MEDNAX, INC. – 10-Q – Management's Discussion and Analysis of Financial Condition and Results of Operations
The following discussion highlights the principal factors that have affected our
financial condition and results of operations, as well as our liquidity and
capital resources, for the periods described. This discussion should be read in
conjunction with the unaudited Consolidated Financial Statements and the notes
thereto included in this Quarterly Report. In addition, reference is made to our
audited consolidated financial statements and notes thereto and related
Management's Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10-K for the fiscal year ended
18, 2021
"Mednax", the "Company", "we", "us" and "our" refer to the parent company,
which its businesses are actually conducted (collectively, "MDX"), together with
MDX's affiliated business corporations or professional associations,
professional corporations, limited liability companies and partnerships
("affiliated professional contractors"). Certain subsidiaries of MDX have
contracts with our affiliated professional contractors, which are separate legal
entities that provide physician services in certain states and
following discussion contains forward-looking statements. Please see the
Company's 2020 Form 10-K, including Item 1A, Risk Factors, for a discussion of
the uncertainties, risks and assumptions associated with these forward-looking
statements. In addition, please see "Caution Concerning Forward-Looking
Statements" below.
Overview
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
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.
Coronavirus Pandemic (COVID-19)
COVID-19 has had an impact on the demand for medical services provided by our
affiliated clinicians. Beginning in
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. We believe
COVID-19, either directly or indirectly, also had an impact on our NICU patient
volumes, and there is no assurance that impacts from COVID-19 will not further
adversely affect our NICU patient volumes or otherwise adversely affect our NICU
and related neonatology business. Further, in late 2020, we saw a shift in the
mix of patients reimbursed under government-sponsored healthcare programs, but
that shift materially reversed during the nine months ended
Overall, our operating results were significantly impacted by COVID-19 beginning
in
recovered throughout 2020 and 2021.
During 2020, we implemented a number of actions to preserve financial
flexibility and partially mitigate the significant anticipated impact of
COVID-19. These steps included a suspension of most activities related to our
transformational and restructuring programs, limiting these expenditures to
those that provide essential support for our response to COVID-19. In addition,
(i) we temporarily reduced executive and key management base salaries, including
50% reductions in salaries for our named executive officers during the second
quarter of 2020; (ii) the board of directors agreed to forego their annual cash
retainer and cash meeting payments, also during the second quarter of 2020;
(iii) we enacted a combination of salary reductions and furloughs for
non-clinical employees; (iv) we enacted significant operational and
practice-specific expense reduction plans across its clinical operations; and
(v) amended and restated our credit agreement.
Due to the continued uncertainties surrounding the timeline of and impacts from
COVID-19, we are unable to predict the ultimate impact on our business,
financial condition, results of operations, cash flows and the trading price of
our securities at this time.
CARES Act
On
("CARES Act") was signed into law. The CARES Act is a relief package intended to
assist many aspects of the American economy, including providing up to
billion
lost revenue and expenses attributable to COVID-19. The remaining
aid is intended to focus on providers in areas particularly impacted by
COVID-19, rural providers, providers of services with lower shares of Medicare
reimbursement or who predominantly serve the Medicaid population, and providers
requesting reimbursement for the treatment of uninsured Americans. It is unknown
what, if any, portion of the remaining healthcare industry funding on the CARES
Act our affiliated physician practices will qualify for and receive.
Department of Health and Human Services
and our affiliated physician practices within continuing operations received an
aggregate of
2020
applications pending for certain affiliated physician practices for incremental
relief beyond what has been received.
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 repaid almost all of these deferred social
security taxes during the second quarter of 2021 with an immaterial amount due
on each of
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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 generated a net operating loss for the 2020
tax year which has been carried back to the 2015 tax year under these provisions
to obtain a refund of income tax at the prior 35% corporate tax rate.
General Economic Conditions and Other Factors
Our operations and performance depend significantly on economic conditions.
Economic conditions in
COVID-19, which impacted patient volumes, although patient volumes substantially
recovered as of
2021
government-sponsored healthcare programs ("GHC Programs") decreased as compared
to the three months ended
shifts toward GHC Programs if changes occur in economic behaviors or population
demographics within geographic locations in which we provide services, including
an increase in unemployment and underemployment as well as losses of commercial
health insurance. For example, during the three months ended
we experienced significant shifts to GHC programs. Payments received from GHC
Programs are substantially less for equivalent services than payments received
from commercial insurance payors. In addition, due to the rising costs of
managed care premiums and patient responsibility amounts, we may experience
lower net revenue resulting from increased bad debt due to patients' inability
to pay for certain services.
Healthcare Reform
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,
the ACA with different mechanisms for facilitating insurance coverage in the
commercial and Medicaid markets.
or target changes to the ACA in the future. Additionally,
Medicaid Services
and may seek to advance additional significant changes through regulation,
guidance and enforcement in the future.
At the end of 2017,
individuals to purchase and maintain health insurance or face a tax penalty,
known as the individual mandate. In light of these changes, in
federal district court in
inconsistent with the
result. Several states appealed this decision, and in
court of appeals upheld the district court's conclusion that part of the ACA is
unconstitutional but remanded for further evaluation whether in light of this
defect the entire ACA must be invalidated. Democratic attorneys general and the
House appealed the Fifth Circuit's decision to the
2020
during the 2020-21 term. Oral arguments took place on
the ACA. Notwithstanding the
whether there will be future challenges to the ACA or what impact, if any, such
challenges may have on our business. Changes resulting from these proceedings
could have a material impact on our business.
In late 2020 and early 2021, the results of the federal and state elections
changed which persons and parties occupy the Office of the President of the
United States and the
The current Administration may propose sweeping changes to the
system, including expanding government-funded health insurance options,
additional Medicaid expansion or 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 or Medicaid payment
rates set forth under state law. Historically,
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.
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
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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.
Medicaid Expansion
The ACA also allows states to expand their Medicaid programs through federal
payments that fund most of the cost of increasing the Medicaid eligibility
income limit from a state's historic eligibility levels to 133% of the federal
poverty level. To date, 38 states and the
Medicaid eligibility to cover this additional low-income patient population, and
other states are considering expansion. All of the states in which we operate,
however, already cover children in the first year of life and pregnant women if
their household income is at or below 133% of the federal poverty level. As
noted above,
remuneration for Medicaid expansion pursuant to the ACA. Should these changes
take effect, we cannot predict with any assurance the ultimate effect to
reimbursements for our services.
"Surprise" Billing Legislation
In late 2020,
"surprise" medical bills when services are furnished by providers who are not
subject to contractual arrangements and payment limitations with the patient's
insurer. Effective
or "surprise" medical bills that could arise from out-of-network emergency care
provided at an out-of-network facility or at in-network facilities by
out-of-network providers and out-of-network nonemergency care provided at
in-network facilities without the patient's informed consent. Many states have
passed similar legislation, but the federal government has been working to enact
a ban on surprise billing for quite some time that pertains to ERISA health
insurance plans that are not addressed under state legislation.
Under the "No Surprises Act," patients are only required to pay the in-network
cost-sharing amount, which has been determined through an established regulatory
formula and will count toward the patient's health plan deductible and
out-of-pocket cost-sharing limits. Providers will generally not be permitted to
balance bill patients beyond this cost-sharing amount. An out-of-network
provider will only be permitted to bill a patient more than the in-network
cost-sharing amount for care if the provider gives the patient notice of the
provider's network status and delivers to the patient or their health plan an
estimate of charges within certain specified timeframes, and obtains the
patient's written consent prior to the delivery of care. Providers that violate
these surprise billing prohibitions may be subject to state enforcement action
or federal civil monetary penalties. Out of network providers will undergo an
independent dispute resolution ("IDR") process to determine their payment
amounts for out of network services. These IDR results will bind both the
provider and payor for a 90-day period. We cannot predict how these IDR results
will compare to the rates that our affiliated physicians customarily receive for
their services.
These measures could limit the amount we can charge and recover for services we
furnish where we have not contracted with the patient's insurer, and therefore
could have a material adverse effect on our business, financial condition,
results of operations, cash flows and the trading price of our securities.
Moreover, these measures could affect our ability to contract with certain
payors and under historically similar terms and may cause, and the prospect of
these changes may have caused, payors to terminate their contracts with us and
our affiliated practices, further affecting our business, financial condition,
results of operations, cash flows and the trading price of our securities.
Non-GAAP Measures
In our analysis of our results of operations, we use certain non-GAAP financial
measures. We report adjusted earnings before interest, taxes and depreciation
and amortization from continuing operations, which is defined as income (loss)
from continuing operations before interest, income taxes, depreciation and
amortization, and transformational and restructuring related expenses. We also
report adjusted earnings per share ("Adjusted EPS") from continuing operations
which consists of diluted income (loss) from continuing operations per common
and common equivalent share adjusted for amortization expense, stock-based
compensation expense, transformational and restructuring related expenses and
any impacts from discrete tax events. For the three and nine months ended
further adjusted to exclude the impacts from the gain on sale of building and
loss on the early extinguishment of debt.
We believe these measures, in addition to income (loss) from continuing
operations, net income (loss) and diluted net income (loss) from continuing
operations per common and common equivalent share, provide investors with useful
supplemental information to compare and understand our underlying business
trends and performance across reporting periods on a consistent basis. These
measures should be considered a supplement to, and not a substitute for,
financial performance measures determined in accordance with GAAP. In addition,
since these non-GAAP measures are not determined in accordance with GAAP, they
are susceptible to varying calculations and may not be comparable to other
similarly titled measures of other companies.
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 and nine months ended
to the tables below (in thousands, except per share data).
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Three Months Ended Nine Months Ended
September 30, September 30,
2021 2020 2021 2020
Income (loss) from continuing
operations attributable to
Interest expense
17,595 27,250 52,119 83,180 Gain on sale of building - - (7,280 ) - Loss on early extinguishment of debt - - 14,532 - Income tax provision 11,594 6,677 14,002 10,859
Depreciation and amortization expense 8,151 7,195 24,288 20,749
Transformational and restructuring
related expenses
4,232 34,291 19,042 60,846 Adjusted EBITDA from continuing operations attributable to Mednax, Inc.$ 73,419 $ 72,761 $ 184,435 $ 161,567 Three Months Ended September 30, 2021 2020 Weighted average diluted shares outstanding 86,096 83,862 Income (loss) from continuing operations and diluted income from continuing operations per share attributable to Mednax, Inc.$ 31,847 $ 0.37 $ (2,652 ) $ (0.03 ) Adjustments (1): Amortization (net of tax of$583 and$601 ) 1,749 0.02 1,802 0.02 Stock-based compensation (net of tax of$1,374 and$1,132 ) 4,121 0.05 3,398 0.04 Transformational and restructuring expenses (net of tax of$1,058 and$8,573 ) 3,174 0.03 25,718 0.31 Net impact from discrete tax events (901 ) (0.01 ) 2,905 0.03 Adjusted income and diluted EPS from continuing operations attributable to Mednax, Inc.$ 39,990 $ 0.46 $ 31,171 $ 0.37
(1)
Our blended statutory tax rate of 25% was used to calculate the tax effects of
the adjustments for the three months ended
Nine Months Ended
September 30,
2021 2020
Weighted average diluted shares
outstanding 85,759 83,260
Income (loss) from continuing
operations and diluted income from
continuing operations per share
attributable to Mednax, Inc. $ 67,732 $ 0.79 $ (14,067 ) $ (0.17 )
Adjustments (1):
Amortization (net of tax of $2,049 and
$1,632 ) 6,149 0.07 4,896 0.06
Stock-based compensation (net of tax of
$3,737 and $4,550 ) 11,210 0.13 13,652 0.16
Transformational and restructuring
expenses (net of tax of
$4,760 and $15,211 ) 14,282 0.16 45,635 0.55
Gain on sale of building (net of tax of
$1,820 ) (5,460 ) (0.06 ) - -
Loss on early extinguishment of debt
(net of tax of $3,633 ) 10,899 0.13 - -
Net impact from discrete tax events (9,484 ) (0.11 ) 7,849 0.10
Adjusted income and diluted EPS from
continuing operations
attributable to Mednax, Inc.$ 95,328 $ 1.11 $ 57,965 $ 0.70
(1)
Our blended statutory tax rate of 25% was used to calculate the tax effects of
the adjustments for the nine months ended
Results of Operations
Three Months Ended September 30, 2021 as Compared to Three Months Ended
September 30, 2020
Our net revenue attributable to continuing operations was
three months ended
same period in 2020. The increase in revenue of
primarily attributable to an increase in same-unit revenue. 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
The increase in same-unit net revenue was comprised of an increase of
million
decrease of
increase in revenue from patient service volumes was related to increases across
almost all of our hospital-based and office-based women's and children's
services. Prior year volumes were unfavorably impacted by COVID-19. The net
decrease in revenue related to net reimbursement-related factors was primarily
due to decreases in CARES Act relief as no relief was recorded during the third
quarter of 2021, as compared to
of 2020, partially offset by an increase in revenue resulting from a decrease in
the percentage of our patients being enrolled in GHC Programs, increases in
administrative fees from our hospital partners and modest improvements in
managed care contracting.
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Practice salaries and benefits attributable to continuing operations increased
30, 2021
reflected increases in clinician compensation expense driven by the comparison
to reduced salaries expense during 2020 resulting from COVID-19 mitigation
efforts. The remaining
incentive compensation, with the increase primarily related to incentive
compensation driven by improved results.
Practice supplies and other operating expenses attributable to continuing
operations increased
months ended
period in 2020. The increase was primarily attributable to practice supply, rent
and other costs related to our existing units for which the activity across many
expense categories such as travel, office and professional services expenses in
2020 had decreased as a result of COVID-19 as well as increases in the current
year for information technology expenses from efforts directly supporting the
physician practices.
General and administrative expenses attributable to continuing operations
primarily include all billing and collection functions and all other salaries,
benefits, supplies and operating expenses not specifically identifiable to the
day-to-day operations of our physician practices and services. General and
administrative expenses were
30, 2021
increase of
expense when comparing to the prior year that included decreases in compensation
expense from COVID-19 mitigation efforts such as furloughs and net staffing
reductions and increases in various information technology related expenses
including systems fees, professional licenses and data center enhancements,
partially offset by a net savings in revenue cycle management expenses and other
professional fees. General and administrative expenses as a percentage of net
revenue was 13.6% for the three months ended
14.4% for the same period in 2020, with the decrease of 83 basis points driven
by the net expense decreases, partially offset by the increases in salaries and
information technology expense in 2021.
Transformational and restructuring related expenses attributable to continuing
operations were
compared to
million
initiatives critical to the transformation of our business operations with the
expenses during the third quarter of 2021 primarily related to contract
termination costs resulting from the transition of our revenue cycle management
activities to a third party with the remaining expenses related to external
consulting costs for other initiatives.
Depreciation and amortization expense attributable to continuing operations was
million
related to an increase in depreciation expense related to information technology
equipment.
Income from operations attributable to continuing operations increased
million
2021
margin was 11.9% for the three months ended
4.4% for the same period in 2020. The increase in our operating margin was
primarily due to higher revenue growth and decreases in transformational and
restructuring related expenses, partially offset by net increases in overall
operating expenses as compared to the third quarter of 2020, some of which was
driven by COVID-19 cost mitigation initiatives that took place in 2020.
Excluding transformation and restructuring related expenses, our income from
operations attributable to continuing operations was
million
the transformational and restructuring related activity provides a more
comparable view of our operating income and operating margin from continuing
operations.
Total non-operating expenses attributable to continuing operations were
million
million
was primarily related to the decrease in interest expense resulting from the
redemption of our 5.25% senior unsecured notes due 2023 (the "2023 Notes") in
transition services provided to the buyers of our divested medical groups.
Interest expense for the three months ended
approximately
permanent reduction in the size of our revolving credit facility.
Our effective income tax rate attributable to continuing operations ("tax rate")
was 26.7% for the three months ended
three months ended
level of pre-tax income generated. Income taxes for the third quarter of 2020
were calculated by applying the actual year-to-date tax rate to our pre-tax
income. After excluding discrete tax impacts, during the three months ended
impacts provides a more comparable view of our tax rate.
Income from continuing operations attributable to
for the three months ended
million
attributable to
Diluted earnings from continuing operations per common and common equivalent
share attributable to
outstanding of 86.1 million for the three months ended
compared to a diluted loss per share of
outstanding of 83.9 million for the same period in 2020. Adjusted EPS from
continuing operations was
as compared to
our weighted average shares outstanding is primarily due to the impact of shares
issued in 2020 and 2021 through various equity programs.
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Loss from discontinued operations, net of tax, was
months ended
period in 2020. Diluted loss from discontinued operations per common and common
equivalent share was
compared to
Net income attributable to
ended
period in 2020. Diluted net income per common and common equivalent share
attributable to
2021
2020.
Nine Months Ended
30, 2020
Our net revenue attributable to continuing operations was
nine months ended
period in 2020. The increase in revenue of
attributable to an increase in same-unit revenue. 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
The increase in same-unit net revenue was comprised of an increase of
million
million
revenue from patient service volumes was related to increases across all our
hospital-based and office-based women's and children's services. Prior year
volumes were significantly unfavorably impacted by COVID-19. The net increase in
revenue related to net reimbursement-related factors was primarily due to an
increase in revenue resulting from a decrease in the percentage of our patients
being enrolled in GHC Programs, increases in administrative fees from our
hospital partners and modest improvements in managed care contracting, partially
offset by a decrease in CARES Act relief.
Practice salaries and benefits attributable to continuing operations increased
30, 2021
reflected increases in clinician compensation expense driven by the comparison
to reduced salaries expense during 2020 resulting from COVID-19 mitigation
efforts. The remaining
compensation, with the increase to incentive compensation driven by improved
results, partially offset by a decrease in malpractice expense.
Practice supplies and other operating expenses attributable to continuing
operations increased
ended
2020. The increase was primarily attributable to practice supply, rent and other
costs related to our existing units for which the activity across many expense
categories such as travel, office and professional services expenses in 2020 had
decreased as a result of COVID-19 as well as increases in the current year for
information technology expenses from efforts directly supporting the physician
practices.
General and administrative expenses attributable to continuing operations
primarily include all billing and collection functions and all other salaries,
benefits, supplies and operating expenses not specifically identifiable to the
day-to-day operations of our physician practices and services. General and
administrative expenses were
30, 2021
increase of
information technology related expenses including systems fees, professional
licenses, data center enhancements, and security as well as a net increase in
compensation expense when comparing to the prior year that included decreases in
compensation expense from COVID-19 mitigation efforts such as furloughs and net
staffing reductions. General and administrative expenses as a percentage of net
revenue was 14.5% for the nine months ended
14.7% for the same period in 2020.
Gain on sale of building was
30, 2021
during the second quarter.
Transformational and restructuring related expenses attributable to continuing
operations were
compared to
million
initiatives critical to our business operations with the expenses during the
nine months ended
external consulting costs.
Depreciation and amortization expense attributable to continuing operations was
million
related to an increase in depreciation expense related to information technology
equipment.
Income from operations attributable to continuing operations increased
million
2021
margin was 9.6% for the nine months ended
5.0% for the same period in 2020. The increase in our operating margin was
primarily due to higher revenue growth, partially offset by net increases in
overall operating expenses as compared to 2020, some of which was driven by
COVID-19 cost mitigation initiatives that took place in 2020 as well as
increases in incentive compensation expense in 2021 from improved results.
Excluding the transformation and restructuring related expenses and gain on sale
of building, our income from operations attributable to continuing operations
was
9.6% for the nine months ended
believe excluding the impacts from the transformational and restructuring
related activity and gain on sale of building provides a more comparable view of
our operating income and operating margin from continuing operations.
Total non-operating expenses attributable to continuing operations were
million
million
primarily related to a decrease in interest expense resulting from the
redemption of our 2023 Notes in
the early redemption of our 2023
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Notes. The nine months ended
impact from the settlement of a litigation matter within investment and other
income.
Our tax rate was 17.1% for the nine months ended
rate for the nine months ended
pre-tax loss generated due to the impacts from COVID-19. The tax rate for the
nine months ended
million
loss carryback as allowed under the CARES Act for refund at the 35% federal tax
rate. Income taxes for the nine months ended
by applying the actual year-to-date tax rate to our pre-tax loss. After
excluding discrete tax impacts, during the nine months ended
our tax rate was 28.7%. We believe excluding discrete tax impacts on our tax
rate provides a more comparable view of our effective income tax rate.
Income from continuing operations attributable to
for the nine months ended
million
was
Diluted earnings from continuing operations per common and common equivalent
share attributable to
outstanding of 85.8 million for the nine months ended
compared to diluted loss per share of
outstanding of 83.3 million for the same period in 2020. Adjusted EPS from
continuing operations was
compared to
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
months ended
same period in 2020. Diluted income from discontinued operations per common and
common equivalent share was
as compared to diluted loss per share of
Net income attributable to
ended
period in 2020. Diluted net income per common and common equivalent share was
per share of
Liquidity and Capital Resources
As of
attributable to continuing operations as compared to
31, 2020
operations of
from working capital of
working capital is primarily due to the redemption of the 2023 Notes in
2021
Cash Flows from Continuing Operations
Cash provided by (used in) operating, investing and financing activities from
continuing operations is summarized as follows (in thousands):
Nine Months Ended
September 30,
2021 2020
Operating activities $ 38,718 $ 71,645
Investing activities (39,839 ) (28,179 )
Financing activities (760,941 ) (3,496 )
Operating Activities from Continuing Operations
During the nine months ended
operating activities for continuing operations was
receivable and deferred income taxes as well as changes in other liabilities,
partially offset by an increase in cash flow from higher earnings and changes in
accounts payable and accrued expenses, primarily incentive compensation.
During the nine months ended
receivable for continuing operations decreased by
an increase of
flow from accounts receivable for the nine months ended
primarily due to net increases in ending accounts receivable balances at
existing units due to higher revenue, partially offset by improved timing of
cash collections.
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 49.9 days at
2021
primarily related to the timing of cash collections at our existing units.
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Investing Activities from Continuing Operations
During the nine months ended
activities for continuing operations of
expenditures of
investment of
partially offset by net proceeds from the sale of a building of
and net proceeds from maturities or sale of investments of
Financing Activities from Continuing Operations
During the nine months ended
activities for continuing operations of
premium, and the repurchase of
offset by proceeds from the issuance of common stock of
Liquidity
During the three months ended
size of our unsecured revolving credit facility by
million
below, and includes a
credit. The Credit Agreement matures on
substantially all of our subsidiaries and affiliated professional contractors.
At our option, borrowings under the Credit Agreement will bear interest at (i)
the alternate base rate (defined as the higher of (a) the prime rate, (b) the
Federal Funds Rate plus 1/2 of 1.00% and (c) LIBOR for an interest period of one
month plus 1.00%) plus an applicable margin rate ranging from 0.125% to 0.750%
based on our consolidated leverage ratio or (ii) the LIBOR rate plus an
applicable margin rate ranging from 1.125% to 1.750% based on our consolidated
leverage ratio. The Credit Agreement also calls for other customary fees and
charges, including an unused commitment fee ranging from 0.150% to 0.200% of the
unused lending commitments, based on our consolidated leverage ratio. The Credit
Agreement contains customary covenants and restrictions, including covenants
that require us to maintain a minimum interest charge ratio, not to exceed a
specified consolidated leverage ratio and to comply with laws, and restrictions
on the ability to pay dividends and make certain other distributions, as
specified therein. Failure to comply with these covenants would constitute an
event of default under the Credit Agreement, notwithstanding the ability of the
company to meet its debt service obligations. The Credit Agreement also includes
various customary remedies for the lenders following an event of default,
including the acceleration of repayment of outstanding amounts under the Credit
Agreement.
LIBOR is expected to be discontinued after 2021, with one-month LIBOR being
discontinued in 2023. The Credit Agreement provides procedures for determining a
replacement or alternative rate in the event that LIBOR is unavailable. We may
also continue to make borrowings under the Credit Agreement at the alternate
base rate in the event that LIBOR is unavailable regardless of whether a
replacement or alternative rate has been determined. The alternate base rate or
LIBOR replacement or alternative rate may be more or less favorable to us than
LIBOR. Due to these features of the Credit Agreement, we do not believe that the
LIBOR transition will have a material impact on our consolidated financial
statements.
On
things, (i) establish a deemed Consolidated EBITDA of
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
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
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.
At
Agreement. We had one outstanding letter of credit of
the amount available on our Credit Agreement to
2021
Credit Agreement described above through
During the nine months ended
principal balance of
debt extinguishment of
accelerated amortization of deferred financing costs. During the three months
ended
credit facility, we wrote off approximately
which is included as a component of interest expense.
At
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
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
price equal to 101% of the aggregate principal amount of the 2027 Notes
repurchased plus accrued and unpaid interest.
20
--------------------------------------------------------------------------------
At
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
was
within accounts payable and accrued expenses in the Consolidated Balance Sheet.
In addition, there is a corresponding insurance receivable of
recorded as a component of other assets for certain professional liability
claims that are covered by insurance policies.
We anticipate that funds generated from operations, together with our current
cash on hand and funds available under our Credit Agreement, will be sufficient
to finance our working capital requirements, fund anticipated acquisitions and
capital expenditures, fund expenses related to our transformational and
restructuring activities, fund our share repurchase programs and meet our
contractual obligations for at least the next 12 months from the date of
issuance of this Quarterly Report on Form 10-Q.
Caution Concerning Forward-Looking Statements
Certain information included or incorporated by reference in this Quarterly
Report may be deemed to be "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Forward-looking statements may
include, but are not limited to, statements relating to our objectives, plans
and strategies, and all statements, other than statements of historical facts,
that address activities, events or developments that we intend, expect, project,
believe or anticipate will or may occur in the future are forward-looking
statements. These statements are often characterized by terminology such as
"believe," "hope," "may," "anticipate," "should," "intend," "plan," "will,"
"expect," "estimate," "project," "positioned," "strategy" and similar
expressions, and are based on assumptions and assessments made by our management
in light of their experience and their perception of historical trends, current
conditions, expected future developments and other factors they believe to be
appropriate. Any forward-looking statements in this Quarterly Report are made as
of the date hereof, and we undertake no duty to update or revise any such
statements, whether as a result of new information, future events or otherwise.
Forward-looking statements are not guarantees of future performance and are
subject to risks and uncertainties. Important factors that could cause actual
results, developments and business decisions to differ materially from
forward-looking statements are described in the 2020 Form 10-K, including the
section entitled "Risk Factors."
21
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