10-Q 1 md-20220331.htm 10-Q 10-Q
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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 March 31, 2022

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

 

Mednax, 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 April 22, 2022, the registrant had outstanding 87,261,467 shares of Common Stock, par value $.01 per share.

 

 

 


 

Mednax, Inc.

 

INDEX

 

 

Page

PART I - FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements

3

 

 

 

 

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021 (Unaudited)

3

 

 

 

 

Consolidated Statements of Income for the Three Months Ended

March 31, 2022 and 2021 (Unaudited)

4

 

 

 

 

Consolidated Statements of Equity for the Three Months Ended

March 31, 2022 and 2021 (Unaudited)

5

 

 

 

 

Consolidated Statements of Cash Flows for the Three Months Ended

March 31, 2022 and 2021 (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

20

 

 

 

Item 4.

Controls and Procedures

20

 

 

 

PART II - OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

21

 

 

 

Item 1A.

Risk Factors

21

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

21

 

 

 

Item 6.

Exhibits

22

 

 

 

SIGNATURES

23

 

2


 

Mednax, Inc.

Consolidated Balance Sheets

(in thousands)

(Unaudited)

 



 

March 31, 2022

 

 

December 31, 2021

 

ASSETS

 



 

 



 

Current assets:

 



 

 



 

Cash and cash equivalents

 

$

7,179

 

 

$

387,391

 

Short-term investments

 

 

89,576

 

 

 

99,715

 

Accounts receivable, net

 

 

317,619

 

 

 

301,775

 

Prepaid expenses

 

 

16,323

 

 

 

18,538

 

Income taxes receivable

 

 

 

 

 

14,249

 

Other current assets

 

 

9,080

 

 

 

18,896

 

Total current assets

 

 

439,777

 

 

 

840,564

 

Property and equipment, net

 

 

72,458

 

 

 

70,154

 

Goodwill

 

 

1,528,694

 

 

 

1,505,430

 

Intangible assets, net

 

 

21,050

 

 

 

21,565

 

Operating and finance lease right-of-use assets

 

 

66,055

 

 

 

65,461

 

Deferred income tax assets

 

 

84,741

 

 

 

88,344

 

Other assets

 

 

128,201

 

 

 

131,028

 

Total assets

 

$

2,340,976

 

 

$

2,722,546

 

LIABILITIES AND EQUITY

 



 

 



 

Current liabilities:

 



 

 



 

Accounts payable and accrued expenses

 

$

232,089

 

 

$

394,118

 

Current portion of finance lease liabilities

 

 

2,404

 

 

 

2,490

 

Current portion of operating lease liabilities

 

 

20,885

 

 

 

19,684

 

Income taxes payable

 

 

14,349

 

 

 

11,074

 

Total current liabilities

 

 

269,727

 

 

 

427,366

 

Line of credit

 

 

149,000

 

 

 

 

Long-term debt and finance lease liabilities, net

 

 

655,930

 

 

 

1,002,258

 

Long-term operating lease liabilities

 

 

40,989

 

 

 

41,396

 

Long-term professional liabilities

 

 

265,082

 

 

 

271,093

 

Deferred income tax liabilities

 

 

39,301

 

 

 

41,409

 

Other liabilities

 

 

43,871

 

 

 

42,332

 

Total liabilities

 

 

1,463,900

 

 

 

1,825,854

 

Commitments and contingencies

 



 

 

 

 

Shareholders’ equity:

 



 

 



 

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

 

 

 

 

 

Common stock; $.01 par value; 200,000 shares authorized; 87,184 and 86,423 shares
   issued and outstanding, respectively

 

 

872

 

 

 

864

 

Additional paid-in capital

 

 

1,054,141

 

 

 

1,049,696

 

Accumulated other comprehensive (loss) income

 

 

(1,351

)

 

 

1,317

 

Retained deficit

 

 

(176,586

)

 

 

(155,390

)

Total Mednax, Inc. shareholders’ equity

 

 

877,076

 

 

 

896,487

 

Noncontrolling interest

 

 

 

 

 

205

 

Total equity

 

 

877,076

 

 

 

896,692

 

Total liabilities and equity

 

$

2,340,976

 

 

$

2,722,546

 

 

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

3


 

Mednax, Inc.

Consolidated Statements of Income

(in thousands, except per share data)

(Unaudited)

 

 

 

Three Months Ended
March 31,

 

 

 

2022

 

 

2021

 

Net revenue

 

$

482,229

 

 

$

446,753

 

Operating expenses:

 

 

 

 

 

 

Practice salaries and benefits

 

 

343,155

 

 

 

319,012

 

Practice supplies and other operating expenses

 

 

28,489

 

 

 

22,212

 

General and administrative expenses

 

 

61,287

 

 

 

66,516

 

Depreciation and amortization

 

 

8,769

 

 

 

8,031

 

Transformational and restructuring related expenses

 

 

1,421

 

 

 

4,878

 

Total operating expenses

 

 

443,121

 

 

 

420,649

 

Income from operations

 

 

39,108

 

 

 

26,104

 

Investment and other income

 

 

875

 

 

 

5,967

 

Interest expense

 

 

(11,818

)

 

 

(17,645

)

Loss on early extinguishment of debt

 

 

(57,016

)

 

 

(14,532

)

Equity in earnings of unconsolidated affiliate

 

 

505

 

 

 

495

 

Total non-operating expenses

 

 

(67,454

)

 

 

(25,715

)

(Loss) income from continuing operations before income taxes

 

 

(28,346

)

 

 

389

 

Income tax benefit

 

 

7,401

 

 

 

4,955

 

(Loss) income from continuing operations

 

 

(20,945

)

 

 

5,344

 

(Loss) income from discontinued operations, net of tax

 

 

(247

)

 

 

12,290

 

Net (loss) income

 

 

(21,192

)

 

 

17,634

 

Net loss attributable to noncontrolling interest

 

 

4

 

 

 

8

 

Net (loss) income attributable to Mednax, Inc.

 

$

(21,188

)

 

$

17,642

 

Per common and common equivalent share data:

 

 

 

 

 

 

(Loss) income from continuing operations:

 

 

 

 

 

 

Basic

 

$

(0.25

)

 

$

0.06

 

Diluted

 

$

(0.25

)

 

$

0.06

 

Income from discontinued operations:

 

 

 

 

 

 

Basic

 

$

 

 

$

0.15

 

Diluted

 

$

 

 

$

0.15

 

Net (loss) income attributable to Mednax, Inc.:

 

 

 

 

 

 

Basic

 

$

(0.25

)

 

$

0.21

 

Diluted

 

$

(0.25

)

 

$

0.21

 

Weighted average common shares:

 

 

 

 

 

 

Basic

 

 

85,405

 

 

 

84,526

 

Diluted

 

 

85,405

 

 

 

85,491

 

 

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

4


 

Mednax, Inc.

Consolidated Statements of Equity

(in thousands)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

 

 

 

 

 

Additional
Paid-in

 

 

Accumulated
Other
Comprehensive

 

 

Retained

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

2022

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2022

 

 

86,423

 

 

$

864

 

 

$

1,049,696

 

 

$

1,317

 

 

$

(155,185

)

 

$

896,692

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(21,188

)

 

 

(21,188

)

Dissolution of and net loss attributable to noncontrolling interest (1)

 

 

 

 

 

 

 

 

10

 

 

 

 

 

 

(213

)

 

 

(203

)

Unrealized holding loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

(2,668

)

 

 

 

 

 

(2,668

)

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

 

 

50

 

 

 

 

 

 

1,174

 

 

 

 

 

 

 

 

 

1,174

 

Issuance of restricted stock

 

 

766

 

 

 

8

 

 

 

(8

)

 

 

 

 

 

 

 

 

 

Forfeitures of restricted stock

 

 

(5

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,435

 

 

 

 

 

 

 

 

 

4,435

 

Repurchased common stock

 

 

(50

)

 

 

 

 

 

(1,166

)

 

 

 

 

 

 

 

 

(1,166

)

Balance at March 31, 2022

 

 

87,184

 

 

$

872

 

 

$

1,054,141

 

 

$

(1,351

)

 

$

(176,586

)

 

$

877,076

 

2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2021

 

 

85,593

 

 

$

856

 

 

$

1,029,453

 

 

$

3,530

 

 

$

(286,122

)

 

$

747,717

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,642

 

 

 

17,642

 

Net loss attributable to noncontrolling interest (1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

(8

)

Unrealized holding loss on investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

(1,133

)

 

 

 

 

 

(1,133

)

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

 

 

52

 

 

 

 

 

 

1,042

 

 

 

 

 

 

 

 

 

1,042

 

Issuance of restricted stock

 

 

660

 

 

 

7

 

 

 

(7

)

 

 

 

 

 

 

 

 

 

Forfeitures of restricted stock

 

 

(13

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,717

 

 

 

 

 

 

 

 

 

3,717

 

Repurchased common stock

 

 

(82

)

 

 

(1

)

 

 

(1,993

)

 

 

 

 

 

 

 

 

(1,994

)

Balance at March 31, 2021

 

 

86,210

 

 

$

862

 

 

$

1,032,212

 

 

$

2,397

 

 

$

(268,488

)

 

$

766,983

 

 

(1)
Net loss component is presented within retained deficit on the consolidated balance sheet as the balance is immaterial.

 

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

 

 

5


 

Mednax, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

Net (loss) income

 

$

(21,188

)

 

$

17,642

 

Loss (income) from discontinued operations

 

 

247

 

 

 

(12,290

)

Adjustments to reconcile net income (loss) to net cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

8,769

 

 

 

8,031

 

Amortization of premiums, discounts and issuance costs

 

 

577

 

 

 

994

 

Loss on early extinguishment of debt

 

 

57,016

 

 

 

14,532

 

Stock-based compensation expense

 

 

4,435

 

 

 

3,717

 

Deferred income taxes

 

 

2,389

 

 

 

(16,016

)

Other

 

 

(605

)

 

 

(638

)

Changes in assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(20,152

)

 

 

(11,633

)

Prepaid expenses and other current assets

 

 

16,212

 

 

 

47,799

 

Other long-term assets

 

 

863

 

 

 

(90

)

Accounts payable and accrued expenses

 

 

(159,271

)

 

 

(106,937

)

Income taxes receivable

 

 

17,216

 

 

 

(18,501

)

Long-term professional liabilities

 

 

2,684

 

 

 

(916

)

Other liabilities

 

 

877

 

 

 

(24,620

)

Net cash used in operating activities – continuing operations

 

 

(89,931

)

 

 

(98,926

)

Net cash (used in) provided by operating activities - discontinued operations

 

 

(7,551

)

 

 

16,738

 

Net cash used in operating activities

 

 

(97,482

)

 

 

(82,188

)

Cash flows from investing activities:

 

 

 

 

 

 

Acquisition payments, net of cash acquired

 

 

(25,667

)

 

 

(5,957

)

Purchases of investments

 

 

(1,272

)

 

 

(5,138

)

Proceeds from maturities or sales of investments

 

 

7,712

 

 

 

7,433

 

Purchases of property and equipment

 

 

(7,145

)

 

 

(9,052

)

Other

 

 

99

 

 

 

 

Net cash used in investing activities – continuing operations

 

 

(26,273

)

 

 

(12,714

)

Net cash provided by investing activities - discontinued operations

 

 

 

 

 

2,350

 

Net cash used in investing activities

 

 

(26,273

)

 

 

(10,364

)

Cash flows from financing activities:

 

 

 

 

 

 

Borrowings on credit agreement

 

 

248,500

 

 

 

 

Payments on credit agreement

 

 

(99,500

)

 

 

 

Redemption of senior notes, including call premium

 

 

(1,046,880

)

 

 

(759,848

)

Proceeds from senior notes and term loan

 

 

650,000

 

 

 

 

Payments for financing costs

 

 

(7,924

)

 

 

 

Payments on finance lease obligations

 

 

(747

)

 

 

(672

)

Proceeds from issuance of common stock

 

 

1,174

 

 

 

1,042

 

Repurchases of common stock

 

 

(1,166

)

 

 

(1,994

)

Other

 

 

86

 

 

 

(189

)

Net cash used in financing activities – continuing operations

 

 

(256,457

)

 

 

(761,661

)

Net cash used in financing activities

 

 

(256,457

)

 

 

(761,661

)

Net decrease in cash and cash equivalents

 

 

(380,212

)

 

 

(854,213

)

Cash and cash equivalents at beginning of period

 

 

387,391

 

 

 

1,123,843

 

Cash and cash equivalents at end of period

 

$

7,179

 

 

$

269,630

 

 

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

 

6


 

Mednax, Inc.

Notes to Consolidated Financial Statements

March 31, 2022

(Unaudited)

1. Basis of Presentation and New Accounting Pronouncements:

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

The Company is a party to a joint venture in which it owns a 37.5% economic interest. 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 Company was also a party to another joint venture in which it owned a 51% economic interest and for which it was deemed the primary beneficiary. This joint venture was dissolved in February 2022. The operating results related to this joint venture prior to the dissolution and impacts from such dissolution were not material.

 

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. Coronavirus Pandemic (“COVID-19”):

 

COVID-19 has had an impact on the demand for medical services provided by the Company's affiliated clinicians. Beginning in mid-March 2020 and through the second quarter of 2020, the Company’s affiliated office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, experienced a significant elevation of appointment cancellations compared to historical normal levels. The Company believes COVID-19, either directly or indirectly, also had an impact on its neonatology intensive care unit (“NICU”) patient volumes. Overall, the Company's operating results were significantly impacted by COVID-19 beginning in mid-March 2020, but volumes began to normalize in mid-2020 and substantially recovered throughout 2020 with no material impacts from COVID-19 or its variants in 2021 or thus far in 2022. However, due to the continued uncertainties surrounding the timeline of and impacts from COVID-19 and with multiple variant strains still circulating, the Company is unable to predict the ultimate impact on its business, financial condition, results of operations, cash flows and the trading price of its securities at this time.

 

CARES Act

 

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act is a relief package intended to assist many aspects of the American economy, including providing financial aid to the healthcare industry to reimburse healthcare providers for lost revenue and expenses attributable to COVID-19. The Department of Health and Human Services (“HHS”) is administering this program and began disbursing funds in April 2020, of which the Company’s affiliated physician practices within continuing operations received an aggregate of $26.1 million during the year ended December 31, 2021 and $10.4 million during the three months ended March 31, 2022. The Company has applications pending for certain affiliated physician practices for incremental relief beyond what has been received.

 

 

 

3. Cash Equivalents and Investments:

As of March 31, 2022 and December 31, 2021, the Company's cash equivalents consisted entirely of money market funds totaling $2.1 million and $2.4 million, respectively.

Investments held are all classified as current and at March 31, 2022 and December 31, 2021 are summarized as follows (in thousands):

 

7


 

 

 

March 31, 2022

 

 

December 31, 2021

 

Corporate securities

 

$

63,924

 

 

$

72,964

 

Municipal debt securities

 

 

12,629

 

 

 

13,215

 

U.S. Treasury securities

 

 

4,976

 

 

 

5,205

 

Certificates of deposit

 

 

4,300

 

 

 

4,404

 

Federal home loan securities

 

 

3,747

 

 

 

3,927

 

 

 

$

89,576

 

 

$

99,715

 

 

4. 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 March 31, 2022 and December 31, 2021 (in thousands):

 

 

 

 

 

Fair Value

 

 

 

Fair Value
Category

 

March 31, 2022

 

 

December 31, 2021

 

Assets:

 

 

 

 

 

 

 

 

Money market funds

 

Level 1

 

$

2,090

 

 

$

2,442

 

Short-term investments

 

Level 2