Hello, and thank you for standing by. At this time, I would like to welcome everyone to the Q1 2026 Pediatrix Medical Group Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, just press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference over to Mary Ann E. Moore, General Counsel. You may begin.
Thank you, operator, and good morning. Certain statements and information during this conference call may be deemed to be forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on assumptions and assessments made by Pediatrics 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 Pediatrics 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 filings with the SEC, 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 measures to the most comparable GAAP measures can be found in this morning's press release, our quarterly and annual reports, and on our website at www.pediatrix.com. With that, I will turn the call over to Mark Ordan, our Chief Executive Officer.
Thank you, Mary Ann, and good morning, everyone. Also with me today is Kasandra Rossi, our Chief Financial Officer. We were pleased with our strong first quarter results, driven by top-line growth with adjusted EBITDA coming in at $58 million. We saw strong pricing that outpaced a modest decline in same unit volumes across our service lines. Although recent volume results don't show a trend. Our payer mix continues to be strong, and we are comfortable with our decision to not have a headwind estimate for the potential effect of the tax subsidy lapse. We know that major hospital systems have seen a decline in patient volume and revenue, and we may see that in the future. For now, this area is strong for us, and we will continue to report on it as the year continues.
Given the uncertainty of whether we will experience this headwind, and since it's still early in the year, we are reaffirming our full 2026 outlook of $280 million-$300 million in adjusted EBITDA. Kasandra will now provide some additional details, and I'll be back shortly.
Thanks, Mark, and good morning, everyone. Our consolidated revenue increase was driven by same unit growth of just under 3% and net non-same unit activity of about $6 million, including growth from recent acquisitions and organic growth, which was partially offset by decreases in revenue from our portfolio restructuring. Pricing growth of 4% was driven by solid RCM cash collections, increases in contract administrative fees, favorable payer mix, and increased patient acuity in neonatology. While we saw volume declines across our service lines during the quarter, including NICU days that were down about 1%. Practice level SW&B expenses increased by $9 million year-over-year, primarily reflecting same unit increases in clinical salary expense. Net salary growth for the first quarter was in line with the ranges we have seen over the past 18 months that have averaged around 3%.
Our G&A expense increased slightly year-over-year, driven by a modest increase in salary and incentive compensation expense, partially offset by decreases in professional services and IT expenses. D&A expense increased slightly year-over-year, resulting from higher same unit amortization expense and D&A related to our recent acquisitions. Other non-operating expense decreased year-over-year, driven by a decrease in interest expense on modestly lower average borrowing at slightly lower rates. Moving on to cash flow, as a reminder, we are a user of cash in the first quarter of each year as we pay out incentive compensation and other benefits, namely 401 matching contributions.
We used $130 million in operating cash flow in the first quarter compared to $116 million in the prior year, with the differential related to decreases in cash flow from AP and accrued expenses, primarily related to incentive compensation payments and decreases in cash flow from AR, partially offset by higher earnings. We also deployed $21 million of capital during the quarter to buy 1 million shares of our stock, leaving us with 82 million shares outstanding. We ended the quarter with cash of just over $200 million and net debt of just over $385 million. This reflects net leverage of just over 1.3x using the midpoint of our updated adjusted EBITDA outlook for 2026.
Our accounts receivable DSO at March 31st of 42.5 days were down slightly from December 31st, but were down over five days year-over-year, driven by improved cash collections at our existing units. We are maintaining our previously issued outlook range for the full year of $280 million-$300 million in adjusted EBITDA. While our first quarter results represented about 20% of that annual expected range, we do expect that adjusted EBITDA for the remaining three quarters will be fairly ratable. I'll now turn the call back over to Mark Ordan.
Thank you, Kasandra. I've pounded the drum over the last few quarters that investments in care quality are always wise. Hospital systems want a partner who will outperform, our patients, of course, deserve nothing less. In the first quarter, we announced that two extraordinary physician leaders from the top of academic medicine are joining Pediatrix. Dr. James Barry as Chief Clinical Quality and Transformation Officer and Dr. Jochen Profit as Chief Quality Advisor. James is nationally recognized for his contributions in neonatal critical care, artificial intelligence in medicine, patient safety, and healthcare leadership. He has co-founded two national organizations. One is a learning collaborative to neonatologists, data scientists, and clinical informationists to study the application of artificial intelligence in neonatal critical care and pediatric medicine.
The other is the Clinical Leaders Group of the American Academy of Pediatrics, which is a training, education, and collaboration resource for medical and quality directors of NICUs in the U.S. Dr. Barry joins Pediatrix from UCHealth, where he was chair of newborn governance, as well as a professor of pediatrics neonatology at the University of Colorado School of Medicine. Obviously, Jim, who is an M.D. and an M.B.A., brings a full package of quality, data, AI, and business acumen. Jochen Profit brings nearly two decades of leadership in perinatal quality improvement as chair and principal investigator of the California Perinatal and Maternal Quality Care Collaboratives. He is a professor of pediatrics at Stanford Medicine.
These individuals will respectively help lead and advise a team of extraordinary clinicians to continue to raise the bar on quality to analyzing clinical data, reducing care variation, and improving patient outcomes using evidence-based strategies. Beyond the benefit to our core that our quality focus brings, our team is actively engaged in many opportunities to expand what we do. We have more hospital partnerships than any other organization in our core fields, which provides great opportunities in neonatology, maternal fetal medicine, OB hospitalist, and pediatric intensive care. In addition to our leading in-house presence, we see a major opportunity to expand our teleservices and obstetrics presence nationwide. We believe that an organization like ours will continue to outperform if we stay laser-focused on care quality that is data-based. We see great opportunity to leverage our leading footprint, both through our data and through tele and remote services.
It is that insistence on quality that binds us to our patients and hospital partners. We have the ability to use our strong balance sheet where there are opportunities to expand our core and emerging areas. On our last call, I spoke about a new program to integrate share price-based awards as part of our compensation program. We successfully rolled this out in last year's fourth quarter and in Q1 of this year. Included in this was welcoming 45 clinician leaders to our inaugural class of Pediatrix partners. This group is already actively helping us expand on the work we are known for by combining their superb clinical acumen with the spirit of ownership and alignment. We believe this is unique in our field. So is Pediatrix. We can already see the tangible positives of this new initiative.
As a matter of fact, Doctors Profit and Barry are joining us because of the really hard work that some of our doctors did to look for the really two top people in the field to join us, and I thank them for that. I'll close by speaking about our General Counsel and CAO, Mary Ann Moore. In our filing this morning, we announced that Mary Ann will be leaving her role and retiring before the end of the year. In 20 years with Pediatrix, Mary Ann has and continues to play a very important role in many areas of our operations, from legal administrative to overall supervision and guidance. Mary Ann is a trusted colleague and advisor to the whole company and certainly to me and our board of directors. We will promptly begin a new search for a new general counsel.
Operator, let's open the call for questions.
We will now begin the question-and-answer session. If you would like to ask a question at this time, simply press star followed by one on your telephone keypad. Our first question comes from the line of Ryan Daniels with William Blair. Ryan, please go ahead.
Hello, this is actually Matthew Mardula on for Ryan. Thank you for taking the questions. When I'm looking at pricing above 4%, are there any potential headwinds or impacts that we should be aware of or maybe that you have internally that could reduce the trajectory of this growth going forward? I know you a little bit touched on the tax subsidies, but any other details there? Are you still expecting pricing to be flat for the rest of the year, given the Q1 results? If not, just how are you thinking about pricing for the rest of the year?
Sure. On the pricing components, you know, we've talked about really the same four factors that have driven pricing over the past several quarters. You know, the first one of those is our RCM cash collections. We mentioned in 2025 that we had almost kind of a hockey stick effect for those RCM cash collection impacts coming through pricing. We would expect the first half of the year to still be strong. I think it'll start to lap, you know, as we move into the second half. The other three components that have driven, you know, positive pricing are contract revenue. That has continued to be strong. We don't know that that will continue at this pace.
Right now, you know, we know hospitals are facing, you know, pressures in that area, but it continues to be strong for us. The third item that we always talk about is payer mix, and I know you touched on the tax subsidies. That's an unknown for us. You know, that has continued to be an area of strength for us that has flowed through pricing. The final one, of course, is acuity. You know, we've seen really strong acuity primarily in neonatology. These four factors, you know, have contributed to the last several quarters. Of course, coming in strong at over 4%, we would expect that to tick down a bit as we move through the year. I don't know of any other headwinds.
Great. Perfect. Thank you for that. I do wanna talk about how the last two kind of quarters we've seen declining volume trends. I know last quarter was more because of the strong comp, any thoughts on the continued decrease in volume in NICU days? I know it's difficult to, you know, to pinpoint a reason what is causing this, just how are you thinking about volume going forward and maybe the potential improvements of it?
Well, as I said in my comments, while we saw that in those two quarters, in recent results, we haven't seen a continue of that trend. We don't have any different forecast there.
Great. Thank you for that.
Now our next question comes from the line of Jack Slevin with Jefferies. Jack, please go ahead.
Hey, good morning. Appreciate the color so far. I just wanna maybe double-click on a little bit on the pricing side to understand two things. The rev cycle piece is very clear. I guess maybe just taking it from a visibility perspective, appreciate all the comments around HIX or the subsidies going away, is there anything you can share on, like, what you're seeing on the ground right now as it relates to that continued strength in payer mix, or maybe things you're hearing out of your MFM practices that might tell you a little bit about, you know, how things might be shifting around?
We started to obviously get some data points from payers and from hospitals on what they've seen from volumes or enrollments in HIX, but, just curious if there's anything, you know, additional you can share on that front. Then on the admin fee side, just if you can share, like, understand that can move around a little, but the visibility to that for the rest of the year would be really helpful. Thank you.
Well, on the first part, we know the answer is we don't see any signs of weakness. We have looked carefully by geography, by type of, line of service, and we don't. I wouldn't say we're surprised. We're pleased. We've speculated that perhaps people are making a, a cost-benefit calculation when it comes to pregnancy that keeps them in the exchanges. We don't really know, but we haven't seen any negative. We, we expected, as I said on the last call, that there would be some negative around it. As I said in my comments earlier, we know that hospital systems broadly have experienced it. In no, in no line of our business, have we seen any weakness or any trend that would suggest, any difference.
It could be that there'll be delayed effect, or it could be that we can, you know, get through this as we have been.
Okay. Got it. Very helpful. I appreciate that.
Oh, yeah.
Sorry, Jack, on the contract revenue, I think you had a question there.
Yes. Yeah, absolutely. Appreciate that, Kasandra.
Sure. You know, on that, on that line, you know, one of the things we've talked about is there are sometimes salary increases in SW&B that we will only affect if we do get support from a hospital. There is some net effect there. Even though you're seeing a bit of growth on that top line, some of that is really going to pay for some of the salary increases on the SW&B line. We do anticipate, again, continuing to have those conversations. They are getting tougher. We hope that it continues to stay strong. You know, it has been anywhere from 10% to 20% of our pricing increase, you know, for the last few quarters. We expect that as we move through the year.
If anything changes, of course, we'll let you know.
Don't misunderstand, you know, we're not. It may sound like we're a one-trick pony talking about quality, but the whole thesis of Pediatrix business is to be a partner, an irreplaceable partner to our hospital partners. If we are providing superior quality and really being the leader in our field, you know, we think it justifies the kind of payments that we get. When Kasandra's right that the environment for hospitals is tougher than it has been, which just makes us make sure that we're offering a service that hospitals provide that hospitals find very valuable and irreplaceable.
Got it. Okay. Appreciate that. Maybe I'll sneak two into one here just to wrap it on my end. The couple deals you've done, obviously not massive in terms of dollar amounts, but, you know, sizeable enough that it could have a little bit of impact. Anything you can share in terms of what you're seeing on that front? Just Kasandra, as it relates to the second quarter, are there any one-timers or things we should think about as we're looking at that for modeling purposes? Thanks.
We don't because they're not material, we don't disclose the results. I will say that the recent acquisitions we've made have done better than our initial projections, so we're very happy about that. As I said in my call, we are actively working on opportunities that we think could bear fruit and be great additions to Pediatrix.
No one-time to call out for the quarter, Jack.
No.
Awesome. Thank you both. Appreciate it.
Thank you.
Your next question comes from the line of Pito Chickering with Deutsche Bank. Pito, please go ahead.
Hey, good morning, guys. Thanks for my question. One more pricing question here. I apologize. It's just so much stronger than expectations and obviously had a wonderful impact on EBITDA here. Can you quantify how much of the pricing in the first quarter came from the cash collections, just as you think about it sort of, you know, fading or topping out in the back half of the year?
About 25%.
Okay. Okay, fair enough. Then like you said, on the admin fees, again, that's about 10%-20% as well. Assume that that was the same for this quarter?
Yeah, that was around $20 on the higher end for the quarter.
Okay. What percent of the book has admin fees at this point? Kinda how has that changed year-over-year? Once you have an admin fee, is that a one-time and then that stops increasing or does that increase at inflation levels once it's implemented?
It depends on the contract. I mean, they vary. We have, you know, we have obviously a couple thousand of those contracts.
Okay. I mean, do like, you know, if I have half of those, are those increasing at inflation and half of them, is there any ballpark in generally where, you know, where this go? You know, again, as we think about just how you're modeling.
No, I know, I know where you're going with that. As Kasandra said, we have thousands of contracts and they're all very different. If there was a trend in any way, we would call it out.
Okay, fair enough. Last question, maybe I missed this, but I think actually the lead ask question asked if you're gonna maintain pricing being flat for the year. Are you guys still maintaining that? Just looking at, you know, first quarter was 9% stack comp, and if this is stable, this could lead to pricing of a couple % this year versus guidance. I guess, are you, are you still maintaining flat pricing guidance for the year?
Yeah, I think we are. I mean, again, we do expect that RCM cash collections, which has been really strong for us, will tail off as we move through the year. We are maintaining our flat outlook. Again, it's early. If that does change as we move into the next quarter, you know, we'll update you on that. Right now we are maintaining flat.
All right, great.
You know, after last quarter, when we forecast the year at our last quarter call, people asked, "Why didn't you put in some kinda hedge?" I'd say everything indicates that things continue to be strong, so it's hard to forecast something based on a fear or a possibility if there's no data behind it.
Yeah.
Why we are.
Fair enough. You know, it's showing through. I guess that's it for me. You know, thanks for the questions and a nice job on the quarter.
Thank you.
Thank you.
There's no further question at this time. I will now turn the call back over to Mark Ordan for any closing remarks. Mark?
Thank you all very much for your support. We look forward to keeping you updated as the year unfolds. Have a great day.
That concludes today's call. You may now disconnect.