Market Overview

MEDNAX Reports Second Quarter GAAP EPS of $0.85; Adjusted EPS of $1.07

Share:

Expands Financial and Operational Improvement Targets

Board Authorizes Share Repurchase of Up To $500 Million

Announces Planned Retirement of Chief Financial Officer

MEDNAX, Inc. (NYSE:MD), the national health solutions partner
specializing in neonatology, anesthesiology, radiology, maternal-fetal
medicine, other pediatric services, and management services, today
reported earnings of $0.85 per diluted share for the three months ended
June 30, 2018. On a non-GAAP basis, MEDNAX reported Adjusted EPS of
$1.07.

For the 2018 second quarter, MEDNAX reported the following results:

  • Net revenue of $916 million;
  • Net income of $79 million; and
  • EBITDA of $158 million.

"Our operating results for the second quarter were at the high end of
our expectations and reflect further execution of our corporate
initiatives," said Roger J. Medel, M.D., Chief Executive Officer of
MEDNAX. "We began implementing these initiatives during 2017, and
through the first half of this year have realized $12 million in
improvements to our general and administrative expenses, as well as $13
million in improvements through operational plans. Based on our progress
in these initiatives, today we are expanding our goals of financial
improvements to include both $40 million in annualized improvement in
our general and administrative expense and $80 million in annualized
improvements via our operational plans. We intend to realize a portion
of these annualized targets during 2018, including our previously
announced goal of $25 million in improvement in our general and
administrative expense in addition to $35 million in improvements
through our operational plans. Additionally, we intend to realize the
full amount of these targeted improvements by the end of 2019.

"These initiatives will be complemented by our continued plans to invest
in the growth of our organization, through both organic and acquisitive
efforts, which we intend to be focused, targeted and strategic,"
continued Dr. Medel. "We believe that taken as a whole, our execution of
these strategic plans will position us well to deliver a differentiated
value proposition and to remain committed to taking great care of our
patients."

MEDNAX also announced today that its Board of Directors has authorized
the repurchase of up to $500 million of the Company's common stock. This
authorization is incremental to the Company's existing authorization to
repurchase common stock up to an amount sufficient to offset the
dilutive impact from the issuance of shares under the Company's equity
programs. MEDNAX intends to commence this program in the near term and
expects to utilize various methods to effect the share repurchases. The
amount and timing of purchases will depend on several factors, including
general economic and market conditions and trading restrictions.

"The authorization of this additional share repurchase program reflects
our confidence in our national medical group business model and our
ongoing commitment to enhance shareholder value," said Dr. Medel. "Based
on our focused acquisition growth strategy, we believe that the
combination of our ongoing cash flow from operations and financial
leverage profile will provide us with sufficient access to capital to
continue that strategy while concurrently undertaking to return capital
to our shareholders."

Operating Results

MEDNAX's net revenue for the three months ended June 30, 2018 increased
by 8.7 percent, to $915.9 million, from $842.9 million for the
prior-year period. MEDNAX's revenue growth attributable to recent
acquisitions was 5.5 percent, while overall same-unit revenue increased
by 3.2 percent when compared to the prior-year period.

Same-unit revenue attributable to patient volume increased by 1.9
percent for the 2018 second quarter as compared to the prior-year
period. Volumes increased across all of the Company's service lines. For
the 2018 second quarter, same-unit neonatal intensive care unit (NICU)
patient days increased by 0.1 percent compared to the prior-year period.

Same-unit revenue from net reimbursement-related factors increased by
1.3 percent for the 2018 second quarter as compared to the prior-year
period. The net increase in revenue was primarily due to modest
improvements in managed care contracting.

The percentage of services reimbursed under government programs was
unfavorable by roughly 50 basis points for the second quarter compared
with the prior-year period, reflecting modestly unfavorable comparisons
for anesthesiology services somewhat offset by favorable comparisons for
neonatology and other pediatric services. This unfavorable payor mix
comparison impacted same-unit revenue growth from net
reimbursement-related factors negatively by roughly 70 basis points.

For the 2018 second quarter, practice salaries and benefits expense was
$621.0 million, compared to $561.4 million for the prior-year period.
Practice salaries and benefits expense as a percentage of net revenue
was 67.8 percent for the second quarter of 2018, compared to 66.6
percent for the prior-year period. This increase in expense as a
percentage of revenue was primarily attributable to growth in clinician
compensation expense at existing practices, support for organic-growth
initiatives as well as to support acquisition-related growth.

For the 2018 second quarter, general and administrative expenses were
$107.9 million, as compared to $103.0 million for the prior-year period.
Included within general and administrative expenses was an increase of
approximately $3.2 million of stock-based compensation expense primarily
resulting from the change in timing of the Company's annual equity grant
from June to March in order to align the timing with other compensation
related activities. General and administrative expenses as a percentage
of net revenue was 11.8 percent for the second quarter of 2018, compared
to 12.2 percent for the prior-year period.

Earnings before interest, taxes, depreciation and amortization expense
(EBITDA) for the 2018 second quarter was $157.7 million, an increase of
6.0 percent compared to $148.7 million for the prior-year period. EBITDA
as a percentage of net revenue was 17.2 percent for the second quarter
of 2018, compared to 17.6 percent in the prior-year period, with this
decline primarily reflecting higher operating expense growth as compared
to revenue growth.

Depreciation and amortization expense was $26.5 million for the second
quarter of 2018 compared to $25.7 million for the second quarter of
2017, an increase of $0.8 million that primarily related to the
amortization of intangible assets from recent acquisitions.

Interest expense was $21.6 million for the second quarter of 2018
compared to $18.5 million for the second quarter of 2017, due primarily
to a higher effective interest rate on borrowings between the two
periods and slightly higher outstanding borrowings.

MEDNAX generated net income of $79.4 million for the 2018 second
quarter, or $0.85 per diluted share based on a weighted average 93.5
million shares outstanding. This compares with net income of $63.7
million, or $0.69 per diluted share, for the 2017 second quarter, based
on a weighted average 92.8 million shares outstanding.

The Company's effective tax rate for the second quarter of 2018 was 27.5
percent, compared to 39.0 percent for the second quarter of 2017,
related to the reduction in the corporate tax rate enacted under the Tax
Cuts and Jobs Act of 2017.

For the second quarter of 2018, MEDNAX reported Adjusted EPS of $1.07,
compared to $0.85 for the second quarter of 2017. Adjusted EPS is
defined as diluted net income per common and common equivalent share
excluding non-cash amortization expense and stock-based compensation
expense.

For the six months ended June 30, 2018, MEDNAX generated revenue of
$1.82 billion, up 8.3 percent from $1.68 billion for the prior-year
period. EBITDA for the six months ended June 30, 2018 was $291.2
million, an increase of 3.4 percent compared to $281.7 million for the
prior year. MEDNAX earned net income of $142.8 million, or $1.53 per
share, through June 30, 2018, based on a weighted average 93.5 million
shares outstanding, which compares to net income of $118.4 million, or
$1.27 per share, based on a weighted average 93.0 million shares
outstanding for the first six months of 2017. For the six months ended
June 30, 2018, MEDNAX reported Adjusted EPS of $1.96, compared to $1.60
in the same period of 2017.

MEDNAX had cash and cash equivalents of $38.1 million at June 30, 2018,
and net accounts receivable were $528.0 million.

During the second quarter of 2018, MEDNAX generated cash from operations
of $135.2 million, compared to $137.6 million during the 2017 second
quarter. The Company's uses of cash during the second quarter of 2018
included $74.5 million to repay borrowings on its revolving line of
credit, $52.2 million to repurchase its common stock under MEDNAX's
existing authorization, and $3.6 million to fund the acquisition of a
physician group. In April 2018, the Company announced the acquisition of
Women's Radiology Associates LLP, a radiology practice based in Houston,
Texas. This marked the fifth physician group practice group to become
part of MEDNAX in 2018 and the sixth radiology services practice
acquisition the Company has completed as part of its radiology growth
strategy.

At June 30, 2018, MEDNAX had total net debt outstanding of $1.9 billion,
consisting primarily of its borrowings under its revolving credit
facility and senior notes. At June 30, 2018, the amount of additional
borrowing capacity available under the Company's revolving credit
facility was approximately $850 million.

Planned Retirement of Chief Financial Officer

Vivian Lopez-Blanco has informed MEDNAX of her intent to retire as Chief
Financial Officer of the Company. MEDNAX intends to conduct a formal
search to identify a successor to Ms. Lopez-Blanco. Ms. Lopez-Blanco
will remain in her role with the Company throughout the search process,
and for a transitional period thereafter.

"Vivian has played a significant leadership role for MEDNAX over the
past decade as our Chief Financial Officer," said Dr. Medel. "We look
forward to her continued leadership and contributions as we conduct our
search for her successor."

2018 Third Quarter Outlook

For the 2018 third quarter, MEDNAX expects earnings per share will be in
a range of $0.72 to $0.77 per diluted share and Adjusted EPS will be in
a range of $0.94 to $0.99. The Adjusted EPS range excludes $0.15 per
diluted share of estimated amortization expense and $0.07 per diluted
share of estimated stock-based compensation expense.

This outlook assumes that total same-unit revenue growth for the three
months ended September 30, 2018 will be in a range of two to four
percent, compared to the prior-year period.

Additionally, for the 2018 third quarter, MEDNAX expects that EBITDA
growth will be between three percent and eight percent lower, compared
to the prior-year period EBITDA of $151.5 million.

Effective July 1, 2018, Southeast Anesthesiology Consultants, an
affiliate of MEDNAX, ceased providing services for a health system due
to non-renewal of a contract and as a result is no longer billing for
services under that contract. During the first six months of 2018,
services provided under that contract contributed $11 million in EBITDA.

Clinicians affected by this change will remain employed through December
31, 2018, pursuant to the terms of their employment agreements. For the
third quarter of 2018, MEDNAX expects that the expense related to this
continued employment will be $10 million, which is included in expected
salary and benefit expense as part of the Company's financial outlook.

This outlook also assumes an effective tax rate for the third quarter of
2018 of 27.5 percent.

Non-GAAP Measures

A reconciliation of EBITDA and Adjusted EPS to the most directly
comparable GAAP measures for the three and six months ended June 30,
2018 and 2017 is provided in the financial tables of this press release.
Additionally, historical reconciliations of EBITDA and Adjusted EPS to
the most directly comparable GAAP measures as well as the reconciliation
of forward-looking EBITDA to the most directly comparable GAAP measure
are available on the Company's website at www.mednax.com/investors.

Earnings Conference Call

MEDNAX, Inc., will host an investor conference call to discuss the
quarterly results on Thursday, August 2nd, at 10:00 a.m., ET.
The conference call Webcast may be accessed from the Company's Website, www.mednax.com.
A telephone replay of the conference call will be available from 1:00
p.m. ET August 2, 2018 through midnight ET August 23, 2018 by dialing
800.475.6701, access Code 452060. The replay will also be available at www.mednax.com.

ABOUT MEDNAX

MEDNAX, Inc. is a national health solutions partner comprised of the
nation's leading providers of physician services. Physicians and
advanced practitioners practicing as part of MEDNAX are reshaping the
delivery of care within their specialties and subspecialties, using
evidence-based tools, continuous quality initiatives, clinical research
and telemedicine to enhance patient outcomes and provide high-quality,
cost-effective care. The Company was founded in 1979, and today, through
its affiliated professional corporations, MEDNAX provides services
through a network of more than 4,100 physicians in all 50 states and
Puerto Rico. In addition to its national physician network, MEDNAX
provides services to healthcare facilities and physicians in over 40
states through two complementary businesses, consisting of a management
services company and a consulting services company. Additional
information is available at www.mednax.com.

Certain statements and information in this press release may be
deemed to contain 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.
Forward-looking statements may
include, but are not limited to, statements relating to MEDNAX's
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. 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 MEDNAX's 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 press release are made as of the
date hereof, and MEDNAX undertakes 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 MEDNAX's most recent Annual Report on Form 10-K and its
Quarterly Reports on Form 10-Q, including the sections entitled "Risk
Factors", as well MEDNAX's current reports on Form 8-K,
filed
with the Securities and Exchange Commission.

 
MEDNAX, INC.
Consolidated Statements of Income
(in thousands, except per share data)
(Unaudited)
 
   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

2018     2017 2018     2017
 
Net revenue $ 915,918   $ 842,944   $ 1,817,775   $ 1,678,541  
Operating expenses:
Practice salaries and benefits 620,980 561,418 1,252,810 1,133,803
Practice supplies and other operating expenses 31,833 30,872 62,488 58,668
General and administrative expenses 107,908 103,015 216,684 206,780
Depreciation and amortization   26,518     25,735     52,681     51,349  
Total operating expenses   787,239     721,040     1,584,663     1,450,600  
Income from operations 128,679 121,904 233,112 227,941
Investment and other income 1,202 365 2,666 941
Interest expense (21,604 ) (18,535 ) (41,539 ) (36,287 )
Equity in earnings of unconsolidated affiliate   1,257     689     2,782     1,486  
Total non-operating expenses   (19,145 )   (17,481 )   (36,091 )   (33,860 )
Income before income taxes 109,534 104,423 197,021 194,081
Income tax provision   (30,122 )   (40,725 )   (54,181 )   (75,692 )
Net income 79,412 63,698 142,840 118,389
 

Net income per common and common equivalent share (diluted)

$

0.85

 

$

0.69

 

$

1.53

 

$

1.27

 
 

Weighted average diluted shares outstanding

 

93,529

   

92,812

   

93,516

   

92,977

 
 
 
MEDNAX, INC.
Reconciliation of Net Income to EBITDA
(in thousands)
(Unaudited)
 
   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

 

2018     2017 2018     2017
 
Net income $ 79,412 $ 63,698 $ 142,840 $ 118,389
Interest expense 21,604 18,535 41,539 36,287
Income tax provision 30,122 40,725 54,181 75,692
Depreciation and amortization   26,518   25,735   52,681   51,349
EBITDA $ 157,656 $ 148,693 $ 291,241 $ 281,717
 
 
MEDNAX, INC.
Reconciliation of Diluted Net Income per Share
to Adjusted Diluted Net Income per Share ("Adjusted EPS")
(in thousands, except per share data)
(Unaudited)
 
   

Three Months Ended
June 30,

2018     2017
Weighted average dilutive shares outstanding 93,529 92,812
Net income and diluted net income per share $ 79,412     $ 0.85 $ 63,698     $ 0.69
Adjustments:
Amortization (net of tax of $4,822 and $6,800) 12,713 0.14 10,636 0.11
Stock-based compensation (net of tax of $2,894 and $2,826)   7,630   0.08   4,420   0.05
 
Adjusted net income and diluted EPS

$

99,755

$

1.07

$

78,754

$

0.85

 
 

Six Months Ended
June 30,

2018 2017
Weighted average dilutive shares outstanding 93,516 92,977
Net income and diluted net income per share $ 142,840 $ 1.53 $ 118,389 $ 1.27
Adjustments:
Amortization (net of tax of $9,586 and $13,644) 25,273 0.27 21,340 0.23
Stock-based compensation (net of tax of $5,609 and $5,764)   14,790   0.16   9,017   0.10
 
Adjusted net income and diluted EPS

$

182,903

$

1.96

$

148,746

$

1.60

 
 
MEDNAX, INC.
Balance Sheet Highlights
(in thousands)
(Unaudited)
       
As of As of
June 30, 2018 December 31, 2017
Assets:
Cash and cash equivalents $ 38,056 $ 60,200
Short-term investments 9,902 10,292
Accounts receivable, net 527,997 503,999
Other current assets 48,975 52,744
Intangible assets, net 614,226 639,928
Goodwill, other assets, property and equipment   4,620,482   4,600,115
Total assets $ 5,859,638 $ 5,867,278
 
Liabilities and shareholders' equity:
Accounts payable and accrued expenses $ 358,255 $ 438,017
Total debt 1,891,972 1,852,824
Other liabilities   422,489   509,983
Total liabilities 2,672,716 2,800,824
Total shareholders' equity   3,186,922   3,066,454
Total liabilities and shareholders' equity $ 5,859,638 $ 5,867,278
 

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