RadNet, Inc. — Q1 2019 Form 10-Q
Reporting period: Three months ended March 31, 2019; comparisons are with Q1 2018 unless noted. RadNet operated 335 outpatient diagnostic imaging centers in six states, versus 300 a year earlier. Results are unaudited.
Financial performance
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Total revenue | $271.5 million | $231.4 million | Up 17.4% |
| Operating income (loss) | $7.3 million | ($0.9 million) | Improved |
| Operating margin | 2.7% | (0.4%) | Improved |
| Net loss attributable to RadNet common stockholders | ($3.7 million) | ($7.3 million) | Loss narrowed |
| Basic and diluted loss per share | ($0.08) | ($0.15) | Improved |
| Adjusted EBITDA (non-GAAP) | $33.1 million | $21.0 million | Up |
| Cash from operating activities | $26.9 million | $24.3 million | Up |
| Cash used in investing activities | $35.2 million | $29.8 million | Use increased |
Revenue growth included acquired or divested centers: same-center revenue increased 3.2%, driven by higher MRI and CT volumes and improved equipment utilization. Q1 service-fee revenue was $242.7 million and capitation revenue was $28.9 million. Interest expense rose 22.5% to $12.3 million, primarily reflecting assumed New Jersey Imaging Network debt and higher interest rates. Equity earnings from unconsolidated joint ventures declined to $1.9 million from $3.0 million.
Cash, debt and liquidity
- Cash was $10.4 million at March 31, 2019. Accounts receivable was $156.8 million.
- Operating cash flow was $26.9 million; property and equipment purchases were $32.9 million, and imaging-facility acquisitions used $3.0 million. Cash from operations less total investing cash outflow was negative $8.3 million.
- Total debt obligations were $664.8 million, including $41.0 million drawn on the Barclays revolver; carrying value of senior secured term loans was $623.1 million. The company reported $69.6 million of remaining Barclays revolver availability after letters of credit and no borrowings on its $30.0 million SunTrust revolver.
- Operating lease liabilities totaled $439.9 million and finance lease liabilities $10.6 million. Working capital, excluding current operating lease liabilities, was negative $19.9 million.
- RadNet reported compliance with all credit-facility covenants at quarter-end. Management said operating cash flow, cash and available credit were expected to meet liquidity needs, while noting that future requirements and financing access depend on conditions beyond its control.
Changes, outlook and notable items
- Operating expenses rose 13.8%, slower than revenue growth. Management cited same-center savings in medical supplies and other operating costs, alongside higher staffing, professional reading fees and rent.
- Q1 is typically the company’s lowest-volume quarter because of winter weather in northeastern markets and high-deductible plan resets. Severe weather weighed significantly on Q1 2018 results; management said lost imaging appointments generally are not recovered in later periods.
- RadNet adopted the new lease accounting standard on January 1, 2019. It recognized $455.5 million of operating lease liabilities and $419.0 million of operating right-of-use assets at adoption. The change materially affected the balance sheet but did not materially affect income or cash flows; prior-year comparisons were not restated.
- In Q1, RadNet acquired a West Valley, California imaging center for $3.0 million, acquired the membership interest of Hudson Valley Radiology Associates using $6.0 million of stock plus contingent consideration, and formed a controlling Ventura County joint venture with Dignity Health.
- After quarter-end, RadNet completed acquisitions for $19.3 million and $4.5 million. On April 18, 2019, it raised $100.0 million in incremental First Lien term loans, added $20.0 million of Barclays revolver capacity and extended the revolver maturity to July 2023. The filing says proceeds repaid revolver borrowings and transaction costs; scheduled quarterly term-loan payments increased to about $9.7 million.
- No formal numerical revenue or earnings guidance is provided in the supplied filing text. Management’s forward-looking statements identify acquisition integration, growth, cost savings, financing and debt repayment as areas subject to uncertainty.
- Interest-rate exposure remains material: the company estimated that a 1% rate increase would add about $0.8 million in annual interest expense on specified Barclays borrowings after hedges, about $0.5 million on prime-rate debt and about $0.6 million on the SunTrust term loan. Interest-rate caps were due to mature in September and October 2020.
- Management reported no identified goodwill or long-lived-asset impairment indicators through March 31, 2019. Ordinary-course litigation was disclosed, with no expected material adverse impact from current cases according to management.
Most important facts for investors to verify
- How much of the 17.4% revenue growth reflects acquisitions versus sustainable same-center growth, and whether volume and utilization gains continue.
- Whether operating cash flow can fund capital spending, acquisitions and debt service without continued reliance on borrowing; cash was only $10.4 million at quarter-end.
- Debt, interest costs, covenant headroom and the impact of the April 2019 incremental borrowing and higher scheduled principal payments.
- The cash-flow and balance-sheet implications of substantial lease commitments, including $19.7 million of operating leases not yet commenced at quarter-end.
- Collection trends in accounts receivable and the remaining $17.8 million to be collected under prior factoring agreements.
- Integration and performance of recent acquisitions and joint ventures, alongside reimbursement, seasonality and interest-rate risks.