Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion highlights the principal factors that have affected our financial condition and results of operations, as well as our liquidity and capital resources, for the periods described. This discussion should be read in conjunction with the unaudited Condensed Consolidated Financial Statements and the notes thereto included in this Quarterly Report. In addition, reference is made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2018, filed with the Securities and Exchange Commission on February 14, 2019 (the “2018 Form
10-K”).
As used in this Quarterly Report, the terms “MEDNAX”, the “Company”, “we”, “us” and “our” refer to the parent company, MEDNAX, Inc., a Florida corporation, and the consolidated subsidiaries through which its businesses are actually conducted (collectively, “MDX”), together with MDX’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (“affiliated professional contractors”). Certain subsidiaries of MDX have contracts with our affiliated professional contractors, which are separate legal entities that provide physician services in certain states and Puerto Rico. The following discussion contains forward-looking statements. Please see the Company’s 2018 Form
10-K,
including Item 1A, Risk Factors, for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. In addition, please see “Caution Concerning Forward-Looking Statements” below.
MEDNAX is a leading provider of physician services including newborn, anesthesia, maternal-fetal, radiology and teleradiology, pediatric cardiology and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in 39 states and Puerto Rico. Our affiliated physicians provide neonatal clinical care, primarily within hospital-based neonatal intensive care units, to babies born prematurely or with medical complications; anesthesia care to patients in connection with surgical and other procedures, as well as pain management; radiology services including diagnostic imaging and interventional radiology; and maternal-fetal and obstetrical medical care to expectant mothers experiencing complicated pregnancies primarily in areas where our affiliated neonatal physicians practice. Our network also includes other pediatric subspecialists, including those who provide pediatric intensive care, pediatric cardiology care, hospital-based pediatric care, pediatric surgical care, pediatric ear, nose and throat, pediatric ophthalmology and pediatric urology services. MEDNAX also provides teleradiology services in all 50 states, the District of Columbia and Puerto Rico through a network of affiliated radiologists. In addition to our national physician network, we provide services nationwide to healthcare facilities and physicians, including ours, through a consulting services company.
Divestiture of the Management Services Organization
On November 1, 2018, we announced the initiation of a process to potentially divest our management services service line, which operates as MedData, to allow us to focus on our core physician services business. We determined that the criterion to classify the management services service line as assets and liabilities held for sale within our consolidated balance sheets were met at March 31, 2019 and continue to be met at September 30, 2019. Accordingly, the assets and liabilities of the management services service line were classified as current assets and liabilities held for sale as of September 30, 2019. In addition, in accordance with the accounting guidance for discontinued operations, the expected divestiture of the management services service line was deemed to represent a fundamental strategic shift that will have a major effect on the Company’s operations, and accordingly, the operating results of the service line were reported as discontinued operations in the consolidated statements of income for the three and nine months ended September 30, 2019.
On October 10, 2019, we entered into a securities purchase agreement to divest of the management services organization. The transaction closed on October 31, 2019. Pursuant to the terms and conditions of the agreement, at the closing of the transaction, we received a cash payment of $250.0 million, subject certain net working capital and similar adjustments, as well as contingent economic consideration in an indirect holding company of the buyer, the value of which is contingent on both short and long-term performance of MedData and the maximum amount payable in respect of which is $50.0 million. We anticipate certain cash tax benefits from the transaction in the coming quarters. We expect to use net proceeds from the transaction for debt repayment, share repurchases and strategic acquisitions.
Reclassifications have been made to certain prior period financial statements and footnote disclosures to conform to the current period presentation, specifically to reflect the impact of the management services organization being classified as assets held for sale and discontinued operations.
2019 Acquisition Activity
During the nine months ended September 30, 2019, we completed the acquisition of two neonatology physician group practices, two maternal-fetal medicine physician group practices and two other pediatric subspecialty physician practices. Based on our experience, we expect that we can improve the results of acquired physician practices through improved managed care contracting, improved collections, identification of growth initiatives and operating and cost savings based upon the significant infrastructure that we have developed.
Goodwill Impairment Charge
Goodwill is tested for impairment at a reporting unit level on at least an annual basis, in accordance with the subsequent measurement provisions of the accounting guidance for goodwill. Consistent with prior years, we performed our annual impairment test in the third quarter, specifically as of July 31, 2019. We used a combination of income and market-based valuation approaches to determine the fair value of our reporting units. Based on the analysis performed, we recorded a
non-cash
impairment charge of $1.30 billion during the three months ended September 30, 2019, nearly all of which related to our anesthesiology reporting unit. Recognition of the
non-cash
charge against goodwill
resulted in a tax benefit which generated an additional deferred tax asset of $147.2 million that increased the fair value of the reporting units. An incremental
non-cash
charge is then required to reduce the reporting units to their previously determined fair value. Accordingly, we recorded the incremental
non-cash
charge of $147.2 million for a total
non-cash
charge of $1.45 billion. The primary factors driving the
non-cash
impairment charge were (i) a change in management structure effective during the third quarter that resulted in the determination of reporting units at one level below our single operating segment of physician services, which is also our single reportable segment, (ii) the decrease in our share price used in the market capitalization reconciliation and (iii) changes in the assumptions used in the valuation analysis, specifically the discount rate used in the cash flow analysis which included a company specific-risk premium. Our goodwill balance at September 30, 2019 after the
non-cash
impairment charge was $2.63 billion. We believe that the current assumptions and estimates used in our goodwill analysis are reasonable, supportable and appropriate. A 1% change in the discount rate used in the cash flow analysis would have impacted the
non-cash
impairment charge in the range of $75.0 million to $90.0 million.
Shared Services and Operational Initiatives
We have developed a number of strategic initiatives across our organization, in both our shared services functions and our operational infrastructure, with a goal of generating improvements in our general and administrative expenses and our operational infrastructure. In our shared services departments, we are focused on improving processes, using our resources more efficiently and utilizing our scale more effectively to improve cost and service performance across our operations. Within our operational infrastructure, we have developed specific operational plans within each of our service lines and affiliated physician practices, with specific milestones and regular reporting, with the goal of generating long-term operational improvements and fostering even greater collaboration across our national medical group. We currently intend to make a series of information-technology and other investments to improve processes and performance across our enterprise, using both internal and external resources. We are targeting annualized financial improvements related to these initiatives of $40 million within general and administrative expenses and $80 million in operational improvements by the end of 2019. We achieved the goals we established for these initiatives of $60 million in improvements in 2018, comprised of $25 million within shared services and $35 million in operational improvements, and we remain committed to achieve the remaining improvements by the end of 2019, although there is no assurance that these improvements will be obtained. We believe these strategic initiatives, together with our continued plans to invest in focused, targeted and strategic organic and acquisitive growth, position us well to deliver a differentiated value proposition to our stakeholders while continuing to provide the highest quality care for our patients.
In February 2019, we completed a private offering of $500.0 million aggregate principal amount of 6.25% senior unsecured notes due 2027 (the “Additional 2027 Notes”), which are treated as a single class together with the 6.25% senior unsecured notes due 2027 that we issued in November 2018 (“the Initial 2027 Notes” and, collectively with the Additional 2027 Notes, the “2027 Notes”). Our obligations under the 2027 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee our credit agreement (the “Credit Agreement”). We used the net proceeds of approximately $491.7 million from the issuance of the Additional 2027 Notes to repay a portion of the indebtedness outstanding under our Credit Agreement. Interest on the 2027 Notes accrues at the rate of 6.25% per annum and is payable semi-annually in arrears on January 15 and July 15.
Common Stock Repurchase Programs
In July 2013, our Board of Directors authorized the repurchase of shares of our common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under our equity compensation programs. The share repurchase program allows us to make open market purchases from
time-to-time
based on general economic and market conditions and trading restrictions. The repurchase program also allows for the repurchase of shares of our common stock to offset the dilutive impact from the issuance of shares, if any, related to our acquisition program. We did not repurchase any shares under this program during the nine months ended September 30, 2019.
In August 2018, we announced that our Board of Directors had authorized the repurchase of up to $500.0 million of shares of our common stock in addition to our existing share repurchase program, of which $250.0 million remained available as of December 31, 2018. Under this share repurchase program, during the nine months ended September 30, 2019, we repurchased approximately 5.1 million shares of our common stock for $144.9 million, inclusive of 83,341 shares withheld to satisfy minimum statutory withholding obligations of $2.1 million in connection with the vesting of restricted stock.
We may utilize various methods to effect any future share repurchases, including, among others, open market purchases and accelerated share repurchase programs.
General Economic Conditions and Other Factors
Our operations and performance depend significantly on economic conditions. During the three months ended September 30, 2019, the percentage of our patient service revenue being reimbursed under government-sponsored or funded healthcare programs (the “GHC Programs”) was slightly favorable as compared to the three months ended September 30, 2018. If, however, economic conditions in the United States deteriorate, we could experience shifts toward GHC Programs, and patient volumes could decline. Further, we could experience and have experienced shifts toward GHC Programs if changes occur in population demographics within geographic locations in which we provide services. We have also experienced, and could continue to experience, a shift toward GHC Programs, particularly in anesthesia care. Payments received from GHC Programs are substantially less for equivalent services than payments received from commercial insurance payors. In addition, due to the rising costs of managed care premiums and patient responsibility amounts, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services.
The Patient Protection and Affordable Care Act (the “ACA”) contains a number of provisions that have affected us and, absent amendment or repeal, may continue to affect us over the next several years. These provisions include the establishment of health insurance exchanges to facilitate the purchase of qualified health plans, expanded Medicaid eligibility, subsidized insurance premiums and additional requirements and incentives for businesses to provide healthcare benefits. Other provisions have expanded the scope and reach of the Federal Civil False Claims Act and other healthcare fraud and abuse laws. Moreover, we could be affected by potential changes to various aspects of the ACA, including subsidies, healthcare insurance marketplaces and Medicaid expansion.
The ACA remains subject to continuing legislative and administrative flux and uncertainty. In 2017, Congress unsuccessfully sought to replace substantial parts of the ACA with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets. Additionally, Centers for Medicare & Medicaid Services (“CMS”) has administratively revised a number of provisions and may seek to advance additional significant changes through regulation, guidance and enforcement in the future. At the end of 2017, Congress repealed part of the ACA that required most individuals to purchase and maintain health insurance or face a tax penalty. The 2018
mid-term
elections in November 2018 changed the balance of power in Congress and the results of the upcoming 2020 elections may change the direction of future health-related legislation. Several candidates for President have proposed legislation which would substantially modify the delivery of healthcare in the United States, including repealing the ACA and replacing all private insurance coverage with a government-sponsored plan such as Medicare.
If the ACA is repealed or further substantially modified, or if implementation of certain aspects of the ACA are diluted, delayed or replaced with a “Medicare for All” or single payor system, such repeal, modification or delay may impact our business, financial condition, results of operations, cash flows and the trading price of our securities. We are unable to predict the impact of any repeal, modification or delay in the implementation of the ACA, including the repeal of the individual mandate or implementation of a single payor system, on us at this time.
In addition to the potential impacts to the ACA under the current Administration and Congress, there could be more sweeping changes to GHC Programs, such as a change in the structure of Medicaid by converting it into a block grant or instituting “per capita caps,” which could eliminate the guarantee that everyone who is eligible and applies for benefits would receive them and could potentially give states sweeping new authority to restrict eligibility, cut benefits and make it more difficult for people to enroll. Additionally, several states are considering and pursuing changes to their Medicaid programs, such as requiring recipients to engage in employment activities as a condition of eligibility for most adults, disenrolling recipients for failure to pay a premium, or adjusting premium amounts based on income.
As a result, we cannot predict with any assurance the ultimate effect of these laws and resulting changes to payments under GHC Programs, nor can we provide any assurance that they will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Further, any fiscal tightening impacting GHC Programs or changes to the structure of any GHC Programs could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.
The Medicare Access and CHIP Reauthorization Act
Medicare pays for most physician services based upon a national service-specific fee schedule. The Medicare Access and CHIP Reauthorization Act (“MACRA”) provides physicians 0.5% annual increases in reimbursement through 2019 as Medicare transitions to a payment system designed to reward physicians for the quality of care provided, rather than the quantity of procedures performed. MACRA requires physicians to choose to participate in one of two payment formulas, Merit-Based Incentive Payment System (“MIPS”) or Alternative Payment Models (“APMs”). Effective January 1, 2019, MIPS allows eligible physicians to receive incentive payments based on the achievement of certain quality and cost metrics, among other measures, and be reduced for those who are underperforming against those same metrics and measures. As an alternative, physicians can choose to participate in advanced APMs, and physicians who are meaningful participants in APMs will receive bonus payments from Medicare pursuant to the law. MACRA also remains subject to review and potential modification by Congress, as well as shifting regulatory requirements established by CMS. We currently anticipate that our affiliated physicians will be eligible to receive bonus payments in 2019 through participation in the MIPS, although the amounts of such bonus payments are not expected to be material. We will continue to operationalize the provisions of MACRA and assess any further changes to the law or additional regulations enacted pursuant to the law.
We cannot predict the ultimate effect that these changes will have on us, nor can we provide any assurance that its provisions will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
The ACA also allows states to expand their Medicaid programs through federal payments that fund most of the cost of increasing the Medicaid eligibility income limit from a state’s historic eligibility levels to 133% of the federal poverty level. To date, 36 states and the District of Columbia have expanded Medicaid eligibility to cover this additional
low-income
patient population, and other states are considering expansion. All the states in which we operate, however, already cover children in the first year of life and pregnant women if their household income is at or below 133% of the federal poverty level.
“Surprise” Billing Legislation
“Surprise” medical bills arise when an insured patient receives care from an
out-of-network
provider resulting in costs that were not expected by the patient. The bill is a “surprise” either because the patient did not expect to receive care from an
out-of-network
provider, or because their cost-sharing responsibility is higher than the patient expected. For the past several years, state legislatures have been enacting laws that are intended to address the problems associated with surprise billing or balance billing.
More recently, Congress and President Trump have proposed bipartisan solutions to address this circumstance, either by working in tandem with, or in the absence of, applicable state laws. Several committees of jurisdiction in the U.S. House of Representatives and in the U.S. Senate have proposed solutions to address surprise medical bills, but it is unclear whether any of the proposed solutions will become law. In addition, state legislatures and regulatory bodies continue to address and modify existing laws on the same issue. Any state or federal legislation on the topic of surprise billing may have an unfavorable impact on
out-of-network
reimbursement that we receive. In addition, legislative changes in this area may impact our ability to contract with private payors at favorable reimbursement rates or remain in contract with such payors.
Although our
out-of-network
revenue is currently immaterial, we cannot predict the ultimate effect that these changes will have on us, nor can we provide any assurance that future legislation or regulations will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
The Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012, required
across-the-board
cuts (“sequestrations”) to Medicare reimbursement rates. These annual reductions of 2%, on average, apply to mandatory and discretionary spending through 2025. Unless Congress acts in the future to modify these sequestrations, Medicare reimbursements will be reduced by 2%, on average, annually. However, this reduction in Medicare reimbursement rates is not expected to have a material adverse effect on our business, financial condition, results of operations, cash flows or the trading price of our securities.
In our analysis of our results of operations, we use certain
non-GAAP
financial measures. Prior to January 1, 2019, we reported earnings before interest, taxes and depreciation and amortization (“EBITDA”). During 2019, we have incurred and anticipate we will continue to incur certain expenses related to transformational and restructuring related expenses that are expected to be project-based and periodic in nature. In addition, we have reported our management services as assets held for sale and discontinued operations beginning with the first quarter of 2019. Accordingly, beginning with the first quarter of 2019, we began reporting Adjusted EBITDA from continuing operations, defined as income (loss) from continuing operations before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses. Adjusted earnings per common share (“Adjusted EPS”) from continuing operations has also been further adjusted for these items and beginning with the first quarter of 2019 consists of diluted income (loss) from continuing operations per common and common equivalent share adjusted for amortization expense, stock-based compensation expense and transformational and restructuring related expenses. Adjusted EPS from continuing operations is being further adjusted to reflect the impacts from discrete tax events. Adjusted EBITDA and Adjusted EPS have also been adjusted for the
non-cash
goodwill impairment charge recorded during the third quarter of 2019. Historical periods do not include any material items that meet the current definition of transformational and restructuring related expenses or goodwill impairment, so although we are retrospectively presenting historical periods for the new definitions, we do not reflect any adjustments for these items.
We believe these measures, in addition to income from operations, net income and diluted net income per common and common equivalent share, provide investors with useful supplemental information to compare and understand our underlying business trends and performance across reporting periods on a consistent basis. These measures should be considered a supplement to, and not a substitute for, financial performance measures determined in accordance with GAAP. In addition, since these
non-GAAP
measures are not determined in accordance with GAAP, they are susceptible to varying calculations and may not be comparable to other similarly titled measures of other companies.
For a reconciliation of each of Adjusted EBITDA from continuing operations and Adjusted EPS from continuing operations to the most directly comparable GAAP measures for the three and nine months ended September 30, 2019 and 2018, refer to the tables below (in thousands, except per share data).
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations |
|
$ |
|
) |
|
$ |
|
|
|
$ |
|
) |
|
$ |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax (benefit) provision |
|
|
|
) |
|
|
|
|
|
|
|
) |
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformational and restructuring related expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA from continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| |
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
|
|
|
|
(Loss) income from continuing operations and diluted income from continuing operations per share |
|
$ |
|
) |
|
$ |
|
) |
|
$ |
|
|
|
$ |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization (net of tax of $3,283 and $3,951) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation (net of tax of $2,180 and $2,403) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformational and restructuring related expenses (net of tax of $5,398) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment (net of tax of $147,215) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact from discrete tax events |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income and diluted EPS from continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) |
Tax rates of 27.0% and 27.5% were used to calculate the tax effects of the adjustments for the three months ended September 30, 2019 and 2018, respectively. The tax rate used for the three months ended September 30, 2019 excludes the impact of discrete tax events. |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
| |
|
|
|
|
|
|
Weighted average diluted shares outstanding |
|
|
|
|
|
|
(Loss) income from continuing operations and diluted income from continuing operations per share |
|
$ |
|
) |
|
$ |
|
) |
|
$ |
|
|
|
$ |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization (net of tax of $10,166 and $11,134) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation (net of tax of $7,885 and $7,907) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transformational and restructuring related expenses (net of tax of 13,860) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill impairment (net of tax of $147,215) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impact from discrete tax events |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted income and diluted EPS from continuing operations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
(1) |
Tax rates of 27.2% and 27.5% were used to calculate the tax effects of the adjustments for the nine months ended September 30, 2019 and 2018, respectively. The tax rate used for the nine months ended September 30, 2019 excludes the impact of discrete tax events. |
Three Months Ended September 30, 2019 as Compared to Three Months Ended September 30, 2018
Our net revenue attributable to continuing operations was $888.7 million for the three months ended September 30, 2019, as compared to $848.8 million for the same period in 2018. The increase in revenue of $39.9 million, or 4.7%, was attributable to an increase in same-unit net revenue and revenue from acquisitions. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue grew by $34.8 million, or 4.2%. The increase in same-unit net revenue was comprised of a net increase of $26.6 million, or 3.2%, from patient service volumes and a net increase of $8.2 million, or 1.0%, related to net reimbursement-related factors. The increase in revenue from patient service volumes was related to increases across almost all our service lines driven by growth in anesthesiology, neonatology and other pediatric services, including newborn nursery, and radiology. The net increase in revenue related to net reimbursement-related factors was primarily due to modest increases from managed care contracting, an increase in administrative fees received from our hospital partners and an increase in revenue caused by the slight decrease in the percentage of our patients enrolled in GHC programs.
Practice salaries and benefits attributable to continuing operations increased $31.0 million, or 5.2%, to $630.3 million for the three months ended September 30, 2019, as compared to $599.3 million for the same period in 2018. This increase was primarily attributable to increased costs associated with physicians and other staff to support organic-growth initiatives and growth at our existing units as well as increases in malpractice expense due to unfavorable trends in claims experience. Of the $31.0 million increase, $15.3 million was related to salaries and $15.7 million was related to benefits and incentive compensation. We anticipate that we will continue to experience a higher rate of growth in clinician compensation expense at our existing units over historic averages, which could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our securities.
Practice supplies and other operating expenses attributable to continuing operations decreased $0.3 million, or 1.1%, to $26.9 million for the three months ended September 30, 2019, as compared to $27.2 million for the same period in 2018. The decrease was primarily attributable to decreases in practice supply, rent and other costs.
General and administrative expenses attributable to continuing operations primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically related to the
day-to-day
operations of our physician practices and services. General and administrative expenses were $102.4 million for the three months ended September 30, 2019, as compared to $95.8 million for the same period in 2018. General and administrative expenses for the three months ended September 30, 2019 included the benefit from cost improvements as part of our shared services initiative that was offset by an increase in legal expenses for ongoing litigation matters. General and administrative expenses as a percentage of net revenue was 11.5% for the three months ended September 30, 2019, as compared to 11.3% for the same period in 2018.
Transformational and restructuring related expenses attributable to continuing operations were $20.0 million for the three months ended September 30, 2019, primarily related to external consulting costs for various process improvement and restructuring initiatives.
Goodwill impairment charge attributable to continuing operations was $1.45 billion for the three months ended September 30, 2019, nearly all of which related to our anesthesiology service line. See Note 6 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form
10-Q
for additional information.
Depreciation and amortization expense attributable to continuing operations decreased $2.6 million, or 11.7%, to $19.6 million for the three months ended September 30, 2019, as compared to $22.2 million for the same period in 2018, primarily related to a decrease in amortization expense underlying various finite lived intangible assets due to the expiration of amortization periods.
Loss from operations attributable to continuing operations was $1.36 billion for the three months ended September 30, 2019, as compared to income from operations attributable to continuing operations of $104.2 million for the same period in 2018. Our operating margin was (153.0)% for the three months ended September 30, 2019, as compared to 12.3% for the same period in 2018. The decrease in our operating margin was primarily due to the
non-cash
goodwill impairment charge recorded during the three months ended September 30, 2019 as well as higher operating expense growth, including transformation and restructuring expenses, combined with lower revenue growth. Excluding the
non-cash
goodwill impairment charge and the transformation and restructuring expenses, our income from operations attributable to continuing operations was $109.5 million, and our operating margin was 12.3%. We believe excluding the impacts from the
non-cash
goodwill impairment charge and transformational and restructuring activity provides a more comparable view of our operating income and operating margin from continuing operations.
Net
non-operating
expenses attributable to continuing operations were $26.3 million for the three months ended September 30, 2019, as compared to $18.5 million for the same period in 2018. The net increase of $7.8 million, or 42.2%, was primarily related to an increase in interest expense related to a higher average interest rate on our outstanding debt, driven by the incremental senior notes issuances completed in late 2018 and early 2019.
Our effective income tax rate attributable to continuing operations was 9.1% and 27.5% for the three months ended September 30, 2019 and 2018, respectively. Excluding the income tax impacts from the
non-cash
goodwill impairment charge and other discrete tax items, our effective income tax rate was 27.0% for the three months ended September 30, 2019. We believe excluding the impacts on our effective income tax rate related to the
non-cash
impairment charge and other discrete tax items provides a more comparable view of our effective income tax rate.
Loss from continuing operations was $1.26 billion for the three months ended September 30, 2019, as compared to income from continuing operations of $62.2 million for the same period in 2018. Adjusted EBITDA from continuing operations was $132.7 million for the three months ended September 30, 2019, as compared to $129.7 million for the same period in 2018.
Diluted loss from continuing operations per common and common equivalent share was $15.29 on weighted average shares outstanding of 82.4 million for the three months ended September 30, 2019, as compared to diluted income from continuing operations of $0.68 on weighted average shares outstanding of 91.4 million for the same period in 2018. Adjusted EPS from continuing operations was $0.91 for the three months ended September 30, 2019, as compared to $0.86 for the same period in 2018. The decrease of 8.9 million in our weighted average shares outstanding is primarily due to the impact of shares repurchased under a 2018 accelerated share repurchase program and through open market repurchase activity in 2018 and 2019.
Income from discontinued operations was $4.3 million for the three months ended September 30, 2019, as compared to $3.4 million for the same period in 2018. Diluted income from discontinued operations per common and common equivalent share was $0.05 for the three months ended September 30, 2019, as compared to $0.04 for the same period in 2018.
Consolidated net loss was $1.26 billion for the three months ended September 30, 2019, as compared to consolidated net income of $65.6 million for the same period in 2018. Diluted net loss per common and common equivalent share was $15.24 for the three months ended September 30, 2019, as compared to diluted net income per common and common equivalent share of $0.72 for the same period in 2018.
Nine Months Ended September 30, 2019 as Compared to Nine Months Ended September 30, 2018
Our net revenue attributable to continuing operations was $2.61 billion for the nine months ended September 30, 2019, as compared to $2.57 billion for the same period in 2018. The increase in revenue of $41.8 million, or 1.6%, was attributable to an increase in same-unit net revenue and revenue from acquisitions, partially offset by a decline in revenue from the
non-renewal
of certain contracts. Same units are those
units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue grew by $55.0 million, or 2.2%. The increase in same-unit net revenue was comprised of a net increase of $29.4 million, or 1.2%, from net reimbursement-related factors and a net increase of $25.6 million, or 1.0%, related to patient service volumes. The net increase in revenue related to net reimbursement-related factors was primarily due to favorable rate impacts from our radiology services, an increase in administrative fees received from our hospital partners and an increase in revenue caused by the slight decrease in the percentage of our patients enrolled in GHC programs. The increase in revenue from patient service volumes was primarily related to growth across almost all of our services, driven by growth in neonatology and other pediatric services, including newborn nursery, and anesthesiology services.
Practice salaries and benefits attributable to continuing operations increased $64.5 million, or 3.6%, to $1.86 billion for the nine months ended September 30, 2019, as compared to $1.80 billion for the same period in 2018. This increase was primarily attributable to increased costs associated with physicians and other staff to support organic-growth initiatives, acquisition-related growth and growth at our existing units, of which $30.0 million was related to salaries and $34.5 million was related to benefits and incentive compensation. We anticipate that we will continue to experience a higher rate of growth in clinician compensation expense at our existing units over historic averages, which could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our securities.
Practice supplies and other operating expenses attributable to continuing operations decreased $2.2 million, or 2.7%, to $80.8 million for the nine months ended September 30, 2019, as compared to $83.0 million for the same period in 2018. The decrease was primarily attributable to decreases in practice supply, rent and other costs.
General and administrative expenses attributable to continuing operations primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically related to the
day-to-day
operations of our physician practices and services. General and administrative expenses were $307.7 million for the nine months ended September 30, 2019, as compared to $298.4 million for the same period in 2018. General and administrative expenses as a percentage of net revenue was 11.8% for the nine months ended September 30, 2019, as compared to 11.6% for the same period in 2018.
Transformational and restructuring related expenses attributable to continuing operations were $51.0 million for the nine months ended September 30, 2019 of which $33.2 million related to external consulting costs for various process improvement and restructuring initiatives and $17.8 million related to severance benefits for eliminated positions as well as costs associated with contract terminations.
Goodwill impairment charge attributable to continuing operations was $1.45 billion for the nine months ended September 30, 2019, nearly all of which related to our anesthesiology service line. See Note 6 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form
10-Q
for additional information.
Depreciation and amortization expense attributable to continuing operations decreased $2.9 million, or 4.7%, to $59.5 million for the nine months ended September 30, 2019, as compared to $62.4 million for the same period in 2018, primarily related to a decrease in amortization expense underlying various finite lived intangible assets due to the expiration of amortization periods.
Loss from operations attributable to continuing operations was $1.20 billion for the nine months ended September 30, 2019, as compared to income from operations attributable to continuing operations of $326.3 million for the same period in 2018. Our operating margin was (46.0)% for the nine months ended September 30, 2019, as compared to 12.7% for the same period in 2018. The decrease in our operating margin was primarily due to the
non-cash
goodwill impairment charge recorded during the three months ended September 30, 2019 as well as higher operating expense growth, including transformation and restructuring expenses, combined with lower revenue growth. Excluding the
non-cash
goodwill impairment charge and the transformation and restructuring expenses, our income from operations attributable to continuing operations was $299.4 million, and our operating margin was 11.5%. We believe excluding the impacts from the
non-cash
goodwill impairment charge and transformational and restructuring activity provides a more comparable view of our operating income and operating margin from continuing operations.
Net
non-operating
expenses attributable to continuing operations were $82.0 million for the nine months ended September 30, 2019, as compared to $54.6 million for the same period in 2018. The net increase of $27.4 million, or 50.3%, was primarily related to an increase in interest expense related to a higher average interest rate on our outstanding debt, driven by the incremental senior notes issuances completed in late 2018 and early 2019 and the write off of approximately $1.5 million in deferred debt costs from the amendment of our Credit Agreement during the three months ended March 31, 2019.
Our effective income tax rate attributable to continuing operations was 7.8% and 27.5% for the nine months ended September 30, 2019 and 2018, respectively. Excluding the income tax impacts from the
non-cash
goodwill impairment charge and other discrete tax items, our effective income tax rate was 27.2% for the nine months ended September 30, 2019. We believe excluding the impacts on our effective income tax rate related to the
non-cash
impairment charge and other discrete tax items provides a more comparable view of our effective income tax rate.
Loss from continuing operations was $1.18 billion for the nine months ended September 30, 2019, as compared to income from continuing operations of $196.9 million for the same period in 2018. Adjusted EBITDA from continuing operations was $368.6 million for the nine months ended September 30, 2019, as compared to $397.4 million for the same period in 2018.
Diluted loss from continuing operations per common and common equivalent share was $14.11 on weighted average shares outstanding of 83.8 million for the nine months ended September 30, 2019, as compared to diluted income from continuing operations of $2.13 on weighted average shares outstanding of 92.8 million for the same period in 2018. Adjusted EPS from continuing operations was $2.45 for the nine months ended September 30, 2019, as compared to $2.67 for the same period in 2018. The decrease of 8.9 million in our weighted average shares outstanding is primarily due to the impact of shares repurchased under a 2018 accelerated share repurchase program and through open market repurchase activity in 2018 and 2019.
Loss from discontinued operations was $324.0 million for the nine months ended September 30, 2019, reflecting the loss on the initial classification as assets held for sale and an incremental impairment charge recorded during the nine months ended September 30, 2019, as compared to income from discontinued operations of $11.5 million for the same period in 2018. Diluted loss from discontinued operations per common and common equivalent share was $3.86 for the nine months ended September 30, 2019, as compared to diluted income from discontinued operations per common and common equivalent share of $0.12 for the same period in 2018.
Net loss was $1.51 billion for the nine months ended September 30, 2019, as compared to net income of $208.4 million for the same period in 2018. Diluted net loss per common and common equivalent share was $17.97 for the nine months ended September 30, 2019, as compared to diluted net income per common and common equivalent share of $2.25 for the same period in 2018.
Liquidity and Capital Resources
As of September 30, 2019, we had $28.9 million of cash and cash equivalents attributable to our continuing operations as compared to $25.5 million at December 31, 2018. Additionally, we had working capital attributable to our continuing operations of $172.5 million at September 30, 2019, an increase of $43.5 million from working capital of $129.0 million at December 31, 2018. The net increase in working capital is primarily due to net borrowings on our Credit Agreement and reclassification of investments to available for sale, partially offset by the use of funds for repurchases of our common stock.
Cash Flows from Continuing Operations
Cash provided by (used in) operating, investing and financing activities from continuing operations is summarized as follows (in thousands):
Operating Activities from Continuing Operations
During the nine months ended September 30, 2019, our net cash provided by operating activities for continuing operations was $210.8 million, compared to $150.4 million for the same period in 2018. The net increase in cash provided of $60.4 million was primarily due to an increase in cash flow from accounts payable and accrued expenses, income taxes payable and accounts receivable, partially offset by a decrease in cash flow from lower earnings.
During the nine months ended September 30, 2019, cash flow from accounts receivable for continuing operations was $12.0 million, as compared to cash used of $25.6 million for the same period in 2018. The increase in cash flow from accounts receivable for the nine months ended September 30, 2019 was primarily due to decreases in ending accounts receivable balances at existing units due to timing of cash collections.
Days sales outstanding (“DSO”) is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Our DSO for continuing operations was 51.2 days at September 30, 2019 as compared to 52.5 days at December 31, 2018.
Investing Activities from Continuing Operations
During the nine months ended September 30, 2019, our net cash used in investing activities for continuing operations of $43.9 million included acquisition payments of $31.2 million and capital expenditures of $25.0 million, partially offset by net proceeds of $12.3 million related to the maturity and purchase of investments.
Financing Activities from Continuing Operations
During the nine months ended September 30, 2019, our net cash used in financing activities for continuing operations of $183.6 million consisted primarily of repurchases of $144.9 million of our common stock, partially offset by net borrowings on our Credit Agreement of $30.0 million.
On March 28, 2019, we amended and restated our Credit Agreement to reduce the size of the revolving credit facility, extend the maturity and make other technical and conforming changes. As amended and restated, the Credit Agreement provides for a $1.2 billion unsecured revolving credit facility and includes a $37.5 million
sub-facility
for the issuance of letters of credit. The Credit Agreement matures on March 28, 2024 and is guaranteed by substantially all of our subsidiaries and affiliated professional associations and corporations. At our
option, borrowings under the Credit Agreement will bear interest at (i) the alternate base rate (defined as the higher of (a) the prime rate, (b) the Federal Funds Rate plus 1/2 of 1.00% and (c) LIBOR for an interest period of one month plus 1.00%) plus an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated leverage ratio or (ii) the LIBOR rate plus an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated leverage ratio. The Credit Agreement also calls for other customary fees and charges, including an unused commitment fee ranging from 0.150% to 0.200% of the unused lending commitments, based on our consolidated leverage ratio. The Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest charge ratio, not to exceed a specified consolidated leverage ratio and to comply with laws, and restrictions on the ability to pay dividends and make certain other distributions, as specified therein. Failure to comply with these covenants would constitute an event of default under the Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Credit Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Credit Agreement.
At September 30, 2019, we had an outstanding principal balance of $209.8 million on our Credit Agreement. We also had outstanding letters of credit of $0.2 million which reduced the amount available on our Credit Agreement to $990.0 million at September 30, 2019.
In February 2019, we completed a private offering of Additional 2027 Notes. At September 30, 2019, the outstanding balance on the 2027 Notes was $1.0 billion. We also had an outstanding principal balance of $750.0 million on our 5.25% senior unsecured notes due 2023 (the “2023 Notes”). Our obligations under the 2023 Notes and the 2027 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee our Credit Agreement. Interest on the 2023 Notes accrues at the rate of 5.25% per annum, or $39.4 million, and is payable semi-annually in arrears on June 1 and December 1. Interest on the 2027 Notes accrues at the rate of 6.25% per annum, or $62.5 million, and is payable semi-annually in arrears on January 15 and July 15.
The indenture under which the 2023 Notes and the 2027 Notes are issued, among other things, limits our ability to (1) incur liens and (2) enter into sale and lease-back transactions, and also limits our ability to merge or dispose of all or substantially all of our assets, in all cases, subject to a number of customary exceptions. Although we are not required to make mandatory redemption or sinking fund payments with respect to the 2023 Notes and the 2027 Notes, upon the occurrence of a change in control of MEDNAX, we may be required to repurchase the 2023 Notes and the 2027 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2023 Notes and the 2027 Notes repurchased plus accrued and unpaid interest.
At September 30, 2019, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Credit Agreement and the 2023 Notes and the 2027 Notes. We believe we will be in compliance with these covenants throughout 2019.
We maintain professional liability insurance policies with third-party insurers, subject to self-insured retention, exclusions and other restrictions. We self-insure our liabilities to pay self-insured retention amounts under our professional liability insurance coverage through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Our total liability related to professional liability risks at September 30, 2019 was $266.6 million, of which $43.7 million is classified as a current liability within accounts payable and accrued expenses in the Consolidated Balance Sheet. In addition, there is a corresponding insurance receivable of $29.8 million recorded as a component of other assets for certain professional liability claims that are covered by insurance policies.
We anticipate that funds generated from operations, together with our current cash on hand and funds available under our Credit Agreement, will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, fund expenses related to our transformational and restructuring activities, fund our share repurchase programs and meet our contractual obligations for at least the next 12 months from the date of issuance of this Form
10-Q.
Caution Concerning Forward-Looking Statements
Certain information included or incorporated by reference in this Quarterly Report may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, and all statements, other than statements of historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. These statements are often characterized by terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions, and are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements in this Quarterly Report are made as of the date hereof, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in the 2018 Form
10-K,
including the section entitled “Risk Factors.”
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risk primarily from exposure to changes in interest rates based on our financing, investing and cash management activities. We intend to manage interest rate risk through the use of a combination of fixed rate and variable rate debt. We borrow under our Credit Agreement at various interest rate options based on the Alternate Base Rate or LIBOR rate depending on certain financial ratios. At September 30, 2019, the outstanding principal balance on our Credit Agreement was $209.8 million, and considering this outstanding balance, a 1% change in interest rates would result in an impact to income before income taxes of approximately $2.1 million per year.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2019.
Changes in Internal Controls Over Financial Reporting
No changes in our internal control over financial reporting occurred during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We expect that audits, inquiries and investigations from government authorities and agencies will occur in the ordinary course of business. Such audits, inquiries and investigations and their ultimate resolutions, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
In the ordinary course of our business, we become involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by our affiliated physicians. Our contracts with hospitals generally require us to indemnify them and their affiliates for losses resulting from the negligence of our affiliated physicians and other clinicians. We may also become subject to other lawsuits that could involve large claims and significant defense costs. We believe, based upon a review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on our business, financial condition, results of operations, cash flows or the trading price of our securities. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot assure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where the outcomes of such claims are unfavorable to us. With respect to professional liability risk, we self-insure a significant portion of this risk through our wholly owned captive insurance subsidiary. Liabilities in excess of our insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
On July 10, 2018, a securities class action lawsuit was filed against our company and certain of our officers and a director in the U.S. District Court for the Southern District of Florida (Case No.
0:18-cv-61572-WPD)
that purports to state a claim for alleged violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule
10b-5
thereunder, based on statements made by the defendants primarily concerning our anesthesiology business. The complaint was seeking unspecified damages, interest, attorneys’ fees and other costs. We filed a motion to dismiss in April 2019, which was granted in October 2019; however, the plaintiff filed a second amended complaint on October 25, 2019. We continue to believe this lawsuit to be without merit and intend to vigorously defend against it. The lawsuit is in the early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to us.
On March 20, 2019, a separate derivative action was filed by plaintiff Beverly Jackson on behalf of MEDNAX, Inc. against MEDNAX, Inc. and certain of its officers and directors in the Seventeenth Judicial Circuit in and for Broward County, Florida (Case Number
CACE-19-006253).
The plaintiff purports to bring suit derivatively on behalf of our company against certain of our officers and directors for breach of fiduciary duties and unjust enrichment. The derivative complaint repeats many of the allegations in the securities class action described above. The derivative complaint seeks unspecified damages, restitution, attorneys’ fees and costs and governance relief. We believe this action to be without merit and intend to vigorously defend against it. The action is in the early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to us.
There have been no material changes to the risk factors previously disclosed in our 2018 Form
10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended September 30, 2019, we repurchased 19,675 shares of our common stock that were withheld to satisfy minimum statutory withholding obligations in connection with the vesting of restricted stock.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total Number of Shares Repurchased (a) |
|
|
Average
Price Paid
per Share |
|
|
Total Number of
Shares Purchased as
part of the
Repurchase Program |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Repurchase Programs (a) |
|
| |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
August 1 – August 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 1 – September 30, 2019 |
|
|
|
(b) |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
| (a) |
We have two active repurchase programs. Our July 2013 program allows us to repurchase shares of our common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under our equity compensation programs, which was estimated to be approximately 1.3 million shares for 2019. Our August 2018 repurchase program allowed us to repurchase up to an additional $500.0 million of shares of our common stock, of which we repurchased $392.8 million as of September 30, 2019. |
| (b) |
Represents shares withheld to satisfy minimum statutory withholding obligations of $0.4 million in connection with the vesting of restricted stock. |
The amount and timing of any future repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.
Item 5. Other Information
On October 10, 2019, we entered into a securities purchase agreement with an affiliate of Frazier Healthcare Partners to divest of our management services organization, which operates as MedData. The transaction closed on October 31, 2019. Pursuant to the terms and conditions of the agreement, at the closing of the transaction, we received a cash payment of $250.0 million, subject certain net working capital and similar adjustments, as well as contingent economic consideration in an indirect holding company of the buyer, the value of which is contingent on both short and long-term performance of MedData and the maximum amount payable in respect of which is $50.0 million. We anticipate certain cash tax benefits from the transaction in the coming quarters. We expect to use net proceeds from the transaction for debt repayment, share repurchases and strategic acquisitions.