Q1 2025 Pediatrix Medical Group Inc Earnings Call
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Charles Lynch: Charles Lynch, Kevin Fischbeck, Mark Ordan, Benjamin Mayo, Kasandra Rossi
Charles Lynch, Kevin Fischbeck, Mark Ordan, Benjamin Mayo, Albert Rice, Jack Slevin
Charles Lynch: Perkins statements and information during this conference call may be deemed to be forward looking statements within the meaning of the federal private security mitigation reform act of 1995. These forward looking statements are based on assumptions and assessment made by Pediatrix management in light of their experience and assessment of historical trends.
Charles Lynch: Current conditions, expected feature developments, and other factors that you'll need to be appropriate.
Charles Lynch: Any part of the case statements made during this call are made as of today, and Pediatrix undertakes no duty to update or revise any such statements, whether as a result of new information, future events, or otherwise.
Charles Lynch: Important factors that could cause actual results, development and business decisions to differ materially from forward-looking statements are described in the company's filing with the SEC, including the sections entitled risk factors.
Charles Lynch: In this remarks by Management, we will be discussing non-GABs in Azure metrics.
Charles Lynch: A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in the morning's earnings press releases, our quarterly and our reports and on our website at www.pediatrix.com
Mark Ordan: With that, I will turn the call over to Mark Ordan, Pediatrix Medical Group's Chief Executive Officer.
Mark Ordan: Thank you, operator. Good morning, everyone. With me today is Kasandra Rossi, our chief financial officer. Our first quarter results exceeded our expectations driven by saying you may unit revenue growth of over 6 percent. This included strong volumes in our hospital-based services, with NICU days increasing by 2 percent, as well as more modest growth on maternal field medicine, along with continued favorable paramex.
Mark Ordan: Our practice level operating expenses continue to reflect the favorable impacts of our cost management initiatives, partially offset by higher incentive compensation base.
Mark Ordan: on our strong financial practice results. As a result, adjusted EBITDA, just over $49 million with significantly above our expectations.
Mark Ordan: And particularly pleased with a continued sharp focus on same-unit salary, expense trends that is celebrated for the 4th consecutive quarter.
Mark Ordan: As a result of our strong financial performance for the first quarter compared to our expectations we are raising our full year 2025 adjusted EBITDA outlook from a range of 215 to 235 million to a range of 220 to 240 million.
Mark Ordan: While we are pleased by our first quarter results, we remain mindful that we continue to be in a period of great uncertainty both in healthcare and throughout the economy.
Mark Ordan: Now, our operating results for the first quarter include the effectiveness of our strategic approach to the portfolio management activities that we completed in 2024 and our commitment to creating value for our shareholders.
Mark Ordan: This is a direct result of the hard work, collaboration and dedication of our team and we're excited to build upon these results.
Mark Ordan: In February , I talked about a strategic priorities in 2025 and in particular our focus on methodically reinvigorating the relationships that we have built over many years with a hospital and health
Mark Ordan: I also spoke about all they are doing, reasonably, to be the employer of choice for physicians and other clinicians who provide the extraordinary critical care our patients require.
Mark Ordan: A very pleased report that I along with our operating leadership team are actively engaged here and we are pleased with the early response.
Mark Ordan: We recently contracted to acquire several NICU, MFM, and Oli Hospitalist operations and a part of a hospital system's portfolio because we believe that that system views us as the best and most reliable partner in these areas. I believe this is directly tied to our renewed active engagement both with our practices and with hospital system leadership.
Mark Ordan: We won't win every opportunity and it's not possible to choose to bring things in house, but we are hard at work to be the best and most responsive partner possible.
Pediatrix, we are our people.
Mark Ordan: The women and men who provide the finest possible clinical care in a very difficult area. Here too, we are very actively focused on recruiting, onboarding development and retention efforts.
Mark Ordan: We are confident that this focus will meaningfully bolster our core.
Mark Ordan: If this blocking and tackling strategic focus sounds a bit boring to you, you're probably getting my point. Pediatrix has always been at its best when we are focused passionately on our core, and that is exactly where we are today. This is now providing growth opportunities for us, and we believe strongly this will continue.
Mark Ordan: With that, I will turn the call over to Kasandra. Thank you, Mark, and good morning, everyone. I'll provide some additional details in a few areas.
Cassandra Rossi: Primarily related to the impacts from our portfolio restructuring activity. This decrease was partially offset by strong, same-unit growth of over 6%.
Cassandra Rossi: Same unit pricing was up over 4.6 percent, driven by favorable payer mix shifts and modest improvements in contract administrative fees. This was combined with favorable impacts from strong RCM cash collections.
Cassandra Rossi: On the call side, practice level SW&B expenses decline year over year, also reflecting our portfolio restructuring activity.
Cassandra Rossi: On a same unit basis, these expenses did increase year over year, but the increase was primarily related to higher incentive compensation based on strong practice results as well as salary increases.
Cassandra Rossi: Importantly, salary growth decelerated significantly year over year and on a sequential quarter basis as compared to the second, third and fourth quarters of 2024.
Cassandra Rossi: Our DNA expense decreased modestly year-over-year, primarily reflecting the favorable impacts from the staffing reductions across shared services that were completed in the prior year.
Cassandra Rossi: Partially offset by increases in other expenses, including billing and collection fees, certain professional services, and information technology.
Cassandra Rossi: Depreciation and amortization expense declined to 5.3 million as compared to 10.3 million in the prior year, primarily reflecting the impacts of the practice dispositions. We expect our DNA expense will be fairly consistent going forward.
Cassandra Rossi: Other expense was $4 million as compared to $8.1 million for the prior year period, primarily reflecting an increase in interest income on cash balances, as well as a decrease in interest expense on lower average borrowing at slightly lower rates.
Cassandra Rossi: Moving on to cash flow. As a reminder, we are a user of cash in the first quarter of each year as we pay out incentive compensation and other benefits, namely, 401k matching contributions.
Cassandra Rossi: We used $116 million in operating cash in the first quarter, compared to $123 million in the prior year.
Cassandra Rossi: The differential was primarily due to higher earnings and increases in cash flow from AR, partially offset by decreasing cash flow from accounts payable and accrued expenses, primarily related to those incentive compensation payments.
Cassandra Rossi: Our accounts receivable DSO of just under 48 days were flat as compared to 1231, but down over four days year over year.
Primarily related to improved cash collections at our existing units.
Cassandra Rossi: Finally, I'll briefly touch on our updated 2025 outlook, noting that the increase was predominantly related to the top-line revenue growth achieved during first quarter versus our expectations.
Cassandra Rossi: The comps for the remainder of 2025 become increasingly challenging and accordingly remain materially in line with our original 2025 expectations. With that, I will turn the call back over to Mark.
Mark Ordan: Thanks, Cassandra. Our prayer will now open and call for questions.
Mark Ordan: Thank you. We will not begin the question and answer session. At this time, I would like to remind everyone in order to ask a question, press star, send it number one on your telephone keypad.
AJ Rice: Your first question comes from the line of AJ Rice with UBS. Your line is open.
Speaker Change: Thanks, everybody. Maybe just on the updated thoughts on guidance. I know coming into the year, I think the basic base case was flat volumes and flat pricing for the year. Obviously you're up 1.6 on volumes and 4.6 on pricing.
Speaker Change: in the first quarter. I know you're saying cops get tougher, but is the flat pricing and flat volumes look conservative in light of what you've seen so far this year?
Speaker Change: Well, when we gave our initial guidance, we said we were intentionally being a little bit on the conservative side given the uncertainty that prevails.
Speaker Change: that prevailed. Since that uncertainty is probably only ex situated in healthcare and around the economy, we continue to have a conservative stance.
AJ Rice: It's simply that the first quarter is a exceeder expectations by enough that we said it doesn't make mathematical sense to stay at the old level. Certainly the amount of EBITDA that we already have in the till.
is what gave rise to the increase.
AJ Rice: Is it still conservative? I think only to the same reason as it was before. We still see Edwin's in healthcare and the uncertainty in the economy, but that's why we raised it as we did.
AJ Rice: and just speaking to that uncertainty, I know to some degree people can make decisions about expanding a family.
Speaker Change: based on what's happening in the economy. Is that what you're mainly talking about when you look at the things that they're specifically looking at in Washington around budget reconciliation? I wouldn't assume that those were...
Speaker Change: You know, addressing changes with the expansion population and etc. of some things that would potentially I guess limit supplemental payments which you don't directly benefit from.
Speaker Change: Are there things that you're watching that are of concern, or is it more just that general sense of ebb and flow on a verse that happens sometimes in economic ups and downs?
Speaker Change: It's not because of that specifically or anything specific. I would say that right now my view is not a partisan view.
Speaker Change: is that there are a lot of changes that are swirling in the economy and through the administration and we don't know how they'll fall out. So there are a lot of things that are being considered in the budget today but they'll be a lot of horse trading and we'll see how things work out.
Speaker Change: So I just think it's a more difficult economic time because of that uncertainty. We all hope it will work out well. And in a time like that, I think it's harder to say with the same clarity where we think we'll end up. Nothing more than that.
Okay, all right, thanks a lot.
Stewart, thank you.
The line is open.
I'm sorry, I'm sorry, I'm sorry, I'm sorry, I'm sorry
Hello?
Speaker Change: Yes, your next question comes from the line of Philip Chickering with Deutsche Bank, your line is open.
Speaker Change: Hey, good morning guys, and we're talking to you again. Can talk about the hospital contracted or subsidies? If we go back to Sir Pre-COVID, did hospitals get any subsidies? Are they getting subsidies today? And just we're talking about that dynamic in your business.
Speaker Change: Your subsidies have always been part of the business and they continue to be.
Speaker Change: Part of being the partner with the hospital is working together to...
Speaker Change: to figure out what's best. And if we're a good partner, then some of these, you know, in many times, you know, and got our call into play.
Speaker Change: We have a very good relationship with our hospital system so we, you know, that's just part of the overall relationship that we have. It's, you know, normal business, nothing's changed.
Speaker Change: Have the amount of subsidies been increasing in the last year or so, or are they as percent of your total revenue is still relative to the flight?
Speaker Change: We don't break it out separately, but I'd say that there's no
If it was a notable change, we probably wouldn't. [inaudible]
you would say.
Speaker Change: Yeah, what you see in the pipeline or as you think about is repair mix changes that would impact the personality or view of respecting a fairly normal personality.
Speaker Change: As look as her first quarter EBITAS, percent of your normals are any reason why I would be different this year versus other years [inaudible]
Speaker Change: We don't see any different seasonality in 2025, and some of the things that you mentioned, and AJ mentioned that we're looking at, we're not that we're forecasting a change or concerned about a change that would affect 25 numbers, we just don't know yet.
Speaker Change: Okay, right, and the last one here is collections, you know, you're looking at the DSOs.
Speaker Change: Those sort of, you know, continues sort of to get better, but they still sort of alley to levels. I guess, you know, when you look at the aging of the buckets within those receivables [inaudible]
Speaker Change: Are there any areas there that could be arrest for taking charges, or are collections getting to improve across the board and ensure there's no risk of collections at this point looking at your receipt?
I will let our collector in chief answer that call.
Peto: Hey, Pito, no, so we don't see anything that concerns us there from a DSO or AR in certain buckets. And again, like you said, DSO is flat right around 48 days and that's actually a level we think makes a lot of sense for the business right now.
Speaker Change: So everything's going well in the RCM area and we hope at some point not to have to talk about it every quarter [inaudible]
Great. Thanks so much, guys. They're sharp.
Thanks for watching.
Thanks.
Speaker Change: Your next question comes from the line of Jack Slevin with Jeffries. Your line is open.
Jax Levin: Hey, good morning. Thanks for taking my questions and congrats on a really strong quarter.
Speaker Change: I just want to see if you could expand with a little more color on- [inaudible]
Speaker Change: The points you brought up around, you know, potential hospital contract wins. It feels like it's been a pretty static market although you've been clear that that's a focus. I guess just trying to understand, you know, maybe a little bit more about within some of those conversations.
Speaker Change: You know, what do they look like? Is there is there potential that?
That...
Speaker Change: We could see an acceleration in hospitals looking to outsource in light of a lot of challenges they're facing on other fronts, whether it be regulatory or fundamental right now.
Speaker Change: Our belief is that our strength from the beginning and no pride of authorship here.
Speaker Change: has been to be the best partner for hospitals and women's and children's services where we're very strong.
We believe that by really focusing on those relationships
Speaker Change: They can ensure that we are really reliable counterparties, that we're working on issues, positive issues, and accentuating them and problems and nipping them in the bud, that we're very good at that.
Speaker Change: So what we're talking about doing is focusing on those areas. Also to have a good partnership you have to be a very good recruiter. We are only our people.
Speaker Change: So we think, if we are again, if we focus on that, that gives us additional strength. We believe, obviously, that if we are the best in women's children.
Speaker Change: Services, and we focus on both these areas that we believe we will we will.
Speaker Change: Gain from that. We will grow because of that, because we think hospital assistance will say, gee, why would we do this ourselves when we can work with a partner that's as reliable as they are that provides best in class service for women and children and babies?
I'm sorry. I'm sorry. I'm sorry. I'm sorry. I'm sorry.
AJ Rice: Got it, really helpful color. And then just a couple things to close the loop on the model here for you, Kasandra.
Speaker Change: Just on the understanders sort of moving pieces on the dispositions, but that practice applies in other operating expense lines, flagged as being quite low, I guess relative to what.
What I was expecting, I think what's true, is expecting, is there, I guess-
Speaker Change: Is that the right level to think about going forward as we, as we cast things, or is there any additional color you can give on that metric? And then the other piece just being we talk a little bit about the components of the NICU volume growth and what sort of births and length of the day look like in a quarter. Thanks.
Speaker Change: Sure, so first on the supplies another, I think that yeah, that reflects the practice disposition activity and it is a good way to look about that line going forward. Nothing, you know, material that that should flex there.
Speaker Change: I'd say admits were up just a touch, probably less than a percent there. Lent to stay was also up just a touch, maybe just a touch over 1% and the admin rate itself was a bit sladdish in the mid 14% range.
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Speaker Change: Got it. Very helpful and congrats to you on the strong quarter.
Thank you very much. Thank you.
Speaker Change: Again, if you would like to ask a question, press tar one on your telephone keypad.
Speaker Change: Your next question comes from the line of Philip Chickering with Deutsche Bank, your line is open.
Speaker Change: I think I can let you guys get away with this thing over this early. Again, can you guys give us an update on where we are on the, do that's as sure as, you know, how, you know, guess how is...
Philip Chikurin: How is it tracking? And as you're looking at your portfolio today, are you guys comfortable with the access you have today? Do you see potential for other areas to divest? And as you look at the
Speaker Change: Acquisition Market, are you seeing multiples normalize out and start deploying capital and turn it into doing deals to talk about both sides of the business? Thank you
Speaker Change: Well, first to your time and your question, we saw we were ahead of projections on ending earlier, but we will answer your question anyway.
Speaker Change: We are very comfortable with the portfolio that we have. Now, any organization that manages well is always looking at ways to optimize what we do, but we are very pleased with the broad restructuring that we did.
Speaker Change: and accomplished what we hoped it would do, you know, period [inaudible]
Speaker Change: So we will continue to look and try to always find ways to improve what we're doing, but we don't foresee anything sweeping.
and certainly the core areas of neonatology and…
Speaker Change: and Maternal People Medicine, Obi-Hot Schoolist, and Pediatric Intensive Care. They're all part of our core, and none will...
Non-Will, Disappear
Speaker Change: And we also have some in select areas, some hospitals, some specialties that are also very important to us.
So we don't see any change there and
and I think there was another part of your question.
Speaker Change: on multiple positions, where we think it's a relatively favorable environment for us as an [inaudible]
Speaker Change: So I think maybe it's a result of all this turbulence and maybe it's because you know other people don't have the kind of balance sheet that we have they're not able to do what we can do we think you know that will provide some opportunities.
Speaker Change: This is what I was leaning into as I think about all the headlines coming on the D.C.
Speaker Change: and the business team. It's such a Medicaid-focused business that wouldn't now be a pretty great time for any weekends to sell into you guys. You guys can take advantage of that sort of near-term volatility.
Could they?
Speaker Change: Could be, so our phone lines are open. Okay, for our last quick model question. Invested in another income was quite strong this quarter, I guess. You know, what you're of that? Actually, we'd be thinking about that the rest of the year. Thank you so much.
Speaker Change: Sure. So that is really from the interest income that we're earning on that cash that sat in our balance sheet. We have those parked in, you know, pretty attractive rate vehicles right now. And so as we continue to build cash and continue to earn interest income, you know, that line will look favorable.
Great. Thanks so much.
Thank you, Peter.
Speaker Change: Thank you. I'm not showing any further questions in the queue.
and Totemann, that concludes today's call. Thank you all for joining. You may not be.
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Pitsburgh 2012
Run For Your Life
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Charles Lynch, Kevin Fischbeck, Mark Ordan, Benjamin Mayo, Albert Rice, Jack
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Speaker Change: [music].