Pediatrix Medical Group, Inc. (MD) Q2 2026 Earnings Report, Transcript and Summary

Thank you for standing by. My name is Jordan, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Q2 2026 Pediatrix Medical Group Inc. Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to [ Ashley Schneider ]. Please go ahead.

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 Pediatrix's management in light of their experience and assessment of historic 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 Pediatrix 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 and the company's quarterly and annual reports and on the Pediatrics website at www.pediatrix.com. With that, I will turn the call over to Mark Ordan, Chief Executive Officer of Pediatrics Medical Group.

Thank you, Ashley, and good morning, everyone. Also with me today is Kasandra Rossi, our Chief Financial Officer. We are pleased to report another solid quarter with adjusted EBITDA of $76 million. Same unit revenue was buoyed by strong RCM collections, payer mix, and importantly, continuing rise in acuity, while we did see modestly lower volumes, primarily in neonatology with NICU days down 3%. Our overall results for the quarter were in line with our expectations, and we reaffirm our full year 2026 outlook of $280 million to $300 million in adjusted EBITDA. In the quarter, we repurchased just under 2 million shares of our stock, bringing our total buybacks since August of 2025 to 7 million shares and our shares outstanding to 81 million, down from $87 million at the end of the second quarter of 2025. Our cash balance is at $289 million with total debt of $584 million. We've spoken before about our financial strength, which enables our consistent support for our practices, quality programs, research and growth. Before Kasandra provides additional details on the quarter, I'll comment on how the pieces of our business fit our strategic position. You know our sector-leading footprint in neonatology and maternal-fetal medicine. Today, we are in the process of building a significant function to augment our physical services with teleservices nationwide. No other entity is able to provide the services that we can offer to hospital partners, obstetricians and patients. And I'm sure you can imagine, we believe telemedicine is most effective when it's combined with physical patient visits. As one of our MFM physician leaders, Dr. Amber Samuel will put it, access when you need it and hands on when required. Only pediatrics has a multistate footprint of over 170 MFMs, by far the largest in the nation. These practices are very closely linked to the over 360 NICUs across 32 states in which our clinicians provide services, which also is, of course, by far the largest in the country and which also handles more high acuity patients than anyone else. We believe that telemedicine without a physical link is an imperfect offering. We expect telehybrid medicine to add significant value to pediatrics as it furthers our expansion in women's and children's care. This important area is not limited to MFM. Areas including retinopathy, neurology, infectious disease and of course, neonatology are all under this umbrella. I spoke on previous call about our expanding OBH footprint, which takes advantage of our embedded significant relationship with over 400 hospitals. We have recruited leaders in both telehybrid medicine and in OBH to help us expand both areas effectively. Last on growth. We're not a bank, and our business is not holding deposits. Our strong balance sheet, cash position and debt capacity enables us to take advantage of outside opportunities as they arise. We are very actively looking at possible growth avenues within women's and children's medicine, including potential opportunities to augment our strength by working with outside JV and capital investors. We have continued to buy back our shares and will continue to unless and until we see opportunities that make clear operating and financial sense. Now I'll turn the call to Kasandra to provide those additional details.

Thanks, Mark, and good morning, everyone. Our consolidated revenue increased by 4%, driven by non-same-unit activity, primarily recent acquisitions and same-unit growth of 2%. Same-unit pricing was up 4%, driven by strong RCM cash collections, favorable payer mix and increased patient acuity, primarily in neonatology. Payer mix improved by 135 basis points as compared to the prior year second quarter and importantly, improved by 120 basis points as compared to the first quarter of 2026. Same-unit patient service volumes were down 2%, driven by hospital-based services, primarily neonatology, and we were up against a tough comp. Practice level SW&B expenses increased year-over-year and on a same-unit basis, reflected increases in salary expenses and malpractice expense. Salary growth has remained in a pretty tight band, consistent with the ranges we have seen for the last 18 months. Our G&A expense increased year-over-year, primarily related to executive transition-related costs flowing through compensation expense. G&A expense increased to $5.8 million as compared to $5.3 million in the prior year, primarily reflecting capital expenditures and amortization of intangible assets from recent acquisitions. Other nonoperating expense decreased to $2.9 million as compared to $4.9 million for the prior year period, primarily reflecting a decrease in interest expense from modestly lower interest rates and borrowings and an increase in interest income on higher cash balances. Moving to cash flow. We generated $126 million in operating cash flow in the second 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. With cash of $289 million and net debt of just over $295 million, leverage sits at just above 1x using the midpoint of our adjusted EBITDA outlook range for 2026. Our accounts receivable DSO at June 30 of 42.5 days were fairly unchanged from March 31 and December 31, but were down just under four days year-over-year, primarily related to improved cash collections at our existing units. For the second half of 2026, we expect that our adjusted EBITDA will be fairly ratable in the third and fourth quarters. Now I'll turn the call back over to Mark.

Thanks, Kasandra. And now we are able to take questions if you have them.

[Operator Instructions] Your first question comes from the line of Ryan Daniels from William Blair.

This is Matthew Mardula on for Ryan. Thank you for taking the question, as well as for the details in the prepared remarks. So with the payer mix remaining stable this quarter and then increasing for commercial and nongovernment payers year-over-year and then also from Q1 based on the prepared remarks, why do you think you have been having a stable payer mix compared to your other peers in health care? And then any color on the consumer trends that is driving that payer mix for you as well as any insights into your expectations of how this payer mix could hold up into the second half?

Well, we said on -- Matthew, thanks for the question. We said on previous calls, and we've said recently in a filing that we have not seen the same effect that others have experienced. We can guess that it has something to do with the fact that if you're pregnant, then the relative value of insurance is a lot greater for you than it might be for somebody else. So it would make sense to me that somebody would retain their health insurance if you're pregnant. We don't know what the future holds. Many people were concerned that we hadn't built in some negative assumption, but we look at the fact, we looked at that to date, it's still very strong. We're not saying we're immune from it. We don't really know. We can only say that there is a there is a logical reason that we would be continuing to be strong. And it would make sense that in other cases, people would drop off the insurance because of the subsidy lapse. So that's all we know. But there has been absolutely no sign of a change to date at pediatrics.

Great. And then kind of given that we've seen a couple of quarters of this volume decrease, do you still believe this is not a trend occurring? And then if so, what's the reasoning behind the belief that the decrease in patient volume seen is not a trend occurring? I know you were kind of talking about in the prepared remarks, the tough comp, and it's just difficult to assess or predict the birth trends. But if you can give any color into maybe when you believe an increase in patient volume, maybe is that second half of this year, given the easier comps we see in the second half of this year. But just any color into the potential increase in that patient volume?

Well, the change in volume is pretty much on trend with past seasonal patterns. We expect for the year that we'll be overall flat in volume to maybe slightly down. As for an ongoing trend, we don't know. We have seen the numbers that we report that show a slight decline in volume that's been offset by the factors that we outlined. Other than that, we look at what the birth rate is, which is not a perfect indicator of what happens in neonatology. And importantly, because we sit on the high acuity side of neonatology, we look a lot at that. And when I talked in my remarks about telemedicine, we can reach into other parts of the country where there are really care deserts, where there isn't care available to provide care and when necessary, bring patients in for physical care. But we're on trend. This is typically a lower volume quarter, and so we're on trend for the year to be flat to possibly slightly down.

Your next question comes from the line of A.J. Rice from UBS.

Just a couple of things maybe. On the pricing, I know you're attributing part of that to better collections, part of its payer mix, and it sounds like some of it to acuity. Is there any way to delineate that a little further into what are the drivers of the extent to which either any of those were the primary driver?

A.J., it's Kasandra. So, yes, on the drivers, they are really following the same order that we've seen for the past several quarters. The biggest contributor is the RCM collections. And then really kind of coming in a close second is the payer mix impact and then wearing it up there is the acuity. So those three drivers are about 95% of the pricing for the quarter. And as we've talked about, we do anticipate that the RCM collections piece that we've been seeing that tailwind will begin to dissipate in the last -- in the second half of 2026. But like Mark said, we have no reason to believe at this time that acuity will wane. We've seen over the past few years, that is definitely on an upward trajectory and then payer mix, Mark already covered.

Okay. That's good. On the non-same-store contribution to growth, acquisitions offset maybe by a little bit of dispositions. Can you tell us a little more about what you're doing on the acquisition front, what you're seeing pricing? And then was there much in the way of dispositions? Or is most of that behind you at this point?

All the dispositions are behind us, and then I'll let Mark cover acquisitions.

Yes. Look, we're seeing -- we do see a lot of opportunities with where pricing is fair. So we expect to find opportunities. And as I mentioned before, if there are larger opportunities, we also see a big appetite from capital partners to join us in some way to help provide additional financing. Look, we obviously are looking for ways to grow. We just want to make sure that it makes sense, as I said on the call, both on an operating basis and a financial basis. But it does seem like a good time in the market to find smart opportunities that fit in the women's and children's space.

Okay. And then maybe just the last point of clarification. It sounded like there might be some unusual items. I think you mentioned executive transition compensation in the G&A. Is there an unusual item in there that we should back out to come up with a run rate for G&A going forward?

Yes. So, we said that G&A, we expect for 2026 to be somewhere in the range of $230 million to $240 million. It will probably be on the higher end of that range. And like we mentioned in our remarks, most of the growth in G&A was related to those executive transition costs that we would say are onetime-ish.

Okay. But that's done for the second half, so you won't see it step down a bit in the second half. Is that the way to think about it?

Yes. There was an increase in the second quarter in particular.

Your next question comes from the line of Jack Slevin from Jefferies.

This is Brett Grulkowski on for Jack Slevin. Maybe just to double-click into kind of previous questions and asked here, pricing in the back half of the year. What are the trends you're currently expecting? I know you kind of called out the RCM comps there, but do you see any other incremental opportunities?

No. So, I mean, our pricing drivers are -- they pretty much follow the four. RCM collections, which we've covered, which we will be lapping to some extent. Like we said, we do anticipate acuity will continue to be a positive factor for us in pricing. Payer mix, we've already covered. And then we have seen contract revenue come in through our pricing in past quarters. It wasn't as much of a contributor this quarter, but no other -- nothing else to really call out there for the back half of the year.

Okay. Great. And then maybe could you give some extra color on where you're seeing wage inflation tracking? How can we expect this to progress into the rest of the year and then maybe into 2027?

Yes. So, on the salaries expense, we've talked about that quite a bit for the past several quarters. We've been able to keep our salary increases in a pretty tight band, somewhere in that 3% to 3.5% area. And if you go back historically, we were up in the mid-single digits. So we don't see anything really changing. We've got really tight controls in that area.

There are no further questions. I'd like to turn the call back to Mark Ordan for closing remarks.

Thank you very much, and thanks, everybody, for your continued support and interest in Pediatrics. I hope you're enjoying your summer. Have a great day.

That concludes today's meeting. You may now disconnect.