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 37 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 recognized an aggregate of
and
nine months ended
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
2021
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
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requirements and incentives for businesses to provide healthcare benefits. Other
provisions have expanded the scope and reach of the Federal Civil False Claims
Act and other healthcare fraud and abuse laws. Moreover, we could be affected by
potential changes to various aspects of the ACA, including changes to subsidies,
healthcare insurance marketplaces and Medicaid expansion.
Despite the ACA going into effect over a decade ago, continuous legal and
Congressional challenges to the law's provisions and persisting uncertainty with
respect to the scope and effect of certain provisions have made compliance
costly. In 2017,
the ACA with different mechanisms for facilitating insurance coverage in the
commercial and Medicaid markets.
or target changes to the ACA in the future. Additionally,
Medicaid Services
and may seek to advance additional significant changes through regulation,
guidance and enforcement in the future.
At the end of 2017,
individuals to purchase and maintain health insurance or face a tax penalty,
known as the individual mandate. In light of these changes, in
federal district court in
inconsistent with the
result. Several states appealed this decision, and in
court of appeals upheld the district court's conclusion that part of the ACA is
unconstitutional but remanded for further evaluation whether in light of this
defect the entire ACA must be invalidated. Democratic attorneys general and the
House appealed the Fifth Circuit's decision to the
On
styled California v. Texas, during the 2020-21 term. Oral arguments took place
on
lacked standing to challenge the ACA. Notwithstanding the
Court's
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 in
network with the patient's insurer (the "No Surprises Act" or the "NSA").
Effective
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.
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Under the
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.
Also under the
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
final rule and corresponding guidance implementing certain portions of the IDR
process under the
guidance in the coming months and years. Certain IDR-related provisions of the
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.
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 ("Adjusted EBITDA") from continuing operations, which is
defined as income (loss) from continuing operations before interest, income
taxes, depreciation and amortization, and transformational and restructuring
related expenses. We also report adjusted earnings per share ("Adjusted EPS")
from continuing operations which consists of diluted income (loss) from
continuing operations per common and common equivalent share adjusted for
amortization expense, stock-based compensation expense, transformational and
restructuring related expenses and any impacts from discrete tax events. For the
three and nine months ended
and Adjusted EPS are being further 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 from continuing operations, net
income and diluted net income from continuing operations per common and common
equivalent share, provide investors with useful supplemental information to
compare and understand our underlying business trends and performance across
reporting periods on a consistent basis. These measures should be considered a
supplement to, and not a substitute for, financial performance measures
determined in accordance with GAAP. In addition, since these non-GAAP measures
are not determined in accordance with GAAP, they are susceptible to varying
calculations and may not be comparable to other similarly titled measures of
other companies.
For a reconciliation of each of Adjusted EBITDA from continuing operations and
Adjusted EPS from continuing operations to the most directly comparable GAAP
measures for the three and nine months ended
to the tables below (in thousands, except per share data).
Three Months Ended Nine Months Ended
September 30, September 30,
2022 2021 2022 2021
Income from continuing operations
attributable to Pediatrix Medical
Group, Inc. $ 28,808 $ 31,847 $ 38,568 $ 67,732
Interest expense 9,516 17,595 29,743 52,119
Gain on sale of building - - - (7,280 )
Loss on early extinguishment of debt - - 57,016 14,532
Income tax provision 10,051 11,594 14,982 14,002
Depreciation and amortization expense 8,956 8,151 26,500 24,288
Transformational and restructuring
related expenses 977 4,232 7,736 19,042
Adjusted EBITDA from continuing
operations attributable to
Pediatrix Medical Group, Inc. $ 58,308 $ 73,419 $ 174,545 $ 184,435
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Three Months Ended
September 30,
2022 2021
Weighted average diluted shares
outstanding 82,776 86,096
Income from continuing operations and
diluted income from
continuing operations per share
attributable to Pediatrix Medical
Group, Inc. $ 28,808 $ 0.35 $ 31,847 $ 0.37
Adjustments (1):
Amortization (net of tax of $554 and
$583 ) 1,662 0.02 1,749 0.02
Stock-based compensation (net of tax of
$1,030 and $1,374 ) 3,090 0.03 4,121 0.05
Transformational and restructuring
expenses (net of tax of
$244 and $1,058 ) 733 0.01 3,174 0.03
Net impact from discrete tax events (1,083 ) (0.01 ) (901 ) (0.01 )
Adjusted income and diluted EPS from
continuing operations
attributable to Pediatrix Medical
Group, Inc. $ 33,210 $ 0.40 $ 39,990 $ 0.46
(1)
A blended tax rate of 25% was used to calculate the tax effects of the
adjustments for the three months ended
Nine Months Ended
September 30,
2022 2021
Weighted average diluted shares
outstanding 84,821 85,759
Income from continuing operations and
diluted income from
continuing operations per share
attributable to Pediatrix Medical
Group, Inc. $ 38,568 $ 0.45 $ 67,732 $ 0.79
Adjustments (1):
Amortization (net of tax of $1,635 and
$2,049 ) 4,907 0.06 6,149 0.07
Stock-based compensation (net of tax of
$3,223 and $3,737 ) 9,668 0.12 11,210 0.13
Transformational and restructuring
expenses (net of tax of
$1,934 and $4,760 ) 5,802 0.07 14,282 0.16
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 (297 ) - (9,484 ) (0.11 )
Adjusted income and diluted EPS from
continuing operations
attributable to Pediatrix Medical
Group, Inc. $ 101,410 $ 1.20 $ 95,328 $ 1.11
(1)
A blended tax rate of 25% was used to calculate the tax effects of the
adjustments for the nine months ended
Results of Operations
Three Months Ended
September 30, 2021
Our net revenue attributable to continuing operations was
three months ended
same period in 2021. The decrease in revenue of
primarily attributable to a decrease in same-unit revenue, partially offset by
increases in revenue from net acquisitions. Same units are those units at which
we provided services for the entire current period and the entire comparable
period. Same-unit net revenue decreased by
in same-unit net revenue was comprised of a decrease of
from net reimbursement-related factors, partially offset by an increase of
million
from patient service volumes was related to increases in other services,
primarily newborn nursery, maternal-fetal medicine and pediatric cardiology
services, partially offset by modest declines in neonatology. The net decrease
in revenue related to net reimbursement-related factors was primarily due to a
decrease in revenue resulting from certain revenue cycle management transition
activities and 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.
Practice salaries and benefits attributable to continuing operations increased
30, 2022
increases in our existing units as well as from acquisitions, partially offset
by a decrease of
reflecting lower incentive compensation expense at our existing units based on
operating results.
Practice supplies and other operating expenses attributable to continuing
operations increased
months ended
period in 2021. The increase was primarily attributable to practice supply, rent
and other costs related to our existing units, including increases in
professional services expense and operational taxes as compared to the prior
year period as well as increases due to acquisition related activity.
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
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practices and services. General and administrative expenses were
for the three months ended
the same period in 2021. The net decrease of
to salaries and benefit cost reductions from net staffing reductions, lower
incentive compensation expense based on operating results and a net savings in
revenue cycle management expenses. General and administrative expenses as a
percentage of net revenue was 11.8% for the three months ended
2022
Transformational and restructuring related expenses attributable to continuing
operations were
compared to
million
during the third quarter of 2022 as compared to the prior year period.
Depreciation and amortization expense attributable to continuing operations was
million
primarily related to net increases in acquisition related depreciation and
amortization expense as well as a net increase at existing units.
Income from operations attributable to continuing operations decreased
million
2022
margin was 9.7% for the three months ended
11.9% for the same period in 2021. The decrease in our operating margin was
primarily due to net unfavorable impacts in our same-unit results from lower
same-unit revenue and higher overall operating expenses. Excluding
transformation and restructuring related expenses, our income from operations
attributable to continuing operations was
our operating margin was 9.9% and 12.8% for the three months ended
2022
transformational and restructuring related activity provides a more comparable
view of our operating income and operating margin from continuing operations.
Total non-operating expenses attributable to continuing operations were
million
million
was primarily related to 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 one of the buyers of our divested
medical groups.
Our effective income tax rate attributable to continuing operations ("tax rate")
was 25.9% for the three months ended
the three months ended
rates include net discrete tax benefits of
respectively. After excluding discrete tax impacts during the three months ended
respectively. We believe excluding discrete tax impacts provides a more
comparable view of our tax rate.
Income from continuing operations attributable to
was
operations attributable to
the three months ended
same period in 2021. The decrease in our Adjusted EBITDA was primarily due to
net unfavorable impacts in our same-unit results from lower same-unit revenue
and higher overall operating expenses.
Diluted income from continuing operations per common and common equivalent share
attributable to
shares outstanding of 82.8 million for the three months ended
2022
million for the same period in 2021. Adjusted EPS from continuing operations was
the same period in 2021. The decrease in weighted average shares outstanding
resulted from the share repurchases completed during 2022.
Income from discontinued operations, net of tax, was
months ended
same period in 2021. Diluted income from discontinued operations per common and
common equivalent share was
as compared to diluted loss of
2021
Net income attributable to
the three months ended
same period in 2021. Diluted net income per common and common equivalent share
attributable to
ended
Nine Months Ended
30, 2021
Our net revenue attributable to continuing operations was
nine 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
from 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 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
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administrative fees received from our hospital partners and CARES Act relief.
The increase in revenue from patient service volumes was related to increases
across almost 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, as well as increases in
benefit costs attributable to the increase in salaries expenses. These increases
were partially offset by a decrease of
incentive compensation, reflecting lower incentive compensation expense based on
operating results.
Practice supplies and other operating expenses attributable to continuing
operations increased
months ended
period in 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 were
30, 2022
decrease of
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 12.4% for the nine
months ended
2021.
Gain on sale of building was
30, 2021
during the second quarter of 2021.
Transformational and restructuring related expenses attributable to continuing
operations were
compared to
million
fees with the expenses during the nine months ended
for position eliminations.
Depreciation and amortization expense attributable to continuing operations was
million
related to an increase in depreciation expense at our existing units and for
acquisitions, partially offset by lower amortization expenses related to
intangible assets at our existing units and for acquisitions.
Income from operations attributable to continuing operations increased
million
2022
margin was 9.4% for the nine months ended
9.6% for the same period in 2021. The slight decrease in our operating margin
was primarily due to lower same-unit revenue and net increases in overall
operating expenses, partially offset by favorable impacts from net acquisitions.
Excluding the transformation and restructuring related expenses and gain on sale
of building, our income from operations attributable to continuing operations
was
10.4% for the nine months ended
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
million
was primarily related to increase of
extinguishment of debt from the redemption of our 2027 Notes in
compared to the loss associated with the redemption of our 2023 Notes in
2021
nine months ended
related to the transition services provided to the buyers of our divested
medical groups. Overall, during the nine months ended
increase to non-operating expense of
extinguishment of debt and lower other income was partially offset by a decrease
of
as compared to the interest expense on the 2027 Notes.
Our effective income tax rate was 28.0% for the nine months ended
2022
tax impacts during the nine months ended
tax rate for the nine months ended
tax benefit of
2020 net operating loss carryback as allowed under the CARES Act for refunds at
the 35% federal tax rate. After excluding discrete tax impacts, for the nine
months ended
respectively. We believe excluding discrete tax impacts on our tax rate provides
a more comparable view of our effective income tax rate.
Income from continuing operations attributable to
was
operations was
compared to
Adjusted EBITDA was primarily due to net unfavorable impacts in our same-unit
results from lower same-unit revenue and higher overall operating expenses.
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Diluted income from continuing operations per common and common equivalent share
attributable to
shares outstanding of 84.8 million for the nine months ended
as compared to diluted income per share of
outstanding of 85.8 million for the same period in 2021. Adjusted EPS from
continuing operations was
compared to
shares outstanding resulted from the share repurchases completed during 2022.
Loss from discontinued operations, net of tax, was
months ended
same period in 2021. Diluted loss from discontinued operations per common and
common equivalent share was
as compared to diluted income per share of
Net income attributable to
the nine months ended
same period in 2021. Diluted net income per common and common equivalent share
was
the same period in 2021.
Liquidity and Capital Resources
As of
attributable to continuing operations as compared to
31, 2021
operations of
from working capital of
working capital is primarily due to the redemption of the 2027 Notes in
2022
Cash Flows from Continuing Operations
Cash provided from (used in) operating, investing and financing activities from
continuing operations is summarized as follows (in thousands):
Nine Months Ended
September 30,
2022 2021
Operating activities
Investing activities (45,713 ) (39,839 )
Financing activities (401,265 ) (760,941 )
Operating Activities from Continuing Operations
During the nine months ended
operating activities for continuing operations was
receivable and deferred income taxes, partially offset by a decrease in cash
flow due to changes in accounts payable and accrued expenses, primarily related
to higher incentive compensation payments.
During the nine months ended
receivable for continuing operations decreased by
accounts receivable for the nine months ended
the prior year 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 55.3 days at
2022
Investing Activities from Continuing Operations
During the nine months ended
activities for continuing operations of
acquisitions payments of
million
Financing Activities from Continuing Operations
During the nine months ended
activities for continuing operations of
premium, the repurchase of
financing costs of
below), partially offset by
2030 Notes,
Revolving Credit Line (as defined below) of
Liquidity
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On
due 2030 (the "2030 Notes"). We used the net proceeds from the issuance of the
2030 Notes, together with
(as defined below),
million
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"), and such amendment and restatement (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
facility, including a
credit (the "Revolving Credit Line"), and a new
facility ("Term A Loan") and (ii) removed
administrative agent under the Credit Agreement and appointed
N.A
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 nine months ended
redemption of our 2027 Notes and the Credit Agreement Amendment, we recognized a
loss on early extinguishment of debt of
cash premiums on the 2027 Notes and accelerated amortization of deferred
financing costs.
At
Credit Agreement of
Loan and
available on the Amended Credit Agreement at
At
on 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
respects, 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
was
within accounts
20
--------------------------------------------------------------------------------
payable and accrued expenses in the Consolidated Balance Sheet. In addition,
there is a corresponding insurance receivable of
component of other assets for certain professional liability claims that are
covered by insurance policies.
We anticipate that funds generated from operations, together with our current
cash on hand and funds available under our 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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County to save $2.8 million in health insurance costs [The Herald Bulletin, Anderson, Ind.]
OVER 745,000 STOLEN VEHICLES REPORTED SO FAR IN 2022
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