Pediatrix ‘Fully Underway’ With Sales of Most Office-Based Practices
The leaders of Pediatrix Medical Group Inc. have sold the company’s primary- and urgent-care clinics and plan to shed all of their office-based practices other than maternal fetal medicine by year’s end.
The moves, which started to take shape at the physician services company during the second quarter, come after several years of financial struggles for Pediatrix (which formerly went by Mednax) that have included big revenue cycle management problems. Early this year, executives positioned 2024 as a return to stability but the arrival of that vibe has been pushed back to 2025.
Speaking to analysts on a conference call discussing Pediatrix’s second-quarter results, CEO Jim Swift said “exit activity is now fully underway” when it comes to divesting a range of pediatric subspecialty office-based practices that the company said were home to about 700 doctors at the end of last year. By comparison, Pediatrix’s hospital-based units employed about 1,900 physicians.
The goal: Keep only maternal fetal groups in offices and have hospital-based business account for 80% of Pediatrix’s revenue.
“Following the completion of these plans, we will have exited businesses that generated approximately $200 million in revenue in 2023,” Swift said. “Our refocused portfolio will consist of our core hospital-based services […] and, on the office space side, of our maternal fetal medicine practices.”
The divestitures of less profitable offices and the exit from primary and urgent care should boost Pediatrix’s adjusted EBITDA by about $30 million boost annually once they’ve been completed, Swift said. Last year, Pediatrix produced $200 million of adjusted EBITDA.
But they also come with a short-term cost: Swift and his team—which will soon swap out CFOs, with Mark Richards making way for Senior Vice President Kasandra Rossi—have had to roughly double their estimate of restructuring charges to about $40 million as they’ve added office-based practices to the list of divestitures. They’ve also booked a loss of nearly $11 million on two transactions that involved all of the company’s primary and urgent care clinics.
More broadly, the Pediatrix team also had to book $154 million in pre-tax, non-cash charge to account for the slide in the company’s stock price in recent quarters. In all, the company’s net loss for the three months ended June 30 was $153 million while revenue ticked up to $504 million. Adjusted EBITDA was nearly $58 million, down slightly from the same period in 2023.
Despite the big-dollar charges and being “in the midst of an aggressive reshaping,” Swift said he is sticking to his full-year forecast that Pediatrix will produce between $200 million and $220 million in adjusted EBITDA this year.
Investors gave a thumbs-up to the progress report—which also featured a positive trend in payer mix—from Swift and his lieutenants: Shares of Pediatrix (Ticker: MD) popped nearly 18% to $8.97 Aug. 6. That’s their highest level since early May and brings them just about level with where they were six months ago. Pediatrix’s market capitalization is now about $750 million.
