PEDIATRIX MEDICAL GROUP, INC. – 10-K – 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 our Consolidated Financial Statements and the related notes
included in Item 8 of this Form 10-K. This discussion contains forward-looking
statements. Please see the explanatory note concerning "Forward-Looking
Statements" preceding Part I of this Form 10-K and Item 1A. Risk Factors for a
discussion of the uncertainties, risks and assumptions associated with these
forward-looking statements. The operating results for the periods presented were
not significantly affected by inflation.

OVERVIEW

Pediatrix 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 37 states. We ceased providing services in Puerto Rico on December 31, 2022.
At December 31, 2022, our national network comprised approximately 2,600
affiliated physicians, including 1,330 physicians who provide neonatal clinical
care, primarily within hospital-based neonatal intensive care units ("NICUs"),
to babies born prematurely or with medical complications. We have 570 affiliated
physicians who provide 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 240 physicians providing pediatric intensive
care, 100 physicians providing pediatric cardiology care, 235 physicians
providing hospital-based pediatric care, 55 physicians providing pediatric
surgical care and urology services, 45 physicians providing pediatric urgent
care, 10 physicians providing pediatric ear, nose and throat services, and four
physicians providing pediatric ophthalmology services.

General Economic Conditions and Other Factors

Our operations and performance depend significantly on economic conditions.
Economic conditions in the United States ("U.S.") deteriorated as a result of
COVID-19, which impacted patient volumes, although patient volumes have
recovered to pre-COVID-19 levels as of December 31, 2022. During the year ended
December 31, 2022, the percentage of our patient service revenue being
reimbursed under government-sponsored healthcare programs ("GHC Programs")
remained relatively stable as compared to the year ended December 31, 2021. We
could, however, experience 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. Payments
received from GHC Programs are substantially less for equivalent services than
payments received from commercial insurance payors. In addition, costs of
managed care premiums and patient responsibility amounts continue to rise, and
accordingly, we may experience lower net revenue resulting from increased bad
debt due to patients' inability to pay for certain services. See Item 1A. Risk
Factors, in this Form 10-K for additional discussion on the general economic
conditions in the United States and recent developments in the healthcare
industry that could affect our business.

"Surprise" Billing Legislation

In late 2020, Congress enacted legislation intended to protect patients from
"surprise" medical bills when services are furnished by providers who are not in
network with the patient's insurer (the "No Surprises Act" or the "NSA").
Effective January 1, 2022, if the patient's insurance plan is subject to the
NSA, providers are not permitted to send patients an unexpected or "surprise"
medical bill that arises 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 legislation on this topic and
will continue to modify and review their laws pertaining to surprise billing.

Under the NSA, 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

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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.

Also under the NSA, out of network providers will be paid an amount determined
by the patient's insurer for services rendered in the emergency care setting; if
a provider is not satisfied with the amount paid for the services, the provider
can pursue recourse through an independent dispute resolution ("IDR") process.
These IDR results will bind both the provider and payor for a 90-day period. In
August 2022, the United States Department of Health and Human Services,
Department of Labor and Department of Treasury (the "Departments") issued their
final rule and corresponding guidance implementing certain portions of the IDR
process under the NSA. The Departments plan to publish additional rules and
guidance in the coming months and years. Certain IDR-related provisions of the
NSA are being challenged in courts by provider groups, and the result of this
litigation may alter portions of the law. Accordingly, 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.

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, 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.

At the end of 2017, Congress repealed the part of the ACA that required most
individuals to purchase and maintain health insurance or face a tax penalty,
known as the individual mandate. In light of these changes, in December 2018, a
federal district court in Texas declared that key portions of the ACA were
inconsistent with the U.S. Constitution and that the entire ACA is invalid as a
result. Several states appealed this decision, and in December 2019, a federal
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 United States Supreme Court.
On June 17, 2021, the United States Supreme Court in California et al. v. Texas
et al. dismissed this judicial challenge to the ACA brought by several states
and sided with supporters of the ACA in a way that left the law in effect in its
current form. Another potentially existential challenge to the ACA is advancing
in federal courts. In Braidwood Management v. Becerra, the plaintiffs argue that
the law's requirement that insurance cover certain preventive services is
unconstitutional. In September 2022, a federal district court in Texas ruled in
favor of the plaintiffs, finding, among other things, that the requirement that
self-funded plans and insurers cover certain preventive services violates the
plaintiffs' rights under the Religious Freedom Restoration Act. The case is
likely to be appealed and may ultimately be resolved by the United States
Supreme Court. If the case succeeds, millions of Americans could lose access to

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preventive care guaranteed by the ACA or be forced to pay out of pocket for
these services. Notwithstanding the Supreme Court's ruling, we cannot say for
certain 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 U.S. Senate and many states' governors and legislatures.
In late 2022, the results of the federal elections changed which party controls
the U.S. House of Representatives. The current Administration may propose
sweeping changes to the U.S. healthcare 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, 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.

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.

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, 39 states and the District of Columbia have expanded
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.
Recently, Democrats in Congress have sought to expand Medicaid or Medicaid-like
coverage in states that have not yet expanded Medicaid. They also have sought to
reduce payments to certain hospitals in some of these states. Additionally, as
noted above, Congress is currently considering altering the terms and state
remuneration for Medicaid expansion pursuant to the ACA. Should any of these
changes take effect, we cannot predict with any assurance the ultimate effect to
reimbursements for our services.

2022 Acquisition Activity

During 2022, we acquired one multi-location pediatric urgent care practice and
one pediatric gastroenterology practice. Based on our experience, we expect that
we can improve the results of acquired physician practices through improved
managed care contracting, improved collections, identification of growth
initiatives and operating and cost savings based upon the significant
infrastructure that we have developed.

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Common Stock Repurchase Programs

In July 2013, our Board of Directors authorized the repurchase of shares of our
common stock up to an amount sufficient to offset the dilutive impact from the
issuance of shares under our equity compensation programs. The share repurchase
program allows us to make open market purchases from time-to-time based on
general economic and market conditions and trading restrictions. The repurchase
program also allows for the repurchase of shares of our common stock to offset
the dilutive impact from the issuance of shares, if any, related to the
Company's acquisition program. No shares were purchased under this program
during the twelve months ended December 31, 2022.

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 $94.0 million remained
available for repurchase as of December 31, 2021. Under this share repurchase
program, during the year ended December 31, 2022, the Company purchased 4.5
million shares of its common stock for $88.5 million, including $2.9 million to
satisfy minimum statutory withholding obligations in connection with the vesting
of restricted stock. As of December 31, 2022, $5.5 million remained available
under this share repurchase program.

We intend 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.

Transformation and Restructuring Related Initiatives

Beginning in 2019, we developed a number of strategic initiatives across our
organization, in both our shared services functions and our operational
infrastructure, with a goal of generating improvements in our general and
administrative expenses and our operational infrastructure. We had broadly
classified these workstreams in four categories including practice operations,
revenue cycle management, information technology and human resources. We have
included the expenses, which in certain cases represent estimates, related to
such activity on a separate line item in our consolidated statements. A
significant amount of transformational and restructuring related activities were
related to our divested anesthesiology services and radiology services medical
groups, and we have incurred various expenses related to executive management
and board restructuring.

Coronavirus Pandemic (COVID-19)

COVID-19 has had an impact on the demand for medical services provided by our
affiliated clinicians. Beginning in mid-March 2020, our 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. 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 twelve months ended December 31, 2021.
Overall, our operating results were significantly impacted by COVID-19 beginning
in mid-March 2020, but volumes began to normalize in mid-2020 and substantially
recovered since that time with no material impacts from any COVID-19 variants in
2021 and 2022.

Due to the continued uncertainties surrounding the timeline of and impacts from
COVID-19 and with multiple variant strains still circulating, 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 March 27, 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 up to $100
billion in aid to the healthcare industry to reimburse healthcare providers for
lost revenue and expenses attributable to COVID-19. The remaining $70 billion in
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

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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. The Department of Health and Human
Services ("HHS") is administering this program, and our affiliated physician
practices within continuing operations received an aggregate of $13.3 million,
$26.1 million and $22.0 million in relief payments during the years ended
December 31, 2022, 2021 and 2020, respectively.

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 all of these deferred social security
taxes as of December 31, 2022.

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.

Geographic Coverage

During 2022, 2021 and 2020, approximately 65%, 62% and 62%, respectively, of our
net revenue from continuing operations was generated by operations in our five
largest states. During 2022, 2021 and 2020, our five largest states consisted of
Texas, Florida, Georgia, California, and Washington. During 2022, 2021 and 2020,
our operations in Texas accounted for approximately 32%, 30% and 29%,
respectively, of our net revenue.

Payor Mix

We bill payors for professional services provided by our affiliated physicians
to our patients based upon rates for specific services provided. Our billed
charges are substantially the same for all parties in a particular geographic
area regardless of the party responsible for paying the bill for our services.
We determine our net revenue based upon the difference between our gross fees
for services and our estimated ultimate collections from payors. Net revenue
differs from gross fees due to (i) managed care payments at contracted rates,
(ii) GHC Program reimbursements at government-established rates, (iii) various
reimbursement plans and negotiated reimbursements from other third-parties, and
(iv) discounted and uncollectible accounts of private-pay patients.

Our payor mix is composed of contracted managed care, government, principally
Medicare and Medicaid, other third-parties and private-pay patients. We benefit
from the fact that most of the medical services provided in the NICU are
classified as emergency services, a category typically classified as a covered
service by managed care payors.

The following is a summary of our payor mix, expressed as a percentage of net
revenue from continuing operations, exclusive of administrative fees and
miscellaneous revenue, for the periods indicated:

                            Years Ended December 31,
                           2022       2021       2020
Contracted managed care     66%        68%        68%
Government                  26%        25%        27%
Other third-parties         6%         5%         4%
Private-pay patients        2%         2%         1%
                           100%       100%       100%



The payor mix shown in the table above is not necessarily representative of the
amount of services provided to patients covered under these plans. For example,
the gross amount billed to patients covered under GHC Programs for the years
ended December 31, 2022, 2021 and 2020 represented approximately 56% of our
total gross patient service revenue. These percentages of gross revenue and the
percentages of net revenue provided in the table above include the payor mix
impact of acquisitions completed through December 31, 2022.

Quarterly Results

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We have historically experienced and expect to continue to experience quarterly
fluctuations in net revenue and net income. These fluctuations are primarily due
to the following factors:

•

There are fewer calendar days in the first and second quarters of the year, as
compared to the third and fourth quarters of the year. Because we provide
services in NICUs on a 24-hours-a-day basis, 365 days a year, any reduction in
service days will have a corresponding reduction in net revenue.

•

The majority of physician services provided by our office-based practices
consist of office visits and scheduled procedures that occur during business
hours. As a result, volumes at those practices fluctuate based on the number of
business days in each calendar quarter.

•

A significant number of our employees and our associated professional
contractors, primarily physicians, exceed the level of taxable wages for social
security during the first and second quarters of the year. As a result, we incur
a significantly higher payroll tax burden and our net income is lower during
those quarters.

We have significant fixed operating costs, including physician compensation,
and, as a result, are highly dependent on patient volume and capacity
utilization of our affiliated professional contractors to sustain profitability.
Additionally, quarterly results may be affected by the timing of acquisitions
and fluctuations in patient volume. As a result, the operating results for any
quarter are not necessarily indicative of results for any future period or for
the full year.

Application of Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States ("GAAP") requires estimates and
assumptions that affect the reporting of assets, liabilities, revenue and
expenses, and the disclosure of contingent assets and liabilities. Note 2 to our
Consolidated Financial Statements provides a summary of our significant
accounting policies, which are all in accordance with GAAP. Certain of our
accounting policies are critical to understanding our Consolidated Financial
Statements because their application requires management to make assumptions
about future results and depends to a large extent on management's judgment,
because past results have fluctuated and are expected to continue to do so in
the future.

We believe that the application of the accounting policies described in the
following paragraphs is highly dependent on critical estimates and assumptions
that are inherently uncertain and highly susceptible to change. For all of these
policies, we caution that future events rarely develop exactly as estimated, and
the best estimates routinely require adjustment. On an ongoing basis, we
evaluate our estimates and assumptions, including those discussed below.

Revenue Recognition

We recognize patient service revenue at the time services are provided by our
affiliated physicians. Our performance obligations relate to the delivery of
services to patients and 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 our patient service revenue is reimbursed by GHC Programs
and third-party insurance payors. Payments for services rendered to our patients
are generally less than billed charges. We monitor our revenue and receivables
from these sources and record 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. Management 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.
Collection of patient service revenue we expect 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. 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. The evaluation of these historical and other factors involves

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complex, subjective judgments. On a routine basis, we compare our cash
collections to recorded net patient service revenue and evaluate our historical
allowance for contractual adjustments and uncollectibles based upon the ultimate
resolution of the accounts receivable balance. These procedures are completed
regularly in order to monitor our process of establishing appropriate reserves
for contractual adjustments. We have not recorded any material adjustments to
prior period contractual adjustments and uncollectibles in the years ended
December 31, 2022, 2021, or 2020.

Some of our agreements require hospitals to pay us administrative fees. Some
agreements provide for fees if the hospital does not generate sufficient patient
volume in order to guarantee that we receive a specified minimum revenue level.
We also receive fees from hospitals for administrative services performed by our
affiliated physicians providing medical director or other services at the
hospital.

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. Any
significant change in our DSO results in additional analyses of outstanding
accounts receivable and the associated reserves. We calculate our DSO using a
three-month rolling average of net revenue. Our net revenue, net income and
operating cash flows may be materially and adversely affected if actual
adjustments and uncollectibles exceed management's estimated provisions as a
result of changes in these factors. As of December 31, 2022, our DSO was 53.1
days. We had approximately $1.55 billion in gross accounts receivable for
continuing operations outstanding at December 31, 2022, and considering this
outstanding balance, based on our historical experience, a reasonably likely
change of 0.5% to 1.50% in our estimated collection rate would result in an
impact to net revenue of $7.5 million to $22.4 million. The impact of this
change does not include adjustments that may be required as a result of audits,
inquiries and investigations from government authorities and agencies and other
third-party payors that may occur in the ordinary course of business. See Note
19 to our Consolidated Financial Statements in this Form 10-K.

Professional Liability Coverage

We maintain professional liability insurance policies with third-party insurers
generally on a claims-made basis, subject to self-insured retention, exclusions
and other restrictions. Our self-insured retention under our professional
liability insurance program is maintained primarily 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. Liabilities for claims incurred but not reported are not
discounted. The average lag period from the date a claim is reported to the date
it reaches final settlement is approximately four years, although the facts and
circumstances of individual claims could result in lag periods that vary from
this average. Our actuarial assumptions incorporate multiple complex
methodologies to determine the best liability estimate for claims incurred but
not reported and the future development of known claims, including methodologies
that focus on industry trends, paid loss development, reported loss development
and industry-based expected pure premiums. The most significant assumptions used
in the estimation process include the use of loss development factors to
determine the future emergence of claim liabilities, the use of frequency and
trend factors to estimate the impact of economic, judicial and social changes
affecting claim costs, and assumptions regarding legal and other costs
associated with the ultimate settlement of claims. The key assumptions used in
our actuarial valuations are subject to constant adjustments as a result of
changes in our actual loss history and the movement of projected emergence
patterns as claims develop. We evaluate the need for professional liability
insurance reserves in excess of amounts estimated in our actuarial valuations on
a routine basis, and as of December 31, 2022, based on our historical experience
for continuing operations, a reasonably likely change of 4.0% to 10.0% in our
estimates would result in an increase or decrease to net income of $3.1 million
to $8.1 million. However, because many factors can affect historical and future
loss patterns, the determination of an appropriate professional liability
reserve involves complex, subjective judgment, and actual results may vary
significantly from estimates.

Non-GAAP Measures

In our analysis of our results of operations, we use certain non-GAAP financial
measures. We have incurred certain expenses that we do not consider
representative of our underlying operations, including transformational and
restructuring related expenses. Accordingly, beginning with the first quarter of
2019, we began reporting adjusted earnings before interest, taxes and
depreciation and amortization ("Adjusted EBITDA") from continuing operations,

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defined as income (loss) from continuing operations before interest, taxes,
depreciation and amortization, and transformational and restructuring related
expenses. Adjusted earnings per share ("Adjusted EPS") from continuing
operations has also been further adjusted for these items and beginning with the
first quarter of 2019 consists of diluted income (loss) from continuing
operations per common and common equivalent share adjusted for amortization
expense, stock-based compensation expense and transformational and restructuring
related expenses. For the year ended December 31, 2021, both Adjusted EBITDA and
Adjusted EPS are being further adjusted to exclude the impacts from the gain on
sale of building and for the years ended December 31, 2022 and 2021, both
Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude the
impacts from loss on the early extinguishment of debt. Adjusted EPS from
continuing operations has been further adjusted to reflect the impacts from
discrete tax events. We have included Adjusted EBITDA and Adjusted EPS in this
Form 10-K because each is a key measure used by our management and board of
directors to evaluate our operating performance, generate future operating plans
and make strategic decisions.

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 years ended December 31, 2022, 2021 and 2020, refer to the
tables below (in thousands, except per share data).

                                                          Years Ended 

December 31,

                                                      2022          2021    

2020

Income (loss) from continuing operations
attributable to Pediatrix Medical Group, Inc.       $  62,568     $ 108,014     $  (9,580 )
Interest expense                                       39,695        68,722       110,482
Gain on sale of building                                    -        (7,280 )           -
Loss on early extinguishment of debt                   57,016        14,532             -
Income tax provision                                   18,806        27,241 

16,728

Depreciation and amortization expense                  35,636        32,147 

28,441

Transformational and restructuring related
expenses                                               27,312        22,100 

73,801

Adjusted EBITDA from continuing operations
attributable to Pediatrix Medical Group, Inc.       $ 241,033     $ 265,476     $ 219,872




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                                                          Years Ended 

December 31,

                                          2022                      2021                      2020
Weighted average diluted shares
outstanding                          84,121                    85,828                   83,395
Income (loss) from continuing
operations and diluted (loss)
income from continuing
operations per share
attributable to Pediatrix
Medical Group, Inc.               $  62,568     $  0.74     $ 108,014     $  1.26     $ (9,580 )   $ (0.11 )
Adjustments (1):
Amortization (net of tax of
$2,242, $2,643, and $2,294)           6,727        0.08         7,928        0.09        6,882        0.08
Stock-based compensation (net
of tax of $3,596, $4,742, and
$5,281)                              10,788        0.13        14,226        0.16       15,843        0.19
Transformational and
restructuring related expenses
(net of tax of $6,828, $5,525,
and $18,450)                         20,484        0.24        16,575        0.19       55,351        0.66
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 $14,254 and
$3,633)                              42,762        0.51        10,899        0.13            -           -
Net impact from discrete tax
events                               (3,370 )     (0.04 )     (12,156 )     (0.14 )     10,541        0.13
Adjusted income and diluted EPS
from continuing operations
attributable to Pediatrix
Medical Group, Inc.               $ 139,959     $  1.66     $ 140,026     $  1.63     $ 79,037     $  0.95



(1)

A blended tax rate of 25% was used to calculate the tax effects of the
adjustments for the years ended December 31, 2022, 2021 and 2020, respectively.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain information
related to our continuing operations expressed as a percentage of our net
revenue:

                                                        Years Ended December 31,
                                                  2022            2021            2020
Net revenue                                          100.0 %         100.0 %         100.0 %
Operating expenses:
Practice salaries and benefits                        70.1            67.9  

68.9

Practice supplies and other operating
expenses                                               6.2             5.2             5.2
General and administrative expenses                   11.7            13.8            14.4
Gain on sale of building                                 -            (0.4 )             -
Depreciation and amortization                          1.8             1.7             1.6
Transformational and restructuring related
expenses                                               1.4             1.2             4.2
Total operating expenses                              91.2            89.4            94.3
Income from operations                                 8.8            10.6             5.7
Non-operating expense, net                            (4.6 )          (3.5 )          (5.3 )
Income from continuing operations before
income taxes                                           4.2             7.1             0.4
Income tax provision                                  (1.0 )          (1.4 )          (1.0 )
Income (loss) from continuing operations               3.2 %           5.7 

% (0.6 )%

Year Ended December 31, 2022 as Compared to Year Ended December 31, 2021

Our net revenue attributable to continuing operations was $1.97 billion for the
year ended December 31, 2022, as compared to $1.91 billion for 2021. The
increase in revenue of $60.8 million, or 3.2%, was primarily attributable to
increases in revenue from net acquisitions, partially offset by a decrease 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 decreased by $20.6 million, or 1.1%. The decrease in same-unit net
revenue was comprised of a decrease of $50.2 million, or 2.7%, from net
reimbursement-related factors, partially offset by an increase of $29.6 million,
or 1.6%, related to patient service volumes. The net decrease in revenue related
to net reimbursement-related factors was primarily due to a decrease in revenue
related to certain revenue cycle management transition activities, a decrease in
CARES Act relief and an increase in the percentage of our patients being
enrolled in GHC Programs,

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partially offset by increases in revenue from contract and administrative fees
received from our hospital partners. The increase in revenue from patient
service volumes was related to increases across all our hospital-based and
office-based women's and children's services.

Practice salaries and benefits attributable to continuing operations increased
$85.8 million, or 6.6%, to $1.38 billion for the year ended December 31, 2022,
as compared to $1.30 billion for 2021. Of the $85.8 million increase, $83.2
million was related to salaries and $2.6 million was related to benefits and
incentive compensation. The increase in salaries was driven by acquisitions and
organic growth activities as well as clinical compensation increases in our
existing units. The net increase in benefits and incentive compensation reflects
higher benefits costs as a result of increased salaries expense and an increase
in medical malpractice expense, partially offset by lower incentive compensation
expense based on overall operating results.

Practice supplies and other operating expenses attributable to continuing
operations increased $21.2 million, or 21.1%, to $121.7 million for the year
ended December 31, 2022, as compared to $100.5 million for 2021. The increase
was primarily attributable to practice supply, rent and other costs related to
our acquisitions as well as increases in the same categories but to a lesser
extent at our existing units.

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 decreased by $32.0 million, or 12.1%, to $231.4 million
for the year ended December 31, 2022, as compared to $263.4 million for 2021.
The net decrease of $32.0 million is primarily related to a net savings in
revenue cycle management expenses, salaries and benefit cost reductions from net
staffing reductions, lower incentive compensation expense based on operating
results and lower professional fees, primarily legal expenses. General and
administrative expenses as a percentage of net revenue was 11.7% for the year
ended December 31, 2022, as compared to 13.8% for the same period in 2021.

Gain on sale of building was $7.3 million for the year ended December 31, 2021
and resulted from the sale of our secondary corporate office building during the
second quarter.

Transformational and restructuring related expenses attributable to continuing
operations were $27.3 million for the year ended December 31, 2022, as compared
to $22.1 million for 2021. The increase of $5.2 million reflects an increase in
position eliminations expense, partially offset by decreases in contract
termination costs and lower consulting fees.

Depreciation and amortization expense attributable to continuing operations was
$35.6 million for the year ended December 31, 2022, as compared to $32.1 million
for 2021. The increase was primarily related to an increase in depreciation
expense at our existing units for information technology and other equipment as
well as for acquisitions, partially offset by lower amortization expenses
related to intangible assets at our existing units.

Income from operations attributable to continuing operations decreased $30.2
million, or 14.9%, to $172.7 million for the year ended December 31, 2022, as
compared to $202.9 million for 2021. Our operating margin was 8.8% for the year
ended December 31, 2022, as compared to 10.6% for the same period in 2021. The
decrease in our operating margin was primarily due to lower same-unit revenue,
including CARES Act relief and net increases in overall operating expenses,
partially offset by favorable impacts from net acquisitions. Excluding the
transformational and restructuring related expenses and gain on sale of building
our income from operations attributable to continuing operations was $200.0
million and $217.7 million, and our operating margin was 10.1% and 11.4% for the
year ended December 31, 2022 and 2021, respectively. We 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 $91.3
million for the year ended December 31, 2022, as compared to $67.7 million for
2021. The net increase in non-operating expenses was primarily related to an
increase of $42.5 million in loss on early extinguishment of debt from the
redemption of our 6.25% senior unsecured notes due 2027 (the "2027 Notes") in
February 2022 as compared to the loss associated with the redemption of our
5.25% senior unsecured notes due 2023 (the "2023 Notes") in January 2021,
partially offset by lower interest expense on lower debt balances in 2022. In
addition, there was a decrease in other income of $9.8 million for the year

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ended December 31, 2022, as compared to the same period in 2021, related to the
transition services provided to the buyers of our divested medical groups.
Overall, during the year ended December 31, 2022, a net increase to
non-operating expense of $52.5 million from the loss on early extinguishment of
debt and lower other income was partially offset by a decrease of $29.0 million
in interest expense related to the issuance of our 5.375% unsecured senior notes
due 2030 (the "2030 Notes"), as compared to the interest expense on the 2027
Notes.

Our effective income tax rate attributable to continuing operations was 23.1%
for the year ended December 31, 2022, compared to 20.1% for the year ended
December 31, 2021. The tax rate for the year ended December 31, 2022 includes a
net discrete tax benefit of $3.4 million, primarily related to a change in
estimate for the liability for uncertain tax positions due to lapse of statutes
of limitations. The tax rate for the year ended December 31, 2021 includes a net
discrete tax benefit of $12.2 million, primarily related to a change in estimate
for the 2020 net operating loss carryback as allowed under the CARES Act for
refund at the 35% federal tax rate. After excluding discrete tax impacts, for
the years ended December 31, 2022 and 2021, our tax rates were 27.3% and 29.1%,
respectively. We believe excluding discrete tax impacts on our tax rate provides
a more comparable view of our effective income tax rate. The decrease in the
effective tax rate for the year ended December 31, 2022 as compared to 2021,
after excluding discrete tax impacts, is primarily due to a year-over-year
reduction in nondeductible expenses.

Income from continuing operations was $62.6 million for the year ended December
31, 2022, as compared to $108.0 million for 2021. Adjusted EBITDA from
continuing operations was $241.0 million for the year ended December 31, 2022,
as compared to $265.5 million for 2021.

Diluted income from continuing operations per common and common equivalent share
was $0.74 on weighted average shares outstanding of 84.1 million for the year
ended December 31, 2022, as compared to $1.26 on weighted average shares
outstanding of 85.8 million for 2021. Adjusted EPS from continuing operations
was $1.66 for the year ended December 31, 2022, as compared to $1.63 for 2021.
The decrease in weighted average shares outstanding resulted from the share
repurchases completed during 2022.

Income from discontinued operations, net of tax, was $3.8 million for the year
ended December 31, 2022, as compared to $23.0 million for 2021. Diluted income
from discontinued operations per common and common equivalent share was $0.05
for the year ended December 31, 2022, as compared to $0.27 for 2021.

Net income was $66.3 million for the year ended December 31, 2022, as compared
$131.0 million for 2021. Diluted net income per common and common equivalent
share was $0.79 for the year ended December 31, 2022, as compared to $1.53 for
2021.

Year Ended December 31, 2021 as Compared to Year Ended December 31, 2020

Our net revenue attributable to continuing operations was $1.91 billion for the
year ended December 31, 2021, as compared to $1.73 billion for 2020. The
increase in revenue of $177.2 million, or 10.2%, was primarily attributable to
the recovery in patient volumes and reimbursement related factors related to
COVID-19 and the favorable impacts on 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 $163.3 million, or 9.8%.
The increase in same-unit net revenue was comprised of an increase of $85.8
million, or 5.2%, related to patient service volumes and a net increase of $77.5
million, or 4.6%, from net reimbursement-related factors. The increase in
revenue from patient service volumes was related to increases across all of 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 received from
our hospital partners and modest improvements in managed care contracting.

Practice salaries and benefits attributable to continuing operations increased
$103.5 million, or 8.7%, to $1.30 billion for the year ended December 31, 2021,
as compared to $1.19 billion for 2020. Of the $103.5 million increase, $55.9
million was related to salaries which primarily reflected increases in clinician
compensation expense driven by the comparison to reduced salaries expense during
2020 resulting from COVID-19 mitigation efforts. The remaining $47.6 million was
related to benefits and incentive compensation, with the increase to incentive
compensation driven by improved results as compared to 2020.

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Practice supplies and other operating expenses attributable to continuing
operations increased $9.8 million, or 10.8%, to $100.5 million for the year
ended December 31, 2021, as compared to $90.7 million for 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 $263.4 million for the year ended December 31,
2021, as compared to $248.9 million for 2020. The net increase of $14.5 million
is primarily related to increases in various 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 temporary salary reductions, furloughs
and net staffing reductions. General and administrative expenses as a percentage
of net revenue was 13.8% for the year ended December 31, 2021, as compared to
14.4% for the same period in 2020.

Gain on sale of building was $7.3 million for the year ended December 31, 2021
and resulted from the sale of our secondary corporate office building during the
second quarter.

Transformational and restructuring related expenses attributable to continuing
operations were $22.1 million for the year ended December 31, 2021, as compared
to $73.8 million for 2020. The decrease of $51.7 million reflects the reduction
in the scope of transformational and restructuring related activities, which
limited such expenses them to initiatives critical to our business operations or
those that provided essential support for our response to COVID-19with the
expenses during the year ended December 31, 2021 primarily for contract
termination and external consulting costs.

Depreciation and amortization expense attributable to continuing operations was
$32.1 million for the year ended December 31, 2021, as compared to $28.4 million
for 2020. The increase is primarily related to depreciation of information
technology related equipment and amortization of intangible assets related to
acquisitions.

Income from operations attributable to continuing operations increased $104.8
million, or 106.8%, to $202.9 million for the year ended December 31, 2021, as
compared to $98.1 million for 2020. Our operating margin was 10.6% for the year
ended December 31, 2021, as compared to 5.7% 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 transformational and restructuring related
expenses and gain on sale of building, our income from operations attributable
to continuing operations was $225.0 million and $171.9 million, and our
operating margin was 11.4% and 9.9% for the year ended December 31, 2021 and
2020, respectively. We 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 $67.7
million for the year ended December 31, 2021, as compared to $91.0 million for
2020. The decrease in non-operating expenses was primarily related to a decrease
in interest expense resulting from the redemption of our 2023 Notes in January
2021, partially offset by the loss on the early redemption of our 2023 Notes.

Our effective income tax rate attributable to continuing operations was 20.1%
for the year ended December 31, 2021. Our effective income tax rate attributable
to continuing operations of 234.0% is not meaningful as calculated for the year
ended December 31, 2020 due to the decline in pre-tax income, primarily due to
the impacts from our transformational and restructuring related expenses and
COVID-19. The tax rate for the year ended December 31, 2021 includes a net
discrete tax benefit of $12.2 million, primarily related to a change in estimate
for the 2020 net operating loss carryback as allowed under the CARES Act for
refund at the 35% federal tax rate. After excluding

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discrete tax impacts, for the year ended December 31, 2021, our tax rate was
29.1%. 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 was $108.0 million for the year ended December
31, 2021, as compared to loss from continuing operations of $9.6 million for
2020. Adjusted EBITDA from continuing operations was $265.5 million for the year
ended December 31, 2021, as compared to $219.9 million for 2020.

Diluted income from continuing operations per common and common equivalent share
was $1.26 on weighted average shares outstanding of 85.8 million for the year
ended December 31, 2021, as compared to diluted loss per common and common
equivalent share of $0.11 on weighted average shares outstanding of 83.4 million
for 2020. Adjusted EPS from continuing operations was $1.63 for the year ended
December 31, 2021, as compared to $0.95 for 2020.

Income from discontinued operations, net of tax, was $23.0 million for the year
ended December 31, 2021, as compared to loss from discontinued operations of
$786.9 million for 2020. Diluted income from discontinued operations per common
and common equivalent share was $0.27 for the year ended December 31, 2021, as
compared to a diluted loss from discontinued operations per common and common
equivalent share of $9.44 for 2020.

Net income was $131.0 million for the year ended December 31, 2021, as compared
to a net loss of $796.5 million for 2020. Diluted net income per common and
common equivalent share was $1.53 for the year ended December 31, 2021, as
compared to net loss per common and common equivalent share of $9.55 for 2020.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2022, we had $9.8 million of cash and cash equivalents
attributable to continuing operations as compared to $387.4 million at December
31, 2021. Additionally, we had working capital attributable to continuing
operations of $1.0 million at December 31, 2022, a decrease of $412.2 million
from our working capital from continuing operations of $413.2 million at
December 31, 2021. The net decrease in working capital is primarily due to the
redemption of the 2027 Notes in February 2022, partially offset by the issuance
of the 2030 Notes also in February 2022.

Cash Flows

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

                              Years Ended December 31,
                          2022           2021          2020

Operating activities $ 182,312 $ 113,760 $ 153,888
Investing activities (56,954 ) (55,423 ) (58,346 )
Financing activities (487,554 ) (760,116 ) (2,910 )

Operating Activities

We generated cash flow from operating activities for continuing operations of
$182.3 million, $113.8 million and $153.9 million for the years ended December
31, 2022, 2021 and 2020, respectively. The net increase in cash flow provided of
$68.5 million for the year ended December 31, 2022, as compared to the year
ended December 31, 2021, was primarily due to an increase in cash flow from
accounts receivable and income taxes, partially offset by a decrease in cash
flow from lower earnings, changes in accounts payable and accrued expenses and
prepaid expenses and other assets.

During the year ended December 31, 2022, cash outflow related to accounts
receivable for continuing operations was $5.5 million, as compared to $72.7
million for the same period in 2021. The increase in cash flow from accounts
receivable for the year ended December 31, 2022 was primarily due to lower
increases in ending accounts receivable balances at existing units.

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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 53.1 days at December 31, 2022 as compared to 55.2
days at December 31, 2021.

Our cash flow from operating activities is significantly affected by the payment
of physician incentive compensation. A large majority of our affiliated
physicians participate in our performance-based incentive compensation program
and almost all of the payments due under the program are made annually in the
first quarter. As a result, we typically experience negative cash flow from
operations in the first quarter of each year and fund our operations during this
period with cash on hand or funds borrowed under our Credit Agreement. In
addition, during the first quarter of each year, we use cash to make any
discretionary matching contributions for participants in our qualified
contributory savings plans.

We generated cash flow from operating activities for continuing operations of
$113.8 million and $153.9 million for the years ended December 31, 2021 and
2020, respectively. The net decrease in cash flow was primarily due to a
decrease in cash flow from accounts receivable, deferred income taxes and
accounts payable and accrued expenses, partially offset by an increase in cash
from higher earnings and changes in prepaid expenses and other assets.

Investing Activities

During the year ended December 31, 2022, our net cash used in investing
activities for continuing operations of $57.0 million consisted primarily of
capital expenditures of $29.7 million and acquisitions payments of $28.2
million. During the year ended December 31, 2021, our net cash used in investing
activities for continuing operations of $55.4 million consisted of capital
expenditures of $32.2 million, acquisitions payments of $29.9 million and the
payment associated with a strategic investment of $20.0 million, partially
offset by net proceeds from the sale of a building of $24.7 million and net
proceeds from maturities or sale of investments of $1.4 million. During the year
ended December 31, 2020, our net cash used in investing activities for
continuing operations of $58.3 million consisted primarily of capital
expenditures of $28.8 million and net purchases of investments of $28.4 million.

Financing Activities

During the year ended December 31, 2022, our net cash used in financing
activities for continuing operations of $487.6 million primarily consisted of
$1.0 billion related to the redemption of the 2027 Notes, including the call
premium, the repurchase of $88.5 million of our common stock, payments of $9.4
million on our Term A Loan (as defined below), and payments for financing costs
of $8.6 million, partially offset by $400.0 million in proceeds from the
issuance of the 2030 Notes and $250.0 million from our Term A Loan. During the
year ended December 31, 2021, our net cash used in financing activities for
continuing operations primarily consisted of $760.1 million related to the
redemption of the 2023 Notes, $4.7 million related to the repurchase of our
common stock and payments of $2.8 million for capital leases, partially offset
by proceeds from the issuance of common stock of $6.9 million. During the year
ended December 31, 2020, our net cash used in financing activities for
continuing operations of $2.9 million primarily consisted of the repurchase of
$8.5 million of our common stock and payments of $1.2 million for capital
leases, partially offset by proceeds from the issuance of common stock of $7.0
million.

Liquidity

On February 11, 2022, we issued $400 million of 2030 Notes. We used the net
proceeds from the issuance of the 2030 Notes, together with $100 million drawn
under our Revolving Credit Line (as defined below), $250 million of Term A Loan
(as defined below) and approximately $308 million of cash on hand, to redeem
(the "Redemption") our 2027 Notes, which had an outstanding principal balance of
$1.0 billion, and to pay costs, fees and expenses associated with the Redemption
and the Credit Agreement Amendment (as defined below).

Interest on the 2030 Notes accrues at the rate of 5.375% per annum, or annual
interest expense of $21.5 million, as compared to $62.5 million in annual
interest expense under the 2027 Notes, a savings of $41.0 million in annual
interest expense.

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Interest under the 2030 Notes is payable semi-annually in arrears on February 15
and August 15, beginning on August 15, 2022. Our obligations under the 2030
Notes are guaranteed on an unsecured senior basis by the same subsidiaries and
affiliated professional contractors that guarantee the Amended Credit Agreement
(as defined below). The indenture under which the 2030 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 2030 Notes, upon the occurrence of
a change in control, we may be required to repurchase the 2030 Notes at a
purchase price equal to 101% of the aggregate principal amount of the 2030 Notes
repurchased plus accrued and unpaid interest.

Also in connection with the Redemption, we amended and restated the Credit
Agreement (the "Credit Agreement Amendment") concurrently with the issuance of
the 2030 Notes. The Credit Agreement, as amended by the Credit Agreement
Amendment (the "Amended Credit Agreement"), among other things, (i) refinanced
the prior unsecured revolving credit facility with a $450 million unsecured
revolving credit facility, including a $37.5 million sub-facility for the
issuance of letters of credit (the "Revolving Credit Line"), and a new $250
million term A loan facility ("Term A Loan") and (ii) removed JPMorgan Chase
Bank, N.A., as the administrative agent under the Credit Agreement and appointed
Bank of America, N.A. as the administrative agent for the lenders.

The Credit Agreement, as amended by the Credit Agreement Amendment (the "Amended
Credit Agreement"), matures on February 11, 2027 and is guaranteed on an
unsecured basis by substantially all of our subsidiaries and affiliated
professional contractors. At our option, borrowings under the Amended Credit
Agreement bear interest at (i) the Alternate Base Rate (defined as the highest
of (a) the prime rate as announced by Bank of America, N.A., (b) the Federal
Funds Rate plus 0.50% and (c) Term SOFR for an interest period of one month plus
1.00% with a 1.00% floor) plus an applicable margin rate of 0.50% for the first
two fiscal quarters after the date of the Credit Agreement Amendment, and
thereafter at an applicable margin rate ranging from 0.125% to 0.750% based on
our consolidated net leverage ratio or (ii) Term SOFR rate (calculated as the
Secured Overnight Financing Rate published on the applicable Reuters screen page
plus a spread adjustment of 0.10%, 0.15% or 0.25% depending on if we select a
one-month, three-month or six-month interest period, respectively, for the
applicable loan with a 0% floor), plus an applicable margin rate of 1.50% for
the first two full fiscal quarters after the date of the Credit Agreement
Amendment, and thereafter at an applicable margin rate ranging from 1.125% to
1.750% based on our consolidated net leverage ratio. The Amended Credit
Agreement also provides for other customary fees and charges, including an
unused commitment fee with respect to the Revolving Credit Line ranging from
0.150% to 0.200% of the unused lending commitments under the Revolving Credit
Line, based on our consolidated net leverage ratio.

The Amended Credit Agreement contains customary covenants and restrictions,
including covenants that require us to maintain a minimum interest coverage
ratio, a maximum consolidated total consolidated net leverage ratio and to
comply with laws, and restrictions on the ability to pay dividends, incur
indebtedness or liens and make certain other distributions subject to baskets
and exceptions, in each case, as specified therein. Failure to comply with these
covenants would constitute an event of default under the Amended Credit
Agreement, notwithstanding the ability of the company to meet its debt service
obligations. The Amended Credit Agreement includes various customary remedies
for the lenders following an event of default, including the acceleration of
repayment of outstanding amounts under the Amended Credit Agreement. In
addition, we may increase the principal amount of the Revolving Credit Line or
incur additional term loans under the Amended Credit Agreement in an aggregate
principal amount such that on a pro forma basis after giving effect to such
increase or additional term loans, we are in compliance with the financial
covenants, subject to the satisfaction of specified conditions and additional
caps in the event that the Amended Credit Agreement is secured.

At December 31, 2022, we believe we were in compliance, in all material
respects, with the financial covenants and other restrictions applicable to us
under the Amended Credit Agreement and the 2030 Notes.

The exercise of employee stock options and the purchase of common stock by
participants in our 1996 Non-Qualified Employee Stock Purchase Plan, as amended
(the "ESPP"), and our 2015 Non-Qualified Stock Purchase Plan (the "SPP")
generated cash proceeds of $5.4 million, $6.9 million and $7.0 million for the
years ended December 31, 2022, 2021 and 2020, respectively. Because stock option
exercises and purchases under the ESPP and SPP are dependent on several factors,
including the market price of our common stock, we cannot predict the timing and
amount of any future proceeds.

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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 December 31, 2022 was
$307.9 million, of which $32.2 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 $54.7 million
recorded as a component of other assets for certain professional liability
claims that are covered by insurance policies.

At December 31, 2022, the Company had long term capital requirements comprised
primarily of $400.0 million in senior notes, $70.7 million of operating lease
liabilities and $12.9 million of finance lease liabilities. At December 31,
2022, our total liability for uncertain tax positions was $3.0 million.

We anticipate that funds generated from operations, together with our current
cash on hand and funds available under our Amended 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 as described above for at least
the next 12 months from the date of issuance of this Form 10-K.