Ladies and gentlemen, thank you for standing by, and welcome to the Mednax, Inc. Third Quarter 2021 Earnings Conference. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given to you at that time. If you need assistance during the call, press star and then zero, and an operator will assist you offline. As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr. Charles Lynch, Senior Vice President, Finance and Strategy. Please go ahead.
Thank you, Cynthia, and good morning, everyone. I'll quickly read our forward-looking statements, and then we'll get into the call. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by Mednax's management in light of their experience and assessment of historical trends, current conditions, expected future developments, and other factors they believe to be appropriate. Any forward-looking statements made during this call are made as of today, and Mednax undertakes no duty to update or revise any such statements, whether as a result of new information, future events, or otherwise.
Important factors that could cause actual results, developments, and business decisions to differ materially from forward-looking statements are described in the company's most recent annual report on Form 10-K, its quarterly reports on Form 10-Q, and its current reports on Form 8-K, including the sections entitled Risk Factors. In today's remarks by management, we will be discussing non-GAAP financial metrics. A reconciliation of these non-GAAP financial metrics to the most comparable GAAP measures can be found in this morning's earnings press release, our quarterly reports on Form 10-Q and our annual report on Form 10-K, and on our website at www.mednax.com. With that, I'll turn the call over to our CEO, Mark Ordan.
Thanks, Charlie, and good morning, everyone. Also joining me on today's call are Marc Richards, our CFO, Dr. Mack Hinson, neonatologist and head of our Pediatrix and Obstetrix Medical Groups, and Dr. Jim Swift, pediatric intensivist and our Chief Development Officer. You'll see our strong third quarter results in this morning's filing. Total births at the hospitals where we provide NICU services were up 2.8% on a same-unit basis, and our NICU days were up 5.6%. Key metrics such as payer mix and rate of admission continue to be favorable compared to last year.
In fact, for Mednax as a whole, our patient volumes, revenue, and adjusted EBITDA were all ahead of the same period in 2019, which suggests that at this time, our business has more than recovered from the significant negative impact of the COVID-19 pandemic that we experienced in 2020 and earlier this year. Mark will give some details of our comparisons to pre-pandemic levels. As a result of volumes exceeding pre-COVID levels as well as stable cost trends at the practice level and improvements in our G&A infrastructure that we'll detail this morning, our revenue for the quarter of $493 million was above our internal expectations, as was our adjusted EBITDA of $73 million.
Based on our results, we now expect that our 2021 adjusted EBITDA will exceed our prior internal expectation of being above $240 million, and we now expect 2021 adjusted EBITDA of at least $250 million. We also fully expect adjusted EBITDA next year to exceed $270 million, absent any major external events. This is still a preliminary view into 2022, and we'll be in a better position to provide a more specific outlook after we finish our budgeting process, but I believe we're building momentum in our business. Demand for the critical services that our affiliated clinicians provide not only recovered from last year's disruptions but continues to grow. We also estimate that the broader growth efforts we have in place have supplemented this demand so far in 2021.
I'll give some detail here as we see our growth concentrated in several areas. First, we target opportunities to expand practices or add practices that enhance our hospital relationships and also directly improve care through the coordination of different subspecialties that many patients need to access. Second, in our daily operations, we strive to provide the best 24/7 support possible to our practices, which combines in our patient service access initiatives, improving technology support, improving revenue cycle management efficiency, recruiting the best talent, and old-fashioned, focused managerial actions. Third, we look for acquisition opportunities where we see a clear combination of bolstering hospital relationships, adding to our patient care and support, and a demonstrable growth path within that acquisition.
Acquisitions haven't been a major part of our activity so far this year, but they can play just as important a role as organic growth when we do see them strategically. The sum of these efforts is continuing to ramp up post-COVID and importantly, after all of our reorganization activities pre-COVID. For the 2021 year to date, we estimate that we have added approximately three percentage points to our adjusted EBITDA growth versus 2020, over and above the pure same-store growth that our affiliated practices have experienced. In addition to all this activity, we recently announced our investment in Brave Care, and I want to explain why this is actually a very key piece of our growth plan. We again believe that we are totally uniquely positioned to grow in the combined pediatric and primary urgent care space.
In our major markets, Mednax, under our pediatrics brand alone, has the concentration of pediatrician population density, hospital relationships and partnerships, and an enormous and growing base of vital patient relationships, and our market managerial support that's already in place in our major markets. With our NightLight acquisition in place and in fact thriving, we have a nucleus from which we can grow. For this to grow, we needed the engine and additional talent to enable building something really meaningful. Brave Care brings scalable internal controls and patient-facing technology, systems and protocols that will otherwise take us years to create. The proprietary technology systems and operating platform that Brave team has built over a two-plus year period gives patients and their parents a truly seamless experience when they visit.
It also gives great remote connectivity to clinicians through an extremely user-friendly remote mobile app, so parents always have a resource at their fingertips. Brave Care systems are integrated with all facets of clinical operations, and my view of the power of the Brave system is not theoretical. It's proven and up and running in their existing clinics in the Northwest. Our investment in Brave is accompanied by an operating partnership agreement that provides Brave a long-term incentive to help us plan, develop, equip, and open pediatrics clinics over the coming years. The clinic will be ours and will be led and managed by our team working alongside the Brave team. At a high level, looking at our geography of existing services, we believe that there's an opportunity for us to open more than 100 pediatrics clinics across our footprint within a few years.
As we move forward, we'll share with you how this will materialize. We believe that our growth will include both de novo development and acquisitions, and we're already in discussions with certain existing platforms that we think overlap well with us and that can integrate into our strategic growth. In summary, looking at all these factors strengthen our core of amazing patient relationships served by our sector's leading clinicians, strengthen our balance sheet, our growth efforts, efficiency, and a smart strategic expansion into primary urgent care that together gives me confidence in our diversified growth potential in 2022 and beyond. Now Mark will provide additional details on our third quarter activities.
Thanks, Mark, and good morning, everyone. I'll begin by providing some detailed volume comparisons to 2019 to flesh out Mark's earlier comments. I'll then walk through where we stand on the number of projects we've discussed so far this year and how they flow through the income statement, and finish with our financial position as it stands today and how we're looking at our capital structure as we look forward. Compared to 2019, on a same unit basis for the quarter, our hospital volumes were up 4.4%, and office-based volumes were up 2.8%. Within hospital-based services, our NICU days were up 1.4%, pediatric intensive care was up 42%, and pediatric hospitalist volumes were up 14%.
On the office-based side, maternal fetal medicine volume was up 8.6%, while pediatric cardiology was down 9%, with this decline likely reflecting some deferrals of appointments during the quarter due to the surge in Delta cases. Turning to G&A, our overall spend in Q3 was down about $4 million sequentially. This primarily reflects sequential reductions in certain operating and legal expenses, as well as RCM savings related to our agreement with R1, which should increase further in Q4. In terms of the transition of our revenue cycle activities to R1, to date, our metrics reflect that there hasn't been any disruption in service to our practices. DSOs and cash collection activity in the third quarter were in line with our expectations and with the prior quarter.
I'll also reiterate that under the terms of our agreement, we realize near-term G&A savings, which are reflected in our current P&L, and we also expect to benefit over time from future improvements in RCM performance, yield, and revenue enhancements. During the third quarter, we also completed the support services related to the TSA arrangement attached to last year's sale of our anesthesia organization. Our Q3 G&A still reflects a comparable run rate of cost to what we were incurring previously and we'll refine our views on an appropriate G&A level as we finish up our budgeting for 2022. You'll see that our reimbursement for those costs in Q3, which we record in our investment and other income line, declined substantially. It was half a million dollars this quarter versus about $9 million in the year ago period.
However, the strength of our core operations more than offset this decline, and in fact enabled both year-over-year and sequential growth in adjusted EBITDA. Finally, our transformational and restructuring expense in Q3 was $4.2 million, which predominantly reflects the cost of terminating other third-party agreements as part of the R1 transition. All told, within our updated internal expectation of 2021 adjusted EBITDA, we expect our fourth quarter G&A expense to be flat to down compared to third quarter, based largely on our expectation of RCM cost savings. This reinforces our prior view that the second half G&A will be lower than the $137 million we incurred in the first half of the year. Turning to our capital structure. We continued to improve our leverage position in the third quarter.
We generated $67 million of operating cash flow, which exceeded the investments we made in CapEx, acquisitions, and our Brave Care transaction. Based on 9/30 debt of $642 million in our 2021 adjusted EBITDA expectation, net leverage stands at about 2.5x , and we would anticipate that to decline by year-end based on fourth quarter cash flows. During the quarter, we also reduced our revolving credit facility capacity from $1.2 billion to $600 million, all of which is currently available to us with no remaining covenant restrictions. As most of you know, we have $1 billion in outstanding 6.25% coupon senior notes due 2027, making our debt structure fairly inefficient given our cash position and current net leverage.
Given that our notes are callable in January of 2022, we will be reviewing the best debt structure for our size, profitability, and growth and capital plans. While we haven't made any determinations yet, I anticipate that we'll be able to achieve meaningful savings and interest expense once we determine the most appropriate capital stack for our business as it exists today and in the foreseeable future. With that, now I'll turn the call back over to Mark.
Thanks, Marc. Operator, we're now ready for questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press one and then zero on your touchtone phone. You will hear a tone indicating that you've been placed in queue. If you wish to remove yourself from queue, you may press the same one-zero command. Once again, one and then zero for your questions or comments. Our first question will come from the line of Pito Chickering with Deutsche Bank, and your line is open.
Hey, good morning, guys. Just take my questions. The first one for you on margins. You know, so far you guys have done an excellent job managing costs through a very volatile time period. I'm not asking for 2022 guidance at this point, but conceptually, can you give us some color on margin expansion? The top line grows, you know, 3%-6%. How much leverage can you get on different revenue growth?
Hey, Pito, how are you? It's Marc Richards. You know, you'll see some very nominal margin expansion, particularly in adjusted EBITDA quarter-over-quarter sequentially. I'd point out a couple of things in that. I think we've done a relatively impressive job in maintaining our overall labor costs, which obviously is a concern across the industry at this point in time, with a lot of focus specifically on our locum contract labor and variable costs. If you kinda dig into where we stand on that, we're basically flat year-over-year, both sequentially and looking back into 2019. With respect to that margin expansion and the concerns relative to labor growth, I think we've done a really good job of managing that, particularly the variable component.
With continued rate growth on the top line, we'd expect that mild incremental increase, as we continue to manage our labor pool.
Great. Sort of same question, just, you know, again, as revenues keep growing here from a SG&A perspective, like you talked about RCM savings in fourth quarter, you know, how much G&A leverage can we get sort of in the out years? Kinda what percent of your G&A is fixed versus variable? Just wanna get a sense for how much margin leverage we can get as revenues continue to grow.
Well, as part of our RCM outsourcing arrangement, we have effectively flipped a fixed cost structure in our revenue collection cycle to a variable cost structure. So that significant component of our overhead, that you know as of this quarter has effectively turned from a fixed component to a variable component. However, that variable component is specific to RCM and the rest of our G&A, as I've touched on some of our initiatives throughout the year will continue to bleed into our overall G&A costs, but most of that continues to remain relatively fixed.
It's Mark. Go ahead, Dan.
I would say aside from RCM, we think that, you know, we are largely a fixed cost operation, and we are looking at ways and continuing to chip away at our costs. I think that there will be leverage as our revenue grows.
Perfect. Just one more question on wage inflation. That's obviously been a hot topic sort of, you know, this quarter for healthcare service companies. Can you refresh us sort of, you know, what percentage of your contracts with doctors are up each year? What are you seeing on renewals from those? Just, you know, is it fair to think that Mednax should face very little wage inflation going forward versus, you know, a lot of your peers simply because of the timeless contracts? Thanks so much.
Yeah. Hey, it's Charlie. I'll just give one observation there for you to keep in mind. You know, within the pediatrics organization, exists probably a good several hundred individual group practices. That makes our unit size fairly small, related to, you know, any instances of contract renewals and the like. Additionally, given that, you know, many of the practices within pediatrics have been affiliated with the organization for a very long period of time, that kinda makes the renewal cycle more of an evergreen cycle. By the same token, within that organization, particularly for longer-standing practices, there exists a fairly meaningful variable compensation component within the bonus pool.
We really look at less a function of a renewal cycle and more a function of the underlying financial performance of individual practices as it affects compensation trends. I hope that's helpful.
Great. Thanks so much.
Thank you. Next, we'll go to the line of Kevin Fischbeck with Bank of America. One moment. Your line is open.
Great. Thanks. I was wondering if you could comment a little bit on the surprise billing regulation that came out. Wanted to, I guess, understand your views about whether it would have any impact when it goes into effect, I guess, initially, if there's any out-of-network revenue that might see compression. Then, two, you know, whether there are any concerns about whether it impacts the long-term negotiating dynamic between, you know, you and managed care and your ability to get sufficient rate updates.
Sure. It's Mark. I'll make a few comments about that. First, remind people that we have publicly spoken against the practice of surprise billing, and we were fully supportive of the legislation, which was very bipartisan in a not so bipartisan world. The ruling that came out on September thirtieth is an interim rule, and I know that there's an enormous amount of pushback against it, which I think will inform a lot of people's opinions before it's final. You know, I comment that the biggest effect that this ruling would have if it goes into effect, it'll take direct aim at rural care and people who are already traditionally underserved.
In our view, it'll have the perverse effect of targeting the very patients that the surprise billing legislation sought to protect. We think that's very unfortunate. As far as we're concerned, look, we're in a strong position. We are overwhelmingly in-network. We have very good relationships with our payers. If we have to make adjustments because of a legislative change or a ruling change, then we'll adjust as necessary. I'm not projecting you know any long-term effect from this. You know, I hope that the problems with the ruling are ironed out before there's a final rule.
Okay. You don't see any reason why this reg, if it goes into effect January 1 as written, would impact your guidance for $270+ next year, or-
Well, again.
Okay.
No, I
Got it.
I'm confident in our 270+ number or I wouldn't have said it. I think that it's hard for me to speculate what the ruling will finally be and what the effect of it will be. I'm confident that in 2022 we'll be fine. If we have to make adjustments for the future, we'll make adjustments for the future.
All right. Great. That's really helpful. You guys put out a press release a few weeks ago about how COVID was impacting the birth rate and mothers were coming down with COVID. I wanted to see if you could maybe break out for us what impact, if any, that had in the quarter and how you think about as COVID wanes, how that might have an impact on your business over the next few quarters.
Hey, Kevin, it's Charles. I'll give a couple thoughts and maybe Matt can weigh in as well. You know, our clinicians, and I shouldn't be the one speaking for them, but nonetheless, our clinicians have voiced a lot of concerns throughout this year related to the potential impact to children and expecting mothers, based on COVID, particularly because on the pediatric side, children do not have the vaccine available to them. As we talked about, you know, last quarter, you know, we had already seen an impact to patient volumes more related to children coming out of isolation, and contracting respiratory ailments and the like and needing to go in.
As you can see in our numbers for the quarter, you know, those areas that would be impacted were impacted in the PICU, on the peds floor and the like. It's harder to tease out on the maternal-fetal medicine side, the rationale for referrals to an MFM. That's always a very difficult thing to tease out. Wouldn't be too surprised if there was some increased referral pattern into MFMs related to expecting mothers with COVID. We believe that some of the softness in pediatric cardiology volumes probably reflects the deferral of appointments that are regular appointments, but people chose to put off.
Okay. Maybe just to touch on that point there. I guess we're always trying to figure out, you know, you mentioned, you know, that revenue is back above 2019. Do you feel like core volumes, have you excluded any benefit? Sounds like some businesses benefited, some businesses got impacted negatively. Do you believe that core volume, if COVID wasn't there, and core revenue was above 2019 or was there a net positive or negative?
I mean, I'll answer it very simply. The simple answer is that the predominant impact to our patient volumes through 2020 related to COVID was negative. As we look where we are today, it looks like that has largely passed.
Look, we see across the board in each of our lines improvements. We also, at the same time, you know, we've changed so many facets of our operating protocols in the company that it's hard to tease out where the gains are from. I think there's, you know, as we've discussed a strong drive for increased patient access, our focus, our managerial focus, I think has made everything much more cohesive. Coordination among subspecialties that I referred to earlier is greatly improved over where it was. You know, that along with an improving environment, I think all contribute to what we've seen, which is why we're not gonna break out because we think it's impossible, you know, what the sole driver is.
Okay, great. Thank you.
Thank you. Our next question will come from the line of Matt Borsch with BMO Capital Markets. Your line is open.
Good morning. This is Arianna Brady on for Matt Borsch. Could you provide us with potential headwinds and tailwinds that you're anticipating in 2022? Can we expect to receive any formal guidance from you in the near future in addition to that 270+ EBITDA figure you provided us with today?
Well, headwinds and tailwinds are probably, you know, nothing more than we've seen in the past. You know, somebody asked about surprise legislation that could enter into the mix. We don't know that now. If there's a change in the birth rate or something else happens, something external happens. Look, I think we are today a very focused and expanding company and focused on women's and children's health, which is a vital area to be in. We enjoy good relationships with our payers. We have great relationships with our hospital systems, so we feel comfortable with how we're working and how we're running.
Mark, we've discussed changes like in RCM to make us more efficient and better at what we do internally. You know, we're operating optimistically and carefully. No change there. As for guidance, as I mentioned in my comments, as we go through the budgeting process and we can be more precise about where we'll be in 2022, we'll share that with you just the same way we've updated our thoughts about quarter by quarter this year.
Great. Thank you.
Thank you. Our next question comes from the line of Ryan Daniels with William Blair. Your line is open.
Hey, guys. Nick speaking in for Ryan. Thanks for taking my questions. I guess so, you know, you mentioned it too, but the tightness in the labor market has been a pretty big trend kind of for providers in the space. I was wondering, and for a couple of other providers, we've seen, you know, kind of things like turnover kind of increasing, earlier retirements happening. I'm wondering if you guys have experienced any sort of that pressure, or if you kind of, you know, expect that at all to take place in the future.
I'm responsible for the good things. Mack's responsible for the turnover, so I'll let him talk about that. Mack, can you describe?
Sure.
What it's like day-to-day these days?
Sure. You know, I think for the specialties we're in, there's always a limited number of clinicians available for that. That being said, Mark referred to our contract labor. If you look at our need for external contract labor, that's decreased sequentially over the last three years. I think it speaks to the focus we have on recruiting the clinicians that we need. It is a tight labor market, but it always is. I think we're being successful in recruiting the physicians that we need to staff the programs that we have that are ongoing and to staff our growth.
Okay, great. Thanks. Kind of as a follow-up, like for your $270 EBITDA target for 2022, is that assuming kind of sign-on bonuses and salaries and benefits for new hires, kind of all those assumptions stay the same as they are now for the most part?
Yeah. It assumes everything we're aware of.
Okay, great. Thanks. I guess just last one, the uptick in salaries and benefits, quarter-over-quarter, is that effectively just a function of, you know, more NICU days and then, a little bit higher variable pay, or I guess, what's the main driver there?
That is the main driver. Yeah.
Gotcha. Okay. Thanks for taking the question. Have a good one.
Thank you. Our next question comes from the line of Whit Mayo with SVB Leerink, and your line is open.
First question, just the increase in AR in the quarter. It's up about $20 million sequentially a couple days. I heard you say that it was in line with your internal expectations, but what is that increase attributed to? Is this just the RCM conversion?
Yeah. I mean, a lot of this. Hey, Whit, it's Marc Richards. A lot of this really is just timing from period to period. Our focus through this RCM transition has been to make sure our revenue cycle, both on the billing and the cash collection side, doesn't miss a beat. That's really where we are with a modest uptick of $20 million in AR. Some of it's just timing related, that will turn around. Of course, there's with a significant transition like we're going through right now, there will be a little bit of noise. We view that all once again as just timing.
Yeah. Keep in mind, we've got a sequential, you know, increase in total revenue and activity.
Right
from Q2 to Q3 normally.
Yep. Yep. No. I get it. Maybe just back to the surprise billing for a second. I mean, it's. We see the movement in the market, right, where payers are proactively terminating contracts. I just wanna be clear that, you know, have you seen any disruption with contract terminations? Is there anything that we should kinda be aware of? Just maybe internally, how do you manage something like this in the event that there is a unilateral termination from any individual payer?
It's sort of par for the course that we negotiate with payers, and when contracts are coming up, there'll be discussions about rates. It's not surprising for us to for people to say, you know, "We want to adjust rates," and that leads to a negotiation. Have we seen any major change in that? No. We have you know, also the interim final rule is not in effect, and it may not be in effect. A lot of the answer to your question, you know, remains to be seen. How do we adjust? Like any company, you adjust to external factors. The history of healthcare includes periodic legislative changes that affect the way you do business.
If you're a good manager and you have the strength to pivot, you pivot. You know, if something, no pun intended, surprising comes at us, I'm very confident that we'll adjust accordingly. My concern is mostly for the patients we serve because, you know, I can brag, it wasn't my doing, but over the 40+ years of Mednax, we take care of patients regardless of their ability to pay. This is really gonna hit hard in areas that have already been underserved. I think, I'm sure payers and legislators and the executive branch will recognize that there could be unintended consequences to patients from it. Look, I think it's par for the course.
Payers would always like to pay less, I suppose. You know, we provide a vital service. We're a leader in that service. We are the largest research organization in neonatology. It's publicly available research. We don't embargo it for our own purposes. We do it because it elevates healthcare. I think that most payers would want us in their network and want us to be robust. You know, we have the best clinicians out there, and you know, two of them are sitting with me today. That's my answer.
Okay. No. That, that's helpful. Thanks, guys. Nice job.
Thanks very much.
Thank you. Next, we'll go to the line of A.J. Rice with Credit Suisse. Your line is open.
Hi, everybody. A couple quick questions here. First, just to put a finer point on the labor questions and comments. I mean, it seems like to me that the tightness in labor pool is mainly in the nursing side, and not so much on the doctor side. Would you agree with that? Do you have much exposure to nursing? I don't really think you do.
We have, you know, a fairly sizable population of advanced practitioners, particularly within our and supporting our neonatology practices. You know, there is in that sense a nursing component, although they are advanced practitioners or neonatal nurse practitioners. You know, in some of the comments that Marc Richards provided around variable expense, you know, being fairly essentially flat over the last three years, that includes any definition we would have of agency labor, locums for physicians or temporary practitioners, as well as on call and other variable components. It is captured in what we referenced before, AJ.
Okay. On the Brave Care and the rollout of pediatric urgent care centers, can you comment a little bit on how much, if any, upfront startup costs there are associated with that? Then time to break even, time to mature margins on those clinics, if you have a view at this early juncture. Just trying to figure out is this something we should factor in as a drag in the next few years as you roll these 100 targeted facilities out, or is it something that's sort of de minimis?
Well, you know, if you think about the opening of a clinic, say if you had roughly $2 million startup costs, including early losses, and then you have a strong return on that investment, it's a very high return on investment vehicle for us because of the overhead structure that we have in place and the relationships that we already have. So, you know, I think it fits with what we do. Probably wouldn't recommend it to others. We will detail this as we go forward, but I think what you should expect is a clustered rollout in cities where we are so that that'll minimize the additional overhead that's required to do this.
As I said, now importantly, we have the people to do it, the systems to do it, and the relationships in our overall business. We think it's gonna be a very strong return vehicle, not a sidelight to what we do.
Okay. My last question in reference to, you know, as you think about the potential to refinance some outstanding debt, other things, talk about an appropriate capital structure. I guess as you're evaluating what the appropriate capital structure is, just wanna make sure I understand, what are the moving parts or variables that are still open in your mind as you're trying to formulate what the appropriate capital structure would be for the company?
Well, I mean, naturally we have outstanding debt, so you look at the cost of that debt and say, well, you know, what can we do about it? As Mark noted, and as you know, we have the debt callable in 2022, so that's a factor for us. Thinking about the expansion plans that we just outlined, if we are gonna be making acquisitions and we also are gonna be opening, you know, 100 clinics over a few years with the cash flow need for that. I think we're evaluating all the things that we're doing and trying to, you know, keep our controllable costs down.
I think, you know, early in the year we'll come back to you with more specificity about that.
Any update on the share repurchase as part of that option?
No update. We would've mentioned that. Obviously I think we're good stewards of our financial capital. As you see us, you know, being quarter by quarter, you know, steady state, that can enable, you know, I think, smart choices. We're on it.
Okay, great. Thanks a lot.
Thank you.
Thank you. Our next question comes from the line of Ralph Giacobbe with Citi, and your line is open.
Great. Thanks. This is Jason Cassorla on for Ralph Giacobbe this morning. Just wanna go back to your comments around the 2021, the new $250 floor. I guess, you know, if we looked at the implied 4Q with that new floor, it looks like it's a sequential drop in EBITDA. I guess, could you discuss what's driving that? Relative to the 2022 discussion around the $290 or $270 floor, it looks like if we were to run-rate 3Q EBITDA, it'd be more of like a $290 number. Just trying to understand if you have thoughts around that and maybe if the 4Q implied EBITDA is a more correct run-rate on a go-forward basis.
Yeah. Look, I do have thoughts about that. You know, first of all, I don't think it's analytically right to annualize our third quarter numbers, you know, to necessarily get to that $294, which I saw you guys had put out there. We are confident that we were confident that we would do above $240. The business has improved more than we expected for all the reasons that we've discussed before. That gives us confidence that the year will end up above $250, and we think that's the, that's our right number if we had our expectations were different, I'd have to say.
As far as next year is concerned, I think we have said that we think we have the earnings power to get to $2.70, and now what we're saying is we think we'll. It's our confidence level is very high that we will not only get to it, we'll exceed it. I don't see today the analytical grounding to call out a number, you know, above that. As I mentioned in my remarks, we're in the middle of our budgeting process. We'll look at the components of that, how quickly we think acquisitions will fall into place and what we'll do with our other financing costs rather, and then we'll update you.
Just one observation, Jason. You know, keep in mind, just from a seasonal standpoint, our third quarter, based on our business tends to be our strongest quarter for both revenue and EBITDA just based on largely on the seasonality of our trends. You know, as we look at the third quarter in a vacuum transitioning to Q4, we would normally expect something slightly lower from Q3 to Q4.
Got it. Okay, thanks. That's really helpful. I guess just payer mix in the quarter or year to date actually, you've seen improvement I guess over 2020 each of the three quarters, but is there any way to discuss payer mix trends I guess relative to 2019 at this point? Then, you know, should we think about that as an improvement in how we're thinking about improvements in payer mix into 2022, and in the go-forward basis? Thanks.
Yeah, I'll take a shot at it and Charlie can add. Look, I think we're seeing a trend in our payer mix. To relate it directly to 2019 we think is a little bit difficult. We came out of 2020. We saw the changes in 2020. As COVID has subsided, our business has changed. We've grown in a lot of ways, so I think you know, the most instructive is to look at our current trend. It'd be hard to go back to 2019 and assume something different.
Yeah. You know, as I think you know, our payer mix is largely binary. On the government side, it's predominantly Medicaid, and the rest remains on the managed care and commercial side. You know, as such, over a fairly long period of time, leaving aside quarter to quarter, our payer mix by volume tends to be fairly stable, and over longer periods of time may be impacted by economic trends and employment trends more than anything else related to aging or demographics or things you might look at on the Medicare side. So it tends to be stable. It had been gradually improving prior to 2020, largely probably based on overall employment growth. What we're seeing so far in 2021 is really a reversion to that pre-2020 trend.
We're pleased with that, and it does suggest to us that, you know, we continue to have a fairly stable mix.
Got it. All right. Thank you.
Thank you. At this time, I'm showing no further questions in queue. Please continue.
Great. Well, thank you, operator. Thank you, everybody, for joining us this morning, and we appreciate your continued support. Have a great day.
Thank you. Ladies and gentlemen, that does conclude your conference call for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.