Pediatrix Medical Group Inc (MD) 2026 Q3 法說會逐字稿

Hello, and thank you for standing by. At this time, I would like to welcome everyone to the Q3 2026 Pediatrics Medical Group, Inc earnings conference call.

(Operator instructions)

I would now like to turn the conference over to David Haddock, General Counsel. You may begin.

Good morning. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by 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, they 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 in the company's quarterly and annual reports and on the pediatrics website at www.pediatrics.com.

With that, I will turn the call over to Mark Ordan, Chief Executive Officer of Pediatrics Medical Group.

Thank you, David, and good morning, everyone. Also with me today is Cassandra Rossi, our Chief Financial Officer. We are pleased to report a strong quarter with adjusted EBITDA of $85 million. Same unit revenue was positive with equal contributions from volume and pricing, even with pricing reflecting the lapping of the tailwinds we experienced from strong collection activity over the past several quarters.

Our overall results for the quarter exceeded our expectations in spite of increasing costs in virtually all areas of providing great health care. We are narrowing the range of our full-year 2026 outlook to $290 to $300 million in adjusted EBITDA. In the quarter, we repurchased just over 3 million shares of our stock, bringing our total buyback since August of 2025 to 10 million shares and our shares outstanding to 78 million.

Down from $87 million at the end of the second-quarter of 2025. The average price of the $10 million share buyback is $23. For several quarters, I've been asked why our numbers have not been adjusted because of the effect of the lapse of the ACA subsidies. Well, as our results continue to show, we have still seen no clear negative effect to date.

Turning from the quarter to what gives us increased confidence in our future are several highlights I'll share. Our annual meeting of all of our practice medical directors two weeks ago had basically one agenda item, care quality. It may seem anomalous for a public company to hold such a meeting and not discuss scheduling expenses, et cetera. However, we believe our core is about care and quality, and that's what our 300 directors came to discuss.

It was of course led by our clinical leadership team and my contribution was to be proud to be among our extraordinary clinicians. I've recently reported that we take advantage of our strong financial condition to support internal growth and to be in a position to find larger potential value-add outside opportunities. We continue to work on expanding our telehealth services as well as select opportunities in the OB hospitals field.

On the latter, announced coding changes are scheduled to take effect in 2027 and we will see then how this area changes in response. Of course, it is not a material part of our business at this point and we'll plan to report to you as we all learn more. We also know, of course, that the No Surprises Act IDR rules are being reviewed and we have read about alleged abuses of the process.

Pediatrics submits claims that we believe are right down the middle of the spirit and letter of the process rules. And we do not have an outsider determine in their view what is a proper claim. We determine that ourselves. We do not expect the process to be a headwind for us, since it is designed to balance fairly the interests of payers and acute care providers who follow the rules. I'll close by returning to quality.

Dr. Medel founded pediatrics with a clear charge: take care of the patient. That is what our patients and our hospital partners expect of us. Whenever we can find ways to improve, we do. And we do this only because we have by far the nation's largest team of world-class clinicians in our sector of women's and children's health. I'll now turn to Cassandra.

Thanks, Mark, and good morning, everyone. Our consolidated revenue increased by just under 2%, driven by non-same-unit activity, primarily recent acquisitions and same-unit growth of 60 basis points. Same-unit patient service volumes were up about 30 basis points, driven by MFM services, partially offset by declines in other neonatology services, primarily newborn nursery. NICU days were stable as compared to the prior year.

Same-unit pricing. Was also up by 30 points, driven by favorable payer mix, an increase in hospital admin fees and increased patient acuity primarily in neonatology. As expected and as Mark stated, we've begun to lap the strong tailwind from improved collection activity, which is flowing through as a decrease in pricing this quarter.

Payer mix improved by over 70 basis points as compared to the prior year third-quarter and remained stable as compared to the second-quarter of 2026. Practice level SW&B expenses increased year-over-year and on a same-unit basis reflected increases in salary expenses, partially offset by lower benefits expense. Salary growth has remained consistent with the ranges we have seen over the past couple of years in that 3% area.

Our G&A expense increased year-over-year primarily related to higher incentive-based compensation based on financial results, partially offset by lower technology-related expenses. D&A expense was up about $700,000 year-over-year, primarily reflecting CapEx at our existing units as well as CapEx and amortization of intangibles from recent acquisitions.

Other non-operating expenses were $200,000 for the third-quarter compared to non-operating income of $19.7 million for the prior year period. The prior year period reflected a net gain on divested businesses of $20.9 million. For the third-quarter of '26, we also saw a decrease in interest expense from modestly lower interest rates and borrowings as compared to the prior year period.

Moving on to cash flow, we generated $118 million in operating cash flow in the third-quarter, compared to $138 million in the prior year. With the change driven by decreases in cash flow from accounts payable and accrued expenses and accounts receivable. Our leverage at 930 sits at just under 1 time using the midpoint of our updated adjusted EBITDA outlook range for 2026 with cash of $312 million and net debt of just over $266 million.

Our accounts receivable DSO at 930 of 42.5 days were unchanged from June 30 and March 31, and we're down just over a half a day year-over-year.

I'll go ahead and turn the call back over to Mark.

Great. Thank you, Cassandra. And now we will take any questions that you have.

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session.

(Operator instructions)

Andre Ryan Daniels, William Blair.

Hello, this is Matthew Mardula on for Ryan. Thank you for taking all the questions. So, I want to start with pricing. With it coming in at 0.3%, could you break down how each factor of pricing made-up this quarter's pricing, especially by quantifying what the RCM impact was? And then. Go ahead, kiss and interrupt.

Sorry, Matt, I cut you off.

No, I was just going to finish up with -- and then looking ahead to next quarter, how should we think about the sustainability of the pricing benefits we saw? And is there just any changes to that kind of key drivers of pricing than previously mentioned? And then with that RCM impact we saw this quarter, is that a reasonable way to think about it for next quarter as well?

Sure. So first, I'll take the pricing components. And on the positive side, pricing was led by payer mix. A close second was the hospital administrative fees, and coming in third was the acuity. So I'd say for the payer mix impact, that was probably, if you look at the positive impact for the pricing, it was about 40%, the hospital admin fees about 25%, and the acuity was about 15%. Maybe I'll hit the sustainability of those while we're talking about those. Listen, we've talked about the payer mix impact. It's continued to be favorable for us and we don't anticipate anything changing there, but if anything, I think it will remain stable. On the hospital admin fees, we talk about that each and every quarter.

The hospital environment is tough, but when we require increases, we go to the hospital, we have those tough conversations and we've been having success, so we expect those conversations and those. Successes to continue. And on Acuity, we talked about that a little bit in detail last quarter that we've looked at that really on a three-year stack and we have seen just a trajectory that takes that increasing. And of course, that is supported by the fact that we are in more Level 3s and Level 4s than anyone. So we do consider those to be sustainable. But as with everything, there is variability and they do bounce around a bit.

And as far as the RCM lapping, we did start talking about that we would expect in the back half of the year to start seeing that lapping, it did impact the quarter by a little over 100 basis points and I think right now we are in a very steady state, but we have talked about continuing to look for ways to further automate, but we think that right now it is very stable, but again, we'll look to deliver improvement there as we can over the next coming years.

Great. Thank you for that. And then in the prepared remarks, you kind of discussed the IDR process. Can you help us understand maybe the magnitude of IDR has on your business, any kind of numbers around that? And then as we kind of look forward, what's kind of giving you that confidence that this won't become a headwind, particularly if there are any changes to the IDR process that occurs?

Well, we're overwhelmingly, as we always have been, in network. So the IDR process is not something that we've ever had to live based on. So it's not, I can't quantify it precisely, but again, we're always overwhelmingly in network.

Great. Thank you so much. Sorry, Matt.

I was going to say, with the changing rules, like Mark said. We don't anticipate, we're one of those who, like we said, we abide by the rules, we're doing the right thing, and so we don't anticipate any changes from the changes that are happening in that process.

Great. Thank you so much for all the color. I really appreciate it.

Thanks, Matt.

AJ Wright, UBS.

Hi, everybody. Just to put a finer point of that, do you have a percentage of your revenues or claims or business that is out of network at this point? I assume it's in the single-digits, but is there a figure you could give us?

We have typically been out of network of less than 5% of our business, so it's always been about. If that helps? Yeah, so that's with the IDR process now for several years. And as I said on my call, we've read about alleged abuses by others and people. People, I guess, as I'm learning, use different tactics. We think that the rules were well-crafted and we see the proposed changes.

And we think that the spirit and letter of the proposed changes is to make sure that there's a fair process between payers and providers. In 2020, when the No Surprises Act first came out, we were supporters of it. We believe that if you're going to take care of the patient should be out of the middle. As long as the rules are fair. And the payers are playing by the rules and providers are doing it the right way, we're comfortable.

Yeah. The company obviously came in ahead of expectations on the quarter, 85 million, 85.5 of EBITDA. You've updated the guidance. When I look at what that applies for fourth-quarter, if I'm doing the math right, I get about 70 to 80 million in EBITDA. Is there anything embedded in there? Is that natural seasonality? Is there something that doesn't recur that occurred in the Q3, or are you just being conservative?

No, I'd say it just gives us a little bit of flexibility. Volumes have bounced around, pricing has bounced around, and it just gives us that flexibility to land in that range. So nothing else baked in there, AJ.

Okay. November.

Okay. All right. You mentioned that you're still looking at high-value opportunities in adjacent businesses. I wondered maybe if I could get you to just flesh out what's behind that. What would be things that would be of interest to the company?

Well, I can only flesh it out a little bit. I'd say that. What we have said repeatedly is that we have a very strong balance sheet and we have the ability to make larger acquisitions. We strategically would only look at something that is in something adjacent to what we already do, so staying in the women's and children's space is important to us.

So I'm just underscoring that when people look at our balance sheet and see our very low leverage, I don't want people to think that we're complacent and we're just sitting there. Yes, we've bought back shares, but not to the extent that it limits us from doing something if there's a very good opportunity.

So we do think in the women's education space, there are bound to be attractive opportunities, and we actively consider them.

Okay. And then the level of share repurchase, I'll just wrap up with this. $83 million during the quarter. Any comments on pasting going forward on that?

So we've tried to be opportunistic. We're happy that over the course of the last year, our average price was $23, which looks like it was a good buy. But we'll consider along with the board what our pace going forward is.

Okay, thanks so much.

There are other opportunities.

Yeah, I understand. Thanks so much.

Thanks, AJ.

Jack Slevin, Jeffrey.

Hey, good morning. Thanks for taking the questions. There's a note in the release on a little bit of, it sounds like small disposition activity in the quarter. Could you maybe just provide a little more color on maybe what's in place from practice dispositions or how you're approaching that?

Yeah, no, that's just the carryover from the disposition activity that happened in '24. So when we were talking about non-SAME unit, it's the net of the acquisitions and any disposition, so it's just natural flow-through of that.

Okay, understood. Thanks. I appreciate the clarification there. A lot of questions are being asked, maybe just to understand what you're seeing on the labor front or from like a wage inflation perspective, how that sort of tracking underlying in the business.

Yeah, so I would just say, we kind of talked about we've been able to keep those clinical salaries in the last couple of years in that 3%, 3.5% area, and so we're really comfortable that what we saw back a few years back where we were in the mid to high single-digits that time, we're not seeing that, so nothing really more to say on that, Jack.

Okay, and then one more for me, just a quick one. The mentioning of some of the coding changes, my understanding is there's an unbundling that's looking to happen next year of some of the related codes in your space for those services, the way that I had read it. If you sort of trend towards the higher side of the acuity scale, that unbundling might end up being a positive opportunity.

Got your comment, Mark, that you're sort of still weighing it up and you'll see what happens on the coding front. But just want to understand if you could sort of handicap whether or not. You think that possibly is a positive or a negative for you as you look at '27? Thanks.

Rather not handicap it because it's really going to -- first of all, the rules are going to be -- should be finalized in the next few weeks in November. So handicapping it before it all comes out, I don't think is going to be particularly helpful. And we're going to see, based on the rules, how OBs react to that.

So I think it's a little bit hard, yes, potentially depending on how the rules shake out, there could be opportunities on the OBH side or more on the OB side, but I think it's too early to tell both because the rules aren't finalized and we don't know how people are going to react to the rules. But again, importantly for us, it's not a material part of our business and this gives us an opportunity to see how the rules change and what we make of it.

Got it. Okay, that's helpful. I appreciate all the color and congrats on the quarter.

(Operator instructions)

Wheatmail, Learning Partners.

There we go. Sorry about that, guys. Little early this morning. I know you're in the budgeting process, the planning process for '27, but just was wondering if you could share any headwinds, tailwinds as you're thinking about next year?

No, not at this point. I think obviously we'll report, as you said, we're in the budgeting process. We're looking at a lot of things, but we're not going to talk today about '27. I've given the characterization of. The things that we're looking at that stands out right now, I think that covers it.

Okay. Maybe just on the exchange stuff, I know you haven't seen a headwind this year. Would you think that maybe you see a little bit of a slip in mix next year or just any preliminary thoughts as it relates to payer mix?

It's hard for me to say that because starting in the fourth-quarter of last year, we were getting this question and we said, well, we don't know. And when people said, why aren't you reducing their numbers? I said, because I could pull a number out of the air, but we prefer not to do that. We like to do things based on numbers. And that has continued. So we haven't seen anything that points to it. I hypothesized that possibly because of the population that we serve, people are doing a different calculation about the value of insurance without the subsidies, but that's me sitting around trying to figure out why our results are different than some people are.

But other than that, we continue and a lot of people, I would say, probably you included thought that by sometime in the first or second-quarter, we would see the effect and we have. So I'm not sitting here worried about what happens next year. I'll be paying attention to it. We do check and when we hear something anecdotal, we track it down to see if it's affecting us and it just hasn't.

Yeah. Maybe this last one, Cassandra, you mentioned in your prepared comments lower technology expenses. Can you just elaborate a little bit more on what that was?

Yeah, just some of the staff costs that we had just rolling out of the P&L.

Okay, thank you.

You're welcome.

Pitu Chikring, Deutsche Bank.

Hey, good morning, guys. Thanks for taking the question. I guess, looking at the pricing, what percent of your NICU practices today have subsidies from hospitals? How's that changed in the last year? And where do you think it can go next year or what inning are we in at this point of getting subsidies for your NICUs?

I'm sorry. I just want to make sure I understand the question, Peter. You're asking what percentage of our NICU revenue comes from--?

What percentage of your NICU practice? So if you have 1,000 NICU practices, are half of them getting subsidies from the hospitals? So where are we on that at this point? And how has that changed in the last year?

No, it's not half. It's much lower than that.

And there's not much change year to year.

Okay, do you think that that can continue to grow going forward? I mean, I'm trying to understand, we're seeing pressures in hospitals from practices getting more subsidies, I'm just curious. I guess let me ask it differently, what inning are you guys in order to get subsidies for your new practices? Are we in the second or third inning year or are we in the seventh or eighth inning year?

I'm not what I'm about to say is not sidestepping the question, so let me I'll respond to that. We work very closely with our hospital partners and we think that along with taking care of the patient, it's very important that they know that we do things very efficiently so that they're better off with us running. Running that NICU than if they did it themselves. And we think we have to demonstrate that value all the time.

So it's not like you come to the end of the year and you have a discussion. You have a constant relationship with the hospital to show that you're adding value. The reason that you receive a payment from the hospital is because if they did it themselves, they would have that or a greater expense. So it's not.

It's not charity, it's saying that they understand the real costs involved in providing the care that we provide and all the expenses that go in it to make sure that they're confident that they have a really high-functioning NICU.

So we feel, as Cassandra said, I'm being longer-winded about it. We feel that while those discussions are a push and pull, we feel that we can continue to demonstrate value and be fair in the request that we make of hospitals. And I think if hospitals value us in what we do, we think we'll be okay.

Is it a higher pressure environment with the. With the big beautiful bills. Sure. That adds, that takes away from the system, so that will provide pressure.

So if I ask this a slightly different way, I guess, looking at the economics of a NICU. A patient, the technical component the hospital gets is very large and therefore the relative cost of any subsidies, frankly, is fairly inconsequential. And so keeping the two practices happy is a very profitable endeavor for hospitals due to the technical component. I guess, I'm just trying to ballpark today where we are. Is it like a quarter of your practices today have subsidies? Is that the right ballpark, plus or minus?

Well, maybe at a future date, we haven't published that number. I don't want to -- I'd rather not cover, as Cassandra said, it's considerably less than half. I appreciate your comment about the relative economics for us versus the hospital system. We might add you to our negotiating team. You can be helpful.

All right, yeah, fair enough. Great. Yeah, just 'cause you guys look at this thing in the next few years, that for me seems like a pretty massive driver for pricing as a durable set going forward. So any color you can provide to us in terms of how this has changed over time would be very helpful. Thanks, guys.

Sure.

And there are no further questions at this time. I would like to hand it back to Mark or Dan for closing remarks.

Great. Thank you all for joining us this morning and with your continued support of pediatrics. Have a great day.

And this concludes today's conference call. Thank you all for joining. You may now disconnect.