Pediatrix Medical Group, Inc.

Your conference will begin momentarily. Please continue to hold.

Ladies and gentlemen, thank you for standing by for the next 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. Should you require assistance during the call, please press star then zero, and an operator will assist you offline. 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 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 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 MEDNACS 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 include are described in the company's most recent annual report on Form 10-K, its quarterly reports on Form 10-Q, and its 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.mednex.com. With that, I'll turn the call over to our CEO, Mark Ordon.

Thanks, Charlie, and good morning, everyone. Also with me today are Mark Richards, our CFO, Dr. Matt Hinson, who leads pediatrics, and Dr. Jim Swift, our Chief Development Officer. Our fourth quarter results were in line with our expectations and reflect the 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 CARES Act during 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. All told, 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. Mark 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 CARES funds, which totaled $26 million in revenue and $16.5 million in adjusted EBITDA. So what are we focused on today? On the cost side, much of the work we did in 2021 and here in early 2022 has been focused on efficiency in 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. In 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 and urgent care, following our initial acquisition of Nightlight Houston in early 21, and then our investment in partnership with BraveCare 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 rebrand as pediatrics and expand to include both primary and urgent care. We will also implement BraveCare's 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 100 pediatrics 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, Houston and Orlando. which both offer clear room for expansion. So I hope you see the opportunity for us as we move toward the addition of clinics in all of our top markets is very real. We'll continue to look at a combination of acquired and de novo clinics. And on the de novo side, we now have in place plans for new clinic development in three additional markets. Our expectation is that we can 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 through additional acquisitions. Now let me talk about our brand. We are most excited to be moving toward operating under a unified pediatrics brand. Pediatrics 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 Pediatrics name. While Mednex will continue to be our public company name, Pediatrics will be the name all of our partners know. Just as importantly, we want it to be the name that all of our patients and their families know and trust. To signify our core commitment, our new Pediatrics 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 is already propelling a transformation in 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 secrets. I'll now discuss another important milestone we've achieved. Over the past year, we've 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 MedNAC's leading position as a healthcare 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 10, 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'll end with a comment about surprise billing. Many have asked what effect the legislation and 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 levers in our cost 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 Mark 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 CARES funds. On the cost side, We expect the combination of our direct support expenses, which I'll 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 RCN 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 and growth-related increases in G&A expenses, such that within our outlook for 2022 adjusted EBITDA, we expect a dollar decline in our G&A year-over-year from $263 million in 2021 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 excess 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, six and a quarter, 2027 notes and issued $400 million in new five and three-eighth 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 contributions, and other factors. Based on these factors, we would expect that our first quarter contribution of adjusted EBITDA in 22 will 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 will turn the call back over to Mark.

Thanks, Mark. We are ready for any questions.

Thank you. And ladies and gentlemen, if you wish to ask a question, please press the one then zero on your telephone keypad. You will hear a tone indicating that you've been placed into queue and you may remove yourself at any time by repeating the one zero command. If you're on a speakerphone, please pick up your handset before pressing the number and please limit yourself to one question. Again, if you have a question, please press one then zero at this time. And our first question is from the line of Kevin Fishback from Bank of America. Please go ahead.

Great. Thanks. I appreciate the comments on surprise billing. I guess would just love to hear your thoughts on have there been any initial evidence from payers that they're trying to take advantage of this regulation in your initial conversations for contracting over the next year and To the extent for those of us who are worried that this could be an issue, you know, is there a time period where you would say, you know, if we don't really see it in the numbers by Q2, Q3, Q4, then it really won't be an issue? I'm just trying to think about when this overhang might be lifted. Thanks.

Well, I'd say a few things. One is we've seen We have a variety of inputs. We've had many contracts that have continued to be renewed at higher rates than before. We have other payers who were 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 exact IFR is in effect when 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 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 whether we'll know in Q2 where things are or if it would 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 Borsh from BMO. Please go ahead.

You're cutting out.

Can you try it again? It's hard to hear you.

I'm sorry. I don't know if that's any better. If you can't hear it, just skip me. But my question is, are you assuming no impact whatsoever from surprise billing for this year?

In our numbers that we've discussed, we're not assuming any impact from surprise billing. So what we... I'm just trying to... Sorry. So in our numbers, in the 270 that we threw out, 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'll be some modification to the IFR based on all the comments that I know that the agencies have received, and in conversations with the agencies, which are admittedly one way, but I've had them directly, I think that they do understand the reason for the comments they've received, and I'm hopeful that there will be some change. Okay.

Thank you. And our next question is from Ryan Daniels from William Blair. Please go ahead.

for ryan daniels uh thanks for taking the question i guess i just want to focus on the workforce pressures and you know i guess throughout this past year we have heard numerous stories of the tough recruiting market and you know higher than wanted turnover so just kind of curious how that's progressed throughout the remainder of the year for you guys and you know even on the inflationary front just kind of wondering if you're experiencing any headwinds there and if so kind of what are you doing to curb those hurdles you know we haven't so far experienced uh

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 kind of 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 ask one quick follow-up on the BraveCare acquisition. Just kind of curious, too, if you have any update on the integration and how that's progressing, and I guess when you might expect to be fully integrated. Any information that you have on that would be appreciated. Thanks, guys.

Yeah, well, we're in the process of integrating their technology into our existing platforms, which we think will be done over the coming months. And that will immediately affect the patient-facing experience in our clinics in both Houston and in Orlando. And then as we open new clinics, they'll all have the brave technology and processes embedded in their operations.

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

Hey, thanks. Good morning. Just looking at the receivables in the quarter, it jumped maybe 15% sequentially, and 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. Mark Richards. Good morning. Yeah, 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 uh, a, a bring down of those and, and, uh, a reversion back to, uh, what I would call a stabilized DSO and, uh, kind of unbuild AR bucket. So that, that wasn't, uh, a complete shock to us with.

Yeah, no, no. I figured that was probably it just wanted to, to double check. And, um, Looking at the 10Q, or 10K, I should say, there were some disclosures around the newborn screening and something about CMS guidance. Not sure what to make of that. There was certainly a decline in the number of screenings and the hospitals performing screenings. Can you just maybe help us understand, you know, what's happening and to put this into perspective? Thanks.

Yeah.

Hey, Wade.

It's Charlie. You know, in early 2019, 2021, CMS did make some selected changes to the coding inputs for newborn hearing screens that did have some impact on our revenue in different areas related to our hearing screening programs. So that's what you see in that disclosure because, you know, 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 the overall business, as you can see, 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 screen programs. To put it in perspective, while our national hearing screening programs represent a significant geographic footprint. From a potential 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 warranted being discussed there because in hindsight, it did have a headwind effect for us during 2021, which by extension will not persist in 2022.

Thank you. Our next question is from Tao Qi from Stifel. Please go ahead.

Hi, good morning. My first question is on the GNA guy. You know, you got a $250 million. That's about 12.5% of revenue. It's kind of 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 RR and ICM transaction? What kind of, you know, opportunity on the expense side, do you expect in 2022?

Yeah, I'll start on my general comments about overhead. I would say that now that we are fully focused on just pediatrics, and as I mentioned in my remarks or reminder, that we no longer are providing services under a TSA for either anesthesiology or radiology, we think that that will enable us to operate more efficiently over time and find ways to save money. So I think that that will be a constant drumbeat, and I think there will always be ways to find ways to do things in a more streamlined fashion. Mark, do you want to talk about R01?

Sure. Sure. And, you know, with respect to, call it 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 the economics associated with that second transition are down the road, probably mid to late 22.

I also make a comment going back to the question about whether an effective surprise billing would be how it would affect our 270 number for this year. While the effect of surprise billing, any effect of surprise billing is not in that number, also not in that number are the changes that we could make and 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 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? In terms of de novo cures for a typical project, how long does it take to 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... 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. Oh, you asked about an individual clinic. I would say in orders of magnitude, it's a couple million dollars to open a clinic, including the startup costs. And they should usually get to a contribution level in around 18 months to 24 months.

Thank you. And again, if you do have a question, please press One, then zero. 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. And so you're in a separate host conference.

We're sorry. Your conference is ending now. Please hang up. you Thank you. Thank you.

Ladies and gentlemen, thank you for standing by for the next 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. Should you require assistance during the call, please press star then zero and an operator will assist you offline. As a reminder, your conference is being recorded. I would now like to turn the conference over to Charles Lint, 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 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 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, its quarterly reports on Form 10-Q, and its 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'll turn the call over to our CEO, Mark Ordon.

Thanks, Charlie, and good morning, everyone. Also with me today are Mark Richards, our CFO, Dr. Matt Hinson, who leads pediatrics, and Dr. 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 CARES Act during 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 percent, despite a 2.5 percent 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. All told, 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. Mark 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 CARES funds, which totaled $26 million in revenue and $16.5 million in adjusted EBITDA. So what are we focused on today? On the cost side, much of the work we did in 2021 and here in early 2022 has been focused on efficiency in our GNA, 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. In 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 and urgent care, following our initial acquisition of Nightlight Houston in early 21, and then our investment in 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 rebrand as pediatrics and expand to include both primary and urgent care. We will also implement BraveCare's 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 100 pediatrics 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, Houston and Orlando, which both offer clear room for expansion. So I hope you see the opportunity for us as we move toward the addition of clinics in all of our top markets is very real. We'll continue to look at a combination of acquired and de novo clinics. And on the de novo side, we now have in place plans for new clinic development in three additional markets. Our expectation is that we can 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 through additional acquisitions. Now let me talk about our brand. We are most excited to be moving toward operating under a unified pediatrics brand. Pediatrics 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 Pediatrics name. While Mednex will continue to be our public company name, Pediatrics will be the name all of our partners know. Just as importantly, we want it 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 is already propelling a transformation in 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've 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 MEDNAC's leading position as a healthcare 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 6 to 3, and I'll remind you this is on a scale of 1 to 10, 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'll end with a comment about surprise billing. Many have asked what effect the legislation and 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 levers in our cost 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 Mark 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 CARES funds. On the cost side, we expect the combination of our direct support expenses, which I'll 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 RCN 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 and 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 excess 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, six and a quarter, 2027 notes, and issued 400 million in new five and three eighth 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 contributions, and other factors. Based on these factors, we would expect that our first quarter contribution of adjusted EBITDA in 22 will 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 will turn the call back over to Mark.

Thanks, Mark. We are ready for Any questions?

Thank you, and ladies and gentlemen, if you wish to ask a question, please press the 1, then 0 on your telephone keypad. You will hear a tone indicating that you've been placed into queue, and you may remove yourself from queue at any time by repeating the 1, 0 command. If you're on a speakerphone, please pick up your handset before pressing the number, and please limit yourself to one question. Again, if you have a question, please press 1, then 0 at this time. And our first question is from the line of Kevin Fishback from Bank of America. Please go ahead.

Great. Thanks. I appreciate the comments on surprise billing. I guess would just love to hear your thoughts on have there been any initial evidence from payers that they're trying to take advantage of this regulation in your initial conversations for contracting over the next year and To the extent for those of us who are worried that this could be an issue, you know, is there a time period where you would say, you know, if we don't really see it in the numbers by Q2, Q3, Q4, then it really won't be an issue? Just trying to think about when this overhang might be lifted. Thanks.

Well, I'd say a few things. One is we've seen We have a variety of inputs. We've had many contracts that have continued to be renewed at higher rates than before. We have other payers who were 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 exact IFR is in effect when 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 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 whether we'll know in Q2 where things are or if it would 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 Bosch from BMO. Please go ahead.

You're cutting out. Can you try it again? It's hard to hear you. I'm sorry.

I don't know if that's any better. If you can't hear it, just skip me. But my question is, are you assuming no impact whatsoever from surprise billing for this year?

In our numbers that we've discussed, we're not assuming any impact from surprise billing. So what we... I'm just trying to... Sorry. So in our numbers, in the 270 that we threw out, 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'll be some modification to the IFR based on all the comments that I know that the agencies have received and in conversations with the agencies, which are admittedly one way, but I've had them directly, I think that they do understand the reason for the comments they've received, and I'm hopeful that there'll be some change. Okay.

Thank you. And 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, you know, I guess throughout this past year, we have heard numerous stories of the tough recruiting market and you know, higher than wanted turnover. So just kind of curious how that's progressed throughout the remainder of the year for you guys. And, you know, even on the inflationary front, just kind of wondering if you're experiencing any headwinds there. And if so, kind of what are you doing to curb those hurdles?

We haven't so far experienced a 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 kind of 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 ask one quick follow-up on the BraveCare acquisition. Just kind of curious, too, if you have any update on the integration and how that's progressing, and I guess when you might expect to be fully integrated. Any information that you have on that would be appreciated. Thanks, guys.

Yeah, well, we're in the process of integrating their technology into our existing platforms, which we think will be done over the coming months. And that will immediately affect the patient-facing experience in our clinics in both Houston and in Orlando. And then as we open new clinics, they'll all have the brave technology and processes embedded in their operations.

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

Hey, thanks. Good morning. Just looking at the receivables in the quarter, it jumped maybe 15% sequentially, and 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. Mark Richards. Good morning. Yeah, 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 uh, a, a bring down of those and, and, uh, a reversion back to, uh, what I would call a stabilized DSO and, uh, kind of unbuild AR bucket. So that, that wasn't, uh, a complete shock to us with.

Yeah. And, uh, I figured that was probably it just wanted to, to double check. And, um, Looking at the 10Q, or 10K, I should say, there were some disclosures around the newborn screening and something about CMS guidance. Not sure what to make of that. There was certainly a decline in the number of screenings and the hospitals performing screenings. Can you just maybe help us understand, you know, what's happening and to put this into perspective? Thanks.

Yeah.

Hey, Wade.

It's Charlie. You know, in early... 2021, CMS did make some selected changes to the coding inputs for newborn hearing screens that did have some impact on our revenue in different areas related to our hearing screening programs. So that's what you see in that disclosure because, you know, 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 the overall business, as you can see, 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 screen programs. To put it in perspective, while our national hearing screening programs represented, you know, a significant geographic footprint from a potential standpoint, you know, it's not a hugely significant business for us. It tends to be corollary to our neonatology practices and the like. But nonetheless, it warranted being discussed there because, you know, in hindsight, it did have a headwind effect for us during 2021, which, you know, by extension will not persist in 2022.

Thank you. Our next question is from Tao Key from Stifel. Please go ahead.

Hi, good morning. My first question is on the GNA guy. You know, you got a $250 million. That's about 12.5% of revenue. It's kind of 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 RR and ICM transaction? What kind of, you know, opportunity on the expense side, do you expect in 2022?

Yeah, I'll start on my general comments about overhead. I would say that now that we are fully focused on just pediatrics, and as I mentioned in my remarks or reminder, that we no longer are providing services under a TSA for either anesthesiology or radiology, we think that that will enable us to operate more efficiently over time and find ways to save money. So I think that that will be a constant drumbeat, and I think there will always be ways to find ways to do things in a more streamlined fashion.

uh mark you want to talk about r1 sure sure uh and you know with respect to call it future future savings relative to our rcm outsourcing initiative the the rollout of that initiative 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 the economics associated with that second transition are down the road, probably mid to late 22.

I also make a comment going back to the question about whether an effective surprise billing would be how it would affect our 270 number for this year. While the effect of surprise billing, any effect of surprise billing is not in that number, also not in that number are the changes that we could make and 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 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? In terms of de novo cures for a typical project, how long does it take to 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. 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. Oh, you asked about an individual clinic. I would say in orders of magnitude, it's a couple million dollars to open a clinic, including the startup costs. And they should usually get to a contribution level in around 18 months to 24 months.

Thank you. And again, if you do have a question, please press One, then zero. 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.