Ladies and gentlemen, thank you for standing by and welcome to the MEDNAX Fourth Quarter and Year-End 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at that time.

[Operator Instructions] As a reminder, your conference is being recorded. I would now like to turn the conference over to Charles Lynch, Senior Vice President, Finance and Strategy. Please go ahead..

Thank you, Operator, and good morning, everyone. I'll quickly read our forward-looking statements and then turn the call over to Marc. 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 MEDNAX’S 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 MEDNAX 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 most recent annual report on Form 10-K, it’s quarterly reports on Form 10-Q and it’s current reports on Form 8-K, 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.MEDNAX.com, With that I will turn the call over to our CEO, Mark Ordan..

Thanks, Charlie. Good morning everyone. Also with me today are Marc Richards our CFO, Dr. Mack Hinson, who leads Pediatrics and after Jim Swift, our Chief Development Officer. Our fourth quarter results were in line with our expectations and reflect a strong recovery from a rough prior year period.

Total births at the hospitals where we provide NICU services were up 5% on a same-unit basis, and our NICU days were up 5.6%. Our payer mix was favorable year-over-year. And in fact, for the full year reflects a slightly favorable comparison to pre -pandemic levels.

You'll see that we recorded a significant amount of funds from the Era's actor in the quarter, which reflects applications we submitted for the periods in 2020 when our operations were disrupted during the COVID pandemic.

As we've done in the past, we've provided details in our filings of the contributions of these funds to revenue and adjusted EBITDA in order for you to make a proper comparison to your own projections. We also achieved solid results in 2021 versus pre -pandemic levels.

Compared to 2019 our same-unit volumes for the year as a whole grew by roughly 1%, despite a 2.5% decline in the first quarter of last year. Perhaps, just as important, our 2021 results don't fully reflect the many improvements we made in our business during the year, particularly in our efficiency.

As we've discussed in the past, our transition of our revenue cycle operations to R1 provides us with meaningful savings. And these began to be seen only in Q3 of last year. We're also now fully done with our transitional service agreements related to past sales of our anesthesia and radiology businesses. This finally enables full focus on our core.

And while it's a below the line item, we expect that our recent refinancing transactions will reduce our ongoing interest expense in 2022 by more than $30 million compared to 2021. Also, we have now completed our budget process for 2022.

And based on that process, we are now reaffirming our expectation that absent any major external events, adjusted EBITDA for 2022 will be at least $270 million with revenue in the $2 billion range. Marc will walk through some of the major components of this outlook.

But for those of you keeping models as you make comparisons to our 2021 results, keep in mind that these results include meaningful contributions from Care's funds, which totaled $26 million in revenue and $16.5 million in Adjusted EBITDA.

So what are we focused on today? On the card side, much of the work we did in 2021 and here in early 2022 has been focused on efficiency, and our G&A in the support of our affiliated practices and in our balance sheet. And we believe that there are additional efficiencies we can achieve this year and beyond.

But we've also laid out the groundwork for growth. And our core, our growth is led by Dr. Jim Swift, and in 2022, we will be laser-focused on our biggest relationships and how we can strengthen and expand them along with other opportunities in and around our core markets.

In Pediatric primary urgent care following our initial acquisition of NightLight Huston in early '21, and then on our investment in it and partnership with Brave Care earlier this month, we announced our entry into a second market with the acquisition of NightLight Orlando.

This acquisition gives us an immediate strong presence in Florida with 13 clinics that we will rebound -- excuse me, that we will rebrand as pediatrics and expand to include both primary and urgent care. We will also implement Brave Care as IT and operating platform that gives patients and their parents a truly seamless experience when they visit.

I want to welcome the entire NightLight Orlando team to the Pediatrics’ family. We continue to see clear strategic value in developing a robust network of pediatric primary and urgent care clinics.

At a high level, looking at our geography of existing services, we see an opportunity for us to have well more than a 100 pediatric clinics across our footprint. And the addition of NightLight Orlando moves us quickly in that direction, bringing our total footprint today to 21 clinics.

Keep in mind that this only represents two markets, Huston and Orlando which both offer clear room for expansion. I hope you see the opportunity for us as we move towards the addition of clinics and all of our top markets is very real.

We'll continue to look at a combination of acquired and DeNova clinics and under the DeNova side, we now have in place plans for new clinic development in three additional markets. Our expectation is that we could move toward opening of these clinics before the end of this year.

And in the meantime, we'll be adding to our development plans while also contemplating growth to additional acquisitions. Now let me talk about our brand. We are most excited to be moving towards operating under a unified Pediatrix brand.

Pediatrix is a well-known and of course, very respected name nationwide and we've used it within most of our affiliated practices for years. And in many cases, decades. Moving forward our affiliated practices and primary and urgent care clinics will operate as pediatrics.

Of course, the practices won't lose their current identity as that will sit right beside the Pediatrix name. While MEDNAX will continue to be our public company name, Pediatrix will be the name all of our partners know. Just as importantly, we wanted to be the name that all of our patients and their families know and trust.

To signify our core commitment, our new pediatric logo features three interlocking rings representing our dedication to women's, children's, and babies’ health. We recently added to our senior team a new Chief Marketing and Communications Officer who's already propelling the transformation and reinforcing our brand.

This branding process can help strengthen our existing relationships, open new opportunities for us, and drive the growth we're looking to achieve for our organization. We do not want to remain healthcare's best kept secret. I'll now discuss another important milestone we've achieved.

Over the past year we focused heavily on our environmental, social, and governance goals. Early in 2021, we formed a robust ESG Committee, chaired by our Chief Compliance Officer, as well as a newly appointed Senior Director of Diversity, Equity and Inclusion. I serve as a very active member of this committee.

And through this committee, we are making explicit our commitments to ESG policies, developing additional formal policies where necessary and ensuring that our reporting and external scoring fully reflects MEDNAX leading position as a health care provider and conscientious organization.

Thanks to this committee's work over the past year, I'm happy to say that we've improved our average ISS ESG quality score from over six to three. And I'll remind you, this is on a scale of one to ten and lower is better.

More important than just these scores, I fully believe that our continuing commitment to the principles of ESG can help make MEDNAX the employer of choice, a trusted partner to hospitals and clinicians across the country. And a public company that can meet the high standards of you, our shareholders. I will end with a comment about surprise billing.

Many have asked what affect the legislation in the interim final rule published last fall will have on us. Well, we're 95% in network with significant diversification of contracts and overall strong payer relationships. As a result, our direct exposure to changes in the arbitration process for out-of-network cases is limited.

However, if the IFR stands as is, payers could use this as a weapon during contract renewals. There have been many lawsuits and bipartisan pushback. And I've personally led a strong communications effort directly with agencies and legislators. We hope to see some modifications to the IFR before arbitration processes begin in April.

As a result of all this, I can't possibly quantify what, if any, effect this will have on us. To that end, our outlook for 2022 doesn't reflect any such speculation either. What I will say, though, is that we know how to manage through change and we have many management levels and our core structure to offset change.

Above all else, our commitment as always, is to maintaining our highest priority of supporting our affiliated practices and ensuring that they can provide the highest quality care to their patients. Now I'll turn the call over to Marc for additional financial details..

Thanks, Mark. And good morning, everyone. I'll add some more details to our outlook for '22 including how our recent activity is incorporated into that outlook. As Mark noted, we expect our revenue in ‘22 to be approximately $2 billion.

This outlook reflects expected revenue growth over 2021 that's about evenly divided between same unit growth and contributions from new contract sales and acquisitions. Again, keep in mind for comparison purposes that our '21 revenue includes $26 million in care responds.

On the cost side, we expect the combination of our direct support expenses, which I will define as practice salaries and benefits, as well as practice supplies and other operating expenses to represent a comparable percentage of revenue to what we saw in '21.

On the G&A side, our overall spend in Q4 of $59 million was down about $8 million sequentially, which primarily reflects sequential reductions in certain administrative costs, as well as RCM savings related to our agreement with R1.

Additionally, during the second half of '21, we completed the support services related to the TSA arrangement attached to the sale of our anesthesia organization. With those support activities now behind us, we believe there are additional efficiencies we can realize in 2022.

We believe that these efficiencies can more than offset normal inflationary in growth-related increases in G&A expenses such that within our outlook for '22 adjusted EBITDA, we expect a dollar decline in our G&A year-over-year from $263 million in '21 to approximately $250 million.

This combination of expected revenue and operating expenses yields our outlook of modest margin expansion. And thus adjusted EBITDA growth in XFAST of our expected revenue growth in '22.

For those of you keeping models, please keep in mind that our '21 adjusted EBITDA includes contributions from Cares Act funds, which added approximately $4 million in the first quarter of '21 and $11.8 million in the fourth quarter of '21. Your baseline growth assumptions should not include these contributions.

Below the adjusted EBITDA line, I'm happy to report the closing earlier this month of a comprehensive refinancing of our capital structure In connection with the refinancing, we redeemed our $1 billion 6-and-a-quarter 2027 notes and issued $400 million in new 5 in 3/8 notes due 2030.

And a $250 million term loan and evolved into a $450 million credit facility. Alongside the use of our cash on our balance sheet, we also reduced our total borrowings to approximately $750 million and our overall leverage profile to below three times adjusted EBITDA on a trailing 12-month basis.

With this refinancing, we also lowered our weighted average interest rate on borrowings at closings from six and a quarter to under 4%. And our annualized debt service expense is now reduced by more than half.

In all, we believe this refinancing provides MEDNAX with an efficient capital structure that offers optimal flexibility and liquidity for the foreseeable future.

Lastly, as a reminder, MEDNAX normally has a relatively low contribution to full-year adjusted EBITDA in the first quarter due to the restart of payroll taxes, 401(k) contributions, and other factors.

Based on these factors, we would expect that our first quarter contribution of adjusted EBITDA in '22, we'll be in the range of 16 to 17% of full-year adjusted EBITDA, which is consistent with what we experienced in '21. With that, now, I'll turn the call back over to Mark..

Thanks, Mark. We are ready for any questions..

Thank you [Operator Instructions] And our first question is from the line of Kevin Fischbeck from Bank of America, please go ahead..

Great. Thanks. I appreciate the comments on the price billing.

I guess I would just love to hear your thoughts on have there been any initial evidence from payers that they are trying to take advantage of this regulation in your initial conversations with contracting over the next year and to the extent for those of us who are worried that this could be an issue.

Is there a time period where you would say if we don't really see it in the numbers by Q2, Q3, Q4 that it really won't an issue to try and think about when this overhang might be lifted. Thanks..

Well, I'd say a few things. One is we've seen a variety of -- we have a variety of inputs. We have -- we said many contracts that have continued to be renewed at higher rates than before. We have other payers who are saying they want to see how things shake out before they determine how things will be renewed.

So far, it's really been a mix and I would say relatively limited. I think that most people like us are waiting to see whether the -- whether the exact IFR is in effect, the arbitration process starts, or whether it will be somewhat modified.

I do know that the administration and the various agencies have taken very seriously the comments that they've received. And I hope that will lead to some modifications. So I think in advance of that, it's hard to speculate about how things will go. We have so many contracts, we have hundreds of contracts with varying terms.

So it's not like you would see something immediate no matter what happens. So it's hard to answer that what we know in Q2 where things are or take longer to shake out, I would guess that if there were changes, they would be more coming in longer term than in '22, but it’s hard to speculate until we know more..

Thank you. The next question is from Matthew Borsch from BMO. Please go ahead..

I'm just going to ask on pricing [Indiscernible].

You're cutting out. Can you -- can you try it again you -- it's hard to hear you..

I'm sorry. I don't know [Indiscernible]. If you can't hear just skip me.

But my question is, are you assuming no impact whatsoever from supply stealing for this year?.

In our numbers that we've discussed, we're not assuming any impact from surprise billing. So what we've --.

I'm just trying --.

But --.

Sorry..

In our numbers and into 2-7 days that I -- that we are throughout, there's no effect from surprise billing. If you're asking if I expect any effect from surprise billing, it's too early to tell. What I do expect is that there will be some modification to the IFR based on all the comments that I know that the agencies receive.

And in conversations with the agencies which is admittedly one way, but I've had them directly. I think that they do understand the reason for the comments they receive and I'm hopeful that there will be some change..

Thank you. Our next question is from Ryan Daniels, from William Blair, please go ahead..

Ryan Daniels. Thanks for taking the question. I guess I just want to focus on the workforce pressures and I guess throughout this past year, we have heard numerous stories of the tough recruiting market and higher than wanted turnover.

So just kind of curious how that's progressed throughout the remainder of the year for you guys and even on the inflationary front, just kind of wondering if experienced any headwinds there.

And if so, kind of what are you doing to curb those hurdles?.

We haven't so far experienced anything that's material. We certainly face the same pressures. As a matter of fact, yesterday, our entire human resource team and recruiting team was together and we were talking exactly about this.

So there's been more pressure to have locums and other ways to staff than is typically the case but we haven't experienced the pressures that we know others have. Not so far. It is a tough environment and everything that we read in the paper affects us like everybody else. We just haven't seen it to the extent that others have so far..

Cool. Thanks for that. And if I could just add one quick follow-up on the Brave Care acquisition. Just kind of curious to -- do you have any update on the integration and how that's progressing, and I guess when you might expect to be fully integrated? Is there any information that you have on that would be appreciated? Thanks, yes..

Well, we're in the process of integrating their technology into our existing platforms, which we think we'll -- which we think will be done over the next -- over the coming months. And that will -- that will immediately affect the patient phasing experience in our clinics in both Houston and in Orlando.

And then as we open as --we open new clinics, they will all have the Brave technology and processes embedded in their operations..

Thank you. The next question is from Whit Mayo from SVB Leerink. Please go ahead..

Hey. Thanks. Good morning. Just looking at the receivables in the quarter, it jumped maybe 15% sequentially in the balance sheet reserve looks largely unchanged. I presume this is just maybe some timing issues if you could just maybe flush that out for us, it would be helpful..

Hey Whit. Marc Richards. Good morning. Yeah we've got -- we've got a couple of things. Our DSO at the end of the year went up by three days. Our accounts receivable has crept up a little bit. This was fully expected.

We transitioned our RCM function in the latter part of '21 and we expected that in connection with this transition we'd have some delays in terms of both billing and collections. So snapshot December 31, that's the case.

What we've seen over the past six weeks since then is a bring down of those and a reversion back to what I would call a stabilized DSO and unbilled AR bucket, so that wasn't a complete shock to us with.

Yeah, no. I figured that was probably it, just wanted to double-check. And looking at the 10-Q there were or 10-K, I should say, there were some disclosures around the newborn screening and something about CMS guidance. Not sure what to make of that. There were certainly a decline in the number of screenings and the hospitals performing screenings.

Can you just maybe help us understand what's happening and to put this into perspective? Thanks..

Yes. Hi? It's Charlie. In early 2021, CMS did make some selected changes to the coating inputs for newborn hearing screens that did have some impact on our revenue in different areas related to our hearing screening programs.

That's what you see in that disclosure because while we didn't really discuss it in great detail during 2021, it did have some headwind impact on revenue we derived through the hearing screen programs. We were certainly able to absorb that across overall business as you can see it through the year.

But that's where you see that impact as well as some of the operational changes we've made in different instances of pulling back on different hearing screening programs to put it in perspective while our national hearing screening programs represented significant geographic footprint, from a financial standpoint, it's not a hugely significant business for us.

It tends to be corollary to our neonatology practices and the like. But nonetheless, it was -- it warranted being discussed there because in hindsight, it did have a headwind effect for us during 2021, which by extension will not persist in '22..

Thank you. Our next question is from Tao Qiu from Stifel, please go ahead..

Hey, good morning. My first question is on the G&A guide. I know you got it to $250 million that's about 12.5% of revenue, below your target of 13%. I think you mentioned some additional saving opportunities there.

Could you give us more details on what these are? And could you maybe quantify the CM transaction? What opportunity on the expense side do you expect in 2022?.

I'll start on the general comments about overhead. I would say that now that we are fully focused on just pediatrics. And as I mentioned in my remarks, a reminder that we are no longer providing services under a TSA for either physiology or radiology, we think that that will enable us to operate more efficiently over time and find ways to save money.

I think that will be a constant drum beat. I think there will always ways to find, ways to do things in a more streamline fashion. Marc, you want to talk about R1? Sure. And with respect to call it a future savings relative to our RCM outsourcing initiative.

The rollout of that initiative was stacked in phases, such that towards the end of last year effectively all of our back-end functions and our hospital front-end functions were moved over to R1 with -- coming in '22, the remaining component of this transition, which is our ambulatory front-end functions.

So economics associated with that second transition are down the road, probably mid to late '22. I'll also make a comment, going back to the question about whether the -- an effective surprise billing would be -- how it would affect our 270 number for this year.

While the effective surprise billing, any effective surprise billing is not in that number, also, not in that number are the changes that we could make in the levers that I referred to before in our operations so that if there was a change from surprise billing, we believe we have many ways to offset it, which is why we are confident in our -- that we'll be above 270..

Got you. That's very helpful.

Could you give us an idea of the current investment pipeline on the Pediatric primary care and urgent care side? How many projects are you currently evaluating? And in terms of de novo, curious for a typical project how long does it take you when you get the clinic to stabilization?.

We are looking at several markets and in each of those markets, we're looking at several locations. As I referred earlier in Houston and Orlando where we have eight and 13 clinics respectively. We have enormous room to grow just in those markets.

So we have -- we have a -- somebody I've worked with for years who's a nationwide expert in real estate and in several of our markets, we see very similar opportunities. We are restricting ourselves to the markets where we already are and where we have a strong presence in the pediatric and hospital community.

You asked about the -- an individual clinic. I would say in order of magnitude. It's a couple of million dollars to open a clinic including the start-up costs. And they should usually get to a contribution level in around 18 months to 24 months..

Thank you. [Operator Instructions] And at this time there are no further questions in queue..

Great. Operator, everybody, thank you very much. Thank you for your continued support..

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T teleconference service. You may now disconnect..