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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020
OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from
to
Commission File Number:
001-12111
MEDNAX, INC.
(Exact name of registrant as specified in its charter)

Florida |  | 26-3667538
(State or other jurisdiction of Incorporation or organization) |  | (I.R.S. Employer Identification No.)
1301 Concord Terrace |  |
Sunrise, Florida |  | 33323
(Address of principal executive offices) |  | (Zip Code)

(954)
384-0175
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, par value $.01 per share |  | MD |  | New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
12b-2
of the Exchange Act.

Large accelerated filer |  | ☒ |  | Accelerated filer |  | ☐
Non-accelerated filer |  | ☐ |  | Smaller reporting company |  | ☐
|  |  |  | Emerging growth company |  | ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act). Yes ☐ No ☒
On July 24, 2020, the registrant had outstanding
85,461,731 shares of Common Stock, par value $.01 per share.

Table of Contents
MEDNAX, INC.
INDEX

|  |  |  | Page |
PART I - FINANCIAL INFORMATION |  |  |  |
Item 1. |  | Financial Statements |  |  | 3 |
|  | Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 (Unaudited) |  |  | 3 |
|  | Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited) |  |  | 4 |
|  | Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited) |  |  | 5 |
|  | Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited) |  |  | 6 |
|  | Notes to Consolidated Financial Statements (Unaudited) |  |  | 7 |
Item 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  |  | 14 |
Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk |  |  | 24 |
Item 4. |  | Controls and Procedures |  |  | 24 |
PART II - OTHER INFORMATION |  |  |  |
Item 1. |  | Legal Proceedings |  |  | 25 |
Item 1A. |  | Risk Factors |  |  | 25 |
Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds |  |  | 26 |
Item 6. |  | Exhibits |  |  | 27 |
SIGNATURES |  |  | 28 |

2

Table of Contents
MEDNAX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)

|  | June 30, 2020 |  |  | December 31, 2019 |
ASSETS |  |  |  |  |  |  |  |
Current assets: |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 132,151 |  |  | $ | 107,870 |
Short-term investments |  |  | 90,642 |  |  |  | 74,510 |
Accounts receivable, net |  |  | 345,682 |  |  |  | 498,869 |
Prepaid expenses |  |  | 14,343 |  |  |  | 21,826 |
Income taxes receivable |  |  | 64,428 |  |  |  | — |
Other current assets |  |  | 41,083 |  |  |  | 16,864 |
Assets held for sale |  |  | — |  |  |  | 11,569 |
Total current assets |  |  | 688,329 |  |  |  | 731,508 |
Property and equipment, net |  |  | 98,469 |  |  |  | 91,881 |
Goodwill |  |  | 2,165,020 |  |  |  | 2,165,020 |
Intangible assets, net |  |  | 200,408 |  |  |  | 209,564 |
Operating lease right-of-use assets |  |  | 75,817 |  |  |  | 71,421 |
Deferred income tax assets |  |  | 61,227 |  |  |  | 104,827 |
Other assets |  |  | 97,942 |  |  |  | 89,368 |
Assets held for sale |  |  | — |  |  |  | 682,312 |
Total assets |  | $ | 3,387,212 |  |  | $ | 4,145,901 |
LIABILITIES AND SHAREHOLDERS’ EQUITY |  |  |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |  |  |
Accounts payable and accrued expenses |  | $ | 360,909 |  |  | $ | 453,110 |
Current portion of finance lease liabilities |  |  | 1,426 |  |  |  | 130 |
Current portion of operating lease liabilities |  |  | 21,598 |  |  |  | 20,485 |
Income taxes payable |  |  | — |  |  |  | 6,039 |
Liabilities held for sale |  |  | — |  |  |  | 62,055 |
Total current liabilities |  |  | 383,933 |  |  |  | 541,819 |
Long-term debt and finance lease liabilities, net |  |  | 1,737,176 |  |  |  | 1,730,295 |
Long-term operating lease liabilities |  |  | 56,936 |  |  |  | 56,582 |
Long-term professional liabilities |  |  | 260,936 |  |  |  | 226,892 |
Deferred income tax liabilities |  |  | 68,681 |  |  |  | 56,468 |
Other liabilities |  |  | 52,980 |  |  |  | 22,899 |
Liabilities held for sale |  |  | — |  |  |  | 11,950 |
Total liabilities |  |  | 2,560,642 |  |  |  | 2,646,905 |
Commitments and contingencies |  |  |  |  |  |  |  |
Shareholders’ equity: |  |  |  |  |  |  |  |
Preferred stock; $.01 par value; 1,000 shares authorized; none issued |  |  | — |  |  |  | — |
Common stock; $.01 par value; 200,000 shares authorized; 85,536 and 84,248 shares issued and outstanding, respectively |  |  | 855 |  |  |  | 842 |
Additional paid-in capital |  |  | 1,004,786 |  |  |  | 987,942 |
Retained (deficit) earnings |  |  | (179,071 | ) |  |  | 510,212 |
Total shareholders’ equity |  |  | 826,570 |  |  |  | 1,498,996 |
Total liabilities and shareholders’ equity |  | $ | 3,387,212 |  |  | $ | 4,145,901 |

The accompanying notes are an integral part of these Consolidated Financial Statements.
3

Table of Contents
MEDNAX, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(Unaudited)

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Net revenue |  | $ | 509,203 |  |  | $ | 561,237 |  |  | $ | 1,071,054 |  |  | $ | 1,104,249 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Practice salaries and benefits |  |  | 349,258 |  |  |  | 361,203 |  |  |  | 748,715 |  |  |  | 731,571 |
Practice supplies and other operating expenses |  |  | 21,433 |  |  |  | 24,783 |  |  |  | 46,839 |  |  |  | 47,107 |
General and administrative expenses |  |  | 77,674 |  |  |  | 84,219 |  |  |  | 165,232 |  |  |  | 165,790 |
Depreciation and amortization |  |  | 14,393 |  |  |  | 13,779 |  |  |  | 28,792 |  |  |  | 27,584 |
Transformational and restructuring related expenses |  |  | 11,537 |  |  |  | 17,866 |  |  |  | 30,581 |  |  |  | 20,305 |
Total operating expenses |  |  | 474,295 |  |  |  | 501,850 |  |  |  | 1,020,159 |  |  |  | 992,357 |
Income from operations |  |  | 34,908 |  |  |  | 59,387 |  |  |  | 50,895 |  |  |  | 111,892 |
Investment and other income |  |  | 3,851 |  |  |  | 1,219 |  |  |  | 3,172 |  |  |  | 2,866 |
Interest expense |  |  | (28,265 | ) |  |  | (31,063 | ) |  |  | (55,931 | ) |  |  | (61,764 | )
Equity in earnings of unconsolidated affiliates |  |  | 479 |  |  |  | 1,990 |  |  |  | 1,824 |  |  |  | 3,187 |
Total non-operating expenses |  |  | (23,935 | ) |  |  | (27,854 | ) |  |  | (50,935 | ) |  |  | (55,711 | )
Income (loss) from continuing operations before income taxes |  |  | 10,973 |  |  |  | 31,533 |  |  |  | (40 | ) |  |  | 56,181 |
Income tax provision |  |  | (3,373 | ) |  |  | (11,486 | ) |  |  | (6,109 | ) |  |  | (13,588 | )
Income (loss) from continuing operations |  |  | 7,600 |  |  |  | 20,047 |  |  |  | (6,149 | ) |  |  | 42,593 |
Loss from discontinued operations, net of tax |  |  | (680,036 | ) |  |  | (28,292 | ) |  |  | (684,999 | ) |  |  | (293,710 | )
Net loss |  | $ | (672,436 | ) |  | $ | (8,245 | ) |  | $ | (691,148 | ) |  | $ | (251,117 | )
Per common and common equivalent share data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income (loss) from continuing operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.09 |  |  | $ | 0.24 |  |  | $ | (0.07 | ) |  | $ | 0.50 |
Diluted |  | $ | 0.09 |  |  | $ | 0.24 |  |  | $ | (0.07 | ) |  | $ | 0.50 |
Loss from discontinued operations: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (8.14 | ) |  | $ | (0.34 | ) |  | $ | (8.25 | ) |  | $ | (3.47 | )
Diluted |  | $ | (8.12 | ) |  | $ | (0.34 | ) |  | $ | (8.25 | ) |  | $ | (3.45 | )
Net loss: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | (8.05 | ) |  | $ | (0.10 | ) |  | $ | (8.32 | ) |  | $ | (2.97 | )
Diluted |  | $ | (8.03 | ) |  | $ | (0.10 | ) |  | $ | (8.32 | ) |  | $ | (2.95 | )
Weighted average common shares: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 83,490 |  |  |  | 83,234 |  |  |  | 83,061 |  |  |  | 84,623 |
Diluted |  |  | 83,745 |  |  |  | 83,689 |  |  |  | 83,061 |  |  |  | 85,087 |

The accompanying notes are an integral part of these Consolidated Financial Statements.
4

Table of Contents
MEDNAX, INC.
CONSOLIDATED STATEMENTS OF EQUITY
(in thousands)

|  | Common Stock |  |  |  |  |  |  |  |  |  |
|  | Number of |  |  |  |  |  | Additional Paid-in |  |  | Retained |  |  | Total |
|  | Shares |  |  | Amount |  |  | Capital |  |  | Earnings |  |  | Equity |
2020 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at January 1, 2020 |  |  | 84,248 |  |  | $ | 842 |  |  | $ | 987,942 |  |  | $ | 510,212 |  |  | $ | 1,498,996 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (18,712 | ) |  |  | (18,712 | )
Unrealized holding loss on investments, net of tax (1) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (213 | ) |  |  | (213 | )
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan |  |  | 78 |  |  |  | 1 |  |  |  | 1,831 |  |  |  | — |  |  |  | 1,832 |
Issuance of restricted stock and conversion of restricted stock units to common stock |  |  | 968 |  |  |  | 10 |  |  |  | (10 | ) |  |  | — |  |  |  | — |
Forfeitures of restricted stock |  |  | (19 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock-based compensation expense |  |  | — |  |  |  | — |  |  |  | 8,035 |  |  |  | — |  |  |  | 8,035 |
Repurchased common stock |  |  | (125 | ) |  |  | (1 | ) |  |  | (2,541 | ) |  |  | — |  |  |  | (2,542 | )
Balance at March 31, 2020 |  |  | 85,150 |  |  | $ | 852 |  |  | $ | 995,257 |  |  | $ | 491,287 |  |  | $ | 1,487,396 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (672,436 | ) |  |  | (672,436 | )
Unrealized holding gain on investments, net of tax |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 2,078 |  |  |  | 2,078 |
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan |  |  | 277 |  |  |  | 3 |  |  |  | 2,541 |  |  |  | — |  |  |  | 2,544 |
Issuance of restricted stock |  |  | 200 |  |  |  | 2 |  |  |  | (2 | ) |  |  | — |  |  |  | — |
Forfeitures of restricted stock |  |  | (57 | ) |  |  | (1 | ) |  |  | 1 |  |  |  | — |  |  |  | — |
Stock-based compensation expense |  |  | — |  |  |  | — |  |  |  | 7,489 |  |  |  | — |  |  |  | 7,489 |
Repurchased common stock |  |  | (34 | ) |  |  | (1 | ) |  |  | (500 | ) |  |  | — |  |  |  | (501 | )
Balance at June 30, 2020 |  |  | 85,536 |  |  | $ | 855 |  |  | $ | 1,004,786 |  |  | $ | (179,071 | ) |  | $ | 826,570 |
2019 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Balance at January 1, 2019 |  |  | 87,820 |  |  | $ | 878 |  |  | $ | 992,647 |  |  | $ | 2,094,359 |  |  | $ | 3,087,884 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (242,872 | ) |  |  | (242,872 | )
Unrealized holding loss on investments, net of tax (1) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (194 | ) |  |  | (194 | )
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan |  |  | 140 |  |  |  | 1 |  |  |  | 3,541 |  |  |  | — |  |  |  | 3,542 |
Issuance of restricted stock |  |  | 978 |  |  |  | 10 |  |  |  | (10 | ) |  |  | — |  |  |  | — |
Forfeitures of restricted stock |  |  | (6 | ) |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Stock swaps |  |  | (20 | ) |  |  | — |  |  |  | (666 | ) |  |  | — |  |  |  | (666 | )
Stock-based compensation expense |  |  | — |  |  |  | — |  |  |  | 11,100 |  |  |  | — |  |  |  | 11,100 |
Repurchased common stock |  |  | (2,525 | ) |  |  | (25 | ) |  |  | (28,740 | ) |  |  | (50,217 | ) |  |  | (78,982 | )
Balance at March 31, 2019 |  |  | 86,387 |  |  | $ | 864 |  |  | $ | 977,872 |  |  | $ | 1,801,076 |  |  | $ | 2,779,812 |
Net loss |  |  | — |  |  |  | — |  |  |  | — |  |  |  | (8,245 | ) |  |  | (8,245 | )
Unrealized holding gain on investments, net of tax |  |  | — |  |  |  | — |  |  |  | — |  |  |  | 232 |  |  |  | 232 |
Common stock issued under employee stock option, employee stock purchase plan and stock purchase plan |  |  | 155 |  |  |  | 2 |  |  |  | 3,673 |  |  |  | — |  |  |  | 3,675 |
Issuance of restricted stock |  |  | 123 |  |  |  | 1 |  |  |  | (1 | ) |  |  | — |  |  |  | — |
Forfeitures of restricted stock |  |  | (61 | ) |  |  | (1 | ) |  |  | 1 |  |  |  | — |  |  |  | — |
Stock-based compensation expense |  |  | — |  |  |  | — |  |  |  | 15,080 |  |  |  | — |  |  |  | 15,080 |
Repurchased common stock |  |  | (2,508 | ) |  |  | (25 | ) |  |  | (29,196 | ) |  |  | (36,306 | ) |  |  | (65,527 | )
Balance at June 30, 2019 |  |  | 84,096 |  |  | $ | 841 |  |  | $ | 967,429 |  |  | $ | 1,756,757 |  |  | $ | 2,725,027 |

(1) | Presented within retained earnings on the consolidated balance sheet as the balance is immaterial.

The accompanying notes are an integral part of these Consolidated Financial Statements.
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MEDNAX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)

|  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |
Cash flows from operating activities: |  |  |  |  |  |  |  |
Net loss |  | $ | (691,148 | ) |  | $ | (251,117 | )
Loss from discontinued operations |  |  | 684,999 |  |  |  | 293,710 |
Adjustments to reconcile net income to net cash from operating activities: |  |  |  |  |  |  |  |
Depreciation and amortization |  |  | 28,792 |  |  |  | 27,584 |
Amortization of premiums, discounts and issuance costs |  |  | 2,785 |  |  |  | 2,934 |
Stock-based compensation expense |  |  | 13,819 |  |  |  | 20,853 |
Deferred income taxes |  |  | 55,812 |  |  |  | (12,378 | )
Other |  |  | (2,092 | ) |  |  | 8,284 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | 44,296 |  |  |  | 1,703 |
Prepaid expenses and other current assets |  |  | (16,281 | ) |  |  | 3,715 |
Other long-term assets |  |  | 5,560 |  |  |  | 14,233 |
Accounts payable and accrued expenses |  |  | (86,609 | ) |  |  | (52,307 | )
Income taxes payable / receivable |  |  | (49,757 | ) |  |  | (40,181 | )
Payments of contingent consideration liabilities |  |  | (102 | ) |  |  | (418 | )
Long-term professional liabilities |  |  | 2,931 |  |  |  | 4,628 |
Other liabilities |  |  | 26,888 |  |  |  | (14,212 | )
Net cash provided by operating activities – continuing operations |  |  | 19,893 |  |  |  | 7,031 |
Net cash provided by operating activities - discontinued operations |  |  | 26,658 |  |  |  | 56,184 |
Net cash provided by operating activities |  |  | 46,551 |  |  |  | 63,215 |
Cash flows from investing activities: |  |  |  |  |  |  |  |
Acquisition payments, net of cash acquired |  |  | (75 | ) |  |  | (11,450 | )
Purchases of investments |  |  | (32,335 | ) |  |  | — |
Proceeds from maturities or sales of investments |  |  | 18,135 |  |  |  | 8,180 |
Purchases of property and equipment |  |  | (23,326 | ) |  |  | (15,926 | )
Proceeds from sale of business , net of cash sold |  |  | 476 |  |  |  | — |
Net cash used in investing activities – continuing operations |  |  | (37,125 | ) |  |  | (19,196 | )
Net cash provided by ( used in ) investing activities — discontinued operations |  |  | 15,466 |  |  |  | (8,438 | )
Net cash used in investing activities |  |  | (21,659 | ) |  |  | (27,634 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |
Borrowings on credit agreement |  |  | 527,500 |  |  |  | 898,500 |
Payments on credit agreement |  |  | (527,500 | ) |  |  | (1,286,500 | )
Proceeds from issuance of senior notes |  |  | — |  |  |  | 500,000 |
Payments for credit facility amendment and financing costs |  |  | (510 | ) |  |  | (9,194 | )
Payments of contingent consideration liabilities |  |  | (1,248 | ) |  |  | (5,171 | )
Payments on finance lease obligations |  |  | (186 | ) |  |  | (98 | )
Proceeds from issuance of common stock |  |  | 4,376 |  |  |  | 6,551 |
Repurchases of common stock |  |  | (3,043 | ) |  |  | (144,509 | )
Net cash used in financing activities – continuing operations |  |  | (611 | ) |  |  | (40,421 | )
Net cash used in financing activities — discontinued operations |  |  | — |  |  |  | — |
Net cash used in financing activities |  |  | (611 | ) |  |  | (40,421 | )
Net increase ( decrease ) in cash and cash equivalents |  |  | 24,281 |  |  |  | (4,840 | )
Cash and cash equivalents at beginning of period |  |  | 107,870 |  |  |  | 40,774 |
Cash and cash equivalents at end of period |  | $ | 132,151 |  |  | $ | 35,934 |

The accompanying notes are an integral part of these Consolidated Financial Statements.
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MEDNAX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2020
(Unaudited)

1. | Basis of Presentation and New Accounting Pronouncements:

The accompanying unaudited Consolidated Financial Statements of the Company and the notes thereto presented in this Form
10-Q
have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission applicable to interim financial statements, and do not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, these financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. The financial statements include all the accounts of MEDNAX, Inc. and its consolidated subsidiaries (collectively, “MDX”) together with the accounts of MDX’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (the “affiliated professional contractors”). Certain subsidiaries of MDX have contractual management arrangements with its affiliated professional contractors, which are separate legal entities that provide physician services in certain states and Puerto Rico. The terms “MEDNAX” and the “Company” refer collectively to MEDNAX, Inc., its subsidiaries and the affiliated professional contractors.
The Company is a party to a joint venture in which it owns a 37.5% economic interest and a second joint venture in which it owns a 49.0% economic interest. The Company accounts for these joint ventures under the equity method of accounting because the Company exercises significant influence over, but does not control, these entities.
The consolidated results of operations for the interim periods presented are not necessarily indicative of the results to be experienced for the entire fiscal year. In addition, the accompanying unaudited Consolidated Financial Statements and the notes thereto should be read in conjunction with the Consolidated Financial Statements and the notes thereto included in the Company’s most recent Annual Report on Form
10-K
(the “Form
10-K”).
In October 2019, the Company divested its management services organization, which operated as MedData, to allow the Company to focus on its core physician services business. The operating results of MedData are reported as discontinued operations in the Company’s Consolidated Statements of Income for the three and six months ended June 30, 2019. See Note 6 – Assets Held for Sale and Discontinued Operations for additional information.
In May 2020, the Company divested its anesthesiology medical group. The operating results of the Company’s anesthesiology medical group are reported as discontinued operations in the Company’s Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019. Reclassifications have been made to certain prior period financial statements and footnote disclosures to reflect the impact of discontinued operations. See Note 6 – Assets Held for Sale and Discontinued Operations for additional information.
In June 2020, the Company announced the initiation of a process to divest its radiology services medical group when market conditions are appropriate in order to refocus the business as a dedicated pediatrics and obstetrics organization. However, there can be no assurance that this process will result in a transaction. The Company’s radiology services medical group is reported within continuing operations for all periods presented as the accounting criterion for assets held for sale was not met as of June 30, 2020.
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 becomes effective for the Company on January 1, 2021, including interim periods therein, with early adoption permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The Company does not believe the adoption of this new guidance will have a material impact on its Consolidated Financial Statements and related disclosures.

2. | Coronavirus Pandemic (“COVID-19”):

COVID-19
and related “stay at home” and social distancing measures implemented across the country have significantly impacted demand for medical services provided by the Company’s affiliated clinicians. Beginning in
mid-March
2020, the Company experienced a significant decline in the number of elective surgeries at the facilities where the Company’s affiliated clinicians provided anesthesiology services. See Note 6 – Assets Held for Sale and Discontinued Operations for information regarding the divestment of the Company’s anesthesiology medical group on May 6, 2020. Much of this decline was due to the closure of operating suites or facilities following federal advisories to cancel
non-urgent
procedures and the prohibition of such procedures by several states. Within the Company’s radiology services medical group, orders for radiological studies declined by a meaningful amount from historically normal levels, with much of this reduction focused in
non-urgent
studies. The Company’s affiliated office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, have seen a significant elevation of appointment cancellations compared to historical normal levels. At this time, the Company has not experienced, nor does it currently anticipate, any significant impact to neonatal intensive care unit (NICU) patient volumes as a result of
COVID-19.
Overall, the Company’s operating results since
mid-March
2020 have been significantly impacted by the
COVID-19
pandemic, but volumes did begin to normalize in May 2020 and substantially recovered during the month of June 2020.
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The Company implemented a number of actions to preserve financial flexibility and partially mitigate the significant anticipated impact of
COVID-19.
These steps included a suspension of most activities related to the Company’s transformational and restructuring programs, limiting these expenditures to those that provide essential support for the Company’s response to
COVID-19.
In addition, (i) the Company temporarily reduced executive and key management base salaries, including 50% reductions in salaries for its named executive officers through June 30, 2020; (ii) the Board of Directors agreed to forego their annual cash retainer and cash meeting payments, also through June 30, 2020; (iii) the Company enacted a combination of salary reductions and furloughs for
non-clinical
employees; and (iv) the Company enacted significant operational and practice-specific expense reduction plans across its clinical operations.
The Company also divested its anesthesiology medical group in May 2020, where operating results were significantly impacted by COVID-19.
In response to the anticipated impact of
COVID-19
on the Company’s results of operations, on March 25, 2020, the Company amended and restated its Credit Agreement to, among other things, (i) establish a deemed Consolidated EBITDA of $139.2 million for the second and third quarters of 2020, reflecting average Adjusted EBITDA from continuing operations for the prior eight quarters (calculated for purposes of the Credit Agreement), which will be used in the calculation of rolling four consecutive quarter Consolidated EBITDA under the Credit Agreement, (ii) temporarily increase the maximum consolidated net leverage ratio required to be maintained by the Company from 4.50:1:00 to 5.00:1:00 for the second and third quarters of 2020 and 4.75:1:00 for the fourth quarter of 2020, before returning to 4.50:1:00 for the first quarter of 2021 and beyond, (iii) require that the Company maintains minimum availability under the Credit Agreement of $300.0 million through the third quarter of 2021, (iv) provide for a weekly repayment of borrowings under the Credit Agreement through the second quarter of 2021 using unrestricted cash on hand in excess of $300.0 million, plus a reserve for certain payables, and (v) temporarily restrict the Company’s ability to make restricted payments under the Credit Agreement for the remainder of 2020, subject to certain exceptions. At June 30, 2020, the Company believes it was in compliance, in all material respects, with the financial covenants and other restrictions applicable to the Company under its Credit Agreement, its 5.25% senior unsecured notes due 2023
and its 6.25% senior unsecured notes due 2027. The Company believes it will be in compliance with these covenants for the next twelve months.
At June 30, 2020, the Company had no outstanding principal balance on its Credit Agreement. The Company had outstanding letters of credit of $0.2 million which reduced the amount available on its Credit Agreement to $899.8 million at June 30, 2020, after giving effect to the temporary reduction of the capacity of its Credit Agreement described above through September 30, 2021.
CARES Act
On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) 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 the Company and its affiliated physician practices will qualify for and receive. The Department of Health and Human Services (“HHS”) is administering this program and began disbursing funds in April 2020, of which the Company’s affiliated physician practices received an aggregate of approximately $12 million during the second quarter of 2020.
The Company has applications pending for certain affiliated physician practices for incremental relief beyond what has been received.
In addition, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. The Company intends to utilize this deferral option throughout 2020.
The Company currently expects that the
COVID-19
situation will materially impact its financial results, but due to the rapidly evolving environment and continued uncertainties surrounding the timeline of and impacts from
COVID-19,
the Company is unable to predict the ultimate impact on its business, financial condition, results of operations and cash flows. The Company, however, believes it will be able to generate sufficient liquidity to satisfy its obligations for the next twelve months.

3. | Cash Equivalents and Investments:

As of June 30, 2020 and December 31, 2019, the Company’s cash equivalents consisted entirely of money market funds totaling $1.7 million and $16.8 million, respectively. Investments consisted of corporate securities, municipal debt securities, federal home loan securities and certificates of deposit. All investments are classified as current.
Investments held at June 30, 2020 and December 31, 2019 are summarized as follows (in thousands):

|  | June 30, 2020 |  |  | December 31, 2019 |
Corporate securities |  | $ | 55,677 |  |  | $ | 32,962 |
Municipal debt securities |  |  | 20,831 |  |  |  | 29,066 |
Federal home loan securities |  |  | 8,537 |  |  |  | 8,013 |
Certificates of deposit |  |  | 5,597 |  |  |  | 4,469 |
|  | $ | 90,642 |  |  | $ | 74,510 |

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4. | Fair Value Measurements:

The accounting guidance establishes a fair value hierarchy that prioritizes valuation inputs into three levels based on the extent to which inputs used in measuring fair value are observable in the market. Each fair value measurement is reported in one of three levels:
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques.
The following table presents information about the Company’s financial instruments that are accounted for at fair value on a recurring basis at June 30, 2020 and December 31, 2019 (in thousands):

|  |  |  |  | Fair Value |
|  | Fair Value Category |  |  | June 30, 2020 |  |  | December 31, 2019 |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Money market funds |  |  | Level 1 |  |  | $ | 1,676 |  |  | $ | 16,775 |
Short-term investments |  |  | Level 2 |  |  |  | 90,642 |  |  |  | 74,510 |
Mutual Funds |  |  | Level 1 |  |  |  | 13,549 |  |  |  | 14,264 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Contingent consideration |  |  | Level 3 |  |  |  | — |  |  |  | 2,696 |

(1) | Investments were measured at carrying value as of December 31, 2019. See table below.

The following table presents information about the Company’s financial instruments that are not carried at fair value at June 30, 2020 and December 31, 2019 (in thousands):

|  | June 30, 2020 |  |  | December 31, 2019 |
|  | Carrying Amount |  |  | Fair Value |  |  | Carrying Amount |  |  | Fair Value |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
2023 Notes |  |  | 750,000 |  |  |  | 744,375 |  |  |  | 750,000 |  |  |  | 766,875 |
2027 Notes |  |  | 1,000,000 |  |  |  | 1,000,000 |  |  |  | 1,000,000 |  |  |  | 1,025,600 |

The carrying amounts of cash equivalents, accounts receivable and accounts payable and accrued expenses approximate fair value due to the short maturities of the respective instruments. The carrying value of the Company’s line of credit approximates fair value. If the Company’s line of credit was measured at fair value, it would be categorized as Level 2 in the fair value hierarchy.

5. | Accounts Receivable and Net Revenue:

Accounts receivable, net consists of the following (in thousands):

|  | June 30, 2020 |  |  | December 31, 2019 |
Gross accounts receivable |  | $ | 1,386,562 |  |  | $ | 1,943,664 |
Allowance for contractual adjustments and uncollectibles |  |  | (1,040,880 | ) |  |  | (1,444,795 | )
|  | $ | 345,682 |  |  | $ | 498,869 |

Patient service revenue is recognized at the time services are provided by the Company’s affiliated physicians. The Company’s performance obligations related to the delivery of services to patients 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 the Company’s patient service revenue is reimbursed by government-sponsored healthcare programs (“GHC Programs”) and third-party insurance payors. Payments for services rendered to the Company’s patients are generally less than billed charges. The Company monitors its revenue and receivables from these sources and records an estimated contractual allowance to properly account for the anticipated differences between billed and reimbursed amounts.
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Accordingly, patient service revenue is presented net of an estimated provision for contractual adjustments and uncollectibles. The Company 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. 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.
Collection of patient service revenue the Company expects 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.
Some of the Company’s hospital agreements require hospitals to pay the Company administrative fees. Some agreements provide for fees if the hospital does not generate sufficient patient volume in order to guarantee that the Company receives a specified minimum revenue level. The Company also receives fees from hospitals for administrative services performed by its affiliated physicians providing medical director or other services at the hospital.
The following table summarizes the Company’s net revenue by category (in thousands):

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Net patient service revenue |  | $ | 428,473 |  |  | $ | 486,368 |  |  | $ | 919,431 |  |  | $ | 956,799 |
Hospital contract administrative fees |  |  | 65,138 |  |  |  | 69,619 |  |  |  | 129,698 |  |  |  | 136,008 |
Other revenue |  |  | 15,592 |  |  |  | 5,250 |  |  |  | 21,925 |  |  |  | 11,442 |
|  | $ | 509,203 |  |  | $ | 561,237 |  |  | $ | 1,071,054 |  |  | $ | 1,104,249 |

The approximate percentage of net patient service revenue by type of payor was as follows:

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Contracted managed care |  |  | 67 | % |  |  | 66 | % |  |  | 66 | % |  |  | 65 | %
Government |  |  | 26 |  |  |  | 26 |  |  |  | 26 |  |  |  | 26 |
Other third-parties |  |  | 6 |  |  |  | 7 |  |  |  | 6 |  |  |  | 7 |
Private-pay patients |  |  | 1 |  |  |  | 1 |  |  |  | 2 |  |  |  | 2 |
|  |  | 100 | % |  |  | 100 | % |  |  | 100 | % |  |  | 100 | %

6. | Discontinued Operations:

Divestiture of Anesthesiology Medical Group
On May 6, 2020, the Company entered into a securities purchase agreement with an affiliate of North American Partners in Anesthesia (“NAPA”) to divest the Company’s anesthesiology medical group, and the transaction closed on May 6, 2020. Pursuant to the terms and conditions of the agreement, at the closing of the transaction, the Company received a cash payment of $50.0 million, subject to certain customary adjustments, as well as a contingent economic interest in NAPA with a value ranging from $0 to $250 million based upon the multiple of invested capital returned to NAPA’s owners upon exit of the investment. The Company will begin to receive a payment on its economic interest at an exit multiple of 2.0, with such payment reaching $250 million at an exit multiple of 5.0. In addition, the Company retained the accounts receivable of the anesthesiology medical group, which net of various other working capital items, approximated $110.0 million at March 31, 2020.
The operating results of the anesthesiology medical group service line were reported as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the three and six months ended June 30, 2020 and 2019.
The preliminary loss on sale recorded during the three months ended June 30, 2020 was
$644.2 million.
Upon completion of a valuation for the contingent economic interest and working capital true-up, final net proceeds will be determined, and the Company will adjust the loss on sale at that time. As a result of the sale, the Company currently estimates that it will generate an approximately $1.68 billion capital loss carryforward which expires in 2025. Based on management’s determination that it is more likely than not that the tax benefits related to this loss carryforward will not be realized, the Company has provided an approximately $419.0 million valuation allowance against this deferred tax asset in its financial results for the three months ended June 30, 2020.
The following table summarizes the results of discontinued operations related to the anesthesiology medical group for the three and six months ended June 30, 2020 and 2019 (in thousands):
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|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Net revenue |  | $ | 90,894 |  |  | $ | 307,072 |  |  | $ | 374,961 |  |  | $ | 615,243 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of service salaries and benefits |  |  | 95,398 |  |  |  | 247,759 |  |  |  | 348,662 |  |  |  | 498,930 |
Cost of service supplies and other operating expenses |  |  | 1,350 |  |  |  | 3,233 |  |  |  | 5,216 |  |  |  | 6,700 |
General and administrative expenses |  |  | 13,287 |  |  |  | 19,321 |  |  |  | 30,964 |  |  |  | 39,571 |
Depreciation and amortization |  |  | 2,034 |  |  |  | 6,030 |  |  |  | 6,308 |  |  |  | 12,258 |
Transformational and restructuring related expenses |  |  | 16,771 |  |  |  | 9,616 |  |  |  | 28,634 |  |  |  | 10,721 |
Loss on sale, net |  |  | 644,162 |  |  |  | — |  |  |  | 640,154 |  |  |  | — |
Total operating expenses |  |  | 773,002 |  |  |  | 285,959 |  |  |  | 1,059,938 |  |  |  | 568,180 |
(Loss) income from operations |  |  | (682,108 | ) |  |  | 21,113 |  |  |  | (684,977 | ) |  |  | 47,063 |
Non-operating (expense) income, net |  |  | (7 | ) |  |  | (14 | ) |  |  | 51 |  |  |  | 3 |
(Loss) income before income taxes |  |  | (682,115 | ) |  |  | 21,099 |  |  |  | (684,926 | ) |  |  | 47,066 |
Income tax benefit (provision) |  |  | 5,111 |  |  |  | (5,630 | ) |  |  | 5,561 |  |  |  | (12,490 | )
Net (loss) income |  | $ | (677,004 | ) |  | $ | 15,469 |  |  | $ | (679,365 | ) |  | $ | 34,576 |

Divestiture of MedData
During the three
and six
months ended June 30, 2020, the Company recorded a net incremental loss on the sale of MedData of $3.0 million
and
$5.6
million, respectively, primarily for the finalization of certain transaction related expenses, a working capital true-up and incremental reserves related to indemnification matters, partially offset by the completion of its preliminary valuation for the contingent economic consideration. This incremental loss is reflected as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the three and six months ended June 30, 2020. The operating results of MedData were reported as a component of discontinued operations, net of income taxes, in the Company’s Consolidated Statements of Income for the three and six months ended June 30, 2019.

7. | Accounts Payable and Accrued Expenses:

Accounts payable and accrued expenses consist of the following (in thousands):

|  | June 30, 2020 |  |  | December 31, 2019 |
Accounts payable |  | $ | 48,982 |  |  | $ | 38,598 |
Accrued salaries and bonuses |  |  | 131,739 |  |  |  | 223,815 |
Accrued payroll taxes and benefits |  |  | 43,087 |  |  |  | 61,130 |
Accrued professional liabilities |  |  | 57,466 |  |  |  | 44,869 |
Accrued interest |  |  | 32,679 |  |  |  | 32,910 |
Other accrued expenses |  |  | 46,956 |  |  |  | 51,788 |
|  | $ | 360,909 |  |  | $ | 453,110 |

The net decrease in accrued salaries and bonuses of $92.1 million, from December 31, 2019 to June 30, 2020, is primarily due to the payment of performance-based incentive compensation, principally to the Company’s affiliated physicians, partially offset by performance-based incentive compensation accrued during the six months ended June 30, 2020. A majority of the Company’s payments for performance-based incentive compensation is paid annually during the first quarter.

8. | Common and Common Equivalent Shares:

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted net income per common share is calculated by dividing net income by the weighted average number of common and potential common shares outstanding during the period. Potential common shares consist of outstanding restricted stock, deferred stock and stock options and is calculated using the treasury stock method.
The calculation of shares used in the basic and diluted net income per common share calculation for the three and six months ended June 30, 2020 and 2019 is as follows (in thousands):
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|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Weighted average number of common shares outstanding |  |  | 83,490 |  |  |  | 83,234 |  |  |  | 83,061 |  |  |  | 84,623 |
Weighted average number of dilutive common share equivalents |  |  | 255 |  |  |  | 455 |  |  |  | — |  |  |  | 464 |
Weighted average number of common and common equivalent shares outstanding (a) |  |  | 83,745 |  |  |  | 83,689 |  |  |  | 83,061 |  |  |  | 85,087 |
Antidilutive securities not included in the diluted net income per common share calculation |  |  | 1,335 |  |  |  | 923 |  |  |  | 1,092 |  |  |  | 713 |

(a) | Due to a loss from continuing operations for the six months ended June 30, 2020, no incremental shares are included because the effect would be antidilutive.

9. | Stock Incentive Plans and Stock Purchase Plans:

The Company’s Amended and Restated 2008 Incentive Compensation Plan (the “A&R 2008 Incentive Plan”) provides for grants of stock options, stock appreciation rights, restricted stock, deferred stock, and other stock-related awards and performance awards that may be settled in cash, stock or other property.
Under the
A&R
2008 Incentive Plan, options to purchase shares of common stock may be granted at a price not less than the fair market value of the shares on the date of grant. The options must be exercised within 10 years from the date of grant and generally become exercisable on a pro rata basis over a three-year period from the date of grant. The Company issues new shares of its common stock upon exercise of its stock options. Restricted stock awards generally vest over periods of three years upon the fulfillment of specified service-based conditions and in certain instances performance-based conditions. Deferred stock awards generally vest upon the satisfaction of specified performance-based conditions and service-based conditions. The Company recognizes compensation expense related to its restricted stock and deferred stock awards ratably over the corresponding vesting periods. During the six months ended June 30, 2020, the Company granted 1.1 million shares of restricted stock to its employees and
non-employee
directors under the
A&R
2008 Incentive Plan. At June 30, 2020, the Company had 6.3 million shares available for future grants and awards under the
A&R
2008 Incentive Plan.
Under the Company’s 1996
Non-Qualified
Employee Stock Purchase Plan, as amended (the “ESPP”), employees are permitted to purchase the Company’s common stock at 85% of market value on January 1st, April 1st, July 1st and October 1st of each year. Under the Company’s 2015
Non-Qualified
Stock Purchase Plan (the “SPP”), certain eligible
non-employee
service providers are permitted to purchase the Company’s common stock at 90% of market value on January 1st, April 1st, July 1st and October 1st of each year.
Each of the ESPP and the SPP provide for the issuance of an aggregate of 2.6 million shares of the Company’s common stock less the number of shares of common stock purchased under the other plan. The Company recognizes stock-based compensation expense for the discount received by participating employees and
non-employee
service providers. During the six months ended June 30, 2020, approximately 0.4 million shares in
the
aggregate were issued under the ESPP and SPP. At June 30, 2020, the Company had approximately 0.7 million shares in
the
aggregate reserved for issuance under the ESPP and SPP.
During the three and six months ended June 30, 2020 and 2019, the Company recognized stock-based compensation expense of $6.6 million and $14.3 million, and $9.9 million and $20.9 million, respectively.

10. | Common Stock Repurchase Programs:

In July 2013, the Company’s Board of Directors authorized the repurchase of shares of the Company’s common stock up to an amount sufficient to offset the dilutive impact from the issuance of shares under the Company’s equity compensation programs. The share repurchase program allows the Company 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 the Company’s 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 six months ended June 30, 2020.
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 $107.2 million remained available for repurchase as of December 31, 2019. Under this share repurchase program, during the six months ended June 30, 2020, the Company withheld approximately 159,000 shares of its common stock to satisfy minimum statutory withholding obligations of $3.0 million in connection with the vesting of restricted stock.
The Company intends 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.
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11. | Commitments and Contingencies:

The Company expects that audits, inquiries and investigations from government authorities and agencies will occur in the ordinary course of business. Such audits, inquiries and investigations and their ultimate resolutions, individually or in the aggregate, could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and the trading price of its securities. The Company has not included an accrual for these matters as of June 30, 2020 in its Consolidated Financial Statements, as the variables affecting any potential eventual liability depend on the currently unknown facts and circumstances that arise out of, and are specific to, any particular future audit, inquiry and investigation and cannot be reasonably estimated at this time.
In the ordinary course of business, the Company becomes involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by the Company’s affiliated physicians. The Company’s contracts with hospitals generally require the Company to indemnify them and their affiliates for losses resulting from the negligence of the Company’s affiliated physicians. The Company may also become subject to other lawsuits which could involve large claims and significant costs. The Company believes, based upon a review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on its business, financial condition, results of operations, cash flows and the trading price of its securities. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and the trading price of its securities.
Although the Company currently maintains liability insurance coverage intended to cover professional liability and certain other claims, the Company cannot assure that its insurance coverage will be adequate to cover liabilities arising out of claims asserted against it in the future where the outcomes of such claims are unfavorable. With respect to professional liability risk, the Company generally self-insures a portion of this risk through its wholly owned captive insurance subsidiary. Liabilities in excess of the Company’s insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on the Company’s business, financial condition, results of operations, cash flows and the trading price of its securities.
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Item 2. 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 the unaudited Consolidated Financial Statements and the notes thereto included in this Quarterly Report. In addition, reference is made to our audited consolidated financial statements and notes thereto and related Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form
10-K
for the fiscal year ended December 31, 2019, filed with the Securities and Exchange Commission on February 20, 2020 (the “2019 Form
10-K”).
As used in this Quarterly Report, the terms “MEDNAX”, the “Company”, “we”, “us” and “our” refer to the parent company, MEDNAX, Inc., a Florida corporation, and the consolidated subsidiaries through which its businesses are actually conducted (collectively, “MDX”), together with MDX’s affiliated business corporations or professional associations, professional corporations, limited liability companies and partnerships (“affiliated professional contractors”). Certain subsidiaries of MDX have contracts with our affiliated professional contractors, which are separate legal entities that provide physician services in certain states and Puerto Rico. The following discussion contains forward-looking statements. Please see the Company’s 2019 Form
10-K,
including Item 1A, Risk Factors, and Item 1A. Risk Factors below, for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements. In addition, please see “Caution Concerning Forward-Looking Statements” below.
Overview
MEDNAX is a leading provider of physician services including newborn, maternal-fetal, radiology and teleradiology, pediatric cardiology and other pediatric subspecialty care. Our national network is comprised of affiliated physicians who provide clinical care in all 50 states, the District of Columbia and Puerto Rico. Our affiliated physicians provide neonatal clinical care, primarily within hospital-based neonatal intensive care units, to babies born prematurely or with medical complications; radiology services including diagnostic imaging and interventional radiology; and 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 those who provide pediatric intensive care, pediatric cardiology care, hospital-based pediatric care, pediatric surgical care, pediatric ear, nose and throat, pediatric ophthalmology and pediatric urology services. MEDNAX also provides radiology services including diagnostic imaging and interventional radiology, through a network of affiliated physicians, as well as teleradiology services through a network of affiliated radiologists. In addition to our national physician network, we provide services nationwide to healthcare facilities and physicians, including ours, through a consulting services company. MEDNAX divested its anesthesiology medical group on May 6, 2020.
Coronavirus Pandemic
(COVID-19)
COVID-19
and related “stay at home” and social distancing measures implemented across the country have significantly impacted demand for medical services provided by our affiliated clinicians. Beginning in
mid-March
2020, we experienced a significant decline in the number of elective surgeries at the facilities where our affiliated clinicians provided anesthesia services. Much of this decline was due to the closure of operating suites or facilities following federal advisories to cancel
non-urgent
procedures and the prohibition of such procedures by several states. Within our radiology service line, orders for radiological studies have declined by a meaningful amount from historically normal levels, with much of this reduction focused in
non-urgent
studies. Our affiliated office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, have seen a significant elevation of appointment cancellations compared to historical normal levels. At this time, we have not experienced, nor do we currently anticipate, any significant impact to neonatal intensive care unit (NICU) patient volumes as a result of
COVID-19.
Overall, our operating results since
mid-March
2020 have been significantly impacted by the
COVID-19
pandemic, but volumes did begin to normalize in May 2020 and substantially recovered during the month of June 2020. We also divested our anesthesiology medical group in May 2020, where operating results were significantly impacted by
COVID-19.
We implemented a number of actions to preserve financial flexibility and partially mitigate the significant impact of
COVID-19.
These steps included a suspension of most activities related to our transformational and restructuring programs, limiting these expenditures to those that provide essential support for our response to
COVID-19.
In addition, (i) we temporarily reduced executive and key management base salaries, including 50% reductions in salaries for our named executive officers through June 30, 2020; (ii) our Board of Directors agreed to forego their annual cash retainer and cash meeting payments, also through June 30, 2020; (iii) we enacted a combination of salary reductions and furloughs for
non-clinical
employees; and (iv) we enacted significant operational and practice-specific expense reduction plans across our clinical operations.
We also implemented a variety of solutions across specialties to support clinicians and patients during this pandemic, including

| • |  | Clinician Shortage Support

Pediatric clinicians are lending their expertise to help fulfill the need for added adult care.

| • |  | Strengthening of Supply Chain

MEDNAX is helping to address the shortage of personal protective equipment (PPE) by partnering with vendors across industries to source high filtration respirators, surgical masks and other forms of PPE for protective use.

| • |  | Expanded Virtual Care Offerings

Utilizing VSee, an internationally recognized telehealth platform, MEDNAX has deployed a national multi-specialty virtual clinic to expand its telehealth offerings and make virtual care available to its clinical workforce, enabling continued patient consults and clinician collaboration while minimizing
COVID-19
exposure.
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| • |  | Early Virus Detection Using Cutting-Edge Imaging Diagnostic Tools

MEDNAX Radiology Solutions is leading early detection efforts through chest imaging. vRad, a MEDNAX company, diagnosed one of the first
COVID-19
patients in the United States via chest computed tomography (“CT”), which showed findings consistent with a severe acute respiratory viral infection. In the absence of laboratory testing kits, chest CT can serve as a diagnostic tool. In addition, MEDNAX Radiology Solutions is refining natural language processing (“NLP”) to identify the incidence of viral pneumonia and typical findings of the
COVID-19
virus in the lungs via chest CT across the proprietary MEDNAX Imaging Platform and inference engine, which is connected to more than 2,000 partner facilities across the country. The NLP is run retrospectively to monitor the amount and rate of increase of suspected chest CT findings for
COVID-19
and viral pneumonia, supporting faster treatment. If successful, this cutting-edge diagnostic tool could serve as an effective tracker of the disease’s progression throughout the country and provide new insights for imaging findings for
COVID-19
patients.

| • |  | Virtual Forum to Provide Clinician Support

To support frontline clinicians while abiding by social distancing recommendations, MEDNAX has created a virtual doctors’ lounge for clinicians across specialties to connect and socialize in the absence of typical
in-person
lounges, helping to boost morale and preserve a sense of normalcy.
We currently expect that
COVID-19
will materially impact our financial results, but due to the rapidly evolving environment and continued uncertainties surrounding the timeline of and impacts from
COVID-19,
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, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) 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 began disbursing funds in April 2020, of which our affiliated physician practices received an aggregate of approximately $12 million during the second quarter of 2020. We have applications pending for certain affiliated physician practices for incremental relief beyond what has been received.
In addition, the CARES Act also provides for deferred payment of the employer portion of social security taxes through the end of 2020, with 50% of the deferred amount due December 31, 2021 and the remaining 50% due December 31, 2022. We intend to utilize this deferral option throughout 2020.
Divestiture of the Anesthesiology Medical Group
On May 6, 2020, we entered into a securities purchase agreement with an affiliate of North American Partners in Anesthesia (“NAPA”) to divest our anesthesiology medical group, and the transaction closed on May 6, 2020. Pursuant to the terms and conditions of the agreement, at the closing of the transaction, we received a cash payment of $50.0 million, subject to certain customary adjustments, as well as a contingent economic interest in NAPA with a value ranging from $0 to $250 million based upon the multiple of invested capital returned to NAPA’s owners upon exit of the investment. The operating results of the anesthesiology medical group were reported as discontinued operations in our consolidated statements of income for the three and six months ended June 30, 2020 and 2019, and the net assets sold were presented as assets and liabilities held for sale in our consolidated balance sheet for the year ended December 31, 2019.
Planned Divestiture of MEDNAX Radiology Solutions
In June 2020, we announced our initiation of a process to divest our radiology services medical group when market conditions are appropriate in order to refocus the business as a dedicated pediatrics and obstetrics organization. However, there can be no assurance that this process will result in a transaction.
Reclassifications
Reclassifications have been made to certain prior period financial statements and footnote disclosures to conform to the current period presentation, specifically to reflect the impact of the anesthesiology medical group being classified as assets held for sale and discontinued operations.
General Economic Conditions and Other Factors
Our operations and performance depend significantly on economic conditions. During the three months ended June 30, 2020, the percentage of our patient service revenue being reimbursed under government-sponsored healthcare programs (“GHC Programs”) decreased slightly as compared to the three months ended June 30, 2019. Economic conditions in the United States (“U.S.”) have deteriorated, primarily as a result of
COVID-19,
and patient volumes have declined. We could experience shifts toward GHC Programs if changes occur in 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, due to the rising costs of managed care premiums and patient responsibility amounts, we may experience lower net revenue resulting from increased bad debt due to patients’ inability to pay for certain services.
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Transformation and Restructuring Initiatives
We have 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 have broadly classified these workstreams in four broad 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. In our shared services departments, we were focused on improving processes, using our resources more efficiently and utilizing our scale more effectively to improve cost and service performance across our operations. Within our operational infrastructure, we developed specific operational plans within each of our service lines and affiliated physician practices, with specific milestones and regular reporting, with the goal of generating long-term operational improvements and fostering even greater collaboration across our national medical group. We intended to make a series of information-technology and other investments to improve processes and performance across our enterprise, using both internal and external resources. A significant amount of transformational and restructuring activities were related to our anesthesiology medical group, which was divested in May 2020. We believed these strategic initiatives, together with our continued plans to invest in focused, targeted and strategic organic and acquisitive growth, positioned us well to deliver a differentiated value proposition to our stakeholders while continuing to provide the highest quality care for our patients.
We originally expected these activities to continue through at least 2020. However, as discussed above, beginning in April 2020, we reduced the scope of our transformation and restructuring related initiatives unless they are initiatives that provide essential support for our response to
COVID-19.
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.
The ACA remains subject to continuing legislative and administrative flux and uncertainty. 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. These legal proceedings are likely to continue for several years, and the fate of the ACA will be unresolved and uncertain during this period. Actions by the court of appeals or eventually the Supreme Court of the United States could invalidate portions or all of the ACA. Changes resulting from these proceedings could have a material impact on our business. In the meantime, it also is possible that as a result of these actions, enrollment in healthcare exchanges could decline.
In 2020, there will be federal and state elections that could affect which persons and parties occupy the Office of the President of the United States, control one or both chambers of Congress and many states’ governors and legislatures. Some candidates running for President of the United States are proposing sweeping changes to the U.S. healthcare system, including expanding government-funded healthcare insurance options. 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.
If the ACA is repealed or further substantially modified by judicial, legislative or administrative action, or if implementation of certain aspects of the ACA are diluted, delayed or replaced with a “Medicare for All” or single payor system, such repeal, modification or delay may impact our business, financial condition, results of operations, cash flows and the trading price of our securities. We are unable to predict the impact of any repeal, modification or delay in the implementation of the ACA, including the repeal of the individual mandate or implementation of a single payor system, on us at this time.
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. 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.
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As a result, 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.
The Medicare Access and CHIP Reauthorization Act
The Medicare Access and CHIP Reauthorization Act (“MACRA”) requires physicians to choose to participate in one of two payment formulas, Merit-Based Incentive Payment System (“MIPS”) or Alternative Payment Models (“APMs”). Beginning in 2020, MIPS allows eligible physicians to receive incentive payments based on the achievement of certain quality and cost metrics, among other measures, and be reduced for those who are underperforming against those same metrics and measures. As an alternative, physicians can choose to participate in an advanced APM, and physicians who are meaningful participants in APMs will receive bonus payments from Medicare pursuant to the law. MACRA also remains subject to review and potential modification by Congress, as well as shifting regulatory requirements established by CMS. We currently anticipate that our affiliated physicians will continue to be eligible to receive bonus payments in 2020 through participation in the MIPS, although the amounts of such bonus payments are not expected to be material. We will continue to operationalize the provisions of MACRA and assess any further changes to the law or additional regulations enacted pursuant to the law.
We cannot predict the ultimate effect that these changes will have on us, nor can we provide any assurance that its provisions will not have a material adverse effect on our business, 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, 37 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.
“Surprise” Billing Legislation
“Surprise” medical bills arise when an insured patient receives care from an
out-of-network
provider resulting in costs that were not expected by the patient. The bill is a “surprise” either because the patient did not expect to receive care from an
out-of-network
provider, or because their cost-sharing responsibility is higher than the patient expected. For the past several years, state legislatures have been enacting laws that are intended to address the problems associated with surprise billing or balance billing.
More recently, Congress and President Trump have proposed bipartisan solutions to address this circumstance, either by working in tandem with, or in the absence of, applicable state laws. Several committees of jurisdiction in the U.S. House of Representatives and in the U.S. Senate have proposed solutions to address surprise medical bills, but it is unclear whether any of the proposed solutions will become law. In addition, state legislatures and regulatory bodies continue to address and modify existing laws on the same issue. Any state or federal legislation on the topic of surprise billing may have an unfavorable impact on
out-of-network
reimbursement that we receive. In addition, actual or prospective legislative changes in this area may impact, and may have impacted, our ability to contract with private payors at favorable reimbursement rates or remain in contract with such payors.
Although our
out-of-network
revenue is currently not material, we cannot predict the ultimate effect that these changes will have on us, nor can we provide any assurance that future legislation or regulations will not have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
Medicare Sequestration
The Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012, required
across-the-board
cuts (“sequestrations”) to Medicare reimbursement rates. These annual reductions of 2%, on average, apply to mandatory and discretionary spending through 2025. Unless Congress acts in the future to modify these sequestrations, Medicare reimbursements will be reduced by 2%, on average, annually. In connection with the CARES Act, the Medicare sequestrations were suspended beginning on May 1, 2020 and are expected to remain suspended through December 31, 2020. Aside from the suspension, the reduction in Medicare reimbursement rates is not expected to have a material adverse effect on our business, financial condition, results of operations, cash flows or the trading price of our securities.
Non-GAAP
Measures
In our analysis of our results of operations, we use certain
non-GAAP
financial measures. We have incurred and anticipate we will continue to incur 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 (“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 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. Adjusted EPS from continuing operations is being further adjusted to reflect the impacts from discrete tax events.
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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 three and six months ended June 30, 2020 and 2019, refer to the tables below (in thousands, except per share data).

|  | Three Months Ended June 30, |  |  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Income (loss) from continuing operations |  | $ | 7,600 |  |  | $ | 20,047 |  |  | $ | (6,149 | ) |  | $ | 42,593 |
Interest expense |  |  | 28,265 |  |  |  | 31,063 |  |  |  | 55,931 |  |  |  | 61,764 |
Income tax provision |  |  | 3,373 |  |  |  | 11,486 |  |  |  | 6,109 |  |  |  | 13,588 |
Depreciation and amortization |  |  | 14,393 |  |  |  | 13,779 |  |  |  | 28,792 |  |  |  | 27,584 |
Transformational and restructuring related expenses |  |  | 11,537 |  |  |  | 17,866 |  |  |  | 30,581 |  |  |  | 20,305 |
Adjusted EBITDA from continuing operations |  | $ | 65,168 |  |  | $ | 94,241 |  |  | $ | 115,264 |  |  | $ | 165,834 |

|  | Three Months Ended June 30, |
|  | 2020 |  |  | 2019 |
Weighted average diluted shares outstanding |  |  | 83,745 |  |  |  | 83,689 |
Income from continuing operations and diluted income from continuing operations per share |  | $ | 7,600 |  |  | $ | 0.09 |  |  | $ | 20,047 |  |  | $ | 0.24 |
Adjustments (1) : |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization (net of tax of $1,731 and $1,655) |  |  | 5,193 |  |  |  | 0.06 |  |  |  | 4,964 |  |  |  | 0.06 |
Stock-based compensation (net of tax of $1,658 and $2,477) |  |  | 4,973 |  |  |  | 0.06 |  |  |  | 7,430 |  |  |  | 0.09 |
Transformational and restructuring related expenses (net of tax of $2,884 and $4,467) |  |  | 8,653 |  |  |  | 0.11 |  |  |  | 13,400 |  |  |  | 0.16 |
Net impact from discrete tax events |  |  | 171 |  |  |  | — |  |  |  | 2,987 |  |  |  | 0.03 |
Adjusted income and diluted EPS from continuing operations |  | $ | 26,590 |  |  | $ | 0.32 |  |  | $ | 48,828 |  |  | $ | 0.58 |

(1) | Our blended statutory tax rate of 25% was used to calculate the tax effects of the adjustments for the three months ended June 30, 2020 and 2019.

|  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |
Weighted average diluted shares outstanding |  |  | 83,061 |  |  |  | 85,087 |
(Loss) income from continuing operations and diluted income from continuing operations per share |  | $ | (6,149 | ) |  | $ | (0.07 | ) |  | $ | 42,593 |  |  | $ | 0.50 |
Adjustments (1) : |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Amortization (net of tax of $3,454 and $3,328) |  |  | 10,363 |  |  |  | 0.12 |  |  |  | 9,984 |  |  |  | 0.12 |
Stock-based compensation (net of tax of $3,579 and $5,214) |  |  | 10,738 |  |  |  | 0.13 |  |  |  | 15,639 |  |  |  | 0.18 |
Transformational and restructuring related expenses (net of tax of $7,645 and $5,076) |  |  | 22,936 |  |  |  | 0.28 |  |  |  | 15,229 |  |  |  | 0.18 |
Net impact from discrete tax events |  |  | 5,028 |  |  |  | 0.06 |  |  |  | (1,601 | ) |  |  | (0.02 | )
Adjusted income and diluted EPS from continuing operations |  | $ | 42,916 |  |  | $ | 0.52 |  |  | $ | 81,844 |  |  | $ | 0.96 |

(2) | Our blended statutory tax rate of 25% was used to calculate the tax effects of the adjustments for the six months ended June 30, 2020 and 2019.

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Results of Operations
Three Months Ended June 30, 2020 as Compared to Three Months Ended June 30, 2019
Our net revenue attributable to continuing operations was $509.2 million for the three months ended June 30, 2020, as compared to $561.2 million for the same period in 2019. The decrease in revenue of $52.0 million, or 9.3%, was primarily attributable to the unfavorable impacts from
COVID-19
on same-unit revenue, driven by declines in volume. 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 $65.3 million, or 11.7%. The decline in same-unit net revenue was comprised of a decrease of $66.2 million, or 11.9%, related to patient service volumes, partially offset by a net increase of $0.9 million, or 0.2%, from net reimbursement-related factors. The decrease in revenue from patient service volumes was 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 CARES Act relief, modest improvements in managed care contracting and an increase in revenue caused by a decrease in the percentage of our patients enrolled in GHC programs, partially offset by unfavorable net rate impacts from radiology services.
Practice salaries and benefits attributable to continuing operations decreased $11.9 million, or 3.3%, to $349.3 million for the three months ended June 30, 2020, as compared to $361.2 million for the same period in 2019. This decrease was primarily attributable to decreases in salary expense, including salary reductions and cessation of contract labor, related to the
COVID-19
mitigation initiatives. Of the $11.9 million decrease, $24.4 million was related to salaries, partially offset by an increase of $12.5 million for benefits and incentive compensation. Notwithstanding the salary expense decreases related to the
COVID-19
mitigation initiatives, we anticipate that we will experience a higher rate of growth in clinician compensation expense and malpractice 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.
Practice supplies and other operating expenses attributable to continuing operations decreased $3.4 million, or 13.5%, to $21.4 million for the three months ended June 30, 2020, as compared to $24.8 million for the same period in 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.
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 $77.7 million for the three months ended June 30, 2020, as compared to $84.2 million for the same period in 2019. The decrease of $6.5 million was primarily related to salary reductions and furloughs resulting from our
COVID-19
mitigation initiatives, partially offset by increases in other expense categories, primarily legal expenses. General and administrative expenses as a percentage of net revenue was 15.3% for the three months ended June 30, 2020, as compared to 15.0% for the same period in 2019. Certain general and administrative expenses related to corporate overhead represent various support services provided across the company, including costs that are continuing to support the recently divested anesthesiology medical group through a transition services agreement. Because a portion of such expenses were previously allocated to but not specifically identifiable to, the anesthesiology 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 $11.5 million for the three months ended June 30, 2020, as compared to $17.9 million for the same period in 2019. The expenses were primarily for external consulting costs for various process improvement and restructuring initiatives. Beginning in April 2020, we reduced the scope of our transformation 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.
Depreciation and amortization expense attributable to continuing operations was $14.4 million for the three months ended June 30, 2020, as compared to $13.8 million for the same period in 2019.
Income from operations attributable to continuing operations decreased $24.5 million, or 41.2%, to $34.9 million for the three months ended June 30, 2020, as compared to $59.4 million for the same period in 2019. Our operating margin was 6.9% for the three months ended June 30, 2020, as compared to 10.6% for the same period in 2019. The decrease in our operating margin was primarily due to the decrease in revenue related to
COVID-19,
partially offset by lower operating expense growth, including lower transformation and restructuring related expenses, primarily related to
COVID-19
mitigation initiatives. Excluding transformation and restructuring expenses, our income from operations attributable to continuing operations for the three months ended June 30, 2020 and 2019 was $46.4 million and $77.3 million, respectively, and our operating margin was 9.1% and 13.8%, 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 impacts from
COVID-19
during 2020.
Total
non-operating
expenses attributable to continuing operations were $23.9 million for the three months ended June 30, 2020, as compared to $27.9 million for the same period in 2019. The decrease in
non-operating
expenses was primarily related to a decrease in interest expense, primarily due to lower average borrowings under our credit agreement (the “Credit Agreement”) and other income related to the transition services being provided to the buyer of the anesthesiology medical group, partially offset by a decrease in equity earnings resulting from the impacts to the underlying joint venture from
COVID-19.
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Our effective income tax rate attributable to continuing operations was 30.7% and 36.4% for the three months ended June 30, 2020 and 2019, respectively. Income taxes for the second quarter of 2020 were calculated by applying the actual
year-to-date
effective rate to our
pre-tax
income. After excluding discrete tax impacts, during the three months ended June 30, 2020 and 2019, our effective income tax rate was 29.2% and 27.0%, respectively. We believe excluding discrete tax impacts on our effective income tax rate provides a more comparable view of our effective income tax rate.
Income from continuing operations was $7.6 million for the three months ended June 30, 2020, as compared to $20.0 million for the same period in 2019. Adjusted EBITDA from continuing operations was $65.2 million for the three months ended June 30, 2020, as compared to $94.2 million for the same period in 2019.
Diluted income from continuing operations per common and common equivalent share was $0.09 on weighted average shares outstanding of 83.7 million for the three months ended June 30, 2020, as compared to $0.24 on weighted average shares outstanding of 83.7 million for the same period in 2019. Adjusted EPS from continuing operations was $0.32 for the three months ended June 30, 2020, as compared to $0.58 for the same period in 2019.
Loss from discontinued operations, net of tax, was $680.0 million for the three months ended June 30, 2020, as compared to loss of $28.3 million for the same period in 2019. Diluted loss from discontinued operations per common and common equivalent share was $8.12 for the three months ended June 30, 2020, as compared to $0.34 for the same period in 2019.
Net loss was $672.4 million for the three months ended June 30, 2020, as compared to $8.2 million for the same period in 2019. Diluted net loss per common and common equivalent share was $8.03 for the three months ended June 30, 2020, as compared to $0.10 for the same period in 2019.
Six Months Ended June 30, 2020 as Compared to Six Months Ended June 30, 2019
Our net revenue attributable to continuing operations was $1.07 billion for the six months ended June 30, 2020, as compared to $1.10 billion for the same period in 2019. The decrease in revenue of $33.2 million, or 3.0%, was primarily attributable to the unfavorable impacts from
COVID-19
on same-unit revenue, driven by declines in volume. 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 $60.5 million, or 5.5%. The decline in same-unit net revenue was comprised of a decrease of $72.3 million, or 6.6%, related to patient service volumes, partially offset by a net increase of $11.8 million, or 1.1%, 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 CARES Act relief, modest improvements in managed care contracting and an increase in revenue caused by a decrease in the percentage of our patients enrolled in GHC programs, partially offset by unfavorable net rate impacts from radiology services.
Practice salaries and benefits attributable to continuing operations increased $17.1 million, or 2.3%, to $748.7 million for the six months ended June 30, 2020, as compared to $731.6 million for the same period in 2019. This increase was primarily attributable to growth in benefits related costs at our existing units, partially offset by the decrease in salary expense from salary reductions and cessation of contract labor resulting from
COVID-19
mitigation initiatives that took place during the second quarter of 2020. The increase of $17.1 million was comprised of $25.3 million from benefits and incentive compensation, primarily malpractice expense, partially offset by a decrease of $8.2 million from salaries. Notwithstanding the salary expense decreases related to the
COVID-19
mitigation initiatives, we anticipate that we will experience a higher rate of growth in clinician compensation expense and malpractice 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.
Practice supplies and other operating expenses attributable to continuing operations decreased $0.3 million, or 0.6%, to $46.8 million for the six months ended June 30, 2020, as compared to $47.1 million for the same period in 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,
primarily during the second quarter of 2020.
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 $165.2 million for the six months ended June 30, 2020, as compared to $165.8 million for the same period in 2019. The decrease of $0.6 million is primarily related to salary reductions and furloughs resulting from the
COVID-19
mitigation initiatives, almost entirely offset by increases in other expense categories, primarily legal expenses. General and administrative expenses as a percentage of net revenue was 15.4% for the three months ended June 30, 2020, as compared to 15.0% for the same period in 2019. Certain general and administrative expenses related to corporate overhead represent various support services provided across the company, including costs supporting the recently divested anesthesiology medical group through a transition services agreement. Because a portion of such expenses were previously allocated to but not specifically identifiable to the anesthesiology 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 $30.6 million for the six months ended June 30, 2020, as compared to $20.3 million for the same period in 2019. The expenses were primarily for external consulting costs for various process improvement and restructuring initiatives. Beginning in April 2020, we reduced the scope of our transformation 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.
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Depreciation and amortization expense attributable to continuing operations was $28.8 million for the six months ended June 30, 2020, as compared to $27.6 million for the same period in 2019.
Income from operations attributable to continuing operations decreased $61.0 million, or 54.5%, to $50.9 million for the six months ended June 30, 2020, as compared to $111.9 million for the same period in 2019. Our operating margin was 4.8% for the six months ended June 30, 2020, as compared to 10.1% for the same period in 2019. The decrease in our operating margin was primarily due to the decrease in revenue related to
COVID-19,
partially offset by lower operating expense growth, including transformation and restructuring related expenses, primarily related to
COVID-19
mitigation initiatives. Excluding transformation and restructuring expenses, our income from operations attributable to continuing operations for the six months ended June 30, 2020 and 2019 was $81.5 million and $132.2 million, respectively, and our operating margin was 7.6% and 12.0%, 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 impacts from
COVID-19
during 2020.
Total
non-operating
expenses attributable to continuing operations were $50.9 million for the six months ended June 30, 2020, as compared to $55.7 million for the same period in 2019. The decrease in
non-operating
expenses was primarily related to a decrease in interest expense, primarily due to lower average borrowings under our Credit 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 is not meaningful as calculated for the six months ended June 30, 2020 due to the insignificant level of
pre-tax
income generated due to the impacts from
COVID-19.
Income taxes for the six months ended June 30, 2020 were calculated by applying the actual
year-to-date
effective rate to our
pre-tax
loss. Our effective income tax attributable to continuing operations was 24.2% for the six months ended June 30, 2019. After excluding discrete tax impacts, during the six months ended June 30, 2019, our effective income tax rate was 27.0%. We believe excluding discrete tax impacts on our effective income tax rate provides a more comparable view of our effective income tax rate.
Loss from continuing operations was $6.1 million for the six months ended June 30, 2020, as compared to income from continuing operations of $42.6 million for the same period in 2019. Adjusted EBITDA from continuing operations was $115.3 million for the six months ended June 30, 2020, as compared to $165.8 million for the same period in 2019.
Diluted loss from continuing operations per common and common equivalent share was $0.07 on weighted average shares outstanding of 83.1 million for the six months ended June 30, 2020, as compared to diluted income of $0.50 on weighted average shares outstanding of 85.1 million for the same period in 2019. Adjusted EPS from continuing operations was $0.52 for the six months ended June 30, 2020, as compared to $0.96 for the same period in 2019. The decrease of 2.0 million in our weighted average shares outstanding is primarily due to the impact of shares repurchased in 2019 through open market repurchase activity and the exclusion of common stock equivalents from the weighted average shares calculation for the six months ended June 30, 2020 as the effect would have been antidilutive.
Loss from discontinued operations, net of tax, was $685.0 million for the six months ended June 30, 2020, as compared to loss of $293.7 million for the same period in 2019. Diluted loss from discontinued operations per common and common equivalent share was $8.25 for the six months ended June 30, 2020, as compared to $3.45 for the same period in 2019.
Net loss was $691.1 million for the six months ended June 30, 2020, as compared to $251.1 million for the same period in 2019. Diluted net loss per common and common equivalent share was $8.32 for the six months ended June 30, 2020, as compared $2.95 for the same period in 2019.
Liquidity and Capital Resources
As of June 30, 2020, we had $132.2 million of cash and cash equivalents attributable to our continuing operations as compared to $107.9 million at December 31, 2019. Additionally, we had working capital attributable to our continuing operations of $304.4 million at June 30, 2020, an increase of 64.2 million from working capital of $240.2 million at December 31, 2019.
Cash Flows from Continuing Operations
Cash (used in) provided by operating, investing and financing activities from continuing operations is summarized as follows (in thousands):

|  | Six Months Ended June 30, |
|  | 2020 |  |  | 2019 |
Operating activities |  | $ | 19,893 |  |  | $ | 7,031 |
Investing activities |  |  | (37,125 | ) |  |  | (19,196 | )
Financing activities |  |  | (611 | ) |  |  | (40,421 | )

Operating Activities from Continuing Operations
During the six months ended June 30, 2020, our net cash provided by operating activities for continuing operations was $19.9 million, compared to $7.0 million for the same period in 2019. The net increase in cash provided of $12.9 million was primarily due to an increase in cash flow from accounts receivable and increases in deferred taxes, partially offset by changes in accounts payable and accrued expenses and a decrease in cash flow from lower earnings.
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During the six months ended June 30, 2020, cash flow from accounts receivable for continuing operations was $44.3 million, as compared to $1.7 million for the same period in 2019. The increase in cash flow from accounts receivable for the six months ended June 30, 2020 was primarily due to decreases in ending accounts receivable balances at existing units due to timing of cash collections.
Days sales outstanding (“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 52.4 days at June 30, 2020 as compared to 49.9 days at December 31, 2019.
Investing Activities from Continuing Operations
During the six months ended June 30, 2020, our net cash used in investing activities for continuing operations of $37.1 million consisted primarily of capital expenditures of $23.3 million and net purchases of investments of $14.2 million.
Financing Activities from Continuing Operations
During the six months ended June 30, 2020, our net cash used in financing activities for continuing operations of $0.6 million consisted of proceeds from the issuance of common stock of $4.4 million, partially offset by the repurchase of $3.0 million of our common stock and contingent consideration payments of $1.2 million.
Liquidity
On March 25, 2020, we amended and restated our Credit Agreement to, among other things, (i) establish a deemed Consolidated EBITDA of $139.2 million for the second and third quarters of 2020, reflecting average Adjusted EBITDA from continuing operations for the prior eight quarters (calculated for purposes of the Credit Agreement), which will be used in the calculation of rolling four consecutive quarter Consolidated EBITDA under the Credit Agreement, (ii) temporarily increase the maximum consolidated net leverage ratio required to be maintained by us from 4.50:1:00 to 5.00:1:00 for the second and third quarters of 2020 and 4.75:1:00 for the fourth quarter of 2020, before returning to 4.50:1:00 for the first quarter of 2021 and beyond, (iii) require that we maintain minimum availability under the Credit Agreement of $300.0 million through the third quarter of 2021, (iv) provide for a weekly repayment of borrowings under the Credit Agreement through the second quarter of 2021 using unrestricted cash on hand in excess of $300.0 million, plus a reserve for certain payables, and (v) temporarily restrict our ability to make restricted payments under the Credit Agreement for the remainder of 2020, subject to certain exceptions.
The Credit Agreement provides for a $1.2 billion unsecured revolving credit facility, subject to the limitations discussed above, and includes a $37.5 million
sub-facility
for the issuance of letters of credit. The Credit Agreement matures on March 28, 2024 and is guaranteed by substantially all of our subsidiaries and affiliated professional associations and corporations. At our option, borrowings under the Credit Agreement will bear interest at (i) the alternate base rate (defined as the higher of (a) the prime rate, (b) the Federal Funds Rate plus 1/2 of 1.00% and (c) LIBOR for an interest period of one month plus 1.00%) plus an applicable margin rate ranging from 0.125% to 0.750% based on our consolidated leverage ratio or (ii) the LIBOR rate plus an applicable margin rate ranging from 1.125% to 1.750% based on our consolidated leverage ratio. The Credit Agreement also calls for other customary fees and charges, including an unused commitment fee ranging from 0.150% to 0.200% of the unused lending commitments, based on our consolidated leverage ratio. The Credit Agreement contains customary covenants and restrictions, including covenants that require us to maintain a minimum interest charge ratio, not to exceed a specified consolidated leverage ratio and to comply with laws, and restrictions on the ability to pay dividends and make certain other distributions, as specified therein. Failure to comply with these covenants would constitute an event of default under the Credit Agreement, notwithstanding the ability of the company to meet its debt service obligations. The Credit Agreement also includes various customary remedies for the lenders following an event of default, including the acceleration of repayment of outstanding amounts under the Credit Agreement.
At June 30, 2020, we had no outstanding principal balance on our Credit Agreement. We had outstanding letters of credit of $0.2 million which reduced the amount available on our Credit Agreement to $899.8 million at June 30, 2020, after giving effect to the temporary reduction of the capacity of our Credit Agreement described above through September 30, 2021.
At June 30, 2020, we had an outstanding principal balance of $750.0 million on our 5.25% senior unsecured notes due 2023 (the “2023 Notes”) and an outstanding principal balance of $1.0 billion on our 6.25% senior unsecured notes due 2027 (the “2027 Notes”). Our obligations under the 2023 Notes and the 2027 Notes are guaranteed on an unsecured senior basis by the same subsidiaries and affiliated professional contractors that guarantee our Credit Agreement. Interest on the 2023 Notes accrues at the rate of 5.25% per annum, or $39.4 million, and is payable semi-annually in arrears on June 1 and December 1. Interest on the 2027 Notes accrues at the rate of 6.25% per annum, or $62.5 million, and is payable semi-annually in arrears on January 15 and July 15.
The indenture under which the 2023 Notes and the 2027 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 2023 Notes or the 2027 Notes, upon the occurrence of a change in control of MEDNAX, we may be required to repurchase the 2023 Notes and the 2027 Notes at a purchase price equal to 101% of the aggregate principal amount of the 2023 Notes and the 2027 Notes repurchased plus accrued and unpaid interest.
At June 30, 2020, we believe we were in compliance, in all material respects, with the financial covenants and other restrictions applicable to us under the Credit Agreement and the 2023 Notes and the 2027 Notes. We believe we will be in compliance with these covenants throughout 2020.
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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 June 30, 2020 was $318.4 million, of which $57.5 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 $35.4 million recorded as a component of other assets for certain professional liability claims that are covered by insurance policies.
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 expenses related to our transformational and restructuring activities, fund our share repurchase programs and meet our contractual obligations for at least the next 12 months from the date of issuance of this Quarterly Report on Form
10-Q.
Caution Concerning Forward-Looking Statements
Certain information included or incorporated by reference in this Quarterly Report may be deemed to be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements may include, but are not limited to, statements relating to our objectives, plans and strategies, and all statements, other than statements of historical facts, that address activities, events or developments that we intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. These statements are often characterized by terminology such as “believe,” “hope,” “may,” “anticipate,” “should,” “intend,” “plan,” “will,” “expect,” “estimate,” “project,” “positioned,” “strategy” and similar expressions, and are based on assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate. Any forward-looking statements in this Quarterly Report are made as of the date hereof, and we undertake no duty to update or revise any such statements, whether as a result of new information, future events or otherwise. Forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties. Important factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements are described in the 2019 Form
10-K,
and this Quarterly Report, including the sections entitled “Risk Factors.”
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are subject to market risk primarily from exposure to changes in interest rates based on our financing, investing and cash management activities. We intend to manage interest rate risk through the use of a combination of fixed rate and variable rate debt. We borrow under our Credit Agreement at various interest rate options based on the Alternate Base Rate or LIBOR rate depending on certain financial ratios. At June 30, 2020, we had no outstanding principal balance on our Credit Agreement.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules
13a-15(e)
and
15d-15(e)
under the Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by the Company in reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2020.
Changes in Internal Controls Over Financial Reporting
No changes in our internal control over financial reporting occurred during the three months ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Table of Contents
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
We expect that audits, inquiries and investigations from government authorities and agencies will occur in the ordinary course of business. Such audits, inquiries and investigations and their ultimate resolutions, individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
In the ordinary course of our business, we become involved in pending and threatened legal actions and proceedings, most of which involve claims of medical malpractice related to medical services provided by our affiliated physicians. Our contracts with hospitals generally require us to indemnify them and their affiliates for losses resulting from the negligence of our affiliated physicians and other clinicians. We may also become subject to other lawsuits that could involve large claims and significant defense costs. We believe, based upon a review of pending actions and proceedings, that the outcome of such legal actions and proceedings will not have a material adverse effect on our business, financial condition, results of operations, cash flows or the trading price of our securities. The outcome of such actions and proceedings, however, cannot be predicted with certainty and an unfavorable resolution of one or more of them could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
Although we currently maintain liability insurance coverage intended to cover professional liability and certain other claims, we cannot assure that our insurance coverage will be adequate to cover liabilities arising out of claims asserted against us in the future where the outcomes of such claims are unfavorable to us. With respect to professional liability risk, we self-insure a significant portion of this risk through our wholly owned captive insurance subsidiary. Liabilities in excess of our insurance coverage, including coverage for professional liability and certain other claims, could have a material adverse effect on our business, financial condition, results of operations, cash flows and the trading price of our securities.
On July 10, 2018, a securities class action lawsuit was filed against our company and certain of our officers and a director in the U.S. District Court for the Southern District of Florida (Case No.
0:18-cv-61572-WPD)
that purports to state a claim for alleged violations of Sections 10(b) and 20(a) of the Exchange Act, and Rule
10b-5
thereunder, based on statements made by the defendants primarily concerning our former anesthesiology business. The complaint was seeking unspecified damages, interest, attorneys’ fees and other costs. We filed a motion to dismiss in April 2019, which was granted in October 2019; however, the plaintiff filed a second amended complaint on October 25, 2019. On November 25, 2019, we filed a motion to dismiss the second amended complaint, and on February 7, 2020 a final order granting our motion to dismiss the second amended complaint with prejudice was issued.
On March 20, 2019, a separate derivative action was filed by plaintiff Beverly Jackson on behalf of MEDNAX, Inc. against MEDNAX, Inc. and certain of its officers and directors in the Seventeenth Judicial Circuit in and for Broward County, Florida (Case Number
CACE-19-006253).
The plaintiff purported to bring suit derivatively on behalf of our company against certain of our officers and directors for breach of fiduciary duties and unjust enrichment. The derivative complaint repeated many of the allegations in the securities class action described above. We filed a motion to dismiss in December 2019, and on March 16, 2020, an order granting our motion to dismiss without prejudice was issued. On April 6, 2020, the plaintiff filed an amended complaint, and on April 30, 2020, we filed a motion to dismiss the amended complaint.
Item 1A. Risk Factors
Item 1A. Risk Factors in our most recent Annual Report on Form
10-K
includes a discussion of our risk factors. The information presented below updates, and should be read in conjunction with, the risk factors disclosed in our most recent Annual Report on Form
10-K.
Except as presented below, there have been no material changes to the risk factors disclosed in our most recent Annual Report on Form
10-K.
Our financial condition and results of operations for fiscal year 2020 and beyond may be materially adversely affected by the ongoing coronavirus
(COVID-19)
outbreak.
The outbreak of
COVID-19
has evolved into a global pandemic. The coronavirus has spread to many regions of the world, including virtually all of the United States. The full extent to which the
COVID-19
outbreak will impact our business and operating results will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning
COVID-19
and the actions to contain it or treat its impact, such as the potential for further shutdown or stay at home orders, and shifts toward GHC Programs if changes occur in 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.
Our anesthesiology medical group, which we divested on May 6, 2020, experienced a significant decline in the number of elective surgeries at a number of the facilities where its affiliated clinicians provide anesthesia services as a result of
COVID-19.
A significant portion of this decline was due to the closure of operating suites or facilities following federal advisories to cancel
non-urgent
procedures and the prohibition of such procedures by several states. Within our radiology medical group, orders for radiological studies declined by a meaningful amount from historically normal levels as a result of
COVID-19,
with much of this reduction focused in
non-urgent
studies. Additionally, our office-based practices, which specialize in maternal-fetal medicine, pediatric cardiology, and numerous pediatric subspecialties, saw a significant elevation of appointment cancellations compared to historical normal levels as a result of
COVID-19.
To date, we have not experienced, nor do we currently anticipate, any significant impact to our NICU patient volumes as a result of
COVID-19,
however, there is no assurance that
COVID-19
will not adversely affect our NICU patient volumes or otherwise adversely affect our NICU and related neonatology business. Overall, our operating results since
mid-March
2020 have been significantly impacted by the
COVID-19
pandemic, but volumes did begin to normalize in May 2020 and substantially recovered during the month of June 2020.
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Across our medical groups, we believe that these patient volume declines primarily reflect a deferral of healthcare services utilization to a later period, rather than a permanent reduction in demand for our services. Given the general necessity of the services our affiliated clinicians provide, we anticipate that this deferral of services may create a backlog of demand in the future, in addition to the resumption of historically normal activity, however, there is no assurance that either will occur. We may also require an increased level of working capital if we experience extended billing and collection cycles as a result of displaced employees, payors, revenue cycle management contractors, or otherwise. The foregoing and other continued disruptions to our business as a result of
COVID-19
could result in a material adverse effect on our business, results of operations, financial condition, prospects and the trading prices of our securities in the near-term and beyond 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the three months ended June 30, 2020, we repurchased 34,157 shares of our common stock that were withheld to satisfy minimum statutory withholding obligations in connection with the vesting of restricted stock and deferred stock.

Period |  | Total Number of Shares Repurchased (a) |  |  | Average Price Paid per Share |  |  | Total Number of Shares Purchased as part of the Repurchase Program |  |  | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Repurchase Programs (a) |
April 1 – April 30, 2020 |  |  | — |  |  | $ | — |  |  |  | — |  |  |  | (a | )
May 1 – May 31, 2020 |  |  | 12,310 | (b) |  |  | 13.06 |  |  |  | — |  |  |  | (a | )
June 1 – June 30, 2020 |  |  | 21,847 | (b) |  |  | 15.53 |  |  |  | — |  |  |  | (a | )
Total |  |  | 34,157 |  |  | $ | 14.64 |  |  |  | — |  |  |  | (a | )

(a) | We have two active repurchase programs. Our July 2013 program allows us to repurchase 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. Our August 2018 repurchase program allows us to repurchase up to an additional $500.0 million of shares of our common stock, of which we repurchased $395.8 million as of June 30, 2020.

(b) | Represents shares withheld to satisfy minimum statutory withholding obligations of an aggregate of $0.5 million in connection with the vesting of restricted stock.

The amount and timing of any future repurchases will depend upon several factors, including general economic and market conditions and trading restrictions.
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Item 6. Exhibits

Exhibit No. |  | Description
2.1 |  | Securities Purchase Agreement, dated as of May 6, 2020, by and between MEDNAX Services, Inc. and NMSC II, LLC (incorporated by reference to Exhibit 2.1 to MEDNAX’s Current Report on Form 8-K filed on May 12, 2020).
10.1+ |  | Employment Agreement, dated July 12, 2020, by and between MEDNAX Services, Inc. and Mark S. Ordan.
10.2 |  | First Amendment to Amended and Restated Employment Agreement, effective April 1, 2020, by and between MEDNAX Services, Inc. and Stephen D. Farber (incorporated by reference to Exhibit 10.24 to MEDNAX’s Annual Report on Form 10-K/A for the year ended December 31, 2019 filed on April 28, 2020).
10.3 |  | First Amendment to Amended and Restated Employment Agreement, effective April 1, 2020, by and between MEDNAX Services, Inc. and Dominic J. Andreano (incorporated by reference to Exhibit 10.26 to MEDNAX’s Annual Report on Form 10-K/A for the year ended December 31, 2019 filed on April 28, 2020).
10.4 |  | First Amendment to Employment Agreement, effective April 1, 2020, by and between MEDNAX Services, Inc. and John C. Pepia (incorporated by reference to Exhibit 10.28 to MEDNAX’s Annual Report on Form 10-K/A for the year ended December 31, 2019 filed on April 28, 2020).
31.1+ |  | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2+ |  | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1* |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.1+ |  | Interactive Data File
101.INS+ |  | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH+ |  | XBRL Schema Document.
101.CAL+ |  | XBRL Calculation Linkbase Document.
101.DEF+ |  | XBRL Definition Linkbase Document.
101.LAB+ |  | XBRL Label Linkbase Document.
101.PRE+ |  | XBRL Presentation Linkbase Document.
104+ |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

+ | Filed herewith.

* | Furnished herewith.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

|  |  |  | MEDNAX, INC.
Date: July 30, 2020 |  |  |  | By: |  | /s/ Mark S. Ordan
|  |  |  |  |  | Mark S. Ordan
|  |  |  |  |  | Chief Executive Officer
|  |  |  |  |  | (Principal Executive Officer)
Date: July 30, 2020 |  |  |  | By: |  | /s/ Stephen D. Farber
|  |  |  |  |  | Stephen D. Farber
|  |  |  |  |  | Chief Financial Officer
|  |  |  |  |  | (Principal Financial Officer)
Date: July 30, 2020 |  |  |  | By: |  | /s/ John C. Pepia
|  |  |  |  |  | John C. Pepia
|  |  |  |  |  | Chief Accounting Officer
|  |  |  |  |  | (Principal Accounting Officer)

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