Pediatrix Medical Group, Inc.

Ladies and gentlemen, thank you for standing by. Your conference will be underway shortly. Please continue to hold. Ladies and gentlemen, thank you for standing by. Welcome to the Pediatrics Medical Group 2024 Second Quarter Earnings Conference Call. At this time, all participant lines are in a listen-only mode. If you would like to ask a question during today's conference, you may press 1, then 0 on your telephone keypad. As a reminder, this conference is being recorded. I'd now like to turn the conference over to Charles Lynch. Please go ahead.

Thank you, operator, and good morning, everyone. I'm going to quickly read our forward-looking statements before we begin the call. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meeting of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by pediatrics management in light of their experience and assessment of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Any forward-looking statements made during this call are made as of today, and pediatrics undertakes no duty to update or revise any such statements, whether as a result of new information, future events, or otherwise. Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in the company's filings with the SEC, including the sections entitled Risk Factors. In today's remarks by management, we will be discussing non-GAAP financial metrics. A reconciliation of these non-GAAP financial measures to the most comparable GAAP measures can be found in this morning's earnings press release, our quarterly reports on Form 10-Q, and our annual report on Form 10-K, and on our website at www.pediatrics.com. With that, I'll turn the call over to our CEO, Dr. Jim Smith.

Thank you, Charlie, and good morning, everyone. Also with me today is Mark Richards, our Chief Financial Officer, and Cassandra Rossi, our Senior Vice President of Financial Reporting and Assistant Treasurer. Our second quarter operating results exceeded our expectations, driven by same unit revenue growth and operating efficiencies we created during the first half of this year. Our revenue benefited from strong payer mix, as we detailed in our press release. While patient volumes remained stable overall, within our patient volumes, NICU days declined slightly, with hospital-based volume growth driven by other subspecialties, including newborn nursery, pediatric intensive care, and pediatric hospital services. On the office-based side, maternal fetal medicine volume growth was strong, but was offset by volume declines in pediatric urgent care. During the quarter, we recognized revenue related to a one-time settlement with a payer that favorably impacted the quarter's adjusted EBITDA by approximately $3 million. Even accounting for this item, however, results exceeded our expectations. We are maintaining our full-year 2024 outlook for adjusted EBITDA of between $200 and $220 million. And I'll focus this morning on our operating plans that are fully in motion, how we anticipate the execution these plans will position us as we exit the year. As we discussed last quarter, we developed a broad-based portfolio restructuring plan, which we believe will add roughly $30 million in annualized EBITDA when completed. Under this plan, we have targeted exiting a meaningful number of office-based pediatric subspecialty practices, as well as our pediatric primary and urgent care clinics. This portfolio restructuring plan was formalized during the second quarter, and as a result, we will be exiting almost all of our office-based practices other than maternal fetal medicine during 2024. The goals of these strategic exits are to focus our attention on those service lines with solid financial underpinnings, solidify our margin profile, and create meaningful operating efficiencies for pediatric. From the standpoint of our revenue and geographical footprint, only a small portion of this restructuring was completed during the first half of 2024, although our operating results do reflect some of the cost benefits of increased efficiencies, including the reduction of our operating structure from seven to four regions. However, our exit activity is now fully underway. Late in the second quarter and soon thereafter, we completed two transactions through which we divested of our roughly two dozen primary and urgent care clinics. And during the second half of this year, we plan to exit our remaining office-based pediatric subspecialty practices. Our operating teams are moving quickly but thoughtfully to ensure that patient services are not disrupted during these transitions. We are working diligently on appropriate pathways for these exits, including transitions to private practice, new ownership, or hospital partnerships. Many of our affiliated physicians have already found new homes with excellent partners and will continue to serve their communities with their world-class care. Following the completion of these plans, we will have exited businesses that generated approximately $200 million in revenue in 2023. Our refocused portfolio will consist of our core hospital-based services, including neonatology, pediatric intensive care, and a number of other inpatient pediatric services, and on the office-based side, our maternal-fetal medicine practices. Our revenue profile will be approximately 80% hospital-based and 20% office-based. As we have stated previously, we anticipate the favorable impact of this portfolio restructuring will be approximately $30 million of annualized adjusted EBITDA following the completion of these plans. Concurrent with these operating plans, we remain on schedule to complete the transition of our revenue cycle management functions to a hybrid model alongside our new third-party RCM provider, GuideHouse. As of today, roughly three-quarters of our practices have been transitioned from our prior vendor, with the remainder targeted for completion during the third quarter. Thus far, this transition has not created any material disruptions to our RCM performance, and we continue to believe that this structure will provide the opportunity for enhanced performance in the future. As it relates to our 2024 guidance, we are in the midst of an aggressive reshaping of our company, our service lines, and our operational support. Mark will provide some additional financial details, but our unchanged outlook from the full year adjusted EBITDA of $200 to $220 million reflects our best gauge of how all of these moving parts will flow through our results for the remainder of 2024. We remain steadfast in our goal to exit this year as a more focused and efficient operating company, comprising highly collaborative and critical patient services that we believe provide opportunities for strategic growth, significant financial strength, and cash flow generation. We also remain committed to supporting our company's longstanding investments in clinical research and education, which are foundational to our mission. Lastly, we announced this morning that our board of directors has appointed Cassandra Rossi, our Senior Vice President, Financial Reporting and Assistant Treasurer, As Executive Vice President, Chief Financial Officer and Treasurer, effective October 1st. Cassandra joined the organization in 2009 and has served in various senior-level accounting, finance, and treasury roles with increasing responsibility, including her most recent role as Senior Vice President, Financial Reporting and Assistant Treasurer. Cassandra succeeds Mark Richards, who has played an instrumental role in our transformation activity since joining the company in 2020 and will remain in his position through a transition period this fall. I want to congratulate Cassandra on her new role. I particularly want to thank Mark for all of his contributions to pediatrics. Similarly, I want to thank all of our pediatrics associates, both clinical and non-clinical, for their hard work and dedication to this organization. particularly during this time of significant change. We are confident that the operating plans we have in motion will enable pediatrics and our affiliated clinicians to effectively continue our mission to take great care of the patient. With that, I'll turn the call over to Mark Richards.