Q2 2025 Pediatrix Medical Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Pediatrics medical group's, Q2 2025 earnings conference call. At this time, all participants are in listen-only mode.
Later, we will conduct a question and answer session. You would like to ask a question during this time, simply press star followed by the number 1 on your telephone keypad. She would like to withdraw your question again, press the star 1 and as a reminder this conference is being recorded. I would now like to turn the conference over to Marianne Moore EVP, general counsel and chief administrative officer, please go ahead.
Thank you, operator, and good morning.
Certain statements and information. During this conference call may be deemed to be forward-looking statements within the meeting of the federal private Securities litigation Reform, Act of 1995.
Result of new information, future events or otherwise.
Important factors that could cause actual results developments in business, decisions to differ materially from forward-looking statements are described in the company's filings with the SEC, including the sections, entitled risk factors in today's remarks, by management. We will be discussing non-gaap Financial metrics. A Reconciliation of these non-gaap Financial measures to the most comparable. Gaap measures can be found in this morning's earnings press release, our quarterly and annual reports. And on our website at www.pediatrics.org or Dan, our chief executive officer.
Thanks Marianne and good morning everyone. Also with me today is Cassandra Rossi our Chief Financial Officer
Our second quarter results, including adjusted ebita of just over 73 million dollars. Exceeded our expectations.
This was driven by same unit revenue growth of over 6%, which in turn was a result of strong, hospital-based volume with NICU days of 6%. Favorable reimbursement factors included higher acuity levels, strong RCN collections, and increased hospital administrative fees.
Our ongoing cost management. Initiatives continue to control, same unit salary Trends, partially offset by incentive compensation from higher results.
These results along with our second half visibility have prompted us to raise and narrow, our full year adjusted ebita range to 245 to 255 million.
These results have also continued to raise our cash position bolstering our balance sheet and adding options in a very turbulent, hospital-based Healthcare environment.
Cassandra will now provide additional Financial details and then I'll discuss our review of Where We Are.
Our Focus now and looking forward.
Thanks Mark, and good morning everyone. I'll provide some additional details in a few areas.
Our Consolidated Revenue decreased by just over 7% driven by non-sane unit activity which declined by about 63 million primarily related to the impacts from our portfolio restructuring activity.
This decrease was partially offset by strong. Same unit. Growth of over 6%.
Same unit pricing was up 3 and a half percent driven by increased patient Acuity primarily in neonatology.
Strong, RCM cash Collections and an increase in contract administrative fees.
Importantly, payer mix remained relatively stable as compared to both the prior year period and on a consecutive quarter basis.
same unit, Patient, Service volumes increased by approximately 3%, driven by strong increase in hospital, Based Services primarily neonatology where NICU days were up over 6% and within office Based Services where we saw a modest increase in maternal, fetal medicine services,
Practice level swnb expenses declined year-over-year also reflecting portfolio, restructuring activity on the same unit basis. We saw an increase in expenses as compared to Prior year, but the increase was primarily related to higher incentive compensation. Based on practice results, as well as salary increases.
Salary, growth has remained in a tight band consistent.
With the ranges we have seen for the prior 4 quarters that averaged 3 to 3 and a half percent.
Our GNA expense decreased slightly year-over-year primarily due to a net decrease in salary expense.
Reflecting the favorable impacts from the Staffing reductions across shared services completed in the prior year.
As well as modest decreases in other expense categories, including Professional Services and legal fees.
These decreases were partially offset by an increase in incentive compensation expense based on overall company Financial results.
The DNA expense declined to 5.3 million as compared to 8.8, million in the prior year. Also, primarily reflecting the impacts of the practice dispositions.
Other non-operating expense was 4.9 million as compared to 10 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 modestly, lower average borrowing at slightly lower rates
Cash flow from deferred taxes and accounts payable and accrued expenses.
We ended the quarter with cash of 225 million and net debt of just over 380 million.
This reflects net, leverage of just above 1 and a half times. Using the midpoint of our updated adjusted. Eva Outlook range for 2025
Absent. Any other activities? We would expect our cash balance will be around 350 to 400 million at the end of 2025.
Our accounts receivable DSO at June 30th of 46.4 days. We're down about 1.2 days from March 31st and December 31st.
but they were down over 3 days, year-over-year primarily related to improved cash collections at our existing units
from an RCM standpoint while we continue to work through additional Automation and enhancements. We certainly have hit a stride. We consider the complex and lengthy transition to our hybrid model, at the success, with our operating performance in a solid place.
Finally, I'll touch briefly on our updated 2025 Outlook range noting that the increase was primarily related to the Topline Revenue growth achieved during the second quarter versus our expectations, and the narrowing of our range reflects where we fit timing wise in the year.
For the second half of 2025. We expect that our adjusted. Evita will be fairly routable in the third and fourth quarters.
Thanks so much Cassandra.
just returning a CEO in January, I have spoken about our concerted efforts to be the best possible partner to our hospitals, and to be the employer of choice to Leading clinicians who want their careers to be at a quality driven critical care, provider,
We continue to believe strongly that these efforts provide the best possible foundation for stability, resilience, and opportunity.
In my career, I have looked for and usually found opportunities in areas, where many see, the headwinds most prominently the capitalize on opportunities. In a tougher environment, we believe you have to be the very best at what you do. If you're the best, you will attract the very best talent and be an invaluable partner.
A Pediatrics where we provide the most critical care to mothers, babies and children, being the best means and intense focus on quality of care, having an organization dedicated to this and having the resources needed to support this fully.
We are the nation's leading research organization in neonatology, our clinician leaders, serve on Boards of outside organizations, dedicated to advancing care in ontology and in Maternal. Fetal Medicine.
We spoke about Acuity earlier in the call and we oversee More Level 3 and level 4 NICU than any other provider organization.
Recently, Senator cotton and other legislators introduced the neonatal care, transparency act and we believe that we can assist anyone as thought leaders since we know the intricacies of this as well, or better than anyone.
To be the best. We need to look for ways to be better partners with our Hospital partners.
We look for opportunities to grow with them while attending to the core of the Care in the services. We provide
To be the best, we must be resilient. And I've been a broken record about the importance of a strong balance sheet, especially in turbulent times, we spoke earlier about our relatively large cash balance sheet.
This provides us flexibility to pay down debt and to employ other corporate finance strategies, including possibly share buybacks.
And also enables us to take advantage of potential strengthening opportunities both inside and outside pediatrics.
We announced today the addition to Pediatrics of my longtime colleague Greg knee. Who over many years has collaborated with me and our colleagues to find ways to improve what we do to reinforce quality efforts and to help find financial and operational opportunities that benefit all stakeholders.
This includes of course, you our shareholders.
We believe that Greg is a great addition to a team that is equipped and poised to do just that.
Look, all of this is a natural segue to my thoughts about the big, beautiful, Bill and Pediatrics.
We believe that we can effectively manage through the effect of this legislation.
Remember, it says, in over time it has a very different impact on expansion versus non-expansion states where 60% of our volume resides.
Ed mothers where of course, we address the highest risk population.
We, of course, hope that the premium tax credits set to expire at the end of this year will be extended. Like many others, we have been using our voices and knowledge to urge that they be extended.
This is yet another example of the headwinds that seemed always to recur in healthcare, which require resilient determined management with the resources and the will to steer through and find Opportunities.
And when you think about the challenges, our clinicians face and meet every day.
Of every year.
This is what we believe uniquely defines Pediatrics.
With that operator, I will turn the call over to people with questions.
Thank you. Uh, we will now begin the question and answer session. You have dialed in and would like to ask a question. Please press star 1 on your telephone key, back to raise your hand and join the queue. If you would like to withdraw, any questions simply press star 1 again.
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Our first question comes from Tito Chicken from Deutsche Bank. Please go ahead.
Uh, can you talk about the hospital admin fees? I think those are previously guided to be flat-ish. You know what percent of the pricing growth in the second quarter came from admin fees. It get can you tell us how these negotiations are going and sort of how we should think about these admin fees as we head into 2026?
Lattice range in q1. We did see you know same in at growth there of just about 10% of the pricing this quarter. It was definitely north of that and our admin fees um made up about a third of our pricing growth.
Uh, we talked to operations, and you know, they've said, they have certainly been targeting some Key Programs. Both from a renewals perspective and certain asks,
You know we've been able to work with our Hospital Partners to demonstrate the value. We bring and substantiate the asks that are necessary necessary to continue supporting their programs. I don't think in any way we're saying it's easy but we are definitely having some success there.
Yeah, I would say this, this goes hand in hand with our efforts to really, uh, uh, bolster our relationships with our Hospital Partners. We're not shy about looking for a support where it's warranted and we believe we operate very efficiently. And we're, we're providing an absolutely urgent service to uh, our Hospital Partners. So we're we feel we feel comfortable in that area. There's always, you always have to justify what you're doing. Uh but we think we're good at that.
Okay, and then a follow up here, you know, let's say you increase your admin fee by, you know, let's say 1% what is the flow through on how much sort of goes back into? Dr. Compensation versus sort versus to corporate just trying to figure out. And then the timing of when this to occur,
It's probably somewhere in the 30 to 40% range.
Is it pretty ill immediate to to flow through?
Pretty, pretty immediate.
Okay, uh, so yeah. Next question, just uh, Nikki growth was exceptionally strong, this quarter just, you know, any color or what's driving, you know, uh, the Nikki growth is it just, you know, a large number of babies is is market share or comps kind of what? What? Drove that 6% Nikki growth this quarter.
it's really um it's really the factors that that we uh
That we talked about before, uh, there's no 1 particular driver of it. Um,
And uh, you know, we we mentioned 1 of the things we highlighted was that Acuity is certainly, is certainly up. It's, it's hard to it's hard to parse where where it's all coming from. So it's, uh, it was just overall strong, uh, and, and really every regard
Okay and the last 1 here for me, you know, just just looking at sort of this big, beautiful bill, you know, looking at the Medicaid impact for not for for uh sorry, expansive States. You know, how would that flow through into you guys? Just, you know, you know, as I think about Sir moms and kids sort of, you know versus you know changing the policy kind of how that flow through to you guys. Thank you so much.
You're asking specifically about the expansion States.
well, it
it's not clear yet how that will flow through and a lot of the details of how that's going to work and not clear. I stressed earlier that 60% of our volume um is in the non-expansion states. So we think that the effect will and it phases in over time.
so it's look, we're not we're not taking it lightly at all but
We, we think that as, as you see, the rules around who's Covenant, and who's not covered because it's specifically carves out. Uh, uh, pregnant women. Uh, we'll see how that? How? That flows through.
And we think we have both the time and understanding to manage through it as it becomes clearer. Yeah, I mean, uh, that's for my question. You know, just as I think about your patience, being pregnant moms and/or kids, I guess I'm struggling to sort of see how either of those are going to be the ones being cut from lives simply because it seems, you know, moms, kids, and old.
Old old poor, people are generally being held the same. It's much more about working males and so I'm trying to figure out why they're almost be any cuts to you guys coming from the big beautiful belts.
Oh, we we hope that's the case. And as you know, in any legislation is the details on how it's implemented that that have not yet been announced but but given that in the very initial wording of the bill, these were pointed out and and I I read it the same way you do. The intent of the bill was, was aimed at a different area of the population. It gives us, you know, somewhere between confidence and hope um that uh that we won't be targeted. So the fact that we're mostly in the non-expansion states and the fact that legislators are keenly aware, including in those expansion states that their voters depend on on necessary care. It gives us. Uh, again, somewhere, between hope and confidence. And we have we we punch above our weight in, in, in, in pointing these things out. I think to, um, to the government and we're active at that.
Great. Uh, thanks so much and next quarter.
Thank you.
Thank you.
Our next question comes from with mayo. From belying Parkers. Please go ahead.
Uh, thanks Mark. Can you just elaborate more on BuyBacks? How you're thinking about the buyback strategy and the pace of BuyBacks? Thanks?
Sure. Well, what I said is we
What I've said I was sort of repeat it. Uh, we believe that in a turbulent time and throughout my career, I've thought, you know, you really want to have a strong balance sheet, it provides you with a lot of opportunity and at a time like this, when most people are scared about the provider world, where all they see are headwinds and look at how look at the multiple or stock say, Hey, you know, it's a good time to have cash and to have flexibility. Now, you can. It's not our job to Hard Cash. We're not a uh, we're not a, um, mutual fund. So we, we want to be careful about what we do. Uh, the reason we added Greg and we've we've bolstered our team in this regard. As we do think there are opportunities in a turbulent environment like this. And we want to be able to take advantage of those having said that. But but it's not like I'm announcing some kind of big acquisition or something. So we think about our debt level and we could pay down debt and nobody's more incentivized than I am or Greg or anybody in our team to raise our share price. If we think that the best strategy
is to buy back shares, we have the ability to do it and still not push our leverage levels high and that's something that we're very mindful of. Uh, you know, we're we're very pleased to have this flexibility and we're not going to just sit around and uh, and, and watch it.
Okay. Now that's helpful and my follow-up is just we can all see the activity with iDrive and arbitration some of the payers as you know, are talking about it. Just any update there. I mean we can see your winning claims, is this not a favorable development and maybe just comment on whether or not the plans are in fact paying you, thanks.
Yes, it's that's that process while while painful for everybody has gone well for us. And, uh, you know, we we we've done very well in the process. Our and our, I would say, as, you know, we're overwhelmingly in network. We continue to overwhelmingly. Be be a network in a few cases where we were out of network. People have wanted us back in network, we provide a necessary service. So I would say certainly versus where what people have feared and in some cases continue to fear. It's it's gone a lot better than we uh than we had um than we had worried about.
Our next question.
Comes from pow. Queen from Maguire. Please go ahead.
Thank you. Good morning. Um, just want to drill down a little bit on the guidance. Uh, if you analyze the first half numbers, you, you reach, you know, the lower end of your guidance range. Uh, when we consider normal seasonality, that should push you, you know, above your current gu guidance range. I understand you mentioned the cautiously on the hospital landscape. I'm just curious. You you were talking about potential headwind um, you know, coming down the pike is it on the revenue expense of both and maybe um what is your outlook in terms of the Cadence of margins for for margins, for the balance of the Year? Thank you.
so I think, you know what we
Last year last quarter. Uh, we talked about the fact that as we move through a 2025, the comps, do get a little bit tougher, you know, we had that volume, uh, Topline increase in in q1. That was our easiest comp of 2025, um, got a little bit tougher in Q2, but we really did start to see growth in the back half of 24. So the comps will be a bit tougher as we move through the year. So I think that's why, you know, when we moved our guidance up, it really was specifically related to what we saw in q1 and Q2. Um, but we do expect margins to be fairly stable as we move through the end of 25.
Great. And then the follow up on the uh, budget Bill impact, you know, a lot of your business originally from the hospitals, right? When we think about the uh, Regulatory and reimbursement changes, you know, Hospital seems to be the biggest victim there. You know, what is your Contracting discussion with Hospital? Like these days, you know, are they looking to contract their service lines down the line, you know, if, if the headline persists
No, we're not seeing that, we're not seeing that at all. Um you know, again we we provided unbelievably necessary service and it's very important in the overall Financial picture for uh for hospitals. So we're not seeing people retreating from this. Now what it could I do fear that it will have an effect in rural areas and other underserved areas of the population if uh, if this isn't done with with proper care. But you know, we we overwhelmingly are in level 3 and level 4 Nikki is and even level 1 and level 2, Nick who's providing an absolutely vital service, which is really very important to the uh,
Financial well-being of the hospital and uh, to their patient to the patient outcomes. So we're not we're not seeing that at all. We're, we're we're we are seeing is that we provide the necessary service. We spend our days and nights reinforcing that with a hospitals and hospitals. Look at the time like this, they're looking to take advantage of opportunities just the same. We are with the headwinds I mentioned.
Uh, I mentioned earlier that we are aggressively looking at hospital systems that are growing, that are thinking about a hub-and-spoke model for what they're doing and how we can, uh, be partners with them as they grow.
Excellent, thank you.
Do we have no further questions at this time? Please continue.
Well, if there are no more questions, um, I think we're, I think we're set. We, you know, I hope that you can tell that we are very mindful of the challenges in front of us, but I think we are very prepared to manage through them. We feel confident, we we believe that, you know, investing in our operations, uh, is a is, is a very wise thing, uh, for today and going forward, and we appreciate that, we appreciate your support.
Thank you.
That does conclude our conference for today. Thank you for your participation and we now disconnect
Mhm.