PEDIATRIX MEDICAL GROUP, 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
17, 2022
"Pediatrix", the "Company", "we", "us" and "our" refer to the parent company,
subsidiaries through which its businesses are actually conducted (collectively,
"PMG"), together with PMG's affiliated business corporations or professional
associations, professional corporations, limited liability companies and
partnerships ("affiliated professional contractors"). Certain subsidiaries of
PMG have contracts with our affiliated professional contractors, which are
separate legal entities that provide physician services in certain states and
Please see the Company's 2021 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.
Company Name Change
On
corporate name from "
our return to our core focus in caring for women, babies and children. Our
common stock continues to trade on the
symbol "MD."
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 38 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
primary and 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
second quarter of 2020, our operating results were significantly impacted by
COVID-19, but volumes began to normalize in mid-2020 and substantially recovered
throughout 2020 with no material impacts from COVID-19 or its variants in 2021
or thus far in 2022. However, due to the continued uncertainties surrounding the
timeline of and impacts from COVID-19 and with multiple variant strains still
circulating, 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 financial aid
to the healthcare industry to reimburse healthcare providers for lost revenue
and expenses attributable to COVID-19.
Services
practices within continuing operations received an aggregate of
and
respectively.
General Economic Conditions and Other Factors
Our operations and performance depend significantly on economic conditions.
During the three months ended
service revenue being reimbursed under government-sponsored healthcare programs
("GHC Programs") increased as compared to the three months ended
We could experience additional 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 or if there are
additional impacts from COVID-19 or its variants. 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.
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
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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 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.
Recently,
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,
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.
"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.
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Under the "No Surprises Act" ("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
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 can pursue
recourse through an independent dispute resolution ("IDR") process to determine
payment amounts for out of network services. These IDR results will bind both
the provider and payor for a 90-day period. The final rules implementing the
are currently being reviewed by the
provisions of the
provider groups, and the result of this litigation may alter the
Final Rules and the final rules that are expected to be published later in 2022.
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.
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 six months ended
30, 2022
adjusted to exclude the impacts from the loss on the early extinguishment of
debt and the gain on sale of a building for relevant periods.
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 six months ended
tables below (in thousands, except per share data).
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Income from continuing operations
attributable to Pediatrix Medical
Group, Inc. $ 30,701 $ 30,533 $ 9,760 $ 35,885
Interest expense 8,409 16,879 20,227 34,524
Gain on sale of building - (7,280 ) - (7,280 )
Loss on early extinguishment of debt - - 57,016 14,532
Income tax provision 12,332 7,363 4,931 2,408
Depreciation and amortization expense 8,775 8,106 17,544 16,137
Transformational and restructuring
related expenses
5,338 9,932 6,759 14,810 Adjusted EBITDA from continuing operations attributable to Pediatrix Medical Group, Inc.$ 65,555 $ 65,533 $ 116,237 $ 111,016 15
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Three Months Ended
June 30,
2022 2021
Weighted average diluted shares
outstanding 85,619 85,933
Income from continuing operations and
diluted income from
continuing operations per share
attributable to Pediatrix Medical Group ,
Inc. $ 30,701 $ 0.36 $ 30,533 $ 0.36
Adjustments (1):
Amortization (net of tax of $541 and
$576 ) 1,624 0.02 1,728 0.02
Stock-based compensation (net of tax of
$1,084 and $1,434 ) 3,252 0.04 4,301 0.04
Transformational and restructuring
expenses (net of tax of
$1,335 and $2,483 ) 4,003 0.05 7,449 0.09
Gain on sale of building (net of tax of
$1,820 ) - - (5,460 ) (0.06 )
Net impact from discrete tax events 294 - (3,516 ) (0.04 )
Adjusted income and diluted EPS from
continuing operations
attributable to Pediatrix Medical
Group, Inc. $ 39,874 $ 0.47 $ 35,035 $ 0.41
(1)
A blended tax rate of 25% was used to calculate the tax effects of the
adjustments for the three months ended
Six Months Ended
June 30,
2022 2021
Weighted average diluted shares
outstanding 85,914 85,653
Income from continuing operations and
diluted income from
continuing operations per share
attributable to Pediatrix Medical
Group, Inc. $ 9,760 $ 0.11 $ 35,885 $ 0.42
Adjustments (1):
Amortization (net of tax of $1,082 and
$1,466 ) 3,245 0.04 4,400 0.05
Stock-based compensation (net of tax of
$2,193 and $2,363 ) 6,578 0.07 7,089 0.08
Transformational and restructuring
expenses (net of tax of
$1,690 and $3,702 ) 5,069 0.06 11,108 0.13
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 0.50 10,899 0.13
Net impact from discrete tax events 786 0.01 (8,583 ) (0.10 )
Adjusted income and diluted EPS from
continuing operations
attributable to Pediatrix Medical
Group, Inc. $ 68,200 $ 0.79 $ 55,338 $ 0.65
(1)
A blended tax rate of 25% was used to calculate the tax effects of the
adjustments for the six months ended
Results of Operations
Three Months Ended
Our net revenue attributable to continuing operations was
three months ended
period in 2021. The increase in revenue of
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
same-unit net revenue was comprised of a decrease of
net reimbursement-related factors, partially offset by an increase of
million
revenue related to net reimbursement-related factors was primarily due to a
decrease in revenue resulting from an increase in the percentage of our patients
being enrolled in GHC programs, as well as certain revenue cycle management
transition activities, partially offset by increases in revenue from contract
and administrative fees received from our hospital partners and CARES Act
relief. The increase in revenue from patient service volumes was related to
increases in neonatology and other services, partially offset by slight declines
in maternal-fetal medicine and pediatric cardiology services.
Practice salaries and benefits attributable to continuing operations increased
2022
million
from acquisitions as well as in our existing units, partially offset by a
decrease of
reflecting lower incentive compensation expense, partially offset by higher
benefit costs attributable to the increase in salaries expense.
Practice supplies and other operating expenses attributable to continuing
operations increased
months ended
2021. The increase was primarily attributable to practice supply, rent and other
costs related to our existing units, including increases in information
technology costs as compared to the prior year period.
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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 related to the
day-to-day operations of our affiliated physician practices and services.
General and administrative expenses were
ended
The net decrease of
fees, including legal fees, as well as a net savings in revenue cycle management
expenses. General and administrative expenses as a percentage of net revenue was
12.6% for the three months ended
same period in 2021.
Gain on sale of building was
2021
Transformational and restructuring related expenses attributable to continuing
operations were
compared to
million
during the second quarter of 2022 as compared to the prior year period,
partially offset by an increase in position elimination costs.
Depreciation and amortization expense attributable to continuing operations was
million
primarily related to an increase in acquisition related depreciation and
amortization expense.
Income from operations attributable to continuing operations increased
million
compared to
10.3% for the three months ended
same period in 2021. The slight decrease in our operating margin was primarily
due to net favorable impacts in our same-unit results from lower general and
administrative expenses, partially offset by lower same-unit revenue and higher
overall operating expenses. Excluding transformation and restructuring related
expenses and gain on sale of building, our income from operations attributable
to continuing operations was
margin was 11.4% and 11.1% for the three months ended
respectively. We believe excluding the impacts from the transformational and
restructuring related activity as well as the 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
for the same period in 2021. The net increase in non-operating expenses was
primarily related to a decrease in interest expense resulting from the
redemption of our 6.25% senior unsecured notes due 2027 (the "2027 Notes") in
of 5.375% senior unsecured notes due 2030 (the "2030 Notes") in
and a decrease in other income of
cessation of transition services provided to the buyers of our divested medical
groups during 2021.
Our effective income tax rate attributable to continuing operations ("tax rate")
was 28.7% for the three months ended
three months ended
net discrete tax benefit of
estimate for the 2020 net operating loss carryback as allowed under the CARES
Act for refund at the 35% federal rate. Discrete tax impacts during the three
months ended
during the three months ended
28.7%. We believe excluding discrete tax impacts provides a more comparable view
of our tax rate.
Income from continuing operations attributable to
was
million
attributable to
months ended
2021.
Diluted income from continuing operations per common and common equivalent share
attributable to
shares outstanding of 85.6 million for the three months ended
compared to diluted net income of
of 85.9 million for the same period in 2021. Adjusted EPS from continuing
operations was
Loss from discontinued operations, net of tax, was
months ended
period in 2021. Diluted loss from discontinued operations per common and common
equivalent share was
to diluted net income of
Net income attributable to
the three months ended
period in 2021. Diluted net income per common and common equivalent share
attributable to
ended
Six Months Ended
Our net revenue attributable to continuing operations was
six months ended
period in 2021. The increase in revenue of
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
same-unit
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net revenue was comprised of a decrease of
reimbursement-related factors, partially offset by an increase of
or 2.0%, 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 and a decrease
in revenue resulting from an increase in the percentage of our patients being
enrolled in GHC Programs, partially offset by increases in revenue from contract
and administrative fees received from our hospital partners and CARES Act
relief. 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
2022
million
from acquisitions as well as in our existing units, partially offset by a
decrease of
reflecting lower incentive compensation expense, partially offset by an increase
in benefit costs attributable to the increase in salaries expense.
Practice supplies and other operating expenses attributable to continuing
operations increased
months ended
2021. The increase was primarily attributable to practice supply, rent and other
costs related to our acquisitions.
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
2022
decrease of
including legal fees, as well as a net savings in revenue cycle management
expenses. General and administrative expenses as a percentage of net revenue was
12.6% for the six months ended
period in 2021.
Gain on sale of building was
and resulted from the sale of our secondary corporate office building during the
second quarter of 2021.
Transformational and restructuring related expenses attributable to continuing
operations were
to
reflects the reduction in the scope of external consulting activities in 2022 as
well as lower contract termination costs with the expenses during the six months
ended
Depreciation and amortization expense attributable to continuing operations was
million
related to an increase in depreciation expense related to information technology
equipment, partially offset by lower amortization expenses related to intangible
assets, both at our existing units.
Income from operations attributable to continuing operations increased
million
compared to
9.2% for the six months ended
period in 2021. The increase in our operating margin was primarily due to
favorable general and administrative expenses, partially offset by lower
same-unit revenue and net increases in overall operating expenses as well as
favorable net impacts from acquisitions. Excluding the transformation and
restructuring related expenses and gain on sale of building, our income from
operations attributable to continuing operations was
million
transformational and restructuring related activity as well as the 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
the same period in 2021. The net increase in non-operating expenses was
primarily related to increase of
of debt from the redemption of our 2027 Notes in
the loss associated with the redemption of our 2023 Notes in
addition, there was a decrease in other income of
months ended
the transition services provided to the buyers of our divested medical groups in
2021. Overall, during the six months ended
non-operating expense of
debt and lower other income was partially offset by a decrease of
in interest expense related to the issuance of the 2030 Notes, as compared to
the interest expense on the 2027 Notes.
Our effective income tax rate was 33.6% for the six months ended
compared to 6.3% for the six months ended
six months ended
million
loss carryback as allowed under the CARES Act for refund at the 35% federal tax
rate. After excluding discrete tax impacts, during the six months ended
2022
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
was
of
operations was
compared to
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Diluted income from continuing operations per common and common equivalent share
attributable to
shares outstanding of 85.9 million for the six months ended
compared to diluted income per share of
outstanding of 85.7 million for the same period in 2021. Adjusted EPS from
continuing operations was
compared to
Loss from discontinued operations, net of tax, was
months ended
period in 2021. Diluted loss from discontinued operations per common and common
equivalent share was
to diluted income per share of
Net income attributable to
the six months ended
period in 2021. Diluted net income per common and common equivalent share was
period in 2021.
Liquidity and Capital Resources
As of
attributable to continuing operations as compared to
31, 2021
operations of
working capital of
working capital is primarily due to the redemption of the 2027 Notes in
2022
Cash Flows from Continuing Operations
Cash (used in) provided by operating, investing and financing activities from
continuing operations is summarized as follows (in thousands):
Six Months Ended
June 30,
2022 2021
Operating activities
Investing activities (39,625 ) 1,375
Financing activities (318,603 ) (760,810 )
Operating Activities from Continuing Operations
During the six months ended
activities for continuing operations was
for the same period in 2021. The net decrease in cash used of
primarily due to increases in cash flow from income taxes, deferred income
taxes, accounts receivable and other liabilities, partially offset by a decrease
in cash flow due to changes in accounts payable and accrued expenses, primarily
related to higher incentive compensation payments, and increases in cash used
for prepaid expenses and other current assets.
During the six months ended
for continuing operations decreased by
million
receivable for the six months ended
period was primarily due to lower increases in ending accounts receivable
balances at existing units, excluding accounts receivable related to
discontinued operations.
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 58.2 days at
compared to 55.2 days at
related to the timing of cash collections at our existing units.
Investing Activities from Continuing Operations
During the six months ended
activities for continuing operations of
payments of
offset by net proceeds from maturities and sales of investments of
Financing Activities from Continuing Operations
During the six months ended
activities for continuing operations of
premium, payments for financing costs of
proceeds from the issuance of the 2030 Notes,
loan and net borrowings on our revolving line of credit of
Liquidity
On
due 2030 (the "2030 Notes"). We used the net proceeds from the issuance of the
2030 Notes, together with
(as defined below),
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million of Term A Loan (as defined below) and approximately
cash on hand, to redeem (the "Redemption") the 2027 Notes, which had an
outstanding principal balance of
expenses associated with the Redemption and the Credit Agreement Amendment (as
defined below).
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
revolving credit facility, including a
issuance of letters of credit (the "Revolving Credit Line"), and a new
million
Bank, N.A
Amended Credit Agreement.
The Amended Credit Agreement matures 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
Funds Rate plus 0.50% and (c) Term Secured Overnight Financing Rate ("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.
During the six months ended
our 2027 Notes and the Credit Agreement Amendment, we recognized a loss on early
extinguishment of debt of
on the 2027 Notes and accelerated amortization of deferred financing costs.
At
Agreement of
Credit Line and
available on the Amended Credit Agreement at
At
the 2030 Notes. Our obligations under the 2030 Notes are guaranteed on an
unsecured senior basis by the same subsidiaries and affiliated professional
contractors that guarantee our Amended Credit Agreement. Interest on the 2030
Notes accrues at the rate of 5.375% per annum, or
semi-annually in arrears on
2022
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.
At
with the financial covenants and other restrictions applicable to us under the
Amended Credit Agreement and the 2030 Notes. We believe we will be in compliance
with these covenants throughout 2022.
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
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.
20
--------------------------------------------------------------------------------
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 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 2021 Form 10-K, including the
section entitled "Risk Factors."
21
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