Pediatrix Medical Group, Inc. Q3 FY2024 earnings call

Key Points

• Third quarter operating results modestly ahead of expectations driven by same unit revenue growth; payer mix was a tailwind but moderated toward end of quarter.
• Patient volumes stable to positive across core service lines; hospital-based NICU days rose, office-based MFM volume growth strong.
• Successfully completed final wave of hybrid revenue cycle management transition with no disruptions; now focusing on driving improved performance.
• Focused on completing portfolio restructuring by end of Q4, exiting $200 million revenue businesses with expectation of $30 million annualized adjusted EBITDA improvement, portion in 2024, remainder in 2025+.
• Narrowed full-year adjusted EBITDA outlook to $205 million to $215 million.

Consolidated revenue growth was just under 1% due to strong same unit growth, offset primarily by portfolio restructuring activity which impacted over $20 million during the quarter. Practice level S&B expenses declined year-over-year, reflecting portfolio restructuring, but on a same unit basis, these expenses increased year-over-year but at a slower pace than same unit revenue. G&A expense increased modestly year-over-year primarily due to additional staffing for hybrid revenue cycle management structure and incentive compensation, partially offset by efficiencies from staffing reductions in shared services. Depreciation and amortization expense declined to $6.3 million compared to $9.2 million in the prior year.

Forward-Looking Statements

• Full-year 2024 adjusted EBITDA outlook narrowed to $205 million to $215 million.
• Portfolio restructuring expected to realize approximately $30 million in annualized adjusted EBITDA improvement, with a portion in 2024 and the remainder in 2025 and beyond.
• Hybrid revenue cycle management transition completed, now shifting focus to driving improved performance.

Risks

• Factors causing actual results to differ from forward-looking statements as detailed in SEC filings.
• Uncertainty in payer mix trends and hospital contract admin fee improvements.
• Potential disruptions from portfolio restructuring and ongoing operational transitions.

Q: Asked about staffing levels for RCM transition and if they're okay for Q4 and 2025.

A: Kasandra Rossi said they are fully staffed, in the mid-130s, and will monitor efficiency moving into 2025.

Q: Follow-up on payer mix and hospital contract admin fees.

A: Jim Swift said hospital contract pricing is stable after renegotiations, Kasandra Rossi noted payer mix had a four-quarter reset and may level off.

Q: About restructuring plan impact on revenue and EBITDA in Q4.

A: Kasandra Rossi said practice dispositions impact is back loaded in Q4, with EBITDA contribution of ~$30 million annualized, ~third in 2024.

Q: On cash flow normalization and capital deployment.

A: Charlie Lynch mentioned EBITDA to operating cash flow typically 60%-two-thirds, Kasandra Rossi said will consider M&A, share repurchases, debt paydown with excess cash