Earnings call transcript: Pediatrix Medical Q4 2024 beats EPS forecast

Pediatrix Medical (TASE:BLWV) Group Inc. (MD) reported strong financial results for the fourth quarter of 2024, surpassing earnings expectations with an EPS of $0.51 compared to the forecasted $0.37. The company’s revenue also exceeded projections, reaching $502 million against a forecast of $487.06 million. Following these results, the company’s stock surged by 14.32%, reflecting positive investor sentiment. According to InvestingPro, the company maintains a GOOD Financial Health Score of 2.79, with particularly strong momentum and profit metrics. The platform’s analysis reveals 8 additional key insights about MD’s performance and potential.

Key Takeaways

• EPS of $0.51 beat the forecast of $0.37.
• Revenue of $502 million surpassed expectations.
• Stock price increased by 14.32% post-announcement.
• Strong same-unit revenue growth of 8.7%.
• Adjusted EBITDA for Q4 significantly above expectations at $69 million.

Company Performance

Pediatrix Medical Group demonstrated robust performance in Q4 2024, achieving a consolidated revenue growth of 1.1%. The company highlighted a strong same-unit revenue growth of 8.7%, which contributed to the overall positive financial results. This performance comes amidst a challenging healthcare provider landscape, where uncertainty has been prevalent.

Financial Highlights

• Revenue: $502 million, up from the forecasted $487.06 million.
• Earnings per share: $0.51, surpassing the expected $0.37.
• Adjusted EBITDA: $69 million, significantly above expectations.
• Operating cash flow: $135 million in Q4, compared to $73 million in the prior year.
• Net debt reduced to $386 million, with $230 million in cash reserves.

Earnings vs. Forecast

Pediatrix Medical’s Q4 2024 EPS of $0.51 represents a 37.8% surprise over the forecast of $0.37. This marks a substantial beat, indicating effective cost management and operational efficiency. The revenue also exceeded expectations by $14.94 million, reinforcing the company’s growth trajectory.

Market Reaction

The market reacted positively to Pediatrix Medical’s earnings report, with the stock price jumping 14.32% to $16.13, nearing its 52-week high of $16.41. This surge reflects strong investor confidence in the company’s financial health and strategic direction. The stock has delivered an impressive 66.78% return over the past year, and InvestingPro analysis suggests the stock remains undervalued relative to its Fair Value. For detailed valuation metrics and comprehensive analysis, investors can access the Pro Research Report, part of InvestingPro’s coverage of 1,400+ US equities.

Outlook & Guidance

For 2025, Pediatrix Medical has provided preliminary adjusted EBITDA guidance of $215-$235 million, with anticipated full-year revenue of approximately $1.8 billion. The company expects flat volume and pricing, with the first quarter projected to contribute around 17% of the annual adjusted EBITDA.

Executive Commentary

CEO Mark Ordan emphasized the importance of the company’s workforce, stating, "We are nothing but our people." He also highlighted the strength of relationships with hospital partners, saying, "We have strong and continuous conversations with our hospital partners." Ordan noted the company’s cautious approach to guidance, given the current economic environment.

Risks and Challenges

• Healthcare sector uncertainty could affect revenue stability.
• Potential changes in payer mix might impact profitability.
• Macroeconomic pressures could influence operational costs.
• Competition for top clinical talent remains a challenge.
• Regulatory changes in healthcare could affect strategic plans.

Q&A

During the earnings call, analysts inquired about potential opportunities in hospital professional fees and trends in the payer mix. The company also addressed its focus on strengthening hospital relationships and clinician recruitment, indicating strategic priorities for the upcoming quarters.

Full transcript - Pediatrix Medical Group Inc (MD) Q4 2024:

Tammy, Conference Operator: Thank you for standing by. My name is Tammy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Pediatric Medical Group Inc. Fourth Quarter twenty twenty four Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

After the speakers’ remarks, there will be a question and answer session. Thank you. I would now like to turn the conference over to Charles Link. Please go ahead, sir.

Charles Link, Executive/Legal Representative, Pediatric Medical Group Inc.: Thank you, operator. Good morning, everyone. Welcome to our fourth quarter earnings call. I’ll quickly read our forward looking statements and then turn the call over to Mark. 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 reports on Form 10 Q and our annual report on Form 10 K and on our website at www.pediatrics.com.

With that, I’ll turn the call over to our CEO, Mark Ordan.

Mark Ordan, CEO, Pediatric Medical Group Inc.: Thank you, Charlie, and good morning, everyone. Also with me today is Cassandra Rossi, our Chief Financial Officer. First, I want to thank Charlie, who will be departing at the end of this month. Charlie’s contributions to our strategic goals and the communication of those goals to you will be missed. Please join me in wishing him well in his future endeavors.

I want to begin by thanking our Board of Directors for reappointing me as Chief Executive Officer after serving as Executive Chair. I’m excited to return to this role and particularly at this point in time for the company following a period of such significant change. As I’ll explain in a few minutes, I returned out of optimism about our prospects. I will begin with our fourth quarter results and then spend time on our strategic priorities for 2025 and beyond. We finished 2024 with very strong fourth quarter and therefore year end results.

Our same unit revenue growth was strong driven by continued favorable payer mix and positive volumes. Our same unit cost trend continued down compared to the third quarter as well. As a result, adjusted EBITDA of $69,000,000 was significantly above the expectations we provided in our updated guidance last year. From a strategic standpoint, we completed our portfolio restructuring on time, exiting practices that represented $200,000,000 in annual revenue and a clear drag on earnings with their requisite overhead. I work very closely with our operating teams who were incredibly focused on this goal.

We have very hard work ensured that we were able to begin 2025 with a more focused portfolio and a more efficient operating team. Similarly, the successful transition of our revenue cycle management function to a hybrid model enables us to focus this year first on ensuring the stability of our now very improved RCM process and then on continued improvement in our performance. Next (LON:NXT), I’ll add my thoughts on our strategic priorities following our portfolio restructuring and RCM transition. First, we start with a sector leading balance sheet with net debt of about 1.7 times. This affords us with flexibility and opportunities, which is most important in turbulent times.

We now have a smaller footprint resulting in a more focused and more efficient organization and our priorities are quite clear. We will first and foremost prioritize patient centric care by providing optimal support to our clinicians and our practices. We will seek to strengthen our hospital and health system relationships and we will look good stewards of our financial our improved financial position and our cash flow. I also fully believe that the net result of following these priorities can be consistent, visible and strong operating results. With that in mind and based on a robust budgeting process in which we focused on both the headwinds and opportunities we faced in 2025, This morning, we provided a preliminary expectation of adjusted EBITDA of between $215,000,000 and $235,000,000 Cassandra will shortly provide some additional thoughts, but we believe that this represents a rigorous, yet realistic and achievable outlook for our business this year, which we will obviously revisit an update as appropriate coming quarters.

I anticipate that some of you are wondering with the strength of our business and all that we accomplished, why not guide to a higher number? Bear in mind that adjusted for the LEAP year, 2024 adjusted EBITDA was roughly $220,000,000 So at midpoint of 2025 guidance of $225,000,000 is of course an increase. As I began my remarks, I returned to pediatrics as CEO because I see a real opportunity to further transform the company to better hospital relationships, better recruiting, which by the way will report to me and growth and opportunities that both of these will afford. We are of course mindful that we are in a period of great uncertainty with headwinds in the healthcare provider space. These headwinds make us realistic about the year ahead, but in no way do they counter our optimism.

With that, I’ll turn the call over to Sandra.

Cassandra Rossi, Chief Financial Officer, Pediatric Medical Group Inc.: Thanks, Mark, and good morning, everyone. I’ll provide some details of our fourth quarter results and then I’ll discuss some of the parameters of our preliminary 2025 outlook. Our consolidated revenue growth of just over 1% reflected strong same unit growth of 8.7%, largely offset primarily by the impact of our portfolio restructuring activity. In total, this impact was just over $35,000,000 reflecting a large share of the annualized $200,000,000 in revenue that our restructuring represented based on 2023 financials. On the cost side, the decline in practice level SW and B expenses also reflected our portfolio restructuring.

On a same unit basis, the growth in these expenses continued to decelerate as compared to both the prior year period and on a sequential basis. I’ll note that while this trend is encouraging, same unit salary expense growth continued to be above the average range of 2% to 3% that we saw pre-twenty twenty two. The increase in our G and A expense on a year over year basis primarily reflected incentive compensation based on strong financial results. The additional staffing we added through most of 2024 as part of our hybrid RCM model was offset by efficiencies we have created through the year through staffing reductions across other shared services. Moving to cash flow.

We created $135,000,000 in operating cash flow in the fourth quarter compared to $73,000,000 in the prior year. Partially driving the strong cash flow was a sequential decline in our accounts receivable DSO, which ended the year at 47.5 days compared to fifty one point five days at September 30, which as you may recall, we attributed to RCM transition related activities. Our capital expenditures were $3,500,000 As a result of this cash generation, we ended the year with cash of $230,000,000 reducing our net debt to $386,000,000 from $515,000,000 at September 30. This reflects net leverage of just over 1.7 times based on our reported twenty twenty four adjusted EBITDA. With respect to the cash on our balance sheet, we expect to use a good portion of that cash to fund physician incentive compensation payments and other benefit payments, namely our four zero one matching contribution that we always make during the first quarter of the year and we will not have to draw on our revolver.

As we move through 2025, we would expect to build cash again and Mark and I will work with our Board of Directors to determine our best course. Turning to our preliminary 2025 outlook, as Mark said, this outlook is the result of a robust budgeting process and also reflects the finalization of our 2024 portfolio restructuring plan. From a modeling perspective, this outlook contemplates full year revenue of approximately $1,800,000,000 It also contemplates full year G and A expense in the range of $220,000,000 to $230,000,000 compared to our 2024 G and A of $238,000,000 Lastly, I’ll note the normal seasonality of our quarterly results. Within our expectations of full year adjusted EBITDA of $215,000,000 to $235,000,000 we anticipate that our first quarter twenty twenty five adjusted EBITDA will represent approximately 17% of that annual expected range. There are a number of known factors we incorporated into our 2025 outlook.

The first of these is the expected EBITDA benefit of our portfolio restructuring plan. Recall that our total expected benefit is approximately $30,000,000 on an annualized basis, roughly a third of which we realized during 2024. In addition, as Mark referenced, 2024 was a leap year, which contributed about $4,000,000 in adjusted EBITDA last year, all else being equal. Finally, we have not factored any contribution to our results from M and A activity in 2025. While we are always pursuing a pipeline of additions to our core business, the timing and magnitude of any contribution is not incorporated into this outlook.

There are also other factors that we contemplated. First, while we are very pleased with the RCM transition that we completed in September of twenty twenty four, our focus for the first half of this year is in maintaining the stability of our performance under this hybrid model. While looking for additional improvements in that performance through process improvement and automation initiatives. Second, payer mix proved to be a strong positive factor in our 2024 operating results. This is not a business driver that we can control.

And as a result, we are not contemplating any trend change in 2025, which could impact our results in either direction. Finally, I noted that our underlying practice level cost trend improved throughout the second half of twenty twenty four. That trend remained above our historical range of 2% to 3%. This area is a key focus of our operating team, but it’s premature at this point to presume continued deceleration, particularly given the still inflationary environment we are in and the significant amount of recruiting and retention activity required across our organization. With that, now I will turn the call back over to Mark.

Mark Ordan, CEO, Pediatric Medical Group Inc.: Thank you, Cassandra. Operator, we will now open the call for questions.

Tammy, Conference Operator: Thank you. We will now begin the question and answer session. And your first question comes from the line of Ajay Rice with UBS. Your line is open.

Ajay Rice, Analyst, UBS: Hi, everybody. Good luck, Charlie, and welcome back, Mark. First, maybe just to drill down a little bit more on the 25 outlook. There’s a lot going on with the restructuring of the operations and some of the other things you called out. I wonder if you can just speak to what sort of level of embedded same facility volume growth and pricing expectations are you baking in and any other same store metrics to give us a little better sense of of what the underlying trends are when you normalize for everything else that’s going on?

Cassandra Rossi, Chief Financial Officer, Pediatric Medical Group Inc.: Sure. So for volume, I guess I’ll take them one at a time. For volume, we did have a bit of acceleration of volume in the back half of twenty four with NICU days coming in just under three percent and births were up about 30 basis points in Q4. The other stats for neonatology length of stay was flat, admit rate was slightly up. But we are takers of volume for the most part.

So we did include flat volume in our outlook for 2025. Talking about MFM, we did see mid single digit growth there all year and that was really based on a little bit of higher acuity resulting in some additional visits to our MFM clinic. But from a modeling perspective, we did assume that volume would be flat. Looking at pricing, we talked a little bit about payer mix and we know that payer mix was a massive tailwind for us in 2024. But we do anticipate that that will level off and of course as we work our way through 2025 that comp will get a little bit tougher.

So we do have that flat. On the managed care side, we talked about the fact that we expect 2025 to be pretty stable, which actually will take as a win in the hard and tough environment that we’re operating in where payers still are a bit immobile. And then on the RCM side, collections were really strong in the back half of 2024 and the metrics are looking great. But we did build in some improvement in 2025 into our outlook, but we are really focused on stabilization. And as we move through the year, we’ll see if we can kick that up a bit with automation initiatives and process improvement.

Of course, the biggest line in our cost trends are in the SW and D line. And as we mentioned, we did decelerate clinical comp expense for the third quarter in a row, getting that just above 3%, although again not in line with our historical trends of 2% to 3%. So we do see that flattening out, but if we can make some additional headway there, we’ll build that in as we move through the year.

Ajay Rice, Analyst, UBS: Okay. That’s great. Let me maybe just on the follow-up question. We heard a lot we’re hearing a lot from the hospital operators about professional fees and seeing demand for more subsidies, more support. And it seems like it’s gone from ER to anesthesiology and more recently, we’ve heard hospitals talk about radiology.

I wonder in your NICU management relationships, are you seeing any opportunities for improved economics? Any comment on what those discussions are like?

Mark Ordan, CEO, Pediatric Medical Group Inc.: We have strong and continuous conversations with our hospital partners and that’s always been a part of what we do. So we would expect going forward that that’s going to continue to be part of what we do. But we’re not baking in any into our forecast any increase. So we’ll report as we go along.

Ajay Rice, Analyst, UBS: Okay. All right. Thanks a lot.

Tammy, Conference Operator: Next question comes from the line of Jax Levin with Jefferies. Your line is open.

Jax Levin, Analyst, Jefferies: Hey, thanks. Good morning. Congrats on the quarter. And thanks to Charlie and and congrats stepping back in to Mark. Hopefully that covers the pleasantries.

I just want to touch on guidance. And I think you gave a lot of color. It’s really helpful. I guess just backing out the leap year, putting in the $20,000,000 from the restructuring, you get to $240,000,000 level, right? And so taking all the rest of the commentary, I guess the expectation is that wage inflation is going to outstrip core rate trends assuming payer mix is flat in the guide like you said.

Is that the right way to think about it and sort of to get to that sort of $5,000,000 to $25,000,000 kit versus a $2,400,000 sort of starting point when you adjust for those first two items? Am I thinking about that the right way?

Mark Ordan, CEO, Pediatric Medical Group Inc.: I think that when we thought about the appropriate range, think about the comment that Cassandra made and then I made earlier, there are enough headwinds in the provider space that just make us cautious. And obviously throughout the economy, this is a time of real uncertainty. So that tempered our thinking. And importantly, it’s mid February, but that’s why they say we’ll update. So there’s certainly is an opportunity to do better.

We just wanted to be careful in our guidance. It wasn’t because of a negative trend or something specific like that. It was just being mindful of the environment that we’re in and the uncertainty.

Jax Levin, Analyst, Jefferies: Okay, got it. That makes sense and appreciate that given I guess how much all of us are checking Twitter on a daily basis for sort of nebulous headwinds. One follow-up here. Maybe taking a step back, there’s something that’s perhaps positive that’s coming out of that same sphere of influence. There’s talk now that’s a little more positive on IVF.

I think it’s something that’s pretty clearly could be a large tailwind for you on a multiyear basis. Maybe if there’s color in terms of are you seeing any sort of benefit there? How should we think about that opportunity for you? Is this something you’ve looked at or something you’re contemplating as you look out a few years?

Mark Ordan, CEO, Pediatric Medical Group Inc.: So what I’d say is that we agree that it is a possible tailwind for us. We have not calculated that yet. And it’s not incorporated in our numbers, but we do see that as a potential strong tailwind.

Jax Levin, Analyst, Jefferies: Got it. Thanks. Thank you guys for the end of the quarter.

Mark Ordan, CEO, Pediatric Medical Group Inc.: Thank you. Thank you. And for the pleasantries.

Tammy, Conference Operator: Next question comes from the line of Whit Mayo with Leerink Partners. Your line is open.

Whit Mayo, Analyst, Leerink Partners: Hey, thanks. Good morning. First, a two part question. One, Cassandra, what do you think the earnings tailwind was in 2024 from the improving payer mix? And two, I don’t think that that mix development was incorporated within the initial plan that you developed last year.

So I’m curious when you isolate that one factor, Mark, how do you think about the overall performance of the business in all the other areas? Thanks.

Cassandra Rossi, Chief Financial Officer, Pediatric Medical Group Inc.: Sure. So on the payer mix tailwind, I think if you kind of take Q4 and you look at the same unit growth of about 9% with about 6% of that coming from pricing, payer mix is about a third of that. So it’s a meaningful number for 2024.

Mark Ordan, CEO, Pediatric Medical Group Inc.: And marketing is the overall change. I was just saying because of structural changes in the way payers, there’s been a migration toward exchanges, we don’t see this necessarily as stopping or reversing. But so this very well could hold, but we can’t positively update that.

Cassandra Rossi, Chief Financial Officer, Pediatric Medical Group Inc.: Yes. This is about the fifth quarter in a row that we did see some tailwind in payer mix. And like Mark said, if it is a permanent shift, we would expect that to level off. But like we mentioned in our prepared remarks, it going either way can of course move our numbers in either direction.

Whit Mayo, Analyst, Leerink Partners: Do you know what percent of your commercial revenues are coming from patients on the exchanges now?

Mark Ordan, CEO, Pediatric Medical Group Inc.: We don’t have that number.

Charles Link, Executive/Legal Representative, Pediatric Medical Group Inc.: Yes. We usually can’t see that with any specificity. So it’s a primary reason why we can’t truly validate that the exchange migration is the key driver. We don’t disagree with it, but we just can’t validate it through our data.

Whit Mayo, Analyst, Leerink Partners: Right. Okay. And maybe just one last one. Mark, just you referenced in your prepared comments some things about the business that give you, you see great opportunity, I think was your quote. Just what are some of the areas where you have the most optimism as you think about 2025?

Thanks.

Mark Ordan, CEO, Pediatric Medical Group Inc.: Well, actually, two that I filed out. Yes, well, I think it’s a short answer and we’re on it right now. There are two areas that I think are really key to our future success. One is really, really systematic work on our hospital relationships. I mean, it’s old fashioned, call it grinding or blocking and tackling, but that’s what we’re going to be very focused on.

Really going hospital system by hospital system to make sure we have the strongest relationships and that’s both with ones where we enjoy our relationship now and also with our perspective opportunity. The second is in recruiting. We are nothing but our people. And I think with another benefit of being more streamlined is we can really focus on how we do the best job possible in attracting and retaining amazing clinicians. We have for a long time had a happy home for people and we want to make sure that we really maximize what that can provide.

So that might seem amorphous, but it is the core of what we do and we’re going to be all over, we already are.

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

Tammy, Conference Operator: Next question comes from the line of Pito Chickering with Deutsche Bank (ETR:DBKGn). Your line is open.

Benjamin Shaver, Analyst, Deutsche Bank: Hey guys, you got Benjamin Shaver on for Pito. Just congrats on the nice quarter. I actually got a couple of questions on pricing first. So obviously very strong in the fourth quarter. I was just wondering sort of how much of that 5.9% came from improvements in hospital contract admin fees?

And then second part of that question is price was very strong in the second half of this year and I was wondering if that sort of comps into the first half of twenty twenty five? Thanks.

Cassandra Rossi, Chief Financial Officer, Pediatric Medical Group Inc.: So on the contract revenue hospital admin fees for the pricing component, it was probably just under a third there as well. And then on the payer mix as how that flows into 2025, we’re really just looking at flat pricing overall between payer mix, managed care, contract admin fees and then a little bit of a bump up in RCM collections.

Benjamin Shaver, Analyst, Deutsche Bank: Got you. That makes sense. And then I just wanted to hit the on exiting the primary and urgent care clinics. You mentioned that that was going to be roughly a $30,000,000 tailwind like favorable EBITDA tailwind. And I was wondering if you could break out the split of how much you guys recognized of that in 2024 and how much of that tailwind is going to be

Mark Ordan, CEO, Pediatric Medical Group Inc.: a tailwind to 25%?

Cassandra Rossi, Chief Financial Officer, Pediatric Medical Group Inc.: Yes. So really, we consider the primary and urgent care exit as part of the entire portfolio restructuring. So that’s included in that $30,000,000 lift in EBITDA of which we realized about a third of that in 2024 and the rest will come through in 2025, but it wasn’t a discrete event. It was really an entire portfolio restructuring.

Mark Ordan, CEO, Pediatric Medical Group Inc.: Yes. And most of it was not related to primary and urgent care. Right. It was to be really broad array of ambulatory practice. And importantly the overhead that accompanies that.

Benjamin Shaver, Analyst, Deutsche Bank: Got you. That makes sense. That’s super helpful. And then just the last question on sort of your capital allocation. You mentioned that you obviously finished the quarter with a lot of cash on the balance sheet.

You guys are generating cash as well. You mentioned you had no real plans for M and A and you’re going to mainly be using Dycash to just support and continue to invest in your business. I assume that most of the stuff that you mentioned happens every year, right? So I was just wondering if you got to have any clarity on maybe any leverage targets that you’re looking at and sort of how you’re thinking about returning cash to shareholders? Thanks.

Mark Ordan, CEO, Pediatric Medical Group Inc.: Well, as I mentioned in my prepared remarks, and we all know it in a period like this with a lot of turbulence, we think having an incredibly strong balance sheet is very, very helpful. It provides us with opportunities in a lot of areas and that could include M and A. But it’s early in the year and we’ll watch how the year progresses, how the sector progresses. And then as Cassandra said, we’ll work with our Board of Directors to decide what our best course. Certainly, if you think we should do something paying down debt further or something else to return money to shareholders, we’ll look at what the best use of our money is.

But this has been a sector that has not rewarded people for having high leverage. And we anticipated that and we also learned from it. So we’re very pleased to where we are.

Benjamin Shaver, Analyst, Deutsche Bank: That makes a lot of sense. Thanks. That’s super helpful. That’s all I have, but congrats again on the nice quarter.

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

Charles Link, Executive/Legal Representative, Pediatric Medical Group Inc.: Thanks, Jack.

Tammy, Conference Operator: There are no questions at this time. I would now like to turn the call back over to Mark Ordan for closing remarks.

Mark Ordan, CEO, Pediatric Medical Group Inc.: Thank you all for tuning in today and for your support and your good questions. And again, Charlie, we wish you all the best along with our thanks. Have a great day.

Tammy, Conference Operator: This concludes today’s conference call. You may now disconnect.

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