Pediatrix Medical Group, Inc. (MD)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” preceding Part I of this Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not significantly affected by inflation.

This section generally discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 are not included in this Form 10-K and can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the SEC on February 20, 2024 (the “2023 Annual Report”) and are incorporated herein by reference.

OVERVIEW

Pediatrix is a leading provider of physician services including newborn, maternal-fetal and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in 36 states. At December 31, 2024, our national network comprised approximately 2,335 affiliated physicians, including 1,335 physicians who provide neonatal clinical care, primarily within hospital-based neonatal intensive care units (“NICUs”), to babies born prematurely or with medical complications. We have 490 affiliated physicians who provide maternal-fetal and obstetrical medical care to expectant mothers experiencing complicated pregnancies primarily in areas where our affiliated neonatal physicians practice. Our network also includes other pediatric subspecialists, including 240 physicians providing hospital-based pediatric care, over 230 physicians providing pediatric intensive care, and 20 physicians providing pediatric surgical care.

General Economic Conditions and Other Factors

Our operations and performance depend significantly on economic conditions. During the year ended December 31, 2024, the percentage of our patient service revenue being reimbursed under government-sponsored or funded healthcare programs (“GHC Programs”) decreased as compared to the year ended December 31, 2023. We could, however, experience shifts toward GHC Programs if changes occur in economic behaviors or population demographics within geographic locations in which we provide services, including an increase in unemployment and underemployment as well as losses of commercial health insurance. Payments received from GHC Programs are substantially less for equivalent services than payments received from commercial insurance payors. In addition, costs of managed care premiums and patient responsibility amounts continue to rise, and accordingly, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services. See Item 1A. Risk Factors, in this Form 10-K for additional discussion on the general economic conditions in the United States and recent developments in the healthcare industry that could affect our business.

Practice Portfolio Management Plan and Impairment of Long-Lived Assets

During the second quarter of 2024, we formalized our physician practice optimization plans, resulting in a decision to exit almost all of our affiliated office-based practices, other than maternal-fetal medicine. Over the course of many years, we expanded our pediatric service lines and footprint to provide specialized care to more patients, including through our office-based portfolio of practices. This added complexity to our operations over time and, accordingly, increased costs that resulted in operating challenges primarily for our office-based portfolio of practices. Recognizing this and our need to adapt to the current healthcare climate, during the second quarter, we made the decision to return to a hospital-based and maternal-fetal medicine-focused organization. Accordingly, a recoverability assessment for each impacted individual physician practice was performed, and the estimated future cash flows related to the physician practices did not support the carrying value of the specifically identified individual long-lived assets. As a result, we recorded fixed asset impairments of $20.1 million, operating lease right-of-use asset impairments of $12.5 million and intangible asset impairments of $7.7 million during the year ended December 31, 2024. The

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operating lease right-of-use impairments are recorded within the transformational and restructuring related expenses line item. As of December 31, 2024, the planned exits of our pediatric office-based practices were completed.

Exit of Primary and Urgent Care Service Line

During 2024, we made the decision to exit our primary and urgent care service line based on a review of the cost and time that would be required to build the platform to scale. The total loss on disposal of these businesses was $11.0 million.

“Surprise” Billing Legislation

In late 2020, Congress enacted the No Surprises Act (“NSA”) legislation intended to protect patients from “surprise” medical bills when certain services are furnished by providers who are not in-network with the patient’s insurer. Effective January 1, 2022, if a patient’s insurance plan or coverage is subject to the NSA, providers are not permitted to send such patient an unexpected or “surprise” medical bill that arises from out-of-network emergency care provided at certain out-of-network facilities or at certain in-network facilities by out-of-network emergency providers, as well as nonemergency care provided at certain in-network facilities by out-of-network providers without the patient’s informed consent (as defined by the NSA). Many states have legislation on this topic and will continue to modify and review their laws pertaining to surprise billing.

For claims subject to the NSA, insurers are required to calculate the patient’s total cost-sharing amount pursuant to rules set forth in the NSA and its implementing regulations which, in some cases, can be calculated by reference to the applicable qualifying payment amount for the items or services received. The patient’s cost-sharing amount for out-of-network services covered by the NSA must be no more than the patient’s in-network cost-sharing amounts. Patient cost-sharing amounts for items and services subject to the NSA count toward the patient’s health plan deductible and out-of-pocket cost-sharing limits. For claims subject to the NSA, providers are generally not permitted to balance bill patients beyond this cost-sharing amount. An out-of-network provider is only permitted to bill a patient more than the cost-sharing amount allowed under the NSA for certain types of services if the provider satisfies all aspects of an informed consent process set forth in the NSA’s implementing regulations. Providers that violate these surprise billing prohibitions may be subject to enforcement actions by CMS or by states, one or both of which may be tasked with investigating potential non-compliance as a result of patient complaints, as well as any state-specific penalties enforcement action and federal civil monetary penalties.

For claims subject to the NSA, including many emergency care services, out-of-network providers will be paid an initial amount determined by the plan; if a provider is not satisfied with the initial amount paid for the services, the provider can pursue recourse through an independent dispute resolution ("IDR") process. The outcome of each IDR dispute is generally binding on both the provider and payor with respect to the particular claims at issue in that dispute but may not affect an insurer’s future offers of payment. Accordingly, we cannot predict how these IDR results will compare to the rates that our affiliated physicians customarily receive for their services. These measures could limit the amount we can charge and recover for services we furnish where we have not contracted with the patient’s insurer, and therefore could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. See Item 1A. Risk Factors ─“Congress or states have, and may continue to, enact laws restricting the amount out-of-network providers of services can charge and recover for such services.”

Healthcare Reform

The ACA has altered how health care is delivered and reimbursed in the U.S. and contains various provisions, including the establishment of health insurance exchanges to facilitate the purchase of qualified health plans, expanded Medicaid eligibility, subsidized insurance premiums and additional requirements and incentives for businesses to provide healthcare benefits. Other provisions of the ACA have expanded the scope and reach of the FCA and other healthcare fraud and abuse laws. The status of the ACA may be subject to change as a result of political, legislative, regulatory, and administrative developments, as well as judicial proceedings. As a result, we could be affected by potential changes to various aspects of the ACA, including changes to subsidies, healthcare insurance marketplaces and Medicaid expansion. We cannot say for certain whether there will be additional future challenges to the ACA or what impact, if any, such challenges may have on our business. Changes resulting from various legal proceedings,

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and any legislative or administrative change to the current healthcare financing system, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. See Item 1A. Risk Factors ─ “Potential healthcare reform efforts may have a significant effect on our business.”

In addition to the ACA, there could be changes to other GHC Programs, such as a change to the Medicaid program design or Medicaid coverage and reimbursement rates set forth under federal or state law. These changes, if implemented, could eliminate the guarantee that everyone who is eligible and applies for Medicaid benefits would receive them and could potentially give states new authority to restrict eligibility, cut benefits and/or make it more difficult for people to enroll. See Item 1. Business – “Relationship With Our Partners – Government Regulatory Requirements” and see also Item 1A. Risk Factors ─ “Potential healthcare reform efforts may have a significant effect on our business.” Moreover, the expiration of the COVID-19 national emergency and public health emergency declarations in May 2023 may impact the coverage for and access to certain services for Medicaid patients. Expiration of the national emergency and public health emergency declarations will also end waivers for the provision of certain services, and returning our services to a pre-pandemic regulatory state similarly may increase our exposure to legal, regulatory, compliance and clinical risks.

Medicaid Expansion

The ACA also allows states to expand their Medicaid programs through federal payments that fund most of the cost of increasing the Medicaid eligibility income limit from a state’s historic eligibility levels to 133% of the federal poverty level. See Item 1. Business – “Relationship With Our Partners – Third-Party Payors.” All of the states in which we operate, however, already cover children in the first year of life and pregnant women if their household income is at or below 133% of the federal poverty level. Recently, Democrats in Congress have sought to expand Medicaid or Medicaid-like coverage in states that have not yet expanded Medicaid. They also have sought to reduce payments to certain hospitals in some of these states. See Item 1A. Risk Factors – “State budgetary constraints and the uncertainty over the future of Medicaid could have an adverse effect on our reimbursement from Medicaid programs.” Should any of these changes take effect, we cannot predict with any assurance the ultimate effect on reimbursements for our services.

RCM Services Agreement

On October 30, 2023, we provided notice to R1RCM that we were terminating that certain Services Agreement, dated May 12, 2021, as amended, by and between our wholly owned subsidiary PMG Services, Inc. and R1RCM, effective as of December 15, 2023 (the "Services Agreement"). Our termination of the Services Agreement was in connection with R1RCM’s performance, specifically R1RCM's failure to meet certain service levels set forth in the Services Agreement. R1RCM was the primary provider of our enterprise revenue cycle management services. During 2024, we transitioned to a hybrid revenue cycle management function that utilizes both our corporate personnel and a new third party RCM provider. See Item 1A. Risk Factors ─ “During 2024, we undertook a transformation of our revenue cycle management function from an outsourced provider to a hybrid function that utilizes both our corporate personnel as well as third-party service providers. Our failure to execute a hybrid revenue cycle management function efficiently and effectively may have a material impact on our business, financial condition, results of operations, cash flows and the trading price of our securities.”

2024 Acquisition Activity

During 2024, we acquired one maternal-fetal medicine practice. Based on our experience, we expect that we can improve the results of acquired physician practices in various ways, including improved collections, identification of growth initiatives and operating and cost savings based upon the significant infrastructure that we have developed.

Goodwill Impairment

Goodwill is tested for impairment on at least an annual basis, in accordance with the subsequent measurement provisions of the accounting guidance for goodwill. Consistent with prior years, we performed our annual impairment analysis in the third quarter, specifically as of July 31, 2024. At that date, we elected to perform a quantitative assessment and determined no impairment existed.

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During the second quarter of 2024, we experienced a triggering event, due to a sustained decline in our stock price and a market capitalization below our book equity value. This assessment resulted in a non-cash impairment charge of $126.4 million for the year ended December 31, 2024. Recognition of this non-cash charge against goodwill resulted in a tax benefit which generated an additional deferred tax asset of $24.2 million that increased our book value. An incremental non-cash charge was required to reduce our book value to its previously determined fair value. Accordingly, we recorded the incremental non-cash charge of $24.2 million for a total non-cash charge of $150.6 million.

Transformation and Restructuring Related Initiatives

From time to time we develop strategic initiatives across our organization, in both our shared services functions and our operational infrastructure, with a goal of generating improvements in our general and administrative expenses and our operational infrastructure. We have included the expenses, which in certain cases represent estimates, related to such activity on a separate line item in our consolidated statements. During 2024, our transformation and restructuring related expenses relate specifically to our practice portfolio management activities, revenue cycle management transition activities and position eliminations across various shared services and operations departments.

Geographic Coverage

During 2024 and 2023, approximately 67% of our net revenue from continuing operations was generated by operations in our five largest states. During 2024 and 2023, our five largest states consisted of Texas, Florida, Georgia, California, and Washington. During both 2024 and 2023, our operations in Texas accounted for approximately 32% of our net revenue.

Payor Mix

We bill payors for professional services provided by our affiliated physicians to our patients based upon rates for specific services provided. Our billed charges are substantially the same for all parties in a particular geographic area regardless of the party responsible for paying the bill for our services. We determine our net revenue based upon the difference between our gross fees for services and our estimated ultimate collections from payors. Net revenue differs from gross fees due to (i) managed care payments at contracted rates, (ii) GHC Program reimbursements at government-established rates, (iii) various reimbursement plans and negotiated reimbursements from other third-parties, and (iv) discounted and uncollectible accounts of private-pay patients.

Our payor mix is composed of contracted managed care, government, principally Medicaid, other third-parties and private-pay patients. We benefit from the fact that most of the medical services provided in the NICU are classified as emergency services, a category typically classified as a covered service by managed care payors.

The following is a summary of our payor mix, expressed as a percentage of net revenue from continuing operations, exclusive of administrative fees and miscellaneous revenue, for the periods indicated:

The payor mix shown in the table above is not necessarily representative of the amount of services provided to patients covered under these plans. For example, the gross amount billed to patients covered under GHC Programs for the years ended December 31, 2024 and 2023 represented approximately 53% and 55%, respectively, of our total gross patient service revenue. These percentages of gross revenue and the percentages of net revenue provided in the table above include the payor mix impact of acquisitions completed through December 31, 2024.

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Quarterly Results

We have historically experienced and expect to continue to experience quarterly fluctuations in net revenue and net income. These fluctuations are primarily due to the following factors:

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There are fewer calendar days in the first and second quarters of the year, as compared to the third and fourth quarters of the year. Because we provide services in NICUs on a 24-hours-a-day basis, 365 days a year, any reduction in service days will have a corresponding reduction in net revenue.

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The majority of physician services provided by our office-based practices consist of office visits and scheduled procedures that occur during business hours. As a result, volumes at those practices fluctuate based on the number of business days in each calendar quarter.

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A significant number of our employees and our associated professional contractors, primarily physicians, exceed the level of taxable wages for social security during the first and second quarters of the year. As a result, we incur a significantly higher payroll tax burden and our net income is lower during those quarters.

We have significant fixed operating costs, including physician compensation, and, as a result, are highly dependent on patient volume and capacity utilization of our affiliated professional contractors to sustain profitability. Additionally, quarterly results may be affected by the timing of acquisitions and fluctuations in patient volume. As a result, the operating results for any quarter are not necessarily indicative of results for any future period or for the full year.

Application of Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires estimates and assumptions that affect the reporting of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Note 2 to our Consolidated Financial Statements provides a summary of our significant accounting policies, which are all in accordance with GAAP. Certain of our accounting policies are critical to understanding our Consolidated Financial Statements because their application requires management to make assumptions about future results and depends to a large extent on management’s judgment, because past results have fluctuated and are expected to continue to do so in the future.

We believe that the application of the accounting policies described in the following paragraphs is highly dependent on critical estimates and assumptions that are inherently uncertain and highly susceptible to change. For all of these policies, we caution that future events rarely develop exactly as estimated, and the best estimates routinely require adjustment. On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below.

Revenue Recognition

We recognize patient service revenue at the time services are provided by our affiliated physicians. Our performance obligations relate to the delivery of services to patients and are satisfied at the time of service. Accordingly, there are no performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period with respect to patient service revenue. Almost all of our patient service revenue is reimbursed by GHC Programs and third-party insurance payors. Payments for services rendered to our patients are generally less than billed charges. We monitor our revenue and receivables from these sources and record an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.

Accordingly, patient service revenue is presented net of an estimated provision for contractual adjustments and uncollectibles. Management estimates allowances for contractual adjustments and uncollectibles on accounts receivable based upon historical experience and other factors, including days sales outstanding (“DSO”) for accounts receivable, evaluation of expected adjustments and delinquency rates, past adjustments and collection experience in relation to amounts billed, an aging of accounts receivable, current contract and reimbursement terms, changes in payor mix and other relevant information. Collection of patient service revenue we expect to receive is normally a function of providing complete and correct billing information to the GHC Programs and third-party insurance payors

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within the various filing deadlines and typically occurs within 30 to 60 days of billing. Contractual adjustments result from the difference between the physician rates for services performed and the reimbursements by GHC Programs and third-party insurance payors for such services. The evaluation of these historical and other factors involves complex, subjective judgments. On a routine basis, we compare our cash collections to recorded net patient service revenue and evaluate our historical allowance for contractual adjustments and uncollectibles based upon the ultimate resolution of the accounts receivable balance. These procedures are completed regularly in order to monitor our process of establishing appropriate reserves for contractual adjustments. We have not recorded any material adjustments to prior period contractual adjustments and uncollectibles in the years ended December 31, 2024, 2023, or 2022.

Some of our agreements require hospitals to pay us administrative fees. Some agreements provide for fees if the hospital does not generate sufficient patient volume in order to guarantee that we receive a specified minimum revenue level. We also receive fees from hospitals for administrative services performed by our affiliated physicians providing medical director or other services at the hospital.

DSO is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Any significant change in our DSO results in additional analyses of outstanding accounts receivable and the associated reserves. We calculate our DSO using a three-month rolling average of net revenue. Our net revenue, net income and operating cash flows may be materially and adversely affected if actual adjustments and uncollectibles exceed management’s estimated provisions as a result of changes in these factors. As of December 31, 2024, our DSO was 47.6 days. We had approximately $1.34 billion in gross accounts receivable for continuing operations outstanding at December 31, 2024, and considering this outstanding balance, based on our historical experience, a reasonably likely change of 0.5% to 1.50% in our estimated collection rate would result in an impact to net revenue of $6.4 million to $19.1 million. The impact of this change does not include adjustments that may be required as a result of audits, inquiries and investigations from government authorities and agencies and other third-party payors that may occur in the ordinary course of business. See Note 19 to our Consolidated Financial Statements in this Form 10-K.

Professional Liability Coverage

We maintain professional liability insurance policies with third-party insurers generally on a claims-made basis, subject to self-insured retention, exclusions and other restrictions. Our self-insured retention under our professional liability insurance program is maintained primarily through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Liabilities for claims incurred but not reported are not discounted. The average lag period from the date a claim is reported to the date it reaches final settlement is approximately four years, although the facts and circumstances of individual claims could result in lag periods that vary from this average. Our actuarial assumptions incorporate multiple complex methodologies to determine the best liability estimate for claims incurred but not reported and the future development of known claims, including methodologies that focus on industry trends, paid loss development, reported loss development and industry-based expected pure premiums. The most significant assumptions used in the estimation process include the use of loss development factors to determine the future emergence of claim liabilities, the use of frequency and trend factors to estimate the impact of economic, judicial and social changes affecting claim costs, and assumptions regarding legal and other costs associated with the ultimate settlement of claims. The key assumptions used in our actuarial valuations are subject to constant adjustments as a result of changes in our actual loss history and the movement of projected emergence patterns as claims develop. We evaluate the need for professional liability insurance reserves in excess of amounts estimated in our actuarial valuations on a routine basis, and as of December 31, 2024, based on our historical experience for continuing operations, a reasonably likely change of 4.0% to 10.0% in our estimates would result in an increase or decrease to net income of $3.5 million to $8.7 million. However, because many factors can affect historical and future loss patterns, the determination of an appropriate professional liability reserve involves complex, subjective judgment, and actual results may vary significantly from estimates.

Goodwill

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We record acquired assets, including identifiable intangible assets and liabilities at their respective fair values, recording to goodwill the excess of purchase price over the fair value of the net assets acquired. Goodwill is tested for impairment at a reporting unit level on at least an annual basis in accordance with the subsequent measurement provisions of the accounting guidance for goodwill. When testing goodwill for impairment, we may assess qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying amount, including goodwill. Alternatively, we may bypass this qualitative assessment and perform the quantitative goodwill impairment test. We may use income and market-based valuation approaches to determine the fair value of our reporting units. These approaches focus on various significant assumptions, including the weighted average cost of capital discount factor, revenue growth rates and market multiples for revenue and earnings before interest, taxes and depreciation and amortization (“EBITDA”). We also consider the economic outlook for the healthcare services industry and various other factors during the testing process, including hospital and physician contract changes, local market developments, changes in third-party payor payments and other publicly available information.

Non-GAAP Measures

In our analysis of our results of operations, we use various GAAP and certain non-GAAP financial measures. We have incurred certain expenses that we do not consider representative of our underlying operations, including transformational and restructuring related expenses. Accordingly, we report adjusted earnings before interest, taxes and depreciation and amortization (“Adjusted EBITDA”) from continuing operations, defined as income (loss) from continuing operations before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses. Adjusted earnings per share (“Adjusted EPS”) from continuing operations has also been further adjusted for these items and consists of diluted income (loss) from continuing operations per common and common equivalent share adjusted for amortization expense, stock-based compensation expense, transformational and restructuring related expenses and any impacts from discrete tax events. For the years ended December 31, 2024, 2023 and 2022, both Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude loss on disposal of businesses, impairment losses and the impacts from loss on the early extinguishment of debt, as relevant. We have included Adjusted EBITDA and Adjusted EPS in this Form 10-K because each is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions.

We believe these measures, in addition to income (loss) from continuing operations, net income (loss) and diluted net income (loss) from continuing operations per common and common equivalent share, provide investors with useful supplemental information to compare and understand our underlying business trends and performance across reporting periods on a consistent basis. These measures should be considered a supplement to, and not a substitute for, financial performance measures determined in accordance with GAAP. In addition, since these non-GAAP measures are not determined in accordance with GAAP, they are susceptible to varying calculations and may not be comparable to other similarly titled measures of other companies. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

For a reconciliation of each of Adjusted EBITDA from continuing operations and Adjusted EPS from continuing operations to the most directly comparable GAAP measures for the years ended December 31, 2024, 2023 and 2022, refer to the tables below (in thousands, except per share data).

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(1)
A blended tax rate of 25% was used to calculate the tax effects of the adjustments for the years ended December 31, 2024, 2023 and 2022, respectively, other than for impairment losses for the year ended December 31, 2024, due to a portion of the expenses being non-deductible.

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RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain information related to our continuing operations expressed as a percentage of our net revenue:

Year Ended December 31, 2024 as Compared to Year Ended December 31, 2023

Our net revenue was $2.01 billion for the year ended December 31, 2024, as compared to $1.99 billion for 2023. The increase in revenue of $18.3 million, or 0.9%, was primarily attributable to an increase in same-unit revenue, partially offset by a decrease in revenue from non-same unit activity, primarily resulting from practice dispositions. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue increased by $81.4 million, or 4.8%. The increase in same-unit net revenue was comprised of an increase of $47.8 million, or 2.8%, from net reimbursement-related factors, and $33.6 million, or 2.0%, related to patient service volumes. The net increase in revenue related to net reimbursement-related factors was primarily due to an increase in revenue resulting from a favorable shift in payor mix and an increase in administrative fees from our hospital partners. The increase in revenue from patient service volumes was related to increases across all of our service lines.

Practice salaries and benefits decreased by $7.4 million, or 0.5%, to $1.44 billion for the year ended December 31, 2024, as compared to $1.45 billion for 2023. The $7.4 million decrease was primarily related to non-same unit activity, primarily resulting from practice dispositions, partially offset by an increase in clinical compensation expense, including incentive compensation based on practice results and benefits, all at our existing units. The net increase in benefits primarily reflects increases in payroll taxes and group insurance costs.

Practice supplies and other operating expenses decreased by $7.1 million, or 5.7%, to $117.7 million for the year ended December 31, 2024, as compared to $124.8 million for 2023. The decrease was primarily attributable to non-same unit activity, primarily resulting from practice dispositions.

General and administrative expenses primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically identifiable to the day-to-day operations of our physician practices and services. General and administrative expenses increased by $10.9 million, or 4.8%, to $238.4 million for the year ended December 31, 2024, as compared to $227.5 million for 2023. The net increase of $10.9 million is primarily related to increases in incentive compensation based on financial results and salaries expense for enhancement of revenue cycle management staffing, partially offset by lower expenses from net staffing reductions,

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travel, information technology and insurance expenses. General and administrative expenses as a percentage of net revenue was 11.8% for the year ended December 31, 2024, as compared to 11.4% for the same period in 2023.

Depreciation and amortization expense was $32.2 million for the year ended December 31, 2024, as compared to $36.2 million for 2023. The decrease was primarily related to lower depreciation resulting from fixed asset impairments recognized during 2024.

Transformational and restructuring related expenses were $64.3 million for the year ended December 31, 2024, as compared to $2.2 million for 2023. The expenses during 2024 reflect lease impairment and severance expenses resulting from our practice portfolio management activities, revenue cycle management transition activities, and position eliminations across various shared services and operations departments. The expenses during 2023 are directly related to the termination of our prior contract for revenue cycle management services.

Goodwill impairment was $150.6 million and $148.3 million for the years ended December 31, 2024 and 2023, respectively.

Long-lived asset impairments were $27.8 million for the year ended December 31, 2024, resulting from practice portfolio management activities.

Loss on disposal of businesses was $9.7 million for the year ended December 31, 2024, primarily resulting from the disposals of the primary and urgent care practices.

Loss from operations was $68.7 million for the year ended December 31, 2024, as compared to income from operations of $7.3 million for 2023. Our operating margin was (3.4)% for the year ended December 31, 2024, as compared to 0.4% for the same period in 2023. The decrease in our operating margin was primarily due to impairment activity, transformational and restructuring expenses and loss on disposal of businesses, partially offset by net favorable impacts from same-unit results due to higher revenue. Excluding the impairment activity, transformational and restructuring related expenses and loss on disposal of businesses, our income from operations was $183.7 million and $157.9 million, and our operating margin was 9.1% and 7.9% for the years ended December 31, 2024 and 2023, respectively. We believe excluding the impacts from the impairment activity, transformational and restructuring related activity and loss on disposal of businesses provides a more comparable view of our operating income and operating margin.

Total non-operating expenses were $32.6 million for the year ended December 31, 2024, as compared to $55.7 million for 2023. The net decrease in non-operating expenses was primarily related to an impairment loss of $20.0 million in the prior year related to a cost-method investment, an increase in investment income on higher cash balances and lower interest expense due to lower debt balances.

Our effective income tax rate (“tax rate”) was 2.2% for the year ended December 31, 2024, compared to (24.9)% for the year ended December 31, 2023. The tax rates for the years ended December 31, 2024 and 2023 are not meaningful as calculated due to the pre-tax loss and related tax effects of the non-cash goodwill impairment charges in each period. Excluding the effect of these items, our effective tax rate was 45.5% and 35.8% for the years ended December 31, 2024 and 2023, respectively. The tax rate for the year ended December 31, 2024 reflects net discrete tax expense of $7.9 million, primarily related to a reduction in the carrying value of deferred tax assets due to practice management portfolio activities as well as stock-based compensation shortfalls. The tax rate for the year ended December 31, 2023 includes net discrete tax expense of $7.9 million, primarily related to the tax charge associated with the impairment of a cost-method investment as well as stock-based compensation shortfalls. After excluding discrete tax impacts and goodwill impairment-related effects for the years ended December 31, 2024 and 2023, our tax rates were 29.4% and 27.9%, respectively. We believe excluding discrete tax impacts and goodwill impairment-related impacts on our tax rate provides a more comparable view of our effective income tax rate.

Loss from continuing operations was $99.1 million for the year ended December 31, 2024, as compared to $60.4 million for 2023. Adjusted EBITDA from continuing operations was $224.0 million for the year ended December 31, 2024, as compared to $200.4 million for 2023. The increase in our Adjusted EBITDA was primarily due to net favorable impacts in our same-unit results, primarily from higher revenue.

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Diluted net loss per common and common equivalent share was $1.19 on weighted average shares outstanding of 83.3 million for the year ended December 31, 2024, as compared to $0.73 on weighted average shares outstanding of 82.2 million for 2023. Adjusted EPS was $1.51 for the year ended December 31, 2024, as compared to $1.26 for 2023.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2024, we had $229.9 million of cash and cash equivalents attributable to continuing operations as compared to $73.3 million at December 31, 2023. Additionally, we had working capital attributable to continuing operations of $205.5 million at December 31, 2024, an increase of $111.0 million from our working capital from continuing operations of $94.5 million at December 31, 2023. The increase in working capital is primarily due to net favorable impacts in our same-unit results, primarily from an increase in revenue.

Cash Flows

Cash provided by (used in) operating, investing and financing activities from continuing operations is summarized as follows (in thousands):

Operating Activities

We generated cash flow from operating activities for continuing operations of $217.3 million and $146.1 million for the years ended December 31, 2024 and 2023, respectively. The net increase in cash flow of $71.2 million for the year ended December 31, 2024, as compared to the year ended December 31, 2023, was primarily due to increases in cash flow from accounts payable and accrued expenses, other long-term assets, income taxes and long-term professional liabilities.

During the year ended December 31, 2024, cash flow from accounts receivable for continuing operations was $10.3 million, as compared to $26.3 million for the same period in 2023.

DSO is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Our DSO for continuing operations was 47.6 days at December 31, 2024 as compared to 50.5 days at December 31, 2023. The 2.9 days decrease in DSO was primarily due to improved cash collections at existing units.

Our cash flow from operating activities is significantly affected by the payment of physician incentive compensation. A large majority of our affiliated physicians participate in our performance-based incentive compensation program and almost all of the payments due under the program are made annually in the first quarter. As a result, we typically experience negative cash flow from operations in the first quarter of each year and fund our operations during this period with cash on hand or funds borrowed under our Credit Agreement. In addition, during the first quarter of each year, we use cash to make any discretionary matching contributions for participants in our qualified contributory savings plans.

Investing Activities

During the year ended December 31, 2024, our net cash used in investing activities of $35.4 million consisted primarily of capital expenditures of $22.0 million, net purchases from maturities or sale of investments of $12.1 million and acquisition payments of $8.2 million. During the year ended December 31, 2023, our net cash used in

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investing activities for continuing operations of $48.2 million consisted primarily of capital expenditures of $33.3 million, net purchases from maturities or sale of investments of $9.0 million and acquisition payments of $6.7 million.

Financing Activities

During the year ended December 31, 2024, our net cash used in financing activities of $14.5 million primarily consisted of payments of $12.5 million on our Term A Loan (as defined below). During the year ended December 31, 2023, our net cash used in financing activities for continuing operations of $25.7 million primarily consisted of payments of $12.5 million on our Term A Loan, other activity of $8.8 million and net payments on our Credit Agreement of $4.0 million.

Liquidity

On February 11, 2022, we issued $400.0 million of 5.375% unsecured senior notes due 2030 (the “2030 Notes”). We used the net proceeds from the issuance of the 2030 Notes, together with $100.0 million drawn under our Revolving Credit Line (as defined below), $250.0 million of Term A Loan and approximately $308.0 million of cash on hand, to redeem (the “Redemption”) the 2027 Notes, which had an outstanding principal balance of $1.0 billion, and to pay costs, fees and expenses associated with the Redemption and the Credit Agreement Amendment (as defined below).

Interest on the 2030 Notes accrues at the rate of 5.375% per annum, or $21.5 million, and is payable semi-annually in arrears on February 15 and August 15. Our obligations under the 2030 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee the Amended Credit Agreement (as defined below). The indenture under which the 2030 Notes are issued, among other things, limits our ability to (1) incur liens, (2) enter into sale and lease-back transactions, and (3) merge or dispose of all or substantially all of our assets, in all cases, subject to a number of customary exceptions. Although we are not required to make mandatory redemption or sinking fund payments with respect to the 2030 Notes, upon the occurrence of a change in control, we may be required to repurchase the 2030 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2030 Notes repurchased plus accrued and unpaid interest.

Also in connection with the Redemption, we amended and restated the Credit Agreement (the “Credit Agreement”, and such amendment and restatement, the “Credit Agreement Amendment”), concurrently with the issuance of the 2030 Notes. The Credit Agreement, as amended by the Credit Agreement Amendment (the “Amended Credit Agreement”), among other things, (i) refinanced the prior unsecured revolving credit facility with a $450.0 million unsecured revolving credit facility, including a $37.5 million sub-facility for the issuance of letters of credit (the “Revolving Credit Line”), and a new $250.0 million term A loan facility (“Term A Loan”) and (ii) removed JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement and appointed Bank of America, N.A. as the administrative agent for the lenders under the Amended Credit Agreement.

The Amended Credit Agreement matures on February 11, 2027 and is guaranteed on an unsecured basis by substantially all of our subsidiaries and affiliated professional contractors. At our option, borrowings under the Amended Credit Agreement bear interest at (i) the Alternate Base Rate (defined as the highest of (a) the prime rate as announced by Bank of America, N.A., (b) the Federal Funds Rate plus 0.50% and (c) Term Secured Overnight Financing Rate (“SOFR”) for an interest period of one month plus 1.00% with a 1.00% floor) plus an applicable margin rate of 0.50% for the first two fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated net leverage ratio or (ii) Term SOFR rate (calculated as the Secured Overnight Financing Rate published on the applicable Reuters screen page plus a spread adjustment of 0.10%, 0.15% or 0.25% depending on if we select a one-month, three-month or six-month interest period, respectively, for the applicable loan with a 0% floor), plus an applicable margin rate of 1.50% for the first two full fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated net leverage ratio. The Amended Credit Agreement also provides for other customary fees and charges, including an unused commitment fee with respect to the Revolving Credit Line ranging from 0.150% to 0.200% of the unused lending commitments under the Revolving Credit Line, based on our consolidated net leverage ratio.

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The Amended Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest coverage ratio, a maximum consolidated net leverage ratio and to comply with laws, and restrictions on the ability to pay dividends, incur indebtedness or liens and make certain other distributions subject to baskets and exceptions, in each case, as specified therein. Failure to comply with these covenants would constitute an event of default under the Amended Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Amended Credit Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Amended Credit Agreement. In addition, we may increase the principal amount of the Revolving Credit Line or incur additional term loans under the Amended Credit Agreement in an aggregate principal amount such that on a pro forma basis after giving effect to such increase or additional term loans, we are in compliance with the financial covenants, subject to the satisfaction of specified conditions and additional caps in the event that the Amended Credit Agreement is secured.

At December 31, 2024, we had no outstanding indebtedness under the Revolving Credit Line, which had an available borrowing capacity of $450.0 million. For additional information on our total indebtedness, see Note 13 to our Consolidated Financial Statements in this Form 10-K. At December 31, 2024, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Amended Credit Agreement and the 2030 Notes.

The purchase of common stock by participants in our 1996 Non-Qualified Employee Stock Purchase Plan, as amended (the “ESPP”), generated cash proceeds of $3.6 million, $4.9 million and $5.4 million for the years ended December 31, 2024, 2023 and 2022, respectively. Because purchases under the ESPP are dependent on several factors, including the market price of our common stock, we cannot predict the timing and amount of any future proceeds.

We maintain professional liability insurance policies with third-party insurers, subject to self-insured retention, exclusions and other restrictions. We self-insure our liabilities to pay self-insured retention amounts under our professional liability insurance coverage through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Our total liability related to professional liability risks at December 31, 2024 was $287.9 million, of which $30.4 million is classified as a current liability within accounts payable and accrued expenses in the Consolidated Balance Sheet. In addition, there is a corresponding insurance receivable of $28.5 million recorded as a component of other assets for certain professional liability claims that are covered by insurance policies.

At December 31, 2024, the Company had long term capital requirements comprised primarily of $400.0 million in senior notes, $49.9 million of operating lease liabilities and $5.7 million of finance lease liabilities. At December 31, 2024, our total liability for uncertain tax positions was $2.9 million.

We anticipate that funds generated from operations, together with our current cash on hand and funds available under our Amended Credit Agreement, will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, fund expenses related to our transformational and restructuring activities, fund our share repurchase programs and meet our contractual obligations as described above for at least the next 12 months from the date of issuance of this Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” preceding Part I of this Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not significantly affected by inflation.

This section generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 are not included in this Form 10-K and can be found in “Management's Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 17, 2023 (the “2022 Annual Report”) and are incorporated herein by reference.

OVERVIEW

Pediatrix (formerly known as Mednax, Inc.) is a leading provider of physician services including newborn, maternal-fetal, pediatric cardiology and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in 37 states. We ceased providing services in Puerto Rico on December 31, 2022. At December 31, 2023, our national network comprised approximately 2,620 affiliated physicians, including 1,330 physicians who provide neonatal clinical care, primarily within hospital-based neonatal intensive care units (“NICUs”), to babies born prematurely or with medical complications. We have 580 affiliated physicians who provide maternal-fetal and obstetrical medical care to expectant mothers experiencing complicated pregnancies primarily in areas where our affiliated neonatal physicians practice. Our network also includes other pediatric subspecialists, including 230 physicians providing pediatric intensive care, 90 physicians providing pediatric cardiology care, 255 physicians providing hospital-based pediatric care, 65 physicians providing pediatric surgical care and urology services, 55 physicians providing pediatric urgent care, 10 physicians providing pediatric ear, nose and throat services, and three physicians providing pediatric ophthalmology services.

General Economic Conditions and Other Factors

Our operations and performance depend significantly on economic conditions. During the year ended December 31, 2023, the percentage of our patient service revenue being reimbursed under government-sponsored or funded healthcare programs (“GHC Programs”) remained relatively stable as compared to the year ended December 31, 2022. We could, however, experience shifts toward GHC Programs if changes occur in economic behaviors or population demographics within geographic locations in which we provide services, including an increase in unemployment and underemployment as well as losses of commercial health insurance. Payments received from GHC Programs are substantially less for equivalent services than payments received from commercial insurance payors. In addition, costs of managed care premiums and patient responsibility amounts continue to rise, and accordingly, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services. See Item 1A. Risk Factors, in this Form 10-K for additional discussion on the general economic conditions in the United States and recent developments in the healthcare industry that could affect our business.

“Surprise” Billing Legislation

In late 2020, Congress enacted the No Surprises Act (“NSA”) legislation intended to protect patients from “surprise” medical bills when certain services are furnished by providers who are not in-network with the patient’s insurer. Effective January 1, 2022, if the patient’s insurance plan or coverage is subject to the NSA, providers are not permitted to send patients an unexpected or “surprise” medical bill that arises from out-of-network emergency care provided at certain out-of-network facilities or at certain in-network facilities by out-of-network emergency providers, as well as nonemergency care provided at certain in-network facilities by out-of-network providers without the patient’s informed consent (as defined by the NSA). Many states have legislation on this topic and will continue to modify and review their laws pertaining to surprise billing.

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For claims subject to the NSA, insurers are required to calculate the patient’s total cost-sharing amount pursuant to rules set forth in the NSA and its implementing regulations which, in some cases, can be calculated by reference to the applicable qualifying payment amount for the items or services received. The patient’s cost-sharing amount for out-of-network services covered by the NSA must be no more than the patient’s in-network cost-sharing amounts. Patient cost-sharing amounts for items and services subject to the NSA count toward the patient’s health plan deductible and out-of-pocket cost-sharing limits. For claims subject to the NSA, providers are generally not permitted to balance bill patients beyond this cost-sharing amount. An out-of-network provider is only permitted to bill a patient more than the cost-sharing amount allowed under the NSA for certain types of services if the provider satisfies all aspects of an informed consent process set forth in the NSA’s implementing regulations. Providers that violate these surprise billing prohibitions may be subject to state enforcement action or federal civil monetary penalties.

For claims subject to the NSA, including many emergency care services, out-of-network providers will be paid an amount determined by the patient’s insurer; if a provider is not satisfied with the initial amount paid for the services, the provider can pursue recourse through an independent dispute resolution process. The outcome of each IDR dispute is generally binding on both the provider and payor with respect to the particular claims at issue in that dispute but may not affect an insurer’s future offers of payment. Accordingly, we cannot predict how these IDR results will compare to the rates that our affiliated physicians customarily receive for their services. These measures could limit the amount we can charge and recover for services we furnish where we have not contracted with the patient’s insurer, and therefore could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. See Item 1A. Risk Factors ─“Congress or states have, and may continue to, enact laws restricting the amount out-of-network providers of services can charge and recover for such services.”

Healthcare Reform

The ACA has altered how health care is delivered and reimbursed in the U.S. and contain various provisions, including the establishment of health insurance exchanges to facilitate the purchase of qualified health plans, expanded Medicaid eligibility, subsidized insurance premiums and additional requirements and incentives for businesses to provide healthcare benefits. Other provisions have expanded the scope and reach of the FCA and other healthcare fraud and abuse laws. The status of the ACA may be subject to change as a result of political, legislative, regulatory, and administrative developments, as well as judicial proceedings. As a result, we could be affected by potential changes to various aspects of the ACA, including changes to subsidies, healthcare insurance marketplaces and Medicaid expansion. We cannot say for certain whether there will be additional future challenges to the ACA or what impact, if any, such challenges may have on our business. Changes resulting from various legal proceedings, and any legislative or administrative change to the current healthcare financing system, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. See Item 1A. Risk Factors ─ “Potential healthcare reform efforts may have a significant effect on our business.”

In addition to the ACA, there could be changes to other GHC Programs, such as a change to the Medicaid program design or Medicaid coverage and reimbursement rates set forth under federal or state law. These changes, if implemented, could eliminate the guarantee that everyone who is eligible and applies for Medicaid benefits would receive them and could potentially give states new authority to restrict eligibility, cut benefits and/or make it more difficult for people to enroll. See Item 1. Business – “Relationship With Our Partners – Government Regulatory Requirements” and see also Item 1A. Risk Factors ─ “Potential healthcare reform efforts may have a significant effect on our business.” Moreover, the expiration of the COVID-19 national emergency and public health emergency declarations in May 2023 may impact the coverage for and access to certain services for Medicaid patients. Expiration of the national emergency and public health emergency declarations will also end waivers for the provision of certain services, and returning our services to a pre-pandemic regulatory state similarly may increase our exposure to legal, regulatory, compliance and clinical risks.

Medicaid Expansion

The ACA also allows states to expand their Medicaid programs through federal payments that fund most of the cost of increasing the Medicaid eligibility income limit from a state’s historic eligibility levels to 133% of the

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federal poverty level. See Item 1. Business – “Relationship With Our Partners – Third-Party Payors.” All of the states in which we operate, however, already cover children in the first year of life and pregnant women if their household income is at or below 133% of the federal poverty level. Recently, Democrats in Congress have sought to expand Medicaid or Medicaid-like coverage in states that have not yet expanded Medicaid. They also have sought to reduce payments to certain hospitals in some of these states. See Item 1A. Risk Factors – “State budgetary constraints and the uncertainty over the future of Medicaid could have an adverse effect on our reimbursement from Medicaid programs.” Should any of these changes take effect, we cannot predict with any assurance the ultimate effect on reimbursements for our services.

RCM Services Agreement

On October 30, 2023, we provided notice to R1RCM that we were terminating that certain Services Agreement, dated May 12, 2021, as amended, by and between our wholly-owned subsidiary PMG Services, Inc. and R1RCM, effective as of December 15, 2023. Our termination of the Services Agreement was in connection with R1RCM’s performance, specifically R1RCM's failure to meet certain service levels set forth in the Services Agreement. R1RCM was the primary provider of our enterprise revenue cycle management services, and R1RCM is continuing to provide us with transition assistance pursuant to the terms of the Services Agreement to allow the services to continue without interruption or adverse effect and to facilitate the orderly transfer of the services to us and/or any successor vendor. See Item 1A. Risk Factors ─ “We are undertaking a transformation of our revenue cycle management function from an outsourced provider to a hybrid function that utilizes both our corporate personnel as well as one or more third-party service providers. This transition will involve significant time and resources, and our failure to execute this transition efficiently and effectively may have a material impact on our business, financial condition, results of operations, cash flows and the trading price of our securities.”

2023 Acquisition Activity

During 2023, we acquired one pediatric urology practice. Based on our experience, we expect that we can improve the results of acquired physician practices in various ways, including improved managed care contracting, improved collections, identification of growth initiatives and operating and cost savings based upon the significant infrastructure that we have developed.

Impairment Losses

Goodwill is tested for impairment on at least an annual basis, in accordance with the subsequent measurement provisions of the accounting guidance for goodwill. Consistent with prior years, we performed our annual impairment analysis in the third quarter, specifically as of July 31, 2023. At that date, our market capitalization exceeded the book value of our equity and we elected to perform a qualitative assessment. Based on the facts and circumstances at the time, we determined no impairment existed. During the fourth quarter of 2023, we experienced a triggering event resulting from a sustained decline in our stock price that resulted in our market capitalization being lower than the book value of our equity. This impairment assessment resulted in a non-cash impairment charge of $125.0 million. Recognition of this non-cash charge against goodwill resulted in a tax benefit which generated an additional deferred tax asset of $23.3 million that increased the book value of our equity. An incremental non-cash charge was required to reduce the book value of our equity to our previously determined fair value. Accordingly, we recorded the incremental non-cash charge of $23.3 million for a total non-cash charge of $148.3 million.

Separately, during the fourth quarter of 2023, we recorded a $20.0 million impairment charge related to a cost-method investment that we made in 2021 in a pediatric primary, urgent care and telehealth company. The value of our investment was deemed to be fully impaired based on significant unfavorable events that took place at the underlying entity in the fourth quarter of 2023.

Common Stock Repurchase Programs

In July 2013, our Board of Directors authorized the repurchase of shares of our common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under our equity compensation programs. The share repurchase program allows us to make open market purchases from time-to-time based on general economic and market conditions and trading restrictions. The repurchase program also allows for the repurchase of shares of our

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common stock to offset the dilutive impact from the issuance of shares, if any, related to the Company’s acquisition program. No shares were purchased under this program during the twelve months ended December 31, 2023.

In August 2018, the Company announced that its Board of Directors had authorized the repurchase of up to $500.0 million of the Company’s common stock in addition to its existing share repurchase program, of which $5.5 million remained available for repurchase as of December 31, 2022. Under this share repurchase program, during the year ended December 31, 2023, the Company purchased 61,000 shares of its common stock for $0.9 million to satisfy minimum statutory withholding obligations in connection with the vesting of restricted stock. As of December 31, 2023, $4.6 million remained available under this share repurchase program.

We intend to utilize various methods to effect any future share repurchases, including, among others, open market purchases and accelerated share repurchase programs. The amount and timing of repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.

Transformation and Restructuring Related Initiatives

Beginning in 2019, we developed a number of strategic initiatives across our organization, in both our shared services functions and our operational infrastructure, with a goal of generating improvements in our general and administrative expenses and our operational infrastructure. We had broadly classified these workstreams in four categories including practice operations, revenue cycle management, information technology and human resources. We have included the expenses, which in certain cases represent estimates, related to such activity on a separate line item in our consolidated statements. A significant amount of transformational and restructuring related activities were related to our divested anesthesiology services and radiology services medical groups, and we have incurred various expenses related to executive management and board restructuring. During 2023, our transformation and restructuring related expenses relate specifically to the activities associated with the termination of our revenue cycle management vendor.

Coronavirus Pandemic (COVID-19) and CARES Act

COVID-19 had an impact on the demand for medical services provided by our affiliated clinicians during the first half of 2020. Overall, our operating results were significantly impacted by COVID-19 beginning in mid-March 2020, but volumes began to normalize in mid-2020 and substantially recovered throughout 2020 with no material impacts from COVID-19 or its variants since that time. However, due to the continued uncertainties surrounding the timeline of and impacts from COVID-19 and with variant strains still circulating, we are unable to predict the ultimate impact on our business, financial condition, results of operations, cash flows and the trading price of our securities at this time.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act is a relief package intended to assist many aspects of the American economy, including by providing aid to the healthcare industry to reimburse healthcare providers for lost revenue and expenses attributable to COVID-19. The Department of Health and Human Services (“HHS”) administers this program, and our affiliated physician practices within continuing operations received an aggregate of $13.3 million in relief payments during the year ended December 31, 2022.

In addition, the CARES Act also provided for deferred payment of the employer portion of social security taxes through the end of 2020, and we utilized this deferral option throughout 2020. We repaid all of these deferred social security taxes as of December 31, 2022.

Geographic Coverage

During 2023 and 2022, approximately 67% and 65%, respectively, of our net revenue from continuing operations was generated by operations in our five largest states. During 2023 and 2022, our five largest states consisted of Texas, Florida, Georgia, California, and Washington. During both 2023 and 2022, our operations in Texas accounted for approximately 32% of our net revenue.

Payor Mix

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We bill payors for professional services provided by our affiliated physicians to our patients based upon rates for specific services provided. Our billed charges are substantially the same for all parties in a particular geographic area regardless of the party responsible for paying the bill for our services. We determine our net revenue based upon the difference between our gross fees for services and our estimated ultimate collections from payors. Net revenue differs from gross fees due to (i) managed care payments at contracted rates, (ii) GHC Program reimbursements at government-established rates, (iii) various reimbursement plans and negotiated reimbursements from other third-parties, and (iv) discounted and uncollectible accounts of private-pay patients.

Our payor mix is composed of contracted managed care, government, principally Medicare and Medicaid, other third-parties and private-pay patients. We benefit from the fact that most of the medical services provided in the NICU are classified as emergency services, a category typically classified as a covered service by managed care payors.

The following is a summary of our payor mix, expressed as a percentage of net revenue from continuing operations, exclusive of administrative fees and miscellaneous revenue, for the periods indicated:

The payor mix shown in the table above is not necessarily representative of the amount of services provided to patients covered under these plans. For example, the gross amount billed to patients covered under GHC Programs for the years ended December 31, 2023 and 2022 represented approximately 55% of our total gross patient service revenue. These percentages of gross revenue and the percentages of net revenue provided in the table above include the payor mix impact of acquisitions completed through December 31, 2023.

Quarterly Results

We have historically experienced and expect to continue to experience quarterly fluctuations in net revenue and net income. These fluctuations are primarily due to the following factors:

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There are fewer calendar days in the first and second quarters of the year, as compared to the third and fourth quarters of the year. Because we provide services in NICUs on a 24-hours-a-day basis, 365 days a year, any reduction in service days will have a corresponding reduction in net revenue.

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The majority of physician services provided by our office-based practices consist of office visits and scheduled procedures that occur during business hours. As a result, volumes at those practices fluctuate based on the number of business days in each calendar quarter.

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A significant number of our employees and our associated professional contractors, primarily physicians, exceed the level of taxable wages for social security during the first and second quarters of the year. As a result, we incur a significantly higher payroll tax burden and our net income is lower during those quarters.

We have significant fixed operating costs, including physician compensation, and, as a result, are highly dependent on patient volume and capacity utilization of our affiliated professional contractors to sustain profitability. Additionally, quarterly results may be affected by the timing of acquisitions and fluctuations in patient volume. As a result, the operating results for any quarter are not necessarily indicative of results for any future period or for the full year.

Application of Critical Accounting Policies and Estimates

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The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires estimates and assumptions that affect the reporting of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Note 2 to our Consolidated Financial Statements provides a summary of our significant accounting policies, which are all in accordance with GAAP. Certain of our accounting policies are critical to understanding our Consolidated Financial Statements because their application requires management to make assumptions about future results and depends to a large extent on management’s judgment, because past results have fluctuated and are expected to continue to do so in the future.

We believe that the application of the accounting policies described in the following paragraphs is highly dependent on critical estimates and assumptions that are inherently uncertain and highly susceptible to change. For all of these policies, we caution that future events rarely develop exactly as estimated, and the best estimates routinely require adjustment. On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below.

Revenue Recognition

We recognize patient service revenue at the time services are provided by our affiliated physicians. Our performance obligations relate to the delivery of services to patients and are satisfied at the time of service. Accordingly, there are no performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period with respect to patient service revenue. Almost all of our patient service revenue is reimbursed by GHC Programs and third-party insurance payors. Payments for services rendered to our patients are generally less than billed charges. We monitor our revenue and receivables from these sources and record an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.

Accordingly, patient service revenue is presented net of an estimated provision for contractual adjustments and uncollectibles. Management estimates allowances for contractual adjustments and uncollectibles on accounts receivable based upon historical experience and other factors, including days sales outstanding (“DSO”) for accounts receivable, evaluation of expected adjustments and delinquency rates, past adjustments and collection experience in relation to amounts billed, an aging of accounts receivable, current contract and reimbursement terms, changes in payor mix and other relevant information. Collection of patient service revenue we expect to receive is normally a function of providing complete and correct billing information to the GHC Programs and third-party insurance payors within the various filing deadlines and typically occurs within 30 to 60 days of billing. Contractual adjustments result from the difference between the physician rates for services performed and the reimbursements by GHC Programs and third-party insurance payors for such services. The evaluation of these historical and other factors involves complex, subjective judgments. On a routine basis, we compare our cash collections to recorded net patient service revenue and evaluate our historical allowance for contractual adjustments and uncollectibles based upon the ultimate resolution of the accounts receivable balance. These procedures are completed regularly in order to monitor our process of establishing appropriate reserves for contractual adjustments. We have not recorded any material adjustments to prior period contractual adjustments and uncollectibles in the years ended December 31, 2023, 2022, or 2021.

Some of our agreements require hospitals to pay us administrative fees. Some agreements provide for fees if the hospital does not generate sufficient patient volume in order to guarantee that we receive a specified minimum revenue level. We also receive fees from hospitals for administrative services performed by our affiliated physicians providing medical director or other services at the hospital.

DSO is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Any significant change in our DSO results in additional analyses of outstanding accounts receivable and the associated reserves. We calculate our DSO using a three-month rolling average of net revenue. Our net revenue, net income and operating cash flows may be materially and adversely affected if actual adjustments and uncollectibles exceed management’s estimated provisions as a result of changes in these factors. As of December 31, 2023, our DSO was 50.5 days. We had approximately $1.38 billion in gross accounts receivable for continuing operations outstanding at December 31, 2023, and considering this outstanding balance, based on our historical experience, a reasonably likely change of 0.5% to 1.50% in our estimated collection rate would result in an impact to net revenue of $6.6 million to $19.9 million. The impact of this change

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does not include adjustments that may be required as a result of audits, inquiries and investigations from government authorities and agencies and other third-party payors that may occur in the ordinary course of business. See Note 19 to our Consolidated Financial Statements in this Form 10-K.

Professional Liability Coverage

We maintain professional liability insurance policies with third-party insurers generally on a claims-made basis, subject to self-insured retention, exclusions and other restrictions. Our self-insured retention under our professional liability insurance program is maintained primarily through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Liabilities for claims incurred but not reported are not discounted. The average lag period from the date a claim is reported to the date it reaches final settlement is approximately four years, although the facts and circumstances of individual claims could result in lag periods that vary from this average. Our actuarial assumptions incorporate multiple complex methodologies to determine the best liability estimate for claims incurred but not reported and the future development of known claims, including methodologies that focus on industry trends, paid loss development, reported loss development and industry-based expected pure premiums. The most significant assumptions used in the estimation process include the use of loss development factors to determine the future emergence of claim liabilities, the use of frequency and trend factors to estimate the impact of economic, judicial and social changes affecting claim costs, and assumptions regarding legal and other costs associated with the ultimate settlement of claims. The key assumptions used in our actuarial valuations are subject to constant adjustments as a result of changes in our actual loss history and the movement of projected emergence patterns as claims develop. We evaluate the need for professional liability insurance reserves in excess of amounts estimated in our actuarial valuations on a routine basis, and as of December 31, 2023, based on our historical experience for continuing operations, a reasonably likely change of 4.0% to 10.0% in our estimates would result in an increase or decrease to net income of $3.2 million to $8.1 million. However, because many factors can affect historical and future loss patterns, the determination of an appropriate professional liability reserve involves complex, subjective judgment, and actual results may vary significantly from estimates.

Goodwill

We record acquired assets, including identifiable intangible assets and liabilities at their respective fair values, recording to goodwill the excess of purchase price over the fair value of the net assets acquired. Goodwill is tested for impairment at a reporting unit level on at least an annual basis in accordance with the subsequent measurement provisions of the accounting guidance for goodwill. When testing goodwill for impairment, we may assess qualitative factors to determine whether it is more likely than not that the fair value of our single reporting unit is less than its carrying amount, including goodwill. Alternatively, we may bypass this qualitative assessment and perform the quantitative goodwill impairment test. We may use income and market-based valuation approaches to determine the fair value of our reporting units. These approaches focus on various significant assumptions, including the weighted average cost of capital discount factor, revenue growth rates and market multiples for revenue and earnings before interest, taxes and depreciation and amortization (“EBITDA”). We also consider the economic outlook for the healthcare services industry and various other factors during the testing process, including hospital and physician contract changes, local market developments, changes in third-party payor payments, and other publicly available information.

Non-GAAP Measures

In our analysis of our results of operations, we use various GAAP and certain non-GAAP financial measures. We have incurred certain expenses that we do not consider representative of our underlying operations, including transformational and restructuring related expenses. Accordingly, we report adjusted earnings before interest, taxes and depreciation and amortization (“Adjusted EBITDA”) from continuing operations, defined as income (loss) from continuing operations before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses. Adjusted earnings per share (“Adjusted EPS”) from continuing operations has also been further adjusted for these items and consists of diluted income (loss) from continuing operations per common and common equivalent share adjusted for amortization expense, stock-based compensation expense, transformational and restructuring related expenses and any impacts from discrete tax events. For the year ended December 31, 2023, both Adjusted EBITDA and Adjusted EPS are being further adjusted for impairment losses. For the years ended December

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31, 2022 and 2021, both Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude the impacts from loss on the early extinguishment of debt. For the year ended December 31, 2021, both Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude the impacts from the gain on sale of building . We have included Adjusted EBITDA and Adjusted EPS in this Form 10-K because each is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions.

We believe these measures, in addition to income (loss) from continuing operations, net income (loss) and diluted net income (loss) from continuing operations per common and common equivalent share, provide investors with useful supplemental information to compare and understand our underlying business trends and performance across reporting periods on a consistent basis. These measures should be considered a supplement to, and not a substitute for, financial performance measures determined in accordance with GAAP. In addition, since these non-GAAP measures are not determined in accordance with GAAP, they are susceptible to varying calculations and may not be comparable to other similarly titled measures of other companies. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure.

For a reconciliation of each of Adjusted EBITDA from continuing operations and Adjusted EPS from continuing operations to the most directly comparable GAAP measures for the years ended December 31, 2023, 2022 and 2021, refer to the tables below (in thousands, except per share data).

(1)
A blended tax rate of 25% was used to calculate the tax effects of the adjustments for the years ended December 31, 2023, 2022 and 2021, respectively.

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RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain information related to our continuing operations expressed as a percentage of our net revenue:

Year Ended December 31, 2023 as Compared to Year Ended December 31, 2022

Our net revenue attributable to continuing operations was $1.99 billion for the year ended December 31, 2023, as compared to $1.97 billion for 2022. The increase in revenue of $22.6 million, or 1.1%, was primarily attributable to an increase in same-unit revenue, partially offset by a decrease in revenue from net non-same unit activity. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue increased by $34.8 million, or 1.9%. The increase in same-unit net revenue was comprised of an increase of $37.5 million, or 2.0%, from net reimbursement-related factors, partially offset by a decrease of $2.7 million, or 0.1%, related to patient service volumes. The net increase in revenue related to net reimbursement-related factors was primarily due to an increase in revenue resulting from improved cash collection rates in the current period as compared to those rates in the prior year period, which prior year rates were significantly impacted by unfavorable revenue cycle management performance, partially offset by decreases in revenue from CARES Act relief. The decrease in revenue from patient service volumes was primarily related to decreases in our hospital-based neonatology services, partially offset by a modest increase in maternal-fetal medicine and other pediatric services.

Practice salaries and benefits attributable to continuing operations increased by $65.0 million, or 4.7%, to $1.45 billion for the year ended December 31, 2023, as compared to $1.38 billion for 2022. Of the $65.0 million increase, $52.7 million was related to salaries and $12.3 million was related to benefits and incentive compensation. The increase in salaries was driven by increases in clinical compensation expense at our existing units. We anticipate that we will continue to experience a higher rate of growth in clinician compensation expense at our existing units over historic averages, which could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our securities. The net increase in benefits and incentive compensation primarily reflects increases in group health insurance costs and payroll taxes, partially offset by a decrease in malpractice expense.

Practice supplies and other operating expenses attributable to continuing operations increased by $3.1 million, or 2.6%, to $124.8 million for the year ended December 31, 2023, as compared to $121.7 million for 2022. The increase was primarily attributable to increases in practice supply, rent and other costs at our existing units, including increases in workers' compensation insurance and medical and office supplies expense, partially offset by a decrease in operating taxes. The increases in our same-unit activity were partially offset by modest decreases in practice supply, rent and other costs related to non-same unit activity.

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General and administrative expenses attributable to continuing operations primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically identifiable to the day-to-day operations of our physician practices and services. General and administrative expenses decreased by $3.9 million, or 1.7%, to $227.5 million for the year ended December 31, 2023, as compared to $231.4 million for 2022. The net decrease of $3.9 million is primarily related to lower professional services fees, primarily related to legal expenses, lower insurance expense and decreases in expenses from net staffing reductions. General and administrative expenses as a percentage of net revenue was 11.4% for the year ended December 31, 2023, as compared to 11.7% for the same period in 2022.

Transformational and restructuring related expenses attributable to continuing operations were $2.2 million for the year ended December 31, 2023, as compared to $27.3 million for 2022. The decrease of $25.1 million reflects decreases in position eliminations expense, contract termination costs and consulting fees. The expenses during 2023 are directly related to the termination of our contract for revenue cycle management services.

Goodwill impairment attributable to continuing operations was $148.3 million for the year ended December 31, 2023.

Depreciation and amortization expense attributable to continuing operations was $36.2 million for the year ended December 31, 2023, as compared to $35.6 million for 2022. The increase was primarily related to an increase in depreciation expense related to information technology equipment, partially offset by lower amortization expenses related to intangible assets, both at our existing units as well as a decrease in depreciation and amortization related to non-same unit activity.

Income from operations attributable to continuing operations decreased by $165.4 million, or 95.8%, to $7.3 million for the year ended December 31, 2023, as compared to $172.7 million for 2022. Our operating margin was 0.4% for the year ended December 31, 2023, as compared to 8.8% for the same period in 2022. The decrease in our operating margin was primarily due to goodwill impairment as well as net increases in overall operating expenses and a decrease in CARES Act relief, partially offset by higher same-unit revenue and decreases in general and administrative expenses. Excluding the goodwill impairment and transformational and restructuring related expenses our income from operations attributable to continuing operations was $157.9 million and $200.0 million, and our operating margin was 7.9% and 10.1% for the years ended December 31, 2023 and 2022, respectively. We believe excluding the impacts from the goodwill impairment and transformational and restructuring related activity provides a more comparable view of our operating income and operating margin from continuing operations.

Total non-operating expenses attributable to continuing operations were $55.7 million for the year ended December 31, 2023, as compared to $91.3 million for 2022. The net decrease in non-operating expenses was primarily related to a decrease of $57.0 million in loss on early extinguishment of debt from the redemption of our 6.25% senior unsecured notes due 2027 (the “2027 Notes”) in February 2022, partially offset by an impairment loss related to a cost-method investment and an increase in interest expense from higher interest rates on lower average borrowings.

Our effective income tax rate (“tax rate”) attributable to continuing operations was (24.9)% for the year ended December 31, 2023, compared to 23.1% for the year ended December 31, 2022. The tax rate for the year ended December 31, 2023 is not meaningful as calculated due to the pre-tax income and related tax effects of the non-cash goodwill impairment charge. Excluding the effect of these items, our effective tax rate for the year ended December 31, 2023 was 35.8%. The tax rate for the year ended December 31, 2023 includes a net discrete tax expense of $7.9 million primarily related to the tax charge associated with the impairment of a cost-method investment as well as stock-based compensation shortfalls. The tax rate for the year ended December 31, 2022 includes a net discrete tax benefit of $3.4 million, primarily related to a change in estimate for the liability for uncertain tax positions due to lapse of statutes of limitations. After excluding discrete tax impacts and goodwill impairment-related effects (for December 31, 2023 only), for the years ended December 31, 2023 and 2022, our tax rates were 27.9% and 27.3%, respectively. We believe excluding discrete tax impacts and goodwill impairment-related impacts on our tax rate provides a more comparable view of our effective income tax rate.

Loss from continuing operations was $60.4 million for the year ended December 31, 2023, as compared to income from continuing operations of $62.6 million for 2022. Net loss attributable to Pediatrix Medical Group, Inc. was $60.4 million for the year ended December 31, 2023, as compared to net income attributable to Pediatrix Medical

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Group, Inc. of $66.3 million for the same period in 2022. Adjusted EBITDA from continuing operations attributable to Pediatrix Medical Group, Inc. was $200.4 million for the year ended December 31, 2023, as compared to $241.0 million for 2022. The decrease in our Adjusted EBITDA was primarily due to net unfavorable impacts in our same-unit results, primarily from higher operating expenses as well as a decrease in CARES Act relief.

Diluted net loss per common and common equivalent share attributable to Pediatrix Medical Group, Inc. was $0.73 on weighted average shares outstanding of 82.2 million for the year ended December 31, 2023, as compared to diluted net income per common and common equivalent share of $0.79 for 2022 on weighted average shares outstanding of 84.1 million for 2022. Adjusted EPS from continuing operations was $1.26 for the year ended December 31, 2023, as compared to $1.66 for 2022. The decrease in weighted average shares outstanding resulted primarily from the share repurchases completed during 2022.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2023, we had $73.3 million of cash and cash equivalents attributable to continuing operations as compared to $9.8 million at December 31, 2022. Additionally, we had working capital attributable to continuing operations of $94.5 million at December 31, 2023, an increase of $93.5 million from our working capital from continuing operations of $1.0 million at December 31, 2022.

Cash Flows

Cash provided by (used in) operating, investing and financing activities from continuing operations is summarized as follows (in thousands):

Operating Activities

We generated cash flow from operating activities for continuing operations of $146.1 million and $182.3 million for the years ended December 31, 2023 and 2022, respectively. The net decrease in cash flow of $36.2 million for the year ended December 31, 2023, as compared to the year ended December 31, 2022, was primarily due to decreases in cash flow from income taxes, accounts payable and accrued expenses and other liabilities.

During the year ended December 31, 2023, cash flow from accounts receivable for continuing operations was $26.3 million, as compared to cash outflow of $5.5 million for the same period in 2022. The increase in cash flow from accounts receivable for the year ended December 31, 2023 was primarily due to improved cash collections at existing units.

DSO is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Our DSO for continuing operations was 50.5 days at December 31, 2023 as compared to 53.1 days at December 31, 2022. The 2.6 days decrease in DSO was primarily due to improved cash collections at existing units.

Our cash flow from operating activities is significantly affected by the payment of physician incentive compensation. A large majority of our affiliated physicians participate in our performance-based incentive compensation program and almost all of the payments due under the program are made annually in the first quarter. As a result, we typically experience negative cash flow from operations in the first quarter of each year and fund our operations during this period with cash on hand or funds borrowed under our Credit Agreement. In addition, during the first quarter of each year, we use cash to make any discretionary matching contributions for participants in our qualified contributory savings plans.

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Investing Activities

During the year ended December 31, 2023, our net cash used in investing activities for continuing operations of $48.2 million consisted primarily of capital expenditures of $33.3 million, net purchases from maturities or sale of investments of $9.0 million and acquisition payments of $6.7 million. During the year ended December 31, 2022, our net cash used in investing activities for continuing operations of $57.0 million consisted primarily of capital expenditures of $29.7 million and acquisition payments of $28.2 million.

Financing Activities

During the year ended December 31, 2023, our net cash used in financing activities for continuing operations of $25.7 million primarily consisted of payments of $12.5 million on our Term A Loan (as defined below), other activity of $8.8 million and net payments on our credit agreement of $4.0 million. During the year ended December 31, 2022, our net cash used in financing activities for continuing operations of $487.6 million primarily consisted of $1.0 billion related to the redemption of the 2027 Notes, including the call premium, the repurchase of $88.5 million of our common stock, payments of $9.4 million on our Term A Loan (as defined below), and payments for financing costs of $8.6 million, partially offset by $400.0 million in proceeds from the issuance of the 2030 Notes and $250.0 million from our Term A Loan.

Liquidity

On February 11, 2022, we issued $400.0 million of 5.375% unsecured senior notes due 2030 (the “2030 Notes”). We used the net proceeds from the issuance of the 2030 Notes, together with $100.0 million drawn under our Revolving Credit Line (as defined below), $250.0 million of Term A Loan and approximately $308.0 million of cash on hand, to redeem (the “Redemption”) the 2027 Notes, which had an outstanding principal balance of $1.0 billion, and to pay costs, fees and expenses associated with the Redemption and the Credit Agreement Amendment (as defined below).

Interest on the 2030 Notes accrues at the rate of 5.375% per annum, or $21.5 million, and is payable semi-annually in arrears on February 15 and August 15. Our obligations under the 2030 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee the Amended Credit Agreement (as defined below). The indenture under which the 2030 Notes are issued, among other things, limits our ability to (1) incur liens and (2) enter into sale and lease-back transactions, and also limits our ability to merge or dispose of all or substantially all of our assets, in all cases, subject to a number of customary exceptions. Although we are not required to make mandatory redemption or sinking fund payments with respect to the 2030 Notes, upon the occurrence of a change in control, we may be required to repurchase the 2030 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2030 Notes repurchased plus accrued and unpaid interest.

Also in connection with the Redemption, we amended and restated the Credit Agreement (the “Credit Agreement”), and such amendment and restatement (the “Credit Agreement Amendment”), concurrently with the issuance of the 2030 Notes. The Credit Agreement, as amended by the Credit Agreement Amendment (the “Amended Credit Agreement”), among other things, (i) refinanced the prior unsecured revolving credit facility with a $450.0 million unsecured revolving credit facility, including a $37.5 million sub-facility for the issuance of letters of credit (the “Revolving Credit Line”), and a new $250.0 million term A loan facility (“Term A Loan”) and (ii) removed JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement and appointed Bank of America, N.A. as the administrative agent for the lenders under the Amended Credit Agreement.

The Amended Credit Agreement matures on February 11, 2027 and is guaranteed on an unsecured basis by substantially all of our subsidiaries and affiliated professional contractors. At our option, borrowings under the Amended Credit Agreement bear interest at (i) the Alternate Base Rate (defined as the highest of (a) the prime rate as announced by Bank of America, N.A., (b) the Federal Funds Rate plus 0.50% and (c) Term Secured Overnight Financing Rate (“SOFR”) for an interest period of one month plus 1.00% with a 1.00% floor) plus an applicable margin rate of 0.50% for the first two fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated net leverage ratio or (ii) Term SOFR rate (calculated as the Secured Overnight Financing Rate published on the applicable Reuters screen page plus

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a spread adjustment of 0.10%, 0.15% or 0.25% depending on if we select a one-month, three-month or six-month interest period, respectively, for the applicable loan with a 0% floor), plus an applicable margin rate of 1.50% for the first two full fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated net leverage ratio. The Amended Credit Agreement also provides for other customary fees and charges, including an unused commitment fee with respect to the Revolving Credit Line ranging from 0.150% to 0.200% of the unused lending commitments under the Revolving Credit Line, based on our consolidated net leverage ratio.

The Amended Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest coverage ratio, a maximum consolidated net leverage ratio and to comply with laws, and restrictions on the ability to pay dividends, incur indebtedness or liens and make certain other distributions subject to baskets and exceptions, in each case, as specified therein. Failure to comply with these covenants would constitute an event of default under the Amended Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Amended Credit Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Amended Credit Agreement. In addition, we may increase the principal amount of the Revolving Credit Line or incur additional term loans under the Amended Credit Agreement in an aggregate principal amount such that on a pro forma basis after giving effect to such increase or additional term loans, we are in compliance with the financial covenants, subject to the satisfaction of specified conditions and additional caps in the event that the Amended Credit Agreement is secured.

At December 31, 2023, we had no outstanding indebtedness under the Revolving Credit Line, which had an available borrowing capacity of $450.0 million. For additional information on our total indebtedness, see Note 13 to our Consolidated Financial Statements in this Form 10-K. At December 31, 2023, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Amended Credit Agreement and the 2030 Notes.

The exercise of employee stock options and the purchase of common stock by participants in our 1996 Non-Qualified Employee Stock Purchase Plan, as amended (the “ESPP”), and our 2015 Non-Qualified Stock Purchase Plan (the “SPP”) generated cash proceeds of $4.9 million, $5.4 million and $6.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. Because stock option exercises and purchases under the ESPP and SPP are dependent on several factors, including the market price of our common stock, we cannot predict the timing and amount of any future proceeds.

We maintain professional liability insurance policies with third-party insurers, subject to self-insured retention, exclusions and other restrictions. We self-insure our liabilities to pay self-insured retention amounts under our professional liability insurance coverage through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Our total liability related to professional liability risks at December 31, 2023 was $283.3 million, of which $32.0 million is classified as a current liability within accounts payable and accrued expenses in the Consolidated Balance Sheet. In addition, there is a corresponding insurance receivable of $33.2 million recorded as a component of other assets for certain professional liability claims that are covered by insurance policies.

At December 31, 2023, the Company had long term capital requirements comprised primarily of $400 million in senior notes, $76.5 million of operating lease liabilities and $11.3 million of finance lease liabilities. At December 31, 2023, our total liability for uncertain tax positions was $2.7 million.

We anticipate that funds generated from operations, together with our current cash on hand and funds available under our Amended Credit Agreement, will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, fund expenses related to our transformational and restructuring activities, fund our share repurchase programs and meet our contractual obligations as described above for at least the next 12 months from the date of issuance of this Form 10-K.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” preceding Part I of this Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not significantly affected by inflation.

OVERVIEW

Pediatrix is a leading provider of physician services including newborn, maternal-fetal, pediatric cardiology and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in 37 states. We ceased providing services in Puerto Rico on December 31, 2022. At December 31, 2022, our national network comprised approximately 2,600 affiliated physicians, including 1,330 physicians who provide neonatal clinical care, primarily within hospital-based neonatal intensive care units (“NICUs”), to babies born prematurely or with medical complications. We have 570 affiliated physicians who provide maternal-fetal and obstetrical medical care to expectant mothers experiencing complicated pregnancies primarily in areas where our affiliated neonatal physicians practice. Our network also includes other pediatric subspecialists, including 240 physicians providing pediatric intensive care, 100 physicians providing pediatric cardiology care, 235 physicians providing hospital-based pediatric care, 55 physicians providing pediatric surgical care and urology services, 45 physicians providing pediatric urgent care, 10 physicians providing pediatric ear, nose and throat services, and four physicians providing pediatric ophthalmology services.

General Economic Conditions and Other Factors

Our operations and performance depend significantly on economic conditions. Economic conditions in the United States (“U.S.”) deteriorated as a result of COVID-19, which impacted patient volumes, although patient volumes have recovered to pre-COVID-19 levels as of December 31, 2022. During the year ended December 31, 2022, the percentage of our patient service revenue being reimbursed under government-sponsored healthcare programs (“GHC Programs”) remained relatively stable as compared to the year ended December 31, 2021. We could, however, experience shifts toward GHC Programs if changes occur in economic behaviors or population demographics within geographic locations in which we provide services, including an increase in unemployment and underemployment as well as losses of commercial health insurance. Payments received from GHC Programs are substantially less for equivalent services than payments received from commercial insurance payors. In addition, costs of managed care premiums and patient responsibility amounts continue to rise, and accordingly, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services. See Item 1A. Risk Factors, in this Form 10-K for additional discussion on the general economic conditions in the United States and recent developments in the healthcare industry that could affect our business.

“Surprise” Billing Legislation

In late 2020, Congress enacted legislation intended to protect patients from “surprise” medical bills when services are furnished by providers who are not in network with the patient’s insurer (the “No Surprises Act" or the "NSA"). Effective January 1, 2022, if the patient’s insurance plan is subject to the NSA, providers are not permitted to send patients an unexpected or “surprise” medical bill that arises from out-of-network emergency care provided at an out-of-network facility or at in-network facilities by out-of-network providers and out-of-network nonemergency care provided at in-network facilities without the patient’s informed consent. Many states have legislation on this topic and will continue to modify and review their laws pertaining to surprise billing.

Under the NSA, patients are only required to pay the in-network cost-sharing amount, which has been determined through an established regulatory formula and will count toward the patient’s health plan deductible and out-of-pocket cost-sharing limits. Providers will generally not be permitted to balance bill patients beyond this cost-sharing amount. An out-of-network provider will only be permitted to bill a patient more than the in-network

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cost-sharing amount for care if the provider gives the patient notice of the provider’s network status and delivers to the patient or their health plan an estimate of charges within certain specified timeframes, and obtains the patient’s written consent prior to the delivery of care. Providers that violate these surprise billing prohibitions may be subject to state enforcement action or federal civil monetary penalties.

Also under the NSA, out of network providers will be paid an amount determined by the patient’s insurer for services rendered in the emergency care setting; if a provider is not satisfied with the amount paid for the services, the provider can pursue recourse through an independent dispute resolution ("IDR") process. These IDR results will bind both the provider and payor for a 90-day period. In August 2022, the United States Department of Health and Human Services, Department of Labor and Department of Treasury (the “Departments”) issued their final rule and corresponding guidance implementing certain portions of the IDR process under the NSA. The Departments plan to publish additional rules and guidance in the coming months and years. Certain IDR-related provisions of the NSA are being challenged in courts by provider groups, and the result of this litigation may alter portions of the law. Accordingly, we cannot predict how these IDR results will compare to the rates that our affiliated physicians customarily receive for their services.

These measures could limit the amount we can charge and recover for services we furnish where we have not contracted with the patient’s insurer, and therefore could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Moreover, these measures could affect our ability to contract with certain payors and under historically similar terms and may cause, and the prospect of these changes may have caused, payors to terminate their contracts with us and our affiliated practices, further affecting our business, financial condition, results of operations, cash flows and the trading price of our securities.

Healthcare Reform

The Patient Protection and Affordable Care Act (the “ACA”) contains a number of provisions that have affected us and, absent amendment or repeal, may continue to affect us over the next several years. These provisions include the establishment of health insurance exchanges to facilitate the purchase of qualified health plans, expanded Medicaid eligibility, subsidized insurance premiums and additional requirements and incentives for businesses to provide healthcare benefits. Other provisions have expanded the scope and reach of the Federal Civil False Claims Act and other healthcare fraud and abuse laws. Moreover, we could be affected by potential changes to various aspects of the ACA, including changes to subsidies, healthcare insurance marketplaces and Medicaid expansion.

Despite the ACA going into effect over a decade ago, continuous legal and Congressional challenges to the law’s provisions and persisting uncertainty with respect to the scope and effect of certain provisions have made compliance costly. In 2017, Congress unsuccessfully sought to replace substantial parts of the ACA with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets. Congress may again attempt to enact substantial or target changes to the ACA in the future. Additionally, Centers for Medicare & Medicaid Services (“CMS”) has administratively revised a number of provisions and may seek to advance additional significant changes through regulation, guidance and enforcement in the future.

At the end of 2017, Congress repealed the part of the ACA that required most individuals to purchase and maintain health insurance or face a tax penalty, known as the individual mandate. In light of these changes, in December 2018, a federal district court in Texas declared that key portions of the ACA were inconsistent with the U.S. Constitution and that the entire ACA is invalid as a result. Several states appealed this decision, and in December 2019, a federal court of appeals upheld the district court’s conclusion that part of the ACA is unconstitutional but remanded for further evaluation whether in light of this defect the entire ACA must be invalidated. Democratic attorneys general and the House appealed the Fifth Circuit’s decision to the United States Supreme Court. On June 17, 2021, the United States Supreme Court in California et al. v. Texas et al. dismissed this judicial challenge to the ACA brought by several states and sided with supporters of the ACA in a way that left the law in effect in its current form. Another potentially existential challenge to the ACA is advancing in federal courts. In Braidwood Management v. Becerra, the plaintiffs argue that the law’s requirement that insurance cover certain preventive services is unconstitutional. In September 2022, a federal district court in Texas ruled in favor of the plaintiffs, finding, among other things, that the requirement that self-funded plans and insurers cover certain preventive services violates the plaintiffs' rights under the Religious Freedom Restoration Act. The case is likely to be appealed and may ultimately be resolved by the United States Supreme Court. If the case succeeds, millions of Americans could lose access to

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preventive care guaranteed by the ACA or be forced to pay out of pocket for these services. Notwithstanding the Supreme Court's ruling, we cannot say for certain whether there will be future challenges to the ACA or what impact, if any, such challenges may have on our business. Changes resulting from these proceedings could have a material impact on our business.

In late 2020 and early 2021, the results of the federal and state elections changed which persons and parties occupy the Office of the President of the United States and the U.S. Senate and many states’ governors and legislatures. In late 2022, the results of the federal elections changed which party controls the U.S. House of Representatives. The current Administration may propose sweeping changes to the U.S. healthcare system, including expanding government-funded health insurance options, additional Medicaid expansion or replacing current healthcare financing mechanisms with systems that would be entirely administered by the federal government. Any legislative or administrative change to the current healthcare financing system could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.

In addition to the potential impacts to the ACA, there could be changes to other GHC Programs, such as a change to the structure of Medicaid or Medicaid payment rates set forth under state law. Historically, Congress and the Administration have sought to convert Medicaid into a block grant or to institute per capita spending caps, among other things. These changes, if implemented, could eliminate the guarantee that everyone who is eligible and applies for benefits would receive them and could potentially give states new authority to restrict eligibility, cut benefits and make it more difficult for people to enroll. Additionally, several states are considering and pursuing changes to their Medicaid programs, such as requiring recipients to engage in employment or education activities as a condition of eligibility for most adults, disenrolling recipients for failure to pay a premium, or adjusting premium amounts based on income. Many states have recently shifted a majority or all of their Medicaid program beneficiaries into Managed Medicaid Plans. Managed Medicaid Plans have some flexibility to set rates for providers, but many states require minimum provider rates in their contracts with such plans. In July of each year, CMS releases the annual Medicaid Managed Care Rate Development Guide which provides federal baseline rules for setting reimbursement rates in managed care plans. We could be affected by lower reimbursement rates in some of all of the Managed Medicaid Plans with which we participate. We could also be materially impacted if we are dropped from the provider network in one or more of the Managed Medicaid Plans with which we currently participate.

We cannot predict with any assurance the ultimate effect of these laws and resulting changes to payments under GHC Programs, nor can we provide any assurance that they will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Further, any fiscal tightening impacting GHC Programs or changes to the structure of any GHC Programs could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.

Medicaid Expansion

The ACA also allows states to expand their Medicaid programs through federal payments that fund most of the cost of increasing the Medicaid eligibility income limit from a state’s historic eligibility levels to 133% of the federal poverty level. To date, 39 states and the District of Columbia have expanded Medicaid eligibility to cover this additional low-income patient population, and other states are considering expansion. All of the states in which we operate, however, already cover children in the first year of life and pregnant women if their household income is at or below 133% of the federal poverty level. Recently, Democrats in Congress have sought to expand Medicaid or Medicaid-like coverage in states that have not yet expanded Medicaid. They also have sought to reduce payments to certain hospitals in some of these states. Additionally, as noted above, Congress is currently considering altering the terms and state remuneration for Medicaid expansion pursuant to the ACA. Should any of these changes take effect, we cannot predict with any assurance the ultimate effect to reimbursements for our services.

2022 Acquisition Activity

During 2022, we acquired one multi-location pediatric urgent care practice and one pediatric gastroenterology practice. Based on our experience, we expect that we can improve the results of acquired physician practices through improved managed care contracting, improved collections, identification of growth initiatives and operating and cost savings based upon the significant infrastructure that we have developed.

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Common Stock Repurchase Programs

In July 2013, our Board of Directors authorized the repurchase of shares of our common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under our equity compensation programs. The share repurchase program allows us to make open market purchases from time-to-time based on general economic and market conditions and trading restrictions. The repurchase program also allows for the repurchase of shares of our common stock to offset the dilutive impact from the issuance of shares, if any, related to the Company’s acquisition program. No shares were purchased under this program during the twelve months ended December 31, 2022.

In August 2018, the Company announced that its Board of Directors had authorized the repurchase of up to $500.0 million of the Company’s common stock in addition to its existing share repurchase program, of which $94.0 million remained available for repurchase as of December 31, 2021. Under this share repurchase program, during the year ended December 31, 2022, the Company purchased 4.5 million shares of its common stock for $88.5 million, including $2.9 million to satisfy minimum statutory withholding obligations in connection with the vesting of restricted stock. As of December 31, 2022, $5.5 million remained available under this share repurchase program.

We intend to utilize various methods to effect any future share repurchases, including, among others, open market purchases and accelerated share repurchase programs. The amount and timing of repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.

Transformation and Restructuring Related Initiatives

Beginning in 2019, we developed a number of strategic initiatives across our organization, in both our shared services functions and our operational infrastructure, with a goal of generating improvements in our general and administrative expenses and our operational infrastructure. We had broadly classified these workstreams in four categories including practice operations, revenue cycle management, information technology and human resources. We have included the expenses, which in certain cases represent estimates, related to such activity on a separate line item in our consolidated statements. A significant amount of transformational and restructuring related activities were related to our divested anesthesiology services and radiology services medical groups, and we have incurred various expenses related to executive management and board restructuring.

Coronavirus Pandemic (COVID-19)

COVID-19 has had an impact on the demand for medical services provided by our affiliated clinicians. Beginning in mid-March 2020, our affiliated office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, experienced a significant elevation of appointment cancellations compared to historical normal levels. We believe COVID-19, either directly or indirectly, also had an impact on our NICU patient volumes, and there is no assurance that impacts from COVID-19 will not further adversely affect our NICU patient volumes or otherwise adversely affect our NICU and related neonatology business. Further, in late 2020, we saw a shift in the mix of patients reimbursed under government-sponsored healthcare programs, but that shift materially reversed during the twelve months ended December 31, 2021. Overall, our operating results were significantly impacted by COVID-19 beginning in mid-March 2020, but volumes began to normalize in mid-2020 and substantially recovered since that time with no material impacts from any COVID-19 variants in 2021 and 2022.

Due to the continued uncertainties surrounding the timeline of and impacts from COVID-19 and with multiple variant strains still circulating, we are unable to predict the ultimate impact on our business, financial condition, results of operations, cash flows and the trading price of our securities at this time.

CARES Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act is a relief package intended to assist many aspects of the American economy, including providing up to $100 billion in aid to the healthcare industry to reimburse healthcare providers for lost revenue and expenses attributable to COVID-19. The remaining $70 billion in aid is intended to focus on providers in areas particularly impacted by COVID-19, rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the

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treatment of uninsured Americans. It is unknown what, if any, portion of the remaining healthcare industry funding on the CARES Act our affiliated physician practices will qualify for and receive. The Department of Health and Human Services (“HHS”) is administering this program, and our affiliated physician practices within continuing operations received an aggregate of $13.3 million, $26.1 million and $22.0 million in relief payments during the years ended December 31, 2022, 2021 and 2020, respectively.

In addition, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, and we utilized this deferral option throughout 2020. We repaid all of these deferred social security taxes as of December 31, 2022.

Under current tax law, net operating losses can be carried forward indefinitely. The CARES Act enacted rules allowing net operating losses arising in 2020 to be carried back five taxable years. We generated a net operating loss for the 2020 tax year which has been carried back to the 2015 tax year under these provisions to obtain a refund of income tax at the prior 35% corporate tax rate.

Geographic Coverage

During 2022, 2021 and 2020, approximately 65%, 62% and 62%, respectively, of our net revenue from continuing operations was generated by operations in our five largest states. During 2022, 2021 and 2020, our five largest states consisted of Texas, Florida, Georgia, California, and Washington. During 2022, 2021 and 2020, our operations in Texas accounted for approximately 32%, 30% and 29%, respectively, of our net revenue.

Payor Mix

We bill payors for professional services provided by our affiliated physicians to our patients based upon rates for specific services provided. Our billed charges are substantially the same for all parties in a particular geographic area regardless of the party responsible for paying the bill for our services. We determine our net revenue based upon the difference between our gross fees for services and our estimated ultimate collections from payors. Net revenue differs from gross fees due to (i) managed care payments at contracted rates, (ii) GHC Program reimbursements at government-established rates, (iii) various reimbursement plans and negotiated reimbursements from other third-parties, and (iv) discounted and uncollectible accounts of private-pay patients.

Our payor mix is composed of contracted managed care, government, principally Medicare and Medicaid, other third-parties and private-pay patients. We benefit from the fact that most of the medical services provided in the NICU are classified as emergency services, a category typically classified as a covered service by managed care payors.

The following is a summary of our payor mix, expressed as a percentage of net revenue from continuing operations, exclusive of administrative fees and miscellaneous revenue, for the periods indicated:

The payor mix shown in the table above is not necessarily representative of the amount of services provided to patients covered under these plans. For example, the gross amount billed to patients covered under GHC Programs for the years ended December 31, 2022, 2021 and 2020 represented approximately 56% of our total gross patient service revenue. These percentages of gross revenue and the percentages of net revenue provided in the table above include the payor mix impact of acquisitions completed through December 31, 2022.

Quarterly Results

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We have historically experienced and expect to continue to experience quarterly fluctuations in net revenue and net income. These fluctuations are primarily due to the following factors:

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There are fewer calendar days in the first and second quarters of the year, as compared to the third and fourth quarters of the year. Because we provide services in NICUs on a 24-hours-a-day basis, 365 days a year, any reduction in service days will have a corresponding reduction in net revenue.

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The majority of physician services provided by our office-based practices consist of office visits and scheduled procedures that occur during business hours. As a result, volumes at those practices fluctuate based on the number of business days in each calendar quarter.

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A significant number of our employees and our associated professional contractors, primarily physicians, exceed the level of taxable wages for social security during the first and second quarters of the year. As a result, we incur a significantly higher payroll tax burden and our net income is lower during those quarters.

We have significant fixed operating costs, including physician compensation, and, as a result, are highly dependent on patient volume and capacity utilization of our affiliated professional contractors to sustain profitability. Additionally, quarterly results may be affected by the timing of acquisitions and fluctuations in patient volume. As a result, the operating results for any quarter are not necessarily indicative of results for any future period or for the full year.

Application of Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires estimates and assumptions that affect the reporting of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Note 2 to our Consolidated Financial Statements provides a summary of our significant accounting policies, which are all in accordance with GAAP. Certain of our accounting policies are critical to understanding our Consolidated Financial Statements because their application requires management to make assumptions about future results and depends to a large extent on management’s judgment, because past results have fluctuated and are expected to continue to do so in the future.

We believe that the application of the accounting policies described in the following paragraphs is highly dependent on critical estimates and assumptions that are inherently uncertain and highly susceptible to change. For all of these policies, we caution that future events rarely develop exactly as estimated, and the best estimates routinely require adjustment. On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below.

Revenue Recognition

We recognize patient service revenue at the time services are provided by our affiliated physicians. Our performance obligations relate to the delivery of services to patients and are satisfied at the time of service. Accordingly, there are no performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period with respect to patient service revenue. Almost all of our patient service revenue is reimbursed by GHC Programs and third-party insurance payors. Payments for services rendered to our patients are generally less than billed charges. We monitor our revenue and receivables from these sources and record an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.

Accordingly, patient service revenue is presented net of an estimated provision for contractual adjustments and uncollectibles. Management estimates allowances for contractual adjustments and uncollectibles on accounts receivable based upon historical experience and other factors, including days sales outstanding (“DSO”) for accounts receivable, evaluation of expected adjustments and delinquency rates, past adjustments and collection experience in relation to amounts billed, an aging of accounts receivable, current contract and reimbursement terms, changes in payor mix and other relevant information. Collection of patient service revenue we expect to receive is normally a function of providing complete and correct billing information to the GHC Programs and third-party insurance payors within the various filing deadlines and typically occurs within 30 to 60 days of billing. Contractual adjustments result from the difference between the physician rates for services performed and the reimbursements by GHC Programs and third-party insurance payors for such services. The evaluation of these historical and other factors involves

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complex, subjective judgments. On a routine basis, we compare our cash collections to recorded net patient service revenue and evaluate our historical allowance for contractual adjustments and uncollectibles based upon the ultimate resolution of the accounts receivable balance. These procedures are completed regularly in order to monitor our process of establishing appropriate reserves for contractual adjustments. We have not recorded any material adjustments to prior period contractual adjustments and uncollectibles in the years ended December 31, 2022, 2021, or 2020.

Some of our agreements require hospitals to pay us administrative fees. Some agreements provide for fees if the hospital does not generate sufficient patient volume in order to guarantee that we receive a specified minimum revenue level. We also receive fees from hospitals for administrative services performed by our affiliated physicians providing medical director or other services at the hospital.

DSO is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Any significant change in our DSO results in additional analyses of outstanding accounts receivable and the associated reserves. We calculate our DSO using a three-month rolling average of net revenue. Our net revenue, net income and operating cash flows may be materially and adversely affected if actual adjustments and uncollectibles exceed management’s estimated provisions as a result of changes in these factors. As of December 31, 2022, our DSO was 53.1 days. We had approximately $1.55 billion in gross accounts receivable for continuing operations outstanding at December 31, 2022, and considering this outstanding balance, based on our historical experience, a reasonably likely change of 0.5% to 1.50% in our estimated collection rate would result in an impact to net revenue of $7.5 million to $22.4 million. The impact of this change does not include adjustments that may be required as a result of audits, inquiries and investigations from government authorities and agencies and other third-party payors that may occur in the ordinary course of business. See Note 19 to our Consolidated Financial Statements in this Form 10-K.

Professional Liability Coverage

We maintain professional liability insurance policies with third-party insurers generally on a claims-made basis, subject to self-insured retention, exclusions and other restrictions. Our self-insured retention under our professional liability insurance program is maintained primarily through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Liabilities for claims incurred but not reported are not discounted. The average lag period from the date a claim is reported to the date it reaches final settlement is approximately four years, although the facts and circumstances of individual claims could result in lag periods that vary from this average. Our actuarial assumptions incorporate multiple complex methodologies to determine the best liability estimate for claims incurred but not reported and the future development of known claims, including methodologies that focus on industry trends, paid loss development, reported loss development and industry-based expected pure premiums. The most significant assumptions used in the estimation process include the use of loss development factors to determine the future emergence of claim liabilities, the use of frequency and trend factors to estimate the impact of economic, judicial and social changes affecting claim costs, and assumptions regarding legal and other costs associated with the ultimate settlement of claims. The key assumptions used in our actuarial valuations are subject to constant adjustments as a result of changes in our actual loss history and the movement of projected emergence patterns as claims develop. We evaluate the need for professional liability insurance reserves in excess of amounts estimated in our actuarial valuations on a routine basis, and as of December 31, 2022, based on our historical experience for continuing operations, a reasonably likely change of 4.0% to 10.0% in our estimates would result in an increase or decrease to net income of $3.1 million to $8.1 million. However, because many factors can affect historical and future loss patterns, the determination of an appropriate professional liability reserve involves complex, subjective judgment, and actual results may vary significantly from estimates.

Non-GAAP Measures

In our analysis of our results of operations, we use certain non-GAAP financial measures. We have incurred certain expenses that we do not consider representative of our underlying operations, including transformational and restructuring related expenses. Accordingly, beginning with the first quarter of 2019, we began reporting adjusted earnings before interest, taxes and depreciation and amortization (“Adjusted EBITDA”) from continuing operations,

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defined as income (loss) from continuing operations before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses. Adjusted earnings per share (“Adjusted EPS”) from continuing operations has also been further adjusted for these items and beginning with the first quarter of 2019 consists of diluted income (loss) from continuing operations per common and common equivalent share adjusted for amortization expense, stock-based compensation expense and transformational and restructuring related expenses. For the year ended December 31, 2021, both Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude the impacts from the gain on sale of building and for the years ended December 31, 2022 and 2021, both Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude the impacts from loss on the early extinguishment of debt. Adjusted EPS from continuing operations has been further adjusted to reflect the impacts from discrete tax events. We have included Adjusted EBITDA and Adjusted EPS in this Form 10-K because each is a key measure used by our management and board of directors to evaluate our operating performance, generate future operating plans and make strategic decisions.

We believe these measures, in addition to income (loss) from continuing operations, net income (loss) and diluted net income (loss) from continuing operations per common and common equivalent share, provide investors with useful supplemental information to compare and understand our underlying business trends and performance across reporting periods on a consistent basis. These measures should be considered a supplement to, and not a substitute for, financial performance measures determined in accordance with GAAP. In addition, since these non-GAAP measures are not determined in accordance with GAAP, they are susceptible to varying calculations and may not be comparable to other similarly titled measures of other companies

For a reconciliation of each of Adjusted EBITDA from continuing operations and Adjusted EPS from continuing operations to the most directly comparable GAAP measures for the years ended December 31, 2022, 2021 and 2020, refer to the tables below (in thousands, except per share data).

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(1)
A blended tax rate of 25% was used to calculate the tax effects of the adjustments for the years ended December 31, 2022, 2021 and 2020, respectively.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain information related to our continuing operations expressed as a percentage of our net revenue:

Year Ended December 31, 2022 as Compared to Year Ended December 31, 2021

Our net revenue attributable to continuing operations was $1.97 billion for the year ended December 31, 2022, as compared to $1.91 billion for 2021. The increase in revenue of $60.8 million, or 3.2%, was primarily attributable to increases in revenue from net acquisitions, partially offset by a decrease in same-unit revenue. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue decreased by $20.6 million, or 1.1%. The decrease in same-unit net revenue was comprised of a decrease of $50.2 million, or 2.7%, from net reimbursement-related factors, partially offset by an increase of $29.6 million, or 1.6%, related to patient service volumes. The net decrease in revenue related to net reimbursement-related factors was primarily due to a decrease in revenue related to certain revenue cycle management transition activities, a decrease in CARES Act relief and an increase in the percentage of our patients being enrolled in GHC Programs,

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partially offset by increases in revenue from contract and administrative fees received from our hospital partners. The increase in revenue from patient service volumes was related to increases across all our hospital-based and office-based women’s and children’s services.

Practice salaries and benefits attributable to continuing operations increased $85.8 million, or 6.6%, to $1.38 billion for the year ended December 31, 2022, as compared to $1.30 billion for 2021. Of the $85.8 million increase, $83.2 million was related to salaries and $2.6 million was related to benefits and incentive compensation. The increase in salaries was driven by acquisitions and organic growth activities as well as clinical compensation increases in our existing units. The net increase in benefits and incentive compensation reflects higher benefits costs as a result of increased salaries expense and an increase in medical malpractice expense, partially offset by lower incentive compensation expense based on overall operating results.

Practice supplies and other operating expenses attributable to continuing operations increased $21.2 million, or 21.1%, to $121.7 million for the year ended December 31, 2022, as compared to $100.5 million for 2021. The increase was primarily attributable to practice supply, rent and other costs related to our acquisitions as well as increases in the same categories but to a lesser extent at our existing units.

General and administrative expenses attributable to continuing operations primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically identifiable to the day-to-day operations of our physician practices and services. General and administrative expenses decreased by $32.0 million, or 12.1%, to $231.4 million for the year ended December 31, 2022, as compared to $263.4 million for 2021. The net decrease of $32.0 million is primarily related to a net savings in revenue cycle management expenses, salaries and benefit cost reductions from net staffing reductions, lower incentive compensation expense based on operating results and lower professional fees, primarily legal expenses. General and administrative expenses as a percentage of net revenue was 11.7% for the year ended December 31, 2022, as compared to 13.8% for the same period in 2021.

Gain on sale of building was $7.3 million for the year ended December 31, 2021 and resulted from the sale of our secondary corporate office building during the second quarter.

Transformational and restructuring related expenses attributable to continuing operations were $27.3 million for the year ended December 31, 2022, as compared to $22.1 million for 2021. The increase of $5.2 million reflects an increase in position eliminations expense, partially offset by decreases in contract termination costs and lower consulting fees.

Depreciation and amortization expense attributable to continuing operations was $35.6 million for the year ended December 31, 2022, as compared to $32.1 million for 2021. The increase was primarily related to an increase in depreciation expense at our existing units for information technology and other equipment as well as for acquisitions, partially offset by lower amortization expenses related to intangible assets at our existing units.

Income from operations attributable to continuing operations decreased $30.2 million, or 14.9%, to $172.7 million for the year ended December 31, 2022, as compared to $202.9 million for 2021. Our operating margin was 8.8% for the year ended December 31, 2022, as compared to 10.6% for the same period in 2021. The decrease in our operating margin was primarily due to lower same-unit revenue, including CARES Act relief and net increases in overall operating expenses, partially offset by favorable impacts from net acquisitions. Excluding the transformational and restructuring related expenses and gain on sale of building our income from operations attributable to continuing operations was $200.0 million and $217.7 million, and our operating margin was 10.1% and 11.4% for the year ended December 31, 2022 and 2021, respectively. We believe excluding the impacts from the transformational and restructuring related activity and gain on sale of building provides a more comparable view of our operating income and operating margin from continuing operations.

Total non-operating expenses attributable to continuing operations were $91.3 million for the year ended December 31, 2022, as compared to $67.7 million for 2021. The net increase in non-operating expenses was primarily related to an increase of $42.5 million in loss on early extinguishment of debt from the redemption of our 6.25% senior unsecured notes due 2027 (the “2027 Notes”) in February 2022 as compared to the loss associated with the redemption of our 5.25% senior unsecured notes due 2023 (the “2023 Notes”) in January 2021, partially offset by lower interest expense on lower debt balances in 2022. In addition, there was a decrease in other income of $9.8 million for the year

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ended December 31, 2022, as compared to the same period in 2021, related to the transition services provided to the buyers of our divested medical groups. Overall, during the year ended December 31, 2022, a net increase to non-operating expense of $52.5 million from the loss on early extinguishment of debt and lower other income was partially offset by a decrease of $29.0 million in interest expense related to the issuance of our 5.375% unsecured senior notes due 2030 (the “2030 Notes"), as compared to the interest expense on the 2027 Notes.

Our effective income tax rate attributable to continuing operations was 23.1% for the year ended December 31, 2022, compared to 20.1% for the year ended December 31, 2021. The tax rate for the year ended December 31, 2022 includes a net discrete tax benefit of $3.4 million, primarily related to a change in estimate for the liability for uncertain tax positions due to lapse of statutes of limitations. The tax rate for the year ended December 31, 2021 includes a net discrete tax benefit of $12.2 million, primarily related to a change in estimate for the 2020 net operating loss carryback as allowed under the CARES Act for refund at the 35% federal tax rate. After excluding discrete tax impacts, for the years ended December 31, 2022 and 2021, our tax rates were 27.3% and 29.1%, respectively. We believe excluding discrete tax impacts on our tax rate provides a more comparable view of our effective income tax rate. The decrease in the effective tax rate for the year ended December 31, 2022 as compared to 2021, after excluding discrete tax impacts, is primarily due to a year-over-year reduction in nondeductible expenses.

Income from continuing operations was $62.6 million for the year ended December 31, 2022, as compared to $108.0 million for 2021. Adjusted EBITDA from continuing operations was $241.0 million for the year ended December 31, 2022, as compared to $265.5 million for 2021.

Diluted income from continuing operations per common and common equivalent share was $0.74 on weighted average shares outstanding of 84.1 million for the year ended December 31, 2022, as compared to $1.26 on weighted average shares outstanding of 85.8 million for 2021. Adjusted EPS from continuing operations was $1.66 for the year ended December 31, 2022, as compared to $1.63 for 2021. The decrease in weighted average shares outstanding resulted from the share repurchases completed during 2022.

Income from discontinued operations, net of tax, was $3.8 million for the year ended December 31, 2022, as compared to $23.0 million for 2021. Diluted income from discontinued operations per common and common equivalent share was $0.05 for the year ended December 31, 2022, as compared to $0.27 for 2021.

Net income was $66.3 million for the year ended December 31, 2022, as compared $131.0 million for 2021. Diluted net income per common and common equivalent share was $0.79 for the year ended December 31, 2022, as compared to $1.53 for 2021.

Year Ended December 31, 2021 as Compared to Year Ended December 31, 2020

Our net revenue attributable to continuing operations was $1.91 billion for the year ended December 31, 2021, as compared to $1.73 billion for 2020. The increase in revenue of $177.2 million, or 10.2%, was primarily attributable to the recovery in patient volumes and reimbursement related factors related to COVID-19 and the favorable impacts on same-unit revenue. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue increased by $163.3 million, or 9.8%. The increase in same-unit net revenue was comprised of an increase of $85.8 million, or 5.2%, related to patient service volumes and a net increase of $77.5 million, or 4.6%, from net reimbursement-related factors. The increase in revenue from patient service volumes was related to increases across all of our hospital-based and office-based women’s and children’s services. Prior year volumes were significantly unfavorably impacted by COVID-19. The net increase in revenue related to net reimbursement-related factors was primarily due to an increase in revenue resulting from a decrease in the percentage of our patients being enrolled in GHC Programs, increases in administrative fees received from our hospital partners and modest improvements in managed care contracting.

Practice salaries and benefits attributable to continuing operations increased $103.5 million, or 8.7%, to $1.30 billion for the year ended December 31, 2021, as compared to $1.19 billion for 2020. Of the $103.5 million increase, $55.9 million was related to salaries which primarily reflected increases in clinician compensation expense driven by the comparison to reduced salaries expense during 2020 resulting from COVID-19 mitigation efforts. The remaining $47.6 million was related to benefits and incentive compensation, with the increase to incentive compensation driven by improved results as compared to 2020.

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Practice supplies and other operating expenses attributable to continuing operations increased $9.8 million, or 10.8%, to $100.5 million for the year ended December 31, 2021, as compared to $90.7 million for 2020. The increase was primarily attributable to practice supply, rent and other costs related to our existing units for which the activity across many expense categories such as travel, office and professional services expenses in 2020 had decreased as a result of COVID-19, as well as increases in the current year for information technology expenses from efforts directly supporting the physician practices.

General and administrative expenses attributable to continuing operations primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically identifiable to the day-to-day operations of our physician practices and services. General and administrative expenses were $263.4 million for the year ended December 31, 2021, as compared to $248.9 million for 2020. The net increase of $14.5 million is primarily related to increases in various information technology related expenses including systems fees, professional licenses, data center enhancements, and security as well as a net increase in compensation expense when comparing to the prior year that included decreases in compensation expense from COVID-19 mitigation efforts such as temporary salary reductions, furloughs and net staffing reductions. General and administrative expenses as a percentage of net revenue was 13.8% for the year ended December 31, 2021, as compared to 14.4% for the same period in 2020.

Gain on sale of building was $7.3 million for the year ended December 31, 2021 and resulted from the sale of our secondary corporate office building during the second quarter.

Transformational and restructuring related expenses attributable to continuing operations were $22.1 million for the year ended December 31, 2021, as compared to $73.8 million for 2020. The decrease of $51.7 million reflects the reduction in the scope of transformational and restructuring related activities, which limited such expenses them to initiatives critical to our business operations or those that provided essential support for our response to COVID-19with the expenses during the year ended December 31, 2021 primarily for contract termination and external consulting costs.

Depreciation and amortization expense attributable to continuing operations was $32.1 million for the year ended December 31, 2021, as compared to $28.4 million for 2020. The increase is primarily related to depreciation of information technology related equipment and amortization of intangible assets related to acquisitions.

Income from operations attributable to continuing operations increased $104.8 million, or 106.8%, to $202.9 million for the year ended December 31, 2021, as compared to $98.1 million for 2020. Our operating margin was 10.6% for the year ended December 31, 2021, as compared to 5.7% for the same period in 2020. The increase in our operating margin was primarily due to higher revenue growth, partially offset by net increases in overall operating expenses as compared to 2020, some of which was driven by COVID-19 cost mitigation initiatives that took place in 2020 as well as increases in incentive compensation expense in 2021 from improved results. Excluding the transformational and restructuring related expenses and gain on sale of building, our income from operations attributable to continuing operations was $225.0 million and $171.9 million, and our operating margin was 11.4% and 9.9% for the year ended December 31, 2021 and 2020, respectively. We believe excluding the impacts from the transformational and restructuring related activity and gain on sale of building provides a more comparable view of our operating income and operating margin from continuing operations.

Total non-operating expenses attributable to continuing operations were $67.7 million for the year ended December 31, 2021, as compared to $91.0 million for 2020. The decrease in non-operating expenses was primarily related to a decrease in interest expense resulting from the redemption of our 2023 Notes in January 2021, partially offset by the loss on the early redemption of our 2023 Notes.

Our effective income tax rate attributable to continuing operations was 20.1% for the year ended December 31, 2021. Our effective income tax rate attributable to continuing operations of 234.0% is not meaningful as calculated for the year ended December 31, 2020 due to the decline in pre-tax income, primarily due to the impacts from our transformational and restructuring related expenses and COVID-19. The tax rate for the year ended December 31, 2021 includes a net discrete tax benefit of $12.2 million, primarily related to a change in estimate for the 2020 net operating loss carryback as allowed under the CARES Act for refund at the 35% federal tax rate. After excluding

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discrete tax impacts, for the year ended December 31, 2021, our tax rate was 29.1%. We believe excluding discrete tax impacts on our tax rate provides a more comparable view of our effective income tax rate.

Income from continuing operations was $108.0 million for the year ended December 31, 2021, as compared to loss from continuing operations of $9.6 million for 2020. Adjusted EBITDA from continuing operations was $265.5 million for the year ended December 31, 2021, as compared to $219.9 million for 2020.

Diluted income from continuing operations per common and common equivalent share was $1.26 on weighted average shares outstanding of 85.8 million for the year ended December 31, 2021, as compared to diluted loss per common and common equivalent share of $0.11 on weighted average shares outstanding of 83.4 million for 2020. Adjusted EPS from continuing operations was $1.63 for the year ended December 31, 2021, as compared to $0.95 for 2020.

Income from discontinued operations, net of tax, was $23.0 million for the year ended December 31, 2021, as compared to loss from discontinued operations of $786.9 million for 2020. Diluted income from discontinued operations per common and common equivalent share was $0.27 for the year ended December 31, 2021, as compared to a diluted loss from discontinued operations per common and common equivalent share of $9.44 for 2020.

Net income was $131.0 million for the year ended December 31, 2021, as compared to a net loss of $796.5 million for 2020. Diluted net income per common and common equivalent share was $1.53 for the year ended December 31, 2021, as compared to net loss per common and common equivalent share of $9.55 for 2020.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2022, we had $9.8 million of cash and cash equivalents attributable to continuing operations as compared to $387.4 million at December 31, 2021. Additionally, we had working capital attributable to continuing operations of $1.0 million at December 31, 2022, a decrease of $412.2 million from our working capital from continuing operations of $413.2 million at December 31, 2021. The net decrease in working capital is primarily due to the redemption of the 2027 Notes in February 2022, partially offset by the issuance of the 2030 Notes also in February 2022.

Cash Flows

Cash provided by (used in) operating, investing and financing activities from continuing operations is summarized as follows (in thousands):

Operating Activities

We generated cash flow from operating activities for continuing operations of $182.3 million, $113.8 million and $153.9 million for the years ended December 31, 2022, 2021 and 2020, respectively. The net increase in cash flow provided of $68.5 million for the year ended December 31, 2022, as compared to the year ended December 31, 2021, was primarily due to an increase in cash flow from accounts receivable and income taxes, partially offset by a decrease in cash flow from lower earnings, changes in accounts payable and accrued expenses and prepaid expenses and other assets.

During the year ended December 31, 2022, cash outflow related to accounts receivable for continuing operations was $5.5 million, as compared to $72.7 million for the same period in 2021. The increase in cash flow from accounts receivable for the year ended December 31, 2022 was primarily due to lower increases in ending accounts receivable balances at existing units.

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DSO is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Our DSO for continuing operations was 53.1 days at December 31, 2022 as compared to 55.2 days at December 31, 2021.

Our cash flow from operating activities is significantly affected by the payment of physician incentive compensation. A large majority of our affiliated physicians participate in our performance-based incentive compensation program and almost all of the payments due under the program are made annually in the first quarter. As a result, we typically experience negative cash flow from operations in the first quarter of each year and fund our operations during this period with cash on hand or funds borrowed under our Credit Agreement. In addition, during the first quarter of each year, we use cash to make any discretionary matching contributions for participants in our qualified contributory savings plans.

We generated cash flow from operating activities for continuing operations of $113.8 million and $153.9 million for the years ended December 31, 2021 and 2020, respectively. The net decrease in cash flow was primarily due to a decrease in cash flow from accounts receivable, deferred income taxes and accounts payable and accrued expenses, partially offset by an increase in cash from higher earnings and changes in prepaid expenses and other assets.

Investing Activities

During the year ended December 31, 2022, our net cash used in investing activities for continuing operations of $57.0 million consisted primarily of capital expenditures of $29.7 million and acquisitions payments of $28.2 million. During the year ended December 31, 2021, our net cash used in investing activities for continuing operations of $55.4 million consisted of capital expenditures of $32.2 million, acquisitions payments of $29.9 million and the payment associated with a strategic investment of $20.0 million, partially offset by net proceeds from the sale of a building of $24.7 million and net proceeds from maturities or sale of investments of $1.4 million. During the year ended December 31, 2020, our net cash used in investing activities for continuing operations of $58.3 million consisted primarily of capital expenditures of $28.8 million and net purchases of investments of $28.4 million.

Financing Activities

During the year ended December 31, 2022, our net cash used in financing activities for continuing operations of $487.6 million primarily consisted of $1.0 billion related to the redemption of the 2027 Notes, including the call premium, the repurchase of $88.5 million of our common stock, payments of $9.4 million on our Term A Loan (as defined below), and payments for financing costs of $8.6 million, partially offset by $400.0 million in proceeds from the issuance of the 2030 Notes and $250.0 million from our Term A Loan. During the year ended December 31, 2021, our net cash used in financing activities for continuing operations primarily consisted of $760.1 million related to the redemption of the 2023 Notes, $4.7 million related to the repurchase of our common stock and payments of $2.8 million for capital leases, partially offset by proceeds from the issuance of common stock of $6.9 million. During the year ended December 31, 2020, our net cash used in financing activities for continuing operations of $2.9 million primarily consisted of the repurchase of $8.5 million of our common stock and payments of $1.2 million for capital leases, partially offset by proceeds from the issuance of common stock of $7.0 million.

Liquidity

On February 11, 2022, we issued $400 million of 2030 Notes. We used the net proceeds from the issuance of the 2030 Notes, together with $100 million drawn under our Revolving Credit Line (as defined below), $250 million of Term A Loan (as defined below) and approximately $308 million of cash on hand, to redeem (the “Redemption”) our 2027 Notes, which had an outstanding principal balance of $1.0 billion, and to pay costs, fees and expenses associated with the Redemption and the Credit Agreement Amendment (as defined below).

Interest on the 2030 Notes accrues at the rate of 5.375% per annum, or annual interest expense of $21.5 million, as compared to $62.5 million in annual interest expense under the 2027 Notes, a savings of $41.0 million in annual interest expense.

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Interest under the 2030 Notes is payable semi-annually in arrears on February 15 and August 15, beginning on August 15, 2022. Our obligations under the 2030 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee the Amended Credit Agreement (as defined below). The indenture under which the 2030 Notes are issued, among other things, limits our ability to (1) incur liens and (2) enter into sale and lease-back transactions, and also limits our ability to merge or dispose of all or substantially all of our assets, in all cases, subject to a number of customary exceptions. Although we are not required to make mandatory redemption or sinking fund payments with respect to the 2030 Notes, upon the occurrence of a change in control, we may be required to repurchase the 2030 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2030 Notes repurchased plus accrued and unpaid interest.

Also in connection with the Redemption, we amended and restated the Credit Agreement (the “Credit Agreement Amendment”) concurrently with the issuance of the 2030 Notes. The Credit Agreement, as amended by the Credit Agreement Amendment (the “Amended Credit Agreement”), among other things, (i) refinanced the prior unsecured revolving credit facility with a $450 million unsecured revolving credit facility, including a $37.5 million sub-facility for the issuance of letters of credit (the “Revolving Credit Line”), and a new $250 million term A loan facility (“Term A Loan”) and (ii) removed JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement and appointed Bank of America, N.A. as the administrative agent for the lenders.

The Credit Agreement, as amended by the Credit Agreement Amendment (the "Amended Credit Agreement"), matures on February 11, 2027 and is guaranteed on an unsecured basis by substantially all of our subsidiaries and affiliated professional contractors. At our option, borrowings under the Amended Credit Agreement bear interest at (i) the Alternate Base Rate (defined as the highest of (a) the prime rate as announced by Bank of America, N.A., (b) the Federal Funds Rate plus 0.50% and (c) Term SOFR for an interest period of one month plus 1.00% with a 1.00% floor) plus an applicable margin rate of 0.50% for the first two fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated net leverage ratio or (ii) Term SOFR rate (calculated as the Secured Overnight Financing Rate published on the applicable Reuters screen page plus a spread adjustment of 0.10%, 0.15% or 0.25% depending on if we select a one-month, three-month or six-month interest period, respectively, for the applicable loan with a 0% floor), plus an applicable margin rate of 1.50% for the first two full fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated net leverage ratio. The Amended Credit Agreement also provides for other customary fees and charges, including an unused commitment fee with respect to the Revolving Credit Line ranging from 0.150% to 0.200% of the unused lending commitments under the Revolving Credit Line, based on our consolidated net leverage ratio.

The Amended Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest coverage ratio, a maximum consolidated total consolidated net leverage ratio and to comply with laws, and restrictions on the ability to pay dividends, incur indebtedness or liens and make certain other distributions subject to baskets and exceptions, in each case, as specified therein. Failure to comply with these covenants would constitute an event of default under the Amended Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Amended Credit Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Amended Credit Agreement. In addition, we may increase the principal amount of the Revolving Credit Line or incur additional term loans under the Amended Credit Agreement in an aggregate principal amount such that on a pro forma basis after giving effect to such increase or additional term loans, we are in compliance with the financial covenants, subject to the satisfaction of specified conditions and additional caps in the event that the Amended Credit Agreement is secured.

At December 31, 2022, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Amended Credit Agreement and the 2030 Notes.

The exercise of employee stock options and the purchase of common stock by participants in our 1996 Non-Qualified Employee Stock Purchase Plan, as amended (the “ESPP”), and our 2015 Non-Qualified Stock Purchase Plan (the “SPP”) generated cash proceeds of $5.4 million, $6.9 million and $7.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. Because stock option exercises and purchases under the ESPP and SPP are dependent on several factors, including the market price of our common stock, we cannot predict the timing and amount of any future proceeds.

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We maintain professional liability insurance policies with third-party insurers, subject to self-insured retention, exclusions and other restrictions. We self-insure our liabilities to pay self-insured retention amounts under our professional liability insurance coverage through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Our total liability related to professional liability risks at December 31, 2022 was $307.9 million, of which $32.2 million is classified as a current liability within accounts payable and accrued expenses in the Consolidated Balance Sheet. In addition, there is a corresponding insurance receivable of $54.7 million recorded as a component of other assets for certain professional liability claims that are covered by insurance policies.

At December 31, 2022, the Company had long term capital requirements comprised primarily of $400.0 million in senior notes, $70.7 million of operating lease liabilities and $12.9 million of finance lease liabilities. At December 31, 2022, our total liability for uncertain tax positions was $3.0 million.

We anticipate that funds generated from operations, together with our current cash on hand and funds available under our Amended Credit Agreement, will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, fund expenses related to our transformational and restructuring activities, fund our share repurchase programs and meet our contractual obligations as described above for at least the next 12 months from the date of issuance of this Form 10-K.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion should be read in conjunction with our Consolidated Financial Statements and the related notes included in Item 8 of this Form 10-K. This discussion contains forward-looking statements. Please see the explanatory note concerning “Forward-Looking Statements” preceding Part I of this Form 10-K and Item 1A. Risk Factors for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. The operating results for the periods presented were not significantly affected by inflation.

OVERVIEW

Mednax is a leading provider of physician services including newborn, maternal-fetal, pediatric cardiology and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in 38 states and Puerto Rico. At December 31, 2021, our national network comprised over 2,400 affiliated physicians, including 1,330 physicians who provide neonatal clinical care, primarily within hospital-based neonatal intensive care units (“NICUs”), to babies born prematurely or with medical complications. We have 490 affiliated physicians who provide maternal-fetal and obstetrical medical care to expectant mothers experiencing complicated pregnancies primarily in areas where our affiliated neonatal physicians practice. Our network also includes other pediatric subspecialists, including 245 physicians providing pediatric intensive care, 90 physicians providing pediatric cardiology care, 200 physicians providing hospital-based pediatric care, 50 physicians providing pediatric surgical care and urology services, 10 physicians providing pediatric ear, nose and throat services, 10 physicians providing pediatric urgent care, and four physicians providing pediatric ophthalmology services.

Coronavirus Pandemic (COVID-19)

COVID-19 has had an impact on the demand for medical services provided by our affiliated clinicians. Beginning in mid-March 2020, our affiliated office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, experienced a significant elevation of appointment cancellations compared to historical normal levels. We believe COVID-19, either directly or indirectly, also had an impact on our NICU patient volumes, and there is no assurance that impacts from COVID-19 will not further adversely affect our NICU patient volumes or otherwise adversely affect our NICU and related neonatology business. Further, in late 2020, we saw a shift in the mix of patients reimbursed under government-sponsored healthcare programs, but that shift materially reversed during the twelve months ended December 31, 2021. Overall, our operating results were significantly impacted by COVID-19 beginning in mid-March 2020, but volumes began to normalize in mid-2020 and substantially recovered throughout 2020 and 2021 with no material impacts from any COVID-19 variants in 2021.

Due to the continued uncertainties surrounding the timeline of and impacts from COVID-19 and with multiple variant strains still circulating, we are unable to predict the ultimate impact on our business, financial condition, results of operations, cash flows and the trading price of our securities at this time.

CARES Act

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act is a relief package intended to assist many aspects of the American economy, including providing up to $100 billion in aid to the healthcare industry to reimburse healthcare providers for lost revenue and expenses attributable to COVID-19. The remaining $70 billion in aid is intended to focus on providers in areas particularly impacted by COVID-19, rural providers, providers of services with lower shares of Medicare reimbursement or who predominantly serve the Medicaid population, and providers requesting reimbursement for the treatment of uninsured Americans. It is unknown what, if any, portion of the remaining healthcare industry funding on the CARES Act our affiliated physician practices will qualify for and receive. The Department of Health and Human Services (“HHS”) is administering this program, and our affiliated physician practices within continuing operations received an aggregate of $26.1 million and $22.0 million in relief payments during the year ended December 31, 2021 and 2020, respectively. We have applications pending for certain affiliated physician practices for incremental relief beyond what has been received.

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In addition, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, and we utilized this deferral option throughout 2020. We repaid almost all of these deferred social security taxes during 2021 with an immaterial amount due on December 31, 2022.

Under current tax law, net operating losses can be carried forward indefinitely. The CARES Act enacted rules allowing net operating losses arising in 2020 to be carried back five taxable years. We generated a net operating loss for the 2020 tax year which has been carried back to the 2015 tax year under these provisions to obtain a refund of income tax at the prior 35% corporate tax rate.

2021 Acquisition Activity

During 2021, we acquired nine physician practices, including one pediatric orthopedic practice, one multi-location pediatric urgent care practice, one pediatric cardiology practice, two pediatric neurology practices, one maternal-fetal medicine practice, one obstetrics and gynecology practice, one pediatric intensivist practice and one neonatology practice. Based on our experience, we expect that we can improve the results of acquired physician practices through improved managed care contracting, improved collections, identification of growth initiatives and operating and cost savings based upon the significant infrastructure that we have developed.

Transformation and Restructuring Initiatives

Beginning in 2019, we developed a number of strategic initiatives across our organization, in both our shared services functions and our operational infrastructure, with a goal of generating improvements in our general and administrative expenses and our operational infrastructure. We had broadly classified these workstreams in four categories including practice operations, revenue cycle management, information technology and human resources. We have included the expenses, which in certain cases represent estimates, related to such activity on a separate line item in our consolidated statements. A significant amount of transformational and restructuring activities were related to our divested anesthesiology services and radiology services medical groups, and various expenses related to executive management and board restructuring were incurred in 2020. In April 2020, we reduced the scope of our transformational and restructuring related initiatives unless they were initiatives that provided essential support for our response to COVID-19 or were critical to our continuing operations. During 2021, our transformation and restructuring expenses were primarily for contract termination and external consulting costs.

Common Stock Repurchase Programs

In July 2013, our Board of Directors authorized the repurchase of shares of our common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under our equity compensation programs. The share repurchase program allows us to make open market purchases from time-to-time based on general economic and market conditions and trading restrictions. The repurchase program also allows for the repurchase of shares of our common stock to offset the dilutive impact from the issuance of shares, if any, related to the Company’s acquisition program. No shares were purchased under this program during the twelve months ended December 31, 2021.

In August 2018, we announced that our Board of Directors had authorized the repurchase of up to $500.0 million of our common stock in addition to our existing share repurchase program, of which $98.7 million remained available for repurchase as of January 1, 2021. Under this share repurchase program, during the twelve months ended December 31, 2021, we withheld approximately 0.2 million shares of our common stock to satisfy minimum statutory withholding obligations of $4.7 million in connection with the vesting of restricted stock. As of December 31, 2021, $94.0 million remained available under this share repurchase program.

We intend to utilize various methods to effect any future share repurchases, including, among others, open market purchases and accelerated share repurchase programs. The amount and timing of repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.

General Economic Conditions and Other Factors

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Our operations and performance depend significantly on economic conditions. Economic conditions in the United States (“U.S.”) deteriorated as a result of COVID-19, which impacted patient volumes, although patient volumes have recovered to pre-COVID-19 levels as of December 31, 2021. During the year ended December 31, 2021, the percentage of our patient service revenue being reimbursed under government-sponsored healthcare programs (“GHC Programs”) decreased as compared to the year ended December 31, 2020. We could, however, experience shifts toward GHC Programs if changes occur in economic behaviors or population demographics within geographic locations in which we provide services, including an increase in unemployment and underemployment as well as losses of commercial health insurance. Payments received from GHC Programs are substantially less for equivalent services than payments received from commercial insurance payors. In addition, costs of managed care premiums and patient responsibility amounts continue to rise, and accordingly, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services. See Item 1A. Risk Factors, in this Form 10-K for additional discussion on the general economic conditions in the United States and recent developments in the healthcare industry that could affect our business.

Healthcare Reform

The Patient Protection and Affordable Care Act (the “ACA”) contains a number of provisions that have affected us and, absent amendment or repeal, may continue to affect us over the next several years. These provisions include the establishment of health insurance exchanges to facilitate the purchase of qualified health plans, expanded Medicaid eligibility, subsidized insurance premiums and additional requirements and incentives for businesses to provide healthcare benefits. Other provisions have expanded the scope and reach of the Federal Civil False Claims Act and other healthcare fraud and abuse laws. Moreover, we could be affected by potential changes to various aspects of the ACA, including changes to subsidies, healthcare insurance marketplaces and Medicaid expansion.

Despite the ACA going into effect over a decade ago, continuous legal and Congressional challenges to the law’s provisions and persisting uncertainty with respect to the scope and effect of certain provisions have made compliance costly. In 2017, Congress unsuccessfully sought to replace substantial parts of the ACA with different mechanisms for facilitating insurance coverage in the commercial and Medicaid markets. Congress may again attempt to enact substantial or target changes to the ACA in the future. Additionally, Centers for Medicare & Medicaid Services (“CMS”) has administratively revised a number of provisions and may seek to advance additional significant changes through regulation, guidance and enforcement in the future.

At the end of 2017, Congress repealed the part of the ACA that required most individuals to purchase and maintain health insurance or face a tax penalty, known as the individual mandate. In light of these changes, in December 2018, a federal district court in Texas declared that key portions of the ACA were inconsistent with the U.S. Constitution and that the entire ACA is invalid as a result. Several states appealed this decision, and in December 2019, a federal court of appeals upheld the district court’s conclusion that part of the ACA is unconstitutional but remanded for further evaluation whether in light of this defect the entire ACA must be invalidated. Democratic attorneys general and the House appealed the Fifth Circuit’s decision to the Supreme Court. On March 2, 2020, the Supreme Court agreed to hear the case, styled California v. Texas, during the 2020-21 term. Oral arguments took place on November 2, 2020 and on June 17, 2021, the Court held that the plaintiffs lacked standing to challenge the ACA. Notwithstanding the Supreme Court's ruling, we cannot say for certain whether there will be future challenges to the ACA or what impact, if any, such challenges may have on our business. Changes resulting from these proceedings could have a material impact on our business.

In late 2020 and early 2021, the results of the federal and state elections changed which persons and parties occupy the Office of the President of the United States and the U.S. Senate and many states’ governors and legislatures. The current Administration may propose sweeping changes to the U.S. healthcare system, including expanding government-funded health insurance options, additional Medicaid expansion or replacing current healthcare financing mechanisms with systems that would be entirely administered by the federal government. Any legislative or administrative change to the current healthcare financing system could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.

In addition to the potential impacts to the ACA, there could be changes to other GHC Programs, such as a change to the structure of Medicaid or Medicaid payment rates set forth under state law. Historically, Congress and the Administration have sought to convert Medicaid into a block grant or to institute per capita spending caps, among

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other things. These changes, if implemented, could eliminate the guarantee that everyone who is eligible and applies for benefits would receive them and could potentially give states new authority to restrict eligibility, cut benefits and make it more difficult for people to enroll. Additionally, several states are considering and pursuing changes to their Medicaid programs, such as requiring recipients to engage in employment or education activities as a condition of eligibility for most adults, disenrolling recipients for failure to pay a premium, or adjusting premium amounts based on income. Many states have recently shifted a majority or all of their Medicaid program beneficiaries into Managed Medicaid Plans. Managed Medicaid Plans have some flexibility to set rates for providers, but many states require minimum provider rates in their contracts with such plans. In July of each year, CMS releases the annual Medicaid Managed Care Rate Development Guide which provides federal baseline rules for setting reimbursement rates in managed care plans. We could be affected by lower reimbursement rates in some of all of the Managed Medicaid Plans with which we participate. We could also be materially impacted if we are dropped from the provider network in one or more of the Managed Medicaid Plans with which we currently participate.

We cannot predict with any assurance the ultimate effect of these laws and resulting changes to payments under GHC Programs, nor can we provide any assurance that they will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Further, any fiscal tightening impacting GHC Programs or changes to the structure of any GHC Programs could have a material adverse effect on our financial condition, results of operations, cash flows and the trading price of our securities.

Medicaid Expansion

The ACA also allows states to expand their Medicaid programs through federal payments that fund most of the cost of increasing the Medicaid eligibility income limit from a state’s historic eligibility levels to 133% of the federal poverty level. To date, 38 states and the District of Columbia have expanded Medicaid eligibility to cover this additional low-income patient population, and other states are considering expansion. All of the states in which we operate, however, already cover children in the first year of life and pregnant women if their household income is at or below 133% of the federal poverty level. Recently, Democrats in Congress have sought to expand Medicaid or Medicaid-like coverage in states that have not yet expanded Medicaid. They also have sought to reduce payments to certain hospitals in some of these states. Additionally, as noted above, Congress is currently considering altering the terms and state remuneration for Medicaid expansion pursuant to the ACA. Should any of these changes take effect, we cannot predict with any assurance the ultimate effect to reimbursements for our services.

“Surprise” Billing Legislation

In late 2020, Congress enacted legislation intended to protect patients from “surprise” medical bills when services are furnished by providers who are not subject to contractual arrangements and payment limitations with the patient’s insurer. Effective January 1, 2022, patients will be protected from unexpected or “surprise” medical bills that could arise from out-of-network emergency care provided at an out-of-network facility or at in-network facilities by out-of-network providers and out-of-network nonemergency care provided at in-network facilities without the patient’s informed consent. Many states have passed similar legislation, but the federal government has been working to enact a ban on surprise billing for quite some time that pertains to ERISA health insurance plans that are not addressed under state legislation.

Under the “No Surprises Act,” patients are only required to pay the in-network cost-sharing amount, which has been determined through an established regulatory formula and will count toward the patient’s health plan deductible and out-of-pocket cost-sharing limits. Providers will generally not be permitted to balance bill patients beyond this cost-sharing amount. An out-of-network provider will only be permitted to bill a patient more than the in-network cost-sharing amount for care if the provider gives the patient notice of the provider’s network status and delivers to the patient or their health plan an estimate of charges within certain specified timeframes, and obtains the patient’s written consent prior to the delivery of care. Providers that violate these surprise billing prohibitions may be subject to state enforcement action or federal civil monetary penalties. Out of network providers will undergo an independent dispute resolution ("IDR") process to determine their payment amounts for out of network services. These IDR results will bind both the provider and payor for a 90-day period. We cannot predict how these IDR results will compare to the rates that our affiliated physicians customarily receive for their services.

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These measures could limit the amount we can charge and recover for services we furnish where we have not contracted with the patient’s insurer, and therefore could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities. Moreover, these measures could affect our ability to contract with certain payors and under historically similar terms and may cause, and the prospect of these changes may have caused, payors to terminate their contracts with us and our affiliated practices, further affecting our business, financial condition, results of operations, cash flows and the trading price of our securities.

Geographic Coverage

During 2021, 2020, and 2019, approximately 62%, 62% and 52%, respectively, of our net revenue from continuing operations was generated by operations in our five largest states. During 2021, 2020 and 2019, our five largest states consisted of Texas, Florida, Georgia, California, and Washington. During 2021, 2020 and 2019, our operations in Texas accounted for approximately 30%, 29% and 28%, respectively, of our net revenue.

Payor Mix

We bill payors for professional services provided by our affiliated physicians to our patients based upon rates for specific services provided. Our billed charges are substantially the same for all parties in a particular geographic area regardless of the party responsible for paying the bill for our services. We determine our net revenue based upon the difference between our gross fees for services and our estimated ultimate collections from payors. Net revenue differs from gross fees due to (i) managed care payments at contracted rates, (ii) GHC Program reimbursements at government-established rates, (iii) various reimbursement plans and negotiated reimbursements from other third-parties, and (iv) discounted and uncollectible accounts of private-pay patients.

Our payor mix is composed of contracted managed care, government, principally Medicare and Medicaid, other third-parties and private-pay patients. We benefit from the fact that most of the medical services provided in the NICU are classified as emergency services, a category typically classified as a covered service by managed care payors.

The following is a summary of our payor mix, expressed as a percentage of net revenue from continuing operations, exclusive of administrative fees and miscellaneous revenue, for the periods indicated:

The payor mix shown in the table above is not necessarily representative of the amount of services provided to patients covered under these plans. For example, the gross amount billed to patients covered under GHC Programs for the years ended December 31, 2021, 2020 and 2019 represented approximately 56% of our total gross patient service revenue. These percentages of gross revenue and the percentages of net revenue provided in the table above include the payor mix impact of acquisitions completed through December 31, 2021.

Quarterly Results

We have historically experienced and expect to continue to experience quarterly fluctuations in net revenue and net income. These fluctuations are primarily due to the following factors:

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There are fewer calendar days in the first and second quarters of the year, as compared to the third and fourth quarters of the year. Because we provide services in NICUs on a 24-hours-a-day basis, 365 days a year, any reduction in service days will have a corresponding reduction in net revenue.

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•
The majority of physician services provided by our office-based practices consist of office visits and scheduled procedures that occur during business hours. As a result, volumes at those practices fluctuate based on the number of business days in each calendar quarter.

•
A significant number of our employees and our associated professional contractors, primarily physicians, exceed the level of taxable wages for social security during the first and second quarters of the year. As a result, we incur a significantly higher payroll tax burden and our net income is lower during those quarters.

We have significant fixed operating costs, including physician compensation, and, as a result, are highly dependent on patient volume and capacity utilization of our affiliated professional contractors to sustain profitability. Additionally, quarterly results may be affected by the timing of acquisitions and fluctuations in patient volume. As a result, the operating results for any quarter are not necessarily indicative of results for any future period or for the full year.

Application of Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”) requires estimates and assumptions that affect the reporting of assets, liabilities, revenue and expenses, and the disclosure of contingent assets and liabilities. Note 3 to our Consolidated Financial Statements provides a summary of our significant accounting policies, which are all in accordance with GAAP. Certain of our accounting policies are critical to understanding our Consolidated Financial Statements because their application requires management to make assumptions about future results and depends to a large extent on management’s judgment, because past results have fluctuated and are expected to continue to do so in the future.

We believe that the application of the accounting policies described in the following paragraphs is highly dependent on critical estimates and assumptions that are inherently uncertain and highly susceptible to change. For all of these policies, we caution that future events rarely develop exactly as estimated, and the best estimates routinely require adjustment. On an ongoing basis, we evaluate our estimates and assumptions, including those discussed below.

Revenue Recognition

We recognize patient service revenue at the time services are provided by our affiliated physicians. Our performance obligations relate to the delivery of services to patients and are satisfied at the time of service. Accordingly, there are no performance obligations that are unsatisfied or partially unsatisfied at the end of the reporting period with respect to patient service revenue. Almost all of our patient service revenue is reimbursed by GHC Programs and third-party insurance payors. Payments for services rendered to our patients are generally less than billed charges. We monitor our revenue and receivables from these sources and record an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.

Accordingly, patient service revenue is presented net of an estimated provision for contractual adjustments and uncollectibles. Management estimates allowances for contractual adjustments and uncollectibles on accounts receivable based upon historical experience and other factors, including days sales outstanding (“DSO”) for accounts receivable, evaluation of expected adjustments and delinquency rates, past adjustments and collection experience in relation to amounts billed, an aging of accounts receivable, current contract and reimbursement terms, changes in payor mix and other relevant information. Collection of patient service revenue we expect to receive is normally a function of providing complete and correct billing information to the GHC Programs and third-party insurance payors within the various filing deadlines and typically occurs within 30 to 60 days of billing. Contractual adjustments result from the difference between the physician rates for services performed and the reimbursements by GHC Programs and third-party insurance payors for such services. The evaluation of these historical and other factors involves complex, subjective judgments. On a routine basis, we compare our cash collections to recorded net patient service revenue and evaluate our historical allowance for contractual adjustments and uncollectibles based upon the ultimate resolution of the accounts receivable balance. These procedures are completed regularly in order to monitor our process of establishing appropriate reserves for contractual adjustments. We have not recorded any material adjustments to prior period contractual adjustments and uncollectibles in the years ended December 31, 2021, 2020, or 2019.

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Some of our agreements require hospitals to pay us administrative fees. Some agreements provide for fees if the hospital does not generate sufficient patient volume in order to guarantee that we receive a specified minimum revenue level. We also receive fees from hospitals for administrative services performed by our affiliated physicians providing medical director or other services at the hospital.

DSO is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Any significant change in our DSO results in additional analyses of outstanding accounts receivable and the associated reserves. We calculate our DSO using a three-month rolling average of net revenue. Our net revenue, net income and operating cash flows may be materially and adversely affected if actual adjustments and uncollectibles exceed management’s estimated provisions as a result of changes in these factors. As of December 31, 2021, our DSO was 55.2 days. We had approximately $1.39 billion in gross accounts receivable for continuing operations outstanding at December 31, 2021, and considering this outstanding balance, based on our historical experience, a reasonably likely change of 0.5% to 1.50% in our estimated collection rate would result in an impact to net revenue of $6.6 million to $19.7 million. The impact of this change does not include adjustments that may be required as a result of audits, inquiries and investigations from government authorities and agencies and other third-party payors that may occur in the ordinary course of business. See Note 19 to our Consolidated Financial Statements in this Form 10-K.

Professional Liability Coverage

We maintain professional liability insurance policies with third-party insurers generally on a claims-made basis, subject to self-insured retention, exclusions and other restrictions. Our self-insured retention under our professional liability insurance program is maintained primarily through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Liabilities for claims incurred but not reported are not discounted. The average lag period from the date a claim is reported to the date it reaches final settlement is approximately four years, although the facts and circumstances of individual claims could result in lag periods that vary from this average. Our actuarial assumptions incorporate multiple complex methodologies to determine the best liability estimate for claims incurred but not reported and the future development of known claims, including methodologies that focus on industry trends, paid loss development, reported loss development and industry-based expected pure premiums. The most significant assumptions used in the estimation process include the use of loss development factors to determine the future emergence of claim liabilities, the use of frequency and trend factors to estimate the impact of economic, judicial and social changes affecting claim costs, and assumptions regarding legal and other costs associated with the ultimate settlement of claims. The key assumptions used in our actuarial valuations are subject to constant adjustments as a result of changes in our actual loss history and the movement of projected emergence patterns as claims develop. We evaluate the need for professional liability insurance reserves in excess of amounts estimated in our actuarial valuations on a routine basis, and as of December 31, 2021, based on our historical experience for continuing operations, a reasonably likely change of 2.0% to 7.0% in our estimates would result in an increase or decrease to net income of $1.2 million to $5.3 million. However, because many factors can affect historical and future loss patterns, the determination of an appropriate professional liability reserve involves complex, subjective judgment, and actual results may vary significantly from estimates.

Other Matters

Other significant accounting policies, not involving the same level of measurement uncertainties as those discussed above, are nevertheless important to an understanding of our Consolidated Financial Statements. For example, our Consolidated Financial Statements are presented on a consolidated basis with our affiliated professional contractors because we or one of our subsidiaries have entered into management agreements with our affiliated professional contractors meeting the “controlling financial interest” criteria set forth in accounting guidance for consolidations. Our management agreements are further described in Note 3 to our Consolidated Financial Statements in this Form 10-K. The policies described in Note 3 often require difficult judgments on complex matters that are often subject to multiple sources of authoritative guidance and are frequently reexamined by accounting standards setters and regulators. See “New Accounting Pronouncements” below for matters that may affect our accounting policies in the future.

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Non-GAAP Measures

In our analysis of our results of operations, we use certain non-GAAP financial measures. We have incurred certain expenses related to transformational and restructuring related expenses that are expected to be project-based and periodic in nature. Accordingly, beginning with the first quarter of 2019, we began reporting Adjusted earnings before interest, taxes and depreciation and amortization from continuing operations, defined as income (loss) from continuing operations before interest, taxes, depreciation and amortization, and transformational and restructuring related expenses. Adjusted earnings per share (“Adjusted EPS”) from continuing operations has also been further adjusted for these items and beginning with the first quarter of 2019 consists of diluted income (loss) from continuing operations per common and common equivalent share adjusted for amortization expense, stock-based compensation expense and transformational and restructuring related expenses. For the year ended December 31, 2021, both Adjusted EBITDA and Adjusted EPS are being further adjusted to exclude the impacts from the gain on sale of building and loss on the early extinguishment of debt. Adjusted EPS from continuing operations has been further adjusted to reflect the impacts from discrete tax events.

We believe these measures, in addition to income (loss) from continuing operations, net income (loss) and diluted net income (loss) from continuing operations per common and common equivalent share, provide investors with useful supplemental information to compare and understand our underlying business trends and performance across reporting periods on a consistent basis. These measures should be considered a supplement to, and not a substitute for, financial performance measures determined in accordance with GAAP. In addition, since these non-GAAP measures are not determined in accordance with GAAP, they are susceptible to varying calculations and may not be comparable to other similarly titled measures of other companies

For a reconciliation of each of Adjusted EBITDA from continuing operations and Adjusted EPS from continuing operations to the most directly comparable GAAP measures for the years ended December 31, 2021, 2020 and 2019, refer to the tables below (in thousands, except per share data).

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(1)
A blended tax rate of 25% was used to calculate the tax effects of the adjustments for the years ended December 31, 2021, 2020 and 2019, respectively.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain information related to our continuing operations expressed as a percentage of our net revenue:

Year Ended December 31, 2021 as Compared to Year Ended December 31, 2020

Our net revenue attributable to continuing operations was $1.91 billion for the year ended December 31, 2021, as compared to $1.73 billion for 2020. The increase in revenue of $177.2 million, or 10.2%, was primarily attributable to the recovery in patient volumes and reimbursement related factors related to COVID-19 and the favorable impacts on same-unit revenue. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue increased by $163.3 million, or 9.8%. The increase in

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same-unit net revenue was comprised of an increase of $85.8 million, or 5.2%, related to patient service volumes and a net increase of $77.5 million, or 4.6%, from net reimbursement-related factors. The increase in revenue from patient service volumes was related to increases across all of our hospital-based and office-based women’s and children’s services. Prior year volumes were significantly unfavorably impacted by COVID-19. The net increase in revenue related to net reimbursement-related factors was primarily due to an increase in revenue resulting from a decrease in the percentage of our patients being enrolled in GHC Programs, increases in administrative fees received from our hospital partners and modest improvements in managed care contracting.

Practice salaries and benefits attributable to continuing operations increased $103.5 million, or 8.7%, to $1.30 billion for the year ended December 31, 2021, as compared to $1.19 billion for 2020. Of the $103.5 million increase, $55.9 million was related to salaries which primarily reflected increases in clinician compensation expense driven by the comparison to reduced salaries expense during 2020 resulting from COVID-19 mitigation efforts. The remaining $47.6 million was related to benefits and incentive compensation, with the increase to incentive compensation driven by improved results as compared to 2020.

Practice supplies and other operating expenses attributable to continuing operations increased $9.8 million, or 10.8%, to $100.5 million for the year ended December 31, 2021, as compared to $90.7 million for 2020. The increase was primarily attributable to practice supply, rent and other costs related to our existing units for which the activity across many expense categories such as travel, office and professional services expenses in 2020 had decreased as a result of COVID-19, as well as increases in the current year for information technology expenses from efforts directly supporting the physician practices.

General and administrative expenses attributable to continuing operations primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically identifiable to the day-to-day operations of our physician practices and services. General and administrative expenses were $263.4 million for the year ended December 31, 2021, as compared to $248.9 million for 2020. The net increase of $14.5 million is primarily related to increases in various information technology related expenses including systems fees, professional licenses, data center enhancements, and security as well as a net increase in compensation expense when comparing to the prior year that included decreases in compensation expense from COVID-19 mitigation efforts such as temporary salary reductions, furloughs and net staffing reductions. General and administrative expenses as a percentage of net revenue was 13.8% for the year ended December 31, 2021, as compared to 14.4% for the same period in 2020.

Gain on sale of building was $7.3 million for the year ended December 31, 2021 and resulted from the sale of our secondary corporate office building during the second quarter.

Transformational and restructuring related expenses attributable to continuing operations were $22.1 million for the year ended December 31, 2021, as compared to $73.8 million for 2020. The decrease of $51.7 million reflects the reduction in the scope of transformational and restructuring related activities, which limited such expenses them to initiatives critical to our business operations or those that provided essential support for our response to COVID-19with the expenses during the year ended December 31, 2021 primarily for contract termination and external consulting costs.

Depreciation and amortization expense attributable to continuing operations was $32.1 million for the year ended December 31, 2021, as compared to $28.4 million for 2020. The increase is primarily related to depreciation of information technology related equipment and amortization of intangible assets related to acquisitions.

Income from operations attributable to continuing operations increased $104.8 million, or 106.8%, to $202.9 million for the year ended December 31, 2021, as compared to $98.1 million for 2020. Our operating margin was 10.6% for the year ended December 31, 2021, as compared to 5.7% for the same period in 2020. The increase in our operating margin was primarily due to higher revenue growth, partially offset by net increases in overall operating expenses as compared to 2020, some of which was driven by COVID-19 cost mitigation initiatives that took place in 2020 as well as increases in incentive compensation expense in 2021 from improved results. Excluding the transformational and restructuring related expenses and gain on sale of building, our income from operations attributable to continuing operations was $225.0 million and $171.9 million, and our operating margin was 11.4% and 9.9% for the year ended December 31, 2021 and 2020, respectively. We believe excluding the impacts from the

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transformational and restructuring related activity and gain on sale of building provides a more comparable view of our operating income and operating margin from continuing operations.

Total non-operating expenses attributable to continuing operations were $67.7 million for the year ended December 31, 2021, as compared to $91.0 million for 2020. The decrease in non-operating expenses was primarily related to a decrease in interest expense resulting from the redemption of our 2023 Notes in January 2021, partially offset by the loss on the early redemption of our 2023 Notes.

Our effective income tax rate attributable to continuing operations was 20.1% for the year ended December 31, 2021. Our effective income tax rate attributable to continuing operations of 234.0% is not meaningful as calculated for the year ended December 31, 2020 due to the decline in pre-tax income, primarily due to the impacts from our transformational and restructuring related expenses and COVID-19. The tax rate for the year ended December 31, 2021 includes a net discrete tax benefit of $12.2 million, primarily related to a change in estimate for the 2020 net operating loss carryback as allowed under the CARES Act for refund at the 35% federal tax rate. After excluding discrete tax impacts, for the year ended December 31, 2021, our tax rate was 29.1%. We believe excluding discrete tax impacts on our tax rate provides a more comparable view of our effective income tax rate.

Income from continuing operations was $108.0 million for the year ended December 31, 2021, as compared to loss from continuing operations of $9.6 million for 2020. Adjusted EBITDA from continuing operations was $265.5 million for the year ended December 31, 2021, as compared to $219.9 million for 2020.

Diluted income from continuing operations per common and common equivalent share was $1.26 on weighted average shares outstanding of 85.8 million for the year ended December 31, 2021, as compared to diluted loss per common and common equivalent share of $0.11 on weighted average shares outstanding of 83.4 million for 2020. Adjusted EPS from continuing operations was $1.63 for the year ended December 31, 2021, as compared to $0.95 for 2020.

Income from discontinued operations, net of tax, was $23.0 million for the year ended December 31, 2021, as compared to loss from discontinued operations of $786.9 million for 2020. Diluted income from discontinued operations per common and common equivalent share was $0.27 for the year ended December 31, 2021, as compared to a diluted loss from discontinued operations per common and common equivalent share of $9.44 for 2020.

Net income was $131.0 million for the year ended December 31, 2021, as compared to a net loss of $796.5 million for 2020. Diluted net income per common and common equivalent share was $1.53 for the year ended December 31, 2021, as compared to net loss per common and common equivalent share of $9.55 for 2020.

Year Ended December 31, 2020 as Compared to Year Ended December 31, 2019

Our net revenue attributable to continuing operations was $1.73 billion for the year ended December 31, 2020, as compared to $1.78 billion for 2019. The decrease in revenue of $45.8 million, or 2.6%, was primarily attributable to the unfavorable impacts from COVID-19 on same-unit revenue, driven by declines in volume, partially offset by an increase in revenue from net acquisitions. Same units are those units at which we provided services for the entire current period and the entire comparable period. Same-unit net revenue declined by $66.6 million, or 3.8%. The decline in same-unit net revenue was comprised of a decrease of $89.0 million, or 5.1%, related to patient service volumes, partially offset by a net increase of $22.4 million, or 1.3%, from net reimbursement-related factors. The decrease in revenue from patient service volumes was primarily related to a decline across all our services, primarily as a result of COVID-19. The net increase in revenue related to net reimbursement-related factors was primarily due to approximately $22.0 million in CARES Act relief, an increase in administrative fees received from our hospital partners and modest improvements in managed care contracting.

Practice salaries and benefits attributable to continuing operations increased $13.2 million, or 1.1%, to $1.19 billion for the year ended December 31, 2020, as compared to $1.18 billion for 2019. The increase was comprised of $13.2 million from salaries and a net nominal change in benefits and incentive compensation, primarily reflecting increases in malpractice expense almost entirely offset by decreases in incentive compensation expense. We anticipate that we will experience a higher rate of growth in clinician compensation expense at our existing units over historic

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averages, which could adversely affect our business, financial condition, results of operations, cash flows and the trading price of our securities.

Practice supplies and other operating expenses attributable to continuing operations decreased $5.2 million, or 5.4%, to $90.7 million for the year ended December 31, 2020, as compared to $95.9 million for 2019. The decrease was primarily attributable to decreases in other practice operating expenses as compared to the prior year, primarily related to decreased activity across many expense categories such as travel, office expenses and professional services resulting from impacts of COVID-19, partially offset by increases in supplies and other operating expenses related to acquisitions.

General and administrative expenses attributable to continuing operations primarily include all billing and collection functions and all other salaries, benefits, supplies and operating expenses not specifically identifiable to the day-to-day operations of our physician practices and services. General and administrative expenses were $248.9 million for the year ended December 31, 2020, as compared to $244.5 million for 2019. The increase of $4.4 million is primarily related to legal and professional services fees, partially offset by decreases in compensation from net staffing reductions primarily resulting from cost mitigation for COVID-19. General and administrative expenses as a percentage of net revenue was 14.4% for the year ended December 31, 2020, as compared to 13.7% for 2019. Certain general and administrative expenses related to corporate overhead represent various support services provided across the company, including approximately $18 million in costs related to support for the anesthesiology services medical group divested in May 2020 through a transition services agreement and to a much lesser extent the recently divested radiology services medical group. Because a portion of such expenses were previously allocated to but not specifically identifiable to the anesthesiology services medical group, they are required to be presented as continuing operations. Therefore, general and administrative expenses do not reflect potential general and administrative cost savings that may be achieved in future periods.

Transformational and restructuring related expenses attributable to continuing operations were $73.8 million for the year ended December 31, 2020, as compared to $60.9 million for 2019. Approximately $33.6 million of the expenses incurred during the year ended December 31, 2020 were for external consulting costs for various process improvement and restructuring initiatives and approximately $31.9 million were for compensation-related expenses resulting from the restructuring changes in executive management and the board of directors, with the remainder for position eliminations and contract termination and other fees. Beginning in April 2020, we reduced the scope of our transformational and restructuring related initiatives unless they were initiatives critical to our business operations or those that provide essential support for our response to COVID-19. Various activities related to executive management and board of directors restructuring were recorded as transformational and restructuring related expenses during the year ended December 31, 2020.

Depreciation and amortization expense attributable to continuing operations was $28.4 million for the year ended December 31, 2020, as compared to $25.9 million for 2019. The increase is primarily related to the amortization of intangible assets related to acquisitions.

Income from operations attributable to continuing operations decreased $73.7 million, or 42.9%, to $98.1 million for the year ended December 31, 2020, as compared to $171.8 million for 2019. Our operating margin was 5.7% for the year ended December 31, 2020, as compared to 9.7% for the same period in 2019. The decrease in our operating margin was primarily due to a decrease in revenue related to COVID-19 and increases in transformation and restructuring related expenses and practice salaries and benefits. Excluding transformational and restructuring expenses, our income from operations attributable to continuing operations for the years ended December 31, 2020 and 2019 was $171.9 million and $232.7 million, respectively, and our operating margin was 9.9% and 13.1%, respectively. We believe excluding the impacts from the transformational and restructuring related activity provides a more comparable view of our operating income and operating margin from continuing operations; however, this comparison is affected by the unfavorable impacts from COVID-19 during 2020.

Total non-operating expenses attributable to continuing operations were $91.0 million for the year ended December 31, 2020, as compared to $113.0 million for 2019. The decrease in non-operating expenses was primarily related to an increase in other income related to the transition services being provided to the buyers of our divested medical groups and a decrease in interest expense, primarily due to lower average borrowings under our Credit

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Agreement, partially offset by a decrease in equity earnings resulting from the impacts to the underlying joint venture from COVID-19 and the settlement of a litigation matter.

Our effective income tax rate attributable to continuing operations of 234.0% is not meaningful as calculated for the year ended December 31, 2020 due to the decline in pre-tax income, primarily due to the impacts from our transformational and restructuring related expenses and COVID-19. Our effective income tax rate attributable to continuing operations was 28.2% for the year ended December 31, 2019.

Loss from continuing operations was $9.6 million for the year ended December 31, 2020, as compared to income from continuing operations of $42.2 million for 2019. Adjusted EBITDA from continuing operations was $219.9 million for the year ended December 31, 2020, as compared to $264.5 million for 2019.

Diluted loss from continuing operations per common and common equivalent share was $0.11 on weighted average shares outstanding of 83.4 million for the year ended December 31, 2020, as compared to diluted income per common and common equivalent share of $0.50 on weighted average shares outstanding of 84.0 million for 2019. Adjusted EPS from continuing operations was $0.95 for the year ended December 31, 2020, as compared to $1.40 for 2019.

Loss from discontinued operations, net of tax, was $786.9 million for the year ended December 31, 2020, as compared to loss from discontinued operations of $1.54 billion for 2019. Diluted loss from discontinued operations per common and common equivalent share was $9.44 for the year ended December 31, 2020, as compared to a diluted loss from discontinued operations per common and common equivalent share of $18.33 for 2019.

Net loss was $796.5 million for the year ended December 31, 2020, as compared to a net loss of $1.50 billion for 2019. Diluted net loss per common and common equivalent share was $9.55 for the year ended December 31, 2020, as compared to $17.83 for 2019.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2021, we had $387.4 million of cash and cash equivalents attributable to continuing operations as compared to $1.12 billion at December 31, 2020. Additionally, we had working capital attributable to continuing operations of $413.2 billion at December 31, 2021, a decrease of $691.8 million from our working capital from continuing operations of $1.11 billion at December 31, 2020. The decrease in cash and working capital relates primarily to the use of $764.0 million to redeem our 2023 Notes in January 2021.

Cash Flows

Cash provided by (used in) operating, investing and financing activities from continuing operations is summarized as follows (in thousands):

Operating Activities

We generated cash flow from operating activities for continuing operations of $113.8 million, $153.9 million and $74.1 million for the years ended December 31, 2021, 2020 and 2019, respectively. The net decrease in cash flow provided of $40.1 million for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to an decrease in cash flow from accounts receivable, deferred income taxes and accounts payable and accrued expenses, partially offset by an increase in cash from higher earnings and changes in prepaid expenses and other assets.

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During the year ended December 31, 2021, cash outflow related to accounts receivable for continuing operations was $72.7 million, as compared to cash inflow $37.9 million for the same period in 2020. The decrease in cash flow from accounts receivable for the year ended December 31, 2021 was primarily due to increases in ending accounts receivable balances at existing units due to timing of cash collections.

DSO is one of the key factors that we use to evaluate the condition of our accounts receivable and the related allowances for contractual adjustments and uncollectibles. DSO reflects the timeliness of cash collections on billed revenue and the level of reserves on outstanding accounts receivable. Our DSO for continuing operations was 55.2 days at December 31, 2021 as compared to 52.3 days at December 31, 2020.

Our cash flow from operating activities is significantly affected by the payment of physician incentive compensation. A large majority of our affiliated physicians participate in our performance-based incentive compensation program and almost all of the payments due under the program are made annually in the first quarter. As a result, we typically experience negative cash flow from operations in the first quarter of each year and fund our operations during this period with cash on hand or funds borrowed under our Credit Agreement. In addition, during the first quarter of each year, we use cash to make any discretionary matching contributions for participants in our qualified contributory savings plans.

We generated cash flow from operating activities for continuing operations of $153.9 million and $74.1 million for the years ended December 31, 2020 and 2019, respectively. The net increase in cash flow was primarily due to an increase in cash flow from deferred income taxes and income taxes payable as well as accounts receivable, partially offset by a decrease in cash from lower earnings and changes in prepaid expenses and other assets. Cash flow from operating activities in 2019 was also impacted by cash payments made for transformational and restructuring related expenses.

Investing Activities

During the year ended December 31, 2021, our net cash used in investing activities for continuing operations of $55.4 million consisted of capital expenditures of $32.2 million, acquisitions payments of $29.9 million, the payment associated with a strategic investment of $20.0 million, partially offset by net proceeds from the sale of a building of $24.7 million and net proceeds from maturities or sale of investments of $1.4 million.

Financing Activities

During the year ended December 31, 2021, our net cash used in financing activities for continuing operations primarily consisted of $760.1 million related to the redemption of the 2023 Notes, $4.7 million related to the repurchase of our common stock and payments of $2.8 million for capital leases, partially offset by proceeds from the issuance of common stock of $6.9 million.

Liquidity

On February 11, 2022, we issued $400 million of 5.375% unsecured senior notes due 2030 (the “2030 Notes”). We used the net proceeds from the issuance of the 2030 Notes, together with $100 million drawn under our Revolving Credit Line (as defined below), $250 million of Term A Loan (as defined below) and approximately $305 million of cash on hand, to redeem (the “Redemption”) our 6.25% senior unsecured notes due 2027 (the “2027 Notes”), which had an outstanding principal balance of $1.0 billion, and to pay costs, fees and expenses associated with the Redemption and the Credit Agreement Amendment (as defined below).

Interest on the 2030 Notes accrues at the rate of 5.375% per annum, or annual interest expense of $21.5 million, as compared to $62.5 million in annual interest expense under the 2027 Notes, a savings of $41.0 million in annual interest expense.

Interest under the 2030 Notes is payable semi-annually in arrears on February 15 and August 15, beginning on August 15, 2022. Our obligations under the 2030 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee the Amended Credit Agreement (as defined below). The indenture under which the 2030 Notes are issued, among other things, limits our ability to (1) incur liens and (2)

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enter into sale and lease-back transactions, and also limits our ability to merge or dispose of all or substantially all of our assets, in all cases, subject to a number of customary exceptions. Although we are not required to make mandatory redemption or sinking fund payments with respect to the 2030 Notes, upon the occurrence of a change in control, we may be required to repurchase the 2030 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2030 Notes repurchased plus accrued and unpaid interest.

Also in connection with the Redemption, we amended and restated the Credit Agreement (the “Credit Agreement Amendment”) concurrently with the issuance of the 2030 Notes. The Credit Agreement, as amended by the Credit Agreement Amendment (the “Amended Credit Agreement”), among other things, (i) refinanced the prior unsecured revolving credit facility with a $450 million unsecured revolving credit facility, including a $37.5 million sub-facility for the issuance of letters of credit (the “Revolving Credit Line”), and a new $250 million term A loan facility (“Term A Loan”) and (ii) removed JPMorgan Chase Bank, N.A., as the administrative agent under the Credit Agreement and appointed Bank of America, N.A. as the administrative agent for the lenders under the Amended Credit Agreement.

The Amended Credit Agreement matures on February 11, 2027 and is guaranteed on an unsecured basis by substantially all of our subsidiaries and affiliated professional contractors. At our option, borrowings under the Amended Credit Agreement bear interest at (i) the Alternate Base Rate (defined as the highest of (a) the prime rate as announced by Bank of America, N.A., (b) the Federal Funds Rate plus 0.50% and (c) Term SOFR for an interest period of one month plus 1.00% with a 1.00% floor) plus an applicable margin rate of 0.50% for the first two fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated net leverage ratio or (ii) Term SOFR rate (calculated as the Secured Overnight Financing Rate published on the applicable Reuters screen page plus a spread adjustment of 0.10%, 0.15% or 0.25% depending on if we select a one-month, three-month or six-month interest period, respectively, for the applicable loan with a 0% floor), plus an applicable margin rate of 1.50% for the first two full fiscal quarters after the date of the Credit Agreement Amendment, and thereafter at an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated net leverage ratio. The Amended Credit Agreement also provides for other customary fees and charges, including an unused commitment fee with respect to the Revolving Credit Line ranging from 0.150% to 0.200% of the unused lending commitments under the Revolving Credit Line, based on our consolidated net leverage ratio.

The Amended Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest coverage ratio, a maximum consolidated total consolidated net leverage ratio and to comply with laws, and restrictions on the ability to pay dividends, incur indebtedness or liens and make certain other distributions subject to baskets and exceptions, in each case, as specified therein. Failure to comply with these covenants would constitute an event of default under the Amended Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Credit Agreement includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Credit Agreement. In addition, we may increase the principal amount of the Revolving Credit Line or incur additional term loans under the Amended Credit Agreement in an aggregate principal amount such that on a pro forma basis after giving effect to such increase or additional term loans, we are in compliance with the financial covenants, subject to the satisfaction of specified conditions and additional caps in the event that the Credit Agreement is secured.

The exercise of employee stock options and the purchase of common stock by participants in our 1996 Non-Qualified Employee Stock Purchase Plan, as amended (the “ESPP”), and our 2015 Non-Qualified Stock Purchase Plan (the “SPP”) generated cash proceeds of $6.9 million, $7.0 million and $11.3 million for the years ended December 31, 2021, 2020 and 2019, respectively. Because stock option exercises and purchases under the ESPP and SPP are dependent on several factors, including the market price of our common stock, we cannot predict the timing and amount of any future proceeds.

We maintain professional liability insurance policies with third-party insurers, subject to self-insured retention, exclusions and other restrictions. We self-insure our liabilities to pay self-insured retention amounts under our professional liability insurance coverage through a wholly owned captive insurance subsidiary. We record liabilities for self-insured amounts and claims incurred but not reported based on an actuarial valuation using historical loss information, claim emergence patterns and various actuarial assumptions. Our total liability related to professional liability risks at December 31, 2021 was $308.8 million, of which $37.7 million is classified as a current liability

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within accounts payable and accrued expenses in the Consolidated Balance Sheet. In addition, there is a corresponding insurance receivable of $58.1 million recorded as a component of other assets for certain professional liability claims that are covered by insurance policies.

At December 31, 2021, the Company has long term capital requirements comprised primarily of $1.0 billion in senior notes, $73.7 million of operating lease liabilities and $14.2 million of finance lease liabilities. At December 31, 2021, our total liability for uncertain tax positions was $5.7 million.

We anticipate that funds generated from operations, together with our current cash on hand and funds available under our Credit Agreement, will be sufficient to finance our working capital requirements, fund anticipated acquisitions and capital expenditures, fund our share repurchase programs and meet our long term capital requirements as described above for at least the next 12 months from the date of issuance of this Form 10-K.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2019, accounting guidance related to income taxes was issued with the goal of enhancing and simplifying various aspects of the income tax accounting guidance, including requirements related to hybrid tax regimes, deferred taxes on step-up in tax basis of goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intraperiod tax allocation exception to the incremental approach, deferred tax liabilities on outside basis differences, and interim-period accounting for enacted changes in tax law and certain year-to-date loss limitations. The guidance became effective for us on January 1, 2021. The adoption of this guidance did not have a material impact on our consolidated financial statements and related disclosures.