Form 10-Q - Quarterly report [Sections 13 or 15(d)]
06 8월 2024 - 8:00PM
Edgar (US Regulatory)
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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
Pediatrix Medical Group, Inc.
(Exact name of registrant as specified in its charter)
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Florida |
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26-3667538 |
(State or other jurisdiction of Incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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1301 Concord Terrace Sunrise, Florida |
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33323 |
(Address of principal executive offices) |
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(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:
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Title of each class |
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Trading Symbol |
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Name of each exchange on which registered |
Common Stock, par value $.01 per share |
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MD |
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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.
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Large accelerated filer |
☑ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
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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 $.01 per share.
Pediatrix Medical Group, Inc.
INDEX
Pediatrix Medical Group, Inc.
Consolidated Balance Sheets
(in thousands, except share data)
(Unaudited)
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June 30, 2024 |
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December 31, 2023 |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
19,402 |
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$ |
73,258 |
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Short-term investments |
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113,795 |
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104,485 |
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Accounts receivable, net |
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274,164 |
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272,313 |
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Prepaid expenses |
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11,910 |
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13,525 |
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Income taxes receivable |
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— |
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7,565 |
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Other current assets |
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9,941 |
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12,308 |
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Total current assets |
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429,212 |
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483,454 |
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Property and equipment, net |
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47,893 |
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75,639 |
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Goodwill |
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1,239,007 |
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1,384,166 |
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Intangible assets, net |
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10,193 |
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21,240 |
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Operating and finance lease right-of-use assets |
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65,392 |
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70,294 |
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Deferred income tax assets |
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124,115 |
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102,852 |
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Other assets |
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79,539 |
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82,165 |
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Total assets |
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$ |
1,995,351 |
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$ |
2,219,810 |
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LIABILITIES AND SHAREHOLDERS' EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
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$ |
267,333 |
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$ |
350,798 |
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Current portion of debt and finance lease liabilities, net |
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17,730 |
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14,913 |
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Current portion of operating lease liabilities |
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18,764 |
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21,076 |
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Income taxes payable |
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6,329 |
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2,159 |
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Total current liabilities |
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310,156 |
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388,946 |
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Long-term debt and finance lease liabilities, net |
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612,640 |
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618,421 |
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Long-term operating lease liabilities |
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49,176 |
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47,238 |
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Long-term professional liabilities |
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254,770 |
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251,284 |
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Deferred income tax liabilities |
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30,627 |
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34,308 |
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Other liabilities |
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31,521 |
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30,552 |
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Total liabilities |
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1,288,890 |
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1,370,749 |
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Commitments and contingencies |
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Shareholders’ equity: |
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Preferred stock; $.01 par value; 1,000,000 shares authorized; none issued |
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— |
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— |
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Common stock; $.01 par value; 200,000,000 shares authorized; 85,753,258 and 84,018,023 shares
issued and outstanding, respectively |
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858 |
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840 |
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Additional paid-in capital |
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1,006,018 |
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999,906 |
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Accumulated other comprehensive loss |
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(1,954 |
) |
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(2,214 |
) |
Retained deficit |
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(298,461 |
) |
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(149,471 |
) |
Total shareholders’ equity |
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706,461 |
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849,061 |
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Total liabilities and shareholders' equity |
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$ |
1,995,351 |
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$ |
2,219,810 |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
Pediatrix Medical Group, Inc.
Consolidated Statements of Income and Comprehensive Income
(in thousands, except per share data)
(Unaudited)
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Three Months Ended
June 30, |
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Six Months Ended
June 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Net revenue |
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$ |
504,296 |
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$ |
500,577 |
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$ |
999,397 |
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$ |
991,585 |
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Operating expenses: |
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Practice salaries and benefits |
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357,808 |
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354,032 |
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726,946 |
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716,267 |
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Practice supplies and other operating expenses |
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32,369 |
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31,089 |
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63,454 |
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61,809 |
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General and administrative expenses |
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56,565 |
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58,013 |
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116,763 |
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117,072 |
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Depreciation and amortization |
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8,791 |
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8,945 |
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19,099 |
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17,898 |
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Transformational and restructuring related expenses |
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13,579 |
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— |
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22,059 |
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— |
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Goodwill impairment |
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154,243 |
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— |
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154,243 |
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— |
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Fixed assets impairments |
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20,112 |
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— |
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20,112 |
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— |
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Intangible assets impairments |
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7,679 |
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— |
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7,679 |
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— |
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Loss on disposal of businesses |
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10,873 |
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— |
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10,873 |
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— |
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Total operating expenses |
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662,019 |
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452,079 |
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1,141,228 |
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913,046 |
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(Loss) income from operations |
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(157,723 |
) |
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48,498 |
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(141,831 |
) |
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78,539 |
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Investment and other (loss) income |
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(161 |
) |
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1,189 |
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1,852 |
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1,823 |
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Interest expense |
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(10,308 |
) |
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(11,230 |
) |
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(20,907 |
) |
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(21,620 |
) |
Equity in earnings of unconsolidated affiliate |
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464 |
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490 |
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982 |
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917 |
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Total non-operating expenses |
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(10,005 |
) |
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(9,551 |
) |
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(18,073 |
) |
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(18,880 |
) |
(Loss) income before income taxes |
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(167,728 |
) |
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38,947 |
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(159,904 |
) |
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59,659 |
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Income tax benefit (provision) |
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14,703 |
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(10,665 |
) |
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10,914 |
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(17,171 |
) |
Net (loss) income |
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$ |
(153,025 |
) |
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$ |
28,282 |
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$ |
(148,990 |
) |
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$ |
42,488 |
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Other comprehensive (loss) income, net of tax |
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Unrealized holding gain (loss) on investments, net of tax of $66, $126, $86 and $353 |
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200 |
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(387 |
) |
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260 |
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217 |
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Total comprehensive (loss) income |
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$ |
(152,825 |
) |
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$ |
27,895 |
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$ |
(148,730 |
) |
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$ |
42,705 |
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Per common and common equivalent share data: |
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Net (loss) income: |
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Basic |
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$ |
(1.84 |
) |
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$ |
0.34 |
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$ |
(1.79 |
) |
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$ |
0.52 |
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Diluted |
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$ |
(1.84 |
) |
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$ |
0.34 |
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$ |
(1.79 |
) |
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$ |
0.52 |
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Weighted average common shares: |
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Basic |
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83,332 |
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82,399 |
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83,074 |
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82,033 |
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Diluted |
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83,332 |
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82,664 |
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83,074 |
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82,377 |
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The accompanying notes are an integral part of these Consolidated Financial Statements.
Pediatrix Medical Group, Inc.
Consolidated Statements of Shareholders' Equity
(in thousands)
(Unaudited)
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Common Stock |
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Number of |
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Additional
Paid-in |
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Accumulated
Other
Comprehensive |
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Retained |
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Total
Shareholders' |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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2024 |
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|
|
|
|
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.
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.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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
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