Pediatrix Medical Gp : Pediatrix Reports 2006 Full Year, 2007 First Quarter Results

August 07, 2007 at 04:12 pm IST

MarketScreener.com By

Pediatrix Medical Group, Inc., (NYSE: PDX) today reported record results from operations for the year ended December 31, 2006, and three months ended March 31, 2007. These results were delayed while the Audit Committee of the Company's Board of Directors completed a comprehensive review of historical stock option grant practices.

For the year ended December 31, 2006, Pediatrix reported:

Revenue growth of 18 percent, including same-unit revenue growth of 11.9 percent;
Non-GAAP operating income growth of 24 percent;
Non-GAAP operating margin expansion of 132 basis points, largely as a result of better general and administrative expense management; and
Non-GAAP earnings per share of $2.83, which grew by 22 percent from the prior year.

For the three months ended March 31, 2007, Pediatrix reported:

Revenue growth of 14 percent, principally from same-unit growth of 10.7 percent;
Non-GAAP operating income growth of 23 percent, with a 162-basis point improvement in adjusted operating margin; and
Non-GAAP earnings per share growth of 21 percent, to 58 cents.

?Our operating results demonstrate that we continue to execute on our strategy of growing our national group practice and managing it more efficiently,? said Roger J. Medel, M.D., Chief Executive Officer of Pediatrix. ?We are achieving significant operating efficiencies while delivering value-added services to our physicians and we remain confident that our model is attractive to more physician groups within our core subspecialties, as well as other hospital-based specialties.?

Pediatrix's results from operations include certain specific items that affect the comparability of operating results. These items include:

Equity-based compensation expense of $11.9 million in 2005 and $20.1 million in 2006;
An increase of $20.9 million in estimated liability reserves during 2005 associated with a previously announced Medicaid investigation settlement;
A gain of $1.6 million on the sale of the Company's aircraft during the second quarter of 2006;
Costs of $4.8 million incurred during the second half of 2006, and $1.5 million incurred during the 2007 first quarter related to the Company's recently completed stock-option review;
Employee-benefit expenses of $6.4 million during the 2007 first quarter reflecting the Company's accrual for payment of taxes on behalf of employees, other than executive officers, imposed by Section 409A of the Internal Revenue Code; and
A reduction in the Company's tax provision of $1.2 million in the 2007 first quarter.

In this press release, Pediatrix compares its results based on both generally accepted accounting principles (GAAP) and adjusted, or non-GAAP, to take into account the items noted above. The Company believes that excluding these items allows investors to have a more meaningful understanding of the Company's core operating results. These non-GAAP, or adjusted, items are related to specific periods mentioned above, and discussed throughout this release. Pediatrix provides a detailed reconciliation of non-GAAP to GAAP items in the tables accompanying this press release.

Year Ended December 31, 2006

Pediatrix reported net patient service revenue for 2006 of $818.6 million, which increased 18 percent when compared with revenue of $693.7 million for 2005. Same-unit revenue increased by 11.9 percent as a result of the impact of a new physician code for neonatal intensive care services introduced at the beginning of 2006, as well as ongoing reimbursement and patient-volume growth. Revenue growth attributable to same-unit patient volume was 4.9 percent for 2006 over 2005, and included 3.6 percent patient volume growth at neonatal intensive care units (NICU) staffed by Pediatrix physicians.

Operating income for 2006 was $198.5 million, as compared with $146.0 million for the 12 months ended December 31, 2005. When adjusted, Pediatrix's operating income increased by 24 percent, to $221.8 million during 2006, from $178.8 million for 2005. Adjusted operating margin increased to 27.1 percent in 2006, up 132 basis points from 25.8 percent in 2005.

Pediatrix's net income for 2006 was $124.5 million, up from $87.5 million in 2005. On an adjusted basis, net income grew by 25 percent, to $139.8 million for 2006 when compared with $111.5 million for 2005.

Earnings per share were $2.52 for 2006 based on a weighted average 49.4 million shares outstanding, which compares with $1.82, based on 48.0 million shares outstanding, for 2005. When adjusted, EPS increased by 22 percent, to $2.83 in 2006, from $2.32 in 2005.

During 2006, Pediatrix generated cash flow from operations of $177.3 million, which included the payment of $25.1 million related to the Medicaid investigation settlement that had accrued during prior periods. During 2005, Pediatrix generated cash flow from operations of $162.4 million.

Pediatrix invested $91.8 million in acquisitions during 2006, and the Company completed eight physician group practice acquisitions during that period, including four neonatal practices and four pediatric cardiology practices.

At December 31, 2006, Pediatrix had cash and cash equivalents of $69.6 million and short-term investments of $65.7 million. Accounts receivable were $125.6 million.

Three Months Ended March 31, 2007

Comparisons of results for the three months ended March 31, 2007 and 2006, respectively, exclude employee-benefit costs associated with the Company's accrual for payment of taxes on behalf of employees as imposed by Internal Revenue Code Section 409A, expenses related to the stock option review, and the benefit from a reduced tax provision for the 2007 period.

For the three months ended March 31, 2007, Pediatrix reported net patient service revenue of $214.5 million, up 14 percent from $187.7 million for the comparable 2006 period.

Same-unit revenue growth was 10.7 percent, which included the impact of the neonatal code introduced during 2006, as well as improved reimbursement and higher patient volume. Same-unit revenue growth attributed to patient volume was 4.4 percent, which included 3.9 percent growth in NICU patient volume, and growth of office-based practices and newborn screening programs.

Operating income for the 2007 first quarter was $38.5 million as compared to $37.6 million for the 2006 first quarter. When adjusted, 2007 first quarter operating income was $46.4 million, up 23 percent from $37.6 million for the comparable 2006 period. First quarter adjusted operating margin expanded by 162 basis points to 21.6 percent for 2007, from 20.0 percent for 2006. Pediatrix's first quarter margins are normally impacted by seasonal issues, specifically a reduction in the number of billing days for neonatal physician services, and an increase in payroll-related taxes at the beginning of each calendar year.

Pediatrix's effective tax rate was reduced to 36.3 percent for the 2007 first quarter as a result of a $1.2 million reduction in the Company's liability for uncertain tax positions following the expiration of the statutes of limitations on certain filed tax returns. Pediatrix's tax rate will be affected by its adoption of the Financial Accounting Standards Board's Interpretation No. 48, as well as tax law changes in Texas. For the remainder of 2007, Pediatrix expects that its effective tax rate will be 39.25 percent.

For the three months ended March 31, 2007, Pediatrix's net income was $25.6 million, which compares with $23.4 million for the same 2006 period. Adjusted net income of $29.2 million in the 2007 first quarter increased by 25 percent from $23.4 million for the 2006 first quarter.

On a per share basis, Pediatrix earned 51 cents per share, based on a weighted average 49.9 million shares outstanding, for the 2007 first quarter, which compares with EPS of 48 cents per share, based on a weighted average 48.9 million shares outstanding, for the 2006 first quarter. Adjusted EPS of 58 cents for the 2007 first quarter increased by 21 percent, from the 2006 first quarter.

During the 2007 first quarter, Pediatrix used $30.8 million of its cash to fund operations, principally due to the payment of accrued bonuses earned by physicians under their 2006 incentive compensation plans, as well as corporate income tax payments.

During the 2007 first quarter, Pediatrix completed the acquisition of neonatal physician group practices based in San Francisco, California, and Munster, Indiana. The Company invested $12.0 million in acquisitions during the period.

At March 31, 2007, Pediatrix had cash and cash equivalents of $71.6 million and short-term investments of $17.2 million.

Pediatrix's SEC Filings

Today, Pediatrix filed its Annual Report on Form 10-K for the 12 months ended December 31, 2006, as well as quarterly reports on Form 10-Q for the periods ended June 30, 2006, September 30, 2006 and March 31, 2007, bringing the company current in its Securities and Exchange Commission filings. As a result of the stock option review, Pediatrix has recorded additional cumulative non-cash stock-based compensation expense of $33.2 million, before tax adjustments, related to previously granted stock options. The Company's Form 10-K includes restated financial statements covering all periods through March 31, 2006.

Reconciliation of Non-GAAP Information

This press release contains non-GAAP information, which includes income from operations, operating margin, net income and earnings per share, which is adjusted for certain items as set forth below. Pediatrix believes that this non-GAAP information is useful to management and investors reviewing financial and business trends related to its results of operations and that when non-GAAP information is viewed with GAAP information, investors are provided with a meaningful understanding of Pediatrix's ongoing operating financial performance. This information is not intended to be considered in isolation, or as a substitute of GAAP financial information. The following tables reconcile non-GAAP financial information to income from operations, net income and net income per common share, which Pediatrix believes are the most comparable GAAP measures:

	Non-GAAP Adjustments
	Three Months Ended
	March 31, 2007			Dec. 31, 2006			Sept. 30, 2006			June 30, 2006
	(in thousands, except for per share data)

Net patient service revenue	$	214,456		$	211,313		$	215,755		$	203,807

GAAP practice salaries and benefits		130,945			120,674			120,836			114,419
Equity-based compensation expense		--			(1,174	)		(1,303	)		(1,107	)
Internal Revenue Code 409A expense		(2,978	)		--			--			--
Non-GAAP practice salaries and benefits		127,967			119,500			119,533			113,312

GAAP general and administrative expenses		33,615			28,874			27,971			24,820
Equity-based compensation expense		--			(3,643	)		(3,799	)		(3,824	)
Gain on sale of aircraft											1,630
Stock option review expense		(1,500	)		(3,125	)		(1,675	)
Internal Revenue Code 409A expense		(3,408	)		--			--			--
Non-GAAP general and administrative expenses		28,707			22,106			22,497			22,626

GAAP income from operations		38,523			50,798			56,548			53,560
Net adjustments		7,886			7,942			6,777			3,301
Non-GAAP income from operations		46,409			58,740			63,325			56,861

GAAP income tax provision		(14,584	)		(20,028	)		(22,434	)		(20,169	)
Net adjustments		(4,276	)		(2,767	)		(2,326	)(a)		(1,037	)
Non-GAAP income tax provision		(18,860	)		(22,795	)		(24,760	)		(21,206	)

GAAP net income		25,582			32,415			35,165			33,458
Net adjustments		3,610			5,175			4,451			2,264
Non-GAAP net income		29,192			37,590			39,616			35,722

Net income per common and common equivalent share (diluted):
GAAP EPS	$	0.51		$	0.65		$	0.71		$	0.68
Net adjustments		0.07			0.11			0.09			0.04
Non-GAAP EPS	$	0.58		$	0.76		$	0.80		$	0.72
Weighted average shares used in computing net income per common and common equivalent share (diluted)		49,910			49,714			49,515			49,461

(a) Adjusted income tax provision for the three months ended September 30, 2006, includes the cumulative impact of an increase in the Company's effective tax rate for 2006.

Share and per-share data for all periods presented have been adjusted to give effect to the two-for-one stock split that was effective April 28, 2006.