10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

On July 28, 2023, the registrant had outstanding 83,941,842 shares of Common Stock, par value $.01 per share.

The accompanying notes are an integral part of these Consolidated Financial Statements.

1. Basis of Presentation:

On July 1, 2022, effective after the close of the market, the Company changed its corporate name from "Mednax, Inc." to “Pediatrix Medical Group, Inc." signifying the Company's return to its core focus in caring for women, babies and children. The Company’s common stock continues to trade on the New York Stock Exchange under the ticker symbol “MD.”

The accompanying unaudited Consolidated Financial Statements of the Company and the notes thereto presented in this Form 10-Q have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial statements, and do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of interim periods. The financial statements include all the accounts of Pediatrix Medical Group, Inc. and its consolidated subsidiaries (collectively, “PMG”) together with the accounts of PMG’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (the “affiliated professional contractors”). Certain subsidiaries of PMG have contractual management arrangements with its affiliated professional contractors, which are separate legal entities that provide physician services in certain states. The Company ceased providing services in Puerto Rico effective December 31, 2022. The terms “Pediatrix” and the “Company” refer collectively to Pediatrix Medical Group Inc., its subsidiaries and the affiliated professional contractors.

The Company is a party to a joint venture in which it owns a 37.5% economic interest. The Company accounts for this joint venture under the equity method of accounting because the Company exercises significant influence over, but does not control, this entity. The Company was also a party to another joint venture in which it owned a 51% economic interest and for which it was deemed the primary beneficiary. This joint venture was dissolved in February 2022. The operating results related to this joint venture prior to the dissolution and impacts from such dissolution were not material.

The consolidated results of operations for the interim periods presented are not necessarily indicative of the results to be experienced for the entire fiscal year. In addition, the accompanying unaudited Consolidated Financial Statements and the notes thereto should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company’s most recent Annual Report on Form 10-K (the “Form 10-K”).

2. Cash Equivalents and Investments:

As of June 30, 2023 and December 31, 2022, the Company's cash equivalents consisted entirely of money market funds totaling $0.7 million and $1.4 million, respectively.

Investments held are all classified as current and at June 30, 2023 and December 31, 2022 are summarized as follows (in thousands):


	June 30, 2023		December 31, 2022
Corporate securities	$	58,894	$	61,385
Municipal debt securities		13,463		14,377
U.S. Treasury securities		16,473		10,205
Certificates of deposit		4,136		3,710
Federal home loan securities		5,524		3,562
	$	98,490	$	93,239

The accounting guidance establishes a fair value hierarchy that prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels:

Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.

Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.

The following table presents information about the Company’s financial instruments that are accounted for at fair value on a recurring basis at June 30, 2023 and December 31, 2022 (in thousands):


		Fair Value
	Fair Value Category	June 30, 2023		December 31, 2022
Assets:
Money market funds	Level 1	$	655	$	1,415
Short-term investments	Level 2		98,490		93,239
Mutual Funds	Level 1		16,522		14,544

The following table presents information about the Company’s financial instruments that are not carried at fair value at June 30, 2023 and December 31, 2022 (in thousands):


	June 30, 2023				December 31, 2022
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Liabilities:
2030 Notes	$	400,000	$	368,080		400,000		344,000

The carrying amounts of cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value due to the short maturities of the respective instruments. The carrying value of the line of credit approximates fair value. If the Company’s line of credit was measured at fair value, it would be categorized as Level 2 in the fair value hierarchy.

Accounts receivable, net consists of the following (in thousands):


	June 30, 2023			December 31, 2022

Gross accounts receivable	$	1,409,118		$	1,548,492
Allowance for contractual adjustments and uncollectibles		(1,138,266	)		(1,251,705	)
	$	270,852		$	296,787

Patient service revenue is recognized at the time services are provided by the Company’s affiliated physicians. The Company’s performance obligations related to the delivery of services to patients are satisfied at the time of service. Accordingly, there are no performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period with respect to patient service revenue. Almost all of the Company’s patient service revenue is reimbursed by government-sponsored healthcare programs (“GHC Programs”) and third-party insurance payors. Payments for services rendered to the Company’s patients are generally less than billed charges. The Company monitors its revenue and receivables from these sources and records an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.

Accordingly, patient service revenue is presented net of an estimated provision for contractual adjustments and uncollectibles. The Company estimates allowances for contractual adjustments and uncollectibles on accounts receivable based upon historical experience and other factors, including days sales outstanding (“DSO”) for accounts receivable, evaluation of expected adjustments and delinquency rates, past adjustments and collection experience in relation to amounts billed, an aging of accounts receivable, current contract and reimbursement terms, changes in payor mix and other relevant information. Contractual adjustments result from the difference between the physician rates for services performed and the reimbursements by GHC Programs and third-party insurance payors for such services.

Collection of patient service revenue the Company expects to receive is normally a function of providing complete and correct billing information to the GHC Programs and third-party insurance payors within the various filing deadlines and typically occurs within 30 to 60 days of billing.

Some of the Company’s hospital agreements require hospitals to pay the Company administrative fees. Some agreements provide for fees if the hospital does not generate sufficient patient volume in order to guarantee that the Company receives a specified minimum revenue level. The Company also receives fees from hospitals for administrative services performed by its affiliated physicians providing medical director or other services at the hospital.

The following table summarizes the Company’s net revenue by category (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net patient service revenue	$	430,383	$	418,507	$	853,567	$	824,542
Hospital contract administrative fees		69,585		65,481		135,574		129,007
Other revenue		609		2,045		2,444		14,713
	$	500,577	$	486,033	$	991,585	$	968,262

The approximate percentage of net patient service revenue by type of payor was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Contracted managed care		68	%		68	%		67	%		68	%
Government		25			27			25			26
Other third-parties		5			3			6			4
Private-pay patients		2			2			2			2
		100	%		100	%		100	%		100	%

Accounts payable and accrued expenses consist of the following (in thousands):


	June 30, 2023		December 31, 2022
Accounts payable	$	30,992	$	31,857
Accrued salaries and incentive compensation		116,869		197,831
Accrued payroll taxes and benefits		31,205		34,983
Accrued professional liabilities		29,001		32,232
Accrued interest		9,370		8,921
Other accrued expenses		60,243		68,401
	$	277,680	$	374,225

The net decrease in accrued salaries and incentive compensation of $80.9 million, from December 31, 2022 to June 30, 2023, is primarily due to the payment of performance-based incentive compensation, principally to the Company’s affiliated physicians, partially offset by performance-based incentive compensation accrued during the six months ended June 30, 2023. A majority of the Company’s payments for performance-based incentive compensation is paid annually during the first quarter.

On February 11, 2022, the Company issued $400.0 million of 5.375% unsecured senior notes due 2030 (the “2030 Notes”). The Company used the net proceeds from the issuance of the 2030 Notes, together with $100.0 million drawn under the Revolving Credit Line (as defined below), $250.0 million of Term A Loan (as defined below) and approximately $308.0 million of cash on hand, to redeem (the “Redemption”) the 2027 Notes, which had an outstanding principal balance of $1.0 billion, and to pay costs, fees and expenses associated with the Redemption and the Credit Agreement Amendment (as defined below).

Interest on the 2030 Notes accrues at the rate of 5.375% per annum, or $21.5 million, and is payable semi-annually in arrears on February 15 and August 15, beginning on August 15, 2022. The Company's obligations under the 2030 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee the Amended Credit Agreement (as defined below). The indenture under which the 2030 Notes are issued, among other things, limits the Company's ability to (1) incur liens and (2) enter into sale and lease-back transactions, and also limits the Company's ability to merge or dispose of all or substantially all of its assets, in all cases, subject to a number of customary exceptions. Although the Company is not required to make mandatory redemption or sinking fund payments with respect to the 2030 Notes, upon the occurrence of a change in control, the Company may be required to repurchase the 2030 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2030 Notes repurchased plus accrued and unpaid interest.

Also in connection with the Redemption, the Company amended its credit agreement (the “Credit Agreement”, and such amendment, the "Credit Agreement Amendment"), concurrently with the issuance of the 2030 Notes. The Credit Agreement Amendment, among other things, (i) refinanced the prior unsecured revolving credit facility with a $450 million unsecured revolving credit facility, including a $37.5 million sub-facility for the issuance of letters of credit (the “Revolving Credit Line”), and a $250 million term A loan facility (“Term A Loan”) and (ii) removed JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement and appointed Bank of America, N.A. as the administrative agent for the lenders.

The Credit Agreement, as amended by the Credit Agreement Amendment (the “Amended Credit Agreement”) matures on February 11, 2027 and is guaranteed on an unsecured basis by substantially all of the Company's subsidiaries and affiliated professional contractors. At the Company's option, borrowings under the Amended Credit Agreement bear interest at (i) the Alternate Base Rate (defined as the highest of (a) the prime rate as announced by Bank of America, N.A., (b) the Federal Funds Rate plus 0.50% and (c) Term Secured Overnight Financing Rate ("SOFR") for an interest period of one month plus 1.00% with a 1.00% floor) plus an applicable margin rate of 0.50% for the first two fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 0.125% to 0.750% based on the Company's consolidated net leverage ratio or (ii) Term SOFR rate (calculated as the Secured Overnight Financing Rate published on the applicable Reuters screen page plus a spread adjustment of 0.10%, 0.15% or 0.25% depending on if the Company selects a one-month, three-month or six-month interest period, respectively, for the applicable loan with a 0% floor), plus an applicable margin rate of 1.50% for the first two full fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 1.125% to 1.750% based on the Company's consolidated net leverage ratio. The Amended Credit Agreement also provides for other customary fees and charges, including an unused commitment fee with respect to the Revolving Credit Line ranging from 0.150% to 0.200% of the unused lending commitments under the Revolving Credit Line, based on the Company's consolidated net leverage ratio.

The Amended Credit Agreement contains customary covenants and restrictions, including covenants that require the Company to maintain a minimum interest coverage ratio, a maximum consolidated total consolidated net leverage ratio and to comply with laws, and restrictions on the ability to pay dividends, incur indebtedness or liens and make certain other distributions subject to baskets and exceptions, in each case, as specified therein. Failure to comply with these covenants would constitute an event of default under the Amended Credit Agreement, notwithstanding the ability of the Company to meet its debt service obligations. The Amended Credit Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Amended Credit Agreement. In addition, the Company may increase the principal amount of the Revolving Credit Line or incur additional term loans under the Amended Credit Agreement in an aggregate principal amount such that on a pro forma basis after giving effect to such increase or additional term loans, the Company would be in compliance with the financial covenants, subject to the satisfaction of specified conditions and additional caps in the event that the Amended Credit Agreement is secured.

At June 30, 2023, the Company had an outstanding principal balance on the Amended Credit Agreement of $275.4 million, composed of $234.4 million under the Term A Loan and $41.0 million under the Revolving Credit Line. The Company had $409.0 million available on its Amended Credit Agreement at June 30, 2023.

At June 30, 2023, the Company had an outstanding principal balance of $400.0 million on the 2030 Notes.

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is calculated by dividing net income by the weighted average number of common and potential common shares outstanding during the period. Potential common shares consist of outstanding restricted stock and stock options and is calculated using the treasury stock method.

The calculation of shares used in the basic and diluted net income per common share calculation for the three and six months ended June 30, 2023 and 2022 is as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Weighted average number of common shares outstanding		82,399		85,078		82,033		85,190
Weighted average number of dilutive common share equivalents		265		541		344		724
Weighted average number of common and common equivalent shares outstanding		82,664		85,619		82,377		85,914
Antidilutive securities (restricted stock and stock options) not included in the diluted net income per common share calculation		1,338		569		1,358		409

The Company’s Amended and Restated 2008 Incentive Compensation Plan (the “Amended and Restated 2008 Incentive Plan”) provides for grants of stock options, stock appreciation rights, restricted stock, deferred stock, and other stock-related awards and performance awards that may be settled in cash, stock or other property.

Under the Amended and Restated 2008 Incentive Plan, options to purchase shares of common stock may be granted at a price not less than the fair market value of the shares on the date of grant. The options must be exercised within 10 years from the date of grant and generally become exercisable on a pro rata basis over a three-year period from the date of grant. The Company

issues new shares of its common stock upon exercise of its stock options. Restricted stock awards generally vest over periods of three years upon the fulfillment of specified service-based conditions and in certain instances performance-based conditions. Deferred stock awards generally vest upon the satisfaction of specified performance-based conditions and service-based conditions. The Company recognizes compensation expense related to its restricted stock and deferred stock awards ratably over the corresponding vesting periods. During the six months ended June 30, 2023, the Company granted 0.8 million shares of restricted stock to its employees and non-employee directors under the Amended and Restated 2008 Incentive Plan. At June 30, 2023, the Company had 8.1 million shares available for future grants and awards under the Amended and Restated 2008 Incentive Plan.

Under the Company’s Amended and Restated 1996 Non-Qualified Employee Stock Purchase Plan, as amended (the “ESPP”), employees are permitted to purchase the Company's common stock at 85% of market value on January 1st, April 1st, July 1st and October 1st of each year. Under the Company’s 2015 Non-Qualified Stock Purchase Plan (the “SPP”), certain eligible non-employee service providers are permitted to purchase the Company’s common stock at 90% of market value on January 1st, April 1st, July 1st and October 1st of each year.

The Company recognizes stock-based compensation expense for the discount received by participating employees and non-employee service providers. During the six months ended June 30, 2023, approximately 0.2 million shares were issued under the ESPP. At June 30, 2023, the Company had approximately 2.3 million shares reserved for issuance under the ESPP. At June 30, 2023, the Company had approximately 61,000 shares in the aggregate reserved for issuance under the SPP. No shares have been issued under the SPP since 2020.

During the three and six months ended June 30, 2023 and 2022, the Company recognized stock-based compensation expense of $3.1 million and $6.1 million and $4.4 million and $8.8 million, respectively.

11. Commitments and Contingencies:

The Company expects 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 the Company's business, financial condition, results of operations, cash flows and the trading price of its securities. The Company has not included an accrual for these matters as of June 30, 2023 in its Consolidated Financial Statements, as the variables affecting any potential eventual liability depend on the currently unknown facts and circumstances that arise out of, and are specific to, any particular future audit, inquiry and investigation and cannot be reasonably estimated at this time.

In the ordinary course of business, the Company becomes involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by the Company's affiliated physicians. The Company's contracts with hospitals generally require the Company to indemnify them and their affiliates for losses resulting from the negligence of the Company's affiliated physicians. The Company may also become subject to other lawsuits which could involve large claims and significant costs. The Company believes, 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 its business, financial condition, results of operations, cash flows and the trading price of its 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 the Company's business, financial condition, results of operations, cash flows and the trading price of its securities.

Although the Company currently maintains liability insurance coverage intended to cover professional liability and certain other claims, the Company cannot assure that its insurance coverage will be adequate to cover liabilities arising out of claims asserted against it in the future where the outcomes of such claims are unfavorable. With respect to professional liability risk, the Company generally self-insures a portion of this risk through its wholly owned captive insurance subsidiary. Liabilities in excess of the Company's insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on the Company's business, financial condition, results of operations, cash flows and the trading price of its securities.

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 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, 2022, filed with the Securities and Exchange Commission on February 17, 2023 (the “2022 Form 10-K”). As used in this Quarterly Report, the terms “Pediatrix”, the “Company”, “we”, “us” and “our” refer to the parent company, Pediatrix Medical Group, Inc., a Florida corporation, and the consolidated subsidiaries through which its businesses are actually conducted (collectively, “PMG”), together with PMG’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (“affiliated professional contractors”). Certain subsidiaries of PMG have contracts with our affiliated professional contractors, which are separate legal entities that provide physician services in certain states. We ceased providing services in Puerto Rico on December 31, 2022. The following discussion contains forward-looking statements. Please see the Company’s 2022 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.

Pediatrix (formerly known as Mednax, Inc.) is a leading provider of physician services including newborn, maternal-fetal, pediatric cardiology and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in 37 states. We ceased providing services in Puerto Rico on December 31, 2022. Our affiliated physicians provide neonatal clinical care, primarily within hospital-based neonatal intensive care units (“NICUs”), to babies born prematurely or with medical complications; 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, pediatric urology services and pediatric primary and urgent care.

Our operations and performance depend significantly on economic conditions. During the three months ended June 30, 2023, the percentage of our patient service revenue being reimbursed under government-sponsored healthcare programs (“GHC Programs”) remained stable as compared to the three months ended June 30, 2022. However, we could experience shifts toward GHC Programs if changes occur in economic behaviors or population demographics within geographic locations in which we provide services, including an increase in unemployment and underemployment as well as losses of commercial health insurance or if there are additional impacts from COVID-19 or its variants. Payments received from GHC Programs are substantially less for equivalent services than payments received from commercial insurance payors. In addition, costs of managed care premiums and patient responsibility amounts continue to rise, and accordingly, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services.

In late 2020, Congress enacted legislation intended to protect patients from “surprise” medical bills when services are furnished by providers who are not in network with the patient’s insurer (the “No Surprises Act" or the "NSA"). Effective January 1, 2022, if the patient’s insurance plan is subject to the NSA, providers are not permitted to send patients an unexpected or “surprise” medical bill that arises from out-of-network emergency care provided at an out-of-network facility or at in-network facilities by out-of-network providers and out-of-network nonemergency care provided at in-network facilities without the patient’s informed consent. Many states have legislation on this topic and will continue to modify and review their laws pertaining to surprise billing.

Under the NSA, patients are only required to pay the in-network cost-sharing amount, which has been determined through an established regulatory formula and will count toward the patient’s health plan deductible and out-of-pocket cost-sharing limits. Providers will generally not be permitted to balance bill patients beyond this cost-sharing amount. An out-of-network provider will only be permitted to bill a patient more than the in-network cost-sharing amount for care if the provider gives the patient notice of the provider’s network status and delivers to the patient or their health plan an estimate of charges within certain specified timeframes, and obtains the patient’s written consent prior to the delivery of care. Providers that violate these surprise billing prohibitions may be subject to state enforcement action or federal civil monetary penalties.

Also under the NSA, out of network providers will be paid an amount determined by the patient’s insurer for services rendered in the emergency care setting; if a provider is not satisfied with the amount paid for the services, the provider can pursue recourse through an independent dispute resolution ("IDR") process. These IDR results will bind both the provider and payor for a 90-day period. In August 2022, the United States Department of Health and Human Services, Department of Labor and Department of Treasury (the “Departments”) issued their final rule and corresponding guidance implementing certain portions of the IDR process under the NSA. The Departments plan to publish additional rules and guidance in the coming months and years. Certain IDR-related provisions of the NSA are being challenged in courts by provider groups, and the result of this litigation may alter portions of the law. Accordingly, we cannot predict how these IDR results will compare to the rates that our affiliated physicians customarily receive for their services.

These measures could limit the amount we can charge and recover for services we furnish where we have not contracted with the patient’s insurer, and therefore could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Moreover, these measures could affect our ability to contract with certain payors and under historically

similar terms and may cause, and the prospect of these changes may have caused, payors to terminate their contracts with us and our affiliated practices, further affecting our business, financial condition, results of operations, cash flows and the trading price of our securities.

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 changes to subsidies, healthcare insurance marketplaces and Medicaid expansion.

Despite the ACA going into effect over a decade ago, continuous legal and Congressional challenges to the law’s provisions and persisting uncertainty with respect to the scope and effect of certain provisions have made compliance costly. 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. Congress may again attempt to enact substantial or target changes to the ACA in the future. 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 the part of the ACA that required most individuals to purchase and maintain health insurance or face a tax penalty, known as the individual mandate. In light of these changes, in December 2018, a federal district court in Texas declared that key portions of the ACA were inconsistent with the U.S. Constitution and that the entire ACA is invalid as a result. Several states appealed this decision, and in December 2019, a federal court of appeals upheld the district court’s conclusion that part of the ACA is unconstitutional but remanded for further evaluation whether in light of this defect the entire ACA must be invalidated. Democratic attorneys general and the House appealed the Fifth Circuit’s decision to the United States Supreme Court. On June 17, 2021, the United States Supreme Court in California et al. v. Texas et al. dismissed this judicial challenge to the ACA brought by several states and sided with supporters of the ACA in a way that left the law in effect in its current form. Another potentially existential challenge to the ACA is advancing in federal courts. In Braidwood Management v. Becerra, the plaintiffs argue that the law’s requirement that insurance cover certain preventive services is unconstitutional. In September 2022, a federal district court in Texas ruled in favor of the plaintiffs, finding, among other things, that the requirement that self-funded plans and insurers cover certain preventive services violates the plaintiffs' rights under the Religious Freedom Restoration Act. The case is likely to be appealed and may ultimately be resolved by the United States Supreme Court. If the case succeeds, millions of Americans could lose access to preventive care guaranteed by the ACA or be forced to pay out of pocket for these services. Notwithstanding the Supreme Court's ruling, we cannot say for certain whether there will be future challenges to the ACA or what impact, if any, such challenges may have on our business. Changes resulting from these proceedings could have a material impact on our business.

In late 2020 and early 2021, the results of the federal and state elections changed which persons and parties occupy the Office of the President of the United States and the U.S. Senate and many states’ governors and legislatures. In late 2022, the results of the federal elections changed which party controls the U.S. House of Representatives. The current Administration may propose sweeping changes to the U.S. healthcare system, including expanding government-funded health insurance options, additional Medicaid expansion or replacing current healthcare financing mechanisms with systems that would be entirely administered by the federal government. Any legislative or administrative change to the current healthcare financing system could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.

In addition to the potential impacts to the ACA, there could be changes to other GHC Programs, such as a change to the structure of Medicaid or Medicaid payment rates set forth under state law. Historically, Congress and the Administration have sought to convert Medicaid into a block grant or to institute per capita spending caps, among other things. These changes, if implemented, could eliminate the guarantee that everyone who is eligible and applies for benefits would receive them and could potentially give states 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 or education activities as a condition of eligibility for most adults, disenrolling recipients for failure to pay a premium, or adjusting premium amounts based on income. Many states have recently shifted a majority or all of their Medicaid program beneficiaries into Managed Medicaid Plans. Managed Medicaid Plans have some flexibility to set rates for providers, but many states require minimum provider rates in their contracts with such plans. In July of each year, CMS releases the annual Medicaid Managed Care Rate Development Guide which provides federal baseline rules for setting reimbursement rates in managed care plans. We could be affected by lower reimbursement rates in some of all of the Managed Medicaid Plans with which we participate. We could also be materially impacted if we are dropped from the provider network in one or more of the Managed Medicaid Plans with which we currently participate.

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 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, 39 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 of 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. Recently, Democrats in Congress have sought to expand Medicaid or Medicaid-like coverage in states that have not yet expanded Medicaid. They also have sought to reduce payments to certain hospitals in some of these states. Additionally, as noted above, Congress is currently considering altering the terms and state remuneration for Medicaid expansion pursuant to the ACA. Should any of these changes take effect, we cannot predict with any assurance the ultimate effect to reimbursements for our services.

COVID-19 has had an impact on the demand for medical services provided by our affiliated clinicians. Beginning in mid-March 2020 and continuing throughout the second quarter of 2020, our operating results were significantly impacted by COVID-19, but volumes began to normalize in mid-2020 and substantially recovered throughout 2020 with no material impacts from COVID-19 or its variants since that time. However, due to the continued uncertainties surrounding the timeline of and impacts from COVID-19 and with multiple variant strains still circulating, we are unable to predict the ultimate impact on our business, financial condition, results of operations, cash flows and the trading price of our securities at this time.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act is a relief package intended to assist many aspects of the American economy, including providing financial aid to the healthcare industry to reimburse healthcare providers for lost revenue and expenses attributable to COVID-19. The Department of Health and Human Services is administering this program, and our affiliated physician practices within continuing operations recognized an aggregate of $0.7 million and $11.1 million of CARES Act relief within miscellaneous revenue during the three and six months ended June 30, 2022, respectively.

In our analysis of our results of operations, we use certain non-GAAP financial measures. We report adjusted earnings before interest, taxes and depreciation and amortization ("Adjusted EBITDA") from continuing operations, which is defined as income (loss) from continuing operations before interest, income taxes, depreciation and amortization, and transformational and restructuring related expenses. We also report adjusted earnings per share (“Adjusted EPS”) from continuing operations which consists of diluted income (loss) from continuing operations per common and common equivalent share adjusted for amortization expense, stock-based compensation expense, transformational and restructuring related expenses and any impacts from discrete tax events. For the six months ended June 30, 2022, both Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude the impacts from the loss on the early extinguishment of debt.

We believe these measures, in addition to income from continuing operations, net income and diluted net income from continuing operations 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 six months ended June 30, 2023 and 2022, refer to the tables below (in thousands, except per share data).

Three Months Ended June 30, 2023 as Compared to Three Months Ended June 30, 2022

Our net revenue attributable to continuing operations was $500.6 million for the three months ended June 30, 2023, as compared to $486.0 million for the same period in 2022. The increase in revenue of $14.6 million, or 3.0%, was primarily attributable to an increase in same-unit revenue, partially offset by a decrease in revenue from net non-same unit activity. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue increased by $15.3 million, or 3.2%. The increase in same-unit net revenue was comprised of an increase of $12.5 million, or 2.6%, from net reimbursement-related factors and $2.8 million, or 0.6%, related to patient service volumes. The net increase in revenue related to net reimbursement-related factors was primarily due to an increase in revenue resulting from improved cash collections in revenue cycle management and an increase in administrative fees from our hospital partners, partially offset by a decrease in revenue from CARES Act relief. The increase in revenue from patient service volumes was related to increases in maternal-fetal medicine and neonatology, partially offset by a modest decline in other hospital-based pediatric subspecialty services.

Practice salaries and benefits attributable to continuing operations increased $23.2 million, or 7.0%, to $354.0 million for the three months ended June 30, 2023, as compared to $330.8 million for the same period in 2022. Of the $23.2 million increase, $13.1 million was related to salaries, driven by increases in clinical compensation at our existing units, and $10.1 million was related to benefits and incentive compensation, due to increases in incentive compensation related to practice results and other benefits costs as a result of increased salaries expense.

Practice supplies and other operating expenses attributable to continuing operations increased $1.3 million, or 4.1%, to $31.1 million for the three months ended June 30, 2023, as compared to $29.8 million for the same period in 2022. The increase was primarily attributable to practice supply, rent and other costs related to our existing units, including an increase in workers compensation expense and medical supplies, as compared to the prior year period.

including information technology professional service fees, insurance and legal fees. General and administrative expenses as a percentage of net revenue was 11.6% for the three months ended June 30, 2023, as compared to 12.6% for the same period in 2022.

Transformational and restructuring related expenses attributable to continuing operations were $5.3 million for three months ended June 30, 2022 and primarily related to position eliminations.

Depreciation and amortization expense attributable to continuing operations was $8.9 million for the three months ended June 30, 2023, as compared to $8.8 million for the same period in 2022. The net increase of $0.1 million was primarily related to an increase in depreciation expense at our existing units for information technology and other equipment.

Income from operations attributable to continuing operations decreased $1.7 million, or 3.3%, to $48.5 million for the three months ended June 30, 2023, as compared to $50.2 million for the same period in 2022. Our operating margin was 9.7% for the three months ended June 30, 2023, as compared to 10.3% for the same period in 2022. The decrease in our operating margin was primarily due to unfavorable impacts in our same-unit results driven by higher operating expenses, partially offset by same-unit revenue increases and lower general and administrative expenses. Excluding transformation and restructuring related expenses for the three months ended June 30, 2022, our income from operations attributable to continuing operations was $55.5 million and our operating margin was 11.4% for such period. We believe excluding the impacts from the transformational and restructuring related activity provides a more comparable view of our operating income and operating margin from continuing operations.

Total non-operating expenses attributable to continuing operations were $9.6 million for the three months ended June 30, 2023, as compared to $7.1 million for the same period in 2022. The net increase in non-operating expenses was primarily related to an increase of $2.8 million in interest expense from higher interest rates on lower average borrowings.

Our effective income tax rate attributable to continuing operations (“tax rate”) was 27.4% for the three months ended June 30, 2023 as compared to 28.7% for the three months ended June 30, 2022. Discrete tax impacts during the three months ended June 30, 2023 and 2022 were nominal.

Income from continuing operations was $28.3 million for the three months ended June 30, 2023, as compared to $30.7 million for the three months ended June 30, 2022. Net income attributable to Pediatrix Medical Group, Inc. was $28.3 million for the three months ended June 30, 2023, as compared to $27.1 million for the same period in 2022. Adjusted EBITDA from continuing operations attributable to Pediatrix Medical Group, Inc. was $59.1 million for the three months ended June 30, 2023, as compared to $65.6 million for the same period in 2022. The decrease in our Adjusted EBITDA was primarily due to net unfavorable impacts in our same-unit results, primarily from higher operating expenses.

Diluted net income per common and common equivalent share attributable to Pediatrix Medical Group, Inc. was $0.34 on weighted average shares outstanding of 82.7 million for the three months ended June 30, 2023, as compared to $0.32 per common and common equivalent share on weighted average shares outstanding of 85.6 million for the same period in 2022. Adjusted EPS from continuing operations was $0.39 for the three months ended June 30, 2023, as compared to $0.47 for the same period in 2022. The decrease in weighted average shares outstanding resulted from the share repurchases completed during 2022.

Our net revenue attributable to continuing operations was $991.6 million for the six months ended June 30, 2023, as compared to $968.3 million for the same period in 2022. The increase in revenue of $23.3 million, or 2.4%, was primarily attributable to increases in same-unit revenue and revenue from non-same unit activity. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue increased by $21.4 million, or 2.3%. The increase in same-unit net revenue was comprised of an increase of $14.4 million, or 1.5%, from net reimbursement-related factors and an increase of $7.0 million, or 0.8%, related to patient service volumes. The net increase in revenue related to net reimbursement-related factors was primarily due to an increase in revenue resulting from improved cash collections in revenue cycle management, partially offset by decreases in revenue from CARES Act relief and from an increase in the percentage of our patients being enrolled in GHC Programs. The increase in revenue from patient service volumes was related to increases across almost all our hospital-based and office-based women’s and children’s services.

Practice salaries and benefits attributable to continuing operations increased $42.4 million, or 6.3%, to $716.3 million for the six months ended June 30, 2023, as compared to $673.9 million for the same period in 2022. Of the $42.4 million increase, $30.3 million was related to salaries, driven by increases in clinical compensation at our existing units, and $12.1 million was related to benefits and incentive compensation, due to increases in incentive compensation from practice results and in benefits costs as a result of increased salaries expense.

Practice supplies and other operating expenses attributable to continuing operations increased $3.5 million, or 6.0%, to $61.8 million for the six months ended June 30, 2023, as compared to $58.3 million for the same period in 2022. The increase was primarily attributable to practice supply, rent and other costs at our existing units, including increases in medical supplies and workers compensation insurance.

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 identifiable to the day-to-day operations of our physician practices and services. General and administrative expenses were $117.1 million for the six months ended June 30, 2023, as compared to $122.5 million for the same period in 2022. The net decrease of $5.4 million is primarily related to lower professional services fees, primarily related to information technology, lower insurance expense and decreases in expenses from net staffing reductions. General and administrative expenses as a percentage of net revenue was 11.8% for the six months ended June 30, 2023, as compared to 12.6% for the same period in 2022.

Transformational and restructuring related expenses attributable to continuing operations were $6.8 million for the six months ended June 30, 2022 and primarily related to position eliminations.

Depreciation and amortization expense attributable to continuing operations was $17.9 million for the six months ended June 30, 2023, as compared to $17.5 million for the same period in 2022. The increase of $0.4 million was primarily related to an increase in depreciation expense related to information technology equipment, partially offset by lower amortization expenses related to intangible assets, both at our existing units.

Income from operations attributable to continuing operations decreased $10.8 million, or 12.0%, to $78.5 million for the six months ended June 30, 2023, as compared to $89.3 million for the same period in 2022. Our operating margin was 7.9% for the six months ended June 30, 2023, as compared to 9.2% for the same period in 2022. The decrease in our operating margin was primarily due to net increases in overall operating expenses, a decrease in CARES Act relief and unfavorable net impacts from non-same unit activity, partially offset by higher same-unit revenue and favorable general and administrative expenses. Excluding transformation and restructuring related expenses for the six months ended June 30, 2022, our income from operations attributable to continuing operations was $96.0 million and our operating margin was 9.9% for such period. We believe excluding the impacts from the transformational and restructuring related activity provides a more comparable view of our operating income and operating margin from continuing operations.

Total non-operating expenses attributable to continuing operations were $18.9 million for the six months ended June 30, 2023, as compared to $74.6 million for the same period in 2022. The net decrease in non-operating expenses was primarily related to a decrease of $57.0 million in loss on early extinguishment of debt from the redemption of our 6.25% senior unsecured notes due 2027 (the “2027 Notes”) in February 2022.

Our tax rate was 28.8% for the six months ended June 30, 2023 compared to 33.6% for the six months ended June 30, 2022. The tax rates for the six months ended June 30, 2023 and 2022 include net discrete tax benefits of $0.9 million and $0.8 million, respectively. After excluding discrete tax impacts, during the six months ended June 30, 2023 and 2022, our tax rate was 27.3% and 28.2%, respectively. We believe excluding discrete tax impacts on our tax rate provides a more comparable view of our effective income tax rate. The decrease in our tax rate from 28.2% to 27.3% for the six months ended June 30, 2023 primarily relates to an increase in income from continuing operations before income taxes in the current year as compared to the prior year period.

Income from continuing operations was $42.5 million for the six months ended June 30, 2023, as compared to $9.8 million for the six months ended June 30, 2022. Net income attributable to Pediatrix Medical Group, Inc. was $42.5 million for the six months ended June 30, 2023, as compared to $5.9 million for the same period in 2022. Adjusted EBITDA from continuing operations attributable to Pediatrix Medical Group, Inc. was $99.2 million for the six months ended June 30, 2023, as compared to $116.2 million for the same period in 2022. The decrease in our Adjusted EBITDA was primarily due to a decrease in CARES Act relief and net unfavorable impacts in our same-unit results, primarily from higher operating expenses.

Diluted net income per common and common equivalent share attributable to Pediatrix Medical Group, Inc. was $0.52 on weighted average shares outstanding of 82.4 million for the six months ended June 30, 2023, as compared to $0.07 per common and common equivalent share on weighted average shares outstanding of 85.9 million for the same period in 2022. Adjusted EPS from continuing operations was $0.62 for the three months ended June 30, 2023, as compared to $0.79 for the same period in 2022. The decrease in weighted average shares outstanding resulted from the share repurchases completed during 2022.

As of June 30, 2023, we had $5.8 million of cash and cash equivalents attributable to continuing operations as compared to $9.8 million at December 31, 2022. Additionally, we had working capital attributable to continuing operations of $77.4 million at June 30, 2023, an increase of $76.4 million from working capital of $1.0 million at December 31, 2022. The net increase in working capital is primarily due an increase in net borrowings on our line of credit.

Cash (used in) provided from operating, investing and financing activities from continuing operations is summarized as follows (in thousands):

During the six months ended June 30, 2023, our net cash used in operating activities for continuing operations was $8.0 million, compared to $8.3 million for the same period in 2022. The net decrease in cash used of $0.3 million was primarily due to increases in cash flow

from accounts receivable, partially offset by increases in cash outflow from prepaid expenses and other current and long-term assets, other liabilities, and accounts payable and accrued expenses.

During the six months ended June 30, 2023, cash flow from accounts receivable for continuing operations increased by $28.9 million, as compared to a decrease of $16.0 million for the same period in 2022. The increase in cash flow from accounts receivable for the six months ended June 30, 2023 as compared to the prior year period was primarily due to improved cash collections at existing units.

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 49.2 days at June 30, 2023 as compared to 53.1 days at December 31, 2022 and 58.2 days at June 30, 2022. The improvement in our DSO was primarily related to improved cash collections at our existing units.

During the six months ended June 30, 2023, our net cash used in investing activities for continuing operations of $21.7 million consisted primarily of capital expenditures of $15.1 million and net purchases of investments of $5.0 million.

During the six months ended June 30, 2023, our net cash provided by financing activities for continuing operations of $29.6 million primarily consisted of net borrowings on our Revolving Credit Line (as defined below) of $37.0 million, partially offset by payments on our Term A Loan (as defined below) of $6.3 million.

On February 11, 2022, we issued $400.0 million of 5.375% unsecured senior notes due 2030 (the “2030 Notes”). We used the net proceeds from the issuance of the 2030 Notes, together with $100.0 million drawn under our Revolving Credit Line (as defined below), $250.0 million of Term A Loan and approximately $308.0 million of cash on hand, to redeem (the “Redemption”) the 2027 Notes, which had an outstanding principal balance of $1.0 billion, and to pay costs, fees and expenses associated with the Redemption and the Credit Agreement Amendment (as defined below).

Also in connection with the Redemption, we amended and restated the Credit Agreement (the "Credit Agreement"), and such amendment and restatement (the “Credit Agreement Amendment”), concurrently with the issuance of the 2030 Notes. The Credit Agreement, as amended by the Credit Agreement Amendment (the “Amended Credit Agreement”), among other things, (i) refinanced the prior unsecured revolving credit facility with a $450.0 million unsecured revolving credit facility, including a $37.5 million sub-facility for the issuance of letters of credit (the “Revolving Credit Line”), and a new $250.0 million term A loan facility (“Term A Loan”) and (ii) removed JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement and appointed Bank of America, N.A. as the administrative agent for the lenders under the Amended Credit Agreement.

The Amended Credit Agreement matures on February 11, 2027 and is guaranteed on an unsecured basis by substantially all of our subsidiaries and affiliated professional contractors. At our option, borrowings under the Amended Credit Agreement bear interest at (i) the Alternate Base Rate (defined as the highest of (a) the prime rate as announced by Bank of America, N.A., (b) the Federal Funds Rate plus 0.50% and (c) Term Secured Overnight Financing Rate ("SOFR") for an interest period of one month plus 1.00% with a 1.00% floor) plus an applicable margin rate of 0.50% for the first two fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated net leverage ratio or (ii) Term SOFR rate (calculated as the Secured Overnight Financing Rate published on the applicable Reuters screen page plus a spread adjustment of 0.10%, 0.15% or 0.25% depending on if we select a one-month, three-month or six-month interest period, respectively, for the applicable loan with a 0% floor), plus an applicable margin rate of 1.50% for the first two full fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated net leverage ratio. The Amended Credit Agreement also provides for other customary fees and charges, including an unused commitment fee with respect to the Revolving Credit Line ranging from 0.150% to 0.200% of the unused lending commitments under the Revolving Credit Line, based on our consolidated net leverage ratio.

The Amended Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest coverage ratio, a maximum consolidated total consolidated net leverage ratio and to comply with laws, and restrictions on the ability to pay dividends, incur indebtedness or liens and make certain other distributions subject to baskets and exceptions, in each case, as specified therein. Failure to comply with these covenants would constitute an event of default under the Amended Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Amended Credit Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Amended Credit Agreement. In addition, we may increase the principal amount of the Revolving Credit Line or incur additional term loans under the Amended Credit Agreement in an aggregate principal amount such that on a pro forma basis after giving effect to such increase or additional term loans, we are in compliance with the financial covenants, subject to the satisfaction of specified conditions and additional caps in the event that the Amended Credit Agreement is secured.

At June 30, 2023, we had an outstanding principal balance on the Amended Credit Agreement of $275.4 million, composed of $234.4 million under the Term A Loan and $41.0 million under the Revolving Credit Line. We had $409.0 million available on the Amended Credit Agreement at June 30, 2023.

At June 30, 2023, we had an outstanding principal balance of $400.0 million on the 2030 Notes. Our obligations under the 2030 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee our Amended Credit Agreement. Interest on the 2030 Notes accrues at the rate of 5.375% per annum, or $21.5 million, and is payable semi-annually in arrears on February 15 and August 15, beginning on August 15, 2022.

The indenture under which the 2030 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 2030 Notes, upon the occurrence of a change in control, we may be required to repurchase the 2030 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2030 Notes repurchased plus accrued and unpaid interest.

At June 30, 2023, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Amended Credit Agreement and the 2030 Notes. We believe we will be in compliance with these covenants throughout 2023.

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 June 30, 2023 was $292.8 million, of which $29.0 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 $47.0 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 Amended Credit Agreement, will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, fund expenses, if any, 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 Quarterly Report on Form 10-Q.

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 2022 Form 10-K, including the section entitled “Risk Factors.”

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 Amended Credit Agreement at various interest rate options based on the Alternate Base Rate or SOFR rate depending on certain financial ratios. At June 30, 2023, the outstanding principal balance on our Amended Credit Agreement was $275.4 million, composed of $234.4 million under our Term A Loan and $41.0 million under our Revolving Credit Line. Considering the total outstanding balance, a 1% change in interest rates would result in an impact to income before taxes of approximately $2.8 million per year.

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 June 30, 2023.

No changes in our internal control over financial reporting occurred during the three months ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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, including with payors or other counterparties 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 ensure 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.

There have been no material changes to the risk factors previously disclosed in our 2022 Form 10-K.

During the three months ended June 30, 2023, we withheld 783 shares of our common stock to satisfy minimum statutory withholding obligations 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.

During the three months ended June 30, 2023, none of the Company’s directors or officers adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement (as such terms are defined in Item 408 of Regulation S-K).

On July 31, 2023, the Company’s Board of Directors approved the Second Amended and Restated Bylaws of the Company (as so amended and restated, the “Amended and Restated Bylaws”), effective as of such date. In addition to certain clarifying changes, the Amended and Restated Bylaws now reduced the written notice required for special meetings of the Board of Directors from at least forty-eight (48) hours before the meeting to at least twenty-four (24) hours before the meeting.

The foregoing summary of the Amended and Restated Bylaws is qualified in its entirety by reference to the complete text of the Amended and Restated Bylaws, a copy of which is included as Exhibit 3.1 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


Florida		26-3667538
(State or other jurisdiction of Incorporation or organization)		(I.R.S. Employer Identification No.)

1301 Concord Terrace Sunrise, Florida		33323
(Address of principal executive offices)		(Zip Code)


		Page
PART I - FINANCIAL INFORMATION

Item 1.	Financial Statements	3

	Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022 (Unaudited)	3

	Consolidated Statements of Income and Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)	4

	Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)	5

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (Unaudited)	6

	Notes to Consolidated Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	22

Item 1A.	Risk Factors	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 5.	Other Information	22

Item 6.	Exhibits	24

SIGNATURES		25


	June 30, 2023			December 31, 2022
ASSETS
Current assets:
Cash and cash equivalents	$	5,849		$	9,824
Short-term investments		98,490			93,239
Accounts receivable, net		270,852			296,787
Prepaid expenses		12,461			14,878
Other current assets		10,115			13,261
Total current assets		397,767			427,989
Property and equipment, net		73,334			73,290
Goodwill		1,532,092			1,532,092
Intangible assets, net		16,800			18,491
Operating and finance lease right-of-use assets		67,088			66,924
Deferred income tax assets		101,600			105,925
Other assets		116,829			123,176
Total assets	$	2,305,510		$	2,347,887
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses	$	277,680		$	374,225
Current portion of debt and finance lease liabilities, net		14,919			14,898
Current portion of operating lease liabilities		21,567			21,589
Income taxes payable		6,152			16,271
Total current liabilities		320,318			426,983
Line of credit		41,000			4,000
Long-term debt and finance lease liabilities, net		625,273			632,381
Long-term operating lease liabilities		43,066			44,213
Long-term professional liabilities		263,784			275,629
Deferred income tax liabilities		37,767			33,638
Other liabilities		31,927			39,411
Total liabilities		1,363,135			1,456,255
Commitments and contingencies
Shareholders’ equity:
Preferred stock; $.01 par value; 1,000 shares authorized; none issued		—		—
Common stock; $.01 par value; 200,000 shares authorized; 83,841 and 82,947 shares issued and outstanding, respectively		838			829
Additional paid-in capital		991,630			983,601
Accumulated other comprehensive loss		(3,518	)		(3,735	)
Retained deficit		(46,575	)		(89,063	)
Total shareholders’ equity		942,375			891,632
Total liabilities and shareholders' equity	$	2,305,510		$	2,347,887


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net revenue	$	500,577		$	486,033		$	991,585		$	968,262
Operating expenses:
Practice salaries and benefits		354,032			330,757			716,267			673,912
Practice supplies and other operating expenses		31,089			29,843			61,809			58,332
General and administrative expenses		58,013			61,165			117,072			122,452
Depreciation and amortization		8,945			8,775			17,898			17,544
Transformational and restructuring related expenses		—			5,338			—			6,759
Total operating expenses		452,079			435,878			913,046			878,999
Income from operations		48,498			50,155			78,539			89,263
Investment and other income		1,189			844			1,823			1,719
Interest expense		(11,230	)		(8,409	)		(21,620	)		(20,227	)
Loss on early extinguishment of debt		—			—			—			(57,016	)
Equity in earnings of unconsolidated affiliate		490			443			917			948
Total non-operating expenses		(9,551	)		(7,122	)		(18,880	)		(74,576	)
Income from continuing operations before income taxes		38,947			43,033			59,659			14,687
Income tax provision		(10,665	)		(12,332	)		(17,171	)		(4,931	)
Income from continuing operations		28,282			30,701			42,488			9,756
Loss from discontinued operations, net of tax		—			(3,565	)		—			(3,812	)
Net income		28,282			27,136			42,488			5,944
Net loss attributable to noncontrolling interest		—			—			—			4
Net income attributable to Pediatrix Medical Group, Inc.	$	28,282		$	27,136		$	42,488		$	5,948
Other comprehensive (loss) income, net of tax
Unrealized holding (loss) gain on investments, net of tax of $126, $414, $353 and $1,308		(387	)		(1,234	)		217			(3,902	)
Total comprehensive income attributable to Pediatrix Medical Group, Inc.	$	27,895		$	25,902		$	42,705		$	2,046
Per common and common equivalent share data:
Net income attributable to Pediatrix Medical Group, Inc.:
Basic	$	0.34		$	0.32		$	0.52		$	0.07
Diluted	$	0.34		$	0.32		$	0.52		$	0.07
Weighted average common shares:
Basic		82,399			85,078			82,033			85,190
Diluted		82,664			85,619			82,377			85,914


	Common Stock
	Number of						Additional Paid-in			Accumulated Other Comprehensive			Retained			Total
	Shares			Amount			Capital			Loss			Deficit			Equity
2023
Balance at January 1, 2023		82,947		$	829		$	983,601		$	(3,735	)	$	(89,063	)	$	891,632
Net income		—			—			—			—			14,206			14,206
Unrealized holding gain on investments, net of tax		—			—			—			604			—			604
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		86			—			1,095			—			—			1,095
Issuance of restricted stock		871			9			(9	)		—			—			—
Forfeitures of restricted stock		(221	)		(2	)		2			—			—			—
Stock-based compensation expense		—			—			3,009			—			—			3,009
Repurchased common stock		(49	)		—			(775	)		—			—			(775	)
Balance at March 31, 2023		83,634		$	836		$	986,923		$	(3,131	)	$	(74,857	)	$	909,771
Net income		—			—			—			—			28,282			28,282
Unrealized holding loss on investments, net of tax		—			—			—			(387	)		—			(387	)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		126			1			1,593			—			—			1,594
Issuance of restricted stock		93			1			(1	)		—			—			—
Forfeitures of restricted stock		(11	)		—			—			—			—			—
Stock-based compensation expense		—			—			3,126			—			—			3,126
Repurchased common stock		(1	)		—			(11	)		—			—			(11	)
Balance at June 30, 2023		83,841		$	838		$	991,630		$	(3,518	)	$	(46,575	)	$	942,375
2022
Balance at January 1, 2022		86,423		$	864		$	1,049,696		$	1,317		$	(155,185	)	$	896,692
Net loss		—			—			—			—			(21,188	)		(21,188	)
Dissolution of and net loss attributable to noncontrolling interest (1)		—			—			10			—			(213	)		(203	)
Unrealized holding loss on investments, net of tax		—			—			—			(2,668	)		—			(2,668	)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		50			—			1,174			—			—			1,174
Issuance of restricted stock		766			8			(8	)		—			—			—
Forfeitures of restricted stock		(5	)		—			—			—			—			—
Stock-based compensation expense		—			—			4,435			—			—			4,435
Repurchased common stock		(50	)		—			(1,166	)		—			—			(1,166	)
Balance at March 31, 2022		87,184		$	872		$	1,054,141		$	(1,351	)	$	(176,586	)	$	877,076
Net income		—			—			—			—			27,136			27,136
Unrealized holding loss on investments, net of tax		—			—			—			(1,234	)		—			(1,234	)
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan		82			1			1,663			—			—			1,664
Issuance of restricted stock		74			1			(1	)		—			—			—
Forfeitures of restricted stock		(5	)		—			—			—			—			—
Stock-based compensation expense		—			—			5,186			—			—			5,186
Repurchased common stock		(3,275	)		(33	)		(64,365	)		—			—			(64,398	)
Balance at June 30, 2022		84,060		$	841		$	996,624		$	(2,585	)	$	(149,450	)	$	845,430


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 per share	MD	New York Stock Exchange


Large accelerated filer	☑	Accelerated filer	☐

Non-accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐


	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities:
Net income	$	42,488		$	5,948
Loss from discontinued operations		—			3,812
Adjustments to reconcile net income to net cash from operating activities:
Depreciation and amortization		17,898			17,544
Amortization of premiums, discounts and issuance costs		733			857
Loss on early extinguishment of debt		—			57,016
Stock-based compensation expense		6,135			8,771
Deferred income taxes		8,376			(1,894	)
Other		(900	)		(1,577	)
Changes in assets and liabilities:
Accounts receivable		28,900			(15,950	)
Prepaid expenses and other current assets		2,141			17,044
Other long-term assets		5,052			6,970
Accounts payable and accrued expenses		(97,315	)		(90,986	)
Income taxes payable		(12,028	)		(12,254	)
Long-term professional liabilities		838			(2,768	)
Other liabilities		(10,356	)		(867	)
Net cash used in operating activities – continuing operations		(8,038	)		(8,334	)
Net cash used in operating activities - discontinued operations		(3,825	)		(6,741	)
Net cash used in operating activities		(11,863	)		(15,075	)
Cash flows from investing activities:
Acquisition payments, net of cash acquired		(1,667	)		(28,167	)
Purchases of investments		(17,761	)		(12,983	)
Proceeds from maturities or sales of investments		12,810			14,039
Purchases of property and equipment		(15,130	)		(13,703	)
Other		—			1,189
Net cash used in investing activities		(21,748	)		(39,625	)
Cash flows from financing activities:
Borrowings on credit agreement		421,000			475,000
Payments on credit agreement		(384,000	)		(321,500	)
Payments on term loan		(6,250	)		(3,125	)
Redemption of senior notes, including call premium		—			(1,046,880	)
Proceeds from senior notes and term loan		—			650,000
Payments for financing costs		—			(8,394	)
Payments on finance lease obligations		(1,404	)		(1,262	)
Proceeds from issuance of common stock		2,689			2,838
Repurchases of common stock		(786	)		(65,564	)
Other		(1,613	)		284
Net cash provided by (used in) financing activities		29,636			(318,603	)
Net decrease in cash and cash equivalents		(3,975	)		(373,303	)
Cash and cash equivalents at beginning of period		9,824			387,391
Cash and cash equivalents at end of period	$	5,849		$	14,088


Period	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)
April 1 – April 30, 2023		—	$	—		—	(a)
May 1 – May 31, 2023		—		—		—	(a)
June 1 – June 30, 2023	783 (b)			13.30		—	(a)
Total		783	$	13.30		—	(a)



3.1+	Second Amended and Restated Bylaws of Pediatrix Medical Group, Inc.
31.1+	Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+	Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1++	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1+	Interactive Data File
101.INS+	XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH+	XBRL Schema Document.
101.CAL+	XBRL Calculation Linkbase Document.
101.DEF+	XBRL Definition Linkbase Document.
101.LAB+	XBRL Label Linkbase Document.
101.PRE+	XBRL Presentation Linkbase Document.
104+	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).


	Pediatrix Medical Group, Inc.


Date: August 3, 2023	By: /s/ James D. Swift, M.D.
	James D. Swift, M.D.
	Chief Executive Officer
	(Principal Executive Officer)

Date: August 3, 2023	By: /s/ C. Marc Richards
	C. Marc Richards
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)