RadNet, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparison is the three months ended March 31, 2020. RadNet operated 346 outpatient imaging centers in seven states, versus 335 a year earlier.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Total service revenue | $315.3 million | $281.6 million |
| Total revenue including provider relief funding | $321.6 million | $281.6 million |
| Income (loss) from operations | $17.7 million | $(8.8) million |
| Net income (loss) attributable to RadNet common stockholders | $9.5 million | $(16.4) million |
| Diluted earnings (loss) per share | $0.18 | $(0.33) |
| Adjusted EBITDA, a non-GAAP measure | $45.5 million | $20.4 million |
| Cash provided by operating activities | $28.1 million | $40.9 million |
Service revenue increased 12.0%; revenue including $6.2 million of provider relief funding increased 14.2%. Operating margin was 5.6% of service revenue, compared with negative 3.1% a year earlier; common-stockholder net margin was 3.0%, compared with negative 5.8%. The filing does not present a gross-profit figure.
Cash and cash equivalents were $31.1 million at quarter-end, down from $102.0 million at December 31, 2020. Cash used in investing was $87.3 million, including $57.1 million for acquisitions and $30.4 million for property and equipment. Cash used in financing was $11.7 million. Operating cash flow was lower year over year; the prior-year period benefited from $39.5 million of CMS advances.
At March 31, 2021, term-loan debt had a face value of $651.6 million and a carrying value of $642.9 million after unamortized discounts. No amounts were drawn on the Barclays or SunTrust revolvers. Available capacity was $187.1 million on the Barclays facility after letters of credit and $30.0 million on the SunTrust facility. The company reported compliance with its debt covenants. Working capital, excluding current operating lease liabilities, was negative $109.7 million.
Changes, drivers, and unusual items
- Same-center procedure volumes increased 5.1% year over year. Mammography procedures rose 15.1%, and PET and CT procedures combined rose 8.7%. Management attributed growth to recovering volumes, contractual rate increases, and investments in AI-supported patient follow-up.
- Same-center revenue increased 9.6%. The filing attributes additional reported growth to acquired centers and provider relief funding. Cost of operations increased 5.6%, slower than service revenue; management cited vendor savings, partially offset by higher staffing and medical-supply costs.
- Q1 2021 results included $6.2 million of Provider Relief Fund revenue. The company had received $32.5 million in general-distribution relief funding through March 31, 2021. HHS may audit eligibility and seek repayment of amounts received in error or exceeding eligible lost revenue or expenses.
- A noncash $11.2 million gain from changes in the fair value of ineffective interest-rate swaps benefited reported pretax income. Reported interest expense was $12.8 million, but management said adjusted interest expense, excluding derivative-related expense and amortization, declined 20.6% to $8.0 million.
- RadNet acquired assets of ten New York City-area entities for $57.1 million during the quarter. Goodwill increased by $29.6 million from acquisitions. A new California joint venture commenced operations in January, with RadNet holding a 60% economic interest.
Liquidity, outlook, and risks
On April 23, 2021, after quarter-end, RadNet refinanced its Barclays facilities. The new agreement provides $725.0 million of senior secured term loans and a $195.0 million revolver, with maturities in 2028 and 2026, respectively. It reduced scheduled quarterly term-loan payments from approximately $9.7 million to $1.8 million and provided approximately $102.0 million to the balance sheet after refinancing and related costs. RadNet stated that existing resources, expected operating cash flow, and borrowing capacity should be sufficient for operations over the next twelve months and the foreseeable future. It also reported approximately $5.0 million of acquisition consideration for transactions completed in April and May.
Management described procedure volumes as recovering after the 2020 pandemic downturn: they reached about 90% of pre-pandemic pace in Q3 2020 and remained at that level in Q4. Management expected cost-saving measures to benefit 2021 results if volumes continued recovering. The filing provides no specific numerical revenue, earnings, or volume guidance.
Key risks include renewed or prolonged COVID-19 effects on procedure volumes, staffing, payor mix, collections, and costs; the company’s substantial debt and dependence on covenant-compliant borrowing; integration and valuation of acquisitions; and uncertainty in reimbursement and patient collections. The company also noted ordinary-course legal and regulatory matters, but did not expect pending proceedings to have a material adverse effect based on information then available. It cautioned that outcomes remain uncertain.
Investor verification points
- Verify whether same-center procedure growth and the recovery from pandemic-related disruptions continued after Q1.
- Assess the sustainability of earnings and cash flow excluding provider relief funding and the noncash swap valuation gain.
- Review the completed refinancing’s final terms, use of proceeds, debt-service burden, and covenant headroom.
- Track cash conversion, acquisition spending, and integration results for the New York-area centers and subsequent acquisitions.
- Monitor eligibility and potential repayment exposure related to Provider Relief Fund amounts, as well as collection trends and payor mix.