MEDNAX third quarter GAAP net income increases to $61.3 million

MEDNAX, Inc. (NYSE: MD) today reported GAAP earnings per share of $1.29 for the three months ended September 30, 2010, or $1.06 per share, non-GAAP, when excluding the impact of a favorable resolution of certain tax matters.

“We are making great strides in building our national anesthesia group practice within this large, attractive and fragmented specialty, in large part because we are building it on a similar foundation as our Pediatrix Medical Group division”

MEDNAX also announced that it expects earnings per share for the 2010 fourth quarter to be in a range of $1.10 to $1.14, which includes estimated contributions from two anesthesia group practices acquired since October 1, 2010.

"We are making great strides in building our national anesthesia group practice within this large, attractive and fragmented specialty, in large part because we are building it on a similar foundation as our Pediatrix Medical Group division," said Roger J. Medel, M.D., Chief Executive Officer of MEDNAX. "We continue to successfully execute a deliberate strategy that attracts well-established, well-recognized groups that today are being integrated in a way that advances our commitment to patient care, and achieves efficiencies through the effective delivery of administrative services to support our physicians and advanced practitioners who provide valuable patient care services across all of our specialties and subspecialties."

For the three months ended September 30, 2010, MEDNAX generated net patient service revenue of $351.1 million, up 6 percent from $331.3 million for the comparable prior-year period.

These results consist of revenue growth from acquisitions of 5.2 percent, and same- unit revenue growth of 0.8 percent, related principally to reimbursement factors.

The percentage of services reimbursed under government programs increased by 60 basis points for the 2010 third quarter, when compared with the prior-year period. On a sequential basis, same-unit payor mix shifted by 150 basis points toward a higher percentage reimbursed under government programs.

Same-unit revenue attributable to volume across all patient services grew slightly during the 2010 third quarter from the prior-year period, driven by volume growth at anesthesia and pediatric cardiology practices, offset by slightly lower volume at neonatal intensive care units (NICU) and maternal-fetal medicine practices. Same-unit patient volume at neonatal intensive care units staffed by MEDNAX physicians declined by six-tenths of one percent for the 2010 third quarter from the prior-year period.

Operating income for the 2010 third quarter was $81.4 million, up 4 percent from $78.3 million for the prior-year period. General and administrative expenses as a percent of revenue were 10.7 percent, down 68 basis points from 11.4 percent for the 2009 third quarter, as a result of ongoing administrative efficiencies, including incremental benefits from the integration of anesthesia billing services.

Operating margin for the 2010 third quarter declined by 47 basis points to 23.2 percent as a result of the lower rate of same-unit revenue growth relative to prior periods, as well as higher depreciation and amortization expenses, partially offset by effective administrative expense management. Depreciation and amortization expense for the 2010 third quarter includes the acceleration of approximately $1.2 million of amortization expense related to the termination of a hospital contract associated with a prior acquisition.

MEDNAX's income tax provision was favorably impacted by $10.9 million following the resolution of certain tax matters. This resulted in an effective tax rate of 24.7 percent, on a GAAP basis, for the 2010 third quarter. When excluding the impact of the resolution of the tax matters, MEDNAX's non-GAAP effective tax rate was 38.1 percent.

MEDNAX generated GAAP net income of $61.3 million for the 2010 third quarter, or $1.29 per share based on a weighted average 47.5 million shares outstanding. Excluding the impact of the resolution of certain tax matters, non-GAAP net income was $50.3 million, or $1.06 per share. This compares with GAAP net income of $48.1 million, or $1.03 per share based on a weighted average 46.7 million shares outstanding, for the 2009 third quarter.

For the nine months ended September 30, 2010, MEDNAX reported revenue of $1.03 billion, up 8 percent from $955.0 million for the comparable prior-year period. Operating income grew by 8 percent, to $227.0 million through nine months of 2010, from $209.7 million for the prior-year period. Through nine months of 2010 MEDNAX generated net income of $148.9 million, on a GAAP basis, or $138.0 million, non-GAAP, an increase of 10 percent from $125.4 million through the first nine months of 2009.

On a per share basis, MEDNAX earned $3.14, on a GAAP basis, or $2.91 on a non-GAAP basis, based on a weighted average 47.4 million shares outstanding for the nine months of 2010. This compares to EPS of $2.71, based on a weighted average 46.3 million shares outstanding, for the comparable prior-year period.

At September 30, 2010, MEDNAX had cash and cash equivalents of $61.4 million and net accounts receivable were $174.7 million. The Company had no amounts outstanding on its $350 million revolving credit facility at September 30, 2010.

For the 2010 third quarter, MEDNAX generated cash flow from operations of $105.4 million. Cash flow from operations for the nine months ended September 30, 2010, was $155.5 million, and the Company has used approximately $65.7 million to complete physician group practices and to make contingent purchase price payments for previously completed acquisitions, as well as to reduce amounts outstanding under its revolving credit facility.

Since October 1, 2010, MEDNAX has announced the acquisition of a 90-member anesthesiology group practice based in Charlotte, NC, and a 23-member physician group practice based in Greensboro, NC. As of today, MEDNAX has announced the acquisition of 10 physician group practices this year, including six providing neonatal services, one maternal-fetal medicine, one pediatric cardiology and two anesthesia groups.

MEDNAX has $166.0 million outstanding on its revolving credit facility as of November 1, 2010.

Outlook

MEDNAX expects earnings for the three months ending December 31, 2010, to be in a range of $1.10 to $1.14 per share. This range includes estimated contributions from two anesthesia group practices acquired during the 2010 fourth quarter. MEDNAX expects that the percentage of patient services reimbursed under government programs for the 2010 fourth quarter will be in a range of one-half percentage point higher to one half percentage point lower than for the 2010 third quarter. The Company also expects that same-unit NICU patient volume for the 2010 fourth quarter will be in a range of one percent higher to one percent lower than for the prior-year period.