Pediatrix Medical Group, Inc. - Quarter Report: 2021 March (Form 10-Q)

 

FORM

 

 

 

Commission File Number:

 

 

 

 

()

 

 

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 (§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 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 of the Exchange Act.

 

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.  ☐

 

 

 

 

 

3

 

 

4

 

 

 

5

 

 

6

 

10-Q

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 is also a party to a joint venture in which it owns a 51% economic interest and for which it is deemed the primary beneficiary. The equity interest of the outside investor in the equity of this consolidated entity is accounted for and presented as noncontrolling interest on the Company’s Consolidated Balance Sheets. The results from operations attributable to the noncontrolling interest are presented separately on the Company’s Consolidated Statements of Income.

The Company divested its anesthesiology services and radiology services medical groups in May 2020 and December 2020, respectively. The operating results of these medical groups are reported as discontinued operations in the Company’s Consolidated Statements of Income for the three months ended March 31, 2020.

10-K

10-K”).

step-up

 

COVID-19

mid-March

COVID-19,

COVID-19

COVID-19

mid-March

mid-2020

t

COVID-19.

COVID-19.

non-clinical

.

 

7

COVID-19,

COVID-19.

COVID-19,

f

million during the three months ended March 31, 2021. The Company has applications pending for certain affiliated physician practices for incremental relief beyond what has been received.

l

 

As of March 31, 2021 and December 31, 2020, the Company’s cash equivalents consisted entirely of money market funds totaling $1.3 million and $1.0 million, respectively. Investments consisted of corporate securities, municipal debt securities, federal home loan securities and certificates of deposit. All investments are classified as current.

Investments held at March 31, 2021 and December 31, 2020 are summarized as follows (in thousands):

 

 

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 not carried at fair value at March 31, 2021 and December 31, 2020 (in thousands):

 

The Company redeemed the full principal balance of its 5.25% 

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

 

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

 

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

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.

 

9

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

 

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

 

 

During the three months ended March 31, 2021, the Company completed the acquisition of one pediatric orthopedic practice and one multi-location pediatric urgent care practice for total cash consideration of $6.0 million. These acquisitions expanded the Company’s national network of physician practices across women’s and children’s services. In connection with these acquisitions, the Company recorded tax deductible goodwill of $5.0 million, other intangible assets consisting primarily of physician and hospital agreements of $0.9 million and fixed assets of $0.1 million.

The Company divested its anesthesiology services medical group in May 2020. During the three months ended March 31, 2021, the Company recorded a net decrease to the loss on sale of $12.3 million, 

The Company’s continuing operations financial statements for the three months ended March 31, 2021 reflect the Company’s best estimate of the income tax effects associated with the asset sale change. These estimates include an increase in income tax receivable of $18 million, of which $7 million is related to loss carryback provisions enacted under the CARES Act, an increase in deferred tax assets of $13 million and a reduction to capital loss carryforwards and offsetting valuation allowance of $65 million. The Company will adjust these income tax effects as necessary during subsequent periods in 2021 as additional information becomes available.

The Company divested its radiology services medical group in December 2020. During the three months ended March 31, 2021, the Company recorded nominal changes to the loss on sale, primarily for the finalization of certain transaction related expenses. A final working capital true up is pending and is expected to be completed during the three months ended June 30, 2021 and may result in an incremental change to the loss on sale. The operating results of the radiology services medical group were reported as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the three months ended March 31, 2020.

 

10

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

 

The net decrease in accrued salaries and incentive compensation of $108.0 million, from December 31, 2020 to March 31, 2021, 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 three months ended March 31, 2021. A majority of the Company’s payments for performance-based incentive compensation is paid annually during the first quarter.

 

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is calculated by dividing net income by the weighted average number of common and potential common shares outstanding during the period. Potential common shares consist of outstanding restricted stock, deferred stock and stock options and is calculated using the treasury stock method

The calculation of shares used in the basic and diluted net income per common share calculation for the three months ended March 31, 2021 and 2020 is as follows (in thousands):

 

 

 

The Company’s Aended and Restated 2008 Incentive Compensation Plan (the “Amended and Restated 2008 Incentive Plan”) provides for grants of stock options, stock appreciation rights, restricted stock, deferred stock, and other stock-related awards and performance awards that may be settled in cash, stock or other property.

Under the Amended and Restated 2008 Incentive Plan, options to purchase shares of common stock may be granted at a price not less than the fair market value of the shares on the date of grant. The options must be exercised within 10 years from the date of grant and generally become exercisable on a pro rata basis over a period from the date of grant. The Company issues new shares of its common stock upon exercise of its stock options. Restricted stock awards generally vest over periods of upon the fulfillment of specified service-based conditions and in certain instances performance-based conditions. Deferred stock awards generally vest upon the satisfaction of specified performance-based conditions and service-based conditions. The Company recognizes compensation expense related to its restricted stock and deferred stock awards ratably over the corresponding vesting periods. During the three months ended March 31, 2021, the Company granted 659,786 shares of restricted stock to its employees under the Amended and Restated 2008 Incentive Plan. At March 31, 2021, the Company had 3.7 million shares available for future grants and awards under the Amended and Restated 2008 Incentive Plan.

Non-Qualified

Non-Qualified

non-employee

non-employee

51,000

no

 

During the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation expense of $3.7 million and $7.3 million, respectively.

h

e

a

In August 2018, the Company announced that its Board of Directors had authorized the repurchase of up to $500.0 million of the Company’s common stock in addition to its existing share repurchase program, of which $98.7 million remained available for repurchase as of December 31, 2020. Under this share repurchase program, during the three months ended March 31, 2021, the Company withheld 81,625 shares of its common stock to satisfy minimum statutory withholding obligations of $2.0 million in connection with the vesting of restricted stock.

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

 

The Company expects that audits, inquiries and investigations from government authorities and agencies will occur in the ordinary course of business. Such audits, inquiries and investigations and their ultimate resolutions, individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and the trading price of its securities. The Company has not included an accrual for these matters as of March 31, 2021 in its Consolidated Financial Statements, as the variables affecting any potential eventual liability depend on the currently unknown facts and circumstances that arise out of, and are specific to, any particular future audit, inquiry and investigation and cannot be reasonably estimated at this time.

In the ordinary course of business, the Company becomes involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by the Company’s affiliated physicians. The Company’s contracts with hospitals generally require the Company to indemnify them and their affiliates for losses resulting from the negligence of the Company’s affiliated physicians. The Company may also become subject to other lawsuits which could involve large claims and significant costs. The Company believes, based upon a review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on its business, financial condition, results of operations, cash flows and the trading price of its securities. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and the trading price of its securities.

10-K

10-K”).

10-K,

Mednax is a leading provider of physician services including newborn, maternal-fetal, pediatric cardiology and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in 39 states and Puerto Rico. Our affiliated physicians provide neonatal clinical care, primarily within hospital-based neonatal intensive care units (“NICUs”), to babies born prematurely or with medical complications; and maternal-fetal and obstetrical medical care to expectant mothers experiencing complicated pregnancies primarily in areas where our affiliated neonatal physicians practice. Our network also includes other pediatric subspecialists, including those who provide pediatric intensive care, pediatric cardiology care, hospital-based pediatric care, pediatric surgical care, pediatric ear, nose and throat, pediatric ophthalmology, pediatric urology services and pediatric urgent care.

COVID-19

mid-March

COVID-19,

COVID-19

COVID-19

mid-March

mid-2020

COVID-19.

COVID-19.

non-clinical

COVID-19,

COVID-19.

COVID-19,

In addition, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, and we utilized this deferral option throughout 2020. We expect to make these payments during the second quarter of 2021.

Under current tax law, net operating losses can be carried forward indefinitely. The CARES Act enacted rules allowing net operating losses arising in 2020 to be carried back five taxable years. We currently expect to generate a net operating loss for the 2020 tax year which we intend to carry back to the 2015 tax year under these provisions to obtain a refund of income tax at the prior 35% corporate tax rate.

 

13

COVID-19,

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

Despite the ACA going into effect over a decade ago, continuous legal and Congressional challenges to the law’s provisions and persisting uncertainty with respect to the scope and effect of certain provisions have made compliance costly. In 2017, Congress unsuccessfully sought to replace substantial parts of the ACA with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets. Congress may again attempt to enact substantial or target changes to the ACA in the future. Additionally, Centers for Medicare & Medicaid Services (“CMS”) has administratively revised a number of provisions and may seek to advance additional significant changes through regulation, guidance and enforcement in the future.

2020-21

In late 2020 and early 2021, the results of the federal and state elections have changed which persons and parties occupy the Office of the President of the United States and the U.S. Senate and many states’ governors and legislatures. The new Administration may propose sweeping changes to the U.S. healthcare system, including expanding government-funded health insurance options and replacing current healthcare financing mechanisms with systems that would be entirely administered by the federal government. Any legislative or administrative change to the current healthcare financing system could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.

In addition to the potential impacts to the ACA, there could be changes to other GHC Programs, such as a change to the structure of Medicaid. Congress and the Administration have sought to convert Medicaid into a block grant or to institute per capita spending caps, among other things. These changes, if implemented, could eliminate the guarantee that everyone who is eligible and applies for benefits would receive them and could potentially give states new authority to restrict eligibility, cut benefits and make it more difficult for people to enroll. Additionally, several states are considering and pursuing changes to their Medicaid programs, such as requiring recipients to engage in employment or education activities as a condition of eligibility for most adults, disenrolling recipients for failure to pay a premium, or adjusting premium amounts based on income. Many states have recently shifted a majority or all of their Medicaid program beneficiaries into Managed Medicaid Plans. Managed Medicaid Plans have some flexibility to set rates for providers, but many states require minimum provider rates in their contracts with such plans. In July of each year, CMS releases the annual Medicaid Managed Care Rate Development Guide which provides federal baseline rules for setting reimbursement rates in managed care plans. We could be affected by lower reimbursement rates in some of all of the Managed Medicaid Plans with which we participate. We could also be materially impacted if we are dropped from the provider network in one or more of the Managed Medicaid Plans with which we currently participate. In Florida, more than 75% of the Medicaid population participates in a Managed Medicaid Plan, with even higher participation rates for children.

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

 

 

14

The Medicare Access and CHIP Reauthorization Act (“MACRA”) requires Medicare providers to choose to participate in one of two payment formulas, Merit-Based Incentive Payment System (“MIPS”) or Alternative Payment Models (“APMs”). Beginning in 2020, MIPS allowed eligible physicians to receive incentive payments based on the achievement of certain quality and cost metrics, among other measures, and be reduced for those who are underperforming against those same metrics and measures. As an alternative, physicians can choose to participate in an advanced APM, and physicians who are meaningful participants in APMs will receive bonus payments from Medicare pursuant to the law. MACRA also remains subject to review and potential modification by Congress, as well as shifting regulatory requirements established by CMS. We currently anticipate that our affiliated physicians who are eligible to participate in the MIPS program will continue to be eligible to receive MIPS bonus payments, although the amounts of such bonus payments are not expected to be material. We will continue to operationalize the provisions of MACRA and assess any further changes to the law or additional regulations enacted pursuant to the law.

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

low-income

in-network

in-network

in-network

in-network

90-day

non-GAAP

non-GAAP

For a reconciliation of each of Adjusted EBITDA from continuing operations and Adjusted EPS from continuing operations to the most directly comparable GAAP measures for the three months ended March 31, 2021 and 2020, refer to the tables below (in thousands, except per share data).

 

15

 

 

Our net revenue attributable to continuing operations was $446.8 million for the three months ended March 31, 2021, as compared to $441.2 million for the same period in 2020. The increase in revenue of $5.6 million, or 1.3%, was primarily attributable to an increase in same-unit revenue, partially offset by decreases in revenue from net acquisitions. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue increased by $10.9 million, or 2.5%. The increase in same-unit net revenue was comprised of an increase of $21.5 million, or 5.0%, from net reimbursement-related factors, partially offset by a net decrease of $10.6 million, or 2.5%, related to patient service volumes. The decrease in revenue from patient service volumes was primarily related to a decline in our hospital-based women’s and children’s services, partially offset by increases in our office-based services. The net increase in revenue related to net reimbursement-related factors was primarily due to $7.7 million in CARES Act relief, increases in administrative fees from our hospital partners and an increase in revenue resulting from a decrease in the percentage of our patients being enrolled in GHC Programs. Excluding the additional calendar day in February 2020 for the 2020 leap year, the increase in same-unit net patient service revenue was 3.6% for the three months ended March 31, 2021, and the decline in same-unit volume growth adjusted to 1.4%. Net reimbursement-related growth was unaffected by the additional day in 2020.

Practice salaries and benefits attributable to continuing operations increased $2.7 million, or 0.9%, to $319.0 million for the three months ended March 31, 2021, as compared to $316.3 million for the same period in 2020. Of the $2.7 million increase, $1.6 million was related to benefits and incentive compensation, with the increase to incentive compensation driven by improved results, partially offset by a decrease in malpractice expense, and $1.1 million was related to salaries which primarily reflected increases in clinician compensation expense.

Practice supplies and other operating expenses attributable to continuing operations decreased $1.6 million, or 6.8%, to $22.2 million for the three months ended March 31, 2021, as compared to $23.8 million for the same period in 2020. The decrease was primarily attributable to net decreases in other practice operating expenses, such as office expenses and travel as well as lower expenses related to net acquisitions, as compared to the prior year.

 

16

compared to 15.3% for the same period in 2020. Certain general and administrative expenses related to corporate overhead represent various support services provided across the company, including approximately $5 million in costs related to support for the buyers of the anesthesiology services medical group and the radiology services medical group through transition services agreements. Therefore, general and administrative expenses do not reflect potential general and administrative cost savings that may be achieved in future periods.

Transformational and restructuring related expenses attributable to continuing operations were $4.9 million for the three months ended March 31, 2021, as compared to $16.1 million for the same period in 2020. The decrease of $11.2 million reflects the reduction in the scope of activities limiting them to initiatives critical to our business operations with the expenses during the first quarter of 2021 primarily for external consulting costs for various process improvement and restructuring initiatives.

Depreciation and amortization expense attributable to continuing operations was $8.0 million for the three months ended March 31, 2021, as compared to $6.8 million for the same period in 2020. The increase of $1.2 million was primarily related to an increase in amortization expense related to the acceleration of amortization resulting from the cessation of a contract.

Income from operations attributable to continuing operations increased $15.3 million, or 141.6%, to $26.1 million for the three months ended March 31, 2021, as compared to $10.8 million for the same period in 2020. Our operating margin was 5.8% for the three months ended March 31, 2021, as compared to 2.4% for the same period in 2020. The increase in our operating margin was primarily due to higher revenue growth, decreases in transformation and restructuring related expenses, and net decreases in overall operating expenses. Excluding the transformation and restructuring related expenses, our income from operations attributable to continuing operations was $31.0 million and $26.9 million, and our operating margin was 6.9% and 6.1% for the three months ended March 31, 2021 and 2020, respectively. We believe excluding the impacts from the transformational and restructuring related activity provides a more comparable view of our operating income and operating margin from continuing operations.

non-operating

non-operating

pre-tax

pre-tax

Income from continuing operations attributable to Mednax, Inc. was $5.4 million for the three months ended March 31, 2021, as compared to a loss of $18.5 million for the same period in 2020. Adjusted EBITDA from continuing operations attributable to Mednax, Inc. was $45.5 million for the three months ended March 31, 2021, as compared to $33.1 million for the same period in 2020.

Diluted earnings from continuing operations per common and common equivalent share attributable to Mednax, Inc. was $0.06 on weighted average shares outstanding of 85.5 million for the three months ended March 31, 2021, as compared to diluted loss of $0.22 on weighted average shares outstanding of 82.8 million for the same period in 2020. Adjusted EPS from continuing operations was $0.24 for the three months ended March 31, 2021, as compared to $0.06 for the same period in 2020. The increase of 2.7 million in our weighted average shares outstanding is primarily due to the impact of shares issued in 2020 and early 2021 through various equity programs.

Income from discontinued operations, net of tax, was $12.3 million for the three months ended March 31, 2021, as compared to a loss of $0.2 million for the same period in 2020. Diluted income from discontinued operations per common and common equivalent share was $0.15 for the three months ended March 31, 2021 and was negligible for the three months ended March 31, 2020.

Net income attributable to Mednax, Inc. was $17.6 million for the three months ended March 31, 2021, as compared to a loss of $18.7 million for the same period in 2020. Diluted net income per common and common equivalent share attributable to Mednax, Inc. was $0.21 for the three months ended March 31, 2021, as compared to a diluted loss per share of $0.22 for the same period in 2020.

As of March 31, 2021, we had $269.6 million of cash and cash equivalents attributable to continuing operations as compared to $1.12 billion at December 31, 2020. Additionally, we had working capital attributable to continuing operations of $338.4 million at March 31, 2021, a decrease of $766.6 million from working capital of $1.11 billion at December 31, 2020. The net decrease in working capital is primarily due to the redemption of the 2023 Notes during the three months ended March 31, 2021.

 

17

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

 

During the three months ended March 31, 2021, our net cash used in operating activities for continuing operations was $98.9 million, compared to $153.0 million for the same period in 2020. The net decrease in cash used of $54.1 million was primarily due to increase in cash flow from higher earnings, changes in prepaid expenses and other assets and changes in accounts payable and accrued expenses, primarily incentive compensation payments, partially offset by decreases in cash flow from deferred income taxes, other liabilities and accounts receivable.

During the three months ended March 31, 2021, cash flow from accounts receivable for continuing operations decreased by $11.6 million, as compared to an increase of $1.6 million for the same period in 2020. The decrease in cash flow from accounts receivable for the three months ended March 31, 2021 was primarily due to increases in ending accounts receivable balances at existing units due to higher revenue.

Days sales outstanding (“DSO”) is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Our DSO for continuing operations was 49.1 days at March 31, 2021 as compared to 52.3 days at December 31, 2020. The decrease in our DSO primarily related to the timing of cash collections at our existing units.

During the three months ended March 31, 2021, our net cash used in investing activities for continuing operations of $12.7 million consisted of capital expenditures of $9.1 million and acquisitions payments of $6.0 million, partially offset by net proceeds from maturities or sale of investments of $2.3 million.

During the three months ended March 31, 2021, our net cash used in financing activities for continuing operations of $761.7 million primarily consisted of $759.8 million related to the redemption of the 2023 Notes, including the call premium, and the repurchase of $2.0 million of our common stock.

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

sub-facility

At March 31, 2021, we had no outstanding principal balance on our Credit Agreement. We had one outstanding letter of credit of $0.1 million which reduced the amount available on our Credit Agreement to $899.9 million at March 31, 2021, after giving effect to the temporary reduction of the capacity of our Credit Agreement described above through September 30, 2021.

 

18

During the three months ended March 31, 2021, we redeemed the outstanding principal balance of $750.0 million on the 2023 Notes. We recognized a loss on debt extinguishment of $14.5 million during the three months ended March 31, 2021, which primarily included cash premiums and accelerated amortization of deferred financing costs.

At March 31, 2021, we had an outstanding principal balance of $1.0 billion on our 6.25% senior unsecured notes due 2027 (the “2027 Notes”). Our obligations under the 2027 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee our Credit Agreement. Interest on the 2027 Notes accrues at the rate of 6.25% per annum, or $62.5 million, and is payable semi-annually in arrears on January 15 and July 15.

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

At March 31, 2021, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Credit Agreement and the 2027 Notes. We believe we will be in compliance with these covenants throughout 2021.

We maintain professional liability insurance policies with third-party insurers, subject to self-insured retention, exclusions and other restrictions. We self-insure our liabilities to pay self-insured retention amounts under our professional liability insurance coverage through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Our total liability related to professional liability risks at March 31, 2021 was $316.1 million, of which $48.9 million is classified as a current liability within accounts payable and accrued expenses in the Consolidated Balance Sheet. In addition, there is a corresponding insurance receivable of $60.8 million recorded as a component of other assets for certain professional liability claims that are covered by insurance policies.

10-Q.

10-K,

 

19

We are subject to market risk primarily from exposure to changes in interest rates based on our financing, investing and cash management activities. We intend to manage interest rate risk through the use of a combination of fixed rate and variable rate debt. We borrow under our Credit Agreement at various interest rate options based on the Alternate Base Rate or LIBOR rate depending on certain financial ratios. At March 31, 2021, we had no outstanding principal balance on our Credit Agreement.

13a-15(e)

15d-15(e)

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2021.

No changes in our internal control over financial reporting occurred during the three months ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

20

We expect that audits, inquiries and investigations from government authorities and agencies will occur in the ordinary course of business. Such audits, inquiries and investigations and their ultimate resolutions, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.

In the ordinary course of our business, we become involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by our affiliated physicians. Our contracts with hospitals generally require us to indemnify them and their affiliates for losses resulting from the negligence of our affiliated physicians and other clinicians. We may also become subject to other lawsuits, including with payors or other counterparties that could involve large claims and significant defense costs. We believe, based upon a review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.

10b-5

Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot ensure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where the outcomes of such claims are unfavorable to us. With respect to professional liability risk, we self-insure a significant portion of this risk through our wholly owned captive insurance subsidiary. Liabilities in excess of our insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.

10-K.

During the three months ended March 31, 2021, we repurchased 81,625 shares of our common stock that were withheld to satisfy minimum statutory withholding obligations in connection with the vesting of restricted stock and deferred stock.

 

 

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

 

21

 

 

 

22

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

 

 

23