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Business Combinations, Assets Held for Sale and Discontinued Operations | 9 Months Ended
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Sep. 30, 2020
Business Combinations Assets Held For Sale And Discontinued Operations Disclosure [Abstract] |
Business Combinations, Assets Held for Sale and Discontinued Operations |
6. | Business Combinations, Assets Held for Sale and Discontinued Operations:
Business Combinations During the nine months ended September 30, 2020, the Company completed the acquisition of one pediatric subspecialty practice for total consideration of $2.1 million, of which $1.9 million was paid in cash and $0.2 million was recorded as a contingent consideration liability. This acquisition expanded the Company’s national network of physician practices. In connection with this acquisition, the Company recorded non-deductible goodwill of $0.8 million and other intangible assets consisting primarily of physician and hospital agreements of $1.3 million. Divestiture of the Radiology Services Medical Group On September 9 , 2020, the Company entered into a securities purchase agreement with Radiology Partners, Inc., pursuant to which Radiology Partners, Inc. will acquire the Company’s radiology services medical group for $885 million cash, subject to certain customary adjustments. This divestiture will allow the Company to focus solely on its Pediatrix and Obstetrix medical groups. The Company determined that the criterion to classify the radiology services medical group as assets held for sale within the Company’s Consolidated Balance Sheets effective September 30, 2020 were met. Accordingly, the assets and liabilities of the radiology services medical group were classified as current assets and current liabilities held for sale at September 30, 2020 as the Company expects to divest of the radiology services medical group within the next twelve months. The classification to assets held for sale impacted the net book value of the assets and liabilities expected to be transferred upon sale. The estimated fair value of the radiology services medical group was determined using the purchase price in the purchase agreement along with estimated broker, accounting, legal and other selling expenses. The Company deemed the carrying amount of other assets within the medical group, specifically accounts receivable and property and equipment, to represent fair value and therefore recorded a non-cash charge of $43.0 million against goodwill, which represented the difference between the estimated fair value of the radiology services medical group and the carrying amount of the net assets held for sale. Recognition of the charge against goodwill resulted in a tax benefit which generated an additional $4.0 million deferred tax asset that increased the fair value of the medical group. An incremental non-cash charge is then required to reduce the radiology services medical group’s net assets to its previously determined fair value. Accordingly, the Company recorded the incremental non-cash charge of $4.0 million for a total non-cash charge of $47.0 million, reducing the goodwill balance of the radiology services medical group. Upon completion of the divestiture, the Company could record an additional gain or loss on disposal at the time final net proceeds are determined. In addition, in accordance with accounting guidance for discontinued operations, the expected divestiture of the radiology services medical group was deemed to represent a fundamental strategic shift that will have a major effect on the Company’s operations, and accordingly, the operating results of the radiology services medical group were reported as discontinued operations in the Company’s Consolidated Statements of Income for the three and nine months ended September 30, 2020 with prior periods recast to conform with the current period presentation. The following table represents the major classes of assets and liabilities of the radiology services medical group that are included as assets and liabilities held for sale in the accompanying Consolidated Balance Sheets as of September 30, 2020 and December 31, 2019 (in thousands):
|  | September 30, 2020 |  |  | December 31, 2019 |
Assets |  |  |  |  |  |  |  |
Accounts receivable, net |  | $ | 54,284 |  |  | $ | 64,603 |
Prepaid expenses and other current assets |  |  | 9,819 |  |  |  | 9,744 |
Property and equipment, net |  |  | 20,078 |  |  |  | 19,204 |
Operating leases right-of-use assets |  |  | 14,165 |  |  |  | 15,008 |
Goodwill |  |  | 640,818 |  |  |  | 685,170 |
Intangible assets, net |  |  | 170,059 |  |  |  | 180,978 |
Deferred income tax assets |  |  | 6,020 |  |  |  | 18,183 |
Other assets |  |  | 36,305 |  |  |  | 40,724 |
|  | $ | 951,548 |  |  | $ | 1,033,614 |
Liabilities |  |  |  |  |  |  |  |
Accounts payable and accrued expenses |  | $ | 39,505 |  |  | $ | 42,474 |
Operating and finance leases |  |  | 13,619 |  |  |  | 14,355 |
Long-term professional liabilities |  |  | 23,744 |  |  |  | 21,978 |
Other liabilities |  |  | 1,844 |  |  |  | 81 |
|  | $ | 78,712 |  |  | $ | 78,888 |
The following table summarizes the results of discontinued operations related to the radiology services medical group for the three and nine months ended September 30, 2020 and 2019 (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Net revenue |  | $ | 125,765 |  |  | $ | 125,650 |  |  | $ | 340,133 |  |  | $ | 366,678 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of service salaries and benefits |  |  | 84,718 |  |  |  | 80,336 |  |  |  | 234,169 |  |  |  | 238,402 |
Cost of service supplies and other operating expenses |  |  | 1,449 |  |  |  | 1,532 |  |  |  | 4,273 |  |  |  | (1,468 | )
General and administrative expenses |  |  | 19,876 |  |  |  | 20,734 |  |  |  | 57,178 |  |  |  | 64,490 |
Depreciation and amortization |  |  | 5,090 |  |  |  | 7,595 |  |  |  | 20,328 |  |  |  | 22,757 |
Transformational and restructuring related expenses |  |  | 2,491 |  |  |  | 441 |  |  |  | 6,517 |  |  |  | 1,487 |
Goodwill impairment |  |  | 46,963 |  |  |  | 117,924 |  |  |  | 46,963 |  |  |  | 117,924 |
Total operating expenses |  |  | 160,587 |  |  |  | 228,562 |  |  |  | 369,428 |  |  |  | 443,592 |
Loss from operations |  |  | (34,822 | ) |  |  | (102,912 | ) |  |  | (29,295 | ) |  |  | (76,914 | )
Non-operating income, net |  |  | 1,369 |  |  |  | 2,059 |  |  |  | 3,035 |  |  |  | 4,768 |
Loss before income taxes |  |  | (33,453 | ) |  |  | (100,853 | ) |  |  | (26,260 | ) |  |  | (72,146 | )
Income tax (provision) benefit |  |  | (62 | ) |  |  | 3,907 |  |  |  | (1,988 | ) |  |  | (3,687 | )
Net loss |  | $ | (33,515 | ) |  | $ | (96,946 | ) |  | $ | (28,248 | ) |  | $ | (75,833 | )
Divestiture of the Anesthesiology Services 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 services 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 services medical group, which net of various other working capital items, approximated $110.0 million at March 31, 2020. The operating results of the anesthesiology services 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 nine months ended September 30, 2020 and 2019. A single anesthesiology practice was not included in the divestiture of the anesthesiology services medical group, and continues to operate as an affiliate of the Company. Its results of operations are reflected in the three months ended September 30, 2020 while the incremental loss on sale of the anesthesiology services medical group recorded during the three months ended September 30, 2020 reflects a true up of various divested account balances during the third quarter of 2020. The total preliminary loss on sale of the anesthesiology services medical group recorded during the nine months ended September 30, 2020 was $648.7 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. In addition, as a result of the sale, the Company currently estimates that it will generate an approximately $1.68 billion capital loss carryforward that will expire 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 as of September 30, 2020. The following table summarizes the results of discontinued operations related to the anesthesiology services medical group for the three and nine months ended September 30, 2020 and 2019 (in thousands):
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2019 |  |  | 2020 |  |  | 2019 |
Net revenue |  | $ | 2,700 |  |  | $ | 309,602 |  |  | $ | 377,661 |  |  | $ | 924,845 |
Operating expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of service salaries and benefits |  |  | 2,746 |  |  |  | 250,157 |  |  |  | 351,408 |  |  |  | 746,237 |
Cost of service supplies and other operating expenses |  |  | 38 |  |  |  | 2,837 |  |  |  | 5,254 |  |  |  | 9,537 |
General and administrative expenses |  |  | 215 |  |  |  | 18,338 |  |  |  | 31,179 |  |  |  | 57,909 |
Depreciation and amortization |  |  | — |  |  |  | 5,605 |  |  |  | 6,308 |  |  |  | 17,863 |
Transformational and restructuring related expenses |  |  | — |  |  |  | 6,785 |  |  |  | 28,634 |  |  |  | 17,506 |
Goodwill impairment |  |  | — |  |  |  | 1,331,291 |  |  |  | — |  |  |  | 1,331,291 |
Loss on sale, net |  |  | 4,499 |  |  |  | — |  |  |  | 644,653 |  |  |  | — |
Total operating expenses |  |  | 7,498 |  |  |  | 1,615,013 |  |  |  | 1,067,436 |  |  |  | 2,180,343 |
Loss from operations |  |  | (4,798 | ) |  |  | (1,305,411 | ) |  |  | (689,775 | ) |  |  | (1,255,498 | )
Non-operating (expense) income, net |  |  | — |  |  |  | (17 | ) |  |  | 51 |  |  |  | (14 | )
Loss before income taxes |  |  | (4,798 | ) |  |  | (1,305,428 | ) |  |  | (689,724 | ) |  |  | (1,255,512 | )
Income tax benefit |  |  | 100 |  |  |  | 129,241 |  |  |  | 5,661 |  |  |  | 115,987 |
Net loss |  | $ | (4,698 | ) |  | $ | (1,176,187 | ) |  | $ | (684,063 | ) |  | $ | (1,139,525 | )
Divestiture of MedData The Company divested of its management services organization, MedData, in October 2019. During the nine months ended September 30, 2020, the Company recorded a net incremental loss on the sale of MedData of $5.8 million, 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 nine months ended September 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 nine months ended September 30, 2019.

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