other income

1,373

1,531

4,242

4,230

Interest expense

(29,901
)
(21,788
)
(91,704
)
(63,341
)
Equity in earnings of unconsolidated affiliates
��
2,249

1,766

5,475

4,548

Total
non-operating
expenses

(26,279
)
(18,491
)
(81,987
)
(54,563
)

(Loss) income from continuing operations before income taxes

(1,386,034
)
85,717

(1,282,787
)
271,701

Income tax benefit (provision)

125,788

(23,550
)
99,710

(74,752
)

(Loss) income from continuing operations

(1,260,246
)
62,167

(1,183,077
)
196,949

Income (loss) from discontinued operations, net of tax

4,330

3,408

(323,956
)
11,466

Net (loss) income
$
(1,255,916
) $
65,575
$
(1,507,033
) $
208,415

Per common and common equivalent share data:

(Loss) income from continuing operations:

Basic
$
(15.29
) $
0.68
$
(14.11
) $
2.14

Diluted
$
(15.29
) $
0.68
$
(14.11
) $
2.13

Income (loss) from discontinued operations:

Basic
$
0.05
$
0.04
$
(3.86
) $
0.12

Diluted
$
0.05
$
0.04
$
(3.86
) $
0.12

Net (loss) income:

Basic
$
(15.24
) $
0.72
$
(17.97
) $
2.26

Diluted
$
(15.24
) $
0.72
$
(17.97
) $
2.25

Weighted average common shares:

Basic

82,441

90,984

83,846

92,239

Diluted

82,441

91,359

83,846

92,760


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net revenue	$	460,635		$	454,913		$	1,317,321		$	1,321,159

Operating expenses:
Practice salaries and benefits		309,904			301,306			909,168			880,686
Practice supplies and other operating expenses		22,440			22,581			66,455			72,688
General and administrative expenses		66,346			63,284			194,276			185,318
Depreciation and amortization		7,195			6,408			20,749			18,830
Transformational and restructuring related expenses		34,291			12,766			60,846			32,025

Total operating expenses		440,176			406,345			1,251,494			1,189,547

Income from operations		20,459			48,568			65,827			131,612
Investment and other income		10,534			802			13,064			2,777
Interest expense		(27,250	)		(29,909	)		(83,180	)		(91,271	)
Equity in earnings of unconsolidated affiliates		282			786			1,081			1,753

Total non-operating expenses		(16,434	)		(28,321	)		(69,035	)		(86,741	)

Income (loss) from continuing operations before income taxes		4,025			20,247			(3,208	)		44,871
Income tax provision		(6,677	)		(7,360	)		(10,859	)		(12,590	)

(Loss) income from continuing operations		(2,652	)		12,887			(14,067	)		32,281
Loss from discontinued operations, net of tax		(38,392	)		(1,268,803	)		(718,125	)		(1,539,314	)

Net loss	$	(41,044	)	$	(1,255,916	)	$	(732,192	)	$	(1,507,033	)

Per common and common equivalent share data:
(Loss) income from continuing operations:
Basic	$	(0.03	)	$	0.16		$	(0.17	)	$	0.39

Diluted	$	(0.03	)	$	0.16		$	(0.17	)	$	0.38

Loss from discontinued operations:
Basic	$	(0.46	)	$	(15.39	)	$	(8.62	)	$	(18.36	)

Diluted	$	(0.46	)	$	(15.31	)	$	(8.62	)	$	(18.26	)

Net loss:
Basic	$	(0.49	)	$	(15.23	)	$	(8.79	)	$	(17.97	)

Diluted	$	(0.49	)	$	(15.15	)	$	(8.79	)	$	(17.88	)

Weighted average common shares:
Basic		83,862			82,441			83,260			83,846
Diluted		83,862			82,883			83,260			84,302

The accompanying notes are an integral part of these ~~Condensed~~ Consolidated Financial Statements.

Table of Contents

MEDNAX, INC.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF EQUITY

(in thousands)

Common Stock

Number of
Shares

Amount

Additional
Paid-in

Capital

Accumulated
Other
Comprehensive
(Loss)
Income

(1)

Retained
Earnings

Total
Equity

2019

Balance at January 1, 2019

87,820
$
878
$
992,647
$
—
$
2,094,359
$
3,087,884

Net loss

—

—

—

—

(242,872
)
(242,872
)
Unrealized holding loss on investments, net of tax

—

—

—

(194
)
—

(194
)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan

140

1

3,541

—

—

3,542

Issuance of restricted stock

978

10

(10
)
—

—

—

Forfeitures of restricted stock

(6
)
—

—

—

—

—

Stock swaps

(20
)
—

(666
)
—

—

(666
)
Stock-based compensation expense

—

—

11,100

—

—

11,100

Repurchased common stock

(2,525
)
(25
)
(28,740
)
—

(50,217
)
(78,982
)

Balance at March 31, 2019

86,387
$
864
$
977,872
$
(194
) $
1,801,270
$
2,779,812

Net loss

—

—

—

—

(8,245
)
(8,245
)
Unrealized holding gain on investments, net of tax

—

—

—

232

—

232

Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan

155

2

3,673

—

—

3,675

Issuance of restricted stock

123

1

(1
)
—

—

—

Forfeitures of restricted stock

(61
)
(1
)
1

—

—

—

Stock-based compensation expense

—

—

15,080

—

—

15,080

Repurchased common stock

(2,508
)
(25
)
(29,196
)
—

(36,306
)
(65,527
)

Balance at June 30, 2019

84,096
$
841
$
967,429
$
38
$
1,756,719
$
2,725,027

Net loss

—

—

—

—

(1,255,916
)
(1,255,916
)
Unrealized holding
loss
on investments, net of tax

—

—

—

(32
)
—

(32
)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan
124
1

2,605

—

—

2,606

Issuance of restricted stock
12
—

—

—

—

—

Forfeitures of restricted stock

(27
)
—

—

—

—

—

Stock-based compensation expense

—

—

8,090

—

—

8,090

Repurchased common stock

(20
)
—

(415
)
—

—

(415
)

Balance at September 30, 2019

84,185
$
842
$
977,709
$
6
$
500,803
$
1,479,360


	Common Stock
	Number of						Additional Paid-in			Retained (Deficit)			Total
	Shares			Amount			Capital			Earnings			Equity
2020
Balance at January 1, 2020		84,248		$	842		$	987,942		$	510,212		$	1,498,996
Net loss		—			—			—			(18,712	)		(18,712	)
Unrealized holding loss on investments, net of tax (1)		—			—			—			(213	)		(213	)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		78			1			1,831			—			1,832
Issuance of restricted stock and conversion of deferred stock to common stock		968			10			(10	)		—			—
Forfeitures of restricted stock		(19	)		—			—			—			—
Stock-based compensation expense		—			—			8,035			—			8,035
Repurchased common stock		(125	)		(1	)		(2,541	)		—			(2,542	)

Balance at March 31, 2020		85,150		$	852		$	995,257		$	491,287		$	1,487,396
Net loss		—			—			—			(672,436	)		(672,436	)
Unrealized holding gain on investments, net of tax (1)		—			—			—			2,078			2,078
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		277			3			2,541			—			2,544
Issuance of restricted stock		200			2			(2	)		—			—
Forfeitures of restricted stock		(57	)		(1	)		1			—			—
Stock-based compensation expense		—			—			7,489			—			7,489
Repurchased common stock		(34	)		(1	)		(500	)		—			(501	)

Balance at June 30, 2020		85,536		$	855		$	1,004,786		$	(179,071	)	$	826,570
Net loss		—			—			—			(41,044	)		(41,044	)
Contribution from noncontrolling Interests (1)											245			245
Unrealized holding gain on investments, net of tax (1)		—			—			—			47			47
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		89			1			1,323			—			1,324
Issuance of restricted stock and conversion of deferred stock to common stock		282			3			(3	)		—			—
Forfeitures of restricted stock		(92	)		(1	)		1			—			—
Stock-based compensation expense		—			—			23,316			—			23,316
Repurchased common stock		(311	)		(3	)		(5,449	)		—			(5,452	)

Balance at September 30, 2020		85,504		$	855		$	1,023,974		$	(219,823	)	$	805,006

(1)

~~(1)~~

Presented within retained (deficit) earnings ~~on the consolidated balance sheet~~ as the balance is immaterial.

The accompanying notes are an integral part of these ~~Condensed~~ Consolidated Financial Statements.

Table of Contents

MEDNAX, INC.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF EQUITY (continued)

(in thousands)

Common Stock

Number of
Shares

Amount

Additional
Paid-in

Capital

Retained
Earnings

Total

Equity

2018

Balance at January 1, 2018

93,721
$
937
$
1,017,328
$
2,048,189
$
3,066,454

Net income

—

—

—

63,428

63,428

Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan

97

1

4,026

—

4,027

Issuance of restricted stock

588

6

(6
)
—

—

Forfeitures of restricted stock

(13
)
—

—

—

—

Stock swaps

(5
)
—

(296
)
—

(296
)
Stock-based compensation expense

—

—

9,875

—

9,875

Balance at March 31, 2018

94,388
$
944
$
1,030,927
$
2,111,617
$
3,143,488

Net income

—

—

—

79,412

79,412

Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan

214

2

8,021

—

8,023

Issuance of restricted stock

9

—

—

—

—

Forfeitures of restricted stock

(32
)
—

—

—

—

Stock swaps

(50
)
—

(2,365
)
—

(2,365
)
Stock-based compensation expense

—

—

10,524

—

10,524

Repurchased common stock

(1,155
)
(12
)
(14,534
)
(37,614
)
(52,160
)

Balance at June 30, 2018

93,374
$
934
$
1,032,573
$
2,153,415
$
3,186,922

Net income

—

—

—

65,575

65,575

Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan

108

1

3,862

—

3,863

Issuance of restricted stock

104

—

—

—

—

Forfeitures of restricted stock

(13
)
—

—

—

—

Stock-based compensation expense

—

—

8,945

—

8,945

Repurchased common stock

(4,224
)
(42
)
(46,710
)
(203,248
)
(250,000
)

Balance at September 30, 2018

89,349
$
893
$
998,670
$
2,015,742
$
3,015,305


	Common Stock
	Number of						Additional Paid-in			Retained (Deficit)			Total
	Shares			Amount			Capital			Earnings			Equity
2019
Balance at January 1, 2019		87,820		$	878		$	992,647		$	2,094,359		$	3,087,884
Net loss		—			—			—			(242,872	)		(242,872	)
Unrealized holding loss on investments, net of tax (1)		—			—			—			(194	)		(194	)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		140			1			3,541			—			3,542
Issuance of restricted stock		978			10			(10	)		—			—
Forfeitures of restricted stock		(6	)		—			—			—			—
Stock swaps		(20	)		—			(666	)		—			(666	)
Stock-based compensation expense		—			—			11,100			—			11,100
Repurchased common stock		(2,525	)		(25	)		(28,740	)		(50,217	)		(78,982	)

Balance at March 31, 2019		86,387		$	864		$	977,872		$	1,801,076		$	2,779,812
Net loss		—			—			—			(8,245	)		(8,245	)
Unrealized holding gain on investments, net of tax (1)		—			—			—			232			232
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		155			2			3,673			—			3,675
Issuance of restricted stock		123			1			(1	)		—			—
Forfeitures of restricted stock		(61	)		(1	)		1			—			—
Stock-based compensation expense		—			—			15,080			—			15,080
Repurchased common stock		(2,508	)		(25	)		(29,196	)		(36,306	)		(65,527	)

Balance at June 30, 2019		84,096		$	841		$	967,429		$	1,756,757		$	2,725,027
Net loss		—			—			—			(1,255,916	)		(1,255,916	)
Unrealized holding gain on investments, net of tax (1)		—			—			—			(32	)		(32	)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		124			1			2,605			—			2,606
Issuance of restricted stock		12			—			—			—			—
Forfeitures of restricted stock		(27	)		—			—			—			—
Stock-based compensation expense		—			—			8,090			—			8,090
Repurchased common stock		(20	)		—			(415	)		—			(415	)

Balance at September 30, 2019		84,185		$	842		$	977,709		$	500,809		$	1,479,360

(2)	Presented within retained (deficit) earnings as the balance is immaterial.

The accompanying notes are an integral part of these ~~Condensed~~ Consolidated Financial Statements.

Table of Contents

MEDNAX, INC.

~~CONDENSED~~ CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

Nine Months Ended September 30,

2019

2018

Cash flows from operating activities:

Net (loss) income
$
(1,507,033
) $
208,415

Loss (income) from discontinued operations

323,956

(11,466
)
Adjustments to reconcile net income to net cash from operating activities:

Depreciation and amortization

59,450

62,398

Goodwill impairment

1,449,215

—

Amortization of premiums, discounts and issuance costs

4,293

3,314

Stock-based compensation expense

28,972

28,754

Deferred income taxes

(154,689
)
(18,031
)
Other

(1,069
)
(3,030
)
Changes in assets and liabilities:

Accounts receivable

12,024

(25,563
)
Prepaid expenses and other current assets

(7,620
)
(5,696
)
Other long-term assets

30,528

(2,131
)
Accounts payable and accrued expenses

24,479

(10,947
)
Income taxes payable

(25,837
)
(70,186
)
Payments of contingent consideration liabilities

(764
)
(686
)
Long-term professional liabilities

821

(2,608
)
Other liabilities

(25,880
)
(2,095
)

Net cash provided by operating activities
-
continuing operations

210,846

150,442

Net cash provided by operating activities
-
discontinued operations

8,170

11,889

Net cash provided by operating activities

219,016

162,331

Cash flows from investing activities:

Acquisition payments, net of cash acquired

(31,200
)
(27,035
)
Purchases of investments

(13,907
)
(15,884
)
Proceeds from maturities or sales of investments

26,240

10,510

Purchases of property and equipment

(25,009
)
(24,818
)
Proceeds from sale of controlling interest in assets

—

22,764

Net cash used in investing activities
-
continuing operations

(43,876
)
(34,463
)
Net cash used in investing activities
-
discontinued operations

(10,646
)
(13,317
)

Net cash used in investing activities

(54,522
)
(47,780
)

Cash flows from financing activities:

Borrowings on credit agreement

1,225,800

1,364,500

Payments on credit agreement

(1,755,500
)
(1,211,000
)
Proceeds from issuance of senior notes

500,000

—

Payments for financing costs

(9,194
)
—

Payments of contingent consideration liabilities

(8,726
)
(3,869
)
Payments on finance lease obligations

(183
)
(996
)
Proceeds from issuance of common stock

9,157

13,253

Repurchases of common stock

(144,925
)
(302,160
)

Net cash used in financing activities
-
continuing operations

(183,571
)
(140,272
)
Net cash used in financing activities
-
discontinued operations

—

(17
)

Net cash used in financing activities

(183,571
)
(140,289
)

Net decrease in cash and cash equivalents

(19,077
)
(25,738
)
Cash, cash equivalents and restricted cash at beginning of period

56,745

80,200

Less cash and cash equivalents of discontinued operations at end of period

(8,778
)
(12,399
)

Cash
and
cash equivalents of continuing operations at end of period
$
28,890
$
42,063


	Nine Months Ended September 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(732,192	)	$	(1,507,033	)
Loss from discontinued operations		718,125			1,539,314
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		20,749			18,830
Amortization of premiums, discounts and issuance costs		4,076			4,293
Stock-based compensation expense		36,120			27,512
Deferred income taxes		30,214			(13,484	)
Other		(30	)		3,370
Changes in assets and liabilities:
Accounts receivable		30,006			7,491
Prepaid expenses and other current assets		(1,716	)		(22,545	)
Other long-term assets		7,703			21,825
Accounts payable and accrued expenses		(36,433	)		(2,238	)
Income taxes payable / receivable		(28,837	)		(25,838	)
Long-term professional liabilities		15,703			4,508
Other liabilities		8,157			(19,768	)

Net cash provided by operating activities – continuing operations		71,645			36,237
Net cash provided by operating activities—discontinued operations		144,841			186,177

Net cash provided by operating activities		216,486			222,414

Cash flows from investing activities:
Acquisition payments, net of cash acquired		(2,225	)		(31,200	)
Purchases of investments		(36,090	)		(13,907	)
Proceeds from maturities or sales of investments		30,865			26,240
Purchases of property and equipment		(21,809	)		(14,862	)
Proceeds from sale of business, net of cash sold		1,080			0

Net cash used in investing activities – continuing operations		(28,179	)		(33,729	)
Net cash provided by (used in) investing activities—discontinued operations		3,079			(20,793	)

Net cash used in investing activities		(25,100	)		(54,522	)

Cash flows from financing activities:
Borrowings on credit agreement		527,500			1,225,800
Payments on credit agreement		(527,500	)		(1,755,500	)
Proceeds from issuance of senior notes		0			500,000
Payments for credit facility amendment and financing costs		(510	)		(9,194	)
Payments on finance lease obligations		(433	)		0
Proceeds from issuance of common stock		5,697			9,157
Contribution from noncontrolling interests		245			0
Repurchases of common stock		(8,495	)		(144,925	)

Net cash used in financing activities – continuing operations		(3,496	)		(174,662	)
Net cash used in financing activities—discontinued operations		(1,248	)		(8,909	)

Net cash used in financing activities		(4,744	)		(183,571	)

Net increase (decrease) in cash and cash equivalents		186,642			(15,679	)
Cash and cash equivalents at beginning of period		107,870			40,774

Cash and cash equivalents at end of period	$	294,512		$	25,095

The accompanying notes are an integral part of these ~~Condensed~~ Consolidated Financial Statements.

Table of Contents

MEDNAX, INC.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2019~~2020

(Unaudited)

1.	Basis of Presentation and New Accounting Pronouncements:

The accompanying unaudited ~~Condensed~~ 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 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~~

esults of the interim ~~periods.~~periods presented. The financial statements include all the accounts of MEDNAX, Inc. and its consolidated subsidiaries (collectively, “MDX”) together with the accounts of MDX’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (the “affiliated professional contractors”). Certain subsidiaries of MDX have contractual management arrangements with its affiliated professional contractors, which are separate legal entities that provide physician services in certain states and Puerto Rico. The terms “MEDNAX” and the “Company” refer collectively to MEDNAX, Inc., its subsidiaries and the affiliated professional contractors.

The Company is a party to a joint venture in which it owns a 37.5% economic ~~interest and a second joint venture in which it owns a 49.0% economic~~ interest. The Company accounts for ~~these~~this joint ~~ventures~~venture under the equity method of accounting because the Company exercises significant influence over, but does not control, ~~these entities.~~this entity.

In August 2020, the Company entered into a joint venture in which it owns a 51% economic interest and for which it is deemed the primary beneficiary. The equity interests of the outside investor in the equity of this consolidated entity is accounted for and presented as noncontrolling interests on the Company’s Consolidated Balance Sheets. Although

the

joint

venture was

formed

during the third quarter of 2020, it has not yet begun operations. Any future results of operations attributable to

the

noncontrolling interests

will be accounted for and presented as such

on the Company’s Consolidated Statements of Income.

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 ~~Condensed~~ 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~~ (the “Form

10-K”).

~~On November 1, 2018,~~In October 2019, the Company ~~announced the initiation of a process to potentially divest the Company’s~~divested its management services ~~service line~~organization, which operated as MedData, to allow the Company to focus on its core physician services business. The Company determined that the criterion to classify the management services service line as assets held for sale within the Company’s Consolidated Balance Sheets effective March 31, 2019 were met, and accordingly, the assets and liabilities of that service line were classified as current assets and liabilities held for sale at March 31, 2019 and continue to meet the criteria at September 30, 2019. In addition, in accordance with accounting guidance for discontinued operations, the expected divestiture of the management services service line was deemed to represent a fundamental strategic shift that will have a major effect on the Company’s operations, and accordingly, the operating results of ~~the service line were~~MedData are reported as discontinued operations in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2019.

In May 2020, the Company divested its anesthesiology services medical group. The operating results of this medical group are reported as discontinued operations in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019.

On September

2020, the Company

entered into

a definitive agreement to divest its radiology services medical group. The operating results of this medical group are reported as discontinued operations in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019.

Reclassifications have been made to certain prior period financial statements and footnote disclosures to reflect the impact of discontinued operations. See

~~ote~~ Note 6 –

~~Goodwill~~

Assets Held for ~~more~~Sale and Discontinued Operations for additional information.

~~Recently Adopted~~New Accounting Pronouncements

In ~~February 2016, the~~December 2019, accounting guidance related to ~~leases~~income taxes was issued with the goal of enhancing and simplifying various aspects of the income tax accounting guidance, including requirements related to hybrid tax regimes, deferred taxes on

step-up

in tax basis of goodwill obtained in a transaction that ~~require an entity~~is not a business combination, separate financial statements of entities not subject to ~~recognize leased assets~~tax, the intraperiod tax allocation exception to the incremental approach, deferred tax liabilities on outside basis differences, and ~~the rights~~interim-period accounting for enacted changes in tax law and ~~obligations created by those leased assets on the balance sheet and to disclose key information about the entity’s leasing arrangements. This~~certain

year-to-date

loss limitations. The guidance ~~became~~becomes effective for the Company on January 1, ~~2019.~~2021, including interim periods therein, with early adoption permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company does not believe the adoption of this new guidance ~~had~~will have a material impact on its Consolidated Financial Statements and related disclosures.

2.	Coronavirus Pandemic (“COVID-19”):

COVID-19

and related “stay at home” and social distancing measures implemented across the country have significantly impacted demand for medical services provided by the Company’s ~~Consolidated Balance Sheets~~affiliated clinicians. Beginning in

mid-March

2020, the Company experienced a significant decline in the number of elective surgeries at the facilities where the Company’s affiliated clinicians provided anesthesiology services. Much of this decline was due to the closure of operating suites or facilities following federal advisories to cancel

non-urgent

procedures and ~~related disclosures, resulting~~the prohibition of such procedures by several states. Within the Company’s radiology services medical group, orders for radiological studies declined by a meaningful amount from the recognition of significant right of use assets and related liabilities, primarily related to its operating lease arrangements for space in hospitals and certain other facilities for its business and medical offices. See

Nhistorically normal levels,

~~ote 8~~

~~– Accounts Payable and Accrued Expenses~~

~~for more information.~~

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with much of this reduction focused in

non-urgent

studies. See Note 6 – Assets Held for Sale and Discontinued Operations for information regarding the divestment of the Company’s anesthesiology services medical group and the planned divestment of the Company’s radiology services medical group. The Company’s affiliated office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, experienced a significant elevation of appointment cancellations compared to historical normal levels. At this time, the Company has not experienced, nor does it currently anticipate, any significant impact to neonatal intensive care unit (NICU) patient volumes as a result of

COVID-19.

Overall, the Company’s operating results were significantly impacted by

COVID-19

beginning in

mid-March

2020.

The Company implemented a number of actions to preserve financial flexibility and partially mitigate the significant anticipated impact of

COVID-19.

These steps included a suspension of most activities related to the Company’s transformational and restructuring programs, limiting these expenditures to those that provide essential support for the Company’s response to

COVID-19.

In addition, (i) the Company temporarily reduced executive and key management base salaries, including 50% reductions in salaries for its named executive officers through June 30, 2020; (ii) the Board of Directors agreed to forego their annual cash retainer and cash meeting payments, also through June 30, 2020; (iii) the Company enacted a combination of salary reductions and furloughs for

non-clinical

employees; and (iv) the Company enacted significant operational and practice-specific expense reduction plans across its clinical operations. The Company also divested its anesthesiology services medical group in May 2020, where operating results were significantly impacted by

COVID-19.

In response to the anticipated impact of

COVID-19

on the Company’s results of operations, on March 25, 2020, the Company amended and restated its Credit Agreement to, among other things, (i) establish a deemed Consolidated EBITDA of $139.2 million for the second and third quarters of 2020, reflecting average Adjusted EBITDA from continuing operations for the prior eight quarters (calculated for purposes of the Credit Agreement), which will be used in the calculation of rolling four consecutive quarter Consolidated EBITDA under the Credit Agreement, (ii) temporarily increase the maximum consolidated net leverage ratio required to be maintained by the Company from 4.50:1:00 to 5.00:1:00 for the second and third quarters of 2020 and 4.75:1:00 for the fourth quarter of 2020, before returning to 4.50:1:00 for the first quarter of 2021 and beyond, (iii) require that the Company maintains minimum availability under the Credit Agreement of $300.0 million through the third quarter of 2021, (iv) provide for a weekly repayment of borrowings under the Credit Agreement through the second quarter of 2021 using unrestricted cash on hand in excess of $300.0 million, plus a reserve for certain payables, and (v) temporarily restrict the Company’s ability to make restricted payments under the Credit Agreement for the remainder of 2020, subject to certain exceptions. At September 30, 2020, the Company believes it was in compliance, in all material respects, with the financial covenants and other restrictions applicable to the Company under its Credit Agreement, its 5.25% senior unsecured notes due 2023 and its 6.25% senior unsecured notes due 2027. The Company believes it will be in compliance with these covenants for the next twelve months. At September 30, 2020, the Company had no outstanding principal balance on its Credit Agreement. The Company had outstanding letters of credit of $0.2 million which reduced the amount available on its Credit Agreement to $899.8 million at September 30, 2020, after giving effect to the temporary reduction of the capacity of its Credit Agreement described above through September 30, 2021.

CARES Act

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law. The CARES Act is a relief package intended to assist many aspects of the American economy, including providing up to $100 billion in aid to the healthcare industry to reimburse healthcare providers for lost revenue and expenses attributable to

COVID-19.

The remaining $70 billion in aid is intended to focus on providers in areas particularly impacted by

COVID-19,

rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans. It is unknown what, if any, portion of the remaining healthcare industry funding on the CARES Act the Company and its affiliated physician practices will qualify for and receive. The Department of Health and Human Services (“HHS”) is administering this program and began disbursing funds in April 2020, of which the Company’s affiliated physician practices

within continuing operations

received an aggregate of approximately $20.0 million during the nine months ended September 30, 2020. The Company has applications pending for certain affiliated physician practices for incremental relief beyond what has been received.

In addition, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. The Company intends to utilize this deferral option throughout 2020.

The COVID-19

pandemic has

materially

impacted the Company’s

financial results, but due to the rapidly evolving environment and continued uncertainties surrounding the timeline of and impacts from COVID-19, the Company is unable to predict the ultimate impact on its business, financial condition, results of operations and cash flows. The Company, however, believes it will be able to generate sufficient liquidity to satisfy its obligations for the next twelve months.

Cash Equivalents and Investments:

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company’s cash equivalents consisted entirely of money market funds totaling ~~$3.2~~$2.4 million and ~~$0.5~~$16.8 million, respectively. Investments consisted of corporate securities, municipal debt securities, federal home loan securities

~~, corporate securities,~~

and certificates of deposit.

~~During the nine months ended September 30, 2019, the Company changed the classification of its~~ All investments ~~from~~

~~held-to-maturity~~

~~to available for sale. Although there is no stated expectation that the investments will be sold within one year, the investments are available for use, if needed, and accordingly~~ are classified as ~~short-term. Such investments are carried at fair value with any unrealized gains and losses reported as a component of other accumulated comprehensive income or loss.~~

~~Prior to January 1, 2019, the Company classified its investments as~~

~~held-to-maturity~~

and carried such investments at amortized cost. Investments with remaining maturities of less than one year were classified as short-term and investments classified as long-term had maturities of one year to five years.

current.

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Investments held at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 are summarized as follows (in thousands):

September 30, 2019

December 31, 2018

Short-Term

Long-Term

Short-Term

Long-Term

Municipal debt securities
$
36,256
$
—

$
18,473
$
30,841

Federal home loan securities

23,825

—

2,000

34,393

Corporate securities

13,823

—

—

—

Certificates of deposit

4,467

—

1,450

4,465

$
78,371
$
—

$
21,923
$
69,699


	September 30, 2020		December 31, 2019
Corporate securities	$	56,680	$	32,962
Municipal debt securities		13,523		29,066
Federal home loan securities		6,529		8,013
Certificates of deposit		4,842		4,469

	$	81,574	$	74,510

Fair Value Measurements:

The accounting guidance establishes a fair value hierarchy that prioritizes ~~valuation~~valuati

n 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, ~~2019~~2020 and ~~Dec~~

~~mber~~December 31, ~~2018~~2019 (in thousands):

Fair Value

Fair Value
Category

September 30,
2019

December 31,
2018

Assets:

Money market funds

Level 1
$
3,233
$
481

Short-term investments

Level 2

78,371

—
(
1
)

Company-owned life insurance

Level 2

—

10,464

Mutual funds

Level 1

15,097

—

Liabilities:

Contingent consideration

Level 3

4,475

20,039

~~(1)~~

~~Investments were measured at carrying value as of December 31, 2018. See table below.~~


			Fair Value
	Fair Value Category		September 30, 2020		December 31, 2019
Assets:
Money market funds		Level 1	$	2,411	$	16,775
Short-term investments		Level 2		81,574		74,510
Mutual Funds		Level 1		14,446		14,264

The following table presents information about the Company’s financial instruments that are not carried at fair value at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

September 30, 2019

December 31, 2018

Carrying
Amount

Fair
Value

Carrying
Amount

Fair
Value

Assets:

Short-term investments
$
—
(2) $
—
(2)
21,923

21,858

Long-term investments

—
(2)
—
(2)
69,699

69,090

Liabilities:

2023 Notes

750,000

763,125

750,000

736,725

2027 Notes

1,000,000

989,200

500,000

482,500

~~(2)~~

~~Investments were measured at fair value as of September 30, 2019. See table above.~~


	September 30, 2020				December 31, 2019
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
2023 Notes		750,000		759,375		750,000		766,875
2027 Notes		1,000,000		1,035,000		1,000,000		1,025,600

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. The carrying value of the Company’s line of credit approximates fair value. If the Company’s line of credit was measured at fair value, it would be categorized as Level 2 in the fair value hierarchy.

4.	Accounts Receivable and Net Revenue:

Accounts receivable, net consists of the following (in thousands):

September 30,

2019

December 31,

2018

Gross accounts receivable
$
1,923,585
$
1,993,395

Allowance for contractual adjustments and uncollectibles

(1,428,886
)
(1,486,672
)

$
494,699
$
506,723


	September 30, 2020			December 31, 2019
Gross accounts receivable	$	1,119,171		$	1,750,264
Allowance for contractual adjustments and uncollectibles		(852,046	)		(1,315,998	)

	$	267,125		$	434,266

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.

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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
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Net patient service revenue
$

784,935
$

758,015
$

2,300,045
$

2,278,055

Hospital contract administrative fees

97,747

87,095

289,209

273,868

Other revenue

5,993

3,649

18,913

14,451

$
888,675
$
848,759
$
2,608,167
$
2,566,374


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net patient service revenue	$	382,936	$	400,330	$	1,133,313	$	1,159,363
Hospital contract administrative fees		61,186		51,149		154,840		149,407
Other revenue		16,513		3,434		29,168		12,389

	$	460,635	$	454,913	$	1,317,321	$	1,321,159

The approximate percentage of net patient service revenue by type of payor was as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Contracted managed care

69
%
70
%
69
%
70
%
Government

25

24

24

24

Other third-parties

4

5

5

5

Private-pay
patients

2

1

2

1

100
%
100
%
100
%
100
%


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Contracted managed care		69	%		68	%		69	%		68	%
Government		26			26			26			26
Other third-parties		4			5			4			5
Private-pay patients		1			1			1			1

		100	%		100	%		100	%		100	%

5.6.	Business ~~Acquisitions:~~Combinations, Assets Held for Sale and Discontinued Operations:

Business Combinations

During the nine months ended September 30, ~~2019,~~2020, the Company completed the acquisition of ~~2 neonatology physician practices, 2 maternal-fetal medicine physician practices and 2 other~~1 pediatric subspecialty ~~practices~~practice for total

consideration of $

~~31.5~~

$2.1 million, ~~comprised~~ of

which $1.9 million was paid in cash and $0.2 million was recorded as a contingent consideration ~~of $31.2~~

~~million and accrued purchase consideration of $~~

~~0.3~~

~~million. These acquisitions~~liability. This acquisition expanded the Company’s national network of physician practices. In connection with ~~these acquisitions,~~this acquisition, the Company recorded

non-deductible

goodwill of ~~$22.7~~$0.8 million and other intangible assets consisting primarily of physician and hospital agreements of ~~$8.8~~$1.3 million. ~~The Company expects that the goodwill recorded during the nine months ended September 30, 2019 will be deductible for tax purposes.~~

Divestiture of

the

Radiology Services Medical Group

On September

109

2020, the Company entered into a

securities purchase

agreement with Radiology Partners, Inc., pursuant to which Radiology Partners, Inc. will acquire the Company’s radiology services medical group for $885 million

cash, subject to certain customary adjustments.

In addition, the Company paid $9.5 million for contingent consideration in connection with prior period acquisitions. The Company also recorded a decrease of $6.6 million related to the change in fair value of a contingent consideration agreement for which the probability of the achievement of certain performance measures was updated during the nine months ended September 30, 2019. This ~~change in fair value of contingent consideration was recorded within operating expenses.~~

6.	~~Goodwill:~~

Goodwill is tested for impairment at a reporting unit level on at least an annual basis, in accordance with the subsequent measurement provisions of the accounting guidance for goodwill. Consistent with prior years, the Company performed its annual impairment test in the third quarter, specifically as of July 31, 2019. The Company changed its management structure during the third quarter to combine its two historical operating segments into a single unified physician services operating segment. However, for goodwill testing purposes, the Company determined that its reporting units would be represented by the components that underly the unified physician services operating segment. The reporting units represent the service line medical groups of Women’s and Children’s, anesthesiology and radiology.

~~The Company used a combination of income and market-based valuation approaches to determine the fair value of its reporting units~~

~~ased on the analysis performed~~

~~the Company recorded a~~

~~non-cash~~

~~impairment charge of $1.30 billion during the three months ended September 30,~~

~~2019, nearly all of which related~~

~~to its~~

~~nesthesiology reporting unit.~~

~~Recognition of the non-cash charge against goodwill resulted in a tax benefit which generated an additional deferred tax asset~~

~~$147.2 million~~

that increased the fair value of the reporting units. An incremental non-cash charge is then required to reduce the reporting units to their previously determined fair value. Accordingly, the Company recorded the incremental non-cash charge of $147.2 million for a total non-cash charge of $1.45 billion.

~~The primary factors driving the~~

~~non-cash~~

~~impairment charge were~~

(i) the change in management structure effective during the third quarter resulting in reporting units one level below the Company’s single physician services operating segment, which is also its single reportable segment,

~~(ii~~

~~) the decrease in the Company’s share price used in the market capitalization reconciliation and~~

~~(iii~~

~~) changes in the assumptions used in the valuation analysis, specifically the discount rate used in the cash flow analysis~~

~~which included a company~~

~~specific risk premium~~

~~The Company’s goodwill balance~~

~~after the non-cash impairment charge~~

~~at September 30, 2019 was $2.63 billion.~~

7.	~~Assets Held for Sale and Discontinued Operations:~~

~~On November 1, 2018, the Company announced the initiation of a process to potentially divest of its management services service line~~

~~, which operates as MedData,~~

todivestiture will allow the Company to focus solely on its ~~core physician services business.~~Pediatrix and Obstetrix medical groups. The Company determined that the criterion to classify the ~~management~~radiology services ~~service line~~medical group as assets held for sale within the Company’s Consolidated Balance Sheets ~~were met at March 31, 2019 and continue to be met at~~effective September 30, ~~2019.~~2020 were met. Accordingly, the assets and liabilities of ~~that service line~~the radiology services medical group were classified as current assets and current liabilities held for sale at September 30, ~~2019~~2020 as the Company ~~expect~~

expects to divest of the ~~management~~radiology services ~~organization~~medical group within the next twelve ~~months of March 31, 2019.~~

In October 2019, the Company entered into a securities purchase agreement with an affiliate of Frazier Healthcare Partners to divest of MedData, which transaction closed on October 31, 2019. See Note 15 – Subsequent Event.

In addition, in accordance with accounting guidance for discontinued operations, the expected divestiture of the management services service line was deemed to represent a fundamental strategic shift that will have a major effect on the Company’s operations, and accordingly, the operating results of the service line were reported as discontinued operations in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2019 with prior periods recast to conform with the current period presentation.

months. The classification to assets held for sale impacted the net book value of the assets and liabilities expected to be transferred upon sale. The estimated fair value of the ~~management~~radiology services ~~service line~~medical group was ~~initially~~ determined ~~at March 31, 2019 based on an estimated market value~~using the purchase price in the

purchase

agreement along with estimated broker, accounting, legal and

other ~~costs to sell.~~

selling

expenses.

The Company deemed the carrying amount of

other

assets

within the ~~service line,~~medical group, specifically accounts receivable and property and equipment, to represent fair value and therefore recorded a

non-cash

charge ~~during the first quarter~~ of ~~2019 of $285.0~~$43.0 million against goodwill, which represented the difference between the estimated fair value of the ~~management~~radiology services ~~service line~~medical group and the carrying amount of the net assets held for sale. Recognition of the charge against goodwill resulted in a tax benefit which

Table of Contents

generated an additional ~~$36.6~~$4.0 million deferred tax asset that increased the fair value of the ~~service line.~~medical group. An incremental

non-cash

charge is then required to reduce the ~~service line~~

radiology services

medical group’s net assets to its previously determined fair value. Accordingly, the Company recorded the incremental

non-cash

charge of ~~$36.6~~$4.0 million for a total

non-cash

charge of ~~$321.6~~$47.0 million, ~~during the three months ended March 31, 2019,~~ reducing the goodwill balance of the ~~management~~radiology services ~~service line to zero. During the three months ended June 30, 2019, an incremental~~

~~non-cash~~

~~charge of $50.0 million was recorded based on new information obtained during the quarter with respect to the estimated market value of the management services service line. This~~

~~non-cash~~

~~charge was recorded against amortizing intangible assets. Recognition of the incremental~~

~~non-cash~~

~~charge resulted in a tax benefit which generated an additional $16.4 million deferred tax asset that increased the fair value of the service line. An incremental~~

~~non-cash~~

~~charge is then required to reduce the service line to its previously determined fair value. Accordingly, the Company recorded the incremental~~

~~non-cash~~

~~charge of $16.4 million for a total~~

~~non-cash~~

~~charge of $66.4 million during the three months ended June 30, 2019.~~medical group. Upon completion of athe divestiture, the Company could record an additional gain or loss on disposal at the time final net proceeds are determined.

In addition, in accordance with accounting guidance for discontinued operations, the expected divestiture of the radiology services medical group was deemed to represent a fundamental strategic shift that will have a major effect on the Company’s operations, and accordingly, the operating results of the radiology services medical group were reported as discontinued operations in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2020 with prior periods recast to conform with the current period presentation.

The following table ~~is a reconciliation of~~represents the major classes of assets and liabilities ~~classified~~of the radiology services medical group that are included as assets and liabilities held for sale in the accompanying Consolidated Balance Sheets ~~representing the management services service line~~ as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

September 30,

2019

December 31,

2018

Assets

Cash and cash equivalents
$
8,778
$
11,254

Accounts receivable, net

38,902

38,118

Prepaid expenses and other assets

2,070

2,505

Property and equipment, net

51,178

42,603

Deferred income taxes

13,009

—

Operating lease
right-of-use
asset

4,505

—

Goodwill

—

321,556

Intangible assets, net

204,023

275,148

$
322,465
$
691,184

Liabilities

Accounts payable, accrued expenses and other liabilities
$
23,924
$
23,770

Lease liabilities

6,520

—

Deferred income taxes

—

35,659

$
30,444
$
59,429


	September 30, 2020		December 31, 2019
Assets
Accounts receivable, net	$	54,284	$	64,603
Prepaid expenses and other current assets		9,819		9,744
Property and equipment, net		20,078		19,204
Operating leases right-of-use assets		14,165		15,008
Goodwill		640,818		685,170
Intangible assets, net		170,059		180,978
Deferred income tax assets		6,020		18,183
Other assets		36,305		40,724

	$	951,548	$	1,033,614

Liabilities
Accounts payable and accrued expenses	$	39,505	$	42,474
Operating and finance leases		13,619		14,355
Long-term professional liabilities		23,744		21,978
Other liabilities		1,844		81

	$	78,712	$	78,888

The following table summarizes the results of discontinued operations related to the radiology services medical group for the three and nine months ended September 30, 2020 and 2019 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net revenue	$	125,765		$	125,650		$	340,133		$	366,678

Operating expenses:
Cost of service salaries and benefits		84,718			80,336			234,169			238,402
Cost of service supplies and other operating expenses		1,449			1,532			4,273			(1,468	)
General and administrative expenses		19,876			20,734			57,178			64,490
Depreciation and amortization		5,090			7,595			20,328			22,757
Transformational and restructuring related expenses		2,491			441			6,517			1,487
Goodwill impairment		46,963			117,924			46,963			117,924

Total operating expenses		160,587			228,562			369,428			443,592

Loss from operations		(34,822	)		(102,912	)		(29,295	)		(76,914	)
Non-operating income, net		1,369			2,059			3,035			4,768

Loss before income taxes		(33,453	)		(100,853	)		(26,260	)		(72,146	)
Income tax (provision) benefit		(62	)		3,907			(1,988	)		(3,687	)

Net loss	$	(33,515	)	$	(96,946	)	$	(28,248	)	$	(75,833	)

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Divestiture of

the

Anesthesiology Services Medical Group

On May 6, 2020, the Company entered into a securities purchase agreement with an affiliate of North American Partners in Anesthesia (“NAPA”) to divest the Company’s anesthesiology services medical group, and the transaction closed on May 6, 2020. Pursuant to the terms and conditions of the agreement, at the closing of the transaction, the Company received a cash payment of $50.0 million, subject to certain customary adjustments, as well as a contingent economic interest in NAPA with a value ranging from $0 to $250 million based upon the multiple of invested capital returned to NAPA’s owners upon exit of the investment. The Company will begin to receive a payment on its economic interest at an exit multiple of 2.0, with such payment reaching $250 million at an exit multiple of 5.0. In addition, the Company retained the accounts receivable of the anesthesiology services medical group, which net of various other working capital items, approximated $110.0 million

at March 31, 2020.

The

operating results of the anesthesiology services medical group service line were reported as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2020 and 2019.

A single

anesthesiology

practice was not included in the divestiture of the anesthesiology services medical group, and

continues to operate as an affiliate of the Company. Its

results of operations are reflected in the three months ended September 30, 2020 while the incremental loss on sale

of the anesthesiology services medical group

recorded during the three months ended September 30, 2020 reflects a true up of various divested account balances during the third quarter of 2020.

The total preliminary loss on sale

of the anesthesiology services medical group

recorded during the nine months ended September 30, 2020 was $648.7 million. Upon completion of a valuation for the contingent economic interest and working capital

true-up,

final net proceeds will be determined, and the Company will adjust the loss on sale at that time. In addition, as a result of the sale, the Company currently estimates that it will generate an approximately $1.68 billion capital loss carryforward

that will expire

in 2025. Based on management’s determination that it is more likely than not that the tax benefits related to this loss carryforward will not be realized, the Company has provided an approximately $419.0 million valuation allowance against this deferred tax asset as of September 30, 2020.

The following table summarizes the results of discontinued operations related to the anesthesiology services medical group for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Net revenue
$
50,946
$
55,236
$
155,309
$
169,567

Operating expenses:

Cost of service salaries and benefits

26,288

26,392

78,883

82,198

Cost of service supplies and other operating expenses

5,700

5,932

17,637

18,126

General and administrative expenses

11,007

11,454

33,451

34,242

Depreciation and amortization

—

6,506

7,262

18,992

Transaction costs

1,600

—

3,000

—

Loss on classification as held for sale

—

—

388,002

—

Total operating expenses

44,595

50,284

528,235

153,558

Income (loss) from operations

6,351

4,952

(372,926
)
16,009

Non-operating
expenses, net

(15
)
(221
)
(47
)
(241
)

Income (loss) before income taxes

6,336

4,731

(372,973
)
15,768

Income tax (provision) benefit

(2,006
)
(1,323
)
49,017

(4,302
)

Net income (loss)
$
4,330
$
3,408
$
(323,956
) $
11,466


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019
Net revenue	$	2,700		$	309,602		$	377,661		$	924,845

Operating expenses:
Cost of service salaries and benefits		2,746			250,157			351,408			746,237
Cost of service supplies and other operating expenses		38			2,837			5,254			9,537
General and administrative expenses		215			18,338			31,179			57,909
Depreciation and amortization		—			5,605			6,308			17,863
Transformational and restructuring related expenses		—			6,785			28,634			17,506
Goodwill impairment		—			1,331,291			—			1,331,291
Loss on sale, net		4,499			—			644,653			—

Total operating expenses		7,498			1,615,013			1,067,436			2,180,343

Loss from operations		(4,798	)		(1,305,411	)		(689,775	)		(1,255,498	)
Non-operating (expense) income, net		—			(17	)		51			(14	)

Loss before income taxes		(4,798	)		(1,305,428	)		(689,724	)		(1,255,512	)
Income tax benefit		100			129,241			5,661			115,987

Net loss	$	(4,698	)	$	(1,176,187	)	$	(684,063	)	$	(1,139,525	)

Divestiture of MedData

The Company divested of

its

management services organization, MedData, in October 2019. During the nine months ended September 30, 2020, the Company recorded a net incremental loss on the sale of MedData of $5.8 million, primarily for the finalization of certain transaction related expenses, a working capital

true-up

and incremental reserves related to indemnification matters, partially offset by the completion of its preliminary valuation for the contingent economic consideration. This incremental loss is reflected as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the nine months ended September 30, 2020. The operating results of MedData were reported as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2019.

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Accounts Payable and Accrued Expenses:

Accounts payable and accrued expenses consist of the following (in thousands):

September 30,

2019

December 31,

2018

Accounts payable
$
38,329
$
31,059

Accrued salaries and bonuses

206,047

242,888

Accrued payroll taxes and benefits

67,406

78,415

Accrued professional liabilities

43,723

34,931

Accrued contingent consideration

4,475

18,760

Accrued interest

27,986

9,477

Other accrued expenses

54,006

33,037

$
441,972
$
448,567


	September 30, 2020		December 31, 2019
Accounts payable	$	60,956	$	35,410
Accrued salaries and bonuses		158,579		193,631
Accrued payroll taxes and benefits		48,474		54,768
Accrued professional liabilities		55,469		44,699
Accrued interest		26,940		32,910
Other accrued expenses		38,099		49,219

	$	388,517	$	410,637

The net decrease in accrued salaries and bonuses of ~~$36.8~~$35.1 million, from December 31, ~~2018~~2019 to September 30, ~~2019,~~2020, is primarily due to the payment of performance-based incentive compensation, principally to the Company’s affiliated physicians, partially offset by performance-based incentive compensation accrued during the nine months ended September 30, ~~2019.~~2020. A majority of the Company’s payments for performance-based incentive compensation is paid annually during the first quarter.

9.	~~Leases:~~

Effective January 1, 2019, the Company adopted the new accounting guidance using the modified retrospective method of applying the new guidance at the adoption date. The Company elected practical expedients permitted under the transition provisions, which allowed the Company to carryforward historical assessments of whether contracts are or contain leases and lease classification. Beginning with January 1, 2019, the Company’s financial position is presented under the new guidance, while the prior period financial statements were not adjusted and continue to be reported in accordance with the previous guidance.

The Company primarily leases property under operating leases and has one material equipment operating lease for an aircraft. The Company’s property leases are primarily for its regional, medical and business offices, storage space and temporary housing for medical staff.

For leases with terms greater than 12 months, the Company records the related asset and obligation at the present value of the lease payment using a discount rate that reflects the Company’s estimated incremental borrowing rate. Certain of the Company’s leases include rental escalation clauses and renewal options that are factored into the determination of lease payments when appropriate. Operating leases for office equipment are not material, and therefore are excluded from the Company’s Consolidated Balance Sheet. Finance leases are not material but will continue to be reported on the Company’s Consolidated Balance Sheets with the

~~right-of-use~~

~~assets included in property and equipment, net, and the liabilities included in current portion of long-term debt and finance lease obligations.~~

~~The table below presents the operating lease-related~~

~~right-of-use~~

~~assets and related liabilities recorded on the Company’s balance sheet and the weighted average remaining lease term and discount rate as of September 30, 2019 (dollars in thousands):~~

September 30, 2019

Assets:

Operating lease
right-of-use
assets
$
84,279

Liabilities:

Current portion of operating lease liabilities

23,469

Long-term portion of operating lease liabilities

65,287

Other Information:

Weighted-average remaining lease term

4.6 years

Weighted average discount rate

5.1
%

~~The table below presents certain information related to the lease costs for operating leases during the three and nine months ended September 30, 2019 (in thousands):~~

Three Months Ended
September 30, 2019

Nine Months Ended
September 30, 2019

Operating lease costs
$
7,521
$
22,592

Variable lease costs

1,492

3,282

Other equipment rent

604

1,905

Other operating lease costs

883

3,841

Total operating lease costs
$
10,500
$
31,620

~~The table below presents supplemental cash flow information related to operating leases during the nine months ended September 30, 2019 (in thousands):~~

September 30, 2019

Operating cash flows for operating leases
$
31,685

The table below reconciles the undiscounted cash flows for each of the first five years and total of the remaining years to the operating lease liabilities recorded on the balance sheet as of September 30, 2019 (in thousands):

September 30, 2019

2019 (excluding the nine months ended September 30, 2019)
$
4,669

2020

26,668

2021

22,593

2022

17,644

2023

12,948

Thereafter

15,641

Total minimum lease payments

100,163

Less: Amount of payments representing interest

(11,407
)

Present value of future minimum lease payments

88,756

Less: Current obligations

(23,469
)

Long-term portion of operating leases
$
65,287

~~10.~~8.

~~Income Taxes:~~

~~The Company’s net deferred tax assets were~~

~~81.0~~

million as of September 30, 2019, as compared to a net deferred tax liabilities of $73.7 million at December 31, 2018. The increase in the net deferred tax assets of $154.7 million during the nine months ended September 30, 2019 was primarily related to the deferred tax benefit from the Company’s

~~non-cash~~

~~goodwill impairment charge recorded during the nine months ended September 30, 2019.~~

~~11.~~

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, deferred stock and stock options and is calculated using the treasury stock method.

The calculation of shares used in the basic and diluted net income per common share calculation for the three and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 is as follows (in thousands):

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

Weighted average number of common shares outstanding

82,441

90,984

83,846

92,239

Weighted average number of dilutive common share equivalents

—

375

—

521

Weighted average number of common and common equivalent shares outstanding
(a)

82,441

91,359

84,846

92,760

Antidilutive securities not included in the diluted net income per common share calculation

962

214

796

202


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Weighted average number of common shares outstanding		83,862		82,441		83,260		83,846
Weighted average number of dilutive common share equivalents		—		442		—		456

Weighted average number of common and common equivalent shares outstanding (a)		83,862		82,883		83,260		84,302

Antidilutive securities not included in the diluted net income per common share calculation		829		962		1,004		796

(a)

Due to a loss from continuing operations for the three months and nine months ended September 30, ~~2019,~~

2020, no

incremental shares are included because the effect ~~would~~wou

d be antidilutive.

29.

Stock Incentive Plans and Stock Purchase Plans:

~~On May 16, 2019, the Company’s shareholders approved the~~The Company’s Amended and Restated 2008 Incentive Compensation Plan (the ~~“Amended and Restated~~“A&R 2008 Incentive Plan”). The amendments, among other things, increased the number of shares of common stock reserved for delivery under the under the Amended and Restated 2008 Incentive Plan from 19,500,000 shares to 27,775,000 shares, as well as extended the expiration date to ten years from the effective date of approval. 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~~A&R 2008 Incentive Plan, options to purchase shares of common stock may be granted at a price not less than the fair market value of the shares on the date of grant. The options must be exercised within 10 years from the date of grant and generally become exercisable on a pro rata basis over a three-year period from the date of grant. The Company

issues new shares of its common stock upon exercise of its stock options. Restricted stock awards generally vest over periods of three years upon the fulfillment of specified service-based conditions and in certain instances performance-based conditions. Deferred stock awards generally vest upon the satisfaction of specified performance-based conditions and service-based conditions. The Company recognizes compensation expense related to its restricted stock, ~~and~~ deferred stock awards and stock options ratably over the corresponding vesting periods. During the nine months ended September 30, ~~2019,~~2020, the Company granted ~~1,112,773~~1.4 million shares of restricted stock and 1.0 million

of stock underlying

non-qualified

stock options to its employees and

non-employee

directors under the ~~Amended and Restated~~A&R 2008 Incentive Plan. At September 30, ~~2019,~~2020, the Company had ~~8.2~~5.0 million shares available for future grants and awards under ~~its Amended and Restated~~the A&R 2008 Incentive Plan.

Under the Company’s 1996

Non-Qualified

Employee Stock Purchase Plan, as amended (the “ESPP”), employees are permitted to purchase the Company’s common stock at 85% of market value on January 1st, April 1st, July 1st and October 1st of each year. Under the Company’s 2015

Non-Qualified

Stock Purchase Plan (the “SPP”), certain eligible

non-employee

service providers are permitted to purchase the Company’s common stock at 90% of market value on January 1st, April 1st, July 1st and October 1st of each year.

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Each of the ESPP and the SPP provide for the issuance of an aggregate of 2.6 million shares of the Company’s common stock less the number of shares of common stock purchased under the other plan. The Company recognizes stock-based compensation expense for the discount received by participating employees and

non-employee

service providers. During the nine months ended September 30, ~~2019,~~2020, approximately 0.4 million shares in the aggregate were issued under the ESPP and SPP. At September 30, ~~2019,~~2020, the Company had approximately ~~1.2~~0.6 million shares in the aggregate reserved for issuance under the ESPP and SPP.

During the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, the Company recognized stock-based compensation expense of ~~$8.0~~$4.5 million and ~~$29.0~~$18.2 million, and ~~$8.8~~$7.6 million and ~~$28.8~~$27.6 million, respectively.

310.

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. No shares were purchased under this program during the nine months ended September 30, ~~2019.~~2020.

In August 2018, the Company announced that its Board of Directors had authorized the repurchase of up to $500.0 million of the Company’s common stock in addition to its existing share repurchase program, of which ~~$250.0~~$107.2 million remained available for repurchase as of December 31, ~~2018.~~2019. Under this share repurchase program, during the nine months ended September 30, ~~2019,~~2020, the Company ~~repurchased~~withheld approximately ~~5.1~~0.5 million shares of its common stock ~~for $144.9 million, inclusive of 83,341 shares withheld~~ to satisfy minimum statutory withholding obligations of ~~$2.1~~$8.5 million in connection with the vesting of restricted stock ~~during the nine months ended September 30, 2019.~~and deferred stock.

The Company intends to utilize various methods to effect any future share repurchases, including, among others, open market purchases and accelerated share repurchase programs. The amount and timing of repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.

~~14.~~

11.

Commitments and Contingencies:

The Company expects that audits, inquiries and investigations from government authorities and agencies will occur in the ordinary course of business. Such audits, inquiries and investigations and their ultimate resolutions, individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and the trading price of its securities. The Company has not included an accrual for these matters as of September 30, ~~2019~~2020 in its ~~Condensed~~ 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.

~~15.~~

~~Subsequent Event:~~

On October 10, 2019, the Company entered into a securities purchase agreement with an affiliate of Frazier Healthcare Partners to divest of the Company’s management services organization, which operates as MedData. The transaction closed on October 31, 2019. Pursuant to the terms and conditions

~~of the agreement, at the closing of the t~~

~~ransaction, the Company receive~~

~~a cash payment of $250.0 million, subject certain net working capital and similar adjustments, as well as~~

~~contingent~~

~~economic~~

~~consideration in~~

~~an indirect holding~~

~~company of~~

~~the bu~~

~~yer~~

~~the~~

~~value of~~

~~which is~~

~~contingent on both short and long-term performance of MedData~~

and the maximum amount payable in respect of which is $50.0 million. Upon completion of a valuation to determine the final net proceeds, the Company could record an additional gain or loss on disposal.

~~The~~

~~Company anticipates certain cash tax benefits from the~~

~~transaction~~

~~in the coming quarters. The Company expects to use net proceeds from the transaction for debt repayment, share repurchases and strategic acquisitions.~~

Table of Contents

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 ~~Condensed~~ 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, ~~2018,~~2019, filed with the Securities and Exchange Commission on February ~~14, 2019~~20, 2020 (the ~~“2018~~“2019 Form

10-K”).

As used in this Quarterly Report, the terms “MEDNAX”, the “Company”, “we”, “us” and “our” refer to the parent company, MEDNAX, Inc., a Florida corporation, and the consolidated subsidiaries through which its businesses are actually conducted (collectively, “MDX”), together with MDX’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (“affiliated professional contractors”). Certain subsidiaries of MDX have contracts with our affiliated professional contractors, which are separate legal entities that provide physician services in certain states and Puerto Rico. The following discussion contains forward-looking statements. Please see the Company’s ~~2018~~2019 Form

10-K,

including Item 1A, Risk Factors, and Item 1A. Risk Factors below, for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. In addition, please see “Caution Concerning Forward-Looking Statements” below.

Overview

MEDNAX is a leading provider of physician services including newborn, ~~anesthesia,~~ maternal-fetal, ~~radiology and teleradiology,~~ pediatric cardiology and other pediatric subspecialty care. ~~Our national network is comprised of affiliated physicians who provide clinical care in 39 states and Puerto Rico.~~ Our affiliated physicians provide neonatal clinical care, primarily within hospital-based neonatal intensive care units, to babies born prematurely or with medical ~~complications; anesthesia care to patients in connection with surgical and other procedures, as well as pain management; radiology services including diagnostic imaging and interventional radiology;~~complications and maternal-fetal and obstetrical medical care to expectant mothers experiencing complicated pregnancies primarily in areas where our affiliated neonatal physicians practice. Our network also includes other pediatric subspecialists, including those who provide pediatric intensive care, pediatric cardiology care, hospital-based pediatric care, pediatric surgical care, pediatric ear, nose and throat, pediatric ophthalmology and pediatric urology services. ~~MEDNAX also provides teleradiology services in all 50 states, the District of Columbia and Puerto Rico through a network of affiliated radiologists.~~ In addition to our national physician network, we provide services nationwide to healthcare facilities and physicians, including ours, through a consulting services company. MEDNAX divested its anesthesiology services medical group on May 6, 2020 and on September 9, 2020 entered into an agreement to divest of its radiology services medical group, which provides radiology services including diagnostic imaging and interventional radiology, as well as teleradiology services through a network of affiliated radiologists.

Coronavirus Pandemic

(COVID-19)

COVID-19

and related “stay at home” and social distancing measures implemented across the country have significantly impacted demand for medical services provided by our affiliated clinicians. Beginning in

mid-March

2020, we experienced a significant decline in the number of elective surgeries at the facilities where our affiliated clinicians provided anesthesia services. Much of this decline was due to the closure of operating suites or facilities following federal advisories to cancel

non-urgent

procedures and the prohibition of such procedures by several states. Within our radiology service line, orders for radiological studies declined by a meaningful amount from historically normal levels, with much of this reduction focused in

non-urgent

studies. Our affiliated office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, experienced a significant elevation of appointment cancellations compared to historical normal levels. At this time, we have not experienced, nor do we currently anticipate, any significant impact to neonatal intensive care unit (NICU) patient volumes as a result of

COVID-19.

Overall, our operating results since

mid-March

2020 have been significantly impacted by the

COVID-19

pandemic, but volumes did begin to normalize in May 2020 and substantially recovered during the month of June 2020. We divested our anesthesiology services medical group in May 2020, where operating results were significantly impacted by

COVID-19.

We have also entered into an agreement to divest our radiology services medical group, where operating results were meaningfully impacted by

COVID-19.

We implemented a number of actions to preserve financial flexibility and partially mitigate the significant impact of

COVID-19.

These steps included a suspension of most activities related to our transformational and restructuring programs, limiting these expenditures to those that provide essential support for our response to

COVID-19.

In addition, (i) we temporarily reduced executive and key management base salaries, including 50% reductions in salaries for our named executive officers through June 30, 2020; (ii) our Board of Directors agreed to forego their annual cash retainer and cash meeting payments, also through June 30, 2020; (iii) we enacted a combination of salary reductions and furloughs for

non-clinical

employees; and (iv) we enacted significant operational and practice-specific expense reduction plans across our clinical operations.

We also implemented a variety of solutions across specialties to support clinicians and patients during this pandemic, including

Clinician Shortage Support

Pediatric clinicians are lending their expertise to help fulfill the need for added adult care.

Strengthening of Supply Chain

MEDNAX is helping to address the shortage of personal protective equipment (PPE) by partnering with vendors across industries to source high filtration respirators, surgical masks and other forms of PPE for protective use.

Expanded Virtual Care Offerings

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Utilizing VSee, an internationally recognized telehealth platform, MEDNAX has deployed a national multi-specialty virtual clinic to expand its telehealth offerings and make virtual care available to its clinical workforce, enabling continued patient consults and clinician collaboration while minimizing

COVID-19

exposure.

Early Virus Detection Using Cutting-Edge Imaging Diagnostic Tools

MEDNAX Radiology Solutions is leading early detection efforts through chest imaging. vRad, a MEDNAX company, diagnosed one of the first

COVID-19

patients in the United States via chest computed tomography (“CT”), which showed findings consistent with a severe acute respiratory viral infection. In the absence of laboratory testing kits, chest CT can serve as a diagnostic tool. In addition, MEDNAX Radiology Solutions is refining natural language processing (“NLP”) to identify the incidence of viral pneumonia and typical findings of the

COVID-19

virus in the lungs via chest CT across the proprietary MEDNAX Imaging Platform and inference engine, which is connected to more than 2,000 partner facilities across the country. The NLP is run retrospectively to monitor the amount and rate of increase of suspected chest CT findings for

COVID-19

and viral pneumonia, supporting faster treatment. If successful, this cutting-edge diagnostic tool could serve as an effective tracker of the disease’s progression throughout the country and provide new insights for imaging findings for

COVID-19

patients.

Virtual Forum to Provide Clinician Support

To support frontline clinicians while abiding by social distancing recommendations, MEDNAX has created a virtual doctors’ lounge for clinicians across specialties to connect and socialize in the absence of typical

in-person

lounges, helping to boost morale and preserve a sense of normalcy.

We currently expect that

COVID-19

will continue to materially impact our financial results, but due to the rapidly evolving environment and continued uncertainties surrounding the timeline of and impacts from

COVID-19,

we are unable to predict the ultimate impact on our business, financial condition, results of operations, cash flows and the trading price of our securities at this time.

CARES Act

COVID-19.

The remaining $70 billion in aid is intended to focus on providers in areas particularly impacted by

COVID-19,

rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans. It is unknown what, if any, portion of the remaining healthcare industry funding on the CARES Act our affiliated physician practices will qualify for and receive. The Department of Health and Human Services (“HHS”) is administering this program, and our affiliated physician practices within continuing operations have received an aggregate of approximately $20.0 million in relief payments during the nine months ended September 30, 2020. We have applications pending for certain affiliated physician practices for incremental relief beyond what has been received.

In addition, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. We intend to utilize this deferral option throughout 2020.

Divestiture of the ~~Management~~Anesthesiology Services ~~Organization~~Medical Group

On November 1, 2018, we announced the initiation of a process to potentially divest our management services service line, which operates as MedData, to allow us to focus on our core physician services business. We determined that the criterion to classify the management services service line as assets and liabilities held for sale within our consolidated balance sheets were met at March 31, 2019 and continue to be met at September 30, 2019. Accordingly, the assets and liabilities of the management services service line were classified as current assets and liabilities held for sale as of September 30, 2019. In addition, in accordance with the accounting guidance for discontinued operations, the expected divestiture of the management services service line was deemed to represent a fundamental strategic shift that will have a major effect on the Company’s operations, and accordingly, the operating results of the service line were reported as discontinued operations in the consolidated statements of income for the three and nine months ended September 30, 2019.

~~On October 10, 2019,~~May 6, 2020, we entered into a securities purchase agreement with an affiliate of North American Partners in Anesthesia (“NAPA”) to divest ofour anesthesiology services medical group, and the ~~management services organization. The~~ transaction closed on ~~October 31, 2019.~~May 6, 2020. Pursuant to the terms and conditions of the agreement, at the closing of the transaction, we received a cash payment of ~~$250.0~~$50.0 million, subject to certain ~~net working capital and similar~~customary adjustments, as well as a contingent economic ~~consideration~~interest in ~~an indirect holding company~~NAPA with a value ranging from $0 to $250 million based upon the multiple of invested capital returned to NAPA’s owners upon exit of the ~~buyer,~~investment. The operating results of the ~~value~~anesthesiology services medical group were reported as discontinued operations in our consolidated statements of ~~which is contingent on both short~~income for the three and ~~long-term performance of MedData~~nine months ended September 30, 2020 and 2019, and the ~~maximum amount payable~~net assets sold were presented as assets and liabilities held for sale in ~~respect~~our consolidated balance sheet at December 31, 2019.

Divestiture of ~~which is $50.0 million. We anticipate~~the Radiology Services Medical Group

On September 9, 2020, we entered into a securities purchase agreement to divest our radiology services medical group for $885.0 million cash, subject to certain ~~cash tax benefits from~~customary adjustments, as the ~~transaction~~next step in refocusing our business as a dedicated pediatrics and obstetrics organization. The operating results of the ~~coming quarters. We expect~~radiology services medical group were reported as discontinued operations in our consolidated statements of income for the three and nine months ended September 30, 2020 and 2019, and the net assets to ~~use net proceeds from the transaction~~be sold were presented as assets and liabilities held for ~~debt repayment, share repurchases~~sale in our consolidated balance sheets at September 30, 2020 and ~~strategic acquisitions.~~December 31, 2019.

Reclassifications

Reclassifications have been made to certain prior period financial statements and footnote disclosures to conform to the current period presentation, specifically to reflect the impact of the ~~management~~anesthesiology services ~~organization~~medical group and radiology services medical group being classified as assets held for sale and discontinued operations.

~~2019 Acquisition Activity~~

During the nine months ended September 30, 2019, we completed the acquisition of two neonatology physician group practices, two maternal-fetal medicine physician group practices and two other pediatric subspecialty physician practices. Based on our experience, we expect that we can improve the results of acquired physician practices through improved managed care contracting, improved collections, identification of growth initiatives and operating and cost savings based upon the significant infrastructure that we have developed.17

~~Goodwill Impairment Charge~~

~~non-cash~~

~~impairment charge of $1.30 billion during the three months ended September 30, 2019, nearly all of which related to our anesthesiology reporting unit. Recognition of the~~

~~non-cash~~

~~charge against goodwill~~

~~resulted in a tax benefit which generated an additional deferred tax asset~~Table of ~~$147.2 million that increased the fair value of the reporting units. An incremental~~

~~non-cash~~

~~charge is then required to reduce the reporting units to their previously determined fair value. Accordingly, we recorded the incremental~~

~~non-cash~~

~~charge of $147.2 million for a total~~

~~non-cash~~

~~charge of $1.45 billion. The primary factors driving the~~

~~non-cash~~

impairment charge were (i) a change in management structure effective during the third quarter that resulted in the determination of reporting units at one level below our single operating segment of physician services, which is also our single reportable segment, (ii) the decrease in our share price used in the market capitalization reconciliation and (iii) changes in the assumptions used in the valuation analysis, specifically the discount rate used in the cash flow analysis which included a company specific-risk premium. Our goodwill balance at September 30, 2019 after the

~~non-cash~~

impairment charge was $2.63 billion. We believe that the current assumptions and estimates used in our goodwill analysis are reasonable, supportable and appropriate. A 1% change in the discount rate used in the cash flow analysis would have impacted the

~~non-cash~~

~~impairment charge in the range of $75.0 million to $90.0 million.~~Contents

~~Shared Services and Operational Initiatives~~

We have developed a number of strategic initiatives across our organization, in both our shared services functions and our operational infrastructure, with a goal of generating improvements in our general and administrative expenses and our operational infrastructure. In our shared services departments, we are focused on improving processes, using our resources more efficiently and utilizing our scale more effectively to improve cost and service performance across our operations. Within our operational infrastructure, we have developed specific operational plans within each of our service lines and affiliated physician practices, with specific milestones and regular reporting, with the goal of generating long-term operational improvements and fostering even greater collaboration across our national medical group. We currently intend to make a series of information-technology and other investments to improve processes and performance across our enterprise, using both internal and external resources. We are targeting annualized financial improvements related to these initiatives of $40 million within general and administrative expenses and $80 million in operational improvements by the end of 2019. We achieved the goals we established for these initiatives of $60 million in improvements in 2018, comprised of $25 million within shared services and $35 million in operational improvements, and we remain committed to achieve the remaining improvements by the end of 2019, although there is no assurance that these improvements will be obtained. We believe these strategic initiatives, together with our continued plans to invest in focused, targeted and strategic organic and acquisitive growth, position us well to deliver a differentiated value proposition to our stakeholders while continuing to provide the highest quality care for our patients.

~~Senior Notes~~

In February 2019, we completed a private offering of $500.0 million aggregate principal amount of 6.25% senior unsecured notes due 2027 (the “Additional 2027 Notes”), which are treated as a single class together with the 6.25% senior unsecured notes due 2027 that we issued in November 2018 (“the Initial 2027 Notes” and, collectively with the Additional 2027 Notes, the “2027 Notes”). Our obligations under the 2027 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee our credit agreement (the “Credit Agreement”). We used the net proceeds of approximately $491.7 million from the issuance of the Additional 2027 Notes to repay a portion of the indebtedness outstanding under our Credit Agreement. Interest on the 2027 Notes accrues at the rate of 6.25% per annum and is payable semi-annually in arrears on January 15 and July 15.

~~Common Stock Repurchase Programs~~

In July 2013, our Board of Directors authorized the repurchase of shares of our common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under our equity compensation programs. The share repurchase program allows us 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 our common stock to offset the dilutive impact from the issuance of shares, if any, related to our acquisition program. We did not repurchase any shares under this program during the nine months ended September 30, 2019.

In August 2018, we announced that our Board of Directors had authorized the repurchase of up to $500.0 million of shares of our common stock in addition to our existing share repurchase program, of which $250.0 million remained available as of December 31, 2018. Under this share repurchase program, during the nine months ended September 30, 2019, we repurchased approximately 5.1 million shares of our common stock for $144.9 million, inclusive of 83,341 shares withheld to satisfy minimum statutory withholding obligations of $2.1 million in connection with the vesting of restricted stock.

~~We may utilize various methods to effect any future share repurchases, including, among others, open market purchases and accelerated share repurchase programs.~~

General Economic Conditions and Other Factors

Our operations and performance depend significantly on economic conditions. During the three months ended September 30, ~~2019,~~2020, the percentage of our patient service revenue being reimbursed under government-sponsored ~~or funded~~ healthcare programs ~~(the “GHC~~(“GHC Programs”) ~~was slightly favorable~~increased as compared to the three months ended September 30, ~~2018. If, however, economic~~2019. Economic conditions in the United States ~~deteriorate, we could experience shifts toward GHC Programs,~~ (“U.S.”) have deteriorated, primarily as a result of

COVID-19,

and patient volumes ~~could decline. Further, we~~have declined. We could experience ~~and have experienced~~additional shifts toward GHC Programs if changes occur in population demographics within geographic locations in which we provide ~~services. We have also experienced,~~services, including an increase in unemployment and ~~could continue to experience, a shift toward GHC Programs, particularly in anesthesia care.~~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, due to the rising costs of managed care premiums and patient responsibility amounts, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services.

Transformation and Restructuring Initiatives

We have developed a number of strategic initiatives across our organization, in both our shared services functions and our operational infrastructure, with a goal of generating improvements in our general and administrative expenses and our operational infrastructure. We have broadly classified these workstreams in four broad categories including practice operations, revenue cycle management, information technology and human resources. We have included the expenses, which in certain cases represent estimates, related to such activity on a separate line item in our consolidated statements. In our shared services departments, we were focused on improving processes, using our resources more efficiently and utilizing our scale more effectively to improve cost and service performance across our operations. Within our operational infrastructure, we developed specific operational plans within each of our service lines and affiliated physician practices, with specific milestones and regular reporting, with the goal of generating long-term operational improvements and fostering even greater collaboration across our national medical group. We intended to make a series of information-technology and other investments to improve processes and performance across our enterprise, using both internal and external resources. A significant amount of transformational and restructuring activities were related to our anesthesiology services medical group, which was divested in May 2020. We believed these strategic initiatives, together with our continued plans to invest in focused, targeted and strategic organic and acquisitive growth, positioned us well to deliver a differentiated value proposition to our stakeholders while continuing to provide the highest quality care for our patients.

We originally expected these activities to continue through at least 2020. However, as discussed above, beginning in April 2020, we reduced the scope of our transformation and restructuring related initiatives unless they are initiatives that provide essential support for our response to

COVID-19.

Various expenses related to our executive management and board restructuring in July 2020 were recorded as transformation and restructuring related expenses during the third quarter of 2020.

Healthcare Reform

The Patient Protection and Affordable Care Act (the “ACA”) contains a number of provisions that have affected us and, absent amendment or repeal, may continue to affect us over the next several years. These provisions include the establishment of health insurance exchanges to facilitate the purchase of qualified health plans, expanded Medicaid eligibility, subsidized insurance premiums and additional requirements and incentives for businesses to provide healthcare benefits. Other provisions have expanded the scope and reach of the Federal Civil False Claims Act and other healthcare fraud and abuse laws. Moreover, we could be affected by potential changes to various aspects of the ACA, including changes to subsidies, healthcare insurance marketplaces and Medicaid expansion.

The ACA remains subject to continuing legislative and administrative flux and uncertainty. In 2017, Congress unsuccessfully sought to replace substantial parts of the ACA with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets. Congress may again attempt to enact substantial or target changes to the ACA in the future. Additionally, Centers for Medicare & Medicaid Services (“CMS”) has administratively revised a number of provisions and may seek to advance additional significant changes through regulation, guidance and enforcement in the future.

At the end of 2017, Congress repealed the part of the ACA that required most individuals to purchase and maintain health insurance or face a tax ~~penalty. The~~penalty, known as the individual mandate. In light of these changes, in December 2018,

~~mid-term~~

~~elections~~ a federal district court in ~~November 2018 changed the balance of power in Congress and the results~~Texas declared that key portions of the ~~upcoming~~ACA were inconsistent with the U.S. Constitution and that the entire ACA is invalid as a result. Several states appealed this decision, and in December 2019, a federal court of appeals upheld the district court’s conclusion that part of the ACA is unconstitutional but remanded for further evaluation whether in light of this defect the entire ACA must be invalidated. In November 2020, ~~elections may change~~ the ~~direction~~Supreme Court of ~~future health-related legislation. Several candidates for President have proposed legislation which would substantially modify the delivery of healthcare in~~ the United States is expected to hear this matter and could invalidate portions of, or all of, the ACA. Changes resulting from these proceedings could have a material impact on our business. In the meantime, it also is possible that as a result of these actions, enrollment in healthcare exchanges could decline.

In November 2020, there will be federal and state elections that could affect which persons and parties occupy the Office of the President of the United States, control one or both chambers of Congress and many states’ governors and legislatures. The candidates running for President of the United States may propose changes to the U.S. healthcare system, including ~~repealing~~expanding government-funded healthcare insurance options, “Medicare for All” or eliminating the ACA in favor of an alternative plan. Any legislative or administrative change to the current healthcare financing system could have a material adverse effect on our financial condition, results of operations, cash flows and ~~replacing all private insurance coverage with a government-sponsored plan such as Medicare.~~the trading price of our securities.

If the ACA is repealed or further substantially modified by judicial, legislative or administrative action, or if implementation of certain aspects of the ACA are diluted, delayed or replaced with a “Medicare for ~~All”~~All,” public option or single payor system, such repeal, modification or delay may impact our business, financial condition, results of operations, cash flows and the trading price of our securities. We are unable to predict the impact of any repeal, modification or delay in the implementation of the ACA, including the repeal of the individual mandate or implementation of a single payor system, on us at this time.

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In addition to the potential impacts to the ACA, ~~under the current Administration and Congress,~~ there could be ~~more sweeping~~ changes to other GHC Programs, such as a change into the structure of Medicaid. In the past, Congress and the Administration have sought to convert Medicaid ~~by converting it~~ into a block grant or ~~instituting~~to institute “per capita ~~caps,” which~~spending caps”, among other things. These changes, if implemented, could eliminate the guarantee that everyone who is eligible and applies for benefits would receive them and could potentially give states ~~sweeping~~ new authority to restrict eligibility, cut benefits and make it more difficult for people to enroll. Additionally, several states are considering and pursuing changes to their Medicaid programs, such as requiring recipients to engage in employment or education activities as a condition of eligibility for most adults, disenrolling recipients for failure to pay a premium, or adjusting premium amounts based on income.

As a result, we cannot predict with any assurance the ultimate effect of these laws and resulting changes to payments under GHC Programs, nor can we provide any assurance that they will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Further, any fiscal tightening impacting GHC Programs or changes to the structure of any GHC Programs could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.

The Medicare Access and CHIP Reauthorization Act

~~Medicare pays for most physician services based upon a national service-specific fee schedule.~~ The Medicare Access and CHIP Reauthorization Act (“MACRA”) ~~provides physicians 0.5% annual increases in reimbursement through 2019 as~~requires Medicare ~~transitions to a payment system designed to reward physicians for the quality of care provided, rather than the quantity of procedures performed. MACRA requires physicians~~providers to choose to participate in one of two payment formulas, Merit-Based Incentive Payment System (“MIPS”) or Alternative Payment Models (“APMs”). ~~Effective January 1, 2019,~~Beginning in 2020, MIPS allows eligible physicians to receive incentive payments based on the achievement of certain quality and cost metrics, among other measures, and be reduced for those who are underperforming against those same metrics and measures. As an alternative, physicians can choose to participate in an advanced ~~APMs,~~APM, and physicians who are meaningful participants in APMs will receive bonus payments from Medicare pursuant to the law. MACRA also remains subject to review and potential modification by Congress, as well as shifting regulatory requirements established by CMS. We currently anticipate that our affiliated physicians who are eligible to participate in the MIPS program will continue to be eligible to receive MIPS bonus payments, ~~in 2019 through participation in the MIPS,~~ although the amounts of such bonus payments are not expected to be material. We will continue to operationalize the provisions of MACRA and assess any further changes to the law or additional regulations enacted pursuant to the law.

We cannot predict the ultimate effect that these changes will have on us, nor can we provide any assurance that its provisions will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.

Medicaid Expansion

The ACA also allows states to expand their Medicaid programs through federal payments that fund most of the cost of increasing the Medicaid eligibility income limit from a state’s historic eligibility levels to 133% of the federal poverty level. To date, 3638 states and the District of Columbia have expanded Medicaid eligibility to cover this additional

low-income

patient population, and other states are considering expansion. All of the states in which we operate, however, already cover children in the first year of life and pregnant women if their household income is at or below 133% of the federal poverty level.

“Surprise” Billing Legislation

“Surprise” medical bills arise when an insured patient receives care from an

out-of-network

provider resulting in costs that were not expected by the patient. The bill is a “surprise” either because the patient did not expect to receive care from an

out-of-network

provider, or because their cost-sharing responsibility is higher than the patient expected. For the past several years, state legislatures have been enacting laws that are intended to address the problems associated with surprise billing or balance billing.

More recently, Congress and President Trump have proposed bipartisan solutions to address this circumstance, either by working in tandem with, or in the absence of, applicable state laws. Several committees of jurisdiction in the U.S. House of Representatives and in the U.S. Senate have proposed solutions to address surprise medical bills, but it is unclear whether any of the proposed solutions will become law. In addition, state legislatures and regulatory bodies continue to address and modify existing laws on the same issue. Any state or federal legislation on the topic of surprise billing may have an unfavorable impact on

out-of-network

reimbursement that we receive. In addition, actual or prospective legislative changes in this area may impact, and may have impacted, our ability to contract with private payors at favorable reimbursement rates or remain in contract with such payors.

Although our

out-of-network

revenue is currently ~~immaterial,~~not material, we cannot predict the ultimate effect that these changes will have on us, nor can we provide any assurance that future legislation or regulations will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.

Medicare Sequestration

The Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012, required

across-the-board

cuts (“sequestrations”) to Medicare reimbursement rates. These annual reductions of 2%, on average, apply to mandatory and discretionary spending through 2025. Unless Congress acts in the future to modify these sequestrations, Medicare reimbursements will be reduced by 2%, on average, annually. ~~However, this~~In connection with the CARES Act, the Medicare sequestrations were suspended beginning on May 1, 2020 and are expected to remain suspended through December 31, 2020. Aside from the suspension, the reduction in Medicare reimbursement rates is not expected to have a material adverse effect on our business, financial condition, results of operations, cash flows or the trading price of our securities.

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Non-GAAP

Measures

In our analysis of our results of operations, we use certain

non-GAAP

financial measures. ~~Prior to January 1, 2019, we reported earnings before interest, taxes and depreciation and amortization (“EBITDA”). During 2019, we~~We have incurred and anticipate we will continue to incur certain expenses related to transformational and restructuring related expenses that are expected to be project-based and periodic in nature. ~~In addition, we have reported our management services as assets held for sale and discontinued operations beginning with the first quarter of 2019.~~ Accordingly, beginning with the first quarter of 2019, we began reporting Adjusted ~~EBITDA~~earnings before interest, taxes and depreciation and amortization (“EBITDA”) from continuing operations, defined as income (loss) from continuing operations before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses. Adjusted earnings per ~~common~~ share (“Adjusted EPS”) from continuing operations has also been further adjusted for these items and beginning with the first quarter of 2019 consists of diluted income (loss) from continuing operations per common and common equivalent share adjusted for amortization expense, stock-based compensation expense and transformational and restructuring related expenses. Adjusted EPS from continuing operations ~~is being~~has been further adjusted to reflect the impacts from discrete tax events. ~~Adjusted EBITDA and Adjusted EPS have also been adjusted for the~~

~~non-cash~~

goodwill impairment charge recorded during the third quarter of 2019. Historical periods do not include any material items that meet the current definition of transformational and restructuring related expenses or goodwill impairment, so although we are retrospectively presenting historical periods for the new definitions, we do not reflect any adjustments for these items.

We believe these measures, in addition to income (loss) from continuing operations, net income (loss) and diluted net income (loss) from continuing operations per common and common equivalent share, provide investors with useful supplemental information to compare and understand our underlying business trends and performance across reporting periods on a consistent basis. These measures should be considered a supplement to, and not a substitute for, financial performance measures determined in accordance with GAAP. In addition, since these

non-GAAP

measures are not determined in accordance with GAAP, they are susceptible to varying calculations and may not be comparable to other similarly titled measures of other companies.

For a reconciliation of each of Adjusted EBITDA from continuing operations and Adjusted EPS from continuing operations to the most directly comparable GAAP measures for the three and nine months ended September 30, ~~2019~~2020 and ~~2018,~~2019, refer to the tables below (in thousands, except per share data).

Three Months Ended
September 30,

Nine Months Ended
September 30,

2019

2018

2019

2018

(Loss) income from continuing operations
$
(1,260,246
) $
62,167
$
(1,183,077
) $
196,949

Interest expense

29,901

21,788

91,704

63,341

Income tax (benefit) provision

(125,788
)
23,550

(99,710
)
74,752

Depreciation and amortization

19,608

22,205

59,450

62,399

Transformational and restructuring related expenses

19,992

—

51,018

—

Goodwill impairment

1,449,215

—

1,449,215

—

Adjusted EBITDA from continuing operations
$
132,682
$
129,710
$
368,600
$
397,441


	Three Months Ended September 30,					Nine Months Ended September 30,
	2020			2019		2020			2019
(Loss) income from continuing operations	$	(2,652	)	$	12,887	$	(14,067	)	$	32,281
Interest expense		27,250			29,909		83,180			91,271
Income tax provision		6,677			7,360		10,859			12,590
Depreciation and amortization		7,195			6,408		20,749			18,830
Transformational and restructuring related expenses		34,291			12,766		60,846			32,025

Adjusted EBITDA from continuing operations	$	72,761		$	69,330	$	161,567		$	186,997


	Three Months Ended September 30,
	2020						2019
Weighted average diluted shares outstanding		83,862						82,883
(Loss) income from continuing operations and diluted (loss) income from continuing operations per share	$	(2,652	)	$	(0.03	)	$	12,887	$	0.16
Adjustments (1) :
Amortization (net of tax of $601 and $444)		1,802			0.02			1,333		0.02
Stock-based compensation (net of tax of $1,132 and $1,902)		3,398			0.04			5,706		0.07
Transformational and restructuring related expenses (net of tax of $8,573 and $3,191)		25,718			0.31			9,575		0.12
Net impact from discrete tax events		2,905			0.03			1,784		0.01

Adjusted income and diluted EPS from continuing operations	$	31,171		$	0.37		$	31,285	$	0.38

Three Months Ended
September 30,

2019

2018

Weighted average diluted shares outstanding

82,441

91,359

(Loss) income from continuing operations and diluted income from continuing operations per share
$
  (1,260,246
) $
  (15.29
) $
62,167
$
0.68

Adjustments
(1)
:

Amortization (net of tax of $3,283 and $3,951)

8,875

0.11

10,416

0.11

Stock-based compensation (net of tax of $2,180 and $2,403)

5,895

0.07

6,337

0.07

Transformational and restructuring related expenses (net of tax of $5,398)
��
14,595

0.18

—

—

Goodwill impairment (net of tax of $147,215)

1,302,000

15.79

—

—

Net impact from discrete tax events

4,367

0.05

—

—

Adjusted income and diluted EPS from continuing operations
$
75,486
$
0.91
$
  78,920
$
  0.86

(1)

~~Tax rates~~

Our blended statutory tax rate of ~~27.0% and 27.5% were~~25% was used to calculate the tax effects of the adjustments for the three months ended September 30, ~~2019~~2020 and ~~2018, respectively. The~~2019.


	Nine Months Ended September 30,
	2020						2019
Weighted average diluted shares outstanding		83,260						84,302
(Loss) income from continuing operations and diluted (loss) income from continuing operations per share	$	(14,067	)	$	(0.17	)	$	32,281		$	0.38
Adjustments (1) :
Amortization (net of tax of $1,632 and $1,289)		4,896			0.06			3,867			0.05
Stock-based compensation (net of tax of $4,550 and $6,893)		13,652			0.16			20,672			0.25
Transformational and restructuring related expenses (net of tax of $15,211 and $8,006)		45,635			0.55			24,019			0.28
Net impact from discrete tax events		7,849			0.10			(5	)		—

Adjusted income and diluted EPS from continuing operations	$	57,965		$	0.70		$	80,834		$	0.96

(2)	Our blended statutory tax rate ~~used for the three months ended September 30, 2019 excludes the impact~~ of ~~discrete tax events.~~

Nine Months Ended
September 30,

2019

2018

Weighted average diluted shares outstanding

83,846

92,760

(Loss) income from continuing operations and diluted income from continuing operations per share
$
(1,183,077
) $
(14.11
) $
196,949
$
2.13

Adjustments
(1)
:

Amortization (net of tax of $10,166 and $11,134)

27,251

0.32

29,354

0.32

Stock-based compensation (net of tax of $7,885 and $7,907)

21,140

0.25

20,846

0.22

Transformational and restructuring related expenses (net of tax of 13,860)

37,158

0.44

—

—

Goodwill impairment (net of tax of $147,215)

1,302,000

15.53

—

—

Net impact from discrete tax events

1,976

0.02

—

—

Adjusted income and diluted EPS from continuing operations
$
206,448
$
2.45
$
  247,149
$
  2.67

~~(1)~~

~~Tax rates of 27.2% and 27.5% were~~25% was used to calculate the tax effects of the adjustments for the nine months ended September 30, ~~2019~~2020 and ~~2018, respectively. The tax rate used for the nine months ended September 30, 2019 excludes the impact of discrete tax events.~~2019.

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Results of Operations

Three Months Ended September 30, ~~2019~~2020 as Compared to Three Months Ended September 30, ~~2018~~2019

Our net revenue attributable to continuing operations was ~~$888.7~~$460.6 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~$848.8~~$454.9 million for the same period in ~~2018.~~2019. The increase in revenue of ~~$39.9~~$5.7 million, or ~~4.7%~~1.3%, was primarily attributable to an increase in ~~same-unit net revenue and~~ revenue from ~~acquisitions.~~acquisitions, partially offset by a decline in same-unit revenue. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue ~~grew~~declined by ~~$34.8~~$1.7 million, or ~~4.2%~~0.4%. The ~~increase~~decline in same-unit net revenue was comprised of a ~~net increase~~decrease of ~~$26.6~~$19.2 million, or ~~3.2%~~4.3%, ~~from~~related to patient service volumes, ~~and~~partially offset by a net increase of ~~$8.2~~$17.5 million, or ~~1.0%~~3.9%, ~~related to~~from net reimbursement-related factors. The ~~increase~~decrease in revenue from patient service volumes was related to ~~increases~~a decline across ~~almost~~ all our ~~service lines driven by growth in anesthesiology, neonatology and other pediatric~~ services, ~~including newborn nursery, and radiology.~~ primarily as a result of the continued impacts from

COVID-19.

The net increase in revenue related to net reimbursement-related factors was primarily due to approximately $14.2 million in CARES Act relief and modest ~~increases from~~improvements in managed care contracting, ~~an increase in administrative fees received from our hospital partners and an increase~~partially offset by a decrease in revenue caused by ~~the slight decrease~~an increase in the percentage of our patients enrolled in GHC programs.

Practice salaries and benefits attributable to continuing operations increased ~~$31.0~~$8.6 million, or ~~5.2%~~2.9%, to ~~$630.3~~$309.9 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~$599.3~~$301.3 million for the same period in 2018. This increase was primarily attributable to increased costs associated with physicians and other staff to support organic-growth initiatives and growth at our existing units as well as increases in malpractice expense due to unfavorable trends in claims experience.2019. Of the ~~$31.0~~$8.6 million increase, ~~$15.3 million was related to salaries and $15.7~~$5.6 million was related to benefits and incentive ~~compensation.~~compensation, primarily bonus expense, and $3.0 million was related to salaries. We anticipate that we will ~~continue to~~ experience a higher rate of growth in clinician compensation expense at our existing units over historic averages, which could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our securities.

Practice supplies and other operating expenses attributable to continuing operations decreased ~~$0.3~~$0.2 million, or ~~1.1%~~0.6%, to ~~$26.9~~$22.4 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~$27.2~~$22.6 million for the same period in ~~2018.~~2019. The decrease was primarily attributable to decreases in other practice ~~supply, rent~~operating expenses as compared to the prior year, primarily related to decreased activity across many expense categories such as travel, office expenses and ~~other costs.~~professional services resulting from the continued impacts of

COVID-19.

General and administrative expenses attributable to continuing operations primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically ~~related~~identifiable to the

day-to-day

operations of our physician practices and services. General and administrative expenses were ~~$102.4~~$66.3 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~$95.8~~$63.3 million for the same period in ~~2018. General~~2019. The increase of $3.0 million is primarily related to legal and ~~administrative expenses for the three months ended September 30, 2019 included the benefit from cost improvements as part of our shared~~professional services ~~initiative that was~~fees, partially offset by ~~an increase~~decreases in ~~legal expenses for ongoing litigation matters.~~compensation from net staffing reductions as well as decreases in general travel expenses. General and administrative expenses as a percentage of net revenue was ~~11.5%~~14.4% for the three months ended September 30, ~~2019,~~2020, as compared to ~~11.3%~~13.9% for the same period in ~~2018.~~2019. Certain general and administrative expenses related to corporate overhead represent various support services provided across the company, including approximately $10 million in costs related to support for the recently divested anesthesiology services medical group through a transition services agreement. Because a portion of such expenses were previously allocated to but not specifically identifiable to, the anesthesiology services medical group, they are required to be presented as continuing operations. Therefore, general and administrative expenses do not reflect potential general and administrative cost savings that may be achieved in future periods.

Transformational and restructuring related expenses attributable to continuing operations were ~~$20.0~~$34.3 million for the three months ended September 30, ~~2019,~~2020, as compared to $12.8 million for the same period in 2019. Approximately $26.7 million of the expenses incurred during the three months ended September 30, 2020 were for compensation-related expenses resulting from the restructuring changes in executive management and the board of directors, with the remainder primarily ~~related to~~for external consulting costs for various process improvement and restructuring ~~initiatives.~~

~~Goodwill impairment charge attributable~~initiatives, position eliminations and contract termination and other fees. Beginning in April 2020, we reduced the scope of our transformation and restructuring related initiatives unless they were initiatives critical to ~~continuing~~our business operations ~~was $1.45 billion~~or those that provide essential support for our response to

COVID-19.

Various activities related to executive management and board of directors restructuring were recorded as transformational and restructuring related expenses during the three months ended September 30, ~~2019, nearly all of which related to our anesthesiology service line. See Note 6 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form~~

~~10-Q~~

~~for additional information.~~2020.

Depreciation and amortization expense attributable to continuing operations ~~decreased $2.6 million, or 11.7%, to $19.6~~was $7.2 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~$22.2~~$6.4 million for the same period in ~~2018, primarily related to a decrease in amortization expense underlying various finite lived intangible assets due to the expiration of amortization periods.~~2019.

~~Loss~~Income from operations attributable to continuing operations ~~was $1.36 billion~~decreased $28.1 million, or 57.9%, to $20.5 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~income from operations attributable to continuing operations of $104.2~~$48.6 million for the same period in ~~2018.~~2019. Our operating margin was ~~(153.0)%~~4.4% for the three months ended September 30, ~~2019,~~2020, as compared to ~~12.3%~~10.7% for the same period in ~~2018.~~2019. The decrease in our operating margin was primarily due to the decrease in revenue related to

~~non-cash~~COVID-19

~~goodwill impairment charge recorded during the three months ended September 30, 2019 as well as higher operating expense growth, including~~and an increase in transformation and restructuring ~~expenses, combined with lower revenue growth.~~related expenses. Excluding ~~the~~

~~non-cash~~

~~goodwill impairment charge and the~~ transformation and restructuring related expenses, our income from operations attributable to continuing operations for the three months ended September 30, 2020 and 2019 was ~~$109.5~~$54.8 million and $61.3 million, respectively, and our operating margin was ~~12.3%.~~11.9% and 13.5%, respectively. We believe excluding the impacts from the

~~non-cash~~

~~goodwill impairment charge and~~ transformational and restructuring related activity provides a more comparable view of our operating income and operating margin from continuing ~~operations.~~operations; however, this comparison is affected by the impacts from

COVID-19

during 2020.

~~Net~~Total

non-operating

expenses attributable to continuing operations were ~~$26.3~~$16.4 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~$18.5~~$28.3 million for the same period in ~~2018.~~2019. The ~~net increase of $7.8 million, or 42.2%,~~decrease in

non-operating

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Our effective income tax rate attributable to continuing operations ~~was 9.1% and 27.5%~~is not meaningful as calculated for the three months ended September 30, ~~2019 and 2018, respectively. Excluding~~2020 due to the decreased level of

pre-tax

income ~~tax impacts from~~generated. Income taxes for the three months ended September 30, 2020 were calculated by applying the actual

~~non-cash~~

year-to-date

~~goodwill impairment charge and other discrete tax items,~~

effective rate to our

pre-tax

income. Our effective income tax ~~rate~~attributable to continuing operations was ~~27.0%~~36.4% for the three months ended September 30, 2019. After excluding discrete tax impacts, during the three months ended September 30, 2019, our effective income tax rate was 27.5%. We believe excluding ~~the~~discrete tax impacts on our effective income tax rate ~~related to the~~

~~non-cash~~

~~impairment charge and other discrete tax items~~ provides a more comparable view of our effective income tax rate.

Loss from continuing operations was ~~$1.26 billion~~$2.7 million for the three months ended September 30, ~~2019,~~2020, as compared to income from continuing operations of ~~$62.2~~$12.9 million for the same period in ~~2018.~~2019. Adjusted EBITDA from continuing operations was ~~$132.7~~$72.8 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~$129.7~~$69.3 million for the same period in ~~2018.~~2019.

Diluted loss from continuing operations per common and common equivalent share was ~~$15.29~~$0.03 on weighted average shares outstanding of ~~82.4~~83.9 million for the three months ended September 30, ~~2019,~~2020, as compared to diluted income from continuing operations per common and common equivalent share of ~~$0.68~~$0.16 on weighted average shares outstanding of ~~91.4~~82.9 million for the same period in ~~2018.~~2019. Adjusted EPS from continuing operations was ~~$0.91~~$0.37 for the three months ended September 30, ~~2019,~~2020, as compared to ~~$0.86~~$0.38 for the same period in 2018. The decrease of 8.9 million in our weighted average shares outstanding is primarily due to the impact of shares repurchased under a 2018 accelerated share repurchase program and through open market repurchase activity in 2018 and 2019.

~~Income~~Loss from discontinued operations, net of tax, was ~~$4.3~~$38.4 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~$3.4 million~~a loss from discontinued operations of $1.27 billion for the same period in ~~2018.~~2019. Diluted ~~income~~loss from discontinued operations per common and common equivalent share was ~~$0.05~~$0.46 for the three months ended September 30, ~~2019,~~2020, as compared to ~~$0.04~~$15.31 for the same period in ~~2018.~~2019.

~~Consolidated net~~Net loss was ~~$1.26 billion~~$41.0 million for the three months ended September 30, ~~2019,~~2020, as compared to ~~consolidated net income of $65.6 million~~$1.26 billion for the same period in ~~2018.~~2019. Diluted net loss per common and common equivalent share was ~~$15.24~~$0.49 for the three months ended September 30, ~~2019,~~2020, as compared to ~~diluted net income per common and common equivalent share of $0.72~~$15.15 for the same period in ~~2018.~~2019.

Nine Months Ended September 30, ~~2019~~2020 as Compared to Nine Months Ended September 30, ~~2018~~2019

Our net revenue attributable to continuing operations was ~~$2.61~~$1.32 billion for the nine months ended September 30, ~~2019, as compared~~2020 and 2019. The slight decrease in revenue of $3.8 million, or 0.3%, was primarily attributable to ~~$2.57 billion for~~ the ~~same period~~unfavorable impacts from

COVID-19

on same-unit revenue, driven by declines in ~~2018. The~~volume, partially offset by an increase in revenue ~~of $41.8 million, or 1.6%, was attributable to an increase in same-unit net revenue and revenue~~ from ~~acquisitions, partially offset by a decline in revenue from the~~

~~non-renewal~~

~~of certain contracts.~~acquisitions. Same units are those

units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue ~~grew~~declined by ~~$55.0~~$25.3 million, or ~~2.2%~~1.9%. The ~~increase~~decline in same-unit net revenue was comprised of a ~~net increase~~decrease of ~~$29.4~~$60.3 million, or ~~1.2%, from net reimbursement-related factors and a net increase of $25.6 million, or 1.0%~~4.6%, related to patient service ~~volumes.~~ volumes, partially offset by a net increase of $35.0 million, or 2.7%, from net reimbursement-related factors. The decrease in revenue from patient service volumes was primarily related to a decline across all our services, primarily as a result of

COVID-19.

The net increase in revenue related to net reimbursement-related factors was primarily due to ~~favorable rate impacts from our radiology services,~~approximately $20.0 million in CARES Act relief, modest improvements in managed care contracting and an increase in administrative fees received from our hospital partners and an increase in revenue caused by the slight decrease in the percentage of our patients enrolled in GHC programs. The increase in revenue from patient service volumes was primarily related to growth across almost all of our services, driven by growth in neonatology and other pediatric services, including newborn nursery, and anesthesiology services.

partners.

Practice salaries and benefits attributable to continuing operations increased ~~$64.5~~$28.5 million, or ~~3.6%~~3.2%, to ~~$1.86 billion~~$909.2 million for the nine months ended September 30, ~~2019,~~2020, as compared to ~~$1.80 billion~~$880.7 million for the same period in ~~2018. This~~2019. The increase ~~was primarily attributable to increased costs associated with physicians and other staff to support organic-growth initiatives, acquisition-related growth and growth at our existing units,~~ of ~~which $30.0~~$28.5 million was ~~related to salaries and $34.5~~comprised of $22.7 million ~~was related to~~in benefits and incentive ~~compensation.~~compensation, primarily bonus expense and malpractice expense, and $5.8 million from salaries. We anticipate that we will ~~continue to~~ experience a higher rate of growth in clinician compensation expense at our existing units over historic averages, which could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our securities.

Practice supplies and other operating expenses attributable to continuing operations decreased ~~$2.2~~$6.2 million, or ~~2.7%~~8.6%, to ~~$80.8~~$66.5 million for the nine months ended September 30, ~~2019,~~2020, as compared to ~~$83.0~~$72.7 million for the same period in ~~2018.~~2019. The decrease was primarily attributable to decreases in other practice ~~supply, rent~~operating expenses as compared to the prior year, primarily related to decreased activity across many expense categories such as travel, office expenses and ~~other costs.~~professional services resulting from impacts of

COVID-19,

primarily during the second quarter of 2020.

day-to-day

operations of our physician practices and services. General and administrative expenses were ~~$307.7~~$194.3 million for the nine months ended September 30, ~~2019,~~2020, as compared to ~~$298.4~~$185.3 million for the same period in ~~2018.~~2019. The increase of $9.0 million is primarily related to legal and professional services fees, partially offset by decreases in compensation from net staffing reductions as well as decreases in general travel expenses. General and administrative expenses as a percentage of net revenue was ~~11.8%~~14.7% for the ~~nine~~three months ended September 30, ~~2019,~~2020, as compared to ~~11.6%~~14.0% for the same period in ~~2018.~~2019. Certain general and administrative expenses related to corporate overhead represent various support services provided across the company, including approximately $13 million in costs related to support for the recently divested anesthesiology services medical group through a transition services agreement. Because a portion of such expenses were previously allocated to but not specifically identifiable to the anesthesiology services medical group, they are required to be presented as continuing operations. Therefore, general and administrative expenses do not reflect potential general and administrative cost savings that may be achieved in future periods.

Transformational and restructuring related expenses attributable to continuing operations were ~~$51.0~~$60.8 million for the nine months ended September 30, ~~2019~~2020, as compared to $32.0 million for the same period in 2019. Approximately $30.1 million of ~~which $33.2 million related to~~the expenses incurred during the nine months ended September 30, 2020 were for external consulting costs for various process improvement and restructuring initiatives and ~~$17.8~~approximately $26.7 million were for compensation-related expenses resulting from the restructuring changes in executive management and the board of directors, with the remainder for position eliminations and contract termination and other fees. Beginning in

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April 2020, we reduced the scope of our transformation and restructuring related initiatives unless they were initiatives critical to our business operations or those that provide essential support for our response to

COVID-19.

Various activities related to ~~severance benefits for eliminated positions~~executive management and board of directors restructuring were recorded as ~~well as costs associated with contract terminations.~~

~~Goodwill impairment charge attributable to continuing operations was $1.45 billion for~~transformational and restructuring related expenses during the ~~nine~~three months ended September 30, ~~2019, nearly all of which related to our anesthesiology service line. See Note 6 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form~~

~~10-Q~~

~~for additional information.~~2020.

Depreciation and amortization expense attributable to continuing operations ~~decreased $2.9 million, or 4.7%, to $59.5~~was $20.7 million for the nine months ended September 30, ~~2019,~~2020, as compared to ~~$62.4~~$18.8 million for the same period in ~~2018, primarily related to a decrease in amortization expense underlying various finite lived intangible assets due to the expiration of amortization periods.~~2019.

~~Loss~~Income from operations attributable to continuing operations ~~was $1.20 billion~~decreased $65.8 million, or 50.0%, to $65.8 million for the nine months ended September 30, ~~2019,~~2020, as compared to ~~income from operations attributable to continuing operations of $326.3~~$131.6 million for the same period in ~~2018.~~2019. Our operating margin was ~~(46.0)%~~5.0% for the nine months ended September 30, ~~2019,~~2020, as compared to ~~12.7%~~10.0% for the same period in ~~2018.~~2019. The decrease in our operating margin was primarily due to ~~the~~

~~non-cash~~

~~goodwill impairment charge recorded during the three months ended September 30, 2019 as well as higher operating expense growth, including~~an increase in transformation and restructuring related expenses ~~combined with lower revenue growth.~~and practice salaries and benefits. Excluding ~~the~~

~~non-cash~~

~~goodwill impairment charge and the~~ transformation and restructuring expenses, our income from operations attributable to continuing operations for the nine months ended September 30, 2020 and 2019 was ~~$299.4~~$126.7 million and $163.6 million, respectively, and our operating margin was ~~11.5%.~~9.6% and 12.4%, respectively. We believe excluding the impacts from the

~~non-cash~~

COVID-19

during 2020.

~~Net~~Total

non-operating

expenses attributable to continuing operations were ~~$82.0~~$69.0 million for the nine months ended September 30, ~~2019,~~2020, as compared to ~~$54.6~~$86.7 million for the same period in ~~2018.~~2019. The ~~net increase of $27.4 million, or 50.3%,~~decrease in

non-operating

expenses was primarily related to an increase in other income related to the transition services being provided to the buyer of our former anesthesiology services medical group and a decrease in interest expense, ~~related~~primarily due to ~~a higher~~lower average interest rate on our outstanding debt, driven by the incremental senior notes issuances completed in late 2018 and early 2019 and the write off of approximately $1.5 million in deferred debt costs from the amendment ofborrowings under our Credit Agreement, ~~during~~partially offset by a decrease in equity earnings resulting from the ~~three months ended March 31, 2019.~~impacts to the underlying joint venture from

COVID-19

and the settlement of a litigation matter.

Our effective income tax rate attributable to continuing operations ~~was 7.8% and 27.5%~~is not meaningful as calculated for the nine months ended September 30, ~~2019 and 2018, respectively. Excluding~~2020 due to the ~~income tax~~

pre-tax

loss generated, primarily due to the impacts from

COVID-19.

Income taxes for the nine months ended September 30, 2020 were calculated by applying the actual

~~non-cash~~

year-to-date

~~goodwill impairment charge and other discrete tax items,~~

effective rate to our

pre-tax

loss. Our effective income tax ~~rate~~attributable to continuing operations was ~~27.2%~~28.1% for the nine months ended September 30, 2019. ~~We believe excluding the impacts on our effective income tax rate related to the~~

~~non-cash~~

~~impairment charge and other~~The net discrete tax ~~items provides a more comparable view of our effective income tax rate.~~impacts during the nine months ended September 30, 2019 were not material.

Loss from continuing operations was ~~$1.18 billion~~$14.1 million for the nine months ended September 30, ~~2019,~~2020, as compared to income from continuing operations of ~~$196.9~~$32.3 million for the same period in ~~2018.~~2019. Adjusted EBITDA from continuing operations was ~~$368.6~~$161.6 million for the nine months ended September 30, ~~2019,~~2020, as compared to ~~$397.4~~$187.0 million for the same period in ~~2018.~~2019.

Diluted loss from continuing operations per common and common equivalent share was ~~$14.11~~$0.17 on weighted average shares outstanding of ~~83.8~~83.3 million for the nine months ended September 30, ~~2019,~~2020, as compared to diluted income ~~from continuing operations~~per common and common equivalent share of ~~$2.13~~$0.38 on weighted average shares outstanding of ~~92.8~~84.3 million for the same period in ~~2018.~~2019. Adjusted EPS from continuing operations was ~~$2.45~~$0.70 for the nine months ended September 30, ~~2019,~~2020, as compared to ~~$2.67~~$0.96 for the same period in ~~2018.~~2019. The decrease of ~~8.9~~1.0 million in our weighted average shares outstanding is primarily due to the ~~impact~~exclusion of common stock equivalents from the weighted average shares ~~repurchased under a 2018 accelerated share repurchase program and through open market repurchase activity in 2018 and 2019.~~calculation for the nine months ended September 30, 2020 as the effect would have been antidilutive.

Loss from discontinued operations, net of tax, was ~~$324.0~~$718.1 million for the nine months ended September 30, ~~2019, reflecting the loss on the initial classification as assets held for sale and an incremental impairment charge recorded during the nine months ended September 30, 2019,~~2020, as compared to ~~income~~loss from discontinued operations of ~~$11.5 million~~$1.54 billion for the same period in ~~2018.~~2019. Diluted loss from discontinued operations per common and common equivalent share was ~~$3.86~~$8.62 for the nine months ended September 30, ~~2019,~~2020, as compared to a diluted ~~income~~loss from discontinued operations per common and common equivalent share of ~~$0.12~~$18.26 for the same period in ~~2018.~~2019.

Net loss was ~~$1.51 billion~~$732.2 million for the nine months ended September 30, ~~2019,~~2020, as compared to a net ~~income~~loss of ~~$208.4 million~~$1.51 billion for the same period in ~~2018.~~2019. Diluted net loss per common and common equivalent share was ~~$17.97~~$8.79 for the nine months ended September 30, ~~2019,~~2020, as compared to ~~diluted net income per common and common equivalent share of $2.25~~$17.88 for the same period in ~~2018.~~2019.

Liquidity and Capital Resources

As of September 30, ~~2019,~~2020, we had ~~$28.9~~$294.5 million of cash and cash equivalents attributable to our continuing operations as compared to ~~$25.5~~$107.9 million at December 31, ~~2018.~~2019. Additionally, we had working capital attributable to our continuing operations of ~~$172.5~~$290.0 million at September 30, ~~2019,~~2020, an increase of ~~$43.5~~$79.3 million from working capital of ~~$129.0~~$210.7 million at December 31, 2018. The net increase in working capital is primarily due to net borrowings on our Credit Agreement and reclassification of investments to available for sale, partially offset by the use of funds for repurchases of our common stock.2019.

Cash Flows from Continuing Operations

Cash provided by (used in) operating, investing and financing activities from continuing operations is summarized as follows (in thousands):

Nine Months Ended
September 30,

2019

2018

Operating activities
$
210,846
$
150,442

Investing activities

(43,876
)
(34,463
)
Financing activities

(183,571
)
(140,272
)


	Nine Months Ended September 30,
	2020			2019
Operating activities	$	71,645		$	36,237
Investing activities		(28,179	)		(33,729	)
Financing activities		(3,496	)		(174,662	)

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Operating Activities from Continuing Operations

During the nine months ended September 30, ~~2019,~~2020, our net cash provided by operating activities for continuing operations was ~~$210.8~~$71.6 million, compared to ~~$150.4~~$36.2 million for the same period in ~~2018.~~2019. The net increase in cash provided of ~~$60.4~~$35.4 million was primarily due to an increase in cash flow from ~~accounts payable and accrued expenses,~~deferred income taxes ~~payable~~ and accounts receivable, partially offset by a decrease in cash ~~flow~~ from lower ~~earnings.~~earnings and changes in accounts payable and accrued expenses.

During the nine months ended September 30, ~~2019,~~2020, cash flow from accounts receivable for continuing operations was ~~$12.0~~$30.0 million, as compared to ~~cash used of $25.6~~$7.5 million for the same period in ~~2018.~~2019. The increase in cash flow from accounts receivable for the nine months ended September 30, ~~2019~~2020 was primarily due to decreases in ending accounts receivable balances at existing units ~~due to~~and improvements in the timing of cash collections.

Days sales outstanding (“DSO”) is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Our DSO for continuing operations was ~~51.2~~48.2 days at September 30, ~~2019~~2020 as compared to ~~52.5~~51.0 days at December 31, ~~2018.~~2019.

Investing Activities from Continuing Operations

During the nine months ended September 30, ~~2019,~~2020, our net cash used in investing activities for continuing operations of ~~$43.9~~$28.2 million ~~included acquisition payments~~consisted primarily of ~~$31.2 million and~~ capital expenditures of ~~$25.0~~$21.8 million ~~partially offset by~~and net ~~proceeds~~purchases of ~~$12.3 million related to the maturity and purchase~~investments of ~~investments.~~$5.2 million.

Financing Activities from Continuing Operations

During the nine months ended September 30, ~~2019,~~2020, our net cash used in financing activities for continuing operations of ~~$183.6~~$3.5 million consisted ~~primarily~~ of ~~repurchases~~the repurchase of ~~$144.9~~$8.5 million of our common stock, partially offset by ~~net borrowings on our Credit Agreement~~proceeds from the issuance of ~~$30.0~~common stock of $5.7 million.

Liquidity

On March ~~28, 2019,~~25, 2020, we amended and restated our Credit Agreement to, ~~reduce~~among other things, (i) establish a deemed Consolidated EBITDA of $139.2 million for the ~~size~~second and third quarters of 2020, reflecting average Adjusted EBITDA from continuing operations for the prior eight quarters (calculated for purposes of the ~~revolving credit facility, extend~~Credit Agreement), which will be used in the ~~maturity~~calculation of rolling four consecutive quarter Consolidated EBITDA under the Credit Agreement, (ii) temporarily increase the maximum consolidated net leverage ratio required to be maintained by us from 4.50:1:00 to 5.00:1:00 for the second and third quarters of 2020 and 4.75:1:00 for the fourth quarter of 2020, before returning to 4.50:1:00 for the first quarter of 2021 and beyond, (iii) require that we maintain minimum availability under the Credit Agreement of $300.0 million through the third quarter of 2021, (iv) provide for a weekly repayment of borrowings under the Credit Agreement through the second quarter of 2021 using unrestricted cash on hand in excess of $300.0 million, plus a reserve for certain payables, and (v) temporarily restrict our ability to make ~~other technical and conforming changes. As amended and restated,~~restricted payments under the Credit Agreement for the remainder of 2020, subject to certain exceptions.

The Credit Agreement provides for a $1.2 billion unsecured revolving credit facility, subject to the limitations discussed above, and includes a $37.5 million

sub-facility

for the issuance of letters of credit. The Credit Agreement matures on March 28, 2024 and is guaranteed by substantially all of our subsidiaries and affiliated professional associations and corporations. At our

option, borrowings under the Credit Agreement will bear interest at (i) the alternate base rate (defined as the higher of (a) the prime rate, (b) the Federal Funds Rate plus 1/2 of 1.00% and (c) LIBOR for an interest period of one month plus 1.00%) plus an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated leverage ratio or (ii) the LIBOR rate plus an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated leverage ratio. The Credit Agreement also calls for other customary fees and charges, including an unused commitment fee ranging from 0.150% to 0.200% of the unused lending commitments, based on our consolidated leverage ratio. The Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest charge ratio, not to exceed a specified consolidated leverage ratio and to comply with laws, and restrictions on the ability to pay dividends and make certain other distributions, as specified therein. Failure to comply with these covenants would constitute an event of default under the Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Credit Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Credit Agreement.

At September 30, ~~2019,~~2020, we had anno outstanding principal balance ~~of $209.8 million~~ on our Credit Agreement. We ~~also~~ had outstanding letters of credit of $0.2 million which reduced the amount available on our Credit Agreement to ~~$990.0~~$899.8 million at September 30, ~~2019.~~2020, after giving effect to the temporary reduction of the capacity of our Credit Agreement described above through September 30, 2021.

~~In February 2019, we completed a private offering of Additional 2027 Notes.~~ At September 30, ~~2019, the outstanding balance on the 2027 Notes was $1.0 billion. We also~~2020, we had an outstanding principal balance of $750.0 million on our 5.25% senior unsecured notes due 2023 (the “2023 Notes”) and an outstanding principal balance of $1.0 billion on our 6.25% senior unsecured notes due 2027 (the “2027 Notes”). Our obligations under the 2023 Notes and the 2027 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee our Credit Agreement. Interest on the 2023 Notes accrues at the rate of 5.25% per annum, or $39.4 million, and is payable semi-annually in arrears on June 1 and December 1. Interest on the 2027 Notes accrues at the rate of 6.25% per annum, or $62.5 million, and is payable semi-annually in arrears on January 15 and July 15.

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The indenture under which the 2023 Notes and the 2027 Notes are issued, among other things, limits our ability to (1) incur liens and (2) enter into sale and lease-back transactions, and also limits our ability to merge or dispose of all or substantially all of our assets, in all cases, subject to a number of customary exceptions. Although we are not required to make mandatory redemption or sinking fund payments with respect to the 2023 Notes ~~and~~or the 2027 Notes, upon the occurrence of a change in control of MEDNAX, we may be required to repurchase the 2023 Notes and the 2027 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2023 Notes and the 2027 Notes repurchased plus accrued and unpaid interest.

At September 30, ~~2019,~~2020, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Credit Agreement and the 2023 Notes and the 2027 Notes. We believe we will be in compliance with these covenants throughout ~~2019.~~2020.

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 for continuing operations at September 30, ~~2019~~2020 was ~~$266.6~~$297.8 million, of which ~~$43.7~~$55.5 million is classified as a current liability within accounts payable and accrued expenses in the Consolidated Balance ~~Sheet.~~Sheets. In addition, there is a corresponding insurance receivable of ~~$29.8~~$23.6 million recorded as a component of other assets for certain professional liability claims that are covered by insurance policies.

We anticipate that funds generated from operations, together with our current cash on hand and funds available under our Credit Agreement, will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, fund expenses related to our transformational and restructuring activities, fund our share repurchase programs and meet our contractual obligations for at least the next 12 months from the date of issuance of this Quarterly Report on Form

10-Q.

Caution Concerning Forward-Looking Statements

Certain information included or incorporated by reference in this Quarterly Report may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, and all statements, other than statements of historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. These statements are often characterized by terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions, and are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements in this Quarterly Report are made as of the date hereof, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in the ~~2018~~2019 Form

10-K,

and this Quarterly Report, including the ~~section~~sections entitled “Risk Factors.”

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are subject to market risk primarily from exposure to changes in interest rates based on our financing, investing and cash management activities. We intend to manage interest rate risk through the use of a combination of fixed rate and variable rate debt. We borrow under our Credit Agreement at various interest rate options based on the Alternate Base Rate or LIBOR rate depending on certain financial ratios. At September 30, ~~2019, the~~2020, we had no outstanding principal balance on our Credit ~~Agreement was $209.8 million, and considering this outstanding balance, a 1% change in interest rates would result in an impact to income before income taxes of approximately $2.1 million per year.~~Agreement.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Rules

13a-15(e)

and

15d-15(e)

under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, ~~2019.~~2020.

Changes in Internal Controls Over Financial Reporting

No changes in our internal control over financial reporting occurred during the three months ended September 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 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 assure 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.

On July 10, 2018, a securities class action lawsuit was filed against our company and certain of our officers and a director in the U.S. District Court for the Southern District of Florida (Case No.

0:18-cv-61572-WPD)

that purports to state a claim for alleged violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule

10b-5

thereunder, based on statements made by the defendants primarily concerning our former anesthesiology business. The complaint was seeking unspecified damages, interest, attorneys’ fees and other costs. We filed a motion to dismiss in April 2019, which was granted in October 2019; however, the plaintiff filed a second amended complaint on October 25, 2019. ~~We continue~~On November 25, 2019, we filed a motion to ~~believe this lawsuit~~dismiss the second amended complaint, and on February 7, 2020 a final order granting our motion to ~~be without merit and intend to vigorously defend against it. The lawsuit is in~~dismiss the ~~early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to us.~~second amended complaint with prejudice was issued.

On March 20, 2019, a separate derivative action was filed by plaintiff Beverly Jackson on behalf of MEDNAX, Inc. against MEDNAX, Inc. and certain of its officers and directors in the Seventeenth Judicial Circuit in and for Broward County, Florida (Case Number

CACE-19-006253).

The plaintiff ~~purports~~purported to bring suit derivatively on behalf of our company against certain of our officers and directors for breach of fiduciary duties and unjust enrichment. The derivative complaint ~~repeats~~repeated many of the allegations in the securities class action described above. ~~The derivative~~We filed a motion to dismiss in December 2019, and on March 16, 2020, an order granting our motion to dismiss without prejudice was issued. On April 6, 2020, the plaintiff filed an amended complaint, ~~seeks unspecified damages, restitution, attorneys’ fees~~ and ~~costs~~on April 30, 2020, we filed a motion to dismiss the amended complaint. On September 24, 2020, our motion to dismiss was granted, but the plaintiff was granted 20 days to amend their complaint, and ~~governance relief.~~on October 14, 2020, the plaintiff filed a second amended complaint. We ~~believe this action~~filed our motion to ~~be without merit and intend to vigorously defend against it. The action is in~~dismiss the ~~early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to us.~~second amended complaint on October 26, 2020.

Item 1A. Risk Factors

~~There~~Item 1A. Risk Factors in our most recent Annual Report on Form

10-K

includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our most recent Annual Report on Form

10-K.

Except as presented below, there have been no material changes to the risk factors ~~previously~~ disclosed in our ~~2018~~most recent Annual Report on Form

10-K.

Our financial condition and results of operations for fiscal year 2020 and beyond may be materially adversely affected by the ongoing coronavirus pandemic

(COVID-19).

The outbreak of

COVID-19

has evolved into a global pandemic. The coronavirus has spread to most regions of the world, including virtually all of the United States. The full extent to which

COVID-19

will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning

COVID-19

and the actions to contain it or treat its impact, such as the potential for further shutdown or stay at home orders, and shifts toward GHC Programs if changes occur in 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.

Our anesthesiology services medical group, which we divested on May 6, 2020, experienced a significant decline in the number of elective surgeries at a number of the facilities where its affiliated clinicians provide anesthesia services as a result of

COVID-19.

A significant portion of this decline was due to the closure of operating suites or facilities following federal advisories to cancel

non-urgent

procedures and the prohibition of such procedures by several states. Within our radiology services medical group, which in September 2020 we entered into an agreement to divest, orders for radiological studies declined by a meaningful amount from historically normal levels as a result of

COVID-19,

with much of this reduction focused in

non-urgent

studies. Additionally, our office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, saw a significant elevation of appointment cancellations compared to historical normal levels as a result of

COVID-19.

To date, we have not experienced, nor do we currently anticipate, any significant impact to our NICU patient volumes as a result of

COVID-19,

however, there is no assurance that

COVID-19

will not adversely affect our NICU patient volumes or otherwise adversely affect our NICU and related neonatology business. Overall, our operating results since

mid-March

2020 have been significantly impacted by the

COVID-19

pandemic, but volumes did begin to normalize in May 2020 and substantially recovered during the months of June 2020 through September 2020.

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Across these medical groups, we believe that these patient volume declines primarily reflect a deferral of healthcare services utilization to a later period, rather than a permanent reduction in demand for our services. Given the general necessity of the services our affiliated clinicians provide, we anticipate that this deferral of services may create a backlog of demand in the future, in addition to the resumption of historically normal activity, however, there is no assurance that either will occur. We may also require an increased level of working capital if we experience extended billing and collection cycles as a result of displaced employees, payors, revenue cycle management contractors, or otherwise. The foregoing and other continued disruptions to our business as a result of

COVID-19

could result in a material adverse effect on our business, results of operations, financial condition, prospects and the trading prices of our securities in the near-term and beyond 2020.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended September 30, ~~2019,~~2020, we repurchased ~~19,675~~310,589 shares of our common stock that were withheld to satisfy minimum statutory withholding obligations in connection with the vesting of restricted stock and deferred stock.

Period

Total Number of Shares Repurchased
(a)

Average
Price Paid
per Share

Total Number of
Shares Purchased as
part of the
Repurchase Program

Approximate Dollar Value of Shares that May Yet Be Purchased Under the Repurchase Programs
(a)

July 1 – July 31, 2019

—
$
—

—

(a)

August 1 – August 31, 2019

—

—

—

(a)

September 1 – September 30, 2019

19,675
(b)
21.08

—

(a)

Total

19,675
$
  21.08

—

(a)


Period	Total Number of Shares Repurchased (a)			Average Price Paid per Share		Total Number of Shares Purchased as part of the Repurchase Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Repurchase Programs (a)
July 1 – July 31, 2020		290,716	(b)	$	17.65		—		(a	)
August 1 – August 31, 2020		—			—		—		(a	)
September 1 – September 30, 2020		19,873	(b)		16.14		—		(a	)

Total		310,589		$	17.55		—		(a	)

(a)

We have two active repurchase programs. Our July 2013 program allows us to repurchase shares of our common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under our equity compensation ~~programs, which was estimated to be approximately 1.3 million shares for 2019.~~programs. Our August 2018 repurchase program ~~allowed~~allows us to repurchase up to an additional $500.0 million of shares of our common stock, of which we repurchased ~~$392.8~~$401.3 million as of September 30, ~~2019.~~2020.

(b)	Represents shares withheld to satisfy minimum statutory withholding obligations of ~~$0.4~~an aggregate of $5.5 million in connection with the vesting of restricted stock.

The amount and timing of any future repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.

~~Item 5. Other Information~~

On October 10, 2019, we entered into a securities purchase agreement with an affiliate of Frazier Healthcare Partners to divest of our management services organization, which operates as MedData. The transaction closed on October 31, 2019. Pursuant to the terms and conditions of the agreement, at the closing of the transaction, we received a cash payment of $250.0 million, subject certain net working capital and similar adjustments, as well as contingent economic consideration in an indirect holding company of the buyer, the value of which is contingent on both short and long-term performance of MedData and the maximum amount payable in respect of which is $50.0 million. We anticipate certain cash tax benefits from the transaction in the coming quarters. We expect to use net proceeds from the transaction for debt repayment, share repurchases and strategic acquisitions.28

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Item 6. Exhibits


Exhibit No.			Description

2.1		Securities Purchase Agreement, dated as of September 9, 2020, by and between MEDNAX Services, Inc. and Radiology Partners, Inc. (incorporated by reference to Exhibit 2.1 to MEDNAX’s Current Report on Form 8-K filed on September 15, 2020).

10.1		Agreement, dated as of July 12, 2020, by and among MEDNAX, Inc., Starboard Value LP and certain of its affiliates (incorporated by reference to Exhibit 10.1 to MEDNAX’s Current Report on Form 8-K filed on July 13, 2020).
	~~10.1+~~
10.2			~~Second Amendment to Employment~~Separation Agreement, dated July ~~1, 2019,~~12, 2020, by and between MEDNAX Services, Inc. and Roger J. Medel, M.D. (incorporated by reference to Exhibit 10.2 to MEDNAX’s Current Report on Form 8-K filed on July 13, 2020).

10.3		Employment Agreement, dated July 12, 2020, by and between MEDNAX Services, Inc. and Mark S. Ordan (incorporated by Reference to Exhibit 10.1 to MEDNAX’s Quarterly Report on Form 10-Q filed on July 30, 2020).

10.4+		Employment Agreement, effective September 8, 2020, by and between MEDNAX Services, Inc. and C. Marc Richards.
	~~31.1+~~
10.5+		Amended and Restated Employment Agreement, effective September 27, 2020, by and between MEDNAX Services, Inc. and Dominic J. Andreano.

31.1+		Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2+
	~~31.2+~~			Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*
	32.1*			Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.1+		Interactive Data File

101.INS+
	~~99.1+~~			~~Pro Forma Financial Statements with Respect to Disposition of MedData.~~

	~~101.1+~~			~~Interactive Data File~~

	~~101.INS+~~			XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH+		XBRL Schema Document.

101.CAL+
	~~101.SCH+~~			~~XBRL Schema Document.~~

	~~101.CAL+~~			XBRL Calculation Linkbase Document.

101.DEF+
	~~101.DEF+~~			XBRL Definition Linkbase Document.

101.LAB+
	~~101.LAB+~~			XBRL Label Linkbase Document.

101.PRE+
	~~101.PRE+~~			XBRL Presentation Linkbase Document.

104+
	~~104+~~			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

+	Filed herewith.

*	Furnished herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	MEDNAX, INC.

Date: November ~~1, 2019~~ 6, 2020	By:	/s/ ~~Roger J. Medel, M.D.~~Mark S. Ordan
		Mark S. Ordan
		Chief Executive Officer
		(Principal Executive Officer)

Date: November 6, 2020	By:	~~Roger J. Medel, M.D.~~/s/ C. Marc Richards
		~~Chief Executive Officer~~ C. Marc Richards
		~~(Principal Executive Officer)~~

~~Date: November 1, 2019~~	~~By:~~	~~/s/ Stephen D. Farber~~ Chief Financial Officer
		~~Stephen D. Farber~~ (Principal Financial Officer)

Date: November 6, 2020		~~Chief Financial Officer~~
		~~(Principal Financial Officer)~~

~~Date: November 1, 2019~~	By:	/s/ John C. Pepia
		John C. Pepia
		Chief Accounting Officer
		(Principal Accounting Officer)


Florida		26-3667538
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

1301 Concord Terrace Sunrise, Florida		33323
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 per share	MD	New York Stock Exchange

Large accelerated filer	☒		Accelerated filer	☐

Non-accelerated filer	☐		Smaller reporting company	☐
~~Non-accelerated~~ ~~filer~~		☐			~~Smaller reporting company~~	☐

			Emerging growth company	☐


	September 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	28,890	$	25,491
Restricted cash		—		20,000
Short-term investments		78,371		21,923
Accounts receivable, net		494,699		506,723
Prepaid expenses		20,937		17,123
Other current assets		19,939		17,166
Assets held for sale		322,465		51,551
Total current assets		965,301		659,977
Investments		—		69,699
Property and equipment, net		93,731		90,434
Goodwill		2,634,874		4,061,439
Intangible assets, net		279,605		313,165
Operating lease right-of-use assets		84,279		—
Deferred income tax assets		142,231		21,910
Other assets		90,640		81,224
Assets held for sale		—		639,633
Total assets	$	4,290,661	$	5,937,481
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	441,972	$	448,567
Current portion of finance lease liabilities		142		253
Current portion of operating lease liabilities		23,469		—
Income taxes payable		4,763		30,598
Liabilities held for sale		30,444		23,344
Total current liabilities		500,790		502,762
Line of credit		209,800		739,500
Long-term debt and finance lease liabilities, net		1,729,377		1,234,781
Long-term operating lease liabilities		65,287		—
Long-term professional liabilities		222,933		209,060
Deferred income tax liabilities		61,207		95,581
Other liabilities		21,907		31,828
Liabilities held for sale		—		36,085
Total liabilities		2,811,301		2,849,597
Commitments and contingencies
Shareholders’ equity:
Preferred stock; $.01 par value; 1,000 shares authorized; NaN issued		—		—
Common stock; $.01 par value; 200,000 shares authorized; 84,185 and 87,820 shares issued and outstanding, respectively		842		878
Additional paid-in capital		977,709		992,647
Retained earnings		500,809		2,094,359
Total shareholders’ equity		1,479,360		3,087,884
Total liabilities and shareholders’ equity	$	4,290,661	$	5,937,481


	September 30, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	294,512		$	107,870
Short-term investments		81,574			74,510
Accounts receivable, net		267,125			434,266
Prepaid expenses		13,317			17,108
Income taxes receivable		22,797			0
Other current assets		20,287			11,837
Assets held for sale		951,548			85,916

Total current assets		1,651,160			731,507
Property and equipment, net		78,570			72,677
Goodwill		1,480,668			1,479,850
Intangible assets, net		27,665			28,587
Operating lease right-of-use assets		58,993			56,413
Deferred income tax assets		62,950			86,644
Other assets		64,820			48,643
Assets held for sale		0			1,641,580

Total assets	$	3,424,826		$	4,145,901

LIABILITIES AND EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	388,517		$	410,637
Current portion of finance lease liabilities		2,440			0
Current portion of operating lease liabilities		18,695			18,254
Income taxes payable		0			6,039
Liabilities held for sale		78,712			106,888

Total current liabilities		488,364			541,818
Long-term debt and finance lease liabilities, net		1,742,263			1,730,238
Long-term operating lease liabilities		40,220			44,643
Long-term professional liabilities		242,366			204,914
Deferred income tax liabilities		63,630			56,468
Other liabilities		42,977			22,819
Liabilities held for sale		0			46,005

Total liabilities		2,619,820			2,646,905

Commitments and contingencies
Shareholders’ equity:
Preferred stock; $.01 par value; 1,000 shares authorized; NaN issued		0			0
Common stock; $.01 par value; 200,000 shares authorized; 85,504 and 84,248 shares issued and outstanding, respectively		855			842
Additional paid-in capital		1,023,974			987,942
Accumulated other comprehensive income		1,990			78
Retained (deficit) earnings		(222,058	)		510,134

Total MEDNAX, Inc. shareholders’ equity		804,761			1,498,996
Noncontrolling i nterest		245			0

Total equity		805,006			1,498,996

Total liabilities and equity	$	3,424,826		$	4,145,901


				Page
PART I - FINANCIAL INFORMATION

Item 1.		Financial Statements			3

	~~Item 1.~~		~~Financial Statements~~			3

		~~Condensed~~ Consolidated Balance Sheets as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (Unaudited)				3

			~~Condensed~~ Consolidated Statements of Income for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019 (Unaudited)				4

			~~Condensed~~ Consolidated Statements of Equity for the Three and Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019 (Unaudited)				5

			~~Condensed~~ Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2019~~2020 and ~~2018~~2019 (Unaudited)				7

			Notes to ~~Condensed~~ Consolidated Financial Statements (Unaudited)				8

Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations				16

Item 3.			Quantitative and Qualitative Disclosures About Market Risk			25		26

Item 4.			Controls and Procedures			25		26

PART II - OTHER INFORMATION

Item 1.		Legal Proceedings			27

Item 1.1A.		~~Legal Proceedings~~Risk Factors			26	27

~~Item 1A.~~		~~Risk Factors~~			26

Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			26

~~Item 5.~~	28	~~Other Information~~			26

~~Item 6.~~		~~Exhibits~~			27

Item 6.		Exhibits			29

SIGNATURES					28		30


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net revenue	$	888,675		$	848,759		$	2,608,167		$	2,566,374

Operating expenses:
Practice salaries and benefits		630,309			599,326			1,860,810			1,796,328
Practice supplies and other operating expenses		26,950			27,249			80,757			82,981
General and administrative expenses		102,356			95,771			307,717			298,402
Depreciation and amortization		19,608			22,205			59,450			62,399
Transformational and restructuring related expenses		19,992			—			51,018			—
Goodwill impairment		1,449,215			—			1,449,215			—

Total operating expenses		2,248,430			744,551			3,808,967			2,240,110

(Loss) income from operations		(1,359,755	)		104,208			(1,200,800	)		326,264
Investment and other income		1,373			1,531			4,242			4,230
Interest expense		(29,901	)		(21,788	)		(91,704	)		(63,341	)
Equity in earnings of unconsolidated affiliates	��	2,249			1,766			5,475			4,548

Total non-operating expenses		(26,279	)		(18,491	)		(81,987	)		(54,563	)

(Loss) income from continuing operations before income taxes		(1,386,034	)		85,717			(1,282,787	)		271,701
Income tax benefit (provision)		125,788			(23,550	)		99,710			(74,752	)

(Loss) income from continuing operations		(1,260,246	)		62,167			(1,183,077	)		196,949
Income (loss) from discontinued operations, net of tax		4,330			3,408			(323,956	)		11,466

Net (loss) income	$	(1,255,916	)	$	65,575		$	(1,507,033	)	$	208,415

Per common and common equivalent share data:
(Loss) income from continuing operations:
Basic	$	(15.29	)	$	0.68		$	(14.11	)	$	2.14

Diluted	$	(15.29	)	$	0.68		$	(14.11	)	$	2.13

Income (loss) from discontinued operations:
Basic	$	0.05		$	0.04		$	(3.86	)	$	0.12

Diluted	$	0.05		$	0.04		$	(3.86	)	$	0.12

Net (loss) income:
Basic	$	(15.24	)	$	0.72		$	(17.97	)	$	2.26

Diluted	$	(15.24	)	$	0.72		$	(17.97	)	$	2.25

Weighted average common shares:
Basic		82,441			90,984			83,846			92,239
Diluted		82,441			91,359			83,846			92,760


	Common Stock
	Number of Shares			Amount			Additional Paid-in Capital			Accumulated Other Comprehensive (Loss) Income (1)			Retained Earnings			Total Equity
2019
Balance at January 1, 2019		87,820		$	878		$	992,647		$	—		$	2,094,359		$	3,087,884
Net loss		—			—			—			—			(242,872	)		(242,872	)
Unrealized holding loss on investments, net of tax		—			—			—			(194	)		—			(194	)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		140			1			3,541			—			—			3,542
Issuance of restricted stock		978			10			(10	)		—			—			—
Forfeitures of restricted stock		(6	)		—			—			—			—			—
Stock swaps		(20	)		—			(666	)		—			—			(666	)
Stock-based compensation expense		—			—			11,100			—			—			11,100
Repurchased common stock		(2,525	)		(25	)		(28,740	)		—			(50,217	)		(78,982	)

Balance at March 31, 2019		86,387		$	864		$	977,872		$	(194	)	$	1,801,270		$	2,779,812
Net loss		—			—			—			—			(8,245	)		(8,245	)
Unrealized holding gain on investments, net of tax		—			—			—			232			—			232
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		155			2			3,673			—			—			3,675
Issuance of restricted stock		123			1			(1	)		—			—			—
Forfeitures of restricted stock		(61	)		(1	)		1			—			—			—
Stock-based compensation expense		—			—			15,080			—			—			15,080
Repurchased common stock		(2,508	)		(25	)		(29,196	)		—			(36,306	)		(65,527	)

Balance at June 30, 2019		84,096		$	841		$	967,429		$	38		$	1,756,719		$	2,725,027
Net loss		—			—			—			—			(1,255,916	)		(1,255,916	)
Unrealized holding loss on investments, net of tax		—			—			—			(32	)		—			(32	)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		124			1			2,605			—			—			2,606
Issuance of restricted stock		12			—			—			—			—			—
Forfeitures of restricted stock		(27	)		—			—			—			—			—
Stock-based compensation expense		—			—			8,090			—			—			8,090
Repurchased common stock		(20	)		—			(415	)		—			—			(415	)

Balance at September 30, 2019		84,185		$	842		$	977,709		$	6		$	500,803		$	1,479,360


	September 30, 2019				December 31, 2018
	Short-Term		Long-Term		Short-Term		Long-Term
Municipal debt securities	$	36,256	$	—	$	18,473	$	30,841
Federal home loan securities		23,825		—		2,000		34,393
Corporate securities		13,823		—		—		—
Certificates of deposit		4,467		—		1,450		4,465

	$	78,371	$	—	$	21,923	$	69,699


			Fair Value
	Fair Value Category		September 30, 2019		December 31, 2018
Assets:
Money market funds		Level 1	$	3,233	$	481
Short-term investments		Level 2		78,371		—	( 1 )
Company-owned life insurance		Level 2		—		10,464
Mutual funds		Level 1		15,097		—
Liabilities:
Contingent consideration		Level 3		4,475		20,039