Pediatrix Medical Group, Inc. 2026 Q3 Earnings Call

Thank you, David, and good morning, everyone. Also with me today is Kasandra 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 healthcare. We are narrowing the range of our full year 2026 outlook to $290 million-$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. 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 2 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 hospitalist 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. We have read about alleged abuses of the process.

Pediatrix submits claims that we believe are right down the middle of the spirit and letter of the process rules. 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 Pediatrix 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. 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 Kasandra.

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 have 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 D&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 2026, 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 9/30 sits at just under one times, 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 9/30 of 42.5 days were unchanged from June 30th and March 31st, and were down just over a half a day, year-over-year. I will go ahead and turn the call back over to Mark.

Great. Thank you, Kasandra. Now we will take any questions that you have.