☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Florida | 26-3667538 | ||
(State or other jurisdiction 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 | ☒ | Acceleratedfiler | ☐ | ||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | ||||||
Emerging growth company | ☐ |
Page | ||||||||||
PART I - FINANCIAL INFORMATION | ||||||||||
Item 1. | Financial Statements | 3 | ||||||||
3 | ||||||||||
4 | ||||||||||
5 | ||||||||||
7 | ||||||||||
8 | ||||||||||
Item 2. | 16 | |||||||||
Item 3. | 26 | |||||||||
Item 4. | 26 | |||||||||
Item 1. | 27 | |||||||||
Item | 27 | |||||||||
Item 2. | ||||||||||
28 | ||||||||||
Item 6. | 29 | |||||||||
30 |
September 30, 2019 | December 31, 2018 | |||||||
ASSETS | ||||||||
$ | 28,890 | $ | 25,491 | |||||
— | 20,000 | |||||||
78,371 | 21,923 | |||||||
494,699 | 506,723 | |||||||
20,937 | 17,123 | |||||||
19,939 | 17,166 | |||||||
322,465 | 51,551 | |||||||
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 | ||||||
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 | ||||||
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 | ||||||
1,479,360 | 3,087,884 | |||||||
$ | 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 | 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 | ||||
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 |
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) | Presented within retained (deficit) earnings |
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 | 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. |
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 | ||||
1. | Basis of Presentation and New Accounting Pronouncements: |
2. | Coronavirus Pandemic (“COVID-19”): |
3. | Cash Equivalents and Investments: |
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 | |||||
4. | Fair Value Measurements: |
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 |
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 |
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 |
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 |
5. |
Accounts receivable, net consists of the following (in thousands):
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.10 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):
The approximate percentage of net patient service revenue by type of payor was as follows:
Business Combinations During the nine months ended September 30, consideration of which $1.9 million was paid in cash and $0.2 million was recorded as a contingent consideration non-deductible goodwill of Divestiture of the Radiology Services Medical Group On September , 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. 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 purchase agreement along with estimated broker, accounting, legal and other selling expenses. The Company deemed the carrying amount of other assets within the non-cash charge 11 generated an additional non-cash charge is then required to reduce theradiology services non-cash charge of non-cash charge of 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
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):
12 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 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 carryforwardthat 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,
Divestiture of MedData The Company divested of its 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.
Accounts payable and accrued expenses consist of the following (in thousands):
The net decrease in accrued salaries and bonuses of
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,
Under the 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, shares of stock underlying non-qualified stock options to its employees andnon-employee directors under the 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 2015Non-Qualified Stock Purchase Plan (the “SPP”), certain eligiblenon-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.14 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, During the three and nine months ended September 30,
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 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 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.
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, 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. 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 10-K for the fiscal year ended December 31, 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 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, 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 inmid-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 cancelnon-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 innon-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 ofCOVID-19. Overall, our operating results sincemid-March 2020 have been significantly impacted by theCOVID-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 byCOVID-19. We have also entered into an agreement to divest our radiology services medical group, where operating results were meaningfully impacted byCOVID-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 toCOVID-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 fornon-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 16 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 theCOVID-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 forCOVID-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 forCOVID-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 fromCOVID-19, we are unable to predict the ultimate impact on our business, financial condition, results of operations, cash flows and the trading price of our securities at this time.CARES Act On March 27, 2020, 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 byCOVID-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 On Divestiture of 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 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 General Economic Conditions and Other Factors Our operations and performance depend significantly on economic conditions. During the three months ended September 30, COVID-19, and patient volumes 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 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 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 18 In addition to the potential impacts to the ACA, 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 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, 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 out-of-network 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 Although our out-of-network Medicare Sequestration The Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012, required across-the-board 19 Non-GAAP MeasuresIn our analysis of our results of operations, we use certain non-GAAP financial measures. 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,
20 Results of Operations Three Months Ended September 30, Our net revenue attributable to continuing operations was 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 Practice salaries and benefits attributable to continuing operations increased Practice supplies and other operating expenses attributable to continuing operations decreased 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 day-to-day Transformational and restructuring related expenses attributable to continuing operations were 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, Depreciation and amortization expense attributable to continuing operations COVID-19 during 2020.non-operating expenses attributable to continuing operations were 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, 21 Our effective income tax rate attributable to continuing operations pre-tax income year-to-date pre-tax income. Our effective income tax Loss from continuing operations was Diluted loss from continuing operations per common and common equivalent share was Nine Months Ended September 30, Our net revenue attributable to continuing operations was COVID-19 on same-unit revenue, driven by declines in units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue partners.COVID-19. The net increase in revenue related to net reimbursement-related factors was primarily due to Practice salaries and benefits attributable to continuing operations increased Practice supplies and other operating expenses attributable to continuing operations decreased COVID-19, primarily during the second quarter of 2020.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 day-to-day Transformational and restructuring related expenses attributable to continuing operations were 22 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 Depreciation and amortization expense attributable to continuing operations COVID-19 during 2020.non-operating expenses attributable to continuing operations were 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, COVID-19 and the settlement of a litigation matter.Our effective income tax rate attributable to continuing operations pre-tax loss generated, primarily due to the impacts fromCOVID-19. Income taxes for the nine months ended September 30, 2020 were calculated by applying the actualyear-to-date pre-tax loss. Our effective income tax Loss from continuing operations was Diluted loss from continuing operations per common and common equivalent share was Loss from discontinued operations, net of tax, was Net loss was Liquidity and Capital Resources As of September 30, Cash Flows from Continuing Operations Cash provided by (used in) operating, investing and financing activities from continuing operations is summarized as follows (in thousands):
23 Operating Activities from Continuing Operations During the nine months ended September 30, During the nine months ended September 30, 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 Investing Activities from Continuing Operations During the nine months ended September 30, Financing Activities from Continuing Operations During the nine months ended September 30, Liquidity On March 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 ouroption, 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, 24 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 At September 30, 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, 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 10-K, and this Quarterly Report, including the 25 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, Item 4. Controls and Procedures Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and15d-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, Changes in Internal Controls Over Financial Reporting No changes in our internal control over financial reporting occurred during the three months ended September 30, 26 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) 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. 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). Item 1A. Risk Factors 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 Form10-K. Except as presented below, there have been no material changes to the risk factors 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 whichCOVID-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 concerningCOVID-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 cancelnon-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 ofCOVID-19, with much of this reduction focused innon-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 ofCOVID-19. To date, we have not experienced, nor do we currently anticipate, any significant impact to our NICU patient volumes as a result ofCOVID-19, however, there is no assurance thatCOVID-19 will not adversely affect our NICU patient volumes or otherwise adversely affect our NICU and related neonatology business. Overall, our operating results sincemid-March 2020 have been significantly impacted by theCOVID-19 pandemic, but volumes did begin to normalize in May 2020 and substantially recovered during the months of June 2020 through September 2020.27 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,
The amount and timing of any future repurchases will depend upon several factors, including general economic and market conditions and trading restrictions. Item 6. Exhibits
29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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