Earnings call transcript: Pediatrix Medical Q2 2025 beats EPS forecast

Pediatrix Medical Group reported strong earnings for the second quarter of 2025, exceeding analysts’ expectations. The company posted an earnings per share (EPS) of $0.53, surpassing the forecasted $0.42, marking a 26.19% surprise. Revenue also slightly exceeded expectations at $468.84 million compared to the anticipated $464.37 million. Following the announcement, the company’s stock surged 8.37% in pre-market trading, reflecting investor confidence in the robust performance. According to InvestingPro analysis, the stock appears undervalued, with analysts maintaining a moderate buy consensus and a price target suggesting further upside potential.

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Key Takeaways

• EPS beat expectations by 26.19%.
• Revenue surpassed forecasts by 0.96%.
• Stock price increased by 8.37% in pre-market trading.
• Strong performance in critical care services for mothers and children.
• Adjusted EBITDA for Q2 reached $73 million, exceeding expectations.

Company Performance

Pediatrix Medical Group demonstrated a solid performance in Q2 2025, driven by its focus on critical care services for mothers, babies, and children. The company reported a 6% increase in same-unit revenue growth, with same-unit pricing up by 3.5%. Operating cash flow rose to $138 million from $109 million in the previous year, showcasing improved financial health.

Financial Highlights

• Revenue: $468.84 million, slightly above forecast.
• EPS: $0.53, exceeding forecast by 26.19%.
• Adjusted EBITDA: $73 million, surpassing expectations.
• Operating cash flow: $138 million, up from $109 million YoY.
• Cash balance: $225 million.

Earnings vs. Forecast

Pediatrix Medical’s Q2 2025 EPS of $0.53 significantly outperformed the forecast of $0.42, resulting in a 26.19% surprise. This marks a notable improvement compared to previous quarters, indicating effective cost management and operational efficiency. Revenue also slightly exceeded expectations, contributing to the positive market response.

Market Reaction

The company’s stock price increased by 8.37% in pre-market trading, reaching $13.17. This movement reflects investor optimism following the earnings beat and the company’s strategic focus on enhancing its critical care services. The stock’s performance is notable, considering its 52-week range between $7.91 and $17.67. InvestingPro data shows an impressive 61.4% return over the past year, significantly outperforming broader market indices.

Outlook & Guidance

Looking ahead, Pediatrix Medical Group projects a full-year adjusted EBITDA range of $245-255 million. The company expects EBITDA to remain stable in the coming quarters, despite a cautious outlook on the hospital landscape. The management is also monitoring potential impacts from healthcare legislation and exploring share buyback strategies. InvestingPro notes that 4 analysts have recently revised their earnings expectations upward, and the company is expected to return to profitability this year with projected earnings of $1.69 per share.

For comprehensive analysis including detailed financial metrics, Fair Value calculations, and expert insights, check out the full Pro Research Report available exclusively on InvestingPro.

Executive Commentary

CEO Mark Ordan emphasized the company’s strength in neonatology, stating, "We are the nation’s leading research organization in neonatology." He also highlighted the importance of a strong balance sheet in turbulent times, saying, "In a turbulent time... you really want to have a strong balance sheet."

Risks and Challenges

• Potential impacts from healthcare legislation.
• Turbulent healthcare environment.
• Dependence on non-expansion states for 60% of volume.
• Modest increase in maternal-fetal medicine services.

Q&A

During the earnings call, analysts inquired about the impact of hospital administration fees on pricing growth and doctor compensation. The company revealed that about 30-40% of admin fee increases flow through to doctor compensation. Additionally, Pediatrix expressed confidence in managing potential Medicaid expansion impacts and is considering share buyback strategies.

Full transcript - Pediatrix Medical Group Inc (MD) Q2 2025:

Conference Operator: Ladies and gentlemen, thank you for standing by and welcome to the Pediatrics Medical Group’s Q2 twenty twenty five Earnings Conference Call. At this time, all participants are in listen only mode. Later, we will conduct a question and answer And as a reminder, this conference is being recorded. I would now like to turn the conference over to Mary Anne Moore, EVP General Counsel and Chief Administrative Officer. Please go ahead.

Mary Anne Moore, EVP General Counsel and Chief Administrative Officer, Pediatrics Medical Group: Thank you, operator, and good morning. Certain statements and information during this conference call may be deemed to be forward looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward looking statements are based on assumptions and assessments made by pediatrics management in light of their experience and assessment of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Any forward looking statements made during this call are made as of today, and Pediatrics undertakes no duty to update or revise any such statements, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results, developments, and 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.com. With that, I will turn the call over to Mark Ordan, our Chief Executive Officer.

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: Thanks, Mary Anne, and good morning, everyone. Also with me today is Cassandra Rossi, our Chief Financial Officer. Our second quarter results including adjusted EBITDA of just over $73,000,000 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 up 6% and favorable reimbursement factors including higher acuity levels, strong RCM 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 EBITDA range to $245,000,000 to $255,000,000 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 view of where we are, our focus now and looking forward.

Cassandra Rossi, Chief Financial Officer, Pediatrics Medical Group: 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 same unit activity, which declined by about $63,000,000 primarily related to the impacts from our portfolio restructuring activity. Decrease was partially offset by strong same unit growth of over 6%. Same unit pricing was up 3.5% 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 increases 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 SW and B expenses declined year over year, also reflecting portfolio restructuring activity. On a 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 four quarters that averaged 3% to 3.5%.

Our G and A 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. G and A expense declined to $5,300,000 as compared to $8,800,000 in the prior year, also primarily reflecting the impacts of the practice dispositions. Other non operating expense was 4,900,000.0 as compared to $10,000,000 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 borrowings at slightly lower rates. Moving on to cash flow, we generated 138,000,000 in operating cash flow in the second quarter compared to $109,000,000 in the prior year, driven by higher earnings and increases in cash flow from deferred taxes and accounts payable and accrued expenses.

We ended the quarter with cash of $225,000,000 and net debt of just over $380,000,000 This reflects net leverage of just above 1.5 times using the midpoint of our updated adjusted EBITDA outlook range for 2025. Absent any other activities, we would expect our cash balance will be around $350,000,000 to $400,000,000 at the 2025. Our accounts receivable DSO at June 30 of forty six point four days were down about one point two days from March 31 and December 31, but they were down over three 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 as a 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 top line revenue growth achieved during the second quarter versus our expectations and the narrowing of our range reflects where we sit timing wise in the year. For the 2025, we expect that our adjusted EBITDA will be fairly ratable in the third and fourth quarters.

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: Thanks so much, Cassandra. Since returning as 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. To capitalize on opportunities in a tough environment, we believe you have to be the very best at what you do.

If you are the best, you will attract the very best talent and be an invaluable partner. At pediatrics, where we provide the most critical care to mothers, babies and children, being the best means an 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 neonatology and in maternal fetal medicine.

We spoke about acuity earlier in the call and we oversee more level three and level four NICUs 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 and 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 repurchases 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 long time colleague Greg Nieb, 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.

Now 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 phases in overtime. It has a very different impact on expansion versus non expansion states where 60% of our volume resides and it specifically addresses the urgent needs of expected mothers where of course we address the highest risk population. We of course hope that the premium tax credits that are set to expire at the end of this year will be extended.

And we like many others have been using our voices and knowledge to urge that they be extended. This is yet another example of the headwinds that seem always to occur 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.

Conference Operator: Thank you. We will now begin the question and answer session. You have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again.

If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset Our first question comes from Tito Chickering from Deutsche Bank. Please go ahead.

Tito Chickering, Analyst, Deutsche Bank: Hey, good morning guys. Thanks for taking my question. Can you talk about the hospital admin fees? I think those are previously guided to be flattish. What percent of the pricing growth in the second quarter came from admin fees?

Can you tell us sort how these negotiations are going and sort of how we should think about these admin fees as we

Whit Mayo, Analyst, Leerink Partners: head into 2026?

Cassandra Rossi, Chief Financial Officer, Pediatrics Medical Group: Sure. So late in 2024, we did say that we expected hospital admin fees to be in the flattish range. In Q1, we did see same unit growth there of just about 10% of pricing. This quarter, it was definitely north of that and our admin fees made up about a third of our pricing growth. We talked to operations and they’ve said they have certainly been targeting some key programs, both from a renewals perspective and certain asks.

We’ve been able to work with our hospital partners to demonstrate the value we bring and substantiate the asks that are 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.

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: Yeah, I would say this goes hand in hand with our efforts to really bolster our relationships with our hospital partners. We’re not shy about looking for support where it’s warranted. And we believe we operate very efficiently. And we’re providing an absolutely urgent service to our hospital partners. So we feel comfortable in that area.

You always have to justify what you’re doing, but we think we’re good at that.

Tito Chickering, Analyst, Deutsche Bank: Okay. And then a follow-up here. Let’s say you increase your admin fee by, let’s say 1%. What is the flow through on how much sort of goes back into doctor compensation versus to corporate? Just trying to figure out and then the timing of when this do occur.

Cassandra Rossi, Chief Financial Officer, Pediatrics Medical Group: Probably somewhere in the 30% to 40% range.

Tito Chickering, Analyst, Deutsche Bank: Is it pretty immediate to flow through?

Cassandra Rossi, Chief Financial Officer, Pediatrics Medical Group: Yes, pretty immediate.

Tito Chickering, Analyst, Deutsche Bank: Okay. So next question, just NICU growth was exceptionally strong this quarter. Just any color on sort of what’s driving the NICU growth? Is it just a large number of babies? Is market share sort of comps, kind of what drove that 6% NICU growth this quarter?

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: It’s really the factors that we talked about before. There’s no one particular driver of it. And we mentioned one of the things we highlighted was that acuity is certainly up. It’s hard to parse where it’s all coming from. So it was just overall strong in really every regard.

Tito Chickering, Analyst, Deutsche Bank: Okay. And the last one here for me, just looking at sort of this big beautiful bill, looking at the Medicaid impact for expansion states, how would that flow through into you guys just as think about sort of moms and kids sort of versus change the policy kind of how that flow through to you guys? Thank you so much.

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: You’re asking specifically about the expansion states?

Tito Chickering, Analyst, Deutsche Bank: Correct. Exactly, just for the expansion states.

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: Well, it’s not clear yet how that will flow through. A lot of the details of how that’s going to work are not clear. I stressed earlier that 60% of our volume is in the non expansion states. So we think that the effect will and it phases in over time. So we’re not taking it lightly at all, but we think that as you see the rules around who is covered and who is not covered, because it specifically carves out pregnant women.

We’ll see how that flows through. And we think we have both the time and understanding to manage through it as it becomes clearer.

Tito Chickering, Analyst, Deutsche Bank: Yeah, mean, that’s sort of my question. Just as I think about your patients being pregnant moms and or kids, I guess I’m struggling to sort of see how either of those are going be the ones being cut from lives simply because it seems moms, kids, and 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 there would almost be any cuts to you guys coming from the big beautiful bill.

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: We hope that’s the case. And as you know, in any legislation, it’s the details on how it’s implemented that have not yet been announced. But given that in the very initial wording of the bill, these were pointed out, and I read it the same way you do, the intent of the bill was aimed at a different area of the population, it gives us somewhere between confidence and hope that we won’t be targeted. So the fact that we are mostly in the non expansion states and the fact that legislators are keenly aware, including in those expansion states that their voters depend on necessary care, it gives us again somewhere between hope and confidence. And we have we punch above our weight in pointing these things out, I think, to the government and we’re active at that.

Tito Chickering, Analyst, Deutsche Bank: Great. Thanks so much and nice quarter.

Cassandra Rossi, Chief Financial Officer, Pediatrics Medical Group: Thank you. Thank you.

Conference Operator: Our next question comes from Whit Mayo from Leerink Partners. Please go ahead.

Whit Mayo, Analyst, Leerink Partners: Thanks. Mark, can you just elaborate more on buybacks, how you’re thinking about the buyback strategy and the pace of buybacks? Thanks.

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: Sure. Well, what I said is we what I said, I will sort of repeat it. We believe that in a turbulent time and throughout my career I’ve thought, 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 of our stock, say hey, you know, it’s a good time to have cash and to have flexibility.

Now, it’s not our job to hoard cash. We’re not a mutual fund. So we want to be careful about what we do. The reason we added Greg and we’ve bolstered our team in this regard is 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, 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 is 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.

We’re very pleased to have this flexibility and we’re not going to just sit around and watch it.

Whit Mayo, Analyst, Leerink Partners: Okay. Now that’s helpful. My follow-up is just, we can all see the activity with IDR and arbitration, some of the payers as you know are talking about it. Just any update there? I mean, we can see you’re winning claims.

Is this not a favorable development? And maybe just comment on whether or not the plans are in fact paying you. Thanks.

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: Yes. That process, while painful for everybody, has gone well for us. We’ve done very well in the process. I would say, as you know, we are overwhelmingly in network. Continue to overwhelmingly be in network.

In a few cases where we were out of network, people have wanted us back in network. We provide the necessary service. So I would say certainly versus what people have feared and in some cases continue to fear, it’s gone a lot better than we had worried about.

Whit Mayo, Analyst, Leerink Partners: Okay, thanks.

Conference Operator: Our next question comes from Tao Qui from Macquarie. Please go ahead.

Tao Qui, Analyst, Macquarie: Thank you. Good morning. Just want to drill down a little bit on the guidance. If you annualize the first half numbers, you reach the lower end of your guidance range. When we consider normal seasonality that should push you above your current guidance range.

I understand you mentioned a cautious view on the hospital landscape. I’m just curious, we’re talking about potential headwind coming down the pipe. Is it on the revenue expense of both? And maybe what is your outlook in terms of the cadence of margins for the balance of the year? Thank you.

Cassandra Rossi, Chief Financial Officer, Pediatrics Medical Group: So I think when we talked a little bit about our guidance and when we raised guidance last year last quarter, we talked about the fact that as we move through 2025, the comps do get a little bit tougher. We had that volume top line increase in Q1. That was our easiest comp of twenty twenty five. Got a little bit tougher in Q2, but we really did start to see growth in the back half of 2024. So the comps will be a bit tougher as we move through the year.

So I think that’s why when we moved our guidance up, it really was specifically related to what we saw in Q1 and Q2. But we do expect margins to be fairly stable as we move through the 2025.

Tao Qui, Analyst, Macquarie: Great. And then a follow-up on the budget impact. A lot of your business originated from the hospitals, right? When we think about the regulatory and reimbursement changes, hospital seems to be the biggest victim there. What is your contracting discussion with hospital like these days?

Are they looking to contract their service lines down the line if this headwind persists?

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: No, we’re not seeing that. We’re not seeing that at all. Again, provided unbelievably necessary service. And it’s very important in the overall financial picture for hospitals. So we’re not seeing people retreating from this.

Now, I do fear that it will have an effect in rural areas and other underserved areas of the population if this isn’t done with proper care. But we overwhelmingly are in level three and level four NICUs. And even level one and level two NICUs provide an absolutely vital service, which is really very important to the financial well-being of the hospital and to the patient outcomes. So we’re not seeing that at all. What we are seeing is that we provide the necessary service.

We spend our days and nights reinforcing that with 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 earlier, that we are aggressively looking at hospital systems that are growing, that are thinking about like a hub and spoke model for what they’re doing and how we can be partners with them as they grow.

Tao Qui, Analyst, Macquarie: Excellent, thank you.

Conference Operator: And we have no further questions at this time. Please continue.

Mark Ordan, Chief Executive Officer, Pediatrics Medical Group: Well, if there are no more questions, I think we’re set. 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 believe that investing in our operations is a very wise thing for today and going forward.

And we appreciate your support.

Conference Operator: Thank you. That does conclude our conference for today. Thank you for your participation. You may now disconnect.

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