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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission File Number: 001-12111

 

img260269913_0.jpg 

Pediatrix Medical Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

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)

(954) 384-0175

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol

 

Name of each exchange on which registered

Common Stock, par value $.01 per share

 

MD

 

New York Stock Exchange

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 


 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

On August 2, 2024, the registrant had outstanding 85,865,841 shares of Common Stock, par value $.01 per share.

 

 

 


 

Pediatrix Medical Group, Inc.

 

INDEX

 

 

Page

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Balance Sheets as of June 30, 2024 and December 31, 2023 (Unaudited)

3

 

 

 

 

Consolidated Statements of Income and Comprehensive Income for the Three and Six Months

Ended June 30, 2024 and 2023 (Unaudited)

4

 

 

 

 

Consolidated Statements of Equity for the Three and Six Months Ended

June 30, 2024 and 2023 (Unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Six Months Ended

June 30, 2024 and 2023 (Unaudited)

6

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

7

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

21

 

 

 

Item 4.

Controls and Procedures

21

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

22

 

 

 

Item 1A.

Risk Factors

22

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

22

 

 

 

Item 5.

Other Information

22

 

 

 

Item 6.

Exhibits

23

 

 

 

SIGNATURES

24

 

2


 

Pediatrix Medical Group, Inc.

Consolidated Balance Sheets

(in thousands, except share data)

(Unaudited)

 

 

 

June 30, 2024

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

19,402

 

 

$

73,258

 

Short-term investments

 

 

113,795

 

 

 

104,485

 

Accounts receivable, net

 

 

274,164

 

 

 

272,313

 

Prepaid expenses

 

 

11,910

 

 

 

13,525

 

Income taxes receivable

 

 

 

 

 

7,565

 

Other current assets

 

 

9,941

 

 

 

12,308

 

Total current assets

 

 

429,212

 

 

 

483,454

 

Property and equipment, net

 

 

47,893

 

 

 

75,639

 

Goodwill

 

 

1,239,007

 

 

 

1,384,166

 

Intangible assets, net

 

 

10,193

 

 

 

21,240

 

Operating and finance lease right-of-use assets

 

 

65,392

 

 

 

70,294

 

Deferred income tax assets

 

 

124,115

 

 

 

102,852

 

Other assets

 

 

79,539

 

 

 

82,165

 

Total assets

 

$

1,995,351

 

 

$

2,219,810

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

267,333

 

 

$

350,798

 

Current portion of debt and finance lease liabilities, net

 

 

17,730

 

 

 

14,913

 

Current portion of operating lease liabilities

 

 

18,764

 

 

 

21,076

 

Income taxes payable

 

 

6,329

 

 

 

2,159

 

Total current liabilities

 

 

310,156

 

 

 

388,946

 

Long-term debt and finance lease liabilities, net

 

 

612,640

 

 

 

618,421

 

Long-term operating lease liabilities

 

 

49,176

 

 

 

47,238

 

Long-term professional liabilities

 

 

254,770

 

 

 

251,284

 

Deferred income tax liabilities

 

 

30,627

 

 

 

34,308

 

Other liabilities

 

 

31,521

 

 

 

30,552

 

Total liabilities

 

 

1,288,890

 

 

 

1,370,749

 

Commitments and contingencies

 

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock; $.01 par value; 1,000,000 shares authorized; none issued

 

 

 

 

 

 

Common stock; $.01 par value; 200,000,000 shares authorized; 85,753,258 and 84,018,023 shares
   issued and outstanding, respectively

 

 

858

 

 

 

840

 

Additional paid-in capital

 

 

1,006,018

 

 

 

999,906

 

Accumulated other comprehensive loss

 

 

(1,954

)

 

 

(2,214

)

Retained deficit

 

 

(298,461

)

 

 

(149,471

)

Total shareholders’ equity

 

 

706,461

 

 

 

849,061

 

Total liabilities and shareholders' equity

 

$

1,995,351

 

 

$

2,219,810

 

 

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

3


 

Pediatrix Medical Group, Inc.

Consolidated Statements of Income and Comprehensive Income

(in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net revenue

 

$

504,296

 

 

$

500,577

 

 

$

999,397

 

 

$

991,585

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Practice salaries and benefits

 

 

357,808

 

 

 

354,032

 

 

 

726,946

 

 

 

716,267

 

Practice supplies and other operating expenses

 

 

32,369

 

 

 

31,089

 

 

 

63,454

 

 

 

61,809

 

General and administrative expenses

 

 

56,565

 

 

 

58,013

 

 

 

116,763

 

 

 

117,072

 

Depreciation and amortization

 

 

8,791

 

 

 

8,945

 

 

 

19,099

 

 

 

17,898

 

Transformational and restructuring related expenses

 

 

13,579

 

 

 

 

 

 

22,059

 

 

 

 

Goodwill impairment

 

 

154,243

 

 

 

 

 

 

154,243

 

 

 

 

Fixed assets impairments

 

 

20,112

 

 

 

 

 

 

20,112

 

 

 

 

Intangible assets impairments

 

 

7,679

 

 

 

 

 

 

7,679

 

 

 

 

Loss on disposal of businesses

 

 

10,873

 

 

 

 

 

 

10,873

 

 

 

 

Total operating expenses

 

 

662,019

 

 

 

452,079

 

 

 

1,141,228

 

 

 

913,046

 

(Loss) income from operations

 

 

(157,723

)

 

 

48,498

 

 

 

(141,831

)

 

 

78,539

 

Investment and other (loss) income

 

 

(161

)

 

 

1,189

 

 

 

1,852

 

 

 

1,823

 

Interest expense

 

 

(10,308

)

 

 

(11,230

)

 

 

(20,907

)

 

 

(21,620

)

Equity in earnings of unconsolidated affiliate

 

 

464

 

 

 

490

 

 

 

982

 

 

 

917

 

Total non-operating expenses

 

 

(10,005

)

 

 

(9,551

)

 

 

(18,073

)

 

 

(18,880

)

(Loss) income before income taxes

 

 

(167,728

)

 

 

38,947

 

 

 

(159,904

)

 

 

59,659

 

Income tax benefit (provision)

 

 

14,703

 

 

 

(10,665

)

 

 

10,914

 

 

 

(17,171

)

Net (loss) income

 

$

(153,025

)

 

$

28,282

 

 

$

(148,990

)

 

$

42,488

 

Other comprehensive (loss) income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized holding gain (loss) on investments, net of tax of $66, $126, $86 and $353

 

 

200

 

 

 

(387

)

 

 

260

 

 

 

217

 

Total comprehensive (loss) income

 

$

(152,825

)

 

$

27,895

 

 

$

(148,730

)

 

$

42,705

 

Per common and common equivalent share data:

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.84

)

 

$

0.34

 

 

$

(1.79

)

 

$

0.52

 

Diluted

 

$

(1.84

)

 

$

0.34

 

 

$

(1.79

)

 

$

0.52

 

Weighted average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

83,332

 

 

 

82,399

 

 

 

83,074

 

 

 

82,033

 

Diluted

 

 

83,332

 

 

 

82,664

 

 

 

83,074

 

 

 

82,377

 

 

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

4


 

Pediatrix Medical Group, Inc.

Consolidated Statements of Shareholders' Equity

(in thousands)

(Unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Retained

 

 

Total
Shareholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Equity

 

2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2024

 

 

84,018

 

 

$

840

 

 

$

999,906

 

 

$

(2,214

)

 

$

(149,471

)

 

$

849,061

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,035

 

 

 

4,035

 

Unrealized holding gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

60

 

 

 

 

 

 

60

 

Common stock issued under employee stock purchase plan

 

 

108

 

 

 

1

 

 

 

859

 

 

 

 

 

 

 

 

 

860

 

Forfeitures of restricted stock

 

 

(21

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,067

 

 

 

 

 

 

 

 

 

3,067

 

Repurchased common stock

 

 

(97

)

 

 

(1

)

 

 

(886

)

 

 

 

 

 

 

 

 

(887

)

Balance at March 31, 2024

 

 

84,008

 

 

$

840

 

 

$

1,002,946

 

 

$

(2,154

)

 

$

(145,436

)

 

$

856,196

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(153,025

)

 

 

(153,025

)

Unrealized holding gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

200

 

 

 

 

 

 

200

 

Common stock issued under employee stock purchase plan

 

 

139

 

 

 

2

 

 

 

1,147

 

 

 

 

 

 

 

 

 

1,149

 

Issuance of restricted stock

 

 

1,630

 

 

 

16

 

 

 

(16

)

 

 

 

 

 

 

 

 

 

Forfeitures of restricted stock

 

 

(22

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,952

 

 

 

 

 

 

 

 

 

1,952

 

Repurchased common stock

 

 

(2

)

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

(11

)

Balance at June 30, 2024

 

 

85,753

 

 

$

858

 

 

$

1,006,018

 

 

$

(1,954

)

 

$

(298,461

)

 

$

706,461

 

2023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2023

 

 

82,947

 

 

$

829

 

 

$

983,601

 

 

$

(3,735

)

 

$

(89,063

)

 

$

891,632

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14,206

 

 

 

14,206

 

Unrealized holding gain on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

604

 

 

 

 

 

 

604

 

Common stock issued under employee stock purchase plan

 

 

86

 

 

 

 

 

 

1,095

 

 

 

 

 

 

 

 

 

1,095

 

Issuance of restricted stock

 

 

871

 

 

 

9

 

 

 

(9

)

 

 

 

 

 

 

 

 

 

Forfeitures of restricted stock

 

 

(221

)

 

 

(2

)

 

 

2

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,009

 

 

 

 

 

 

 

 

 

3,009

 

Repurchased common stock

 

 

(49

)

 

 

 

 

 

(775

)

 

 

 

 

 

 

 

 

(775

)

Balance at March 31, 2023

 

 

83,634

 

 

$

836

 

 

$

986,923

 

 

$

(3,131

)

 

$

(74,857

)

 

$

909,771

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,282

 

 

 

28,282

 

Unrealized holding loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

(387

)

 

 

 

 

 

(387

)

Common stock issued under employee stock purchase plan

 

 

126

 

 

 

1

 

 

 

1,593

 

 

 

 

 

 

 

 

 

1,594

 

Issuance of restricted stock

 

 

93

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Forfeitures of restricted stock

 

 

(11

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,126

 

 

 

 

 

 

 

 

 

3,126

 

Repurchased common stock

 

 

(1

)

 

 

 

 

 

(11

)

 

 

 

 

 

 

 

 

(11

)

Balance at June 30, 2023

 

 

83,841

 

 

$

838

 

 

$

991,630

 

 

$

(3,518

)

 

$

(46,575

)

 

$

942,375

 

 

 

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

5


 

Pediatrix Medical Group, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(148,990

)

 

$

42,488

 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

19,099

 

 

 

17,898

 

Amortization of premiums, discounts and issuance costs

 

 

440

 

 

 

733

 

Goodwill impairment

 

 

154,243

 

 

 

 

Fixed assets impairments

 

 

20,112

 

 

 

 

Intangible assets impairments

 

 

7,679

 

 

 

 

Loss on disposal of businesses

 

 

10,873

 

 

 

 

Stock-based compensation expense

 

 

5,019

 

 

 

6,135

 

Deferred income taxes

 

 

(25,028

)

 

 

8,376

 

Other

 

 

(1,678

)

 

 

(900

)

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(934

)

 

 

28,900

 

Prepaid expenses and other current assets

 

 

3,703

 

 

 

2,141

 

Other long-term assets

 

 

16,955

 

 

 

5,052

 

Accounts payable and accrued expenses

 

 

(82,917

)

 

 

(97,315

)

Income taxes payable

 

 

11,735

 

 

 

(12,028

)

Long-term professional liabilities

 

 

8,039

 

 

 

838

 

Other liabilities

 

 

(11,630

)

 

 

(10,356

)

Net cash used in operating activities – continuing operations

 

 

(13,280

)

 

 

(8,038

)

Net cash used in operating activities - discontinued operations

 

 

(4,995

)

 

 

(3,825

)

Net cash used in operating activities

 

 

(18,275

)

 

 

(11,863

)

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition payments, net of cash acquired

 

 

(8,167

)

 

 

(1,667

)

Purchases of investments

 

 

(39,915

)

 

 

(17,761

)

Proceeds from maturities or sales of investments

 

 

31,244

 

 

 

12,810

 

Purchases of property and equipment

 

 

(12,292

)

 

 

(15,130

)

Net cash used in investing activities

 

 

(29,130

)

 

 

(21,748

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings on line of credit

 

 

235,500

 

 

 

421,000

 

Payments on line of credit

 

 

(235,500

)

 

 

(384,000

)

Payments on term loan

 

 

(6,250

)

 

 

(6,250

)

Payments on finance lease obligations

 

 

(1,391

)

 

 

(1,404

)

Proceeds from issuance of common stock

 

 

2,009

 

 

 

2,689

 

Repurchases of common stock

 

 

(898

)

 

 

(786

)

Other

 

 

79

 

 

 

(1,613

)

Net cash (used in) provided by financing activities

 

 

(6,451

)

 

 

29,636

 

Net decrease in cash and cash equivalents

 

 

(53,856

)

 

 

(3,975

)

Cash and cash equivalents at beginning of period

 

 

73,258

 

 

 

9,824

 

Cash and cash equivalents at end of period

 

$

19,402

 

 

$

5,849

 

 

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

 

6


 

Pediatrix Medical Group, Inc.

Notes to Consolidated Financial Statements

June 30, 2024

(Unaudited)

1. Basis of Presentation:

The accompanying unaudited Consolidated Financial Statements of the Company and the notes thereto presented in this Form 10-Q have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial statements, and do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of interim periods. The financial statements include all the accounts of Pediatrix Medical Group, Inc. and its consolidated subsidiaries (collectively, “PMG”) together with the accounts of PMG’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (the “affiliated professional contractors”). Certain subsidiaries of PMG have contractual management arrangements with its affiliated professional contractors, which are separate legal entities that provide physician services in certain states. The terms “Pediatrix” and the “Company” refer collectively to Pediatrix Medical Group Inc., its subsidiaries and the affiliated professional contractors.

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

 

The consolidated results of operations for the interim periods presented are not necessarily indicative of the results to be experienced for the entire fiscal year. In addition, the accompanying unaudited Consolidated Financial Statements and the notes thereto should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company’s most recent Annual Report on Form 10-K (the “Form 10-K”).

 

 

2. Cash Equivalents and Investments:

As of June 30, 2024 and December 31, 2023, the Company's cash equivalents consisted entirely of money market funds totaling $0.4 million and $2.8 million, respectively.

Investments held are all classified as current and at June 30, 2024 and December 31, 2023 are summarized as follows (in thousands):

 

 

June 30, 2024

 

 

December 31, 2023

 

Corporate securities

 

$

55,777

 

 

$

57,878

 

U.S. Treasury securities

 

 

31,456

 

 

 

22,674

 

Municipal debt securities

 

 

17,377

 

 

 

14,649

 

Federal home loan securities

 

 

6,503

 

 

 

5,670

 

Certificates of deposit

 

 

2,682

 

 

 

3,614

 

 

 

$

113,795

 

 

$

104,485

 

 

3. Fair Value Measurements:

 

The accounting guidance establishes a fair value hierarchy that prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels:

Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

The following table presents information about the Company’s financial instruments that are accounted for at fair value on a recurring basis at June 30, 2024 and December 31, 2023 (in thousands):

 

7


 

 

 

 

 

Fair Value

 

 

 

Fair Value
Category

 

June 30, 2024

 

 

December 31, 2023

 

Assets:

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

397

 

 

$

2,814

 

Short-term investments

 

Level 2

 

 

113,795

 

 

 

104,485

 

Mutual Funds

 

Level 1

 

 

19,002

 

 

 

17,687

 

 

The following table presents information about the Company’s financial instruments that are not carried at fair value at June 30, 2024 and December 31, 2023 (in thousands):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

 

Carrying
Amount

 

 

Fair
Value

 

 

Carrying
Amount

 

 

Fair
Value

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

2030 Notes

 

$

400,000

 

 

$

353,760

 

 

$

400,000

 

 

$

357,000

 

 

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 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):

 

 

 

June 30, 2024

 

 

December 31, 2023

 

 

 

 

 

 

 

 

Gross accounts receivable

 

$

1,490,865

 

 

$

1,379,213

 

Allowance for contractual adjustments and uncollectibles

 

 

(1,216,701

)

 

 

(1,106,900

)

 

$

274,164

 

 

$

272,313

 

 

Patient service revenue is recognized at the time services are provided by the Company’s affiliated physicians. The Company’s performance obligations related to the delivery of services to patients are satisfied at the time of service. Accordingly, there are no performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period with respect to patient service revenue. Almost all of the Company’s patient service revenue is reimbursed by government-sponsored healthcare programs (“GHC Programs”) and third-party insurance payors. Payments for services rendered to the Company’s patients are generally less than billed charges. The Company monitors its revenue and receivables from these sources and records an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.

 

Accordingly, patient service revenue is presented net of an estimated provision for contractual adjustments and uncollectibles. The Company estimates allowances for contractual adjustments and uncollectibles on accounts receivable based upon historical experience and other factors, including days sales outstanding (“DSO”) for accounts receivable, evaluation of expected adjustments and delinquency rates, past adjustments and collection experience in relation to amounts billed, an aging of accounts receivable, current contract and reimbursement terms, changes in payor mix and other relevant information. Contractual adjustments result from the difference between the physician rates for services performed and the reimbursements by GHC Programs and third-party insurance payors for such services.

 

Collection of patient service revenue the Company expects to receive is normally a function of providing complete and correct billing information to the GHC Programs and third-party insurance payors within the various filing deadlines and typically occurs within 30 to 60 days of billing.

 

Some of the Company’s hospital agreements require hospitals to pay the Company administrative fees. Some agreements provide for fees if the hospital does not generate sufficient patient volume in order to guarantee that the Company receives a specified minimum revenue level. The Company also receives fees from hospitals for administrative services performed by its affiliated physicians providing medical director or other services at the hospital.

 

8


 

The following table summarizes the Company’s net revenue by category (in thousands):

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net patient service revenue

 

$

432,847

 

 

$

430,383

 

 

$

854,678

 

 

$

853,567

 

Hospital contract administrative fees

 

 

70,913

 

 

 

69,585

 

 

 

142,716

 

 

 

135,574

 

Other revenue

 

 

536

 

 

 

609

 

 

 

2,003

 

 

 

2,444

 

 

 

$

504,296

 

 

$

500,577

 

 

$

999,397

 

 

$

991,585

 

 

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

 

 

 

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Contracted managed care

 

 

71

%

 

 

68

%

 

 

71

%

 

 

67

%

Government

 

 

23

 

 

 

25

 

 

 

24

 

 

 

25

 

Other third-parties

 

 

4

 

 

 

5

 

 

 

3

 

 

 

6

 

Private-pay patients

 

 

2

 

 

 

2

 

 

 

2

 

 

 

2

 

 

 

100

%

 

 

100

%

 

 

100

%

 

 

100

%

 

5. Business Combinations

 

During the six months ended June 30, 2024, the Company completed the acquisition of one maternal-fetal medicine practice for total consideration of $9.7 million, of which $6.5 million was paid in cash at closing and $3.2 million was recorded as a contingent consideration liability. The acquisition expanded the Company’s national network of physician practices across women’s and children’s services. In connection with this acquisition, the Company recorded tax deductible goodwill of $9.1 million, fixed assets of $0.4 million and other intangible assets consisting primarily of physician and hospital agreements of $0.2 million.

 

6. Goodwill, Long-Lived Asset Impairments and Loss on Disposal of Businesses:

During the second quarter of 2024, the Company formalized its practice portfolio management plans, resulting in a decision to exit almost all of its affiliated office-based practices, other than maternal-fetal medicine. The practice exits are expected to be completed by December 31, 2024. Accordingly, a recoverability assessment for each individual physician practice was performed, and the estimated future cash flows related to the physician practices did not support the carrying value of the specifically identified individual long-lived assets. As a result, the Company recorded fixed asset impairments of $20.1 million, intangible asset impairments of $7.7 million and operating lease right-of-use asset impairments of $8.1 million. The operating lease right-of-use impairments are recorded within the transformational and restructuring related expenses line item.

 

During the second quarter of 2024, the Company made the decision to exit its primary and urgent care service line based on a review of the cost and time that would be required to build the platform to scale. The Company divested one of its two previously acquired primary and urgent care practices during the second quarter and divested of the second of its two acquired primary and urgent care practices subsequent to the end of the second quarter. The total loss on disposal of these two businesses was $10.9 million, resulting from the loss on sale for one practice and marking the net assets to their fair value less costs to sell for the other practice.

 

During the second quarter of 2024, the Company experienced a triggering event, due to a sustained decline in its stock price and a market capitalization below the Company's book equity value. As the Company consists of only one reporting unit, and is publicly traded, management estimates the fair value of its reporting unit utilizing the Company’s market capitalization, multiplying the number of actual shares outstanding on June 30, 2024 by its stock price on June 30, 2024 and applying an additional premium to give effect to the Company’s best estimate of a control premium. With respect to the estimated control premium used in its analysis, the Company believes that it is reasonable to expect that a market participant would pay a premium to obtain a controlling interest in the Company. The Company considered information from the public markets for premiums on acquisitions in its industry and also considered other factors, such as the value that may arise from the ability to take advantage of synergies and other benefits that flow from control over another entity.

This assessment resulted in a non-cash impairment charge of $130.0 million, representing the amount by which the Company's book value exceeded its implied fair value, based on its market capitalization plus an estimated control premium. Consideration was first given to other individual and group long-lived assets, and no impairment was considered necessary on such assets.

 

Recognition of this non-cash charge against goodwill resulted in a tax benefit which generated an additional deferred tax asset of $24.2 million that increased the Company's book value. An incremental non-cash charge was required to reduce the

9


 

Company's book value to its previously determined fair value. Accordingly, the Company recorded the incremental non-cash charge of $24.2 million for a total non-cash charge of $154.2 million. A 1% change in the control premium used would have impacted the non-cash impairment charge by approximately $6.5 million.

 

 

7. Accounts Payable and Accrued Expenses:

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

 

 

June 30, 2024

 

December 31, 2023

Accounts payable

 

$32,000

 

$34,588

Accrued salaries and incentive compensation

 

115,093

 

193,112

Accrued payroll taxes and benefits

 

28,034

 

36,545

Accrued professional liabilities

 

28,966

 

32,039

Accrued interest

 

8,258

 

8,262

Other accrued expenses

 

54,982

 

46,252

 

$267,333

 

$350,798

 

The net decrease in accrued salaries and incentive compensation of $78.0 million, from December 31, 2023 to June 30, 2024, 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 six months ended June 30, 2024. A majority of the Company’s payments for performance-based incentive compensation is paid annually during the first quarter.

 

8. Line of Credit and Long-Term Debt:

On February 11, 2022, the Company issued $400.0 million of 5.375% unsecured senior notes due 2030 (the “2030 Notes”). The Company used the net proceeds from the issuance of the 2030 Notes, together with $100.0