Pediatrix Medical Group's Q3 2025: Contradictions Emerge on Share Buybacks, Pricing Drivers, and Hospital Subsidies

Guidance:

• Full-year adjusted EBITDA outlook of $270 million to $290 million (wider-than-usual range driven by practice bonus variability).
• Management expects no shift from normal seasonality in Q4.
• Year-end operational actions could create variability in volumes and results; no specific volume guidance provided.

Business Commentary:

* Strong Financial Performance: - Pediatrix Medical Group reported an adjusted EBITDA of $87 million for Q3 2025, exceeding expectations, and disclosed a full-year outlook of $270 million to $290 million. - The strong results were driven by positive outcomes in pricing, collections, and expense controls.

• Portfolio Restructuring and Growth:
• Consolidated revenue decreased due to portfolio restructuring activity, totaling $54 million.
• This decrease was partially offset by strong same-unit growth of 8%, with same-unit pricing up 7.5% and patient service volumes up 40 basis points.

• The growth was attributed to solid RCM cash collections, increased patient acuity in neonatology, and favorable payer mix.

• Cash Flow and Share Repurchases:

• The company generated $138 million in operating cash flow in Q3, compared to $96 million in the prior year, driven by higher earnings and increases in cash flow from AR.
• Pediatrix used $21 million for share repurchases, with a total of 1.7 million shares bought back to date.

• The aggressive share buyback was supported by the company's strong financial position and cash balance.

• Research and Technological Leadership:

• Pediatrix highlighted its research productivity with 1,395 peer-reviewed publications authored by its clinicians and researchers.
• The company's leadership in neonatology is supported by the proprietary Pediatrix developed system called BabySteps, which enhances clinician efficiency and patient care.

• The commitment to research and technology drives higher quality, safety, innovation, and branding for the company.

• Capital Deployment and Strategic Opportunities:

• With a low debt profile and a cash balance of $340 million, Pediatrix remains cautious about capital deployment amid healthcare headwinds.
• The company is actively exploring internal and external expansion opportunities to further strengthen its operations and results.
• Recent acquisitions, including neonatology, MFM, and OB hospitalist practices, reflect potential growth opportunities in its strategic focus areas.

Sentiment Analysis:

Overall Tone: Positive

• "Adjusted EBITDA of $87 million exceeded our expectations," full-year adjusted EBITDA outlook of "$270 million to $290 million," and "we generated $138 million in operating cash flow in the third quarter compared to $96 million in the prior year;" management highlights $340M cash and net debt just over $260M (net leverage ~ just under 1x).

Q&A:

• Question from Albert Rice (UBS): You're sitting on a large cash balance and leverage is low. Any updated thoughts on capital deployment — more aggressive on share repurchases or other development/acquisition opportunities?
  Response: Continuing cautious deployment: active share buybacks underway, exploring internal and external opportunities but no material changes to strategy; preference for low debt.

• Question from Albert Rice (UBS): Has the portfolio restructuring changed dynamics when talking to new practices — does it give them pause or change the competitive landscape?
  Response: Restructuring increased focus and concentration, strengthening recruiting and making Pediatrix more attractive to both new and existing practices.

• Question from Kieran Ryan (Deutsche Bank): Can you break out the buckets of the strong pricing in the quarter (collections, acuity, admin fees, payer mix) and comment on durability into next year?
  Response: Pricing mix: >33% from RCM collections, ~20% acuity, ~10% contract admin fees, ~10% favorable payer mix; these drivers are variable—collections have reset and admin fee gains may be hard to sustain.

• Question from Kieran Ryan (Deutsche Bank): Can you parse the guidance spread and seasonality — what factors drive the high vs low end, particularly volumes?
  Response: Wider EBITDA range driven by practice bonus variability and potential year-end operational actions; no specific volume guidance or disclosed material drivers beyond that.

• Question from Jack Slevin (Jefferies): Can you unpack longer-term drivers and comment on enhanced exchange subsidies — any visibility on effects for OB/MFM patient behavior?
  Response: Exchange subsidies are likely beneficial but impact on Pediatrix is unclear; primary growth strategy remains deep hospital partnerships and leveraging financial strength to expand services.

• Question from Jack Slevin (Jefferies): Can you detail the deal completed in the quarter and comment on hospital environment — any acceleration of monetization or sellers seeking to exit?
  Response: The recent acquisition was immaterial and not broken out; hospitals remain selective partners rather than broadly monetizing, and Pediatrix wins business by offering operational, quality and research capabilities hospitals can't replicate internally.

Contradiction Point 1

Share Repurchase Strategy and Cash Position

It involves the company's approach to share repurchases and the balance between maintaining a strong cash position and pursuing growth opportunities, which impacts shareholder value and capital allocation.

Any updates on capital deployment? Are there plans to increase share repurchases? Are there other development or acquisition opportunities under consideration? - Albert Rice (UBS Investment Bank, Research Division)

2025Q3: We have been aggressively buying back shares, and we're very pleased that it has been concurrent with our strong results. We are looking at many different opportunities, both inside and possibly outside the company. However, we favor low debt, especially with current headwinds. We are cautious but open to exploring new opportunities. - Mark Ordan(CEO)

Can you discuss your buyback strategy and pace? - Benjamin Whitman Mayo (Leerink Partners)

2025Q2: We believe in maintaining a strong balance sheet, especially in turbulent times. Having cash flexibility allows for potential opportunities, such as share repurchases. We're strategic about opportunities and about maintaining leverage. - Mark Ordan(CEO)

Contradiction Point 2

Contract Administrative Fees and Pricing Growth

It involves the impact of contract administrative fees on the company's overall pricing growth, which is a critical factor for revenue projections.

Can you outline the components of the strong pricing in the quarter, the breakdown in Q3, and their sustainability into next year? - Kieran Ryan (Deutsche Bank AG, Research Division)

2025Q3: Strong pricing was driven by 1/3 from strong RCM collections, 20% from acuity, 10% from contract administrative fees, and 10% from payer mix. Many of these factors are variable, and we see payer mix to remain stable. We expect acuity to remain strong but variable, and contract admin fees increases will remain challenging due to hospital pressures. - Kasandra Rossi(CFO)

What percentage of Q2 pricing growth came from hospital admin fees, and how are negotiations progressing with these fees as we approach 2026? - Philip Chickering (Deutsche Bank)

2025Q2: In Q1, admin fees grew by 10% of pricing, and this quarter, it was above that level, contributing about 1/3 of pricing growth. We've successfully targeted key programs and ASCs, demonstrating our value to hospitals. Our operators are having success in negotiations. - Kasandra Rossi(CFO)

Contradiction Point 3

Capital Deployment and Share Repurchase

It involves the company's strategy regarding capital deployment and share repurchase, which impacts shareholder returns and financial management.

Are there any updated plans for capital deployment, including a more aggressive share repurchase strategy or other development/acquisition opportunities? - Albert Rice (UBS Investment Bank, Research Division)

2025Q3: We have been aggressively buying back shares, and we're very pleased that it has been concurrent with our strong results. - Mark Ordan(CEO)

Given the guidance assumes flat volume and pricing for the year, and Q1 volume grew 1.6% and pricing 4.6%, is the guidance conservative? - A.J. Rice (UBS)

2025Q1: Our share repurchase program will continue to be an important tool to provide liquidity to shareholders and help us optimize our capital structure. - Mark Ordan(CEO)

Contradiction Point 4

Hospital Partnership Subsidies

It involves the stability and nature of hospital partnership subsidies, which are crucial for the company's business model and financial stability.

Can you detail the categories of pricing increases this quarter and provide specifics on their distribution in Q3, along with your thoughts on their sustainability into next year? - Kieran Ryan (Deutsche Bank AG, Research Division)

2025Q3: Subsidies have always been part of our business and continue to be. It's a normal part of partnerships with hospitals, and we have a good relationship with our systems. They're not changing significantly. - Mark Ordan(CEO)

How have hospital contracted subsidies changed since before the pandemic? - Philip Chickering (Deutsche Bank)

2025Q1: Our business requires -- we have a fairly good relationship with our systems. And as I said, the subsidies that we do have, I mentioned, but we've recently negotiated across our entire portfolio, which covers about 170 of our locations. - Mark Ordan(CEO)

Contradiction Point 5

Payer Mix and Its Impact on Growth

It relates to the impact of payer mix on the company's growth, a critical aspect for financial forecasting and strategic planning.

Can you break down the components of the strong pricing in the quarter, including their distribution in Q3 and expectations for their sustainability next year? - Kieran Ryan (Deutsche Bank AG, Research Division)

2025Q3: We expect payer mix to remain stable. - Kasandra Rossi(CFO)

Will wage inflation outstrip core trends, given the $20 million restructuring and leap year? - Jack Slevin (Jefferies LLC, Research Division)

2024Q4: Payer mix contributed about one-third of the 6% same-unit growth in Q4. - Kasandra Rossi(CFO)